middle east point of viewspring 2012 - deloitte united states...a negative reputation, which are...

Middle EastPublished by Deloitte & Touche (M.E.)and distributed tothought leadersacross the region.

Spring 2012 PointofViewPlanning/Failing to fail/plan

It's not you, it's meChallenges of family businesses

Beware the hash tagReputational risk at the mercy of a button

We've got to talk about...Prioritizing cancer

Keep calm and carry onSo you've uncovered a fraud

2 | Spring 2012 | A Middle East Point of View

Spring 2012Middle East Point of ViewPublished by Deloitte & Touche (M.E.)

To [email protected]

www.deloitte.com

A Middle East Point of View | Spring 2012 | 3

A word from theeditorial team

Political animal, meet citizen journalist.

Almost 2,500 years ago, Aristotle advanced the viewthat man is, essentially, a ‘political animal’ – intertwinedwith his city-state and morally obligated to participate inthe matters of the polis.

With the rise of social media platforms, it has becomeeasier than ever to participate in all that is pertinent toone’s existence.

As elucidated by Ceem Haidar, Middle East PublicRelations leader at Deloitte, in her article Who’s trendingwhat?, 70 percent of respondents to a survey carriedout by the Dubai School of Governance in November2011 use social media to voice their opinions on amultitude of topics. As such, the region is “fueled withhighly active web users, engaged on the various socialmedia platforms.”

But these citizen journalists, as they are now known, arenot only engaged in politics according to Ms. Haidar.Companies are also at risk. “With online news and socialmedia, a small mistake can become an international#trending topic within seconds,” she says. “Brands arenow more vulnerable than ever.”

As reputational risk stands at the mercy of the 'send'button, firms should assess how prepared they are torespond to unfavorable publicity or an unsparingjournalist.

Or a case of internal fraud.

There is always collateral damage caused by a case of fraud, says David Clements, Deloitte's ME Director of Forensics Services, in his article on fraud, including“loss of reputation, brand damage and reducedemployee morale.”

So how should companies respond is a case of fraud is detected? Keep calm and carry on, as the old WorldWar II adage predicated. “The amount of time and

effort it takes for management to respond, particularlyin the initial weeks, is excessive and severely impacts the normal business activity of the organization,” saysClements. “Initial actions,” he continues, “are crucial tothe eventual outcome of an investigation,” but properplanning could help companies assess and take the right actions to resolve the matter successfully.

The issue of cancer is also at the forefront in this issue. It is the second time that the Middle East Point of Viewcovers this issue, perhaps further elucidating the pointmade by Zaid A. Bitar, Deputy Director General andHead of International Development and Dr. Lena El-Malak, Senior International Development Manager atthe King Hussein Cancer Foundation in Amman, Jordan,that cancer is an “issue that not only cannot be ignoredbut should be prioritized.”

Unfortunately, maintaining healthcare on policy makers’list of priorities has become a challenge in itself asgovernments in the region grapple with unprecedentedpolitical and economic challenges. What is called for,they explain in their article We’ve got to talk about the C-word, is regional cooperation to ensure that solutionsare crafted to make optimal use of limited availableresources, both in terms of human capital and financialassets. The private sector and non-profit organizations,they say, should step in to alleviate the government’sburden of providing healthcare.

It is luckily then, as enunciated by Parham Gohari andSari Alabdulrazzak in their article on healthcare in theGCC, that more private sector investments are expectedin the sector “driven by new government strategy andregulatory reforms.” These investments are “aimed atenhancing and developing healthcare infrastructure andvalue chain.”

ME PoV editorial team


In this issue

Who’s trending what?What ‘reputational risk’ means to companies today and how they are managing itCeem Haidar

Keep calm and carry onYou think you have discovered a fraud. What do you do?David Clements

Family Businesses: Addressing the challenges faced in today’s environmentAli Kazimi, Ben Moore and Paula Morris

We’ve got to talk about… the C-wordPrioritizing cancer at a time when it is not a priorityZaid A. Bitar and Dr. Lena El-Malak

6

12

18

22

Contents


GCC Healthcare: Growing investmentopportunities for private sector playersParham Gohari and Sari Alabdulrazzak

Is your corporate footprint stuck in the mud?Darin Buelow, Matt Szuhaj, Josh Timberlake and Matt Adams

On the road to quality Graham Lucas

An ever-changing game planIraq’s business climate and the opportunities aheadAyad Mirza

26

32

44

48

Table of contents


Who’s trending what?What ‘reputational risk’ means to companies today and how they are managing itWhat the Arab Spring elucidated perhaps more than a disgruntled population, was that this population issigned in and logged on. Throughout the Middle EastNorth Africa (MENA) region and specifically in SaudiArabia, the United Arab Emirates (UAE) and Egypt, over86% of active web users use social media to get news,information and advice on various issues, according to

The Arab Social Media Report, issued by The DubaiSchool of Governance in November 2011. According tothe report, 70 percent of respondents use social mediato voice their opinions on a multitude of topics. As such,the region is fueled with highly active web users,engaged on the various social media platforms.


Reputation

And they are not only engaged in politics. With onlinenews and social media, a small mistake can become aninternational #trending topic within seconds. Brands arenow more vulnerable than ever.

A scandal tied to a reputable company, propagated by a disgruntled ex-employee could be the next hash tagphenomenon. Companies and, in turn, brands, areconstantly vulnerable to reputational risks that can arisefrom virtually anywhere, be it factors as diverse asproduct quality, social media, environmental impact,employee malpractice and outsourcing.

As a result, the realm of reputational risk is nowregarded as a ‘meta risk’ for companies, standing at

the forefront of any key strategic and operationalconcern for global and Middle Eastern senior executives.Reputational risk has now become a potential threat ona par with new competition, technology failures, talentissues and changing regulations.

How can companies control these risks? According to Jonathan Copulsky, Principal at DeloitteConsulting, LLP and author of Brand Resilience:Managing Risk and Recovery in a High-Speed World,companies need to intelligently manage the risks byplaying active and consistent defense. “By any measurethat we have looked at,” says Copulsky, “brands aremuch more valuable than they have ever been beforebut at the same time, they are much more fragile.”

Warren Buffett famously said that “it takes 20 years to build a reputation and five minutes to ruin it.”But why should companies worry so much about their reputation?

How well a company’s reputation is regarded bystakeholders can have an immediate and long-termimpact on the organization’s overall success. Consumersales can increase or be negatively impacted byreputation. Potential talent too, can either be attractedto a firm, or repelled by it. Investments can alsofluctuate, along with the corporation’s ties withgovernmental officials in the respective county ofoperation.

A ‘Trust Barometer’ survey carried out by public relationsfirm Edelman’s measured attitudes about the state oftrust and found that “when a company is trusted, 51%of stakeholders will believe positive information about itafter hearing it once or twice, compared to only 25%

who will believe negative information after hearing itonce or twice.” On the other hand, for companies witha negative reputation, which are generally distrusted,the survey finds only 15% of stakeholders will believepositive information, versus 57% of stakeholdersbelieving negative information after hearing it once or twice.

However, the traditional understanding of how tomanage reputational risk no longer applies in today’sworld. Before the advent of social media, the focusremained on risk avoidance or minimizing asset losses.Today, with over half of the world’s populationconnected to the Internet, companies need to relateenterprise reputation matters to strategic outcomes.


The brand paradox

Brand fragility

Bran

d va

lue

Greater connectivitywith brands...

...but greater willingnessto consider alternatives

when brands prove unworthy

Heightened importance of brand trustworthiness

Companies and, in turn, brands, areconstantly vulnerable to reputationalrisks that can arise from virtuallyanywhere, be it factors as diverse asproduct quality, social media,environmental impact, employeemalpractice and outsourcing

Source: Deloitte


Tweetwithcare

Likewithcare

Linkwithcare

Postwithcare

At present, the concept has shifted from ‘controlling’risk’ to the notion of ‘Risk Intelligence’ as put byCopulsky. A corporation must ask itself whichreputational risks it can potentially accept, which will pose the greatest potential impact and if it isprepared to address these reputational risks if and when they arise. A Risk Intelligent approach is a highlyinclusive and multi-faceted way of operating in today’s dynamic world.

Previously, risk was solely assessed in terms of impactand likelihood. Today, a third dimension of ‘velocity’ has been added, reflects Copulsky, whereby reputationaldamage can travel at lightning speeds, creating a rippleeffect. With two to three Twitter accounts activatedevery second, 50 million tweets per day (252,000 tweetsper day in the MENA region alone), 350 millionFacebook users active daily (over 28 million users inMENA region) and over 80% of all companies usingeither channel, potential ‘saboteurs’, as Copulsky refersto them, are virtually everywhere.

So how do companies become ‘Risk Intelligent’? First,they take a journey of self-discovery, then they analyzestakeholder and marketplace threats and opportunitiesand lastly, they proactively manage actions designed toprotect and enhance reputation and derive value.

Steps to becoming ‘Risk inteligent’Step One: Self-discovery Self-discovery is when an organization examines itsstrategies, initiatives, potential risks and operations, toultimately locate risks to reputation. This can be carriedout by the Chief Risk Officer (CRO). In the absence ofsuch a practitioner, a specialized communications team,with a risk management function, can do the job.

To begin the journey of self-discovery, senior executivesneed to be approached to identify potential risks toreputation and to assess how these risks may impacttheir departments. They include the Chief ExecutiveOfficer (CEO), whose strategies and business deals may pose a potential threat. Next in line is the ChiefOperating Officer (COO), whose role would be to assessthe potential reputational impact of supply interruptions,customer dissatisfaction, media reactions and othereffects of operational risks. The Chief Financial Officer(CFO) is also important, as impact on reputation canlead to adverse financial implications.

Other entities to be included in the journey of internaldiscovery include the head of Marketing, as it is theirrole to enhance reputation and the head of HumanResources, whereby risks to reputation can impact talentattraction to the firm.

Before the advent of social media, thefocus remained on risk avoidance orminimizing asset losses. Today, withover half of the world’s populationconnected to the Internet, companiesneed to relate enterprise reputationmatters to strategic outcomes.

Reputation

Step two: External identification External Identification is the process of gatheringinformation from stakeholders to assess potentialreputational risks from an outsider’s viewpoint. Gapsbetween the corporation’s desired reputation andwhere it currently stands should be identified. This canbe conducted through surveys or external consultants to derive unbiased useful information. With thisinformation, potential room for improvement can beacknowledged and built upon.


Typical groups involved in Risk Intelligent enterprise management

Risk governance Board of directors:• Foster a Risk Intelligent culture• Ratify key components of the Enterprise Risk Management (ERM) program• Discuss enterprise risks with executive management• Meet with internal audit

Technology (all-pervasive):• Provide periodic / real-time dashboards to oversee risks

• Make monitoring andreporting easier

• Support timelymaintenance and preempt problems

• Facilitate riskescalations

Risk infrastructureand management

Executivemanagement:• Define the riskappetite

• Evaluate proposedstrategies against risk appetite

• Provide timely risk-related information

Enterprise riskgroup:• Aggregate riskinformation

• Identify andassess enterpriserisks

• Monitor risksand riskresponse plans

Internal audit:• Provide assuranceon effectivenessof the ERMprogram

• Evaluate controlsand risk responseplans forsignificant risks

Risk management:• Create a commonrisk framework

• Provide direction onapplying framework

• Implement andmanage technologysystems

• Provide guidanceand training

Risk ownership Business units:• Take intelligent risks• Identify and assess risks• Respond to risks• Monitor risks and report to the enterprise risk group

Support functions:• Provide guidance/support to the enterpriserisk group and business units

Source: Deloitte

Once the groundwork has been laid,with potential reputational risksidentified, continuous monitoring of theoverall surrounding environment is vital

Key stakeholders of reputational riskIllustrates the key stakeholders of reputational risk thatboards and C-suite executives should consider in their360-degree approach to risk management and theirpotential areas of impact on the organization. These willvary according to each organization, but serve here asbase for reflection.

