In Times of Uncertainty Investing in Innovation Helps: When Knowledge Makes Confident!

By David De Cremer

If there’s one feeling that has been omnipresent for all of us, it must be the sense of uncertainty. The last two years have felt as if there’s very little we can be certain about. As a result, many organisations have moved into a state of crisis that is affecting a wide range of decisions. Out of fear, companies forego certain investments, bet on what they know rather than looking for what they don’t know (and should focus on), avoid risky decisions and are hesitant in changing the way they want to mobilise and motivate their workforce. All of this makes clear that organisations and the people who populate them do not like uncertain situations. In other words, the collective brain of companies hates uncertain situations and, in reality, is much more conservative than one likes to think in making necessary changes when crisis knocks on the door. Although many executives and business gurus continually stress the need to use a crisis as an opportunity and thus engage in change management to ensure that the company hits the ground running when the crisis is over, the reality is that companies are so averse to uncertainty that they will do whatever is needed to maintain the status quo – at least until they feel they have more control over events again. 

A company that in the last few years has weathered much uncertainty about what will happen to their business and which road to take is the Chinese telecom giant Huawei. The company has 195,000 employees worldwide, of which 131,507 – together with the founder, Ren Zhengfei – own the company, which was founded in 1987 in Shenzhen (Huawei never went public; De Cremer, 2018). Huawei rose to worldwide prominence in the early 2010s and continued to grow in terms of profits, impact and innovation, until the US imposed sanctions on it, as it was accused, among other things, of espionage and the violation of intellectual property rights. Specifically, in 2019, Huawei was added to the list of companies that US companies were not allowed to transfer technology to without a government licence. For Huawei, this meant, for example, that it lost its ability to license Google’s commercial components for Android. Losing access to Google for its phones caused the sales of the Mate 30, the first phone to be absent from Google’s Android and Play Store, plummeted, and this has continued to cause the company to lose its leading position in the smartphone industry (also leading to the sale of their budget brand Honor; Ting-Fang and Li, 2020). Indeed, in 2021, the company reported that their consumer business, which includes smartphones, declined by 50 per cent.

What alarmed Huawei even more was that the then US president Donald Trump issued an international warrant that led to the arrest of the daughter of the founder, Meng Wanzhou, in December 2018 in Vancouver, Canada. According to the United States,  in her role as CFO of the company, Meng violated US sanctions rules against Iran by letting Huawei do business with Skycom Tech, a company alleged to work closely with Iranian telecom firms. All of these steps led to the decision by many Western countries to blacklist Huawei and stop making use of their services (De Cremer, 2020). As a result, since then, the company has been trying to reinvent itself, doubting which direction to take, and battling negative forecasts. It’s fair to say that uncertainty seems to be on an all-time high for the Chinese company.

However, while the world saw a company in distress faced with high levels of uncertainty about its future, Huawei managed to surprise everybody. Meng picked up her position as CFO again after her return to China and also became chair of Huawei’s board. When she introduced the company’s 2021 annual report, she noted that, although the total revenue of 636.8 billion yuan (US$100 billion) was down 29 per cent from a year earlier, representing the company’s worst annual sales performance on record, she considered the company “to be more capable of dealing with uncertainty”. So, although everyone expected the company to accept the negative forecasts made about it, the leadership put a positive spin on things. More than that, they seem to be optimistic about their survival chances in the fierce battles that lie ahead in the near future.

What makes Meng so confident, and why? First of all, in times of crisis, people look for leadership and we know that confident people are more likely to be elevated to positions of status and leadership. Indeed, research shows that displaying confidence can make others trust you more (Anderson, Brion, Moore, and Kennedy, 2012). Specifically, confident leaders are trusted more under uncertain circumstances, because we assume that they will perform better than others. Thus, being confident is expected to be a predictor of future successes, and this relationship is especially strong when we face much uncertainty and crisis (Moore, 2021). Secondly, for leaders, appearing confident is, in a way, also something of a task requirement. It has indeed been argued that, under circumstances of high uncertainty, leaders actually need to force themselves to think positively (Knight, 2020). And Meng has not been endowed with this quality out of nowhere. In fact, her father is known to handle adversity by showing a strong sense of confidence and not shying away from any battle, as he knows too well that it motivates employees (De Cremer, 2021, 2022). As Ren noted: “We must go through hard work and brave sacrifices to fight for a peaceful environment for the next three decades, so that no one dares to bully us.” 

