Yearly Archives: 2015

October is the month in which organizations large and small begin their strategic planning activities for the next year.  For companies expanding overseas or looking to increase their financial performance in specific industries “Gross Domestic Product” or GDP, is a frequently used metric measure.  GDP is broadly defined as the total value of production within a country’s boundaries.  GDP is a useful measure of a country’s economic health, but there are some caveats to consider, particularly when thinking about foreign direct investment (FDI) in specific countries.  Using only the general measure of GDP may not be as accurate a measure of economic health as would be uncovered in more substantial research.

For example, GDP is not designed to measure economic inequality, living standards, health, environmental pollution, and home worker output.  GDP also does not measure whether or not the output is produced by a small number of wealthy individuals or produced by the entire population’s efforts.  GDP does not tell you if the output is the result of multiple industries or the result of only a few industries or natural resources.

For better strategic planning consider supplementing the GDP measure to include alternative GDP numbers such as Real GDP (GDP + Price Index); Net Domestic Product (NDP) (GDP-capital consumption allowance).  There are many macroeconomic ways to measure economic information, these are just two.

An excellent report to access is the 2015 Trade and Development Report from the United Nations Council on Trade and Economic Development.  We use this report at Birchtree Global, coupled with others to look at FDI trends worldwide.  It can be accessed from: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1358.  The report notes recovery in developed countries and challenges in developing/transition economies suggest the global crisis lingers.  The main concern is “insufficient global demand, combined with financial fragility and instability, and growing inequality.”  Early demand from our clients suggests continued expansion into Germany, China, India, Mexico, Ireland, the UK, Vietnam, Singapore, and Canada, coupled with growing interest in Cuba as a potential destination.  Cuba, for example, is one country that would use a variation of measures in addition to GDP to account for economic and social progress.

For additional information consider the following resources:

Chamberlin, G. (2011). Gross domestic product, real income and economic welfare. Economic & Labour Market Review, 5(5), 5-25.

The Economist.  (2015, October 13).  Money Talks: The GDP Conundrum.  The Economist.com.

The United Nationals Council on Trade and Development (UNCTAD).  Multiple resources.  (http://unctad.org/en/Pages/Publications.aspx)

A challenging activity at year end is strategic planning for the upcoming period.  Gathering and correctly interpreting information from multiple research-based sources increases planning accuracy.  Companies with current or future global markets for products and services will find the October 3, 2015 Economist Magazine special report on the United States in the world economy to be of interest.  While companies may find overall negativity in economic reports (weak global demand for products and services, drop in commodity prices, lower inflation, and anemic corporate performance) growth in specific countries and markets exist.  The option to leverage greater growth in foreign markets allows more choices than remaining fixed in only one country or market.  However the Federal Reserve Bank’s anticipated tightening may well disrupt emerging markets.  Those businesses looking to invest in emerging markets might review the Economist article as well as the most recent World Bank’s research reports.  Opportunities exist, but they require digging and research.

From the perspective of twenty-five years in foreign direct investment in developing countries, the rush to “develop” business operations in Cuba resembles a stampede of cattle.  But, as every cattle baron knows, the profitable way to drive cattle to market is slowly-so they don’t lose weight.  The stampede is really about first mover advantage.  Consider the pros and cons of first mover advantage when thinking about doing business in an emerging market.

First mover advantage is tricky.  Research shows it does not always result in financial or operational advantages.  First mover advantage may allow firms to develop meaningful relationships with government officials, develop franchise opportunities, and work with better employees.

However, first mover advantage is affected by timing, strategic choices, company resources, and investments.  These complex decisions are made by the business executives charged with managing market entry.  Market entry decisions made by individuals and groups of individuals in a company are ordinarily complex.  Managers select the best market entry processes based on something less than full knowledge.  When decisions are made in a rushed environment, without full knowledge of the political, economic, financial, human capital, and regulatory environment, first mover advantage disappears.  Effective managerial decision-making in market entry involves the way in which managers minimize transaction costs and maximize real option value creation.

New market entry is facilitated by developing meaningful relationships with government and financial officials, leveraging human capital capabilities, mutual education in cross cultural objectives, knowledge of legal rights and processes, and risk management.  Research suggests innovation by late movers can overcome first mover advantages.  There is a road map.  In emerging market planned economies, the political and economic environments are evolving.  As such advantages gained from a first-mover strategy may not be retained over time as the country evolves.

