7
Gy6rgy Bagel and Anna Salamonn6 Huszty East Europeun economies, aloug t&h otbcr,former Soviet bloc cowWies, are in the midst qf great uphear)ul as they try to make the dzfficult and ojten painful tran- sitiorl from central planning, or a command economy, to the)ree market system. BII has published several articles rccent(y dealing with this struggle: Bevznett in January-February 19.96; Puffer et al. in November- December lg.%; Lupton G Jartsen and Quelch G Dir& tar1 in./&-August 1.998; a ~OCLLS on the,form.er Soviet lirtiorl in March-April l%W; and u focus on Easterr? Europ in our Ma.y+4ne 1998 issue. Tc, help illustrate what is involved in lhis trartsition process, BH hasembarked on a collaborativeventure with the Management UeYedopmn?nt Centreat the Budupest Ilm?,evsity qf EconomicSciences in Hungary. As part of this c&&oration, ujeare exchanging articles with the Chtre’s monthlyjournul, Management Sci- ence, wbichpublfihes different urticleson compavq3 marI,agement m&hods, financia/ management issues, and the results of research prqjects,and providesu puhl~~~iv~~~~,~~l.for the Centre’s students. 7%is article 7s thejht of that exchange program> and more will be ,follouhg in tbr nearfuture. A ndrew Grovq who is of Hungarian ori- gin, relates his experiences as CEO of Intel in his 19c)b book, On& the Pum- noid Sun&?. He describes what he calls a strute- gic infection point: the fundamental change of an industry’s competitive situation due to the radical transformation of some environmental factors. The way companies handle inflection points determines their future. The stakes are tremendous. As Grove writes, the company that has lost its way needs to be led out of Death Valley. The ground is changing, giving rise to new rules and new competitors. Firms must learn to compete in a c*ompletely different manner. Those that do not, or that, cling tooth and nail to the past, will not survive. They cannot just sit and wait for a miracle to happen. In Hungary in the recent past, not only one industry but almost all com- panies have reached this inflection point. The changing politi- cal regime has radi- cally transformed the competitive situation. As a result of privatization and the liberalization of markets, the bar- gaining position of customers has been strengthened and that of suppliers has grown weaker. Hordes of competitors have arrived, including the world’s largest and strongest. To paraphrase Grove again, the effect of not one but many tenfold forces is felt. Chief executives and their methods are being put to the test. Will they rise or fall? If the Hungarian business community has ever needed strategic thinking, it needs it now. What conditions are affecting strategy making in Hungary today? How has dismantling thta “command economy,” privatization, and the rush of foreign investors influenced the spread and dissemination of strategic thinking? These are some of the topics we shall explore here. The picture is rather colorful. This is not surprising, since corporate strategy making is the focus of lively debates all over the world. There is a characteristic duality to the subjec*t.On the one hand, a standard, extensively advertised, and

Transition to market economy as inflection point: Can strategy help?

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Page 1: Transition to market economy as inflection point: Can strategy help?

Gy6rgy Bagel and Anna Salamonn6 Huszty

East Europeun economies, aloug t&h otbcr,former Soviet bloc cowWies, are in the midst qf great uphear)ul as they try to make the dzfficult and ojten painful tran- sitiorl from central planning, or a command economy, to the)ree market system. BII has published several articles rccent(y dealing with this struggle: Bevznett in January-February 19.96; Puffer et al. in November- December lg.%; Lupton G Jartsen and Quelch G Dir& tar1 in./&-August 1.998; a ~OCLLS on the,form.er Soviet lirtiorl in March-April l%W; and u focus on Easterr? Europ in our Ma.y+4ne 1998 issue.

Tc, help illustrate what is involved in lhis trartsition process, BH has embarked on a collaborative venture with the Management UeYedopmn?nt Centre at the Budupest Ilm?,evsity qf Economic Sciences in Hungary. As part of this c&&oration, uje are exchanging articles with the Chtre’s monthly journul, Management Sci- ence, wbichpublfihes different urticles on compavq3 marI,agement m&hods, financia/ management issues, and the results of research prqjects, and provides u puhl~~~iv~~~~,~~l.for the Centre’s students. 7%is article 7s thejht of that exchange program> and more will be ,follouhg in tbr nearfuture.

