"The Big Defeat I" (10th Anniversary Commemorative Edition) by Wu Xiaobo, published by Zhejiang People's Publishing House.
Preface for the 10th Anniversary Commemorative Edition
Preface to the Revised Edition of 2007
[Archival Record]
The President's 20 Major Mistakes / Jiang Wei (Published on July 6, 1996)
1. Romanticization in decision-making. In a company with a relatively large number of intellectuals, having some inherent romantic corporate culture is beyond reproach. However, a company is also an economic organization, existing within a cutthroat economic competitive environment. The fundamental purpose of a company is to make a profit, and every action must be calculated for specific profit margins. Over six years of operation, the president has diluted the company's profit objective, leading to overly idealistic and romanticized decisions. This has caused most senior executives of the Flying Dragon Group to exhibit serious idealism and romanticism during operations, disregarding costs and not calculating profits.
Merchants aim to make money, while philosophers, artists, and utopians cannot exist within a company.
2. Ambiguity in decision-making. "Not doing what you don't understand" is one of the principles of business, but during a certain period, the president overemphasized industrial diversification and ventured into many unfamiliar fields; simultaneously, there were areas unfamiliar to the president without personnel knowledgeable about them to implement strategies, resulting in frequent blind and ambiguous decision-making. Decisions were made based on irrational judgments like "roughly," "probably," "approximately," and "seems."
3. Impatience in decision-making. The market economy only has a beginning, no end. All merchants must participate in endless market competition with a calm mindset. In nearly six years of enterprise development, especially during critical periods of growth, the president often exhibited an impatient, fearful, and unbalanced state of mind, causing all executives to also be in a state of perpetual anxiety. Within this top-down mentality, one-sided decisions, erroneous decisions, and dangerous decisions occurred.
Tracing the root cause, if overall development was frequently considered and always prepared for, particularly anticipating upcoming situations with mature preparation, then when making decisions, one could remain calm under pressure. Preparedness brings tranquility, foresight prevents tension.
4. Lack of a long-term talent strategy. The essence of the market economy is competition for talent, a common issue. Looking back at the development of the Flying Dragon Group, apart from strictly recruiting marketing talent from society in 1992, the Flying Dragon Group never seriously designed a strategic talent structure. Random recruitment, recruitment based on personal connections, even considering family ties, marriage alliances, and other abnormal recruitment practices persisted for three years. As a company that had become one of the top few in the domestic pharmaceutical health supplement industry, it was hard for outsiders to imagine that the company lacked a complete talent structure and did not have a comprehensive system for selecting and cultivating talent. A frontline enterprise in the competitive market economy did not achieve the marketization of talent management, talent competition, and talent utilization. Low personnel quality led to the company consistently operating at a low level and low quality. The single talent quality of the enterprise resulted in weak knowledge complementarity, unable to form an organic, rapidly developing whole. The unreasonable talent structure also caused uneven development among various departments of the enterprise, leading to weak planning, strong markets, weak quality inspection, strong production, weak finance, and strong marketing—uneven or uncoordinated development situations. Frequently, due to an unreasonable talent structure, weak talent departments hindered, destroyed, or stalled the rapid development of strong talent departments, ultimately causing the entire company to develop slowly or stagnate.
Due to the lack of a long-term talent strategy, there was also no concept of talent reserve. When the enterprise ventured into new industries or entered a new stage, it suddenly realized there was no talent preparation, so during its development, it often found itself in a state of talent shortage, forcing unprepared personnel into roles and often paying a heavy tuition fee.
In summary, the error in the talent strategy was the most significant mistake affecting the group's establishment for six years.
5. Talent mechanism lacks marketization. There are two errors in the Flying Dragon Group's talent view: one is that talents rarely move, and the second is self-cultivating talent. The formation of these two talent views has its objective reasons. To maintain corporate cohesion, a stable talent environment is needed, so the turnover rate of Flying Dragon people is very low. At the same time, since Flying Dragon is a private enterprise lacking legal protection, the reliability of talent is paramount, which over time formed the convention of self-cultivating talent. However, the importance of hiring and using mature talent in key departments, critical departments, and urgently needed departments has been neglected for a long time, leading to the current problem of low personnel quality and the inability of the enterprise to operate at a high quality.
6. Single talent structure. Due to professional characteristics, starting from 1993, we blindly recruited a large number of professionals in the field of traditional Chinese medicine without designing a talent structure, and placed them in all departments and institutions of the enterprise, causing the upper and middle levels of the enterprise to have a single knowledge structure and an unreasonable talent structure, severely hindering the development of a large enterprise.
7. Marketing center once fell into chaos. This incident reflects a widespread phenomenon in the Flying Dragon Group: weak commanders and strong subordinates. Weak commanders can't manage strong subordinates, who in turn won't accept management from weak commanders, effectively leading to unmanageable situations, regional warlordism, and ruling their own territories. Branch companies were actually in a state of independent marketing, unable to conduct unified large-scale marketing management. The fundamental problem lies in the unresolved internal competitive mechanism where strong subordinates fail to become strong commanders, and weak commanders hold onto their positions unwillingly, creating the "iron chair" syndrome typically associated with state-owned enterprises but spreading within the private enterprise Flying Dragon Group.
