Ireland is going through a period of rapid change and no area more so than its food industry which is emerging as a serious international player in the food processing industry. (Financial Times Survey, 21st May, 1997)
Forty years ago the Irish food industry comprised co-operative dairies in market towns, small local abattoirs and large scale production of white bread. From industry sources and reviews, sector analysis and current research reports, there is an accumulation of evidence that structural and competitive change is already under way. Today’s Irish food industry is in transition, consolidating and restructuring to achieve scale and efficiency in the global economy. The main components of the Irish food industry are meat (beef, sheep, pig, poultry), dairy, fish, fresh food produce/edible horticulture (mushrooms, potatoes, fruit and vegetables), food ingredients and prepared consumer foods. Three groupings or clusters exist within the industry; basic foodstuffs/primary processing, secondary processing/prepared consumer foods and food ingredients. Presently, over 80% of the current gross output in the Irish food industry is derived from basic foodstuffs /primary processing. The industry recognises the need to shift towards secondary processing/prepared consumer foods and is actively attempting to achieve this. Reports on food industry issued since the early 1990s have demonstrated an awareness of this trend and led to the implementation of a programme of investment together with measures to maintain competitiveness and to add value.
In 1995 the food sector’s turnover amounted to approximately 40% of all manufacturing turnover in Ireland. The industry is of significant importance to the Irish economy in terms of industrial output, employment and trade and is vital in terms of the overall wellbeing of the Irish economy. The food, drink and tobacco industry continues to be ranked first in the Irish manufacturing sector in terms of the value of gross output (25%) and the numbers employed (20%) (Census for Industrial Production 1995). Irish food products are based almost entirely on indigenous raw materials, significantly more than for any other sector in the economy. This has resulted from the nature of the raw materials, Ireland’s peripheral location and transport costs, coupled historically with strategic planning provisions for the industry.
The industry is characterised by small factories or units. Approximately three quarters of these (73%) employ less than 50 employees and only 3% (29 companies) employ more than 250 employees. The 29 large units/factories are in the meat, dairy and chocolate confectionery sectors and are amongst the most progressive processing facilities in Europe. Across the sector there is ongoing evidence of restructuring, consolidation and the emergence of larger scale units resulting from drives towards greater competitiveness. The majority (89%) of food companies are in Irish ownership and 75% of employment in the industry is in indigenous Irish-owned companies. In contrast with trends in Europe, numbers employed in the industry have remained relatively constant. This level of employment in Ireland represents 21% of total industrial employment, with the largest employment in the meat and dairy primary processing sectors. The workforce in the industry is predominantly male (except in the poultry and fish processing sectors), middle-aged and works on average 40.7 hours a week (Central Statistics Office 1994). Unionisation of workers in the industry is high. The European Foundation for Working and Living Conditions has identified a need to improve health and safety practices at work within food processing plants.
By far the most important market for the food industry is the domestic market which absorbs 52% of all output, with the remaining 48% of output is exported. These exports earn approximately 40% of foreign exchange earnings for Ireland. The sectors with the largest exports are meat, fish, miscellaneous foods and the dairy sector. Of the food exported in 1996, 80% of prepared food and 35% of dairy produce went to the United Kingdom and 50% of meat to international markets (An Bord Bia 1996). Exports vary across the sectors of production.
Although the outlook for the food industry appears promising, it is difficult to talk about the prospects for the industry as a whole, as each of the component parts has evolved in diverse ways and is influenced by different factors. The future environment in which the food industry will operate, is being determined by factors which are exerting pressure at both ends of the food industry value chain. The supplier/farmer continues to be affected by the rolling out of the CAP reforms activated by GATT, coupled with the enlargement of the European Union, as heralded by Agenda 2000. At the other end of the spectrum, customer concerns for safe, healthy food together with the increasing power of the retail multiples are exerting pressure. Food processors at all levels have to respond to both consumer and supplier impacts, to comply with increasing regulation of their industry and to provide transparent evidence of quality and regulatory compliance.
