Throttling Back

Gulf Air made the move to outsource its entire infrastructure three years ago. Since then the IT department embarked on a massive campaign to reduce costs and deliver strategic value. But regardless of the benefits of outsourcing, many IT professionals have yet to accept the challenge to traditional IT philosophy.

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By  Greg Wilson Published  July 3, 2001

Introduction|~||~||~|“I could write a book about outsourcing,” says Tarq Hatim Sultan, chief information officer (CIO) with Gulf Air. The airline CIO and his ten-man team have been living, breathing and sleeping outsourcing for the last three years. In that time the management team and its outsourcing partners Sabre — and more recently EDS — have driven through a massive programme of change, designed to reduce operating costs, boost productivity and ultimately deliver strategic advantage. “Gulf Air’s goal is to excel in its IT development and environment,” explains Sultan.

“Cost reductions, to partner with somebody major within the airline industry… [And] to achieve strategic positioning,” were also core components of Gulf Air’s outsourcing leap.

By the end of 2000, the outsourcing relationship had built a global wide area network (WAN), based on Microsoft, Compaq and Cisco technologies, put in place a call centre handling around 1300 calls per month and completely overhauled the airline’s backend applications, deploying crew scheduling application, a cargo revenue accounting system and a company wide implementation of Oracle Financials.

The core objectives for 2001 have included enhancing the help desk, improving the airline’s operational control, and the unveiling of Gulf Air’s e-business initiatives. Data warehousing and customer relationship management strategies are also being prepared to coincide with the airline’s e-business push. Within the coming months Gulf Air will introduce an online booking engine, ‘Virtually There,’ personalisation services and a tie up with Get There — a Sabre-owned company, that specialises in global travel distribution.

“We’ve been doing some major portal development,” comments Sultan. With the Get There services in place Gulf Air’s portal will offer travellers, “everything from different bookings, to [travel] changes, to ticketing, to flight information, content information and [even] weather information — basically everything you can get from travelocity.com, we’re going to be offering to our customers.”

Three years into its 10-year outsourcing agreement and Gulf Air still stands alone as an example of total infrastructure outsourcing within the region. Although it’s rumoured that several other local airlines are considering a similar outsourcing route to Gulf Air’s, there has as of yet, been no official word. There are other signs of outsourcing, with some large organisations outsourcing particular services, such as development work — normally to the Indian subcontinent — or network management.

But by and large, businesses in the region have resisted the temptation to outsource or even smart source selected services. Why? After all the shortage of skilled resources, the price sensitive nature of the market and the need to rapidly deploy systems to automate businesses are all well-documented facts — so wouldn’t outsourcing appear to be a fitting solution? For a few companies, normally the larger ones, outsourcing at least some services makes sense, particularly as the pressures of the knowledge economy mount and IT strategies begin to collide with line of business aims.

However, to make the quantum leap and embrace outsourcing in any of its forms demands a fundamental shift in mindset of the IT personnel. “Up to three years ago outsourcing was a disease that you wouldn’t like to catch, it was an indication of flawed IT management,” says Stratos Sarissamlis, vice president international, service management strategies, Meta Group.

||**||Page 2|~||~||~|In the knowledge driven economy, the outsourcing path promises speed and a means to derive business flexibility. The organisation’s needs and the business culture, determines which models of sourcing will apply.

But regardless of the business objectives, the challenge to the ‘we own it, we run it,’ mindset displayed by many IT professionals is going to be the same. “IT organisations have to come to terms with outsourcing — if they delay the operation, somebody else is going to take the decision for them and it’s going to be based on different terms. The risk is in not being involved in the [outsourcing] transaction,” warns Sarissamlis.

Outsourcing — in whatever guise — challenges the traditional management structure of the IT department. Consequently, the move to an outsourced relationship is often seen as a real emotional challenge. “IT managers fear that they’re going to lose their jobs,” says Graham Porter, marketing manager, Hewlett-Packard Middle East.

Sultan adds, that the human element is “the biggest transition problem that parties will face. It’s a major, major drawback. It’s the human element that causes this fear amongst people, [leading to] uncertainties that could be a significant problem area.”

Prior to Gulf Air's outsourcing deal, the airline had a team of 140 IT personnel. As part of the agreement, all but ten staff migrated to Sabre where the vast majority have stayed. The staff with Sabre all benefit from US-management practice and multiple training programs, says Sultan. As a result Sabre has maintained a 90% staff retention rate.

"The people who transition to the new company [Sabre] are the ones that benefited more," comments Sultan.

The migration towards an outsourcing model demands a change in role for many IT professionals, away from day-to-day operational issues to a more defined management role. For example, IT managers will be expected to deliver strategic value, set future direction and policy, maintain budgetary control and manage the relationship with the outsourcing partner.

“Managing the outsourcing relationship needs a completely different philosophy,” says Sultan. “[IT managers] should really try and take [themselves] away from managing the day-to-day computer centres or IT environments,” he adds.

