Organizational Practices In Romania

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Organizational Practices In Romania

  1. 1. Organizational Practices in Romania and US: Are We So Different? Organizational Practices in Romania and US: Are We So Different? Matt Aiello Awilda Borres Madalina Bucor December 7, 2008 Organization Management CR 505 DeSales University 1
  2. 2. Organizational Practices in Romania and US: Are We So Different? Introduction In the fall of 2008, three MBA students from Romania and US convened a roundtable on Romanian and Anglo-American management practices. Over the course of several weeks, the roundtables covered four organizational themes: Coordination, Courage, Collaboration, and Creating Change. This article is a summary of their dialogue regarding organizational practices, based both on their experience and empirical research. Although all three came from different backgrounds, they shared a common experience and expectation: all experienced economic shifts in their countries and belief that the modern organization as it exists today, should radically change. A brief background on participants of the roundtable: Matt Aiello started and manages a small waste management company in the US. Prior to starting his own company, he worked in multiple industries, which provided him a broad view of different management styles and industries. Awilda Borres is currently Director of Organizational Development with Merck & Company, a global pharmaceutical firm, and has over 15 years of experiencing in designing and leading large-scale change in large corporations. Madalina Bucur is currently an assistant manager and regional selling manager with Bucur Grup Automobile, a mid-sized automobile distributor and service organization in Romania. Madalina is also a subject matter expert in Informatics and Computer Science. 2
  3. 3. Organizational Practices in Romania and US: Are We So Different? Context 1. What changes have you seen in the way managers lead their organizations in the last 10 years? How much does the general economic and social environment (culture) influence organizations and management styles? Awilda: I have worked in numerous countries but not extensively in Romania-so so my statements are based mostly on my research and conversations with colleagues in Romania and Eastern Europe: it is my opinion that national culture has more influence on corporate culture than previously believed, even in 2008. We also now have empirical findings supporting the impact of this factor1. Romania was a socialist country and highly regimented, i.e., command and control, as exhibited by its planned economy. It was not until the 'revolution' in 1989 that Romania abandoned the command economy model. It is almost 2009, so practices such as competitive and open markets are still relatively new, at least from my experience. Though much reform and progress has been made, there are still fundamentals such as productivity which consumes management time and effort. It seems time would be best spent on understanding how to shift culture, though more difficult, the return on investment would benefit any firm. Madalina: I would agree the change was not realized at once. It was only after 40 years of Communism, Romania joined the capitalist market economy. It has 1 Peretz, H. and Fried, Y., National Values and Performance Appraisal Practices, and Organizational Performance: A Study Across 21 Countries, p.3. Our expectation is based on the model of culture fit, or MCF (Aycan, 2005), which was proposed by Kanungo and his associates (Kanungo and Jaeger, 1990). The MCF suggests that national culture affects employees are exposed to an HR activity that does not fit the national culture they will tend to respond negatively (Aycan 2005). 3
  4. 4. Organizational Practices in Romania and US: Are We So Different? been a complex process, which needed time and a shift in the Romanian people’s behavior. Understanding the backdrop in which Romanian companies operate is critical for any manager: The transition toward the market economy started in 1990 and during the period 1990-1995, many small and middle size enterprises (SMEs) were created due to the existence of unexploited market niches and the enterprising Romanian spirit. A second phase of revitalization commenced after 2000, due in part to Romania's entry to into the European Union and the investment of multinationals in Romania. During the Communist period, Romania experienced a highly centralized system of management, which made initiative, critical thinking and innovation dangerous. Nevertheless, these are the very qualities which are required in management in a democratic market economy. Matt: From a small business perspective, large corporations and franchises are 'taking out' small businesses in all industries in the US. Small business managers in the last ten years have been fighting to survive more than ever--they have to look for ways to innovate and cut cost. It is getting more and more difficult for small businesses to compete across the board; large corporations have the resources and capability of delivering cheaper products and services. So small businesses must create a niche, or a specialty to grow if they are to survive. I believe that the current economic situation and consumer culture in America does impact small firms and how they are managed. The US consumer 4
