01/09/2007

Do you feel the wind of change in modern Russian management? Russian managers became more: competent, experienced, legible, attentive, flexible, demanding. These days we see more often how foreign attempts fail in selling an ambiguous package of services in management consulting to a Russian company. Russian consultants are now being acknowledged; their influence and importance have become much more visible. This way or another, in the past few years we saw a lot of changes that at a certain degree allowed Russian business to “straighten its back” and look more confidently in the eyes of a foreign consultant doubting the absolute indisputability of his achievements. We discuss the topic of change in management consulting on Russian and foreign markets with a well known representative of Canadian consulting professor of International business and strategy Business school of Carleton University (Ottawa), Ph D Ian Lee and the Chairman of the Association of Consultants for Economics and Management (ACEM) International and Interregional cooperation, Certified management consultant (CMC) in accordance with the Amsterdam standard ICMCI, Ph D, Academician of IAI Konstantin Smolentsev.

Daria Smolentseva (DS): Gentlemen, you are both businessmen in past and practicing consultants and professors now. You have also worked in different countries of the world. What is the main difference between managers – MBA students in the countries where you taught?

Ian Lee (IL): The main difference was in the level of understanding market economy. In some countries listeners have a well developed sense of market economy and business management. In others it is less developed. Like, for example, Iran doesn’t have a complete understanding of the ways that the market operates in terms of cooperation of different business and public institutions. That’s how from one country to another differs the level of experience and knowledge of market economy and business management.

Konstantin Smolentsev (KS): I agree with Mr. Lee. Level of listeners directly reflects the level of business development in the country. Listeners of MBA programs are usually managers from various organizational levels. If on the current stage of society’s development the main goal for any business is primitive survival, then sometimes it is hard to explain why this stage will end sooner or later and company will have to be prepared for a new stage of development. And that will be serious competitor advantage! And, vice versa, in countries with developed economy firsthand priority is transfer of experience in careful tuning of business, in forming uniqueness.

DS: In this case, is it expedient to transfer experience of developing a business or a corporation in one country to a business in another or is it absolutely useless?

KS: I lead seminars with listeners from Ukraine and all my attempts to give them accumulated experience of Russian and foreign companies have faced a skeptical attitude. Many said that today business in Ukraine or Kazakhstan is lead in an absolutely different way. They were trying to make a point that foreign management tools do not work in their environment. That is a serious self-deception! First and most of all management is an art of managing people. Interests and sins shown by representatives of different nations are very similar.

IL: Interestingly enough I had the same experience from some Ukrainian managers in my class. I’ll answer it in two ways. First of all, I found it was generational. I received that feedback from older Ukrainian managers much more so than the younger Ukrainian managers. And the answer I gave was that the case studies illuminate the tools that were delivered or taught in the courses. So these tools are tools of analysis and tools of strategy making and the particular country of the case study is not that important because the logic of the market: supply, demand, profit maximization drive firms in a certain direction so they tend to do the similar things in different countries

DS: Is there some kind of formula for success in each country like Poland or Canada, which could work only for that specific country?

IL: I understand your question however I will answer it differently. I understood that some industries are similar from one country to another. Either your micro chip sells fast or not! That is why some industries are not tied to a specific culture or country. If we are talking about pharmaceutical technologies: either this pill will cure cancer or not. If we are talking about fashion, trade, clothes – these are industries are more specific because of the customers tastes, which vary from country to country. So my answer: it all depends which industry you are in. If you look at cases on natural minerals in different countries, they all look alike. An oil company in Russia operates in the same way that an oil company in Canada, because all you’re doing is digging the earth in search of oil. On the other hand, industries dependent on taste and preferences of its clients will work in an individual regime in each country.

KS: I agree with Mr. Lee. In B2B industries marketing or seizure of the market have a tendency to be less cross culturally specific from one country to another, like, for example, many extracting and manufacturing industries. But once you enter industries such as food products and clothes, trade and restaurants – in other words, everything that is dependent on the taste of a private customer, then many applications and principals of managing a business can be successfully transferred and adapted in countries with similar cultures. Say for instance, Poland and Russia share a lot in common in culture and in specific business management. Unfortunately, both good and bad. So there are mutual things we should work on in collaboration. Many similarities are found between Russians and Canadians. Even though differences are more obvious, then with the polish just because of tradition, experience and existence of free market economy. But that doesn’t mean we cannot learn from each other.

