<?page no="1"?> Eine Arbeitsgemeinschaft der Verlage Böhlau Verlag · Wien · Köln · Weimar Verlag Barbara Budrich · Opladen · Toronto facultas · Wien Wilhelm Fink · Paderborn A. Francke Verlag · Tübingen Haupt Verlag · Bern Verlag Julius Klinkhardt · Bad Heilbrunn Mohr Siebeck · Tübingen Nomos Verlagsgesellschaft · Baden-Baden Ernst Reinhardt Verlag · München · Basel Ferdinand Schöningh · Paderborn Eugen Ulmer Verlag · Stuttgart UVK Verlagsgesellschaft · Konstanz, mit UVK / Lucius · München Vandenhoeck & Ruprecht · Göttingen · Bristol Waxmann · Münster · New York utb 8616 <?page no="2"?> Dedication Für alle, die Elefanten das Fliegen beibringen For all those who teach elephants how to fly <?page no="3"?> Patricia Adam Managing Internationalisation UVK Verlagsgesellschaft mbH · Konstanz mit UVK/ Lucius · München <?page no="4"?> Online-Angebote oder elektronische Ausgaben sind erhältlich unter www.utb-shop.de. Bibliografische Information der Deutschen Bibliothek Die Deutsche Bibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über <http: / / dnb.ddb.de> abrufbar. Das Werk einschließlich aller seiner Teile ist urheberrechtlich geschützt. Jede Verwertung außerhalb der engen Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulässig und strafbar. Das gilt insbesondere für Vervielfältigungen, Übersetzungen, Mikroverfilmungen und die Einspeicherung und Verarbeitung in elektronischen Systemen. © UVK Verlagsgesellschaft mbH, Konstanz und München 2015 Einbandgestaltung: Atelier Reichert, Stuttgart Coverbild: ©Jag-cz - Fotolia.com Druck und Bindung: fgb · freiburger graphische betriebe, Freiburg UVK Verlagsgesellschaft mbH Schützenstr. 24 · 78462 Konstanz Tel. 07531-9053-0 · Fax 07531-9053-98 www.uvk.de UTB-Nr. 8616 ISBN 978-3-8252-8616-3 <?page no="5"?> uvk-lucius.de/ adam Preface Despite being popular with thousands of organisations worldwide, the EFQM Excellence Model is still hardly recognised by the academic community. Unfortunately, it shares this fate with other holistic models. Textbooks about International Management usually present holistic management models as an afterthought or in a niche chapter, but hardly focus on their inner logic or unique management perspective. Although the awareness of the need for leadership guidance in the ever more complex global environment is apparent, the contribution of these models is often overlooked. We were therefore delighted when the author, Patricia Adam, approached us and explained her intention to create a textbook that bridged the gap between management reality and academic development. By drawing on her own experience of using the EFQM Model in self-assessment and Award Assessments, this book is intended to give the reader practical insights, combined with the conscientious use of businessrelated research findings. Whilst this might seem like a “common sense” approach, it’s been proven all too often that “common sense ain’t that common”. This makes the book a great companion for students and management practitioners alike; a pragmatic guide that translates the theory into practical application, with relevant examples and illustrations. We wish this unique book an excellent reception and its author many positive reviews… although (sorry Patricia) we also hope it doesn’t remain unique for too much longer. May this book support international leaders in their demanding pursuit of successful internationalisation and inspire students to put theory into practice. After all, theory without experience is only theory! Matt Fisher Chief Operating Officer EFQM <?page no="6"?> Acknowledgements <?page no="7"?> uvk-lucius.de/ adam Table of Contents Preface ........................................................................................................................................ 5 Acknowledgements..................................................................................................................... 6 Table of Figures......................................................................................................................... 13 1 Introduction and Overview Strategic International Management.........19 1.1 Introduction ............................................................................................................... 20 1.1.1 How to Use This Book............................................................................................. 20 1.1.2 From Gradual Globalisation to Transnational Organisations ........................... 21 VIPs ............................................................................................................................. 26 1.2 The Use of Holistic Management Models ............................................................ 27 VIPs ............................................................................................................................. 29 1.3 The Approach of the EFQM Excellence Model ................................................. 30 1.3.1 Background Information: The EFQM and its Model......................................... 30 1.3.2 The Fundamental Concepts of Excellence ........................................................... 30 1.3.3 The EFQM Excellence Model Framework 2013................................................. 33 1.3.4 The EFQM RADAR Logic ..................................................................................... 36 VIPs ............................................................................................................................. 38 1.4 Process Model “Managing Internationalisation” ................................................. 38 1.5 Citations & Notes ..................................................................................................... 39 2 Key Issue: Developing Cross-Cultural Competence ..............................41 2.1 The Importance of Intercultural Understanding for International Business Issues ........................................................................................................................... 42 2.2 Hofstede’s Framework: Cultures and Organisations........................................... 44 2.2.1 Culture as a Part of Human Mental Programming .............................................. 44 VIPs ............................................................................................................................. 45 2.2.2 An Introduction to Hofstede’s Dimensions ......................................................... 46 2.2.3 Power Distance .......................................................................................................... 47 2.2.4 Individualism/ Collectivism...................................................................................... 50 2.2.5 Masculinity/ Femininity ............................................................................................ 51 2.2.6 Uncertainty Avoidance ............................................................................................. 53 <?page no="8"?> 8 Table of Contents uvk-lucius.de/ adam 2.2.7 Long-Term Orientation............................................................................................ 54 2.2.8 Establishing Country Clusters ................................................................................. 56 2.2.9 Adding a New Dimension: Indulgence versus Restraint .................................... 58 VIPs ............................................................................................................................. 59 2.3 The Dilemma Approach of Trompenaars & Hampden-Turner ....................... 60 2.3.1 A View of Culture Based on Dilemmas ................................................................ 60 VIPs ............................................................................................................................. 61 2.3.2 Universalism versus Particularism .......................................................................... 61 2.3.3 Individualism versus Communitarianism .............................................................. 63 2.3.4 Neutrality versus Affection...................................................................................... 63 2.3.5 Specificity versus Diffusion ..................................................................................... 64 2.3.6 Achieved versus Ascribed Status ............................................................................ 65 2.3.7 The Concept of Time ............................................................................................... 66 2.3.8 Inner versus Outer Direction .................................................................................. 68 2.3.9 Reconciling Dilemmas .............................................................................................. 69 VIPs ............................................................................................................................. 71 2.4 Globe Study: More Issues Arising .......................................................................... 71 VIPs ............................................................................................................................. 73 2.5 Critical Acclaim.......................................................................................................... 73 2.5.1 Typical Problems of Cross-Cultural Research...................................................... 73 2.5.2 Critical Acclaim of Hofstede’s Dimensions .......................................................... 74 2.5.3 Critical Acclaim of Trompenaars & Hampden-Turner’s Dilemmas ................ 75 2.5.4 Critical Acclaim of the GLOBE Study .................................................................. 76 2.6 Citations & Notes...................................................................................................... 77 3 Leading the Internationalisation Process ..............................................81 3.1 Good Leadership ....................................................................................................... 82 3.1.1 The Coherent Leadership Approach...................................................................... 82 VIPs ............................................................................................................................. 88 3.1.2 Excellent Leaders: EFQM Criterion 1 ................................................................... 88 3.2 Developing the Mission, Vision, Values and Ethics............................................ 89 3.2.1 Defining and Communicating the Core Purpose of an Organisation.............. 89 VIPs ............................................................................................................................. 92 <?page no="9"?> Table of Contents 9 uvk-lucius.de/ adam 3.2.2 Acting as Role Models for Ethical Behaviour ...................................................... 92 3.2.2.1 Corporate Ethics and Social Responsibility .......................................................... 92 3.2.2.2 Ethical Behaviour in International Business......................................................... 93 VIPs ............................................................................................................................. 96 3.2.3 Communicating Direction and Uniting the Organisation’s People .................. 96 3.2.5 Developing and Reviewing Leadership Culture ................................................... 97 3.2.5.1 Developing and Supporting a Shared Leadership Culture ................................. 97 3.2.5.2 Reviewing and Improving Leadership Behaviour................................................ 99 VIPs ........................................................................................................................... 101 3.3 Driving Performance and Engaging with External Stakeholders ................... 101 3.4 Reinforcing a Culture of Excellence .................................................................... 102 3.4.1 Developing an Excellent Organisational Culture............................................... 102 3.4.2 Promoting and Encouraging Diversity ................................................................ 104 VIPs ........................................................................................................................... 107 3.5 Managing Change .................................................................................................... 107 VIPs ........................................................................................................................... 111 3.6 Citations & Notes ................................................................................................... 111 4 Defining and Delivering an International Strategy.............................. 115 4.1 Strategy and the Strategy Management Process ................................................. 116 4.1.1 Popular Strategy Definitions.................................................................................. 116 4.1.2 Comprehensive Strategy Management Processes: EFQM Criterion 2........... 116 4.2 Scanning the Environment .................................................................................... 118 4.2.1 Understanding the Needs and Expectations of Stakeholders.......................... 118 4.2.2 Analysing Industry and Markets ........................................................................... 119 4.2.3 Identifying and Understanding Environmental Key Trends ........................... 122 4.2.4 Predicting Future Developments and Changes.................................................. 126 VIPs ........................................................................................................................... 128 4.3 Analysing Internal Performance ........................................................................... 129 4.3.1 Understanding Operational Performance and Capabilities .............................. 129 4.3.2 Determining Competencies of Partners and Potential Impacts of Changes. 132 4.3.3 Bringing It All Together: Portfolios ..................................................................... 132 VIPs ........................................................................................................................... 135 <?page no="10"?> 10 Table of Contents uvk-lucius.de/ adam 4.4 Developing the Strategy ......................................................................................... 136 4.4.1 Strategy Levels.......................................................................................................... 136 4.4.2 Generating a Sustainable Business Model ........................................................... 137 4.4.3 Business Model Choices ......................................................................................... 140 4.4.4 Establishing a Strategy Development Process.................................................... 143 VIPs ........................................................................................................................... 145 4.5 Communicating and Implementing the Strategy................................................ 146 4.6 Citations & Notes.................................................................................................... 147 5 Deploying Strategy through People ..................................................... 151 5.1 International Human Resource Management..................................................... 152 5.1.1 The International HRM Function ........................................................................ 152 5.1.2 Managing People: EFQM Criterion 3.................................................................. 154 5.2 Supporting the Strategy through People Plans ................................................... 154 5.2.1 Steering Human Resource Management Strategically ....................................... 154 VIPs ........................................................................................................................... 156 5.2.2 Planning Global Mobility ....................................................................................... 156 VIPs ........................................................................................................................... 162 5.2.3 Closing the Loop: People Feedback..................................................................... 162 VIPs ........................................................................................................................... 167 5.3 Developing People and Their Performance ....................................................... 167 5.3.1 Developing People’s Skills and Competencies ................................................... 167 VIPs ........................................................................................................................... 170 5.3.2 Helping People to Improve Their Performance ................................................ 170 VIPs ........................................................................................................................... 177 5.3.3 Appraising Performance Systematically............................................................... 177 5.3.4 Empowering and Involving People...................................................................... 181 VIPs ........................................................................................................................... 184 5.4 Communicating Effectively ................................................................................... 185 VIPs ........................................................................................................................... 189 5.5 Recognising People ................................................................................................. 189 VIPs ........................................................................................................................... 193 Citations & Notes ................................................................................................................... 194 <?page no="11"?> able of Contents 11 uvk-lucius.de/ adam 6 Managing International Partners and Resources ................................197 6.1 A Broad View on Resources: EFQM Criterion 4 .............................................. 198 6.2 Establishing International Partnerships for Mutual Benefit ............................ 199 6.2.1 Selecting an Appropriate Foreign Operation Mode .......................................... 199 6.2.1.1 Cross-Border Strategic Alliances........................................................................... 200 VIPs ........................................................................................................................... 202 6.2.1.2 Contractual Agreements in International Operations ....................................... 202 6.2.1.3 International Joint Ventures .................................................................................. 204 6.2.1.4 Mergers & Acquisitions across Borders and Cultures....................................... 206 6.2.2 Managing International Partners........................................................................... 210 VIPs ........................................................................................................................... 212 6.3 Managing Finance and Governance Processes .................................................. 213 6.3.1 Optimising Organisational Financial Management ........................................... 213 VIPs ........................................................................................................................... 218 6.3.2 Ensuring Compliance ............................................................................................. 219 VIPs ........................................................................................................................... 225 6.3.3 Managing Risks ........................................................................................................ 225 VIPs ........................................................................................................................... 230 6.4 Managing Knowledge and Information............................................................... 230 6.4.1 Managing Knowledge Systematically ................................................................... 230 VIPs ........................................................................................................................... 236 6.4.2 Establishing Integrated (Management) Information Systems.......................... 237 6.5 Citations & Notes.................................................................................................... 239 7 Managing Processes and Products Globally....................................... 243 7.1 Delivering Stakeholder Value: EFQM Criterion 5 ............................................ 244 7.2 Managing Processes ................................................................................................ 244 VIPs ........................................................................................................................... 250 7.3 Managing Products and Services Based on ISO 9001 ...................................... 251 7.3.1 Introducing a Certifiable Quality Management System .................................... 251 VIPs ........................................................................................................................... 254 7.3.2 Managing Products and Services Globally .......................................................... 254 VIPs ........................................................................................................................... 261 <?page no="12"?> 12 Table of Contents 7.3.3 Enhancing Customer Relationships ..................................................................... 261 7.4 Citations & Notes.................................................................................................... 264 8 Achieving and Monitoring Balanced Results ..................................... 267 8.1 EFQM Results Criteria ........................................................................................... 268 8.2 Introducing the Balanced Scorecard Concept .................................................... 272 VIPs ........................................................................................................................... 275 8.3 Monitoring Achievements by Designing Meaningful Dashboards................. 275 VIPs ........................................................................................................................... 279 8.4 Citations & Notes.................................................................................................... 279 9 Assessing the Organisation’s Management Model .............................281 9.1 Establishing Strategy Reviews for Continuous Improvement......................... 282 VIPs ........................................................................................................................... 284 9.2 Implementing Self-Assessments ........................................................................... 284 9.2.1 Introducing Self-Assessment Tools ..................................................................... 284 VIPs ........................................................................................................................... 288 9.2.2 Conducting a Simulated Award Assessment ...................................................... 289 VIPs ........................................................................................................................... 294 9.3 Achieving External Recognition and Winning Excellence Awards ................ 295 VIPs ........................................................................................................................... 298 9.4 Citations & Notes.................................................................................................... 298 References.........................................................................................................301 List of Abbreviations........................................................................................ 323 Glossary............................................................................................................ 329 Index ............................................................................................................ 359 <?page no="13"?> uvk-lucius.de/ adam Table of Figures Figure 1-1 Concept Map “Introduction and Overview” .............................................. 19 Figure 1-2 Symbols Used for Special Information Employed Throughout this Book ................................................................................................................... 21 Figure 1-3 Multi-Faceted Motives for Internationalisation Processes........................ 22 Figure 1-4 The Global Integration/ Local Responsiveness Framework..................... 24 Figure 1-5 Survey of the New St. Gallen Management Model .................................... 27 Figure 1-6 Baldrige Criteria for Performance Excellence Framework 2015 ............. 29 Figure 1-7 EFQM Fundamental Concepts of Excellence ............................................ 31 Figure 1-8 EFQM Fundamental Concepts - Definitions and Best Practices ............ 32 Figure 1-9 The EFQM Excellence Model Framework 2013 ....................................... 33 Figure 1-10 Definitions of the EFQM Enabler Criteria ................................................. 33 Figure 1-11 Definitions of the EFQM Results Criteria .................................................. 34 Figure 1-12 Exemplary Levels of the EFQM Excellence Model .................................. 35 Figure 1-13 Exemplary Red Threads Through the EFQM Excellence Model ........... 35 Figure 1-14 The EFQM RADAR® Logic ........................................................................ 37 Figure 1-15 The Internationalisation Process ................................................................... 38 Figure 2-1 Concept Map “Cross-Cultural Competence”.............................................. 41 Figure 2-2 The Cultural Iceberg ........................................................................................ 42 Figure 2-3 Developmental Model of Intercultural Sensitivity ..................................... 43 Figure 2-4 Three Levels of Uniqueness in Human Mental Programming................. 44 Figure 2-5 The Hofstede Onion - Manifestations of Culture ...................................... 45 Figure 2-6 Hofstede’s Five Dimensions as a Control Panel ........................................ 46 Figure 2-7 Key Differences between Cultures with Small and Large PDI ................ 48 Figure 2-8 Selected PDI Country Ratings ....................................................................... 48 Figure 2-9 PDI Values for Six Categories of Occupations .......................................... 49 Figure 2-10 Key Differences between Cultures with Small and Large IND ............... 50 Figure 2-11 Selected IND Country Ratings ...................................................................... 51 Figure 2-12 Key Differences between Feminine and Masculine Cultures ................... 52 Figure 2-13 Selected Country Scores for MAS ................................................................. 53 <?page no="14"?> 14 Table of Figures uvk-lucius.de/ adam Figure 2-14 Key Differences between Cultures with Weak and Strong UAI.............. 54 Figure 2-15 Selected Country Scores for UAI .................................................................. 54 Figure 2-16 Key Differences between Cultures with high or low LTO....................... 55 Figure 2-17 Selected Country Scores for LTO (WVS) ................................................... 56 Figure 2-18 Cultural Cluster of Germanic Countries ...................................................... 57 Figure 2-19 Country Clusters Based on the Four Original Hofstede Dimensions .... 58 Figure 2-20 Key Differences between Indulgent and Restrained Cultures ................. 58 Figure 2-21 Selected Country Scores for IVR .................................................................. 59 Figure 2-22 Cultural differences Expressed as Normal Distributions.......................... 60 Figure 2-23 Percentages Opting for Telling the Truth.................................................... 62 Figure 2-24 Typical Characteristics of Universalistic vs. Particularistic Cultures ....... 62 Figure 2-25 Percentages Opting for Individual Freedom ............................................... 63 Figure 2-26 Percentages Opting for Not Expressing Emotions Overtly..................... 64 Figure 2-27 Percentages Not Painting the House ............................................................ 65 Figure 2-28 Percentages Opting for Getting Things Done............................................ 66 Figure 2-29 Circle Diagrams for Past, Present and Future............................................. 66 Figure 2-30 Differences of Past, Present and Future Orientation ................................ 67 Figure 2-31 Average Time Horizon.................................................................................... 67 Figure 2-32 Percentages Agreeing to What Happens to Me is My Own Doing......... 68 Figure 2-33 The Three-Step-Approach.............................................................................. 69 Figure 2-34 Reconciling Globalism and Localism ........................................................... 70 Figure 2-35 GLOBE - Nine Cultural Dimensions........................................................... 72 Figure 2-36 GLOBE - Country Clusters ........................................................................... 72 Figure 3-1 Concept Map “Leading the Internationalisation Process”........................ 81 Figure 3-2 Aspects Influencing Leadership Success ...................................................... 82 Figure 3-3 One-Dimensional Behavioural Leadership Theories Based on Participation ...................................................................................................... 84 Figure 3-4 Two-Dimensional Behavioural Leadership Theories................................. 84 Figure 3-5 Contingency Models ........................................................................................ 85 Figure 3-6 Relationship-Based Leadership Approaches ............................................... 86 Figure 3-7 The Big Five Personality Factors and Their Facets.................................... 87 Figure 3-8 EFQM Criterion 1 “Leadership” and Its Criterion Parts.......................... 88 <?page no="15"?> Table of Figures 15 uvk-lucius.de/ adam Figure 3-9 EFQM Criterion Part 1a and Its Guidance Points..................................... 89 Figure 3-10 Corruption Risks Within Domains of Corporate Activities ..................... 94 Figure 3-11 Percentages Opting for Blaming an Individual ........................................... 97 Figure 3-12 GLOBE - Six Global Leader Behaviours .................................................... 99 Figure 3-13 JOHARI Window and the Importance of Feedback............................... 100 Figure 3-14 360° Feedback ................................................................................................ 100 Figure 3-15 Trompenaars and Hampden-Turner’s Four Corporate Cultures........... 103 Figure 3-16 Preferences for Corporate Cultures in Different Countries ................... 103 Figure 3-17 Dimensions of Diversity ............................................................................... 105 Figure 3-18 Lewin’s Three Steps of Change ................................................................... 109 Figure 3-19 Eight Steps for Leading Change .................................................................. 110 Figure 4-1 Concept Map “Defining and Delivering an International Strategy” ..... 115 Figure 4-2 Strategy Development and Implementation - Overview........................ 117 Figure 4-3 EFQM Criterion 2 “Strategy” and Its Criterion Parts ............................. 117 Figure 4-4 Environmental Scan....................................................................................... 118 Figure 4-5 Generalised Stakeholder Map ...................................................................... 118 Figure 4-6 Industry Analysis Based on Porter’s Five Forces (Expanded Model)... 120 Figure 4-7 Overview Competitor Analysis.................................................................... 121 Figure 4-8 Selected PESTEL Variables ......................................................................... 123 Figure 4-9 Sources for Analysing Countries and Markets .......................................... 124 Figure 4-10 The Global Competitiveness Index Framework ...................................... 125 Figure 4-11 Sample Steps of a Scenario Analysis ........................................................... 126 Figure 4-12 Issues Priority Matrix for Key Driver Selection........................................ 127 Figure 4-13 Levels of Competence Sustainability .......................................................... 130 Figure 4-14 Organisational Analysis Based on Porter’s Value Chain ......................... 131 Figure 4-15 SWOT Analysis .............................................................................................. 133 Figure 4-16 Great Jeans’ SWOT Matrix .......................................................................... 133 Figure 4-17 Choice of Location and Market ................................................................... 134 Figure 4-18 The Growth-Share Matrix (BCG-Matrix) .................................................. 135 Figure 4-19 Different Strategy Levels .............................................................................. 136 Figure 4-20 The Nine Building Blocks of the Business Model Canvas...................... 137 Figure 4-21 Sketch of Great Jeans Canvas (Basic Model) ............................................ 138 <?page no="16"?> 16 Table of Figures uvk-lucius.de/ adam Figure 4-22 Epicentres of Business Model Innovation................................................. 139 Figure 4-23 Great Jeans’ Innovative Business Model.................................................... 140 Figure 4-24 Porter’s Three Generic Strategies................................................................ 141 Figure 4-25 A Selection of Business Models................................................................... 141 Figure 4-26 Patterns of Business Models on Business Model Canvas ....................... 142 Figure 4-27 Business Model Development Process ...................................................... 143 Figure 4-28 From Purpose to Strategy Implementation ............................................... 147 Figure 5-1 Concept Map “Deploying Strategy through People”............................... 151 Figure 5-2 The Human Resource Management Process ............................................ 152 Figure 5-3 Labour Regulation Aspects in International HRM .................................. 153 Figure 5-4 EFQM Criterion 3 “People” and Its Criterion Parts ............................... 154 Figure 5-5 Four Generic HRM Strategies ..................................................................... 154 Figure 5-6 Internationalisation Strategies and HRM Policies .................................... 156 Figure 5-7 The Optimal Global Assignment Process ................................................. 157 Figure 5-8 Phases in Cultural Adjustment - Customised W-Curve.......................... 159 Figure 5-9 People Portfolios............................................................................................ 165 Figure 5-10 Obtaining Feedback....................................................................................... 165 Figure 5-11 KODE® Enhanced Atlas of Competencies ............................................. 168 Figure 5-12 KODE®X Process........................................................................................ 169 Figure 5-13 Levels of Hypercultural Competence ......................................................... 169 Figure 5-14 Drivers of Motivation Processes ................................................................. 171 Figure 5-15 Kehr’s 3K-Model of Work Motivation ...................................................... 171 Figure 5-16 Job Characteristics Model ............................................................................. 173 Figure 5-17 Heckhausen’s Model of Achievement Motivation ................................... 175 Figure 5-18 Attribution Characteristics and Their Influence on Motivation ............ 175 Figure 5-19 Reconciling the Reward Dilemma through Co-Opetition ...................... 180 Figure 5-20 Team Empowerment Dilemma ................................................................... 183 Figure 5-21 Control & Autonomy Dilemma .................................................................. 184 Figure 5-22 Multiple Dimensions of Inter-Organisational Communication ............. 185 Figure 5-23 The Communication Tool Cube for Internal Communication.............. 186 Figure 5-24 Characteristics of Low and High Context Communication ................... 189 Figure 5-25 Work/ Life Balance - Causes, Nature and Consequences ....................... 191 <?page no="17"?> Table of Figures 17 uvk-lucius.de/ adam Figure 6-1 Concept Map “Managing International Partners and Resources”......... 197 Figure 6-2 EFQM Criterion 4 “Partnerships & Resources” and Its Criterion Parts .................................................................................................................. 198 Figure 6-3 Overview of Foreign Operation Modes..................................................... 199 Figure 6-4 Characteristics of Selected Foreign Operation Modes ............................ 200 Figure 6-5 Relevant Fits in Strategic Alliances ............................................................. 201 Figure 6-6 Pitfalls of Strategic Alliances ........................................................................ 202 Figure 6-7 Typical Forms of Licensing Agreements ................................................... 203 Figure 6-8 Approaches to Joint Venture Management ............................................... 205 Figure 6-9 Chosen Perspectives on M&A Strategies................................................... 207 Figure 6-10 Synergies and Barriers of M&A Projects ................................................... 208 Figure 6-11 Varieties of Acculturation in M&A Processes .......................................... 209 Figure 6-12 Guiding Matrix for Make-or-Buy Decisions ............................................. 211 Figure 6-13 Organisational Financial Management - Overview .................................. 213 Figure 6-14 The Three-Lines-of-Defence Model........................................................... 220 Figure 6-15 ISO High Level Structure for Management Systems ............................... 222 Figure 6-16 Compliance Management Process Based on ISO 19600: 2014............... 223 Figure 6-17 Risk Management Process Based on ISO 31000: 2009 ............................ 227 Figure 6-18 Sample Risk Map............................................................................................ 228 Figure 6-19 Organisational Cultures and Risk Orientation .......................................... 229 Figure 6-20 Knowledge Dimensions................................................................................ 232 Figure 6-21 Organisational Learning Cultures................................................................ 233 Figure 6-22 Organisational Knowledge Management Process and Activities........... 235 Figure 6-23 Pyramid of Organisational Information Systems ..................................... 237 Figure 7-1 Concept Map “Managing Processes and Products Globally” ................ 243 Figure 7-2 EFQM Criterion 5 “Processes, Products and Services” and Its Criterion Parts................................................................................................. 244 Figure 7-3 From Function Orientation to Process Orientation ................................ 245 Figure 7-4 Aligning Process Management and Business Strategies .......................... 246 Figure 7-5 Overview of Business Process Management ............................................. 246 Figure 7-6 Sample Process Diagrams............................................................................. 247 Figure 7-7 Example of ARIS Items and Event-Driven Process Chain.................... 248 <?page no="18"?> 18 Table of Figures Figure 7-8 BPM Process Levels in a Sample Process Map......................................... 249 Figure 7-9 The ISO 9000 Family of Quality Management Standards ...................... 251 Figure 7-10 Mapping ISO/ DIS 9001: 2014 on the EFQM Model .............................. 254 Figure 7-11 Structure of Quality Requirements for Value Creating Processes ......... 255 Figure 7-12 How (Not) To Conduct an Optimal Product Design Process............... 256 Figure 7-13 Simple Supply Chain of Great Jeans ........................................................... 258 Figure 7-14 A Global View on Great Jeans’ Supply Chain .......................................... 259 Figure 7-15 Customer Relationship Management Based on the IDIC Approach ... 262 Figure 8-1 Concept Map “Monitoring and Achieving Balanced Results” ............... 267 Figure 8-2 EFQM Result Criteria and Their Criterion Parts ..................................... 268 Figure 8-3 The Allocation of Results ............................................................................. 269 Figure 8-4 Kaplan & Norton’s Balanced Scorecard .................................................... 272 Figure 8-5 Balanced Scorecards Aligned Across All Organisational Levels ............ 273 Figure 8-6 Mapping the BSC Concept on the EFQM Excellence Model ............... 274 Figure 8-7 Poorly Designed Dashboard ........................................................................ 276 Figure 8-8 Adequate Dashboard for Great Jeans......................................................... 278 Figure 9-1 Concept Map “Assessing the Organisation’s Management Model” ..... 281 Figure 9-2 Drucker’s Five Most Important Questions Asked about an Organisation ............................................................................................................... 283 Figure 9-3 Basic Self-Assessment Process..................................................................... 285 Figure 9-4 Classification of Different Self-Assessment Tools ................................... 286 Figure 9-5 Self-Assessment Matrix of ISO 9004: 2009 - Sample Element .............. 287 Figure 9-6 Exemplary Award Simulation Process ....................................................... 289 Figure 9-7 RADAR Elements for the Analysis of Enablers ...................................... 290 Figure 9-8 Composition of the Enabler Matrix............................................................ 291 Figure 9-9 RADAR Elements for the Analysis of Results ......................................... 291 Figure 9-10 Criteria Weightings of the EFQM Excellence Model 2013 .................... 292 Figure 9-11 EFQM Recognition Scheme ........................................................................ 295 Figure 9-12 Global Distribution of Awards Using the EFQM or Baldrige Model .. 296 Figure 9-13 Overview of EEA and MBNQA Award Categories................................ 297 <?page no="19"?> 11 Introduction and Overview Strategic International Management Welcome to the fascinating world of international organisations. This book will introduce the internationalisation process in its rich diversity and sometimes astonishing complexity. Each section is preceded by learning objectives that explain the knowledge gained in reading through the subsequent pages. The objectives for section one are presented here: Readers are able to navigate effortlessly through the book and its supplementary information. They understand the concept of globalisation and related consequences from an organisational perspective. Readers also know how to correctly name and address motives for internationalisation processes and how to recognise their interdependencies. Forces for global integration and local responsiveness are familiar and different forms of internationally operating organisations can be distinguished. The contribution of holistic management models to supporting leadership decisions and activities is recognised. The most important international models can be classified. Readers are familiar with the general approach of the EFQM Excellence Model including its fundamental concepts and RADAR logic. Learning objectives are always followed by a visual overview of the main issues covered in the respective section. Such a graphic is called a concept map. The map created for chapter 1 is supplied in . Figure 1-1: Concept Map “Introduction and Overview” uvk-lucius.de/ adam <?page no="20"?> 20 11 Introduction and Overview Strategic International Management 1.1 Introduction 1.1.1 How to Use This Book This book is meant for everybody who seeks well-founded and practical advice on how to manage the internationalisation process of an organisation. It covers the internationalisation issue from a top management perspective and builds upon established and state-of-the-art methods, using a globally recognised holistic management model - the EFQM Excellence Model as guidance. Therefore, it caters to the needs of different groups of readers: Practitioners working for and with organisations that are on their way to becoming truly international, students of business, economics and related sciences that want to prepare themselves for doing exactly that in their future career and all people planning or conducting the implementation of a holistic management model (EFQM Excellence Model or Baldrige) in their organisations. In order to facilitate the use of this book, supplementary information is provided for further illustrating the theoretical concepts discussed. This additional information is marked by distinct symbols, as listed in . Objectives Each section begins with the definition of the expected learning outcomes from the reader’s perspective. VIPs The interspersed VIPs (Very Important Points) signify main learning issues; the gist of what at least to remember from the previous chapter. GJ Example Fictive examples of an international jeans producing company called Great Jeans (GJ) for illustrating the practical application of a discussed concept. Case Case recommendation from other textbooks. Individually working on these cases provides a deeper understanding for the issues previously discussed. Exercise Practical exercises recommended for expanding the understanding of the concepts provided. The exercises and exemplary solutions can be found on the book’s accompanying website. Citations & Notes Each section comprises a final chapter called “Citations and Notes”. It contains information about all sources used in the respective section, comments on their usefulness as well as recommendations of addiuvk-lucius.de/ adam <?page no="21"?> 11.1 Introduction 21 tional sources for expanding the knowledge of the presented topic. The complete list of references provides publication information for the sources and is found at the end of the book. Figure 1-2: Symbols Used for Special Information Employed Throughout this Book The principles presented in this book are equally relevant for all kinds of organisations companies, individual enterprises and non-profit organisations alike. Therefore, the term organisation instead of company is used consequently. However, in some parts for easier understanding the terms “business” or “business sectors” are utilised as many readers might find it easier to link the purpose of an organisation to the term “business” than to a more general description. In the sense used, non-profit organisations also have a business (or mission or duty) they pursue - which could be the business to save the environment or the business to protect people from injustice. The employment of classical management terminology should not distract from the fact that the principles and tools explained here are relevant for all imaginable international management situations. 1.1.2 From Gradual Globalisation to Transnational Organisations Globalisation, understood as the worldwide integration of cultures, political systems, markets, industries and economies, is a determinant in the management of contemporary organisations. Whether an organisation decides to join the international competition or decides to stay out - the issue has to be raised. A google search of the term “globalisation” produces presently 12 million hits within less than one second, which clearly illustrates its current relevance. Reasons and motives for internationalising an organisation are multi-faceted, as illustrated in . For most organisations the primary motive is still the search for markets to ensure sustainable growth. Underlying reasons might be the (assumed) existence of attractive customer segments, demand for the offered products and services, a generally huge market size or an attractive market growth. Sometimes, the decision in favour of entering a new market is paired with a requirement to avoid the related tariffs or other trade barriers and to partake in public loan programmes offered by the respective government. In this case, opening new or relocating existing production sites is a logical consequence of the original market-seeking intent. Another important motive that appears individually or agglomerated is the necessity to ensure the availability of raw materials or other crucial and scarce resources. Cost-efficiency seekers try to establish production facilities in locations that provide essential resources at low cost (for example cheap labour costs), ensure a shorter time-to-market through cutting the distance to the customers or realise faster production cycles due to the immediate availability of efficient and good suppliers. Strategic asset seekers internationalise their business because they have a high need of well-trained people with special skills (for example in finding innovations) or are looking for international partners to complement their own product portfolio or research activities. Pushing internationuvk-lucius.de/ adam <?page no="22"?> 22 11 Introduction and Overview Strategic International Management alisation processes out of a risk diversification perspective is a motive on the rise due to an increased emphasis on risk management. Finally, many organisations feel obliged to mimic the international actions of their main competitors, which is labelled followthe-leader motive. 1 Figure 1-3: Multi-Faceted Motives for Internationalisation Processes 2 When the need for internationalisation is recognised, organisations have different possibilities to start the internationalisation process. The classical Uppsala Model from Johanson and Vahlne (1977) assumed that companies build up their presence in foreign markets incrementally along typical steps. This establishment chain was discovered based on case studies of Swedish companies and considered on the one hand the continuing acquisition and use of knowledge about the foreign market and on the other hand the commitments to the foreign market. The chain starts with irregular export activities and gradually evolves to the use of independent representatives, the founding of own sales subsidiaries and finally the establishment of a manufacturing plant in the foreign country. The authors observed also that the process was usually started in markets that had many common characteristics with the home market and that the international establishment took longer in case the knowledge of the target market was very low, or in other words the market was deemed exceptionally foreign in nature. From these observations they derived the concept of “psychic distance”, defined as the sum of factors inhibiting the flow of information to and from the foreign market. These factors are supposed to be mainly based on differences in culture, language, business practices and industrial development. An organisation naturally tends to start international activities in a market with low psychic distance, for example in a neighbouring country using the same language where the organisation feels to have a good knowledge of. Gradually, market knowledge of other countries further along the psychic distance chain will be collected. If the endeavour of internationalisation was implemented successfully in the first market, the internationalisation will be extended to the next country along the psychic distance chain. 3 According to this theory, uvk-lucius.de/ adam <?page no="23"?> 11.1 Introduction 23 a German company would be expected to start with exporting its products to Austria followed by the later establishment of a sales subsidiary there. The next internationalisation step could then be exporting its products to Denmark or the Netherlands. The establishment chain is nowadays not deemed an appropriate view of internationalisation processes. Organisations use business contacts and partner networks to collect information and share investment risks. This enables them to develop their international presence at a jump, starting for instance directly with a manufacturing plant in China instead of gradually testing export opportunities. Also, the emergence of “born globals” demands attention, referring to organisations that directly resume their business activities on a global scale as this is a dominant part of their business model (e.g. google). The current scientific landscape is defined by many different theories of internationalisation processes, which all focus on special aspects, for example motives, risk or competition drivers or certain industries. 4 Mainly the promotion of the importance of partnerships and networks could be singled out as a common denominator. Although these theories provide interesting insights into trends and patterns, they are not suitable for supporting managerial decisions. Therefore it will be desisted from further discussion. Not every organisation that establishes routine cross-border activities is already a truly international organisation or even a “global player”. Such a classification would require the extension of the organisation’s management system and processes in a manner that laws and customs of other countries gain a considerable influence on the way the organisation acts. Terms coined for these kinds of organisations include Transnational Enterprise (TNE), Multinational Enterprise (MNE), Multinational Corporation (MNC) or Transnational Corporation (TNC), that are all basically used as synonyms. There are many different definitions mainly based on the aforementioned distinction available. The most widely accepted stems from the UNCTAD and is used for its Transnational Corporation Statistics: “A transnational corporation (TNC) is generally regarded as an enterprise comprising entities in more than one country which operate under a system of decision-making that permits coherent policies and a common strategy. The entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the others and, in particular, to share knowledge, resources and responsibilities with the others.” 5 It is to be noted that this definition does not comprise a specific majority control, although internationally a minimum equity capital stake of 10% or any equivalent including voting power is common. Therefore an exact classification might require selecting the main parent company for a considered associate enterprise, which is usually the one with the highest percentage of ownership. The relevance of TNCs is not derived from mere transnational ownership but instead from the fact that they are considered to be organisations “with formidable knowledge, cutting-edge technology, and global reach” 6 . In 2009, the UNCTAD reported the existence of 82.000 TNCs, with 80 million workers employed and their foreign affiliates accounting for a share of 11% in global gross domestic product. 7 Additionally, these TNCs can be classified by their transnationality index, that provides information on the relevance of the activities outside an organisation’s home country and is calculated as the average of the three ratios foreign to total sales, foreign to total assets and foreign to total employment. The German Metro AG for example reached uvk-lucius.de/ adam <?page no="24"?> 24 11 Introduction and Overview Strategic International Management 2011 a comparatively high transnationality index of 0,62 and reported 33 countries of operation. 8 From a scientific perspective, Bartlett and Goshal’s Integration/ Responsiveness Framework provides a clear strategic distinction between different kinds of organisations with relevant cross-border activities, as depicted in . Their portfolio contrasts environmental pressures for global integration with the pressures of local responsiveness as two independent dimensions whose combination of low or high value, respectively, suggest a certain configuration of the organisation. Typical forces for global integration stimulate specific reactions. The importance of multinational customers or competitors (often stimulated by trade liberalisation) combined with high investment intensity for example activates further strategic coordination. Forces like homogeneous tastes and needs, high technological intensity as well as the need for realising cost reductions induce looking for economies of scale, economies of scope, economies of experience and/ or worldwide innovation lead to operating integration. The second dimension, pressures for local responsiveness, includes differences in customer needs and tastes, (local) needs for substitutes, individual market distribution structures or host country government demands. In these cases, it is important to assimilate to the special requirements by establishing individual processes for the local environment or by offering local variations of the products or services in order to be attractive for customers and partners alike. 9 Figure 1-4: The Global Integration/ Local Responsiveness Framework 10 This Integration/ Responsiveness Framework advises upon the choice of a global strategy for organisations facing high global integration pressures (for example due to a strong global competition) but being able to offer a highly standardised product as the pressures for local responsiveness are low. Organisations choosing this approach typically build cost advantages through centrally managed global-scale operations. These global organisations constitute the classic case of a global player, as most of the strategic decisions, responsibilities, resources and assets are centralised in the (home country) headquarters, which exerts a tight control over all overseas operations that deliver the products to a global market. Typical representatives of this kind of organisations are found for example in the aircraft or consumer electronics industry. In contrast, organisations facing low global integration pressures but instead high environmental forcers for local responsiveness follow a multinational (also called multidomestic) uvk-lucius.de/ adam <?page no="25"?> 11.1 Introduction 25 strategy approach and are formed as a decentralised federation of independent organisations. Many of their key decisions, responsibilities and assets are decentralised in order to better meet the individual market needs. The relationship between headquarters and subsidiaries is comparatively informal and usually focused on financial control. Multidomestic or multinational organisations are mainly found in industries whose products depend on languages or culture-specific tastes like for example publishing house , foods and beverages. In cases where both forces contemplated are low, the resulting international organisations are largely based on transferring the products or processes of the parent company to their subsidiaries for worldwide diffusion. Foreign activities are seen as remote outposts that are highly dependent on the headquarters’ resources and support the parent company with their profits. Therefore, the organisation’s management and strategy is oriented towards the home country, exercising a tight control over their foreign subsidiaries but without systematically integrating host country organisations and their perspectives. These organisations are found for example in the textile industry. 11 So far, all introduced strategies are dominated by a single strategic demand. However, in the current global competition organisations increasingly face high forces of global integration and high pressures for local differentiation with a growing emphasis on worldwide innovation. According to Bartlett and Goshal, the appropriate transnational strategy to compete effectively in this extremely demanding environment requires the simultaneous development of “global competitiveness, multinational flexibility and worldwide learning capabilities” 12 . Transnational organisations are truly interdependent and make selective centralising or decentralising decisions. Essential resources are centralised within the home country headquarters to protect the core competencies and in part realise economies of scale. Other resources and learning opportunities are geographically dispersed in specialised locations which ensures the necessary flexibility. Products are adapted to local requirements where necessary despite being part of an integrated production process that provides standard components from a single location to all relevant subsidiaries worldwide. Improvements and innovations are promoted in all subsidiaries and headquarters alike and outcomes are shared between all operations and subsequently diffused around the globe. Transnational organisations are characterised by large flows of knowledge, capital, people and products between subsidiaries and between headquarters and subsidiaries. The resulting organisation can be described as an integrated network. The environment described is typical for the telecommunication, pharmaceutical and media industry. More and more industries are gradually developing towards the transnational sector, as is the case for example with the automobile and banking industry. It is obvious that a transnational strategy with its high demands on integration and coordination provides a huge challenge. Therefore, successful examples are rare. 13 When an organisation pursues a transnational strategy, decisions become far more complex, as multiple market requirements and the needs and capabilities of many different subsidiaries have to be taken into account and balanced out. In addition to that, non-business matters or soft factors require more management attention, especially the need for productive and harmonious cross-border relationships despite cultural differences and language barriers. Whereas the challenges presented by strategic, organisational and operational matters are anticipated and considered, corresponding soft facuvk-lucius.de/ adam <?page no="26"?> 26 11 Introduction and Overview Strategic International Management tors are regularly ignored. A global survey of 572 executives explored internationalisation challenges and especially the role of cross-border collaboration and communication. More than 50 % of the respondents rated cross-border collaboration as very important, not only with all kinds of external partners but also within their business unit and their whole organisation. 64% reported cross-border collaboration as having been a critical factor in performance improvement. Despite its relevance, 51% admitted that linguistic and cultural diversity make it very difficult. Communication misunderstandings were reported to have stood in the way of establishing major cross-border transactions several times (6%) or a few times (43%) with incurred financial setbacks. Interestingly, due to a generally enhanced command of English, the diversity of languages across countries is no longer seen as the crucial cause for misunderstandings (only 27% reported this as most likely reason), instead different norms of workplace behaviour (49%) and differences in cultural traditions (51%) constitute the main challenges. Factors such as local customs and languages were stated to hamper their company’s international expansion plans significantly, especially in Russia (89%), Spain (88%), Brazil (70%) and China (67%). 14 In summary, dealing competently with intercultural issues constitutes one of the most important factors for a successful internationalisation. The basics of cross-cultural competence will therefore be addressed in detail in chapter 2 which is dedicated to this key issue. VIPs uvk-lucius.de/ adam <?page no="27"?> 11.2 The Use of Holistic Management Models 27 1.2 The Use of Holistic Management Models Managing any kind of organisation is a complex process and is made even more complex in an international and therefore usually unknown environment. The smaller and the more focused an organisation is, the easier it is for its (top) managers to rely on their experience and instincts for good management decisions. Consequently, the more an organisation is diversified, the more people are contributing to its success and the more it is dispersed over different locations, the more a clear structure is needed in order to not involuntarily overlook important matters. Holistic management models were developed to ensure a balanced and complete view on all management matters of different types of organisations. They provide generalised issues that have to be solved in order to steer an organisation effectively to longterm success. These models are used for guidance in the management process, for assessing the maturity of an organisation’s management system and for electing the best organisations at quality or excellence price competitions. Since the 1970s several holistic management models were published. To date, there are three models with international relevance: the (New) St. Galler Management Model, the model of the Baldrige Excellence Program and the EFQM Excellence Model. The New Management Model is an integrative framework that provides a systemoriented view of a company and is edited by the Management Institute St. Gallen. It therefore presents predominantly a scientific view. The distinctive graphic as presented in shows the company as a productive system in the centre of its surrounding network. It consists of six essential concepts: environmental spheres, stakeholders, Figure 1-5: Survey of the New St. Gallen Management Model uvk-lucius.de/ adam <?page no="28"?> 28 11 Introduction and Overview Strategic International Management interaction issues, structuring forces, processes and modes of development. These depict central dimensions of the management function. Whereas environmental spheres and stakeholder expectations have to be analysed with regard to important changes, interaction issues combine manageable matters concerning communication and resource allocation. Structuring forces should be set up to arrange the daily routines coherently, forming the company’s framework for value creating and other activities that are logically combined to consistent processes. Modes of development explain basic patterns of entrepreneurial change processes. The main aim of the St. Galler model is to support sustainable business solutions and organisational development. The University of St. Gallen uses this model as a basic guideline for executive management studies. 16 The National Institute of Standards and Technology (NIST) is an agency of the U.S. Department of Commerce. It promotes U.S. innovation and industrial competitiveness by advancing measurement science, technology and standards with the help of cooperative programs. The Baldrige Performance Excellence Program is one of those. Driven by a more practical need, criteria were developed in order to evaluate organisations and their competitiveness and to provide guidelines for organisational improvement. The Baldrige criteria and their systems perspective are used for assessing the applications for the Malcolm Baldrige National Quality Award (MBNQA) that is awarded yearly by the U.S. president. 17 The requirements of the Baldrige Criteria for Performance Excellence for business and non-profit organisations are embodied in seven categories, as shown in Figure 1-6. These categories are integrated and connected in the Baldrige framework or systems perspective. Its top basic element is the “Organizational Profile”. It sets the context for the way an organisation operates as it includes its competitive environment, relationships and its strategic situation. Core values and concepts form the basis for the actual Performance Management System. This is first composed of six Baldrige categories: the leadership triad with Leadership (category 1), Strategy (category 2), and Customers (category 3) which sets the organisational direction, and the results triad with Workforce (category 5), Operations (category 6) and Results (category 7). All actions taken by the organisation’s workforce and key operational processes produce its overall performance results. The seventh category forms the system’s foundation, as Measurement, Analysis, and Knowledge Management (category 4) are critical to a factbased, knowledge-driven and effective management system. The central part “integration” stresses the model’s holistic and integrated perspective. The criteria categories are subdivided into overall 17 process and results items, each focusing on a major requirement. Each item consists of one or more areas to address that define more specific requirements. This third level of the whole model is the level that organisations should address in order to explain their particular solutions and approaches when applying for the MBNQA. 18 uvk-lucius.de/ adam <?page no="29"?> 11.2 The Use of Holistic Management Models 29 Figure 1-6: Baldrige Criteria for Performance Excellence Framework 2015 Besides its predominant use in the U.S., the Baldrige model or its equivalent was used for national excellence awards in more than 20 countries worldwide in 2010, for example in Hong Kong and New Zealand. 20 The third internationally recognised model is the EFQM Excellence Model. As it represents the red thread through this textbook, it will be explained explicitly in the following chapter 1.3. VIPs uvk-lucius.de/ adam <?page no="30"?> 30 11 Introduction and Overview Strategic International Management 1.3 The Approach of the EFQM Excellence Model The most successful and widespread holistic management model is the EFQM Excellence Model. Leaders that face an internationalisation challenge are in need of a clear structure of their organisation’s existing management system as well as of ideas for integrating new approaches and different cultures. The EFQM Excellence Model provides through its non-descriptive and structured framework a very good tool for this purpose. Consequently, its building components will be explained in detail in the following subdivisions. 21 1.3.1 Background Information: The EFQM and its Model The EFQM is a global non-for-profit membership foundation, established in 1988 by 14 CEOs of internationally recognised companies (Nestlé, Robert Bosch, Volkswagen et al.) with the goal of developing a management tool for increasing the competitiveness of European organisations. In alignment with its vision of “a world striving for sustainable excellence” 22 the EFQM is organiser of the prestigious European Excellence Award that yearly recognises organisations for their sustainable achievements using the EFQM Excellence Model as assessment tool. To date, the EFQM records about 500 international members from many different industries and more than 50 countries. 23 Its model is used by over 30 000 organisations in Europe for development and assessment purposes. 24 According to a research conducted in 2010, the EFQM Excellence Model or its equivalent is used for national excellence awards in more than 35 countries worldwide, not only in European countries like Germany (Ludwig- Erhard-Preis), Finland, United Kingdom and the Russian Federation but also in Turkey and the United Arab Emirates. 25 Due to its background the EFQM Excellence Model was developed from a practical European management perspective. Accordingly, it sets a strong focus on people and sustainability. The inclusion of relevant leadership matters affecting all sorts of global organisations is one of its strong features. Keeping it up-to-date is a major prerequisite for its on-going success; therefore the model is reviewed every 3 years in a rigorous and widespread review process. The latest reviews were carried out with more than 200 representatives from academics, large organisations, EFQM partners and assessors, allowing work groups to comment and test draft versions before the final version was published. The 2013 version of the EFQM Excellence Model now emphasises emerging trends like innovation, risk management and corporate governance. The in-depth revision achieved also a full integration of its main building blocks: the 8 fundamental concepts, the 9 model criteria and the RADAR assessment tool. 1.3.2 The Fundamental Concepts of Excellence Every management model is based on key concepts that explain the underlying management philosophy. These concepts provide important guidance on the interpretation of model criteria in case they are not self-explanatory. Before using any kind of model it is always advisable to compare its basic philosophy with one’s own because incompatibilities in this respect can reduce the usefulness of a tool considerably. uvk-lucius.de/ adam <?page no="31"?> 11.3 The Approach of the EFQM Excellence Model 31 Figure 1-7: EFQM 26 The EFQM Excellence M odel supports any kind of organisation in its endeavour to attain excellence with the goal of meeting or exceeding the expectations of its stakeholders by achieving and sustaining superior levels of performance. The essential foundation of this quest is built by 8 underlying principles called the Fundamental Concepts as depicted in Figure 1-7. uvk-lucius.de/ adam Fundam ental Concept EFQM Definition Best Practice Exam ples Adding Value for Customers Excellent organisations consistently add value f or customers by understanding, anticipating and f ulf illing needs, expectations and opportunities. Identif ying dif f erent customer groups, both existing and potential Transf orming their requirements into attractive value propositions Building a dialogue Monitoring the experiences and perceptions Creating a Sustainable Future Excellent organisations have a positive impact on the w orld around them by enhancing their perf ormance w hilst simultaneously advancing the economic, environmental and social conditions w ithin the communities they touch. Def ining and communicating a core purpose Understanding the key competencies Balancing the sometimes conf licting imperatives by considering “People, Planet and Prof it” <?page no="32"?> 32 11 Introduction and Overview Strategic International Management Figure 1-8: EFQM Fundamental Concepts: Definitions and Best Practices Each Fundamental Concept of Excellence is defined against the backdrop of a management approach of an excellent organisation. These definitions are augmented by aspects of what excellent organisations do to transfer these principles into practical activities. The main definitions and some of their constitutive best practices are specified in . The management approach described in the Fundamental Concepts is cast in a structure of a holistic management model with 9 criteria: the EFQM Excellence Model. uvk-lucius.de/ adam <?page no="33"?> 11.3 The Approach of the EFQM Excellence Model 33 1.3.3 The EFQM Excellence Model Framework 2013 Figure 1-9: The EFQM Excellence Model Fram ework 2013 28 Figure 1-10: Definitions of the EFQM Enabler Criteria 29 The EFQM Excellence Model 2010 offers through its non-descriptive framework a guiding structure for any kind of organisation striving for excellence. It is presented in Figure 1-9. The nine criteria and their subdivisions allow depicting precisely an organisation’s way of offering value (“enablers”) and the resulting goal attainment (“results”). uvk-lucius.de/ adam <?page no="34"?> 34 11 Introduction and Overview Strategic International Management Figure 1-11: Definitions of the EFQM Results Criteria 30 The five enabler criteria on the left side of the model cover what an organisation does to fulfil the various expectations of its stakeholders and how it does it. They consist of the criteria 1 Leadership, 2 Strategy, 3 People, 4 Partnerships & Resources and 5 Processes, Products and Services. The results stem from the enablers and depict what the organisation achieves. The balanced view on results is expressed by the four criteria 6 Customer Results, 7 People Results, 8 Society Results and 9 Business Results. As any excellent organisation is a learning organisation, the dynamic of continuous improvement through feedback is represented by the arrow at the base of the model stating “Learning, Creativity and Innovation”. Each criterion is clearly defined in order to explain its general meaning. An overview of the criteria definitions is provided in Figure 1-10 (for enablers) and Figure 1-11 (for results). The high level definitions of the criteria only allow a very rough structure of a management system. For assessing the maturity of an organisation as well as its strengths and weaknesses, a more detailed approach is necessary. Therefore, the nine criteria are subdivided in criterion parts and these are further elaborated in guidance points. The 32 criterion parts describe different facets of what an excellent organisation typically does in the area of the defined criterion and what therefore should be considered during an assessment. On the third and lowest level of the model, the guidance points provide tangible best practice examples of how to implement the ideas. These guidance points link the EFQM Excellence Model to the Fundamental Concepts. Some of them provide an adaption of one part of a Fundamental Concept to fit the specific context of the criterion part. Other guidance points repeat the text from the Fundamental Concept precisely. Through the guidance points, the structure of the model allows to grasp connections between the different criteria and by that to identify management approaches that are able to integrate several goals at once. This adds another dimenuvk-lucius.de/ adam <?page no="35"?> 11.3 The Approach of the EFQM Excellence Model 35 Figure 1-12: Exemplary Levels of the EFQM Excellence Model 31 It is important to keep in mind that the 119 guidance points used for exemplifying the five enabler criteria are not meant as a check list, so it is not necessary for an organisation to follow them all. Nor is the list of guidance points meant to be exhaustive, as there are other ideas and approaches that fit into a criterion part without being mentioned in a guidance point. The EFQM Excellence Model as an open and non-descriptive model allows and expects individual solutions that match business sector, size, culture and strategy of a specific organisation. However, the guidance points facilitate the search for a fitting improvement measure, in this respect being proper guides for a leader facing management challenges. Figure 1-13: Exemplary Red Threads Through the EFQM Excellence Model 32 sion to the otherwise two-dimensional model. These links are depicted by the connecting lines in the EFQM Excellence Model Framework. A graphic example of the EFQM levels is provided in Figure 1-12. It is possible to follow certain ideas or aspects of management through the model as they are referred to in several guiding points. The EFQM depicts in their 2013 model brochure the integration of their fundamental concepts into the model by highlighting uvk-lucius.de/ adam <?page no="36"?> 36 11 Introduction and Overview Strategic International Management those criterion parts of the enablers where the text of a certain fundamental concept is reflected directly in one of the attached guiding points. 33 This exercise can also be done in a broader sense for any aspect a manager would like to focus on, for example customers or ideas and impacts of the introduction of a risk management system. As shown in Figure 1-13, each of these aspects can be followed through the model. Ideas how to optimise the benefit from the customer’s perspective can be found for example in 1c (leaders are transparent and accountable to their customers and encourage them to participate in activities that contribute to the wider society), in 2a (gather customer’s needs and expectations as strategy input), 2b (analyse current performance trends, for example how customer expectations and promises to the customers are kept), 2d (communicate their strategy to their customers), 3b (attract the right people and ensure that all employees have the necessary competencies to fulfil the needs of the customers), 4a (identify and work together with partners to ensure enhanced value for the customers), 4c (optimise the impact of their product lifecycle and services on public health and safety including that of the customers), 4d (involve customers in the development and deployment of new technologies to maximise the benefits generated), 4e (establish approaches to engage relevant customers and use their knowledge in generating innovation), 5a (design and manage processes to optimise customer value - also beyond the boundaries of the organisation), 5b (develop products and services that create optimum value for customers), 5c (define different customer groups and anticipate their needs and expectations), 5d (produce and deliver products to need or exceed customer needs and expectations), and 5e (manage and enhance customer relationships). The outcomes of these approaches are measured in 6a and 6b (customer perceptions and performance indicators with impact on the perceptions of customers). Explanations concerning the depicted relevant criterion parts for people are provided online at the accompanying website combined with the solution to the following exercise. Exercise: Familiarise yourself with the EFQM structure (online) The internationalisation process that forms the structure of this textbook is based on the EFQM criteria. Therefore, more details of each criterion and the associated criterion parts will be explained at the beginning of the corresponding chapters. As this book will only present selected parts of the EFQM Excellence Model, it is highly recommended to acquire the original brochure of the model which can be obtained at www.efqm.org. 1.3.4 The EFQM RADAR Logic For assessing the excellence level of an organisation the EFQM offers a logical method based on the Deming or PDCA Cycle. According to the Deming Cycle a continuous improvement of processes or systems is based on several successive phases starting with establishing plans, processes and (measurable) objectives to the delivery of a ceruvk-lucius.de/ adam <?page no="37"?> 11.3 The Approach of the EFQM Excellence Model 37 Figure 1-14: The EFQM RADAR® Logic tain output (PLAN), implementing and executing these plans (DO), reviewing the actual results (CHECK) and taking corrective actions in case significant differences between the actual results and the planned objectives occur (ACT). 34 The PDCA-Cycle lies at the heart of all improvement-related management models and is used for example in the ISO 9001 quality management systems’ requirements. The EFQM calls its derived approach RADAR® logic. It consists of four consecutive phases that an organisation needs to execute in order to ensure continuous improvement and sustainable outcomes and is represented in Figure 1-14. In the first phase, the organisation determines the RESULTS it wants to achieve according to its strategy. In the second phase the organisation plans and develops an integrated set of comprehensive APPROACHES to deliver the results from an actual and future-oriented perspective. In the third phase the approaches are DEPLOYED systematically to ensure a successful implementation. In the fourth phase the organisation has to ASSESS and REFINE its approaches according to the analysis of the achieved results and based on its on-going learning activities. Therefore, the cycle starts again with defining the desired results. The degree to which an organisation is able to consequently follow this rigorous improvement cycle is the basis for assessing its level of excellence. For an EFQM assessment, a detailed set of requirements and possible levels of fulfilment based on the RADAR® cycle was invented that is depicted in the so called RADAR tools. One RADAR tool (also called RADAR matrix) deals with the results, as it depicts the first phase of the cycle and is thus used for the result criteria. The second RADAR matrix is used for the assessment of the enabler criteria and depicts the phases two to four of the RADAR logic. uvk-lucius.de/ adam <?page no="38"?> 38 11 Introduction and Overview Strategic International Management VIPs 1.4 Process Model "Managing Internationalisation" Figure 1-15: The Internationalisation Process The management logic of the EFQM Excellence Model can be used to define the path through the internationalisation process, as shown in . The management process itself starts with leadership awareness and competence to steer the organisation through the internationalisation process. This is followed by the definition of an international strategy which sets the path for the following implementation. The strategy is implemented through the following steps: managing people in an international environment, managing international partners and resources as well as managing products and processes globally. Based on a sustainability approach the results achieved will be compared with the (strategic) goals set, defined by ways of an individual balanced uvk-lucius.de/ adam <?page no="39"?> 1.5 Citations & Notes 39 scorecard. A strategy review based on the outcomes will follow to ensure that the longterm vision of the company is still valid and the path to be followed seen as appropriate. These internationalisation steps are supported by the development of crosscultural competence, which is required for every action and decision in internationally operating organisations. Therefore it defines the starting point for the following elaborations of this book. 1.5 Citations & Notes 1 Morschett, D., Schramm-Klein, H., & Zentes J. (2010), pp. 71-82; Holtbrügge, D., & Welge, M. K. (2010), pp. 25-26. 2 Contents based on Morschett, D., Schramm-Klein, H., & Zentes J. (2010), p. 72, figure 4.1; Holtbrügge, D., & Welge, M. K. (2010), p. 24, tab. 1-7 3 Johanson, J., & Vahlne, J.-E. (1977) 4 A good overview of theories dealing with foreign direct investments is provided in Holtbrügge, D., & Welge, M. K. (2010), pp. 54-78 5 UNCTAD (2013b) 6 UNCTAD (2010), p. iii 7 UNCTAD (2010), p. XVIII. Unfortunately, the newer World Investment Reports concentrate on FDI inflows and outflows but do not offer a recent count of TNCs. 8 UNCTAD (2014), p. 16 9 Bartlett, C., & Ghoshal, S. (1986); Bartlett, C., & Ghoshal, S. (1987a); Bartlett, C., & Ghoshal, S. (1987b); Ghoshal, S., & Nohria, N. (1993); Bartlett, C., & Ghoshal, S. (1998) 10 Based on Bartlett, C., & Ghoshal, S. (1986), p. 377; Kutschker, M., & Schmid, S. (2011), p. 300 11 Bartlett, C., & Ghoshal, S. (1986); Bartlett, C., & Ghoshal, S. (1987a); Bartlett, C., & Ghoshal, S. (1987b); Ghoshal, S., & Nohria, N. (1993); Bartlett, C., & Ghoshal, S. (1998). Industry examples from Morschett, D., Schramm-Klein, H., & Zentes J. (2010), pp. 43-44 and Kutschker, M., & Schmid, S. (2011), pp.301-304. 12 Bartlett, C., & Ghoshal, S. (1998), p. 18 13 Bartlett, C., & Ghoshal, S. (1986); Bartlett, C., & Ghoshal, S. (1987a); Bartlett, C., & Ghoshal, S. (1987b); Ghoshal, S., & Nohria, N. (1993); Bartlett, C., & Ghoshal, S. (1998); Morschett, D., Schramm-Klein, H., & Zentes J. (2010), pp. 34-35; Kutschker, M., & Schmid, S. (2011), pp.301-304. 14 Economist Intelligence Unit (2012) 15 Rüegg-Stürm, J. (2004a), p. 12 16 Rüegg-Stürm, J. (2004b). More information about the use of this integrative approach can be obtained at the website of Universität St. Gallen: http: / / www.es.unisg.ch/ en/ custom-programs/ approach/ intergrative-approach. php (access 01.03.2015); A good overview offers the author’s German publication (Rüegg-Stürm, J. (2004a)). An extract of it is obtainable online: http: / / www.micha uvk-lucius.de/ adam <?page no="40"?> 40 11 Introduction and Overview Strategic International Management elegli.ch/ html/ img/ pool/ Neues_St._Galler_Managementmodell.pdf (retrieved 01.03.2015). 17 US Department of Commerce & NIST (2015). The model will be updated yearly and the recent brochures are for sale and partly displayed at the NIST website. Information about the use of this model for awards in different countries can be obtained from US Department of Commerce & NIST (2005). As “Home of the Baldrige Performance Excellence Program” the NIST offers also many publications of MBNQA winners with best practices free of charge, true to their mission to foster improvements. 18 US Department of Commerce & NIST (2015); graphics also available from http: / / www.nist.gov/ baldrige/ graphics.cfm 19 US Department of Commerce & NIST (2015); graphics also available from http: / / www.nist.gov/ baldrige/ graphics.cfm 20 NIST (2010) 21 EFQM & ILEP (2012). A short introduction to the EFQM itself, the EFQM model, its Fundamental Concepts and possible uses can be retrieved from the official EFQM website (www.efqm.org). A short overview of the model is offered as pdf publication free of charge: EFQM. (2012). An overview of the EFQM Excellence Model. Retrieved from www.efqm.org/ sites/ default/ files/ overview_efqm _2013_v1.1.pdf. The EFQM offers at its website model related publications in several languages, mainly for sale. For German users that work internationally, the dual language version (German/ English) used here can be highly recommended. For some award processes, free information on best practices concerning selfassessments and the award process is provided on the internet. For example for the German Excellence Price called Ludwig-Erhard-Preis (www.ilep.de) 22 EFQM (2015d) 23 EFQM (2015e) 24 EFQM (2015f) 25 NIST (2010) 26 EFQM & ILEP (2012), p. 6 27 Definitions taken from EFQM & ILEP (2012), pp. 8-14 28 EFQM & ILEP (2012), p. 16 29 Definitions assembled from EFQM & ILEP (2012), pp. 18-31 30 Definitions assembled from EFQM & ILEP (2012), pp. 34-40 31 Definitions from EFQM & ILEP (2012), p.18 32 General idea and parts of the attribution based on EFQM & ILEP (2012), p. 42 33 EFQM & ILEP (2012), p. 42 34 Deming, W. E. (2000), p. 88. (Deming calls it in his own book the “Shewhart Cycle” but notes that it has been called Deming Cycle since he introduced it in Japan in 1950). The PDCA cycle is referred to regularly in books about (Total) Quality Management, for example Juran, J. M., & De Feo, J. A. (2010), pp. 204- 205 or Oakland, J. S. (2014), pp. 120-125 (with various decuctions and uses for example pp. 250-252, 263-266, 296). 35 EFQM & ILEP (2012), p. 44 uvk-lucius.de/ adam <?page no="41"?> 22 Key Issue: Developing Cross-Cultural Competence Readers are aware of the importance of recognising and respecting cultural differences for facilitating international relations of any kind. They are able to explain and compare different frameworks for distinguishing organisational or national cultures. The awareness about their own cultural perspectives and resulting judgements is heightened and the ability to reconcile cultural dilemmas enhanced. Knowledge about intercultural differences and their manifold effects on the building blocks of the management system is a key prerequisite for a successful internationalisation. This section explains typical pitfalls of mono-cultural thinking in a global business environment and provides different business-related frameworks for distinguishing cultures. The use of these frameworks in designing and implementing international management systems can foster an organisational climate embracing the opportunities of multicultural approaches for doing business. delivers the concept map for treatment of the key issue Cross-Cultural Competence. Figure 2-1: Concept Map “Cross-Cultural Competence” uvk-lucius.de/ adam <?page no="42"?> 42 22 Key Issue: Developing Cross-Cultural Competence 2.1 The Importance of Intercultural Understanding for International Business Issues Culture is still one of the most iridescent concepts in science. When people first think about culture, it is usually about the obvious aspects like behaviour, traditions and customs. French people carrying baguettes, African people in colourful caftans and the formal bows in Japanese greetings - all these observations shape our perception of culture. But these observations form only the tip of the (cultural) iceberg. The famous cultural iceberg metaphor (usually attributed to Edward T. Hall from his book published 1976, although he does not use the term) 1 illustrates that the essential cultural differences lie underneath the visible spectrum, as depicted in . Dissimilarities in beliefs, values and thought patterns are far more relevant for intercultural misunderstandings than different traditions that are more prominently displayed and therefore create awareness more easily. Figure 2-2: The Cultural Iceberg Understanding cultural-induced behaviour is a prerequisite for successful business operations in any international context. A lack of cross-cultural competence gives rise to manifold faults in information retrieval, decision making, negotiating and leading that might become disastrous for the organisation’s long-term achievements. Throughout the EFQM Excellence Model, the correct assessment of cultural beliefs and values is presumed for finding effective responses. For example, leaders can only act as role models if their ideas of how to act with integrity and how to follow high standards of ethical behaviour are in line with the respective expectations of all of their team members. As these expectations vary from culture to culture, acceptance can only be ensured by a thorough research of possible misunderstandings. In dealing with customers and stakeholders, cultural misunderstandings can be of even more dramatic consequences. A misinterpretation of customer requirements might lead to the development of non-marketable products. A violation of unspoken negotiation rules might ruin a bid for a long-term contract. uvk-lucius.de/ adam <?page no="43"?> 22.1 The Importance of Intercultural Understanding for International Business Issues 43 The development of intercultural sensitivity is the most effective countermeasure for this kind of intercultural conflicts. Intercultural sensitive people are able to apply skills of empathy and adaptation of behaviour to any cultural context with varying degrees of sophistication. Unfortunately, this ability does not come naturally. It is something that has to be learned and grows whenever a person is exposed to foreign cultures with an open mind. Milton Bennett describes typical stages in this very individual development process from first denial to final integration in his Developmental Model of Intercultural Sensitivity as illustrated in . 2 People growing up in a monocultural environment accept the culture they grew up with as the only one existing. Exposure to other cultures leads first to denial of differences. When denial is no longer possible, people start experiencing their own culture as more advanced and “better” than the other, known as the defense phase. This phase is usually accompanied by the use of stereotypes in order to confirm prejudices. Both early phases of cultural development could take exaggerated forms of aggressively eliminating foreign cultures and their representatives or - on the contrary - romanticising them. After realising existing similarities between their own and the foreign culture (usually in superficial aspects like customs or food), people tend to minimise the fundamental differences, believing that there are generally recognised patterns of human behaviour that enable effortless and successful communication. With the next step, the ethnocentric stages are overcome and people enter the ethnorelative stages of intercultural development. These start with a genuine acceptance of differences in cultures and of the right to use different solutions to typical human problems. This does not include an agreement with the solutions a certain culture exhibits, which are continually scrutinised in order to accumulate more knowledge. Expanding the view of the word leads to the ability to understand other cultures and to behave appropriately in their cultural frameworks. In this adaption phase, people are able to shift their frame of reference and use empathy for the benefit of good communication. The final stage “integration” allows a person to move in and out of different worldviews at will. For these people, a specific culture is no longer a constitutive part of their definition of self. Figure 2-3: Developmental Model of Intercultural Sensitivity 3 Some people will never be able to overcome inner fears and will keep their prejudices, being stuck in the defense phase. However, for a prosperous career in the globalised economy it is imperative to reach at least the first ethnorelative stage of acceptance. The best way to reach the higher ethnorelative stages in the personal development are intensive encounters with people from foreign cultures in agreeable and positive circumstances. This could be ensured by a high grade of open-mindedness as well as uvk-lucius.de/ adam <?page no="44"?> 44 22 Key Issue: Developing Cross-Cultural Competence careful preparation. Knowledge about foreign cultures can be obtained through many sources like travel and culture guides, internet research and enquiries of people from the respective country or of travellers with experience in the region required. It is important to notice that these sources have to be used with a critical view on their cultural background and potential prejudices. Sometimes, a book written from an American about the French culture can be quite misleading. Therefore, the most important source of comparative intercultural information is provided by scientific research. In the next chapters, the main frameworks for distinguishing cultures in a business context will be introduced. 2.2 Hofstede’s Framework: Cultures and Organisations One of the pioneers in intercultural studies is Geert Hofstede. With the first issue of his original book “Culture’s Consequences” he revolutionized the way differences in cultures were assessed. His ground-breaking survey covered a significant number of countries and helped to create the area of comparative intercultural research and theory. Since its first publication Hofstede’s work is cited extensively in scientific articles worldwide. It influenced consultants and professionals in many areas all over the world focussing on human resource management, leadership training and varied business applications. 4 2.2.1 Culture as a Part of Human Mental Programming Hofstede was fascinated by Human Mental Programming and strived to understand how people’s values and beliefs were formed. When dealing with humans, three unique levels of mental programming can be distinguished ( ): Figure 2-4: Three Levels of Uniqueness in Human Mental Programming 5 The basic level, labelled “human nature”, steers the basic programmes of the mind every child inherits. The resulting behavioural patterns and reactions like fear, joy, love and the need to band together with others are universal for all human beings. The second level is specific for a certain group or category of human beings and is referred to as “culture”. The “dos” and “don’ts” of this level are learned from other members uvk-lucius.de/ adam <?page no="45"?> 22.2 Hofstede’s Framework: Cultures and Organisations 45 of the group. The third level forms the personality. The resulting behaviour is, by concept, partly inherited and partly learned. Based on these levels of human mental programming culture is defined by Hofstede as “the collective programming of the mind that distinguishes the members of one group or category of people from others” 6 . Figure 2-5: The Hofstede Onion: Manifestations of Culture 7 Culture manifests itself on different levels that can be depicted as an onion as introduced in . The innermost level consists of values, defined as “broad tendencies to prefer certain states of affairs over others” 8 and defines if something is deemed as for example moral or immoral, dirty or clean or else evil or good. Values are hidden deeply and cannot be perceived whereas the three following levels of culture can be observed openly, forming the cultural practices. These consist of rituals, heroes and symbols. Rituals are socially essential collective activities. They serve group matters like reinforcing group behaviour or ensuring group cohesiveness and include the way greetings are carried out or the way language is used. Rituals cover far more than only official or religious ceremonies. A typical example is the French way of kissing on the cheek when greeting friends and acquaintances. Cultural heroes serve as role models for desirable behaviour. They show characteristics that are highly respected in a particular culture. Barbie’s beauty, Asterix’s cleverness or Batman’s sense of justice are typical examples. Symbols form the surface area of culture. They include all kinds of gestures, words, objects or pictures that carry a particular meaning that is familiar only to those who are part of the same culture. Typical group symbols are special expressions (“jargon”), status symbols, dresses or hairstyles. Symbols are subject to quick changes and are easily copied by others. VIPs uvk-lucius.de/ adam <?page no="46"?> 46 22 Key Issue: Developing Cross-Cultural Competence 2.2.2 An Introduction to Hofstede’s Dimensions Hofstede’s research dates back to the 1960s when he worked together with IBM and created a questionnaire in order to analyse the values of similar IBM employees in different countries. The “IBM Study” revealed universal problems, but with solutions that differed from country to country. The problems could be clustered in the areas “social inequality”, including the relationship with authority; “the relationship between the individual and the group”; “concepts of masculinity and femininity”, concerning the social implications of having been born as a boy or a girl and “the ways of dealing with uncertainty”, relating to the control of aggression and the expression of emotions. These four areas of basic problems were understood to represent independent dimensions of cultures. In 1985 Chinese researchers developed a Chinese Values Survey (CVS) that produced one dimension that was not correlated with of the dimensions Hofstede used so far. It was based mainly on typical Confucian principles and dealt with an orientation towards the future or towards the past. This concept was added 1991 as a fifth dimension to the Hofstede model, at first using only the scores for the 23 countries included in the CVS. A “dimension” is seen as an aspect of one culture that can be measured relative to other cultures. Consequently, the discovered basic problem areas correspond to five dimensions that form a model of differences among all kinds of cultures - for example gender cultures, professional cultures, company cultures or national cultures. An overview of the five Hofstede dimensions and their measurement scales in the shape of a control panel is provided in Figure 2-6. The dark-blue controllers denote one culture, the light blue controllers another culture. Their position on each scale represents the average value of their culture concerning the contemplated dimension. Figure 2-6: Hofstede’s Five Dimensions as a Control Panel uvk-lucius.de/ adam <?page no="47"?> 22.2 Hofstede’s Framework: Cultures and Organisations 47 Hofstede’s model gains its importance from the fact that his findings were repeatedly verified in replica studies. For example, six major replications of his IBM research were carried out by different researchers from 1990 to 2002, using people from different backgrounds (elites, employees, pilots, consumers, municipals, bank employees) and comparing between 14 and 28 countries. All studies confirmed the first four dimensions of the Hofstede research as valid. Consequently, this 5-dimensional Hofstede model is currently the most renowned cultural framework in the business environment. The basis for the cultural comparison is regularly widened and the number of countries integrated broadened. In the most recent editions of the Hofstede model, more than 90 different countries are characterized by a score on each of the five cultural dimensions. Before continuing with the application of this framework to different countries it is important to emphasize that the scores mentioned below are scores of all survey participants of each culture, computed of the values given for the respective survey items in defined ways. Therefore, the scores do not at all imply that all people of one culture are equal. As Hofstede remarks concerning his Power Distance Index: the correlation on the country scores on the three underlying questions are more than 0.5, providing a coherent pattern for distinguishing one country from another. At the same time, the correlation across the individual answers to these questions is nearly zero. 9 This emphasizes that such a concept only measures characteristics of systems, not of individuals. In the following chapters, each of the five dimensions will be explained in detail. 