8. Lack of foresight in enterprise development. During the course of business operations, we committed the error of not having a long-term development plan and failing to timely improve the enterprise's operational framework.
It is dangerous for an enterprise to lack a development plan. As the enterprise continues to grow, it should regularly refine the organic management operational framework of its leadership to ensure the enterprise remains an organically functioning entity, a problem that remains unsolved to this day.
9. Insufficient enterprise innovation. Innovation is the foundation of enterprise development; a company that has developed for five years without innovation will inevitably decline, and a product sold for three years without innovation will inevitably die. This is an inexorable law. However, over the past six years, the president has overly emphasized the past glories of the enterprise, failing to seriously consider innovation, leading to uninspired enterprise management and market expansion. In the future, innovation will be achieved through the replacement of new forces.
10. Lack of continuity in enterprise philosophy. Flipping through the documents of the Flying Dragon Group over the past three years, the most prominent feature is that the president talks a lot, but does not provide guidance on how to implement specifics. Only theory exists without concrete implementation methods, causing confusion in understanding theory and absence of specific methods, resulting in wasted opportunities for new concepts, which lack continuity. The president himself has not found a coherent concept, leading to a prolonged absence of a continuous business philosophy within the enterprise.
11. Unrealistic and incomplete management regulations. Over six years of development, the Flying Dragon Group has established countless rules and disciplines, and the regulations have become fairly comprehensive. However, most of these rules lack detailed and stringent specifics and have not been assigned to specific responsible persons, leading to difficulty in following the rules. Correcting this error must start now, with each department at headquarters and each company in the market refining existing laws and adding two aspects: the detailed implementation of regulations and the details of implementation checks.
12. Slow response to national economic policies. Before 1993, due to the use of ordinary invoices and legal restrictions, the enterprise implemented factory price sales to stimulate the enthusiasm of intermediate wholesalers. After the introduction of the new tax system in 1993, the country implemented value-added tax offset invoices, enabling the enterprise to sell at a higher price. At this point, instead of decisively implementing a price increase to increase direct supply to retailers, the president barely adapted to the tax reform. Implementing a price increase would allow the enterprise to gain a 16% pure profit without increasing the retail price of products, significantly boosting market operating funds. For instance, a price increase in 1993 would have yielded 20 million yuan in additional funds, and in 1994, 30 million yuan. On this issue, the president was limited by conservative thinking, resulting in major arrears in payments from intermediaries, weak retail channels, and severe capital shortages in 1995, almost leading to elimination from the market.
13. Neglecting modern management. In 1993, a department of the state twice visited to promote modern automated management procedures; in 1994, another department came to promote modern office management procedures, both of which were rejected by the president. Meanwhile, Sanyou Company completed modern management at this time, benefiting greatly from it during the contraction of the health supplement market, avoiding the chaotic financial situation experienced by the Flying Dragon Group. This lesson teaches us that enterprises must continuously adopt modern technological means to comprehensively manage themselves. Scientific management should not only be built on scientific thinking but also on scientific methods, with technology as the foundation.
14. Imbalanced interest mechanisms. Due to the president being influenced by the "communal dining" ideology for a long time, excessively emphasizing the "joint creation of development" of the Flying Dragon Group, the egalitarian distribution system was not broken for a long time. In fact, corporate executives have been using gray or black income to compensate for insufficient personal income. As a result, the business philosophy built over six years by the enterprise was completely destroyed. Everything that inspired people was shattered by rumors of gray income.
In 1996, Flying Dragon began breaking away from equal benefits but neglected educating employees on proper monetary values, causing some staff to swing from one extreme to another, producing a terrifying phenomenon of everything for money. Originally, Flying Dragon Group was a company formed by young people with aspirations. In the first five years, the group operated under a lower distribution system, relying on corporate beliefs to successfully complete initial development. In the development of a new era, it should be clear that we need money, but we need our careers more.
15. Scattering funds indiscriminately. The Flying Dragon Group has been in a state of dispersed fund usage for a long time, unable to concentrate funds in a planned and scaled manner. Dispersed fund usage has caused serious waste and led to severe capital shortages. Managing and safeguarding funds is a crucial principle for enterprise development.
16. Uniform market expansion model. After the successful entry of Yan Sheng Hu Bao Liquid into the market, its model was used by the president as a universal standard model, erroneously promoting later-developed new products nationwide using the same model. Different products, different performances, and different consumer groups require distinct promotional tactics, which was a significant error. On this issue, the president made a grave empiricist error, overly trusting personal wisdom and failing to collaborate promptly with major advertising agencies across the country to leverage collective intelligence. Consequently, all new product launches lacked innovative planning and methods.
17. Unrealistically set market share. In nearly six years of decision-making, excessive emphasis on market share and sales volume led to a serious situation of increased accounts receivable, goods confusion, and devaluation. Especially when handling the contradiction between capital shortages and total circulation of goods, the devastating impact of total circulation of goods on the market was underestimated, leading to a vicious cycle of increased accounts receivable and poor cash flow.
