SOURCE: Frost & Sullivan

March 28, 2011 01:30 ET

Frost & Sullivan: Managed Services Outsourcing Gets a Leg Up With the Increasing Shortage of In-House Skills

CAPE TOWN, SOUTH AFRICA--(Marketwire - March 28, 2011) - Although managed services have emerged business critical in South Africa, they are too complex, resource-intensive and expensive to operate in-house. The managed services market is an emerging one and providers and integrators are expecting substantial growth due to the improved bandwidth capacity resulting from the launch of Seacom undersea cables and wire and cable services (WACS) cable.

New analysis from Frost & Sullivan (, South African Managed Services Market, finds that the market earned revenues of $1.92 billion in 2009 and estimates this to reach $4.25 billion in 2015.

Furthermore, stringent regulatory requirements in sectors such as financial services, mining and manufacturing have had operators turning to the experts to ensure that their systems are compliant with various legislation. In the case of business data services, improved efficiencies and access to the relevant skill sets have replaced budget constraints as the top reasons for outsourcing.

Companies are looking to shift from a capital expenditure (CAPEX) model to an operating expenditure (OPEX) model to reduce their total cost of ownership. The OPEX model moves away from the 'do it your self' concept to a 'do it for me' paradigm.

"The critical shortage in skills to manage the highly complex IT services in house has caused companies to look to third-party service providers," says Frost & Sullivan ICT Research Analyst Mogen Naidoo. "In addition, legislation such as the National Credit Act of 2007 and the King III Report have increasingly caused operators to depend on specialist third parties to achieve systems compliance."

However, in most outsourcing deals, the total cost of ownership has continued to be high. In areas such as software as a service (SaaS), challenges regarding integration with existing systems have resulted in companies running SaaS systems parallel to their existing systems, which increases the overall cost.

Furthermore, the customer service of the third-party company, especially if it is a local one, has been characterised by long response time and poor technical innovation. Managed service providers must focus on promoting the total cost of ownership benefits rather than cost savings because not only does the latter seem like an hollow promise, but with business data services becoming mission critical, companies are focusing on reducing the total cost of ownership rather than obtaining ROI.

"It is also crucial that service providers enhance their customer service offerings," notes Naidoo. "Customer service strategies will provide a strong competitive differentiator for operators, by offering access to wide support networks, making available a range of technical solutions and facilitating knowledge sharing."

If you are interested in more information on this study, please send an e-mail to Christie Cronje, Corporate Communications, at

South African Managed Services Market is part of the IT Services & Applications Growth Partnership Services programme, which also includes research in the following markets: South African Network Management Services Market, SA Client Requirement for Outsourcing Selected Business Data Services, and South African Hosted Contact Centre Market MI. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.

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