After reading the heading, you would wonder why anyone in a privatized enterprise would suffer from ‘Battle-stress’ (corporate stress), ask what is corporate culture and where communication would fit into the picture!
Previous articles published (see ‘Further reading’ please)), discussed how state owned enterprises (with the intent to privatize), have to prepare through corporatization followed by commercialization (in that order). One assume that has been done, privatization took place and now the enterprise have to operate in private hands!
Let’s start at the top. Responsibility of an effective board of directors is to lay the foundation in which the privatized enterprise would wage the war out in the market place! Thus, the board is the creator and patron of the corporate strategy and governance frame work. A CEO (Field Marshal) appointed by the board, appoints commanders to do battle in the field. The commander is in charge of soldiers (human capital). A follow-up article contemplated business strategy, its nature and typical tactics which are the responsibility of the commander.
All matters considered (once you have read the suggested articles), one critical element is still outstanding. The element missing is that is of the soldier (human capital). How does corporate stress pertain to the lower levels of the privatized enterprise? Does corporate culture have to anything to do with corporate stress? Why is inward communication of critical importance in the privatized enterprise?
Privatization could not (or, is it should not) arrive and expect human capital to cope sufficiently. This is why corporatization and commercialization are two crucial phases to be completed to a full conclusion with visible effect and results, before eventually privatization takes place.
British soldier’s who survived battle in the East, and USA soldiers during Vietnam would share narratives about fear and uncertainty of the unknown terrain. Trained in their own countries often in semi-desert circumstances, they would find themselves later waging battles in jungles.
Later after wars, soldiers suffered from post traumatic stress! State owned enterprise employees could find themselves in a similar situation! Moving from a fairly protected business environment to a war zone could cause corporate stress.
Corporate stress is a way of working life. Question is how high it goes and could one differentiate stress levels at the different levels of the enterprise? As a general assumption, while no-one escapes corporate stress, the non-managerial staff on operational level would (in a sense more than the board of directors or commanders), experience corporate stress in the market place where an enterprise can be made or broken!
In previous articles mention was made how important it is for boards and commanders to understand the concept of ’empathy’. When the board gave life to a corporate strategy and commanders planned the battle, did they put themselves in the boots of their soldiers?
Often ineffective delivery or resistance by the foot soldiers is made out to be ‘my staff has the wrong mindset’. Effective boards and commanders should (if they are truly worth anything), ask themselves intelligent questions!
While corporate stress among human capital could have varied reasons behind it, it is important for boards and commanders to understand at least the following:
Is it possible lower level employees could experience disfranchisement? They could have had very little say in final decision-making regarding moving from a state owned enterprise to privatization. As a fait accompli, they are finding them in a workplace where it is different from what they are accustomed to. It could be drastically different!
Are the soldiers ill informed about, and badly trained for new work expectations? If highly intensive training (and re-training) and effective organization communication did not take place as part of corporatization and commercialization it would amount to a battle group sent on a mission unprepared and working on the wrong intelligence and battle plan.
The purpose of organizational communication is to inform human capital of the change ahead, get them to understand what is expected and promote participation. Later organizational communication in the privatized enterprise is discussed in more detail
Fear for the unknown and worse, the unexpected! Job uncertainty is part of private sector work life! It is unavoidable that privatization would have its casualties. There are ample examples where an ailing enterprise had to resort to retrenchment strategy, despite hard work by the human capital. Daily uncertainty would cause very high levels of corporate stress.
Feeling insecure in terms of new job expectations and performance targets! Casualties would depend on the necessary skills needed in the new market battle. It is highly unlikely that all existing skill would be retained or, on the extreme opposite of the continuum, all skill and knowledge would be retrenched. In between these two extremes, natural attrition and phasing out of posts would also be a possibility.
Either way, if the soldiers did not cope in the commercialised environment towards privatization, they are likely to fail dismally in the privatized one! There is very little protection in a free market for the entire enterprise itself, and its layers within. Layers as said earlier would be the board, executive and human capital!
Career tenure security is not guaranteed in a privatized enterprise! Besides employment laws protecting employee rights, not much recourse for human capital exists. Labour Unions and strikes might be a short term tactic, but once the dust of the protest has settled, it would be back to daily survival in the open market.