According to Sultan’s experience, breaking away from daily management issues is never easy, as the whole outsourcing relationship often requires revisiting day-to-day to ensure the outsourcing partner is serving the strategic aims. “But what takes you back is that you want the [outsourcing partner] to understand where you are heading,” explains Gulf Air’s CIO.

“Their priorities, their methodologies and their expectations, aren’t going to be 100% aligned to yours. So you have to go back and realign — there is continuous readjustment and realignment,” he adds.

||**||Page 3|~||~||~|To control the rolling process of reassessment and renegotiation service level agreements (SLAs) are going to become an increasingly important element in managing the everyday IT environment. For many IT organisations this means learning the skills to manage, monitor and negotiate SLAs with their services providers. “The SLA is key… it’s the number one issue,” says Sultan.

“SLAs have to be monitored vigorously and reviewed annually… You really don’t want a strong IT shop, as much as you want [a team] that is very strong in developing service levels, monitoring them and working to those service levels,” he adds.

The whole SLA process is key to overcoming the change management issues of moving to an outsourced environment. Simply put, IT professionals must learn to accept that managing the IT environment via an SLA is just “another way of managing the same environment and scope of work, [it’s] just done through others,” says Johan Vanoverbeke, services sales manager, central Europe Middle East & Africa, HP.

If businesses decide to outsource maintenance or operations, “[they’re] not changing the content of operations that are delivered to the users. What is more important is that [IT departments] are closer to [their] users and their [users] needs, rather than just running the data centre.”

According to Fadi Moubarak, e-business sales manager with NCR, SLAs have been a stumbling block to the wider adoption of outsourcing in the region. In both Europe and the US, SLAs are guarded by a clear legal structure — if the provider fails to meet the terms of a service level agreement, then penalties can be applied under contract law. However, “the legal structure in most parts of the Gulf isn’t strong enough or clear enough compared with Europe or the US. This creates hesitation on the part of end user organisations to outsource functions,” explains Moubarak. “Companies are often worried about the security that an SLA affords them.”

In the absence of the perquisite legal structure, NCR has been tailoring its managed network service provision to the local market. Whereas in the US or European markets, NCR engineers would normally have a continuous link to a customers network to conduct ‘health checks,’ locally, engineers are granted access to conduct remote services at a pre-agreed time. The in-house IT personnel then monitor the whole process. “We’ve got two remote support centres — in Cairo and Dubai — that are in this initial stage of operation. This has helped to bring the customer confidence up, which is the largest challenge to overcome,” comments Moubarak.

Although more and more IT organisations are being pushed towards outsourcing, particularly around network operations, Moubarak doesn’t believe that many other businesses are likely to outsource their entire infrastructure. “I think companies are going to outsource selectively, to achieve an objective. [Outsourcing] will play a complementary role,” predicts Moubarak.

Even if organisations use outsourcing in a complementary role, service vendors are already sizing up the Middle East market. In recent weeks, both IBM and HP have unveiled plans to enhance their respective services operations, covering everything from design & build, maintenance, up to full outsourcing, hosting and application serving. The market is “at a turning point,” says HP’s Vanoverbeke. “This market has an enormous potential, and we want to do joint delivery and enhance the service portfolio.”

Initially at least HP will focus on its existing base of high-end customers, with which the vendor already has some form of service agreement. HP’s service offensive will grow this base by anywhere between 200-to-300% in the first year of operation, predicts the newly appointed HP service sales manager Mehmet Oguz.

To ensure HP hits its ambitious targets for the region, the vendor has steadily been importing expertise over the last several months. According to Vanoverbeke, as the customer confidence rises and business pressures multiply, the Middle East is poised to make “the leap to outsourcing.” When the region is ready to make that leap “we’ll have the people and the processes in place,” he adds.

||**||Page 4|~||~||~|IBM Global Services declared its intention to aggressively chase the services market in the region with its high profile partnership with Dubai Internet City. Under the terms of the agreement, Big Blue will set up an ‘E-business Hosting Centre,’ at DIC and jointly sell services to the region. The joint venture also plans to develop a lower cost model than other IBM hosting centres in Europek, through development of a local skills base. With those skills in place, IBM and DIC intend to attract European companies to the hosting centre.

“We’re exploring to see if it would be possible to bring customers from other places around the world,” says Siamak Kia, regional principle, IBM Global Services, Middle East, Egypt and Pakistan.

“In conjunction with DIC we have a value proposition that will differentiate us from other IBM centres. Those are the benefits of DIC, [like] a tax-free environment,” Kia explains.

Initially, IBM’s own installed base is going to be the main target for its services push. According to Kia, IBM Global Services is already in talks with several companies about the possibilities of migrating services to the data centre.

Another driving factor to embrace the sourcing model has been security. With many companies already searching high and low for IT resources, the added burden of managing the security question has led organisations to embrace managed security services. Saudi-based network integrator, Gulf Stars is finding a growing demand amongst the Kingdom’s larger organisations to takeover the full management of corporate networks. Although the growth in managed network services is primarily fuelled by the shortfall in skills, says company president, Abdulaziz Al Tamami, security and e-health of the network are also proving to be vital value add services. “Private sector companies are maturing to the services approach… companies are recognising the need to leverage the technology for business benefit… but having the right resources in-house to manage this is very expensive,” explains Al Tamami.