  5. 5. Organizational Practices in Romania and US: Are We So Different? is turning from small business and to large conglomerates. Why? A better product at a cheaper price. Also these large corporations have monstrous advertising budgets at their disposal which influence or instructs consumers where and how to find their services. But it would be unfair to lay all of this at the feet of the American corporation or consumer—small business have made mistakes by inefficient or poor management practices, which result in bad service or poor products. We have entered a new age in America—before there was an equal playing field in the US--now corporations are slowly taking over markets traditionally served regionally or locally by small firms. 2. What are the key challenges facing management in your respective organizations? Matt: As you know I work in the waste management industry. Currently, there are three large corporations that have close to 85 percent of the entire market share in the waste industry. Due to size, they have been able to purchase most of the smaller companies throughout the US. Though they can offer cheaper services and better rates to commercial and residential customers, some smaller companies have been able to compete (mostly in the states of New Jersey, New York and Connecticut). But since the economic crisis, the managing costs across the waste management industry have increased and we have been forced into a price war by larger competitors. So in my opinion, the key challenges for small business managers in industries like mine and other managers in small organizations: 5
  6. 6. Organizational Practices in Romania and US: Are We So Different? 1) how to manage more efficiently, cut costs, and 2) how to differentiate our services in a unique manner so that customers remain loyal and paying customers during an economic downturn. Madalina: First, the Romanian market is often characterized as an quot;unstable and an atypicalquot; market, which means in most cases one cannot really predict what is going to happen, or to make plans based on the market. Yet there are success stories, such as Carrefour and Renault. Both firms (retail and auto manufacturer) primarily entered the market based on market studies--a huge risk. Yet now Carrefour Orhidea, located in Bucharest, is the second largest revenue stream for the entire company. Likewise, it was Renault's intent to produce only the Logan model in Romania, but now Renault operates a techno centre with multiple products lines in Bucharest. 2) The second challenge is the rapid change of economic legislation, which makes it difficult to develop and implement financial and strategic planning. 3) The third challenge is the educational system which does not stimulate creativity or correlate theory with practice. As a result the majority of university graduates are not well prepared for the challenges in the real market or workplace. The facts mentioned above affect all the companies--in fact, the small and medium size firms (as the one I work for) are mostly affected by the lack of well 6
  7. 7. Organizational Practices in Romania and US: Are We So Different? trained employees and specialists. But this does not only affect employees, let me share some facts about 'the typical Romanian manager': In the 1990s, college graduates were reticent to work for an international company, preferring to work for a state company. Although 26% of Romanian managers have some form of formal education, they were not actually prepared to think and act commercially. In the last years there have been made major investments which have resulted in the growth of corporations and transfer of managerial know-how. Based on a survey2 realized of 850 companies in 21 counties (judete), this is a portrait of the typical Romanian manager: adult male (75.5%), highly educated (48% technical, and 26% economical high education), and diligent (more than 50% work at least a 60 hours week). Though most managers were trained in Western countries or are expatriates, they rarely set strategies or establish objectives in their organizations--they adhere and follow policies, strategies set from headquarters, typically a multinational. In contrast, the typical company in Romania has one or more business partners, many with family members involved in the business and ¾ of all managers are married. 4) Finally, the last challenge is connected to the last challenge regarding size of companies-- access to loans for investments and funds for innovation is difficult, given that more than 60% of a small and medium size firm turnover is due to the amount of taxes paid to the Romanian State. As a footnote, this week (first week 2 O.Nicolescu,A.I.Maniu,C.Nicolescu,F.Anghel: White Chart of Romanian SMSs in 2007, Olimp, Bucharest, 2007 7