2.2.3 Power Distance The Power Distance Index (PDI) measures the degree of inequality in a group or society. This concept was derived from three items of the original survey that were answered by non-managerial employees only: their anxiety to express disagreement with their managers, the perception of their supervisor’s decision-making style and their personal preference for their supervisor’s decision-making style. The PDI provides the group-specific answers to the basic question of how to handle the fact that people are unequal. Typical characteristics of countries with large power distance in comparison to countries with small power distance are depicted in . It is to be noted that not every country with a high PDI shows all typical characteristics because some of these might not fit to typical characteristics of other dimensions. This is true for all tables showing key differences in opposite culture scores. This highlights the fact that countries with comparable scores in one dimension are not similar. Although they share the same basic idea, its expression in forms of cultural artefacts (as behaviour, customs and the like) is very individual. In large PDI countries, for example, the use of status symbols is very common and expected. However, the type of status symbols relevant in a certain business environment can be very dissimilar and ranges from using office-provided smartphones to driving cars from prestigious (foreign) producers, inhabiting a huge office space with windows or employing several secretaries. uvk-lucius.de/ adam <?page no="48"?> 48 22 Key Issue: Developing Cross-Cultural Competence Figure 2-7: Key Differences between Cultures with Small and Large PDI 10 Figure 2-8: Selected PDI Country Ratings 11 uvk-lucius.de/ adam <?page no="49"?> 22.2 Hofstede’s Framework: Cultures and Organisations 49 Typical large power distance countries are Slovakia, Russia, China and the Philippines. Countries with a small PDI include Austria, Finland, Germany, UK and Switzerland. An overview of selected country ratings is provided in . Hofstede’s PDI scores are of special practical relevance for the expected behaviour of leaders or members of teams in business situations. Imagine the culture clash that is likely to occur when an employee from a (very) low PDI country is delegated to a supervisor from a (very) high PDI country. The employee will feel offended by the strict rules he has to follow, the close control of routine tasks by his supervisor and the lack of (management) information provided. He expects to be seen as an expert in his own right and therefore is used to being asked about his opinion on business matters. On the other hand, the supervisor will not feel treated according to his rank. He will regard the questions his employee poses about the business development and new initiatives as something that does not befit an employee, understanding this information as classified. Requests of a flexible interpretation of the rules will be met with a lack of understanding as this is in the supervisor’s point of view - a criticism of his higher judgement. He is not used to employees presenting their own ideas and will see this as an attitude lacking respect. Without knowledge and acceptance of intercultural differences this situation will cause both sides to react with mistrust and frustration. Appreciating the different views on equality in the workplace will enable leader and employee to adapt a stance of openness and composure without the emotional turmoil of feeling dishonoured and rejected. As already mentioned above, Hofstede’s framework is meant to distinguish between cultures of all sorts, not only national cultures. The PDI scores proved to be interesting for profiling different attitudes of workers and managers based on their skill levels. Using IBM data from Great Britain, France and Germany Hofstede assigned PDI values for six different categories of occupations. The scores show (not surprisingly) that groups of people with high-skilled occupations generally demonstrate a lower PDI score in comparison to those with unskilled or semi-skilled occupations. This is also true for the management level. Details can be obtained from . Figure 2-9: PDI Values for Six Categories of Occupations 12 uvk-lucius.de/ adam <?page no="50"?> 50 22 Key Issue: Developing Cross-Cultural Competence 2.2.4 Individualism/ Collectivism The second dimension of Hofstede’s framework measures the ties between people. When connections between individuals are loose, the respective culture is called individualistic. When a country scores high on individualism (IND), everyone is expected to look after himself, including (only) his immediate family. The opposite is true for societies with low individualism, the so-called collectivistic cultures. From birth onward people are integrated into very strong and cohesive “in”-groups that will continue to protect them throughout their lifetime. In return the group expects unquestioning loyalty. In the IBM survey, this dimension is measured by a set of 14 work goals. Participants were questioned about the importance of these goals in an ideal job (from 1 = of utmost to 5 = of no importance). Individualism is strongly associated with high importance of the following work goal items: sufficient time for personal or family life, freedom to adopt own approach to the job and challenging work that creates a personal sense of accomplishment. Collectivistic cultures with low scores on IND value especially training opportunities, good physical working conditions and the full use of skills and abilities. Typical characteristics of each extreme are presented in . Figure 2-10: Key Differences between Cultures with Small and Large IND 13 uvk-lucius.de/ adam <?page no="51"?> 22.2 Hofstede’s Framework: Cultures and Organisations 51 High scoring and therefore individualistic countries include the United States, Australia, Hungary and the Netherlands. Truly collectivistic countries include Guatemala, Ecuador and Venezuela as well as Pakistan, Indonesia and Taiwan. An overview of selected countries is supplied in . Figure 2-11: Selected IND Country Ratings 14 2.2.5 Masculinity/ Femininity The third dimension measures how desirable assertive behaviour is in comparison to modest behaviour. This is strongly related to conventions about role-typical behaviour of men and women in a society. These conventions are not based on absolute biological differences of males and females but on expectations about acceptable - or desirable behaviour in certain situations that lead to culturally-determined roles. Consequently, the dimension expressing this is called masculinity (MAS). Societies with high MAS scores favour assertiveness, but predominantly from men, that are supposed to be tough and focused on material success. Women, on the contrary, are supposed to be tenderer, modest and concerned with the quality of life. Masculine societies are therefore characterised by clearly distinct emotional gender roles. In countries with low MAS scores these emotional gender roles overlap. All members, men and women, are supposed to be modest, caring, and concerned with the quality of life. These societies are called “feminine”. Typical dissimilarities between both sorts of cultures are listed in . uvk-lucius.de/ adam <?page no="52"?> 52 22 Key Issue: Developing Cross-Cultural Competence Figure 2-12: Key Differences between Feminine and Masculine Cultures 15 The MAS dimension was measured in the IBM study by the importance attached to a set of 14 work goal items. Masculinity was strongly associated with special importance of high earnings, recognition for a job well done, advancement opportunities and challenging work. Femininity was strongly associated with good working relationship with the direct manager, good cooperation in the team, living in a desirable area and employment security. Countries with extreme values in masculinity include Slovakia, Japan, Hungary and Austria. Typical feminine countries are Sweden, Norway, Latvia, the Netherlands and Denmark. Further examples of MAS scores can be obtained from . uvk-lucius.de/ adam <?page no="53"?> 22.2 Hofstede’s Framework: Cultures and Organisations 53 Figure 2-13: Selected Country Scores for MAS 16 2.2.6 Uncertainty Avoidance Another dimension of the Hofstede framework measures the intolerance of ambiguity in society, or in other words: the extent to which the members of a culture feel threatened by unknown or ambiguous situations. This uncertainty avoidance index (UAI) is deducted from measurements ranging from strong to weak on the following three items: job stress, agreement with “company rules should not be broken - even when the employee thinks it is in the company’s best interest” and the intent to stay with the company for a long-term career (more than five years or until retirement). Cultures with a high UAI score use all kinds of structural or organisational measures to avoid risks and vague conditions. Typical aspects of cultures with weak or strong UAI are compiled in . uvk-lucius.de/ adam <?page no="54"?> 54 22 Key Issue: Developing Cross-Cultural Competence Figure 2-14: Key Differences between Cultures with Weak and Strong UAI 17 Countries with strong UAI values comprise Greece, Portugal and Guatemala whereas countries as Singapore, Jamaica, Denmark and Sweden display only weak UAI values. An overview of selected country scores concerning UAI offers . Figure 2-15: Selected Country Scores for UAI 18 2.2.7 Long-Term Orientation The fifth dimension was originally derived from the Chinese Value Survey (CVS) carried out by Chinese researchers in 1985 by asking students from 23 countries around the world. These researchers asked questions that contrasted values without any previous equivalent in Hofstede’s IBM study. Mainly based on Confucian values, these questions were simply not asked by Westerners before. This dimension indicates a societies' time perspective and an attitude of persevering that means, overcoming obstacles with time, if not with will and strength. A high score on this so-called long-term orientation (LTO) index combined the values persistence, thrift, ordering relationships by status and having a sense of shame. People are respected for their willingness to subordinate themselves for a purpose and to foster virtues towards future awards. Consequently, the original study found high (LTO) scores for countries of the Far East uvk-lucius.de/ adam <?page no="55"?> 22.2 Hofstede’s Framework: Cultures and Organisations 55 like China (118), Hong Kong (96), Taiwan (87) und Japan (80). In contrast, countries with short-term orientation were Pakistan (0), UK (25), US (29), Germany (31) and Sweden (33). Interestingly, this dimension was found to be correlated with recent economic growth and to predict future economic growth. Typical characteristics of longterm versus short-term oriented cultures are shown in . Figure 2-16: Key Differences between Cultures with high or low LTO 19 The analysis of the World Values Survey (WVS) enabled the researchers to expand the database of LTO considerably. A meticulous scouring of the WVS database unearthed items that were conceptually similar and significantly correlated with the items of the LTO found in CVS: thrift as a desirable trait for children, national pride and importance of service to others. Based on these, new LTO scores for 84 (later 93) countries were calculated. A selection of these new LTO scores (based on the WVS) is uvk-lucius.de/ adam <?page no="56"?> 56 22 Key Issue: Developing Cross-Cultural Competence presented in . It is quite clear that the ideas are close but still lead to different results. This could be illustrated by looking at the scores for Germany: the LTO- CVS score for Germany was 31 which equals a short-term oriented culture. In the LTO-WVS score Germany is listed with 83 which equals a long-term oriented culture. The WVS data fits very well to the extraordinary high savings ratio in Germany and the focus on long-term business relations that can be observed. This alteration underlines that the way certain ideas are phrased has an influence on the ratings given by survey participants and that through this the culture of the survey developers and their way of expressing and understanding certain aspects has a direct impact on the findings. Figure 2-17: Selected Country Scores for LTO (WVS) 20 2.2.8 Establishing Country Clusters When dealing with intercultural issues in internationalisation, the psychic distance of business partners is of high importance. According to the Uppsala Model for example, the internationalisation of enterprises follows a psychic distance chain. Generally speaking, an organisation first gains international experience on markets in foreign markets that were close to the domestic market in terms of psychic distance, meaning that on these markets exist less factors that make it difficult to understand the foreign environment. The organisations would then gradually enter others with a higher psychic distance. 21 Some research suggests that the higher the psychic distance between business partners is, the more problems evolve in all aspects of cooperation from business setup to leadership. According to Holden and Burgess (1994) 22 psychic distance is as a combination of cultural distance, mistrust und social distance. As the concept of cultural distance itself is still subject of an on-going scientific discussion it should be defined here very generally as a gap between the culture of two different groups or societies. Possible descriptions of cultural gaps are provided by Hofstede’s dimensions. Assuming that a very low cultural distance is helpful to avoid disruptive influences in management or leadership, the establishment of clusters of countries with high cultural closeness would be beneficial. In the 1991 edition of his book “Cultures and Organizations”, Hofstede included culture maps that formed cultural clusters of uvk-lucius.de/ adam <?page no="57"?> 22.2 Hofstede’s Framework: Cultures and Organisations 57 countries with quite similar values, each based on two dimensions of his framework. Studying these it becomes quite clear that some cultures are quite close to each other concerning two dimensions but are set widely apart in other dimensions. For example, Germany and Finland have quite similar scores on IND and PDI but differ tremendously concerning MAS - Germany being a masculine, Finland a feminine country. It is also problematic where to draw the line between clusters. A distinction of feminine cultures below a score of 50 and masculine cultures with scores above is quite academic, as this would divide countries with quite similar scores of 48 and 52. So the definition of clusters ends up to be quite subjective and should not involve the scores only but more knowledge about the expression of them in daily life in the respective countries. However, taking the original four dimensions into account, there are a few countries that show quite similar ratings in all four original dimensions (PDI, IND, UAI, MAS) and thus could be seen to form cohesive patterns. A very consistent cluster is formed for example by Germanic countries (Germany, Austria, Switzerland) with all being low PDI, individualistic, masculine, strong UAI and short-term (CVS) respectively longterm oriented (WVS) countries, as depicted in . Figure 2-18: Cultural Cluster of Germanic Countries 23 Further clusters that could be identified on this basis include a Nordic cluster (formed by Denmark, Finland, Norway, Sweden and in addition the Netherlands) and an Anglo cluster (Australia, Canada, Ireland, New Zealand, the United Kingdom, the United States and additionally South Africa). “Added” countries show a larger variation in one of the four dimensions. provides an overview of possible country clusters based on Hofstede’s original four dimensions. As these clusters fit quite closely to the country clusters proposed by Ronen and Shenkar in 1985 24 , the same cluster denominations are used here. uvk-lucius.de/ adam <?page no="58"?> 58 22 Key Issue: Developing Cross-Cultural Competence Figure 2-19: Country Clusters Based on the Four Original Hofstede Dimensions 2.2.9 Adding a New Dimension: Indulgence versus Restraint The above mentioned World Values Survey (WVS) included items that dealt with happiness or, as scientists prefer to label it, “subjective well-being”. Three of these items form the core of a new dimension and questioned to what extent people would say that they are happy, if they feel that they have complete freedom of choice over their lives and how high the importance of leisure time is rated. If many people of a culture answered to be very happy, felt that they have a great deal of control over their live and Figure 2-20: Key Differences between Indulgent and Restrained Cultures 25 uvk-lucius.de/ adam <?page no="59"?> 22.2 Hofstede’s Framework: Cultures and Organisations 59 saw leisure time as very important, the culture is understood to show high indulgence. Indulgence stands for comparatively high happiness, describing a tendency to permit relatively free satisfaction of basic human desires related to having fun and enjoying life. The opposite pole with low scores is called estraint and reflects a conviction that such pleasure needs to be restricted and regulated by firm social norms. Basic characteristics of both poles of this indulgence versus restraint (IVR) dimension can be obtained from .Thanks to the extent of the WVS, scores for 93 countries are available for this dimension. A selection of these is shown in . Figure 2-21: Selected Country Scores for IVR 26 VIPs uvk-lucius.de/ adam <?page no="60"?> 60 22 Key Issue: Developing Cross-Cultural Competence 2.3 The Dilemma Approach of Trompenaars & Hampden-Turner From a business point of view, it is not interesting to study culture per se but to use information about cross-cultural differences in order to derive a guideline for meeting the leadership challenges of the 21 st century. This view was taken by the management consultants Trompenaars & Hampden-Turner when they deduced their “Seven Dimensions of Culture” from an extensive research database. The 2012 edition of their book “Riding the Waves of Culture” comprises data from 25 years of research with a sample of 80,000 participants (75% of them managers) from a diverse range of companies spanning more than 60 countries. 27 Its aim is to help explain national and organisational cultural differences and to provide advice on managing (with) these. 28 2.3.1 A View of Culture Based on Dilemmas Trompenaars & Hampden-Turner define culture based on Schein: culture is “the way in which a group of people solves problems and reconciles dilemmas.” 29 In a broader sense, culture is basically understood as a dynamic process of solving human problems, that can be stated as dilemmas, in the general areas of human relationships, time orientation and nature dependency. The problems posed for humans are identical everywhere but the solutions usually can be approached from two different sides. For example, some people start with a generalisation and use this to define detailed standards or start with the look at an individual case and then generalise from this experience. Both approaches are in themselves logical and consistent. Even the outcome could be quite similar, but the approach from two opposite poles requires acceptance and understanding in an environment where both sorts of people have to cooperate. What starting point people take is deeply rooted in their cultural background, far below the waterline of the cultural iceberg of . The implicit culture created by norms and values includes basic assumptions about the right way to approach certain problems. In easy cases, where problems posed are not of special individual relevance, different approaches are usually tolerable. But when it comes to problems that touch the core of each individual - the belief of the sacredness of friendship, for example - solutions differing from the culturally based basic assumptions are hard to accept. These special kinds of problems, where basic assumptions come to light in lack of easy solutions, are called dilemmas. Trompenaars’ and Hampden-Turner’s dilemma framework lists seven (cultural) value dimensions that describe certain situations and measure the percentage of survey participants preferring a certain specified option. The value dimensions were mainly derived from former research of other scientists, but the dilemma approach itself is unique. Figure 2-22: Cultural differences Expressed as Normal Distributions 30 uvk-lucius.de/ adam <?page no="61"?> 22.3 The Dilemma Approach of Trompenaars & Hampden-Turner 61 Trompenaars & Hampden-Turner stress that people from one culture are not at all alike in their norms and values. For each culture, however, a kind of normal distribution of norms and values based on the preferred options could be shown. This allows the depiction of a most predictable, average behaviour. Problems occur when the normal distribution of two cultures display significant differences - meaning that the “typical” behaviour differs significantly and people of one culture will most probably opt for a solution that is usually not deemed acceptable for people of the other culture. According to Trompenaars and Hampden-Turner, the values of the observed parameters that are furthest away from the normal distribution of one country also create the basis for stereotypes. This idea is expressed in . US-Americans expect French people to be emotional, flamboyant and even arrogant (blue area) whereas the French see the US-Americans as aggressive, unprincipled workaholics (grey area). As this example illustrates, people tend to notice differences rather than commonalities. The observed “odd” behaviour is exaggerated and caricatured, thus creating a very limited view on the average or “typical” behaviour of people in a certain environment. Stereotyping could therefore be defined as the ascription of extreme forms of behaviour to people from other cultural groups. In any kind of international business environment, an exertion of this extreme and limited view endangers adequate managerial responses to usual challenges, be it on the individual, team or company level. The following chapters explore Trompenaars and Hampden-Turner’s seven dimensions of culture in detail. VIPs 2.3.2 Universalism versus Particularism The description of the first dilemma is probably the most famous of all. The vignette is called “the car and the pedestrian”: imagine you are riding in a car that is driven by your close friend. You know that the speed limit is 30 kilometres per hour as this is an inner city area. You know that he drives 50 km/ h which is too fast. Suddenly, your friend hits a pedestrian. There are no other witnesses than you. This case will go to trial. The lawyer of your friend says that he will have to bear serious consequences if you do not testify under oath that he was driving only 30 km/ h. The questions posed in the survey were the following: - What right has your friend to expect you to protect him? Possible answers were “my friend has a definite right to expect me to testify to the lower speed” or “he has some right” or “he has no right”. - What do you think you would do when considering the obligations of a sworn witness and the obligation to your friend? The two options of choice were uvk-lucius.de/ adam <?page no="62"?> 62 22 Key Issue: Developing Cross-Cultural Competence “testify that he was going 30 km/ h” and “not testify that he was going 30 km/ h”. indicates the percentage of people in the respective countries that would tell the universal truth as they witnessed it, meaning they would testify to the (correct) higher speed and not in favour of their friend. (Please note that in all figures related to the dilemma framework scores for countries indexed with “*” are not available in the main reference and might be obtained from a different source. Refer to the connected endnote for details). Figure 2-23: Percentages Opting for Telling the Truth 31 This dilemma sheds light on the basic assumption if the universal truth (expressed in rules, laws, codes and generalisations) takes precedence over unique relations and the needs of friends and other relationships where exceptions would be made for special circumstances. Hence the two opposing values are called Universalism and Particularism. Typical characteristics of universalistic and particularistic cultures are compiled in . Figure 2-24: Typical Characteristics of Universalistic vs. Particularistic Cultures 32 uvk-lucius.de/ adam <?page no="63"?> 22.3 The Dilemma Approach of Trompenaars & Hampden-Turner 63 2.3.3 Individualism versus Communitarianism Ensuring a better life for all is a goal everybody would agree to. Again, the way to this ultimate goal can start on two different sides. Some cultures start the journey with the individual, thinking that it is obvious that if an individual has as much freedom as possible and the maximum opportunity to develop itself, the quality of life will improve. Others start at the opposite end, paying first attention to the advancement of the community and demanding from its members to take continuous care of their fellows so that the quality of life for all will improve, even if this approach might lead to obstruction of individual freedom and development. Not surprisingly, the Western countries and Israel have the highest percentage of their population choosing individual freedom, as depicted in . Figure 2-25: Percentages Opting for Individual Freedom 33 How these basic assumptions shape business solutions can be observed by the introduction of pay-for-performance systems. This will be discussed in detail in chapter 5.3.3. 2.3.4 Neutrality versus Affection One dilemma affecting all kinds of interactions deals with the extent to which people of a culture tend to display their emotions. In affective cultures people express their emotions overtly and usually seek direct emotional response. In neutral cultures the general convention is to control emotions carefully. This does not mean that people in these cultures are emotionally distant or cold; they just do not vent their emotions immediately. provides an overview of the percentage of inhabitants of selected countries that would not express the feeling of being upset openly at work (considering such behaviour as being unacceptable and unprofessional). uvk-lucius.de/ adam <?page no="64"?> 64 22 Key Issue: Developing Cross-Cultural Competence Figure 2-26: Percentages Opting for Not Expressing Emotions Overtly 34 2.3.5 Specificity versus Diffusion Some cultures need to define specifically and precisely the constructs they use, putting everything in an assigned place and an exact perspective. Other cultures prefer more diffuse systems where the overall configurations are still put together as patterned wholes. Specific cultures are very analytic in what they do; diffuse cultures are more holistic in their approaches. This very general value is measured by Trompenaars & Hampden-Turner in various dilemma vignettes, each showing a distinct facet of this enigmatic concept. When looking at the degree of (specific) involvement in relationships, this dimension shows if managers isolate task-related relationships they have with their subordinates from other matters like private relationships or if every level of personality and relationship is the same. In specific cultures, people might be addressed differently in different situations, depending on the relationship mode they want to stress in this specific moment - for example, using the doctoral title at work but not outside. In diffuse cultures, this differentiation does not exist. So a manager in a diffuse culture expects to be treated with the same respect at work and outside. This is mirrored in the vignette used for this aspect: imagine your boss comes to you and asks you to paint his house at the weekend. There were two examples for possible reactions provided. One was seen from the perspective of the colleague, stating that it is not necessary to paint the house if one does not feel like it. The boss is only the boss in the company, outside he has little authority. The second argument stems from a subordinate’s perspective. It states that despite the fact that he does not feel like it he would paint the house anyway. The boss is the boss and this cannot be ignored outside work either. shows the percentages of people taking the colleague’s perspective of not painting the house. uvk-lucius.de/ adam <?page no="65"?> 22.3 The Dilemma Approach of Trompenaars & Hampden-Turner 65 Figure 2-27: Percentages Not Painting the House 35 It is obvious, that intercultural misunderstandings are quite probable for example between a Chinese supervisor and a Finnish teammember. In case that a Chinese boss truly expects his Finnish subordinate to come to him on weekends for private domestic services, he will not only be surprised to find that his wish is ignored. Already with this request he will have lost his teammember’s trust and respect, as this is perceived as an illegitimate behaviour. Knowledge about cultural differences in diffuse and specific relationships, however, might allow them both to understand the underlying reasons for the respective behaviour and thus regain mutual trust and appreciation. 2.3.6 Achieved versus Ascribed Status Differences in status can be observed in all cultures. Some cultures accord status to its members based on their achievements in life. Others ascribe status by virtue of what a person is and not what a person does. These ascriptions could be based on - for example age, education, profession, social connections, wealth or gender. This dilemma is approached by measuring the importance of achievement versus the importance of the family background. shows the percentage of people in the respective country not agreeing with the statement, that the most important thing in life is to act as really suits them even if they do not get things done. So cultures with high percentages consist of a majority of people that perceive achievement or “getting things done” as vital. uvk-lucius.de/ adam <?page no="66"?> 66 22 Key Issue: Developing Cross-Cultural Competence Figure 2-28: Percentages Opting for Getting Things Done 36 2.3.7 The Concept of Time In a business context, the understanding of time is crucial for many endeavours. Differences in the concept of time can be observed by several aspects that need to be investigated separately. The main question is the relative importance of past, present and future. Cultures assign different meanings to these aspects of time that could be expressed through drawings of three circles, each representing one of these aspects. The configuration of these circles, especially their size and interrelation, provides insights into the time orientation. Distinctive examples of circle patterns for some of the countries considered above are shown in . Figure 2-29: Circle Diagrams for Past, Present and Future 37 It is obvious that for example in Japan all three aspects of time are viewed as fully integrated whereas in Russia there is no connection between them. Germany and the UK see a partial overlap of all three aspects with the present being the most important of the three in Germany and being the least important in the UK. This view could influence for instance the importance of strategies that is especially stressed in those countries that emphasise the future or the willingness to learn from past experience and build on that. uvk-lucius.de/ adam <?page no="67"?> 22.3 The Dilemma Approach of Trompenaars & Hampden-Turner 67 Typical characteristics of cultures with past orientation versus cultures with present or future orientation are listed in . Figure 2-30: Differences of Past, Present and Future Orientation 38 The second aspect deals with the magnitude of the time horizon. This aspect considers how long people tend to plan ahead. Participants of the survey were asked to assign scores for the duration of past, present and future in order to indicate the relative time horizons. Scores ranged from 1 = seconds over 2 = minutes, 3 = hours, 4 = days, 5 = weeks and 6 = months to 7 = years. Thus, they calculated an average score per country as depicted in . In a business environment, a long-term vision spanning decades stands in sharp contrast to a short-term thinking in quarterly reports. Figure 2-31: Average Time Horizon 39 uvk-lucius.de/ adam <?page no="68"?> 68 22 Key Issue: Developing Cross-Cultural Competence The third aspect of cultural differences concerning time covers whether time is seen as a sequential process, expressed by a series of linear continuing events, or of a synchronic nature where many things can happen in parallel. People with sequential (or monochronic) orientation prefer to engage in only one activity at a time, they follow the original plans and favour to be evaluated based on goals to be reached by a certain time. These people schedule meetings and strictly keep appointments. Organisations with a sequential culture idealise the efficient, most direct route to reach their goals that could be symbolised by a straight line. In contrast, people with a synchronic (or polychronic) orientation have a more flexible and diffuse view of time. They subordinate schedules to relationships and are inclined to spend time with significant others although they might be expected at an arranged meeting. These people prefer to do several things at once and assess their own achievements in context of their whole history with the company and their future potential. Companies with a synchronic culture idealise the interaction of past experience, present opportunities and future potentials, which could be symbolised by an interacting circle. This aspect causes cultural clashes on the staff level, as sequential people judge others doing several things at once as being distracted, unreliable and chaotic whereas synchronic people judge the one-at-a-time maxim as narrow-minded, inflexible and restricting. Separating the aspect concerning the handling of schedules leads to the wider-ranging differentiation of clock time cultures (where punctuality and keeping schedules is cherished and time is money) versus event time cultures that “give time to time”. 40 2.3.8 Inner versus Outer Direction The seventh dilemma deals with the relationship of people and the natural environment. The two opposing views constitute that nature should be (and is) controlled by people - men subduing the earth - or that humans are only a part of nature and therefore have to go along with its forces and laws. The belief that the environment can be controlled stems from a mechanistic world view that stresses the possibility to influence the outcomes and is therefore described as inner-directed perception in opposition to its outer-directed counterpart. Figure 2-32: Percentages Agreeing to What Happens to Me is My Own Doing 41 uvk-lucius.de/ adam <?page no="69"?> 22.3 The Dilemma Approach of Trompenaars & Hampden-Turner 69 In order to find out about their inclination, people were asked to choose between “what happens to me is my own doing” and “sometimes I feel that I do not have enough control over the direction my life is taking”. As all people are quite aware that both positions hold true elements, having to choose between them poses again a dilemma that could be used to reveal their basic assumptions. provides the percentages of participants from selected countries opting for the inner-directed view. 2.3.9 Reconciling Dilemmas The seven dilemmas of culture are designed to help leaders to gain a broader understanding of the range of possible solutions to common problems. For a successful leadership practice, however, understanding these dilemmas is not enough. Trompenaars & Hampden-Turner postulate transcultural competence as the primary leadership competence in an international business environment and define it as the propensity to reconcile seemingly opposing values to a higher level. This propensity follows a three step approach from Recognition through Respect to Reconciliation as depicted in . First, (inter)cultural issues have to be recognised as such, which requires an awareness of one’s own cultural perspective. This should be followed by respecting and appreciating the culturally different views without prejudice or minimisation. Finally, these differences have to be resolved in a reconciliation process. Figure 2-33: The Three-Step-Approach 42 The reconciliation of any kind of dilemma is an innovation process that requires the willingness to challenge and change existing solutions continuously until a higher level is reached. Trompenaars & Hampden-Turner depict this process in a two-dimensional map of cultural space (sometimes also called dilemma grid) where each axis represents one side of the dilemma. The differing positions of the two dilemmas are found at the highest point of each axis (position 10/ 1 or 1/ 10). A compromise solution that could be depicted as a point in the middle of the map (5/ 5) is not beneficial as only a very limited value would be achieved and both sides still feel that they gave up something precious. So a true reconciliation of both dilemmas should discover an innovative and truly unique approach that enables the involved parties to combine the underlying values of both positions to achieve a higher level (position 10/ 10). Such a solution is uvk-lucius.de/ adam <?page no="70"?> 70 22 Key Issue: Developing Cross-Cultural Competence never made by a single decision but involves a continuous improvement process instead. This process will start from one perspective and requires an unremitting search for better ways to achieve the desired solution, moving in the direction of the opposing dimension (taking some ideas of this position and incorporating them into the existing processes or solutions) and then swinging back towards the original viewpoint. This development process is depicted as a spiral that moves upwards towards the 10/ 10 point. It could rotate clockwise when starting with the x-dimension or anticlockwise when choosing the y-dimension as starting point. A reconciliation of the classical business challenge of globalism versus localism based on the first Trompenaars & Hampden-Turner dilemma of universalism versus particularism is presented in . This dilemma could be reconciled by creating an innovative solution that uses transnational specialisation - so that each nation (or subsidiary) within the global corporation specialises in a field where it excels. Leadership of these particular functions would then shift to the respective nation/ subsidiary as a “transnational centre of excellence” that guides the global organisation in this defined field of expertise. Figure 2-34: Reconciling Globalism and Localism 43 The journey to reconciliation starts with an understanding of the complementarity of both seemingly opposing values, the use of humour to make dilemmas “digestible” to all participants and the deliberate use of language to pose the right questions. Practical advice provided by Trompenaars & Hampden-Turner concerning the reconciliation process includes mapping out a cultural space through interviews or questionnaires in order to find the basic dilemma in the problem provided. This helps to gain a deeper understanding. Other useful techniques include drawing meta frames of the dilemma with text and pictures, accepting waves and cycles as a natural way to resolve difficult issues and appreciate synergy of two values as mutually enhancing. 44 Further examples will be discussed in the suitable chapters. uvk-lucius.de/ adam <?page no="71"?> 22.4 Globe Study: More Issues Arising 71 VIPs 2.4 Globe Study: More Issues Arising The influence of culture on business issues is still a favourite topic for many researchers worldwide. One truly international approach was endeavoured in the so called GLOBE study. The acronym GLOBE stands for “Global Leadership and Organisational Behaviour Effectiveness” and was conducted as a multi-method and multiphase research programme. It was designed to conceptualise, operationalise, test, and validate a cross-level integrated theory of the relationship of culture and societal, organisational, and leaders effectiveness. During the phases 1 and 2 in the middle of the 1990s altogether 170 researchers throughout the world combined their efforts to collect and analyse survey data from 17,300 (middle) managers in 951 organi ations and 62 societies. The first omnibus publication edited by House et al. (2004) provided findings about culture, leadership and organisations on 800 pages. 45 Additional nepth studies of 25 societies were published by Chhokar et. al. in 2008. 46 The GLOBE research project defined culture as “shared motives, values, beliefs, identities, and interpretations or meanings of significant events that result from common experiences of members of collectives that are transmitted across generations.” 47 This definition was applied on the societal and organisational level. Culture was examined based on practices and values. Practices were defined as “the way things are done in this culture” whereas values were defined as judgements about “the way things should be done”. 48 The methodological approach followed was very sophisticated and based on multiple methods and checks. The research was designed by multicultural teams with the clear intention to bypass typical cultural biases already in the setup of the survey. Finally, GLOBE used nine major attributes or dimensions of culture, several of them based on Hofstede’s research. An overview of these is provided in . Special emphasis was laid on the analysis of the cultural dimensions and several dependent variables, for instance the Human Development Index, Gross National Product per capita, measures of welfare of society members as well as certain leadership dimensions. Details of these findings will be discussed in the respective chapters dealing with these issues. uvk-lucius.de/ adam <?page no="72"?> 72 22 Key Issue: Developing Cross-Cultural Competence Figure 2-35: GLOBE: Nine Cultural Dimensions 49 The GLOBE study grouped 62 participating societies in 10 distinct country clusters, based on previous empirical studies and other factors such as common language, georaphy, religion, and historical accounts. These are depicted in . Figure 2-36: GLOBE: Country Clusters 50 uvk-lucius.de/ adam <?page no="73"?> 22.5 Critical Acclaim 73 VIPs 2.5 Critical Acclaim The three previously introduced models of culture are subject to profound criticism concerning the defined concepts of culture, the measurement of culture “per se”, the dimensions utilised in comparison to alternative dimensions used by other scientists and the applied methodology. 2.5.1 Typical Problems of Cross-Cultural Research All cross-cultural research is subject to various criticisms based on typical challenges arising from the extremely complex and opaque research topic itself. These include: 51 1. Definition problems of all terms used. These concern the definition of “culture” itself as well as all terminology used in questionnaires or interviews. A special problem is the translation of the defined concepts in other languages. 2. Assuming incorrect equivalencies concerning functions, concepts, instruments, and measurement. People from different cultures might have a different understanding of certain (business) functions, of concepts like loyalty or might interpret the scales in the questionnaires in different ways. 3. Choosing non-representative participants. If all participants of the survey originate from the same background, for example one organisation or one profession or one company level, it is possible that these do not represent a fair sample of the countries studied. Their views might be influenced by a very distinct (sub-)culture. 4. Methodological simplicity, as the methodology is for example often based on one ethnocentric pattern and one timeframe, providing bias, misinterpretation and inaccuracies. Therefore, many critics claim the basic principle that a cultural research should be based on a multi-disciplinary approach. Many scientists, especially psychologists and sociologists, claim that cross-cultural research providing country scores only produces stereotypes, which is not an appropriate way to deal with cultural issues. Fons Trompenaars defends the usefulness of crosscultural models by arguing that all models categorise and are therefore in fact stereotypes. Using models for cultures can be acceptable if the people dealing with this kind of stereotype meet two conditions. The first is that they are conscious about it and the second is that they postpone judgement. For example, the sixth dilemma illustrates that Asians are more polychronic and Westerners are more monochronic. This is obviously uvk-lucius.de/ adam <?page no="74"?> 74 22 Key Issue: Developing Cross-Cultural Competence an exaggeration. There certainly are polychronic Westerners and sequential Asians. This stereotype mainly warns that the chance that there are people with the other inclination is higher when meeting people from the other culture. 52 This warning might lead to negative consequences if people immediately put a critical judgement on it. When they are able to postpone judgement and treat this issue as a reminder to accept different solutions with an open mind, the knowledge about this stereotype can facilitate all kinds of international encounters. 2.5.2 Critical Acclaim of Hofstede’s Dimensions The criticism concerning the Hofstede model is based on some of the points cited in 2.5.1. 53 To 1.: The level of culture researched is not clearly defined, as Hofstede tries to approach values by questioning behaviour. There is a controversy concerning the legitimacy of such an approach, as the basic assumptions that are seen to form the most important (and hidden) parts of culture are not touched. To 3.: All participants of the study are employees or managers of IBM. Some argue that the strong company culture of IBM leads to uniformity of their personnel in certain aspects, which provides a bias to the study. Hofstede argues the opposite and explains that just because of this certain homogeneity he is able to ascribe the differences observed to country cultures. Also, the IBM background enables him to avoid equivalency problems (as defined in 2.) To 4.: Hofstede’s methodology is criticised in several aspects. His dimensions are not seen as appropriately selective and their denomination as not completely accurate. His comparison of different cultures is seen as superficial as it is not based on a thorough analysis of the culture described. Especially the equalisation of culture and countries is criticised, as many countries have within their borders several (sub)cultures that should be researched separately. Another critical aspect (also referred to by Trompenaars & Hampden-Turner in 1997) concerns the questions he employed that were seen as mainly an imitation of questions used in various US-based psychological profile tests. The existence of a cultural bias in the setup of the original study was proven impressively in the findings of the Chinese Value Survey. However, Hofstede acknowledged these findings willingly and added them to his framework. It is natural for research issues that corrections and additions occur over time, given the willingness of more researchers worldwide to contribute to the original findings. In this respect Hofstede managed to induce many following studies. Altogether, Hofstede’s framework and the range of his data collection for nowadays more than 90 countries has an outstanding effect on academics and practitioners dealing with cultural issues worldwide. As his model was the first to allow not only the classification of countries based on different criteria but also a sound comparison of them, it highly contributed to the inclusion of intercultural issues in the research of strategy, leadership, organisation, marketing and finance. It was also instrumental in the implementation of business systems for international companies, for example in the definition of compensation practices, training design, leadership styles and management control systems. uvk-lucius.de/ adam <?page no="75"?> 22.5 Critical Acclaim 75 2.5.3 Critical Acclaim of Trompenaars & Hampden-Turner’s Dilemmas After their early publications, one of their main critics was Hofstede himself in 1996 who argued, that Trompenaars & Hampden-Turner essentially measure Hofstede’s dimensions Individualism and Power Distance by using dilemmas that were interrelated. He also accused Trompenaars & Hampden-Turner of tuning their messages to what they think their customers like to hear, being more interested in commerce than in scholarship. 54 The first edition of their dimensions was mainly tailored to the needs of professionals and consequently lacked detailed information about their methodological approach. This was the main area of criticism from other scientists. In a very measured response in 1997, Trompenaars & Hampden-Turner defended their approach and provided detailed information about their research methodology. 55 Notwithstanding, the dilemma approach of Trompenaars & Hampden-Turner is subject to intense criticism based on the typical problems reviewed in 2.5.1. 56 To 2.: The findings of Trompenaars & Hampden-Turner are visibly subject to incorrect equivalencies. One very obvious example is mentioned by Trompenaars & Hampden-Turner themselves concerning the percentages for not painting the house in their dilemma “specific versus diffuse”. They mention that the figures provided for Japan are probably based on a cultural misunderstanding of concept, as Japanese people generally do not paint houses, preferring wooden houses anyway. 57 To 3.: The selected respondents where all participating in Trompenaars and Hampden- Turner’s management trainings that should sensitise for cultural issues. Some argue that these people were in the preparation of visiting a foreign country and hence already unusually self-conscious to intercultural issues. This would not be representative for inhabitants of a country in general. To 4.: It remains unclear how Trompenaars & Hampden-Turner arrived at the identified 7 dimensions. As they rely heavily on former research from other scientists, they chose some of the dimensions at random from mainly a literature analysis. Also, the operationalisation of the dilemmas is criticised. It is not seen as proven, that the chosen statements really measure what they should measure. Some of the dimensions are even measured by different constructs, which could be seen as constituting different sub-dimensions that are not clearly defined. Trompenaars & Hampden-Turner provide differing dimensions and findings in different publications - some of them only with slightly changed denominations, some with differing contents. As a result, a claim to absolute right concerning the 7 dimensions is not accepted. Despite the criticism, the dilemma approach of Trompenaars & Hampden-Turner is widely used in international management trainings and research. Their basic claim, that the behaviour in and of companies is affected by culture, is an important counterpoint to the predominant US-based notion of universally valid management approaches. The generally understandable language and the abundance of practical examples allow an easy use for practitioners. The database offers detailed information on countries that are not explicitly covered in Hofstede’s research, especially concerning Eastern Europe. They vehemently promote an increased awareness of cultural diversity within countries based on ethnic differences, for example within the US. This is complemented by the consequent consideration of differing cultures of companies (in mergers, for example), business sectors, professions and genders. Their detailed reconciliation prouvk-lucius.de/ adam <?page no="76"?> 76 22 Key Issue: Developing Cross-Cultural Competence cess constitutes one of the few practical step-by-step approaches for prevalent leadership challenges in international organisations. Apart from that, the success of the framework could partly be ascribed to Fons Trompenaars outstanding achievements as consultant and speaker. 58 2.5.4 Critical Acclaim of the GLOBE Study The designers of the GLOBE study considered many of the above mentioned points of criticism in their research approach: 59 1. The definitions were discussed extensively with an international research team. The questionnaire was scrupulously tested by translation and retranslation as well as content analysis of documents, thus minimising definition problems. 2. In order to achieve certain equivalencies, all respondents were middlemanagers. This should ensure a certain comparability of the results for different cultures. The testing of terms also helped to prevent differences of understanding of the concepts used. 3. The respondents came from more than 900 different companies and 3 different business sectors of more than 60 different cultures, thus avoiding the influence of a distinctive company or business culture. 4. The concept includes a clear distinction of two cultural levels: the value level (how it should be) and the behaviour level (how it is), mirroring the state-ofthe-art differentiation of percepta-level and concepta-level that are not always in harmony. As the approach was defined by 170 researchers from different nations and regions and from different professional backgrounds, the GLOBE study represents an outstanding multicultural effort. The dominance of an ethnocentric pattern can therefore be eliminated completely. The applied research and analysis methodology was highly sophisticated and thoroughly challenged. Despite these efforts, several points of criticism still remain. Some critics stress for example the possible distortions due to the sole use of middle managers as respondents. The equalisation of countries and cultures is still a point for heated discussions, although GLOBE made some allowance for relevant sub-cultures as for example the separation of South Africa in a black sample and a white sample. Hofstede criticised the multitude of inter-correlated dimensions that could have been condensed to fewer meta-dimensions. As nearly all dimensions show positive correlations of national welfare, these dimensions are influenced by the national welfare itself and do not have to be explained by cultural peculiarities. 60 The GLOBE authors argue with exactly the opposite train of thought: the correlation shows that cultural peculiarities influence the national welfare; therefore the correlations of the differing dimensions are of special interest for researchers. The objection of the maximisation of the number of countries studied instead of detailed analyses of single countries was met with the publication of the second GLOBE uvk-lucius.de/ adam <?page no="77"?> 22.6 Citations & Notes 77 volume concerning the in-depth analysis of 25 countries by Chhokar, Brodbeck and House in 2008. Due to the open publication of the compiled data and the number of researchers and research institutes involved, GLOBE could be expected to induce additional cultural research over the next decade. As its findings constitute a unique basis for country and (intercultural) leadership development their further inclusion into management theory and practice can be predicted. 2.6 Citations & Notes 1 Hall, E.T. (1976). He uses instead the terms “hidden dimensions of unconscious culture” or “cultural/ collective unconscious”. 2 Bennett, M.J. (1993) 3 Adapted from Bennett, M. J. (1998) 4 All of the following information in this chapter is taken from: Hofstede, G.H., Hofstede, G.J., & Minkov, M. (2010). A more detailed and scientific description of the Hofstede framework could be found in Hofstede, G.H. (2006). 5 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), p. 6 6 Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), p. 7 7 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), p. 8 8 Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), p. 9 9 Hofstede, G.H. (2006), pp. 87-88 10 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 72-83 11 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 57-59 12 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), p. 65 13 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 117, 124 14 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 95-97 15 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 159, 170 16 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 141-143 17 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 203, 208, 217 18 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 192-194 19 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 243, 251 20 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 255-258 21 Johanson, J., & Vahlne, J.-E. (1977), pp. 23-32 22 Holden, N., & Burgess, M. (1994), p. 33 23 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 59, 95-96, 141, 193, 255-256 and Hofstede, G. J. (2001), pp. 256-257 (CVS) 24 Ronen, S., & Shenkar, O. (1985). Their research revealed the following clusters: Anglo, Arabic, Germanic, Latin American, Latin European, Near Eastern, Nordic and Far Eastern. The countries Brazil, India, Israel and Japan were considered as independent from others. 25 Based on Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 291, 297 26 Scores from Hofstede, G.H., Hofstede, G. J., & Minkov, M. (2010), pp. 282-285 uvk-lucius.de/ adam <?page no="78"?> 78 22 Key Issue: Developing Cross-Cultural Competence 27 Trompenaars, F., & Hampden-Turner, C. (2012), pp. 1-2 28 All following information was derived from Trompenaars, F., & Hampden- Turner, C. (2012). This book is highly recommendable as it combines research and practical examples on doing business with different cultures. Also recommendable are the older books providing more insights into the practical relevance of the defined dilemmas, especially Trompenaars, F., & Hampden-Turner, C. (2004); Trompenaars, F., & Woolliams, P. (2003); & Trompenaars, F., & Prud’ homme, P. (2004). 29 Trompenaars, F., & Hampden-Turner, C. (2012), p. 8 30 Based on Trompenaars, F., & Hampden-Turner, C. (2012), pp. 33-34 31 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 56. Percentages for countries marked with “*” were derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. 32 Based on Trompenaars, F. (2004, November 16), p. 12 (A9) 33 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 66. Percentages for countries marked with “*” derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. 34 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 88. Percentages for countries marked with “*” were derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. 35 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 109. Percentages for countries marked with “*” were derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. For Japan (marked with #) please note that this figure is based probably on a cultural misunderstanding of concept, as Japanese people generally do not paint houses, preferring wooden houses anyway. 36 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 129. Percentages for countries marked with “*” were derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. 37 Based on Trompenaars, F., & Hampden-Turner, C. (2012), p. 156 38 Based on Trompenaars, F., & Hampden-Turner, C. (2012), p. 170 uvk-lucius.de/ adam <?page no="79"?> 22.6 Citations & Notes 79 39 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 158; for countries marked with “*” no percentage was made available. 40 Inspiring insights into the differentiation of clock time and event time cultures are provided in Levine, R. (1997). 41 Percentages from Trompenaars, F., & Hampden-Turner, C. (2012), p. 176. Percentages for countries marked with “*” were derived from the connected Trompenaars database, access usually granted via the website http: / / ridingthewavesofculture.com. Due to problems with the website, the scores were provided via email by Trompenaars Hampden-Turner/ KPMG People & Change, 10.03.2015. 42 Based on Trompenaars, F. (16 November, 2004) 43 Based on Trompenaars, F., & Wooliams, P. (2003), p. 41 44 Details and examples concerning successful reconciliation processes are provided in Trompenaars, F., & Hampden-Turner, C. (2012), pp. 247-261 and in Trompenaars, F., & Hampden-Turner, C. (2004), pp. 267-294. 45 House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004). This volume is the basis for all following information about the GLOBE study. 46 Chhokar, J. S., Brodbeck, F. C., & House, R. J. (Eds.). (2008) 47 House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), p. 15 48 House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), p. XV 49 Based on House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), pp. 11-13 50 Based on House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), p. 190 51 University of Wollongong (Ed.). (2007); Kutschker, M., & Schmid, S. (2011), pp. 731-734 52 Trompenaars, F. (2011, Jully 11) 53 For an overview of criticism on Hofstede refer to Kutschker, M., & Schmid, S. (2011), pp. 731-734 or Jones, M. L. (2007). For criticism on his methodology and analysis refer to, amongst others, McSweeney, B. (2002); in defense of Hofstede refer to Søndergaard, M. (2002). Please note: So far the criticism published refers to the outdated versions of Hofstede’s research and not his most recent publication. 54 Hofstede, G. (1996) 55 Hampden- Turner, C., & Trompenaars, F. (1997) 56 For an overview of criticism on Trompenaars and Hampden-Turner refer to Kutschker, M., & Schmid, S. (2011), pp. 740-744 or Browaeys, M. J., & Price, R. (2008), pp. 87-88 57 Trompenaars, F., & Hampden-Turner, C. (2012), pp. 109-110 58 According to the Trompenaars and Hampden-Turner website Trompenaars Hampden-Turner. (2014) (http: / / www2.thtconsulting.com/ about / people/ fonstrompenaars/ ), Fons Trompenaars was mentioned as one of the top 5 management consultants in a Business magazine in 1999, voted one of the top 20 HR uvk-lucius.de/ adam <?page no="80"?> 80 22 Key Issue: Developing Cross-Cultural Competence Most Influential International Thinkers 2011 by HR Magazine and ranked in the Thinkers50 to be one of the most influential management thinkers alive in November 2011. 59 For an overview of criticism on the GLOBE study refer to Kutschker, M., & Schmid, S. (2011), pp. 761-765 60 Hofstede, G. H. (2006) <?page no="81"?> 3 Leading the Internationalisation Process Readers are familiar with classical concepts and the latest research findings concerning good and successful leadership behaviour. They understand the inner logic of the first EFQM criterion as well as its view on the role of leaders and their most important activities. They know how to define a core purpose, create and formulate a compelling vision and responsibly guide an organisation with core values and discernible ethics. Improving leadership behaviour based on feedback processes is seen as an integral part of leadership ability. The pitfalls of common concepts for driving performance are understood, so that they can be avoided in particular organisational settings. Readers comprehend different organisational cultures and embrace diversity as an indispensable aspect of excellence in international environments. They theoretically know how to design effective change processes that avoid eight typical mistakes. Behind the backdrop of the knowledge gained about cross-cultural issues, this section deals with the challenges for leaders to fulfil the manifold requirements of their demanding role. An overview of relevant aspects is provided in Figure 3-1. Figure 3-1: Concept Map “Leading the Internationalisation Process” uvk-lucius.de/ adam <?page no="82"?> 82 33 Leading the Internationalisation Process 3.1 Good Leadership Leadership can be defined roughly as “the ability to influence a group toward the achievement of (…) a set of goals.” 1 The views on good leadership differ tremendously from culture to culture and from person to person. The EFQM model uses a peopleoriented leadership approach which is expressed compellingly in the following definition: leadership is the “art or process of influencing people so that they will strive willingly and enthusiastically towards the achievement of the group’s mission and purpose.” 2 Even scientific research does not supply the one and only definition of a good leader nor does it offer conclusive information about characteristics that create one. This chapter provides an overview of the most recent views on good leadership behaviour and excellent leadership activities. 3.1.1 The Coherent Leadership Approach Examining the quality of leadership requires the consideration of several aspects or dimensions, namely the personality of the leader itself, the leadership behaviour, the leadership situation including the organisational context and the subordinates as well as a clear definition of leadership success. This interrelated chain of aspects is diagrammed in . Figure 3-2: Aspects Influencing Leadership Success Many leadership theories or related recommendations for successful leaders focus only on one of these aspects and neglect the influence of others. One of the most recent additions to leadership theory strives to combine these aspects in a coherent leadership approach. It is based on a three-step-analysis: first a thorough examination of the situation in order to determine potentially successful leadership behaviour, second an introspection of the leader concerning acceptable alternatives and third an individual negotiation of approaches with team members that is enhanced by continuous feedback. 3 This non-normative approach is especially relevant for an international environment. Leadership in any organisation is tied to a very special context. Determinant factors are the organisation’s (management) system with its culture, rules and regulations and the stakeholders, especially the subordinates, the fellow leaders and the supervisors inside the organisation but also external stakeholders like owners or regulating authorities. The organisational culture comprises a certain view on favoured and acceptable leadership behaviour (compare also chapter 3.4.1). In large organisations, this view is recorduvk-lucius.de/ adam <?page no="83"?> 33.1 Good Leadership 83 ed in guidelines, for example leadership principles or code of ethics. The framework for each leader is also set by the processes of people management, mainly concerning the leader’s authority and rules for performance appraisals and feedback. In addition, the organisational system has a very direct influence on leadership success as the targets set for the leader constitute its main criterion. Good leaders are able to live up to the expectations of all stakeholders involved. Looking for an optimal way of leading therefore requires a profound analysis of the stakeholder’s targets and their emotional requirements. These expectations can differ considerably. Whereas supervisors might expect from a leader a firm stand towards the subordinates in favour of enhancing orders the subordinates might expect an open attitude and freedom to find their own way of working. As conflicting expectations occur frequently, leaders are recommended to orient themselves towards the achievement of their leadership objectives. When leadership success and related objectives are clearly defined it should be possible to determine the behaviour needed from the staff members in order to achieve the goals. The leadership approach should then be tailored to these circumstances in a way that elicits the desired behaviour from the subordinates. Alternative approaches to choose from are provided by scientific research. “Classic” as well as “new” approaches rival with each other about providing the best solutions to the general question of good leadership. So far, extensive research was not able to find the philosopher’s stone in form of one outstanding approach for all circumstances. Correlations between standardised approaches and certain success criteria were always lower than correlations between specifically chosen leadership approaches for certain targets and their success criteria. Approaches to choose from are manifold and highlight the same dimensions as presented in . Trait Theories searched for personality traits that form great leaders (for example the Great Man Theory). Most recent characteristics identified as being positively related with leadership success include body height as well as self-confidence, emotional maturity, integrity, assertiveness, high power need, distinct performance motivation and openness. 4 Behavioural Theories search the most effective leadership behaviour. A typical and permanent behavioural pattern of a leader is defined as leadership style. 5 Different theories distinguish different styles, sometimes in a one-dimensional, sometimes in a multi-dimensional approach. Four classic studies are depicted in and . 6 None of the presented leadership styles were proven to be optimal for all circumstances. Depending on the operationalisation of success (e.g. measured by performance or by satisfaction of team members) very different results were achieved in empiric studies. Despite the heterogeneous results, knowing these leadership styles present leaders with arguments in favour or against certain behaviour and allows choosing and assessing different alternatives. uvk-lucius.de/ adam <?page no="84"?> 84 33 Leading the Internationalisation Process Figure 3-3: One-Dimensional Behavioural Leadership Theories Based on Participation 7 Figure 3-4: Two-Dimensional Behavioural Leadership Theories 8 Based on the shortcomings of the behavioural theories the scientific research focused on more complex patterns by taking situational factors into account. The resulting contingency theories consider different aspects to describe the situation and try to define an optimal leadership style for certain specifications of these aspects. They can be distinguished based on the number of leadership styles they use and the situation variables they assess. Three established contingency models are displayed in . Other important contingency theories to be considered are House’s Path-Goal- Theory and Reddin’s 3D-Model. Although all of these models made an important uvk-lucius.de/ adam <?page no="85"?> 33.1 Good Leadership 85 contribution to the overall understanding of leadership dynamics none of them is comprehensive. The immanent simplification of any model leads to the need to focus on chosen variables, thus limiting their relevance. 9 Figure 3-5: Contingency Models 10 Recently, the relationship between leader and subordinates was established as the most relevant aspect for leadership success. The resulting leadership approaches rely heavily on the personality of the leader as they require certain traits in order to realise their full potential. The basic full range leadership model, as depicted in , states that transactional leadership based on leadership concepts of reward exchanges leads to average performance of the subordinates that could be augmented by exerting transformational leadership. This kind of leadership is mainly emotion-based and closely related to traits like charisma. Transformational leaders stimulate and inspire their followers to exert extra-effort that leads to extraordinary success. Certain studies attest this leadership approach a higher leadership success, although the theoretical constructs used are debatable and the effects are closely related to the US-American culture. 11 uvk-lucius.de/ adam <?page no="86"?> 86 33 Leading the Internationalisation Process Figure 3-6: Relationship-Based Leadership Approaches 12 All of the above mentioned models can be extremely helpful if used for broadening the choice of leadership behaviour alternatives in certain circumstances. They can be ominous if used as a panacea for how to lead. The first problem is the correct assessment of the situation. More often than not the right way to lead a team would present itself if the leader was able to assess correctly if the subordinates are truly unwilling or only unable. Also, a daily change in leadership behaviour leads to mistrust as this contrasts with the need for reliability and authenticity. The main problem of the successful implementation of those theories lies in the personality of the leader himself. A recommended leadership style that is not in line with the leader’s character will not be perceived as genuine and will therefore not elicit the results required. Consequently, the coherent leadership approach requires the leader to perform a thorough introspection in order to find out which leadership behaviour or style matches the leader’s personality and motives for taking over a leadership position. Another important factor is the leader’s implicit theory of his subordinates. This implicit theory can be described as the attitude towards subordinates. Leaders with positive attitudes that believe that their subordinates are competent and committed are more willing to delegate tasks or use a transformative leadership style. 13 Assessing a leader’s personality should be supported by a reliable personality inventory. Fortunately, the different original approaches of assessing personality lead to an internationally accepted “gold standard”, the so-called Five Factor Model (FFM). It consists of the “Big Five” personality factors that account for differences in normal adult personality and which further research found were measurable without overlap. The Big Five factors consist of Neuroticism (N), Extraversion (E), Openness (O), Agreeableness (A) and Conscientiousness (C). 14 These five factors, also referred to as five domains, do not represent an exhausting description of personality as they represent the highest level of trait description and therefore characterise a person at a global level. Hence, each of these factors is further defined by a cluster of six more specific and intercorrelated traits that are called facets. The domain descriptions and related facets are depicted in Global domain scores for a person could be obtained by a brief and comprehensive personality inventory called NEO-FFI. This test comprises 60 items that have to be answered and is widely used in recent research projects where personality factors are involved. As the domains proved to be relevant and reliable in uvk-lucius.de/ adam Full Range Leadership Model Laissez Faire Transactional Transactional Transformational Transformational Passive; business as usual; expected performance Active; extra effort; performance beyond expectations Management by exception (passive) Management by exception (active) Contingent reward Idealised influence Inspirational motivation Intellectual stimulation Individualised consideration Action by Leader Experiences of subordinates Leader-Member-Exchange Model F F F F F F F F4 F3 F1 F2 F5 F Leader In-Group Out-Group der L 2 Le Leade e er er er F Follower/ Subordinate Development of Trust Creation of Emotional Bond Testing and Assessment <?page no="87"?> 33.1 Good Leadership 87 intercultural settings a number of different language versions and related cultural-based scales for statistical interpretation are available. The more detailed and comprehensive NEO PI-R personality inventory is also available in different language/ cultural versions. It consists of 240 items to be scored and represents all 30 facets. 15 Figure 3-7: The Big Five Personality Factors and Their Facets 16 As already explained, the definition of a good leader is dependent on the expectations of the relevant team members concerning appropriate leadership behaviour. According to the Leader-Member-Exchange Approach (LMX) the practical leadership behaviour will be negotiated individually between leader and subordinate. As depicted also in the negotiation process requires an initial offer of the leader by delegating a major task to his/ her subordinate in order to test his/ her ability and trustworthiness. If the subordinate proves to be reliable and fulfils this task successfully the resulting trust and emotional bond will lead to a good leader-member-relationship and increased freedom for the subordinate. In case of a negative experience the leader will lead more directly and follow the subordinate’s moves more closely. This approach leads to the conclusion that a leader could use a trial-and-error technique to optimise the leadership approach on an individual basis if there is the willingness for a leap of faith on the leader’s part. It is important to note that a risk for this kind of behaviour lies in the distinction of an in-group (with team members who are trusted) and an out-group. This might result in tensions between the team members. Consequently, a central element of a successful leader-member-exchange is leadership feedback. Optimising leadership behaviour requires the leader to understand the effects of his behaviour on others. Using different ways and methods of feedback and including all main stakeholders into the process is therefore a major prerequisite for a successful and individualistic leadership approach. 17 uvk-lucius.de/ adam <?page no="88"?> 88 33 Leading the Internationalisation Process VIPs 3.1.2 Excellent Leaders: EFQM Criterion 1 The EFQM Excellence Model provides very tangible advice concerning the activities of successful leaders. As the questions posed in chapter 3.1.1 are more concerned with the personal aspects of good leaders, the EFQM Criterion 1 “Leadership” defines activities needed to ensure that the members of the (top) management team of an organisation fulfil their leadership roles successfully and provides guidance and direction for the organisation as a whole. The first and most important task of any management team defined in criterion point 1a is the development of mission, vision, values and ethics, thus creating a purpose and reference point for the organisational development. This also includes that they act as role models for the defined ethics and values. Important subsequent activities are defined in the following criterion points, as depicted in . This includes the definition, monitoring and improvement of the management system (1b), a systematic engagement with relevant external stakeholders (1c), the reinforcement of a culture of excellence together with all of the organisation’s people (1d) and the effective management of changes (1e). Figure 3-8: EFQM Criterion 1 “Leadership” and Its Criterion Parts 18 uvk-lucius.de/ adam <?page no="89"?> 3.2 Developing the Mission, Vision, Values and Ethics 89 3.2 Developing the Mission, Vision, Values and Ethics The EFQM Excellence Model uses guidance points to provide direction concerning good practices that allow excellent organisations to successfully address the postulated issues, as explained in chapter 1.3.3. The four guidance points that exemplify the statements described in criterion part 1a are depicted in Figure 3-9. These guidance points are addressed in detail in the following corresponding subchapters 3.2.1 to 3.2.4. Figure 3-9: EFQM Criterion Part 1a and Its Guidance Points 19 3.2.1 Defining and Communicating the Core Purpose of an Organisation In the classical Anglo-American management theory, the purpose of the organisation is “shaped by vision, stakeholders and ethical issues and delivered by mission and objectives”. 20 The vision is understood as the overarching document. It paints a picture about a possible and desirable future and explains what the organisation wants to have created or achieved by then. The mission statement outlines broad directions for the organisation’s development and summarises the underlying reasoning and values. 21 In Germany, for example, vision and mission statements are not a common part of the organisation’s documents. Some organisations issue a so called “Leitbild” or management philosophy which comprises elements of both vision and mission. The combination of the most important elements into one - usually the mission - statement is becoming increasingly popular in the recent strategy literature and is used for example by Wheelen and Hunger. 22 The benefits of these statements are disputed among management experts. Some argue that often these statements constitute wishful thinking and do not mirror the reality of the organisation. The intuition and rhetoric talent needed for verbalising an engaging and powerful vision is also closely related to the concept of charismatic leadership personalities. 23 Many general visions and missions provided in the internet by different international companies make a compelling case against the significance of formulating them. uvk-lucius.de/ adam <?page no="90"?> 90 33 Leading the Internationalisation Process Nonetheless, it is indispensable for any kind of organisation to discuss, define, and follow a clear purpose. Otherwise, all choices and decisions could be called random at best. According to Peter Drucker, one of the most renowned management experts, any assessment of an organisation and the path it follows should start with asking “what is our mission? ” From this point of view, the mission defines the overriding purpose of the organisation and therefore answers the question what kind of business a company is in. It is closely related to the value proposition and the question of what would be lost for customers or other interested parties if this organisation would not exist. A mission statement says why an organisation does what it does (but not how to do it as this part belongs to the strategy). The mission’s definition might be general or timeless but it has to be able to inspire all members or stakeholders of the organisation. An effective mission statement can be so sharply focused that it fits on a T-Shirt. It is important to note that it serves as the overriding principle and should therefore never be subordinated, even not in order to gain more money. 24 In order to serve as a clear direction, a mission statement has to be combined with the purpose the organisation pursues in order to serve its (chosen, relevant) stakeholders and backed up by clearly defined objectives. Leaders should be aware that this statement strictly commits the organisation to pursue a certain direction and thus limits the available strategic choices. The formulated strategy (as discussed in chapter 4.4) and all related decisions are to be aligned with the defined purpose and serve to transmit it into practice. Depending on the phrasing of its mission statement, Great Jeans (GJ) can have very different future development paths. A mission statement like “we are a producer of Jeans” limits its business to production, which excludes opportunities like the focus on brand development with outsourced production or a focus on design to attract more customers. According to this statement, any kind of Jeans production everywhere (also outsourcing to other parts of the world) would be acceptable. This statement does not help to distinguish GJ from other producers, as it does not state any purpose creating special value for its customers or other stakeholders. Small additions would already provide more directive power. For example “we are a European producer of Jeans”. In this case, outsourcing opportunities could only be used within Europe or within pre-defined limits. This is the point, were a mission statement provides guidance only if backed-up by clearly stated objectives. A management team is far more involved in sharing the same mission if they discuss the boundaries it presents. To be a “European producer” could mean to limit 100% of the production activities to countries that are part of the EU. Alternatively, a management team might decide that Europe includes more than the EU countries and that a maximum share of 20% of production in developing countries still fits in this category as long as the respective companies are 100% owned by European companies. GJ would take a totally different development path with the following mission statement: “We deliver the world its basic all-day garment”. In this case, the statement is clearly customer focused. This claim would be backed up for example by defined sales taruvk-lucius.de/ adam <?page no="91"?> 33.2 Developing the Mission, Vision, Values and Ethics 91 gets for markets all over the world. It would also need a clear definition of “basic all-day garment” from a customer perspective. This could for example mean that in customer surveys people give high satisfaction ratings of 90% for the jeans being comfortable to wear and ratings of 80% for the jeans fitting for all kinds of circumstances. In order to appeal to all kinds of people, GJ would probably need to design different product lines or brands for different countries and different income groups in order to satisfy the majority of tastes. In this case, the focus would shift from production to sales and design. The management team might also decide that certain groups of customers only wear a certain type of jeans every day if they can trust its origin and its contents. Such reasoning would lead to objectives concerning 100% use of organic cotton, 100% environmentalfriendly dye, production without child labour and only in companies with acceptable work standards. On the other hand, a luxury line of designer jeans would not fit to this mission statement. The possible interpretations of the mission statement and related choices of objectives should be guided additionally by the definition of values. Defined values facilitate decisions in cases where new opportunities arise and other statements do not provide suitable direction because they do not (explicitly) cover the affected aspects. An organisation usually chooses between three to five values and publishes them as part of its mission statement or as separate value document. These values are closely related to the company culture, so they might be derived from the actual culture or might be used to guide a change process. Their function as a beacon in stormy or changing times explains why the final choice has to be up to top management, although the development process itself is often accompanied by a value survey with a random sample of employees. Typical values that are used in corporate statements include accountability, commitment, diversity, flexibility, integrity, loyalty, openness, passion, profitability, quality, readiness to help others, reliability, success or sustainability. This non-exhaustive enumeration clearly illustrates the need to interpret and define the meaning of these values for the organisation. The value statement of Great Jeans includes the values “courage, sustainability and cooperation”. Possible definitions could start like that: “We believe that courage of people and organisations is needed to change the world. All members of GJ are committed to speak up against organisational practices that are not in line with high ethical standards and openly share mistakes so improvements can be made. Sustainability is the key to delivering long-term value to society and customers. We strive to avoid all negative impacts of our production process on the environment and find justifiable ways to ensure our positions on our target markets. Only a close cooperation with our suppliers and customers will enable us to meet their high demands concerning fairness and quality.” Staying true to their values would not allow them to accept extraordinary low pricing offers of cotton producers with disputable colouring practices and a bad reputation concerning work conditions. This might look very different in case of a value statement declaring the values “performance, success and competition”. uvk-lucius.de/ adam <?page no="92"?> 92 33 Leading the Internationalisation Process One intention of all above mentioned documents is to provide orientation for employees, customers and other stakeholders about the self-conception of the organisation. This should create trust and enthusiasm and gain commitment. 25 Distributing brochures or providing these statements on website is not enough to achieve these goals. A successful communication of purpose includes at least verbal and observable enforcement from (top) management. According to the Global Workforce Study 2012, only 63% of all participants state that they understand the business goals and only 55% understand the steps the organisation takes to reach its goals. The relevance of providing this kind of orientation for an organisation can be derived from the fact that 88% of the highly engaged employees declare to understand the business goals but only 54% of the detached and 36% of the disengaged. 26 VIPs 3.2.2 Acting as Role Models for Ethical Behaviour 3.2.2.1 Corporate Ethics and Social Responsibility Corporate Social Responsibility (CSR) is a term widely used for standards and codes of conduct an organisation sets itself to ensure that it provides sustainable value to all its stakeholders. There are numerous definitions of this subject highlighting different aspects. Recent definitions congruently centre on a voluntary stakeholder-based approach with special reference to environmental, social and economic aspects. 27 According to the EU commission CSR is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” 28 Thus, CSR encompasses voluntary corporate behaviour above legal requirements that is closely linked to the idea of sustainable development. It should be intrinsically motivated and defines a way in which an organisation is managed - in contrast to a separated programme adopted for publicity reasons. The underlying principles are also relevant for other kinds of organisations, not only for legal corporations. CSR could therefore be defined as the voluntary, continuous commitment of any kind of organisation to behave ethically and contribute to the development of its stakeholders, the environment and society at large by adopting corresponding operational targets and practices. CSR programmes are manifold and comprise actions that range from the development of a code of ethics and the sponsorship of community events to business-related society development projects. Increasingly, these practices include adoption of the accounting concept of a triple bottom line (TBL) by adding a social and environmental bottom line to the standard economical one. All three bottom lines together are also referred to as the three pillars “Profit, People, Planet”. 29 uvk-lucius.de/ adam <?page no="93"?> 3.2 Developing the Mission, Vision, Values and Ethics 93 The crucial role of leadership in CSR is generally recognised. Companies in Australia and New Zealand that were seen as frontrunners in CSR were, for example, mainly acknowledged for the integration of CSR with their core business activities and strategies. This encompassed making sustainability a part of the company’s business proposition and integrating it with its products or services. Furthermore their approaches combined the strong integration of sustainability practices in operational processes and convincingly living and promoting CSR values. This was seconded by communicating CSR performance. The act of promoting CSR values and activities as well as showing and calling for commitment on all levels of the organisation is a leadership task that cannot be delegated. It is therefore not astonishing that the main problem for successful implementation of CSR initiatives is consistently found to be a lack of organisational buy-in and commitment to CSR. The willingness and know-how to find logical links between CSR and the business strategy as well as creating a corresponding business case appeared to be far more important to success in CSR than just providing more time or money. 30 The positive long-term effects on the company itself were proven in different studies, for example by Collins & Porras. They found out that companies that survived major changes including the impact of various business cycles were companies found to pursue a long-term core mission where all corporate activities were based on. Interestingly, the most successful companies like for example Patagonia Inc. did not focus on profitability as their main goal but created a strong ethical culture. 31 Exercise: CSR programmes (online) 3.2.2.2 Ethical Behaviour in International Business Defining ethics in an international business context is not an easy task. The general field of ethics deals with morality, understood as activities and practices that are considered right or wrong based on certain values and governed by rules. In some definitions, this is deemed equivalent to ethics, in others ethics is a step further in so far as it is seen as a systematic attempt to give meaning to our moral experiences in order to define the rules that ought to govern human conduct. Business ethics, therefore, can be understood as the study and moral evaluation of any kind of business actions on a company and individual level. 32 An important aspect in this context is the ethical quality of decision-making. An ethical evaluation of business decisions has to take four levels - the individual, the company, the national and the international level - into account. All of these levels provide their own set of values as a basis for evaluation, depending on the involved personalities, cultures and business frameworks governed by general norms as well as laws. Consequently, leaders of transnational corporations (TNCs) have to choose between different approaches of ethical behaviour. They can choose to conform to the norms of the host country (“foreign country type”) by following the old proverb “when in Rome, do as the Romans do”. In this case, there is no general rule for the company. The opposite “empire type” applies the norms of the TNC’s home country to all subsidiaries and parts of the organisation. Both include high reputation risks for the company as the actions taken will be evaluated by people of other cultures using their ethical frameworks as reference points. Many organisations therefore prefer a hybrid approach (“interconnection type”) where they pragmatically evaluate possible alternatives in a supranational view, taking for example norms uvk-lucius.de/ adam <?page no="94"?> 94 3 Leading the Internationalisation Process of wider entities like the EU into account. This approach uses everything that might work for the TNC in a constant process of balancing universal moral limits (“hypernorms”) with individual considerations. The idea of a fourth approach - the “global type” is highly theoretical as it means to interpret business ethics from a global citizen’s perspective. Unfortunately, a universal framework for business ethics is not (yet) available. 33 Nonetheless, universal norms for certain kinds of ethical behaviour relating to business were established over the last years by supranational organisations like for example the OECD, UN or G20. They form a rough guide to some of the most relevant issues in international business ethics, currently with a focus on preventing corrupt practices. One of the most influential independent organisations working on establishing effective measures to tackle corruption in government, business and civil society is Transparency International (TI). Since 1993 they support the international fight against corruption with surveys, publications and guidance using their national chapters in more than 100 countries worldwide. 34 TI defines corruption as “the abuse of entrusted power for private gain” 35 and encompasses with this definition corrupt practices in the public as well as the private sector. Typical forms of corruption in the business sector to be addressed are according to TI the following: insider trading, corporate fraud, commercial bribery, collusion and cartels as well as regulatory and policy capture, as depicted in Figure 3-10. 36 Figure 3-10: Corruption Risks Within Domains of Corporate Activities 37 With the “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”, signed 1997, a first international milestone in condemning bribery was achieved. Until the end of 2012 40 countries established legally binding standards to criminalise bribery of foreign public officials in international business transactions. The convention was amended 2009 with a Recommendation of the Council for Further Combating Bribery. 38 The UN Convention against Corruption of 2003 provided the first effective international legal instrument that defined a universal view on actions perceived as acts of corruption both in the public and the private sector. Until September 2013 the conven-  uvk-lucius.de/ adam <?page no="95"?> 3.2 Developing the Mission, Vision, Values and Ethics 95 tion achieved global coverage with 140 signatories. It criminalises a wide range of corruption issues ranging from generally accepted basic forms such as bribery and the misuse of public funds to more elaborated forms like trading in influence, concealment and laundering, including money-laundering. The ratifying states were required to establish criminal offences or in some cases at least to consider doing so. The latter cases provided flexibility for those countries, where the cultural perspectives on the respective behaviour differ relevantly. 39 The convention was supported by the G20 Anti- Corruption Action Plan of 2010. This plan was set up to encourage the governing bodies of international organisations to operate with high standards of ethics and integrity while being transparent and using effective internal safeguards. The aim is a public-private partnership to develop initiatives that engage the business as essential stakeholder in the fight against corruption. 40 Since 2013 the related working group’s progress reports are available at the G20 website. They provide interesting information on the state of corruption combat and its most recent focus. In 2013 sectors that were seen as particularly vulnerable to corruption were discussed, for example construction, the extraction of natural resources or sectors organisation of sporting, cultural and other major international events. 41 The B20 Task Force on Improving Transparency and Anticorruption recommended in 2012 amongst other things to set up reliable ethics and compliance programs and to develop mechanisms to assess and increase their effectiveness. They further suggested joint public-private actions as “integrity pacts”, whereby all bidders and government agencies agree to neither pay nor solicit bribes to public contracts or sectoral integrity initiatives aiming at defining precise rules of governance and behaviour. 42 Transparency International recommends the establishment of a comprehensive corporate integrity system. From the company side this includes two spheres: the norms & culture sphere (covering ethical leadership, codes of conduct and corporate citizenship) and the governance mechanisms (covering the corporate compliance system, whistleblowing, corporate governance, accountants and auditors). In order to ensure a high level of integrity this has to be enhanced by rules, regulations and enforcement of governments which covers regulatory oversight, civil and criminal liabilities as well as law enforcement. The system is completed by broader checks and balances for further incentivising ethical behaviour. This covers investors, public reporting, civil society watchdogs, investigative journalism and consumer campaigns. 43 In 2013, the UN provided a practical guide for an “Anti-Corruption Ethics and Compliance Programme for Business”. 44 This guide addressed the visible support and active commitment from senior management towards zero-tolerance of corruption as the deciding prerequisite for the successful development and implementation of an anti-corruption programme. 45 In a multinational corporation the task of setting up an anti-corruption programme requires a sensitive approach to certain issues as the view on certain acts of corruption is influenced by cultural value systems. For example, gift giving is seen in Asian cultures as an important process in the establishment of trusting relationships and is usually an act of reciprocity. This could be misconstrued as bribery. 46 Consequently, the corporate definition has to draw a clear line between bribery and acceptable exchange of presents. This is usually achieved by defining the kind of present as well as the maximum cost for it that are deemed appropriate for establishing business relations. The success of the implementation of this ethical standard is highly dependent on the extensive communication of the underlying reasoning and top management role modelling. uvk-lucius.de/ adam <?page no="96"?> 96 33 Leading the Internationalisation Process VIPs 3.2.3 Communicating Direction and Uniting the Organisation’s People Research also suggests that a propensity towards certain practices generally labelled as corrupt is correlated positively to high levels of Hofstede’s power distance, masculinity, and collectivism. Countries with a high power distance for instance are more likely to accept a lack of equality regarding power and authority, a basic prerequisite for acceptance of the misuse of personal power. 47 Only 58% of all participants of the 2012 Global Workforce Study judged their organisation to conduct business activities with honesty and integrity. This leaves considerable room for improvement. 48 Setting a clear direction and a consistent strategic focus is one of the most important tasks of leaders. The technicalities of defining and communicating a strategy are dealt with in the EFQM criterion 2 “strategy” and therefore explained in detail in chapter 4. The contribution of the leader goes far beyond the initiation of the strategy development process. According to the EFQM model, excellent leaders unite their people and thus enable them to share the organisation’s mission and goals and achieve their implementation. This is very relevant for the engagement of an organisation’s people. The 2012 Global Workforce Study revealed that 86% of highly engaged employees indicated to understand the business goals and how their own job contributes to them. In contrast, only 36% of the disengaged employees indicated the same understanding. 49 Uniting the organisation’s people is especially challenging when they come from different cultural backgrounds. According to Trompenaars and Hampden-Turner, a high performing international leader has to possess transcultural competence, which could be defined as the propensity to reconcile seemingly opposing values or “the capability to connect different points of view through the elicitation of dilemmas and their reconciliation” 50 . In a very practical sense, international leaders spend a relevant amount of their time continually reconciling (cultural) dilemmas as defined in chapter 2.3.9. uvk-lucius.de/ adam <?page no="97"?> 33.2 Developing the Mission, Vision, Values and Ethics 97 3.2.5 Developing and Reviewing Leadership Culture 3.2.5.1 Developing and Supporting a Shared Leadership Culture Behaviour in organisations circles around leadership behaviour. Employee commitment, their sense of being valued with their unique contributions to overall success as well as their willingness to contribute on a wide front is mainly influenced by their perceived relationship with their supervisors. A shared leadership culture is therefore paramount for ensuring a consistent approach to (goal) communication, performance evaluation and employee appreciation. Defining and supporting a leadership culture is more than creating job descriptions, determining responsibilities and developing rules for acceptable leadership behaviour like a “leadership code of conduct”. It requires a constant communication and discussion process in order to shape a uniform understanding of leadership roles and desirable leadership behaviour. Organisations with a strategic focus on innovation and development for example tend to foster employee freedom, team building and self-directed work-sharing. This requires a relationshipbased leadership approach where the leader accepts an emphasis on being a motivator, coach and communicator. In an organisation concentrating on extremely structured production processes the leadership role model accentuates taking responsibility for continuously improving the work flow as well as inspiring people for challenging zerodefect-programmes and technological change. Figure 3-11: Percentages Opting for Blaming an Individual 51 In chapter 3.1.1 research revealed that the ability to show certain leadership behaviour has a personality component. In addition, the acceptance of certain leadership behaviour is also based on cultural perspectives. Trompenaars & Hampden-Turner investigated a leadership dilemma where a leader has to deal with a trainee worker that made a very serious error, causing considerable correction efforts and a relevant loss of time. Depending on the (culture-based) interpretation of the situation this could be seen as a mistake of a single person or alternatively as a failure of the whole team that was responsible for supervising, training and coaching the new member. prouvk-lucius.de/ adam <?page no="98"?> 98 33 Leading the Internationalisation Process vides an overview of the percentages of respondents of chosen countries opting for blaming an individual. Especially in Russia but also in China, France, Germany, UK and the USA it is quite probable that a leader will blame and punish the individual whereas leaders from Finland, India and Japan will more likely blame the team. An important contribution to the question of a universal endorsement of specific leader actions or characteristics was made by the GLOBE study introduced in chapter 2.4. Differing ideas of effective leadership were researched by a multitude of attributes or behaviours. The leadership definition used is quite close to the leadership definition of the EFQM Excellence Model. According to the GLOBE study, leadership is “the ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members.” 