Challenges and Opportunities

Work organisations in the GCC countries have been facing unique and complex challenges around the development and management of human capital for the last three decades. These challenges have been ranging from shortages in local skill and competence, to how to develop, retain, and manage talent and knowledge in a systematic and sustainable manner. Although there has been continued attention to the scarcity of local skills and substantial investments in education and training programs for local population, as well as attracting large number of expatriate workforce to fill in the gaps, the rapid pace of economic expansion and competition made it difficult for Gulf companies to keep up with the changing economic and policy landscape. Dr. Khalid Othman Al-Yahya, Director of Governance and Public Management Research Program at the Dubai School of Government in the U.A.E. and Fellow at Harvard University in U.S., speaks of the dimensions that constitute the major challenges in achieving successful human capital management, and why it has become a strategic imperative to overcome them.

The context

Firms in the Gulf (mostly family owned firms) are now confronted with formidable challenges brought on by an amalgam of complex causes that have only just begun to unfold. These range from rapid shifts in technology, talent sources, workforce mobility and diversity, and the huge growth of capital markets to increased exposure to the forces of globalisation and greater competition from multinationals resulting from the liberalising measures adopted by governments as a part of such initiatives as accession to the World Trade Organization. These and other developments have offered opportunities that have been successfully exploited by some firms, but they also have imposed pressures on many others to fundamentally restructure their enterprises and strengthen their human and technical capacity in order to ensure their long-term survival.

In response, some firms have started to consider changes in corporate governance and management practices, especially ones pertaining to leadership and the institutional overlap and contradictions between the norms and principles that operate in the founding family and those that operate in the business by separating business and family affairs, and hiring professional managers and empowering them to manage. Some of these firms have gone public and become more able than others in transitioning to a more modernised system of human capital management that is in line with the values and principles of professional management and corporate governance. As a result, these firms tended to be more successful in attracting and retaining talent and in achieving better performance.

For many others, unfortunately, the responses have been hesitant and marginal. Recent research shows that many firms still face pressures not only coming from the possible conflicts inherent in the overlaps between family and business but also from new changes in environment ranging from increased competition over limited supplies of talent to government policies promoting private sector role in creating jobs for locals in the forms of nationalization or indigenization of workforce (e.g., saudization, emiratization, omanization).

Rethinking Human Capital Strategy

Perhaps more than ever before, there is widespread acknowledgment that finding the right frameworks to recruit, retain, and manage human capital resources remains one of the toughest strategic challenges to the growth and continuity of firms in the Gulf region, one with profound implications for economies and societies throughout the region. Taking the time to reflect on and think strategically about how people and organisations interact and how talent is managed and motivated is very critical. This requires a thorough understanding of three broad challenges holistically and simultaneously: the Organisation-management system challenge, the knowledge management challenge, and the talent management challenge.

The Organisation-Management System Transformation Challenge

In the last 10 years, competition over human capital resources has intensified in the GCC countries. Attracting skilled workforce, however, is one thing, keeping it and unlocking its potential is another. One long-standing problem in Gulf firms’ approach to human capital is their emphasis on developing and accumulating skills and abilities without beforehand establishing a modernised system of management and a proper organisational design. This gap between human capital development and organisation’s system development often leads to poor or un-sustained performance. There is a general tendency among founders and managers of businesses, to “naively” assume that all good things go together; that improvements in firm’s performance will automatically ensue as a result of investing in human resource development and adopting advanced technologies in the workplace. Our recent study on human capital and organisation performance in Saudi Arabia, UAE, and Oman indicates that most human capital development policies and initiatives brought limited improvements in performance. This was in part due to the fact that they tended to focus exclusively on ‘technical improvement’ and ‘investment in the accumulation of individual skill resources’ without adequate attention to changing organisational processes and management practices. We found that a common weakness was not necessarily a lack of qualified human resources, but a lack of the right environment and incentives to place, activate, and maximise their potential.

In family owned firms, these necessary changes in management styles and organisation structures often get neglected. This is due to the sensitive implications they have on management-ownership relations and employment practices including hiring, compensation, appraisal, succession planning, and information sharing. As the business grows and matures and as the new generation inches closer to taking over, the gap between traditional management and organisation forms and the new requirements of managing complex organisations with different sets of specialised expertise and functions, begins to generate problems and threats to firm success and survival. In this stage, founders often find themselves operating under great stress; addressing the tensions and the tradeoffs between the urge to keep control and family cohesion and the need to adapt to new realities of the business and its changing environment.

These conditions often wear down the leader’s ability to manage effectively and focus on strategic issues. Instead they get caught up in managing tactical and operational tasks. This also affects the prospect of having a high-performing workforce, as valuable talent might become disaffected or forced to leave and join competitors. Resolving the organisation-management system challenge involves developing a new frame of thinking about authority and knowledge, supported by modernised and progressive management infrastructure. Once the system is in place, firms can move strategically to recruiting people with the right ability and attitudes, motivating them, and empowering them by providing opportunities to manage and use their skills in well-designed jobs. Firms need to not only focus on developing and updating individual capabilities but also on re-inventing their management mindset and internal structures and processes to match growth rates both in the size and quality of talent. Without such an integrated and balanced development–human capital management approach, attracting or developing new talent might be irrelevant to firm’s performance and success.

