risks and opportunities.indd

Risks and Opportunities – in Search of Equilibrium

Risks and Opportunities – in Search of Equilibrium Scientific editor: Assoc. Prof. Piotr Buła, Ph.D. Department of International Management, Cracow University of Economics

Cracow – Saint Petersburg 2016

Scientific editor: Assoc. Prof. Piotr Buła, Ph.D. Department of International Management, Cracow University of Economics Scientific reviewers: Prof. Janusz Teczke, Ph.D. Head of Department of International Management, Cracow University of Economics

Publication coordination: Piotr Sedlak, Ph.D. Cover design: Teresa Bubak-Mitela Composition and typeset: Studio Grafpa (www.grafpa.pl) Monika Sady, Ph.D. Dominika Guja, M.Sc.

© Copyright by International Management Foundation, Cracow University of Economics, Cracow 2016

ISBN: 978-83-937642-6-6

Print: Drukarnia GS sp. z o.o. 43 Zabłocie Street 30-701 Cracow Poland

Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Sebastian Bakalarczyk, Ph.D. Management of Sustainable Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Prof. Piotr Bartkowiak, Ph.D., Marta Woźniak-Hoffmann, M.Sc. Financial risk of oil and gas companies in Poland and abroad . . . . . . . . . . . . . . . 27 Prof. Marian Hopej, Ph.D., Prof. Zdzisław Szalbierz, Ph.D. Leadership and simplicity of organizational structure . . . . . . . . . . . . . . . . . . . . . 41 Monika Jedynak, Ph.D., Prof. Piotr Jedynak, Ph.D. Risks related to suppliers in service companies noted on NewConnect . . . . . . . . 51 Prof. Marta Juchnowicz, Ph.D. Determinants of organisational engagement among Polish companies . . . . . . . . 65 Krzysztof Machaczka, Ph.D. Impact of Development of Organization’s Strategic Competencies and Company’s Survival and Development Ability . . . . . . . . . . . . . . . . . . . . . . . 77 Prof. Bogdan Nogalski, Ph.D., Przemysław Niewiadomski, Ph.D., Eng., Prof. Agnieszka Szpitter, Ph.D. Determinants of choice of the Polish manufacturer in the light of the foreign partners’ assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Prof. Renata Oczkowska, Ph.D. Business service centres in creating jobs for university graduates . . . . . . . . . . . . 105 Prof. Celina M. Olszak, Ph.D. Big Data – opportunities and challenges for organizations . . . . . . . . . . . . . . . . . 113 Prof. Agnieszka Sopińska, Ph.D., Wioletta Mierzejewska, Ph.D. Winners of the crisis. Strategic and structural behaviours of corporate groups – research report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

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Contents

Prof. Wanda Sułkowska, Ph.D. Risk management of employees employed outside the home country, on the example of Poland and Poles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Prof. Michał Trocki, Ph.D. Methodological tailoring in project management . . . . . . . . . . . . . . . . . . . . . . . . 161 Jowita Trzcielińska, M.Sc., Prof. Stefan Trzcieliński, Ph. D. Identification of market opportunities by Polish enterprises . . . . . . . . . . . . . . . . . 177 Hanna Włodarkiewicz-Klimek Ph. D. The dynamics of changes in the state and structure of human capital in Poland between 2005–2014 in the perspective of the development of the knowledge-based economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Preface

Publications create an important base of scientific discussion, and their diversity sets interesting spectrum covering various aspects of modern science, development of which passes through phases of dynamism in some areas, and stagnation in others. Modern management owes its rapid development in the initial stage largely to reduction of complexity and, as a result, in a fairly one-sided view of the world. The result of this research approach was an emergence of schools, trends and research concepts focused on one criterion description of complex processes. However, chief management goal remained a certain invariant, which was to be considered the pursuit of harmony between man-made objects which are the institutions and their environment, both created by humans and the natural world. In search of this harmony management tried to, adequately to existing tools, eliminate all forms of waste characteristic to certain historical periods. Waste of technical devices capabilities, which emerged as a result of the first industrial revolution, was the source for emergence of Taylorism period and the birth of scientific management. A feature of this management was an attempt to organize people in the manufacturing process in such way, that their abilities were harmonized with performance of machines and equipment, and the return on investment discontinued to be a source of hoarding and was re-invested. Waste of human individuality led to the rise of the school of human relations, a waste of resources led to creation of the mathematical school, a waste of social relations to the creation of the school of social relations, to presently accompanying waste of information that leads to the school of network systems. Emerging schools critically referred to the achievements of previous schools, since their uprising was owed to contestation, but some of the existing output remained not only as a witness of historical development, but also as an inspiration for further research. Constantly performing technical progress, evolution of individual needs, more and more visible resource constraints, the emergence of civil society are pre-factors of postmodernism in modern management. Publications contained in these studies have both, epistemological and application character, if to be upheld only one-criterion division. Methodological issues in project management, organization of academic knowledge and the effects it causes, the boundaries of learning psychodynamic behaviors in an organization, society in the era of instability, can be considered as the first. Application publications refer to the evaluation of Polish-Austrian business, local development strategies, business service centers, satisfaction with salary, human resources management at the operational level. Introduction of the second criterion, which is object research, allows to extract publications that are relational and relating to business, local communities, develop-

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Preface

ment of organizations, to name just a few. Change, its manifestations and consequences it generates, those are publications about its dynamics, impact on generation transformation and accompanying needs, determinants of these changes. Changes create new challenges for analysis and synthesis of information collection, sometimes with an indefinite or short period of existence. Big Data is a contemporary challenge for multiscientific considerations. Changes and high speed, which accompanies them, became an impulse for development of research on risk. A classic division of clean risk, ie. one that could cause its loss or lack of it and speculative risk due to which, next to the two distinguished above may also occur profit, expands the circle of potential penetration of scientific considerations on financial and insurance issues in decision-making processes in management and marketing. This was also reflected in publications included in mentioned studies relating to risk management, financial risk analyzed for a certain group of companies or suppliers. Submitted publications, according to the editors, are an interesting literature of modern management from the perspective of Russian and Polish management science. Certainly publications will become an interesting source of many discussions and scientific polemics. Piotr Buła Janusz Teczke

SEBASTIAN BAKALARCZYK, PH.D. LODZ UNIVERSITY OF TECHNOLOGY

Management of Sustainable Innovation

The increasing importance of innovation and its limitations result from the fact that in the today’s ever more interconnected and ever diminishing world the competition increases and the products life cycle gets shorter. Therefore, already at the moment when some of the products are still successful at the market we need to work on the innovation that will replace them. It is necessary to realize that an innovation is deemed successful only after the introduction (absorption) of a new product or process to the market. Its goal is to modify the economic and/or social environment, change the behaviour of people as consumers or producers. Rather than new knowledge innovation forms, new values or new possibilities should be implemented. It’s worth remembering that the mentioned process is limited. Limitations come from the various customers and producers behaviours. In this case process of absorption can be threatened. Innovation and innovativeness both play extremely important role in business organization management. Theoretical background of knowledge management and sustainable innovation study and relatively new paradigm of enterprise of the future inspired the author to the investigation in this complicated and heterogeneous scientific area. The main aim of the chapter is to present the ways of managing innovation as the crucial part of knowledge management in business organizations with special attention focused on sustainability. Literature overview, research analysis, subjective conclusions are presented as the main scientific research methods.

Introduction Successful entrepreneurs, regardless of their motivation – money, power, curiosity, longing for fame and acknowledgement – try to create values. Improving or modification of existing things is often not enough for organizations. They want to create new values, new needs, and form new, more effective combinations from the existing

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Sebastian Bakalarczyk, Ph.D.

resources. The opportunity for something new, different is always based on change. Innovation takes root in the focused identification of changes and in the systemic analysis of economic or social innovations based on these changes. Innovators do not view any change as a threat but as an opportunity. Innovation and innovativeness, both, play extremely important role in business organization management. Theoretical innovation and its implementation limit overview with a special attention to absorption processes and paradigm of enterprise of the future inspired to the investigation in this heterogeneous scientific area. The main aim of the chapter is to present the ways of absorbing (implementing) innovation with special attention to its limits as the crucial part of knowledge management in business organizations. Literature overview, research analysis, scientific discussion and conclusions are presented below. The use of knowledge and information are the bases of the application of this new paradigm. A company strengthens its relations with clients, monitors competitors and uses the system of data analysis, which generates information on the market and competitors, useful in business management. In today’s world of a rapidly increasing role of the knowledge of economy, there is a need for new effective methods of management and new and effective tools for a modern organization are information and knowledge. In fact, one of the most important criteria for assessing the effectiveness of the ability of companies to become flexible and react to changes quickly is their ability to gain and process a variety of information, derived from both internal and external sources. Nowadays, companies constantly face new tasks determined by the tempestuous, often changing environment. Managing those changes is indeed a great skill, which all managers should possess, not only to maintain the company’s development, but also to survive. Only an intelligent, flexible and innovative organization has a chance to compete on the market. Therefore, this adjustment to the changing market and customers’ need requires constant observation of what is going on around in order to become operative at the right time. Organizations should also analyse their situation to determine what at the moment of introducing changes is crucial and helps plan it better. Obviously, companies cannot operate on a day-to-day basis; they need to have a clear strategy. Basing on this strategy as well as on the mission, vision and main objectives, we are able to match an appropriate method and tool to introduce any changes. However, introducing changes is a really hard task; especially because it disturbs organizations’ harmony and evokes workers’ fears and may cause instability.

