If innovation is defining what drives success in demanding, volatile and uncertain markets, then China can be seen as a situation where all these forces meet. A Chinese company that is known for having created a leadership culture with a focus on innovation and in doing this became a world class player concerns Huawei. The article examines how the right management and leadership culture drives China into being an innovative and sustainable country.
If asked which country wants to be the most innovative country in the world, many observers would likely vote for China. Evidence abound that the country is taking innovation more seriously than any other country at the moment. As a matter of fact, if innovation is defining what drives success in demanding, volatile and uncertain markets, then China can be seen as a situation where all these forces meet. Look, for example, at the following innovation targets: China has set forward the ambition to be the world leader (a) in AI by 2030, (b) in being the most innovative-driven society by 2035, and (c) in science and technology by 2050.
Innovation is the driving force behind a prosperous society and thriving businesses, and this fact has especially been recognised by China when they entered the era of the new economy. An era where a clear shift from the traditional manufacturing economy that defined China for many years (i.e. China being regarded as the factory of the world) took place to a focus on a service-oriented economy where quality, adding value and the use of sustainable business models became key words. In addition, the implementation of a service-driven economic system also added new layers of complexity when it comes down to building a business that is competitive and able to survive. The Chinese government has indeed made clear that with the era of the new economy, the entire Chinese society needs to take on some important duties to make the country grow. And, in that mission of growth, innovation plays a key role.
However, although innovation as the primary target to pursue has become an important guideline in Chinese government strategies, for a long time, Chinese companies have not been recognised for being good at it. As Frynas, Mol, and Mellahi (2018, p. 75) note, “innovative firms in China are said to excel at cost reduction, accelerated product development and networked production”. In the past, Chinese companies lagged behind in their focus on the right management approach that installs the leadership to create the right conditions to support creativity and management innovation. Has this situation in the meantime improved and why is such a leadership focus important?
The spirit of innovation means that we continue to plan, invest in, and create the future, while seeking continuous self-improvement and development. This is an interesting challenge. Companies can encourage and foster such a drive of innovation only if they succeed in building the right type of leadership culture to motivate people and help translate the goals and purpose of the company into a strategy that thrives in highly volatile and uncertain market environments. In the present article, I refer to leadership culture as the leadership abilities enacted to ensure innovation is the outcome of the work culture. This can be achieved by making the right decisions to ensure the growth and adaptability of the company in pursuit of innovation.
For corporate leaders, it is no secret that finding the right leadership culture entails raising awareness, showing the way forward, managing behaviour, and tolerating failure. These abilities help create a better environment and culture for innovation to blossom. Company leaders are regarded by both leadership scholars and practitioners to be the ones who show the way for the many and at the same time build confidence in an organisation. Leaders are those who know why change needs to occur and are effective in influencing others to follow the direction pointed out to achieve the collective goal of change. An important leadership quality therefore entails the leader’s ability to mobilise the whole team by using the talents and motivations of that team. It is that kind of ability that underlies the idea that the right leadership culture will also bring the best ideas and innovation to the fore in achieving the goals and purpose of the organisation.
