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STROI-network - BUSINESS NETWORKS IN RUSSIA FINAL REPORT 2009
STROI-network - BUSINESS NETWORKS IN RUSSIA
FINAL REPORT 2009
Niittymäki Seppo, Tenhunen Lauri, Weck Marina, Lod Timo, Tolonen Teuvo, Kähkönen Kalle, Nippala
Eero, Perälä Anna-Leena, Riihimäki Markku, Minina Vera, Dmitrienko Elena, Krupskaya Anastasia,
Filinov Nikolay, Tretyak Olga, Settles Alex, Bek Nadejda, Buzulukova Ekaterina, Popov Nikita,
Rozhkov Alexander and Vladimirova Nina
Niittymäki Seppo, Tenhunen Lauri and Weck Marina, Lod Timo, Niittymäki Seppo and Tolonen Teuvo,
Kähkönen Kalle, Nippala Eero, Perälä Anna-Leena and Riihimäki Markku, Minina Vera, Dmitrienko Elena
and Krupskaya Anastasia, Filinov Nikolay, Tretyak Olga, Settles Alex, Bek Nadejda, Buzulukova Ekaterina,
Popov Nikita, Rozhkov Alexander and Vladimirova Nina
STROI-network - BUSINESS NETWORKS IN RUSSIA
FINAL REPORT 2009
ISBN
ISSN
978-951-784-512-0 (PDF)
1795-424x
HAMKin e-julkaisuja 3/2010
© HAMK University of Applied Sciences
PUBLISHER
HAMK University of Applied Sciences
PO Box 230
FI-13101 HÄMEENLINNA, FINLAND
tel. +358 3 6461
[email protected]
www.hamk.fi/julkaisut
Hämeenlinna, March 2010
STROI-NETWORK
- BUSINESS NETWORKS IN RUSSIA
FINAL REPORT 2009
PART 1: BUSINESS SUMMARY
23.2.2010
Finland
HAMK: Niittymäki Seppo, Tenhunen Lauri and Weck Marina
TUT:
Lod Timo, Niittymäki Seppo and Tolonen Teuvo
VTT:
Kähkönen Kalle, Nippala Eero, Perälä Anna-Leena and Riihimäki Markku
Russia
GSOM: Minina Vera, Dmitrienko Elena and Krupskaya Anastasia
HSE: Filinov Nikolay, Tretyak Olga, Settles Alex, Bek Nadejda,
Buzulukova Ekaterina, Popov Nikita, Rozhkov Alexander and
Vladimirova Nina
1
Contents
Contents .................................................................................................................... 2
Foreword and Introduction ............................................................................................ 4
Background Information .................................................................................... 4
Motivation, objectives and contents ..................................................................... 4
Research approach and methods ......................................................................... 7
1
Business
Grönfors
1.1
1.2
Sector (P 1) Markku Riihimäki,
Eero Ni ppala, Anna-Leena Peräl ä and Tuul a
................................................................................................................ 9
Selection of Network Business Sector ............................................................ 9
Forecast Model ........................................................................................ 10
2
Vision of Network in Future Business Networks (P 2) .................................................. 12
2.1 Corporate Cooperative Relations and Visi on Process as it s Development Tool:
Markku Riihimäki and Anna-Leena Perälä..................................................... 12
2.2 Vision Process of Business Network: Kalle Kähkönen and Pekka Huovila ........... 14
3
Competence of Human Resource Managemen t (P 3) Ver a Minina, Anastasia Krupska ya
and Elena Dmitrienko ............................................................................................ 16
3.1 Entering R ussian Con struction Market: C hallenges f or HRM
in Fi nnish
Companies .............................................................................................. 16
4
Strategic Process of Finnish Construction Companies Building Networks in Russia (P 4) ... 19
4.1 The Evaluation of Perce ptions of Finnish a nd Russian Manager Rega rding the
Organization Learning Potential of Their Firms: Alex Settles ........................... 19
4.2 International E xpansion St rategy an d Strategic Control: Nadezda Bek and
Nina Vladimirova ...................................................................................... 22
4.3 Decision-making: Nikolay Filinov ................................................................ 26
5
Customer Perspective and Marketing (P 5) ................................................................ 28
5.1 Developing Marketing f or the Network: Ol ga Tretyak, Ekateri na Buzul ukova,
Alexander Rozhkov and Nikita Popov........................................................... 28
5.2 Building T rust in C ounterweight to Risk s P erceived in F innish-Russian Int erOrganisational Relationships in Construction Business: Marina Weck................ 33
6
Performance Measurement & Strategy Implementation (P 6) Seppo Niittymäki .............. 37
6.1 Special Character of Russian Business Environment ...................................... 37
6.2 From Balanced Score Card to Network Score Card ........................................ 38
6.3 A Model for Strategic Planning
and St rategy Imple mentation in Projec t
Business ................................................................................................. 38
6.4 Performance Measurement in Business Networks in Russia and Finland ............ 39
7
Conclusions and future objectives ............................................................................ 42
Table of Figures ......................................................................................................... 43
2
Abstract
HAMK University of Applied Sciences, Tampere University of Technology and VTT
Technical Research Ce ntre of Finland are carrying out a common research
project STROI Network togethe
r wi th Ru ssian Uni versities. The Russi an
universities are St ate Un iversity Higher School of Ec onomic from Moscow a nd
State University Graduate School of Management from St Petersburg.
The objective of the project is to find out pre sent mana gement and leadership
models suitable for
Finnish construc tion companies and relat
ed services
networking in Ru ssian market en vironment. Research w ork is div ided in to t wo
main phases:
1. Management and leadership mode
ls and performance measurement
indicators applied at present in
business networked companies and
organizations (during 2008) in Finland. Work ha s been concentrating
more on management tools than leadership issues.
2. Developing applicab le management and
leadership models
and
performance measurement indicators for Finnish companies and business
networks operating in Russia (d uring 2009 ). De veloping manage ment
tools should not be the only issues, as in Russia leadersh ip activities have
more emphasis than in Finland.
Foremost, research is based on qualitat ive a nalysis and constructive approach.
Interviews have been carried out in
Finland and in Russia by Finnish and
Russian researchers. The empirical results ha ve been analyzed and introduced
at several international research conferences and seminars.
The resu lts in dicate t hat man agement an d leadersh ip models an d perf ormance
measurement i ndicators shoul d be adjusted n ot onl y accordi ng to product and
business sectors, but also according to the Russian business culture. Finnish
companies seem to have extreme difficult ies to appl y matrix type or ganizations
in the Russian context, as Russian management practices are based traditionally
on st rong and aut horitarian lead ership. How ever, clear an d specif ied t argets
should be set for business units or
lines in the strategic management of
networked company. Targets should be do cumented and agreed upon with
managers and sta ff of the company and business network. Al so, scenarios and
requirements of development of business environment should be followed up
and documented in order to react fast, if real development is not in parallel with
the selected scenario. Recommended perf ormance measurement indicators will
be introduced in this report.
Project reports are divided in two parts:
1. Business summary representing the final results (This report).
2. Academic articles of Finnish and Russian researchers including literature
review, research methods, results and findings on the basis of experience
and interviews as well as discussion.
Reports and Power Point presenta tions fo r each perspective are ava ilable from
the project web-site www.hamk.fi/stroi.
Results are based on approxima
questionnaires.
tely 200 face-to-face interviews and survey
3
Foreword and Introduction
Background Information
HAMK University of Applied Sciences, Tampere University of Technology and VTT
Technical Research Ce ntre of Finland are carrying out a common research
project STROI Network togethe
r wi th Ru ssian Uni versities. The Russi an
universities are St ate Un iversity Higher School of Economic from Moscow a nd
State University Graduate School of Management from St Petersburg.
Research is f unded by T EKES, part icipating c ompanies, and Finnish as well as
Russian research institutions are involved.
Co-operation companies and member of management group are shown in Figure
1. Dr. Olli Niem i acted as a chair
of the management group. Research
organizations and researchers are listed below.
Co‐operation companies
HAMK:
Contact person
Mika Räty
Matti Mikkola
Pertti Tammivuori
Hannu Markkanen
Markku Lundström
Jouni Haajanen
Company
Konecranes Heavy Lifting Oy
KPM-engineering Oy
Lassila&Tikanoja Oyj
GTT Oy
Forssan metallityöt Oy
Kehittämiskeskus Oy Häme
Web-page
(www.konecranes.com)
(www.kpmeng.fi)
(www.lassila-tikanoja.fi)
(www.cloudberry.fi)
(www.forssanmetallityot.fi)
(www.kehittamiskeskus.fi)
TUT
Olli Niemi
NCC Oy
Arvo Ianes / Timo Laapio
Peab Seicon Oy
Jukka Pekkanen/Jani KemppainenRakennusteollisuus RT
(www.ncc.fi)
(www.peab.com)
(www.rakennusteollisuus.fi)
VTT
Matti Mikkola / Janne Manninen
Peter Nordgren
Heikki Suhonen
Esa Kosonen
(www.storaenso.com)
(www.finndomo.fi)
(www.cramo.com)
(www.finnforest.com)
Stora Enso Timber
Finndomo Oy
CRAMO Oyj
Metsäliitto Osuuskunta, Finnforest
Figure 1. Co-operation companies and their representatives.
Motivation, objectives and contents
The basi c moti vation for the ST ROI Network i s gi ven by the fac t that trade
between Russia and Finland has b een incr easing during the last few years and
Russia has been one of the largest co
-operation partners for Fi nland for
decades. I n addition to trade, there are i nvestments to both co untries and
companies working simultaneously in Finland and in Ru ssia. On the other hand,
markets become more demanding and new ways of thinking and action models
will be needed i n order to gain cus
tomers’ trust a nd commi tment wi thin
business networks.
4
The objective of STROI Network research
project is t o develop and modify
Finnish management and l eadership models fitting the Russian business culture
and context. The final aim for com panies is moving towards a “fast” strategy or
developing strategic agility.
Long-term objectives, perspectives, conten ts and research institutions of the
project STROI Netwo rk are presented in
Figure 2 and Figure
3. Research
organization and researchers are described in Figure 4.
Long- term objectives for companies and perspectives (P1-P6)
P 1:
Business sector
P 2: Common Vision
P 3: P 4: Competence Internal of human development
resource
P 5: Customer orientation and marketing
P 6: Measuring network performance
Objectives of network
Growth is bigger than average
Vision is based on derivative action
Managing staff and learning
Network growth and strategic development
Developing customer‐
based network
Continuous develop‐
ment of network performance
Research questions
1.1
2.1
3.1
4.1, 4.2, 4.3
5.1, 5.2, 6.1
Results
Operating Making in profitable visions sector
based on customers needs
Competitive and developing working conditions
”Agile” and learning network Functioning CRM system and risk manage‐
ment
System for measuring the performance
of the network Research institutions
VTT
StPSACEU
HAMK
GSOM
HAMK
HSE
HAMK
HSE
TUT
HSE
VTT
OBJECTiIVES, RESULTS AND RESEARCHERS OF THE NETWORK
Perspectives
(P1 ‐ P6)
Management and leadership models of business for
Russian oriented networks
Figure 2. Long-term objectives, perspectives, contents and research institutions.
5
Researchers, Topics; Expected Results
Researchers
Item Topics; expected results
Riihimäki Markku
N ippala Eero
P erälä Anna‐Leena
Grönfors Tuula
1.1
Riihimäki Markku
K ähkönen Kalle
Huovila Pekka
2.1
2.2
Minina Vera
K rupskaya Anastasia
Dmitrienko Elena
3.1
Settles Alex
Vladimirova Nina
Bek Nadezda
Filinov Nikolay
4.1
4.2
Internal development of the network and culture (P4)
Learning organizations (LO): Russian and Finnish companies.
Strategic process of business networked companies; strategy planning and implementation.
4.3
Decision making.
Weck Marina
P opov Nikita
Rozhkov Alexander
Buzulukovev Ekaterina
5.1
5.2
5.3
5.4
Customer perspective and marketing (P5)
Building trust in counterweight to risks; trust building process in Russian business networks. A model for supplier relationship management in Russ ia. Customer perspective in B2B networks; s uccess factors & key performance indicators of CRM. Relationship building in Russian market; management model for network building.
N iittymäki Seppo
6.1
Selection of network business sector (P1)
An operation model for bus iness targeting ‐ total demand for building, real estate and environmental business sectors. Definition of the network vision (P2)
Corporate cooperative relations and Vision P roces s of Business Network
Building up a model to produce vision for a business network in Russia.
Competence of human resource (P3)
Competence of resource in Finnish companies operating in Russia; HRM‐model applicable in the Russian market. Business profiling tool for human capital and core employee (CE).
Measuring the network performance (P6)
Performance measurement practises ; preliminary analysis
Measuring the network performance; performance measuring model for networked companies
Applicable measurement tools for Russia.
Figure 3. Researchers, Topics and Expected Results.
Research organization
Perspective Partners
Prof./Dir.
Researchers
Item
P1 Business Sector
VTT
Pajakkala Pe kka
Riihimäki Markku
Riihimäki Markku
Nippala Eero
Perälä Anna‐Leena
Grönfors Tuula
1.1
P2 Vision of Network
VTT
Riihimäki Markku Kähköne n Kalle
Riihimäki Markku Perälä Anna‐Leena Kähkönen kalle
Huovila Pekka
2.1
P3 Competence HAMK
of Human GSOM
Resource
Niittymäki Seppo
Minina Vera
Niittymäki Seppo
Krupskaya Anastasia
DmitrienkoElena
3.1
P4 Internal Development
HAMK
HSE
Niittymäki/Te nhune n
Filinov/Bek
Filinov
Settles Alex
Vladimirova Nina
Filinov N ikolay
4.1
4.2
4.3
P5 Customer Orientation and Marketing
HAMK
HSE
Niittymäki Seppo
Tretyak Olga
Weck Marina
Popov Nikita
Roz hkov Aleksander
Buz ulokovaev Ekaterina
5.1
5.2
5.3
5.4
P6 Measuring Network Performance
TUT
HSE
Tolo nen Teuvo
Lönnqvist Antti
Gotheva Nadezhda
Lod Timo
Niittymäki Seppo
6.1
ALL
Management group
Profes sors and
directors
Figure 4. Research organization and researchers.
6
2.2
Note
Research approach and methods
Finding a common approach for
this re search has been extremely difficult:
traditionally the Russian approach is quantitative and the Finnish qualitative. We
have select ed a const ructive approach ( Figure 5) . Both qu alitative an d
quantitative methods were applied.
C o n stru ctive Re search A p p ro a ch
5 ) P il o ti n g w it h i n C o m p a n ie s i nv o l v ed i n ST R O I‐
p r o je c t
3 ) A c ad em ic pi l ot i n g w it h i n r e se ar ch g ro u p
4 ) P i lo t i n g w it h ad u lt st u d en t s
1 ) T h eo ret i ca l m o d e ls
6 ) Fu t u re d e v el o p m en t a n d t ai lo r i n g o f m a n age m e nt m o d e ls
7 ) D is se m in at i o n t h o se r e su l ts w h i ch ar e a cc e p te d fo r p u b li c at io n in m a n age m e nt G r o u p o f t h e p r o je c t
2 ) O bs er va ti o n s i n C o m p an i es an d B u si ne ss N et w o rk s f o r P il o t m od e l s.
Figure 5. Application of Constructive Research Approach. Item 1) and connection
to theories have been introduced in pr evious stage of this research project:
Profiling Business Networks Oriented to Russia (Niittymäki et al. 2007, in total
65 pages).
With constr uctive research approa ch, we would l ike t o combin e qu alitative an d
quantitative methods with business practices and use triangulation as a common
approach (Figure 6)
Triangulation (Denzin 1988) may be achieved in four different forms:
 Multi-method, as qualitative and quantitative methods are used.
 Multi-investigator, as t here is 21 r esearchers from 5 dif ferent universities
in two different countries.
 Multiple data sets, as there will be about 10 different data sets.
 Also, multiple theory triangulations are possible due to numerous theories
in place in different bu siness organizations in Fi nland and Russia (Figure
6).
7
Different Approaches of Research in STROI Network Project
1. Finnish
researchers`
approach
Qualitative
Constructive
Approach
Business
Practices
3. Joint
approach:
Triangulation
Constructive
Approach
Quantitative
2. Russian
researchers`
approach
15.12.2009
P6:Performance measurement, Stroi Network, Seppo Niittymäki
3
Figure 6. Common approach for STROI Network research project.
During 200 9, two different approaches we re used in order to achieve multimethod, mu lti-investigator, mu ltiple dat a se t or mu ltiple t heory t riangulation
was ach ieved in some perspect ives. T riangulation giv es ex tra reliab ility f or t he
results, but it also requ
ired mo re effort from researc hers and companies
involved. On the othe r hand, re searchers di d learn more and compani es
received more relevant and reliable information for their future use and decision
making.
As Professors Filinov and Settles are st ating below, and the project researchers
own experi ence from di fferent cu ltures suggest, decision ma king and atti tude
towards l earning organi zation concept demonstrate consi derable differences
across national borders. Consequently, we have to expect differences in decision
making styles as well as management
and leadership approaches between
Russian and Finnish managers. These differences have to be identified. It is not
sufficient to know that these issues are different: In order to come up with
explanations f or ex isting dif ficulties of F innish compan ies in Ru ssia, it is also
necessary to understand what exactly is different and to what extent. Therefore
also a quanti tative approa ch was applied in two perspectives: P4 Internal
development (D efining st rategy) and P6 P erformance measurement. In P4
Learning, the organization was explored in Finland and Russia and a comparison
to USA was carried out. Performance measurement was explored using a webbased survey and
with a str uctured in terview for two different groups o
f
companies.
8
Selection of Network Business Sector
The constr uction i ndustry i s very heterogeneous i
n many cou ntries. The
companies v ary f rom smal l o ne-man shops t o mu ltinational corporations.
Construction has a l ot of connec tions e.g. p ublic admi nistration, fi nance an d
demand from market. Construction sector i s traditionally very manufacturi ngoriented and product-o riented li ne of i ndustry. In recent years, the orientation
has been shifting more towards customers and services.
Companies should co nstantly analyze the market. Ad justing to changes i n
business e nvironment i s nowada ys a demanding ta sk because, changes are
likely to become more rapid and demand a quicker response than before. Needs
of market information varies a lot by co mpany. Market a nalyses should be the
more systematic and deeper the more
strategic importance and networking
situation is. M arket analy sis w ill p rovide information an d u nderstanding, w hich
allows redir ecting t he company or t he network's vision and strate gy to the
interesting mark et. Select ion of th e bu siness or market sector is a continua l
process, i n w hich acti ons an d understanding grows tog ether wi th i mportance.
(Figure 7).
Deep
Forecasts
Business Intelligence
Companies’ and netwo rks’ market know ledge, their understan ding and vision
are connected and grow together. Change s in the market, in technology and
competitors’ and custo mers’ operations ha ve an effect on companies’ decisions
and act ions. Companies are in creasingly u tilizing in telligence act ivities t o
transform information into actionable knowledge.
Selection of Business Sector  continual process
-
Price of product
Distributer
Key customers
Terms of delivery
- Analyses of products, forecasts
- Distribution network
- Analyses of competitors
- Price level
Aims
Information
Knowledge
Implementation
Market knowledge
1.1
Business Sector (P 1) Markku Riihimäki, Eero Nippala, Anna-Leena Perälä
and Tuula Grönfors
Basic
Data collection
Fragmentary
1
Data
Analyses
io
Vis
,
gy
e
t
a
Str
Understanding
Actions
- Analyses of countries
- Inhabitants, living standard
- Volume of construction and quality
New company
Subcontractor
Small
n
Strategic importance
- New companies to branch
- Cost competition
- News review
Established
Network
Big
Figure 7. N etwork’s a nd companies oper ations model for selection of business
sector.
9
Selection and analyzing of business sector (Figure 7):
1 Accesses to the market (lower left corner)
 Country level analyses (population, living standard, salary, value and
amount of construction and quality of construction, political atmosphere)
2A Further Analyses of construction branch (upper left corner) (small company)
 Key customers (who buys and buyer opinions)
 Distribution channel (competitors distribution channels)
 Price and terms of delivery
2B Furt her Anal yses of cons truction branc h (l ower ri ght cor ner) (Network o r
large company)
 New companies to the branch
 Cost competition
 News review
3 Network action supporting Analyses (upper right corner)
 Changes of distribution channel and competitors activities
 Product level demand forecast
 Continuous follow-up of prices and projects
1.2
Forecast Model
VTT Technical Research Centre of F inland (VTT) has developed a forecast model
in order to forecast demand for differe nt building materials and components for
about 30 years for the Finnish market. This has been q uite a success ful activity
and is w orking w ell in Finland. In Russia, th e sit uation is dif ferent. In F inland,
the con struction in dustry is w ell e stablished, w hile Ru ssia is bu ilding a lot o f
growth potential. There are no sim ilar statistics available in Russia as in Finland
and therefo re a new approach is needed
in order to predict demand in the
building sector with a reasonable level of accuracy.
The model will produce demand forecasts fo r construction sector material use in
new buildings. The model also produces basic information on the construction
and property market sector’s future se rvice demand. Th is in formation w ill be
needed in companies’ strategies, busi ness plans and vision. The numeric model
also needs information about the following aspects for example:
 Political atmosphere
 Economic situation
 Demand and competition of different products
 Decision-making and clients
 Technology development
 Environmental atmosphere
 Social atmosphere.
By combin ing numeric dat a an d socioeconomic information about the region,
companies and business networ ks will have basi c information about tot al
demand for building products in order to create company strategy.
Relevant basic data for the networ k in construction and s ervice business is GDP
Traditionally the const ruction out put cha nges are great er than cha nges i n GDP
(Figure 8). Most important is to see the GDP’s turning points. In the near past
the cons truction sector has grown the mo st of all the sectors in the Russian
economy, w hile it is now decreasin g. T he pot ential is still en ormous. In th e
10
There is a need to built about 25 million new flats (60m2) in Russia , to achieve
the Nordic housing area (22 m²/capita -> 32 m²/capita). There is also a need to
renovate and modernize existing residential and non-residential building stock.
GDP and Construction Growth in Russia
%-change y-to-y
20
%
15
GDP
Construction
10
5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-5
-10
-15
-20
Source: Goskomstat
Figure 8. GDP a nd construction in Russia. Source: Goskomstat. It is remarkable
Russian construction market is reacting faster to recession than Finnish market.
VTT has d eveloped t he VERA forecast ing model wi thin the STROI Network
project wi th a constru ctive approach by utilizing the mode l developed for the
Finnish market. The
Fi nnish model has been modi
fied to
fit Russi an
circumstances. New information items and sources have been found in order to
forecast demand in the Moscow and St. Petersburg areas.
This constr uction and property market forecasting model is based on regional
GDP development, salary cha nges, invest ments, bu ilding con struction st atistics
and cha nges in inhabitants and other indi cators from those regions. In that
construction forecast, the model could a pply widely to diffe rent m aterials and
services in the construction sector.
Together with market size analyses an d forecasts, a company or network needs
information abou t mark et sh are, competitors, c ustomers, prices, distribution
channel and product adaption and so on.
In order to make optimal choic es, decision makers need e ssential and accurate
information and analyses from business.
11
2.1
Vision of Network in Future Business Networks (P 2)
Corporate Cooperative Relations and Vision Process as its Development Tool:
Markku Riihimäki and Anna-Leena Perälä
Traditionally, cooperative relations between companies and networks have been
evolved and formulated, b ut the networks c an be seen as a stra tegic resource
that can be lead, and which ma y ha ve co mmon goals and visions. In which
Vision is a value-based future status of the network’s will.
Different networks hav e thei r own objecti ves, partners, and an u ndertaking to
play a rol e. An enter prise's ability to operate i n di fferent net works and t he
ability t o bu ild a n etwork of relat ionships is a prerequ isite f or su ccess in t he
future. Ope rating i n t he net work and network manag ement i s d ifferent. A
modern n etwork goes to t he t raditional au thoritarian man agement more t o t he
collaborative man agement. The coll aborative management works best in qu ite
democratic n etworks. T hat emph asized in in ternational mark et, w hen t he
company tries to penetrate a market.
Solid working relationships with the deepest (Figure 9.) form
a common approach. Such a network could offer a common, end-product. At the
other ex treme are ope n n etworks that do n ot h ave solid w orking relat ionships.
Open relationships are used, s uch as, joint l earning, sales and mar keting cooperation or co-produc t development. An example of an open network is VTT's
Market Informat ion N etwork ( Figure 10) , in w hich various st akeholders ar e
working to gether to learn and acquire market information and a new foreign
market area.
In Figure 9 presents a variety of network environments.
Different networks and environments
Partnership
networks
to clients
Business knowledge
Company
Clients control
Horizontal
Sales, marketing,
learning, r&d,
development networks
User societies and
consumers
Social networks
Process knowledge
Production and planning
Technology knowledge
Product and technology
development
Financial management,
data systems
2
Innovation
Networks
Across branch
Interest groups
Financing
Insurance
Companies
public decisionmakers
Vertical
Production networks
Figure 9. Di fferent networks and environments. Sou rce: Valk okari Katri et a l.
Tykes report 2009.
12
Market information network in VTT – Case "Balenna"
Network of information
sources, production and
subcontractors
Network of information
utilitzers and companies
Company 1
Local statistics
Technical university
Company 2
Federation of Construction
Company 3
Company 4
Ministries
etc.
etc.
Figure 10. Balenna – Market information network in VTT.
Vision Process
Tightness a nd the s trategic i mportance of t he networ k l eads to t he objecti ves
and v ision f ormation in t he n etwork. Vision
is o ne ef fective n etwork
management tool. The network’s co-operative development and implementation
is a mu lti-level an d lo ng-time process. St rong v ision prov ides t he direct ion on
which the network’s enterprises can rely.
Vision will be the clear will of the
network's future status.
Vision process is shown in Figure 11.
6. Switching the vision in
practical operating and its controlling
5. Clearing differentiating vision
and crystallizing
4. Clearing the competitio n benefit similar to
the needs
3. Customer profiles – prioritizing, groupin g
2. Forming the visioning group – parties and targets
1. Recognizing the point of dep artures – base fo r need ‐based vision
Figure 11. Vision process. Source: Riihimäki & Vanhatalo 2006.
13
The vision process sho uld be taken into acco unt companies vis ions, strategies,
as w ell as other object ives in a s ingle st arting poin t. T he st arting poin t is a lso
the networ k's streng ths as well as
the various parties' views of common
objectives.
Vision process should start early enough. Ideas have to mature sufficiently long
time. The views of the parties, development ideas and expectations in favour of
should collect in advance. Vision process success are the early-block, leadership,
scheduling and share of information. Those are the key factors.
Vision is als o choice maki ng, that’s why for example the vision proc ess should
define customer profiles. In collaborat ive management the design of vision
contributes sign ificantly t o more people t han th e t raditional op eration. T he
vision proc ess in this concept needs
to be what o ne company had called a
supervisor role the process owner or a director wonders how the vision design is
implemented.
One difficult problem for the strategic objectives is to set the goals which sho uld
be expressed as we want. There is a question: who are we? E ven the company
consists of several teams (stake holders, owners, customers and staff). The
same basic problems are in the network development.
The work of a network is characterized by the fact that everyone is associated
with the network's co- operation from thei r own premi ses. A n ef fective networ k
is needed, so are networking meetings, and an open, tr ansparent and efficient
organization of information.
The net work reali zation of the vi sion shoul d be moni tored for the joi nt
management team or the manage ment fo rum. T he goals sho uld be monitored
and revi ewed regul arly. T he net work management team or forum does not
make the actual decisions of occurre
nces, but si gnals to the
parties the
differences in goals and reports the results of the official decision-making.
2.2
Vision Process of Business Network: Kalle Kähkönen and Pekka Huovila
Global internet enable
d electronic-commerce, resources and financing
opportunities have c reated new b
usiness environment
where business
networking is essential for all lines of businesses. Business networking should be
managed systematically with appropri
ate methods and tools. Figure 12.
presents a practi cal tool for v iewing and communicating the current status of a
company’s business ne tworks. “Traffic light s” are used to portray the current
level of f ormal an d in formal re lationships regardin g t he bu siness network in
question.
14
Figure 12. Categories of bu siness n etworks an d “traffic li ghts” for v iewing th eir
current status.
“From t raditional bu siness n etworking t owards more ag ile solu tions enabled b y
new goals and roles” is our
leading bu siness network vision for t he Russian
markets. We are prop osing the active use of busi ness network “brokers” as
facilitators for various practical op erations of such networks (network creation,
actions and maintaining). Brokers are (commonly) neutral players that can have
a con fidential re lationship w ith man y part ies. T hey are ex perts in their f ield of
business but also in comm unication, group work and decision-making (Fi gure
13).
Customer system
C
C
C
C
C
C
PPP
Broker
P
P
P
P
P
P
Provider system
Figure 13. Business opportunity broker for finding approp riate partner network,
e.g. the bidding consortium or some finance agent.
15
3
3.1
Competence of Human Resource Management (P 3) Vera Minina,
Anastasia Krupskaya and Elena Dmitrienko
Entering Russian
Companies
Construction
Market:
Challenges
for
HRM
in
Finnish
Cultural Differences and Human Resource Management
To achieve a Finnish company’s goal in the Russian context i t i s important t o
reveal cult ural differences in Huma n Resources (HR) and Huma n Resource
Management (HRM). To be suc cessful in new business environment HRM model
should be designed with the foc us on Core Employees (C E). The ir kno wledge,
skills an d abil ities be come t he main sou rce f or orga nisational a bilities an d
competitive advantages. CE profile is provided as the result of the survey.
Risks for foreign market expansion coul
d b e reduced by searching cultural
features, e.g. the basic valu es and belief s of the citizens. Thus, while designing
the HRM system, managers have to take into consideration local features of HR.
New Challenges for HRM in Project-based Business
Project-based fi rms differ from o ther ones particularly but not e xclusively by
human res ource prac tices. In p roject business, employees are inclined to
functional mobility, intercompany mobility, combination of roles, additional social
competences, such as ability to work in a team, and leadership development.
Team and network formation means that the competitive advantage of the
company needs to be achieved through th e integration of competencies, skills
and tec hnologies. Individual and co
llective le arning requ ires t he righ t
management, th is is the on ly way t o bu ild k nowledge asset s an d gen erate
innovation. The employees’ pr ofessional competencies ought to be r enewal and
consist of organi zational learning i n orde r to create organi zational capabilities
for survival in a competitive environment.
To achieve success in managing a busine
ss network i t i s important to hav e
capabilities for partnership an d collaboration. It requires such social skills as an
understanding of the
soci al envi ronment, adopti ng cul tural differences,
maintaining t rust, being t olerant, an d h igh dev eloped c ommunicative sk ills of
personnel. In thi s case the l earning process takes a central place in HR
M
practices.
Project bus iness presupposes the introd uction of the ‘power to the edge’
management philosophy, which focuses on moving power from the center to the
edge an d a chieving con trol in directly. A lack of t rust in a project m ight lead t o
bureaucratic con trol t hat decreases t he flexibility of t he project part icipants t o
act.
Four important roles f or HRM ar ise in th is new envi ronment. Fi rst of all , HR
managers should create the culture of openness and development, because of
the in creasing import ance of social mob ility an d th e abil ity of perman ent
improvements o f s taff in project-based firms. Secondl y, the ne w HR manager’s
role is t o bu ild an d main tain t rust in t he organ ization f or ach ieving su ccess in
project collaboration. Thirdly, HR manage rs sh ould dev elop an en trepreneurial
style of thinking and doing. And fourth ly, the HR manager’s role deals with
16
development practices suc h as career development, personal development,
cognitive and emotional ability development.
Project Description, Objectives and Research Methodology
The
I.
II.
III.
purposes of the research:
To reveal differences in Russian and Finnish approaches to HRM practices;
To design Core Employees Profile;
To work out the recommendations concerning HR practices improvement.
Qualitative data hav e been coll ected by conduc ting 17 semi -structured
interviews wi th t he s enior managers, hea ds of the departments a nd H R
managers. There were face-to-face interviews 1-hour duration.
Differences in Russian and Finnish HR and HRM Practices
The empiric al results d escribe d ifferences in HR, HRM practices and impact of
the main incentives (Table 1).
Table 1. Differences in Russian and Finnish HR and HRM practices.
Features of HR
Employees’ competences:

Decision-making skills

Willingness to take responsibility in decisionmaking
Decision-making practices:

Long term orientation

Thorough process

Speed of decision-making
Discipline on the work place

Using working time for private matters

Importance of following project schedule
Russian context
Finnish context
Low level
No
High level
Yes
No
No
High
Yes
Yes
Low
Yes
Only deadlines are
important
No
The whole schedule is
important
Features of HRM
Recruiting practices
similar
Managing adaptation process

Detailed program of adaptation

Coach support

Colleagues support
No
Seldom
Often
Reword system:

Clarity of parent company reward system
Training programs
Employees’ development:

Attitude to development discussion

Development discussion procedure
Low
Pressure
Assessment
Yes
Often
Rarely
High
similar
Opportunities
Support
The main incentives and their impact on employees
Financial
Rewording for outstanding performance Hi
Covering educational fees
Medical insurance
Pension programs
Support in housing loan and credit
Non financial
Work-life balance policy
Participating in decision-making process (for some
groups of staff)
Best employee recognition (from time to time)
17
gh
High
High
Low
High
High
Low
Low
High
Low
Low
High High
High
High
High
HRM Alternatives for Finnish Companies in Russia
One of the remarkable resu lts is devoted to developing HRM model. There are
three appro aches to HRM, which Finnish co mpanies can follow in Russia. T hey
may accept local practices, adopt Finni sh practices or develop a mixed HRM
model.
Core Employees Profile
There i s a lack of attenti on to i dentification o f employee s who are responsible
for organizational competences. Thus, it is important to focus on people who are
involved in core bu siness. We ident ify t hose who h ave the abil ity t o t ransform
unique and value kno wledge into organiza tional competitive advantage as core
employees. CE s shoul d be identified acco rding to t he r equired abili ties (Fi gure
14A).
A three-field model is applicable for CE recognition (Figure 14B). There could be
three main fields or levels, which influence the growing C E of the co mpany: the
social f ield (all the colleagues and
informal groups at workplace); th
e
organizational fie ld (usually management of th e comp any who notice most
valuable employees and give them more
responsibilit y an d credentials); the
professional field (all kinds of different internal specialists and external societies
and organizations which consider this person as an expert).
Сore Employee Profile
Learning
Trust relations
Reflection
Social
Competence
Integration
Figure 14 A. Core employee (CE) profile
Organizational
CE
Professional
Figure 14 B. Fields of CE identification
Implementation and Exploitation
All training and developm
ent programs can go in
t wo main
directions:
organizational learn ing, an d compet ence an d sk ill de velopment. F or
organizational learnin g, a ve ry cruci al poi nt i s to tran slate the organi zational
culture: values and basic beliefs, mission, organizational goals and management
tools. F or compet ence an d sk ill de velopment of employ ees t he f ocus sh ould be
done on teamwork, sharing knowledge, decision-making, se lf-determination,
goal setting and practical-oriented professional skills.
Conclusions
The v ery import ant issu es raised in t his paper h ave a cu ltural con text an d are
challenging f or HRM . I t is possible to manage these challenges and achieve
sustainable advantages by identifying CEs and developi ng a n HRM system with
CE orientation.
18
4
4.1
Strategic Process of Finnish Construction Companies Building
Networks in Russia (P 4)
The Evaluation of Perceptions of Finnish and Russian Manager Regarding the
Organization Learning Potential of Their Firms: Alex Settles
Culture and Learning Organization Concept
This research tes ts whether a country level culture affects the rea diness and
acceptance of learning organization concepts. Based on a series of c ase studies,
interviews, and a survey of 55 R ussian an d Finnish ma nagement s tudents the
results indicates tha t there are diffe
rences between Fi nnish a nd R ussian
managers to create an envi ronment for learning, adopt l earning organi zation
practices, and develop leadership for organizational learning.
Russian compan ies f ace a sign ificant problem of dev eloping t he con ditions t hat
support a l earning organization. In west ern business, the concept of creating a
learning organi zation has been
built on the basi
s of a l
ong hi story of
organization cha nge that s
upports learning, kn owledge creat ion an d
management, a nd in process re-engineer ing to impr ove the q uality of the
organization’s processes and products and services. As Garvin, Edmondson, and
Gino (2008) have recently pointed out that the business leader may think that
getting thei r organi zations “to l earn i s onl y a matter of arti culating a clear
vision, giving employees the right incentives, and provi ding lot s of t raining.”
This assumption misses out on the real t ools of organizational change require d
to bu ild le arning organ ization. T his is part icularly important in the Russian
business environment since the transitional Russian and early Soviet models of
organizations do not support t he pri mary condi tions of creati ng a l earning
organization. Empl oyee trai ning and i ncentives and the company’ s or State’s
demands for creating innovative solutions have become very popular in Russian
business cu lture bu t t his in it self does n ot creat e learn ing organ izations.
Western (Finnish) b usiness pr actices vary significantl y from Russian practices
and the open learning environment encouraged in western business may come
in direct conflict with Russian business practices.
The l earning organi zation i n Russi an compan y cul ture h as uni que f eatures tha t
are rel ated to the speci
fic Russi an practices rel ated to the method o
f
management, respon sibility sh aring, an d limit ation of li abilities res ulting f rom
action and inaction. The
paper examines the strengths and
weaknesses o f
Russian business culture and draws on learni ng organization theories to identify
the particular features of Russian business culture that limits or encourages the
creation of a learn ing organ ization. A sect ion of the report w ill e xamine t he
culture of decision-making and control mechanisms in Russian company and the
need wi thin the R ussian busi ness envi ronment to have str ong contro l
mechanisms.
Research Methodology
The su rvey in strument measu res n ine f actors: ( 1) psych ological saf ety, (2)
appreciation of differe nces, (3 ) o penness to new i deas, (4)ti me for refl ection,
(5) i nformation col lection, (6) anal ysis, (7) ed ucation and trai ning, (8)
information t ransfer and ( 9) leadersh ip th at rein forces learn ing. Th e fu ll
questionnaire has been used to survey two groups o f managers from Finland
and R ussia. The respo ndents wor k in Moscow or in the Hämeenlinna region in
Finland. The managers were attendi ng Master-level progr ams at a R ussian and
19
Finnish business school so there was selection bias in the sample that may have
influenced the fi nal resul ts. T he surv ey respondents are non-re presentative
samples of the population of Finnish and Russian managers.
Differences between Finnish and Russian Companies
Culture distance theory (Hofste
de 1981) indicates that there would be
significant vari ation in t he var iables that create a supportive learn
ing
environment and leadership that rein forces le arning. Ru ssian compan ies h ave
adopted many management procedures that facilitate concrete l earning process
so the varia tion between Russian and Fi nnish companies may have disappeared
though implementation of such policies may remain.
The resu lts of t he series of in terviews on Finnish compa nies and their Russian
subsidiaries prov ided only l imited resu lts. T he in terviews con ducted in dept h
with one co mpany i ndicating that there ar e differences in approach to learn ing
between Fi nnish a nd Russian managers. In th e opin ion of one survey,
respondent Russian managers demonstrate less open ness and leadership in the
acquisition and collect ion of n ew knowledge. T he ov erall approach w as f irst t o
have R ussian manage rs and workers to conform to fir m-wide policies and to
implement the management and decis ion making process to i ntegrate the
Russian subsidiary into the Finnish co mpany’s management practices. There
may be such l earning organization or knowledge management programs in the
parent Fi nnish compan y tho ugh t hese po licies are not impl emented in Russian
subsidiaries. T he fi rst priority ten ds to be to i mplement managem ent co ntrol
systems and adherenc e to Finnish compan ywide policies through the replication
of company rules and sys
tems in th eir Russian
subsidiaries. Learning
organization policies can wait.
The s urvey results of Russian and Finn ish managers i ndicate tha t t here are
some significant differences. In comparison with the scaled scores of the Garvin,
et al. (2008) study bo th Finnish and Ru ssian managers scored lower than U S
managers in the deve lopment of a lear ning organi zation framew ork i n thei r
respective companies. Figure 15 g raphically demonstrates the survey results o n
the ni ne factors. The Finnish respondent s r ated thei r fi rms as h igher i n the
learning en vironment indi cators of Ps ychological Safety and Openness to New
Ideas w hile also rat ing t he f irm’s pract ices h igher in Information C ollection,
Analysis, E ducation a nd Trai ning, and I nformation Transfer. Finns al so report
higher Leadershi p that rei nforces learning rat ings of thei r managers than t he
Russian respondents . T he Russian respondents scored their f irms higher in the
learning envi ronment i ndicator of Appreci ation of Differences. Both Fi nns a nd
Russians re ported little time for Time for Ref lection and the level r eport was
nearly the same as reported in the US indicating that most firms do not make
time available for reflection. This remains a key weakness in the development of
learning organizations.
20
Psychological Safety
90
80
Leadership
Appreciation of Differences
70
60
50
Information Transfer
Openness to New Ideas
40
Education and Training
Time for Reflection
Finland
Analysis
Information Collection
Russia
US
Figure 15. Learni ng organi zation f ramework – the survey results on the nine
factors.
Conclusions
While it is clear t hat in some man ner learn ing organ ization readin ess and
practices differ between Fi nnish and Russian c ompanies this research cannot be
seen as conclusive. The next steps in th e research process would be to conduc t
a broader survey to i nclude perhaps all m ember com panies of t he ST ORINetwork or a representati ve sampl e of R ussian and Finnish managers. In
addition, the next step s in the research process should b e to understand what
learning organization activities are underwa y in Finnish companies operating in
Russian. Wi thout l earning and kno wledge, management s ubsidiaries of Fi nnish
companies operating in Russia will not
be able to supply the necessary in
country experience to build company level competitive advantages.
21
4.2
International Expansion Strategy and Strategic Control: Nadezda Bek and Nina
Vladimirova
Internationalization of Companies
Globalization and growing competition force companies to look for new markets
for their business. Inte rnational o perations give companies an opportunity to
use t heir resou rces more ef ficiently an d simu ltaneously th e in ternationalization
processes increase firm’s risks and st
rategic proble ms. The choice of a
n
international st rategy def ines a co
mpany’s priorities on partnership
development, which are necessary for
understanding new market s’ feat ures
quicker, and for decreasing strategi
c and commercial business
risks. The
strategic process is in fluenced by a number of factors, such as in stitutional and
socio-political, and busine ss-sector specifics and national culture. Strateg y
development and implementation together with stabl e network rel ations defi ne
company’s success in a new market. The pa per presents the ma in results of an
empirical research, d evoted to the a nalyses of int ernational compan ies’
strategies and factors, affecting strategic choice and imp lementation process in
the Russian market.
In this research, we have investigated a defined group of factors, influencing
network-level strategy and doing business outside the national market. Also, we
have teste d forms of strategic contro l u sed in in ternational co mpanies f or
management, their subsidiaries and factors, influencing a choice of forms.
Research Methodology
The research is based on qualitative an d qua ntitative data anal ysis methods.
Qualitative t ools included st ructured in terviews w ith t op and middl e
management, based on list of 40 ques tions covering various aspects of
companies’ acti vities. Internal do cuments of com panies and seconda ry
information (company w ebsites, WE F and WB materia ls) were used as addition
to interview results.
Type of Strategy for Internationalization
The majorit y of t he in vestigated compan ies a dhere t o a mu ltinational st rategy.
Regionally adapted products are the main characteristic for this type of strategy.
The type of business , Russi an legislat ion, and busi ness practice support the
choice of the given str ategy. However, general quality assurance a nd following
of shared standards are com
plicated b ecause of the high degree
of
decentralisation of decisions. It is difficult to copy initial partnership models in a
new national market due to vari ous influences on the compan ies by in dustries’
actors.
According to the parent company stra tegy, several businesses can enter the
same market. It i nfluences net work stru cture. The researched comp anies have
confirmed that if there is an other affiliated company in the same mark et, it will
be in most cases chosen for projects development. The research has shown that
companies u se t ypical lega l organ ization forms of development on the Russian
market. Some companies buy active busi nesses. However, the majority of the
companies creat ed n ew af filiated firms f or bu siness operat ions in Ru ssia. Su ch
organizational f orm a s an acqu isition w as n ot ex amined in t he con sidered
companies. Though this form could be th e most suitable to form a partnership.
22
On the o ne hand, there are a
lready es tablished relati ons wi th suppl iers,
consumers and third p arties, and on the other, introduction of ne w rules and
procedures from the parent company allo ws implementing global international
strategy.
Distinctions in Environment between Finland and Russia
It is possi ble t o def ine, f irst, distinctions in t he in stitutional an d social
environment in Finland and Russia among a group of factors influencing strategy
choice of partnership. The economy of
Russia and Finland
differs i n many
parameters (Figure 16). Rules of the game within the market in many cases are
defined by ex isting in stitutional m echanisms alon g w ith t he lev el of econ omic
relations development. It is possible
to make a conclusion tha
t the most
significant parameters of doing b usiness in Russia and Finland differ. According
to the Worl d Bank and IFC, Fi nland i s i n 14th pl ace i n the rat ing "Doi ng
Business" (https://russian.doingbusiness.org), while Russi a is 120th. It is muc h
easier to get permi ssion to start busi ness in Finland than in Russia (43 pla ce
against 180) . Int ernational t rade possibi lities in Ru ssia are st rongly lim ited in
comparison with Finland (4 and 161 place respectively).
Institutions
Innovation
Business sophistication
Market size
7
6
5
4
3
2
1
0
Infrastructure
Macroeconomic Stability
Health and Primery education
Russia
Finland
Technological readiness
Higher education and training
Financial market sophistication
Goods market efficiency
Labor market efficiency
Figure 16. Macro factors in Finland and Russia.
Distinctions in econ omic v alues in volve dif ferences in a partner’s beh aviour in
the market. Finnish companies ar e at a greater degree f ocused on the business
mutual rel ations based on tr ust without dra wing up deta iled contracts at the
beginning of joi nt ac tivity. Rus sian fi rms aspi re to the maxi mum detai led
elaboration of possible parameters and re
gulation of joi nt acti vity before a
project begins. Prob ably, it
is conseq uences of negative ex
perience o f
cooperation at t he origin al st age of mar ket dev elopment in Ru ssia. All
investigated companies stated that the y p ut an essentia l accent on relations
with gover nance, develop ing partnership str ategy. A high lev el of corru ption
and econ omic crim e, especial ly in t he con struction sect or, cramps t he
development of normal partner relations. This aspect is represented in much
foreign and domestic research and was ma rked by respondents. The prevalence
of sha dow operations to a great extent i s caused b y p arameters of na tional
culture of the countr y. As Latov and La tova (2007) have shown pre valence of
23
corruption r elations positively depends on an individualism index and negative
on power distance index.
Business specifics influence deve lopment of partner relat ions and business
dealing outside of the national market along with socio-cultural and institutional
contextual factors. The in vestigated companies operate in constr uction sector.
They can be divided to four market se gments, proceeding from features of the
business: i ndustrial and ecol ogical servi ces, l ifting equi pment, c onstruction
materials retail and residential construction.
We have defined the key factors influencing the companies, operating on these
markets, us ing expert estimations adde d wi th material s from the DATAMoni tor
group. The diagram reflects key differences of segments within the limits of th e
construction sector (Figure 17).
Figure 17. C ompetitive prof ile of th e mark et segmen ts within construction
industry.
Alliances of Companies
There is a common fe ature for the constr uction sector – busines s processes
management wi thin di fferent projec ts. Alliances of companies in
the
construction sector have more likel y a short-term character a
nd change
depending on a numb er of si multaneously r ealized projects and stage of the
concrete project. Deve loping the project compani es are l imited by the project
purposes, its resources and interests of
their stakeholders. The system of
tenders reg ulates various aspects of ag reements be tween partners. Within the
limits of one project, not only partners from c urrent network can be involved,
but also t ime-basis part icipants. A process of in teraction betw een part icipants
can be divided into two stages: project development and realization. The choice
of participants in a certain project, including partners from the existing network,
occurs at the first stage. And it is extremely difficult to chan ge the structure of
24
participants i n the project i n the second sta ge. Not al l patri cians need to be
involved in solv ing problems of t he spec ific project even if there are stable
relations between them.
Form of Strategic Control
Analysis of forms and mechanisms of
strategic control indicates that the
observed companies do not use such fo rms as Fi nancial hol ding or Operator.
Corporate centers of the companies act in line w ith models St rategic arch itect
and Strate gic controller. Interestingly, almost a ll the companies show the
presence of mixed form of
strategic control, which in cludes feat ures of bot h
models.
Major features of strategic proces s in Finnish development in dustry companies,
active at Russian market, can be high lighted, based o n the rese arch results
(Figure 18).
Company A
Company B
Company C
Company D
International
strategy
Multinational
Multinational
Multinational
Global
Form of
strategic control
Strategic
Controller
Strategic
Architect
Strategic
Controller
Strategic
Controller
Partners
relations
GR and
relations with
subcontractors
GR an
d
consumers
Joint
projects,
customers’
development
With
suppliers
Figure 18. Characteristics of the companies’ strategic process.
Network in Russia
During the research a critical external factor, affecti ng the partnership building
tendencies, was found. Analysis of strategic context has shown that the Russian
market provides the mix of great opportuniti es and great sufficient risks. That is
why it is cru cial t o est ablish st rong relat ions w ith local gov ernment structures,
subcontractors and corporate clients at the stage of Russian market penetration.
These ideas were supported by interv
iew results. These companies named
consumers, suppliers and subcontractors among potential network participants.
However, we consider several other actors to be important: resear ch centers,
major influential nonprofi t organizati ons. Ma ny respond ents emphasized their
parent com panies as the net work members. Its i nfluence on the net work
position of subsidiar ies contains access to financia l res ources and corporate
brand.
Analysis of companies’ strategic proce sses has revealed th at decisions about
network rel ations had tacti c c haracter and were no t align with corporate
strategies of parent companies.
The Finnish companies are focused mostly on dual relations but are not ready to
develop network. Some companies aspire to b eing a part of clients’ processes,
developing their own business . But in m ost cases, suc h claims are no t
considered in corporate company strategy.
25
4.3
Decision-making: Nikolay Filinov
Differences between Finnish and Russian Companies
One of the substantial elements creating difficultie s for Finnish companies when
entering Russian markets and establishing partnerships with Russian authorities,
suppliers, consumers a nd etc . (i.e. networ king) i s the di fference in approaches
to decision-making (DM) in Finland and Russia.
Differences in dominant DM styles influence the applicability and effectiveness of
managerial procedures along with the di fferences in the ec onomic situation,
technical infrastruc ture and so cial enviro nment. Select ing DM speci fic f eatures
as a f ocus is h owever ju stified f or at le ast t wo reasons. First, differences in
social, technical and econom ic environment, in w hich Finnish company operat es
in its domestic market and in Russia, are relevant for our analysis to the extent,
to whi ch they affec t i ts operati ons and t his i nfluence occurs t hrough the
decisions, taken by the
Finnish c ompany and its Russi an counter parts. So ,
dominant DM style and pat terns medi ate the i nfluence of al l ot her factors .
Second, DM is perc eived as a highly pe rsonal act. Consequently, if a manager
feels u ncomfortable with th e way it is car ried on , t his af fects mu tual t rust,
creates stress and tensions and thus inhibi ts the process of DM and deteriorates
the quality of decisions selected in the most direct way.
Management and Decision-making
This approach in volves, h owever, differentiating bet ween ch aracteristics ( style)
of management and characteristics (style ) of decision-making. If we go into
further details, it takes us to a much broader and more sophisticated problem of
the contents of manag ement functions. It appears evident th at decision-making
is only one of them, an
d consequently s tyle of man agement a nd s tyle of
decision-making relate to each other as
part and who le. Style of decis ionmaking should be regarded as an element of management style in line with such
other elem ents as for example communica tion style. Moreover, all these are
highly depen dent an d may cau se problems if t here is an in sufficient f it among
them. In spit e of t his in n umerous publicat ions, n otions on decisi on-making
style and management style are somet imes used eit her interchangeably, or
decision-making style as that of especi ally important an d especial ly ex plicit
function is regarded as a proxy for style of ma nagement. A manager’s DM style
is not necessarily equivalent to style of management as far as it pertains to only
one (although important) side of manager’s activity.
The literature and authors' own research suggest that DM features demonstrate
considerable differences across national borders. Consequently, we have to
expect differences in dominant DM styles between Russian and Finnish
managers. These differences have to be identified as it is not sufficient to know
that they are different: In order to come up with explanations for existing
difficulties of Finnish companies in Russia, it is necessary to understand what
exactly is different and to what extent.
Conclusions
Results obtained through the pilot interviews with a number of employees in the
case company are mixed. On the on
e hand, questions proved to be
understandable for managers. On the ot her, the i nterview was fou nd too ti me
consuming. In terviews h eld so f ar creat e t he impress ion t hat t he lev el of
subordinates’ in volvement in DM at a company is moderate. A few c ases sho w
26
the lev el of employ ee part icipation less t han recommen ded by normative
theories. Development of employees' pote ntial t hrough t he in volvement in D M
process is not regarded as a priority. Bu t all these co nclusions need to be retested on a wider database. It was ve
ry di sappointing to know that one
company did not agree to work with quantitative tools and th us we are limited
in our use of research instruments.
27
5
Customer Perspective and Marketing (P 5)
5.1
Developing Marketing for the Network: Olga Tretyak, Ekaterina Buzulukova,
Alexander Rozhkov and Nikita Popov
In summer 2008, the Russian construction se ctor bubble has been suspended .
Simultaneous decrease of demand on industrial property and shrinking supply of
finance forc ed construc tion compani es, ho me ware retailers, as well as their
suppliers to seek for hel p from the official powers. Some of the companies went
out of b usiness or started mass layoffs
an d froze the ir ambi tious projects;
others had to make concessions to cu stomers. As time passed, the market
power of c onstruction companies declined , and a need to conside r customers ’
wants was being acknowledged more and more. Still, the market players – large
construction firms and developers – do minated the mar ket at least since 2001 .
What should they do to become customer-oriented companies, and to introduce
customer orientation philosophy to their supplier networks?
The proposed framewo rk for approachin g a market-oriented interfi rm network
(Figure 19) includes three pillars
: kn owledge sharing, joint planning and
established con trol st ructures. It is composed of
t wo levels: “ Routines and
processes” and “Systems and structures
”. Also is p roposed a method for
evaluating the extent of customer orientat ion. It is based on t he ide a t hat an y
business organization has three important g oals: creating business value for all
stakeholders, sustaining an d developing competitive ad vantage and coping with
uncertainty. It is v ery import ant wh ether t he compan y is react ively or
proactively oriented t owards t he market. T his k ind of orien tation def ines t he
way how ex ternal in formation is coll ected an d handled, so it is assu med th at
proactive approach corresponds to higher levels of customer orientation.
Market knowledge
sharing
Cross-firm
planning of CRM,
RO U
T IN
PROC ES AND SCM and NPD
E S SE
S
value creation
Motivation and control
for market orientation
Network
information
systems
SY ST
E
S TR U M S A N D
CT U R
ES
Network
collaboration
structures
market share growth
risk management
uncertainty avoidance
cost management
cost cutting
Reactive approach
Proactive approach
Control structures
and shared values
Figure 19. Framework of interfirm market orientation (Tretyak, Rozhkov, Popov,
2009).
With this approach in mind, several relationship marketing issues were studied:
 Customer relationship management
 Purchasing practices,
 Strategies of foreign market entry
28
Main objectives of the customer relations study were:
1. To iden tify lev els of cu stomer orien tation an d w ays of cu stomer v alue
creation;
2. To identify main stages of customer relations development, as well as issues
emerging at each stage;
3. To identify most frequent tools and practices used for CRM.
Purchasing study aimed at:
1. Investigating how p urchasing management in a chain of firms evolv es when
certain changes in demand occur;
2. Identifying purchasing practices which are present at different l evels of
network-level market orientation.
Network d evelopment facet stu dy was devoted to describing
relationship
development process of Finnish compan ies on the Russ ian market. Its aims
were:
1. To examine different types of market en trance strategies and dif ficulties in
strengthening relationships with the local partners;
2. To reveal common market difficulties and special company’s problems;
3. To u nderline t he k ey role of re lationship mark eting in cust omer sat isfaction
that can increase profitability.
In order t o accomplish all t hese t asks dif ferent F innish compan ies w orking on
the Russian market were investigated.
Ten main f indings of t his stu dy are presen ted in th e f ollowing list an d
illuminated in several pictures (Figure 20, Figure 21, Figure 22 and Figure 23).
1. Investigated companies exhibit a relatively low level of customer orientation,
and do not measure customer satisfaction;
2. Investigated companies exhibit relatively low level of CRM tools and policies
usage;
3. When sec uring a customer a comp any’s co mmitment becomes possible,
companies do not pay due attention to it;
4. Customer compan ies pass through relat ionship st ages in dividually, an d
success in reaching
commitment stag e m ainly depends o n pa rticular
manager’s knowledge and experience;
5. Companies have developed syste ms to evaluate perfor mance of s uppliers
and the products supplied, but not of supplier relationships;
6. Some firms are buying from suppliers which disregard final customers’ needs
and have p oor purchasing capabilities, and this prevents these firms’ abilit y
to translate its own customer knowledge into tailored value propositions;
7. Successful implementation of three type s of m arket entry strategies can be
observed;
8. As perceived by firms, trust, ho nesty, willingness t o con duct open dialog,
readiness to adapt and great wish to wo rk accou nt f or relat ionship st ability
(over and above economic returns);
9. Main dif ficulties of co mpanies are ma cro environmental factors (such as
bribes, obsolete standards, changing legislation);
10. While man y f irms main tain st rong relations with their sup pliers (often also
Finnish firms), few firms develop strong customer relationships.
29
Different entry strategies to Russian market are employed by Finnish
companies
Finnish
Company
Parent
Finnish
Company
Parent Finnish
Company
Russian
Company
Russian
Company
Subsidiary
Finnish
(Russian)
Company
Russian
Company
Figure 20. Market entry strategies.
Relationship stability drivers
Interest in
relationships
Business
relations
turnover
Readiness to
adapt
Relationship
atmosphere
Social
bonds
STABILITY
Knowledge
bonds
Technical
bonds
Economic
bonds
Customer firm turnover
Figure 21. Relationship stability drivers.
30
Groups of Russian market difficulties
Managing
personnel
High
environment
uncertainty
Construction
norms,
obsolete
regulations
Russian Market
Difficulties
Government
relations
Accounting
Partners
relations
Figure 22. Russian market difficulties.
While companies maintain strong relationships with suppliers, strong customer
relationships are not pursued
Customer
Supplier
Customer
Supplier
Customer
Customer
Company
Supplier
Customer
Supplier
Customer
Customer
Customer
Customer
Supplier
Extending ‘global’ relationships with suppliers to
the Russian market is a must
Maintaining relationships with former customers is,
generally, not a priority
Market information sharing with trusted suppliers is
extensive
Customer satisfaction is not monitored
Level of customer orientation if low
Evaluation of supplier performance is in place
CRM tools and policies are almost absent
Figure 23. Relationships with customers and suppliers.
The f indings call f or n ew managemen t solu tions, su ch as st rengthening
relationships to retain customers and to secure adaptation from suppliers. This
in t urn calls f or t he use of new mark eting con cepts su ch as relat ionship
marketing. As f ar as relat ionships are con cerned, st rengthening relat ionship
management capabilities is highly advisable to companies.
31
As time goes by, companies will certainly establish market-monitoring systems.
What is not being measured cannot be ma naged, and this especially applies to
the Ru ssian mark et. How ever, measu ring is n ot a t hing in it self. Relat ionship
evaluation tool s can b e used to make thi s information usabl e for deci sionmaking, and to supplement informal evaluation, which is currently used.
32
Building Trust in Counterweight to Risks Perceived in Finnish-Russian InterOrganisational Relationships in Construction Business: Marina Weck
Trust in Inter-organisational Relationship
Developing relationships with Russian business partners u nder the co nditions of
uncertainty of current market environment, foreign companies are i nvoluntarily
exposed to certain risks. T hese are risk s caused by d isturbances inside the
relationships between partners of busi ness network. S uch risks ca n never be
eliminated enti rely, but to a l arge extent as li terature suggests, tr ust pl ays an
important role in counterbalancing th em (e.g. Arrow, 1973; Håkansson and
Snehota, 2000; Shapiro, 1987; Wi lliamson, 1985; Zu cker, 1986). Furthermore,
the market institutions and infrastructure in Russia are still underdeveloped and
development trends are difficult t o pred ict. I t means that foreign companies
operating i n th e Ru ssian mark et have t o rely ex tensively on t rust in f orming
relationships with local partners, while trust is often con sidered as a subs titute
for develop ed market institutions (e.g. Peng and Heath, 1996). Trust has been
repeatedly stressed to be a stro ng fo undation for the i nter-organizational
relationship development (e.g. Gust afsson et al., 2009; Doney and Canno
n,
1997; Morgan and Hunt, 1994).
The research conceptual framework
The general argument is that the co-opera tion wi ll conti nue from one stage to
another as long as trustor is able t o rely on trust in the presence of relationship
risks an d an in crease in t rust occu rs du ring interactions. Th e h igher lev el of
subjective trust i n i nter-organisational rel ationship provi des the trustor wi th
confidence to continue the relationship recognizing that perceived risks may
cause shor t-term losses but not threaten the trus tor’s l ong-term i nterests.
(Figure 24)
Risk
sources
To be determined
Relational
To be explored
Perceived
risk
Performance
Confidence
Trust
preconditions
5.2
Competence
Goodwill
Willingness to
co-operate
High
Low
Subjective
trust
Risk taking
Transition to next
relationship stage
INTER-ORGANISATIONAL RELATIONSHIP
Exploration Stage
Dissolution
Figure 24. The proposed conceptual framework.
33
Relationship Trust Development Process
The trust-b uilding process between partne r organisations goes a long with the
relationship l ife cy cle. An in itial re lationship b etween part ner compan ies in t he
construction field develops through th ese defined three stages:
exploration,
expansion and commitment. In
accordance with the process of relat ionship
development, the process of trus t-building was divided into following three
stages: initiation, growth, and maturity.
The development proc ess of relationship trus t (see Figur e 25) comp rises both
formal and informal processes, which take place within all three stages of
relationship ev olution. T he f ormal proc ess aggregates the following form of
trust: ‘institution-based trust’, ‘calculus-based trust’, and ‘process-based trust’.
‘Process-based trust’ is re lated to ‘relational trust’ and ‘knowledge-based trust’.
By definition, these forms of trust
imply firsthand knowledg e based on
experience. The informal process is only associated with inter-personal trust and
comprises the tacit tr ust forms such as ‘cognition-based trust’, ‘personalitybased trust’, and ‘characteristic-based trust’. “Institution-based trust’ an d
‘personality-based trust’ formation processes lie
outside the sc ope of this
research.
FORMAL PROCESS
Institution-Based Trust
Calculus-Based Trust
Process-Based Trust
TRUST DEVELOPMENT PROCESS
Growth
Initiation
Maturity
Cognition-Based Trust
Personality-Based Trust
Characteristic-Based Trust
INFORMAL PROCESS
Exploration
Expansion
Commitment
RELATIONSHIP DEVELOPMENT PROCESS
Figure 25. Overview of trust forms within the relationship development process
34
Identified Riskis and Trust Preconditions
As a result of empirical research, the sco pe of perceived risks was identified in
different stages of inter-organisational relationship development. This risk scope
was ut ilized as a f ramework f or risk assessmen t con ducted by managers f rom
Finnish case companies, wh ere probabilities of occurrenc e were assigned to the
each defined risk outc ome and the caus ative event. The ac quired data were
analysed within the ea ch case co mpany a nd across seven cases. The scope of
identified and prioritized risk outcomes and causative events at the commitment
stage of relationships are introduc ed in the Figure 27. The values represent
the average values of total asses sments of risk probabilities conducted by all
respondents from all seven case companies.
Since in ter-organisational relat ionships develop along diffe rent stages, the
nature and the probabi lity level s of perc eived r isks varies o ver time.
Subsequently, it was assumed that the manner in which trust is established (i.e.
trust preconditions) is also diverse at different relationship stages. The Figure 26
introduces t he maturi ty trus t p hase i n the tru st-building process bri nging up a
range of m ost si gnificant tr ust p reconditions determi ned at t he c ommitment
stages of inter-organisational relationship.
MATURITY TRUST PHASE
Commitment Stage of Inter-Organisational Relationship
Subjective
Trust
Generated trust from
the previous stage
Competence
Goodwill Trust
Characteristics of
Relationship with Trustee
Characteristics of Trustee
Organisation
Quality
Performance
Key Personnel
Stability in
Key Personnel
Maintenance of total
generated trust
Organisation
Professional
Qualities
Open
Communication
Key Personnel
Social
Contacts
Integrity
Trust Preconditions Based on Experience from Prior Interactions
Figure 26. Trust-Building at the Commitment Stage of Relationship Development
35
Figure 27. Risks and risk sources in relationships with Russian partners.
36
6
Performance Measurement & Strategy Implementation (P 6) Seppo
Niittymäki
Special Character of Russian Business Environment
In Russian project b usiness management and leader ship models, as well
as
company performance, measurement indicators should be adjusted to the Russian
tradition a nd bu siness cu lture. N etworked companies seem to h ave extrem e
difficulties in apply ing mat rix t ype organ izations in Ru ssia, as Ru ssian
management practices are bas
ed tradit ionally on s trong an d au thoritarian
leadership. However, clear and specific targets should be set to projects as well as
strategic business areas. The targets
and bonuses should be agreed with
managers and staf f t hroughout the company, an d th e busi ness network. In
Russia, both leadership and personal networ ks within project stakeholders have
more emph asis t han in F inland, because in person al relat ions t o au thorities’
organizations, for example, are needed at every stage of the construction project.
Traditionally strategi c pl anning and strate gy i mplementation may be carried out
with nu merical mode ls, described below , by set ting measu rable t argets f or each
dimension. Many issues will affect target setting: results from the previous years,
the coun try in qu estion, an d th e polit ical, e conomic, socio logical, t echnological
and env ironmental sit uation (P ESTE) an d development of t hese factors in the
future.
The Russia n situation is mo re co mplicated: the polit ical, econ omic, socio logical,
technological an d e nvironmental s ituation is t otally dif ferent an d part ly
unpredictable. Also, t he bu siness cu lture is t otally different: power an d
responsibility is concentrated to the main director of a company even according to
Russian la w, t radition su pports st rong an d au thoritarian leadership; f ormer
acquaintances are h ighly apprec iated as a part of business culture as well as in
common life (Figure 28).
Management and Leadership styles in Finnish‐Russian Business Networks according to authors experience and interviews (Expressed as an application of Blake& Mouton ‐model)
Source for basic model: http://www.leadership‐and‐motivation‐training.com/blake‐and‐mouton.html (Nov 19, 2009)
Country club,
relations
most
important
Network leader
Russian
LEADERSHIP OF NETWORKS: CONCERN FOR PEOPLE 6.1
Needed
direction of
development
Middle of the Road (Politician)
Finns
No effords to people
No effords to tasks
Authoritarian style; money talks
MANAGEMENT OF NETWORKS: CONCERN FOR TASK
27.11.2009
P6:Performance measurement, Stroi Network, Seppo Niittymäki
37
7
Figure 28. Development needs of management a nd leadership in Finnish Russian
business n etworks (Il lustrative appl ication of the Bl ake & Mounto n model for
business networks based on the author’s experience and discussions during
interviews).
6.2
From Balanced Score Card to Network Score Card
Importance of network culture and resources in planning strategy was indicated
(Figure 29).
From Balanced Score Card (BSC) to Network Score Card (NSC)
Business Sector
In Finland: purchasing department
Russia: gifts and services
BSC
Vision of Business Network
Customer
NSC
Finance
Network
resources
08.12.2009
In Finland: competition
Russia: relationships
Networks operating
Learning and
models
Network
Internal processes
processes
growth
P6:Performance measurement, Stroi Network, Seppo Niittymäki
Figure 29. From company Balanced Scor e Card (BSC)
(NSC).
6.3
Network culture
13
to Network Score Card
A Model for Strategic Planning and Strategy Implementation in Project Business
Planning st rategy i n pro ject based business depends on various perspectives
considered, and expectations abo ut thei r future develo pment (Figure 30). The
most important perspectives are the business sector and country, a succes sful
vision for a company and b usiness networ k, managi ng human res ources wi thin
companies and busi ness netwo rk, intern al development and learning within
network, k eeping up customer ori entation and al so setti ng measurabl e target s
within compan ies an d bu siness n etworks. T he imp lementation of st rategy w ill b e
possible; if targets are set and agreed
upon i n a way tha t everybody will
understand their objectives and responsibilities within project business.
38
A Model for Planning and Implementing Strategy in Project Business
P6:
Finance
P1:
Business
Sector
P5:
Customer
orientation
P2:
Network
Vision
P4:
Internal
development
27.11.2009
P3: Human
Resources
P6:Performance measurement, Stroi Network, Seppo Niittymäki
14
Figure 30. A model
for Strateg ic Planni ng and Strategy Implementation in
Networked Companies and SBUs (Strategic Business Units). S trategic business
units may consist of different building projects.
6.4
Performance Measurement in Business Networks in Russia and Finland
Performance measurement indicators sh ould point to wards network com mon
targets of the network in order to implement the change as soon as possible
Figure 31).
39
Most important factors to be measured according to interviews and survey
Survey
Interview
Business sector and customer …
29. Knowledge sharing 1. Market share
5
28. Common development
2. Compnany reputation
27. Streamlining activities
3. Customer satisfaction
4,5
Commitment to NW
4. Market share of network
4
3,5
26. NW Risk sharing
5. Innovations from customers
3
25. Common NW development
Human resource management
2,5
2
Flexibility
6. Staff turnover
1,5
24. Confidence, trust
7. Staff skil level 1
0,5
23. Number of reclamations
8. Development and appraisals
0
22. Punctuality in delivery times
9. Work satisfaction
Reliability:
10. Ability to form networks Network (NW)
Development
21. Liquidity
11. Procurement system 20. Profit of a product, %
12. Trend of work accicents
19. Order book change
18. Growht of turnover(%)
17. Profit out of turnover, %
16. Return on Capital …
13. Trend of productivity
14. Innovations
15. Dividing benefits of …
Finance
Six most important factors for each perspective
27.11.2009
P6:Performance measurement, Stroi Network, Seppo Niittymäki
16
Figure 31. The most important 6 factors (PMI, Performance Measuring Indicators)
to be mea sured within project-oriented business networks. In
this figure the
importance of measuring innovations is underestimated, as a tradition to measure
innovation does not exi st. At least one performance measurement indicator (PMI)
should be select ed for the following perspectives: Business sector a nd Customer,
Human Resources, De velopment, Fi nance and as well Network confidence and
Flexibility.
The most important factors divided acco
rding to perspectives P1-P6 to b
e
measured wi thin busi ness net works are th e f ollowing f actors, wh ich sh ould hav e
target values for present and the next two years:
P1: Business Sector,
1 company reputation
P2: Network Aspects
2 punctuality of delivery times
3 number of reclamations
4 confidence within network
5 common development and
6 streamlining activities
P3: Human Resources
7 staff turnover
8 work satisfaction
P4: Internal Development
9 trend of productivity
P5 Customer Orientation
10 growth of turnover and
11 order book change
12 profit of a product
40
P6: Finance
13 return on capital employed
14 profit
These facto rs have be en indicated by tr iangulation of two di fferent data sets ,
which were got first by web-robol survey with questionnaire and later on by fac e
to face interviews.
However, the method of application in Finland and Russia should be different. I n
Russia the posi tion of the main director is d ifferent compared to Finland. For the
main Russian director there should be adequate resources in order to carry out all
duties for Russian authorities an d Finnish h eadquarters. An i mplementation o f
applied ma nagement systems w ill imply r emarkable t raining ef forts f or F innish
and Russian staff members.
Improving st aff inn ovation abil ity an d in itiatives w ill be c hallenging i n Russia, as
this is h as n ot been appreciat ed within compan ies ear lier. T he st arting poin t f or
adopting a l earning organi zation co ncept could be development discuss ions
(appraisals). During a ppraisals d evelopment and learn ing targets for different
perspectives as well as possible bonuses should be agreed upon.
41
7
Conclusions and future objectives
Finnish companies and busine ss ne tworks have some d ifficulties in p lanning and
implementing their strategies in Russia, n ot on ly du e t o presen t f inancial cr isis.
Finnish companies and busi
ness networks seem to rel
y on
matrix type
organizations. T he learni ng organi zation is qu ite w ell k nown in F innish
organizations at management level. In Russia, management tradition and practice
are different compared to Finland: authoritarian management and leadership style
is prevailing; staff development discussi ons (appraisals) are n ot w ell u nderstood
and applied.
Clear and specific targets sho uld be set to p rojects as well as strategic business
areas. The targets and bo nuses should be agreed with ma nagers and staff
throughout the company, and the business network. I n Russia, both leadership
and personal networks wi thin project stakeh olders have more emphasis than in
Finland, because personal relat ions to auth orities’ organizations, for example, are
needed at every stage of the construction project.
The most important factors to be meas ured wi thin bu siness netw orks are the
following factors, which should have target values for the next two years:
1 company reputation
2 punctuality of delivery times
3 number of reclamations
4 confidence within network
5 common development and
6 streamlining activities
7 staff turnover
8 work satisfaction
9 trend of productivity
10 growth of turnover and
11 order book change
12 profit of a product
13 return on capital employed
14 profit
However, the method of application in Finland and Russia should be different. I n
Russia the posi tion of the ge neral director is different compared to Finland. For
the mai n Russi an di rector th ere should be adequate resources in order to carry
out all duties for Russian authorities and Finnish headquarters. An implementation
of applied management s ystems will imply remarkable training efforts for Fi nnish
and Russian staff members.
Improving st aff inn ovation abil ity an d in itiatives w ill be c hallenging i n Russia, as
this has no t been ap preciated wi thin compan ies earl ier. The starting poi nt fo r
adopting a learning organization concept could be in development discussions (i.e.
appraisals). D uring appraisals d evelopment an d learn ing t argets as w ell a s
possible bonuses should be agreed upon.
42
Table of Figures
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
1.
2.
3.
4.
5.
Co-operation companies and their representatives. ..............................................4
Long-term objectives, perspectives, contents and research institutions. .................. 5
Researchers, Topics and Expected Results. .........................................................6
Research organization and researchers. ............................................................. 6
Appl ication of Cons tructive Rese arch Approach. Item 1) and c onnection to
theories have been introduced in prev
ious stage of this research project:
Profiling Business Networks Oriented to Russia (Niittymäki et al. 2007, in total
65 pages). ................................................................................................... 7
6. Common approach for STROI Network research project. ....................................... 8
7. Network’s and companies operations model for selection of business sector. ........... 9
8. GDP and co nstruction in Russia. Source: Goskomstat . It is remarkable Russia n
construction market is reacting faster to recession than Finnish market. ............. 11
9. Di fferent networks and environments. Source: Valkokari Katri et al. Tykes report
2009......................................................................................................... 12
10. Balenna – Market information network in VTT.................................................. 13
11. Vision process. Source: Riihimäki & Vanhatalo 2006. ........................................ 13
12. Categories of busi ness net works and “ traffic l ights” for vi ewing th eir current
status. ...................................................................................................... 15
13. Business o pportunity broker for finding appr opriate partner networ k, e.g. the
bidding consortium or some finance agent...................................................... 15
14 A. Core employee (CE) profile Figure 14 B. Fields of CE identification ................ 18
15. Learning organization framework – the survey results on the nine factors. .......... 21
16. Macro factors in Finland and Russia. .............................................................. 23
17. Competitive profile of the market segments within construction industry. ............ 24
18. Characteristics of the companies’ strategic process. ......................................... 25
19. Framework of interfirm market orientation (Tretyak, Rozhkov, Popov, 2009). ...... 28
20. Market entry strategies. ...............................................................................30
21. Relationship stability drivers. ........................................................................ 30
22. Russian market difficulties. ........................................................................... 31
23. Relationships with customers and suppliers. .................................................... 31
24. The proposed conceptual framework. ............................................................. 33
25. Overview of trust forms within the relationship development process .................. 34
26. Trust-Building at the Commitment Stage of Relationship Development ................ 35
27. Risks and risk sources in relationships with Russian partners. ............................ 36
28. Development needs of management and leadership in Finnish Russian business
networks (Illustrative application of t he Blak e & M ounton model f or bu siness
networks based on the author’s experience and discussions during .................... 38
29. From company Balanced Score Card (BSC) to Network Score Card (NSC). ........... 38
30. A model for Strate
gic Planning and Strate gy Im plementation i n Networked
Companies and SBUs (Strategic Busine ss Uni ts). S trategic business units may
consist of different building projects. ............................................................. 39
31. The most important 6 factors (PMI , Perfor mance Mea suring Indi cators) to b e
measured wi thin project-ori ented busi ness networks. In thi s fi gure the
importance of measurin g in novations is u nderestimated, as a t radition t o
measure i nnovation d oes not e xist. At lea st on e p erformance me asurement
indicator ( PMI) sh ould be select ed f or the following perspectives: Business
sector and Cus tomer, Human R esources, Devel opment, Fi nance and as w ell
Network confidence and Flexibility................................................................. 40
43
STROI-NETWORK
BUSINESS NETWORKS IN RUSSIA
FINAL REPORT 2009
PART 2: ACADEMIC ARTICLES
Finland
HAMK: Niittymäki Seppo, Tenhunen Lauri and Weck Marina
TUT:
Lod Timo, Niittymäki Seppo and Tolonen Teuvo
VTT:
Kähkönen Kalle, Nippala Eero, Perälä Anna-Leena and Riihimäki Markku
Russia
GSOM: Minina Vera, Dmitrienko Elena and Krupskaja Anastasia
HSE: Filinov Nikolay, Tretyak Olga, Settles Alex, Bek Nadejda, Buzulukova Ekaterina, Popov Nikita, Rozhkov Alexander and Vladimirova
Nina
1
Contents
1. SELECTION OF NETWORK BUSINESS SECTOR (P1) ..................................................... 5 1.1 Selection of network business sector (Riihimäki, Nippala, Perälä) ........................... 5 2. VISION OF BUSINESS NETWORK (P2) ..................................................................... 17 2.1 Corporate Cooperative Relations and Vision Process as its Development Tool:
Markku Riihimäki and Anna-Leena Perälä .......................................................... 17 2.2 Future Business Networks in Russia for Project Based Business (Kähkönen,
Huovila) ....................................................................................................... 19 3. COMPETENCE OF HUMAN RESOURCE (P3) ............................................................... 29 3.1 Human Resource Management In Project-Based Firms: Core Employees Focus
(Minina, Krupskaja, Dmitrienko) ...................................................................... 29 4. INTERNAL DEVELOPMENT OF THE NETWORK (P4) ..................................................... 49 4.1 The
Evaluation
of
Perceptions
of
Finnish
and
Russian
Manager
Regarding the Organization Learning Potential of Their Firms (Settles) .................. 49 4.2 Strategic Process of Finnish Construction Companies, Building Networks in
Russia (Bek, Vladimirova) ............................................................................... 58 4.3 Decision making (Filinov) ............................................................................... 74 5. CUSTOMER PERSPECTIVE AND MARKETING (P5) ...................................................... 78 5.1 Developing Marketing for the Stroi-Network (Tretyak, Buzulukova, Rozhkov,
Popov) ......................................................................................................... 78 5.2 Building Trust in Counterweight to Risks Perceived in Finnish-Russian InterOrganizational Relationships in Construction Business (Weck) ............................ 107 6. PERFORMANCE MEASUREMENT IN BUSINESS NETWORKS IN RUSSIA AND IN
FINLAND (P6) .................................................................................................... 140 6.1 Towards management and leadership models for Russian business networks
(Niittymäki, Lod, Tolonen) ............................................................................ 140 7. INTERVIEWS ..................................................................................................... 160 7.1 QUESTIONS AND REPORTING TEMPLATE ........................................................ 160 7.2 Annex 2: Questionnaire for HRM .................................................................... 167 8. LIST OF INTERVIEWS ......................................................................................... 174 2
FIGURES
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The real estate and construction cluster in Finland. Source: VTT, 1998. ..........................................8 Network’s and companies operations model for selection of business sector. ................................. 13 GDP and construction in Russia. Source: Goskomstat. ................................................................ 15 Different networks and environments. Source: Valkokari Katri et al, 2009. ................................... 17 Balenna – Market information network in VTT. .......................................................................... 18 Vision process. Source: Riihimäki & Vanhatalo 2006. ................................................................. 18 Virtual Breeding Environment for creating preparedness of participating players to set up a virtual
organisation to meet market challenges. (Huovila et al., 2009).................................................. 23 2.2.2. PPP Broker. ........................................................................................................................... 24 2.2.3. Subcontractor management Broker. ......................................................................................... 25 3.1.1. Five groups of CE capabilities. ................................................................................................. 39 3.1.2. Three-field model for CE identification. ..................................................................................... 40 4.1.1. Profiles of answers concerning learning organisation in Finland, Russia and USA. ........................... 55 4.1.2. Histogram of the distributions. Russians scored their managers lower than Finns with both lower
mean (69 for Finns versus 65 for Russians) and mode (70 for Finns versus 60 for Russians)
scores. ............................................................................................................................... 56 4.2.1. Interconnections between Internal and External Networks .......................................................... 61 4.2.2. Network level strategy. .......................................................................................................... 62 4.2.3. Factors, Influencing Strategic Control Form............................................................................... 63 4.2.4. Interdependence of parent company and its subsidiary. ............................................................. 64 4.2.5. Macro factors in Finland and Russia. ........................................................................................ 65 4.2.6. Competitive profile of the market segments within construction industry. ..................................... 68 4.2.7. Network relations within project business ................................................................................. 69 4.2.8. Characteristics of the companies’ strategic processes. ................................................................ 70 4.3.1. Relations between different notions of “individual style” in the managerial context. ....................... 75 5.1.1. Structure of the chapter. ........................................................................................................ 79 5.1.2. The research focus................................................................................................................. 80 5.1.3. The preliminary framework of market-oriented interfirm network. ............................................... 81 5.1.4. Evaluation of network’s degree of customer orientation. ............................................................. 82 5.1.5. The phases of relationship development. .................................................................................. 87 5.1.6. The Morgan and Hunt’s KMV model of relationship marketing. ..................................................... 88 5.1.7. Different entry strategies to Russian market employed by Finnish companies. ............................... 94 5.1.8. The phases of relationship development. .................................................................................. 96 5.1.9. Relationship stability drivers. .................................................................................................. 97 5.1.10. Groups of Russian market difficulties. ..................................................................................... 98 5.2.1. Project-based inter-organisational relationship development. .................................................... 109 5.2.2. Overview of trust forms within the relationship development process. ........................................ 115 5.2.3. The proposed conceptual framework. ..................................................................................... 116 5.2.4. The overview of research methodology structure. .................................................................... 118 5.2.5. The overview of empirical research methodology. .................................................................... 119 5.2.6. The matrix of different types of trust and risk relation. ............................................................. 123 5.2.7. Trust development at the exploration stage of relationship ....................................................... 125 5.2.8. Trust development at the expansion stage of relationship ......................................................... 125 5.2.9. Trust development at the commitment stage of relationship ..................................................... 126 5.2.10. Risks and risk sources in relationships with Russian partners (Stage I). .................................... 129 5.2.11. Risks and risk sources in relationships with Russian partners (Stage II). ................................... 130 5.2.12. Risks and risk sources in relationships with Russian partners (Stage III). .................................. 131 5.2.13. Positive effect on trust. ....................................................................................................... 132 5.2.14. Negative effect on trust. ..................................................................................................... 133 6.1.1. Topologies of Business Networks (VTT). ................................................................................. 141 6.1.2. The development trends in performance measurement (Kulmala and Lönnqvist, 2006). ............... 142 6.1.3. Network scorecard approach (Gotcheva 2009). ....................................................................... 143 6.1.4. The main aspects of network performance measurement (Gotcheva 2009). ................................ 143 6.1.5. Structure of STROI Network project based in BSC thinking and 6 perspectives (Gotcheva 2009). .. 144 6.1.6. Towards network performance measurement (Gotcheva 2009). ................................................ 144 6.1.7. PDI (Power distance), Individualism (IDV), Masculinity (MAS) and Avoiding uncertainty (UAI) in
Finland and in Russia. Different results given by Yu&N. Latov (2003) and A.Nautov (1996) are
presented with vertical white arrows. (Filinov et al 2009). ....................................................... 145 6.1.8. Combined approach for the STROI Network research project. .................................................... 147 6.1.9. A model for Strategic Planning and Strategy Implementation in Networked Companies and SBUs
(Strategic Business Units). Strategic business units may consist of different building projects. .... 148 6.1.10. Performance Measurement Indicators (PMI) of a Business Networked Company or Strategic
Business Unit (SBU) for Strategy Implementation. Description has been derived by combining
dimensions used in Finnish companies (Niittymäki et al 2009). The Model is available on web-site
http://www.hamk.fi/stroi. ................................................................................................... 149 6.1.11. Uniqueness of the Russian market (Settles et al 2009). .......................................................... 152 6.1.12. Development needs of management and leadership in Finnish Russian business networks
(Illustrative application of Blake & Mounton model for business networks). ............................... 153 1.1.1.
1.1.2.
1.1.3.
2.1.1.
2.1.2.
2.1.3.
2.2.1.
3
Figure 6.1.13. The most important 6 factors (PMI, Performance Measuring Indicators) to be measured within
project-oriented business networks. In this figure the importance of measuring innovations is
underestimated, as a tradition to measure innovation does not exist. At least one performance
measurement indicator (PMI) should be selected for the following perspectives: Business sector
and Customer, Human Resources, Development, Finance and as well Network confidence and
Flexibility. ......................................................................................................................... 155 Figure 6.1.14. Most important 14 factors (PMI, Performance Measuring Indicators) to be measured within
project oriented business networks on the basis of average values of answers. In this figure the
importance of measuring innovations is underestimated, as a tradition to measure innovation
does not exist.................................................................................................................... 156 Figure 6.1.15. Reliability of the results is evaluated by using triangulation of different methods. Triangulation
brings up growth of turnover and order book change as a target for performance measurement. . 157 TABLES
Table 1.1.1. Internal and external data sources of business intelligence. ......................................................... 10 Table 1.1.2. Examples of public and private producers of information.............................................................. 10 Table 2.2.1. The main contextual factors of the economic logic behind project business (modified from Kujala et
al, 2008). ........................................................................................................................... 20 Table 2.2.2. Categories of business networks and their control for the visualisation of those with traffic lights...... 21 Table 2.2.3. Benefits of long-term inter-organizational relationships in Russia. ................................................. 26 Table 3.1.1. Russian model of management features, by Minina and Melnik (2008). ......................................... 30 Table 3.1.2. Main challenges for HRM in project-based business ..................................................................... 34 Table 3.1.3. Differences in Russian and Finnish HR and HRM practices. ........................................................... 37 Table 3.1.4. The main incentives and their impact on employees. ................................................................... 37 Table 4.1.1. Hofstede's Estimates for Finland and Russia. .............................................................................. 53 Table 5.1.1. Number of interviews done for each P5 topic under STROI-network project. ‘Trust’ topic is reported
separately. .......................................................................................................................... 89 Table 5.2.1. The scope of identified risk outcomes and causative events........................................................ 121 Table 5.2.2. The scope of identified trust preconditions. .............................................................................. 122 4
1.
1.1
Selection of network business sector (P1)
Selection of network business sector (Riihimäki, Nippala, Perälä)
Markku
Riihimäki,
VTT
(Technical
Centre
of
Finland),
Tampere,
Finland,
[email protected]
Eero
Nippala,
TAMK
(University
of
Applied
Sciences),
Tampere,
Finland,
[email protected]
Anna-Leena Perälä, VTT (Technical Research Centre of Finland), Tampere, Finland, [email protected]
ABSTRACT
Finnish construction sector companies are interested in Russian increasing construction and
service markets. Companies and clients act in different ways like in Finland. More cooperation between companies is needed in the future. Strategic management and business networking is relative new in Russia. Creating a strategic network is prerequisite for the successful business. Objective of Stroi-network is to develop management and leadership models for Finnish – Russian business networks operating in Russia.
Companies with their strategic networks need market information and vision. Market
analyses should be the more systematic and deeper the more strategic importance and
networking situation is. Market analysis will provide information and understanding, which
allows to redirect the company or the network's vision and strategy to the interesting market.
VTT is preparing a presume model for a total demand of the markets for different
kind end products of building, real estate and environmental sector in Russia, primarily targets for St. Petersburg and Moscow regions. Research objects or business sectors are new
regional building (residential and business), wooden products and service business (life cycle services and maintenance, services during construction). Result of this part is forecast
model for a total demand of the products.
INTRODUCTION
Trade and business between Finland and Russia are growing and changing. Finnish construction sector companies are interested in increasing construction and service markets
with Russia. Companies and clients act in different ways in Russia than in Finland, while
more cooperation and market understanding are needed in the future.
Business networks need better understanding about drivers and trend knowledge of
different perspectives of construction in Russia. The project prepared a presume model for
total demand of the markets for different kinds of products from the building, real estate
and environmental sectors in Russia, primarily targeting the St. Petersburg and Moscow
regions.
The result was a forecast model for total demand of the products, which were targets
for the research. A working model was created for defining the product range and realization network for companies operating with building, real estate and environmental sectors.
The model helps to receive the marketing situation information for the conclusion base from
customers and network.
5
LITERATURE REVIEW
Industry description
The companies and organizations of construction sector needs information about their own
business sector statistics etc. There are often problem that information between different
sources are not comparable. For example the description of construction industry and precise activities which belong to the construction can vary. In some countries planning sector
belongs to construction but not in Finland. The analysts of statistics have to know at least
rough level this kind of differences between construction statistics.
Narrow definition of construction sector
Construction sector can be defined in statistics according to standard industrial classification
(TOL 2008). The Finnish SIC 2008 (TOL 2008) is based on EU´s NACE Rev.2 SIC (EU regulation number1893/2006). SIC 2008 classification is in 1–4 number levels similar to NACE
Rev.2, but 5-number level is national. (Statistics Finland, 2010)
A-X: Whole economy
BCDE: Manufacturing
A: Agriculture, forestry and fishing (01-03)
B: Mining and quarrying (05-09)
C: Manufacturing (10-33)
D: Electricity, gas, steam and air conditioning supply (35)
E: Water supply; sewerage, waste management and remediation activities (36-39)
F: Construction (41-43)
G: Wholesale and retail trade; repair of motor vehicles and motorcycles (45-47)
HIJKLMNRS: Other services
H: Transportation and storage (49-53)
I: Accommodation and food service activities (55-56)
J: Information and communication (58-63)
K: Financial intermediation (64-66)
L: Real estate activities (68)
M: Professional, scientific and technical activities (69-75)
N: Administrative and support service activities (77-82)
OPQ: Public sector
O: Public administration and defence services; compulsory social security services (84)
P: Education (85)
Q: Human health and social work activities (86-88)
R: Arts, entertainment and recreation (90-93)
S: Other service activities (94-96)
T: Activities of households as employers; undifferentiated goods- and services-producing
activities of households for own use (97-98)
U: Activities of extraterritorial organisations and bodies (99)
X: Industry unknown (00) (Statistics Finland, 2010)
Construction in statistics – classification
Construction has in statistics its own industrial statistics category F Construction, which has
been divided in Finnish SIC 2008, (41) new building construction, (42) civil engineering and
(43) specialized construction. (Vainio & Grönfors, 2009)
Construction can be new building, renovation and modernization and maintenance.
Construction consist also prefabricated building installation in situ and erecting temporary
buildings. (Vainio & Grönfors, 2009)
6
Construction statistics does not consist in the all construction sectors
Every country has its own statistics rules about what includes in construction sector. In
many countries construction consist only professional or contracting construction. In Finland
developing belong to construction sector both do it yourself and contracting. If building has
been made for rent, building developing belongs to real estate sector (L). Also developing
expand of the industrial building belongs to industrial classification (C). Developing state
and municipal buildings belong to O- industrial classification public governance. (Vainio &
Grönfors, 2009)
Construction sector intermediate products does not consist architectural services
(71110), construction design and structure planning and other engineering services and
technical planning (7112) neither renting construction machines without driver. (Vainio &
Grönfors, 2009)
Wide definition of the real estate and construction sector
Construction sector produce itself information about construction sector output. This information does not found direct according to industrial classification. Construction and real
estate sector can be described by the following way. The Finnish real estate and construction sector:





New residential and non residential construction
Renovation and modernization of buildings
Civil engineering
Real estate activities and
International activities of construction sector. (Vuori et al, 2008).
Construction cluster
The same definition can we do a different way (Figure 1.1.1). Year 2008 standard industrial
classification does not include direct combination for construction sector products. The construction sector classification has to collect from each industrial classification class a little
pieces. For example finance and insurance on construction sector is quite small of class K.
Also transportation of concrete elements is a part of transportation H class. If we want to
look at only construction sector work on site can we use class F.
7
The Real Estate and
Construction Cluster
interaction
customer ship
Construction sector
Real estate sector
Use and
maintenance
Owning
Sale and rent
Construction industry
planning
engineering
insurance
finance
wholesale, resale
authority advice
education
research
Building materials
and products industry
Building services
industry
Machines and other
Other services internal clientsservice
final clients
Figure 1.1.1. The real estate and construction cluster in Finland. Source: VTT, 1998.
Analysis methods
Data analysis means that the derived information combined with the earlier use of existing
data. Some of the acquired information is simply data, and information such as sales figures
or market share. Data is always to edit information, so that it could be used.
Analysis aims is to raise the level of knowledge, and edit the information into knowledge and understanding. There are numerous methods for data analysis. Sometimes a simple coffee table discussion is sufficient. Human knowledge sharing among the key personnel
is a common data analysis.
Without the support of systematic analysis the decisions relevancy decreases, because the decision maker may then underestimate the importance of the change and look
forward to changes in the environment too optimistic.
Business environment analyses. The construction industry provides a framework
for industry, housing, working and leisure. Because of the wide operating environment the
construction sector are analyzed a lot of through the business environment analysis. In addition, the business environment of the building industry has changed much in recent decades. Socially regulated and closed market has been opened, the local markets are open to
global competition and productivity demands have increased. Business Environment Analyses are part of company’s strategic thinking, planning and management. Analyzes creates
the overall vision of the various factors, prevailing market situation and development of the
situation. Business Environment Analyses are for example: (Vuori et al, 2008)



PESTE
Porter: Five Forces
Nine Forces
8


Indications and warning analysis
Driving forces analysis
Competition, competitors, customers and market analyses. To follow up the
competitors' actions has been an integral part of the business. Failures in the identification
of competition, may lead to difficulties, and to terminate the company's business. Customer
and market understanding is equally essential to the company's business. The methods of
analysis aims are to convert its competitors, customers and market data collected by consensus. This analysis will help create an understanding of a competitor's product development strategies and expansion plans, identify potential new customers and markets to predict the impact of changes to business. Competition, competitors, customers and market
analyses are for example: (Vuori et al, 2008)









Country risk analysis
War gaming
Win/Loss analysis
Strategic relationship analysis
Shadowing
Competitor cash flow analysis
Analysis of competing
Linchpin analysis
Demographic analysis
The company's own actions, strategies and analysis of the products. Realistic
view of companies owns business activities and opportunities is a prerequisite for successful
operation. For a company to plan future activities and to explore the potential of its products, it is a self-analysis and critical information about their products. Analysis should take
into account that, even looking at is the company itself, not the analysis can only is based
on internal business data. So that overall picture is as close to the real, is also included in
the analysis of external information about the company's operations and products. (Vuori et
al, 2008)











