Middle Eastern banks now have at their disposal a variety of technologies that can keep their costs down while making banking more convenient for customers: ATMs, online banking, mobile applications and hybrid platforms such as consumer kiosks.
But chief information officers at banks are finding that their information technology (IT) functions are overburdened as they develop and maintain these tools, as well as the back-end systems that underpin them, while also trying to create new products and services. This challenge is compounded by shortages in local labour markets because of the limited numbers of technically trained locals and difficulties in hiring foreign labour.
Banks in the region have a variety of options for increasing the pool of talent needed to develop software. They can keep all of the functions in-house, hiring additional staff, but they are hindered in doing so by shortages in the talent pool. They can use some contractors via third-party vendors, but regional vendors will also run up against the shortage of talent.
Another option is outsourcing, which lets banks tap into geographically distant labour pools to supplement their local IT functions, but this comes with its own drawbacks: less control over people or processes, the potential loss of intellectual capital, possible cultural differences, and the high turnover rates typical among IT vendors.
Ultimately, the best option for banks - and perhaps for other organisations that are constrained in their ambitions by a lack of IT talent - is an offshore development centre (ODC) that complements their local IT functions. In this approach, a company develops its own talent pool in a location where talent is more readily accessible, such as India, Egypt or Jordan.
The most compelling argument for an ODC is that it grants access to new labour markets and remotely established IT service providers with specific expertise, while enabling the company to maintain full or partial ownership. This quality makes an ODC less risky than other sourcing options for highly-customised or proprietary technologies that may be a source of competitive advantage. Furthermore, the additional control of an ODC makes it easier to repatriate staff once more people with the required IT skills are available locally. This option is increasingly critical to governments, particularly in the GCC, as they seek to develop the capabilities of their nationals.
Banks that choose to set up ODCs must prepare their local operations to manage the offshore component. The first area to strengthen is demand management: weak communication and misalignment between IT and business divisions can lead to lost market opportunities if not addressed. That was the case at a bank in Saudi Arabia, where its IT function was continuously playing catch-up with the needs of the business, with projects regularly delayed and additional project requests and reprioritisations piling up.
When relations between IT and business units are this strained and dysfunctional, an ODC model can do little good. Mature IT demand management governance and processes are required to ensure that business and IT are interacting efficiently and effectively. For instance, IT should support the business by spotlighting industry trends in defining new projects. Similarly, IT leaders should review business initiatives by division to help identify opportunities for cross-business IT programmes.
The second area is vendor management. Inevitably, banks that increase the amount of IT work completed externally will increasingly come to rely on a network of distinct vendors and will need to strengthen their capability to effectively manage such relationships. Typically banks focus these efforts on the procurement management phase, but as vendor relationships become more complex and meaningful to the business, the IT function will need to develop additional capabilities, such as strategic sourcing, contract management, operations management and performance management.
One Qatari bank proves a valuable case in point. Its IT function was expert at establishing contracts with vendors, ensuring that all of the basic legal work required was completed before the start of an engagement. But after the initial set-up, the bank's vendor management team would disengage almost completely, leaving change requirements, contract issues or disputes unresolved.
As banks in the Middle East continue to offer more sophisticated products and services in response to customer demands, IT resourcing models will only become more integral to their day-to-day operations. Workers with the requisite IT skills, inside the region and nearby, have created opportunities for Middle Eastern banks to send offshore some of their less strategic, but still time-consuming, IT tasks. To ensure success, it is critical for banks to plan for and mitigate risks by ensuring that their IT capabilities and processes are up to the task of effectively managing their IT demands and their vendor relationships.
Ramez Shehadi is a partner, Lutfi Zakhour a principal and Charles Habak a senior associate with Booz & Company