Saudi Arabia's changing economy is dragging its enterprises into a new competitive environment; ACN looks at how firms are leveraging IT to make the most of the opportunities in the Kingdom.
The Gulf's largest economy is changing - slowly. Saudi Arabia's shift away from relying purely on oil revenues and towards a diversified economy has been a long and challenging one, but the country's enterprises are now seeing the effects of this transformation.
The Saudi government has made great strides in modernising key aspects of the country's economy, with a view to encouraging competition - and also to protect its citizens from some of the new threats that come with the new economy.
Recently the call for bids for the third telecoms licence to operate in Saudi Arabia closed - as
went to press, Kuwait's MTC group was confirmed as the highest bidder, offering more than US$6 billion for the licence (although MTC's win is yet to be ratified by Saudi ministers).
"We are delighted to have made the highest bid and look forward to confirmation of being awarded the third mobile licence in the attractive Saudi mobile market," commented MTC Group CEO Saad Al Barrak in a statement after the licence announcement was released.
That a telecoms company is willing to invest so heavily in a market with two incumbent operators gives an indication of the potential which many investors - globally as well as in the Middle East - see in Saudi Arabia.
And as the keen nature of the bidding around a third telecoms licence also indicates, future growth in Saudi Arabia is going to come from knowledge- and technology-based industries as much as it is from more traditional verticals. MTC is betting on continued and dramatic growth in demand for lucrative communications products and services to give a return on its $6 billion investment - on top of its infrastructure deployment costs.
This growth comes from both the growing affluent middle class, and the increasing numbers of knowledge workers which Saudi Arabia expects to attract in the coming years.
A key plank in this strategy is the country's Economic Cities programme - four cities have been announced so far, with more on the way before the end of 2007. With the cities targeting a number of different sectors - knowledge industries, petrochemicals and heavy industry - Saudi Arabia's government hopes to attract foreign investment to the country, as well as skilled workers.
The first project under development is Knowledge Economic City (KEC), which will be built on the outskirts of Medina. KEC is positioning itself as a hub for knowledge workers, including IT firms as well as scientific research organisations and universities, among other strands.
"Because it's a centre for knowledge-based industries in the region, we will have very demanding and high-profile users that will be in that working environment - the techies of the world," says Mohammed Shah, senior technology officer for KEC. "We naturally want to make sure they have as comfortable and as modern technology environment there as possible, to help them with their business and other activities. They can go around the city and have connectivity, have virtual presence in their office, they can have flexibility when operating out of their office - a truly flexible, mobile workplace."
KEC is trading on the history and culture of Medina to sell itself as a desirable place to work - and more importantly, live. Countering the external perceptions of living in Saudi Arabia is a key challenge for the Economic Cities projects, because unlike other centres such as Dubai or Bahrain, the country cannot market itself as a ‘lifestyle' destination on the same blueprint as its counterparts (although KEC officers expect the religious significance of Medina to be a major draw for many Muslims around the world).
Instead, KEC and the other Cities are set to trade on the highly-developed infrastructure and cutting-edge services they will deploy. Shah is especially enthusiastic about the possibilities inherent in creating IP-based systems to assist with every aspect of daily life: "We have a vision of creating a smart city, where anyone can have access to any application at any time, from a single device."
Shah is working closely with key vendors to develop KEC's IT systems - at the current infrastructure planning stage, one of the development's main partners is Cisco. According to Shah, the network giant's CEO, John Chambers, has taken a personal interest in the project - unsurprising, since KEC is set to be one of the vendor's largest customers anywhere in the world over the coming years.
"I think more and more in the region we need to see collaboration at a strategic customer planning perspective, and from the strategic vendor delivery perspective - if we can align strategic supply and demand, it will benefit everybody," says Shah.
"And it will keep all of our costs down as well, it will smooth that whole process. There is such a growing demand regionally now, with the economic boom we're beginning to experience, that it's very important to keep supply and demand in sync, and for everybody to be focused and aligned, so we maximise the hit rate and minimise the cost."
Shah's discussion of a shift from project-by-project procurement to strategic long-term partnerships is indicative of the direction that many KSA organisations are now taking - in both the public and private sectors. Enterprises are now planning for long-term growth strategies - and as a result are moving to long-term IT strategies as well.
"For anything in the area of IT processes and managing these processes, I think that every organisation in Saudi Arabia - at least the large enterprise sector - are focusing on it now," says Zaki Sabbagh, CIO at Zamil Industrial Investment Company (ZIIC), based in Dammam. "The trend is to standardise, to automate these processes, to set best practices up around these processes. This basically will allow organisations to integrate with business requirements directly."
Sabbagh says ZIIC is currently "at an advanced stage" of implementing ITIL and is also applying for ISO 20000. The company operates across 55 different companies in a range of verticals, so harmonising and standardising its systems is now a critical project and an aspect the company is investing in.
"Most organisations in the region are in a chase to restructure their IT infrastructures, to accommodate updated requirements and to support their organisations in improving productivity," says James Mathew, general manager of Sariya, an IT distributor operating in Saudi Arabia. "At the same time, organisations are investing with better foresight and solid plans to accommodate their future requirements. These days, organisations are also paying greater attention to scalability and support for proposed solutions, before they choose any new products or technologies and embark on new projects."
