Faculty & Research
Faculty & Research
How agile Chinese firms are defining a new era of management
By Mark J. Greeven, Katherine Xin and George S. Yip
Management has developed significantly since its roots in the Industrial Revolution. As management scholar Rita McGrath notes, the big question for management in our own era, which has seen changing mindsets around hierarchy drive worker autonomy to the fore, is “figuring out what management looks like when work is done through networks rather than through lines of command”.
The conventional response to this, particularly among Western companies, has been to move towards increasing worker empowerment and reduced supervision. However, as a one-size-fits-all approach, this risks missing the role technology and digital platforms can play in shaping our understanding of worker autonomy.
Chinese companies are offering a more nuanced solution to the question. What our research calls “digitally enhanced directed autonomy” (DEDA) makes use of digital platforms to allow employees to organise themselves around business opportunities without direct managerial intervention, but in a way that can be carefully tracked and directed to where it’s needed.
Our research has identified three core features of this approach, which offer lessons for Western firms feeling their way through a still-developing era of management:
- Granting employees autonomy at scale
- Supporting them with digital platforms
- Setting clear, bounded business objectives
Incentivising internal entrepreneurship through autonomy
Autonomous teams are not a new concept, especially in manufacturing, but they are typically deployed as small units with fairly specialist remits. Chinese companies, such as Handu Group, are taking this in a different direction, scaling autonomy to flexible groups of anywhere from three to 24 employees.
Teams at Handu’s Hstyle brand have the freedom to design, produce and sell their own products. They start with a small core of three people, but can grow into the dozens as products become popular. While autonomy at this scale is novel in and of itself, what really sets this approach apart is how Handu uses DEDA to harness and monitor it to maximise internal entrepreneurship.
For example, rather than holding on to team members protectively, team leaders are incentivised to allow new teams to form and branch off. Each time this happens, the original team is paid by the new team in recognition of the training the departing members received. And when a staff member moves to a new team, 10 per cent of their bonus payments are automatically paid to their original team leader for a year. This prevents the stasis that comes with siloed working, and encourages teams to respond dynamically to changing consumer demands and market trends.
Handu’s system also carefully tracks its autonomous teams, giving each one annual sales, profit and inventory turnover targets. Their performance is openly ranked, driving competition between them. This encourages a proactive mindset that sees teams innovate with new lines, marketing strategies, and approaches to production to improve their relative performance.
Decentralisation without middle management
The conventional Western approach to management sees managers and corporate departments sit between the front end (e.g. customer-facing and partnership-focused teams) and the back end (e.g. long-term assets and databases). The Chinese DEDA approach uses digital platforms to provide this link instead, giving autonomous teams access to the shared services and data they need to make decentralised decisions, without the attendant bureaucracy of middle management.
Packaging and delivery firm SF Express uses this approach. Whoever is responsible for a cross-functional task, regardless of level, can use the organisation’s central digital platform to pool people to work on it. The system tracks activity and progress, and is kept fit for purpose by over 3,000 software engineers.
This may seem like a step towards organisational centralisation, but the digital nature of the approach means it does not lead to a top-down power structure. This is also partly down to the fact that Chinese management has much less of a focus on static roles than is seen in Western companies. Without the constraints of fixed responsibilities, mixed-level autonomous teams can harness the inherent agility of digital platforms to form, work and reorganise in response to business need.
The inherent agility of Chinese firms
This prioritisation of flexibility over rigid role profiles can also be seen in the Chinese approach to “single-threaded leadership”. This sees leaders given a very specific task, budget and timeline to find a solution to a problem, rather than a more general remit. Electronics firm BYD embraced this approach in 2020 to respond to China’s shortage of face masks during the COVID-19 pandemic.
Following DEDA principles, the company set up a taskforce to address the issue. The group made use of existing resources such as dust-free rooms normally used for making smartphones, and 3,000 engineers and designers, many of whom were left idle during the pandemic. Within two weeks, newly built production lines at a BYD industrial park in Shenzhen started manufacturing masks. By the end of 2020, these lines had increased the firm’s year-on-year profits by over 160 per cent, and, by the end of 2021, BYD was producing 50 million masks a day.
This approach, in combination with centralised digital resources and scaled autonomy, shows how DEDA gives Chinese firms an inherent agility many Western counterparts have devoted huge resources to achieving. Learning from it will come with challenges. For example, Western leaders might see single-threaded leadership as narrowing their career trajectories, while workers not used to “individualistic collectivism” might struggle to move from an individual to a team-based system of incentives.
But, from profits and cost savings, to the flexibility to respond to market fluctuations and external events, the benefits are clear. DEDA has already come to define a new era of management in China, and may yet answer the global question of what networked, non-hierarchical management looks like moving forward.
This article was originally published on IB Knowledge here and draws on findings from “How Chinese Companies are Reinventing Management” by Mark J. Greeven, Katherine Xin and George S. Yip, published in the March–April 2023 issue of Harvard Business Review.
Mark J. Greeven is Professor of Innovation & Strategy at IMD Business School and CEO of IMD China. His research focuses on Chinese innovation and entrepreneurship.
Katherine Xin is the Bayer Chair in Leadership at the China Europe International Business School, Shanghai. She is a leading expert on Chinese business and management and has published numerous articles and books on the subject. Learn more about her teaching and research interests here.
George S. Yip is an Emeritus Professor of Marketing & Strategy at Imperial College Business School and a Distinguished Visiting Professor at Northeastern University, Boston. His research currently focuses on innovation in China.