it in me ceo agenda

8/12/2019 IT in ME CEO agenda

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Information Technology in theMiddle East: The CEO Agenda

by

Ghassan [email protected]

Fadi [email protected]

Peter [email protected]

Ramez [email protected]


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The effective application of information technology (IT) as an enabler of improved productivity and value creation

is universally recognized. In response, there is a growing trend of integrating business and IT management at thehighest level to exploit technology. However, we at Booz Allen Hamilton believe that this trend has yet to manifest

itself in the Middle East. Levels of IT investment on the whole are low by Western standards, and IT based

programs aimed at transforming business practices are the exception rather than the rule.

We believe that the reasons behind the above phenomena lie not in a lack of awareness of the importance of IT,

but in the way IT is managed and applied in the realization of business objectives. To test this view we interviewed

a number of senior executives (CEOs and CIOs) of major organizations in the Middle East. Our findings revealed

notable weaknesses in the management of IT, namely:

A general absence of strategic IT plans and business cases to support IT investments, and ensure the linkage

between business and IT objectives

Widespread concerns over the availability of suitably skilled staff to deliver IT services in line with business

requirements

A general absence of IT performance measurement systems

In our opinion, organizations that fail to address these weaknesses will eventually find their competitiveness in the

marketplace being eroded. In particular, such organizations face the risk of:

Ineffective investment in IT and failure to generate expected returns on investment

Reduced business competitiveness caused by ineffective IT delivery capabilities that slow down business

innovation and increase time-to-market for new products

Deflected management attention through the need for senior management to intervene in the delivery of major ITprojects

To address the above weaknesses, we recommend that CEOs adopt a three-pronged agenda:

Link business and IT objectives through implementing the appropriate IT management processes, organization

structure, and governance model

Address the shortfall in delivery capabilities by defining and implementing resourcing strategies, and working with

other CEOs to effect structural changes in the IT supply marketplace

Implement a performance measurement system based on balanced scorecard principles to track and measure the

effectiveness of these changes

Executive Summary


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We, at Booz Allen Hamilton, believe that the answers

to these questions lay not so much in the lack of

awareness about the importance of IT for economic

development and business success, but more in the

way IT is managed and applied in the realization of

business objectives. The service station model is

very much alive in this part of the world, while it is

rapidly dying in other developed markets; organizations

where IT is shaping or enabling the business agenda,

and where IT management is effectively integrated into

business management, are the exception rather than

the rule.

To test this view, we conducted a qualitative survey in

the spring of 2002, involving face-to-face and telephone

interviews, with senior executives (in particular CEOsand CIOs) of major organizations in the Middle East.

The findings and conclusions in this document are

drawn from these interviews, our first-hand local and

international experience, and empirical research.

Managing IT from the CEO Perspective

To guide our investigation, we applied a Booz

Allen Hamilton developed framework, the CEO IT

Framework. The framework is comprised of three

dimensions (see Exhibit 2):

Linking of business and IT objectives, involving IT

processes, organization and governance to plan and

manage IT development and service delivery

Effective delivery of IT services, to implement IT

development plans and provide IT support services

Measurement of IT performance, to assess how well

IT delivery meets business objectives

Summary of Findings

The survey was conducted with CEOs/ CIOs of both

public and private sector organizations in the region.

In particular, there was an emphasis on information

intensive industries such as financial services and

telecommunications.

The majority of interviewees indicated that IT was either

absolutely critical or most critical to business activities

(see Exhibit 3).

This finding is in line with our view that there is no lack

of awareness, in most part, about the criticality of IT, at

least for effective business operations.

However, when we assessed how IT is managed, we

found that approaches to IT management did not reflect

the perceived importance of IT. With a few exceptions,

we found the following:

A general absence of strategic IT plans and business

cases to support IT investments, and ensure linkagebetween business and IT objectives

Widespread concerns over the availability of suitably

skilled staff to deliver IT services in line with business

requirements

A general absence of IT performance measurement

systems

The above findings, in particular the first and third, are

symptomatic of IT being managed in a reactive fashion

( la service station model), whereby the users come

up and say, This is what I want and the IT organizationis expected to react and deliver as quickly as possible,

2

Exhibit 2CEO IT Framework

Exhibit 3

Results from Interviews on Criticality of IT


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and at the lowest possible cost. Best practice elsewhere

in the world suggests that this is not the most effective

way for the application of IT.

