Taking the weight off

Outsourcing areas of an IT infrastructure can remove the associated staff, time, location and cost headaches, while enabling enterprises to focus on their core business.

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By  Zoe Moleshead Published  June 26, 2003

Benefits|~||~||~|For Arab Gulf Health Services (AGHS) /NEXtCARE, the development of a web based application to provide its clients with information and access to their medical insurance portfolios has been a vital business enabler. However, the resources, including staff, time and premises, required to support such a large application convinced the third party administration company to outsource the management of this application to ASPGulf.

“The most important thing is that all of our insurance companies are directly linked to this [web based application] and they can enter information into it — whether they are local or from abroad — and see how their business is doing. They can see all the results on the spot without asking us to generate reports for them and it is 100% accurate because what they see is what is in the system,” says Sultan Tadros, IT & production manager with AGHS.

“If we were to have it [our application] onsite then we would need the infrastructure here. Secondly, you have to have a team that can respond quickly. We cannot afford to have our system down for even a second, so we outsource it because we want someone to take care of all of the problems 24 hours a day, every week,” he explains.

By leveraging the staff and IT equipment of an outside party, AGHS, and indeed other enterprises, can reap a whole range of benefits. According to the likes of ASPGulf, eHosting Data Fort and Tecnoserve, by outsourcing their IT systems to a third party organisation enterprises can renew their focus on their core business with the comforting knowledge that somebody else is working 24x7 to keep their IT infrastructure up and running and trouble free.

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

ASPGulf’s CEO, Tony Sparks, echoes this view, suggesting that outsourcing frees up internal resources and enables them to pursue other projects within the company. “It [outsourcing] allows people to mind their own business and allows us to look after their IT, while they add value to the company,” he confirms.

Additionally, service providers claim that with the cost savings that enterprises will make on both IT staff and equipment through outsourcing, they will have extra money to channel back into their core business.

Furthermore, companies can also benefit by tying their outsourcing partner into a contract that ensures they are servicing them with the latest and greatest IT equipment.

“Through the contract with their outsourcing company, users can force them to always update their technology and to keep on top of that technology,” confirms Sabri Hamed Al Azazi, chief operating officer with eHosting Data Fort.

However, locally, companies such as AGHS are proving to be more of the exception to the rule, than the rule itself. Despite the much lauded benefits of outsourcing, the response within the regional market has been somewhat tepid.

Local hosting parties and service providers have managed to claim some high profile companies among their outsourcing customers. eHosting Data Fort, for example, lists Dubai’s eServices eGovernment department and Emaar’s IT division, Sahm Technologies among its customers, while IBM and Dubai Internet City say the likes of Tejari, Tanmia and National Commercial Bank of Saudi Arabia have started to outsource their application hosting to them.

However, in general, enterprises have proved slow to adopt outsourcing, and the services demanded locally are still immature in comparison to other global markets.

The US and European markets are moving towards what Siamak Kia, regional manager of e-hosting and strategic outsourcing, IBM Global Services, Middle East, Egypt & Pakistan, describes as “transformational outsourcing.” This is essentially the next step up from the outsourced management of data centres and IT infrastructures, and involves customers handing over the development of a solution to a third party.

“Transformational outsourcing is another name for solutioning, which is transforming, designing, building and running a value proposition for customers. 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,” explains Kia.

||**||Regional interest|~||~||~|Demand for services in the Middle East, however, remains more basic. Regionally, web hosting has enjoyed the most success as end users still seem reluctant to hand over control of their databases, security processes or other aspects of their IT infrastructure to an outside party.

Consequently, some of the service providers that invested early in the local market have been left with hosting facilities that remain by and large under-utilised as demand failed to take off in line with their expectations.

Although some service providers suggest this problem can be overcome by building greater awareness to the benefits of outsourcing, other parties suggest it may take more time and work to establish a market in the Middle East.

“There is an increase in the interest for outsourcing [services] in the Middle East, but it is not as [high as] we expected. Many organisations are still reluctant to outsource because of the lack of awareness surrounding it,” says Al Azazi.

“The current need is creating more awareness in the IT market. There is also a need to break the mindset that you need to have your data next to your desk, which is not that true today,” adds Farooq Hasan, marketing manager for Comtrust.

Hasan explains that much of current demand for hosting or outsourcing services comes from enterprises that were previously hosting web sites or other parts of their IT infrastructure outside the region, but have been encouraged to move back and host services locally.

“There are several reasons for this; one is different time zones, different levels of support and I would say the human touch in the sense that they can come here and meet with us and we are speaking the same language,” he explains.

These enterprises, however, don’t really reflect changing attitudes or improved levels of awareness to outsourcing as they were already existing users of such services. As such, the problem within the region remains that of enticing those enterprises that have never entered into an outsourcing relationship before.

