Outside the box

Far from inspiring fear in CIOs, as used to be the case, the idea of handing over the running of particular IT functions and services is now viewed as a way to focus on the core business. Daniel Stanton goes straight to the source.

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By  Administrator Published  August 31, 2006

A shift is occurring in the Middle East mindset: a growing number of companies are starting to make use of managed services to bring down running costs and improve delivery. By handing over the responsibility for total IT infrastructures, disaster recovery, back-up or other functions to an outside service provider, businesses can benefit from their economies of scale and specialised skills. In addition, they also avoid having to buy expensive equipment that will need to be replaced when it becomes obsolete.

The Middle East may not be able to match the low-cost outsourcing on offer in India and, increasingly, Pakistan especially in the field of software development and call centre offerings. However, it clearly offers a different value proposition - the regional market is growing rapidly, with IDC reporting an increase in outsourcing in the UAE of 700% last year.

One company that has taken to outsourcing is the National Commercial Bank (NCB) of Saudi Arabia. The bank previously employed Xerox to take care of its printing and associated maintenance, but since moving to a purpose-built building has expanded the document management responsibilities it gives to the firm.

"Everything there, in terms of technology, people, and training is not NCB's hassle anymore," says Hosam Al-Yousof, support services division head, NCB. "It's all in Xerox's hands. It's basically what's called host to post.We directly give them a link to our IT equipment, they can download the data and print it and distribute it to the customer." Everything from printing to enveloping of customer mail is taken care of by Xerox.

Ben Gale, general manager, sales and marketing, Xerox MEA, says this is part of a growing trend in the region to outsource back office functions: "A large element of it is still being done in the organisations where they're bringing people in to sit on their sites and do the functions in a more effective way than previously they were doing themselves, enabling them to focus their resource on the job of looking after their customers.”

NCB has also taken the slightly unusual step of outsourcing another function - its air conditioning. "This is completely out of the box and required a lot of guts to do," says Al- Yousof. "In that building, we don't own the air conditioning." A Chinese firm owns and maintains the chilled water used in the air conditioning and NCB blows fans through it to cool the building. The firm can run diagnostics to check for any problems, and could even operate the air conditioning remotely, although NCB has chosen not to give them that responsibility.

"Basically what we are buying is BTUs, British thermal units, so we're buying energy to cool the building's air," Al-Yousof explains.

He estimates that outsourcing the two functions has saved the firm more than 10 million riyals in capital expenditure. While NCB obviously still has to pay for the services it receives, this is operating expenditure and frees up more capital to be invested in other areas of the business. "When you buy an asset as a fixed asset it goes on your asset sheet," says Al-Yousof. "If it goes on your balance sheet there is a cost to capital, and that cost of capital is quite high in this part of the world sometimes. Not only that, you would prefer the cash to be utilised as an investment in your own business.

"We are not in the document business; we are not in the air con business; we are in the finance business.With 10 million riyals I can give a lot of loans to a lot of people to accumulate more money.

"With 20 million riyals I can immediately open two new

“Everything there, in terms of technology, people, and training is not NCB's hassle anymore.”

branches and add them to my network. However, we do outsourcing with our branches. Out of every 10 branches that we open, we only own two. [The others] are completely outsourced and need a foreign investor.

"So with that amount of saving from those two solutions alone, I could easily start operating eight branches within a year. This is not something waiting to happen, this is what happened last year."

NCB has plans to outsource other processes. "As for archiving we're going to outsource that, but we are studying it thoroughly," says Al- Yousof. "We have to decide what will happen to new records being created and retrievals during that time when you don't have your archives, in the change from one system to the other.

“But if you go to a leader in the industry you have a better chance of minimising your risks."

The bank also plans to lease its furniture, rather than buying it, and may also outsource the running of its cash centres, the buildings that store its bank notes.

Ahmed Rabea, service director, outsourcing, Egypt Cyber Centre Solutions (ECC), the country's largest outsourcing company, has also seen plenty of demand from Saudi Arabian firms. "We provide our services to the whole Middle East area, but Saudi Arabia is the country we deal the most with," he says. "We provide hosting services, managed outsourcing services for hosting disaster recovery solutions, backup solutions, and storage solutions, mainly supporting Microsoft platforms."

