On the Need to Reinvent Your Business: Companies’ Survival Depends on Different Phases of Development

Huawei

By David De Cremer

Organisations are born, conquer market share and, if successful, grow. In this process, it’s equally important that they are aware of what they stand for and why they exist, in order to achieve a sustainable and loyal customer base so they can survive in the long term. However, companies, like humans, do undergo an ageing process and, in that process, it is almost inevitable that performances will suffer at one point. These are the difficult and challenging moments, because if these drops in performance are not managed well, it could lead to the demise of the company. So how long an organisation lasts is determined by the type and number of external challenges it is confronted with on the one hand, and how the company manages those challenges in ways that allow the company to reinvent itself on the other.

Organisational leaders are expected to be visionary and inspirational by providing direction and empowering their people to collectively attain the goals the company set out to achieve. Although this view on effective leadership makes much theoretical sense, practice teaches us that achieving those company goals takes time and that successful performance very much depends on how well leaders take care of their company over time. Indeed, one of the most important responsibilities for leaders is to get to know their company so well (its purpose, vision, and values) that, in times of crisis or existential challenges, they know what change is needed to ensure that the company can endure.

It is thus essential for company leaders to study the values that lie at the heart of the company and ensure that these are acted upon. This kind of responsibility requires that leaders be aware of situational changes happening and know how those changes may be dealt with; these are all requirements in order that the company values keep creating a competitive advantage. For this to happen, leaders need to have the skill to manage and navigate the company throughout different stages of development in its existence. Indeed, each stage may ask for something different from the company and the task of a leader is to see how to reinvent the organisation so that it is effective in dealing with changing demands, while at the same time ensuring that the new strategies and changes remain aligned with the company values.

A company that has received global attention for the different stages that it went through to achieve global leadership, and that is currently forced to reinvent itself, is the Chinese telecom giant Huawei. Indeed, in the context of the US-China trade war, the company has been blacklisted by the US and several allied countries over alleged national security concerns (De Cremer, 2019). Realising that the US will not lift the sanctions against the company (Chen, 2021), Huawei has been forced to enter a new stage of development in its existence. In fact, voices are heard that Huawei is entering the fourth stage of its existence.

huawei

Below, I’ll elaborate first on the three stages that Huawei went through to become a global leader in the telecom industry, specify the conditions that created a sense of urgency in the company to continue developing, and conclude by discussing the fourth stage the company is entering and how this will look. Important to note is that, in this description, one notion that will be consistently present throughout all four phases will be Huawei’s fear of dying and its desire to survive – a need that is always accompanied by the company’s value of serving customers at all costs (De Cremer, 2017).

Phase 1. Chaos

Huawei was founded by Ren Zhengfei in a small apartment in Shenzhen in 1987, and thus started off as a private company. At that time, China’s market was dominated by SOEs that were generously funded by the government and each province allowed one international company to deliver its products to the Chinese customer. Hence, in its initial stage, Huawei was faced with a situation where it had to fight with local companies getting government support, and foreign companies that were highly sophisticated in their R&D and management structures (Tao, De Cremer, & Chunbo, 2017). The situation thus had all the features that could easily demotivate people from joining a new company, as the room to shine was basically non-existent. In such circumstances, companies can only survive if they have the ability to make sense of the chaos surrounding the founding of the company, combined with visionary leadership.

It is this kind of leadership that Huawei found in its founder, Ren Zhengfei, who has been credited with having an exceptional ability to talk about his dreams and to inspire others. In his speeches, he uses many historical examples to primarily demonstrate how hardship has always been needed to succeed and that an entrepreneurial spirit requires a willingness to go extra lengths to be successful (De Cremer, 2018). Hard work and commitment are something Ren Zhengfei consciously worked on to survive the chaos of the first years of existence. In these early stages, he discovered his ability as a leader to remind people that survival should always be on their mind and, in order to cope with that pressure, his opinion was (and still seems to be) that in those circumstances people need to be motivated and inspired. In this sense, his leadership took the shape of being a mentor and motivator, while focusing on fighting and surviving as a primary strategy to enable the company to keep pushing its limits. So it’s also no surprise that the slogan at that time was: “We shall drink to our heart’s content to celebrate our success, but if we should fail, let’s fight to our utmost until we all die.”

Phase 2. Bringing in the West

In the early 1990s, Huawei eventually succeeded in developing its footprint in the domestic market. Huawei put itself in a position where it was able to compete with and win against local competitors. International competition was considered to be out of reach, as the innovative potential of those companies was seen as superior to theirs. As a result, the top executives of the company became satisfied and seemed happy with the level that the company had achieved. Being the visionary leader that he is, this kind of attitude did not fare well with Ren Zhengfei. For Ren, the only way a company can survive is to continuously improve and, for that reason, as soon as he was able to spend resources on R&D, he did so (unlike the local competitors that did not care about this and had an attitude that “good enough” was sufficient). In a similar vein, his desire to keep improving was reflected in his inspirational stories. In the first decade of the company’s existence, Ren repeatedly told the story that in 20 years Huawei would possess one-third of the market share in the world. In those days, he visited several international labs, such as Bell Labs, which produced three patents per day at that time. He would share his ambition and what he learned from these visits all the time with the people in his own R&D offices to motivate them to believe that they could become as good as, or even better than, those international labs.

