IMPACT OF THE ECONOMIC-FINANCIAL CRISIS ON THE COMPANYS MANAGERIAL POLICY

SCHOLTZ BLA West University Vasile Goldi Arad

ABSTRACT

The effects of the world economical financial crisis have left their mark on the Romanian market economy and the business environment, influencing negatively the business plans mainly in the investments orientated policies. In order to be able to survive throughout the present period of world economical financial crisis, to adjust to it and to diminish the impact of the negative effects that the ongoing crisis creates, the private companies and the public institutions must change their managerial style as well as the mentality of the employees, the managers and the businesspersons. In order to attenuate the effects of the economical financial crisis, the managers see themselves compelled to change the managerial style and to implement a real participative managerial style. At the end of the paper I present some actual propositions, taken from my personal experience, concerning the changes needed for the implementation of the managerial style in the present period of world economic financial crisis.

KEY WORDS: Leadership, economic crisis, participative

management. Introduction

Within the current context of the world economy,

whether we refer to the Romanian market economy or to the capitalist economy of the highly developed countries, we have to admit that there is a worldwide financial crisis, first occurred in the United States about 2 years ago, which has extended and reached, respectively touched also the Romanian market economy, adversely influencing the companies managerial policy.

The current financial crisis may be compared with the financial crisis from the years 1929 - 1923, when many people remained unemployed and companies that

have been extremely profitable since then went bankrupt. Not surprisingly, after a sustained economic growth period there follows a stagnation and decrease period, respectively a financial crisis which affects a significant part of the private system and implicitly the world's population. Considering the shifts occurred during the last 6 months in the Romanian market economy, in my opinion there is high time for a structural change in the companies managerial policy, in order to be able to mitigate the adverse effects of the economic-financial crisis. Background

The first signs of this crisis, anticipated and extensively propagated through the media by the tycoon George Soros, have been felt by the Romanian market economy only after 1 year since its beginning. Economic crisis1 difficult condition of the economic activities, crash, sudden change in the economic activity, taking the shape of deceleration, stagnation or decrease of the economic activities.

By extension, it is a depressing condition for the overall economy, for certain branches, regions etc., a disease of the economic body which indicates the serious crash of the economic balance, especially between production and consumption, between demand and supply, having direct effects on the prices, occupancy degree and production factors usage degree.

The economic crisis is literally the turning point of the economic cycle, when the expansion phase (ascending) is replaced by the depression phase (descending). The beginning of the economic crisis requires economic agents to act in order to determine qualitative changes in the economic growth circumstances and factors, in the economic structures, intended to lead to the removal of certain unbalances, behaviours, institutions and mechanisms which create prerequisites for passing to a new ascending phase. Even if it is a difficult step in the economic development, having adverse effects on a significant portion of the economic agents, the economic crisis is also the signal for the mass beginning of the creative destruction type phenomena.

243

The world economic-financial crisis effects have told on the Romanian market economy, on the businessmen activities, adversely influencing their business plans, particularly at the investment policy level. Currently the economic-financial crisis impact is felt both in the private sector, as a result of the decrease in the turnover, respectively in the financial power of most of the private enterprises, and in the Romanian budgetary sector, by drastically reducing the budgets and by stopping the investments proposed to be carried out. Given the economic-financial crisis impact, managers should review and necessarily change the managerial policy practiced until the occurrence of this crisis effects, respectively adapt their business to the new market circumstances. Of course, we should reflect on the following questions:

how many of the current managers have efficient managerial training during this crisis period?

what is the percentage of the managers who attended a management course in the last 2 years?

are the local managers able to adapt their business to the new crisis created conditions?

are the business owners able to reduce their mark-ups and implicitly their sale prices in order to maintain their business during this crisis period?

Considering that 93% of the local companies are microenterprises, with little financial resources and limited possibilities to access long term loans for business development-extension, particularly under the current circumstances when bank interests have increased, respectively the loaning requirements have hardened - the crisis impact is catastrophic.

