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July 2011

What If a Large Telecom Operated as a Thousand Business Units?

What If a Large Telecom Operated as a Thousand Business Units?

The nation of China is a manufacturing titan, but it’s not known as an incubator of great management ideas.  For that you need to go to Harvard Business School, right?

Well, we may need to recalibrate our collective stereotypes when you hear how Zhang Ruimin, head of the $20 billion Haier Group, has reorganized his company.

Back in 1984, government officials made Zhang (a former Red Guard himself) the boss of the Haier refrigerator factory in Qingdao.  The quality of refrigerators put out by the plant was so bad at the time that Zhang had 76 of the faulty reefers publicly destroyed by sledgehammers.  Employees got the message, and today Haier is a fast growing and respected global brand.

But to get where he is today, Zhang drastically shook up the Haier organization, instituting radical management and accounting practices unheard of at a large company.  Here are some of those reforms as detailed in a recent Fortune magazine exposé:

  • Business Units — Instead of a conglomerate with a few dozen business units, he created thousands of self-managing units, each with its own P&L.
  • Organizing principle — Rather than organize by product line or geographic region, Haier’s business units are devoted to a single or group of similar retailer customers.  The units contain employees of all functions from manufacturing and design to marketing and sales.
  • Management — Members who work directly with customers make all the major decisions in the unit.  The operating and executive managers are not entrusted with authority because they are not “close enough to customers.“ In addition, if the members of a unit don’t like their manager, they can vote him out.
  • Accounting — Revenue is defined as cash received, but does not include orders booked as is customary in accounting.
  • Inventory Charges — In another change from traditional accounting, units pay a capital charge for inventory.
  • Profits — Finally, if a unit beats its profit target, the members can split what’s left over.

Pretty radical, don’t you think?  But it’s rather obvious what Zhang is up to.  He’s trying to prevent Haier from becoming the low profit, bureaucratic couch potato that’s the stamp of many other Global 500 firms.

Now wouldn’t it be interesting if one of the larger telecoms was modeled after Haier.  Talk about a Cultural Revolution!

Well, to get some perspective on that thought, I teased revenue assurance guru, Eric Priezkalns, with that idea by email.  And sure enough, Eric was intrigued enough to fire me back the analysis I’ve reproduced below.

What would be different if telcos were organized like the Haier Group:

  • Internal Fraud -- The WorldCom scandal would not have happened.  If everyone had routinely asked about the “cash in the till,“ then the frauds would have been apparent much sooner.
  • Management -- No more clever-clogs buffoons paid to improve or control things but who actually get in the way because they have no real responsibility or real hard targets.
  • Products -- A possible explosion of product lines, followed by a sharp and permanent contraction as the failures get cut forever because there’s no more opportunity to fudge about the value they create.
  • Customer Experience -- The end of seeing the customer as a “whole“ and deciding you can give them service X at a loss because you’ll make money on service Y and that service Z increases loyalty although it’s service W that you really want them to use.  Instead, you just look cold and hard at what people actually want, give them that, and charge them accordingly.
  • Regulation -- Less need for regulation except when governments want telcos to serve the public good — in which case they can spend taxpayer’s money on doing the public good instead of exercising an excruciatingly opaque interference on a less-than-efficient market.
  • Billing -- Single bill but with clearly different charges for every different service provided.
  • Accounting -- Revolutionary advance in accounting for the cost of customer service.  Of course, if the customer becomes dissatisfied, you’d have to wallop the people responsible with the real cost of their failure.
  • Network Investment -- It would hasten the splitting off the network business from everything else and certainly reverse infrastructure spending priorities.  Customer-driven businesses would only spend CAPEX on things they could convert to sales soon.
  • Shareholders -- Possible choking effect on shareholders and investment managers who still believe the share price is something to do with long-term opportunities and not this year’s dividends
  • Transformation -- It would further move the focus of the value chain from things customers don‘t have an emotional connection with (radio masts, wires in ground) to things they do (content, useful services), and hence encourage telcos to trade network capacity and share infrastructure.
  • Impact -- Fewer jobs, clearer strategies.
  • Caveat -- However, if customers are irrational, and what they really want diverges from what they think they want � then it could be a disaster.
  • This article first appeared in Billing and OSS World.

Copyright 2011 Black Swan Telecom Journal

Eric Priezkalns

Eric Priezkalns

Eric Priezkalns is one of the editors and founders of talkRA, the revenue assurance blogging site.  He is the lead author of ‘Revenue Assurance: Expert Opinions for Communications Providers’.

Eric splits his time between freelance consulting and his various passions, which include creative writing.  Eric has specialized in the field of risk and assurance for communications firms since he qualified as a chartered accountant in 1999.

During that time, he has served as Director of Risk Management at Qatar Telecom, Head of Controls for Cable & Wireless Group, Best Practice Manager for Revenue Assurance, Billing and Carrier Services for T-Mobile UK and Billing Integrity Manager for Worldcom UK.   Contact Eric via

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