Cost remains the biggest concern for CIOs

Meta Group reveals that budgetary concerns affect most Middle East CIOs, but that outsourcing may help ease their financial problems.

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By  Patrick Phelvin Published  October 28, 2003

Cost concerns for Middle East CIOs.|~||~||~|Increased pressure on IT budgets is forcing Middle East CIOs to consider the outsourcing model, according to Meta Group. However, the analyst house also warns that companies must tread carefully if they are to capitalise on the rush to re-shape cost structures.

“Last year cost was not such a concern in the Middle East. In fact, I remember many CIOs telling me they were rich and cost was not an issue. This year that has been turned totally upside down. Cost is now a major issue,” says Jean-Louis Previdi, Meta’s senior vice president & research director, EMEA.

“Because of this, outsourcing is emerging in this region, and it’s not just outsourcing but business process outsourcing. This is a clear signal that IT is not delivering full value to management,” he adds.

But Previdi says hiring third party solutions providers to handle part or all of a company’s IT needs is not the golden opportunity to change cost structures that it appears. Furthermore, a lack of awareness in the Middle East of the issues surrounding outsourcing is leading to companies tying themselves to contracts that do not necessarily deliver value or the desired solution.

“Most of the people [in the Middle East] are not negotiating terms, conditions and contracts right. If users don’t negotiate these terms and conditions properly they are shifting the costs but they are still fixed costs, not viable costs, and you can’t escape from the contract because of the penalty clause,” Previdi warns. “The service providers are doing a very good job of, for want of a better word, polluting the market. They are very bright in marketing, and marketing is not reality. They are trying to mislead customers and force them to go down some road they don’t want to go,” he adds.

However, some of the region’s IT companies are more upbeat about the benefits of outsourcing. Third-party medical administration company, Arab Gulf Health Services (AGHS), is in its third year of outsourcing to ASPGulf. So far, the company is satisfied that its agreement is delivering the expected results. “We have never had a real problem. The only problems we have had are from the infrastructure, not the way ASPGulf is going with our account,” says Sultan Tadros, AGHS’ IT manager.

ASPGulf’s Tony Sparks says cost can be driven down with outsourcing, with the added soft benefits of having another party worry about non-core IT processes. But he says the solutions provider must be focussed on delivering value.

“The prime objective of any outsourcing project that we get involved in is generally to achieve the [client’s] ROI goal,” says Sparks. “If we’re to truly achieve what we want to achieve, we need to build a client base. Ideally we would like to have the same clients in five to 10 years time, paying us every month for the services we provide.”

Before local CIOs go down the outsourcing route, Meta’s Previdi says they would do better to tackle the perception held by the Middle East’s businesspeople that IT is a cost rather than an investment. He recommends CIOs present themselves as more financially aware business managers who are focussed on delivering value. An easy way to do this is by changing the terminology they use. For example, instead of presenting IT in terms of total cost of ownership (TCO), CIOs need to talk about net present value (NPV), return on assets (ROA) and return on investment (ROI) to engender a more positive approach to IT financing.

“Here we have seen too many people trusting widely the vendors and the vendors leading them, that’s part of the culture here in the Middle East. CIOs must learn to complement what they are doing today in terms of technology with other practices in order to make sure they add value and protect the risks of the company,” Previdi says.
“The biggest threat is that they are not speaking business enough. People are used to speaking IT, they are not used to speaking business,” Previdi adds.
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