The Strategy of Starting a Business
The Strategy of Starting a Business
A GENERAL WHO FEARS TO UNSHEATHE HIS SWORD IS NOT A GOOD GENERAL
GRAB THE BULL BY THE HORNS AND ENHANCE LEADERSHIP SOLIDARITY
EXPLORE INCOME SOURCES AND SAVE COSTS
BE RESOLUTE IN DECISION-MAKING
TO STAND FIRM IS BETTER THAN TO SIT TIGHT
A GENERAL WHO FEARS TO UNSHEATHE HIS SWORD IS NOT A GOOD GENERAL
A well-known statement goes that every soldier carries a general’s baton in his pack. So then, what makes a good general?
I think a general who fears to unsheathe his sword is not a good general! In fact, this rule is not only for generals, it applies to everyone!
Life is colorful because of the challenges we face. A strong person is different from an ordinary person in that the former enjoys facing challenges. To have the determination to fight a tough battle is an indispensable character of a military person. It is essentially an issue of responsibility and a sense of mission.
Hence, when the government required me to take on a new mission, when the country needed me to change from my military uniform to a business suit for a different kind of battlefield, I accepted it without any hesitation.
A poem from the Tang dynasty goes: “Horses shake their manes as they pine for the borderlands, while eagles open their eyes to theclear skies.” A thorough military man should not hesitate when given orders.
Napoleon once said, “In war there is but one favorable moment; the great art is to seize it!” In the face of a crisis, we must have the confidence to tackle the challenges with a focused mind rather than retreat like a coward. This is the most fundamental key point for success when starting a business.
Of course, bravery does not equate to recklessness. Being brave enough to face a challenge is not tantamount to taking risks blindly. The difference lies in whether we follow the rules and whether we take a scientific approach to our actions.
OPPORTUNITIES IN A CRISIS
Air China has fashioned many triumphs in the history of China’s aviation industry. But at the beginning of the Chinese reform period, it suffered a number of difficulties.
In 1987, the Chinese government decided to restructure the industry by dividing it into three parts: the management bureau, the airline companies, and the airports. Air China took over the assets detached from the former CAAC (Civil Aviation Administration of China) Beijing Bureau, and announced its official establishment in July 1988. Back then, Air China was the largest airline company in China in terms of assets and traffic volume and had long taken on the political mission of carrying important leaders. The airline acted as a flag, representing the image of China. It had established a 45-year safety record, and was one of the only three airline companies with such a good record. It had an advanced new fleet, as well as a team of high-caliber, competitive employees.
However it was also hindered by a host of problems that could easily escalate into major crises under the impact of the market economy. For example, certain people started to put their monetary interests above all else, and tried by all means possible to get an overseas office posting. Others’ self-discipline slackened, while still others turned a blind eye to the law.
Some went to extreme lengths and did shameful things, such as the pilot Yuan Bin, who hijacked a plane to Taiwan simply because he was dissatisfied with the allocation of apartments (a welfare service provided for employees by state firms at that time). When people discussed his case, someone even said, “Yuan Bin has helped us vent our anger. We now have hopes of getting an apartment!.” Previous to the hijacking, Air China had built 120 apartments, but the management delayed allocating them to employees, amid concerns that impulsive decisions might cause interpersonal conflicts.
The heavy burden on Air China was another issue. It had operated at a loss of more than RMB 600 million for three consecutive years, and the asset-liability ratio once reached more than 95 percent. Although Air China took up 21 percent of domestic air traffic, it remained far behind other Chinese airlines in business performance and development.
During the period from 1998 to 2000, several disreputable incidents occurred that involved Air China, such as the pilot who hijacked an aircraft and absconded to Taiwan, and cases of drug dealing, incurring a total cost of over RMB 40 million. One employee from the accounts department individually embezzled RMB 26 million, setting a record for individual embezzlement in China at that time. The enterprise was in a dire situation, causing worries among employees. At this critical juncture, a senior leader proposed that it was time to introduce good governance to Air China!
This state leader personally ordered the general political department of the People’s Liberation Army (PLA) to dispatch a military cadre from the air force to Air China. Consequently a transference order came to me.
SEEK THE BREAKING POINT
To start a business is like strategizing for a battle. The key point is to find the right place to break through. After achieving the breakthrough, you can gain the initiative.
