Central services

The central services proposition has existed in the IT industry for years, promising easier management and lower costs to any company that adopts it. Within the Middle East, where family businesses with multiple divisions are the norm, the model becomes even more attractive. However, only a few end users have taken the leap thus far.

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By  Matthew Southwell Published  October 14, 2004

|~|Shaar,-Samer.jpg|~| Samer Shaar, general manager of IBM Middle East, Egypt & Pakistan. |~|Six weeks after opening the doors to Bukhatir Group’s new shared services centre (SSC), Shumon Zaman announced that he’d saved the Sharjah-based conglomerate over a quarter of a million US dollars. But Zaman, who is CEO of the firm’s IT services arm, Intelligent Corporate Solutions (ICS), is not resting on his laurels.

Only 11 of Bukhatir’s 26 companies are currently using the SCC and the rest must be added if Zaman is to deliver the cost savings he envisaged when he first convinced the group’s board to eschew the decentralised computing model and embrace central services.

“The success of the SSC has paved the way for the rest [of Bukhatir’s companies] to come on board. We will bring them all onboard over time because they have to reduce costs, improve their efficiency and their bottom line,” Zaman says.

“Since the SSC came into place we have been able to renegotiate deals, which has saved us money. There have also been savings around purchasing, which is where the Dhs1 million comes from. There are other savings too. For example, four people now do the accounting for 11 companies rather than 18. These saving will increase exponentially as we bring the rest of the companies onboard,” he adds.

The key to Zaman’s success has been his implementation of Oracle E-Business Suite 11i. Deployed by the conglomerate’s own 15-strong technology team, the enterprise resource planning (ERP) application runs on HP servers and users access the SSC’s services over PCs and machines running Citrix’s thin client solution.

“We approached this project as greenfield and decided to wipe the slate clean because, at a group level, if you are going to consolidate, then you need everything to be standardised,” says Zaman. “We are running the servers centrally and this acts as the data centre so everyone shares the [Oracle] instance over a leased line,” he explains.

Bukhatir Group is not the only Oracle user in the Middle East to have embraced the SSC model. Zamil Industrial Investment Company (ZIIC) has already consolidated its technology team and services in one central location. It currently serves nine of the Saudi organisation’s business units from its steel, glass and air conditioner companies.

Overseen by ZIIC’s chief information officer, Zaki Sabbagh, the project has included the consolidation of the firm’s network and hardware infrastructures, and the creation of a central data centre that houses a number of big iron servers from HP. Each business unit accesses the computing power it requires over a fast Ethernet network and Sabbagh has also centralised ZIIC’s mail servers.

“ZIIC is looking to lower overall operating costs in a tough competitive environment and ZIIC’s management wants to make sure that money is being spent where there is a fast and sure return. Therefore, consolidation, centralisation and accountability is the only way to do that,” he says.

“Also, ZIIC companies have spent considerable money on technology such as ERP applications and infrastructure. However, IT still needs to do a lot of work to leverage organisational visibility, reduce IT costs and generate business value from the investments it has made. Shared services will help us meet this goal,” Sabbagh adds.

Although centralised IT services are already running from both ZIIC and Bukhatir’s SSCs, both Sabbagh and Zaman are adding functionality to their new centres. For Sabbagh, this includes the centralisation of HR and the development of enhanced security projects, improved enterprise management and application upgrades. Zaman, on the other hand, is adding both new companies and business processes to Bukhatir’s SSC.

“We have centralised purchasing, finance, accounts management and credit. The HR side has also been centralised, as has payroll. When we are finished, all the group’s sourcing will be centralised, as will all of its finance, accounts and management information. The only thing that will remain with the individual company is collecting money and dealing with customers,” he says.

While Zaman and Sabbagh are two of the most recent exponents of the SSC model, they are not alone in developing central IT centres. For example, Dubai Internet City (DIC) serves each of its residents from a central point while Mashreqbank span off its IT department to create Mindscape.

Emirates Group has also embraced the model and created Mercator from its technology team. Both Mindscape and Mercator have since expanded their roles from simple SSCs to fully-fledged solution providers that sell products and services to other end users.

But whether these success stories constitute a Middle East-wide trend is another matter. Globally, the model has been readily accepted in places like Germany, where large trading groups are also numerous.

