Bridging the gap

When future generations look back at our century, there’s littleust take time to understand the political and cultural dynamics of the different countries in the region, says Alex Dembitz. doubt that they’ll view the collapse of state socialism in Central Europe during the late ’80s and early ’90s as not only among the most important, but also among the most exciting, events.

It was a period when the phrase “will of the people” really meant something, when the long-endured dissatisfaction with the living standards and narrow way of life so often associated with state socialism inspired a series of political revolutions that were, in the majority of cases, relatively peaceful, often because the political leaders saw that change was inevitable and that there was no sense in using violence to stop it. The 1989 Christmas revolution in Romania and the violent changes in the former Yugoslavia were the two exceptions, but generally the region’s transitions took place in a spirit of collaboration rather than enmity.

Why was this? Part of the answer is that before the Second World War, Central Europe had a history of democracy, coupled with a splendid cultural heritage, both of which were obliged to lie dormant during the 45 years of state socialism. Much of the world’s greatest art, literature and music has been created in Central Europe, and this creation took place almost entirely during the democratic period which persisted until the ’30s. The point is that the democratic and cultural heritage of the region was never forgotten, but simply pushed below the surface, to come back up for air as soon as the political climate changed.

What does all this have to do with the role of management consultancy in the Central European region today? The answer is that it has a great deal to do with it.

It’s simply impossible to do business successfully in the region unless you are prepared to take time to understand the political and cultural dynamics of the countries where you wish to operate. The idea which some Western management consultants naively cultivate – that you can catch a plane to somewhere in Central Europe, spend a few days there hosting meetings at some smart five-star hotel, and then fly back with a lucrative contract in your pocket – is not only unrealistic, but absurd.

I have been working as a management consultant in Central Europe since 1988, when I set up IDOM, a strategic management consultancy, supplying services to the new market economies of the region. (In 1993 IDOM merged with Deloitte & Touche and I became head of Deloitte & Touche Central Europe.) I have found that my learning curve for the region is very much a continuous one. In what follows I’ll try to summarise some of the key points I have learnt so far and then look at the role which management consultants can play in the region.

Understanding Central Europe

The first essential task is to define what we mean by Central Europe in the first place. This isn’t as easy as you might imagine; after all, Prague is considerably further west than Stockholm and Helsinki, although Sweden and Finland are entirely Western countries with an unbroken democratic history. Vienna, too, is east of Prague, but Austria isn’t one of those countries we regard as Central European: Austrians prefer to be seen as Western Europeans.

The truth is that you can’t simply define Central Europe in geographical terms. What people mean by the region is, in effect, “that part of Europe which was under Soviet domination after the War”. In other words, the definition is bound to incorporate some political elements.

Incidentally, organisations often include European Russia under the definition of what constitutes Central Europe, but we at Deloitte & Touche categorise this as Eastern Europe and have a separate business unit to deal with it, and the other independent states that once formed the Soviet Union.

The second key point to make about the region is that once you’ve decided what you mean by Central Europe, you have to stop thinking about it as a single, unified region. It isn’t. It consists of a range of nations at different stages of economic and political evolution.

These can be loosely categorised as:

1. Countries for which European Union membership by early in the new century is realistic. These countries are the economic forerunners in the region. They include: the Czech Republic, Estonia, Hungary, Poland and Slovenia.

The Czech Republic, Hungary and Poland were always the economic leaders in the region, even during the days of state socialism. Hungary was particularly successful economically during the ’80s, while Poland benefits from a large consumer population (approximately 40 million) which arguably has given it an edge over its two main rivals.

Estonia, the northernmost Baltic republic, has rapidly succeeded in forging important economic and cultural links with Finland, which lies only about 60 miles away over the Baltic Sea. Finnish and Estonian are closely related languages and to a limited extent mutually intelligible. Furthermore, there have historically always been considerable connections of culture and friendship between the two countries.

As for Slovenia, while small both in terms of population and area, it has the highest Gross Domestic Product in the region, and has always had a flourishing economy, partly as a result of its location next to Austria, with which it shares a lengthy border.

2. Countries which have adopted market economies more recently. Under this heading we can include Albania, Bulgaria, Romania and Slovakia, all of which are still to some extent suffering from economic (and, in Albania’s case, political) insecurity but which are on the way to reasonable stability and are being increasingly favoured by foreign financial institutions and by a general increase in the amount of inward investment coming from abroad. These countries are by no means the forerunners in the region, but they clearly have considerable promise for the future.

3. Countries which formed part of the former Yugoslavia. These countries comprise Bosnia-Herzegovina, Croatia, Macedonia and Serbia. Strictly speaking we should also include Slovenia here, but for reasons already discussed, this must be regarded as a fundamentally different category.

These countries all suffered in varying extents from the wars in the former Yugoslavia during the early to mid-1990s. Some are making good progress towards economic recovery – I would include Croatia, Macedonia and Serbia in this group – but Bosnia-Herzegovina is still in a very unsatisfactory situation and well behind the rest of the region in terms of development.

4. The remaining two Baltic republics. These are Latvia and Lithuania, both countries which have suffered varying degrees of economic crisis since becoming market economies. In particular, Latvia has undergone a serious banking crisis.

However, both countries are now showing definite signs of real economic development, manifested, as is usually the case, in financial institutions taking root and starting to grow.

The role of management consultancy

What I find so very exciting about working as a management consultant in the Central European region is that you can really get a sense of making a difference. Generally, the two big contributions which management consultants from the West can make in the region are, firstly, to provide expertise not otherwise available, and, secondly, to inject dynamic energy into the process of change.

In the first case, the fact that Central European countries which became market economies had been existing under state socialism for more than 40 years meant that their business managers had little or no experience of how to operate under the new market conditions. This was the problem; not that these managers had no innate ability to succeed in a capitalist economy but that they didn’t have the right management tools.

In particular, financial institutions didn’t have banking systems suitable for use in a market economy; this was the area in which I provided management consultancy advice. There are, however, many other areas where the necessary expertise has had to be imported from outside the region. Fortunately, top Western-originated computer packages in different vertical market sectors (such as banking and business planning), in effect, embody precisely the type of expertise needed; thus a great deal of consultancy in the region is all about implementing these packages, and then attending to the re-organisation of the way these businesses are run.

In the second case, the vast majority of Central European managers have had to be taught how to make things happen, and happen in a rapid but effective way. Again, this wasn’t due to the innate inability of managers in the region to do this, but stemmed from the fact they had been brought up in a climate where there were few, if any, incentives for successful operation and efficiency. Obviously, the culture had to be changed and managers needed to be shown how to be dynamic and effective. Frequently this process involved radical restructuring of management structures and lines of communication. I like to think that management consultancy has made a real difference here.

But of course it has to be good management consultancy. There’s nothing intrinsically useful about a consultant from the West if he or she doesn’t both understand the measure of the challenges of the Central European region and also have a real expertise in his or her own activity. Indeed, I firmly believe that the region demands a greater level of commitment, hard work and knowledge from management consultants than is required when working in Western Europe.

Alex Dembitz is chairman of Deloitte & Touche Central Europe.