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SITA’s channel shakedown

The State IT Agency is attempting a radical overhaul of its supply chain to get better value and help grow SMEs. But this comes at the expense of larger, established channel players.

Government is the largest buyer of IT equipment in the country. In the financial year 2017/18, spend across the three tiers of government was estimated by BMIT to be R22.88 billion.

 

However, the State IT Agency (SITA) plans to change where that money goes, using it to transform the SME economy, and hopefully give government more bang for its buck. These plans are likely to cause ructions in the channel.

Mandated to procure IT equipment and services, SITA has long been an organisation of contention for both government CIOs and channel players. Its history is littered with tender cancellations, leadership instability, service delivery delays, operational inefficiencies, and corruption.

However, as Craig Brunsden, MD of Axiz, says of this latest initiative: “SITA looks to be innovating, trying to define what its value proposition is and doing something about its current predicament. This is the first time it’s made any major moves like this in a long time.”

Axiz, along with other distributors, met with SITA in late 2017, and was told of the agency’s intentions. SITA has outlined a set of guidelines, but within those, it seems to be open to working out the best way forward in consultation with industry. “SITA has been clear that it wants to increase SME participation in government procurement, rather than going to the big distributors, systems integrators or resellers, and it has asked distributors to play a role in the development of the SME channel,” Brunsden says.

Channel transformation


To understand what the plan involves, we need  to unpack the challenges SITA is trying to address.

The government-backed drive to grow entrepreneurship and SMEs, and improve black economic transformation is the first identified issue. Stera Senti, executive: Multi Stakeholder projects at SITA, says that government has long been in a situation where it has paid a premium for vendors’ transformation. “Vendors would tell us that Sme resellers are the transformation element of their chain. But the price we pay would be the market rate plus prime, so transformation is happening at government’s cost,” he says.

Clinton Jacobs, senior IT analyst at BMIT, says: “Margin is all good and well when you’re adding value. But if you’re just another step in the box drop chain and still adding margin without adding value, why should SITA be paying for that?”

The second challenge was resellers advising the CIOs of public sector entities, and jointly developing a specific requirement for a project. That specification would then feature as part of the project's tender process and skew the decision in favour of the reseller.

“The tender process must be open, transparent and competitive,” says Senti. “You can't have someone selling something and also acting as an adviser; there's no objectivity to their advice. It's a conflict of interest and anti- competitive.”

The final issue is that different departments and entities within government were being subjected to different terms and conditions, and different pricing, for the same item. “It’s the same vendor, the same government and the same product,"he adds.

A new beginning

One of SITA’s own challenges is that government departments have often taken their own paths, bypassing the agency, dealing directly with vendors. Senti says: “we realised we had to present government as a single procurer, irrespective of the transaction points. After all, there's only one fiscus.

“We’ve consolidated so that government interacts with a vendor as a single procurer, with a single price point, and gains from economies of scale. Any instance where a cheaper price is being offered to a single entity within government, it becomes the default price for all of government.”

SITA’s plan is to disrupt its current channel by working directly with its top 25 vendors (based on size of install base, expenditure and strategic value). The agency already has framework agreements in place, Senti says, with its top 10 vendors, namely Cisco, Micro Focus, Microsoft, EMCC, CA Technologies, Software AG, ESII, IBM, Oracle and SAP.

It’s understood that SITA has also developed a new distribution model, and is implementing this with both Cisco and Micro Focus, although it’s still very much early days.

The model positions SITA as procuring directly from vendors, and empowers an army of SME players to help fill the gaps left by abandoning the ‘traditional’ channel.

Brunsden says: “If a software vendor works directly with SITA, which is one option, then that vendor’s whole channel gets disintermediated. The way SITA spelt it out is that distributors were purely a procurement aggregator, and not a services provider. what SITA is doing is splitting the definition between the procurement of goods and the services around them.”

Empowering SMEs

So how will vendors and the SMEs fit together in this approach? “we’ve given all of the identified vendors a template of how SME opportunities, training and so on should look. This is a chance to refresh our partners, once we've produced a cohort of capable SMEs,” says Senti.

In addition to the SMEs registered in its own enterprise and supplier development programme, SITA will work with the vendors to identify potential SME partners. “We'll give the SMEs options and explain the margins in each business model,” says Senti.

The agency is proposing to work with vendors to help train, accredit and nurture SMEs to become either distribution businesses or maintenance and support business. The Margin understands millenial generation entrepreneurs are a key target for this initiative.

Some traditional channel players can potentially still play a part, however, supporting vendors that are essentially operating a local sales office and have limited presence.

“SITA’s engagement is with the vendor initially and once a high-level agreement is reached, it can roll down into the channel, depending on the vendor's ability to execute,” Brunsden says.

As an example, Micro Focus has enlisted Axiz to assist with finding and training SME partners, assisting the SMEs with finance and providing mentorship and experience on big projects. “We have a procurement relationship contract with SITA, and an SME management agreement with the vendor, that the vendor and ourselves co-fund, and we do a lot of work on their behalf,” he says.

Words of caution

BMIT's Jacobs says that on the face of it, the plan to have smaller specialist service providers on the support side makes sense, especially as new technologies, such as Cloud, IoT and analytics, become more pervasive. He does caution that SITA has to think tactically about what tasks to give to the SMEs, ensuring skills match the requirements.

The skills issue is also of concern for Brunsden. “Established systems integrators have years of skills to retain and employ. It costs money to maintain those skill levels, and the finance to pay these people when there's no work. An SME startup can't afford to do that. Also, when there’s a lack of particular skills in the market you can develop skills to fill the gaps, but where you duplicate what exists elsewhere, it becomes a problem.”

Jacobs also sounds a word of caution to ensure citizens don’t suffer as a result of the channel transformation. “SITA certainly has a responsibility to uplift the IT ecosystem and give SMEs an opportunity, as long as it’s not at the expense of service delivery.”

As much as the move is about empowering SMEs and getting better value, it’s also a power play that sees SITA imposing its will on vendors and government departments. Unfortunately, for the channel, it looks like established larger resellers will be the hardest hit.

Also, by centralising procurement, the idea should, in theory, reduce the potential for corrupt activities, with SITA taking greater control. As Brunsden says: “Overall, the industry spend will still be there.”

The reality is, that although the same budget is now going to different places in the name of government-endorsed transformation, the emphasis will be on SITA. It needs to ensure that the initiatives it puts in place aren’t just shifting dodgy transformation deals and irregular expenditure from one group of resellers to its own-created group. It also needs to ensure that it capacitates itself to deal with the increased workload it’s taking on from its own internal customers, and can do so timeously. And, for the sake of word count, we’ve not mentioned the usual bureaucracy and slow payment issues that arise for SMEs dealing with government.

Brunsden concludes: “It's fair to say we're in the early stages of this whole picture. A lot of the details are being fleshed out as it goes along.” The ambitions are admirable, let’s just hope this works out to meet those.

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