Management and Managers in an Age of Excess
On the 9th Anniversary of the Founding of ChemChina
Ren Jianxin

  

This year, the winter in Beijing happened to be unusually long, just like the protracted economic cycle of sluggishness, as if it were to provoke our thoughts so that we could get better prepared for the long-anticipated spring.

In those long cold days, I spent much time pondering over the future of our business. The sense of urgency and crisis never left me, and my mind kept telling me to make as few mistakes as possible, or not to make any mistakes at all. Every day, I would ask myself: How can we, with so limited access to resources, survive and thrive amidst the throat-cutting competitions? Indeed, it is not a new question. It has been there for years. With each passing day, with the size of our business growing, the inner voice driving me to find an answer is becoming louder and louder.

To date, both of our assets and sales have exceeded RMB 200 billion ($32.49 billion) and we have stayed on a Global Fortune 500 company. But I hardly feel the joy of success. Nor dare I slacken even a bit. Rather, every day is like a walk on the thin ice. Maybe this is just who I am: always seeking solutions and making moves to tackle the challenges one after another.

How should we respond if business climate keeps moving in a downward spiral and world economy stays stagnant? For a company, the rise and fall of the business is dictated by economic laws and cycles. Those that come out of the global downturn stronger are, after all, quite few.

Given this opportunity, I wish to revisit with you the topic of business management and discuss how to make our management and managers more effective in the age of transformation.

Our business is in the hardest time ever. For example, many of our plant managers believe that they are confronted with challenges even more grave than those during the time of 2008 world financial crisis. This is because the entire chemical industry is in a doldrums, as a consequence of the industrial cycle and China’s slowing economy, coupled with overcapacity and contracted demand, and further compounded by the rising cost and product homogeneity.

Today, with so much power unleashed through the fusion of globalization and technology innovation, in perception of our own industry, we must think outside the box and take a global vision when making judgments and predictions.

Let’s first take a look at the world picture. The globalization dividend that has benefitted us in the last decade is diminishing. Why? Because the trend is changing. With the commercialization of shale gas and other alternative energy resources, the US is gaining much momentum for the so-called re-industrialization and manufacturing renaissance. In this context and boosted by the remarkable reduction in costs of raw materials and energy, US chemical industry has sharpened its competitive edge significantly. What we had in the past as the shift of chemical manufacturing to emerging markets is now being reversed.

Statistics shows that the capacity utilization rate of the US chemical industry is now above its average level over the last decade and has been higher than global average level for three consecutive years. With the success in the extraction of shale gas, non-fossil energy has emerged in the global energy market as a new force all of a sudden, catalyzing a wave of shale gas revolution across the world’s energy sector. This new change has resulted in the expanded access to natural gas worldwide, which will produce profound impact on the global supply-demand dynamism of natural gas and the world’s energy structure, regional security and geopolitics, the future of alternative energies and the reduction of the green-house gas emission as well as the approaches to copying with climate changes. What’s worth noticing is the increasingly pronounced cost disadvantage of wind power and solar power in comparison with natural gas whose price keeps dropping. As a result, the overall competitiveness of the wind and solar energies and the new energy automotive industry in the US has weakened noticeably. With their past splendor largely lost, these industries have suffered drastic reduction in investment.

One may well imagine the seriousness of overcapacity as a result of the oncoming force of low-cost and high-tech industries from abroad and the incessant waves of capacity expansion at home. Data indicate that chemical industry has become one of the most seriously hit sectors by overcapacity, not only in commodity chemicals, but also in some specialty chemicals. By the end of 2012, China had recorded excessive capacity of urea by 18 million tons and oversupply of phosphate fertilizer by over 10 million tons. The total capacities of caustic soda and PVC in China exceeded 30 million tons and 22.36 million tons respectively whose utilization rates were as low as 70% and 60%. Overcapacity is seen even in some emerging industries. For example, the capacity utilization rate of the polysilicone sector is lower than 50% while that of the organic silicone is just 55%. Meanwhile, China still relies heavily on import for many chemical products, including not only fine chemicals and advanced materials that China is not able to produce itself due to technology bottlenecks, but also olefins, methanol, synthetic resins, etc that are more cost-effective from abroad. 