Successful first mover organizations entering these types of markets have developed a robust network of professionals to provide experiential advice and counsel.  Successful first movers develop good relationships with government and community officials.  Above all, successful first movers are well organized.  They have a well thought out strategy delivered across a strong communication and technology platform that links business activities to the customer.  Human resources, finance, and operations are cross-functionally connected across mechanisms such as lean or total quality management.  Training and continuous learning for home and host operations is embedded in the company’s DNA.

With developing markets in planned economies consider how China and Vietnam have developed into robust trading partners.  Both large and small firms have successfully created business operations of mutual value in these markets.  However, note until the Helms-Burton Act is overturned by the United States Congress, the Cuban market is highly restricted to United States foreign direct investment.  Now is the time to make haste slowly.  Get to market with your investment intact when it is legal to do so.

Birchtree Global has acquired a new learning management system (LMS) to facilitate information sharing between clients and our in-network business partners.   The objective of the program is to share the peer-reviewed research, webinars, podcasts, white papers, and pamphlets produced by our leading professional service firm partners.  This material incorporates both rigorous academic standards as well as applied business knowledge.  It allows our customers continual access to updates and information on legal, financial, tax, and human resources global business subjects.  It allows our in-network business partners a way to stay in touch with their Birchtree customers.

The new LMS will give Birchtree an expanded delivery platform and include multiple options for training and organizing in the virtual classroom. Individual training programs can be configured for online learning, independent learning, and group discussions.  Materials can be used with embedded videos, text, books, podcasts, tests, and quizzes.  Live streaming video of the instructor and students is a helpful feature.  Participants can ask questions of the instructor, each other, work alone or in teams.

Our clients will benefit from this expanded LMS which offers much more connectivity with the instructor and material than older webinar technology.  Clients will be continually updated on specific business themes, rather then falling behind in their global knowledge.  If you would like to see a demonstration of the LMS or learn more, please contact us at information@birchtreeglobal.com.

Abstract:

Have you seen the effect of negative organizational politics in your business?  Most of us see politics as part of the business environment.  What most people don’t realize is the structure of the organization has much to do with the nature of politics, positive or negative.  As a result, you can evaluate the structure of an organization and its effect on the internal political environment.  Outlined below is a summary of what causes negative organization politics and what you can do to change a negative political dynamic.

Context in Leadership, is important (Day & Antonakis, 2012). A model for working with politics in large multinationals might not be as effective when working in smaller consultancies (Smeltzer, Fannagry, & Butterfield, 1989). As such, this paper focuses on organizational politics in smaller, global, businesses. To create a workable theory for managing organizational politics in this type organization, the role of corporate culture in high-performing businesses and the leadership style of the executive are considered. Specific determinants of corporate cultures effective in reducing negative politics are described. Critical pathways necessary to deliver business strategy and financial performance with an absence of negative politics are suggested. The alignment of human resources compensation, performance management, and training infrastructure is stressed. Finally the importance of linking the communication and technology platforms to improve internal communications, is discussed. The resulting analysis builds to a model of organizational infrastructure that promotes a positive political environment. The individual and corporate implications of this model are suggested.

Corporate Culture in a High Performing Small Global Consultancy

Major issues facing organizations in the 21st century include globalization of products and markets, uncertainty and risk, financial market interconnectivity, workforce demographics, organizational infrastructure responsiveness, uncertainty, and risk management (Lloyds of London, 2013; Luftman, et.al 2004; Ogrean & Herciu, 2014; Shittedi, 2014; Wren, 1995). In this environment, successful organizations develop fast, friendly, focused, and flexible customer-centered infrastructure (Kotze, 2002). Organizational politics are neither inherently good nor bad, but positive political cultures improve strategic decision making and organizational performance (Simmers, 1998; McDonagh & Umbdenstock, 2006). Thus, analyzing corporate culture to determine the role of organizational politics in achieving or impeding success in the global market offers a starting place to develop a positive model of organizational politics. Components of corporate culture that create or imped organizational politics include the underlying leadership style, moral and ethical guidelines, and organizational structures (McDonagh & Umbdenstock 2006).

In smaller, global organizations, the actions of the leader are very visible. The leadership style of the executive decision maker affects the organization’s political environment (McDonagh & Umbdenstock 2006). Because global organizations work in multiple countries and cultures, an adaptive theory of leadership is more helpful than non-adaptive leadership styles in creating harmonized cross-border transactions. For example, Hofstede’s cross-cultural theory of leadership addresses the effect of cultural differences on leadership (Hofstede, 1991). Understanding cultural differences help a leader adapt his or her style to one most effective in a particular situation. For example, knowledge of collectivism vs. individualism is helpful in managing groups and knowledge of power distance helps leaders adjust their style to the group dynamics (Hofstede, 1991).

