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External and domestic environment for industrial strategies and management in Greenland

by Lise Lyck

Abstract
This article outlines the present basic Greenlandic situation in an industrial development perspective and the background for the need for a new strategic approach. Decisive for the success of a new approach is a thorough understanding and insight in the strategic and managerial conditions in Greenland. This requires both an economic analysis of a more quantitative character and a more qualitative understanding of the external environment as well as of the domestic environment for industrial development. This article focuses on the environment and among other findings it presents the results of a comprehensive SWOT-analysis that is applied in a methodologically new way that gives a coherent view over the managerial strategy space as seen by the perception of about 60 top managers in Greenland.
The conclusion is that the industrial strategic approach has to be an emergent approach and that socio-economic and cultural conditions have to be dealt with as active parameters, i. e. a specific structural approach has to be followed, for instance, strategic approaches according to the ideas and findings of Hamal and Prahalad, Whitley and others. Furthermore, management is found to be of crucial importance. This implies that no strategy can function in Greenland without explicitly taking management considerations in as an important variable for all strategic stages.
Introductory information
Greenland became a part of the Danish Realm in 1380. It had a status as a "lydland", i.e. as a former taxpaying territory to Norway, as the Kingdom of Denmark-Norway was founded in 1380.
After the Viking population in Greenland died out, Inuit peoples who have also lived there before the Vikings discovered Greenland, were the only remaining population in Greenland.
About 200 years later Greenland was rediscovered by expeditions initiated by the King of Denmark, and Greenland got a colonial status, which continued until a year after the revision of the Danish Constitution in 1953. At that time, Greenland became a sort of a county in Denmark, a status that was replaced by a Home Rule (autonomy) status in 1979.
The territory of Greenland is 2,175,600 km2, of which only 341,700 km2 is not ice capped (8 x the size of the Danish territory). The stretch from north to south is 2,760 km and from east to west at the widest is 1,050 km. The coastline is close to 40,000 km. The distance to Canada (Ellesmere Island), Iceland and to Spitsbergen is 26 km, 300 km and 400 km respectively.
The population in Greenland (1996) was 55,863, of which 48,679 were indigenous while the remaining were primarily Danes living for a shorter period in Greenland. The size of the population has been rather stable the past 10 years. In 1945 the size of the population amounted to 21,412, of which 20,939 were indigenous. In 1900, the population was half of what it was after World War II.
Both Greenlandic and Danish are the official languages. The languages are, however, totally different. Approximately 10 percent of Greenlanders speak Danish and about two percent of the Danes speak Greenlandic.
The Danish state budgets 2,500 mill DKK in a block grant plus 500 mill DKK in common Danish Realm expenses annually to Greenland. This, combined with the fisheries (mainly shrimp - Pandalus Borealis), is the core element of the economy. The Danish state income transfer implies, that the average disposable income is close to that in Denmark, but compared to Denmark and the Nordic countries there is a pronounced income inequality.
The development and modernisation program which totally changed the Greenlandic way of living, was initiated following the Second World War. It included two ambitious programs called G 50 and G 60. In 1979 home rule was introduced in Greenland (autonomy). From 1979 to 1989 almost all state affairs were transferred to the Home Rule authorities and today only police, defence, financial policy (the same exchange rate as Denmark) and some minor state affairs have not been transferred to home rule.
The main goal both in Denmark and in Greenland the past 50 years has been to increase the income creation in Greenland by creating more value added. Until the end of the 1980´s it appeared as if the long term development goal was going to be attained over time as two thirds of the total income was created in Greenland. However, the scarcity of fish and the regulation of the fisheries have had a negative impact on economic growth the past 10 years. As a consequence today only half of the income creation is due to Greenlandic resources.
This development over 50 years raises the question whether the strategy and the policies followed will lead to or towards the fulfilment of the goal.
States and corporations considered as organisations
When analysing states and corporations as entities, many similarities, especially between micro-states and corporations, are discerned. Therefore, it is of interest to look at state industrial policy also from a corporate strategic point of view.
In economics, a firm or a corporation (until the late nineteenth century, organisations which were not owned by the nation state were too small to be considered as corporations, Lynch p 39) is defined as an economic unity that makes decisions on production and investments. The same can be said about the decision-making of the state only that the decisions taken by the firm normally will be of a more specific character directly related to production and investments, while the decision-making by the state will be more general and related to an aggregated social level.
Small states, however, are often characterised as being monoeconomies in the sense that they are economically dependent on the economic performance of a few productions, thus the decision-making on the economic policy of the state and the decision-making of the firms often will be narrowly connected.
The connection is illustrated in fig. 1 with a Habermas society consisting of a state, civil and market sector. The overlapping area is an illustration of the tacit knowledge in the society on production and investment conditions. In small economies this overlapping area will normally be large due to family relations, informal networks and a common culture and understanding. Furthermore, the tacit knowledge will also often be specific and applied. This fact is recognised in the newer socio-cultural theories of strategy. They seek clearly defined prescriptive theories, but they also stress the social and cultural frameworks and beliefs of nations as starting point for strategy development. Researchers such as Marris R. (1964),Granovetter, M.(1985) and Whittington, R. (1993) all find that companies and their management are embedded in social and cultural systems that influence their decision-making process decisively and consequently the strategies they develop. Whitley, R. (1991) has also shown that business varies with regard to strategic actions according to the level of involvement of state, family and market structures.
