Looking at Huawei Innovation from Huawei’s Basic Law

Undoubtedly, reviewing the process of China’s reform and opening up that began in 1978, Huawei, a company founded in 1987, has become one of the model companies in the rise of China’s manufacturing industry, and is also a Chinese company facing China from the wave of globalization. Manufacturing representative companies that create change in China.

It is not easy to achieve such results, because Huawei is the world’s leading provider of ICT (information and communication) infrastructure and smart terminals, whether it is in the communications industry, technology development speed or global The fierce market competition is a huge challenge even for Western leading companies.

Since 1994, Ren Zhengfei proposed the goal of “three worlds in the world market and Huawei must be one”. Huawei has undergone organizational changes again and again, constantly improving its technical capabilities and management capabilities, and driving the company’s sustainable development.

Among them, the “Huawei Basic Law” formed in 1996-1998, a total of six chapters, 103 articles, 16576 words, is of great significance to Huawei’s institutional construction and enterprise innovation.

The value of system construction to enterprise innovation

Why does the system construction play an important role in promoting Huawei’s corporate innovation and rapid growth? This is largely related to the nature of innovation activities in technology-intensive industries.

In technology-intensive industries, technological innovation is an important force to help companies gain market competitive advantage. Although many companies are aware of the importance of innovation, they are prone to two problems of lack of motivation and inefficiency.

First, the effectiveness of innovation is highly dependent on the combination of technology and market power in the company’s innovation activities.

Since the establishment of various functional departments according to the specialized division of labor in the conventional sense of the enterprise often leads to the separation of the technical perspective and the market perspective, which leads to the problem that the technology is far from the market, and the technology and the market are disconnected.

In Huawei’s innovative practice, it has been paying great attention to the development of core technologies and parallel strategies that emphasize market traction, emphasizing the role of market demand for Huawei’s innovation.

In Article 26 of the Basic Law of Huawei, “the evolutionary trend of customer values ​​guides our product direction”; it is clearly stated in Article 27 that “there is no system integration without the depth of basic technology research. The high level; without the traction of the market and system integration, basic technology research will deviate from the right direction.”

Secondly, as enterprises continue to develop, they will often expand and extend their business and product lines. This puts new demands on the allocation of innovative resources, that is, how to solve the problem of competition between different businesses and departments in innovation resources. .

In particular, the Chinese market has had a large number of external market opportunities in the past 40 years. Many companies have dispersed their innovation resources to different market opportunities for the purpose of quickly capturing market opportunities. This will lead to the problem of insufficient innovation and innovation. .

To this end, the “Huawei Basic Law” clearly puts forward the principle of focusing on the allocation of innovative resources. For example, in Article 21, “Our short-term business direction focuses on the technology and quality of communication products, and the key breakthroughs are… Or the diversification of the business field is closely related to resource sharing, and no other attractive projects are allowed to avoid the dispersion of limited strength and funds.”

In addition, it is also proposed in Article 23, “We adhere to the principle of “pressure”, allocate resources beyond the strength of major competitors in key factors of success and selected strategic growth points, or do not do it. Focus on manpower, material resources and financial resources to achieve key breakthroughs. In the allocation of resources, efforts should be made to eliminate the obstacles to rational allocation and effective use of resources.”

Moreover, the effectiveness of innovation depends on the long-term investment of the company in the future and capacity building.

Since innovation activities, especially future-oriented innovation activities, have a high degree of uncertainty, and the results of innovation are easy to present in the “small and thin” characteristics of time, many companies lack strategic tolerance in innovation investment and are prone to short-sightedness.

Even within the enterprise, because internal performance appraisals tend to emphasize short-term financial indicators, each department tends to allocate resources to short-term goals in innovation activities.

Huawei has long established the strategic principle of “investing in the future, investing in innovation, and investing in capabilities”. This is also reflected in Article 26 of the “Huawei Basic Law”. “We guarantee that 10% of sales will be allocated for research and development. It is necessary and possible to increase the proportion of disbursement.”

In fact, Huawei has been insisting on investing more than 10% of its sales revenue in research and development for many years. According to the 2018 Huawei annual report, Huawei has invested more than 480 billion yuan in research and development in the past ten years. In 2018, Huawei’s R&D expenses reached 101.5 billion yuan, accounting for 14.1% of sales revenue, ranking 5th in the EU’s 2018 industrial R&D investment ranking.

It is precisely because of the unremitting efforts in innovation and capacity investment that Huawei can grow into a leader in today’s global communications market and win opportunities in the global development of 5G technology.

Support and promotion of Huawei’s innovation strategy

For the long-term development of enterprises, innovative strategies are needed to lead the continuous development of corporate innovation activities. The effective landing of innovation strategy in innovation activities depends on the important support and promotion role of institutional construction.

From the perspective of Huawei’s innovation and development practice, system construction has played a key role in strategic consistency, long-term investment in innovation capabilities, and effective capture of market opportunities.

In terms of strategic consistency, in order to carry out innovative activities efficiently and effectively transform the investment in innovation into technologies, products and services that meet the needs of customers, it is necessary to innovate between multiple functional departments and multiple business units. Collaboration and resource integration in the process.

In addition to the consistency of cross-sectoral and cross-business integration, strategic consistency is also reflected in the consistency of time, because innovation has strong path dependence and cumulative characteristics over time.

Since the “Huawei Basic Law”, Huawei has been paying great attention to forming clear and clear strategic cognition and strategic identity within the enterprise, breaking the limits of innovation resources within the “departmental wall” and “standardism” within the enterprise, and promoting innovation resources within the enterprise. Effectively deployed at strategic focus.

