THE EXPERIENCE OF THE STRATEGY TOOLS IMPLEMENTATION: CHINA AND RUSSIA

I.E. Egorova

Kandidat ekonomicheskikh nauk (PhD economics), head of the Department for foreign economic studies of the Institute for regional economics of the North, the North-EasternFederalUniversity, Yakutsk, Russia

THE EXPERIENCE OF THE STRATEGY TOOLS IMPLEMENTATION: CHINA AND RUSSIA

Annotation

The article presents the overview of the experience in strategy implementation both in China and Russia, whereas the commonalities are stressed out. As China started its way to capitalistic economy earlier than Russia, it has been revealed that Western practices proved to be inefficient in Chinese culture of business. Therefore, it is essential to customize the existing strategic tools before implementation or put more effort in research and the elaboration of the Russian-type of a business strategy. Key words: strategy implementation, balanced scorecard, strategic map, transitional economies.

 

Among all modern management systems the Balanced scorecard (BSC) appears to be more integrative of all previous attempts to measure and manage the performance of an organization, thus incorporating financial and non-financial measures and dimensions of company’s activity.  This is confirmed by the higher popularity of BSC system in both developed and developing countries. The first mention of BSC implementation in China relates to 1996’ attempt by a large MNC, operating in China, to transform is organizational processes [3]. Further penetration of the BSC concept into Chinese economy have been marked by three state-owned enterprises cases, in which enterprises either experienced the lack of connection between performance measurement and strategic priorities, or found themselves to be weak in customer orientation and satisfaction, or treated performance appraisal system more like a formality with no real value created, or the interpretation of a formal strategy varied through departments and key executives.

Not only large state-owned enterprises have implemented BSC concept, but also privately held small and medium enterprises with no strategy, poor executive ability and the lack of capital. It has been identified that applying BSC concept can solve capital problems and intensify research and development activities, learning and growth of the personnel [4]. The researcher, however, urged Chinese SMEs from selecting too many measures, make sure to communicate the objectives through all levels of an organization and thoroughly select measures in order to minimize the number of factors in cause-effect relationships of strategic maps.

At the same time there is another school of thought concerning strategic management in China: those, who do not believe in Western theories and suggest the dominance of Chinese traditions and culture in all aspects of economic life [5]. For example, they speculate about applying principles of “Sun Tzu” military guidance principles to strategic management concepts, stressing out the importance of the culture.  However, the overestimation of culture’s influence on management processes can lead to the elaboration of irrelevant management systems, as the culture might have little to do with the strategy [7]. The authors [5] express doubts about the usefulness of ready-to-apply Western (mainly, that originated from the US) techniques for traditional Chinese companies, such as state owned enterprises. An integrative approach, combining the frameworks from popular theories and Chinese uniqueness, such as the unquestionable significance of “guanxi” as a “social networking” dimension and its dominance over the formal contract power [6] along with the clearly-shaped institutionalism in non-Western business world, can prove to be more effective for Chinese economy.

The current Russian experience and academic research on the strategic management issues reveal that both theoreticians and practitioners tend to apply Western managerial theories and methodologies to improve the efficiency of Russian enterprises. Given it has already been 20 years since the transition to market economy had begun, one can observe the slow development of the Russian-based theories and concepts as well as the growing number of unsuccessful application of Western strategic tools, such as those in managerial accounting, budgeting, risk management, performance management and customer relationship management. For example, the data from the consulting agency IBS show only two successful projects of BSC implementation out of 170 projects in total [2]. No doubt, that one can blame consultants in the insufficient assistance during the process of implementation: as it usually happens with two-day seminars for managers. Nevertheless there are real examples of the successful implementation of the tools for strategy implementation, such as the Balanced Scorecard System: most of metallurgical factories use BSC as a strategy implementation tool and we can cite one example in woodworking and paper industry and in the regional governance [1]. However, these examples cannot be generalized, as the implementing companies are listed companies with the broad foreign markets penetration and the large financial reserves. The reality suggests unsuccessful implementation to dominate in the Russian economy at its current stage of the development.

The negative results of adopting foreign experience can be traced to the global differences in the external environment and internal stimuli that accompanied the development of strategic management theory and practice. However, the main source of limitations to the application of those strategic instruments is the abrupt way of adoption, whereas most of the modern management theories have originated from US business schools and have gone through the gradual implementation through the trial – error testing. For the purpose of the current research we will identify three main types of the limitations:

First, internal characteristics of the majority of Russian companies, such as low quality of the reporting information, including financial accounting data; the absence of managerial accounting system; low levels of managerial responsibility and high employee turnover; the dominance of quantitative financial indicators and the inability to measure on a qualitative basis;  top management and owners of a company are typically represented in one body, thus highly centralized hierarchy and delegation of authority;

Second, endogenous factors of Russian economy, predetermined by its immature stage of the market development, such as low qualification of both managers and employees, especially in the field of business education; highly competitive environment; fast and high growth pace of the majority of markets; low popularity of consulting services; the slow development of financial markets and infrastructure, hence, the deficit of current assets  even for large profit-making companies, the greater importance of social connections and relationships with the authorities (which can be paralleled with Chinese Guanxi factor);

Last, internal characteristics of the strategic management concepts, originated from their predominantly US-based nature, such as the orientation on the maximization of shareholders value, e.g. long-term profits and sustainability along with the social responsibility. Such categories do not exist in many developing economies, when the main objective of the majority of businesses is to at least make a profit.

 

Bibliography

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