Once the first two steps are thoroughly conducted (andthey must be repeated frequently, as new updatesalways surface), a plan of action for each possiblereputational risk must be put in place. What is the firm’sofficial stance on topic X? What should the PR managerrespond with when asked about topic Y? Clearinstructions must be readily accessible and available toall. If this is mismanaged, the firm will end up with acrisis management situation – which can be potentiallydestructive.

Step three: Continuous and consistent monitoring Once the groundwork has been laid, with potentialreputational risks identified, continuous monitoring ofthe overall surrounding environment is vital. Informalsurveys conducted amongst stakeholders, along withdiligent media monitoring, will aid a corporation inidentifying potential risks to reputation.

For example, a negative Tweet on the firm should beflagged and staff should be alerted to stay on thelookout. Firms cannot afford to let their guard down.Yet many firms do not have the internal capacity tocarry out these projects. As such, external mediamonitoring firms are widespread, offering online andoffline scanning of news, including social media sites.They provide invaluable minute by minute updates onwhat is being said about a firm, or its competitors.

ConclusionReputational risk has gained its ‘red flag’ ranking in most boardrooms across the globe. Senior executivesnow comprehend the meta risk involved in reputationaldamage. As such, risk departments and CROs have been appointed within the firm to intelligently managepotential risks. In addition, it is crucial that eachemployee is aware of his or her role within theinstitution, as a powerful brand ambassador.

Once internal and external measures are taken, a firmshould assess its preparedness for reputational risk,reflecting on several elements, such as: how would afirm react if a confidential e-mail made its way to thehands of an unsparing journalist? Or if an unfavorablevideo was made by a few employees in the companypremises and uploaded onto YouTube, what would bethe best way to respond?

When citizens become journalists and ‘trend’ the nounbecomes ‘to trend’ the verb, companies need to standup and take notice of who is trending what and where.

by Ceem Haidar, Middle East Public Relations leader at Deloitte

Traders • React fast and could initiate downhill spiral inshare price

Analysts • Question future financial results and changerecommendation (buy/sell)

Shareholders • Sell holdings and provoke fall in share price

Partners/suppliers

• Upstream, quality suppliers/subcontractors turn to others

Customers • Downstream, clients/customers look elsewhereto fulfill needs

Staff • Top talents can be lost to competition due todemotivation

• Unable to hire needed competencies

Regulators • Increased scrutiny leads to undue burden on allstaff and stress on the organization

Investors • Money becomes scarce for long-term projectdevelopment

• Cost of finance (if available) rise sharply

Ratingagencies

• Place company on alert, leading to potentialdowngrade

• Cost of finance goes up

Source:


When citizens become journalists and‘trend’ the noun becomes ‘to trend’ theverb, companies need to stand up andtake notice of who is trending whatand where

Reputation


Despite recent surveys pointing to fraudbeing on the increase, the discovery of asuspected fraud within any organization isnot an everyday occurrence for most peopleand initial reactions may include shock andsurprise. However, action taken in the firstfew hours and days after discovery willsignificantly impact the course and/oroutcome of a full investigation and mayeven make it or break it.

You think you have discovered a fraud.What do you do?

Keep calm

andcarryon.


Most organizations have controls in place to prevent anddetect fraud being committed against them from theoutside. In the banking industry in particular, external fraud is an expected occurrence and banks employ sophisticatedprocesses and technology to prevent and detect suchoccurrences. The bigger problem occurs when fraud hasbeen committed from within. Apart from the cost involved,there is always some collateral damage caused including lossof reputation, brand damage and reduced employee morale.Seniority of the suspect is also a factor, the more senior theemployee, the more serious the damage.

History shows that, in the absence of any structuredresponse plan, the amount of time and effort it takes formanagement to respond, particularly in the initial weeks, isexcessive and severely impacts the normal business activity ofthe organization. When a potential fraud is first discovered,the following few hours or days can be very confusing andstressful if the organization is unprepared. In the absence ofa Fraud Response Plan, experience has shown that managershandle the same problem in different ways - sometimes withdisastrous consequences such as destroying the evidentiaryvalue of information by inappropriate handling processes,inadvertently tipping off the suspect, enabling them todestroy incriminating evidence, failing to keep the matterconfidential and taking inappropriate action caused byhaving insufficient information.

For example, in a recent fraud incident occurring in the UAE,an employee who was in charge of procurement for acertain organization also operated a supply and contractingcompany which had been paid in excess of Dhs 3,000,000by his employer’s company, all ordered and authorised byhim. The suspect, once discovered, was dismissed but wasgiven a month’s grace period during which time hedestroyed a large number of incriminating documents.

In another incident, it became widely known throughout anorganization that a fraud had been uncovered. However,that particular incident, which became public knowledge,was only a small part of a much larger conspiracy between anumber of employees and suppliers. By failing to keep the

When a potential fraud is firstdiscovered, the following fewhours or days can be veryconfusing and stressful if theorganization is unprepared

Fraud


matter confidential, the company management enabledthe conspirators to destroy incriminating records,electronic data and to dispose of stolen property, whichrendered any future investigation futile. The identities ofthe suspects were not confirmed, meaning that thecompany may still be employing people who are activelyseeking ways to defraud it.

A Fraud Response Plan ensures that incidents arehandled in a systematic and efficient manner, not onlyto conclude a successful investigation, but also to showthat the organization acted in a prudent and lawfulmanner. And that it does not tolerate fraud.

The Fraud Response Plan should outline how far anindividual line manager should go in collecting initialinformation before invoking the Response Plan. The key is to provide the line manager with an effectiveframework to resolve concerns, rather than leave suchresolution to individual initiative.

Fraudsters rarely restrict their activitiesto only one modus operandi or method.Therefore, every effort should be madeto obtain as much information aspossible before anyone is questioned,confronted or interviewed.


Initial ActionIt is important to remember that when fraud is firstsuspected, the matter may well be more serious than itmay initially appear. This is because fraudsters rarelyrestrict their activities to only one modus operandi ormethod. Therefore, every effort should be made toobtain as much information as possible before anyone is questioned, confronted or interviewed. This isparticularly important in organizations or business unitswith a close working environment, where there may bea strong temptation to simply question an employee assoon as suspicion is raised.

It is also important to be aware that larger scale fraudsare often international in nature. Therefore, any fraudcontingency planning must include measures for takinglegal and investigative action across jurisdictions.

In addition, most frauds involve the use of a computerat some stage in the planning or execution of the fraud.This is particularly evident in today’s environment, whenthe majority of white collar employees are allocated acomputer by their employer. Business is conducted bycomputer and correspondence normally involves acomputer through the widespread use of corporate e-mail. The pervasive involvement of the computer intomost facets of corporate life means that electronicevidence is often vital to investigating corporate fraud.Obtaining that electronic piece of evidence is a specialistskill which should be discussed with your forensicspecialists.

Initial actions are crucial to the eventual outcome of aninvestigation and, if a proper strategy is put in place andadhered to, the extent of fraudulent activity can usuallybe assessed and action taken to resolve the mattersuccessfully. This usually means assimilating sufficientevidence to dismiss errant staff and to commence civiland/or criminal proceedings against those concerned inthe fraud, or claims against insurers, if so desired.

Initial responsibility designationFraud investigation is, by necessity, a confidential task and is a sensitive matter for the vast majority oforganizations. It is vital that all allegations of fraud aretreated seriously and that responsibility for handlingfraud incidents is assigned to a senior, trusted individualor collection of individuals. In many organizations, thatresponsibility is handed to a corporate security advisor,internal audit manager or risk management director. In other organizations, the responsibility is sharedbetween members of senior management or an auditcommittee and the organization’s human resourcespersonnel and corporate lawyers are involved from a very early point. Fraud incident managementresponsibility is an important role and those chosen toadminister the role must come from the appropriatelegal and management level to authorise investigativeactions and to co-ordinate the organization’s overallresponse to fraud incidents.

It is vital that all allegations of fraudare treated seriously and thatresponsibility for handling fraudincidents is assigned to a senior,trusted individual or collection ofindividuals

Fraud


As part of their overall fraud control plan, organizationsshould assign responsibility for fraud incidentmanagement to an appropriate person(s) as a precursor to adopting an incident management plan.Consideration should also be given to the appropriatelevel of involvement by corporate lawyers and humanresource personnel.

Fraud Response TeamSome Fraud Response Plans only deal with situationswhere an employee discovers a fraud and hands it overto an investigation department to follow up. However,some frauds have impacts far beyond the remit of theinvestigation department to deal with (such as when theorganization’s liquidity is threatened). The Plan alsoshould cater for these eventualities.

Most large organizations have formed crisis managementcommittees to respond to major incidents (such as a fire

or explosion), so it is not uncommon to take a similarapproach in a Fraud Response Plan. Typically, this meansforming a Fraud Incident Management Team, comprisingessential members and co-opted members.

In some types of fraud, the victim may only have a fewhours to take action to freeze funds which have beenillicitly transferred. It is essential that contact numbers for essential service providers are establishedbeforehand, including internal support departments,such as legal, corporate security, insurance externallawyers, police and telecommunications agencies,forensic accountants and investigators.

Receipt and initial assessment of suspicion,allegation or ‘tip off’Fraud investigations are often initiated after anallegation or a tip-off (often anonymous) is received. This will usually be sourced from inside the organization,although external tip-offs are not uncommon. Manyfraud incidents are initially discovered by accident,perhaps as a result of an audit, job change orresignation. Very few frauds are discovered as part of a deliberate attempt to uncover fraud, as very feworganizations implement a proactive fraud detectionprogram.

The checklist on the right/left highlights initial actions tobe taken (or not) upon the discovery of fraud or tip-off.

At the conclusion of this stage, a decision must be made as to whether the allegation or suspicion warrantsinvestigation or is implausible or vexatious. However, this decision must be made carefully. If an allegationcannot be quickly dismissed as false, further actionshould be taken.

Most frauds involve the use of acomputer at some stage in theplanning or execution of the fraud.This is particularly evident in today’senvironment, when the majority ofwhite collar employees are allocated acomputer by their employer.


Fraud

Checklist

Initial action checklist upon discovering a potential fra

ud:

1. Alert the fraud incident manager that an allegation o

r

suspicion exists

2. Document date, time and details of initial

report/discovery

3. Take notes of all observations and actions – if

something is worth taking a mental note, it is worth

a written note)

4. Maintain confidentiality (only inform those people w

ho

need to know about the suspected act). Unwarranted

disclosure can seriously damage potential successful

investigations. Do not confront the suspect.

5. Write out in full the suspected act or wrongdoing

including:

• What is alleged to have occurred

• Who is alleged to have committed the act

• Is the activity continuing

• Where did it occur

• What is the value of the loss or potential loss

• Who knows of the activity

6. Identify all documentary and other evidence

connected to the activity

• Invoices

• Contracts

• Purchase orders

• Cheques

• Computers

• Credit card statements

7. Obtain evidence and place in a secure area. (only

where it is possible without alerting any suspects)

8. Protect evidence from damage or contamination

9. List each item individually taking note of acquisition

(incl. time, date and location) and where the item

was securely stored

10. Identify all potential witnesses

11. Unless electronic evidence is in the process of

being destroyed do not go into the suspect/target

computer systems

12. If possible, secure and/or remove suspect’s access

to relevant computers/systems. Do not allow IT

department to examine computer

13. Consider other potential suspects and extent of fra

ud

As part of their overallfraud control plan,organizations should assignresponsibility for fraudincident management to anappropriate person(s) as a precursor to adopting anincident management plan

by David Clements, director, Forensic and DisputeServices, Deloitte Corporate Finance Ltd

A typical Fraud Response Plan contains:• purpose of the plan,• policy statement,• definition of fraud,• roles and responsibilities including fraud response team,

• objectives including civil and criminal response,

• reporting of suspicions and collection and preservation of evidence.