Huawei put itself in a position where it was able to compete with and win against local competitors.

Of course, telling is one thing, but doing is another. Therefore, the second phase of Huawei is characterised by Ren’s decision to support his ambition by developing a strategy to allow the company to move to the global level by inducing a more international mindset and management system. To achieve this transformation, he contacted IBM to help the company to implement a management structure that would eliminate its chaotic way of working. IBM introduced an end-to-end business process management structure to the company, where the customer was the starting point (from day one, Huawei always emphasised the need to be customer-centric) and reference point for the delivery of services and product development. At the end of the 1990s, Huawei embraced its second development phase entirely by leaving behind the chaos in its thinking and adopting an international mindset that brought a more structured management approach with specific ambitions.

Phase 3. When a follower becomes a leader

With the support of IBM, Huawei strengthened its international focus and started its global development. At the end of the 1990s and in the early twenty-first century, the introduction of the “Western” management system went hand in hand with a learning period where controlling the management processes and production lines was essential. Structure came in the place of chaos and the company had to adjust as it grew a global mindset. It’s in this third phase that Huawei became a competitor against international companies. This global development was clearly demonstrated in the number of patents the company started to submit. By 2010, the company had filed 49,040 patent applications (31,869 in China, 8,892 international patent applications under the Patent Cooperation Treaty, and 8,279 overseas patent applications). Of the 17,765 authorised patents granted, 3,060 were overseas patents. In 2012, the company surpassed the then-leader Ericsson in net profits. This was the moment that the company that had previously perceived itself as a follower of the giants in the telecom industry moved into a less familiar position of leadership (De Cremer & Zhang, 2014).

At the same time, however, Ren Zhengfei reasoned that, although the introduction of the Western management styles of thinking and doing helped elevate the company to the global level, it also, in his view, created the problem of over-management that led to slower and inefficient decision-making. In the mid-2010s, he felt that it was time to bring back some chaos in the structure that they had created with the aim of enabling people to think out of the box and pursue innovation. The budgets for innovative research kept growing (De Cremer & Tao, 2016) and the company seemed ready to integrate the characteristics of the first phase of its development into the third phase of its development journey, which, ideally speaking, would result in a new phase where a global mindset went along with an agile one. A fourth phase did emerge for the company, but it was not the one they had had in mind…

Although tension between the US and the Chinese company was already quite high since the mid 2010s, it reached its peak when Meng Wanzhou, the daughter of its founder, was arrested in Vancouver in December 2018 (on 24 September 2021, prosecutors in the New York federal court communicated that she would be released). An international warrant issued by the US government charged Meng and Huawei with bank and wire fraud in violation of American sanctions on Iran. Suddenly, everything spiralled in a direction the company had never anticipated. For example, Huawei was prevented from licensing Google’s commercial components for Android, which it used for its smartphones. This resulted in the company’s losing its relevance in the global smartphone market. Indeed, it had to sell its budget brand Honor (Ting-Fang & Li, 2020) and, in 2021, the company reported that its consumer business, including smartphones, had declined by 50 per cent. As a result of this situation, the company has been forced to reinvent itself, and so is entering a fourth phase in its development.

Phase 4. Diversification and innovation

When entering a new development phase, companies need to be open to adopting an altogether new business model – especially when the changes are externally imposed. In the case of Huawei, the new and revised business model includes a focus on diversification and innovation.

Diversification

A first change is that Huawei is on its way to maximising the use and utility of existing scientific knowledge in the tech area and re-anchoring in different industries. Indeed, the company is using its extensive knowledge base to start a new range of business activities while leaving some of the old ones behind. This strategy is exemplified by Ren Zhengfei’s statement that: “We [Huawei] can still survive even without relying on phone sales.” As a result, Huawei is now moving into new growth markets where it uses its AI insights to promote the smart vehicle industry. For example, Huawei introduced a navy-blue sport-utility vehicle, the Aito M5, which is equipped with Huawei’s proprietary operating system and HarmonyOS Smart Cockpit, which also run on their phones and watches. Huawei is thus applying the tech knowledge it has gathered over the years and, in doing so, acts as an infrastructure supplier in delivering smart vehicle solutions. In addition, the company has also embarked on the development of two Huawei HI cars – the BAIC ARCFOX Alpha S HI model and the Changan Avatar 11 – and one Huawei Zhixuan car – the AITO M5 – and will gradually begin mass production and delivery in 2022. 

