A. DYKHOVICHNY: It is 12:08 in Moscow. Alexey Dykhovichny is at the microphone. We receive Alexey Popov, director of Executive MBA program of Stockholm School of Economics Russia. Good day, Alexey.
A. POPOV: Good day.
A. DYKHOVICHNY: Modernization of the economy and how it is understood in business schools, we speak about this and people speak much about this lately. We have number +7-985-970-45-45 working for SMS. People speak about modernization first of all very much. In the context of the yesterday's tragic events I would like to start the program and to speak probably about the following. This is modernization of the economy and security problems. You see a certain connection there, it is possible to say that these things are interconnected or are not because there is one side and there is another side. You point of view is interesting for me.
A. POPOV: Modernization of the economy is a fairly popular term today but it is a little strange that it is more used in Russia than in the West. I as a representative of the Stockholm School can say that for Swedes it has been a little strange to hear this word and even my professors have asked me what is meant by modernization in our country. To their ear this word means something related to modern, making modern. The highly developed economies do not have a task of making them more modern than they are now. I have had to explain that we have such connotation, that is associated understanding of this word meaning to make something better and newer. In principle, we actually try to catch up with what has already been done somewhere.
A. DYKHOVICHNY: Why they do not understand this when they probably modernize their economy permanently, if they are Swedes, they …
A. POPOV: You know, there is such comparison that fish does not feel that water is moist because fish lives there and that is why it is possible to call normal condition of the economy innovative. This means that the business tissue of marketing economy is such and such tissue is arranged. It is possible to argue who has implemented the term of innovation but I know for sure that in his works Schumpeter, American economists of the beginning of the 20th century, determined an entrepreneur as a person involved into innovations. This means that innovation is an immanent mandatory element of the enterprising process. That is why in the marketing economy any company that is in the field of competition, I emphasize that in the field of competition, has to do innovations to keep afloat, to move forward, to somehow differ from competitors that catch up with it afterwards anyway.
A. DYKHOVICHNY: When the fish is told that water is moist, does it get very much surprised?
A. POPOV: In the context of security, I think that, honestly speaking, I would not connect these notions because we have seen examples of good and bad security in different countries including developed and not very developed ones. That is why, unfortunately, even in case of a very high level of economy development, these problems are probably in some other orthogonal planes that do not let us say that modernization of economy alone or some economic measures can increase the level of security.
A. DYKHOVICHNY: This is on the one hand, but, on the other hand, I insist that everything should probably be vice versa, on the other hand a low level of economic development in a country and in some regions creates a perfect basis to grow kamikaze terrorists?
A. POPOV: I will agree, you know, I saw interesting statistical data on our country in the past saying that in the so-called fat years when there was such good growth, this oil boom, in the regions that received the biggest revenues and that seemed had to grow richer and life had to be jollier there, the gap between the richest and the poorest groups of the population grew. This is an interesting example. It showed that in our economy production of additional GDP and public benefits transited into growth statistically but it did not lead to improvement of living standards, that is it did not reduce the gap between the rich and the poor but increased it. Hence, there is a high-level political and economic question where these benefits are used. Even if the economy gives a good GDP and a good added value, there is no guarantee that this leads to improvement of living standards, security and many other aspects. It is necessary to be able to manage this correctly.
A. DYKHOVICHNY: Is it a matter of distribution?
A. POPOV: Yes.
A. DYKHOVICHNY: Is it possible to compare or, speaking more accurately, how is it possible to compare the level of efficiency from your standpoint? Modernization is not for the sake of modernization itself, is it not, is it for the sake of efficiency, efficiency of business, right? Probably I am mistaken, probably I am wrong, let us start from this?
A. POPOV: We can guess for a long time what for is the modernization, it is unknown to us and it is unknown even who has been the first to say this word. In general, comparisons in the world of economy are done according to various parameters. It seems to me that it would be fairy important for us to compare our and foreign economies according to productivity. There are such extensive parameters, people in our country like to boast a big capitalization of a company and a big value of company's brands.
A. DYKHOVICHNY: But it is known that it changes.
A. POPOV: With big turnover and big client base.
A. DYKHOVICHNY: If we speak about capitalization, this changes very quickly. I remember how in May or June of 2008 Gazprom rose and became nearly the third biggest company in the world according to capitalization. Everything changed very quickly now, everything changed there literally in a few months. Now, in general, Gazprom is far from this result.
