General Director magazine,
№1, January, 2010

The main lesson of the crisis is lack of managerial knowledge

Dr. Anders Liljenberg, dean of Stockholm School of Economics, Russia, one of Russia's most prestigious business schools, answered questions of our magazine.
How to persuade engineers to learn business
- Growth of the value of education for an executive became one of the main lessons of the crisis. For Russia the topic of business education is even more important because majority of our industrialist directors are traditionally oriented at technical and not at economic training.
— You touched on a very important topic well known to us from our work at home, in Sweden. If you look at the Swedish business you will see that many big companies are headed by people with engineering education and background. It is possible to mention Ericsson where engineers have been at the steering wheel for a very long time.
We are told: Ericsson is working perfectly despite that it is managed by engineers. However, this is little for taking of the next step and for making of a leap from the place where you now. You may work well with the engineering equipment but in reality it is possible that you work not very well, if we think how much better you would work if you had additional knowledge in business and economics.
So, how to persuade engineers to learn business? First of all, it is necessary to emphasize importance of additional education that will make approach to running of business more holistic and comprehensive. Historically it happened, especially in Russia, that many enterprises were occupied with simple shipment of products. Engineers knew how to make products but had no idea what was market and how to work with consumers. That is why we say that it is too little to know your part of work to go further and to stand ahead of all and it is necessary to know how the others behave, it is necessary to learn to understand clients and competitors. Engineering education is already not enough and there is a need for a broader and holistic view that is taught by education in the field of business administration and economics.
It is also necessary to remember that if you do not start making your knowledge in this field deeper you will most likely have to part with dreams about success in the long run. If you do not come to study this will be done by another company and it will start outplaying you. You can survive today now even with engineering equipment but someone who has knowledge in both areas will come to the stage tomorrow. Thus, not to stir from a place is, in my opinion, a big risk. You will do for some time more but in due time competitors will outrun you.
- Which importance can business education have for executives at such difficult moment as post-crisis development stage?
— It is possible to speak about this interesting topic for hours. I think that time will pass and we will look back at this crisis and will understand (in Russia people will understand this better than anywhere else) that the crisis of 2008-2009 has brought very good fruits. It is good that the government speaks about this and it is an important sign. First of all, I believe, we need to understand what this crisis has taught us. In my opinion, the main lesson is lack of managerial knowledge. I would formulate this even in a harsher way, a terrible lack. Just notice, during the crisis companies felt very differently: while many companies stopped their operations there were also some companies that broadened them.
Another lesson is that we, I hope, understand how important it is for business and for authorities to be transparent and to speak about what is happening in the economy openly. Just remember, there was no crisis in Russia officially a year ago. The government announced, "We have no crisis," and "there is crisis in America and we do not have it." This was a mistake. A bigger openness is necessary to learn something and to make business better.
The third lesson is that we know now that boom does not last forever. Cyclic recurrence is inherent to capitalism. Let us look back, let us recall the crisis of 1998, the August default in Russia and so on when economy was at its last gasp. However, the situation started improving rapidly afterwards primarily due to growth of oil prices. It is a pity to a certain extent that so it has happened because when economy grows like it has grown in Russia the companies that work not very efficiently can afford not to change anything and remain afloat on account of old achievements. In due time we will understand how important it is to be always on the guard and to be prepared and not to wait that everything will start improving by itself.
There is an impression that says, "The market has bad memory." If this is so, executives should have a very good memory to learn at least some lessons. With regard to behavior of the Russian government, it is obvious that it has changed for the better in the year. Having started from undervaluation of the size of the crisis, now authorities turn to a more progressive conversation about the lessons that have to be learnt from the crisis. This is very important. I believe that quality of business management should grow in Russia due to the crisis. Of course, a lot of time will be necessary for this. Companies and governments should understand that improvement of quality of management does not happen as if with a wave of a magic wand. It is necessary to send them to study, it is necessary to give them a possibility to communicate with professors, with people from other businesses, it is necessary to place them into an environment that questions their former views, to make them learn how to behave in a more dynamic environment.
Do not blame the country, blame yourself
- Many executives of industrial enterprises in Russia believe sincerely that it is possible to get high-quality business education only in the West. Probably that is why they take the proposals to study in business schools so cautiously. What is your opinion about this?
— It is possible to speak about advantages of Russian business education of Western model of business education very much. In reality everything depends on where a person is going to have career. I think that in the future we will see fewer Russian businessmen who wish to stay on their familiar spots in the provinces further.
