Sanjay Mirchandani, senior vice-president and chief information officer, EMC Middle East, addresses the 2010 IDC Middle East CIO Summit at Madinat Jumeirah in Dubai yesterday. Image Credit: Ahmed Ramzan /Gulf News

Dubai: Budget cuts all around are driving the Information Technology (IT) industry towards a growing demand for managed services, a slight variation to the traditional outsourcing.

The process of transferring management responsibility to a third party vendor is an obvious choice, and now a requirement, as companies desperately look to increase efficiency and bring effectiveness to business models.

In 2009, the regional IT industry suffered a 5 per cent drop in IT spending, representing approximately $9 billion (Dh33 billion), according to Steven Frantzen, senior vice-president of research for Europe, Middle East and Africa and managing director for CEMA (Central and Eastern Europe, Middle East and Africa) countries at IDC, the industry's research house.

"We've had a drag in investments for 12-18 months, and expect in part, a refresh cycle to come to the Middle East," he told Gulf News at IDC's CIO Summit 2010 yesterday.

While there was significant growth in IT infrastructure spending prior to the economic downturn, which switched to cutbacks, recovery is expected in budgets. However, this time around, the investment will be focused on technology that improves efficiency for companies and systems that maximise IT assets, industry experts say.

"We had growth in investment and now we have the focus on cost savings and value," said Frantzen. "There is going to be a shift from cap expenditure to operational expenditure. That means, in a way, investments in different types of technology."

A challenge that presents itself to companies looking to expand their IT infrastructure to meet their business needs is their financial capacity and the available skills. "One of the options of course, is to go external and that could increasingly happen. We've seen a huge interest pick up in managed services in the Gulf," Frantzen said.

"More and more companies in the region are considering managed services as an option as they realise the increased needs for efficiency," said Michael Collins, lead technologist for Datacenter Services at Injazat Data Systems, UAE-based IT and business process services provider.

He said that cost is a major issue for companies and that is what they need to consider as they make the move from investing in their own IT infrastructure, to focusing only on core business and approaching service providers.

"The new challenge of cost-cutting is not going away. But it's not just about costs, we have to increase productivity," said Michael Dell, chairman of the board and Chief Executive of Dell, at the CIO Summit.

As companies come out of the economic downturn, they have to drive out inefficiencies and make technology work harder. He said that the demand for managed services is increasing as customers want shorter contracts and more flexibility in services.

Dell, the world's third largest maker of personal computers, has been shifting its business focus to data servers in the past few years. Dell said that the company would be driving innovation and virtualising its servers. "Cloud services is one way to drive automation and cut costs," he said.