The oil price crash has had long-lasting and in some cases severe effects on GCC economies, with consequences ranging from reduced public spending to shelved development plans. In the private sector, it has all too often manifested in dwindling profit margins, forcing businesses to take the difficult decision to downsize their staff.
According to Nuno Gomes, Information Solutions Leader for the Middle East at Mercer, “Companies, in response to slower market activity, are doing workforce optimisations across the board, some even starting at the top layers where cost savings are obviously greater. In multinational organisations for example, this passes by centralising at the headquarters or regional headquarters’ level certain services that were otherwise provided on a local basis. At this point, all indicators lead towards a more restrictive 2016 than observed in the second half of 2015. From the insight we have of the market up to this point, it seems to be concentrated in particular industries, mostly in banking and energy sectors, but also in semi-government organisations where funding is being reduced.”
Gomes added “What we’re seeing in other industries, and for the most part across the board, are containment measures, such as a reduction or freeze in recruitment, lower salary increase budgets, or a refrain in promotions.”
The harsh reality for many businesses is that costs need to be cut quickly and efficiently – and for many, layoffs appear to be an obvious solution. But the high cost of hiring and training a new employee means that most businesses will not see a full return on investment of a new hire until they have been in the role for three years or more. This means that, firstly, the layoff of any employee hired less than three years ago will essentially involve throwing money down the drain (in the form of the time and resources dedicated to training that employee). Secondly, businesses who are anticipating a financial recovery over the next year or two are setting themselves up for a situation where they will need to invest even more time and resources into re-filling the positions they have eliminated.
Additionally, long-term employees possess “tribal knowledge” of the business – knowledge that is not necessarily codified in any written or recorded material, but was acquired through hands-on experience or passed on through informal training. Layoffs that involve losing these employees also mean losing these stores of information, most of which is not easily recovered or passed on to new employees.
Businesses in the GCC need to look beyond the slash-and-burn model of cost reduction and focus on more innovative, nuanced ways to optimize costs – including making the most of existing staff through reassignment of duties, internal training sessions and the optimisation of third-party resources like freelancers and contractors.