Business Culture and Leadership in Hungary.

In relation to financial infrastructure, the banking system in Hungary is one of the most developed one in Central Europe. It’s almost totally privatized to strategic investors, to major international banks like ABN-Amro, DG Bank, KBC, Citibank, etc. As a result, local banks have now a healthy loan portfolio and based on the experiences of the mother company they can offer a wide range of products to local customers.

I believe I’m not wrong if I state, that we can speak about a Hungarian story today. GDP growth reached almost 7% in 1Q2000, CPI is just above 9% and expected to drop close to 7% until the year end, budget and current account deficits are declining and are absolutely financable from FDI. Growth is based on strong export potential and competitiveness in international markets, not on retail consumption. All in all, following the necessary crisis period of the early nineties, at this time the Hungarian economy shows an as healthy outlook, as it has never showed before.

Based on the quite preferential rank of the country’s political and economical developments in the rank of Central European states, it’s throughout possible that Hungary will be able to join the EU first, or among the first  countries in CE.

3. National Character

It is a quite hard task for an insider like me to depict the national character, to catch those factors in general, which distinguish Hungarians from other nations. It is difficult, because certain aspects of the national character seem to be obvious in my view, that’s why I don’t even pay attention to them. Since the task to fully map the national culture is too big, I’m only going to give some, 5-6 examples which I think generally well describe the Hungarian culture. I base my assumptions on conversations with foreigners, typical Hungarian jokes and speeches, which usually criticize an aspect of the national character, my studies in history and my subjective, personal experiences.

Before going into details I have to state that Hungary in its current form is a quite homogenous country in its culture. Although there is some religious and ethnical diversity (geneticians distinguished 17 different types by origin among “Hungarians”), these differences are small, and there are minimal religious, ethnical cultural or regional torsion in the country.

In the following, without the intention of being exhaustive, I try to list and depict some factors, which I think quite well describe the national character. This aspects are:

• “optimistic pessimism”
• high mental, educational level
• “revolving door” effect
• standing alone
• spite – “passive resistance”
• “Vitam et sangviem!” … but we don’t give oats!

“Optimistic pessimism”

There is speech in Hungarian which I think well depicts Hungarians attitude: “An average day is worse than yesterday, but better, than tomorrow”. Pessimism has its roots quite deep in the Hungarian history, and is the result of the fact that in the battles of the last 500 years the Hungarians always stood on the side of the looser, so its not surprising that self-confidence is at low level. Even if the total picture looks positive, Hungarians tend to highlight only those details, which are negative. On the other hand we learned well to adjust to difficult situations, to be inventive in order to survive, because the fight for survival characterized the last 500 years. On the other hand Hungarians are born idealist, who think that they have already suffered not only for the past but even for the future. This is the explanation for optimistic pessimism.

High mental, educational level

Hungarians are proud of the fact that a relatively big number of the scientists, inventors of the world has a Hungarian origin. In fact, great inventions like i.e. ball-pen, Rubik-cube, hydrogen bomb, has a Hungarian father. On the other hand  most of these people lived and succeeded outside the country, which calls our attention to an important aspect of Hungarian nature: Hungarians are quite strong in developing new ideas, but they rarely succeed to realize them at home.

“Revolving door” effect

“Even if you enter the revolving door before a Hungarian, he or she will be inventive enough to come out in front of you.” It also describes the inventive, problem solving national character, the ability to stand up from beaten situation. Hungarians are born pragmatists, who always look for the backdoor.

Standing alone

As in language as genetically and culturally Hungarians are different from most Europeans. We have the felling that we are alone in a hostile world, like a small cultural island between the Germans and the Slavs. This also determines the Hungarians’ relation to the neighbors, which can be described with  mutual mistrust. On the other hand this is a factor which makes Hungarians more committed to the EU, because we hope to balance the overwhelming German and Slav effect by this way.