DS: From your point of view, innovational tools such as the Balanced Scorecard (BSC), TQM and similar tools may be used in the management of companies operating in developing economies?

KS: If we look at my experience of working with Russian companies, we can present many successful examples of introducing leading management tools in both small private firms and big public companies. Moreover, the percentage of successful introduction of tools in Russian companies is often higher than the world average. Why? Perhaps because Russian managers act at times more aggressive and determined than their foreign colleagues and try to reach concrete result in maximally short deadlines.

IL: I have never worked in Russia, so I cannot precisely answer this question. But I can cite as an example experience of Iran where in oil-extracting branch companies use the BSC. Except for it the BSC is used by National Police of Canada. Like in public sector there would be no competition, it’s the nature of state. In developing markets where competition is not that strong, the BSC will still be useful. As in an example of public sector of Canada which uses the BSC as the effective tool for realization of strategy of the state. So I would argue that as any country emerges and develops then there is greater demand for these tools as the economy becomes more sophisticated. I can assume that in Africa these tools won’t have much demand just because their business in itself is very simple. Russia is much more complex and that is why today there should be a greater demand for tools of creating and realizing strategies and in the future this tendency will only strengthen.

I have been to Poland the longest and each year that I would come back I would see the change in need for those tools. On the early stage of development managers would ask me why they need business courses, what is the point of strategy? With time managers changed their attitude and with experience came greater understanding and openness to something new. That is why necessity in strategy, in modern management technologies corresponds with growth and level of market and economy development.

DS: Let’s look at countries with transitional economy like Russia, Ukraine and Kazakhstan, where everything changes rapidly, where business culture is weakly developed, where there is no history of leading business. In your opinion, in this kind of transitional period, characterized by risks and uncertainty is it necessary for top management to turn to a consultant? Or is it better to concentrate on maximization of profit, inventory upgrade or territorial expansion? Today this question bothers not only managers, but also causes debates in Russian consulting environment.

IL: Thank you for your question, this is a serious problem. Moreover, Michael Porter – a great strategy consultant – raised this topic in his article “What is Strategy”. And that is the answer I always use. Of course there are differences between operational management and effectiveness. Each company in each industry should be operationally effective which means maximum output and minimum expenses. But that is not a strategy. This formula explains which industry or segment of the market you should enter or compete with in the market. That is why opponents may agree that they are talking about first necessary condition – operational effectiveness. But it doesn’t tell you where you should head in this industry or maybe you shouldn’t even be heading anywhere at all.

KS: Strategy is a question of choice. In market economy there is a possibility of choice. If we take such country as Cuba, where competition is absent because everything belongs to the government, here market strategy is less important. Strategy appears where company has a possibility of choice, because consumer has the possibility choice. That is why strategy is a characteristic of market economy. The more choice there is, the greater importance has strategy.

IL: Let me give you an analogy. Russia is famous for the development of athletes in skating to perform in Olympics. Russia was always a strong competitor. Each of those athletes at the very young age is assigned to a coach. So why is the Russian government spending so much money on those coaches when athletes could go and train on their own? Because the coach is developing that particular athlete to a higher level that he couldn’t possibly achieve without a coach. Coaching a future ballerina or a hockey player, they are bringing out their maximum potential. Would they develop on their own? Sure. Would they develop to the same level? Probably not. So the coach is giving them competitive advantage, where they would have deeper insight and see opportunities that competitors do not see. Consultant is an analogy to that couch.

There is a phrase in English that if you get too close to the tree you cannot see the forest. So companies in their own industries are so close to their problems, that they do not have the whole perspective. And consultants provide that outside perspective because they have experience in other industries. And they can give advice to that particular firm because they are up close to their issues but they can’t step back and see the large picture. The consultant is providing critical perspective to the decision makers in the company giving them a fresh set of eyes and say well, there are these opportunities you do not want to miss; there are these possible strategies you haven’t thought of. It’s like a second opinion.

DS:.  Then who is a consultant?  a doctor? a coach?.. who?

KS: I like more: Advisor.

Can you live without an advisor? Probably yes. But then why every ruler in each period of time had one?

