Report On Hr Trends In The United Arab Emirates

Report on HR Trends in the United Arab Emirates A report prepared by the Class of 2009 Hult International Business School

Anshu Singh, Archan Ghosh, Badhurunnisa Hameed Sultan, Deepak Mandody, Eriko Aparcero Igarashi, Ibiyemi Oduyemi, Jeetu Krishnan, Jomy John, Magdalena Soszynska, Manish Jindal, Manish Srivastava, Manoj Kumar, Meranie Kiwanuka, Nazanin Modaresi, Nishant Sukumaran, Olena Achkasova, Olena Polischuk, Rahul Sikka, Ravi Parmar (project manager), Ravi Sinha, Rohit Kajaria, Sandhya Sirimanne, Sandra Laverde, Siddharth Naik, Srihari Chodagiri, Stephen Dantas, Tarun Talwar, Vineet Balhotra

Primary research was conducted through face to face interview with CEO’s, HR heads and Business heads. A total of 125 interviews were conducted over a period of 45 days. The interviews were spread across different industries. No special qualification criteria were used while selecting the companies. The report focuses on Financial services (includes retail banks, investment banks, Insurance companies), Manufacturing, IT/ITES(IT enabled services)/Media and Logistics industry since a majority of the companies covered belong to these industries.

Survey participants

Key findings The job market is going through a correction phase. Employees are content to incubate and build competencies in current roles rather than hopping jobs. Major shift from using consultants for recruitment to employee referrals and listing on job boards. Natural attrition is at its lowest. Corporate restructuring has caused HR role to become more strategic to support the company’s objectives. Training budgets have decreased (Increase in in-house training and decrease in training related travel)

Research methodology The objective of the research study was to understand the HR trends in the current business environment. The questions for the research study included questions related to traditional HR functions such as compensation, training, employee retention, recruitment and communication. The following sectors were identified for the research study: Automotive, Real estate, Consulting, Banking, Healthcare, Manufacturing, Oil & Gas, Logistics, IT, ITES and Retail/FMCG

Emerging trends Financial services The recession has taken its toll on the financial services companies. With investors having lost money in the markets, the confidence is yet to reach respectable levels, in spite of low valuations that are providing attractive investment opportunities. Lending norms have tightened and the overall liquidity in the industry remains low. There has been a significant increase in transactions that are

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backed by guarantees and collaterals and it reflects the general sentiment that mere trust in not enough.

experienced a lesser impact of the recession compared to sectors such as Steel, Aluminium and others.

Heavy Industries

Logistics

The downturn in world economy has affected businesses in this sector. The first quarter of 2009 has been the worst since the onset of the economic crisis, but there are signs of improvement. Dependence of industries like steel on other industries such as construction and infrastructure development has made them more prone to the recession. Companies have identified Qatar and Saudi Arabia as the future regions for expansion.

The logistics industry has experienced a drop in cargo volume – sea and air freight, which has impacted the top and bottom line for most companies. The companies are focusing more on improving operational efficiency to sustain the profitability levels.

Logistics The economic slowdown has impacted the growth in Logistics industry and has forced companies to use measures for restraining expenditures and reduce budget allocations. Certain cost control and restructuring strategies are seen as the key trends in this industry.

IT/ITES/Media The industry has experienced the impact of recession and cost cutting measures employed by its clients. However Saudi Arabia, Morocco and Egypt are seen as the regions with high growth potential due to unmet demand. The situation has posed key challenges for HR and some of the trends observed in HR are implementation of performance based compensation, restructuring and changes to HR strategy for decision making.

Revenue & Profitability1 Financial services

IT/ITES/Media Majority of the companies in this sector have seen a downfall in revenues and profits. Restructuring measures and expansion into Middle East has helped some companies to grow in the region. Cost cutting initiatives have also helped companies to maintain and in some cases increase profitability.

Restructuring2 Financial services The impact on the HR function has been dramatic with new challenges hogging the limelight. With majority of banks and financial services companies going through strategic restructuring, it was certainly an opportunity to shed excess fat and get leaner. Nearly all organizations have revisited their short to medium term objectives by analysing businesses, geographies and jobs. Amongst companies which eliminated redundancies, the best practice observed was to assign weights to objective terms such as performance, technical skills and length of experience and taking a decision based on it.

