The impact of management quality on firms‘ innovation and productivity in Russia

The webinar cooperation between the Higher School of Economics Moscow and WU Vienna “Emerging Market Talks” series themed “The impact of management quality on firms‘ innovation and productivity in Russia” was attended by 62 people on 16^th November 2020.  
 

The aim of the webinar was to discuss how Russian companies manage innovation and the role of management in this process. Especially in the context of a global crisis, industries, companies, markets and countries are differently affected and their internal processes are disrupted in a different manner. For many internationally operating companies this crisis comes in addition to other constraints such as the economic embargo imposed on certain companies and individuals. The negative effects are obvious, as there is a clear disruption of international trade and local consumption but there are also positive trends as we see a rise in the digitalization on business processes.

The moderator Prof. Dr. Desislava Dikova, opened the webinar by introducing current research suggesting that management quality, i.e. top management experience and new management practices, are equally important as R&D investments for the performance of Russian firms. She then turned to the panelists Mr. Sergey Tahiev, head of corporate finance at Alrosa (https://alrosadiamond.ru/en/customer-service/for-partners/) and Ms. Ekaterina Kokareva, Head of the Department for Investor Relations at NLMK (https://nlmk.com/en/) with the following questions:

• How innovative is your company?

• What innovation measures did you take in response to this crisis?

• Do you plan any changes to your business with respect to innovation?

• How critical was management in the context of innovation?

Mr. Tahiev clarified that in the diamond mining industry innovation is not as key as in other industries, however improving productivity through innovative solutions has to be a strategic goal in every industry. Management commitment to innovation is key, but also the will for organizational change, engaging in internal benchmarking against peers and competitors and developing the right organizational culture. What is critical in an industry delivering luxury products to affluent customers is knowing what the customer wants. Some of the innovative solutions of Alrosa is digital scanning to create twin models of the diamonds, which the customer can see beforehand and imagine how the stone will be utilized. Alrosa creates a lot of digital content (i.e., how the stones were mined) which helps the pricing and certification of the stones.  

In contrast to the diamond industry, Ms. Kokareva clarified that due to environmental concerns the majority of innovative solutions in the steel industry concern efforts to reduce environmental damage. In NLMK, the CEO and the vice president are in charge of the innovative activities of the firm, which also focus on efficiency and employee safety, and stimulate personal engagement. Introducing environmentally friendly solar power and wind power is a challenge for this Russian enterprise because of the climate (i.e., there is not much sun in Siberia). There is an effort towards substitution of iron ore with scrap metal, however, the scrap collection, subsidized by EU, is better managed by its European competitors. Furthermore, reduction of CO2 emissions is quite an expensive investment whereas in contrast, the European Commission had committed 3 billion euros for reduction of CO2 emissions by European plants.     

For Alrosa, investing in green energy is important, for example by the local sourcing of energy from hydro energy plants. However, social incentives such as providing employment for people in undeveloped regions is just as important. For Mr. Tahiev, it was not possible to differentiate between the importance of investing in tangible or intangible assets because what is essential for every business is to create value with the ultimate goal to generate profit, fight climate change and sustain social initiatives.

The ongoing global crises did not cause a drop in the demand for steel. Ms Kokareva believes that the fast recovery of China saved the global steel market as there was an increase in infrastructure development, which prompted the demand for steel. While there was capacity reduction in some parts of the world, in Russia the demand for steel increased in spring likely due to mass home improvements and infrastructure investments. The biggest challenge for the steel industry remains the increasing restrictions related to environmental protection while for the diamond industry the biggest challenge is the (slowing) economic development.