The contingency theory suggests organizational need dictates organization management (Nahavandi, 2006). This theory has the advantage of adapting to circumstances. For example, people do not always know what they want or need or have the experience or expertise to identify it (Bera, P., Burton-Jones, A., Ward, Y., 2011).

Both Hofstede and contingency theory offer a deeper understanding of both differences in cultures as well as differences among individuals. Embracing and encouraging multiple perspectives under these collaborative theories reduces negative political behavior such as non-inclusive, non-participative, and non-welfare-enhancing political processes (Gotsis, & Kortezi, 2011; McDonagh & Umbdenstock 2006). Thus companies with leadership behaviors that embrace multiple differences in employees, customers, and constituencies offer an environment conducive to positive politics. However, these theories are of limited utility if the leader cannot physically organize the delivery of a multi-cultural workforce’s efforts toward customer satisfaction. The knowledge of global group dynamics is helpful, but infrastructure, particularly technology, communication, human resources, and a strategy/structure infrastructure is needed to link products and services to customers.

Moral and Ethical Guidance

Legal, moral, and ethical guidance is available from multiple sources such as the United States Foreign Corrupt Practices Act (FCPA), the United Nations Office on Drugs and Crime (UNDOC) which provide legal guidelines, information, and online classes to help organizations develop skills in global ethics and compliance (Department of Justice, 2015; United Nations, 2015). A framework for integrating a corporation’s legal and ethical position into a cohesive and well-understood set of guidelines for employees facilitates decision-making when the optimal decisions are not clear. Many multinational organizations use ethics training to align employee and managerial behaviors with the legal requirements of cross-border transactions (Walmart, 2014; Bank of America, 2014). Clarity as to what constitutes positive employee performance reduces the development of a negative political environment (McDonagh & Umbdenstock, 2006).

Political behaviors increase when corporate rules, employee behaviors, and consequences are not well aligned. Organizations in which clear ethical guidelines guide the executives reduce the tendency of employees to engage in negative politics (McDonagh & Umbdenstock, 2006). Employers who publish clear guidelines in mission and vision statements, coupled with effective communication from senior executives, reduce negative internal politics and create a strong positive culture (McDonagh & Umbdenstock, 2006; Sadri & Lees, 2001).

Organizational Structures Facilitating Positive Political Environment

Organizational structures facilitate or impede company politics. Hierarchical organization structures in small organizations may make it difficult to work collaboratively and respond quickly to clients and customers, A star organizational design where each has multiple connections with others, people talk to one another, information flows freely may work well in smaller organizations where consulting tasks are complicated (Bolman & Deal, 2013). In this type of organization, morale is usually high, but well-developed communication pathways and skills are necessary (Bolman & Deal, 2013). Business cultures fostering high performance, customer satisfaction, and limited negative politics show higher levels of collaboration, coalition building, focus on scholarship/expertise, and a higher degrees of member collaboration (Chase, 2002; Dahlgaard, & Park, 1999; Sadri, & Lees, 2001). All of these actions are positively aligned to better financial performance (Kotze, 2002).

In summary, positive political behavior in small, global, organizations is fostered by an inclusive corporate culture that promotes a collaborative environment, clear ethical guidelines with leadership modeling, and a focus on scholarship. These qualities also facilitate organizational performance in a global environment (Kotze, 2002).

Delivery Framework

A balanced scorecard approach aligns critical components of organizational performance, provides an easy-to-understand planning document, and serves as the foundation of individual and team performance management (Kaplan, 1992). Other performance enhancing management tools include lean key performance indicators, leader standard work, and individual hoshin programs (Choi, Kim, Byung-hak, Chang-Yeol, & Han-kuk, 2012; Mann, 2010). These two approaches build on the need to align strategy with tactics and organizational infrastructure, drawing a clear line of sight between business strategy and a structure to facilitate implementation. These processes focus on team, and individual accomplishments tied to specific organizational metrics (Dysvik, & Kuvaas, 2013). Improving employee satisfaction and reducing negative political behaviors can be a result of team and supervisory activities enriched under a lean or balanced scorecard system (Dysvik, & Kuvaas, 2013). These management tools provide an easy way to show employees the importance of individual and team efforts to achieving business strategy (Mann, 2010). Keeping the organization focused on customer satisfaction, as does lean and a balanced scorecard, helps reduce the type of negative politics that occurs when the objectives of the business are unclear (Boateng, Agyei & Louis, 2013).