Furthermore, the production in such economies will normally be organised to achieve the advantages of both economies of scale and of scope. Economies of scale implies that a larger plant would lead to a cost reduction. Economies of scope occur when two or more products can be provided for by one firm instead of more firms making cost reductions possible.
For small economies this normally implies a structure with a few exporting corporations responsible for the sales and marketing and several small firms responsible for production and innovations. Sometimes research and development institutes will be emphasised as separate organisations between the production and the selling units. All functions will typically be connected by owner interests. The state decision-making process in such a complex will normally be connected to production and investments in infrastructure including transportation systems, education, social health, etc.
The size and homogeneity of the society decides the level of tacit knowledge in the society. As a consequence of this trend, knowledge is normally larger in small than in larger societies. In a society with an extensive level of tacit knowledge the sectors of the society will to a high degree be overlapping due to the existence of many informal networks and many kinds of interrelations among the people living in the society. This often implies a high degree of common understanding that gives room for consensus decision-making as in the decision-making model. Such a model can be both rational and effective because it opens for the evaluation of value chains not only inside a corporation but in relation to the whole society, resulting in a more effective production complex. The danger of the model is that the overlapping and the tacit knowledge makes the power division (Montesquieu´s division of power in executive power, legal power and juridical power) unclear and uncertain and implying high transaction cost and unwillingness to invest and difficulties in attracting capital from outside.
Tacit knowledge has an advantage in being difficult for foreigners to imitate, especially if tacit knowledge develops dynamically (a monopoly element).Tacit knowledge is also an advantage in the sense that it functions within a consensus frame that gives flexibility, the advantage of value chains and thereby legal transaction costs.
Tacit knowledge is a disadvantage in being a barrier for attraction of foreign expertise and capital from outside due to low transparency of the economy and high transaction costs due to lack of knowledge and understanding of the specific function of the society in question.
In decision theory a distinction is made between rational and consensus based decision-making. However, what is being argued in this article is that consensus decision-making can be more rational that rational decision-making based on open, well defined decision-making systems. The decisive element is that the advantage (economic, social and cultural) has to exceed the disadvantage seen in a dynamic perspective. This implies that the extension and character of the tacit knowledge have to be challenged and re-evaluated when the context in which the society or the corporation operate changes.
It is characteristic that small economies are often found to rely too much on consensus decision-making than larger states. For example, in a Danish Realm context the Faroe Islands and Greenland are often evaluated to rely too much on tacit knowledge and having too little "rational" decision-making. In an EU context Denmark is often found to rely too much on tacit knowledge and having too much consensus decision-making, for instance concerning the labour marked governed by consensus decision-making, in form of agreements between organisations of employers and organisations of employees instead of general laws made by politicians.
The trend is that consensus decision-making is in a weak position in many states in Europe due to increased horizontal competition. In many cases it is even being abandoned, which is why tacit knowledge becomes less widespread in small economies. In this way some small economies lose competitiveness, and only when state regulation of the market in such a situation is not general, but specific, as in Ireland, can increased horizontal competition lead to increased competitiveness.
Tacit knowledge has grown and developed over time and synthesised in the existing level and content of tacit knowledge. Tacit knowledge is vulnerable to attack because rational decision-making always rests on partial analyses. For example, the welfare state has developed over time to a complex synthesis of which there is a certain common understanding, a tacit knowledge. Political decisions are mostly related to partial specific questions due to political debate being mostly event driven. For example, lists of people waiting for operations in a hospital. Here tacit knowledge confronts rational decision-making by introducing earmarked products, privatisation, etc. involving competition on a partial basis.
It will always be easier to advocate for rational decision-making, because it is less complex, easier to study and easier to manage on partial economic calculations.
A further interesting element is that there is a tendency towards decreased overlapping of sectors in small economies and a tendency towards more sector overlapping activities in large economies. In small economies the distinction between state and market is increasing while it is decreasing in large states, implying more common norms, rules and procedures for the public and the private sectors, but in a way in which the public sector imitates the private sector. Both developments are result of the growing competition paradigm. For small economies the purpose is to become more included in the world economy. For larger economies it is a way to develop more competitive power by uniting the economy.
External environment for the Greenlandic economy
This section studies the characteristics of the external environment of relevance to Greenland as seen in a strategic perspective. The external environment of Greenland includes mainly the following: indigenous peoples, the small Nordic economies and the relations to Denmark.
Greenland has an environment of indigenous peoples, but the Greenlandic people is better off economically, which is why indigenous peoples are more inspired economically by the Greenlanders than the other way around. However, concerning the rights to the subsurface the systems for other indigenous people have been inspiring in a strategic perspective, especially the Canadian systems.
The strategic inspiration from the small Nordic economies is mainly taken from Iceland, the Faroe Islands and the Aaland Islands. In these economies the development of globalisation takes place via world-wide foreign trade based contacts initiated by corporations in the private sector, and the internationalisation (international agreements, regulation of foreign trade) develop as a state responsibility for affairs in the form of regulation, foreign trade agreements and conditions for competition.