To cope with growing demand for its services, ECC plans to open a new centre in downtown Cairo at the beginning of next month.

However, although Egypt was an early leader in the industry, some people in the Middle East now have reservations about outsourcing there.

Umar Malik, vice president, financial and professional services, Tech Access, which provides business continuity and disaster recovery services in the UAE, says: "All my clients in Saudi Arabia tell me it's either Dubai or London, that's where they want it. Before, they used to say Egypt but after the Sharm el-Sheikh bombings they stopped saying that. People don't really feel that safe elsewhere."

Tech Access has a data centre in Dubai, benefiting from the UAE's political stability and capable infrastructure, but says that most of its customers are from Abu Dhabi or outside the UAE. Malik is critical of companies who want to outsource to locations near their existing offices. "If there's a natural disaster or a flood or a bomb or whatever and your data centre is only 30km down the road, that doesn't really serve much purpose does it?" he says. "If you look at international standards and you go by the fundamentals of any back up disaster recovery site, it's recommended to be at least 50km away from your primary site."

However, many regional businesses are still not happy to outsource beyond the borders of their country. "It's the classic bricks and mortar mindset. If you fear that your data is going to be poached, host it somewhere near," says Chris Jaguros, general manager of outsourced services provider ASP Gulf. "You are free to come to our data centre anytime.Would you have the same luxury if you were hosted in India?" ASP Gulf has a data centre in Dubai and is currently building a data centre presence in Abu Dhabi, which is expected to be ready by the end of the year.

Jaguros says that some of his local clients are happy to have a website hosted overseas, but want other services to be nearer to their main operation. "Some clients, when it comes to a core application like an ERP or a CRM, or maybe a customised application, would insist that their data and infrastructure be hosted if possible in Dubai," he says.

Ismail Al Naqi, director of Dubai Outsource Zone (DOZ), a free zone

“All my clients in Saudi Arabia tell me it's either Dubai or London, that's where we want it.”

designed to attract outsourcers to the region, believes the outsourcing industry in the Middle East is still maturing. "It's hard for regional companies to outsource their IT," he says. "For local companies the mindset is still that people like to see things closer to them."

Al Naqi believes that outsourcing in the UAE offers a combination of benefits to Middle East customers that cannot be found elsewhere, especially when it comes to call centres. "India today does not support a multilingual operation," he says. "It can only take in English, and there is a big demand here for Arabic speaking."

DOZ expects to see its first operation move in early this month and Arab Bank, Jumeirah Group, Mashreqbank and the UAE's new telecoms operator, Du, are among companies to have agreed to establish facilities within the zone where DOZ is offering complete infrastructure and plug-and-play buildings for prospective outsourcing establishments.

Al Naqi explains the thinking behind Du's new call centre, which will house around 500 agents. "We involved a specialised consultant in the contact centre industry to help us in the design," he says.

"We've taken everything into consideration from the height of the ceiling to the acoustic walls, the soundproofing, and some additional technology called white noise which controls the frequency of the noise.

There are a minimum number of columns, a raised floor - it's an amazing building."

The zone has always had grand plans, but has achieved greater success than expected. "We have about 70 companies and our target [by this time] was about 30 companies," says Al Naqi. "Also, initially we were planning to build only one phase which will service us until the end of 2007. Now we have three phases under construction.

We're planning by the next stage we'll have 14 buildings under construction, a little bit over 800,000 square feet."

One of the companies moving into DOZ is Mindscape, itself an outsourced services provider. Khaled Fawzi Hawas, vice president,

infrastructure management group, Mindscape, says that regional businesses are starting to see that buying into managed services can give better availability and security than they would achieve themselves.

"The other advantage which gets to the customer is our speed to the market, so the customer can come immediately," says Hawas.

"He doesn't need to invest in a new data centre, which comes with the total cost of ownership, the blades are all here. He can go to the market faster and start providing services for his customers with a very reliable service."

