The caption image comes from: Visual China
Recently, Huawei has two important events with intrinsic logical correlation.
First, the 2021 financial report was released at the end of March, and the overall financial performance, in the words of Ms. Meng Wanzhou, the current rotating chairman: "For Huawei in 2021, it may have passed through the black barrier area of this disaster." The "good news" that has been widely watched is that Huawei's operating profit soared by 67.5% (121.4 billion yuan) in 2021, a record high.
But the hidden dangers of 2022 are actually among them.
Because the main reason for the increase in profit margins is the surge in non-operating revenue caused by the sale of Glory – Huawei received about 60 billion related payments in 2021, accounting for half of the profit in 2021.
What to do in 2022?
The answer lies in the second important event two days after the release of the financial report, on March 30, under the leadership of Ren Zhengfei, Huawei held the "second batch of legion formation inaugural meeting". Following the establishment of the first batch of five corps last year, the second batch of "ten legions" was officially established.
Talking about the origin of the legion system, Ren Zhengfei said: "The legion is a special organization of Google, this organization is a group of doctors, scientists, engineers and marketing experts, this group is generally fifty or sixty people, but their goal is to be the world's first, can not achieve the world's first, they will never quit this group." ”
In other words, Huawei is determined to make the business of these 15 "legions" the first in the world. After 2022, the answer to where Huawei's excess profits come from is in the "legion system".
In 1998, in the face of internal and external troubles, Huawei introduced advanced models such as IPD (Integrated Product Research and Development System) to transform organizations, in exchange for nearly 20 years of management dividends. In recent years, under the background of the unfavorable international situation, Huawei has carried out organizational innovation by benchmarking Google's legion system.
In 20 years, Huawei has entered a new stage of organizational model change.
First, use the "legion" to fight a big battle
In June 2020, Huawei, which officially entered the "list", faced a series of problems such as the freezing of some overseas assets and chip shortages. According to data released by IDC, Huawei shipped 240.6 million smartphones in 2019, ranking second in the world, second only to Samsung's 295.7 million units and higher than Apple's 191.0 million units. Today, Huawei's name can no longer be found in this list. In addition, in terms of operator services, the saturation of the domestic 5G base station market has further compressed Huawei's living space.
Faced with such an unfavorable external environment, Huawei has set its sights on the To B service, which is less dependent on chips. With the adjustment of the strategic layout, Huawei has also iterated on the organizational model and stepped onto the stage against Google's "legion system".
According to The New York Times in 2004, Google's success was important because of a mysterious army of PhDs. In this organization, functions such as research and development are not separated, and this mysterious organization has greatly enhanced Google's innovation ability, so that only 2,000 people have crushed Microsoft with 30,000 people in innovation ability.
A brief summary of the characteristics of the legion system is:
Experts sink to the front line - researchers enter the project team and directly participate in development;
Strengthen thinking on the front line - in addition to writing programs, developers must also conduct research when problems arise;
Formation of cross-border teams - cross-group deployment of project team personnel, mixing of personnel with different functions, and complementary skills;
Not afraid of oversized and underused - use elite talents to reduce dimensionality and ensure Google quality.
It is not difficult to find that Google's "legion" is a "large closed-loop organization" from business penetration to research, development and other functions, covering almost the complete cycle of "from idea to currency". Due to the use of a small number of elite teams to coordinate operations, not only the ability to allocate resources is guaranteed, but also the communication efficiency will be higher. Obviously, using such an organization to overcome difficulties is quite a big win.
Huawei benchmarked Google's thinking, in order to do a deep and thorough vertical field, they will be scattered in different departments of various types of experts gathered in the field of the legion, so that it directly to the customer, to provide special solutions. Huawei's explanation is: "I hope that through legionnaire combat, we will break the boundaries of existing organizations, quickly assemble resources, intersperse operations, improve efficiency, do a deep job in one area, and be responsible for commercial success, and fight more food for Huawei." ”
It is worth mentioning that the legion has a high status in Huawei, and belongs to the same first-level department as the operator BG, consumer BG, enterprise BG, etc., has a high degree of autonomy in operation, and enjoys certain priority in the allocation of middle and back office resources.
In addition, if Huawei's previous organizational changes such as "integrated product research and development team" and "sales iron triangle model" are single-function and small-scale close to the front line, then the current legion system is a fully closed loop and large-scale close to the front line. Small teams can only fight small battles, and large legions can fight big battles. To break through the new To B business, it is clear that a more advanced organizational model is needed.