The Icelandic economy has emphasised globalisation during the past decade as a drivefor economic growth and met success due to the high level of tacit knowledge on production and investment conditions in a way that develop synergetic effects between the state and the corporations. This has implied a change in the fisheries complex with individual transferable quotas in the fisheries, a reorganisation of the marketing and sales functions and changes to more economies of scope supported by the foreign policy of the state as seen for instance in the Baltic countries. This development also implies increased diversification of the economy. Globalisation develops as a typical "global village model" with owner interests and identity anchored in Iceland.
In the Faroe Islands the economy is also based on the fisheries complex. The economy has been primarily based on fisheries with periodic break downs due to shortages of fish. Within the fisheries, an expertise bound to this rationale has developed. Foreign trade with fish products is mostly oriented toward Europe and globalisation in the form of direct foreign investments in the Faroes, or even Faroese direct investments abroad, are virtually non existent. Education systems have been generally focused, implying that Faroese individuals have high salaried employees abroad and outside the fishery and thereby not giving incentives for capital transfer in form of direct foreign investments. However, due to the economic crisis in the Faroes in 1992 which caused a 10 percent depopulation in the Islands, many Faroese found new jobs in the fisheries complexes in Denmark, Greenland and Iceland which could develop an incentive for foreign direct investments in the Faroese fishery sector in the coming years. Furthermore, it is likely that oil production will be initiated in the coming years and this development could also imply foreign direct investment. The village concept will still be strong in the Faroes due to very strong identity, but it is likely that a nascent globalisation will take place. Rather, it will be bound to specific industries as it for instance is seen in Norway in relation to the oil industry.
The Aaland economy is based on a shipping complex. Since shipping has developed as a global service and not as a state regulated service due to transportation of the products not being part of the product concept (an understanding which became a world-wide accepted principle when the UK had to give it up), the result has been a globalisation strategy for the Aaland Islands. The shipping complex has developed and diversified the economy into banking, insurance, tourism, secondary production etc. via flexible specialisation. The internationalisation by the Aaland autonomy authorities has over time been weak due to the tensions in Aaland-Finnish relations. The Aaland Islands had their own referendum on being included in the EU. They voted 'yes' and have a specific protocol including their specific agreements. Being included in the EU, with the special Finnish-Aaland relations and the Finnish position as neighbour to the former USSR which has been decisive for the Finnish interest in the EU market - has given the Aaland Islands a stronger platform for increased internationalisation. Today the Aaland Islands is a typical example of the "global village model".
Denmark is economically an open economy with a comprehensive public sector and an economic core base in agriculture and foodstuff processing, in machinery and in chemicals.
Some productions, especially agriculture, have been considered vital for survival and defence, which is why they have been strongly regulated implying that their development has been mainly a question of the degree of internationalisation. However, new technology has weakened the regulatory force of the state by making direct contact between individuals and individual firms quick, cheap, easy and impossible for the state to control efficiently, implying an even greater increase in globalisation. It also requires new conditions for productions that through centuries mainly have been regulated via internationalisation.
In Denmark the agricultural complex is under reorganisation. The number of farms have been heavily reduced since the 1960's as a result of the large scale economies which have been utilised in processing and sale leading to mergers and acquisitions, and the economies of scope developing via Danisco A/S etc. In this development the vertical owner interests, with basis in the primary production and the specific industry, have been still weaker. This implies that it is not a global village in the sense of globalisation development, but rather globalisation with weaker links to Denmark and Danish interests.
The Danish-Greenlandic relations have changed from a colonial relation to a county relation, to a home rule relation. This development implies that the institutional and political relations have changed radically. Also the cultural relations are under change with a focus on differences. The economic relations have been rather stable. The Greenlandic economy has never been close to developing into a market based economy after the Second World War. However, until the end of the 1980´s the economy became less dependent on transfers from Denmark, but this has changed, which is why Greenland today is more a distributive system than a market oriented economy. It is, though, obvious from the institutional changes of the public sector in Greenland that Greenlandic politicians try to create structures in the economy as found in Denmark, especially concerning the home rule owned limited corporations.
As seen from these examples globalisation development has taken place in the Greenlandic environment, but it is important to make clear that globalisation development has different maturity stages and forms and is driven by different dynamics.
Ansoff and McDonnell (1990) have developed a model to assess the dynamics of the environment which can be useful as an analytical framework for the examples presented by small economies and their dynamics, see fig. 2.
This model deals with the dynamics of environmental transformation, predictability and the character of the environment to decide the level of turbulence. If the turbulence level turns out to be low, prescriptive approaches to strategies are relevant. If the level of turbulence is analysed to be high, emergent approaches to strategies are required.
Applying the model to the examples shown, the following estimates of the level of transformation are as follows: The Danish agricultural complex has moved from 1 to 5 in turbulence level, Iceland has moved from 2 to 3, the Faroe Islands has moved from 1 to 4 and the Aaland Islands has moved from 2 to 4. This demonstrates the significant trend, that the turbulence level has been increasing causing increased uncertainty and the need for an emergent strategic approach instead of a prescriptive strategy. Fig. 3 illustrates the two types of strategic approaches, a planned and an emergent strategic approach.