The literature in the field presents three major classes of information, with significant contribution to the management definition.

One of them refers to the fact that the management requires to acquire and combine the various categories of resources necessary in order to fulfil the organizational goals (Longenecker, Pringle, 1981) or to coordinate such resources, in view of the same purpose (Pride, Hughes, Kapoor, 1991). This approach highlights the nature of the resources to be acquired, combined and coordinated. Four categories of resources are represented and analyzed: material, human, financial, informational. There is also specified that the performance of the organizations primary goals is taken into account.

The second approach on the management notions scope and contents refers to the specification of the entirety of processes, actions, functions which allow to coordinate the resources and to fulfil the organizational goals. Henry Fayol was the first to mention the management functions in 1916.

According to Henry Fayol, the management functions are as follows:

a. prevision and clarification examination of the future and preparation of the action plans;

b. organization preparation of the organizational structures;

c. leadership maintaining at a high level the activity and performances of the subordinates;

d. coordination correlation, equilibration, unification and harmonization of all the activities and efforts;

e. control - surveillance, guidance in view of complying with rules, regulations.

The management style is significantly determined by the managers human type and does essentially depend on the complexity of ideas, concepts and preconceptions on people, behaviours, business etc. The style does synthetically reflect the units external social-cultural influences, the features of the respective groups organization, as well as the features of the group itself.

The management style is the managers own manner of being, comparing and acting within the leadership process. The style is the actual, specific manner of exercising the managers roles and of actually behaviourally transposing the requirements resulting from the managers status, leading to a system of acting manners (for a well determined purpose) and methods of intervention in the organizations employers activity, by actively influencing them.

The leadership style concept integrates in a dynamic entirety the leaders' psychical and psycho-social features and particularities, skills, knowledge and behaviours in exercising management according to the actual circumstances under which the leadership activity is carried out.

The leadership styles influence on the managerial activitys results and on the groups entire activity is currently fully accepted both theoretically and within the actual leadership activity.

More concisely, the leadership style concept may be understood as the leaders managerial abilitys complete and personal expression manner, its active manifestation.

A great variety in the nature of leadership positions and in the typology of managerial styles practiced has always existed and will always exist.

Factors such as the competence level required by the job, the size of the managers formal authority and autonomy and the change pace, vary depending on the job and also in time, particularly during the current economic-financial crisis period.

The managerial style varies according to the circumstances and conditions under which the leadership activity is performed.

The management style is determined by the action of the following factors:

authoritarianism, expressed by the managers power concentration degree, by the decision

244

making manner, characterizes the microenterprises where the business owner is also manager of the company and makes all by him/herself the managerial decisions, without consulting the employees or the experts from consultancy companies;

directivity, consists in the nature of the suggestions given by the managers to their subordinates while performing their activity;

relationship between the manager and the employees, based on which the groups social-affective structure is specified, does directly influence the companys economic-financial outcomes;

managers orientation in relation to the subordinates issue, in terms of the priority given to the organizations issues in relation to the subordinates' interests;

management techniques and methods used, which vary depending on the companys size and particularly on the managers training and mentality.

More often than not, the relationship between the manager and the employees is a cold and distant one, because the managers do underestimate their employees, do not wish to consult with them, to ask for their opinion on the activity carried out within the company and particularly on the improvements that could be implement in order to make it more efficient.

In most of the cases, the managers are firmly convinced that only they may be right in respect of the activity carried out within the company, being the most professionally trained; respectively they do not need the employees advices, opinions and suggestions.

The current crisis period undergone by the local managers, particularly those of microenterprises, is a truthfulness time that has awakened to the tragic reality on their deficiencies and particularly to the need for changes in the companys management, changes that they must implement if they do not wish to go bankrupt.

