This is the second in a series of articles on corporate transformation, focused on my experience in the GCC. In the first article I developed a framework to define the current state of a company: leader, obsolete, stressed, and distressed. Identifying the current state then allows me to select a strategy type to develop: innovate, transform, transition, and turnaround.

With this framework I have a foundation on which to develop an effective strategy. The first step is to determine which of the four states the company is currently in. The conventional term for this is  organizational diagnostic. Organizational diagnostics are a well studied subject in academia, each major consultancy has its own methods for performing a diagnostic, and great companies will also have  their own methodology. In reviewing these different methodologies I was unable to find one that was effective for the companies that I was involved with, be it as an executive, board director, investor or transformation manager. So I had to develop my own, sometimes using relevant parts of the methodologies developed by others.

Failure of Conventional Organizational Diagnostics

My starting point was understanding the challenges in applying conventional diagnostic tools to companies in the GCC. The common theme is that the GCC has seen several centuries worth of evolution in their economies happening within about a 50 year period. I will touch briefly on a few of these challenges.

Policies and Procedures

One of the central points of an organizational diagnostic is to examine the current processes and procedures and evaluate them in the context of their appropriateness and effectiveness in delivering the results that management require. The processes and procedures of a company allow change managers to easily understand how a company works. There is one assumption here and that is that the processes and procedures are up to date and being adhered to by the employees. For mature companies this holds true but for young or fast developing companies there can often be a gap. In the latter case closing this gap is an important first step in transforming the company.

The issue is that the identification, development, assessment, and re-engineering of processes and procedures takes time.  Even more challenging is training employees to follow these processes and procedures. When the business environment changes at the remarkable pace witnessed in the GCC, having relevant processes and procedures in place, let alone adopting them, can be a challenge. When growth is fast, the organization predominantly works on an apprentice ship model, as more experienced employees pass on knowledge directly to new employees without documenting them first.

Having said that, since 2015 when the oil price dropped significantly, growth reached a pace that allowed for developing process and procedures and embedding them in the company. But this recent development is forward looking. A diagnostic based on past processes and procedures usually has little value in the GCC. So this tool, adopted in more mature, slower growth markets is not available.

Management Information Systems

MIS is at the heart of performance measurement. Although GCC companies boast the top MIS found globally, this MIS needs something to measure. There are several challenges here. If employees are not working using a standard set of processes, then what are they being measured against? Furthermore, since employees performing the same job may have been taught how to perform this job in a different manner from each other, measuring the performance of employees, departments, and branches against each other becomes meaningless. How can a change manager attempt to improve anything without being able to measure it?

Institutionalization

The previous two points are a warm up to the single issue that covers nearly all the challenges that I have faced, and that is a lack of institutionalization. I define institutionalization as a process that defines the decision making processes and procedures for major decisions taken by the company, and converts these decisions into actions that have the following key characteristics:

• Defined: process and procedures are clear and documented.
• Informed: key performance indicators are captured and disseminated.
• Effective: actions are successfully executed.
• Efficient: balance analysis with execution.
• Consistent: variance gaps are rare.
• Reviewed: results are examined, variances are analyzed.
• Transparent: all stakeholders are updated (good or bad).
• Adaptive: can change in a controlled way as needed.
• Independent: based on the organizational structure and survives employee turnover.

The institutionalization of companies in the GCC has faced several challenges in excess of those listed above. The main issue is that rapid growth in the GCC made it far more profitable to act spontaneously in an entrepreneurial manner. If a company spent too much time trying to institutionalize it would not only lose opportunities to competitors, the actual institutionalization would probably be obsolete by the time that it was finished. Furthermore legal monopolies and in some parts of the economy a rentier status decreased the rewards of institutionalization. Again, post the oil price drop of 2015 this is changing fast. But from a historical perspective, there is little that a change manager can use.

Organization Diagnostic GCC Style

To be able to complete a diagnostic I needed to be able to understand how an organization works. Trying to put in place the relevant structure to enable a conventional diagnostic would take too long. So I resorted to the Pareto Principle, also known as the 80/20 rule, and tried to figure out what realistic changes would result in the greatest value creation. Since there were few to no processes or procedures that were being adhered to, and high-end MIS had low quality or no data, that only left one major area: human capital.

My approach evolved over the years, predominantly in the early private equity phase of my career,  to what it is today. One might be tempted to think that it became more complex and precise. The opposite is true, I had to keep removing complexity to be able to get actionable information. It is ridiculously simple, but that is only because there are no other choices. I outline the steps below.

Trusting in Experience and Execution

I have yet to sign a mandate where I am the first outsider called in. I am usually the third or fourth. My predecessors left behind mountains of presentation decks and attempts at analysis but never provided any realistically actionable solutions. It wasn’t that the solutions provided were bad, they just were not realistic given the current state of the company.

As an example in which I was not involved, I know of five large family groups that brought in the global experts who correctly identified business issues and provided reasonable solutions. But these solutions were not realistic because the cause of the issues faced in the five groups did not begin with the commercial side of the business. They all began because the second generation took over and did not know how to manage a company. The best plans in the world are meaningless in the hands of those not capable of executing them. The problem was not that this was not clear to the consultants and change managers, it was that no one was willing to tell the patriarch that his children and nephews were the main hurdle to a corporate transformation. Fortunately for me, I have no problem explaining that, because I know how to present such a scenario in a culturally acceptable manner.

It is also difficult to explain to a shareholder or board that the company is not institutionalized. Even when this is done it leads to the conclusion that a systematic, data driven process is not possible. The only path forward is for the change manager to earn the trust of the stakeholders that they can perform the diagnostic based on his experience and, more importantly, trust that he can execute.

Rapid Assessment

As I discussed above the only real area that I found I could work with were people, from shareholders to board directors to executives and, most importantly, middle managers. The information that I needed was nearly always found at the level of employees just below the c-suite. I tried using questionnaires but found that employees were loathe to write things down, even anonymously. Direct interviews took longer but gave me a wealth of extra information in terms of body language and the ability to immediately ask follow up questions.

It is no surprise that the challenge here was to get the employees comfortable enough with me to be candid in their discussions. Fortunately I always find enough people who will give me a relatively clear picture when I put all their answers together. There are usually several follow up interviews so that I can tease out information based on other people’s responses. Usually this is not an issue of dishonesty so much as it is attempting to build a mosaic based on different perspectives.

I have also found internal and external audit reports, the management letter from the external auditor, and board minutes extremely useful. In nearly every situation these provide a wealth of information in terms of serious outstanding issues that over time have not been remediated, and can form the basis for the initial change management plan.

Endnote

Lack of institutionalization leads to an organizational diagnostic that is more art, based on employee feedback, than it is science, i.e. based on formally identified and measured metrics. Translating such a diagnostic into identifying the state of a company (leader, obsolete, stressed or distressed) requires a certain amount of experience. The resulting classification is not an exact one, there is always a continuum, but it is a strong first step. From here a change manager can begin to formulate and execute an appropriate strategy, which I will detail in subsequent articles.

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