Jakob Modéer's Balkan & Europe Blog

(This case study was produced on the request of the Enhancing Youth Employment project in Kosovo (eye-kosovo.org) and is re-published here with the permission of the project and Rugove)

Background

In April 2014, the Agency of Statistics of Kosovo reported that the country’s trade deficit is still growing. Export in March 2014 amounted to €23,1 million (0.1% increase), while import amounted to €202,4 million (3,7% increase). As such, Kosovar products cover only 11% of the domestic market.

The World Bank calls Kosovo’s current growth model unsustainable over the longer period. Growing private sector activities and investments will become increasingly critical as engines to generate growth and, in turn, improve job and income perspectives.

For the most part, companies are not yet in a position to compete successfully in local and international markets. Reflecting binding public infrastructure and business climate constraints, domestically produced goods, including in the agriculture sector, have not yet been supplied at the quantity and quality required to compete successfully in either domestic or foreign markets, despite some improvements. (World Bank in Kosovo, Country Snapshot, April 2014)

On the question why he chose the bottled water business, Mr Visar Kelmedi, the CEO of Rugove, plainly explained that the demand for water was strong and growing on the local market, which was dominated by international companies. “I wanted to show that it is possible to manufacture a product in Kosovo and sell it to Kosovo consumers, and with time substitute imports”. In 2012, the import of foodstuff, including bottled water, was approximately €300 million, second only to mineral products (gasoline, oil).

The Rugove tale is about understanding the customers, keeping a watchful eye on the competition and the importance of being open to a continuous process of change in management, human resource and production. But foremost, it is a tale about people and how a company can succeed in the market by investing in its human capital.

The Challenge

The Rugove was established in 2006, as a joint venture with a Slovenian partner. Within two years the company had become the market leader in bottled water in Kosovo selling over 5 million liters per year. At this point in time, Rugove was very much a family managed company. “We were acting more like firemen, trying to satisfy new orders as they popped up”, Mr Kelmendi explains. By 2010, competition on the market was becoming stronger. In a situation of growing demand and competition, there was a decision to be made for the company. According to Mr. Kelmendi, “we could go on as a family operation with an uncertain future, or we could accept the market situation and become a more professional, structured and efficient company”. The second option would require significant investments and a fundamental re-organization of the company. Yet, this was the path chosen.

About the same time, Rugove made the decision to diversify its business and enter into the market of production and sales of white cheese. Such a venture would require additional investments and the strengthening on the internal management and organisation to cope with a completely new line of business.

The proposed solutions and interventions

The first intervention of the company management involved restructuring its financial system, replacing it with a more modern model, and most importantly building the capacity of internal staff to manage the new financial system. For this very important and sensitive task Rugove acquired the services of Arizona Partners (AzP) a local tax, accounting consultancy company. “I am not Superman to know everything, and I am the first to admit that we are were we are today thanks to the support we have received from consultants”, Mr Kelmendi explained his decision to bring in external experts to facilitate the change process at Rugove.

In 2014, Rugove’s working relationship with AP became more strategic. Rugove then entered a triparti agreement with AP and the EYE project, in which AP would supply a full range of strategic consultancy services to Rugove. The aim of the intervention was to produce a business plan that would be used for the company’s future business development, strategic direction, operational planning, and external financing.

Special focus was on HC development, where AP supported Rugove in recruiting a HR manager and in establishing an HR Department. The newly appointed HR manager participated in the HCDI formal training and AP followed up with the development of internal HR policies and procedures as well as a software based HR system for Rugove, and trained the HR manager to operate the new HR system with confidence.

Rugove highly appreciates the way AP transfers new ideas, skills and knowledge to staff members through coaching and on-the-job training. “To me all change is about the people who work at Rugove. Yes, I admit, we push our employees to perform their best, but we can do that because every employee knows that we support them, both on and off work – they are all covered by insurances, we have a generous bonus system in place, we support them in learning new ways of working and building their confidence in implementing their work tasks”, Mr Kelmendi explains how Rugove’s continuous focus HC development has received renewed momentum from the cooperation with AP and EYE.

Over the years Rugove has engaged the expertise of a number of local consultancy companies for specific tasks, such as ‘Paper Communication’ on marketing linked to target sales and strengthening the internal capacity of the company to manage its marketing work. The consultancy ‘ATARE’ was brought in to work on structured sales, branding and development of key accounts, while the IT company ‘CACTTUS’ was assigned to design software solutions linking the company’s Enterprise Resource Planning (ERP) system to its sales processes. Another local consultancy company, ‘RECURA’ produced a feasibility and investment project.

Mr Kelmendi speaks very positively about the Rugove’s experiences working with local consulting companies. “They understand the local context, market and culture, and they offer practical and sustainable solutions. Most important, they understand that their task is to build up the capacity of our managers and staff in order for them to implement the activities themselves, manage change and move the company forward.”

Beyond investing in consultancy services, Rugove has recently invested in a new fully automated water supply and bottling unit. Mr Kelmendi is quick to point out however that this €2 million investment in fully automated machinery will not lead to staff reduction. Rather, staff will be moved into new work opportunities linked to the manufacturing of new 10 liter bottles and the new range of glass premium bottles.

In a final push, in line with the overall re-organisation of the company and in response to a more competitive market, Rugove has also invested in the construction of a brand new distribution centre and corporate head office in the outskirts of Pristina. As well, the company has purchased a new fleet of 20 distribution trucks, capable of delivering water and cheese products simultaneously, which will reduce transportation costs dramatically.

The outcome and lessons learned

“These investments are already starting to pay off”, observes Mr Kelmendi proudly. In 2014, the total sale of bottled water is expected to reach 15 million liters, representing a 20% increase compared to 2013. The sales growth of the cheese production is even more phenomenal, expected to jump 70% this year. In the words of Mr Kelmendi, Rugove will employ approximately 35 new staff in 2015, increasing the company’s total pay-roll to 140 or more persons, mainly located in the villages around its production units in Western Kosovo.

When asked to reflect on the very rapid growth of Rugove, Mr Kelmendi highlights his personal approach to business development and management. “I had the vision of where the company should go, but I realised that I needed external experts with specific subject skills to help us get there”. For Mr Kelmendi, a company that is too conservative in its management style and blocks new learning will sooner or later be overwhelmed by a market it does no longer understand. “Too many company owners in Kosovo have not yet realised that they must open up to new ideas, new ways of organising and managing the company, and external advise in order for their companies to change and grow.”

