Organizational Practices In Romania

Organizational Practices in Romania and US: Are We So Different?


Matt AielloAwilda Borres

Madalina Bucor

December 7, 2008Organization Management CR 505

DeSales University

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Introduction

In the fall of 2008, three MBA students from Romania and US convened a

roundtable on Romanian and Anglo-American management practices. Over the

course of several weeks, the roundtables covered four organizational themes:

Coordination, Courage, Collaboration, and Creating Change. This article is a

summary of their dialogue regarding organizational practices, based both on their

experience and empirical research.

Although all three came from different backgrounds, they shared a

common experience and expectation: all experienced economic shifts in their

countries and belief that the modern organization as it exists today, should

radically change. A brief background on participants of the roundtable:

Matt Aiello started and manages a small waste management company in

the US. Prior to starting his own company, he worked in multiple industries,

which provided him a broad view of different management styles and industries.

Awilda Borres is currently Director of Organizational Development with

Merck & Company, a global pharmaceutical firm, and has over 15 years of

experiencing in designing and leading large-scale change in large corporations.

Madalina Bucur is currently an assistant manager and regional selling

manager with Bucur Grup Automobile, a mid-sized automobile distributor and

service organization in Romania. Madalina is also a subject matter expert in

Informatics and Computer Science.

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Context

1. What changes have you seen in the way managers lead their organizations in

the last 10 years? How much does the general economic and social

environment (culture) influence organizations and management styles?

Awilda: I have worked in numerous countries but not extensively in Romania-so

so my statements are based mostly on my research and conversations with

colleagues in Romania and Eastern Europe: it is my opinion that national culture

has more influence on corporate culture than previously believed, even in 2008.

We also now have empirical findings supporting the impact of this factor1.

Romania was a socialist country and highly regimented, i.e., command and

control, as exhibited by its planned economy. It was not until the 'revolution' in

1989 that Romania abandoned the command economy model. It is almost 2009,

so practices such as competitive and open markets are still relatively new, at

least from my experience. Though much reform and progress has been made,

there are still fundamentals such as productivity which consumes management

time and effort. It seems time would be best spent on understanding how to shift

culture, though more difficult, the return on investment would benefit any firm.

1 Peretz, H. and Fried, Y., National Values and Performance Appraisal Practices, and Organizational Performance: A Study Across 21 Countries, p.3. Our expectation is based on the model of culture fit, or MCF (Aycan, 2005), which was proposed by Kanungo and his associates (Kanungo and Jaeger, 1990). The MCF suggests that national culture affects employees are exposed to an HR activity that does not fit the national culture they will tend to respond negatively (Aycan 2005).

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Madalina: I would agree the change was not realized at once. It was only after

40 years of Communism, Romania joined the capitalist market economy. It has

been a complex process, which needed time and a shift in the Romanian

people’s behavior. Understanding the backdrop in which Romanian companies

operate is critical for any manager:

The transition toward the market economy started in 1990 and during the

period 1990-1995, many small and middle size enterprises (SMEs) were created

due to the existence of unexploited market niches and the enterprising Romanian

spirit. A second phase of revitalization commenced after 2000, due in part to

Romania's entry to into the European Union and the investment of multinationals

in Romania.

During the Communist period, Romania experienced a highly centralized

system of management, which made initiative, critical thinking and innovation

dangerous. Nevertheless, these are the very qualities which are required in

management in a democratic market economy.

Matt: From a small business perspective, large corporations and franchises are

'taking out' small businesses in all industries in the US. Small business

managers in the last ten years have been fighting to survive more than ever--they

have to look for ways to innovate and cut cost. It is getting more and more

difficult for small businesses to compete across the board; large corporations

have the resources and capability of delivering cheaper products and services.