We all will have to deal with global competition in the future. Entrance of Russia into WTO is near. In SSE Russia we stick to the following approach: we provide global understanding of business no matter where it is run: in Russia, Sweden, US, Germany, wherever. I do not believe those who say that this is Russia and some things do not work here. We teach people not how business is arranged now in Russia or Sweden. We teach them how to make business better from global positions, regardless of where the business is located.
I do not doubt that when Russian companies send people to study to Russian schools with local specialty they will feel quite well for some time, although not very long. In the course of time competition of Russia will only grow (I am absolutely convinced of this) and it will grow everywhere. Those who fail to master the global approach will not survive in this rivalry.
In general, on the university level the global approach in business is taught in a similar way to a big extent in MGU and SPBGU or in SSE Russia or in Paris. If you wish to specialize in local business, it is not worth entering a university and a regional higher educational institution will do. It is necessary to go to a business school only when a person understands that he needs business education exactly. Understanding is means a big step forward by itself. Very few people are capable of this in general. It is important to answer the question what you wish clearly. If you wish to have a strong academic business education, you need to go to Executive MBA program.
The next question: where is it necessary to get education, is it necessary to go for it abroad or is it necessary to study in Russia. At this point it is necessary to understand what you wish to achieve through education. First, decide for yourself if you are ready to spend significant time and amount of money to get a really high-quality education. After you answer this question affirmatively it will be possible to exclude many schools from consideration because it will be necessary that they are, if we put this in the language of sports, amateurs and not professionals. It is not important what their "nationality" is. Among the schools that remain on your list you need to pay attention to the schools that are represented in international ratings. This is a good method to get an idea of what this school is like.
This is a matter of choice: if you wish to study abroad you are welcome but the essence is not studying abroad but getting of really international education. If you come to study to us we will bring lecturers here and a student will not need to go anywhere. Learning under Executive MBA program implies 15 modules in two years and, as experience shows, it is very difficult for an executive of high rank to leave his business for a whole week once per month to go abroad to study. We also should not forget about hardships of stay without family. If you can take your family and your business abroad, of course, you may go abroad. Otherwise I would advise choosing of one of the schools that have international recognition and are located in Russia. Learning in some little known school probably will not require much forces and special diligence from you. Well, the benefit from such learning will not be big too. You will simply waste the invested resources. This is not only money but, which is equally important, time.
- It is possible to hear an opinion now that crisis nests in the heads of people first of all including the people who make important production decisions…
— I agree by 100%. Overall, neither inflation, nor high taxes, nor corruption appear by themselves. These are always people who are to blame. All the things that you have mentioned are indicators of who the economy is arranged. Let us take inflation. We have negative growth and two-digit inflation in Russia now. This is very strange because this should not be from the macroeconomic standpoint. Given the negative growth we have credit interest rate of about 20%, which is absolute madness because banking system simply does not work like this.
It is high time to fully understand importance of the institutional context, that is sensible laws and transparent actions of the authorities among the other. This will make the economy more mature and in a mature economy it will already be impossible to keep high prices during a crisis. During a crisis prices are lowered everywhere except for Russia. There is deflation in Sweden now and prices are falling because if people wish to remain in business they have to lower prices and in Russia this does not happen because in many sectors business is monopolized to the limit. It is possible to get rid of this only with assistance of sensible rules and their stringent observance by the authorities.
I remember how in summer of 2009 a video was shown on television in which Prime Minister Putin entered a store and said, "This beer is too expensive." It was good that he said this, it was a good sign but how this could be? If this beer is too expensive, why a competitor cannot come to the market? Because a competitor needs a license etc. Bureaucracy becomes an insurmountable obstacle on its path.
So, we approached the "human factor." It is responsible for everything. Corruption is an illustrative example of this. Every time when we speak about corruption during our lectures dedicated to business ethic there is someone in the audience for sure who says that Russia is such a country. This is wrong. You should not blame the country, blame yourself.
It is you who is corrupt, look into the mirror. This is not the country that is corrupt but these are separate people who are corrupt there like, for instance, in Sweden.
However, when you send people to study and invest in human capital and in development of people, you make them more independent and responsible and this brings its fruits. This is actually what you have asked me about. Everything is correct: there is nothing more important than the human factor. Do not blame those who surround you, do not blame the country. The country is you and those who are near you. It is up to you and nobody else to change it. This is what should be understood well.
