Wanted: good Russian managers

Issue Number: 
James Roberts

The shortage of qualified middle managers in Russia is hardly a unique problem. Other industrial nations have experienced similar crises in their history. In the United States, corporate chief executives in the early 20th century lost profits by failing to train competent managers. In Russia, the communist system didn’t need business managers, and so none were trained. The circumstances of each country may have been different, but the results were the same.

In 1921, the Ford Motor Company, and its popular Model-T, dominated the U.S. car market with a 55 percent market share, whereas General Motors (GM), including its popular Chevrolet model, had only an 11 percent share of the market.

Pierre du Pont, GM’s board chairman, then appointed Alfred Sloan CEO of GM and charged him with finding a way to make GM more competitive. Sloan had the idea to break GM into divisions that would each manufacture a different model car for particular segments of the market. Under Sloan’s scheme, GM headquarters would coordinate the work of the division managers from a distance. Managers would be left to decide for themselves how best to achieve the company’s goals.

Henry Ford, the founder, sole owner and unchallenged master of the Ford Motor Co., thought Sloan’s idea was doomed to failure. Ford thought that a successful organization needed one man at the top who would control everything.

Who was right? Henry Ford or Alfred Sloan?

History offers an answer.
While in the process of reorganizing GM, Sloan realized that his main difficulty was to find competent, independently-minded people who could make his idea work. He needed smart, well-trained managers. At the time, they were hard to find in the United States.

Alfred Sloan became a wealthy man and eventually gave a lot of his money to Stanford University to create the Sloan School of Business. In the 1920s and 1930s, he had sought out good managers with great difficulty. But in creating the new business school, Sloan was making it easier for chief executives who would come after him. He was helping to create generations of well-trained managers.

Now, what is the lesson for Russia?

Along with everything else, the management of Russian organizations has changed radically in the past 10 years or so. In Russian organizations today, finance and money matters. And successful, market-oriented firms require competent managers who are capable of making informed decisions. They also need to understand accounting, marketing budgets, job descriptions and incentive bonuses. They need to understand modern economics and finance.

Finding such people is no easy task in Russia. Russian firms, or foreign firms operating in Russia, face the same problem that Alfred Sloan faced in the 1920s. The Soviet Union had invested heavily in human capital, but in the form of technical skills, such as engineering and knowledge of foreign languages. Unfortunately, too few Russian managers understand market economics, finance and the basics of modern business decision-making.

Western business schools typically accept students with diverse backgrounds. The schools then teach business. And just how do you teach "business?" Just as engineers pick and choose among theories of physics and chemistry, business schools pick and choose amongst theories of economics. Math isn’t required. Good economics, like business, is a social science.

In other words, Russia needs better managers, more competent schools of business and more students who are willing to learn. The best students are probably those with practical business experience, perhaps some technical background, but little knowledge of economics or finance.

Students who decide to study business and management are making a private investment in themselves, not to mention, an investment in the future of Russia.

Comments and questions can be sent to Roberts@touro.ru