An upward attack on the layers above themselves could be declared disobedience in terms of stated employment standards, behaviour and performance requirements. Drastic disobedience would put employees at risk of losing their jobs immediately or, be declared redundant in due course. Personal files and records of disobedience do not always gather dust!
‘I (the employee) feel out of place and do not cope with the new rules! There are vast differences between the corporate habits of a state owned enterprise and private one (that follows business principles to the tee)! The new ‘way of doing’ is often highly complex and takes time to internalise. Internalization is granted very little time to show the expected results. This could result in a clash between state owned enterprise corporate habits (culture) and the habits required for the enterprise to survive and grow!
Corporate culture, in all probability, stands out as one of the most underestimated and misunderstood stumbling blocks to co-operative organizational behaviour one would find!
Lessons on corporate culture had been learned from mergers and acquisitions where one or more enterprises merge with the core enterprise. Or, the core enterprise acquires one or more companies as part of vertical integration. Even from joint venture with a specific life span.
It could may well be that there is synergy between the enterprise and companies on many levels of corporate and business purpose, technology and other capacity, to go to market war, but the corporate ideology as perceived by the employee at the lower levels , are not aligned.
Energy and capital should be spent on integration of what is expected from top level and getting lower levels to understand and work accordingly. Ranging from outright resistance to willing, but often clumsy participation, eventually results in a non-conducive climate in the enterprise.
Corporate climate could be a barometer of what the level of satisfaction among human capital is. Non-motivation and low morale could affect performance.
Commanders know first hand how effective soldiers can be if the morale is high, equally the converse, if morale is low. This phenomenon was clear during World War II when the Germans had one after the other victories. Despite being a highly trained effective war machine, they later faced changing circumstances where their victories became less and pressure forced them to defend what was left (Berlin). Allied advancement to Berlin was the last straw! Desperation replaced morale!
In state owned enterprises now in new hands (owners or shareholders), you would measure corporate stress not only by productivity levels, but also general happiness and optimism among employees.
An accepted corporate culture would promote the right ‘mindset’. Mindset dictates to how effective the human capital would be in the open market. In wars soldiers knew war was not a game. They made peace with reality. Their task as soldier was cut out!
During wars conscripts were put through tough physical and psychological training to fit the profile of a soldier. They were civilians that had to be converted from behavior suitable to ‘civvy-life’, to tough soldiers that was to meet testing war circumstances.
One could say that corporate stress and culture are two sides of the same coin. Then, if a new culture is required for the previously state owned enterprise, what is to be understood about corporate culture transformation as a starting point?
First matter would be to understand the ‘old culture’ and then shape the required culture. Often state owned enterprises are equated to ‘a fat lazy organization’! If at all true, this is not necessarily true at all levels of the enterprise.
Collectively, the enterprise could perhaps not meet productivity levels required by the challenges due to many reasons, of which external and internal political agendas, interference, blatant corruption by those with signing rights and bailout’s ‘(feeding the watchdog that always sleeps’), would be topping the list!
Experts might argue that benchmarking, planning, shaping and control of culture is difficult Even contentious! The point is, it is not only the only way out, this is possible!
Few enterprises started out with high profits and sustained high profits! Successful enterprises globally always credit their heritage and age for the success they have become. Fact is the ‘right’ culture evolves over time, costs energy and costs money! The latter is investment in very intensive training and reward for performance.
If the board of directors and commanders can not see this, then clearly they themselves landed in their positions fresh (or politically connected) and were not exposed to the growing pains of the enterprise.
What would be a typical approach to the ‘corporate culture’ matter?
Research! If one does not know the nature of the existing corporate culture, how would you adapt the culture? By way of a well designed ongoing research thrust one would benchmark culture in terms of patterns of cultural determinants (origins, history, age, business life cycle, leadership, decision-making, official and unofficial cultural web etc.).
During proper strategic planning the data will be considered, enabling decision-makers to define a coherent desired corporate culture which will drive strategy. Making assumptions about the desired culture without data based evidence amounts to thumb sucking and preconceived views, costing the privatized enterprise almost immediately and later!
