Departing the IT department

More and more companies are deciding to spin off their IT departments, but are they managing the risks involved with such a move? Duncan MacRae talks to businesses who have done just that and are now making a name for themselves.

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By  Administrator Published  November 30, 2006

Transforming an IT department into an independent business can be a risky business, and not always a very successful one. The potential benefits of turning IT departments into separate revenue generating companies, however, can be astounding as more and more businesses in the Middle East are now beginning to discover.

Al Rostamani Group is one of the latest companies to dip its toe into the world of offering its internal products and services externally.

The creation of its off-shoot Shift Technologies has been a daunting task for all involved but, so far, Abdallah El Kadi, general manager and chief architect, Shift Technologies, says the group’s transformation into an independent unit has gone extremely well.

El Kadi says: "Oringinally, we were the group IT department of Al Rostamani Group, which consisted of around 18 companies operating in different industries. So our main division was the automotive but we had other types of companies operating in real estate, construction, financial services - quite a diversified group of companies. Three years ago when I joined Al Rostamani Group we noticed that it was a time when the company was going to make major decisions in regard to its IT infrastructure and its building IT capabilities. It was quite an exciting time for us.

"So we realised that we were going to go through a major investment phase and undertake very big, complex and challenging projects. And that if we can actually encapsulate this entire experience over two to three years into a skills set and capabilities then we could leverage that beyond the group." The idea of creating Shift Technologies started back in 2003. El Kadi's team actually went to market by the first quarter of 2006 and is almost one year ahead in the plans, having already obtained several clients.

"In order to build capabilities and make our organisation competitive from a business perspective we need to deliver high end IT projects and deliver them within a short time," El Kadi says.

"So the only way to do it is to invest heavily from day one. Instead of taking that cost and expensing it on the organisation we take it and capitalise it as an intellectual property and use that to sell outside and refund our investment.”

Shift Technologies' first drive towards this transformation was the need to be competitive in IT capabilities from a business point of view. To justify the investment it had to put together a strategy that allowed it to invest in the short term to build, in a timely manner, the ability to deliver its planned projects. El Kadi adds: "At the same time, instead of expensing it, capitalise it and use it as an asset to go to market and use it as a business driver. We've realised that undertaking a project of this size and of this complexity will be valuable. We'll have a lot of internal skills that we can make very appealing to the market.

"One of the risks we had to deal with was actually losing our people. In order to create job opportunities and career paths for those people and keep the team together, through the project and beyond the project, we aligned our people with our vision. We said 'let us go through this process. You will learn, we will develop you, you will get the experience and the exposure required and we will then form an IT company where you can grow based on your capabilities'.

"Our staff feel like they've contributed to creating Shift Technologies as a new company. Out of a team of around 35 I was actually able to keep 32, which is very good. Losing just three people in three years is an achievement."

Overall, around 15-25% of the money spent went into training staff and recruiting people who could bring in new skills. It was necessary for them to bring in a higher number of staff but also a higher calibre. They needed people with consulting experience, people with previous implementation experience - workers that tend to cost much more than your regular IT support.

Raqmiyat is another company that has been reaping the benefits of providing products and services externally. Rather than transforming from an IT department it was actually set up originally to do so. Tapas Roy, chief operating officer, Raqmiyat, says: "We hardly provide anything at all to our own group so it's mainly all external. And we've been working that way more or less from the start. “We set up as an independent company rather than a group IT department providing IT services to the group companies.

"We have a separate, clean, clear business line with very clearly defined revenue streams and profitability. The banking sector is where we're mainly focused and recently we've been getting into the small/medium enterprises where we have not so far played an active part. We have sales people, delivery people and solutions which can meaningfully be sold to that sector without being eaten for breakfast by people in the tier two or tier three resellers. Our outsourcing business is doing very well.

"You need to understand the business model well, and what sells and what doesn't sell. What are the do's and the don'ts. We have been playing in the enterprise space all along so we have a very strong technology knowledge.

Raqmiyat has also experienced challenges when it comes to human resources. "The problem that we've had is the same as the one faced by everyone else these days and that is retaining people on a long-term basis and the cost of training new people," says Roy.

"We are losing a lot of resources to the European market and also India. It's a constant impact of the cost of providing services really."

Another company that has blossomed from an IT department is Mindscape, which paid careful attention to the risks involved with its transformation.

Sohail Khan, head of sales and operations, Mindscape, says: "The risks are there but for every company you could name that has failed at what we're doing, I could name one that has been very successful. Any new service or product within our portfolio will be something that is actually used in our business environment.”

Khan continues: “Unless we validate and we see the business value of it and we experience it we feel we don't have the competitive edge. If we do it then we will have the ability to demonstrate what we are preaching and I think that's a very strong selling point, and something that reduces the risks involved dramatically."

Speaking of the rewards Shift Technologies has seen, El Kadi says: "There are different types of return on investment. The least important one at this stage is actually the financial one. “I'm very proud that even though we're just two months old we got a major deal. For me that's good because it reflects back to management that we have to capabilities to sell outside and we have the profile to start.

"People are realising that what we have done here is offer maturity of a consulting practice and that return on investment is now showing because we are able to position ourselves as a value creation entity to major players in this market.

“So we are working on a partnership with Oracle, we are working on a partnership with Telilogic. These are global leaders.

“We are working on a project with Ultimus so we have created a portfolio around the products that we have implemented in-house. Whatever we take out is actually based on in-house usage so you can't preach more about anything than the things that you have implemented successfully and felt the value of internally.

“You can demonstrate that in the live environment. We don't sell theories. We want to sell things that are live in our environment, things that helped us become who we are and grow our business the way we have grown it."

El Kadi says the team are confident that with the values they are following, with the commitment they have and with the quality-driven approach they are using, they will be able to achieve a financial return within a reasonable timeframe. "Our core competency is automotive and what we are selling today our automotive solution and our automotive business understanding," he says. "We are also selling the technologies and services that allowed us to achieve success in automotive. Those are things like our use of enterprise architecture, business process management, project management, risk management, process optimisation.

"To contain the risk we are not jumping into unreasonable investments. We are growing organically from within the organisation. All our portfolio expansion plans are driven from things that we need and things we deliver within our organisation, around which built capabilities, packaged them and then took them to the market.

"If I have a need for a technology within my environment I will prepare a project for one of my companies and I will train people as part of this project. So the cost is actually delivered as part of that project. And because we know we're going to take that to the market, we do it and we do it right."

And that, it would seem, is the secret to success. Companies that are taking the time to plan ahead, take things step-by-step and do things right, are the companies seeing the most success in the Middle East right now.

“We wanted to make sure we followed the method where error is not acceptable”
“The least important return on investment at this stage is the financial one.”

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