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Issue Date: November 2007

Outsourcing shifts to gainshare

1 November 2007

Although reducing total cost of ownership (TCO) is still the biggest driver of IT outsourcing, the industry has matured significantly with the shift towards gainshare models rather than focusing purely on economies of scale.
That is the view of Peter Winn, services director of JSE-listed solutions and services company Faritec, who says IT outsourcing initially revolved around the business of delivering savings through economies of scale.
Peter Winn, services director, Faritec
Peter Winn, services director, Faritec
“However, gainshare models are based on the ability of both parties to jointly share in the benefits derived,” he says. “The most effective outsourcing companies are starting to structure their contracts along these lines. Consequently, the contracts contain clearly-defined business benefits rather than a list of the services to be provided, endorsing outsourcing as a strategic component rather than merely a functional and operational service.”
As critical legal contracts with meticulously defined criteria, today’s outsourcing deals are sufficiently flexible to allow the customer and the outsourcing partner to change as the business requirements evolve. Typically, these contracts spell out gains for both parties and encompass quantitative methods of measuring benefits with a built-in mechanism for the outsourcer to pass some of the cost savings back to the customer.
Commenting on South Africa’s potential as a destination for offshore outsourcing, Winn says the country is attractive to European companies, particularly in the area of providing call centre services. Nonetheless, there is a need to compete with emerging markets such as India, China and Malaysia.
“It is unlikely that South Africa will become a major player in this space, mainly because of our exorbitant telecommunications pricing and the scarcity and cost of skills. South African companies are also dependent on favourable exchange rates to make their offerings appealing to western organisations,” Winn says.
One of the most prevalent trends in the industry is the move towards multisourcing, which involves partnering with specialists in niche areas such as applications, desktop solutions, Web hosting and security. In this scenario, an independent, blanket service provider manages the relationships between the multisource partners.
To complement its outsourcing offering, Faritec has put together a joint programme around learnerships and skills development. The learnerships are typically co-sponsored by outsource clients, and give 25 learners a year the opportunity to enhance their skills by working on IT outsourcing contracts.
“In the past, outsourcing represented an abdication of responsibility on the part of the customer,” Winn says. “Today, companies retain their IT strategy and direction internally, thereby maintaining responsibility for IT. This is why the gainshare model has become so popular and is set to pave the way for the future.”
For more information contact Tara-Anne Yates, Faritec, +27 (0)11 800 7400,

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