But probably the most important reason that Meng is so confident concerns the fact that the company is a knowledge-driven one and has invested significantly in innovation. Research reveals that feeling knowledgeable can help in promoting confidence and thus enable one to deal with uncertainty (Bridges, 2017). Indeed, when you feel knowledgeable, your self-esteem is high and you feel more confident. By acquiring knowledge, you feel more in charge, because you experience a sense of mastery, and that feeling in turn breeds confidence. So, we could say that the more knowledge we acquire and possess, the safer we feel and the more in control we think we are. This state of mind obviously is a prime booster of confidence, enabling one to deal with any uncertainties that come along. 

With confidence boosted by creativity, the focus is removed from potential negative thoughts and, instead, a feeling of optimism and hope is experienced that managing and solving uncertainty may be possible.

Interestingly, it appears that knowledge that is acquired by means of being creative (and not simply reading and memorising facts) is maybe the most important type of self-expression and can lead to a sense of confidence. As a matter of fact, creativity helps you build self-esteem and, in turn, confidence, and so will help in making sense of uncertain situations by considering perspectives one has not considered before. Thus, with confidence boosted by creativity, the focus is removed from potential negative thoughts and, instead, a feeling of optimism and hope is experienced that managing and solving uncertainty may be possible.

This specific relationship between knowledge and confidence, especially in the case of creative actions, and its positive impact on dealing with uncertainty applies very much to Huawei for two reasons in particular. First, Huawei is a very focus-oriented company, which is a skill that has been identified as the one that gives the company its “fighting attitude” and ability to stick to its value-driven strategies (De Cremer and Zhang, 2016). The importance of focus is, in fact, central to Ren Zhengfei’s thought leadership, as he has often been quoted as saying that “although water is soft, under high-pressure water is able to cut through a steel plate. In a similar vein, air is also soft, but rocket engines can use that same air to propel a whole rocket.” So, Huawei, under the leadership of Ren Zhengfei, believes that being focused is a necessary quality if we want to shift from being in a weak position to a stronger one. Secondly, the way Huawei uses its ability to focus is to apply it to being obsessed with innovation. What separated Huawei early on in its history is that, compared to other early Chinese telecom companies, they invested in R&D as soon as the budget was available (Tao, De Cremer, and Chunbo, 2017). Ren Zhengfei was always convinced that Huawei could not stay in their comfort zone for too long, so that always creating new ideas and knowledge was a requirement for him to ensure that the company could survive. And their pursuit of innovation seems to be key factor in explaining why Meng noted that, despite the poor annual figures, the company is more able to deal with uncertainty than ever. How come?

During the announcement of the company’s 2021 annual report, Meng focused on Huawei’s commitment to research and development. She said: “We will continue to invest heavily in talent and R&D to ensure long-term innovation …. We believe that this type of investment will enable us to supply high-quality products and services to our customers.” And the numbers demonstrate this commitment to innovation. In 2021, Huawei’s total R&D investment amounted to CNY142.7 billion, accounting for 22.4 per cent of its total revenue. This was the highest level they had achieved over the decade to that date. Huawei’s total R&D investment over that period exceeded CNY845.6 billion and, in 2021, Huawei had about 107,000 R&D employees, representing about 54.8 per cent of their total workforce. So it’s clear that innovation is a key focus of the company. Indeed, in terms of the number of patents granted in 2021, Huawei ranked number 1 at both the China National Intellectual Property Administration and the European Patent Office, and number 5 at the United States Patent and Trademark Office.

With their focus on innovation, it stands to reason that they are using their search for new ideas and applications as a way to boost the self-esteem of their employees and, in turn, promote the confidence of their leaders with respect to future challenges. Their efforts and investments to promote an innovation-minded culture enhance the focus on being creative and developing new ideas, and therefore it follows that it is likely that within Huawei a sense of confidence emerges that enables them to adopt a perspective where they feel that they can deal with the type of uncertainty that the company faces today – hence, the narrative of Meng during the annual report meeting.

And the company’s ability to deal more adequately with uncertainty not only seems to equip the leadership with a sense of confidence, but at the same it also enhances their drive to focus even more on the promotion of creative ideas and the act of knowledge acquisition itself. Indeed, Huawei has announced that they will invest even more heavily in refactoring basic scientific theory, architecture, and software, as they see it as the only way to remain competitive. The fact that they mean serious business in terms of basic research is illustrated by the company’s message that: “In basic scientific theory, we are driving the industry ever closer to Shannon’s limit and even exploring ways to overcome it.” 

