As a guarantee for the implementation of corporate strategies, organizational capabilities will play an increasingly important role in corporate competition. This article takes the organizational transformation of companies such as Huawei as an example to restore the key influence of technology, business, and external environment on organizational evolution. This article is from the WeChat official account: CEIBS Business review (ID: ceibs-cbr) , author: Li Hua (Career international consulting Business general manager), editor in charge: Qi Qing (research director of this journal), title picture from: Visual China
Without strong organizational support, no matter how perfect corporate strategy and unique business model are, it will be a castle in the sky. Entrepreneurs are also increasingly aware that organizational capabilities must be adapted to the development of enterprises. In today’s digital and intelligent era, how should companies build their organizational capabilities?
We will analyze the core changes in the organizational capabilities of Chinese enterprises over the past ten years, and explore the core driving forces of organizational capabilities changes, hoping to provide a valuable framework for companies to build organizational capabilities.
1. What is the driving force of organizational change?
The transformation of organizational capabilities is a dynamic process in which major changes in the external environment extend to the internal strains of the enterprise based on the evolution of the social macro environment. To analyze changes in organizational capabilities, we need to understand how the social macro environment evolves. With the help of the PEST analysis framework, we can observe the impact of external changes on organizational evolution from four dimensions, namely politics(Politics), Economy(Economy), Society(Society) and technology (Technology).
In these four dimensions, economy and technology have a decisive influence on the organizational capabilities of enterprises. From the perspective of information economics, organizational capability is how the organization maximizes the value of information flow in organizational operations. The value of information flow depends on two dimensions, one is the efficiency of information flow in the organization, and the other is the cost of information flow in the organization. Technical conditions, especially information technology, play a decisive role in the efficiency and cost of information flow in enterprises. In order to cooperate with technology to achieve continuous improvement in the efficiency of information flow, more and more enterprises have adjusted their organizational structures to achieve Consistency of supporting organizational capabilities and corporate strategy.
Therefore, from the perspective of technological change, we can divide the transformation of corporate organizational capabilities into three stages.
Phase 1: Traditional Industrial Era
Key words of organizational capability: Taylor, economies of scale, pyramid organization, control and execution
From the second industrial revolution until the popularization of broadband Internet in the late 1990s, it can be divided into the traditional industrial era in a broad sense. During this period, enterprises formed core competitiveness with products and technology and established barriers to competition. In the traditional industrial era, because companies lack access to users, their products and services are usually characterized by large-scale and standardization, and they can achieve economies of scale by improving efficiency.
Under this strategy, the company’s organizational management is based on Taylor’s scientific management, and it advocates replacing experience management with standardized management. The characteristics of scientific management are quantifiable, measurable, and reproducible. Standardization is pursued in the work, and the subjective and non-standard work of “people” is eliminated as much as possible.
Therefore, under the guidance of scientific management thinking, the organization of the enterprise is based on a pyramidal organization, emphasizing the top-downManagement and control, employees are a screw in the huge organization of the enterprise, individual value is not valued, and the enterprise pays more attention to the execution of employees.
In the work process, it is often segmented based on the action to complete the work, so that employees try to repeat standardized actions to improve their proficiency and work efficiency. Companies in this period generally tend to invest large resources in production and marketing, such as JIT(Just-in-time manufacturing), GM advocated by Toyota The Six Sigma quality management advocated by Electrical Appliances is a typical management method and tool in this period. The core idea of these management tools is also control and execution.
We use the early organizational design of Huawei to look at the application of the organizational structure of this period in the enterprise. In the early days of the establishment of Huawei (around 1992), the company focused on a centralized development strategy, adopted continuous development and production of a single product, and quickly took advantage of cost Seize the market. During this period, Huawei adopted an organizational structure of “Line Staff Function System.” The company directly manages R&D, marketing, and manufacturing departments in order to quickly and uniformly deploy resources to participate in market competition and quickly respond to changes in the external environment. At the same time, because communication equipment such as program-controlled switches is a technology- and capital-intensive industry, this linear organizational structure can centrally dispatch any company’s resources and form support for R&D strategies in the first time.
