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Why Middle East companies should avoid job cuts in these times of low oil prices

In the current uncertain economic climate, businesses and governments are struggling to balance their budgets in the face of continued volatility. Sustained low oil prices and erratic financial markets have rocked the global economy, forcing companies to balance their budgets, and the hammer has inevitably fallen on employees as companies downsize their workforces.

The Gulf states are no exception; as many as 1,500 jobs have been cut in the UAE banking sector since the beginning of 2016 alone, and market uncertainty has led to redundancies in other sectors such as construction, tourism and retail. The oil and gas industry, feeling the bite of lower oil prices, is also quietly cutting staff; estimates suggest that Qatar Petroleum shed as much as 25 per cent of its workforce in June 2015, while Abu Dhabi National Energy Company also reduced its workforce by a quarter since 2014 and Abu Dhabi National Oil Company is reportedly targeting 5,000 job cuts by year-end.

But organisations throughout the region that think they can protect their competitive advan­tage by streamlining their staff may soon begin to feel the negative effects this can bring. As employees leave, they take a priceless resource with them that seldom makes its way into cost-cutting considerations – their knowledge and experience.

It is estimated that as much as 90 per cent of any organisation’s critical knowledge – knowledge that is fundamental to the organisation’s success but known by only a few people – is retained by key employees, and vast amounts of invaluable expertise is now being lost by com­panies as staff retire, are laid off or move to competitors.

The curse of the baby boomers

The problem first gained major attention in the United States with the retirement of the “baby boomers"– those born during the 1950s and ‘60s, many of whom have spent their entire careers within a single company or sector.

As this generation of innovative employees began to retire, a realisation dawned on firms that the experience they were losing formed the very foundation of their businesses. Without these employees, many institutions struggled to fill the knowledge gaps left behind.

The loss of institutional knowledge affects all sectors; in 2003, The Washington Post reported a Nasa official as stating: “If we want to go to the moon again, we’ll be starting from scratch because all of that knowledge has disappeared." The next year, Forbes magazine claimed that Fortune 500 companies were losing as much as $31.5 billion each year by failing to adequately capture and share knowledge.

The problem continues to significantly undermine business performance across the world. In 2014, the Harvard Business Review estimated that lost knowledge costs businesses up to 20 times more than the expense of recruiting and training replacement personnel.

Knowledge management in the Gulf

Some large institutions have taken steps to stem this haemorrhage of know-how. Shell pioneered a retention of critical knowledge (Rock) programme to capture this vital asset, and many others in the West have also begun to devote resources to combat the issue.

With ageing workforces and as the youth bulge puts pressure on governments to provide jobs for young Emiratis, Dubai and Abu Dhabi’s leaders have realised the urgent need to transfer knowledge from one generation to the next. By including KM in government excellence programmes, there has been a marked increase in the number of knowledge management departments established in the Emirates over the past few years. However, few organisations have successfully developed the means to extract their employees’ implicit expertise and then share it to drive organisational improvement.

With low oil prices set to remain for the foreseeable future, belt-tightening is likely to continue. However, when uncertainty abates and markets revive, those who find themselves on the wrong side of knowledge loss might discover that the very efforts they have made to survive the downturn may represent the biggest threat to their success.

Just how do you harvest the knowledge held within your workforce before it’s too late?

David Grunfeld is the managing director of Prose Solutions, a UAE-based knowledge and content development consultancy

* This is the first part of a three-part series. Next week: Don’t let your knowledge die on the vine: a Rock road map