The Accelerate HR Blog
Where HR really matters (Mon Dec 03 2007)
Scott McArthur has posted a comment asking how the HR profession is doing on my small island.
It's time I think to introduce a new blog tag - Employment Politics.
If there's one place in the world where HR really matters, it's the Arab Gulf States. Here, HR can't afford to spend too much time on theory. Unless we tackle critical employment issues in a hurry, the outlook for the region is bleak. And the repercussions may be felt way beyond.
Let's start with Bahrain. We're tiny. At the last official census in 2001, the total population was just over 650,000 - about 60% Bahraini and 40% expatriates. Why so may expats? Well, it all started in the 1970s and 80s. After the Gulf countries took control of their own oil reserves, they all invested massively in infrastructure and communications to build modern nation-states. Neither Bahrain nor its neighbours had the manpower strengths, the experience or the skills to fast-track the development effort. So governments and employers looked west for their management skills and east for their labor.
And that's the way it stayed. In 2001, there was a working population of around 300,000. 60% was expatriate. Drill down into the figures, and you find that expatriates outnumber Bahrainis by 3 : 1 in the private sector, which had only 66,000 Bahrainis. Half that number of Bahrainis worked in the public sector - the army, the police etc - where there are very few expatriates.
So why would you want to know all this? Because it's important. There's something else too. The birth rate in the region is high. According to the CIA World Factbook in 2006 25% of the population is under 14. In the old days perhaps, these young people might not have needed to work or could have been absorbed into the private sector. Not any more. According to a 2004 McKinsey report
The same report, calling for Bahrain Labor Market Reform, saw trouble brewing: it said that Bahrain would need to create 100,000 jobs for its citizens in the next decade and forecast that 70,000 Bahrainis - or 35% of the workforce would be unemployed by 2013 unless radical changes were made to the current economic model.
Why don't Bahrainis go out and get jobs in the private sector then? There are plenty of jobs after all. And if every single Bahraini who wanted to work turned to the private sector, we'd still need several tens of thousands of expatriates. But there are reasons. Here are just a few.
1. Salaries for Bahrainis in the public sector are almost double those in the private sector. And there's an unwritten law: to qualify for a public sector job, you need to be unemployed. There's motivation for you.
2. Salaries in the vast majority of private sector jobs don't pay Bahrainis enough even to travel to work, let alone have a decent standard of living. Until now there's been no shortage of expatriates from poorer Asian countries queuing up to take jobs in construction with salaries as low as US$ 200 a month. So why should employers want to hire more expensive Bahrainis? And even if they did, why would Bahrainis want to accept? (This may be just beginning to change, as wages in India and the sub-continent rise, and foreign embassies begin to take a stand on minimum wages.)
3. Another bonus for the employer. There are strict laws concerning the sponsorship of expatriates. Most are bound to their sponsor / employer, who decides where they live, when they can enter or leave the country, whether they can work for a different employer. In construction, many businesses work an 8 or 9 day for 6 days a week. And then workers put in long hours of overtime. "They want to work overtime", say the employers. "It gives them a good salary. And what else have they got to go home to?" It's not too hard to see why employers (and leading the discussion, the Bahraini employers) want to keep the status quo and keep Bahrainis out.
4. And so the myth has arisen that Bahrainis - and likewise, all their Gulf counterparts - can't work, have no work ethic. Is it true? It's true that they're not accustomed to the way that work works - they haven't had the opportunity. But in my early days here, I had a business that trained young Gulf nationals for 3 months and then put them to work with a mentor in a sponsoring company. Gulf nationals - and Bahrainis in particular - were bright, sparky, innovative, committed. Back in the UK previously, my computer business in Swansea, South Wales regularly took on young ETS recruits. Very few of the Brits had the natural talents of the Bahrainis. But once at work, the Bahrainis were expected to fail. And too often, they did.
Does this matter? Heck, yes! 35% of the workforce unemployed by 2013. And Bahrain's just a microcosm. Look at the figures for big neighbour Saudi Arabia. 22 million nationals, nearly 40% of them under 14. 5.5 million expats. Labor force: 6.3 million. Do the math. Most of the expats will be in Saudi Arabia because they're working. So how many Saudis have jobs? How many jobs are they going to need to create?
If McKinsey foresaw a crisis, perhaps it's been shifted back a few years because of the recent rapid rise in oil revenues. There's more money available. But as oil prices rise, the dollar shrinks, and most of the currencies here are still tied to the dollar. And eventually the population growth is likely to outstrip the oil prices. What then? Well, history has a few lessons to teach about the problems that arise when there's widescale unemployment. I don't need to spell it out.
