Why 'fit for service' policies would help GCC save up to 40% in costs

Dubai - Approach would help achieve sustainable reductions in budgets, reinforce investment in services

GCC countries, which are facing budgetary problems, should adopt a "fit for service" framework to tackle looming long-term deficits and other fiscal crisis challenges, experts at Strategy& said.
In the absence of such a critical strategy, GCC governments need to reduce budget spending by approximately $100 billion on an annual basis to ward of fiscal deficits, strategists at the management consultancy said.
A fit for service approach would allow GCC government entities to achieve sustainable reductions in their budgets while also reinforcing investment in the services that are essential to long-term security and robust growth, they said.
"While every GCC government has announced spending cuts to conserve budgets, conventional cost-cutting is only a short-term fix and could potentially slow a country's growth over time," Strategy&, formerly Booz & Company, said in its analytical study. The fit for service framework will not only enable GCC governments to cut costs but also grow simultaneously, it added.
Fadi Adra, partner with Strategy& and a member of the public sector practice in the Middle East, said the GCC's budgetary problems are not a cyclical condition that will resolve themselves with time.
Stressing the need to tackle the current fiscal crunch, Adra said the price of oil for example, which contributes to three-quarters of GCC government revenues, has fallen to its lowest levels in over a decade, while the cost and demand for core public services continues to rise. "Oil-based budgets however are also not viable over the long-term, whether or not the price of oil rebounds."
Adra said even if GCC governments can grow non-oil revenues by 10 per cent annually over the rest of this decade and the average price per barrel of oil returns to $50, their budgets would still need to be reduced by approximately $100 billion on an annual basis - this is seven per cent of the GCC's total GDP - in order to eliminate fiscal deficits. This is why adopting a fit for service approach is critical for GCC nations."
Adopting a fit for service approach is driven by four actions, including articulating a strategy, transforming the existing cost structure, building critical capabilities needed to execute the strategy funded by cost savings and reorganising the operating model for optimal performance.
"For example, every GCC government should be able to articulate clearly a coherent way to service its constituents, quickly find savings to reduce deficit spending and release funds needed, maintain a multitude of capabilities to execute its strategy and develop the appropriate operating models aligned with the strategy," said Ashish Labroo, principal with Strategy& and a member of the firm's energy, chemicals and utilities practice in the Middle East.
Rawia Abdel Samad, director of the Ideation Centre, the leading think-tank for Strategy& in the Middle East, said adopting fit for service initiatives are worth the effort because the leaders of GCC member states cannot simply cut costs by conventional means if they are to transform the cost base of their future governments and create a more sustainable future.
Samad said GCC governments could achieve 20 to 40 per cent reductions in their cost structures by adopting a fit for service approach.
"Fit for service emphasises the digital transformation of government entities and identifies ways for minimising the digital costs of government while using digital as a means to improve efficiency and reduce costs across the board," Samad said.
Some GCC governments have already taken steps to adopt initiatives aligned with a fit for service approach.
"In Dubai, for example, the government has worked to develop the appropriate operating models and become more customer-centric, having developed a rating system for all its service delivery channels. Furthermore, smart government is a key pillar in the Smart Dubai initiative that aims to improve the city experience for residents and visitors of Dubai with more than 500 current and planned smart services."
- issacjohn@khaleejtimes.com