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               IMPLEMENTING STRATEGIES: MANAGEMENT ISSUES

OUTLINE

     The Nature of Strategy Implementation
     Annual Objectives
     Policies
     Resource Allocation
     Managing Conflict
     Matching Structure with Strategy
     Restructuring, Reengineering, and E-Engineering
     Linking Performance and Pay to Strategies
     Managing Resistance to Change
     Managing the Natural Environment
     Creating a Strategy-Supportive Culture
     Production/Operations Concerns When Implementing Strategies
     Human Resource Concerns When Implementing Strategies


OBJECTIVES

After studying this paper, you should be able to do the following:

1.    Explain why strategy implementation is more difficult than strategy formulation.
2.    Discuss the importance of annual objectives and policies in achieving organizational
      commitment for strategies to be implemented.
3.    Explain why organizational structure is so important in strategy implementation.
4.    Compare and contrast restructuring and reengineering.
5.    Describe the relationships between production/operations and strategy implementation.
6.    Explain how a firm can effectively link performance and pay to strategies.
7.    Discuss employee stock ownership plans (ESOPs) as a strategic-management concept.
8.    Describe how to modify an organizational culture to support new strategies.
9.    Discuss the culture in Mexico, Russia, and Japan.
10.   Describe the glass ceiling in the United States.


OVERVIEW

The strategic-management process does not end when the firm decides which strategy or
strategies to pursue. There must be a translation of strategic thought into strategic action. This
translation is much easier if managers and employees of the firm understand the business, feel a
part of the company, and, through involvement in strategy-formulation activities, have become
committed to helping the organization succeed. Without understanding and commitment,
strategy-implementation efforts face major problems.
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EXTENDED PAPER OUTLINE

I.      THE NATURE OF STRATEGY IMPLEMENTATION
        A. The Strategy-Implementation Stage of Strategic Management
               1. The strategy-implementation stage of strategic management is revealed in this paper.
               2. Successful strategy formulation does not guarantee successful strategy
                  implementation. It is always more difficult to do something (strategy implementation)
                  than to say you are going to do it (strategy formulation).
        B. Management Perspectives
               1. In all but the smallest organizations, the transition from strategy formulation to
                  strategy implementation requires a shift in responsibility from strategists to divisional
                  and functional managers.
               2. Management issues central to strategy implementation include establishing annual
                  objectives, devising policies, allocating resources, altering an existing organizational
                  structure, restructuring and reengineering, revising reward and incentive plans,
                  minimizing resistance to change, matching managers with strategy, developing a
                  strategy-supportive culture, adapting production/operations processes, developing an
                  effective human resource function, and, if necessary, downsizing.
               3. Managers and employees throughout an organization should participate early and
                  directly in strategy-implementation decisions.

Tip: The Center for Strategic Management {http://www.csmweb.com/} is an organization that
provides strategic-management training, seminars, and facilitation services. This site also provides
links to other strategy-implementation related sites.

Tip: A good example of a strategic plan, including material on strategy implementation, is available at
{http://www.cc.nih.gov/od/strategic/index.html}. The plan is for the Warren Grant Magnuson Clinical
Center at the National Institute of Health.

VTN (Visit the Net): www.csuchico.edu/mgmt/strategy/module1/sld044.htm gives a good definition of
strategy implementation.

II.     ANNUAL OBJECTIVES
        A. Establishing Annual Objectives
               1. Establishing annual objectives is a decentralized activity that directly involves all
                  managers in an organization.
               2. Annual objectives are essential for strategy implementation because they:
                  a. Represent the basis for allocating resources.
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                    b. Are a primary mechanism for evaluating managers.
                    c. Are the major instrument for monitoring progress towards achieving long-term
                       objectives.
                    d. Establish organizational, divisional, and departmental priorities.
               3. Clearly stated and communicated objectives are critical to success in all types and
                  sizes of firms.
                    a. Annual objectives should be measurable, consistent, reasonable, challenging,
                       clear, communicated throughout the organization, characterized by an appropriate
                       time dimension, and accompanied by commensurate rewards and sanctions.
                    b. Too often, objectives are stated in generalities, with little operational usefulness.
               4. Annual objectives should be compatible with employees’ and managers’ values and
                  should be supported by clearly stated policies.


