Think outside the box

OUTSOURCING OF IT operations seems to be finally taking off in the Middle East. Physical, financial, human resources (HR) and technological constraints, as well as the rapid rate at which regional companies are expanding, are all driving organisations in the region to view outsourcing their IT as a viable way of leveraging the benefits of integrating technology into their business processes.

By doing so they can avoid exposing themselves to the constantly changing market conditions such as availability of skills and resources that characterise emerging economies such as those in the Middle East.

Across the region there are numerous examples of how rapidly the outsourcing industry is expanding, with customer wins being announced, new service providers setting up in the region and more established ones expanding their operations all the time. To take just one example, market research firm IDC puts the rise in outsourcing in Saudi Arabia as being as high as 56% last year.

Abu Dhabi-based IT services firm Injazat Data Systems — a joint venture between a local company and US firm EDS, one of the giants of the outsourcing industry — has already sealed some landmark outsourcing contracts since its launch last year.

The most notable of these is an agreement worth more than US$100million with the Abu Dhabi Water and Electricity Authority (ADWEA) to take over the running of its IT department. Eddie Cunningham, sales and marketing director of Injazat, says the company has been experiencing huge growth since setting up and is looking to expand its workforce from just over 300 to around 500 employees by the end of this year, and to over 1,000 by the end of 2007.

Firms such as Indian IT services provider Wipro have also been beefing up their regional operations as demand for services increases.

In September Wipro opened up a near shore network operating centre (NOC) — called its Global Services Management Centre (GSMC) — in Dubai Internet City (DIC) from which it is offering customers in the Gulf region a comprehensive portfolio of managed services.

It also landed a contract with the UAE’s Roads and Transport Authority (RTA) to manage the organisation’s entire IT infrastructure, it said this year.

And of course there is the much-hyped Dubai Outsourcing Zone (DOZ) that also opened its doors in September.

The zone claims to be the first of its kind, offering a base for both captive and third-party outsourcing operations for sectors such as banking, finance, accounting, IT payroll processing, and research and development (R&D). DOZ is not just targeting the Middle East; it wants to become an outsourcing hub for the entire world.

According to the zone’s executive director Ismail Al Naqi, the Jumeirah International Group plans to open a call centre and business processing outsourcing centre, UAE telco Du is to open a multimillion dollar call centre facility, and names such as Levant Capital Group, Tech- Flow, Encreate and InfoSpan have all reserved their plots.

In fact, the take-up has been so strong it has far outstripped expectations and 10,000 people are expected to be operating from the facility by the end of next year. Al Naqi says the goal is to capture 5% of the US$350 billion global outsourcing market.

The rapid take-up of any technology or service that can benefit a business often creates a kind of snowball effect in the market.

As companies take the decision to outsource their IT operation, more companies do the same, then more, and so on, as the benefits become clearer and the success stories more numerous.

Business Needs

But in the rush to leverage these benefits, companies can sometimes forget that outsourcing is not as simple as just getting in a provider and saying ‘take care of this’.

There are many considerations that have to be taken into account, both in relation to the market and the provider if a company is to become one of those success stories.

And most of the time, the success of an outsourcing arrangement has very little to do with the actual physical technology that is being outsourced — whether it be data centre infrastructure, applications, networking, or desktops — and everything to do with the preparation done prior to entering into the agreement to ensure a company’s outsourcing strategy is aligned with its overall business strategy and goals, and the processes put in place to ensure a smooth transition of the services to the provider and relationship between client and vendor thereafter.

Ian Marriott, research vice president at analyst group Gartner, says any organisation that is considering outsourcing its IT operation first needs to develop a strategy that looks at its status today, the way the company supports the demands of its business today, where it wants to be in the future and how the demands of its business are likely to change. “An organisation has to look at where the business is, how it is supporting the business, whether that is adequate for its needs, and more importantly — looking forward over maybe a five-year horizon to where the business is moving to — how the goals of the business will change, how the objectives of the business will change, and how the market demands will change the way in which the IT organisations needs to support that business,” says Marriott.

