Saad Al-barrak of international turnkey systems (ITS), kuwait

INTERVIEW

Saad Al-Barrak of International Turnkey Systems (ITS), Kuwait Essam Mahmoud,l Gillian Rice2

International Turnkey Systems (ITS) is a regional company operating in several countries in the Middle East. At the start of operations in Kuwait in 1981, the company faced many challenges, and did not reach a turning point until 1987. Thereafter, ITS realized the road to success. This report of an interview with Managing Director Saad Al-Barrak provides a profile of his management philosophy and vision, and the company's policies and success components. The ITS story is a valuable learning tool because it illustrates how an Arab firm can incorporate and benefit from a management philosophy apparently alien to the local culture. The interview was conducted in April 1998 during Saad Al-Barrak's visit to deliver a speech at Thunderbird, The American Graduate School of International Management. 0 1998 John Wiley & Sons, Inc.

INTRODUCTION

One may wonder why we would write about the success of Interna- tional Turnkey Systems (ITS), a Kuwaiti company little known outside of the Middle East. The Western management literature con- tains many explanations of the philosophies and strategies followed by organizations of various sizes in the developed countries. In con-

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'Consultant, 14417 North Ninth Street, Phoenix, AZ 85022 "Thunderbird, The American Graduate School of International Management, Phoenix, AZ 85306

Thunderbird International Business Review, Vol. 40(5) 451-460 (September/October 1998) 0 1998 John Wiley & Sons, Inc. CCC 1096-4762/98/050451-10

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trast, a limited number of cases are found concerning firms based in the emerging economies. ITS is a successful information technology firm operating in an Arab country but using a management philosophy different from what would be expected in an Arab firm. Fur- thermore, as Arab economies have developed, the management of technology normally has been given to foreign investors. The Man- aging Director and General Manager of ITS, Saad Al-Barrak, de- scribes how his firm struggled and almost failed during the early years of operation, but then quickly achieved success in the highly competitive market of the Arabian Gulf region. The factors con- tributing to the success of ITS are market focus, organizational culture, and partnerships with both customers and suppliers.

Established in 1981, ITS had sales revenue of US $5.2 million in 1987 which grew to US $37.9 million in 1997. The number of employees rose from 51 in 1987 to 268 in 1997. The company provides comprehensive information technology solutions backed by customer support. Starting with an initial assessment of problems and needs, the support expands to all phases of project implementation and continues long after the system is commissioned and installed. The headquarters of ITS are in Kuwait, located in the eastern region of the Middle East. The Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are characterized by per capita incomes among the high- est in the world and are dynamic and fast-changing. The information technology industry is developing extremely rapidly. Al-Barrak estimates the computer market in the Middle East to be close to $2 billion.

ITS began as a joint venture between Kuwait Finance House (KFH) and a British information technology company by the name of Computer Techniques Inc. (CTI). It was 60 percent owned by Kuwait Finance House and 40 percent owned by the British partner. Because of differences in culture and expectations, in 1983, CTI pulled out and liquidated its share. KFH, one of the world‘s five largest Islamic banks, increased its capital investment 10-fold but this did not prevent disaster. In Al-Barrak’s words, “the employees a t ITS experienced several years of ‘blood and tears’ before a turning point occurred in 1987.”

Saad Al-Barrak‘s career is inextricably linked with that of the ITS story, He began his career as an electrical design engineer at Kuwait Re-Fabricated Building Company in 1978. Soon after, he worked at the Kuwait Institute for Applied Technology as an instructor in the Production Department. The Institute sent him to the United States to obtain a Master’s degree in Industrial and Systems Engineering from Ohio University. He joined ITS in 1983 as a project engineer.

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In 1985, he became the Systems Development and Support Depart- ment Manager, responsible for the development of application systems and software support in general; in 1987 he was Assistant Gen- eral Manager for Marketing and Systems. Also in that year, the Board of Directors selected him to be the General Manager responsible for the overall general management and business planning of the company. In 1992, he was nominated to the Board and took the position of Managing Director in addition to keeping his general management responsibilities. As will be seen in the remainder of this article, Al-Barrak‘s management philosophy undoubtedly con- tributed to the turnaround of the company.