A Chinese company that is known for having created a leadership culture with a focus on innovation and in doing this became a world class player concerns Huawei. Huawei was founded in 1987 by Ren Zhengfei and is currently a world leading global company (67% of its revenue is from outside China). It has achieved its success by endlessly contributing to its R&D efforts in order to create innovation unmatched within China (Tao, De Cremer, & Chunbo, 2018). In the fiscal year of 2018 Huawei´s revenue reached CNY721.202 billion (US$105.191 billion) and CNY59.345 billion (US$8.656 billion) in net profit. At this moment, the company is in the eye of the storm that accompanies the US-China trade war and as a result, more than ever, questions are being asked what makes their leadership special when it comes down to explaining the success of the company at a global level. In my view, there are three important leadership characteristics that created the right kind of climate for innovation to emerge:
1 Inclusive and compassionate leadership
A good leader takes care of his/her employees who take care of their customers. In Huawei, customers are the reason the company exists and are thus treated with the highest sense of importance. In that respect, inclusive and compassionate leadership matters because it provides employees with a sense of belongingness. When people are proud of their job, they perform better. In Huawei, this kind of inclusive leadership is embodied in the company’s ownership structure – Huawei is a private company with its shares almost fully owned (98.6%) by its current and retired employees. Huawei’s founder, Mr. Ren Zhengfei has mentioned several times that he will not take his company public because a public company would need to take care of its shareholders and this usually negatively affects the interests of the customer (De Cremer, 2018). As such, he has no intention of doing that. Rather, he fully understands why it’s important to have employees creating value for the long run. As he believes that customers are their most important asset, Huawei therefore must work to provide its customers the best possible services. This is why Huawei has created an inclusive community – to motivate its employees to become the best service provider. A famous saying exists at Huawei: “Turn your eyes to customers and turn your back to your bosses.” This is not only a value statement, but a value shared by the Huawei community.
What, then, is compassionate leadership? Compassion is the ability to forgive. Innovation involves changes and uncertain outcomes. It takes time for innovation to produce results as failure is always lurking around the corner. Research also shows that the most successful entrepreneurs are often those who made the most mistakes in the early days of their career and always managed to get up again (Grant, 2017). Therefore, great leaders are willing to take the risk of allowing trial and error in their employees’ work. They know that if employees are not allowed to make mistakes or are not forgiven for their mistakes, they will be discouraged and end up in a state of simply doing their job as required but nothing more. This is obviously not the ideal innovation culture that an entrepreneur would ever want. An entrepreneur wants a workplace culture where everyone considers himself or herself like the owner of the company. So, a truly innovation-driven culture is one that allows mistakes and shows tolerance and compassion for people who make mistakes. At Huawei, we can see this kind of compassionate leadership in the way they treat their software and hardware engineers. A certain error rate is allowed for these employees. They even allocate some of their budget to make provisions for possible errors. This focus on allowing mistakes is nicely reflected in the term “Imperfect heroes”, now widely being used within Huawei. That is, Huawei encourages people to pursue excellence and push their limits, while at the same time allowing some errors to be made. After all, imperfect heroes may over time be the real heroes.
2 Leaders are agile in action but committed to focus
Leadership is also about the ability to be agile in response to external changes, but without losing sight on your goals to achieve and direction to take. At first sight, these two abilities seem to contradict each other. Agility means flexibility while focus means stability. But it is the combination of these two qualities that makes you successful. It is often said that leaders must be able to handle any curve ball thrown their way. In a similar vein, in a market full of changes (like the contemporary technology market), every company will face the unexpected, but no matter what, leaders must respond to it. Charles Darwin once said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” Applying this to the present context, Darwin’s thought implies that in order to be successful leaders we need to be able to adapt to external changes and failures to enhance our chances of survival.
In a complex and uncertain world, there is no such thing as a linear success story; there will always be chaos in the journey preceding a successful outcome. Dealing with chaos in the pursuit of success is never easy because organisations – just like humans – quickly form habits and adopt standardised procedures that have always been used by the organisation in the past. That is, a habit exists in the corporate world that in order to remain successful in the future, we look at the past. However, in a world characterised by increasing uncertainty and complexity, what made you successful yesterday may not necessarily help you to be successful in the future. This wisdom is in contrast with the way we educate and develop people, that is, by building on existing knowledge and further refining and developing that knowledge. The risk we run with that approach is that it may result in a narrow mindset where we repeat what we have done before, but then in any given new situation and then we face the limits of that approach. Many different solutions to a problem exist and therefore it is necessary that we are agile in finding the best way to succeed in any given situation and not only stick to what we know.
Of course, to make such an agile strategy work, you also need to be clear about the goals and purpose you want to pursue. In other words, you must know what you want and why and find the best ways to achieve this outcome. In this way, purpose and agility join forces to be able to respond to changes and unexpected events in a way that makes you successful. How did Huawei manage to reconcile these two forces of agility and purpose in their leadership?