Why me? In retrospect, I think it was probably because of my military identity and my 32 years of service in the air force.
The civil aviation industry was closely connected with the air force, being historically two parts of one family. On November 2, 1949, the Politburo of the Central Committee of the Communist Party of China decided to set up the China Military Commission Air Traffic Bureau, under the leadership of the general-commander of the Air Force. On August 10, 1950, the vice-chairman of the central military commission Zhou Enlai presided over a meeting and explicitly specified that the air traffic bureau should be led by the general-command office of the Air Force. Its administrative leadership belonged to the State Council, and should be known as “The Civil Aviation Administration Bureau of the Central Government.” I remember that the bureau director general was the vice general-commander of the air force.
However, the kinship between the air force and the civil aviation industry could only give me a sense of familiarity. It could not provide me with solutions to problems. In fact, it was a completely new battle for me. From personnel and environment to management and operations, I had to start from scratch. Of course, to start from scratch also has some benefits, that is, no preconceptions or additional worries.
To change the image of Air China would be a tough battle. In order to take the fortress, I would have to find a place to break through. Where could I find it? It had to be a place that was of vital importance. Once I could break through, success would be around the corner.
This required me to conduct an in-depth investigation. From November 21 to December 12, 2000, shortly after I started my new career in Air China, I organized a survey of the Crew Department, with a group of people from the publicity, organization, discipline, and personnel departments. The survey was mainly on enterprise management and control, and covered such aspects as the attitudes of management, company structure, education of employees posted abroad, and investigations into the reasons behind drug dealing and gun purchasing. Through interviews, meetings and questionnaires, we met and talked to the main leaders, the management, aircrew members, and the ground staff.
Investigation is fundamental to corporate management. Its main thrust lies in that we should not only dig deeply into issues, grasping the reality of the situation, but also think actively and critically to come up with realistic solutions. If a leader does not go to the grassroots, he will be no different from a deaf or blind man. If he does not think actively, then he will be no better than an idiot.
I conducted the investigation in a flexible and thorough way. The methods were varied. We collected a great deal of information by reading letters from the general public, answering their calls, and receiving them in person. Of the 39 letters I received shortly after the investigation got started, only three pointed the finger of blame while all the others made suggestions. This made me optimistic about Air China and increased my determination to win the battle. To get a better understanding of public opinion on Air China, I published the contact numbers of my office and my dormitory, as well as my cell phone number. Some colleagues commented that once the numbers were made public, I would not be able to get a wink of sleep at night. It was true, at the very beginning. Sometimes, people even came to see me at midnight. One night, six people came to visit me. And my telephones kept ringing. But the situation gradually got better and the number of visitors gradually reduced. To a large degree, the scenario is quite similar to what a Chinese classic describes:
When the edict was first issued, all the ministers came forward to remonstrate, the courtyard at his gate was as crowded as a marketplace; after several months, they still came from time to time; after a whole year, some of them still wanted to speak, but none of them had anything to say.1
In terms of corporate governance, the then president Wang Kaiyuan had also done a substantial amount of investigation. He had worked all along in civil aviation, and was thus more familiar with the industry. We cooperated well and agreed that we should observe the field carefully before jumping in. I was lucky to have such a good partner. Following our lead, other members of the Banzi also started to make concerted efforts, investigating and talking to employees. At the same time, we also looked into issues such as reform, safety, corporate governance, and market exploration, among others.
The investigation was carried out by different people, but Mr. Wang and I controlled the overall strategy. Moreover, we exchanged ideas frequently, so that we could solve problems in a timely manner. We thought through the process carefully, and examined situations more closely when we encountered problems. The previously blank picture gradually became clear and detailed. Shortly afterwards, the main members of the management team reached a consensus.
The investigation also helped us realize that pilots are a very unique group of people. They are straightforward, active thinkers. Sometimes they may tend to feel frustrated or become insular. Sometimes when they have a problem, they do not know how to deal with it. I remember that on the first day I joined Air China,
1Zhan Guo Ce-Qi (“Qi” in Intrigues of the Warring States).
I was told that an employee had disappeared. Later we found out that he had hidden himself away somewhere because of interpersonal conflicts. Facing such a team of mainly young people, I thought it very important to provide them with timely and necessary help and guidance.