A transition plan needs to be put in place to shape a desired culture. Ensure policies, processes, procedures and systems are designed not only to enable corporate and business strategies, but in addition to support and shape the corporate culture.
Reward positive response by internal stakeholders for complying with the plan or sanction those not adhering to it.
Review and ongoing change management will play an important part ongoing.
Culture transition should reflect in performance results! Control corporate culture by recognizing signals showing deviation from the decided ideal culture. This is another benefit of the recommended benchmark study. You will know what to look out for!
Privatization and culture change is simply a gigantic challenge. A state owned enterprise does differ fundamentally from the one it need to change to. Even enterprises already operating in the private markets have problems to cross the cultural divide after mergers and acquisitions.
To illustrate this point! A number of years back the author worked for the largest South African (SA) investment and insurance company in Africa, who after demutualization listed on the London Stock Exchange. Then already, one could have called the enterprise a player among large comparable enterprises on the globe!
This company had to switch from a mutual company to a listed one. At the stage of taking the decision to list, one could assume that in the eyes of the board, the cultural setup would not be problematic, as this enterprise had a very long history in the risk and investment industry.
At the time of demutualization the enterprise had four very large core lines of business: Risk, Investment, Pension funds and Property. One could analyze it in terms of being a unified enterprise with a unified corporate culture. While very much open to debate, the corporate brand and brand management behind the enterprise, was the biggest unifying factor. However, it was clear that each line-of-business had a unique business culture dictated by different market drivers and regulations.
Upon listing the enterprise wanted to present itself as a unified corporate to investors. They embarked on a corporate development thrust, but the cultural differences in the line-of businesses had the final say. Yet, in the eyes of the shareholders upon its listing, the company was one large business.
The lines-of-businesses were never unbundled. There was retrenchment of human capital to make the future holding company compliant with listing financial requirements (a specific level of profit).
This enterprise lost real and potential market share by closing structures that were actually creating new business and sustained existing business. They lost a skill base on field and executive level by cutting the wage bill. To this day it is debatable if this step was the right one. Divestment by this enterprise later is probably a guiding signal. Pension funds and growth in new business would also tell one a story! Perhaps also the share price value.
The decision was to acquire other financial services companies and invest in some. In many spots across the globe. These investments were made in diverse national locations.
The enterprise soon realized the problems cultural alignment could cause between the holding company in SA and foreign acquisitions. In some, they later divested!
In another SA financial services company (which they saw fit to establish a joint-venture with), they had to face the reality of corporate culture.
This joint-venture, and culture as a driving force or possible obstacle to restructuring, is discussed with the purpose to tap lessons and emerge with a few key recommendations.
As part of its growth strategy in SA and abroad, the holding company pursued a banking-assurance joint-venture with a top bank in the country (note ‘banking -assurance’ is known as ‘bancassurance’ in SA).
Aim of the banking-insurance venture was to establish a broader distribution network for investment and insurance products by manning banks outlets with financial advisors coming from the holding company.
Strategy from the top was sound.
The banking-assurance venture had scope (vision, mission and intent), business belief, a clear strategic goal, financial objectives, a horizontal integration strategy, an organizational-design to establish the banking-assurance structure and a resources sharing plan. All of these were set out in a well-documented strategic plan.
The venture went ahead, but with problems. Key staff moved on. Internal rivalry and turf wars occurred among sales staff. Indicators pointed straight to a clash of culture!
One should ask what went wrong. What are the lessons learned?
Assuming synergies without evidence (researched data) can lead to wrong decisions. Decision-makers who formed the joint-venture should have asked themselves how different could culture of an investment and insurance company, in comparison to culture of a bank really be! One venture partner was a supplier of investment and insurance products and the other of services and typical banking financial products. Both were from the financial industry. Hence, almost by default they must have been assumed these were sufficient synergies to make the venture work well from the outset.
Underestimating company culture as a possible obstacle can lead to problems. There was very little said about culture during the formation of the venture considering media coverage. If a culture audit of both enterprises was done, it will be interesting to see what the results were.
Boardroom politics might have been a factor. There might have been the matter of interest held, and ‘My way of doing things around here counts more’? The venture partners are two giant SA companies in their own right, which could have led to a power tussle. In some cases during mergers (and acquisitions or joint-ventures), companies with the majority of shares and more powerful executives might choose, and even impose their culture. Mistake! Resistance to an imposed culture is almost guaranteed!