Spite – “passive resistance”

Hungarians like to policy of small steps, they can easily be satisfied with series of reforms. History taught Hungarians that they cannot win if they go to the streets or the battlefield and fight for their right there. That’s why we do it only when no other possibility has been left. History also taught us, that there is a more powerful resistance, than armed uprising, namely passive resistance, spite at national level. This means that Hungarians sabotage the activities required by the authorities, don’t take part in decision making nor in executing the directives, we make sport from taxivasion, etc. This type of attitude can be observed even today in relation of multinational mother company and the management of the Hungarian subsidiary.

“Vitam et sangviem!” … “but we don’t give oats!”

According to the legend the Hungarian nobles offered their life and blood (vitam et sangviem – Latin) with this words to Maria Theresa when the war of Austrian succession broke out in 1740. According to the same legend they also added, that “ but we don’t give oats!”, which meant that the Hungarians were ready to offer even their life for the queen, but definitely rejected to sacrifice their wealth, to pay tax in order to finance the war. This highlights another important aspect of the national character, namely that Hungarians can forgive a wide range of political actions unless their wealth is in danger, or they have to finance the bill. Another example for this national attitude is the long success of the Kadar-regime between 1960 and 1985, which combined the continuos growth of economical wealth and the rise of living-standard with political dictatorship. I bet, if the system had been sustainable, the Hungarians would have been still satisfied with it.

The points above aimed to give a little taste from the Hungarian national character. Although I know that the picture is not complete, I think that the above mentioned characteristics well describe the national culture and depict the attitude of Hungarians in a longer run.

While in this part I focused on my subjective opinion about national culture, in the next chapter I’m going to be more scientific and try to construct a picture about Hungarian organizational culture. I’m going to base my opinion on the already published results of the Hungarian GLOBE-program. In order to add value I intend to add my personal opinion to the main assumptions of the GLOBE-program, too. At this point I have to underline, that it will be only my personal view and is not supported (but not even denied) by any research.

3. Organizational culture

Culture can determine the performance of an organization by 2 ways: either it can be an encouraging basis that leaders can apply to guide organization members in their future actions, or it can be a negative, withdrawing force which still supports old, obsolete behavior norms in new, radically changed environment. Since Hungary went through a substantial transition period in the nineties, this problem is especially alive in the country. We can observe a certain duality:

• On one side, we inherited a very strong national and organizational culture, which has developed for many decades. The change of these norms is a difficult and slow process, which bothers the transition as a special behavioral moment of inertia.
• On the other hand, there is a greater need for new values, which in addition to other managerial tools can help the adjustment to the rapidly changing, dynamic environment, can successfully complete the transition, and lead to the development of new competitive organizational behavior.

The strong demand for changing values and behavioral norms can be observed at both national and organizational level. At the national level people’s view about the desired direction of the change is quite consistent, while greater differences can be observed in the valuation of the current situation. At the organizational level the situation is exactly the opposite: people’s opinion is more consistent in relation to the current situation, while there are greater differences in the evaluation of the desired direction.

In relation to GLOBE variables, Hungarian academics identified different distance between real and ideal. The result of their research can be summarized in the following:

1. Uncertainty avoidance. The index shows an uncertainty tolerating behavior. The obvious reason for it is the transition, which swept away the previously usual system, structure and consistency, and hasn’t been able to replace them with other factors, which could have substituted the lost certainty with new values. My personal hypothesis is that it’s rather the feeling than the tolerance of uncertainty what people have learned to live with. It is supported by the observation, that the research showed a quite significant desire for uncertainty avoidance. According to my interpretation the obvious conclusion is that people show high uncertainty tolerance level, because they have learned to live with it and got used it, while on the other hand they don’t like it, and they desire an order, which replaces the recent inconsistency and uncertainty in people’s expectations.

2. Gender egalitarism. Quite surprisingly, the cultures examined by Hungarian scholars show a quite feminine value, although the absolute index is fairly close to neutral. It is also interesting that beside the feminine characteristics the Hungarian organizational culture shows several aggressive features, where there is a need for further change: people unambiguously reject hardness, while on the other hand they consider aggressivity as more desired. People also think that equal opportunities of genders should be improved.