A ndrew Grovq who is of Hungarian ori- gin, relates his experiences as CEO of Intel in his 19c)b book, On& the Pum-

noid Sun&?. He describes what he calls a strute- gic infection point: the fundamental change of an industry’s competitive situation due to the radical transformation of some environmental factors. The way companies handle inflection points determines their future. The stakes are tremendous. As Grove writes, the company that has lost its way needs to be led out of Death Valley. The ground is changing, giving rise to new rules and new competitors. Firms must learn to compete in a c*ompletely different manner. Those that do not, or that, cling tooth and nail to the past, will not survive. They cannot just sit and

wait for a miracle to happen.

In Hungary in the recent past, not only one industry but almost all com- panies have reached this inflection point. The changing politi- cal regime has radi- cally transformed the competitive situation. As a result of privatization and the liberalization of markets, the bar- gaining position of customers has been strengthened and that of suppliers has grown weaker. Hordes of competitors have arrived, including the world’s largest and strongest. To paraphrase Grove again, the effect of not one but many tenfold forces is felt. Chief executives and their methods are being put to the test. Will they rise or fall?

If the Hungarian business community has ever needed strategic thinking, it needs it now.

What conditions are affecting strategy making in Hungary today? How has dismantling thta “command economy,” privatization, and the rush of foreign investors influenced the spread and dissemination of strategic thinking? These are some of the topics we shall explore here.

The picture is rather colorful. This is not surprising, since corporate strategy making is the focus of lively debates all over the world. There is a characteristic duality to the subjec*t. On the one hand, a standard, extensively advertised, and

Page 2: Transition to market economy as inflection point: Can strategy help?

widely taught set of strategy-making methods has been established, representing an integral part of many management textbooks (portfolio model- ing, SWOT analysis, scenario writing, competitive analysis). On the other hand, debates still flare up repeatedly in the literature. Controversy re- mains over the rationale, objective, and content of strategy making. Generally speaking, interna- tion.41 corporate practices are hardly unified.

JSERITAGE: FROM PLANNING TO STRATEGY MAKING

A fter four decades of socialist economy in Hungary, the word “plan” rings a very peculiar bell. For people who worked

and studied during those decades, the word con- jures up unhappy memories of state intervention. In the past, companies were required to submit five-year plans to the central planning organiza- tion and the sectoral ministries they belonged to. They received target indicators and tables to fill in, and had to coordinate, “through consultation,” their plans with the state’s expectations. Compil- ing these excruciatingly detailed plans took an overwhelming amount of paperwork-mostly preparing endless tables of no practical use.

For managers, these so-called plans were pointless and exhausting. So executives whose formative years were spent under the old regime

saw ALZA. n ,.im l,.U,LLL.LLh not as a helpful tool but as an obstacle, wasting their time and limiting their independence. liccently Oily of the au-

thors was asked by a Hungarian firm to pre- pare some materials for a course on strategy. The CEO’s first specific I-CX[LR!St WiiS thdt ht!

word “plan” not I,e in- cluded in the documents. “At our company;” he said, “an absolutely different set of ideas is at- tached to this word. You understand, don’t you?”

Nevertheless, there were some stirrings of corporate strategic thinking in the years before the Hungarian regime changed. By the late 197Os, some companies were already trying to go be- yond compulsory “planning.” seeking out the tools for corporate strategy making that were available in the Western business world.

In the economic aftermath of the oil crisis in the 1970s. it bycame clear to a small circle of companies that their situations had radically changed. Even in a shortage economy, the mar- ket no longer offered unlimited opportunities for their products. In developed countries, the oil crisis had precipitated radical changes in product

and service portfolios as well as in technical de- velopment. Hungarian firms, having been shel- tered from the crisis, found their products deval- ued. These problems were further aggravated by underproduction, high costs, and the lack of capital. After forced mergers and the shortage economy’s specific self-supplying reflexes, Hungary’s companies, large and small, found themselves pursuing too many diverse activities.

These problems had to be tackled somehow. The central planning organization’s top-down solution, albeit sometimes well-intentioned and methodologically sound, failed to produce tan- gible results. In some companies, executives began to realize-or at least suspect-that they would be left alone to find solutions for their problems in the long run.

