The pressures of the recent global crisis, evolving demographics, high interest rates, and the cost of capital that hit the world in early 2023 have forced global businesses to adapt—including those in the Middle East region. Savvy leaders, however, view these disruptions as growth opportunities. Research shows that companies that set strategies to consider all available growth pathways are 97 percent more likely to outstrip their peers in growing profits.
But to thrive in this era, companies should devise structural solutions that not only manage costs but also choose to grow in a way that builds resilience and drive long-term value creation.
In this interview, Abdellah Iftahy, Mazen Najjar, and Kishan Shirish, share their views on how companies in the Middle East can take advantage of the timely jolts to create new growth opportunities. They stressed that rigorously focusing on activating growth pathways and executing with excellence can help companies achieve profitable, sustainable growth in these uncertain times.
An edited version of the conversation follows.
McKinsey: The mood globally is somber. Do you think this is the same for companies in the Middle East?
Mazen Najjar: At this stage it’s pretty obvious that the mood is somber around the world and that we are heading toward uncertain times. But when it comes to the Middle East region, I am happy to report that, particularly in the Gulf (and to some extent in the Middle East overall), the mood is more positive.
It’s a region that at the end of the day—like any part of the world—is facing its own headwinds and tailwinds.
But it’s also a time where the region is able to seize this moment and embrace growth. Countries in the Middle East can use this period to catch up and, in fact, even leapfrog.
The region is still forming its own capabilities and there is a bit of a gap between capabilities and aligning that to the growth agenda. However, if we look at the tailwinds, we believe it is the time that, if a country has a bold ambition, then very well-articulated plans are executable at all levels.
Here I’m not only talking about what the central governments are doing, but about what organizations are increasingly doing. I’m also talking about a time where there is an appreciation of the will power it takes to get to these growth results. There seems to be a collective will in this region to use this time to, as I said, not only catch up but actually leap.
McKinsey: What makes growth so critical for companies in Middle East, and why should they double down on growth?
Kishan Shirish: I think that most players in the region are bound to focus on growth because the whole economy is geared toward growth. So if a company wants to continue to be a relevant player in the region, it needs to ensure that it gets its fair share of that growth.
From my perspective, I believe that growth is the only way out from the current moment that Middle Eastern economies are facing, given the leadership of each country, their vision, and the imperatives that they have from an energy- and economic-transition and job-creation perspective. If a company wants to keep its relevance in the market, it needs to be contributing to—and capturing—a fair share of the growth. I think both governments and private sectors are bound to focus on it, given the needs that exist in the region.
Growth is essential for Middle Eastern organizations—governments, private sector, and all the rest. I would be willing to bet that “growth” is the first word you would hear out of the mouths of almost 100 percent of the decision makers in the region.
The other thing I will mention is that growth is a self-fulfilling prophecy and, in many ways, is an element that bears its own fruits and dividends. Through research that we’ve conducted, we’ve realized that the more an organization focuses on growth, the greater the multiple it will get out of growth. If it spends 2.4 times its resources on growth, it will gain 2.4 times overperformance. So for all these reasons, I believe that organizations in the region will more than prioritize growth.
Abdellah Iftahy: Many trends offer unique opportunities for organizations to tap into new growth. Consumer behavior is changing fairly rapidly, shifting the growth pools from one area to another. For example, e-commerce is growing quite fast.
Brick-and-mortar sales have stagnated in some of the segments, as the competitive landscape has become more and more demanding within this space—which in itself brings new challenges for companies to consider and look for growth in different ways.
And finally, the regulatory environment also presents a new challenge for some distributors and family businesses currently at play within the ecosystem. Growth within the consumer and retail space is important for value creation going forward, especially when it comes to expanding into new adjacencies, business building, and personalization given the growing digitally-savvy consumers.
McKinsey: How can companies achieve outsized growth?
Mazen Najjar: I think it’s important to distinguish how growth is seen. In our latest research, we saw that there is an expectation that 80 percent of growth will come from the core.
I think a key distinction is that growth will come from scaling the strengths of the core and rendering organizations to be more efficient. It also will definitely come from creating new growth avenues in the form of establishing new businesses that will disrupt and complement sectors, and disrupt incumbents to create the growth.
McKinsey: What are some of the most important things to consider?
Mazen Najjar: I believe that organizations should ask themselves various questions. Do they have a comprehensive growth agenda that they debate at top level in their boards and their C-suites? Do they have chief growth officers or the equivalent? Are they building capabilities to drive performance in their core businesses? Are they monitoring growth metrics? Are they incentivizing everyone in the organization to drive growth?
And speaking about business building, are they establishing a business-building vertical? We believe that business building is an institutional capability; it doesn’t happen by luck. If you look at the big tech companies in the United States and other places, you do realize that these companies have a competitive advantage in building a muscle that can add revenue lines and new businesses when they need to. This is a muscle that needs to be developed by organizations in the Middle East. Such a comprehensive agenda is needed to pursue growth in the region.