Overview of Knowledge Management Changes are an indelible symbol of development; we cannot avoid them and keep in mind that stability is history now. What was working yesterday, can rarely work today, and it is certainly not going to work tomorrow. We should take into consideration the fact that our surrounding is quite complex (different numbers and kinds of suppli-


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ers, customers, products and service) and it characterized by a number and frequency of changes [Bielski 1997, p. 23]. A current task for a successful company is to provide such actions, so that changes of the environment would not significantly affect the position of a given company. The reason for introducing any changes is very simple – to remain a player on the market. Besides, it is hard to imagine that the company can function when it is not adapted to the environment it is working in. We should introduce changes, so that they would bring benefits for the company as: “The aim of each change is to improve the current situation in the nearest or further future” [Kaczmarek, Sikorski 1996, p. 86]. Each factor, which decreases opportunities for the company do gain some resources necessary for the company to operate and introduce new products or services, is becoming an important force in the process of change. Then such a process usually takes one of the forms: new relations with the environment (change of the nature of contacts with the market, redefining boundaries and the organization itself ), new internal links and new ways of action (change of coordination methods, new structures and new habits), new control structures and power division in a company (since it has been developed by internal struggles, mission/vision, the allocation and distribution of resources is changing). Everything depends on a company profile and goals it has set to achieve as well as an environment in which a company exists and operates. In today’s world the word “changes” usually stands together with the word “progress”. Everything is changing and if we want to remain leaders, we have to react to those changes. A company can react to changes in many ways [Penc 1999, p. 39]: feeling fear and concern, and further resigning from the fight, feeling facile optimism based on the assumption that the situation is going to solve by itself, feeling strategic mobility, which leads the company to strengthen its position. What comes first to mind is technology change. And this is a very rapid change. Information Technology in management is very important now and well developed. Companies are just obliged to use systems that integrate all data and processes of an organization into a unified system. It is also crucial for the financial situation of the company since a good strategy business intelligence platform can save time and money. Then there are socio-political changes, e.g. globalization. Many companies open up for international markets and start international cooperation with other companies. They expand either locally, nationally or internationally but with the desire to access larger markets. This global integration provides more unique, more usable and effective goods and service through the impact of multiple markets and new organizational competencies. Also people are influenced by political changes. Their way of living is different. Their expectations, which affect not only the style of living but also an employment pat-

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tern, are changing. Political and economic changes extract innovation and adaptation activities, which are concluded in the change of ownership form, resources reallocation, exercising power and conducting rules, structural reorganization on a countrywide scale and in every company. Great importance is being attached to even such factors as the environment and nature preservation. It is important for a company to use good technologies, which does not imply any bad influence on the environment. All the factors, mentioned with new technology, different political situation, globalization and environment are just catalyst in the process of changes but only external ones [Mikołajczyk 1997, p. 65]. Thinking of internal changes in a company, there are two possible ways it can happen: coming from the top manager (rather obvious and necessary as the top manager should have an idea of how to on operate a company), coming from employees (if it takes place and it has been used properly, means that a company has highly-qualified employees and knows how to take advantage of their skills). With the latter one, it is becoming extremely important to develop a friendly atmosphere in the company and actually encourage everyone to express their opinions. Here the main task is in the hand of the top manager, which implies the necessity for him/her to have additional skills like: ease of introducing changes, learning from others, being open to changes, enterprising and so called up-and-coming good personal skills (including self-improvement), since it has been said that “this is a change which differs between two or more similar stages of some system (object).” Thus, the change and development of a company may involve such dimensions aspects as [Stabryła 2006, p. 103]: economic, organizational, personal, informational, and technological. Taking into consideration the character of an organization and its environment, we can classify changes as did Professor Mikołajczyk [1997, p. 21]: according to the range of changes: rather small changes (appear locally, do not cause persistent effects, however influence the manner in which a company is functioning on different levels of management), bigger and more intensive changes (giving visible and persistent results), changes coming from compound actions (being a part of a project of company strategy; might evaluate; internal and suitable for a concrete situation). According to the character of changes: innovative changes (essential for gaining predominance basing on self potential; creative, flexible and dynamic employees improve this action), adaptation changes (introduced in order to improve the system and work of an organization; might involve organizational and management techniques), regressive changes (negative changes, which can lead to bankruptcy or company disposal). Now let adduce what Professor Penc [1999, p. 41–56] suggested about different kinds of changes. According to him, most changes are mobilizing as they generate possibility of development and force one to look for new solutions. He also mentions superficial changes, which are not very expensive and are easy to introduce as


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well as deep changes, which are expensive and tend to reorganize the whole system of a company. Then, we can talk about a slow-evolutionary model, called the Organizational Development Strategy and fast-revolutionary changes, referred to as the Business Process Reengineering Strategy [Durlik 2002, p. 56-57]. The first ones are spread over time and are easier to launch, however a long launching time determines rather faint effects. On the other hand, those fast changes disrupt organizations’ harmony, they are hard to launch as they heighten opposition (resistance), demand huge costs, but at the same time, can quickly improve the situation in a company. Changes may also be forced by the surroundings or the management board, as well as due to negotiations. However, those arising from the surroundings are rather late changes, which were not unrecognized in time. The best idea would be if all the changes were planned and agreed so that they would have more probability of success. It is also said, that most frequently appearing changes should be innovative changes, the target of which is to improve organization and functioning proficiency, with emphasis on market service. And, of course, such changes should be launched with sufficient time in advance, in order to face future challenges more easily. If a company wants to survive, it must live up to business environment requirements. It means that the company should develop features, which determine its elasticity, creativity and ease of adaptation. All the organizations must reorganize themselves constantly using the wide knowledge about the market and their own potential, because only setting out to development may provide safe existence in a given business environment, which is becoming more and more innovative, expensive and hard to forecast.

Essence of Innovation There is no uniform definition of range of innovation or technology. There are main views over this topic that depict innovation as a result or a process. The first depiction claims that innovation is a change in the sphere of production, which leads in consequence to new products. Second depiction says that every creative process is innovation. [Tidd 2011, p. 39–44] The OECD methodology expands the concept of innovation into area of organization and marketing, and determines relationship with other companies in the course of the innovation process. This methodology constitutes the basis for current studies on innovation. [Pomykalski 2008a, p. 6–7; 2001, p. 11–21] Taking into consideration the mentioned concepts, innovation is a process enclosing all actions connected with new idea creation, forming of invention and then implementation of invention – new product, process. In the innovation’s interpretation there are two approaches that dominate, namely, innovation understood as a result and as a process. Innovation can be classified differently, depending on their origin, but we can diversify them into four essential groups: functional innovation – created to satisfy

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social needs that have yet not been revealed, in other words they serve new functions, e.g. introducing iPhone; process innovation – the point of such innovation is to implement new manufacturing methods, which improve production, make it cheaper or improve conditions and environment of work; subject innovation – introduces new objects such as machines, tools, products, etc. to replace these used so far, with the ones that better perform tasks for which they have been created; and organizational innovation – improves organization of work and production, health and safety conditions and makes it easier for employees to perform their tasks. Innovation can be divided into several groups, which then can be further divided into smaller sub-groups. It is impossible to point all of them. Each of the group is mutually dependent from others and because of this cannot be analysed separately. When it comes to more in-depth analysis of innovation, it can be also diversified according to the originality of changes, thus we can distinguish [Marciniak 2010, p. 36–38]: original (creative) innovation – this group of innovation contains inventions, discoveries, products manufactured by a given individual or a group, both creation and first, pioneer usage of this innovation; and derivative (adopted) innovation – relies on imitation and reproduction or original changes, dissemination of original achievements, which can yield particular economic benefits. Inside this group we can also distinguish imitative innovation and reproductive innovation. This second takes place when an individual creates an innovation on his/her own but such solution was known earlier, independently created by someone else. Research has shown that limitations of original innovation are very rare, whereas derivative innovation constitutes basic innovation flux. Another more specific limit of innovation can be determined due to a size of an innovation. Thus we can distinguish ‘big’ and ‘small’ innovation. First group can be also called strategic innovations and they concern long-term projects of a great meaning for an organization and for a county. Such innovations favour realization of strategic economic purposes, they essentially influence organization’s development and in most cases consume large financial expenditures. Second group, also called tactical innovations, concern current changes in production technology or management methods, which can increase effectiveness and with help from better quality and new products better satisfy market needs. [Szpon, Pawlak, et. all 2009, p. 26–30] This division shows the absorption limits. Actually, it is very hard to define the border between these two groups. This division is mostly done according to intuition, as the most obvious criterion – financial expenditures are not fully correct. This results from the fact that there is no strict correlation between expenditures and economic effects. Next division of innovation can be done according to the source of an innovation. Thus we can distinguish [Tidd, Bessant 2011, p. 313–314]: foreign innovation – adopted from abroad, by this we can understand all innovations bought in the form of licenses, know – how and based on imitation; national innovation – a national source


