It’s bad luck to work for a company like this during an economic crisis

In the March issue of the Hungarian journal Economic Review, researchers at Corvinus University of Budapest have explored the reasons for the lower-than-expected turnover, which can be linked to management practices. Their study sought to explain the differential impact of the industry shock caused by the coronavirus epidemic, based on 286 factors. The University’s Competitiveness Research Centre carried out a comprehensive survey of the management practices of Hungarian medium-sized enterprises in the years before the epidemic – this was used by the researchers to examine the correlation between different attitudes and performance during the crisis. The authors of the paper are Bence Kiss-Dobronyi, PhD student at the Corvinus Institute of Operations and Decision Sciences, Erzsébet Czakó, professor at Budapest Business University, and Dávid Losonci, Associate Professor of Corvinus University of Budapest. 

The research looked at the characteristics of companies that experienced a more significant decline in turnover than expected in their sector following the economic shock of the pandemic. Turnover was also adjusted for the company’s past performance relative to the sector. The researchers considered this loss of revenue as an objective sign of vulnerability. 

If you don’t get emotional support from your boss, the company as a whole suffers 

The results show that companies with a less relationship-oriented leadership style are more vulnerable, and therefore less likely to consider it their responsibility to provide professional and emotional support to their staff members, as well as to provide professional leadership and supervision. Interestingly, the study also found that companies where managers unanimously prioritise making more profit underperform. Firms are also at a disadvantage where managers have less recognition of HR systems, where recruitment is seen as less strategic than in other firms, and where retraining is less common. Companies with a weaker digital readiness are also more vulnerable. As are those that are family firms (where the owners have been involved in the management of the company). It is a warning sign if the firm was less reliant on external financing before the crisis, and if the organisation is less likely to have environmental management systems in place.  

“The picture that emerges from the research of companies that have performed worse than expected during the crisis – i.e., companies that have underperformed even relative to themselves – and of management is that employees are seen as a factor of production rather than as human resources to be empowered and retained, as colleagues. Related to this is the fact that these companies tend to prioritise the pursuit of higher profits over other goals. We also see a prominent role for digitalisation capability, the importance of which has been confirmed by many during the crisis.” said Kiss-Dobronyi Bence, PhD student at the Corvinus Institute of Operations and Decision Sciences, the first author of the research. 

Relationships between factors that are common across firms with lower-than-expected performance 

“The analysis has yielded a significant insight intoone of the fundamental questions of economics in the Hungarian context: when and how can we quantify the effectiveness of managerial work? We will continue our research on this topic at Corvinus in order to gain an even deeper understanding of the factors that influence competitiveness,” said Dávid Losonci, co-author of the study and research director at Corvinus Competitiveness Research Center.