  8. 8. Organizational Practices in Romania and US: Are We So Different? of Dec 2008) the Romanian government passed a plan to stimulate investment on behalf of companies. In 2009, taxes will be reduced and funds must be reinvested into innovation practices and plans. At the same time, national banks increased interest rates to 23-25%, making it difficult for businesses to secure loans. Coordination 3. How does management communicate to their employees? To each other? What tools are available to employees? Matt: From a small business perspective, this is straight-forward due to the smaller staffs in these organizations—simple and direct. Even if the staff is larger, it is nowhere near the size of a corporation such as Merck with over 40,000 employees! However that is not to say management in small organizations do not have their challenges, for example, there may be more politics among employees. There is a higher likelihood of developing personal relationships which is positive but also potentially a risk because they may know more about each other than about the performance of the small firm or the industry. Small organizations often do not have large intranets and extranets at their fingertips, so communication about the business and industry can be limited compared to how large corporations communicate daily instantly globally to their employees. 8
  9. 9. Organizational Practices in Romania and US: Are We So Different? Madalina: If we view Romania using Hofstede’s cultural dimensions, one could say that the culture in Romanian organizations have a low uncertainty avoidance ranking, which means a ready acceptance of change and greater tolerance for risk-taking. The research indicates a short-term orientation, and a higher power distance, which can indicate the absence of a balance of power within society. This means, individualism is more prevalent than collectivism, which is helpful to understand how managers and employees approach their work in this culture. From my experience I would agree with the research. For example, generally Romanian firms have a greater number of hierarchical levels than their international counterparts. As mentioned in a previous roundtable, autocratic management style and culture is typical, and participative management is seldom to be seen or actualized. Managers as well as the employees prefer face-to-face communication. E- mails, memos and briefings or the company intranet are less used. Both managers and employees are less formal about delegation and conducting meetings. In the multinational companies it is different: processes are more formalized and communication is done by electronic means. Important to note is that communication at the same level is slight or minimum, dependent if information is required to fulfill her/his own tasks. Everybody is focused on accomplishing their objectives and tasks, and less interested in how decisions, outputs affects a peer's tasks or the company’s 9
  10. 10. Organizational Practices in Romania and US: Are We So Different? performance. Hofstede's framework seems to validate the individualistic tendency of employees: it can be both positive and a negative in multinational companies, I think. Courage 4. Is speaking up or risk-taking acceptable or common? Is it rewarded? Madalina: Managers do not usually involve the employees in the strategic and tactical planning of processes of the company. Although there is a big gap between them, speaking up is acceptable as long as debate on the topic is encouraged. Romanian firms are only now placing importance on strategic planning, as stated earlier. On a day-to-day basis, employees take risks, but in most cases they are not aware of their consequences later in the process or to company performance. If the result is satisfactory, then it is considered as part of successfully completing one's job, and possibly a bonus or salary increase is given. 5. What kind of influence (power) does middle management have? Matt: Given our assumption: a small business is a company with less than 100 employees, I need to state that middle management is not needed in this size organization. However, it is my experience that entrepreneurial individuals are attracted to small organizations because they may have more' power', authority, or direct reports (as opposed to a corporation). 10