Another discussion of external environment relates to Greenland when one considers it as a less developed country, but is Greenland a less developed country? It is evident that Greenland is a small economy as measured by the population size, but is Greenland also a less developed country requiring development economic approaches? When measured by size of income, Greenland is absolutely not a less developed country. Yet, what happens if a more qualitative measuring approach is applied to evaluate the economic development level in Greenland?
Nafziger (1997) tries to set up a profile of developing countries. Greenland is in the following characterised in relation to this profile:
1. Income inequality follows an inverted U-shaped curve. This is the case for Greenland.
2. Most less developed countries are not political democracies. This is not the case for Greenland.
3. A small political elite. This is the situation in Greenland.
4. Low political institutionalisation. This is not the case in Greenland.
5. Experience of western domination. A fact in Greenland.
6. An extended family. Absolutely true in Greenland.
7. Peasant agricultural societies/ subsistence economies. Not really the case in Greenland, but there is part of this element still.
8. High proportion of the labour force in agriculture / subsistence economy. Not the case in Greenland.
9. A high proportion of output in agriculture/subsistence economy. Not valid for Greenland.
10. Inadequate technology and capital. Not the case in Greenland.
11. Low saving rates. Not the case in Greenland.
12. A dual economy. Partly true for Greenland.
13. High export primary commodity concentration ratios in foreign trade. True for Greenland.
14. A high proportion of primary product exports. Prevailing for Greenland.
15. Rapid population growth. Not the case for Greenland.
16. Low literacy and school enrolment rates. Not the case for Greenland, but language and educational problems.
17. An unskilled labour force. Partly the case in Greenland.
Although many characteristics for less developed countries are not found in Greenland, it is evident that part of the development economic issues are important and must be included in the environment when a strategy is set up. Especially, less developed countries' economic features are found concerning the foreign trade and education problematic.
Domestic environment for strategies and management in Greenland
In relation to Greenland, exact production conditions are often mentioned and exemplified by pointing at the specific nature and weather conditions. This is of course true, but quite a lot of the specific Greenlandic conditions are also man-made organisation and production systems and a result of the management of two cultures in domestic society. The domestic environment for management systems and strategies in Greenland include: 1) A centralised government, 2) tacit knowledge in Greenland, 3) the Greenlandic management model and 4) the perception of managers of the management task and potentials.
Greenland a centralised state governed economy
Since World War II Greenland has primarily been a state governed economy, implying a price fixing often far away from market prices and competitive surroundings. Due to the Danish annual block grant, the price system cannot be compared directly to the former Eastern block price setting systems, but there are many similarities. In other words, the price setting primarily serves income distribution purposes and in this sense it does not function very well. Over time the transparency of the system has disappeared, and the distributive effects are totally unclear. This makes a partial abandonment of the system as suggested in the Home Rule report on change of the price system (1997) difficult to discuss, because it is unclear if it will make the price system (including factor prices and transportation prices) more or less market focused in total.
The price setting is primarily regulated. Only Royal Greenland A/S is exposed to world prices on output, but has through the monopoly status the possibility to fix input prices to a certain degree. When a deficit occurs, it will be financed via subsidies from the Home Rule authorities.
This complex situation can be explained as follows:
In the first years after World War II the modernisation of Greenland was initiated. Modernisation took place according to planned strategies, formulated in G50 and G60. The modernisation was headed by the Danish state with Danish state civil servants and experts deciding the process, and except for the fisheries was carried out by Danish labour working in Greenland. The number of Danes in Greenland increased, but most of them stayed only for two years as the salary system was attractive for the employees for such a period. This salary system was appropriate as a regulatory system for construction and enterprise activities in relation to the development of infrastructure and house construction, but it has always - and is still - a problem for administrative positions, as it creates a lack of continuity, which is a core element in efficient administration. A more flexible set up with for instance a 5 year salary system in administration could have and would still improve efficiency in administration.
During the sixties Greenlanders became more educated at the low and medium level. In the beginning most of the education took place in Denmark, but soon schools for all medium level education were established in Greenland. From the sixties especially educated young Greenlanders wanted to achieve more political power and to decide on the modernisation process in Greenland. Especially the Danish settlement concentration policy was unpopular. It included the shutting down of settlements in order to have a labour force for the fish processing plants established in some of the towns, and this policy was applied in the same period in which the cod catches were dramatically reduced. It implied a new and strong political consciousness in Greenland. Also conflicts between Danish labour and Greenlanders as a consequence of income inequity and cultural differences contributed to the new political awareness.
The modernisation process continued and required still more administration. And the Greenlanders used still more efforts to achieve more political influence and finally in 1979 home rule was established.
In the home rule period Greenland home rule has annually received an income transfer from the Danish state of 3 billion DKK., 2.5 billion DKK as a block grant for own disposal and 0.5 billion DKK to cover common Danish Kingdom state affairs concerning Greenland.
The first 10 years of home rule was a take-over period in which Danish state affairs were transferred to the Greenlandic home rule authorities. The last 10 years has been a period in which Greenlandic politicians have been the main actors responsible for development.