In April 2021, the Coal Mine Corps was established; in October, the Smart Road Corps, the Customs and Port Corps, the Smart Photovoltaic Corps and the Data Center Energy Corps were formed. With the addition of the 10 Legions at the end of March 2022. Huawei currently has 15 legions, covering several emerging markets it is targeting.
The second batch of ten legions are: the Power Digital Corps, the Government One Netcom Corps, the Airport and Orbit Corps, the Interactive Media Corps, the Sports Health Corps, the Display New Nuclear Corps, the Park Corps, the Wide Area Network Corps, the Data Center Base Corps and the Digital Sites Corps.
Take the Coal Mining Corps, for example. The coal mining industry has a high profit margin but is relatively traditional, facing the problems of the times such as automation transformation and digital transformation. The current industry hotspot is, how to use 5G technology to bring revolutionary changes to coal mining enterprises, so as to achieve intelligence, towards less people or even unmanned? Huawei's strength lies in technology, but they have not deeply cultivated the coal mining industry and lack a deep understanding of the industry. This leads to the relatively basic and standardized delivery plan, which is naturally difficult to respond to the above demands, and will inevitably lose market opportunities.
In order to quickly enter this market, Huawei has gathered scientists, technical experts, product experts, engineering experts, sales experts, and delivery and service experts doing basic research to form a coal mining corps of about 220 people.
To this end, Huawei has set up a special "night school", all scientists who join the legion must learn industry tutorials, everyone must take the exam and must pass the pass; in addition, all kinds of experts who "graduated" go to the front line to go to the mine on the ground to gain a deep understanding of the industry. In this regard, Ren Zhengfei stressed: "We cannot sit in the office and become a general, and senior experts must go down to the front line, enrich the front-line team, and fight grain. ”
At present, the coal mining corps has achieved some results. It has installed 5G base stations in multiple mining areas, and under the basic requirements of ensuring transmission, it has partially realized remote collaboration, effectively reducing the number of downhole operators.
Second, the secret of Huawei's evergreen foundation
Huawei, one of China's most cattle enterprises, is using their way to answer a proposition of the times - in the face of external difficulties, can an excellent organizational model help enterprises stand out? Exploring this proposition can also answer the topic that has been concerned by the Chinese academic and business circles - what is the secret of Huawei's evergreen foundation?
To discuss Huawei, we have to compare its first competitor in China - ZTE. Before 1998, Huawei was more groping in chaos, its performance was better than ZTE's performance, and more from the market opportunities and the strength of talents. During the period, the revenue of the two enterprises was below 10 billion, and no real gap was formed.
After 1998, Huawei began to really take off, and gradually formed an order of magnitude difference with ZTE. By 2019, Huawei's revenue has reached 9.5 times that of ZTE.
From the trend of the curve, Huawei seems to have buried a "turbocharger" on the upward curve, and each stage has a vigorous upward momentum. ZTE, on the other hand, has been struggling with performance.
Why are there a huge difference in performance between two companies with the same starting point?
Figure 1: Revenue of Huawei & ZTE (Unit: 100 million yuan)
Source: Huawei Annual Report, ZTE Annual Report, Musheng Consulting
A mainstream view is that Huawei's potential energy is attributed to ren Zhengfei's pattern, believing that it dares to invest in key resources and is good at saturation attacks. This statement seems to make a lot of sense:
The first is the investment in talent. From the perspective of per capita labor costs and labor costs as a proportion of revenue, Huawei and ZTE are obviously not an order of magnitude. Its per capita labor costs have been running high and continue to rise, only in the recent difficult two years (2020-2021) have stabilized. In terms of the proportion of labor costs to revenue, Huawei has actually risen sharply in the past two years, forming a "horn mouth" with the relative contraction of ZTE (see Figure 2).
In fact, even in the difficult period of the past two years, Huawei has recruited 26,000 outstanding graduates, and this year plans to add more than 10,000 new blood. They believe that "only good people can solve the current problems". Another data is also worth mentioning, in 2020, Huawei's employees with doctoral degrees or above accounted for 4%, while ZTE's 2021 data was 0.6%.