  11. 11. Organizational Practices in Romania and US: Are We So Different? Madalina: Middle management influence in initiating and influencing strategic decisions is quite low-- it is more about informing top management about what how goals are met/not met. (There are qualitative studies to substantiate this). Middle management exert their influence on lower levels with the objective of coordinating and controlling objectives and outputs. 6. What kind of influence do more “senior” employees have? Women? Matt: In this arena, I think small companies definitely have the edge and competitive with larger corporations for the following reasons: 1) Senior employees at small businesses are usually employed longer than they are at large companies, sometimes until they retire. The corporate world is more fast-paced, and driven by results. I believe small businesses care more about employees, and less quick to lay-off talented employees. 2) Employees in small companies is a huge capital cost, so management does not want to lose talented performers as it more expensive in the long-run. This is why I believe there are more women in senior management and as owners of small to mid-sized companies in the US. Regardless of your gender, if you are talented and a proven performer, the playing field is equal —which is different in large organizations in the US. Madalina: Now that is a definitely a surprise! I would have expected more progress in the US. In Romania, more and more women are in leadership 11
  12. 12. Organizational Practices in Romania and US: Are We So Different? positions, and recently there has been the recognition of the top 300 businesswomen in the country. Nevertheless men are predominant in leadership positions. A survey done in Romania3 shows that the main criteria for promotion are: results (79.50%), potential (16.15%), age and experience only 4.35%. The criteria used for determining salary level does not take into account the person’s gender. Education, the person’s position and the results are of primary importance. Senior people in a company usually receive a bonus, but that does not mean they possess greater power or influence than junior managers. Collaboration Are teams common in organizations? (quality circles, cross-functional or self- 7. directed teams) Madalina: In the last few years Romanian companies have become more and more aware that in order to solve some problems or to innovate it is necessary to create teams. Inside of a company, industry, company size, it is possible to find quality circles, cross-functional or self-directed teams. Although Romania is seen as more as an individualistic than collective society, the employees, especially new hires, have adapted rapidly to newer forms of organizations and practices. We are seeing more cross-functional teams comprised of different departments to solve a common problem. In my company, teams have been 3 D.Popescu, I. Verboncu, I.Chivu: THE EUROPEAN DIMENSION of the HUMAN RESOURCES MANAGEMENT - A NEW PERSPECTIVE FOR ROMANIA, ASE, Bucharest 12
  13. 13. Organizational Practices in Romania and US: Are We So Different? established to launch new products and to achieve corporate-wide investment objectives. Matt: I believe there are fewer teams in small business because teams require so much time and resources. Management is always concerned that all employees and processes operate effectively, but management has to be efficient as well. Also, it is a risk to create teams just for the sake of creating teams—it can backfire in small organizations as teams may focus more on how they are working together than on the work itself. Creating Change 8. There is internal and external pressure to change corporations and reinvent management (see Hamel). Do you think this is possible in your company? 9. How quickly does change tend to happen in your industry? Is change introduced and managed top-down (defined by the industry or upper management) or bottom-up (employees)? Matt: As a whole, I believe there are always external pressures to reinvent management. In order to succeed in the waste management industry in the US, first one must reinvent business operations---every cost you can cut has to be cut--this includes equipment, advertising cost billing, and yes, employees as well. As a manager and entrepreneur, I need to think innovatively about how to operate efficiently as well as new sources of profits. Operationally, I think about 13
  14. 14. Organizational Practices in Romania and US: Are We So Different? e-bills for billing and advertising online to customers. As an innovator, I think about how to eliminate the manual labor involved in waste management such as residential incinerators or automated waste collection. These innovations would change the whole landscape of the waste management industry yet impacts how I think about my business today. Madalina: As we discussed in an earlier session, employee attachment to a 'corporation' is low, and mainly dependent on how much his/her own interests are satisfied. In this there is a strong similarity with the individualistic culture in the US. However, the use of external compensation as motivator and reward for performance differs from US reward systems in that position and years of service (seniority) is a consideration (though not the only factor). Regarding change and innovation, in 2007 a study conducted by the National Council of Small and Medium Sized Private Enterprises in Romania (CNIPMMR) revealed that innovative efforts within SMEs were especially focused on new products (34.87%), new technologies (26.99%), new managerial and marketing approaches (15.92%), renewing the informational system (13.77%) and human resources training (13.46%). According to this chart, (see Table 1) you see there are companies with no innovative approaches at all in 2007 (21.18%) ! 14
