Information Technology in the

Middle East: The CEO Agenda

by
Ghassan Barrage
barrage_ghassan@bah.com
Fadi Majdalani
majdalani_fadi@bah.com
Peter Vayanos
vayanos_peter@bah.com
Ramez Shehadi
shehadi_ramez@bah.com
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 the
highest 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 IT
projects
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
Information Technology in the Middle East:
The CEO Agenda
1
There is no doubt today, that the effective application
of information technology (IT) is an important enabler
for improved productivity and value creation, two key
drivers for economic growth and business success.
IT is broadly recognized as one of the main drivers
behind the economic growth experienced in the 1990s
in many parts of the world. For example, the Internet
has fundamentally changed the way companies do
business with their customers and suppliers, and the
manner in which governments interface with citizens.
IT has also emerged as a source of competitive
advantage - critical for introducing new products and
services, establishing effective distribution channels,
enhancing customer service and improving productivity
levels. New IT enabled business models (e.g. Dell,
eBay, Amazon, Schwab) demonstrate the extent
to which this technology is apt to transform entire
industries, and alter the strategic position of players in
the marketplace. This is particularly true for industries
where IT has a critical impact on the business, and
where IT provides a vital link to customers, suppliers
and business partners.
As a result, there is a growing trend in business
communities around the world, to integrate business
and IT management at the highest levels in the
organization (the CEO level and the Board). This
trend is to ensure that IT plays a key role in the
future success of the business. The IT function is
becoming less a service station, expected to provide
specific IT capabilities demanded by the user at the
lowest possible cost, and more a business partner
participating in shaping the business agenda.
Our observations suggest that this trend has yet to
gather pace in the Middle East. For starters, the level
of overall IT investment in the region is low by western
standards (see Exhibit 1).
Access to and use of the Internet is one of the lowest
in the World. A recently published UNDP report
(1)

indicated that only 0.6% of the Arab population use the
Internet - compared to more than 50% in the USA.
Furthermore, major IT based programs, aimed at
fundamentally transforming the way businesses and
governments interact with the outside world and operate
internally, are the exception rather than the rule.
Two questions come to mind:

Why is investment in IT so much lower in the Middle
East, when compared to other more developed
regions in the world?

Why are the benefits from IT investment, in terms of
increased productivity and better value creation, not
being fully realized?
1
Arab Development Report 2002, United Nations Development Program - Arab Fund for Economic and Social Development

Exhibit 1
IT Spend as a Percentage of GDP (2001)
3









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 CEOs
and 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 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
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 organization
is expected to react and deliver as quickly as possible,
2
Exhibit 2
CEO IT Framework


Exhibit 3
Results from Interviews on Criticality of IT
3
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 above
issues 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, the
effectiveness 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 Services
Once 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
5
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 tasking
agreements 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 of
investigating 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 also
impacted 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.
4
5
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 to
work 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 a
sufficiently 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
7

























































































While governance bodies manifest themselves in
various forms, (e.g. IT Strategy Board, Technology
Council, etc.), a two-tier IT governance structure
is becoming commonplace (see Exhibit 4). The
IT Steering Committee represents the highest
governing body for IT and has a strategic agenda.
It is responsible for setting the overall IT direction,
approving major IT investments, and monitoring
the progress of major IT projects. The IT Forum is
composed of mid-level business and IT executives, and
is responsible for the tactical agenda. The scope of IT
Forum responsibilities includes agreeing investment
priorities across the business, monitoring the progress
of IT projects, and resolving tactical issues which
impact more than one business unit.
Lower down in the organization, linkages with the
business are established through relationship
managers as part of an IT demand/supply
organization model.
Effective Delivery of IT Services
There are actions that CEOs in the Middle East can
take both individually and collectively to address the
resourcing issues found in the region. Firstly, individual
CEOs need to define resourcing strategies to focus
their efforts on identifying and selecting the correct
resourcing model for their organization. Fundamentally,
CEOs can choose from four resourcing models to
support their IT processes (see Exhibit 5).
6
Exhibit 5
Resourcing Models

Exhibit 4
IT Governance Model
7
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 from
other 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 IT
expertise (for example, providing financial incentives,
offering internships etc.)