Sufficient understanding of existing company cultures prior to merging or forming joint-ventures is very important. A lack thereof can lead to bad decision-making about the desired culture. Did the two companies really understand each-others culture?
In preparation for restructure decide on a culture shaping plan. In hindsight the decision-makers might acknowledge the lack of a proper benchmark, planning, shaping and control plan of culture for their banking-assurance venture.
After solving strategic and cultural obstacles the venture in later years became a ‘happy-marriage’ turning them selves into a strong profitable brand before parting, as a result of reviewing strategic direction.
Today the bank is on its own again. It bought out the stake the investment and insurance company held.
In many ways the joint-venture discussed set the tone for banking-assurance, today a very popular expansion strategy.
So particularly to a state owned enterprise, now privatized! What are the lessons could derive from the above? Here are a number of pointers:
New owners and/or shareholders should realise the uniqueness of buying a state owned enterprise. If a large company in the private financial sector battles to align corporate culture in his own country and in foreign countries, all from the same sector, then one can appreciate the complexity they face moving from semi-state to totally or semi-private! What would happen if the state holds the majority stake? Chances are high that nothing has changed. The state owned enterprise in name privatized, would continue on its old path.
New owners and/or shareholders should realise in preparation for culture shaping, a proper benchmark, planning, shaping and control plan is an investment in a ‘soon as possible’ new culture.
New owners and/or shareholders should realise what often took many decades to take shape, would not be re-shaped instantaneously. The cultural shift would take time. Will meet with resistance at levels. There will be a learning curve. Corporate climate and stress could reach boiling point. Therefore a culture changing strategy needs careful planning, bearing in mind that the market is fast and furious; and shareholders are waiting for dividends. Culture transition is not a military approach of ‘break and rebuild from scratch’. That is the nature of war!
New owners and/or shareholders should realise that reward for participation towards profit and personal reward would be a future investment.
New owners and/or shareholders should realise the potential of former state owned enterprise human capital to convert and develop into an asset. It would be senseless to embark on a ‘get rid and replace with new’. In wars old soldiers were re-employed for their skill and knowledge to serve on councils or become off field commanders. SA has many ‘old soldiers’ sided by the new order that can be recruited to fill positions.
New owners and/or shareholders should realise the critical importance of organizational communication to internalise the new way of doing things! External stakeholders, engagement and integrated reporting are often (and rightfully so, from a brand and reputation point of view), placed at top level in most companies. Reason being they have to answer to powerful stakeholders, such as inter alia, shareholders and governments. Hence, there is a powerful driver for solid external stakeholder engagement and communication! Yet, why is inward communication often neglected? The latter should be driven from the top with feedback from the lowest of levels.
Poor communication between command post, commanders and soldiers has led to battles ending in disaster! Pearl Harbour would to this day stand out as a case in point that changed the nature of wars. In preceding articles the critical importance of communication during privatization has been underlined.
Who in he privatized enterprise should draft a policy to almost enforce effective organization communication as a critical management responsibility?
To have the desired impact, the board of directors should be held responsible.
How difficult is it to understand the glue which keep the privatized enterprise intact, or put another way, the oil that prevents the war machine from seizing? It is easy enough to understand organization communication as the blood of the organization, which gives company strategies, structures, policies, processes and systems life.
Organization communication is closely related to organizational culture! Organization communication forms part and parcel of strategic determinants which shapes corporate culture, is a strong catalyst of corporate culture, and serves as a strong driver of corporate culture change.
You might find signs that all is not well in a privatized enterprise reading from low production levels , low motivation and morale, low unity as a company (synergy), coping with change and new developments (innovation) and integration. You would be able to feed all of this back to organization communication!
What are the organizational communication imperatives of the privatized enterprise? A few pointers:
The board of directors should be the point of departure! Do they understand what organization communication entail? How much value is attached to inward communication with internal stakeholders?
At any stage, was a communication audit undertaken to establish awareness, comprehension of, and participation in privatization. During complex strategic change (few are more complex that turning a state owned enterprise into a privatized one), a full organization communication audit will establish what the respective synergies and differences of communication cultures, communication climates and all relevant driving elements are!
