Tao Te Ching and Wuwei Management

Chapter 35 "Crossovers are not acceptable": Do companies need to grow bigger first, or should they become stronger first?

The "Tao Te Ching" has more than [-] words, but it spares no effort to admonish us many times to "go for the other and take the one for the other", such as: "A man should treat his thick without accumulating his thin; deal with the truth, don't live in his glory", "No obscenity" Wherever one dwells, one never tires of one's birth", "one who does not lose one's place for a long time" and so on.An important part of management is decision-making, and the core of decision-making is trade-offs.To choose means to give up, and to give up also means to choose.Laozi's dialectical philosophy will enlighten us on how to balance interests.

Bigger can be stronger, this is a false proposition.

If the enterprise does not stand, the crossover will not work. —— "Tao Te Ching" Chapter 24
If you stand on tiptoe and want to stand tall, you will not be able to stand; if you take big strides and want to go fast, you will not be able to travel far.Lao Tzu tells us that we must have long-term patience in doing things, and impatience is not acceptable.

Do you want to be big first, or do you want to be strong first?This has always been a very confusing issue for Chinese companies strategically.Not long ago, the U.S. "Fortune" magazine released the latest list of the world's top 500 companies. Although it is named "strong", it is actually measured by "big" scale, which once again aroused the general attention of the Chinese business community. "Crossover is not acceptable" is directly reflected in "small is good" in enterprise management.The complex of becoming bigger and stronger has caused many companies to go astray, and countless tragedies have been performed from this.Today, large companies have many disadvantages.The larger the enterprise, the more layers of management and the more complex the organizational structure. This kind of large enterprise has already had many gaps and contradictions with the market situation.

Today, with the improvement of people's living standards, the color of most commodity price competition is gradually weakening.In most commodity markets, the trend of personalization of consumer goods requires commodity producers to call for "multiple varieties and small batches".This requires enterprises to have great flexibility in commodity production, so as to adapt to the requirements of commodity individuation.However, due to its huge scale, it is difficult for a large enterprise to adapt to the requirements of this kind of product personalization, and it is even more difficult to have such flexibility.In contrast, small businesses have an advantage in this regard.

Just like this, Western business circles issued the voice of "small is good" as early as the early 80s.So how to make big companies "small"?This is to carry out system reform in large enterprises, introduce the mechanism of small enterprises into large enterprises, divide many small departments in large enterprises, and make them relatively independent and operate independently, and then become "small enterprises" in large enterprises , use the vitality of small businesses to rejuvenate the youth of large companies, and then have the "goodness" of small businesses.

In the early 20s, Johnson and his sons in the United States really achieved "smallness" and thus gained "goodness".Johnson & Sons, worth $80 billion, divides the large company into 50 separate divisions.The average size of each department is about 150 million US dollars. These departments are called "companies" and are headed by a "chairman".Each of the divided small "companies" has various major functions and powers including product development, finance and personnel rights. These small "companies" are further formed into 3000 groups, each group includes about 8 "companies".Although these small "companies" are not really independent enough to own their own stock, they have the main power of general business management.Therefore, the "board of directors" of each "company" is very active in work, with high work efficiency and work enthusiasm, and has enhanced their courage and courage to take responsibility and boldly innovate.In addition, this division also greatly reduces the specific operation and management business of the head office, and thus makes the organization streamlined, the number of personnel reduced, the bureaucratic habit reduced, and the market adaptability greatly improved. "Small is better" has breathed new life into Johnson & Sons.

Being bigger and stronger has always been the highest ideal pursued by Chinese entrepreneurs, but it is disappointing that we rarely see companies that can become stronger through being bigger.Most of the big failures staged by Chinese companies are due to entrepreneurs' enthusiasm and blind expansion.It is true that expansion is a normal desire of a normal enterprise, but blind expansion before laying a solid foundation is a risky move.The sudden downfall of Shi Yuzhu, China's biggest loser, was based on this reason.