It is important to know and assess the various management styles and their determinant factors, given the following reasons:

the effects of the leadership styles on the psychological, psycho-social and relational environment within the economic entities, as well as on the production outcomes, on the entire activitys productivity and profitability;

the leadership styles diffusion capacity does influence the employees. The managers style may influence the entire leadership teams orientation and may also propagate to the lower hierarchical levels. The top managers leadership style may influence all their subordinates' work style;

the managerial style has not only a personal significance, but also an organizational one, i.e. influences the entire organization;

given the need to select, to appoint in management positions only persons with a leadership style adapted to the current economic-financial crisis context;

the managerial style adequacy to the actual circumstances, i.e. the leaders style flexibility in view of adapting the business carried out during the current economic-financial crisis period as to be able to last on the market.

According to Thomas Peters and Nancy Austin - A Passion for Excellence and Thomas Peters and R. Waterman Le prix de l'excellence the pursuit of excellence in the managerial activity would be characterized by:

revolutionizing quality and transforming the production process in a marketing tool;

being fully committed to the service and responsibilities fulfilment;

being fully committed to satisfying the customers needs, listening to the customers, end-users, suppliers and traders;

struggling to be unique and to develop an innovative strategy, ignoring the answer it has not been invented yet

overinvesting in people, valuating salaries, services and distribution in the first place;

treating innovative spirit as an existence reason for any employee;

measuring the progress achieved as a result of each improvement;

making real heroes, champions of the company out of the most inventive employees;

investing time in the human resources recruitment and filling all the positions by competent employees;

encouraging teamwork; getting as soon as possible rid of the

incompetent or resistant to change ones; re-conceiving the middle managers role in

order to turn them from guardians into mediators;

simplifying the bureaucratic procedures, reducing the papers and destroying the apparatus;

precisely orienting on what has to be changed and on the urgency of such change;

leading through the personal example power, using a visible management and using methods as simple as possible, in order to encourage the others understanding and participation;

making the control procedures as simple and efficient as possible;

requiring the employees to be loyal to the company and reliable in all the actions taken for and on behalf of the company.

Nowadays more than ever a significant role in the business success consists in the relationship between the manager and the customers, as a customer satisfied with the companys goods and/or services is the guarantee that

245

the business will survive during the crisis period. Satisfied customers do usually contribute to the companys goods and/or services promotion towards their acquaintances, friends and work mates.

The most significant management systems2 and methods applied are:

management by objectives dynamic system aimed at the companies objectives achievement, by harmonizing them with those of the personnel, using a complex motivational system;

participative management method to involve the personnel in the leadership process;

management by projects improving the leadership organization in view of a more operative and efficient resolution, which requires o lot of creative work and the collaboration of some experts from various departments;

management by product - improving the leadership's organization in order to encourage sales and increase in the return of the companys main products;

management by budgets preparing expense budgets for all the organizational links and thoroughly supervising the budget exercises;

management by exceptions rationalizing the management system by focusing the information almost exclusively on the deviations from plans, schedules, rules and regulations and selectively circulating them on hierarchic levels, which guarantees the more efficient use of the time by the top leaders, the superior use of the leaders potential;

organizational chart graphical representation of the organizational structure, in order to know and analyse it;

scorecard operative and post-operative information of the leaders in view of the decision making;

brainstorming - stimulating the personnels creativity by way of group discussions;

synetics highlighting the creativity principles and mechanisms and using them in order to design and update products and technologies;

orders method cost calculation, particularly in the companies with individual production, in small and medium series;

value analysis reducing production costs and improving quality by setting up an optimal relation between the costs and functions of the product, of the technological process.

In the opinion of the American businessman Donald Trump, the managers businessmen should ask themselves two business related questions in order to succeed:

1. Could anyone else do my work better than me? In other words, know yourself and know your competitors. If they are better than you, you should offer something they have not.

2. What is that I pretend not to see? Any of us could let him/her carried by the euphoria of a creative moment, i.e. what one of the authors of the speeches of the United States former president Nixon called dream enthusiasm. But before letting yourself carried to the seventh heaven, make sure that you have thoroughly examined the facts from the field.

