Challenges many European SME’s face in China
The SMEs discussed in this paper are rather middle than small size companies. Usually they have 1000+ employees worldwide, and at least 100 employees in China. They have operations in multiple countries and continents. Typically they are highly specialized manufacturing or engineering companies from industries like specialty chemicals, specialty textiles, machinery, car parts, furniture fixtures, etc., and usually they are the number 1 or 2 in their respective niches worldwide. The steadily growing number over the last twenty years show that European SME’s are mostly successful in China, and the yearly Business Confidence Surveys conducted by the German Chamber of Commerce1 show that confidence of these companies remain high despite the cooling Chinese economy. Focused strategy, good technology, quality products, strong brand reputation in their field, human management style and family atmosphere are the typical ingredients of their success formula. These companies must have obvious strengths, but in this paper I am going to focus on their challenges.
Some challenges are common in most part of the world: increasing competition; customers that want products faster and better customized, with higher quality and so on. These challenges are intensified by challenges with local flavors: quickly upcoming domestic competitors, “copycat products”, administrative hurdles. From the OB perspective, compared to large MNCs, their additional challenge is how to create an effective company culture in China. Large MNCs like Intel, Pfizer, Merck, Bayer or BASF can send large number of expatriate managers to China, and have very strong global IT, management and HR systems. European SMEs often can send only few expatriates, and usually their management and HR systems are not ready or suitable to be transferred to China. According to the German Chamber of Commerce Business Confidence Survey1, the top three challenges in both 2012 and 2013 were: Increasing labor costs; Finding qualified staff; Retaining qualified staff. This is in accordance with my experience that few European GMs feel that they have highly effective local management teams, which leads us to the topic of this paper.
Typical problems in management teams
Let’s take a typical setup: a China operation with manufacturing and sales, headed by a European GM, with department heads, who are local Chinese nationals reporting directly to the GM, such as Sales & Marketing Mgr, Production Mgr, Purchasing Mgr, Quality Mgr, Supply Chain Mgr, Finance Mgr, HR Mgr. On the management meetings, the European GM expects that all team members share their views authentically, asks questions, propose and counter-propose, challenge each other, and hold each other accountable for results. This expected team style can be illustrated with the following picture:
Other expectation of the European GM is that the Department Managers sort out most operational problems independently among themselves: they conduct effective discussions, analyze issues deeply, brainstorm, organize task forces and special teams and tackle the issues. This expected work model can be illustrated with the following picture:
But contrary to these expectations, the GM experiences a working mode and meeting style that can be illustrated with the following picture:
The GM finds that managers don’t communicate effectively with each other; they are defensive; they focus on protecting turf; there are chronic cross-departmental conflicts; and way too many issues escalate to the top.
Why is it like this? Why do the department managers act this way? We can analyze their individual behavior with the MARS model, introduced by McShane & Von Glinow2: looking at their Motivation, Abilities, Role Perception and Situational Factors. This analysis will also lead us closer to designing solutions.
Motivation of the Managers: the Managers, of course, want to succeed, they didn’t join the company because they want to fail. However, their commitment to the organization is greatly affected by the GM. From their perspective, naturally, the GM represents a big part of the company. If they are inspired by the GM, they will be very committed and even passionate; if they are demotivated by the GM, they will channel their discretionary efforts to other directions out of the job. The language and cultural differences between the GM and the Managers unfortunately often contribute to misunderstanding and demotivation.
Ability: managers in China have been promoted quickly to keep abreast with the business growth, and SME’s don’t have the strong learning & development resources of MNCs, resulting managers with big holes and missing areas in their management knowledge and skills. Many managers in these companies are from technical backgrounds, typically weaker in interpersonal and collaboration skills, such as authentic communication, listening without quick judgment, and team facilitation skills to name a few. On the positive side, they are eager to learn it in most cases when the chance is given to them.
Role Perception: the managers in many cases don’t have a clear understanding of the GMs expectations. Even if the GM explains them the desired working and meeting style, without seeing and experiencing it, it remains an abstract concept; a utopia. The missing Ability, as it often happens, may limit the Role Perception. Another important factor here is the difference in national cultures. European cultures are more egalitarian in general, with lower power distance; while power distance in Chinese culture is high3. Another cultural barrier is valuing face and harmony in China, opposed to the Western value of authentic self-expression. These cultural differences make the behavioral change definitely more difficult.