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of such innovation can be an organization, that is why we can also determine innovation suggested by own R&D department and innovation suggested by personnel employed outside of R&D department. The continuation of that division is innovation by stimulation mechanism: demand and supply. In recent years, the concept is gaining on importance. Demand innovation is the result of stimulation from the market. Pure desire of scientists and inventors to discover or create something new is a first impulse of this innovation. Supply-side innovations are the result of discoveries, inventions and ideas – they arise because market signals motivated/stimulated inventors, artists to work on the issue. We can also look on innovation from a degree of complexity. This diversification is analysed according to the complexity of a process and number of creators. That is why we can determine coupled and non-coupled innovation. First is understood as an effect of a mutual effort of many people, institutions or research teams. It is characteristic for this group to necessarily determine actions of all participants and stakeholders. This type is the most common for the economy, because of fast technology development and increase of worker’s skills. Whereas the second group is understood as an effect of both creative and imitative activity, performed beyond professional activity by an individual. Very important group of innovation is technological innovation, which can be understood as the new products and processes or meaningful improvement of production or delivery methods. Both product and process innovation is usually connected, as product innovation would not be possible without process innovation and changes in work organization. The main difference between them is the fact that product innovation is more sensitive for market factors. Process innovation can be divided into several types of development projects: derivative projects – their aim is to improve a given product or process; plane projects – create project and parts, which are common for product and process changes, industrial projects – establish new central products and processes, which vary significantly from previous generations; and R&D – create know-how and know-why of new materials and technologies. [Bogdanienko, Haffer, Popławski 2004, p. 16–18] Significance of product innovation for market economy is much more important than those of process innovation. That is because market competition is mostly connected with introduction of new products. Definition of new product is not unique and depends on a point of reference. That is why we can distinguish three main groups of new products for the market or for the company [Trot, 2011]: new product on a new market (10% of innovation); new product on an existing market – product which supplements line offered on a market, new for the company but already known for clients (about 80% of innovation); and improvement of already existing product – replacement by more efficient product, or similar product, but having lower costs (about 10% of innovation). Differences that result from the level of novelties have significant meaning for innovation management. Minimal changes,

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which occur every day, deserve different approach than crucial changes of a product or process. The synthesis of a typology of innovative development strategies is based on specific criteria. Included in the types of innovation, strategies do not exist in isolation and are in fact the defined relationships between them. Economic entity (sector) formulates and implements specific innovation strategy by indicating a key factor in its implementation. The other elements are subordinate to the central elements of strategy. The most important characteristics of innovation strategy can be adopted to formulate the portfolio of innovation correlated with long-term strategy of the entity, taking into account the strategic area, adjusting the portfolio of research projects (licensing, continuing education) to the market, the integration of strategy and business development, as well as the solid partnership between staff research, production and business in an organization. [ Janasz 2011, p. 57–58] Last approach to innovation is quite different as it is the market point of view, which can be also understood as consumer’s point of view. According to this approach we can diversify: continuous innovations – they have small influence over consumption patterns, because they mostly depend on minor change in already existing products. They do not require continuous learning of new behaviour; dynamically continuous innovation – implementation of such innovation requires only minor changes in behaviour; and discontinuous innovation – completely new products, their implementation to the market requires teaching consumers entirely new consumption patterns. Every organization is working on innovation portfolio, which can be either in a form of small changes in already existing product/process or in a form of radical changes. For effective innovation management it is essential to reach proper ratio in such innovation portfolio and match innovation with a level of competitiveness of an organization and its technological and market possibilities. Every new idea (innovation) before its materialization, in the form of product or service, must undergo a specific series of activities called the process innovation. The existence of a process approach is a condition for taking action in the management of innovation. [Prudzienica 2009, p. 90–96]

Innovation Management There is no uniform definition of range of innovation or technology. There are main views over this topic that is depiction innovation as a result or a process. The first depiction claims that innovation is a change in the sphere of production, which leads in consequences to new products. Second depiction says that innovation is every creative process which leads to apply and use of improved solutions for technology, engineering, organization or society [Tidd, Bessant 2011, p. 39–44]. The OECD methodology expands the concept of innovation into area of organization and marketing, and determines relationship with other companies in the


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course of the innovation process. This methodology constitutes the basis for current studies of innovation [Pomykalski 2008a, p. 6–7]. Mentioned classification is showed in Figure 1. Figure 1. Infrastructure and Institutional Relations

Source: Own based on: [Pomykalski 2008a, p. 7].

Innovation can be classified differently, depending on their origin, but we can diversify them into four essential groups: functional innovation – created to satisfy social needs that have yet not been revealed, in other words they serve new functions; process innovation – the point of such innovation is to implement new manufacturing methods, which improve production, make it cheaper or improves conditions and environment of work; subject innovation – introduce new objects such as machines, tools, products, etc. to replace these used so far, but which better perform tasks for which they have been created; and organizational innovation – improves organization of work and production, health and safety conditions and makes it easier for employees to perform their tasks. Taking into consideration mentioned concepts innovation is a process enclosing all actions connected with new idea creation, forming of invention and then implementation of invention – new product, process [Pomykalski 2001, p. 11–21]. In the innovation’s interpretation there are two approaches that dominate, namely, innovation understood as a result and as a process [Pomykalski 2008b, p. 11]. This interpretation is showed in Figure 2.

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Figure 2. Innovation interpretation

Source: Own based on: [Pomykalski 2008b, p. 11].

Figure 3. shows graphically the diversification of innovation, relationships between each group and exemplary areas in which innovation can occur inside each group. Figure 3. Diversification of innovation

Source: Own study.

As we can see from the above Figure 3 innovation can be diversified into several main groups, which then can be further, divided into smaller sub-groups. Each of the group is mutually dependent from others and because of this cannot be analysed separately.


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When it comes to more in-depth analysis of innovation, it can be also diversified according to the originality of changes, thus we can distinguish [Marciniak 2010, p. 36]: Original (creative) innovation – this group of innovation contains inventions, discoveries, products manufactured by a given individual or a group, both creation and first, pioneer usage of this innovation Derivative (adopted) innovation – relies on imitation and reproduction or original changes, dissemination of original achievements, which can yield particular economic benefits. Inside this group we can also distinguish imitative innovation and reproductive innovation. This second take place when an individual creates an innovation on his/ her own but such solution was earlier, independently created earlier by someone else Research has shown that original innovation is very rare, whereas derivative innovation constitute basic innovation flux. Another more specific diversification of innovation can be determined due to a size of an innovation. Thus we can distinguish “big” and “small” innovation. First group can be also called strategic innovation and they concern long-term projects of a great meaning for an organization and for a county. Such innovation favours realization of strategic economic purposes, they essentially influence organization’s development and in most cases consumes large financial expenditures. Second group, also called tactical innovation, concerns current changes in production technology or management methods, which can increase effectiveness and with help from better quality and new products satisfy market needs better [Szpon, Pawlak, Owczarek, et all 2009, p. 26–30]. Actually it is very hard to define the border between these two groups. This division is mostly done according to intuition, as the most obvious criterion – financial expenditures are not fully correct. This results from the fact that there is no strict correlation between expenditures and economic effects. Next diversification of innovation can be done according to the source of an innovation. Thus we can distinguish [Tidd, Bessant 2011, p. 313–314]: a) foreign innovation – adopted from abroad, by this we can understand all innovation bought in the form of licenses, know – how and based on imitation; b) national innovation – a national source of such innovation can be an organization that is why we can also determine innovation suggested by own R&D department and innovation suggested by personnel employed outside of R&D department. We can also look innovation from a degree of complexity. This diversification is analysed according to the complexity of a process and number of creators. That is why we can determine coupled and non-coupled innovation. First is understood as an effect of a mutual effort of many people, institutions or research teams. It is characteristic for this group to necessarily determine actions of all participants and stakeholders. This type of innovation is the most common for the economy, because of fast technology development and increase of worker’s skills. Whereas the second group is understood as an effect of both creative and imitative activity, performed beyond professional activity by an individual.

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Very important group of innovation is technological innovation, which can be understood as new products and processes or meaningful improvement of production or delivery methods. Both product and process innovation is usually connected as product innovation would not be possible without process innovation and changes in work organization. The main difference between them is the fact that product innovation is more sensitive for market factors. Process innovation can be divided into several types of development projects [Bogdanienko, Haffer 2004, p. 7–11]: derivative projects – their aim is to improve given product or process; plane projects – create project and parts, which are common for product and process changes; industrial projects – establish new central products and processes, which varies significantly from previous generations; Research and Development – create know-how and know-why of new materials and technologies. Meaning of product innovation for market economy is much more significant than those of process innovation. That is because market competition is mostly connected with introduction of new products. Definition of new product is not unique and depends on a point of reference that is why we can distinguish three main group of new product for the market or for the company [Trott 2011, p. 16–18]: • New product on a new market (10% of innovation). • New product on an existing market – product which supplements line offered on a market, new for the company but already know for clients (about 80% of innovation). • Improvement of already existing product – replacement by more efficient product, or similar product but having lower costs (about 10% of innovation). Differences, which result from the level of novelties, have significant meaning for innovation management. Minimal changes, which occur every day, deserve different approach than crucial changes of a product or process. The synthesis of a typology of innovative development strategies based on specific criteria is presented in Table 1. Included in the types of innovation strategies do not exist in isolation and are in fact defined relationships between them. Economic entity (sector), formulating and implementing specific innovation strategy, indicating a key factor in its implementation. The other elements are subordinate to the central elements of strategy. The most important characteristics of innovation strategy can be adopted to formulate the portfolio of innovation correlated with long-term strategy of the entity, taking into account the strategic area, adjusting the portfolio of research projects (licensing, continuing education) to the market, the integration of strategy and business development, as well as the solid partnership between staff research, production and business in an organization [ Janasz 2011, p. 57–58].


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Table 1. Innovation Typology Criteria

Type of Strategy

Characteristic

Goal

product, process, organizational

new products, new utilities, new processes, old processes modernization, new organizational system implementation, efficiency increase.

Innovativeness factors

R&D

development of own R&D, cooperation with external R&D Centres

licenses purchase

licenses – domestic and foreign

employees’ training

create your own intellectual potential, training occasional shortening the innovation cycle.

pioneering

market leader

imitation

cost leader

cost decreasing

producers cost limitation and customers exploitation

quality increasing

eco-friendly products

Innovation implementing ways Ecological aspects

Market

ecology

eco-friendly processes

customers education

customers permanent relations

new markets’ searching maintain regular markets

Source: Own based on [ Janasz 2011, p. 57].