(This case study was produced on the request of the Enhancing Youth Employment project in Kosovo (eye-kosovo.org) and is re-published here with the permission of the project and Baruti)

It is widely accepted that Kosovo pins its future economic development on two key assets – its young population and Diaspora. With an average age of 25, Kosovo boasts of having the youngest population in Europe. Beyond its obvious demographic advantages, youth also influences society with hope, openness and new thinking (creativity).

The Kosovo Diaspora is now well established in mature economies such as Switzerland, Germany, US and Scandinavia, offering a human linkage between market opportunities abroad and production opportunities in Kosovo. Kosovo is a small market, both in size and purchasing power, hence any policy to boost business growth and to reduce the country’s very high unemployment rate (35% in total and 60% among youth) must include a strong export component.

Again, this is where the active input of the Diapora is crucial. For the owners of Baruti, brought up and educated in Switzerland, the German–speaking markets of Germany, Austria and Switzerland feels like and are actually ‘home’ markets. The Diaspora brings language skills and understanding of the local context and culture in foreign markets to the new, export-oriented business growth model. In such, the Diaspora effectively converts internationalization and export activities into sales and marketing on another domestic market.

Three years of Baruti

The growth of Baruti has been absolutely breathtaking. The subsidiary company was registered in Kosovo in 2011. The three owners invested € 65,000 to start the Kosovo branch, reaching 24 full time employees in 2012 and a first year turnover of € 228,000. Today, three years later Baruti employs more than 150 staff, and is in the process of hiring and training another 150 staff in order to cope with new international contracts.

“We decided early on to very quickly build up a ‘local management’ within the company, who would be capable of leading and shaping the company’s activities in Kosovo”, explains Mrs Drenusha Shala, co-owner and Managing Director of Baruti.

The Baruti board members realized at a very early stage in the development of the company that identifying adequate numbers of qualified staff would be a core challenge, which had to be overcome in order for the company to take on new clients and grow. “At this point, we decided that one of the company owners would physically stay in Kosovo, to build a solid organisational and management base from which sustainable and successful growth would be achieved”, Mrs Shala highlights one of the company’s watershed decisions.

Another key decision made early on by the Baruti board was to diversify its portfolio of services to include ‘over the phone research’. Until this point the focus had been entirely on supplying Inbound Services, in line with a classic Call Center. “It turned out that as a Start-up company winning clients for the Call Center business was difficult, while we were more quickly successful in acquiring our first client for the market research business”, admits Mrs Shala and continues, “Staying flexible and open minded about new market opportunities is one key to our success”. With the first real ‘revenue’, Baruti seized the opportunity to further invest in its Inbound Services and Market Research Services and this investment quickly paid off as well. In 2014, Baruti won a very extensive public tender in Germany for its Inbound Service Department, against tough international competition.

Putting Customers first

The Baruti board members illustrate a fundamental understanding of the market in which they operate, and they are quick to point out that for them the customer always comes first! In order to enter the market and have the opportunity to satisfy the needs of the customers, Baruti knew it first had to fulfill all the formal requirements. In its drive to enter the security and surveillance industry market, offering 24/7 surveillance monitoring services, Baruti discovered that possessing Quality Management Systems certification is a requirement.

At this point in time, Baruti was already in a mode of fast growth, which put strain on the company’s cash flow. Baruti turned to the EYE project for support in order to speed up the implementation of ISO standards 9001 and 27001 certifications. The entire certification project was successfully finalized in June 2014 with five months delay, mainly caused by the need for further investments in IT and physical infrastructure, and the heavy workload of Baruti.

ADAPTIV IT, a local consulting company, completed the certification process, while TÜV Nord executed the audit. Thanks to the ISO standards 9001 and 27001 certifications, Baruti is now formally eligible to compete in a much larger number of public tenders on its key international markets – Germany, Switzerland and Austria.

Being Young does not mean being Reckless in Business

“Another key to our success was the fact that we actively sought out experts with information we did not possess ourselves, at an early stage of our development”, explains Mrs Shala. Experts from the call center market in Switzerland assisted Baruti in drafting the ‘right’ customer acquisition strategy. “The experts also highlighted the timeline required to acquire different clients. While the hard work of implementation was left to us, the experts still installed in us an understanding that proper planning, patience and perseverance are essential skills that we must possess in order to succeed in this business”, admits Mrs Shala proudly.

Mrs Shala is quick to pass on similar advise to other fast-growing young companies in Kosovo. “The key to a successful business is customer satisfaction and sustainable growth with a sound and solid cash flow management”, proclaims Mrs Shala. “Stay close to your customers, be constructive, put yourself in their shoes and try to improve your product or service every day, as it was the very first time you served this particular client. This will generate customer loyalty, and that is something that is generally missing in Kosovo”, explains Mrs Shala.

According to Mrs Shala, the general business practice in Kosovo is too short-term in its thinking and too one-off in its practice. This means that companies invest little or nothing in ‘after-sales and cross-sales’ activities, and as a result of poor quality services they constantly loose their clients. When the companies’ focus is not long-term, there are very few returning customers. The company is then forced to always look for new customers, which is the most costly marketing activity.

“Young entrepreneurs should work hard and remain close and constructive to their customers. In turn, this business approach will empower the young entrepreneurs to further develop their business models and product/service lines, and even expand their business growth”, Mrs Shala wraps up her advise to other upcoming young entrepreneurs in Kosovo.

(This case study was produced on the request of the Enhancing Youth Employment project in Kosovo (eye-kosovo.org) and is re-published here with the permission of the project)

Background

The consultancy market in Kosovo is essentially the creation of international donor agencies operating in the country after the war of 1999. The post-conflict challenges were multi-faceted, including re-building public and private infrastructure and constructing new institutions and the rule of law from scratch. The early years of privatization and entrepreneurship saw the emergence of a private sector dominated by micro-enterprises involved in trade, retail and small-scale service provision. Within this development context, there was a strong demand by donor-funded projects for permanent staff and freelance consultants.

However, very little consultancy was supplied directly to local companies by local consultants. The reasons for this were multiple. Newly established companies were too busy working to stay alive in the market. Few companies were aware of the internal constraints holding back their growth, and even fewer companies were taking actions to overcome constraints. Also, few Kosovo companies had the financial resources to invest in engaging external experts.

