Key focuses of business operation and management at different stages (essential reading for middle and senior managers)

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This post was last edited by lovelife1997 on 2020-4-3 at 11:24. Key aspects of business operation and management at different stages. October 2019, Peking University. There are no failed companies; only companies that are suitable for their times. The key to a company’s success lies in keeping up with the times ； A company’s success lies in doing the right things at different stages of its development. As early as 1910, 109 years ago, Mr. Cai Yuanpei, the president of Peking University, first expounded on the concept of \"keeping pace with the times\" in his book \"A History of Chinese Ethics.\" Although what companies do varies at different stages of development, there are certain things that must be done well at all stages, and these are the essence of business. The world is constantly changing, but the five essential principles of business have never changed. First, the products and services are of good quality; second, the costs are low; third, the efficiency is high; fourth, dissemination is fast and widespread; fifth, the capital chain is healthy. The essence of these businesses is common sense. The reason why many companies collapse is that they violate common sense. Enterprises must adhere to these common principles at every stage of their development; it’s just that the focus on each aspect varies at different stages. We typically classify the stages of corporate development based on the business life cycle into “startup stage, growth stage, stable stage, and decline stage”. In the startup phase, the focus is on expanding the market and sales channels; in the growth phase, it is on team building and talent development; in the stable phase, the emphasis is on product innovation and institutional innovation; during the contraction phase, the priority is to optimize products, organizations, and assets, as well as to ensure a healthy cash flow. Enterprises focus on different aspects of operation and management at various stages of their life cycle. Similarly, as they grow from small to large, the priorities in terms of operation and management also change along with their scale. We generally divide the scaled development of enterprises from small to large into four stages: the individual business stage, the corporate stage, the departmentalized stage, and the group stage. Sole proprietorship stage: During this stage, a business’s annual turnover is within 50 million, and such businesses are often referred to as small or micro enterprises. During the sole proprietorship phase, businesses have limited funds and employees with relatively low qualifications. Nevertheless, many of them successfully transition to the corporate stage. This is because most sole proprietorships are family-owned enterprises, and a family-based organizational structure possesses the greatest degree of cohesion. I have had in-depth conversations with many business owners who were working on an individual basis. What’s endearing about them is that, when it comes to starting a business, money isn’t the priority; courage is. They believe that success is achieved through taking risks. They dare to think, dare to act, and are highly proactive, but when performance is poor they are most prone to doubting life and their career; they often ask themselves in which direction entrepreneurship should go I remember a statement made by the chairman of a well-known company worth around 100 billion that provides a good answer to this question: \"Only what you are capable of doing is worth doing; as for everything else, even if there are opportunities available, they have nothing to do with you.\" We often say that the market comes first, followed by the factory. Small businesses are operation-driven, while large enterprises are finance-driven ； Small businesses face operational risks, while large businesses face financial risks. For enterprises in the individual business stage, increasing output and efficiency is far more important than reducing costs. The focus on incremental efficiency improvement is to strengthen sales. Sales are weak, so the company can’t grow large ； If the product isn’t strong, the company won’t last long. In the stage of being a sole proprietorship, it is basically the owner who handles sales ； The difficulty in finding salespeople, especially good ones, is a bottleneck that businesses at the individual entrepreneur stage need to overcome. So, what qualities must good sales professionals possess? Cornell University in the United States was the first to identify six key competencies for salespeople: value alignment, desire for achievement, stress resistance, communication skills, sales knowledge, and product knowledge. Later, marketing experts identified six essential skills for top salespeople: product knowledge, knowledge of competitors, customer skills, industry expertise, sales skills, and behavioral qualities. In the corporate stage, companies can cultivate and replicate sales talent based on six key competencies, but in the individual business stage, they cannot do so; instead, they must use marketing tactics to acquire or poach sales talent with relevant skills. Sales talent – resources are king. The difference between top and bottom performers in sales lies in the level of resources they have at their disposal. Only sales professionals who are able to \"secure\" or \"find\" resources can rapidly improve a company’s sales performance at the lowest cost, thereby enabling the company to progress smoothly to a corporate stage. During the corporateization phase, a company’s annual turnover ranges from 50 million to 200 million. The focus at this stage is on overcoming the barrier of achieving an annual revenue of 100 million; many companies fail to surpass this threshold for years. We often say that human development depends on opportunities in the short term, capabilities in the medium term, and character in the long term ； The development of business relies on showing strength in the short term, on business models in the medium term, and on products in the long term. In the end, the principles of business competition boil down to a competition between character and product quality. Enterprises in the corporate stage usually already have a certain foundation in terms of financial, material, and human resources, and their development enters a rapid pace. Companies at this stage need to cultivate skilled professionals, strengthen their technological capabilities, and produce high-quality products. Small companies need process technology, while large companies need R&D technology. Enterprises in the corporate stage need to attract and develop skilled personnel in process technology, and put significant effort into this area, as only by having advanced process technology can high-quality products be produced ； Only