Last approach of innovation is quite different as it is the market point of view, which can be also understood as consumer’s point of view. According to this approach we can diversify [Bogdanienko, Haffer, Popławski 2004, p. 7–21]: continuous innovation – they have small influence over consumption patterns, because they mostly depend on minor change in already existing products. They do not require continuous learning of new behaviour; dynamically continuous innovation – implementation of such innovation requires only minor changes in behaviour; discontinuous innovation – completely new products, their implementation to the market require to learn consumers entirely new consumption patterns. Every organization is working on innovation portfolio, which can be either in a form of small changes in already existing product/process or in a form of radical changes. For effective innovation management it is essential to reach proper ratio in such innovation portfolio and match innovation with a level of competitiveness of an organization and its technological and market possibilities.

Sustainable Innovation General Overview Innovation process, to be effective, must be sustainable. The organization should an environment to “incubate” ideas, which mature and translate through implementation into products or service. These elements were lacking in the innovation programs of most of the failed organizations. Nothing is less productive than “non-innovating,”


22

with the exception of cultivating and nurturing confusing ideas that do not add value. An innovative organization is lead, not managed. A sustainable innovative organization could be “organic”, almost biological in nature to foster constant creativity vital for the success of modern organization. The sustainable innovative organization foster creativity by following a variation of the model discussed as follow: organizational mission is defined and aligned to incorporate widespread trust and respect for individuals; corporate mission is communicated throughout the organization, and a successful creating organization is a constantly changing dynamic organization to create new practices, processes, services and products of value to itself and its customers. Successful companies add value by fostering sustainable innovation and creativity, following the model in Table 2. Table 2. Old Paradigm vs. Innovative organizations Types of program

Old Paradigm

Innovative organizations

Core values

Physical innovation centre, no core value defined. Success at any cost

Innovation as part of business policy and core value of the company; Dedication to truth and honesty

Leadership

Passive leadership

Leaders actively participate

Focus

Employee oriented

Customer oriented

Process

Stagnant, process oriented

Dynamic, fluid or organic In nature. Evolutionary.

Measure or source

Numbers of ideas are counted. “Out-of-thebox” thinking absent.

Focus on creating value. “Not-invented-here” syndrome not present. Does not matter where the ideas come from.

Training

Number of sessions/people counted. Counts quantity, not quality

Coaching and feedback. Competency-based development.

Context/Culture

Individual oriented

Group oriented

Environment

Internally competing

Collaborative

Implementation

Lacks focus

Value oriented

Motivation

Extrinsic or none

Intrinsic

Corporate Citizenship

Narrow and shallow

Focused on big picture

Source: own based on [Sustainable Innovation as a Corporate Strategy by M. Rashid Khan and Mohammed Al-Ansari].

Nowadays, due to the altering internal and external circumstances, a business entity may keep its position and grow only if the board of managers is able to adjust its volatility to the market volatility. Table 3. shows comparison of traditional and new paradigms description.


23

Table 3. Differences between historical and present paradigms in an enterprise Traditional paradigm

New paradigm

Direct product cost reduction as a main objective of an enterprise

Indirect cost reduction, meanwhile improvement of competitiveness

Operations characterized and analysed as stable

Flexibility of operations, constantly improved

Production line based on one, main technology; long product life cycle

Production line based on multiple technology, short product life cycle

Manager is a decider, employee only executes the orders

Manager is a coach who facilitates work, employees are well trained

Global market is divided to national markets, domestic entities dominate on the national markets

Market is global – attention is focused on international political and economic structures

Source: own based on [A. Mazurkiewicz, Paradygmaty zarządzania we współczesnym przedsiębiorstwie (wybrane aspekty), http://www.univ.rzeszow.pl/pliki/Zeszyt19/33.pdf ].

As was reported by Professors: Hejduk, Grudzewski, and Wańtuchowicz [2013, p. 65–80] sustainability means an enterprise’s capacity to learn, adapt and evolve, revitalize, redevelop and reorient on an on-going basis for the sake of maintaining a permanent and outstanding market position by offering extraordinary value to customers today and in the future (consistently with the innovative growth paradigm) owing to an organic variability which establishes business models, resulting from the creation of new abilities and objectives as well as the response to them, simultaneously maintaining a balance between interests of various groups. The key problem is a well-thought-out, smart and efficient stimulation of the changes in the business environment conditions to attain those that are most favourable to the functioning business model. Not only does it enable the enterprise to keep on growing but also to use the emerging chances and opportunities.

Conclusions and Recommendations In management it is necessary to use the knowledge and experience of the organization which is placed on a target market and, first of all, the orientation on the creation of values for the shareholders. It means the creation of the competitive advantage based on innovations and the effective operation on the global market. A business organization that is based on knowledge management, and especially innovation, reacts to the future expectations of the clients and units in order to define the desirable strategic competences and their critical levels. The company simultaneously analyses the gaps (strategic, planning, operational), in direction to define the sources of competences and to divide the results. On the other hand, the analysis of the current situation and the monitoring of the environment help to define the current competence and bring to a standstill the system of acquiring knowledge, including the staff trainings courses as a part of organizations’ culture. [R. Nidumolu et all, 2009] The OECD methodology expands the concept of innovation into the area of organization and marketing and determines relationships with other companies in the

24


course of the innovation process. The fundamental change was the inclusion of companies found in lower research-development activity areas into studies, which allowed the appreciation of the role of innovation in services and industry branches based on modern technologies. Therefore, the present edition is suited to the requirements a larger recipient group/group of customers. This methodology constitutes the basis for current studies on innovations, not only in the OECD countries or the EU. During the advent and diffusion of a new techno-economic paradigm, both private and especially public policies, are essential to internalize the benefits of its new and optimized costs. There has been a significant change about innovation theory and practice as a part of knowledge management in the last two decades. It’s possible to observe, from the one side, huge interest in innovation implementation, and adequate absorption expectation from the other side. Innovation has been perceived as an activity involving almost entirely individual actors, including inventors, enterprises as the business organizations. The development of concepts of business organizations management is constantly changing. The traditional paradigms and crucial methods have to be developed in order to adept them to the new style of managing, which should be based on the progress and a constant development of employees. The aim of this elaboration was basically to systematize approaches of handling the new types of problems in management of organizations, as well as business entities’ innovation situation analysis. Special attention should be paid on trying to identify enterprises somehow related to development or usage of innovation, as well as what their activities are, the nature of the technology developed/used, and the efforts made in order to being able to carry on their innovative activities. Taking into consideration all mentioned conditions, the organizations all over the world, while adjusting to the requirements of the global competition, go through constant changes and improvements in the sphere of marketing, finance, research and development, production, and personnel management.

Bibliography Bielski M. (1997), Organizacje-istota, struktury, proces, Wydawnictwo UŁ, Łódź. Bogdanienko J., Haffer M., Popławski W. (2004), Innowacyjność przedsiębiorstw, Wydawnictwo Uniwersytetu Mikołaja Kopernika, Toruń. Durlik I. (2002). Reengineering i technologia informatyczna w restrukturyzacji procesów gospodarczych, Wydawnictwo Naukowo-Techniczne, Fundacja Książka NaukowoTechniczna, Warszawa. Hejduk I.K., Grudzewski W.M., Wańtuchowicz M. (2013), Integrated model of sustainable enterprise – the role of organization trust [in:] Global Economics. Past, present and future ed. by. I.K. Hejduk and S. Bakalarczyk, Athens, Difin. Janasz W. (2011), Strategie organizacji innowacyjnych, Studia i prace wydziału nauk ekonomicznych i zarządzania Nr 21, Szczecin. Kaczmarek B., Sikorski Cz. (1996), Podstawy zarządzania, Wydawnictwo Absolwent, Łódź.


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Marciniak S. (2010), Innowacyjność i konkurencyjność gospodarki, C.H. Beck, Warszawa. Mikołajczyk Z. (1997), Techniki organizatorskie w rozwiązywaniu problemów zarządzania, PWN, Warszawa. Nidumolu R,, Prahalad C.K., and Rangaswami M.R., Why Sustainability Is Now the Key Driver of Innovation, Business Harward Review, September 2009. Penc J. (1999), Innowacje i zmiany w firmie, Agencja Wydawnicza Placet, Warszawa. Pomykalski A. (2001), Innowacje, Politechnika Łódzka, Łódź. Pomykalski A. (2008a), Innovative Organizations, Technical University of Lodz, Łódź. Pomykalski A. (2008b), Managing Innovation, Technical University of Lodz, Łódź. Prudzienica M. (2009) Podejście procesowe w zarządzaniu innowacjami [in:] Podejście procesowe w organizacjach ed. by S. Nowosielski, Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu nr 52, Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu, Wrocław. Starbryła A. (2006), Zarządzanie rozwojem firmy, Akademia Ekonomiczna w Krakowie, Kraków. Szpon J., Pawlak E., Owczarek A., Stańczuk J., Sosnowska K., Nosal, M. (2009) Innowacje jako źródło konkurencyjności nowoczesnego przedsiębiorstwa, Economicus, Szczecin. Tidd J., Bessant J. (2011), Zarządzanie Innowacjami, Oficyna Ekonomiczna grupa Wolters Kulwer, Warszawa. Trott P. (2011), Innovation management and new product development, Financial Times, Essex.

PROF. PIOTR BARTKOWIAK, PH.D. POZNAŃ UNIVERSITY OF ECONOMICS AND BUSINESS MARTA WOŹNIAK-HOFFMANN, M.SC.

Financial risk of oil and gas companies in Poland and abroad

This Paper shows the problem of financial risk in oil and gas companies in Poland and Europe, as well as one company outside Europe. After analyze of few risks factors, theirs causes and effects, Author tries to verify the influence of risk into financial results of companies in space of last three years and showed by the companies ways of avoidance as well as elimination of such risks together with limitation of their effects.

