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Sat 19 Jun 2010 04:00 AM

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The human touch

The latest trends in the MEP sector are consolidation and diversification, both strategically and geographically. But what exactly is involved in acquiring other companies, and undertaking projects in other regions?

The human touch
Drake & Scull International PJSC chief corporate affairs officer Zeina Tabari.
The human touch

The latest trends in the MEP sector are consolidation and diversification, both strategically and geographically. But what exactly is involved in acquiring other companies, and undertaking projects in other regions?

Like most companies, DSI started out small. "When we started in the UAE - remember DSI in the GCC started in 1966 in Abu Dhabi and then moved to Dubai in 1976 - we started with 50 people. I remember one of the projects which we worked on was the Chicago Beach Resort (now known as Jumeirah Beach Hotel). At that time there were not a lot of recruitment agencies, so hiring for that project was a challenge," says Tabari.

"We probably had a staff of about 50 people at that time. Today, incorporating all of the DSI companies, including Passavant-Roediger and DSI Kuwait and DSI Qatar, we are approximately 15,000 strong. And with the two Saudi acquisitions that are coming up at the end of the year, which include one MEP company and another civil contracting company, we will have a workforce of about 20,000 to 22,000. One of the companies has about
7,000 people and the other one has around 2,000 people." So how does DSI go about acquiring another company?

"We initially begin the process by strategically identifying a company and looking at their resources. Is it an MEP, civil contracting or IWP company? Over the last year we have managed to buy two MEP companies, so we have a good idea of exactly what kind of resources they would have. We would then assess the first-line management. We start with the area, financial and operational managers, as they are the three critical roles.

"We then move on to the departmental managers. We in the corporate office have functional reporting, so every person in the area reports to someone else in corporate. So human resources in Abu Dhabi and Qatar all report to human resources in the corporate office, just to make sure that all of the policies and procedures, recruitment methodologies and selection processes are consistent. This also ensures we all use the same suppliers and vendors, so firstly you can take advantage of the volume of work, and secondly that the overall quality is the same."

German

An example of this was DSI's most recent acquisition, that of Passavant-Roediger, a German developer of wastewater, water and sludge treatment technologies. The company bought an 82% stake for AED145 million. In terms of a company with intellectual property rights, DSI first assesses the R&D department to "make sure the creators of this technology have long-term contracts." It then examines the particular market in which that company operates. "We have never worked in Europe before, let alone Germany," says Tabari. This means understanding that particular market's company and labour laws, including such issues as "understanding how to hire, how to let people go and how to promote others. When looking at the current contracts that they have, what are the liabilities we might face, what are the things they are missing in the contracts which we can also share."

Any differences between the two companies have to be identified from the outset. "DSI has a bonus policy, for example. Whereas, some of the companies which we have acquired do not. We believe that this provides long-term incentives through which we are able to retain management.

"All of this does not occur overnight," notes Tabari. "We acquired Passavant-Roediger in November 2009. However, we are still in the process of incorporating it into DSI, not only in terms of human resources, but also other departments like finance and the back office. Part of this process involves introducing the acquired company to DSI's own markets. Passavant-Roediger is growing in the GCC, particularly in Saudi Arabia, Jordan and the UAE, so a big part of the process is co-ordinating the two operations, especially in terms of shared services."

How is the process impacted by the fact that DSI is a company listed on the Dubai Stock Exchange? "It does not actually complicate the process," says Tabari. "It just means you need to comply with corporate governance laws and overall transparency. We also have to make sure we abide by general company and labour laws. When we acquired GTCC in 2007, for example, we were not a public company, but the policy and process of integration was quite similar. What makes it different now is you are always under the spotlight."

So how does a corporate entity like DSI stamp its authority and culture on the companies it acquires? "We always have management control. We always buy more than 51% so we can incorporate our own policies and structure. We also enter into an agreement with the company whereby it agrees to abide by DSI policies and procedures. Everything needs to be synchronised, so you need to ensure their standards are consistent across all areas. It takes a lot of time and a lot of training," says Tabari.