Therefore, it is essential to stabilize the supply-demand relationship for a long time, reducing production and sales scale if necessary, to enhance the intrinsic quality of enterprise operations.
18. Lack of a comprehensive market promotion rhythm. Any product has different cycles in the market, and the eternal vitality of products in the market lies in overall advertising planning. Without comprehensive advertising planning, it is equivalent to declaring the death of the product at that moment.
19. Ineffective carpet-bombing advertisements. The retail terminal is the basic point of market attack. Due to the rapid development of the group, the president has neglected focusing on retailers, hospitals, and pharmacies over the past three years, excessively emphasizing the role of three-dimensional advertising attacks nationwide and in big cities. Due to this long-standing error, a large amount of ineffective advertising has occurred, with unclear advertising effects and lost advertising funds, leading to a sharp increase in advertising payables and a disproportionate input-output ratio.
20. Idealization of international trade. We are unfamiliar with the laws of international trade, and exporting domestic successful experiences to the international market is a serious empiricist error; overestimating the sales volume and price of the international market and underestimating the resistance to entering the international market.
Summary:
The fundamental success of a market economy lies in correct decision-making and the implementation of correct decisions. How to implement correct decisions? Enterprises need innovation in a new stage of development, and both ways of thinking and working methods must constantly innovate.
We must establish the notion that past mistakes of the Flying Dragon Group are precious wealth for the enterprise and valuable assets for future development. Mistakes made by major enterprises in society are also worthy lessons for us. The information center and intelligence center should regularly collect mistakes from the enterprise itself and others. A trend should be fostered throughout the group: courage to admit mistakes, courage to analyze mistakes, any behavior of resolving or concealing mistakes is foolish and leads to enterprise failure.
When we set a goal and fail to achieve it, we should recognize it as a mistake and avoid repeating it. People absolutely cannot find excuses in already failed matters by searching for a few small successes and minor highlights to explain our failures and seek psychological self-balancing.
Finally, I conclude my examination with a quote from Mao Zedong: Errors and setbacks have taught us, making us somewhat wiser, allowing us to do better.
[Various Opinions]
Doubts about "Holding High the Banner of National Industry"
First comes a pain
This strongly resembles the "flood opportunity theory" popular in society for a period before, where attention to and celebration of opportunities overshadowed reflection on the pain and disasters brought by floods.
We cannot repeat similar mistakes. It must be acknowledged that Changhong's tipping of the first domino in China's color TV industry's fifth round of price wars, after stockpiling CRTs and engaging in a "resource war" recently, was an inevitable consequence, to some extent transferring its own unsustainable funding and inventory problems to the entire industry. Therefore, while discussing the opportunities brought by this price reduction, we must first realize the exorbitant tuition fees the Chinese color TV industry will have to pay. It is worth noting that in 1998, the price war in the color TV industry caused a loss of 5.4 billion yuan in industry profits.
This Price Cut Is Not That Price Cut
Look at the competition methods of domestic enterprises. Currently, price remains the most important, or even the only, treasure for enterprises competing for market share. In the past few years, the primary goal of pursuing economies of scale for Changhong or almost all domestic enterprises was to achieve price advantages, while the research and development advantages that economies of scale should exhibit were ignored by domestic enterprises.
Under such circumstances, how could enterprises possibly have sufficient funds for sustained R&D? This explains why, after more than ten years of development in the color TV industry, Chinese color TV enterprises still remain at the level of assembling components, without mastering any of the key technologies required for upgrading color TVs. Moreover, when one enterprise makes changes to its products, other enterprises can quickly launch similar products. Domestic enterprises take too much from others, and after absorbing, digesting, transforming, and innovating, they contribute very little, directly leading to the weak advantage of scale enterprises.
Look at foreign color TVs: ultra-flat, flat-screen, high-definition... one new product after another is continuously launched, while Chinese enterprises can only follow closely. When will domestic enterprises develop products that foreign enterprises chase relentlessly? That will be the hope for Chinese enterprises.
Media Being "Marketized"
Other industries also have price cuts, such as feed, building materials, textiles, etc., none of which attract as much attention as the color TV industry, seemingly involving national destiny with every move. In reality, the brand of the enterprise rises in news hype, representing a low-cost expansion of intangible assets. I always feel that price cuts are the business of the enterprise itself, like drinking water, knowing its warmth or coolness personally. The current state of the media is somewhat akin to "the emperor not being anxious while the eunuchs are."
(Excerpt from "China Business Times", April 28, 1999)
Nan De: A Chinese Version of Don Quixote
What political role should entrepreneurs play in a transitional society?
Where is the political voice of entrepreneurs in a transitional society?
What kind of political distance should entrepreneurs maintain?
What kind of politically aware entrepreneurs does China need?
Mou Zhongqi did not give the right answers, but he raised the questions...
On May 30, 2000, a piece of news from Wuhan, Hubei Province, occupied the prominent pages of all major domestic media: Mou Zhongqi was sentenced to life imprisonment today.
The news reported that Mou Zhongqi, 59 years old, had created "myths" in the Chinese business community such as "canned goods for Soviet planes" and "launch