Organizations need to realign their priorities to adjust to the changing business environment
The last couple of years have been a turbulent period for businesses in the Middle East. Low oil prices, political instability, internal conflicts and an overall slowdown in the global economy have contributed to a weak business environment in the region.
The GDP growth for the GCC region is showing a sharp slow-down and is expected to remain weak in the short to medium term. Furthermore, since these economies are primarily oil dependent, declining oil prices has meant lower revenues for the government, resulting in fiscal balances moving from surpluses to deficits
Macroeconomic imbalances and growing concerns on economic revival are prompting governments to curtail investment, control expenditure and focus on revenue enhancement. Measures being undertaken/ spoken about to manage expenditure include lower public spending, cut back on subsidies, reduction in public sector salaries. Steps to shore up revenues under consideration include privatization, introduction of VAT, imposition of corporate taxes, tax on expat income, etc.
Given the above, businesses in the region are witnessing constrained opportunities for revenue growth and challenges in retaining existing business/ positioning. Furthermore, sentiments and economic confidence has declined resulting in cut back in investments even at the corporate level.
Moreover, in an environment of high oil prices and booming government spending the focus of companies was on investments/ expansion to fuel top-line growth while optimization of processes and operations was not a business priority. This has led to legacy problems of high cost structures thereby creating significant pressures on margins. However, in the prevailing environment it has now become imperative for businesses to tackle these issues on priority and prepare themselves to navigate the new normal.
Consequently, there is an increased need for the business leaders to be more agile, and think holistically about the businesses for a quick and effective response to the changing market dynamics. A deep insight into the operations and financial facets of the business is generally seen as a good starting point to assess the current situation and prepare a clearly defined roadmap for improving overall organization effectiveness.
This diagnostic assessment leads to identification of areas, which need intervention and could include realignment of strategic direction, cascading of strategic direction into KPIs to be periodically monitored, organization restructuring/ alignment, business process design/ reviews and enhancing the overall governance in the company.