Financials for most financial services firms have shown a definite improvement over the first quarter wherein a significant number of institutions have shown a marginal growth over the comparable quarter last year leading to hopes that the worst is over. Results for the insurance sector particularly stand out as having been most favourable with nearly all companies having posted growth over the last six months in spite of the slow down.

Heavy Industries

Heavy Industries

3. Project teams

Restructuring activities are seen as a key strategy across the sectors in heavy industry. The organizational changes are primarily along the consolidation activities across the following dimensions: 1. Geographic locations 2. Business units within the organization

Many heavy industry sector companies have experienced a slump in sales. Sectors like Oil & Gas and Energy have 1

See Exhibit 1 for revenue and profitablilty charts

2

See Exhibit 2 for restructuring charts

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Logistics There have been restructuring efforts in some organizations to align Middle East operations with Asia Pacific sector which in itself poses challenges due to cultural diversity. Some companies have refrained from restructuring and are focusing more on using cost cutting measures.

IT/ITES/Media The trend of restructuring is observed as a common measure across the industry. However there are variations in the way companies are restructuring. While most companies focused on realigning the people and organization structure, some other companies looked at acquisitions and compensation restructuring as an effective measure.

initiatives. Apart from creating awareness, the companies are keen on hearing from their employees and are focusing on one to one meetings and employee feedback via surveys.

IT/ITES/Media While most companies did not see any change in their communication strategy, some companies involved in acquisitions considered communication as an important focus area. Communication strategies have focused more on interpersonal activities and have been increasingly driven by senior management including the CEO.

Training budget change4 Financial services

Communication management3 Financial services A majority of the companies have not proactively changed their communication strategies. Distinct lags between the occurrence of an event to its communication across organizations have led to increased insecurity amongst employees. A handful of companies have employed innovative communication strategies such as blogs, informal groups on the intranet etc. In order to foster improved organizational communication, a few companies have installed web pc cameras to enable video chatting with managers to increase face to face communication. There surprisingly exists a strong positive correlation between companies which have proactively announced zero layoffs and favorable financial results.

Heavy Industries There is a shift in the communications strategy for a majority of companies. The focus now is on regular communication from senior management including the CEO.

Logistics A majority of companies have realized the importance of communications during the downturn as an effective strategy to support restructuring and cost cutting 3

See Exxhibit 3 for Communication Management chart

Training was the first area to suffer from cost saving strategies. Travel associated with training has been dramatically reduced and more emphasis placed on inhouse training. Training imparted has been selective and need based and companies have also employed it as a reward incentive for strong performers. There has been an increasing trend of using e-training modules for both hard (technical) as well as soft courses. Other new initiatives include the use of video conferencing to impart training across geographies and also organizations that have gone through significant restructuring are using the training platform as a bonding tool for newly formed teams. Another interesting observation is that a few companies have effectively utilized their training staff to forge stronger relationship with clients, by offering training as a value added service.

Heavy Industries There has been tremendous pressure on HR to restructure the training services. There has been a cut in outsourced trainings and more focus is on in-house trainings conducted by experts within the organization. The objective of these restructuring measures is to continue focus on technical trainings and as a result improve operational efficiency of the organization. Additionally, the soft skills training are continued to ensure employees are skilled and ready to take advantage when the economy improves. 4

See Exhibit 4 for Training budget change chart

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Initiatives using newer technology for online trainings have also been observed.

Logistics Logistics industry has seen a major drop in training cost. The initiatives like in-house training, online training, less soft skills training and lunch time sessions have helped the companies to keep costs under control, while continuing to ensure that employees are gaining adequate skills.

IT/ITES/Media A cutback on the training costs is seen as a major cost cutting measure by the HR. The technology enabled virtual classroom courses, online tutorials and internal trainings have been proven to be successful in meeting the training needs at a lower cost.

