CHEMICAL REACTION: Leonid Shiman, director of the Pavlograd Chemical Plant, about how Ukrainians can teach the world how to innovate and how the ancient Sumerians can help with this…
There is a fire at the Pavlograd Chemical Plant. The fire is rapidly devouring meter by meter, approaching explosives, which are enough for a defense company to lift an entire city into the air. On the decision — minutes. The most radical method is to set fire to the other side of the plant so that the two fires meet and extinguish each other. “The most difficult moment is just to light a match,” Leonid shared with me.
Set fire personally.
Leonid Shiman, director of the Pavlograd Chemical Plant, Hero of Ukraine, doctor of technical sciences, chief designer of rocket engines, master of sports in volleyball, father of six children.
Zhanna Kryuchkova (ZH.K.): You have been running a state enterprise for more than 20 years, such as you are called “red directors”. In doing so, you are giving lectures on innovation around the world. How does this fit in?
Leonid Shiman (L.Sh.): To begin with, the label “red director” was invented by those who deny the possibility of effective management in state-owned companies. If an inefficient manager is hired by a private company and he is ruining it, is it a “red director” or just an ineffective manager? The essence is not in the form of ownership and not in color, but in a particular person: what is the leader’s way of thinking, education, experience and is there a desire to create. You can change the “red” to “green”, “blue” or “yellow-blakitnogo” — nothing will change. The myth of the “red directors” is popularized to justify the ineffective privatization of state property.
MY HOBBY IS A CONSTANT DEVELOPMENT
As for lecturing on innovations, my hobby is constant development. I continuously accumulate knowledge and information that is related to the innovative development of the enterprise and myself. I try to bring knowledge to the outside world, especially to partners with whom we cooperate: it forms the same understanding and vision of the processes. Sometimes partners from India, China, Great Britain, Israel and Switzerland are invited to speak and share their point of view. I agree, because intellectual discussions inspire and develop me
ZH.K .: Which enterprise is more difficult to manage — public or private?
L.SH.: State. First, we are in unequal conditions with private enterprises. For example, an entrepreneur may apply for a loan from a bank. But I can not. I need to first provide a justification, then get permission from above, and before that — obtain the prior consent of the bank, which is willing to lend to the state enterprise. Thus, the chain is lengthened several times.
Or … we pay income tax of 20% and dividends to the state of 30% (essentially the same tax). And there were times when the Cabinet of Ministers established a dividend payment of 75%. How to develop an enterprise that has 6–9% of net profit? Try to seriously develop your private business under these conditions. I doubt what happens.
NOW STATE COMPANIES COMPETE IN NON-ELECTABLE CONDITIONS
Secondly, a private business can afford to go into minimizing profits at the expense of various schemes. For example, at the expense of transfer prices, creating a holding outside Ukraine. For state-owned enterprises is impossible.
Thirdly, as an entrepreneur, you can create joint businesses, gain access to technology and thus make a breakthrough in development. State-owned companies are forbidden to create joint ventures.
There are many examples. So I repeat: now state-owned enterprises are competing in unequal conditions. And the conditions should be one, regardless of the form of ownership.
ZH.K .: The policy of large-scale privatization of state-owned enterprises was announced as a step towards the economic prosperity of Ukraine.
L.SH.: 90% has already been privatized. Has the heyday come? There is still 10%. But even if everything is privatized, there will be no flourishing anyway. In France, the electric power industry is state-owned, the railways are state-owned, and the distribution of resources is state-owned. And we have? Gas and electricity are more expensive by 20% than in Europe, because the state does not regulate, and private companies want to get the maximum profit. I believe that the role of the state is to effectively manage its capabilities and stimulate economic development, including ensuring equal conditions for various market players. And most importantly — do not change the rules for at least twenty years. Then the business would develop.
THE MAIN THING IS NOT TO CHANGE THE RULES AT LEAST TWENTY
ZH.K .: How did the business model of the Pavlograd Chemical Plant (PCP) enterprise transform during the years of independence of Ukraine?
L.SH.: When we left the Soviet Union, the company had many different directions, both military and civil, and simply consumer goods. All this was not balanced with each other, and even worse, it was connected by central power supply systems. This led to the fact that PCS became noncompetitive, and most importantly, we did not understand why we were in such a situation. The first thing we did was understand the reasons. Secondly, they began to get rid of unnecessary things: kindergartens, schools, palaces of culture, boiler houses for energy distribution, etc. were given to the city. They even paid $ 8 million to take it away from us.