Figure 2: Huawei vs. ZTE (Labor Cost per Capita & Labor Cost as a Percentage of Revenue)
Source: Huawei Annual Report, ZTE Annual Report, Musheng Consulting
Note: ZTE discloses that the cost of employees (including wages, bonuses, allowances, employee welfare premiums, social insurance premiums, housing provident fund, etc.) is similar to labor costs
The second is R&D investment. In 2021, Huawei's R&D investment accounted for 22.4% of revenue, and R&D expenses were 142.7 billion yuan, both of which were huawei's highest values in the past decade. Comparing ZTE's growth rate in the proportion of R&D expenses to revenue, a "horn mouth" is also formed (see Figure 3). In their own words, "the more difficult times there are, the more we value our commitment to the future." At present, Huawei's annual R&D investment ranks second in the world, second only to Google's parent company Alphabet.
Figure 3: Huawei vs. ZTE (R&D expenses & R&D expenses as a percentage of revenue)
Source: Huawei Annual Report, ZTE Annual Report, Musheng Consulting
Even in the purchase of consulting services, Huawei is not soft, almost with the mainstream consulting companies to cooperate over and over again. Around 2016-2017, ZTE almost stopped all cooperation with consulting companies for a period of time after Zhao Xianming took office.
But attributing Huawei's evergreen business seems a little sloppy. When it comes to resource investment, rich enterprises can do it " without being fierce", but why can Ren Zhengfei always insist on it?
In fact, "fierceness" in resource investment is simply a false proposition. Dare to continue to "be fierce", and even invest in sources when the performance has not yet taken the lead, essentially because this investment is very cost-effective. So, the focus of the problem becomes - why can Huawei's resource investment be more cost-effective compared to the competition?
Here, we may wish to apply the organizational ability sandwich model I proposed for analysis. If you think of a business as a black box of organizational capabilities (including organizational values, rules, and organizational knowledge), any input from one end of the resource can yield performance outputs at the other end (Figure 4). Well, if a company wants to get more performance output, there are at least two influencing factors:
One is the magnitude of resources. Investing more resources, especially key resources, is the basic guarantee of performance, and it is impossible for any enterprise to create something out of nothing.
The second is the organizational model. Only through the reform, innovation and upgrading of the organizational model can we create a strong organizational ability and ensure the transformation efficiency of resources.
Figure 4: Organizational competency sandwich model
Source: Mu Sheng Consulting
Clearly, the organizational model determines the determination with which resources are invested. If it were not for Huawei's organizational model leading the competition, resulting in amazing Efficiency, how dare they continue to invest? Therefore, Ren Zhengfei's pattern does not lie in his gambling ability to dare to invest in resources, but in his high-dimensional cognition of the organization.
Under the guidance of such cognition, although Huawei does not talk about organizational innovation, it has been rushing on the road of organizational innovation. They continue to benchmark a number of benchmarking enterprises, and almost benchmark the "master" into an "apprentice". What is more interesting is that their reforms in all professional fields will eventually become an organizational change, and "organization" has become an area that Ren Zhengfei and Huawei are extremely keen on.
In 1998, Ren Zhengfei introduced an integrated product development (IPD) system from IBM, which was opposed by internal ministers, but he tried to overcome public opinion and expressed his determination to "cut enough and be fit". It turned out that this was a landmark organizational change for Huawei, which really enabled it to integrate R&D resources scattered across various departments and form an "end-to-end" meeting of customer needs. ZTE next door did not introduce HPPD (Efficient Product Development System) similar to IPD until 2008, at this time, the gap between the two has been too large.
A Huawei person revealed to Mu Sheng Consulting: "IBM reviewed this case a few years after Huawei landed IPD and came up with a comment - Huawei is doing more than IBM. ”
After the success of IPD, Huawei introduced advanced models such as Integrated Supply Chain System (ISC) and Integrated Financial Management System (IFS). As a result, Huawei has instigated organizational changes in almost all major business and functional lines (Figure 5). These organizational changes revolve around one theme – how to be close to the customer, integrate all resources, and achieve end-to-end delivery. To sum up, it is the three keywords of "customer center", "integration" and "end-to-end".
Figure 5: Timeline of Huawei's major organizational changes
Source: Mu Sheng Consulting is based on publicly available information
Such a consistent organizational design idea has created an extremely agile, flexible, and heavy firepower organizational model, coupled with various resources invested heavily, which is naturally infinitely powerful. It is also by relying on a series of organizational changes that Huawei has shaken off the entropy increase formed by scale expansion and enjoyed more than 20 years of management dividends.
One of the most telling figures is that in 2008, Huawei's revenue was 125.2 billion yuan, of which overseas business accounted for more than 75%, which can be regarded as one of the most successful cases of internationalization among Chinese companies. Obviously, if the organization is not strong, it is difficult for the international layout to blossom. ZTE was thrown away, and it was true that it was not unjust.