Family Businesses:Addressing thechallenges faced intoday’s environment


Family businesses are fundamental to the businesslandscape of the Middle East and are intrinsic to theregion’s economy. The challenges faced by today’sfamily businesses are perhaps greater than ever:competing in a more turbulent environment dominatedby pluralistic social values, intensified competition, aglobal economy and rapidly changing politics andregulation. Compounding such challenges are thecomplex relationships that exist between family

members and the delicate balancing act required tocombine family and work relationships. Moreover, there is no one rule that governs all – every familybusiness is unique, deriving its personality fromgenerations of family and business heritage.

So how do family businesses face up to these challenges and ensure their success and longevity?


Family Businesses

Balancing family and business demandsAn equitable balance needs to be accomplishedbetween family demands and the needs of the business,whilst at the same time addressing the complexinteraction between the two. As well as dealing withcommonplace business issues, such as changes inbusiness and technological markets and challenges from competitors, family businesses must deal with the unique psychological dimensions of having familymembers work together.

It is critical to understand that each of the key members of the business will have their own objectives,perspectives and goals. Working together intensifiesfamily interactions and can exacerbate family problemssuch as sibling rivalry or competition between thegenerations. Unresolved conflicts can undermine theoperation of the business, diminishing communicationand trust, ultimately resulting in a detrimental effect onthe business.

Key issues to be tackled include effective decision-making across the family, management and ownershipissues, conflict resolution, facilitating effective ownershipof the business, balancing the involvement andperformance management of family members with their

skill set and those required by the business whilst aboveall operating in the best interests of the business andfamily as a whole. It is important to address suchsensitive issues in order for the family business to succeed.

Benefits of family business planning Many family businesses do not have family businessplanning and governance frameworks in place to dealwith the future strategy of their business and families.As a result there are no mechanisms in place to dealwith everyday issues such as methods of ownership andpolicies for change, formalising family employmentpolicies, establishing effective communication andsuccession planning.

Whilst the need for tighter corporate governance, that is the way in which a business is directed and controlled,is recognised, the importance of family governanceremains relatively unrecognised as an essential elementin governing the family and its relationship with thebusiness. The establishment of structured planning andframeworks will not only encourage the family toarticulate and examine their values, needs and goals ona regular basis, essential to the unification of the family,but also to develop their commitment to the success ofthe business.


The benefits to be obtained from doing so areimmeasurable and include improved businessperformance, managing family relationships andexpectations as well as sustaining trust andcommunication. To remain viable, businesses mustcontinually grow and develop, changing and adaptingto external environmental factors. Consideration of the family business governance frameworks and regular planning provide opportunities to take stock and gain perspective – something not easily doneamongst the pressures of daily business activity. As the family grows and matures, planning is crucial toaccommodating changing family relationships/dynamicsand circumstances and keeping the family unified. Trust is vital to all organizational relationships; theestablishment of a clear and fair set of rules andapplying them consistently is fundamental to thebuilding of trust amongst family members.

The planning process is also pivotal in supportingsuccessful management succession, ownershiptransition, effective governance and profitable business strategies.

Overcoming the leadership challenge andtransition to the next generationTransition from one generation to the next is often oneof the most problematic and least planned-for eventswithin family businesses. All too often, family businessleaders continue well beyond what is necessary orreasonable in terms of the alternatives, for fear ofceding control over the family business and, to someextent, avoiding their own mortality.

The implementation of plans, mechanisms andframeworks enable a smooth succession process,understood, accepted and agreed by all parties,effective and not damaging to either the departing or the incoming leader.

Whilst the gentle disengagement of leaders is hard toachieve, there is no reason why a staged departurecannot be achieved, with the business benefiting fromtheir wisdom and experience but at the same timeallowing the invigorating wind of change to blow. Weoften find leaders discover a ‘third career path’ wherethey can exercise their drive and enthusiasm, in manycases choosing the route of philanthropy as a rewardingarea to focus on.

Another challenge is the introduction of junior familymembers into the business. Obtaining outside workexperience can be invaluable and is worth consideringas a prerequisite to joining the family business. Thisenables junior members to gain a realistic view of theirskills and abilities as well as to understand thecommitment required to develop a successful career.Upon joining, junior members should follow a plannedtraining and development program, not be subject topreferential treatment and be expected to earn therespect of their fellow family members and colleagues.

So how do you establish and implement effectiveplanning and governance frameworks?

Establishing effective planning and frameworks The extent of the planning and governance frameworksrequired will depend upon a variety of factors and tendsto be something that evolves over time. These factorsinclude: size, complexity and geographical spread of thebusiness, number of family generations involved, totalnumber of family members and their geographicalspread, whether the business has non-family executivesor independent non-executive directors.

Family businesses in the early stages of establishmentrequire significantly less complex planning structures andframeworks than those that have been running for anumber of years and are already employing a number offamily members. As the family grows and the businessdevelops, this will give rise to the need for a morestructured framework.

An equitable balance needs to beaccomplished between family demandsand the needs of the business, whilst atthe same time addressing the complexinteraction between the two

There are many elements to the family governanceframework. While it is not possible to discuss allconstituent parts, key components include: a familyconstitution, a family council and a family office.

A family constitution is essentially a route map for the family and the business and sets out statements of intent or agreements entered into by the familymembers in relation to the family business. It isessentially a statement of general principles, outliningthe vision of the business, its core values and thefamily's commitment to them. It provides a documentedmethod for reaching a family consensus on how anumber of issues should be addressed, offering apractical guide as to the framework for running thebusiness and dealing with the family business issues thathave the potential to cause disputes.

A family council is an organized, self-led, self-determining group that provides a structured forum forfamily members to meet and discuss the current andfuture state of the family business and to establishpolicies or strategies on matters affecting the family. Thefamily council is a way of building family support, unity,empowerment and cohesiveness through a sharedvision of the family’s guiding principles.

A family office provides a forum to control andconsolidate the management of a family’s wealth,bringing together business and personal planning togenerate one global wealth management planencompassing the family’s values, aspirations andobjectives. This is often administered in conjunction with a fiduciary wealth planning structure, such as aprivate trust company, to provide effective wealthmanagement, succession planning and preservation of family wealth across generations.

Professional adviceFamily businesses have a tendency to rely on existingfamily members, on the premise that they have a wealthof experience that can be drawn upon. This can oftenbe counterproductive and restrict the ability of thebusiness to grow and develop. The use of externalprofessional advisors provides a new raft of skills,competences and experience, as well as independentobjectivity not often found among family members.

A wealth of advice can be provided, covering the issuespertinent to both the business and the family itself.From a business perspective, advice can range fromcorporate restructuring through to international cross-border taxation and mergers and acquisitions. From afamily perspective, the advice can range fromestablishing family governance frameworks tointernational taxation issues, wealth management andthe structuring of both financial and non-financial assetsto achieve effective succession planning andpreservation of family wealth.

Such advice allows the business to grow and flourish as well as respond successfully to change.

On a final note, the ability of professional advisors tonavigate through sensitive problem areas, both withinthe business and family, cannot be underestimated.

ConclusionThe global economic and political climate makes it moreimportant than ever for family businesses to implementeffective planning and governance frameworks, seekingthe assistance of professional advisors, in order toensure the success of their businesses and thepreservation of family wealth across generations. AsHarvey MacKay reminds us, “most people don’t plan tofail, they simply fail to plan.”

by Ali Kazimi, managing director, International TaxServices, Ben Moore, managing director, FinancialAdvisory Services, and Paula Morris, senior manager,International Tax Services, Deloitte in the Middle East


Family business leaders continue wellbeyond what is necessary or reasonablein terms of the alternatives, for fear ofceding control over the family businessand, to some extent, avoiding theirown mortality

Family Businesses


We’ve got to talk about…the C-wordPrioritizing cancer at a time when it is not a priority


Cancer, once an enigma, is now the secondleading cause of death worldwide, aftercardiovascular disease. It is also increasingly onthe rise in the developing world, where it isrising at a faster rate than population growth. Inthe Middle East, in particular, cancer cases willoutpace population growth by a rate of almosttwo to one.1 It is an issue that not only cannotbe ignored but should be prioritized.

Cancer


While the rise in cancer rates outstrips populationgrowth, there are very few cancer treatment centers inthe Middle East. Healthcare systems in the regioncurrently do not have, either the capacity to absorb thisincrease in the number of cancer patients, or the propermedical facilities and expertise to provide them with thetreatment they need. One of the leading comprehensivecancer centers in the region has, in recent years, beenforced to turn patients away due to lack of space.2 If thisis the situation today, one can only shudder at how itwill develop over the years. Governments must prioritizehealth and take urgent action to prepare the region toshoulder the cancer burden of the next generation.

Unfortunately, maintaining healthcare on policy makers’list of priorities has become a challenge in itself asgovernments in the region grapple with unprecedentedpolitical and economic challenges. The situation variesfrom one Middle Eastern country to another, thus theresponse to this impending health crisis will have to betailored to fit the varying needs, both locally andregionally. For instance, some countries in the regionmight have the financial resources and economicgrowth rates to build the infrastructure needed toabsorb the rising number of cancer patients, but neitherthe human resources nor the expertise to provide thesepatients with life-saving cancer treatment. Othercountries in the region might be equipped with theskilled labor force, but lack the financial resources tobuild the infrastructure necessary to absorb all cancerpatients.

These varying needs call for regional cooperation toensure that solutions are crafted to make optimal use oflimited available resources, both in terms of humancapital and financial assets. The most effective solutionmay not necessarily require the construction of acomprehensive cancer treatment center in each andevery Arab country. It may be more efficient toconsolidate expertise in a select number of cancercenters in the region and ensure that they receivesufficient funds to become hubs for cancer patientsfrom across the region. Medical partnerships andresearch must be encouraged and promoted in order to exchange expertise and enhance the capacity ofhealthcare providers. These efforts should all bechanneled towards increasing the availability of qualitylife-saving treatment.

As cancer care becomes more available, the issuebecomes how to ensure that patients have access tosuch care. It is no longer feasible to expect governmentsto shoulder, alone, the burden of proving healthcare totheir populations. The global financial crisis has forcedmany governments to slash their public expenditures,sacrificing much of their budgets allocated forhealthcare. This is particularly the case with tertiary level care, which is expensive and often requires acommitment of time due to the complexity of thedisease being treated. Given that public healthcare isincreasingly being strained by financial limitations, it is imperative that all segments of society takeresponsibility in order to ensure that patients haveaccess to quality medical care.

Private sector and non-profit organizations should stepin to alleviate the government’s burden of providinghealthcare. In the case of the private sector, this can be achieved by investing in the health sector andsupporting medical centers and projects throughcorporate social responsibility (CSR) programs. Non-profit organizations on the other hand can becomealternative providers of medical services. In Jordan, forinstance, the United Relief Works Agency for PalestineRefugees (UNRWA) is the main provider of primaryhealthcare for Palestinian refugees registered with the

Maintaining healthcare on policymakers’ list of priorities has become achallenge in itself as governments inthe region grapple with unprecedentedpolitical and economic challenges


agency. Another non-profit organization that provideshealthcare services is the King Hussein CancerFoundation (KHCF) and Center (KHCC). KHCC is theprimary provider of cancer treatment in Jordan, whileKHCF has various goodwill funds which cover eitherpartially or fully the cost of treatment forunderprivileged patients.

