The market for shared services in South Africa is accelerating rapidly, growing roughly 30% per year. Global Business Services (GBS) is a particularly important area of focus. Key industries include telecoms, financial services and mining, where the key value proposition is how shared services can support variegated business operating models across Africa and drive standardization and compliance. The market for GBS in South Africa comprises roughly 15 major companies. In addition, the emphasis on IT is strong in Africa as a whole, however, BPO is still in its very early stages, led initially by call center deployment. Alida Taylor, KPMG Director, Shared Services and Outsourcing Advisory in South Africa, notes, “The most interesting and value added GBS deployments span multifunctional services, including not only finance, which is now entering the mature phase , but also supply chain and HR.”
Alida adds that: “Supply chain is especially important because many supply chain activities are run across the different boundaries in Africa and need to be managed centrally. Because South African operations often support company operations in the rest of Africa, there is a heavy emphasis on moving logistics and supplier support activities into shared service centers .”
There are two predominant operating models in South Africa. The first involves South Africa itself where GBS supports a number of functions like finance and supply chain for South African based companies. The second is where the South African operation is a subsidiary operation of a global firm and shared services support African operations as well as providing services outside of the region, on a global level. Many often shared services uses a hub and spoke model in South Africa because there are no time zone constraints.
There is a dual movement towards taking work out of South Africa to other parts of Africa while at the same time keeping delivery in South Africa as operations across Africa consolidate. While the majority are taking up shared services in South Africa to service Africa, some companies are considering three hubs: East, West and Southern Africa because of language differences in Africa. Supporting language differences partly explains the move to hub and spoke operating models. For some services, where there may not be language issues, a more consolidated approach can be taken and optimized because of time zone consistency. However, supporting specific languages, especially Portuguese and French, does tend to drive a multiple hub approach.
African governments are leading the charge in offering incentives for shared services centers especially Kenya, Ghana and South Africa. South Africa is currently positioning itself around the correct grant applications in order for shared services to service the rest of Africa. So the upside is that government is investing in the correct incentivising right to establish these in the first place. The challenge is that other regulations, like data security, need to be streamlined in order to support the process.
Alida Taylor surmises that “Security issues and language, will for the foreseeable future, drive large organisations to operate as a hub and spoke environment instead of a consolidated, single center serving all of Africa.”
Alida adds that: “One of the other big, positive changes is, once the operating model works, there’s a huge dependency on systems and making sure that information can flow between countries. Technology is a key driver supporting HR, finance and procurement services across all of Africa. The upside of this is that businesses that are engaged in this have ACHIEVED SIGNIFICANT cost savings, WHILE ALSO REAPING THE benefits OF standardisation and compliance. Savings in excess of 25% are achievable.”
Not surprisingly, the biggest challenge is a talent shortage and talent management. This problem occurs at both a management and operational level. For example, it can take up to a year to source the head of a shared service center because the requirement is a full understanding of GBS delivery, including HR, finance and supply chain. Experienced management usually comes from other existing shared services operations. Even the next layers of process ownership management present a talent challenge, especially with regards to recruiting and retaining managers and process owners with more than one functional background. Experience is often too narrowly focused. What this means is that a lot of skills are being supplemented by Indian staff. However, language and accent differences can cause service level problems.
While hard core skills are lacking it is often the more soft skills that may hold back growth. Very strict labour laws in South Africa that govern both hiring and dismissal also make flexible staffing difficult. In summary, management skills are lacking and even though the South African government has a formal training programme and incentive programmes to locate shared services centers in specific regions of country, these efforts may still not be enough to establish the talent foundation needed for sustainable growth.
Alida Taylor summarizes that: “The future for shared services and outsourcing in South Africa is that it has to be both cost and effectiveness driven. a Cost-only focus is not sustainable (a race to the bottom is counterproductive ) if it sacrifices long term effectiveness.”
GBS is not only about the next generation shared service and outsourcing but rather the integration of end-to-end processes across both service delivery models for both back and front offices. GBS is an operating model and strategic governance framework that helps organisations transform end-to-end business support services to deliver more effective solutions for both the internal and external customers of the organisation. GBS focuses on optimising the mix of human capital, service delivery models, process innovation, and technology to deliver services on an enterprise-wide, cross-functional basis, to support the business strategy.
GBS as an organisational framework integrates:
- Multiple functions and processes
- Global captive and outsourced delivery
- Consistent service governance
- Business outcome focus tied to overall company strategy and