In 1999, we divided the business into enterprises, and everything that was not related to the fire and explosion processes was divided into separate enterprises, which began to work independently. And the central part associated with explosive processes, left behind. We began to learn in order to understand how transnational companies, apart from access to cheap financing, differ from us. People are the same everywhere. But what do they know that which we do not know? Why can they, and we not? It took me 5–7 years to understand what the cardinal difference was. It turned out that everything is simple — a way of thinking and knowledge in management.
ZH.K .: Was PCP on the verge of default?
L.SH .: Yes. In 1997–1999, we produced a total of 2.5 times less production than consumed energy. People for 18 months were not paid a salary …
ZH.K .: Why did this happen?
L.SH .: In the early 1990s, we exported 90% of our production and received $ 80–90 million of revenue. What did bankers do in 1993-1994? They took advantage of the fact that they had access to the Cabinet of Ministers, and issued a decree, according to which they obliged us to sell 100% of foreign currency earnings to the bank at the state rate, and to buy — at a commercial rate. The difference between courses was two to three times. That is, one or two such operations suck up profits and working capital. Money settled in commercial banks, many of which formed assets on this. This shattered enterprise. We lost export contracts, but we could not sell our products on the territory of Ukraine, because the state as such did not exist yet, even the balance of payments did not exist.
ZH.K .: Did you receive subsidies from the state?
L.SH.: Never in my life.
ZH.K.: Baron Munchhausen pulled himself out of the swamp by the hair. How did you pull the company out of the crisis?
L.Sh .: We have divided the assets of the enterprise and launched a new corporate governance project called the 7-orbital management system. It saved us.
—The first orbit — everything is administered from top to bottom, and you cannot move anywhere.
-The second is that you have freedoms, but within these freedoms there is a rigid link to plans and figures.
-The third is that you go out on cost accounting, you can manage the funds, there is an internal bank, but you cannot release this money where you want. Still working in a common system.
-The fourth orbit — you go to a separate legal entity, but PCP owns a controlling stake in the enterprise.
-Fifth — you go to a separate legal entity, and PCP does not own a controlling stake in the company.
-Sixth, you become a business partner, but your main projects are linked to PCP.
-Seventh, you are just a business partner who does not depend on anyone. We gave him fixed assets, land, tangible assets in order to conduct business.
ZH.K .: What has the state lost?
L.SH.: From the point of view of fixed assets, it has lost. But what it has acquired is simply incomparable things. I have not seen how to save the enterprise in any other way.
ZH.K .: As a leader, have you transformed over the years?
L.SH.: About 15 years ago, I sincerely believed that there must be everywhere and in everything, and all decisions — through me. Now my main task is to find a manager over the business process, to whom I could delegate responsibility to the maximum, and he would have completed the task for me and better than me. Yes, I am left with a vision, strategic planning and setting key objectives. I believe that the success of the task at 95% depends on how correctly it was set.
The success of the task for 95% depends on how correctly it was set
ZH.K .: How do you assess the performance of the enterprise? Now it is fashionable to criticize the KPI, they say, they give little freedom.
L.SH.: On the one hand, I am a supporter of maximum freedom. On the other hand, each employee has a KPI on which wages depend. Freedom and KPI are not mutually exclusive things. We use this method not in the classical version, but in the adapted one. The approach “from goal to goal,” and then nothing is required of you — not about us.
FREEDOM AND KPI IS NOT MUTUALLY EXCLUDING THINGS
The KPI method is good because it allows you to clearly describe what is required of a particular person in a particular team per unit of time, and most importantly, reward them with merit. Our bonuses are not fixed. The salary is 5–15% of salary, and bonuses can be up to 95%. For example, a person receives 50,000 hryvnia, of which 5,000 is a salary, and 45,000 is a bonus. But the prize — it didn’t just come and get it, no, everything is arranged according to projects. And the greater the contribution to projects, the greater the reward.
For example, we need to make 10 rockets. If one failed, then why should one thousand people be involved in the project’s failure?
Our employee must understand that he performs in three roles: performer, controller and integrator
Our employee must understand that he performs in three roles: performer, controller and integrator. As a controller, he assesses the quality of work of the person from whom he received the product, and without his signature there will be no bonus to the person who transferred this product to him through the process. As a system integrator, he acts as a link between 3–7 people whom he manages and sets tasks.
I am not in favor of shaking KPIs like Kashchei over gold. Therefore, we also reward people for their extraordinary work, which is not defined by any system. Summarizing: I am for freedom, but at the same time there should be a clear and fair assessment of the results.
ZH.K .: What is the planning horizon for your enterprise?
L.SH .: Three types of planning at PCP.