Insurance programs can also be effective in providingcoverage for patients who require treatment and cannotafford it. KHCF’s Cancer Care Program is an example ofan insurance program that offers subscribers limitedcoverage to be treated exclusively at KHCC, upon beingdiagnosed with cancer, in return for a minimal annualsubscription fee.

Governments must also concentrate their efforts onprevention and early detection. Research has revealedthat a large proportion of non-communicable diseases(NCDs) are preventable. According to the World HealthOrganization (WHO), “NCDs share modifiable behavioralrisk factors like tobacco use, unhealthy diet, lack ofphysical activity and the harmful use of alcohol, which,in turn, lead to overweight and obesity, raised bloodpressure, and raised cholesterol […] Feasible and cost-effective interventions exist to reduce the burden andimpact of NCDs and sustained action to prevent riskfactors and improve healthcare can avert millions ofpreventable premature deaths”.3 For these interventionsto be effective, stakeholders must cooperate to ensurethat regulations are promulgated and enforced toreduce exposure to risk factors. This can be achievedthrough bans on smoking in public places, for example,or constraints on advertisements for so-called junk food.Together, these efforts will create an enablingenvironment that will encourage individuals to adopt ahealthy lifestyle, thus reducing their chances of gettingNCDs.

Governments must join forces with other stakeholdersto devise and build the proper framework to curb therise in NCDs in the region and to ensure that qualitycancer treatment continues to be available and

accessible to all patients. Building infrastructure anddeveloping skills and expertise to provide quality medicaltreatment to patients in the region require advanceplanning and a solid investment of funds and time. It istherefore incumbent on all stakeholders to confront therise of NCDs head-on and reprioritize healthcare in theirpolicies and budgets. It is only by consolidating effortstoday that we will be able to avert a health crisis in thenear future.

by Zaid A. Bitar, Deputy Director General and Head of International Development, King Hussein CancerFoundation, Amman, Jordan and Dr. Lena El-Malak,Senior International Development Manager, KingHussein Cancer Foundation, Amman, Jordan.

Endnotes1 Economist intelligence Unit, comp. “Breakaway: The Global

Burden of Cancer Challenges and Opportunities.” (2009): 41-42.Print and CIA Online World Fact Book, All Country BackgroundData.

2 The King Hussein Cancer Center is the only center in the regionaccredited by the Joint Commission International as a DiseaseSpecific Cancer Center.

3 World Health Organization (WHO) Discussion Paper, AComprehensive Global Monitoring Framework and VoluntaryGlobal Targets for the Prevention and Control of NCDs, 21 Dec.2011 [available online at www.who.org].

Governments must join forces withother stakeholders to devise and buildthe proper framework to curb the risein NCDs in the region and to ensurethat quality cancer treatmentcontinues to be available andaccessible to all patients

Cancer


GCC Hea Growing investmen for private sector pl

Driven by new government strategyand regulatory reforms, moreinvestments are expected in the GCC healthcare industry, aimed atenhancing and developing healthcareinfrastructure and value chain. Thisincrease in investment will lead to asignificant expansion in the healthcaresector and will create attractiveopportunities for private sectorparticipation in the industry.

althcare: nt opportunities

layers


Healthcare

23 24 25 26 27222120

KSAbn USD

2.4 2.5 2.6 2.7 2.82.32.22.1Qatar

bn USD

2500 3000 3500 4000 4500200015001000

Kuwaitnew beds


Key market driversDemand for health services are affected by several keydrivers, including demographic and macroeconomicfactors. According to the Economic Intelligence Unit(EIU), the Gulf Cooperation Council (GCC) populationreached 45 million in 2010 and is forecast to reach closeto 57 million by 2015, posting a cumulative annualgrowth rate of 5%. The GCC population is relativelyyoung with the vast majority of people under the age of29. But this structure is expected to change in the next10 years, with the over-65 age segment experiencingthe fastest growth rate. This segment has aproportionally higher healthcare cost per capitaassociated with the treatment of diseases such as heartailment, hypertension and diabetes.

The healthcare industry is also driven by positive growthprospects and increased purchasing power, such asthose witnessed in the region. The overall income levels in the GCC region have risen substantially due tothe increase in oil prices over the past few years. Incomegrowth has outpaced population growth, resulting infaster increases of per capita income. According to theInternational Monetary Fund (IMF), per capita GDP in the GCC is expected to grow 5.4% over the period2010-15, which is likely to further drive healthcarespending in the region.

Increased urbanization and rising per capita incomehave also led to a more sedentary lifestyle in the GCC.This has substantially increased the prevalence oflifestyle-related diseases such as diabetes, cardiovascular

ailments and cancer. According to the World HealthOrganization, the GCC has the highest ranking in theworld in incidences of diabetes and obesity. The higherincidence of lifestyle diseases is projected to lead to anincrease in per capita healthcare costs and moredemand for specialized tertiary medical facilities.Additional investment and private sector participationare required to reduce the demand/supply gap.

The higher incidence of lifestylediseases is projected to lead to anincrease in per capita healthcare costsand more demand for specializedtertiary medical facilities

Key market drivers

Growing lifestylediseases and aging

populations

increased focus on policy

making and intervention

Rising incomelevels andpopulation

growth

Growing demand foradvanced medical

equipment andtechnologies

Developinghealthcare

infrastructure

Mandatoryhealth insurance

and growingpenetration

Key market challenges

Heavy reliance ongovernment

finance

Spiralinghealthcare

costs and over-consumption

Complexity andlack of standardization

in regulations

Shortage of healthcare professionals

and limited medicaleducation institutions

Inconsistenciesin quality and

standardizationof services

Outflow of patients seeking

treatmentsoutside the

GCC

Key market drivers and challenges for the GCC healthcare industry

Source: Deloitte


Developing the healthcare infrastructure GCC governments have devised strategies to boost theirhealthcare infrastructures. However, they continue tolag behind the developed markets in terms of standardsand key indicators. Expenditure on healthcare in theGCC grew by around 14% to reach over $34 billion in2009, of which the public sector contributed 70%. Butdespite a relatively high level of public spending,expenditure as a percentage of GDP stood at 3.5% only,far below that of developed economies and the worldaverage of 10%. In addition, GCC states lag behinddeveloped countries in bed count. The bed density inthe GCC is currently at 1.8 beds per thousand, ascompared with 3.1‰ in the U.S., 8.2‰ in Germanyand a staggering 13.7‰ in Japan.

Aided by large budgetary surpluses, the GCCgovernments are set to make unprecedentedinvestments to support healthcare provision and bringthe industry up to par with international standards interms of bed capacity and the quality of healthcareservices. Such investments will require strong privatesector partnerships as well as a strong private sectorpresence to both, sustain and capitalize, on expecteddemand. Promoting the industry to private players is apriority for all GCC governments, as it is clearly stated intheir strategic and development plans.

Saudi ArabiaSaudi Arabia, which is the largest and one of the mostdeveloped markets for healthcare services in the region,allocated a $23 billion healthcare budget in 2012,representing the largest in the history of the Kingdom.They have also allocated a robust SAR 274 billion (USD73 billion) for various health initiatives in their ninth FiveYear Plan (2010-2014), including the construction of121 hospitals, 700 primary healthcare centers and 400emergency centers. The plan is to improve the beddensity from the current 2.2‰ to 3.5‰ and the ratioof physicians to beds to 0.75. The Saudi government isundertaking policy reviews to create an effectiveregulatory framework aimed at providing theappropriate environment for increased private sectorinvestment and expansion in medical facilities andproduction and distribution of medical equipment,

supplies and services. Such initiatives include thepromoting of mergers and acquisitions to spread privatehealthcare expansion, offering incentives to attracthighly qualified medical professionals, addressing theshortage in qualified medical staff through educationand the expansion of medical colleges and residencyprograms, creating partnerships with leadingeducational institutions to build the Kingdom’s medicaleducation capacities, designing a sophisticatedhealthcare system to regulate and track the increasinglycomplex healthcare sector and establishing a nationalelectronic records system and business intelligencesolutions to support the Kingdom’s healthcareexpansion. The aim of the privatization initiatives is toreduce public spending and re-focus government effortson market regulation.

KuwaitKuwait is another example with plans to increase beddensity from the existing 2‰ to 2.2‰ by building ninenew hospitals by 2016, which will add 4,000 new bedsto the market. The government is also planning majorpolicy and regulatory reforms to increase the privatesector investment in the industry. The government isalso identifying specializations that the private sectorcan invest in to align service offering with the publicsector and control competition to ensure quality servicesare being offered.

Aided by large budgetary surpluses,the GCC governments are set to makeunprecedented investments to supporthealthcare provision and bring theindustry up to par with internationalstandards in terms of bed capacity andthe quality of healthcare services

Healthcare


QatarQatar’s 2011–12 budget allocated QAR 8.8 billion (USD2.4 billion) for health projects and services and thegovernment continuously encourages the private sectorto play a greater role in upgrading healthcareinfrastructure. In fact, private sector participation, whichstands at around 60% of total hospitals, has beensteadily rising over the years and the government hasrecently taken a number of additional steps to furtherwiden participation. For example, Qatar‘s SupremeCouncil of Health (SCH) plans to introduce a nationalhealth insurance scheme within the next three yearsunder the National Health Strategy (NHS) 2011–16 toreduce dependence on public funds for healthcare.Qatar also intends to implement a pioneering e-healthprogram across its hospitals and clinics nationwide,including the introduction of an electronic healthrecords system. The imminent need for a comprehensiveinformation management system will provide extensiveopportunities for the private sector to contribute to itsdevelopment and benefit from the flow of information itgenerates. Furthermore, in January 2011, the SCHapproved a decree to remove all price controls onmedicine in an attempt to liberalize the market andincrease competition. Currently, the SCH isimplementing the free pricing policy, but routineinspections on the prices are conducted to prevent anymisuse of the policy. The SCH also has a new directionto promote pharmaceutical manufacturing in thecountry for private sector investors.

UAEMeanwhile, leaders in the United Arab Emirates (UAE)have emphasized in their vision that all Emiratis shouldhave access to comprehensive world-class facilities withthe best quality services in early diagnosis andpreventative medicine. With this core focus, mandatoryinsurance will be introduced to all Emiratis and non-Emiratis across the UAE (beyond Abu Dhabi), which inturn will increase consumption of healthcare services(perhaps as much as three-fold) and will help regulatorsidentify the gaps in current services at hospitals andclinics across the emirates. The private sector will haveaccess to better information on the market landscape,thus providing an additional platform for investment inthe industry. Furthermore, the President of the UAE,Khalifa bin Zayed al Nahyan, recently issued a decree toestablish a Federal Health Authority (abolishing an earlierdecree). The new decision was driven by the President’sinterest in utilizing the allocated budget on improvingand expanding the existing healthcare services andinfrastructure in the country.

Specifically, the Emirate of Abu Dhabi has been workingto strengthen their cooperation with internationallyrecognized healthcare providers with an aim to transferknowledge and know-how to the local market. ThePublic-Private Partnership (PPP) model betweenMubadala and Cleveland Clinic is an example of thestrategic direction and importance the government of Abu Dhabi has placed on providing world-classhealthcare services to its citizens. Dubai, on the otherhand, has created a specialized healthcare free zone(Dubai Healthcare City) aimed at attractinginternationally recognized medical service providers to set up in a 100% ownership structure.