by producing high-quality products can production costs be reduced and more customer orders obtained. Over the years, I’ve visited many private enterprises with annual revenues of 500 million, 1 billion, or even 10 billion. I’ve found that many of these large-scale private enterprises also have relatively weak process technologies. In such cases, they often have to incur substantial costs to make up for these technological shortcomings. The costs associated with this “realizing the problem only after it occurs” behavior are enormous. Process technology constitutes the technical and managerial foundation of an enterprise; it includes aspects such as process design, process documentation, process setup, process preparation, process adjustment, process control, and process optimization ； The Process Technology Department is required to produce operating specifications, inspection specifications, equipment specifications, tooling specifications, and technical process specifications. These specifications directly affect the standard labor hours for production and the standards regarding BOM material usage ； And these two aspects are the key to enterprise cost management. From product prototyping to process tuning and then to mass production, processes and design form a closed-loop feedback improvement system that ensures product quality is created at the source and developed during production processes, thereby maximizing cost reduction and efficiency gains. For many years, quite a number of business managers have held the mistaken belief that focusing on quality will affect efficiency and costs. In fact, good quality requires money, while poor quality requires even more money. Products reflect a person’s character, just as a person’s character reflects their products. Customers are dissatisfied when the product is of poor quality because the people responsible for it don’t do their job well; customers are satisfied when those people perform their tasks adequately ； Behind every worthless product is the fact that the people behind it are worthless; products have no value because of wasteful behavior on the part of those people. During the corporateization phase of a business, it is essential to cultivate skilled personnel in process technology, strengthen the technical and managerial foundations, improve various basic management metrics, and reduce all forms of process waste and quality losses. This ensures that process technology continues to provide strong support for improving product quality and production efficiency, thereby enabling the company to progress smoothly to the departmentalization stage. During the departmentalization stage, a company’s annual turnover falls between 200 million and 1 billion yuan. The focus at this stage is on breaking through the barrier of 1 billion yuan in annual revenue. Companies in this phase need to concentrate on two things: making good use of the \"3Os\" and implementing data-driven management. Many people have asked me why the corporate phase comes before the departmentalization phase. The reason is simple: as a company grows in size, the division of labor among departments requires greater precision and specialization; therefore, at this stage, the enterprise needs a more refined organizational structure. The most important aspect of organizational management is to design an effective corporate structure. The organizational structure represents the relationships between its various components, and it is through this structure that ordinary people are able to accomplish extraordinary things. American management theorist Chandler said: The organizational structure is subordinate to the strategy. In many companies, the lagging nature of their organizational structure fails to keep up with the forward-looking nature of their strategies; in other words, the structure changes more slowly than the strategies do. During the stage of corporate departmentalization, the most typical phenomenon is that as the company grows in size, its owners find it increasingly difficult to handle both operations and management tasks; since many things have to be done personally by the owners, they become very exhausted. Therefore, in terms of organizational management during the corporate departmentalization phase, it is first necessary to establish a “3O” system to ensure that responsibilities are delegated, benefits are integrated, and autonomous management is achieved. In the stage of corporate decentralization, the boss must first recruit and delegate authority to a CEO, assigning marketing responsibilities to that CEO so as to free up 50% of the boss’s time ； Then, HireSmart appoints a COO and delegates operations to them, freeing up 30% of the boss’s time ； Finally, hire and appoint a CTO, delegate the technical responsibilities to him, thereby freeing up 10% of the boss’s time ； The boss focuses his main efforts on strategic management and financial oversight. The CEO is in charge of marketing, the CTO is in charge of products, and the COO is in charge of administration. The boss delegates 90% of the tasks to these three executives, and then asks them to improve the operational systems of their respective teams as well as build up talent pipelines. The organizational structure serves business needs; when business owners can free up 90% of their time from handling day-to-day operations and focus instead on strategic management and financial oversight, it becomes natural for the company to progress to a group structure. The second thing that needs to be done well during the corporate departmentalization phase is to implement data-driven management. Many growing private enterprises in China either lack a proper data system or, even if they do have one, are unable to conduct analyses using it. We often say that junior finance staff are responsible for accounting, while senior finance staff are in charge of management. In the context of financial management at different stages of corporate decentralization, it is something that financial professionals need to think deeply about and study: how they can evolve from being mere bookkeepers to financial advisors and then to strategic partners. Business data analysis is the CEO’s responsibility, financial data analysis is the CFO’s responsibility, and operational data analysis is the COO’s responsibility. The three types of analysis differ fundamentally from one another, but they are also interconnected and build on each other. How can businesses make good use of operational and financial data, understand the essence through these data, and use that understanding to guide their business operations? ； Through standardized data management, it is possible to identify weaknesses in operations and management in order to address them, as well as to effectively avoid risks associated with these areas. Only in this way can a company truly achieve improved operational efficiency, reduced management costs, and increased