TWO DISTINCT PERIODS AT ITS

Al-Barrak explained that there were two distinctive periods during the life span of ITS. He calls the first period the “dark period” or the “failure period.” One problem was the withdrawal of the British partner CTI in 1983. ITS also lost its capital three times within the six years from its inception until 1987. The company had no direction or clear identity. The second time period, post-1987, has been a time of continued success. In attempting to understand the turnaround, it is illustrative to examine the organizational characteristics of ITS before 1987 and in the mid-1990s (see Figure 1).

1986 1995

* Losing * Highly profitable

* Low morale * High morale

* No identity * Clear identity

* Negative culture * Healthy culture

* Nogrowth * Growth>30%

* High staff turnover * Very low staff turnover

* Negative image Figure 1

* Positive image

Summary of Characteristics of ITS in 1986 and 1995.


Characteristics of ITS pre-1987

According to Al-Barrak, the following characteristics explain the sit- uation of ITS from its development until 1987:

Losing: ITS lost its partner in 1983, and its capital three times from inception until 1986. ITS also lost its reputation in the marketplace. It took ITS management five years to realize that everything had been lost. The company did not know which direction to follow. There was no harmony among ITS employees.

Low morale: Morale among employees was at the lowest level. Employees were not even interested in providing solutions. This was due to the absence of leadership and a clear vision.

No identity: ITS did not have a clear identity. Al Barrak said “we were confused; we asked ‘are we distributors? or ‘are we a software house?’ or ‘are we a PC retailer?”’

Negative culture: Employees were busy gossiping and complain- ing about the management rather than participating in decision-making and providing solutions.

No growth: The company did not achieve any profits; on the con- trary, it lost its capital and there was no growth at all.

High staff turnover: Due to the low morale and mismanage- ment, ITS staff turnover reached 60-75 percent of the work force as people sought better opportunities elsewhere.

Negative image: Al Barrak commented: “If you asked people about the worst information technology organization in Kuwait, they would tell you ‘ITS.’”

Characteristics of ITS in 1995

Highly profitable: ITS started to achieve profits averaging 30 percent yearly in the period between 1988 to 1995.

High morale: Employee morale has increased continuously. “They are willing to divorce their wives for ITS!” joked A1 Bar- rak. ITS staff are highly involved in decision-making processes.

Clear identity: ITS gained a clear identity, identified the type of business it should be in, and focused on providing its products and services as “systems solutions’’ to carefully defined seg- ments of businesses or organizations only. The company avoid- ed the retail business.

Healthy culture: The employees a t ITS are committed and work as a happy team. Employees work hard to achieve their goals

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and there is less gossip as employees work together to find solutions.

Growth: From 1988 until 1995 sales revenue grew 700 percent. By 1995, ITS had 10 offices or operations in the GCC states and Lebanon and a joint venture in Egypt. The company had become one of the leading integrated information systems providers in the Middle East.

Very low stuff turnover: As a result of high morale, employees stay with ITS and the staff turnover became very low.

High image: The picture has changed for the better. If people are asked about the most successful organization in Kuwait, their answer is ITS.

ANALYZING THE SUCCESS OF ITS

Market Focus

A1 Barrak explained how ITS began to use a vertical/horizontal model to identify markets. Vertical markets are sectors with spe- cial requirements for which ITS has the necessary experience and expertise. These include the government, banking and finance, telecommunications, petroleum, and retail sectors. Concurrently, products and solutions such as image processing are required across the vertical sectors. These constitute horizontal markets for ITS. ITS has also succeeded in developing key niche markets. These include solutions for Islamic banking, telecommunications, and mission-critical applications such as immigration control and port management. Five out of seven regional telecommunication service providers have partnered with ITS for strategic mission-critical solutions.

To illustrate how market focus can lead to success, Al-Barrak discussed the banking and finance sector where ITS has particular expertise and a 100 percent project success rate. In the Gulf region, the banking industry is becoming increasingly competitive as customers demand more efficient and sophisticated services. Banks are con- stantly under pressure to deliver new and innovative services in order to maintain a competitive edge and to expand their customer base. More than 32 leading financial institutions in the Middle East have partnered with ITS for their information technology requirements. Eighty percent of all electronic funds transfers in the region use solutions and platforms provided by ITS.

This market segmentation allows ITS to have very focused teams that are responsible for each market segment. There is also integra- tion among all teams to provide an environment that allows all to


share and benefit from the technical expertise in the company. Al- Barrak explained how ITS takes a product portfolio and adds value through knowledge and skills in order to provide customers with technologically advanced and reliable solutions. He argued forceful- ly that the company’s only sustainable competitive advantage was its people, saying: “As Hatim Tyabji, CEO and President of VeriFone, observed, ‘technology is not proprietary, but the organization is.”’

