Global Markets One-stop Shop
David White, DRG Outsourcing’s CEO, speaks frankly to Liam Williams about their professional one-stop-shop business model, and describes why he feels all outsourcing companies will over time develop in a similar fashion.
Q1: So David, you have been the CEO of DRG Outsourcing since its inception in 1995, tell us about DRG’s early beginnings.
While studying for my MBA, a whacky-professor-type lecturer described the concept of outsourcing to my class, and foretold how it would change the way business would be done in the future.
Some months later, two class colleagues and I set up a small outsourcing enterprise, and in three years were processing 30,000 payrolls per month. Part of the volume was generated through acquisition. The daily growth of the company eventually required 54 staff. In 1998 we listed on the Johannesburg Stock Exchange together with a group of venture companies, and grew our share price from ZAR 2.30 to ZAR 7.50. A severe stock market decline followed in that year, and reduced our shareholding to ZAR 0.04. The companies were forced to un-bundle, with DRG Outsourcing forced to consolidate its strengths.
Q2: What did you learn from your company’s rapid growth in the early stages, and how have you applied that experience to your new model?
Even for an experienced CEO, rapid growth when not planned for is difficult to manage. We were a young group, with some corporate management and entrepreneurial experience. With such growth it became difficult to manage each client relationship with direct attention.
There were areas of ambiguity where the client, sales person and operational staff had varied interpretations of the services we offered. We were also over-structured in terms of the skills we employed within the company.
The new DRG Outsourcing model is quite different, and has been developed in a franchise business structure, with a standard range of products and services that are marketed through a network of Marketing Cells. Marketing Cell relationship agreements are entered into with companies and individuals who have networking influences, and their relationship includes the provision of professional introductions. DRG Outsourcing Central provides all operational and client support.
We introduce standard product services, and clients choose combinations of these services as if they are choosing them off a menu.
From a marketing perspective we introduce these services as “canned solutions” after understanding the client’s particular wants and needs.
There are many reasons why the approach of standard products and services is important in the business structure, but none more so than being able to define exactly what the beginning-to-end outsourcing product is, and to ensure that the client understands the parameters of his chosen service.
Service level agreements are drawn up per product, and are grouped. Clients then draw further services into the company. Outsourcing is successful in long-term client relationships, and long-term relationships exist only where minimal service standards are high, and are delivered consistently.
Structurally we are quite different, and now provide client processing support services (and marketing) as our core business activity, and supply specialist services through a network of professional partners.
The client benefits through cost, and through the professionally managed service package that DRG Outsourcing coordinates and controls.
Q3: How do you define the product groupings that DRG Outsourcing offers?
DRG Outsourcing provides 18 products and services. Each of the products we offer caters for different human resource management activity needs within a client’s human resource management environment. For example, payroll management and contract employee management and third-party payment processing are activities within a company’s human resource environment. DRG Outsourcing provides ready-made solutions for these and other human resource requirements. Clients may for example choose to outsource payroll processing and contract employee management and third-party payment processing; however, each product has its own service level agreement, and in this way we define each product within the group of services.
Q4: Could we speak further about the Marketing Cell relationship?
Each Marketing Cell negotiates a formal agreement with product and marketing training. In addition the Marketing Cell is encouraged to utilise the DRG Outsourcing’s patented marketing program software called the Pisces Referral Generator. DRG Outsourcing developed this to coordinate its marketing cell activities. Marketing cell activities are then collected and collated onto offline systems, and then loaded on to a communal website (www.piscesoutsourcing.co.za), where reports and analysis can be compiled and forwarded to clients.
Marketing Cells benefit from the powerful software which ensures that client communications and product introductions are presented and recorded in a professional and corporate standard manner.
DRG Outsourcing Central employs marketers directly into the organisation to market products and services to service clients, and rewards these employees with attractive incentives.|
A Marketing Cell can generate recurring income. What this means is that when it introduces new clients to DRG Outsourcing, from that point onward, and for as long as DRG Outsourcing procures that service (or any other HR service) for that client, Marketing Cells generate income.
The Marketing Cell structure creates the opportunity for DRG Outsourcing to become accepted into areas outside of its existing area of influence. It is estimated that 98 per cent of new business within the service industry is generated through referrals.
The Pisces Referral Generator encourages networking and is results-driven. This is necessary and crucial to attract new clients to the outsourcing industry. It includes a five-step approach to selling, and contains common communication documentation, product descriptions, service level agreements and so on. The website logs all client communication, and the offline systems are directly available to the Marketing Cell staff.