So small businesses must create a niche, or a specialty to grow if they are to

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survive. I believe that the current economic situation and consumer culture in

America does impact small firms and how they are managed. The US consumer

is turning from small business and to large conglomerates. Why? A better

product at a cheaper price. Also these large corporations have monstrous

advertising budgets at their disposal which influence or instructs consumers

where and how to find their services. But it would be unfair to lay all of this at the

feet of the American corporation or consumer—small business have made

mistakes by inefficient or poor management practices, which result in bad service

or poor products. We have entered a new age in America—before there was an

equal playing field in the US--now corporations are slowly taking over markets

traditionally served regionally or locally by small firms.

2. What are the key challenges facing management in your respective

organizations?

Matt: As you know I work in the waste management industry. Currently, there

are three large corporations that have close to 85 percent of the entire market

share in the waste industry. Due to size, they have been able to purchase most

of the smaller companies throughout the US. Though they can offer cheaper

services and better rates to commercial and residential customers, some smaller

companies have been able to compete (mostly in the states of New Jersey, New

York and Connecticut).

But since the economic crisis, the managing costs across the waste

management industry have increased and we have been forced into a price war

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by larger competitors. So in my opinion, the key challenges for small business

managers in industries like mine and other managers in small organizations:

1) how to manage more efficiently, cut costs, and

2) how to differentiate our services in a unique manner so that customers

remain loyal and paying customers during an economic downturn.

Madalina: First, the Romanian market is often characterized as an "unstable

and an atypical" market, which means in most cases one cannot really predict

what is going to happen, or to make plans based on the market. Yet there are

success stories, such as Carrefour and Renault. Both firms (retail and auto

manufacturer) primarily entered the market based on market studies--a huge risk.

Yet now Carrefour Orhidea, located in Bucharest, is the second largest revenue

stream for the entire company. Likewise, it was Renault's intent to produce only

the Logan model in Romania, but now Renault operates a techno centre with

multiple products lines in Bucharest.

2) The second challenge is the rapid change of economic legislation,

which makes it difficult to develop and implement financial and strategic planning.

3) The third challenge is the educational system which does not stimulate

creativity or correlate theory with practice. As a result the majority of university

graduates are not well prepared for the challenges in the real market or

workplace.

The facts mentioned above affect all the companies--in fact, the small and

medium size firms (as the one I work for) are mostly affected by the lack of well

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trained employees and specialists. But this does not only affect employees, let

me share some facts about 'the typical Romanian manager':

In the 1990s, college graduates were reticent to work for an international

company, preferring to work for a state company. Although 26% of Romanian

managers have some form of formal education, they were not actually prepared

to think and act commercially. In the last years there have been made major

investments which have resulted in the growth of corporations and transfer of

managerial know-how.

Based on a survey2 realized of 850 companies in 21 counties (judete), this

is a portrait of the typical Romanian manager: adult male (75.5%), highly

educated (48% technical, and 26% economical high education), and diligent

(more than 50% work at least a 60 hours week). Though most managers were

trained in Western countries or are expatriates, they rarely set strategies or

establish objectives in their organizations--they adhere and follow policies,

strategies set from headquarters, typically a multinational. In contrast, the typical

company in Romania has one or more business partners, many with family

members involved in the business and ¾ of all managers are married.

4) Finally, the last challenge is connected to the last challenge regarding size of

companies-- access to loans for investments and funds for innovation is difficult,

given that more than 60% of a small and medium size firm turnover is due to the

amount of taxes paid to the Romanian State. As a footnote, this week (first week

2 O.Nicolescu,A.I.Maniu,C.Nicolescu,F.Anghel: White Chart of Romanian SMSs in 2007, Olimp, Bucharest, 2007

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of Dec 2008) the Romanian government passed a plan to stimulate investment

on behalf of companies. In 2009, taxes will be reduced and funds must be

reinvested into innovation practices and plans. At the same time, national banks

increased interest rates to 23-25%, making it difficult for businesses to secure

loans.

Coordination

3. How does management communicate to their employees? To each other?

What tools are available to employees?