For Chinese manufacturing including chemical industry, the old practice of aggressive capacity expansion during booming time and hibernation during “winter” time is no longer viable. Gone are the days when growth is driven solely by capacity expansion and a stage of transformation has emerged where manufacturing industry will by driven by innovation.

As a business with a size of hundreds of billions RMB we cannot afford to overlook such revolutionary trend or fail to adapt ourselves promptly to new competitive landscape. To survive market competition we need to deep dive into the challenges we are confronted with, review our strategies and look squarely at our organizations and teams. We have to seek to establish our comparative advantages against the backdrop of globalization, reassert our leadership and become a bellwether in cost-effectiveness, differentiation or specialization strategies.

We are now experiencing the coldest “winter” since the founding of ChemChina, due to external and internal factors alike. Winter, however, also can be a best time for companies of greatness to grow stronger. Economy has its cyclicity. And business rises and falls, too. No business can stay on top forever. If we ever want to build a lasting business by integrating ourselves with the rest of the world, our executives at various levels should have the mentality and capabilities to cope with setbacks. Such mentality and capabilities will become our greatest treasure. While others are arguing when the winter would end, we should be reflecting deeply on our development strategies and business tactics, redefine and adjust our business structure. It can be a best opportunity for us to transform and improve the business when it is in a slump. What we are doing right now is very likely to determine our future in 3 or 5 years. So we must start off before others, reposition our business and transform ourselves through restructuring.

Given the complexity of our business and our organization, it is very difficult for us to find a universal management model to suit each and every part of our business. At the end of the day we will rely most on those entrepreneurs and executives honed and tempered in difficult circumstances. But what concerns us most is whether these entrepreneurs and executives can become true herdsmen of our changed organizations to sail through new voyages. Chinese entrepreneurs are the fastest growing group in the world. From being ignorant during the early stage of China's reform and opening-up to being helmsmen in international competition nowadays, these entrepreneurs are great sailors who have successfully ridden out heavy storms--a group of people with real entrepreneurship. Then what is real entrepreneurship? For me, entrepreneurship is the inborn gift for innovation and enterprising. The take off of Chinese economy during the last three decades has produced a generation of Chinese entrepreneurs, so does ChemChina. Our experience and development model are also similar to those of many Chinese companies. Our management experience is extracted from and refined through the process of wading across the river by feeling out for stones. And our growth has been sustained by the craze for "made-in-China" products. When all are working for a same cake, the cake will surely get big enough.

Nevertheless, as many of our executives have observed, while our business is growing bigger, our culture of enterprising we used to be proud of has been fading gradually and in its place has emerged a form of suspicion and utilitarianism. Those who once were founding members or key leaders of our business are no longer enterprising. Some of them are even opposing changes or reforms.

All those are typical symptoms observed in business development. This is because for start-up businesses that are in rapid development and expansion, the access to resources and opportunities is limited, especially in their infancy. Thus it is difficult for those businesses to make long-term planning and deployment. Rather they are prone to immediate practical opportunities, which is reflected as a form of opportunism or utilitarianism. In terms of interpersonal relationship, due to the high level of organizational uncertainties, they need to resort to many non-organizational relationships. These non-organizational relationships, close or loose, are carriers of trust and credit as well as part of the most valued resources for start-up businesses.

In a new economic era of globalization and informatization, the sizes of businesses themselves and the competitors they face are completely different from they were in the past. Businesses have to shift their focus from opportunities strategies. A business has to be the first one to sell its cake out, or to make different or unique cakes. Business innovation will no longer be based on entrepreneurs' guts or boldness, but rely more on their systemic thinking and organizational capabilities, holistic design and effective management of the mission, vision, value, strategic options, core competences and resource allocations of the business. 

Along with the changes in the basis of business development, the organization of a business will also evolve from a group state to a more organized state. Business will no longer make its decisions based on its consideration for short term or group interests, but for longer term interests and value principle of sustainability. Therefore, businesses need to establish mechanisms that can drive and incentivize the organizations effectively and sustainably, i.e. develop our enterprising culture and make it a sensible and sustainable philosophy for development, a banner for an organization and a part of the DNA of a business culture that will keep inspiring us; forge an organization structure together with enabling systems and business culture suited to the development stage we are in and rebuild our trust with a contract-type organizational relationship of "mechanism first and policy foremost"; and finally apply such an organizational relationship to developing and using professional managers. 