A. POPOV: I agree that the parameters that have not changed are productivity and efficiency. Because when you compare economic parameters of a company, their revenue and profit to the quantity of employees you receive a quite different picture. I saw such comparisons in some companies, fairly big petrochemical companies in Russia. They are very disheartening because we differ in productivity with the leading Western companies somewhere by 80%, somewhere by 90% and somewhere by 95%. The difference is very big and this speaks exactly about production of a public benefit that is distributed to all of us further. These are our incomes and incomes of the state. However, productivity of Russian companies is fairly low. Last year, there was a research of McKinsey dedicated to this topic with regard to many industries where they showed very well that productivity is much lower and this is connected, naturally, with bureaucracy and with administrative barriers including a low level of business processes, a low level of management in companies. There are many reasons but this is a fact.
A. DYKHOVICHNY: So, here is a Western school. I remind that we receive Alexey Popov, director of Executive MBA program, of Stockholm School of Economics Russia. The Western school came to Russia to teach, or did I put this somehow roughly?
A. POPOV: Why do business schools come, of course, some people see a commercial aspect in this but if we turn to the topic of modernization, I would probably say that a task is set to catch up and to outrun like 50 years ago during the Khrushchev rule, this is true now too. For example, rectors of technical higher educational institutions raise alarm now and say, "Our engineering and technical education lags far behind now, as well as the level of engineering competence in companies in general." They need their own modernization in education. Everything is probably the same or even worse in business. If we are a fairly young country from the standpoint of marketing economy and our businesses have never been highly productive. If we take these fat years that were oil years and look at these big figures, we need to see behind them that businesses were never efficient should we compare any of our companies with a foreign one. Another problem is that, actually speaking, we do not produce anything except for oil. I always ask students when they argue with me a simple question, "Which domestic products do you have at home, what do you consume, what do you have from furniture, clothes and appliances, what can our country offer." This is the power of ruble. If there is no oil, what will be the power of ruble if we have some products and services that companies can produce not only for the domestic market but also for the foreign one. Business school is one of the elements of this entire environment that says how it is possible to reach the level that has already been achieved in the world. It is not very simply to reach it.
A. DYKHOVICHNY: We do not even need to guess what will happen to ruble. It is possible to recall the beginning of the last year. Everything is clear. There was oil but it cost 50% less than now, about $35 but now about $80. This is what may happen to ruble and if there is no oil at all there is no need to explain anything. This is what can be done in order that appliances and something else of domestic production appear at home and we, by and large, stood on the path of catching up.
A. POPOV: As a representative of a business school I would not undertake responsibility and say that we can solve all problems of Russian economy. Students come to us, they are representatives of companies, they are owners and top managers of companies, each of them is interested in lifting of this business to a new level in his area in the company. They wish to reach a certain competitiveness at least on a level of a separate company and some of them think seriously enough and try to enter international markets, this is a fact. The quantity of such companies growing bigger and bigger. At the beginning of our conversation I said this magic word "competition." This is the water that I have meant when I have spoken about the fish that does not feel water. Competition is the environment that businessmen, consumers and Western professors do not feel like fish does not feel water. It is given to them and it is supported by the state. The management technologies, the perfect models taught in business schools, these strategic moves and maneuvers, various methods of efficiency improvement exist in connection to a fairly honest and open bigger competition if it is supported by the state. If the state creates preferences some companies use a certain administrative resource, these perfect models and theories disappear immediately and a plan with one gate begins. That is why among our students, we interview them when they come to us, are those who do not hope for any administrative resource but those who have decided to get engaged into this battle with open visor and to compete against the best international models, really believing that they will be able to reconfigure their business and to make it more efficient not on account of use of entrances into any door, obtaining of a certain signature, but on account of arrangement of optimal business processes including finding of some innovations. Along with this, innovations do not necessarily mean any inventions and science. No, in Western business disciplines innovations are understood very broadly. This is any improvement of an existing method of business, any innovations that deal with business models of a company in general. These may be innovations in human resources management, in marketing, in costs control, everything. This is not necessarily scientific and technical progress.
A. DYKHOVICHNY: But people come to a business school, for example, to Stockholm School of Economics, to study the models that, as you have probably noticed justly, work only in a competitive environment and in an environment where protectionism exists all this does not work.
A. POPOV: I would say honestly that a business school will be practically impotent in this.
A. DYKHOVICHNY: Yes, a business school is impotent, why are these people and why does this business school exist then. Now we come to the question that representatives of business schools have been asked, as I remember, for ten years in succession. Everything you teach does not work, to put this simple, in our country. Why is it necessary to teach this then and why do people come?