Matt: From a small business perspective, this is straight-forward due to the

smaller staffs in these organizations—simple and direct. Even if the staff is

larger, it is nowhere near the size of a corporation such as Merck with over

40,000 employees! However that is not to say management in small

organizations do not have their challenges, for example, there may be more

politics among employees. There is a higher likelihood of developing personal

relationships which is positive but also potentially a risk because they may know

more about each other than about the performance of the small firm or the

industry.

Small organizations often do not have large intranets and extranets at

their fingertips, so communication about the business and industry can be limited

compared to how large corporations communicate daily instantly globally to their

employees.

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Madalina: If we view Romania using Hofstede’s cultural dimensions, one could

say that the culture in Romanian organizations have a low uncertainty avoidance

ranking, which means a ready acceptance of change and greater tolerance for

risk-taking. The research indicates a short-term orientation, and a higher power

distance, which can indicate the absence of a balance of power within society.

This means, individualism is more prevalent than collectivism, which is helpful to

understand how managers and employees approach their work in this culture.

From my experience I would agree with the research. For example, generally

Romanian firms have a greater number of hierarchical levels than their

international counterparts. As mentioned in a previous roundtable, autocratic

management style and culture is typical, and participative management is seldom

to be seen or actualized.

Managers as well as the employees prefer face-to-face communication. E-

mails, memos and briefings or the company intranet are less used. Both

managers and employees are less formal about delegation and conducting

meetings. In the multinational companies it is different: processes are more

formalized and communication is done by electronic means.

Important to note is that communication at the same level is slight or

minimum, dependent if information is required to fulfill her/his own tasks.

Everybody is focused on accomplishing their objectives and tasks, and less

interested in how decisions, outputs affects a peer's tasks or the company’s

performance. Hofstede's framework seems to validate the individualistic

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tendency of employees: it can be both positive and a negative in multinational

companies, I think.

Courage

4. Is speaking up or risk-taking acceptable or common? Is it rewarded?

Madalina: Managers do not usually involve the employees in the strategic and

tactical planning of processes of the company. Although there is a big gap

between them, speaking up is acceptable as long as debate on the topic is

encouraged. Romanian firms are only now placing importance on strategic

planning, as stated earlier. On a day-to-day basis, employees take risks, but in

most cases they are not aware of their consequences later in the process or to

company performance. If the result is satisfactory, then it is considered as part of

successfully completing one's job, and possibly a bonus or salary increase is

given.

5. What kind of influence (power) does middle management have?

Matt: Given our assumption: a small business is a company with less than 100

employees, I need to state that middle management is not needed in this size

organization. However, it is my experience that entrepreneurial individuals are

attracted to small organizations because they may have more' power', authority,

or direct reports (as opposed to a corporation).

Madalina: Middle management influence in initiating and influencing strategic

decisions is quite low-- it is more about informing top management about what

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how goals are met/not met. (There are qualitative studies to substantiate this).

Middle management exert their influence on lower levels with the objective of

coordinating and controlling objectives and outputs.

6. What kind of influence do more “senior” employees have? Women?

Matt: In this arena, I think small companies definitely have the edge and

competitive with larger corporations for the following reasons:

1) Senior employees at small businesses are usually employed longer than they

are at large companies, sometimes until they retire. The corporate world is

more fast-paced, and driven by results. I believe small businesses care more

about employees, and less quick to lay-off talented employees.

2) Employees in small companies is a huge capital cost, so management does

not want to lose talented performers as it more expensive in the long-run.

This is why I believe there are more women in senior management and as

owners of small to mid-sized companies in the US. Regardless of your

gender, if you are talented and a proven performer, the playing field is equal

—which is different in large organizations in the US.

Madalina: Now that is a definitely a surprise! I would have expected more

progress in the US. In Romania, more and more women are in leadership

positions, and recently there has been the recognition of the top 300

businesswomen in the country. Nevertheless men are predominant in leadership

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positions. A survey done in Romania3 shows that the main criteria for promotion

are: results (79.50%), potential (16.15%), age and experience only 4.35%. The

criteria used for determining salary level does not take into account the person’s

gender. Education, the person’s position and the results are of primary

importance. Senior people in a company usually receive a bonus, but that does

not mean they possess greater power or influence than junior managers.