Er&bet FehCr, president and CEO of Pan- nonplast, a leading Hungarian plastics company, describes those times:

The company was almost bankrupt (when I was appointed chief executive). It had a very spread-out product struc- ture and technology. When sotneone had a brainwave, there was a rush to imple- ment the idea, but soon everyone went rushing off after something else. The prevailing attitude was hasty. No one ever asked whether the market really needed that new product.

Our first strategic issue was the trans- formation of the product structure. In value terms, 30 to 40 percent of the products c\‘ere taken away from the com- pany’s portfolio, and we only continued to produce those that had a market. Technologies had been filtered the same way.

By the early l%iOs, it was no longer possible to sustain the illusion that a company’s environ- ment could bc centrally stabilized and planned. Companies realized that they would have to somehow “see” changes on the horizon. For ex- ample, some domestic chemical companies started to consider scenarios involving changing oil prices. For the most part they predicted an- other price increase, but prices began to decrease instead. In hindsight, these scenarios were rather modest; reality has proved to be much more daring than the fantasy of company executives. Of course, Western forecasters produced some spectacular mistakes at that time too. Moreover, it is important to realize that at that time in Hun- gary, radical scenarios were not politically ac- ceptable; no startling forecasts could be overtly mentioned or documented. Still, these modest scenarios sparked the earliest signs of strategic thinking.

Page 3: Transition to market economy as inflection point: Can strategy help?

Another important factor was the World Bank Loan program of the 1980s. Participating compa- nies were required to clarify their strategic objec- tives before they could qualify for loans for in- vestment and development. To do this, Hungar- ian companies sought help from prominent con- suiting firms. Some local and well-known foreign consultants played a pioneering role in introcluc- ing strategic planning and other practices. Many consultants recommended developing strategic plans to help companies restructure, set up infor- mation systems, and later adapt to privatization. Strategic planning often called attention-in a spectacular and efficient way-to the chronic weaknesses or deficiencies of certain corporate functions and management systems (sales, market research, management accounting). In at least one instance, a planning errrcise revealed that a company did not know the cost of its products and had no idea which of its activities were prof- itable. To proceed, the company first had to change its cost allocation system, discarding the rigid and bureaucratic accounting rules that were then prevalent. Only after completely revamping its tables and charts could the company proceed to develop a strategy.

To paint an accurate picture, it is important to mention that, beyond its positive role, strategic planning became a commodity in the hands of certain consultants. To some extent this led to a ritualized procedure, elegantly “decorated” in content and method but not always useful in making real plans. In some cases, although it did help managers organize and structure their work, formal elegance in the process covered up for emptiness in the content.

At times, personal motives drove the intro- duction of strategic planning. Some company executives or other experts fell in love with the idea of strategic planning. Individuals heard about the process from their foreign partners, read about it in the technical literature, or learned about it in a training program, then championed the cause in their own companies.

STRATEGY iMAKING TODAY

N early all Hungarian firms have faced an inflection point recently. Some have picked up the tools of strategy making

to handle the change actively and successfully, treating Grove’s “Death Valley” as a strategic chal- lenge. Others, set adrift by the changes, depend for strategy (on external faclors, such as new owners. In either case, companies have faced a double challenge: to solve the problems gener- ated by the inflection point and to eliminate l~ag- gage from the past.

In outlining some characteristic solutions, it is not our intent& here to draw a detailed portrait.

Moreover, some companies could be classified into more than one group, and the four groups we describe can by no means be said to cover the full Hungarian palette.

Strategy Making by Internal Motivation

We describe as internally motivated those com- panies whose executives have taken the initiative to think strategically, who have handled strategy as an imponant and useful managerial tool, and who owe a significant part of their success to good strategic decisions. This group includes firms whose strategies predate the change of the political system. For these, which have developed plans without central initiative or pressure, the independent strategy ftmctioned as a symbol of independence. An excellent example is Pannon- plast. one of the favorites of the Budapest Stock Exchange today. Pannonplast has made and re- viewed strat.egic plans for decades. It first. pre- pared the plans using classical methods, and has consistently reviewed and updated them accord- ing to developments in the technical literature.