52 Based on the so-called implicit leadership theory (ILT) the study extended the focus from differences on an individual level to a cultural-level theory (CLT). ILT states that each person holds a set of beliefs about behaviours, skills and characteristics that contribute to or obstruct effective leadership. These belief systems or mental models were assumed in the GLOBE project to be shared by members of a certain (societal or organisational) culture. The relevance of theses mental models stems from the idea that they influence the extent to which someone accepts and responds to other persons as leaders. The GLOBE project found out that there are statistically significant differences among cultural groups concerning leadership beliefs. Six global culturally endorsed implicit leadership dimensions (or global leader behaviours) were finally identified that are presented in Figure 3-12. They were derived from 21 CLT leadership subscales. Each global dimension consists of one or several of these subscales. The team oriented leadership style for example comprises the subscales collaborative team orientation, team integrator, diplomatic, malevolent (reverse scored) and administratively competent. Participants of the GLOBE project evaluated the six leadership dimensions based on a 7-point scale, where evaluations of 1 or 2 were seen as inhibiting outstanding leadership, an evaluation of 3 was perceived as neutral and evaluations from 4 to 7 were understood as contributing to outstanding leadership. As Figure 3-12 shows, only the first three of the six leadership dimensions - charismatic/ value based, team oriented and participative leadership - were generally understood as contributing to outstanding leadership, receiving values in all 62 countries between 4.5 and 6.5. Humane oriented leadership was perceived as being neutral in some societies and moderately contributing in others. The view on autonomous leadership varies widely - from being seen as impeding to slightly facilitating outstanding leadership. The selfprotective leadership style was mainly reported as an impediment. Further research revealed that certain cultural values are linked to certain leadership dimensions. A positive view on charismatic/ value based leadership is for example closely related to the cultural values performance orientation, in-group collectivism and gender egalitarianism as well as low scores on power distance. Self-protective leadership is seen as a positive approach by cultures with high values of power distance and uncertainty avoidance and low scores in gender egalitarianism. 53 uvk-lucius.de/ adam <?page no="99"?> 33.2 Developing the Mission, Vision, Values and Ethics 99 Figure 3-12: GLOBE: Six Global Leader Behaviours 54 Without supporting measures it is therefore not to be expected that all people that were selected for leadership positions subscribe to a consistent view on effective and appropriate leadership behaviour in the respective organisation. The same is true for the expected leadership behaviour from the varying views of its diverse workforce. Besides defining, broadly communicating and training the organisation’s view on its leadership culture it is important to review the individual leadership performance and improve the effectiveness. An advisable way to achieve this is the introduction of a structured leadership feedback process. 3.2.5.2 Reviewing and Improving Leadership Behaviour The positive influence of feedback on motivation, goal attainment and therefore productivity is empirically proven. 55 Another important contribution of feedback consists of an improved self-awareness as represented by the so-called JOHARI window, named after its developers Joseph Luft Harry Ingham. As illustrated in , in all kinds of social interactions there are some facets of our behaviour, attitudes and personality that we do not share openly but hide from other people. We widen the perspective of others by enhanced self-disclosure. On the other hand, there are facets we are not able to see ourselves but that can be observed by others. If we want to enhance our self-awareness and know more about the way we are perceived by others we need to ask them for open and honest feedback. 56 uvk-lucius.de/ adam <?page no="100"?> 100 33 Leading the Internationalisation Process Figure 3-13: JOHARI Window and the Importance of Feedback 57 A structured leadership feedback process allows leaders to diminish their blind spot and allows the organisation to set up supporting measures for leadership development. Such a feedback is especially meaningful if it incorporates a multitude of contact perspectives. A complete multi-source or 360° feedback combines a self-assessment with feedback and/ or performance evaluation from the direct supervisor as well as the manager on the next level (top-down), feedback from all direct reports and team members (bottom-up), peer reviews (leaders on the same level) as well as feedback from internal or external customers, suppliers and further (business) contacts. It is depicted in In practice, limited approaches using merely a selection of the above mentioned sources are more common. A typical example is a 180° feedback combining only top-down and bottom-up approaches. 58 Possible applications of feedback data include leadership development, performance appraisal with or without influence on remuneration, validation of training, teambuilding and organisational development. 59 The use of data has a relevant influence on the willingness to accept the leadership feedback and work on improvements. An organisation should therefore beware of mixing different objectives. If it is used for remuneration purposes, for example, the stakes for the leaders are higher. This might lead to more reluctance on accepting negative issues and consequently more pressure on the feedback providers. At the same time, it could be taken more seriously. Figure 3-14: 360° Feedback uvk-lucius.de/ adam <?page no="101"?> 33.3 Driving Performance and Engaging with External Stakeholders 101 A leadership feedback is a time-consuming and costly process. The feedback itself will take at least 2 months and might take up to 6 months depending on the size of the organisation and the design of the different phases. It covers several steps, starting with the initial briefing and ranging from questionnaire completion and report processing to feedback sessions, reflection phases and action planning. As the goal is a change in leadership behaviour, the leaders will need time to initiate, accept and habitually carry out the new behaviour. 60 It is important to allow enough time for this development to happen before the next feedback cycle starts and feedback on the changes is obtained. Feedback cycles of one or two years are therefore quite common. Despite its essential contributions, leadership feedback is still a controversial issue. While team members might be concerned to be punished for negative feedback, leaders might fear to be penalised for necessary but unpopular decisions. How feedback is perceived and valued is highly dependent on the organisational and leadership culture. A culture where people honestly strive for improvement on all organisational levels and see failures as chances to learn will profit tremendously from a 360° feedback. In a culture where doing something wrong is negated and failures are used for finding and blaming people in charge, such an instrument could become a weapon that is feared and avoided. From a people perspective, leaders still have a lot of room for improvement. According to the Global Workforce Study 2012, only 48% of all participants have trust and confidence in the job leaders are doing and only 45% believe that senior leaders have sincere interest in their well-being. 61 VIPs 3.3 Driving Performance and Engaging with External Stakeholders The very essence of leadership, as defined in chapter 3.1, is to influence others to pursue shared goals. In an organisational setting this is equivalent to driving performance by implementing the fundamental EFQM concept “sustaining outstanding results”. This requirement of the EFQM model nsures that the people orientation is matched with a task-oriented pursuit of the organisation’s goals. Based on understanding the capabilities of the organisation all decisions made to ensure the organisation’s success should be based on reliable and factual information. The EFQM model obliges leaders to define and evaluate a balanced set of results to “review progress, provide a view of long and short term priorities and manage the expectations of the key stakeholders” 62 . Stakeholders can be defined as all parties (be it people, groups or other organisations) the organisation is depended on and that are vitally interested in its value proposition uvk-lucius.de/ adam <?page no="102"?> 102 33 Leading the Internationalisation Process or its existence. Internal stakeholders are mainly its people. Typical external stakeholders are (existing and potential) customers, investors, suppliers, partners and relevant stakeholders within society like the surrounding community and residents. The clear definition of relevant stakeholders is of high importance as it stands in strong reciprocity with the organisation’s purpose and direction. According to the EFQM Excellence Model, a sound stakeholder approach comprises besides a detailed definition a consequent measurement of their expectations and the achieved satisfaction, their inclusion in all kinds of innovation processes and an extensive stakeholder dialogue on all levels of the organisation to create trust and understanding. This approach is meant to insure that shared values and a culture of trust are established throughout the value chain and that leaders and the organisation are transparent and accountable to their stakeholders and the society in general. 63 The strong emphasis on leadership responsibility in this respect forces leaders to interact personally with all kind of stakeholders instead of residing in an “ivory tower” and holds them individually accountable for all relevant aspects of the management system. 3.4 Reinforcing a Culture of Excellence 3.4.1 Developing an Excellent Organisational Culture Throughout the holistic EFQM management approach a lot of best practices are shared that will only be implemented successfully if the underlying corporate culture fits to the methods and tools introduced. This is the main reason why the model is not built as a checklist but provides examples for excellent approaches instead. It is not necessary to follow a distinctive approach for every criterion point in order to be recognised as an excellent organisation. However, the general mind-set needed to be able to become outstanding is defined in the so-called fundamental concepts and has to be promoted by the leaders. It requires the creation of an organisational culture that supports involvement, empowerment of people, equal opportunities, continuous improvement, innovation and change, ethical behaviour and accountability. 64 The term “organisational culture” is best defined by Schein as “a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members, as the correct way to perceive, think, and feel in relation to those problems.” 65 Cultures are formed by leadership activities as well as by shared experiences of the group’s members. Consequently, inspiring the organisation’s people by being a role model is not enough to create or manage a culture. Leaders have to build a consistent system of rules, tools and activities that sends reliable messages on how certain problems are perceived and should be solved. According to Schein the “unique talent of leaders is their ability to understand and work with culture; and it is an ultimate act of leadership to destroy culture when it is viewed as dysfunctional” 66 . Changing an organisation’s culture or “DNA” is a demanding task as culture also works as a psychological defence mechanism. A change has only the chance of being successful if the genetic potential for learning the new ways is already part of the corporate DNA code - a prerequisite that has to be assessed correctly by the leader in advance. Given the possibility, the change itself requires heroic efforts to neutralise the organisation’s autoimmune system. Successful culture change is then uvk-lucius.de/ adam <?page no="103"?> 33.4 Reinforcing a Culture of Excellence 103 dependent on managing the huge amounts of anxiety that the new ways produce. It is the task of the leader to provide stability and reliability during this period of change. 67 As many tools that make a direct impact on people’s cultural perceptions belong to the sphere of Human Resource Management they are discussed in chapter 5. Changing cultures as well as bringing different cultures together - for example in merger or acquisition processes - requires reconciling cultural dilemmas. In accordance with the approach to reconcile dilemmas of national cultures (as described in chapter 2.3) Trompenaars & Hampden-Turner offer a polarised view on different corporate cultures and their respective approaches. They contrast egalitarian with hierarchical and person-oriented with task-oriented cultural approaches and thus create four distinctive corporate cultures as depicted in . 68 Figure 3-15: Trompenaars and Hampden-Turner’s Four Corporate Cultures 69 The guiding culture of an organisation is easily recognisable in their “guiding star”, watchword, management style, principle of control, and definition of excellence. Incubator cultures strive for innovation, are managed by shared excitement, controlled by the authority of science and define excellence as creativity genius. Guided missiles value effectiveness, are managed by group goals, follow the authority of solution and strive for excellence by professionalism and pragmatic results. Family cultures love harmony, are managed by mutuality, exert social pressure to control their members and find excellence in social influence. Eiffel tower cultures strive for efficiency, optimise their control by strict rules and procedures, are consequently managed by job description and define excellence as a new system of order. 70 Figure 3-16: Preferences for Corporate Cultures in Different Countries 71 Organisational cultures are affected by many aspects their historical development, the personality, beliefs and visions of their founders and the industry they belong to, just to name a few. It is not astounding that national culture also has an important impact uvk-lucius.de/ adam <?page no="104"?> 104 33 Leading the Internationalisation Process and preferences for certain organisational cultures vary across the globe. A selection is presented in . All cultures get problematic if taken to extremes. If they exist in only one quadrant and are not attenuated by aspects of the other three quadrants, all of them will produce negative effects. An extreme Eiffel tower culture becomes rigid, formal, mechanical and bureaucratic, inhibiting change and growth. Extreme family cultures, in contrast, are informal, have only very loose procedures and a very paternalistic approach. This could mean affection between the members but also family feuds and power struggles, making it hard to follow a stringent (for example market) approach. Only a few outstanding new, imaginative and innovative companies with incubator cultures are able to become profitable and survive over the long-term, as they allow individuality which might lead to divergence of goals. Guided-missile cultures are prone to group-think symptoms. Being very social and convergent, they relentlessly pursue realistic goals which leaves hardly room for re-framing or necessary revisions when the environment changes. 72 It is therefore important for a leader to create and strengthen a corporate culture that fits to the industry and national environment and is embraced by all members of the organisation. At the same time this culture should not be so narrow and fixed in its way that it does not allow further evolution in conjunction with the development of the environment, technical progress or changes in the composition of its members. “Virgin” is one of the most admired brands in the UK. The unique culture of the corresponding Virgin Group is deemed to be at least partly responsible for the success of its diversified business approach. This background is illuminated in Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), pp. 214-220. 3.4.2 Promoting and Encouraging Diversity Integrating all kinds of people to a maximum extent is one of the major leadership challenges in any organisation. The experience of social exclusion in the workplace resulting from actual or perceived membership in a certain diversity group is still common. It can result from overt exclusionary practices, formal or informal policies, or merely from the perception of the employees. Whole groups or individuals are explicitly or implicitly excluded from job opportunities, team membership, personal development, information networks or decision-making processes. Feeling or being excluded has many negative effects on employee job satisfaction and individual wellbeing with corresponding risks for the organisation’s development opportunities and performance. 73 Consequently, dealing professionally with diversity issues became more and more popular over the last decade. Definitions of diversity are manifold, some of them narrowed to gender differences or ethnic differences. In the USA, diversity is mainly limited to gender, age, race, ethnicity, religion, physical disabilities and sexual orientation. In Europe, definitions based on broad lists of different diversity dimensions or based on conceptual rules stressing differences in perspectives are more common. 74 An overuvk-lucius.de/ adam <?page no="105"?> 33.4 Reinforcing a Culture of Excellence 105 view of possible diversity aspects or dimensions, grouped by internal, external and organisational layers is presented in Figure 3-17: Dimensions of Diversity Depending on the organisation’s work-force composition, culture and environment certain diversity groups are in the majority or predominant, creating possible issues for employees not belonging to them. For example, in Indian companies the differentiation between various castes is an aspect to be watched. In South Africa this kind of differentiation is replaced by racial or ethnical distinctions as for example Nguni, Sotho, Shangaan-Tsonga and Venda or people of Afrikaans, British or European descent. This illustrates that due to the broad variety of organisations a limited diversity definition is not feasible. It is also critical to concentrate only on the differences of people. Encouraging people of different diversity groups to interact often starts with establishing similarities to overcome the feeling of foreignness. Two women of different age groups and different educational backgrounds might still find common ground in their experiences of social life and typical gender role expectations. Ocholla explains this as follows: “Whilst we recognise the importance of identifying differences, albeit, for development and creation of harmony, emphasis on differences (…has…) created unprecedented levels of social injustice for centuries. (…) Diversity is based on recognition of harmony in differences and emphasis on similarities in differences. This approach provides the patience and tolerance for recognizing, knowing, experiencing, embracing, benefitting and fulfilling each other as well as accommodating the unique social differences…” 76 Following this reasoning, diversity is understood as the sum of differences and similarities of people. Promoting and encouraging diversity is a task for every person in a leadership position as well as for the organisation as a whole. How to include all kinds of people in an organisation, value all differences and similarities and recognise each unique contribution on an equal basis is subject to dedicated discussions in science and management. uvk-lucius.de/ adam <?page no="106"?> 106 33 Leading the Internationalisation Process The means to achieve these goals are as diverse as the definitions of a diversity based management approach. Following the broad diversity definition, diversity management is understood as a management and leadership task that encompasses the entirety of measures aimed at recognising diversity as a distinct value in order to use its potentials for the organisation’s success. 77 Diversity management programmes are very individual and usually reflect national culture and legislation as well as the organisation’s individual position. However, some instruments are quite typical for these programmes. In US-American institutions, classical diversity measures encompass the appointment of a diversity manager, the inclusion of diversity aspects in vision, mission and leadership values, diversity trainings, mentoring programmes, mixed teams, language trainings, flexible work hours as well as a consequent alignment of relevant human resource processes with equality requirements. In Germany, these measures are frequently included in employment agreements and amended by special consulting services for minorities, diversity-oriented facilities (kindergarten, prayer rooms), internal and external communication activities and evaluation of diversity management measures and demand. At that, diversity management moves between the integration of all organisational members (universalistic approach) or the focus on individual diversity groups, for example on increasing the participation of women (particular or specific approach). 78 The EFQM model as holistic management model addresses diversity aspects in several criterion parts and their guiding points. Apart from the direct reference in 1d excellent diversity management is implemented based on understanding the needs of (all) employees (2a), ensuring fairness and equal opportunities in human resource management processes (3a), ensuring that people have necessary opportunities to maximise their contributions (3b), empowering people and ensuring that people have an open mind-set (3c), developing a culture that continually seeks to improve the effectiveness of teamwork (3d), promote a culture of mutual support, recognition and care and respect and embrace the diversity of all internal and external people (3e), and on building a sustainable relationship based on openness and respect with all kinds of partners (4a) and customers (5e). Positive effects of diversity programmes could only be assessed long-term, are often superimposed by dynamic changes in the environment and thus hard to proof. Largely, scientific research was so far not able to support the business case in favour of diversity management. 79 Looking at the wide range of differences in diversity and diversity management definitions including the “soft factors” and the huge variety of possible measures, this is not astonishing. Besides, the effectiveness of diversity measures is also highly dependent on an ever-changing environment and the establishment of an effective diversity management controlling. Researched and described diversity management benefits to organisations include cost savings through lower turnover and absenteeism due to increased employee loyalty, a more positive image with all stakeholders resulting in an improved corporate reputation, an enhanced employer attractiveness leading to an expanded potential employee pool, advantages in recruitment and labour disputes, more possibilities for geographically expanded markets and better marketing to international customers. Organisations with an effective diversity management are supposed to be more flexible and creative and achieve an advanced problem-solving competency. All these effects should result in an improved competitive position. 80 Looking at the arguments more closely it becomes clear that many of these arguments are especially relevant for internationally uvk-lucius.de/ adam <?page no="107"?> 3.5 Managing Change 107 operating organisations as they face a more complex environment. The probability of correctly understanding customer expectations of different cultural backgrounds for example is especially enhanced if members of the product development or marketing team already come from the same culture and are able to blight ideas leading to costly mistakes already before going public. Seen from this point of view, diversity management is not only the right and ethical thing to do but has a highly relevant risk management component. As already mentioned, according to Towers Watson’s Global Workforce Study 2012, the overall employee engagement levels are alarmingly low. This can be traced back to very traditional workplace practices and programmes that are not suitable for the challenging global environment of the 21 st century. Employee retention is highly dependent on the quality of work experience which is influenced mainly by the quality of relationship between employees and their managers and their trust in senior leadership. Two main challenges were found: first, employees are often not effectively enabled with resources and internal support. Global organisations for example face large and dispersed teams coming together for various projects across different time-zones and with diverse backgrounds concerning languages, skills, work styles and expectations. They have to be supported and enabled with other tools and management approaches than common, mostly mono-cultural teams sharing physical space. The second challenge addressed is the creation of an environment that promotes physical and social well-being and thus enables an energising work-experience. 81 These conclusions create a compelling case for the introduction of an effective diversity management. Authentically promoting and encouraging diversity requires leaders with special leadership competencies, especially in a multicultural environment. According to the Global Workforce Study, these competencies consist of accessibility, authenticity, global and cultural acumen, interpersonal agility, rapid decision making, risk leverage, strategic flexibility and transparency. 82 Trompenaars & Hampden-Turner stress the need of achieving the high level of intracultural competence that enables leaders to manage and leverage business benefits by leveraging ethnic and/ or cultural diversity and differences within teams. 83 VIPs 3.5 Managing Change The constant need for change is a business doctrine that is hard to avoid, the reasoning being that a relentlessly changing environment forces organisations to adapt. The last decade in Germany was for example dominated by environmental changes based on uvk-lucius.de/ adam <?page no="108"?> 108 33 Leading the Internationalisation Process the megatrends digital transformation, globalisation of enterprises, knowledge society development, work-life-balance and demographic change. Most of these are expected to stay relevant and even develop further. Globalised enterprises for example are gradually replaced by so-called extended enterprises as globally operating, partially virtual network structures. 84 Since the nineties the management idea has taken hold of becoming a better competitor by continuously altering strategic direction and with it the internal disposition, namely processes as well as people’s competencies and quantities. The expected need for change is ever-growing. In 2008 IBM reported that 83 percent of CEOs expected substantial change, two years before this percentage was only 65%. 85 The nature and extent of organisational change - and its connected challenges can be very different. An incremental adaption of certain parts of the organisation without touching its culture is a very common and comparatively easy to manage type of change. Reconstruction, understood as major structural changes or cost-cutting programmes in order to achieve a turnaround, constitutes a rapid adjustment which might cause a lot of (short-term) upheaval but does likewise not touch the culture fundamentally. Revolution is a rapid, big-bang sort of change that implies major cultural and strategic transformation. This is usually required when the environmental-induced need for a gradual fundamental change did not cause any response and suddenly the threats to the organisation’s existence, for example through a takeover, require immediate action. The evolution type of change is a significant transformational change in strategy and culture over time. Being of a more preventive nature without the pressing need the revolutionary change follows, it constitutes the most challenging type of change to be managed. 86 Nearly every kind of project that involves new approaches for an organisation can be categorised as change project, as the people involved have to adapt somehow to new structures, new colleagues, new activities or new goals. As such, change provokes unease and fear of a new situation resulting in considerable resistance. In 1995, J. P. Kotter published a report based on observations of more than 100 companies undergoing fundamental changes referred to as reengineering, restructuring, right sizing, turnaround, total quality management or cultural change. His results were alarming: “A few of these corporate change efforts have been very successful. A few have been utter failures. Most fall somewhere in between, with a distinct tilt toward the lower end of the scale.” 87 From his works was concluded that only about 30% of change programmes were truly effective. In 2008, McKinsey surveyed 1546 business executives from around the world that confirmed the same fact as only 30% considered their change programmes as completely or mostly successful. 88 Towers Watson concludes in a change-focused study published 2013: “Only 55% of change projects are initially successful, and only one in four is successful in the long run”. 89 Today’s basic understanding of how to deal with change can be traced back to Lewin’s field theory from 1951. By analogy with the characteristics of (electro)magnetic fields a situation of for example organisational change can be analysed as a constellation of independent factors. A so-called field is set at a certain point in time and includes all aspects of individuals in relationship with their environment that apparently influence the particular behaviours and developments of anxiety. This holistic perspective should include not only the main stakeholders but also a characterisation of the powers exerted and the emotional atmosphere. The resulting forcefield analysis leads to a represenuvk-lucius.de/ adam <?page no="109"?> 3.5 Managing Change 109 tation of everything that supports (driving forces) or obstructs (restraining forces) the intended movement of the organisation from the status quo towards the new desirable state. Typical driving forces for change could be external inducements (for example economic shocks e.g. a financial crisis, emerging competitors, impending mergers or new technologies) or internal desires for change based for example on humanisation of work, work-life-balance or a more diverse culture. Restraining forces stem from individual resistance (for example fear of losing economic advantages or security, habits or dependencies) or from organisational opposition based on lack of resources, threat to established power relationships, group inertia or short-term orientation. 90 For international organisations it is interesting to note that the acceptance of change varies across cultures. People from Western countries generally believe that they have at least some control over the future. This so-called internal locus of control makes it easier to deal with changes. In countries, where control is considered to be external by destiny or God and that are very traditional, a fundamental change might be seen as a threat to the accepted way of life and consequently met with more resistance, expressed in passive attitudes or open hostility. 91 According to the concept of time as explained by Trompenaars & Hampden-Turner (compare chapter 2.3.7), more synchronic cultures built their future on the past which is carried through the present. For people with this cultural background, any idea of change has to include some aspects that convey continuity in order to preserve their identity. Hence, the acceptance of a change process might be dependent on how the challenge is expressed: doing something in a new way might be resisted, re-creating something great of the past embraced. 92 Figure 3-18: Lewin’s Three Steps of Change 93 According to Lewin’s Three-Step Model, a successful change process should consist of three steps that are equally important. It is depicted in Figure 3-18. As the status quo constitutes an equilibrium with high-level inertness, the first necessity is to unfreeze the current condition in order to create awareness for the need to change. Unfreezing implies fostering the driving forces, decreasing restraining forces or combining both options. The following phase describes the movement of the organisation towards the envisioned new state. More recent research points out that this is never a straight forward effort but instead a turbulent and erratic development which - given the right impulses that will be discussed in the following - will finally lead to the desired end state. The last phase is easily forgotten but as important as the other two: after reachuvk-lucius.de/ adam <?page no="110"?> 110 33 Leading the Internationalisation Process ing the desired status refreezing efforts are required to render the achieved change permanent and install a new equilibrium. 94 In his ground-breaking work, Kotter stresses that the whole change process goes through a series of stages (depicted as turbulences) and requires a considerable length of time. Skipping these stages creates only an illusion of speed without producing a satisfying result. In any of these stages critical mistakes can have a devastating impact on the success. The observed critical mistakes were turned into eight recommended steps that should be taken by leaders for transforming an organisation as depicted in 95 Basically, these findings remain unchallenged. Researchers and consultants mainly added certain tools and methods to these eight steps, gradually widening the knowledge base on change management. Leaders are generally established as main change agents, understood as persons that are in charge of change activities and act as catalysts. The EFQM model establishes their change-related responsibilities as being able to demonstrate flexibility, considering and balancing the sometimes conflicting stakeholder expectations and effectively use project management and other structured approaches. 96 Figure 3-19: Eight Steps for Leading Change 97 Referring to the majority of change programmes still failing to meet their objectives, the main reason is still the deficiency in management behaviour or, more precisely, leadership abilities. Keller & Aiken (McKinsey) stated the inconvenient truth that “people are irrational in a number of predictable ways. … (R)ational managers who attempt to (… apply…) their “common sense” intuition typically … create messages that miss the mark, and experience frustrating unintended consequences.” 98 Capgemini reported 2012 that leaders are aware that emotions are the key to success, and that it is important to reach with the vision of change the hearts of the employees. However, change interventions are still made by classical methods that are more rationaloriented, pragmatic and steered from the top. These are not especially suited to foster individual willingness to change. Possible reasons are traced back to time pressure, lack of resources and a deficiency of change competency in the organisations. The top three success factors were defined as actively communicating a clear vision, ensuring the commitment of management and including all relevant stakeholders. The expectations from leaders are high and accordingly often not met. The gap between expectation and reality was reported to be highest concerning the establishment of an environment that fosters change, active communication of changes and acceptance as role model. It is especially noteworthy that change competency and change acceptance uvk-lucius.de/ adam <?page no="111"?> 33.6 Citations & Notes 111 A practical example for a change management process from a responsible manager’s point of view is provided in Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 495-497. VIPs 3.6 Citations & Notes become lower with every hierarchical level. Whereas 32% of top-level managers are assessed to have a very high level of change acceptance, this number drops to only 4% of members of the third management level or lower. 99 These findings are supported by Towers Watson’s Change Study 2013. It states that where senior managers agree to 68% that management does a good job explaining the reasons behind major decisions, middle managers confirm this statement to 53%, team leaders to 40% and nonmanagerial staff only to 34%. Although nine out of 10 organisations train managers how to deal with change, only one fourth agrees that this training is effective. 100 “Successful transformation is 70 to 90% leadership and only 10 to 30% management” 101 . The failures in change management therefore provide proof for the assessment that (too) many corporate cultures are overmanaged and underled. The focus of the EFQM Excellence Model on leadership as a starting point and linchpin for an excellent organisation is therefore rightly set. 1 Robbins, S. P., & Judge, T. A. (2013), p. 402 2 Lynch, R. (2012), p. 827 3 Pundt, A., & Franke, F. (2013) 4 Treier, M. (2009), pp. 298-300; Robbins, S. P., & Coulter, M. (2009), p. 387 5 Pundt, A., & Franke, F. (2013), p. 112 6 Details on these theories can be found in diverse textbooks concerning management, leadership or organisational behaviour, for example Robbins, S. P., Coulter, M. (2009), pp. 388-391; Treier, M. (2009), pp. 304-309. Text based on Robbins, S. P., Coulter, M. (2009), pp. 388-391. 7 Illustrations based on Treier, M. (2009), p. 306 fig. 105. Text based on Robbins, S. P., & Coulter, M. (2009), pp. 388-391. uvk-lucius.de/ adam <?page no="112"?> 112 33 Leading the Internationalisation Process 8 Illustrations based on Treier, M. (2009), pp. 306-307 fig. 105 and 106. Text based on Robbins, S. P., & Coulter, M. (2009), pp. 388-391. 9 A very good overview of these theories is presented in Treier, M. (2009), pp. 309- 313; the main models are also discussed in Robbins, S. P., & Coulter, M. (2009), pp. 391-396 10 Illustration of Contingency Model based on Treier, M. (2009), p. 310, fig. 105; 11 Bass, B. M., & Avolio, B. J. (1990); Treier, M. (2009), pp. 300-304 12 Illustration of Full Range Leadership Model based on Treier, M. (2009), p. 301 13 Pundt, A., & Franke, F. (2013), pp. 122-127 14 A detailed introduction to the development of the FFM, its concept and its measurement is provided under public domain by McCrae, R. R., & John, O. P. (1992) 15 Costa, P. T., Jr., & McCrae, R. R. (1992), pp. 1-2 16 Contents from Costa, P. T., Jr., & McCrae, R. R. (1992) 17 Pundt, A., & Franke, F. (2013), pp. 127-130. The LMX theory was not presented by one researcher but was developed and refined overtime. An overview of its roots is presented in Braen, G. B., & Uhl-Bien, M. (1995). 18 Definitions of criterion parts: EFQM & ILEP (2012), p.18 19 Definitions of criterion part and guidance points: EFQM & ILEP (2012), p.18 20 Lynch, R. L. (2012), p. 220 21 Lynch, R. L. (2012), pp. 227, 247 22 Wheelen, T. L., & Hunger, J. D. (2012), p. 41 23 Steinmann, H., & Schreyögg, G. (2005), pp. 715, 171 24 Drucker, P. F., & Collins, J. C. (2008), pp. 11-19 25 Johnson, G., Scholes, K, Whittington, R. (2007), pp. 120-121 26 Towers Watson (2012), p. 133 27 Dahlsrud, A. (2008) 28 Commission of the European Communities (2002) 29 Since the ratification of the UN TBL standard for urban and community accounting (2007) the TBL concept became widely used, not only in the public sector. It is closely linked with the approaches to measure and report natural capital, human capital and ecological footprints. 30 ACCSR (Ed.) (2012) 31 Collins, J. C., & Porras, J. I. (1994) 32 De George, R. T. (2006), pp. 17-25 33 Enderle, G. (1993); More details on international business ethics are available in Enderle, G. (Ed.). (1999). 34 TI (2013b) 35 TI (2010), p. 4 36 TI (2009), pp. 7-8 37 TI (2009), p. 8 38 OECD (2013b). Convention on Combating Bribery of Foreign Public Officials in International Business Transactions as well as information on its ratification status and related documents, http: / / www.oecd.org/ corruption/ oecdantibriberyconvention. htm 39 UNODC (2004). UN United Nations Convention against Corruption, adopted by resolution 58/ 4 of 31 October 2003, entered into force on 14 December 2005; text in uvk-lucius.de/ adam <?page no="113"?> 3.6 Citations & Notes 113 different languages and ratification status: http: / / www.unodc.org/ unodc/ en/ treaties/ CAC/ ; access 10/ 2013 40 G20 (2010) 41 G20 (2013) 42 B20 (2012) 43 TI (2009), pp. 8-10 44 UNODC (2013) 45 UNODC (2013), p. 19 46 D’Souza, C. (2003) 47 Davis, J. H., & Ruhe, J. A. (2003) 48 Towers Watson (2012), p. 16 49 Towers Watson (2012), p. 13 50 Trompenaars, F., & Hampden-Turner, C. (2012), p. 355. According to these authors, transcultural competence constitutes a very high level of cultural competence as it goes beyond the avoidance of exhibiting ethnocentricity (= crosscultural competence) and also beyond the mere capability to recognise and respect cultural differences which enables to communicate and work with other cultures (= intercultural competence). (Trompenaars, F., & Hampden-Turner, C. (2012), pp. 354-364). 51 Percentages from Trompenaars, F., & Hampden-Turner, C. (2004), p. 115; for countries marked with “*” no percentage was made available. 52 House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), p. 15 53 House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), pp. 39-48 (summary); pp. 669-720 (details) 54 Based on House, R. J., Hanges, P. J., Javidan, M., Dorfman, P.W., & Gupta, V. (Eds.). (2004), pp. 14-15 (definitions); pp. 41-42 (values) 55 Treier, M. (2009), pp. 327-329 56 Original source: Luft, J., & Ingham, H. (1955). A detailed description is offered in Luft, J. (1970). This classic model could be found in many books concerning Organisational Behaviour, for example in Treier, M. (2009), pp.327-328 or West, R., & Turner, L. H. (2009), pp. 272-278. 57 Based on Luft, J., & Ingham, H. (1955). 58 Ward, P. (1997). This book provides deep insights into 360-degree feedback, covering definition, comparison with other measuring tools, implementation and practical uses. 59 Ward, P. (1997), pp. 38-63 60 Ward, P. (1997), pp. 19-22 61 Towers Watson (2012), p. 9 62 EFQM & ILEP (2012), p. 18 (1b) 63 EFQM & ILEP (2012), p. 18 (1c) 64 EFQM & ILEP (2012), p. 18 (1d) 65 Schein, E. H. (2004), p. 17 66 Schein, E. H. (2004), p. 11 67 Schein, E. H. (2004), p. 32 68 Trompenaars, F., & Hampden-Turner, C. (2004), pp. 22-31 uvk-lucius.de/ adam <?page no="114"?> 114 33 Leading the Internationalisation Process 69 Based on Trompenaars, F., & Hampden-Turner, C. (2004), p. 23 70 Trompenaars, F., & Hampden-Turner, C. (2004), pp. 32-41 71 Based on Trompenaars, F., & Hampden-Turner, C. (2004), p. 41 72 Trompenaars, F., & Hampden-Turner, C. (2004), pp. 30-31 73 Mor Barak, M. E. (2011), p. 6 74 Mor Barak, M. E. (2011), pp. 132-145 75 Based on Gardenswartz, L., & Rowe, A. (2008), p. 33 76 Ocholla, D. N. (2002), p. 59 77 Definition based on Voigt, V. (2013), p. 51 78 Voigt, V. (2013), pp. 52-53 79 Voigt, V. (2013), p. 58 80 Mor Barak, M. E. (2011), pp. 246-247, p. 320; Voigt, V. (2013), pp. 58-63 81 Towers Watson (2012), pp. 2-19 82 Towers Watson (2012), p. 10 83 Trompenaars, F., & Hampden-Turner, C. (2012), p. 355 84 Capgemini (2008) 85 Jørgensen, H. H., Owen, L., & Neus, A. (2008) The study explored differences in the implementation of change by over 1,500 practitioners worldwide, based on surveys and face-to-face interviews with project leaders, sponsors, project managers and change managers from 1532 organisations of different sizes around the globe. 86 Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 464-466 87 Kotter, J. P. (1995), p. 59 88 Keller, S., & Aiken, C. (2009) 89 Towers Watson (2013b) 90 Lewin, K. (1951); Lauer, T. (2010), pp. 55-58 91 Deresky, H. (2011), p. 117 92 Trompenaars, F., & Hampden-Turner, C. (2012), pp. 163-164 93 Basic idea based on Robbins, S. P., & Judge, T. (2013), p. 619. 94 Lewin, K. (1951) 95 Kotter, J. P. (1995) 96 EFQM & ILEP (2012), p. 20 97 Contents based on Kotter, J. P. (1995), p. 61 98 Keller, S., & Aiken, C. (2009), p. 2 99 Capgemini (2012) 100 Towers Watson (2013c) 101 Kotter, J. P. (1996), p. 26 <?page no="115"?> 44 Defining and Delivering an International Strategy Readers understand the role of strategy for the direction of any kind of organisation and are able to manage a strategy development process. Basic information requirements are known, appropriate inputs for strategy decisions can be defined and available sources can be exploited. Readers are versed in the application of a visual method for business model design and effective strategy communication. Deciding upon a strategy is the cardinal point when managing every kind of organisation. It provides purpose and direction, explains the unique contribution of the organisation to its customers and other stakeholders and aligns the activities of all its members. The strategy definition follows a control cycle with four elements as illustrated in : External scan, internal performance analysis, strategy development and strategy communication & implementation. After a certain period of time the cycle starts again with an external scan as preparation for the indispensable strategy review. Figure 4-1: Concept Map “Defining and Delivering an International Strategy” uvk-lucius.de/ adam <?page no="116"?> 116 44 Defining and Delivering an International Strategy 4.1 Strategy and the Strategy Management Process 4.1.1 Popular Strategy Definitions Strategy definitions exist in abundance, some of them very general, some of them focusing on certain aspects of the overall picture. In a very condensed form, strategy can be defined as “the long-term direction of an organisation”. 1 This general statement is in need of detailed interpretation in order to become a guideline for practical applications. Using a more resource-based view this general statement can be embroidered to “the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.” 2 Another angle can be explored by explaining what strategy is not. This is illustrated clearly by Michael Porter, one of the leading authorities on strategy and competitiveness. He explains strategy in the following way: “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” 3 According to him this stands in distinct contrast to the focus on operational effectiveness: “Operational effectiveness means performing similar activities better than rivals perform them and includes efficiency. Strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.” 4 Instead of dealing with the whole purpose of strategy, other (and mostly older) definitions place emphasis on the implementation aspect, as for example Chandler: “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” 5 This definition describes an intentional process creating a so-called intended or deliberate strategy that is put into effect through plans. However, there are also situations where strategies emerge in an ad-hoc way and reflect more a succession of incremental decisions that only afterwards can be recognised as a coherent pattern. 6 Mintzberg refers to these emergent strategies in his definition of strategy as “a pattern in a stream of decisions” 7 . It is to be stressed here that this is not a recommendable way of managing an organisation in an international environment. Managers should strive for a deliberate strategy definition and implementation as this is a prerequisite for a uniform communication of purpose, enabling all members of the organisation to strive for a common goal. 4.1.2 Comprehensive Strategy Management Processes: EFQM Criterion 2 According to Johnson, Whittington & Scholes (2011) a comprehensive view on strategy leads to a three-part model of a strategy management process. It starts with understanding the strategic position of a company (“context”). The following step deals with the assessment of strategic choices (“content”). The final step is called “strategy in action” and includes the process-based view of organising, changing and evaluating. 8 Hunger & Wheelen (2011) define the basic elements of the strategic management process as environmental scanning, strategy formulation, strategy implementation, and evaluation and control. 9 These state-of-the-art approaches are mirrored in the approach of the EFQM Excellence Model, as the EFQM criterion no. 2 “Strategy” deuvk-lucius.de/ adam <?page no="117"?> 44.1 Strategy and the Strategy Management Process 117 fines the best practice of dealing with strategy as follows: “Excellent organisations implement their ission and ision by developing a stakeholder focused strategy. Policies, plans, objectives and processes are developed and deployed to deliver the strategy.” 10 An illustration for this management chain is provided in . Figure 4-2: Strategy Development and Implementation - Overview The strategy definition underlines that according to the logic of the EFQM Excellence Model, the starting point of the alignment of a whole organisation is the development of a vision and mission statement, supported by values and ethics. As this is the highest duty of management, the development of these underlying principles is consequently depicted in the leadership criterion and introduced in the first criterion part of the whole model 1a (compare chapter 3.2). The strategic management process is divided by the EFQM Excellence Model into 4 steps, each represented by one criterion part. An overview of it is offered in . The following chapters explore these steps and selected best practices in detail. Figure 4-3: EFQM Criterion 2 “Strategy” and Its Criterion Parts 11 uvk-lucius.de/ adam <?page no="118"?> 118 44 Defining and Delivering an International Strategy 4.2 Scanning the Environment Figure 4-4: Environmental Scan Before a new strategy can take shape it is necessary to lay a good foundation for strategic decisions. One of the two main building blocks of this foundation is an environmental scan, encompassing all aspects defined in . 4.2.1 Understanding the Needs and Expectations of Stakeholders A successful strategy requires profound knowledge about the current and potential state of the environment the organisation operates in. The most important sources of information are the organisation’s stakeholders as introduced in chapter 3.3. A thorough analysis of possible stakeholders and their systematic prioritisation to extract the relevant groups and segments initiates a network perspective of the organisation. The stakeholder analysis could therefore be symbolised by a web or several rings depicting strategic or geographical closeness, as presented in . Figure 4-5: Generalised Stakeholder Map uvk-lucius.de/ adam <?page no="119"?> 44.2 Scanning the Environment 119 The needs and expectations of the stakeholders are gathered in order to obtain ideas for future development potential. Especially customer needs that are so far not addressed by the organisation or its competitors could become a driving force for an innovative business model. This special piece of information is usually not obtained directly but has to be extracted from the gathered data by smart and time-consuming analysis. This can be illustrated by the famous quote (supposedly from Henry Ford): “If I had asked my customers what they wanted, they would have said a faster horse.” 12 It is also important to stay alert to any changes that might occur. Innovations developed by competitors might raise the stakes by providing something new that quickly becomes a basic expectation, as happened for example with the special control panels after release of the first ipod. Although customer needs and expectations are the most important source for triggering product ideas that could induce new business models it is vital not to overlook the influence of the needs and expectations of other stakeholders on a sustainable strategy. A company that is competitive with its products might not survive because the margins gained are too small from its investor’s point of view. Growth chances might be limited due to refusal of an operating permit by the local authorities because they do not trust the management to avoid environmental pollution. Understanding the driving forces of stakeholder expectations enables a company not only to tailor the strategy to include acceptable standards but also to ensure a targeted communication of critical issues. The information from the stakeholders can be gathered in many different ways. For example directly by using questionnaire , telephone interviews, personal interviews or focus group discussions with the relevant stakeholder groups. It could also be obtained during regular contacts of managers or staff with representatives of the respective stakeholder group. The collection of expectations is often combined with feedback requests. Another possibility for attaining information is the use of indirect sources like polls or surveys of newspapers, consultancies or consumer protectors. Tailoring the research method in order to obtain strategically relevant information requires a focused definition of the respective stakeholder group. It might therefore be necessary to split a stakeholder group into smaller segments. A segmented approach is especially common for customer analyses. 4.2.2 Analysing Industry and Markets The industry can be defined as a group of organisations that produces a similar or equivalent product or service. 13 The classical method for analysing the industry environment was invented by Michael Porter (1979) and is accordingly called “Porter’s Five Forces Analysis”. He describes his approach as follows: “The nature and degree of competition in an industry hinge on five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services (where applicable), and the jockeying among current contestants. To establish a strategic agenda for dealing with these contending currents and to grow despite them, a company must understand how they work in its industry and how they affect the company in its particular situation.” 14 Johnson, Whittington and Scholes (2011) include complementary organisations as special kinds of partners that offer products that complement the organisation’s products and thus create higher customer value. 15 They augment the supplier view to a complete overview of value chain actors. uvk-lucius.de/ adam <?page no="120"?> 120 44 Defining and Delivering an International Strategy Hunger & Wheelen expanded this model by adding other important stakeholders, for example the government, trade unions etc. 16 This expanded view is depicted in . The influence of other stakeholders depends on the kind of industry examined. It is obvious that for example organisations offering tertiary education are extremely dependent on the government and its political viewpoint as most support with regards to contents and finances is provided by the responsible political authorities. The same is true for politically regulated industries like telecommunication, public transport or municipal utilities. Typical complementary partners arise in the computer industry, where for example tablet PCs actually are valued based on their compatibility to Android or Microsoft Windows operating systems. Figure 4-6: Industry Analysis Based on Porter’s Five Forces (Expanded Model) 17 It could be inferred from these examples that the inclusion of a broad stakeholder perspective in an industry analysis is a practical necessity and also a logical continuation of the perspective pursued by the EFQM Excellence Model. This expanded Five Forces model might include information that is a logical part of the stakeholder analysis in chapter 4.2.1, but the viewpoint is different. In this case, the analyst concentrates on the distribution of power of the involved forces and how this power influences business opportunities. On this level, some stakeholders might be analysed that are from the organisation’s perspective not classified as relevant in the sense that there is a management approach attached to them. Nonetheless they might have a significant influence on the whole industry picture. It is also important to view the interaction of the parties involved. By this, the assessment moves far beyond the gathering of needs and expectations. A prerequisite for a correct evaluation of the key structural features of an industry is a precise industry definition. In case of several products or product groups that are offered, the industry environment of different products or product categories might have to be analysed separately. The same is true for different markets, especially in an interuvk-lucius.de/ adam <?page no="121"?> 44.2 Scanning the Environment 121 nationally operating company. In some cases, competition and stakeholders might be separated in different regions or areas. This is often the case in industries dealing with personal services. In other cases, the industry operates truly on a global scale. A summary of different research findings is offered in Johnson, G., Whittington, R., & Scholes, K. (2011), p. 75. Further influences of industry are also explored in the related case “Global forces and the Western European brewing industry” on pp. 79-81. The cardinal point of any industry analysis is formed by the competitor investigation. A sophisticated competitor analysis cannot be based on data collected ad-hoc right before a strategy (re)development process starts. Such an approach leads to superficial data gathering based on the most recent publications and personal observations. This most probably produces faulty underlying assumptions and wrong deductions, rendering the whole exercise useless. Organisations that take the competitor analysis seriously therefore introduce competitive intelligence (also called business intelligence), which can be defined as an official programme of gathering information on the organisation’s existing and potential competitors. 18 Sometimes, the companies establishing these programmes set up special functions that track and analyse their competitors on a continuous, long-term basis, conduct strategic exercises like war games and report early warning signals. In particular business sectors, these programmes constituted one of the fastest growing domains in strategic management around 2007, sometimes with tremendous budgets involved. 19 More common today is the introduction of a continuous competitor research as an additional task in controlling or strategy management departments. Figure 4-7: Overview Competitor Analysis 20 uvk-lucius.de/ adam <?page no="122"?> 122 44 Defining and Delivering an International Strategy A thorough competitor analysis comprises at least three steps, as outlined in Figure 4-7. First, the (relevant) competitors have to be defined. According to Porter, each relevant competitor should then be scrutinised concerning its capabilities, current strategy, assumptions about the industry and future goals. 21 The capability analysis usually describes strength and weaknesses based on competitive advantages and disadvantages, cost structure and influence on the organisation’s customer segments, revenues and margins. This analysis finally leads to the development of a competitor response profile, another crucial step in order to develop successful competitive moves. It is important to note that good competitive intelligence only uses sources that comply with the highest legal and ethical standards and are publicly available. The use of investigatory services and industrial espionage are definitely not acceptable ways to gather competitor information. Freely available sources about the competitor or the industry as a whole are the competitor’s own publications (annual reports and more detailed papers for investor relations, websites, press releases), newspaper articles, business sector reports by the chamber of commerce and industry committee as well as studies and white papers of the UN, OECD, EU, other governmental bodies (e.g. ministries), non-governmental organisations (NGOs) and management consultancies. Very recent and not-so-public information can be obtained while attending industry conferences or business conferences for specialised functions. In addition, there are a number of services available for money. This includes services provided by news agencies, information brokers or consultancies specialising in competitive intelligence or specific industries. Aspects to consider when analysing the remaining parts of the Five Forces model are explained in detail in the respective strategy related publications 22 . Exercise: New entrants (online) 4.2.3 Identifying and Understanding Environmental Key Trends An industry analysis is a necessary but not sufficient condition for a fact-based strategy development. A realistic perspective about future developments also has to take into account further trends with corporate-wide relevance resulting from a scan of Political, (macro)Economic, Socio-cultural, Technological, Ecological and Legal-regulatory environmental forces on a global, national and (single) market scale (PESTEL analysis). 23 Some typical variables (meaning issues and indicators) to take into account are compiled in Figure 4-8. The relevance of certain variables strongly depends on the industry and the markets an organisation operates in. Whereas a car producing company might set a focus on investment policies, employment levels, education, research & development issues, energy availability, employment laws and environmental protection laws, a tourism agency would look out for disposable income, lifestyle, friendliness towards foreign cultures, weather and climate issues and tourism regulations. A recommendable compilation of relevant questions to be asked when analysing environmental trends was published by Osterwalder & Pigneur. 24 uvk-lucius.de/ adam <?page no="123"?> 44.2 Scanning the Environment 123 Figure 4-8: Selected PESTEL Variables 25 Sources used for analysing countries and markets can be distinguished based on the kind of data provided, the approach used and the editor, as depicted in . Basic information for a PESTEL analysis can be obtained for example free of charge from many different, often government-related sources. Statistical information on economic issues, including standardised socio-cultural statistics like demographic trends is often provided online by statistical authorities, in Germany for example by the Statistisches Bundesamt (https: / / www.destatis.de) as part of the European Statistical System (ESS). Other important international sources are reports from the UN, the OEDC, the World Bank and related institutions. The World Bank (www.worldbank.org) for example offers a data catalogue that provides download access to over 2.000 indicators from World Bank data sets that could be sorted by country or topic, some of it is even available in different languages. This is enhanced by thematic, cross-country research papers and analyses of global trends in the world economy. Their World Development Report focuses each year on trends concerning a special topic, for example 2012 on gender equality and 2013 on risk management. 26 Their Doing Business Reports 2013 (edited yearly together with the International Finance Corporation IFC) provides objective measures of business regulations for local organisations in 185 economies and selected cities at the subnational level. It ranks countries on the ease of doing business based on sets of indicators in the areas uvk-lucius.de/ adam <?page no="124"?> 124 44 Defining and Delivering an International Strategy “complexity and cost of regulatory processes” and “strengths of legal institutions”. These issues include rankings on getting credit and protecting investors as well as paying taxes and trading across borders. 27 Figure 4-9: Sources for Analysing Countries and Markets The United Nations Conference on Trade and Development (UNCTAD) annually publishes its World Investment Report, including the latest trends and forecasts in global foreign direct investment and an in-depth analysis of a special topic. 28 A Human Development Index mainly composed of life expectancy at birth (years), mean years of schooling, expected years of schooling and Gross Domestic Product (GDP) per capita is calculated every year by the United Nations Development Programme (UNDP). The corresponding report contains detailed data and facts for regions and countries as well as trends. 29 The OECD offers its own economic, environmental and social statistics, especially in its annually published OECD Fact Book. 30 The World Economic Forum (WEF) as an independent international organisation provides regularly Global Competitiveness Reports that assess the competitiveness of more than 140 economies, providing insights into the drivers of their productivity and prosperity. 31 It covers many important aspects of the PESTEL analysis like infrastructure, education, market efficiency and innovation as depicted in . uvk-lucius.de/ adam <?page no="125"?> 44.2 Scanning the Environment 125 Figure 4-10: The Global Competitiveness Index Framework 32 Several other non-governmental institutions provide indexes and detailed reports in their field of expertise. Transparency International (TI) for example issues different measures and reports concerning corruption, for example the Global Corruption Barometer and the Bribe Payers Index. 33 Its Corruption Perceptions Index (CPI) ranks more than 170 territories and countries based on perceived levels of public sector corruption. This index combines data of different polls by a variety of respectable institutions. 34 Established private sources for country information are the indexes of the credit rating agencies, especially of the most renowned international agencies Standard & Poor's (S&P), Moody's and Fitch, that are all based in the USA. Credit ratings express the agency’s view about the willingness and ability of an issuer, for example a state government, to meet its financial obligations in full and on time. The underlying examination is done by specialised analysts who assess and interpret information received from issuers and other available sources to form a considered opinion. Each agency applies its own methodology and uses an individual rating scale. S&P for example uses ratings from AAA to D. These agencies offer a range of other ratings, for example sovereign foreign currency ratings. 35 Different agencies provide services for paying customers including data collection, analysis and reports. Additional information can be obtained from country or business sector related reports issued by the chambers of commerce, industry committees and specialised (management) consultancies, for example Accenture, McKinsey or KPMG. All sources mentioned here represent only a limited selection of freely available information from a constantly growing online content. It is quite plain that any organisation keen on gathering strategy inputs has ample opportunities to find a broad range of suitable and reliable information for its needs. uvk-lucius.de/ adam <?page no="126"?> 126 44 Defining and Delivering an International Strategy 4.2.4 Predicting Future Developments and Changes The information gathered in the different environmental analyses can now be used to model the possible future environment and investigate its strategic implications. Typical forecasting techniques are extrapolation and scenarios. Extrapolation means to extend present trends into the future. 36 This may include quantitative approaches like statistical modelling based on historic data as well as qualitative trend descriptions. It is obvious that this technique is only reliable as long as the underlying variables are basically stable and remain unchanged. In all other cases, a prediction based on the extrapolation of the current situation or historical trends delivers a very limited and comparatively static future view. Any fundamental change of an actual pattern may wreak havoc with plans and strategies relying on extrapolated developments. According to E. Lorenz, a small change at one place in a complex system (like for example the weather or the global economy) can result in large differences to a later state. His most famous example of the sensitive dependence of nonlinear systems on initial conditions is the so-called butterfly effect and laid the foundation for the development of chaos theory. 37 Following this train of thought a general lack of predictability of dynamic systems can be expected, because even the best possible knowledge of all details would not allow a precise forecast. Consequently, for all complex, non-linear and fast-changing environments it is sensible to use techniques that enable the organisation to play with newly emerging patterns or innovative ideas. The most common methodology used in the strategy context is the scenario analysis. This analysis is not concerned with predicting the (one and only) future but with peering into diverse likely settings. Scenarios constitute focused images of different likely future patterns, often described in a narrative fashion. 38 The main function of scenarios is to alert (top) managers to a range of possible alternatives, thereby broadening their horizon. Using several scenarios permits exploring a range of possibilities, as each represents a different situation with an alternative starting point. This in turn enables the responsible managers to reach an informed decision about a strategy most likely to be successful in the face of different likely events. Figure 4-11: Sample Steps of a Scenario Analysis 39 uvk-lucius.de/ adam <?page no="127"?> 44.2 Scanning the Environment 127 A classical scenario analysis comprises four steps, as depicted in . First, the scope of the scenario analysis has to be defined explicitly. This includes the exact description of the subject which could mean choosing a certain industry with focus on a certain region or market. The time horizon can span weeks or decades. The following definition of a scenario itself is based on a specific combination of events relating to characteristic values of predefined key drivers. Key drivers can be derived from the PESTEL analysis and cover issues that are supposed to have a major impact on the subject’s future development and possess a high uncertainty. In order to create a comprehensive list of possible key drivers it could be useful to prioritise suitable PESTEL variables by using a grid mapping each of them according to the strength of its probable impact on the corporation and its probability of occurrence. Such a grid is also called Issues Priority Matrix. An example of its use for a fictitious mobile phone provider is illustrated in . Figure 4-12: Issues Priority Matrix for Key Driver Selection 40 It is logical to combine two or several drivers that have the potential for creating opposing or significantly divergent consequences. This allows for a broad range of possible outcomes from variations of their strengths in different scenarios. Distinct values of these key drivers and other factors are then bundled to form a consistent description of a future event. The designated scenarios are basically stories of a possible future; therefore they have to provide a plausible account of a realistic situation. As the time and effort needed to develop a scenario is very high, only a very limited number will be used. It is recommended to produce two or four scenarios for one scope, as three scenarios tend to fall into the classical range of “best case”, “worst case” and “medium case”. Managers tend to focus on the easy medium (supposedly most probable) case which leads to neglect of the whole range and renders the exercise uvk-lucius.de/ adam <?page no="128"?> 128 44 Defining and Delivering an International Strategy basically useless. The scenario analysis unfolds its full effectiveness when concluded with a thorough impact investigation. It starts with the exploration of the possible effects of a scenario come true on the organisation, for example changes concerning its operating license, market share or infrastructure cost. This could be followed by several robustness checks to see if the organisation will be able to reach its goals (or at least to survive) under the defined circumstances. Critical results might lead to the development of contingency plans or an adaption of the current or planned strategy. The quality of robustness checks and contingency plans are dependent on profound knowledge of the internal performance. This topic will be covered further in the following chapter 4.3. Comprehensive examples for scenario analyses can be obtained for example from the World Economic Forum and its world scenario series (www.weforum.org). “The Future of the Global Financial System - A Near-Term Outlook and Long- Term Scenarios” is the title of a scenario report of the WEF scenario series from 2010. It is an interesting individual exercise to compare this analysis from 2010 with the current state of the financial system. This report is available online: www3.weforum.org/ docs/ WEF_Scenario_FutureGlobalFinancialSystem_Report _2010.pdf VIPs uvk-lucius.de/ adam <?page no="129"?> 4.3 Analysing Internal Performance 129 4.3 Analysing Internal Performance 4.3.1 Understanding Operational Performance and Capabilities Following a resource-based view, an organisational or internal analysis is concerned with the identification and development of the organisation’s resources, capabilities and competencies. 41 Resources are generally all assets that an organisation employs. The organisation can possess these assets itself or draw upon them from partners. They fall into three categories: the tangible resources comprise all physical assets of an organisation, e.g. buildings, offices, machines, raw materials, manufacturing inventory, in short: plants and equipment. The intangible resources create real benefit for the organisation without any physical presence. Brand names, technology, reputation and financial funds are typical examples. Such resources are usually accumulated over time. Often, human resources are set apart as a third category relating to the numbers of people and the kind of skills it employs, in whatever function. (In some publications the skills are integrated in intangible assets.) Whereas an organisation’s resources define what it has, the organisational capabilities define how it uses them. Capabilities correspond to the organisation’s ability to deploy its resources and manage their interaction through leadership, business processes and routines effectively. Capabilities are termed “dynamic”, if the organisation is able to recreate them in order to meet the requirements of a changing environment. This encompasses the ability to sense opportunities and threats, to seize opportunities and to reconfigure an organisation. When the organisation is able to combine and integrate its resources and capabilities in a unique way to create value, the outcome is called a competence. If a certain minimum level of resources, capabilities or competencies is needed in order to be able to compete in a market, they are labelled “necessary” or “threshold” capabilities. They can be called “distinctive” if they are superior to those of competitors and therefore a means to achieve competitive advantage. Strategic resources, capabilities and competencies are those that deliver added value and/ or provide competitive advantage. Strategic competencies are called core competencies if they meet additional requirements and thus become the cornerstone of long-term competitive success. In order to find out if a competence has reached the core level, Hamel & Prahalad (1994) propose three tests: customer value, competitor differentiation and extendibility. First, core competencies have to be the main contributors enabling an organisation to deliver a fundamental customer benefit. Being crucial in customer-perceived value does not mean that this competence is directly visible for the customer. It can be an innovative process producing a special interface that makes working with a computer product easier. In this case the customer sees the benefit - the ease of use - and not the core competence itself. There are a few cases where a true core competence exists although it does not provide an actual but only a potential customer benefit. This is typically the case if the competence lies in a process that enables a company to manage an internal process with less resource inputs and consequently lower cost with the same output quality, this could also be perceived as core competency although the monetary advantage is not passed on to the customer. It can be argued that it allows potential benefit for the customer in terms of lower prices although this is not passed on because of uvk-lucius.de/ adam <?page no="130"?> 130 44 Defining and Delivering an International Strategy Figure 4-13: Levels of Competence Sustainability 43 existing market conditions. The second prerequisite for a core competence is that it is truly competitively unique. Sometimes, managers define a particular skill as core competence that is in fact hardly or not advanced in comparison to its competitors because they simply believe it to be better. The ultimate test is therefore a thorough benchmarking effort to achieve certainty about the respective competence level prevalent in the industry. The third and last test of a true core competence deals with its value for additional and future uses. A skill that is important now might not be relevant for a strategic redirection. A true core competency is something that can be adapted and leveraged to meet future requirements and therefore provides sustainable benefits. 42 It is necessary to constantly reinvest in core competencies, otherwise they might become a core rigidity over time, as the organisation gets so used to them that its insistence on exercising them becomes a weakness. The level of sustainability of all distinctive competencies is dependent on their durability and imitability. The durability of a competence refers to the time span until it becomes obsolete. A new technology for example might render an optimised manual process useless. Competencies are subject to a high imitability if they are (easily) transparent, replicated or transferred. Slow cycle competencies with a high durability and a low imitability are a key for a long-term, sustainable strategy. Fast cycle competencies are in constant need of reinvention in order to preserve the competitive advantage achieved by their adoption. The concept is illustrated in Figure 4-13. Eventually, an organisational analysis aims at excavating opportunities for competitive advantages through the development, improvement and protection of strategic resources, capabilities and competencies. Usually, the key to strategic advantages are the uvk-lucius.de/ adam <?page no="131"?> 44.3 Analysing Internal Performance 131 Figure 4-14: Organisational Analysis Based on Porter’s Value Chain 45 organisation’s activities executed to design, produce, market, deliver and support its products or services. Using Porter’s distinct illustration, these activities can be depicted as a value chain, distinguishing between primary and secondary activities. In order to be meaningful these value chains have to represent the activities in a certain industry precisely and therefore have to be constructed on a business unit level. Value chains provide an excellent framework for scrutinising the organisation’s competencies and performance levels as they ensure a complete view of all relevant activities. Methods and performance levels differ tremendously throughout an industry; therefore a value chain analysis also allows for the depiction of competitor’s approaches in the form of a structured benchmark analysis. 44 Some typical aspects analysed along different steps of Porter’s value chain are provided in Figure 4-14. There are countless different characteristics that could be considered and the choice is highly dependent on the type of organisation and its industry. When analysing the value chain of one product line it is important also to examine the links or interfaces of the different activities. Especially larger organisations often face the risk that single departments optimise their performance at the expense of consecutive units. Skipping quality checks or providing only minimum information can cause considerable rework activities further on the value chain. The organisation that optimises its activities across the value chain could gain significant competitive advantages. This is also true for an optimisation across the whole organisation. The examination of potential synergies among the value chains of different business units or product lines is crucial in order to discover inherent economies of scale or economies of scope. Economies of scale aim at conducting activities at the lowest possible cost per unit and can be achieved for example by producing a high number of parts that can be utilised in different products lines (what explains the attractiveness of product modularisation). For achieving economies of scope several business units could share certain services, e.g. design, marketing or sales services. uvk-lucius.de/ adam <?page no="132"?> 132 44 Defining and Delivering an International Strategy 4.3.2 Determining Competencies of Partners and Potential Impacts of Changes As international organisations tend to outsource single activities or even complete steps of their value chain, a comprehensive view can only be achieved by scrutinising the respective partners to the same extent as the internal organisation. When seen from a customer’s perspective, the outsourcing itself is not relevant for an organisation’s competitive strength, but its partner’s performance is. A prerequisite of such an analysis is the availability of data and information on an appropriately detailed level. A lot of this data is usually only obtainable in cooperation with the respective partners; therefore it is necessary to have corresponding agreements in place. In close partnerships, the analysis will be carried out jointly with members of the partner organisation and the deductions will be used in both strategy processes. An optimisation across the whole value chain with partners involved is more complicated to obtain as changes in two different organisations are needed. However, the potential benefits to be gained are usually higher. The most important aspect for a strategic consideration is the complementarity of both partners. The more a partner is able to bring a unique capability into the partnership, the more valuable the partnership becomes. In chapter 4.2.4 future scenarios and relevant changes of the external environment were explored. They offer strategic guidance especially when combined with a realistic evaluation of their potential impacts on the internal performance. New technologies and new business models of the organi ation itself or its partners can have tremendous effects on former performance trends. These effects should be explored and evaluated for the most significant scenarios and changes. In this respect it is also recommendable to analyse not only existing but also potential partners for promising benefits that they might bring to the further development of the organisation. This will be especially relevant to explore development opportunities and advantageous future scenarios. Analysing potential impacts of changes is a costly and time-consuming process and might involve the use of surveys, interviews or workshops with specialists. Unfortunately, if the goal is not to overlook existential risks or favourable opportunities in the strategy development process, there is no alternative. 4.3.3 Bringing It All Together: Portfolios Broad external and internal scans provide a lot of material for strategic purposes. For managerial decision making it is necessary to connect the information gathered and to group it according to selected aspects that allow the development of strategic options. The classical way of providing an overview of the organisation’s current situation is to condense the outcome of the aforementioned scans in a so-called SWOT matrix as depicted in . The acronym SWOT stands for Strengths, Weaknesses, Opportunities and Threats, whereas the internal analysis provides the basis for listing the organisation’s strengths and weaknesses and the external analysis provides the input for registering opportunities and threats. Threats are usually formed by strong forces derived from Porter’s five forces analysis (explained in chapter 4.2.2) as they tend to reduce (potential) profits. Strong competitors, demanding customers and strict governments could fall into this category. Opportunities provided by the external enviuvk-lucius.de/ adam <?page no="133"?> 44.3 Analysing Internal Performance 133 ronment (for example an attractive emerging market or new and highly professional logistic partners) could only be transformed into value for the organisation if its resource base is strong enough to cope with the resulting additional requirements. A registered distinctive competency like providing excellent customer service might be a driver for recent success but will only be relevant for new opportunities if it can be expanded or adapted to meet the new circumstances. A successful entry into the Chinese market might require language and cultural skills that are not inherent in the current workforce or could simply not be covered by the number of sales managers employed. An important issue to be solved with the help of the SWOT analysis is the choice between investing in existing strengths (to make them stronger and built true core competencies) or investing in existing weaknesses in order to reach at least competitiveness in the respective area. According to different global executive surveys, SWOT analyses are considered to be one of the most important tools and techniques used for developing strategies. 46 Figure 4-15: SWOT Analysis After a detailed internal and external scan, the strategy team of Great Jeans decides upon the most relevant aspects for depiction in a clear format. The resulting SWOT matrix is shown in . Figure 4-16: Great Jeans’ SWOT Matrix uvk-lucius.de/ adam <?page no="134"?> 134 44 Defining and Delivering an International Strategy Other parts of the outcome of the industry analysis combined with the results of the stakeholder studies are incorporated into condensed portfolios highlighting special aspects and facilitating decisions by a graphical display. Fielded matrixes allow for example the positioning of markets or market forces, thus providing a summarised input for strategic decisions. The relevant factors to be displayed are based on the strategic question posed or typical facets of the industry. In case of deciding upon precise markets to be addressed, portfolios help to group possible countries based on freely defined key criteria. One possibility is to group the markets according to their attractiveness and prevailing market barriers. This portfolio, as shown in , sorts markets into core, promising, peripheral and abstinence markets. Core markets combine high attractiveness with low market barriers, showing the most favourable conditions available. Promising markets show high attractiveness for a further development but are (currently) subject to high market barriers. Markets that are open and easy to target but not so attractive will only play a secondary role in the strategic alignment of an organisation, thus being labelled peripheral or opportunity markets. Abstinence markets are unfavourable in both aspects which leads the organisation to refrain from serving them. The score for the evaluation of the market attractiveness could be derived for example by expert consultations and has to be based on clearly defined criteria and a scoring scheme. 47 These criteria then form the basis for the discrimination of the different portfolio fields. Figure 4-17: Choice of Location and Market 48 The most famous portfolio matrix was invented by the Boston Consulting Group and serves the evaluation of the competitive position, combining market share and market growth. The four fields could be used for products (which is the standard case) or companies and are depicted with its labels in . The basic idea is that a successful company owns a portfolio of products that cover different fields of the matrix and thus balances different cash flows. Products with low growth on saturated markets should be able to create excess cash that could be used to satisfy the cash flow needs of high growth products. For innovation purposes companies rely therefore heavily on the performance of their “cash cows” in order to support their “stars” which are predicted to become cash cows later in their product lifecycle. The “question marks” are also in need of cash as investment into their growth opportunities; however, it is debatable if the low market share will allow enough cash flow to be generated in the long run. In order to be an asset in the future, they often require large added cash investuvk-lucius.de/ adam <?page no="135"?> 44.3 Analysing Internal Performance 135 ments for purchases of additional market share. So there is a need for further investigation. “Dogs” (originally called pets) have a low market share w ile experiencing slow market growth. Although they might be profitable, they are not able to contribute to the development of the product portfolio as they are in need of reinvesting the cash they generate. 49 Figure 4-18: The Growth-Share Matrix (BCG-Matrix) 50 It is important to note that every portfolio is only a graphical tool to depict the underlying analysis. As portfolios merely allow for two aspects to be depicted, it is very often the case that the results of the analysis first have to be condensed to allow a matrix to be used. This condensation requires clearly defined criteria and a scoring scheme. In addition, the two aspects have to be chosen carefully to truly highlight the most relevant criteria for business development and decision making. Hence, every portfolio graphic carries the risk of over-simplification of complex matters that might not be fully understood by the users and deciders. On the other hand, the power of simplification accounts for the charm and wide-spread use of portfolios in strategy processes. VIPs <?page no="136"?> 136 44 Defining and Delivering an International Strategy 4.4 Developing the Strategy 4.4.1 Strategy Levels The formulation of a strategy is the first and most important step for the implementation of the previously defined mission. Its overarching purpose is to ensure that all parts of the organisation have a clear idea how to achieve the organisation’s goals. In a large or very complex organisation this purpose cannot be accomplished by defining one single document. Instead, a cascade of strategies is needed where each subordinated strategy is closely aligned with the higher-ranking strategic decisions to ensure a unified approach. Complex organisations distinguish at least three strategy levels, as depicted in . The first level consists of the corporate strategy, setting the general direction for all organisations, business units or functions that are part of the corporation. Depending on the diversification of the underlying business, very different business strategies might be defined that form the second strategy level. They mainly consist of the determination of the business model as explained in chapter 4.4.2. A single-business organisation might pursue the same strategy for all business units or related organisations. In these cases a separate business strategy is not practical and its content is already covered in the corporate strategy. In all other cases, separate business strategies are necessary. Companies with related diversification include different organisations or organisational units that are part of the same industry and are therefore closely linked. An example would be a food providing company combining businesses like restaurants, a catering service and specialised groceries. These kinds of organisation often provide a standardised definition for those parts of the strategy all units share. In contrast, organisations with unrelated diversification need separate business strategies for all their units. In many large organisations, the business strategy is reinforced by functional strategies that relate the way the different functions organise their area of support to meet the needs of the business. Figure 4-19: Different Strategy Levels uvk-lucius.de/ adam <?page no="137"?> 44.4 Developing the Strategy 137 4.4.2 Generating a Sustainable Business Model In summary, plans to achieve the mission and objectives are called strategies. The strategy development therefore includes very clear decisions on what to do and what not to do concerning the main aspects of the business involved. Defining a solid strategy requires linking the specified business, values and relevant stakeholders together to establish a tangible, individual business model. The Business Model Canvas is a very practical strategic management tool to do this. Its graphic design helps users to describe and develop business models in a clearly arranged and engaging fashion. The way the different components of a strategy are arranged allows management to understand and express the inner logic behind the organisation’s specific approach to pursue its business and enables them to define well-grounded action plans afterwards. Nine building blocks form an integrated picture of the company’s method for making money in the current business environment. It is depicted in . Usually, a business model starts with defining the targeted customer segments as their expectations and requirements are the basis for the organisation’s value proposition. Customer Segments can be found in the first building block on the right, depicted with the “start” arrow. Following along this logic, the nine building blocks consist of Customer Segments and Value Propositions linked by Customer Relationships and Revenue Streams on the right (the value) side and Key Resources, Key Activities, Key Partners and Cost Structure on the left (the efficiency) side. 51 Figure 4-20: The Nine Building Blocks of the Business Model Canvas 52 Working with the Business Model Canvas is based on a Design Thinking Process. The idea is to print it out and use it in a group-work approach to sketch, clarify and share ideas until a common understanding emerges. It is crucial not to use the first ideas that come to mind but to outline alternative business models that will then be evaluated further. Thanks to its authors and editors, the Canvas is licensed as creative commons uvk-lucius.de/ adam <?page no="138"?> 138 44 Defining and Delivering an International Strategy and therefore freely available at www. businessmodelgeneration.com (detailed legal information to be found at the same website). Great Jeans is working on designing a business model with the Business Model Canvas. First, the strategy team members sketch out the comparatively simple model based on the mission “we are a producer of jeans”. The design process starts on the right side with the definition of the relevant customer segments. So far they only deliver their GJ brand jeans to specialist dealers. Their main customers are based in Germany and a few new customers are in different countries so they decide to define two segments: Germany and “Rest of World”. The users of their jeans are middle class people of all ages. GJ’s value proposition to all their customers is good jeans at reasonable prices. Their products are sold to their B2B customers via direct contact with the sales managers. Information is provided and orders are taken mainly by telephone or by email. Customer relationships are enhanced by direct customer care, usually during sales contacts, and yearly planning meetings for the most important (priority 1) customers. All revenue streams stem from the sales of jeans. The value proposition is delivered through the key activities jeans production and jeans sales on B2B markets. Consequently, GJ’s key resources are the production facilities and its sales managers. Key partners deliver cotton and logistic services. These efficiency blocks are mirrored in the cost structure. It is dominated by the investment costs and depreciation of equipment (knitting, bleaching, cutting machines etc.) and salaries (designers, sales personnel, workers). Additional blocks are formed by the procurement of raw materials (cotton and dye) and the logistic costs for shipment to the customers. A graphic sketch of this comparatively simple business model is provided in . Figure 4-21: Sketch of Great Jeans Canvas (Basic Model) 53 uvk-lucius.de/ adam <?page no="139"?> 4.4 Developing the Strategy 139 According to Osterwalder & Pigneur, generally each of the nine building blocks of the Business Model Canvas can serve as starting point for an innovation process. In practice it is quite usual for managers to start an innovation with the view on internal problems that arise like how to optimise the production process (with or without a view on partners) or how to improve the financial situation by minimising the costs or generating more revenues. Although these resourceor finance-driven approaches are quite common it is crucial to add innovation ideas with other starting points, otherwise a sustainable view might be under-represented. Rewarding alternatives are offer-driven approaches that centre the possibility to make new value propositions or customerdriven approaches that strive to satisfy special customer needs, facilitate access or increase convenience. As already mentioned before, focusing on customer needs means to understand the basic desires of the customers, not simply to fulfil their stated requirements. A fundamental change of a business model often stems from a multipleepicentre-driven approach that changes the whole underlying logic of the way the organisation pursues its business. 54 An overview of these epicentres of business model innovation and typical connected changes is offered in Figure 4-22. Figure 4-22: Epicentres of Business Model Innovation 55 Great Jeans’ strategy team uses the simple model as a starting point to develop alternatives for a new strategic focus. Based on the preceding internal and external scans they discuss amongst others new customer segments, new channels, production enhancement possibilities and possible partners. After grouping all alternatives into feasible scenarios and sketching corresponding business models they choose the innovative business model depicted in Figure 4-23 for further investigation and testing. Starting from the customer segments GJ adds store brand sellers as new B2B customer group and defines a value proposition stating “your own brand in 4 different levels”. In order to be attractive for these customers GJ needs to be very flexible and to be able to enhance its production facilities on short notice. Therefore GJ will start to work with jeans producing partners in foreign countries like Bangladesh or India. Realising that GJ brand jeans are mainly popular with best agers the strategy team decides to target this group expressively with a unique “easy fit” design. In order to ensure a long-term brand development they add a new and cheaper line for young people and the value category “sexy fashion”. The younger users are expected to prefer receiving information and placing oruvk-lucius.de/ adam <?page no="140"?> 140 44 Defining and Delivering an International Strategy ders online, so GJ adds its own internet channel with the help of online sales platform providers (for example amazon). This will be accompanied by an internet presence with information on their brand and products. As GJ’s experience with younger people is very limited it will strive for a development and sales partnership with a T-Shirt company whose brand is especially popular with young people. Realising the importance of design the team adds “designing new collection” to GJ’s key activities and its own designers to the key resources block. Their cost structure will be altered considerably by jeans purchases from international production partners. On the revenue side jeans sales to store brand customers and via internet are added to the specialist sales. A further possibility is the combined sales of T-Shirts and jeans of the sexy fashion-line with their partners. GJ could generate additional sales by providing their partners with jeans against a percentage of realised profits while gaining a percentage of the T-Shirt sales through GJ’s channels in return. Figure 4-23: Great Jeans’ Innovative Business Model 56 4.4.3 Business Model Choices Descriptions and denominations of different business models are manifold, depending on the basic definitions and the methods used of describing their different elements. The pioneer distinction of different possible business models stems from Michael Porter as he identified three generic strategies that may enable an organisation to achieve competitive advantage. These strategies as illustrated in Figure 4-24. uvk-lucius.de/ adam <?page no="141"?> 44.4 Developing the Strategy 141 Figure 4-24: Porter’s Three Generic Strategies 57 In case an organisation targets the whole industry, it can choose between two paths: differentiation or overall cost leadership. Differentiation requires a uniqueness of product, service or approach that is valued by the customers and recognised as a distinctive advantage in comparison to competitors. This uniqueness is usually a result of innovative processes and could be based on a superior technology or an outstanding customer service provided by specially trained and dedicated employees. In contrast, an overall cost leadership strategy requires keeping the average industry quality standard while operating at lower costs than the competitors. This can be achieved by relentlessly focusing on process optimisation, tight cost control as well as aggressive downsizing and cost reduction in support functions. In order to be successful, the company is forced to scrutinise its value chain for critical (e.g. cost-driving) activities and to discover innovative, cost-saving alternatives. The third generic strategy called “focus” is based on concentrating all efforts on a narrow strategic target which could be a special segment, product line, buyer group or geographic market. A focused approach enables the organisation to achieve information advantages as it is able to gain a deeper understanding of the targeted segment. This knowledge could be transferred into a better fit of offer and customer or market requirements, thus finally realising time, cost or service advantages. 58 Figure 4-25: A Selection of Business Models 59 Wheelen and Hunger distinguish 11 different possible models as listed in . The mentioned advertising model for example functions by offering a basic product free in order to gain money on advertising, which is typically used in television or internet services. The efficiency model relies on entering a market of an already standardised product with a low-priced and low-margin version that appeals to the masses. This uvk-lucius.de/ adam <?page no="142"?> 142 44 Defining and Delivering an International Strategy model is successfully used by Wal-Mart. The profit multiplier model in contrast is based on developing a concept that might make money on its own but mainly serves to fuel many profitable spin-off products. This model was invented by Walt Disney who used the cartoon characters to establish merchandise, theme parks and additional licensing opportunities that generate high margins. 60 Very often, these model explanations remain general and lack the possibility to be compared on a consistent basis. This situation was rectified with the publication of the Business Model Canvas. Based on it, Osterwalder & Pigneur define patterns of business models in a cohesive and directly comparable way, thus enabling readers to penetrate the underlying logic of each model. They distinguish five different patterns that are derived from main concepts developed in the business literature. These five patterns are listed in . Each of these patterns is described using the context (initial situation), the consequential challenge, the solution (meaning the situation after the new business model is implemented) and an explanation of the rationale. Most importantly, its main drivers are modelled on the Business Model Canvas in order to explain their interrelations, enriched by practical examples of existing business models that fit into the category. In practice, a business model can incorporate several of these patterns. Figure 4-26: Patterns of Business Models on Business Model Canvas 61 “FREE as a business model” for example is characterised by at least one customer segment that is allowed to continuously benefit from the offered product or services uvk-lucius.de/ adam <?page no="143"?