Collaboration

7. Are teams common in organizations? (quality circles, cross-functional or self-

directed teams)

Madalina: In the last few years Romanian companies have become more

and more aware that in order to solve some problems or to innovate it is

necessary to create teams. Inside of a company, industry, company size, it is

possible to find quality circles, cross-functional or self-directed teams. Although

Romania is seen as more as an individualistic than collective society, the

employees, especially new hires, have adapted rapidly to newer forms of

organizations and practices.

We are seeing more cross-functional teams comprised of different

departments to solve a common problem. In my company, teams have been

established to launch new products and to achieve corporate-wide investment

objectives.

3 D.Popescu, I. Verboncu, I.Chivu: THE EUROPEAN DIMENSION of the HUMAN RESOURCES MANAGEMENT - A NEW PERSPECTIVE FOR ROMANIA, ASE, Bucharest

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Matt: I believe there are fewer teams in small business because teams require

so much time and resources. Management is always concerned that all

employees and processes operate effectively, but management has to be

efficient as well. Also, it is a risk to create teams just for the sake of creating

teams—it can backfire in small organizations as teams may focus more on how

they are working together than on the work itself.

Creating Change

8. There is internal and external pressure to change corporations and reinvent

management (see Hamel). Do you think this is possible in your company?

9. How quickly does change tend to happen in your industry? Is change

introduced and managed top-down (defined by the industry or upper

management) or bottom-up (employees)?

Matt: As a whole, I believe there are always external pressures to reinvent

management. In order to succeed in the waste management industry in the US,

first one must reinvent business operations---every cost you can cut has to be

cut--this includes equipment, advertising cost billing, and yes, employees as

well.

As a manager and entrepreneur, I need to think innovatively about how to

operate efficiently as well as new sources of profits. Operationally, I think about

e-bills for billing and advertising online to customers. As an innovator, I think

about how to eliminate the manual labor involved in waste management such as

residential incinerators or automated waste collection. These innovations would

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change the whole landscape of the waste management industry yet impacts how

I think about my business today.

Madalina: As we discussed in an earlier session, employee attachment to a

'corporation' is low, and mainly dependent on how much his/her own interests are

satisfied. In this there is a strong similarity with the individualistic culture in the

US. However, the use of external compensation as motivator and reward for

performance differs from US reward systems in that position and years of service

(seniority) is a consideration (though not the only factor).

Regarding change and innovation, in 2007 a study conducted by the

National Council of Small and Medium Sized Private Enterprises in Romania

(CNIPMMR) revealed that innovative efforts within SMEs were especially

focused on new products (34.87%), new technologies (26.99%), new managerial

and marketing approaches (15.92%), renewing the informational system

(13.77%) and human resources training (13.46%). According to this chart, (see

Table 1) you see there are companies with no innovative approaches at all in

2007 (21.18%) !

Table 1

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I do need to state that the study did cite over 25% of management respondents

intention to overhaul or restructure their management structures and systems—

indicating the growing need to innovate management practices. The

respondents included management from small to large corporations in Romania.

Matt: These roundtables have been interesting in how more alike we are than

not—in my industry change also happens from the top-down. It is unavoidable in

a small organization. In fact, building a positive company culture and sustaining

a healthy, growing small firm depends on your ability to manage change

effectively. As a small business owner, you owe it to yourself and to your

employees to be the best change leader one can be, and understanding key

industry drivers is the first step.

Awilda: Typically western corporations still adopt a classical change approach

to deal with change. By a classical change methodology, I mean:

1) top-down, defined and led by current management

2) project or process management approach, such as Sigma, and

3) focus on restructuring. It is the same in the US as in Romania: years of

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institutional, bureaucratic thinking is difficult to change in a few months—thus

managers spend years reorganizing and redesigning processes.4 The paradox

underlines the issues with the pharmaceutical industry and corporate

management today: C level executives consider human capital as the

competitive differentiator, especially in the research and development of new

drugs and vaccines. Yet we have just started experimenting with bottom-up

change: engaging employees to shape strategy and as leaders of change.