Not only did Pannonplast survive privatiza- tion, but in a sense it was already privatizing itself. To quote the chief executive:

Our privatization strategy, prepared on the basis of our company strategy, per- suaded the decision-makers that we had to be privatized in the way we recom- mended. We were able to show what we wanted to get out of privatization. That was a significant point. A purposeful management knows what it wants 1.0 achieve in the future. This is how we managed to look after our interests.

A similar attitude can be observed at MOL Kt, Hungary’s largest oil and gas company. There, a highly trained expert team is responsible for the methodological support of strategy making. Adapting new models and methods, they make it a priority to keep the strategy-making process flexible and creative, preventing it from becorn- ing a formalized routine.

In the same group we find some private firms that had been founded (in varied legal forms) before the change of the political system, but which applied. right from the start, unusually solid, ambitious, and successful business policies. Almost all of them were headed by charismatic leaders. In most cases, the political change gave the leader wings, freeing him to develop his ex- pertise and exploit his gift for leadership.

One of the best examples is Graphisoft, founded in 1982 and recently introduced to the Frankfurt Stock Exchange. Graphisoft’s strategic method is less classical, but closer to the Mintz-

Page 4: Transition to market economy as inflection point: Can strategy help?

berg “crafting” process. Expertise is combined with professional commitment and experience; strategy making and implementation are united in a continuous process. This worked well for Graphisoft; starting with just a few people, it has developed into an established international ven- ture today.

In this category also belong numerous mid- sized or larger firms that appeared on the Hun- garian market in the 199Os, some foreign-owned and some Hungarian. These companies were born into a cutthroat competitive situation. For them, strategy was more than a method; from the start, it was simply a means of survival. Examples of these can be found from high-tech to trade.

.411 of these internally motivated companies are characteristically receptive to management innovation. They sc;m a variety of sources to find and learn new methods-including the tools of strategy making-so that they can strengthen their competitive positions. Their strategic man- agement demonstrates tendencies sitnilar to those prc\~3leni in the competitive sphere of developed economies. Strategy making is an integral part of corporate governance; efforts are made to clarify relations to external and internal stakeholder groups; mission statements are articulated and communicated; and increasing importance is attached to large-srale visions. In general, these companies have not suffered from but have hen- efitted from the recent political, social, and eco- nomic changes. Not set adrift by events, each made its own plans to shap,e its distinctive fate.

Unfortunately, far too few companies can be found in this group. Most traditional Hungarian firms have responded in a passive or confused manner to the political and economic transforma- tion. Most also allowed (or, in some strategically important industries: had to allow) external fac- tors--primarily government decisions about pri- vatization-to determine their fate.

Strategy Making by External Motivation

During the last decade or so, many companies have been acquired by foreign owners, and a large number of international corporations have founded Hungarian subsidiaries. Their strategy- making practices, directed from outside, are highly varied. How each company was privatized and how the new owners approach and delegate strategic decisions are decisive f;actolss.

In some cases, parent companies do not allow any strategic independence in their Hun- garian acquisitions. Strategy is determined at the intcrn:ational headquarters, and the local organi- zation simply implements its allocated tasks. This occurs most often when the buyer hopes to ex- ploit a w&&fined, perhaps temporary eco- nomic advantage such as low wages or an unsat-

urated market, planning to strike camp and leave the moment the advantage is no longer present. Sometimes strategic control by the parent com- pany is so strong that the local firm’s top man- agement is left merely to fulfill administrative tasks. Actual professional control is conducted by divisions that function as the lengthened arms of the parent’s strategic business units. Characteristic examples can be found in the pharmaceutical industry and at certain banks.

A specific case of limited space is jobbing. This involves a local company working on a toll- tractual basis, undertaking the role of the execu- tor in a weak bargaining position. If it fails to develop relationships with other customers, the local company is fully exposed to the parent company. In an even more extreme case. a for- eign firm takes advantage of privatization and buys a company, not to own it, but rather to gain access to its market. The parent company eventu- ally intends to liquidate its local subsidiary, but rarely declares this intention openly. In some examples, the parent company keeps the local managers tied up in strategic planning tasks; the team cannot understand why its plans are re- jected again and again.

In other cases, the international parent com- pany has a definite strategy, but the local com- pany is granted sufficient space to adapt that strategy to the local environment. Ilnilever of Hungary is an interesting example. Its activities are consistent with the parent’s international stra- tegic guidelines, but it retains considerable space for strategic movement. This is especially impor- tant insofar as consumer habits, behavior, and advertising responses vary enormously by locale and can require quite different treatment in dil- ferent countries.

