Mind your own business

Outsourcing used to be a dirty word in the Middle East. Users feared for the safety of their data and refused to believe that the reality would live up to the hype. However, changing economic conditions and the increasing number of business benefits the model brings have finally swayed opinion. As such, a growing number of local companies are trusting their applications to others.

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By  Matthew Southwell Published  June 22, 2003

I|~||~||~|Arab Gulf Health Services (AGHS) is a third party administration company that manages a range of health insurance policies for a multitude of companies. Its inhouse developed application is web based and, as the company’s clients are based around the world, it has to be available 24/7. The infrastructure and manpower needed to achieve this reliability is beyond AGHS, so it opted to outsource the hosting and management of its application to ASPGulf instead.

“The most important thing is that all of our insurance companies are directly linked to this [application] all of the time so that they can enter information into it, whether they are local or from abroad, and see how their business is doing,” says Sultan Tadros, IT manager at AGHS.

“We outsource it [our application] because we want someone to take care of all of the problems 24 hours a day, every week. We cannot afford to have our system down even for one second and it is better to give it to someone else and let them take care of the headache rather than hiring a big team [inhouse],” he explains.

The outsourcing of its mission critical application will also help AGHS as it expands its business across the Middle East. Rather than having to purchase and install a full IT infrastructure at each new office, the company will be able to invest in basic hardware and link its satellite offices to ASPGulf via a virtual private network (VPN).

“When we expand, we are planning to have a centralised database instead of setting up in each country, this means we will save on overheads, equipment and so on,” confirms Tadros.

Another company that has outsourced a core business application to a third party is Canon Middle East. Rather than roll out its customer relationship management (CRM) application to each of its regional offices, the vendor has also decided to host its app with ASPGulf. The software is being run on a Microsoft platform and Canon employees and business partners will be able to access it, via the web, from anywhere in the Middle East.

||**||II|~||~||~|In addition to extending access to its CRM application, the decision to outsource the solution to ASPGulf has also cut costs and boosted service levels for Canon. “This cost effective hosting service has made it possible for our Middle East distributor network to come under one centralised system and it helps us to serve them more efficiently,” confirms Adrian Low, manager — service support department, Canon Middle East.

While AGHS and Canon Middle East could be considered early adopters in the sense that they have progressed beyond outsourced e-mail and web hosting, they are far from alone. According to Stratos Sarissamlis, international vice president with Meta Group’s service management strategies service, an increasing number of companies from around the world are outsourcing the hosting and day-to-day management of their core business applications.

“There is no business like the outsourcing business in 2002/2003. IT outsourcing has double-digit growth and we expect this to continue through to the second half of 2004 for the simple reason of economic downturn,” he says.

“There is a clear drive towards outsourcing as companies look to reduce their cost bases, improve their service quality and focus on their core business processes and let people with greater economies of scale take care of a number of IT services. IT outsourcing is definitely the area to be in and a number of vendors have beefed up their outsourcing managed services offerings,” he adds.

This enthusiasm for outsourcing appears to have spread to the Middle East too, as both ASPGulf and Comtrust report that more customers are signing up for their services than ever before. The former claims that its client base has grown from just ten a year ago to an impressive 138 today, while the latter boasts growth rates of approximately 60%. “There are plenty of growth opportunities throughout the region… and outsourcing is one of the few areas in IT that is growing,” says Farooq Hasan, marketing manager at Comtrust.

Hasan attributes this growth down to an increasing number of local companies that are moving systems previously hosted elsewhere back to Middle East. Tony Sparks, CEO of ASPGulf, says it is due to an influx of multinational companies in the region.

“There are a lot of multinationals in this region that want to be commercially successful here, but don’t really want to make any major investments that would tie them to the region long term. As a result, the concept of managed outsourcing has really kicked in over the past 8-12 months,” he explains.

||**||III|~||~||~|The ability to utilise a full IT infrastructure and application stack without investing large sums of money is just one reason why providers such as Comtrust and ASPGulf are seeing an increase in business. Another key benefit that is driving its adoption is that it allows companies to forget about technology and focus on their core competencies instead.