  15. 15. Organizational Practices in Romania and US: Are We So Different? Table 1 Innovative efforts within SMSs in 2007 34.87% 40% 26.99% 21.18% 15.92% 13.77% 13.46% 20% 0% new products new no innovation new new human technologies activities managerial informational resources and marketing system training approaches I do need to state that the study did cite over 25% of management respondents intention to overhaul or restructure their management structures and systems— indicating the growing need to innovate management practices. The respondents included management from small to large corporations in Romania. Matt: These roundtables have been interesting in how more alike we are than not—in my industry change also happens from the top-down. It is unavoidable in a small organization. In fact, building a positive company culture and sustaining a healthy, growing small firm depends on your ability to manage change effectively. As a small business owner, you owe it to yourself and to your employees to be the best change leader one can be, and understanding key industry drivers is the first step. Awilda: Typically western corporations still adopt a classical change approach to deal with change. By a classical change methodology, I mean: 15
  16. 16. Organizational Practices in Romania and US: Are We So Different? 1) top-down, defined and led by current management 2) project or process management approach, such as Sigma, and 3) focus on restructuring. It is the same in the US as in Romania: years of institutional, bureaucratic thinking is difficult to change in a few months—thus managers spend years reorganizing and redesigning processes.4 The paradox underlines the issues with the pharmaceutical industry and corporate management today: C level executives consider human capital as the competitive differentiator, especially in the research and development of new drugs and vaccines. Yet we have just started experimenting with bottom-up change: engaging employees to shape strategy and as leaders of change. Closing Comments Madalina: If Romanian companies want to be more competitive, there must be more focus on innovation. In his book “The Future of Management” Gary Hamel asserts that if a company wants to cope with globalization and accelerate change, the company must become a quot;serial innovatorquot;, and the only innovation that offers a durable competitive advantage, is management innovation. To achieve this goal a company has to commit itself to a bold goal, to deconstruct the management orthodoxies, to embrace new principles and learn from positive deviants within their organizations. 4 Van Frausum, Y.G., Gehmann, Ul, and Gross, J. quot;Market Economy and Economic Reform in Romania: Macroeconomic and Microeconomic Perspectivesquot;, Europe/Asia, Studies, Vol.46, No.5, 1994, 735-736. 16
  17. 17. Organizational Practices in Romania and US: Are We So Different? As I pointed out in earlier roundtables, Romanian management are not captive to hierarchical management orthodoxies--this does not mean that these principles are unknown but most Romanian managers lead instinctually. This may actually prove to be an advantage to new principles and practices. In my opinion, unlike the American management, the Romanians should see management innovation in the opposite way—that is to formalize the existing practices while not adopting large corporate cumbersome practices—always look for positive deviation from today's practices. This is the real opportunity for Romanian companies in today's global competitive marketplace. Matt: Given today's competitive pressure, customer demands, regulatory requirements, supply upsets, and technology breakthroughs --change is no longer the exception—it is now 'The Rule.' Unfortunately, in the US, 80% of change initiatives fail to meet expectations5, regardless of the transformation: IT innovation, re-engineering, lean manufacturing, merger, or acquisition. So the reality for small or large organizations is that the global landscape and playing field has changed forever. From what I see in the US, there are few senior business leaders and executives able to absorb this fact--which means there will only be a few who will make it in the new economy—statistically this means 20% or less will survive in the long-run. 5 Smith, M. E., quot;Success rates for different types of organizational changequot;, Performance Improvement, 41 (1), 2, 2002. Initiative Failure Rates: Culture Change (81%), Business Expansion (80%), Software (74%), Re- engineering (70%), M&A (67%), TQM-Driven Change (63%), Restructuring (54%). 17