The value of this index surprised me, because I’m convinced that the Hungarian organizational culture is rather masculine than feminine. I base this assumption on my personal experiences, namely that there are still a lot of stereotyped professions, where women has little chance to step above a certain level.

3. Future orientation. The value of this index justifies the sad fact, that future orientation is not an important issue in our society, people basically live for the present and not for the future, we are primarily busy with our problems in the present. The lack of future orientation can be a very significant competitive disadvantage in the future. A great contrast can be noticed between the perspectivless attitude of the present (the reality) and the need for clear, future oriented way of thinking (the ideal situation).

4. Power distance. This index clearly shows a fairly high power distance. Position, as the basis of influence, the system of privileges, concentrated decision making power are all main characteristics of the Hungarian organizational culture. In international comparison, Hungary belongs to the group of countries with the greatest power distance. I think the high power distance should be decreased in the near future and managerial skills, personal abilities and social responsibility should be those tools which help the leaders to influence the team members in the desired direction.

5. Individualism-collectivism. The present value of this variable (which is in fact the combination of 3 other variables) shows an individualistic value system. I think the most acceptable reason for it is that as the transition began people realized that the socialist-communist practice of collectivism doesn’t help them to succeed in the new environment, it supports lazy, non-educated workers, but draws back talented, inventive, aggressive employees.  The obvious choice for the 2nd group was to try to succeed alone. It’s important to underline, that it is only the old form collectivism, what people deny, not the collectivism itself. Well even, I believe that we can observe a trend today, which brings collective values in foreground again. My hypothesis is, that in the last decade there was a certain re-grouping: people left old groups, worked, succeeded or failed as individuals, and now they are again looking for a team, partly spontaneously, partly consciously.

6. Human orientation. This number is one of the lowest among the measured variables. In international comparison Hungarians show the least empathy, solidarity. The contrast between real and ideal is quite visible: while we are fairly negative about our human relations in the present, the desire in the society for developing a gradually more humane culture is very strong.

7. Performance orientation. Unfortunately, this variable depicts an unfavorable picture, too. Premium, bonus is primarily not linked to performance – which would be very important from the point of view of competitiveness – neither innovative, performance-improving behavior can expect recognition. Similarly to the previous points, while people fairly negatively judge the current situation, the need for it is stronger than anytime before. Hungarians think, that the setting of ambitious goals, the continuous performance improvement are extremely important. I believe that this factor can be a very serious potential reserve of future competitiveness. It will be one of the most important task of the leaders to get free the energy of motivation by satisfying the need for performance linked recognition.

According to the assumptions listed above, Hungarian scholars distinguished 4 different organizational culture types among local corporate. These clusters are the following:

Group 1

This group can be described with very short term thinking, the lack of planning, less than average motivation for performance and relatively high power distance. In relation to other variables they meet the average. Mainly traditional, state-owned companies belong to this cluster.

Group 2

The main characteristics of this cluster are high uncertainty avoidance value, higher than average power distance, very significant future orientation and weak human orientation. Almost without exception local financial institutions belong to this group.

Group 3

The smallest but most characteristic group. Almost all variables are the farthest from the average value, in negative direction. The group’s main features are: low uncertainty avoidance and human orientation, high masculine values, behavior and power distance. Individual values are dominating, the planning and acting horizon is very short, performance motivation, commitment towards organizational goals are low. This cluster embodies the dark side of the traditional, former-socialist, organizational culture.

Group 4

This cluster is exactly the opposite of Group 3. We can meet with excellent values here, and analysis show an encouraging trend that the number of companies which belong to this group continuously grows. In corporate culture the feminine and collective values are strong, human orientation has underlined importance, while power distance is small, organizational structure is relatively flat. Future and performance orientation has an extremely high value, commitment and loyalty strongly overrides the level of the previous groups. It is not surprising that local subsidiaries of multinational companies and corporate owned by foreign strategic or financial investors belong to this cluster.