“Now a part of that becomes the question of if a company is providing services itself internally, is that adequate today, should it actually be mixing in more third parties, and as it moves forward, will it still have the skills in place to be able to support the business,” he adds.

“So the company looks at, as a part of the sourcing strategy, the make or buy decision, but that is just a part of the strategy because what intrinsically the organisation is looking at is getting the right balance of internal and external skills and the right balance of business skills as well as the technical skills in the mix to support the business objectives.”

Marriott says once a firm has been through this sort of exercise it can start to build the kind of governance and management needs it wants to be in place to support its changing environment, and then it can go to the market armed with that and make the decisions about the service provider.

Analyst groups such as Gartner, as well as many IT services firms, provide independent consulting services to help companies align their IT and business processes. Service providers can often spend a lot of time — up to a year before the outsourcing contract is even signed in some cases — thrashing out what exactly a client wants to outsource, why they want to outsource and what they hope to get out of it.

Injazat’s Cunningham says the decision to outsource is one of the most important a company will make and therefore that company has to be very clear about its objective going into any deal.

“To start with we would tell them to be very clear about the reasons why they are outsourcing and having established what the reasons are, we would then work with the client, typically for quite a long period of time — anything up to a year or even more before we get to the contract signature,” he states.

“For a lot of clients it will be one of the most important business decisions they will make. They are basically handing over responsibility for a key part of their business to another organisation,” he adds.

Dubai-based services firm EastNets operates in around 25 countries across the region with around 100 customers provided with outsourcing services from its DIC bureau. Lina Hediah, CTO of EastNets, describes the relationship between vendor and client as more of a partnership.

“The way we look at outsourcing it is not just about the vendor and the customer, we look at it as a partnership because this is what it is really. You are going to be doing work on behalf of an institution. So from that perspective we start working with the customer in order to establish a very clear definition of what part of the process we are targeting,” explains Hediah.

Setting SLAsEqually as important as the initial sourcing strategy are the controls that a company needs to put in place to ensure the goals that both the vendor and client agreed to are achieved. This can be done through a mixture of benchmarking performance and implementing service level agreements (SLAs), which are binding contracts that formally specify a client’s expectations about the service and are agreed by other parties. If done correctly, benchmarking and SLAs can be constructive tools that guide and measure how well the outsourcing is going and, if any problems arise, allow vendor and client to work as a team to solve those problems.

Saeed Al Barwani, CEO of UAE IT services firm eHosting DataFort says SLAs put customers much more at ease because the agreements guarantee the quality of service the client will get.

“Customers feel very comfortable when they have a quality of service agreement which certi-fies that the provider will give you a certain level of service, if the provider doesn’t then it is liable,” notes Al Barwani.

“An SLA is very important, especially in the outsourcing industry. Otherwise there is no guarantee; what a provider can say may be very different from what the customer ends up getting.”

Raman Sapra, head of business operations in the Gulf region for Indian services firm Wipro, agrees on the importance of SLAs to helping the customer to measure satisfaction with outsourcing.

“As service providers what we need to be doing is baselining the current SLAs that the customers are getting — either in terms of network uptime, desktop uptime, server uptime, or in terms of application uptime. Once we have baselined these, outsourcing should provide improved SLAs for the endusers to see a benefit in outsourcing,” he says.

DataFort has its own data centres in DIC and disaster recovery centre in Jebel Ali from where it hosts services for customers such Arab Bank and Emirates Airlines.

Al Barwani adds that customers should have regular meetings with a dedicated service delivery manager who actually goes through and reviews elements of the SLA.

“Availability is one element of the service that can be measured, then security — they can find out if there have been any attacks or someone has managed to hack into the customer’s systems.

It is very much report driven. You can measure and monitor performance against several different parameters: availability, reliability, security, those kinds of things,” he states.

