By Isabel Gorst
Published: May 7 2010 10:55 | Last updated: May 10 2010 14:00

When Russian Railways sent Marina Smolnikova to study for an executive MBA, she knew she had a ticket to the top of the company.
Smolnikova is among a group of bright employees of Russia’s state railways monopoly being trained at the Stockholm School of Economics (SSE) in St Petersburg as the rail company embarks on sweeping reforms.
The idea is to educate world-class senior managers to help shunt Russian Railways, the most conservative of the country’s state behemoths, on to more competitive tracks.
“You cannot get on in business without business education,” says Smolnikova.
Considered a national icon, Russian Railways is the country’s biggest employer with a 1.2m-strong workforce. Mostly built in the Soviet era, its network spans 85,000km between Europe and the Pacific and handles more than 80 per cent of Russia’s freight traffic.
During the 1990s, when a particularly Russian form of capitalism ran rampant across the economy, the management at Russian Railways remained aloof, focusing on what it did best – running the trains on time. But as foreign truck companies began challenging its freight business, the company began looking outwards, realising it had to modernise to compete in the global market.
The recent financial crisis hit Russian Railways’ balance sheet hard and became the catalyst for the radical reform of management.
Vladimir Yakunin, the company’s president, says the crisis exposed the “absence of competence and leadership qualities at the board of directors and executive management, and the inadmissibly low quality of their work”. His remedy was to invest in the education of elite, world-class managers with strong leadership qualities to propel the railways forwards.
The high-flyers picked to attend the SSE are the envy of their colleagues, but education is a perk that comes with a certain amount of risk.
Russian Railways pays for 70 per cent of the course costs, leaving students liable for the rest. It takes a dim view of students who fail their exams, demanding they pay back the fees and refusing them further promotion.
“It is clear you will have no future if you fail,” says Maxim Badridze, deputy of the department for reform at the October Railway Company, the north-western division of Russian Railways.

World of training

This report is one of a series focusing on schools around the world that are training the next generation of business leaders. Agents of the US’s FBI attend classes at Kellogg School of Management in Chicago, and the Melbourne Business School encourages Aboriginal leadership. Also read about innovative approaches at Gordon Institute of Business Science in Johannesburg, Ashridge Business School in the UK and IAE Business School in Argentina
“If they get good marks, it’s a green light to top management. If they fail, it’s a red light for their careers,” says Igor Dukeov begin_of_the_skype_highlighting  end_of_the_skype_highlighting, executive management training principal at the SSE.
The school has been teaching in Russia since 1997, but Russian Railways is its first big state client in the country. The contract, signalling Kremlin approval, is prestigious, but carries an additional layer of risk and reward.
If it meets expectations, the school will win a new level of trust from the Russian business elite that, in turn, will pave the way to attract more students. “At a certain level, we cannot afford to fail,” says Peter H?gglund, chief executive of IFL Executive Education at the SSE.
Working with Russian Railways helped the school sail through last year, reporting record profits while its competitors were hit by the financial crisis. But Dukeov insists the contract is “more about prestige for us than a cash cow”.
For a company whose management practices have barely changed since the Soviet era, Russian Railways’ campaign to change business methods is a journey into the unknown.
“In the west, people drink management culture in their mother’s milk, but for us it is terra incognito,” says Igor Passadov, adviser to Yakunin.
Perhaps for this reason, the company does not let its elite students out of its sight. Classes take place at the imposing St Petersburg offices rather than at the SSE’s premises nearby. Monitors drop in on lessons four times a day to check attendance – and even Yakunin has been known to visit.
There are challenges for the SSE too. “We had to start from scratch breaking down the stereotypes of Russian education,” says Dukeov.
Some courses have been tailored to suit Russian Railways’ special needs in close consultation with the company’s top management.
Teaching methods are designed to address the hierarchical thinking prevalent in Russian business and replace the culture of fear that stifles managerial initiative with one of trust.
To improve students’ communication skills, the school divides classes into small groups that are then rearranged throughout the day. Games, used to break down so-called “clan borders” between company departments, met resistance at first from students accustomed to formal Russian teaching methods.
“During the first year, I experienced a lot of latent sabotage in classes,” says Dukeov. “People would somehow find excuses to disappear from the room to make calls.”
One risk for Russian Railways is that its newly trained managers will be lured away by other companies in Russia seeking quality professionals. Many middle and top management jobs that would go to 40-somethings in the west are being taken up in Russia by comparatively young professionals just because they have management training.
The country has a history of excellence in learning, but no tradition of business education. Schools offering MBA programmes have only just appeared in Russia over the past few years, but few bring in international experts to teach.
But Smolnikova, who was promoted to the rank of senior engineer of the reform department even before she completed her course at the SSE, plans to stay on at the October Railway Company and has set a goal to become a board member within five years.
She says the school has taught her to strategise and analyse problems. “It’s an entirely new approach to business.”


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