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Investing in Africa tip three: Focus on operational delivery by outsourcing

Ericsson has scored another managed services deal

As long as its partner relationships are sound, the operator should be able to focus on what a growing number of providers see as being core to operational success (customer, financial, regulatory and brand management). It is these factors that will drive strategy and ensure that pricing levels are competitive, the distribution model is robust and efficient, and that an operator’s products and service portfolio meets the needs and demands of its customers.

Africa has seen a huge rise in the number of managed service contracts being awarded. By volume, Africa now accounts for approximately a quarter of all managed service contracts. This is likely to rise, partly due to the state of the regional market (competitive and operators need to keep a check on costs) and partly because any new investor is likely to elect to focus on its core operational deliverables, as listed above. And especially if that investor comes from the Indian sub-continent where managed service strategies are particularly popular.

The African region has many traits that will help drive the need for managed services. Firstly, as a competitive marketplace, operators want to reduce the time to market for new technologies and for launching new services. Mobile operators too are keen to show that they are more than just dumb pipes and build up their brand equity. To achieve this, operators are aware that they must focus on service enablement and value creation, rather than network management or back-office functions. With customer relationship management also imperative to striving for customer loyalty, outsourcing anything that is not seen as a core competency is becoming more appealing.

Whilst managed services is not new to Africa, an investor such as Airtel could bring with it two new nuances. Firstly, Airtel does not just outsource the management of its networks to vendors, but it has now started to outsource the management of some of its VAS to Comviva. It also has a relationship with IBM, which provides the operator with its hardware, software and IT services, enabling Airtel to improve the integration of its customer facing processes and with the operator offering a wide range of communications services (mobile, broadband, TV) facilitates its cross-selling.


Source: Intelligence Centre

The second nuance is a new model allied to managed services, and is better described as managed capacity and relates to the way Airtel works with its equipment vendor partners. It often requests for a specific amount of capacity in a particular area, which means the operator does not pay for excess capacity that is not needed, particularly relevant when expanding into rural areas and the initial expected capacity required is very low. Any investor entering the African market would do well to take this managed capacity approach to rural expansion.

Whilst the concept of managed services is well known in Africa, outsourcing is rather less common. Indeed, the world’s main global outsourcing hubs tend to be in India, the Philippines or Eastern Europe, but is there perhaps an opportunity for an African market to become such a hub? Perhaps, given that wages are increasing in these hubs, and in the case of the Philippines and Eastern Europe, there is a risk that the top talent is leaving to enter new markets.  It is interesting therefore to see that the Kenyan government is putting a number of new initiatives together to create an alternative global outsourcing hub.  This would help the model grow across the region.

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One comment

  1. Andrew Gavin 31/03/2010 @ 3:44 pm

    Firstly, a great series of ‘tips’ so far. As a software vendor (OSS) based in the region, I do have a few comments to make about this article:

    1. I think you have ignored the high cost of skills in Africa due to erosion of the skills base (brain drain) and often resultant high cost of using expats as a driver for managed services / outsourcing deals. When the skills to manage the areas on the periphery of your core business are scarce, it makes even less sense to keep trying to do them yourself.

    2. Related, but conversely, I am not convinced that ‘time-to-market’ for new services is actually improved by doing this even if it makes economic sense. The right tools for service design and implementation that enable a lean operation (small team i.e. fewer skilled individuals) close to the operators core business are always going to be faster than a 3rd party at accurately delivering the vision for the new services.

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