Scenarios
Benchmarking analysis
SERVO analysis
McKinsey 7S analysis
Competitive positioning analysis
Business model analysis
Corporate reputation analysis
Critical success factors analysis
Product line analysis
Supply chain management analysis
Technology forecasting
9
Information sources
The information delivered for business strategy and operative planning, competitive intelligence, can be purchased internal or external data sources (Table 1.1.1). Data supply is controlled by description of information need.
The staff is said to be the most important data source for business information. The
persons who are working all the time with clients get continuously new information about
clients and market trends. They get information about competitors, technologies, and general development of the business (Vuori et al, 2008). The data sources in the company are
important. There we can get information from company itself and its business trends. It is
important for the company leaderships to recognise company’s efforts and resources. With
the external data of company it is possible to find out possibilities and threats. Without internal information of the company and knowledge of own company this is not possible.
(Vuori et al, 2008).
Table 1.1.1. Internal and external data sources of business intelligence.
Internal data sources of the company
External data sources of the company
Staff
Competitors
Operative information (e.g. sales)
Supplier
Company’s own Data products
Clients
Data Storage
Media
Market research
Business trends
Nowadays companies concentrate more to collect information outside the company
as clients, competitors and material suppliers. According to the study 50 biggest Finnish
company’s most important needs for information are company’s own activities and competitors and clients. (Halonen & Hannula, 2007)
Information sources outside of company are numerous (Table 1.1.2). Important
sources are also different kinds of inquiries and market studies, statistics and magazines
and scientific publications. Internet is actually not source of information but it is channel to
achieve different kinds of data sources. We can compare internet to library where you can
find information. (Vuori et al, 2008)
Table 1.1.2. Examples of public and private producers of information.
PUBLIC
Authorities
Research institutes
Universities and Universities of Applied Sciences
Finance
Chamber of Commerce and construction sector unions
International organizations
National export agencies
PRIVATE
Market research institutes
Media
Social media services
Credit information companies
Education
Experts and managers of the company get the biggest part of the used information
by personal interaction. Important situations for using human information sources are
meetings, telephone calls, coffee breaks and lunch. Interaction between persons is impor-
10
tant in verbal dialogue. Information is so at least partly analysed and more far processed
than information collected outside the company. (Vuori et al, 2008)
The information management is effective when delivery of the information is as wide
as possible divided to the whole staff. We must remember that information collected from
staff there are problems compared to information produced by company’s information system. The information produced by staff easy is more difficult to report than information reported from ready in explicit form information from company’s information systems. (Vuori
et al, 2008)
Confidence is very important in human information use. Without confidence between
each company and person dialogue will stay very short and share of information does not
succeed. This happens also to information inside and outside the company. Sometimes
companies publish on purpose wrong information to cover their own business and to cause
harm to competitors business. This action is called counter intelligence. That is why there
must be many information sources to make sure that information is correct. (Vuori et al,
2008)
The source and use of information is important. There are difficulties to reach the information outside the company. That is why companies often have outsourced information
delivery outside the company. Outsourcing means that company buy different kind of reports and scientific articles. Information sources of the Construction sector can be divided to
private and public sources (Table 1.1.2). (Vuori et al, 2008)
Companies use in their home land often primary information sources. Foreign companies have to use often secondary information sources because they do not have direct
contacts for example to local authorities. Foreign companies have to use local expert services consultants which can collect the needed information via their own personal contacts.
RESEARCH PROJECT
The objective of the Stroi-business network was to develop management and leadership
models for Finnish – Russian business networks operating in Russia.
Project description and objectives
Main objective of the project was preparing a forecast model for a total demand of the markets for different sub-sectors and different kind products of building, real estate and environmental sectors in Russia, primarily targets for St. Petersburg and Moscow regions.
Other objective was topical knowledge of different perspectives (political atmosphere, supplying the products and competition situation, customer behaviour and decision
making, technology development, taking environment into consideration…)
Products / networked companies / business lines were
 Wooden products
 Residential buildings (dwellings) in new regional/urban building
 Commercial and industry building (e.g. business parks, retail parks)
 Service business (life cycle services and maintenance, services during construction)
Project outcome is a forecast model for a total demand of the products which are as a target for the research. Working model is defining the product range and realization network
for companies who operating with building, real estate and environmental sectors.
11
RESEARCH RESULTS AND INDUSTRIAL IMPACT
Construction market in Russia
Russian construction markets are very large and focus action differ from new building construction, renovation and modernization and civil engineering in different areas.
Estimated construction volume was in construction sector about 150 billion € in
2008. Investments have speeding up during last years, but in 2009 and 2010 they have
dropped dramatically and building contractors have stopped many building sites. (Perälä et
al, 2009)
Commissioned new building volume was in Russian 765 000 dwellings in 2008. This
means 2/3 of total new building markets. Single-family house production was almost
200000 dwellings. Most new dwellings have been built in Moscow area, Krasnodar area,
Moscow city and St. Petersburg. Some weak positive signs have been noticed in those markets. Long term strategic dwelling programmes in public sector will continue slowly during
next years. (Perälä et al, 2009)
Private non-residential construction increased significantly during last years by Russian and international investors, because there is lack of new modern business space. Now
banks have tightened loans to those investments, but the weak recovery has started.
What market information is the opinion of companies’ important information?
Important market information change according in focus of business area and strategic importance. Most coarse information is general knowledge about construction, economy and
forecasts of line of business. Next steps can be new construction volumes, forecasts and
demand of products and services. Most deep step includes for instance forecasts of selected
products and more accurate questions about market areas.
VTT executed in 1999 RusBuild Info-Net (possible expert network about Finnish Russian action plans) in projects of companies (21 construction companies) about needed information about Russian markets. According the questionnaire most important questions
were:
 statistic from different sectors, size of markets, forecasted market growth
 information about started projects and investments
 new regulation, legislation
VTT tested with Finnish companies of Stroi-project what is needed market information from Russia. During last ten years needed market information have changed nothing
much. Just this time forecasted information have got through important, so that experts can
forecast, when recession changes again to increase and production of companies can adapt
to changing economic situation. This information is for instance GDP-forecasts, construction
forecasts and trust indicators. Also a cycle of follow-up is rapid, because information goes
soon out of date.
Also Valkokari (2009) handles by cases and conceptual level formation of strategic
intent and shared identity in strategic business networks.
The most-developed Russia related competence of Finnish companies can be
grouped in general: Strategic Planning and Design, business communication and Sales (Fintra, 2009).
12
Forecast model for total demand
Construction industry is very heterogeneous in many countries. The companies vary from
small one-man shops to multinational corporations. Construction has a lot of connections
e.g. public administration, finance and demand from market. Construction sector is traditionally very manufacturing-oriented and product-oriented line of industry. In recent years
the orientation has been shifting more towards customers and services.
Companies should constantly analyse the market. Adjusting to changes in business
environment is nowadays a demanding task because, changes are likely to become more
rapid and demand quicker response than before. Needs of market information varies a lot
by company. Market analyses should be the more systematic and deeper the more strategic
importance and networking situation is. Market analysis will provide information and understanding, which allows to redirect the company or the network's vision and strategy to the
interesting market. Selection of business or market sector is continual process, in which
actions and understanding grows together with importance. (Figure 1.1.3).
Companies and networks market knowledge, understanding and vision are connected
and grow together. Changes in the market, in technology and competitors’ and customers’
operations affect to companies’ decisions and actions. Companies are increasingly utilising
intelligence activities to transform information into actionable knowledge.
Deep
Forecasts
BI
Selection of Business Sector  continual process
-
Price of product
Distributer
Key customers
Terms of delivery
- Analyses of products, forecasts
- Distribution network
- Analyses of competitors
- Price level
Aims
Information
Knowledge
Basic
Data collection
Fragmentary
Market knowledge
Implementation
Data
Analyses
ion
s
i
V
y,
g
e
at
Str
Understanding
Actions
- Analyses of countries
- Inhabitants, living standard
- Volume of construction and quality
New company
Subcontractor
Small
Branch/Sector/Country
Strategic importance
- New companies to branch
- Cost competition
- News review
Established
Network
Big
Figure 1.1.2. Network’s and companies operations model for selection of business sector.
Selection and analysing of business sector (Figure 1.1.3):
1 Accesses to the market (lower left corner)
- Country level analyses (population, living standard, salary, value and amount of construction and quality of construction, political atmosphere)
2A Further Analyses of construction branch (upper left corner) (small company)
- Key customers (who buys and buyer opinions)
- Distribution channel (competitors distribution channels)
- Price and terms of delivery
2B Further Analyses of construction branch (lower right corner) (Network or big company)
13
- New companies to the branch
- Cost competition
- News review
3 Network action supporting Analyses (upper right corner)
- Changes of distribution channel and competitors activities
- Product level demand forecast
- Continuous follow-up of prices and projects
VTT Technical Research Centre of Finland (VTT) has developed a forecast model in
order to forecast demand for different building materials and components for about 30
years for the Finnish market. This has been quite successful activity and is working well in
Finland. In Russia the situation is different. In Finland, the construction industry is well established, while Russia is building a lot of growth potential. There are no similar statistics
available in Russia as in Finland and therefore a new approach is needed in order to predict
demand in the building sector with a reasonable level of accuracy.
The model will produce demand forecasts for construction sector material use in new
buildings. The model also produces basic information on the construction and property market sector’s future service demand. This information will be needed in companies’ strategies, business plans and vision. The numeric model needs information also about the following aspects for example:
– Political atmosphere
– Economic situation
– Demand and competition of different products
– Decision-making and clients
– Technology development
– Environmental atmosphere
– Social atmosphere.
By combining numeric data and socioeconomic information about the region, companies and business networks will have basic information about total demand for building
products in order to create company strategy.
Relevant basic data for the network in construction and service business is GDP Traditionally the construction output changes are greater than changes in GDP (Figure 1.1.4).
Most important is to see the GDP’s turning points. In the near past construction sector has
grown most of the all sectors in Russian economy, while it's now decreasing. The potential
is still enormous. In the Russia there is a need to built about 25 million new flats (60 m²) to
achieve Nordic housing area (22 m²/capita ->32 m²/capita). There is also need to renovate
and modernize existence residential and non-residential building stock. (Perälä et al, 2009)
14
GDP and Construction in Russia
%-change y-to-y
20
%
15
GDP
Construction
10
5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-5
-10
-15
-20
Source: Goskomstat
Figure 1.1.3. GDP and construction in Russia. Source: Goskomstat.
VTT has developed the forecasting model for Russian market within the STROI Network project with a constructive approach by utilizing the model developed for the Finnish
market. The Finnish model has been modified to fit Russian circumstances. New information
items and sources have been found in order to forecast demand in the Moscow and St. Petersburg areas.
A construction and property market forecasting model based on regional GDP development, salary changes, investments, building construction statistics and changes in inhabitants and other indicators from those regions. In that construction forecast model could apply widely for different materials and services in the construction sector.
Together with market size analyses and forecasts, company or network needs information about market share, competitors, customers, prices, distribution channel and product adaption and so on.
In order to make optimal choices, decision makers need essential and accurate information and analyses from business.
CONCLUSIONS
Construction statistics from Russia, Moscow and St. Petersburg are often different than
Finland statistics. In data gathering and analysing have to be aware in those differences.
Companies should constantly analyse the market. Important market information
change according in focus of business area and strategic importance. Most coarse information is general knowledge about construction, economy and forecasts of line of business. For
example construction has follow up with GDP changes in Russia.
Market analyses should be the more systematic and deeper the more strategic importance and networking situation is. Selection of business or market sector is continual
process, in which actions and understanding grows together with importance.
15
Sharing competitive intelligence information between network companies is important. This strengthens trust in network and help to make right choices in business strategies.
ACKNOWLEDGEMENT
Project is sponsored by TEKES (Finnish Funding Agengy for Technology and Innovation) and
16 companies. Finnish research institutions are TTY (Tampere University of Technology),
VTT (Technical Research Centre of Finland) and HAMK University of Applied Sciences. Russian research institutions are The State University Higher School of Economics and St. Petersburg State University.
REFERENCES
Fintra (2009). Competence Assesment of Finnish Companies in Russia. Executive summary.
September, 2009. 6p.
Goskomstat (2009). http://www.gks.ru/eng/. (Accessed December 2009).
Halonen, P. and Hannula, M. (2007). Liiketoimintatiedon hallinta suomalaisissa suuryrityksissä vuonna 2007. E Business Reseach Center, Research report 37/2007. Tampereen teknillinen yliopisto. 49s.
Perälä, A-L., Grönfors, T. and Nippala E. (2009) Stroi-verkko. Venäjän markkinat. VTT
2009. Luottamuksellinen. 44s.+liitteet 6s.
Statistics
Finland
(2010),
Standard
industrial
classification
http://www.stat.fi/til/tol2008.html (Accessed 15 February 2010).
(SIC
2008).
Vainio, T. and Grönfors, T. Rakennuskustannusindeksi 2010=100, VTT Tutkimusraportti
VTT-R-08752-09, 23s.
Valkokari, K. (2009). Yhteisten tavoitteiden ja jaetun näkemyksen muodostuminen kolmessa erityyppisessä liiketoimintaverkostossa. VTT Publications 715. VTT, Espoo. 278 s.
+ liit. 21 s.
Vuori, V., Myllärniemi, J., Hannula, M, Nippala, E., Ala-Kotila, P. and Riihimäki, M. (2008).
Rakennusalan liiketoimintatiedon hallinnan opas, Rakennustieto, 79s.
VTT (1998). Well-being through construction 1998. VTT. 33 p.
16
2.
Vision of Business Network (P2)
2.1
Corporate Cooperative Relations and Vision Process as its Development Tool: Markku Riihimäki and Anna-Leena Perälä
Traditionally, cooperative relations between companies and networks have been evolved
and formulated, but the networks can be seen as a strategic resource that can be lead, and
which may have common goals and visions. In which Vision is a value-based future status
of the network’s will.
Different networks have their own objectives, partners, and an undertaking to play a
role. An enterprise's ability to operate in different networks and the ability to build a network of relationships is a prerequisite for success in the future. Operating in the network
and network management is different. A modern network goes to the traditional authoritarian management more to the collaborative management. The collaborative management
works best in quite democratic networks. That emphasized in international market, when
the company tries to penetrate a market.
Solid working relationships with the deepest (Figure 2.1.1) form a common approach. Such a network could offer a common, end-product. At the other extreme are open
networks that do not have solid working relationships. Open relationships are used, such as,
joint learning, sales and marketing co-operation or co-product development. An example of
an open network is VTT's Market Information Network (Figure 2.1.2), in which various
stakeholders are working together to learn and acquire market information and a new foreign market area.
Figure 2.1.1 presents a variety of network environments.
Different networks and environments
Partnership
networks
to clients
Company
Business knowledge
Horizontal
Sales, marketing,
learning, r&d,
development networks
User societies and
consumers
Social networks
Process knowledge
Production and planning
Technology knowledge
Product and technology
development
Financial management,
data systems
Clients control
Innovation
Networks
Across branch
Interest groups
Financing
Insurance
Companies
public decisionmakers
Vertical
Production networks
Figure 2.1.1. Different networks and environments. Source: Valkokari Katri et al, 2009.
17
Market information network in VTT – Case "Balenna"
Network of information
sources, production and
subcontractors
Network of information
utilitzers and companies
Company 1
Local statistics
Technical university
Company 2
Federation of Construction
Company 3
Company 4
Ministries
etc.
etc.
Figure 2.1.2. Balenna – Market information network in VTT.
Vision Process
Tightness and the strategic importance of the network lead to the objectives and vision formation in the network. Vision is one effective network management tool. The network’s cooperative development and implementation is a multi-level and long-time process. Strong
vision provides the direction on which the network’s enterprises can rely. Vision will be the
clear will of the network's future status.
Vision process is shown in Figure 2.1.3. The vision process works best in quite democratic networks.
6. Switching the vision in
practical operating and its controlling
5. Clearing differentiating vision
and crystallizing
4. Clearing the competitio n benefit similar to
the needs
3. Customer profiles – prioritizing, groupin g
2. Forming the visioning group – parties and targets
1. Recognizing the point of dep artures – base fo r need ‐based vision
Figure 2.1.3. Vision process. Source: Riihimäki & Vanhatalo 2006.
18
The vision process should be taken into account companies visions, strategies, as
well as other objectives in a single starting point. The starting point is also the network's
strengths as well as the various parties' views of common objectives.
Vision process should start early enough. Ideas have to mature sufficiently long
time. The views of the parties, development ideas and expectations in favour of should collect in advance. Vision process success are the early-block, leadership, scheduling and share
of information. Those are the key factors.
Vision is also choice making, that’s why for example the vision process should define
customer profiles. In collaborative management the design of vision contributes significantly
to more people than the traditional operation. During the vision process in this concept
should one company be as a supervisor role. The process owner or a director wonders how
the vision design is implemented.
One difficult problem for the strategic objectives is to set the goals which should be
expressed as we want. There is a question: who are we? Even the company consists of several teams (stakeholders, owners, customers and staff). The same basic problems are in the
network development.
The work of a network is characterized by the fact that everyone is associated with
the network's co-operation from their own premises. An effective network is needed, so are
networking meetings, and an open, transparent and efficient organization of information.
The network realization of the vision should be monitored for the joint management
team or the management forum. The goals should be monitored and reviewed regularly.
The network management team or forum does not make the actual decisions of occurrences, but signals to the parties the differences in goals and reports the results of the official decision-making.
REFERENCES
Riihimäki, M. and Vanhatalo, M. (2006). Visio kaupunginosan kehittämisen ohjaajana. VTT
Working Papers 58. VTT, Espoo. 36 s.
Valkokari, K., Anttila, J.-P., Hakala, T., Hyötyläinen, R., Korhonen, H., Kulmala, H.I., Lappeteläinen, I., Lappalainen, I. and Ruohomäki, I. (2009). Muutos on pysyvää – entä
verkostot? Kolmen liiketoimintaverkoston kehityspolut. Helsinki. 51 s.
2.2
Future Business Networks in Russia for Project Based Business (Kähkönen, Huovila)
Kalle Kähkönen and Pekka Huovila
VTT Technical Research Centre of Finland
ABSTRACT
This paper provides discussion on variety of relevant business networks and their development for construction operations in Russia. Various business networks in the context of
temporary projects require special attention also from the managerial viewpoint. Such networks are of strategic importance and thus they should be monitored and maintained systematically. Practical tools for this purpose are rare or do not exist. A specific tool is proposed for estimating and communicating the degree of formal and informal relationships
with regard of different networks on focus. Additionally, for future operations and network
19
development new type of so called broker centred business networks are proposed as a new
instrument that would help companies to be more agile and reactive in dynamically developing markets. However, a local cultural condition needs to be taken carefully in consideration when such networks are under development. Furthermore, a local condition is a vast
country such as Russia can vary considerably from one region to another. Thus one should
keep in mind that the research behind of this paper has its origins merely in the Moscow
and St. Petersburg area.
INTRODUCTION
This paper encompasses networking of individuals, companies, institutions and other organizations for the creation of new business opportunities that can finally result in new operational manoeuvres (e.g. solution design and engineering, marketing project, customised
product construction and delivery). Such arrangements can be temporarily or longer lasting
systems and they are often called also business networks. Business network as a term has a
rather broad coverage and it has a wide usage in spoken language rather than as a specific
carefully defined concept. However, within this paper we use the term business network as
a general reference to variety of networks enabling the creation and execution of business
operations.
We adopt a perspective of a project supplier firm that has constantly multiple simultaneous delivery projects in its ‘project production line’. This is the usual business arrangement in the companies of built environment sector. More generally this is often termed as
project based business. “The management of a business network is an area which includes
novel research themes that relate to several firms’ activities, where the firms engage from
time to time in mutual projects.” (Artto & Kujala, 2008)
LITERATURE REVIEW
The construction industry is a very heterogeneous combination of localised needs, various
crafts, services, products and their professional providers. Even each service or product
supplier can be seen as a business line of its own inside construction sector due to its specific characteristics, culture and terms of business. Different suppliers and other stakeholder
are brought together around temporary projects in different stages of the production process. These conditions are often referred as fragmentation of the sector. On the other hand
this is something we could also refer as construction project business that forms the main
viewpoint of this study.
Project based business and the required arrangements can be characterised as temporary systemic set-ups. The following list (Table 2.2.1) incorporates the main contextual
factors of the economic logic behind project business (modified from Kujala et al, 2008).
Table 2.2.1. The main contextual factors of the economic logic behind project business
(modified from Kujala et al, 2008).
CONTEXTUAL FACTORS IN PROJECT-BASED BUSINESS
Business environment level:
- Accepted methods of doing business in the market segment (industry dominant logic)
- Behaviour and business culture
- Competitive situation
- Customers’ strategies and preferences
- The distribution of capabilities and resources in the value chain
20
Company level:
- Market and technological uncertainty
- Resource, market and technological interdependence between projects
- Discontinuity between delivered projects to a customer or market segment
- Relative size and frequency of project deliveries
Project level:
- Project novelty – newness of the technical solution to the market
- Project uniqueness –similarity of a project compared to previously delivered projects
- Technical and organizational complexity of a project
- Uncertainty related to project goals, technology or implementation process
- Distribution and total cost in project lifecycle
Global internet enabled electronic-commerce, resources and financing opportunities
have created new business environment where business networking is essential for all lines
of businesses. Thus the business networking, its management and relating research have
been very popular topics in different research institutions and provided also sources for consultative operations. The research and empirical evidence from live business operations
have provided grounds for improved knowledge on business networking. Examples of such
studies are (Benkler, 2006; Friel & López, 2005; Gloor, 2005; Kelly et al, 2009). Table 2.2.2
presents a synthesis of various main types of business networks that have been identified
by researchers. One should note that research community prefers to use term InterOrganizational Relationships (IOR) since this as a term is more precisely expressing the
phenomenon in question.
Table 2.2.2. Categories of business networks and their control for the visualisation of those
with traffic lights.
TYPES OF BUSINESS NETWORKS
Degree of
formal relationships
Uncompelled Business Networking
1. Long-term business network
2. Short-term project network
3. Business breeding networks (casual-contact
networks, Virtual Breeding Environment)
Technology enabled Business Networking
4. Online networks (Collaborative Innovation Network, sales network)
Service oriented Business Networking
5. Service organizations (consultants, local
agents)
6. Professional associations (knowledge networks)
7. Social/business organizations
21
Degree of
Informal relationships
Networking and collaboration in networks have created a high interest in both research and in practical applications during the last decade, especially in the eBusiness area.
In parallel with the development and spreading of Internet technologies, traditional collaboration networks have found new leveraging tools and the new collaborative business forms
have emerged. Although many solutions have been based on ad-hoc applications of available technology, there have also attempts to create some systematic approaches for understanding collaboration in networks. The European project ECOLEAD (European Collaborative
Networked Organizations Leadership Initiative) have recently addressed the development of
new kind of solutions for business networking based on the virtual organization concept
Camarinha-Matos et al, 2008). ECOLEAD vision: “In ten years, in response to fast changing
market conditions, most enterprises and specially the SMEs will be part of some sustainable
collaborative networks that will act as breeding environments for the formation of dynamic
virtual organizations.”
The effectiveness of the virtual organization (VO) creation process is a critical element in collaborative networks. It is considered of importance that researchers have found
that the concept of virtual organization (VO) appears particularly well-suited to cope with
very dynamic and turbulent market conditions. The underlying rational the possibility of
rapidly forming a consortium triggered by a business opportunity and specially tailored to
the requirements of that opportunity. Implicit in this idea is a notion of agility, allowing
rapid adaptation to a changing environment. In order to make this possible, a VO creation
process is designed in the context of a virtual organization breeding environment context. A
framework for VO creation is thus introduced and a set of assistance services are designed
and tools developed.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
The adopted leading business network vision is the movement from traditional business
networking towards more agile solutions enabled by new goals and roles. Business networks
and networking should not be only understood as a managerial focus area that needs additional attention. Furthermore new kind of activities and organizational arrangements are
required for capitalizing the all potential business advantages arising from networked operations.
Virtual organizations, their content, dynamics and potential business impacts have
been an active research and development field within last 10-15 years. One view is that
virtual organizations are next stage of development of business structures (Warner & Witzel, 2004). Virtual organizations, their creation and maintenance have also seen to be
closely linked to the advances of information and communication technologies. This has
been a source of several major research and development efforts (Camarinha-Matos et al,
2005). Virtual business networks can be understood as an enabler for virtual organizations.
Thus we see virtual business networks as a breeding that provides highest needed flexibility
 To have preparedness of participating players to set up a virtual organisation (VO) to
meet market challenges
 To have different levels of commitments and rules in place than in a traditional, and
more rigid, type of business networks.
Principles of new virtual business networks for dynamic markets
A broker is an example of a new player (individual or organizational unit) for enabling efficient creation, maintenance and operations of a virtual business network. Brokers have a
specialized role in this business ecosystem as an engine that creates added value from VBE
(Virtual Breeding Environment) and actively develops this environment. Brokers are (commonly) neutral players that can have confidential relationship with many parties. Brokers
are experts in their field of business but also in communication, group work and decision
22
making. Furthermore, advanced ICT tools and Web portals have an important role in these
operations.
As practical activities brokers form a broker network or networks with specialized cooperative nodes to form dynamic business knowledge base.
Virtual Breeding Environment (VBE) aims to create preparedness within competent
actors to set up a Virtual Organization (VO) that can contribute to meet changing market
challenges. It has common operating principles and organizational model. When a VO is set
up from legally independent organizations, it provides to the outside world a set of services
and functionality as one organization. VBE has an important role to act as a home for Professional Virtual Community (PVC). It is formed by skilled experts that find value from unofficial communicating with colleagues. Virtual Teams (VT) may arise from this social network
when necessary to confront challenges common to the industry.
The concept of virtual organizations appears particularly well-suited to cope with dynamic and turbulent market conditions, such as the Russian construction market (Figure
2.2.1). It enables the possibility of rapidly forming a consortium triggered by a business
opportunity and specially tailored to the requirements of that opportunity. Implicit in this
idea is a notion of agility, allowing rapid adaptation to a changing environment. In order to
make this possible, a VO creation process is designed in the context of a virtual organization
breeding environment context. [Camarinha-Matos et al. 2008]
VO
VT
Opportunity
driven
Preparedness
VBE
PVC
Different levels of
commitments and
rules possible
Long-term
strategy
Figure 2.2.1. Virtual Breeding Environment for creating preparedness of participating players to set up a virtual organisation to meet market challenges. (Huovila et al., 2009)
Two approaches to form a VO can be identified: a top down process for a designed
VO and a bottom up process for emerging VOs. In the previous case, a VBE member plays
the role of an opportunity broker after having detected a collaboration opportunity. The
forming of the VO is then coordinated by the VO planner who is either the opportunity broker or another partner. In the latter case, the broker announces the collaboration opportunity to the VBE members and then waits for the emergence of potential consortia. The selection of the most suitable consortium can be made by the customer, VO planner or the
opportunity broker. Various research prototypes applying multi-agent systems and marketoriented negotiation mechanisms for the VO formation have been developed. [CamarinhaMatos et al. 2008]
23
Innovation networks
Innovation networks refer to the early stages of the development of business and project
initiatives. Constant identification of new business opportunities in dynamic and turbulent
conditions cannot be based on stable networks. Collaborative innovation network or CoIN, is
a social construct used to describe innovative self-organized teams. One should note these
network constructs are fairly unofficial and openness is strongly present for the creation of
environment where knowledge sharing is perhaps the most important motivational driver.
The five essential elements of collaborative innovation networks (what Gloor calls
their "genetic code") are as follows (Gloor, 2005):
1.
2.
3.
4.
5.
Evolve from learning networks
Feature sound ethical principles
Based on trust and self-organization
Make knowledge accessible to everyone
Operate in internal honesty and transparency
Broker centred business networks for sales
Business networks can be formed by opportunity brokers that detect appropriate business
opportunities. The following figure shows an example of a Public Private Partnership (PPP)
broker that helps in both setting up the customer system to the public demand side, and
then connects that to the supply system built up in the delivery side. (
Figure 2.2.2)
Customer system
C
C
C
C
C
C
PPP
Broker
P
P
P
P
P
P
Provider system
Figure 2.2.2. PPP Broker.
Customer expectations in such a case can vary from a big customer with large service capacity needs that one service provider can not provide to small customers that lack
competence to run the project efficiently or have no public bidding knowledge. Successful
brokering requires expertise on business network management, public acquisition legislation
and methods, and risk and value sharing.
24
Buzulukova (2009) has identified e.g. the following specific features in the Russian
market: to progress fast, the decisions should be agreed with the general director of the
company, in the early steps of collaboration distrust is common and all details should be
documented, and difficulties to penetrate in existing relationships in construction. Business
environments where everything is expected be agreed on paper, decisions must be brought
to the top level and existing networks are strong and repulsive, are challenging for VBE brokers. They could work just to find the appropriate partner network, e.g. the bidding consortium or some finance agent. Or, if the principal agreements can be made at the level of the
president of the company the brokers may act based on given mandate. The succeed the
brokers need to justify the added value of their role, e.g. in finding paying customers, identifying customer needs, increasing service quality, saving time, managing risks or packaging
a service tray individual actors couldn't make on their own.
Broker centred production and deliveries
Brokers can act as operational coordinators of production and deliveries in a very successful
manner even in the case of very complex mega projects. Evidence of that was provided in
the BAA’s Terminal 5 project (Brady et al, 2008). However, new kind of contracts were
needed to create potential incentives. In this project the owner organization that is BAA
decided to reimburse the costs of delivery and to reward exceptional performance and penalise inferior performance only in terms of profitability. This overall arrangement provided
suitable arrangement for the successful work of a specialist the characteristics of which are
very close to those of a broker.
Virtual design networks
In construction, customers may have specific service needs that can be provided by number
of scattered small firms with specialized competence. The main contractor is often responsible for the design to the customer. Managing a network of specialized design firms can be
run by a broker, having skills in managing a virtual design network. (Figure 2.2.3)
The Subcontractor Broker creates and manages the virtual design network for the
main provider, e.g. the main contractor that owns the customership (figure 3). Such broker
can manage also some functions directly with the customer if that's required. The main provider outsources the subcontractor design network management to focus on customer relationship management and service innovation. The broker needs to have expertise on the
VBE network ecosystem elaboration and management, project management, virtual organization management and legislation.
C
Main
P
Sub-C
Broker
P
P
P
P
Figure 2.2.3. Subcontractor management Broker.
25
Minina et al. (2009) identified that in informal practices in Russian companies social
network is more important than professional, and that personal trust is more important than
institutional. In addition, within local personnel the support and help each other on horizontal level exists and people are highly motivated by development opportunities. A Virtual design network could be built on these strengths when the broker has skills in human resource
management and social networks. Relevant VO tools and e.g. social media could provide
opportunities for innovative VT building for agile individuals and VOs.
DISCUSSION
We can see virtual business networks as a next stage of overall commercial systems development or something else but nevertheless they are different than the traditional business
networks. Despite of this the existing cultural characteristics together with people’s and institutions’ expectations needs to be taken carefully into account when maneuvers towards
virtual business networks are planned. The following reveals some important characteristics
of business relationships in Russia that are very likely to stay as important factors affecting
various operations.




The role of personal bonding and contacts in the business-to-business markets can
be considered to be of a very high importance (Ledeneva 1998; Michailova and Worm
2003; Fallon and Jones 2004).
Persons beyond the simple dyadic relationship i.e. third persons are usually involved Michailova and Worm (2003).
The continuity of personal relationships plays a very significant role. The longer
staying of expatriates (than usually) would offer opportunities for establishing strong inter-personal relationships.
The relationship and contacts need to be maintained between projects and naturally during the project execution in a continuous manner. This is a Russian expectation
and thus ”silence” is to be avoided constantly. (Table 2.2.3)
Table 2.2.3. Benefits of long-term inter-organizational relationships in Russia.
Functional (operational efficiency)
Benefit
Example
 Joint problem solving
 Increased efficiency through solving
problems in a mutually accepted way
 Reduced malfeasance
 Reduction of opportunistic behaviour
 Crises management
 Even deep crises can be solved on the
basis of good personal relationships
 Transfer of fine grained information
 Access to information that enable to
increase operational efficiency.
 Control benefits
 Ability to affect the actions those actors are connected to
 Process innovation
 Improved efficiency
 Reduction of transaction costs
 Reduction of monitoring costs
 Enables the use of more efficient governance modes
Relational (indirect impact to operations)
Benefit
Example
 Referrals
 Increased project marketing success
 Credibility
 Actors may need inter-organizational
relationships to certain parties in order
to be considered as a potential supplier.
 Position in the network
 Advantageous position in the milieu.
Ability to participate in project deliveries
26
Organizations may leverage IORs to gain relational benefits, such as reputation and
referrals, leading to increased success in initiating and marketing new projects to existing
and potential customers. This implies that project actors need to assess the state of their
IORs to relevant business and non-business actors in the milieu and proactively plan how
they are to be developed and leveraged in the future
This finding highlights the strategic importance of IOR development, as actors participating in project deliveries need to spend a lot of time and resources and undertake several consequent projects to be able to build and cultivate their IORs and be able to fully
reap their benefits
Technical delivery capability alone is not adequate, because the lack of IORs effectively eliminates the possibility to market successfully succeeding project initiatives. In Russian business-to-business markets, the importance of interpersonal relationships is emphasized and in order to be able to tender for industrial systems, the supplying organization
must employ persons with strong interpersonal relationships to key business and nonbusiness actors in the milieu. Repetitive and successful project deliveries can be considered
as the primary mechanism for building and maintaining long-term IORs. The competitive
advantage has been created by developing strong relationships to the key actors through
successful project deliveries and other relationship building activities in between projects.
Recommendations for new kind of actions and targets for business networking in
Russia:
• Due to its strategic importance the company management should employ systematic
procedures (tools, regular reviews, item in management meeting agenda) for business network management
• From informal personal relationships to more informal business relationships
– The role of inter-personal relationships as a catalyst
– Persistent relationship building
• Several years before initial contract for first project signed
– Capabilities in relationship building
• Companies seems not to do adequately safeguard from malfeasance
– Building of long-term relationships that base on long-term inter-personal relationships provide a competitive advantage because they are difficult to imitate
Stable organizational structures as risk management
•
The success or failure of the initial project delivery then determined whether the relationships could be further strengthened and leveraged to gain future business opportunities or not. Conclusion: Put more attention on project start-up.
CONCLUSIONS
The field of Inter-Organizational Relationships that is often referred as business networking
has clearly elaborated during last decade into a disciple of its own. At the same time and
particularly as a impact of Internet enabled eBusiness new dimensions and concepts have
arisen in this field. Perhaps the most important of those is the Virtual Organization concept
and its applications. Researchers have found that the concept of virtual organization (VO)
appears particularly well-suited to cope with very dynamic and turbulent market conditions.
This provides origins of some important proposals presented in this paper. It is considered
that new kind of business networks which have been named as broker centred virtual organizations can play important role for construction business operations is Russia in near
future. However, one should take into account local cultural factors that can broadly affect
of the creation and maintenance of these networks.
27
REFERENCES
Artto, K. and Kujala, J. (2008) Project business as a research field, International Journal of
Managing Projects in Business, Vol. 1 No. 4, 2008, pp. 469-497
Benkler, Y. (2006) The Wealth of Networks - How Social Production Transforms Markets and
Freedom, Yale University Press.
Brady, T., Davies, A., Gann, D. and Prof. Rush, H. (2008) Learning to manage mega projects: the case of BAA and Heathrow Terminal 5, Project Perspectives XXIX, pp. 3239.
Buzulukova, E. (2009). Marketing and customer orientation. Presentation material of research seminar, Moscow, Higher School of Economics of Moscow State University,
October 2009.
Camarinha-Matos, L.M., Afsarmanesh, H., and Ollus, M. (2005). Ecolead: A Holistic Approach to Creation and Management of Dynamic Virtual Organizations, Springer Boston
Camarinha-Matos L.M., Afsarmanesh H., and Ollus, M. (eds.) (2008). Methods and Tools for
Collaborative Networked Organizations. ISBN 978-0-387-79423-5. Springer, New
York.
Cova, B., Ghauri, P., & Salle, R. (2002). Project marketing — beyond competitive bidding.
Chichester John Wiley & Sons.
Friel, D. and López, D. (2005) Towards an Understanding of Different Types of Business
Networks, La Universidad de San Andrés Working paper 55, Buenos Aires, Argentina.
Gloor, P. (2005) Swarm Creativity: Competitive Advantage Through Collaborative Innovation Networks.
Huovila, P., Ryynänen, T. & Oostra, M. (2009). ManuBuild Business Model. VTT, Espoo,
Finland.
Kelly, J.F., Pryke, S., Rigby, J. and Winch, G. (2009) Project Coalition as a Network Organisation, Proceedings of IRNOP IX (The International Research Network on Organizing
by Projects), Berlin 11-13 October 2009.
Kujala, J., Artto, K. and Parhankangas, A. Factors influencing design and performance of the
business model of a project-based firm , Project Perspectives, Vol. XXXI, 2008, 1417
Minina, V., Dmitrienko, E. & Krupskaya, A. (2009). Competence of Human Resource Management, Presentation material of research seminar, Moscow, Higher School of Economics of Moscow State University, October 2009.
Warner, M. and Witzel, M. (2004): Managing in Virtual Organizations, London: Thomson Publishing Corporation.
28
3.
Competence of human resource (P3)
3.1
Human Resource Management In Project-Based Firms: Core Employees
Focus (Minina, Krupskaja, Dmitrienko)
Vera Minina. St. Petersburg State University, Graduate School of Management, St. Petersburg, Russia. e-mail: [email protected]
Anastasia Krupskaya. St. Petersburg State University, Graduate School of Management, St.
Petersburg, Russia. e-mail: [email protected]
Elena Dmitrienko. St. Petersburg State University, Faculty of Sociology, St. Petersburg,
Russia. e-mail: [email protected]
KEY WORDS
Human Resource, Human Resource Management, Human Resource Practices, Cultural Context, Project-based Company, Incentives, Core employees, Abilities
ABSTRACT
STROI business network firms entering the Russian market face a lot of challenges. Some of
them deal with a cultural context and others concern the new business field project-based
industry. To achieve a Finnish company’s goal in the Russian context it is important to reveal cultural differences in Human Resources and Human Resource Management. To be successful in new business environment an HRM model should be designed with the focus on
Core Employees. Their knowledge, skills and abilities become the main source for organisational abilities and competitive advantages. The CE profile is provided as the result of the
survey.
INTRODUCTION
Construction market is developing fast in Russia. To be successful in the Russian market the
company should be ready to invest time, money, and experience in developing a management system.
The opportunities from foreign market expansion are comparable with risks from it.
But the risks could be reduced by searching cultural features, e.g. the basic values and beliefs of the citizens. Thus, while designing the HRM system managers have to take into consideration local features of HR.
It should be mentioned that often there is the mix of two or more approaches to
human resource management in joint ventures. The personnel are influenced by both domestic HRM practices and HRM practices from the foreign side (Mother Company). Companies entering the Russian market meet the choice if they create a new HRM model, adopt
their own one in a new cultural environment or develop a mixed HRM system.
Entering the Russian market, companies face to very unstable and unpredictable
environment. In this case the sustainable competitive advantages could be achieved
through creating “human capital advantage” (Alvaro Lopez-Cabrales, Ramon Valle and Innes Herrero, 2006) and to develop organizational capabilities through the core employees
activity.
29
This paper provides the empirical evidence from STROI business network construction oriented companies. Most of them belong to project-based business according to their
activity features. We argue that project-based firms need to develop human resource management with their focus on core employees. The authors analyze and develop the core employee concept and show its capacity of explaining HRM in project-based firms.
LITERATURE REVIEW
Cultural differences and Human Resource Management
Sociologists, anthropologists and social psychologists have tried to describe culture as an
integral feature of the society (Pauluzzo, 2009). Culture has also been studied from the organizational point of view, in particular with reference to its relations with management
(Schwartz, 1997; Wilkins, Ouchi, 1983). Several studies highlighted cultural elements as a
key factor in HRM. They gave some evidence that cultural issues deeply affected HRM, especially in international markets (Ostroff, Bowen). Aycan, Kanungo, Sinha, (1999) demonstrated that HRM practices tend to internalize values of the national cultures. Laurent
(1986:92) said that every culture has developed some specific and unique insight through
its own history and transfered it into HRM.
Fey & Shekshnia’s (2007) argued the key commandments for doing business in Russia are based on interviews with executives from 30 foreign firms operating in Russia and
their own experience in Russia as executives, consultants, executive trainers, and researchers over the last fifteen years.
Minina and Melnik suggested the approach of analyzing cultural differences in the
current management system (Minina, Melnik, 2008: 69-75). They combined four managerial
values and five variables by T. Parsons and developed the matrix for these differences
analysis (Table 3.1.1). Their approach was guided by Inkeles, Kluckhohn, Trompenaars, etc
(Inkeles, 1978; Inkeles and Diamond, 1980; Kluckhohn, 1951; Kluckhohn and Strodtbeck,
1961; Schwarts and Sagiv, 1995; Hofstede, 2003; Trompenaars and Turner, 1998)
Table 3.1.1. Russian model of management features,
Attitudes
Attitudes
towards
towards the
Patternemployees
variable/Attitudes material
and
financial
resources
affec- High
affecVariable of esti- High
mation
(affec- tiveness
tiveness
tiveness – nonaffectiveness)
Variable of indi- High
collec- Middle collecvidualism - collec- tivism
tivism
tivism
Cognitive variable High particu- Middle
par(universalism
- larism
ticularism
particularism)
Variable of ascrip- High ascrip- Middle ascription (achievement tion
tion
– ascription)
Variable of speci- Middle speci- High specificficity - diffusion
ficity
ity
by Minina and Melnik (2008).
Attitudes
Attitudes
towards the towards the
time sched- results
ule
High
affectiveness
Middle affectiveness
Middle collectivism
High
collectivism
Middle
particularism
Middle
universalism -
Middle ascription
Middle
achievement
Middle
sion
Middle
sion
diffu-
diffu-
Five pattern-variables show how actors make a choice between five alternatives in
everyday life. The Attitudes continuum shows the basic values of management system.
30
The pilot study of the top and middle managers from the large and middle St. Petersburg’s firms found some peculiarities in the Russian model of management.
As for attitudes toward the employees, one can see a high level of effectiveness that
means managers regard human resources as unlimited, and they do not do a lot to optimize
the effort in HR practices. The middle level of collectivism means that managers rather apply a cluster (group) than an individualized approach in HRM in approximately 50% of
cases. The middle level of particularism means that managers try to avoid the common
rules in HRM and find an original approach to HRM in a new situation. Russian national and
cultural features create the social environment in which firms from STROI business network
operate.
As we have stressed before STROI organisations mostly devoted to project business.
Then it is very important to provide the knowledge concerning main challenges to HRM in
project business (Minina, Wikström, Gustafsson, Kosheleva, 2008), job specification and
performance requirements in the era of projects and networks, and specific features of HRM
in project–based firms (Mintzberg, 1993; Hamel and Prahalad, 1994; Senge, 1990; Teece,
1998; Burack, 1991). We focus on the concept of core employee and try to explain its capacity for understanding ‘human capital advantage’ in project business.
Project-based business and human resources
The recent literature has focused on the role of the new economy with turbulent environment and strong competition. The turbulence could be characterized by its dynamism, which
is specified by ability to change and to response quickly. Since dynamic actions and readiness to modify become vital, the turbulent environment strongly influences organizations’
behavior. Flexible organizational structures and customization are needed to survive in this
situation. This could be achieved through managing projects and project-based firms. ‘Project management is pre-figurative of the futures that, increasingly, we will be in’ (Clegg &
Courpasson 2004:527).
Project-based firms differ from other ones particularly but not exclusively by human
resource practices. In project business, employees are inclined to functional mobility, intercompany mobility, combination of roles, additional social competences, such as ability to
work in a team, and leadership development.
According to Minina, Wikström, Gustafsson & Kosheleva (2008) there are two types
of project-based business. A network is the essence of the first type of business. It implements projects through contracts and coordination without developing a new corporate
body. There are employees whose job is to move contracts with all the interacting parties,
which actually conduct the project parts. An organization of the second type is that which
develops projects with its own resources. It could be described as project-based or another
flexible structure. Several researchers outline the trend of using flexible organizational
forms and project-based structures (Bredin and Söderlund, 2007; Ekstedt et al., 1999;
Packendorff, 2002; Whittington et al., 1999).
We regard there are some differences between HR functions in two types of projectbased business. In the first type of business, project teams consist of managers who coordinate all the contracts, and their activity focus on interfirm coordination and integration,
and building trust in the project network. In the second one, project teams are composed of
functional professionals, and they are engaged in organizational activity.
Although we argue that nowadays the number of network organizations is increasing
significantly, nevertheless the second type of organizations is more widespread. Therefore,
we focus on the HRM of these businesses which could be recognized particularly by projectbased structures.
31
Usually researchers point out different HR issues in project-based firms. For instance, Bredin and Söderlund (2007) describe the role of line managers for HRM. Paul H.
Jacques, John Garger and Michael Thomas (2008) investigate the leadership function of project managers. Ian Clark and Trevor Colling (2003) study qualification management in project-led organizations. Catherine L. Welch, Denice E. Welch and Marja Tahvanainen (2008)
focus on HRM and international project operations.
Several studies (e.g. Midler, 1995; Lindkvist, 2004; Bredin and Söderlund, 2007) describe very important implications for HRM in project-based firms. Despite researchers from
both fields HRM and project management emphasizing the relevancy of an engagement between these areas, as pointed out by Clark and Colling (2005) and Bredin and Söderlund
(2007), there is a lack of engagement between project management and HRM literatures.
We suppose this research could make one of the steps which need to be undertaken to fill
the gap between HRM and project management in current literature. The very first crucial
issue is to analyze new challenges for HRM in project-based business.
New challenges for HRM in project-based business
The “projectification” leads to very important requirements for a new generation of employees. Team and network formation means that the competitive advantage of the company
needs to be achieved through the integration of competencies, skills and technologies
(Mintzberg, 1993; Hamel & Prahalad, 1994). Individual and collective learning requires the
right management, this is the only way to build knowledge assets and generate innovation
(Teece, 1998). The employees’ professional competencies ought to be renewal and consist
of organizational learning in order to create organizational capabilities for survive in competitive environment (Senge, 1990).
Organizations engaged in new area of business, deal with new relationships and
models of internal and external interaction. The role of network relations, client-oriented
approach, taking uncertainty and handling a risk, social integration become incredible. It
means that HRM content and design have to be changed.
Artto (2008) outlines that “a project network is a temporary endeavor which includes
a continuously changing constellation of actors in ever-changing roles” and multiple participating firms and other actors. These characteristics make project network highly dynamic.
Therefore, social mobility and an ability for permanent improvements are very important for
the activity of an organization staff. And the urgent task of HRM is to create an environment
and provide a service for these competencies development.
To achieve success in the managing of business network it is important to have capabilities for partnership and collaboration. It requires such social skills as the understanding of social environment, adopting of cultural differences, maintaining trust, being tolerant,
and high developed communicative skills of personnel. In this case the learning process
takes a central place in HRM practices.
In project business the roles of the actors might change from one project to another.
There are dual relations between project network actors because project firms have simultaneous mixture of opponent and partner relationships. For example, a short-term partner
may become a competitor in a future project, and vice versa (Artto, 2008). From HRM perspective it is important to pay rather more attention to the improvement of negotiating
skills and reflexivity of the staff.
Project business presupposes the introduction of the ‘power to the edge’ management philosophy, which focuses on moving power from the center to the edge and achieving
control indirectly (Artto, 2008). It requires dynamic synchronization of employee’s actions,
planning of complex endeavors, creating and maintaining trust relations between stakeholders, looking forward to development of entrepreneurial style of thinking and doing. Relationships between team members are also quite informal and unstructured, that means a
32
higher requirement of personal trust (Ganskau & Minina, 2008). For example, a lack of trust
in a project might lead to bureaucratic control that decreases the flexibility of the project
participants to act (M. Gustafsson at al, 2008). HRM should be able to develop this entrepreneurial style in organization thus to help employees cope with new responsibility levels,
construct and maintain interpersonal trust, find optimal decisions in difficult conditions.
Project business deals with new business models. More often the business model is
considered as one which is based on the statement of how technological inputs are transformed into economic outputs (Artto, 2008). But in a project firm project delivery is organized as an expert service which might create competitive advantage. Business transformations relating to expert services mean that solution providers are replaced by providing integrated solutions, i.e. new business models concern evolution from a goods-dominant to
customer-centric approach (Wikström et al., 2008). With these models, implementation
results in learning, capabilities and competencies and becomes a core activity of projectbased organizations. It turns the HRM focus on human resource development (HRD) practices.
Project-based work is viewed as increasingly important for the successful coordination of the complex, interdependent and non-routine tasks (Turner, 1999). As a result, uncertainty and complexity are basic elements in project business that represent a potential
risk as well as opportunity (Gustafsson et al., 2008). However, turning uncertainty and
complexity into opportunity requires two things. First, the human actors involved in the project delivery process need to interpret unclear situations, and this is done by reflecting on
their own and other’s actions. Secondly, not all projects are of the same degree of uncertainty and complexity and thus, the capabilities of those involved in managing the project
should be matched with the degree of uncertainty and complexity of the particular project.
In project-based business, risk and turbulence force HRM to focus on developing ability to
handle uncertainty, to be reflexive. Reflexivity can be developed through learning by doing.
As Wikström et al. (2008) mention project business and project-based organizations
put new requirements forward to project management professionals. It includes capabilities
emerged as important in the projects: leading, interacting, organizing, and engineering.
Also it includes ‘a capability area called ‘personality’ to emphasize that an individual’s personality can develop to certain degree by using the right training methods’ (Wikström et al.,
2008:84-85). And that is the task of an HRM department.
It should be stressed that project-based firms have a competence called ‘social integration’ which means the ‘expert service that a company can provide to its customers and
other project participants’ (Wikström et al., 2008:87). Therefore, expert service focusing on
social integration should be included in any competence baseline for project management
certification and assessment.
As we see there are several peculiarities concerning HR in project-based organizations such as ‘the right people with the right skills’, informal leaders crucial for teamwork,
rear experts for some projects, a requirement to be very dynamic, flexible and educated in
social relations and communications.
Summarizing, we can conclude that new business models and a new business environment push HRM towards management of social relations and social competencies development. HRM should change its structure and focus on competence (professionalism) and
its developing together with developing of entrepreneurship in organization. Thus, we have
highlighted four important roles for HRM, which arise in the new environment. First of all HR
managers should create the culture of openness and development, because of increasing
importance of social mobility and ability of permanent improvements of staff in projectbased firms. Secondly, the new HR manager’s role is to build and maintain trust in organization for achieving success in project collaboration. Thirdly, HR managers should develop
entrepreneurial style of thinking and doing. Fourthly, the HR manager’s role deals with de-
33
velopment practices, such as career development, personal development, cognitive and
emotional ability development.
According to these challenges, new roles for HR managers and requirements to employees (Table 3.1.2) we propose the application of the core employee (CE) concept, which
means that there is a special and very important type of personnel in each company, who
bring the competitive advantages to the company (Lopez-Cabrales, Ramon Valle, and Innes
Herrero, 2006).
Table 3.1.2. Main challenges for HRM in project-based business
Peculiarities of project business
Requirements to HRM
The ‘power to the edge’ management philosophy
‐
actions
‐
Synchronization of employee’s
Building and maintaining trust
Partnership
Development culture of interaction and collaboration
Combination of different roles in actor’s activity
Providing support for social roles changing
(training programmes)
Risk and uncertainty accepting
Development of
‐
ability to take uncertainty
‐
competences in risk handling
‐
reflexive approach in management
Simultaneous mixture of opponent and partner relationships
Development of negotiating skills and reflexivity of the staff
Integrated teams
Providing social integration approach
Collective efforts and collective performance
Development of a group’s ability to work
together towards a common goal, resulting
in the creation of a collective outcome
Theoretical analysis of core employee concept
Representatives of resource-based view (RBV) of the firm argue the ways to find, keep and
develop valuable resources and capabilities (Collis and Montgomery, 1995; Hamel, 1994;
Prahalad & Hamel, 1990, Alvaro Lopez-Cabrales, Ramon Valle and Innes Herrero, 2006).
According to this approach a unique composition of valuable resources brings the company
competitive advantages (Barney, 1991; Barney & Wright, 1998; Wright, McMahan, &
McWilliams, 1994). It also concerns the combination of human resources, which can create
the sustainable competitive advantages.
The sustainable competitive advantages become even more crucial if the companies
operate in a very unstable and unpredictable environment like project-based firms meet. In
this case HRM ought to create “human capital advantage” (Alvaro Lopez-Cabrales, Ramon
Valle and Innes Herrero, 2006) and to develop organizational capabilities through the core
employees activity.
Based on a literature analysis, two main approaches to CE identification are revealed. The first one, let’s call it static approach, is oriented on assessment results of em-
34
ployees which hold specific posts. The employee is considered as a CE if his results are
higher than average. Apparently, the criterion for CE identification is labour productivity
level in this case. Certainly, it is an important criterion, but it reflects poorly on the employee contribution to the company development. Besides, the given approach considers the
post status: the higher the status is, the more valuable the employee. Understandably
therefore, supporters of this approach consider top-managers as the core and most valuable
employees in the company (Powell, 2002). Certainly, top management plays an extremely
important role in business development, however, but obviously not every top management
representative can be a CE. Enough examples are known when top-managers’ activities led
to the crash of their companies. Therefore, the direct correlation of the post status with a
role of a CE can hardly be defensible.
The second approach, a dynamic one, is focused measurement of employee potential
and his/her contribution to company development. We consider this approach as long-term
and more perspective. According to the given approach those employees who possess specific competence, necessary for core business development are CE. These people influence
mutual relations with clients, their loss or their mistakes may strongly influence company
results (Teitelbaum 2004:52). Lepak and Snell (Lepak and Snell 1999, 2002), based on resource theory and human capital theory, indicate two criteria for employee analysis: value
and uniqueness. In their opinion, those employees who possess both valuable unique
knowledge and skills, become core to the company.
In our opinion, there is a very important approach to CE identification, developed by
the Spanish scientists Alvaro Lopez-Cabrales, Ramon Valle and Innes Herrero (LopezCabrales, Valle & Herrero 2006). According to the authors, a CE is the one who possesses
valuable and unique knowledge, skills and abilities so he/she has the unique human capital.
Besides, the activity of CE is connected with the core business of the company (Atchison
1991). CEs do not only possess valuable and unique abilities, but they transform them into
organizational abilities. The Spanish researchers allocate three groups of competences
which can be considered as criteria to identify a CE. They are organisational, technical and
client orientation competences. However, the authors do not give a lot of attention to social
skills (N. Fligstein 2001) and learning abilities.
RESEARCH PROJECT
Project description and objectives
The purposes of the research:



To reveal differences in Russian and Finnish approaches to HRM practices;
To design Core Employees Profile (CEP);
To work out the recommendations concerning HR practices improvement.
Research methodology
The survey is a part of the Russian-Finnish STROI Network research project conducted in
2008-2009. It was conducted by HAMK University of Applied Sciences, Tampere University
of Technology, VTT Technical Research Centre of Finland, Higher School of Economic from
Moscow and State University, Graduate School of Management and Faculty of Sociology
from St Petersburg.
The main idea of the whole project is to find out management and leadership models
suitable for Russian business context. The main research field for this project is a constructive market both in Finland and Russia. Finnish construction oriented firms, operating in the
Russian market were studied. Companies connected with the construction industry include
consultant firms, construction companies, design firms, training firms etc. For the HR part of
the project, 10 companies have been investigated. The size of private firms ranged from
small (under 20 employees) to large (over 3,000). Some of the companies have operated
35
on the market for more then 30 years, others are just new comers. Qualitative data have
been collected by conducting 17 semi-structured interviews with the senior managers,
heads of the departments and HR managers. There were face-to-face interviews each lasting one hour.
The current study is an example of how qualitative, open-ended interviewing can
lead to new conceptual insights and issues (for a study based on similarly ‘unlooked for’
results, see Buckley and Chapman, 1997). Interviews were designed through six blocks including two blocks of questions about defining and managing CE. In some cases we had
contacted the informant before the interview, thus he/she had a possibility to look through
the main topic for discussion and to have more time for deeper talk during the face-to-face
meeting. Other interviews have been made without preliminary familiarization with the
questions.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
Differences in Russian and Finnish HR and HRM practices
The empirical results describe differences in HR, HRM practices and impact of the main incentives. (Table 3.1.3, Table 3.1.4) The main differences in HR are devoted to employees’
competences, decision-making process and discipline in the work place.
Respondents outlined a lack of practical-oriented professional skills of Russian
graduates. Moreover, Russian employees do not often have the willingness to take responsibility in decision-making. They prefer to wait for directions from the manager than to be
involved in the decision-making process themselves. A lot of Russian employees also have a
low level of decision-making skills.
There are several differences in the decision-making process. For Finnish companies
the long, thorough process with detailed discussion is very important. In contrast for the
Russian managers, it is more common, due to time limitations, to have short or no discussion. And decision-making could be characterized by high speed.
There are differences between Russian and Finnish employees in the meaning of discipline. Finnish employees never use work time for private purposes. However, Russians are
used to private communication during work-time. Also, Finns get into the way of following a
project schedule and do the parts of the job just in time. On the other hand, the schedule is
not so important for Russian employees. They are often oriented to the final deadline.
Differences in HRM are devoted to managing the adaptation process, reward system
and employees` development. Finish companies in contrast to Russian ones have developed
coaching programs for new comers. However new comers in Russian companies get colleges
support more often.
The reward system in Finnish companies is more complicated than in Russian ones.
It means that parent company reward system could be not clear for Russian employees.
Also, we have revealed the differences in attitude towards development discussion
and the development discussion procedure. For example, many Russian employees consider
development discussion as pressure and assessment.
There are also some common features between Russian and Finnish HRMs. For example, there are no great differences in recruitment and training principals. In both countries companies search for the best applicants internally, use social network relations, university career centers, recruitment agencies, Internet and newspapers. The differences in
providing short-term courses, education in corporate universities, MBA etc. are caused by
the company’s strategy, the size of the company and top-managers point of view.
36
One of the remarkable results is devoted to developing the HRM model. There are
three approaches to HRM, which Finnish companies can follow in Russia. They may accept
local practices, adopt Finnish practices or develop mixed HRM model.
Table 3.1.3. Differences in Russian and Finnish HR and HRM practices.
Features of HR
Russian context
Employees’ competences:
 Decision-making skills
Low level
 Willingness to take responsibility in decisionno
making
Decision-making practices:
 Long term orientation
No
 Thorough process
No
 Speed of decision-making
High
Discipline on the work place
 Using working time for private matters
Yes
Only deadlines are
 Importance of following project schedule
important
Features of HRM
Recruiting practices
Finnish context
High level
yes
Yes
Yes
Low
No
The
whole
schedule is important
similar
Managing adaptation process
• Detailed program of adaptation
• Coach support
• Colleagues support
Reward system:
• Clarity of parent company reward system
Training programs
Employees’ development:
• Attitude to development discussion
• Development discussion procedure
No
Seldom
Often
Low
Pressure
Assessment
Yes
Often
Rarely
High
similar
Opportunities
Support
There are some differences in impact of incentives, which influence employees’ performance in Russia and Finland. (Table 3.1.4) In the Russian context, financial incentives
are more crucial than in the Finnish one.
Table 3.1.4. The main incentives and their impact
Incentives
Financial
Rewarding for outstanding performance
Covering educational fees
Medical insurance
Pension programs
Support in housing loan and credit
Non financial
Work-life balance policy
Participating in decision-making process (for some
groups of staff)
Best employee recognition (from time to time)
37
on employees.
Russia
Finland
High
High
High
Low
High
High
Low
Low
High
Low
Low
High
High
High
High
High
In general people worked in joint ventures have to develop social and communicative
skills such as open-mind, easy-going and emotional intellect. For communicative skills the
crucial issues are language and presentation skills.
Core Employee Profile
We were interested in what kind of competences will be highlighted for core employees. The
most interesting definitions for a CE given by informants were:
“Key persons support key clients in our company. They constantly monitor client’s
situation…That help us to predict activity of competitors who can make interesting suggest
to our client”.
“They can agree upon difficult situation, do not afraid of responsibility and decisionmaking, can use support then necessary”.
“Core employees “transmit the feeling of company”. They should be very responsible, because they are company representative and can form an image of the whole firm”.
“They play on the field and should be very active”.
“Core employees are department managers. They have work experience usually
more than 10 years, good interactive skills and an ability to get along with their teams”.
“Core employees whom you can really trust are well-known for managers, sometimes called as worker with “hands”. These are really capable workers”
“Key persons are the ones having strategic knowledge and multiple skills. These persons carry out their work on excellent level”
“CE… make money for the company”
“CE have very high level of social or communicative skills, they create partnerships
and networks.”
We have seen that the most important features for a CE are not only social and
communicative skills, self-determination but also a high level of mobility. It means that the
employees need to be ready to move not only vertically but also horizontally (a different
subsidiary in another region). A CE is also not afraid of taking more responsibilities.
Based on interviews we could say that a lot of companies highlight their CE, but they
have very different criteria for their identification. In one company CEs are described as
high-potential employees. In another case, they are characterized as high-performers. It is
the companies, which implement the Hay’s system, that CEs are recognized as having the
highest grades. For some companies CEs are described by special features.
The practice of financial evaluation of CE impact (contribution) is not developed. But
there is a common practice to evaluate satisfaction, expectations, challenges etc.
Based on analysis of informant’s opinion concerning risks and problems associated
with CE we can state 3 main aspects:
At the stage of identifying a CE, there are some mistakes. These can lead to investing into the “wrong people”.
Some people regarded as a CE tend towards ‘star fever’. Therefore, they can expect
exaggerated attention from the management to them and their demands can be steep and
unreasonable.
38
CEs are very influential and important persons in the company; they concentrate essential functions, connections, and take part in strategic decision making. Therefore, if some
of them decide to leave the company can face the risk of losing money or clients, or breaking significant activities.
The pilot survey formulated a hypothesis of the criteria of CE identification. Each of
the criteria is defined as a group of competences, which provide sustainable competitive
advantages of the company. (Figure 3.1.1):
-
Learning: the ability to learn by experience and from best practice
-
Competence: the ability to develop technique aspects of products and services
-
Integration: the ability to integrate all stakeholders. It could be the team or the
whole network. Social or communicative skills are very important here. And a CE becomes a social knot as he or she develops this group of capabilities.
-
Reflection: it is very important to realize and reflect on all the experience developed
in an organization. Rethinking and taking decisions based on the analysis. This capability provides the dynamic of the company. This is a sign of a learning organization.
-
Trust relations: the ability to build trust in relations with stakeholders. Trust is a very
important feature of social capital of organisation.
A system approach allows a description of these groups of capabilities on each level
of a firm: the employee level, team level and organizational level. And the extent of possessing these abilities describes the uniqueness of the employee, team or organization.
Сore Employee Profile
Learning
Trust relations
Reflection
Competence
Integration
Figure 3.1.1. Five groups of CE capabilities.
We consider that the social component is one of the most crucial in the list of these
groups of capabilities. It is very important for knowledge-based firms to develop interfirm
and intrafirm trust and cooperation. A CE is able to have relations with people from very
different social and professional environments. A CE could be considered as a knot in a social network, not only value and uniqueness of KSA should be be measured, but also sociometric tools are required for CE identification.
It is clear that the listed abilities cannot be equally developed, in any case, there are
dominant abilities, for example, people with a critical style of thinking hard, will be good
integrators or trust conductors. Therefore, a balance and a certain sort a combination of the
39
specified abilities is important. It is necessary to notice that the configuration of abilities
(their parity) depends on branch, a stage of life cycle of the organisation, strategy of the
company and of some other factors.
One of the key aspects of CE identification is the social aspect. The social component
of the intellectual capital inter- and intraorganizational trust is very important. A CE cooperates with people from various social and professional groups. As the CE is considered as
a social knot, not only should the degree of value and uniqueness of his/her knowledge of
skills and abilities be measured, but also mutual relations.
We suggest that three-field model is applicable for CE recognition (Figure 3.1.2).
There could be three main fields or levels which influence growing CE of the company: social field (all the colleagues and informal groups at workplace), organizational field (usually
management of the company who notice the most valuable employees and give them more
responsibility and credentials) and professional field (all kinds of different internal specialists
and external societies and organizations which consider this person as an expert).
Organizational
field
GROWTH
TRUST
CE
Professional
field
Figure 3.1.2. Three-field model for CE identification.
The analysis above allows us to draw a conclusion that CE identification is connected
with forming the profile of competences, which are defined by five groups of abilities. However, this conclusion generates a new problem: who should develop a CE profile.
We consider that to form a CE profile, expert from three groups need to be involved.
The experts are representatives from management of organisation, professional associations and social network, which is important for the company. It could be an intrafirm or
interfirm network. Experts’ opinions could become the basis for CE profile development.
One of the major problems of management human resources in STROI business
network firms is how to develop and change the CE profile if necessary. The CE profile consists of concrete characteristics which fulfill each of the group of abilities marked above.
Forming a CE profile will promote the increase of efficiency of recruitment, assessment and
development technologies and also construction of more productive reward systems.
First, managing a CE supposes the creation of such conditions that are favorable for
the realisation and further development of their abilities, for increasing their contribution in
organisational performance.
40
Implementation and exploitation
As our prior results show, to achieve success in operating on the Russian market Finnish
constructing companies have to pay more attention to such HRM practices as adaptation,
training, development and rewarding. All training and development programs could be divided into two main directions: organizational learning, and competence and skill development. For organizational learning, a very crucial point is to translate organizational culture:
values and basic beliefs, mission, organizational goals and management tools. For competence and skill development of employees the focus should be done in teamwork, sharing
knowledge, decision-making, self-determination, goal setting and practical-oriented professional skills.
Managers from Finnish companies who work in Russian subsidiaries have to describe
all the management practices especially development discussions very precisely, because
Russian employees could have an absolutely different view about them.
As Russian employees have some peculiarities concerning rewarding preferences in
comparison with Finnish employees, the difference in structure of rewarding system should
be noticed and stressed. The whole system and future financial opportunities should be
transparent.
The profile of CE ought to be defined and on the basis of this profile, HRM practices
should be improved or developed. For achieving success in management some way of
evaluation of a CE needs to be implemented. It could be a questionnaire or part of development discussion including questions about satisfaction, motivation, future development,
expectations, etc.
CONCLUSIONS AND DISCUSSION
The very important issues raised in this paper are cultural context and challenges for HRM
which the STROI business network firms face in the current turbulent environment. We
argue that it is possible to manage these challenges and achieve sustainable advantages
though CE identifying and developing an HRM system with CE orientation.
Empirical research proves the necessity of CE profile identifying and on the basis of
this profile, HRM practices should be improved or developed. The results show the most
important features for staff of the companies involved in network relations. These features
are social and communicative skills and competences concerning self-determination and
goal setting, and a high level of mobility. It is very important to recognize the potential risks
of focusing on the CE in HR practices as well.
Based on interviews we consider that there is a significant interest in CEs from practitioners, but very few academic researchers were found. The social component is defined as
crucial for CE identification. It can be evaluated through using sociometrix tools. Also, the
developed CE profile can be worked out in detail and become a tool for CE identification as
well.
ACKNOWLEDGEMENT
The authors gratefully acknowledge the financial support of HAMK and a number of Finnish
private companies, which have given new research directions for HRM in project-based organizations. Additionally authors acknowledge co-operation partners HAMK University of
Applied Sciences (Hämeenlinna), Tampere University of Technology, VTT Technical Research
Centre of Finland, and High School of Economics (Moscow).
41
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www.hamk.fi/stroi
APPENDIX
STROI –Network
REPORTING TEMPLATE
Interviews
All interviews need to be recorded and carried out in the mother tongue of the person interviewed. In the case where this is not possible the English language should be used. A
memorandum (later on memo) should be worked out by the interviewer immediately after
the interview and, if necessary, the memo should be checked by both parties of interview.
The memo should then be translated into English (US).
Memos will be copied to NVivo 7 as MEMOs.
Part 1: All memos covering the interviews should include answers to the following
1.
2.
3.
4.
5.
Network related to CASE
Time of interview
Place of interview
Persons at present
Position and tasks of a person to be interviewed.
46
6. Personal features of the person interviewed: work experience in years, experience within present company, work experience related to Russia.
7. Perspective(s) of the interview:
Yes No
a. P1: Total demand forecasting
__
__
b. P2: Vision building for network
__
__
c. P3: Human recourse management
_x_
__
d. P4: Strategic management
__
__
e. P5: Marketing and risk management
__
__
f. P6: Performance measurement
__
__
8. Business to Business (B2B) relationship type
a. Client – main contractor
__
__
b. Main contractor – subcontractor
__
__
c. Main contractor – designer
__
__
d. Main contractor – supplier
__
__
e. Subcontractor – supplier
__
__
f. Other type of relationship, please define
We would like to ask you some questions devoted to the human relationships in your company. The results of the poll will be used for the designing the model of human resource
management which could help Finnish companies to increase the efficiency of their operating due to knowing the special aspects of HRM in Russian-Finnish construction-oriented
market.
1. Principals of development relationships in network
Who is responsible for making arrangements in network and maintaining relationships with
“permanent” network partners?
What personal features do employees who deal with network partners need to have for successful working?
How does the company choose new partners?
What kind of problems does your company face dealing with network partners?
2. The differences in the recruitment principals
How does your company search for candidates?
What is the procedure of candidates' selection?
Does the company make the personnel pool? What is the way of the forming this pool?
What are the main difficulties to find good employees in your field of business?
3. The differences in motivation management in Russia and Finland
What ways does the company use to motivate people? Do you have any compensation system? If yes, please, describe it.
Who discusses, applies and is responsible for motivation system?
How does the company detect the effectiveness of motivation actions? Are development
discussions used?
47
4. The differences in the personnel training
Does a company have any educational programs for the personnel?
Who is responsible for the planning of the personnel training - who makes decision about
the necessity of this kind of planning? Who confirms the plan? Who controls the plan fulfilment?
What kind of training do your personnel have?
Does the company pay for personnel education?
5. The differences in the personnel development management
How do you deal with new personnel? (Introduction, mentoring etc.)
What is the usual way for career development in the company?
How do you assess or measure the staff work? Do you have special procedures or system of
assessment? If yes, what are the principals of these procedures and what is the output of
them?
6. Definition of the key employees in the company
Please, define the key employees who give your company competitive advantage. It could
be some main posts or type of employees. How could you describe those personnel?
What kind of competence and skills should key employees have (theoretically)?
What problems do you face when you manage these key employees? What limitations does
the company have in case of these staff? How do you work with these difficulties?
Is there human capital evaluation in your company? Do you estimate human capital? If yes,
what kind of HRM methods or instruments do you use?
48
4.
Internal development of the network (P4)
4.1
The Evaluation of Perceptions of Finnish and Russian Manager
Regarding the Organization Learning Potential of Their Firms (Settles)
Alexander Settles, State University – Higher School of Economics, Moscow, Russia, [email protected]
ABSTRACT
In this research, I test whether a country level culture affects the readiness and acceptance
of learning organization concepts. Based on a series of case studies, interviews, and a survey of 55 Russian and Finnish management students the results indicate that there are differences between Finnish and Russian managers to create an environment for learning,
adopt learning organization practices, and develop leadership for organizational learning.
These are the preliminary results based on a non-representative survey.
INTRODUCTION
Russian companies face a significant problem of developing the conditions that support a
learning organization. In western business, the concept of creating a learning organization
has been built on the basis of long history of organizational change that supports learning,
knowledge creation and management, and in process re-engineering to improve the quality
of the organization’s processes and products and services. As Garvin, Edmondson, and Gino
(2008) have recently pointed out that business leaders may think that getting their organizations “to learn is only a matter of articulating a clear vision, giving employees the right
incentives, and providing lots of training.” This assumption misses out on the real tools of
organizational change required to build a learning organization. This is particularly important in the Russian business environment since the transitional Russian and early Soviet
models of organizations do not support the primary conditions of creating a learning organization. Employee training and incentives and the company’s or State’s demands for creating
innovative solutions have become very popular in the Russian business culture but this in
itself does not create learning organizations. Western (Finnish) business practices vary significantly from Russian practices and the open learning environment encouraged in western
business may come in direct conflict with Russian business practices.
LITERATURE REVIEW
Learning and knowledge creation have become central to developing sustainable competitive advantage in the knowledge economy (Barney, 1991; Boisot, 1995; Barney and
Hesterly, 2006, Garvin, Edmondson, and Gino 2008). Business faces strong competitive
forces and it is essential that their employees create knowledge continuously, learn faster,
and know more than others to remain industry leaders. One limitation to organizational
learning is the role of national culture in multi-national enterprises. In the a study by
Barkema et al (1997) they found that within joint ventures cultural distance (Hofstede
1980, 1991) between companies of different countries led to the difficulties in the transference of abilities and knowledge. Between compatible country cultures, Levison and Ashai
(1995) found that characteristics of learning organizations are facilitated. Roreiguez et al.
(2003) found in an empirical study that unequal attitudes to work and different methods of
communication hampered the development of learning organization between strategic alliance partners.
The learning organization in Russian company culture has unique features that are
related to the specific Russian practices related to the method of management, responsibil-
49
ity sharing, and limitation of liabilities resulting from action and inaction. The paper examines the strengths and weaknesses of Russian business culture and draw on learning organization theories to identify the particular features of Russian business culture that limits or
encourages the creation of a learning organization. A section of the report will examine the
culture of decision making and control mechanisms in the Russian company and the need
within the Russian business environment to have strong control mechanisms. Drawing on
interviews with Russian company officers the compatibility of a learning organization practices with Russian company culture will be assessed. It is expected that there will be significant cultural differences between a well-managed Russian company model and company
that has embraced a learning organization framework. A crucial component of the learning
organization model that may not fit into typically Russian company culture is the concept of
empowerment of employees to improve the organization through learning. The balance between control and empowerment has been examined and Russian specific features explained.
A learning organization is not a new concept; humans have a propensity for learning
and business organization have over time tapped into the learning ability of their employees
to create new technologies, improve current processes, and to serve better their customers.
The concept of a learning organization was crystallized in the work of Peter Senge in his
1994 book The Fifth Discipline: The Art and Practice of a Learning Organization. The convergence of five component technologies in the 1990s forms the basis of creating a learning
organization. The integration of the technologies of systems thinking, personal mastery,
mental models, building a shared vision, and team learning provide the vital dimensions to
create a learning organization. The crucial components of a learning organization can be
summarized as a supportive learning environment that permits the questioning of current
practices, creating concrete learning processes and practices, and firm leadership that reinforces learning and allows the space for implementation of these five technologies of a
learning organization.
A crucial building block of a learning organization is a supportive learning environment. An environment that supports learning has four distinguishing characteristics according to Garvin, Edmondson, and Gino (2008). First psychological safety must exit to allow
employees to apply system thinking and personal mastery technologies and to find new
mental models to solve problems. To learn, employees cannot fear being belittled or marginalized when they disagree with peers or authority figures, ask naive questions, own up to
mistakes, or present a minority viewpoint. Instead, they must be comfortable expressing
their thoughts about the work at hand. This issue is crucial in a cross-cultural situation as
there are basic differences in how employees will question current practices. Secondly, an
organization must be able to allow for the appreciation of differences. Learning occurs when
people become aware of opposing ideas. Recognizing the value of competing functional outlooks and alternative worldviews increases energy and motivation, sparks fresh thinking,
and prevents lethargy and drift. Thirdly, there must be openness to new ideas. Employees
should be encouraged to take risks and explore the untested and unknown to challenge existing mental models of the organization. At the same time, managers must be able to mitigate these risks without stifling creativity. Fourthly, there should be a time for reflection. All
too many managers are judged by the sheer number of hours they work and the tasks they
accomplish. When people are too busy or overstressed by deadlines and scheduling pressures their ability to think analytically and creatively is compromised. They become less able
to diagnose problems and learn from their experiences. Supportive learning environments
allow time for a pause in the action and encourage thoughtful review of the organization's
processes. The survey used in this research paper is based on this model.
The concept of a learning organization has been well explored both in the management literature and through practical application. In western firms, there exists an expectation for innovation and learning that are made clear in slogans such as IBM’s Think, Intel’s
Leap Ahead or 3M’s Spirit of Innovation. The implementation of learning organization
strategies in western firms can also provide guidance for the potential problems. To implement a learning organization strategy it is clear that a firm must penetrate below the top
50
management and engage mid-level managers into the process of fostering a learning culture. In western firms, there has been significant conflict between performance-based management and learning organization practices. Striking the right balance between performance (hours worked, units produced, value added) and that of learning and innovation is
crucial to create an accountable organization that learns and innovates. Also, western firms
have found it difficult to assess how their teams' learning was contributing to the organization as a whole.
This paper draws on the learning organization theory and recent studies of western
practices to develop a tool (questionnaire) to analyze Finnish and Russian company practices. The results of this research are to understand the current situation with regards to
learning organization development in Finnish and Russian firms. It is also to create a metric
that can be used by Finnish firms when they enter the Russian market to determine how to
create branch offices that utilize learning organization practices, to select Russian employee
that are well suited to a learning organization framework, and to judge how well Russian
partners may operate within a learning organization framework. This research fits into the
category P4 Internal Development to create an Agile and learning network.
RESEARCH PROJECT
Project description and objectives
This project attempts to increase the understanding of the learning organization potential of
Finnish firms operating in Russia. The project was intended to study the internal development of the network and culture of businesses within the Finnish business networks in
Finland, Finnish offices in Russia, and Russian partners. The objective of this research project was to determine if the network relationship within the Finnish-Russian firm network
would be able to implement and benefit from learning organization practices. The key research question is whether there are cultural differences between managers and employees
working in the Russian and Finnish environments that would lead to barriers to implement a
learning organization framework. The research also attempts to identify the openness of
employees toward knowledge management, innovation and diversity.
Research methodology
This research is based on a descriptive analytical model that attempts to connect country
business culture to the level of organizational learning. The following hypotheses have been
defined:
H1: There will be a significant variation in the shaping of learning organizations based on
the country business culture.
H11: The degree a firm has a supportive learning environment will vary with country location
H12: There will be a significant variation in the development of a concrete learning environment based on country location.
H2: There will be a significant variation in the management support and leadership in creation of learning environment based on country of operations.
The methods used for the study of internal development of the network and culture
of businesses within the Finnish business networks in Finland, Finnish offices in Russia, and
Russian partners involves the survey of attitudes of managers and employees at these net-
51
work member entities. The first stage has involved the mapping of network partners, identifying the population of firms to be surveyed and selection of sample from this population.
Learning Organization Questions included in the Survey Instrument
1.
We would like to understand the working environment within your unit (company).
Do your employees feel comfortable approaching their managers with their
concerns, problems or disagreements? Is there a formal process for managing
this process of interaction between employees and management?
Are people in this unit eager to share information about what does not work
as well as to share information about what does work?
2.
In terms of capturing best practices or knowledge and experience created by your
employees, do you feel that your company does an adequate job of insuring that this
knowledge and experience is retained and used?
Do your managers value new ideas? Are employees rewarded for bringing
forward new methods of work or new technologies?
Does your company have a formal system of knowledge capture and
management?
Do your employees regularly participate in training? Is that training evaluated
and is employee productivity improvement resulting from training measured?
The methods used for the study of internal development of the network and culture
of businesses within the Finnish business networks in Finland, Finnish offices in Russia, and
Russian partners involves the survey of attitudes of managers and employees at these network member entities. The first stage has involved the mapping of network partners, identifying the population of firms to be surveyed and selection of sample from this population.
During this first phase, a questionnaire that includes internal development of the network
and culture and other components of the project was developed and finalized at the first
stage of the project. The full survey on strategic control, cultural values and learning organization behaviors was pre-tested during a visit to one of the participating companies.
The survey proved to be very long to administer and the questions related to learning organization were lost in the overall approach.
The second method used to detect differences in learning organization practices and
potential was the use of an extensive learning organization survey that investigated the LO
potential over eight factors. The survey instrument is included in appendix 1 and is based
on the survey instrument use by Garvin, Edmondson, and Gino (2008). The full survey included questions that evaluate the building blocks for a supportive learning environment,
the development of a concrete learning process, and leadership that reinforces the learning
process.
The survey instrument measures nine factors: (1) psychological safety, (2) appreciation of differences, (3) openness to new ideas, (4)time for reflection, (5) information collection, (6) analysis, (7) education and training, (8) information transfer and (9) leadership
that reinforces learning. The full questionnaire has been used to survey two groups of managers from Finland and Russia. The respondents work in Moscow or in the Hämeenlinna region in Finland. The managers were attending MBA programs at a Russian and a Finnish
business school so there was selection bias in the sample that may have influence the final
results. The survey respondents are non-representative samples of the population of Finnish
and Russian managers.
Culture distance theory (Hofstede 1981) indicates that there would be significant
variation in the variables that create a supportive learning environment and leadership that
reinforces learning. Russian companies have adopted many management procedures that
facilitate a concrete learning process so the variation between Russian and Finnish compa-
52
nies may have disappeared though implementation of such policies may remain. The following table is a summary of Hofstede’s estimates of cultural differences.
Table 4.1.1. Hofstede's Estimates for Finland and Russia.
PDI
IDV
MAS
UAI
Finland
33
63
26
59
Russia
93
39
36
95
US
40
91
62
46
World
Averages
55
43
50
64
Source: http://www.geert-hofstede.com/hofstede_dimensions.php (collected by Nikolay
Filinov, Nadejda Bek and Nina Vladimirova 2009) with author additions
Where PDI - Power Distance Index, IDV – Individualism, MAS – Masculinity and UAI - Uncertainty Avoidance Index
The power distance index differences are significant between Finland and Russia and
this difference could form the basis for rejecting the null hypothesis that would be no different between Finnish and Russian company practices regarding building a supportive learning environment or leadership that reinforces learning. Increased power distance would lead
to less psychological safety, less openness to new ideas, and reluctance to question one’s
manager. A lower estimate on the individualism characteristic for Russia also indicates less
the potential for less initiative from employees to involve themselves in the learning process. Russia’s higher uncertainty avoidance index estimate would also indicate that the null
hypotheses that there would not be a difference in learning organization practices could be
rejected. Uncertainty is part of the learning process and openness to new ideas and questioning established practices leads to uncertainty. In comparison to the sample used by
Garvin, Edmondson, and Gino (2008) of US executives the Finnish managers would be culturally closer using the Hofstede cultural dimensions model. There would be an expectation
that the US managers would score higher on openness to new ideas and appreciation of
differences than the Finns, due to the higher scores on individualism and lower score on the
uncertainty avoidance index.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
The results of the series of interviews on Finnish companies and their Russian subsidiaries
provided only limited results. The interviews conducted in depth with one company indicated
that there are differences in approach to learning between Finnish and Russian managers.
In the opinion of one survey, respondent Russian managers demonstrate less openness and
leadership in the acquisition and collection of new knowledge. The overall approach was first
to have Russian managers and workers to conform to firm wide policies and to implement
management and decision making process to integrate the Russian subsidiary into the Finnish company’s management practices. There may be such learning organization or knowledge management programs in the parent Finnish company though these policies are not
implemented in Russian subsidiaries. The first priority tends to be to implement management control systems and adherence to Finnish company-wide policies through replication
of company rules and systems in their Russian subsidiaries. Learning organization policies
can wait.
Results
An overview of the surveys implemented other researchers by Tretyak et al (2009) on customer relations and Krupskaja (2009) on personnel policies indicates that the other Russian
subsidiaries demonstrate some of the characteristics of a learning organization but do not
53
have formal or systematic approaches of using this information or knowledge. The firms
surveyed do not have formal process of developing customer relations or collecting and
analyzing data from customers. The human resource management office did report that
these subsidiaries were engaged in providing educational benefits.
These other interviews also provided a clear understanding of how Finnish companies
have entered the Russian market place. According to the survey results of Tretyak et al.
(2009), there are three principle modes of entry: (1) greenfield entry with establishing a
wholly owned Russian subsidiary, (2) brownfield entry of purchasing an existing Russian
company, or (3) establishing an affiliate relationship with an existing Russian company. In
the cases of outright purchases, the Finnish company should be able to implement all of its
policies without interference from other owners. In the case of an affiliate relationship, the
contractual relationship would dictate the degrees of freedom to require management or
process changes.
Since it was not possible to survey managers in the Finnish companies or their Russian subsidiaries due to refusal of these companies to implement the survey, this research
surveyed a non-representative sample of managers in both countries to determine if there
exists a cultural difference in the proclivity towards the components of a learning organization.
The survey results of Russian and Finnish managers indicate that there are some
significant differences. In comparison with the scaled scores of the Garvin, et al. (2008)
study both Finnish and Russian managers scored lower than US managers in the development of a learning organization framework in their respective companies. Chart 1 graphically demonstrates the survey results on the nine factors. The Finnish respondents rated
their firms as higher in the learning environment indicators of Psychological Safety and
Openness to New Ideas while also rating the firm practices higher in Information Collection,
Analysis, Education and Training, and Information Transfer. Finns also report higher Leadership that reinforces learning ratings of their managers than the Russian respondents. The
Russian respondents scored their firms higher in the learning environment indicator of Appreciation of Differences. Both Finns and Russians reported little time for Time for Reflection
and the level report was nearly the same as reported in the US indicating that most firms do
not make time available for reflection. This remains a key weakness in the development of
learning organizations.
54
Psychological Safety
90
80
Leadership
Appreciation of Differences
70
60
50
Information Transfer
Openness to New Ideas
40
Education and Training
Time for Reflection
Finland
Analysis
Information Collection
Russia
US
Figure 4.1.1. Profiles of answers concerning learning organisation in Finland, Russia and
USA.
Further exploration of the results indicates that there were statistically significant differences in two indicators. Applying the student t-test method to independent samples the
following hypothesis could be rejected for the Appreciation of Differences and Education and
Training indicators. The student t-test involves the following hypotheses regarding whether
the means of two independent samples are different.
Ho:
Ha:
μ1 = μ2
μ1 ≠ μ2
There was a significant effect for ratings of Appreciation of Differences, t(53) = 1.91,
p < .06, with Russian firms receiving higher scores than Finnish ones. Russian respondents
rated the Appreciation of Differences more than eight points on average higher than Finnish
respondents. There was also a significant effect for ratings of Education and Training, t(53)
= 2.65, p < .01, with Finnish firms receiving higher scores than Russian ones. In terms of
the firm practice of Education and Training Finnish respondents rated their firms nearly 14
points higher in their practices. Analysis of other indicators did result in statistically significant variances in means of respondent scores.
In the case of the respondents answers to the indicator of Leadership that reinforces
learning, while there was not statistically significant difference in their means, the distribution of results does indicate an interesting pattern. The following graph is a histogram of the
distributions. Russians scored their managers lower than Finns with both lower mean (69 for
Finns versus 65 for Russians) and mode (70 for Finns versus 60 for Russians) scores.
55
Figure 4.1.2. Histogram of the distributions. Russians scored their managers lower than
Finns with both lower mean (69 for Finns versus 65 for Russians) and mode (70 for Finns
versus 60 for Russians) scores.
Implementation and exploitation
The significant difference in Hofstede estimates of country level culture in Power Distance
Index, Individualism, and UAI - Uncertainty Avoidance Index between Russia and Finland
should lead differences in whether firms create a supportive learning environment, adopt
concrete learning processes and practices, and whether managers demonstrate leadership
that reinforces learning. The limited results from the case studies within the STORI-Network
project indicate that Finnish companies operating in Russia do not replicate their learning
processes and practices in Russia. Why this happens is unclear. Speculation based on an
overall reading of case reports and an understanding of Russian business practices indicates
that Finnish firms are attempting to develop company cultural within their subsidiaries that
adheres to their parent company practices while adapting it to the Russian environment
(either by design or ad hoc steps).
The combination of survey results and case study analysis indicates that there is evidence, though only of limited statistical significance, that there exists significant variation in
shaping of learning organizations based on country business culture. Using the Garvin, et al.
(2008) model of learning organizations the Finnish respondents indicated in seven out nine
indicator higher ratings of their firms and managers appreciation of learning organization
environment and practices. The supportive learning environment seems to vary with country as well as the development of a concrete learning environment. The null hypothesis that
there will not be a significant variation in the management support and leadership in creation of a learning environment based in the country of operations could not be rejected statistically but the Russian respondents did score their managers lower. This fits the expected
56
outcome based on cultural difference as measured by Hofstede. Higher power distance
should lead to less leadership in creation of learning environment since managers are
harder to approach and less likely to listen to subordinates ideas.
CONCLUSIONS
While it is clear that in some manner learning organization readiness and practices differ
between Finnish and Russian companies this research cannot be seen as conclusive. The
next steps in the research process would be to conduct a broader survey to include perhaps
all member companies of the STORI-Network or a representative sample of Russian and
Finnish managers. In addition, the next steps in the research process should be to understand what learning organization activities are underway in Finnish companies operating in
Russia. Without learning and knowledge management subsidiaries of Finnish companies
operating in Russia will not be able to supply the necessary in country experience to build
company level competitive advantages.
ACKNOWLEDGEMENT
The author gratefully acknowledges the financial support of HAMK and a number of Finnish
private companies, which have given new research directions for the building sector. Additionally author acknowledges co-operation partners HAMK University of Applied Sciences,
Tampere University of Technology, VTT Technical Research Centre of Finland, Graduate
School of Management (St Petersburg) and Higher School of Economics (Moscow).
REFERENCES
Barkema, H.G., Shenkar, O., Vermeulen, F., and Bell, J.H. (1997) “Working abroad, working
with others: how firms learn to operate international joint ventures,” Academy of
Management Journal, 40 (2), 426-442.
Barney, J.B. (1991), “Firm resources and sustained competitive advantage”, Journal of
Management, 17 (1), 99-120.
Barney, J.B. and Hesterly, W.S. (2006), Strategic Management and Competitive Advantage:
Concepts and Cases, Pearson, Harlow.
Boisot, M.H. (1995), Information Space: Framework for Learning in Organizations, Institutions and Culture, Routledge, London and New York, NY.
Filinov, N., N. Bek and N. Vladimirova (2009) STRATEGIC CONTROL IN INTERNAIONAL
COMPANIES: A CASE STUDY, GBATA Conference Proceedings, 2009
Garvin, D. A., A. C. Edmondson, and F. Gino, (2008) “Is Yours a Learning Organization?”
Harvard Business Review, 86 (3), 109-116.
Hofstede, G. (1980), Culture Consequences, Sage, Newbury Park, CA.
Hofstede, G. (1991), Cultures and Organizations, McGraw-Hill, London.
Levison, N.S. and M. Asahi (1995), “Cross-national alliances and interorganizational learning,” Organizational Dynamics, 50-63.
Rodriguez, S. D., J. F. Martinez Perez, and M. Pardo del Val (2003), “An empirical study
about the effect of cultural problematic on organizational learning,” The Learning Organization; 2003; 10, 2/3.
Senge, P. M. (1994) The Fifth discipline fieldbook : strategies and tools for building a learning organization, Doubleday, New York.
57
Tretyak, O. A., M. Weck, E. V. Buzulukova, A. G. Rozhkov, N. I. Popov (2009) “Developing
marketing for the STROI-network. Report for Perspective 5: Marketing”
4.2
Strategic Process of Finnish Construction Companies, Building Networks in Russia (Bek, Vladimirova)
Nadezda Bek, State University – Higher School of Economics, General and Strategic Management Department, Moscow, Russia.
Nina Vladimirova State University – Higher School of Economics, General and Strategic
Management Department, Moscow, Russia.
ABSTRACT
Globalization and growing competition force companies to look for new markets for their
business. International operations give companies an opportunity to use their resources
more efficiently and simultaneously the internationalization processes increase a firm’s risks
and strategic problems. The choice of an international strategy defines a company’s priorities on partnership development, which are necessary for a quicker understanding of new
markets’ features, and also for decreasing strategic and commercial business risks. The
strategic process is influenced by a number of factors, such as institutional and sociopolitical, and also business-sector specifics and national culture. Strategy development and
implementation together with stable network relations define company’s success in a new
market. The paper presents the main results of an empirical research, devoted to analyses
of international companies’ strategies and factors, affecting strategic choice and implementation process in the Russian market.
INTRODUCTION
The processes of globalization and information technologies development erase borders between different national markets. In these conditions strategy development and implementation require account of new factors reflecting character of interaction with partners in a
network, branch features, distinctions in parameters of business culture and the strategic
management on national and foreign markets.
The problem of adjusting the firm-level strategy while entering a foreign market to
the cultural peculiarities of the company’s home and foreign cultures has been extensively
studied (Barlett and Ghoshal 1995, Ohmae 1990, Prahalad and Hart 2002, Ghemawat
2001). The finding of this research was that international expansion strategy depends on
several factors, both pertaining to the international context and company specifics.
Another research question that has been studied is “what occurs after the international strategy has been chosen and a company has already entered a new market?” A
number of factors, which influence behavior of companies after entering foreign markets
have been identified (Ghostal and Nohria 1993, Harzing and Noorderhaven 2006; Soledad
and Mody 2004, Morrison, Ricks and Roth 1991). At the same time, the problem of strategic
choice in response to interdependence of different business-cultures has not received appropriate attention in the literature.
One of the basic features of the "new" economy based on knowledge is network relations. These features not only change economic roles, rates, directions and mechanisms of
strategic processes implementation. Changes also concern interaction forms between companies.
58
International inter-firm communications and network relations still, despite its importance, remain behind frameworks of traditional models of strategic and international management. Meanwhile the recent research in this area (Enright 2000, Ricart et al 2004, Hadjikhani et al 2008) gives grounds to assume that the account of socio-cultural and organizational and administrative factors, in particular, informal relations between companies, can
have a critical value during strategic decision-making, concerning development and business dealing in foreign markets, geographical position of investment objects, suppliers and
clients, creation innovative products, forms of partner agreements.
This article is devoted to the research of strategic processes features (decisions and
actions) during business expansion outside national borders. The factors affecting strategic
choice of internationalization strategy and organizational forms of it realization, establishment and development partner relations on markets, and also decisions regarding strategic
control of international divisions (affiliated companies), are pointed out with respect to strategic context. National, regional, industry and intra-organizational conditions of business are
considered as contextual factors.
The main objectives of the research are:
1. To define group of factors, influencing network-level strategy and doing business outside national market
2. To select forms of strategic control used in international companies for management
their subsidiaries
3. To determine, what factors affect choice of strategic control form during business expansion on new markets
Objects of the research are Finnish companies, operating in Russia in the construction sector. Mainly they are the diversified companies, running one or several businesses in
the Russian market.
LITERATURE REVIEW
Strategic Processes in International Companies
A company involved in global expansion overcomes borders of growth in its domestic country, realizing its competitive advantages abroad, expanding international cooperation and
increasing volumes of company’s foreign economic activity. Decisions about internationalization influence all management levels of the company – network, corporate, business –
and functional levels (de Witt and Meyer 2005). Two sets of decisions are the most important from a strategic point of view: choice about degree of business operations standardization on foreign markets and organizational form of its international divisions (affiliated companies). Both decisions predetermine the necessary level of centralization, degree of independence of its affiliated companies, including the decision about participation in different
networks.
Proceeding from the definition of network as models of mutual relations of firms and
institutes, network structure is not only the result of companies’ choice between market,
hierarchy or hybrid forms of joint management. It is also rules that drive decisions of firms
about cooperation in the certain competitive markets (Kogut 2000). These rules, in turn, are
defined by industry features, social norms and institutional factors.
Two basic factors influencing the choice of a company’s international strategy can be
defined: the possibility of standardization on the global market and gaining advantages from
economy of scope (Yip and Tallman 2009). There are two main alternatives at the ends of
the spectrum (with a number of intermediate options in-between) may be examined from
the perspective of standardization of company’s operations:
1. Multinational strategy, based on accounting and using of peculiar national features of
particular segments of the world market on which the company operates;
59
2. Globalization Strategy, based on application of standardized approach towards particular segments of the world market on which the company operates with only minor changes in products, services, policies and procedures.
A multinational strategy is based on studying, accounting for and using distinctions
of different national markets in consumer preferences, competition, and also specifics of
political, legal and social systems and structures. An efficient multinational strategy implementation depends on the level of decentralization providing delegation the rights to make
strategic and operative decisions to national enterprises. It allows for accounting for local
features in a company’s activity in a more flexible manner. However, growth of various
businesses can lead to the loss of the advantages connected with usage economy of scale. A
distinctive feature of global strategy is a high level of centralization and interdependence
between foreign subdivisions when they implement production and competitive strategies.
In the choice of implementation one of these strategies is based on the company’s
decision concerning the degree of core competences’ centralization. This requires the consideration of opportunities for the coordination and management of administrative costs
(Morrison, Ricks and Roth 1991).
On the one hand, the strategy of the parent company can be focused on centralization of basic functions in a head office, while delegating some authority to foreign subsidiaries. This approach requires accurate specification, what areas of responsibility need to be
delegated to foreign subsidiaries.
On the other hand, the head office can distribute functional areas of responsibility
between various countries in such a way that the competitive advantages of each subsidiary
can be used in the most effective way. This approach involves the highest administrative
costs. Moreover, it requires a high level of complex integration mechanisms and also the
sharing and supporting of the same organizational culture in all international divisions of a
company.
The international behaviour of companies in the 20th century moves from globalization strategies towards multinational. The fact that now a significant number of companies
still uses a globalization strategy can be explained. Globalization processes in the world
economy promote a higher level of uniformity of different national markets, which have
made economies of scale a more important factor.
The choice of an organizational form of market entry is one of the key strategic decisions within the process of internationalization. In the literature two basic forms of market
entry are considered: the creation of a new enterprise (greenfield) or company purchase
(acquisition) (Meyer and Estrin 2001). However the transitive form,Brownfield, has also
been examined. In this case the parent company buys an operating firm, but then almost
completely replaces equipment, personnel and all business processes. After the transformation period material and non-material resources of the absorbed firm, such as brand or organizational culture, are aligned with the corporate strategy of the Head office. The basic
difference between Brownfield and acquisition lies in deep re-structuring planned initially
and realized according to the general strategy of the company. It is chosen by firms with
core competence based on combination of firm-specific international resources with specific
local assets.
The choice and realization of an international strategy on a new national market are
carried out under the influence of external factors. According to Enright (2002) different
levels of factor analysis can be determined: subnational-, national-, clusters-, industry- and
firm-level. In this research, we have examined the following factors on the firm-level:
strategies, activities, governance structures of firms. Micro- or industry-level drivers include
the nature of competition and cooperation in the given industry, policies that are specific to
the industry, and skills and capabilities that are specific to an industry. Meso- or clusterlevel drivers include inputs such as the linkages between suppliers and buyers; the nature
of local demand; Macro- or national-level drivers include macroeconomic conditions, government policies at the national and regional levels, and aspects of society, including goals,
interest groups, agendas, and social issues. Meta- or supranational level drivers include
60
links with other economies outside the nation, the strategies of foreign multinational firms,
and (supranational) regional linkages (Enright 2002).´
The context reflects not only institutional and cultural features of the country, but
also behavior model of players – actors (Ford 1997, Hakansson and Johanson 1992) who
are potential participants of a business network of the company. At national level, together
with the direct participants – consumer and suppliers, institutes (the financially-credit organizations, trade unions, religious and social institutes, etc.) and state bodies can be referred to actors. Activities of such actors as the World Bank, IMF and European Union, in the
field of creation, growing, or in contrast, reductions of integration processes in the world
directly influence possibilities to operate abroad.
As a whole strategic choice concerning business operating in a new foreign market,
is defined by corporate international strategy of the parent company and its participation in
various networks. However, if the company is diversified, it can participate in different business networks, realizing different kinds of international strategy, proceeding from specificity
of a certain business. Business expansion assumes an obligatory knowledge and best practice exchange between divisions (affiliated companies) in different countries. It predetermines development of internal networks within the company where constant interaction and
resources and information exchange are taking place (Bartlett and Doz 1990, Kogut 1990).
An internal network is a set of positions and interactions between subdivisions within one
corporation. An external network should be analyzed from a perspective of separate division
on foreign market as it is a link between internal and external networks (Figure 4.2.1).
Head Office
Finland
SBU 1
Finland
SBU 2
Finland
SBU 3
Finland
SBU 2
Russia
SBU 3
Baltic States
Internal Network
SBU 1
Ukraine
SBU 1
Russia
SBU 1
Baltic States
Customer
Supplier
Business between
divisions
Interactions with
external actors
Municipals
External Network
Devisions’ Strategic
control
Figure 4.2.1. Interconnections between Internal and External Networks
Network development in a new national market depends on many aspects of strategy (corporate, business and functional) of a parent company. Network level strategy is an
integrating link (de Witt, Meyer, 2005) that co-ordinates separate elements of strategic
process (Figure 4.2.2).
61
Figure 4.2.2. Network level strategy.
Within one organization it is possible to allocate several networks where it participates. Decisions connected with interaction in a certain network, can be accepted at different levels of management. So, the company as a whole can be a part of one or often more
networks. If the organization is diversified, each of its strategic business unit (SBU) can
participate in another network. And, at last, some divisions, for example, research and development or marketing departments can develop relations with research institutes or consulting agencies. Therefore network level strategy uniting various networks, has a difficult
mobile structure, and communications between external and internal networks influence
strategy implementation of all managerial levels.
Strategic control of subsidiaries out of the national bounds
There is a strategic contradiction between necessity to have more freedom and flexibility for
adaptation to the various national markets conditions and provision of common vision and
development of the parent company. It leads to difficulties in coordination and strategic
control of foreign divisions.
Strategic control can be implemented through Corporate Centers (СС), which in different markets play different roles. There are many publications, describing and analyzing
roles of CC in international company relations. We are basing our further study on the work
of Nathaniel Foote, David Hensley, Max Landsberg and Roger Morrison (2008). In their paper “Role of the corporate center” these authors have suggested a set of distinguished roles
that CC may play in the international activity of companies. These roles constitute a certain
continuum.
On one pole there is the “Financial holding” role. A “financial holding” type company
consists of a set of independent business units that have weak communications with the
corporate center. In this model the functions of the corporate centre include first of all of
the financial control through the tasks of budgeting and careful profit and cash flows management. The role of the CC also includes hiring, performance evaluation and firing unit
62
managers. Thus a head office does not attempt to co-ordinate activity of business units or
to attempt to create any synergism between units.
On the other pole we find so-called “Operator” who usually develops only one line of
business, but has some profitable divisions that either work in different regions, or produce
different goods. Between these poles there are “Strategic architect” (SА) and “Strategic
controller” (SC). Corporate center as a «Strategic architect», realizes two basic functions.
First, it generates the general strategy while business units have freedom for development
of their own initiatives. Second, it monitors the subsidiaries businesses, periodically initiating discussions concerning general strategy of divisions. The head office as «Strategic controller» focuses on careful and often functional analysis of business units’ strategy and undertakes more efforts in achieving a synergy effect.
The choice of form of strategic control is influenced by set of both internal and external factors (Figure 4.2.3).
Microenvironment
factors
Macroenvironment
trends
Multinational
/global
Expansionism/
Liberalism/
Paternalism
Corporate
strategy of a
Parent Company
Market
Environment
Form of
Strategic
Control
Culture
peculiarities of
home country
Culture
peculiarities of
foreign country
Figure 4.2.3. Factors, Influencing Strategic Control Form.
First of all, the company, making the decision on the form of strategic control, considering corporate international strategy as a vector of foreign subsidiaries’ development.
There are also other significant factors, such as market structure, power distribution between players, and general industry dynamics. However, it is necessary to consider crosscultural issues as they influence control implementation directly. In practice, it is usually not
easy to specify a company as one belonging to the certain type as combined forms are often
used. Moreover, forms of strategic control differ across the set of subsidiaries (Filinov, Bek
and Vladimirova 2009).
Besides, organizational form and mechanism of strategic control are defined by
power and influence of division and its position in the whole business networks (Forsgren
and Pahlbereg 1992). Influence possibility is a question of possession the central position
with access to resources and to important participants of a network. Both parent company
and separate division can possess these resources (Figure 4.2.4).
63
Figure 4.2.4. Interdependence of parent company and its subsidiary.
If the division possesses the possibility to control resources and takes the central position in a network on a new market, the possibility of its control through hierarchy is limited. Therefore, Head Office, implementing global strategies, can meet serious difficulties
connected not only with an external context, but also with intra-organizational factors.
Divisions in different markets can vary their perception of parent company’s strategy. One of the tools, allowing realizing strategic control, is Balanced Scorecard (BSC). BSC
can provide control function in such mechanisms as Financial Holding, the Strategic Architect or the Controller.
RESEARCH PROJECT
Project description and objectives
The research was devoted to investigating strategic process specifics in Finnish companies,
operating in the Russian market.
Research methodology
The research is based on qualitative and quantitative data analysis methods. Qualitative
tools included structured interviews with top and middle management, based on a list of 40
questions covering various aspects of companies’ activities. Internal documents of companies and secondary information (company websites, WEF and WB materials) were used as
addition to interview results.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
International strategies and forms of business ownership
The majority of the investigated companies adhere to a multinational strategy. Regionally
adapted products are the main characteristic for this type of strategy. The type of business,
Russian legislation, and business practice support the choice of the given strategy. However, general quality assurance and following of shared standards are complicated because
of the high degree of decentralization of decisions. It is difficult to copy initial partnership
models in new national market due to various influences on the companies by industries
actors.
According to the parent company strategy, several businesses can enter the same
market. It influences the network structure. The researched companies have confirmed that
if there is another affiliated company in the same market, it will be in most cases chosen for
projects development. The research has shown that companies use typical legal organization forms of development on t hRussian market. Some companies buy active businesses.
However, the majority of the companies created new affiliated firms for business operations
in Russia. Such organizational form as an acquisition was not examined in the considered
64
companies. Though this form could be the most suitable to form a partnership. On the one
hand, there are already established relations with suppliers, consumers and the third parties, and on the other, the introduction of new rules and procedures from the parent company allows implementing global international strategy.
Factors, influencing network-level strategy and doing business outside national
market
Firstly, it is possible to define distinctions in the institutional and social environment in
Finland and Russia among a group of factors influencing strategy choice of partnership. The
economy of Russia and Finland differs in many parameters. Technological development,
dynamical integration in global processes and preservation of national interests allow
Finland to be considered as an information society. Key features of such a society are
knowledge generation through information technologies, occurrence of network relations in
various branches, development of infrastructure for effective network processes (Castells
2002). The Russian economy is still at the stage of industrial society. Traditional market
mechanisms and more rigid organizational structures, are still strong within this economy.
Rules of the game within the market in many cases are defined by existing institutional mechanisms along with level of economic relations development. It is possible to
make a conclusion that the most significant parameters of doing business in Russia and
Finland differ. According to World Bank and IFC Finland is in 14th place in the rating "Doing
Business" (https://russian.doingbusiness.org), while Russia is 120th . It is much easier to
get permission to start a business in Finland than in Russia (43 place against 180). International trade possibilities in Russia are strongly limited in comparison with Finland (4 and 161
place respectively). (Figure 4.2.5)
Figure 4.2.5. Macro factors in Finland and Russia.
Thus, the economies of Finland and Russia represent different economic models. This
means that companies entering the Russian market need to change strategic management
and adapt it to new conditions of doing business. However, the research has shown that not
all companies are ready for radical changes of already developed business processes and
management mechanisms.
Partnership strategies are defined not only by political and cultural features of the
whole country, but also of a certain region. Complexity of defining unique dimensions for
65
one country according to the model of Hofshtede (Individualism, Power Distance, Masculinity, and Uncertainty Avoidance) is shown in the latest research. Different regions in Russia
are characterised by essential distinctions of business culture parameters, which are defined
by level of social and economic development. For example, considering PDI and IDV parameters, Stavropol is close to culture of India, Tula to Argentina and Japan, and Tyumen to
Canada and to the Netherlands (Latov, Latova 2007).
Distinctions in economic values involve differences in partner’s behaviour in the market. Finnish companies are in a greater degree focused on the business mutual relations
based on trust without drawing up detailed contracts in the beginning of joint activity. Russian firms aspire to the maximum detailed elaboration of possible parameters and regulation
of joint activity before a project begins. Probably, it is the consequences of negative experience of cooperation at an the original stage of market development in Russia. All investigated companies stated that they put essential accent on relations with governance, developing partnership strategy. A high level of corruption and economic crimes, especially in the
building sector, cramp the development of normal partner relations. This aspect is represented in much foreign and domestic research, and was marked by respondents. Prevalence
of shadow operations is largely caused by parameters of national culture of the country. As
Latov and Latova (2007) have shown prevalence of corruption relations positively depends
on an individualism index and negative on power distance index.
A low standard of living and considerable social inequality are characteristics of many
Russian regions. Big cities in the European part of the country grow at a fast rate due to the
low standard of living of rural population. It can be considered as the positive tendency for
construction sector as demand for real estate, both residential and commercial, is growing.
It is especially appreciable in cities-millionaires (St.Petersburg, Nizhni Novgorod, Ekaterinburg) though the crisis has slowed down this growth approximately for 3 years, according to
the experts. At the same time, similar stratification of the society complicates market segmentation. It especially affects the companies focused on residential building in the middlesegment.
Thus, the choice of partnership strategy in a new market depends not only on the
national context, but also on specific characteristics of regions. It means that business rules
should correspond to specific institutional and socio-cultural factors of the concrete region.
However, research has shown that almost no respondents consider specificity of separate
cities when speaking about cultural features.
It is difficult to copy the Finnish model of partnership relations on Russian market
also due to legislative factors. If clients are unitary enterprises, business operations get under legislation concerning state purchases (Federal Law from July, 12th, 2005 94-FZ «About
orders placing for deliveries of goods, works and services performance for state and municipal needs»). Besides, municipal authorities participate in process of acceptance the important decisions concerning subcontractors. Therefore, the range of partners’ choice in this
case is limited at the first stage of relations.
Business specifics influence development of partner relations and business dealing
outside of the national market along with socio-cultural and institutional contextual factors.
The investigated companies operate in construction sector. They can be divided to four
market segments, proceeding from features of the business: industrial and ecological services, lifting equipment, construction materials retail and residential construction.
Environmental and industrial services
The Russian market may be described in the following terms. While in the US and
Western Europe the interest of enterprises and organizations in environmental certification
is high, as it is a tool for gaining leadership in markets, Russian companies do not have a
significant stimulus to acquire environmental certification of their production systems. The
environmental legislation in Russia differs substantially from that in EU countries. In Russia,
the business of environment protection is concentrated basically in big cities and there are
different rules in each region.
66
Consumers are often municipal authorities, housing companies, and large construction companies. Subcontractors (suppliers) influence the quality of providing services. It is
difficult in comparison with Finland to find private businessmen rendering ecological quality
services in Russia. That is why the network configuration changes. The companies in the
given market are forced to join subcontractors in the structure. Input barriers on the market
are in personal contacts with municipal authorities. Therefore, partnership strategy is directed on the creation of stable relations with clients. The existing competition occurs basically with the state (unitary) enterprises or their affiliated organizations.
Lifting equipment
It is the Business-to-Business sector where each client makes certain demands, proceeding from specificity of its business. The number of suppliers, influencing terms and
quality of work, is also limited. Basically, suppliers are other branches of a parent company.
High initial investments protect the market from new competitors, and competition intensity
is affected by the parent company brand. Consumers possess major market force. Therefore, the companies aspire to assist consumers in technical project designing, and also to
support communication with them after services rendering. Accordingly, partnership strategy is focused on client development and on joint projects creation.
Construction
Customers of companies specializing in residential construction are basically large
Russian and foreign companies. It is possible to allocate companies selling construction materials as suppliers and subcontractors, performing design work. The Russian sector of residential construction is strongly fragmented and approximately 100 000 companies operate
in it. As diversification of the companies in other business is complicated, the branch has a
strategic character for many players. In spite of the fact that officially input barriers on the
market are not too high, companies need to establish communication with various municipals to start business in this segment in Russia.
Construction retail
This segment is characterized by suppliers who offer wide assortment of goods along
with weak segmentation between them. The scale effect is an input barrier on the market,
but it cannot constrain growing competition. Therefore, there is a tough competitive struggle between existing players, in spite of the significant amount of consumers. Contracts
make the basis of market relations in such conditions. The retail companies are not ready,
as the research has shown, to build long-term partner relations neither with clients, nor
with suppliers
We have defined the key factors influencing the companies, operating on these markets, using expert estimations added with materials of DATAMonitor group. The diagram
reflects key differences of segments within the limits of the construction sector (Figure
4.2.6).
67
Figure 4.2.6. Competitive profile of the market segments within construction industry.
There is a common feature for the construction sector – business processes management within different projects. Alliances of companies in the construction sector have more
likely short-term character and change depending on number of simultaneously realized
projects and stage of the concrete project. Developing the project companies are limited by
the project purposes, its resources and interests of their stakeholders. The system of tenders regulates various aspects of agreements between partners. Within the limits of one
project, not only partners from current network can be involved, but also time-basis participants. The process of interaction between participants can be divided into two stages: project development and realization. The choice of participants in a certain project, including
partners from the existing network, occurs at the first stage. And it is extremely difficult to
change the structure of participants in the project at the second stage.
Not all patricians need to be involved in solving problems of the specific project even
though there are stable relations with them. Connection between possible actors, network
and projects is presented in Figure 4.2.7.
68
Figure 4.2.7. Network relations within project business
Forms of strategic control
International strategy of a Finnish parent company and its organizational form influence the
strategic control of Russian subsidiaries, and the CC takes some of the roles in line with
them. On the one side, there is a Financial holding, which consists of separate business entities with very weak links to their parent company. Functions of the corporate center include financial control over budgeting, strict audit of profit and cash flow development. At
the same time the head office does not try to control the activities of business units or
search for synergetic effects.
On the other side, there is the Operator who usually develops only one business line,
but has several profitable departments, which either work in different regions, or produce
different products. The Operator heads the development and realization of strategies in departments.
Analysis of forms and mechanisms of strategic control indicates that the observed
companies do not use such forms as Financial holding or Operator. Corporate centers of the
companies act in line with models Strategic architect and Strategic controller. Interestingly,
almost all the companies show the presence of mixed form of strategic control, which includes features of both models, where Corporate Centers are responsible for the following
functions:
•
•
•
•
•
•
Define strategic vision of corporation and direction for business units to act
Approve key strategic decisions, based on synergy principles
Approve offered investment decisions after their functional and commercial value
analysis (in two companies)
Periodically (in most companies - quarterly) analyses key financial, operational and
strategic indicators.
Establishes the main principles of financial and HR policies and business processes
Maintains shared purchase centers, which allow gaining economies of scale.
However, typical models of corporate centers do not allow the consideration of the
specifics of strategic control in project oriented organizations. Strategic control in such organizations contains more than defining the centralization\decentralization degree, but also
includes specifics of controls over joint development projects.
The Balanced Scorecard represents one of solutions to this issue
69
There is no common opinion on the applicability of BSC in Russia. On the one hand,
it promotes development of managerial skills of the Russian partners, on the other – it does
not always correspond to requirements of the fast-growing Russian market.
In Russian practice, BSC is considered not as a complex managerial technology, but
only as a tool of strategy implementation, which will be effective under certain circumstances. That is why BSC, developed by the Finnish company, can work incorrectly and inefficiently when projected on Russian business. Among key characteristics of Russian business, the following factors can be pointed out:
• Business-processes non-transparency
• Lower, rather than in the West, environment predictability
• Low (in comparison with the West) liquidity of non-material assets. Insufficient development of laws in the field of intellectual property protection
• Low opportunity and desire of top-managers to delegate authority in a company.
• It was found that among the observed companies only one has been using BSC, but
only for defining goals and control measures of those goals achievement.
Implementation and exploitation
Major features of strategic process in Finnish development industry companies, active at
Russian market, can be highlighted, based on the research results (Figure 4.2.8).
Company A
Company B
Company C
Company D
International
strategy
Multinational
Multinational
Multinational
Global
Form of strategic control
Strategic
troller
Con-
Strategic
chitect
Ar-
Strategic
Controller
Strategic Controller
Partners
lations
GR and relations
with subcontractors
GR and
sumers
con-
Joint
projects,
customers’ development
With suppliers
re-
Figure 4.2.8. Characteristics of the companies’ strategic processes.
During the research critical external factor, affecting the partnership building tendencies, were found. Analysis of strategic context has shown that Russian market provides the
mix of great opportunities and great sufficient risks. That is why it is crucial to establish
strong relations with local government structures, subcontractors and corporate clients at
the stage of Russian market penetration. These ideas were supported by interview results.
These companies named consumers, suppliers and subcontractors among potential network
participants. However, we consider several other actors to be important: research centers,
major influential nonprofit organizations. Many respondents emphasized their parent companies as the network members. Its influence on the network position of subsidiaries contains access to financial resources and corporate brand.
70
Analysis of companies’ strategic processes has revealed that decisions about network
relations had a tactical characteristic, and these decisions were not always aligned with corporate strategies of parent companies. The Finnish companies are focused mostly on dual
relations but are not ready to develop a network. Some companies aspire to being a part of
clients’ processes, developing their own business. But in most cases, such claims are not
considered in corporate company strategy.
CONCLUSIONS
This research allows us to draw the following conclusions about the strategic process of the
Finnish construction companies, building networks in Russia. Specific regional characteristics
(infrastructure development, business-culture) and experience of partnering relations affect
the choice and realization of business strategies at new foreign markets as well as common
institutional and cultural features of a country.
The network structure in foreign markets depends on context factors as well as on the
fact if other business units of the company enter this market. Affiliated companies, composing internal network, influence priorities in business relations.
Many companies agreed that stable partnerships within development projects support
partners in times of financial instabilities. But almost none of them give any help in case of
partners’ problems.
Project orientation of business of the studied companies limits the choice of clients and
suppliers after project launch. Moreover, partner choice at new national markets depends