III.    POLICIES
        A. Changes in a firm’s strategic direction do not occur automatically. On a day-to-day basis,
           policies are needed to make a strategy work.

        B. Broadly defined, policy refers to specific guidelines, methods, procedures, rules, forms,
           and administrative practices established to support and encourage work toward stated
           goals.

        C. Policies let both employees and managers know what is expected of them, thereby
           increasing the likelihood that strategies will be implemented successfully.

IV.     RESOURCE ALLOCATION
        A. Resource allocation is a central management activity that allows for strategy execution.

               1. In organizations that do not use a strategic-management approach to decision making,
                  resource allocation is often based on political or personal factors.

               2. Strategic management enables resources to be allocated according to priorities
                  established by annual objectives.
        B. All organizations have at least four types of resources that can be used to achieve desired
           objectives:

               1.   financial resources,
               2.   physical resources,
               3.   human resources, and
               4.   technological resources.

V.      MANAGING CONFLICT
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        A. Resource-Specific Conflict
               Interdependency of objectives and competition for limited resources often leads to
               conflict. Conflict can be defined as a disagreement between two or more parties on one or
               more issues.
        B. Approaches for Managing and Resolving Conflict
               Various approaches for managing and resolving conflict can be classified into three
               categories: avoidance, defusion, and confrontation.

               1. Avoidance includes such actions as ignoring the problem in hopes that the conflict
                  will resolve itself or physically separating the conflicting individuals (or groups).

               2. Defusion can include playing down differences between conflicting parties while
                  accentuating similarities and common interests, compromising so that there is neither
                  a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or
                  redesigning present positions.

               3. Confrontation is exemplified by exchanging members of conflicting parties so that
                  each can gain an appreciation of the other’s point of view, or holding a meeting at
                  which conflicting parties present their views and work through their differences.

Tip: In the United States, there are a number of nonprofit organizations that are dedicated to helping
businesses, communities, families, schools, and any other conflicting parties resolve their disputes in a
fair,    sensible     manner.     An      example      is    the     Iowa       Peace    Institute     at
{http://www.iapeace.org/interact.htm}. It might interest your strategists to know about the existence of
this type of organization. The website also provides excellent definitions of conflict, negotiation, and
mediation.

Tip: Unfortunately, workplace conflict spills over into workplace violence on occasion. As a result, it
is important that managers be familiar with how to deal with workplace violence if it occurs. There
are a number of nonprofit and for-profit organizations that help businesses prepare for the potential of
workplace violence. An example is the Workplace Violence Research Institute
{http://noworkviolence.com/}. The site describes the types of workplace violence prevention
programs that the institute offers, along with the other types of conflict-related services and resources
that are available. A similar organization is Workplace Solutions at {http://www.workplace-
solutions.org/}.

VI.     MATCHING STRATEGY WITH STRUCTURE
        A. Changes in Strategy Often Require Changes in Structure
               1. Changes in strategy often require changes in the way an organization is structured for
                  two major reasons.
                  a. First, structure largely dictates how objectives and policies will be established. For
                     example, objectives and policies established under a geographic organizational
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                      structure are couched in geographic terms. Objectives and policies are stated
                      largely in terms of products in an organization whose structure is based on product
                      groups. The structural formal for developing objectives and policies can
                      significantly impact all other strategy-implementation issues.
                  b. The second major reason why changes in strategy often require changes in
                     structure is that structure dictates how resources will be allocated.
               2. Changes in strategy lead to changes in organizational structure. Structure should be
                  designed to facilitate the strategic pursuit of a firm and, therefore, follow strategy.
               3. There is not just one optimal organizational design or structure for a given strategy or
                  type of organization.
VTN (Visit the Net): www.smartdraw.com offers a software for drawing organizational charts. It
offers a free thirty-day trial.

