New Hope Liu Chang: To break the old rules, we must first let go of the obsession of "being a king"

Source: Beida Development Institute

This article is based on a speech by Liu Chang, Chairman of New Hope Liuhe Co., Ltd. and an EMBA alumnus of The Beida Development Institute.

I grew up in the shadow of the first generation of entrepreneurs. In life, Dad is a particularly successful entrepreneur, and Mom is a particularly successful student and entrepreneur. In the company, I work with university students like Professor Chen Chunhua. It is conceivable that such a growth environment can not only bring me excellent training, but also invisibly put me under extraordinary pressure.

Absorb the entrepreneurial spirit of your parents

I am particularly envious of the spirit of the first generation of entrepreneurs to pursue their dreams, just like the teacher Lin Yifu of our National Development Institute, whether he swims with a basketball or not, but this generation really dares to swim across the sea for the sake of dreams.

The environment facing our generation does not have so many new opportunities, and not everyone can have so many dreams and passions, what should we do?

To this day, it has been almost a decade since I returned to New Hope Group. In the past ten years, as I have been working in New Hope for a longer and longer time, I have slowly and more deeply felt the difficulty of my parents' entrepreneurship, felt my gratitude as a beneficiary, and my responsibility as a inheritor. Because it is not easy to make a good company, it is no longer a one-person company, nor a family's company, or even a company that is no longer a generation, and this year New Hope has been in business for 40 years.

My parents started their business as early as 1982 and chose agriculture as their starting point. As one of the first batch of college students after the college entrance examination was restored, one of the four fathers studied computer and one studied radio, my father studied machinery, and the third uncle studied agriculture.

Since starting their own business, the fathers have been looking for it, and finally found the entrepreneurial breakthrough of feed processing. Starting from the structural thinking of engineering men, they re-examined the feed industry and found that it is an industry with the potential for standardization and scale. Doing this requires advanced formulation technology, machinery and equipment and agricultural talents, and they will raise funds. After the conditions are met, they refer to the successful cases of foreign advanced companies, and then plunge into them without hesitation. Today, New Hope Group is the second largest feed company in the world.

What does it mean to be such a large enterprise?

I still remember when I first met Teacher Chen Chunhua, New Hope was already the "feed king", but it was also facing the reality of the deceleration of industry growth and the decline in revenue and profits. At that time, we once thought that the performance of breaking through 100 billion yuan was like probing for things, but it took three years to really achieve this goal.

In the past three years, we have made a lot of attempts and changes, with success and failure. Standing here today to share the digital exploration of our traditional industries, it is still a little nervous, because our digital qualifications are still shallow, and many strategies are still on the way.

Looking for a new model for enterprise development

The cooperation with Teacher Chen Chunhua has made us rethink ourselves more seriously and begin to adjust our understanding of industry and organization. With the advent and deepening of the digital age, as an industry leader, if you blindly adhere to the traditional thinking of "I am the boss" and follow the management method with KPIs as the core, the future will be doomed to be unable to adapt to the new environment. Moreover, the homogenization of competition within the feed industry is not a new thing. The products are similar, the technology is similar, and in the end, they can only compete through price wars. According to the cyclical law of agricultural products themselves, although companies can still maintain small profits, it is difficult to break through 100 billion yuan.

In this context, enterprises can no longer follow the old path.

In my house, my parents chatted mainly about business topics, and I had heard about it since I was a child. So the traditional business model has a big impact on me. I am very grateful to meet Ms. Chen Chunhua, with the help of Ms. Chen, I gradually broke away from the traditional business thinking that I was accustomed to, and learned to look at the management and operation of the entire company from the dual perspective of macro strategy and organizational evolution, which benefited me a lot.

Today's New Hope, 70% of the business is still doing the protein supply side. The protein industry is actually converted from plant protein to animal protein, and then the animal protein processing is transformed into a consumer product. If the slaughtering end is used as a node, looking forward is the logic of bulk commodities, which is naturally cyclical. Looking back, it is the logic of the consumer market, which has a relatively high constant value.