ZH.K .: In our dynamic time, many are hesitant to plan for 20 years ahead.
L.SH.: Conceptually, if you do not understand what you will be doing in 15–20 years, then this is a game in the sandbox. Today I built one pasochka, tomorrow another. You do not go beyond the sandbox, and even more you do not understand what is happening in the country and in the world. What global innovations can we talk about? Another question is what needs to be planned considering the changing environment. We review annual planning quarterly, medium-term — every year, and strategic vision — every 5-6 years.
ZH.K .: Given the number and scale of tasks, how do you personally prioritize?
L.SH.: I never forget the Pareto rule. I call it the principle of the beer mug. No matter how you pour beer, all the same, 20% will be foam, and 80% — beer. Consumer attracts precisely foam. Without this foam, beer is not beer (laughs).
If I have 100 tasks, then I will never solve them. And if I try to solve them, I will die or become disabled. Even 20% of these tasks can not independently perform. But 20% of 20% — is another matter. I highlight them and concentrate on them.
I call it the principle of the beer mug. No matter how you pour beer, all the same, 20% will be foam, and 80% — beer. Consumer attracts precisely foam. Beer is not beer without this foam
ZH.K .: You create innovation. Is the process described?
L.SH.: The process is described, and I am convinced that in any innovation everything starts with a person and creating incentives. PCS has created a system that encourages people to innovate. It gives fruit. We only have 59 high-tech technologies in the field of recycling.
ZH.K .: Were unique projects born as a result of discussions with partners or on the basis of speeches?
L.SH.: Yes. For example, I was worried that we have a large amount of wastes of weak nitric acids in the production, which we neutralize and dispose of in sewage treatment plants. This contradicted my philosophy: it is necessary to plan the waste of one production initially as raw material for another, and not to generate waste after itself.
I love nature and do so that, where there were swamps, beautiful landscape parks appeared, and where there was rubbish, buildings harmoniously fitted into the landscape grew.
Having shared the problem of waste with foreign partners, we decided to implement an innovative project, within which we will make a substance that will be useful for the next production, and ideally — will not go around once. For several months we discussed possible approaches, discussed what is being done at PCP today. So the project appeared in a consortium of four countries. The result was the creation of a waste-free technology. This will be one of the first three implementations in the world!
ZH.K .: Now you are buying technology, but perhaps you could create it.
L.SH .: We would never have created it ourselves.
ZH.K .: Due to lack of financial resources?
L.SH.: No Due to lack of knowledge. Separate, fragmentary, which, as it turned out, companies from different countries have. When we put them together, we managed to create this product, which can now be sold all lover the world, including us. Thus was born the technology of «recycling waste nitric acid,» which resulted in concentrated nitric acid.
Thus, my innovative hobby — not to dump too much into the environment, but, on the contrary, to use everything in the household — was realized in a specific project.
ZH.K .: And if you translate into numbers …
L.SH.: Please. PCP discharges about 100,000–120,000 tons of waste per year to wastewater treatment plants in the Kocherga River, which through the Volchya and Samara rivers enter the Dnieper. And now from these wastes we get 6000 tons of concentrated nitric acid, which we again use for the process. From them we will again get 40,000 tons of waste, which we recycle again. In this process, we will need to add another 10% of waste, which we will take from other chemical plants in Ukraine.
PCPs purchased concentrated nitric acid in Poland, but now, thanks to a new technology, this will not be necessary. On the contrary, we will buy waste from other industries that do not know what to do with them. Or we will buy low-nitric acid, but already in Ukraine, for example, in Kamenskoye (formerly Dneprodzerzhinsk).
Such a project pays off in 2.5 years, while the capital investment for cleaning will require about the same as for the regeneration and recycling of nitric acid. But one thing is investment in recycling, and the other is in waste disposal and fixed costs.
ZH.K .: How do you find new projects: do you look for yourself proactively or do you drop them from top to bottom?
L.SH .: The enterprise today operates in four key areas. One of them operates in the free market, competing with 29 other companies. In competition, we extract minerals, conduct blasting operations and thus obtain 15–20% of our income.
The second direction is the utilization of rockets, where our revenues are tightly controlled. The third is scientific research, design and research. The fourth is the state orders that we descend from above. We have no right to refuse them, because there is a criminal liability if we do not fulfill the order within the stipulated time frame and in the appropriate capacity. The state gives us resources. But usually gives them not at the beginning, but at the end. And in order to cope with the task, we must find the resources ourselves. Sources are our working capital, profits and unallocated funds.
ZH.K .: How do you work with defense orders?