        B. The Functional Structure
               1. The most widely used structure is the functional or centralized type because this
                  structure is the simplest and least expensive of the seven alternatives.
               2. A functional structure groups tasks and activities by business function such as
                  product/operations, marketing, finance/accounting, R&D, and computer information
                  systems.
                  a. Advantages: Besides being simple and inexpensive, a functional structure also
                     promotes specialization of labor, encourages efficiency, minimizes the need for an
                     elaborate control system, and allows rapid decision-making.
                  b. Disadvantages: Some disadvantages of a functional structure are that it forces
                     accountability to the top, minimizes career development opportunities, and is
                     sometimes characterized by low employee morale.
        C. The Divisional Structure
               1. The divisional or decentralized structure is the second most common type used by
                  American businesses.
               2. The divisional structure can be organized in one of four ways: by geographic area,
                  product or service, customer, or process. With a divisional structure, functional
                  activities are performed both centrally and in each separate division.
                  a. Advantages: A divisional structure has some clear advantages. First, and perhaps
                      foremost, is accountability. Other advantages of the divisional structure are that it
                      creates career development opportunities for managers, allows local control of
                      local situations, leads to a competitive climate within an organization, and allows
                      new businesses and products to be added easily.
                  b. Disadvantages: Perhaps the most important limitation is that a divisional structure
                     is costly.
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               3. A divisional structure by geographic area is appropriate for organizations whose
                  strategies need to be tailored to fit the particular needs and characteristics of customers
                  in different geographic regions.
               4. A division structure by product is most effective for implementing strategies when
                  specific products or services need special emphasis.
               5. A division structure by process is similar to a functional structure, because activities
                  are organized according to the way work is actually performed.
VTN (Visit the Net): www.csuchico.edu/mgmt/strategy/module1/sld045.htm lists some items that
strategy implementation must include.

        D. The Strategic Business Unit (SBU) Structure
               1. The SBU structure groups similar divisions into strategic business units and delegates
                  authority and responsibility for each unit to a senior executive who reports directly to
                  the CEO.

               2. Advantages: This change in structure can facilitate strategy implementation by
                  improving coordination between similar divisions and channeling accountability to
                  distinct business units.

               3. Disadvantages: Two disadvantages of an SBU structure are that it requires an
                  additional layer of management, which increases salary expenses, and the role of the
                  group vice president is often ambiguous.

         The Matrix Structure

               1. It is the most complex of all designs because it depends upon both vertical and
                  horizontal flows of authority and communication.

               2. It can result in higher overhead because it creates more managerial positions.

               3. It also creates dual lines of budget authority, dual sources of reward and punishment,
                  shared authority, and dual reporting channels.

               4. Its advantages are that project objectives are clear, there are many channels of
                  communication, workers can see visible results of work, and projects can be shut
                  down easily.

VII.    RESTRUCTURING, REENGINEERING, AND E-ENGINEERING

VTN (Visit the Net): www.cl.uh.edu/bpa/hadm/HADM_5731/ppt_presentations/7down/index.htm
provides a PowerPoint presentation on downsizing.

        A. Reshaping Corporate Landscape
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               1. Restructuring, also called downsizing, rightsizing, or delayering, involves reducing the
                  size of the firm in terms of number of employees, divisions or units, and hierarchical
                  levels in the firm’s organizational structure.
               2. The Internet is ushering in a new wave of business transformations.
               3. Reengineering is concerned more with employee and customer well-being than with
                  shareholder well-being.
                  a. Reengineering, also called process management, process innovation, or process
                     redesign, involves reconfiguring or redesigning work, jobs, and processes for the
                     purpose of improving cost, quality, service, and speed.

VTN (Visit the Net): www.cl.uh.edu/bpa/hadm/HADM_5731/ppt_presentations/6reengin/index.htm
provides a PowerPoint presentation on reengineering.

        B. Restructuring
               1. Firms often employ restructuring when various ratios appear out of line with
                  competitors, as determined through benchmarking exercises.
                  a. The primary benefit sought from restructuring is cost reduction. The downside of
                     restructuring can be reduced employee commitment, creativity, and innovation
                     that accompanies the uncertainty and trauma associated with pending and actual
                     employee layoffs.
        C. Reengineering
               1. In reengineering, a firm uses information technology to break down functional barriers
                  and crate a work system based on business processes, products, or outputs rather than
                  on functions or inputs.

               2. A benefit of reengineering is that it offers employees the opportunity to see more
                  clearly how their particular jobs impact the final product or service being marketed by
                  the firm.