> 44.4 Developing the Strategy 143 Figure 4-27: Business Model Development Process free of charge. This non-paying customer segment is either financed by another part of the business model (1) or by another customer segment (2). Therefore, different configurations make this free offer possible. An example for alternative (1) is a multi-sided platform model where advertisements allow free offers. The business model of Facebook is a famous representative. A typical form of alternative (2) is the so-called “freemium” pattern where a small base of premium users gets special services whose revenues allow a large base of other users to receive the basic services for free. The drivers of this pattern are also depicted in Figure 4-26. The most prominent example for a successful “freemium” model is Skype. 62 Another helpful concept for understanding business models is the differentiation of three core business types: product innovation, customer relationship management and infrastructure management. Product innovation businesses rely on an early and speedy market entry in order to achieve premium prices and large market shares for their newly developed or redesigned products. This business type is centred on the employees as pampering the creative geniuses is crucial. Consequently, its culture is focused on the battle for talent. The corresponding markets have low entry barriers and allow many small players to thrive. Customer relationship management on the other hand is a model to be found in markets that are dominated by a few big players and show rapid consolidation. Due to high costs of customer acquisition it is vital to gain large customer wallet share. Accordingly, the competitors fight for scope and display a convincing “customers-first” mentality. The third core business type, infrastructure management, appears in a cost focused environment where high fixed costs drive the necessity to achieve large volumes in order to keep down the unit costs. The key for success are economies of scale. These markets show rapid consolidation and leave only a few dominating big players. Competition advantages lie in standardisation, efficiency and predictability. 63 44.4.4 Establishing a Strategy Development Process Generating a business model is embedded in the strategy process as defined in chapter 4.1.2. After researching the external and internal environment, the complete strategy development process itself consists of the steps invite, generate, examine, test, select and finalise. An overview is provided in Figure 4-27. uvk-lucius.de/ adam <?page no="144"?> 144 44 Defining and Delivering an International Strategy The invitation of the right mixture of participants as well as the creation of a relaxed and open atmosphere is crucial for the quality of the generated results. Delegating the whole strategy development to a controlling department or an outside consultant is not an option as these are not ideal prerequisites for the development of a truly unique and outstanding business model. Successful organisations pay special attention to first include people from as many different departments and levels of the organisation as possible. This approach ensures that strategic options are explored from all significant angles and also facilitates the promotion of the final decision. The team should be enriched by adding representatives of the most relevant stakeholder groups to gain their direct input to the process as well as create trust. Dependent on the kind of organisation this could include representatives of the main customer (and user) groups, direct contacts or management of the most important partners, owners, members of the community or external experts of the business sector. All invited people usually meet in a workshop of two to three days duration to generate sustainable business model options by using an appropriate tool like the Business Model Canvas. It is important to allow enough time for creative processes. In case of time pressure strategy development teams tend to stick with the first ideas that come to mind. Unfortunately, these are usually the most obvious designs and therefore seldom the unique and ground-breaking options this process could be able to produce. At the end of this workshop session the most attractive and feasible options are chosen for further examination. The following detailed viability examination is done by a smaller group of experts or partly delegated to pre-defined persons responsible for certain features. Aspects to be examined could include for example financials (capital requirements, break-even analysis, sales projections), the environment (development forecasts of certain regions or countries, detailed market data, regional competitor analysis), possible partners and their willingness to participate, implementation issues like timeline and obstacles or risks and critical success factors. After this analysis some options might have to be dropped as they do not meet or fit to the goals defined in the mission statement. The remaining business model options should then be scrutinised in the field. The field tests can include “virtual” assessments by employees and customers (where only the ideas will be run through) or real tests by using fully functional prototypes. All examination and test results will then be assessed and the final business model will be selected. This could be done by top management, by a specially chosen group of participants or by the same group that was responsible for the business model generation. The latter alternative is preferable in case that the remaining options need further refinement before being able to be selected. Finalising the new business model means to define and compile all strategy documents needed to guide the strategy implementation. This includes writing appropriate strategy documents for communication purposes and developing supporting policies that transmit the ideas defined in mission and strategy into clear rules and regulations for the main activities. Finalisation further requires identifying the key results and aligning them with the pre-defined goals to achieve the mission and adopting effective mechanisms to manage the strategic risks involved. uvk-lucius.de/ adam <?page no="145"?> 44.4 Developing the Strategy 145 Great Jeans’ innovative business model as presented in Figure 4-23 was tested successfully and selected by top management because it was perceived as being feasible and fitting perfectly to GJ’s mission statement as introduced in 3.2.1. Defined key results for a 3-year-period in correspondence with the mission could include for example: User satisfaction rating of 90% for easy fit jeans being comfortable to wear and easy to put on - GJ jeans for being comfortable to wear sexy fashion jeans being fashionable and sexy Market share of 10% of all brand jeans sold and 5% of jeans sold to young people in Europe. Overall sales volume to be increased by 25% with store brand sales ≥20% of all sales and internet sales ≥ 5% of all sales. Sales in Asia ≥ 8% of all sales, sales in rest of world ≥ 15% of all sales. Gaining at least 2 production partners with 3-year flexible contracts covering at least the planned increase of production volume. All partners have to be able to provide a “fair production” seal. It is crucial to ensure that the strategy and all supporting documents are regularly reviewed and updated if the need arises. Although a strategy is meant for an at least medium up to long-term period, it is important to check regularly if it is still appropriate for the current situation and if the way the business model is designed truly enables the organisation to pursue the goals fixed in the mission. An evaluation of progress made towards these goals is often a starting point for an overhaul of the existing business model. Other factors leading to changes are relevant alterations in the organisation’s environment (e.g. legal, supervisory, market), its partners (merger, bankruptcy), the technological development or stakeholder expectations. VIPs uvk-lucius.de/ adam <?page no="146"?> 146 44 Defining and Delivering an International Strategy 4.5 Communicating and Implementing the Strategy Closing the strategy management circle requires the communication, implementation and monitoring of the defined strategy. The communication of the strategy as well as - where appropriate - underlying documents within the organisation ensures a uniform understanding of the business model pursued. It is important not to underestimate the effect a timely, open and thorough strategy communication has on the willingness of internal stakeholders to participate in its realisation. Strategy communication is not about glossy brochures or funky websites but about explaining the purpose of the organisation and its unique way of making money in such a way that it creates appreciation for the business logic and, wherever possible, enthusiasm about becoming a part of it. The optimum communication format depends on size, structure, culture and spread of the organisation. A small software development company with five associates and ten freelancers could decide to develop the strategy in a collective approach which eliminates the need of a separate communication process. In contrast, an international corporation with 50.000 employees speaking 7 different languages and residing in 10 different countries will need to establish a separate project team dealing with the details of an effective strategy communication. In this case, the communication process might include an introductory email from top management including the time schedule for strategy development to all members of the organisation. This could be followed by a meeting with all first and second level managers in an off-site for two days to discuss the selected business model and determine the main business objectives. In a cascade approach this information would then be passed on by these managers to their direct reports and workers, using a standardised town hall meeting format with provided presentations and bilingual brochures. For the establishment of business unit strategies and departmental goals additional workshops are scheduled and conducted. As the main goal of the communication process is to ensure member commitment, a participative approach is always preferable to frontal messages. Communicating the strategy to external stakeholders is crucial to create trust and strengthen the connection. Communication processes vary tremendously due to the very different nature of the external partnerships. Whereas investors might expect a meeting with high executives for several hours to present and discuss the strategy and corresponding business goals, customers might prefer a website with general information about the strategy and related upcoming changes in the product range. This illustrates that different stakeholders hold very different expectations not only about communication timing, format and style but also about the contents. For a smooth implementation, policies, plans, objectives and processes have to be defined- as already described in Figure 4-2 (chapter 4.1.2). Policies translate the basics of the business model into a detailed framework of rules and regulations that steer all important activities on different organisational levels. Plans are used to design and control strategic measures based on corresponding timelines, responsibilities, activities and interactions. A typical format is a project schedule or network diagram established for a strategic change project. Any monitoring effort requires clear objectives to measure the achieved output against. Depending on the organisational culture and legal conditions, objectives can be set for the organisation as a whole, for business units, functions, departments, project teams or employees on an individual basis. The estabuvk-lucius.de/ adam <?page no="147"?> 44.6 Citations & Notes 147 lishment of a process model with distinct processes and assigned activities transmits the principle of the selected business model into an integrated operational framework. An effective definition of these four prerequisites can only be done behind the backdrop of the existing organisation and requires in-depth knowledge of its organisational structure, culture and level of maturity. These aspects are therefore picked up in the following EFQM Excellence Model criteria dealing with the different resources the organisation has at its disposal. They are described in the related chapters 5, and . Also, monitoring the organisation’s success as well as reviewing the strategy is based on the results criteria and will therefore be discussed in detail in chapters and . This logic is illustrated in . Figure 4-28: From Purpose to Strategy Implementation Lantal Textiles changed its business model considerably over the years. This model case of incorporating globalisation impact for successful change is presented in Abplanalp, P. A., & Lombriser, R. (2013), pp. 50-63. 4.6 Citations & Notes 1 Johnson, G., Whittington, R., & Scholes, K. (2011), p. 3 2 Johnson, G., Scholes, K., & Whittington, R. (2007), p. 3 3 Porter, M. E. (1996), p. 60 4 Porter, M. E. (1996), p. 62 5 Chandler, A. D. (1962), p. 13 6 Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 3-4 7 Mintzberg, H. (2007), p. 3 8 Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 14-22. This very recommendable textbook, now in its 9 th edition, could already be seen as a modern classic. It provides a very detailed view on the strategic management process with many examples from international companies. 9 Wheelen, T. L., & Hunger, J. D. (2012), pp. 38-39 10 EFQM & ILEP (2012), p. 22 uvk-lucius.de/ adam <?page no="148"?> 148 44 Defining and Delivering an International Strategy 11 Definitions of criterion parts: EFQM & ILEP (2012), p. 22 12 O’Toole, G. (2011, July 28). This quote is used extensively but so far not properly sourced. Garson O’Toole on his quote investigator website provides a source from Ford, B. (2006): Transcript of Q4 2005 Ford Motor Company Earnings Conference Call, Key Speech, January 23, 2006. Cited at http: / / quoteinvestigator.com/ 2011/ 07/ 28/ ford-faster-horse/ (access 22.05.2013) 13 Wheelen, T. L., & Hunger, J. D. (2012), p. 133 14 Porter, M.E. (1979), p. 137; The following explanations of Porter’s Five Forces are obtained from Porter, M. E. (1980). This book is one of the absolute classics in strategy-related publications and highly recommendable for details on competitive analysis techniques. 15 Johnson, G., Whittington, R., & Scholes, K. (2011), p. 62 16 Wheelen, T. L., & Hunger, J. D. (2012), p. 134 17 Contents based on Porter, M. E. (1998), p. 5 (fig. 1-1) and Wheelen, T. L., & Hunger, J. D. (2012), p. 134 (fig. 4-3) 18 Wheelen, T. L., & Hunger, J. D. (2012), p. 144 19 Fuld & Company (Ed.). (2013) and the corresponding Fuld & Company (Ed.). (2007) 20 Contents based on Porter, M. E. (1980), p. 49 and Osterwalder, A., & Pigneur, Y. (2010), p. 66 21 Porter, M. E. (1980), pp, 48-74 22 Porter, M. E. (1980); Hunger, J. D., Wheelen, T. L. (2012), pp. 133-145; Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 54-67; Osterwalder, A., & Pigneur, Y. (2010), p. 204 23 Lynch, R. L. (2012), pp. 82-84; Wheelen, T. L., & Hunger, J. D. (2012), p. 125 24 Osterwalder, A., & Pigneur, Y. (2010), pp. 206-208 25 Contents mainly based on Lynch, R. L. (2012), p. 83 and Wheelen, T. L., & Hunger, J. D. (2012), p. 125 26 World Bank Group (2013) World Bank Group (2012) 28 UNCTAD (2013a) 29 Malik, K. (2013) 30 OECD (2013c) 31 Schwab, K., & World Economic Forum (Eds.) (2012) 32 Based on Schwab, K., & World Economic Forum (Editors) (2012), p. 8 33 TI (2013a) 34 TI (2012) 35 This and further information about rating agencies and their methodology is accessible via their websites, for example online at http: / / www.standardandpoors. com/ MicrositeHome/ en/ us/ Microsites 36 Wheelen, T. L., & Hunger, J. D. (2012), p. 148 37 Lorenz, E. N. (1969) 38 Wheelen, T. L., & Hunger, J. D. (2012), p. 149 39 Contents based on Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 52-54 40 Matrix on right adapted from Wheelen, T. L., & Hunger, J. D. (2012), p. 133 uvk-lucius.de/ adam <?page no="149"?> 4.6 Citations & Notes 149 41 Detailed information on internal analyses can be obtained from Wheelen, T. L., & Hunger, J. D. (2012), pp. 160-190; Johnson, G., Whittington, R., & Scholes, K. (2011), pp. 82-111; and Lynch, R. L. (2012), pp. 127-170. It is to be noted that the use of some of the terms differs tremendously in the strategic management literature. The definitions provided in this book are chosen in dependence on the use of these terms in the EFQM Excellence Model. 42 Hamel, G., & Prahalad, C. K. (1994), pp. 202-209 43 Contents based on Wheelen, T. L., & Hunger, J. D. (2012), p. 165-166 44 Porter, M. E. (1998), pp. 33-39 45 Partly based on Porter, M. E. (1998), p. 37, fig. 2-2 46 Wheelen, T. L., & Hunger, J. D. (2012), pp. 200-204. On these pages, Wheelen and Hunger also provide a very detailed example of an advanced and expanded SWOT analysis they call Strategic Factor Analysis Summary. 47 Welge, M. K., & Holtbrügge, D. (2010), p. 100 48 Based on Backhaus, K., & Voeth, M. (2010), p. 71 (Abb. 8-4) 49 Henderson, B. D. (1973) 50 Henderson, B. D. (1973) 51 Osterwalder, A., & Pigneur, Y. (2010), pp. 18-41 A free introductory preview is available at the associated website http: / / www.businessmodelgeneration.com/ downloads/ businessmodelgeneration _preview.pdf. As this book has a very hands-on approach to business modelling and includes many practical tips and examples it is highly recommended to be bought. 52 Osterwalder, A., & Pigneur, Y. (2010), p. 44. The canvas is freely available at http: / / businessmodelgeneration.com/ canvas/ bmc 53 Background Canvas from Osterwalder, A., & Pigneur, Y. (2013) 54 Osterwalder, A., & Pigneur, Y. (2010), pp. 138-139 55 Based on Osterwalder, A., & Pigneur, Y. (2010), pp. 138-139 56 Background Canvas from Osterwalder, A., & Pigneur, Y. (2013) 57 Porter, M. E. (1980), p. 39 58 Porter, M. E. (1980), pp. 34-46 59 Denominations of business models taken from Wheelen, T.L., & Hunger, J.D. (2012), pp. 166-167. 60 Wheelen, T.L., & Hunger, J.D. (2012), pp. 166-167. These pages include definitions of all eleven business models. 61 Freemium business model based on Osterwalder, A., & Pigneur, Y. (2010), p. 102. A short overview of all patterns is provided on pp. 118-119; detailed explanations of the different models can be found on pp. 54-119. 62 Osterwalder, A., & Pigneur, Y. (2010), pp. 54-119; FREE model pp. 88-107 63 Osterwalder, A., & Pigneur, Y. (2010), pp. 57-65 <?page no="151"?> 55 Deploying Strategy through People Readers are able to describe the activities of the international human resource management (HRM) function based on a process model. The necessity for constant use of people feedback in order to improve these processes is understood. Readers know how to derive a HRM strategy from the overall organisational strategy and how to support it with people plans of different kinds. The challenges of encouraging global mobility can be addressed by using suitable methods and tools. Developing the organisation’s people, their skills and competencies is recognised as a cornerstone for sustainable success. This is backed up by knowledge about important recognition aspects and available organisational (performance) rewards. Courses of action can be selected with a sense of proportion based on latest findings from motivation research. In the age of information, it is increasingly understood that the most important resource any kind of organisation has at its disposal is its people. Without their competencies and creativity, strategic decisions will not be transmitted into practice, without their commitment no required change will happen. Figure 5-1: Concept Map “Deploying Strategy through People” A huge part of the management literature focuses on methods and tools to get things done and underestimates the importance of enabling and empowering all members of the organisation to strive for a common goal. However, a very people-centred view of management is mirrored in the EFQM Excellence Model, devoting the third criterion uvk-lucius.de/ adam <?page no="152"?> 152 55 Deploying Strategy through People (and therefore the first criterion dealing with strategy implementation) to “people”. The EFQM reasoning is as follows: “Excellent organisations value their people and create a culture that allows the mutually beneficial achievement of organisational and personal goals. They develop the capabilities of their people and promote fairness and equality. They care for, communicate, reward and recognise, in a way that motivates people, builds commitment and enables them to use their skills and knowledge for the benefit of the organisation.” 1 The content of this section largely follows the logic of the EFQM in its structure, as is evident in the related concept map presented in . 5.1 International Human Resource Management 5.1.1 The International HRM Function In most organisations, a Human Resource Management (HRM) function is in charge of formally managing all matters concerning people. The HRM process encompasses four main areas: strategic planning, recruitment, training and staff retention (sometimes accompanied by decruitment meaning reduction of workforce of any kind) 2 . This process including activity details is presented in . Most of the stated aspects will be addressed in detail in the subsequent chapters. Figure 5-2: The Human Resource Management Process HRM is subject to enormous influences from both the organisational and the external environment. This is already an issue for mono-cultural organisations residing in one country but becomes perilous in transnational corporations. Dealing with people is a highly regulated area where cultural attitudes towards work, family, authority, time, risk or money find their expression in national laws and labour regulations. Noticeable tendencies towards international standardisation are therefore slow and cover only few relevant issues. The European Community for example adopted legislation defining minimum requirements at EU level concerning working and employment conditions including working time, fixed-term and part-time work, and posting of workers. The ember tates were bound to transpose the ommunity law into their national law and implement it, thus guaranteeing a similar minimum level of protection of worker’s rights and obligations throughout the EU. Anyhow, general conditions of employuvk-lucius.de/ adam <?page no="153"?> 5.1 International Human Resource Management 153 ment, contract termination or retirement vary as widely in the EU as specific regulations ranging from permitted work hours to pregnancy leave. 3 Work contracts, compensations and benefits are also highly influenced by national differences in taxation laws. Figure 5-3: Labour Regulation Aspects in International HRM The application of law regulations is dependent on the country the organisation is operating in (the location) and on the employee’s origin. Every organisation has to be compliant to rules and regulations of its country of origin or home country. When it opens subsidiaries in another country, the respective host country regulations are binding for certain labour regulation aspects. In case of standardised internal regulations the organisation has to ensure that these are compliant to all labour laws involved. This becomes even more complicated when taking an employee’s origin into account. Special regulations apply for cross-border commuters or posted workers. In some cases, regulations of their country of origin apply. These might be different from the regulations of the transnational company’s home country and from the respective host country the subsidiary is situated in. An overview of relevant aspects to consider is provided in Figure 5-3. One of the main decisions to be made is the choice between a centralised or decentralised approach to international HRM. In a decentralised approach it is easier to ensure that the HRM activities are carried out in a way that fits to the culture of the local workforce and does not include practices that are deemed as improper or violate local laws. On the other hand, this approach equals a loss of organisational control and hampers the consequent alignment of HRM practices with the stated mission and values. By this, it might impede the development of a uniform organisational identity. Another often stressed argument against a decentralised HRM function is the higher administrative costs as the function will have to be duplicated in several countries. However, this might be balanced by lower risks of law violation or reputational hazards. uvk-lucius.de/ adam <?page no="154"?> 154 55 Deploying Strategy through People 5.1.2 Managing People: EFQM Criterion 3 The following chapters will deal with the main activities of the HRM process according to the EFQM Excellence Model’s logic. An overview of criterion 3 “People” and its criterion parts is presented in . Figure 5-4: EFQM Criterion 3 “People” and Its Criterion Parts 4 5.2 Supporting the Strategy through People Plans 5.2.1 Steering Human Resource Management Strategically People management is the linchpin of strategy deployment. Consequently, a HRM strategy is a crucial reinforcement for the business strategy, as stated in chapter 4.4.1. Depending on the needs of the business model, the HRM strategy could follow very different paths. Gmür & Thommen distinguish four generic HRM strategies related to two different market approaches (efficiency vs. innoation) and two different staffing policies (personnel retention vs. flexibility). 5 The resulting matrix is presented in . Figure 5-5: Four Generic HRM Strategies 6 uvk-lucius.de/ adam <?page no="155"?> 55.2 Supporting the Strategy through People Plans 155 If an organisation pursues an efficiency strategy it might opt for the HRM strategy I “Experienced Team”. This option is preferable in circumstances where special competencies are needed that are hard to acquire or long-term (customer) relations are a key to success. In this case, the building of a highly reliable and qualified permanent workforce is top priority. People will be promoted who combine high qualifications and experience with reliability, ability to work in a team and loyalty. Thus, the activities “motivating sustainably”, “steering career development” and “retaining high performers” are key. The alternative HRM strategy would mean to put all energy into perfecting the system, which allows recruiting young and untrained people to be “brought up to speed” quickly, so that a high turnover does not have a negative effect on efficiency and quality. This allows reducing or expanding the workforce quickly if the market environment favours these moves. In this case, the activities “selecting suitable employees”, “integrating new members” and “setting performance incentives” are key. The HRM strategy of McDonald’s or other fast food chains is a premium example. A business strategy that relies on continually developing advanced products or services would be supported best by the HRM strategy III termed “intelligent organism”. Complex innovative processes throughout the organisation have to be protected over the long-term in order to ensure a high-level continuous improvement cycle. High interdisciplinary competencies, loyalty as well as cooperation are of utmost importance as these processes are typically team-based. In order to keep up innovative strength, a focus is laid on “developing competencies”, “retaining high performers” and “steering career development”. In contrast, organisations pursuing the HRM strategy IV “creative evolution” strive at a rigorous selection of only the best employees while being quick about recruiting scarce skills and decruiting people with skills that are no longer needed. A high employee turnover is seen as a means to optimise the remaining workforce. Large auditing companies like KPMG follow this kind of strategy and a consequent “up or out” strategy while providing attractive training becom tax advisor or certified accountant. The key activities consist of “identifying competent people”, “selecting suitable employees”, “developing competencies” and “setting performance incentives”. The implementation of the chosen HRM strategy relies on aligned people plans and the systematic optimisation of the identified key processes and key activities. People plans are all documents used for strategic HRM planning that help to establish programmes and tactics to implement the HRM strategy. This includes short- und longterm requirement plans, recruitment plans, development plans and placement plans. They can focus on qualitative and/ or quantitative issues, as they can for example state the planned numbers of (key) personnel, the required capabilities and competencies and the costs arising from related compensation and benefits. Plans needed for a structured implementation include clearly defined performance levels that are required to reach the strategic goals. People performance is mainly based on their skill levels, therefore high performing organisations define the skills and skills levels needed for achieving the goals and verify the currently available skill levels within their organisation. Gaps will then be closed consequently by developing the organisation’s people or recruiting people with skills that cannot be developed (or not fast enough). A state-ofthe-art and scientifically substantiated competence framework is discussed in chapter 5.3.1. 7 uvk-lucius.de/ adam <?page no="156"?> 156 55 Deploying Strategy through People VIPs 5.2.2 Planning Global Mobility Finding or developing the right people for the right job is already a challenge in a domestic environment. This becomes even more an issue when a transnational organisation with business activities on a global scale plans recruitment and staffing issues. If and how to use its own international talent pool for all kinds of available positions is a strategic HRM decision implemented in global mobility policies and guidelines. The attitude towards the development of people for key positions is highly dependent on the organisation’s strategy and culture. Ethnocentric organisations pursue the classic way of internationalisation by setting home country standards everywhere and drawing only from people of home office for key positions all over the world. This is contrasted by true global organisations with transnational strategies that pursue global integration on all levels and manage one talent pool for key positions regardless of the origin of their people. 8 An overview of typical patterns for international strategies and resulting HRM policies is provided in . Figure 5-6: Internationalisation Strategies and HRM Policies 9 In our increasingly complex environment key talents are rare and their detection, development and retention are the highest duties of HRM. It is hardly surprising that more and more organisations widen their original ethnocentric approach to include a uvk-lucius.de/ adam <?page no="157"?> 55.2 Supporting the Strategy through People Plans 157 broader choice of employees from different countries in their development programs. The challenges provided by a HRM practice of sending a number of people from one location to another for projects, short-term or long-term assignments are manifold and drive these organisations to develop routines based on integrated global mobility programmes. According to KPMG’s Global Assignment Policies and Practices (GAPP) Survey 2013 this approach offers many advantages: “Through a well-managed global mobility program, organizations can provide existing, talented employees the opportunity to live and work in a different country, broaden their experience, learn new skills and establish a personal global network. For business development purposes, internationally experienced employees bring deeper insights and demonstrate exceptional value to local clients and targets.” 10 The differing acceptance of women in managerial positions is a potential cause for serious disruptions of business relationships. This aspect is explored in paragraphs on “women and men encountering each other in the workplace” and the related “Capsule Case: An exceptional Dutch women in Shell” by Trompenaars, F., & Hampden- Turner, C. (2004), pp. 332-336. People sent abroad on assignments within these programmes are often referred to as “assignees”, “expatriates” or “transpatriates”. The term “expatriate” was originally coined for people being sent abroad from home office. As this might remind of an ethnocentric approach, organisations with global approaches tend to replace this term although it is still widely used and understood. Figure 5-7: The Optimal Global Assignment Process uvk-lucius.de/ adam <?page no="158"?> 158 55 Deploying Strategy through People The steps to be taken and aspects to be covered in an optimal global assignment process are illustrated in . The process starts with and is dependent on the definition of the framework or setup of the global mobility programme. Based on the HR strategy, the staffing strategy has to be stated as it provides guidance on the eligibility of certain employee groups. It should also be defined what types of assignment, e.g. project, short-term or long-term the policies cover. A clearly defined framework ensures equal treatment which does not necessarily mean that individual specialities cannot be taken into account. It is helpful to define for example what kinds of benefits are generally provided, on what basis individual benefits are granted and where appropriate ranges or limits are set. It is also necessary to decide in advance if family entitled for support only comprises legally married spouses and dependent children or if family members with other status are eligible to the same benefits. According to KPMG’s GAPP Survey 2013, 55% of all 600 participants worldwide include also unmarried domestic partners or companions of opposite gender, 49% those of same gender and 12% cover extended family including dependent parents. Only 33% of all respondents and 17% of European participants limit family to a legally married status. 11 Managing a global mobility programme requires an in-depth knowledge of all concerned countries. Depending on the scope of the programme, these aspects are not only related to legal, tax and work issues but cover knowledge about cost-of-living and housing for compensation calculation as well as administrative requirements like obtaining work permits, school registration etc.. Many organisations outsource some of these activities to a specialised service provider, the main reason being to gain access to their global resources and expertise. Ta compliance and immigration assistance were the services most of the participants of KPMG’s GAPP Survey 2013 sourced out. Repatriation, meaning the reintegration of assignees and their families after their stay abroad, is crucial for the general acceptance of the programme and the willingness of former assignees to stay with the organisation. Clear guidelines concerning inclusion in career development and communication processes during their stay abroad as well as support offered in difficult circumstances and in the relocation process facilitates the readiness to go abroad. Predefined emergency procedures enable an organisation to react quickly if political riots or natural catastrophes hit the assignees during their assignment and create trust. 12 The assignment process itself starts with the assessment and selection of the right people for the jobs offered abroad. Assessments could be outsourced to external evaluators, could be done centrally in the home country or organised locally in the different host countries. The internal responsibility could be assigned to or shared between HRM, line management and centrally trained evaluators. Assessment methods range from formal assessments, informal assessments and self-assessments to no specified methods. Expatriate selection criteria are mainly based on the usual skill-set used for local recruitment (e.g. technical or professional skill, ability to work in teams) but have to include some additional criteria that take the very special situation of an assignment abroad into account. Additional mobility criteria could include intercultural competence, knowledge of new locality and/ or its culture, language proficiency, previous international experience, expatriate’s willingness to go, family’s willingness to go, or increased requirements concerning personality factors as open-mindedness, flexibility or resilience. Unfortunately, the importance of these criteria is often overlooked which most probably leads to intercultural or adaption problems abroad, under average performance, early assignment cancellation or even termination of work contract. uvk-lucius.de/ adam <?page no="159"?> 55.2 Supporting the Strategy through People Plans 159 It is not enough to ask a potential assignee about the willingness of her or his family to go abroad. Responsible employers include the candidate’s family tightly into the process. The success of an assignment abroad is highly dependent on the ability of the family to cope with the foreign environment. The expatriate will otherwise encounter additional stress by appeasing resentful family members and handling a bad conscience for uprooting them. A minimum requirement should be a meeting of the line manager or HRM responsible together with candidate and spouse to discuss the assignment and its implications. State-of-the-art programmes include pre-assignment visits to the host country for candidate and spouse, as provided by 60% of all respondents of the Global Assignment Survey. 13 Exceptional cases constitute so-called dual-career couples. When both partners are successful in their career a change of location is often a showstopper for the accompanying partners, as they are not willing to risk their own advancement or simply are not able to envision staying at home. In order to solve these problems, multinational corporations already set up networks for offering the assignee’s partners temporary workplaces in another network company based in the host country. Other organisations offer partial or full financial compensation for lost salary or at least job search assistance at host country. The resulting assignment contract includes not only ordinary issues concerning salary, taxes and health insurance but determines the applicable compensations and benefits. These span housing allowances (usually based on a housing index comparison or other statistical measures), the adoption of travel costs and the number of home leaves granted and paid for, schooling support and allowances and special arrangements concerning cars and ménage (for example, shipment or purchasing of furniture or container hire if the former residence is vacated). It is also important to clarify the responsiities concerning performance evaluation. Often, the performance evaluation is delegated to the responsible supervisor of the host country. However, if an assignee is commissioned to enforce certain regulations like for example changes made by the central office, such an arrangement would not be acceptable. In these cases, a home country supervisor has to be appointed in order to evaluate the assignee’s performance during his stay abroad based on the predefined objectives. Living in another country demands from the assignee and his family a tremendous amount of flexibility and intercultural adaption. Even with the best intentions this adaption process is painful, sometimes overly so. Figure 5-8: Phases in Cultural Adjustment - Customised W-Curve 14 uvk-lucius.de/ adam <?page no="160"?> 160 55 Deploying Strategy through People Since the 1960s a whole area of research was devoted to the cultural adjustment process. The most famous depiction of it is the so-called U-curve 15 , which was later on amended to a W-Curve 16 as presented in , taking repatriation into account. After the first anxiety during the preparations for the stay abroad, assignees become elated and optimistic when they arrive in the new location and are fascinated by the new culture and their new surroundings (“honeymoon phase”). After a certain time, this foreign culture becomes a burden and the emotional stress leads to frustration and hostility, driving the assignees to associate with fellow sojourners. This phenomenon is named “cultural shock” and describes the most critical point during the whole assignment. The following “recovery stage” is characterised by gradually accepting the new cultural environment and gaining a more and more positive attitude. This stage usually is attended with an improved command of the foreign language. The final stage of the original u-curve called adaption or “acculturation” is reached when the adaption is complete and the new customs are accepted and even enjoyed. A typical phenomenon is the repetition of the process when going back home. The acculturation leads not only to a state of high self- und cultural awareness but represents a profound change of attitudes and behaviour. This becomes apparent when returning home. The resulting re-entry shock (or reverse culture shock) often catches the assignees and their families unaware. Even after a short-term stay of several months repatriates realise that although the outer circumstances have not changed their attitudes have. So suddenly their home does not feel like home anymore. This shock is gradually diminished and turned into a readjustment at home. This process represents a stereotype and does not mirror the real adaption process of each individual. Newer research suggests that phases can take very different shapes and intensities. A lot of criticism is based on the honeymoon phase as many expatriates seem to go from a high initial anxiety down to the cultural shock without any high in-between. 17 It is therefore depicted by a dotted line. There are always expatriates that are not able to adapt - partial or fully - to the new culture and also those ones that realise that afterwards they feel more at home abroad and decide to return. Situations like these represent a bad investment from the organisation’s point of view. Preparing the candidate and his family thoroughly for the cultural differences of the new location and the cultural and reverse cultural shocks that awaits them is the best protection and helps to increase the productivity of the assignee by shortening the adjustment period. It is therefore hardly surprising that 37% of the respondents of the GAPP Survey 2013 include cross-cultural training to assignee, spouse and children in their standard policy. An additional 21% would offer these trainings to assignee and spouse and 6% to assignees only. This leaves still 36% that have no such standard in place. 43% offer these trainings for every assignment and 38% only if they deem the new country to provide a cultural challenge. In this respects, there is still a lot of persuading to do in order to ensure that the importance of intercultural knowledge and training is widely understood. A broader number of organisations include language training in their preparation standards - 43% for assignees, spouse and children, 29% assignee and spouse. Only 7% do not include language training in their programme. 18 The quality of the assessment and preparation activities could be measured by the easiness of cultural adjustment when the assignees are sent abroad. During the stay abroad, the global mobility programme is mainly responsible for emergency issues. These could include family emergencies like severe illnesses that could not be treated in the host country, death of family members at home or significant uvk-lucius.de/ adam <?page no="161"?> 55.2 Supporting the Strategy through People Plans 161 adjustment problems of assignee or his family. Many of these have to be dealt with on an individual basis although some organisations have made provisions in their programmes for granting home leave and covering travel expenses if close family members become ill or burial preparations have to be made. Especially globalised organisations that offer assignments all over the world are aware of the need to protect their people from typical dangers like natural catastrophes or civil disturbances. This requires actively planning for precautions which requires the determination of official emergency plans. 78% of all respondents of KPMG’s GAPP Survey 2013 indicate that these are part of their programme. It is evident, that organisations with a high number with assignees (more than 500) and usually more locations of concern manage this aspect more thoroughly, as 39% of these follow a global emergency plan, 24% have specific plans per country of operation and 47% of them even use specialised service providers for emergency planning. 19 A crucial part of all provisions is the definition of the circumstances that require immediately recalling the assignees and their families. Ensuring their safety in all circumstances is not only a matter of liability but is also closely linked to the willingness of interesting candidates in participating in the mobility programme as well as to the general reputation of the company. The professionalism of the organisation’s mobility programme is the repatriation planning process. It is naïve to believe that a fitting work place for repatriates will emerge when the time of the assignment is over. Still, 41% of the GAPP Survey respondents do not have special provisions for the repatriation process in place. Only 9% offer a formalised accompanying mentoring programme whereas 29% offer repatriation counselling and 30% internal career planning or job placement near the end of the assignment. This fits to the information that only 4% start planning the repatriation at the beginning of the assignment, 7% one year before its termination and the vast majority of 68% starts between sixth months and one month before the repatriates are expected to come home. At least, they know that there are a lot of improvements to be made, as only 33% agree that they manage the repatriation process well. 20 The general practices are therefore not adequate for a sustainable and reliable career development. Good managers with international experience are still rare, it is therefore crucial to ensure their loyalty and commitment. A good way to do this is an early succession planning. Excellent organisations see a global assignment as an integral part of (management) development and ensure that there is an adequate placement available before they send their assignees abroad. They keep contact, invite them to frequent visits at home office to show them their unwavering interest in their wellbeing and career and keep them up to date on events in the home office. During the repatriation process they offer assistance with career matters and mundane tasks (removal, schooling etc.) to ensure an easy transition from host to home country. The whole mobility process ends with a debriefing that also includes the chance to receive valuable feedback on the programme from assignee and his family consisting of positive impressions and improvements that should be made. All in all, the mobility programmes become more and more professionally organised. Recalls or dismissals of assignees because of inabilities to perform are seldom - 26% did not have these events at all, 55% did report that this happened in 5% or less of all assignments. Many organisations are also able to retain their employees - half of them report that none or a maximum of 5% of all assignees leave the organisation within 12 months of the assignments. Unfortunately, 27% were not able to report any figures as this aspect is not consequently surveyed. If assignees leave that company, 34% of them uvk-lucius.de/ adam <?page no="162"?> 162 55 Deploying Strategy through People VIPs state the reason that there was no appropriate job available which makes a strong case for an early repatriation planning. There is still a lot of doubt about the feasibility of these mobility programmes. Roughly 50% of all respondents do believe that assignees take too much time and effort to administer. Nonetheless, 75% believe that the frequency of use of assignees will at least stay the same or even intensify. 21 So managing global mobility programmes remains one of the main challenges for HRM managers. 55.2.3 Closing the Loop: People Feedback When people are understood as the most important asset an organisation has at its disposal, knowing how its people fare is among the key information an organisation can get. It is astounding how many managers do not understand how crucial direct feedback from their employees is. It is true that - especially in an international organisation - gaining feedback from its people is time-consuming and expensive, but this is outweighed by the amount of strategically important control information this process generates. The question is not if an organisation can afford to obtain feedback but instead if an organisation can really afford not to obtain feedback as this creates a huge blind spot in its control panel. People feedback provides some of the few available early warning indicators that allow an intervention before the underlying effects are mirrored in the generated profits. For an organisation following the HRM strategy “experienced team” it is obligatory to know if its people are satisfied with career opportunities, benefits, their leaders (as they have a main effect on motivation) and the company as a whole. Low satisfaction levels forecast high turnover in the future as people will be willing to change their employer more easily. In times of a high need of people with these specialised skills and therefore favourable labour market conditions the effects could be seen very quickly. If the labour market is dominated by lay-offs in the respective business sector, a short-term rise in employee turnover might not become effective. However, it is to be expected over the medium-term that performance levels fall as sick days rise. Prevention of these effects is possible if a trend of decreasing employee satisfaction can be noted early and countermeasures can be taken. The importance of feedback collection is by no means limited to businesses pursuing HRM strategies with long-term retention. A fast-food chain using the HRM strategy “perfect system” is in need of permanently recruiting new personnel. In case the current employee’s satisfaction decreases, the employees will look out for an alternative job as their dissatisfaction spreads and the recommendation rate drops. The moment a higher amount of staff members choose uvk-lucius.de/ adam <?page no="163"?> 5.2 Supporting the Strategy through People Plans 163 to leave the company, recruitment will encounter troubles to fill the suddenly vacant positions as less or at least less attractive applicants are available. Depending on occasion and aims, feedback can be obtained by very different means and is not limited to conducting an overall employee attitude survey. Other possibilities include personal feedback received by the responsible manager during or separate from performance reviews, feedback workshops where the employees discuss certain issues and provide countermeasures for unsatisfactory conditions, focus groups for the discussion of open or predefined people issues or interviews in special situations like exit, new hire or trainee interviews. The latter will, naturally, cover only a very limited range of issues or questions tailored to the special situation and related activities. However, the most popular form of attaining people feedback is an employee attitude survey, sometimes called staff or workforce study. Its aim is to monitor employee satisfaction and engagement or commitment levels in order to ensure that the organisation’s people are treated according to the proclaimed mission, values and standards. Additional aims include monitoring defined goals of the HRM strategy and gaining indepth information about areas of improvement in HRM and leadership issues from an employee’s point of view. In order to achieve these goals, employee surveys typically cover one or several of the following areas: work environment, leadership, colleagues and work culture, employee commitment and employee engagement. Work environment, sometimes also called work experience, assesses the employee’s situation and the achievements of HRM. It comprises a variety of items to be measured, depending on the focus of the organisation or the survey provider. The questions used are usually related to quality of workplace and working conditions, compensation and benefits, information and communication. Typical items addressed to assess the quality of the workplace include for example physical workplace conditions like noise or air, work variety, working hours, independence and degree of responsibility and perceived pressure or stress. Employees are asked about their satisfaction with each of the different items and sometimes about the importance of these items for their overall satisfaction. In addition, they are usually requested to state their overall satisfaction. By combining these results with the results of additional items analysts are able to find out about the conditions that truly drive overall satisfaction, commitment and engagement. Leadership, colleagues and work culture form items that could also be part of the work environment area. According to current research, employee motivation (the basis for commitment and engagement) is especially dependent on leadership issues. The feeling of being appreciated or encouraged - or repressed and stressed - is mainly transported by managers or supervisors; they are also the linchpin for career opportunities. A supportive social environment is measured by the way people are treated by their colleagues and how they are included into interpersonal interactions. This is closely related to an organisational culture, sometimes referred to as work culture, that expresses itself for example in the acceptance or denial of flexible work arrangements, a healthy work-life-balance (or its absence) and an embracing or rejecting attitude towards teamwork. Employee commitment is understood as the relative strength of an employee’s identification with and involvement in a particular organisation. 22 This is usually a combined measure of different questions. The specialised consultancy TNS for example measures uvk-lucius.de/ adam <?page no="164"?> 164 55 Deploying Strategy through People this item in their Tri*M concept based on five questions concerning overall satisfaction, recommendation, rejoining, motivation of colleagues and performance/ market strength of the organisation. 23 Employee engagement is a concept that is closely related to employee commitment as it often includes the same items. Traditionally, engagement is defined as the employee’s willingness to work hard for the benefit of their employer. 24 According to current definitions this includes dedication and commitment, advocacy, unsolicited effort, using all personal talents and being loyal to the organisation’s goals and values. 25 Hence, these are the items mostly addressed in employee surveys covering this concept. The importance of monitoring employee engagement is stated clearly in the Global Workforce Study 2012: “When sustainable engagement starts to decline, companies become vulnerable not only to a measurable drop in productivity, but also to poorer customer service and greater rates of absenteeism and turnover.” 26 Most recently, Towers Watson amended this traditional employee engagement concept in their well-established Global Workforce Study. The aim was to provide a robust holistic measure that embraces all relevant areas of employee-related issues. They call this concept “sustainable engagement” which consists of three distinct elements. First (traditional) engagement, second enablement (defined as being provided with the needed resources, tools and support to operate efficiently) and third energy. Energising people is based on a work environment that actively supports emotional, physical and interpersonal wellbeing. 27 This new concept is very closely related to EFQM’s fundamental concept “succeeding through the talent of people” and mirrors a state-of-the-art approach. The deliverables after a survey was carried out depend mainly on the underlying framework. Most professional employee survey providers deliver a standardised index (based on employee satisfaction, commitment or engagement) that provides a means for comparison between different departments or companies. Depending on the specialisation of the provider, they sometimes offer benchmarks from the industry or country based on their databases. It is crucial that the data used for comparison truly fits the organisation concerned. Any general information without (at least partial) disclosure of the underlying database should be discarded. The analysis usually also includes a people portfolio or matrix providing an overview of the composition of the workforce based on two relevant aspects. Examples are provided in Figure 5-9. As shown, TNS provides a “typology of employee situation” combining two major drivers of employee commitment - satisfaction levels (measured by overall satisfaction, recommendation and re-joining) and perceptions concerning a motivating environment (measured by motivation of colleagues and performance/ competitiveness). This leads to the determination of four employee types. Drivers for example are people that strongly identify with corporate goals, are highly loyal, enjoy the work environment and cooperate on all possible levels, inspiring colleagues in the process. In contrast, detached employees are dissatisfied and feel already disconnected as they experience the work environment as frustrating. These people constitute a threat to the organisation, as they represent underutilised resources and are a source of contagion for a negative working atmosphere. 28 uvk-lucius.de/ adam <?page no="165"?> 5.2 Supporting the Strategy through People Plans 165 Figure 5-9: People Portfolios 29 According to the findings of the 2012 Global Workforce Study based on 32,000 respondents around the world, only 35% of all employees worldwide are highly (sustainably) engaged. 22% feel unsupported, 17% feel detached and 26% are completely disengaged. 30 These are stark facts that make a strong case for a sustainable people management. Figure 5-10: Obtaining Feedback Like all improvement activities, obtaining employee feedback follows a control loop as depicted in Figure 5-10. After defining the aims of the feedback, the right methodology has to be selected. The first distinction to be made is between a qualitative (e.g. conversation-based) or a quantitative approach. Whereas a qualitative research is better at unearthing unknown issues, quantitative approaches have the distinct advantage to provide data that can be compared to former periods or internal and external benchmarking partners.  uvk-lucius.de/ adam <?page no="166"?> 166 55 Deploying Strategy through People Assuming for the following elucidation that a satisfaction survey was chosen as the preferred method, the conduction of this survey has to be planned and organised meticulously. Activities to be pursued at this point of time include determining responsible persons (internal employees or external consultants), allocating all necessary resources, deciding upon a medium (web-based versus paper-based survey), determining the questionnaire design and the areas covered, and planning the feedback process with special focus on communication issues. Questionnaire design is far more complicated than laypersons believe. Ensuring that the questions posed are distinct, non-ambiguous and measure exactly the right aspects requires psychological as well as semantic expertise. Transferring these questions without distortions into other languages is an even greater challenge and explains why multinational corporations often commission specialised consultants. It is important to ensure that the consultants commissioned are experts in this field, so that they use scientific-based, standardised and thoroughly-tested questionnaires that truly deliver high quality. Some consultants advertise extremely short and effective questionnaires and praise the saving of time. Zuckerman (Towers Watson) delivers a compelling argument in favour of deciding upon the length of a survey with a sense of proportion, as a survey done well with more information also yields more focused insights on possible improvement measures. He argues also that the moment employees are truly motivated to give their feedback, they are not discouraged by a longer list of questions but instead value the chance to give their opinion to many issues that matter. 31 For this reasons, experts usually are prepared to expand their standard questionnaires to cover special issues that are of high relevance to the individual organisation. Typical amendments include questions concerning ethical issues or special company values like ensuring fairness or offering equal opportunities for women and men or people with different ethnical backgrounds. In this respect it is indispensable to closely cooperate with the worker’s council or other employee representatives in this process. The whole feedback exercise is rendered useless if the employees are not willing to participate or - worse - do not trust the organisation enough to answer truthfully. Therefore a well-planned and executed communication process is the key for making the most of it. One of the key aspects to consider is the protection of anonymity. If the organisational culture is not built on trust, not convincingly ensuring this aspect is a true showstopper. The communication also needs to include a compelling appeal of top management explaining the importance of the survey and the will to take action on the results. If people - because of former experiences or deficit in faith in the management - do not believe that anything changes after the survey they will not waste their time on participating. Trust is gained if a reliable time-line for report, result communication and action planning is communicated and the process is closely link to other reporting and strategy actions. After completion of the survey, the results have to be analysed and prepared for the different target groups (top management, management and staff). The communication of the results should take place in due course and ensure that all employees regardless of their position get an open and truthful feedback on the outcome. Trying to hide negative information is counterproductive as it undermines trust in the management. Employees usually have a keen sense of the state of affairs and detect falsehoods easily. It is possible to achieve a boost of motivation when conducting action planning in a broad participative approach. Workshops on all levels of the organisations or largeuvk-lucius.de/ adam <?page no="167"?> 55.3 Developing People and Their Performance 167 scale events bringing together whole production sites allow for innovative and easy to implement measures while transporting appreciation of the employees. A smart approach to action planning and implementing also ensures a higher acceptance of connected changes and serves to transport other valuable issues of people management as discussed in the following chapters. A thorough implementation is ensured by regular reviews of the defined initiatives. The overall success of the whole process could be evaluated by repeating the whole exercise after a certain period of time. This time frame usually comprises two to three years in order to ensure enough time for complete implementation. All in all, the successful execution of any kind of feedback depends on professional planning and implementation as well as a trustful and open organisational culture to allow the exploration of shortcomings without offense. VIPs The Baden-Württembergische Bank AG used a staff survey as a business development tool and published an overview of their procedure. 32 Typical challenges posed by introducing an employee survey in a diverse or transnational working environment are also illustrated by the following exercise that is available online. 5.3 Developing People and Their Performance 5.3.1 Developing People’s Skills and Competencies A goal-oriented development of the organisation’s people involves first a clear definition of the required performance levels, skills and competencies. This should be based on the developed people plans, thus adding the individual perspective to goal and strategy attainment. Performance levels and skills understood as (often industry) specific qualifications are comparatively easy to define, as they are often closely linked to the job description and the tasks defined therein. However, the success of fulfilling the required tasks and being able to deal with changing environments often depends on basic dispositions of the respective individual or, in other words, general competencies. There are now several frameworks available for defining competencies, many of them following a simple (easy to sell) logic and are not based on methodical research. These carry the risk of using indistinct definitions and overlapping criteria which leads to incoherent results. A state-of-the-art and scientifically substantiated competence uvk-lucius.de/ adam <?page no="168"?> 168 55 Deploying Strategy through People framework is provided for example by Heyse & Erpenbeck in form of their KODE® “Enhanced Atlas of Competencies” and its related KODE®X process model. KODE® is an acronym with German origin and stands for “ mpetenziagnostik and ntwicklung (“diagnosis and development of competencies”). 33 Figure 5-11: KODE® Enhanced Atlas of Competencies 34 According to the KODE® Atlas, competencies are understood as skills employed to act in a self-organised manner while coping with new and non-routine tasks. In contrast, a person that needs to be instructed in every step during performing a certain act does not show the required competency. Competencies can be divided in four main categories or basic competencies: the ability (or disposition) to act related to oneself as individual (personal competency P), related to the own conduct of action (competency of activity and decision-making A), related to the handling of objects (methodological and professional competency M) and related to the intercourse with others (social communicative competencies S). 16 differentiated constituent competencies are allocated to every basic competency, so that the complete KODE® Atlas consists of 64 competencies that are clearly defined and described. Personal competencies for example include credibility, defined as the ability to act credibly. This implies an accordance of word and dead, honourableness, sticking to own values and ideals, encouraging correct behaviour and correcting wrong conduct as well as taking up critical positions if needed. An overview of the KODE® Atlas is provided in . KODE®X is a hybrid approach that combines research-based, strategy-based and value-based methods in developing competency profiles. It aims at identifying competency requirements that are specific for the organisation and with strategic importance. It also targets the definition of task-specific competencies, the analysis of employeespecific competence potentials as well as their use and stimulation. The authors provide different instruments to accompany the process. The recommended steps for its successful employment are depicted in . Competence profiles derived from a competence framework create value when combined with differentiated proposals for individual development possibilities. These could include but are not limited to uvk-lucius.de/ adam <?page no="169"?> 55.3 Developing People and Their Performance 169 training on the job, online trainings, coaching, mentoring, seminars, conferences, participating in quality circles or development groups, job rotation or staff exchange (with other departments or even partner organisations). Figure 5-12: KODE®X Process 35 Developing the competencies of the organisation’s people is an ongoing and neverending process as the changing environment continually raises requirements. According to the study “Global Talent 2021” published by Oxford Economics with support from Towers Watson in 2012, technology for example is driving the need for special skills. HRM professionals expect especially the following competencies to be in high demand in the globalised economy in the next years: digital skills understood as using social media and working virtually; the ability to deal with ambiguity and complexity including planning for multiple scenarios; cooperative competencies enhancing collaboration and teamwork; and competencies fostering global operating abilities, including understanding international markets, managing diverse teams, and being culturally sensitive. 36 Figure 5-13: Levels of Hypercultural Competence 37 uvk-lucius.de/ adam <?page no="170"?> 170 55 Deploying Strategy through People Trompenaars & Hampden-Turner measure and establish cultural competence based on their dilemma approach as they reinforce the need for international leaders to have the propensity to reconcile dilemmas or seemingly opposing values (compare also chapters and ). They distinguish four different levels of “hypercultural competence” cross-cultural competence, intercultural competence, transcultural competence and intracultural competence as provided in . VIPs 5.3.2 Helping People to Improve Their Performance According to the HRM process as depicted in HRM planning and recruitment is followed by activities dealing with the development of all members of the organisation in order to release their inner potential and by that maximise their contribution towards the organisation’s goals. Typically, management books introduce these activities by dealing with “motivation” and tend to regard the motivation of employees as the HRM (and leadership) activity of the highest importance. This stands in stark contrast to actual (and, in fact, not very recent) scientific knowledge about motivational factors. In summary, “motivating” others is simply something that cannot be achieved sustainably by HRM or leadership actions as the underlying basic assumption is wrong: motivation is not reliably triggered by external incentives but could instead be defined as a process that provokes goal-oriented behaviour, based on (inner) motives of people and certain situational incentives that activate those motives. A motive is in this case understood as a predisposition to react to a particular situation in a specific way. When the motives fit to the situational incentives and requirements and are backed up by the subjective appraisal of the availability of needed capabilities, motivation arises. In case of occurring deficits in these personal factors, volition and/ or problem solving are needed for compensation. Volition covers all intentional processes that regulate actions. This allows overcoming motivation gaps and finishing tasks with deliberate effort. Volition serves to suppress motives that do not fit to the (important) task at hand and to support goals and actions that are not facilitated by existing motives. Thus, it is volition that drives people to get up early to work despite feeling tired and reluctant. A lack of capabilities can be compensated by problem-solving strategies. The drivers of motivation processes and the mechanism through which they influence behaviour are displayed in . 38 uvk-lucius.de/ adam <?page no="171"?> 55.3 Developing People and Their Performance 171 Figure 5-14: Drivers of Motivation Processes 39 There are a number of motives that can be distinguished. A main distinction was defined by McClelland as he identified four sets of motivational needs: the need for power, the need for achievement, the need for affiliation and the need for avoidance. He also systematically distinguished implicit and explicit (or self-attributed) motives. Implicit motives predict how a person spontaneously behaves over time. Discordance between implicit motives and explicit motives could mean for example that a person strives for certain goals without really gaining pleasure for doing so. This is supposed to have negative effects on a person as it functions as a hidden stressor and thus impairs (emotional) well-being. 40 Figure 5-15: Kehr’s 3K-Model of Work Motivation 41 Kehr proposed 2004 a compensatory model of work motivation and volition, as depicted in . Implicit motives represent affective preferences creating implicit behavioural impulses (“gut level”). Explicit motives characterise cognitive preferences or objectives with resulting action tendencies (“brain”). Perceived abilities represent the subjective view on knowledge, competencies and practical routines (“hand”). A positive work experience (“flow”) results from accordance of implicit and explicit uvk-lucius.de/ adam <?page no="172"?> 172 55 Deploying Strategy through People motives and perceived abilities. This state is depicted in the area where all three required structural components of motivation, each represented by a circle, overlap. In case of discordance with one or all of the required components, a treatment is suggested and explained. 42 Avid research on motives and their stimuli increasingly focuses on the power motive as it is seen as especially relevant for managerial positions. Newer studies suggest for example, that a directional discrepancy on the power motive (meaning an explicit power motive that is not supported by the same implicit motive) predicts impaired wellbeing of executive managers, whereas discrepancies in the affiliation and achievement motives were not relevant. 43 Recent cross-cultural researched showed that decisionmaking control over resources increases the level of power motivation of (US-) Americans but not of Chinese. 44 It can be concluded from recent research that simple ideas of motivating people have to be dismissed. The original idea of people being in constant need of (external) motivation stems from a certain concept of humankind that McGregor refers to in his XY theory. The basic idea is that the way leaders think about their team-members can be based on two opposed views of human behaviour. Leaders believing in theory X feel that people dislike work, avoid responsibility, are naturally lazy and therefore dependent on external motivation (for example pressure or money) to get anything done. The resulting leadership approach is based on “carrot and stick”. On the other hand, leaders believing in theory Y trust their people to enjoy work, be ambitious, and prefer making their own decisions. They accept that people are motivated by themselves, perceive that there is a range of different factors like freedom or esteem that have a positive effect on motivation and act accordingly. The often referred-to “motivation gap” in nowadays workforce can be traced back to the X concept of humankind. The recent motivation theory and reports from practi e propose that there is no such thing as a general motivation gap, as most people are voluntarily engaged in a huge variety of activities, although not necessarily in their job. The above mentioned engagement issues presented in the Global Workforce Study show that many managers behave in a way that suggests that the belief in “lazy workers” that have to be heavily motivated by their managers is still deeply-rooted and determines management behaviour. The theoretical background imparted in books about international management is full of outdated motivational theories that were discarded by psychological research deades ago. The best example is Maslow’s pyramid of needs, as its basic idea of rising through the different stages is easy and compelling and not at all verifiable. Herz berg’s Two Factor Theory is based on a highly criticised research concept and contains in its basic conclusions several biases (especially a US American cultural bias). Only the message that money (e.g. salary) could not be generalised as a major motivator is worth retaining. However, insights into relevant aspects to consider when supporting inner motivation with fitting incentives are useful for designing and implementing effective HR activities. For this reason, some chosen models highlighting important facets are introduced below. Following the basic idea that people are intrinsically motivated and try to perform well because they feel good when they do it, Hackman & Oldham invented a model for designing jobs that foster this state of internal work motivation. Their so-called Job uvk-lucius.de/ adam <?page no="173"?> 55.3 Developing People and Their Performance 173 Characteristics Model is presented in and constitutes one of the most momentous models, proven by various intervention studies and used for job diagnostics. It defines five core job dimensions that activate critical psychological states and thus lead to desired personal and work outcomes. The psychological states form the heart of the model: the experienced meaningfulness of the work is defined as the degree to which an individual experiences his or her job as generally valuable, meaningful and worthwhile. The experienced responsibility for work outcomes constitutes the degree to which an employee feels personally responsible and accountable for the results of his or her work. The third state called knowledge of results depicts the degree to which an individual recognises and understands - on a continuous basis - how effective his or her work performance is. It is expected that self-generated motivation is highest when all three defined states are existent. The first three core job dimensions - skill variety, task identity and task significance - cooperate to trigger the experienced meaningfulness of work, whereas autonomy prompts the experienced responsibility and feedback generates the knowledge of the achieved results and thus allows learning. The link between core job dimensions, psychological states and outcomes is moderated by the employee’s growth need as well as job-relevant knowledge and skill. Growth needs ensure that an individual gets a “kick” when finishing successfully a challenging task, the relevant skills that the efforts of the employee do not end up in failure, which in itself is never a motivating state. 45 It is important to note that this model tends to expect all people to want the same. This is a basic assumption that does not hold true in its generality, as the actual reaction of different people to the same kind of job can be very different, based on the situation or individual structure of motives. Figure 5-16: Job Characteristics Model 46 The Job Characteristics Model was enhanced by measurement instruments like the Job Diagnostic Survey and the Job Rating Form that were largely tested in the field and continuously extended. Assessment tools and models are (still) very suitable for specific, well-defined jobs. Though within the last years, the work life started to undergo fundamental changes concerning the organisations themselves (with their structure and work culture), the practical work that individuals do and the relationships among people. Typical examples for these changes are matters as telecommuting, temporary teams, uvk-lucius.de/ adam <?page no="174"?> 174 55 Deploying Strategy through People mixed project teams of different organisations in a partnership or supplier-customer relationship or the use of independent contractors instead of long-term employees. As the Job Characteristics Model invented in the 1970s focused on frontline workers, the above mentioned issues quite typical for knowledge workers or managers are not addressed. Nonetheless, the underlying problems like low work motivation, absenteeism, turnover or inferior products remain the same. Recent research started to focus on the social dimension of work and its contribution to motivation, well-being and performance of individuals. Social characteristics that were examined and found to matter include interdependence, social support, interaction outside the organisation and feedback from others. How these contribute and what (inter-)dependencies to other job properties there are is still not resolved. Further streams of research include the practice of job crafting (meaning the possibility of employees in contemporary organisations to modify or customise their own jobs), the redesign of the organisational context and the influences of technology, control systems and culture as well as the specialities of team work design including the definition of appropriate types of teams. 47 When dealing with motivation issues in the workplace, two other aspects are worth considering: the importance of expectations and the influence of attribution. Human Resource Management tries to trigger motives by providing certain incentives. Mostly, these incentives will be realised after the efforts were made. Therefore, the impact of incentives on (job) efforts of individuals is dependent on the expectations the individual has concerning the probability to reach them. According to Heckhausen’s cognitive model of achievement motivation (as presented in ), the determinants of motivated action can be structured by an integrated sequence with four stages: initial state as perceived, consisting of person, situation and their interaction (1., 2., 3.), the action of the person (4.), the outcome of the action or situation (5.) and the consequences of the outcome (6.). The latter determine with their different incentives the value of the outcome for the individual. An outcome can be any change of the initial state that is relevant for the person’s motives. Although the anticipated outcome (5.) is the pivotal point in the building of expectancies, it does not provide an incentive value in itself but only through the related (potential) consequences. The outcome relates to the other stages in the sequence by three different kinds of expectancies (7., 8., 9.). The situation-outcome expectancies (7.) concern the expected degree to which the present situation will end up in a desired outcome anyway, without any contributions of the regarded individual. If this kind of expectancies is high, the actor expects the situation to contain conditions sufficient for achieving the desired outcome without having to extend any efforts, so he will not be compelled to act. In these cases, all incentives for action will lead to nothing. In contrast, action-outcome expectancies (8.) pertain to the probability that the individual’s own actions will change the initial state to create the desired outcomes. These expectations are high when the actor beliefs in his or her abilities to solve the problems provided by the given task and expects efforts made to change the initial state to the desired outcome. Provided the situationoutcome expectancies are low, high action-outcome expectancies create a high incentive for action. Finally, outcome-consequence expectancies (9.) concern the degree to which the outcomes (e.g. desired changes of the initial state, however achieved) lead to the occurrence of consequences that have special incentive values. These are high if the outcomes achieved are seen as directly leading to the realisation of values that are relevant for the individual’s motivation. These values can affect extrinsic or intrinsic motivational factors and can occur immediately or delayed. 48 uvk-lucius.de/ adam <?page no="175"?> 55.3 Developing People and Their Performance 175 Figure 5-17: Heckhausen’s Model of Achievement Motivation 49 For Human Resource Management practices this model contains interesting starting points as it highlights the importance of managing expectations. HRM programmes have to ensure that rewards offered (consequences) for achieving certain goals (outcomes) fit to the motivation structure of the respective employee or offer a variety of rewards to ensure that many different motivators are triggered. So finishing a project in time and budget will lead to for example a higher status as advanced project manager, more responsibility in further projects, a higher leadership position and/ or a bonus payment. If people are required to act, it is important to ensure that they do not expect the situation to solve itself, so the description of the situation should confirm a low situation-outcome expectancy. At the same time, it is important to stress the belief that the actor has the capability to solve the given problem and thus support a high actionoutcome expectancy. Based on this model it is of utmost importance to reliably deliver promised consequences when a desired outcome is reached. Any case of a breach of faith will spread and lower the outcome-consequences expectancies, not only for the person involved but also for other colleagues that were informed about the betrayal. Thus, a system based on management by objectives will be rendered ineffective quickly. Figure 5-18: Attribution Characteristics and Their Influence on Motivation Behavioural motivation is not only influenced by expectancies but also by emotional responses based on attribution processes, as depicted in . According to Weiner, people tend to explain - or attribute - the underlying causes for personally relevant outcomes (for example success or failure in a work environment) based on three different sets of characteristics, namely locus of causality, stability, and controllability. First, the reason for the outcome can have an internal locus (for example the uvk-lucius.de/ adam <?page no="176"?> 176 55 Deploying Strategy through People capability a person has) or can be traced back to external environmental factors as the difficulty of the task. The second set of characteristics observes the stability of causes over time. If a person beliefs an outcome is likely to be the same if he or she performs the same actions on another occasion, then the cause is seen as stable. The opposite - differing outcomes - would be understood as unstable or variable. The third set distinguishes between causes that can be deliberately controlled by the respective person (for example the exerted effort) or is uncontrollable such as luck or actions of others. All combinations of these characteristics are conceivable. Effort for example would constitute an internal and controllable factor whereas basic intellectual ability could be categorised as an internal uncontrollable and stable factor. Also, an external factor could be categorised as controllable, for example a person that did not succeed in a project environment can opt for jobs where project management skills are not required and therefore actively steer the outcome. For personal learning or development outcomes, four factors were especially focused on: ability (internal, stable and uncontrollable), task difficulty (external, stable and uncontrollable), effort (internal, variable and controllable) and luck (external, unstable and uncontrollable). 50 The basic principle of attribution theory is that the individual’s attribution of causes to (former) successes or failures will determine the kind and extent of activities (behaviour) this person will undertake to achieve comparable goals in the future. The interpretation of causes is not done objectively, but instead subject to several effects or biases. For instance, it can be shown that individuals have a habit to interpret the causes for certain outcomes in a way that serves their positive self-image (self-serving bias). Therefore, they tend to attribute successes to internal causes like own ability or effort whereas failures are more likely to be attributed to external causes like unfair assessors or unfavourable conditions. This can create the negative effect that a student failing in an examination will refrain from making more efforts the next time. This student will not seize the chance for improving achievement-supporting behaviour and thus will not increase the probability for success. The locus of causality also has an influence on the emotional responses. Internal ascriptions lead to greater self-esteem in case of success. In case of failure, an internal and stable cause like a lack in ability would foster feelings of frustration and hopelessness, in case of low controllability in addition shame. Thus, attribution theory helps to explain the motivational differences between low and high achievers. High achievers believe in their success as they tend to attribute former achievements to their abilities and efforts and failures to external causes, therefore ensuring that failures do not lower their self-esteem and they build and expect confidence and pride. Low achievers tend to attribute failures to internal and noncontrollable causes and success to luck and thus doubt their ability to succeed the next time. Even when they experience success, they do not see it as rewarding due to the external attribution, so their emotional state will not boost their self-esteem and future activities. These people do not respond positively to achievement-oriented goals. Based on this, some people create impediments that make success less likely, for example by reporting illness symptoms or using alcohol. This behaviour is called selfhandicapping and serves to protect the person’s sense of self-competence, as the impediment finally functions as explanation for the failure. This attributional model can also be used to explain social emotions, understood as how somebody feels about another individual’s success or failure. When assessing others, the controllability aspect is of special importance for the reaction. If the cause of failure is perceived as uncontrollable, the observer reacts with pity, whereas an atuvk-lucius.de/ adam <?page no="177"?> 5.3 Developing People and Their Performance 177 tributed controllable cause of failure elicits anger. Generally, people tend to overestimate internal and underestimate external causes when assessing the outcomes of others. This phenomenon is called fundamental attribution error. Knowledge about attribution effects can contribute to optimising different HRM practices. For example, setting learning goals instead of achievement goals could enable low achievers to step out of the above-mentioned vicious attribution circle. Employee selection processes could be enhanced by using specific questions about attribution tendencies of the applicants as well as by increasing the awareness for attribution tendencies of the assessors. All provided insights into motivation sources and processes underscore the statement that motivating employees is simply not possible. On the other hand, there are a lot of possibilities for leaders and HRM professionals for creating basic conditions that curtail intrinsic motivation and frustrate the organisation’s people. Therefore, an attitude towards releasing the existing motivation potential by implementing processes and methods that help people to perform is highly recommendable. VIPs 5.3.3 Appraising Performance Systematically Target setting and performance appraisal are main issues in Human Resource Management. A state-of-the art performance management system includes a goal-setting phase where usually leader and team member negotiate goals for a future period (often one year) and the rewards for their achievement. This forms the basis for intermediate meetings where the team member gets feedback on his or her performance, followed by the final performance appraisal where the goal achievement is determined and the rewards are approved or disapproved. In big corporations this process is usually directed by standard forms, pre-defined schedules and incentive catalogues as well as appraisal trainings for leaders to ensure a uniform and fair application. Based on the motivation theories discussed in chapter 5.3.2 it becomes clear that a system providing incentives for all kinds of people is hard to achieve, as motives and expectancies differ substantially. Extrinsic incentives are only able to support existing performance motivation if they offer attractive rewards. Company incentives or socalled benefits can include many different things. The International Accounting Standard 19 (revised version from 2015) as endorsed by the EU commission distinguishes a number of benefits: uvk-lucius.de/ adam <?page no="178"?> 178 55 Deploying Strategy through People Short-term monetary benefits that include for example wages, salaries, social security contributions, paid annual leave as well as profit-sharing and bonuses (payable within 12 months) Short-term nonmonetary benefits including medical care, cars, housing and other free or subsidised goods or services Post-employment benefits such as pensions, post-employment life insurance, postemployment medical care or other retirement benefits, Other long-term employee benefits, for example sabbatical leave, long-service or jubilee benefits, long-term disability benefits as well as bonuses, profit-sharing, and deferred compensation if payable after 12 months or in later periods Additional, very common non-tangible incentives include enhanced career opportunities, security incentives such as the promise of long-term employment, social incentives like solidarity of team members or close team cultures, status enhancers such as hierarchical titles or company awards (“employee of the month”), individual development opportunities (for example learning another foreign language although this is not required for the job) or power incentives such as administrative discretion or decision power concerning budgets. The effects of these benefits are highly dependent on the dominant needs of the respective individual. Individuals with a high need for avoidance for example are generally not very susceptible to incentives. 51 It is important to note that apart from individual motive structures also cultural perspectives determine the attractiveness of certain rewards. Employee-of-the-month awards might be fitting in an US-based diner chain but could be seen as demotivating in a German financial institution. Goal-setting is a crucial part of the appraisal management process. Research suggests that specific and difficult goals generally increase performance when they are accepted and regular feedback on the progress is provided. Therefore it is important first to specify the goals in a comprehensible manner. Goals are currently perceived as good when they fulfil the S.M.A.R.T. requirements, an acronym standing for Specific, Measurable, Attainable, Realistic and Tangible (or Time-bound). 52 Acceptance of the goal and commitment to its achievement stem from a negotiation process, where a real participation of the employee in the goal-setting is accomplished and the resulting goals are perceived as self-set. The documentation of the agreed upon objectives and their publication (for example in terms of being handed over to the supervisor’s boss as well as being copied in an official HRM database) provide a binding character and enhance the commitment. 53 The majority of management literature deals in extenso with pay-for-performance systems and how to optimise profit-sharing and bonuses. This is understandable, as these benefits are easy to provide internationally in a standardised and comparable manner. Unfortunately, there are a number of robust research findings that question their positive effects. Sam Glucksberg suggested already 1962 that monetary incentives worsen “functional fixedness” which describes a tendency to see objects as only working in a particular way and thus not being able to think of alternative uses. In other words, because of the drive to achieve a (monetary) reward quickly exploration and out of the box thinking are diminished and innovative solutions are hard to find. He proved this idea by using his variety of Duncker’s Candle Problem. Test participants uvk-lucius.de/ adam <?page no="179"?> 55.3 Developing People and Their Performance 179 were provided with a candle, a book of matches and a box containing tacks. Their task was to attach the candle to the wall in a position that prohibits wax dripping on table or floor by only using the objects provided. They were also given a time limit. The trick is to understand that the tacks have to be taken out of their box in order to use the box as a platform for the candle, requiring literally “out of the box” thinking. Participants that were incentivised by money took on average considerably longer to find the right solution. This effect was reversed when the candle problem was presented in a far easier way with the tacks being outside of the box. 54 Daniel Pink in his bestseller “DRIVE” uses this experiment amongst others to underscore the idea that monetary rewards reduce performance in innovative processes as they narrow the focus. This means that pay-for-performance systems lead to positive results mainly in environments where people’s tasks consist of clearly defined paths. 55 Apart from questionable effects of pay-for-performance systems on individual motivation it is relevant to examine their effects on teamwork and group performance. R.K. Sprenger claims that monetary incentives have negative effects on the work climate as foster egoistic behaviour (of people and of departments) and lead to defending information monopolies instead of knowledge sharing and cooperation. 56 Ramm, Tjøtta & Gaute presented 2013 a paper that replicated the candle problem study using undergraduate students from Norwegian universities in order to examine if money rewards also obstruct the creativity of groups instead of individuals and if group-work facilit es problem solving. When they compared the results of individuals and groups they collected proof that working in teams truly enhances performance when finding solutions for problems that require creative out-of-the-box thinking. They also found out that incentives did not have any effect on the performance - whether of groups or individuals. 57 The latter finding was not discussed or researched further but is not astonishing when one takes the Norwegian culture into account. According to Hofstede’s dimensions, Norway scores lower on individualism (69 in comparison to 91 for the United States) and can be considered as one of the most feminine countries in the world with a score of 8 - instead of the US scoring with 62 comparatively high on masculinity. It is to be expected that people from feminine countries respond less to classical performance drivers than people from masculine countries. This illustrates the fact that the consideration of cultural differences is of tremendous importance for the effects of performance incentives. Generally, the definition of a reward system for transnational organisations includes three dilemmas: the dilemma of providing cash or non-cash rewards (as explained above), the dilemma of incentivising the team or the individual as well as the dilemma of treating all equally by using the same global system worldwide or taking different cultural perspectives into account in a multi-local approach which bears the risk to be assessed as unfair. Trompenaars & Hampden-Turner advise to reconcile these dilemmas by finding individual solutions that fit to the industry, cultures of people involved and the organisational culture. Trompenaars & Hampden-Turner use the basic dilemma of individualism versus communitarianism (as described in chapter 2.3.3) to explain basic problems of individual reward systems and their motivational effects. They state that pay-for-performance systems for single employees generally work better in highly individualistic cultures as the portion of people being motivated by extrinsic, monetary-based rewards is supposed to be higher than in communitarian cultures that set more value on support and uvk-lucius.de/ adam <?page no="180"?> 180 55 Deploying Strategy through People positive regard of their colleagues. People in a communitarian culture like France for example tend to feel guilty in a classical pay-for-performance system when their higher bonuses set them apart from the group. Therefore, instead of being motivated by their achievements, they will try to evade being singled out in the future. For Japanese, pursuing monetary incentives clashes with their worldview, as they predominantly strive for a harmonious relationship within themselves as well as with nature that surrounds them. 58 A critical view on individual incentives is also in order when considering differences in organisational cultures (for definitions of these cultural concepts refer to chapter 3.4.1). Individual pay for performance itself is a classical Eiffel Tower concept, as it takes power away from the employees and shifts it towards management that is supposed to be able to evaluate the difficulty of the job itself as well as the job performance of every employee. One major problem besides a possible lack in management’s assessment abilities is the need to recalculate the basis for bonuses every time a process is changed - provoking strong resistance in doing so. In family cultures, more emphasis is set on relationship-based and intrinsic rewards. The image of being a good father does not fit to somebody pursuing mainly monetary goals. Also, achievements of employees are understood as being nurtured by their (managing) sponsors or team, therefore an individual reward is not in order. Even worse are the effects on ncubator cultures. They heavily support creative innovation, where individual contributions are hard to judge. It is also quite daring to fix a price tag on innovations that might lead to significant patents ensuring outstanding profits in the future. The fourth kind of corporate cultures, the uided issile, is by definition based on hard-working teams. Ignoring the contributions of team members by singling out individuals is a sure way to create frictions. Thus, individual high performers are quite probably losing the support of their team as they feel that their contributions are not valued. Team members might in this case punish high performers for sticking out - subtle by ceasing to offer supportive actions or more directly to the point of mobbing. Finally, a mediocre performance will be the result. 59 Figure 5-19: Reconciling the Reward Dilemma through Co-Opetition 60 uvk-lucius.de/ adam <?page no="181"?> 55.3 Developing People and Their Performance 181 Despite these obvious shortcomings, typical US-based or Western European reward systems are still mainly created for individual rewards. This bears the risk of incentivising exclusive behaviour and information monopolies as people tend to keep useful information hidden from their colleagues. In Japan, reward systems are often built in order to stimulate team spirit. This might in turn lead to team mediocrity based on the typical free rider problem. The compromise - rewarding small teams - is likely to demotivate both types, the team player as well as the individualist. An example for a reconciliation (named “co-opetition”) could be a system that supports creative individuals in shaping teams with a high performance culture. In this case, the team could be rewarded for seconding individual creativity and individuals could be rewarded for special team work contributions (as depicted in ). 61 5.3.4 Empowering and Involving People According to the EFQM model, excellent organisations “empower people to release their full potential in a spirit of true partnership” 62 . Empowerment as concept is often mistaken as simply providing people with responsibility and authority, expressed in the power to make decisions. Although this is one of its key structural aspects, the essence of empowerment “comes from releasing the knowledge, experience, and motivational power that is already in people but is being severely underutilized.” 63 Thus, it is closely linked to responsibility, team member involvement, ownership and pride in (individual and collective) achievements. Empowerment includes strategic measures to professionally support people in acquiring and using decision power. It is not designed to foster self-actualisation by allowing people just to do whatever they want to do. Instead, empowerment can be defined as a strategic process meant to create a work culture where all people are involved as key business partners, owning their jobs and playing a key role in ensuring the organisation’s success. The concept is closely linked with motivational research and the importance of autonomy for job motivation and satisfaction, as for example expressed in the job characteristics model (as discussed in chapter 5.3.2 and depicted in Figure 5-16). Blanchard, Carlos & Randolph recommend three key actions to establish empowerment. The first is that leaders share whatever information they have about the business with the organisation’s people. Without this information, people will not be able to act responsibly and make the right decisions. Furthermore, this is an important measure to create a culture of trust and inclusion. The second key is to build autonomy by creating boundaries that provide direction. These boundaries are an important part of management support. They are not meant to inhibit autonomous behaviour (as classical hierarchical structures are) but instead to provide security and alignment for the decision-making process. These boundaries include (meaningful) mission statements, shared objectives and basic requirements as for example a fact-driven and analytical approach to decision making or the necessity to include different perspectives. The third key is to replace the classical hierarchies and management functions with self-directed teams to ensure effective decision making in complex business situations. In contrast to classical participative team elements like employee involvement teams or quality circles, self-directed teams not only decide themselves about their constitution and develop solutions on independently chosen issues; they also implement these decisions and are fully responsible for their results. This goes far beyond a recommendation. Self-directed teams have to be gradually developed over time. This includes the development of necessary team-member skills as uvk-lucius.de/ adam <?page no="182"?