Restructuring managerial hierarchy the key to staving off effects of lower oil revenues, reduced demand – Expert

Progressive organisations like dnata save tens of millions of dollars with right approach, says PA Consulting Group

Abu Dhabi, UAE, 14 February 2016: Private and public sector organisations in the Middle East have been advised to simplify their hierarchical systems to stave off the effects of lower oil revenues and reduced demand.

PA Consulting Group says those who have a clear understanding of the levels of organisational hierarchy needed can identify the most effective spans of management control and consequently will have a better future in the region.

The company says the right approach has already saved progressive organisations like Dubai-based dnata tens of millions of dollars, while others continue to be held back by historical problems.

“As the impacts of lower oil revenues and reduced demand effect the region, private and public sector organisations must look at the efficiency of their organisation structures,” said Phillip Rice, organisational expert at PA Consulting Group, Middle East and North Africa. “This will be a key differentiator in both the private and public sector.

“Initiatives to improve efficiency, through better allocation of resources, must be based on a fundamental understanding of the hierarchy that is required in the organisation and how management can work most effectively to best deliver business outcomes.

“Organisations that have taken this approach are not only realising reduced costs, but also greater clarity of performance measurement and improved employee satisfaction. By applying these principles, we helped dnata, one of the world's largest air services providers, save $20 million per annum.”

Rice identifies two historical factors why this approach has not been widely applied in the region. The first is that human resource practices have often been adopted from military or civil service organisations.  “This means approaches to organisation, grading and promotion are grounded in a ‘rank and file’ approach suitable for an annual intake of recruits and promotions based on time in service,” he said.

“This creates a focus on managing the individual, not the structure of roles and hierarchy of the organisation. Changes are often made to an individual’s title and grade without any substantive change in the contribution they make to productivity.  So there’s a breakdown between contribution and hierarchy.”
 
Added Rice: “Another problem stems from the rapid growth that many organisations have enjoyed in recent years. As each department or function grows, supervisors and managers expect their role to be pushed up the hierarchy.

“But good organisation hierarchy should be based on a limited number of levels of decision making authority. An additional layer of management is only needed where the complexity or time horizon of decisions are substantively different.  Failing to apply this approach leads to compression in roles, a lack of clear accountability and unnecessary cost.” 

PA helped one of the region’s leading commercial banks save more than 20% on their estimated budget by applying this approach. 

“To reduce cost and improve effectiveness, organisations must first define their levels of decision making, then build the organisation structure bottom up, only introducing a managerial level where it aligns to the levels of decision making,” says Rice. “The final step is to identify where specialist or supervisory roles are required to support decision making or co-ordination without adding additional layers to the hierarchy.”