Global Perspective: Restructuring at Nissan and Economic Recession Have Changed a Country.
Employee downsizing is against the basic corporate culture of a Japanese company. Since Nissan’s
move, other Japanese companies have followed suit.

VIII.   LINKING PERFORMANCE AND PAY TO STRATEGIES
        A. Pay-for-Performance
               1. Profit sharing is a widely used form of incentive compensation.

               2. Gain sharing requires employees or departments to establish performance targets; if
                  actual results exceed objectives, all members get bonuses.
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               3. Criteria such as sales, profit, production efficiency, quality, and safety could also serve
                  as bases for an effective bonus system.
        B. Five tests are often used to determine whether a performance-pay plan will benefit an
           organization:

               1.   Does the plan capture attention?
               2.   Do employees understand the plan?
               3.   Is the plan improving communication?
               4.   Does the plan pay out when it should?
               5.   Is the company or unit performing better?
IX.     MANAGING RESISTANCE TO CHANGE
        A. Resistance to Change
               1. Resistance to change can be considered the single greatest threat to successful strategy
                  implementation.

               2. It may take on such forms as sabotaging production machines, absenteeism, filing
                  unfounded grievances, and an unwillingness to cooperate.

               3. Resistance to change can emerge at any stage or level of the strategy-implementation
                  process.

               4. There are three commonly used strategies for implementing change:
                  a. Force change strategy
                  b. Educative change strategy
                  c. Self-interest change strategy.

VTN (Visit the Net): www.cl.uh.edu/bpa/hadm/HADM_5731/ppt_presentations/5orgchg/index.htm
provides a PowerPoint presentation on managing resistance to change.
Tip: The Journal of Organizational Change Management is an excellent resource to obtain material
on change for group discussion. The journal explores all aspects of organizational change and
resistance to change in a comprehensive and interesting manner. The website for the journal contains
an excellent archive of the abstracts of all articles that have appeared in the journal. The website is
available at {http://www.mcb.co.uk/jocm.html}.

VTN (Visit the Net): www.mindtools.com/plreschn.html gives good insight into why employees resist
change.

VTN (Visit the Net): www.communitypolicing.org/outline.html gives the strategic plan for a
community police consortium.

X.      MANAGING THE NATURAL ENVIRONMENT
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        A. All business functions are affected by natural environment considerations or striving to
           make a profit. However, both employees and consumers are especially resentful of firms
           that take more than they give to the natural environment; likewise, people today are
           especially appreciative of firms that conduct operations in a way that mends rather than
           harms the environment.

        B. The ecological challenge facing all organizations requires managers to formulate
           strategies that preserve and conserve natural resources and control pollution.

        C. Managing as if the earth matters requires an understanding of how international trade,
           competitiveness, and global resources are connected.

        D. Firms should formulate and implement strategies from an environmental perspective.

Natural Environment Perspective: Does Your Business Generate Its Own Electricity? It is called
“distributed generation” and many companies have already started generating personal power.

XI.     CREATING A STRATEGY-SUPPORTIVE CULTURE

        A. Strategists should strive to preserve, emphasize, and build on aspects of an existing culture
           that support proposed new strategies.

        B. Jack Duncan described triangulation as an effective, multimethod technique for studying
           and altering a firm’s culture.
                  a. Triangulation includes the combined use of obtrusive observation, self-
                     administered questionnaires, and personal interviews to determine the nature of a
                     firm’s culture.
                  b. The process of triangulation reveals needed changes in a firm’s culture that could
                     benefit strategy.
        B. The Mexican Culture
               1. Mexico always has been and still is an authoritarian society in terms of schools,
                  churches, businesses, and families. Employers seek workers who are agreeable,
                  respectful, and obedient, rather than innovative, creative, and independent. Mexican
                  workers tend to be activity oriented rather than problem solvers.
               2. Mexican employers are paternalistic, providing workers with more than a paycheck,
                  but in return, they expect allegiance.
VTN (Visit the Net): www.mapnp.org/library/org_thry/culture/culture.htm provides an overview on
culture and links to other culture sites.