To sum up, from HR’s point of view I think we can draw the following conclusion:

• Strive for stability and security in creating the organizational structure, the collective agreement and the appraisal system. HR strategy has to focus on the trade-off between tolerance of market uncertainties and the avoidance of uncertainties of existence.
• The very strong desire for performance related appraisal system highlights the importance of such a system.
• The need for collectivism offers an encouraging background for team building.
• The high level of power distance is partly the consequence of crisis management, privatization and mistrust. HR should strive for decreasing it in order to build up a flatter, more flexible structure which better fits in the challenging environments in the long run.
• In order to dissolve mistrust and increase commitment, human orientation has to be strengthened.

I really hope that the previous points succeeded to depict a more or less complete picture about Hungarian organizational culture. Now we know which are the main cultural feature of Hungarian companies, what is the desired direction, how they can be grouped, what challenges HR meets, etc. It gives a good basis for me to further narrow down my cycle of examination, and focus on local leaders, what values they, (or should have), how can they be typified, what are the main factors of decision making. The next chapter is devoted to answer these questions.

4. The Leaders

1. Values and abilities

According to a research which measured and interviewed the top managers of 42 Hungarian (and 8 Spanish as a control group) big companies, the most needed managerial skills and abilities were ranked by the following way in Hungary:

1. Problem solving abilities
2. Willingness of risk taking
3. Leadership skills and abilities
4. Communication skills
5. Business sense
6. Organizational, structure building skills
7. Professional knowledge
8. Analytical skills
9. Practice orientation
10. Abilities to promote ideas
11. Computer skills

Hungarian leaders marked problem solving and risk taking as the 2 most important skills of an ideal top manager. Problem solving is important, because local leaders feel, that this is what they usually do in greater part in their working time. They have to select and rank problems to deal with. Therefore they need focus on substance and selecting and decision making skills. They also need to resist the pressure of mid managers to push decision-making upwards.

The quite eminent position of risk taking is obvious, it is simply enough if we take a look at  the very challenging environment of the last decade. Local top managers still feel that the future is unpredictable, that’s why they always have to be prepared for any possible negative consequences.

Hungarian top managers were also asked in the research to rank managerial abilities by their current strength and weaknesses. The new rank showed the following changes:

1. Professional knowledge
2. Practice orientation
3. Problem solving skills
4. Business sense
5. Analytical skills
6. Communication skills
7. Willingness of risk taking
8. Organizational, structure building skills
9. Leadership skills and abilities
10. Abilities to promote ideas
11. Computer skills

The main conclusion, what we can draw from the list, is that Hungarian top managers are quite positive about themselves in relation to professional knowledge and practice orientation. It is also encouraging that business sense has an eminent rank, which allows the conclusion that local leaders have learned the lesson of market economy.

Among the weaknesses the contrast in relation to risk taking is fairly deep: while managers consider it as key value future leaders, they don’t feel to have it at their disposal. Unfortunately this weakness accompanies with weak performance in promoting ideas, which can be a serious disadvantage in a challenging economy, like Hungary.

I think the early publishing date (3Q1999) of the research explains the unfavorable rank of computer skills. In 1997 internet, E-business meant future opportunity only to a small professional group, I believe that this fact explains its low position both in the real and ideal rank of managerial skills. I strongly believe, that if we repeated the research today, when e-business is a double digit growing industry, computer skills could have reached a more eminent position.

It is also interesting to compare the real and ideal position of communication skills. I think the difference can be explained with the lack of language skills, which is a problem at both state-owned and multinational companies. If we accompany language skills with practice time, then a certain duality can be observed: young managers between 25-35 dispose over excellent language skill, but they have insufficient practical knowledge and  personal connections, while elder managers have a long practice but meet difficulties in communicating with the mother company or the foreign owner.

To sum up the similarities and differences, we can describe Hungarian top managers as professionally prepared, pragmatic leaders, who succeeded to adapt to the challenging environment. On the other hand the low level of risk taking willingness, and the weak abilities of promoting ideas hinder the offensive leadership.

