By Eliot Beer
Change, challenges and massive growth; Saudi Arabia's sluggish IT sector is speeding up. ACN looks at the issues, and the opportunities, for Saudi IT managers.
|~|almobarak200.jpg|~|Al-Mobarak: If you don't ride the wave of change, you'll find yourself beneath it.|~|Eighty percent of the Gulf's IT spending; a projected IT sector annual growth rate of more than 20% to 2008; massive budget allocations from vast oil revenues: whatever way you look at the Kingdom of Saudi Arabia (KSA), it is the key market in the Gulf region.
What is most interesting, though, is the extent to which the KSA IT sector is still largely undeveloped, even compared to other Middle Eastern countries. According to a 2005 Business Monitor International (BMI) report, IT spending accounts for only 1.6% of the Kingdom's GDP, compared to 2% for tiny Bahrain, and 3.3% for the US. Clearly KSA's IT sector has huge potential for growth, especially with oil prices continuing to ride high, and the government keen to make the most of the resulting surpluses.
Essam Al Bakr, vice president at Digicom, expects IT spending to reach US$6 billion - US$6.5 billion this year, up from analyst estimates of US$3.2 billion for 2005, which may themselves be well short of the true figure. He says a lot of this spending will come from government ministries and public sector bodies as they are forced into automating their systems by the central government. According to Al Bakr, there has been a degree of reluctance to implement sorely needed reforms of IT infrastructures, but the mood in public sector circles has now changed.
He says, "The Saudi supreme consul gave an ultimatum to all ministries to be automated by 2007; this ultimatum was issued a year or two ago, but some ministries have been struggling with their own problems - we have a heavily bureaucratic system. Now King Abdullah has delivered a message saying, in effect: 'I don't want you spending your budgets at the last minute - you've got to start spending, implementing and finishing from day one'. For the ministries, that is message enough that they have to bring in IT automation now, knowing they'll be evaluated at the end of the year on their progress. There's a big movement going on in the public sector."
Al Bakr claims Digicom was one of the first companies to succeed in implementing e-government systems in KSA. The company is currently working on a project at the Saudi Ports Authority for the ministry of transportation, and has worked with the Saudi Water Conservation Corporation (SWCC) in the past. Al Bakr is not the only figure to believe change is coming to the Kingdom's government sector.
Khaled Al Mobarak, vice president of the SAP Users Group Arabia (SUGAr), says, "I worked for the Ministry of the Interior (MoI) for three years, and I still try to keep up with the events in the IT departments in the ministries. The MoI is implementing an IT solution for their financial section, and there is an increasing move towards similar projects in other departments."
Al Mobarak, who works at the IT department in a major Saudi state oil concern as well as his SUGAr duties, says his department has received a large number of visits from government sector officials, to look at how IT solutions are implemented, and the benefits they can bring. He acknowledges, though, that there is some resentment of the changes being forced on departments, but says this is only natural.
"It's human nature - no one likes to change. But I think the ministry officials see the truth in the saying: 'if you don't ride the wave of change, you'll find yourself beneath it'. The wave of change in IT is coming, and if you don't ride it you'll be drowned, you'll be obsolete," says Al Mobarak.||**|||~|rashedalothman200a.jpg|~|AlOthman: If you don't have qualified people, that's a big problem.|~|"The same process occurred in other sectors; if you look at banking five or six years ago here, all the banks had big lobbies, lots of cashiers, and that was what you looked at. Now, you look at if the bank has internet facilities, how secure they are, how fast they are - no one cares how big the lobby is anymore."
Aside from governmental organisations and their own special challenges, observers of KSA's IT sector most often single out finance as one of the key drivers of technological change in the country's economy. Organisations such as Riyad Bank, Arab National Bank (ANB) and Tadawul, the Saudi stock exchange (now trading stocks worth in excess of US$600 billion), have all recently deployed impressive and often advanced IT solutions, including VoIP, business intelligence (BI) and enterprise resource planning (ERP) systems, to deal with business challenges, not just technical ones.
ANB's IT manager, Saad Al Khalb, has recently overseen the implementation of a VoIP system throughout the bank, and says, "We've seen a dramatic increase in call volumes. In January 2005, we had 300,000 calls, and in October 2005 we had more than one million. With the fast growth we're seeing in Saudi Arabia, we're expecting the bank's business to keep expanding dramatically. We don't know exactly what new developments we'll see, but the VoIP system will give us the flexibility to cope with the future."
