Chapter 30 Learn from IBM

At the beginning of 2007, Ren Zhengfei said in an internal meeting: "We did get a lot of big orders overseas, but I don't know whether these orders are profitable." Just like in 2000, Huawei, which once again fell into the "ceiling" phenomenon, became a teacher of IBM for the second time.This time, what the "coyote" Huawei has to learn is to "calculate its own account". How to effectively carry out financial management and reduce costs?This can be said to be the second time that Huawei has encountered a bottleneck in its 20-year history.This is almost exactly the same as the problem encountered by IBM in 1993: the high operating income cannot be converted into a corresponding net profit.

When Gerstner became the chairman of IBM in 1993, he immediately launched a number of internal reforms including integrated financial management. Three years later, IBM re-emerged. It was also at this time that Ren Zhengfei came to IBM for the first time to visit and study . In 2007, Ren Zhengfei realized that Huawei's "coyote-style" charge was about to go to the extreme, and it was becoming more and more difficult to seize market share by relying solely on "human sea tactics". Expansion in mature overseas markets such as Europe and the United States must rely on more meticulous management. Among them, financial cost control is the most important.

In early 2007, Ren Zhengfei personally wrote a letter to IBM CEO Palmisano, hoping to follow IBM's financial management model for transformation.What Huawei needs is not general financial consultants. IBM's own financial personnel must personally participate in it.The reason why IBM was identified was because IBM helped Huawei implement integrated product development and other projects in the early stage, which brought Huawei a "reborn change." In July 2007, IBM invited nearly 10 financial personnel from Huawei to visit the US headquarters for a period of three days to learn about its financial system.Soon, Huawei officially launched the IFS project.At the same time, IBM officially upgraded Huawei to a business unit customer—among its dozens of business unit customers around the world, Huawei is the only Chinese company.For such business unit customers, IBM will not only form a global team composed of backbones, but also provide a full range of customized services.The team reports directly to the US headquarters in terms of organizational structure.

Few people know how much Huawei has invested in this, but IBM is willing to upgrade Huawei to a customer of the business department, which shows the importance of this transformation.It can be inferred from this that the expenditure on this project must be of sufficient magnitude.And, this is also evidenced by the level of IBM people involved in the finance transformation—mostly at the CFO level in each region. John Boulder is one of them. He is now the main person in charge of Huawei's IFS project. The sole purpose of him and his team entering Huawei is to improve the capabilities of Huawei's financial team.

According to Huawei's 2008 annual report: During the global financial crisis, the profitability of almost all enterprises declined, and Huawei's annual contract sales revenue reached US$23.3 billion. Profit of $1.15 billion.The operating profit margin increased from 10% in 2007 to 13% in 2008, and the sales revenue growth was 3.4 percentage points higher than the cost growth, and the expense ratio dropped from 28.47% in 2007 to 26.7%. At the same time, the IFS project started in 2007 has achieved initial results. Huawei applied international financial management standards and strictly controlled financial risks, making its sales revenue grow faster than trade accounts receivable growth, ensuring a good repayment situation.Huawei's 2008 annual report shows that the growth rate of Huawei's trade accounts receivable is 35.7%, which is 7 percentage points lower than the growth rate of sales revenue of 42.7%; the ratio of trade accounts receivable to total assets decreased by 5.6% year-on-year. percent.As of the end of December 2008, Huawei's cash flow had reached US$3.08 billion.

As finance is gradually integrated into the entire business process, Huawei's management model, "ordering" model, and personnel training have all begun to follow the new process.Now, the entire Huawei company is emphasizing effective growth and improving per capita benefits. "Profit" and "cash flow" have become equally important assessment indicators as "income".Huawei encourages employees to rush forward, but does not encourage them to occupy the market regardless of cost. Instead, it emphasizes profitability and reflects this in the assessment indicators.For example, Huawei implements strict assessments of top leaders at all levels, starting from effective growth, profits, cash flow, and improving per capita benefits: those who fail to improve per capita benefits above the average line must be held accountable.After Huawei's financial transformation, the financial department has participated in the entire business process system, making it easier to assess these financial indicators.

Under the protection of the new financial management process system, Huawei made major adjustments to its organizational structure in 2008.The previous organizational structure is somewhat similar to IBM's integrated sales model across various business departments, which is a highly centralized organizational structure.It emphasizes resource sharing—one account manager represents all products facing one customer, and its advantage is that it has a unified interface for customers.However, due to the large span of Huawei's products, internal communication is complicated, which brings challenges to internal collaboration and collaboration with partners.According to Huawei's front-line pre-sales service personnel, some business departments do not provide adequate support for front-line services, their responsibilities are not clear, and internal disputes often occur.

In January 2009, Ren Zhengfei delivered a speech at the Huawei Sales and Service System Awards Conference, "Let the front line directly call for artillery fire." He used the usual militarized language to clearly express the reasons for Huawei's ongoing organizational restructuring: " Our current situation is that less than one-third of the time of the combat troops in the front is spent on finding targets, finding opportunities, and converting opportunities into results, while a large amount of time is spent frequently communicating with the rear platforms. In terms of coordination. Moreover, the problems that should be solved in the rear have to be coordinated by the front, which drags down the combat troops..."

Huawei has adjusted the original cross-business sales model to the current structure divided by business blocks, dispersed the original unified sales department, and classified them into various business departments, forming a division of product departments, sales departments, and service departments according to business units. A business-like organizational structure in which departments are fully integrated.Ren Zhengfei was greatly inspired by the US special forces: the frontline team of the US special forces is composed of an information intelligence expert, a fire bomb expert, and a combat expert. In this way, Huawei adjusted the original model where the customer manager faced the customer alone. A three-person working group composed of account managers, solution experts, and delivery experts forms a customer-oriented "iron triangle" grassroots combat unit.In terms of project management, grass-roots combat units are authorized based on gross profit and cash flow according to the three authorization documents provided by IBM consultants, including terms, contracts, and prices, and direct command within the scope of authorization.After the adjustment, the previous single-soldier operations were transformed into small-team operations, and the decision-making process was shortened, and internal communication costs were greatly reduced.

Since its establishment, Huawei has been implementing a highly centralized management model. However, with the rapid expansion of its scale, the problems of inefficiency and bloated organization brought about by this centralized management structure have become increasingly prominent.Therefore, under the guarantee of the new financial system, Huawei is determined to realize the decentralization of some powers. "Without the support of a supporting financial management system, Huawei would not dare to delegate power easily." A financial consultant from Huawei said. Ren Zhengfei is very clear that although Huawei's sales revenue growth rate in recent years has been greater than that of Ericsson, there has always been a large gap in profit margins and per capita efficiency.In terms of per capita efficiency, Huawei's per capita production efficiency in 2008 was US$210,000/person, lower than Ericsson's US$350,000/person.Now Huawei has become an international large enterprise with an annual revenue of 18.3 billion US dollars, 75% of which comes from overseas markets. Enterprises on par.