First, Huawei has a clear purpose. That is, to serve customers, which has been written into the Huawei Charter. The way to achieve the best service to its customers is ensuring that changes are made so the company survives. Its founder Ren Zhengfei stresses all the time that survival is the key concern (and even fear) on its mind. He was once asked, “when things are going well, what do you focus on?” He replied, “survival.” He was then asked, “when things do not go well, what do you focus on?” He replied again, “survival.”
Throughout his history, Huawei adopted in different ways to changing situations with the aim to enhance survival. In its first ten years (from 1987 to 1997) Huawei experienced much chaos and little management structure. The daily focus seemed to be survival only. What needed to be done to ensure the survival of the company was the question on everyone’s mind. In that chaos, the drive to survive existed because of Huawei’s goal to serve customers in the best way that they could.
The second important phase of the company ran from 1997 to 2007 and was characterised by Ren Zhengfei’s decision to implement a much-needed management system to create order in the chaos. To achieve this aim, Huawei hired IBM to introduce a Western-based management system that would enhance the procedural aspect of customer delivery. This decision, however, was met with much opposition as many employees were wondering whether their company needed a US company to teach them how to manage their company more effectively. Ren Zhengfei responded in a way that demonstrated its focus on being agile to achieve a greater good by claiming that if the shoe does not fit the foot, cut off its toes. In his view, the time arrived to accommodate to the new needs introduced by the change of growth in Huawei and this should be done in non-hesitant ways as it would serve the interests of their customers.
3 Leaders make sense of the situation
Leaders cannot do everything on their own. Their level of effectiveness depends on their ability to mobilise and motivate their employees to do the right things at the right moment. But how can they do this? One important ingredient in this mobilisation process is their ability to make sense of the things that they want to inspire their employees to do. In other words, leaders need to be able to help employees understand why the purpose of the company is important and why it matters to a wider range of stakeholders. In that respect, leaders need to articulate a vision that clearly describes how they want to act and why to achieve the outcome that they want to achieve. To achieve this, leaders need to be able to spread this energy through story telling that puts the company’s journey to the fulfillment of its purpose in a framework that makes sense and elicits positive emotions.
Ren Zhengfei is known for bringing his personal experiences to life via story telling that usually centre around the dreams and hopes he has when he sees his employees at work and how their dedication will bring success today and in the future. Throughout his stories, he seems to communicate that dreaming is a must but delivering on those dreams is even more important. As a result, people feel attracted to his message and requests for showing commitment to trying to do better. In essence, impactful visions make sense because they build mutual trust where each party is willing to take up its own responsibilities.
All of this shows that leaders need to be able to spread energy, willingness to commit, accommodate in the journey of a company with the aim to create value that has meaning and impact to its stakeholders. With such a view point on leadership, Huawei has transformed its own work culture in one where not only quick delivery but also delivery of high quality has become a primary focus – which is one that could not be delivered without innovation being part of the company culture.
About the Author
David De Cremer is Provost Chair, Professor of Management and Organisation at National University of Singapore (NUS) Business School, a fellow at the University of Cambridge, and a fellow at the Hoover Institution at Stanford University. Before moving to NUS he was the KPMG endowed Professor in Management Studies at Cambridge Judge Business School. He has published over more than 250 academic articles and book chapters and is the author of the book Pro-active Leadership: How to overcome procrastination and be a bold decision-maker and co-author of “Huawei: Leadership, culture and connectivity”.
1. De Cremer, D. (2018). On the joy of not being a listed company. The World Financial Review, March-April, 26-29.
2. Frynas, J.G., Mol, M.J., & Mellahi, K. (2018). Management innovation in China: Haier’s Rendanheyi. California Management Review, 61(1), 71-93.
3. Grant, A. (2017). Originals. Ebury Publishing: London.
4. Tao, T., De Cremer, D., & Chunbo, W. (2017). Huawei: Leadership, culture and connectivity. Sage Publishing.