on chosen form of strategic control. Strategic control of researched companies is carried out
according to models Strategic Architect and Strategic Controller. Models of Financial holding
and operator were not found among them. Forms of strategic control are specific for a project-oriented organization and expand its functions above the limits of strategic control typical models. Strategic control of such companies is defined by specifics of a control organization within joint development projects.
Thus, strategic decisions about different aspect of company’ internationalization depend on various factors. But none of them is taken into account while entering Russian
market. Moreover, network relations are in the initial stage. But it could be the most applicable form of doing business in the context of rapid changes in the Russian economy.
ACKNOWLEDGEMENT
The authors gratefully acknowledge the financial support of HAMK and a number of Finnish
private companies, which have given new research directions for the building sector. Additionally author acknowledges co-operation partners HAMK University of Applied Sciences,
Tampere University of Technology, VTT Technical Research Centre of Finland, Graduate
School of Management (St Petersburg) and Higher School of Economics (Moscow).
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4.3
Decision making (Filinov)
Introduction and State of Art in Finland/Russia
We assume that one of the substantial elements creating difficulties for Finnish companies
when entering Russian markets and establishing partnerships with Russian authorities, suppliers, consumers etc. (i.e. networking) is the difference in approaches to decision-making
(DM) in Finland and Russia. Such differences are usually described in literature using the
notions of company culture, DM procedures and patterns, and dominant DM styles. Thus,
our research focuses on business culture, DM procedures and patterns, the dominant DM
styles of Russian and Finnish managers/companies and their respective differences. Characteristics of the DM process include both hard (documented procedures, rules and regulations) and soft (the attitudes and preferences of managers involved in DM) features.
Differences in dominant DM styles influence the applicability and effectiveness of
managerial procedures, along with the differences in economic situation, technical infrastructure and social environment. Selecting DM specific features as a focus is however justified by at least two considerations. First, differences in the social, technical and economic
environment in which a Finnish company operates in its domestic market and in Russia are
relevant for our analysis to the extent to which they affect its operations and this influence
occurs through the decisions taken by the Finnish company and its Russian counterparts.
So, the dominant DM style and patterns mediate the influence of all other factors. Second,
DM is perceived as a highly personal act. Consequently, if a manager feels uncomfortable
with the way it is carried out, this affects mutual trust, creates stress and tensions and thus
inhibits the process of DM and deteriorates the quality of the decisions selected in the most
direct way.
This approach involves, however, differentiating between characteristics (style) of
management and characteristics (style) of decision-making. If we go into further detail,
this takes us to the much broader and more sophisticated problem of the contents of management functions. It appears evident that decision-making is only one of them, and consequently the style of management and the style of decision-making relate to each other as a
part and a whole. The style of decision-making should be regarded as an element of management style in line with such other elements as communication style. Moreover, all these
are highly interdependent and problems may arise if there is insufficient fit among them. In
spite of this, in numerous publications the notions of decision-making style and management style are sometimes used either interchangeably, or decision-making style as an especially important and explicit functions is regarded as a proxy for the style of management. A
manager’s DM style is not necessarily equivalent to his style of management as far as it
pertains to only one (although important) side of the manager’s activity.
The literature and the authors' own research1 suggest that DM features demonstrate
considerable differences across national borders2. Consequently, we have to expect differences in dominant DM styles between Russian and Finnish managers. These differences
have to be identified, as it is not sufficient to know that they are different. In order to come
up with explanations for the existing difficulties of Finnish companies in Russia, it is necessary to understand what exactly is different and to what extent.
1 Filinov, N. B usiness Decision-Making in the Era o f Intellectual Entrepreneurship, in Knowledge Café for In tellectual Entrepreneurship through Higher Education. Editors Stefan Kwiatkowski and Jan Sadlak, Warsaw, 2003 pp.
257-269
2 Brousseau, K., Driver, M., Hourihan, G., Larsson R. “The Seasoned Executive’s Decision-Making Style” Harvard
Business Review, February 2006: 111-121
Rowe, A.J., Mason, R.O., Dickel, K.E., Snyder, N.H. Strategic Management: A M ethodological Approach, Addison-Wesley Publishing Company, 1990
74
In sum, the suggested view of the subject of study in this research is presented in Figure
4.3.1.
Figure 4.3.1. Relations between different notions of “individual style” in the managerial context.
Methods
Based on literature review and an attempt to select features directly related to and affecting
the DM process we come up with the following list of characteristics.
Input characteristics include:
–
Amount and form of information which decision-maker prefers to obtain.
Process characteristics include:
– Perceived organizational goal
– Priority given to (Result vs. Process)
– Time reference (Future vs. Present)
– Local/global focus
– Basic needs
– Dominant criterion for selecting course of action
– Attitude towards risk
– Tolerance of ambiguity
– Nature of preferred decision-making process (Structured vs. Unstructured)
– Focus in search for options (Optimal option vs. Acceptable option)
– Preference to rely upon logical analysis or practical experience
– Speed of decision-making
– Employees’ involvement in DM process.
Output is characterized by:
75
–
How the result of the DM process, the selected option, is treated: whether
we stick to a single option and insist on its implementation, or alternatively,
we regard our choice as a fuzzy indication of the course of action that
needs to be adapted as circumstances change and new information appears.
Methods for the identification of DM features considered in the literature include direct observation as well as qualitative and quantitative questionnaires3. We consider the
application of a DSI questionnaire developed by A.J. Rowe et al. as a quantitative tool. For
the qualitative analysis we have come up with the following set of questions:
Figure 4.3.1 Consider a business decision which has to be made on a regular basis. Please,
provide the following information:
a. How often is it necessary to make the decision in question?
b. Is there a formally adopted (may be written) procedure in place related to this type of
decision?
c. Is it necessary to come up with decision alternatives every time you make this decision or
are the options basically the same every time and there is no need to re-invent them?
d. Describe the decision-making process.
e. Do you make the decision personally or do you involve your subordinates?
f. In case you involve them, why do you do that: in order to get information they possess or
in order to secure their support (buy in) for the decision made or in order to develop their
potential?
g. Is information distribution among your subordinates more or less symmetrical?
h. Is a conflict possible among your subordinates arising from the decision in question?
i. Do they generally share your goals and approaches?
Figure 4.3.2 What difficulties do you experience when making decisions dealing with your
business partners?
a. Is the necessary information provided on time?
b. Is it accurate enough?
c. How do you decide on the amount of information you provide to your partners?
d. Are the position and aspirations of your partners clear, stable and understandable?
e. Do they keep their promises?
The rationale behind section 4.3.1 is to get a set of examples (cases) based on which it will
be possible to assess the DM process used and compare it with the one theoretically recommended for the described situation (for example, based on V. Vroom's methodology4, or
on the ideas of P. Hersey, K. Blanchard and W. Natemeyer5).
The rationale behind section 4.3.2. is to create a general description of DM problems related
to business partners (network members).
3 Adizes, I.K. The Ideal Executive: Why You Cannot Be One and What To Do About It (Russian translation) Moscow, Russia: Alpina Business Books, 2007 (Original publication – 2004)
Huitt, W.G. “Prob lem so lving an d d ecision m aking: C onsideration of Individual Differen ces Usi ng Th e MyersBriggs Type Indicator”, Journal of Psychological Type, No. 24, (1992): 33-44
4 Vroom, V.H. “Educating managers for decision making and leadership”, Management
Decision, 2003, Vol. 41, pp. 968-978.
5 Situ ational Lead ership, Percep tion, and th e Im pact of Po wer P AUL HERSE Y; KE NNETH H BLANC HARD;
WALTER E NATEMEYER Group & Organization Studies (pre-1986); Dec 1979; 4, 4; ABI/INFORM Global pg.
418
76
Results so far, dimensions to be observed in Finland and Russia
The results obtained through the pilot interviews with a number of employees of a case
company are mixed. On the one hand, the questions proved to be understandable for managers. On the other, the interview was found too time consuming.
The interviews held so far create the impression that the level of subordinates' involvement in DM at the case company is moderate. Few cases show a level of employee
participation less than that recommended by normative theories. The development of employees' potential through involvement in the DM process is not regarded as a priority. But
all these conclusions need to be re-tested with a wider data base.
It was very disappointing to know that the case company did not agree to work with
quantitative tools and thus we are limited in our use of research instruments.
Discussion and research plan
The research plan includes further testing of the developed questionnaire and the possible
application of two quantitative tools: the Decision Style Inventory (DSI) and the Power Perception Profile developed by Paul Hersey and Walter E. Natemeyer.
77
5.
Customer perspective and marketing (P5)
5.1
Developing Marketing for the Stroi-Network (Tretyak, Buzulukova,
Rozhkov, Popov)
Olga A. Tretyak. State University – Higher School of Economics, Faculty of Management
Moscow, Russia. e-mail: [email protected]
Ekaterina V. Buzulukova. State University – Higher School of Economics, Faculty of Management Moscow, Russia. e-mail: [email protected]
Alexander G. Rozhkov. State University – Higher School of Economics, Faculty of Management Moscow, Russia. e-mail: [email protected]
Nikita I. Popov. State University – Higher School of Economics, Faculty of Management
Moscow, Russia. e-mail: [email protected]
ABSTRACT
A key marketing concept of customer orientation has been recently applied by several researchers to interfirm chains and networks. They argued that, by collaborating for greater
customer orientation, firms can achieve gains in performance and competitiveness. Hence,
it is important to know what makes an interfirm network customer oriented, and how to
implement it. However, certain market/economic conditions both restrain adoption of customer orientation and make it irrelevant. This is especially true when 'transition countries',
such as Russia, are concerned, and in times of economic crises. In this chapter we investigate how Finland-based construction and related sector companies manage market relationships in Russia, how they cope with difficulties and grasp opportunities. We propose a
framework of customer-oriented interfirm network and demonstrate its application for managing relationships and networks in construction sector.
INTRODUCTION
Since summer 2008 the Russian construction sector bubble has been suspended. Simultaneous decrease of demand on industrial property and shrinking supply of finance forced
construction companies, homeware retailers, as well as their suppliers to seek for help from
the official powers. Some of the companies went out of business or started mass layoffs and
froze their ambitious projects, others had to make concessions to customers. As time
passed, the market power of construction companies declined, and a need to take customers’ wants into account was being acknowledged more and more. Still, the market players –
large construction firms and developers – dominated the market at least since year 2001.
What should they do to become customer-oriented companies, and to introduce customer
orientation philosophy to their supply chains?
This chapter outlines the results of “Perspective 5: Marketing”, the marketing component of the STROI-network project studying Finnish construction sector firms, as well as
related services and industrial firms in Russia. Given the research task, the research activities were organized into four stages: (1) Setting up the theoretical framework, (2) Studying
relationship facet of network customer orientation, (3) Studying network development and
(4) Studying risks (see Figure 5.1.1).
78
The theoretical framework is presented at the start of the next section. It addresses
two main questions: (1) what is a customer-oriented interfirm network, and (2) how to differentiate high and low levels of customer orientation.
The progress towards the final goal was not sequential but interactive, and required
cyclical oscillations from data to theory. Researchers studied four relationship marketing
issues: customer relationship management, purchasing, market entry strategies and interfirm trust. Each of them relied on the set of concepts relevant to the issues in question;
however they studied the same companies together.
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 1. Structure of the chapter.
1
What is a market-oriented interfirm network?
2 Managing customer
relationships (B2B)
4
3 Managing supplier
relationships (B2B)
How to engineer a
customer-oriented network of partners?
Stage 1
Setting the framework
Stage 2
Relationship facet
Stage 3
Network development
5
How to cope with
the risks involved?
Stage 4
Study of risks
Figure 5.1.1. Structure of the chapter.
The narration in this chapter is structured according to these topics, except for the
study of risks covered in a separate paper by Marina Weck. Subsequent sections outline
literature review, the research project and the summary of findings. Finally, conclusions
include implications for practitioners and avenues/proposals for further research.
LITERATURE REVIEW
Marketing is commonly associated with the “4Ps” – the marketing mix approach. The marketing’s “4Ps” are Product, Price, Place and Promotion – these constitute the four pillars of
what is called ‘transactional paradigm’ of marketing, and form the long-recognized classical
foundation for the practice of marketing management. However, not all companies were
quite satisfied with this approach, and at least since 1980-s several new perspectives on
marketing, collectively referred to as ‘relationship marketing’, started to gain academic recognition and practical importance. It is commonly agreed now that b2b relationships should
be systematically established, maintained and enhanced, and that together they form an
interconnected set of relationships – an interfirm network.
At the same time there emerged another set of concepts called ‘market orientation’ –
these were considered to be various operationalizations of the marketing management approach. Market orientation (MO) was theorized as a special capability, or as a type of strategy. It was represented as a combination of customer orientation and competitor orientation, responsive MO and proactive MO, market-driven and market driving approaches.
79
In the frame of the STROI-network project the expected outcome of the “Perspective 5: Marketing” research was to propose specific steps for an interfirm network to become customer oriented. So customer orientation was the main focus of this research (see
Figure 5.1.2).
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 2. The research focus.
THE SCOPE OF
MARKETING MANAGEMENT
APPROACHES
Market orientation
Customer orientation
Market domination
Competitor orientation
Figure 5.1.2. The research focus.
Of course, the first and foremost research question is to define a customer oriented
interfirm network, i.e. to specify some constructive model of what it is, to propose its constituent pillars, factors that influence the degree of customer orientation, and some ways for
a network to improve it. The literature is not silent about what a customer oriented network
is. Several approaches have been elaborated, but none of them is all-encompassing, sufficiently tested and completely convincing. The results of the literature review suggest that
network properties and relationship properties may influence the degree of customer orientation (Elg, 2002; Grunert et al., 2005; McFarland, Bloodgood and Payan, 2008; de Treville,
Shapiro and Hameri, 2004), provide evidence in support of two levels in a framework of
interfirm customer orientation: infrastructural and behavioral (Jeong and Hong, 2007), as
well as three (or more) components of such framework, including managing information,
control, material and financial flows; managing conflicts, collaboration structures and interfirm working relationships; influencing mental models and coordinating technology (Flint,
2004; Jüttner, Christopher and Baker, 2007).
Based on literature review and company observations (including those from STROInetwork project), a framework of market-oriented network was proposed (see Tretyak,
Rozhkov and Popov, 2009; see Figure 5.1.3). The framework includes three pillars: knowledge sharing, joint planning and established control structures.
It is composed of two levels: “Routines and processes” and “Systems and structures”. The first level components reflect joint actions, each of which can be supported by
certain joint infrastructure. This infrastructure forms the second level. Prominent examples
exist in business practice.
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Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 3. The preliminary framework of market-oriented interfirm network.
Market knowledge
sharing
Cross-firm
planning of CRM,
ROU
TINE
SCM and NPD
PRO
S
CES AND
SES
Motivation and control
for market orientation
Network
information
systems
SYS
T
STR EMS A
N
UCT
URE D
S
Network
collaboration
structures
Control structures
and shared values
Figure 5.1.3. The preliminary framework of market-oriented interfirm network.
The three pillars are interconnected. The first pillar encompasses processes for market knowledge sharing, including customer and competitor knowledge, and supporting interfirm information systems. Knowledge exchange is of course not a thing in itself. Firms may
jointly use common knowledge to plan joint adaptations and coordinate their business processes. This is reflected in the second pillar – cross-firm planning of such processes, including CRM, SCM and NPD, that is supported by structures that may be jointly created by firms
to support collaboration in the network. Finally, planning is not enough to fuel market orientation in a network. It is recognized that people should be motivated and that control based
on power structures and shared values (fruitful relationship atmosphere or culture) should
be established. Still, it is important to note at this point that although the framework is proposed to describe market orientation in general, it is particularly suitable to customer orientation. The extent to which it applies to competitor orientation is subject to further investigations.
Next, there should be some method to evaluate network-level customer orientation
for a given interfirm network. No such method was found in relevant literature. Thus, a
simple method for evaluating the extent of customer orientation is proposed here. It is
based on the idea that any business organization has three important goals: creating business value for all stakeholders, sustaining and developing competitive advantage and coping
with uncertainty. Any impact of the business activities, including management of customer
relations, can be judged by the contribution to these main business goals, whereas the
goals can be attributed to a network. It is proposed here to consider three distinctive levels
of customer orientation based on each goal: ‘risk management’, ‘cost management’ and
‘value creation’ (see Figure 5.1.4).
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Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 4. Evaluation of network’s degree of customer orientation.
higher
value creation
market share growth
risk management
uncertainty avoidance
cost management
cost cutting
lower
Reactive approach
Proactive approach
Figure 5.1.4. Evaluation of network’s degree of customer orientation.
It is also very important whether the company is reactively or proactively oriented
towards the market. This kind of orientation defines the way how external information is
collected and handled, so it is assumed that the proactive approach corresponds to higher
levels of customer orientation. The main idea is that the reactive approach does not provide
sufficient information basis for decision making in all areas listed above (value, risks and
costs). The proactive approach suggests not only reaction towards some external impact
but also certain market actions development and implementation.
The basic level of customer orientation in the model, ‘cost management’, suggests
use of customer data for cost management. The ways to decrease cost include cutting direct
marketing and customer attraction cost, rejecting unprofitable customers, as well as optimizing product range on the basis of knowledge of customer preferences. This level of customer orientation can be referred to as proactive, as the company, besides customers’ data
collection, actively uses it for business optimization. In case of reactive orientation the company would be unable to “manage” the process, and it results into random ‘cost-cutting’.
At the next level, companies can gather important information on current and future
demand dynamics through collecting and analyzing customer data. In case of reactive approach market information is not sufficient for effective risk management; it can be used
only for uncertainty avoidance. In case of proactive approach it is possible to assess customer satisfaction levels and make certain loyalty estimates. It is also possible to get indirect data on competitor activities and how their product and service quality is perceived by
the customers. By doing this, companies would increase confidence in the business environment, thus lowering potential risks from rapid demand decreases and substantial numbers of disloyal customers. These customer management activities refer to the basic level of
customer orientation judged by the results achieved (influence on competitive advantage
and value of business). It is also important to note that activities listed above refer to high
levels of customer orientation in existing models (cf. Kohli and Jaworsky, 1990), leading to
minimal output.
Finally, the ‘value creation’ type of customer orientation is the most productive by
the criteria of value for business and competitive advantage. Beyond risk and cost management, companies are focused on new value creation which is very demanding to rela-
82
tionship quality. In case of the reactive approach the company would be unable to manage
customer relations systematically. So the goal would be extensive market share growth
based on price discounts, etc.
In the subsequent sections we present analysis of the literature showing how the
concept was elaborated to include relationship and network development facets.
Relationship facet: CRM and customer relationship development
Day and Van den Bulte (2002) define customer relationship management (CRM) as a multifunctional process of setting and sustaining customer relations through all possible channels
including an individualized approach to the most valuable customers to increase customer
loyalty and to boost marketing efficiency. They admit that customer relationship development is a process that involves different functional areas in the company as well as beyond.
CRM as a business strategy is aimed at customer value development through sustaining
effective relations.
Customer orientation is one of the basic ideas of marketing, but it has not been studied well until 1990-s. In fact the first attempts of in-depth analysis were taken in services
marketing (cf. Saxe and Weitz, 1982).
We conducted an extensive literature review on relationship development models
(including Arndt, 1979; Eggert, Ulaga and Schultz, 2006; Heide, 1994; Johanson and Mattsson, 1987). In their widely cited paper, Dwyer et al. (1987) suggested a relationship development model containing four interrelated phases: awareness, exploration, expansion, and
commitment. Proponents argued that these relationship phases can be used to explain various aspects of exchange and behavior of the sides, and that these phases are also characterized by various effects changing over time (Dwyer et al., 1987; Wilson, 1995).
In the awareness phase, buyers compile a list of potential partners (suppliers) with
whom they may settle business. In the exploration phase, buyers begin to negotiate contract terms, set product specifications, and place small orders to determine if their new
partner is trustworthy. In the expansion phase, buying firms make multiple purchases from
suppliers or negotiate long-term contracts, and try to get benefits from current exchange
partners rather than from alternate suppliers. In the commitment phase, both buyers and
sellers implicitly or explicitly pledge to establish stable relationships. They express a readiness to make sacrifices to maintain their relationships and a confidence in the continuity of
the relationships. Some authors (cf. Scanzoni, 1979) tend to regard the end of relations or
dissolution as a separate step. Probably its analysis could give an insight on the reasons of
the breakup preceded by the commitment stage.
In addition to this we conducted a literature review on customer value creation levels. It is proposed (Henneberg, Pardo, Mouzas and Naudé, 2005; Möller, 2006) that customer value should be disaggregated into three basic elements: exchange value, relational
value, and proprietary value. Exchange value refers to the benefits embedded in the offering and can be named ‘relative’ as it is compared to the offerings of the competitors (Möller
and Törrönen, 2003). Suppliers can try to increase the perceived offering value by providing
extended services for the initial core offering (Möller, 2006). Relational value is created
through the relationship itself. It can be some new product development activities that involve customers as well as other business processes enhancing the efficiency of the supplier–customer relationship. Proprietary value (Henneberg et al., 2005) refers to the value
which is created and appropriated by a company entirely for its own benefit.
We also conducted a literature review on CRM tools and instruments, represented
with information technologies (IT) in fields of communication, data analysis and exchange
as well as strategic level IT, and different levels of implementation. In general, CRM concept
83
includes the full range of customer relations tools from customer strategies to everyday
communication instruments, such as call-centers.
CRM consists of four dimensions (Kracklauer, Mills and Seifert, 2004; Parvatiyar and
Sheth, 2001; Swift, 2001): Customer Identification, Customer Attraction, Customer Retention and Customer Development. CRM toolkit includes methods and techniques for each of
these dimensions. Customer Identification dimension includes target customer analysis and
customer segmentation (cf. Freytag and Clarke, 2001). Customer Attraction dimension contains various direct marketing tools and channels, while Customer Retention refers to loyalty programs (cf. Reichheld, 1996; Meyer-Waarden, 2007) and complaint management (cf.
Maxham and Netemeyer, 2002). Finally, Customer Development involves customer lifetime
value (CLV) analysis and cross/up selling as well as portfolio analysis (Campbell and Cunningham, 1983; Fiocca, 1982; Gök, 2009). Some of the instruments listed above can be
used on two stages and some of them are important for the dimension of customer relations. For example the ability to have a dialogue across all customer contact points is an
essential ingredient of CRM (McKenzie, 2001; Peppers and Rogers 1997; Imhoff, Loftis and
Geiger, 2001).
In 2000-s, CRM turned into a buzzword and became confused with (or reduced to)
CRM IT solutions which represent a bundle of IT tools for customer data processing and
feedback. These IT solutions basically include three main blocks. The first is analytical, that
includes software for multidimensional analysis of customer data, customer intelligence and
forecasting. The second block (operational) represents front-office workplace automation.
The third block is collaboration and refers to on-line buyer-seller communication and coordination tools.
According to the literature, CRM is extensively used by companies nowadays, and
the failures mainly cause from implementation of IT solutions without due underlying marketing concepts.
Relationship facet: Purchasing and customer orientation
According to marketing literature, firm’s ability to adapt its own products and processes to
customer needs and wants depends on its customer/market orientation level. Whatever
definition is employed, market orientation has been recognized among the most important
drivers of performance and competitiveness (cf. Kohli and Jaworski, 1990; Narver and Slater, 1990).
In recent decades, many large firms gradually disintegrated themselves through outsourcing and downsizing, and value chains turned into value networks. Today competition is
said to take place more and more between alliances and networks of firms, rather than between individual firms (cf. Gomes-Casseres, 1996; Achrol and Kotler, 1999). In the construction industry numerous specialist subcontractors are available for everything: from
designing interiors to cleaning up construction site, to lending construction equipment, and
‘quasifirm’-like organization is a well-known industry issue (Eccles, 1981; Niemi, 1987).
When demand is suddenly changing, such as during the recent construction bust in
Russia, companies in networks not only have to redesign their own operations: they have to
require subsequent reorganization from existing suppliers, or search for new ones. They
have to translate customer needs into new purchasing requirements and re-engineer control
for quality and delivery of supply. However, some existing relationships may restrain firms’
discretion to implement changes on the supply side and are said to undermine its flexibility.
Naturally, some chains are more flexible than the others: they can absorb more
changes in a shorter time. SCM scholars successfully explained why they are so flexible, and
introduced a concept of agile supply chain (cf. Christopher, 2000). However, the notions of
84
customer needs and market orientation did not fit into this concept (cf. Rainbird, 2004), and
at this point marketing and SCM research streams should have been bridged.
Recent studies consider customer orientation as interfirm process in SCM (Jeong and
Hong, 2007) and explore interfirm market orientation in marketing channels (Elg, 2002),
propose integration of SCM with marketing (cf. Heikkilä, 2002; Jüttner, Christopher and
Baker, 2007; Min and Mentzer, 2000) and call for coordinated and joint efforts by all participating firms to install market-oriented approach across the whole network (Grunert et
al., 2005). On the level of chain or network, the concept of market orientation encompassed
both marketing and purchasing.
One might raise doubts if being market oriented is a one-size-fits-all strategy. Indeed, a continuum of marketing strategies is used by firms to achieve fit with different market situations. Some local market contexts favor more simple production-oriented approaches: a growing and under-served market provides good chances to sell even with
minimal knowledge of customer needs. But in these cases the evidence of fit between marketing and purchasing was again acknowledged by scholars.
Evidence of marketing-purchasing connection comes from both marketing and SCM
scholars. For example, in SCM literature it was shown that supply chains operating on relatively stable markets or delivering excess functionality implement lean supply strategy as
opposed to the one designed for market responsiveness, since cost minimization imperative
is more important than flexibility imperative. In the same vein, where certain competitive
situations give rise to firms employing market-driving strategies (as opposed to marketdriven ones), it was noted that ‘soft power’ (training, binding, etc.) is extensively used by
such firms in managing supply relationships (Jaworski, Kohli and Sahay, 2000; Kumar,
Scheer and Kotler, 2000; Tuominen, Rajala and Möller, 2004). To conclude, a relation between marketing strategy and purchasing (supply chain) strategy is established in literature.
To bring market orientation to the network level, definitions for interfirm market orientation (ifMO) and market-oriented interfirm network have been formulated. Based on literature review (including Flint, 2004; McFarland, Bloodgood and Payan, 2008; de Treville,
Shapiro and Hameri, 2004), especially demand chain management (DCM) approach, and
company observations, mainly from the STROI-network project, a framework of marketoriented network was proposed: (1) Market knowledge sharing and supporting interfirm
information systems; (2) Motivation and control for market orientation supported by control
structures as well as by shared values; (3) Cross-firm planning supported by network collaboration structures (see Tretyak, Rozhkov, Popov, 2009; see above in this chapter).
In the marketing literature, special scales are used to measure market orientation.
There are various scales measuring an individual firm’s market orientation (for an extensive
review of these see Rozhkov, 2008). But for a number of reasons the network’s level of
market orientation cannot be equated with market orientation level of any of its single
members, neither the central/largest one, nor the closest to final customers. To measure
market orientation at the network level one should somehow aggregate all its participants’
individual measures. In turn, such measurement procedure would be difficult to implement
in practice, so a more simple system applicable to whole network seems to be valuable to
practitioners. For the purpose of this research, supply relations of companies studied were
classified according to researchers’ evaluations into two groups (‘high ifMO’ and ‘low ifMO’)
in line with the proposed concept.
Next, the relation between ifMO and purchasing was studied. A literature review on
the relation between market orientation and purchasing (including Childerhouse, Aitken and
Towill, 2002; Corsten and Kumar, 2005; Cox, Chicksand and Yang, 2007; Morash, Dröge
and Vickery, 1996) did not provide a list of specific purchasing practices catalyzing ifMO, but
it suggested a list of supplier’s traits that hinder it. These include supplier’s disregard/unawareness of the final customer’s needs, knowledge sharing hostility, low absorptive
85
capacity, poor purchasing capabilities, and over-dependence from other buyers. Since ifMO
requires a certain degree of internal and external integration of marketing and purchasing,
other barriers to ifMO include the failure to establish interfunctional coordination between
relevant departments, and high personnel turnover on the buyer-seller interface. Also, there
is no reason to speculate about ifMO in the case of arm’s length relationships between buyers and suppliers. To summarize, three types of purchasing practices that counter ifMO were
identified: (1) functional isolation of purchasing, (2) buying from ‘inappropriate’ suppliers
(with traits that hinder ifMO), and (3) failing to establish the minimum necessary level of
collaboration with suppliers.
Network development facet: building long-term relationships in networks
As far as the process of relationship development is concerned, the theoretical background
relies on the concept of relationship marketing.
Relationship marketing (RM) is the basis for the whole marketing development
nowadays. Discussions about creating sustainable competitive advantage using a trust
building process are widely extended (cf. Christopher, Payne and Ballantyne, 2002). The
leading role of RM was also supported by three decades of research in business interactions
and relationships by the IMP group scholars (cf. Håkansson and Ford, 2002; Håkansson and
Snehota, 1995). Today RM is at the forefront of academic research and marketing practice
(Berry, 1995; Parvatiyar and Sheth, 1996). Much of the current research has focused on
defining constructs and presenting conceptual models of relationship marketing or identifying key moderators of successful relationships, such as trust and commitment (Morgan and
Hunt, 1994).
The lack of practical research and proofing in this field is also stressed by the researchers (Fitchett and McDonagh, 2002). There is relatively little empirical examination of
the effect of successful relationships on firm profitability and business success (Reinartz and
Kumar 2000; Hunt et al. 2002). Only very few papers demonstrate positive correlation between long-term relationships and profitability of suppliers, or between a company's adoption of relationship marketing programs and its performance (Corsten and Kumar, 2003;
Kalwani and Narayandas, 1995). Varey (2003) suggested that RM was at best an idea that
had never been actually pursued by businesses. Oliver (2006) draws attention to the focus
of RM on operational issues rather than on how it contributes to the future strategic direction of an organization. But in spite of this criticism RM still attracts attention of researchers
and represents the new marketing paradigm (O’Malley and Tynan 2003).
Buyer-supplier relationships are very often discussed in RM. The conducted research
stresses the absolute necessity of building long-term trusting relationships with customers.
Several marketing practices of establishing, developing, or maintaining cooperation and
collaboration with customers and other marketing actors appear under the umbrella term of
RM. These include after marketing activities (Vavra, 1992), one-to-one marketing (Pepper
and Rogers, 1994), membership programs (including frequent buyer incentives), crossdistribution arrangements, cross-selling, co-production, co-branding, channel partnerships,
logistics sharing, special supply arrangements (including special sourcing, and JIT arrangements), business alliances, database marketing, etc. (cf. Sheth and Parvatiyar, 1995b).
In modern life only those companies could reach sustainable competitive advantage
that can suggest additional customer service or value, and increase customer satisfaction.
RM is as much about keeping customers as it is about getting them in the first place. It aims
to provide unique customer value sustainable over time and helps to manage it through
closing the “quality gap” between what the customer expects and what they get (Christofer,
Payne, Ballantyne, 1991). High customer service is understood as the process which provides time, place and form utilities for the customer in pre-sale, sale and aftersale transactions. Important role in this process is devoted to the aftersales relationships to understand
the level of customer satisfaction and ways of company improvement. In order to build continuously good relationships with customers, a company should plan and organize an im-
86
provement process with monitoring customer requirements, new market trends and new
technical ideas. Of course, high customer service is not just an issue in managing downstream relationships with ultimate customers, but also upstream relationships with suppliers. The only way to reach high customer value is to organize the whole chain from customer to supplier.
Häkanson and Snehota (1987; 1995) identify three layers of relationship content:
activity links, resource ties and actor bonds. Harland et al. (Harland, Zheng, Johnsen and
Lamming, 2004) build on this typology operation stages of a relationship: partner selection
(only at the creation stage), resource integration, information processing, knowledge capture, social coordination, risk and benefit sharing, decision-making, conflict resolution and
motivation. Though most of the authors focus on static views of these relationships, Ring
and Van de Ven (1994) view the process from an adaptation perspective and propose a
framework where the development and evolution of a relationship is represented as “consisting of a repetitive sequence of negotiation, commitment, and execution stages, each of
which is assessed in terms of efficiency and equity.”
Dwyer, Schurr, and Oh (1987) presented a framework that places exchange relationships on a continuum from discrete transactions to relational exchange. This process consists of four phases - Awareness, Exploration, Expansion, and Commitment resulting in a set
of shared values and governance structures between the two parties. Several sub processes occur to deepen the dependence of the two parties and move the developing relationship from one phase to the next. Life-cycle model was developed also in the ECOLEAD project (Camarinha-Matos and Afsarnabesh, 2003). This model includes phases such as identification, formation, operation/evolution and dissolution (see Figure 5.1.5).
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 5. The phases of relationship development.
Stage 1
Creation
Stage 2
Operation
Stage 3
Evolution
Stage 4
Dissolution
Source: (Camarinha-Matos and Afsarnabesh, 2003)
Figure 5.1.5. The phases of relationship development.
But not all relationships can go through all these stages. Since Morgan and Hunt’s
(1994) seminal paper trust and commitment were established as key mediating variables
(KMV) in RM, key factors of relationship stability, and turned into the most discussed variables in RM (see Figure 5.1.6). It is stressed that mutually beneficial relationships which
form sustainable competitive advantage can hardly be copied by competitors. Commitment
influences the buyer’s choice of seller (Ganesan, 1994), and trust is a key driver in this
process. Indeed, commitment and trust are critical to any discussion of business relation-
87
ships because they encourage exchange partners to work at preserving the relationship and
achieve mutual gains (Morgan and Hunt, 1994).
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 6. The Morgan and Hunt’s KMV model of relationship marketing.
*+ - positive effect, - - negative effect
Source: (Morgan, Hunt, 1994)
Figure 5.1.6. The Morgan and Hunt’s KMV model of relationship marketing.
RESEARCH PROJECT
Project description and objectives
Several relationship marketing issues were studied by different researchers employing relevant theoretical approaches. Customer relationship management and purchasing practices,
and foreign market entry strategies of, as well as interfirm trust between, Finnish construction sector companies entering or operating in Russian market were the main aspects of the
inquiry. This chapter reports the study of relationship facet and network development facet.
The study of interfirm level customer orientation’s relationship facet included a study
of interfirm customer relations, CRM tools and customer orientation, as well as a study of
relationships with suppliers. Main objectives of the customer relations study were:
1. To identify levels of customer orientation and ways of customer value creation;
2. To identify main stages of customer relations development, as well as issues emerging at each stage;
3. To identify most frequent tools and practices used for CRM.
Purchasing study aimed at:
1. Investigating how purchasing management in a chain of firms evolves when certain
changes in demand occur
2. Identifying purchasing practices which are present at different levels of network-level
market orientation.
Network development facet study was devoted to describing the relationship development process of five Finnish companies on the Russian market. Its immediate task was to
show different types of entrance strategies and difficulties in strengthening relationships
88
with the local partners. Also common market difficulties and special company’s problems
were revealed. The last objective was to investigate the role of RM in customer satisfaction.
In order to accomplish all these tasks, different Finnish companies working on the
Russian market were investigated.
Research methodology
Quantitative studies that would verify elaborate theoretical approaches were initially
planned. However, only a limited number of companies were available, so the methodology
was changed, and research purposes were accordingly adapted to develop new theories
rather than to test existing ones. Qualitative approach, including in-depth interviews and
case method, appeared an appropriate way to develop new marketing concepts (Dooley
2002; Gummesson 2007), and hence it was chosen as the main research methodology.
The best method that could help solve all these multifaceted problems is the semistructured interview. According to Yin (2003), interviews are one of the most important
sources of primary data. This method is used when the purpose of research is complicated
or ambiguous. While conducting interviews the necessary clarification could be given and
additional questions for clear understanding could be asked.
Case study also seemed an appropriate method because of the limited number of
complicated cases. Case studies emphasize detailed contextual analysis of a limited number
of events or conditions and their relationships. Case studies are complex because they generally involve multiple sources of data, and produce large amounts of data for analysis.
Overall, circa 50 interviews with managers in five Finnish companies covered customer and supplier relations and network development topics (see Table 5.1.1).
Table 5.1.1. Number of interviews done for each P5 topic under STROI-network project.
‘Trust’ topic is reported separately.
Topic
Finland
Russia
Total # of
companies
Foreign market entry
1
>30
5
Marketing/CRM
1
16
5
Purchasing
1
9
4
Total*
1
>50
5
* Numbers don’t sum to the Total because each interview covered several topics, and several interviews were done at each company.
A series of semi-structured interviews with companies were done by each researcher. Interviews were held with top and middle level managers for 40-60 minutes each.
In general, researchers were equipped with DVRs, except for ~15 cases, in which only onpaper notes were made. Next, interview transcripts were produced, checked with respondents, translated into English and encoded into Nvivo7.
Each researcher implemented manual coding of relevant data individually. In a different manner, cases of companies were compiled from transcripts supplemented with secondary information (only for a limited number of companies). Cases covered both company
background and interview findings. To provide at least limited data and method triangulation, different researchers’ insights from cases and coded transcripts were cross-tabulated
and discussed (however, cases were not shared with respondents).
RESEARCH RESULTS AND INDUSTRIAL IMPACT
Main findings for “Perspective 5: Marketing” can be summarized as follows:
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1. Investigated companies exhibit relatively low level of customer orientation, and don’t
measure customer satisfaction;
2. Investigated companies exhibit relatively low level of CRM tools and policies usage;
3. When securing customer company’s commitment becomes possible, companies don’t
pay due attention to it;
4. Customer companies pass through relationship stages individually, and success in
reaching commitment stage mainly depends on particular manager’s knowledge and
experience;
5. Companies have developed systems to evaluate performance of suppliers and the
products supplied, but not of supplier relationships;
6. Some firms are buying from suppliers which disregard final customers’ needs and
have poor purchasing capabilities, and this prevents these firms’ ability to translate
its own customer knowledge into tailored value propositions;
7. Successful implementation of three types of market entry strategies can be observed;
8. As perceived by firms, trust, honesty, willingness to conduct open dialog, readiness
to adapt and great wish to work account for relationship stability (over and above
economic returns);
9. Main difficulties of companies are macroenvironmental factors (such as bribes, obsolete standards, changing legislation);
10. While many firms maintain strong relations with their suppliers (often also Finnish
firms), few firms develop strong customer relationships.
We present the findings for each facet in this section.
Customer orientation and ways of value creation
Most interviewees admit that the Russian construction market is much more competitive
than other East-European, Scandinavian or Baltic markets. The first factor is the number of
projects developed, and growth rates that had attracted many suppliers and developers
from all over the world by summer 2008. The second major factor according to information
provided is the economic crisis that makes the competition even fiercer due to decreasing
demand and growing consumer bargaining power. Due to these factors all respondents
state that all customers are equally important and none of them can be denied. Great dependence on project financing and loans is another feature of construction market, especially in Russia. It is most important for big companies and long-term projects. However,
Finnish companies have a great experience dealing with more sophisticated needs and requirements of European customers. On the contrary, Russian customers in general seem to
be looking for low prices due to the market situation. In these circumstances Finnish companies can pay less attention to the customers than it could be expected because they have
tested their product lines in more sophisticated markets and do not want to simplify it. Then
they have a certain insight into possible market development paths due to previous experience, that is why Finnish companies in Russia do not demonstrate high levels of customer
orientation, according to available evidence.
In terms of value creation, Finnish companies in the Russian construction market
demonstrate the following results. Companies achieve fairly good results in creating exchange value for their customers as it is based on the features of the product propositions
and additional services provided. Service extensions are rarely outsourced due to the lack
of reliable partners in the Russian market. On the other hand relational and proprietary
value creation is not so frequent. First of all Russian subsidiaries do not possess the complete range of business processes. For example new product development is arranged in
Finland, so Russian customers are not involved. Proprietary value creation refers to internal
business process improvement. This source of value creations is also underperforming due
to the poor customer knowledge (in terms of satisfaction assessment etc.)
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Relationship development stages
In this block we are going to discuss findings on relationship development stages: challenges and solutions, as well as issues in transition from stage to stage. As mentioned
above, customer relation development includes several phases, and according to the data
collected, each of them brings certain problems to be solved. It also should be mentioned
that the stages are very hard to separate.
At the Awareness stage, managers search potential customers using all possible
channels. There are several problems at this stage: very high entry barriers, difficulties with
embedding into existing relations, dealing with complex construction legislation and certification, customer representatives demanding bribes and so forth. The company can move on
to the next stage of relationship building only in case these problems are solved. So managers extensively use customer intelligence and get straight to the CEO, sometimes with bribe
reporting.
During the Exploration stage managers negotiate term and conditions of future contract. The duration of this stage can vary greatly. It depends on the perceived trustworthiness of the seller. Trust is declared to be very important for the relations. It basically refers
to two main components. First is ‘initial’ trust (or ‘perceived trustworthiness’) that refers to
the degree to which customers consider the company to posses professional competencies
to carry out the service/provide the goods required. This component defines how smoothly
the stage of negotiations would pass. Customers with high level of trust regard the firm as
‘problem solving agent’. They give some problem description and allow the firm to suggest
its own solutions, and choosing the most suitable one. Other customers insist on a very
complicated agreement that would include all possible risks. Customers of this group are not
familiar with this company, its quality standards and working behaviors. For foreign (not
Russian) customers perceived risks are extended by Russian construction norms and regulations that are new for them and very complicated.
The second level of trust (or ‘relational trust’) is achieved during the interaction
process. Most interviewees assume that interpersonal relations are very important, especially for problem solving. On the other hand further negotiation (transactional) costs are
reduced as well as some new value created when parties move from simple purchase to
custom solution building for the particular customer. According to the survey conducted
there are several problems connected with this stage.
When the deal has been secured, initially there are very strict requirements for ontime delivery and quality assurance, as well as coordination challenges. These problems are
solved with the use of signaling to suppliers and securing suppliers’ commitment, rather
successfully as reported.
The last two stages, Expansion and Commitment, are very hard to separate in practice. According to the respondents’ opinion, their ‘target’ customers are initially aimed at
quality and long-term development rather than low prices. Interpersonal relations are reported to be very important in keeping up relations. They are also the main instrument to
solve problems of this phase: payment delays and contract fulfilment.
Finally, respondents tend to name formal agreement as one of the most important
steps in the customer interaction process. Contract fulfilment is the most important reputation asset that is considered in next interactions and negotiation processes. Only one respondent mentioned that Finnish partners can be trusted without a written agreement while
others admitted that there is no difference between Russian and foreign partners in terms of
trust, risk and contract fulfilment.
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CRM methods and tools
We have been inquiring what CRM methods and tools are implemented by companies. As
the project proceeded, new questions were raised: why are so few sophisticated tools used?
And why is the reliance of the managers on negotiations, social relations and personal
judgments so high?
First of all, it should be mentioned that no sophisticated IT solutions dealing with
customer management were identified. We will further discuss possible reasons for that
finding, and in the next paragraphs we list all CRM tools and comment on their implementation in the companies.
As mentioned earlier, customer identification dimension deals with target customer
analysis and customer segmentation. Basically customers are differentiated according to the
industry they belong to. It is quite natural because of various construction standards and
legislation to be taken into consideration in case of different industries. As for customer rating criteria respondents basically distinguish three main groups: regular customers, key
customers and potential customers.
The first group is represented by companies with a moderate share of wallet and
purchase volume, they are likely to switch to other suppliers. The second group or key customers are the most important for the company, providing most sales volumes as well as
stable demand in the long term. The third group is represented by companies who can start
buying either switching from a competitor or entering the market for the first time. Also
there is a criterion such as customer potential that corresponds with customer ability to
start some large projects and also become a key customer. One of the most important criteria during the interaction is the contract or formal agreement.
Customer attraction refers to direct marketing tools used to communicate with the
potential customer. According to the results of the survey, companies use a variety of communication channels including e-mail, phone and personal sales. Loyalty programs and customer complaints handling are not well developed. Most surprising was that companies do
not possess information on the exact share of satisfied customers. Some respondents stated
that customer satisfaction monitoring is in initial stage of development. The last dimension,
customer development, is also in its initial stage. According to the information collected,
Finnish companies in Russia neglect formal CLV or similar estimates. Any customer can be
transferred to the most important customer category on the basis of possible sales volume
and business growth rates.
In general, the level of CRM in Finnish companies on the Russian market can be estimated as average with good communication but poor customer analytics that can have a
strong negative effect in long-term perspective. Market research is either outsourced (from
time to time) or performed by particular managers for their own needs. Customer satisfaction is not measured or monitored on regular basis.
Why isn’t customer satisfaction monitored? There can be several explanations. First,
managers had to deal with rapid market growth during the last years and did not have any
time to carry out such work. Second, most companies do not have great work experience in
Russian market so without direct knowledge transfer from ‘Mother Company’ their CRM
methodology and system is in progress.
The state of purchasing
In general, Finnish companies operating in Russia have access to much more sophisticated
buyers and produce goods and services with functionality highly in excess of what is demanded in Russia. Market context until summer 2008 favored production & sales-oriented
approaches and customer/market orientation was of little benefit to most of them. For several years the demand for construction and related services was growing, housing prices
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were spiking, and new firms were jumping on the bandwagon of this fast-growing market
every day. However, at the time of interview most companies already faced a market
shrinking due to the financial crisis. The demand was changing.
The companies interviewed were large, and sales in Russia (from 3 to >100 million
euro) only accounted for a small part of their turnover. They had been operating in Russia
for some years (up to >30), but the decision to extend their business beyond Moscow and
St. Petersburg only came during the recent boom (after year 2001).
Every company extended its long-term relations with suppliers from Finland and
from other European countries into the Russian market, and in certain cases this influenced
their decisions to establish a local presence. Some companies had local suppliers. According
to them, many Russian suppliers exhibit bad delivery discipline, and the ordinary cure for
that is to contact the general director personally, so that he uses his power to enforce delivery. Personal relationships are also expected to complement interorganizational relationship
when dealing with customers (b2b). As a matter of fact, it comes that these suppliers
mainly serve price-sensitive and undemanding customers who may tolerate delivery dates
and quality problems in exchange for price rebates. In other words, they are embedded in
relations that restrain them from doing their best for Finnish companies, and this is hard to
change. Pre-qualification and selection, e.g. on the basis of previous successful deliveries to
international firms with demanding standards, may be recommended, instead of exerting
control.
Finnish managers in Russia either controlled purchasing policy implementation onsite, or were responsible for purchasing and reported to head office. In every company
studied, purchasing was highly coordinated with marketing internally, and systematical
sharing of market information with suppliers was in place. One of the companies was sharing its procurement & production plans, another was a valuable source of information on
new product development for its suppliers, and was giving proof of purchase in advance.
However, researchers did not find evidence of joint planning with suppliers locally.
One way normally recommended to regularly improve purchasing excellence is to
have an evaluation system for suppliers and supply relations. All companies had more or
less formal systems to evaluate performance of suppliers and quality or performance of the
products supplied. However, surprisingly, none of these included evaluation of supplier relationships. As noted by one respondent: “It is absolutely the negotiation process. [The formal evaluation] should be periodically implemented […]. Certainly, it should be [a] more
organized [process].” In this latter case, the company did not seem to experience problems
in relationships. However, another company only identified problems in supply relationships
when suppliers failed to deliver according to agreements or in due time. It may hint that
relationship management capabilities need to be developed on the supply side.
Another well-known way to improve purchasing is to organize extensive knowledge
exchange on supply issues and to introduce integrated information systems. None of the
companies integrated their systems with suppliers. However, some companies organized
regular meetings and specialized trainings (knowledge exchange and dissemination events)
that covered purchasing matters. In one of them, local meetings were held monthly and
global meetings were held 2-3 times a year.
Purchasing and interfirm market orientation
Researchers subjectively evaluated relationships of the studied companies with suppliers to
distinguish them between dyads with higher and lower levels of ifMO. Relationships of four
studied companies with their suppliers were evaluated by three aspects: joint planning,
market knowledge exchange, and collaborative relationship atmosphere.
Next, at each company, purchasing practices that counter ifMO were identified. Evidence was found (in different cases) of suppliers’ both disregard and unawareness of final
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customer’s needs, poor purchasing capabilities, and over-dependence from other buyers. All
of these indeed hinder ifMO. No other such practices were identified.
Another finding was that the above-mentioned practices (with the exception of one)
were observed only in the group of firms with lower levels of ifMO. At least, this does not
contradict to the results of the literature review. One observation, however, seems to be
universal for all companies: they sourced from some suppliers which were heavily embedded in other buyer-seller relations, which is potentially a serious obstacle to introduce ifMO.
Foreign market entry strategies
According to the research task three market entrance strategies have been found out (see
Figure 5.1.7):
1. To organize subsidiary
2. To buy functioning local production company.
3. To open independent Russian company which will buy products from Finnish
associated company
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 7. Different entry strategies to Russian market employed by Finnish
companies.
Parent Finnish
Company
Finnish
Compan
y
Parent
Finnish
Company
Russian
Company
Russian
Company
Subsidiary
Finnish
(Russian)
Company
Russian
Company
Figure 5.1.7. Different entry strategies to Russian market employed by Finnish companies.
The first strategy means creating a new company which is owned by a Finnish parent
company actively investing in its development. The head of this company is Finnish representative and it is fully organized as European one. The advantages of this approach are:
independence from other possible owners, organizing work on the basis of high European
management level, absence of necessity to reconstruct internal norms and rules. Disadvantages of this strategy are: difficulties in finding customers and reliable partners, long development time.
The second strategy is to buy existing local production company. Management is
looking for local company with close production process or competitive construction product,
tries to negotiate with local management and buys at least 50% of shares. The advantages
of this strategy are: broad existing market, debugged production process, office, personnel
resources, equipment and possibility to extend production capacity with low cost or organize
its own. Disadvantages are: necessity to approve one’s own strategy with local manage-
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ment, necessity to rebuild internal norms and rules if it is needed to improve performance,
difficulties in future opportunity to redeem the enterprise.
The third strategy is to organize independent Russian company with the local management team, to give it a development loan, to help find customers on the basis of existing Finnish partnerships. After the first steps this company starts to operate by itself, earnings are growing; purchases of Finnish materials are increasing too. This local company orders some products or services in the parent Finnish enterprise that will favor its higher
turnover, after the profit increase it returns the loan and pays some commission to clients.
The advantages of this strategy are: stronger personnel motivation in the fast development,
high return on investment rate, turnover increase, and initial loan returns. Disadvantages
are: complicated control, risks of full separation, possibility of information distortion, and
loss of know-how.
All these strategies have their advantages and disadvantages, but one interesting
finding is the third case, this strategy is slightly reminiscent of a franchising strategy. A very
positive effect of this approach is strong personnel motivation to develop and increase revenues. It has a very high level of independence which is a very important factor for flexibility
and development in a turbulent environment.
Development of long-term relationships
In all investigated cases we have found a similarity of discovered stages. And we can see
some connections with the articles devoted to the relationship development process (cf.
Dwyer, Schurr and Oh, 1987). The first stage is looking for a needed partner. A company is
looking for the client by gathering information about planned construction projects, surfing
the Internet, placing commercial offerings, exhibitions, making use of old personnel contacts.
If a client is interested in company’s proposition the first meeting takes place (stage
2), where companies give a short presentation to each other, discuss the future project,
difficulties, possibilities, first relationships are established. At this stage it is important to
trust and to achieve open discussion because it would facilitate future communication, and
helps each side clearly to understand tasks and responsibilities (this was also mentioned in
Morgan and Hunt, 1994).
In the first meeting’s discussion results (it could be more than one meeting) the subcontractor prepares the project draft (stage 3). At this stage the customer looks for the professionalism of prepared documents, lists and scale of tasks and estimating the price level
adequately.
Next, (stage 4) companies discuss the price, probably of its cutting or changing work
list. They are coming towards approving a contract. It is necessary to clarify all details and
responsibilities and make sure that every side of the negotiation process clearly understands the timetable and possible delays. On the first stage they adjust and sign the contract, plan future interaction and start working together.
One of the Russian market peculiarities is to sign the contract before the work starts.
Russian companies very properly defend their contract details. They believe more in contracts than in future relationships. A Finnish company can start work without a contract, and
contract conditions are not very important for them because they try to do their best to implement the project well. The special feature of some investigated companies is that they
try not only to fulfill their obligations, but also help the client to negotiate the project or to
get financing. This concern for the client is a very important competitive advantage that can
facilitate future relationships development. This discussion is summarized in Figure 5.1.8.
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Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 8. The phases of relationship development.
Stage 1
Partner
search
Stage 2
First
meeting
Stage 3
Project
draft
Stage 3
Price and
details
Stage 5
Contract
and future
plan
Figure 5.1.8. The phases of relationship development.
Of course some changes in this process are possible but the whole scheme is rather
the same in all investigated cases. It was mentioned that trust was built during all these
stages. One can do it through conducting open dialog, trying to hear what the customer
really wants, honest warning of possible troubles, and great interest in mutual work. This
leads us to the next investigated question.
Main factors for relationships stability
Relationships were considered to be either stable or unstable. Relationships were considered
stable when they showed regular volumes of trade over time, typically following closely the
evolution of the client’s turnover. When important variations were found, throughout time,
in the values of trade, then the relationship was understood to be unstable. There are some
factors that provide stability.
Factors mentioned in all interviews are: trust, honesty, willingness to conduct open
dialog, readiness to adapt and a great wish to work. Some specific factors were discovered,
such as: professional level, a continuous company improvement process, personnel relationships, to be in the schedule, give all needed information on time. These factors were
revealed in some companies.
We can divide all these factors into different groups: first, the atmosphere of the relationship (Håkansson, 1982), which surrounds the interaction process between company
and its customer (trust, honesty, willingness to conduct open dialog). The second group of
factors deals with the readiness to adapt to the customer needs (to adapt project draft,
product, timetables, and price). The next group is connected with interest in relationships
(support in every situation, propose different variants of problem solving, suggestions of
project improvement, help in search for other reliable partners). The other group of factors
is the bonds, developed between clients and company. Relationships are based on different
kinds of bonds, which develop over time and through which the actors are tied to each
other: economic bonds, knowledge bonds, technical bonds. Economic bonds mean the profit
distributive justice. This project should be favorable for both parties. Technical bonds mean
mutual technical support. Smart technical decision can considerably reduce costs and project time. Knowledge bonds represent widely gained company experience which could reveal
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all potential obstacles. Contractor professionalism in technical issues can help to improve
the project not only in the field of contract but in other fields too. Social bonds refer to social connections with other companies or state institutions that could help to accomplish the
project. Different factors providing relationship stability are demonstrated in Figure 5.1.9.
Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 9. Relationship stability drivers.
Interest in
relationships
Business
relations
turnover
Readiness to
adapt
Relationship
atmosphere
Y
ILIT
AB
T
S
Social
bonds
Knowledge
bonds
Technical
bonds
Economic
bonds
Customer firm turnover
Figure 5.1.9. Relationship stability drivers.
Russian market difficulties in business driving process
According to our research, Russian market difficulties in the business driving process are:
different construction norms, difficult and complicated process of project approval with state
institutions, bureaucracy and bribes, difficulties in accurately planning costs and work time
because of an uncertain environment, often changes in legislation and long contract agreement. The specific detected difficulties are: low labor productivity level, needed personnel
control procedures, problems in involving personnel from Finland because of immigration
laws, complicated financial reporting, much paperwork for accounting, additional legal liabilities of general directors, additional construction liability, difficulties in land legalization,
twisted legislation, difficulties in coordination in utility allocation with state institutions,
partners distrust, doubly tenders, failure to comply with rules from Russian partners, tendency to lower prices from Russian partners, hard to squeeze in existing relationships in
construction market and thefts. All these factors could be divided into several groups (see
Figure 5.1.10).
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Developing marketing for the STROI-network. Report for Perspective 5: Marketing
Figure 9. Groups of Russian market difficulties.
Managing
personnel
High
Environment
Uncertainty
Construction
norms, low
regulations
Russian Market
Difficulties
State
institution
Relations
Accounting
Partners
Relations
Figure 5.1.10. Groups of Russian market difficulties.
Level of customers’ satisfaction after transaction
We received a very unusual result in this field, because there were no procedures to analyze
whether customers are satisfied or not in the investigated Finnish companies. In some companies the process of creating a questionnaire or estimating the level of customer satisfaction was in the very beginning, others just make some notes about a project and how peculiarities of relationships development with a customer: difficulties, maintenance of payment
periods. In other firms managers said that “if a customer will come back for another product
or service – so it means he was satisfied”. Only two of investigated companies are trying to
maintain relationships with former clients. It was also discovered that investigated companies were ready to make some concessions to clients, but not in price.
What managers think
The findings from the interviews are as follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
The only way to live in crises in Russia – to maintain and develop honest reliable relationships with partners.
If you want to get quick and quality results you should agree its features with
the general director.
Be aware of general director’s additional administrative and legal responsibility,
including criminal liability.
Peculiarities in managing personnel in Russia: strong control, clear rules for bonus system, because money is a main motivator, pushing strategy for personnel development.
You need good informal relations with state institutions for approving project,
land legislation, coordinating the allocation of utilities. Or your partner should
have them.
Partners distrust in the first steps – everything should be on the paper, and
that leads to long time of contracts agreement.
Russian company will always try to lower prices.
Result of some tenders is known before the tender takes place.
It is needed to guard the building yard because of thefts.
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10.
11.
12.
13.
It is very hard to get into existing relationships in construction market.
Finnish companies believe in Russian partners, but Russian managers in Finnish
companies do not.
Recommendations are very important because a new manager comes to company with his old partners, to be sure in results.
Need for systematic control on how Russian partners implement contracts. The
best way to do it is to divide a contract in small stages.
CONCLUSIONS
We summarize conclusions according to the research topics covered in this chapter, next we
discuss relationship and relationship management issues. Finally we provide brief insights
for practitioners and outline avenues for further research
Relations with customers
It can be concluded that the Finnish companies observed demonstrate a relatively low level
of customer orientation, as well as low level of CRM tools and policies usage (including IT)
and lack of formalization. As mentioned above, interpersonal relations are very important
because the majority of potential customers tend to have favorite supplier(s) and Finnish
companies have to break into existing relations. In this context local sales managers seem
to have the most important competitive advantage. This is the first factor explaining such a
low level of customer management formalization. The second factor is connected with rapid
market growth of the last five years. In these conditions managers had to concentrate on
market share neglecting sophisticated customer analysis. Third, most companies have limited Russian market experience, and with knowledge transfer from ‘Mother Company’ going
slowly, they implement CRM techniques.
Also the companies observed demonstrate low attention towards relations development phases; especially transfer to the commitment stage. It seems that the lack of formalization and analysis can also explain why special goals or policies to reach commitment on
the organizational level are not in place.
Relations with suppliers
We have found that suppliers’ disregard/unawareness of final customers’ needs and suppliers’ poor purchasing capabilities are associated with lower ifMO. Besides, there is evidence
that buying from such suppliers prevents a buying firm’s ability to translate customer
knowledge into tailored value propositions and hampers its efforts to re-engineer supplier
relations with an aim to increase market orientation of the dyad.
The study has many limitations beyond usual drawbacks of qualitative studies. First,
the interviews provided only a partial picture of companies’ management practices, so the
researchers had to make their best estimate based on the available evidence (this may have
a negative influence on the validity of findings). Second, in the market observed, firms exhibit relatively low degrees of market orientation (this may influence negatively the generalizability of findings). In future, the study will further develop the concept of ifMO and how
it is related to purchasing.
Network development
In modern life all companies are looking for new markets with weak competition and positive future prospect. The perspective markets are BRIC, Asian ones, and other fast developing countries. For European companies Russia is the most attractive market, because of
territorial closeness and political stabilization. Russia became less risky, more perspective,
with a growing rate of residential income. Moreover, some companies have past experience
of working in the Soviet Union and now they are going to renew their operations in Russia.
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Especially this concerns Finnish construction companies which are actively beginning to fill
the market. But time has changed, and principles of doing business have changed too. A
new Russian market demands new solutions and use of new marketing concepts such as
RM.
RM plays the leading role in present-day business. We could hardly imagine company
development without saving and developing trusty and mutually beneficial relationships with
customers and partners on long term basis. The only way to be sure in the future result is
to strengthen mutually beneficial relationships and develop RM principles in everyday practice.
Our research was devoted to the investigation of applications of RM principles in
business practice. We have investigated: peculiarities of relationship developing process by
Finnish companies on the Russian market, types of their market entrance strategies, crucial
factors for relationship stability, boundaries of companies’ development on the new market,
peculiarities of interactions with customer and getting feedback about level of customer satisfaction. All these tasks were completed and interesting findings were received. These results will be useful not only for Finnish companies but for all others who start business in
Russia.
Portraying relationships
A variety of market entry strategies is observed, and as a consequence, the relationship
between the local company and the parent company takes different forms. Some local companies are highly independent entities with local management team, others are subsidiaries
of the Finnish/Swedish companies totally subordinated to parent firms. Some are newly
opened ‘greenfield’ operations, while others are formerly Russian firms operating on the
local market.
Every company extended its long-term relations with suppliers from Finland and
from other European countries into the Russian market. Some of these supplier relations
have been lasting for decades, so they are regulated at the parent company level.
Whenever possible, Finnish companies also extended their customer relations into
Russia. In contrast, firms do not always establish relationships to local customers: in many
cases they just pursue profitable transactions. For example, three of the investigated companies are not trying to maintain relationships with former clients. Most do distinguish,
however, between usual, key and potential customers.
Interpersonal relationships are reported to be very important in relations between
firms. They are expected to complement an interorganizational relationship when dealing
with customers (b2b).
The state of relationship management
Companies do not possess systematical knowledge about the level of satisfaction of their
customers, about the way potential customers evaluate their trustworthiness, and how they
behave after the sale is over (e.g. whether they can recommend the company to some
other customers). Procedures to analyze customer satisfaction were not found in the observed companies. Some managers stated that customer satisfaction monitoring was being
developed. In some cases some available market information is not shared with suppliers,
and hence cannot be used in contract negotiations.
However, information is acquired on an informal basis. Salespeople’s personal relationships to customers are most important relationship management tools. For example,
sales managers extensively use customer intelligence and get straight to the CEO, sometimes with bribe reporting. They can also get informed about some customers through networking with others.
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Personal relations are a way of managing risks. In many cases, whenever the contact
person from the customer side moves to another company, the relationship with a company
is lost. In such cases personal networking helps to develop new organizational relations and
acquire new customers.
Trust is declared to be very important in relations. It especially concerns managing
risks in existing relations, building market awareness and reputation, as well as enforcing
contracts. Managers tend to acknowledge that where applicable, informal norms to a large
extent regulate customer relations. However, respondents also tend to mention formal
agreement as one of the most important steps of the customer interaction process.
Most managers are satisfied with informal decision-making processes and do not
perceive formalized systems as useful. Formalized systems for customer relationship
evaluation (e.g. CLV) are not present. As a consequence, in certain cases this triggers internal negotiations that take a long time. The same applies to relationships with suppliers.
Insights/implications for practitioners
The Russian market boom has been stopped. To some extent, this calls for new solutions,
such as strengthening relationships to retain customers and to secure adaptation from suppliers. This in turn calls for the use of new marketing concepts such as RM. As far as relationships are concerned, strengthening relationship management capabilities is highly advisable to companies.
As time goes, companies will certainly establish market monitoring systems. What is
not being measured cannot be managed, and this especially applies to the Russian market.
However, measuring is not a thing in itself. Relationship evaluation tools can be used to
make this information usable for decision-making, and to supplement informal evaluation
which is the only tool currently available.
Avenues for further research
Further research will be devoted to development and validation of the market orientation
concept on the inter-firm level. It is not yet clear how interfirm market orientation might
relate to individual relationships with customers and suppliers, as well as to the wider network context. What marketing and purchasing practices of a firm catalyze or hinder market
orientation of the network where it is embedded, will be subject to further studies.
As for further research projects, it would be relevant and highly recommended to
undertake a wider study of foreign companies on the Russian market, and to use quantitative methods. Since only a limited number of Finnish construction companies operate in
Russia, it is advisable either to enlarge the range of industries, or the range of countries
(e.g. to Scandinavian companies), or both.
ACKNOWLEDGEMENT
The authors acknowledge financial support for this research by HAMK and private companies, as well as partnership of HAMK University of Applied Sciences, VTT, TUT and GSOM
SPbSU. We are indebted to HAMK University of Applied Sciences and VTT for arranging all
interviews throughout this part of project.
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1
5.2.
Building Trust in Counterweight to Risks Perceived in Finnish-Russian
Inter-Organizational Relationships in Construction Business (Weck)
INTRODUCTION
The Finnish construction industry has always had special connections with Russia since the
Soviet Union time. However, the significant growth of business activities of Finnish
construction companies in Russia was a result of the radical political and economic reforms
there during the last few decades which have opened many opportunities for foreign
business sectors. Although the emergence of the global financial crisis in September 2008
has caused a dramatic fall in business activities of Finnish companies in Russia, the Russian
market still remains attractive for many construction companies which see it as a