Introduction Risk is an ambiguous and complex concept, therefore it is difficult to form one definition of this term. It can be described as estimation of probable benefits that may be lost or losses that can happen during specific operation [Filipiak B., Panasiuk A., p. 181]. Hence, risk can be defined as a gap between something well-known and something that one should be familiarised with to take right decisions in a company [ Jahrmann F.U., p.257]. One of the types of risk appearing in operations of a company is financial risk. According to the definition of the National Polish Bank the financial risk is the one of types of risk that is connected with the capital structure of the balance sheet of a debtor [nbpportal.pl]. Nevertheless, the financial risk may be recognised in a broader matter as the one resulting from market conditions where a product price is formed and tax aspects that have crucial influence on a company [c1solutions.wordpress.com]. Moreover, there are other aspects like level of liabilities of a company or risk of changes of interest rates [Kazojć K., p.236–237] or foreign exchange risk that are strictly connected with financial risk. All those factors in broad meaning of financial risk cause the necessity of such organisation in companies that will lead to development including capital de-

28

Prof. Piotr Bartkowiak, Ph.D. , Marta Woźniak-Hoffmann, M.Sc.

velopment of a company. After all, enrichment is the most important contribution of business in functioning of a society [Doing good: Business and the sustainability challenge, p.10]. Financial risk is identified in the financial sector as well, where it is considered as possibility of incurring losses as a result of price drop. In a group of financial risk there are interest rate risk, credit risk, foreign exchange risk, securities risk or market price risk [Marcinkowska M., p.1]. Oil and gas companies exist in similar conditions as well. There are numerous risks that appear in their fields, very specific sometimes. After all, oil and natural gas – according to predictions – will dominate in general fuel consumption, in 2030 it is estimated to reach 54,3% since consumption of 2010 is 57,5% [Potocki W., p.24]. In this document financial risk, which exists in oil and gas sector activity is key problem, which influence on financial achievements of companies in this sector.

Financial risk factors in oil and gas companies Financial risk, taking its broad meaning into consideration, in oil and gas companies in accordance with the principles presented by EY, may be determined as a set of potential chances and dangers that appear as a result of market activities and development of raw materials prices on the market and fiscal conditions, which companies have to function in. Below, we can find the figure how the risk factors are presented in EY conception. Picture 1. Financial risk factors

Source: EY, based on elaboration „The Top 10 Risks for Oil and Gas Companies in 2012”, https:// c1wsolutions.wordpress.com/2012/03/26/risks-for-oil-and-gas/ as of 14.05.2016.


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On base of analyses it can be stated, that activity of oil and gas companies is burden with high index of corruption. For the purpose of an analysis of risk factors in oil and gas sector, a presented division of far and close surrounding factors can be used: 1) Macroeconomic: a) Price1 b) Interest rate c) Foreign exchange risk d) Corruption level e) Fiscalisation 2) Microeconomic: a) Credit risk2 b) Operating costs that depend on activity of a company.3 Price of raw materials like oil or natural gas is a component of many factors and dependent from a demand as well as resources in the world. At the same time price level is determined by international contracts. In commercial contracts signed e.g. for natural gas supply, basically in most of the cases the price is variable – it depends on various factors being negotiated by each party. In most cases it is a price connected with oil price or/and prices of products arising from process of oil refining and being fuel competitor of natural gas, i.e. prices of light heating oil and heavy heating oil (sometimes propane gas or a mixture of both propane and butane commonly known as LPG) [cire.pl/pliki/2/Kontrakty_gazowe.pdf, as of 20.05.2016]. The price of raw materials is thus an average of place of their extraction as well. Determinants of exploitation of deposit e.g. size of reserves, conditions of materials’ lying4 and therefore costs of exploitation and transport possibilities [Potocki W., p.55]. The largest oil resources are localised in other places, on other continents than main consumers. Asia, North America and Europe using more than 80% of the resource have only 22% of world oil reserves [Potocki W., p.56]. 1

It is the main factor also mentioned in banking institutions. Financial risk is recognised as the one that may be taken according to changes of prices on the market. (As per Marcinkowska M., Standardy kapitałowe banków. Bazylejska nowa umowa kapitałowa w polskich regulacjach nadzorczych, Regan Press, Gdańsk, 2009, p. 28)

2

It is not a component of strictly microeconomic matter but at the border of macro- and micro-. Putting it in a group of macroeconomic factors results from the fact of possibility or not having credits – therefore, in some kind it is dependant from decision and situation of a company.

3

It should be realised that it is a deep simplification for the aim of this article, highlighting possibility of action taken by companies. In fact no costs are totally independent from the market and other macroeconomic factors in market economy.

4

That is one of the reasons why shale gas extraction in Poland turned out to be at least temporarily non-economic.

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Inconstancy in oil and natural gas prices influence income and cash flow of even mature and potent companies of oil and gas sector [Potocki W., p. 287]. Decline in prices of oil in 2008–2009 caused change of parameters of projects and petrochemical establishments assessment, starting from income, operating profit, cash flow up to financing structure and costs of financing [Potocki W., p.287]. Interest rates risk is a result from probability of disadvantageous influence of interest rates changes on a financial result. Sources of risk can be found in a financial commitment [http://www.pgnig.pl/reports/annualreport2013/ssf-34-instrumenty-finansowe.html, as of 16.05.2016]. This kind of risk occurs in oil and gas companies and it is indicated by them. However, its biggest influence is noticed in activities of financial institutions and banks. In countries where oil and natural gas reserves are significant, the corruption occurs quite often. In subject literature, this phenomenon is not presented in details, but in practise this problem occurs. It is connected with the fact of declining reserves of natural resources in countries with stabilised economy and markets. Therefore, there is need of work and exploitation of reserves in countries, where also high level of corruption exists. Unstable political situation and lack of infrastructure with little control cause these localisations to be politically dangerous and on the other hand economically dangerous as well, also highly corruptive [Managing bribery and corruption risks in the oil and gas industry, EY elaboration, http://www.ey.com/Publication/vwLUAssets/EY-Managing-bribery-andcorruption-risk-in-the-oil-and-gas-industry/$FILE/EY-Managing-bribery-and-corruption-risk-in-the-oil-and-gas-industry.pdf, p. 5, as of 17.05.2016]. The corruption reaches enterprises at the time of making a tender and during customs clearance or operation activities of companies including tax controls [Ibid]. Because only 14% of world proved oil reserves is in possession of countries recognised as democratic [Potocki W., p.56]. Additional organisational ballast and sometimes financial as well - for enterprises of oil and gas sector are fiscal policies. Companies using localisations of reserves try their opportunities in different areas, also in countries that for instance do not have double taxation agreement signed with their countries. International legal double taxation policies generally may be described as application of similar taxes in two countries on one taxpayer for the same reason and for the same period [Modelowa konwencja w sprawie podatku…, p.9]. Double taxation agreements mainly based on OECD model Convention enable to solve, in uniform matter, the most common problems of international taxation [Ibid, p.9]. Practically, companies use one of methods to avoid double taxation – credit method (counting) or exclusion method that is dependent from the method agreed in the convention. Tax credit method enables deduction from the tax in residential country the tax paid in the source country. On the other hand, exclusion method is to not include foreign income when calculating the tax base. At the same time, many double taxation agreements leave possibility of further specification for countries coming to an understanding and signing the document. For instance, contract clause about avoiding double taxation between Poland and Kazakhstan entry 7 section 3 states that when profit of a factory is reconciled it is possible to


31

deduct expenditures carried for the factory including managing costs and general administrative costs, without taking under consideration if they arise in the country, where the factory is located or anywhere else [Convention between Government of Poland and Government of Kazakhstan]. Because the fact of calculating of managing costs was not precised it has to be specified and government of Kazakhstan does it by making their own rules considering their tax code by defining a key, with managing and administrative costs of a company located in Poland charging tax institution in Kazakhstan. Because of differences of applicable tax policy in Poland and Kazakhstan, a company may bear additional tax charges. Rules of allocation of managing costs and general administrative costs to foreign branches in Poland have been specified in entry 15 section 2 and 2a of Corporate Income Tax Act [Act of Corporate Income Tax, Poland]. According to this entry of the act if a taxpayer bears the costs of obtaining revenues from sources, which profit is taxable as well as costs concerning revenues from other sources and it is impossible to define costs occurring on particular sources, these costs are determined in such relation in which revenues from these sources sustain in general amount of revenues. Taking entry 15 section 2a of the act into consideration, the rule mentioned in section 2 is also used in case when a taxpayer bears the costs of obtaining revenues from sources, which part of their income is non-taxable with income tax or it is exempt from this tax. Whereas, in Kazakhstan administrative costs cannot be allocated by this key, but only according to indicated and strictly defined rules described in the tax code of the country. Therefore, in Poland these costs in some part, are not tax deductible expenses and at the same time they will not be recognised as ones in another country. Even worse situation occurs when a company works in a country, which country, where the company has its registration, has not signed the double taxation agreement with. Then, the effect of double taxation may appear that is a result of colliding of tax rules of two countries which, by their legislation, impose tax obligations on the same subject (or an owner and their enterprise) – it is imposed by both a country where a taxpayer has their headquarters and a country where the profit is made [Fiszer J., p. 161]. Taking tax risk into consideration also necessity of adjustment of mutual settlements can be noticed, using documentation of transfer prices [Ramm A., p.2] and permanent sensitivity of tax law in both countries and adjusting work to all jurisdictions. What is more, in developing countries a tax system is not usually advanced and stable that aggravates the risk of bearing additional costs [Tanzi V., Zee H., http://www.imf. org/external/pubs/ft/issues/issues27] . Among macroeconomic factors, is worthy to mention a credit risk, that is in case of analysed sector companies connected with probability of untimely or even complete lack of fulfilling obligations [www.pgnig.pl/reports/annualreport2013/ssf-34-instrumenty-finansowe.html, as of 17.05.2016]. Moreover, it has incapability of fulfilling contract conditions connected with financial instruments or granted loans, if such exist in e.g. a capital group. Taking oil and gas companies into consideration, the problem may be expired

32


receivables. To secure from them the most common way are different types of documents during signing a contract – banking guarantees, letter of credit or bill of exchange. Another element among macroeconomic risk factors are internal costs of a company, dependant from it. In practise it is very limited, because every company can make savings. Nevertheless even salary costs, which are very internal, depend on market factors and surrounding of company existence. In oil industry it is common to use local workers. However, local workers are often not able to do this kind of work that should be done by key staff of company.