We also detected three serious problems with Air China in operations. Firstly, a backward management and operating mechanism, an unrefined governing style, and outdated mentalities had hampered its development. Take the management of international routes for instance. Air China did not have the capability to compete for high-end customers. At the same time, its revenue from cheap seats was also dwindling—the average earnings of its international mileage dropped 22 percent from RMB 0.63 in 1996 to 0.49 in 2001. The unsound fleet composition, along with the misalignment of aircraft types for the various markets had caused those routes to run at a high cost and low revenue. In 2001, the routes to Europe, the United States, and Australia ran at a loss of RMB 1.194 billion.
The second factor was the rapid expansion of the company, which had led to a high asset-liability ratio. Air China started to expand at a fast pace in 1997. Within two years, its assets had increased by RMB 13.77 billion or 71 percent. At the same time its debts increased by 14.18 billion, a sharp rise of 92.3 percent. Its asset-liability ratio jumped from 70 percent to more than 90 percent. This created a heavy burden on Air China. Its annual financial expenses amounted to 2.6 billion. When the Asian financial crisis hit, the international market shrank quickly, adding a further blow to Air China. Later, when the international market started to bottom out in 1999, its increased market share still could not offset its spiraling costs.
Finally, the unbalanced development had undermined Air China’s competitiveness. While Air China was unable to compete internationally, its domestic network was vulnerable too. Even its share of traffic at Beijing International Airport was lower than it should be.
Other issues such as team work, corporate culture, discipline, international relations, income distribution, and cadre promotion all needed to be addressed immediately.
Notwithstanding these problems, Air China had many advantages too. For instance, it was the first Chinese civil aviation operator, and it had cultivated many talent for itself and the Chinese aviation industry as a whole. Air China had a very sound safety record and accumulated plenty of valuable experience. Air China was the only Chinese carrier that carried the national flag on its planes, giving it an enormous presence, both inside and outside China.
Air China had put in place a relatively systematic management mechanism and had a number of high-quality infrastructural facilities. Its fleet mainly consisted of Boeing aircraft. These types of aircraft promised long service and were competitive. The airline then had a complete set of regulations and work procedures. Air China had more international routes than any other Chinese airline companies and boasted extensive international flying experience. The target for the new management was then how to make the best use of these advantages.
When we start a new job, we do not understand the complete situation. Our brain is blank. When we have collected the information, we might become confused. At this moment, the only way to work it all out is to analyze and comb for clues, find out the primary conflicts, and propose solutions, so that we can find the key to solve our problems.
Following a thorough investigation and after several rounds of research, the leadership decided to focus on specific goals: to turn losses into profits, and to enhance the company’s unity. We worked on both simultaneously, with a view to laying a solid foundation for and revitalizing Air China.
Subsequent events proved our predictions to be right.
GRAB THE BULL BY THE HORNS AND ENHANCE LEADERSHIP SOLIDARITY
The key to a successful company lies in its management, and the top two bosses are the most important. In building the new management team, we kept two Chinese proverbs in mind: “If you want to produce good steel, you have to be strong yourself,” and, “If the upper beam is not straight, the one underneath will tilt.” If we want to discipline the military, we should begin with the officers. If we want to be strict with the management, we should begin with the top two executives. For an executive, discipline should not be taken lightly. He should strengthen his self-discipline and set an example for others. If it were otherwise, he would not be qualified for his job, and would let his superiors down by failing to construct a good management team.
During my first year in office, our poll indicated that the employees were satisfied with the new management. This positive feedback heightened the management’s confidence and enthusiasm. Encouraging words always cheer me up, and at the same time make me aware that I am shouldering heavy responsibilities.
Other issues, such as reshuffling and educating the management team, were all placed on the agenda of the company. To build a good management team, you must start by building solidarity and opposing liberalism and factionalism. In one of the first steps, the company published six editorials consecutively in the newspaper International Aviation (internal edition) to guide public opinion. At the same time we emphasized the importance of unity and managerial responsibility wherever we went. We encouraged leaders to use their brains, shoulders, and cooperative spirit, as well as both hands and feet, to perform their duties. To put it in other words, they were expected to think strategically, act responsibly, be generous and empathetic, take real actions, and keep themselves well grounded in reality. It is very important to stay close to the ordinary employees. After all, both profit and problems are generated by the front line and production staff.