Competitive advantage in natural resource dependent industries is notoriously unstable due to their politically sensitive nature and the fact that they are heavily subsidised. Lowest Delivered Cost (LDC) strategies are deemed to be appropriate in industries with long life cycles like commodities (Gilbert & Shrebel 1986). Currently, with such a high proportion of the Irish food industry selling products at the primary processing level, they are pursuing LDC strategies upstream in the industry business system. These strategies have implications for the style of leadership exercised by managers in an industry which is challenged to be successful and survive through an increased consumer focus in open markets. A strong focus on the financial bottom line and strong leadership will be required in order to consolidate the future of the Irish food industry.
3.1 Organisational Culture in the Food Processing Industry ‘as is’ and ‘as should be’
Within the framework of the GLOBE survey, access to food sector companies proved a challenge as many companies replied that they did not have a cohort of middle managers on account of their size. The ten participating companies thus represent the larger food processing companies in Ireland. These organisations were all located in rural Ireland and play an important role in their local community. Since the collection of the survey data, the ten companies have consolidated to seven and one publicly quoted Irish household company has been acquired by a major multi-national food company.
The attributes operationalised as dimensions of organisational culture were the same dimensions as those measured in the societal culture survey. These were Uncertainty Avoidance, Power Distance, Collectivism I, Collectivism II, Gender Egalitarianism, Assertiveness, Future Orientation, Performance Orientation and Humane Orientation. The ‘as is’ score reflects institutional practices in the organisation and the ‘as should be’ score reflects the values of the organisation. The GLOBE study posits that organisational culture and practices will affect how leaders in these organisations are expected to behave. Specifically, it is hypothesised that organisational culture will have a stronger impact on leadership than societal culture as the organisational culture is more proximate.
Most of the mean scores on the dimensions of organisational culture are over 4.00 on a seven point Likert scale, suggesting that food sector companies exhibit reasonably good institutional practices on performance orientation, future orientation, humane orientation, collectivism, power distance and uncertainty avoidance. Gender egalitarianism is recognised as an area needing attention.
Food sector middle managers report that the performance orientation practice in their companies is 4.53 on the 7 point scale. They recognise that their organisational culture needs to become more performance-oriented, suggesting with a high degree of unanimity that the performance orientation score ‘should be’ 6.36. Margins are low in the food commodity sector which gives rise to continuing pressures to be more efficient and cost effective; hence the trend towards implementing change management strategies such as World Class Manufacturing to eliminate waste from the manufacturing process. The future orientation ‘as is’ score at 5.07 suggests a strong future focus in these companies and recognition of the challenge faced by them. In terms of managing the shift away from primary processing towards producing value-added consumer foods, the industry is investing in product development and innovation. One area of concern relates to training. Irish food companies are estimated to spend 1.3% of payroll on training and development in comparison with benchmarked best practice companies in Denmark and Germany which spend 3-5% of payroll. Lack of commitment to training and management development is not, however, specific to the food industry, as has already been highlighted in Section 2.2.
When we review the ‘as is’ mean scores on the Future Orientation dimension in conjunction with Performance Orientation and Collectivism II, it is possible to conclude that the food industry organisational culture practice reflects a recognition of the reality of the macro-environment in which it is currently operating. The very high ‘should be’ mean scores on these dimensions point to the continuing recognition of the need to maintain this collective focus and momentum in order to survive and succeed. There is widespread recognition of the need for more gender egalitarianism in the industry. Where women are employed, they work in specific sub-sectors, most notably poultry and fish. The absence of gender egalitarianism comes as no surprise: working conditions are harsh and most of the employees are middle-aged males.