The leadership of Dubai strongly believes that increasedprivate sector participation is a promoter of competitionthat results in best in class quality service offerings. TheDubai Health Authority (DHA) has also set new initiativesaimed at positioning the industry as an international hubfor medical tourism. Similarly, in April 2012, the ruler of

Promoting the industry to privateplayers is a priority for all GCCgovernments, as it is clearly stated intheir strategic and development plans


Sharjah, Sultan bin Mohamed Al-Qasimi, announced the establishment of the Sharjah HealthCare City(SHCC), which is also aimed at attracting internationalhealthcare companies and private players to theemirate. It is estimated that Sharjah will require anadditional 630 beds in the next five years to meetgrowing demand. As such, healthcare has beendesignated as a key focus sector for the attraction of Foreign Direct Investment into the emirate.

Good reasons to investThe GCC healthcare market stands on the brink of majordevelopments and double digit growth. The combinedforces of regulatory and funding reforms (i.e. structuralchanges in service provision and recent moves towardsa compulsory insurance system) and increasing demandfor services through population and income growth and high incidence of disease categories make thisinevitable. As the GCC governments plan for additionalinvestments and expansions, the private sector isbecoming increasingly aware of the gaps in healthcareservices, not only in terms of infrastructure availabilitybut also as quality of services. Indeed, any additionalinvestment in the industry will require a strong privatesector presence. This creates attractive opportunities for the private players to supplement the efforts of the government and devise effective strategies focusedon highly differentiated services and products to cater to the unmet demand across the entire healthcare value chain.

by Parham Gohari, senior manager, StrategyConsulting, Deloitte Middle East and SariAlabdulrazzak, manager, Strategy Consulting, Deloitte in the Middle East

As the GCC governments plan foradditional investments andexpansions, the private sector isbecoming increasingly aware of thegaps in healthcare services, not onlyin terms of infrastructure availabilitybut also as quality of services

Healthcare


Deloitte Review

When Ken was asked by his CEO to attend ameeting about the company’s global footprintstrategy, he wasn’t sure what to expect. Hadn’t they just finished moving the last labor-intensiveproduction line to Suzhou? As director ofoperations, Ken felt like he had a pretty goodhandle on how the company was doing in terms of facilities utilization – it seemed unlikely thatthey could squeeze more out of any of their sites.

Is yourcorporatefootprintstuck in the mud?


Upon his arrival, Ken was ushered into a darkenedconference room where he greeted the other membersof the leadership team who were getting settled. A fewmoments later, the CEO welcomed them.

“I hope you had a good trip in. Today is all aboutlearning, exploring possibilities, and generating ideas tocreate significant value for our company.”

Ken watched as the facilitator further dimmed the lightsand tapped his keyboard. Several large computerscreens on the wall of the conference room glowed,showing a world map with a constellation of about 30colored indicators. Ken recognized the locations of theirmanufacturing and distribution sites but noticed theheadquarters, back office, contact centers, data centerand R&D hubs were shown as well.

The facilitator pressed a few more buttons and anumber of charts and tables popped up across the mapdepicting the company’s financials for last year,employee headcounts, operating costs and more. Thehead of HR answered a few questions about talentissues in some of the back office and R&D sites.

“Let’s run a few hypotheticals,” the facilitator said. Hedouble-tapped the indicator for one of the R&D sites. It blinked slowly. “What if we were to redeploy this to a market that had better industry presence, a growingbase of engineering talent and also offered R&D taxcredits?”

He dragged the blinking site across the screen to aSoutheast Asian country and released it. Kenimmediately noticed a new column on one of the tablesthat showed an improvement in financial performance.

His mind raced. One of his production sites was gettinghammered with an electricity rate increase that he wasgoing to have a hard time dealing with. Ken began torealize that the company’s footprint strategy hinged onmuch more than just the utilization of their facilities.

Why do companies get stuck?Many organizations recognize that geography is a keydriver of corporate performance. Yet many maintainineffective and inefficient footprints that can hampertalent attraction and retention, increase operating costs,overexpose them to risk and depress shareholder value.Why do companies leave value on the table bysuboptimizing their geographic deployment, and howcan they better capture that benefit?

During good economic times, many companies expandrapidly and deploy enterprise assets in pursuit of singularobjectives – to increase revenue, reduce costs or sourcenew talent. In times of hardship, companies in search ofimmediate solutions may take an unsophisticatedapproach to disposing of high-cost or underperformingoperations.

Fewer companies are deliberate and proactive inassessing their overall corporate footprint and thedegree to which it supports and contributes to thebusiness strategy. Geographic variables such as talentavailability, operating costs, risk or tax regulations canchange quickly. Mergers and acquisitions generateadditional footprint complexity, often yielding overlap insome geographies and underrepresentation in others.

Yet many companies lack mechanisms to effectivelyevaluate and react to these changes. Some makefootprint decisions at the subenterprise (e.g. businessunit or regional) level. Others, through sheer inertia,continue to perform the same functions in the samegeographies while the world changes around them. Stillothers regard footprint decisions primarily in terms of

Many organizations recognize thatgeography is a key driver of corporateperformance. Yet many maintainineffective and inefficient footprintsthat can hamper talent attraction andretention, increase operating costs,overexpose them to risk and depressshareholder value.


Deloitte Review

real estate rather than a more expansive view thatconsiders the proper location for every corporatefunction and asset.

By enhancing “locational awareness” and evaluating thecorporate footprint with a more holistic perspective,companies can more efficiently and effectively positionassets and strike a balance between market access,talent availability, risk mitigation and cost containment.

Dynamic ChallengesExtraordinary events of the past few years havepresented significant challenges for many companies.Though global organizations have faced location andfootprint decisions for decades, these circumstances,and the continuation of longer-term business trends,have altered the cost and conditions that companiesenjoyed – sometimes profoundly. Beyond these eventsand trends, there are traditional triggers for footprintrealignment that can create more urgency around suchdecisions.

Disruptive events Companies are occasionally jolted into locationawareness by disruptive political, natural or economicevents. Prior to the 2011 Arab Spring upheaval in theMiddle East, Egypt had been considered a buddingglobal technology destination where many global ITcompanies have tapped an abundant, low-cost supplyof programming talent to create tens of thousands ofjobs.1 Foreign companies are undoubtedly taking a morecautious view of Egypt, and the Middle East in general,in light of the recent and predominantly unpredicteduprisings.

Escalation of drug-related violence in northern Mexicohas also influenced the footprint strategy of manyleading organizations. One major global retailercancelled plans to deploy a new several hundred personback-office support center in Monterrey after a wave ofcrime – which was historically focused along Mexico’sborder with the United States – threatened to sweepthrough northern Mexico’s hub city as well. Validatingthe company’s concerns, conditions did subsequently

deteriorate to the point that Monterrey’s violence levelsare as extreme as anywhere in the country.2 Globalmanufacturers, who operate thousands of maquiladorafacilities along Mexico’s northern border, are alsoexercising increasing caution.3

What is a “Footprint”?A company’s footprint is more than just the realestate it occupies. It includes the people itemploys; customer access and speed to marketit experiences; operating costs it incurs, and therisk it undertakes. Where companies locate theirassets helps dictate the potential value they canachieve as an organization. This configuration ofattributes – the “footprint” – includes a widearray of corporate assets such as: • Capital• Talent• Machinery and equipment• Inventory• Contract manufacturers• Facilities• Intellectual property

By enhancing “locational awareness”and evaluating the corporate footprintwith a more holistic perspective,companies can more efficiently andeffectively position assets and strike abalance between market access, talentavailability, risk mitigation and costcontainment


Other globally felt events, such as the Japan earthquakeand tsunami of 2011, and recent terrorist activity inlocations ranging from Mumbai to Norway, can havesimilar ramifications. For companies directly affected –and even those that were not – global events oftenserve as triggers to reevaluate location and supply chainrisk within the portfolio. The aftermath of these shockscan range from companies taking a renewedorganizational focus on risk mitigation strategies andcontingency planning, to delaying or revisitinginvestment plans, or potentially to redeploying existingoperations to lower-risk locations.

The economyPossibly nothing impacts companies’ global footprintdecisions more than their outlook on the economy.During good economic times, companies eagerly investin new production sites, R&D operations or otherexpansion initiatives. The recent global recession andconcerns of a “double dip” have pushed companies totry to do more with less. Many organizations have beenforced to cut costs to remain competitive throughoutthe turmoil. Many large-scale capital investments havebeen put on hold, replaced on the corporate “to-do” listby initiatives aimed at reducing real estate, labor orother costs.

While priorities often shift toward consolidation in thiseconomic landscape, footprint optimization is equallyimportant in good economic times as in bad. Mergersand acquisitions, for example, present an opportunetime to reduce redundancy. Many companies, however,address redundancy at the business unit level, and fewtake the opportunity not only to review where the newcombined footprint is, but also where it is not.

Forward thinking companies are constantly working toright-size their footprint and deployment of assets forboth current and future economic conditions,understanding that the legacy footprint that wassuitable for the last economic period is unlikely to beoptimal for the next.

Going greenIncreasing volatility in energy costs is another trendsignificantly influencing footprint decisions. When fuelprices soared late in the ’00s, some companies broughtmanufacturing back from distant low-cost countries,while others increased their distribution capacity to getcloser to customers. But the fuel effect has transcendedcosts, as a growing emphasis on sustainability furtherenhances the importance of energy in the footprint

A number of ongoing trends havedramatically impacted companiesboth home and abroad and areshowing no signs of reversing anytime soon. These trends will likelycontinue to influence locationdecisions and may requirecompanies to anticipate the impacton their operations and therefore ontheir global footprint.


equation. Increasingly, companies are seeking to identifyrenewable energy sources as production inputs – notonly for cost containment reasons, but for corporatesocial responsibility as well. This has led to theemergence of several new industrial hubs that featurehydroelectric or geothermal power. Executives inenergy-intensive manufacturing industries are turningtheir attention to locations such as East Malaysia, wheredemand for developed industrial land in Sarawak has faroutpaced supply; Quebec, Canada; and, although lessso in the wake of the financial and natural disasters thathave befallen it lately, Iceland.

Megatrends A number of ongoing trends have dramatically impactedcompanies both home and abroad and are showing nosigns of reversing any time soon. These trends will likelycontinue to influence location decisions and may requirecompanies to anticipate the impact on their operationsand therefore on their global footprint.

China’s continued evolutionThe decisions that led many global companies to Chinaa decade ago cannot be automatically assumed to holdvalid today. China’s coastal wage rates are escalating atdouble-digit rates;4 this combined with the potential riskfor revaluation of the Chinese yuan has led to morecompanies considering other Asian candidate countriesfor low-cost, export-oriented manufacturing. At thesame time, China is producing a massive, growing andincreasingly talented pool of engineers, computerscientists and IT graduates (estimated at over 500,000per year).5 While many companies are exiting – orbypassing – China for low-skilled manufacturing, savvycompanies are seeking to backfill those positions bygrowing and diversifying in-country research anddevelopment or high-tech manufacturing capabilities.

Increasing share of demand coming fromemerging marketsGlobal economics are constantly evolving, as illustratedby changes in cross-border investment. A more diversegroup of countries draws foreign direct investment (FDI)each year, and emerging economies such as India,Turkey, Brazil and several Southeast Asian nations areattracting a growing share.6 (See figure 1.) Forbusinesses, this means the environments in which theyoperate – or those in which they could potentiallyoperate – are experiencing perpetual changes in talent,technology, infrastructure and operating costs that canfurther increase (or in some cases, decrease) theirattractiveness for future investment. The influx of capital and jobs has helped increaseconsumer spending in many emerging economies.Spending power in 35 top emerging market countriesgrew by an average of 83 percent from 2001 to 2009,contributing to a cycle of growth and expansion thatoften leads to more foreign investment.7 As demandstagnates in many developed countries and companiesincreasingly turn to burgeoning markets for revenue,they are positioning footprints to build market presenceand brand reputation for long-term sales growth.