challenging opportunity. The challenge is to understand the current circumstances in the
market and to predict its future development which will only be possible through close cooperation and determined collaboration with reliable local partners. As for construction
companies, reliable relationships within business networks will also bring strong competitive
advantages in the bidding process of future contracts.
Having the long-term reliable relationships with Russian partners became even more
critical during the crisis. Nevertheless, it is not an easy task. Even though Finnish
construction companies have operated with the Russian partners since the Soviet period
and the Russian business culture is sound, building successful relationships has typically
been problematic and continuously creates challenges. This research examines the extent to
which these challenges are being met. This is the empirical focus of the research.
Furthermore, despite the fact that the new Russia now embraces free-market liberal
principles, the market institutions and infrastructure in Russia are still underdeveloped and
development trends are difficult to predict. It means that foreign companies operating in the
Russian market have to rely extensively on trust in forming relationships with local partners,
while trust is often considered as a substitute for developed market institutions (e.g. Peng
and Heath, 1996). Trust has been repeatedly stressed to be a strong foundation for the
inter-organisational relationship development (e.g. Gustafsson et al., 2009; Doney and
Cannon, 1997; Morgan and Hunt, 1994). This is therefore one primary way to meet these
challenges and this provides a key focus for the research.
Developing relationships with Russian business partners under the conditions of
uncertainty of the current market environment, foreign companies are involuntarily exposed
to certain risks. These are risks caused by disturbances inside the relationships between
partners of business network, e.g. an exposure to potential loss or harm for a partner. Such
risks can never be entirely eliminated, but to a large extent as literature suggests, trust
plays an important role in counterbalancing them (e.g. Arrow, 1973; Håkansson and
Snehota, 2000; Shapiro, 1987; Williamson, 1985; Zucker, 1986). Risk provides a second
focus and the potential for trust to be a counterweight or a factor of risk mitigation will be a
further theme of the research.
2
This highlights the need for a more comprehensive understanding of the role of trust
as a mechanism to counterbalance relationship risks, and practically, how Finnish
construction companies can approach the development of their relationships with Russian
partners and cope with related risks. However, the discussions here on the interorganisational relationships will not go beyond the dyadic level, i.e. beyond the Finnish
general contractor’s set of direct ties with Russian subcontractors operating in the Russian
market.
LITERATURE REVIEW
The primary questions of the research are ‘what’ and ‘how’ questions, which focus on
explaining the role of trust as a counterweight to risks perceived in the project-based
relationship development between Russian subsidiaries of Finnish construction companies
and their Russian partners, investigating how trust develops over time within the
relationships and what are the underlying mechanisms of its development. The purpose of
the literature review therefore, is to provide a brief overview of theories and current
research efforts relevant to the research theme and to define the main research constructs.
As a result, the conceptual framework for the empirical part of research will be introduced
with the set of propositions.
Development of project-based relationships between network partners
There has been increasing attention on inter-organisational co-operation in the literature
since the 1960s, and inter-organisational relationships have been the object of a number of
studies (e.g. Ford, 1990; Gadde and Mattsson, 1987; Håkansson, 1989; Johanson, 1994;
Dwyer et al., 1987, Powell, 1990). The significance of inter-organisational relationships has
been widely acknowledged, and the effective management of inter-organisational
relationships is considered as being a key source of competitive advantage for modern
organizations (Wilson, 1999).
Given that the relationship between partner organizations is the focus of research in
different academic fields such as economics, management, organization theory, sociology,
psychology, etc., a diversity of terms such as ‘co-operation’, ‘collaboration’ and ‘partnership’
has been cited generally regarded as ‘inter-organisational relationship’ (IOR). Evidently
there is no consensus on definitions and application of the terms. Therefore, for the purpose
of this research these terms were used as synonyms and refer to inter-organisational
relationship defined as a voluntary arrangement between organisations that work together
involving transactions on the contract basis with the aim to achieve some strategic
objective. An application of co-operative inter-organisational relationships is various forms
of network organizations. In this paper the term ‘inter-organisational relationship’ (IOR) is
used to refer to voluntary arrangements between partner organisations within networks
involving repeated transactions on the project basis.
The overall structure of business relationships within a network may appear relatively
constant and stable with new relationships developing and old relationships breaking up
over time. Ecceles (1981) conducted a research on the construction industry and found that
in many countries the relationships between a general contractor and subcontractors are
stable and continuous over long time periods, and only seldom established through
competitive bidding. However, changes in a network can be originated by any participant,
and they can affect the relationships (Håkansson and Snehota, 1995). Further, changes
always present in a network due to the interactions between participants (Halinen et al.,
1999). Thus, the capacity to establish and maintain stable inter-organisational relationships
over time has become an increasingly important criterion for successful performance of
business networks.
3
An inter-organisational relationship can generally be considered as evolving gradually
over time through certain stages from establishment to end (Ford, 1980; Dwyer et al.,
1987). Dwyer et al. (1987) structuralized a relationship development into five main phases:
1. ‘Awareness’, 2. ‘Exploration’, 3. ‘Expansion’, 4. ‘Commitment’, and 5. ‘Dissolution’.
These phases could be shortly characterised as follows (Dwyer et al., 1987):
Exploration
Exploration
Development
Development
Expansion
Expansion
Implementation
Implementation
Termination
Termination
Termination
Commitment
Commitment
2. Project
2. Project
3. Project
3. Project
4. Project
4. Project
… …
Long-term project-based
relationship development
Long-term project-based
relationship development
1. Project
Long-term
commitment
Long-term
commitment
Inter-organisational
relationship development
Inter-organisational
(Dwyer et al.,
1987)
relationship
development
(Dwyer et al., 1987)
Awareness
Awareness
Project stages
(PMI Standards Committee, 1987)
Project stages
(PMI Standards Committee, 1987)
1. Awareness phases: recognising a feasible relationship partner, no actual interaction,
2. Exploration phases: beginning to consider benefits, burdens and obligations related to
the possible relationship,
3. Expansion phases: increase in benefits obtained by partners and their interdependence,
4. Commitment phases: investing substantial resources in the relationship maintenance,
5. Dissolution phases: evaluating of the dissatisfaction with the partner and concluding that
the costs of partnership continuation outweigh benefits.
Figure 0.1. Project-based inter-organisational relationship development.
The model was applied for the research purpose with the adaptation to interorganisational relationships in the construction industry, where business activities have
always been organized as projects. Therefore, the relationships between a general
contractor and subcontractors are project-based. Projects as time-limited sequences of
events are usually divided into three distinct stages: (1) development, (2) implementation
and (3) termination (e.g. PMI Standards Committee, 1987). Thus, the main stages of
Dwyer’s et al. relationship development model and project management are posed in
reverse in order to see a correspondence between stages and processes involved (see
Figure 0.1). Figure 0.1. depicts the model that reflects the development of interorganisational relationships on the project basis.
A key distinction of this model relates to the ‘commitment stage’ that refers to the
continuity of relationship between partners. With regard to construction companies it means
that a number of joint projects have successfully been completed with their partners or
subcontractors, and both parties were willing to continue their relationships in the further
projects.
4
However, inter-organisational relationships do not develop through all these stages
in a pre-determined way. Some relationships may fail after an initial contact, others may
turn out to be useless after a first completed project, or they may not have the possibility to
develop either, due to the inability or unwillingness of the parties. In contrast, some
relationships are long-lasting and deal with parties’ varying aims and expectations at
different times Ford et al. (2004). With regard to construction companies the long-lasting
relationship with their partners or subcontractors means that a number of joint projects
have successfully been completed, and both parties were willing to continue their cooperation in further projects. A number of different conditions for the development of
successful long-term relationships between co-operative partners has been identified by
researchers, but “virtually all scholars have agreed that one especially immediate
antecedent is trust” (Smith et al., 1995, 10).
Trust in inter-organisational relationships
Over the past four decades, the concept of trust has been a focus of many scientists in
multiple disciplines, and a variety of trust definitions has been proposed. Identifying the
shared understandings of trust across disciplines Rousseau et al. (1998) suggested the
following definition: “Trust is a psychological state comprising the intention to accept
vulnerability based upon positive expectations of the intentions or behavior of another.”
(Rousseau et al., 1998, 395)
Primarily, trust has been considered as an inter-personal concept (e.g. Blau, 1964;
Erikson, 1968; Rotter, 1967). Later scholars in management have distinguished the concept
of inter-organisational trust (e.g. Lorenz, 1988; Gulati, 1995; Sako 1994). In relationship
marketing literature, definitions of inter-organisational trust mainly concern a belief that
relationship partners will interact in the best interests of each other (Wilson, 2000). The
following definition of inter-organisational trust of Anderson and Narus (1986) is behind the
theoretical reasoning on trust in this research:
“the firm’s belief that another company will perform actions that will result in
positive outcomes for the firm, as well as not take unexpected actions that would
result in negative outcomes for the firm” (Anderson and Narus, 1986, 326).
However, the concept of inter-organisational trust remains problematic due to
inconsistency among scholars in viewing an organization both as a subject and an object of
trust.
It has been stressed repeatedly in the prior research the importance of individuals in
trust between partner organisations (e.g. Gulati, 1995; Lewis and Weigert, 1985; Ring and
Van de Ven, 1994). It is possible to think of ‘organizations trusting each other’ only because
organisations are established and managed by individuals (Aulakh et al., 1996). Further, the
exchanges between organisations are exchanges between individuals or small groups of
individuals (Barney and Hansen, 1994; Nooteboom et al., 1997), and as Blois (1999)
denoted, due to the affective element of trust, an organisation itself cannot trust. Thus,
since trust existing in interactions between co-operative partners is performed by
individuals, distinctive concepts of inter-personal and inter-organizational trust are
interrelated. “This means that the more one trusts the supplier representative with whom
one deals, the more one’s organization trusts the supplier organization” (Zaheer et al.,
1998, 153).
The view adopted in this research is conceptually consistent with a view of Zaheer et
al. (1998) which regards an individual both as a subject and an object of trust in the interorganisational context, while the same is not true of an organisation. It is assumed, that the
subject of inter-organisational trust (i.e. the trustor) is an individual, whereas the object of
trust (i.e. trustee) is both an organisation as a whole and its individuals or organisational
5
boundary spanners who are involved at different levels in the process of inter-organisational
co-operation (Perrone et al., 2003).
According to Nooteboom (2006) trust in individuals or organizations is a behavioural
trust, which has different aspects such as trust in competence and intentions. Blomqvist
(1997, 282) has proposed a two-dimensional definition of trust for business relationships:
“an actor’s expectation of the other party’s competence and goodwill”. In this definition,
competence refers to technical and commercial capabilities, organizational and managerial
skills and know-how, whereas goodwill implies moral responsibility and positive intentions
towards the partner which imply the absence of opportunism.
Many researchers have agreed in views that behavioral trust is the manifestation of
subjective trust, and subjective and behavioral outcomes of trust should be differentiated
(e.g. Craswell, 1993; Das and Teng, 2004; Gambetta, 1988). Regarding to subjective trust,
in the literature, trust definitely refers to an individual’s psychological state, and is mostly
cited as a perception about trustee in relation to trustor (Das and Teng, 2004). Sitkin and
Roth (1993) defined subjective trust as “a belief, attitude, or explanation concerning the
likelihood that the actions or outcomes of another individual, group or organization will be
acceptable or will serve the actor’s interests” (Sitkin and Roth, 1993, 368).
Thus, in this research, on the basis of discussion above inter-organisational trust
refers to a manager’s belief that a partner organisation and its managers are able and
willing to interact with positive intentions under the conditions of uncertainty and risks.
Much of the work on trust suggests that trust provides the conditions under which
desirable outcomes such as positive attitudes, higher level of cooperation, and superior
levels of performance are likely to occur (Dirks, 2006). Scholars from different business
disciplines clam, that trust may lower transaction costs and enhance inter-organizational
relationships (Doney et al., 1998). The empirical research stated that trust has a positive
impact on relationship performance (Zaheer et al., 1998). Morgan and Hunt (1994) showed
that work relationships characterized by trust engender co-operation, reduce conflicts, and
increase the commitment. The authors claim that trust, as a key variable in relationship
development, encourages positive attitudes between partners. The basic level of trust
operates as a prerequisite for inter-organizational co-operation, because it helps to generate
and maintain interaction and social order (Bachmann et al., 2001; Inkpen and Curall, 2004;
Luhmann, 1979). Where trust is absent relationship will deteriorate (Palmer, 2001).
Regarding this study it could be assumed, as a general contractor comes to believe
its trust in a co-operative partner as decreased, the contractor’s orientation towards a
further stage of relationship with the partner will be changed and worsened. This leads to
the following proposition:
Proposition 1: The decrease in subjective trust level of a Trustor (Finnish general
contractor) in a Trustee (its Russian subcontractor) negatively affects on
the Trustor’s willingness to co-operate with the Trustee, while the increase
in trust level has a positive impact.
Relating subjective trust and perceived risk
Trust becomes a vital concept when there are significant risks involved and when there is
objective uncertainty about future consequences of trusting (Morris and Moberg, 1994). In
the absence of trust, inter-organizational relationships would be pervaded by very high
levels of uncertainty, causing managers to always question the motives and competences of
their partners (Das and Teng, 2001; McEvily et al., 2003). Moreover, many theorists claim
that trust is needed only under the conditions of uncertainty and risk (e.g. Boon and
Holmes, 1991; Deutsch, 1960; Schlenker et al., 1973). A number of trust definitions include
6
explicitly or implicitly the concept of risk (Das and Teng, 2004). Thus, the definition of
Currall and Judge relates risk and trust concepts considering trust as “an individual’s
behavior reliance on another person under a condition of risk” (Currall and Judge, 1995,
151).
In practice, the term ‘risk’ is generally considered by managers as a danger or a
possibility of unwanted events not an opportunity for desired positive outcomes (March and
Shapira, 1987). Hence, the traditional definitions of the risk have typically focused on the
probability of risk occurrence and consequences or losses. Therefore, risk can be discussed
objectively in terms of the factual dimensions such as a probability and consequences. Thus,
as Lowrance (1976) shortly defined it, risk is a measure of the probability and severity of
adverse effects.
Risk can also be seen subjectively in terms of the socio-cultural dimension which
emphasises the difference of individuals’ risk perceptions. It is often presumed that humans
are irrational about risk because it involves the perception and calculation of probabilities.
The subjective approach is the focus of social scientists’ attention, who have rejected the
idea of objective risk, arguing that risk is inherently subjective (Krimsky and Golding, 1992;
Slovic, 1992) and defining risk as a social construct, meaning different things to different
people, which cannot be measured independently of peoples’ minds and cultures (Slovic and
Gregory, 1999). Thus, an assessment of perceived risks necessitates both an estimation of
the probability of outcomes and an evaluation of the magnitude of outcomes. These are not
observable measures, but the result of evaluative judgement of an individual which will
depend on individual’s own value system (Wharton, 1992).
Considering the sources of risk in inter-organisational relationships Das and Teng
(1996) differentiated and characterized two distinctive types of risk. The first risk source
concerns interactions between organisations and refers to ‘relational risk’ or behavioral risk
which was extensively explored by Das and Teng (1996, 1998, 2001). ‘Relational risk’ is
defined as the probability that partner will not satisfy the norms of co-operation. And, the
second relates to the interactions between organisations and their environment and refers
to ‘performance risk’. ‘Performance risk’ is ascribable to the probability of failure in
achievement of the intended strategies caused by partner incompetence or market
uncertainties. (Das and Teng, 1996)
Thus, in this research, relationship risks are considered as the probability of negative
outcomes caused by disturbances inside the relationships between business partners. These
risks consist of relational risks which are related to affective factors between the partners,
and performance risks which are tied to partners’ competences.
According to Williamson (1983) opportunistic behavior is a typical source of relational
risk. Shirking, distorting information, stealing the partner’s skills, clients and personnel are
the examples of the opportunistic behavior (Das and Teng, 1998). It seems that cooperative partners often justify their guileful and self-interested behaviour, due to the
payoff from cheating could be greater than that from operating according to the agreement
(Parkhe, 1993). High relational risk can even destroy co-operative efforts (Das, 2006).
According to Das and Teng, (1996) co-operative relationship allow partners to share the
total cost and risks involved e.g. in marketing, R&D, and production relationships. Thus,
authors pointed out that performance risk can be shared by forming a co-operative
relationship, while relational risk is emerged only within a relationship.
From the foregoing discussion it could be concluded, that trust will impact on the
willingness to co-operate through its influence on perceived risk. In other words, perceived
risk mediates the impact of trust on the willingness to co-operate. And, the greater the
willingness to trust, the lower is the perceived risk. Hence, the following two propositions
are emerged:
7
Proposition 2: The more risks are perceived by a Trustor in the relationship with a
Trustee, the larger the decline in confidence that the Trustor has in its
Trustee, and conversely without the further development of trust.
Proposition 3: The more risks are perceived by a Trustor in the relationship with a
Trustee, the more critical trust becomes and the higher the relational
investment is needed in order to co-operate with the Trustee, and
conversely.
It has been suggested by many scientists that trust can be viewed as an attribute of
risk-taking behaviour. It enables a co-operative partner to be vulnerable to another taking
risk from the relationship. (Mayer et al., 1995) As Johnston-Georg and Swap (1982, 1306)
suggested “willingness to take risks may be one of the few characteristics common to all
trust situations”.
Many researchers have agreed in views that behavioural trust is the manifestation of
subjective trust, and subjective trust and behavioural outcomes of trust should be
differentiated (e.g. Craswell, 1993; Das and Teng, 2004; Gambetta, 1988). Thus,
behavioural trust is viewed as being vulnerable to, or relying on, another party (Michalos,
1990).
Das and Teng (2004, 95) distinguish three categories of trust: “(1) trust as a
perception (subjective trust), (2) as various antecedents to subjective trust (trust
antecedents), and (3) as the actions resulting from subjective trust (behavioral trust)”.
Authors make a parallel with two types of risks. In practice, it means that ’subjective trust’
and ‘perceived risk’ are the opposite concepts of each other. Further, ‘subjective trust’ can
comprise two categories of trust: ‘goodwill trust’ reflecting the ‘relational risk’ among the
partners, and ‘competence trust’ reflecting the ‘performance risk’. ‘Behavioral trust’ can be
considered as risk taking. In this respect, the causal relationship between ‘subjective trust’
and ‘behavioral trust’ is similar to that of ‘perceived risk’ and risk taking. The explanation
for the relationship between ‘subjective trust’, ‘perceived risk’ and ‘risk taking’ is that “A
perception of trust indicates a low level of risk, which then makes the subject more willing
to undertake the risk and thus grant trust” (Das and Teng (2004, 111). It means that trust
encourages the trustor to take risks. Thus, based on the discussion above, the final
proposition is formulated:
Proposition 4: The higher level of subjective trust that a Trustor experiences in a Trustee,
the more risks the Trustor may be prepared to accept in the relationship
with its Trustee, and conversely.
Trust Dimensions as Bases for Trust Development
The wide stream of literature focuses on the creation of trust in the relationships between
the partner organisations (e.g. Doney and Cannon, 1997; Dwyer et.al., 1987; Håkansson,
1982; Morgan and Hunt, 1994; Moorman et al., 1993). Whilst leaders play the primary role
in establishing and developing trust, intuitively, interpersonal trust is a central to trustbuilding between partner organisations. Van de Ven and Ring (2006) stated that
interpersonal trust building is a developmental process: “It requires careful and systematic
attention to the concrete processes by which personal relationships emerge between
transacting parties” (Ring and Van de Ven, 1994, 93), and the practical actions that
managers need to take in order to build trust are described by Long et al. (2003) as
“mechanisms that individuals use to assure others of their capabilities, their interest in
accommodating others’ needs and their willingness to fulfil promises made to others” (Long
et al., 2003, 13).
Van de Ven and Ring (2006) also argued that in inter-organisational relationships
reliance on trust takes place between individuals in varying degrees and for different things.
8
The ability to rely on trust provides security to relationships by increasing flows of
information between individuals and their organizations and decreasing of uncertainty. It
also leads to the reduction of agency and opportunity costs and managerial flexibility.
Authors argue that an ability to rely on trust in inter-organisational transactions is related to
the choices the parties made in the approaches to governing their relationships. (Van de
Ven and Ring, 2006)
As Murphy (2006) posits that it is the micro scale where individuals evaluate
influences on an exchange relationship such as risks, benefits, performance, and institutions
in order to make a decision to trust. While trust relationships at a micro-level are
constrained and enhanced by processes at a macro-level (Sitkin, 1995), trust between
organisations can be affected by arrangements at the micro-level where organisations’
representatives relate to each other, i.e. how individuals interact (Fichman and Goodman,
1996; Zaheer et al., 1998). Therefore, trust-building process requires a multiple level of
analysis in order to thoroughly conceptualize related phenomena.
Apparently, trust is often easier to breach than it is to build. Therefore, it is a
widespread belief that trust is fragile. In this respect Slovic (1993) stated: “It is typically
created slowly, but it can be destroyed in an instant – by a single mishap or mistake”
(Slovic, 1993, 677). He separates two types of information: (1) related to negative (trustdestroying) factors, and (2) positive (trust-building) factors. Arguably, perceived risks
inherent in an inter-organisational relationship could be considered as factors negatively
affecting trust in the relationship. Therefore, assuming that, perceived risks differ,
depending on the situation or stage of relationship, it is possible to conclude that trust
varies in its forms and level within the process of relationship development.
Thus, trust may have different forms in different relationships deriving from the
calculus of gains and losses to emotional reactions based on attachments and identifications
between individuals (Rousseau et al., 1998). Thus, Rousseau et al. (1998) proposed a
model which depicts the three basic forms of trust: (1) ’calculative’, (2) ‘relational’, and (3)
‘institutional’. Authors argue that trust in a particular situation or stage of relationship
development can mix several forms together.
Another view on trust dimensions is proposed by sociologist Zucker (1986).
Borrowing his words, he researched ‘the production of trust’ and suggested three different
ways in which trust can be produced: (1) ‘process-based trust’, (2) ‘characteristic-based
trust’, and (3) ‘institution-based trust’. In compliance with the division introduced by Zucker
(1986), it could be assumed that trust in partner at the initial stage of the relationship
development is based on institutions, when there is a lack of other trust instruments, as
well as ‘characteristic-based trust’, whereas at the later relationship stages the development
of ‘process-based trust’ will be more significant.
During the relationship the depth of trust may vary significantly, and certain
relationship phases are more important for trust-building than others. First contacts and
first interactions between parties proved to be increasingly important in the process of trust
building. (Halinen, 1997) Similarly, theorists McKnight et al. (1998, 473) conceive that “the
most critical time frame for organizational participants to develop trust is at the beginning
of their relationship”.
Thus, based on prior trust research, McKnight et al. (1998) proposed a model of
initial trust formation which depicts specific relationships among two cognitive processes
and several trust-related constructs. By ‘initial’ trust they mean trust formed at the
beginning of relationship between organisational participants unknown to each other.
Hence, initial trust “will not be based on any kind of experience with, or firsthand knowledge
of, the other party” (McKnight et al., 1998, 474). Authors denoted five research streams
providing a basis for understanding of initial trust formation: (1) ‘calculative-based trust’,
(2) ‘knowledge-based trust’, (3) ‘personality-based trust’, (4) ‘institution-based trust’, and
(5) ‘cognition-based trust’ (trust derives through cognitive cues or first impressions).
9
However, knowledge-based trust is not considered as a part of the model of initial formation
of trust by McKnight et al. (1998) as it is assumes that relationship participants have no
experience of interaction. Hence, there is no ‘firsthand knowledge’ of each other acquired
through interactions. Whereas ‘second-hand knowledge’ (i.e. reputation) is addressed as
‘categorization process’ in the model.
FORMAL PROCESS
Institution-Based Trust
Calculus-Based Trust
Process-Based Trust
Trust Development Process
Initiation
Growth
Maturity
Cognition-Based Trust
Personality-Based Trust
Exploration
Expansion
Commitment
Characteristic-Based Trust
INFORMAL PROCESS
Exploration
Expansion
Commitment
Relationship Development Process
Figure 0.2. Overview of trust forms within the relationship development process.
To sum up, trust in inter-organisational relationship can have the various forms
which are dependent upon the stage of relationship development. Apparently, several forms
of trust may be combined together and these combinations vary in different relationship
stages. Figure 5.2.2. presents the overview of the diversity of trust forms.
The development process of relationship trust comprises both formal and informal
processes which take place within all three stages of relationship evolution. The formal
process aggregates the following form of trust: ‘institution-based trust’, ‘calculus-based
trust’, and ‘process-based trust’. ‘Process-based trust’ is related to ‘relational trust’ and
‘knowledge-based trust’. By definitions, these forms of trust imply firsthand knowledge
based on experience. The formal process may possess an active or passive character. Thus,
for instance, searching for the verifiable information about a potential partner in the
Internet would be defined as passive, whereas active searching would be visiting to a
business premises or production shop floor.
10
The informal process is only associated with inter-personal trust and comprises the
tacit trust forms such as ‘cognition-based trust’, ‘personality-based trust’, and
‘characteristic-based trust’. “Institution-based trust’ and ‘personality-based trust’ formation
processes lie outside the scope of this research.
Proposed Conceptual Framework
The conceptual framework was constructed on the basis of the vast body of literature on
main research concepts (see Figure 5.2.3.). Focusing on the particular research concepts
and excluding many others, the critical variables were singled out for the empirical analysis
and the explanation of the phenomenon. Thus, this framework is a simplification of the
causal relationships between the main research concepts, which provides a basis for the
assessment of knowledge available and its compliance with empirically gained data. It
depicts research questions such as the relationship between the perceived risks and
subjective trust and the influence of trust scope on the willingness to co-operate. The
conceptual framework contains two areas for the empirical research: the first depicts the
concepts to be determined, and the second illustrates the concepts with proposed
relationships to be examined.
Risk
sources
To be determined
Relational risk
To be examined
Perceived
risk
Performance risk
Trust
preconditions
Confidence
Willingness to
co-operate
Competence trust
High
Low
Goodwill trust
Subjective
trust
Risk taking
INTER-ORGANISATIONAL RELATIONSHIP DEVELOPMENT
Transition to next
relationship stage
Exploration Stage
Dissolution
Figure 0.3. The proposed conceptual framework.
The framework attempts to consider partially cultural and environmental factors
incorporating concepts such as trust antecedents and risk sources occurring in the
relationship between partners from different countries and cultures. It is assumed that the
cultural national values are predictors of trust antecedents, and the environmental
conditions are to a large extent responsible for risk sources. However, it ignores the
potential effects of individual differences in risk perception and propensity to trust on the
willingness to co-operate and risk taking, since these effects are mostly significant at the
initial stage of relationship life cycle.
11
Based on the empirical research results obtained by Gill et al. (2005) the relation
between the propensity to the trust of individuals and trust is moderated by a boundary
condition such as situational strength. Specifically, in the situation when information about
trustworthiness of the partner is ambiguous, propensity to trust correlates positively with
intention to trust, and does not correlate when information is evident. According to the
authors, the nature of this relation changes over time as information about the trustee
becomes available. Usually, initial trust between individuals is based on limited information
and little observations of each other’s behaviours (McKnight et al. 1998; Gill et al., 2005).
Thus, when partners interact, they make a risk taking positive assumptions about
each other’s performance and outcomes to be achieved. At the initial stage of relationship a
certain degree of risk always exists due to not knowing what to expect in terms of
outcomes. When outcomes meet expectations, more positive information becomes
available, which in turn reinforces trust. At the same time, uncertainty and perceived risks
reduce, as a result of increased familiarity. This becomes a part of relationship life cycle,
increasing the chance to continue the relationship.
The general argument is that the co-operation will continue from one stage to
another as long as the trustor is able to rely on trust in the presence of relationship risks
and an increase in trust occurs during interactions. The higher level of subjective trust in
inter-organisational relationship provides the trustor with confidence to continue the
relationship recognizing that perceived risks may cause short-term losses but not threaten
the trustor’s long-term interests.
RESEARCH PROJECT
Project objectives
The research aims at deeper understanding of the role of trust as a counterweight to risks
perceived in the project-based relationship development between Finnish and Russian
construction companies networking in Russia. The research comprises the following specific
objectives:
(1)
(2)
(3)
(4)
to identify the perceived risks and their sources in different stages of interorganisational relationships,
to determine the necessary preconditions for trust development in interorganisational relationships,
to examine the relation between subjective trust and perceived risks in the
development of inter-organisational relationships, and
to explore trust development process and specify the nature and distinctive
features of it in the context of Russian culture.
Research methodology
The research is divided into three phases (see Figure 5.2.4.): 1) theoretical literate review,
2) first stage of empirical research: a pilot survey focusing on the research questions RQ 1
and RQ 2, and 3) second stage of empirical research: an interview-based multiple-case
study focusing on both quantitative and qualitative issues (RQ 3 and RQ 4).
Foremost this research has both explanatory and explorative characters, as it aims to
explain the role of trust as a counterweight to risks perceived in the development process of
project-based inter-organisational relationships and to explore the process of trust
development. It must be emphasised that the aim of the research not to achieve
statistically generalisable results but to build conceptual frameworks that are created
12
through theoretical reasoning and the comparison of existing theoretical knowledge with the
empirical evidence.
PHASE ONE
Literature Review
Propositions
building & Pre-testing
PHASE TWO
Empirical Research / First Stage
Relationship risks (RQ 1)
Trust preconditions (RQ 2)
Conceptual framework
development & Testing
Validation
PHASE THREE
Empirical Research / Second Stage
Trust and risk relation (RQ 3)
Trust-building process (RQ 4)
Figure 0.4. The overview of research methodology structure.
It is obvious from the above, that the research aims and research specific questions
are the primary guideline in the choice of methodology, and different research questions
might require different methodological approaches. Since the general aim of this research is
to explore complex processes and provide more in-depth knowledge to the research
questions analysing in detail how individuals perceive and make sense of things that are
happening in inter-organisational relationships, it may be argued that the qualitative
approach is most applicable in the course of this research (Eisenhardt, 1989; Yin, 1989).
Further, the pre-structured approach to qualitative research was chosen, and an ‘a priori’
framework (see Figure 5.2.3.) with a set of initial propositions was generated from the
existing theoretical literature.
In order to reach the research aims, the empirical part of research was divided into
two stages namely the phase two and phase three (see Figure 5.2.4.). The aim of the
phase two of the research is to create a solid pre-understanding of what actually happen in
the development of relationships between organisations in regard to risks and trust
preconditions as well as the particular sources and preconditions under which they take
place. Thus, the primary focus of this phase was research questions (RQ 1) and (RQ 2) (see
Figure 0.5). The pilot survey with an ‘expert group’ is applicable for the establishing preunderstanding of the research phenomenon especially when the research process is
uncertain and complex. It allows pre-testing and refining of initial research questions, and
the early evidence may suggest how to proceed to the subsequent phase of data collection.
Thus, the pilot survey was chosen as a research strategy for the phase two to provide a
background for a more focused investigation and to minimise the possibilities of any failure
in the research. Even though, the limited number of respondents were interviewed, the
insights gained from interviews were generated a sufficient pre-understanding of the
research phenomenon. The conceptual ‘a priori’ framework and the early propositions
originated from the literature analysis were pre-tested through empirical validation. The
scope of relationship risks and trust preconditions was identified with the purpose to utilise
it as a framework for estimations in the phase three of research. On conclusions of this
research phase, interview questions were revised and the questionnaire was drawn up.
13
Finally, an appropriate data collection protocol for the further stage of empirical research
was established.
As for the aim of the phase three, it implies the examination of a specific relation
between key concepts of the inter-organisational relationship development such as trust and
risk and concerns the processes within inter-organisational relationships development which
are managed by people. This research phase is dedicated to the questions (RQ 3) and (RQ
4) (see Figure 0.5). While the pre-structured qualitative approach is chosen for this
research, the selection of research strategy needs to reflect it. Thus, the case study is an
appropriate strategy for the research in the phase three, as according to Yin’s (1989, 30)
notion, following theoretical propositions that “direct attention to something that should be
examined within the scope of study” is the most preferable strategy to conduct a case study
(Yin, 1989, 30). A further rational for the selection of the case study strategy is grounded
on the research problems which are based on ‘what’ and ‘how’ questions and concern a
contemporary phenomenon in the context of its real-life. The value of case studies is that
they are appropriate for the exploration of complex relationships and constructs when
understanding may not be possible to achieve applying quantitative methods (Eisenhardt,
1989; Gerring, 2004; Ghauri and Grønhaug, 2005). Furthermore, case study enables an
investigation to retain meaningful characteristics of real-life events like organisational and
managerial processes and international relations (Yin, 1989).
RESEARCH QUESTIONS
ANALYSIS
METHODS
EMPIRICAL RESEARCH (PHASE TWO)
RQ 1 Inter-Organisational
Relationship risks
RQ 2
Relational Trust
Preconditions
Pilot Survey /
Qualitative Analysis
’Expert Group’
Interviews
EMPIRICAL RESEARCH (PHASE THREE)
RQ 3 Relation between
risk and trust
RQ 4 Trust development
process
Multiple-Case Study /
Qualitative Analysis
Semi-structured
Interviews
Figure 0.5. The overview of empirical research methodology.
To sum up, the multiple-case study was chosen to provide empirical basis for the
research aims in the phase three: first, developing a framework describing the role of trust
as a counterweight to risks perceived in the development process of project-based interorganisational relationships via continuous comparison the ‘a priori’ framework with
propositions and the empirical evidence (RQ 3), and second, building an incorporated
framework of trust development relying on existing theoretical constructs and pre-defined
concepts (RQ 4). The overview of empirical research methodology is illustrated in the Figure
0.5., where the phase two of empirical research contains the pilot survey and the phase
three - multiple-case study.
While the qualitative methodological approach was applied in the course of this
research, the semi-structured interviews are chosen as the primary source for data
collection to provide a more qualitative insight into the research questions. Interviews were
14
conducted face-to-face with the purpose to ensure a high response rate and data reliability
in both stages of empirical research. Interviews are the most powerful method for accessing
and understanding beliefs, values and behaviour of individuals (Rubin and Rubin, 2005).
The usefulness of interviews is also acknowledged, when understanding of past and
sometimes unobservable events is in question, and formal records of events are not
available (de Vaus, 2001). Thus, the strategy to conduct the pilot survey and multiple-case
study was interview-based.
The sampling of respondents for the phase two of the research (Pilot Survey) was
made on the basis of specific groups representing Finnish and Russian experts, consultants
and senior managers mainly from Finnish construction companies. The main sampling
criteria adopted being that of direct knowledge and expertise in the construction field and
long-term experience in doing business in the Russian market. The total number of selected
experts was ten. The interviewing time was for one to two hours. Most interviews were done
outside interviewees’ working premises, but in places comfortable for them and permissive
to focus and discuss on the research topic confidentially.
The selection of case companies for the phase three of the research was carried out
finishing the pilot survey. The motivation for this research was to generate results that can
be generalized theoretically to the larger population of Finnish construction companies
operating in the Russian market. Thus, case selection was purposive. Cases were selected
from a specified population for the theoretical rather than statistical reasons identifying
particular cases that correspond to research phenomena (Eisenhardt, 1989; Yin, 1989).
‘Theoretical replication’ logic was adopted selecting specifically contrasting case companies
(Yin, 1989). Thus, the research population was defined as the subsidiaries of Finnish
companies representing construction and related service industries operating in the Russian
market with headquarters in Finland. The seven case companies were selected out of the
pre-specified population with the aim of identifying diverse cases, i.e. cases of both small
and large companies with differences in the nature of services and the extent of experience
in the Russian market.
The sample of respondents was conducted based on the representativeness of
different management levels and nationalities. Practically, the sample consisted of three to
seven informants in each case company and represented both Finnish and Russian senior
and middle managers as well as key personnel. In total 35 interviews were carried out over
the course of nine months during the year 2009. The interviews were conducted at the
premises of the case enterprises located in Moscow and Saint-Petersburg. Interviewing
lasted for one and a half to two hours each and took from one to two days in each case
company.
The questionnaires for the experts and representatives of case companies were written
in the Finnish and Russian language. Interviews were conducted in the language most
comfortable to participants, i.e. interviews with Finns were held in the Finnish language,
whereas interviews with Russians were in the Russian language.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
Results
Identified risks and trust preconditions
A result of interviews with the ‘expert group’ in the first stage of empirical research was the
identified scope of perceived risks in different stages of inter-organisational relationship
development. Thus, discovering risk outcomes and causative events (risk sources) were
made, since it involves risk identification (Rowe, 1988). This risk scope (Table 5.2.1.) was
utilised as a framework for risk assessment in the second stage of empirical research
15
conducted by managers from Finnish case companies, where probabilities of occurrence
were assigned to the each defined risk outcome and the causative event.
The acquired data were analysed within each case company and across seven cases.
The identified risk outcomes and causative events were prioritised according to their
probabilities within every defined stage of inter-organisational relationship development (I
Exploration, II Expansion and III Commitment stages). The identified and prioritized risk
outcomes and causative events are introduced in the graphs (see Figure 5.2.10 – Figure
5.2.12). The values represent the average values of total assessments of risk
probabilities conducted by all respondents from all seven case companies.
Table 0.1. The scope of identified risk outcomes and causative events.
Risk outcomes
Causative events
Risk of losing a
customer
and/or
reputation
quality problems in partner’s products/services and/or delivery performance
partner’s unskilled labour and/or management
insufficient communication and information exchange
smaller size of partner organisation (e.g. limited product. volume, resources)
loss or changes in key personnel of subcontractor’s organisation
growth of diversity of partner’s activities
absence of common infrastructure (e.g. data processing)
negative appraisals or rumours after contract termination
no verifiable information about subcontractor’s financial state
subcontractor’s underestimation of own resources, potentials and/or capabilities
breach of contract payment or other commitments
limited past experience in collaboration with the subcontractor
undefined common strategic objectives
absence of relationship rules and defined management roles and responsibilities
insufficient knowledge about subcontractor’s product and/or service quality
higher level of cultural or behavioural distance in relationship
lack of commitment of senior managers
change in ownership of subcontractor’s organisation
leakage of confidential information to competitors through the subcontractor
partner’s narrow core capabilities and inflexibility
losing skilful personnel to a partner
partner’ learning useful capabilities and acquiring commercially valuable information
partner’s unwillingness to learn and to change
no development due to explicit expectations of a partner
lack of customer feedback received through a partner
getting accustomed to partner’s level of costs and/or action mode
frauds of local management through uneconomic or illegal agreements with partners
lack of alternative reliable and capable partners in the market
Risk of wasting time
and resources due to
relationship
termination
Risk of losing
competitiveness
and/or core capability
Risk of dependency in
relationship with a
partner organisation
Table 0.2. The scope of identified trust preconditions
Dimension
Organisational
Trust Preconditions
successful cooperative history
high quality of performance
stability in key personnel
openness and transparency in decision-making process
contract fulfillment
financial stability
communication of good quality (openness, same language, etc.)
quick responsiveness to any sign of problems
good reputation in the market
compatible frames of reference
no significant cultural and/or behavioural distance
effective capacity utilisation
common interaction rules
16
Personal
(Managerial)
short physical distance between partner organisations
flexibility with changes in technology and environmental demands
stability in ownership
sufficient size/capacity of partner organization
prior experience of relationship
integrity
objectivity
capabilities and competence
openness and predictability
personal recommendations
mutual commitment (e.g. to invest)
shared norms and values
personal chemistry and/or sympathy
familiarity (friendship, studies, place of birth, religion, etc.)
Determination of the trust preconditions associated with positive changes in general
level of inter-organisational trust was drawn from existing literature and interviews with the
‘expert group’. Determined trust preconditions represent two levels: personal (managerial)
and organisational (see Table 5.2.2.). These preconditions were evaluated by managers
from Finnish case companies in the second stage of the empirical research. The data
obtained were analysed within the each case company and across seven cases. Thus, the
graph in Figure 5.2.13 depicts an overview of the determined preconditions associated with
positive changes in the Finnish contractors’ general level of trust to its Russian
subcontractors, whereas the graph in Figure 5.2.14 demonstrates how identified risks
negatively affect on the trust level. The values represented in both figures indicate the
average values of total estimations made by all respondents from all seven case companies.
Relation between subjective trust and perceived risk
To explore the relation between subjective trust and perceived risks inherent in interorganisational relationships a set of propositions deduced from the literature and inductive
observations of a number of inter-organisational relationships over time were tested in the
research phase three or second stage of the empirical research. Thus, the ‘a priori’
conceptual framework (see Figure 5.2.3.) was tested explaining empirically the relation
between trust and risk.
COMPETENCE TRUST
high
low
GOODWILL TRUST
high
low
- perceived relationship risks are
marginal
- high confidence in business
relationship
- perceived performance risks are
high
- doubtful business relationship
- perceived relational risks are high
- unstable business relationship
- perceived relationship risks are
high
- no confidence
- business relationship too risky
 relational risks management
(e.g. control mechanisms)
Figure 0.6. The matrix of different types of trust and risk relation.
17
Additionally, four propositions were tested against the data derived from interviews
with managers in seven case companies and found varying levels of support in the data.
Strong support was found for the propositions 1, 2 and 3. More specifically from the
perspective of general contractor, managers experiencing the higher level of trust in a
subcontractor are more willing to co-operate, whereas managers perceiving more risks in
the relationship with a subcontractor are less likely to develop this relationship. Finally,
proposition 4 has received weak support from the results. It was found that the higher level
of trust has a positive but insignificant effect on accepting risks by Finnish general
contractors in the relationships with their Russian subcontractors.
According to the definition of trust applied in this research, trust in inter-organisational
relationships comprises two dimensions such as competence trust and goodwill trust.
Combining two trust dimensions in different ways, a simple scheme of categorizing the
relation between trust and risk that can be found in inter-organisational relationships is
formed. The matrix presented in the Figure 5.2.6. proposes different types of relation
between trust and risk in business relationships and can be used for classifying interorganisational relationships.
Trust development process
The trust development process between partner organisations goes along with the
relationship life cycle. An initial relationship between partner companies in the construction
field develops through defined three stages presented in the literature review (see Figure
0.1): exploration, expansion and commitment. In accordance with the process of
relationship development, the process of trust-building was divided into the following three
stages: initiation, growth, and maturity.
Since inter-organisational relationships develop along different stages, the
probability level of perceived risks in interactions and their affect on subjective trust
between co-operative parties change along the stages of inter-organisational relationships.
And, because the nature of relationship risks varies over time (see graphs in Figure 5.2.10 Figure 5.2.12), it was assumed that the manner in which trust is established (i.e. trust
preconditions) is also different.
According to the data obtained from the semi-structured interview with managers in
the second stage of empirical research, in the initial relationship, both competence trust and
goodwill trust develops in different ways dependent on the stage of relationship
development process. Thus, the formation of subjective trust at each stage of relationship
was defined. The Figures 5.2.7 – 5.2.9 introduce the trust development process bringing up
a range of most significant trust preconditions determined at different relationship stages.
In the initial relationship, at first, trust has to be achieved, then maintained and
rebuilt when changes occurs. Both competence trust and goodwill trust develops in different
ways dependent on the stage of relationship development process. Thus,
- at the exploration stage of the initial relationship development trust grounds on a
reputation (i.e. ‘second-hand knowledge’) and the experience from first interactions;
- at later stages (expansion and commitment) based on experience from prior
interactions (i.e. ‘firsthand knowledge’).
Trust is more likely to be extended to a potential partner organisation when that
organisation has got a reputation in the market place (Weigelt and Camerer, 1988;
Ring, 1997). Reputation is ‘second-hand knowledge’ (McKnight et al., 1998), which transfers
very easily among firms in an industry through words and actions (Doney and Cannon,
1997). A person resorts to ‘trusted informants’ who have been involved with the potential
partner and found this partner trustworthy, and to ‘information from one’s own past
dealings with that person’ (Granovetter, 1985). Thus, participation of an organization in the
prior successful co-operation is building up a reputation as a good cooperation partner.
18
It is widely believed in the literature that prior experience is a necessary
precondition of trust. Ring (1997) posits that even if trust does not already exist at the
beginning of relationship, it may emerge from formal and informal transaction processes.
Anderson and Narus (1990) also support this statement saying, “cooperation leads to trust
which, in turn, leads to a greater willingness to cooperate in the future, which then
generates greater trust, and so on” (Anderson and Narus, 1990, 54). Many scholars have
reached a conclusion that trust develops incrementally as parties repeatedly interact (e.g.
Gulati, 1995(a); Lewicki and Bunker, 1996). Thus, trust is a history-dependent process,
which changes in the course of cumulative interactions between co-operative parties
(Rousseau et al., 1998).
Initiation trust stage
Based on the analysis of empirical data the initiation trust phase proved to be critical to the
chances of creating trust in inter-organisational relationships. The knowledge of a trustee’s
reputation and the experience from first interactions enables a trustor to evaluate the
characteristics of a trustee organisation and characteristics of relationship with the trustee.
First impressions are of great importance. The behaviours of key personnel representing a
potential partner organisation (trustee) are the subject to constant observation and explicit
evaluation during first interactions. Characteristics of the trustee such as organisational
capabilities and professional qualities of key personnel involved in the relationship
development are clearly most significant preconditions determining subjective trust at the
exploration stage. The initial stage of trust development is introduced in the Figure 2.5.7.
Growth trust stage
The experience gained from prior interactions provides a basis for monitoring of both
characteristics of a trustee and characteristics of the relationship with the trustee in
subsequent stages relationship development. The growth in trust is likely to depend on the
degree to which these characteristics at both organisational and individual level exceed the
expectations of the trustor. At the expansion stage of inter-organisational relationship
development, integrity and orientation to problem-solving of a trustee’s key personnel as
well as the quality of organisational performance are the most significant preconditions for
trust identified by managers from the Finnish case companies. In this research, the integrity
refers first of all to a fulfilment of contract and other obligations by the trustee’s key
personnel. The growth stage of trust development is shown in the Figure 2.5.8.
19
INITIATION TRUST PHASE
Exploration Stage of Inter-Organisational Relationship
Subjective
Trust
Competence Trust
Goodwill Trust
Characteristics of
Relationship with Trustee
Characteristics of Trustee
Organisation
Organisational
Capabilities
Key Personnel
Personal
Motivation
Transition of generated
trust to the next stage
Key Personnel
Organisation
Professional
Qualities
Transparency in
Interactions
Commitment
Integrity
Trust Preconditions Based on Reputation and Experience from First Interactions
Figure 0.7. Trust development at the exploration stage of relationship
GROWTH TRUST PHASE
Expansion Stage of Inter-Organisational Relationship
Subjective
Trust
Generated trust from
the previous stage
Competence Trust
Characteristics of Trustee
Organisation
Quality
Performance
Key Personnel
Flexibility
Professional
Qualities
Transition of generated
trust to the next stage
Goodwill Trust
Characteristics of
Relationship with Trustee
Organisation
Open
Communication
Key Personnel
Orientation to
problem-solving
Trust Preconditions Based on Experience from Prior Interactions
Figure 0.8. Trust development at the expansion stage of relationship
Integrity
20
Maturity trust stage
The positive experience from the interactions with a trustee at the previous stages helps a
trustor to build a foundation for deeper trust at the commitment stages of interorganisational relationship. The figure 5.2.9 introduces the maturity trust phase in the trustbuilding process bringing up a range of most significant trust preconditions determined by
managers from Finnish case companies. Thus, along with the quality performance and the
stability in key personnel, characteristics of relationship with trustee at individual level
which consist of integrity and social contacts have appeared to play a key role in deepening
and maintenance of generated trust.
Interestingly, the absolute majority of Russian respondents who represent Finnish
case companies trust more in co-operation with Finnish partners than Russian operating in
the Russian market, even though they interact personally with Russian managers in both
Finnish and Russian companies. It means that differences in the corporate cultures and
management styles existing in Finnish and Russian companies can be more important
determinants of trust in inter-organisational relationships than differences in the national
cultures.
None the less, the national cultures have a certain effect on the process of trust
development. A good example of it is as follows: “A chance you only get once. Hence, there
is no possibility of being mistaken.” (Quotation from the interview with Russian manager)
MATURITY TRUST PHASE
Commitment Stage of Inter-Organisational Relationship
Subjective
Trust
Generated trust from
the previous stage
Competence Trust
Characteristics of Trustee
Organisation
Quality
Performance
Key Personnel
Stability in
Key Personnel
Professional
Qualities
Maintenance of total
generated trust
Goodwill Trust
Characteristics of
Relationship with Trustee
Organisation
Open
Communication
Key Personnel
Social
Contacts
Trust Preconditions Based on Experience from Prior Interactions
Figure 0.9. Trust development at the commitment stage of relationship
Integrity
21
Implementation and exploitation
Since the relationship between perceived risk, subjective trust and willingness to co-operate
in inter-organisational settings were explored and proposed relations were tested
empirically within the proposed conceptual framework (see Figure 5.2.3), the tested and
improved framework can be useful for managerial decision making in the process of
relationship development.
While establishing initial inter-organisational relationships the important decision is
to be made concerning the choice and availability of the appropriate co-operative partners.
Moreover, the rapid changes in the current market require forming these relationships very
quickly, often based on limited information. Then, the unpredictable character of initial
relationships and the likely costs to an organisation from the opportunistic behavior and/or
lack of competences of new partners may lead an organisation to considerable losses. This
highlights the need for recognition of risks inherent in such relationships and their
assessment. Being aware of relationship risks and their sources is a precondition for
successful business decisions in co-operative relationships, and accepting the right risks
may lead to gains. Hence, identification and assessment of relationship risks is an essential
part of decision-making process, and therefore, it is a major managerial activity in the
relationship planning.
Thus, the scope of identified risk outcomes and causative events introduced in the
Table 5.2.1 could be applied as a check list for Finnish managers responsible for the
relationship development with their Russian partners.
As it is learnt from the literature, trust is indeed an important aspect of successful
inter-organisational relationships, and the ability to create, maintain, and increase trust
between partner organisations is one of the most critical factors to succeed. Additionally,
building trust is time consuming process which is costly to maintain, it may be even harder
when cultures are dissimilar. Therefore, understanding how trust forms initially, how it can
be maintained over time, and what the distinctive features of trust development process are
in the context of national culture should be a prime concern for the managers involved in
the relationship development.
Thus, the determined trust preconditions in the Russian cultural context provide
business managers of Finnish companies with insights and a practical guide they can use to
build trust with their Russian partners in the more efficient way. In particular, the scope of
determined trust preconditions could be adopted by Finnish managers in the measurement
of trust to their subcontractors.
For managers, the following important lessons can be drawn from the data analysis:
•
•
•
•
Adequate attention must be paid to the importance of trust development processes
within relationship evolution.
Risks associated with the inter-organisational relationships have to be managed as an
integral part of trust development process.
”Haste makes waste”. Being aware and appropriate use of trust development processes
allow to minimize the ”waste” of time.
Required level of formal processes cannot substituted by reliance on inter-personal trust
of the informal process.
CONCLUSIONS
This research contributes to the body of knowledge in the areas of project-based
relationship development and relationship marketing. There are only a few studies that offer
an integrative view of relational constructs of inter-organisational relationship development.
This research tested the strength of the trust construct in the presence of risks and
22
confirmed the important role that trust plays in counterbalancing risks perceived in the
inter-organisational relationships. The research results support the Smith’s et al. (1995)
argument conceptualized by many scholars that trust is the immediate antecedent to the
development of successful long-term relationship between co-operative partners. Although
in the literature, trust is viewed as a vital concept when there are significant risks involved
in relationships (e.g. Das and Teng, 2001; McEvily et al., 2003), less attention is given to
the effect of perceived risks on the relationship development. In this research, perceived
risks are found as moderators in positive influence of trust on the inter-organisational
relationship development, i.e. the ‘willingness to co-operate’ (see Figure 5.2.3.).
While interpreting the research results, cautions should be made in making too broad
of an interpretation due to several apparent limitations. First, it is widely admitted by
researchers that qualitative research methods place certain constrains on the research
findings. Although, the results reached from this research cannot be generalised
statistically, the generalisation to theory or ‘analytic generalisation’ by reflecting results with
the theoretical base according to Yin (1989) is possible. Since the case study was based on
the pre-established theory and the set of testable propositions, empirical findings were
compared with this initial theory and generalised to that theoretical base.
Second, this study does not attempt to provide a comprehensive model of concepts
related to the process of inter-organisational relationship development. Instead, it aims to
expand the scope of the research on trust within inter-organisational relationships by
introducing frameworks to only address specific research objectives introduced in the
section Research Project.
Third, the research questions have been studied from only one side of the dyadic
relationships between partner organisations. The most significant reason for that was the
lack of dyadic responses due to unwillingness of respondents from general contractors
(Finnish case companies) to make possible for the researcher to interview their
subcontractors referring to ethical issues and business confidentiality. Therefore, it is not
possible to analyse the real differences in perceptions between the informants across dyads
in relation to the research issues.
ACKNOWLEDGEMENTS
The research introduced here is a part of larger “STROI Network” research project started in
2007 which aims at developing management and leadership models for Finnish – Russian
business networks operating in Russia. The “STROI Network” research project is supported
by the Finnish Funding Agency for technology and Innovation (Tekes) and fifteen Finnish
companies from the construction and related service industries operating in the Russian
market. I am also grateful for the ideas and comments of many research colleagues and
professors participating in the project.
23
Figure 0.10. Risks and risk sources in relationships with Russian partners (Stage I).
23
24
Figure 0.11. Risks and risk sources in relationships with Russian partners (Stage II).
24
25
Figure 0.12. Risks and risk sources in relationships with Russian partners (Stage III).
25
26
Figure 0.13. Positive effect on trust.
26
27
Figure 0.14. Negative effect on trust.
27
28
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33
6.
Performance Measurement in
Networks in Russia and in Finland (P6)
Business
6.1
Towards management and leadership models for Russian business networks (Niittymäki, Lod, Tolonen)
Seppo Niittymäki. HAMK University of Applied Sciences, Training and Research Centre of Living Environment, Hämeenlinna, FINLAND. [email protected]
Timo Lod. Tampere University of Technology, Construction Management and Economics, Tampere, Finland. [email protected]
Teuvo Tolonen. Tampere University of Technology, Construction Management and
Economics, Tampere, Finland. [email protected]
ABSTRACT
In Russian project business management and leadership models, as well as company performance, measurement indicators should be adjusted to Russian tradition
and business culture. Networked companies seem to have extreme difficulties in
applying matrix type organizations in Russia, as Russian management practices are
based traditionally on strong and authoritarian leadership. However, clear and specific targets should be set to projects as well as strategic business areas. The targets and bonuses should be agreed with managers and staff throughout the company and the business network. In Russia, both leadership and personal networks
within project stakeholders have more emphasis than in Finland, because personal
relations to authorities’ organizations, for example, are needed at every stage of
the construction project. Therefore, managing construction business, consisting of
several projects, is extremely challenging in Russia. A trial method for planning
strategy, setting and implementing strategic targets for a business-networked company will be presented.
INTRODUCTION
The purpose of this paper is to describe management and leadership models, which
are being used in Finland for construction project business and how these models
should be adjusted into Russian business environment. The first strategic research
question is what are the main features of management and leadership models and
performance measurement indicators (PMI) used at present in Finland in construction project business, and secondly how these models and PMI should be adjusted
to Russian business environment. This paper is based on STROI Business Network
project, which is still an on-going research effort.
Traditionally strategic planning and strategy implementation may be carried
out with numerical models described below by setting measurable targets for each
dimension. Many issues will affect target setting: results from the previous years,
the country in question, and the political, economic, sociological, technological and
environmental situation (PESTE) and development of these factors in the future.
Variables to be monitored are selected in a way that these are the key success factors. Management issues and different numerical indicators have a strong emphasis
in decision-making and target setting. In construction companies, business consists
of projects. Setting targets to projects should be related to the company rewarding
system and projects should be integrated into other activities of the company.
Meeting the commercial objectives of companies with projects and alignment of
140
project management approach to the requirements of global business are actual
topics among International Project Management Association (Kähkönen 2009, 3).
The Russian situation is more complicated: the political, economic, sociological, technological and environmental situation is totally different and partly unpredictable. Setting exact targets is very difficult as e.g. prices of raw materials may
change more than 50% in year, exchange rate may drop 30% (2008) or even more
etc. Also, business culture is totally different: power and responsibility is concentrated on the main director of a company even in according to Russian law, tradition supports strong and authoritarian leadership; former acquaintances are highly
appreciated as a part of business culture as well as in common life.
Recent research (Suominen 2009) indicates that the art and practice of
managers’ everyday strategy usage is creative: some managers use it in order to
promote their own aims; others play with strategy while talking. On the other hand,
strategy is understood at a very personal level in order to serve as a forum to deal
with and build up a director’s own identity and existence. This shows that there is
room for rethinking strategic management and setting goals for companies and
business networks.
LITERATURE REVIEW
Types of networks to be examined have been classified as three types: Supplychain, Hub and Spoke and Peer-to-peer (Figure 6.1.1). For construction business
and projects Hub and Spoke types networks are most relevant.
Topologies of Business Networks (VTT)
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Figure 6.1.1. Topologies of Business Networks (VTT).
Planning, implementation of strategy and performance management (PM) in
companies and organizations have been research targets for decades: performance
expectations may be described as the derivative of forecasted potential (Ansoff
1979, 169), competitive advantage and value chain (Porter 1985) and implementation strategies (Kaplan&Norton 2003, 2007). Later on, fast (agile) strategy and ma-
141
trix type organizations have gained extra emphasis (Doz&Kosonen 2008). Performance measurement (PM) can be defined as the process of quantifying effectiveness
and efficiency of actions (Neely et al., 1995). It can be used to provide information
about the status and development of business and as a tool for guiding employees’
work and learning about operations (Gotcheva et al. in Niittymäki et al. 2009).
Performance measurement in companies and business networks
Performance Measurement (PM) of a company and business networks has been
examined. The conclusions are that network-level measurement is still in development stage (Figure 6.1.2).
Figure 6.1.2. The development trends in performance measurement (Kulmala and
Lönnqvist, 2006).
Network level performance methods have been introduced (e.g. Varamäki et
al 2006). Also Leseure et al (2001) propose that performance can be measured at
the level of organizational networks. These claim that benefits should be identified
or fairly distributed for a network to perform effectively. These approaches are not
actively used, as this issue is not obviously a short-term benefit of a hub-company
involved.
Introduction to performance measurement in a company and business network is presented in Figure 6.1.3, Figure 6.1.4, Figure 6.1.5 and Figure 6.1.6.
142
Structure of the Stroi project based on BSC thinking
Business Sector
Vision of Business Network
Customer
Internal
processes
Finance
Learning and growth
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Figure 6.1.3. Network scorecard approach (Gotcheva 2009).
3) The networked scorecard approach
(Järvenpää, 2009) Financial indicators (growth, profitability, network value)
Customer perspective
Network culture (trust, community, interaction)
Network resources (e.g., know‐how, relationships)
Network processes
(Efficiency, flexibility, productivity, innovation, learning, etc.) 27.11.2009
Network’s operating models
(control)
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Figure 6.1.4. The main aspects of network performance measurement (Gotcheva
2009).
143
The main aspects of network performance measurement
(Sivadasan et al., 2002; Westphal et al., 2004)
Reliability of the partners
Measuring information and knowledge sharing, decision synchronization and incentive alignment among members of the network
Measuring whether materials, information or resources are delivered in the agreed cost, quantity, quality and time. There are also trust‐related aspects of reliability, such as keeping information confidential when agreed, and no advantage is taken of the partners’ problems.
Flexibility or the ability to respond adequately to a changing environment Identifying the ability of Commitment to the network network members to absorb problems of other partners, and coping with them
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Figure 6.1.5. Structure of STROI Network project based in BSC thinking and 6 perspectives (Gotcheva 2009).
From Balanced Score Card (BSC) to Network Score Card (NSC)
Business Sector
In Finland: purchasing department
Russia: gifts and services
BSC
Vision of Business Network
Customer
NSC
Finance
Network
Culture
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Networks operating
Learning and
models
growth
In Finland: competition
Russia: relationships
Network
Internal processes
processes
Network Resources
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Figure 6.1.6. Towards network performance measurement (Gotcheva 2009).
144
13
Managing human resources across cultures and networks
Finns and Russians have been compared according to Hofstede’s model by Hofstede
and also by Russian researchers (Figure 6.1.7 ). In Finland power distance between
boss and worker seems to be much smaller than in Russia, in Finland individualisms
are somewhat higher than in Russia. However, there are also different results in
Russia, see the white arrows; masculinity and avoiding uncertainty are higher in
Russia.
Cultural differences Finland – Russia
(Sources: www.geert‐hofstede.com an d Russian researchers
Yu&N. Latov (2003) and A.Nautov (1996) are presented with white arrows according to Filinov et al 2009)
PDI, Power Distance
IDV, Individualism
MAS, Masculinity
UAI, Uncertainity Avoidance
LTO , Long Term Orientation N/A
White Arrows: Results
given by Russian
researchers-
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Figure 6.1.7. PDI (Power distance), Individualism (IDV), Masculinity (MAS) and
Avoiding uncertainty (UAI) in Finland and in Russia. Different results given by
Yu&N. Latov (2003) and A.Nautov (1996) are presented with vertical white arrows.
(Filinov et al 2009).
Social networks in Russia have been described by A-M Salmi (2006). Social
networks in Russia used to be very important as Russian work collective used to
give workers and their families kindergarten places, health care, cultural events,
sporting and leisure time activities and even housing. State and municipal social
security has been a target area for development since 1995, but there is still room
for improvements from companies.
Business networks and interfirm co-operative behaviour has also been studied in Finland in recent years. Three main theories for explaining phenomenon have
been presented: Transaction Cost Theory, the theory of Resource Based View and
the theory of Social Capital (Vuorinen, T. 2009). Also, decision-making style (Filinov
2003) and attitude towards the learning organization (Senge et al. 2005) affect the
interfirm co-operative behaviour in construction business and projects. In the construction project business the present financial situation has to also be considered.
145
RESEARCH PROJECT
Project description and objectives
The first strategic research question is what are the main features of management
and leadership models and performance measurement indicators (PMI) used at present in Finland in construction project business, and secondly show how these
models and general approach and should be adjusted for Russian business environment.
Research methodology
Traditionally the Russian approach is quantitative and lately the Finnish approach
tends to be qualitative. We have selected the constructive approach (Kasanen et al
1991). Based on this methodology, our approach in this project has eight phases:
1) Building up theoretical models, 2) Observation in companies, 3) Academic piloting, 4) Piloting with adult students, 5) Piloting with companies, 6) Development and
tailoring of models, 7) Dissemination of results, and 8) Market test of achieved
models.
With a constructive research approach we are combining the qualitative and
quantitative methods with business practices and use triangulation (described below) as a common approach in three phases (
Figure 6.1.8). Triangulation (introduced by Denzin 1970, 1978) may be achieved in
four different forms:
1. Multi-method, as qualitative and quantitative methods are used.
2. Multi-investigator, as there are researchers in STROI Network
project
3. Multiple data sets, as there are 10 different data sets.
4. Also, multiple theory triangulations are possible due to the numerous theories in place in different business organizations in
Finland and Russia.
146
Different Approaches of Research in STROI Network Project
1. Finnish
researchers`
approach
Qualitative
Constructive
Approach
Business
Practices
3. Joint
approach:
Triangulation
Constructive
Approach
Quantitative
2. Russian
researchers`
approach
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Figure 6.1.8. Combined approach for the STROI Network research project.
Triangulation is still going on. The aim is to combine at least two different
approaches in order to achieve multi-method, multi-investigator, multiple data set
or multiple theory triangulation in all perspectives of the research project. Any sort
of triangulation will give extra reliability for the results, but it will also need more
effort from the researchers and companies involved. Companies will get more relevant and reliable information for their future use and decision-making. So far, 181
interviews and surveys answers have been received and analysed. For the learning
organization, in total 57 answers for questionnaires were received from Finland
(20) and Russia (37). For performance measurement questionnaires 16 answers
was received; seven for the Webropol questionnaires and nine for interviews; all
from Finnish companies.
RESEARCH RESULTS AND INDUSTRIAL IMPACT
Planning and implementation of strategy and performance measurement
Planning strategy in project base business depends on various perspectives considered and expectations about their future development (Figure 6.1.9). The most
important perspectives are selection of business sector and country, successful vision for a company and business network, managing human resources within companies and business network, internal development and learning within network,
keeping up customer orientation and also setting measurable targets within companies and business networks. Implementation of strategy will be possible, if targets
are set and agreed upon in a way, that everybody will understand their objectives
and responsibilities within project business.
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A Model for Planning and Implementing Strategy in Project Business
P1:
Business
Sector
P6:
Finance
P5:
Customer
orientation
P2:
Network
Vision
P4:
Internal
development
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P3: Human
Resources
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Figure 6.1.9. A model for Strategic Planning and Strategy Implementation in Networked Companies and SBUs (Strategic Business Units). Strategic business units
may consist of different building projects.
Multinational companies (MNC) in construction have developed their strategy
implementation and performance measurement successfully, as many of these have
rewarded their owners with excellent dividends and many of these companies belong to favourite employers among young graduates. Actually, these companies are
working like huge networks as from 50-70% of their turnover consist of purchases
from other companies or industry sectors. The model described below has been
derived from practices of several MNCs also working in Russia (Figure 6.1.10). The
model is a base to develop performance measurement indicators (PMI) and strategy implementation tools for companies working in construction project business.
Suppliers and subcontractors view are taken into account in dimensions 6, 7, 8 and
9.
148
Common Dimensions of Performance Measurement
Performance Measurement Indicators (PMI) for Strategy Implementation P6: Finance
Previous year %
This year %
Next year %
P1: Business sector
P2: NW Vision
1. Target amount of production
24. Annual growth of turnover 2. Market share target, achieved in %
100
23. Performance/capa city of network
90
3. Average price/margin cost
80
22. ROCE‐achievement‐%, target 35%
(EBT+interest/(Bala nce‐ non ‐in t. bear.)
4. Development of sales prices/unit
70
60
21. EBT‐achievement‐%, target e.g. 6% (EBT=profit/turn ove rx100 %)
5. Number of new customers
50
40
20. Percentage of CRM use in all projects
30
6. Share of deliveries in time
20
10
19. Share of key customers in turnover, ideal 80% 7. Successful deliveries in (%)
0
P5: Customer
18. Recognition among B2B potential clients on area
8. Average time of delivery dev.
17. Customer satisfaction B2B
(actual/target index)
9. Network meetings (impl./target, %)
16. Productivity trend e.g.
EBT/employee/year, target 20 000 €
10. Kept 95% (Staff turnover < 5%)
15. Accident trend (actual/targe t, %)
11. Skill profiles, training agreed...
14. Integrated purchases/all purch. (%)
12. Targets set in appraisals.
13. Successor plan key persons
P4: Development
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P3: Human resources
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Figure 6.1.10. Performance Measurement Indicators (PMI) of a Business Networked
Company or Strategic Business Unit (SBU) for Strategy Implementation. Description has been derived by combining dimensions used in Finnish companies (Niittymäki et al 2009). The Model is available on web-site http://www.hamk.fi/stroi.
If companies are managing their own activities with this kind of approach,
their behaviour will be predictable toward subcontractors and suppliers. Dimension
6, Share of deliveries in time, 7 Successful deliveries, 8 Average time of delivery,
and 9 Network meetings implemented” are important for subcontractors or suppliers. Information about market situation during network or individual supplier meetings is crucial for survival of suppliers in changing situations.
The models described above (Figure 6.1.10) are being used in Finland, however many companies are still measuring only financial targets such as profit or
EBIT (earnings before interest and tax) and return on capital employed (ROCE).
Recession time may bring financial aspect even more important as finance is the
scare resource.
According to Popov (2009) Russian consults and experts (Ambramova,
Amidi, Andreeva, Kristiapova, Visnyakov) specializing on BSC implementation
claim, that Balanced Scorecard (BSC) type performance measurement (PM) system
can be used to monitor any business or firm department, if a company has developed a clear strategy. Strategic uncertainty, lack of trust and hostility in knowledge
sharing still remain typical trait of Russian firms and general environment. Often
the BSC perspectives should be redesigned to suit Russian business environment
and specially to take account of political embeddedness, which is especially strong
in Russian construction sector.
149
Managing human resources across cultures and networks
Managing human resources in Finland and in Russia has some common features,
but many issues are different for various reasons. Russian researchers (E.g. Sheksnia 2003) have taken up the following issues based on the Hofstede approach:

Very often employees agree to inequality of power distribution in organization;

Typically Russian companies are strong and hierarchical with a power
concentration in the hands of top management;

Generally employees strongly depend on the leader’s will;

There are communicative barriers between the departments of organization;

Personnel loyalty and commitment are highly evaluated;

Bureaucratization and formalization are regarded as the ways of protecting employees from the chief will;

There is unclear decision-making process.
Interviews of Finnish and Russian company representatives have brought up
the following issues (Minina, Krupskaja, Dmitrienko, in Niittymäki et al (2009), 16):
Differences in national cultures influence the development of the Finnish
HRM practices in Russia. There are two ways of work: either focus and copy Russian practices or, what is more preferable, develop standard corporate HRM practices in Russia with some improvements.
In Finland there is a very important leadership practice called development
discussions (appraisals), which are carried out in Finland in almost all organizations
annually. There are some challenges to implement this practice in Russia. Additionally, most of the Finnish companies have a bonus system leading to a bonus 10–20
% out of annual salary, proving that agreed targets are met. Clear targets are set
in development discussions and bonus is paid only in case targets are met. Targets
are set in order to achieve strategic objectives of the company.
In Finland the most important features for employees, who work in an international company, include social and communicative skills and competences concerning self-determination and goal setting. In this case by social skills respondents
mean understanding people, openness and easy-going. For communicative skills,
the crucial points are language and presentation skills.
The most important features for key employees are not only social and
communicative skills, self-determination but also high level of mobility. Key employees should not be afraid of taking more responsibilities. Key employees have
very different criteria: In one company, key employees are identified as highpotential employees, in another – as high-performer. In the third company the Hay
system is implemented and the key employees have the highest grades. For one
company key employees are described by special features at any level of organization. The practice of financial evaluation of key employees input is not developed,
but there is a usual practice of evaluation of satisfaction, expectations, challenges
and etc.
Another difference is about decision–making concerns, the time and procedures of discussing and deciding. For the Finnish companies this is a long, thorough
process with detailed discussion. For the Russian managers it is more common to
have short discussion and to make decisions as soon as possible.
The great problem for Russian-Finnish companies is the different meaning of
discipline. In Finland it is inadmissible to use work-time for private business. For
Russians that is not wrong to use the job Internet for private mailing or to call
150
home during work-time. Another discipline aspect is the habit to be on time – for
Finns it is the norm not be late, not to miss every schedule item during project. For
the Russian employees, it more important and more convenient to follow deadlines
than intermediate terms.
There are differences in adaptation processes in Russia and Finland. In many
Russian companies, there is no special procedure for adaptation of new employees.
A person can be introduced to colleagues and then start doing his/her tasks. In
Finland that is more usual to have one or two supervisors who guide and control a
new person.
The main recommendation on how to improve HRM has come from the respondent who suggests “that one solution of the problem [differences between Russians and Finns] is that Finns can go and work for one year in Russia, and Russians
can do the same in Finland. That could help us to understand each other better and
can improve performance and working together”. That means that the deepest understanding of another culture and managerial practices can be achieved through
diving to the local company. But even for this diving, some preliminary recommendations can be useful – they concern motivation, increasing the level of communication and tolerance.
A high level of avoidance of uncertainty, (UAI) means (see Figure 6.1.7) that
in both countries employees have needs in rules and instructions. Thus there is a
favourable outlook for implementation of all types of formalization, such as performance measurement and profiling tools (Filinov et al. 2009). Also features of the
Russian culture preclude that a Russian employee’s focus on career rather than
quality of life to a greater degree than their Finnish counterparts. In Russia higher
levels of remuneration and bonuses are more important than in Finland. This was
also found out in a survey carried out in a Finnish company working in Russia and
in Finland in construction and project business.
Behaviour between companies and business networks
This chapter is based on the recent articles, author’s interviews and also on authors
experience within international projects in Russia and other countries.
According to the logic of Transaction Cost Theory the goal of the company is
to organize and the governance of business operations in a way that minimizes the
sum of production costs and governance (Vuorinen,T. 2009, 319). In the Resource
Based View, the company tries to maximize its value by combining and utilizing
valuable recourses. Networking helps to enlarge the company resource base with
other companies` resources (Vuorinen, T., 320). In networked companies benefits
in Social Capital can be dived into two parts:
 Social Capital increases the efficiency of action as information diffusion is
more effective and trust among networked companies replaces costly monitoring.

Social Capital is an aid for adaptive efficiency, creativity and learning. It encourages cooperative behavior, which helps organizations to act innovatively.
The theories discussed play a different role in the different phases of cooperation and they have different meanings and importance for supplier (spoke)
and purchaser (hub) parties. From the supplier (spoke) company point of view, the
construction of a network dyad could be defined mostly as a strategic choice made
in socially embedded business environment. From spoke company viewpoint, the
construction of an organizational dyad appears more as action done the basis of
opportunities provided by the social context. From the supplier’s point of view, cooperation typically starts with the aid of social capital, and means of development
151
of relationship are also strongly based on social capital. The resource-based logic is
also considered along with social issues. Transaction cost and economic issues have
only a modest role compared to those of social capital issues.
From leader company’s (hub) point of view, all theories have their own
roles. The hub-company objectives are firmly based on reducing transaction costs
as well as on focusing on augmenting the resource base. At the same time, all decisions are made in a social context, where familiarity plays a most critical role. The
three different theories appear as an inseparable combination.
According to the author’s own experience (more than 25 years in international construction and project business) as well as remarks made by several interviewees confirm observations above. Comments like “subcontractors are selected
only among known companies”, even “black list was used” are quite common. On
the other hand, the Chinese phrase “we will do business between friends” gives a
time perspective for these findings. The well-known Chinese term “guanxi” meaning
usually long-term reliable relationship also on a personal level shows, that social
capital in relationships has long and plural value roots in the history. There is also a
possibility to learn from the Chinese culture and prefer Guanxi to money rewards to
a certain extent (Stawicki et al 2009, 23).
Uniqueness of the Russian market is described below (Figure 6.1.11). Different motivation, traditions, leadership styles, lack of team building tradition and extensive informal networks are typical features.
Uniqueness of the Russian Market (Basic comments by prof. Alex Settles, HSE Moscow (in brief Ase) additional comments by author and other expert mentioned.
•
Different motivations (ASe)
•
Differing traditions in management both Soviet and post‐Soviet (ASe)
– Company Rautaruukki: Bonus motivates more in Russia – Prof. Olga Tretyak: Power shrinks, when costs are saved ...no tradition in cost saving
•
Russian tradition of authoritative leadership equaling “effective” leadership (ASe)
– Naulapää (2000) and company NCC`s experience
•
Lack of team building tradition – hampers network formation
– Konecranes interview, “why they don`t ask neighboring room instead of calling Finland”
•
Extensive informal networks
– positive and negative aspects for firm
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Figure 6.1.11. Uniqueness of the Russian market (Settles et al 2009).
At this moment the financial situation in Finland and especially in Russia is
very difficult. Therefore companies and their staff just try to survive to the next
reporting period and all development activities seem to be very difficult. On the
basis of research results and earlier experience it is possible to illustrate development and learning needs for both Finnish and Russian managers by applying
152
Blake&Mouton (1962) managerial grid for business networked companies (Figure
6.1.12). Finnish managers should appreciate more relationships; Russian managers
should be more aware on managerial issues described performance measurement
profile (Figure 6.1.10, Figure 6.1.14 and Figure 6.1.15).
Story related: during Implementation of the STROI Network it did become
obvious at a very late state, that Russian researchers did not agree to use Figure
6.1.12 to express differences between two cultures without a proper survey. It is
true, that a drawing expresses an author’s own experience and some discussions
during interviews without doing a proper quantitative survey. However, when thinking about the reason for the late reaction “how come a young Russian researcher
would dare to comment on your presentation…”, the drawing may have some useful
information when thinking over leadership style in Russia.
Source for basic model: http://www.leadership‐and‐motivation‐training.com/blake‐and‐mouton.html (Nov 19, 2009)
Country club,
relations
most
important
Network leader
Russian
LEADERSHIP OF NETWORKS: CONCERN FOR PEOPLE Management and Leadership styles in Finnish‐Russian Business Networks according to authors experience and interviews (Expressed as an application of Blake& Mouton ‐model)
Needed
direction of
development
Middle of the Road (Politician)
Finns
No efforts to people
No efforts to tasks
Authoritarian style; money talks
MANAGEMENT OF NETWORKS: CONCERN FOR TASK
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Figure 6.1.12. Development needs of management and leadership in Finnish Russian business networks (Illustrative application of Blake & Mounton model for business networks).
Decision making and the learning organization concept
Filinov stated (2009), that usually Finnish companies operating in Russia are attempting to replicate their knowledge management systems and employee feedback programs. In Russian business culture top-management direction is crucial for
all decisions including creating a learning organization. Sometimes companies do
not realise that Russian managers and organizations are culturally and historically
unfriendly to the conditions needed to develop a learning organization:
o Initiative is unappreciated
o Formalization is a key Russian value
o Managers expect workers to conform to their direction.
153
Importance of informal networks may be ignored and therefore Russian
managers in a foreign owned subsidiary are at times unsure of their role and therefore return to default Russian management practice. Expectations of Western Managers are the same for Finnish and Russian managers, but local subordinates and
partners expect Russian style behaviour. Also there are differences in meaning of
terms and concepts – e. g. Russia definition of learning as a formal process with
results i.e. diploma as opposed to continuous process.
Concerning current financial crisis and business networks Olga Tretyak (in
Niittymäki et al. 2009, 21) states that the market situation in the Russian construction market has changed significantly. Many projects were stopped, workers fired,
prices and costs went down, as customers withdrew from buying and banks from
lending money. When a crisis appears, value chains become leaner and are under
threat of dissolution, if partners like suppliers or distributors get out of business.
Those who survive demonstrate high levels of flexibility and coordination: e.g., in
the Russia of the 1990s firms introduced barter exchange, trade platforms and mutual debt repayments so as to keep going together. What’s more, they were more
capable in finding new market segments and adapting to the needs of alternative
customers.
Implementation of performance measurement and exploitation
In Finland there are construction companies and metal industries, which apply performance measurement indicators (PMI) described above. The possibility to compare different years and strategic business units consisting of different projects has
aroused interest in companies. Some companies are developing their monitoring
systems in order to collect the data accordingly. Some companies are working on
building a common vision with their network partners or have at least common
meetings in order to find out bottle necks in production or in activities, but this is
still not very common. Small and medium size companies working on construction
projects are waiting for long term business relationships and are also willing to
show their commitment in case unexpected things occur in projects. In Russia
planning strategy and setting targets is much more difficult due to even more dramatic change in the business environment. In principle management, tools and
clear targets are appreciated, but commitment is very difficult as the situation may
change rapidly. Rapid change and fast strategy will need multidimensional organization (Doz and Kosonen 2008, 237), which is practically matrix type organization.
Using PMI-type approach would require also this type organization in order to collect and arrange all necessary information for decision making.
Finnish construction companies have arranged management of processes
like production, marketing, finance, research and development (R&D) as well as
management of human resources with matrix type organization. In this organization type all local managers in Finland and Russia are supposed to report directly to
head quarters in Finland. This is against Russian tradition and business culture as in
Russia the main director has the power and responsibility given even by Russian
law. In order to beat this problem, Finnish companies should allocated enough resources for main director so, that plans and reports may be prepared under his supervision. Also local innovations might be gained. Experience in many companies
has shown, that when the main director is not satisfied with his/her situation or the
staff are not satisfied the turnover of staff will rise to an intolerable level at least
during an economic boom.
In construction project business projects managers and engineers are often
concentrating only on the current project. This may jeopardise a company’s future
success as co-operation partners will be needed also in the future. Project managers should see themselves as a part of the future success of a company and business network and they should evaluate themselves according to strategic objectives
154
of company and business network. STROI-project has developed a tool for planning, implementation of company strategy and also to monitor company performance. Individual project objectives may be derived from company objectives.
Performance measurement indicators should point towards targets of the vision of the network in order to implement the change as soon as possible. Most
important indicators used in Finland are described in Figure 6.1.13 and Figure
6.1.14. By selecting 6 to 14 performance measurement indicators (PMI) as a base
for strategy implementation companies and business networks may reach their targets sooner, as the whole staff will understand their common goals clearly.
Most important factors to be measured according to interviews and survey
Survey
Interview
Business sector and customer …
29. Knowledge sharing 1. Market share
5
28. Common development
2. Compnany reputation
27. Streamlining activities
3. Customer satisfaction
4,5
Commitment to NW
26. NW Risk sharing
25. Common NW development
Flexibility
4. Market share of network
4
3,5
5. Innovations from customers
3
Human resource management
2,5
2
6. Staff turnover
1,5
24. Confidence, trust
7. Staff skil level 1
0,5
23. Number of reclamations
8. Development and appraisals
0
22. Punctuality in delivery times
9. Work satisfaction
Reliability:
10. Ability to form networks Network (NW)
Development
21. Liquidity
11. Procurement system 20. Profit of a product, %
12. Trend of work accicents
19. Order book change
18. Growht of turnover(%)
17. Profit out of turnover, %
16. Return on Capital …
13. Trend of productivity
14. Innovations
15. Dividing benefits of …
Finance
Six most important factors for each perspective
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Figure 6.1.13. The most important 6 factors (PMI, Performance Measuring Indicators) to be measured within project-oriented business networks. In this figure the
importance of measuring innovations is underestimated, as a tradition to measure
innovation does not exist. At least one performance measurement indicator (PMI)
should be selected for the following perspectives: Business sector and Customer,
Human Resources, Development, Finance and as well Network confidence and
Flexibility.
155
Most important factors to be measured according to interviews and survey
Survey
Interview
Business sector and customer …
29. Knowledge sharing 1. Market share
5
28. Common development
2. Compnany reputation
27. Streamlining activities
3. Customer satisfaction
4.5
Commitment to NW
26. NW Risk sharing
25. Common NW development
Flexibility
4. Market share of network
4
3.5
5. Innovations from customers
3
Human resource management
2.5
2
6. Staff turnover
1.5
24. Confidence, trust
7. Staff skil level 1
0.5
23. Number of reclamations
8. Development and appraisals
0
22. Punctuality in delivery times
9. Work satisfaction
Reliability:
10. Ability to form networks Network (NW)
Development
21. Liquidity
11. Procurement system 20. Profit of a product, %
12. Trend of work accicents
19. Order book change
18. Growht of turnover(%)
17. Profit out of turnover, %
16. Return on Capital …
13. Trend of productivity
14. Innovations
15. Dividing benefits of …
Finance
14 most important factors to be measured
27.11.2009
P6:Performance measurement, Stroi Network, Seppo Niittymäki
17
Figure 6.1.14. Most important 14 factors (PMI, Performance Measuring Indicators)
to be measured within project oriented business networks on the basis of average
values of answers. In this figure the importance of measuring innovations is underestimated, as a tradition to measure innovation does not exist.
Reliability of the results has been verified by using triangulation of research
methods. Webropol survey consisted of 24 questions and it was addressed to the
Management group of STROI Network project. Seven completed answers were received. Average values of results are indicated in Figure 6.1.13, Figure 6.1.14 and
Figure 6.1.15 with red line or column. After the first cycle questions were modified
according to the answers, the second cycle was carried out as an interview for different companies or persons in companies.
The average value of answers is indicated by a blue line or columns in Figure
6.1.13, Figure 6.1.14 and Figure 6.1.15. Differences in results are indicated with a
red circle shape in Figure 6.1.15. Similarities of results are indicated with a green
circle shape. On the basis of triangulation of by using multiple data sets the most
important factors to be measured within business networks are listed below. These
factors are divided according to perspectives P1-P6. Factors mentioned should have
target values for present year and for next two years.
P1: Business Sector,
1 company reputation
P2: Network Aspects
2 punctuality of delivery times
3 number of reclamations
4 confidence within network
5 common development and
6 streamlining activities
P3: Human Resources
156
7 staff turnover
8 work satisfaction
P4: Internal Development
9 trend of productivity
P5 Customer Orientation
10 growth of turnover and
11 order book change
12 profit of a product
P6: Finance
13 return on capital employed
14 profit
Business sector and customer orientation
1. Market share
2. Compnany reputation
3. Customer satisfaction
4. Market share of network
5. Innovations from customers
Human resource management
6. Staff turnover
7. Staff skil level 8. Development and appraisals
9. Work satisfaction
10. Ability to form networks Development
11. Procurement system 12. Trend of work accicents
13. Trend of productivity
14. Innovations
15. Dividing benefits of innovations
Finance
16. Return on Capital Employed, %
17. Profit out of turnover, %
18. Growht of turnover(%)
19. Order book change
20. Profit of a product, %
21. Liquidity
Network (NW)
Reliability:
22. Punctuality in delivery times
23. Number of reclamations
24. Confidence, trust
Flexibility
25. Common NW development
26. NW Risk sharing
Commitment to NW
27. Streamlining activities
28. Common development
29. Knowledge sharing 15.12.2009
Most important
factors to be
measured.
Reliability according to
method triangulation
with two different
methods:
Red circle: difference
more than 20%.
Green circle: difference
on results less than
20%.
Web-robol
Interview
0
1
P6:Performance measurement, Stroi 2Network, Seppo Niittymäki
3
4
5
6
Figure 6.1.15. Reliability of the results is evaluated by using triangulation of different methods. Triangulation brings up growth of turnover and order book change as
a target for performance measurement.
CONCLUSIONS
This research has shown that the presented approach for planning, implementation
of strategy can be applied in Finland and in Russia in construction project business.
Measuring performance of business network is as important as company traditional
company performance measurement. Most important performance measurement
targets will be presented below. Also scenarios of outside development like PESTE
(Political, Economical, Sociological, Technological and Environmental) and demand
factors should be documented in order to be ready to react in case conditions as-
157
18
sumed will change. In this way companies and business networks will gain agile
strategy for their planning activities. The process of setting targets will give room
for different views and a possibility to avoid fatal mistakes in strategic management.
Recent research (Suominen 2009) indicates that the art and practice of
managers’ everyday strategy usage is creative: some managers use it in order to
promote their own aims; others play with strategy while talking. This shows that
there is room for rethinking strategic management and setting goals for companies
and business networks.
The most important factors to be measured within business networks are
the following factors, which should have target values for present and the next two
years:
1 company reputation
2 punctuality of delivery times
3 number of reclamations
4 confidence within network
5 common development and
6 streamlining activities
7 staff turnover
8 work satisfaction
9 trend of productivity
10 growth of turnover and
11 order book change
12 profit of a product
13 return on capital employed
14 profit.
However, the way of application in Finland and Russia should be different. In
Russia the position of main director is different compared to Finland. For the Russian main director there should be adequate resources in order to carry out all duties towards Russian authorities and Finnish headquarters. The implementation of
applied management systems will imply remarkable training efforts for Finnish and
Russian staff members.
Improving staff innovation ability and initiatives will be challenging in Russia, as this is has not all appreciated within companies earlier. Start point for adopting learning organization concept could be development discussions (appraisals).
During appraisals development and learning targets as well as possible bonuses
should be agreed upon.
ACKNOWLEDGEMENT
The author gratefully acknowledges the financial support of TEKES and a number of
Finnish private companies, which have given new research directions for the building sector. Additionally author acknowledges co-operation partners Tampere University of Technology, VTT Technical Research Centre of Finland, Graduate School
of Management (St Petersburg) and Higher School of Economics (Moscow).
REFERENCES
Ansoff, H.I., (1979) Strategic Management. Classic edition. Palgrave Macmillan
(2007).
Blake, R.,R., Mouton, J-S., (1964) The managerial grid. Houston Texas. Gulf Publishing-
158
Denzin, N.K. (1970), The Resech Act in Sociology. Chicago:Aldine.
Denzin, N.K. (1978), Sociological Methods: A Sourcebook: NY: McGrawHill
Doz, Y., Kosonen, M. (2008) Fast strategy. How strategic agility will help you stay
ahead of the game. Wharton School Publishing.
Filinov, N. (2009), Presentation during STROI Management Group Meeting at
Hämeenlinna on 12.2. 2009.
Gotheva, N. (2009), Presentation at internal STROI Seminar at Tampere on April
21.
Hofstede, G. http://www.geert-hofstede.com (Accessed 26 January 2007)
Kaplan, R., S., Norton D.P., (2007) Strategian toteutus. Talentum.
Kaplan, R., S., Norton, D.P. (2003) Strategy Maps. Converting Intangible Assets
Into Tangible Outcomes. Harvard Business School Press.
Kasanen, E., Lukka, K., Siitonen, A. (1991) Konstruktiivinen tutkimusote liiketaloustieteessä. Liiketalouden Aikakauskirja 3, pp. 301–327.
Kähkönen, K. (2009), Enabling Business With Projects. Project Perspectives. The
annual publication of International Project Management Association. Vol.
XXXI.
Niittymäki, S., Tenhunen, L., Weck, M., Lönnqvist, A., Tolonen, T., Gotcheva, N.,
Kähkönen, K., Nippala, E., Perälä, A-L., Riihimäki, M., Nysten-Haarala, S.,
Minina, V., Dmitrieko, E., Krupskaja, A, Filinonov, N., Tretyak, O., Settles,
A., Buzulukova, E., Popov, N., Rozkov, A. Vladimirova, N. (2009). STROINETWORK – BUSINESS NETWORKS IN RUSSIA. INTEMEDIATE REPORT
2008. HAMK University of Applied Sciences. Hameenlinna. Finland.
www.hamk.fi/stroi.
Naulapää, P. (2000), The adjustment to market economy of industrial enterprises in
the transition process in Russia. Helsinki University of Technology.
Popov, N. (2009), Performance measurement in Russian construction sector.
www.hamk.fi/stroi.
Porter, M.E. (1985), Competitive Advantage, Creating and Sustaining Superior Performance. The Free Press. New York, N.Y. 10022.
Salmi, A-M (2006) Social Networks and Everyday Practices in Russia. Gummerus
Printing.
Senge, P., Roberts, C., Boss, R., Schmith, B., Kleiner, A. (2005), The Fifth Dicipline
Fieldbook. Strategies and Tools for a Learning Organization. Nicholas Brealey
Publishing. London.
Suominen, K (2009), Consuming strategy: The art and practice of managers `everyday strategy usage. Helsinki University ofTechnology.
Stawski, J., Rongui, D., Ziegglmeier, O. (2009), What Western Management can
learn from Chinese Culture, Philosophy and Management Approach.
Vuorinen, T. (2009), Explaining interfirm cooperative behavior: three different
theories in the Finnish metal industry. Int. J. Network and Virtual Organisations. Vol. 6, No.3, 2009.
159
7.
7.1
INTERVIEWS
QUESTIONS AND REPORTING TEMPLATE
All interviews need to be recorded and carried out in the mother tongue of the person interviewed. In case this is not possible, the English language should be used.
A memorandum (later on memo) should be worked out by the interviewer immediately after the interview and, if necessary, the memo should be checked by both
parties of the interview. The memo should then be translated into English (US).
Memos will be copied to NVivo 7 as MEMOs.
Part 1:
General Information and Background Questions, P1–P2
The interviewer should become acquainted with the company before the interview.
General information should be filled into a form before the interview and only
checked with the interviewee (P1, P2).
All memos covering the interviews should include the following general information
__________________________________________________________________
____
9. Network related to CASE nr 1-16, please circle HUB-company: 1. Lassila&Tikanoja Oyj (L&T), 2. KPM-Engineering Oy (KPM), 3. NCC Oyj (NCC), 4.
Stora Enso Oyj/Puumerkki Oy (PM) 5. CRAMO Oyj, 6. Forssan Metallityöt Oy
(FM), 7. FiCoTe Oy, 8. Rautaruukki Oyj (Ruukki), (9. Kone Oyj, 10. Lemcon
Oyj) 11. GTT Oy, 12. KoneCranes Heavy Lifting Oy (Konecranes), 13. PeabSeicon Oy, 14. Kehittämiskeskus Oy Häme, (15. YIT Oyj), 16. Huhtamäki Oyj,
17. Finndomo 18. , Metsäliitto 19.________________.
Please mention the website of the unit:
www.________________________________________________
10. Time of interview (e.g. June 18, 2008 from 18.00 to 19:05)
__________________________________
11. Place of interview (e.g. St. Petersburg, GSOM 3, Volkhovskiy per.)
___________________________
12. Persons present (e.g. Interviewer: Nikita Popov, SU HSE; Pekka Entelä NCC)
________________
13. Position and tasks of the person to be interviewed (e.g. Director of NCC, Russian operations, finding out new projects in Russia, managing design work etc.)
________________________________________
14. Personal features of the person interviewed: work experience in years, experience within the present company, work experience related to Russia.
______________________________________________
15. Main perspective(s) of the interview:
Yes
No
P 1: Business sector, total demand forecasting
__
__
P 2: Vision building for business network
__
__
P 3: Competence of human resource (HRM)
__
__
P 4: Internal development, growth and strategic management
__
__
P 5: Customer orientation, marketing and risk management __
__
P 6: Measuring company and network performance
__
__
160
P 1: Business Sector for a Networked Company (Anna-Leena Perälä,
Markku Riihimäki and Eero Nippala, VTT/TAMK)
1.1 Company business in Russia (overall):
a. What was the whole turnover of the company and the turnover in
Russian markets in 2007 (RUB/EUR)?
b. What was the average growth of business in over the last years?
c. What was the size of the staff in the whole company and the staff
in Russia in 2007 (persons)?
d. Describe your company group structure.
e. What are your company's main business targets for business in
Russia?
P 2:
Vision of Business Network (Kalle Kähkönen, Anna-Leena Perälä and
Markku Riihimäki VTT)
2.1 Information about company’s business network in Russia:
a.
b.
c.
d.
e.
f.
Part 2:
What is your company's and network’s main product or service
for business in Russia (End product: building, wooden houses or
products, service business)? Other, what?
What is your company's role in that business network?
Describe the main parties of the network. (Customers, contracts,
field of production,..)
Who are clients of the network, who will buy the end products or
services?
Which are the market regions of the network in question?
What are the main business targets of the business network in
Russia? Are there any common targets?
Research Questions (action research type questions), P3–P6
The interviewer will ask those questions which consider the interviewee’s position or
knowledge area.
__________________________________________________________________
P 3:
Competence of Human Resource (Professor Vera Minina, Anastasia
Krups
kaja, Elena Dmitrienko, GSOM and Seppo Niittymaki, HAMK)
3.1 Principles of development relationships in the network
a. Who is responsible for making arrangements in the network
and maintaining relationships with network partners?
b. What are the main personal characteristics for the employees
who deal with network partners?
c. How does the company choose new partners?
d. What kind of problems does your company face dealing with
network partners?
3.2 Differences in recruitment principles
a. How does your company search for candidates?
b. What is the procedure for the selection of candidates?
c. Does the company form personnel reserves? What is the way
of the forming this reserve?
161
d. What are the main difficulties in finding good employees in
your field of business?
3.3 Differences in motivation management in Russia and Finland
a. What is the way of choosing the motivators in the company?
b. What methods of motivation are used in the company?
c. Do you use development discussions (appraisals) and how often? What kinds of things are agreed upon in the development
discussions?
d. Who is responsible for decisions about applying the particular
motivators?
e. How does the company detect the effectiveness of motivation
actions?
3.4 Differences in personnel training
a. Does the company provide any educational programs for the
personnel?
a. Who is responsible for the planning of personnel training - who
makes the decision about the necessity of this kind of planning? Who confirms the plan? Who controls the plan fulfillment?
b. What kind of training do your personnel have?
c. Does the company pay for personnel education?
3.5 Differences in personnel development management
a. What kind of adaptation principles do you use in your company?
b. What is the usual way for career development in the company?
c. Who takes the lead in the promotion of an employee in the
company?
d. Do the assessment and certification take place in the company?
e. What are the principles of these procedures and what is the
output of them?
3.6 Definition of the key employees in the company
a. Please, define the key employees who give your company
competitive advantage.
b. What kind of competence and skills should the key employees
have (theoretically)?
c. What are the problems and limitations while managing key
employees?
P 4:
Internal Development of Networked Company
4.1 Learning Organization (Professor Alex Settles, HSE)
4.1.1 We would like to understand the working environment within your
unit (company).
a. Do your employees feel comfortable approaching their managers with their concerns, problems or disagreements?
b. Is there a formal process for managing this process of interaction between employees and management?
c. Are people in this unit eager to share information about what
doesn't work as well as to share information about what does
work?
4.1.2 In terms of capturing best the practices or knowledge and experience created by your employees, do you feel that your company
does an adequate job of ensuring that this knowledge and experience is retained and used?
162
a. Do your managers value new ideas?
b. Are employees rewarded for bringing forward new methods of
work or new technologies?
c. Does your company have a formal system of knowledge capture and management?
4.1.3 Do your employees regularly participate in training?
a. Is that training evaluated and is the employee productivity improvement resulting from training measured?
4.2 Network Growth and Strategic Development (Nina Vladimirova,
HSE)
4.2.1 Who or what department performs strategic planning?
4.2.2 What tools are used for long-term planning and development? Please,
describe these.
4.2.3 How often do you review the company’s long-term plans and goals?
4.2.4 Does your company have an official document where the company’s
development programs and projects have been described?
4.2.5 Do you use Balanced Scorecard (BSC) for measuring company performance? Could you describe any difficulties when using BSC?
4.2.6 How is combining different level plans organized in your company?
What organization levels are touched upon?
4.3 Decision-Making Process in a Networked Company (Professor
Nikolay Filinov, HSE)
4.3.1 Consider a business decision, which has to be made on a regular
basis. Please, provide the following information:
a. How often is it necessary to make the decision in question?
b.
Is there a formally adopted (may be written)
procedure in place related to this type of decision?
c.
Is it necessary to come up with decision alternatives every time you make this decision, or are the options basically the same every time and there is no need to re-invent
them?
d.
Describe the decision-making process.
e.
Do you make the decision personally or do you
involve your subordinates?
f.
In case you involve them, why do you do that: in
order to get information they possess or in order to secure
their support (buy in) for the decision made or in order to develop their potential?
g.
Is information distribution among your subordinates more or less symmetrical?
h.
Is a conflict possible among your subordinates
arising from the decision in question?
i.
Do they generally share your goals and approaches?
4.3.2 What difficulties do you experience when making decisions dealing
with your business partners?
a. Is the necessary information provided on time?
b. Is it accurate enough?
c. How do you decide on the amount of information you provide
to your partners?
d. Are the position and aspirations of your partners clear, stable
and understandable?
163
e.
P 5:
Do they keep their promises?
Customer orientation and marketing
5.1 Building Trust in Counterweight to Risks in Inter-Organisational
Relations (Marina Weck, HAMK)
5.1.1 At which stages (1. Awareness, 2. Exploration, 3. Expansion, 4.
Commitment and 5. Dissolution)* of relationships with your partner
organizations in Russia do you perceive the relational risks? (The
proposed list of relational risks will be attached)
5.1.2 To what extent do you perceive that the relational risks are probable
at different stages* of relationships with your partner organizations
in Russia?
5.1.3 To what extent do you believe that the relational risks do negatively
affect trust in your partner organizations and their management?
5.1.4 At which stage(s)* of relationships do you believe the proposed preconditions for trust are necessary? (The proposed list of preconditions for trust will be attached)
5.1.5 To what extent do you consider that the proposed trust preconditions are associated with positive changes in trust in your partner
organizations and their management in Russia?
5.1.6 Do you feel that the first stage* of an inter-organizational relationship is more risky than the fourth?
5.1.7 Do you believe that trust is needed more at the first stage* of an inter-organizational relationship than at the fourth?
5.1.8 Who do you trust most, people or organizations?
5.1.9 What are the actions you exercise (or that should be exercised) in
order to build and maintain a higher level of trust at different stages
of the relationships with your partner organizations in Russia?
Whose concerns are the trust-building actions? (1. Senior managers/leaders and/or 2. key personnel )
5.2 Supplier Relationship Management (Professor Olga Tretyak,
Nikita Popov, HSE and Seppo Niittymäki, HAMK)
The interviewee’s role in the company: person responsible for purchasing
(e.g., purchasing director)
5.2.1 Please, could you briefly outline the production process in your
company? (Russian branch)
5.2.2 Please, could you rate the importance of key competitive advantages for your product or service? (Price levels for products compared to competitors, quality of the products, reliability of the delivery process, other, please specify).
5.2.3 Which factor is the most important when choosing a new supplier or
evaluating an existing supplier? (Price levels for products compared
to competitors, quality of the products, reliability of the delivery
process, other factors, please specify).
5.2.4 Do you use a formal evaluation system for suppliers? If yes, could
you please outline how it works?
5.2.5 Do you measure the profitability of relationships with suppliers? If
yes, could you please outline the measurement system?
5.2.6 Who participates in the evaluation of relationships with suppliers?
5.2.7 Do you use any of the following factors when evaluating relationships? (Attractiveness of relationship, strength of relationship,
growth rate of supplier’s market, competitive position, net price,
164
cost to serve the relationship, interest commonality with supplier,
relationship value or other factors like security of delivery times...)
5.2.8 Please, could you briefly outline the organization of supply management in your company? (Russian branch of your company? Issues to discuss: people involved and their responsibilities, decisions
made by the people involved, who are responsible for initiating/terminating relationships with suppliers).
5.2.9 Does the General Manager personally influence the relationships between your company and any of its suppliers? If yes, in what respect? Does s/he influence indirectly/interfere directly?
5.2.10 Does your company have an IT platform for information exchange
with your suppliers or for electronic buying? If yes, could you please
outline how it works?
5.3 Customer Relationship management (Professor Olga Tretyak,
Alexander Rozkov, HSE)
The interviewee’s role in the company: person responsible for customer
management
5.3.1 Do you coordinate your activities with your network partners?
5.3.2 What functional areas are coordinated, what business processes
(BP) are involved in this interaction? What indicators are used to
measure this process?
5.3.3 What communication channels do you use when dealing with your
partners, especially IT solutions?
5.3.4 Do your suppliers and/or network partners know about your customers’ requirements for products?
5.3.5 Do you get info on your partners’ customers?
5.3.6 Are you ready to change some action or business process if it’s
needed by your customers?
5.3.7 Are you able to influence your partner’s policy to provide better customer service?
5.3.8 Do you use any particular indicators to monitor customer handling
inside the “network”?
5.3.9 What methods and indicators are used for customer attraction and
initial assessment?
5.3.10 What are the main goals of CRM in your company? What organizational levels are chosen for their implementation? Do you have
some particular strategic settings in this area?
5.3.11 How is customer feedback collected and used? What is the role of
interpersonal relations in CRM?
5.3.12 Are there any IT solutions used for customer communication or collaboration, data collection and analysis? What kind of data is collected?
5.4 Relationship Building in Russian Market (Professor Olga Tretyak
and Ekaterina Buzulukova, HSE)
5.4.1 Please describe the stages in relationship development between
your company and its partners in Finland. (First contacts, joining
other partners, relationship strengthening… current situation). (network development)
5.4.2 What are the peculiarities of the stages in relationship development
in Russia?
165
5.4.3 Please justify why you decided to enter the Russian market. How did
you do that (list steps)?
5.4.4 How are you estimating the perspectives of building stable network
relationships in Russia? How can you estimate the perspectives of
Russian partners joining to your network?
5.4.5 Which factors have you take into account while entering and working in Russia?
5.4.6 What are the criteria for the right choice in the search for a new
partner? Please estimate their importance (e.g., willingness to compromise, cultural similarity, readiness to work hard, readiness to invest in relationships, management support, fulfillment of first engagements, favorable reports, flexibility, favorable conditions of
agreement)
5.4.7 What factors from your point of view are crucial for a network relationship’s stability?
5.4.8 How do you estimate customer satisfaction from your collaboration?
5.4.9 Where can you see favorable and negative influences of relationship
networks on your company performance?
5.4.10 Please describe the stages in relationship development between
your company and its partners in Finland. (Example: First contacts,
joining other partners, relationships strengthening etc.).
5.4.11 What are the peculiarities of each stage in Russia?
5.4.12 What are main problems for entering the Russian market?
5.4.13 What difficulties do you perceive in searching for reliable business
partners in Russia?
P6: Measuring network performance (Seppo Niittymäki, HAMK, Antti
Lönnqvist, and professor Teuvo Tolonen, TUT)
6.1 Performance measurement in organization
6.1.1 Describe the present state of performance measurement in your organization. (e.g., BSC and some non-financial measures like time to
deliver or quality evaluation)
6.1.2 What is the role of measures and measurement in managing the
company?
6.1.3 Does your company pay any bonus based on performance? If yes,
then
6.1.4 On what performance criteria are bonuses based?
6.1.5 How much may these bonuses be (%) compared to the annual salary without bonuses?
6.1.6 What are the present threats and risks within company?
6.1.7 What is the most important thing that should be done now in order
to improve the situation?
6.2 Performance measurement in business networks
6.2.1 What are the success factors for business networks (basic factors
for operations and strategy)? Name the three most important.
6.2.2 How could the performance of a network be measured and evaluated? What kind of measures could be used in a network?
166
6.2.3 What things should be measured or evaluated in business networks?
(E.g., costs, quality, time to deliver, competence, trust, ability to
cooperate…)
6.2.4 What factors complicate measuring the business network related to
Russia?
6.2.5 What kind of factors should be considered in setting bonus targets
in order to improve business network performance?
6.2.6 What are the present threats and risks within the business network
considered?
6.2.7 What is most important thing that should be done now in order to
improve the situation?
Part 3: Interviews Questions and Answers
Please write below the answers received from the interviewee according to the
question numbers. In case you have used different or additional questions, please
write also these questions below.
7.2
Annex 2: Questionnaire for HRM
Common background information
We would like to invite you to take part in this survey. Its aim is to study
features of management and leadership in construction-oriented companies, which
operate in the Russian market. Your generalized opinion will be considered in developing recommendations for the management and leadership practices of companies and their business networks. Your responses will not be identified with you
personally. There is no need to specify personal data. We ask you to familiarize
yourself closely with the questionnaire and, if possible, answer all questions. The
quality of the recommendations which are prepared by the research group will depend on the accuracy and sincerity of your answers.
Personal details
1. Your gender ____________
2. Your age_______________
3. Your marital status_______
In how many companies have you worked during you professional career
_____________
Your work
4. Your
post
(profession,
trade)___________________________________________
5. General
work
experience
__________________________________________
167
6. Work
experience
in
this
sion_________________________________
7. Work
experience
in
the
current
_________________________________
8. How
many
subordinates
do
you
have,
________________________________
profescompany
if
any
3.1 Human Capital in Finnish construction oriented companies in Russia
9. What is the highest EDUCATIONAL QUALIFICATION that you have?
PhD 
Master’s degree
Bachelor’s deother: please

gree 
state___________
10. If you were trained in additional programs, please specify which
__________________________________________________________
__________________________________________________________
__________________________________________________________
___________________________
11. Do you have enough knowledge to perform your official duties (functions)?
- Quite enough
- More like enough than not enough
- More like not enough than enough
- Obviously not enough
- It is difficult to answer
12. What difficulties do you face when performing your work tasks?
- Not enough qualifications exist, continuously resulting in bad quality results
- Not enough knowledge exists for organizing the process, so I cannot deliver in time
- Problems in communication with colleagues
- Problems in relationships with managers
- Other: please specify____________________________________________________
- I face no difficulties
13. To what extent do your professional knowledge and skills fit your work:
______________% of work time.
14. Why do your knowledge and skills not fit your work
1.________________________________________________________
__________2.______________________________________________
____________________3.____________________________________
______________________________
15. How many days have you spent in training, being educated or improving
your qualifications in the last 5 years? _________days
16. In what way did you improve your qualifications:
__________________________________________________________
__________________________________________________________
__________________
168
17. If you would improve your professional skills independently, how much
time and money would you be willing to invest for this purpose:
________days/year ____Rbl.