Al Barwani also points to the use of other standards such as ITIL (IT Infrastructure Library) as key in ensuring best practice among service providers. ITIL is a framework outlining accepted best practices for IT service management worldwide.

Benchmarking — the measuring of performance against a range of data points and peer group comparisons — is also a useful tool to gauge how an outsourcing agreement is going.

However, Gartner’s Marriott highlights some important procedures that need to be followed if benchmarking is to be a constructive tool and not just something for the vendor and client to squabble over.

“It is important to benchmark in advance so you know how well you are doing. It is important to benchmark on a regular basis to make a check into the cost-effectiveness or performance level, but it is also important to benchmark at the point you engage with the third party, because then you all commit together,” explains Marriott.

“This way everyone at the point of transition will agree what the peer group comparisons are, what the data points are, what the parameters are for the deal and what will be measured.

Subsequently when you are doing other benchmarking both client and vendor can see what is going well, what is not going quite so well. It becomes a tool rather than just a stick to beat up the provider with.”

A lot of companies initially look into outsourcing their IT services as a way of saving money, but analysts and vendors think this is the wrong approach and can often lead to disappointment with the end result.

Benefits such as increased scalability, productivity, efficiency, and innovation, as well as ready access to more advanced technology and skill sets are really what a company should be thinking about in terms of what it will gain from bringing in a managed service provider.

“There is this misconception that a lot of organisations start out with that we’ll outsource because it will save us money. The answer is it doesn’t always and in some cases it can cost you more,” points out Marriott.

“Cost is really not the major factor. The major factor should be what is it doing to the business overall,” says Injazat’s Cunningham (pictured right). “Often the provision of stable IT services actually has a positive impact on things like a company’s overall profitability and ability to generate revenue,” he comments.

“If it is only about cost savings, in this region, it may restrict the number of vendors a company can talk to, and it would certainly restrict the way the service can be delivered.”

Al Barwani says that one of the most important benefits a company should actually be looking get out of outsourcing its IT is that it gives the company more time, resources and money

 

money to devote to its core business.

“Companies today do not have adequate skill sets in-house and do not have the money to constantly keep hiring and training people to keep up with technology, it is changing so fast. For most companies IT is not their core business, IT is a support function that lets companies do their core business. By outsourcing IT services it allows a company to focus on its core competencies,” he states.

Amir Rashid, business development manager at Etisalat’s IT services arm eCompany also highlights the benefits of access to a broader and superior range of skill sets.

“In terms of the skills required, through outsourcing companies gain access to a much bigger pool of talent. If for example a company needs network people, they need security people, they need basic operating system (OS) specialists, or database administrators, and it would cost a lot to employ all these people,” he notes.

“When a company outsources its IT all this expenditure gets economised because for the provider the cost is split over multiple customers.”

ECompany is seeing such a massive increase in business — which focuses on infrastructure outsourcing such as the hosting and maintenance of customer equipment — it is planning to open two new data centres by the end of next year, one in Dubai and the other in Abu Dhabi, to complement the three it already has.<>Changing skills

As well as acquiring skills through the use of outsourcing, companies sometimes forget that there needs to be a skills change from within, either by retraining current employees or by bringing in new staff to reflect the changing role of the internal IT operation from a technical one to more of a business role.

“A company needs to change the skill mix so that it has more business skill in the internal team while utilising the technical skills and some of the experience level of third parties because the company is moving a group of people in technical positions to where they’ve got to have more of a business understanding,” explains Gartner’s Marriott.

“This enables them to be able to act as that buffer between the supply and the demand side. So they become the brokers of the service, the managers of the service, rather than the deliverers of the service.”

Consensus among vendors and industry analysts is that many of the mistakes companies make when outsourcing their IT operations can be put down to the market here still being in the early stages of development with customers still relatively inexperienced at drawing up and executing outsourcing arrangements.

The hope is that, as the industry develops in the coming years, many of these important points to consider will become common practice in the region.