        C. The Russian Culture
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            1. The Russian people are best known for their drive, boundless energy, tenacity, hard
               work, and perseverance in spite of immense obstacles. The notion that the average
               Russian is stupid or lazy is nonsense.
            2. Russia has historically been an autocratic state. This cultural factor is evident in
               business; Russian managers generally exercise power without ever being challenged
               by subordinates. Delegation of authority and responsibility is difficult and often
               nonexistent in Russian businesses. The American participative management style is
               not well received in Russia.
        D. The Japanese Culture
            1. The Japanese place great importance on group loyalty and consensus, a concept called
               wa. Nearly all corporate activities in Japan encourage wa among managers and
               employees. Wa requires that all members of a group agree and cooperate; this results
               in constant discussion and compromise.
            2. Most Japanese managers are reserved, quiet, distant, introspective, and other oriented,
               whereas most U.S. managers are talkative, insensitive, impulsive, direct, and
               individual oriented.

XII.    PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING
        STRATEGIES
        A. Production/operations capabilities, limitations, and policies can significantly enhance or
           inhibit attainment of objectives. Production processes typically constitute more than 70
           percent of a firm’s total assets.

XIII.   HUMAN RESOURCE CONCERNS WHEN IMPLEMENTING STRATEGIES
        A. Human Resource problems that arise when businesses implement strategies can usually be
           traced to one of three causes:

            1. disruption of social and political structures.
            2. failure to match individuals’ aptitudes with implementation tasks.
            3. inadequate top management support for implementation activities.

        B. Employee Stock Ownership Plans (ESOPs)
            1. An ESOP is a tax-qualified, defined-contribution, employee benefit plan whereby
               employees purchase stock of the company through borrowed money or cash
               contributions.
            2. Research confirms that ESOPs can have a dramatic positive effect on employee
               motivation and corporate performance, especially if ownership is coupled with
               expanded employee participation and involvement in decision making.
        C. Balancing Work Life and Home Life
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            1. Work/family strategies have become so popular among companies in the 1990s that
               the strategies now represent a competitive advantage for those firms that offer such
               benefits as elder care assistance, flexible scheduling, job sharing, and so on.
VTN (Visit the Net): www.jnj.com/who_is_jnj/framework_index.html explains how Johnson &
Johnson is trying to balance work and family issues.


ISSUES FOR REVIEW AND DISCUSSION
1.      Allocating resources can be a political and an ad hoc activity in firms that do not use
strategic management. Why is this true? Does adopting strategic management ensure easy
resource allocation? Why?

Answer: Allocating resources can be ad hoc and political in the absence of strategic management
because no good substitute approach for making major decisions exists. Intuition, subjectivity, and
emotions are not adequate for making resource allocation decisions that have strategic ramification for
an entire organization. Strategic management does not assure easy resource allocation, but it generally
results in more effective resource allocation.

2.      Compare strategy formulation with strategy implementation in terms of each being an
art or a science.

Answer: The strategy-formulation process is more of a science, whereas strategy implementation is
more of an art. Strategy implementation involves motivating employees. However, neither strategy
formulation nor strategy implementation is a pure science or art because, for example, intuition and
good subjective judgment are always essential in strategy formulation.

3.      Describe the relationship between annual objectives and policies.

Answer: Interrelationships among organizational objectives, strategies, and policies are revealed in the
strategic-management model. Note that long-term objectives and strategies are part of the strategy-
formulation process, whereas annual objectives and policies are part of strategy implementation. Clear
policies facilitate attainment of annual objectives.

4.      Explain the following statement: Horizontal consistency of goals is as important as
vertical consistency.

Answer: This is a true statement. Horizontal consistency of objectives is as important as vertical
consistency. An example of horizontal consistency could be that “there is no need for the marketing
department to plan on doubling sales if the production department cannot produce the additional
units.”

5.      Describe several reasons why conflict may occur during objective-setting activities.
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Answer: The objective-setting process can lead to conflict due to competition over scarce resources,
different expectations among individuals, different perceptions among individuals,
miscommunication, time pressure, personality incompatibility, and line and staff misunderstandings.

6.     In your opinion, what approaches to conflict resolution would be best for resolving a
disagreement between a personnel manager and a sales manager over the firing of a particular
salesperson? Why?

