Will you pass the 'culture' test?
| by Sir Andrew Likierman 10 Mar 2006 Topic: International business |
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Sir Andrew Likierman reports on the increasing importance of cultural awareness as a criteria for measuring business performance in today's global marketplace We take for granted that not everyone thinks in the same way. Yet, in many areas of business life, assumptions are often made that ignore major cultural differences around the world. Taking account of these differences is important in understanding what we can learn from others, to help work with those from other cultures in our own organisation and to help in our dealings with customers, suppliers and business partners. Globalisation has added another, more urgent reason. Finding an Italian company marketing directly to your key customers - promising faster delivery than you can offer - brings it close to home. But globalisation is also providing corresponding opportunities, from diversifying from the home market, outsourcing routine tasks to India or starting a joint venture in Mexico. Recognising these differences is particularly important in the field of performance measurement, and accountants have an important role to play, both in helping to take the opportunities and in responding to the threats. Good accountants will be ahead of changing needs in being able to arrange the necessary financing in multiple currencies and in using more complex financial instruments. They will also be able to contribute in the analysis of the risks and rewards of buying, selling or outsourcing in other countries. But a good accountant can become a great member of the senior management team by helping colleagues to understand how customers, partners, suppliers and competitors think about performance, as companies and individuals. This determines the way these organisations make decisions, including the timescale of required returns and their approach to risk. Without understanding what others are thinking in negotiations or doing in the marketplace, the company’s ability to take opportunities and react to threats will be seriously disadvantaged. It’s always difficult to put oneself in the shoes of someone in another country. There’s an obvious temptation to believe that, although institutions are different, managers in other countries make the same assumptions as we do. It’s a temptation to resist. To illustrate why, let’s look at three examples, covering performance at the level of the individual, a management technique inside the organisation, and for the organisation as a whole.
1. The individual Writing in English, it’s easy for me to assume that, because you are reading this in English, our common language means that we approach issues in the same way. But closer examination reveals important differences. To take a very straightforward example, the management of a British company, customer or supplier may be motivated far less by financial reward than a similar US company. Studies of corporate culture over the years (1) have illustrated how great are the contrasts between countries on matters as basic as personal motivation. The differences in attitudes and approaches cover many aspects of management. For example, Trompenaars and Hampden Turner (2) reported that, when asked “how far do you believe that what happens is within your own control”, 40% in China answered that they did, compared to 50% for Russia, 60% for India, 75% for the UK and 80% for the US. Differences also include the way people work, such as the role of the individual within the group, and include assumptions about values, such as whether it’s known what other people in the organisation are paid. Another key area for the individual is the way in which budgets and targets are set in responding to uncertainty. Here, the findings don’t always conform to preconceptions. In identifying differences between cultures for “uncertainty avoidance” (so not just for budgets and targets), Hofstede (3) identified major differences between nations, with such countries as Greece and Japan having strong avoidance characteristics, and countries as diverse as Denmark, Malaysia and Singapore having weak ones. Hofstede’s methodology can be (and has been) questioned, but it’s difficult to argue that differences should be ignored. What’s important is that accountants should understand these differences when dealing with, or responding to, companies or their managers in other countries. That doesn’t only apply to their approach to budget setting. It’s also important in helping to understand why performance is regarded very differently across the world and, therefore, how any incentive system should be set up. 2. A management technique inside the organisation The balanced scorecard first appeared in the US in the early 1990s (4), but has not been much taken up in France. This could well be because a very similar concept - the Tableau de Bord - has been in use in France since the 1930s(5). But while superficially there are many similarities, a recent article (6) explains some crucial differences. The article makes clear that the balanced scorecard is underpinned by a US way of thinking about openness, clarity, hierarchy and the idea of fair contract. None of these is assumed in the Tableau de Bord. There is greater ambiguity, no dependence on hierarchy and the key role of a concept without parallel in the US - l’honneur. This is not quite “honour”, since in France it defines key relationships, with obligations and privileges. It means being able to operate with fewer formal rules and greater claims to autonomy. It is these key differences that probably explain the lower takeup of the balanced scorecard in France. More importantly, it illustrates how just translating the words is not enough to understand the behaviour of a French partner or competitor. The understanding of cultural differences applies not only to decisions about what performance systems to put in, but how they are applied. A recent article (7) showed how a system of linking performance and pay, introduced by a Norwegian multi-national after being adapted to the Norwegian culture (“less sharp-edged and more social democratic”), was subsequently modified to reflect less “Norwegianness” and more of the varieties of the cultures to which it was applied. 3. The organisation as a whole Last year, a furious debate broke out in Germany when a politician described a number of international financial institutions, led by Goldman Sachs, as “swarms of locusts that fall on companies, stripping them bare before moving on” (8). Underneath the emotive language this turned out to be a debate about whether shareholder value was a suitable model for a country with a tradition of taking account of all stakeholders, and about whether the state should intervene when companies get into trouble. Germany is not the only country having this debate. Indeed, apart from the multi-national giants, companies in much of the rest of the world are dominated by a stakeholder approach or by the priorities of a controlling family. In understanding how to deal with companies as suppliers, customers or competitors, it is essential to realise that they may have a quite different idea of what success means. They may be willing to wait longer for a return on investment, or be unwilling to give primacy to the shareholders at the expense of employees or government interests. These non-shareholder priorities are made possible because, in most markets, it’s expected that companies take account of wider stakeholder interests.
Implications The implications for accountants is that different institutions or a different language are not necessarily the most important barriers to doing business internationally, or of understanding what foreign competitors are doing. You may need a guide to capital markets or a translator. You will certainly need to be well-briefed on what motivates companies and their managers. This does not mean stereotyping, or even assuming that everyone in a country thinks and acts the same way, any more than it can be assumed that all managers in your own country are the same. Considering outsourcing to India? There are a huge variety of cultures and languages within the subcontinent. Indeed, the need to avoid stereotyping equally applies to Europe, which is sometimes thought of by non-Europeans as having a common way of doing business. Stereotyping is dangerous for another reason. All countries are in transition culturally and, worldwide, the process of change has accelerated. Take the 10 states entering the EU in 2004. These are countries where EU accession has meant the transition from central planning in 15 years, and the pace of change continues to be dramatic as their economies adapt. So why do differences in approach to performance measurement matter more than other differences, such as marketing strategies or production techniques? They matter because techniques are the way the organisation puts into effect what it wants to achieve. They show only what is different. Understanding differences in assumptions about performance measurement help to explain why. It’s also important to distinguish between institutional and cultural differences in deciding how to respond. Take the example of boards. Countries have very different ways of organising board structures. Even within the EU there are major differences, including two-tier and unitary varieties. These differences are institutional, not cultural. The cultural aspects are what happens as the board does its business, including how open is the discussion. Conclusion The playwright George Bernard Shaw suggested: “Do not do unto others as you would they should do unto you. Their tastes may not be the same.” Not bad advice when doing business internationally. The impact of globalisation will only increase - understanding how others measure their performance gives us more opportunities to meet competition and to work better with business partners. It helps us to learn from the way others work. It even helps us to understand those from other cultures who work in our own organisation. In short, it helps us turn what could be a threat into a series of opportunities.
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