This article presents the results and analysis of a survey, carried out in July 2009, of 50 CEOs and other executives in Russia, Ukraine, and Kazakhstan.
Based on the results of the survey and the interviews, the majority of the leaders has avoided or successfully overcome the unproductive defensive reactions discussed in the first issue of the Talent Equity Newsletter: they think first and only then do they act. In his interview, Mikhail Fridman mentioned that in a crisis it is essential to anticipate possible negative consequences and to preempt them with action. Other interviewees supported this view: taking a passive role, copying others or simply going with the flow is possible in a growing economy but extremely dangerous in present conditions.
An impressive 80% of survey participants stated that they had rethought the business environment, the business itself and its goals and created a comprehensive plan for working in new conditions (see Diagram 1). We are slightly more conservative in our estimation of the scale and depth of such rethinking. Though it certainly did take place in the majority of companies, many development companies and some banks failed to find satisfactory solutions and are still in confusion.
…people in Russia and post-Soviet countries are used to working with plans that consider a single course of events, while the modern economy requires that businesses be prepared for various changes in the environment.
Interestingly, our interviewees were not surprised by the advent of the crisis after a period of rapid growth, but they did not expect that it would be so deep or so lasting. This indicates a fundamental weakness of local managers — lack of scenario planning skills. People in Russia and post-Soviet countries are used to working with plans that consider a single course of events, while the modern economy requires that businesses be prepared for changes in the environment. Unwillingness to think about the worst-case scenario puts the leader in the dangerous situationof “being trapped by circumstances, losing control over the situation and acting only post factum,” in the words of Maxim Timchenko.
Unfortunately, even in times of crisis the majority of companies stick to linear planning. In his interview for Talent Equity Institute, Jostein Davidsen told us how a presentation he gave on “good,” “medium,” and “worst” scenarios and corresponding action plans was met with a lack of understanding and doubts that such severe damage to the market was possible. Almost half of the survey participants answered negatively or were undecided when asked if their companies had developed potential scenarios for how the situation can develop or action plans for them. Our own estimate is even lower: we believe that more than 80% of the companies work without any scenario development.
Representatives of hi-tech industries who participated in the survey were more likely to report that they work with scenarios than respondents from other industries. This is probably because the hi-tech industry is competitive, innovative and open to modern management tools.
Traditionally, crisis is considered to be a period for rapid acquisition and updating management knowledge. Our interviews with the leaders of successful companies support this idea: Rashevskiy and Timchenko were excited to tell us about the lessons they have learnt in the current crisis, while the more experienced Fridman and Davidsen spoke about how lessons from the 1998 crisis have helped them now. These lessons are concerned primarily with changing the leader’s mindset and vision of the business. For example, Vladimir Rashevskiy discovered for himself that the structure of a debt is much more important than its size. This might seem like a common sense management maxim, but the crisis has filled it with concrete relevance for Rashevskiy and he has made it part of his operational mindset.
…what are usually called hard skills – the knowledge of the industry, the technology and the competition – have played a massive role in overcoming the crisis.
Another lesson is in which managerial skills prove most crucial in crisis. What are usually called hard skills – knowledge of the industry, the technology and the competition – have played a massive role in overcoming the crisis. For example, Vladimir Rashevskiy commented that deep understanding of the banking sector helped find alternative sources of financing and was of great help in overcoming the crisis in SUEK. Maxim Timchenko highlighted the importance of understanding internal business processes and the ability to adjust them to a new reality. Some companies managed to put together a balanced business model before the crisis and some reconsidered after circumstances changed, having gained a deeper understanding of how the company earns money and how it can increase its profitability.
Another essential element is trust. As Mikhail Fridman said, “there are too many nuances, too many details that you cannot take into account if you are far from the process.” Managers are required to exert very high level of independence and responsibility, and the leader needs to trust his team. Trust is especially critical during crisis as managers need to make more independent and unconventional decisions than in periods of stable growth. Vladimir Rashevskiy emphasized that he is proud of his deputies and those who follow them; he is “inspired by their courage, their ability to solve most complex problems and take on responsibility in these turbulent times.” Maxim Timchenko believes that one cannot ask people to make sacrifices that the leader is not ready to make himself. Sustainable results are ensured by equal participation from the whole team rather than the leader heroically taking the whole burden upon himself or, alternatively, shuffling it all onto his employees.