Methods of financial risk control To avoid financial risk turning into a problem companies should permanently verify all risk factors. Risk control may be conducted in two ways: – From up to down – higher level management define which sort of risk is crucial for a company and how it should be managed and then they inform all the other organisation levels. – From down to up – information about risk noticed on lower level management is redirected to the highest level to obtain permission for action reducing its occurrence [Kazojć, p.236–237]. In broader context even idea of process of risk managing occurs. Supporters of negative observation way of risk, define process of managing risk as “group of measures targeted on occurring dangers of financial outcome in a company, any limitation of their occurrence or mitigation effects of their impact”[Büschgen, p.190]. Assuming that a negative effect of risk is demonstrated with loss and that one of the activity goals is preventing from making losses which would threaten organisation to function, managing of risk can be defined as searching and taking actions that would secure organisation from making losses that are bigger than those accepted by its safety level [Bielecki W.T., p.44]. Supporters of neutral approach to risk, who see both chances and dangers in risk, define managing of risk as a system of methods and actions leading to risk optimisation in organisation functioning and therefore making rational decisions [Bizon-Górecka J., p. 54]. Then, not only minimisation of risk would be a goal but also following the direction of ensuring specific level of risk in business. Specific recognition of character, range and size of potential risk allow to take preserving actions in proper time that would enable limiting risk to advisable level, i.e. neutralisation of some risks or minimisation of its effects. What is more, it allows to take risk in acceptable limits, which in case of business activity is a condition to profit.[Kaszuba-Perz A., Perz P., p.54]. It seems that neutral approach to risk should also be associated with oil and gas companies. Functioning of these companies in international markets gives possibility of grow of uncertainty in frame of basic activity and financial results. In such context the neutral approach allows to manage risk. Nowadays, in many companies it is observed to move from traditional to integrated risk management.


33

The traditional way is characterised with taking at first types of dangers of a firm and then in different ways specific exposition on risk factors has been reached. Every type of risk is controlled individually. Therefore, there is no approach to risk of many aspects, hence in consequence it conducts into an integrated approach to risk. Basic differences between traditional and integrated approach to risk are identified in the table 1. Table 1. Differences between traditional and integrated approach to risk management. Traditional approach

Integrated approach

Risk in functional terms

Risk in process terms (in whole organisation)

Identification and estimation of specific types of risk

Portfolio of risks seen in context of corporate strategy

Considering all identified risks

Concentration on critical risks

Minimisation of risk

Optimisation of risk

No responsibility for risk

Everyone responsible for risk

Quantification of risk made ad hoc

Monitoring and constant level of risk

Source: A. Adamska, Ryzyko w działalności przedsiębiorstwa-podstawowe zagadnienia, [in:] A. Fierla (red.), Ryzyko w działalności przedsiębiorstw. Wybrane aspekty, Oficyna Wydawnicza SGH, Warsaw 2009, for: A. Kaszuba-Perz, P. Perz, Rola zarządzania ryzykiem w przedsiębiorstwie w obliczu wzrostu zewnętrznych czynników ryzyka, Finansowy Kwartalnik Internetowy e-finanse, 2010, vol. 6, no 2, Rzeszów, p. 54–55.

In next part of document the practical depiction of risk and ways of avoidance it as well as work on creating of income and financial result for few oil and gas sector companies would be presented.

Identification of financial risk in oil and gas companies The verification concerned capital groups of companies descending from Europe, but which function in different geographic areas as well. Moreover, for comparison one group from China was taken. Financial results and incomes for years 2012–2014 of capital groups and companies were compared. In analyse, data for year 2015 were not compared because not every company has already published their reports for this year. From Poland, only one capital group was analysed – Capital Croup PGNiG and European market is represented in this study by MOL Capital Group and OMV capital groups. Capital Groups outside Europe is China National Petroleum Corporation (CNPC) from China. The group of companies selection was intentional. On base of it, different enterprises with various ownership structure and the exposition on financial risk would be characterised. All financial data has been acquired from published financial reports and annual reports of the companies. One fundament of financial reports is fact, that they were based on International Standards of Accounting and Reporting.

X

X

Ongoing monitoring of credit conditions changes with excessive exposition on risk

Ongoing monitoring, swaps, options, futures, forwards

X

X

Ongoing monitoring

Ongoing monitoring

Not described

X

Using a „Managing of financial risk policy“ implemented in the Capital Group with active participation of Risk Committee. Additionally EWRM process used allowing fast identification and elimination of harmful aspects of the risk

MOL

swap until 2012, natural hedging X

Call options, option strategies, swaps, forward

X

X

Risk of gradual loss of the market by implementation of stock market obligation

Monitoring of the situation Performance bonds with contracts, credit Using a „Managing of financial risk policy“ implemented in the Capital Group with active participation of Risk Committee

X

Not described

X

X

Identification

Monitoring of values Value at Risk

Taken actions

PGNiG

Slightly identified

Not described

X

X

X

identification Taken actions Identification

Ongoing monitoring, evaluation of influence on cash flow, quarter analysis of a team

Taken actions

OMV

Other

Credit risk

Tax risk

Level of corruption

Foreign exchange risk

Interest rate risk

Risk of raw materials prices drop

Identification / actions

Capital Group

34 Prof. Piotr Bartkowiak, Ph.D. , Marta Woźniak-Hoffmann, M.Sc.

Essential information in made analyse is that in analysed period the companies had a short-term drop of oil price in 2012, and then after upward trends there was another drop, this time long-term until the middle of 2014 [http://infolupki.pgi.gov.pl/ pl/gospodarka/dlaczego-ceny-ropy-naftowej-spadaja-0, as of 18.05.2016]. In the table 2 factors of financial risk indicated by particular capital groups were listed. Table 2. Identification of risk factors in analysed enterprises.

If the risk factor is identified – it is presented as ‘X’ in the colomn

Level of corruption

Tax risk

Credit risk

Other

X

X

No data

Anti corruption system as well as internal control system are present at the company

Interest rate risk No data


Risk of raw materials prices drop X

X

Identification / actions X

35

CNPC

Capital Group


No data

No data

No data

No data

No data

Taken actions

Source: own elaboration based on financial reports and websites of mentioned capital groups.

PGNiG Capital Group has its headquarters in Poland. Outside Poland, company was also active, during analysed period, in Norway, Pakistan, Kazakhstan, Egypt and Czech Republic as well. State Treasury has majority shareholding, in which 72,4% of all share. Among factors of risk identified by a management board there are credit risk, market risk, including interest rates, foreign exchange, merchandise prices and liquidity risk. Managers focus also on the fact that price of natural gas on European markets in 2014 was influenced by effect of limited supply from Norway as well as political situation in Ukraine and falling prices of oil [www.pgnig.pl/documents/10184/1007990/ Raport+Roczny+PGNiG+2014.pdf/dbc3dc8d-9f30-4a7f-9498-748b8d5f0c36, as of 17.05.2016]. Besides of lack of clear identification of tax risk in annual report, such risk really exists. It may be observed that there is significant increase in effective corporate income tax rate year-over-year for years 2012 and 2013 – 12% and 29% accordingly [pgnig.pl, as of 20.05.2016]. Another company of oil and gas sector is OMV – it is a capital group established in Austria as a company of State Treasury in 1956. It realises its works on several continents by its subsidiary companies and foreign branches. Company conducts oil and gas drilling and mining works in Hungary, Czech Republic, Slovakia, Germany, Tunisia, Iran and also in Australia.

36


The managers of capital group indicate various factors of financial risk, underlying that company implemented EWRM system that allows to find and secure, in fast way, those risk factors that seem to be the most influential at the moment. Among mentioned risk factors it need to be mentioned about effective tax rate of capital group in year 2012 of 37,3% with 25% tax rate in Austria and comparable rate 30,1% in year 2014. For the tax rates foreign tax rates had influence [omv.com as of 20.05.2016] MOL capital group was established in Romania in 1991. After adopting Slovnaft, INA and TVK it became one of the leading enterprises on the market, especially in Hungary and in Austria. Capital group makes works e.g. in Pakistan, Oman, and earlier in Syria and Russia. In reports the managers emphasize exposition on credit risk, however from observation as in the table no. 3 it can easily be noticed that the company may have big issues with tax risk. Nevertheless, such high value of the effective tax rate is the effect of revaluation of a subsidiary company [molgroup.info, as of 20.05.2016]. CNPC capital group is a huge entrepreneur in oil and gas sector. As a company of Chinese state treasury it is not only present in China but on every continent – in Australia, Peru, Russia, Sudan, and Azerbaijan and in other 32 countries, as well. Managers of company present exposition on tax risk, as well as corruption risk. Nevertheless, it may be observed that besides of evident exposure on tax risk, effective tax rate is formed on similar level, approximately 25% of the real rate of corporate income tax in China. Company has also implemented anti-corruption system. Managers are also aware about liquidity risk and foreign exchange risk and because of that, the internal control system was implemented into company management [cnpc.com, as of 20.05.2016]. The table 3 presents simplified comparison of risk factors with specific indicators for all companies. The author is aware of that prices’ fall don’t have to implicate income fall, but it is most probable in the case of raw materials mining and such simplification was done in this study. It is an intended action to indicate how mentioned fluctuation in oil market particularly, but also in its correlation with natural gas, influence income of presented companies. Exposition on foreign exchange risk has been indicated only in one group, which is PGNiG Capital Group. Tax risk was estimated by effective corporate income tax rate that is also a significant simplification, because there are no other types of tax included in the indicator that are sometimes highlighted by companies in their documents. However, for this elaboration such summary is enough. Credit risk is presented in the way it was presented by the companies, including mainly the level of receivables and debt securities.