Employee retention Financial services Employee retention initiatives are primarily focused on providing incentives in terms of bonuses, recognition and other reward programs. Augmentation of responsibilities in terms of managing a higher number of employees or a larger geographic area is also an incentive provided to retain key talent. Few innovative initiatives such as managing risk profile (employees likely to leave) of employees have been implemented by top companies to manage employee retention. Other notable initiatives include: increased engagement between line managers and staff, clarity on performance expectations, increased performance reviews, maintaining succession charts. A formal career management system to retain employees has been found lacking in some companies.

Heavy Industries Financial initiatives has been provided by very few companies while others have mostly relied on effective communication as a strategy for employee retention.

Logistics The companies in Logistics industry have primarily employed non-financial incentives to retain the employees. Due to the overall slowdown in industry, attrition rates are nil or very low.

IT/ITES/Media IT companies have always been the front runner in recognizing their employees and implementing innovative employee retention schemes. Be it an effective communication plan or stock options and other financial incentives or a matured performance evaluation system, IT industry has been proactive in succession planning and employee retention.

Recruitment channels, costs and trends5 Financial services A major factor in reduction of recruitment costs has been the decreased use of consultants and also the reduction of consultant rates. Companies have focused more on using alternative channels such as company websites, referrals etc. A major source has been the increased use of professional networking websites such as LinkedIn to source the right talent. Increased use of technology such as video conferencing for interviewing has also helped companies reduce cost. Another innovative strategy has been to automatically link the job postings on the company’s websites to job boards such as monster, Naukri, Bayt and Gulf talent. Overall there has been a 30 percent reduction in the average hiring costs. With supply far exceeding demand, internal referral has been the major channel for recruitment for most companies. It will be interesting to know if these trends are permanent or whether consultants will be in a position to exert their dominance once the markets pick up. Overall banks have mainly recruited for key positions that need to be replaced whereas insurance companies continue to recruit for meeting expansion requirements. With organizations admitting to operating on an extremely lean work force, a renewed spurt in recruitment activity is expected by all, once the market picks up.

Heavy Industries There has been little shift in the way these industries have traditionally approached the hiring procedures and 5

See Exxhibit 5 for Recruitment channels, costs and trends charts

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channels. Most companies still continue to focus on consultants for hiring and hence the hiring costs continue to remain high. Amongst the newer initiatives, companies are using more of direct applications and some companies are moving towards professional networking sites such as LinkedIn as a channel for recruitment.

Logistics

Logistics

IT and ITES industry has seen major cutbacks in salary for existing and new employees. While some companies have not raised the salary levels, some others have kept the basic levels same and have reduced the bonuses.

There are new recruitment channels being used to reduce the recruitments costs and majority of the companies are using employee referrals and direct applications as opposed to consultants as hiring method.

IT/ITES/Media Most companies in the industry now rely on online channels for recruitment. Some companies continue to use consultants as the only medium for recruitment and have negotiated the agency fees to reduce hiring costs.

Compensation6 Financial services Majority of the companies did not hike or decrease employee salaries and only selective companies made a bonus payout. In spite of the falling real estate prices, the compensation structure of the current employee has not been altered. However few companies have taken this into consideration while hiring new recruits and therefore have hired employees at lower salaries. At the same time a few companies have stuck to recruiting new employees at similar salary levels vis-à-vis their colleagues, with the belief that they are hiring employees of above normal intelligence and it won’t be too long before they realize that they have been shortchanged.

Heavy Industries Most companies have not changed the salary levels for the existing and new employees. A handful of companies are using salary increases as an effective employee retention measure.

All companies have not changed the salary levels for the new employees but some have effectively reduced the salaries for existing employees.

IT/ITES/Media

Future growth Financial services The mandatory health insurance requirements and the low life insurance penetration rate are areas expressed by industry leaders that present significant growth opportunities. Certain companies within banking industry are hedging their bets on the SME market, private banking and wealth management. Majority of companies have employed a wait and watch approach. Overall we also see a strong trend to expand in to GCC and North Africa markets in order to reduce dependency on relatively developed markets such as Dubai.

Heavy Industries There is a strong focus on Qatar, Iraq and Saudi Arabia as growth regions. While there is a focus on increased expansion in Middle East, some companies are focusing on Asian markets as a future growth potential and have focused to increase production capacity with commissioning of new plants. New recruitment to meet these growth objectives is more technical and industry oriented.

