A Chinese Billionaire’s
Instruction Manual
Longfor
Properties is one of the business miracles of modern-day China. From its humble
beginnings as a Chongqing-based startup with only one project in the mid-1990s,
it took less than 15 years to metamorphose into a leading real estate developer
nationwide, garnering more than 33 billion yuan (US $5.3 billion) in annual
sales. Longfor’s blockbuster success made its co-founder, Yajun Wu, the world’s richest woman for a brief time, according to wealth
research firm Hurun. Madam Wu, a dressmaker’s daughter and former journalist
who shunned the spotlight, was
hardly your typical billionaire.
Her early Chongqing projects stood out for their
aesthetic appeal, giving over valuable acreage to green spaces at a time when
China’s developers were fixated on the functional. Longfor once sent a design
team to Europe for a month to master fine points of construction and
aesthetics, an unusual practice in a country known for kitschy copies of iconic
European architecture. Unlike its competitors, Longfor gave customers a voice
in the design of their future homes: When a focus group expressed preference
for central over wall-mounted heaters, the company changed plans for a development-in-progress,
absorbing the extra cost of 50 million yuan (US$8.05 million).
Even more remarkable than Longfor’s success,
however, was how that success was achieved: namely, by flouting the rules,
ironically with yet more rules, as we found out when researching our
forthcoming case study “Longfor: Organising for Innovation in an Emerging
Market”.
Preserving an Organisational Culture
In 2005, Longfor found itself at a crucial
juncture. Madam Wu’s ambition was to go national, but she feared that scaling
up would threaten the unique culture she’d built, while Longfor’s senior team
felt the existing talent pool lacked national ambition, systematic thinking and
initiative.
To ensure the company’s differentiated identity
could survive national expansion and an aggressive external recruiting drive,
the senior leaders resolved to formalise its culture in a pamphlet titled
“Longfor: Personnel, Organisation and Culture”, which exhaustively detailed
policies and practices that, in the Chinese context, were deeply
countercultural.
Longfor’s “Flat” Breakthrough
To maintain the flat structure, considered vital
to Longfor’s development, the pamphlet minimised the role of HQ and
decentralised decision-making to the regions. Close relationships with
customers were put front and centre. This devolved governance enabled managers
and employees to take action as soon as problems emerged.
Within empowered local branches, employees could
rise to senior positions based on successes at the local level, not on
relationships with leaders at the head office.
According to the pamphlet, “Local branches are
the main business innovation centres, while the headquarters is the management
innovation centre and the strategy centre in certain fields.”
No More “Yes Men”
The pamphlet went far beyond broad strokes and
first principles, listing “employee behaviours that Longfor advocates, and
those it opposes”. Amongst its many decrees it insisted that:
§ Among employees, there is no need to call the
boss “general manager”
§ During discussions about important business, the
one who ranks the highest should make the speech last
Prohibited practices included:
§ Full-time secretaries or assistants for leaders
§ Offices of leaders that were bigger than 20
square meters or had the best light on the floor
§ Demands that subordinates carry bags, open car
doors, offer lift service, bow and scrape, give gifts and treat for meals with
leaders
§ The arrangement of tables according to the
ranking of positions in an internal dinner
§ The advocating of an “army culture” or “family
culture” or “school culture”
The cumulative effect of all these micro-edicts
was a meticulous dismantling of the conventional Chinese workplace. At Longfor
bosses went without the unquestioned authority and perks enjoyed by many of
their peers while the advancement of junior employees was tied, not to social
capital earned within the system, but to their capabilities and, perhaps most
importantly, customer satisfaction.
Why It Worked
One Chinese habit Longfor did maintain was its
demand for long hours and serious commitment from everyone on the payroll.
Workdays often lasted 12 hours or more, with the internal IT system pushing
more than 100 “to-do” items to senior managers each day. At the same time, the
company was attentive to employees’ quality of life. Employment at Longfor, the
pamphlet stated, would be a ticket to the “modern middle class”.
Longfor’s senior leaders set the egalitarian
example, Madam Wu herself very much included. She kept such a low profile that
she was once prohibited from entering one of her own construction sites when
the security guard failed to recognise her. Most notably, it is said that
one of the reasons Madam Wu chose to resign from her position as CEO in 2011
was that she felt she was becoming too powerful. Though she stayed on as
chairperson, she wanted to ensure that hers would never be Longfor’s sole
deciding voice.
Longfor’s Challenges
Longfor’s rise had its share of trials. There
was a wave of defections among management once it became clear that Madam Wu’s
devotion to innovation and openness was more than lip service. Replacements who
came from state-owned companies had to overcome their ingrained inhibitions
against plain and outspoken speech.
Longfor staff sometimes ran into problems when
interacting with government officials, an unavoidable aspect of China’s real
estate industry. One young manager ruffled feathers by announcing “OK, let’s
begin” at a formal government banquet, where etiquette dictated that the most
senior person present be the one to call the gathering to order. “We resolve
these situations by senior leaders’ involvement and more training but we prefer
this type of naïve person than politicians at Longfor,” an executive explained.
The company’s zero-tolerance bribery policy was
a further threat to smooth relations with government officials. But its
exceptional results and eye-pleasing developments (which lifted land prices and
served as showpieces for ambitious cadres) helped ease the way, earning Longfor
an exemption from corruption, which until recently was considered a mandatory cost of doing
business in the region.
Takeaways
At first glance, Longfor’s pamphlet may seem
paradoxical, even ridiculous. Can a company really order people to start
thinking for themselves? Can an innovation culture be imposed from the top
down? Strange as it may appear to some, Longfor’s instruction manual for
innovation was instrumental in giving employees permission to think beyond
China’s prevailing hierarchical business culture. In cultures without an
education system that encourages people to think independently, a top-down
approach may be the only one with enough validity to accomplish real change.
Putting egalitarian values in writing and making sure senior leaders walk the
walk are important measures to demonstrate that your pursuit of these values is
not mere rhetoric.
Of course, Longfor is not the only successful
developer in China. It is greatly outnumbered by peers who have not made an
explicit commitment to innovation. So where is the value in bucking the tide?
We would point out that in 2012, seven years after Longfor issued its pamphlet,
China’s president Xi Jinping put in place “eight rules against extravagance”
for Party officials that are reminiscent of the constraints Longfor placed on
its managers. Like the pamphlet, Xi’s rules targeted windy rhetoric at official
meetings, welcoming parties for touring leaders, and fawning articles about
leaders’ personal lives (Longfor banned the publication of an internal
newsletter).
Obviously, Xi was not copying Longfor, but Madam Wu possibly was
able to gauge the way the wind would blow. And that is one important advantage innovative
companies have over their competitors.
Quy
Huy, INSEAD Associate
Professor of Strategy and Yidi Guo, INSEAD PhD Student in Strategy
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more at
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