Datakor

A free article on Computers

By: Charles Wilson

"The message is loud and clear from the press releases, jointly issued by ABSA’s Dr Alewyn Burger and MIT’s Nic Frangos in early August, an dfrom subsequent reporting, commentary and discussion on the matter. In a highly significant move for the South African IT community, ABSA and MIT have created a joint venture company for their common technology interests.

“:It is undoubtedly the intention of the joint venture operation to become a significant player in the information technology services industry in Southern Africa,” says Nic Frangos, a Director of MIT.

At the time of going to print on this issue of Management Report, the acquisitions firstly include the internationally-connected Infonet, the local agency of the international value-added networking services organisation of the same name, which has had a chequered history of parents since the break-up of Anglo-American backed Computer Sciences Limited in the mid-1980’s, and secondly the highly respected independent outsourcer, ABS Holdings.

The common ground between these two is that they are both providers of outsourcing services, Infonet for all kinds of communications, and ABS for most aspects of traditional data and information processing. On reflection it is apparent that these two service companies, both with considerable histories of operation in the country, would complement each other quite well – even without a big brother or two.

So what has been born is an outsourcing child, to service the needs of both parents and to perhaps bring them closer together.

MIT, through its listed subsidiary Datakor, with its extensive network of information technology companies, has previously not had a strong foothold in the outsourcing market and for it these acquisitions represent a highly needed additional string to the MIT Group’s ever-widening information technology bow.

ABSA, on the other hand, has a large IT division, ABSA data, which has been outsourcing its services for many years, perhaps at the expense of internal system development.

The financial services sector in South Africa is more prone to technological one-upmanship than any other industry and delay in deploying systems for new products almost certainly cause market share exposure.

There is no way to reduce the dependence on information technologies in driving new banking technologies to the critical and highly demanding consumer. Information and access to facilities are the keywords of success.

So it seems natural that to get back to the knitting is in ABSA’s best interests right now. However, the problem remains of what to do with the fledgling outsourcing services, in which excess skills have been sold off to clients, the creation of a bureau within the service department in its efforts to prove its worth by making a profit centre out of what management may have perceived as a necessary cost evil.

But existing customers cannot simply be discarded. There is the professional responsibility that a provider of services has towards it clients, especially when these services involve the lifeblood of its information processing. So for ABSA the acquisition of a part of ABS Holdings was to allow it to free itself from its outsourcing clients without inconveniencing them in any way so that it can concentrate on its core business, banking. Nice move ABSA!

It is apparent that both MIT and ABSA have a need for such an outsourcing service, and yet for either to create such a service unilaterally would fragment the market. There is strength in numbers, this is the nature of modern alliances, and it seems that the groundwork for both sides to establish this new jointly-controlled holding company was carefully planned to ensure that neither side treads on the other’s toes while they start to fly their new kites.

Besides the speculation of these previous comments, there is nothing actually obvious on the surface about this alliance, about why it should have occurred and about who had the original creative spark to set the ball rolling. As Frangos explains, “MIT has recognised that significant trends in the IT industry are those of convergence – in technologies as well as markets – and that these will give rise to new opportunities. In this connection, it is interesting to note how many of the original Fortune 500 companies that have remained successful have in fact transformed their businesses over time.”

So transformation is the name of the game. Continual Re-Engineering in response to continual change in a stimulus-response reaction to the dynamics of local and global markets.

Frangos continues “It makes sense for a company like MIT to select its transformation from existing core competencies. On the basis of the current world trends of strategic alliances and partnerships these opportunities were born.”

Perhaps I have missed the point and perhaps I did not ask the right questions. All I wanted to know is how the ideas for well-defined and well-structured alliances are born. I cannot possibly believe that such ventures are a matter of chance encounter. There are no accidents here, nothing falling out of the thin air into your lap, there is more of a well thought-out plan here. And perhaps there is also a secret to success that others will be clamouring to read about.

James Fitzgerald, Managing Director of ABS Holdings, indicates that, the fact that day to day management control will remain inchanged is important for staff assurance. For employees in general, the concept of change often spells disaster, especially change that is of the take-over variety. With the acquisition by the joint venture company of a limited 25.5% shareholding in ABS Holdings, staff are reassured of continuity. At the same time the increased opportunities are so great for ABS, in terms of the immediate business that it gains from ABSA and from access to the markets it could not obtain previously, that it is already considering taking on additional skills. Good news for the shattered IT job market.

“Over the years many acquisitions proposals were put to ABS but none of the parties were bringing enough to the table to make it worthwhile until this current offering,” says Fitzgerald who indicates that ABS is ideally poised to assist ABSA data with unbundling its outsourcing activities.

Among the services that the joint venture operation is to offer its clients are full international and local connectivity, network outsourcing services, electronic mail and messaging, access to international databases, electronic data interchange (EDI) and financial EDI services, as well as the full range of outsourcing services inherited from the ABS offerings.

This represents a very broad range of services, but with the acquisitions behind it, and full complement of skilled staff to boot, the joint venture is well poised to start offering the services from day one and to start the long process of integrating the joint venture into the cultures of the respective organisations.

So why was the venture not made between ABSA and Datakor, surely a more natural choice given the fact that MIT is really just a holding company?

“The intention has always been that MIT would be listed at an appropriate future time, with a broad portfolio of information technology investments, and that none of the shareholders of existing companies in the group would be prejudiced in this process. As importantly, the moves that we have announced are a starting point, not an end point, and there will be further developments which are more appropriate to MIT than to Datakor,” says Frangos.

So there we have it, the creation of a completely new IT structure, separate from the Datakor group but expressly never in direct competition with it. A marriage of convenience or a deadly embrace? Methinks neither. More likely a marriage of optimism, of hope, and of considerable faith in the future of the outsourcing market in South Africa, driven by the need of organisations to recover delicate market positioning by dispensing with poorly managed IT shops, enabling them to stick to their own knitting.

Perhaps one day all this knitting will be finished!"