To overcome this market failure, donor projects subsidized the supply of consultancy and production assets to private companies as a means of boosting their competitiveness. Donor project also invested in strengthening the capacities of local consultants to supply consultancy services.

The existence of two markets

Today, after 15 years of economic transition, the consultancy market in Kosovo can best be described as two very different markets. In search of income, the consultants float between these markets.

Market One is the heavily subsidized donor project market, which creates numerous job opportunities in diverse skills areas. The business model of the individual consultant is to cover as many as these areas as possible, as a means of increasing the chances of employment. As a result, the consultancy market is now comprised of generalists rather than specialists. This means that there is a large pool of consultants capable of offering services to Start-ups and companies of very low maturity, but very few consultants who have what it takes to serve the needs of the lead firms. “There are clearly two groups of consultants today in Kosovo. One group continue to chase the next donor funded opportunity, while the other group, albeit much smaller, includes consultants who really want to work and develop within this profession. They invest in themselves, are customer-oriented and conscious about their ‘name’ in the market.” (Diell Grazdani, Director of BCC, October 27, 2014)

In Market Two, there are a very small group of Kosovo consultants who are supplying private clients with services that they in turn are willing to pay for, which in most cases include auditing, tax advice and accounting services. “It was our accounting skills that got us in the door at Rugova. Having supplied initial services to the satisfaction of our client, we started identifying other consultancy needs in the company and cross-selling other services, such as coaching and marketing.” (Arban Avdiu, Arizona Partners, October 24, 2014)

As companies grow their needs become more specific and more technical. Suddenly, there are very few qualified local consultants on the market to do the job, causing a supply deficiency, which acts as a direct constraint on company growth. On a positive note, the growing demand for consultancy services by more mature companies in Kosovo, and their willingness to pay for the ‘right’ services, creates a substantial market opportunity for those consultants who have the ‘right’ skills, knowledge and experience.

This means that in the future the focus should be on supporting the formation of a new generation of local ‘specialists’, with adequate functional skills, sector expertise and relevant practical experience to serve the expanding needs of growing companies in Kosovo.

Moving towards the private market

However, moving from the 100% subsidized donor market to the free market with zero subsidies will require local consultants to adjust their business models to satisfy the demands of corporate clients rather than donors. This is a formidable challenge because the requirements of donors and private companies are very different from each other.

According to the companies, the large majority of consultants do not fulfill the requirements and they are deemed not to have the capacities to supply the services with adequate quality. The local consultants fall short for a variety of reasons, such as low technical skills, weak selling points, low confidence and lack of corporate references. There is also a general lack of trust for local consultants among the lead firms (CEED report, 2013). All of which highlight the need for consultants to improve their capacities in order to better match companies’ needs.

The formal training module of HCDI (an EYE project initiative on human capital development) represents an opportunity for local consultants to strengthen their internal capacities, such as technical skills in HC development and Consultancy-as-a-Business skills, including a module on how to sell in your consultancy services. The Business Consultants Council (BCC) offers a range of business and skills development opportunities for their member consultants. Recent training topics include CMC certification, Business Diagnostics and Marketing and Sales of consultancy services.

BCC is also advocating for consultancy, as a profession, to be registered as an economic activity in the Business Registry. An official recognition of the profession will open up for relevant public and private bodies to design and manage an official accreditation system for consultants, which in turn will act as a guarantee for the quality of services that companies can expect from individual consultants. A more structured and transparent supply of consultancy services will contribute to reducing the general mistrust held by some companies about local consultants.

Also, consultants must take every opportunity to ‘get in the door’ of the companies, to accumulate practical consultancy experience. “I was pro-active in selling in my services to Hospital American during the HCDI’s ‘Speed-dating’ event. I invested my time in completing the company diagnostics and together with my colleague from Macedonia we prepared a business proposal for HC consultancy services, which we presented to the company.” (Myesere Hoxha, Consultant, October 24, 2014)

As a result of the consultants taking a more pro-active approach to learning new HC and business skills, and spending more consultancy time in the companies (even free of charge), they will strengthen their capacity to present companies with an improved offer for consultancy services. In better matching supply of consultancy services with companies’ needs, and supporting the offer with references from other companies, the consultants will certainly be more successful in generating new work among the lead firms and other growing companies in Kosovo.

According to the urban dictionary, to beat around the bush means “to talk about something without mentioning it directly or avoid getting to the core of the subject. Often motivated from a desire not to speak frankly about the subject, either because the subject is taboo, it’s impolite to bring it up directly, or the conversation is perceived likely to be painful.”

In talking about the private sector in Kosovo, it is is now time to ‘speak frankly’, although the content of the conversation is ‘painful’, because without an open and honest dialogue the situation is bound to get even worse. Until now, we tend to drift away from the core subject when discussing private sector development in Kosovo.

The core subject is the necessity for Kosovo enterprises to sell more products and/or services. Selling more most often means producing more, and that is the only viable and sustainable way to generate economic growth and employment.

The core subject is about improving the product offer of the Kosovo enterprises in front of new and existing customers, making the offer more appealing than the competitors’. The consumer’s decision to buy is based on a number of criteria and specific requirements, such as design, price, quality, guarantees, packaging, volume, customer-service, delivery-time, terms of payment, etcetera.

A company’s inability to satisfy the customer’s requirements in any of these areas is in most cases the result of internal company constraints. The product design may be old-fashioned because the company employs no designer. Price should be set to reflect the market demand and cost of production. Non-competitive pricing may be a result of poor cost-calculations, too high profit expectations and/or weak management.

Furthermore, the majority of manufacturing companies in Kosovo are currently too small in production capacity to fulfill the volume requirements of even a middle-sized EU based retailer. This means that even if the price is right and the design is fine, there will be no deal.

For other companies, terms of payment become a hinder in international trade. While a Kosovo company used to trading on the domestic market with cash payments upon delivery, or even beforehand, the international buyers expect to pay 30 or even 60 days after delivery. This change in terms of payments directly affects the producer’s cash flow, potentially throwing the deal off-track.

The potential internal hurdles, constraints and challenges holding back Kosovo enterprises from taking full advantage of existing and potential market opportunities on the domestic and international markets are plentiful, and must to be addressed with the highest priority. Only then will we find out if there is a market place at all for these Kosovo companies. Only then will we find out which company owners and managers are willing and capable of generating company growth and expansion.