According to Larry Velez, international programme director for global networking strategies at Meta Group, Germanic acceptance has been driven by a desire to increase transparency and eliminate duplication.

“In an attempt to make their companies more equitable, many German organisations have tried to increase transparency. When they were trying to achieve this, they saw they had many lines of overlap, which meant they were inefficient. As owners looked at the balance sheets they quite rightly asked why they were paying for IT in 20 different locations and took the appropriate action,” he says.

As public transparency matters rather less in the Middle East, the key driver for SSC adoption within the region is increased efficiency. As evidenced by Bukhatir’s success, the centralisation of computing services and the associated consolidation of hardware can lead to dramatic cost savings.

In addition to reducing costs, the creation of a SSC can help improve control for senior management as it provides information in a consolidated and timely fashion from across an entire organisation. For example, Zaman created a single chart of accounts for Bukhatir, which allows its books to close seven days after month end rather than the 21 days it used to take.

“Reporting is a lot faster, a lot more accurate and the information in the system makes a lot more sense and less people do it. Having a central team helps control what is happening and ensures it is happening to a set standard. The SSC means there is meaningful information in the system that can be used by the business,” Zaman says.

With the numerous benefits switching to a SSC provides becoming increasingly well established, many believe it is a trend that is finally taking off. “It is here and it is happening,” says Samer Shaar, general manager of IBM Middle East, Egypt & Pakistan.

“The Middle East user is as sophisticated as any other in the world and the driver here is the same as elsewhere — business benefits. If a model has a value proposition worldwide then the local market will look at it,” he adds.

For those convinced they can benefit from a SSC, the technologies are now available to make the move a more simple one. For instance, every tier one ERP suite on the market supports the single instance model and databases can now work on a multi-org basis.

Oracle, for instance, first built this capability into its E-Business Suite 11i two years ago. At the same time, a vast number of applications on the market today have been reengineered so users can access them over the internet.

“This means remote users are using browsers to run their applications. Client/server, by its nature, has a lot of traffic between the client and the server and this is not conducive to to running remote services. This meant users couldn’t centralise services unless they had huge amounts of bandwidth,” explains Ayman Abouseif, senior marketing director for Oracle Middle East & Africa.

To support, and in some instances drive the evolution of applications and databases, hardware has also advanced to a stage where it makes creating a SSC easy. For example, clustering has become more common.

Developments in servers and the associated software have also made virtualisation a reality so end users can run multiple applications off one server rather than having to buy, run and manage a machine for each piece of software. ||**|||~|Zaki1111.jpg|~|Zaki Sabbagh, ZIIC’s chief information officer.|~|“The ability to run multiple instances on the same server has helped with SSCs. For example, running different instances of SQL Server and multiple databases in virtual servers is now possible because if a memory leak happens it won’t crash the server, whereas in the past each application had to be on a different server,” says Haider Salloum, marketing manager at Microsoft South Gulf.

“Virtualisation has helped people consolidate and centralise their operations and all these types of technologies help make the move to centralised services much more of a reality,” he adds.

In addition to the developments of internal technologies, the Middle East’s improved telecoms infrastructure has made SSCs a more viable option. For example, the Ministry of Civil Services in Oman is running Oracle’s HR module across the entire country for each government department using the web.

“[The Ministry] is not using leased lines and is using virtual private networks (VPNs) and the internet instead,” says Abouseif. “Running SSCs on leased lines is not the most cost effective way, especially as companies can now use things like VPNs on the public infrastructure, which has improved,” he adds.

Although the technology is now available to create an SSC, it is not simply a matter of buying and installing it. As Salloum says: “You will not find any companies dismantling their departments in one go and rebuilding it over night.”

Rather, a SSC course must be well charted and carried out with the support of top management. According to Meta’s Velez, this buy-in is essential and is the cornerstone of any best practice for moving to a SSC. Once that has been won, the second step is to carry out an inventory exercise as this allows CIOs to establish what exactly they are centralising and what services have to be replicated when the SSC is up and running.

“One of the methodologies we talk about is portfolio management, which is categorising all IT assets in terms of value to the company. It is not about putting it on a spreadsheet though, it is about knowing what is important,” says Velez. “Categorisation of assets is essential as it allows CIOs to understand what they have and put some language around it that the board can understand. From there creating an SSC is easier,” he explains.