Q5: You talk of Service Level Agreements. Do you think that Service Level Agreements play a significant roll in outsourcing relationships?
Definitely. In 2002 a world survey showed that three out of four companies who had chosen to outsource had a negative experience. Perhaps some of the client’s negative experience could be attributed to their expectation and understanding of the service supplied. However, DRG’s point-to-point service level agreement, and its evolvement over time, clearly describe client and processing activities and responsibilities. This also defines consequences for out-of-routine delays.
Service Level Agreements define the relationship between the outsourcing supplier and the client in definite terms. We find that new clients are as interested in signing formal Service Level Agreements as we are, and so we encourage the process. Clear, defined and understood Service Level Agreements will certainly have the effect of improving service levels within outsourcing.
Q6: What are the expansive opportunities in Durban, South Africa?
Outsourcing in South Africa is a booming industry, and some 20,000 local websites offer outsourcing as a core or allied service. South Africa, since its democracy and new constitution, has implemented eight new labour acts and a new income tax act. The biggest reason that companies choose outsourcing suppliers is to draw skills into their business. Within South Africa there is simplicity and logic in the way the new labour acts have been constructed.
However, many companies do not see routine human resource processing as core to their business, and, instead of adapting to the changing legislation, prefer to outsource to a preferred supplier.
Thus the changing human resource environment within South African business has created the ideal platform for opportunity and growth of the supply of professional and reliable human resource management solutions. The South African economy is currently booming, with government and corporate business supporting the development of small- and medium-size businesses.
Outsourcing companies can supply employment set-up documentation, mentorship programmes and routine processing to support these companies, and so the demand for professional and reliable human resource outsourcing companies continues to grow. Larger companies and corporate clients are increasingly using outsourcing suppliers for recruitment, training and training coordination, contract employee management and other traditional core functions.
South Africa also has the unique advantage of being in a resourceful position in relation to the rest of Africa. Many African countries and companies draw skills and resources from South Africa. The African Union subscribes to similar governmental responsibilities in the management of human capital within employment relationships, and so South Africa, being at the post implementation period, is a valuable consulting and processing partner. From South Africa it is easier to enter and trade with African countries.
Q7: What are DRG Outsourcing’s Best-Shoring plans?
DRG Outsourcing is currently gearing to provide United Kingdom and European companies with processing support programmes, such as payroll management, and consulting support programmes, such as training, performance management and job evaluations.
Q8: We have heard that there is a new Black Empowerment Act in South Africa; can you tell us more about it?
Yes, the Act has been drafted, and is to be promulgated. It has been driven by President Thabo Mbeki, and is supported by government and corporate business. The Act encourages the transfer of skills too, and the upliftment of previously disadvantaged individuals. A broad based balanced scorecard system has been implemented to rate companies regarding their social awareness and black empowered status. Black Economic Empowerment is a business imperative/opportunity and not a threat, and we embrace it as such. It brings new skills and insights into the business arena and creates wealth for all our people.
Q9: What of DRG Outsourcing’s future growth plans?
DRG Outsourcing is expanding nationally and we will continue to strengthen our brand and client base in South Africa. We have also had many requests from other African countries for our presence and services, and are in the process of setting up DRG Outsourcing operations in Nigeria, Uganda and Angola.
We would like to attract the interest of an international financier to help broaden the geographical delivery capacity of DRG Outsourcing’s products and services.
South Africa is a leading country within Africa, and is the engine room from where many African countries draw professional skills and resources. There is a great demand for professional processing and human resource support services within many of these countries, and DRG Outsourcing’s business model is suited for the purpose.
Outsourcing has become an accepted way of doing business in South Africa, so there is great opportunity within our local borders.
The biggest reason why companies choose to outsource business functions or activities is to draw professional skill into their business. The climate of change in human resource management in South Africa created the need for professional services suppliers. Many of the countries in Africa are following South Africa’s footsteps in providing employment services levels, and so the need for professional service suppliers continues.
Q10: Finally, David, why is it that DRG Outsourcing believes that other human resource outsourcing companies will be developed in a similar fashion?
Successful outsourcing is about long-term relationships, and long-term relationships require high levels of consistency, accuracy and transparency. Bear in mind the statistic that three out of four people in the world who outsourced at some point described their service as negative. Our thought is that companies will choose branded outsourcing suppliers that are known in the market as being professional and reliable, and these outsourcing companies will be highly structured in terms of product and service definitions, and highly structured in marketing and client communications and internal operational processes. These activities need to be coordinated from one central point to be effective. This is the one-stop-shop business model.
Entry Filed under: Outsourcing/Domain Expertise