“It just makes sense that people shouldn’t have to worry about IT,” says Andrew Costa, general manager of Tecnoserve. “When you buy a car, you don’t buy a mechanic as well to keep your car running. A company that, for example, manufactures coat hangers shouldn’t need an IT guy to keep their computers running when they can outsource it and spend potentially half the money,” he explains.

Sabri Hamed Al Azazi, CEO of eHosting Data Fort, concurs and suggests that the free time outsourcing generates can be spent developing new services and sharpening a company’s competitive edge.

“If we talk about banking and finance centres, for example, their core competency is not IT. Banks have to concentrate on the banking systems, processes, credit cards, opening new accounts and so on. IT is only there to support this, so why invest a lot of money in a support function when they can outsource it to a professional company that can provide you all the services that they require?” he asks.

The ability to hand over responsibility for running their IT environment also helps companies keep up to date with the latest technologies without having to invest in upgrades or spend time implementing them. “Every day users hear about new products, new technologies and new visions. They cannot cope with the evolution of the technology and they cannot keep upgrading all the time,” confirms Al Azazi. “However, through their contract with the outsourcing company, users can force them to always update their technology and to keep them on top of the technology,” he adds.

In addition to these generic benefits, outsourcing also offers specific advantages that are particularly appealing to the Middle East. Foremost among these is the issue of human resources. “Technical skills are quite scarce in quite a few regions in the Middle East,” says Sparks. “However, outsourcing allows companies to have a highly skilled team working on their IT infrastructure without having to go out and hire one,” he explains.

Furthermore, outsourcing allows local companies to better utilise the few IT staff they do have. “Outsourcing frees up internal resources for companies and allows people to mind their own business and let us look after their IT while they add value to the company,” Sparks says.

||**||IV|~||~||~|Meta Group’s Sarissamlis adds that this availability of skills is particularly important as organisations are being forced to consider more sophisticated applications, such as supply chain management (SCM) and customer relationship management (CRM). “On one hand, companies are compelled to reduce the cost base, while on the other they are looking up the value chain at things like SCM and CRM. Outsourcing helps them address this,” he explains.

Despite the multitude of benefits outsourcing can offer and the local market growth reported by some providers, the industry is far from mature. Big players, such as IBM and HP, suggest it is still evolving towards the ultimate goal of computing on demand. Big Blue, for instance, reports that the global market has already shifted from traditional outsourcing — the onsite management of a customer’s data centre and IT operations — to transformational outsourcing, whereby a provider designs, builds and runs a users’ computing environment.
“In transformational outsourcing, the customer just goes to the service provider and says ‘do it for me’. This is totally different from traditional outsourcing and this is what we are seeing today,” says Siamak Kia, regional manager of e-hosting and strategic outsourcing, IBM Global Services, Middle East, Egypt & Pakistan.

Moving forward, Kia expects e-sourcing to come next, which will see users receive standard computing services in a fashion not dissimilar to the way they obtain other standard utilities, such as electricity.
“We are moving towards e-sourcing, where the customer gets it [IT] done in a standard way and doesn’t mind if the infrastructure is used by others… In other words, customers get to use a common infrastructure that can scale up and down,” he says. “We are seeing a lot of interest in infrastructure on demand, even in this region, and especially for things like bandwidth where companies need to be flexible,” he adds.

Meta Group’s Sarissamlis confirms that computing on demand is the next step. He also says that certain technologies that help facilitate this model are already available today.

“Although we don’t have on demand computing yet, companies like HP, Sun, EDS and IBM are working on the technology aspect, and some of it is being released in a piecemeal fashion. However, it needs to mature and be embedded into operating environments. We expect this to happen in the middle of 2006,” he predicts. ||**||

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