How changing from a state department to multinational corporation is reflected in top management decision-making
State-owned enterprises balance demands of markets and public sector. Ambiguous and changing demands create a power vacuum giving management more power, while creating potential for conflicts. State-owned enterprises are used for political purposes. A study examined how Sonera's predecessor, the state-owned Telecom Finland, became more internationalized from 1987 to 1998.
Telecom Finland, or Tele, was an active player in the international telecommunications market in the 1990s. A new study reveals that the attitude of Tele management toward internationalization changed significantly in a decade. This took place as part of broader development in which state-owned enterprises were incorporated, and private sector practices and tools spread to the public sector. The change was especially pronounced in the telecommunications sector, where the market was opening to competition.
"After the change, the focus of Tele shifted to international growth and other features typical of multinational companies, while previously the focus was more on the national interest. The rapid change made Tele take bigger financial risks when choosing international projects," says postdoctoral researcher Zeerim Cheung from the Jyväskylä University School of Business and Economics and Aalto University's Department of Industrial Engineering and Management.
Researchers from Jyväskylä and Aalto University digitized more than 50,000 pages of archive material, such as management team minutes and documents related to strategy. The outcome was an exceptionally extensive long-term database making it possible to combine digital methods of historical research with discussions on organizational research in an unprecedented manner. The results provide new and more extensive information on the internationalization of state-owned enterprises and on relations between corporate management and political decision-makers.
The management at Tele had an impact on changes in the governance of state-owned enterprises. The company's management aimed at a faster and more flexible model better suited for international business. Lengthy political processes were no longer suitable for the competitive environment of the 1990s that was undergoing rapid development. It was important for the company's development to increase its own managerial discretion.
"The linkage with the state budget had an especially slowing and limiting effect on strategic decision-making. For example, at the end of the 1980s, Tele had to negotiate every single new employee hire with the ministry, and even in the early 1990s Tele had still to get government authorisation for each international project, which also revealed business sectors to public, says doctoral candidate Eero Aalto of the Aalto University Department of Industrial Engineering and Management.
Between politics and the business world
The changes in the governance of state-owned enterprises can create a power vacuum, enabling growth in the power of management, possibly leading to excessive risk-taking. The political dimension makes the goals set for state-owned enterprises more varied, changing, and often vague.
"In Finland this has led to controversies, for example the furore over the pay level of the management at Posti. Reconciling the profit motive with the goals of political actors repeatedly cause conflicts. Clear goals should be set for state-owned enterprises. If they are to function as companies should, the influence of political actors on state-owned enterprises should be limited more clearly than is now the case," Cheung says.
Foreign state-owned enterprises pose a risk of their own, and their significance has grown and diversified in recent years. Certain state-owned enterprises have faced serious suspicions in recent years according to which they would be promoting the political goals of their state-owner in their business endeavors. Examples can be found in fields such as telecommunications and energy, which are important for national security. International companies, which might appear to be innocent one moment, can be revealed as, or might change into tools of political power. It would be a good idea to take long-term risks better into consideration when dealing with foreign state-owned companies.
"Our research shows that a state-owned company can operate well in the same way that a privately-owned company can, but that the operational logic of state-owned companies can also be efficiently altered for the benefit of political goals. That which is superficially visible in state-owned companies and their operations is not necessarily a sufficient indication of its real goals. For this reason, it is important to examine the logic behind a company's operations—as has been done in this study," Cheung says.