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China has been in the best period of development since modern times, while the world was undergoing profound and unprecedented changes. With the onset of the Covid-19 pandemic, firms are facing even greater challenges to navigate their ways in this time of uncertainty.

Zhang Zhixue, professor with the Department of Organization and Strategic Management under Peking University’s Guanghua School of Management, shares his insight into how firms should be led to embrace these changes and maintain good businesses. The following article is based on his EMBA lecture held earlier in Zhengzhou.

DIGITAL UPGRADE WITH “PEST”

PEST analysis is a widely used tool for scanning macro-environmental factors in the study of organizational strategy.

P stands for politics. As major countries are increasingly locked in disputes, it will be more difficult to integrate global resources as part of a firm’s development plan.

E is economy. With the global economy on the decline, it is uncertain when the world will return to normal.

S stands for society. It’s been largely smooth-sailing for many firms over the past 40 years — save for some small obstacles, and it remains to be seen whether they can stand the test of upcoming challenges.

T is technology. Hi-tech companies are prone to development bottlenecks due to a lack of original, cutting-edgetechnology.

As main players in the digital economy, firms must seize this opportunity to complete their upgrade from automation to digitization, and then to intelligentization.

During this process, firms will also encounter the following challenges:

— Both employers and employees need to update their skills in order to adapt to digital innovation and upgrade.

— Firms need to boost their digital analysis capabilities to engage in the Build-Measure-Learn cycle.

— Consumers and business partners participate in the manufacturing or service processes as generators of values.

— Use a digital platform to fast renovate the existing value network as firms need to decide whether to set up their own platform or participate in an existing one.

— Firms need to be independent and creative in order to pursue new business models.

— A user-driven IT framework

— Procedural automation and digitization as the premise for digital services and new business models.

— Digital security will become an increasingly important issue.

INERTIA, BIGGEST ENEMY OF CHANGE

Thanks to entrepreneurs who accurately sense exterior changes in different times and then find the inner workings of business operations, firms have been maintaining a harmonious tie with the outer environment since China’s reform and opening-up. However, when a firm keeps holding on to its successful model in the past despite the fact that times and the exterior environment have changed, that is organizational inertia.

Firms with inertia — the biggest enemy of organizational changes — risk decline and even death. It has six major symptoms:

  1. Self-indulgent in ease and comfort, lack of the wisdom and courage for changes, and obsessed with short-sighted benefits.

  2. Habitual and passive management, lack of initiative and creativity

  3. Decision-making tends to be conservative, overly-sensitive to risks, fear of responsibility; lack of confidence and determination

  4. High-level executives are weak, less active and motivated.

  5. Employees are passive, easily content and indifferent to their firm’s future

  6. An entire organization prefers convenient copy and imitation to innovation and risks.

Multiple years of studies on previously successful companies’ decline trajectories reveal that their successes are usually based on one crucial technology or business model, and their declines were due to these firms’ over-reliance on that one-trick pony. A firm is likely to go south when all businesses become similar, executives are indulgent in past achievements and oblivious to risks, and mistakes at senior levels are tolerated and ignored.

Meanwhile, senior executives fail to absorb qualities from newcomers to update the existing corporate culture and become narcissistic and exclusive. When encountering difficulties during business transformation, they cannot reach a decision after interior discussions and no one is assigned to see to the implementation of the transformation plan. After multiple innovation attempts prove ineffective, the firm finally begins its decline.

CASES OF SUCCESS

It is very difficult for a good company to avoid decline and maintain its leading status. Following real-life cases serve as successful examples.

When Lee Kun-hee took over Samsung after his father’s death, the company’s main business involves electric products made in the fashion of Japanese ones and the brand was hardly known overseas. In the 1980s, Samsung Electronics underwent huge reform and focused on making products of high quality and high standards. Well before the 1997 financial crisis, Lee already realized that resources should be focused on several key aspects with optimized distribution instead of being spread wide and thin.