Exhibit 7
Allocation of Resourcing Models
Exhibit 6
Resourcing Criteria

8
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
8
9
Downloadable digital versions of this article and other Booz Allen Hamilton publications are available from www.boozallen.com.
Booz Allen Hamilton has been at the forefront of
management consulting for businesses and governments
for more than 80 years. Booz Allen combines strategy
with technology and insight with action, working with
clients to deliver results today that endure tomorrow.
With over 11,000 employees on six continents, the
firm generates annual sales of $2 billion. Booz Allen
provides services in strategy, organization, operations,
systems, and technology to the worlds leading
corporations, government and other public agencies,
emerging growth companies, and institutions.
To learn more about the firm, visit the Booz Allen Web
site at www.boozallen.com. To learn more about the
best ideas in business, visit www.strategy-business.com,
the Web site for strategy+business, a quarterly journal
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 Majdalani is 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 Vayanos is 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 Shehadi is 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.
Abu Dhabi
Charles El-Hage
971-2-6-270882
Amsterdam
Peter Mensing
31-20-504-1900
Atlanta
Joe Garner
404-659-3600
Bangkok
Tim Jackson
66-2-653-2255
Beirut
Charles El-Hage
961-1-336433
Berlin
Rene Perillieux
49-30-88705-0
Bogot
Jaime Maldonado
57-1-313-0202
Boston
John Harris
617-428-4400
Brisbane
Tim Jackson
61-7-3230-6400
Buenos Aires
Alejandro Stengel
54-1-14-131-0400
Caracas
Jos Gregorio Baquero
58-212-285-3522
Chicago
Gary Ahlquist
312-346-1900
Cleveland
Les Moeller
216-696-1900
Colorado Springs
Glen Bruels
719-597-8005
Copenhagen
Kenny Palmberg
45-3393-36-73
Dallas
Tim Blansett
214-746-6500
Dsseldorf
Thomas Kuenstner
49-211-38900
Frankfurt
Rainer Bernnat
49-69-97167-0
Gteborg
Bengt Johannesson
46-31-725-93-00
Helsinki
Kari Iloranta
358-9-61-54-600
Hong Kong
Reg Boudinot
852-2634-1878
Houston
Joe Quoyeser
713-650-4100
Jakarta
Ian Buchanan
6221-577-0077
Lexington Park
Neil Gillespie
301-862-3110
London
Peter Bertone
44-20-7393-3333
Los Angeles
Tom Hansson
310-297-2100
Madrid
Mercedes Mostajo
34-91-5220606
Malm
Ingemar Bengtson
46-40-690-31-00
McLean
Martin J. Bollinger
703-902-3800
Melbourne
Tim Jackson
61-3-9221-1900
Mexico City
Alonso Martinez
52-55-9178-4200
Miami
Alonso Martinez
305-670-8050
Milan
Enrico Strada
390-2-72-50-91
Munich
Richard Hauser
49-89-54525-0
New York
David Knott
212-697-1900
Oslo
Haakon Bjertnaes
47-23-11-39-00
Paris
Panos Cavoulacos
33-1-44-34-3131
Philadelphia
Molly Finn
267-330-7900
Rio de Janeiro
Paolo Pigorini
55-21-2237-8400
Rome
Fernando Napolitano
39-06-69-20-73-1
San Diego
Foster Rich
619-725-6500
San Francisco
Bruce Pasternack
415-391-1900
Santiago
Alejandro Stengel
562-445-5100
So Paulo
Letcia Costa
55-11-5501-6200
Seoul
Jong Chang
82-2-2170-7500
Stockholm
Kenny Palmberg
46-8-506-190-00
Sydney
Tim Jackson
61-2-9321-1900
Tampa
Joe Garner
813-281-4900
Tokyo
Eric Spiegel
81-3-3436-8600
Vienna
Helmut Meier
43-1-518-22-900
Warsaw
Reg Boudinot
48-22-630-6301
Wellington
Tim Jackson
64-4-915-7777
Zurich
Jens Schedler
41-1-20-64-05-0
Worldwide Offices
PRINTED IN USA
2003 Booz Allen Hamilton Inc.