Communication and Technology

Strong technology and communication platforms facilitate internal and external communications providing additional links between strategy and employees. If leaders and followers are tightly connected through the use of strategically designed, technology-enabled, infrastructure, consistency in customer satisfaction will be enhanced (Luftman, 2004).

Uncertainty can arise when communication channels are not clear. Facilitating and developing a knowledge sharing system is another critical organizational competency in a fast-paced, global business (Hunga, Durcikova, Laia, & Lina, 2011). Development of a positive political, corporate culture must take into consideration cultural development using teams. Because of the cost of flying people to centralized meeting locations, limited office space, and traffic problems, virtual teams are becoming very popular (Nyaanga, Ehiobuche, & Ampadu-Nyarkoh, 2013). Facilitating a telecommunication culture, however, must include having a strong technology infrastructure and culture of cooperation (Nyaanga, Ehiobuche, & Ampadu-Nyarkoh, 2013).   For example, if a company cannot communicate with employees because there are no scheduled employee meetings, no technology to facilitate email communications, few opportunities for Skyping, or other technology-enabled processes, the organizational objectives are hard to grasp. Negative politics flourish in an environment when both organization and personal goals are uncertain (Boateng, Agyei & Louis, 2013).

Human Resources, Global Teams, and Internal Stakeholders

Linking business strategy with human resources strategy increases organizational performance (Shammot, 2014). Human resources strategy and infrastructure, particularly in compensation, performance management, and training, ensures consistency in workplace management and improves organization performance (Brinkerhoff, 2005; Mann, 2010; Martínez-Jurado, Moyano-Fuentes & Pilar, 2013; Shammot, 2014). Providing a consistent message to employees in human resources actions reduces the environment for negative politics (Boateng, Agyei, & Louis, 2013; Miller, Rutherford & Kolodinsky, 2008). One of the most frequent contributors to negative politics is the perception that performance management and compensation decisions are not made on merit (Boateng, Agyei, & Louis, 2013). In creating a model to support positive organizational politics, carefully linking compensation and performance management decisions to business strategy and rewards based on merit, enhances transparency (Boateng, Agyei, & Louis, 2013). Chase (2002) noted organizations without clear performance management criteria, foster negative political behaviors. Thus organizations with transparent, clearly defined human resources infrastructures (particularly in compensation and performance management) linked to business strategy have engaged and connected employees (Miller, Rutherford & Kolodinsky, 2008) which reduce the environment for negative politics.

External Stakeholders

Global organizations, by definition, work with diverse populations as well as with external stakeholders. External stakeholders are affected by organizational politics. Global businesses operate in local environments where there is diversity in local institutions, local rules, varying socio-economic conditions, and multiple stakeholder (Rodriguez, Siegel, Hillman & Eden, 2006). If the organizational environment is one of confusion and mistrust a negative political environment is generated which affects organizational performance, customers, suppliers, stockholders, and the community. To sustain the corporation economically and socially, global businesses must understand and manage their relations with local officials, foreign country requirements (Rodriguez, Siegel, Hillman & Eden, 2006).

Conclusion

In conclusion, a model for positive organizational politics starts with leadership. The leadership style of the executive decision maker affects the organization’s political environment (McDonagh & Umbdenstock 2006). Leaders embracing an inclusive leadership style set the stage for a mutual dialog where differences are acknowledged and respected. It is not enough, however, to have an inclusive philosophy of leadership. Because in a global world the answers may not be readily apparent, an ethical framework of decision making supported by clear vision, mission, and values statements, and continual training, help managers, and employees make good decisions. Philosophy and ethics, however, do not provide a business framework over which to manage a global organization. A customer centered, lean or balanced scorecard framework over which to organize business efforts towards customer satisfaction must be in place. This results in a clearer line of sight between the organization and the customer which reduces negative political actions that arise out of uncertainty, confusion, and bad communication. Good communication practices across strong technology platforms eliminate a cause of negative politics. Linking human resources infrastructure in compensation and performance management with business strategy, where management decisions are based on clear guidelines, talent, and skills enhances transparency, an important element in a positive political environment. Finally, a negative political environment in a corporation affects the way both internal and external stakeholders are served. Negative organization politics arise out of uncertainty, lack of trust, and confusion, which reduces the ability of business to serve employees, customers, and their communities.

These components result in a model of positive politics that make it easy to communicate across organizational boundaries, increase trust, communication and focus political behavior into effective, goal-oriented, customer focused processes, and structures (Gotsis & Kortezi, 2011). Individuals can use this model of positive political processes to gauge the potential for negative politics in their organizations. Organizational leadership can use this model to assess the political health of their organizations.

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