Centralisation: The key to stagnation

Meritocratic structures tend to let you know where you stand.

Centralisation, however, makes you wander aimlessly through the day waiting for someone else to direct or decide. There’s a common misconception that American, German or British companies are more “professional” than Saudi, Egyptian or Syrian; but that has nothing to do with ethnicity.

Westerners are prone to the same fallibilities and character flaws that the rest of humanity is; but the difference is institutions in their hemisphere have learned (due in large part to post-world war competitiveness) the importance of corporate governance, hierarchies built on delegation, planning, operational transparency and positive reinforcement.

Skeptical you may be, especially given that it is Western instruments that have led to a global financial meltdown; but it is important to emphasize that the world is in a crisis because of rabid deregulation and greed – a distinctly universal human trait – not because of constitution.

And where individual self-indulgence reigns, manipulation or corruption of any system emerges. The trick is to have the policies in place to expose and remedy operations that stray.

Historically, America and Europe were as endemically whimsical in their business dealings as we Easterners were. When the second world war ended, Western society craved a better life so entrepreneurs made a variety of new goods – not all of which did what they were advertised to do.

People sought things that satisfied wants not needs; and many paid for as many fraudulent products as they did functional ones. Markets, however, largely rewarded those that did things right.

So the world entered an era of innovation designed to make money things better; but governments had also learned they had to regulate business to some degree. While they did not stifle modernization and free markets, they did put some rules in place.

That, coupled with the intense competitiveness of the business world, forced businesses small and large to respect clarity and structure. It’s what helped Nokia go from boot mongers to mobile makers, what allowed P&G to afford sponsoring TV dramas (“soap operas”) while growing volume share, and for Ford to go from black T types to multicolored all types.

Yet while this was going on, Arabia was preoccupied with wars of independence, secession, civil wars, and that sort of thing.

When the dust settled and maps were re-drawn, however, the tribal and patriarchal systems that served to foster feudal hierarchies in politics did the same in the business world. It is no wonder that Max Weber, a prominent scientist in the start of the last century, called systems that are based on whim “sultanism.”

Companies from the 1960s to date have been run either by the government, families or cliques with centralized rather than meritocratic structures.

There is scant evidence, for example, that the majority of companies afford a CEO in Doha the same executive authorities he or she would enjoy in Dallas – nor in fact that a CEO is given a position for his experience, given that many are barely out of puberty, but rather for nepotism or his nationality.

Certainly mid level managers, or even business unit heads, are frequently at a loss as to what precisely they are authorized to authorize.

Employees of many Arab companies are rarely evaluated on a year’s worth of work. They are often micromanaged on the most mundane of tasks because patriarchs worry about leaving decision-making to chance or believe they know best.

The psychological impact is massive, creating a catatonic culture of panderers, as evidenced in ministries and corporations from Rabat to Riyadh. The United Nations reports in their Arab Development research about 50% of the region’s youth want to emigrate.

With a population about the size of the United States’, that’s about 100 million disillusioned or desperate youngsters. While internationally recognized lists like the Fortune 500 celebrate Western and some Asian businesses with a global footprint, no Middle Eastern companies make the grade (though at least a handful do try).

It’s not surprising then that most of the companies ranked by human resources consultant Hewitt Associations as “best employer” were either multinationals or run by formerly multinational-trained teams. Before the financial crisis, employee turnover was a whopping 21%, which annually cost businesses almost $3 billion according to Flagship Consultancy.

The reasons are fundamentally operational. Decision making – hence innovation – is limited to the top tiers of enterprise; or when bestowed, done so conditionally or erratically.

Even when owners tout good corporate governance, renting big guns like Ernst & Young, it is usually lip service with the expectation that any change applies to their underlings alone.

The engine of expansion, R&D, is often outsourced. Internally, staff rarely experience career path support, be it formal 360 degree evaluations or structured development programs.

The chance to err and evolve is often stifled because mistakes are seen as failures not learning opportunities.

It behooves companies to observe and learn from multinationals. This includes heavily decentralized decision-making, annual budget allocations including training and research, measurable goal based management, semiannual reviews, formal staff appraisals, and so on.

Most importantly, change will happen only with the willingness to accept constructive criticism and to practice co-optive leadership.

Perhaps the crisis is a good thing, as it will make competitiveness more prevalent. And, with it, make the upper echelons of enterprise realize that they need to bring professional, empowering structures into their companies and ministries; but in doing so, realize that merit and results are more important than tribal ties, geographic lineage or sycophancy.

Ahmad Abuljobain is the COO of a property brokerage. He was previously Chief Marketing Officer of Tameer and Managing Director of Leo Burnett, Riyadh.

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READERS' COMMENTS

Centralized Management
Posted by MJ, Dubai, UAE on Friday 17 July 2009 at 12:18 UAE time


What makes you crazy that when something goes wrong, they are not there! It is only you, the one blamed and must clean their mess.
They take the rewards in the good days and you take the..... in the bad days.

Centralization
Posted by Belal Ayyash, Sharjah, UAE on Tuesday 14 July 2009 at 21:57 UAE time


It's an outstanding article; where you stated the ideas in more details, namely how principal agent theory could be used to say something about the effects of centralization and the reasons behind.

Thanks Abu Hamzeh

You said all the truth
Posted by Imad Odat, Kingston, Canada on Monday 29 June 2009 at 20:54 UAE time


Very interesting and honest article written by a professional experienced manager

Nice Article/Good home truths
Posted by Paul Welsh, Ystradgynlais, Wales on Wednesday 17 June 2009 at 13:11 UAE time


An exceptional well written piece. Cuts to the chase of what exactly happens here. The overarching controller whether it be governmental, family head, son of family head (because family head is too old) is alwys there in the background pulling the strings. How many times have there been articles and posts on this site about customer service in banks and retail outlets etc? It is all about delegation of authority and lack of fear of a mistake. "Please Sir I will have to call my manager" is an all too familiar call in answer to even ther most trivial question/query. "It is comapny policy" is another one!! That last one is particularly griping as we all know it is the fallback and very bad last resort option that is used all the time here. Companies here survive in spite of this as there are often no other options, yet!!!

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