The Shannon limit or capacity – introduced by MIT professor Claude Shannon – relates to the maximum rate of error-free data that can be transferred over any communication channel. Simply put, any communication channel can be characterised by bandwidth and noise. Channel capacity – also called “the Shannon limit” – represents the maximum rate at which data can be sent over (range of frequencies to transmit a signal; bandwidth) with zero error (zero noise, so no disturbance). At the moment, Huawei already employs four Field Medal winners – known as the Nobel prize in mathematics – who are committed to pushing the theoretical limits of how much data can be transferred through the existing channels, especially as 5G is close to its theoretical limits.

The ambition of Huawei to invest even more in innovation is also illustrated by their plans to recruit more than 10,000 fresh graduates committed to basic research in 2022.  And they want to do so on a continuous basis. As Ren noted: “We must recruit people who are more capable than us…. Our compensation packages must align with international talent markets, [and be] higher than those offered by local talent markets. This is necessary to attract the best talent” (Deng, 2021). Their commitment to invest heavily in the advancement of basic science signals that the company knows little fear. This is clearly caused by their increased sense of confidence and willingness to invest much in the future (talent and new ideas). 

Deciding to play it safe and waiting until the crisis is over before implementing actual change may at first sound less threatening, but it’s a strategy that may be the riskiest, especially in the long term.

In conclusion, deciding to play it safe and waiting until the crisis is over before implementing actual change may at first sound less threatening, but it’s a strategy that may be the riskiest, especially in the long term. With an increased sense of confidence – expressed on the global stage by the woman who became the symbol of Huawei’s fight against the US (Meng Wanzhou) – the company seems to have decided to tackle the crisis that they face by investing significantly in knowledge and innovation as drivers of future success. It illustrates that continuous learning, experimentation, and innovation is the key formula in order to conquer and manage uncertainty, as it will provide you with an advantage over others. As Ren Zhengfei noted: “the world cannot leave us because we are more advanced.” 

About the Author

David De Cremer is a Provost’s chair and professor in management and organisations at NUS Business School, National University of Singapore. He is the founder and director of the corporate-sponsored Centre on AI Technology for Humankind at NUS Business School. Before moving to NUS, he was the KPMG-endowed chaired professor in management studies and current honorary fellow at Cambridge Judge Business School. He is also a fellow at St Edmunds College, Cambridge University. He has been named one of the world’s top 30 management gurus and speakers in 2020 by the organisation GlobalGurus, one of the “2021 Thinkers50 Radar list of 30 next generation business thinkers”, nominated for the Thinkers50 Distinguished 2021 award for Digital Thinking (a biannual gala event that the Financial Times deemed the “Oscars of Management Thinking”) and included in the World Top 2% of scientists (published by Stanford). He is a bestselling author, with his book on Huawei: Leadership, Culture and Connectivity (2018) having sold more than a million copies. His recent book Leadership by Algorithm: Who leads and who follows in the AI era? (2020) received critical acclaim worldwide, was named one of the 15 leadership books to read in summer 2020 by Wharton, and the Kindle version of the book reached number 1 at amazon.com. His latest book is On the emergence and understanding of Asian Global Leadership, which was named management book of the month July (2021) by De Gruyter. His website: www.daviddecremer.com David De Cremer is a Provost’s chair and professor in management and organisations at NUS Business School, National University of Singapore. He is the founder and director of the corporate-sponsored Centre on AI Technology for Humankind at NUS Business School. Before moving to NUS, he was the KPMG-endowed chaired professor in management studies and current honorary fellow at Cambridge Judge Business School. He is also a fellow at St Edmunds College, Cambridge University. He has been named one of the world’s top 30 management gurus and speakers in 2020 by the organisation GlobalGurus, one of the “2021 Thinkers50 Radar list of 30 next generation business thinkers”, nominated for the Thinkers50 Distinguished 2021 award for Digital Thinking (a biannual gala event that the Financial Times deemed the “Oscars of Management Thinking”) and included in the World Top 2% of scientists (published by Stanford). He is a bestselling author, with his book on Huawei: Leadership, Culture and Connectivity (2018) having sold more than a million copies. His recent book Leadership by Algorithm: Who leads and who follows in the AI era? (2020) received critical acclaim worldwide, was named one of the 15 leadership books to read in summer 2020 by Wharton, and the Kindle version of the book reached number 1 at amazon.com. His latest book is On the emergence and understanding of Asian Global Leadership, which was named management book of the month July (2021) by De Gruyter. His website: www.daviddecremer.com

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