“The need for security and the e-health of the network are spearheading the services drive,” he adds.

Security was also one of the key drivers for Saudi-based Al Zuhair Group, when it signed up with an ASP. Users within the group now accesses Sage CS/3 applications hosted in Abu Dhabi with Etisalat subsidiary, Comtrust over dial-up connections. “Security is a dynamic threat, it changes day-by-day… you could monitor it daily yourself, but it would be more expensive than an ASP,” says, Talal Zuhair, partner with Al Zuhair Group.

“Comtrust,” on the other hand, “has security as one of its missions in life. They manage and monitor the whole the environment” he adds.

With no end in site to the skills dilemma and the growing security threat putting more pressure on the IT resources, the cost of maintaining the IT infrastructure will escalate. However, with ‘line of business managers’ increasingly taking the reins of IT strategies, IT professionals will have to justify their position by changing their role to embrace the outsourcing question.

“Companies are increasingly outsourcing their infrastructure in selected functions,” says Meta Group’s Stratos Sarissamlis. “We basically recommend that the IT organisation command the [outsourcing] process. [IT departments should] view vendors as complementary sources, where they can externalise the production of resources, while still retaining accountability and responsibility over service provision,” says Sarissamlis.

With business dynamics propelling many of the IT strategies, IT professionals can’t afford to be without a voice at the negotiating table — otherwise they could find themselves looking for another job.

||**||Regional ASP market begins to mature|~||~||~| From the massive hype surrounding the whole application service provider model only 18 months ago, the ASP model has come back down to Earth with a thud. The dot-com bust is partly to blame — the ASP market has had its fair share of venture capitalists funded startups, with ill-devised and incoherent business plans. “The [ASP] market has slowed down tremendously,” says Stratos Sarissamlis, vice president international, service management strategies, Meta Group.

“We expect a good 60% of players to fold into other organisations [through] mergers or acquisitions,” predicts Sarissamlis.

After the hurly-burly of the last 18 months, ASPs in Europe and the US are approaching the local market with greater maturity. The ASP model’s rollercoaster ride over the last 18 months its easy to forget the ASP model is still a viable alternative to many organisations. ASP services enable companies to rapidly deploy systems, without the significant capital outlay on systems or people. ASPs may not fulfil all a company’s system requirements, but for the small to medium enterprise segment — without a significant existing investment in IT systems and skills — the application serving model is well suited. “The proposition of low capital outlay, speed, [and a solution to the] IT skills shortage — ASP is a viable proposition for the mid-market and the small to medium enterprise,” says Sarissamlis.

Last year the Middle East saw its fair share of ASPs emerge, but generally the market has been slow to adopt the ASP model. It wasn’t until April this year that region saw its first success stories. However, there are signs that local ASPs are maturing their business models, and forming regional partnership in an attempt to build the all important economies of scale that make the ASP model viable.

ASP Gulf has recently signed a co-funding partnership agreement with IT Ventures, which will see the ASP move into the Egyptian market by September of this year. ASP Gulf is also on the hunt for a local partner to expand its operation into Saudi Arabia. Other plans include expansion into the Levant region. “One of the keys to this is going to be economies of scale,” says ASP Gulf’s CEO, Duncan Watson. “Our strategy is to capture the market before it fragments. We really need to be a pan-Arab service… We’re setting up as a pan-Arab entity,” he adds.

ASP Gulf has also expanded its services offering as it strives to evolve into a “total IT utility company,” comments Watson. To achieve that aim, ASP Gulf has constructed a number of packaged services for businesses of different sizes, and with different needs. Alongside broadening its services portfolio, the ASP is putting its partner network in place to ensure it can deliver the physical support element. “We’re creating a real barrier to entry into the local market,” says Watson. “The real competition isn’t going to come from the local players, it’s going to come from the big [European], US or Asian players that want to move into the region.”

The rapid regional expansion coupled with its rapidly growing services portfolio, are critical elements to Watson’s barrier to entry. However, large international players have already announced their intention to play in the local market. Last month alone, IBM Global Services and HP declared their intention to ramp up their services business in the local region. Both organisations already have strong partner organisations in place that can, and will carry the full-service portfolios into the local market.

Egypt is already shaping up as a test market for the future growth of the ASP model in the region. Over recent months, competition has been intensifying as organisations have taken out public data network licenses with Telecom Egypt and begun work on huge data centres.

Application service provisioning is high on their agendas, as they each race to capture the necessary economies of scale to make the massive upfront capital costs viable.

Whereas businesses have been slow to adopt the ASP model in the Gulf, players in the managed services field believe adoption will be much faster in Egypt. “A lack of skills is a real issue, but it’s different in the Gulf — there is a wonderful place across the ocean called India, that has quite a few of those IT skills,” says Basel Dalloul, CEO, Noor Advanced Technologies. “Plus, money isn’t so much of an issue in the Gulf… What we’re seeing in Egypt is some of these [ASP] ventures succeeding where we have seen them fail in the Gulf,” he adds.
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