Phase 2: Information Age
Key words of organizational capability: decentralization, flattening, network effects, division of labor and collaboration, procedures and processes
The technical feature of the information age is the popularization of personal computers and broadband Internet. This stage is about 2000~2015. During this period, personal computers were popularized in company work, and broadband networks were alsoContinuous penetration in various industries.
This change has brought about a new competitive situation. The powerful decentralization trend of the Internet has made companies that relied on resources and economies of scale to gain a competitive advantage in the new era are facing strong challenges from new economic formats. Information technology companies such as Microsoft, Google, and Amazon have created enormous value through the network effect of information, and their market value is far ahead of traditional industries. The rapid iteration of the Internet makes it difficult for companies to rely on several technologies or economies of scale to maintain a competitive advantage over the long term. Therefore, companies need more flexible competitive strategies, and organizational capabilities must naturally be adjusted accordingly.
In this period, the organizational capabilities of the enterprise began to transition from efficient execution to agile. Enterprises can reach consumers more extensively through informatization, and can provide consumers with more personalized products and services, and even comprehensive solutions. This change is reflected in the organization, and the individual value of employees begins to appear.
Enterprises provide personalized and integrated products and services, and put forward more diversified requirements for employees’ personal capabilities. In the past, “skilled workers” began to give way to “T-shaped talents.” In the past, the linear organization with control as the goal is no longer suitable for new development needs. Enterprise organizations need to operate in a more flexible way. Flat and matrix organizations have gradually been adopted by enterprises, and organizations have shifted from centralization to regional centralization.
In this period, there has been an obvious change in the process management of enterprises, that is, process management no longer takes efficiency as the goal, but pays more attention to how to better achieve business collaboration. For example, in a matrix organization, functional departments can collaborate with different business departments, instead of emphasizing the sequence like an assembly line.
Huawei’s second phase (around 2003)’s organizational structure is a very typical matrix structure(Figure 2). At this time, Huawei has transformed into a comprehensive solution provider, the original linear management,To make managers face huge subordinates (more than 8000 employees) the management burden is getting heavier and heavier, and coordination between departments is also difficult. Through the matrix organization structure, the above-mentioned problems have been properly resolved, and it has strongly supported the company’s strategic transformation and implementation. The business department implements unified management of the production and sales of products, independent operation and independent accounting, which significantly mobilizes the enthusiasm of the employees within the company. The growth of employees frees the leadership of the subsidiary company from daily affairs and concentrates on thinking about macro strategies. In 2003, Huawei’s sales revenue exceeded RMB 30 billion, and organizational capabilities once again became a strong support for Huawei’s transformation.
Phase 3: Intelligent Era
Keywords of organizational capability: Agility and flexibility, modularity, plug and play, individual value
About 2015, the mobile Internet began to enter the consumer field and rapidly popularized, bringing a huge amount of data and data dimensions, and at the same time, smart phones and other terminals have more scenarios that can reach users. This allows enterprises to perform large-scale and refined data matching, avoiding waste in data use to the greatest extent. The technology of this period showed the characteristics of mobility and intelligence.
Faced with the more personalized and changeable needs of users, as well as the rapidly changing external macro environment, the intelligent era requires companies to iterate on strategies, products and organizations more quickly, so the flexibility and flexibility of the organization is especially important. With the continuous upgrading of digital technology, the organization’s process can achieve more refined splitting, showing a trend of modularization, and the organization’s functions are plug-and-play like Lego bricks.