On the Collectivism I scale, food industry companies incline toward the collective end of the scale and wish to become more so. This probably reflects the fact that most of these companies are situated in local communities where there is little staff turnover, where the employees have known each others families for generations and where strong internal labour markets exist. With all the turbulence in this sector it is surprising that there is not a higher score on the ‘should be’ humane orientation. However, Irish employees are well protected both as individuals and collectively in law. It has already been noted that high levels of unionisation exist in this sector and larger companies, such as those sampled, would have good personnel policies and practices in place. The suggestion that power distance ‘should’ decrease somewhat (4.00 to 3.42) is in keeping with trends across Irish industry where demands for more participative management styles, employee empowerment and greater involvement in decision making continue to grow. There is a marked trend towards organisational restructuring and change taking place in this sector; organisational hierarchy is giving way to more team involvement, which is decreasing power distance between levels at work.
With regard to uncertainty avoidance, middle managers recognise that ambiguity and uncertainty are being managed and it is not unexpected that the ‘should be’ score calls for greater uncertainty avoidance. This industry is highly regulated with regard to safety, quality and financial transfer payments. A recent survey (Fas 1992) of 317 Irish food companies found that they expected regulations in the areas of hygiene, food safety and quality to have a major impact on their operations. Equally, as parts of the sector have been at the centre of investigations regarding European transfer payments, greater transparency and accountability in terms of structured reporting relationships have been implemented. Increased investment in product development and innovation also suggest continuing efforts to manage uncertainty in this sector. Given the turbulent environment facing the food industry, one might expect that it would strive towards lower power distance coupled with higher uncertainty avoidance scores as ‘should be’ in order to manage the uncertainty. As can be observed from the quantitative data, this is indeed the case.
Finally, on the assertiveness scale, there is a view that the sector might become less assertive. One reason for this might be that the industry has been bruised and punished for widely reported financial mismanagement and may be acknowledging that it needs to retreat in order to put its house in order.
The organisational culture profile presented by these findings resonates with the reality facing Irish food processing companies who are rationalising and consolidating to meet the challenges facing a small, open economy like Ireland in the more de-regulated food markets of the future. The question as to whether organisational culture influences the leadership style expected by middle managers in a particular industrial sector and whether organisational contingencies impact on leadership style will be considered in the following section with reference to the GLOBE organisational leadership data. It is also worth recalling the argument put forward by Leavy and Wilson (1994) who submit that leadership is ‘not just about having the right attributes and generic skills’, rather it is also ‘about the art of leading with a keen sense of current context and historic opportunity’ (p.185). Visionary and inspirational leadership, they continue, is ‘very deeply rooted in basic values which are developed over a long period in the leader’s life. These values are very situational and connect the leader and his efforts in a specific time and place to his organisation and the society that it serves’ (ibid., p.186).
3.2 Leadership in the Food Processing Industry
As in the case of societal leadership, the twenty one leadership items were rated on a 7 point Likert type scale ranging from low, that is, characteristics which inhibit a person from being an outstanding leader, to high, that is, characteristics which contribute greatly to a person being an outstanding leader. The results of the Irish survey in the food processing industry are presented in Table 4:
Based on the quantitative data collected, it appears that, as in the case of societal leadership, the charismatic/value based cluster of attributes, including inspirational, visionary, self-sacrificial, administratively competent, humane, modest, diplomatic, decisive, collaborative and integrative are all positively endorsed in the food sector. The leadership attribute receiving the highest mean score was performance, with 6.63 on the 7 point scale. This reflects the pressure to deliver shareholder value in an industry with notoriously low profit margins in the wake of its historical focus on primary processing. Addressing the share-holders in his company annual report, the CEO of one of the surveyed companies, stated, ‘[w]e achieved record turnover on the balance sheet…[this will] provide a strong base from which to develop and grow the business in the years ahead’ (Avonmore 1996), thereby underscoring the strong performance focus for food sector companies. This focus was also apparent in the current organisation culture practice and future value in the food sector.