  18. 18. Organizational Practices in Romania and US: Are We So Different? Awilda: Matt's statement reminds of a Romanian saying: 'Brains take a long time to thaw out after a hard winter'--management are still thawing to the possibilities of new ways of managing.6 Companies are seeking ways to adapt to disruptive technologies and economies. It is a fact that large companies are still instrumental in introducing new practices, technology, ideas, especially in emerging markets--however Madalina is on point to caution that managers should not adopt processes without critically assessing their value. The same institutions driving changes are feeling tremors in their own executive suites. It is not only Hamel who questions if managers today can envision and be the architects of tomorrow. Personally we can no longer afford be spectators on the sidelines, criticizing management—we need to get on the field and shape game plans and even the game itself. Appendix Strategic Planning Activities and SMEs Of the 54.84% of small and medium enterprises (SMEs) which develop annual strategic plans, 13.58% are involved in strategic planning activities, and 34.10% are not preoccupied with any planning activity at all. In order to understand the degree to which management is involved in strategic planning, 7 one must also take into consideration the firm's experience on the market (and in most cases this means management also). 6 Dalton, K., Kennedy, L. quot;Management culture in Romania: Patterns of change and resistance,quot; Journal of East European Management Studies, 2007. 7 O.Nicolescu,A.I.Maniu,C.Nicolescu,F.Anghel: White Chart of Romanian SMSs in 2007, Olimp, Bucharest, 2007 18
  19. 19. Organizational Practices in Romania and US: Are We So Different? Table 2 % Involved in SME Length of Time Under 5 5-10 years 10-15 above 15 Strategic years years years Planning Involved in annual 56.07% 54.36% 52.56% 57.43% strategic planning process Involved in 3-5 13.18% 11.50% 15.06% 16.83% year strategic plan No involvement in 33.59% 34.96% 34.11% 34.00% strategic planning Bibliography Ben-Ner,A., and Montias,M. ”The Introduction of Markets in a Hyper centralized Economy: The Case of Romania.” Journal of Economic Perspectives, Vol. 5 No. 4 (1991), pp. 163-170. 19
  20. 20. Organizational Practices in Romania and US: Are We So Different? Birdi,K.” The Impact of Human Resource and Operational Management Practices on Company Productivity: A Longitudinal Study.” Personal Psychology, (2008), pp. 467-501. Carter, E. ” Successful Change Requires More Than Change Management.” The Journal for Quality and Participation, (Spring 2008), pp. 20. Dalton, K., Kennedy, L. quot;Management culture in Romania: Patterns of change and resistance,quot; Journal of East European Management Studies, 2007. Fligstein, Neil. quot; Theoretical and Comparative Perspectives on Corporate Organization.quot; Annual Review of Sociology, Vol 21 (1995), pp.21-43. (http://www.jstor.org/stable/2083402) Frenkel,M. “The Multinational Corporation as a Third Space: Rethinking International Management Discourse on Knowledge Transfer through Homi Bhabha.” Academy of Management Review, Vol. 33 No. 4 (2008), pp. 924-942. Gittell, J.H., Seidner, R., Wimbush, J. quot;A Relational Model of High Performance Work Systemsquot;, International Journal of Human Resources, Vol.11, No. 3 (2000), pp. 512-522. Gross,J. ”Market Economy and Economic Reform in Romania: Macroeconomic and Microeconomic Perspectives.” Europe-Asia, Vol. 46 No. 5 (1994), pp. 735-756. Hamal,G. ”Management Innovation.” Academy of Management Review, Vol. 33 No. 4 (2008), pp. 825-845. Hoffman,G.quot; A Comparative Analysis of Romania, Yugoslavia, and Greece.quot; Annals of the Association of American Geographers, Vol. 57.No. 4 (Dec,. 1967), pp.637-666 (http://www.jstor.org/stable/2561765) 20
  21. 21. Organizational Practices in Romania and US: Are We So Different? Nicolescu, O., Maniu,A., Nicolescu, C., Anghel, F. White Chart of Romanian SMSs n 2007.” Olimp, Bucharest, 2007. Nohria, Nitin, and Khurana Rakesh.” It’s Time to Make Management a True Profession.” Harvard Business Review, (2008), pp. 70-77. Peretz, Hilla.” National Values, Performance appraisal practices and organizational performance: a study across 21 countries.” Best Paper Proceedings, Academy of Management, August 2008. Popescu, D., Verboncu, I., Chivu, I.” The European Dimension of the Human Resources Management: A New Perspective For Romania.” ASE, Bucharest. Smith, M. E., quot;Success rates for different types of organizational changequot;, Performance Improvement, 41 (1), 2, 2002. Smith, V., quot;New Forms of Work Organization,quot; Annual Review of Sociology, Vol.23 (1997), pp. 315-339. Van Frausum, Y.G., Gehmann, Ul, and Gross, J. quot;Market Economy and Economic Reform in Romania: Macroeconomic and Microeconomic Perspectivesquot;, Europe/Asia, Studies, Vol.46, No.5, 1994, 735-736. 21

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