Fewer companies are deliberate andproactive in assessing their overallcorporate footprint and the degreeto which it supports and contributesto the business strategy

Deloitte Review


Skill migration and competition for talentThe specter of the Baby Boomer generation’s retirementfrom the U.S. workforce has made media headlines forthe last few years, but the aging of the workforce is not limited to the U.S. In fact, the trend is impactingcountries such as Japan and Germany far moreseverely.8 Though the economic recession hasdampened news of it, a competition for talent toreplace those exiting the workforce looms, forcingcompanies to be more creative about where they findskilled personnel. Similarly, these trends will likely require companies to give more thought to other talent strategies, such as utilizing mobile technology to engage professionals remotely.

Narrowing gap in educational qualityMany emerging countries have invested heavily in theireducation systems over the years, recognizing its valueto enhance their position in the global economy. Thiseducational development has closed the gap betweentop-tier developed markets and some emergingcountries, such as Romania and Chile, particularly at theuniversity level. These developments may presentopportunities to get ahead of the curve by graduallyshifting the work done at existing locations to the typesof activities aligned with the emerging skills andeducation levels. For example, it is becoming morecommon for companies to consider R&D placement inmarkets that may have been more focused on low-skillmanufacturing – or would not have even come tomind – 10 years ago.

Continued manufacturing automationA long-running debate concerns the relative benefits oflabor arbitrage in offshore manufacturing versus costreduction and efficiency enhancement throughautomation. As technology continues to improve andarbitrage opportunities decline in many growing

Source | Economic intelligence unit, September 2011

$0 $10

Foreign direct investment in flow

2005

2014

FDI ($US billions)

$20 $30 $40 $50 $60 $70 $80 $90 $100>$100

Long-term benefits of a properlyaligned footprint can greatly exceedthe cost of implementation


Deloitte Review

markets, automation is again gaining traction. This, inturn, has led to what some call the “Talent Paradox”:high unemployment levels in areas with protractedshortages of skilled workers. Many companies fromCleveland to Cincinnati, for example, struggle to findR&D and innovation talent, although Ohio’sunemployment rate continues to exceed 9 percent. Thisphenomenon is not limited to North America andEurope, but is also extending to other countriesthroughout the world as companies replace man-hourswith kilowatt hours. For some industries andmanufacturing processes, automation advancements arereshaping location and footprint decisions as companiessuffer from skill and talent shortages in legacy locations.

Evolving government policyChina’s recent discouragement of low-skilledmanufacturing (through reduced incentives andincreased legislative restrictions), an evolvingimmigration policy in the United States that mayincorporate potentially restrictive provisions beingdebated in state and federal legislation, and theenactment of treaties in South America and Asia thatcould result in trade protections for regional economiesare all policy trends that can have a profound impact oncompanies’ existing footprint and the decisions theymake for the future. Restrictive measures enacted byone country can have a ripple effect on others; Canada,whose immigration slogan is “Canada Wants You!,” hasused policy to welcome top-skilled talent shut out byrestrictions in the United States. South Americancountries, particularly Brazil and Argentina, have startedimplementing policies to restrict some labor-intensivemanufacturing imports, particularly from China, toprotect a domestic industry described as “under siege”by Brazil’s finance minister.9 Other Asian countries suchas Vietnam, Cambodia and Bangladesh have benefittedfrom China’s dissuasive stance toward lower-endmanufacturing. These legislative maneuvers should notbe viewed in isolation, but rather should be regarded asinterconnected forces.

A potentially game-changing shift in enterprise valueAssessing the enterprise footprint and executing therecommended realignments are not small endeavors.Footprint optimization can be costly and timeconsuming. But companies able to do so are realizingshort-term financial benefits and likely better positioningthemselves for long-term success.

Aligning an enterprise footprint primarily creates valuethrough infrastructural and operational economies ofscale and flexibility. Real estate expenditure decreasesand the reduction of redundant positions arefundamental value drivers; however, othergeographically variable operating conditions and costscan also contribute additional ongoing value.Companies can materially improve deploymentperformance by enhancing their access to appropriatelabor skills and leveraging cost arbitrage, as well asmanaging other operational costs such as taxes, utilitiesand logistics. The characteristics of a company’s specificfootprint determine the relative impact of these factorswhich, when balanced for both existing and newlocations, are essential to realizing sustainable benefits.

Companies can materially improvedeployment performance by enhancingtheir access to appropriate labor skillsand leveraging cost arbitrage, as well asmanaging other operational costs

Deloitte Review


Realizing the benefits of a realigned footprint requiresmaterial investments and implementation planning. The primary investments include costs associated withexiting existing facilities, capital expenditures for newfacilities, equipment relocation, employee severance and stay bonuses, relocation of key personnel, andincremental recruiting and training. The requiredexpenditures can be significant and can reach $50million for large-scale redeployments. In addition,detailed implementation and communications planningis essential to retain key talent and mitigate potentialimpacts to productivity during the transition. A detailedevaluation of organizational design and operationalprocesses should also be utilized to provide thefoundation for change and facilitate redeploymentdecisions. Absent this perspective, changes to thefootprint may not yield the expected results.

Long-term benefits of a properly aligned footprint cangreatly exceed the cost of implementation. Present value cost savings over a 10-year period can range from 5 to 25 percent, with headquarter redeploymentsrepresenting the lower end and realignment ofdistribution operations typically nearer the upper end

of the range. Deployment of shared service operationsand realignment of commercial operations typically yieldpresent value savings of 10–15 percent. Payback periodsand return on investment also vary but generally are two to five years and two to five times investment levels on a present value basis, respectively. Eventhough a significant effort and cost are required toalign a footprint, the financial and operational return to an enterprise can be sustaining, as shown in thefollowing examples.

“One size doesn’t fit all”A leading global nutrition company has experiencedrapid organic growth over the past decade, putting astrain on all facets of the business. As a result ofuncoordinated growth, the company had adopteddivergent footprints in key regions of the world.European operations had become highly dispersedacross countries, leading to redundant people, processesand space. Conversely, its U.S. footprint had grownoverly centralized in a single metropolitan area with ahigh cost of living, which inflated wages for skill setsthat could be efficiently sourced in other lower-costlocations and exposed the company to elevated levels ofbusiness disruption risk associated with centralization ina city susceptible to natural disasters. With growthprojections approaching double digits annually, theexisting footprints were no longer sustainable.

With a mandate from top executives, the company set out to systematically define a configuration andlocations conducive to future business growth. Thesolution, in this case, lay somewhere between thelegacy U.S. and European models. Extracting selectedfunctions from the countries in Europe andconsolidating them in a low-cost, in-region “center of excellence” is expected to yield present value costsavings of 10–15 percent, generate returns of three

Footprint optimization can be costlyand time consuming. But companiesable to do so are realizing short-termfinancial benefits and likely betterpositioning themselves for long-term success.


to five times the costs of implementation, and createeconomies of scale in Europe. In the United States,deployment of a second “hub” is anticipated to reduceoperating costs for the enterprise by 5 percent, yield areturn of twice the cost of implementation, provideaccess to new talent, and offer risk diversification.

The new footprint strategy is not without obstacles;moves to the new locations will be costly, transitions arelikely to be challenging to manage and key personnelmay be lost in the process. However, those issues can be anticipated and mitigation plans implemented. Withmanageable challenges and payback periods ofapproximately three to five years, the implementationcosts proved to be a beneficial investment for afootprint that offers a flexible, cost effective andsustainable platform to support future growth.

“Room to grow”With an increasing number of drugs in the pipeline, this highly profitable developer and manufacturer ofpharmaceuticals anticipated rapid growth that wouldrequire additional staff and facilities. As a reaction to itsgrowth expectations and dispersed footprint, companyexecutives sponsored an initiative to evaluatedeployment options across the entire enterprise,including headquarters, R&D, manufacturing andcommercial activities. The objectives of the programincluded not only supporting growth and thedevelopment of commercial capabilities but alsoreinvigorating R&D and innovation within theorganization and redefining the company culture to be more collaborative.

Through a structured and disciplined process, thecompany developed guiding principles based on thestrategic goals to evaluate potential deployment

scenarios that could support consolidation and futuregrowth. These principles, which focused on theretention and attraction of specialized highly skilledtalent, and a broad financial analysis were used toanalyze the trade-offs between five distinct deploymentscenarios ranging from partial consolidation to full co-location of operations. The company selected adeployment scenario calling for consolidation ofoperations into a single location. In addition tofacilitating the company’s cultural and operations goals,the deployment strategy offered present value operatingcost savings of 15–20 percent, a return of approximatelythree times the costs of implementation, and a paybackperiod under three years. Also as a result of broadplanning, employee turnover has been minor andresearch collaboration has measurably increased.

Mergers and acquisitions generateadditional footprint complexity, oftenyielding overlap in some geographiesand underrepresentation in others

Deloitte Review


The way forwardThrough work with a variety of leading companies supporting enterprise footprint optimization initiatives, we haveidentified a number of key insights, described in the accompanying table.

Do... Don’t...

Set the tone at the topLeadership buy-in and communication up front is criticalto encouraging supportive contributions among keystakeholders and mitigating organizational uncertainty.Identify a senior leader to take responsibility for designand execution of changes, and clearly communicate theimportance of positive participation early in the process.

Don’t wait for a crisisWhen crises strike, companies tend to favor decisiveaction over rigorous analysis. Enterprise footprintoptimization presents the opportunity to take a stepback to proactively align location footprint and strategicplanning to make urgent reactions to crises eitherunnecessary or at least more efficient.

Take a holistic viewTo be effective, the optimization process should considereverything from key strategic objectives, such asenterprise sustainability and market growth, tooperating requirements, such as talent availability, riskmanagement and cost containment.

Don’t undercommit The potential for a transformative impact on thebusiness in terms of positioning it for the future anddeveloping a source for sustainable competitiveadvantage justifies the expenditure of time andresources. Insufficient leadership communication ordedication of resources could lead to transition costswithout realization of the full benefit of footprintoptimization.

Start with quick winsIn many cases, there are immediate improvementopportunities that can start delivering benefits in lessthan three months. These “quick wins” not only canmake the overall effort self-funding, they can help buildmomentum and credibility, which are essential tosustained improvement and gradual pursuit of a targetfootprint.

Don’t forget about taxThe intricacies of international tax law often present aprime opportunity for a footprint assessment. In fact, forsome companies, the tax incentives offered by particularjurisdictions can justify the entire effort.

Consider long-term objectivesA key component of enterprise footprint optimization isliterally mapping the future of the organization. Withthat in mind, it is important to align the footprint withstrategic objectives, include scenario analysis as part ofthe initiative to identify key factors that could impactplans, and build in footprint flexibility to quickly respondto change.

Don’t ignore change managementIntegrating effective organizational design adjustments,aligning talent management and incentives withchanges, and identifying and addressing the impact oncorporate culture are essential to long-term success.

Challenge traditional assumptions Sophisticated tools such as advanced analytics can alloworganizations to test assumptions and model profitabilityat a depth not previously feasible. These initiatives offerthe opportunity to validate or refute standardassumptions using these resources as part of footprintmodeling.

Don’t view the exercise solely as one in cost reduction. While cost reduction is a potentially significantcomponent, organizations that focus exclusively on thatobjective miss the true benefits of balancing a widerange of critical factors, from cost efficiency andoperating requirements to talent availability, tax impactsand access to new markets.