18 916

No data

No data

No data

-12,0% 67,0%

42 414 42 649

No data

No data

No data

30,1% 24,5% 37,3%

Mention, without precise indication on exposition on credit risk

331 074

319 993

No data

No data

No data

28,6%

25,1%

24,3%

Mention, without precise indication on exposition on credit risk

Exposition on credit risk 2013 Exposition on credit risk 2012

1 718,6 6 428,4

Exposition on credit risk 2014

1 735,7

3 990,1

1 686,4

Effective corporate income tax rate 2012

12,0%

24,0%

6 639,4


29,0%

Exposition on foreign exchange risk 2012




Currency fall of 10%

Currency increase of 10%

-103,5 103,0

Currency fall of10%


-79,3 78,4

Currency fall of 10%


Sales revenue 2012

Sales revenue 2013

Sales revenue 2014

mln EUR

66,2

-71,8

6 884.

7 628

8 188

PGNiG

22,0%

18 189

15 455

35 913

362 645

MOL

OMV

CNPC

Credit risk

Tax risk


Risk of fall in prices of raw materials

Risk

Financial risk of oil and gas companies in Poland and abroad 37

Table 3. Risk and financial effects in 2012–2014

Source: own elaboration based on financial reports and websites of mentioned companies and capital groups.

Conclusion

On base of presented analyse, it can be stated, that managers activities in the capital groups, which were verified, come into identification of risk factors. At the same time, the reports of companies present different kind of financial risk. Most of factors, listed

38


on base of subject literature is also identified by managers in their reports. Risk of raw materials price drop, interest rate, foreign exchange or credit risk are identified. For the risk of corruption level as well as for tax risk, managers don’t point to, but on base of situation of the companies’ activity, these factors are also important. After analyse of source material, it can be stated without any doubt, that starting from identification of risk factors, managers try conduct into companies the tools which can allow minimize the results of some kind of risk. In two among four companies, system of risk management is implemented. Elimination of some factors is not possible, but the trial of identification of the risk is the beginning of problem resolution.

Bibliography: Adamska A., Ryzyko w działalności przedsiębiorstwa-podstawowe zagadnienia, [w:] A. Fierla (red.), Ryzyko w działalności przedsiębiorstw. Wybrane aspekty, Oficyna Wydawnicza SGH, Warszawa 2009, za: Kaszuba-Perz A., Perz P., Rola zarządzania ryzykiem w przedsiębiorstwie w obliczu wzrostu zewnętrznych czynników ryzyka, Finansowy Kwartalnik Internetowy e-finanse, 2010, vol. 6, nr 2, Rzeszów, s. 54–55 Bielecki W.T., Informatyzacja zarządzania, PWE, Warszawa 2001, s. 44, za: Kaszuba-Perz A., Perz P., Rola zarządzania ryzykiem w przedsiębiorstwie w obliczu wzrostu zewnętrznych czynników ryzyka, Finansowy Kwartalnik Internetowy e-finanse, 2010, vol. 6, nr 2, Rzeszów, s. 54 Bizon-Górecka J., Strategie zarządzania ryzykiem w organizacji gospodarczej, Przegląd Organizacji, 2001, nr 1, za: Kaszuba-Perz A., Perz P., Rola zarządzania ryzykiem w przedsiębiorstwie w obliczu wzrostu zewnętrznych czynników ryzyka, Finansowy Kwartalnik Internetowy e-finanse, 2010, vol. 6, nr 2, Rzeszów, s. 54 Büschgen H., Przedsiębiorstwo bankowe, t. 2, Poltext, Warszawa 1997, s.190, za: Kaszuba-Perz A., Perz P., Rola zarządzania ryzykiem w przedsiębiorstwie w obliczu wzrostu zewnętrznych czynników ryzyka, Finansowy Kwartalnik Internetowy e-finanse, 2010, vol. 6, nr 2, Rzeszów, s. 54 Filipiak B., Panasiuk A., Przedsiębiorstwo usługowe. Zarządzanie, PWN, Warszawa, 2008, p.181 Fiszer J., Charakterystyka polskich umów o unikaniu podwójnego opodatkowania, w : Monitor Podatkowy 6/1994, Warszawa, s. 161 Jahrmann F.U., Ausenhandel, Ludwighafen, Kiel, 1995, p.257 za: Filipiak B., Panasiuk A., Przedsiębiorstwo usługowe. Zarządzanie, PWN, Warszawa, 2008, p. 181 Kazojć K., Pomiar, kontrola i ograniczanie skutków ryzyka finansowego, Zeszyty Naukowe Uniwersytetu Szczecińskiego nr 804, p.236–237 Publikacja „The Economist” na temat społecznej odpowiedzialności biznesu pt. „Doing good: Business and the sustainability challenge”, luty 2008, za: Zarządzanie ryzykiem. Społeczna odpowiedzialność biznesu i zrównoważony rozwój, raport Deloitte, 2011, s.10 Marcinkowska M., Standardy kapitałowe banków. Bazylejska nowa umowa kapitałowa w polskich regulacjach nadzorczych, Regan Press, Gdańsk, 2009, s. 28


39

Potocki W., Ropa naftowa a wzrost gospodarczy. Teoria i praktyka, Poltext, Warszawa, 2014, s.24, 55,56,287 A. Ramm, Dokumentacje cen transferowych ciągle pod lupą organów podatkowych, w: Ceny transferowe w najnowszym orzecznictwie sądów administracyjnych, wydawnictwo EY, s. 2, Tanzi V., Zee H., Tax Policy for Developing Countries, 2001, International Monetary Fund, http://www.imf.org/external/pubs/ft/issues/issues27/, as of 17.05.2016 Konwencja między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Kazachstanu w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu i majątku sporządzona w Almaty dnia 21 września 1995 r., Dz. U. 1995 – Nr 121, poz. 586. Modelowa konwencja w sprawie podatku od dochodu i majątku, lipiec 2010, PWC, Wyd. Wolters Kluwer, Warszawa, 2010, s.9 Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych (Dz. U. z 1992 Nr 21, poz. 86 z późniejszymi zmianami).

Internet sources: https://www.rbi.org.in/scripts/ReferenceRateArchive.aspx www.pgnig.pl www.omv.com www.molgroup.info http://infolupki.pgi.gov.pl/pl/gospodarka/dlaczego-ceny-ropy-naftowej-spadaja-0 https://www.nbportal.pl/slownik/pozycje-slownika/ryzyko-finansowe https://c1wsolutions.wordpress.com/2012/03/26/risks-for-oil-and-gas/ http://cire.pl/pliki/2/Kontrakty_gazowe.pdf http://www.ey.com/Publication/vwLUAssets/EY-Managing-bribery-and-corruptionrisk-in-the-oil-and-gas-industry/$FILE/EY-Managing-bribery-and-corruptionrisk-in-the-oil-and-gas-industry.pdf, http://www.ey.com/Publication/vwLUAssets/Ceny_transferowe_w_najnowszym_ orzecznictwie_s%C4%85d%C3%B3w_administracyjnych/$FILE/EY_Ceny_ transferowe_nowe_orzecznictwo.pdf http://www.pgnig.pl/reports/annualreport2013/ssf-34-instrumenty-finansowe.html,

PROF. MARIAN HOPEJ, PH.D. PROF. ZDZISŁAW SZALBIERZ, PH.D. WROCŁAW UNIVERSITY OF SCIENCE AND TECHNOLOGY

Leadership and simplicity of organizational structure

Introduction One of the general principles for the formation of organizational structure, namely postulates indicating what should be done to obtain the proper structural solution, is the principle of simplicity. Not so long ago it was believed, according to the law formulated by W.R. Ashby, that the only reasonable response to the complexity and the dynamic nature of the environment should be a similar complexity of structure. However, a profound turn in thinking, consisting in questioning this law, is more and more visible. The efficiency in responding to what is happening in a highly uncertain environment starts to depend on simplifying structural solutions because “... following the complication of social interrelations by the specialization of structures and the complication of procedures inevitably ends in getting stuck in bureaucracy” (M. Crozier, 1993, p. 47). The principle of simplicity is formulated by numerous authors, among others, by R. Ashkenas (2007), M. Crozier (1993), P.F. Drucke (1994) as well as J. Welch and S. Welch (2005). In general, the creation of flat, single-line structural solutions, usually aside from how other characteristics should be shaped, is suggested. Meanwhile, the examined principle applies not only to hierarchies but also to the division and standards of work, the distribution of decision-making rights or the organizational documentation. Of course, the simpler, the better. Therefore, if it is possible to simplify a structural solution, this possibility should undoubtedly be used (A.K. Koźmiński, D. Jemielniak, D. Latusek-Jurczak, 2014). The simplicity of organizational structure is, it should be emphasized, a relative notion also because it is gradable. It seems to depend on numerous factors, among others, on leadership performed in the organization which is suggested by, e.g. G.C. Avery (2009). So far, this dependence was not the subject of in-depth research, especially empirical1*. The purpose of this article is an attempt to fill this 1

Even though the principle of simplicity of organizational structure has been formulated for a long time, there are surprisingly few attempts to quantitatively examine its conditions and reasons.