Mindscape's new data centre, currently being completed, meets Tier 4 certification, meaning that it will have no more than 20 minutes of downtime a year.

Mazen Abdel Ghany, business development manager, Middle East operations, says that customers inspect the resource thoroughly

“If you fear that your data is going to be poached, host it somewhere near.”

before deciding to entrust their data to Mindscape. "They raise the tiles and they look in the ceiling," he says. "It's a considerable investment and they have to make sure that it's in the right place."

Outsourcing enables companies to make use of a highly-skilled workforce, without the concerns of keeping them on the payroll, providing training, and the possibility they could lose staff to a competitor, he adds. "We know that there is a high attrition rate," Ghany says. "Organisations like Mindscape shield the organisations from all this and allow them to focus on their own core business."

Around 80% of the new data centre's capacity has been booked by customers, and Ghany expects it to be fully occupied by the end of the year. The data centre occupies 1,200 square feet, but the new centre in DOZ is expected to be almost three times the size.

Dr Saeed M. Al Barwani, CEO of eHosting DataFort in Dubai, says that IT outsourcing is currently flourishing. "Outsourcing continues to boom throughout the Middle East with companies and organisations continuously trying to explore and increasingly outsource their non-core services as a way to achieve not only strategic goals, but improve customer satisfaction and reduce costs," he says.

"This enables a company to focus its resources on more critical core business functions such as new product development and market expansion, while leaving operational details to outside experts."

Al Barwani adds: "We have several customers in verticals like banks and financial institutions, airlines, media, transportation and logistics, and trading who have outsourced infrastructure management, hosting and in some cases infrastructure management." Dubai e-Government and STS-Watania are among eHDF's customers, and Al Barwani says that he expects infrastructure and application hosting to continue to be areas of high demand.

In Abu Dhabi, Injazat Data Systems, which is a relative newcomer to the market, has also seen impressive growth. "Injazat has been operating for the past 19 months, and even in this short space of time we have noticed a progressive increase in the number of organisations which are keen to outsource their IT processes to us," says Ibrahim Lari, CEO of Injazat.

"A growing number of organisations in the UAE and the wider GCC region are beginning to recognise the potential benefits of outsourcing their operations to specialised companies, and Injazat has been able to capitalise on this market need," he adds.

The company provides a range of services, including information protection, managed storage, mobile information protection, and network management. "Injazat has already built a strong client base that spans the government, oil & gas, energy and utilities and healthcare sectors," says Lari.

"Additionally, we have a focus on financial services and transportation industries.We have been successful in catering to the increasing IT outsourcing requirements across these key industries."

Injazat is also planning to offer data centre and business process outsourcing services in the future. It recently announced plans for a Tier 4 data centre in Abu Dhabi, which the company says will be the most sophisticated in the region.

The data centre will have 2,000 square metres of usable space, enough to contain 5,000 servers and associated infrastructure, with round-the-clock monitoring.

ECompany, the business division of Etisalat, operates three data centres in Abu Dhabi and Dubai which host mission critical applications for a large number of government departments and private companies across a range of industries. Its customers come not just from the UAE but from seven other countries in the region.

"Our most popular service is infrastructure outsourcing," says Amir Rashid, business development manager of eCompany, the businessto- business division of Etisalat.

"Customers can outsource their data centre hosting and co-location requirements. Etisalat also provides customers with other managed services such as tape backups, data storage, operating system management and database management." He points out that outsourcing lets companies reduce their HR expenditure on repetitive tasks. Rashid adds: "Customers look to Etislat to provide a certain level of protection against security threats. This is provided through firewall protection and regular vulnerability scans to identify and fix vulnerabilities on a proactive basis. Demand has been very promising, with our revenues from outsourcing doubling every year over the last three to four years."

It seems that such rapid growth is set to last for a few years longer, as more and more firms start to realise the benefits of outsourcing and giving their IT headaches to someone else to handle.

If the SMB sector starts to realise that it need not be an expensive option, and in fact saves making major investments, the Middle East could see its own high tech outsourcing boom and become a viable option for customers outside the region.

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