As the country's largest feed production enterprise, New Hope has 600.7 billion chickens and ducks slaughtered a year, coupled with back-end processing, large-scale milk supply and upstream breeding, the scale of the enterprise is also very important in the world.

At present, about 70% of New Hope's business is concentrated in the slaughter front end, with strong agricultural product attributes, including pig breeding, etc., most of which are concentrated in the upstream. Such a business distribution structure means that enterprises are not immune to the cyclical impact of agricultural products and commodities, for example, the price of pork at the beginning of this year was 36 yuan per kilogram, and now it has dropped to more than ten yuan per kilogram, which is very volatile.

Over the past 30 years, "taking responsibility for one's own financial statements" has been both the bottom line of New Hope's principle and the bottom line of survival. We have used the investment of Minsheng Bank and less real estate investment to maintain relatively stable cash flow, which is also to moderately diversify the industry, in order to cope with the large fluctuations in the price of agricultural products, so that the entire group has a stable cash flow and a better debt ratio.

However, the past decade has found that such an approach is no longer sustainable, because to achieve moderate diversification also requires caring about the product ecology and thinking about the relationship between the layout and the customer and the supply chain.

After comprehensive thinking about cyclicality, diversification and digitalization, we have gradually established the direction of the future development of the enterprise: based on the protein industry, and then make more layouts to both ends of the smile curve of this industry and the field of consumer goods, so that the future industrial structure presents a safer and more sustainable dumbbell layout. In this way, we will not only have upstream industrial production capacity, but also have a back-end cold chain logistics and other supply chains. At the same time, after the consumption upgrade, including pet food, plant meat snacks, food technology services and other fields, we can also strengthen the layout on the consumer side and the C side.

Create new tracks and new organizations

To create a dumbbell-shaped industrial structure, it is necessary to break the previous way of thinking and organizational model.

It turns out that the enterprise takes KPIs as the core of management, and once the relevant rules are formulated, everyone only has the KPI in mind. To break the old rules, we must first let go of the obsession of "being a king". Since the 1990s, we have been the "feed king", but seven or eight years ago my father proposed not to be a "big king".

If you don't do the "king", how should the company develop? We came up with a new idea called "The King Goes Backwards, and the Strong General Rushes Forward." "The core is to let New Hope blossom on the consumer platform and let entrepreneurs mushroom in the company."

New Hope's current average age at core management is 45 years old, and the average age of core senior management is also 45 years old, and I am one of them, and our cadres are younger than before.

From the business level, whether it is cold chain logistics, pet food or milk, protein snacks, New Hope has all achieved self-incubation, that is, through internal industry empowerment, based on their own accumulated industrial experience and understanding of entrepreneurship to empower enterprises.

In this process, we will reasonably avoid the interference of capital, think clearly about the breakthrough and then do the industry. We will not raise funds prematurely, but more with the help of our own supply chain and understanding of the industry, to find the "bull nose" to turn things around, which also makes entrepreneurship more efficient. At the same time, based on the understanding of the entire industry chain, we can also more accurately determine who is the entrepreneur with more potential for success.

Over the years, New Hope has cultivated more "strong generals" by first helping entrepreneurs position themselves and then giving all-round support to the industrial chain. Under the guidance of a more accurate industry, these "strong generals" bravely rushed forward, which created a new hope for today's industrial pattern.

This transformation is summed up in five new ones: new mechanisms, new youth, new technologies, new tracks and new responsibilities.

Taking the cold chain as an example, New Hope adopts reverse thinking, first thinking about why there is a cold chain in today's environment. We recognize that the cold chain has become a key pain point for the food industry to constrain consumption upgrading and affect the level of food safety. In the past, milk companies sent milk to their own doors, and now we have independently cooperated with large-scale food enterprises such as Tasteless and Zhengxin to form a large-scale cold chain logistics network in the country, which not only enhances the ability of enterprises, but also enhances social capabilities.