Closing Comments

Madalina: If Romanian companies want to be more competitive, there must be

more focus on innovation. In his book “The Future of Management” Gary Hamel

asserts that if a company wants to cope with globalization and accelerate

change, the company must become a "serial innovator", and the only innovation

that offers a durable competitive advantage, is management innovation. To

achieve this goal a company has to commit itself to a bold goal, to deconstruct

the management orthodoxies, to embrace new principles and learn from positive

deviants within their organizations.

As I pointed out in earlier roundtables, Romanian management are not

captive to hierarchical management orthodoxies--this does not mean that these

principles are unknown but most Romanian managers lead instinctually. This

may actually prove to be an advantage to new principles and practices.

4

? Van Frausum, Y.G., Gehmann, Ul, and Gross, J. "Market Economy and Economic Reform in Romania: Macroeconomic and Microeconomic Perspectives", Europe/Asia, Studies, Vol.46, No.5, 1994, 735-736.

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In my opinion, unlike the American management, the Romanians should

see management innovation in the opposite way—that is to formalize the existing

practices while not adopting large corporate cumbersome practices—always look

for positive deviation from today's practices. This is the real opportunity for

Romanian companies in today's global competitive marketplace.

Matt: Given today's competitive pressure, customer demands, regulatory

requirements, supply upsets, and technology breakthroughs --change is no

longer the exception—it is now 'The Rule.' Unfortunately, in the US, 80% of

change initiatives fail to meet expectations5, regardless of the transformation: IT

innovation, re-engineering, lean manufacturing, merger, or acquisition. So the

reality for small or large organizations is that the global landscape and playing

field has changed forever. From what I see in the US, there are few senior

business leaders and executives able to absorb this fact--which means there will

only be a few who will make it in the new economy—statistically this means 20%

or less will survive in the long-run.

Awilda: Matt's statement reminds of a Romanian saying: 'Brains take a long

time to thaw out after a hard winter'--management are still thawing to the

possibilities of new ways of managing.6 Companies are seeking ways to adapt to

5 Smith, M. E., "Success rates for different types of organizational change", Performance Improvement, 41

(1), 2, 2002. Initiative Failure Rates: Culture Change (81%), Business Expansion (80%), Software (74%), Re-

engineering (70%), M&A (67%), TQM-Driven Change (63%), Restructuring (54%).

6 Dalton, K., Kennedy, L. "Management culture in Romania: Patterns of change and resistance," Journal of East European Management Studies, 2007.

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disruptive technologies and economies. It is a fact that large companies are still

instrumental in introducing new practices, technology, ideas, especially in

emerging markets--however Madalina is on point to caution that managers

should not adopt processes without critically assessing their value. The same

institutions driving changes are feeling tremors in their own executive suites.

It is not only Hamel who questions if managers today can envision and be

the architects of tomorrow. Personally we can no longer afford be spectators on

the sidelines, criticizing management—we need to get on the field and shape

game plans and even the game itself.

Appendix

Strategic Planning Activities and SMEs

Of the 54.84% of small and medium enterprises (SMEs) which develop

annual strategic plans, 13.58% are involved in strategic planning activities, and

34.10% are not preoccupied with any planning activity at all. In order to

understand the degree to which management is involved in strategic planning,

one must also take into consideration the firm's experience on the market 7 (and

in most cases this means management also).

Table 2

% Involved in

Strategic

Planning

SME Length of Time

Under 5

years

5-10 years 10-15

years

above 15

years

7 O.Nicolescu,A.I.Maniu,C.Nicolescu,F.Anghel: White Chart of Romanian SMSs in 2007, Olimp, Bucharest, 2007

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Involved in annual

strategic planning

process

56.07% 54.36% 52.56% 57.43%

Involved in 3-5

year strategic plan

13.18% 11.50% 15.06% 16.83%

No involvement in

strategic planning

33.59% 34.96% 34.11% 34.00%

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