Cultures

She adds that the actual integration of staff is the most difficult part of the entire process. "Dubai is a very cosmopolitan city, with a variety of cultures. The hardest part is getting people onboard and to encourage cultural integration. Just getting people to understand the vision, the strategy of the company, where they are going and how they can contribute, as well as what the company will offer them in the future, is a major undertaking and a very important step."

"When you acquire companies - a company in Germany, another one in Kuwait and another one in Qatar - with different management and different strategies, you need to make sure first of all that not only the management but the staff and the workers on-site have the same understanding of the company vision and brand. A uniform on-site might not be important to anyone, but to us it is important as DSI is a brand name which you see everywhere. It only takes five minutes when you meet a client for them to form an opinion about you, so we try our best. As a construction company we do not sell a product, so it is very difficult to see the productivity and the value, which means you spend extra time training people. And when they come from different backgrounds and different cultures, they do not understand the overall picture, so that is also a challenge."

Each acquisition also poses its own unique challenges. "I think it depends on which market you are acquiring the company from. When we acquired the company in Qatar and the company in Kuwait, it was quite easy, as they are part of the GCC, where we are relatively familiar with the labour laws. The integration is easier than when you acquire a company in Europe or Asia. For example, we have started a company in Thailand, which means understanding the Thai labour law, and dealing with the culture and the language barrier." Then there are the more mundane but equally important issues of income and employee tax to be dealt with.

Such acquisitions have obvious implications for the DSI overall health and safety and quality policies. "That is something we face everyday. We do have an internal auditing department which oversees operational, financial and legal auditing. We just started the latter last year, in order to ensure that we are adhering to company law, corporate governance and transparency. With regards to operational auditing, that started around 1998. It is one of our oldest departments, making sure our policies and procedures are implemented. At DSI, we have quarterly audits - a schedule gets sent out at the beginning of the year; the QAQC officer audits every department as per the schedule and submits a NCR (Non-Conformity Report) to the departmental manager, advising on what measures need to be taken and giving a timeline."
Auditing

This auditing process is critical because DSI is an ISO-certified company. Its latest divisions to achieve accreditation in this regard are DSWP and GTCC. "That means we are doing something right in making sure our policies and procedures are implemented. We have just applied for ISO 18001 certification, especially for our IWP division, which is involved with water treatment and energy efficiency." In addition, the auditing department reports to the board directly, "so the board knows exactly where we stand and what is going on." Tabari adds that, in terms of transparency, the focus not only falls on individual departments, but the CFO and CEO are audited as well, "so there is 100% transparency between the board and the actual company."

However, policies and procedures do change and evolve with time. "Before we were incorporated at the end of 2008, we were a private company operating and reporting to a CEO; now we have a board of directors, and have regulations and a regulatory authority to report to. Hence we have revamped all our policies and procedures. Also all the job descriptions have been changed and the new positions incorporated. Prior to us listing, we did not have a full-time legal, auditing or even communications department. All of these things came with us growing and adapting to becoming a public company," says Tabari.

The main focus of this developmental process is, of course, the HR department, "because when you become a public company, you need to make sure you employ the best talent. This could mean changing your bonus scheme and introducing a long-term incentive like an employee share option plan, whereby employees are allocated shares in the company so they feel their performance at the end of the day impacts on the share price." This is a steep learning curve for a company that began in the region with only 50 employees, but Tabari says DSI has learnt a lot in a relatively short space of time.

This is why the company's non-regional acquisitions have generally taken longer than its expansion in the wider GCC. "DSI has been operating in the region for quite some time. The new markets we have just entered into are Libya and, of course, Europe. The latter markets involve revisions of operational activities in order to adapt to their stringent policies, and that is why the development of these companies is a bit slower than the development of the GCC companies. We know this market very well, so it is easier for us to win and execute projects and bring people in. Now in a market like Libya, we started the company in July 2008. However, we have not managed to win a project so far. Of course, there is always a learning curve - a learning curve of the industry, of the competition, of understanding their pricing methodology, how they recruit people, how you bring people in, and that takes time."