Institutional construction has also played an indispensable role in long-term investment in innovation capabilities. In the development of enterprises, enterprises tend to focus on resources investment in products, business and customers, but they are easy to ignore in some hidden capabilities and basic inputs.

In particular, the improvement of innovation capability is not only dependent on investing more capital and talents in R&D activities. It is also highly dependent on the establishment of efficient and innovative processes and systematic innovation systems to motivate employees. Innovative organizational culture.

Huawei has always attached great importance to the process, system and culture, and in this process institutionalized some best practices, which can transform from local practice to the institutional infrastructure of the entire enterprise, thereby supporting the continuation of corporate innovation activities. Efficient development and continuous improvement of the innovation system.

In the process, Huawei has always paid great attention to learning from excellent Western companies. For example, the introduction of IBM’s integrated product development system between 1998 and 2003 greatly improved the efficiency of the R&D system and continued to learn and improve. Formed a strong management system and self-iteration capabilities.

Due to the highly diverse nature of China’s domestic market, many companies have a lack of strategic focus and lack of strategic focus on capturing market opportunities through innovation. As a result, there seem to be many opportunities in the market, but companies seem to be grasping the market. The opportunity is not up to heart.

Due to the increasingly open nature of the Chinese market, companies in many industries need to face competition from global companies. How can Chinese companies effectively reduce the cost of manufacturing in China before establishing their core technology leadership? The combination of superiority, rapid market response and customer demand will bring unique market competitive advantages to Chinese companies.

Since the promulgation of the “Huawei Basic Law”, Huawei has always emphasized the extreme balance between price and quality in the development of the domestic market and the initial stage of entering the overseas market, that is, by accurately grasping the needs of customers. Attracting target customers with cost-effective advantages and fast-responding services.

Typically, in Article 8 of the Basic Law of Huawei, there is such a statement: “Our goal is to meet the growing needs of customers with superior products, reliable quality, superior cost-effectiveness and effective service.” ;

There is also a similar statement in Article 22: “Our business model is to seize the opportunity and obtain the leading edge of product technology and performance-price ratio by relying on high investment in research and development.”

Of course, institutional development can support corporate innovation by maintaining strategic consistency, long-term investment in innovation capabilities, and effective capture of market opportunities. From Huawei’s experience, it relies heavily on Huawei’s long-term commitment. Customer-centered, struggle-oriented cultural values.

In addition to being a technology and innovation-driven company, Huawei is also a company driven by culture and values. The customer-centered concept ensures that the company’s innovation activities can effectively combine the two forces of market and technology, avoiding the shortcomings of enterprise innovation being too far away from market demand.

Based on the struggle, we can fully mobilize and give full play to the enthusiasm of employees to participate in innovation activities, stimulate employees’ creativity in innovation activities, and form a virtuous circle between employees’ participation in innovation, enterprise’s market return, and employee participation in benefit sharing. .

From the sales revenue of 2.6 billion yuan in 1996 to the sales revenue of 721.2 billion yuan in 2018, Huawei’s rapid growth and innovation in these years have rapidly increased. Culture and values ​​play a key role as the cornerstone of its system construction.

What do you learn from the practice of Huawei system construction?

In promoting institutional innovation through institutional development, Huawei still has some practices that are worthy of learning by Chinese companies.

It is necessary to give play to the long-term promotion of institutional innovation for enterprise innovation. System construction itself needs to constantly evolve itself, keep pace with the times, and maintain dynamic adaptability to changes in enterprise development and market environment.

We can’t expect the system construction to be done once and for all. Only those enterprises that constantly criticize themselves, improve themselves, and never stop innovating can fully exert the supporting role of institutional construction for enterprise innovation.

Taking Huawei as an example, Ren Zhengfei once said such a profound saying when the “Basic Law of Huawei” was launched: “The day when the Basic Law was really born, perhaps when it completed its historical mission, because the Basic Law has been integrated into Huawei. Blood.”

In other words, the most important thing in the design and formulation of the system is how to integrate these rules and values ​​into the way employees think and internalize into the behavior habits of employees.

In the system construction, all the individuals in the entire organization need to participate together, and form an institutional system by creating consensus.

In this sense, the corporate system is not simply a product of entrepreneurs or senior managers based on organizational power generation, but results from the joint creation of members of all organizations, which is more in line with the meaning of innovation itself and the spirit of innovation. The essence.

In the process of forming the “Basic Law of Huawei”, several internal and internal drafts were made throughout Huawei. After a big discussion from the management team to the general staff, and finally forming a consensus, the evolution of the subsequent strategy, values ​​and management system was laid. The basics.

On March 20, 2018, Ren Zhengfei issued an e-mail from the President’s Office of [2018] 028, and publicly sought amendments to all Huawei personnel on the “Huawei Human Resources Management Outline 2.0 General Outline (Open Discussion Draft)”. This can also be seen as a continuation of the institutionalization of enterprises initiated by the “Basic Law of Huawei.”

In addition, when enterprises build an institutional system that promotes innovation, they also need to have a systematic view, and to break down barriers and barriers in enterprise innovation with processes and systems. That is to say, the integration of enterprise system construction and strategy, culture and values, processes, and capacity building into an organic whole, rather than thinking about building a corporate system as a fragmented part.

This kind of systematic thinking is an important reason why Huawei has always maintained innovation efficiency and effectiveness in the continuous expansion of enterprise scale, business scope expansion and global operation.