Middle East employers are rethinking organisational design

Author: Criselda Diala-McBride | Date: 15 Jun 2016

Weak economic growth and a changing market is forcing leaders to operate differently, finds new report

The current economic climate has prompted many employers in the Middle East to rethink their organisational design as they change priorities in accordance with market needs, according to a recent survey by professional services firm Deloitte.

The Global Human Capital Trends 2016 report has found that around 40 per cent of respondents from the region are currently engaged in a restructuring exercise focused on nationalisation, efficiency and excellence, and budget optimisation.

Commenting on the report, Bharat Gupta, senior director at Alvarez & Marsal Middle East Limited, says ongoing organisation restructuring is a natural extension of a change in strategy – which in itself is driven by lacklustre economic growth in the region.

“[Following] the global financial crisis, organisations worked towards increasing their product offerings and widening their geographic reach on the back of easy credit and improved business sentiment,” says Gupta. “However, the sharp correction in oil prices since September 2014 has resulted in a domino effect of reduced liquidity and slowdown in demand. As a result, many organisations that over-extended themselves are now adjusting their strategy to focus on their core businesses and/or segments with better cash return ratios.”

The re-design process has had three noticeable implications for organisational structures in the region, says Gupta. These are:

  1. Strengthening of capabilities required for strategic focus areas, including hiring new mid-senior management and re-training.

  2. Downsizing of teams that are no longer required, as part of the shutdown of loss-making, cash-consuming and long payback business areas.

  3. Strengthening of support functions such as finance, IT, procurement and HR as shareholders realise that lack of focus on these functions in the past had exposed the organisation to higher risks. Some banks and shareholders are forcing CEOs to bring in stronger CFOs that can provide better visibility to the organisation and negotiate new capital structures.

“The other area on which some organisations haven’t focused much is strengthening the middle management,” adds Gupta. “Strong and empowered middle managers carry the burden of the organisation – [they] deliver the strategy and free [up] senior management to focus on strategic matters.”

Because it takes time to develop a strong and experienced middle management, he recommends that organisations trust their younger employees and delegate tasks to them, and invest more heavily in career development and key HR processes.

The Deloitte study also noted that, despite undertaking organisational restructuring, many regional organisations still revolve around traditional and functional structures that lack the flexibility required to adapt to a changing landscape.

Gupta attributes this to the fact that the region is dominated by family-owned organisations, which tend to have centralised decision making.

“There are exceptions where shareholders of diversified organisations have formed industry-focused boards with significant independent board members that supervise what goes on underneath,” he says. “Such organisations have better capability to adapt and respond to changing business dynamics.”