Logistics Companies are focusing on innovative services to differentiate themselves and to stay competitive. Other shift noted includes the increased focus on bigger clients and B2B clients as a source of higher margins.

IT/ITES/Media The industry is facing challenges to increase revenue potential and regional expansion to Saudi Arabia, Qatar and Jordan is a driving force. Other potential growth areas 6

See Exhibit 6 for Compensation charts

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include new services like Consulting or identifying new customer segment like Government.

Strategic HR challenges Financial Services Retention of key talent post recession Attracting the right talent Meeting the Emiratization norm for future growth. Career progression management Develop second rung of leadership team

Logistics Knowledge retention Communication management

IT/ITES/Media Identifying and implementing cost cutting measures Talent retention Performance based salary structure

With attrition levels being the lowest ever, employees are more likely to be open to accept changes, thereby providing an ideal platform for companies to implement these basic strategies and prepare themselves for the future.

Heavy Industries Moving towards performance centric structure Training and retaining key employees Communication and motivation sessions for employees

Training for key employees

We would like to thank all the companies that participated in this project and the executives who cooperated with us and were proactive in their engagement, supporting this voluntary project in the true spirit of learning. Hult International Business School is a top-ranked international business school, offering MBA , Master's and Undergraduate programs in four locations around the globe (Boston, London, Dubai, and Shanghai). Hult is ranked the 31st best business program in the world and 16th best business program in the U.S. by the Economist Intelligence Unit. Hult is also ranked among the Top 100 best business schools worldwide by the Financial Times.

Conclusion Companies growing at a rapid rate during a period of heavy growth seldom focus on strategic human resource management. With the sole objective during growth being hiring new employees and firefighting attrition issues, companies often lax recruitment norms and pay less attention to performance management via objective goal setting. The current scenario has been an eye opener and hopefully companies would utilize the key learning’s while formulating HR policies. Best results are often achieved by going back to the basics and identifying the gaps at each step of the HR management processes and implementing strategies to fill the gaps

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Exhibits for the report on HR Trends in the United Arab Emirates

Exhibit 2 Restructuring Restructuring Yes

Exhibits for the HR report prepared by the Class of 2009 Hult International Business School 25

Exhibit 1

75

No

40

30

30

60

70

70

Logistics

IT/ITES/Media

Financial services & consulting

Revenue and Profitability Heavy industries

Profit change last 6 months Increase

No change

Decrease 15

30 50

60

0

40

50

80

Exhibit 3 Communication management

32 30 8

Financial services & consulting

5

IT/ITES/Media

Logistics

Yes 30

Revenue change last 6 months Increase

No change

Decrease

70

Heavy industries

40 65

59 90

0

No

20 60

60

40

40

IT/ITES/Media

Financial services & consulting

80

Logistics

40 25

35

Financial services & consulting

Communication strategy change

Heavy industries

16

20

IT/ITES/Media

Logistics

10 0 Heavy industries

HR SURVEY REPORT Exhibits for the HR Survey Report

A

Exhibit 4

Exhibit 6

Training budget change

Compensation

Training budget change Increase

No Change

Salary level of existing employees

Decrease

Increase

No change

Decrease 6

40

40

30

76

92 60 0

8 0

25 9

Heavy industries

Logistics

IT/ITES/Media

48

60 60

90

60

0

Financial services & consulting

50

40 10

0

2

4

Heavy industries

Logistics

IT/ITES/Media

Financial services & consulting

Exhibit 5

Salary level of new employees Increase

No change

Decrease

Recruitment channels, costs and trends 0 25

Recruitment cost Down

37

76

63

Logistics

IT/ITES/Media

75

60

50

22

0

0

0

5

Heavy industries

Logistics

IT/ITES/Media

78

Financial services & consulting

67

33

Heavy industries

45

100

Same

24

40

Financial services & consulting

Hiring trend Fired last 6 months

Hired last 6 months

To be hired next 6 months 40

30

30

40

30

30

Heavy industries

Logistics

55

12

25

3

20

7

IT/ITES/Media

Financial services & consulting

HR SURVEY REPORT Exhibits for the HR Survey Report

B