L.SH.: Today we are building a vertically integrated company. We descend to the very bottom of vertical integration, forming 17 additional costs: from the production of raw materials for components of products to the construction of facilities. We are currently in the process of building 116 buildings and structures, where we will place 79 technological lines, which in the planned vertical integration will allow us to produce final products. Do not forget that we independently write the regulations, technical and design documentation for which we build, as well as the design documentation for which we manufacture the necessary equipment. After all, there is nowhere in the world we can not buy. Then the equipment needs to be mounted and maintained. And given that everything burns and explodes, we need to learn how to manage it without people. Fully remotely. In automatic mode.
Our focus is the production of high-tech products in the arms market, which will not only be in demand by the Ministry of Defense, but also be available for export to other countries of the world.
ZH.K .: Are we talking about the participation of PCP in the Olkha project to improve precision weapons?
L.SH.: Ukraine has no right to produce weapons of mass destruction, nuclear weapons, because it has signed an agreement with the world community. Technologically, Ukraine is able to do it. Financially, I think, there would be $ 2-3 billion for 10 years to realize it. But politically and socially, despite the fact that we are at war, the resumption of weapons of mass destruction in Ukraine, in the form of nuclear military units and strategic weapons, is unacceptable.
At the same time, no one forbids Ukraine to have a weapon of precision purpose in order to preempt those who encroach on the sovereignty of the state. This is not shooting at squares with the destruction of cities and neighborhoods, but getting into a specific window of a specific building from a distance of several thousand kilometers. Those who know that you have such weapons will think a few times before attacking and depriving you of what is rightfully yours.
OUR WEAKNESS GIVES A DESIRE TO EXPRESS AGGRESSION
Since 1945, when the first nuclear weapon was used in Hiroshima and Nagasaki, more than 70 years have passed. After that, no weapons of mass destruction were used in the world. On the other hand, it is in seven countries. And no one knows, except maybe intelligence, how many countries own it underground. What does this mean? Weapons are used to contain war. If 5–10 years ago in Ukraine there were those missile systems that we are creating now, we might have managed to avoid conflicts in the Crimea and the Donbas. Our weakness creates a desire to show aggression.
ZH.K .: Today we talked about the threats that humanity faces: pollution and war. In the new digital world, leaders must be distinguished by extremely high rates of not only intelligence and willpower, but also morality and ethics. What are your principles and taboos?
L.SH.: My taboo is very simple. These are the 10 commandments. Several thousand years ago, the ancient Sumerians knocked them out with the help of cuneiform. Are they not relevant now? If a person accepts the 10 commandments and follows them, then nothing more is needed. In the modern world, they can get a new interpretation, but the essence does not change.
ZH.K.: You have six children. These are the principles that you teach them?
L.SH.: Yes. Sometimes we argue.
- K.: It is curious as to what commandment disputes arise?
L.SH.: Forgiveness. I tell them: learn to forgive, there is nothing more important. When you forgive a person, first of all you do not free him, but yourself. From the negative, from the accumulated insults. Otherwise you will suffer yourself. The person you did not forgive may not even be aware of this, and your body will be out of balance due to negative emotions and physiological problems will begin.
ZH.K.: What do you regret?
L.SH .: Few paid attention to children. They suffer from my abnormal attitude. I do not divide affairs into private and state, mine or not mine. Everything I do, I do as for myself. If I had treated this differently, nothing would have happened.
Knowledge, skills, MBA — this is nonsense, if there is no ethical fundamental basis
ZH.K.: Einstein said that imagination is more important than knowledge. What is PCZ image?
L.SH.: This is a warship under the Ukrainian flag in the waters of the world with a patriotically-minded, highly professional team.
ZH.K.: What is the special task of your ship?
L.SH.: Our mission is as follows: we invite you to use our high-tech technologies with us to ensure the security of our planet Earth in every corner of it. I note that the word «invite» for us is key.
ZH.K .: What national idea of Ukraine do you believe in?
L.SH.: Not exactly in the construction of a mono-ethnic state. In general, any borders will be erased — between cultures, races, religions, generations, countries, cities and industries. Any artificial attempts to slow down this process will throw Ukraine back.
ZH.K .: In the final — the profile of Marcel Proust.
What place gives you a feeling of freedom and happiness?
The main character trait?
Quality that you value in men?
Keep the word.
Quality that you value in women?
The idea of happiness?
Free time with children.
Your favorite quote or aphorism?
«You can not grasp the immensity.»
Have you had any heroes in childhood?
North American Indians.
Yes. We are not alone.
A book that influenced your worldview?
«Syndicate. The history of world government «by Nicholas Hagger.
Mood at the moment?