Five Romanian management patterns: 1. traditional management the managers behave

and act according to certain administrative rules based on hierarchy, procedures and bureaucracy. There is no interest in the changes required by the new socio-economic circumstances. Specific to state companies;

2. entrepreneurial management managers who started business from scratch. Flexible, market oriented attitude;

3. paternalist management managers who try to change things, in order to increase the companies efficiency, but who keep being bound by social obligations and avoid situations like dismissals, even if the large number of employees impedes their organizations development;

4. missionary management expat managers who came in Romania as a result of the multinational companies' operations extension. They act as know-how transfer agents and could be examples for the other leadership categories. One issue could be the case where the expat managers expect that the business techniques from London are applicable also in Bucharest;

5. individualist management managers who recognize opportunities in a not constantly developing economy and exploit them in their own interest, in order to achieve short term gains (source - Management Culture in Romania, Patterns of Change and Resistance, Westminster University).

In the current economic-financial crisis period it is not possible to apply a single management method without taking combining certain positive aspects of the other methods, but given the situation created the most efficient method consists in the participative management.

Participative management the solution to

mitigate the economic-financial crisis effects The contemporary economic development

dynamism leads to the occurrence of more and more complex problems, whose efficient resolution requires the decision bodies to use a variety of specialized knowledge, a higher and higher responsibility level, which can be fully supplied only by including several individuals. Therefore it is necessary to fundamentally involve the employees in the leadership and decision preparation and adoption activity.

246

The participative management consists in the exercise of the management processes by involving a large number of managers and executants, using a variety of methods and giving a major position to the institutionalized participative bodies.

The participative management main features include: actual participation of the employees to the overall leadership process exercise, particularly in strategic and tactical terms, involvement of a large number of individuals in the control-assessment function exercise, active participation of the employees to the most important decision making.

The participative management simultaneously represents a company management principle and system. The approach of the participative management as a system requires highlighting the main prerequisites: organizational, decisional, legal and personnel mentality related.

The organizational grounds which ensure the structural and procedural support of a real participative management include: the existence of the direct and indirect participative management bodies' system, the need to apply the components eligibility and revocability principles, the existence of a circular authority structuring system, according to which each employee should be both in the position of leader and in the position of subordinate within the company.

The changes in the personnels mentality, required by the participative management existence, are a complex process and represent the increase in the employees efforts in view of participating to the development and increase in the efficiency of their company, enhancing their creativity and initiative in setting up and carrying out their goals.

The application of the participative management involves: using certain modern leadership methods and techniques, based on the cooperation of the management and execution personnel, within thoroughly organized teams that should determine the stimulation of the personnels creativity, the frequent use in decision grounding of the economic methods based on cost analysis and of the return, the extension and improvement of the use of meeting and delegation methods and of the influence on the work style.

In Romania the participative management goes through an intermediate phase, from the communist proletarian auto-leadership, characterized by a powerful formal nature, to a new type of participative management to be developed together with the new configuration of the Romanian economy, focused on market and profitability. The adaptation of the activity of the private companies and even of the public institutions in the current worldwide economic-financial crisis period involves and even requires to change the managerial style, in view of being able to survive during this period, in order to mitigate the impact of the current crisis adverse effects, inclusively by changing the mentality both of the employees and of the managers and businessmen.

In3 order to mitigate the economic-financial crisis effects, the managers seem to be bound to change their managerial style, being forced to implement a participative managerial style in the true sense of the word.