There are many questions that have no defined answers. However, there should be criterion of assessment. Simple and clear. And it exists. It is the criterion of benefit. Has the effectiveness and balance of the organization increased after cooperating with a consultant? Have the shareholders really felt the return on their investments? Has it become clear for the management for what, where, with whom and how to operate to achieve set goals? Did a point of support appear?  Was the team spirit strengthened? If yes – then there is benefit from the spent money, time and work.

IL: Generally speaking, they are both doing the same thing. They are diagnosing. When I was working at the bank, when analyzing business plans first I was looking at the facts, then I would do the diagnosis and then I would give a decision. Like a trainer who analyzes the athlete or the doctor who analyzes his patient. Thus they have an objective and analytical point of view because they themselves are not the patient or the athlete. Their emotional interest is not involved and they are capable of assessing numerous factors to come to a particular diagnose.

KS: In Russia there is an internet portal uniting effective managers. At first it was created by a foreign company but now it is in the ownership of a Russian company. It unites 100,000 users. Recently on the portal I published my article: “Consultant in the fate of a Master”, and I paid attention to the discussion of the article. One of the participants in the chat was a woman who said that it is better to stay as far from consultants as possible, because they give advice for which they carry no responsibility. Ian, what would you answer to that?

IL: I’ve heard this criticism before. It’s not new. I would answer this way. First of... Nobody is perfect. There are bad consultants just like there are bad doctors.  And there are bad managers who can bankrupt the company. Enron would be the example. So if her argument is that there are some consultants which are incompetent. But in terms of the second criticism which I think is stronger that they don’t have any responsibility for implementation. This is a serious criticism which has been addressed by major companies such as the Boston consulting group and Mackenzie. And what the group of consultants has done to address this problem is that they would propose in their consulting contract that they will be responsible for at least the evaluation or overseeing the implementation or execution because that’s where the success of an advice lies. In other words you can come up with some wonderful ideas but will they work? And to address that question any manager hiring a consultant should insure that there is an accountability mechanism in the contract so that the consultant either is responsible for implementation or at least evaluates the implementation of execution and comes back with some secondary advice.

We have companies coming to us and saying what do you know about my business? My answer was that its not that we know more about your business but we are looking at your financial statements, at the business plan you wrote and we are talking to your competitors, to your suppliers. We are getting a bigger and complete picture and we are not emotionally involved like you are. So consultant is that second opinion that analytically evaluates the information.

DS: Today in Russia there are a lot of talks among the media, politicians and the public that consultants that were brought from abroad by the Russian Government and who knew little about the country, the culture, history and so on gave advice that resulted in complete opposite of what was expected. So my question is should we continue bringing in foreign consultants?

IL: As I said earlier, I am always careful when I go into another country. I tell my clients: look I am not telling you what to do. I am presenting you with a set of tools that you as a manager should use, because you know your industry, you know the history of your country, you know the values the norms of your people – I don’t. So I am providing you with set of powerful tools and telling you how to use them, but I am not telling you what to do.

Also I’m giving you the latest tools. Some of my listeners ask: how do we know that these tools will not become out dated in a little while. I answer that no one can tell you that. Back in the 80s I thought I had the best computer possibly, today technology has made a rapid step forward.

That is why I would differentiate the concept of consultant from instructor. I stand behind an idea that a company should attract local consultants from your country of origin. If I was Russian, I wouldn’t attract foreign consultants. On the opposite, I would turn to Russian consultants so they could help with decision making. So again, I would distinguish an instructor or a teacher from a consultant. Instructors are training the consultants, who then in turn apply tools necessary for specific needs of a company. 

KS: In Russia there are not a lot of universities that can professionally prepare consultants. That number is much higher in Canada. Population in Russia is 130 million while in Canada it is 30 million. There are many associations of consultants in Canada that unite many consultants. In Russia there are only 15 consultants including me who are certified by the Amsterdam standard ICMCI to lead consulting activities. In Canada there are 30 thousand active consultants.. In Russia there may be at most 3 thousand. Any business operates only if there is profit. And on the other side any business is interested in international expansion while leaving its own local market unavailable for foreign competitors. So in the end.. Russian and Canadian consultants.. are we partners or competitors? If we look at it, 30 thousand experienced consultants against 3 thousand. If you teach us to become consultants.. well there is still not enough of us for 130 million habitants. We will need more consultants to cover the area. So again what are we then competitors or partners?

