11

Corporate Management Corporate Management in the CISin the CIS

Week 5Week 5

The practice of managementThe practice of management

22

The business environmentThe business environment

• Since the beginning of transition• At the top end many important sectors

concentrated in the hands of oligarchs• Initially subject to abuse• Now beginning development as commercial

enterprises• In SME sector• Low growth for various reasons• In companies in the competitive environment• Given problems of institutional immaturity, lack of

capital etc• What is level of adaptation to the market – strategy?

33

Defence sector companies in Defence sector companies in West Russia and BelarusWest Russia and Belarus

• Randall & Coakley (1998)• Defence sector companies in West Russia and

Belarus• In 1980s 25 % of GDP from defence sector• In 1980s 30% of countries income from defence

sector• Defence-related sector employs• 8 million workers• 1.8 million scientists & engineers• “Conversion” of the sector is vital to economic

viability

44

StrategiesStrategies

• Managers bound by cultural conditions and constraints that influence “appropriate” courses of action

• Grounded in socialism• Maintaining technical superiority• Collective perspective on labour• Production versus market orientation

55

EffectsEffects

• Failure to be competitive

• Conflict with western business partners

• Failure to attract partnerships

66

Basic assumptions on Russian Basic assumptions on Russian managementmanagement

• Decision making centralised – lack of empowerment

• Poor horizontal flow of information

• High value on stability

• Preference for working in groups

• Lack of accountability

• Lack of strategic direction

77

Eastern promotion of western Eastern promotion of western conceptsconcepts

• Fey & Denison (2003) on Organisational Culture and Effectiveness

• Model of effective organisation• Involvement• Empowerment/involvement/input/ownership• Consistency• Strong cultures/well co-ordinated & integrated/core values• Adaptability• Customer driven/take risks/learn from mistakes/create

change• Mission• Sense of purpose/definition of goals/strategic future

objectives

88

Results - ExtractResults - Extract

• Overall Market Sales

• Performance Share Growth Profitability

• Involvement 0.27 0.20 0.21 0.18• Consistency 0.13 0.05 0.13 0.07• Adaptability0.30 0.09 0.05 0.31• Mission 0.09 0.10 0.36 -0.01

99

We could concludeWe could conclude

• Adaptability = survival aspect (logical!)• Mission & Involvement = long term growth

aspects• Consistency = in western studies often

conflicts with Adaptability, but important in transmitting Mission

• Suggests western strategic concepts can be applied

• Cultural residuals may need to be overcome

1010

Simplified viewSimplified view

• Western practices can be employed in Russia

• Problem of socialist mentality

1111

Human Resource Management Human Resource Management (HRM) practices (HRM) practices

• (Fey, Björkman & Pavlovskaya)

• Is firm performance related to HRM practice?

• Employee motivation

• Retention

• Development

• Dependent on HRM practice

• Lead to improved performance

1212

What brings these about?What brings these about?

• Managers – – non-technical training

– high salary

– promotion based on merit

• Non-managers -– Job security

1313

Meaning?Meaning?

• We can ask• Is “firm performance” defined in Russian

(survival) terms or western terms?

• HRM practice needs to consider cultural factors IF we define performance in terms of increased revenue or profit generation

1414

Virtuous or Vicious CirclesVirtuous or Vicious Circles

• Virtuous Circles• Connect to international technical chains• Use of design and sales capabilities of foreign

market leaders• Response to client need• Observe strict production and supply discipline• Vicious Circles• Tied to CIS market• Unable to take advantage of opportunities in

international markets

1515

Can internal restructuring Can internal restructuring prevent vicious circle problem?prevent vicious circle problem?

• Chirikova (2003) argues• Initiative must come from directors• Priority tasks must be• Maximum development of specific strategic guidelines for

enterprise management• (ie emphasis on key strategies)• Transition from single-centred to multi-centred model of

authority• Search for new models of management• Rejection of “personal deals” culture• Practice of “equal distance from authorities” (note Putin’s

equidistant directive)• Search for optimal models of enterprise personnel management• Transformation to management in line with market demands• Readiness to accept innovative change

1616

But there are conditionsBut there are conditions

• Does not eliminate need to seek stabilizing strategies for enterprises which have left the survival stage and entered “fluctuating development”

• This underscores that management has been essentially adaptive

• Seeks results to support role of enterprise in special conditions

• Survival strategies because survival is paramount

• Management adopts “crisis management”

1717

Crisis ManagementCrisis Management

• Literature considers management of successful western companies

• Is crisis management theory more appropriate to CIS corporations?

• Have they developed their own?

1818

Entrepreneurs US - RussiaEntrepreneurs US - Russia

• Stewart et al (2003) compared entrepreneurial behaviour in US & Russia

• Risk propensity in US macroentrepreneurs = high• Risk propensity in US & Russian

microentrepreneurs = convergent• “Explanation could lie in the economic conditions

which plague Russia”!!• Suggest entrepreneurial dispositions• Vary according to culture and • The entrepreneur’s primary goal for the venture.

1919

Sociological evidenceSociological evidence

• Just five to seven years ago the key guideline for most enterprise directors was the “task of daily survival.”

