PwC
To what extent does the ability to forecast the future help a high-quality manager? In your opinion, how successful are modern managers in forecasting the future and why?
Mr. Bulygin
The ability to forecast accurately is, without doubt, the critical skill of a manager and a key determinant of career success. Obviously a senior executive is better positioned to anticipate possible future events, scenarios and risks than a junior employee.
First of all, immediate access to diverse information is a major factor that allows one to foresee prospects correctly. The second important factor is an engrained and natural sense of professional intuition which not everyone possesses but can be developed over time and through years of experience.
Generally, the number of individuals who are talented in forecasting is low. One finds them mostly in business and politics as these are the areas which attract this type of person. These are the people who often become famous leaders and managers.
PwC
What are the major problems that an organisation faces which are striving to become effective in its reaction to the rapidly changing economic environment?
Mr. Bulygin
A company that reacts swiftly to the changes in the environment is a dynamically developing company. And the major problem a fast-growing company faces is sustainable quality. Quite often, when a business is trying to maintain the pace of its development and fulfil all new opportunities, internal processes are neglected.
Real problems arise when a company doesn’t have a solid infrastructure, a back office that is capable of supporting growth, when an inappropriate or immature corporate culture has been formed and when there is lack of motivation and understanding amongst personnel about key processes and objectives.
This gap between the aspiration to grow dynamically and internal immaturity is dangerous and can manifest itself in a lack of focus and failure.
PwC
What are the major factors which lead to a successful response to the rapidly changing economic environment?
Mr. Bulygin
There are a number of factors including: project management; knowledge creation; age of employees; employee motivation; adaptability and tolerance towards different cultures supported by a very strong corporate culture.
PwC
Is your company ready to react to the rapidly changing economic environment?
Mr. Bulygin
I think it is. We are highly competitive, which has been proven by the dynamics of our development. In six years we have managed to increase aluminium production by 50 percent, alumina production by 150 percent and labour productivity has increased by 100 percent.
Our company operates on a project basis which allows us to successfully manage a big number of large scale projects at the same time.
We invest heavily in knowledge creation and, as a result of our serious efforts in R&D, we now are among five companies in the world that possess their own production technology.
We have managed to create a corporate environment that is based on the encouragement of employee initiative, the delegation of authority and a strong potential for professional growth and career development.
These are the factors which motivate our young and energetic team, operating on five continents.
PwC
Which economic sectors and businesses have attained the best results in their reaction to the rapidly changing economic environment?
Mr. Bulygin
Lately the most significant achievements have been made through export-oriented production companies that are highly adept at responding to and shaping the changing environment. This includes all of the oil companies that export their production to the developing markets.
Nevertheless, in recent years, due to the significant increase of metal prices in the world markets, the vertically integrated metals and mining companies are also performing outstandingly well. The shares of companies such as BHP Billiton and Rio Tinto, who managed to take advantage of the favourable situation on the worlds market of the iron ore, showed a 30 percent growth during the last year, whereas the DJIA for the same period increased by only 12 percent. Excellent results were also achieved by aluminium companies that were capable of forecasting the five to seven percent annual increase in demand for aluminium. This was a natural consequence of the rapid growth of key consuming industries namely transport, packaging, construction.
As far as Russia is concerned, the traditional growth leaders, except for oil companies, are those that are in some way involved in import and trade operations of food products, telecommunications and car manufacturing.
The worst performers were magnesium producers. From 2000 they began to shut down magnesium production facilities in Europe and Northern America as a result of pressure from Chinese producers. This situation was caused by the inadequate reaction to the changes in the economic environment.
PwC
In 1998, 32 percent of CEOs identified Latin America as a region offering the best opportunity for five year growth. It scored above both China (23 percent) and India (four percent). The picture looks very different in this year’s survey, with CEOs identifying China as the most significant market opportunity, followed by India and then Brazil, in last place. Why was the importance of India and China as emerging markets underestimated to such a great extent by the executives?
Mr. Bulygin
The senior executives of the large global companies mostly mainly represent the Western world, which has developed on the based of democratic values. This explains why these managers had problems in forecasting the rapid growth and problems perceiving that the emerging market countries, with their own national values and peculiarities, could develop so fast.
In Brazil, the combination of the society structure, values and the state system were the closest to democratic. Therefore, when considering these three markets, it was the stereotype of the values that underpin the development of a country that played a major role in the determination of the most promising markets. At the same time the capabilities of China and India were underestimated.
PwC
In hindsight, would you consider your own reaction to the opportunities provided by India and China appropriate? What adjustments would you have made?
Mr. Bulygin
We recognised the importance of Indian and Chinese markets for our business from the very beginning.
We see China as a key market for our operations and an important region for production of raw materials for our smelters. We have purchased a cathode plant in China; we are currently investigating opportunities to construct an anode plant, and are identifying opportunities to develop energy and metals production facilities.
As for India, we are highly interested in bauxite deposits in this country and we are in active talks about a possible project.
PwC
Despite an initial underestimation of the importance of these regions, did companies eventually manage to adjust themselves to the increasing significance of India and China as developing markets?