To help Zaman convince Bukhatir’s board of directors that an SSC was the right way to go, he hired Accenture to help his team evaluate existing business practices and the existing IT set up. From the resulting documentation, Zaman was able to persuade the firm to sign off on the plan and give him the resources he required to carry out the project.

Sabbagh took a similar route at ZIIC, and his top priority was also ensuring executive management support. Next on the list was defining a clear vision that identified objectives and targets, the creation of plans to handle the change, and capability management exercises that established what the consolidated IT team could deliver.

“A senior IT committee was established, and it was given a set of targets and objectives. IT was also required to define its plan. The plans were discussed and agreed with ZIIC executive management. It was important to have the highest level of communication to make sure all parties were talking the same language, and to clear all conflicts as early as possible,” says Sabbagh.

To ensure ZIIC’s business units get the service they require from Sabbagh and his team, the SSC has created a number of service level agreements (SLAs). The first to be created were simple time-based SLAs that guaranteed response and resolution time, and these have recently been expanded to include availability, reliability, and performance. Zaman has also implemented SLAs with each of Bukhatir’s companies that utilise the SSC.

“Every business unit now has a SLA with the SSC. Every business unit is a customer and we have agreements in place for everything. For example, we will promise to issue LPOs within a certain amount of time,” he explains.

While both Sabbagh and Zaman claim to have stuck to and even exceeded their existing SLAs, Microsoft’s Salloum points out that this is not always the case for companies creating a SSC. He argues that SLAs are often created too early on and prove unrealistic, something that has a negative impact on end users and the reputation of the SSC.

“A lot of group companies set up an SSC and they ask the users to trust them. However, they have to create more than just trust and have effective SLAs,” says Salloum. “The way to do this is to build the SSC and then deliver the outstanding service with little downtime for a few months so the SLA has some resonance with the business and the users. The SLAs, unless they are tied to a certain history of usage, don’t relate to anything. Unless they are based on real data they will be unrealistic,” he explains.

Although Zaman and Sabbagh are converts to the SSC model and would not consider going back to a decentralised IT strategy, other users embarking on such a project should be aware of the disadvantages the model may bring. For instance, Valez believes an SSC can end up compromising functionality, as end users have to take the technologies that facilitate such a model, rather then those that best suit their business.

“The big gorilla ERP apps that a company typically needs to do centralised computing do not have all the best-of-breed functions that are out there. CIOs are not going to go and buy something that is fine tuned for their industry, they will have to build it into their ERP suite if they want that functionality,” he says.

“The other disadvantage is in being locked down to one vendor and becoming a slave to that supplier. If a vendor switches its direction or raises support costs then they can be doomed. In the area of flexibility there are some advantages when you standardise, but it has to be done properly,” Valez adds.

Microsoft’s Salloum is equally as cautious and warns companies against centralising simply to reduce costs at the expense of business flexibility. “When you look at consolidation and shared data centres, from an efficiency point of view it is a great thing for any company to do... However, SSCs are only a good idea if the business does not lose its ability to change and modify its IT to maintain a competitive advantage,” he says.

Despite the potential pitfalls surrounding SSCs and the inherent benefits for those that get it right, whether such projects are suitable for all end users in the Middle East is doubtful. The simple reason for this is that there is stringent criterion surrounding the model.

The first of these is the scale of an organisation’s operations. If a local firm has a few business units then it is hardly worth centralising IT services. As Zaman says, “there is no point in doing it if there are only three business units.”

Other factors preventing local companies from creating an SSC are cost and the need for a technology team capable of both carrying out the initial project and then delivering services in accordance to the SLA they have created with the business users.

With regard to the former, the technologies that enable SSCs are not cheap. The acquisition and implementation of a tier one ERP application typically runs into the hundreds of thousands of dollars, if not millions, and the latest servers and software also cost money.

“Because an effective SSC requires an effective ERP system, which is not cheap, it means a company has to have the financial resources to invest in one. This is a fundamental, because it cannot work without a solid system. However, if a company has invested in a tier one ERP then they are big enough for an SSC and they will reap the benefits that the model has to offer,” Zaman says. ||**||

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