The company also uses its research to facilitate the development of AI-powered digital infrastructures. Such applications involve, among others, launching AI pig farming projects that help promote technological upgrades to China’s pig farming industry. In line with these applications, the company is also reinforcing its activities around Huawei Cloud to provide customers with stable, reliable, secure, and innovative cloud services. In this area, in the last year alone, the company has opened over 50 scenario-based cloud services, and provided over 8,000 solutions to customers. These efforts helped the revenue from Huawei Cloud to increase by 30 per cent in 2021.

huawei

Innovation

When companies start re-anchoring their basic knowledge and skills, it is usually a sign that they will not be investing much more in the development of basic science and innovation. Contrary to this trend, Huawei has committed to keeping a strong focus on innovation and basic research and increasing its investments in these areas even further. One reason is that Ren Zhengfei is an admirer of US businesses and therefore has noted that Huawei still has much to learn from the US in terms of science and technology (Yujie, 2021). In his mind, the US still has the world’s most advanced technologies and therefore cooperation with US companies – wherever possible – should remain a top priority. In light of this ambition, Huawei communicated that they want to hire US talents and bring them to China (Ye, 2021). But they will focus not only on international talents; the local market is also important, as the company is planning to recruit more than 10,000 fresh graduates – committed to basic research – in 2022.  And, they want to do so on a continuous basis.

Furthermore, during the announcement of the company’s 2021 annual report, Huawei’s CFO, Meng Wanzhou, noted that: “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 in the preceding decade. Huawei’s total R&D investment over the past 10 years has exceeded CNY845.6 billion and, in 2021, the company had about 107,000 R&D employees, representing about 54.8 per cent of its total workforce. So, it’s clear that innovation is, and will remain, a key focus of the company. In fact, 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.

Conclusion 

In today’s business world, it is frequently stated that companies should know what they stand for and, by being clear about their purpose, they will be better equipped to create value for their customers. One difficulty that I see business leaders struggle with when it comes down to this ambition is that many think that, once the purpose is clear, the company will know how to consistently act in the future. What many forget is that, although the survival of a company depends on a strong compass – including a clear purpose – at the same time, companies cannot avoid the need to keep developing over time, and so will also have to move through different phases of development. Those phases usually come along with the need to adapt their way of working and it’s at this point that many leaders become confused and start acting in pragmatic ways by mainly listening to what the market demands – rather than adapting to their own purposed-driven compass – and change accordingly. Indeed, in these circumstances they fail to look at what exactly made their company successful in an earlier stage and how the knowledge, skills, and service systems acquired back then can be used in a different way to keep creating value in the future. Situations will change and organisations will always have to transform. In this process, the things one has learned over time will need to be fostered and remain close to the core of the company, so they can be used as a catalyst to work in different ways when the circumstances demand it. 

About the Author

david de cremer

David De Cremer is a Provost’s chair and professor in management and organizations at NUS Business School, National University of Singapore. He is the founder and director of the Centre on AI Technology for Humankind at NUS Business school. 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 bi-annual gala event that the Financial Times deemed the “Oscars of Management Thinking”) and included in the World Top 2% of scientists (published by Stanford). 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, On the emergence and understanding of Asian Global Leadership”, was named management book of the month July (2021) by De Gruyter.

References

  1. Chen, C. (2021). “Huawei under no ‘illusion’ about US lifting sanctions but will keep chip-making unit as it fights for survival”. 12 April. South China Morning Post. Retrieved from: https://www.scmp.com/tech/big-tech/article/3129254/huawei-under-no-illusion-about-us-lifting-sanctions-will-keep-chip?utm_medium=email&utm_source=cm&utm_campaign=enlz-globalimpact&utm_content=20211008&tpcc=enlz-globalimpact&UUID=%5BUUID%5D&next_article_id=3150345&module=tc_8
  2. De Cremer, D. (2017). “Making customer-centricity work for your company”. The European Financial Review. October-November, 64-7.
  3. De Cremer, D. (2018). “Know your history! Why historical awareness makes you a better leader”. The Political Anthropologist.
  4. De Cremer, D. (2019). “Hard-wired to survive in the US-China trade war”. The European Financial Review, August-September, 7-11.
  5. De Cremer, D., & Tian, T. (2016). “Creating Effective Organizational Systems through Experimenting with Human Nature”. The European Business Review, November/December, 6-10.
  6. De Cremer, D., & Zhang, J. (2014). “Huawei to the future”. Business Strategy Review, 25(1), 26-9.
  7. Tao, T., De Cremer, D., & Chunbo, W. (2017). Huawei: Leadership, culture, and connectivity. Sage Publishing.
  8. Ting-Fang, C., & Li, L. (2020). “Huawei to sell Honor phone brand to save it from US pressure”. Asia Nikkei, 17 November. Retrieved from: https://asia.nikkei.com/Spotlight/Huawei-crackdown/Huawei-to-sell-Honor-phone-brand-to-save-it-from-US-pressure
  9. Ye, J. (2021). “Huawei founder Ren Zhengfei wants to hire more foreign talent to boost firm’s research initiatives”. South China Morning Post, 29 September 2021. Retrieved from: https://www.scmp.com/tech/big-tech/article/3150578/huawei-founder-ren-zhengfei-wants-hire-more-foreign-talent-boost
  10. Yujie, X. (2021). “US-China tech war: Huawei founder Ren Zhengfei tells his employees to learn from the United States”. Retrieved from: https://www.scmp.com/tech/tech-war/article/3138933/us-china-tech-war-huawei-founder-ren-zhengfei-tells-his-employees

LEAVE A REPLY

Please enter your comment!
Please enter your name here