• The available sociological surveys enable us to conclude that in the last one or two years Russian directors have, with increasing frequency, become aware of the potential of implementing long-term strategies of enterprise development, even though the burden of routine management tasks, far from growing lighter, is actually getting heavier.

• To an ever-greater extent, factors of internal management are beginning to determine the potential of enterprise development.

2020

Identification of strategiesIdentification of strategies

• Chirikova (2001)• priority crisis-management strategies:• an orientation toward the production of export products,

and arise in their percentage of overall output volume• a search for new partners and new customers, and new

spheres of activity• an orientation toward the output of unique products that

make it possible to win new market niches• an expansion of the range and assortment of products in

accordance with the requirements of the customer, the maximum catering to his needs, and the determination along with him of long-term partnership strategies;

• an orientation toward the modernization of production• a conscious striving to train members of the management

team

2121

Survival Under Stress Survival Under Stress

• Venture capital has dried up. Business pages report on getting back to basics. It has even become fashionable to snicker about the foolish mass hallucination of the New Economy. Anyone with a new idea in a corporation is being told "cost cutting is our focus right now." Corporate management has battened down the hatches.

2222

Survival Under StressSurvival Under Stress

– Meanwhile, a few contrarian voices say that it's a great time to start companies because talent is available, entrepreneurs' valuation expectations have plummeted, and office space is cheap. And for existing companies, they say, it is not time to downsize but time to use freed-up talent to innovate in preparation for the next economic cycle.

– So which is the right corporate survival strategy -- contraction or exploration?

– Survival Under Stress ,  By: Meyer, Christopher, MIT Sloan Management Review 2003

2323

Shama – Private sector Shama – Private sector managementmanagement

• Longitudinal study – 1992 to post 1998• Values and behaviours• Commitment to Opportunity• Active/now or never/gambler• Strategic Orientation• Creative/opportunistic/innovative• Control of Resources• Low or no overhead/exploitive• Management Orientation• Flat structure/flexible/open/informal/multiple networks• Reward Philosophy• Value based/performance based

2424

Marketing TheoryMarketing Theory

• Comparison of western & Russian text books (Jacobs 2001)

• Emphasis on market research to “determine the size of the market”– Suggests undifferentiated product market– Oriented to product not consumer demand

• Use of regression analysis to forecast market size not questionnaires– Emphasis on statistic data collection

2525

Marketing TheoryMarketing Theory

• Market segmentation based on objective variables (demography/geography)

• Not subjective (psychgraphic/behavioural)

• Pricing based on Cost plus

• “Considerable” attention to business planning– Emphasis on ‘plan determines market’, not

‘market determines plan’

2626

Jacobs’ conclusionsJacobs’ conclusions

• There appears to be a discrepancy between the Russian concept of marketing, as put forward by academics and other experts, and the way in which at least some Russian businesses are run.

• While it is true that scarcities and the other problems may prevent the complete satisfaction of demand at least in the short and medium term, it is possible to envisage the gradual extension of western-style marketing in Russia as the economy develops along free-market lines.

• The task would be greatly aided if the Russian concept of marketing, as featured in books and educational establishments, were to be revised to make it congruent with the western concept

2727

Maybe, but…Maybe, but…

• How do you determine how to market?• What is your data?• Studies by Jan Eklöf (with others)• Suggest Russian management see

“quality” of product as vitally important• How do you measure markets

satisfaction?

2828

Quality emphasis (Quality emphasis (Eklöf)Eklöf)

2929

Use of Customer Satisfaction Use of Customer Satisfaction Index surveys - from 1999Index surveys - from 1999

• When CSI surveys were launched in Russia, they revealed some problems with interpretation of CSI comparisons

• Any comparisons of CSI have to take into account not only the character of product or service

• But also the economic and market environment where the satisfaction is taking place (level of market saturation in general and with particular good or service; level of disposable income, etc.).

3030

Consumers & quality (confused Consumers & quality (confused signals?)signals?)

• The results obtained show that the Russian market is getting more competitive and dynamic

• The situation can change very quickly and Russian consumers are starting to have preferences for quality products rather than cheap ones, especially when they purchase long-lasting goods

• On the other hand, talking of day-today products, low prices make the customer less choosy in terms of quality

3131

Conclusions - 1Conclusions - 1

• There has not been ONE approach to management• CIS managers are actually very adept & skilful• Western management has been applied where

conditions replicate the west• Successful small businesses in Shama’s study up

to 1998• Enterprises which experienced problems adopted

crisis management techniques• Shama’s companies have adopted this post 1998

3232

Conclusions - 2Conclusions - 2

• Most theory is based on running companies in healthy markets

• Many western companies cannot adapt (don’t plan for) when economic climate changes

• Crisis management literature is growing….• CIS companies have been developing their

own crisis management practice• Russian management literature has different

emphasis from western• Of course!!

3333

Conclusions - 3Conclusions - 3

• Long-term strategic planning is the luxury of stable economic circumstances

• Adaptability & survival tactics are initial strategies

• Business hierarchy of needs (after Maslow)

• Survival (hygiene) before self-actualisation

• Improving situations will lead to convergence with western practice