Unity is both an old and a new issue. It is an issue that should be mentioned often. A united group of people is the foundation for all kinds of work. Unity leads to integrity, combat capability, and creativity. A harmonious working atmosphere will generate a fortune. Unity underlay Air China’s successful turnaround. At the same time, it was something that most employees had hoped for. Historical experience has proved that the more united a company, the more often its management will emphasize the point. It will be too late to talk about unity when everyone wants to leave. It will not only damage the work, but will also make it more difficult to persuade people. To judge whether a company is united or not, we should observe it holistically and dialectically. If a company is not united, it does not mean that it lacks the factors to become so. Similarly, current unity does not imply that it will last forever. Hence, we should be constantly aware of the importance of unity, reiterating it from time to time. We should take the unity of the company as every leader’s responsibility.
Whether a company is good or not depends on its management. This is also true of uniting people. A leader must first complete his tasks. Next, he needs to cultivate new leaders, and finally he needs to set a good example for others. These three principles are indispensable for achieving unity. To increase the solidarity of a company, its leaders and management should set a good example. Thus, it is important that the general manager and the party secretary work well with each other. The general manager represents the company and is the legal representative of the company. He will be responsible for business operations and is the “head” of the company, while the party secretary is the “soul”. Without a soul, the head will become muddled; and without a head, the soul can only float. It is only when the head and the soul merge into one that things can be done. People get together because of shared virtues; and people work together because of shared goals. The top two executives do not get along with each other when they forget their responsibilities. Practice has shown that authority does not come from a power struggle. It comes about naturally, within working practices. Only if we value the group’s interests above our individual gains and losses can we get recognized by the people. If we struggle for our individual face or authority, it will not only damage our authority, but also ruin the unity of the leadership.
We need to approach the issue of the division of work with delicacy. A leadership is first of all a collective before it can divide the work. Therefore, the first and second leaders must cooperate and respect each other. In cooperation, both should have initiatives, and maintain mutual respect and trust. This is not only a token of modesty, but also a must for successful cooperation. A manager should be able to take responsibility and be willing to sacrifice his personal interests. The number one should be good at using the number two person. People who are good at interpersonal skills can wear others out, while those who are bad at interpersonal relations can put others off. Normally people would rather be tired than be irritated. A vice executive should be a good helper: he should work using his initiative, but not step over the line. It is a collective, a banzi (Chinese for task team). In the past, an opera troupe was called xi banzi. If they wanted to present a good opera to the audience, they had to work harmoniously. Members of the leadership should communicate with each other, know each other, and share a similar mentality. When they work together, they shoulder the same burden, present the same performance, learn to know each other, and share the glory as well as the humiliation.
We need to get rid of issues impeding our unity. Lessons from the past have shown that we should be careful when handling personnel promotions. It is the most sensitive issue. Unfair performance reviews are another major factor. Liberalism and secret reporting about others to leaders are also enemies of company unity. These constantly affect the unity of management teams, while the key to getting rid of these tendencies lies in the self-improvement of the leaders and their strength of character. They should act in a highly disciplined manner.
While we spent lots of time stressing the importance of unity, we also emphasized legal education and enhanced the awareness of anti-corruption. We organized three training sessions for over 400 party secretaries of subordinate departments and companies. We also laid down the work guidelines for the party committees and party secretaries of each fleet, based on the idea that “we should constantly serve everyone at work, guide their mentality, resolve conflicts, and grasp the key points.” At the same time, we also compiled all the negative cases that had occurred in recent years into publicity materials on discipline and law observance. To step up our efforts to fight corruption and prevent crimes, our discipline and supervision department issued The Detailed Rules for Implementing Anti-corruption Responsibility and Punishment, The Methods for Punishing Contract Violators, and The Interim Rules on Auditing Administrative Leaders on their Economic Responsibilities. All these were completed in the first eight months after the new leadership had taken office.