Complementing performance, which is a feature of all cost competitive strategies, are the leadership attributes ‘inspirational’ and ‘visionary’. These attributes are self-explanatory if one takes account of the task facing the leaders of Irish food sector companies to bring about radical change in an industry which is critical to the Irish economy and psyche. Skills in team leadership will be imperative for food sector leaders, who will have to secure acceptance of their future vision for the industry as well as motivating and empowering highly unionised, middle-aged and inward looking staff. Equally important will be skills of diplomacy in orchestrating the shift from managing internal stakeholders to delivering external shareholder value. Leaders in the food sector will also be expected to be decisive and administratively competent. Given the increasing requirements for transparency, accountability and compliance with national and international regulations, senior managers will need skills in these areas. Finally, in this sector a sense of caring and a humane orientation is expected of leaders.
Factors which impede effective leadership in the food processing sector, include malevolence, self-centred, non-participative, autocratic, face-saving behaviour, thereby providing a parallel to the negative attributes identified in respect of societal leadership. Many of the attributes of leadership endorsed in the quantitative study were discussed in the focus groups and ethnographic interviews. One example is the suspicion which was voiced by the focus group participants about the misuse of power to influence followers: this view is wholly endorsed in the quantitative data if one considers that malevolence was ranked the factor most likely to impede leadership. It is also worth recalling the reservations which were expressed in the focus groups about accepting prominent business figures as leaders: ‘They’re outstanding in the area which is important for them to operate in - not in the huge arena but in the micro culture environment of their organisation or industry’. This statement rings true in the food industry where leaders are household names, especially in their regions and local community, and it brings us closer to an understanding of the contextual basis of leadership.
3.3 The Financial Services Industry
The Irish financial services industry is, like food production, viewed as an Irish growth industry. The industry has undergone significant change over recent years driven by deregulation, technological innovation, new participants and increasing demands from customers. Consisting of a wide range of financial institutions, including banks, insurance companies and building societies and supported by stockbrokers, financial advisers and consultants, the industry provides financial services to both the personal and corporate sectors.
In retail banking, the market is dominated by four main clearing banks, the largest two of which are Irish-owned. The 1980s saw these banks expanding overseas through acquisition. The take-over of the smallest bank by the National Australian Bank increased competition. Recently the focus has been on increasing domestic competitiveness and on product innovation. Deregulation has stimulated competition by allowing building societies and credit unions to provide a wider variety of financial services. Presently, the sector is estimated to account for 7.6% percent of GDP each year. The sector employs over 50,000, an increase of 30% in the past ten years. The two largest Irish banks employ approximately 26,000 staff. Over 50% of those employed in the industry in 1997 were graduates. Employment is geographically dispersed throughout Ireland and indirect employment is significant in the sector.
Banking forms the core of the financial services sector. Over the past 25 years, the structure of the banking industry has undergone fundamental change, reflecting general trends in international banking. A number of mergers occurred during the 1960s in order to deal with increased competition from abroad and the possibility of external takeovers. Whilst there was a wave of external interest from North America in the 1960s and early 1970s, this has since subsided. During the 1980s there was a similar influx, but this time from Europe and under the regulation of the 1971 Central Bank Act.
Today, many foreign banks are in direct competition with Irish banks in their provision of credit facilities, both to the public and corporate sectors. This is in direct contrast with the development of the insurance industry, which has benefited from state protection against foreign competition. In the insurance industry a faster rate of growth has been recorded in Ireland since the mid 1970s than in a number of other EU countries. Another strong contributor to the sector is the assurance industry. It has grown rapidly on the back of government tax relief policies which, for example, reward investment in life assurance more handsomely than investment in unit trusts. On the other hand, in the 1990s the assurance industry has been obliged to focus on competition within the domestic market and on the consequences of EU liberalisation measures.