Yet, rather than putting companies first, and supporting them to overcome their internal constraints, we tend to drift off the mark and spend much time and resources on preparing indirect support measures, such as policies and strategies, as well as on reducing external constraints to private sector growth in Kosovo.

It is an odd choice of focus, and one that is clearly not delivering the goods. By now, Kosovo has enough strategies to fill a TIR truck, but there is hardly any enterprise growth and unemployment remains very high. These guiding documents were all written with good intentions, for sure, but with limited financial means allocated to actual implementation the strategies remain ‘paper-tigers’ doing close to zero to, for example, improve the product offer among private enterprises of Kosovo.

In 2011, Riinvest research of 800 SMEs showed that the main external constraints to doing business in Kosovo were the overall economic situation in the country, unreliable supply of electricity and non-loyal competition. In 2014, the external constraints for SMEs in Kosovo remained much the same – poverty of people, corruption and informal economy (KOSME, 2014). For companies active on the domestic market, there appear to be no progress in over-coming the external constraints.

A low GDP per capita and high level of poverty reduces the overall purchasing power of the population and consequently the size of the domestic market. To build a business model that involves expanding into regional, EU and international markets is a key option for Kosovo companies to avert dependency on a small and over-crowded domestic market. However, to make this step towards internationalisation, again, the company must be first fulfil ALL the requirements of foreign buyers, which brings us back to the focus on the internal constraints.

Another reason we tend to spend our time and resources on trying to reduce the external constraints to private sector growth is a prevailing belief, very similar to the theoretical base of a state-planned economy, that the demand for products and services are somehow constant. We tend to believe that if we can only reduce the burden of doing business, i.e. reduce the external constraints, then automatically the private enterprises will produce more and customers will buy more. It’s a very naïve and robotic view of how the market functions, which completely ignores the fact that the free market involves fierce competition among private enterprises, and consumers who can choose freely among a large number of products, be it cereal or cars.

There is nothing automatic about the market process. On the opposite, it is very individual. It is the individual enterprise owners, managers and workforce that must do the job professionally in order to grow. They must sell-in their products to the consumers in a pro-active way, convincing them, over and over again, to buy their products/services. It is about knowing and exploring markets and consumer needs.

Reducing the external constraints to business is important, but first we must ensure that we have private businesses at all active in Kosovo, and one that is actually growing and employing more people. At the moment, there are less than 50.000 active enterprises in Kosovo, 95% of which employ less than 10 persons. (Kosovo Tax Administration in KOSME, 2014)

To finally achieve economic growth and employment in Kosovo, we must re-focus our attention to those very few companies that have the internal willingness and capabilities (human, technological, financial) to change and become more competitive, to produce and sell more, and expand their operations.

We must design and implement tailored support programmes around these companies. With time they will come to statute a positive example for other enterprises in Kosovo. Also, as market leaders these companies will be capable of ‘pulling’ with them smaller Kosovo companies within structured value- or supply-chains, generating even higher economic growth and employment.

In turn, this approach is bound to anchor the Kosovo economy to the global economy, and uphold a virtuous cycle of company investments, industrialisation, economic growth, export and employment.

The hugely popular computer game Minecraft has two modes – survival and creative. In ‘survival’ mode the player must collect resources, build structures, battle mobs and manage hunger. In ‘creative’ mode, the player enjoys good health and peace. In taking full advantage of this hunger-free situation, the player can create large constructions more easily.

It seems to me that the Balkans is still stuck in ‘survival’ mode, and it has been so for the last 1500 plus years. Since the days of the Byzantine and Ottoman empires, Balkan people have related to the predominantly autocratic power structures in three main ways, which also represent the three cornerstones of the ‘survival’ mode:

Brown-nose the system

All of the Balkans was under the authoritarian and centralistic rule of the Ottoman Empire, and the Byzantine Empire before that. As new nation-states most of the countries explored monarchy, albeit for a short period, with some hints of infant democracy. Most of the Balkan states were pulled into or participating actively in two internal wars and two world wars. Foreign military forces occupied their lands. In the post World War II era, the Balkan countries became either socialist or communist. Up until the fall of the Berlin Wall the predominant form of government in the Balkans was dictatorial, led by one person, be it an Emperor, Sultan, Tsar or a Politburo Secretary.

To stay alive in such as system, people showed blind obedience to the ruler and his armory of political power. To move ahead in such as system, a person had to go beyond quite obedience and show vocal support of the ruler, system and ideology. A person’s power and wealth were dependent on the closeness to the ruler. This was the age of palace intrigues and backroom deals, a constant fight for the protection and blessing of the ruler. Tributes, in the form of material goods, soldiers and blind commitment to the prevailing ideology, were paid to the ruler to secure one’s position at the Court or in the Party. In return, the ruler created space for the lackeys in which they could do very much what they pleased at the cost of the local population.

Cheat the system

While the ‘game’ of winning the blessing of the ruler was limited to a very small minority, the large majority of people in the Balkans could only dream of such a good fortune to fall upon them. For the ordinary man and woman life was hard, most often played out as a subsistence farmer on a small plot of land. Every man was on his own, and the rulers did their best to keep people apart, applying the ‘divide a rule’ method for building mistrust among people and blind obedience to the ruler. Horizontal cooperation among farmers, an otherwise favored method to reach higher yields, was not encouraged by the ruler. Economies of scale and better management of the agricultural process would release some ordinary people from the daily chores of survival, giving them the opportunity to think about life, science and worst of all politics. Keeping people hungry, tired and ignorant is always the best way to uphold a draconian state.

Unable to organize themselves into viable political forces strong enough to challenge the Emperor, Sultan, Tsar or Politburo, ordinary man turned his attention inwards, putting himself and family first. With no means available to change the system as a whole, Balkan man set out to make the most of what was in front of him. To fight off the constant harassment of officialdom, demanding tax, conscription and obedience, the ordinary man adopted a million creative ways to cheat the powerful and the system. Agricultural production was hidden in secret storage spaces in the mountains far away from the Ottoman tax collectors, a habit that continued under the Tsars’ rule. During communism, people played lip service to the atheist gospel of Marx and Lenin, while sneaking off to church on Sunday mornings. “The state cheats us that they pay us, and we cheat the state that we work” is probably the most telling proverb of the communist era. As the systems before it, the communist system was dysfunctional and deeply hypocritical, as George Orwell’s master-piece ‘Animal Farm’ so vividly describes. Cheating the system had by now become a ‘way of life’, a habit and a norm. And as we all know, “old habits die hard”.