Meanwhile Rashed AlOthman, senior vice president for IT at Riyad Bank, is busy working on a BI and data warehousing project at the moment. He says the business side of the bank has been very impressed with the potential offered by such projects, and this has given Riyad Bank the impetus to work on what is an ambitious and advanced implementation project for any organisation.
Other sectors driving IT development in the Kingdom include education, healthcare and manufacturing. In the realm of healthcare Saudi Arabia has some of the most advanced hospitals in the world in certain areas, but the CIO of the King Faisal Specialist Hospital in Riyadh, Hamad Al-Daig, says many hospitals in KSA, especially those under the Ministry of Health, are behind their counterparts elsewhere in the world in IT terms, although for some this is changing.
"Tertiary care organisations under bodies such as the National Guard and the Army are behind, but they are catching up," says Al-Daig, echoing the impression given by others of many government organisations in KSA: "Unfortunately, the Ministry of Health hospitals are not implementing the solutions they should be, in spite of our urging, our presentations to get them to change. I think they have other issues to contend with; they do not want to deal with IT, but we are trying to convince them that IT is the way to solve these problems. IT is the main solution, and they should not look at it as an expense, but as the only way they can move forward."
Al-Daig, who is in charge of an IT staff of around 100, is currently working on a number of IT projects at the hospital, including a clinical information system, an ERP and a data warehousing solution. While these projects are advanced, and grounded in business necessity, Al-Daig says IT budgets are still too low; his 180m Riyal (US$48 million) budget, while impressive as a headline figure, is just 2% of the total hospital budget. Most analysts suggest a healthy IT spend should be around 5% of the total budget.
Education, another sector set to spend heavily on IT in the near future, is also one of the most controversial topics for Saudi CIOs. In the budget for 2006, the Saudi government has allocated 87.3bn Saudi Riyals (US$23.3 billion) to education and manpower, an increase of almost 30% over 2005's budget allocation. The government has ambitious plans for 2,673 new schools, 15 vocational training centres and three new technical colleges; while most of the funds will go on basic construction, IT infrastructure will become increasingly important in managing these organisations, as well as dealing with the increased number of students entering higher educational establishments and requiring technical training.||**|||~|althehaiban200.jpg|~|Al Thehaiban: Many companies now look at IT as the main contributor to business growth.|~|But while the government is prepared to spend money to ensure Saudis have access to proper education, IT managers are complaining that they don't have access to the numbers of skilled IT professionals they require to develop their organisations and deliver high-quality implementations. This problem is compounded by 'Saudisation', the stipulation that organisations must have a certain proportion of Saudi nationals in their workforces, and must only hire Saudis for certain positions. Anecdotal evidence suggests that some companies actually create fake jobs for nationals to fill the quota because they are unable to find Saudi staff with the necessary skills.
Yasser Al-Farhan, managing director at Somac-IT, a KSA-based integrator, says, "One key issue is locals who do have skills are always looking for better deals, and will move companies quite often. It's not like in the past, when you would be with a company for life. Keeping talented Saudis in your organisation is a big challenge, especially with these mega-projects on the horizon - the big companies will always be hunting them. At the moment I think Saudisation is a limiting factor; in the long term it is obviously a good thing, but now I think it is holding development back."
Nadec's IT manager, Khalid Al-Shangiti, agrees with this, and says that skilled Saudis do not even go after the best-paid jobs, but seek positions in the most prominent or high-profile companies, at least for a few years of their career, making it even harder for less well-known enterprises to take advantage of their skills. Al-Shangiti says Nadec's management are very keen to use IT to drive the business. The company produces a range of food products, and has an annual turnover of around 702 million Riyals (US$187.2 million).
"The skills problem can be solved by starting at an earlier level of education, not when students graduate," says Al-Shangiti. "When people come out after four years of university, they've got good ideas and good understanding, but it will still take them another two years to understand the business. What companies and vendors should do is get involved while students are still in university. If we act proactively we can get students to focus on the real IT needs of Saudi Arabia; at the moment many graduates know a lot about ERP, for example, but they can only talk about a 'dream' version, not the reality for most Saudi companies."
He suggests getting students to look at real-life IT situations and cases at university will enable them to understand how companies in KSA use IT and see technology, and give companies the chance to take advantage of the students' skills at an earlier stage. But Al-Shangiti acknowledges that, in addition to the challenge of building Saudi nationals' skills, KSA organisations are often plagued by a lack of specialist personnel to help deploy complex vendor offerings, something echoed by every other IT manager included here.