In the following sections, we will investigate the aboveissues in more detail and evaluate the implications for

businesses in the Middle East. We will then propose a

set of recommendations, drawing on international best

practices, on how to address these issues.

Linking Business and IT Objectives

Linking business and IT objectives is the first essential

step needed for success. It involves addressing issues

such as: Where should we focus our IT investments to

achieve our business objectives? How much should we

invest in IT?

Typically, this linkage is achieved by implementing an IT

organization structure and governance model together

with formal management processes to systematically

plan and budget IT projects. However, our interviews

revealed notable weaknesses in these areas.

In general, IT planning tends to be informal and

projects initiated without supporting business cases.

Consequently, projects are often launched based

on perceptions or me too mindsets. For example,

many organizations noted customer relationship

management as a priority, but were unable to articulate

the accompanying business rationale to support these

investments. In the absence of clear plans for IT, we

observed projects being unilaterally initiated by the

business, and also sometimes, expensive IT projects

unilaterally initiated by IT. Both instances invariably

result in duplication of effort and ineffective

investment in IT. We also found that operational budgets

tend to be based on the previous years budget allowing

for a small percentage increase. Capital budgets, on the

other hand, are typically determined by the influence of

business unit heads whose interests may not be totally

aligned with overall business priorities - so called

whoever shouts the loudest.

Organizationally, the IT department tends to be

bundled with other functional units, e.g. finance, and

there is limited representation of the head of IT on

senior management committees. Interestingly, many

organizations appear to have IT governance structures

in place (e.g. IT Steering Committees). However, in the

absence of well-articulated IT development plans, theeffectiveness of such structures is questionable.

The above findings are the symptoms of a weak

linkage between business and IT strategies. In such

circumstances where the future direction of IT has not

been set, the best the department can hope to achieve

is to meet managements expectations. In reality, the IT

department in such circumstances is often viewed as

under-performing by senior management.

Effective Delivery of IT ServicesOnce business and IT objectives are linked and a clear

direction for IT is set, the next step is to ensure that

IT capabilities are effectively delivered in line with

established objectives. This involves addressing issues

such as: How do we best deliver IT services, from a

cost and service level perspective?

Here the effective deployment of staff resources is the

most important factor for success. IT hardware and

software solutions (with a few exceptions where country

specific requirements exist) are becoming increasingly

universal. The key is to have quality staff resources to

select, apply, develop and/or customize, implement,

operate and maintain the technology.

In the Middle East, the scarcity of quality IT staff

resources, that are up to speed with the rapid

developments in IT, is very acute, in particular in the

oil producing countries of the Gulf. Many organizations

have difficulty in retaining skilled staff members who

are attracted to more lucrative opportunities either

within the region or beyond. Furthermore, the reliance

on expatriate workers addresses the short-term supply


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issue, but does not create a long-term pool of skilled

resources. This situation hampers the effective delivery

of IT services, even when the best plans are articulated

and business and IT objectives are perfectly linked.

Interviews revealed that organizations have addressed

the issue of scarce IT resources in one of two ways:

Using external solutions providers to effectively

substitute for internal resources and support IT

activities or;

Relying on internal resources to perform the minimum

required to keep systems operational

Neither solution is adequate. The former is costly

given the short-term nature of service contracts, and

the latter is unable to provide the services required by

the business.