As we expected, the majority of the survey participants agreed that the main focus of their activity is operational efficiency and solving day-to-day problems (See Diagram 3).
The vast majority of the participants denied that they are merely pretending to fight the crisis while in fact doing things the way they used to. However, our expert judgment is that approximately half of Russian companies, despite a lot of talking about the crisis and running “anti-crisis” programs, are not making any fundamental changes. This gives us reason to worry about the competitiveness of local companies and the future of our economy. (See Diagram 4).
Leaders in the professional services were more likely to answer this question negatively, than participants from other sectors. Professional services, as a rule, are “luxury goods” for their clients, and a lack of adaptability in crisis might mean a quick end to their business. Moreover, the main asset of such companies is people and the main source of costs is their salaries. Due to this and their relatively small size, companies specializing in professional services can change fairly easily depending on circumstances.
Undoubtedly, attention to current productivity, especially in an economic downturn, is a major component of effective management. However it should be supplemented with attention to people, however difficult combining these two paradigms might be. As Maxim Timchenko said, “It is hard to simultaneously be a leader who instills confidence and inspires people, and a manager in charge of anti-crisis measures. However, the CEO should be able to combine these two roles.” Based on the results of the survey,the majority of managers agree with Timchenko.
This is one of the areas where the opinions of leaders and their subordinates are substantially different. The latter clearly seek more attention from their leaders in situations of high uncertainty and emotional pressure. An employee of a large Russian company told us, “Our leaders have fenced themselves off from us with their offices, secretaries and security guards and shifted all the work of overcoming the crisis onto us. The only things that we receive from them are increased efficiency targets that are a priori unfeasible.
…about half of Russian companies do not give proper attention to corporate building and use the crisis as an excuse to freeze programs that could have brought benefits in the long run.
Another key role of a leader is organizational building and creating a basis for the long-term growth of the company. As Vladimir Rashevskiy puts it: “We laid off many people – and by far not all of them belonged to what is sometimes referred to as ‘deadweight’ – but we kept our corporate university running. We did not stop investing money and time in developing our people. We could, perhaps, survive without it, but we could not build anything serious – there will be nobody left to build.”
More than three quarters of the respondents said that they also continue to invest in their people (See Diagram 6).
Our assessment of this area is more modest than that of our respondents. In our opinion, about half of Russian companies do not give proper attention to corporate building and use the crisis as an excuse to freeze programs that could have brought benefits in the long run.
According to our survey, members of multinational companies are more likely to engage in corporate building than members of other companies. This is to be expected, as investing in the future is the basis of the competitive strategy for these companies.
There were only a few top-managers among the participants of our survey who admitted that they had fully discontinued all development programs. Notably the managers in real estate and construction have agreed more than others that development programs in their companies have been suspended. Such results are explained by the fact that the real estate market has suffered from the crisis more than others. As such, capabilities to continue development are extremely limited (another possible explanation is that the words “development program” can be interpreted differently in construction and real estate language).
One of the more surprising discoveries of our research was how highly the CEOs we spoke to value collective management in crisis. Contrary to the popular lay belief that a decisive, uncompromising and individualistic leader is the best option in a crisis, Mikhail Fridman emphasized that “individually, any person’s brain is imperfect, but if the right ‘chain of brains’ which oppose each other – in the good sense of this word – is organized, then, as a whole, the power of this collective brain certainly exceeds the power of any individual brain, even a very clever one, even one of a near-genius.”
The leaders whom we interviewed emphasized two fundamental stages: first, the leader needs to build up a team of people on whom he can rely, who are “on the same wave length” and who understand the essence of the business and specifics of working in this country. Second, the manager needs to become a team player who, according to Mikhail Fridman, “does not just subordinate others, but who can also comply with collective decisions if needed. ”There is a widespread opinion that the cohesiveness of a management team is its main advantage in the crisis. Contrary to this belief, we hold that an effective team is not so much a group of people who agree with each other and think in the same direction, but rather opponents to each other who reach creative and balanced decisions together which they would not reach individually through constructive debate and reasoning.