2. Leadership styles

Before taking a closer look into leadership styles I must express my view that there is strong interdependence and interaction between the values and cultural background of the top manager on one side, and the organizational culture and behavior norms on the other side. A good leader can and also has to influence the organizational culture, and create a climate which best serves the organization to reach its objectives. On the other hand the organizational culture also influences the leader, and results a divergent process, where not only the organization but also the leader changes and adjusts until they fit each other.

In this relation leadership styles can be group according to the interaction of 3 dimensions: (1) how Hungarian managers judge the necessity of particular managerial skills in the recent economical environment, (2) whether the company of the given top manager meets this requirements and (3) whether the leader himself meets the same requirements. The previously mentioned research distinguished 3 main groups in leadership styles according to the described dimensions. In order to fit the international fashion and to better highlight the differences between the groups  with the association the author of the research borrowed the name of animals for naming the groups. The groups and their main features are the following:

“Mules”

Average professional background, long routine and intuitive leadership characterizes this group. Unfortunately they don’t seem to be prepared for new challenge, because business sense and risk taking willingness is below the average. Future orientation is also a problematic area, because promotion of ideas is not their strength. Leaders are introverted and disappointed in traditional managerial virtue.

The companies represented by this group of leaders were mostly important state-owned companies, which were privatized in the mid ‘90s. The recent main shareholders are typically either foreign companies or local banks. These companies are mainly active in the Hungarian market, where they produce balanced annual profit, and turnover. The termination of limited rationality describes the best this segment. Their extraordinary toughness and long practical experience ensure the survival.

“Tigers”

The most dynamic and open segment. Their strengths are excellent educational background, communication skills, good business sense and high level of risk taking willingness. The group seems to be very self-confident, they assess themselves with high level of managerial abilities, except some traditional values like leadership and organizational skills.

Only privatized local or multinational companies belong to this group. They usually produce for export and dispose over extended connection to international markets. High level of proactivity, maximality, logical thinking, rationality characterizes the leaders, who are typically around 40 years old. Doubtless this is the most promising segment, because it possesses over all abilities which can help to succeed in a challenging environment.

“Elephants”

It is the group of traditional managers, they have smaller or larger insufficiencies in educational background, but they recognized the direction of change, and are rapidly developing the desired abilities like promotion of ideas, business sense, etc. On the other hand the lack of practice orientation and the low level of risk taking willingness make us worry about the potential success. Leaders in this group ranked leadership, communication and professional skills as most important abilities. Problem solving can be described with strong intuitivity.

The managers in this group are typically not the leaders of the largest companies. On the other hand these corporate are strongly export-oriented, but still partly state-owned. Although they have a long journey in front of them, they move to the right direction.

As the groups above illustrate, both the Hungarian economy, and the leaders of Hungarian corporate go through a transition process. They can be characterized by a certain duality, which means that new and traditional behavior forms, values and cultural norms live together, interact and bring closer or separate organizations and leaders.

5. Conclusion

The main assumptions of the essay can be summarized as the following:

• Hungary went through a very painful, but in its result a quite successful transition period in the last decade. The institutional background of democracy and market economy is well developed, although further smaller adjustments are needed.
• The Hungarian culture has long and strong roots in history, the national character can be quite well described with the following phrases: “optimistic pessimism, “genie land”, “revolving door” effect, “passive resistance” and “vitam et sangviem!”.
• Organizational culture shows a mixed picture, the contrast between the present and desired future situation is quite visible. There are great reserves in the area of performance orientation and uncertainty avoidance, while future and human orientation has to be gradually improved in the future. A supportive HR management can help a lot to get free the opportunities.
• According to the orientation of the organizational culture 4, strikingly different clusters can be distinguished among Hungarian companies.
• Hungarian leaders are generally strong in professional knowledge and practice orientation. Problem solving and risk taking willingness are the most desired managerial abilities.
• Hungarian leaders can be divided into 3 groups: mules, tigers and elephants. This categories describe the main leadership styles of local top managers.

Budapest, May 23, 2000

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