Using results from such audit, an organization communication strategy will be drafted to run parallel with privatization, capitalizing on synergies within the former state owned enterprise and addressing differences.
Do not relegate organization communication in the privatized enterprise to a level to how well the channels of communication (e.g. the internet, meetings etc.) are working to get messages across or, how friendly people are talking to each other. It goes beyond the very basic skills needed to come over as an effective communicator. The board and executive should be able to use communication to get the soldiers behind the war effort and, inform them to follow certain instructions.
Weak and poor organization communication during privatization (and thereafter) could mean low awareness of the change, weak participation in the change, low integration into the corporate culture and ultimate failure of change.
During corporatization and commercialization, did the message get across strongly enough to the entire state owned enterprise to inform the different internal stakeholders of what is taking place, do they understand what is happening and do they participate?
If there is no research report available, then the privatized enterprise would have no idea how much the board of directors, executive management, general management, middle management, junior management, supervisors, professional support and advisory staff, trade unions, white collar employees, and blue collar employees know about privatization, feel about it and whether there is resistance or willing co-operation.
How can one have a corporate strategy in place but, not an organization communication strategy as a component? How can boards refer to bottom-down and bottom-up communication as part of corporate governance, risk plans and compliance if there is no clear organization communication strategy in place?
Organization communication strategy should be operating from top level all the way to the bottom and horizontally across divisions! This is a complex task which needs support at the top (board level).
At the top, if you engage in corporate strategy, business strategy and operational strategy planning, you need to bring communication strategy in from the outset! Where inward communication is ‘plugged in’ at a later stage you can expect weak alignment and the problems resulting from it.
One would venture to say In terms of underestimating the crucial role of organization communication driven from the top reaching all other levels, visit failed turnaround enterprises and ask employees and executives about the effectiveness of communication prior to, during and after the change!
Perhaps, finally, a lesson from war, tying privatization, battle-stress, corporate culture and organization communication into a coherent whole!
The lesson lies in the Siege of Leningrad which began 8 September 1941 which lasted 900 days. The Germans trapped 2.4 million citizens. One point two million Soviet civilians and 300 000 Read Army troops died. But, the city survived. This siege ultimately destroyed Nazi Germany.
The stress and trauma of both soldiers and civilians can only be understood by those that were in Leningrad. They were encircled by a powerful enemy who used starvation as a battle tactic, which led to the starvation of 178,000 Leningraders. The latter had to resort to their pets and eating wallpaper for the flour in the paste.
Nazi Germany thought it would be a swift victory as they were attacking in their own estimation ‘backward, semi-literate Soviet people that could not resist the onslaught of the technologically advanced, superior Germans’ as quoted from Trew and Sheffield, 2000. They miscalculated the ideological will of the people, in planning the siege,
Ideological will in a privatized enterprise can be shaped by corporate culture.
The existing human capital can be taught what it takes to survive out in the market place if the Leningrad they work for is under siege. Resistance to a new culture could be expected and be prepared for. Intensive training, reward and relentless organizational communication are the weapons of choice!
All that needs to be done is to get the message across!
Corporate strategy in State Owned Enterprises: Lessons from War to board of director and executives of corporatizing, commercializing and privatizing enterprises. [A workshop presentation].
Corporate strategy- website
Business War games: Barrie G. James. Penguin Books, (1984).
100-years of Conflict: 1900-2000. Simon Trew and Gary Sheffield. Sutton Publishing (2000)
Roodt holds a D.Phil. (in the study field of Organizational change management during economic change (commercialization and privatization; and, corporate communication), and has a diploma in Marketing management. He has completed a Program in Strategic Planning and Management and; Program in Investment Analysis and Portfolio Management. He completed subjects in corporate finance, corporate law, risk management and corporate governance. He has worked as a business consultant in strategic research, strategic planning, 유로247 business planning, marketing, corporate strategic stakeholder communication and service management in the corporate market and small business market, for the past 19 years. Roodt in his career gained experience in a number of sectors. Primary sector experience includes: Financial, Insurance, Public utilities, Local government and the small business sector. Secondary sector experience includes Banking and Service management