value through technology. The goal of business operations is to achieve performance, and profit is often what reflects the results of those operations. In one sentence: maximizing the value of resources is the essence of management. Through standardized data analysis and feedback, forcing various departments to achieve the best operational results with the least amount of resources is the ultimate goal of corporate data management. In the corporate group stage, the annual turnover of such enterprises is usually over 2 billion. Companies at this stage already operate on a divisional basis, adopt a group management framework, and make use of equity incentives. Some of these group companies have achieved integrated automation, and they even utilize AI (Artificial Intelligence) and BI (Business Intelligence). Although some group companies have achieved remarkable results in automation, informatization, and intelligence, many of them encounter varying degrees of automation islands and informatization islands when implementing systems such as CRM, PDM, PLM, PCS, MOM, APS, and VMS, resulting in unsatisfactory levels of corporate upgrading and transformation. Over these past 10 years, what I am most proud of is having worked with over 100 companies from the Fortune 500 list, providing training or consulting services to them. By spending time with these top-tier enterprises, I have come to understand the various challenges they face in the area of intelligent manufacturing. I often tell their executives that when it comes to corporate upgrading and transformation, one should not pursue automation based on outdated production processes, nor information technology initiatives based on poor management practices, and certainly not intelligent manufacturing without a foundation in information and digital technologies. Companies that engage in personalized production should avoid large-scale, specialized automation; otherwise, the production method of multiple varieties in small batches will lead to significant waste. Many conglomerates, in an effort to appear impressive, blindly adopt various trendy management models and rush to implement various automation and information systems. As a result, the systems built at great expense fall far short of the results they were intended to achieve. When a company develops to a group stage, it must be adept at simplifying complex matters; simplicity is key, and optimization leads to dominance ； Organizations and processes must be simple enough to be decisive, otherwise internal friction within the company will be high. During the stage of corporate consolidation, three things need to be addressed properly: first, it is necessary to break down departmental barriers and achieve cross-departmental collaboration; second, there must be an upgrade of the core technologies used in research and development; third, efforts should be made to reduce costs and increase efficiency across the entire value chain. In many corporate groups, the various functional and business departments operate independently of one another, making cross-departmental communication and coordination difficult; in addition, internal power struggles are intense. For such companies, decline is an inevitable outcome. Many Chinese companies fail not due to external competition, but as a result of internal strife. Multiple sources of authority are a major pitfall in management. We need to pay special attention to the fact that when different systems within a company have departments with identical functions, this is often the root cause of management chaos. When a company develops to a group-based stage, it becomes crucial to upgrade its core R&D and design technologies. These core technologies must be developed through independent efforts based on intellectual property; in other words, they are unique technologies that give a company an advantage over its competitors over a certain period of time, and they play a key role in the development process. For a company, it’s not the more technologies it has that matters, but rather the presence of core technologies. Therefore, when a company progresses to a group-based stage, it should know how to outsource or eliminate some less important technologies in order to focus more on its technological development. Jobs is the tech innovation fanatic we all know. In 1997, he returned to Apple. Upon taking office, he promptly cut 70% of the company’s projects; subsequently, he eliminated 90% of its products that lacked distinctive features. He focused solely on the development of the iMac, iPod, iPhone, and iPad. When he invented the iPhone 4 and ushered in the era of smartphones worldwide, he had just one requirement: \"The more advanced something is, the simpler it should be; simplify the most complex and powerful functions.\" ” If the core technologies are controlled by others, everything will be restricted. If a group enterprise does not possess control over its core technologies and fails to turn its core products into brands, its long-term sustainable development is nothing but a bubble. When a company reaches the stage of becoming a group, driving cost reduction and efficiency improvement across the entire value chain – in terms of production, supply, sales, personnel, development, and finance – can help ensure more stable growth. It is necessary to continuously reduce labor costs, material costs, manufacturing expenses, administrative expenses, sales expenses, and financial costs, so that the company can maintain a competitive advantage through low costs. During the stage of corporate consolidation, it is necessary to continuously refine business theories, clarify the company’s mission and vision, and effectively motivate its top talents. Only in this way can a strategic resilience be developed to resist various external temptations, enabling the company to maintain healthy growth even in a harsh external business environment. There are no strongest companies in the world; only those that can adapt quickly to changes in the times. Some Chinese private enterprises that are content with modest success and focus only on short-term gains while ignoring long-term visions can prosper when the economic environment is favorable, but they begin to decline when the economy worsens – this is a reflection of the principle of survival of the fittest. Enterprises evolve from the individual proprietorship stage to the corporate stage, then to the departmentalized stage, and finally to the group stage; each stage bears distinct characteristics of growth, and the focus of operations and management varies at each stage ； However, the only thing that remains constant at each stage is the need to keep up with the times, follow trends, and adapt to the era ； At each stage, it is necessary to ensure that the products and services are of high quality, costs are low, efficiency is high, dissemination is fast and widespread, and the financial situation is healthy.