> 182 55 Deploying Strategy through People well as leader competencies to fulfil the special demands on leader integration and leadership behaviour. 64 In contrast to classical work groups, that do not engage in joint efforts but instead mainly share information and help each other in task achievement, teams in a business environment are special groups where members work together intensively to pursue a shared goal. Since the end of the last millennium, teams are seen as a “silver bullet” for enhancing performance, creativity and commitment. The main argument is that a team achieves synergies and is therefore able to work in a way that it creates a whole that is greater than the sum of its member’s individual capabilities. Consequently, nearly all management books strongly recommend teamwork. Whereas the contributions of teams are invaluable in a multifaceted environment, it is important to understand that teamwork is not the best possible solution for all kinds of tasks or circumstances. Teams are especially effective when tasks are complex and not based on routines. The further a task is away from standardised operating procedures, the more the quality of its solution or fulfilment profits from a joint effort of several team members to discuss alternatives and select the best one. Team efforts are therefore especially required for creative tasks, for example in research and development, or in situations that are characterised by high uncertainty, as is the case in strategy development processes. 65 A team is usually deemed effective when it achieves high levels of team viability, task performance and team member satisfaction. This effectiveness is dependent on appropriate organisational support (for example a dedicated sponsor), suitable leadership, unified commitment, good communication, mutual trust and a fitting team composition. An effective team includes all skills that are relevant for the task, ensures a broad variety of perspectives through a high diversity of its team members and consists of people that possess the essential social competencies to ensure a smooth collaboration. Unfortunately, this combination is comparatively rare. Teamwork in organisations is often obstructed by typical forces that are activated in group environments and influence the way of collaboration, the so-called group dynamics. A typical critical phenomenon is social loafing, which can be defined as a tendency of people to work less hard in a group than they would individually, as their contributions are less visible and there are others available to take over the workload. Other phenomena influence the quality of group decision making. For example, social pressure on conformity might lead to suppression of contrary ideas, although a broad variety of ideas and opinions is the key to superior group performance. Some groups might also be dominated by one individual or a minority, having the same effect on variety of solutions. Even without the use of group pressure, highly cohesive groups tend to converge over time and lose the ability to critically evaluate divergent suggestions. This symptom is called “groupthink”. Generally, group performance is highly influenced by intra-group conflicts. Functional conflicts are sought to ensure a viable, self-critical and innovative approach. They are based on different views on the task or the process and usually lead to better results. In contrast, dysfunctional conflicts have disruptive effects on the team and lead to uncooperative behaviour. They are usually based on relationship issues and often stem from different cultural perspectives and role conflicts that are not understood as such. Even groups that avoid the above mentioned pitfalls potentially have one huge disadvantage: information sharing, dialogues, discussions and consensus processes are usually far more time-consuming than individual decisions. 66 uvk-lucius.de/ adam <?page no="183"?> 55.3 Developing People and Their Performance 183 In order to be able to support the organisation, even an empowered or self-directed team needs a clear idea of the goals it should pursue. This should usually be guaranteed by its sponsor, often a manager on the next level that is responsible for the team outcomes and thus supports the team with managerial information and management insights. Trompenaars & Hampden-Turner provide insights into the dilemma to find the right balance between the need of the sponsor to permanently track the team’s progress by using his authority to direct it and the need for freedom to ensure new discoveries on the team side. A truly empowered team relies on a trustful relationship with its sponsor and an open information flow that enables it to make the best out of his insights presenting him with creative alternatives in turn. This is depicted in . Figure 5-20: Team Empowerment Dilemma 67 Whereas empowerment could be seen as the highest level of employee participation, employee involvement covers a lower level of employee participation in decisionmaking with the goal of increasing decision quality and employee commitment. Typically, employee involvement programmes include so-called participative management methods. The subordinate’s role evolves from a pure follower or advisory function to becoming a partner in a joint decision making process. This covers the abovementioned quality circles or employee involvement teams with huge differences in spread and influence. Representative participation could be seen as another part of employee involvement. It is usually governed by legislation and typically covers board representatives, workers councils and similar official forms of representation. Whilst they theoretically constitute one of the most important forms of employee participation, they are often limited to advisory functions with more symbolic content then true power, depending on the national laws and the company culture. 68 Design and success of employee involvement or empowerment programmes differ across cultures. One study using a company that operated in the USA, India, Mexico uvk-lucius.de/ adam <?page no="184"?> 184 55 Deploying Strategy through People and Poland tested the fit of certain empowerment practices with the respective national culture by using two of Hofstede’s dimensions. They found out that empowerment was positively associated with job satisfaction in the USA, Mexico and Poland but negatively in India. Indian leaders that tried to empower their employees received low ratings from them. This was traced back to India’s high power distance and the resulting expectations that leaders should exert their authority over subordinates. 69 It is not surprising that these programmes are seen as being effective in the United States as they were originally designed from US Americans for the US culture. The issue of finding the right balance between control and autonomy on an individual basis is also broached by Trompenaars & Hampden-Turner. Successful leaders have to reconcile this dilemma based on the expectations of all people involved, their cultural backgrounds and the organisation’s culture. 70 A possible solution based on their expertise is presented in . Figure 5-21: Control & Autonomy Dilemma 71 VIPs uvk-lucius.de/ adam <?page no="185"?> 55.4 Communicating Effectively 185 5.4 Communicating Effectively The most important transmission mechanism for ensuring the implementation of organisational goals is a good internal communication, as it connects organisational goals to individual goals and directs the contributions of the organisation’s people. Many organisational initiatives fail due to a lack in communication. Possibilities to shape optimal communication processes in organisations are manifold, combine different perspectives and include a huge variety of instruments for impersonal and personal interactions. Figure 5-22: Multiple Dimensions of Inter-Organisational Communication 72 According to the EFQM model, effective communication starts with understanding the needs of the people in order to choose appropriate communication strategies and implement appropriate tools. 73 The main objective of internal communication processes is to achieve and maintain a dialogue throughout the organisation - top-down and bottom-up, within and across business processes, within and between business functions, departments and all other kinds of groups as well as on an individual basis. Consequently, all these multiple dimensions of inter-organisational communication (as illustrated in ) have to be considered when designing, implementing and regularly assessing organisational communication practices. 74 The main issues for designing communication principles are to break down barriers between people and organisational groups, to develop and share arguments on matters relevant for the respective institution and to connect all organisational members. In practice, this is achieved by a number of communication methods and tools that can be classified based on relevant aspects of the above mentioned dimensions. The result is a communication tool cube for internal communication as introduced in . uvk-lucius.de/ adam <?page no="186"?> 186 55 Deploying Strategy through People Figure 5-23: The Communication Tool Cube for Internal Communication Typical communication methods that transmit messages via speech and allow interactive contacts comprise all sorts of meetings, for example individual appraisal interviews, team meetings or so-called plenary or town hall meetings. All of these could be conducted regularly or ad hoc, according to rules and agreed upon agendas or freely or could use pre-defined settings as for example Open Space or World Café. Virtual forms of interactive meetings include one-on-one telephone calls as well as telephone, video, Skype or web conferences. One-way communication via speech could be a speech or a presentation given to one or any number of other participants. Other oneway communication methods of use comprise virtual formats like individual messages on voice recorders as well as video messages provided on the internet (e.g. YouTube) or intranet in order to reach any numbers of people. Speech-related one-way communication tools are also often used for top-down communication purposes. Despite the growing use of virtual formats that allow speech and interaction, international organisations are still highly dependent on text-based communication and documentation. Contingent on the relevant business sector and its regulation a huge amount of written communication is subject to laws and regulatory requests. The banking industry is a very special example for extremely high regulatory requirements concerning internal and external documentation. Written documents in organisations with a one-way and top-down communication character traditionally encompass for example mission statements, codes of ethics/ conduct, leadership principles, strategies, policies and guidelines, manuals, work instructions, directories, circulars, newsletters, minutes and notes. These kinds of written information could be distributed on paper, via blackboards or exhibition boards or electronically via email, collaborative directories or databases, intranet pages or internal wikis or (if the data is not sensitive) even via internet. Informing people about complex issues with plain text can prove to be quite ineffective as this might leave a lot of room for interpretation. Hence, it is often essential to enhance the text by visual tools like tables or graphics. Classical tools used by most kinds of organisations include organisational charts for representing management levels, line diagrams for profit or cost development, pie charts for market shares and process maps and/ or process diagrams for creating an overview of the main activities of the organisation and how they are connected. Some norms defining effective management systems like the ISO 9001 or ISO 14001 even specify the use of process maps (compare chapter 7.2). The visual tools can be used as extra or integral part of any uvk-lucius.de/ adam <?page no="187"?> 5.4 Communicating Effectively 187 written document listed above. Many organisations provide flip charts and whiteboards in meeting rooms to enhance a common understanding of the topics being discussed by creating any kind of sketch notes with (block) diagrams, text patterns and matrixes or using creative techniques such as fishbone diagrams, decision trees or mind maps. It is now seen as common knowledge that people have different information processing styles based on different sensory channels. Auditory types acquire knowledge by hearing somebody speak, visual types require written words and images, tactile or kinaesthetic types acquire knowledge by getting literally into touch with something, so learning by doing suits them best. Although these concepts remain scientifically unproven, research results suggest that the use of different ways to express a message enhances the chance to reach all kinds of people. Effective communication therefore requires a good mixture of diverse codes and tools to get important messages across. Modern computer-based communication tools allow combining different codes, scaling the number of participants and creating interaction in one-way settings. A modern presentation held in front of a group includes graphics, words and videos by using a PC, presentation software and a projector. People outside the meeting room can participate via web conference that allows seeing the presenter as well as the presentation itself. Interaction is ensured during the meeting and through web-based feedback forums afterwards. Even huge groups of people can join together via web conference if the screen is projected for all to see, allowing afterwards their own team discussion process to evolve. Effective communication is always tailored to the target group and takes people’s needs and motives into account. How to tailor presentations to target groups and create visual stories that transform audiences is brilliantly described and illustrated in the books of Nancy Duarte. 75 Looking at the communication cube and thinking of the different motivation structures of people it becomes clear that finding the optimal way to communicate with all members of a huge organisation is very challenging. In international organisations these challenges multiply. The first communication issue to be solved is the choice of language. The current trend in international organisations is towards English as corporate language as it is actually perceived as the world language in business and science. Unfortunately, the Business English proficiency in the workplace is often not high enough to ensure unobstructed communication. A 2012 study of the GlobalEnglish Corporation concludes that the “current shortage of talent with the aptitude to speak, present, write, sell and service customers in English has become a high-performance challenge for leaders of multinational companies” 76 . The Business English proficiency certainly varies across countries, business sectors and presumably management levels. Setting English as the standard language for global intra-company communication will only be effective if the proficiency level of all of the organisation’s people is up to the communication level employed. It is not productive to hire native speakers for phrasing the company’s guidelines and principles if style and wording used will not be generally understood. The price an international organisation pays medium-term for incomprehensible strategies and targets are far higher than the price for a professional translation of these documents. Apart from its comprehensibility, the choice of language is also a signal. In a truly internationally diverse organisation, where people of different origins and cultures work in all departments and on all levels, a universal language like English might have a unifying effect. In organisations that are multi-local - combining subsidiaries uvk-lucius.de/ adam <?page no="188"?> 188 55 Deploying Strategy through People through a holding company where all locations are in fact inhomogeneous as far as origins and native tongues are concerned - imposing the English language for all kinds of official communication on Non-English speaking locations might lead to a feeling of inferiority and estrangement. Apart from the language problem, many other communication matters go along with intercultural differences - the main ones being huge differences in non-verbal communication and the distinction of high context and low context cultures. Non-verbal communication issues are closely related to cultural habits and traditions. They usually become manifest in personal interaction and lead to the feeling of uneasiness on both sides in mild forms or to complete communication failures if evaluated as misconduct. Typical examples of intercultural non-verbal communication differences include eye contact (which might be required or forbidden, mainly depending on culture, situation and sex of the people involved) as well as gestures transmitting agreement or disagreement. In Bulgaria and India for example, shaking one’s head signifies approval. In most other countries like the USA or Germany, the same gesture indicates refusal. As people tend to react very emotional to non-verbal signs it is of utmost importance to ensure that the existence of these differences is understood, for example due to intercultural trainings. The distinction of high context and low context cultures was originally described by Edward T. Hall and is of special importance for verbal/ speech coded communication. It addresses the fact that human communication is dependent on the communication context and its relevant features. These elements include the cultural (language or ethnicity), socio-relational (leader or subordinate), perceptual (emotions and attitudes) and the physical environment (e.g. office or private home). High context cultures rely more on the contextual features of the situation than on the definite language code, so their communication is specific to the particular environment and takes especially the people involved and their relationship into account. Transactions in these cultures call for a mutual understanding of the participants and their roles defined by their relationship, so that words are not necessary to convey meaning. Members of high context cultures therefore prefer a very indirect communication style and use silence as important means of communication. In contrast, members of low context cultures depend on the verbal message, the content. The code to be used is elaborated; even expectations and rules are outlined explicitly. People of low context cultures use clear, explicit messages in transactions to transmit information as well as feelings like acceptance or disagreement. They are uncomfortable with silence and have a need to speak. 77 As with most cultural dimensions, high and low context cultures are best conceptualised along a continuum as depicted in Figure 5-24. The cultural concept of high and low context cultures spans more than just the communication side and is closely related to Trompenaars & Hampden-Turner’s specific-diffuse relationship dilemma as defined in chapter 2.3.5. 78 Extreme low context cultures are Switzerland, Germany, the Netherlands, other Northern European countries like Denmark and Norway, UK and the USA; distinct high context cultures include Japan, China and Arab countries like Egypt or Saudi Arabia. Depending on the source and the aspects used to conceptualise the cultural classification, France, Italy and Spain are situated in the middle of the continuum or defined as high context cultures. 79 uvk-lucius.de/ adam <?page no="189"?> 55.5 Recognising People 189 Figure 5-24: Characteristics of Low and High Context Communication 80 In an organisational setting, the differences between low and high context cultures can be responsible for many communication errors. In low context-driven company cultures, silence in a meeting signals a problem that has to be solved, although this might not be the case. On the other hand, criticism and refusal of high context-oriented team members might not be recognised as they apply extreme discretion and politeness at all times, even despite a strong disagreement. People of high context cultures are also likely to see a topic of communication as intrinsic to a person or his/ her role. Consequently, if an issue is attacked, they might take it as a very personal reprimand. 81 The knowledge about these communication expectations is especially crucial during performance appraisals. In this case, the need for clear feedback to give direction has to be balanced with the expectation of politeness and discretion. It is advisable to explicitly clarify its purpose and rules beforehand and to provide the feedback with diplomacy. Challenges faced by managers when becoming responsible for subordinates from foreign countries are manifold. A model case example is the experience of a US-American manager leading an offshore operations subsidiary in Bangalore, India. The case is presented in Fisher-Yoshida, B., & Geller, K. D. (2009), pp. 25-28 with its solutions on pp. 33-35. VIPs 5.5 Recognising People Recognising, rewarding and caring for people are the most important aspects to ensure that they feel valued. The realisation of these aspects should correspond to important items that are measured in employee surveys (as referred to in chapter 5.2.3). The Business Research Lab, a private provider for employee surveys, recently published an uvk-lucius.de/ adam <?page no="190"?> 190 55 Deploying Strategy through People extract of a review of 100 studies and revealed seven factors that were deemed critical for improving employee engagement in 96 of the 100 studies. These “seven deadly sins” consisted of (1) a lack of communication followed by (2) the need for increased pay, (3) corporate politics, (4) management favouritism, (5) career advancement problems, (6) lack of management integrity and (7) lack of recognition. 82 In addition to other important measures that were already addressed, recognising people should include aspects as a transparent and competitive approach to remuneration and social benefits, the promotion and appreciation of diversity, the recognition of efforts and achievements in various forms as well as the assurance of a healthy work/ life balance. In addition to social security payments, social benefits can for example include providing a canteen, supplementary holidays for weddings or death of close relatives, extra payments for service anniversaries or offering subsidised child care options like day nursery or kindergarten. The latter constitutes an elementary facility for managing gender equality in many countries where good and affordable child care facilities are rare. Recognition for performance in the workplace is mainly based on direct contact with the supervisor and a respectful relationship. However, this can be enhanced by people management measures such as bonus payments or special team recognition events for the successful completion of special projects, official awards (“employee of the month”) or additional education or career opportunities. The preservation of a healthy work/ life balance constitutes a common requirement in Human Resource Management. Work/ ife alance as approach is widely used and seldom clearly defined. In essence, work/ life balance is a concept for designing the work environment with the goal to support different kinds of private life scripts: any organisational member should be able to achieve a comfortable state of equilibrium between his or her priorities of their employment position and their private lifestyle. Work/ life balance ensures a fitting split of the time and energy for the demands of the workplace and other important private life aspects like family, friends, community participation, spirituality, personal growth, self-care, and other personal activities. 83 It is apparent, that this concept cannot be a “one size fits all” approach as a “fitting split” can only be measured very individually. Recent publications tend to replace the term “work/ life balance” as it suggests an equal split between work life and private life as a general optimum, although the definition employed is far broader. Replacement terms comprise work-life effectiveness, work-life fit, work-life blend, work-life integration or work-life flexibility. 84 However, in the following the term work/ life balance will be used as it is still the prevalent technical term. As illustrated in , work/ life balance is traditionally not only determined by organisational factors like work demands and work culture. It is also influenced by diverse factors that stem from life outside work (denominated “home demands” and “home culture”) as well as by individual factors that mainly consist of work orientation, personality and related aspects like personal control and coping, gender, age, life and career stage and energy level. The balance itself can be measured by objective or subjective indicators. Objective indicators are mainly measurements based on work hours, free time (hours) and family roles (and usually their resulting demands on personal time). Subjective indicators mainly constitute the individual definition of “fitting split” that can generally be divided into a balanced 50/ 50 approach between work and home or an emphasis on either work or home. Of importance are also spillover and interference effects of home to work and vice versa. The desired consequences of uvk-lucius.de/ adam <?page no="191"?> 5.5 Recognising People 191 achieving work/ life balance include on an individual, subjective basis work and life satisfaction, mental health and well-being and the absence of stress and illness. They furthermore deal with appropriate behaviour and performance at work as well as at home and with the (desirably positive) impact this behaviour has on others - at work and at home. 85 Figure 5-25: Work/ life balance: Causes, Nature and Consequences 86 Work/ life balance based on the above mentioned definition is achieved when the individually defined split of work life and personal life (in all aspects) based on a correct interpretation of the individual factors is at equilibrium with the demands of work and the resulting lifetime spent on work issues corresponds with the desired work time. Since the OECD started its “Better Life Initiative” in 2011, work/ life balance is a part of the OECD well-being conceptual framework. This framework differentiates between current and future well-being and focuses on people (in forms of individuals and households/ families) instead of the economy. Current well-being includes objective and subjective aspects and is measured in terms of outcomes that are achieved in the two general domains material conditions (consisting of the three topics income and wealth, jobs and earnings as well as housing) and quality of life. The quality of life consists of the following seven topics: subjective well-being, personal security, environmental quality, civic engagement, social connections, education and skills, health status and work/ life balance. Work/ life balance is measured by the OECD based on two headline indicators: the proportion of employees who usually work (salaried) for long hours, defined as 50 hours per week or more, and the time devoted to personal care and leisure in a normal day by full-time employees. On average, only few employees in OECD countries work more than 50 hours per week. The highest proportion of people working very long hours is found in Turkey (43%), Mexico (29%) and Israel (19%). In contrast, this is rare in the Netherlands, Sweden and Denmark with a maximum of 2% working regularly more than 50 hours per week. Overall, 12% of OECD male employees work very long hours compared to less than 5% of female employees. These differences mirror the influence of gender roles, as women in contrast spend longer hours (4.5 hours per day on average) in unpaid domestic work on caring, cooking or cleaning - men devote their time roughly 2 hours less to these tasks. The disparities among countries are large in this respect. Whereas women in Turkey and Mexico uvk-lucius.de/ adam <?page no="192"?> 192 55 Deploying Strategy through People spend roughly 4 hours per day more on domestic work than their male counterparts, in the Nordic countries the difference only amounts to one hour. Generally, time spent on leisure is highest in Norway and Denmark with up to 6 hours a day and lowest in France and Japan with less than three hours and a half. 87 The overall importance of a suitable balance between work and daily living differs between cultures. Whereas work/ life balance was ranked no. 4 out of the 11 OECD topics concerning current well-being per 06/ 2014 in France, Germany, UK and the USA, it was ranked no. 6 in Finland, Brazil and Singapore, no. 7 in India, the Russian Federation and Turkey and no. 8 in China. 88 As subjective information on the desired work time is hard to obtain, the HRM approaches chosen to ensure a healthy work/ life balance for the organisation’s people mainly consist of flexible work time arrangements, often combined with facilities kept to take certain domestic work obligations off the employees (like child care facilities full-time or during holiday times, service agencies helping to find support for the care of elder or sick family members, parent-child work rooms) and awareness trainings for leaders concerning work/ life balance matters. 89 Flexible work time arrangements increasing time options for employees mainly include the following: variation in working time, flexible working hours/ schedules, working time accounts, part-time working hours (with the ability to switch from full-time to part-time employment and vice versa), leave schemes, parental leave (for maternity/ paternity/ adoption), care leave (for family members of any kind), sabbatical/ career breaks and educational/ training leave. 90 The definition of these arrangements differ and consequently also the resulting flexibility. Variations in working time could include the ability to reduce or increase working hours at will any time or only within clearly defined limits and by requesting permission (that can be granted or not). Flexitime can be completely flexible without any start or finish time or instead with a fixed start time and open end, and it can be based on a fixed amount of hours set per week, per month or per year. The possibilities to work during school term-time only or to work “compressed hours” (e.g. nine days in a row instead of two times 5 days a fortnight) are also important aspects. Part-time working hours can be based on individual negotiation or defined as job-sharing which requires more coordination of work-time and tasks of the involved employees. These options are enhanced by opportunities for early or phased retirement and by telework/ home office possibilities. 91 The effect of new technologies on work organisation is enormous and their strategic use can have a huge influence on work/ life balance. Providing the opportunity to retrieve all work-related information via computer at home as well as to finish work tasks from home allows especially women to balance the requirements of family and work to a greater extent. This also carries the risk of the above mentioned spillover effects, where a clear distinction of work and leisure time is no longer provided. Checking emails via smartphone during holidays or making phone calls to colleagues on the other end of the globe during evening activities are just a few examples. Sometimes this is seen as negative. Based on the applied work/ life balance definition, this is not necessarily so. 92 The prototype of employees embracing this technical opportunities because of the ability to time work and leisure independently is the so-called “Generation Y” (also called generation chips or trophy kids). It consists of university graduates and skilled employees that are born in the 1980s and have the financial and personal abilities to use modern technologies naturally. Within the EU, around 50 million people belong to this group, which is deemed to be especially deuvk-lucius.de/ adam <?page no="193"?> 193 manding and self-confident. They explicitly value work/ life balance and expect the possibility to divide their time quite independently between work and leisure. 93 The EU monitors working time as a means to achieve higher European employment rates and considers flexible working time arrangements as a means for enhancing the competitiveness of European organisations as well as of national economies. Since 2004 it regularly publishes cross-national survey on these matters. According to Eurofound’s Third European Company Survey from 2013, roughly 70% of organisations in the EU register at least some part-time workers, differing from more than 90% in Austria and the Netherlands to around 20% in Croatia and Portugal. Flexitime is offered in 65% of all EU organisations, emphasised by the Nordic countries (80% or more) and quite limited in Bulgaria and Croatia (about 30%). Especially in large organisations, employees are enabled to use accumulated overtime for days off work (81%), overall this is possible in 69% of EU organisations. 94 These findings still underscore the country profiles defined during the EU WORKS project of 2007 that distinguished four groups according to their flexibility and employee orientation: the Nordic countries (Finland and Sweden) that are characterised by high, the first Central European cluster by intermediate to high (Denmark, The Netherlands, UK, Czech Republic, Latvia and Poland), the second Central European cluster by low to intermediate (Germany, Austria, Ireland, France, Belgium, Luxemburg, Slovenia) and the South European cluster by low flexibility and employee orientation. 95 Human resource management practices are generally employed to ensure employer attractiveness, employee engagement and employee retention. Naturally, the relevance of certain HRM practices will be measured differently based on the considered goal. According to the Global Workforce Study 2012, a healthy work/ life balance belongs to the top five drivers of sustainable engagement and employee retention. Unfortunately, only 45% of all respondents stated that the organisation makes it possible to balance work and personal life (72% of the highly engaged and only 20% if the disengaged employees) and also 50% stated overall that employees are working more hours than normal in the past three years. 96 VIPs <?page no="194"?> 194 55 Deploying Strategy through People Citations & Notes 1 EFQM & ILEP (2012), p. 24 2 Term and definition of „decruitment” from Robbins, S. P., & Coulter, M. K. (2009), pp. 27-28 3 European Commission (2014a). This website offers additional details about the EU regulations. 4 Definitions of criterion parts: EFQM & ILEP (2012), p. 24 5 Gmür, M., & Thommen, J.-P. (2014), pp. 19-35 All further explanations concerning the four generic HRM strategies originate from this source. 6 Based on Gmür, M., & Thommen, J.-P. (2014), p. 22 7 Gómez-Mejía, L. R., Balkin, D. B., & Cardy, R. L. (2012), pp. 21-34; Gmür, M., & Thommen, J.-P. (2014), pp. 253-269 8 More information on International HRM is also available in Gómez-Mejía, L. R., Balkin, D. B., & Cardy, R. L. (2012), pp. 568-599 9 Contents taken from Deresky, H. (2011), p. 344 10 KPMG International (2013b), p. 6 11 KPMG International (2013b), p. 14 12 More information on the expatriate issue, especially concerning the impact of international HRM is provided in Festing, M., & Müller, B. (2008) 13 KPMG International (2013), p. 46 14 Based on the original U-Curve Model of Oberg, K. (1960) and the extended W- Version from Gullahorn, J.T., & Gullahorn, J. E. (1963). 15 Oberg, K. (1960) 16 Gullahorn, J.T., & Gullahorn, J. E. (1963) 17 Gudykunst, W. B. (Ed.). (2003), pp. 247-250 18 KPMG International (2013b), pp. 43-47 19 KPMG International (2013b), p. 26 20 KPMG International (2013b), pp. 48-49 21 KPMG International (2013b), pp. 18-19; p. 30 22 Definition based on Mowday, R. T., Steers, R. M., & Porter, L. W. (1979); a concise overview of commitment issues and studies provides Robinson, D. (2003). 23 TNS (2004). An overview of their approach could be assessed online, for example at http: / / www.tnscanada.ca/ files/ TRIM-Employee-Commitment.pdf 24 Towers Watson (2013a), p. 8 25 Robertson-Smith, G., & Markwick, C. (2009) 26 Towers Watson (2012), p. 5 27 Towers Watson (2013a), p.8 28 TNS (2004) 29 Example 1 based on TNS (2004); example 2 based on Baker, P. (2013). 30 Towers Watson (2012), p.4 31 Zuckerman, A. (2013) 32 Kremser, A. (2004) 33 All following explanations based on: Heyse, V., & Erpenbeck, J. (Eds.). (2007). Additional information also provided in Heyse, V., Erpenbeck, J., & Ortmann, S. uvk-lucius.de/ adam <?page no="195"?> Citations & Notes 195 (Eds.). (2010). Details can also be found at the website www.competenzia.de. English translations are provided with kind permission by the authors. 34 Based on Heyse, V., & Erpenbeck, J. (Eds.). (2007) English translations are provided with kind permission by the authors. 35 KODE®X Process: Copyright 2003-2014, ACT SKoM GmbH and ISB Information und Kommunikation GmbH & Co. KG. Explanations provided in Heyse, V., & Erpenbeck, J. (Eds.). (2007). English translations are provided with kind permission by the authors. 36 Oxford Economics (2012) 37 Based on Trompenaars, F., & Hampden-Turner, C. (2012), p. 355 38 Heckhausen, J., & Heckhausen, H. (2006), pp. 1-6; Kehr, H., & Strasser, M. (2013), p. 270 39 Based on Kehr, H., & Strasser, M. (2013), p. 271, figure 1; own translation 40 McClelland, D. C. (1987); McClelland, D.C., Koestner, R., & Weinberger, J. (1989) 41 Based on Kehr, H. M. (2004), p. 490 42 Kehr, H. M. (2004) 43 Kazén, M., & Kuhl, J. (2011) 44 Ng, I., Winter, D. G., & Cardona, P. (2011) 45 Hackman, J. R., & Lawler, E. E. (1971); Hackman, J. R., & Oldham, G. R. (1976) 46 Based on Hackman, J. R., & Suttle, J. L (1977), p. 132 47 Oldham, G. R., & Hackman, J. R. (2010) The other articles of this Journal of Organizational Behavior Special Issue: Putting Job Design in Context are also highly recommended for further readings of very recent research on job design. 48 Heckhausen, H. (1977); Heckhausen, J., & Heckhausen, H. (2006) 49 Based on Heckhausen, J., & Heckhausen, H. (2006), p. 5; own translation based on Heckhausen, H. (1977), p. 287 fig. 2 50 This and all further insights into attributional theory is taken from Weiner, B. (1985) and Weiner, B. (1994) 51 Gmür, M., & Thommen, J.-P. (2014), pp.125-137 52 Doran, G. T. (1981); the term “time-bound” is attributed to Hersey, P., & Blanchard, K. H. from the 1988 edition of their book Management of organizational behavior: utilizing human resources, 5th edition, Pearson education 53 Robbins, S. P., & Coulter, M. (2009), pp.361-363 54 Glucksberg, S. (1962) 55 Pink, D. H. (2011), pp. 43-44 56 Sprenger, R. K. (1995), pp. 17-19 57 Ramm, J., Tjøtta, S., & Gaute, T. (2013) 58 Trompenaars, F., & Hampden-Turner, C. (2012), pp.79-80 59 Trompenaars, F., & Hampden-Turner, C. (2004), pp. 42-44, capsule case “the sad history of pay for performance” 60 Contents based on Trompenaars, F., & Wooliams, P. (2003), p. 270, graphic based on Trompenaars, F. (2004, November 16) 61 Trompenaars, F., & Wooliams, P. (2003), pp. 265-270 62 EFQM & ILEP (2012), p. 24 63 Blanchard, K. H., Carlos, J. P., & Randolph, W. A. (2001), p. 6 64 Blanchard, K. H, Carlos, J. P., & Randolph, W. A. (2001). This book offers a detailed description of empowerment, its effect and recommendations for its introduction. uvk-lucius.de/ adam <?page no="196"?> 196 55 Deploying Strategy through People 65 Robbins, S. P., & Coulter, M. K. (2009), pp. 251-265. This book provides a good overview of groups and teams and group processes. 66 Schermerhorn, J. R., Osborn, R. N., & Hunt, J. G. (2005), pp. 194-209; Robbins, S. P., & Coulter, M. K. (2009), pp. 251-265 67 Based on Trompenaars, F., & Hampden-Turner, C. (2004), p. 139 68 Robbins, S. P., & Judge, T. (2013), pp.284-286 69 Robert, C., Probst. T. M., Martocchio, J. J., Drasgow, F., & Lawler, J. J. (2000) 70 Trompenaars, F., & Hampden-Turner, C. (2004), pp. 223-225 71 Based on Trompenaars, F., & Hampden-Turner, C. (2004), p. 225 72 The classification of the dimensions is mainly based on Blundel, R., Ippolito, K., Donnarumma, D. (2013), p. 11 73 EFQM & ILEP (2012), p. 24 74 The classification of the dimensions is mainly based on Blundel, R., Ippolito, K., Donnarumma, D. (2013), p. 11 75 Duarte, N. (2008); Duarte, N. (2010) 76 Pearson English (2012) 77 Hall, E. T. (1976), p. 79 78 Trompenaars, F., & Hampden-Turner, C. (2012), p. 111 79 Ferraro, G. P. (2002), p. 58; Morschett, D., Schramm-Klein, H., & Zentes J. (2010), pp. 138-139; Trompenaars, F., & Hampden-Turner, C. (2012), p. 111 80 Continuum based on Fisher-Yoshida, B., & Geller, K. D. (2009), p. 74 81 Neuliep, J. W. (2011), p. 64 82 The Business Research Lab (2014) 83 Gmür, M., & Thommen, J.-P. (2014), pp. 322-325; Guest, D. E. (2002), pp. 261-267 84 Amongst others, words found in the following publications: Aragona, K. (2014); Ashkenas, R. (2012); Vanderkam, L. (2013); Riordan, C. M. (2014) 85 Guest, D. E. (2002), pp. 264-267 86 Contents based on Guest, D. E. (2002), p. 265 87 OEDC (2013a); OEDC (2014b) 88 OEDC (2014a) 89 Gmür, M., & Thommen, J.-P. (2014), pp. 322-327 90 Krings, B. J., Nierling, N., Pedaci, M., & Piersanti, M. (2009), p. 22 91 Ramioul, M., & Huys, R. (2007), pp. 54-65 92 More details on this topic can be found in Krings, B. J., Nierling, N., Pedaci, M., & Piersanti, M. (2009) 93 The definition and an extensive analysis of this generation can be found in Tulgan, B. (2009) or Ruthus, J. (2013). 94 Eurofound (2013) 95 Ramioul, M., & Huys, R. (2007), p. 40 96 Towers Watson (2012), pp. 7, 11 and 18 <?page no="197"?> 66 Managing International Partners and Resources Readers realise that partners constitute a substantial resource for sustainable international success. They are able to select fitting equity or nonequity foreign operation modes based on different characteristics. Risks, chances and relevant fits for managing different kinds of partnerships can be assessed accurately. The process view on financial management is understood, so that different activities can be placed in the correct functions, taking their interdependencies into account. Readers are able to appraise the effectiveness of compliance and risk management systems based on relevant international norms and frameworks. They are capable to distinguish knowledge from data and information. Different forms of knowledge and resulting organisational learning cultures are understood and can be transferred into a suitable organisational knowledge management system. Organisations make use of many different kinds of resources in order to achieve their goals. The mix of resources used in practice is entirely dependent on the organisation’s purpose, products and services, industry, size and environment. This view is mirrored in the broad resource view of the EFQM criterion four. From an internationalisation perspective, not all resources pose a distinctive challenge. Therefore this section is tailored to the special perspective of TNCs and their universal needs, as illustrated in . Figure 6-1: Concept Map “Managing International Partners and Resources” uvk-lucius.de/ adam <?page no="198"?> 198 66 Managing International Partners and Resources 6.1 A Broad View on Resources: EFQM Criterion 4 Figure 6-2: EFQM Criterion 4 “Partnerships & Resources” and Its Criterion Parts 1 Providing and allocating resources in adequate qualities and quantities is the most important prerequisite for ensuring that the organisation’s operations are conducted according to plan. The EFQM model accommodates this by dedicating two separate enabler criteria to the management of resources. The most important resources, human resources, are addressed separately in criterion 3, as demonstrated thoroughly in chapter 5. All other kinds of resources are dealt with in the EFQM criterion 4. Its criterion parts include natural resources like water, air or ores and physical resources like buildings, equipment and material as well as technological resources of any kind. They also include separate parts for financial resources as well as for information and knowledge, which is now broadly accepted as a resource category on its own due to its relevance for sustainable success. True to the EFQM’s stakeholder approach, the importance of suppliers and other partners for delivering the organisation’s strategy is stressed by providing an own criterion part for their management. An overview of the EFQM criterion 4 is provided in . Analogous with the previous chapters, the focus will be set on those resources whose management is especially influenced by the internationalisation process. Consequently, the issue of managing buildings, equipment and material will not be broached. Environmental management is to a relevant extent locally oriented and very reliant on the practical operations. An international perspective mainly comes from the differences in international environmental rules and regulations, which constitutes more an ethical than a resource management issue. The management of technology, including identifying alternative and emerging technologies and managing the technology portfolio, is particularly dependent on the business sector the organisation operates in and the products or services it offers. As a result its detailed discussion is not suitable for the general internationalisation approach pursued here. uvk-lucius.de/ adam <?page no="199"?> 66.2 Establishing International Partnerships for Mutual Benefit 199 6.2 Establishing International Partnerships for Mutual Benefit 6.2.1 Selecting an Appropriate Foreign Operation Mode Entering a new market involves chances for high rewards but at the same time high risks for the existing organisation. After the strategic decision for market entry is made, a fitting operation mode has to be chosen and established. 2 Figure 6-3: Overview of Foreign Operation Modes As depicted in , foreign operation modes can be distinguished between equity and non-equity approaches and roughly sorted by risks and reward opportunities. The non-equity modes include indirect exporting, licensing, alliances and direct exporting. They are purely based on contractual agreements. Equity modes start with joint ventures that bear risks mainly based on the shares held. Wholly-owned subsidiaries constitute the highest involvement concerning risks and rewards and could be classified into acquisitions (involving international M&A procedures) and so-called Greenfield investments that encompass installing a new organisation in the foreign country. In order to assess the available choices, basically four characteristics can be considered: the amount of control over the activities abroad, the resource commitment involved, the flexibility enabling the organisation to withdraw from this foreign operation if the strategic goals are not met and the risk of losing critical know-how to the foreign operation that might (unrightfully) be used for developing competition, labelled knowledge dissemination risk. provides a general assessment of these characteristics for chosen types of foreign operation modes. It is to be noted that especially the assessment of licensing and joint ventures depends heavily on the kind of cooperation (scope, target, industry), the countries involved and their legal frameworks as well as the terms and conditions of the signed contractual agreement. uvk-lucius.de/ adam <?page no="200"?> 200 66 Managing International Partners and Resources Figure 6-4: Characteristics of Selected Foreign Operation Modes 3 As already discussed in chapter 1.1.2, internationalisation processes of organisations follow complex patterns and are induced for example by strategic aims, risk orientation, location-specific advantages like labour skills or costs, natural resources or hostcountry government incentives and/ or internationalisation advantages based on transaction costs. 4 Culture also has an impact on the choice of mode for a strategic market entry. Based on Hofstede’s framework, some cultures prefer certain modes over others. High uncertainty avoidance cultures, widespread in Latin American and African countries, prefer non-equity modes of entry, as the resource commitment and therefore the risk involved is lower. In contrast, cultures with high power distance (for example Japan and several Arab countries) stress the control aspect of the decision and tend to opt for equity modes. Countries like Japan or China also have longer time horizons, so they are more willing to sacrifice short-term results for an investment in the future. This facilitates the use of modes that involve a higher commitment considerably. 5 The overview provided in follows mainly a risk-induced pattern. Hence, in the beginning non-equity modes of market entry are preferred, followed by equity modes if the market entry is deemed successful. As long as the knowledge about the foreign country, its business framework and its market is low and noteworthy location advantages for the host country are not provided, risk-averse organisations would start their internationalisation process with indirect exports. More complex contractual agreements or equity modes might be used after they feel more familiar and comfortable with the foreign market. Details on these modes will be discussed in the following chapters. 6 6.2.1.1 Cross-Border Strategic Alliances When two or more international organisations make a cooperation arrangement in order to achieve strategic goals for their mutual benefit, this is called a strategic alliance. If the cooperating organisations come from different countries, this is called a cross-border or international alliance. The basic idea is that strengths and weaknesses uvk-lucius.de/ adam <?page no="201"?> 66.2 Establishing International Partnerships for Mutual Benefit 201 of one partner are balanced out by strengths and weaknesses of the other partner(s), enabling all members of the alliance to achieve a joint competitive advantage. Potential alliance advantages like an easier entry into a new market mainly stem from sharing knowledge, expertise and risks involved. The scope of strategic alliances can be very different. It ranges from covering the organisation as a whole (comprehensive alliance) to one or several functions. Typically, organisations combine their forces in research & development, marketing and/ or finance. Even organisations that directly compete with each other use competitive collaboration and form alliances in order to acquire new technologies and skills. Classical examples include the joint development of semiconductors by Siemens and Philips and the cooperation of General Motors and Toyota in car assembly. 7 Strategic alliances could be based on informal or contractual agreements with or without equity investments. When they become manifest in newly established or already existing entities (for example joint ventures), special issues like the form and percentage of ownership or the management approach arise that have to be solved (compare subchapters 6.2.1.3 and 6.2.1.4). Figure 6-5: Relevant Fits in Strategic Alliances 8 In any case the success of an alliance depends upon the selection of compatible partners. Finding a partner with an appropriate “fit”strategic, cultural and process-related is not easy, as it involves the assessment of many different aspects that are summarised in . Unfortunately, many of these aspects are hidden and hardly discernible before the cooperation is in effect. Despite the numerous advantages an alliance can provide, many promising alliances fail as they are not able to prevent the characteristic pitfalls associated with these kinds of cooperation arrangements, as compiled in . uvk-lucius.de/ adam <?page no="202"?> 202 66 Managing International Partners and Resources Figure 6-6: Pitfalls of Strategic Alliances The emergence of stragic alliances changed the face of the airline industry and revolutionised the way customer requirements were met, costs were reduced and market presence was maintained. The case of oneworld constitutes a typical example of a strategic alliance designed for mutual benefit. A thorough description of the global airline industry, the strategic benefits of alliance memberships and oneworld’s profile is provided in Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), pp. 289-299. VIPs 6.2.1.2 Contractual Agreements in International Operations Contractual agreements in international operations are manifold and cover a wide range of cooperation approaches. Their main forms can be distinguished in management services contracts, “classical” licensing agreements and franchising. By an international management services contract an organisation gains the right from an investor to operate the daily business of a third company for a fixed term against a management commission. In this case, the contractor provides special managerial expertise, which could also be used for training national managers so that they will be able to take over the business after the contract ends. These kinds of agreements are quite common in service industries like hotels, airports, hospitals and public utilities. In licensing agreements, the so-called licensor entitles another organisation called licensee to use its intellectual property for a defined period against royalty fees. The right granted can cover any part or several parts of the value chain. As presented in , four typical forms of licensing agreements cover product, distribution, <?page no="203"?> 6.2 Establishing International Partnerships for Mutual Benefit 203 process and brand licences. A product licensee obtains the right to manufacture a product based on precise specifications (including for example formulas or procedures). In case of contract manufacturing, the licensee manufactures the products on behalf of the licensor and sells them exclusively to him. The manufacturer himself does not appear on the market as distribution rights are not involved. In contrast, a distribution license grants the right to market the licensor’s product in a defined territory. Process licenses cover the use of a specific production process based on a distinct technology and are often based on patents. A brand license entitles the licensee to sell his products or services under the licensed brand name. Figure 6-7: Typical Forms of Licensing Agreements Licensing is a good method to gain access to unknown, culturally distant or difficult markets as it requires only a low resource commitment. It enables the organisation to improve service levels in the local market while simultaneously gaining information on product performance and competitor activities. Licensing is also a good instrument to avoid export tariffs and quotas. Corresponding disadvantages lie in the lack of control over the licensee and the disclosure of critical knowledge that might be used for creating future competitors. The strength of both, advantages and disadvantages, depend on the exact agreements in the contracts as well as the legal protection in the host country based on the legal framework and its enforcement possibilities. Franchising as a special format involves licensing products and related services together with trademark and relevant operating principles to a so-called franchisee. The franchisee profits from the expertise of the franchisor and an already established product. This is offset by comparatively high costs in entry fees and royalties payable to the franchisor. International franchise agreements can generally be divided in two types, as illustrated also in Figure 6-7. The standard case is direct foreign franchising, where the franchisor enters directly into individual franchising contracts with all franchisees, independent of the franchisee’s location. Another possibility is the establishment of a so-called master franchisee. In this case, the franchisor signs a master (or general) franchising agreement only and the master franchisee is by contract entitled to grant franchises to sub-contractors in the stated market or region. In addition to these two nonuvk-lucius.de/ adam <?page no="204"?> 204 66 Managing International Partners and Resources equity types of franchising, indirect foreign franchising constitutes a mixture of equity and non-equity modes. A new entity (as wholly or partly owned subsidiary) is set up. By articles of association, this new entity acts as a (master) franchisor and grants franchise contracts in the respective market. From the franchisor’s point of view, franchising offers the advantage to use the local knowledge of the franchisee, to achieve a rapid international expansion of a product or service relatively quickly and to keep overhead costs and investments low. Franchise agreements are very common in the international hotel or fast-food industry, Holiday Inn or McDonalds being typical examples. 6.2.1.3 International Joint Ventures An international joint venture can be classified as a special kind of strategic alliance in which two or more organisations from different countries join to establish a new entity whose ownership is shared through stipulated proportions of equity. Usually, the new entity is established as a legally separate corporation and therefore distinct from its parents. International joint ventures constitute a relevant form of foreign direct investments. The advantages of joint ventures are often used by transnational corporations (TNCs) for a speedy entry into a new market. Developing or transition economies tend to protect their markets and ensure their own development by raising high trade barriers for imports through local content rules or by issuing regulations that allow market entry only if done through a joint venture with a local company. In these cases, a joint venture is the only alternative to circumvent local-content rules and also allows using subsidies or aid programmes provided by the local government. In other cases, TNCs choose an already established partner with local contacts and high expertise in local operations in order to benefit from the acquired knowledge and appear as a local company. Alternatively, the local partner profits from the managerial skills or technical expertise of the TNC whereas the TNC acquires shares in scarce resources, both sharing development risks and costs. Recently, the latter kind of joint ventures are established in order to lead the shale gas revolution in countries rich in these resources, for example China. In this or other areas of strategically important sectors, countries foster their economic development or asset exploitation by offering foreign investors joint ventures with publicly owned enterprises. This was used in 2014 by Algeria to construct a multimillion-dollar centre in the textile-clothing sector. Through the terms of joint ventures host countries are able to ensure that private service providers maintain certain quality standards concerning environmental protection or human health. 9 In return, the foreign investor reduces his risks of harassment and expropriation by the host country. Especially after the economic crisis in the last decade, joint ventures became extremely popular for entering new markets, diversifying or opening up new sources of growth or capital as the financial risks taken are lower than in case of a full acquisition. This allows an international enterprise to spread its limited resources more broadly and thus enter into several foreign projects at once. Reliable data on the importance of joint ventures is hard to get. Older sources state that about 20% of direct investments made by TNCs in other countries are based on joint venture deals. The law firm Allen & Overy states that about 25% of the private M&A deals they advised on in 2012 involved joint ventures instead of full acquisitions and that this number uvk-lucius.de/ adam <?page no="205"?> 6.2 Establishing International Partnerships for Mutual Benefit 205 increased to more than 30% in 2013, especially in the key regions Asia Pacific and Europe. 10 In joint ventures, the level of ownership and the contributions to be made by each of the partners have to be agreed upon by all partners in advance. Consequently, control and flexibility are far lower than in wholly-owned subsidiaries, as already listed in Figure 6-4. The influence on the new entity highly depends on the management approach used. In an assigned arrangement, one partner takes over the management of the joint venture, thus having direct operational control. The other partner in turn has only a very limited control over the joint venture, which is only successful if the partner is trusted to work in both partner’s best interests. This dominant-parent construction is often used by TNCs in cases of joint ventures with small or medium size local partner organisations. In a shared management agreement, both partners (usually equally) fully and actively share the management responsibilities, often delegating former managers of each parent company to take over management tasks. In international joint ventures this requires professionally dealing with cultural differences in many critical aspects. It is also to be noted that this solution involves long decision processes, as the managers on-site only have limited responsibility and important decisions have to be cleared with the responsible managers of both parent companies. In a delegated arrangement, both partners agree not to be directly involved in the management process. The complete managerial control is delegated to (existing or newly-hired) executives of the joint venture itself or in some cases to another company under a management contract. The three approaches are depicted in Figure 6-8. Figure 6-8: Approaches to Joint Venture Management 11 Working together this closely with an international partner requires a very close overall fit; otherwise this endeavour is bound to fail. Unfortunately, it is often the case that the time and efforts needed to investigate the fit of the partner are not taken. According to Zahra & Elhagrasey, international joint ventures have an estimated 60% failure rate due to the fact that in all stages of their creation and realisation typical managerial and decision errors are made. These errors include a superficial way of determining interest (focusing mainly on economic and financial implications without pondering alternative options), a wrong partner selection (not taking into account the complete fit), a legaldriven approach to negotiation (neglecting the organisational factors and the discussion of the potential partner’s assumptions) and a failure to create smooth administration processes (due to restricted communication, differing approaches to sharing power or creating authority lines and poor human resource management). 12 Exercise: International Food Inc. looking for a partner (online) uvk-lucius.de/ adam <?page no="206"?> 206 66 Managing International Partners and Resources 6.2.1.4 Mergers & Acquisitions across Borders and Cultures The statements in the former chapters imply that alliances with or without equity bear the risks of infeasibility, indigestibility and dependency. Creating or acquiring whollyowned (also called fully-owned) subsidiaries, where the parent organisation holds 100% of the equity and exerts full control over the business activities is therefore a viable strategic option. The creation of a new organisation from scratch in the host country is also called Greenfield investment. Typically, the investing organisation sets up a company, buys land and builds new facilities for its own use. The huge advantage lies in the possibility to choose the site and construct facilities that are adapted to fit the requirements without having to deal with outdated equipment, the conversion of inappropriate processes or lingering problems from past activities. Other advantages include special government incentives in the host country (as Greenfield investments classically create new jobs) as well as the opportunity to use innovative procedures and to establish a new, consistent organisational culture. These chances have to be balanced with high risks concerning (financial) resource commitment, availability of fitting personnel, completion date and revenue prospects as well as an unmitigated dependency on political stability. In 2013, the value of announced foreign direct investment (FDI) Greenfield projects worldwide amounted to 672 bn. USD, nearly twice as much as the value of crossborder M&As (349 bn. USD). 57% of these FDI Greenfield investments were announced to be made in the services sector (385 bn. USD) and 38% in manufacturing, whereas primary-sector Greenfield investments amounted to only 5% (29 bn. USD). Between 2003 and 2013, UNCTAD registered on average more than 240 FDI Greenfield projects per year. The risks are also apparent, as UNCTAD states that delays in the execution of announced Greenfield projects are very common, mainly because of changes in political situations and environmental or societal concerns. 13 An alternative to establishing a wholly-owned subsidiary is the acquisition of an already existing organisation and/ or its facilities in the host country (“Brownfield investment”). The acquired organisation (takeover or acquisition target) becomes part of the new parent organisation. A special form is a merger, where two or more organisations combine their assets and resources to create a new, larger entity. Usually, the owners of the merging organisations remain joint owners in the new company. In a merger, in contrast to an acquisition, the newly established entity subsumes the merging firms. In theories on strategic approaches and statistical overviews of international transactions these two forms of FDI are usually bundled under the term mergers & acquisitions (M&A). Based on the addressed levels of the value chain, horizontal, vertical or conglomerate M&A projects can be distinguished. 14 In horizontal M&A projects the affected organisations operate in the same business and on the same level of the value chain. They usually offer similar products or services and therefore have many resources and procedures, e.g. knowledge, technology or sales processes, in common. Recent examples are the acquisition of South Africa’s retailer Massmart by US-American Wal-Mart or the acquisition of Lucasfilm Ltd. by The Walt Disney Company in 2012. 15 In vertical M&As, the organisations combined also operate in the same business but represent different successive stages of the value chain. These M&As are directed either upuvk-lucius.de/ adam <?page no="207"?> 6.2 Establishing International Partnerships for Mutual Benefit 207 stream or downstream, in other words buying a supplier or a distributor, based on the flow of the considered production or distribution process. For example, Google Inc. acquired Motorola Mobility Holdings Inc. in 2012. 16 Conglomerate M&As unite organisations that conduct different, unrelated business and are hoping to profit from diversification effects. For these reasons, Berkshire Hathaway (originally an insurance and reinsurance company) acquired the chemical company Lubrizol in 2011. 17 Strategies for conducting M&A transactions are manifold and could be distinguished based on different perspectives. Selected perspectives, their definitions and related technical terms are presented in Figure 6-9. M&A Strategy Definition Perspective: Attitude concerning the management of the acquisition target Merger of Equals Organisations of comparable size and standing join on equal terms. Frequently, one of the partners is considered the “primus inter pares” after the merger. Friendly Takeover The responsible managers of the acquisition target are in favour of the merger and usually support it openly. Unfriendly/ Hostile Takeover The responsible managers of the takeover target are against the acquisition and/ or were not notified of the offer beforehand. Perspective: Strategic Objective Builder Acquisition Strategic acquisition in order to integrate the target into the acquirer’s (usually TNC’s) network with the aim of realising synergies. Raider Acquisition Purely finance-induced acquisition with the aim of post-acquisition asset stripping. Perspective: Offer Procedure Tender Offer An open public offer is made to all shareholders of the target by the acquiring organisation. All shareholders are contacted directly and invited to sell their shares to the price stated in the offer. Proxy Contest Specific execution of a hostile takeover: attempt of the acquiring company to convince the current shareholders of the takeover target to use their proxy votes in order to install a new management that is in favour of the acquisition. Perspective: Acquirer Management Buyout The acquisition target’s management team purchases the assets and operations themselves. MBOs are often used by TNCs to get rid of non-strategic subsidiaries. Because of the substantial financial assets required, the funding usually consists of a high level of debt and low equity and is therefore sometimes supported by the parent company. Closely related methods are investor buyout or employee buyout. Figure 6-9: Chosen Perspectives on M&A Strategies 18 uvk-lucius.de/ adam <?page no="208"?> 208 66 Managing International Partners and Resources Classical advantages of cross-border M&As include, as already mentioned, the possibility of rapid market entry or market development through direct access to materials, distribution channels, customers or human resources. It is also the fastest mode of diversification. M&A transactions are classically used by mature or declining industries that are characterised by low growth in their home market(s), excess capacities and a few large competitors. The main aim of M&A projects is usually the achievement of synergies, which can also be counted as their main (theoretical) advantage. In these cases, synergies can be defined as the cooperative effect of a combination of forces that is greater than the sum of the participant’s individual potentials (“1+1>2 effect”). As presented in Figure 6-10, synergies can stem from real term issues or financial issues. Real term issues include synergies from functional benefits, resulting from the idea that already established functional departments like research & development, production, marketing or administration can increase their overall output without a pro-rata increase of resources. Functional benefits are mostly based on the achievement of economies of scale or scope and are usually accompanied by cost efficiencies and savings. Know-how transfer synergies are derived from combining the existing knowledge and expertise of all partners to render strategic, management or other organisational processes more effective. An image transfer from the stronger to the weaker partner, the combined market power of both partners or the fit of product ranges can lead to an improved strategic position, enabling the organisation to enhance its revenues. Besides potential tax advantages, finance benefits are typically derived from a possible overall risk reduction and a broader asset range available which lead to better refinancing possibilities. 19 Figure 6-10: Synergies and Barriers of M&A Projects 20 uvk-lucius.de/ adam <?page no="209"?> 6.2 Establishing International Partnerships for Mutual Benefit 209 After the economic crisis of 2008, the value of cross-border M&As has generally followed a horizontal trend, amounting to 349 bn. USD in 2013. Whereas in developed countries M&A projects are declining, acquirer from developing and transition economies are constantly on the rise, as for example Chinese companies that invested 2013 50 bn. USD in cross-border M&As. Megadeals of 2013 include the sale of ConocoPhilips’ affiliates in Algeria to the Indonesian (state-owned) company Pertamina or the sale of HSBC Bank’s affiliate in Panama to Bancolombia. 21 It is apparent that the huge capital requirement for most M&A projects constitutes a massive risk involved. Despite their advantages and frequent use, M&A projects are only seldom able to measure up to the acquirer’s expectations. Different research studies conducted over the last decades report failure rates between 50 and 83 percent (depending on the selection of projects and definition of success). 22 A recent study published by Deloitte in 2012 analysed 116 growth-related M&A deals listed in US public markets and sized 500 million USD or larger. It constituted that only 31 of them (= 27%) could be evaluated as high performing, whereas 73% achieved only low to medium growth results. 23 The main reasons are found in diverse barriers of M&A projects that are also presented in Figure 6-10. They range from structural to power, information or cultural barriers and can result from all kinds of differences that divide the participating organisations. As in alliances, a perfect fit in all dimensions is a main predictor for an M&A project’s success if measured in realisation of previously expected synergies. In this respect, the handling of different organisational and/ or national cultures is probably the most critical success factor in M&A processes. Acculturation can happen in different varieties, as illustrated in Figure 6-11. In case of assimilation, the culture of the dominant partner will prevail, so that the other partner gives up his former culture and adapts. In an integration process, a new culture develops that merges the main elements of the former separate cultures. This can be taken further to a real creation, where a completely new organisational culture evolves that comprises no (or only a few) traces of the former cultures. If the resistance to change is high in both partners, a real acculturation might not arise. Instead, both partners keep their former culture so that these exist in parallel. Such a separation inhibits the formation of a collective cultural identity and impedes the successful management of the merged entities. It is selfexplanatory that a smooth acculturation benefits from certain kinds of M&A strategies, for example a friendly takeover. Figure 6-11: Varieties of Acculturation in M&A Processes 24 The relevance of culture in merger processes is addressed frequently in M&A related articles. Unfortunately, the current practise does not mirror its relevance, as intensive cultural analyses are seldom part of the detailed investigation - or due diligence 25 - of uvk-lucius.de/ adam <?page no="210"?> 210 66 Managing International Partners and Resources the potential target by the acquirer. Although due diligence should serve to confirm up-front all material facts with regard to the acquisition, it is often narrowed to market, financial and product-related aspects. Successfully joining two different organisations across borders is one of the most complex change processes in international management. As M&A literature is dominated by publications from influential consulting firms, a generally accepted model to structure the M&A process is currently not available. However, an M&A process regularly involves legal, organisational, technological and process-related issues as well as fears and sorrows of different stakeholder groups and their group dynamics, namely management and people of all involved partners, customers, investors, and the general public. Apart from the unanimously addressed matter of its extremely high complexity, the lists of potential critical success factors are long and diverse, as numerous academics and consultants try to publish - and to sell - their approaches to M&A procedures. Apart from “technical” mistakes made during the set up and implementation of M&A management processes, many authors focus on “softer” management issues. Steger & Kummer for example conclude that failure results from a vicious circle, starting with internal and external pressure to realise growth and leading to failure due to overconfidence of executives, unrealistic expectations, low initial efforts and resistance to success during the post-merger integration. 26 All in all, the ongoing interest in crossborder M&A underscores that managers and the public tend to demand (too) little follow-up evidence and are not inclined to duly emphasise long-term success. A model case of failure is the merger of DaimlerChrysler in 1998, with nearly 38 billion USD paid by Daimler-Benz for Chrysler, the largest trans-Atlantic merger ever and introduced as “merger of equals”. The new company was set up to take advantage of huge synergy savings in many areas like research and development, product design, purchasing and retail sales. It started with more than 440.000 employees and nearly 100 billion USD market capitalisation. Only three years later, the market capitalisation dropped to 44 bn. USD, hardly more than the Daimler Benz value alone before the merger, due to heavy losses of the Chrysler Group. In 2007, after several years of serious struggles, Chrysler was sold to Cerberus Capital for 7.4 billion USD, marking one of the most spectacular failures in M&A history. The main reasons were found to be serious communication challenges stemming from insurmountable differences in values and cultures as well as a severe lack of trust among the two partners on all levels. 27 Case Recommendation: Nestlé Nestlé is one of the most international companies worldwide, possessing operations in more than 80 countries and more than 2.000 brands (per July 2014). Morschett, D., Schramm-Klein, H., & Zentes, J. (2010) provide on pages 311 to 319 a compelling case study on Nestlé’s acquisition strategy and its structured and successful implementation. 6.2.2 Managing International Partners The EFQM Excellence Model establishes a broad view on partnerships for mutual benefit and stresses the idea that sustainable relationships with all kinds of partners should be based on mutual respect, trust and openness. An essential prerequisite for uvk-lucius.de/ adam <?page no="211"?> 6.2 Establishing International Partnerships for Mutual Benefit 211 this kind of partnerships is to ensure that all partners act in line with the organisation’s values and strategy. 28 As already explained in chapter 3.2.1, the definition of the organisation’s core purpose in its mission statement limits available strategic options and possibilities of forming partnerships. This is of special relevance in the development of the organisation’s value chain. “Make or buy” decisions define the proportion to which activities of the value chain or beyond are carried out and controlled internally (internalisation or insourcing) or assigned to other organisations (externalisation or outsourcing). The already mentioned contract manufacturing constitutes a state in-between. The classification of a process or activity based on its strategic relevance and the organisation’s competence to execute it can act as guideline for a make-or-buy decision. The resulting strategic relevance/ competence matrix is depicted in Figure 6-12. A process of high strategic relevance should always be internalised. In case this is already combined with high competence, it provides the foundation for a competitive advantage and has to be used to its best advantage. If the existing competence is low, it is advisable to develop the competence further as a prerequisite for successful strategic development. Processes that are of low strategic relevance should be externalised. If there are organisations available that excel in these processes, the processes should be outsourced to them. If the organisation itself has high competence in a non-strategic field it could create additional revenue by transferring or selling the know-how to another organisation. Outsourcing to companies outside the home country is called offshoring whereas outsourcing to companies within the home country is sometimes referred to as onshoring. 29 Figure 6-12: Guiding Matrix for Make-or-Buy Decisions 30 Case Recommendation: Rover The changeful history of Rover provides examples for more and less successful alliances and mergers. A brief overview is provided in: Abplanalp, P. A., & Lombriser, R. (2013), pp. 69-76. The rationale for strategic alliances and partnerships focused on so far was mainly based on the core business of an organisation and thus usually related to suppliers, distributors or competitors. The EFQM Excellence Model extends this idea as it encourages management to investigate and maintain partnerships that add value on all levels of the organisation. Depending on the organisation’s strategy and business model, these kinds of partnerships are based on sharing resources, expertise and knowledge uvk-lucius.de/ adam <?page no="212"?> 212 66 Managing International Partners and Resources and can include for example universities (providing knowledge and access to critical human resources), consultancies (offering methodological know-how and consultants) or industry associations (contributing a knowledge sharing platform and political influence). Generally, all relevant stakeholders that are not part of the “customers” or “people” category can be defined as partners and consequently managed. A systematic approach of partnership management includes a strategic segmentation of partners, clearly defined processes and responsibilities for dealing with them as well as the establishment of appropriate networks for identifying potentially beneficial partnerships. 31 Strategic partner segmentation provides the essential framework for the definition of partner management processes. Instead of treating all partners equally and for example devoting the same amount of time to all partners, the segmentation allows shifting resources to the most relevant partnerships. Partner segmentation and assessment is very common in the manufacturing trade, where suppliers are evaluated based on strategic or potential value, contribution to success (e.g. sales volume or reputation) as well as their performance (e.g. quality, reliability and pricing). Premium suppliers often get preferential treatment in terms of contract conditions or volumes and are included in product development or strategy processes. The communication with preferred suppliers is generally based on more direct contacts including meetings on higher management levels and covers more specific and sensitive data on business development or anticipated changes. VIPs The value statement of Great Jeans includes the values “courage, sustainability and cooperation”. A sustainable partnership management is therefore directly linked to their core values. Based on their new strategy, they define the following strategic partners: Suppliers: Cotton suppliers, jeans producers Logistic partner: DHL, as they already have a good long-term relationship Development partners: T-Shirt producer (Sexy-T), special cooperation designers for “sexy fashion” Sales partners: External internet platform provider (Amazon) Strategic Coaches: two NGOs (for sustainability label and developing cotton suppliers) uvk-lucius.de/ adam <?page no="213"?> 6.3 Managing Finance and Governance Processes 213 6.3 Managing Finance and Governance Processes 6.3.1 Optimising Organisational Financial Management According to the EFQM model, managing finances aims at ensuring financial resilience in order to support the overall strategy of the organisation. It comprises more than the methodical definition and execution of financial strategies, investment decisions and classical finance processes for optimising the use and allocation of available funds. Finance management also covers all finance-related corporate government and control systems and processes and thus contributes considerably to the protection of sustained success. 32 With the continuous development of evermore sophisticated corporate finance products and evolving accountability standards, financial management turned from a general supporting function to a field for specialists. Large TNCs are especially characterised by interrelations between their production and finance processes. Due to their specific organisational holding structure and the related centralisation of tremendous financial assets, their financial activities are no longer simply supporting their production activities but become a core business in itself, transforming them to “financial centers with industrial activities” 33 . The specialisation in finance management is mirrored in the specialisation of financial sciences with their related textbooks, focussing for example on accounting or controlling or corporate finance. Figure 6-13 displays the complete overview of all subjects and activities currently related to organisational financial management in a holistic perspective. They will be explained below. Figure 6-13: Organisational Financial Management - Overview Financial management is most closely related to the core activities of an organisation as support function of the original supply chain. The currently accepted denomination for these kinds of activities is “Financial Supply Chain Management”. This part of financial management starts with defining the pricing as well as the terms and conditions of uvk-lucius.de/ adam <?page no="214"?> 214 66 Managing International Partners and Resources payment which then leads to presenting the customers with the respective invoice. A cash forecast forms the basis for the following cash and liquidity management process that ensures that - while the organisation waits for the invoices to be paid - it is able to discharge its liabilities, for example to its suppliers. The liquidity condition of the organisation is defined by the length and volume of the organisation’s performancerelated processes. Financially relevant aspects are the time from delivery of resources until the bill to the respective supplier is paid (days payable outstanding = DPO), the time it takes for the organisation from the delivery of the supplied resources to deliver its products to its customer (days inventory outstanding = DIO) and the time it takes the customer to pay, calculated until the receipt of payment (days sales outstanding = DSO). The capital lockup is calculated as DIO + DSO - DPO and has to be covered by liquidity management which ensures the ability of an organisation to generate cash whenever needed. It is also referred to as working capital management as it covers the short-term financing and investment of an organisation with the goal to provide adequate cash flow for operations and ensure the most productive use of available resources. A good Financial Supply Chain Management ensures that drags on liquidity are reduced, for example by decreasing unnecessary inventory or preventing the delay of cash collection due to deferred customer payments. Therefore, settlement and dispute management activities are included. Whereas the aforementioned steps are an integral part of the financial management of all kinds of organisations, the cash and liquidity management in larger companies is expanded to an overarching treasury management. Treasury operations typically belong to the management of an enterprise’s holding and aim at maximising a company’s liquidity while mitigating typical financial risks by carrying out different kinds of advanced funding, investment and payment activities. These could include hedging of payment or currency risks through or in addition to trading bonds, financial derivatives or currencies as well as managing insurance policies and pension funds. 34 The second area of financial management activities is Financial Accounting which aims at transferring real world economic transactions into finance data. All following activities of financial management use the data and information documented during the initially posting or recording (or colloquially bookkeeping) process, where the transactions are posted, classified and summarised. The posting process follows strictly defined rules of the accounting principles relevant for the considered organisation. TNCs are sometimes in need of following a set of different accounting standards which could be generated by offsetting and reconciliation or (in case of using a modern ERP system like SAP) by directly recording these standards in parallel. The Deutsche Bank for example at times used three different sets of accounting standards: the International Financial Reporting Standard (IFRS) as mandatory for international banks, the German Accounting Standard HGB as German based enterprise (for calculating taxes) and the General Accepted Accounting Standards of the USA (US-GAAP) as required for all corporates listed on the New York Stock Exchange. Nowadays, TNCs are usually allowed to provide IFRS-based figures and only state necessary adaptions to locally required GAAPs. For the compilation of the balance sheet, a valuation of different assets is necessary, for example concerning machinery, inventory, bills outstanding or financial investments. The value ascribed is highly dependent on the accounting principles used, the internal regulations defined and applied and even the scope of judgement allowed and estimates used by the respective accountant. Finally, all business transactions are displayed as money or value flows, profits or losses and all kinds of uvk-lucius.de/ adam <?page no="215"?> 6.3 Managing Finance and Governance Processes 215 assets are registered and evaluated. Financial Accounting is responsible for delivering quarterly and annual financial statements including income statement (profit and loss), retained earnings statement, cash flow statement, statement of financial position and balance sheet, needed for both public disclosure and internal controlling purposes. This also comprises displaying financial key figures as (free) cash flow, earnings per share or return on equity. Depending on the organisational structure and definition of responsibilities, the analysis and interpretation for users as well as the communication to investors and other interested stakeholders is seen as part of the financial accounting process. In other cases, these activities are conducted by controlling and/ or corporate communication departments, defining the provision of statements and key figures as the end of the financial accounting process. 35 The third area of financial management is called Management Accounting or (Finance) Controlling. These activities aim at supporting management decisions by providing information and special analyses that are relevant for day-to-day operational decisions as well as for future plans and strategies. Financial and Management Accounting can be differentiated based on the nature of information, the guidelines used for preparation, the focus of the contents and the recipients. Financial statements produced in Financial Accounting provide only objective information of past operations based on the relevant GAAPs, comprise the whole organisation and are prepared mainly for external users in fixed intervals. Management reports compiled by Controlling or Management Accounting on the other hand offer objective and subjective information about past performance or future potentials and are prepared according to the requirements of the deciders. They are produced in prescribed intervals or ad-hoc if the need for information arises and can cover the whole company or chosen segments. In a first step, the profitability of (past or running) operations is analysed. A main element of a profitability analysis is to classify the costs incurred and to allocate them to cost centres (e.g. business lines, markets/ subsidiaries, departments, projects) or cost elements (e.g. products or process steps/ activities). The cost allocation depends on internally defined standards and has a vital influence on the profitability calculation of products or production sites with far-ranging consequences for strategic decisions concerning their preservation or abolishment. State-of-the-art systems follow increasingly a processbased approach, where the costs incurred for resources (personnel, technology, material etc.) are allocated to performed activities, usually based on time or intensity of resource usage. This is also called activity-based costing. In addition, profits are allocated to profit centres or elements, allowing generating information on the profitability and thus attractiveness of products, product lines or markets. As major input for the following planning process, cost and profit allocation is typically enhanced with a potential analysis (including expected future sales and cost development) or calculated for different future scenarios. This so-called forecasting is based on historic data that is used to determine upcoming trends. Besides creating a major input for the following planning processes, the generated information is also of special importance for strategy development purposes (compare also chapter 4.3). 36 For steering the organisation, resources as well as results are planned based on the organisational strategy and the deduced objectives. This includes revenue, cost and balance sheet planning. In many organisations, these plans are made for the whole organisation and cascaded down to business lines, subsidiaries or departments based on a budgeting process, where suggestions are made bottom-up and afterwards funds and profit expectations are allocated top-down. Nowadays, budgets not only limit uvk-lucius.de/ adam <?page no="216"?> 216 66 Managing International Partners and Resources expenditures but are seen as the means of a performance management process, directing income, profits and returns on investment. They form the basis for controlling the activities on the operational levels and also determine bonuses and other organisational rewards. Controlling of these activities is made by comparing the planned profits with the actually achieved and forecasting the profits based on the performance during the just elapsed review cycle to year end. Thus, (performance) evaluation is an integral part of the controlling process. Unfortunately, the classical budgeting process is timeconsuming and full of potential conflicts. Responsible managers on the operational levels usually have strong incentives to understate possible sales and overestimate costs, so that they are able to report at the end of the year profits above budget and costs below, which typically leads to higher bonus payments. Top management, amongst other things driven by pressure from the investors, strive for the opposite and aim at promising high profits and low costs. Thus, budgets tend to mirror more the distribution of power in an organisation than a realistic scenario of future sales and expenditures. In order to prevent this, planning figures are often based on projections in line with historical developments, adjusted for external or internal changes already made or at least decided upon. It is important to realise that budgets are from their very nature objectified guess-works, as they include predictions about future economic developments outside the sphere of influence of the involved parties. Analysing the budgets in ever higher levels of detail will therefore not reduce uncertainty or raise the accuracy of the analysis. Instead it bears the risk of slowing down decision-making and decreasing transparency. An excellent budgeting process includes formal reviews in reasonable intervals (usually quarterly or half-annually) and allows adjustments to be made based on actual developments. At best, budget reviews make all participants aware of the realistic position of the organisation and reveal barriers and opportunities. This works well if a focus is set on actions and not on justification and re-planning exercises that do not add any value. Despite these possible positive effects, many budgeting processes are seen as being too bureaucratic and cumbersome, timeconsuming and therefore too expensive, limiting the innovation and adaption capabilities of an organisation in such a way that they cause stagnation, paralysation or even noticeable competitive disadvantages. This is especially probable for large international corporate enterprises where budgeting is linked to quarterly public reports on the one hand and done in an extremely instable, constantly changing and innovative environment on the other hand. 37 The Beyond Budgeting Roundtable (BBRT) initiative was founded to replace the common command and control-based management model with a sustainable, improvement-oriented model that is highly adaptive and allows the empowerment of people. 38 By that, it is strongly aligned with the idea of the EFQM model. The Beyond Budgeting Principles (most recently adapted in 2011) centre around a value-based management style, whose exerted governance is not based on a central plan and refrains from detailed rules, restrictions and control. Instead of centralising functions these organisations should be organised around a network of responsible teams that manage themselves (instead of being micro-managed). Alignment is achieved through medium-term goals based on profit potential on all levels of the organisation that are continually reviewed (“stretch goals”). Rewards are based on team performance that is measured by a variety of relative indicators instead of focused on meeting fixed targets. These relative indicators can be based on peer group performance using internal or external benchmarks like profit versus the competition. Stretch goals are accompanied by baseline goals with a lower level of expectations. These prerequisites allow then to remodel the planning and budgeting process, as it makes planuvk-lucius.de/ adam <?page no="217"?> 6.3 Managing Finance and Governance Processes 217 ning a continuous, inclusive review process with dynamic interactions that are not coordinated through annual budgets. Controls are instead based on fast and frequent feedback, ensuring that resources are available when needed. In this context, traditional budgeting is consequently replaced by regular, mostly quarterly strategic reviews called rolling reviews and supported by rolling forecasts, all based on high-level key performance indicators (KPIs) 39 . Key performance indicators are a special type of activitybased performance measure that allow an organisation to analyse the core of its performance in such a way that it finds starting points for effective improvement actions. The performance process thus does not focus on figures or budgets but on actions comprising short-term operating decisions and medium-term action plans. Resource approval is made along the review cycles and based on the value that is (potentially) created, for example using cost-to-income ratio as relevant KPI. This could be steered through a central resource portfolio management or an internal market for resource provision where coordination between different departments is achieved through internal service level agreements and bargained prices. 40 As depicted in the overview (Figure 6-13) apart from the already explained activities related to corporate performance two other relevant topics are covered by Controlling/ Management Accounting activities. The first one is devoted to advanced modes of Investment Management, also denominated Corporate Finance. Corporate Finance deals with capital investment and related (medium to long-term) debt financing decisions based on the organisation’s (strategic) objectives. It is primarily concerned with raising funds and providing maximum value (e.g. wealth) to investors in return. The classical view focuses on the capital market and understands the corporate finance manager as a buyer of capital with the aim to ensure that the organisation has enough financial funds at its disposal to the lowest possible price. A more modern view adds another perspective and sees the corporate finance manager as a supplier of financial securities like loans, bonds, shares, options and hybrid securities that he offers on the security markets to the highest possible selling price. In large corporations, further investment instruments are added to the mix. These include direct financial investments in other companies in forms of private equity and equity related funds (mezzanine) for mature companies, venture capital financing for start-ups or acquisition financing, e.g. financing of (leveraged) buy-outs. It also covers financing Mergers & Acquisitions. In order to be able to choose the best possible finance alternative, corporate finance deals with the assessment of the value creation of the organisation from different perspectives as this forms the basis for the market valuation of the chosen financial instruments. 41 In a value-based (financial) management approach, an organisation uses value principles for performance evaluation of different business units or entities. Especially large corporations carry out reviews of the value creation using (apart from the generated cash-flow already discussed above) specially defined metrics like shareholder value, economic value added (EVA), total shareholder return or market value added. 42 The last activity of Management Accounting to be discussed is the so-called transfer pricing, which is one of the most important topics concerning financial management for TNCs. Transfer pricing is needed when divisions or other related entities of a TNC transact with each other. In these cases, the transaction does not take place on the market, so a market price is not available. Consequently, the costs (and thus the price to be paid by the receiving entity) have to be determined by Management Accounting. Commonly, the involved entities will be interested in a fair price, as a lower price as uvk-lucius.de/ adam <?page no="218"?> 218 66 Managing International Partners and Resources usual for the contemplated transaction will reduce the profits of the seller whereas a higher price than usual will have a negative impact on the profits of the buyer. However, an optimisation of the overall (Holding) profit of the TNC could be achieved when certain intra-group transactions between associated entities are required (instead of chosen freely) so that the respective pricing can be designed, for example, to lower the profits of successful entities in high-tax environments. 43 Thus, TNCs use transfer pricing as a means for profit allocation among the different entities of the organisation and by that determine how many taxes they pay to which country (or tax administration). Transfer pricing also helps them to avoid being taxed twice. The OECD estimated 2012 that about 60% of world trade occurs within TNCs. 44 This explains why transfer pricing and the resulting possibilities of tax avoidance are seen as a high-risk issue for national and international tax authorities. In 1979, the OECD published its first Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (revised and amended in 2010) and introduced in Article 9 the arm’s length principle as the fundamental concept to be used for evaluating transactions between entities belonging to a controlled group. This principle requires TNCs to price their intra-group transactions as if they had taken place on a free market between independent businesses. It should guarantee a consistent basis for profit allocation and allow TNCs to avert double taxation. At the same time it should provide general parity of tax treatment for TNCs and domestic organisations and thus prevent distortion of their relative competitive tax positions. The arm’s length principle as a global standard in transfer pricing is used by nearly all tax administrations around the world. 45 The significance of transfer pricing does not only come from the large amounts of tax involved but also from the complexity of the underlying transactions. Attaining mutual consent on a correct valuation between tax authority and TNC is a controversial issue, as it is highly dependent on a thorough understanding of the transaction as well as its specific commercial context and, naturally, obstructed by conflicting interests. Reaching a consensus is especially problematic when dealing with unique intellectual property, as a comparable product or market is often not available. Transfer pricing is therefore a multifaceted and dynamic field for specialists. The lifecycle includes the phases of planning, implementation and monitoring, documentation and compliance as well as (tax) audit and controversy. Rapidly changing transfer pricing regulations consequently raise the standards and thus increase the risks of non-compliance. 46 According to E&Y’s 2013 Global Transfer Pricing Survey, 66% of the responding tax practitioners and executives of 26 countries reported risk management as their top priority in transfer pricing. The risks concerning transfer pricing become apparent in other survey results, for example that after adjusting their transfer pricing 60% of the responding corporations had to pay an interest charge and 24% have been subject to penalties. 28% testified unresolved examinations. The main problems arise in dealings with developing countries (mainly Africa and BRIC states). 47 VIPs uvk-lucius.de/ adam <?page no="219"?