Middle East employers are rethinking organizational design

The current economic climate has prompted many employers in the Middle East to rethink their organizational 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 nationalization, efficiency and excellence, and budget optimization.

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

“[Following] the global financial crisis, organizations 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 organizations 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 organizational 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 realize that lack of focus on these functions in the past had exposed the organization to higher risks. Some banks and shareholders are forcing CEOs to bring in stronger CFOs that can provide better visibility to the organization and negotiate new capital structures.

“The other area on which some organizations haven’t focused much is strengthening the middle management,” adds Gupta. “Strong and empowered middle managers carry the burden of the organization – [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 organizations 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 organizational restructuring, many regional organizations 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 organizations, which tend to have centralized decision making.

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