1 Corporate Management in the CIS Week 5 The practice of management

2 The 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?

3 Defence sector companies in West 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

4 Strategies 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

5 Effects Failure to be competitive Conflict with western business partners Failure to attract partnerships

6 Basic assumptions on Russian management 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

7 Eastern promotion of western concepts 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

8 Results - Extract OverallMarketSales PerformanceShareGrowthProfitability Involvement Consistency Adaptability Mission

9 We 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

10 Simplified view Western practices can be employed in Russia Problem of socialist mentality

11 Human Resource Management (HRM) practices (Fey, Björkman & Pavlovskaya) Is firm performance related to HRM practice? Employee motivation Retention Development Dependent on HRM practice Lead to improved performance

12 What brings these about? Managers – –non-technical training –high salary –promotion based on merit Non-managers - –Job security

13 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

14 Virtuous 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

15 Can internal restructuring 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 Putins equidistant directive) Search for optimal models of enterprise personnel management Transformation to management in line with market demands Readiness to accept innovative change

16 But 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

17 Crisis Management Literature considers management of successful western companies Is crisis management theory more appropriate to CIS corporations? Have they developed their own?

18 Entrepreneurs 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 entrepreneurs primary goal for the venture.

19 Sociological 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.

20 Identification 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

21 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.

22 Survival 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

23 Shama – Private sector management 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

24 Marketing 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

25 Marketing 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

26 Jacobs 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

27 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?

28 Quality emphasis ( Eklöf)

29 Use of Customer Satisfaction Index 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.).

30 Consumers & quality (confused 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

31 Conclusions - 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 Shamas study up to 1998 Enterprises which experienced problems adopted crisis management techniques Shamas companies have adopted this post 1998

32 Conclusions - 2 Most theory is based on running companies in healthy markets Many western companies cannot adapt (dont 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!!

33 Conclusions - 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