New Hope also enables a large number of young people from inside and outside the enterprise, so that young people with vigor and dare to fight hard will join the platform. This "new partnership mechanism" also brings new impetus and new technologies to enterprises.

Choose the digital technology that fits

Established nearly 40 years ago, New Hope has formed a relatively diversified industrial structure, which also means that from upstream feed production to breeding, slaughtering, processing, transportation and C-end consumption, there have been many links, and each link is a test of the comprehensive ability of enterprises, and we need to digitally open up our links and refine management.

Digitalization is not our forte, so we partner with world-renowned institutions and institutions such as Harvard Business School and McKinsey to explore digital transformation, each led by a renowned team of international mentors.

As the collaboration deepened, we gradually found that the logic of Western standardized products did not all work for us, and some digital methods or modules were outdated. In this regard, we have readjusted ourselves to learn from companies that have done well in domestic digitalization, such as Perfect Diary. We found that a prominent feature of these companies is that the top level of the company has a very deep understanding of digitalization, and is very clear about the purpose, service objects and phased goals of digitalization.

In short, for digitalization to be done well, companies must have a clear and firm top-level design and clarify the logic before the company can successfully transform.

On this basis, it is more purposeful for us to promote the digitization of each link, not to digitize for the sake of digitization. With the help of digitalization, New Hope's farms today are no longer the old ones they used to be, but have become like animal breeding hospitals. For example, piglets not only eat on the farm, physical examination, pregnancy test, and production are all in the farm, and the piglets are taken care of by college students who have graduated from veterinary medicine and animal protection. Not only that, modern farms have been highly Internet of Things, through the Internet of Things to collect the coefficients in pig production, nutrient absorption capacity, relying on a refined formula system, hoping to achieve the fineness of a pig a feeding formula. In the future, we will also collect the walking paths of piglets and record their growth coefficients through the Internet of Things to achieve more accurate feeding.

After nearly 30 years of accumulation, New Hope has successfully developed the independent feed formula software "Hong hitomi" system. We also have a breeding system called "Xiujie". Breeding is an important part of the eugenics process, and the United States and other Western countries have been deeply cultivating in this industry for nearly a hundred years and are still continuing. At present, the pigs cultivated by the Western breeding industry are two to three times higher than the original native pigs. If we want to develop our own breeding industry, improve breeding capabilities, and achieve similar goals, we must rely on the algorithms and computing power brought by digitalization. Today's aquaculture industry has become more and more concentrated, and it is possible to catch up with the West in a shorter period of time with the help of computing power and algorithms.

Today, New Hope has its own cold chain logistics and planting management system, and has successfully implemented 24-hour inspections by drones and robots on the farm. In the future, whether in the breeding or segmentation links, from a strategic point of view, New Hope will invest more in industrial technology companies.

In terms of digitalization and new technologies, New Hope pursues not high threshold and high configuration, but chooses technology that truly fits its own industry, and truly improves the efficiency of each order, behind which is the ability of the organization.

In terms of management, under the leadership of the original KPI model, the relationship between the headquarters and the production department is management and execution, which may lead to "layman leading insiders", and those who are not familiar with the front-line production situation are task makers and performance evaluators, which is contradictory. To this end, New Hope has transformed the evaluation system and organizational relations, resolved contradictions, and straightened out the relationship. When everyone needs to devote themselves to the efficiency of orders, the city wall must be torn down, and the system must ensure that employees can copy to the end.

It's not a simple thing. First of all, employees should have the ability to play the whole field, both sales and communication with people in different production links, but also understand the pain points of complaints, we call it a generalist to play the whole field, so we must use the thinking of training project managers to cultivate such a business strongman, young people with this comprehensive ability will be very popular. With an order as the core, the integration of various departments of the enterprise, supplemented by the help of digitalization, the efficiency of the enterprise can be doubled with half the effort.