Situational Factors: the current Job Descriptions, evaluations and reward systems, and the culture – “the way we do things around here” - may not support the team processes.
In summary, the Managers practice a management style with a clear division between Thinkers (decision makers) and Doers. Because of cultural reasons and lack of up-to-date leadership skills, they still try using 20th century management methods in the 21st century. The results: cross-departmental conflicts; chronic problems around efficiency; the company doesn’t respond fast enough to customer feedback and changing customer needs; the organization doesn’t reach it’s performance potential. People’s development is slow or stagnating, which explains why talent issues come out as the top challenges for these companies on the surveys.
Because so many companies have similar issues in China, the GM can have an important and valid question: Do the current Western ideas about transformational, team and engagement based leadership style work in China? Should I try to change the corporate culture, or should I adopt a command & control leadership style in order to meet the followers’ culture?
The answer is clear: while the GM may need to start with a more hands on style, the long term objective should be transforming the management culture into a more engaging, team based, and enabling style. Besides the obvious consensus among consultants, there is also solid evidence that the relationship between engagement and company performance is similar to the West, and similar leadership practices drive employee engagement in China as well4. Even though there are tactical differences in how to achieve building an effective management team because of the culture, the principles are similar in China as well. An additional point is that high power distance has been consistently found as a fertile environment for bad leadership (ranging from incompetent to evil leadership)5 regardless to national cultures. So the question is not “do it or not”, but rather how to transform the management culture.
So what can the foreigner GM do? What advise can we give them? The solution in each company should be based on a thorough analysis, but I enlist a few options here. This paper is intended to be broad and general, to introduce a range of interventions to GMs that worked in certain cases, and it is not a formula that can be applied without a thorough assessment of the situation.
The first obvious intervention could be a Cross-cultural Management Training for the foreigner GM, to learn about the differences, deeper understand the cultural context, and to learn tips on how to build a cohesive team in China. A good training should include individual analysis and highlight behavioral improvement needs. For example, some GMs come across too cold, indifferent, intimidating or even hostile for their Chinese staff; for them simple things like smiling, small talk, dinners will go a long way. Other GMs need to improve their coaching skills, so that they can help their Managers close the competency gap. Some need to temporarily adapt a more directive, hands on approach in the beginning, until their Managers become more competent and independent. A coaching program to the foreign GM also can be very valuable, because besides cultural challenges, their leadership skills are also heavily tested when they need to lead such a change.
Cross-cultural training is also recommended to the Managers, especially trainings which include experiential exercises like the HKU SPACE “Excel Yourself” program that takes the Mainland participants to HK and sends them out to do some field-study.
Another effective approach in my experience is the CCTB, the Cross-Cultural-Team-Building, where learning about culture is blended with team building exercises. The key outcome of the program is a lasting commitment that participants will never allow that their teams break up along the cultural dividing line.
I organized my other suggestions according to Kotter's 8-Step Change Model4.
Step 1: Establishing a Sense of Urgency:
• Organize a workshop and do a SWOT analysis.
• Use surveys, audits and diagnostic tools to make Managers see the problems.
• Link the behavioral problems with the management problems that keep exist and haunt the organization. Associate the behavioral problems with the business problems and the competitive landscape.
• Let Managers understand that their behavior has a ripple effect in the organization. In order to empower their subordinates, they need to empower themselves first.
Step 2: Creating the Guiding Coalition:
• Discuss about the issues with the most influential Managers 1-on-1.
• Hire a truly competent HR or OD manager. It is a scarce talent, so if you have one, make sure to retain him/her.
• Hire external consultant(s) who can effectively communicate both with you and the Managers.
Step 3: Developing a Change Vision
• Use creative ways to describe the vision for the empowered management team.
• Translate the vision to positive organizational and business outcomes (solve the chronic problems, develop talent, better business, better work-life balance,…).
• Translate this vision to positive personal outcomes to the Managers (improving their skills and hire-ability, and helping the same way their subordinates).
Step 4: Communicating the Vision for Buy-in
• Model the expected behaviors.
• Organize workshops, team development programs where people can understand and experience true teamwork and the positive emotions of it.
• Let Managers deeply understand the nature of High-performing Management Teams, and what behaviors lead to it; and remind them constantly.