Digital technology has greatly expanded the contact channels between employees and users, and network effects have exponentially magnified the value of a few key employees. Therefore, the organization at this stage emphasizes the empowerment of employees, the power and responsibility of organizational decision-making, and tilts toward the front line of business.Organizational agility has increased, and the front, middle, and back office business models are favored by enterprises. Enterprises can not only rely on flexible front desks to achieve rapid product and service iteration, but also play the role of digital agglomeration through the business center to achieve economies of scope; The back office serves the operation of the entire company, reducing operating costs with economies of scale.
We still take Huawei as an example to see how Huawei has responded to market changes after entering the intelligent era.
In 2013, Huawei launched a new round of future-oriented organizational restructuring. In the new organizational structure of Huawei, the management of the group further optimizes the corporate governance system (Figure 3) in accordance with the requirements of the digital age.
In this period, Huawei’s organizational management has two notable innovations.
One is the rotating CEO system of management. Huawei’s rotating CEO is composed of a small team, and each rotating CEO resigns after a six-month term. After leaving office, they did not leave the core management, but participated in collective decision-making to prepare for the next rotation. Under the rotating CEO system, major company decisions are made collectively, which avoids decision-making risks caused by individual ability deviations.
The second is to establish four major operating groups(Business Group, BG for short), each BG is for customers The end-to-end operation responsibility center provides professional customized comprehensive solutions according to the business laws and operating characteristics of different customer groups. A BG usually includes several functions of marketing, sales and service management, and can provide a complete set of services.
The new round of organizational changes will continue to provide a strong boost to Huawei’s development. In the first half of 2020, under severe pressure, Huawei still achieved 13.1% of sales year-on-year.Sales increased, and the company achieved sales revenue of 454 billion yuan.
Second, what organizational capabilities do we need in the super-VUCA era?
Entering 2020, new changes have taken place in the PEST environment outside the company.
In the face of the drastically changing external economic and social environment, companies also have the opportunity to use new technologies to grow rapidly and overtake in corners. For example, in the first half of 2020, companies such as ZOOM and Slack have obtained rare development opportunities and have rapidly grown into industry leaders. In such a hyper-VUCA era, how should companies build their organizational capabilities to shape their competitive advantages? We make the following three suggestions.
One is to integrate KPI thinking with OKR thinking.
In recent years, although the emphasis on organizational agility has become the consensus of enterprises, in practice, enterprises have not completely abandoned bureaucracy. Even after some seemingly very agile technology companies have expanded in scale, their organizational form has turned to science Make certain adjustments to the hierarchy. This is because organizational agility requires a highly stable platform, complete structure and process, in addition to the ability to act quickly and adapt to changes. For large enterprises, true organizational agility is not only the pursuit of speed, but also the stable development of the enterprise. Therefore, many Internet companies implement a management method that combines flat organization with digital control.
The second is the organization’s ability to restructure the industry value chain.
In the traditional industrial era, the upstream and downstream of the general value chain, that is, raw materials and marketing are profit centers. Shi Zhengrong’s smile curve theory is also based on this. However, in the era of intelligence, digital technology enables companies to connect users on a large scale, which forces the reconstruction of the industry value chain. The profit center of the value chain is shifting to the data connection center.
The third is that companies must think about how to activate individual value.
In the future, as the level of information sharing increases, organizational boundaries will become increasingly blurred. Under the general trend that the weakening of the organization brings about the improvement of individual value, how the organization can stimulate individual creativity and how to empower individuals are issues that business managers need to think about.
In the future, we will face a highly unknown external environment, and the competitive situation of enterprises will become more complicated. As a guarantee for the implementation of corporate strategies, the organizational capabilities of enterprises will play an increasingly important role in shaping the competitive advantage of enterprises. How to build their own organizational capabilities to achieve strong support for the business will be an urgent question for every entrepreneur.
This article has been abridged and the full text was published in the October 2020 issue of China Europe Business Review
This article is from WeChat official account:China Europe Business Review (ID: ceibs-cbr), author: Li Hua (Career international consulting General Manager), Editor: Qi Qing (Articles Research Director)