The McKinsey report on Bahrain Labor Reform called for a system of levies on expatriate workers to change the "vicious cycle that rests on excessive dependence on low-wage, expat labour; ineffective regulation; and incentives that lead to poor motivation, lack of performance and the perpetuation of low-wage, low-productivity business models." They suggested a visa fee of BD 600 (US$ 1600) every two years, and a monthly levy of BD 75 (US$ 200) for each expatriate worker. Nearly 3 years later the Government is cautiously adopting the proposals - except that the fee will be BD 200 and the levy BD 10. Still, employers are fighting tooth and nail against the proposals, claiming the extra costs will drive them out of business.
As it will, unless they do exactly what McKinsey proposes - radically change their businesses, to focus on the quality of their manpower instead of the quantity. If you've been reading the blog, you'll know my current project is with a construction business. I amuse myself when I pass sites (not my client's I hasten to add) and count the number of people working and the number of people watching. Guess which is always higher? Or, from a discussion with my client: "The problem is that they don't wear a tool-belt, so every time they need a new tool they have to walk across the site to get it. Now if we had decent supervisors and foremen ..."
I'm not the only one who's noticed. In a penetrating and hard-hitting 2003 report, Global Workforce in Transition wrote:
In Scandinavia and in most of the rest of the world, as overall economies grew wealthier, the wages for unskilled jobs also grew, the conditions of those jobs improved. Higher labor costs created incentives for employers to invest in productivity improvements, so that over the long run, fewer workers were needed to do those jobs. In Bahrain and the oil countries, in contrast, even as the overall economy grew and average prosperity rose, the steady supply of low-wage workers meant that the wages for these low-end jobs stagnated, working conditions did not improve, and labor productivity lagged that in the rest of the world. A Bahraini construction site, for example, looks like a European construction site from the 1940s.
So faced with this quintessentially human resources problem, what is the HR community in Bahrain doing to change things? What are we doing to make sure that there is a strategy of continuous workforce innovation, creating businesses that are more productive, generating more wealth, creating the 100,000 jobs we need? As far as I can see, my friend, precisely ... nothing.
Don't get me wrong. There are plenty of training initiatives going on. After all, you'd expect that when the government funds training for Bahrainis with approved institutions. But the problem is that there's not a lot of point training people ab initio when they're not likely to find a worthwhile job at the end of the training period. And, yes, the government has funded job placement initiatives and it's said that Bahraini unemployment is now down to 4%. Will they stay employed when employers expect them to fail? Will this actually create jobs or are we just plastering over the cracks?
My question was whether HR is helping to generate wealth for the business and stimulate jobs. We're not I suspect, because as I said in a recent post, less than 5% of our time is spent on human resource development, while the rest is assigned to personal administration. For me, the starting-point must be to address this: we need to improve our efficiency and effectiveness in administration, to give ourselves the time and space we need for employee development. Or perhaps we should just separate the two functions - personnel administration and achievement management ..?
But there's a second reason why we make no impact. We have yet to convince management that HR is strategically important. Important, yes of course, I mean there has to be a payroll doesn't there? But not strategically important, helping the business to make its critical decisions, becoming, dare I say it, a profit center rather than a cost center. Leading the way in productivity. Being able to demonstrate that the ratio between the company's profitability and its employment costs is consistently rising as a result of our inverventions. We've still got to develop our own toolkit - and maybe wear a tool-belt.
I've been preaching the same message for the last 15 years, without a great deal of success, I have to say. But I still believe that some of the most important HR initiatives of the next decade are likely to come out of the Gulf ... simply because the whole future of the region depends on getting HR right. And the next time you hear a Western politician mention the war on terror, why not phone or mail them and tell them they'd be much more likely to win their war by investing all that money in HR development and job creation in the Middle East.
I'll be waiting for your cheque.
Filed under: Employment Politics
Hi Iain
Great to have an old CareerCraft colleague back.
12 years after CareerCraft, nothing much has changed here - except if anything the situation's become more dangerous.
You suggest that Gulf governments should fund smaller companies who can help to develop human resources. They have. A good deal of money's been spent in support of almost precisely the same initiative that we started with CareerCraft - training people ab initio and placing them in private sector companies.
The problem is that this is revolving door employment. Just as fast as people join, they're leaving again - because all too often, the jobs they're getting aren't worth doing, both in terms of compensation and interest. Gulf employers are generally pretty happy keeping things just the way they are, hiring somewhat-skilled expats for low wages. Why would they want to encourage nationals, who'll have demands .. better wages, better conditions, a career plan ...?
Why's this dangerous? I'm worried about the impact of raising people's expectations by training them, and then letting them down by giving them rotten jobs. Where will that frustration lead? My fear is that in our global village, the consequences of frustration may be felt way beyond the Gulf.
At the moment, the frustration has been contained. High oil prices have allowed governments to create even more public sector jobs. But oil's not going to sustain the region for ever, and we've probably reached saturation point in the the public sector. And meantime, 50% of the population's in school. What happens when they leave?
So if the answer's not training, then what is it?