Mr. Bulygin
I don’t think that it has fully happened, yet. Under the circumstances of globalisation, the most common practice for transnational companies to penetrate these markets is through the acquisition of a local business or through co-ownership. Such a business is usually managed from a corporate headquarter, which complies with the common regulations and procedures of a global corporation.
In my opinion, this approach is not sufficient. To be successful in India or China, one should fully understand the details of these markets. Only a local company that works in accordance with the cultural, social and economic specifics and peculiarities of the country can become truly successful.
PwC
In 1998, 20 percent of CEOs thought the Internet would have only a ‘moderate’ impact on business and a third would go for more than a month without 'logging on'. In 2000, nearly 50 percent of CEOs thought that the primary function of the corporate website was to build awareness. Only two percent saw it as a channel for recruitment. Why do you think many executives failed to see the importance of the Internet?
Mr. Bulygin
There seem to be several reasons for this: There is the age factor (in most cases, the executives represent an older generation of people who generally feel sceptical about innovations); there is a lack of information and there is the influence of stereotypes. The same will apply to any innovation in the future. Leadership will be seized by the young and dynamic.
PwC
With hindsight, would you have acted differently in the past 10 years regarding the opportunities presented by the Internet?
Mr. Bulygin
Our stance towards the Internet is demonstrated by our initiative in 2001 to organise a special project targeting the introduction of world’s best Internet-based technologies and practices. We are one of the foremost companies in Russia using the Internet.
There is, however, a serious difficulty. The Internet is efficient when both the supplier and the user of electronic data have the same level of information culture. Otherwise, the effect drops to the level of the least-developed user. People used to be reluctant to use the Internet as a main channel of information transmission. Many realised it was the future of information, but they weren’t ready to face it.
PwC
Despite its underestimated potential, have companies adapted to the Internet’s role in modern business? How well has your company embraced the change?
Mr. Bulygin
Many companies were able to see the potential presented by the Internet. They adapted well. Our company’s commercial and general service activities are, to a great degree, based on using the Internet. For instance, procurement is carried out through an open auction on our web portal uniting thousands of active suppliers from various fields. That means that they are all able to change and take on new business requirements. Aside from that, we service our customers with the use of CRM systems.
PwC
Don’t you think that many companies are still underestimating the significance of the Internet?
Mr. Bulygin
I think today everyone realises how important the Internet is. At the same time, not everyone has the resources to change quickly and benefit from it. Cramming numerous different devices into an office doesn’t work. Office culture and the company’s business also have to be transformed.
PwC
Over the past nine years in which PwC has conducted its Global CEO survey, overregulation has been identified as an ever-increasing challenge to business growth and globalisation. Is excessive regulation hampering the development of your growth strategy today?
Mr. Bulygin
No, it isn’t. But it isn’t helping, either. I think that regulations should actually encourage the further development of corporations. Strict rules should be created for intersectoral relations, relations between the state and the business, and relations between natural monopolies and the business. If regulations don’t succeed in securing the transparency of these relations, these regulations have no use or value. At the same time, it doesn’t come in the way of putting forward your future strategy.
PwC
How well is your organisation prepared to react to this change?
Mr. Bulygin
Quite well. We have accumulated extensive experience, operating on five continents that we are willing to use and develop in the future.
PwC
In your view, will things change for the better in the area of excessive regulation in the next five years?
Mr. Bulygin
No, I don’t think so.
PwC
Do you take any active measures to influence the regulating authorities? If so, what are those measures?
Mr. Bulygin
I think that the most efficient form of action is working through NGOs and industry-focused organisations — associations which get your message across. With the support of other market players, this message will be representative of the opinion of a whole industry or sector and won’t go unnoticed or ignored.
PwC
Who do you work with on a regular basis to build a prognosis on future change? How do these people help you plan counteraction?
Mr. Bulygin
We work with the following groups of people: clients because partner relations help us think of new products and expand the variety; state authorities for anything that pertains to business regulation; investors (banks) for market condition analysis and prognosis; scientists for innovation and management orientation.
PwC
What sources do you use on a regular basis to receive information needed to make decisions for the future? How do you use them to distinguish future trends?
Mr. Bulygin
We use the following sources on a regular basis: macroeconomic prognoses; analytical reviews of main market development trends and internal audit reports.
PwC
What initiatives or regular processes are employed by you and your management team to predict and analyse trends?
Mr. Bulygin
We conduct regular market research, brain-storms attended by company top managers and leading experts in various fields. We discuss and analyze trends at regular meetings of the Strategy Committee.
PwC
Name one thing you could add to make you even stronger and to help reduce the decision-making time in a fast-changing world market.
Mr. Bulygin
Meditation.
PwC
Is there an obstacle that you would like to be free of in order to react more quickly to the changing market conditions?
Mr. Bulygin
Stereotypes.
PwC
In ten year’s time, looking back and thinking about what trend is being missed today by the majority of companies, what trend would you name?
Mr. Bulygin
The speed of growth.