Nokia is another good example. One of its most significant stated values is respect for the individual. This is consistent with the high degree of attention it pays to local characteristics. Har- monizing national cultures is a problem for al- most all global companies; in Hungary, Nokia has made outstanding strides in that respect.

Confidence is a significant factor. A foreign owner will only grant strategic independence to its local nlanagement team if it has confidence in the members. Ilnfortunately, many first-rate local experts stagnate helplessly when new owners appoint less qualified fordigners over them, or- even worse-place “shadow managements” be- hind the local ones. Valuable time, -knowledge, and experience may be lost this way.

Another sul>group in this category consists of companies acquired for financial rather than stra- tegic interests. The local managers of these com- panies are often granted considerable leeway, but the goals given to them consist of financial tar- gets-rather than strategic guidelines.

Page 5: Transition to market economy as inflection point: Can strategy help?

Typically, the period immediately following any acquisition is a time of putting things in or- der and rationalizing. Companies tend to change managers, streamline staff and operations, sim- plify their profiles, cut costs, upgrade information systems, introduce quality assurance, and pursue IS0 certifications. In a complex situation, cleanup work of this nature can last for a number of years. Strategy making in the classical sense can only begin later, with the renewed management team and often with the new owners.

This rationalization phase often produces spectacular success all by itself. Having grown up in a shortage economy with bureaucratic control, local firms often have tremendous reserves; man- aging these more effectively can lead to immedi- ate, impressive results. Such initial apparent suc- cess can create a trap; the neatly improving finan- cial ratios trigger unrealistic expectations on the part of managers and investors. Moreover, effi- ciency is not identical with strategy, and firms that are adapting the best methods are bound to bump into the Porter productivity frontier in the midst of total competition. The high profit margin may rapidly disappear as competition grows and the vise squeezes tighter and tighter. With little money available for K&D, it can become difficult to find and occupy positions that provide perma- nent competitive advantage. Although firms in this group are strategically fairly indepenclent, their investors’ demand for quick return may hamper their strategic thinking by directing man- agers’ attention to their quarterly financial ratios.

Monopolies and Semi-Monopolies

Before the political change, many Hungarian companies were partial or full monopolies. Some of them, both state-owned and private, have been able to preserve this position. In some cases, simply the size of the company serves to sustain dominance, whether the company is state-owned or private. Among these we find some natural monopolies, public works, transpor- tation firms, and a large part of the telecommuni- cation sector.

From the point of view of strategy making, these.: companies are in a contradictory situation, Because they are still monopolies, they retain many of the old thinking and behavior patterns: bureaucracy, production and quantity focus, sense of security, arrogance, hierarchic managc- ment. At the same time, owners and managers arc aware (or afraid) that their privileged situp- tion may not last for long, and that they nec&--or will need-a well-developed competitive strat- egy.

‘~elecornmunicatic.,n offers an interesting ex- ample. Free competition exists in business corn- munication, but in traditional voice tc.:lecom the

applicable legislation and agreements provide a monopoly until the year 2002. Moreover, in the European Union the sector was liberalized in 1998. The fruits of monopoly can still be enjoyed today, but tOrtmX~W the SeCtOr’S COlnpanieS Will

have to prove themselves able to stand their ground against the toughest competition.

In the strategy-making practices of the typical company in this group, up-to-date solutions get mixed with obsolete ones, the new corporate culture is combined with the old reflexes, and unavoidable operations often happen excruciat- ingly slowly. Almost no one denies the need for strategy, but bureau- cracy and political con- siderations interfere with implementation and realization. We know companies in which the job of the manager responsible for strategy, although important on paper, is actually a parking spot for people out of favor. In some cases, strategic planning is thought to be strictly the planning department’s business, and “strategies,” like the old five-year plans, are documents with idealistic introductions followed by a long series of detailed numerical tables.

Some companies are political arenas, with the process of strategy making serving as a weapon in power struggles. We have occasion- ally seen the content of plans fluctuate according to the changing power status of people in key positions. If. for example, a technical manager was gaining power, then technical investment/ development featured prominently. Later, when the financial manager’s status rose instead, the ensuing activity was reminiscent of the frenzy of table preparation from the socialist five-year plan- ning system-reinforced with spreadsheets.

