AS MANAGEMENT challenges go, they don't come much tougher.
Here's a firm at the centre of an industry that is one of the toughest in the world. As if that wasn't enough, domestically it has come to symbolise gangster capitalism. The company itself is an amalgam of two erstwhile rivals that have been bought and sold on several times in the last few years, each time stripped of a little more of any saleable assets that remained.
In a capital-intensive industry, its vast plants are ancient, decrepit and polluting. Manning levels are four times higher than the industry best, nine times in the case of managers. The 65,000 or so employees (no one knows the exact number) are not just demoralised and cynical - 15 per cent are actively mutinous, bent on theft and sabotage. Oh yes, and your language doesn't have a word for 'performance'.
Welcome to Rusal, Russia's largest aluminium producer.
That was the situation that greeted the new management team when the company, the third largest aluminium firm in the world, was formed in 2000 from a merger brokered by two of Russia's billionaire 'oligarchs', Roman Abramovich, of Chelsea Football Club fame, and the only slightly less rich, although not so well known, Oleg Deripaska, 36, the current chairman and 75 per cent owner.
In the Soviet era, the company's four giant smelters (including the two biggest in the world) had been 'township-forming' enterprises - all-embracing company towns set up near energy sources in the middle of Siberia, to which inhabitants and their families had to be imported. Now they found themselves bearing their onerous Soviet heritage in a post-Soviet environment, bereft of the most rudimentary equipment to steer by.
'People had had no contact with the outside world,' says Victoria Petrova, 39, the firm's human resources director. 'There was everything to learn.' Could the company with its historic legacy compete in world markets? How to make profits, invest, structure how to change the attitudes of fatalism, nepotism and reliance on others that ran through the organisation.
Confronted by a situation of such direness, the young management team responded by drawing up a strategy that went boldly to the opposite extreme. By 2013, they decreed, Rusal would be the largest and most profitable aluminium producer in the world (as the company is private, current profit figures are not available). It would double aluminium production from 2.7 to 5 million tonnes a year, make itself a top-three producer in terms of capital efficiency, improve its environmental performance - and turn itself into a Russian employer of choice.
None of this could happen without a human capital programme, which for once, although with some irony in the circumstances, deserves to be called revolutionary. One of the first challenges, says Petrova, was to isolate a minority of the workforce bent on bringing the firm down. The angriest, she says, were a group of thirty- to forty-somethings who had completed their education and training in the Soviet era and had a lifetime's expectations laid out before them. 'Suddenly it was all taken away from them. The result was total cynicism.'
To counter their baleful influence, Rusal looked to a group of loyalists, a 'golden reserve', who (despite the history) were prepared to give the company a chance and put themselves forward as the new managers. Instead of the hoped-for 300, 700 people applied. Of those chosen, around 20 per cent a year are now coming through a specially- designed training programme and becoming managers.
It's hard to exaggerate, Petrova says, just how far attitudes needed to change. Like all large Soviet enterprises, the companies had been run in rigid top-down fashion. Managers gave orders and employees carried them out (slowly, to make the work last as long as possible). People management in the western sense was completely new. 'Everything was centrally administered, down to where people took their vacations.'
The first year of performance management, says Petrova with feeling, was 'a nightmare'. For a start there is no word in Russian for performance and no concept of discussing alternatives or taking responsibility - only orders.
The idea of bonuses according to the firm's performance caused bewilderment and consternation. Once it did sink in, however, performance appraisal turned out to be 'very interesting', according to Petrova. It unleashed a flood of discussion about how to reach the company's goals, something that had never happened before.
Because there were no preconceptions, she says, employees came up with extremely inventive and interesting ideas. By the second year, people had stopped ringing the human resources department to ask it to arrange their holidays and instead were inquiring about likely bonus levels.
A further breakthrough was the drawing up of a code of ethics. When the first version was posted for consultation, there were 18,000 suggestions and comments. The outcome is a notably clear and down-to-earth statement, one of the first among Russian companies of the post-Soviet era.
The cumulative outcome of these and other human resources initiatives - including monthly communication meetings, newsletters, Russia's first e-learning programme and awards - are now feeding through in earnest. Productivity per employee has almost doubled, from 75 tonnes in 2001 to 137 tonnes in 2004. Safety and environmental performance are improving. And having proved to itself that it possesses the resilience to survive, Rusal is now looking ahead with increasing confidence to the future.
To meet its goals, says Petrova, Rusal must modernise its colossal existing smelters, build new ones and acquire other companies. But all that depends on being able to develop and attract the right people. So the company has nailed its future to developing labour conditions that are the best in Russia, expanding career opportunities and training, and building a social package that almost rivals that of the Soviet period.
Petrova concedes that Rusal still has much to prove. You can't turn a derelict Siberian smelter into the winner of a best-kept village competition overnight. And as with all large-scale Russian enterprise, politics looms large. But provided it can steer clear of top-level controversy, the changes made on the ground give it the best possible chance of keeping its destiny where it never was in the past - in its own hands.
The Observer, 10 July 2005