By David De Cremer and Patrick Mancel
Steering your company into the future requires you to be clear about the goals the organisation wants to achieve and to understand what means are needed and available to attain those goals. Putting this knowledge into action shapes the strategy of any effective company. Part of an effective strategy is, however, also to know and understand the threats that the external environment poses to the workings of your company. This way, you can predict what specific actions are required to ensure that the goals that one wants to achieve will be reached. External threats are market-driven and competitive in nature, which means that these are not easy to control or influence. Therefore, it’s important that companies succeed in shaping an agile mindset for their leaders and employees. As external threats can be unexpected, hard to control, and often unpredictable, your workforce needs to be prepared and trained in ways that allow them to be able to deal with any kind of curveball thrown at them and find solutions that help to adapt to or neutralise the external threat.
Agility requires bottom-up communication
Creating an agile workforce is a much-debated topic these days in the management and strategy literature but, despite this heightened interest in the topic, it remains difficult in practice to shift people’s mindset so that organisations are confident in dealing with sudden changes, challenges, and possible new ways of working that they will need to adapt to. Often, companies promote an agile mindset via awareness sessions and well-defined and outlined steps of decision-making procedures. What is common in this approach is that essentially it is still a top-down approach where the workforce is told how to act when environmental stressors are encountered. While this approach definitely has value, it does miss the point that, when talking about an agile mindset, we talk about the abilities of the workforce itself to deal with threats in ways that are different compared to the past. Hence, an agile workforce requires that a bottom-up sphere of influence exist within the company. This way, employees can bring their best ideas to the table when change occurs. So companies have to realise that their strategies in uncertain and volatile situations require that goals will have to be pursued by tapping into resources not used before. Indeed, what makes for an agile workforce is that, under situations of threat, communication will be less hierarchical and ideas travel both top-down and bottom-up, thus basically levelling the playing field within the organisation when it comes to writing an effective strategy to deal with the encountered threat.
Innovation is not only a function of the amount of cash one pours into research and team projects. In fact, creative ideas do not emerge more quickly the more money one invests.
Of course, stimulating an environment of bottom-up communication and, hence, having employees share ideas upward in the hierarchical chain is not an obvious thing to achieve, and especially not in high-power-distance countries. Asian companies in particular display a strongly hierarchical culture of this kind and, consequently, many managers at lower and middle levels do not feel empowered to voice their opinions and suggestions. But, could times perhaps be changing? In fact, a very recent example of an Asian company deciding to move its attention to exploring effective bottom-up communication to create a more innovative work climate is Huawei. Huawei is a Chinese telecom giant, founded by Ren Zhengfei in 1987 in Shenzhen. Within three decades, the company had moved into the super-league of telecommunications organizations when it surpassed the (then) world leader Ericsson in 2012 in terms of sales revenue and net profit (Tao, De Cremer, & Chunbo, 2017). It seemed as if the company would keep innovating (submitting more patents every year) and growing (higher profits every year) without limits. However, all of this came to a stop when the company was drawn into the US-China trade war when the founder’s daughter, Meng Wanzhou, was arrested in December 2018 in Vancouver (on 24 September 2021, prosecutors in the New York federal court announced 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 against Iran (De Cremer, 2021). In addition, the US took forceful action against Huawei and, in 2019, American companies were prohibited from transferring technology to the Chinese company without a government licence. As a result, Huawei lost its licence to use Google’s commercial components for Android, which initiated their current decline in the global smartphone market. Indeed, in 2021, the company reported that their consumer business, which includes smartphones, had declined by 50 per cent. This radical change in the hitherto increasing success of the company represents an interesting situation with respect to how to use a workforce in times of crisis. How?
Promoting innovation beyond financial means: The importance of voice
When Huawei’s 2021 Annual Report was made public, observers immediately realised that, because of the US sanctions, the company had suffered a decline in revenue for the first time in its existence. Specifically, the total revenue of 636.8 billion yuan (US$100 billion) was down 29 per cent from 2020, its worst annual sales performance on record. However, at the same time, Huawei did reach CNY113.7 billion (US$17.8 billion) in net profit, which underscored the company’s ability to boost profitability. Even more, cash flow from operating activities grew by 69.4 per cent, which makes Huawei a cash-heavy company. These numbers motivated Meng Wanzhou, the company’s CFO, to argue that, as the company was a knowledge driven organisation, their immediate goal would be to continue investing significantly in innovation. She said: “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.” The numbers also make this commitment to innovation clear. In 2021, Huawei’s total R&D investment amounted to CNY142.7 billion, accounting for 22.4 per cent of its total revenue. Huawei’s total R&D investment over the previous 10 years exceeded CNY845.6 billion and, in 2021, the company had about 107,000 R&D employees, representing about 54.8 per cent of their total workforce. All of these investments are also reflected in 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. So, it’s clear that innovation has always been, and will remain, despite all difficulties, a key focus of the company.
Granting voice to your workforce is a good way to ensure that your employees will eventually support the decision that you make, while at the same time they will feel more included than ever.