Abdellah Iftahy: I fully agree with Mazen. I think new business building will probably be a bigger pillar for growth for companies in this region than elsewhere. When you compare the maturity curve of our industries in the region—especially B2C industries—compared to other more advanced economies, you can see the capability or leapfrogging in some channels.
Kishan Shirish: I believe that the region presents a lot of opportunities for disruption and to do things differently. We are starting to see a lot of companies trying to capture those opportunities, which exist for multiple reasons. First, there is capital available as well as a willingness to invest in their geographies and bet on local champions and local companies to really disrupt.
Second, there is a bold aspiration and vision in all dimensions, including in cutting-edge industries such as energy transition, blockchain, etcetera. We have government agenda or a central agenda trying to create the right incentives for those to flourish.
I think those two ingredients can help make a company successful. And as Abdellah said, the appetite to innovate and leapfrog from a consumer and corporate perspective makes for a good combination for successful new business builds. I think we have an incentive not only to focus on the core, but also on the adjacencies on the new businesses.
McKinsey: What are top performers doing differently?
Mazen Najjar: One of the differentiators is that top growers not only make an explicit choice to grow, but make decisive actions aligned to that agenda. They’re articulating where the growth will come from. They’re defining what this achievement could look like. And they’re doing that not only at the top of the house, but in such a way that the entire organization understands what they are trying to achieve. For example, looking at core performance—they break this down into the specific levers that need to be improved so that the overall organization generates more growth.
So what do companies need to do differently on products and segments and on how they go to market, how they operate and how they approach their customers? Getting to a granular level, creating a transparency, and then linking the entire performance of the organization and individual groups to this achievement differentiates today’s successful organizations.
There are various global players that are very, very active. In fact, ambitions have accelerated five to ten times compared to a few years ago. The majority of organizations today realize the importance of this lever. The same brain coordinates new business building and the core, but new business building uses a different muscle from taking care of the core. And I think that, when it comes to business building, Middle Eastern organizations have realized this.
There are a few organizations that have gone some way in developing an explicit agenda on new business building capabilities. They have appointed dedicated executives who are in charge of this and have created investment pools. We have to remember that, in this case, you need capital; it’s not a breakeven that will happen in a year or two.
McKinsey: What determines success in execution? What are the two to three main actions that can make this attainable?
Mazen Najjar: There are two or three elements I would like to single out. One is a realization that, at the end of the day, transparency on the success of what is trying to be achieved is very important. Tying incentives to achievement transparently and treating every single stakeholder like a partner in an organization is proving to be essential in driving ambitious growth agendas. If every individual in an organization does not feel that they are principals on this journey, then the organization will struggle.
Abdellah Iftahy: Talent capabilities and capital allocation are truly key to success. Take an example from the consumer and retail industry, where we have seen retailers go after a new pool of talent and compete with tech-first companies to recruit digital tech and analytics talent. Then they either host them within their organization or in hubs where the talent is. They adjust their talent and recruiting models. When it comes to the capabilities, some of the retailers have stated that they want to be tech first going forward before being a retailer.
This shifts completely the way they think about making money, how they drive traffic, and how they monetize through advertising and many other services that they offer to their consumers.
Kishan Shirish: Another example is if I look at the players in the Middle East region that have been systematically growing over the last few years, I see them looking at growth through a different lens.
If we look at a business at the bottom-line level in an aggregated perspective, I think it is always going to be difficult to justify these long-term bets. I believe what the visionaries in the region are doing really well is to separate short-term wins and long-term growth bets.
There are adjacencies where organizations are willing to allocate a lot of capital but are also ready to take difficult decisions very quickly, so that if something is not working, they shut it down. I think with the companies that are succeeding, not only the executive team has this growth vision, but the shareholders also share the transparency.
Otherwise it’s very difficult to justify a big reallocation of capital without immediate returns. The business that does a significant reallocation of capital will be impacted over the next few years until these new ventures and growth levers start working. It is crucial for the board and shareholders to have this mindset, as well as across the organization, to make this growth transformation work.
Making the conscious choice to grow creates powerful momentum that orients the entire business, from the C-suite to frontline employees—a choice that is currently pertinent in the Middle East, a region ripe for growth. A growth blueprint defines the crucial elements on which growth leaders need to focus once they have made a deliberate and purposeful choice to grow. This blueprint also prepares an organization to unlock growth opportunities during timely jolts. The clarity of purpose and vision that comes from such choice is what helps leaders and their teams believe in the seemingly impossible and make it happen. Now is the time for business leaders in the Middle East to seize the opportunity, foster resilience, and create long-term value.
This content was originally published here.