“The whole fleet has 1,445 employees. Without doubt, the problems of certain individuals cannot be allowed to overshadow the work performance of all others. Our pilots have better skills and higher political awareness, which is the most treasured asset of Air China.” My words dispelled the concerns of many employees. The investigation into the fleet lasted for more than 20 days. Almost every night I had visits from employees or their relatives. We talked about work and they reported problems. Issues such as redundancy, unfair distribution of interests, and loose ideological education all surfaced. Therefore, we started to reform the institutional system, personnel, and wages, and gave priority in policy to the people working on the front line. The general response was positive.
However, this did not mean the internal management had moved to a sound and healthy development path. In Air China, some complicated interpersonal relationships, despicable conflicts of interest, and liberalism harmful to unity, were like clouds hanging over the company.
During the investigation, I found that the top leadership actually shared many similar opinions with staff at the lower levels of the company. The main obstacles often came from middle management. They refused to change or sacrifice their interests. When we proposed new work methods, someone in middle management refuted bluntly, “I don’t agree with you.” When I pointed out the existing problems, someone declared that it was all sheer nonsense. When we asked them to punish their subordinates who made mistakes, they refused and said, “I don’t understand.” Because of this, numerous top-down reform measures were either stopped halfway or did not attain the expected effects. Frankly, at that time the major conflict lay between the middle management and the workers. It was fitting for us to solve the existing problems in the internal personnel management system, reshape our team, and reform our leader-promoting system fundamentally.
This kind of problem also existed in foreign companies. In May 2001 when I met Mr. Louis V. Gerstner Jr., the former CEO of IBM, he told me that the most demanding part of company reform was to change the mindset of middle management. The reason for this was simply that changes proposed by the senior management were acclaimed by the ordinary staff, while for the people in the middle, the changes meant that they would either lose something or be forced to make some changes. Therefore, the most challenging part was to transform the attitudes of middle management. Once this was done, company reforms would proceed much more smoothly.
On September 18, 2002, I was having lunch when the office director hurried up to me. “Mr. Li, more than 100 employees from the Beijing Aeronautic Equipment Company have gathered in the dining hall. They want to see you.”
I asked my subordinates to attend to them, but this did not work. The employees insisted on seeing me.
I hurried to the dining hall. Managing an enterprise is like commanding soldiers. The last thing to do would have been to procrastinate and shilly-shally. Since employees wanted to see me and refused to go back to work, I had to solve the problem right away.
The moment I walked into the dining-hall I asked, “Who is the leader here?” No one responded. I pointed to an older employee in the front row, “I think it must be you.” He immediately denied it. I said, “I ask for the leader, and everybody else is looking at you. That means they trust you. No problem, you can represent them to express their request.” The employees raised four questions they wanted to be solved urgently. I waved my hand and said, “OK, give me two weeks. I will solve all these problems.”
All of them were surprised and silent. After a while, someone said, “Mr. Li, we are counting on your words.” I replied immediately, “Please check my work record. Ever since I came to this company, is there anything I have promised but haven’t delivered?”
To persuade people, you have to win their hearts. I continued, “Maybe even by today you will see some actions we’ll take to solve these problems.” The crowd was silent again. Then I said, “OK, since I have heard your opinions, you should now listen to mine. The channel for everyone to air their problems is open and efficient. In future, please try not to use today’s method. Please go back to work now.” The workers left.
On the way back from the dining hall, the office director briefed me on the problems raised. It turned out to be a very complicated and challenging situation. It was important to restore the normal order of work and minimize the negative influence. At this critical juncture, I needed to solve these problems straight away, so as to restore the employees’ confidence in their leadership.
At that moment, the branch company’s manager happened to be in my office, waiting to present his work report to me. The first request I got from the employees had been to replace him. Hardly had I stepped into my office when I asked him, “Are you popular among the staff?” He answered confidently, “Yes.” Then I asked, “How many people like you?” He said, “At least more than 80 percent.”
I sent people right away to organize a poll on him. It was a simple poll—was he qualified for the job or not? Soon afterwards the result was returned to me: 79.8 percent thought he was not qualified. I showed the result to him. He blushed and was at a loss for what to say.
That very afternoon, we held a short meeting of senior management and decided to reshuffle the leadership of the company and dismiss the manager. In the following eight days, all the other requests were addressed as well.