Riyad Bank's AlOthman says, "One of the key issues we have faced recently is with multinational vendors' unwillingness to bring skilled people into Saudi to help implement their solutions, because of the security problems KSA has had in the last few years. This is an issue which has dramatically affected our business in the past, simply because we can't get access to the skills we need. The biggest challenge for CIOs in the Middle East is simple: finding the right human resources. Anything else can be arranged, but if you don't have qualified people, that's a big problem."
Aside from the key issue of education and skills, the other major challenge facing Saudi enterprise IT departments is the corporate culture among Saudi business leaders, and their attitude towards IT. While in many ways this is a common problem, not just in the Middle East, but worldwide, Saudi Arabia faces its own particular problems, in addition to the politics and assumptions common to all big businesses.
"In Saudi Arabia, most of the business leaders are Arabic speakers only; they speak very little English," says Nadec's Al-Shangiti. "At the same time, a lot of IT specialists speak no Arabic. If we try to translate between them, then 20% of the sense is lost straight away. A lot of the Kingdom's problems with IT can be traced back to the issue of communication, in my opinion."||**|||~|hassoun200.jpg|~| Hassoun: I think business leaders really do understand the value of IT.|~|Ayman Safadi, strategic planning and business development manager at KAB Holdings, sees the decision-making process used in Saudi businesses as one of the key challenges in making sure IT is deployed effectively, and ensuring the business benefits of technology are recognised. Safadi formerly worked at Accenture in both KSA and Dubai.
"The way decisions are taken in many organisations is often along the lines of a 'slow and steady' approach," he says. "Many people favour a gradual process of change over a wholesale shift, and this can be a barrier for IT when the benefits sometimes only come with a major change. Another factor is the budget cycle; for the past four to five years, spending has been very tight, due to the war, and other issues. Because of this as well, decision-making became slower."
Safadi says the internal market is now adjusting itself following KSA's entry into the WTO late last year. This, he says, is causing a slew of mergers within the country's IT sector, and is also encouraging the use of outsourcing. Other observers, such as the general manager of Oracle Saudi Arabia, Abdul Rahman Al Thehaiban, agree that the market is now changing and companies are becoming more accepting of IT, out of necessity.
"Many companies have been reluctant to invest in IT, because of the perception that it's unreliable and it involves ongoing expense," says Al Thehaiban. "But now the trend is changing, and many companies now look at IT as the main contributor to business growth. People have been able to see the impact IT has made to the financial services industry and recognised the value IT can bring."
Something that still remains a challenge for any enterprise wishing to operate over the whole of Saudi Arabia's vast area is the deceptively simple issue of communication. ANB's Al Khalb says the bank has faced problems operating over the country's huge geographical area; ANB even had to use virtual call centres in Dammam and Jeddah to route customer calls, to avoid punitively expensive charges from the Saudi Telecom Company (STC) for long distance connections.
Cisco's Dr Badr Al Badr, general manager of the network giant's KSA division, says this is now changing, however, as STC prepares to introduce 600,000 new lines over the next two years, as well as digital subscriber line (DSL - high-speed internet connections) facilities, across the country.
"We also have two data telecom challengers who are expected to start offering their services within a few months," says Al Badr. "This should help deal with enterprises' bandwidth issues. I think IT and communications technology is now becoming accepted; in a recent survey we conducted among small and medium enterprises, competition was rated as the number one concern, and 70% of respondents said IT is one of their key tools to deal with competition. When it comes to larger enterprises, I think this will probably be even more true."
The impression from many people in KSA is that, leaving aside government ministries, the country's large enterprises have begun to utilise IT effectively and recognise its business benefits, although smaller organisations still lag behind in this area. Humansoft's vice president, Mohammed Hassoun, agrees with the view that, outside of the largest companies, there is a lot of room for improvement. But overall he gives a positive picture of KSA's IT sector.
"There's a lot of hope on the horizon, I think," says Hassoun. "There are a large number of programmes to bring up the educational standards in Saudi Arabia. As regards enterprises, the top 200 companies in Saudi have come a long way in improving how well IT is aligned to the business. They see that when they invest the right way in IT the ROI can be very high, and this has happened over the last three years. CEOs have begun to sponsor IT projects wholeheartedly now, and I think business leaders really do understand the value of IT."||**||