Step 5: Empowering Broad-based Action
• Organize teams, task forces, action learning groups, quality circles of Managers and their subordinates to work on important business challenges in a team setting.
• Provide team leadership, collaboration skills, conflict management skills, delegation, mentoring, facilitation skills trainings to the Managers, so they can fill in their skill gaps and learn how to lead and collaborate. Run the program as workshops, with emphasize on application and follow up. This will have a very good team building effect as well. Instead of one condensed short program, spread the program over two or three years period, so it can serve as a retention tool as well.
• Review and modify Job Descriptions, competency models and evaluations, reward systems to align them with team based management (include new, team based elements).
Step 6: Generating Short-term Wins
• Let teams start working on “low-hanging fruits” (urgent or chronic business problems that should be relatively easy to fix), in order to experience success and get confident.
• Celebrate the success, let everyone feel the positive change and momentum
Step 7: Never Letting Up (Build on the change)
• Delegate gradually higher level of tasks to the Management team or sub-teams.
• Promote the kaizen philosophy (kaizen is a Japanese word for "improvement" or "change for the best", refers to practices of continuous and never ending improvement applied in manufacturing, engineering, and business management).
• If managers have absorbed the team leadership trainings, they can perform the skills, they apply it at work, don’t stop there. Gradually but steadily keep on bringing in more advanced concepts and techniques, for example Feedback Skills, Leadership with Emotional Intelligence, Coaching Skills, Authentic Leadership, Mindfulness. Keep Managers inspired, keep them learning.
Step 8: Incorporating Changes into the Culture
• Feel proud of and cherish the culture of team based management. Make teamwork and team based management an important part of the corporate identity by including it in various communication channels: company values, competency models, orientation and Learning & Development programs, brochures, web site, office decoration.
• Make “Enabling Leader” and “Facilitator” become an important part of the Managers self-identity by giving them recognition in these areas.
• Turn your company into a learning organization: make every Manager a trainer, let them organize regular workshops and sharing session to their teams and to cross-departmental teams.
The team based management style, the positive learning environment can bring the following benefits to the company: higher intrinsic motivation and engagement, improved efficiency, improved agility, stronger leadership and stronger talent pool. The above process can be the solution for the biggest challenges of these companies!
I’d like to close my discussion with an “almost true” story (I had to modify it in order to keep it short and confidential), which illustrates how much determination such change in leadership style requires, and also highlights what is possible to achieve. One of our Clients initiated such a change process in 2005. They invested heavily in the process, they were highly committed to its success, and the company went a long way since. In 2005, when they started the process, one of the behavioral problem was arguments and deep conflicts between the Managers. Management meetings often ended in heated arguments. The headquarter described it as “like children in the kindergarten”. In 2008, after two and half years of efforts (intensive training, coaching, BPI, construction of new facilities, etc.) there were some tangible Wins, but some obstacles still remained. The obstacles were culminating around some key Managers, who have been founders of the China operation and who were well known figureheads in the entire industry in China. But at the end of the day, after all the support and opportunities “if people don’t change, change people”. One was asked to retire, and two of them got fired. It was a tough decision at the time, and many people worried it will shake the entire organization. But the opposite has happened: the company got even stronger, continued its growth both in revenues and profits, and also in terms of improving internal efficiency. I had a chance to talk with the new Manager who replaced the fired key Manager, who told me something truly remarkable. I asked him about his first impressions of our Client (his new employer). He told me he came from a bigger company, and through the selection process, he was a bit frustrated that he also needed to be interviewed by the Management team: by his future peers. But then he was truly impressed by the Management team: by the profound questions they asked, the way they interacted, by their communication skills and the cohesion they radiated. He felt he wanted to work with these people; actually the management team attracted him most to our Client. And this was the same team that couldn’t have a meeting without arguments and was described as “like children in the kindergarten” just about two years ago!
1: Annual Report 2013. Published by the German Chamber of Commerce in China.
2: Steven L. McShane, Mary Ann Von Glinow (2010). Organizational Behavior, 5th Edition. McGraw-Hill.
4: Mick Bennett, Andrew Bell (2004). Leadership and Talent in Asia: How the Best Employers Deliver Extraordinary Performance. Wiley
5: Barbara Kellerman (2004). Bad Leadership: What It Is, How It Happens, Why It Matters. Harvard Business Review Press.
6: John P. Kotter (2012). Leading Change. Harvard Business Review Press.