These trends mark a shift away from ‘basic' implementations, such as ERP systems. Sabbagh says ERP is now "a commodity" for KSA enterprises, and many firms in the Kingdom are now looking at more advanced - and more profitable - implementations.
"You see a lot of trends on the business intelligence (BI) front - it's a quick win for enterprises, they see a return immediately," he explains. "For ZIIC, we haven't implemented BI yet - we're opening a number of new factories, and we haven't found the time to do BI yet, but it's a priority for us. Many large enterprises are coming round to the idea of implementing BI; there's also a lot of interest coming around business process monitoring (BPM), but this is not a mature product yet - even at the vendor level, this is still being developed."
Tarek Al-Moraisel, IT director for Al-Osais, has recently signed up with SAP for a new enterprise applications system. He agrees with Sabbagh that enterprises are now looking for more value-added IT systems as market conditions in the Kingdom force companies to hunt for more competitive edges.
"When a company grows, it develops a lot of different divisions - such as transportation, services, and so on," says Al-Moraisel. "When this happens you have to widen the base, because without a strong base, you have a problem. Management requires immediate real-time information, to make better day-to-day decisions. This forces us to look for the latest systems to that will help the management make better decisions."
Interestingly, the ways in which enterprises in Saudi Arabia are now going after this technological business edge is starting to diverge. On the one hand, increasing numbers of organisations are looking at, or actively engaged in, new data centre deployments. On the other, managed services are finally making a headway in Saudi Arabia, shrugging off some of the suspicion which has traditionally surrounded the hand-off of services to a third party.
"For companies launching services, they don't have time to look into their IT - for example, take new low-cost airlines," says ZIIC's Sabbagh. "Their models are based on e-ticketing and efficient systems - these models already exist, so I suspect they host their systems. Deploying it end-to-end would cost a lot of money. Insurance companies, call centres, CRMs - I don't think they are spending the time and effort on technical IT issues. They would rather just go to a hosting service and let others run their systems."
Hosting services are appearing across the Middle East, and Saudi Arabia is the prize for most of them in terms of potential business. While managed IT services make up many of the hosting operations, other hosted services are also springing up, such as outsourced call centres.
Etisal International claims to be the first outsourced call centre company operating in Saudi Arabia - it celebrates its fourth year of business this year. Based in Jeddah, it counts some of the biggest names in KSA as its clients, including Al Rajhi Bank, SAGIA, and Microsoft Saudi Arabia.
"The market is now becoming more educated, and companies are realising how important a good call centre is to their business," says Mohamed Eissa, general manager at Etisal. "We've had to do a lot of education in the market, in terms of getting the benefits across.
"We encountered a suspicious mindset in the beginning, but this is really changing now. We still encounter some resistance on issues of security - clients are very concerned about their data and databases. But we've made big efforts to make ourselves partners to our customers. Our clients are fully convinced - we've been serving Al Rajhi for the past three years, and SAGIA for the past two - but there is still some resistance from prospective clients," he adds.
The attraction of hosted services for enterprises is clear - very little upfront investment, predictable running costs, and full-time experts managing the service. But a deeply ingrained reluctance to hand over control of internal processes means observers see it being several years before there is more mainstream acceptance of third party services.
Data centres, on the other hand, offer a much more controlled environment - but at a steep price. Investment in dedicated data centres is rising across the Kingdom, though, as enterprises work to consolidate their IT systems.
"Companies such as banks cannot put their financial data into some external hosting service," comments Sabbagh. "They may consider hosting for disaster recovery, but not their main systems. Organisations which are directly linked to the national economy, such as Saudi Aramco - they cannot afford the risk of going to an external service, and they don't want it. They don't have a problem with money to invest in IT, and it's a national issue."
For enterprises such as ZIIC, which now operates around the world, the answer may lie in a bit of both. ZIIC runs its ERP systems from its own data centre, but hosts its CRM application - as this is required by business units around the world, it must be up 24x7. Sabbagh frankly admits that this is not something ZIIC could do internally with a reasonable level of investment - hence the decision to host the service.
But moving core operations internally means a higher cost not just in terms of physical and logical systems, but also in trained personnel. The regional skills shortage is just as acute in Saudi Arabia as anywhere else - maybe even more so, given the aforementioned image problem which the country is trying to shake off.
Al-Moraisel's approach is to hire more junior staff, then train them as required - at the same time, he works to retain them with reasonable packages. But he admits this can be an uphill struggle: "Training is a must - even with highly-skilled staff, you have to keep their skill sets up-to-date all the time. But the demand is so high that it is still a problem to keep the numbers of staff that we need."
And without trained staff, it can be hard for organisations in Saudi Arabia, which may have adopted enterprise-level IT systems only recently, to manage them effectively, and protect them effectively.
The KSA government has been working hard to draft and enact new laws aimed at reducing cybercrime - these will be backed up by new initiatives lead from Saudi Arabia's Ministry of the Interior.
Its senior advisor on information technology and security, Dr Abdulrahman Al-Shenaifi, has been behind much of the work on both the laws and the new anti-cybercrime department. He is adamant that organisations in Saudi need to take the security situation seriously.
"My advice for enterprises would be simple - stop buying stuff for coffee and tea, and start buying software and hardware to protect your organisation," states Al-Shenaifi bluntly. "Any organisation which does not allocate enough resources to protect its vital assets - its information - deserves to be hacked, in my opinion."