> 6.3 Managing Finance and Governance Processes 219 6.3.2 Ensuring Compliance Risk management and compliance issues go far beyond the aforementioned risks of transfer pricing and exceedingly gained management attention over the last 20 years. The US corporate accounting scandals around the beginning of the millennium followed by the 2008 economic crisis led to constantly rising requirements on corporate governance and corporate accountability. The so-called Sarbanes-Oxley Act (SOX), passed in the USA in 2002, was the first milestone of the post-Enron era with international reach as it had to be followed by all corporations registered on the New York Stock Exchange. It applied considerably raised standards on corporate management and corporate accounting as well as auditing companies concerning the reliability and accuracy of corporate disclosures with the aim of investor and stakeholder protection. At the same time it established enhanced management and auditor responsibility for internal financial reporting procedures, internal control structures and corporate accounts and allowed criminal penalties for managers in case of fraud. Additional or enhanced laws concerning the correctness of financial statements and internal control processes with reinforced management responsibility were issued in other countries as well, often highlighting the importance of sustainable approaches on financial stability by introducing the necessity to take risks into account. For Germany, the KonTraG 48 of 1998 as well as the BilMoG 49 of 2009 are typical examples. Regulatory requirements, especially concerning the banking and insurance industry, also followed this trend. Since then, ensuring that these and other obligations are met is of tremendous relevance and therefore subject to systematic management efforts with clearly defined processes, structures and responsibilities. One of the first internationally recognised standards ensuring good governance through risk management and extended internal controls was the so-called COSO I. The Committee of Sponsoring Organizations of the Treadway Commission (short: COSO), a private sector initiative instigated for providing guidance for enterprises and auditors on (financial) fraud deterrence in the USA, developed its first framework in 1992. It was used as official guidance for compliance with the SOX regulations after they came into effect. COSO I introduced the so-called COSO Cube which originally contained five control components: monitoring, information & communication, control activities, risk assessment and control environment. These aspects would have to be covered in the areas of operations, financial reporting and compliance for all units or activities of the organisation. In 2004, the model was updated to an integrated enterprise risk management framework (COSO II). The associated cube covered 8 interrelated components: internal environment, objective setting, event identification, risk assessment, risk response, control activities, information & communication and monitoring. The components have to be in place on all organisational levels - subsidiary, business unit, division or entity - to realise the organisation’s objectives in the four categories: strategy, operations, reporting and compliance. 50 The latest version of 2013 shows fewer components than that of 2004. The objectives to be supported include now operations, reporting and compliance only, as strategy follows another intention than the more operational-oriented COSO framework. The remaining five components to be established for an optimal control environment cover the control environment itself, risk assessment, control activities, information and communication and monitoring activities. All components should be implemented on the entity level, as uvk-lucius.de/ adam <?page no="220"?> 220 66 Managing International Partners and Resources well as on the level of divisions, operational units and functions. 51 COSO I and II provided innovative guidance concerning relevant management issues but pursued a very technical oriented (financial) auditor perspective. Organisations pursuing these frameworks often misinterpreted some of the terms and followed a more checklistbased approach instead of implementing a continually evolving system. The new framework of 2013 attenuates some of these shortcomings and is more closely aligned to generally recognised management system standards that will be discussed later. Figure 6-14: The Three-Lines-of-Defence Model 52 Combatting failures to conform to legal obligations or fraud led to the upgrade of classical control functions as well as the establishment of several new functions, each specialising in parts of the above mentioned control issues. Controlling often gained more power because of the increased attention to and assignment of internal financial controls in order to ensure the reliability of financial reports. The internal audit function set more focus on auditing financial processes. The resulting reports received more attention from senior management and supervisory function/ board alike. Compliance managers were appointed or whole compliance functions set up for ensuring that mainly legal obligations were met. The compliance function headed by a Chief Compliance Officer (CCO) became highly influential as it deals with the prevention of bribery issues, monitoring purchasing activities and/ or potential tax issues. The risk management functions became equally so as they ensure that risks are assessed, reported and mitigated. Banks and insurance companies for example are obliged to ensure that risk responsibilities are independently pursued, so the Chief Risk Officer (CRO) as part of the board of directors counterbalances his colleagues with market and salesdirected responsibilities. The International Institute of Internal Auditors introduced a concept how different functions ensure effective risk management and control. This Three-Lines-of-Defence Model is depicted in Figure 6-14. The first line of defence is made of management controls and pre-defined internal control measures. These constitute a basic setting that is quite naturally embedded in uvk-lucius.de/ adam <?page no="221"?> 6.3 Managing Finance and Governance Processes 221 every organisation. Management controls refers to internal procedures guaranteeing that important activities cannot be performed without explicit (usually written) management consent. The management signature on the annual report constitutes a typical example. Internal control measures mean all pre-defined activities in the organisation’s processes designed for ensuring that certain mistakes are discovered before an outsider sees them, for example a second person checking the correctness of the invoice before it is paid. Traditionally, organisations of highly regulated industries as well as large corporations possessed a security function (ensuring for example that access to sensitive areas was restricted) and the independent internal audit function as further lines of defence. Internal control measures, security measures and internal audit are also referred to as “Internal Control System”. Although this view is still pursued, especially by external auditors, it can no longer be classified as state-of-the-art as it completely neglects the new specialised functions that evolved over the last years. In contrast to the internal audit department with its separate reporting line to the supervisory function, the new specialised functions are close to the business operations, sometimes providing a mixture of support and control function. Consequently, the Three-Lines-of- Defence Model categorises the special governance-related functions compliance, risk management and financial control as well as the classic security function as second line of defence and moves internal audit to the third (and last) internal line. Based on a broad understanding of relevant control issues, quality and inspection functions can also be seen as integral part of the second line of defence. 53 As they focus on the core production processes of the organisation, they are not directly a part of a governance or finance-related view, which is expressed by using grey colour and dotted lines. Different functions and the resulting split responsibilities carry the risk to duplicate the work or - even worse - lose track of issues covered. In case an organisation follows a holistic approach like the EFQM model, this risk is not very high as all functions would presumably be duly embedded. In all other organisations, however, the resulting disaccord and power struggles calls for a more integrated approach. Over the last years, risk management and compliance both asserted their claim to lead the control system. Although risk management is the older of both disciplines, lately compliance seems to come out ahead. New publications from influential financial auditing companies, for example from KPMG or Deloitte, put more emphasis on compliance than on risk management. 54 A possible reason might be that risk management should already be introduced in most organisations due to legal requirements, whereas the implementation of a broad compliance management system (or an overarching Governance, Risk & Compliance Management System GRC) still offers attractive possibilities for the consulting divisions. Although compliance is a term that is widely used, a generally accepted or legally universal definition is only emerging, so that different approaches to its definition are still common. Generally, compliance in a business environment means that an organisation fully meets (“complies with”) all requirements (also called “compliance obligations”) made by applicable laws, rules and regulations. These also include internally set standards, policies and directives like codes of conduct and good (industry) practices. Compliance is achieved by establishing a compliance management framework that uses clearly defined responsibilities and processes to ensure that all relevant activities are carried out according to the relevant requirements and to defend the organisation against possible violations. Already in January 2014, the International Organization for Standardization ISO published a draft report concerning guidelines on compliance management systems uvk-lucius.de/ adam <?page no="222"?> 222 66 Managing International Partners and Resources and asked for voting until April (ISO/ DIS 19600). The final standard ISO 19600: 2014 came into effect in December 2014. As classical guideline, the standard provides support in establishing a system but does not include requirements for certification. ISO 19600: 2014 advocates a stakeholder-based compliance approach as it explicitly addresses requirements from a broad range of stakeholders including customers and enhances the internal rules and codes by key standards, benchmarks and certificates that are chosen voluntarily by the organisation to pursue its strategic objectives. Thus, compliance also forms the basis for the effective achievement of ethical aspects of the organisation’s conducts and its social responsibility targets. The systematic approach is closely related to other available management system standards like for example the occupational health and safety management standard OHSAS 18001 (to be replaced by ISO 45001), the social responsibility standard ISO 26000 or the ISO 14001 that includes in its environmental management approach already elements of compliance. 55 The newly developed, generic “high level structure” for all ISO management system standards ensures that compliance management can be combined directly with all other ISO management system standards that were defined or revised after 2012. This includes the newest standard for quality management (ISO 9001: 2015 as referred to in chapter 7.3) or the closely related ISO standard for risk management (ISO 31000: 2009, revision process started). Figure 6-15: ISO High Level Structure for Management Systems 56 As depicted in Figure 6-15, all management systems based on the high level structure are arranged along the improvement-driving Deming or PDCA cycle as defined in chapter 1.3.4. Every successful management system is tailored to the organisation; therefore understanding the organisation and the relevant interested parties forms the basis for the defined scope and contents of the management system. Leadership responsibility is explicitly established which is mainly conveyed through formulating the strategy and system relevant policies, defining roles and responsibilities and showing ongoing commitment. This can be seen as being the starting point of the planning stage which adds risks, opuvk-lucius.de/ adam <?page no="223"?> 6.3 Managing Finance and Governance Processes 223 portunities, objectives as well as measures and supports the system’s establishment with all resources needed. ISO management systems stress the importance of human resources by plainly addressing the people’s competence and awareness as well as communication issues. The operation stage is particularly dependent on the designated management system (be it compliance, risk, quality or any other type) as it includes all processes and activities relevant for the particular topic. The operations are consequently evaluated using different monitoring and analysis instruments as well as internal audits and management reviews. The cycle is completed by actions to be taken in case the evaluation indicates requirements and objectives that were not met, be it corrective actions or continual improvement measures. 57 The high level structure shows that ISO’s approach to management systems is clearly aligned with the underlying logic and principles of the EFQM model, which allows easy integration of all addressed topics into the holistic overall approach. Figure 6-16: Compliance Management Process Based on ISO 19600: 2014 58 Main activities in operational compliance management according to ISO 19600: 2014 cover the steps as defined in Figure 6-16. The process starts with the identification of compliance obligations and the related maintenance to ensure that changes in compliance obligations are identified and evaluated. Afterwards, related compliance risks are identified. Typical compliance risks cover for example accounting issues like inaccurate financial reports, fraud or SOX noncompliance. Other areas of compliance risks include business ethics failures/ corruption (conflicts of interest, breaches of bribery conventions or codes of conduct, exposure of confidential customer information), employment related risks (workplace harassment or violations of applicable laws, for example concerning equal opportunity or immigration), offenses against competition or anti-trust regulations (price fixing, collusion and cartels), corporate processes such as tendering practices or product issues like safety failures or patent infringement. 59 The identification is followed by a risk analysis dealing with the probability and possiuvk-lucius.de/ adam <?page no="224"?> 224 66 Managing International Partners and Resources ble impacts of non-compliances. This analysis takes for example the competence and knowledge of the required personnel, the reliability of the designed processes, legal fines and possible reputation issues and resulting effects into account. Finally, the analysis results in a risk evaluation, where the risks are ranked and priorities for their treatment are established. Afterwards, actions to address the assessed compliance risks have to be taken. These actions deal with ensuring that substantial risks will not manifest themselves. Typically, compliance risks are mitigated by establishing and implementing effective controls and related procedures in all relevant processes. The standard stresses the importance of awareness of all people working in the organisation and the need to create a fitting compliance culture. Compliance can only be sustained in the organisation by embedding it in an organisational culture that fosters the right attitudes and behaviour of its people. 60 Already in 2010, the OECD published its Good Practice Guidance on Internal Controls, Ethics and Compliance as part of its programme for promoting the full implementation of the OECD Anti-Bribery Convention. It mentions 12 good practices for the purpose of bribery prevention that start with senior management commitment and include inter alia an appropriate policy, effective measures to detect bribery acts, advice and communication as well as periodic programme reviews. The programme should be applicable to all of the organisation’s people and entities and should explicitly cover areas like gifts, hospitality and entertainment, donations, facilitation payments and extortion. 61 The German institute of external auditors (Institut der Wirtschaftsprüfer IDW) published 2011 an assurance standard relating to Compliance Management Systems called IDW PS 980 (or IDW AssS 980 in English). It has to be observed by all membership institutions and their auditors that perform a compliance management assurance engagement. The seven basic components that are expected by this standard include a compliance culture, compliance objectives, identifying compliance risks, a resulting compliance programme with procedures, policies as well as measures for responding to these risks, a compliance organisation and communication related to compliance. It also stresses the importance of monitoring and continuous improvement of the whole compliance management system. All components as well as typical areas that should be addressed are described and provided in table listing formats including advice on specific framework designs established in major jurisdictions. Auditors use this framework to assess the design, adequateness of implementation and effectiveness of the compliance management system. 62 The alignment of this framework with the ISO 19600 model is evident which proves that an international state-ofthe art approach is nearly achieved. KPMG analysed 2013 the status of compliance management systems in German companies based on responses of compliance officers of 70 companies from different industries. The analysis confirmed that the importance of compliance is still on the rise and that compliance risk management is institutionalised in 80% of the listed companies and 60% of SMEs. Interestingly, companies with international business activities often seem to underestimate related compliance risks, for example that mere supply and service relationships suffice to be subject to the local anti-corruption laws of the partner - for example the UK Bribery Act when doing business in Great Britain. Areas of legal compliance risks that were most relevant to the participating companies were (in ascending order) protection of intellectual property, anti-discrimination, anti-trust, breach of trust and damage to property, anti-corruption and especially data protection. In the banking industry, money laundering was also mentioned. Main areas for necesuvk-lucius.de/ adam <?page no="225"?> 6.3 Managing Finance and Governance Processes 225 sary improvements in compliance management were communication and culture. More than 50% of the SMEs stated a need for actions in both areas. Listed companies performed better, but saw clear optimisation potential as well (56% concerning communication and 85% concerning culture). 63 VIPs 6.3.3 Managing Risks With the rising requirements since the end of the last millennium concerning risk management and the need to publish risk reports as integral part of the annual report, many different approaches of risk management surfaced. Most of these approaches were provided by influential auditing companies that set their own standards, as a generally accepted framework was not available and the need for guidance was high. Already in 1995, the standard body of Australia and New Zealand published a first standard on risk management (AS/ NZS 4360: 1995) and accompanying guidelines that were amended in 1999 and in 2004. 64 Also in 2004, COSO II outlined its general approach to Enterprise Risk Management and the Austrian standard body published a wellreceived family of standards (in the German language) ONR 49000ff. Amended in 2008 and adjusted in 2010 it provided a comprehensive system of rules for risk management including requirements for certification, guidelines for risk management systems, basic terms and definitions as well as additional guidelines dealing with methods for assessing risks, business continuity management and qualifications of risk managers. 65 These guidelines created a major input for the work on an international standard for risk management. With the publication of ISO 31000 “Risk management - principles and guidelines” in 2009, the former approaches for risk management converged to a generally accepted framework. Until 2014, this framework became so popular that it was ranked number 5 of all ISO standards (outperformed only by the classic standards like quality or environmental management) and was classified as the “de-facto world standard” by the OECD. Being published in 2009, it does not yet follow the ISO high level structure. The recently started revision should ensure compliance with it until 2015. 66 The emergence of ISO 31000: 2009 harmonised approach and vocabulary of risk management. It defines risk as (every) “effect of uncertainty on objectives” 67 and thus provides the broadest definition possible, as it includes negative deviations from expected outcomes as well as positive (commonly referred to as “opportunities”). This is of special relevance in the business environment for several reasons. First, it ensures an entrepreneurial view on risks, as it introduces the accordingly aligned risk management uvk-lucius.de/ adam <?page no="226"?> 226 66 Managing International Partners and Resources as a relevant partner for strategic decision-making and opportunity-seeking without limiting it to financial issues. Second, it fosters the understanding that every chance is related to risks and that an outperformed objective can also have negative consequences as the resources used could have been better invested for other issues (opportunity costs). A focus on deviations from objectives also mirrors the view of the stock markets, where a good performance can be punished if it does not meet the (may be exaggerated) expectations. In supplemental notes ISO 31000 also forms the basis for mathematical risk management methods, as it explicitly states that risks are frequently characterised by orientation on potential events and consequences and a related likelihood of occurrence. It is important to note, though, that risk is not limited to mathematical expressions, so that non-quantifiable risks should not be excluded. Risk management in general covers all related coordinated activities to direct and control any kind of organisation with regard to risk. These activities are executed as part of a risk management framework, namely a set of components that provide all organisational prerequisites for applying the PDCA cycle and all related topics discussed during the introduction of ISO’s high level structure (compare 6.3.2) to risk management. In this respect, ISO 31000 also stresses the importance of management commitment, development and communication of a (risk-related) strategy, creating awareness and a risk-sensitive culture. As this framework can be used for all kinds of organisations, regardless of size, industry and nationality, the guidelines are quite generic and require an individual adaption to the organisation’s business and context. 68 Additional guidance for the effective implementation of this standard is provided by auditing companies, consultants and since 2013 also by the related norm ISO/ TR 31004: 2013. A good risk management strategy (ISO 31000 uses the term “policy”) goes far beyond a classical strategy paper. Apart from explaining the rationale for risk management, linking risk management objectives to the overarching organisational objectives and establishing accountability it should provide very practical limits for the acceptance of risks on a broad level. The amount of risk an organisation deems to be acceptable in its pursuit of value is also called “risk appetite”. If it is not defined and communicated before the actual risks of the organisation are assessed, top management tends to accept more risks than economically reasonable. The risk appetite has to be monitored and updated regularly. In the banking sector, regulations require a very detailed definition of acceptable risks on product or portfolio levels that limit the respective business activities. 69 The individual risk management process served as a model for the discussed compliance management process and is therefore closely related. It consists of the four steps: identifying, analysing, evaluating and treating risks, as portrayed in Figure 6-17. Risk identification, risk analysis and risk evaluation are summed up to risk assessment. 70 uvk-lucius.de/ adam <?page no="227"?> 6.3 Managing Finance and Governance Processes 227 Figure 6-17: Risk Management Process Based on ISO 31000: 2009 71 A sound approach for risk identification uses an internal collection of risks and already reported incidents as well as a bottom-up survey of all different functions as well as workshops with internal and/ or external participants. The aim is to produce a comprehensive list of risks (and, if implemented completely, opportunities) that is organised by risk categories and sub-categories and also addresses the business unit, organisational function or project it belongs to. 72 An overview of possible areas to look for relevant risks can help in the risk identification process. For some industries, checklists are available, for example from trade associations or regulators. For the banking industry, for example, Basel II or recently BCBS 239 regulations (and the resulting national regulations) define that every bank has to assess the adequacy of the bank’s capital against the bank’s general risk profile, undertaking a so-called Internal Capital Adequacy Process (ICAAP). ICAAP covers the design and implementation of a risk-adjusted management framework which would also be in conformity with ISO 31000. It should include at least credit, operational and market risk (which are defined in detail) as well as additional risks, namely concentration risk, interest rate risk, foreign exchange risk, liquidity risk, sovereign risk, reputational and strategic risk. The regulations classify loss event categories that mention further details like unauthorised activity, theft and fraud, systems security, employment practices and workplace safety, damage to physical assets, business disruption etc. 73 A research paper sponsored by COSO provides practical ideas for typical risks in the production industry like for example supply chain disruption, customer preference shift, work stoppage, economic downturn, new substitutes, tighter emission standards or emerging local competitors. 74 According to a KPMG study from 2013, the respondents from different industries saw the greatest threats resulting from regulatory pressure, reputational risk, geopolitical risk, supply chains disruptions and information security/ fraud. 75 Risk analysis aims at developing a deeper understanding for the risk involved and its impact on the development of the organisation. It deals with qualitative and quantitative issues like analysing sources and causes of risk, determining consequences (positive or negative) and estimating their likelihood. A large range of different analytical uvk-lucius.de/ adam <?page no="228"?> 228 66 Managing International Partners and Resources tools (for example scenario analysis, fault tree analysis, Monte Carlo simulation) can be used at this stage. Overviews are provided in the recent risk management literature or for example in the supporting ISO standard IEC 31010: 2009 dealing with risk assessment techniques. 76 There are a number of risk reports available from consultants, NGOs or governmental organisations that already provide analysis of certain kinds of risk. The World Economic Forum for example publishes regularly global risk trends that are of special (strategic) importance for international organisations as the risks analysed are deemed to cause significant negative impact for several industries and countries. In its global risks report from 2014 it mentions the following five risks of highest concern (in descending order): fiscal crises in key economies, structurally high unemployment, water crises, severe income disparity and failure of climate change mitigation and adaption. 77 Depending on the organisation and its environment and on the type of risk analysed, consequences and likelihood can be expressed differently by using different methods. Typically, assessment criteria are developed using organisation-specific scales with ratings and descriptors. These impact and likelihood (risk ranking) scales comprise 4 or 5 rating stages that are described in qualitative and/ or quantitative terms. COSO for example recommends a 5-stage impact scale ranging from incidental over moderate to extreme with definitions covering for instance financial losses of several millions, media attention, injuries and staff satisfaction issues. The related likelihood scale would be based on annual frequency of occurrence (for example level 5 frequent = once in two years or more, level 1 rare = once in 100 years or less) or probability in %, where calculable. The following risk evaluation deals with preparing the results for managerial decision making by comparing the levels of risks found with pre-established criteria, limits and the overall risk tolerance. It establishes a risk ranking as a basis for defining the following risk treatment. 78 An overview is often provided in a so-called risk map or heat map as presented in Figure 6-18. The white, light blue and dark blue areas result from the limits defined in the risk appetite. The analysed risks will be numbered and these numbers and the results of their analysis will be integrated in the heat map. The white area coves acceptable risks where a (further) treatment is not needed, as for example risk no. 3). The dark blue area includes risks of high relevance that require for Figure 6-18: Sample Risk Map uvk-lucius.de/ adam <?page no="229"?> 6.3 Managing Finance and Governance Processes 229 example immediate actions or are to be reported to the executive board, as for example risk no. 2). Risks in the light blue area are also to be treated but with a lower priority or in a wider time frame or subject to decisions of lower managerial levels, depending on the definitions used in the respective organisation. 79 Risk treatment options include risk avoidance (for example refraining from opening a subsidiary in China), modifying the likelihood and/ or impact of risk (for example by installing fire protection systems), transferring the risk by covering insurance or taking the risk in order to pursue an opportunity. 80 The impact of risk management on the sustainability of an organisation depends highly on the organisational culture and the risk orientation of its people, especially top management. The risk orientation of organisational cultures can be classified as depicted in Figure 6-19. When risk management is forced upon a Cowboy culture, it is quite probable that its activities prove futile and the reports are prepared for compliance reasons but not truly used for managing the organisation’s risks. In an extremely risk averse culture, risk management has to be careful not to create additional anxiety as otherwise it might add to the fear of taking (strategic) chances and thus create stagnation. This is especially likely if risk management is focussed on risk and does not take related chances into account. In an organisational culture that is already riskscrupulous, risk management is encouraged to perform very extensive risk assessments and produce voluminous reports. It is important to understand, that even the most scrupulous assessment will not be able to completely reduce uncertainty, as especially the international business environment constitutes a complex system with countless influences that elude complete analysis. The ideal culture for an effective risk management system constitutes the Controlled Entrepreneur variety, as it allows risk management to pursue its analyses with a sense of proportion and includes the results in an overall strategy-based performance process. Figure 6-19: Organisational Cultures and Risk Orientation 81 Although risk management has been required for many large organisations for more than 15 years and for others for at least 5 years, KPMG reports considerable room for improvement. Based on a global survey of 2012 with more than 1.000 respondents of risk-related functions from more than 20 industries, they constituted that the challenges in the wake of the financial crisis still affect all industries and are growing faster than most of the organisations are able to respond. Risk management shows significant gaps uvk-lucius.de/ adam <?page no="230"?> 230 66 Managing International Partners and Resources and weaknesses, especially as it is often a side-function and not integrated in a holistic management perspective. Risk assessment is not done consistently. In 48% of all cases risk management performs a bottom-up risk assessment (at least once a year) but only 34% of all respondents align it across all control functions to achieve a comprehensive risk profile. A common understanding of an acceptable volume of risks is often not achieved as an official risk appetite statement is only provided by 19% of all companies. The organisations’ ability across all lines of defence to identify, assess and manage current and emerging risk is only rated very effective by one fifth of the respondents. Half of them rate the first and second line as somewhat effective, and about one fifth rates the first lines of defence as slightly or very ineffective. Thus, it is no surprise that only 47% see risk management as adding value to their overall business. 82 VIPs 6.4 Managing Knowledge and Information 6.4.1 Managing Knowledge Systematically Since Peter Drucker’s anticipation of the emerging knowledge society in the 1990’s, 83 knowledge is increasingly understood as the single most important resource for any kind of organisation as it is deemed critical for competitiveness, innovation and thus organisational growth. The importance of knowledge is also mirrored in the most recent version of the world quality management standard (ISO/ DIS 9001: 2014) that establishes in 7.1.6 the requirement to “determine the knowledge necessary for the operation of its processes”. This knowledge shall be maintained, made available and considered behind the backdrop of changing needs and trends, so that gaps in the available knowledge can be assessed and measures to close these gaps by acquiring or accessing necessary knowledge can be determined. 84 Still, a generally accepted definition of knowledge is not available, as streams of research originate from different disciplines (e.g. management science, information technology, sociology) that each set their own emphases on certain aspects. Knowledge can be understood as a justified belief, a situated cognition or a process of knowing. 85 The very precise definitions of the ISO DIS 9001: 2014 develop an understanding of knowledge based on a three-step-approach: first, data is defined as (pure) “facts about an object”. Information, however, is “meaningful data”, so that the data can be organised based on a frame of reference. Knowledge, finally, is defined consecutively as “available collection of information being a justified belief and having a high certainty to be true”, which provides context to a single piece of information, allows its appraisal uvk-lucius.de/ adam <?page no="231"?> 6.4 Managing Knowledge and Information 231 and includes the opportunity to take action on it. The ISO logic also builds on that as it defines competence as “ability to apply knowledge and skills to achieve intended results”. 86 Whereas, for example, the name “Steve Jobs” might just be a name and thus data, it becomes a piece of information when this fact is amplified by understanding that Steve Jobs was an American entrepreneur, co-founder and CEO of Apple Inc. It becomes knowledge when it is connected with information about Apple and the fact that he was one of the pioneers in the personal computer field and highly influential in developing consumer electronics like iPod or iPad. The three-step-approach to knowledge was originally developed by Ackoff in 1989, who added understanding and wisdom as further categories in this chain by narrowing knowledge to simple application of information (answering “how” questions”) which can be enhanced to understanding by being able to synthesise new information or even knowledge from the previous level. So understanding leads to additional knowledge. Wisdom as the highest level of achievement is an evaluated, deep understanding, the optimum judgement, where a totally new perspective is achieved by a human mind. Wisdom, thus, can be seen as deep philosophical probing. 87 It is quite clear that in the business context, where organisations strive to exploit and manage knowledge as a resource to support their objectives, Ackoff’s distinctions are not useful. The difference between simple and advanced questions is not relevant and in practise hard to make, thus understanding can be seen as an integral part of knowledge. Wisdom belongs to a sphere of thinking and differentiation that provides mainly a philosophical but not an additional organisational value and is thus seldom included in managementoriented publications. Consequently, the EFQM states that excellent organisations “transform data into information and where relevant into knowledge that can be shared and effectively used” 88 . An overview of differing dimensions of knowledge is provided in Figure 6-20. A relevant distinction is to be made between explicit and tacit knowledge as well as individual and social (or collective/ organisational) knowledge. According to Spender (1996), explicit social knowledge is objectified, which means formulated in words or visuals and recorded in documents or databases and related procedures. Therefore it can be accessed comparatively easy. This has the huge advantage of being able to be shared quite freely internally but also bears the risk of being easily accessible or imitable from the outside, e.g. by competitors. Therefore, this kind of knowledge is usually highly protected, for example by data security measures or patents. Tacit organisational knowledge, on the other hand, is implicit knowledge that is shared by a team (collective knowledge) without records, which makes it hard to imitate for any kind of person outside the respective collective. Inside an organisation, knowledge sharing mechanisms are necessary to make this collective knowledge available for transfer, for example in forms of benchmarking or improvement initiatives. Tacit knowledge on an individual level describes automatic behaviour that is so implicit, that it cannot be passed on to others, as even the individual is not fully conscious about it. Management skills, for example, are hard to be transferred from an experienced manager to a new colleague, as a majority of his decisions and resulting behaviour is not based on a discernible decision process. Conscious knowledge is categorised as explicit individual knowledge. The person in possession of this knowledge might be tempted to use it for his or her own gain, for example by selling it to outsiders or exchanging the workplace for one with a competitor for a higher salary. This risk could be mitigated by regulations like confidentiality provisions in work contracts. On the other hand, incentives uvk-lucius.de/ adam <?page no="232"?> 232 66 Managing International Partners and Resources are necessary to induce knowledge monopolists to share their conscious knowledge with other colleagues. The distinct weakness of Spender’s approach lies in the fact that it does not provide any information on how these types of knowledge interact. 89 Figure 6-20: Knowledge Dimensions 90 Another definition of basically the same knowledge dimensions was presented by Lam in 2000. She distinguished dimension-based categories as also listed in Figure 6-20 with the relevant distinction that her typology comes from an organisational context and links the process of knowledge generation with its cognitive dimension instead of setting it apart. The idea is that knowledge development is a continuum or process. It starts from the individual internalisation of knowledge that at the same time has to be embedded in the organisation and will finally be confirmed through organisational routines. The general definition of the knowledge categories in themselves are not extremely different from Spender’s ideas. Embrained knowledge combines the individual with the explicit dimension. It is dependent on an individual and his or her cognitive abilities and conceptual skills, encompassing any kind of abstract or theoretical knowledge, for example scientific knowledge. This kind of knowledge is fundamental for the status of knowledge workers (in Western societies). Embodied knowledge is based on practical experience and thus action-oriented. This individual/ tacit knowledge is not necessarily processed through a conscious decision-making process but has a strong automatic component. It is extremely context sensitive and relevant only when a fitting practical problem occurs, so that knowledge generation and application cannot be separated. Encoded knowledge on the other hand is explicitly shared in a collective by signs and symbols. This knowledge is codified, can be stored and stems from the abstraction of individual knowledge and experience. It allows management to steer behaviour in an organisation by written rules, procedures and regulations and thus facilitates its control. This kind of knowledge creates objective scientific knowledge by simplifying and selecting certain aspects for encoding. Thus, it is not able to capture tacit skills or individual judgemental processes. Embedded knowledge is the organisational version of tacit knowledge that is expressed in shared norms and organisational routines. This kind of knowledge enables effective communication as it is relation-specific, context-specific and widespread. 91 As Lam describes it, a “form of knowledge capable of supporting complex patterns of interaction in the absence of written rules” 92 . According to Lam, the relative importance of these knowledge types differ in organisations, which leads to different organisational abilities concerning innovation and learning. Organisations favouring an explicit knowledge base tend to set emphasis on control and formal, centralised structures, as this kind of knowledge can be easily standardised. On the other hand, organisations with a tacit knowledge base uvk-lucius.de/ adam <?page no="233"?> 6.4 Managing Knowledge and Information 233 are especially dependent on the commitment of all knowledge bearers and thus want to mobilise these individuals to spread the knowledge. The people contributing to and enhancing the organisational knowledge-base are called knowledge-agents. Some organisations rely heavily on a few key individuals for knowledge creation which will ideally be granted a high level of autonomy. In other organisations, knowledge is widespread and gathered collectively. These kinds of organisations will need to develop mechanisms that ensure effective integration and coordination of knowledge-related activities and learning. 93 Correctly assessing the organisation’s learning dynamics (or organisational learning culture) is a relevant prerequisite for managing knowledge effectively. An overview of a resulting portfolio of organisational learning cultures is presented in Figure 6-21. Figure 6-21: Organisational Learning Cultures 94 A professional bureaucracy is defined by an emphasis on formal “embrained” knowledge that stems from a few highly trained experts. The organisation is coordinated by the standardisation of skills and knowledge which is achieved through training that imparts knowledge based on internal work rules or policies. The necessary individual experts enjoy a high level of personal autonomy whereas all other follow predetermined paths. Standards to be applied and boundaries of the knowledge used are based on conventional knowledge provided by professional bodies and universities. The organisation favours a high degree of functional specialisation. Consequently, shortcomings are the transfer of tacit knowledge (as this is not fostered) as well as the knowledge dissemination between people and across functions. This culture possibly inhibits innovation. Machine bureaucracies favour encoded knowledge, so this organisation successfully standardises processes and uses a high level of control. It fosters efficiency and stability. Performance standards and policies are centralised and formulated by the official management hierarchy, which are also the only ones that have a complete overview of the whole body of knowledge. Knowledge aggregation is conducted through extensively used management information systems. In lower levels, the knowledge is typically specialised and fragmented. The high emphasis on encoded knowledge leads to a loss of a large portion of tacit knowledge, which in turn leads to problems in coping with new developments or change. Organisations that value tacit knowledge on an individual basis are called operating adhocracies. They are characterised by an extraordinary low level of standardisation and draw their strengths from the diversity of problem-solving skills and know-how that is embodied in their employed uvk-lucius.de/ adam <?page no="234"?> 234 66 Managing International Partners and Resources specialists. This specialist status stems from a broad practical experience and the ability to apply it “ad hoc” to new situations. They are granted therefore a high level of discretion in their work. Through the autonomous use of extensive experimentation and creative problem-solving they enhance the organisation’s knowledge base and ensure the fulfilment of stakeholder requirements. This kind of expert-driven knowledge culture is often found in knowledge-intensive organisations offering software development or management consulting services. Organisational learning is a collaborative innovation effort as several experts of diverse functions join their knowledge to solve a presented problem. The speed of adapting to a new environment and discard outdated knowledge is crucial for the organisation’s survival, as is the capability to keep this unique expertise of the specialists exclusive. When tacit knowledge does not stay with the individual but is embedded collectively in the organisation instead, it is called a J- Form organisation. Its knowledge is implanted in its processes, team relationships and shared values. This special kind of three-layered organisation is able to fulfil a balancing act between the team dynamics and flexibility of an adhocracy on the one hand and the efficiency of a bureaucracy on the other hand. This is realised due to an unusually strong organisational culture that links and binds the people together through common goals and shared values. Functions and hierarchies are permeable, so that members are able to switch between the different layers and contexts dynamically. This can be achieved practically by using semi-autonomous project teams that consist of members from different functions and thus integrate and create knowledge out of the different individual areas of expertise. The knowledge generated is then disseminated broadly across the organisation, as the temporary members return to their former positions or rotate to the next projects. The integration is fostered by the formal structure as well as defined methods and processes. Knowledge, explicit or tacit, is stored organically in the operating workflows and human relations across the whole organisation, and allows fusing, synthesising and combining this existing knowledge continually to achieve innovation. As with all strong cultures, information not fitting to former valued knowledge might lead to an organisation-wide denial, so that learning opportunities derived from new experiences - especially if coming from only one individual - could be reduced. J-form organisations are far more stable than adhocracies, which in turn disrupts radical innovation. 95 The main steps in dealing with knowledge from a general organisational perspective can be described as creating, mobilising and leveraging knowledge, supported by knowledge artefacts like IT-based knowledge management solutions and tools. This is depicted in Figure 6-22. Creating knowledge includes all activities of organisational learning on an individual, team and holistic level. The activities range from acquiring knowledge, distributing information and interpreting information to submitting information to the organisation’s memory. Mobilising knowledge ensures that the knowledge creation is fostered by implementing an effective knowledge management system from management commitment to the establishment of a knowledge-sharing and empowering organisational culture with supportive informal networks and finally to auxiliary human resource management practices. The practical form is dependent on the organisation’s size and purpose, introduced processes, routines and provided tools. There are different tools available that support knowledge creation and mobilisation, ranging from PCs and their e-mail and information retrieval functions to data-mining, video-conferencing and e-learning systems. In more sophisticated IT systems, several of these components are grouped together to deliver a complete knowledge manageuvk-lucius.de/ adam <?page no="235"?> 6.4 Managing Knowledge and Information 235 ment solution including document management, decision support, workflow and/ or customer relationship management. Leveraging knowledge covers the resulting strategic development of intellectual capital within an organisation and its consequent assessment. In addition to other, often financially oriented measurements of value creation, the concept of intellectual capital allows a strategic approach to ensuring a sustainable organisational development. 96 Although several approaches for intellectual capital calculation and reporting are available and some organisations use different indicators for measuring certain aspects of intellectual assets, so far a comprehensive methodology for measuring organisational knowledge is not available. 97 The aforementioned three steps in dealing with knowledge can be amended by protecting knowledge. This can include the internal protection by keeping it up to date as well as the external protection of intellectual property in terms of patents or copyrights. 98 Figure 6-22: Organisational Knowledge Management Process and Activities Current knowledge management definitions often focus on only one of the aforementioned aspects. The process perspective focusses on identifying, gathering, leveraging and sharing all kinds of intellectual assets. The integrated system perspective is based on an overall strategic approach to make the best possible use of intellectual assets in order to enhance organisational performance and to convert the generated knowledge into a sustainable competitive advantage. The solution perspective understands knowledge management as an equivalent of information management based on technical solutions. Some definitions define knowledge management from a holistic perspective and thus cover all of these aspects. 99 This broad approach can be seen as the most appropriate when following the EFQM model. The existing business-related views on knowledge management are gradually merging towards a generally accepted body of knowledge. Earlier attempts to reflect a common uvk-lucius.de/ adam <?page no="236"?> 236 66 Managing International Partners and Resources view on knowledge management stem for example from the British Standard Institute with its PAS 2001 good practice guide on knowledge management and supporting PD 7500: 2003 vocabulary and PD 7501: 2003 managing culture and knowledge. In 2011, the Standards Institution of Israel (SII) published an own standard on knowledge management systems requirements (SI 25006) that was used in 2013 as the basis for an official proposal for a new international standard focusing on requirements for knowledge management systems. All member bodies to ISO were invited to submit comments on that proposal by the beginning of 2014. 100 The proposal was approved shortly after by the ISO member bodies, so that the standard is currently in development. 101 Internationally operating organisations are especially dependent on effective knowledge management processes due to the differences in cultures and the long distances involved. Research suggests that cultural differences have a huge impact on the ability of people to share and process shared information. Typical constraints of knowledge transfer in an international organisation across cultures include a huge variety of factors, such as differences in language and vocabulary as well as in frames of reference, lack of trust, intolerance for mistakes, the “not-invented here” syndrome and the scarcity of time and meeting places. Some constraints stem from the basic prerequisite of how easy it is for a recipient to understand the knowledge provided, a concept known as absorptive capacity. Case studies show that the absorptive capacity (and therefore the ease of sharing knowledge) is smaller the higher the psychological distance between sender and recipient is. 102 The use of information and communication technology has a huge impact on supporting knowledge-sharing across distances. The work of virtual teams across the world was enhanced tremendously by instant messaging and email functions, conference solutions like telephone, video and Skype conferences, shared schedule management or workflow platforms that are accessible from different locations. However, these solutions can only be effective if the team introduces shared rules and regulations on how to use them. These rules can for example include common filing structures that ensure easy retrieval of information by all team members involved. A structured process defining the information flow including when and how to use provided IT systems is therefore indispensable. 103 The importance of investing in knowledge capital for fostering growth - not only from an organisational but from a regional or country perspective - and how this could be supported was recently researched by the OECD. They state that business investments nowadays go far beyond classical research & development and cover a wide range of intangible assets like patens, software, innovative organisational processes and specific skills. These kinds of investments enable a company to attract more capital and contribute to average labour productivity growth. In this respect, intellectual property rights become an increasingly important framework condition for country competitiveness. 104 VIPs uvk-lucius.de/ adam <?page no="237"?> 6.4 Managing Knowledge and Information 237 6.4.2 Establishing Integrated (Management) Information Systems While an organisation pursues its strategic and organisational goals all of its members are highly dependent on feedback concerning the actual status of activities and goal attainment. Leaders on all levels are especially reliant on accurate, timely and sufficient information to support decision making as they are usually not directly concerned with the operational activities and therefore lack first-hand experience of their development. In order to provide the required information for their people and external stakeholders alike, modern organisations are characterised by an extensive use of information and communication technology on all levels of the organisation. Computer-based applications called information systems support activities on all organisational levels, often working together in a network of linked sub-systems. In this context, an information system can be defined as an array of different components that are linked together to collect and process data and thus produce information. These components are not only technical, as such a system requires besides data, hardware (usually computers and other equipment like storage devices), software and telecommunications (to link different components) also people (information system professionals for set-up and maintenance and users well-versed in dealing with these systems) and clearly defined procedures providing rules for ensuring optimal operations and security measures. 105 It is important to note that buying the IT components of a system without training all people concerned with its professional use considerably diminishes the system’s reliability and effectiveness. Information to be processed in information systems has to fulfil five characteristics to be useful: the information has to be relevant for the user and his specific context, complete (covering the whole picture and not providing only a selection leading to misinterpretations), accurate (depicting true facts), current (based on the latest information available, if possible real-time) and economical, as the cost of obtaining this information has to stand in due proportion to its importance. 106 Figure 6-23: Pyramid of Organisational Information Systems 107 uvk-lucius.de/ adam <?page no="238"?> 238 66 Managing International Partners and Resources Figure 6-23 provides a differentiation of organisational information systems based on a classical process model using Porter’s activities. Administration and disposition systems assist the organisation’s primary activities and that kind of secondary activities directly supporting them like human resource management or procurement. These kinds of systems are dealing with standardised, routine activities. They include the classical transaction processing systems that record and process data collected inside or at the boundary of the organisation, be it production data, sales, cash withdrawals or purchase orders. Usually, information systems are named after the business function they serve, e.g. marketing information systems or human resource management systems. Customer relationship management systems range from simply maintaining customer records to sophisticated applications that analyse buying patterns or predict changes in customer behaviour. When connected activities are processed in one IT system, this is also called a workflow system. Systems that are linked to cover the complete chain of primary activities are called supply chain management systems. Information systems assisting activities belonging to the so called management processes at the top of the pyramid can be subsumed under the term planning and controlling systems. They include information retrieval systems, query-reply systems and reporting systems, the latter ranging from simple reports and early-warning systems to complex expert systems that rely on artificial intelligence techniques based on expertise gathered from experts and thus support decision-making processes with high knowledge intensity. Reporting systems using sophisticated analysis models to assemble relationships and trends from large pools of raw data or business data warehouses are also referred to as business intelligence systems. Those planning and controlling systems that are especially designed to facilitate managerial decisions are called management information systems (MIS) or decision support systems (DSS). They answer “what if” questions and typically include business intelligence systems relying on formulas or models to produce predefined indicators or concise tables that are used to determine a decision. 108 If several different systems are linked and thus become a large information system, they are called enterprise applications. They allow everyone with access to receive information about an overall status of the covered activities. In practice, the most common are enterprise resource planning (ERP) systems that connect the systems of several business functions. They avoid re-entry and information duplication and thus allow organisations to operate more efficiently. At the same time, they provide realtime information on the status of an order, the inventory or a specific work process. Available commercial standard software consists of modular packages. The marketleading ERP applications used in businesses worldwide are from SAP. The overall package combines solutions for financial management, human capital management, operations including logistics, inventory and order management as well as corporate services like travel management. 109 An integrated view on all aspects of the business becomes increasingly relevant for external reporting purposes, especially for large companies and groups (listed and unlisted) across the EU. On 15 April 2014 the EU directive on disclosure of nonfinancial and diversity information was adopted by the plenary of the European Parliament. It constitutes the need to disclose information on policies, risks and their outcomes concerning diversity in the board of directors, social and employee-related aspects, human rights, anti-corruption and bribery issues and environmental matters. How this disclosure is to be conducted was not specified. 110 The International Inteuvk-lucius.de/ adam <?page no="239"?> 6.5 Citations & Notes 239 grated Reporting Council (IIRC), an initiative of corporates and investors from more than 25 countries, published in 2013 an international framework for integrated reporting. It should promote integrated, value-focused thinking and decision-making and guide organisations in creating integrated reports cohesively and efficiently. The IIRC anticipates that this standard will become the international corporate reporting norm and thus replace the common disconnected, numerous and static reports provided. An integrated report based on this standard should provide a strategy-focused and future oriented view of the organisation, covering all relevant facts for a reliable and comparable assessment of its value creation: external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance (strategic achievements and effects on the capitals) and outlook with short, medium and longterm challenges and potential implications. The principle-based reporting approach describes inputs and outputs from a broad perspective, namely financial, manufactured, intellectual, human, social & relationship and natural elements. 111 Internal management needs and external requirements both constitute a need for widening the traditional financial perspectives to include all aspects of the organisational value creation. How a broad view on value creation can be monitored, what aspects should be considered and how the respective management information can be depicted will be discussed in chapter 8. 6.5 Citations & Notes 1 Definitions of criterion parts: EFQM & ILEP (2012), p. 27 2 Overview of foreign operation modes mainly based on Morschett, D., Schramm- Klein, H., & Zentes, J. (2010), pp. 281-298 and Deresky, H. (2011), pp. 229-240 3 Based on Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), p. 245 (table 12.1) 4 Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), p. 252; details on theoretical frameworks explaining foreign operation modes are provided on pp. 246-252. The authors also offer an Accor case study on pp. 253-260. 5 Deresky, H. (2011), p. 240 6 Details on all following subchapters are mainly based on Morschett, D., Schramm- Klein, H., & Zentes, J. (2010), pp. 281-298; Deresky, H. (2011), pp. 229-240 and Griffin, R. W., & Pustay, M. W. (2010), pp. 391-407 7 Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989) 8 Contents based on Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), p. 288 (figure 14.6) 9 UNCTAD (2014), pp. 12, 39 and 180 10 Allen & Overy LLP (2013), p. 10 11 Contents based on Griffin, R. W., & Pustay, M. W. (2010), pp. 405-406 12 Zahra, S., & Elhagrasey, G. (1994) 13 UNCTAD (2014), pp. 8-9, 33, 103 14 All distinctions based on Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), pp. 304-305 15 UNCTAD (2014), p. 17; The Walt Disney Company (2012) uvk-lucius.de/ adam <?page no="240"?> 240 66 Managing International Partners and Resources 16 Google Inc. (2012) 17 Lubrizol Corp. (2011) 18 Based on Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), p. 305 (table 15.2) 19 Wall, S., Minocha, S., & Rees, B. (2010), pp. 266-269. 20 Based on Wall, S., Minocha, S., & Rees, B. (2010), p. 266, fig. 7.8; barriers based on Morschett, D., Schramm-Klein, H., & Zentes J. (2010), p. 307. 21 UNCTAD (2014), pp. 7-9 22 Weber, Y., Tarba, S. Y., & Öberg, C. (2014) 23 Bamford, I., Chickermane, N., & Kosmowski, J. (2012) 24 Based on Welge, M. K., & Holtbrügge, D. (2010), p. 120. 25 Detailed information on how to conduct a due diligence is provided in Ernst, D., & Häcker, J. (2011), pp. 331-336 26 Steger, U., & Kummer, C. (2007) 27 Wall, S., Minocha, S., & Rees, B. (2010), pp. 270-274; Finkelstein, S. (2002); Kwintessential (2012) 28 EFQM & ILEP (2012), p. 27 29 Morschett, D., Schramm-Klein, H., & Zentes J. (2010), pp. 263-269 30 Based on Morschett, D., Schramm-Klein, H., & Zentes J. (2010), p. 263 (figure 13.2). 31 EFQM & ILEP (2012), p. 27 32 EFQM & ILEP (2012), p. 27 33 Serfati, C. (2010), p. 5 34 More details can be obtained in Gleich, R., Horváth, P., & Michel, U. (2011), pp. 15- 42 and pp. 114-119; Veeriah, N. (2012), pp. 31-32; Pfaff, D., Skiera, B., & Weiss, J. (2004) 35 A thorough description of modern financial accounting (IFRS based) can be found in Weygandt, J.J., Kimmel, P.D., & Kieso, D. E. (2011). 36 A detailed description of managerial accounting or finance controlling is provided in Warren, C.S., Reeve, J. M., & Duchac, J. E. (2012) (English) or Gleich, R., Horváth, P., & Michel, U. (2011) (German) 37 Warren, C.S., Reeve, J. M., & Duchac, J. E. (2012), pp. 225-273; Hope, J., & Fraser, R. (2003), pp. 3-17; Pfläging, N. (2003), pp. 17-81 38 Beyond Budgeting Institute (2013a). 39 A very thorough definition and explanation of KPIs can be found in Parmenter, D. (2010), pp. 1-15 40 Beyond Budgeting Institute (2013b); Hope, J., & Fraser, R. (2003), pp. 18-37; Pfläging, N. (2003), pp. 82-118. Both classical sources - Hope and Fraser (in English) as well as Pfläging (in German) - offer detailed descriptions of Beyond Budgeting principles contrasted with classical budgeting and many practical examples. For optimising corporate planning processes both sources are highly recommended. 41 Watson, D., & Head, A. (2010), pp. 2-3; Quiry, P., Fur, Y. L., Savlvi, A., Dallochio, M., Vernimmen, P. (2011), pp. 1-14; Arnold, G. (2012), pp. 368-474. Details on M&A, private equity and acquisition financing including due diligence can also be found in Ernst, D., & Häcker, J. (2011). 42 Arnold, G. (2012), pp. 603-690 43 Heimert, A. M., Johnson, M., & Ceteris (2010), pp. 3-11 ; OECD (2012), pp. 9, 100- 103 44 Love, P. (2012) uvk-lucius.de/ adam <?page no="241"?> 6.5 Citations & Notes 241 45 Heimert, A. M., Johnson, M., & Ceteris (2010), pp. 2-8; OECD (2010b); OECD (2012), pp. 14-15 46 Heimert, A. M., Johnson, M., & Ceteris (2010), pp. 8-17; OECD (2010b); OECD (2012), pp. 14-15 47 EY (2013) 48 Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG), in force since 01.05.1998 (BGBl. I S. 786; FNA 4121-1/ 2), introduced changes in German corporate laws for large corporations (AktG and HGB), especially a corporate control system for early detection of risks („Risikofrüherkennungssystem“). 49 Gesetz zur Modernisierung des Bilanzrechts (Bilanzrechtsmodernisierungsgesetz - BilMoG), in force since 28.05.2009 (BGBl.2009 I S. 1102), introduced profound changes in German corporate laws, especially concerning accounting principles and the obligation to set up a risk management system. 50 COSO (2004); COSO (2013). For a short overview, the website http: / / www.soxonline.com/ coso_cobit_coso_framework.html can be highly recommended. 51 COSO (2013); McNally, J. S. (2013) 52 Adapted from IIA (2013), p. 2 53 IIA (2013) 54 KPMG (2013a); Peek, T., & Rode, M. (2011) 55 ISO 19600: 2014 (2014, December 15); Bleker, S., & Hortensius, D. (2014), pp. 1-5; 7 56 Contents based on ISO/ IEC Directives, Part 1 - Consolidated ISO Supplement (2014) 57 ISO/ IEC Directives, Part 1 - Consolidated ISO Supplement (2014) 58 Own illustration, contents based on ISO 19600: 2014 (2014, December 15) 59 IDW (2011), p. 1; LRN (2007), p. 3 60 ISO 19600: 2014 (2014, December 15); Bleker, S., &Hortensius, D. (2014), pp. 5-7 61 OECD (2010a) 62 IDW PS 980 (2011, March 11); IDW (2011), pp. 1-2; This standard and its practical implications are explained in detail in KPMG (2013b) (in German language). 63 KPMG (2013a) 64 AS/ NZS 4360: 2004 (2004, August 31); HB 436: 2004 (Incorporating Amendment No. 1) (December 2005) 65 Brühwiler, B. (2012) 66 ISO 31000: 2009(E) (2009, November 15); RiskNet GmbH (2014) 67 ISO 31000: 2009(E) (2009, November 15), clause 2.1 68 ISO 31000: 2009(E) (2009, November 15), clause 2 69 Rittenberg, L., & Martens, F. (2012). This reports provides detailed guidance on understanding and communicating risk appetite. 70 ISO 31000: 2009(E) (2009, November 15), clause 2 71 Own illustration, contents based on ISO 31000: 2009 72 Patchin, C., & Carey, M. (2012), p. 2 73 Basel Committee on Banking Supervision (2006) 74 Patchin, C., & Carey, M. (2012), pp. 10-12 75 KPMG International (2013a), p. 13 76 IEC 31010: 2009 (2009, December 1); 77 WEF (2014), pp. 9; 12 78 Patchin, C., & Carey, M. (2012), pp. 4-5; 15-16; ISO 31000: 2009; IEC 31010: 2009 (2009, December 1), pp. 83-85 uvk-lucius.de/ adam <?page no="242"?> 242 66 Managing International Partners and Resources 79 Patchin, C., & Carey, M. (2012), p. 16; IEC 31010: 2009 (2009, December 1), pp. 83- 88 80 ISO 31000: 2009, section 5.5 81 Contents based on Fiege, S. (2006), p. 99, figure 15 82 KPMG International (2013a) 83 Drucker, P. D. (1997), pp. 67-68; p. 203 84 ISO/ DIS 9001: 2014 (August 2014), 7.1.6, p. 31 (87) 85 Katenkamp, O. (2011), p. 55 86 ISO/ DIS 9001: 2014 (August 2014), 3.49, 3.50, 3.53 and 3.10, pp. 14; 21-22 (70; 78-79) 87 Ackoff, R. L. (1989), pp. 3-9 88 EFQM & ILEP (2012), p. 28 89 Katenkamp, O. (2011), p. 56 90 Contents based on Katenkamp, O. (2011), pp. 55-59 and Lam, A. (2000), p. 494 91 Lam, A. (2000), pp. 492-493 92 Lam, A. (2000), p. 493 93 Lam, A. (2000), pp. 493-494 94 Contents based on Lam, A. (2000), p. 494 (figure 2) and p. 506 (figure 4) 95 Lam, A. (2000), pp. 493-498 96 Jashapara, A. (2011), pp. 6-8 97 North, K., & Kumta, G. (2014), p. xxiii. Details on the calculation of intellectual capital and intellectual property can be found in North, K., & Kumta, G. (2014), pp. 227- 250 and Jashapara, A. (2011), pp. 63-82 as well as Dalkir, K. (2011), pp. 339-361. For German companies, a guideline for intellectual property reports was published by the BMWi (2013) 98 North, K., & Kumta, G. (2014), p. xxiii 99 Dalkir, K. (2011), pp. 5-7; Jashapara, A. (2011), p. 13; North, K., & Kumta, G. (2014), p. xxiii 100 ANSI (2013); The Standards Institution of Israel (2013) 101 ISO Technical Management Board (2014) 102 Holden, N. (2002), pp. 250-254 103 A detailed overview on how information and communication technology support knowledge work and what critical issues have to be solved to render it effective is provided in North, K., & Kumta, G. (2014), pp. 235-246 or for German readers in Frey-Luxemburger, M. (Ed.) (2014), pp. 71-168 104 OECD (2013d), pp. 17-18 105 Sousa, K. J., & Oz, E. (2014), pp. 10-14 106 Sousa, K. J., & Oz, E. (2014), p. 10 107 Based on Gluchowski, P., Gabriel, R., & Dittmar, C. (2008), p. 5 108 Gluchowski, P., Gabriel, R., & Dittmar, C. (2008), pp. 5-20; Sousa, K. J., & Oz, E. (2014), pp. 7-22 109 Gluchowski, P., Gabriel, R., & Dittmar, C. (2008), pp. 10-13; Sousa, K. J., & Oz, E. (2014), pp. 16-20 110 European Commission (2014b) 111 IIRC (2013), pp. 2-13 <?page no="243"?> 7 Managing Processes and Products Globally Readers are capable of adopting a process-oriented view of an organisation. They know methods for recording activities and creating a process map. Principles of business process management can be applied. Readers understand the concept of quality management based on ISO 9001 and are able to integrate it into a holistic management view. Special requirements for value creation processes can be interpreted and employed. The complex challenges of global supply chains are comprehended. Enhancing customer relationships through customer insights and customer experience is appreciated as natural part of an effective value management. Value creation processes fulfil the purpose of an organisation as they include those organisational activities that directly provide value for its customers and other stakeholders. They constitute the backbone of every organisation. Obviously, their management is subject to critical scrutiny. This section provides detailed information on principles that ensure managing these important processes and activities with high quality, understood as a relentless pursuit of perfection and innovation as well as a consequent customer focus. The different aspects to consider as well as their connection are depicted in Figure 7-1. Figure 7-1: Concept Map “Managing Processes and Products Globally” uvk-lucius.de/ adam <?page no="244"?> 244 77 Managing Processes and Products Globally 7.1 Delivering Stakeholder Value: EFQM Criterion 5 Figure 7-2: EFQM Criterion 5 “Processes, Products and Services” and Its Criterion Parts 1 After having defined and managed all necessary resources to implement the organisation’s vision, its strategy and the aligned business models, the EFQM model deals with managing the stream of activities needed for producing the envisioned products and services. Thus, the EFQM model criterion no. 5 focuses on an activity-based view which is explored using a so-called process framework. This criterion is divided into 5 criterion parts as depicted in Figure 7-2. After explaining relevant aspects of a process-based management approach (5a), it describes best practices for a structured method to design and steer all value-creating activities, covering product and service development (5b), promotion and marketing (5c), production and delivery (5d) as well as customer relationship management (5e). Naturally, the precise design of these activities is highly dependent on the industry and its requirements, the special product or service provided, the markets targeted and the available resources. The following explanations will therefore, corresponding to the previous chapters, focus on basic principles and issues with special relevance for internationally operating organisations. 7.2 Managing Processes Organising and managing operational excellence is still one of the top three challenges for CEOs worldwide. 2 The essence of this challenge is to ensure that the organisation’s strategy is implemented through a framework of clearly defined key processes. The classical organisational structure, depicted in an organisational chart, defines segments based on functional as well as leadership responsibilities, decision power and corresponding reporting lines, but it falls short of an integrative perspective. Especially in the service industry, it is often the customer alone that perceives the overall big picture. The effects a departmental-based view can have on customers is masterfully illustrated uvk-lucius.de/ adam <?page no="245"?> 7.2 Managing Processes 245 by the "place that sends you mad" in the film “The Twelve Tasks of Asterix” (German: Asterix erobert Rom) of 1976. In order to attain the “Permit A 38”, the film heroes Asterix and Obelix are directed from one unhelpful contact person to another, all following silly bureaucratic rules without knowing the reasons behind the required formalities. 3 As illustrated in Figure 7-3, an integrated view of all departments, people and activities involved to create value for the customers requires a 90-degree turn of the organisation and the mind-set of its employees from function-oriented to processoriented view. An organisation is no longer understood as an array of power and reporting lines but as a coordinated set of specialised activities aimed at producing a product or service that fits the needs and requirements of the customers. Figure 7-3: From Function Orientation to Process Orientation Using the most popular definition stemming from the international norm ISO 9000 (clause 3.4.1) a process can be defined as a “set of interrelated or interacting activities which transforms inputs into outputs” 4 . In order to clarify the interrelated nature of processes, the ISO 9000 also notes that inputs to any kind of processes are usually outputs of other processes. In order to achieve operational excellence - understood as a focus on the standardisation, alignment and high quality operation of all processes relevant for the product or service offer 5 - processes have to be planned and executed under so-called “controlled conditions”. 6 Controlled conditions are generated, when all subsequent activities, people and situational factors that have an influence on the final output (= product) of the process are known, understood and managed in a way that the product quality does never fall below a clearly defined limit. The related management activity is called Business Process Management (BPM). According to the Association of Business Process Management Professionals (ABPMP), Business Process Management can be defined as “a disciplined approach to identify, design, execute, document, measure, monitor, and control both automated and non-automated business processes to achieve consistent, targeted results aligned with an organization’s strategic goals” 7 . The fundamental prerequisite for an effective BPM is a clear vision and/ or mission of the organisation as well as clearly defined customer groups and segments. Their needs and expectations constitute the major input for the core processes that generate the organisation’s products and services and thus create customer value. This connection is illustrated in Figure 7-4 and constitutes a very typical example for the links that exist between different criterion parts of the EFQM Excellence Model. uvk-lucius.de/ adam <?page no="246"?> 246 77 Managing Processes and Products Globally Figure 7-4: Aligning Process Management and Business Strategies The special challenge of BPM lies not only in establishing a process-oriented management view within the organisation but also in broadening this perspective to cover all relevant processes in an end-to-end consideration, starting with the requirements of the customers and including activities of suppliers and downstream partners. This requires a deliberate and collaborative effort of all departments and organisations involved and usually is aided by specialised process management technology (for example IT-based process management tools). A general overview of the steps to be taken to implement Business Process Management is provided in Figure 7-5. Figure 7-5: Overview of Business Process Management 8 For becoming an operationally excellent organisation, first all relevant activities and processes have to be identified and recorded, in technical terms “modelled”. The captured information can be derived from direct observation, interviews, surveys or workshops. It is important to include all people that have individual experience and knowledge about the actual or targeted performance of the process and its main activities. Modelling a complete value chain should therefore include people of all involved organisations (suppliers, other partners or subsidiaries) and departments as well as facilitators for the group procedure and modellers to ensure a common notation. In uvk-lucius.de/ adam <?page no="247"?> 7.2 Managing Processes 247 order to be able to use the developed process models for further improvement, innovation and management actions, it is accepted good practice to use standardised definitions for the resulting documentation. These definitions concerning the depiction of processes are usually called process modelling conventions or notations. They include the style of modelling, the activities and processes (also called flowcharting), the elements to be described and the exact icons to be used for depicting important information like process steps/ activities, departments, roles, documents, tools as well as connections of processes. Depending on the size of the organisation and the simplicity of its processes, possible notations can range from simple task flow diagrams over traditional swim lane diagrams to very detailed event-driven process chains (EPCs). These can be drawn on flipcharts, portrayed in a presentation or word-processing software or modelled with specialised process documentation software that can be linked or is linked to a process management tool. 9 Examples of simpler process diagrams for GJ’s production process can be found in Figure 7-6. It is to be noted that the individual process steps use activity-based phrases (“designing” instead of “Design”) in order to clearly distinguish the process steps and activities from the functional view of organisational departments. Figure 7-6: Sample Process Diagrams Advanced process modelling with event-driven process chains was developed by W.-A. Scheer in the 1990s and became the heart of the ARIS (Architecture of Integrated Information Systems) products, offering an integrated software solution package for strategically aligning, designing, implementing and controlling processes along the BPM lifecycle. As a state-of-the-art example of BPM software, ARIS allows transnational corporations to define common scenarios for BPM with central access from all over the world via web browsers or desktop applications. All information about an uvk-lucius.de/ adam <?page no="248"?> 248 77 Managing Processes and Products Globally organisation’s processes is stored in a central data repository, using customisable, predefined modelling items and thus creating a common language that is employed and understood by all users. Any EPC structures processes by tasks (also called activities) that can be triggered by and result in events. These can be connected by logical operators as “AND” (all events occur in parallel), “OR” (for a choice out of several events) as well as “XOR”, where only one of the following events can be true and leads to a subsequent task. 10 Figure 7-7 provides an overview of ARIS items and an example for their connection to an EPC. Figure 7-7: Example of ARIS Items and Event-Driven Process Chain BPM requires modelling processes on different levels: first of all a macro level that provides a strategy-based overview of all significant, high-level (business) processes and is often quite generically described. A subsequent lower level depicts processes with more details and is used to create optimised interfaces of different processes or process steps/ tasks that run through diverse departments. And finally one sub-process level (sometimes followed by a fourth, even more exhaustive activity level) that provides operational specifics in such a detail that it can be used for directly steering operations, representing internal controls and illustrating operating instructions and comprehensive training material. 11 Using only the highest level illustrates the basic strategic direction but does not allow tangible process management or improvement. Providing only a low-level, activity-based documentation lacks the necessary overview to anchor the process-orientation throughout the organisation. However, many organisations start a BPM project by recording all presently pursued activities, thus creating hundreds of “processes” that produce a lot of additional administrative work to keep them accessible and recent. This is often due to the fact that the interest for process orientation originates from the operational level (which is usually the level with the biggest need for practical improvements). Despite this probable origin it is highly advisable to start from the management perspective by creating the highest process level, also called macro or business process level. The process map on this level depicts the most imuvk-lucius.de/ adam <?page no="249"?> 7.2 Managing Processes 249 portant processes a business performs from an end-to-end perspective: it starts with the customer needs and requirements and follows the value chain through until the final product reaches the customer and thus (hopefully) produces value and customer satisfaction. This approach ensures that the whole process fits together to create a good customer experience. 12 Figure 7-8: BPM Process Levels in a Sample Process Map In the high level or macro view, processes are divided into three generic (business) process types, as depicted in Figure 7-8. The main type of macro processes is called value creation process, sometimes also named primary process or core process. It constitutes the operational core of an organisation’s activities. Value creation processes make up the value chain and characteristically include Porter’s primary activities (inbound logistics, operations, outbound logistics, marketing and sales as well as services). They include all processes and activities that are directly connected to the organisation’s customers, as they generate the organisation’s products and services which fulfil its customers’ needs and expectations and thus finally create customer satisfaction. Value creation (or core) processes are cross-functional by nature. Widened to an endto-end perspective these processes typically include key suppliers and partners. They form the focal point of the organisation’s business model and strategy. Delivering the organisation’s value proposition they cannot be outsourced as long as the strategic focus does not change. Value creation processes are sustained by the so-called support or internal service processes. This kind of processes includes all those activities that are not directly related to the value chain but enable the organisation to carry out its core processes in the required quality. Typical support processes comprise managing and organising human resources, IT, financial supply chains and facilities. Management processes form the third type of business processes. They ensure that the organisation’s purpose is established, objectives are defined and that the organisation with all its pursued processes and activities meets legal, regulatory, financial and its own requirements and goals. Management processes usually include defining and communicating strategy, managing governance, risks and compliance as well as controlling and reporting (financial) activities. The display of these three types of business processes on a macro level is called business process map, sometimes also Business Process Architecture Framework. It should provide an overview of the most significant processes of the organisation based on its business model and their systematic interrelation. 13 Unfortunately, many organisations use process maps that are so generic that they do not mirror the organisation’s individual purpose and business model. These organisations miss the chance to establish process maps as a useful tool for strategy alignment and communication. uvk-lucius.de/ adam <?page no="250"?> 250 77 Managing Processes and Products Globally After all relevant processes are identified and modelled, the actual process management can be executed, which includes the steps improvement, innovation and management as already defined in Figure 7-5. An effective BPM requires a continuous and systematic improvement of all business processes (not only the value creating types) across the whole organisation as well as including all external suppliers and other partners that contribute with their activities to the overall process output and quality. Also in this case, improvement can consist of small, incremental changes or totally new ideas that require innovative approaches and new technologies. Improving or redesigning the organisation’s practices requires a fact-based and indicator-driven process management. Processes have to be aligned with the strategic or operational business objectives by defining suitable key performance indicators (KPIs). These have to be monitored, analysed and controlled. In case the pre-defined objectives are not met measures have to be taken to ensure appropriate process outcomes. 14 It is necessary to establish new roles within the organisation that take over the responsibility for the management, improvement and innovation of the processes. They should counterbalance the power and individual interests of the established departments, so that the narrow view on departmental optimisation is sided with an end-to-end overview of process performance. People in charge of processes are usually called process owners. Their authority to engineer change and overrule interests of single departments or external providers in favour of an overall process improvement is one of the main success factors for an effective BPM. 15 It is good practice to use benchmarking as a technique for investigating the own process performance and finding innovative approaches. Benchmarking can be understood as a continuous procedure to compare processes and their results with others. There are three types of benchmarking that are distinguished by the object chosen for comparison: benchmarking with direct competitors (usually with the main or best competitors in the market), benchmarking with organisations in the same industry but without direct competition (that operate for example in other regions or markets) and “best in class” benchmarking with organisations from other industries that achieved best practices in a certain kind of process (for example customer service or delivery) that has a high similarity to the process being analysed. Naturally, a comparison with direct competitors would be very fruitful for a realistic performance evaluation but is often not possible due to heavy reservations and fears of losing competitive advantages. Therefore it is usually easier to start benchmarking procedures with other organisations of the same industry. The most rewarding method would be the best in class benchmarking as the transfer of an approach not yet known in the industry might lead to a future competitive advantage. It is also the most challenging endeavour, as it requires an in-depth understanding of the organisation’s own process in order to identify possible benchmarking partners and a high level of effort and intelligence in the transfer to generate fitting improvements. 16 VIPs uvk-lucius.de/ adam <?page no="251"?> 7.3 Managing Products and Services Based on ISO 9001 251 7.3 Managing Products and Services Based on ISO 9001 7.3.1 Introducing a Certifiable Quality Management System As mentioned above, the quality of the value creation processes directly relate to customer satisfaction as they create the organisation’s core products and services. Ensuring their dependable execution - to produce outcomes that reliably meet the needs and expectations of the customers - forms the nucleus of any quality management methodology. Common approaches include Deming’s 10 Points Programme, Six Sigma and the principles laid out in the international family of standards ISO 9000. First published in 1987 and regularly improved, the ISO 9001 standard dealing with requirements for quality management systems offers since the fundamental revision in the year 2000 a systematic, process-based approach to quality management with an enormous and ever-increasing popularity worldwide. Although the main principles of all successful quality management concepts are quite alike, the huge advantage of ISO 9001 lies in the possibility to receive a certificate from an accredited, independent certification body confirming compliance (in ISO terms “conformity”) of the organisation’s system with the requirements of the standard. Being ISO 9001 registered (also called “certified”) enables an organisation to prove a basic reliability in achieving a guaranteed product or service quality, which became a common prerequisite for achieving a (preferred) supplier status. The most recent certifiable principles (ISO 9001: 2008 quality management systems - requirements) are operative since November 2008 and the flagship of ISO’s management standards. At the end of 2013, more than 1.1 million certificates had been issued to organisations in 187 countries around the globe. Leading countries in the application of ISO 9001 were China (337.033), Italy (160.966) and Germany (56.303 certified organisations); the highest growth in certificates was noted in Italy, India and the USA. This impressive number of users is enhanced by organisations using more detailed standards that interpret the ISO 9001 principles for special industries. The most common sector-specific applications were in 2013 the ISO/ TS 16949: 2009 (quality management for supplier in the automobile sector) with 53.723 registered organisations in 84 countries and the ISO 13485: 2003 (quality management requirements for the medical devices sector) with 25.666 issued certificates in 95 countries and economies. 17 Figure 7-9: The ISO 9000 Family of Quality Management Standards 18 uvk-lucius.de/ adam <?page no="252"?> 252 77 Managing Processes and Products Globally The ISO 9000 family of standards consists of four interrelated standard documents, of which only ISO 9001 defines requirements that can be used to become ISO registered. The other standards provide extensive advice on how to use and interpret ISO’s quality-related vocabulary, set up an effective, stakeholder-based total quality management system and how to add value by auditing these systems. 19 An overview of these standards is provided in Figure 7-9. The ISO 9001 is regularly updated. At the moment, the latest revision is on its way and will feature some important changes: the introduction of the new high-level structure, an increased emphasis on the process approach combined with the PDCA cycle and the adoption of risk-based thinking. The ISO/ DIS 9001: 2014 (draft international standard) was put to vote in July 2014 and received nearly 90% approval by the end of the year. All comments submitted during the ballot process from regulators, academia, industry and consumers will be incorporated in the following FDIS (final draft international standard) which is projected for May 2015. The new edition of ISO 9001 is expected to be published until the end of 2015. 20 According to ISO/ DIS 9001: 2014 (clause 3.04), a quality management system (QMS) can be defined as a set of interacting or interrelated elements of an organisation to establish quality-related policies, objectives and processes with the intention of achieving the defined objectives. The scope of a QMS can range from including only specific and identified functions or sections of an organisation to including an entire organisation or even a whole group of organisations. 21 Its adoption should be based on a strategic decision of the organisation with the aim of improving its overall performance and ensuring a sustainable development. The actual design should be dependent on the organisation’s context, especially objectives, risks, customer needs and expectations, provided products and services, established processes and their complexity, the competence of the people involved, its culture as well as the organisation’s size and structure. It is seen as crucial that all relevant activities are understood and managed as a coherent system of interrelated processes. This concept is known as “process approach” and equals the BPM approach explained in chapter 7.2. The management of the whole system and all processes is to be achieved by consequently using the PDCA cycle as already described in chapter 1.3.4. 22 The ISO/ DIS 9001: 2014 model view of a state-of-the-art QMS is based on the ISO high level structure adopted for all management system standards (as presented in chapter 6.3.2). The creation of an effective QMS requires first the establishment of its context and the definition of customers and other relevant interested parties as well as its scope. Based on that, the general approach to quality management and a process approach have to be set up. The starting point for a successful quality management is therefore the precise definition of interested parties. In contrast to a general stakeholder approach, it is important to select the relevant parties based on their influence on the organisation’s value creation processes and their outcomes. All stakeholders that have a clearly discernible impact have to be taken into account. This typically includes customers including the end-user, (main) suppliers, the organisation’s people as well as owners and public authorities. It is indispensable that all leaders and especially top management demonstrate commitment by taking accountability for the QMS. They have to establish and communicate the quality policy, related quality objectives and the importance of the QMS based on the organisation’s purpose, promote awareness of the process approach and of continual improvement and guarantee that all resources uvk-lucius.de/ adam <?page no="253"?> 7.3 Managing Products and Services Based on ISO 9001 253 needed are available. Leadership shall also be demonstrated by a clear commitment to a maintainable customer focus which includes identifying and meeting customer and other relevant requirements as well as determining the risks and opportunities that can affect the ability to create and enhance customer satisfaction or the conformity of the products and services. The requirements of customers and other, for the close focus of a QMS deemed relevant interested parties are the major input for the operations (covering all value creating processes and activities) that is described extensively in the following chapter 7.3.2. Its outputs, namely the products and services within the scope of the QMS, should create customer satisfaction. The support processes cover managing people with regard to competence, awareness and communication as well as the environment of the operation of the processes including the necessary infrastructure, the organisational knowledge and the documented information. The operations part is preceded by planning processes for the QMS, where actions are undertaken to address risks and opportunities, set quality objectives and define measures to achieve them as well as to plan inevitable changes. Operations are followed by performance evaluating activities. They include monitoring and measuring processes and their outcomes including customer satisfaction, analysing the results achieved and evaluating them based on all relevant requirements, demonstrating conformity of products and services and determining improvement opportunities. These results constitute the major inputs for the required management review. This is a regularly executed assessment of the QMS by top management, where all kinds of information concerning the QMS have to be evaluated and corresponding improvement actions have to be approved. A very special requirement for an ISO 9001-based QMS is the regular execution of so-called internal audits. Based on ISO/ DIS 9001: 2014 (clause 3.17), an internal quality management audit can be defined as an independent and systematic process for obtaining objective evidence as well as evaluating it objectively in order to determine the extent to which the ISO 9001 requirements are fulfilled by the audited QMS. Internal audits can be conducted by specially trained employees of the organisation itself (called internal auditors) or by external auditors on behalf of the organisation. They form the basis for the organisation’s declaration of conformity. Detailed information on the competencies required from auditors as well as on effective auditing procedures is provided by the standard ISO 19011: 2011. The QMS model finishes with the continual improvement of the whole system including all of its processes and their interrelations with regard to its adequacy, suitability and effectiveness. 23 ISO/ DIS 9001 explicitly demands risk-based thinking, as defined in clause 0.5. The definition of risk itself is borrowed from ISO 31000 (“effect of uncertainty on an expected result”). It covers positive and negative deviations from the expected because of deficiencies of information that stem from a lack of understanding or knowledge of an event, its consequences and/ or its likelihood. Risk-based thinking does not mean to implement a comprehensive and formal risk management approach. Instead, ISO/ DIS 9001 addresses the need to consider risks, at least qualitatively, in order to define the degree of formality and the rigour needed to plan and control the QMS as a whole as well as its individual components. It is obvious that the level of risk varies for different processes, depending on the consequences of product, service or process nonconformities and on the organisation’s capabilities to achieve its quality objectives. If the brakes of a car are not produced in conformity with the quality objectives, it might result in a fatal accident, thus bearing a high risk. If the clerk behind an information desk in a shopping centre provides the wrong information, his mistake usually causes only minor uvk-lucius.de/ adam <?page no="254"?> 254 77 Managing Processes and Products Globally inconveniences for the respective customer. ISO/ DIS 9001 expects organisations to plan, carry out, control and document their high-risk processes far more rigorously than their low-risk processes. 24 In summary, a quality management system covers only a part of a holistic management model. It focusses on the value creation processes, their conformity and improvement. This includes all directly related processes and activities that support the value creation. Its scope can be defined within the already addressed limits. A holistic management approach, on the contrary, has to cover the whole organisation. Every department and product line, every process and activity has to be taken into consideration and managed, not only within the organisation itself but also along the supply chains. Mapping ISO/ DIS 9001 on the EFQM Excellence model, as in Figure 7-10, allows illustrating this relationship plainly. The blue-coloured filling level of the EFQM criterion parts symbolise the extent to which issues addressed in the EFQM model are also covered by ISO/ DIS 9001 requirements and recommendations. Figure 7-10: Mapping ISO/ DIS 9001: 2014 on the EFQM Model VIPs 7.3.2 Managing Products and Services Globally The EFQM Excellence model provides in criterion 5 and its criterion parts b to e (as already shown in Figure 7-2) best practices for producing goods and services that satisfy the relevant needs and expectations of all related stakeholder groups. It is structured along the value chain and covers explicitly the development, marketing, production, delivery and management of products and services as well as the enhancement of customer relationships. ISO/ DIS 9001 follows in part 8 “Operation” roughly the same uvk-lucius.de/ adam <?page no="255"?> 7.3 Managing Products and Services Based on ISO 9001 255 logic but provides precise requirements and further details on how to achieve high quality in the provision of products or services, or generally speaking: throughout the product management cycle. In the following, a rough overview of ISO/ DIS 9001’s requirements on operations is provided. Figure 7-11: Structure of Quality Requirements for Value Creating Processes 25 As presented in Figure 7-11, the process starts with operational planning and control. It is necessary for an organisation to plan, implement and control all processes for the provision of products and services in a way that they meet the predetermined requirements. Planning includes determining all requirements and establishing criteria for later control purposes concerning processes as well as product acceptance. Implementation means to provide all essential resources and carry out the processes as planned. Controlling the processes based on the predefined criteria includes retaining necessary documented information in order to be able to demonstrate the conformity of the organisation’s products and services. Volume and coverage of this information is to be based also on ensuring confidence that the processes were operated as planned. 26 “Documented information” encompasses the information that is required to be controlled and maintained by the organisation as well as the medium on which it is embodied or contained. It can be in any kind of medium or format, stem from any kind of source and covers documentation (information needed for the organisation to function, for example guidelines) as well as records (that provide evidence of achieved results, for example a list of sales). 27 After the planning is concluded, the comprehensive requirements for the products and services have to be determined. The first step is uvk-lucius.de/ adam <?page no="256"?> 256 77 Managing Processes and Products Globally the establishment of a broad variety of customer communication processes concerning product/ service information, enquiries, order handling, customer perceptions, complaints and - if applicable - the treatment of customer property. These processes shall then be used to determine the exact requirements of the customers for the products and services. These received requirements are to be reviewed and enhanced with regulatory, statutory or other requirements considered necessary by further stakeholders and the organisation itself, also including requirements that are necessary for the customer’s intended use although they were not explicitly stated. The outcome has to be documented and future changes have to be incorporated. 