Swedish lessons
- Russia took Swedish experience with respect since the time of Peter the Great.
Volvo, Ericsson and Scania brands earned honor and respect in our country later. Can the Swedish management experience be useful in Russia?
— I do not doubt this. Along with this, I wish to say that Swedes have something to learn from Russians too. Of course, there are differences between cultures but this does not mean that people of different cultures cannot learn from each other. For instance, when the matter is about management, for example, about relations with employees, I think that Scandinavian inspiring management style could be very useful in Russia. It is known that traditions of authoritarian management are very strong in Russia like, incidentally, in France. Meanwhile, results of a research show that if the management captivates the employees by affairs of the company and suggests a feeling of personal responsibility for decisions made to them, profitability of the company will grow in the long run. This is an indisputable fact. This is true for any country regardless of culture. When we only started our activities in Russia many years ago people did not even wish to hear about any involvement of employees. They said that in Russia this would not work. Some of them told me once, "It I impossible to involve Russian employees." Having heard this I simply became furious. Just imagine, it turns out that Russia is the only country in the world where it is impossible! In general, I think that Russians will have something to learn from Swedes, especially from the standpoint of involvement of employees into affairs of a company.
Sometimes people think that the Swedish management style is when all decisions are made by everyone. This is not quite so. In any Swedish company, like everywhere, there is general director who makes the final decision. Along with this, before doing this he discusses the decision with people very much. It is also good to learn this.
There are also long-term and short-term approaches to business. In Russia I sometimes have an impression that companies are excessively oriented at the nearest future. In Scandinavia companies look into the future much further and may sacrifice today's profit for the sake of, for example, future relations with a business partner. Research only confirms this: orientation at the future is more beneficial even if it leads to loss of profit today. Of curse, this is a little risky approach, especially if shares of the company are traded at the exchange where you have to report about profit willy-nilly every three months (we call this "quarterly capitalism tragedy"). In any case, in general Scandinavian companies think about the future more than the Russian ones and Scandinavia may become an inspiring example for Russia in this too. On our part, it is worth learning the positive sides of personal relations from you. In this sense Russians are livelier and more emotional people. In general, both parties have something to borrow from each other.
- No matter where you look now, everyone speaks about innovations (sometimes without understanding of the meaning of this word). It is good if innovative development of economy becomes a national idea and not a fixed idea. How will educational programs of business school react to this?
— The situation is the following: before thinking about innovations it is necessary to learn to get adjusted to the changing conditions first. It is possible to call this crisis management, we call this contingency management. A program with such focus in the Russian language starts in our school literally in a few days. The first module of this program is fully dedicated to management in unforeseen circumstances. We also felt the need about which you spoke, we felt demand for knowledge and skills of more applied nature: how to act in a situation of changes in the business environment, how to react to such changes in work with the staff, in relations with consumers and suppliers. That is why we include into the program a separate module dedicated to management in a changing environment. Elements of contingency management are also implemented into other modules of the program. Thus, much more time will be dedicated to assessment of risks, its various kinds etc in the financial module than before.
In my opinion, only after we settle this it is possible to transit to the topic of innovations because innovations are a very risky matter by themselves. Innovations are like roaming in the darkness trying to look into the future just a little. However, such ability appears only if you can react to the changes around adequately. Our approach to innovations is the following: instead of getting enclosed in your own field you need to become more susceptible to what is happening around you.
Let us take, for example, automobiles that appeared on sale for mass consumer a hundred of years ago. People say that automobile is a result of technological innovation. I absolutely disagree with this. Automobile appeared when someone understood that movement on horses took too much time and caused a lot of inconveniences and people were ready to pay money to be able to do more. It was striving for saving time and not the technology that resulted in appearance of automobile.
To be an innovator does not mean to fully focus on your skills. This means to be able, so to speak, to look around the corner, to be able to imagine tomorrow. Your president is absolutely right when he emphasizes how important it is to understand what is happening on the market to make innovations follow the market demand and not our subjective notions of what will be valued on the market tomorrow. The difference between two philosophies is huge: you either sit in your world absolute convinced that you are right or to go out to the bigger world ready to perceive everything that is happening there. Such sensitivity has huge importance for innovations both in Russia and in Sweden. In other words, less engineering and more attention to the client is a guarantee of innovations success.
Interviewer
Alexander Filippov
Photo
Dmitry Voskresenky