The priority has been given primarily to industrial development, according to a planned strategy for the fisheries supplemented by tourism and minerals, and the management of the economy at the top level has been carried out by mostly Danish leaders. The idea has been to have an international level in top management.
The period has also seen a dissolution of the old conglomerate state monopolies KGH and GTO and a transformation of those monopolies to about 20 vertical and horizontal monopolies in the form of home rule owned limited corporations. The purpose has been the establishment of a private, more competitive sector in Greenland and to have market production to take place outside the public sector. The reorganisation has taken place according to a core business principle.
The state-market problem includes an inherited structural problem and a new problem of fictive competition. The inherited problem is the creation of a competitive private sector in Greenland. One of the core ideas in G50 and G60 was the creation of an infrastructure that could be attractive for Danish private investments and for the creation of a competitive private sector in Greenland. It failed, and the Danish state became more and more involved in market production in Greenland.
The sixties were high economic growth years in Denmark and no specific program to attract private capital was included in the Danish Greenland policy. It was therefore all to risky for Danish capital to invest in Greenland and it still is. It is, however, strange that a Danish private investment program has never been included in the Danish Greenland policy and that the Danish experiences have not been really drawn upon for export purposes. Of course, the private engineering corporations operating for GTO have developed some exports, but they have not been developed as service packages that include the administrative learning.
The modernisation process was based on a planned strategy, and a ministry, the Ministry for Greenland was established in 1953. The process was a state governed centralised process. When Greenland got home rule in 1979 the centralised long term state governed process was replaced by a centralised short term home rule politically planned process.
The former lack of information between the Danish state and Greenland has been replaced by a lack of information between Nuuk and the rest of Greenland, not so much at the political level, but on the administrative level.
Many of the Danish administrators in Nuuk in the home rule administration and in the home rule owned limited corporations know very little about living conditions in the rest of Greenland, and it is felt locally, as the decision-making is so centralised. The politically decided industrial strategies at the home rule level are too poorly anchored locally to be functional.
The other part of the state-market problem complex is the monopoly problems. Small dispersed populations always open up for natural monopolies. In Greenland the monopolies were organised as state driven conglomerate monopolies in KGH and GTO for many years.The changed state-market situation relation in the world that began with the first oil crisis in October 1973 and was further strengthened by the technological development has weakened the position of the state and the ability of the state to redistribute income and to guarantee solidarity. This development also makes the Greenlandic home rule less able to guarantee solidarity. However, as such a large proportion of the Greenlandic economy is Danish state transfer income, this pressure has not been experienced so strongly in Greenland up till now, but the pressure will increase. It is due to two factors of which the domestic Greenlandic factor is the stronger. It is the increased nationalism in Greenland that requires a more autonomous economic strength. This factor is especially strong among young Greenlanders and is also seen in the increasing number of votes for the political party Inuit Ataqatigiit. This tendency will be strongly influenced by political developments in the Faroe Islands and will increase. The other tendency is caused by the changed geopolitical world situation that gives Greenland a new geopolitical position. It has been changed from a primarily priority territory in the East-West bipartied world regime to primarily an American interest territory in relation to the Monroe Doctrine and to a living laboratory of interest for technical development.
This implies that Greenland will still have a role in a NATO context, but that also has become a territory of more and intensified American interest. This change can influence the willingness of the political parties in Denmark to continue the present income transfer arrangement.
Both mentioned factors will imply pressure for increased competitiveness on the home rule owned limited corporations. For the present the pressure is most pronounced for Royal Greenland A/S, being the vertical monopoly managing the Greenlandic fisheries interests and the only important source of exports from Greenland. It is, however, unlikely that the present structure with the vertical and horizontal monopolies will ever be able to make production competitive. Not even in these years where Greenland enjoys the benefit of the extraordinary low international interest level and catches of fish of 'normal' size, Greenland is not able to produce a satisfying value added. If the interest level should increase, it would be a total disaster for the economy due to debt and the extent of external financing which the new monopoly structure has created. One of the choices will be if the home rule shall establish a new trust structure or if shares shall be sold to foreign shareholders in a strategic alliance concept.
For achieving competitiveness the new structure has at least three embedded and serious problems for which there is no evident solution:
1. Information on the real business activities is costly for the home rule to achieve. It makes it impossible to ensure that the corporation minimises cost, i.e. it is impossible for the home rule to control, that it is to run efficiently.
2. The regulatory capture problem is utmost vivid in Greenland. It implies that the regulator gradually comes to identify with the regulated leaders of the limited corporations, eventually becoming their champion, not their watchdog. The corporation has all the inside information - information which it is the task for the regulator to acquire.
3. The home rule may as regulator have difficulties in making credible commitments about their future behaviour.
These problems imply that although the home rule is the owner, the controller and the political regulator, the construction is far from being efficient. The new core business structure has solved some problems, but added new difficult ones.
The lack of tacit knowledge
Tacit knowledge is to be understood here as the embedded knowledge in people accumulated over generations and visualised as the collective, social understanding among people. It includes values and experiences over time and form a frame for all activities and for consensus decision-making.