During the times of autocratic rule, Balkan man could not rely on the official system to supply him with anything else but the most basic needs of subsistence and protection. And even then the supply was highly arbitrary. To stay alive, ordinary man had to look after himself and he took what he could. With no equality under the law, only the supreme ruler and his henchmen had the authority to judge if a man had taken too much. When caught with the hand in the cookie jar, the ordinary man were most likely to attempt to ‘brown-nose the system’ to get out of the jam.

Hate the system

Throughout the authoritarian rule of the Balkans, people learned to hate the system. Ordinary man saw nothing but hardship being served by the Emperor, Sultan, Tsar or Politburo. If he was very fortunate and witty he could brown-nose his way to a powerful position, but again, for the overwhelming majority time was spent cheating the system merely to survive. As a result of the fundamental divisions in society, between the have’s and have not’s, between the ruling elite and ordinary men with no rights, people thought of the world in terms of ‘us’ and ‘they’. ‘They’ were the enemy, no matter their constitutional status or nationality. ‘They’ represent a system of unlimited and arbitrary application of political power. And the badness of ‘they’ gave ordinary man the moral justification to cheat the system. Unfortunately, the mistrust between the rulers (officials representing state institutions and public administration) and people linger on in the Balkans even in the more democratic setting of the present.

Conclusion

In order to move forward in our development, we must first accept that it was the application of a combination of context specific tools that helped us survive 1500 years of authoritarian regimes in the Balkans. From the constant strive to survive a set of specific norms and values emerged, which justified and upheld these individual survival methods. Unfortunately, it is the same norms and values that reinforce an authoritarian mode of government. Consequently, we must recognize that some of our norms and values are not naturally supportive of the democratic and free market systems.

We need to change within ourselves first in order for our collective system to change! The other way around is not culturally feasible, as the last 25 years of social, political and economic transformation based on international ideas and blue-print solutions has shown. Some of our norms, values and habits are stuck in the ‘survival’ mode of the past, which effectively hinders the emergence of a more ‘creative’ mode in society.

Today, the new political elites in most Balkan countries are more or less deliberately perverting the new societal ideas of democracy, civil liberties, equality, justice, free speech and competition. Deliberately or not, they are effectively hindering the development of a more civil, informed, competitive and equal societal system to emerge, capable of delivering real improvements in the well-being of the majority of citizens. For the political elites this new world of pluralism, openness to share different worldviews and free speech threatens the traditional mode of government – “By the few, for the few”. When in power, the newly elected officials simply do not know any other way of executing power than the authoritarian way.

To execute power like an Emperor, Sultan, Tsar or Politburo Secretary is the historical norm. The political culture that upholds authoritarianism is still alive and kicking in the Balkans. In post-1989 Balkans, there is a tendency among the electorates to lift up and elect anybody with the characteristics of an enlightened Despot! A super-human leader who single handedly creates a strong and wealthy state, in which citizens can go on doing what we do best – brown-nose, cheat and hate the system for their individual and short-term gain. This is a far cry from the informed, vocal and engaged citizenry required to uphold a successful democratic political system and a functioning capitalist economic system for that matter.

After 1500 years of looking upwards for societal change, it is very difficult for people to realize that democracy must be built bottom-up, needs continuous nourishment and requires active citizens in order to function properly. There is a democracy deficit in the Balkans, which the political elites are quick to misuse to their own advantage. This is one reason why, despite their declared commitment to democracy and free market systems, the Balkan countries remain incapable of delivering real improvement in the well-being of the large majority of the population. The inability to switch from ‘survival’ to ‘creative’ mode is locking the Balkans in a vicious circle of authoritarianism, ignorance and poverty. As a consequence, people’s desire to leave the Balkans remains high, especially among the young, educated and good.

The historical and cultural contexts of the Balkans makes building viable, democratic nation-states with competitive private sectors and participatory citizenry so much more challenging. Since 1989, the drive to support to the Balkans in the process of social, economic and political transformation is led by foreign institutions and organisations, such as the World Bank, IMF, UN, EU and multiple other bilateral and multilateral donor agencies and Non-Government Organisations. The EU has opened the door to membership to all Balkan countries when they can fulfill the Copenhagen criteria:

• political: stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;
• economic: existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union;
• acceptance of the Community acquis: ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union. (Europa.eu)

Since democracy and free market competition is historically alien to the Balkans, introducing them is an enormous task and responsibility for the international sponsors. Taking into account the never-ending struggle to run fair elections, uphold a professional political dialogue, and keeping the executive and judicial powers away from each other, meeting the political criteria appears a long way off. The Balkan countries’ whooping trade deficits show, beyond any doubt, that none of them are ready to meet the economic part of the Copenhagen criteria.

There is a tendency among the relatively inexperienced and poor domestic political elites and citizens to view the international representatives as a new class of rulers. The internationals hold the key to future and fortune, and they have the financial resources that these countries desperately need to transform. All the Balkan countries have to do is to dance along to the tune of the new powers. It follows that the ‘new rulers’ receive the same treatment as all other rulers before them – they are brown-nosed, cheated and hated. Flattered by the attention and blinded by power, there is a strong tendency among bureaucrats within the international institutions to ‘go native’, become prisoners to the worldviews of the few and establish lucrative networks with the local business-political elite.

Rather than promoting the virtues of democracy, civility, transparency, justice and free markets as the corner-stones of a system capable of improving people’s lives, the international civil servants, like the long line of native rulers before them, surround themselves with sycophants, whose only mission it is to distort and pervert the transformation process to their own advantage. It’s a classic case of “do what I say, don’t do what I do” and even the smallest child can see through that hypocrisy.

To successfully support the struggle of transformation in the Balkans, international institutions and organisations must stand firm in their beliefs and commitment to the values, norms and habits that uphold democracy, civility and free markets, and they must act in accordance with these beliefs and principles. They cannot not allow themselves to be brown-nosed and cheated, and disliked as a result of association with the domestic ‘they’.