In 2001, unsatisfied with the achievements at hand, Lee guided the company on a path to becoming a world leading electronics brand. While attracting global talents with mouth-watering salaries, the firm learned from Sony’s technology and design, Hewlett-Packard’s production management, Westinghouse’s inventory management and 3M’s research and development. In some cases, the firm flew Japanese engineers to South Korea to work for a one and half day weekend before sending them back on Sunday. Meanwhile, Lee injected the pursuit of innovation and excellence, qualities Western firms cherish, into Samsung’s corporate culture while stressing loyalty, a trait valued in Oriental culture, in its organizational management. By combining the two, Samsung has shown outstanding organizational capacities.

Organizational inertia is not exclusive to big companies. For those parting ways with big firms to start their own businesses, how to cast off influence from previous experiences and successes and embrace innovation and progress is also a crucial question.

Some thought that starting a business in China was very difficult after 2013, but Xie Guanhong, a Guanghua alumni, founded 1More Acoustics. Xie and his founding team members were all senior managers of Foxconn’s product lines and exhibited notable Foxconn traits. However, they didn’t copy Foxconn’s business model and chose to create a new business,paving way for 1More’s success.

1More’s turn of events was developing earphones for Xiaomi. In a sea of pricy, high-end products,Lei Jun, Xiaomi’s co-founder, vowed to equip its smartphones with high-quality earphones that are priced at 49 yuan (7.2 U.S. dollars) each. While many team members thought it a mission impossible, Xie took on the challenge. He collected opinions from a wide range of suppliers, experts, scholars and clients on the 100 pain points of earphones and selected the most frequently mentioned three as key targets to solve. He then found partners in the manufacturing hub in Shenzhen and helped suppliers to optimize the manufacturing process to lower production costs. 1More delivered the order as promised, and even invited celebrities and global experts to shore up its brand.

When asked about the tips and tricks for success, Xie and 1More’s other senior executives mentioned their big industry experiences gathered when working at Foxconn and their efforts to make full use of a small business’s agility. In summary, three main factors are crucial for 1More’s success: a customer-first strategy that pushes the firm to always improve its products based on customers’ feedbacks; good partnerships with business partners including major clients like Xiaomi and Huawei; technological accumulation and innovation based on outstanding talents in technical fields such as material and acoustics.

DEMOGRAPHIC DIVIDEND

As aforementioned, a firm must have a sharp sense of the changing environment and adjust its business concerning corporate structures and the reshuffle and arrangement of resources and personnels accordingly to back the firm’s strategic reform and adapt itself to the exterior. After seizing a new business opportunity brought forth by these changes, a firm should be able to quickly convert it into a business model and put it into use. All this requires a strong leadership and an entrepreneurship that is sensitive to exterior changes and business opportunities.

Corporate reform must be fulfilled by people. Organizations that can unleash demographic dividend will complete the transformation and upgrade process successfully, while those suppressing human talents will inevitably decline. Be it a firm or a country,the pursuit of dividend can always start with people.

Where can we find demographic dividend? And how a professional man come into being? Most of these people are obsessed with one thing as a child and their skills are sharpened through repeatedly doing this thing as a routine. Routine is a series of acts that are intentionally formed for a goal and are implemented repeatedly within a period of time and in line with a pattern. It can be broken down into different acts that are interconnected, and one completion process is largely the same as another. Once formed, a routine can be automatically implemented under the driven force of a certain scenario or some clues. Routines help us cope with pressure, and a good routine can serve as an effective coping mechanism to ensure order and stability while boosting self-control and self-discipline so as to ensure that one stays on the track towards long-term goals.

Trials and errors are inevitable during the process to explore demographic dividend. They can cultivate optimism, hone people’s strengths and wisdom. One study finds that leading figures in various fields mostly have experiences that are too miserable to forget in the courses of their professional careers and these experiences have changed them. Hardships forced these leaders to repeatedly examine themselves, interrogate their values, question their hypothesis, hone their judgements, and eventually made them stronger, more confident and their goals clearer.

In this time of profound changes, people must ditch the speculative attitude and know what they are doing if they want to progress and make breakthroughs. One must know his business to the last detail, talk less, do more, take less, give more, and make non-stop efforts. No matter how noisy and chaotic it is outside and whatever changes are happening, one will do better by focusing on his own actions and uphold a high professional standard, instead of being overcome by fear and worries.

© 2019 Guanghua School of Management Peking University