Organizational Culture In contrast to the typical Arab organization, ITS does not implement a centralized organizational structure. It also eschews the multilay- ered organizational structure. “Both approaches are inappropriate for ITS,” stressed Al-Barrak. In the Arab world, many firms display the exploitative-authoritative style of the Likert System discussed by Ugur Yucelt in Erdener Kaynak‘s text International Business in the Middle East (New York: de Gruyter, 1985, p. 115): management holds all the authority and subordinates do not participate in decision making. Such a style is common in developing economies, in general. Some firms may be characterized by the benevolent-authoritative style (where managers have some confidence and trust in subordinates but there is minimal upward communication and in- teraction with supervisors). The Likert System also identifies the consultative and the participative-group styles of management, la- beling the last as the ideal. Although unusual for the culture and for an emerging economy, participative management is the style adopt- ed by ITS. Arab executives are not usually oriented toward delega- tion and most use a pseudo-consultative style in order to reduce ten- sion and create a supportive and cohesive environment around themselves. The ITS model, however, reduces the layers of managers with the goal of being closer to customers. No more that two layers of management are permitted at ITS. “A hierarchical, centralized approach is a bad one,” said Al-Barrak. “Instead of management being on top of people, we like to be behind our people. We call this ‘levels of behindness.’ We believe in a flat organization, because it is the shortest route to the customers.”

The main characteristics of the ITS organizational structure can be summarized as follows:

Shortest path to customers: ITS teams deal directly with customers so they learn about their needs and concerns and can provide them with prompt solutions.

A networked environment: ITS maintains an open system. In- tegrated communications exist between all teams. Electronic

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mail is used among all units. Nothing is confidential and employees are free to listen to, to see, and to use any information available. Anyone can listen to others and participate in any meeting at any level. Managers trust that the employees will not abuse the system. In addition each employee tries to achieve team goals.

Open environment: ITS does not believe in a closed system environment.

Levels of “behindness”: The ITS philosophy is that the relation- ship between top management and staff is based on support where the management team supports the staff. “Our role is to maintain an environment that enables our staff to be produc- tive,” explained Al-Barrak.

Leadership approach: Direction is by action as well as promot- ing tolerance. At ITS, there are many leaders operating in a co- operative manner. Al Barrak clarifies: “We do not believe in the ‘satisfying-the-boss-approach.’ Rather, we believe in discussing matters and participation in the decision-making process among the leaders of the teams and the employees. We reward teams on the basis of performance regardless of the employees’ positions. Because of their achievements, some employees are rewarded better than their managers.”

Relationships: Relationships between team leaders and their groups are based on an open net approach, with a blend of com- petitiveness and cooperation.

ITS consciously tries to attract the best personnel in the market. Al-Barrak remarked that the company places more importance on personal characteristics than on technical skills. The emphasis is 80 percent on the former and 20 percent on the latter when selecting employees. The company then provides the proper environment to enhance their technical skills. Al-Barrak mentioned that ITS takes care of its people. “As long as an individual has a great personality we are sure that he or she will be able to gain the technical side very easily because we have the proper environment and team that will spend enough energy to provide the technical skills needed,” he added. “The key driver for us is commitment. We lead in a coopera- tive manner and do not punish our employees. Charles Handy, the British management philosopher, is right when he says ‘in the future, organizations will still be critically important in the world, but as organizers, not as employers.”’

The staff at ITS is a composite of a variety of Middle East na- tionals, South Asians, Europeans, Australians, and Americans. In


discussing the work atmosphere at ITS, A1 Barrak emphasized that work must be fun, excellent, and profitable. “We believe in excel- lence. I like the quote by Robert Townsend, the former CEO of Avis. He said, ‘If you don’t do it excellently, don’t do it at all.’ If it is not excellent, it will not be profitable or fun, and if you are not in business for fun or profit, why are you there? ITS is in business for fun and for profit. Fun must come first and then profit. Some people are surprised to see that the atmosphere at ITS is full of joy and fun and laughter. If human beings are not happy, they are not going to offer their best. At ITS, we look for a sense of humor and we look for pas- sion, flexibility, and excitement. In addition, we look for listening, caring, smiling, saying thank you, and being warm.”