Financial integration within Europe has been gaining momentum in the 1990s. The Irish financial sector has responded to the process of achieving a single financial market by the end of the millennium. Firms in this sector are finding new opportunities for external orientation, for co-operation with financial institutions abroad and are competing within the increasingly integrated European financial market. Ireland’s membership of EMU will facilitate this development. Europe-wide supervisory standards will indirectly promote greater competition between financial institutions and offer additional opportunities for locating the production of financial services in lower-cost countries, such as Ireland. Dublin’s reputation as a financial centre has been consolidated by the establishment of the Financial Services Centre in 1988 which through the offer of attractive tax incentives has attracted over 175 registered companies. These include banks such as Merrill Lynch Capital Markets, Dresdner, ABN Amro and insurance/reinsurance companies such as Scottish Mutual, Hannover Services and J. Rothschild. Indeed, some anxiety in other offshore locations has been evident in recent times, attesting the growing threat posed by Irish competition within this sector. The government has recently announced the extension of various tax incentives which had been limited to the end of the decade, thus responding to ever increasing demand for entry to the Irish financial sector.
According to a recent report on European Banking, the current management style differs from the rest of Europe in several ways:
Focus tends to be less on centralised decision-making and pro-active product development. Remuneration is more closely tied to individual performance and there appears to be a much higher tolerance of individual mistakes. However, a move to towards greater consistency in corporate values is expected in the future, with only slight variation between the Irish and European strategies. Tolerance of individual mistakes will continue to be slightly higher in Ireland and organisations will become more risk averse than their European counterparts. (Prospectus Management Consultants 1994)
The main challenge within the sector in the late 1990s is to participate fully in an integrated European financial market whilst continuing to grow in international markets and, at the same time, defending the domestic market base. Inadequate customer-focused business processes are perceived to be the major internal impediment to the sectors meeting future customer expectations. Satisfying customers and a clear strategic vision will be the key success factors in successfully managing Irish financial services sector companies in the future (Prospectus Management Consultants 1994).
3.4 Organisational Culture in the Financial Services Sector ‘as is’ and ‘as should be’
The findings of the organisational culture survey of the ten Irish financial institutions, as presented in Table 5, provide us with an interesting basis for discussion.
With the deregulation of the industry, the current ‘as is’ score for the dimension future orientation (4.67) and performance orientation (4.32) suggest that the sector is cognisant of the necessity to plan and perform for its future. Deregulation has opened financial markets to new entrants from within Ireland, the UK, Europe and the US. The location of the Financial Services Centre in Dublin has provided an accessible benchmark regarding standard performance levels, profitability ratios and management styles in the industry. The ‘should be’ scores espoused by middle managers for future orientation (5.62) reflects their continuing awareness of the uncertain future facing the industry. Equally, the ‘should be’ score for performance orientation at 6.14 recognises the need to become more performance-oriented in order to deliver anticipated shareholder value, to meet financial targets and to prevent take-overs by larger predator institutions. One Irish economic commentator has drawn attention to the lack of accountability with respect to underperformance, citing the example of one leading Irish financial institution: ‘In the private sector, no one was held accountable for the collapse of the AIB [Allied Irish Bank]-owned Insurance Corporation of Ireland in the mid-1980s with losses which totalled hundreds of millions of pounds. No resignations followed in AIB. There was no investigation to establish whether there had been any regulatory failure by the Central Bank’ (Guiomard 1995, p.194). It might be expected that the growing emphasis on performance will produce greater transparency in such matters.
The need for greater organisational loyalty and pride, Collectivism II, in the Irish financial sector is high. Although the current ‘as is’ score is reasonable at 4.44, the espoused score at 5.82 suggests that greater cohesiveness and a more collective shared vision are called for. The financial services sector, like the food processing industry, is highly unionised. An acrimonious strike at the beginning of this decade about the introduction of new technology and changing work practices in the banking sector displayed a pluralism in employee allegiances which the banking sector has been addressing in terms of gaining consensus on strategic goals. Financial services middle managers report a preference for collectivism as opposed to individualism regarding workplace relationships. Many recently introduced human resource management practices in financial services have been developed to recognise and reward the individual. Getting the balance right between individualism and collectivism in this sector is an issue which is widely discussed in the context of the changing nature of the industry.