Outsourcing/out tasking is viewed as a potentially

attractive alternative model. Outsourcing companies

are typically in a better position than IT user

organizations in terms of IT staff recruiting and

training, and in developing centers of excellence for IT

expertise. They could thus provide reduced IT costs,

more flexibility in terms of staff deployment, and

better access to best-of-breed IT expertise, when

needed. Most importantly, outsourcing and out taskingagreements include explicit service level agreements,

providing a high level of transparency for IT costs

and quality of service, thus allowing management to

decide on how to make the trade-off between service

and cost. Also, out tasking provides opportunities

for importing certain IT services (such as software

development) from markets where qualified and cost

effective IT staff resources are available (such as India

or Egypt for Arabic skills).

A number of interviewees were in the process ofinvestigating outsourcing while a few have tested this

model with mixed success. Some of the companies

interviewed outsourced their entire IT operations, and

found themselves in a situation where IT investments

were outpacing the business ability to absorb them.

Others (mainly smaller organizations) found that the

outsourcing model was more costly than the in-house

resource model, and chose to abandon outsourcing

altogether.

In most part, however, the adoption of outsourcing

in the region is very limited. This situation is due

to the immaturity of the out tasking / outsourcing

supply market in the Middle East, and the difficulty

in overcoming existing labor legislation that restricts

the movement of labor between client organizations

and outsourcing providers. In addition, the reluctance

of user organizations to part with certain IT functions

because of data confidentiality concerns has alsoimpacted the adoption of outsourcing arrangements.

Measurement of IT Performance

Measurement of IT performance is essential to

provide the feedback loop that determines the

extent to which established business objectives are

being achieved through actual performance. Here we

address the question: Do we add value through our

IT investments?

To understand how organizations are measuring

IT performance, we evaluated whether or not

performance measurement systems were being used,

the measures being tracked, and the extent to which

performance measures were linked to strategic and

business objectives.

Our interviews identified only rudimentary cost-based

measurement systems for IT performance. With

the exception of one or two organizations that have

implemented more advanced systems like balanced

scorecards, measurement of IT performance tends

to focus on actual vs. budgeted IT expenditures. We

also found several organizations where even these

rudimentary measures are incomplete - i.e. the overall

expenditure on IT is not fully captured. Very limited

feedback into the strategic planning cycle exists even

when performance measures are in place.

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Implications for Businesses in the Middle East

The above findings are in stark contrast to the

perceived importance of IT. Even so, are there reasons

why CEOs should be concerned? We believe there

are three reasons why CEOs need to take action and

address the status quo:

Risk of ineffective investment in IT and failure to

generate expected returns on investment. Without

a clear linkage between business and IT objectives,

there is a very real risk that IT investments do not

meet business requirements and consequently fail to

generate the expected returns

Reduced business competitiveness. With more and

more businesses becoming IT enabled, ineffective IT

delivery capabilities slow down the pace of business

innovation. It also increases time-to-market for new

products, reducing the ability of the business to

respond to new opportunities and paving the way for

more nimble competitors to enter the marketplace.

Deflected management attention. In the absence

of an effective IT governance structure, senior

management has to intervene and fire fight on major

IT projects. Consequently, attention is deflected from

focusing on more important strategic issues.

IT in the Middle East: The CEO Agenda

Having evaluated IT in the Middle East along the

dimensions of the CEO IT Framework and identified

the prevailing issues, we believe there are actions

that can be taken to improve the effectiveness and

management of IT at the corporate level.

Linking Business and IT Objectives

Firstly, there is a critical need for CEOs in the region to

define their expectations from IT. With the shortcomings

of the service station model evident, CEOs need towork with their senior management team to determine

an appropriate IT operating model. The operating

model selected should be influenced by external

factors, namely the nature of the industry in terms of

information intensity and the competitive positioning

of the company, and not by the internal readiness of

the IT department. Agreeing on the most appropriate

positioning will establish a stretch target for IT.

Secondly, a suitable IT organization structure needs to

be put in place, reporting at the right level and led by asufficiently senior member of the management team.

Thirdly, companies need to invest in IT planning

processes and staff training to execute the processes.

Formal IT planning processes are an extension of the

business planning process. The output of the planning

process, the IT Strategic Plan, should be supported by

application and technical architectures that reflect the

functional and technical implications of the plan. On

the execution side, the implementation of technology

solutions needs to be accompanied with the required

changes in business processes and staff skills.

