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Are Purpose-Driven Leaders The Engine Of China's New Innovation?

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By Bill Fischer & Tomas Casas

Thirty-five years of Reform, and no Apple to show for it! No Steve Jobs as well, for that matter. No wonder that skepticism over the ability of China’s industrial enterprises to make the transition from cost-led competitive strategies to more innovative approaches is so widespread. While China’s macro-economic trajectory has been unprecedented, the track-record of its innovation and global-branding has long been underwhelming. Accordingly, the need for increased innovativeness is a popular slogan on everyone in China’s lips, yet there has been considerable hesitancy regarding what it takes, and when and how to make the move. Yet, despite this confusion, there are increasing signs that real innovation is slowly but surely being embraced as a source of competitive advantage across a wide spectrum of the Chinese economy.

There has never been any doubt as to the innovative power of individual Chinese minds, but what has long been in question has been the effects of organizing those minds into a collective, and why that has inevitably appeared to diminish innovative performance. Not surprisingly, therefore, it appears as if the solution to this contradiction is coming from individuals, not organizations, with the emergence of a set of individuals -- business founders, in fact -- who are well-enough connected to the founding purpose of their businesses to recognize the need for innovation, and who are also powerful enough in their role as founder to be able to drive these innovative instincts forward.

Recognition of the impact of China’s founder-leaders on innovation is the observation of Bruce MacGregor, Managing Partner of the global design firm IDEO, for Asia, and his colleague Charles Hayes, IDEO’s Managing Director for China. In a recent conversation we had with these two innovation veterans, MacGregor acknowledged that it is challenging for any business to change its culture and ways of working, particularly to become “more innovative”, no matter where in the world we are speaking about. However, the rise of a Chinese middle class and a growing focus on serving Chinese consumers is driving many Chinese organizations to try to make just such a change, difficult as it may be.

All sorts of Chinese organizations are rising to the innovation occasion. Some of these were originally OEM’s [original equipment manufacturer, i.e., a supplier of non-branded components or assemblies], such as appliance-maker Midea, who were initially focused on cost-efficient high-volume production and who are now shifting their efforts to become domestic or global brand-holders by adding design and marketing capabilities to their core skills. This requires an almost complete overhaul of an already existing, successful corporate culture, and would be formidable for any organization to achieve, Chinese or not. Others, however, are newer-generation organizations such as Alibaba and Xiaomi, who are able to avoid such difficult cultural transitions from OEMs to being customer-oriented by virtue of being businesses built from start with an uncompromising focus on business results and customer innovation from their very beginning.

Successful innovations have come from pursuing a sense of purpose.

MacGregor observes that in both instances, the presence of  “leaders pursuing a sense of purpose” has been essential for the successful transition to innovation as a core differentiator. Such leaders have typically been driven by a sense of purpose “to serve their customers better,” and innovation itself is not the primary goal, but merely the next step in the continuing journey to make a difference in the customers’ lives. According to Charles Hayes: “It’s more about value-creation than about innovation as an activity” that is making an innovation difference in China.  “I am tremendously inspired by one of our clients, Shinho, which is motivated not just by commercial objectives, but by using their business to improve peoples’ lives. We [also] see evidence of this sense of purpose extended into how the company regards its employees with the same respect as a family member; its suppliers as partners, and its products as a way of helping people live healthier lives."

 Founders traditionally bring a strong sense of purpose to their business.

Not surprisingly, it has typically been the founders themselves that have been the ones bringing the sense of purpose to the organization. The notion of founder-run businesses being key to innovative start-ups is certainly not novel in the West, where we have witnessed the likes of: Bill Gates, Steve Jobs, Howard Schultz and Mark Zuckerberg, for starters, and who were preceded by earlier generations of founder-innovators such as: Ray Kroc, Thomas Edison, George Eastman and Henry Ford, who were, in turn, preceded by even earlier generations of Carnegies and Astors, etc..   Today, in China, we are beginning to see a similar phenomena:  an entire generation of business founders: Haier’s Zhang Ruimin,  Alibaba’s Jack Ma, Huawei’s Ren Zhengfei, Wahaha’s Zong Qinghou and Xiaomi’s Lei Jun –   who have gone from “no business to our business,” in a single generation.

As with their Western founder counterparts, such leaders are much too close to their business for this to be merely lip-service or to simply trot-out mission statements, or exhort revenue goals, let alone being motivated by the hopes of “flipping” the business. IDEO believes that such leaders bring, instead, “an energizing, and often personal, sense of purpose to the business.” It is this sense of purpose and openness to embracing new ways of working that IDEO believes is a major accelerator in the emergence of Chinese innovation.

A founder who has been with the business from its beginnings understands what the world was like for customers before that business appeared, and can develop that well-visualized need into successive generations of business opportunities. This is exactly what Zhang Ruimin has done at Haier, even though he was not “technically the founder,” with his repeated reinventions, leading to thirty years of continuous dedication to the service of improving the customer experience [1], and it is also what has made it possible for Zong Qinghou’s Wahaha to displace Coca-Cola as China’s largest soft-drink maker. In a similar spirit, IMD’s Howard Yu has written about how Xiaomi’s founder Lei Jun has focused the entire energies of his young company on improving supplier relations so that they could gain the essential components to “wow” a new generation of Chinese mobile-phone customers[2]. All of these are illustrations of how a strong, top-down leader, with a commitment to a particular purpose, is in a unique position to drive an organization to succeed in meeting that purpose

Moving beyond the founder

What IDEO has seen is that the strong “signature” of the founder can be an inspiring means of accelerating innovation. But it also raises the important question of how to build a sense of purpose beyond the tenure of the founder.  Just as has happened in the West, a reliance upon a founding generation can distract us from what might happen when that generation prepares to leave the scene, and it raises the inevitable question of  “what happens when I’m gone? – especially, when that founder-leader believes that they are the only one who is pushing innovation now!”  In fact, while the Jack Mas and Robin Lis [Baidu] of the world are still young enough to continue to drive their companies for a while, if even indirectly, ultimately they will have to inspire a succeeding generation of leadership to continue their purposeful innovation, which might well be challenging.

Alternately, it is valuable to consider how an established organization with a professional management structure can build a sense purpose within the leadership. Hayes notes Midea as a case in point. Midea, a very successful family-owned OEM, deliberately began to transition to a professionally-managed leadership model between 2009 and 2012. The new management team focused on staying close to the consumer as a key vehicle to guide the company's transition to become a major consumer brand.

There is definitely more innovation going on in Chinese organizations today than many people are aware of. Emerging leaders with a sense of purpose and a determination to make an impact to people’s lives will be one of the key contributors to sustained innovative performance for the future. Ultimately, it takes a critical mass of such enlightened leaders to move the needle for an entire economy, and it remains to be seen how China’s educational system and businesses can continue to develop and nurture such talents, but, make no mistake, the potential for big change is certainly present and is getting stronger.

Bill Fischer is co-founder/Director of the IMD-MIT/Sloan Driving Strategic Innovation program. Tomas Casas is an Assistant Professor at the University of St. Gallen, specializing in international business, Asia and Top Teams.

1. Bill Fischer, Umberto Lago & Fang Liu, Reinventing Giants, San Francisco: Jossey-Bass, 2013.

2. Howard Yu, "How Xiaomi wooed the best suppliers," ft.com/management/case-studies