The humane orientation in financial service sector organisations is high (4.26). This is a sector which has been demonstrated by comparative research to have excellent working conditions (European Foundation for Living and Working Conditions, 1994). A long history of strong collective representation has given rise to well-established due process procedures. In spite of this, the suggestion is that these organisations could have a more humane organisational culture. One explanation for such a view may be linked with the fact that many of these organisations are large mature bureaucracies. Often in such structures, regardless of excellent procedures and practices, there can be a lack of human kindness, which, according to the GLOBE societal results, is highly valued in Irish society.
The recognition of the necessity to improve the gender orientation in financial services is widely accepted, with an ‘as should be’ score of 4.93. Gender imbalance is apparent at senior levels in financial institutions and most of the organisations surveyed are implementing ‘valuing diversity’ and ‘employment equality’ strategies to make the espoused value a reality. Middle managers seem to be suggesting that the assertiveness of financial institutions does not need to change.
The current organisational culture is deemed to place too much emphasis on power distance (4.33), which the surveyed middle managers want to be reduced (3.40). By their nature financial institutions are hierarchical machine bureaucracies, full of formality, procedure and precedent. The era of technical, impersonal financial services and one-stop shops has produced a customer who demands immediate decisions. Financial services have been re-engineered; technology has replaced the paper pushing middle levels, resulting in downsizing and much early retirement. Employees have been retrained to become more empowered and innovative whilst power and decision making have become less centralised in order to provide better customer service. Finally, and most interestingly, those surveyed suggest that the organisational culture in Irish financial services should be less risk averse in the future, that the uncertainty avoidance score should be reduced in the future. It is useful to recall the thrust of the argument cited from The Strategic Profile of the Insurance Industry in Ireland (Prospectus Management Consultants 1994) in the previous section:
Tolerance of individual mistakes will continue to be slightly higher in Ireland and organisations will become more risk averse than their European counterparts. […] a move towards greater consistency in corporate values is expected in the future with only slight variation between the Irish and European strategies.
It can be observed that there is a difference between the opinion expressed by Prospectus Management Consultants and the views expressed by the middle managers in our survey. It was hypothesised in the GLOBE study that because financial service organisations need to become more customer service oriented, more future-oriented and more flexible that they would espouse lower uncertainty avoidance and lower power distance. We can observe this trend in the Irish data.
Do the cultures in the two sectors differ?
With the exception of uncertainty avoidance, the direction from ‘as is’ to ‘as should be’ across the remaining eight characteristics was similar. The trend for Performance Orientation, Future Orientation, Humane Orientation, Gender Egalitarianism and Collectivism I and II is toward the espousal of higher values. Food processing and financial services face challenging futures, requiring greater performance orientation. Middle managers in the two sectors recognise that higher organisational loyalty, Collectivism II, is to be valued. Whilst both demonstrate a preference to be more collectively-oriented, the food service sector values this collective focus more. This difference possibly reflects the fact that the food sector organisations are already very collectively focused, being located in tightly knit rural communities. Both industries embrace a more humane orientation and recognise the importance of improving gender egalitarianism. However, the latter is felt more deeply in the food sector companies in which fewer women are employed and those who are, operate in sex segregated roles.
A reduction of power distance is deemed desirable in both sectors, with the financial services sector espousing this reduction more significantly. As machine bureaucracies, finance houses would have a stronger sense of hierarchy and formality on account of their structure than would be found in food sector processing plants. Dismantling hierarchies and focusing staff around the concept of customer service necessitates a more collaborative approach to work in financial services.
Finally, on the issue of uncertainty avoidance, the organisational cultures of the two industries diverge. Food sector organisations wish to become slightly better at managing uncertainty. Certification, validation and evaluation are becoming part of the environment for food companies operating within the demands of accountability and transparency to multiple stakeholders. This matches the reality of the increasingly regulated environment in which these companies operate. Financial services companies, on the other hand, wish to become less risk averse. As an industry, which was dominated by rules and procedures, these organisations desire to become more innovative and to encourage staff to become more responsible and self-reliant in order to deliver a speedy and efficient customer service.
We now turn to the quantitative findings on leadership style within Irish financial organisations.