It is always important for employees to understand a company’s goals and actions. However, in times of crisis people feel a special need for answers to their questions, explanations about what the prospects are and what their personal contribution to further progress can be. We addressed this topic in the previous issue of Talent Equity Newsletter.
…the crisis turned out to be a complete surprise for young employees and an absolutely new life experience.
The current situation is unique in that many young employees are experiencing crisis for the first time in their professional career. During the last 10 years of economic growth they became used to frequent raises in their salary, promotions, and constant improvement of work conditions. As Jostein Davidsen mentioned in his interview, “they saw 10 years when it has only been going one way. But life doesn't go only one way!” The crisis turned out to be a complete surprise for them and an absolutely new life experience. How is communication within companies organized in these conditions?
The majority of survey participants believes that they devote a lot of time to communicating with personnel, are available for their questions, and frequently and openly speak about the reasons for the crisis and the prospects of overcoming it (See Diagram 7).
The leaders of companies working in the retail industry and consumer goods and services, as well as those in the media, advertising and entertainment businesses consider themselves more accessible to personnel than respondents from other industries; while the opposite was true about top-managers in manufacturing. These answers likely reflect the actual state of affairs as the competitive environment in retail trade (unlike manufacturing) forces managers to improve the quality of management, which is impossible without smoothly running internal communication. Organizational structures in media, advertising and entertainment are normally flat, people are quite mobile, and the final product is the result of creative collaborative effort. The culture itself creates favorable conditions for effective internal communication. It is hard to say the same about manufacturing: as a rule, there is considerable physical and psychological distance between the management and the workers, and neither the structure nor the culture encourages openness or ease of internal communication.
Thus only 22% of the participants are absolutely sure that their companies have a plan of internal communications (See Diagram 8).
In our opinion, communication is another “blind spot” of typical leaders and the respondents overestimate their own achievements in this area: by our estimation no more than 10-15% of companies are really effective in crisis communication. In all of these companies, internal communication is subject to the close attention of the CEOs as in SUEK and DTEK. You will find interviews with these companies’ leaders in this issue of Talent Equity Newsletter.
We do not wish to impose our own view of leadership in crisis on the reader; however, in conclusion we wish to draw attention to a few trends.
The first is that leaders in Russia, Kazakhstan, and Ukraine are learning more and more about how to manage in crisis. This is not simply abstract knowledge obtained from external sources but behavioral precepts resulting from making sense of their own and others’ experience. These precepts do not always result in correct actions, but they create a strong basis for wise decisions in the future.
The second is that in crisis, the most effective leaders are the ones who combine a focus on results with interaction with people, who possess both professional and social knowledge and skills, and who are able to think, act, and empathize. Leadership in crisis is not linear; it is multifaceted and requires a number of professional and human qualities.
Thirdly, most leaders overestimate their achievements in managing their employees, and live in a fantasy world – staying impassive while they should be correcting their action. The absence of feedback culture in many Russian companies ensures that this potentially explosive situation will endure.
Finally: the crisis has proven that in the modern economy, no man is an island. Even the most ingenious leader needs like-minded people around, needs collaborative opponents, and needs people who share his goals and values and make their contribution. In other words, he needs a Team.
One of the important lessons for leaders today is that they have to learn to work in conditions which they did not expect.
About the survey
The survey was carried out in July, 2009 among 50 CEOs and top-managers in Russia, Ukraine and Kazakhstan. The sample included respondents from a diverse set of industries: hi-tech, manufacturing, construction and real estate, financial and professional services, retail and consumer market, including pharmaceuticals, media, advertising and entertainment. The distribution of respondents among the industries was the following (some respondents specified that their companies operate in more than one sector):
The distribution according to the geography of operations and the number of employees was as follows:
The distribution according to position was as follows:
The survey was carried out online and consisted of nine statements. Respondents were asked to what extent they agreed or disagreed with the statements on a five-point Likert scale.
In addition to distribution analysis we performed a regression analysis – statistical research of correlation between variables that helps determine the contribution of an independent variable (for instance, the industry that the respondent belongs to) to the dependent variable (the degree of agreement or disagreement with a statement) all else being equal (for example, the size of the company). Such analysis helps distinguish groups of respondents who agree with a certain statement significantly* more or significantly less.
* i.e. the probability that our conclusions are a result of a random coincidence is no more than 5 %.