28 Figure 7-12: How (Not) To Conduct an Optimal Product Design Process ISO/ DIS 9001 specifies a detailed step-by-step approach for product and service development that could also be used for engineering processes. It does not regulate the design activities as such (which would not be reasonable due to the much differentiated nature of applicable design methods) but directs all surrounding process steps that safeguard the usability of the outcome. Figure 7-12 depicts the main steps of this approach and also exemplifies possible outcomes of a development process that is not adequately controlled. As every important process, development processes first have to be planned. Planning is based on complexity and duration of activities, the parties involved (internal and stakeholders) and the demands on controls. All essential requirements and other design inputs have to be determined adequately, taking into account potential consequences of failures. The EFQM model (5b) mentions as best practices the (direct) involvement of customers - existing and potential - and other stakeholders in the development process as well as the use of customer surveys and market research. Inputs have to be unambiguous and complete. This requires that possible conflicts among different inputs have to be resolved before the actual design uvk-lucius.de/ adam <?page no="257"?> 7.3 Managing Products and Services Based on ISO 9001 257 activities can start. When the design process produced an output (e.g. blueprint, test object), it is advisable not to start further production activities before confirming, based on objective evidence, that the specified design inputs (requirements) were correctly fulfilled by the design outputs. This activity is called verification. It can be carried out by reviewing the documented information (for example the blueprint). Despite the verification it is still possible that the newly designed process, product or service is not (fully) suitable for the intended use or specified application. A direct application in a mass-production process or an immediate use by regular customers might therefore cause severe losses in terms of confidence, reputation and money. Therefore in an efficient development process a prototype is built, which is an experimental model or trial version in small quantity or with limited scope that can be used or applied as the intended final development output. Such a prototype has to be tested under (as near as possible) real or simulated conditions in order to objectively confirm that the requirements for the specific intended application or use are fulfilled. This kind of confirmation is called validation. The development approach stated in the ISO/ DIS 9001 shall ensure that all products and services provided on the markets are truly fit for their intended purpose and can be used properly and safely. As the development process outcomes are directly related to product liability issues, there are usually very high demands on the resulting documented information that have to be met meticulously. 29 Special emphasis is laid by ISO/ DIS 9001 on the control of externally provided products and services, in order to ensure that these are fully conform to all specified requirements. This covers preliminary products, also called upstream products (that are incorporated into the organisation’s own products), products and services that external providers deliver directly to the customers on behalf of the organisation (downstream products) and processes that are fully or partly outsourced. This control issue is of special relevance for internationally operating organisations, as already addressed in chapter 6.2.2. Whereas operations usually refers to service or manufacturing processes that transform resources to create an output for an end-user, supply chain processes move and store material and information to, between and from the organisation’s manufacturing or service processes. This includes for example logistic processes, where products are physically moved, or storage and warehousing processes, where these products are positioned for a speedy delivery. Supply chain processes link and support the whole value chain from the first input to the output of goods and services to the final customer. 30 The ultimate supply chain is a system or inter-related network of parties (persons and organisations) that are involved - directly or indirectly - in the value creation. Depending on the complexity of the processes, a supply chain consists of multiple organisations and individuals with upstream and downstream links like raw material producers, component suppliers, product assemblers, wholesalers, retailers, service agents and transport providers of every kind as well as the end-user or final customer. 31 A simple supply chain of Great Jeans is outlined in Figure 7-13. GJ’s supply chain starts with cotton farmers that grow and harvest the cotton. As cotton needs a warm climate to grow, in 2014 most of the world’s cotton was grown (in descending order) in India, China and in the south of the USA, Pakistan, Brazil, Uzbekistan, Turkey and Australia. 32 The raw cotton is then transportuvk-lucius.de/ adam <?page no="258"?> 258 77 Managing Processes and Products Globally Figure 7-13: Simple Supply Chain of Great Jeans ported, usually by truck, to a cotton gin. There, trash is removed, the seed is sold separately and ginned cotton fibre (called lint) is compressed into bales, banded, wrapped and usually tagged with a gin ticket. Afterwards the cotton bales are transported to and stored in a consolidator warehouse, where they are later collected by trucks and brought to the nearest port for shipping it to the manufacturing plant(s) that carry out the next production steps (spinning, knitting, dying, cutting and sewing). At present, the focus of the world production of Jeans has shifted to Asia, namely China, Vietnam, India and Bangladesh. In 2013/ 14 about 70% of the global denim production was estimated to come from that region, Bangladesh becoming the major supplier of ready-made jeans to foreign markets. 33 The finished and ticketed garment is then packed, stowed into a container and transported to the nearest port (as the case may be to the nearest airport) and shipped to the warehouse of the distributor, for example in Europe or the USA. From there, it is sent by truck (or in extraordinary circumstances by plane or train) to the retailer where it is bought by the final customer directly at the shop or (if the order is placed online) transported from the retailer’s storage area or warehouse to the final customer’s doorstep. Consequently, Supply Chain Management (SCM) 34 can be defined as the design, operation, and continuous improvement of the systems and networks that generate and deliver the organisation’s primary products and services. It aims at achieving competitive advantage by maximising the overall generated value for the customer. Depending on the source, SCM is construed as an autonomous management system (comparable to QM or BPM), as an individual business function or as a set of activities or methods. The latter view is adopted here. 35 SCM processes can be categorised as planning, sourcing, making, delivering and returning. They should be designed and managed in alignment with the organisation’s strategy and optimised adopting a sourcing, technology and demand view and taking into account the unique value proposition that consists of an individual bundle of product and service attributes. 36 In November 2010, a global survey of senior executives conducted by McKinsey revealed that the main future challenges in supply chain management were expected to be an increasing presuvk-lucius.de/ adam <?page no="259"?> 7.3 Managing Products and Services Based on ISO 9001 259 sure from global competition and increasingly complex patterns of customer demand. Apart from reducing operating costs the main goals for SCM were set to improving customer service and getting products or services to market faster as well as creating a “greener” supply chain. 37 These goals were also confirmed by PWC’s Global Supply Chain Survey 2013, extended by managing profitability of the supply chain and the preparation for upand downwards volume flexibility. This study also revealed the trend to establish different supply chain configurations in order to satisfy diverse customer segments. The risks in supply chains are still a major concern and govern outsourcing decisions. 49% of the leaders in SCM outsourced logistics (inbound and outbound), 45% outsourced warehousing followed by 36% that outsourced manufacturing and assembly. Other functions, especially demand planning and procurement where nearly always kept within the organisation. The geographic organisation and outsourcing levels of supply chain functions depend on the industry, but especially inbound and outbound logistics, warehousing and in some cases manufacturing and assembly are organised globally, with a high outsourcing level. This clearly underlines the importance of controlling activities directed towards international supply chain partners. Supply chain cooperations favour some major trends, depending on the industry. Among the most relevant trends is the creation of a sustainable supply chain with responsible carbon footprints and agreements to adhere to the highest ethical standards. Another major development is the further automation of the supply chain by using innovative technologies, for example more effective track-and-trace capabilities like RFID, that create higher transparency. 38 Also the EFQM Excellence model states in 5d the development of an effective and efficient value chain as a best practice for a consistent fulfilment of the organisation’s promised value proposition. An advanced management of the return supply chain would furthermore enhance a universal product lifecycle management that takes into account safety, health and environmental impacts and includes recycling or reutilisation (where applicable). 39 Figure 7-14: A Global View on Great Jeans’ Supply Chain uvk-lucius.de/ adam <?page no="260"?> 260 77 Managing Processes and Products Globally The complexity of global supply chains is sketched in Figure 7-14, based again on the example of Great Jeans. It is to be noted that this is still an extremely simplified view, as only a rough sample of all involved value chain participants could be arranged clearly in one picture. In addition, the graphic does not fully include the underlying flows of information and documents (e.g. contracts, orders, blueprints etc. presented as blue lines) nor does it depict the return supply chain. In the case of Jeans production, the disposal, re-use and/ or recycling of Jeans is in itself a complex global process, also connecting many different partners around the world. Following ISO/ DIS 9001 along the operations process, chapter 8.5 deals with the provision of products and services. This comprises delivery and post-delivery activities and thus also covers a part of the supply chain. First, ISO/ DIS 9001 requires the organisation to implement the so-called controlled conditions. These require implementing reproducible circumstances that ensure a reliable quality of the production, delivery and post-delivery processes and their outcomes and cover monitoring activities at appropriate stages for verification, suitable infrastructure, competent and qualified persons, appropriate documented information and the periodic (re-)validation of products and services or rather of the ability to achieve the results planned in case only the process can be validated and not the resulting output. Depending on the applicable requirements, special emphasis should be laid on the (unique) identification and traceability of the product or intermediate components throughout the process, on safeguarding property belonging to the customer while it is under the organisation’s control and on preserving process outputs. The extent of post-delivery activities including warranty provisions should be clearly determined before implementation, considering the risks involved, the intended product lifetime and other requirements. Products and services shall only be released to the customer if all relevant requirements have been met and the pre-defined verification arrangements were satisfactorily completed and documented by authorised persons (as defined in chapter 8.6 of this norm). Although the process is finished here, ISO/ DIS 9001 stresses in chapter 8.7 the necessity to control nonconforming operation process outputs of any kind. The basic idea is to prevent unintended delivery or use of nonconforming products and services and thus the risk of reputational damage or possible harm to customers and the broader environment. It is also a matter of efficiency. When an activity within a production subprocess is not carried out correctly and this leads to a nonconforming output that is not recognised as such, the output will be used for further activities along the production line. The later a defect is discovered, the more useless activities have been performed and the more time and supplementary resources have gone into producing a piece that finally cannot (or should not) be delivered to a customer. In a worst case scenario, a fissure in a small bolt that is not discovered leads first to the production of a nonconforming brake and finally to the production of a dangerous car. The loss of time and money is considerably lower if this fissure is found before the bolt is built into the brake than if it is found after the whole car was produced. Depending on the kind of product or service the organisation provides, it can deal with nonconforming process outputs in different ways. It can correct them and deliver them after reassessment (verification) and final approval. It can contain or suspend their provision and inform the customer about errors made. Or it can obtain authorisation for further use or even for release to the customer in the state it is (despite its nonconformity) or acceptance under concession. All these actions require evidence. 40 uvk-lucius.de/ adam <?page no="261"?> 7.3 Managing Products and Services Based on ISO 9001 261 According to the ISO 9000 user survey of 2011 with more than 11.000 respondents from 122 countries, the top three reasons for introducing a quality management system based on the requirements of the ISO 9001 are customer satisfaction, market needs and (with considerably less responses) mandated customer requirements. The most important benefits gained from an ISO 9001 implementation were indicated to be improved customer satisfaction and standardised business processes followed by increased management commitment, effective use of data and the execution of more effective management reviews. The often used statement, that ISO 9001 is mainly a tool for subduing suppliers (or from the opposite perspectives fulfilling customer requirements) was not substantiated, as increased supplier performance and fulfilling customer requirements were ranked comparatively low in the list of benefits. 41 VIPs 7.3.3 Enhancing Customer Relationships After years of orientation on shareholder requirements and its logical emphasis on financial results, the management focus shifted to customer orientation and the term “customer-centric organisation” became highly popular. It was recognised that a sustainable management approach presupposes aligning the financial requirements of shareholders and other kinds of investors with the fulfilment of the targeted customer’s needs and expectations in order to ensure lasting consumer acceptance of the offered products and services. A long-term disposition to buy is also dependent on a positive customer experience that regularly involves a fitting product or service and a pleasant customer contact. Hence, the related marketing approach shifted from a transaction-based to a relationship-based view. This view later expanded and went far beyond a mere tactical marketing methodology in order to encompass a broad management approach. Based on that, customer relationship management (CRM) can be defined as a strategic approach to managing customer relationships with the aim of creating sustainable value for the organisation and its customers. 42 In order to introduce this concept effectively and efficiently in today’s market environment, this approach is often closely related to the adoption of an integrated CRM system with specialised software and a single shared and very extensive customer database. However, as is also true for other already introduced management approaches, CRM is neither equivalent to nor dependent on the homonymous IT-system. Instead, CRM aims at becoming a customer-centric organisation which is able to gain a key advantage over its competitors by deploying information gathered through close customer contact for improving the acquisition, retention and profitability of its customers long-term. 43 This basically requires trust, as trust is a crucial prerequisite for sharing information openly and honestly. 44 uvk-lucius.de/ adam <?page no="262"?> 262 77 Managing Processes and Products Globally Figure 7-15: Customer Relationship Management Based on the IDIC Approach 45 An overview of typical customer-related tasks embedded in a holistic CRM approach is provided in Figure 7-15. It is based on the IDIC approach of Peppers & Rogers. The content of this approach is closely aligned with the first Fundamental Concept of the EFQM Excellence Model called “adding value for customers”. Therefore, related criterion parts of the EFQM model are also included in the graphic. The acronym “IDIC” stands for Identifying, Differentiating, Interacting and Customising. These constitute interrelated activities of iterative nature that are usually - but not necessarily - executed in the depicted sequence. CRM processes can only be implemented successfully, if customers are identified as individuals and not as a homogenous “customer base”. Being able to track an individual customer enables the organisation to recognise him with his unique set of needs and requirements when he comes back, which then allows addressing him with fitting value propositions. For managing the related processes it is necessary to differentiate the customers, which means grouping or segmenting them firstly by their needs and requirements and secondly by the value they bring for the organisation. For a long-term success it is important to focus resources and processes on those customers that bring sustainable value to the organisation, usually measured as a lifetime value of a customer relationship instead of the value of one single purchase. The first two CRM steps are also termed Analytical CRM. The resources freed by rejecting certain types of customers can in the following be used to cater to the individual needs of the remaining customers and to improve their experience. The interaction phase is dedicated to establishing a mutually beneficial and effective learning relationship between the organisation and the individual customer. Its most important feature is the establishment of a continuous feedback loop set up to persistently review and monitor the perceptions and experiences of the customer. This feedback uvk-lucius.de/ adam <?page no="263"?> 7.3 Managing Products and Services Based on ISO 9001 263 loop consists of all kinds of customer feedback: customer satisfaction surveys, questionnaires, focus groups, individual feedback sessions and customer complaints. It requires open and honest feedback and thus commitment from the customer’s side, which will only be given freely if the customer deems his effort to be worthwhile. This in turn requires from the organisation that it learns from the information and provides improved products and services that better meet the needs of the customer than the ones of any other competitor. Direct feedback provided from customers is the single most important input for all product-related processes and simply irreplaceable. Organisations renouncing customer feedback consciously accept a hazardous blind spot. The direct feedback loop can be enhanced by monitoring indirect channels, especially social media communication. In this case the organisation can learn from conversations taking place between customers or between customers and non-customers in social networks like Facebook. Nowadays, statements in social networks equal or even exceed the impact of word-of-mouth recommendations or dissuasions. The second phase of the Operational CRM, the customisation, comprises all activities that transfer the improvement opportunities gained from customer feedback into practice. A helpful tool for optimising an organisation’s value proposition based on individual knowledge about the customer is the so-called Value Proposition Canvas 46 . It is connected to the Business Model Canvas introduced in chapter 4.4.2. The recent leap in technological advancements allows organisations to tailor products, services and communication individually to masses of customers while staying cost-efficient. This trend is called mass customisation and allows treating different customers differently, which ensures delivering additional value to the customers. Integrated CRM systems play a major role in supporting the establishment of (mass) customisation, as they connect information from different points of contact and analyse behavioural or requirement patterns. CRM systems allow storing information about former purchases of one customer, connect it with the individual feedback obtained and use both to trigger personalised bargains fitting to the identified needs. 47 Amazon for example uses this approach with registered customers quite successfully. The combined use of infrastructure and collaborative services to enable interaction between an organisation and its customers through multiple channels and contact points is in some publications separated and called Collaborative CRM, 48 which is due to the overlap in concepts not used here. Operational CRM is of an iterative nature as customisation constantly requires tangible feedback to the changes made in order to get closer and closer to the core of the customer’s needs. This is depicted by the small cycle connecting the interaction and customisation. The broader learning loop between interaction and the incipient identification symbolises the necessity of constantly using the information and experiences obtained to refine the identification and improve the differentiation. The creation of a truly customer-centric organisation requires more than implementing the four interconnected phases. As with all management systems also CRM has to be based on a meaningful mission, a strong strategy and an elaborated business model. A detailed customer strategy is recommendable and is usually developed as part of the overall strategy. Apart from implementing the specialised CRM processes many CRM activities have to be embedded in the organisation’s value-creating processes. The process results have to be monitored and reviewed as integral part of the organisation’s overall controlling and review cycles. Special emphasis is to be laid on the investigation of customer results (see also chapter 8). uvk-lucius.de/ adam <?page no="264"?> 264 77 Managing Processes and Products Globally According to Bain & Company’s Management Tools & Trends survey 2013, CRM is globally one of the top three management tools used, achieving a tied ranking with strategic planning and employee engagement surveys and being used by more than 40% of the study’s participants. CRM is ranked second concerning satisfaction, which shows a huge improvement in comparison to former surveys. 49 Again, it is important to note, that this does not mean that the respective companies established CRM as a broad management approach. It is to be expected that many implemented solely a CRM database and toolset or a narrow customer relationship marketing approach. 7.4 Citations & Notes 1 Definitions of criterion parts: EFQM & ILEP (2012), p. 31 2 Development Dimensions International (2014), p. 8 3 Dargaud, G., Goscinny, R., Uderzo, A. (Producer), & Goscinny, R., Gruel, H., Uderzo, A., & Watrin, P. (Director) (1976); excerpt of the scene available at https: / / www.youtube.com/ watch? v=GI5kwSap9Ug 4 ISO 9000: 2005 (December 2005), p. 23 5 Martin, J. W. (2007), pp. 4-5. Some newer sources use a wider view on operational excellence and equalise this term with organisational excellence (for example Miller, A. (2014), pp. 5-6). As there already is a generally accepted term for this broader view, this view is deemed incorrect and will not be used here. 6 ISO 9000: 2005 (December 2005), p. 23 7 ABPMP (2009), p. 23 8 Contents based on ABPMP (2009), p. 23 9 ABPMP (2009) 10 Davis, R. (2008), pp. 1-2, 14, 22-23; Seidlmeier, H. (2010), pp. 11-15; both books offer a wide range of details on process modelling with ARIS tools 11 ABPMP (2009), pp. 36-37; Harmon, P. (2014), pp. 61-62; Jeston, J., & Nelis, J. (2014), pp. 4-7 12 Davis, R. (2008), pp. 10-11 13 ABPMP (2009), p. 36; Rummler, G. A., & Ramias, A. J. (2014), pp. 86-90; Jeston, J., & Nellis, J. (2014), pp. 4-7 14 ABPMP (2009) 15 ABPMP (2009), pp. 27; 33 and 36 16 ABPMP (2009), p. 84 17 ISO (2013a); ISO (2013b) 18 Contents based on ISO (2015) 19 ISO (2015) 20 Lazarte, M. (2014) 21 ISO/ DIS 9001: 2014 (E), p. 13 (clause 3.04) 22 ISO/ DIS 9001: 2014 (E), pp. 6-7 23 Details on the logic and requirements are provided in the standard ISO/ DIS 9001: 2014 (E). There is a lot of literature available about the implementation of efficient and effective quality management systems based on ISO 9001, a good example being the book from Hoyle, D. (2009) in English or Wagner, K. W., & Käfer, R. (2013) in German. It is to be noted that the books available so far all refer to the ISO uvk-lucius.de/ adam <?page no="265"?> 7.4 Citations & Notes 265 9001: 2008. Due to the substantial changes of the new edition it is highly advisable to rely on the standard itself until the books are updated. 24 ISO/ DIS 9001: 2014 (E), p. 9 25 Contents based on ISO/ DIS 9001: 2014 (E), pp. 3-4 26 ISO/ DIS 9001: 2014 (E), p. 33 27 ISO/ DIS 9001: 2014 (E), p. 14 (clause 3.11) 28 ISO/ DIS 9001: 2014 (E), pp. 33-34 29 ISO/ DIS 9001: 2014 (E), pp. 22; 35 30 Jacobs, F. R., & Chase, R. B. (2014), pp. 4-7 31 Jacobs, F. R., & Chase, R. B. (2014), pp. 4-7; Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith C. D., & Zacharia, Z. G. (2001); Chopra, S., & Meindl, P. (2013), pp. 13-16 32 Index mundi (Ed.) (2014) 33 Antoshak, R. P. (2014) 34 In some publications - for example in Jacobs, F. R., & Chase, R. B. (2014) - the term “operations” is added, so that “Operations and Supply Chain Management” (OSCM) is applied instead, but usually operations is understood as an integral part without singling it out. 35 Jacobs, F. R., & Chase, R. B. (2014), pp. 4-7; Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith C. D., & Zacharia, Z. G. (2001); Chopra, S., & Meindl, P. (2013), pp. 13-16 36 Jacobs, F. R., & Chase, R. B. (2014), pp. 7-8; Perez, H. D. (2013), pp. 27-30 37 McKinsey (2010) 38 PWC (2012) 39 EFQM & ILEP (2012), p. 31 40 ISO/ DIS 9001: 2014 (E), pp. 37-39 41 ISO (2011) 42 Payne, A. (2012), from “Varying definitions of CRM” to “A definition of CRM”; Peppers, D., & Rogers, M. (2011), pp. 5-8 43 Payne, A. (2012), “Preface”; Peppers, D., & Rogers, M. (2011), pp. 16-20 44 Peppers, D., & Rogers, M. (2011), p. 101 45 Contents based on Peppers, D., & Rogers, M. (2011), especially pp. 75-79 46 Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). The canvas is available for free download on the related website http: / / businessmodelgeneration.com/ canvas/ vpc 47 Peppers, D., & Rogers, M. (2011), pp. 16-17, 75-102 48 Payne, A. (2012), “Types of CRM” 49 Rigby, D., & Bilodeau, B. (2013), pp. 9-10 <?page no="267"?> 8 Achieving and Monitoring Balanced Results Readers understand the necessity to derive fitting performance measures from strategic objectives. The creation of an individually developed set of key results can be pursued. Differences in result structures postulated by the EFQM results criteria and the balanced scorecard concept can be described and dissolved. Readers know the principles of good dashboard design and have the ability to distinguish useful dashboards from inadequate ones. The commitment of the organisation’s members to achieve the stipulated strategic objectives can be enhanced by the introduction of adequate performance measures. These allow aligning the individual activities with the overall desired development and provide guidance on the macro and micro level. An international organisation that pursues a comprehensive stakeholder perspective is in need of a set of measures that reflects all results that have to be achieved in order to satisfy their stakeholder’s relevant requirements. The well-established financial figures mainly cover the owner or investor perspective and thus fall short. Two established structures for a comprehensive set of key results are addressed in this section: The results criteria of the EFQM Excellence Model and the balanced scorecard concept (BSC). Both promote the organisation’s results orientation. They can be used separately or in an integrated way. State of the art performance monitoring systems also make use of dashboards for supporting managers with immediate access to performance data. Many of these systems reveal relevant shortcomings despite their popularity, which are also discussed in detail. An overview of the issues covered below is provided in Figure 8-1. Figure 8-1: Concept Map “Monitoring and Achieving Balanced Results” uvk-lucius.de/ adam <?page no="268"?> 268 88 Achieving and Monitoring Balanced Results 8.1 EFQM Results Criteria Figure 8-2: EFQM Result Criteria and Their Criterion Parts 1 Based on the classical quality management maxim “what gets measured gets done”, the second half of the EFQM Excellence Model is dedicated to the results achieved. Following its stakeholder approach, the structure is stakeholder based, as shown in Figure 8-2. Customer results, people results and society results (the latter standing for all stakeholders addressed by the organisation’s societal and environmental strategy) have to be reported and assessed. These three criteria follow the same structure and clearly distinguish between perceptions (always in criterion part a) and performance indicators (criterion part b). Perceptions correspond to direct feedback from the respective stakeholder group and can be obtained using different methods. Classically, surveys are used, but also interviews, structured appraisals, focus groups or any other form of direct communication and involvement allow collecting the required information. In contrast, performance indicators focus on internally acquired measures. These indicators typically stem from the measurement of processes, comparing promised performance with realised performance. In general, all non-direct measures that help to understand, monitor, improve and predict the relevant performance for the contemplated stakeholder can be addressed here. It is important that the combined acquired information provides a clear picture about deployment and outcomes of the organisation’s strategy related to the respective stakeholder group. Criterion 9 “business results” covers business stakeholders like investors or suppliers and includes all key results associated with the strategy that are not related to the aforementioned stakeholder groups. It is split into criterion part a) dealing with business outcomes and b) performance indicators. In case of a for-profit organisation, business outcomes typically include the classical financial key results stemming from profit and loss statement and balance sheet. Depending on the organisation’s strategy, this is complemented by the perceptions of business stakeholders (for example investors or suppliers), key process outcomes (for example number of patents in R&D dependent organisations) or volumes of main products sold. 2 uvk-lucius.de/ adam <?page no="269"?> 8.1 EFQM Results Criteria 269 Figure 8-3: The Allocation of Results The chosen structure of the results criteria with perceptions, indicators and outcomes as summarised in Figure 8-3 ensures a holistic and sustainable approach due to different perspectives, sources and orientations. Commonly used financial reporting measures constitute the often quoted “glance in the rear view mirror”, as they inform about past performance which is not necessarily a good predictor for the future. Perceptions, in contrast, are oriented towards the future as they allow gathering information about intentions. This can be done directly (e.g. including a survey question about repurchase intentions) or indirectly, for example by gathering repurchasing probabilities from changes in customer satisfaction. Internal indicators can constitute early warning devices, as they permit to closely monitor performance and to intervene in case of unfavourable developments. If for example a process indicator reveals that within the last month a promised service level was not reached in 20% of all cases, this hints at 20% dissatisfied customers. The manager would then be required to take action, for example by enhancing the resources for the process, improving the process flow and/ or writing letters of excuse to affected customers. The combination of internal and external sources avoids organisational blindness and ensures that the stakeholder orientation is truly embedded in the organisation’s actions instead of remaining an advertising claim. As an open model fitting for all kinds of organisations, the EFQM Excellence Model refrains also in the results criteria from dictating the contents. It is therefore the obligation of the organisation using this model to decide upon the result measures to be included and the methods to collect the key data. Guidance is provided by the strategy and its derived objectives. Concerning the relevance and usability, the EFQM RADAR logic demands that the identified and chosen results are able to demonstrate the performance of the organisation directly related to its strategic objectives and the expectations and needs of its selected stakeholders. The RADAR logic also requires that the results can be obtained in an accurate, reliable and timely manner, so that they are capable of allowing an assessment of the current situation to support managerial decision making. 3 The following examples of results are offered to illustrate possible solutions. Depending on industry, products and services offered as well as the organisation’s size, spread and strategy a very individual choice of key results has to be made. Classical customer perception measures range from performance ratings of products or service to customer relationship ratings and loyalty measurement. This information can be collected for example in customer surveys as explained in chapter 7.3.3. Typical uvk-lucius.de/ adam <?page no="270"?> 270 88 Achieving and Monitoring Balanced Results customer performance indicators deal with complaints handling (time until complaints are solved, number of complaints accepted etc.), product or service delivery (for example adherence to agreed time limits, number of users of service websites) or contribution of customers to product design processes. People perceptions are collected to understand how the organisation performs with regard to its people and include satisfaction, engagement, motivation, leadership, training and career opportunities, effectiveness of communication and working conditions. Representative items for people perceptions were described in chapters 5.2.3 (employee surveys) and 3.2.5.2 (leadership feedback). Classic people-related performance indicators include employee turnover, average training days per employee, overall sick leave (in days), participation in social activities or use of specified intranet sites. Leadership performance could be exemplified by the number of people reaching higher managerial positions or competencies developed. Society perceptions usually refers to stakeholders that experience an impact of the company in general, be it environmental emissions (noise, air pollution) or from the industrial location (regional reputation, impact on employment) or from other organisational contributions (social sponsoring, tax paying). This can also include the interested public, as might be relevant for example in the banking and insurance business. Therefore, based on the preceding definition of relevant society stakeholders, perceptions can be obtained from any kind of surveys, press articles or reports, public meetings and/ or meetings with representatives of governmental authorities or NGOs. Media coverage and public awards constitute important measures in this category as they provide a genuine view on public perception. Society performance indicators include measures concerning environmental or societal activities (for example reduction of water usage or waste, money spent on sponsoring activities), compliance (e.g. results of regulatory assessments), safety or responsible sourcing (for example development of food suppliers towards organic farming). 4 Depending on Great Jean’s strategy, useful result measures and indicators could include the following: uvk-lucius.de/ adam <?page no="271"?> 8.1 EFQM Results Criteria 271 It is of paramount importance to understand that it is neither necessary nor advisable to produce masses of data with all figures imaginable. In modern organisations with process workflows and up-to-date information systems, a myriad of records is available for use. Without clearly derived objectives from the chosen strategy, an organisation and its management easily gets lost in the abundance of possible key figures. The main task is to withstand the allure of measuring everything possible and to concentrate on a few chosen results that really matter. This choice forces the top management to reach a very deep level of understanding for their strategy, so that easily obtainable, standard figures can be replaced by a very creatively and individually developed set of key results. In practice, it is often the case that organisations tend to focus on common reporting figures that are required externally anyway. This bears the risk that good leaders intuitively use other indicators for appraising their organisation’s performance than those officially provided. The results required by the EFQM model should reflect exactly those items the organisation’s leaders think of first when determining their success. Case studies of real award applications based on the Baldrige Excellence Model also offer examples for relevant results, their segmentation and demonstration. Some examples can be accessed freely at the Baldrige website (www.nist.gov/ baldrige/ publications). uvk-lucius.de/ adam <?page no="272"?> 272 88 Achieving and Monitoring Balanced Results 8.2 Introducing the Balanced Scorecard Concept The Balanced Scorecard (BSC) concept is an organisational performance measurement system that attracted high international attention since its first publication by Kaplan & Norton in 1992. 5 The ground-breaking approach of this control instrumentation is the combination of different performance measures to a comprehensive set that allows managers to navigate their organisation to future competitive success. The BSC is understood by its founders as a framework for a strategic management system, as it translates the organisation’s mission and strategy into objectives and their performance drivers. It measures organisational performance across four distinct and balanced perspectives - customer, financial, internal business processes and learning & growth - as depicted in Figure 8-4. 6 Figure 8-4: Kaplan & Norton’s Balanced Scorecard 7 The BSC emphasises that financial and nonfinancial measures have to be part of the information system at all levels of the organisation. Until its introduction, it was quite common in organisations that lower levels were occupied with operational performance and related measures while top management looked (only) at the aggregate financial results. Such an approach falls short, as it merely provides tactical feedback and input for short-term improvements instead of a holistic view on the organisation’s development towards sustainable, long-term success. The BSC requires the organisation to derive the relevant financial and nonfinancial measures in all four perspectives from a top-down process based on the organisation’s mission and strategy. The resulting measures have to be balanced in several ways. First, the perspectives signify a balance between internal and external measures. Internal measures cover important business processes as well as the development of non-tangible assets like competencies and uvk-lucius.de/ adam <?page no="273"?> 8.2 Introducing the Balanced Scorecard Concept 273 innovation in the learning & growth perspective. The external perspectives provide measures for customers and shareholders. In addition, the measures of the BSC have to be balanced between lagging and leading indicators. The classical financial figures represent results from past performance and are thus considered as lagging behind the actual development. Indicators like repurchasing intentions of customers or competence enhancement in the learning & growth perspective provide information about the likelihood of actualising future sales and represent leading indicators. The third aspect that requires balance in a BSC is the combination of objective, easily quantifiable outcome measures with subjective performance drivers of the outcome measures. Subjective information can be obtained from customers, employees and other stakeholders and provides invaluable feedback on the reasons for attaining or not attaining a goal. 8 Balanced Scorecards have to be implemented on all organisational levels and thus contribute to the strategic alignment of the organisation. On the corporate level, the BSC is derived from mission and corporate strategy and allows a tangible measurement of the strategy attainment from a high-level management perspective. The corporate level BSC provides the basis for the development of different BSCs on the divisional levels. A good division BSC will consist of measures that directly contribute to measures used on the corporate level but will also include new measures that provide insights into the special divisional situation. Every division BSC will also be derived from the divisional strategy, which further ensures a close strategy alignment throughout the organisation. This process will be followed until the lowest subsequent level, where the measures used are typically related to one department with its distinct activities and/ or individual products. 9 The whole cascade is illustrated in Figure 8-5. Figure 8-5: Balanced Scorecards Aligned Across All Organisational Levels 10 After the immediate success of their Balanced Scorecard concept, Kaplan & Norton started to concentrate on further advancements in strategy management that allowed aligning key figures chosen for the Balanced Scorecard with the strategy in a superior way. The resulting innovation was called “Strategy Maps”. These are diagrams that depict the links between different strategic objectives based on cause-and-effect relationships. The moment a strategy is described like that and mapped among the four BSC perspectives, it is sure to be integrated and comprehensive. Strategy maps are thus uvk-lucius.de/ adam <?page no="274"?> 274 88 Achieving and Monitoring Balanced Results a very powerful tool to ensure that a clear strategy can be easily and directly translated into a Balanced Scorecard with fitting key figures. 11 The BSC concept is one of the most popular management tools worldwide. According to Bain & Company’s 2013 survey about the use of management tools with more than 1.200 global respondents, the Balanced Scorecard is ranked number 5 of the top 10 most used management tools worldwide. In Europe, it is even ranked first. All in all, 38% of all respondents used a BSC and within the next two years a usage by 73% of all organisations was projected. 12 It is to be noted that the term “Balanced Scorecard” is often used as a synonym for any kind of performance measurement system. Therefore these figures do not mean that the BSC concept with its strategic management approach is really pursued. This critical view is supported by Gartner’s Financial Executive’s Technology Study from 2012. It surveyed 255 executives from North America of which 52% operated internationally. Although leading IT-based strategy management and scorecard applications allow organisations to include leading and lagging indicators as well as forecasts, the financial management of the respondent’s organisations was still focused on tracking lagging financial and operational performance indicators (49%). 17% mainly employed financial indicators. Only 6% of the respondents stated that they use a balanced scorecard and its complete methodology. 13 When the BSC concept was first established, there was a lot of (scientific) discussion about the differences between it and holistic management models, namely the EFQM Excellence and Baldrige Models, which were developed shortly before. A main question was, if it is possible to use a BSC and the EFQM Excellence Model simultaneously. More than 15 years ago this difference was settled. 14 The EFQM promotes the BSC concept on its website as one of the most widely used tools for enhanced strategy development, as it allows managers to gain a holistic view of their business and all stakeholders while ensuring that strategies and resulting plans are converted into cascaded objectives in an integrated manner. 15 Figure 8-6: Mapping the BSC Concept on the EFQM Excellence Model When mapping the BSC concept on the EFQM Excellence Model as in Figure 8-6 it becomes clear that the result criteria can be interpreted as a special structure of a balanced scorecard that is linked to the organisation’s mission (set by the leaders according to the EFQM criterion part 1a) and its strategic objectives (addressed in criterion uvk-lucius.de/ adam <?page no="275"?> 8.3 Monitoring Achievements by Designing Meaningful Dashboards 275 2). The EFQM Excellence Model result criteria classify the performance measures in a different way in order to encourage a broad stakeholder perspective for management and review. The result criteria are not meant as an obligatory structure for a performance measurement system. The same is true in a BSC implementation, where a strategic alignment can be more easily assured when the scorecard is set up based on the organisation’s strategy and not based on a rigid BSC template. Due to the very practical advice and best practice studies provided it is highly advisable to pursue the BSC concept for implementing an integrated and balanced performance instrumentation. The Advanced Performance Institute (API) is a UK-based independent advisory and research organisation that specialises in organisational performance. It offers at its website http: / / www.ap-institute.com/ case-studies.aspx a selection of case studies dealing with BSC implementation free for download (registration required). Other examples can be downloaded from the Balanced Scorecard Institute at its website http: / / balancedscorecard.org/ Resources/ Examples-Success-Stories. VIPs 8.3 Monitoring Achievements by Designing Meaningful Dashboards After the decision about the performance measures to be used is made, it is necessary to find a fitting means of communication that present the chosen indicators and the information gained from it for further decision making. TNCs typically choose computer-based systems to help (top) management to monitor the performance, as these allow presenting the information simultaneously in all operating units. Those management information systems (MIS) were already introduced in chapter 6.4.2. A further development of these classical systems aiming at top management support is represented by the so-called dashboards. Dashboards can be defined as a particular means of communication that present information on a computer screen to help management monitor the organisational achievement of objectives based on graphical designs. In some publications, a difference is made between plain dashboards (which are mainly screens with some fancy performance-related graphics on it) and so-called performance dashboards, which are part of the organisation’s business intelligence infrastructure and integrate data, applications and rules that define what the user finally sees on his screen. Usually, the latter is also meant when only the term dashboard is used. Many dashboards rely primarily on their special, highly sophisticated graphics to display a series of performance measures and alerts for areas not conforming to preuvk-lucius.de/ adam <?page no="276"?> 276 88 Achieving and Monitoring Balanced Results defined objectives. Their designers mainly strive for visual appeal instead of usability and merge information and art into interactive infographics. Such a design is often meant to attract management attention by representing dashboards from technical devices like cars or trains. Unfortunately, from an information support perspective these designs are regularly poor and difficult to use as they feature masses of data without providing structured, specific information to discern business trends or patterns. 16 There are three typical characteristics of useful dashboards to be mentioned. First, dashboards present the information needed for user-specific purposes in a very compressed format, often on one screen page. The user should be enabled to catch all relevant information at a glance. Second, dashboards allow the user to concentrate only on necessary information. They offer relevant contents in different levels of aggregation suitable for a specified task. Essential facts can be determined quickly with the help of appropriate markings (for example illustrating a status with the help of traffic light colours red, yellow and green or separate textual notes). In order to ensure the proper execution of the first two characteristics, dashboards are always customised to the needs of one workplace, one person or a specified group of people. They can relate to all levels of the organisation and display virtually all kinds of measures and indicators with comparisons and trends. Ideally, dashboards represent the relevant measures of the respective BSC in a format that allows speedy and easy decision making. 17 Modern dashboard solutions, like for example SAP BusinessObjects Dashboards software, allow interactive dashboard visualisations based on data gained from the organisation’s ERP system and their instant publication to PCs and all sorts of mobile devices like smartphones. 18 Figure 8-7: Poorly Designed Dashboard uvk-lucius.de/ adam <?page no="277"?> 8.3 Monitoring Achievements by Designing Meaningful Dashboards 277 Stephen Few collected thirteen widespread mistakes made in designing dashboards, starting with the exceedance of one single screen and further covering the contents of the data and information provided (e.g. inadequate context and details, indirect expression of measures, meaningless variety and inaccurate encoding) and the display chosen (inappropriate and poorly designed display media, inferior information arrangement, ineffective highlighting, misuse of colours, exaggerated visual effects and overall unattractive visual display). 19 An example for a flashy but inadequate dashboard is provided in Figure 8-7. Exercise: Poor dashboard design (online) As it is important to tailor the design to the user and the intended utilisation, features to take into account before starting the design process cover update frequency, user expertise, audience size, technology platform, screen type and data type (quantitative and/ or non-quantitative). It is highly advisable to enrich the data displayed in a dashboard with evaluative or qualitative statements that allow alerting the readers to critical measures. This can be realised with simple visual indicators. The main aim of a dashboard design should be to encode data for rapid perception. This can be achieved by choosing appropriate graphs, colours and structure. 20 Gerths & Hichert developed seven SUCCESS criteria or design rules for better business charts used in dashboards and presentations. Their main requirements are that a chart in an analysis should provide insight by conveying understandable messages through complete titles, suitable highlights and comments (Say) be embedded in a uniform visualisation concept by using standardised visualisation formats based on a notation manual (Unify) deliver high information density with an optimal use of space, a high amount of data displayed in appropriate dimension (Condense) take into account important quality aspects like correctness and significance of data, fitting charts and non-manipulative scaling (Check) enable good results through database integration and automatic creation (Enable) avoid meaningless, decorative, redundant and distracting elements (Simplify) and be presented in a correct, homogeneous, exhaustive structure (Structure). 21 uvk-lucius.de/ adam <?page no="278"?> 278 88 Achieving and Monitoring Balanced Results Figure 8-8: Adequate Dashboard for Great Jeans Figure 8-8 shows an example for an adequate and usable dashboard for Great Jeans. A special graphical object used here is the so-called bullet graph, invented by Few. It displays one key measure along with the corresponding comparative measure (typically a goal) and qualitative ranges (for example bad, satisfactory or good). It should convey at a glance full information about the chosen key measure in a far more space-efficient design than a flashy gauge. 22 Although the provision of adequate at-a-glance information about key developments for quick decision making is rightly the most significant aspect of a good dashboard, it is important not to forget the attractiveness of the display. Few’s perspective is focused on the best possible support for grasping the data and thus the underlying real-life events. Naturally, his requirements do not emphasise other, sometimes equally relevant aspects as for example strengthening identification with the organisation and its products by using a fitting, memorable corporate design or attracting more practicallyoriented managers to really engage with the information presented in the dashboard. Dashboards optimised for data comprehension can easily appear very prosaic or dry. uvk-lucius.de/ adam <?page no="279"?> 8.4 Citations & Notes 279 This is probably the reason why flashy dashboards reminiscent of cockpits or racing car dash panels are so popular with many users despite their shortcomings. VIPs 8.4 Citations & Notes 1 Definitions of criterion parts: EFQM & ILEP (2012), pp. 34-40 2 EFQM & ILEP (2012), pp. 34-40 3 EFQM & ILEP (2012), p. 46 4 EFQM & ILEP (2012), pp. 34-38 5 Kaplan, R. S., & Norton, D. P. (1992) 6 Kaplan, R. S., & Norton, D. P. (1996), pp. 2-9; Kaplan, R. S., & Norton, D. P. (1992) 7 Based on Kaplan, R. S., & Norton, D. P. (1996), p. 9 8 Kaplan, R. S., & Norton, D. P. (1996), pp. 7-10 9 Kaplan, R. S., & Norton, D. P. (1996), pp. 12-13, 147-150; Morschett, D., Schramm- Klein, H., & Zentes, J. (2010), pp. 422-423 10 Based on Morschett, D., Schramm-Klein, H., & Zentes, J. (2010), p. 422 11 Kaplan, R. S., & Norton, D. P. (2004), pp. ix-xiv; 29-36. A good overview is provided in the related article Kaplan, R. S., & Norton, D. P. (2000) 12 Rigby, D., & Bilodeau, B. (2013) 13 Gartner Inc. (2012), pp. 4, 14-16 14 Lamotte, G., & Carter, G. (2000); Kaplan, R. S., & Lamotte, G. (2001) 15 EFQM (2015a) 16 Few, S. (2013), pp. 1-7; Eckerson, W. W. (2011), pp. IV-VI 17 Gluchowski, P., Gabriel, R., & Dittmar, C. (2008), pp. 215-220 18 SAP (2012) 19 Few, S. (2013), p. 2 20 Few, S. (2013), pp. 65-91 21 Gerths, G., & Hichert, R. (2014), chapter 1.2; this book is also available in the original German version: Gerts, H., & Hichert, R. (2013). Hichert also offers a detailed and illustrated overview of the SUCCESS rules in a poster format as a free download on the website of the related consultancy: www.hichert.com/ downloads/ shop/ Poster/ SUCCESS_RULES_A1.pdf uvk-lucius.de/ adam <?page no="280"?> 280 88 Achieving and Monitoring Balanced Results 22 Few, S. (2013), pp. 121-122. Details on the intricacies of its design are provided in chapter 9. Best practices for designing tables and graphs for all circumstances are imparted in Few’s other book: Few, S. (2012). <?page no="281"?> 9 Assessing the Organisation’s Management Model Readers recognise strategy reviews as an indispensable part of the strategic management process. They are familiar with different methods for organisational self-assessments. Appropriate tools for varying time requirements and stages of maturity can be chosen and applied. Readers are able to appraise potential benefits of international excellence recognition schemes and award processes. After having read the whole book, readers are finally able to appreciate the high standards that an implementation of a holistic management model demands of an organisation and its leaders - and to weigh them against the great opportunities it offers international organisations in a very competitive environment. With the arrow pointing backwards from results to enablers the EFQM Excellence Model reminds its users of the dynamic need for a systematic learning and improvement approach. Learning from results is not limited to the operative level but is instead an all-encompassing imperative for ensuring a successful strategic orientation. Strategy reviews allow an organisation’s top management to pause for a moment and reflect upon the path followed so far. Self-assessment tools are available that support review processes based on a holistic organisational development perspective. Their impact can be enhanced by an external view of competent assessors and might finally lead to the participation in international recognition schemes or excellence awards. The final section of this book is dedicated to these review activities, as illustrated in Figure 9-1. Figure 9-1: Concept Map “Assessing the Organisation’s Management Model” uvk-lucius.de/ adam <?page no="282"?> 282 99 Assessing the Organisation’s Management Model 9.1 Establishing Strategy Reviews for Continuous Improvement Monitoring the performance based on strategic initiatives is not enough to ensure an organisation’s long-term success. The controlling tools and techniques explained in chapter 8 reveal undesired performance shortcomings as they focus on targets and their actual fulfilment. In addition to that, it is necessary to regularly evaluate the strategy as such as well as the strategic initiatives and the targets derived from it. According to Porter, even a strategic process that is initially successful leads over time to individual adjustments that take the form of sensible and accepted compromises, but on the whole endanger the unique strategic position of the organisation. It is therefore necessary to reconnect with the initial strategy by carefully looking at what the organisation does and then reinstating an integrated picture of the unique strategic focus. 1 The more complex the organisation’s environment and business is, the more important the reconnection with the initial strategy becomes. As an internationally operating organisation is subject to broad influences and constant changes of customers, markets, supply chains and political forces, a regular check of the individual adjustments made is vital. Such a process where top management takes a careful, holistic look at their own organisation and asks themselves inconvenient questions is usually named strategy review. A strategy review takes a high-level perspective and thus goes far beyond the usual quarterly performance review and the yearly management review required by ISO 9001. Its gist is rigidly scrutinising the business as it is and the strategy so far pursued. In today’s extremely dynamic environment the idea of keeping a strategic plan unaltered over three to five years is not realistic. Smaller and larger changes to adapt to altered circumstances will be needed. Strategies relying on forecasted events that did not come true might have to be changed or abandoned altogether. This is also one of the main reasons for some experts advertising simpler rules and a less formalised approach in dealing with strategies. 2 The importance of strategy reviews is accented in the EFQM Excellence Model by use of the arrow pointing backwards from the results criteria to the enablers. It does not only underscore the necessity of taking actions based on the feedback gained from the results but it also highlights the significance of using creativity and innovation in order to push the organisation as a whole to a higher level. Strategy reviews and resulting changes allow closing the continuous improvement cycle of strategy management. 3 This basic concept was already introduced in chapter 1.3.3. The evaluation of an implemented strategy can take many different forms. Schmidt proposed a strategy evaluation process that takes into account the strategy formulation as well as its execution. The starting point for the whole process is the failure of a strategy to produce the desired results. If the execution is deemed to be good, the strategy itself should be scrutinised, especially the validity of the underlying premises and assumptions, the definition and assessment of alternative scenarios and the proper diagnosis of the current situation and relevant trends. This is followed by evaluating the consistency of functional strategies and business strategies as well as the adequacy of resource allocation. If the execution is evaluated as poor, the aspects covered in the following error diagnostics include the effectivity of communication, management commitment, result monitoring and action taking in form of necessary strategy revision, if needed. 4 uvk-lucius.de/ adam <?page no="283"?> 9.1 Establishing Strategy Reviews for Continuous Improvement 283 Peter Drucker advocates a more general method for assessing what an organisation does, why it does it and what it has to do to (further) improve its performance. He calls this process self-assessment. It should be carried out as a three-way conversation with the organisation’s management board, staff and customers, in order to ensure that each of these stakeholder perspectives is included in the discussion and the final decision. 5 In contrast to a strategy development process it uses different sort of inputs and is conducted on a far smaller scale, with a duration of one to two days depending on the organisation’s size and complexity. However, it might end in a true strategy development process if a broad need for change becomes apparent. Drucker structures his self-assessment process along five guiding questions, as depicted in Figure 9-2. Figure 9-2: Drucker’s Five Most Important Questions Asked about an Organisation 6 Thinking through these five questions, discussing them and coming to unanimous answers in the management team produces an agreed upon mission, which might be the affirmed old mission or a new one with different focus. The whole process finally leads to a plan that summarises the organisation’s purpose and comprises goals and objectives, action steps and accountabilities as well as detailed budgets. The time taken for the review is only worthwhile if the resulting plan is effective. Drucker mentions five elements of effective plans: abandonment of things that do not work, concentration on the organisation’s strengths instead of weaknesses, true innovations for tomorrow’s success, risk taking that demands clear entrepreneurial decisions under uncertainty and conducting thorough analyses before making final decisions. The most important and also most neglected element is the abandonment. Abandoning products, processes, systems or customer groups that have outlived their capacity to contribute or have never really been useful is indispensable. 7 Drucker advises to ask “if we were not committed to this today, would we go into it? ” 8 If this is answered with no, it is paramount to get out, and fast. uvk-lucius.de/ adam <?page no="284"?> 284 99 Assessing the Organisation’s Management Model Strategy management - from set up to review - mainly suffers from its rigour and not from its complexity. Strategy is about strategic choices for the organisation’s future and thus it also forces management to courageously decide upon issues that will not be pursued. Lafley & Martin understand strategy as an integrated and coordinated set of five choices aimed at winning in the competition. Management has to choose a victorious aspiration, the playing field, the way to win, the core capabilities involved and the supporting management system, altogether named the “strategic choice cascade”. If managers are reluctant to make truly tough, explicit choices, they will not be able to focus on the things that really matter and the organisations will end up as mediocre competitors at best. 9 As Lafley & Martin epitomise: “A choice to serve everyone, everywhere - or to simply serve all comers - is a losing choice”. 10 There are still managers that believe that a strategic review should be carried out as an ad hoc examination in conspicuous situations. These situations could include according to Schmidt an unprecedented, fundamental change in the environment (for example a financial crisis), an anticipated gap in achieving financial objectives and/ or other expected strategic results as the appointment of a new management team. 11 This outdated view is no longer supported, the main reason being that without purposefully addressing the need for a review important environmental changes might not attract attention, or might be recognised too late. Also, a gap between target and actual figures does not necessarily provide a mandatory reason for a strategy review, depending on the timeline and the standard (high versus low) of the target. As with most processes, also a strategy review process will at first neither run smoothly nor fully create the results expected. A regular execution offers essential learning and improvement opportunities, for example concerning the need to pinpoint definite strategic choices. For these reasons as well as due to the already mentioned dynamic environment it is highly advisable for an internationally operating organisation to carry out such a strategy review process once a year or at least every two years. VIPs 9.2 Implementing Self-Assessments 9.2.1 Introducing Self-Assessment Tools The self-assessment tools available today constitute advancements of Drucker’s approach. Self-assessment can be understood as a comprehensive, systematic and regular review conducted by a management team dealing with the organisation’s strategy, activities and results. Self-assessments enable organisations to determine where they stand on their journey towards excellence and what steps they have to take to improve further. 12 uvk-lucius.de/ adam <?page no="285"?> 9.2 Implementing Self-Assessments 285 Depending on the organisation’s maturity, the quality aspired and thus the method chosen, a self-assessment can be performed as an integral part of the usual yearly performance appraisal, for example within an ISO 9001 management review. If a highly sophisticated and time-consuming approach is used, the self-assessment has to be conducted separately. In these cases it should be carried out before the annual performance review as it provides a key input. Irrespective of the chosen tool, selfassessment processes should therefore follow an annual or bi-annual cycle synchronised with the organisation’s planning cycle. According to the EFQM, every effective self-assessment process covers seven steps that are illustrated in Figure 9-3. The most important aspect is the necessity to engage the management team throughout the whole cycle. Figure 9-3: Basic Self-Assessment Process 13 There is a huge variety of tools available that range from very simple, questionnairebased methods that can be used very liberally to comprehensive, evidence-based approaches that have strict rules for their execution. Simple tools for beginners offer a qualitative, opinion-based assessment. They are easy to apply, do not require trained assessors and can be executed within a few hours. Then again, they do not include a scoring model, so that objective evidence for the organisation’s development over time is not available. More sophisticated self-assessment methods are usually evidencebased. They attach more importance to inputs, require pre-assessment trainings and consequentially need additional preparation time. In exchange, the captured information can be used for the establishment of detailed and comprehensibly prioritised improvement plans. These sophisticated methods also offer scoring models that allow measuring the organisation’s incremental improvements over time objectively. 14 An overview of selected tools is provided in Figure 9-4. Questionnaires are the easiest self-assessment tools for beginners, as they allow a direct start without needing previous knowledge of holistic management systems or selfassessment processes. Depending on the elaborateness of the questions provided, they can offer a very general approach (like Drucker’s five questions) or expand on organisational aspects in the minutest detail. As an alternative approach, the Baldrige Programme for example offers an “easyInsight” tool that is originally meant for identifyuvk-lucius.de/ adam <?page no="286"?> 286 99 Assessing the Organisation’s Management Model Figure 9-4: Classification of Different Self-Assessment Tools 15 ing the information to be included into the organisation’s Baldrige Profile. The compilation of such a profile is necessary for any kind of Baldrige award assessment and includes the description of the operating environment and its key relationships to stakeholders as well as its competitive environment with its key strategic advantages and challenges. The easyInsight tool consists of questions related to these aspects that are to be rated “easy to answer”, “could answer” or “difficult to answer”. Aspects that are difficult to answer or where conflicting information is available receive the highest priorities for action planning. 16 The EFQM offers several different questionnaires where the participating managers are required to rate their organisation against questions derived from the logic of the EFQM Excellence Model. Answering the generic questions usually requires a certain basic knowledge of the model. The maturity of the organisation can for example be rated against the 8 fundamental Concepts of Excellence. A more detailed version laid out in the “Determining Excellence Survey” offers 44 equally weighted statements (about 5 questions per criterion) and allows a general appraisal of the organisation’s current position based on 5 different stages from “fully disagree” over “neutral” to “fully agree”. 17 The Baldrige Programme also offers on its website an easy-to-use selfassessment questionnaire called “Are we making progress? ” free of charge. It includes 40 statements along the Baldrige Criteria for Performance Excellence and also a scale from “strongly disagree” to “strongly agree”. It should be used not only by top management but also for distribution to other people in the organisation like workers, supervisors or middle-managers to include their view into the assessment. 18 Organisations that have key approaches in place and start a self-assessment process can also use the so-called EFQM Quick Check that was originally developed by Ricoh. This MS Excel-based worksheet allows an assessment against 20 standard approaches (termed building blocks) derived from the Fundamental Concepts and includes a simple scoring profile. The input sheet to be filled out by the participating managers deals with the common approaches already in use and expects a brief description for each approach. Afterwards, the participants evaluate each of these approaches separately according to their current status in 5 different levels (from “nothing in place” over “deploying approach” to “mature approach in place”) and according to their strategic importance (from “very low” over “medium” to “critical”). From this, the Excel sheet uvk-lucius.de/ adam <?page no="287"?> 9.2 Implementing Self-Assessments 287 produces a score on a scale from one to ten. A rating of 10 - for example for an approach with critical importance where there is currently nothing in place - indicates that this aspect requires improvement action with the highest possible priority. Due to its automated prioritisation, the Quick Check can be completed within a few hours in a workshop format, assuming the participants have basic knowledge about the EFQM Excellence Model. 19 Sometimes, the Quick Check is also used for assessing and achieving alignment within the top management, especially concerning a shared view of the organisation’s maturity. In these cases, each top manager participating in the workshop is required to fill out the current status and strategic importance separately. The areas with the broadest variations in the individual evaluations will be highlighted and discussed until a common perspective is achieved. In all cases it is highly advisable to conduct a Quick Check with an experienced facilitator who is well-versed in the EFQM Excellence Model approach. Assessment Matrixes constitute superior self-assessment approaches and are therefore recommended for organisations that are already past their first steps towards excellence. They consist of tables that offer descriptions of several different maturity levels for each question or aspect that is addressed. The self-assessment participants have to mark the level that fully represents the current status of their own organisation. Such a matrix adds additional insights as it provides a standardised view on the aspects deemed relevant for achieving a certain level and by that also offers starting points for improvement measures that enable the organisation to reach the next level. Figure 9-5: Self-Assessment Matrix of ISO 9004: 2009 - Sample Element 20 The ISO standard ISO 9004: 2009 provides, as addressed in chapter 7.3.1, guidelines on a broad stakeholder-based quality management approach aiming at sustained success. The main features of this standard are the annex tables (A.1 to A.7) which constitute a self-assessment matrix of 35 key elements (subclauses) with different maturity levels ranging from level 1 with very basic requirements to level 5 indicating the highest maturity. The current maturity level of the organisation is defined by exactly that level where the organisation encounters no preceding gaps in the postulated criteria. 21 A sample key element of the assessment matrix is provided in Figure 9-5. An organisation that measures and reports appropriate productivity as well as commercial and financial indicators, that regularly monitors the satisfaction of all relevant stakeholders (including customers, people, partners and investors) and that recently defined first key performance indicators which it monitors in a pilot project format would reach Level 3 but not more. uvk-lucius.de/ adam <?page no="288"?> 288 99 Assessing the Organisation’s Management Model All self-assessment tools introduced so far are focused on approaches and thus target mainly the enablers of an organisation. The EFQM presents with the EFQM Business Excellence Matrix and its enhanced version EFQM Excellence Assessment Matrix the opportunity to complete a self-assessment against all 9 criteria of the EFQM Excellence Model, including the use of results data. The smaller version covers 10 approaches for each enabler criteria (50 altogether) as well as the key results realised for each results criterion. The advanced Excellence Matrix allows reviewing up to 90 approaches and segments the results into the different criterion parts. Both use a simplified version of the RADAR logic for rating, the smaller version with an overall limit of 600 points to prevent over-scoring. The use of both matrixes requires familiarity with the EFQM Excellence Model and its RADAR logic, as they do not provide clearly defined levels like the ISO 9004: 2009 matrixes but rely on generic guidance related to the guiding points of the model. The provided matrixes are MS Excel based. The organisation has to fill in the name and description of the individual approaches used as well as the links to other enablers and results, some comments and the rating. The result data needed for the assessment should be readily available; otherwise its compilation extends the preparation time considerably. The underlying assessment methodology is best used in a workshop format with duration from one up to several days. This comprehensive methodology is recommendable for organisations that already reached a medium maturity and plan to apply for EFQM recognition of their status or any kind of EFQM-based excellence award. 22 A comparable tool is offered by the Baldrige Programme with the “Baldrige Excellence Builder”. It is based on the Baldrige Excellence Framework and offers questions about the most important features of organisational excellence organised in the 7 Baldrige criteria. For each question, the individual approaches of the organisation have to be stated and information about the key processes (approach, deployment, learning, integration) has to be provided. The most important results have to be reported, stating current performance levels, trends, comparisons and integration. The Excellence Builder includes an evaluation overview that describes the maturity levels for processes and results using the categories reactive, early, mature and role model. This overview should be used for evaluating the answers, as it allows finding the strengths and also provides improvement ideas through the descriptions of the higher levels. The self-assessment starts with answering questions related to the “Organizational Profile” already introduced in chapter 1.2, as these set the context for the way the organisation operates. 23 The most comprehensive - and most time-consuming - self-assessment approach is a simulation of a full award process (also called site visit simulation). As this represents the mightiest approach, it is explained in detail in the following chapter 9.2.2. Choosing the most appropriate approach is not an easy task. Generally, it is highly advisable to start with one of the easier tools and to introduce successively more sophisticated self-assessment approaches as the organisation’s familiarity with its management model and its maturity grow. VIPs uvk-lucius.de/ adam <?page no="289"?> 9.2 Implementing Self-Assessments 289 9.2.2 Conducting a Simulated Award Assessment A simulated award assessment is the most powerful assessment tool available. In its comprehensive form it covers the whole organisation from a holistic perspective. Also called site visit simulation, this approach requires a whole team of competent assessors, extensive participation in data gathering and interviews of people from all levels as well as broad management support to question - and, if necessary, improve - every function and process of the organisation. The full replication of an award process based on a holistic excellence model is a very complex, demanding and time-consuming task. As illustrated in Figure 9-6, its execution covers five phases, each with several tasks to be accomplished. Before starting the process, the reference model has to be chosen. This is usually the Baldrige or EFQM Excellence model. In the following the EFQM Excellence Model will be used. Figure 9-6: Exemplary Award Simulation Process In the initiation phase, a team of assessors has to be appointed. All assessors need an in-depth knowledge of the EFQM model in order to be able to allocate the identified organisational approaches to the correct EFQM criterion parts and properly evaluate the achievements. At least the lead assessor needs previous experience with award assessments, although usually several experienced members are chosen. Newcomers have to be trained extensively in the use of the model beforehand, which is offered for example by the EFQM as general or in-house assessor training. In order to avoid organisational blindness, ensure independent opinions and achieve a reliable maturity evaluation, it is recommendable and quite common to include experienced external assessors. These can be members from sister companies or partners as well as external consultants. The initiation closes with the official announcement of the assessment project. Afterwards, the project scope (offices, subsidiaries, production sites, departments and people to be included) has to be defined and a meticulous project plan has to be created. The project plan includes a detailed schedule for the inclusion of the organisation’s people, for example exact location, time and duration of interviews to be conducted for data collection or by the assessors during the site visit. Also, extra time for the assessor team’s internal coordination, consensus meetings and feedback presentation have to be planned. The assessment itself starts with the collection of data and compilation of relevant information for the assessors during the preparation phase. In a full award replication format the collected information is compiled in a submission document. The EFQM management document that needs to be produced for an award process consists of three parts of five to ten/ fifteen pages each. First, the key information part summarising uvk-lucius.de/ adam <?page no="290"?> 290 99 Assessing the Organisation’s Management Model the organisation’s strategic objectives, stakeholders, structure and operating environment. Second, the enabler section describing the key approaches adopted by the organisation to achieve its strategic goals. Third, the results section that provides an overview of the key results. The completed document is to be handed over to the assessors who use this document as a basis for the upcoming interviews during the site visit. 24 The conduction phase represents the main phase of the assessment. In a classical site visit simulation, assessors interview chosen members of the organisation in order to gather information on the approaches used, the extent and quality of their realisation and efforts made for their continuous improvement or creative replacement by superior alternatives. Relevant findings are subsequently documented and classified into the EFQM Excellence Model, stating at least the associated criterion part(s), in very thorough projects even the corresponding guidance point as well as a characterisation as strength or area for improvement. The resulting assessment document provides the basis for the following scoring process and the final feedback report. The heart of the EFQM assessment framework is the dynamic RADAR logic that provides a structured approach to scrutinising the organisation’s performance and to achieving dependable and robust assessment outcomes. From a high-level perspective (as already introduced in chapter 1.3.4) it requires for every approach the demonstration of a systematic implementation sequence from determining the desired strategic Results, developing an integrated set of Approaches, Deploying them systematically and afterwards Assessing and Refining them based on the analysis of their results. For a systematic analysis and scoring as part of a (simulated) award assessment, the highlevel elements are further broken down into clearly defined attributes. 25 Figure 9-7 provides an overview of the elements, attributes as well as integral parts of their definition developed by the EFQM for analysing enabler criteria. Figure 9-7: RADAR Elements for the Analysis of Enablers 26 uvk-lucius.de/ adam <?page no="291"?> 9.2 Implementing Self-Assessments 291 For practical use in an assessment process this logic was embedded into a so-called Enabler matrix and enhanced by a scoring scale ranging from 0% (if an organisation is unable to demonstrate the required attribute) over 50% (if an organisation is mainly able to demonstrate them) to 100% (in case the organisation is recognised as a global role model). The matrix contains requirements of the approaches, detailed guidance on their interpretation and the scoring scale, as sketched in Figure 9-8. It is applied to the approaches collected in the assessment document and used for scoring on a criterion part basis. 27 Figure 9-8: Composition of the Enabler Matrix 28 The result criteria are assessed according to the Results element of the RADAR logic. It is broken down into two elements: Relevance & Usability and Performance. Whereas the first element helps evaluating the overall set of data provided with regard to its completeness, reliability and level of segmentation, the second element is used to appraise the individual key figure based on its development over time, target achievement, benchmarking quality and sustainability. The RADAR logic for the analysis of results is presented in Figure 9-9. It is applied to the evidence presented concerning the criterion parts of the result criteria, also in a tool-format with embedded scoring scale called Results matrix. Figure 9-9: RADAR Elements for the Analysis of Results 29 uvk-lucius.de/ adam <?page no="292"?> 292 99 Assessing the Organisation’s Management Model The application of both matrixes is part of the scoring process, usually called consensus meeting. During that meeting, the team of assessors reviews the evidence available in the assessment document and ensures that the formulated findings are consistent and accurate. Afterwards, the criterion parts are scored by every assessor individually (usually first part 1a, then after finalisation the following etc.). Then, the individual scores are compared. If the comparison shows individual deviations of more than 25%, a consensus process has to take place. In this case, the underlying evidence has to be reviewed, the reasons for the different scores have to be discussed and - when indicated - the findings have to be altered, for example if different views or interpretations were identified. After the discussion is concluded, all assessors score the same criterion part again. When the range of scores is below 25%, an average score is produced and documented. With competent and experienced teams, this kind of consensus approach on the systematic RADAR logic ensures robust and reliable results that are comparable over time. This is especially true for experienced award assessors who also run through regular calibration trainings. However, if only internal and lessexperienced assessors are involved, the produced scores may not be very reliable and vary widely. The score for one criterion is calculated out of the scores for its criterion parts, where all criterion parts usually are allocated equal weight. Criterion 2 Strategy, for example, consists of the four criterion parts 2a to 2d, each of which contributes 25% to the 100 points maximum overall score for criterion 2. Two exceptions are made in the result criteria 6 (customer results) and 7 (people results). In both criteria, the direct perceptions of the respective stakeholders (placed in the criterion parts 6a and 7a), make up 75% of the overall criterion score. This underlines the necessity to collect feedback. In order to produce an overall score or maturity level of the whole organisation, the EFQM Excellence Model comprises also weightings for the different criteria, as depicted in Figure 9-10. Enablers and results each are allocated 50% of the 1.000 overall achievable points. While the enablers all bear the same weights - true to their integrated nature -, customer results and business results are emphasised, as these represent the performance of the organisation from the perspective of their main stakeholder groups and thus accentuate a sustainable outlook. 30 Figure 9-10: Criteria Weightings of the EFQM Excellence Model 2013 31 uvk-lucius.de/ adam <?page no="293"?> 9.2 Implementing Self-Assessments 293 The site visit-related phase of the award simulation assessment ends with a feedback from the assessors, which is usually presented by the lead assessors in front of the responsible managers (or preferably all organisational participants) and includes at least the criterion scores as well as the most relevant strengths and areas for improvements. Subsequently, a detailed feedback report with the complete scoring, all findings as well as highlighted strengths and areas for improvement is produced by the lead assessor and distributed to the organisation’s management team. The report will then be analysed and the most important areas for improvement prioritised. Appropriate improvement activities will be developed and planned. Usually, at this point the assessment process ends, as the results of the analysis should then be integrated into the regular performance review, where an integrated prioritisation of measures from different sources (self-assessment, operations, regulators …) has to be executed. The resulting action plans should then become part of the regular monitoring and review cycle. Depending on the number and location of the sites included and the number of employees interviewed, the duration of the site visit alone lies between a minimum of 3 days and several weeks. A full-scale award simulation self-assessment easily provides the organisation with hundreds of examples for approaches used and their evaluation as strength or areas for improvement, covering all included processes and functions. This treasure of information requires a huge effort on all levels of the organisation, as the feedback has to be assessed, areas for improvement prioritised and improvement measures generated. Usually, the full range of measurements derived from such a process takes more than a year to realise. As the EFQM RADAR logic also requires closing the loop, meaning assessing and refining the newly implemented approaches, before a higher score can be reached, it does not make sense to carry out a full award simulation assessment every year. Therefore, a two to three year cycle is recommended. However, it is possible to carry out alternative assessment processes using the same EFQM tools. Well-established approaches are for example promoted by the German “Initiative Ludwig-Erhard-Preis (ILEP)” and can partly be used for achieving EFQM recognition as introduced in chapter 9.3. These include the Enabler Map Approach, the Enquiry Approach and the Workshop Approach. The Enabler Map Approach mainly involves less effort for producing a complete management document, as it only requires the organisation to provide abbreviated information about the enablers called Enabler Map. Instead of a narrative description, an Enabler Map is basically a table with a short description of the approaches developed, deployed, assessed and refined per criterion part (usually linked to the guidance points), the relevant links to other criterion parts/ guidance points and the owner. This map is used as basic information for the team of assessors. Apart from this simplification of the preparation stage, all other process steps are executed in the same way as in the classical award simulation assessment. The Enquiry Approach allows leaving out the preparation phase completely, as the assessors collect all data necessary to produce assessable evidence and findings during interviews. This method prolongs the interview phase (in terms of more interviewees and longer interviews) considerably, which in case of using external assessors produces high additional costs. It is especially recommended for organisations that do not have the necessary competencies and experience for mapping the organisational approaches on the EFQM Excellence Model. This task is taken over by the assessors during the preparation of the assessment document. The final feedback reuvk-lucius.de/ adam <?page no="294"?> 294 99 Assessing the Organisation’s Management Model port constitutes a first EFQM-based collection of the organisation’s approaches and can then be used for the future production of Enabler Maps or EFQM management documents. In contrast, the Workshop Approach is suggested for organisations that are already well-versed in carrying out a fact-based self-assessment. In this case, the team of assessors accompanies an assessment workshop of the organisation with a duration of at least 1,5 days. During this workshop, members of the organisation (usually top management, complemented by owners for certain approaches, teams from other sites etc.) explain in detail and supported by facts the main approaches of the organisation along all EFQM criteria and criterion parts. Assessors act as facilitators and ensure the completeness of the criteria addressed. Afterwards, the assessors interview chosen members of the organisation to deepen their knowledge about the approaches, verify their implementation and collect additional evidence and good practices. The further proceeding corresponds to the classical award simulation. It is to be noted for all approaches that in case of using external assessors, general information about the organisation, its strategy, structure, main processes and competitive environment have to be provided. 32 The (self-)assessment approaches and scoring logic of the EFQM Excellence Model or equally the Baldrige Business Excellence Framework highlight a speciality of these models: their focus on strengths. Organisations tend to concentrate on areas that are not going well and that they need to improve. It is equally important to focus on issues an organisation does exceedingly well as these are the reason for the organisation’s persistence and competitive success. Whereas the reported areas for improvement allow targeting relevant problems with appropriate measures, the organisation’s score and thus its excellence evaluation is purely based on the strengths exhibited. This is the main difference between assessments and typical conformity audits based for instance on ISO 9001. Conformity audits constantly measure against defined minimum requirements and show gaps or non-conformities in the goal attainment. The moment these requirements are exceeded it is no longer possible to track the organisation’s development. The EFQM RADAR logic enables an organisation to demonstrate organisational development and to measure the extent of the overall advancement achieved. Apart from their tremendous usefulness in organisational performance review processes, the explicated assessment frameworks could also be helpful for comparing different organisations. Their outcomes provide reference points for benchmarking processes and organisational culture analysis. The latter would be of special interest in analysing fits for the establishment of partnerships or successful M&A processes (see chapters 6.2.1.1 and 6.2.1.4). VIPs uvk-lucius.de/ adam <?page no="295"?> 9.3 Achieving External Recognition and Winning Excellence Awards 295 Case studies of real award applications based on the Baldrige Excellence Model can be accessed freely at the Baldrige website (www.nist.gov/ baldrige). They deal with organisations of different sizes and from different industries, for example the case study of Collin Technologies (www.nist.gov/ baldrige/ examiners/ resource_center/ upload/ 2013_Collin_Technologies_Case_Study.pdf), of TriView National Bank (http: / / www.nist.gov/ baldrige/ publications/ triview.cfm) or NovelConnect (http: / / www.nist.gov/ baldrige/ publications/ archive/ novel_connect.cfm). Official good practices and user guides based on the EFQM Excellence Model are also available on the EFQM knowledge base (http: / / www.efqm.org/ members-area/ knowledge-base/ ) but only for EFQM members. 9.3 Achieving External Recognition and Winning Excellence Awards The journey to excellence takes six to ten years of continuous effort. In order to keep the motivation of the organisation’s people up and to stay focused it can be helpful to establish external check points for verifying the progress made. The EFQM offers a recognition scheme that accompanies organisations on their way to excellence and provides widely accepted accreditation through certificates, entry of the organisation on its website and use of a corresponding logo. The recognition scheme offers a beginner level called EFQM Committed to Excellence (C2E), a level for experienced organisations with EFQM Recognised for Excellence (R4E) and a top level with the EFQM Award process. 33 Each level is subdivided in categories displaying different statuses of the organisation’s achievements. The complete recognition scheme with its three levels and their sub-statuses is depicted in Figure 9-11. Figure 9-11: EFQM Recognition Scheme 34 The beginner level, EFQM Committed to Excellence, is divided into the categories “C2E 1*” and “C2E 2*”. The first category can be achieved comparatively easily by a so-called project validation that requires first a simple self-assessment with at least 3 uvk-lucius.de/ adam <?page no="296"?> 296 99 Assessing the Organisation’s Management Model improvement plans. The outcomes of these plans will afterwards be reviewed by an independent EFQM validator and will lead to the reception of the C2E 1* recognition, if the improvement projects were managed systematically and made visible progress. The next category already requires a short submission document followed by a one-day site visit of two EFQM assessors with 6 themed interviews. C2E 2* will be granted if a minimum score is achieved. The EFQM Recognised for Excellence level involves a thorough assessment that can be based on a classical Award Simulation Approach, or an Enabler Map Approach (for Germany, the ILEP also offers the Enquiry or Workshop Approach). The team of trained assessors is appointed by the EFQM and corresponds to a peer-review method as the assessors come from other EFQM member organisations. The category of recognition achieved is dependent on the accomplished scores, with R4E 3* offered for an overall score equal to or exceeding 300 points, 4* from 400 points and 5* from 500 points. An organisation being recognised with a R4E 5* demonstrates a high level of change ability, consequently improves and refines its practices in order to realise its goals and shows ongoing results in line with its strategy. Only organisations that are qualified at 500 points are eligible for an European Excellence Award application. Every accreditation achieved in the recognitions schemes is valid for 2 years. 35 Excellence Awards represent the “champions league” for excellent organisations. In 2010, nearly 100 national awards were registered. Most of them were based on the EFQM Excellence model or the Baldrige Business Excellence Framework, as illustrated in Figure 9-12. 36 In some countries, additional regional awards are granted as an entrance level for the national awards with lower application requirements. In Germany, for example, the federal states (“Bundesländer”) Berlin-Brandenburg, Thüringen and Bayern advertise so-called quality awards (“Qualitätspreise”) for organisations based in their areas. They are not necessarily based on the common holistic models. 37 The national German excellence award, the so-called Ludwig-Erhard-Preis, however, uses the EFQM Excellence Model. Its winners and honoured finalists are qualified for application for the EFQM Excellence Award. 38 Figure 9-12: Global Distribution of Awards Using the EFQM or Baldrige Model 39 uvk-lucius.de/ adam <?page no="297"?> 9.3 Achieving External Recognition and Winning Excellence Awards 297 The EFQM Excellence Award (EEA) for outstanding European organisations and the Malcolm Baldrige National Quality Award (MBNQA) for first-class US-American organisations constitute the most prestigious recognition for excellent organisations available. Both are awarded for organisations or subunits based in the respective area in different categories, as presented in Figure 9-13. Figure 9-13: Overview of EEA and MBNQA Award Categories 40 The respective award processes follow the classical award assessment approach with a team of impartial and experienced assessors chosen by the awarding organisation executing the site visit. The main difference to the self-assessment process elaborated in chapter 9.2.2 is the use of independent juries or judges. After receiving the feedback reports and the scores from the teams of assessors, the members of the jury are responsible for selecting the level of recognition (e.g. finalist, prize winner and/ or award recipient) for all assessed applicants. Although the organisation’s score has to fulfil certain minimum requirements, the judges take also into account the consistency of the organisation’s approach, an even distribution of high scores in all criteria and subcriteria as well as the creativity, persistence and sustainability demonstrated. Besides the announcement of the award winners per category, the EFQM Excellence Award process also declares prize winners that demonstrated role model behaviour in realising one or several of the eight Fundamental Concepts of Excellence throughout their organisations. 41 Excellence awards constitute a very good investment for the applying organisations for several reasons: they provide the organisation with an independent outside perspective from expert assessors to a comparatively low price in form of a detailed feedback report that can be directly used for improvement action planning. The participation in an award process accelerates the improvement efforts of the organisation and energises employees and management alike as it unites the organisation in the pursuit of a positive and easily communicated common goal. Although the main advantages of an award application are thus to be found in the process, the positive effects of receiving a price or award should not be overlooked. Achieving such a role model status enhances the organisation’s public reputation with its stakeholder groups and creates a sense of pride in the organisation’s members. 42 For internationally oriented organisations, this is especially true for the European Excellence Award and the MBNQA, as both achieve high attention worldwide. According to studies usually sponsored by the EFQM and the NIST, award winners were also economically more successful than their peers. For several years, MBNQA winners outperformed a control group of Standard & Poor’s 500 companies based on stock prices. Another study revealed that US quality award winners were able to increase financial and other performance measures significantly more than the chosen uvk-lucius.de/ adam <?page no="298"?> 298 99 Assessing the Organisation’s Management Model control group of comparable companies. Also, studies indicated for EFQM Excellence Award winners that their financial performance improved considerably in the short and long run. As recognised organisations come from a broad variety of industries and have very different scopes and sizes, it is hardly possible to find fitting comparisons and overall proof. Also, most of the stock-market related studies were discontinued after the disruptions of the international stock markets as these rendered such comparisons insignificant. 43 VIPs The main advantages are not realised by winning an excellence award anyway. The real benefits stem from the consequent use of the holistic management model itself, as it supports managing organisations with a compelling vision, a strong stakeholder focus, clearly defined and monitored goals, effective and efficient processes and an everpresent openness for creative improvements and strategic opportunities. This is relevant for all organisations. For organisations with an international focus, however, it is essential for survival. 9.4 Citations & Notes 1 Porter, M. E. (1996), p. 76. A vivid description of how everyday decisions can destory a company’s strategy is presented in Bower, J. L., & Gilbert, C. (2007) 2 Mintzberg, H. (1994); Camillus, J. C., Sessions, R. T., & Webb, R. (1998); Eisenhardt, K. M., & Sull, D. N. (2001) 3 EFQM & ILEP (2012), p. 16 4 Schmidt, J. A. (1988), esp. exhibit 1 p. 15 5 Drucker, P., & Collins, J. (2008), pp. 2-3 6 Contents based on Drucker, P., & Collins, J. (2008), pp. 2-63 7 Drucker, P., & Collins, J. (2008), pp. 63-78 8 Drucker, P., & Collins, J. (2008), p. 68 9 Lafley, A. G., & Martin, R. L. (2013), pp. 5-6 10 Lafley, A. G., & Martin, R. L. (2013), p. 58 11 Schmidt, J. A. (1988) 12 EFQM (2013), “Executive Summary”; Drucker, P., & Collins, J. (2008), pp. 2-3 13 Based on EFQM (2013), „The Self-Assessment Cycle“ 14 EFQM (2013), self-assessment and strategy / self-assessment tools 15 Based on EFQM (2013), self-assessment options uvk-lucius.de/ adam <?page no="299"?> 9.4 Citations & Notes 299 16 NIST (20105a). The complete easyInsight questionnaire is available for free download on the NIST website: http: / / patapsco.nist.gov/ easyInsight/ index.cfm? ct=BNP 17 EFQM (2013), “Simple Self-Assessment”. The brochure with the complete questionnaire can be obtained from the EFQM website: http: / / www.shop.efqm.org/ publications/ determining-excellence-2013/ 18 NIST & US Department of Commerce (2011) 19 EFQM (2013), „EFQM Quick Check“. The EFQM Quick Check 2013 is available for EFQM members free of charge on the corresponding website: http: / / www.efqm.org/ members-area/ knowledge-base/ quick-check-2013 20 Based on DIN EN ISO 9004: 2009, p. 84, Table A.1 (continued). Reproduced by permission of DIN Deutsches Institut für Normung e.V. The definitive version for the implementation of this standard is the edition bearing the most recent date of issue, obtainable from Beuth Verlag GmbH, Burggrafenstraße 6, 10787 Berlin, Germany. 