In other Cases, thanks to some highly quali- fied, enthusiastic experts, strategy itself was de- veloped with scrupulous attention to method and content, but implementation was continually interrupted. Often the developed vision was not communicated adequately. In many places strate- gic documents were explicitly unavailable, having been declared confidential. Even in situations in which communication has been reasonably effec- tive, employees often still see spectacular contra- dictions between plans and reality. It has there- fore’ bcaen a great challenge for many companies’ visions, mission statements, principles, values, and ethical norms to be accepted by internal and outside stakeholders. According to -John P. tiotter (lc)%), if top managers fail to follow through

11

Page 6: Transition to market economy as inflection point: Can strategy help?

with the strategy, their inconsistency will under- mine the effectiveness of the other communica- tion channels as well-relevant words in Hun- gary toddy.

in addition to the potential for negative man- agers’ and employees’ attitudes that can threaten strategy making anywhere in the world, in Hun- gary there are specific historical and cultural fat*- tars adding to the pressure. Some of the objec- tives and principles formulated in mission state- ments, published in glossy brochures, and printed on plastic cards can bear a disturbing resemblance to the ill-famed slogans of the former regime. Employees’ allegiance to their companies is threatened as newly privatized owners lay off large numbers of people and real wages fail to grow- significantly for a long time. Moreover, apparent mutual good intentions can easily mask Schein’s (1985) cultural trap. Western owners talk about vision and mission, using the vocabulary to which they are accustomed. Mean- while, Hungarian partners nod deferentially in apparent agreement, because they are used to having to acknowledge that the boss is always right. The two think they understand each other, but in fact they are not getting any closer to- gether.

Small Enterprises

Right after the change of the political system, tens of thousands of small enterprises sprang up in Hungary. Because their strategic thinking has some distinctive characteristics, they can be con- sidered a separate group.

In our experience, small entrepreneurs’ plans are initially concerned with finance and daily business operations. Generally this is because they lack capital. Acquiring capital and repaying loans permeates their managers’ thinking. Cash shortages put so much pressure on daily business operations that it is difficult for small entrepre- neurs to dedicate much of their attention to long- term issues. It is no accident that training pro- grams for small entrepreneurs focus on operz tions-loans, taxation, accounting, and so on. In addition, Hungarian banking practices tend to strengthen this focus.

Unfortunately, very few new entrepreneurs account for the possibility that the environmental conditions surrounding their ventures may even- tually change. They typically concentrate on the current conditions rather than anticipating changes. After developing their initial product or service ideas, entrepreneurs generally focus on capital needs and operations. In the meantime, many forget to assess the long-term need for their product, what forces drive the demand and the market in general, whether they can discourage competitors by setting up entry barriers, and

what opportunities will be available to position the product or service in question when competi- tion inevitably heats up. Many entrepreneurs respond to comments on the absence of strategic thinking by arguing that from their point of view, survival is paramount and they simply do not have time for tinkering with solutions to long- term questions.

The typical weakness of this group’s business plans is competition analysis. In the best cases, plans include a list of the existing competitors, or a simple statement that their company is a unique one in the market. Hardly anyone pays attention to entry barriers; it is only later, in the course of practice, that they begin to observe their follow- ers and recognize that the market is not growing proportionately with the number of the new en- trants.

Few entrepreneurs take the time to think through the problems presented by growth. At best, most simply think of growth as a fortunate opportunity. It rarely occurs to them that in many industries-especially those in which competition is becoming severe-growth is not an opportu- nity but an imperative, and that it must be delib- erately and carefully managed from the begin- ning. As in the more developed countries, many bankruptcies in Hungary are the result of badly conceived growth programs. The sequence of events is classic. First, a good idea brings about success. Success encourages quick growth, which in turn brings about financing and management problems. Not having strategy, a clear-cut vision, restructuring goals, or a definite order of values. managers begin to act in haste. They commit mistake after mistake, and finally the rocket plummets to earth.

