I am in Kazakhstan. I have been invited to speak at a forum on how to make a holding company with 350,000 employees and assets of 100 billion dollars competitive in the global marketplace. The goal is straightforward enough: meet or exceed global indicators of success like EVA or ROI.
Here is an edited version of my ten-minute speech delivered at the Samruk Kazyna Transformation Forum in Astana on October 6, 2014, in the morning.
The Soviet Legacy in Management
Your honor Mr. Nazarbayev, President of Kazakhstan
Ladies and Gentlemen.
In order for Kazakhstan and Samruk-Kazyna to achieve economic results that meet world standards it needs to be market-oriented, flexible, innovative and aggressive.
What are the barriers to being one?
There is a common denominator to them all: the Soviet legacy.
What is the Soviet legacy? Three main components: Production orientation, witch hunt and command and control style of leadership.
The Soviet Union was not market oriented in its multi-year central planning.
Production was central to the system. So, for example, the sales unit sold what was produced. For the company to be competitive, it needs to have a marketing orientation, production to produce what the marketing department predicts the clients want or need.
As a result of this production orientation, the power structure in companies, at least the one we worked with, resides with the production function. Marketing departments are either non-existent or very weak. Thus the marketing orientation is weak too. That obviously affects results achieved in the competitive market environment.
The Witch Hunt
It is very interesting to watch a Russian manager, or a manager in any of the CIS countries we worked with, diagnose the problem. The solution to a corporate problem somehow always seems to deteriorate into finding the guilty party, nailing the culprit. That person personifies the problem although often the fault has nothing to do with any single individual, but rather is buried within the system.
As a result of this blaming culture, managers and workers are very compliant and keep a low profile. This impacts innovation, corporate flexibility, entrepreneurship…..and eventually culminates in poor corporate results.
Control and Command Style
If you sit in a meeting in Russia led by the top person in the organization, whether he or she is the president, the managing director or a director of a division, there is one common denominator: silence.
The top person in the hierarchy does all the talking. The rest are silent. Never a challenge to what he or she says.
Democracy was never a feature of Russia. Never in its history. So for people to challenge authority is not the appropriate thing to do. You can undermine it in the darkness, stealthily, but never in the open.
As a result of this management by fear, the attribution of mistakes to an individual and a diagnosis of a problem that ends as a witch hunt, it causes people to not stretch themselves; there is little motivation to excel; or emphasis on outstanding performance. The result is that being average is fine, and even then it pays to keep a low profile.
Transforming Companies in CIS countries
How to proceed?
First, create a safe environment for people to discuss problems openly and do so without attributing fault to any single individual. (The Adizes Syndag does that.)
Next, lead the group discussion with everyone encouraged and allowed to participate and contribute. This has to be done in a very disciplined way because once people who were never allowed to participate are given free rein, all hell breaks loose. It is like allowing depressed gas out of the bottle. The process of discussion must be highly organized and disciplined. (Phase 2 and 3 of the Adizes program do that.)
Next, we need to move power from production to marketing. With this adjustment, the organization becomes marketing oriented. (Phase 4, 5 and 6 of the Adizes program do that.)
Transforming organizations in a culture that has not known participation requires a systematic program where barriers to effective management are being overcome.
Thank you for your attention.
Ichak Kalderon Adizes
Dr. Adizes continues his presentation in the afternoon. The following is an edited version of his comments delivered at the panel session at the Samruk Kazyna Forum.
Your Honor, Mr. Nazarbayev, President of Kazakhstan,
Your Honor Mr. Massimov, Prime Minister of Kazakhstan
Mr. Sukeev , CEO of Samruk Kazyna
Ladies and Gentlemen.
This morning I presented some points about transformation of a company or society to achieve exceptional economic results and how it should be led without creating dysfunctional, destructive, conflicts which certainly can occur when change is present. And—it cannot be emphasized enough— transformation is ….change.
I could not do justice to the subject in the ten minutes allocated this morning so with your permission I would like to expand on what I said and describe the points in more detail.
The organizational or social culture that is necessary for smooth transformation, for effective change, is one of mutual trust and respect.
A participative system based on mutual trust and respect on the part of the different entities that comprise the organization produces transformation with minimal side effects. Without MT&R, change that is the essence of transformation, is painful, resisted, slow, inefficient and often ineffective. Instead of a horse being delivered as planned, a camel will arrive, a product of endless compromises as different people and interest groups maneuver to protect themselves from each other.
What is MT&R? What is “respect?” To paraphrase philosopher Emanuel Kant, respect means to recognize the right of other people to think differently. And that will happen when we accept diversity of opinion because it enriches us. We learn from it. We do not learn from people whose opinions and ideas are similar to ours. We learn from those who disagree with us and have something to say. And for mutual trust there must be faith in common interests.
Change is much easier when there is mutual trust and respect and it is difficult, painful without it.
MT&R is the foundation of democracy. Without mutual trust and respect between the different parts that comprise society, there cannot be a functioning democracy.
The best transformation is done in a democratically run organization where MT&R exist.
The role of leadership for a successful transformation then is to create and nurture a culture of mutual trust and respect for diversity; to integrate workers with management; and to integrate management within itself so it is on the same side of the street, so to speak. Unite the system so that it can jointly advance the changes the company needs.
If one asks any person, at random, what kind of leadership is called for to create such a culture, they would say democratic leadership to provide a behavioral model, to provide an example.
Are they right? It depends.
In countries that have never experienced democracy, never witnessed participative engagement in decision making, in such cultures, democratic leadership does not create democracy. It creates chaos and anarchy. Something akin to children who have never before taken responsibility for their actions and now are suddenly let loose.
Example? Look at Iraq. The West replaced Saddam Hussein, and the result is chaos followed by the Islamic Caliphate where dissent is punished by beheading. How did this IS movement grow so big, so rapidly? Because people in the region are used to dictatorship and will gravitate to what feels familiar, and oddly enough, as long as you comply, it feels safe because it is predictable. Plus, as I said this morning, many people with traditional, religious values resented, and did not want, the changes the West was installing. I know I am over-simplifying what is happening in Iraq because there are many other factors at play, but we should not ignore culture as an important factor in helping to undermine transformation.
Creating a democratic culture cannot be done democratically. It requires dedicated, committed, strong, unyielding leadership, to overcome resistance in creating such a culture. One might call it, a dictatorship.
To CREATE a culture of mutual trust and respect, to create democracy, requires having a disciplined process of interaction in decision making, which people do not necessarily accept easily. It requires having a common vision and values which could lead to the dismissal of people who do not share the vision and the values. It requires structural changes that impact people’s present interests adversely. To bring such changes requires dictatorial leadership because all these changes are painful, and if people are asked to accept them democratically, people will naturally object to the pain and turn them down or undermine them.
You do not create democracy democratically unless the ingredients of democracy already exist in that culture to begin with.
There is a problem in this prescription that leadership style clashes with what is attempted to be achieved. It requires leadership to be clear what the goals of the transformation are. Not for more control, but more control to eventually have less control.
Ichak Kalderon Adizes
 A Kazakhstan Sovereign Fund with 100 billion in assets and 350,000 employees.