21 DIN EN ISO 9004: 2009 22 EFQM (2013), “EFQM Business Excellence Matrix” and “EFQM Excellence Matrix” 23 NIST (2015b). In addition to the freely available Excellence Builder document, the NIST also offers a related self-analysis worksheet in MS Word format on its website: http: / / www.nist.gov/ baldrige/ publications/ builder.cfm 24 EFQM (2015c); EFQM (2011). An EFQM user guide with detailed recommendations concerning structure and contents can be obtained from the EFQM knowledge base (http: / / www.efqm.org/ members-area/ knowledge-base/ efqmmanagement-document, access only for members) or in a German version from the ILEP website as free download (https: / / ilep.de/ cmx/ download.php? file=.. / f/ cmx_4d739b25a5ac5/ cmx_4bbc760d7b047/ cmx508f6307c763d/ FS508f632b 1aea2.pdf&filename=EFQM_Management_Dokument.pdf). 25 EFQM & ILEP (2012), pp. 44-46 26 Contents based on EFQM & ILEP (2012), p. 46 27 EFQM & ILEP (2012), p. 48 28 EFQM & ILEP (2012), p. 48 29 Contents based on EFQM & ILEP (2012), p. 46 30 EFQM & ILEP (2012), p. 52 31 EFQM & ILEP (2012), p. 52 32 ILEP (2011); Quality Scotland (2013). The last-mentioned article provides a good example for the use of the Enabler Map Approach. 33 EFQM (2010); EFQM (2013) 34 Based on EFQM (2015b) 35 EFQM (2010); ILEP (2011) 36 US Department of Commerce & NIST (2010) 37 Denkeler, F. 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Retrieved from http: / / www.towerswatson.com/ en/ Insights/ Newsletters/ Global/ Sustainably- Engaged/ 2013/ The-Enduring-Riddle-That-Is-Survey-Length <?page no="323"?> LList of Abbreviations ABPMP Association of Business Process Management Professionals ACCRS Australian Centre for Corporate Social Responsibility AG Aktiengesellschaft (PLC = public limited company or stock cooperation) ARIS Architecture of Integrated Information Systems AS/ NZS Standards Australia and Standards New Zealand B20 Business 20 (engagement group of G20) (b20businesssummit.com) B2B business to business B2C business to consumer BBRT Beyond Budgeting Roundtable (bbrt.org) BCBS Basel Committee on Banking Supervision BCG Boston Consulting Group (company) (bcg.com) BilMoG Bilanzrechtsmodernisierungsgesetz (German Accounting Law Modernisation Act) BPM business process management BPR business process reengineering BRIC Brazil, Russia, India, China BSC Balanced Scorecard C2E Committed to Excellence CCO Chief Compliance Officer CEN European Committee for Standardization (cen.eu) CEO Chief Executive Officer CFO Chief Financial Officer CIO Chief Information Officer CLT cultural-level theory COSO The Committee of Sponsoring Organizations of the Treadway Commission (coso.org) CPI Corruption Perceptions Index CRM customer relationship management CRO Chief Risk Officer CSR corporate social responsibility <?page no="324"?> 324 List of Abbreviations CVS Chinese Values Survey DIN Deutsches Institut für Normung (din.de) DIO days inventory outstanding DNA deoxyribonucleic acid (genetic code) DPO days payable outstanding DQS Deutsche Gesellschaft zur Zertifizierung von Managementsystemen (company) (dqs.de) DSO days sales outstanding DSS decision support systems EEA EFQM Excellence Award EFQM European Foundation for Quality Management (efqm.org) EN European Standard (cen.eu) EPC event-driven process chain ERP enterprise resource planning ESS European Statistical System EU European Union (europa.eu) EVA economic value added EY Ernst & Young (company) (ey.com) FDI foreign direct investment(s) FFM Five Factor Model G20 The Group of Twenty Forum (g20.org) GAAP General Accepted Accounting Standards GAPP Study Global Assignment Policies and Practices Study (KPMG) GJ Great Jeans (fictive examples of an international jeans producing company) GLOBE Study Global Leadership and Organisational Behaviour Effectiveness Study GRC governance, risk & compliance HGB Handelsgesetzbuch (German accounting standard) HR human resources HRM human resource management ICAAP Internal Capital Adequacy Process IDIC process identifying, differentiating, interacting, customising process <?page no="325"?> List of Abbreviations 325 IDW Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (idw.de) IEC International Electrotechnical Commission IFC International Finance Corporation (ifc.org) IFRS International Financial Reporting Standards IIRC International Integrated Reporting Council (theiirc.org) ILEP Initiative Ludwig-Erhard-Preis (ilep.de) ILT implicit leadership theory IND individualism ISO International Organization for Standardization (iso.org) ISO/ DIS International Organization for Standardization/ Draft International Standard ISO/ FDIS International Organization for Standardization/ Final Draft International Standard ISO/ TS International Organization for Standardization/ Technical Specification IVR indulgence versus restraint JOHARI window Joseph Luft and Harry Ingham’s window KODE® Kompetenz-Diagnostik and -Entwicklung (“diagnosis and development of competencies”) KonTraG Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (Corporate Sector Supervision and Transparency Act) KPI key performance indicators KPMG KPMG (company) (kpmg.com) LMX Leader-Member-Exchange Approach Ltd. Limited LTO long-term orientation M&A mergers & acquisitions MAS masculinity MBNQA Malcolm Baldrige National Quality Award Mgt. management MIS management information system(s) MNC multinational corporation <?page no="326"?> 326 List of Abbreviations MNE multinational enterprise NGO non-governmental organisation(s) NIST National Institute of Standards and Technology (nist.gov) OECD Organisation for Economic Co-operation and Development (oecd.org) OHSAS occupational health and safety management standard ONR ON-Regeln (Austrian Standards) OSCM operations and supply chain management p. page PAS Publicly Available Specification (British Standard Institute) PD Published Documents (British Standard Institute) PDCA Cycle Plan, Do, Check, Act Cycle PDI power distance index PESTEL analysis Political, (macro)Economic, Socio-cultural, Technological, Ecological and Legal-regulatory environmental analysis pp. pages PWC PricewaterhouseCoopers (company) (pwc.com) QM quality management QMS quality management system R4E Recognised for Excellence R&D research & development RADAR Results, Approaches, Deploy, Assess & Refine (EFQM assessment logic) RFID radio-frequency identification S&P Standard & Poor's (company) (standardandpoors.com) S.M.A.R.T. Specific, Measurable, Attainable, Realistic, Tangible (or Time-bound) SCM supply chain management SI International System of Units (French: Système International d'Unités) SII Standards Institution of Israel (sii.org.il) SME small and medium-sized enterprises SOX Sarbanes-Oxley Act SUCCESS Say, Unify, Condense, Check, Enable, Simplify, Structure <?page no="327"?> List of Abbreviations 327 SWOT Strengths, Weaknesses, Opportunities and Threats TBL triple bottom line TI Transparency International (transparency.org) TNC transnational corporation TNE transnational enterprise TNS TNS (company) (tnsglobal.com) UAI uncertainty avoidance index UN United Nations (un.org) UNCTAD United Nations Conference on Trade and Development (unctad.org) USD US Dollar US-GAAP General Accepted Accounting Standards of the USA VIP Very Important Point WEF World Economic Forum (weforum.org) WVS World Values Survey <?page no="329"?> Glossary* * Ein umfangreicheres Glossar finden Sie unter http: / / www.uvk-lucius.de/ adam A more comprehensive version of this glossary can be accessed at http: / / www.uvklucius.de/ adam Terrn/ Begriff (englisch) Begriff (deutsch) 360° feedback complete multi-source feedback that combines a self-assessment with feedback from the direct supervisor and the nextlevel manager (top-down), feedback from subordinates and team members (bottomup), peer reviews as well as feedback from internal or external customers, suppliers and other business contacts. 360° Feedback (360°-Beurteilung) Umfangreiche Methode zur Beurteilung von Personen nach dem Prinzip der Multiperspektivität. Sie ergänzt die Einschätzung aus eigener Sicht um das Feedback des direkten Vorgesetzten und des höheren Managements (Top-Down Ansatz), der Mitarbeiter und Teammitglieder (Bottom- Up Ansatz), der Fachleute oder Führungskräfte der gleichen Stufe (Peer Reviews), internen oder externen Kunden, Lieferanten und anderen Geschäftspartnern. Acculturation adaption to a foreign culture; a) final stage of the original U-curve. It is reached when an individual's adaption to a foreign culture is complete and the new customs are accepted and even enjoyed. b) Varieties of a successful acculturation, for example in M&A processes, include assimilation, integration and creation. Akkulturation Hineinwachsen in eine fremde Kultur. a) Endstadium der originalen U-Kurve. Es ist erreicht, wenn das Individuum vollständig an die fremde Kultur angepasst ist, indem neue Sitten und Gebräuche akzeptiert und sogar gemocht werden. b) Es werden verschiedene Arten erfolgreicher Akkulturation unterschieden, z.B. Assimilation, Integration und Kreation (z.B. in M&A- Prozessen). Achieved Status (compare: ascribed status) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the accordance of status. In achievement-oriented cultures, status is assigned based on achievements in life or personal abilities. Status durch Leistung (vergleiche: Status durch Herkunft) Bezieht sich auf die Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Frage dieser Dimension ist, wie in der Gesellschaft der Status eines Individuums bestimmt wird. In leistungsorientierten Kulturen erreicht man seinen Status durch eigene Leistungen oder persönliche Fähigkeiten. <?page no="330"?> 330 Glossary (compare: neutrality) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the extent to which people tend to display their emotions. In affective cultures people express their emotions overtly and usually seek direct emotional response. (vergleiche: Neutralität) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Fragestellung dieser Dimension ist, wie offen Gefühle und Emotionen in einer Kultur geäußert werden dürfen. In affektiven Kulturen werden Emotionen offen ausgelebt, und die Mitglieder erwarten üblicherweise eine direkte emotionale Reaktion. (compare: achieved status) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the accordance of status. In ascription-oriented cultures, status is assigned based on characteristics beyond their control, such as sex, race, or parental social status. (vergleiche: Status durch Leistung) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Frage dieser Dimension ist, wie in der Gesellschaft der Status eines Individuums bestimmt wird. In herkunftsorientierten Kulturen wird der Status eines Menschen durch Aspekte bestimmt, über die er kaum Kontrolle ausüben kann, z.B. durch Geschlecht, familiäre Herkunft oder ethnische Gruppe. a superior self-assessment approach which is recommended for organisations that are already past their first steps towards excellence. The matrixes consist of tables that offer descriptions of several different maturity levels for each question or aspect that is addressed. The current status of the organisation can be determined based on these descriptions. Ein Selbstbewertungsinstrument im Rahmen einer auf Fakten gestützten Selbstbewertung. Es wird für die Organisationen empfohlen, die bereits Erfahrungen auf dem Weg zur Excellence gesammelt haben. Eine Bewertungsmatrix besteht aus Tabellen, welche für jede Frage oder adressierten Aspekt Beschreibungen für verschiedene Reifegrade enthalten. Anhand dieser Beschreibungen kann dann der aktuelle Status der Organisation ermittelt werden. according to the ISO an independent and systematic process for obtaining objective evidence as well as evaluating it objectively in order to determine the extent to which pre-determined requirements are fulfilled by the audited management system. Internal audits (first-party audits) are conducted by the organisation itself or on its behalf. External audits are conducted by interested parties as customers (second party audits) or by independent auditing organisations (third party audits). Gemäß der ISO ein unabhängiger und systematischer Prozess zur Erlangung objektiver Nachweise und deren objektiver Auswertung, um zu ermitteln, im welchem Umfang vorab festgelegte Anforderungen von dem auditierten Managementsystem erfüllt werden. Interne Audits werden von der Organisation selbst oder in ihrem Auftrag durchgeführt (Erstparteien-Audits). Externe Audits werden von interessierten Parteien, z.B. Kunden, durchgeführt (Zweitparteienaudits) oder von unabhängigen Auditierungsorganisationen (Drittparteienaudits). <?page no="331"?> Glossary 331 an American national quality program sponsored by the U.S. Department of Commerce and the NIST. As formulated by Baldrige Foundation, the goals of the Program are to enhance the competitiveness, quality, and productivity of U.S. organisations. Its key contributions are the development and publication of the Baldrige Criteria and their Systems Perspective for assessing organisations and their competitiveness and the provision of guidelines for organisational improvement. Excellence-Programm des US-amerikanischen Wirtschaftsministeriums zur Steigerung der Wettbewerbsfähigkeit" Qualität und Produktivität US-amerikanischer Unternehmen. Kernpunkte des Programmes sind die Entwicklung und Publikation des Baldrige Excellence Models und seiner Kriterien, anhand dessen Organisationen aller Art ihre Leistung und Wettbewerbsfähigkeit bewerten können. Zudem werden Leitlinien für die Verbesserung von Organisationen bereitgestellt. defined by the Transparency International as „The offering, promising, giving, accepting or soliciting of an advantage as an inducement for an action which is illegal, unethical or a breach of trust. Inducements can take the form of gifts, loans, fees, rewards or other advantages (taxes, services, donations, etc.).“ The corporate definition has to draw a clear line between bribery and acceptable exchange of presents. Bestechung entsteht gemäß Transparency International wenn jemand einem anderen einen Vorteil als Gegenleistung for die Gewährung von Vergünstigungen oder Bevorzugungen anbietet, verspricht oder gewährt, die auf einer unethischen, illegalen oder das Vertrauen brechenden Grundlage beruhen. Ebenso entsteht Bestechung, wenn dieser Vorteil als Gegenleistung für Vergünstigungen oder Bevorzugung eingefordert oder angenommen wird. Die gewährten Vorteile oder Anreize können die Gestalt von Geschenken, Leihgaben, Gebühren, Belohnungen, Spenden oder eine andere Form annehmen. Ein Unternehmen muss eine klare Grenze zwischen unerlaubter Bestechung und zulässigem Austausch von Geschenken ziehen. strategic management tool to define a solid strategy. Through its graphic design it helps users to describe and develop business models in a clearly arranged and engaging fashion. Its nine building blocks form an integrated picture of a company’s method for making money in the current business environment and consist of Value Proposition, Customer Segments, Customer Relationships, Channels and Revenue Streams on the right (the value) side and Key Activities, Key Resources, Key Partners, and Cost Structure on the left (the efficiency) side. Werkzeug des strategischen Managements zur Beschreibung, Analyse und Entwicklung von verlässlichen Geschäftsmodellen. Durch seine graphische Gestaltung hilft die Business Model Canvas, Geschäftsmodelle in einer klar strukturierten Weise zu beschreiben und zu entwickeln, welche zur Mitgestaltung einlädt. Die neun Bausteine ergeben zusammen ein integriertes Bild der unternehmensspezifischen Methode, im gegenwärtigen Geschäftsumfeld Geld zu verdienen. Sie beinhalten Kundensegemente, Wertangebote, Kanäle, Kundenbeziehungen sowie Einnahmequellen auf der rechten (der wertschöpfenden) Seite sowie <?page no="332"?> 332 Glossary Schlüsselressourcen, Schlüsselaktivitäten, Schlüsselpartnerschaften und die Kostenstruktur auf der linken (der effizienzgesteuerten) Seite. (BPM) as defined by the Association of Business Process Management Professionals (AB- PMP), “a disciplined approach to identify, design, execute, document, measure, monitor, and control both automated and non-automated business processes to achieve consistent, targeted results aligned with an organization’s strategic goals”. Das Identifizieren, Gestalten, Durchführen, Dokumentieren, Messen, Überwachen und Kontrollieren von automatisierten und nicht automatisierten Geschäftsprozessen mit dem Ziel, gleichbleibende, geplante Ergebnisse zu erzielen, die mit der Unternehmensstrategie in Einklang stehen. refers to the display of the three types of business processes on a macro level: management processes, core processes (value creation processes, primary processes) and support processes (internal service processes). Darstellung von drei Arten von Geschäftsprozessen auf der Makro-Ebene: Managementprozesse (Führungsprozesse), Kernprozesse (Wertschöpfungsprozesse, Primärprozesse) und Unterstützungsprozesse (auch als interne Serviceprozesse bezeichnet). distinctive capabilities of an organisation are superior to those of its competitors and therefore a means to achieve competitive advantage. Fähigkeiten eines Unternehmens, die denen seiner Wettbewerber überlegen sind und ihm damit einen Wettbewerbsvorteil verschaffen. refers to capital which has been invested and is not available as liquid capital. It is calculated as DIO + DSO - DPO (days inventory outstanding + days sales outstanding days payable outstanding ) and has to be covered by liquidity management. Kapitalbindung bezeichnet den Umstand, dass in einem Unternehmen das Kapital nicht in Form von Geld (und damit liquide) vorliegt, sondern in Vermögensgegenständen gebunden ist. Die Berechnung des Geldumschlags erfolgt über die entsprechenden Umschlagshäufigkeiten in Tagen, d.h. Lagerumschlag + Debitorenumschlag - Kreditorenumschlag. Dies beschreibt die Zeitdauer, bis Geld, das vom Unternehmen eingesetzt wird, zurückgewonnen wird. Diese Zeit muss vom Liquiditätsmanagement ausgeglichen werden. <?page no="333"?> Glossary 333 (compare: individualism) refers to the cultural dimension developed by Hofstede measuring the ties between people. In collectivistic cultures, people are integrated from birth onward into very strong and cohesive “in”-groups that will continue to protect them throughout their lifetime. In return the group expects unquestioning loyalty. (vergleiche: Individualismus) Kulturdimension von Hofstede. Diese Dimension misst, wie stark die Bindungen zwischen der Gruppe und dem Individuum sind. In kollektivistischen Gesellschaften wird man in eine Gruppe hineingeboren. Von dieser Gruppe erhält man lebenslang Schutz und Unterstützung, muss sie aber mit bedingungsloser Loyalität erwidern. (compare: individualism) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the way to ensure a better life for all. Communitarian cultures pay first attention to the advancement of the community and demand from its members to take continuous care of their fellows so that the quality of life for all will improve, even if this approach might lead to the obstruction of individual freedom and development. nach Trompenaars (vergleiche: Individualismus) Kulturdimension von Trompenaars & Hampden-Turner. Das zentrale Thema dieser Dimension ist die Frage, wie für alle ein besseres Leben erreicht werden kann. In Gesellschaften mit ausgeprägtem Kollektivismus steht das Wohl der Gruppe im Vordergrund. Von den Angehörigen der Gruppe wird erwartet, dass sie ständig für das Wohl der anderen Mitglieder sorgen, um so insgesamt den Wohlstand für alle zu erhöhen. Dies gilt auch dann, wenn es für den Einzelnen als Individuum bedeutet, die persönliche Freiheit und eigenen Entwicklungsmöglichkeiten einzuschränken zu müssen. a) Organisational: Abilities, skills, and other resources that enable an organisation to act effectively and create value. b) Individual: Skills employed to act in a self-organised manner while coping with new and non-routine tasks. a) Fähigkeiten, Fertigkeiten und andere Ressourcen einer Organisation, die ein effektives Handeln und Wertschöpfung ermöglichen. b) Disposition eines Individuums zu einem selbstorganisierten Handeln, welche sich insbesondere in der Bewältigung zuvor nicht bekannter, komplexer Aufgaben zeigt und entwickelt. assessment of current and potential competitors that comprises at least three steps: competitor definition, competitor capability analysis and competitor response profile. Untersuchung von direkten und potentiellen Wettbewerbern, die mindestens drei Stufen aufweist: Definition und Identifizierung der Wettbewerber, Analyse ihrer Fähigkeiten und Entwicklung eines entsprechenden Reaktionsschemas. <?page no="334"?> 334 Glossary activities aimed at achieving compliance that use clearly defined responsibilities and processes to ensure that all relevant activities are carried out according to the relevant requirements and to defend the organisation against possible violations. Gesamtheit der im Unternehmen eingerichteten Maßnahmen und Prozesse, um Konformität mit allen einschlägigen Vorgaben sicherzustellen und die Organisation vor möglichen Compliance-Verstößen zu schützen. refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with time. The Concept of Time includes several different aspects, such as connection between the past, the present, and the future, the time horizon, and sequential/ synchronic time orientation. Kulturdimension von Trompenaars & Hampden-Turner. Diese Dimension befasst sich mit der kulturell bedingten Einstellung zu verschiedenen Aspekten der zeitlichen Wahrnehmung, z.B. mit den Verknüpfungen zwischen der Vergangenheit, der Gegenwart und der Zukunft, dem Zeithorizont sowie der Bevorzugung eines sequentiellen bzw. synchronen Zeitverständnisses. stage of the EFQM-based self assessment process where the final scores are obtained. During this stage, the criterion parts are initially scored by every assessor individually. Afterwards the individual scores are compared and in case of differences exceeding a pre-defined limit, the underlying issues are thoroughly discussed until a common understanding is reached. Phase der EFQM Selbstbewertung zur Ermittlung der finalen Punktbewertung. In dieser Phase werden die Subkriterien zunächst von jedem Assessor einzeln bewertet. Führen die Einzelbewertungen zu erheblichen Abweichungen oberhalb eines vorher festgelegten Limits, werden die zugrunde liegenden Inhalte solange ausführlich diskutiert, bis ein gemeinsames Verständnis erreicht wird. cover a wide range of cooperation approaches in international operations. Their main forms can be distinguished in management services contracts, “classical” licensing agreements and franchising. Vertragsverhältnisse kennzeichnen einen umfassenden Teil internationaler Kooperationen. Typische Formen stellen Geschäftsbesorgungsverträge, Lizenzvereinbarungen und Franchising-Vereinbarungen dar. strategic organisational competencies that can be adapted and leveraged to meet future requirements and therefore provide sustainable benefits. Strategische organisationale Kompetenzen, welche auf zukünftige Anforderungen angepasst und zu deren Erfüllung wirksam eingesetzt werden können, so dass mit ihrer Hilfe nachhaltige (Wettbewerbs-) Vorteile erzielt werden können. <?page no="335"?> Glossary 335 Process category of the process map. Core processes constitute the operational core of an organisation’s activities. They make up the value chain and characteristically includes Porter’s primary activities (inbound logistics, operations, outbound logistics, marketing and sales as well as services). Widened to an end-to-end perspective these processes typically include the activities of the key suppliers and partners. Prozesskategorie der Prozesslandschaft. Kernprozesse umfassen alle direkt auf den Kunden gerichteten Prozesse, die den Kern der Geschäftstätigkeit der Organisation darstellen und über die sie sich im Wettbewerb positioniert. Kernprozesse machen die Wertschöpfungskette aus und enthalten charakteristischerweise die primären Aktivitäten nach Porter (Eingangslogistik/ Wareneingang, Betrieb, Ausganslogistik/ Auslieferung, Marketing, Vertrieb und Kundendienst). Erweitert um eine durchgängige Perspektive enthalten sie typischerweise auch die Aktivitäten der wesentlichen Lieferanten und Partner. (CSR) the voluntary, continuous commitment of any kind of organisation to behave ethically and contribute to the development of its stakeholders, the environment and society at large by adopting corresponding operational targets and practices. / Die freiwillige, beständige Verpflichtung jeglicher Art von Organisation, sich ethisch zu verhalten und zur Entwicklung ihrer Interessenspartner, der Umwelt und der Gesellschaft als Ganzes durch die Übernahme entsprechender betrieblicher Ziele und Verfahren beizutragen. as defined by Transparency International, “the abuse of entrusted power for private gain” and encompasses with this definition corrupt practices in the public as well as the private sector. Von Transparency International definiert als „Missbrauch von anvertrauter Macht zum privaten Nutzen oder Vorteil“; diese Definition bezieht sich auf korrupte Praktiken sowohl im öffentlichen Sektor als auch in der Privatwirtschaft. a process of assigning costs to cost objects. Prozess, bei dem Kosten den Kostenträgern zugeordnet werden. a) general: an ability to act in accordance with the cultural rules of more than one cultural system and to respond in appropriate and culturally sensitive ways to the (cultural) demands of a particular situation. b) (transcultural competence) as defined by Trompenaars & Hampden-Turner the a) allgemein: Fähigkeit, im Einklang mit den kulturellen Regeln verschiedener Kultursysteme zu handeln und auf (kulturelle) Anforderungen einer speziellen Situation angemessen und kultursensibel zu reagieren b) (transkulturelle Kompetenz) definiert nach Trompenaars & Hampden-Turner als <?page no="336"?> 336 Glossary propensity to reconcile seemingly opposing values. This propensity follows a three step approach from recognition through respect to reconciliation. Trompenaars & Hampden-Turner also developed an array of differently defined competences dealing with cultural adaption with a very individual definition of generally interchangeably used terms. die Neigung, scheinbar gegensätzliche Werte in Übereinstimmung zu bringen. Diese Neigung folgt einem dreistufigen Ansatz von der Anerkennung über den Respekt bis hin zur Aussöhnung dieser Werte. Trompenaars & Hampden-Turner haben auch eine Liste von Kompetenzen der kulturellen Anpassung entwickelt, welche sehr individuelle Definitionen von Begriffen enthält, die üblicherweise als Synonyme verwendet werden. a process of how an individual adapts to foreign cultures. The phases of the cultural adjustment process are depicted in the ucurve and w-curve. Bezieht sich auf die emotionalen Phasen (positive wie auch negative), die eine Person durchlebt, wenn sie sich an eine fremde Kultur anpasst (z.B. während eines Auslandsaufenthaltes und nach der Rückkehr). Die Phasen des kulturellen Anpassungsprozesses werden durch die U-Kurve bzw. die W-Kurve dargestellt. defined by Hofstede as “the collective programming of the mind that distinguishes the members of one group or category of people from others.” Trompenaars and Hampden-Turner define culture as “the way in which a group of people solves problems and reconciles dilemmas.” The GLOBE research project defines culture as “shared motives, values, beliefs, identities, and interpretations or meanings of significant events that result from common experiences of members of collectives that are transmitted across generations.“ Definiert von Hofstede als „die kollektive Programmierung des Geistes, die Mitglieder einer Gruppe oder Kategorie von Menschen von einer anderen unterscheidet“. Trompenaars and Hampden-Turner definieren Kultur als „die Art und Weise, auf die eine Gruppe von Menschen Probleme löst und Dilemmata in Übereinstimmung bringt". Das GLOBE Projekt definiert Kultur als „geteilte Motive, Werte, Überzeugungen, Identitäten und Interpretationen oder Bedeutungen wesentlicher Ereignisse, die aus gemeinsamen Erfahrungen von Mitgliedern von Kollektiven beruhen, welche über Generationen hinweg übertragen werden.“ (CRM) a) a holistic organisational approach aiming at optimising the organisation's relationship to its customers. It can follow the IDIC approach, which stands for Identifying, Differentiating, Interacting and Customising. These constitute interrelated activities of iterative nature that are usually - but not necessarily - executed in the depicted sequence. The first two steps / Customer Relationship Management (CRM) a) Managementansatz, der darauf abzielt, das Beziehungsverhältnis der Organisation mit ihren Kunden zu optimieren. Die Ausgestaltung kann dem IDIC-Ansatz folgen, der die Kunden-Identifikation, - Differenzierung, -Interaktion und die individuelle Anpassung als in Wechselbeziehung stehende Prozessschritte propagiert, <?page no="337"?> Glossary 337 combined are also called analytical CRM as they create customer insights. The last two steps combined are called operational CRM as they create customer experience. b) according to Osterwalder & Pigneur one of three core business types. It is a model to be found in markets that are dominated by a few big players and show rapid consolidation. Due to high costs of customer acquisition it is vital to gain large customer wallet share. Accordingly, the competitors fight for scope and display a convincing “customers-first” mentality. welche in dieser Reihenfolge durchgeführt werden können aber nicht müssen. Die ersten zwei Schritte zusammen werden auch als analytisches CRM bezeichnet, da über sie nähere Einblicke in die Kunden gewonnen werden. Die letzten beiden Schritte zusammen werden operatives CRM genannt, da hier die Erfahrung des Kunden gestaltet wird. b) nach Osterwalder & Pigneur eine der drei grundlegenden Geschäftsarten. Kundenbeziehungsunternehmen entstehen in Märkten, welche von wenigen großen Wettbewerbern dominiert werden und in denen eine rasche Konsolidierung erfolgt. Aufgrund hoher Kosten für die Kundenakquisition ist es auf diesen Märkten überlebenswichtig, Verbundvorteile zu nutzen und so von jedem Kunden einen großen Anteil an seinen Geschäften (also eine große Kundenausschöpfung) zu generieren. Entsprechend ringen alle Wettbewerber um Geschäftsanteile. Kundenbeziehungsunternehmen sind hochgrading kundenorientiert und vermitteln eine möglichst überzeugende „Der Kunde ist König“-Kultur. conceptual aspects used to differentiate cultures. Relevant frameworks include the seven dilemmas of culture developed by Trompenaars & Hampden-Turner, Hofstede's dimensions and the dimensions defined in the GLOBE study. Konzeptuelle Aspekte, nach denen Kulturen unterschieden werden. Die bedeutendsten Rahmenwerke sind die sieben Kulturdimensionen von Trompenaars & Hampden-Turner, die Kulturdimensionen von Hofstede und die Dimensionen definiert im Rahmen der GLOBE Studie. a phase of cultural adjustment. It occurs when the foreign culture becomes a burden and the emotional stress leads to frustration and hostility. Phase der kulturellen Anpassung. Ein Kulturschock tritt auf, wenn die fremde Kultur zur Last wird und der emotionale Stress zu Frustration und Feindseligkeit führt. a particular means of communication that presents control information on a computer screen to help management monitor the organisational achievement of objectives based on graphical designs. Ein spezielles Kommunikationsmittel, welches Steuerungsinformationen auf einem Bildschirm unter Verwendung graphischer Stilmittel wiedergibt. Ein Dashboard unterstützt das Management bei der Steuerung der organisationalen Leistung. <?page no="338"?> 338 Glossary defined as “facts about an object”. Data represents the first stage of knowledge generation. Definiert als „Fakten über ein Objekt“. Daten stellen die erste Stufe der Generierung von Wissen dar. (DSS) information systems for planning and controlling that are especially designed to facilitate managerial decisions. They answer “what if” questions and typically include business intelligence systems relying on formulas or models to produce predefined indicators or concise tables that are used to determine a decision. In case these systems include key indicators for (top) management decisions they are also called management information systems (MIS). Softwaresysteme für Planung und Controlling zur Unterstützung der Entscheidungsträger, welche relevante Informationen ermitteln, aufbereiten und bei der Auswertung helfen. Sie beantworten „was wäre wenn“-Fragen und enthalten typischerweise sogenannte Business Intelligence Systeme, welche anhand bestimmter Formeln oder Modelle festgelegte Indikatoren ermitteln oder präzise Tabellen erstellen, welche die Grundlage für unternehmerische Entscheidungen bilden. In Fällen, in welchen diese Systeme Schlüsselleistungsindikatoren für die Entscheidungen des (Top)Managements enthalten, werden sie auch als Managementinformationssysteme (MIS) bezeichnet. (compare: specificity) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the intensity of need to define specifically and precisely the constructs used. Diffuse cultures prefer using more fuzzy (or diffuse) systems and are more holistic in their approaches. Thus, private and business life overlaps. A manager in a diffuse culture expects to be treated with the same respect at work and outside, so that his authority as the boss spreads to private issues. It is therefore unimaginable that in the football club in the evening he would be addressed by his employees as every other team member. (vergleiche: spezifische Kultur) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Fragestellung dieser Dimension ist die Stärke des Verlangens einer Kultur, die kulturellen Konstrukte präzise zu definieren. Diffuse Kulturen betrachten Situationen eher ganzheitlich und bevorzugen unscharf definierte Systeme, d.h. z.B., dass es keine strikte Trennung von Arbeits- und Privatleben gibt. Eine Führungskraft einer diffusen Kultur erwartet am Arbeitsplatz und außerhalb mit demselben Respekt behandelt zu werden, so dass ihre Autorität als Führungskraft sich auch über private Themen erstreckt. Es wäre daher undenkbar, abends von den eigenen Mitarbeitern im Fußballverein wie jedes andere Vereinsmitglied behandelt zu werden. <?page no="339"?> Glossary 339 the sum of differences and similarities of people. This understanding of diversity forms the basis for the successful introduction of a diversity management approach. Verstanden als Summe von Unterschieden und Gemeinsamkeiten von Personen. Dieses Verständnis geht davon aus, dass Individuen sich nicht nur anhand von Gruppenzugehörigkeiten differenzieren lassen, sondern auch gemeinsame Gruppenzugehörigkeiten aufweisen können. Es bildet die Grundlage für die erfolgreiche Einführung von Diversity Management (Diversitätsmanagement) Konzepten. a management and leadership task that encompasses the entirety of measures aimed at recognising diversity as a distinct value in order to use its potenti als for the organisation’s success. Management und Führungsaufgabe, welche alle Maßnahmen beinhaltet, die darauf gerichtet sind, Diversity/ Diversität als einen besonderen Wert zu begreifen und das damit verbundene Potential für den Erfolg der Organisation zu nutzen. prestigious international recognition of the EFQM, yearly bestowed by an independent Jury to European organisations demonstrating that they are truly a Role Model of Excellence. Basis for the award assessment is the EFQM Excellence Model and its assessment logic. The EFQM Award constitutes the top level of the EFQM recognition scheme. Angesehener internationaler Preis der EFQM, der jährlich durch eine unabhängige Jury vergeben wird an europäische Organisationen, welche sich als herausragende Vorbilder für Spitzenleistungen im Wettbewerb (Organisational Excellence) beweisen. Die Beurteilung erfolgt auf Basis des EFQM Excellence Modells und ihrer Bewertungslogik. Der Preis stellt die höchste Auszeichnung im Rahmen der Anerkennung von organisationalen Excellence- Prozessen durch die EFQM dar. the most successful and widespread holistic management model which provides an excellent tool for finding a clear structure for an organisation’s existing management system as well as for systematically identifying new approaches and integ rating different cultures. Ganzheitliches Managementmodell der European Foundation for Quality Management mit weltweiter Verbreitung. Es stellt eine herausragende Methode zur Strukturierung des Managementsystems einer Organisation dar und ermöglicht die Identifikation neuer Vorgehensweisen und die Integration verschiedener Kulturen. <?page no="340"?> 340 Glossary the most popular form of attaining people feedback; it is sometimes called staff or workforce study. Its aim is to monitor employee satisfaction and engagement or commitment levels in order to ensure that the organisation’s people are treated according to the proclaimed mission, values and standards. It provides some of the few available early warning indicators that allow an intervention before the underlying effects are m irrored in the generated profits. Die am häufigsten verwendete Art, Feedback von den Mitarbeitern zu erhalten. Ihr Ziel ist es, die Mitarbeiterzufriedenheit, das Engagement und die Mitarbeiterbindung zu bestimmen, um so abzusichern, dass die Mitarbeiter so behandelt werden, wie die Organisation es in ihrer Mission, ihren Werten und entsprechenden Standards festgelegt hat. Mitarbeiterbefragungen stellen einen der wenigen Frühwarnindikatoren dar, da sie es den Entscheidungsträgern erlauben, auf Basis der Ergebnisse notwendige Maßnahmen zu ergreifen, bevor sich negative Entwicklungen im erzielten Gewinn niederschlagen. the relative strength of an employee’s identification with and involvement in a particular organisation. / innere Verpflichtung oder Bindung der Mitarbeiter Verhältnismäßige Stärke der Identifikation eines Mitarbeiters mit einer bestimmten Organisation sowie seiner Bereitschaft zur Mitwirkung und Erbringung von Leistung. strategic process meant to create a work culture where all people are involved as key business partners, owning their jobs and playing a key rol e in ensuring the organisation’s success. / Empowerment von Mitarbeitern Strategischer Prozess, um eine Unternehmenskultur zu schaffen, in welcher Mitarbeiter als wesentliche Interessenspartner angesehen und gezielt zur Mitwirkung ermuntert und ermächtigt werden. Mitarbeiter werden als Bevollmächtigte in ihrem Aufgabenbereich verstanden und spielen eine tragende Rolle in der Absicherung des Unternehmenserfolgs. important preliminary step in developing new strategies. It encompasses the following four aspects: stakeholder analysis, industry analysis, key trends analysis, and predicting future developments. Wichtiger erster Schritt der Strategieentwicklung. Die Umweltanalyse enthält die folgenden vier Aspekte: Analyse der Interessenspartner, Branchenanalyse, Analyse wesentlicher Trends und Vorhersagen zur zukünftigen Entwicklung. <?page no="341"?> Glossary 341 (compare: internal control) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the relationship between people and the natural environment. In external control (outer-directed) cultures people believe that humans are only a small part of nature and therefore have to go along with its forces and laws. (vergleiche: interne Kontrolle) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Fragestellung dieser Dimension ist das Verhältnis der Mitglieder einer Kultur zur Umwelt. In Gesellschaften mit externer Kontrolle verstehen sich die Menschen als ein kleiner Teil der Umwelt und passen sich ihr und ihren Gesetzen an. In diesen Kulturen wird Fremdkontrolle akzeptiert. (compare: masculinity) part of the third dimension of Hofstede's framework that measures how desirable assertive behaviour is in comparison to modest behaviour. This is strongly related to conventions about role-typical behaviour of men and women in a society. In feminine societies emotional gender roles overlap. All members, men and women, are supposed to be modest, caring, and concerned with the quality of life. (vergleiche: Maskulinität) Bezieht sich auf eine Kulturdimension von Hofstede. Diese Dimension misst, wie wünschenswert ein durchsetzungsfähiges, bestimmendes Verhalten im Vergleich zu einem sittsamen und bescheidenen Auftreten ist. Dies ist auch stark verbunden mit der gesellschaftlichen Rollenverteilung zwischen den Geschlechtern. In femininen Kulturen überschneiden sich die Geschlechterrollen. Von allen Mitgliedern, Männer wie Frauen, wird ein bescheidenes und fürsorgliches Verhalten erwartet sowie das Streben nach einer hohen Lebensqualität. aims at ensuring financial resilience in order to support the overall strategy of the organisation. Classically, it includes the methodical definition and execution of financial strategies, investment decisions and classical finance processes for optimising the use and allocation of available funds. In modern organisations it comprises also all finance-related corporate government and control systems and processes. Thus, financial management contributes considerably to the protection of sustained success. Das Finanzmanagement dient der Absicherung der finanziellen Widerstandsfähigkeit und unterstützt damit die Strategie der Organisation. Klassischerweise beinhaltet es die methodische Definition und Realisierung der Finanzstrategie, Investitionsentscheidungen und die klassischen Finanzprozesse, welche die Nutzung und Allokation der vorhandenen finanziellen Mittel optimieren. In modernen Organisationen werden darüber hinaus noch alle finanzbezogenene Prozesse der Corporate Governance mit den internen Kontrollsystemen dazu gerechnet, womit das Finanzmanagement in erheblicher Weise zur Absicherung des nachhaltigen Unternehmenserfolgs beiträgt. <?page no="342"?> 342 Glossary part of financial management that is most closely related to the core activities of an organisation. Its activities aim at supporting the original supply chain and include invoicing, cash & liquidity, dispute and treasury management. Teilbereich des Finanzmanagements, der am engsten mit den Kernaktivitäten einer Organisation verbunden ist. Die Hauptaufgaben bestehen in der Unterstützung der realen Wertschöpfungskette und umfassen die Rechnungstellung, das Liquiditätsmanagement, die Klärung von (rechtlichen) Auseinandersetzungen und die Finanzmitteldisposition (Treasury). (FFM) Internationally accepted model for measuring personality factors. It consists of the “Big Five” personality factors (dimensions) that account for differences in normal adult personality. The Big Five factors consist of Neuroticism (N), Extraversion (E), Openness (O), Agreeableness (A) and Conscientiousness (C). They are measurable without overlap and are comparable across different cultures. (FFM) Weltweit akzeptiertes Modell der Messung von Persönlichkeitsfaktoren. Es beinhaltet fünf Dimensionen der Persönlichkeit („Big Five“), welche die Unterschiede der normalen Erwachsenenpersönlichkeit ausdrücken: Neurotizismus (auch mit dem inversen Konstrukt emotionale Stabilität bezeichnet), Extraversion, Offenheit für Erfahrungen, Gewissenhaftigkeit und Verträglichkeit. Diese Faktoren sind ohne Überlappung messbar und auch über verschiedene Kulturen hinweg vergleichbar. multi-method and multiphase “Global Leadership and Organisational Behaviour Effectiveness” (GLOBE) research programme based on 62 cultures. It was conducted to conceptualise, operationalise, test, and validate a cross-level integrated theory of the relationship of culture and societal, organisational, and leaders' effectiveness. GLOBE steht für “Global Leadership and Organisational Behaviour Effectiveness“ (globales Führungsverhalten und Effektivität des Verhaltens von Organisationen) und ist ein internationales Forschungsprojekt, das unter Nutzung verschiedener Methoden und in mehreren Phasen Daten aus 62 Kulturen generiert hat. Das Ziel dieses Projektes war, eine ebenenübergreifende ganzheitliche Theorie zu entwickeln, zu testen und zu validieren, welche Zusammenhänge zwischen Kultur und der Effektivität von Gesellschaften, Organisationen und Führungskräften aufzeigt. relates to the number of people and the kind of skills an organisation employs, in whatever function. (In some publications the skills are integrated in intangible assets.) Bezieht sich auf die Menschen, die ein Unternehmen beschäftigt, und deren Fähigkeiten, die es in welcher Funktion auch immer einsetzt. (Manche Publikationen ordnen Fähigkeiten getrennt zu den immateriellen Wirtschaftsgütern.) <?page no="343"?> Glossary 343 (IND) (compare: collectivism) part of the second dimension of Hofstede's cultural framework, which measures the ties between people. When connections between individuals are loose, the respective culture is called individualistic. (vergleiche: Kollektivismus) Kulturdimension von Hofstede. Diese Dimension misst, wie stark die Bindungen zwischen der Gruppe und dem Individuum sind. In Kulturen, wo Individualismus stark ausgeprägt ist, steht das Individuum mit seinen persönlichen Zielen im Vordergrund und das Beziehungsgeflecht (mit Ausnahme der engsten Verwandtschaft) ist lose. (compare: communitarianism) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the way to ensure a better life for all. Individualistic cultures start the journey with the individual, believing it is obvious that if an individual has as much freedom as possible and the maximum opportunity to develop itself, the quality of life will improve. (vergleiche: Kollektivismus nach Trompenaars) Kulturdimension von Trompenaars & Hampden-Turner. Das zentrale Thema dieser Dimension ist die Frage, wie für alle ein besseres Leben erreicht werden kann. In Gesellschaften mit ausgeprägtem Individualismus steht das Individuum mit seinen persönlichen Zielen und seiner Freiheit im Vordergrund. Es wird angenommen, dass das Wohl der Gemeinschaft am besten dadurch erreicht wird, dass ein Individuum soviel Freiheit und Chancen wie möglich erhält, sich selbst zu entwickeln. (IVR) (compare: restraint) the newest Hofstede dimension which originated from three items in the World Values Survey. It measures the extent to which people try to control their desires and impulses, based on the way they were raised. A low control orientation is called indulgence. People of an indulgent culture call themselves very happy, feel that they have a high level of autonomy and see leisure time as very important. (vergleiche: Beherrschung) Die neueste kulturelle Dimension von Hofstede, die auf drei Elementen der World Values Survey basiert. Diese Dimension misst den Umfang in dem Mitglieder einer Kultur versuchen, ihre Wünsche und Impulse zu kontrollieren und ist damit stark abhängig von der Erziehung. Eine schwache Kontrollorientierung bedeutet Nachgiebigkeit. Die Vertreter einer solchen Kultur bezeichnen sich als glücklich, empfinden sich als selbstbestimmt und schätzen Freizeit als sehr wichtig ein. a group of organisations that produces a similar or equivalent product or service. Gruppe von Organisationen, die ähnliche oder gleichartige Produkte oder Dienstleistungen anbieten. <?page no="344"?> 344 Glossary create real benefit for the organisation without any physical presence. Brand names, technology, reputation and financial funds are typical examples. Such resources are usually accumulated over time. / Tragen zum wirtschaftlichen Wert eines Unternehmens bei, obwohl sie nicht körperlich, also greifbar sind. Typische Beispiele umfassen Markenzeichen und namen, Reputation des Unternehmens, Erfindungen, Konzessionen und finanzielle Mittel. Üblicherweise werden immaterielle Wirtschaftsgüter erst im Laufe der Zeit erworben. part of the strategy development process that is concerned with the identification and potential development of the organisation’s resources, capabilities and competencies. Teil des Strategieentwicklungsprozesses, der sich damit beschäftigt, die vorhandenen Ressourcen, Fähigkeiten und Kompetenzen der Organisation zu identifizieren und deren Entwicklungsmöglichkeiten zu erfassen. , see: support processes , siehe: Unterstützungsprozesse an agreement, according to which an organisation gains the right from an investor to operate the daily business of a third company for a fixed term against a management commission. (Management Vertrag) Geschäftsbesorgungsvertrag (Managementvertrag), nach welchem eine Organisation von einem Investor das Recht übertragen bekommt, die täglichen Geschäfte einer dritten Organisation für einen festgelegten Zeitraum zu führen und dafür eine Verwaltungsgebühr erhält. (strategic) / - (strategic) a cooperation arrangement between organisations coming from different countries in order to achieve (strategic) goals for their mutual benefit. (strategische) / (strategische) Kooperationsvereinbarung zwischen Unternehmen aus unterschiedlichen Ländern mit dem Ziel, (strategische) Ziele zum gegenseitigen Nutzen zu erreichen. the process of increasing involvement of organisations in international environments and international markets. Prozess der zunehmenden Einbeziehung von Organisationen in ein internationales Umfeld und internationale Märkte. <?page no="345"?> Glossary 345 special type of activity-based performance measure that allows an organisation to analyse the core of its performance in such a way that it finds starting points for effective improvement actions. Spezielle Art von aktivitätsorientierten Erfolgsmessgrößen, welche einer Organisation die Analyse ihrer Kernleistungen so ermöglicht, dass sie daraus Ausgangspunkte für wirksame Verbesserungsaktivitäten generieren kann. available collection of information being a justified belief and having a high certainty to be true. Knowledge provides context to a single piece of information, allows its appraisal and includes the opportunity to take action on it. Vorhandene Sammlung von Informationen, die eine begründete Meinung darstellt und mit einer hohen Gewissheit wahr ist. Wissen stellt einzelne Informationen in einen Zusammenhang und ermöglicht so ihre Einschätzung und beinhaltet die Möglichkeit, auf dieser Basis Maßnahmen zu ergreifen. risk of losing critical know-how to a foreign operation or outsourcing partner that might (unrightfully) be used for developing competition. Risiko, kritisches Wissen (Know-how) an einem ausländischen Geschäftsbetrieb oder Outsourcing-Nehmer zu verlieren, welches (unrechtmäßig) dazu benutzt werden kann, dass der Partner sich zum Konkurrenten entwickelt. ability, art or process of influencing people so that they will strive willingly and enthusiastically towards the achievement of the group’s mission and purpose. Fähigkeit, Kunst oder Prozess, Menschen so zu beeinflussen, dass sie willig und enthusiastisch danach streben, die Mission und die Zielsetzung der Gruppe zu verwirklichen. the principles and norms that determine how managers take leadership in a particular organisation. Prinzipien und Normen welche festlegen, wie Führungskräfte in einer bestimmten Organisation ihre Führungsrolle wahrnehmen sollen. type of contractual agreements in international operations, where the so-called licensor entitles another organisation called licensee to use its intellectual property for a defined period against royalty. Vertragsverhältnis in internationaler Kooperationen, in welchem der sog. Lizenzgeber eine andere Organisation (sogenannter Lizenznehmer) dazu berechtigt, sein geistiges Eigentum für einen festgelegten Zeitraum gegen die Zahlung von Lizenzgebühren zu nutzen. <?page no="346"?> 346 Glossary (LTO) (compare: short-term orientation) refers to the cultural dimension developed by Hofstede indicating a societies' time perspective and orientation as well as expressing its attitude to long-term and short-term traditions and values. Cultures with long-term orientation are generally focused on sustained efforts toward slow results and are willing to subordinate oneself for a purpose. Thrift and being sparing with resources is highly valued. (vergleiche: Kurzzeitorientierung) Kulturdimension von Hofstede. Diese Dimension beschreibt den Zeithorizont einer Kultur sowie ihre Haltung bezüglich der Langfristigkeit und Kurzfristigkeit von Traditionen und Werten. Langzeitorientierte Kulturen sind zukunftsorientiert und darauf fokussiert, nachhaltige Anstrengungen in Hinblick auf ein langsam erreichbares Ziel zu unternehmen. Mitglieder sind daher bereit, sich einem höheren Ziel unterzuordnen. Sparsamkeit und der schonende Umgang mit Ressourcen sind hoch angesehen. (MBNQA) award which is presented annually by the President of the United States to US- American organisations that demonstrate high performance excellence. Baldrige criteria and their systems perspective are used for assessing the applications for the award, which can be given in different categories. (MBNQA) Jährlich durch den Präsidenten der USA verliehener Preis für Organisationen, welche Spitzenleistungen im Wettbewerb (hohe Performance Excellence) nachweisen können. Er wird auf Basis der Baldrige- Kriterien und der dazugehörigen Systemperspektive in verschiedenen Kategorien vergeben. Process category of the process map. Management processes ensure that the organisation’s purpose is established, objectives are defined and that the organisation with all its pursued processes and activities meets legal, regulatory, financial and its own requirements and goals. Management processes usually include defining and communicating strategy, managing governance, risks and compliance as well as controlling and reporting (financial) activities. / Prozesskategorie der Prozesslandschaft. Managementprozesse gewährleisten, das Zweck und Bestimmung der Organisation etabliert wird, Ziele definiert werden und dass die Organisation mit allen von ihr verfolgten Prozessen und Aktivitäten gesetzliche, regulatorische, finanzielle sowie ihre eigenen Anforderungen und Ziele erfüllt. Üblicherweise enthalten Managementprozesse die Definition und Kommunikation der Strategie, die Steuerung der Governance, des Risikos und der Compliance sowie das Controlling und die Berichterstattung der (finanziellen) Tätigkeiten. <?page no="347"?> Glossary 347 according to the ISO management system standards a regularly executed assessment of the management system by top management, where all kinds of information concerning adequacy and effectiveness of the system including internal audit reports are evaluated and appropriate improvement actions are approved. Gemäß den ISO Managementsystem- Standards eine regelmäßig von der obersten Leitung durchgeführte Bewertung des Managementsystems, in welcher verschiedenartige Informationen zur Angemessenheit und Wirksamkeit des Systems inklusive der Berichte aus internen Audits bewertet und angemessene Verbesserungsmaßnahmen genehmigt werden. (MAS) (compare: femininity) part of the third dimension of Hofstede's framework that measures how desirable assertive behaviour is in comparison to modest behaviour. This is strongly related to conventions about role-typical behaviour of men and women in a society. Masculine societies favour assertiveness, but predominantly from men, that are supposed to be tough and focused on material success. Women, on the contrary, are supposed to be tenderer, modest and concerned with the quality of life. (vgl. Femininität) Bezieht sich auf eine Kulturdimension von Hofstede. Diese Dimension misst, wie wünschenswert ein durchsetzungsfähiges, bestimmendes Verhalten im Vergleich zu einem sittsamen und bescheidenen Auftreten ist. Dies ist auch stark verbunden mit der gesellschaftlichen Rollenverteilung zwischen den Geschlechtern. In Kulturen, wo Maskulinität hoch geschätzt wird, sind Werte wie Ehrgeiz, Durchsetzungsvermögen und Macht von hoher Bedeutung, insbesondere für Männer. Von Frauen hingegen wird erwartet, dass sie sich stärker mit der Lebensqualität beschäftigten, bescheiden und zart sind. a written statement that outlines broad directions for the organisation’s development and summarises the underlying reasoning and values. (In Germany, the term „Leitbild“ comprises elements of both vision and mission.) / (für Unternehmen) Eine schriftliche Erklärung, welche die generelle Ausrichtung der Organisationsentwicklung umreißt und die zugrundeliegenden Argumente und Werte zusammenfasst. In Deutschland enthält das sog. „Leitbild“ Elemente der Mission sowie der Vision. (compare: affection) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the extent to which people tend to display their emotions. In neutral cultures the general convention is to control emotions carefully. (vergleiche: Emotionalität) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Fragestellung dieser Dimension ist, wie offen Gefühle und Emotionen in einer Kultur geäußert werden dürfen. In neutralen Kulturen werden Emotionen nicht offen ausgelebt. service or manufacturing processes that transform resources to create an output for an end-user. / Operations Dienstleistungs- oder Produktionsprozesse, welche Ressourcen in eine Leistung für Endverbraucher umwandeln. <?page no="348"?> 348 Glossary according to Schein a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members, as the correct way to perceive, think, and feel in relation to those problems. Organisational cultures are formed by leadership activities as well as by shared experiences of the organisation's members. Nach Schein ein Muster gemeinsamer Grundprämissen, das die Gruppe bei der Bewältigung ihrer Probleme externer Anpassung und internen Integration erlernt hat und somit als bindend gilt; und das daher an neue Mitglieder als rational und emotional korrekter Ansatz für den Umgang mit diesen Problemen weitergegeben wird. Organisationskulturen werden ebenso durch Führungsaktivitäten wie durch gemeinsame Erfahrungen der Organisationsmitglieder gebildet. (compare: universalism) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner describing if the universal truth (expressed in rules, laws, codes and generalisations) takes precedence over unique relations. In particularistic cultures, universal rules would not necessarily be followed as exceptions would be naturally made for special circumstances and the needs of friends and other relationships. (vergleiche: Universalismus) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Das zentrale Thema dieser Dimension ist, wie Regeln in einer bestimmten Kultur befolgt werden und ob sie wichtiger sind als besondere Beziehungen. In partikularistischen Kulturen werden allgemeingültige Gesetze oder Regeln nicht zwangsläufig befolgt, weil für besondere Situationen oder Bedürfnisse von Freunden und Verwandten selbstverständlich Ausnahmen gemacht werden. reward systems that tie pay and other types of rewards (or compensations) to performance, be it individual performance or organisational performance. Vergütungssysteme, bei denen die Vergütung und andere Formen der Belohnung an erbrachte Leistung (individuelle oder unternehmensweite) gekoppelt sind. cycle for continuous improvement of processes or systems. It is based on several successive phases starting with establishing plans with processes and (measurable) objectives to the delivery of a certain output (PLAN), implementing and executing these plans (DO), reviewing the actual results (CHECK) and taking corrective actions in case significant differences between the actual results and the planned objectives (ACT). Zyklus der kontinuierlichen Verbesserung von Prozessen oder Systemen. PDCA steht für vier aufeinander folgende Phasen: Plan- Do-Check-Act (Planen-Ausführen-Überprüfen-Anpassen). In der Planungsphase werden Pläne mit konkreten Prozessen und (messbaren) Zielen zur Erbringung einer bestimmten Leistung entwickelt (PLAN). Diese Pläne werden implementiert und ausgeführt (DO), nachfolgend werden sie hinsichtlich ihrer Zielerreichung kontrol- <?page no="349"?> Glossary 349 liert und bewertet (CHECK). Auf Grundlage dieser Bewertung werden ggf. Korrekturmaßnahmen eingeleitet, wenn signifikante Unterschiede zwischen den erreichten Ergebnissen und den geplanten Zielen festgestellt wurden (ACT). (compare: employee attitude survey) all methods used to help an organisation in order to find out whether its people are satisfied, for example with career opportunities, benefits, their leaders (as they have a main effect on motivation) and the organisation as a whole. / - (vergleiche: Mitarbeiterbefragung) Alle Methoden, welche einer Organisation dabei helfen, herauszufinden, ob ihre Mitarbeiter zufrieden sind, z.B. mit ihren Karrierechancen, den angebotenen Bezügen und Zuwendungen, ihren Führungskräften (da diese besonders die Motivation beeinflussen) und der Organisation insgesamt. all documents used for strategic HRM planning that help to establish programmes and tactics to implement the HRM strategy. This includes short- und longterm requirement plans, recruitment plans, development plans and placement plans. They can focus on qualitative and/ or quantitative issues, as they can for example state the planned numbers of (key) personnel, the required capabilities and competencies and the costs arising from related compensation and benefits. Alle Dokumente der Personalplanung, welche die Etablierung von Programmen und taktischen Maßnahmen zur Implementierung der Personalmanagement-Strategie fördern. Dies beinhaltet kurz- und langfristige Anforderungspläne, Einstellungspläne, Entwicklungspläne und Stellenpläne. Sie können sich auf quantitative und/ oder qualitative Aspekte beziehen. Z.B. können sie die Anzahl des Schlüsselpersonals, die benötigten Fähigkeiten und Kompetenzen und die Kosten aus den damit verbundenen Bezügen und Zuwendungen enthalten. refers to a scan of Political, (macro)Economic, Socio-cultural, Technological, Ecological, and Legal-regulatory environmental forces on a global, national and (single) market scale. This is typically used in the preparatory phase of the strategy development process. Internationale Umfeldanalyse eines Unternehmens, welche die folgenden Einflussfaktoren umfasst: politische, ökonomische, sozio-kulturelle und technologische Rahmenbedingungen, Umweltaspekte und den rechtlichen Rahmen. Die PESTEL-Analyse kann auf einer globalen, nationalen oder auf einzelne Märkte bezogenen Ebene durchgeführt werden und wird üblicherweise in der Vorbereitungsphase des Strategieentwicklungsprozesses eingesetzt. <?page no="350"?> 350 Glossary a method for analysing the industry environment invented by M. Porter considering five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services, and the current contestants. An expanded version broadens the suppliers to include all kinds of partners and value chain actors and considers the relative power of other stakeholders, for example the government. An organisation should analyse how these forces work in the industry and how it is affected by them in its particular situation. Klassisches Instrument für die Branchenanalyse entwickelt von M. Porter. Demnach gibt es die folgenden fünf Kräfte (five forces), die Einfluss auf den Wettbewerb in einer Branche ausüben: potentielle Mitbewerber, Verhandlungsmacht der Kunden, Verhandlungsmacht der Lieferanten, die Bedrohung durch Substitute (Ersatzprodukte oder -dienstleistungen) und die etablierten Mitbewerber. Eine erweiterte Version erweiterten die Lieferanten um alle Arten von Partnern und Akteure der Wertschöpfungskette und betrachtet die relative Macht weiterer Interessenspartner, wie z.B. der Regierung. Eine Organisation sollte analysieren, wie diese Kräfte in der Branche wirken und wie sie selbst in ihrer besonderen Situation von diesen betroffen ist. (PDI) one of the cultural dimensions defined by Hofstede. It measures the degree of inequality in a group or society and provides answers to the basic question of how to handle the fact that people are unequal. Cultures with low ratings (small PDI) believe that inequalities among people should be minimised and establish hierarchies for convenience, so people are basically treated as equals. Cultures with high ratings (large PDI) accept inequalities among people and therefore show and expect obedience and respect for higherranking members. Eine Kulturdimension von Hofstede. Diese Dimension misst, inwieweit ungleiche Machtverteilung in einer Gesellschaft akzeptiert wird und gibt Antworten auf die grundsätzliche Frage, wie damit umgegangen wird, dass Menschen nicht gleich sind. Kulturen mit niedrigen Werten haben eine geringe Machtdistanz, d.h. Ungleichheit zwischen Menschen sollte minimiert werden. Entsprechend werden Hierarchien nur aus Praktikabilitätsgründen eingesetzt, Menschen werden jedoch grundsätzlich als gleichrangig behandelt. Kulturen mit hohen Werten (große Machtdistanz) akzeptierten hingegen diese Unterschiede und zeigen und erwarten Gehorsam und Respekt für höherrangige Mitglieder. the sum of factors inhibiting the flow of information to and from the foreign market. These factors are supposed to be mainly based on differences in culture, language, business practices and industrial development. Countries and related markets can be ranked based on their psychic distance to the home country. The internationalisation concept of psychic distance Summe der Faktoren, die den Informationsfluss zu und von ausländischen Märkten hemmen. Diese Faktoren basieren annahmegemäß vorwiegend auf kulturellen Unterschieden sowie Unterschieden hinsichtlich Sprache, Geschäftspraktiken und industrieller Entwicklung. Länder und ihre Märkte können auf Basis ihrer psychischen Distanz zum Heimatmarkt in eine Rangfol- <?page no="351"?> Glossary 351 postulates that an organisation naturally tends to start international activities in a market with low psychic distance, for example in a neighbouring country using the same language where the organisation feels to have a good knowledge of. After successfully entering the first market, the internationalisation will be extended to the next country along the psychic distance chain. ge gebracht werden. Das Internationalisierungskonzept der psychischen Distanz postuliert, dass eine Organisation typischerweise dazu tendiert, internationale Aktivitäten in Märkten mit niedriger psychischer Distanz aufzunehmen, z.B. in einem Nachbarland, in welchem dieselbe Sprache gesprochen wird und die Organisation sich bereits gut auskennt. Nachdem der Eintritt in den ersten Markt erfolgreich bewältigt wurde, wird die internationalen Aktivitäten auf den nächsten Markt mit im Rang nachfolgender psychischer Distanz ausgedehnt. ® one of the three integrated components within EFQM Excellence Model framework. The RADAR logic provides a structured basis for assessing the excellence level of an organisation. It is based on the PDCA cycle and distinguishes the phases Results, Approaches, Deployment and Assessment & Review. For an EFQM assessment, a detailed set of requirements and possible levels of fulfilment based on the RADAR® cycle was invented, mainly the RADAR enabler matrix used as a tool for evaluating the enabler criteria of the EFQM Excellence Model and the RA- DAR results matrix used for evaluating the results criteria. ® Eine der drei ineinandergreifenden Komponenten des EFQM Excellence Modellrahmens. Die RADAR-Logik bietet eine strukturierte Basis für die Beurteilung des Excellence-Niveaus einer Organisation. Sie basiert auf dem PDCA-Zyklus und unterscheidet die Phasen Ergebnisse, Vorgehen, Umsetzung, Bewertung & Verbesserung. Für EFQM-Bewertungsprozesse (Assessments) wurde ein detaillierter Satz von Anforderungen und möglichen Erfüllungsgraden entwickelt, der auf dem RADAR- Zyklus basiert. Dies umfasst insbesondere die RADAR-Bewertungsmatrix für Befähiger als Werkzeug zur Beurteilung der Befähigerkriterien des EFQM Excellence Modells sowie die RADAR Bewertungsmatrix für die Ergebniskriterien. phase of the w-curve. Re-entry shock occurs when expatriates coming back to their home country (=repatriates) realise that although the outer circumstances (in their home culture) have not changed their attitudes have. So suddenly their home does not feel like home anymore. This shock is gradually diminished and turned into a readjustment at home. Phase der W-Kurve. Ein umgekehrter Kulturschock entsteht, wenn Mitarbeiter im Auslandseinsatz (Expatriates) nach ihrer Rückkehr feststellen, dass sich zwar die Umgebung (im Heimatland) nicht geändert hat, sie selbst aber ihre eigenen Einstellungen so verändert haben, dass sie sich nicht mehr zu Hause fühlen. Dieser Kulturschock lässt mit der Zeit nach und führt zur Neuanpassung an die Kultur des Heimatlandes. <?page no="352"?> 352 Glossary a view of defining strategy with a focus on organisational resources. The identification and development of the organisation’s resources, capabilities and competencies is understood as the main source for achieving competitive advantage. Eine Betrachtungsweise bei der Strategiefestlegung, die organisatorische Ressourcen in den Vordergrund stellt. Die Identifikation und Entwicklung der organisatorischen Ressourcen, Fähigkeiten und Kompetenzen wird als wesentliche Quelle für die Erzielung von Wettbewerbsvorteilen verstanden. (compare: indulgence) the newest Hofstede dimension which originated from three items in the World Values Survey. It measures the extent to which people try to control their desires and impulses, based on the way they were raised. A high control orientation is called restraint. People of restraint cultures are generally not very happy, feel to lack autonomy and rate leisure time as not being important, as they rate their (work) duties very highly. (vergleiche: Nachgiebigkeit) Die neueste kulturelle Dimension von Hofstede, die auf drei Elementen der World Values Survey basiert. Diese Dimension misst den Umfang in dem Mitglieder einer Kultur versuchen, ihre Wünsche und Impulse zu kontrollieren und ist damit stark abhängig von der Erziehung. Eine hohe Kontrollorientierung bedeutet Beherrschung. Die Vertreter einer solchen Kultur bezeichnen sich nicht als glücklich, sehen sich nicht als selbstbestimmt und schätzen Freizeit als weniger wichtig ein, da sie ihre (Arbeits-)Verpflichtungen sehr wichtig nehmen. broadly defined in ISO 31000 as effect of uncertainty on objectives. This includes negative deviations from expected outcomes as well as positive (commonly referred to as “opportunities”). Gemäß der breiten Definition der ISO 31000 die Wirkung von Unsicherheit auf Ziele. Dies beinhaltet sowohl negative Abweichungen von erwarteten Ergebnissen als auch positive (welche üblicherweise als „Chancen“ bezeichnet werden). the amount of risk an organisation deems to be acceptable in its pursuit of value. Das Maß an Risiko, das eine Organisation bereit ist für die Realisierung ihres Wertbeitrages einzugehen. process of managing risks that consists of the following steps: identifying, analysing & evaluating and treating risks. Prozess zur Steuerung von Risiken, welcher die folgenden Schritte umfasst: Risikoidentifikation, Risikoanalyse & Risikobewertung und Risikosteuerung. <?page no="353"?> Glossary 353 overview of risks which groups the analysed risks into different categories; e.g. acceptable risks where a (further) treatment is not needed, risks of high relevance that require for example immediate actions, and risks with a lower priority or risks subject to decisions of lower managerial levels, depending on the definitions used in the respective organisation. Übersichtsplan der Risiken, welcher die analysierten Risiken bestimmten Kategorien zuordnet, wie z.B. annehmbare Risiken (kein weiterer Handlungsbedarf), Risiken von hoher Relevanz, bei denen sofort Maßnahmen ergriffen werden müssen und Risiken niedrigerer Prioritätsstufe oder Risiken zur Delegation an die darunterliegende Führungsebene. Die Gruppierung ist abhängig von der Definition der einzelnen Kategorien in der jeweiligen Organisation. comprehensive, systematic and regular review conducted by a management team dealing with the organisation’s strategy, activities and results. Umfassende, systematische und regelmäßige Analyse der Strategie, Aktivitäten und Ergebnisse einer Organisation durch ihre Führungskräfte. (compare: longterm orientation) refers to the cultural dimension developed by Hofstede indicating a societies‘ time perspective and orientation as well as expressing its attitude to long-term and short-term traditions and values. Cultures with short-term orientation are generally focused on producing quick results in the present and experience social pressure versus spending. (vergleiche: Langzeitorientierung) Kulturdimension von Hofstede. Diese Dimension beschreibt den Zeithorizont einer Kultur sowie ihre Haltung bezüglich der Langfristigkeit und Kurzfristigkeit von Traditionen und Werten. Kurzzeitorientierte Kulturen fokussieren kurzfristig erreichbare Ziele („Quick Wins“). Ihre Mitglieder sind orientiert an der Gegenwart and es gibt sozialen Druck in Hinblick auf die Verwendung ihrer Mittel. (compare: diffusion) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner dealing with the intensity of need to define specifically and precisely the constructs used. Specific cultures have a high need to define specifically the constructs they use, putting everything in an assigned place and an exact perspective. Thus, people from these cultures are very analytic in what they do. In specific cultures, people might be addressed differently in different situations, depending on the relationship mode they want to stress in this specific moment - for example, using the doctoral title at work but not outside. (vergleiche: diffuse Kultur) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Die zentrale Fragestellung dieser Dimension ist die Stärke des Verlangens einer Kultur, die kulturellen Konstrukte präzise und spezifisch zu definieren. Spezifische Kulturen legen hohen Wert auf Exaktheit, Transparenz und genaue Definitionen, so dass alles trennscharf zugeordnet und aus einer festgelegten Perspektive betrachtet wird. Mitglieder dieser Kultur sind daher sehr analytisch. In spezifischen Kulturen werden z.B. Personen in unterschiedlichen Situationen auch unterschiedlich angesprochen, abhängig von dem Beziehungsaspekt, der in diesem spezifischen Moment betont wer- <?page no="354"?> 354 Glossary den soll. Zum Beispiel wird am Arbeitsplatz der Doktortitel verwendet, außerhalb jedoch nicht. all parties (be it people, groups or other organisations) the organisation is depended on and that are vitally interested in the organisation's value proposition or its existence. Alle Parteien (Menschen, Gruppen oder andere Organisationen), von welchen die Organisation abhängig ist und die ihrerseits ein wesentliches Interesse an der Existenz der Organisation oder ihrem Wertversprechen haben. the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Die langfristige Ausrichtung und das Betätigungsfeld einer Organisation, welche in einer sich verändernden Umwelt Vorteile durch die Konfiguration ihrer Ressourcen und Kompetenzen erzielt, um die Erwartungen ihrer Interessenspartner zu erfüllen. process in order to successfully deal with strategy. The strategy management process starts with understanding the strategic position of an organisation (“context”) by executing an external scan (stakeholder and environment) as well as an internal scan (performance and capabilities). The following step deals with developing the strategy and assessing strategic choices (“content”). The final step „strategy in action” includes the process-based view of communicating, implementing, monitoring, evaluating and updating the strategy. Prozess des erfolgreichen Umgangs mit Strategie. Der Prozess des Strategiemanagements beginnt damit, die strategische Positionierung der Organisation zu verstehen (Kontext), indem sowohl ein externer Scan (bezogen auf Interessenspartner und Umfeld) als auch ein interner Scan (bezogen auf Leistung und Fähigkeiten) durchgeführt wird. Der nachfolgende Schritt umfasst die Strategieentwicklung und die Bewertung der strategischen Alternativen (Inhalt). Der letzte Schritt „Strategie in Aktion“ beinhaltet die prozessuale Sicht auf die Kommunikation, Implementierung, Überwachung, Bewertung und Aktualisierung der Strategie. process where top management takes a careful, holistic look at their own organisation and asks themselves inconvenient questions. A strategy review takes a high-level perspective and thus goes far beyond the usual quarterly performance review and the yearly management review required by ISO 9001. Its gist is rigidly scrutinising the business as it is and the strategy so far pursued. / Prozess, in welchem die oberste Leitung einer Organisation eine sorgfältige, ganzheitliche Betrachtung ihrer Organisation vornimmt und sich unbequeme Fragen stellt. Eine Strategiebewertung nimmt eine übergreifende Systemperspektive ein und geht damit weit über die üblichen vierteljährlichen Leistungsbewertungen hinaus. Ihr wesentlicher Inhalt ist es, das Geschäft und die bisher verfolgte Strategie einer unnachgiebigen Überprüfung zu unterziehen. <?page no="355"?> Glossary 355 system or inter-related network of parties (persons and organisations) that are involved - directly or indirectly - in the value creation. Depending on the complexity of the processes, a supply chain consists of multiple organisations and individuals with upstream and downstream links like raw material producers, component suppliers, product assemblers, wholesalers, retailers, service agents and transport providers of every kind as well as the end-user or final customer. System oder verbundenes Netzwerk von Parteien (Personen oder Organisationen) welche -direkt oder indirekt an der Wertschöpfung beteiligt sind. Je nach Komplexitä der Prozesse kann eine Lieferkette verschiedenste Organisationen und Individuen umfassen, die der betrachtenden Organisation sowohl vorals auch nachgelagert sind, wie z.B. Rohstoffproduzenten, Zulieferer von Komponenten, Montagefirmen, Großhandel, Einzelhändler, unabhängige Mitarbeiter des Kundendienstes und Transportdienstleister aller Art ebenso wie der Endkunde. (SCM) design, operation, and continuous improvement of the systems and networks that generate and deliver the organisation’s primary products and services (supply chain). SCM aims at achieving competitive advantage by maximising the overall generated value for the customer. Gestaltung, Betrieb und ständige Verbesserung der Systeme und Netzwerke, welche die primären Produkte und Dienstleistungen der Organisation erschaffen und liefern (Lieferkette). Das Lieferkettenmanagement zielt darauf ab, Wettbewerbsvorteile dadurch zu generieren, dass es den über alle Stufen hinweg erzeugten Mehrwert für den Kunden maximiert. from an individual organisation's point of view, supply chain processes move and store material and information to, between and from the organisation’s manufacturing or service processes. This includes for example logistic processes, where products are physically moved, or storage and warehousing processes, where these products are positioned for a speedy delivery. Supply chain processes link and support the whole value chain from the first input to the output of goods and services to the final customer. Aus individueller Sicht einer Organisation sind Lieferkettenprozesse dafür verantwortlich, Material und Informationen zu bewegen, und zwar zwischen den Produktions- und Dienstleistungsprozessen der Organisation, zu diesen hin oder von diesen weg. Dies beinhaltet z.B. Logikprozesse, in welchen Produkte physisch bewegt werden, oder Aufbewahrungs- und Lagerungsprozesse, in welchen Produkte für eine schnelle Auslieferung in Stellung gebracht werden. Lieferkettenprozesse verbinden und unterstützen die ganze Lieferkette von der ersten Eingabe (Input) bis zur Bereitstellung des finalen Ergebnisses (Output) an den Endkunden. <?page no="356"?> 356 Glossary Process category of the process map. Support processes include all those activities that are not directly related to the value chain but enable the organisation to carry out its core processes in the required quality. Typical support processes comprise managing and organising human resources, IT, financial supply chains and facilities. Prozesskategorie der Prozesslandschaft. Unterstützungsprozesse enthalten die Aktivitäten, welche nicht direkt Teil der Wertschöpfungskette sind, jedoch die Organisation in die Lage versetzen, ihre Kernprozesse in der erforderlichen Qualität durchzuführen. Typische Unterstützungsprozesse umfassen das Management des Personals, der IT, der finanziellen Wertschöpfungskette und der Gebäude und Produktionsstätten. comprise all physical assets of an organisation, e.g. buildings, offices, machines, raw materials, manufacturing inventory, in short: plants and equipment. Umfassen alle physischen Vermögensbestandteile einer Organisation, z.B. Gebäude, Büros, Maschinen, Rohstoffe, Vorräte, oder kurz: Produktionsstätten und Ausstattung. a certain minimum level of resources, capabilities or competencies which is needed in order to be able to compete in a market. Fähigkeiten, Ressourcen und Kompetenzen, die ein Unternehmen mindestens zu einem gewissen Grade besitzen muss, um auf dem Markt wettbewerbsfähig zu sein. (TNC) enterprise comprising entities in more than one country which operate under a system of decision-making that permits coherent policies and a common strategy. Unternehmen mit Einheiten, die in mehr als einem Land angesiedelt sind und die alle unter einem System der Entscheidungsfindung betrieben werden, das einheitliche Grundsätze und eine gemeinsame Strategie zulässt. (UAI) one of the cultural dimensions defined by Hofstede. It measures the intolerance of ambiguity in society, or in other words: the extent to which the members of a culture feel threatened by unknown or ambiguous situations. Cultures with low ratings (weak uncertainty avoidance) see uncertainty as a normal feature of life, are tolerant of chaos and like unfamiliar situations. Cultures with high ratings (strong uncertainty avoidance) see uncertainty as a threat and thus feel uncomfortable in unfamiliar situations and are in need of precision and rules. Eine Kulturdimension von Hofstede. Diese Dimension misst, wie eine Gesellschaft mit Unsicherheit umgeht oder wie bedroht sich die Menschen einer Gesellschaft von unbekannten oder mehrdeutigen Situationen fühlen. Kulturen mit niedrigen Werten (schwache Unsicherheitsvermeidung) sehen Ungewissheit als eine normale Eigenschaft des Lebens an. Ihre Mitglieder haben eine tolerante Einstellung zu Chaos und mögen ungewöhnliche Situationen. Kulturen mit hohen Werten (starke Unsicherheitsvermeidung) sehen die Ungewissheit als eine <?page no="357"?> Glossary 357 Bedrohung an. Ihre Mitglieder fühlen sich daher in ungewöhnlichen Situationen unbehaglich und haben ein Bedürfnis nach Genauigkeit und Regeln. (compare: particularism) refers to the dilemma of cultures developed by Trompenaars & Hampden-Turner describing if the universal truth (expressed in rules, laws, codes and generalisations) takes precedence over unique relations. In universalistic cultures the application of universal principles would prevail over all other considerations. (vergleiche: Partikularismus) Bezieht sich auf eine Kulturdimension von Trompenaars & Hampden-Turner. Das zentrale Thema dieser Dimension ist, wie Regeln in einer bestimmten Kultur befolgt werden und ob sie wichtiger sind als besondere Beziehungen. In universalistischen Kulturen gelten allgemeine Gesetze und Regeln als unumstößlich, und die Notwendigkeit ihrer Einhaltung überwiegt alle anderen Gesichtspunkte. according to Porter, the value chain consists of an organisation’s primary activities executed to design, produce, market, deliver and support its products or services. An extended value chain view takes into account all processes needed to transform resources and thus also includes supply chain processes and all activities performed by suppliers and partners. Nach Porter besteht die Wertschöpfungskette aus den primären Aktivitäten der Organisation, welche ausgeführt werden, um die Produkte oder Dienstleistungen zu entwickeln, produzieren, vermarkten, liefern und ihre Nutzung zu unterstützen. Eine erweiterte Sicht der Wertschöpfungskette berücksichtigt alle Prozesse, die notwendig sind, Ressourcen in finale Produkte und Dienstleistungen umzuwandeln und berücksichtigt damit auch die Wertschöpfungsprozesse außerhalb der Organisation, die von Zulieferern oder Partnern ausgeführt werden. a) (when referring to people or cultures): broad tendencies to prefer certain endstates of existence (terminal values) and modes of behaviour (instrumental value) over others. Standards, which are used to assess own or foreign behaviour independent of the situation. People have a hierarchical order of values. b) in organisations, defined values facilitate decisions in cases where new opportunities arise and other statements do not provide suitable direction because they do not (explicitly) cover the affected aspects. An organisation usually chooses between three to five values and publishes them as part of its mission statement or as separate value document. a) (bezogen auf Personen oder Kulturen): generelle Tendenzen, ein bestimmtes Lebensziel (finale Werte) oder eine bestimmte Verhaltensmöglichkeit (instrumentelle Werte) persönlich und sozial anderen Lebenszielen oder Verhaltensmöglichkeiten vorzuziehen. Standards, an denen eigenes bzw. fremdes Verhalten situationsübergreifend gemessen wird. Menschen haben eine hierarchische Ordnung von Werten. b) in Organisationen erleichtern festgelegte Werte die Entscheidungen in den Fällen, in denen neue Chancen auftreten und andere Festlegungen keinen passsenden Rahmen geben, da diese die betroffenen Aspekte nicht explizit beinhalten. Eine Organisation wählt normalerweise zwischen drei und <?page no="358"?> 358 Glossary fünf Werte aus und publiziert sie als Teil ihrer Mission oder als eigenständiges Wertedokument. overarching document that paints a picture about a possible and desirable future and explains what the organisation wants to have created or achieved by then. Übergreifendes Dokument, das die mögliche und gewünschte zukünftige Situation beschreibt und angibt, was ein Unternehmen bis dahin geleistet oder erreicht haben will. all intentional processes that regulate actions. This allows overcoming motivation gaps and finishing tasks with deliberate effort. Volition serves to suppress motives that do not fit to the (important) task at hand and to support goals and actions that are not facilitated by existing motives. Bewusste, willentliche Prozesse der Selbststeuerung, die das Handeln regulieren. Dies erlaubt, mangelnde Motivation zu überwinden und Aufgaben durch bewusste Anstrengung zielgerichtet zu beenden. Volition dient dazu, Motive, die zu einer aktuellen wichtigen Aufgabe nicht passen, zu unterdrücken und damit solche Ziele und Resultate zu unterstützen, die von aktuellen Motiven (kurzfristig) nicht gefördert werden. Dieser Prozess der Selbststeuerung erfordert die Überwindung von Handlungsbarrieren durch Willenskraft. a graphical depiction of cultural adjustment as seen in the U-curve with an added adjustment for repatriation. Modell, das den kulturellen Anpassungsprozess graphisch darstellt. Im Vergleich zum U-Modell wird die verwendete Kurve um die Phase der Rückkehr in die eigene Kultur (repatriation phase) erweitert. concept for designing the work environment with the goal to support different kinds of private life scripts: any organisational member should be able to achieve a comfortable state of equilibrium between his or her priorities of their employment position and their private lifestyle. Arbeitsumfeld- und Arbeitsbedingungsgestaltungskonzept. Das Ziel von Work/ Life Balance ist die Vereinbarkeit von Berufs- und Privatleben und damit die Unterstützung unterschiedlicher Arten von Lebensentwürfen. Jedem Organisationsmitglied sollte es möglich sein, ein angenehmes Gleichgewicht zwischen den Prioritäten des Beschäftigungsverhältnisses und denen des privaten Lebensstils zu erreichen. <?page no="359"?> Index 360° feedback 100, 101 A acculturation 160, 209 achieved versus ascribed status 65 acquisition 199, 204, 206, 207, 210 activity-based costing 215 adaption, stage of developmental model of intercultural sensitivity 43 adaption, type of change 108 adaption, u-curve stage 160 alliance 199, 201, 202, 206, 209 cross-border or international 200 strategic 200, 201, 202, 204, 211 ARIS 247, 248 arm’s length principle 218 assessment matrixes 287 assignment contract 159 assimilation, type of acculturation 209 B Baldrige Excellence Builder 288 Baldrige Excellence Program 27 BCG-matrix 135 benchmarking 130, 165, 231, 250, 291, 294 beyond budgeting roundtable (BBRT) 216 bribery 94, 95, 96, 220, 224, 238 brownfield investment 206 budgeting 215, 216, 217 business ethics 93, 94, 224 Business Model Canvas 137, 138, 139, 142, 144, 263 building blocks 137, 139 business process architecture framework 249 business process management (BPM) 245 business strategy 93, 136, 154, 155 C capabilities 25, 32, 101, 122, 129, 131, 152, 182, 216, 253, 284 distinctive 129 dynamic 129 necessary 129 organisational 129 threshold 129 capital lockup 214 career development 155, 158, 161 cash and liquidity management 214 change 107, 216, 233, 250, 252, 253, 256, 263, 282, 284, 296 agents 110 programme 108 programmes 110 type of 108 Change Study 2013 111 Chinese Value Survey 54, 74 company benefits 177 incentives 177 compensatory model of work motivation and volition 171 competence 38, 42, 96, 116, 129, 130, 155, 158, 167, 170, 176, 211, 222, 224, 231, 252, 253, 273 cross-cultural 26, 39, 41, 42, 60, 73, 160, 170, 172 hypercultural 170 intercultural 170 intracultural 107, 170 transcultural 69, 96, 170 competency 106, 110, 129, 130, 168 distinctive 133 profiles 168 <?page no="360"?> 360 Index competitive intelligence 121, 122 competitor analysis 121, 122, 144 compliance 95, 158, 218, 219, 220, 221, 222, 223, 224, 226, 229, 249, 251, 270 management 221, 222, 223, 224, 225 concept of time 66, 109 conflicts 43, 52, 216, 224, 256 dysfunctional 182 functional 182 intra-group 182 consensus meeting 289, 292 contractual agreements 199, 200, 201, 202 controlled conditions 245, 260 controlling 121, 144, 213, 215, 216, 217, 220, 238, 263, 282 core business types 143 customer relationship management 143 infrastructure management 143 product innovation 143 core competencies 25, 129, 130, 133 core rigidity 130 corporate finance 213, 217 corporate social responsibility 92 corruption 94, 95, 96, 125, 224, 225, 238 corruption perceptions index (CPI) 125 COSO I 219 COSO II 219 cost allocation 215 centres 215 elements 215 creation, type of acculturation 209 cultural adjustment 159, 160 cultural differences 25, 41, 42, 60, 68, 160, 179, 205, 236 cultural iceberg 42, 60 cultural shock 160 cultural-level theory 98 culture 22, 25, 30, 35, 41, 42, 43, 44, 45, 46, 47, 49, 50, 51, 53, 55, 56, 57, 58, 60, 61, 62, 63, 64, 65, 67, 68, 69, 71, 73, 74, 75, 76, 82, 85, 91, 93, 94, 96, 98, 101, 102, 103, 105, 106, 107, 108, 109, 122, 143, 147, 152, 153, 156, 158, 160, 174, 178, 179,183, 184, 188, 189, 190, 200, 206, 209, 210, 224, 225, 226, 229, 233, 234, 236, 252 organisational 82, 102, 103, 146, 163, 166, 167, 179, 180, 206, 209, 224, 229, 234, 294 customer feedback 263 satisfaction surveys 263 customer relationship management 143, 235, 238, 244, 261, 262 analytical 262 collaborative 263 operational 263 customer-centric organisation 261 dashboard 275, 276, 277, 278 data 60, 71, 74, 77, 100, 119, 121, 123, 124, 125, 126, 132, 144, 165, 204, 212, 214, 215, 225, 234, 238, 248, 261, 269, 271, 275, 276, 277, 278, 288, 289, 291, 293 data, in knowledge management 230, 231, 237 decision support systems 238 delivery and post-delivery activities 260 determining excellence survey 286 development 25, 28, 30, 42, 49, 88, 89, 92, 95, 97, 104, 107, 108, 115, 117, 122, 126, 129, 131, 132, 135, 137, 143, 145, 146, 153, 167, 204, 208, 211, 212, 213, 215, 227, 235, 237, 244, 252, 254, 256, 270, 272, 274, 275, 285, 294 developmental model of intercultural sensitivity 43 differentiation 25 dimension 35, 60, 70, 76, 82, 83, 98, 99, 185, 209, 231 <?page no="361"?> Index 361 dimension, cultural 46, 47, 58, 59, 71, 72, 73, 188 dimension, cultural by Hofstede 46, 47, 50, 51, 52, 53, 54, 56, 57, 74, 179, 184 dimension, cultural by Trompenaars & Hampden-Turner 60, 61, 64, 75 diversity 26, 32, 75, 91, 104, 105, 106, 107, 182, 190, 233, 238 management 106, 107 documentation 178, 186, 218, 247, 248, 255 drivers of motivation processes 170 due diligence 209 Duncker’s candle problem 178 E economies of scale 24, 25, 131, 143, 208 economies of scope 24, 131 effects of performance incentives 179 EFQM Award 295 Business Excellence Matrix 288 Committed to Excellence (C2E) 295 Excellence Assessment Matrix 288 Excellence Model 20, 27, 29, 30, 31, 32, 34, 35, 36, 42, 88, 98, 102, 111, 116, 117, 120, 147, 151, 154, 210, 211, 245, 254, 259, 262, 268, 269, 274, 282, 286, 287, 288, 289, 290, 292, 293, 294, 295, 296 Quick Check 286 RADAR logic 37, 269, 288, 290, 291, 292, 293, 294 Recognised for Excellence (R4E) 295 employee attitude survey 163 commitment 97, 163, 164, 183 engagement 96, 107, 163, 164, 172, 190, 193, 264 involvement 163, 181, 183 satisfaction 104, 162, 163, 164, 166, 181, 182, 184, 191, 228 empowerment 32, 102, 181, 183, 216 enabler map approach 293 enabler matrix 291 enquiry approach 293 enterprise resource planning (ERP) systems 238 environmental scan 116, 118 establishment chain 22, 23 ethical behaviour 32, 39, 42, 92, 93, 94, 95, 102 approaches of 94 empire type 94 foreign country type 94 global type 94 interconnection type 94 ethics 32, 83, 88, 92, 93, 94, 95, 117, 186, 224 event-driven process chains 247 evolution, type of change 108 exporting 23, 199 externalisation 211 extrapolation 126 F feedback 34, 82, 83, 87, 99, 100, 101, 119, 161, 162, 163, 165, 166, 167, 173, 174, 177, 178, 187, 189, 217, 237, 262, 263, 268, 272, 273, 282, 289, 290, 292, 293, 297 financial accounting 214, 215 financial management 213, 214, 215, 217, 238, 274 financial supply chain management 213, 214 five factor model 86 five forces model 122 forcefield analysis 109 forecasting 126, 215, 216 <?page no="362"?> 362 Index four corporate cultures 103 eiffel tower cultures 103 family cultures 103, 104, 180 guided missiles 103 incubator cultures 103 franchising 202, 203, 204 FREE as a business model 142 full range leadership model 85 G20 Anti-Corruption Action Plan of 2010 95 generation Y 192 generic strategy differentiation 141 focus 141 overall cost leadership 141 Global Competitiveness Report 124 global organisation 24, 30, 70, 107, 156 global strategy 24 Global Workforce Study 92, 96, 101, 107, 164, 165, 172 globalisation 21, 108 GLOBE study 71, 76, 98 goal-setting 177, 178 greenfield investment 199, 206 group dynamics 182, 210 groupthink 182 growth-share matrix 135 heroes, level of culture 45 Herzberg’s two factor theory 172 Hofstede onion 45 holistic management models 20, 27, 30, 32, 106, 254, 274, 298 human mental programming 44, 45 human resources 129, 198, 208, 212, 222, 249 hypernorms 94 IBM study 46, 52, 54 IDIC approach 262 IDW PS 980 224 implicit leadership theory 98 individualism (IND) 50, 75, 179 individualism versus communitarianism 63, 179 indulgence versus restraint (IVR) 58, 59 industry 24, 25, 103, 104, 119, 120, 121, 122, 125, 127, 130, 131, 134, 136, 141, 164, 179, 186, 199, 202, 204, 212, 219, 221, 225, 226, 227, 244, 250, 259, 269 information 22, 44, 50, 60, 75, 82, 101, 115, 119, 120, 123, 125, 126, 131, 132, 141, 146, 151, 162, 163, 164, 166, 179, 181, 182, 183, 186, 188, 198, 203, 214, 215, 219, 224, 227, 233, 234, 235, 236, 237, 238, 239, 246, 247, 253, 255, 260, 261, 263, 268, 269, 275, 276, 277, 278, 285, 288, 289, 290, 293, 294 documented 253, 255, 257, 260 information, in knowledge management 230, 231, 237 inner versus outer direction 68 inputs 115, 125, 129, 239, 245, 253, 256, 283, 285 insourcing 211 Institut der Wirtschaftsprüfer IDW 224 integrated network 25 integration 21, 24, 25, 28, 30, 36, 43, 93, 102, 106, 156, 210, 222, 233, 234, 277, 288 integration, type of acculturation 209 integration/ responsiveness framework 24 intercultural sensitivity 43 internal analysis 129, 132 internal audit 220, 221, 222, 253 internal service processes 249 internalisation 211 international management services contract 202 <?page no="363"?> Index 363 international organisations 25, 76, 95, 109, 132, 186, 187, 200, 228 internationalisation process 20, 22, 23, 36, 38, 81, 198, 200 investment management 217 ISO 31000 222, 225, 226, 227, 253 ISO 9000 245, 251, 261, 287 ISO 9000 family of standards 252 ISO 9001 37, 186, 222, 251, 252, 253, 261, 282, 285, 294 ISO 9004 2009 287 ISO 9004: 2009 251, 287, 288 ISO high level structure 223, 226, 252 ISO/ DIS 9001: 2014 230, 251, 252 J-form organisation 234 job characteristics model 173, 174, 181 JOHARI window 99, 100 joint ventures 199, 201, 204, 205 Kehr 171 3K-Model of Work Motivation 171 key drivers 127 key performance indicators 217, 250, 287 knowledge 22, 23, 25, 28, 36, 41, 43, 44, 49, 74, 126, 128, 141, 147, 152, 158, 160, 171, 173, 177, 179, 181, 189, 198, 200, 201, 203, 206, 208, 211, 212, 230, 231, 232, 233, 234, 289, 294 collective 231 conscious 231, 232 dissemination risk 199 explicit 231 individual 231, 232, 263 objectified 231 social 231 tacit 231, 232, 233, 234 KODE® enhanced atlas of competencies 168 KODE®X 168 process model 168, 169 leader-member-exchange approach (LMX) 87 leadership 28, 30, 60, 69, 71, 74, 77, 82, 83, 84, 85, 86, 87, 88, 93, 97, 98, 99, 100, 101, 102, 105, 106, 110, 111, 117, 163, 170, 172, 222, 253, 270, 332 competencies 107 culture 97, 101 feedback 101 Leitbild 89 level of sustainability 130 Lewin’s three-step model 109 licensing 142, 199, 200, 203 agreements 202 liquidity management 214 long-term orientation (LTO) 54, 55 machine bureaucracies 233 make or buy 211 Malcolm Baldrige National Quality Award (MBNQA) 28, 297 management accounting 215, 217 management information systems 238, 275 management processes 210, 212, 236, 238, 249 management review 222, 253, 261, 282, 285 masculinity (MAS) 46, 51, 52, 96, 179 Maslow’s pyramid of needs 172 mass customisation 263 McClelland 171 merger 75, 103, 109, 145, 206, 207, 209, 210 mergers & acquisitions (M&A) 206, 217 conglomerate 206, 207 <?page no="364"?> 364 Index horizontal 206 vertical 206, 207 mission statement 89, 90, 91, 117, 144, 145, 181, 186, 211 modelling 96, 126, 246, 247, 248 morality 93 motive 21, 22, 23, 71, 86, 170, 171, 172, 173, 174, 177, 178, 187 explicit 171, 172 implicit 171, 172 motives for internationalising an organisation 21 multinational corporation (MNCs) 23, 94, 96, 159, 166 multinational enterprise (MNE) 23, 218 multinational organisations 25 needs motivational 171 neutrality versus affection 63 OECD 122, 124, 191, 192, 218, 224, 226, 236 OECD Anti-Bribery Convention 224 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 95 OECD Fact Book 124 offshoring 211 ONR 49000ff 225 onshoring 211 operating adhocracies 233 operational CRM 263 operational planning and control 255 operations 24, 25, 28, 42, 54, 92, 198, 202, 204, 207, 210, 214, 215, 219, 221, 222, 237, 238, 248, 249, 253, 255, 257, 259, 260 outsourcing 90, 132, 211, 259 pay-for-performance system 63, 178, 179, 180 PDCA cycle 37, 222, 226, 252 people plans 155 performance dashboards 275 PESTEL analysis 122, 123, 124, 127 planning 67, 72, 101, 152, 161, 166, 167, 169, 215, 216, 217, 218, 222, 238, 253, 255, 256, 258, 264, 285, 286, 297 Porter 116, 119, 120, 122, 131, 140, 238, 249, 282 five forces analysis 119, 120, 132 expanded model 120 generic strategies 141 portfolio 24, 132, 134, 135, 164, 165, 198, 217, 226, 233 choice of location and market 134 power distance index (PDI) 47 process approach 252 process map 249 process models 247 processes 24, 25, 28, 34, 36, 37, 38, 70, 83, 93, 97, 102, 106, 117, 129, 132, 141, 146, 147, 155, 158, 177, 179, 182, 185, 205, 208, 209, 210, 211, 212, 213, 214, 215, 219, 220, 221, 222, 224, 230, 233, 234, 236, 238, 243, 244, 245, 246, 247, 248, 249, 250, 252, 253, 254, 255, 256, 257, 260, 261, 262, 263, 268, 272, 283, 284, 288, 293, 294, 298 core 245, 249 primary 249 value creation 249, 251, 253, 254, 255 products downstream 257 preliminary 257 upstream 257 professional bureaucracy 233 profitability analysis 215 psychic distance 22, 56 <?page no="365"?> Index 365 Q questionnaires 70, 73, 166, 263, 285, 286 R reconstruction, type of change 108 records 231, 238, 255, 271 re-entry shock 160 related diversification 136 repatriation 158, 160, 161, 162 resource-based view 116, 129 resources 21, 23, 24, 25, 34, 38, 95, 107, 109, 110, 116, 129, 138, 140, 147, 158, 164, 166, 172, 197, 198, 200, 204, 206, 208, 211, 212, 214, 215, 217, 222, 226, 244, 252, 255, 257, 260, 262, 269 intangible 129 strategic 129, 131 tangible 129 results matrix 291 reverse culture shock 160 revolution, type of change 108 risk 22, 23, 53, 87, 104, 131, 132, 144, 199, 200, 201, 204, 206, 208, 209, 214, 216, 218, 219, 220, 221, 222, 223, 224, 225, 226, 227, 228, 229, 230, 231, 238, 239, 249, 252, 253, 259, 260, 271, 283, 331 analysis 224, 226, 227 appetite 226, 228, 230 identification 226, 227 management 22, 30, 36, 107, 123, 218, 219, 220, 221, 224, 225, 226, 229, 230 management framework 219, 226 management process 226 management strategy 226 map 228 orientation of organisational cultures 229 treatment 229 rituals, level of culture 45 S S.M.A.R.T. 178 Sarbanes-Oxley Act 219 scenario 126, 127, 128, 216 analysis 126, 127, 128, 228 self-assessment 100, 283, 284, 285, 286, 287, 288, 293, 295 process 283, 285, 286, 297 tools 284, 285, 286, 288 separation, type of acculturation 209 sequential orientation 68 seven dimensions of culture 60 single-business organisation 136 skills 167, 168 social benefits 190 loafing 182 pressure 55, 103, 182 SOX 219, 224 specificity versus diffusion 64 St. Galler management model 27, 28 stakeholders 27, 31, 32, 34, 42, 82, 83, 87, 88, 89, 90, 92, 101, 102, 106, 108, 110, 115, 118, 119, 120, 121, 137, 146, 212, 215, 222, 237, 256, 268, 269, 270, 273, 274, 286, 287, 290, 292 stereotypes 43, 61, 73 strategic choice cascade 284 strategic relevance/ competence matrix 211 strategy 25, 28, 34, 35, 36, 37, 38, 54, 74, 90, 96, 108, 115, 116, 117, 118, 119, 121, 122, 125, 126, 128, 130, 132, 136, 137, 139, 143, 144, 145, 146, 147, 151, 152, 154, 155, 284, 292, 294, 296 corporate 136 levels 136 management processes 116 process 135, 143 <?page no="366"?> 366 Index supply chain 213, 227, 254, 257, 258, 259, 260 processes 257, 258 supply chain management 258 systems 238 support processes 249, 253 swim lane diagram 247 SWOT 132, 133 synchronic orientation 68 synergies 131, 182, 207, 208, 209 task flow diagram 247 team 49, 52, 71, 86, 88, 90, 91, 98, 104, 106, 107, 133, 138, 139, 144, 146, 155, 158, 162, 169, 173, 174, 179, 180, 181, 182, 183, 207, 216, 231, 234, 236, 283, 284, 285, 289, 292, 293, 294, 296, 297 self-directed 181, 183 transfer pricing 217, 218, 219 transnational centre of excellence 70 transnational corporations (TNCs) 23, 204, 205, 207, 213, 214, 217, 218, 275 transnational enterprise (TNE) 23 transnational organisations 25 Transparency International (TI) 94, 95, 125 treasury management 214 Trompenaars and Hampden-Turner dilemma framework 60 u-curve 160 UN Convention against Corruption 95 uncertainty avoidance index (UAI) 53 understanding 231 United Nations Conference on Trade and Development (UNCTAD) 124 universalism versus particularism 61, 70 Uppsala model 22, 56 validation 257, 260 value chain 32, 102, 119, 131, 132, 133, 141, 202, 206, 207, 211, 246, 249, 254, 258, 259, 260 analysis 131 values 28, 32, 42, 44, 46, 54, 55, 57, 60, 61, 62, 69, 70, 71, 74, 88, 89, 91, 93, 96, 98, 102, 117, 137, 153, 163, 164, 166, 168, 170, 174, 210, 211, 212, 234 values, level of culture 45 verification 257, 260 vision 30, 32, 39, 67, 88, 89, 106, 110, 117, 244, 245, 298 volition 170, 171 w-curve 159, 160 wholly-owned subsidiaries 199, 200, 205, 206 wisdom 231 work culture 163, 173, 181, 190 environment 163, 164, 175, 190 groups 30, 182 work/ life balance 32, 190, 191, 192, 193 workshop approach 293, 294, 296 World Development Report 123 World Economic Forum 124, 128, 228, 335 World Investment Report 124 World Values Survey 55, 58 <?page no="367"?> Wilhelm Schmeisser, Dieter Krimphove, Claudia Hentschel, Matthias Hartmann Handbuch Innovationsmanagement 424 Seiten, Hardcover ISBN 978-3-86764-421-1 Wie wird die technische Entwicklung der nächsten Jahre aussehen? Welche Erfindung bringt welche Wettbewerbsvorteile? Fragen wie diese sind für Entscheider in Unternehmen überlebenswichtig. Es gilt, in enger Zusammenarbeit mit der Wissenschaft die Ideen und Produkte hervorzubringen, die im Markt der Zukunft bestehen können. Die Qualität des Innovationsmanagements entscheidet heute mehr denn je über den unternehmerischen Erfolg. Das »Handbuch Innovationsmanagement« erleichtert den Einstieg in das Thema und beleuchtet es aus unterschiedlichen Perspektiven. Forschung und Entwicklungsmanagement werden ebenso erläutert wie das Innovationsmarketing oder die personellen und organisatorischen Rahmenbedingungen des Innovationsprozesses. Für die Zukunft gewappnet www.uvk.de <?page no="368"?> www.uvk.de Verhandeln wie professionelle Ein- und Verkäufer Der Erfolg gibt ihnen Recht: die Everest-Methode von Jörg Pfützenreuter und Thomas Veitengruber ist bei Konzernen und Mittelständlern gleichermaßen gefragt. Seit Jahren coachen sie Vertriebler und Einkäufer und lassen die eine Seite in die Karten der anderen schauen. Am Ende entscheidet die strategische, taktische und psychologische Raffinesse, wer als Sieger vom Verhandlungstisch aufsteht. Ein Buch für alle, die im Einkauf oder Vertrieb arbeiten und ihr Verhandlungsgeschick um den alles entscheidenden Gipfelmeter voranbringen wollen. Jörg Pfützenreuter, Thomas Veitengruber Die Everest-Methode Professionelles Verhandeln für Ein- und Verkäufer 2015, 230 Seiten, flex. Einb. ISBN 978-3-86764-549-2