To achieve modern corporate management, the first thing we must do is capture the essence of the relations between organization and managers amidst various practices by the companies. With effective management institutions and operation mechanisms, companies can ensure that their decisions be carried out in a continuous and stable fashion and their development be sustainable and scientific.

I have talked on many occasions that we can no longer rely on ‘elite governance’ and we must change our way of management, because the environment is changing and our size is growing. That is why I have been emphasizing the introduction of international best practices and external advisors.

Peter F. Drucker, founder of modern management, was asked which one of his books he would recommend to the Chinese readers. He actually named two: the Practice of Management and the Effective Management.

The Practice of Management defined management principles and responsibilities and explored ways for establishment of effective management system. In fact, most of the well-known theories and practices of modern management can find their origin in this book, such as management by objectives, customer-oriented marketing, performance evaluation, career development management, decentralized management in a divisional structure, corporate culture and self-managed team.

The Effective Management elaborates on the growing and education of executives and points out that managers are the resources of most scarcity but of fastest depreciation thus shall be most frequently replenished.

It may take years and huge input to build a management team but will not be any difficult to reduce it to ruins. Whether the corporate goals can be met not only depends on the management quality the managers have, but how the managers are managed.

According to Mr. Drucker, an effective management institution shall bring down the influences of the manager’s personal traits to the minimum. In the ancient Chinese philosophy, there are similar thoughts. “Supreme management, its existence will not be felt by the managed” and “when success is made, the managed will say they have made it in a natural way”.

To practice corporate management, we must have fundamental institutions and principles, which I have gone into detail in my article A Revisit to Corporate Organization, System and Culture for the 8th anniversary. Our goal is to put in place an effective management mechanism and institution so that corporate policies will not suffer drastic changes when leaders are changed, that operation will not go through fundamental alteration to fit into the new leader’s personal style.

Yet, an institution, no matter how brilliant, will soon collapse without managers and employees of professional ethics; an efficient organization without the support by effective managers and staff will in no way sustain its efficiency. This is without any doubt. For this, we need to grow more excellent managers, because they will be the key to a sound corporate culture, because to a great extent, staff attitude and efficiency will be directly influenced by their capability, structure and efficiency. That is why I have made it so vital to introduce and grow professional managers all these years.
The purpose of organization is to bring out the best in people and tap their potential to the full, thus the ordinary can be extraordinary. To this end, we have made every effort to hold trainings of all kinds, arranging internships in the subsidiary for graduates and PhDs, in the hope that they can learn about basic operation and develop an understanding of business at these basic posts. We want them to grow into efficient managers or staff members in the future, so we are putting them in the pipeline now. And for managers in the post, they shall have clear self-positioning and perception of his or her role, particularly when we are taking structural adjustment as our top priority.

A company’s eminence lies in its capability to grasp the opportunity, but more in its purposeful selection and disciplines. Having the right person and doing the right thing is our long-standing fundamental principle.

Today, we are seeing the need to transform ChemChina into an innovation-driven company of quality and profit, and upgrade ChemChina so that we can bring the “3+1” strategy to life. If we want to make it, we must always be one step ahead of our competitors: be the first one to sell the cake out, or be the only one with a different cake.

We are quite aware that opportunities don’t grow on trees, and we have to go all out and take full advantage of them. But we are also faced with the increasingly complicated and harsh context. We would rather not make the move than trial and error, because we can’t afford it with so limited eggs and flower for the cake. So each move has to be weighed thoroughly and each decision has to be made systematically. We shall take scale benefits and synergies within ChemChina as our North Star in the course of key actions for comparative advantages.
 
Dear all, as an old Chinese saying goes, it is still half way even though one has made 90 miles out of a 100-mile journey. We still have a long way to go before we can achieve our ultimate goal and this journey starts with the very step of every one of you.

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