Fourthly, an effective governance structure needs to

be defined and implemented. The purpose of the

governance structure should be to:

Provide business unit executives with a forum to

discuss and understand how technology will impact

their businesses

Expose technology experts in the IT organization to

the issues and problems most critical to the business

units

Provide both with a forum to prioritize IT investments

IT in the Middle East: The CEO Agenda


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The challenge is to select the most appropriate mix of

models that maximizes the cost/ service level trade-

off. We have defined a set of criteria (see Exhibit 6)

and developed a methodology (see Exhibit 7) to assist

organizations in the selection of resourcing models.

Secondly, shortfalls in the available skills need to

be addressed either through strategic agreements

with qualified IT contractors and/or judicious use of

outsourcing organizations. These agreements need to

include knowledge transfer programs as a key condition.

Achieving fundamental change in the long term,

however, will require structural adjustments that can

only be achieved through the collective effort of many

organizations. This includes:

Developing the in-country outsourcing market

through joint ventures with recognized outsourcing

providers.There are lessons that can be applied fromother markets with restrictive labor practices such as

France and Italy to overcome labor mobility issues.

This includes, for example, addressing legislation

that links IT resources with the work they support by

spinning off IT activities into a separate entity before

transferring the activities to the outsourcing entity

Working with policy makers to attract IT professionals

to the region

Teaming up with educational institutions (public

and/or private) and IT vendors to develop local ITexpertise (for example, providing financial incentives,

offering internships etc.)

Exhibit 7

Allocation of Resourcing Models

Exhibit 6

Resourcing Criteria


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The importance of IT as an enabler for improved

productivity and value creation in the Middle East is

widely acknowledged. However, the predominance of the

service station operating model is leading to lower

than expected returns from IT investments, reduced

business competitiveness, and a disproportionate

amount of senior management attention being spent on

IT projects.

CEOs can address the above effects through a three-

pronged agenda:

Link business and IT objectives through implementing

the appropriate IT management processes,

organization structure, and governance model

Address the shortfall in delivery capabilities by defining

and implementing resourcing strategies, and working

with other CEOs to effect structural changes in the IT

supply marketplace Implement a performance measurement system based

on balanced scorecard principles to track and measure

the effectiveness of these changes

Implementation of the above recommendations will go

a long way to remove the dependence on the service

station model and usher in an era where Middle

Eastern companies exploit IT to shape their business

strategies.

Exhibit 8

Evolution of IT Performance Measurement

Conclusion


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Downloadable digital versions of this article and other Booz Allen Hamilton publications are available from www.boozallen.com.

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best ideas in business, visit www.strategy-business.com,

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sponsored by Booz Allen.

What Booz Allen Brings

Ghassan Barrage is a Vice President in Booz Allen

Hamiltons Middle East practice with over 20 years of

management consulting experience in Europe and the

Middle East. He has assisted a wide variety of clients

in the development of business strategy, organizational

capabilities and IT plans, and implementation

programs.

Fadi Majdalaniis a Principal in Booz Allen Hamiltons

Beirut office. He consults with clients across industry

sectors on a broad range of IT issues. His recent

work has focused on driving through IT Transformation

programs, and assisting clients with the evaluation,

selection and implementation of major applications

including ERP, CRM and Billing systems.

Peter Vayanosis a Principal in Booz Allen Hamiltons

Beirut office. His primary focus is on IT Transformation

in the Financial Services and Telecoms sectors. In this

context, he has assisted clients with developing IT

strategies, designing and implementing IT management

processes, and establishing business aligned IT

organization structures.

Ramez Shehadiis a Senior Associate in Booz

Allen Hamiltons Beirut office. His primary focus is

the application of electronic commerce to exploit

opportunities in the online and offline world. In this

context he brings to bear hands-on experience as a

previous director of a B2B procurement portal as well

as consulting experience in the e-commerce space.


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