18. What skills are necessary in your opinion for successful performance in
your work? (choose no more than three (3) answers)
Communication skills
Stress management
Analytical thinking
Leadership
Ability to understand yourself and colleagues
Ability to propose new ideas
Ability to develop and carry out current ideas and projects
Other: please specify ___________________________








19. What skills do you have in your opinion? (choose no more than three (3)
answers)
Communication skills
Stress management
Analytical thinking
Leadership
Ability to understand yourself and colleagues
Ability to propose many ideas
Ability to develop and realize current ideas
Other: please specify_____________________________________________
20. What should the management do for the development of employees’
skills in your opinion?_______________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
_____________________________________________
Innovation climate in your organization
Please, assess the next sentences on a scale from 1 to 5
1-disagree
21. The development of our own ideas for
organizational development in our company is encouraged
22. The top management encourage my new
ideas
23. Employees who put forward innovative
ideas are often encouraged for their initiative.
24. Project managers have the right to make
decisions without agreeing and approval.
25. It is always possible to receive money for
starting a new project.
26. Employees offering innovative projects
receive additional encouragement and
payment for their effort and ideas besides traditional compensation.
27. An employee who puts forward a good
169
5- agree
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
idea is allowed to have time for its development.
28. Employees in our company have a huge
desire to generate new ideas and do not
limit themselves to the limits of the departments and functions.
1
2
3
4
5
Your values
29. What is most important in your work? (choose no more than three answers)









Good financial compensation
Social recognition
Maintaining interesting work
Good relations with colleagues
Opportunity to introduce new ideas to carry out new projects
Contributing to a common cause
Opportunity to transfer experience and knowledge to colleagues
Receiving new experience, self-development
Other: please specify ___________________________









30. What is the least important for you in your work? (choose no more than
three answers)
Good financial compensation
Social recognition
Maintaining interesting work
Good relations with colleagues
Opportunity to introduce new ideas in order to carry out new projects
Contributing to a common cause
Opportunity to transfer experience and knowledge to colleagues
Receiving new experience, self-development
Other: please specify ___________________________







31. What makes you work better, more effectively, more qualitatively?
(choose no more than three answers)
Good compensation
Opportunity for professional development
Opportunity for career advancement
Social recognition
Opportunity to carry out new projects
Opportunity to contribute to a common cause
Other: please specify ___________________________
a) General Information and Background Questions (addition to Part 1
questions)
2. Information about Company’s Network and Russian Operations
1. Data
Whole Company
Turnover of your company in 2007
Number of workers (personnel)
Average growth rate of business in the last
year
170
Russian
tions
Opera-
Estimated growth rate for the next five
years
2. What are the main goals of doing business in Russia (or starting business in Russia)?
__________________________________________________________________
____
__________________________________________________________________
____
3. What kind of operations do you have in Russia?
__________________________________________________________________
____
__________________________________________________________________
____
4. In which regions do you have operations in Russia?
__________________________________________________________________
____
__________________________________________________________________
____
5. What is your company’s main product in Russia (End product: building, wooden
houses or products, service business)? Other, please specify?
__________________________________________________________________
____
__________________________________________________________________
____
2. Suppliers or subcontractors
6. Name five suppliers and the percentage of total buying volume (=______M€)
from the suppliers (%)
Name
Supplier
Supplier
Supplier
Supplier
Supplier
Percent
of
sales volume
total
How long have you done
business with them (number of years)
1
2
3
4
5
7. Sales trends
a) What has been the average sales trend over the last 5 years to these suppliers?
(or for the length of the relationship if less).
b) What are your expectations regarding sales to these suppliers for the next five
years?
1. Rapid decrease
5. Rapid increase
2. Slow decrease
a) Sales trend for the
last 5 years ( N of
trend)
3. Unchanged
4. Slow increase
b) Prognosis for the next 5
years ( N of trend)
Supplier 1
Supplier 2
171
Supplier 3
Supplier 4
Supplier 5
8. Please estimate the relationship atmosphere with your suppliers by choosing the
level of agreement with the statements below:
Disagree
strongly
Disagree
slightly
Unsure
Agree
slightly
Agree
strongly
We are more important to our
suppliers than they are to us
We feel dependence on the
suppliers
Our goals are basically compatible with the goals of our
suppliers
Our supplier gets more profit
from our sales than we do
3. Customers
9. Name the main customers and the percentage of total sales volume
(=________M€) to these customers (%)
Name
Percent
of
sales volume
total
How long have you done
business with them (number of years)
Customer
1
Customer
2
Customer
3
Customer
4
Customer
5
10. Sales trends
a) What has been the average sales trend over the last 5 years to these customers?
(or for the length of the relationship if less)
b) What are your expectations regarding sales to these customers for the next five
years?
1. Rapid decrease
5. Rapid increase
2. Slow decrease
a) Sales trend for the
last 5 years ( N of
trend)
3. Unchanged
4. Slow increase
b) Prognosis for the next 5
years ( N of trend)
Customer
1
172
Customer
2
Customer
3
Customer
4
Customer
5
11.
Please
estimate the relationship atmosphere with your customers by choosing the level of
agreement with the statements below:
Agree
Agree
Disagree
Disagree Unsure
slightly
slightly
strongly
strongly
If necessary we would go
quite far in making concessions for our clients
We feel dependent on the customers
Adaptation is more frequently
made by us then by the customers
Unsatisfactory
performance
(e.g. late deliveries, delayed
payments) has caused problems in our relationships
The customers put cooperation with us before their short
term profit
4. Third Parties
12. Which of the following third parties have a significant effect on your company?
(From 1 - not at all to 5 – very much)
1
2
3
4
5
Banks:
Architecture department:
Government agencies:
Consultants:
Tax revision:
Fire revision:
Local community:
Other (specify):
13. What is the importance of saving reliable relationships between your company
and:
(From 1 - not at all, to 5 – very much)
1
Suppliers’ suppliers:
Suppliers:
Intermediary:
Customers:
Third parties:
173
2
3
4
5
8.
INTERVIEWER(S)
Nikita Popov
List of interviews
Nikita Popov
Nikita Popov
PERSON INTERVIEWED
Head of Merchandise line
Director, Konecranes Service North‐West branch
Director, Standard Lifting
Deputy Director, Legal Affairs
Director, Technical Maintenance
Director
Area Manager, Russia
Technical Director
Director, St. Petrsburg
Area Manager, Russia
Director
Manager, Russia
Director
Head of Technical Department
Head of Project Design Departnment
Head of Sales Department
Director, Russia
Head of Department
Product sales manager
Sales Manager
Project Manager
Head Department
Head of Department
Director
Director
Director Director Lawyer
Director Project Manager
Head of Contracting Head of Department
Manager Relations
Director of Operations
Head Group
Director
Manager
Director
Project Manager
Head of Department
Head of Department
Manager of Services
Chief of Depot
Director
Manager
Director
Director
Manager
Director of the Russian office
The chief of juridical department
COMPANY
Kesko‐Russia
ZAO Konecranes (Konecranes‐Russia)
ZAO Konecranes (Konecranes‐Russia)
ZAO Konecranes (Konecranes‐Russia)
ZAO Konecranes (Konecranes‐Russia)
DBD International
NCC
Ponsse
FiCoTe
FiCoTe
Lenoblstroi
Gardner Denver
Trainers' House
NCC Russia (St. Petersburg)
NCC Russia (St. Petersburg)
NCC Russia (St. Petersburg)
NCC Russia (St. Petersburg)
Ruukki Construction Russia (St. Petersburg)
Ruukki Construction Russia (St. Petersburg)
Ruukki Construction Russia (St. Petersburg)
Ruukki Construction Russia (St. Petersburg)
Ruukki Construction Russia (Moscow)
Ruukki Construction Russia (Moscow)
Kesko (St. Petersburg)
Kesko (St. Petersburg)
Kesko (St. Petersburg)
Kesko (St. Petersburg)
KoneCranes (St.Petersburg)
KoneCranes (St.Petersburg)
KoneCranes (St.Petersburg)
KoneCranes (St.Petersburg)
KoneCranes (St.Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
FM Group (St. Petersburg)
Cramo (Moscow)
Cramo (Moscow)
Cramo (Moscow)
Cramo (Moscow)
Cramo (Moscow)
Cramo (Moscow)
FinSal (Moscow)
FinSal (Moscow)
FinSal (Moscow)
Konecranes Oyj
Konecranes Oyj
Seppo Niittymäki
Seppo Niittymäki
Seppo Niittymäki, Anastasia Krupskaja
Seppo Niittymäki, Anastasia Krupskaja
Seppo Niittymäki, Nikita popov
Seppo Niittymäki, Nikita Popov
Seppo Niittymäki, Anastasia Krupskaja
Seppo Niittymäki, Anastasia Krupskaja
Seppo Niittymäki, Anastasia Krupskaja
A. Krupskaya, E. Dmitrenko
A. Krupskaya, E. Dmitrenko
Director
Manager
HR manager
HR manager
Manager
Director
Director
Specialist
Staff manager
Supervisor of Russian department
Director
KPM‐engineering Oy/FMC Group
Rautaruukki Oyj
NCC
Huhtamäki Oyj
Konecranes oyj
Konecranes
Lassila&Tikanoja Oyj
Lassila&Tikanoja Oyj
Stora Enso/Puumerkki Oy
FMC group Russia
FMC group Russia
Marina Weck
174
DATE
20.2.2009
20.2.2009
20.2.2009
20.2.2009
20.2.2009
28.5.2008
28.5.2008
4.6.2008
5.6.2008
5.6.2008
6.6.2008
11.6.2008
13.6.2008
10.11.2008
10.11.2008
10.11.2008
11.11.2008
12.11.2008
12.11.2008
12.11.2008
12.11.2008
2.6.2009
2.6.2009
3.2.2009
3.2.2009
3.2.2009
3.2.2009
4.2.2009
4.2.2009
4.2.2009
4.2.2009
4.2.2009
12.4.2009
11.3.2009
11.3.2009
11.3.2009
10.3.2009
11.3.2009
10.3.2009
3.6.2009
3.6.2009
3.6.2009
3.6.2009
3.6.2009
3.6.2009
4.6.2009
4.6.2009
4.6.2009
25.2.2009
25.2.2009
3.9.2008
15.9.2009
3.9.2009
2.9.2009
23.8.2009
23.8.2009
5.9.2008
5.9.2008
5.9.2009
39919
16.4.2009
Nikolay Filinov, Nina Vladimirova
and Seppo Niittymäki
Seppo Niittymäki
S. Niittymäki, Nadezha Gotheva
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova
Buzulukova
Buzulukova
Buzulukova
Buzulukova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
Buzulukova, Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
A. Rozhkov, N. Vladimirova
N. Popov, A. Rozhkov
N. Popov, A. Rozhkov
N. Popov, A. Rozhkov
N. Popov, A. Rozhkov
N. Popov, A. Rozhkov
N. Popov, A. Rozhkov
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
S.Niittymäki/TTY
Anna‐Leena Perälä, VTT
Anna‐Leena Perälä, VTT
Anna‐Leena Perälä, VTT
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
Anna‐Leena Perälä/ Eero Nippala
SUMMARY OF INTERVIEWS AND SURVEYS
In total Interviews for STROI
Surveys in Finland:
Web‐robol for P6
Learning organization
Learning organization in Russia
21.10.2009
Financial controller
Lassila&Tikanoja Oyj
21.10.2008
Business developer
Lassila&Tikanoja Oyj
20.10.2008
Unit manager Lassila&Tikanoja Oyj
21.10.2008
Director
Lassila&Tikanoja Oyj
20.10.2008
Director
Lassila&Tikanoja Oyj
21.10.2008
Manager Lassila&Tikanoja Oyj
Scecialist Lassila&Tikanoja Oyj
21.8.2008
22.10.2008
Director
NCC Oyj
26.6.2008
Director
Forssan metallityöt Oy
Design Manager
YIT Oyj
24. and 26.2.2009
Head of marketing department
NCC Russia
10.11.2008
Head of technical department
NCC Russia
10.11.2008
Project manager
NCC Russia
10.11.2008
Heard of internal communication department
NCC Russia
10.11.2008
Head of sales department
NCC Russia
11.11.2008
Vice President Area Director, Russia
NCC Russia
11.11.2008
Product sales manager, roofing
Ruukki Russia
12.11.2008
Head of sales department
Ruukki Russia
12.11.2008
Sales manager
Ruukki Russia
12.11.2008
Sales manager
Ruukki Russia
12.11.2008
Head of analytical and marketing department
Ruukki Russia
12.11.2008
Director
FM Stroiproject (FMC Group)
11.3.2009
11.3.2009
Head Group
FM Stroiproject (FMC Group)
Project Manager
FM Stroiproject (FMC Group)
11.3.2009
Manager
FM Stroiproject (FMC Group)
11.3.2009
Director, Konecranes Service North‐West branch
KoneCranes (St.Petersburg)
4.2.2009
Project Manager
KoneCranes (St.Petersburg)
4.2.2009
Head of Contracting KoneCranes (St.Petersburg)
4.2.2009
Director, Standard Lifting
KoneCranes (St.Petersburg)
4.2.2009
Director, Retail
Kesko (St. Petersburg)
3.2.2009
Kesko (St. Petersburg)
3.2.2009
General Director
Director, Wholesale
Kesko (St. Petersburg)
3.2.2009
Business Director
Kesko (St. Petersburg)
3.2.2009
Head of the Logistics Dept.
Kesko (St. Petersburg)
3.2.2009
Head of Department
Cramo (Moscow)
3.6.2009
Head of Department
Cramo (Moscow)
3.6.2009
Manager of Services
Cramo (Moscow)
3.6.2009
3.6.2009
Chief of Depot
Cramo (Moscow)
Director
Cramo (Moscow)
3.6.2009
Manager
Cramo (Moscow)
3.6.2009
Director
YIT
s/2009
Director
NCC
s/2009
Manager
Kiilto Oy
s/2009
Manager
Pöyry CM
s/2009
Director
Honkastroi
s/2009
Director
A‐Insinöörit
s/2009
Manager
EPI
s/2009
Manager
Sponda
s/2009
Director
Lemcon
s/2009
Director
Finnforest 27.3.2008
Development Manager of Business
Stora Enso Timber
23.1.2008
Manager/Other Europe
Cramo Oyj
21.1.2008
5.6.2008
Head of Department of International Relations
St.Petersburg State University of Architecture and Civil Engineer
5.6.2008
Head of Sub‐faculty of Management Doctor of EconomicsSt.Petersburg State University of Architecture and Civil Engineer
Professor
MGSU 26.2.2008
Professor
MIRBIS
27.2.2008
Director
FinNode Russia 6.6.2008
Network Manager
FinNode Russia 6.6.2008
Manager
FinNode Russia 6.6.2008
Project Manager
South Karelia University of Applied Sciences
6.6.2008
Contact person
FinNode Russia 6.6.2008
129
7
20
37
64
Intotal surveys and interviews S.Niittymäki Survey, Web‐roboll 7
Alex Settles, Seppo Niittymäki (20)
Alex Settles (37)
STROI Management Group
Autumn 2009
175
STROI-VERKKO
Johtoryhmä 4: HAMK C-building
10 2 2009
10.2.2009
Markku Riihimäki, Anna-Leena Perälä, Eero Nippala, Tuula Grönfors
ja Kalle Kähkönen
P1: Selection of Business sector
2
1
Selection of the network business sector in total model
Operational environment analysis
• PESTE
A model for Strategic Planning and Strategy Implementation in Business Networks. • Five Forces
• Nine Forces
• Warning analysis
• Driving forces analysis
P1
Competitor analysis
• War gaming
• Shadowing
• Competitor cash flow
analysis
Business
Sector
P6
Measuring Network
Performance
P5
P2
Customer Orientation
Vision of
Business
Network
and Marketing
P4
Internal
Development
P3
Competence of Human
Resource
Market analysis
• Country risk analysis
• Winn/loss analysis
• Demographic analysis
Forecasts
• Potential business areas
• New business areas
• Technology
• Strategies
• Demand, needs
• Volume
• Impacts
• Barometers
Present state analysis of
company and network
Which are the most
relevant basic data for
• Scenarios
the network in
• SWOT
construction and
• Benchmarking
service business?
• Business model analysis
VTT Forecasting Model
• 4P
in Russia
• 7P
• Supply chain manag. analysis
• Technology
3
Forecast on different levels in construction
markets
1
2
3
OVERALL
OVERALL
CONSTRUCTION
CONSTRUCTION
NEWBUILDING
BUILDING
NEW
CONSTRUCTION
CONSTRUCTION
CONSTRUCTION
CONSTRUCTION
PRODUCTS
PRODUCTS
MACRO
-- ECONOMIC
EURO
CONSTRUCT
FIGURES
BALTIA
TOTAL
CONSTRUCT
FORECAST
FORECAST
BUILDING
-BUILDINGTYPE
TYPE
SPECIFICFORECAST
SPECIFIC
FORECAST
END PRODUCT TYPE
SPECIFIC FORECAST
PRODUCT
- SPECIFIC
PRODUCT
SPECIFIC
FORECAST
FORECAST
BRANCH OF CONSTRUCTION FORECAST
COMPANY SPECIFIC
FORECASTS
4
2
VTT Forecasting Model in Russia
Global
Economy
Money market,
interest level
MACROECONOMIC
Demography
information
Country
Customer
needs and
confidence
CONSTRUCTION CONSTRUCTION
CONTENT
MARKETS
DIFFERENT LEVEL OF RESULTS
Construction
development
(demand
(demand,
permits, big
projects)
Political
measures
Industry and
branches
Construction
de elopment
development
(Technique,
content, enduser needs,
products,
process)
SIMULATION MODEL FOR CONSTRUCTION
Environmental
issues
- DEMAND OF CONSTRUCTION
- DEMAND OF BRANCH OF CONSTRUCTION
- DEMAND OF END PRODUCT
- MARKET OF MATERIALS/STRUCTURES
- MARKET OF CONSTRUCTION PRODUCTS
- MARKET OF COMPANY
Building stock
5
Economic forecasts for 2008 in Russia
8.0
Date of forecasts
GDP growth %
BOFIT
7.0
IMF
6.0
GDP GREW 5.6 % in 2008
Nordea
5.0
OECD
4.0
2006
2007
2008
2009
6
3
Economic forecasts for 2009 in Russia
8
Date of forecasts
GDP growth %
6
BOFIT
4
IMF
Nordea
2
OECD
0
2007
2008
2009
-2
7
Economic forecasts for 2010 in Russia
8
Date of forecasts
GDP growth %
7
BOFIT
6
IMF
5
4
Nordea
3
2
OECD
1
0
2008
2009
2010
8
4
9
Exchange rate of RUR against USD
1 USD =
10
5
Commissioned Residential Buildings in Russia
mill. m
2
including new and reconstructed residential buildings
70
60
50
40
30
Other regions
20
10
Moscow region
Moscow city
St.Petersburg
0
1990
1995
2000
2005
Source: Goskomstat (1990-2005)
02/2009
11
Tho usands
Average prices of new dwellings in Russia
140
RUB/m2
120
Russia
Moscow region
Moscow city
Leningrad region
St.Petesburg
100
80
60
40
20
0
2002
2003
2004
2 005
2006
2007
2008
Source: Federal State Statistics Service
12
6
Construction Confidence in Russia
10
5
0
2q2007
3q2007
4q2007
1q2008
2q2008
3q2008
-5
-10
Russia
Moscow Region
M
Moscow
Kaliningrad Region
St.Petersburg
-15
-20
Source: Federal State Service
13
Example of simulation or mathematic model
Impacts
Construction
forecast
Construction
markets,
history
Construction
content
Typical house
facade m2 /
building m3
Demography
D
h
information
and economy
forecast
Strategy and
operative
decision making
i company or
in
in network
Markets and
forecast of
specific product
Operative
decision of
company
director to
change of
production
Market share
of facade
materials -%
Construction
forecast
Completed
construction
(m3)
© Eero Nippala
Facade (m2)
Forecast of
demand facade (m2)
Material A:
Completed and
demand of
facade (m2)
Material factory:
Change of facade
material production
according demand
14
7
Facades in new building - St. Petersburg 2000-2008
fasades mill.m²
ST PETERSBURG
Material Market: Buildings Total
1,60
1,40
1,20
1,00
0,80
0 60
0,60
0,40
0,20
0,00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
15
P2: Network vision
16
8
"Network" as a managerial concept
• The general importance of the concept "network" have
continuously increased.
• It is our vision the concept "network" and variety of applications
originating from it shall play a significant role as tools for wide
variety of managerial decision making.
• Particularly, in Russia network of requests, promises and
commitments can well meet the needs of companies operating.
• Network of promises is an essential element of existence for each
enterprise, (Sull & Spinosa 2007)
17
"Networks" for modeling and communicating
business conditions
Organisational networks
1. Network of actors, partners or alliance
2. Organisational network of the company
3. Network of the resource pool
Product or activity oriented networks
4. Product and product data as network
5. Network of production activities and actions (emails, transactions etc.)
State of affairs networks
6. Social networks (informal relations)
7. Demand Chain/Network Management (customer orientation, Tretyak
2008)
8. Network of commitments
9. Networks of requests and promises
18
9
Stroi-Network deliverables
• Joint working paper (VTT working paper series)
MODELS FOR UNDERSTANDING BUSINESS NETWORKS PUTTING DEVELOPMENTS IN RUSSIA INTO PERSPECTIVE
• Review of possible network modelling approaches
• Snapshots of case-situations in Russia
• Conference paper (CIB W65 2009, Croatia)
• Article in professional trade magazine (in Finnish, possibly at the
Rakennuslehti special issue)
19
STROI-network Business Sector viewpoints
Service business
 life cycle services and maintenance
 services during building
Building material products
 Wooden products in network
Building
 Residential buildings (urban building)
 Commercial and industry building
20
10
P2: Network vision
• Task
• Networks: Vision process to networks
• Define potential partners and companies in certain
business
• Difficulties to find network from stroi companies
• Vision process workshops
6. Implementation of the vision in to
practical operations and control
• Preparing a co-operational model
5. Crystallizing the differentiating vision to
the network and its end product
• Results from questionnaire
Clarifying the competition benefit similar to
4 Clarifying the competition benefit similar to
4.
• Workshops,
W k h
e.g. 3/2009
3/2009, 6/2009
the needs
3. Customer profiles – prioritizing, grouping
• Vision Model, 8-10/2009
• Network modeling approaches
2. Forming the visioning group – parties and targets
• Develop the Network Vision
1. Recognizing the start point – base for need‐based vision
Model as visioning tool to the
strategic business networks
21
11
STROI-networt seminar 10.02.2009
08.03.2010
P3:Competence of Human
Resource Management
Russia is a very predictable place –
something unexpected will happen
every day!
K Fey, Shekshnia St.
Saint-Petersburg State University
Graduate School of Management
Vera Minina, Elena Dmitrienko and Anastasia
Krupskaya
The expected outcomes
are:
Human resource systems
y
appropriated to Russian
business context
Human capital profile
(identification of key employees)
Vera Minina, Elena Dmitrienko, Anastasia
Krupskaya
1
STROI-networt seminar 10.02.2009
08.03.2010
Recommendations (1)
Informal practices  To take in account that for
in Russian
Russian business relations it
it’s
s
companies
important to have informal
agreements between managers
 Create a transparent rewarding
system with focus on justice
(monitoring on personnel attitude)
Attitudes to
corporate norms
and regulations
Knowledge of local labor
legislation is needed however
conventional agreements with
employees are very important

Vera Minina, Elena Dmitrienko, Anastasia
Krupskaya
Recommendations (2)
Local
 For Authoritarian
personnel
management authoritarian
peculiarities leader is needed
 For Democratic management
development of employees`
initiative and decision-making
competences is needed
To invest in development of
graduates` practical skills
Vera Minina, Elena Dmitrienko, Anastasia
Krupskaya
2
STROI-networt seminar 10.02.2009
08.03.2010
Recommendations (2)
Local HRM
 Combine long-term perspective
peculiarities with short
short-term
term practices of
performance appraisal, reward
and development systems
 To make all HRM practice
understandable and clear for
personnel
 To identify key employees
 To define tools for key
employees` rewarding and
development
Vera Minina, Elena Dmitrienko, Anastasia
Krupskaya
Thank you for your
attention!
P3:Competence of Human Resource Management
Vera Minina, Elena Dmitrienko, Anastasia
Krupskaya
3
08.03.2010
STROI Network Project
P4 IInternal
P4:
t
lD
Development
l
t
Nadezhda Bek
Alexander Settles
NinaVladimirova
Nikolay Filinov
Contents



Research of strategy process
Research of subsidiaries'
subsidiaries management
Research of internal process from the point of
view of learning organization concept
1
08.03.2010
Comparison of companies’ network strategies
Specific factors
Cleaning service
Construction
materials
retail
Liftingequipment
The dominant
market force
Subcontractors
Current
competitors
Customers
Relationship
pecularities
Partnership mainly with
public and municipal
companies
There are obligations to
municipalities
Purely contravt
Assistance to client in
relations. Suppliers project development.
are selected on
After sales service.
tender basis.
Model of
cooperation
Based on value chain
Based on value
chain
Joint market offering
Comparison of companies’ network strategies
Specific factors Cleaning service Construction
materials
retail
Liftingequipment
Strategies of
international
expansion
Global
Local
Local
Strategy of
business
Operational
superiority
(differentiation)
Operational
superiority
(differentiation)
Close link with
customer
Network strategy
Building suppliers' and Short-term
government relations contracts based
on market
mechanisms
Client development,
joint projects
2
08.03.2010
Difficulties for replicating network model
in Russia


Russian legislation influences company
regulations of partners
partners' relations
Strategic descisions have to be coordinated
with local authorities and included in their
strategy
Conclusions

Most important factors:




Business environment: legal and institutional
factors
Business model type
Type of strategy of international expansion
Forms of strategic control including ownership
3
08.03.2010
4 generic mechanisms for assuring
compliance with standards




Centralization means that certain processes are
carried out exclusively at the mother company
Formalization, which stands for imposing of
formal (written) rules, policies and procedures
Output control means that subsidiaries are
obliged to report certain numerical indicators to
the HQ
Socialization
Hofstede's estimates for Finland and Russia
Table 1. Hofstede's own estimates for Finland and Russia
PDI
IDV
MAS
UAI
Finland
33
63
26
59
Russia
93
39
36
95
Table 2. Hofstede's dimensions for Russia (diverse sources)
PDI
IDV
MAS
UAI
A Naumov (1996) 1
A.
40
41
45
68
Yu. & N. Latov. (2003)
Tula2
45
82
67
85
Yu. & N. Latov. (2003)
40
67
60
54
4
08.03.2010
Consequences for management


High level of UAI means that in both countries
employees have needs in rules and
instructions. Thus there is a favourable outlook
for implementation of all types of formalization.
Features of the Russian culture preclude that
Russian employees focus on career rather than
quality
q
y of life to g
greater degree
g
than their
Finnish counterparts. Higher levels of
remuneration are more important.
Assertiveness is valued higher than intuition.
5
08.03.2010
Consequences for management


Along with high PDI this means that an ideal
manager is a kind of “good
good father”
father , demanding,
demanding
but caring.
This implies high level of concentration of
power in the hands of the subsidiary CEO. In
terms of HQ-subsidiary relationships it
precludes lower tolerance to centralization.
p
Learning organization. Research
questions




Are Finnish firms organized around learning
organization principles?
What are the expectations of Finnish firms for
their partners, suppliers, customers, etc. to be
learning organizations?
Are Russian firms open to learning
organization techniques?
Does a learning organization framework add
value to such firms?
6
08.03.2010
Initial Results



Finnish business operating in Russia are attempting to
replicate their knowledge management systems and employee
f db k programs
feedback
In Russian business culture top-management direction is
crucial for all decisions including creating a learning
organization
Russian managers and organizations are culturally and
historically unfriendly to the conditions needed to develop a
learning organization



IInitiative
iti ti is
i unappreciated
i t d
Formalization is a key Russian value
Managers expect workers to conform to their direction
Russian Conditions


Importance of informal networks
Russian Managers in a foreign owned subsidiary are
at times unsure of their role and therefore return to
default Russian management practice


Expectations of Western Managers vs local subordinates
and partners
Difference in meaning of terms and concepts –
Russia definition of learning as a formal process with
results i.e. diploma as opposed to continuous
process
7
08.03.2010
1
Customer perspective in network business
Rozhkov Alexander, SU-HSE
09/02/09
2
Research project description
Research questions
•
Customer Relationship Management (CRM) in B2B (Business to
Business) networks: theoretical presentation
•
Development of customer relationship model B2B (Business to
Business) networks:
– Relationship management
– Communication system
– Customer attraction and retention techniques
– Network coordination
•
Customer perspective in Russian business culture: inner and outer
customer relationship in company network
1
08.03.2010
3
External factors (as reported)
Global factors
•
Russia is more exposed to crisis processes than Finland
•
Construction industry is in recession
•
Companies become more oriented on profit than long term
relationship
•
Number of customers and suppliers is decreasing dramatically
•
Customer market power is increasing because of decreasing demand
Market organization
•
Russian market is much more dynamic than Finnish
•
Competition is much more intensive
•
Legislation and certification
4
CRM model: Relationship management
Customer relation building process
Grey scheme in supply !
Initial contact
Legislation and
certification
Initial
transaction
Repeating
transactions
Loyal
Customer
(partner)
Legal agreement !
Main success factors are interpersonal relations and communication
Russian sales staff – as one of the most important instruments of adaptation
2
08.03.2010
5
CRM model: Relationship management (2)
Main goals in customer relations
-
Increase in sales volume
-
Loyalty (build up by credit lines, interpersonal relations and contract terms
fulfillment)
-
No negative feedback
-
Private label development (for individual customers)
Problem solving
-
Information support on all delays
-
Additional discounts
-
Fees and penalties according the agreement
6
CRM model: customer indicators
Initial contact
-
No particular criteria, all customers are good in crisis period
-
C
Company
size
i (?)
Repeating transactions
-
Operation profit
-
Contract terms fulfillment
-
Sales volume growth
3
08.03.2010
7
Intermediate Results
Areas of uncertainty
Russian partners and their customer base. (accessibility)
Business culture aspects in Russia == Value chain modification
8
Relevant Literature
Intercompany relations
Cannon, Joseph P. and William D. Perreault Jr. 1999. “Buyer-Seller Relationships in Business Markets.” Journal
of Marketing Research 36 (November): 439-460.
K. Möller , A. Rajala “Rise of strategic nets — New modes of value creation” Industrial Marketing Management
36 (2007) 895–908
Methodology
Mahmood M. Hajjat Customer orientation: construction and validation of the CUSTOR scale. Marketing
Intelligence & Planning 20/7 [2002] 428-441
Saxe, R. and Weitz, B.A. (1982), “The SOCO scale: a measure of the customer orientation of salespeople”,
Journal of Marketing Research, Vol. 19, August, pp. 343-51.
Eisenhardt K. Building theories from case study research. Academic Management Review 1989;14(4):532 –50.
Market orientation (network level)
Kohli, Ajay K. and Bernard J. Jaworski. 1990. “Market Orientation: The Construct, Research Propositions, and
Managerial Implications.” Journal of Marketing 54 (2): 1-18.
H. Terho, A. Halinen “Customer portfolio analysis practices in different exchange contexts/ Journal of Business
Research 60 (2007) 720–730
U. Elg Inter-firm Market Orientation: Its Significance and Antecedents in Distribution Networks / Journal of
Marketing Management, 2002,18, 633-655
4
08.03.2010
9
Thank You for your attention!
5
1
Results for the P5: Customer
Orientation and Marketing
Olga Tretyak, Marina Weck, Ekaterina Buzulukova,
Alexander Rozhkov, Nikita Popov
10 Februaryy 2009
STROI network – project presentation. Discussion seminar. 9-11 February 2009
2
Results for the P5: Marketing
The research on Marketing perspective is organized in three parts:
developing a network of partners, implementing CRM and SCM
Participant
supplier
(RU)
Participant
buyer (RU)
Participant
supplier
(RU)
Participant
supplier (FI)
Focal
company (FI)
Participant
buyer (FI)
Participant
buyer (FI)
Part 1
1a. Nurturing network of partners on the Russian market
1b. Building trust in counterweight to risks
Part 3
Supply chain management
Part 2
Customer relationship management
STROI network – project presentation. Discussion seminar. 9-11 February 2009
Page 1
3
Results for the P5: Marketing
Insights from the interviews on Market entry strategies
•
Two types of Russian market entrance strategies:
– Developing representative office -> extending market presence
– Mergers and acquisitions of Russian companies
•
Two marketing strategies:
– Developing customers (project development, proactive product development)
– Profit-seeking behavior
STROI network – project presentation. Discussion seminar. 9-11 February 2009
4
Results for the P5: Marketing
Can competitive advantages be used to cope with business environment
challenges at the operation stage?
Vision of competitive advantages
by
y the Finnish firms
Business environment
challenges
g
Developed and improving technology
Legal risks that are rarely understood: high
administrative and criminal liability of the
general director in Russia
Higher quality of products
Local production
Long and unclear procedure of construction
project negotiation and agreement
Active support of the parent company
Difficulties in land purchasing
Financial stability
Trust to the Russian partners from Finnish side and
disbeliefs from Russian managers
Comprehensive solutions for the customer
N d ffor permanentt control
Need
t l off R
Russian
i partners
t
High reputation and strong brand name
Trust, honesty and responsibility for results
Often it is that the general director is the only
right person to communicate with to achieve
quick and quality results
Helping customers in solving their own problems
STROI network – project presentation. Discussion seminar. 9-11 February 2009
Page 2
5
Results for the P5: Marketing
Building trust in counterweight to risks. What are the risks?
•
While the empirical research is not fully
completed, the acquired data allow
illustrating only intermediate results
•
Please, see the diagrams 1, 2 and 3 (in your
handouts) that show the probability of
identified risks involved in
inter-organizational relationships and
their negative effect on trust between
partners as well as conditions associated
with positive changes in trust
STROI network – project presentation. Discussion seminar. 9-11 February 2009
6
Results for the P5: Marketing
On the customers side, Russian sales staff is the main adaptation
instrument at every stage of relationship development
Stage 1
Initial contact
Stage 2
Initial transaction
Very high entry barriers
Difficult to embed into existing
relations
Dealing with complex construction
legislation and certification
Initially very strict requirements for
on-time delivery and quality
assurance
Stage 3
Repeated
transactions
Loyal
customers
Payment delays
Contract fulfillment
Coordination challenges when the
deal has been secured
Customer representatives
demanding bribes
Solutions:
Solutions:
Solutions:
Customer intelligence
Signaling to suppliers
Getting a sense of customers’
occasion
Getting straight to the CEOs
Securing suppliers’ commitment
Reaching compromise
Bribery reporting to CEOs of
customer companies
Russian salespeople as a main vehicle for problem solving
STROI network – project presentation. Discussion seminar. 9-11 February 2009
Page 3
7
Results for the P5: Marketing
Although marketing people deny that they differentiate between
customers…
Declared: no differentiation
“The number of customers decrease
because of the crisis in construction”
“Demand shrinks, so customers gain
more market power”
“All customers are equally valuable”
“All benefits and discounts are delivered
on unified contract terms”
“All customers are only seeking lower
prices”
“Contracting in Russia is always
formal”
STROI network – project presentation. Discussion seminar. 9-11 February 2009
8
Results for the P5: Marketing
… there is proper strategic prioritization in place
Actually, there is strategic differentiation
“We prioritize customers on the basis
of…”
“Benefits provided depending on the
customer’s status in terms of…”
- Sales volume
- Price reductions
- Growth potential
- Fast delivery
- Size of the business
- Ready to adapt contracts to
requirements of highly important
customers
STROI network – project presentation. Discussion seminar. 9-11 February 2009
Page 4
9
Results for the P5: Marketing
Purchasing side: how customer orientation imperatives translate into
requirements for suppliers
Stage 1
Make or buy
decisions and
supplier selection
Stage 2
Managing supplier
relationships
Higher in-house share of production
due to knowledge-sharing hostility
and relational uncertainty
Managing social and contractual
relationships in Russia is an area of
weakness
Supplier capability, reputation and
trustworthiness are the 3 musts
Certain relationship management
capabilities should be developed
Both delivery time and variability are
advantages for suppliers
High influence of social networks:
relations with key people
Finns prefer Finns’
Finns
‘Finns
vs.
‘Committed Russian partners’
CEOs personal influence on decisions
is not strong in purchasing
Stage 3
Organizing for
effective
purchasing
Marketresponsive
pp y
supply
Purchasing is not highly centralized
STROI network – project presentation. Discussion seminar. 9-11 February 2009
Page 5
P 5: Customer Perspective and Marketing
5.2
Building Trust in Counterweight to Risks in InterOrganisational Relations of Business Networks in Russia
The research
Th
h aims
i
att d
deeper understanding
d t di off th
the role
l off ttrustt as a counterweight
t
i ht
to risks perceived in the project-based relationship development between Finnish
and Russian construction companies networking in Russia. The specific objectives
are as follows:
 to identify the perceived risks and their sources in different stages of interorganisational relationships,
 to determine the necessary preconditions for trust development in interorganisational relationships,
 to examine the relation between subjective trust and perceived risks in the
development of inter-organisational relationships, and
 to explore trust development process and specify the nature and distinctive
features of it in the context of Russian culture.
Outcome:
The model that outlines the trust development process in counterweight to
risks involved in inter-organisational relationships of business networks in
Russia
www.hamk.fi
Research Methodology Structure
PHASE ONE
Literature Review
Propositions building & Pre‐testing
PHASE TWO
Empirical Research / First Stage
Relationship risks (RQ 1)
Trust preconditions (RQ 2) p
( Q )
Conceptual framework
development & Testing
Validation
PHASE THREE
Empirical Research / Second Stage
Trust and risk relation (RQ 3)
Trust‐building process (RQ 4)
gp
www.hamk.fi
1
Definitions of Concepts
•
Inter-organisational trust is defined as a manager’s belief that a partner
organisation and its managers are able and willing to interact with positive
intentions under the conditions of uncertainty and risks.
o Two levels of trust: inter-personal and organisational
o ‘Goodwill trust’ associates with aspects of relation itself (e.g. moral
responsibility and positive intentions, i.e. absence of opportunism), whereas
‘competence trust’ estimates partners’ transactional reliability (e.g. technical
and commercial capabilities, organizational and managerial skills and know-how)
•
Relationship Risks refer to risks caused by disturbances inside the relationship
between business partners.
These risks comprise of two main groups:
o relational risks are related to the probability of partners’ non-compliance with
the norms of co-operation,
o performance risks are tied to partners’ competences.
www.hamk.fi
Conceptual Framework of Perceived
Relationship Risk
Perceived Risk
Relational Risk
Performance Risk
Risk Sources
Risk Sources
Organisation
Individuals
www.hamk.fi
2
Conceptual Framework of
Inter-Organisational Subjective Trust
Subjective Trust
Competence Trust
Organisation
Goodwill Trust
Individuals
Organisation
Cognition‐Based Trust
Calculus‐Based Trust
Individuals
Characteristic‐Based
Trust
Process‐Based Trust
Trust Preconditions:
Characteristics of Trustee and Relationship
Organisation
Individuals
www.hamk.fi
Research Conceptual Framework
•
•
Co-operation will continue from one stage to another as long as trustor is able to relay on trust in the
presence of relationship risks and an increase in trust occurs during interactions.
The higher level of subjective trust in inter-organisational relationship provides trustor with confidence
p recognizing
g
g that p
perceived risks may
y cause short-term losses but not
to continue the relationship
threaten the trustor’s long-term interests.
To be determined
Risk sources
To be examined
Relational risk
Perceived risk
Performance risk
Confidence
Trust precondi
tions
Competence trust
Low
Subjective trust
Goodwill trust
Willingness to operate
High
g
Risk taking
Transition to next
relationship stage
INTER‐ORGANISATIONAL RELATIONSHIP DEVELOPMENT Exploration Stage Dissolution
www.hamk.fi
3
Matrix of Different Types of Trust and
Risk Relation
COMPETENCE TRUST
high
-
Low
GOODWILL TRUST
high

low
perceived relationship risks are
marginal
high confidence in business
relationship
-
perceived relational risks are high
unstable
bl business
b i
relationship
l i
hi
relational risks management
(e.g. control mechanisms)
perceived performance risks
are high
doubtful business relationship
perceived relationship risks
are high
fid
no confidence
business relationship too
risky
www.hamk.fi
Overview of Trust Development Processes
FORMAL PROCESS
Institution-Based Trust
Calculus-Based Trust
Process-Based Trust
Trust Development Process
Initiation
Growth
Maturity
Cognition-Based Trust
Personality-Based Trust
Characteristic-Based Trust
INFORMAL PROCESS
Exploration
Expansion
Commitment
Relationship Development Process
www.hamk.fi
4
Relationship Trust Development Processes
The formal process aggregates the following form of trust:
Institution-Based Trust is based on the formal institutions surrounding a transaction such as
contracts regulating business and is not dependent upon the
exchange partner (McKnight et al
al., 1998; Rousseau et al.,
al 1998);
Process-Based Trust
merges from iterative transactions between partners and positive
experience of past relations (Zucker, 1986); and
Calculus-Based Trust is based on credible information with regard to the intentions or
competence of another (McKnight et al., 1998; Rousseau et al., 1998).
The informal process is represented as follows:
Personality-Based Trust
Cognition-Based Trust
means propensity or disposition to trust (McKnight et al., 1998);
derives through cognitive cues or first impressions (McKnight et al.,
1998); and
Characteristic-Based Trust is based on social similarity (common system, family background
and shared values and expectations) and tied to personal and
mutually ‘approved’ characteristics of potential partners (Zucker,
1986).
Institution-Based Trust and Personality-Based Trust formation processes lie outside this
scope of this research
www.hamk.fi
Trust Development Process (Findings)
INITIATION TRUST PHASE
Exploration Stage of Inter‐Organisational Relationship
Subjective Trust
Competence Trust
Characteristics of Trustee
O
Organisation
i ti
Organisational capabilities
Transition of generated trust to the next stage
Goodwill Trust
Characteristics of Relationship with Trustee
K P
Key Personnel
l
Personal
motivation
Professional
qualities
O
Organisation
i ti
Transparency in
interactions
K P
Key Personnel
l
Commitment
Integrity
Trust Preconditions Based on Reputation and Experience from First Interactions
www.hamk.fi
5
Trust Development Process (Findings)
GROWTH TRUST PHASE
Expansion Stage of Inter‐Organisational Relationship
Subjective Trust
Generated trust from the previous stage
Transition of generated trust to the next stage
Competence Trust
Goodwill Trust
Characteristics of Trustee
K P
Key Personnel
l
O
Organisation
i ti
Quality performance
Characteristics of Relationship with Trustee
Professional
qualities
Flexibility
O
Organisation
i ti
Open communication
K P
Key Personnel
l
Orientation to problem‐solving
Integrity
Trust Preconditions Based on Experience from Prior Interactions
www.hamk.fi
Trust Development Process (Findings)
MATURITY TRUST PHASE
Commitment Stage of Inter‐Organisational Relationship
Generated trust from the previous stage
Competence Trust
Characteristics of Trustee
Organisation
Quality
performance
Maintenance of total generated trust
Subjective Trust
Stability in
key personnel
Goodwill Trust
Characteristics of Relationship with Trustee
Key Personnel
Professional
qualities
Organisation
Open communication
Key Personnel
Social contacts
Integrity
Trust Preconditions Based on Experience from Prior Interactions
www.hamk.fi
6
Research Findings
How to Mitigate Risks?
•
•
•
•
An adequate attention must be paid to the importance of trust development
processes within relationship evolution
Risks associated with the inter-organisational relationships have to be
managed as an integral part of trust development process
”Haste makes waste”. Being aware and appropriate use of trust
development processes allow to minimize ”waste” of time
Required level of formal processes cannot substituted by reliance on interpersonal trust of the informal process
www.hamk.fi
Research Findings
•
•
•
•
Interestingly, the absolute majority of Russian respondents from Finnish
case companies trust more Finnish partners than Russian, even though
they interact with Russian managers in both Finnish and Russian
companies
This means that differences in the corporate cultures and management
styles existing in Finnish and Russian companies can be more important
determinants of trust in inter-organisational relationships than differences in
the national cultures.
None the less, the national culture has a certain effect on the process of
trust development.
A good example of it is as follows: “A chance you only get once. Hence,
there is no possibility of being mistaken.” (Quotation from the interview
with Russian manager)
www.hamk.fi
7
www.hamk.fi
www.hamk.fi
8
www.hamk.fi
www.hamk.fi
9
www.hamk.fi
10
08.03.2010
P6: Performance measurement in business networks;
TOWARDS MANAGEMENT AND LEADERSHIP MODELS FOR RUSSIAN BUSINESS NETWORKS.
Seppo Niittymäki
Tampere University of Technology and
HAMK University of Applied Sciences
[email protected]
In detail: www.hamk.fi/stroi
26.2.2010
P6:Performance measurement, Stroi Network, Seppo Niittymäki
1
Research Questions, Approach and Research Methods
1. What are the main features of management and leadership models and Performance Measurement Indicators (PMI) used at present in Finland ?
at present in Finland ?
2. How should these models and PMI be adjusted to Finnish Companies in Russian business environment?
3. Constructive approach.
4. In STROI Network project both qualitative and quantitative methods were applied, 113 interviews were reported and 64 answers for quantitative questionnaires were received. f
i i
i
i
i d
Selected quotes of interviews and answers for surveys are used in this presentation.
26.2.2010
P6:Performance measurement, Stroi Network, Seppo Niittymäki
2
1
08.03.2010
Different Approaches of Research in STROI Network Project
1. Finnish
researchers`
approach
Qualitative
Constructive
Approach
Business
Practices
3. Joint
approach:
Triangulation
Constructive
Approach
Quantitative
2. Russian
researchers`
approach
26.2.2010
P6:Performance measurement, Stroi Network, Seppo Niittymäki
3
The development trends in performance measurement (Kulmala and Lönnqvist, 2006).
26.2.2010
P6:Performance measurement, Stroi Network, Seppo Niittymäki
4
2
08.03.2010
Uniqueness of the Russian Market (Basic comments by Prof. Alex Settles (ASe), HSE Moscow, additional comments by the author and other experts mentioned.
• Different motivations (ASe)
– Company Rautaruukki: Bonus motivates more in Russia • Differing traditions in management both Soviet and post‐Soviet (ASe)
g
g
p
(
)
– Prof. Olga Tretyak: Power shrinks, when costs are saved ...no tradition in cost saving
• Russian tradition of authoritative leadership equaling “effective” leadership (ASe)
– Naulapää (2000) and company NCC`s experience
• Lack of team building tradition – hampers network formation
– Konecranes interview, “why they don`t ask neighboring room instead of calling Finland”
calling Finland
• Extensive informal networks
– positive and negative aspects for firm
26.2.2010
P6:Performance measurement, Stroi Network, Seppo Niittymäki
5
Cultural differences between Finland and Russia
(Sources: www.geert‐hofstede.com and Russian researchers Yu&N. Latov (2003) and A.Nautov (1996), which are presented with white arrows according to Filinov et al 2009)
PDI, Power Distance
IDV, Individualism
MAS, Masculinity
UAI, Uncertainity Avoidance
LTO , Long Term Orientation N/A
White Arrows: Score results
given by Russian
researchers according to
analysis of their own.
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Source for basic model: http://www.leadership‐and‐motivation‐training.com/blake‐and‐mouton.html (Nov 19, 2009)
Country club,
relations
most
important
Network leader
Russian
LEADERSHIP OFF NETWORKS: CONCERN FFOR PEOPLE Management and Leadership styles in Finnish‐Russian Business Networks according to authors experience and interviews (Expressed as an application of Blake& Mouton ‐model)
Direction of
future development
Middle of the Road (Politician)
Finns
No efforts to people
No efforts to tasks
Authoritarian style; money talks
MANAGEMENT OF NETWORKS: CONCERN FOR TASK
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Topologies of Business Networks (VTT)
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STROI project perspectives: Main success factors
P1: P2: Business sector for a networked company
Common vision of the network
P3: P4: Competence Internal development
of human resource
P5: Customer orientation and marketing
P6: Measuring network performance
f
Main Networked company’s ’
main targets for business in Russia
Description of the f h
business network
Development relationships
relationships in the network; HRM in Russia and Finland
Working environment ((Learning g
organization); Network growth; Decision‐making in a networked company
Trust‐building in inter‐
organizational
organizational relationships; Supplier/
Customer relationships management PM in the
PM in the networked company; PM in the network
P6:Performance measurement, Stroi Network, Seppo Niittymäki
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Balanced Score Card ‐structure of the Stroi Network ‐project
Business Sector
Vision of the Business Network
Vision of the Business Network
Customers
Internal processes
Finance
Learning and growth
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3) The Network Score Card (NSC) approach
(Järvenpää, 2009) Financial indicators (growth, profitability, network value)
Customer perspective
Network culture (trust, community, interaction)
Network resources (e.g., know‐how, relationships)
Network processes
(Efficiency, flexibility, productivity
productivity, innovation, learning, etc.) Network’s operating Network’s
operating
models
(control)
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Main aspects of the network performance measurement
(Sivadasan et al., 2002; Westphal et al., 2004)
Reliability of the partners
Measuring information g
g,
and knowledge sharing, decision synchronization and incentive alignment among members of the network
Commitment to the network Measuring whether materials, information or resources are delivered in the agreed cost, quantity, quality and time. There are also trust‐related aspects of reliability, such as keeping information confidential when agreed, and no advantage is taken of the partners’ problems.
Flexibility or the ability to respond ability
to respond
adequately to a changing environment Identifying the ability of network members to absorb problems of other partners, and coping with them
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From Balanced Score Card (BSC) to Network Score Card (NSC)
Business Sector
In Finland: purchasing In
Finland: purchasing
department
Russia: gifts and services
BSC
Vision of Business Network
Vision of Business Network
In Finland: competition
Russia: relationships
Customer
NSC
Network
Internal
Internal processes
processes
Finance
Network
Culture
Networks operating
Learning and
models
Network Resources
growth
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A Model for Planning and Implementing Strategy in Project Business
P6:
Finance
P1:
Business
Sector
P5:
Customer
orientation
P2:
Network
Vision
P4:
Internal
development
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P3: Human
Resources
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Common Dimensions of Performance Measurement
Performance Measurement Indicators (PMI) for Strategy Implementation P6: Finance
Previous year %
This year %
Next year %
P1: Business sector
P2: NW Vision
1. Target amount of production
24 Annual growth 24. Annual growth of turnover of turnover
2 Market share target achieved
2. Market share target, achieved in
in %
%
100
23. Performance/capa city of network
3. Average price/margin cost
90
80
22. ROCE‐achievement‐%, target 35%
(EBT+interest/(Bala nce‐ non ‐in t. bear.)
4. Development of sales prices/unit
70
60
21. EBT‐achievement‐%, target e.g. 6% (EBT=profit/turn ove rx100 %)
5. Number of new customers
50
40
20. Percentage of CRM use in all projects
30
6. Share of deliveries in time
20
10
19. Share of key customers in turnover, ideal 80% 7. Successful deliveries in (%)
0
P5: Customer
18. Recognition among B2B potential clients on area
8. Average time of delivery dev.
17. Customer 17
Customer satisfaction satisfaction B2B
B2B
(actual/target index)
9. Network meetings (impl./target, %)
16. Productivity trend e.g.
EBT/employee/year, target 20 000 €
10. Kept 95% (Staff turnover < 5%)
15. Accident trend (actual/targe t, %)
11. Skill profiles, training agreed...
14. Integrated purchases/all purch. (%)
12. Targets set in appraisals.
13. Successor plan key persons
P3: Human resources
P4: Development
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Most important factors to be measured according to the Stroi Interviews and Survey
Survey
Interview
Business sector and customer …
29. Knowledge sharing 1. Market share
5
28. Common development
2. Compnany reputation
27. Streamlining activities
3. Customer satisfaction
4.5
Commitment to NW
26. NW Risk sharing
25 Common NW development
25. Common NW development
Flexibility
4. Market share of network
4
3.5
5. Innovations from customers
3
Human resource management
Human resource management
2.5
2
6. Staff turnover
1.5
24. Confidence, trust
7. Staff skil level 1
0.5
23. Number of reclamations
8. Development and appraisals
0
9. Work satisfaction
22. Punctuality in delivery times
10. Ability to form networks Reliability:
Network (NW)
(
)
Development
p
11. Procurement system 21. Liquidity
12. Trend of work accicents
20. Profit of a product, %
13. Trend of productivity
19. Order book change
18. Growht of turnover(%)
17. Profit out of turnover, %
16. Return on Capital …
14. Innovations
15. Dividing benefits of …
Finance
Six most important factors for each perspective
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Most important factors to be measured according to the Stroi Interviews and Survey
Survey
Interview
Business sector and customer …
29. Knowledge sharing 1. Market share
5
28. Common development
2. Compnany reputation
27. Streamlining activities
3. Customer satisfaction
4.5
Commitment to NW
4. Market share of network
4
3.5
26. NW Risk sharing
5. Innovations from customers
3
25 Common NW development
25. Common NW development
Human resource management
Human resource management
2.5
2
Flexibility
6. Staff turnover
1.5
24. Confidence, trust
7. Staff skil level 1
0.5
23. Number of reclamations
8. Development and appraisals
0
9. Work satisfaction
22. Punctuality in delivery times
10. Ability to form networks Reliability:
Network (NW)
(
)
p
Development
11. Procurement system 21. Liquidity
12. Trend of work accicents
20. Profit of a product, %
13. Trend of productivity
19. Order book change
18. Growht of turnover(%)
17. Profit out of turnover, %
16. Return on Capital …
14. Innovations
15. Dividing benefits of …
Finance
14 most important factors to be measured on the basis average values
P6:Performance measurement, Stroi Network, Seppo Niittymäki
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Business sector and customer orientation
1. Market share
2. Compnany reputation
3. Customer satisfaction
4. Market share of network
5. Innovations from customers
Human resource management
6. Staff turnover
7. Staff skil level 8. Development and appraisals
9. Work satisfaction
10. Ability to form networks Development
11. Procurement system 12. Trend of work accicents
13. Trend of productivity
14. Innovations
15. Dividing benefits of innovations
Finance
16. Return on Capital Employed, %
17. Profit out of turnover, %
18. Growht of turnover(%)
19. Order book change
20. Profit of a product, %
21. Liquidity
Network (NW)
Reliability:
22. Punctuality in delivery times
23. Number of reclamations
24. Confidence, trust
Flexibility
25. Common NW development
26. NW Risk sharing
Commitment to NW
27. Streamlining activities
28. Common development
29. Knowledge sharing 26.2.2010
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Most important
factors to be
measured.
Reliability according to
method triangulation
with two different
methods:
Red circle: difference
more than 20%.
Green circle: difference
on results less than
20%.
Web-robol
Interview
0
1
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The Most Important 14 Factors to be Measured in Different Perspectives (P1‐P6) on the Basis of Triangulation of Different Datasets (Interview and web‐robol survey)
P1: Business Sector,
P4: Internal Development
• 1 company reputation
1 company reputation
•
P2: Network Aspects
P5 Customer Orientation • 2 punctuality of delivery times
• 3 number of reclamations
• 4 confidence within network
• 5 common development and
• 6 streamlining activities
6 streamlining activities
• 10 growth of turnover and • 11 order book change
• 12 profit of a product
P3: Human Resources
9 trend of productivity
9 trend of productivity
P6: Finance
• 13 return on capital employed
13 return on capital employed
• 14 profit
• 7 staff turnover
• 8 work satisfaction
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