The low level of tacit knowledge in Greenland is a hindrance for development and for the accumulation of learning. It is a culture, information, education and living condition based problem.
The problem has its roots in the Greenlandic people being small in number and living for hundreds of years isolated and dispersed along an enormous coastline as well as in the Western colonisation and modernisation process.
Language as a cultural intermediary has little influence in Greenland due to the languages Danish and Inuit being so unlike each other. Only 10-12 percent of the population is able to communicate at a satisfying level in both languages, although both languages are official languages.
Language is and has been a carrier of power in Greenland. As the Greenlandic modernisation has been carried out as a Danish project, Danish is the power base.
Language as a power base is also prevailing among Greenlanders, West Greenlandic being superior to North Greenlandic which again is superior to East Greenlandic.
The language as power base is retrieved in income and in income distribution in Greenland. Due to language problems communication is often characterised by misunderstandings and simplifications. Information systems should therefore be less related to written words and more to visualised instructions and learning by doing and to training systems than to formal education systems.
The learning process in Greenland does not accumulate the required knowledge in Greenland efficiently and this is further accentuated by the incentive structure in the tax and salary regulatory systems that favours two years stopovers in Greenland.
The fact that the modernisation learning process does not accumulate much knowledge in the Greenlandic society is in my opinion a much more serious problem than the often discussed problem of capital accumulation. A provocative question could be, "Would not Greenland be far better off with an immigration policy than with the tax/salary regulation system?"
The experiences in local living, knowledge of fishing, hunting and local life accumulate in local oral processes. Part of this learning is suffering the upheavals of the break downs in administration and public sector activities when Danes in a municipality start to move, especially when Danes who have spent more than two years in Greenland start to move. This often provokes a wave as other Danes reconsider their situation and start to move when their friends leave. Even in Nuuk, the capital, this is an important social feature in societal development.
The Greenlandic system is very formal and hierarchical in functions and structure. It can be illustrated as a wall of bricks as in fig. 4. Only a few bricks have to disappear and the wall falls down.
In order to avoid misunderstanding and to compensate for the low level of tacit knowledge and due to the role of the political power in Greenland there is an extremely narrow connection between the top political and top managerial level. It is a mutual capture situation with strong mutual interdependency.
In relation to the home rule owned limited corporations this structure is even stronger due to the information problem on true costs in the limited corporations. It is further signalled in the extreme high salary level in these corporations and in the golden hand shake system. Greenland probably has a world record in golden hand shakes per capita and in public costs per capita of expenses in connection with golden hand shakes.
The hierarchical organisation system is functionally extremely vulnerable. It often breaks down if only one employee at the medium or high level quits and a replacement is not found soon after. A team structure with team responsibility could be an answer to this problem, but this management form is seldom in Greenland due to the language barriers and the lack of tacit knowledge problem in Greenland. The system in Greenland has an embedded high risk for discontinuity and is very costly for the Greenlandic society.
The existence of the different kinds of contrasts in Greenland makes common tacit knowledge small. Among the factors reducing common tacit knowledge are:
1. Different cultural, social and language background among Greenlanders and Danes with only about 12 percent being fluent in both languages;
2. Income inequality;
3. The differences between the older generations and the young people;
4. The difference between East-Greenlanders and West-Greenlanders;
5. The effect of alcohol on behaviour;
6. Towns versus settlements;
7. Greenlanders living north versus Greenlanders living south;
8. Nuuk versus the coastal municipalities;
9. Educated persons versus non-educated persons;
10. The short stay (2-3 years) in Greenland of most of the Danes.
Another element which causes low tacit knowledge in Greenland is the division of labour. The politicians are mainly Greenlanders, while the managers and directors are primarily Danes. The higher and the medium level of administration positions are Danes, as are the majority of the self employed in land-based industries while the fishermen are Greenlanders. Danes primarily live in Nuuk and other larger towns. All this makes tacit knowledge low due to most networks being either Danish or Greenlandic.
Politics and political parties, however, are bound to families and have a unifying function, with the politics being based on attitudes rather than social class. In this respect, politics unites the country as in the United States, but the high voting percentages in Greenland make it an effective unifying element. The political parties in this way increase tacit knowledge, which again makes the political system more stable ( Lyck 1998 in print).
The Greenlandic management model
Management is of decisive importance for the future economic development in Greenland and it is problematic. People avoid discussing it due to the 'beneath the surface' problem complex that it involves.
The heart of management is communication and common values. Both these factors include serious and conflicting interests in Greenland, due to cultural differences, language problems, lack of understanding and the 'unspoken things' in the Danish-Greenlandic relations. These unspoken things date back to the colonial period, to the modernisation process and to the status of the Home Rule Act: Is the Home Rule Act a question of delegation, i.e. is the Act unilaterally reversible by the Danish Parliament or is the Act irreversible? And the Danish state transfer income to the home rule, what interests and motives are the real ones behind the Act? Is it a gift from Denmark to Greenland (Paldam)? Is the transfer income a result of the Home Rule Act being a negotiated result of sovereignty rights (the former Greenlandic Premier Lars Emil Johansen)? Is it a solidarity payment (Knud Rasmussen)? Is it an obligation according to the Danish Constitution of 1953? Is it an indirect NATO obligation? Is it a bundle of mixed interests over time, implying that it only can be gradually changed (Lyck)? No exact answers can be given on these questions, but it is evident that they mirror conflicting interests and perceptions.