If the mission to change the Balkans away from a history of ignorance, war, despotism and poverty fails, it’s because the world’s proponents of democracy, liberty, self-determination, civil rights and free competition did a lousy job in convincing the domestic elites and populations how the whole system actually works (not only its individual parts) and where the satisfaction is in pursuing an inclusive development mission, which focuses on the entire population, rather than on the lucky few at the top of the societal food-chain.

The Association of Project Management (APM) defines stakeholders as ”the organisations or the people who have an interest or role in the project, programme or portfolio, or are impacted by it” (APM, 2012, p.243). In international development projects supporting private sector development, the key stakeholders include the funding donor agency, state institutions (responsible ministries and agencies) and private enterprises. Stakeholders play a key role in defining a project’s “vision of a better society (‘well-being for all’)” and in influencing the direction of the development process (Chambers cited in Thomas, 2000, p. 23).

I would argue that the predictive project management approach, as the preferred management choice in donor agency projects, influences stakeholder classification. In order to accommodate powerful donor agencies’ preference for control and predictability, stakeholders who share the same inclinations, such as local state institutions get elevated and treated as primary rather than secondary stakeholders.

In Private Sector Development (PSD) projects, this means that state institutions become ‘end-users’ (Dix et al cited in Open University, 2014, p. 21). As primary stakeholders, the state institutions influence the project’s focus, away from company level interventions to elaboration of policies, legislation, strategies and institution-building. In turn, the role of enterprises in project governance is significantly reduced, which has a negative impact on project outcomes. Project communication moves away from enterprises towards state institutions and donor agencies, and communication often becomes reporting.

From this mix-up of stakeholders it follows that stakeholders may review project outcomes very differently. While some stakeholders see predictable ‘outcomes’, others see the wrong things being delivered. Where some see planned targets met, others see no real improvements in the situation.

Involving a wide variety of stakeholders in project design, implementation and evaluation means nursing a partnership for development where local stakeholders’ are engaged, their capacities and sense of local ownership are strengthened. In such a scenario we are no longer just to giving aid, but “doing things with people not for them” (Robinson, Hewitt and Harriss, 2000, p. 12). Unfortunately, in my project management experience, we are not only doing it for them, we are often doing it for the wrong people.

In my opinion, donor funded PSD projects are low on complexity, novelty and technology due to low and distorted stakeholder participation. Broader stakeholder participation would require the project manager to relate to multiple worldviews and engage in a situation, which local stakeholders may characterize as complex and uncertain. Such as situation is conducive to neither blueprint solutions nor the predictive project management approach. Yet donor agencies continuously frame the situation as stable and predictable in order to fit their own standardised methods and plans, rather than making the project management approach more agile to better suit the complex situation.

By engaging local stakeholders in a systemic inquiry, exploring and making sense of the situation together, identifying common interests and defining project interventions that are ‘systematically desirable and culturally feasible’, the project manager may find context-based answers to the ‘what’ and ‘how’ questions in development (Ison, 2010, p. 248).

Unfortunately, the predictive project management approach does not call for an on-going process of stakeholder-driven inquiry. The project targets are pre-determined and ‘locked in’ the log frame. Also, the donor’s project life cycle is often too short for time-consuming stakeholder participation.

In analysing the inter-relationships among stakeholders, I focus on four elements – Classification, Governance, Communication and Evaluation.

1. Analysis, identification and classification

In PSD projects there are three key stakeholders – enterprises, state institutions and donor agency. Stakeholders have their own interests, and their relative power dictate to what extent they can materialise these interests. I use the Mendelow’s matrix to map the power-interest dynamics:

(Adaptation of Mendelow’s matrix, The Open University, 2014, p.23)

The donor is the project sponsor and the project’s most powerful stakeholder. The state institutions draw their power from the authority to approve project outputs. The interests of both are limited to project outcomes. The enterprises have a high interest in projects as their inputs may contribute to improvements in company performance, outputs and profits.

Without any demanding ‘key players’, the project manager only needs to keep enterprises informed about activities, and state institutions/donors satisfied with project progress. Again, the power and interest dynamics support the predictive project management approach. For real improvements to occur, state institutions and enterprises must become ‘key players’, must assume a higher degree of project ownership and responsibility and better influence the project goals.

2. Project governance

The APM defines ways how good governance is demonstrated, including ““ensuring that stakeholders are engaged at a level that reflects their importance to the organisation and in a way that fosters trust” (The Open University, 2014, p.16). Placing the enterprises outside of the project governance body has the opposite effect. The enterprises are disengaged from the project organization, their importance as drivers of change is not respected and the general distrust between public institutions and enterprises is reinforced.

(Adapted from ISO 21500 in The Open University, 2014, p. 20)

In line with ISO 21500 the role of the Project Steering Committee (PSC) is to contribute “to the project by providing senior level guidance to the project” (The Open University, 2014, p.21). In PSD projects, this will only occur when enterprises are on the PSC, supplying the project manager with up-to-date market and enterprise information, upon which demand-driven interventions are designed. In turn, project impact on PSD will increase.

3. Communication

Communication means exchange of information. However, in my experience, donor and state institutions influence communication, transforming information exchange with enterprises into one-way dissemination.

This approach to communication fits well with the predictive project management’s emphasis on control and reporting, rather than on open dialogue among stakeholders. In my experience, enterprises are mainly passive receivers of project news. This would dramatically change if the enterprises where ‘key players’ in the project. Then, project managers would need to, in line with PMI directives, develop and implement a detailed stakeholder communication plan, to address directly the “needs and requirements” of each stakeholder to manage and control communication (The Open University, 2014, p. 29).

4. Evaluation of project outcomes

APM states that “quality management is a discipline for ensuring that outputs, benefits and the processes by which they are delivered, meet stakeholder requirements”. The project quality plan calls for the project manager to “agree with the project sponsor and other stakeholders” on objectives of the quality plan (The Open University, 2014, p. 68). This means that donors and state institutions should invite the enterprises to define the quality standards in a PSD project. However, in my experience the quality management system is designed to ensure that the outputs, benefits and delivery processes meet the requirements of donors and state institutions and not necessarily the enterprises.

In relation to the Post-Project Review (PPR), McLeod et al highlight that understanding stakeholders’ views can “yield rewards for the organisation in improved contribution to organisational knowledge” (cited in The Open University, 2014, p. 48). Among the three stakeholders, private enterprises see learning differently. Failures are accepted as something natural and are channelled through an internal learning process, creating an empirical base for improvements.