A. POPOV: I would not drive this to such limit that this does not work. First, there will not be enough administrative resource for everyone. A resource is always unique and is in deficit. That is why if someone turns to it this is probably a matter of values and not only commercial choice because someone does not use it deliberately, and also a matter of entrance into an international market, a matter of a situation when we produce something what is bought from us. If you use the administrative resource it has already got your teeth on edge, if you have received some preferences in our country for sale to someone, the state has implemented a customs barrier and helps you and if competitors do not come here, how will you sell this product abroad. Let us take AvtoVAZ when import duties have been increased and money has been poured into AvtoVAZ. How can a company exist without open honest and bitter competition in which it is forced to change. In hotbed conditions a company simply has no chances to make a product that is better in quality and in price.
A. DYKHOVICHNY: Does a company need this?
A. POPOV: I will say honestly that we have not received applications for education from AvtoVAZ. That is why, of course, companies are different in Russia. Thanks the Lord that there are many owners of a company and managers who understand this difference and are interested in taking of fairly serious effort to study in our school. These are the people, different in nature, who are directors of big companies and managers of small firms. They are different and it is impossible to single out an industry or a type. The psychological type and the age of the people is different. There are simply those who study honestly and learn all these subtleties that have already been accumulated in the West on account of which companies compete in the West in small profits with a small market growth. Now, after the crisis, the situation grew close to what it was like in the West in this aspect earlier. When we had market growth by 15%, 20%, 30% and 40% per year many technologies of Western management were not very vital. This means that in the West people study how they can manage the client base correctly, how it is possible to customize this base in your company, how to analyze it, how to put priorities, to make small expenses and to receive return from these investments. During a big market growth all this was not very vital. We need to take our market share on time, to retain it, to invest and to collect profit. The matters of efficiency or search for a market and search for clients where it seems they are not have grown much more vital now.
A. DYKHOVICHNY: The only question is how long the positive effect of the crisis on the situation will last?
A. POPOV: Probably on the contrary, we enter a normal condition when money is earned hard, when a company should manage to optimize all its costs, to get rid of everything non-core, to work out a strategy and to start doing what it can do the best, where it is stronger than others. This is a normal dogma of strategic management. Now these are probably not mere words already. Now they may be criteria for survival of a company and for those who set high goals in principle hey become criteria of competitiveness.
A. DYKHOVICHNY: Judging by the statement of authorities of the country, authorities of the country understand these. The same words that you have said about non-core assets have already been said. One thing is to understand a problem and another thing is to understand how to solve it. To which extent do you think the actions taken for solving of the problem are adequate? The scale that you choose now is up to you. If it is the scale of a country, let it be the scale of a country, if it is the scale of big business or medium business, what do you think is correct?
A. POPOV: Do you ask me about the high authorities?
A. DYKHOVICHNY: The whole spectrum is interesting for me.
A. POPOV: I would say that I am a little scared by the ideology and the direction that is adopted because some money is attracted all the time, some money is promised to everyone. This is the first matter that it is possible to solve all problems with money, that we will buy technologies, that we will buy Opel or something else. In my opinion, this is the first wrong presumption that with money it is possible to solve all problems quickly because serious innovative companies and competences are not created overnight and not only money is necessary for this. The second such strange direction is establishment of state structures including the state educational structures. This was said yesterday, "Let us establish universities in all federal district and let us spend money on this." This means that there is no much competition there again because establishment of state structures that are generously financed, no matter if it is in education or industry, anywhere, is a way of encouraging and support of direct competition and creation of some preferences. The international economic theory has said everything a long time ago about creation of preferences and about the harm that this brings to development of competitive environment in a country where should be many companies that compete on the market and all of them should have equal conditions.
A. DYKHOVICHNY: In general, this is like Chernomyrdin has said … If we speak about the businessmen who come to you, which tasks do they set for themselves understanding probably in which conditions they will have to run their business?
A. POPOV: It is difficult to answer for everyone at once but, honestly people, these are people who think always and who are always positive. It may be strange for some one but this is one of the most important qualities that we need when we evaluate people during acceptance to the program. A person should believe that he will succeed in everything, a person should wish to rise to a new level, he is not afraid of difficulties and he understands that learning in a business school is such a painstaking process when he needs to give up some of his preconditions, his knowledge, convictions and his experience, to test something new, to see himself and his business from outside. This is a very serious challenge for many people. Nonetheless, these are people of such special type, these are the top manages who do not stop and who create this challenge for themselves. There I the people who like to surmount he difficulties. Honestly speaking, I hope for such people and believe that they will save our economy.
A. DYKHOVICHNY: Thank you. I would like to study in your school but you probably will not accept me, you accept only businessmen, right?
A. POPOV: We will look at your qualification requirements.
A. DYKHOVICHNY: Alexey Popov, director of Executive MBA program of Stockholm School of Economics Russia, visited us. Thank you, Alexey.
A. POPOV: Thank you.