IL: Again I am very skeptical like those opponents who question why we bring in foreign consultants. Let’s define our terms. A consultant to me is someone who comes into a company and gives a set of advice of what to do. If that’s what we mean by consultants I don’t see why Russians would want to bring in Canadian consultants who don’t even speak the language nor understand the country.

If by consultants we mean someone who merely brings in the tools and says here is the tools, use them. Well that to me is a trainer. And I am making a distinction here. I don’t think a Canadian, an American, a Brit or a German knows as much about Russia as the Russian consultant. But the Russian consultant doesn’t necessarily have the tools, because for many years there was no market economy. So in my view, you need people like me who can come in and bring the necessary tools. But it needs people like Mr. Smolentsev to apply them and train new Russian consultants.

I think there are three generic things that every consultant needs. First they have to be intelligent. Second, they have to understand the country, the values, the rules that only a person who lives in that country knows. And thirdly, they have to have the tools. I think the Russian consultants have the first two. But the one thing they don’t have in an emerging market is the tools. Once an intelligent consultant has the tools, consulting becomes easy.

DS: Today in Russia there is a lot of foreign specialized business literature in the country. If in Canada it was developing over hundreds of years, in Russia there was an informational boom. We had everything: old and new tools appear at the same time! So how should the Russian managers orient themselves in this gigantic amount of information, what is good to use and what is not?

IL: I think I have a very unique perspective. 90 % of professors in business schools never worked in business. I worked 10 years in business. Why is it important? Because then you understand up close and personal the real business issues. I understand the real management space because I used to be a manager. And Mr. Smolentsev also understands business problems because he was a top manager himself for 10 years. So my answer to you is try and identify a business professor who has significant business experience and have been in the university for a while. An individual business consultant will not try to sell you a big bucket of typical services, will not sell or offer something typical, dying out, but he has great experience and knowledge.

I believe that there are very good people in consulting groups. But because of certain expenses they charge a huge a lot of money. So the compromise would be to get someone qualified, who is now in universities and had experience in business. If you invite someone who was only on one continent, he might have difficulty understanding Russia or China. Invite those who understand specifics of different countries and can relate to problems that stand before managers of those countries. That is why if you invite someone who has those three characteristics; he will bring you a lot of benefit. He will give you exactly the amount of work you need and will help orient in all variety.

KS: We see that in Eastern European countries consulting is growing rapidly. Recently the president of ICMC (International Council of Institutes for Management Consultants) visited the country for an opening of the Russian National Institute of Certified Management Consultants (NICMC). And he was very surprised that neither the media nor the public paid little attention to such an important occasion. When will this situation change?

IL: I cannot answer that question with confidence because I’ve never been to Russia.  But I will say that yes in the past few years I have noticed that change in development of the Western world as oppose to Russia or Eastern Europe. It’s also a generational issue. The younger the generation the more open it is to new ideas and new tools.

KS: There are many universities in Canada with programs like International Business. Our Universities with similar programs often invite foreign professors and businessmen to teach or lecture. Why don’t Canadian universities invite foreign businessmen or even professors to show them to their students? So students get the idea of with what and with whom they are going to cooperate and compete?

IL: I agree by the way. There are two answers. Well, first one is that Canadians and Americans are pretty arrogant and think that they know everything because they have been doing it longer. If you talk to an average Canadian businessman – he respects German engineering, but not German management. That’s how sad it is. And the second one would be probably the logistics and the VISA issues. Hopefully the situation will change.

KS: I think we shouldn’t wait for the situation to change. Mr. Lee is ready to work with Russian consultants and hold seminars in Russia. Mr. Smolentsev has prepared new seminars for representatives of foreign business and is working not only with Russian but also Canadian business. Perhaps together you should create a new program or course that will be of interest for both Canadian and Russian universities. Everything is up to us!

DS: In the conclusion of our conversation, I would like to thank Mr. Ian Lee and Mr. Konstantin Smolentsev for their time and for discussing with us questions with one way or another were brought by the wind of change in the modern management. We shall hope that Canadian and Russian consulting and business corporation will strengthen and grow with new and interesting forms. Thank you for the discussion and success in your mutual intercontinental beginnings!

Ottawa, Canada

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Original article: http://www.e-xecutive.ru/without/article_4953/

Republications:

01.2007   Amity Consulting