Donor agencies and state institutions do not act in a competitive market, which in turn shapes their worldviews and understanding of the causes of social change (Hyatt and Kaplan, 2006, p. 170). Moreover, public organisations’ fear of their failures being exposed to the outside world locks them “out of learning”, incapable of reflecting on own mistakes (Pinder, 2007, p. 12). The donors, through the predictive project management approach, impose a performance measurement system on project management that focuses on accountability, rather than on learning and performance improvements (Hailey and Sorgenfrei, 2004, p. 4).

Conclusion

In analysing my project management experience, I conclude that the main source of the chronic failure to deliver more competitive local companies, economic growth and employment (‘good change’) is a mutually reinforcing cycle of prioritizing the ‘wrong’ stakeholders, who in turn defend the predictive project management approach because it favours them and limits the influence of other stakeholders (i.e. enterprises in PSD).

The predictive project management approach is “linear-rational, plan-driven” and predictable, turning monitoring and control into a simple comparison between project expectations and achievements (The Open University, 2014, p. 9). This approach is typically found in engineering projects where framing a situation is fairly one-dimensional and technical. Still, donor agencies insist on applying the same management approach in PSD projects in local socio-economic contexts, which are inherently more complex and uncertain.

Rather than modifying the project management approach to be more adaptive, “change-driven” and responsive to multiple local stakeholders’ worldviews, the donor agencies and supportive local state institutions use their power to influence the classification of stakeholders (The Open University, 2014, p. 9). In turn, they use their influence to tailor project governance, communication and evaluation to reinforce their own power and to suit the predictive project management approach, which they themselves benefit from.

Recommendations

My core recommendation is for similar PSD projects in the future to be more agile. Until now, the predictive project management approach is simply not delivering on donor agencies’ promise of ‘good change’. A more adaptive approach allows project managers to be more flexible in the design of project interventions, rather than sticking to old blueprint solutions. The agile approach emphasis ‘consultation’ with stakeholders throughout the project cycle (planning, implementation, monitoring), which indicates that stakeholders’ worldviews and opinions are important and possess opportunities. Finally, the agile approach highlights the importance of ‘rapid iterations’, repeating a process, as a means of achieving real improvements in the situation (The Open University, 2014, p. 15).

The desired end result to be achieved by integrating components of the agile project management approach is to deliver real improvements in the situation of project’s end-users (primary stakeholders), meaning improvements in enterprises’ performance resulting in higher turn-over and employment (‘good change’).

However attractive the benefits of a more agile project management approach may seem, it constitutes a direct challenge to the proponents of the predictive project management approach. To argue for a more adaptive approach is to argue for a fundamental shift in power away from external donor agencies towards more local ownership and responsibility in the development process. There is a balance to be struck here between ensuring that taxpayers’ money is spent wisely (good governance, transparency) and giving local stakeholders the authority to shape project design and implementation in ways they believe will generate ‘good change’.

Is it a hero from ancient times? A local strongman? A seasoned politician? No, no, think again, who is that every person in the Balkans really worry about? Answer: The neighbour.

Yes, only the neighbor has the power to make people think twice about how they go about their daily lives in the Balkans. “Don’t do this, don’t do that, what will the neighbours say!” If your car is not spotless clean, your mother–in-law will tell you to park around the corner, “what will the neighbours say!” If the children are too loud on the playground, again an adult will insert, “quite children, what will the neighbours say!” And when, God forbid, somebody gets angry and yells in the apartment, somebody will surely intervene and advise, “be quite, what will the neighbours say!”

What mystical powers does the neighbor hold, that so effectively releases corrective actions among people, powers that the law enforcement agencies can only dream of? People in the Balkans have little faith in the law, and in particular in the equal enforcement of the law. Or as the Bulgarians put it, “the law is a door on an open field, who goes through it? People’s low trust in the legal system is a result of hundreds of years of applying another type of law in the Balkans – the Law of the Jungle, where society’s strongest always enjoy a ‘get out of jail’ card, while the prisons get filled with petty crime offenders.

No, the soft power of the neighbor originates from somewhere else. Perhaps it is the ‘shame’ factor. It may be the risk of becoming ‘the talk’ of the neighbourhood café that make people change their behavior. But this is also where the reaction gets paradoxical. In general, people love to sit around and dish out negative gossip about the same neighbours whose very thoughts gives them anxiety.

In general, the voluntary inter-action among neighbours is low. We hesitate to pay for the maintenance of the common stairs, even the elevator, in some odd hope that somebody else will do it. Who? The state? We even let the children play in a dirty outdoor playground, rather than making the attempt to organize the parents of the same children to clean it up. Why? Better do nothing, than fail and loose face! Loose face, in front of whom? The neighbours!

In other words, in practice, we don’t really care about our neighbours, let alone cooperate with them for a common good, but at the same time, in theory, we fear and loath them. That’s one vicious cycle, which does not make any sense at all.

Perhaps the fear of the neighbor arrived with communism, back then when one half of the population spied on the other half. Back then fear was justified, bad things happened to those that dared to speak the ‘wrong’ things. But the time of the Gulags is 25 years old now. Nonetheless, people continue to mistrust and fear each other. Why? Not to speak freely, not to let the guard down has become a cultural norm, a survival mechanism. However, this low level of inter-personal trust make the emergence of a viable civil society difficult. A healthy and vibrant civil society depends on voluntary collaboration among people and free speech. In line with political culture theories (Putnam), a strong, vibrant and responsive democratic political system requires the existence of an equally strong, motivate and influential civil society. Without it, political power quickly gets centralised and an authoritarian political regime emerges. Sounds familiar?

So, one direct way we can all contribute to a more viable civil society and more responsive state in the Balkans is to make peace with ours neighbor, invite them for coffee, talk and find common interests and aspirations (such as a clean backyard playground), and find ways of working together to achieve them.

According the EU statistics, the Bulgarians are the most unhappy in Europe. Who can blame them? GDP per capita in 2011 stood at €5.200, about one fifth of the EU average, and light years after the world’s happiest country, Denmark, with a GDP/capita at €43.200. It’s a long way to Tipperary, as the song goes, and for transitional countries like Bulgaria to catch up with more innovative, productive and efficient ‘old’ (North-West) Europe is made so much more difficult by the fact that their own society and state appears to be in complete disarray at the moment.