It's training. But not training the employees. Training the companies.
You raised the question. What's meant by HR development? And you answered it. You talk about separating the function of personnel administration from that of employee development. That's precisely what we need to do.
In this part of the world at least, 95% of HR is personnel administration. Sure companies are using fancy new titles like the Human Capital department... but they're just names. What they really do is produce the headcount figures, run the payroll, perhaps run an annual appraisal - which has more to do with setting this year's bonus than having anything to do with development.
As I see it, the only way we're going to get 10 million Gulf nationals to work in the next few years is to create jobs that ARE worth doing and begin to offer rewards above the poverty level. And to do that we (I mean HR professionals) need to show employers that when it comes to people, quality is more important than quantity. Not just tell them that. But show them. Prove it. We need standard HR tools that prove beyond doubt that good people are enhancing bottom-line profitability. And we need a cadre of talented HR professionals to lead the way.
That's what this site is all about. Accelerate HR is just the first step. Right now I'm working mainly on simplifying the administrative processes and creating the measurement systems. But through discussions like this, I also want to raise levels of awareness of the problem, and to start finding solutions. And I want the HR community to see the opportunity here. It's been my long-held view that the Gulf is where some of the most important advances in HR thinking and methodology will be formulated - because nowhere in the world does it matter more than here.
Thanks for joining the debate.
Alan Miles wrote: It's been my long-held view that the Gulf is where some of the most important advances in HR thinking and methodology will be formulated - because nowhere in the world does it matter more than here.
I would agree that the Middle East, principally the GCC states, may well be the lab where forward-thinking ideas are incubated. There is another, seldom stated, potential area of discontent which one should remain cognisant of: language. Not only is there the usual pressure for meaningful employment from graduates of the education systems but, in order to obtain many of the jobs that are available, an applicant has to be fluent in another language [usually English]. One can just imagine the resentment that could be released by having attention drawn to the fact that citizens need to speak a foreign language in order to get a job in their own country. I couldn't see the need for fluent Arabic going down too well in the Houston Marriot.
Regards,
Iain Macdonald
Investing the money in HR development and job creation. That will depend on two factors: what is meant by HR development and who is doing the investing?
Gulf societies have been insulated from unrest to a large degree by the huge development of national infrastructures which have accompanied the oil industry. To the credit of the governing, citizens have been provided with functioning road and air communications, education systems, health services and social stability. While criticisms can be aimed, it is worth spending a moment to compare what has been achieved in the Gulf States with the similarly-blessed African state of Nigeria - where abject poverty continues.
However, as the previous post highlights, the infrastructure has been developed by largely expatriate workers. Meanwhile, there is a vast and deepening pool of un- and under-employed nationals in the Middle East countries. So, what do we mean by 'HR development'? Based on my own observations, I suggest that most of what is implied by this term is HR administration. There is no end hiring, firing, payroll, government form-filling, etc. But do these things really add up to Development of Human Resources? Absolutely not, they constitute the processing of employees.
Allow me to turn briefly to the aspect of investing in HR development. There are three principal sources of this money in terms in the Gulf, two public, plus the private sector. The latter is easily understood; it boils down to the supply and demand for labour, based on current and forecast needs and is impacted by its effect on the bottom line. In the public domain, government departments, postal systems, etc. are [theoretically] in the same situation but, because they are also used to absorb some of the excess national labour force, are not under the same bottom line pressures. These two sources of investment, then, have neither interest nor leverage to get involved in the development of human resources. This leaves governments - who have the size, the motivation and the resources to force the issue of increasing national employment.
I would propose taking a step back in time in the interests of clarifying who is responsible for what. Before becoming the grandiose-sounding field of human development, firms ran what they called Personnel Departments. There was no grey area, it was an administrative function. I suggest that formally separating the administrative from the developmental would permit responsibilities to be assigned, thereby reducing the opportunity of buck-passing.
I mentioned earlier that only governments really had the clout to force issues, but they are notoriously more inefficient than the private sector as drivers of change. A dozen years ago, the British start-up training company CareerCraft* [then based in Jeddah, KSA] identified the need for human resource development to ready Saudi nationals for the private sector workforce. The idea was right but the timing and the investment were not. Such companies, using their own capital, are too small to exert the required leverage on the private sector to increase the proportion of their home-grown labour forces. Instead, the CareerCrafts of this world need to fulfill a middleman/sub-contracting kind of role between employers and the various Departments of Labour in the GCC states. This would provide greater financial investment while employing the drive and acumen of the private sector. By utilising numerous such companies and allowing them to battle for market share, Gulf governments and large, private employers can benefit from the brisk breeze of competition.
Iain Macdonald
*in the interests of disclosure, I worked briefly for CareerCraft in the 1990s and am aware that it was founded by Alan Miles, who contributes to this website, However, the opinions expressed [and any errors] are purely my own.