The office equipment market in the early 1990s serves as a characteristic example. By ex- ploiting the market vacuum generated by the shortage economy, some domestic private com- panics soared quickly to unprecedented heights, only to disappear after a spectacular agony of similarly short duration. Vacuums like that have ceased to exist by thr second half of the 1990s. Nevertheless, a large number of new private companies still fall into the trap of growth with- out strategy.

We have listed a barrage of negative ex- amples, but there are plenty of positive ones as well, most of them in the high-tech sector. Some owner-managers realize that by carefully examin- ing the “growing pains” that follow their rapid expansion, they c;Ln identify potential problems. This prompts them to devote considerable atten- tion to strategy-making. They elaborate a vision, define positions to attain, and set up balanced portfolios. In our experience, these small entre- preneurs are relatively cautious with the “soft compOnentS” of Strdteby (VdUeS, IniSSiOn State-

Business Horizons i July-August 1999

Page 7: Transition to market economy as inflection point: Can strategy help?

ments, slogans). This may be because in such small companies, people usually work closely together and know each other well.

Specific communication problems may occur in this group as well. We have become acquainted with a small information technology enterprise in which a group of young people have been work- ing under the control of an older, more experi- enced leader. At one point, problems arose within the firm because the leader tended to take a pa- rental role in it. His intentions were the best, but his employees nevertheless perceived aspects of his behavior as patronizing. On one hand, he provided them with work and revenues and of- ten helped them find solutions to their personal problems. On the other hand, it rarely occurred to him to talk to them about where the company was going and what they wanted to achieve. In

other words, although he had developed a strat- egy, he failed to communicate it. His colleagues found this less and less tolerabltz, to his genuine surprise. “why haven’t you asked me about it?’ he asked them at a problem.-solving workshop.

Among IIungafy’s small enterprises, those that can recognize their strategic challenges and take hold of them resolutely and competently are quite likely to join the first group of companies we descrihe&---those whose strategic planning is motivated internally. The program of the govern- ment formed after the last elections currently allocates priority to supporting small and mid- sized domestic companies. Hut even with this support, a growing enterprise with a solid posi- tion needs a sound strategy. Otherwise it can only aspire to the risky position of 3 jobher, con- stamly cowering in the shadow of large multin:b tion;lls.

F or Hungarian businesses. phenomena and tendencies characteristic of strategy mak- ing in developed economies share their

positions with distinctive local features. Attitudes toward stratc:&T making and related topics, cho- sen methods, and strategic content correspond noticeably with historic characteristics. ownership structures, competitive positions, and size. The overall picture is still rather colorful. Beside the companies using the most sophisticated methods and techniques, we find others that have never prepared a real strategic plan. Individual firms’ attitudes toward planning and communicating their plans are influenced by cultural factors that are difficult lo change.

The transformation of f-fungary’s political and ecOnOlJlic system is still under Way, but it kids

already provided companies with a strong impe- tus for strategy making as well as some built-in hazards. Con&ently prepared and implemented

strategic plans are badly needed, especially at a time when the reserves of rationalization have been exhausted. In our opinion, international parent companies should grant their local man- agement team considerable independence in preparing and implementing strategiesrecogniz- ing that those strategies must work within the framework of an international or global system. Without such autonomy, a lot of valuable infor- mation, experience, and creative energy may he lost. c1

References

%. Antal-Mokos, Prkatisatiorz and Firm Behwiour in National Tratzsjh-mation, unpuhlished PhL‘) thesis, London Uusiness School, 1995.

G. Hi?t~el. V. Edwards and M. Wax, HUYLJ+S~J Sittce Cbmmunism (London: Macmillan, 1997).

M. Ernst, hl. Alexeev, and I? Marer, Trun.s&wing the Core: Restructuring Itzdustt+ul Er~~etpises in Russia and (hlral bbqw (Houlder, CO: Westvirw Press, 1096).

K. Hisrich and G. Fulop, “Hungarian Entrepreneurs and their Enterprises,” Journal of SmaN Husimcss, July 1995, pp. 8X-04.

H. Mintzberg, 7’hr Rise arid Full qf Stratfxic Plarlrzing (New York: Pron\ice-Hall. 1994).

GySrgy Bdgel and Anna Salamonnci Huszty are professors and deputy direc- tors at the Management Development Centre of the Budapest University of Eco- nomic Sciences. Budapest, Hungary.