How Chinese Auto Companies Can Avoid Diseases of Big Business (I)

For China’s state-owned enterprises, avoiding “diseases in large companies” must be implemented in a defensive manner to allow companies to maintain their vitality and competitiveness through continuous changes.

On June 1st this year, General Motors (GM), established in 1908, formally filed for bankruptcy protection with the US Federal Bankruptcy Court. Subsequently, brands such as Hummer, Opel, Saab, Saturn and so on were resold. GM’s bankruptcy protection represents a deep-seated change in the US economy due to the financial crisis. Learning how to deal with this change is of great significance to Chinese companies.

"Big business disease" ruined General Motors

There are many reasons for the bankruptcy of General Motors. To sum up, there are three main areas.

First, strategic mistakes have made GM into a quagmire. When oil prices soar, the market prefers small-displacement energy-saving cars, GM is still committed to the development of powerful, comfortable and high-energy vehicles.

Second, high labor costs have severely weakened its competitiveness. GM currently employs 130,000 people, and its hourly wages (including benefits) range from 70 to 78 US dollars, which is nearly 30 US dollars more than the labor costs of Japanese companies such as Toyota and Honda. With more than 330,000 retired employees, plus family members, GM needs to provide medical insurance for nearly 1 million people. It owes more than 50 billion U.S. dollars in health care costs, and it will continue to increase by billions of dollars a year. This has increased the cost of GM's production of each car in the United States by more than $1,000.

The third is "big business disease" deep in the bone marrow. The so-called "big business disease" is not necessarily a common problem in large companies, and small businesses may also have it. However, large companies are often exposed to problems such as bloated bodies, slow response, bureaucracy, and decline in team awareness due to their complex hierarchies and complicated personnel. We call this “big corporate disease.” On the other hand, when General Motors has come to the present day, besides its strategic mistakes and high costs, it has demonstrated a deep-rooted “big corporate disease” that must be eradicated through thorough business restructuring and cultural remodeling.

"Large corporate illness" is more indicative of a less healthy corporate culture. Once it is infected with the disease, it is very difficult to cure it. Because once there are symptoms, "big business disease" has actually penetrated into the corporate organization, culture, leadership, execution and other aspects.

What is the root cause of the "big corporate disease" in state-owned enterprises?

It does not mean that large state-owned enterprises must have "big business disease." Many large state-owned enterprises have a strong sense of crisis awareness, competition, and change. The company is full of hard-working spirit. Such companies are mostly concentrated in the highly competitive manufacturing industry. However, the more monopolistic the industry is, the more serious the problem of “big business disease” is. In addition, some medium-sized private enterprises or small-scale state-owned enterprises also show obvious "big corporate illnesses" - with multiple levels, slow decision-making, and bureaucratism prevailing.

What is the root cause of the “big corporate disease” in China's state-owned enterprises?

- The difference in the system is the decisive factor. The total revenue of the "2009 Top 500 Chinese Enterprises" was 26 trillion yuan, an increase of 19.7 percent over the previous year, and the performance indicators such as the profit margin exceeded the top 500 US companies for the first time. Li Rongrong, director of the SASAC, poured cold water on behalf of China's top 500 companies. He said: "Objectively speaking, today's top 500 rating is actually still 500."

Among the top 500 Chinese companies, 60% are state-owned and state-controlled enterprises. The rapid development of many enterprises depends partly on industry dividends, resource dividends, and policy dividends rather than on management dividends. In the market competition of state-owned enterprises, due to institutional reasons, they are more likely to be supported by the government and policies and obtain monopoly advantages or resource advantages rather than the advantages of core competitiveness.

-- The personnel management mechanism of state-owned enterprises is prone to "big corporate disease." In recent years, state-owned enterprises have spared no effort in reforming the personnel system. However, no matter how they are reformed, no real market-oriented personnel employment system has been formed. The reason is also very simple. Good state-owned enterprises have relatively good remuneration and benefits, and it is difficult to enter without a "relationship." Since there are "relationships", no matter how they are reformed, they are "can't go in and can't go in and can't go down." As a result, institutions are becoming more and more bloated, and efficiency is getting lower and lower, and it is easy to breed "big business diseases."

Because of the "preciousness" of positions, there is a general state of mind for "stability" in state-owned enterprises. There is no demand for merit but no demand. Because of the lack of an objective and effective performance management system, employees often only lead the way. They are all focused on the leadership, what the leaders let them do, and they dare to do something. They are not leaders and they are all secondary issues. In a company that does not dare to take responsibility and dare not innovate boldly, "big business disease" will become more and more serious. After getting infected, I didn't get timely treatment. When everyone became aware of the problem, they were often "end of the tail" and became ill.

—— The leadership style of state-owned enterprises determines the cultural orientation of the company. In state-owned enterprises, leadership style is also an important factor in breeding "big business diseases." We have been in touch with a private enterprise that has been transformed from a state-owned enterprise and has more than 500 people. Its establishment time is not too long, but it has been infected with a serious "big business disease." The managers and supervisors of group companies are called "department manager" and "section manager". The reason is that subordinate companies call managers and they have to be distinguished from them. When they go to the government, they call them like them. This company, we all like to call each other "leaders," a very strong sense of hierarchy, execution is very poor. No one wants to take responsibility. Everyone watches the face of the leader. No one dares to say "no" to the boss.

The boss was very anxious, under great efforts, introduced a lot of management methods, but often can not be implemented. Even if the implementation goes on, the staff is complaining too. The boss is confused. Enterprises rely on government resources, development is very fast, but the faster the development, the more management can not keep up.

In fact, this is a typical "big business disease." Most of the company’s management comes from government departments and state-owned enterprises. Work style and ideology have been brought up, gradually forming a culture that is difficult to change. The boss's “one-size-for-all” style of work has also led to the lack of a culture that speaks out and dares to innovate. We dare not say anything at all and we do not dare to do more because we do more mistakes than we do.