Managing cultures in the global finance function

17th July 2011

The adoption of a single management style rooted perhaps in the prevailing head office culture is a recipe for disaster when managing a globally distributed finance function drawn from many cultures.  In this article, Morgen Witzel, FSN writer and honorary senior fellow at the University of Exeter Business School explains while an understanding of culture is essential to the smooth running of an organisation.

In 1998, the managers of an American-owned textiles factory in the Philippines faced an unusual problem. All work had ceased and the workers were refusing to enter the building. A rumour had spread that the building was possessed by an evil spirit, and anyone entering the building would be struck down and killed. A priest would have to be summoned and the evil spirit exorcised. 

The company’s senior managers were dismissive. This was mere superstitious nonsense; the workers should ‘get over it’ and go back to work at once. The idea of performing an exorcism ceremony on company property made some of the management team squirm with embarrassment. Evil spirits? What utter nonsense. 

Local junior managers then intervened. They pointed out that most workers came from remote villages and were badly educated. Their strongly ingrained beliefs were based on ancient traditions. Their fear of evil spirits would always overcome their fear of losing their jobs. Meanwhile, the plant was standing idle and the exorcism ceremony would only cost a few dollars. Reluctantly, top management sanctioned the ceremony. Once it was performed everyone went back to work.

This is an extreme example – though by no means a unique one – of how cultural differences affect the management of people in different cultures. Any company, no matter how small or how large, which operates across borders at once runs into these cultural differences. 

Differences manifest themselves in all sorts of ways. One of the most immediate and obvious is language. Even in languages which are superficially similar, such as German and English, people will struggle to get concepts across. On the television programme Top Gear, Formula One champion driver Sebastian Vettel recalled seeing a Monty Python film dubbed into German and not really understanding it. Only when he saw the same film in English did he understand why it was funny. Translate that same problem into the workplace, and we find countless examples of people struggling to get across concepts in a foreign language that seem perfectly simple in our own. For example, an Austrian colleague points out that while in Britain and America we discuss ‘leaders’ and ‘leadership’ as a matter of course, his own compatriots are very reluctant to do so. The reason for this is that the German word for ‘leader’ is führer, which of course has very negative connotations. German managers thus tend to discuss leadership in a very elliptical fashion, and many are not comfortable with the concept at all. 

Body language can be deceptive too. In the West, a sideways shake of the head means ‘no’. In India, the same gesture means ‘yes’. More than one British or American manager has come away from a meeting under the impression that their Indian colleagues were refusing them, whereas in fact the latter were agreeing with every point they made. Viewed from a distance, these incidents seem amusing. But in practice they can cause disruption and problems at all sorts of levels. 

Communications barriers are just the visible tip of the iceberg, however. The real differences lie not so much in how we speak, but in how we think – especially in how we think about other people and relate to them. Geert Hofstede, the Dutch executive and academic who has spent much of his career studying the impact of cultural differences on international business, coined the term ‘software of the mind’ to show how culture conditions how we think. At the most fundamental level, said Hofstede, we are all alike; we all have the same basic needs. But how we view those needs and how to achieve them varies on the cultural influences to which we have been exposed through family, education and so on. The workers at the Philippines textile plant above had received their cultural conditioning through the old oral traditions of their villages. The American managers had received their conditioning through schools and universities which encouraged a scientific way of thinking. There were not many levels on which the minds of either side could meet. Put more simply, they did not understand each other.

In his book Culture’s Consequences, Hofstede suggested cultural differences that affect organisations can be observed in four different dimensions. Although his work is controversial, these four dimensions can help us to understand the impact of culture in the workplace. They are: 

Power distance. This refers to how power is distributed within organisations. Societies which are strong on power distance tend to have strongly hierarchical organisations with power concentrated at the top. Low power distance cultures tend to have flatter organisations with less concentrated power and more of an emphasis on personal responsibility. 

Uncertainty avoidance. This refers to a culture’s tolerance for risk. People in some cultures are strong on uncertainty avoidance and are reluctant to accept risk; in other societies there is a greater appetite for risk and uncertainty avoidance is said to be low. 

Individualism/collectivism. Do people put their own needs before the needs of society, or vice versa? Individualist societies tend to do the former and collectivist societies do the latter. 

Masculinity/femininity. This is a slightly confusing term, for Hofstede was not referring to gender but rather to personal goals and desires. ‘Masculine’ societies are very goal-oriented and workers and managers will focus on things such as salary, promotion and status. In ‘feminine’ societies, by contrast, there is more of a focus on quality of life and on relationships. 

It will probably come as no surprise that in Hofstede’s survey, Americans were described as low on power distance and uncertainty avoidance, strongly individualist and strongly ‘masculine’, whereas Chinese were almost the exact opposite. (Equally unsurprising, Britons scored somewhere in the middle). Hofstede’s dimensions are a crude tool, and within each society there is room for limitless variation, regional, local and personal. But they do help us to get a fix on what it is that makes cultures different. It is a very good idea, before moving into a new market or a new operating environment, to use Hofstede’s framework or something similar in order to develop an understanding of what makes that culture tick.

 

Why? Because if we understand these things, then we begin to understand how other people’s ‘software’ works and can make necessary adjustments to the ways that we manage. Take the case of power distance. Britain is a relatively low power distance society; we tend to be rather independent and not always accepting of authority. This is not the case in most East Asian societies, which are strongly hierarchical. Workers in Japan, China, Korea and elsewhere do not just accept authority; they expect their bosses to demonstrate their authority. In Britain it is now quite common for companies to consult with their employees before making major strategic decisions. But if we were to try to do this in China, our employees would be stunned. They might even begin to lose confidence in us as managers. We are the bosses; we are the ones paid to make decisions, not them. So why are we asking them?

 

In high power distance societies too, it is accepted that there is a reciprocal responsibility. Writers on ‘Confucian’ management systems such as Michael Bond and Min Chen have pointed out that while workers are expected to work hard and obey orders, the employer also has a responsibility for the workers and their well-being. Nor does this end when the factory gates close or the office door is locked. There are numerous stories of workers knocking on their bosses’ doors in the evening or hunting them down on the golf course at the weekend to lay out their personal financial or marital troubles and seek advice. It is expected that the boss will set aside his or her own time and help. That is part of the responsibility that comes with power.

 

We could go on for some time, but the point should hopefully be clear. When managing people from other cultures, it is vitally important to put aside preconceptions about how people should be managed. Instead, it is necessary to try to get inside other people’s heads. How do they think? What are their views on society, leadership, organisation? What do they expect? Then throw away the rulebooks about how to manage people here at home, and manage people as they expect to be managed.

 

In The Balanced Scorecard, Robert Kaplan and David Norton maintained that ‘you cannot manage what you cannot measure’. Here we can put it slightly differently: ‘you cannot manage what you cannot understand’. It is hard to measure culture in any meaningful way, but it is nevertheless there, omnipresent. And understanding the mental frameworks of other cultures is absolutely essential to managing successfully in them.

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