In an attempt to combat this problem and to deliver more appealing services to local enterprises, many service providers have been forced to reassess their outsourcing offerings and in doing so are beginning to witness more encouraging signs in the regional market. For example, ASPGulf has transformed its business in the last year from being 80% ASP (application service provider) and 20% managed outsourcing, to 80% managed outsourcing and 20% ASP and, as a result, has seen a rapid increase in its business.

“We went from ten clients a year ago to 138 clients today, the majority of whom are multinationals that have multiple locations and don’t want to invest in ERP or specialist systems... They 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,” says Sparks.

Most other hosting or third party service providers uphold ASPGulf’s view and suggesting that application hosting is not a model that local enterprises are investing in currently. For Comtrust, hosting remains its largest business, with 16% of this coming from companies that are replicating other sites locally, while Al Azazi identifies web facing tools, database management and disaster recovery sites as its most popular areas.

While awareness appears to be the biggest hindrance to uptake in the region, further down the line, there are other factors that can make or break an outsourcing deal and the relationship between the customer and the service provider.

Trust is a key factor, and one that service providers must be able to instil in potential customers from the word go. After all, if an enterprise is handing over IT kit or, more critically, company information, they need reassurance that the service provider can be trusted.

“When you sell a service and not a product there is a significant trust issue and the relationship has to be strong before a customer is willing to say ‘yes I will give you my IT equipment.’ We want to be their outsourced IT department and people don’t make that decision lightly, they will test us and assess us and either say yes or no,” explains Costa.

And while Tadros praises the support and speedy response of ASPGulf, he also says that AGHS opted to keep their application management and passwords internal.

“ASPGulf host our application but they don’t have our passwords. Our team from Lebanon access and update our application on their servers. You can give your passwords to the people that are hosting your servers, but we decided against it. ASP Gulf are responsible for the server, but we are responsible for the application itself,” explains Tadros.

||**||Successful relationships|~||~||~|To overcome some of the concerns surrounding trust and liability, service providers and customers highlight the importance of service level agreements (SLAs) and stress their role as a fundamental element in an outsourcing relationship. For AGHS, their SLA with ASPGulf stipulates the 24x7 support and, more importantly, uptime that their web application requires.

“You have to have one [SLA]. Our business is critical and we have to be online 24 hours a day, so this is the agreement,” explains Tadros.

“If you have a good SLA and you define it well with the customer and you always respect it, that will enhance your relationship with the customer. Also, the SLA reflects the hosting or outsourcing company’s commitment,” affirms Al Azazi.

SLAs can also prove the stumbling block within many outsourcing relationships, says Roger Cox, vice president with Gartner Research, Europe, Middle East & Africa. He explains that enterprises often expect a higher level of service than they negotiate or agree to in their contract and are therefore disappointed when they don’t receive this level of service.

“It all hinges around the customer’s internal team and a mismatch of expectations,” says Cox.

“Within Gartner Group we have developed relationship categories and there are three levels — utility, which deals mainly with pricing and the like; enhancement, which is about business change, and frontier, which is where the customer works with the service provider to generate new revenues. While businesses believe it should be at the top end of the enhancement, the contract is usually at the low end of utility — so there is a mismatch in expectations,” he continues.

Furthermore, he reveals that many outsourcing partnerships flounder because most contracts fail to take into account change. “The key reasons for failure are the mismatching of expectations or contracts that don’t take change into place. Companies need to set change mechanisms within the contract,” adds Cox.

Despite the less than enthusiastic response from regional enterprises to the outsourcing services on offer, local service providers remain confident that the market will pick up.

Furthermore, other companies are planning to enter the market. The main strategy for these new players is to specialise in just one area of the IT infrastructure. Jordan Telecom, for example, is planning to offer outsourced helpdesk services later on this year. The telco says it is already in discussions with interested parties and believes its obvious strengths and abundance of resources in the area should prove key in drawing in customers.

“We will be managing a call centre, while others will be outsourcing this activity to us. They will tell us how they would like to receive their calls and we will do the proper set up and dimensioning in terms of systems and training to take care of such activities,” explains Ziad Hamzeh, operational marketing manager, Jordan Telecom.

“There will be the basic helpdesk, which is mainly answering incoming calls and then we will have full service helpdesk, which is incoming calls with database integration with CCI or CTI and IVR, and then market research and telesales service, which involves outgoing calls,” he continues.

Additional encouragement for the existing players in the regional outsourcing space comes from Gartner’s Cox, who says that most markets take two or three years to pick up. “Usually it takes one or two big customers to kickstart the market and it takes a couple of years for growth to develop,” he explains.

This is a view reinforced by ASPGulf’ Sparks, who believes the regional market is progressing slowly but surely. “I see it as a steady ramp on this type of business model. I can’t really see any divergence occurring in the next 12-18 months,” he adds.||**||

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