Partnerships with Suppliers and Customers

Al-Barrak uses the metaphor of an eagle to describe his company. “Eagles,” he said, “live on the top of a mountain surrounded by clouds. They eat good quality food, not carrion. They are honorable, even in the way they kill their victims. The strategy of ITS is repre- sented by the head of the eagle. The body of the eagle represents ITS culture, and the two wings represent relationships with suppliers and with customers.” To create optimum solutions for customers, ITS has formed strategic partnerships with innovators in information technology. Al Barrak noted that the company policy is to partner only with prominent suppliers whose products and services are well- established and proven on a global scale. Included among ITS’ part- ners are Tandem Computer, Inc.; Sequent Computer Systems, Inc.; Verifone; Olivetti; BancTec-Plexus, 1nc.-Plexus Software Division; Newbridge Networks; Holistic Systems (a division of Seagate Soft- ware, Inc.); and CGI.

When asked about his vision for ITS, Al-Barrak responded that it is for ITS to be a world class company providing superior service to its customers, and in this way to maintain its niche and distinguish itself from other companies in the region. He explained how important it is to be recognized as a quality organization. ITS holds certification for IS0 9001 and IS0 9000-3. The latter standard deals exclusively with the development, supply, and maintenance of computer software. “ITS is the first company in the Arabian Gulf and Middle East to achieve IS0 9000-3,” explained Al-Barrak. “This is an honor bestowed only on 250 companies worldwide. But quality stan- dards are only as good as the people who apply them and we must continue to invest heavily in staff training and development. The quality certification gave us more confidence and credibility in deal-

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ing with our suppliers from Europe and North America. In addition customers feel more comfortable dealing with ITS.”

On the client-side, ITS uses the slogan “your success is ours.” Re- lationship marketing is key in the industry. The customer decision- making process is very involved and lengthy and it is crucial to build strong relationships with clients. The flat organizational design in- tended to develop closeness with customers has enabled ITS to achieve its strategic goals. In particular this management philosophy has reduced response time to customers and the associated costs. “The organizational culture creates satisfied, happy employees and this enables us to satisfy our customers too,” said Al-Barrak. “There is an essential link between a satisfied employee and a satisfied customer. The fact that we are a ‘home-based,’ a Gulf company, but one that can do a superior, excellent job also helps.”

When seeking expansion into new geographical markets, ITS is also emphasizing partnerships. ITS is involved in a joint venture in Egypt; the venture is a $1 million software house which is expected to boom as it will produce cost-effective software. “Most companies prefer paying $20 million for information technology rather than $40 or $50 million,” added Al-Barrak. In 1996, ITS achieved its first internationally contested project outside of the Middle East region when it won a $1 million software development contract with Siemens in Germany. The competition was against one of the most renowned international software vendors.

THE FUTURE FOR ITS

ITS is currently in the process of opening an operation in Syria and more expansions are to follow in the region. ITS continues to explore markets beyond its region also, especially in Europe and the Far East. When questioned about long-term planning, Al-Barrak replied that he did not plan with a horizon longer than three to five years. “I really don’t believe in long-range planning,” he said. “Instead, I want to move my company ‘from a plan to a clan.’ I think the organization, the human being, is the most important aspect of success.”

Al-Barrak has made ITS a force in Kuwait. The company plays an important role in the Kuwaiti economy through the success of its operations in Kuwait and elsewhere. Like all GCC states, Kuwait is keen to diversify and privatize its economy. In the early 1980s, when the KFH-CTI venture to initiate ITS occurred, Kuwait had a policy of encouraging foreign investment in order to attract the most highly developed technology and greatest expertise in the non-oil sectors.


Through its partnerships with leading foreign companies in information technology, as well as its unique organizational culture, ITS has had a considerable impact on the development of information technology needed for the region. Al-Barrak is one of the Board of Directors of the Social Development Ofice in the Amiri Diwan (Roy- al Court); the organization focuses on social and educational development. This position gives him an avenue for the transfer to policy makers of the knowledge he has gained and philosophy he has developed through his leadership at ITS. One question is whether other Middle Eastern organizations will seek to adopt changes to their structures and cultures. Will some of them adopt the management philosophy that ITS has implemented? It is through the sharing of success stories that other organizations in the region can learn from the “best practices” of companies like ITS.

For ITS, the challenge remains the fast-moving, competitive na- ture of the information technology industry. Al-Barrak appears de- termined on future success, however, and dreams of moving internationally and eventually evolving ITS into a global company.

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Saad Al-barrak of international turnkey systems (ITS), kuwait