After having stood in three different queues for three long hours, in the open sun measuring 35 degrees in the shadow to register my car (no shelter, nowhere to sit, nowhere to buy a bottle of water) and having been verbally abused by a civil servant for asking too many questions about how to fill in their non-comprehendible forms. And after having received a notice from the tax department in August, dated February, calling for me to pay a tax I already paid in April, there is this big question itching in the back of my head. Just like the success of a private company depend on its capability to maximize its internal resources and seize upon external opportunities to succeed in its business mission, isn’t it just the same for nation-states? If a state and society is not capable of transforming its internal resources (human, natural, infrastructure, etc.) into a model capable of delivering good schooling, health-care and the pursuit of happiness for its citizens, is it not failing in ‘its’ mission”? Of course it is! But while private enterprises go bust if they under-perform, nation-states can linger on, and on…

So are some states condemned to eternal failure in a world of fierce competition, relentless innovation and globalisation? Probably, if the nation-state doesn’t change the way it run its ‘business’, which for most countries in the Balkans will require them to adopt of some relatively new habits, norms and values. After 7 years as full Member of the European Union, what ‘European’ values have Bulgaria adopted? Not many.

No, the question on everybody’s mind in Bulgaria this summer (at least I hope so) is this – “After 25 years of experiments with democracy and the free market, is this is the best we can do?” Any taxi driver in Sofia will tell you the constraints to societal and economic development in the country, deeply embedded in a lethal mix of incompetence, greed, corruption, nepotism, brain-drain and a complete loss of civilized values (or in simple terms, the capacity and willingness to care for more than myself and my immediate family).

Let’s return to the car registration example. Today, public administration consists of civil servants who are neither ‘civil’ nor do they ‘serve’ the general public. Public administration represents the democratic system on a daily basis for the citizens, yet this is where democracy breaks down on the spot. In other, more mature societies, you as a citizen, get the feeling that the civil servants work ‘for’ you and the state institutions are organized to suit ‘you’, and not them. Car registration in most ‘old’ EU countries is now done electronically. No need to leave your home or work place, none of ‘your’ time is lost.

In Bulgaria, and most other countries in this part of the world, the public sector is no less than the extended arm of local, regional and nation government. Public administration is a job creation scheme for relatives and the political party faithful. As a consequence, nobody is hired based on competence or motivation. The staff member’s loyalty is not to the organization and performance is not measured towards a transparent job description, but by how well the staff member serves the patron who put him/her there. It’s a machine of corruption and blatant misuse of state funds. It’s the number one reason why people in Bulgaria are unhappy and why young people are leaving the country. The system is unfair and promotes misuse. Yet nobody seems to care, let alone do anything about it. Why? Money and power reinforce each other in a vicious circle, which destroys values such as dignity, transparency, respect, hard-work, trust, etc. Which democratic society can exist without these core values? None.

This summer, in the town of Veliko Turnovo, the head of the vehicle registration service (public agency) was arrested for taking out a “hands-off fee” from every company registering a commercial vehicle. This was a pure racketeering scheme, according to which only those vehicle owners who had paid the ‘fee’ would be let alone by the controlling organs. This is just one example, go ahead and ask the taxi driver about the other thousands and thousands of schemes to steal from the state, to steal from the citizens, to steal from our children. If you add it all up, you have a pattern of thinking or a cultural behaviour, and where you have a system you will have the values and norms to uphold such a system. But it’s a system based on short-term thinking and greed, built to serve the strong at the cost of the weak in society. In states where the law of the jungle prevails over the law among equals, there is no future.

By always looking inwards for new sources of income, rather than outwards, the system is inherently conservative and cannibalistic. It is a system incapable of creating new wealth. The system feeds off the small productive population (the few people that actually work) and private sector (the few enterprises that actually produce and sell services that the market wants), like a parasite. The ever expanding state and public sector keep their faces above water only by increasing taxes and regulations on the productive sector, and taking new credits to cover ever appearing new holes in the budget and feed themselves and their patrons, leading to mountains of debt for the next generation to pay back. (hence, we steal from our children as well)

On the other hand, an outward looking state and society is in tune with the realities of the world we live in, now based on the free flow and globalization of goods, ideas, funds and people. It’s a challenging and ever changing world we live in. To survive, let alone prosper, nation-states must invest wisely in its human resource and supportive infrastructure, work hard, be creative and innovative, seek consensus on the big questions, show tolerance and discipline, and make the public sector more effective and customer-oriented. For some countries, such as Bulgaria, where real poverty is just around the corner for a large portion of the population, where people have lost all faith in politicians and civil servants, where the talented youth are either leaving or thinking of leaving the country, the original question remains – what comes first, “the chicken or the egg?” Does the state and its extended arm of public administration change first, or society change first and put pressure on the state to alter its ways?

In my book, it is the task role of the state to ‘blink first’. Two main things need to happen for people’s lives in Bulgaria to improve. First, the state should be reduced by half in size, meaning everybody from the politicians to the civil servants at the local car registration agency, The performance of the remaining 50% should be measured towards detailed job descriptions. Their salaries should be increased, for them to make a decent living on the salary alone, and in order to fence off pressure to engage in old corrupt practices. As a public servant once told me: “Our salaries are low, BUT our profits are high”. This norm has to go in order for the new Bulgaria to emerge.

Second, bad behaviour must be punished. This means the judicial system must divorce itself from the executive branch of government, come clean and start sentencing corrupt officials, everybody from ministers to civil servants caught abusing power and misusing public funds, to extensive jail terms. As the joke goes – “In Bulgaria the bad guys don’t call their lawyers, they call their prosecutors!” Or as the more recent joke goes – “In Italy the maffia is in the State, while in Bulgaria the State is in the maffia!”.

Not until bad behaviour is punished will the abuser change his/her habits, this we all know from raising children. Not until the bad guys are penalised, will we know what the state recognizes as ‘right’ and ‘wrong’. Not until the political and business elite live by the same standards and laws as the rest of society will new modern and democratic norms and values find fertile ground in Bulgaria. State institutions and the civil servants will start to show some humility and humanity. People will then begin to appreciate and trust the state institutions again. It will be a slow and cumbersome process, full of trial and errors, but it is a path of deliberate change that has to be completed in order to make Bulgaria, state and society alike, fit for the 21st Century. So, go chicken, go!