Shi Yuzhu, President of Giant Group, once created the myth of "a millionaire in one year, a multi-millionaire in two years, and a billionaire in three years". At that time, he was even called China's Bill Gates. In 1991, Giant Company was established, launched M6402, and realized a profit of 3500 million yuan. In 1992, Shi Yuzhu led more than 100 employees and settled in Zhuhai.At that time, the giant was already a very large enterprise, with annual sales of hundreds of millions.Such software companies are rare in the country, so the Zhuhai government attaches great importance to Giant and has given a lot of care: high-tech enterprises are exempted from tax, and they make exceptions for approval to go abroad...Giant has developed rapidly and its assets have grown rapidly. Closer to 2-3 million.With money in his hands and a lot of energy, Shi Yuzhu was dissatisfied with only being a giant Hanka, so he started to make a giant computer.Although Giant Computer makes money, its management is not good, and its bad debts are 2000 million.Before the giant computer was solid, Shi Yuzhu took a fancy to financial software and hotel management system.Shi Yuzhu went to the United States to investigate and asked investment banks which industries will develop the fastest in the future?Investment banks say IT and bioengineering.Shi Yuzhu immediately launched a bioengineering project after returning to China.Other industries involved include clothing and cosmetics.Tanzi spread to six or seven business departments at once.

In 1993, Shi Yuzhu became the second batch of intellectuals in Zhuhai who received heavy awards and caused a sensation throughout the country.Because the brain drain was so severe at that time, in order to set up a model of "Chinese college students' local entrepreneurship", the government successively granted more than 4 square meters of land to the giant. It is hoped that Shi Yuzhu will win glory for Zhuhai and build the Giant Building as the tallest building in China.At that time, there was already a real estate boom across the country. As long as it was a house, it could be sold, even "off-plan buildings".So Shi Yuzhu himself began to feel a little flustered. The Giant Building jumped from the originally scheduled 38th floor to the 72nd floor. The required funds were 12 billion, and the cash that Shi Yuzhu could free up was only 1 million.Surprisingly, facing such a huge funding gap, the Giant Building has never applied for a penny of bank loans since it broke ground in 1994 and was shelved in 1996.Shi Yuzhu placed his bet on the sale of uncompleted properties. In 1993, villas in the West District of Zhuhai sold more than one billion “uncompleted properties” in Hong Kong.But when Shi Yuzhu sold off-plan flats in 1994, China’s macro-control had already begun, and the restrictions on the sale of “off-plan flats” became more and more strict. No matter how many tricks Shi Yuzhu tried to promote, he only sold more than 1 million “off-plan flats”.

In 1996, the Giant Building ran out of funds, and Shi Yuzhu was forced to transfer all the funds for health care products to the Giant Building. The health care product business quickly turned from prosperity to decline due to excessive "blood pumping" of funds and poor management, and the Giant Group was in danger. At the beginning of 1997, the Giant Building was not completed on schedule, and domestic buyers of uncompleted properties came to ask for refunds every day.The media "carpet" reported the giant's financial crisis.After learning that the giant's cash flow was cut off, "the giant's more than [-] million receivables could not be collected, and all of them rotted outside." Soon, the giant building, which was only built to the third floor on the ground, stopped construction.The giant group exists in name only.

The giant's downfall is an eternal pain in Shi Yuzhu's heart, and it is also a lesson for many entrepreneurs.Shi Yuzhu later summed up his lessons and said: "Impatient, overjoyed, and ambitious, these words were not too much for me at that time. At that time, the giant's corporate culture was wrong, and I always raised slogans. I want to be the first in China. One big one. It was originally used to motivate employees, but later I deceived myself. Now I don’t dare to set this kind of goal anymore. What I have to do is to make every small place the best. Now I face The biggest challenge for me is to resist the temptation to enter other industries. When I can’t restrain myself, I will write an investment report and wait for my team to kill me.” Enterprise development cannot be aggressive, “Bigger can be stronger” thinking is outdated.

As Lang Xianping said, when an enterprise tries to become stronger by becoming bigger, its fate is the beginning of failure—there are almost no enterprises that become stronger by becoming bigger.If an enterprise wants to develop, it should first become stronger and then bigger.I personally agree with Lenovo founder Liu Chuanzhi's point of view, "If you can't see how to go along a road, you have to take a few steps first, and then run down."China's future entrepreneurs should be entrepreneurs who know how to control costs and operate step by step.

(End of this chapter)