For leading companies, internationalization is starting togive way to true globalization as these organizationsextend their reach to all corners of the habitable worldin search of new markets, resources, talent pools andcost advantages. Yet this path can be challenging tonavigate as the business environment is constantlyevolving, from gradual changes in costs and talentmarkets to political and natural events impactingeconomies.

Companies not focused on these dynamics can bequickly left behind, encumbered by locations that nolonger suit their needs, unnecessary redundancy in theiroperations, elevated risk levels, and footprints that donot position them to anticipate and address changequickly. On the other hand, companies that proactivelymanage their global footprint can gain a competitiveadvantage that would be difficult to replicate, literallypositioning the organization globally to achieve itsstrategic objectives, both in the short term and for thefuture.

Reprinted from Deloitte Review, issue #10 : 2012

by Darin Buelow, principal with Deloitte ConsultingLLP., Matt Szuhaj, director with Deloitte ConsultingLLP., Josh Timberlake, senior manager with DeloitteConsulting LLP. and Matt Adams, manager withDeloitte Consulting LLP. All authors are part of theStrategy and Operations practice of Deloitte Consulting LLP.

Endnotes1 Bloomberg Business Week, July 2, 2009

<http://www.businessweek.com/blogs/globespotting/archives/2009/07/egypts_bid_for.html>

2 PBS News Hour, February 23, 2011<http://www.pbs.org/newshour/bb/world/jan-june11/mexico_02-23.html>

3 Forbes, May 20 2010 <http://www.forbes.com/2010/05/20/calderon-drug-war-business-washington-mexico.html>

4 Reuters, August 12 2011<http://www.reuters.com/article/2011/08/12/us-usa-manufacturing-china-idUSTRE77B2IV20110812>

5 Money.cnn.com, July 29 2010<http://money.cnn.com/2010/07/29/news/international/china_engineering_grads.fortune/index.htm>

6 Economist Intelligence Unit, September 20117 World Bank, per capita incomes at purchasing power parity,

2011 (countries are emerging market economies and includeAlgeria, Argentina, Belarus, Brazil, Bulgaria, Chile, China,Colombia, Costa Rica, Croatia, Dominican Republic, EquatorialGuinea, Estonia, Hungary, Latvia, Lithuania, Malaysia,Mauritius, Mexico, Oman, Panama, Peru, Poland, Romania,Russia, Saudi Arabia, Slovak Republic, Slovenia, Suriname,Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, and Uruguay)

8 US Census Bureau International Database, 2011 Estimates9 The Economist, September 24, 2011

<http://www.economist.com/node/21530144>

Do... Don’t...

Align incentivesTraditional incentive programs tend to reinforce thestatus quo and encourage optimization within individualfunctions rather than for the enterprise as a whole. Toaddress the issue, incentives should be realigned so thatmanagers and employees are motivated to both supportchanges and focus on overall margins rather thanfocusing on increasing performance within theirparticular function.

Don’t let groups opt out There may be legitimate reasons to exclude certaingroups, functions or geographies, but each group thatopts out erodes the benefits of a holistic review. Manytimes, individual groups perceive the exercise as a threatrather than an opportunity, further emphasizing theneed for strong, early and consistent communication.

Repeat as needed Plan to periodically repeat the analysis as the businessenvironment changes and your footprint evolves. Thegood news is that subsequent analyses will likely takeonly a fraction of the time and effort that was requiredinitially.

Deloitte Review


Pick up the business section of anewspaper or tune in to one of the manybusiness programs on TV and there is agood chance someone somewhere will bearticulating a view on the quality agenda,about organizations having sound (orpoor) risk management practices or aboutexecutives effectively (or ineffectively)managing reputational issues faced bytheir organization.

On theroad toquality

Quality

Not unreasonably, the casual observer may be forgivenfor thinking that, if the organization had delivered aquality product or service in the first place, then itsexecutives would not now have to be spending valuabletime looking backwards, revisiting past decisions andconcentrating on fire-fighting risk and reputationissues – with their implied threat of serious damage toboth, brand and image in the marketplace. Effectivequality management would have allowed for significantavailable time instead, to concentrate on theorganization’s main goals – including the delivery ofsuperior value to stakeholders.

As a corollary and a reasonable, but not excessive,amount of management time would then be needed toconcentrate on the business of risk. Effective pursuit ofthe quality agenda can be regarded as an importantcontributory step in the successful management ofpotential risk and reputational damage. This is not to saythat achieving quality is a panacea that will guarantee asmooth, trouble-free ride. Far from it: there are alsomany external threats to an organization, includingphysical security, counterparty and political risk and evenover-the horizon risks that are presumed to be out therebut have not yet been identified – all of which areoutside the direct delivery orbit of a quality product orservice. However, it would also be reasonable to expectan enlightened organization to have a comprehensiveenterprise risk framework in place, or at minimum abusiness continuity plan that would anticipate and setout a blueprint for the navigation of potential threats.

Nailing down qualityWhether the organization is delivering products orproviding services, in order to successfully manage thequality agenda it is necessary to define what theorganization and its end users perceive as quality,capture it by having an operational framework in placeand then devise a plan to achieve and maintain thestated quality objectives. It is as important to ensure thatall personnel within the organization are on the samewavelength when it comes to the pursuit of theseobjectives. Similar to the proverbial “attempting to nailjelly to a wall,”1 determining what quality is exactly canbe challenging, as it comes in many shapes and formsand can be rather difficult to pin down in relation to anorganization’s goals. Webster’s Dictionary, for example,offers various definitions of quality, such as “a peculiarand essential character,” “an inherent feature,” “degreeof excellence,” “superiority in kind.” Unfortunately,today’s vocabulary has rather overworked the qualityconcept and applies it on a daily basis to a wide varietyof situations, so we now also understand quality in thecontext of, for example, fathers spending quality timewith their children, soccer players delivering a qualityball into the box or people who read a qualitynewspaper.

Preparing for the journeyRealistically, organizations are typically concerned withthe quality agenda when they recognize the need topublicly demonstrate their capabilities or to improvetheir services, ultimately with a view to increasing theirmarket share. Sometimes management will recognize inprivate that they need to do better and will voluntarilyundertake a comprehensive overhaul of their existingsystems and procedures. For those that procrastinate,the marketplace tends to do the job for them.

As mentioned, management should initially determinewhat quality means and what it stands for in terms oftheir products or services, with a view to determiningwhere improvements can be made and how ‘superiorityin kind’ can be achieved. This assessment should alsotake into account the marketplace perception of theofferings. Some organizations will have in place a


Determining what quality is exactlycan be challenging, as it comes inmany shapes and forms and can berather difficult to pin down in relationto an organization’s goals


Quality Management System (QMS) manual to definethe procedures they require in order to achieve theirquality objectives, but many others will not. For thoseorganizations that are embarking on the journey for thefirst time, the appointment of a focal point within theorganization to take ownership of the quality project isstrongly suggested. Do not underestimate the numberof man-hours that will be required to complete theinitial set-up. As the QMS manual builds, a number ofgaps will likely become evident between policies andprocedures the organization has in place and what itultimately needs in order to achieve its quality objectivesand those gaps may take time to plug and could proveexpensive to implement. When a QMS manual is inplace, management will want some assurance thatoperations are in fact being conducted in accordancewith stated policy and this is where a Quality Auditdepartment proves its worth in ensuring that proceduresare being followed and expected standards are in factbeing met. It is also important that the system producesdocumentary evidence of performance to enableeffective audits to be carried out and for processes to be performed again as necessary.

Quality is not just about process, work quality ororganizational issues. A quality management system can only be as effective as the people who will beresponsible for maintaining it. Effective, regular trainingfor all personnel is essential. The goal is to embedquality into the very fabric of the organization so that its pursuit becomes almost second nature. Quality canalso be reflected in the way the organization isperceived, how it treats its people and what it does for the community. Sometimes, simple solutions are the most effective – for example, an employee free toreport unethical or shoddy work practices to superiorswithout fear of retribution is a very powerful tool. Forprofessional services firms, avoiding the wrong type ofclients, acting independently at all times and hiring goodquality talent might be the answer.

In conclusionFor those organizations wishing to explore the qualityagenda further, there are a number of both, nationaland international standards bodies, such as the

International Organization for Standardization (ISO), that encourage organizations to become quality certifiedand they provide extensive resources to support thatobjective. When a QMS is embedded into theorganization’s culture it can then be used as afoundation for developing and implementing othermanagement systems such as an Information SecurityManagement System (ISMS) or a Business ContinuityManagement System (BCMS). ISO certification in theseareas is also possible.

It would be only fair to point out that, depending on the niche the organization is intent on building for itselfin its marketplace, there is also a perfectly acceptableand legal market demand in many parts of the world for low-cost, low-quality offerings.

No doubt, the quality journey is an interesting one. Theroad can be bumpy but there is much scenery to admirealong the way. However, beware, there is no finaldestination as this is a journey of continuousimprovement unless, of course, quality inertia orcomplacency is the goal.

by Graham Lucas, Risk and Reputation leader, Deloittein the Middle East

1 hint: the secret for nailing jelly to a wall is to nail the concentratedcubes, but not to mix with water – alternatively, try increasing thedensity of the jelly by adding more powder and less water thanthe recipe says

Quality is not just about process,work quality or organizational issues.A quality management system canonly be as effective as the people whowill be responsible for maintaining it

Quality


In a raw and lucrative market such as Iraq,there are definite opportunities but patienceand local relationships are essentialingredients to a successful entry.

An ever-changing game plan Iraq’s business climate andthe opportunities ahead

Iraq

Nine years after the U.S.-led invasion, security remainsthe number one concern to the general public, localbusinesses and foreign investors. Iraq’s infrastructure isstill dilapidated and the economy is firmly controlled, for

the most part, by the central government. Electricityshortages and an antiquated banking system continueto hinder progress in an economy that was ravaged bywars and sanctions.


To an optimist, these challenges represent opportunitiesthat could translate into higher returns, but relationshipsand local partnerships are key to breaking grounds in Iraq.

In spite of all these difficulties, Iraq’s economy appearsto be robust. The Special Inspector General for IraqReconstruction “SIGIR” reported that the IMF and theCentral Bank of Iraq are projecting a 12% increase inGDP in 2012. The minister of oil also reported thatcrude oil production just exceeded 3 million barrels perday for the first time in two decades, and, in March, theCouncil of Ministers approved the largest single-yearbudget in the country’s history of USD 100 billion – ofwhich almost one third is earmarked for infrastructureinvestment.

Recognizing that oil export receipts cannot keep pacewith spending for reconstruction , the government ofIraq introduced new legislation in an effort to boostprivate sector and foreign investment. Although thesechanges are easing entry into Iraq’s market, potentialinvestors must keep abreast of the ever-changingcompany, investment and tax laws. Many of thesechanges are simply repeals of old restrictive laws and

are meant to provide a liberal framework for investmentin Iraq. In September 2003, the Collation ProvisionalAuthority (CPA) issued Order No. 39, which repealed allexisting foreign investment laws and allowed for theestablishment of foreign-owned subsidiaries in Iraq. InOctober 2006, the Presidency Council adopted Order 39and issued Investment Law No. 13, repealing Order No.39 and the Arab investment Law No. 62 of 2002. In2010, Investment Law No. 2, which is the prevailinglegislation today, amended Law No. 13 of 2006 toguarantee the ownership of land by local, Arab andforeign investors for housing projects to house Iraqinationals as well as the amendment of Statute 7, whichorganizes the lease rates for lands invested in thevarious fields.

