China has yet to produce a world-class company like GE or Samsung, and outside the country most of its businesspeople are better known for amassing wealth than for innovative management ideas. Yet China offers more management lessons today than do most other countries.
Chinese companies have learned to manage differently over the past 30 years because they’ve had to cope with a turbulent environment. What’s commonly perceived to be the highly controlled march of state capitalism is in reality an enormous and quickly evolving ecosystem, in which companies must scramble to keep pace with runaway growth and dramatic slowdowns, massive urbanization and huge rural markets, fierce competition and endemic corruption. Sure, China’s companies aren’t yet pioneering radical new management approaches, as Toyota and other Japanese companies did 50 years ago with total quality management, continuous improvement, and just-in-time systems. Instead, Chinese companies teach us management’s current imperatives: responsiveness, improvisation, flexibility, and speed.
China’s business leaders also manage people very differently. They’re culturally predisposed to see the members of their organizations as family but, in return, demand a lot from them. CEOs often come from humble beginnings: Three of China’s legendary company founders—Haier’s Zhang Ruimin, ZTE’s Hou Weigui, and Wanxiang’s Lu Guanqiu—all started on the factory floor and fought to free their companies from state or collectivist management. Other enterprises were started by traders, teachers, or clerks. These companies build alliances constantly, develop new products prolifically, and venture into unrelated businesses all the time. They expect to sustain high rates of growth and are comfortable with a heady pace.
The results would have fascinated Charles Darwin, whose research focused on how different species evolve in response to environmental pressures. If there’s a business equivalent to the Cambrian period of explosion and extinction of species, China from 1991 to the present is it. Many entrepreneurs fail in China, but the survivors become resourceful, flexible, and fierce competitors. Indeed, they may well be the vanguard of an era in which the ability to adapt quickly, navigate messy environments, and use unproven talent yields competitive advantage globally.
Most Chinese executives make decisions in an ad hoc manner and are micromanagers. The most-sought-after employees are entrepreneurial, ready for the rough-and-tumble. Trouble is, entrepreneurial people tend to leave as quickly as they sign on, which is why turnover in China’s private companies is upwards of 20% a year. Moreover, most companies have invested little in talent retention and are weak when it comes to coaching, feedback, and training.
Though most companies believe that multiple reporting lines protect them from risks, such as uneven product standards or hiring practices, while enabling scale efficiencies and learning benefits, most Chinese founder-CEOs eschew this notion. They chase topline growth at any cost and believe in structures that support rapid expansion. Indeed, improvisation and speed, coupled with low costs driven by economies of scale, create considerable disruption inside and outside China.
In most firms, executives might look at the growth rate over the past year and then assume they’ll grow by a reasonable increment—10 percent, for instance—the following year. A bottom-up analysis of microsegments and trends backs up these targets, which finally add up to the eventual one. A process between business-unit heads manages expectations, and then units strive to outperform the target so executives can earn their bonuses.
In many Chinese companies, the process goes something like this: first, let’s call a brainstorming meeting (usually on the weekend) and then announce that we’ll double our business over the next three to five years and enter the Fortune 100, 500, or 1000 (depending on the ambition of the chairman) by 2020. The planning department then tries to figure out how to achieve these numbers.
A lot of executives would argue that target-setting processes like these prove that Chinese companies still have a long way to go on their path toward professionalization. While that may be true, my experience in the fast-changing environment in China today has taught me that these “unrealistic chairmen” are precisely the entrepreneurs who are making it big.
Looking back over the past decade, I’m still amazed to see what otherwise look like unrealistic plans actually come to fruition. I have concluded that setting these incredible aspirations forces a lot of Chinese teams to think out of the box and work with an entrepreneurial spirit. One very successful chairman once confided, “They told me they could go from 10 to 15 percent. I told them they needed to do 100. At the end, they managed to do 60. That’s still a lot more than 15. When they start thinking about how to get to 100, it gets them out of the mind-set of just aiming for 15.”
Obviously, plenty of shoot-for-the-moon ideas will never have a chance of succeeding. Equally, the way companies achieve their goals may involve quite a bit of risk taking and massive investments. But some of these ideas do work, and when they do, they can become incredible success stories.