42

Prof. Marian Hopej, Ph.D., Prof. Zdzisław Szalbierz, Ph.D.

gap. To be more precise, an attempt will be made to answer the question whether leadership in an organization is correlated with organizational structure? This attempt requires, first of all, the clarification of the principle of the simplicity of organizational structure.

Principle of simplicity of organizational structure. According to H. Mintzberg (1979), the most important component in an organization with a simple structural solution, is its strategic peak, namely one person, usually the owner or a small group of the top management. The middle-level personnel is not present, just like the technostructure and auxiliary services. The form of coordination, namely direct management supervision, is dominating. In addition, it is characterized by a low degree of specialization, formalization and standardization of actions. Other authors characterize simple structure in a very similar manner, among others, A. Zakrzewska-Bielawska (2012), K. Łobos (2003) as well as S.P. Robbins and D. Delenzo (2002). They all emphasize the fact that it is a flexible but centralized solution, which means that it sometimes may be perceived as restrictive because when one person determines the rules of conduct, others need to comply with them and thus the room for maneuver is small (B. Glinka, P. Hensel, 1999). It would certainly be greater if direct contractors, constituting the so-called operational core, were equipped with high decision-making rights and actions were coordinated by mutual adjustment, the mechanism of which are interpersonal relations and the direct adjustment of positions. The following question may thus be asked: is such decentralized structure, giving people a high freedom for decision-making and operational freedom, not easier? Its justified nature results from the fact that increasing this freedom leads to reducing the number of organizational rules constituting the structure and thus to increasing its simplicity (reduction in complexity). The answer to the question above was formulated on the basis of the idea of the fractal tree, resembling a single-line, hierarchized structural solution. The conducted analysis revealed the fact that the increase in the intensity of direct supervision results in the increase in double-level complexity (with the executive level) of the structure, although this is not a linear dependence (M. Hopej-Kamińska et al., 2015). Therefore, a simple organizational structure is not a centralized but a highly decentralized solution in which the top management allows people to manage their actions in an independent manner. In other words, there is very little structure in the organization. This simple structure is usually good for small organizations, operating in a dynamic or even in a hostile environment. In other conditions, to paraphrase the words by A. Einstein (“one should do everything as simple as possible, but not simpler”), the structure should be as simple as possible, but not simpler (Simplicity is value, 2013). This means that:


43

Fig. 1 Adequacy of the organizational structure and its context. Organizational structure Value of adjustment Context of structure

Source: on the basis of (M. Hopej, 1994, p. 12).

•

A reflection relation should take place between the organizational structure and its context (features of the remaining elements of the organization and its environment) (Fig. 1). The structure and context are then fully appropriate because the value of adjustment has the maximum value. However, in practice it is impossible because contextual features may pose contradictory requirements with regard to the formation of the structure’s features. In such a situation, the adjustment of structure and context to one another requires the use of simplified models of both sets of features which, in consequence, leads to the fact that a specific context is attributed not one structural solution but a set of solutions – a set of structural solutions acceptable by the context. • The simplest solution (the least complex one) should be chosen from this set, namely the solution resembling the image of the model of a simple structure outlined earlier as best as possible, namely characterized by the least extended hierarchy, the lowest degree of centralization, specialization, formalization and standardization of actions (M. Hopej-Kamińska et al., 2015). Following the principle of simplicity understood in this way benefits the formation of a reasonable structure, adjusted to various external and internal circumstances by way of a well-established cognitive conduct. These also include leadership exercised in the organization.

Impact of leadership in the organization on the simplicity of organizational structure – research hypothesis. The answer to the question what is leadership in the organization is not easy, e.g. because there are almost as many definitions of leadership as there are authors trying to define it. The difficulties also result from the fact that: • Leadership is not visible. It is a social structure, formed in the minds of people, in a given historical and cultural context. • The perception of the idea of leadership is shaped by various concepts accepted in a given context in which people find themselves. • The development of research on leadership is not aided by the myths, such as the ideas of a heroic leader solving all problems on his own or exceptional inborn features of a leader (G.C. Avery, 2009)


44

Despite these difficulties, leadership plays an important role in the studies of organizations. It seems to stem from a popular view that leaders exert a substantial impact on it. Researchers attempt to divide leadership into components, focusing on its narrow aspects. This article adopts quite a wide understanding of leadership, based on the work by G.C. Avery (2009) the essence of which consists of the following features: • the most important players, • sources of the leader’s power, • knowledge of the organization’s members, • power of the organization’s members, • making decisions, • responsibility of the leader and other members of the organization. Depending on the formation of the features, we may distinguish four types of leadership (Tab. 1). These include: classic, transaction, visionary and organic (dispersed) leadership. The distinguished types of leadership may be placed on a continuum the one edge of which is classic leadership, and the other – organic leadership. This continuum is illustrated in Fig. 2 where points c, t, v and o mean leadership: classic, transaction, visionary and organic. Between the extreme points we may imagine many other intermediate types of leadership. The closer they come to point c, the more they resemble classic leadership, while the closer they come to point o – organic leadership. Table 1. Table and four types of leadership. Leadership

Classic

Features The most important players

Leader

Transaction Leader: small part of the organization‘s members

Visionary

Organic

Leader: large part of the organization‘s members

All members of the organization: there may be many leaders or there may be no leader at all

Sources of the leader‘s Position, pressure, Position, pressure, ability to Position, admiration and power admiration, respect deal with people respect, charisma

Power of the group, cooperation, sharing power

Knowledge of the or- Low ganization‘s members

From low to high.

From average to high.

High

Power of the organiza- Almost none tion‘s members

Small

Average

Large

Making decisions

The leader decides The leader decides on his own after consultations on his own with other members of the organization

The leader cooperates with Decisions are made the group jointly

Responsibility

Very high of the leader

First of all, of the leader, to Of all to a large extent a relatively small extent, of other members of the organization

High of the leader

Source: on the basis of (G.C. Avery, 2009, pp. 61–62).


45

Fig. 2. Continuum of types of leadership. C

t

v

o

Source: prepared by the author.

It is easy to notice that the distinguished types of leadership match certain organizational structures better than others. Classic leadership seems to be easily exercised under a mechanistic (complex) structural solution, reducing to a large extent the freedom and unpredictability of behavior of the organization’s members, while organic leadership – to organic (simple) structure, giving people a high freedom for decision-making and acting. In turn, transaction leadership matches the structure more resembling the mechanistic solution than the organic one, while visionary leadership the other way round, namely more resembling the organic solution than the mechanistic one. This means that the more organic (dispersed) nature of the exercised leadership, the simpler the structural solution should be. And vice versa, the more leadership reminds classic leadership, the more complex the structure.

Results of empirical research In research conducted on a sample of 100 companies operating in Poland, it was assumed that: • The organizational structure is characterized by hierarchy, centralization, specialization, formalization and standardization of actions. • The simplicity of the organizational structure depends on eleven factors distinguished on the basis of the four-element model of the organization by H.J. Leavitt (1965) as well as the experience of the authors of this article acquired when designing structural solutions for companies (these factors, along with the hypotheses, are presented in Tab. 2). The research tool was a questionnaire (filled out by members of the top management at companies) containing questions on structural features as well as the formation of particular structure-making factors. The research was anonymous. The results of the correlation analysis reveal the fact that none of the factors shaping the simplicity of organizational structure is correlated with all its features. The correlation coefficients are thus not high, in general (M. Hopej-Kamińska, et al., 2015).


46

Table 2. Factors shaping the simplicity of organizational structure. Factor

Hypothesis

Uncertainty of the environment

The less uncertain the environment, the more complex the structure. And vice versa, increasing the uncertainty leads to the simplification of the structure.

Dependence of the organization on the environment.

The greater dependence, the simpler the structure. Reducing complexity leads to increasing the complexity of the structure.

Size of the organization (measured by the number of employees and the level of revenues)

The greater the organization, the more complex the structure. The smaller the organization, the simpler the structural solution.

Diversification of conducted operations.

The smaller the diversification, the simpler the structure. Growth in the degree of diversification leads to growth in the complexity of the structural solution.

Organizational culture

„Opening” the organizational culture fosters the simplification of the structural solution, and „closing” it fosters its complication.

Professionalism of the organization’s members

The greater the professionalism, the simpler the structure, while the smaller the professionalism – the more complex the structure.

The management’s pursuit to simplify the organization

The greater the determination, the simpler the structure (and the other way round, the smaller the determination, the more complex the structure).

Production technology

The more routine the technology, the more complex the structure (the less routine, the simpler the structure).

Use of IT

The greater the scope of using IT, the simpler the structure. And vice versa, the smaller the scope, the more complex the structural solution.

History of the organization.

The longer the functioning period of the organization, the more complex the structure (and the other way round, the shorter the period, the simpler the structure).

Leadership

The more organic, the simpler the structure (and the other way round, the more classic, the more complex the structure).

Source: on the basis of (M. Hopej-Kamińska et al., 2015).

The next step of the research procedure included the analysis of regression for particular features of the structure (using the stepwise analysis method). It turned out that none of the structure-making factors was the predictor of all features of the structure which means the rejection of all formulated hypotheses. However, models statistically significant were suggested for each characteristic. Hierarchy is explained in 49% (corrected R2 = 0.488) by 4 variables. These include the volume of employment (the strongest predictor, beta = 0.485, p

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