12 Mistakes of Russian SME's


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guest lecture @ LUT, march 2011

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12 Mistakes of Russian SME's

  1. 1. 12 mistakes of Russian SME Entrepreneurship<br />learning practical mistakes with academic background<br />March, 2011<br />
  2. 2. Market<br />St Petersburg & Moscow Construction Market<br />Procedural pecularities on how construction is done in Russia<br />Specifics of construction market segments & competition in it<br />
  3. 3. The outcome<br />A number of "on the road" notes - currently being turned into a new research paper<br />The story of how it usually is, and what can be done about it:<br />12 frequent mistakes* with cases from various companies<br />*Criteria for highlighting a mistake: met in at least more than 3 companies within operation network<br />
  4. 4. Mistake 1. High complexity of business ideas<br />No place for "simple truth" on a piece of cloth<br />Cultural / educational aspect<br />Systematic outcomes <br />The limits of understanding<br />Examples: architectural & design institutes, construction services <br />
  5. 5. Mistake 2. Lack of commercial vision<br />Supplier vs Customer<br /> <br />No vision of competition, no desire to improve quality<br /> <br />Short term orientation<br /> <br />No place for marketing. Advertising = Marketing here. <br />Prevalence of informal tools to compete + Bertran oligopoly competition<br />Example: construction materials dealers, local producers of construction materials<br />
  6. 6. Mistake 3. Lack of formal contract infrastructure<br />Poor quality of formal agreements between principals and agents<br />Informal relations instead of structuring business - yet informal contracts are also rarely formulated<br /> <br />Poor trust to papers, since "insitutes do not work", hard to use papers<br /> <br />This concerns both employees, customer/supplier relations, shareholders relations<br />Example: road construction workers, region cottage developers, construction material dealers<br />
  7. 7. Mistake 4. Mess in structuring<br />Inefficient structures: strange positions, double/triple responsibility schemes, poor understanding of "who, when, why & what" by employees.<br /> <br />Necessity of "account managers" - who have high knowledge of what's going on - agency problem, due to information assimetry<br />Example: construction firms, architectural design firms, etc.<br />
  8. 8. Mistake 5. Tradition of having corruption relations<br /> Any normal way to do business may be biased by having an already reached "behind the scene" agreement<br /> Lower price is not an argument. Higher price too. The margin and cash rule the game.<br /> It became a tradition.<br /> Firm has to pay higher margin for similar results then it would get merely by competing with price/quality<br /> <br />Examples: Moscow construction areas, architectural design agencies <br />
  9. 9. Mistake 6. Chaotic sales management<br />Highest salaries<br />Poor moral standards<br />Informal budgets<br />Contact / sales database belongs to…?<br />Example: construction dealer key sales managers<br />
  10. 10. Mistake 7. Paperwork cluttering<br />Getting simple, yet necessary paper for accounting / contract purposes may take ages<br />Getting an archive paper may be endless<br />Orientation: last come, first served. First get the new money, operations next.<br />Increase of lead time, poor customer service<br />Example: all construction market, especially logistics & construction material dealers<br />
  11. 11. Mistake 8. Responsibilities vs Actual Powers<br />Unwillingness of top managers to share powers<br /> <br />Not just strategic, but also operational issues <br /> <br />Necessity to negotiate with top managers all the time <br /> <br />Longer lead time, failures in delivering services<br />Examples: construction material productions,construction agencies<br />
  12. 12. Mistake 9. Erroneous complexity of financial issues<br />Most of value chains have their part of "hiding the money"<br />Forms of complexity: documentation insanity and artistic figures in final invoices<br />Incredible negotiations of what would be the final price, and how it should be in the books<br /> <br />Lead time losses due to unproductive activities, specific assets, trust issues, fear of lawless officials<br />Examples: all segments of construction market<br />
  13. 13. Mistake 10. Endless briefings<br />Poor briefings culture <br />Solve the very problems  on site, not beforehand<br /> <br />Probably started in USSR<br />May take up to 3-5 hours / briefing. Can be up to 10 briefings/project/week<br />
  14. 14. Mistake 11. Agreeing to perform without any grounds<br />Short term orientation of most SMEs comparing to large networks<br />Poor trust in smaller firms due to their irresponsibility of contracts<br /> <br />The price client pays for a smaller price of SME<br />It becomes the problem of the client<br />Examples: archit. design agencies, construction agencies, construction material dealers<br />
  15. 15. Mistake 12. IT piracy<br />Average poor IT knowledge <br />Lack of internal barriers to downloading pirated software<br />Lack of internal corporate software policies <br /> <br />Lack of knowledge regarding open-source software: Linux, OpenOffice, ServerSolutions, etc.<br /> <br />Source of possible corruption  threats<br /> <br />Examples:  Architectural design institute, geological surveying company<br />
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