The management model
The main management model in Greenland has its roots in the Danish Greenlandic relations. It is a public sector model in which Danes have had the top level management positions, originally due to Greenlanders not having the formal education and qualifications required for the leading positions. Over time the administrative system has developed based on a public management system imported from Denmark with only small adjustments to the Greenlandic social and cultural context. All applied management, routines and the administrative structure have been copied from Denmark except the Greenlandic legal system. But the copying has a delay of about 10 years in most fields and the old basic hierarchical structure has not been changed. However, as the preconditions are quite different, as is the result. It has been difficult for Greenlanders to replace Danes in the leading positions. The idea behind the model is that top management is a skill of general character, an internationally recognised general skill and a skill which it has been much easier for Danes than for Greenlanders to obtain. Fig. 5 illustrates the Greenlandic management model and also some of the conflict areas.
Although management takes place at all levels, i.e. although all employees are managers (Johnsen E., Barrett J.), it can be analytically relevant to operate with three levels of management : top level, medium level and low level. Top level includes the formal responsibility for leadership in relation to mission and for suggestions of changes in mission and structure. Medium level includes the formal responsibility for running the organisation and for control. Low level employees produce and manage without formal leadership or manager responsibility.
The model gives a profile of the organisation and can be applied to each of the organisations in Greenland, which gives a picture of a different degree of Greenlanders proportion in medium and top level management. It also bears witness to three common conflict areas in the model:
Firstly, the relation between the top level and the political level. The top level, narrowly defined, is thin and extremely few are able to speak and understand Greenlandic. Even when it is defined a little broader (national standard instead of international standard) it has the same characteristics and an even stronger binding to the political level. It is, thus, a problem that the model assumes that top management is a general skill. In the Greenlandic context, Greenlandic politicians force many top managers to leave their positions because of a lack of adaptation to Greenlandic social conditions.
Secondly, the number of young Greenlanders on the increase in the medium level and top level and are often seen as a threat by Danes who have stayed in Greenland for many years. These Greenlanders can rise too high too quickly because of the impatience among the political elite for Greenlandic managers. The conflict arises from different views by Danes and Greenlanders on qualifications.
Thirdly, the low level of competencies in the low level of management.
Furthermore, in relation to all levels there is the problem that high education is interpreted as high productivity and this totally underestimates the embedded informal competencies of both Greenlanders and medium educated Danes, who are rich on experience and have stayed a long time in Greenland.
As the top level management in the broader sense is extremely important for the economic development and the direction of the economic development in Greenland a specific research investigation on this topic has taken place, of which the main results will be presented in the following. Furthermore, this topic is being researched based on another methodology by some colleagues (J. B., Aagaard Hansen, I.) who will present their results at the end of this year.
Analysis of the managerial space in Greenland as perceived by the top managers
While studying the management system and practice in Greenland, it has been of high priority to find out how the top managers understand their environment and their task and thereby to identify the 'managerial space', i.e. the space the managers themselves define and operate within, based on their perception of the management climate, beliefs and strategic conditions. Such a study can be carried out in many ways, mainly based on interviews and different management models and theories.
The investigation presented here is of another type, and is as far as the author knows the first time this methodological approach is presented and applied. The method is firstly to select top managers representatively. This has been carried out in relation to 1) position in the home rule administration, municipality administration, home rule owned limited corporations, private big business, 2) in relation to the top manager being Greenlander or not Greenlander and 3) in relation to geography, Nuuk versus the West coast. North and East Greenland are not included. The data are from the last of Lars Emil Johansen's years as Premier. This is mentioned because the political influence on management decision-making is found in the investigation to play an important role.
All participants have been guaranteed total anonymity. 5 doubted on this guarantee and refused to participate. 2 had no interest in participating. The investigation has taken place both in Greenland and in Denmark.
Secondly, the selected population has been introduced to a SWOT analysis in the same manner (based on Johnson and Scholes's textbook on corporate strategy).
Thirdly, the selected population has been asked to make a SWOT analysis for their own organisation and for Greenland as such. The latter is possible due to Greenland being a 'micro state' with a non-diversified production.
To attain an understanding of the management climate and to identify the beliefs, the attitudes and the perception of the managers concerning management and strategic issues in Greenland a SWOT- analysis has been undertaken. It is unusual to apply a SWOT-analysis for such a purpose, but the idea has been to find out if there are one or more patterns in the replies of the managers and to investigate whether the patterns are dependent on social status and other variables characterising the managers.
In a SWOT-analysis S represents strengths. Strengths are normally considered as the internal analysis related to present resource. It also includes the actual situation and has the character of a status not involving extra investment.
The W stands for Weakness. It is also normally related to an internal analysis at the present time. It also includes a time dimension focusing on the actual situation.
The O in SWOT stands for the opportunities. It is based on external analysis and is future oriented. The time horizon ought to be specified and it normally involves change and investment.