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The Knowledge Management Challenge

Another related challenge to human capital management and organisational success is how effective firms are in generating, capturing, documenting, and disseminating know-how and promoting knowledge sharing within the organisation and its environment. The Gulf region has had four decades of experience in attracting expatriate expertise and knowledge. Government and private sectors spend a great deal of money on hiring skilled workers and consultants to help managing or operating their businesses. They also contract out major infrastructure projects like building factories, hospitals, airports or providing maintenance services. However, the capturing of knowledge (especially tacit knowledge) and transferring and localising it to people and institutions remains ineffective. Every year thousands of skilled workers and consultants exit Gulf firms to industrialised or recently industrialised countries without making sure their knowledge and expertise is properly integrated and shared by local firms.

The failure of knowledge transmission and absorption can be attributed to many reasons: First, the changing characteristics of knowledge that is becoming more diverse, mobile and informed about their properties and choices. The second pertains to the nature of knowledge that is often tacit and difficult to measure. It is embedded in people’s minds and social relations, making it inaccessible to the organisation as a whole. The lack of awareness of existing knowledge within organisations often drives management to allocate more money and time in building new resources, diverting their attention from capturing and utilising existing human skills and abilities. Thirdly, there are difficulties in assessing and managing knowledge in the workplace. In a recent OECD survey in 21 developed countries, it was found that managing and sharing knowledge is a major challenge in most companies due to…

· employee resistance,

· lack of awareness and understudying,

· lack of time as most employees tend to be overwhelmed with individual work tasks and duties,

· fear of job loss as a result of sharing one’s knowledge and expertise,

· comfort with status quo and avoidance for uncertainty (unknown future),

· and the absence of a participative and interactive organisational culture.

Easing some of these constraints may require a different kind of working environment and a new set of leadership and management skills.

Another potential challenge comes from setting knowledge management objectives at a functional or lower management level rather than at leadership and board levels. In organisations where knowledge management initiatives are pursued by functional units such as IT or Human Resources, the result often shows a misalignment with the overall organisational goals but also a lack of awareness and prioritisation by other stakeholders. Only 25% of organisations surveyed by the OECD (2003) have an understanding of the budget allocation for knowledge management and in almost half of the questioned government departments, the IT/Services units are responsible for the implementation and funding of initiatives. It was shown that most knowledge management initiatives to date have been driven and funded by IT departments. This lack of funding and planning of knowledge management, could further explain the overall low success rates, even in cases where knowledge management is perceived as a strategic priority for the organisation.

The Talent Management Challenge

An integral component of managing knowledge and organisation development is a coherent strategy for talent management. While knowledge management is a comprehensive strategy, which integrates people, processes, technology, culture, and management direction, talent management is a focused and integrated approach that involves (1) planning, (2) attracting the right talent from outside the organisation, (3) identifying potential talent within the organisation, (4) putting people in the right places, (5) aligning them with performance needs and strategic goals, (6) motivating and retaining them to perform, and, ultimately, (7) getting the greatest performance from them.

Each one of these components involves different interrelated steps and tasks. The challenge here is how management can focus on all of the puzzle pieces at all levels of the organisation. Firms tend to take one step at a certain time, or focus on one level, and efforts are often limited to top management. In family businesses, that level is dominated by family members, regardless of whether they have the desire, skill vision, and resilience warranted to take over the business. The temptation to go around difficult but necessary changes is so high in the current competitive business cycle that it leaves firms with ambitious strategic agendas with no organisational capacity to execute them. Firms that still think of talent just as an asset that can be acquired, deployed, or replaced easily and quickly, misunderstand the current trends and shifts. Talent is becoming an educated consumer not only an idle asset; it demands promotion and a fast track to senior positions, and it is mobile, as the average job tenure has shrunk from five years to about 20 months, according to the Employee Benefit Research Institute. Therefore, knowledge and talent management is probably the most important strategy to secure the flow of fresh perspectives and innovative ideas, and to maintain business competitive advantage in a rapidly changing domestic and global business environment.

Tharawat Magazine, Issue 6, 2010

References:

Al-Yahya, Khalid. (2009). Power-Influence in Decision Making, Competence, and Organizational Culture in Arab Organizations. Journal of Public Administration Research and Theory, 19 (2), 385-408.

Al-Yahya, Khalid. (2008). The Over-educated, Underutilized Arab Manager. Dubai School of Government Publications. www.dsg.ae.

Babai, Don and Khalid Al-Yahya. Beyond Patriarchy: The Evolution of Family Firms and the State in Saudi Arabia. Edward Elgar Publications. (Forthcoming).

Employee Benefit Research Institute. http://www.ebri.org/

Lansberg, Ivan. (1983). Managing Human Resources in Family Firms: The Problem of Institutional Overlap. Organizational Dynamics. (Summer), pp. 39-46.

OECD. (2001). Knowledge Management: Learning-by-Comparing Experiences from

Private Firms and Public Organizations”, Summary Record of the High Level Forum held in Copenhagen, 8-9 Feb. 2001, PUMA/HRM (2001 3, CERI/CD (2001) 2.

OECD. (2003). Conclusions from the Results of the Survey of Knowledge Management

Practices for Ministries/Departments/Agencies of Central Government in OECD Member Countries. 3-4 Feb. 2003, GOV/PUMA/HRM (2003) 2.