Third, the legion system, the poisonous liquor of other enterprises
According to the observation of Musheng Consulting, when the enterprise develops to a certain stage, it will definitely set up a similar legion around the "lighthouse customer group", integrate various functions, and strive to achieve "end-to-end" delivery. The more complex the market environment, the stronger this demand. To meet this need, we must build a platform-based organization. Huawei's legion system is a typical form of platform-based organization, and it can even be said to be a high-level form.
The law is in front, and Huawei's benchmarking effect can be imagined, but I have to remind most companies - choose the legion system carefully, which may be your poisonous wine. To build a legion against Huawei, first pass three levels:
First, the construction of the business middle office.
But if there is a market opportunity to form a legion and put on heavy firepower, it seems too simple and too "big gamble". Then again, set up a legion, wave the battle flag, do a ceremony, and what company can't do it?
The middle office is like a chef's pre-mixed sweet and sour sauce, which is put into different dishes when needed, and can support different dishes such as shredded fish, squirrel mandarin fish, sweet and sour tenderloin, etc. at the same time. Huawei dared to set up a legion because its business middle office was already very strong, forming a firepower configuration that could support the legion's combat. For example, what the coal mining corps needs to do is enter the mining area, understand the customer's needs, and provide integrated solutions within the broader framework of the underlying technology.
According to the "2021 China Enterprise Platform Organization Construction Report" released by Musheng Consulting, although 88.1% of the sample enterprises have set up a business middle office, most (66.2%) of the business middle office of the sample enterprises is still in the initial professional operation and package delivery state (Figure 6), which is simply not enough to support the legion combat. The establishment of the legion at this time will undoubtedly make the front desk of the enterprise disconnected from the middle office, and the organization will be more chaotic.
Figure 6: Types of operations in the middle office of the business and the middle office of the organization
Source: 2021 Report on the Construction of Platform-based Organizations for Chinese Enterprises
Second, build the middle office of the organization.
The organization's "one tube is dead, one is chaotic" seems to be the norm. Platform-based organizations require decentralization to the front desk (legion), which will inevitably bring a certain degree of loss of control, and only the construction of the middle office of the organization can alleviate the anxiety of bosses about getting out of control.
The middle office of the organization is a joint team composed of functional BPs such as financial and human BPs, who go deep into the front-end project team and fight with them jointly. They are similar to investment groups, and their main functions are incentives, risk control and empowerment, which is to help enterprises grasp the rhythm of resource investment. Huawei's human and financial lines are relatively mature, providing standards for BP's professional operation in the front office, which can basically meet similar needs.
Similarly, according to the "2021 China Enterprise Platform Organization Construction Report" released by Musheng Consulting, 86.9% of the sample enterprises have set up an organizational middle office, but like the business middle office, most of the sample enterprises (60.2%) are only in the initial stage of policy police and organizational political commissars. In such a state, it is difficult for them to ensure the efficiency of resource investment, but they may become the "Golden Guard" that hinders business progress.
In the final analysis, the "invisible" may be the "winner and loser", and the depth of construction of the two functions of finance and manpower can best reflect the "internal strength" of an enterprise.
Third, lay a good management foundation, divide the work well, and settle the accounts well.
Generally speaking, enterprises determine business processes based on business models, determine organizational structures based on business processes, and then design job systems based on organizational structures, a process called organization development (OD). After that, the enterprise will have a performance evaluation system (KPI), capability assessment system and other supporting modules.
Many bosses are dismissive of these "clichés". But the reality is that without these management foundations, they will not be able to move forward.
Without the management foundation laid by OD, how to divide labor? Without a supporting evaluation system, how can I be incentivized? Don't forget that the legion system disrupts the original boundaries of the organization, which inevitably complicates the division of labor and incentives. Is it enough to put the elites into the legion, put some "feelings", and ask everyone to make up for the position indefinitely? Is it like some internet giants that issue a large project bonus for Leader to distribute freely? Elites are particularly concerned about responsibility and power, and obviously cannot rely on this extensive system. In addition, jumping out of the legion, how to divide the work in the middle and back office, how to motivate? Does this raise a bigger problem?
Huawei's ability to learn the legion system is the result of people's many tosses in organizational change, behind which is the courage of being willing to be a "slow turtle" and a large number of consulting fees; and most companies if they cannot cross these three passes and forcibly benchmark and take shortcuts, they may only get scattered war drums and battle flags.