Given the financial crisis that has begun to affect also the Romanian market economy since July 2008 and implicitly the labour force market in the following period (2009 2010), we may forecast as follows:

given the restructuring and reorganization of companies, particularly of the small sized ones, certain employees have been laid off, becoming unemployed with no employment possibilities;

in the highly developed countries of the European Union there started the drastic reduction of the investment in new buildings, performed so far by using foreign labour force, well professionally trained, but poorly paid, inclusively from Romania. The Romanian citizens laid off, particularly those who were working without legal forms, in percentage of at least 20%, will return in the country;

in real terms, during the next 2 3 years salaries will not significantly increase in real terms;

the managers of private companies will apply even more the employee performance criterion;

the interest of the private companies in the access to European Union projects with non-reimbursable structural funds shall increase;

the interest of business owners and investors in hiring for actual projects and in the temporary employment will increase;

from October 2008 to March 2009, the unemployed number at macroeconomic level has increased by 113,677 individuals, and the unemployment rate has increased from 4% to 5.3%, and until October 2009 another 235,000 unemployed are forecasted, which means un unemployment rate of 6.9%;

gifted IT young people will try to emigrate in order to find a job in the highly developed countries, particularly from the European Union.

The current worldwide economic crisis will last at least 1.2 1.5 years, crisis which already starts being fully felt also by the Romanian market economy.

It would be essential to be able to significantly reduce its effects, in order for the private companies and for the population not to feel it very intensely. More specifically, the local consumers should dramatically change their mentality, as to buy in the first place indigenous goods and/or services, in order to reduce the commercial deficit in the future period.

247

Conclusions and suggestions During this crisis period there are no management

pattern absolutely valid for all the local private companies, instead it is necessary to change the managerial style applied so far by the managers, by implementing a participative managerial style.

The managers should not expect miracles from the current legislative body, which is more preoccupied by the euro-parliament and presidential elections to follow and not by mitigating the crisis effects by implementing certain measures to make the Romanian economy more efficient.

Our suggestions in view of mitigating the economic-financial crisis effects by changing the managerial style, potentially applicable to the Romanian companies, would be:

to guarantee the loans through the small and medium sized companies guarantee fund and through the agriculture credit guarantee fund, particularly in case of the European Union non-reimbursable projects;

to give young people the opportunity to access bank loans based on business plans, without being forced to have collaterals, in view of the inception and start of new businesses;

to reduce the reference interest of the National Bank of Romania from the current 10.07% to 5%;

to reduce the tax system for private enterprises; to harden penalties increased fines for the tax

dodgers up to their companys cancellation and interdiction to start a new business on their own, as business owners, for the next 5 years;

to reduce bureaucracy in setting up new companies, particularly in case of the small and medium sized companies;

to grant low interest house building loans, of maximum 3%, to young people;

to develop the public-private partnership; to support the legal persons interested in

accessing projects from the European Unions non-reimbursable funds, by bearing the project drafting expenses and by granting 3% interest investment loans;

to grant preferential loans for the cutting edge technology importation;

to reduce the commercial deficit; to make the local consumers aware of the fact

that they should buy indigenous goods and/or service instead of the exported ones;

to reduce prices and services and implicitly the mark-up and the rate of return down to the limit of recovering the expenses incurred, in order to be able to maintain the companys current activity and personnel;

to use only for investment purposes the foreign loan accessed by the current Government;

to immediately implement the participative managerial style to all the companies, regardless of their size and business profile, that will lead to the reduction of the managerial errors and shall create stability in business and confidence of the employees in the companys future.

Most of the companies in difficulty have laid off employees, have drastically reduced goods and services promotion expenses, respectively are not preoccupied by the continuous training of the remaining personnel. The implementation of these measures has already started to have negative effect on the economic-financial performance, as not only the employees, but also the managers have to continuously professionally train in order to be informed about the worldwide situation existing in their business field. In order to sell their goods and/or services, the companies would also need a promotion policy, especially in order to remind the consumers about them. If the suggestions hereinabove presented were implemented, I am absolutely convinced that the current economic-financial crisis effects would be much less felt both by the local companies and by the population, but this requires political will and the current Governments acknowledgement. References [1] Angelescu, C. (2001) Dictionary of Economics, Economic Publishing House, Bucharest, 140-141; [2] Nicolescu, O., Verboncu, I. (2007) Organizationss Management, Economic Publishing House, Bucharest, 245; [3] Scholtz B. (2009) Companys Economics, Risoprint Publishing House, Cluj Napoca, 248.

248

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.