Resources

Another component of the process is making sure resources are distributed efficiently. "In construction, all of your expenses are booked on a project. Everything is either G&A or overheads; you aim to be as efficient as possible and trim the fat. Hence you cannot have project managers and managers just sitting around and waiting for the next project to come in. So you try to ensure that the next generation of employees are ready to take up the cudgels when the challenges arise. All of our area managers in Thailand, Kuwait, Qatar - that is, in the areas where we have grown organically - have all come from within DSI itself. Of course, sometimes you need to hire local talent. In Thailand, the law states that 30% of your employees have to be local."

Tabari says DSI is concentrating so much on diversification in order to dilute its concentration in the Dubai market especially. "The concentration for us in one market was around 57% last year, and now that has fallen to 26%. We want to be more diversified, not only in our product offering, but also in our geographical spread. It takes time for the outside world to see the developments resulting from all the hard work that we have put in place." Tabari is confident that DSI will start to reap the tangible benefits of this process by the beginning of next year, as its legwork starts to pay off in new markets such as Libya, Algeria and Syria.

New markets

"What DSI always tries to do is win a project before we enter a new market. We do not really like to hire people and have them just sitting around and waiting. If we consider the costs involved, it does not make any sense. And what are you going to do with these people? If you hired specific skills for a particular project, it will prove very difficult to transfer them. Letting them go would be demotivating not only for them, but for the entire company. In terms of our reputation, we do not really like to hire people when we have not secured a project. We have seen that a lot with our competition over the last few years, and have, in fact, hired very well-qualified staff as a result of such fallouts," says Tabari.

The fact that projects cannot be predicted poses its own challenges for HR. "It is very difficult for us as HR to compile an actual company plan. Who are we going to recruit this year? How many positions are we going to fill? It is a very challenging exercise, because you do not know. Sometimes you win five projects in one month, and sometimes you do not win any projects for the next quarter. In the first quarter of this year we won AED1 billion worth of work; a lot of this was derived internally as our Dubai operations are shrinking, so we have to transfer a number of staff. Thus it is not only hiring people, but also transferring people internally, training people, and making sure they are ready for the next challenge," says Tabari.

Admin burden

This imposes a particular burden on the company's administration department as "HR identifies the talent that needs to be moved, while admin deals with the visas, for example. HR steers, but admin has to be strong enough - if visas and medicals are delayed - then people become demotivated and are unproductive as a result. It is very challenging. Being a construction company, you have workers on-site in remote areas, and they do not really interact much with the rest," says Tabari.

In order to address this issue, DSI has established an admin centre in all of these remote locations, where employees can check their records or update their leave and pay status accordingly, without having to take time off in order to visit the head office in order to be able to do so. In terms of recruiting for IWP, the skills set is completely different. They have to be innovative, because it is all about reducing client costs in a more technically advanced way. Civil contracting, on the other hand, is quite straightforward.

Tabari says DSI has acquired a proprietary software program from the UK called Talent that allows it to monitor all applications and CVs centrally. "All our recruitment is done through the corporate head office. Our recruitment department interviews people every day, regardless of whether we have a position or not. So we always have additional CVs on hand and a good candidate selection."

In terms of the Talent program, as soon as you apply on the careers section on the DSI Web site, you get a reference number that you can use to follow up on your application. The system also sends you an e-mail every six months asking you to update your profile, and whether you are interested to continue to be on the DSI database. It also monitors your progress - how many times you came in, how many stages of the interview process you have progressed through."

Such investment in company infrastructure seems to be transforming DSI into a benchmark for the construction industry as a whole. "We have always invested in people; when we did our IPO, we gave gifted shares to  our key employees. At the time a lot of people did not know what an IPO was, so we had to ensure employees and managers understood why we were doing this, why we were becoming a public company, why do we want to get scrutinised by everybody?"