Answer: Various approaches for minimizing and resolving conflict can be classified in three ways:
avoidance, defusion, and confrontation. Depending on the situation, any of these three alternative
approaches could justifiably be most effective in solving a dispute between a personnel manager and
sales manager.

7.      Explain why organizational structure is so important in strategy implementation.

Answer: Organizational structure is important in strategy implementation because a firm’s design
dictates how resources will be allocated and how objectives will be established. In a geographically
structured organization, for example, objectives are stated in geographic terms and resources are
allocated by region.

8.    In your opinion, how many separate divisions could an organization reasonably have
without using an SBU-type organizational structure? Why?

Answer: The answer to this question depends on the size and type of divisions, but, generally
speaking, a firm that has six or more divisions could benefit from an SBU-type of organizational
structure.

9.     Would you recommend a divisional structure by geographic area, product, customer, or
process for a medium-sized bank in your local area? Why?

Answer: A divisional structure by geographic area is appropriate for organizations whose strategies
need to fit the particular needs and characteristics of customers in different geographic areas. A
divisional structure by product type design is effective when special emphasis needs to be placed on
specific products or services, when an organization offers only a limited number of products or
services, when the nature of an organization’s product differs substantially, or when different
marketing approaches are required for the organization’s various products. When a few major
customers are of paramount importance and many different services are provided to these customers,
then a divisional structure by customer can be most effective. A divisional structure by process can be
particularly effective when distinct production processes represent the thrust of competitiveness in an
industry. A divisional structure by geographic area is most commonly used by medium-sized banks.

10.    What are the advantages and disadvantages of decentralizing the wage and salary
function of an organization? How could this be accomplished?
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Answer: Decentralizing the wage and salary function of an organization could allow a firm’s reward
system to be more closely linked to strategic performance. It also could allow decisions on salary
increases, promotions, merit pay, and bonuses to be more closely aligned to support the long-term
strategic objectives of an organization.

11.   As production manager of a local newspaper, what problems would you anticipate in
implementing a strategy to increase the average number of pages in the paper by 40 percent?

Answer: Problems that could be encountered include the need to obtain additional advertising to cover
the cost of additional pages, as well as needing additional employees. A problem could arise in
deciding whether to raise the price of the paper. There may need to be an increase in the market area
coverage of the paper.


12.    Do you believe expenditures for child care or fitness facilities are warranted from a
cost/benefit perspective? Why or why not?

Answer: Reports suggest that yes, these expenditures are warranted. Managers and employees become
more committed to the firm when child care and fitness facilities are provided, or at least when some
resources are allocated to these areas.

13.   Explain why successful strategy implementation often hinges on whether the strategy-
formulation process empowers managers and employees.

Answer: Managers and employees make or break a firm. More and more, firms are empowering
managers and employees through involvement in the strategic-management process. Lack of
involvement or “empowering” often results in a lack of commitment to see the firm do well.

14.     Compare and contrast the culture in Mexico, Russia, and Japan.

Answer: The Mexican, Russian, and Japanese cultures are very different.

Mexico always has been and still is an authoritarian society in terms of schools, churches, businesses,
and families. Employers seek workers who are agreeable, respectful, and obedient, rather than
innovative, creative, and independent. Mexican workers tend to be activity oriented rather than
problem solvers. Mexican employers are paternalistic, providing workers with more than a paycheck,
but in return, they expect allegiance.

In contrast, the Russian people are best known for their drive, boundless energy, tenacity, hard work,
and perseverance in spite of immense obstacles. The notion that the average Russian is stupid or lazy
is nonsense. Russia has historically been an autocratic state. This cultural factor is evident in business;
Russian managers generally exercise power without ever being challenged by subordinates.
Delegation of authority and responsibility is difficult and often nonexistent in Russian businesses.
The American participative management style is not well received in Russia.
Page 14 of 14

Finally, The Japanese place great importance on group loyalty and consensus, a concept called wa.
Nearly all corporate activities in Japan encourage wa among managers and employees. Wa requires
that all members of a group agree and cooperate; this results in constant discussion and compromise.
Most Japanese managers are reserved, quiet, distant, introspective, and other oriented, whereas most
U.S. managers are talkative, insensitive, impulsive, direct, and individual oriented.

								
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