Of course, having financial resources at your disposal is one thing. It helps to create the conditions to facilitate knowledge generation and application. However, innovation is not only a function of the amount of cash one pours into research and team projects. In fact, creative ideas do not emerge more quickly the more money one invests. More is needed! And this is especially the case in times when it is clear to the company that, in the short term, new sources of revenue will have to be identified to avoid further drops in revenue generation. So, from this point of view, it is necessary to see what other resources – beyond their financial means – the company can easily access. To answer this question, it’s important to keep in mind the most important antecedent of innovation. Right: ideas. So, to keep innovation going, even when financial resources may be lacking, effective use of human resources is needed, because it is people, across all levels in the organisation, who bring new ideas to the fore. Huawei seems to have decided to move in this direction to help encourage and further promote their focus on innovation management. It should not be a surprise that they have decided on this type of strategy, because, even though the company may still be cash-heavy in 2021, the fact that they have recently been diversifying their efforts to a high degree indicates that pressure must exist to create new sources of revenue. Even more, the fact that Huawei has lost the profitability of its once-thriving smartphone business means that alternative sources of revenue will have to be found to buffer that loss and, to achieve this, the company needs to rely on innovation efforts. In a recent internal memo, it also became clear that the intellectual leader of the company, Ren Zhengfhei, has done exactly that by focusing on the role that his employees can play. That is, he expressed the need for Huawei not to have its strategy decided by a handful of people, but that the tens of thousands of experts in the company also need to contribute their ideas (Deng, 2022) – an opportunity that, of course, can more easily be created when the company is still a private organisation, as is the case with Huawei (De Cremer, 2018). In other words, Ren Zhengfei is providing voice opportunities to the many scientists and experts that Huawei employs, and asking them to speak their mind about the direction the company should take.
On the benefits of voice
This request for Huawei’s employees to chip in when it comes to bringing ideas to the fore to help shape the company’s strategy is noteworthy for a variety of reasons. First, as noted earlier, in typical high-power-distance cultures, compliance with directives from above is a must, meaning that upward communication is not encouraged. So, introducing voice opportunities under circumstances of threat in a Chinese company makes for a strong statement. It indicates that innovation is likely to lag behind and that the current ideas are not powerful enough to sustain the level of success that the company has been enjoying in the past. Second, the decision of leaders to give voice to their subordinates is widely regarded as the enactment of a fair procedure. Procedural fairness refers to the perceived fairness (by the subordinates) of the decision-making process that is being used by leaders to achieve a certain goal or outcome (Thibaut & Walker, 1975; Tyler, 1988). As in courtrooms, people in organisations make a distinction between process fairness and outcome fairness when a decision is made (by a judge or company leader). A common finding is that, even if outcomes are not as favourable to oneself as one had hoped, if the decision-making process is seen as fair, people will more easily accept those unfavourable outcomes (Brockner & Wiesenfeld, 1996), and this fair process effect is especially the case in times of crisis and uncertainty (De Cremer et al., 2010). So, for these reasons, Ren Zhengfei’s decision to grant voice to a large number of Huawei employees to help shape the strategy of the company can have clear benefits, as it will pave the way for employees to accept the strategic decisions that the company will eventually make; after all, they were part of the decision-making process. Also, as this kind of decision-making procedure is not so common in high-power-distance cultures, it signals that the company wants to treat its employees in fair and respectful ways, which research has shown will increase commitment and a sense of belonging (De Cremer & Blader, 2006).
Stimulating an environment of bottom-up communication and, hence, having employees share ideas upward in the hierarchical chain is not an obvious thing to achieve, and especially not in high-power-distance countries.
Putting these reasons together, granting voice to your workforce is a good way to ensure that your employees will eventually support the decision that you make, while at the same time they will feel more included than ever. And this is what Ren Zhengfei clearly has in mind when inviting his experts to voice ideas. As he noted in an internal memo: “The transformation from ideas to projects and products will depend on the review by decision makers, and I hope everything the company does is within boundaries and creates short- or long-term value.” So, ideas are being looked for by the decision makers in Huawei but, once these ideas are delivered, those decision makers will take over and decide on the course of action. Obviously, under these circumstances, it is the best outcome if – by means of giving voice opportunities – employees are willing to comply with those decisions and do not feel excluded. So, asking your employees to exercise their voice can, psychologically speaking, be seen as making use of “low-hanging fruit” when it comes to getting support for what you will decide later on. But does the experience of having voiced their idea to the leadership also make the workforce more innovative? The research out there is very clear in that respect. Indeed, a wide range of studies show that voice opportunities and emerging innovation are intrinsically related (Ye, Wang, & Guo, 2019; Zhou & George, 2001). Research indicates that, if employees can exercise their voice, they are more creative in their projects and this effect is enhanced when they work in an environment that stresses the importance of innovation for the organisation (Chen & Hou, 2016) – as Huawei does.
Conclusion
In conclusion, in times of crisis, it is imperative that companies use all the resources at their disposal to remain competitive and innovative. Even if financial resources are available, it is worth remembering that uncertain and quickly changing business environments will – over time – deplete any organisation’s financial outlook. For this reason, it’s necessary for the organisational leadership to be able to tap into other resources that can promote innovation, especially when the work context changes to one dictated by financial constraints. Promoting creativity by means of giving voice opportunities to one’s workforce is one such strategy that gains value in times of crisis. Under situations of external threats, employees experience a great deal of uncertainty, and enhancing their feelings of being included and listened to will promote a sense of commitment and willingness to comply with the decisions that the company makes to deal with those threats and challenges. In addition, people will not only accept and endorse the decision maker, but will want to contribute their own best efforts, resulting in more innovation at the level of the organisation.
About the Authors
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 corporate-sponsored Centre on AI Technology for Humankind at NUS Business school. He was 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 is On the emergence and understanding of Asian Global Leadership, which was named management book of the month July (2021) by De Gruyter.
Patrick Mancel has been a lawyer for 26 years in the areas of real estate contracts and law, with a specific interest in developing trustworthy and legitimate decision-making procedures enacted by a variety of authorities. He is currently a law entrepreneur assisting and advising the organisation and reorganisation of justice service means to a wide variety
of companies.
References
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