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Sustainability of Reforms in Russian Enterprises

In the last years, the impact of external factors on companies has been increasing thus motivating companies to change. The basic premises for change are global competition, more stringent social and environmental norms, and the desire of investors to make profit faster and with smaller investments. Sooner or later leaders make decisions to reform their enterprises. However, only a few succeed in meeting the stated objectives and generating tangible and sustainable results. All over the world the portion of successful site transformation projects tends to be low. Studies show that only 20-30 % of reforms end in success. 

Russian companies have their own course of transformation dictated by the regional mentality traits, economic situation and risks unique to the Russian and CIS markets. Experience gained in the last few years indicates that most transformations have attempted to copy advanced international practices. However even those projects that were successfully implemented in foreign countries can not be transferred to our enterprises if specific features of the Russian market are ignored. The size of sites, the specific charater of doing business and of labor relations in Russia, volatility of markets and the Rouble exchange rate prevent the use of international rubber-stamp templates while implementing such reforms.

Russian companies are seeking their own scenario for further development. A dedicated approach is required to help companies adapt quickly and effectively to changes in the marketplace and to the competitive environment, and to satisfy their leadership’s drive to raise the value of existing assets, to reduce costs, to develop personnel and to ensure its loyalty.

Russian industry and especially its processing sector has to defend its positions in international markets strongly influenced by competition, especially by China. Until recently, Russia possessed huge competitive advantage owing to low cost of raw materials and energy resources, and it was a world’s leading exporter. In combination with geographical accessibility of resources, vertical integration and consolidation of enterprises this factor helped create a sustainable and profitable business model that ensured adequate competitiveness in the world markets and helped generate high profits.

However, a steep decline in resource prices, as well as construction and commissioning of a number of enterprises in China and other developing countries have made the situation for the Russian players a lot more difficult. The strugle evolving in international and local markets makes the companies continously improve product quality and shipping flexibility, and seek balance in product cost matters.

In these circumstances the need for a reform of the existing business management model has become obvious to leadership of companies. Russian enterprises need a modern business system that will ensure results and high adaptability to the current economic situation.

In their development, most companies follow a certain path from authoritarian and directive management style used in the phase when business gets established to the maximum engagement of employees in the process of asset management when the enterprise achieves a certain level of maturity.

As the company grows and expands its business geography and enters new markets, directive and centralized management style becomes less effective at the site.

Companies need new leaders at al levels of management who can make timely decisions in production areas.

The next phase of evolution brings awareness of the need for broad employee engagement in solving site’s production tasks. In advanced companies these principles are based on team-work motivation, on erasing boundaries between functional departments, on empowerment of production personnel in their areas, on developing and providing incentives for proactive employee workplace attitude.

HOW SHOULD DEVELOPMENT PROCEED?

Russian companies are ready for change, and many leaders recognize the need for reforms. The next important step is creating own path and unique development principles for each enterprise. To enable transition to a new level of management a foundation is needed that is based on international and Russian experience, on success and failure cases of other companies.

 In combination with advanced technology and latest equipment that many Russian processing sites already have, this platform guarantees further growth in asset and bussiness performance.

 Time has now come to focus on personnel development, on creating a transparent career growth system, on empowering employees and motivating them for continuous improvement. In other words, change is needed in corporate culture and in production asset management approaches. 

There have been many cases where technical skills of production personnel enabled the highest performance of available equipment and technology by means of efficient operation, optimized process regimes and competent equipment maintenance. 

A metallurgical site experience demonstrates that despite initial skeptical forecasts, substantial opex savings were generated by gathering and implementing ideas of workfloor personnel.

Another Russian metallurgical company achieved a 3 % reduction in metal yield loss and 180 million roubles in economic effect with an area supervisor’s idea (regulation of casting process dynamics and adjustment of cooling water supply).

THE RESULT IS ACHIEVABLE

Some enterprises in Russia have managed to complete the path of transformation, to enter a new phase of evolution and even to surpass business peformance of international companies. These enterprises demonstrate sustainable positive development results, draw the best personnel, create forward-looking jobs and unlock their employee potential.

4 MAIN TRANSFORMATION BARRIERS

Companies implementing changes often make a common mistake of putting first the standards and guidelines that control employee actions. At the same time very little attention is paid to the factors that govern people’s behavior: environment, beliefs and needs. 

In this situation the barriers that interfere with effective work of operational personnel can not be identified and real support for company initiatives is not provided.

An environment is to be created where people would feel ownership and their value for the organization, and that would pursuade employees of the need for change. 

Dozens of years of economic instability in the country have had a negative impact on people’s mentality: most Russians are skeptical about changes, they are afraid of altering their conventional modus operandi and are wary of unfair treatment. Therefore, favourable work environment and continuous dialogue with the team are very important in creating proper employee attitude towards transformation.

4 key tranformation barriers (typical for most Russian companies):

1. Inadequate communication between leader and employees. Lack of communication with management, lack of openness and lack of performance recognition lead to zero motivation.

2. Work environment that does not assist improvements or employee development. Poorly-developed incentive system, social problems, uncomfortable and hazardous workplace conditions, inadequate support for initiatives cause employees to withdraw.

3. Lack of coordination between departments. Contradictions between departments and functions and often opposite goals prevent employees from making correct decisions.

4. Complicated decision-making, lack of clear priorities. Bureaucracy, complicated paperwork, many initiatives and excessive micromanagement all tie employee freedom and restrict opportunities for independent work.

5 KEY RULES OF COMPANY TRANSFORMATION

Despite the challenges and obstacles standing in the path of transformation, changes are feasible. Russian companies possess vast potential, solid technical basis and skilled employees who are ready to develop themselves and to bring their companies to leading positions in international markets. 

Five basic rules of transformation will help achieve sustainable results and return on investment within 6 months of the start of changes: 

1. Allocate the best resources. Select and train the team and informal leaders among the best and promising employees, motivate them and offer them career-growth oportunities. Allocate resources to execute workplace condition enhancement activities, to eliminate hazardous conditions and to implement improvements.

2. Personal involvement and motivation. Real transformations require close attention of leaders and their continuous participation. Showing personal commitment to the new principles, attending production areas, participating in work meetings help establish dialogue between employees and leaders. Setting ambitious goals while recognizing success inspire people and create an environment of healthy competition.

3. Setting priorities. Identifying the courses of priority development and focusing the organization on achieving real and measurable results will help production personnel feel ownership of the company success and create an environment of certainty and alignment among employees.

4. Production leader capability building. Developing the basic management competencies of middle management, i.e. skills in teamwork, delegating, prioritization and planning according to company goals all help significantly accelerate the pace of transformations.

5. Aligning goals and functions of groups and units. A transition from isolated management by functions and production units to collaborative work raises effectiveness of activities with common goals.

IS HELP NEEDED?

Experience of leading Russian companies indicates that the results achieved in the process of transformation can be produced much sooner when seasoned experts and consultants are involved in the process. Practice has proven efficiency and profitability of services provided by experts credited with implementation of many large-scale transformation programs.

It takes companies a long time to execute transformation with their own means only (generally, 5 to 7 years) and it requires additional resources, e.g. hiring experienced managers.

Also, implementing a transformation program by own means entails higher risks of such transformation becoming a formal check-the-box activity, and of the past situation with isolated improvements coming back.

Working in collaboration with consultants and experts will help implement transformations in a most efficient manner within 3-4 years while building capability of available personnel, successfully applying available expertise and adapting it for company needs.