The T represent threats and are also based on external analysis and a future focus. Also here a time horizon ought to be specified, and it normally requires attention.
The rationale behind a SWOT-analysis is to be specified. The rationale for this SWOT-analysis is the objective of increased value added creation respecting sustainable development condition.
In a society with little common tacit knowledge the analysis can be applied to find out about the understanding of the environment by managers. Does a pattern exist that mirrors the perspective of the managers? Or are there several patterns or maybe no patterns at all? Or in other needs do common understanding of the environment exist and does common ideas about future development exist?
The methodological idea is to find the managerial space as it is perceived by the managers. Would a common pattern be found, indicating a common perception of the managerial space, i.e. is there a common tacit knowledge concerning barriers and potentials for economic development in Greenland among the top managers? Or would no pattern be found? Or would there be different patterns for different kinds of organisation, for geography or for managers being Greenlanders versus non-Greenlanders?
The main results of the investigation are the following:
1.There are patterns for managers indicating a common perception of the managerial space.
2.There is a Nuuk pattern and a rest of Greenland pattern.
3.There is no significant difference between the few Greenlandic managers and the non Greenlandic managers.
4.There is no significant difference between managers in administration, home rule owned limited corporations and private business.
5.The political influence on managerial decisions is extremely high and at its highest in Nuuk. Schedule 1 shows the 'standard' or the core findings found in the SWOT analyses. Schedule 2 shows the strategic focus patterns in the SWOT analyses.
Schedule 1. The core findings in the SWOT analyses
SWOT
S: The living resources
A low level of illiteracy
W: Many, such as:
The one price system
The transport system
Political intervention
Working environment
Cost level
Language
Settlements
O: Tourism
Non-renewable resources
Education
T: Lack of fish
Generation shift
Alcohol
Schedule 2. Strategic focus patterns in the SWOT analyses
1. Great difference between Nuuk and the coast.
2. In the municipalities a wish that the municipalities become more service oriented towards citizens and businesses.
3. That municipalities decrease the sharp division between public and private.
4. In the municipalities a wish for greater decentralisation and a freer hand.
5. In the municipalities a wish for an active labour market policy and less social policy for occupationally active age groups.
6. In the municipalities a greater focus on commercial development and the distribution of resources.
7. In Nuuk and with increasing frequency as you move nearer the centre of political power, political interference as the greatest hindrance to commercial development.
8. The one price system is seen in Nuuk as a greater weakness than it is on the coast where the focus is on the power of the limited corporations' monopolies and the problems concerning the work force.
9. The block transfer is seen as both a strength and a weakness by some, but most see it as either a strength or a weakness, and most of these as a strength.
10. Language and culture are seen as a problem more often on the coast than in Nuuk.
11. The transport system is seen as a strength in Nuuk but as a weakness on the coast.
12. The settlements want more influence and commercial development.
The finding that political interference was considered the most important hindrance forefficiency among most managers in Nuuk independent of organisation is interesting. Also at the more local level political interference seems to be higher than, for instance, in Denmark.
The main impression of the managerial space is a strongly politically dominated one which influences the managerial behaviour strongly. Good Latin or the managerial behavioural codex for managers in Greenland seems to include the following:
- keep a low profile
- low visibility
- do not participate in debates
- do not challenge the prevailing wisdom or politicians
- only present goals you can be 100 percent certain of achieving
- stay inside the managerial 'brotherhood'
- stay far away from the media
- never question your own knowledge and wisdom
- do not discuss other organisations publicly
- listen to gossip and take always gossip extremely seriously
Conclusion
This article has analysed the external and internal environment for strategy and management in Greenland. It shows clearly that the problems with too little value added creation in Greenland is far from being only a consequence of nature and harsh climatic conditions in Greenland. The man-made systems and organisations in Greenland and the way they are run seem to influence the economic performance greatly. The investigation also shows a very complex and costly social system to run for a population of 57,000. It is found to be a politically dominated system at all levels.
In business we operate with a concept called business re-engineering. It implies a reconsideration of the production, its purposes and production processes and it often results in a revision, a revaluation and a reconstructing of the production system. Maybe it is a little provocative, but the analysis raises the question: Has not the time come for a social system re-engineering in Greenland?
More competitiveness requires that prices better mirrors supply and demand, but to introduce 'free pricing' in the present regulated structure will with no certainty approach 'market prices'. Problematically, 'free pricing' will only mirror the flows of supply and demand based on the existing regulated structure, i.e. the present 'stock' of organisations and institutions; all inefficiencies in the present structure will be mirrored in the 'market prices' and thereby create further distortions and dislocation in the economy.
References
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Paldam, M., 1994. Grønlands økonomiske udvikling - Hvad skal der til for at stoppe gabet? Århus, Aarhus University Press.Fig. 1. Tacit knowledge in production and investment decision-making in small economies.
Fig. 2. Assessing the dynamics of environment. Source: Implanting strategic management by Ansoff, I and McDonnell, E, 1990.
Fig. 3. Planned and emergent strategic processes.
Fig. 3a. The emergent strategic process.
Fig. 3b. Greenland - a less developed country?
Fig. 4. Public sector hierarchy in Greenland.
Fig. 5. The Greenlandic management model.