Experience of the Al Majdouie Group
It is often said, that one of the key challenges of family businesses is to professionalize their structures in order to ascertain long-term success and competitiveness. Integrating the traditions and values of the family business founders into a system promoting meritocracy, does, however, not happen in a day and certainly not easily. Abdullah Al Majdouie, President of the Al Majdouie Group, Saudi Arabia, gives an honest and most practical account of the changes his family business went through, and what the conditions are for successful change.
The history of our business dates back to the mid-1960s. More specifically, it began in 1965 when our founding father “Sheikh Ali bin Ali bin Ibrahim Al Majdouie” was a truck owner. Inspired by the set of values drawn from the tolerant teachings of Islam emphasizing dedication, perseverance and work accuracy, our founder was already then aware of the significance of these ingredients for work continuation and their impact upon winning the trust of clients, be they large or small companies. More importantly, he managed to instill this spirit and these values in his entire team of supporters and workers at the time. Until today, trust, dedication and perfection have been the underlying pillars for the Group’s work and the guiding principles for its prosperity and growth. Today, the group includes four sectors operating in the fields of logistics, automobiles, industries and properties & investment, under each of which several subsidiaries branch out. The Al Majdouie Group currently employs approximately 5000 employees.
Through broadening business activities and growth in human capital, the group expanded its operation over Saudi Arabia and the GCC countries. This expansion made the family-run modus operandi hardly sufficient to guarantee work progress. Apparently, there is a call for shifting over from the individual-based work system ─ especially when the third generation is about to become active in the company ─ to a rigorous governance-efficient system conducive to pushing the wheel of growth forward and maintaining the company’s customary level of performance for its clients. For this reason, the Al Majdouie Group has decided to switch over from an individual-based and family-run establishment to a holding company in order for all its work units to overcome challenges and live up to expectations more efficiently.
Indeed, to convert a family business into a holding company structure is not an easy task and can certainly not be accomplished overnight; on the contrary, it is a change that potentially has an important effect upon the culture of the establishment and the employees’ way of coping with the new situation. Owing to the fact that ever since it was institutionalized more than thirty years ago, the Al Majdouie Group has been run on based on a family business system; consequently, the management of such change would encounter a great deal of resistance and obstacles. We have tried, however, as much as possible to draw upon the experiences of those who have been through this before us, learning lessons from their successes and failures. Still, our goals include maintaining the unity of the family spirit and the principles of its self-made founders such as resolution expediency, simple methods, humbleness, and many more.
This shift has transformed the stereotypic perspective on business management. Our strategy was focused on setting up and putting our home in order. This included coming up with aggressive and effective initiatives, in the top of which were ‘group restructuring’, ‘impacting on all strategic work units and service departments’, and ‘forming dedicated institutional governance committees and underscoring their role and function’. The board of directors was restructured in such a way that extra-family and extra-group members were recruited on the grounds of their proven expertise in various domains. This enabled the company to benefit from their views and ideas regarding the long-term objectives and strategies of the family business. Accordingly, specialists were sought for the committees of the Board of Directors, including the finance, audit, compensation and remuneration committees. In a short spell of time, we witnessed clear success in the form of visions and dimensions applied to the committees’ level of performance and professionalism.
Subsequently, more initiatives aiming to organize jobs in the group were put forward. Jobs were defined, classified into specific levels and given thorough descriptions. Each job was assigned a pay scale and given a definite level of allowances and incentives equal to employees on the same job level. As a result of this initiative, staff satisfaction and a sense of fairness and equality grew regardless of any subjective considerations irrelevant to an employee’s level of performance and professionalism. Such outcomes are not imaginative or subject to individual perception; they have already been established in marketing studies and research, and human resources satisfaction questionnaires periodically conducted by the group in cooperation with international professional consultancy companies. As for employee remuneration, the group thoroughly studied market salaries, which led to the adjustment of current employees’ salaries. Thus, the business was better equipped to retain its employees with sensible remuneration packages and to recruit qualified personnel.
The aspect that helped to unify the control of the business and ensure focused work efforts was the group’s application of the Balanced Scorecard System as an instrument for strategic planning and oversight over the performance of relevant departments and business units. Key performance indicators were, therefore, set for each and every unit and department. These indicators were then gauged on a monthly basis during meetings attended by representatives from the group’s Senior Administration and any deviation could thus be noted and relevant resolutions could be taken to ensure that the course of work always remained focused towards fulfilling the projected strategic aims.
On the operations level, the business came up with initiatives pertinent to devising working systems. It began to document entire policies, procedures and work models in all units. In order to conform to relevant established quality standards and in order to develop and make good use of such systems, they had to be assisted with technology and information systems. To achieve this, the group soon acquired the Enterprise Resources Planning System (ERP) aiming to support the planning of resources, collecting and storing data in one database, simplify work procedures in accordance with successful practices in international companies, as well as systematize the policies and rules of the Group so that its operations could be controlled and automated with minimal room for error.
A number of programs and a variety of changes have been implemented for the development of the group. It has been a long, sometimes seemingly never-ending and always surprising journey of learning. Amongst the chief conditions conducive to the success of our transformation were the following:
Firstly, there was a clear and collective vision, reflecting the founder’s wishes, and clearly transmitted to employees on all levels.
Secondly, the Senior Administration continuously supported change and eliminated all obstacles and setbacks potentially thwarting the change. For the Senior Administration to stand behind the change gives all employees a sense of seriousness, commitment and inevitability of change and the need to cope with it.
Thirdly, the change process was gradually implemented, allowing sufficient time for the fulfillment of initiatives and programs and their integration in working systems. All change has to be introduced in stages and not at one go, which is an almost certain way of overcoming obstacles. It is not easy to abruptly change long-established customs.
Fourthly, the employees had to be involved in the decision-making process. This is considered as one of the most critical factors facilitating the acceptance of key people, the execution of programs, and convincing others of their overall benefit and value. In addition, the involvement of employees has frequently uncovered certain hidden aspects necessitating attention. Meanwhile, the role of employees, and particularly of the afore-mentioned key people, has shifted from being mere recipients and executors to being partners and supporters. This is the important aspect that transforms programs into a reality instead of remaining just theories on pieces of paper.
The fifth condition for the successful implementation of change, was on-going communication with personnel and updating them about the news of the group on all horizontal and vertical levels. This helped to get immediate and direct feedback, which has led to taking conclusive decisions in critical times.
Measuring up to the current economic crisis is indeed one of the greatest challenges facing the business sector in its entirety and it is a test for all family enterprises to show how strong they really are internally.
The imminent challenges facing family enterprises are great and complicated. It will be impossible for family enterprises to encounter such challenges and covetous world giants unless they play the game more intelligently. The returns of the financial booms and the traditional business management should not be taken for granted; former success may not guarantee future success. Everything is possible.
Tharawat Magazine, Issue 3, 2009
Original article posted on Tharawat Magazine