Tuesday, November 14, 2017

Le Eco’s Jia Yueting Still Has a Lot to Learn

Recently, Founder of problem plagued LeEco, Jia Yueting, told Tencent’s ‘Prism’ column that, upon self-reflection, he’s realised that his biggest problem was the rashness of his approach in corporate strategy, internationalisation efforts and HR management.

But CEIBS Vice President & Dean Professor Ding Yuan thinks Jia is still missing the point.

“Jia’s self-reflection, far from correct and sincere, is no self-reflection at all. His biggest problem is not that he didn’t understand the capital market, but that he understood it only too well!” Ding Yuan explained to Tencent’s news platform ‘Front’.

“What I’m going to say about Jia is not newsworthy in the sense that it’s what I always teach in my classes at CEIBS. Now, because it’s relevant to this ‘Jia incident’ it is somehow newsworthy.”

In a November 2 exclusive interview at the R&D HQ of Faraday Future, Jia Yueting told ‘Prism’ he had had ample time to look back at his past during his four-month sojourn in the U.S. He had concluded, he said, that his rashness with strategies and his unfamiliarity with capital operations was at the root of his biggest problem.

But in Ding Yuan’s opinion, LeEco’s current plight had stemmed from Jia Yueting devoting all his energy to financing efforts while neglecting the importance of industry and manufacturing.

“For Jia Yueting an enterprise either excels or dies, he does not recognise a state in the middle of those two options. That is a dreadful way of thinking,” Ding Yuan explained. “I commend Jia for his attempt at self-reflection, but he missed something profoundly important – respect for the natural laws that govern industry and manufacturing. That is a common problem seen in many so-called innovative entrepreneurs in China.”

He added, “It takes time to build an enterprise. Jia’s ‘great leap forward’ approach will not last.” Ding Yuan stressed that transforming China into a world-class manufacturer requires a spirit of artisanship and persistence in innovation, which takes time to achieve. CEIBS is doing its part in working towards this goal, each year sending students on study tours to Europe that include visits to time-honoured enterprises such as Swiss Army Knife, whose craftsmanship and spirit of perseverance can be experienced and learned. As Ding Yuan pointed out, Jia Yueting has a dream of making cars, but he talks more about financing than technology and management. That clearly shows his disregard for the manufacturing process.

As to the issue of whether Jia Yueting is a fraud, Ding Yuan believes it depends on how one defines the word. “Jia never says he wants to ‘swindle’ company money for his personal pleasure, and the money he spent on houses, etc. is trivial compared with all the money he raised. On the other hand, he misled the entire society: he squandered social wealth for something loud and flashy, and tried to realise his personal dream by hijacking public interest. Some may see this as fraud.”

He added, “Today some entrepreneurs take this approach: when they run out of cash, they talk about profit; when they have no profit, they talk about market value; when they exhaust their market value, they talk about values and dreams.”

For many people who take part in this big gamble, they go for it even when they know it’s fraud. “Those players all know this dance will end sooner or later, but they decide to dance while it lasts. Everyone is taking the risk,” said Ding Yuan.

With such a mentality, more and more people are looking for their next prey; their sole concern is their own liquidity. Even some financial institutions are dragged into the quagmire.

Ding Yuan points to the distinction between two very different approaches to running a business. One involves capital profit-seeking through short-term operations and locked-in returns, such as global investment firm KKR, and the other requires a more complicated structure that engages in sustainable operations by respecting technology, personnel and corporate organisation. Running a company the way one raises a pig (for slaughter) and running a company the way one raises a son (with an eye on the future) embody two different kinds of logic in terms of long-term sustainable development. “Jia is currently torn between the two kinds of logic,” notes Ding Yuan.

He reminds us that even seemingly “crazy” entrepreneurs like Steve Jobs are backed by a scientific system of corporate management, in which members of the team coordinate with each other to perform their functions with a series of checks and balances.

Jia Yueting said that upon self-reflection he found his corporate strategies too erratic, his pace of internationalisation too fast, and HR management problematic. It all comes down to the issue of management, or what is taught every day in a reputable business school, says Ding Yuan. For an owner and founder of an internet company, the management is not made easier but more difficult, because a large quantity of the company’s tangible assets have been replaced by intangible assets, and the company’s core competitiveness comes from the motivation and management of its high-quality personnel.

Some people argue that the advent of innovative business models has rendered management and business schools irrelevant. “Jia’s case shows that as long as there is business, there is always the need for competent management,” Ding Yuan countered. “The development of an organisation does not depend on an idea or a whiff of entrepreneurial passion. An entrepreneur needs rational thinking and managerial methodology, the epitome of the very value of business schools.”

“Unfortunately many Chinese entrepreneurs today are eager to make themselves out to be ‘heroes’. The ‘hero’ charges forward like a general on horseback, while his infantry can’t follow, so in the end he’s alone on the battlefield. It’s not a bad thing that some of these entrepreneurs meet their downfall; the important thing for us is to study these cases and provide an explanation for the downfall, hopefully as a precaution to the society.”

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