Accordingly, foreign investors have now been grantedequal rights to Iraqi nationals, including the right topurchase shares and bonds of companies listed on theIraqi Stock Exchange, the right to acquire land forhousing projects, the right to lease land for up to 50years, the right to insure their investment with anynational or foreign insurance company, the right toopen bank accounts in foreign currency inside andoutside the country and the right of repatriation ofcapital and profits.

To further encourage private and foreign investment,many tax incentives were legislated, providing forexemption from taxes and fees for a period of 10 yearsas of the date of commencing commercial activity.These exemptions can be further extended for anadditional five years upon meeting certain criteria. Thetax incentives also provided for exemptions from import

To an optimist, these challengesrepresent opportunities that couldtranslate into higher returns, butrelationships and local partnerships arekey to breaking grounds in Iraq

duties for the purpose of the investment project for up to three years as of the date of the grant of theinvestment license. These import duty exemptions arealso extendable for the purpose of expanding,developing or modernizing the investment project for up to three years as of the date of notification to theinvestment authority. Imported spare parts for the sameproject are also exempt from duties if the value of theseparts does not exceed 20% of the value of fixed assets.

In an economy that is heavily reliant on oil revenue,these measures will supplement the reconstructionefforts and will boost Iraq’s economy driving non-oilGDP up. The primary beneficiaries will be the followingindustry sectors: construction and constructionmaterials, branded consumer goods, healthcare,electronics, retailing and hopefully, financial servicesand capital markets.

However, it should be noted that it is not enough tocreate facilities for international firms to enter the localmarket. Rules and regulations must be relaxed and allresponsible ministries must work together to ensureexpediency and efficiency in processing companyregistrations and issuing tax clearance certificates whichare the initial requirements of starting a business in Iraq.Reforming the banking sector will also ease the flow ofmoney into the country and transform it from a cash-based society into a modern and vibrant community.

Despite the challenges sometimes presented by the Iraqibusiness and political landscape, regional and globalmultinationals see huge opportunities and are flockingto the country in large numbers. They are taking many

risks but are also building relationships with localpartners. Many Non-Governmental Organizations(NGOs) have been working tirelessly in Iraq recognizingthat reforming the system will attract foreign companiesinto the country. They have introduced several trainingprograms geared towards Iraqis working in the publicsector to educate them and increase their awareness inan effort to bring some kind of order.

by Ayad Mirza, partner, Deloitte in the Middle East


Recognizing that oil export receiptscannot keep pace with spending forreconstruction , the government of Iraqintroduced new legislation in an effortto boost private sector and foreigninvestment

Iraq

Global EconomicOutlookA Collective Sigh of Relief

Talent

Human Capital Trends 2012Leap ahead

Real Estate andConstruction

GCC Powers ofconstruction 2012Five lessons tolearn from

Aerospace and Defense

2012 Global aerospace and defenseindustry outlookA tale of two industries

Health Care and Life Sciences

Physician perpectivesabout healthinformation technology

New thought leadership publications from Deloitte

ME PoV provides you with a selection of Deloitte’s most recentpublications accessible on Deloitte.com

Oil and Gas

Water tight 2012The top issues in theglobal water sector

Public Sector

Public sector, disruptedHow disruptiveinnovation can helpgovernment achievemore for less

Economics


Retail

Switching channelsGlobal Powers ofRetailing 2012

Publications

Diversion aheadManaging scarcity for the future

Energy and Resources

2011 Deloitte Oil andGas ConferenceSummary Report

Global Oil and GasTax newsletter Views from aroundthe world

A Middle East Point of View

Deloitte Review

Consumer Business and Transportation

Fan powerFootball MoneyLeague

Will smarter phonesmake for smartershoppers?A path forward forconsumer productcompanies

Empowering RiskIntelligence in Islamic FinanceManaging risk inuncertain times

Financial ServicesIndustry

2012 Global Insurance OutlookGenerating growth in a challengingeconomy takesoperational excellenceand innovation

Manufacturing Automotive

Driving Through BRIC MarketsLessons for Indian Car Manufacturers

Fourth annual Gen Y automotive SurveyExecutive summaryof key themes andfindings

Second Global IFRSBanking Survey -Quarter 1, 2012A changing landscape


Deloitte in the Middle East

ME Representative OfficeRegional office Gefinor Center, Block D Clemenceau StreetP.O.Box 113-5144Beirut, LebanonPhone +961 (0) 1 748 444Fax +961 (0) 1 748 999

ME ConsultingRegional office Deloitte & Touche (M.E.)Building 3, Emaar SquareDowntown DubaiP.O. Box 4254 Dubai, United Arab EmiratesPhone +971(0) 4 376 8888Fax +971(0) 4 376 8899

ME Enterprise Risk ServicesRegional officeDeloitte & Touche (M.E.)Building 3, Emaar SquareDowntown DubaiP.O. Box 4254 Dubai, United Arab EmiratesPhone +971(0) 4 376 8888Fax +971(0) 4 376 8899

ME Financial Advisory ServicesRegional officeDIFC, Currency HouseBuilding 1 PO Box 282056Dubai, UAEPhone +971 (0) 4 506 4700Fax +971 (0) 4 327 3637

ME Tax ServicesRegional office Currency HouseBuilding 1P.O. Box 282056Dubai, UAEPhone +971 (0) 4 506 4700Fax +971 (0) 4 327 3637

The Deloitte ME Islamic FinanceKnowledge Center (IFKC)Al Zamil Tower. Government Avenue,Manama, Kingdom of BahrainPhone +973 1 721 4490 Ext 2018Fax +973 1 721 4550

BahrainManamaAl Zamil TowerGovernment AvenueP.O. Box 421Manama, Kingdom of BahrainPhone +973 (0) 17 214 490Fax +973 (0) 17 214 550

EgyptCairo95 C, Merghany Street, Heliopolis 11341, Cairo, EgyptPhone +20 (0) 2 2290 3278Fax +20 (0) 2 2290 3276

Alexandria Madinet El SayadlaBuilding No 10,Smouha, AlexandriaPhone +20 (0) 3 426 4975Fax +20 (0) 3 426 4975

IraqDeloitte & Touche Management Consulting W.L.L.6 Royal CityErbil, IraqPhone +964 (0) 770 694 6554

JordanAmmanJabal Amman, 190, Zahran Street, Amman, JordanP.O. Box 248Amman 11118, JordanPhone +962 (0) 6 550 2200Fax +962 (0) 6 550 2210

KuwaitKuwait CityFahad A l-Salem StreetSalhia ComplexKuwait City, KuwaitP.O. Box 23049Safat 13091, KuwaitPhone +965 (0) 2243 8060Fax +965 (0) 2245 2080

Ahmed Al-Jaber Street,Dar Al-Awadi Complex, 7th FloorP.O. Box 20174, Safat 13062Sharq, Kuwait Phone +965 2240 8844Fax +965 2240 8855

LebanonBeirutArabia House,131 Phoenicia StreetP.O. Box 11-961 BeirutRiad El-Solh, Beirut 1107 2060 LebanonPhone +961 (0) 1 364 700Fax +961 (0) 1 367 087

OmanMuscatMBD AreaMuscat International CenterMuscat, Sultanate of OmanP.O. Box 258, RuwiPostal Code 112 Sultanate of OmanPhone +968 (0) 2481 7775Fax +968 (0) 2481 5581

Palestinian Territories RamallahAl Mashreq, Insurance BuildingP.O. Box 447 Ramallah, Palestinian Controlled TerritoriesPhone +970 (0) 2 295 4714Fax +970 (0) 2 298 4703

QatarDohaAl Ahli Bank Building Sheikh Suhaim Bin Hamad Street P.O. Box 431, Doha, QatarPhone +974 (0) 4434 1112Fax +974 (0) 4442 2131

Saudi ArabiaDeloitte & Touche BakrAbulkhair & Co.RiyadhAl-Salam Building, Prince Turki Bin Abdullah Al-Saud StreetSulaimania AreaP.O. Box 213, Riyadh 11411Phone +966 1 282 8400Fax +966 1 282 8428

Al KhobarABT Building, Al Khobar Saudi Arabia P.O. Box 182Dammam 31411, Saudi ArabiaPhone +966 (0) 3 887 3937 Fax +966 (0) 3 887 3931

JeddahSaudi Business CenterMadinah RoadP.O. Box 442Jeddah, 21411, Saudi ArabiaPhone +966 (0) 2 657 2725Fax +966 (0) 2 657 2722

SyriaDamascus9 Fardos StreetP.O. Box 12487Damascus, SyriaPhone +963 (0) 11 221 5990Fax +963 (0) 11 222 1878

Rawda38 Rawda StreetP.O. Box 12487Damascus, SyriaPhone +963 (0) 11 331 1212Fax +963 (0) 11 332 2304

United Arab EmiratesAbu Dhabi11th FloorAl Sila TowerSowwah SquareP.O. Box 990 Abu Dhabi, United Arab EmiratesPhone +971 2 408 2424Fax +971 2 408 2525

DubaiDeloitte & Touche (M.E.)Building 3, Emaar SquareDowntown DubaiP.O. Box 4254 Dubai, United Arab EmiratesPhone +971(0) 4 376 8888Fax +971(0) 4 376 8899

FujairahAl-Fujairah Insurance Co. BuildingP.O. Box 462Fujairah, UAEPhone +971 (0) 9 222 2320Fax +971 (0) 9 222 5202

Ras Al-KhaimahRas Al-Khaimah, Insurance Building, Al-Nakheel, Ras Al-Khaimah UAEP.O. Box 435Ras Al-Khaimah, UAEPhone +971 (0) 7 227 8892Fax +971 (0) 6 574 1053

SharjahCorniche Plaza 2, Al Buhairah CornicheP.O. Box 5470Sharjah, UAEPhone +971 (0) 6 574 1052Fax +971 (0) 6 574 1053

YemenSana’aSana’a Trade Center Eastern Tower, Algeria StreetP.O. Box 15655Sana’a, YemenPhone +967 (0) 1 448 374Fax +967 (0) 1 448 378

For Libya and Mauritania inquiries, please contact the ME Representative Office.


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its

network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about

for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

© 2012 Deloitte Global Services Limited

Discover your nationality at DeloitteGames.com!

Are you NorwItalgyptian?

The views expressed are the personal views of the author and do not represent the views of Deloitte.This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, itsmember firms, or its and their affiliates are, by means of this publication, rendering accounting, business,financial, investment, legal, tax, or other professional advice or services. This publication is not asubstitute for such professional advice or services, nor should it be used as a basis for any decision oraction that may affect your finances or your business. Before making any decision or taking any actionthat may affect your finances or your business, you should consult a qualified professional adviser.None of Deloitte Touche Tohmatsu Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited byguarantee, and its network of member firms, each of which is a legally separate and independent entity.Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte ToucheTohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clientsspanning multiple industries. With a globally connected network of member firms in more than 150countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insightsthey need to address their most complex business challenges. Deloitte's approximately 182,000professionals are committed to becoming the standard of excellence.

Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy anenvironment of continuous learning, challenging experiences, and enriching career opportunities.Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.

About Deloitte & Touche (M.E.)Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the firstArab professional services firm established in the Middle East region with uninterrupted presence for over85 years. Deloitte is among the region’s leading professional services firms, providing audit, tax,consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners,directors and staff. It is a Tier 1 Tax advisor in the GCC region (International Tax Review World Tax 2010,2011 and 2012 Rankings) and was recognized as the 2010 Best Consulting Firm of the Year in theComplinet GCC Compliance Awards. In 2011, the firm received the Middle East Training & DevelopmentExcellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).

© Deloitte & Touche (M.E.). All rights reserved. Member of Deloitte Touche Tohmatsu Limited

middle east point of viewspring 2012 - deloitte united states...a negative reputation, which are...

Documents