The “dining hall” incident had caused a stir within Air China. It further enhanced my conviction, which I had developed in my military life, that the key issue in a situation like this is not how difficult it is, but rather, whether you have the confidence and capability to overcome it. The Chinese word for crisis is wei ji. Wei means crisis while ji means opportunity. A leader should seize the ji (opportunity) and make it a beneficial opportunity.
In my first two years of office in Air China, I inspected the entire management of 11 branch companies and reviewed hundreds of people in middle management. We demoted 48 people and made the personnel rotation system more flexible. The restructured leadership showed improved quality, enabling progress in all aspects of work.
Once you have grasped the bull by the horns (or by the nose, as we say in China), no matter how wild it is, the bull will have to listen to your orders. To make sure that the management team works properly, you must pull them in the direction they should be heading.
EXPLORE INCOME SOURCES AND SAVE COSTS
Loss for one year worries people, loss for two years is unbearable, and loss for three years leads to bankruptcy. Loss is a big issue for enterprises. As a top executive, I cannot face investors and my superiors if we have long-term losses. The breaking point for our new leadership would naturally be when we began to turn loss into profit.
After three consecutive years of loss, fortune still did not favor us. In 2000, oil prices began to soar, from the historical low of US$10 dollars per barrel in early 1999, increasing nearly 80 percent. Oil expenditure amounted to RMB 3.334 billion in that year, a sharp rise of RMB 1.1 billion, accounting for 31 percent of total transport costs. The chance of making profits seemed pretty slim.
The rising cost of oil exposed Air China to a huge risk. As China’s biggest air traffic operator, we had not established any preventative mechanism against rising oil prices over the past 46 years. The oil price was a key factor determining our profit at that moment and in the days to come. We had to find a solution.
In 2001, following a resolute decision by the company’s management, we quickly established a risk-preventing mechanism, which achieved amazing results. On March 12, we completed the first deal, which obtained 300,000 barrels of oil at a fixed price for the season. With the continuing rise of oil prices in that season, we managed to save US$2.74 per barrel. Up to October 31, the fuel risk management group had made 60 purchases and 13 selling deals. The trade volume was 7.40 million barrels and this realized a profit of RMB 6.80 million.
A lack of funds was another factor that made us realize the importance of using modern financial methods to manage the company. In 2001, the cash flow of Air China was extremely low. After a careful analysis of the situation, we decided to raise RMB 400 million from the public, and acquired RMB 16 billion in bank credit. This improved our short-term funds availability. But it was also a gamble, and the direct consequence was that it hiked our debt ratio, increased our financial risks, and exerted further pressure on our future performance. The only logical choice was for Air China to be listed, since there were no other financial means available.
Let me first give you some background information on the Chinese aviation industry. The year 1997 was a harvest for some airline companies. Eastern Airlines was listed simultaneously on the New York Stock Exchange and the Hong Kong Stock Exchange. Shortly afterwards it was listed on the Shanghai Stock Exchange to tap the domestic capital market. In May, Southern Airlines completed its IPO. Air China had missed its golden opportunity because of our “heavy” wings.
Harsh realities gave us few choices. We had to go through every detail of production to do our best to save costs and seek more reliable income sources. A first measure was to strengthen our leadership through improved performance reviews and revenue management. Specifically, we established an office to fully analyze our revenues and costs every ten days, with a view to finding problems and solutions. The marketing department carefully calculated the cost of every route and every aircraft, understanding better the relationship between our costs and revenues. By adopting these methods, we estimated that revenue would increase by three to five percent. At the same time, we increased our fleet activity by 1,601 flights and 1,272 chartered flights, up 6.6 percent and 66.7 percent respectively. The average aircraft utilization increased by 0.598 hours.
Another income source was the management of flight supplies and the recycling of these items. This helped us increase revenue by RMB 35.49 million. The computer-aided fuel control efficiently kept down oil costs. After difficult negotiations with the vendors, we reduced the costs by more than RMB 40 million.
Air China also introduced the Internet banking system of the Industrial and Commercial Bank of China, and connected our domestic outlets with two branch companies in Tianjin Municipality and Inner Mongolia. We did this to further slash our costs whilst supervising the fund operation of each department.
Along with these measures, we began to reflect on the problems that Air China had in terms of bulk expenditure and business structure, and made corresponding adjustments. In the 1980s and 1990s, most of the commercial loans we obtained to purchase aircraft were from Japan. It happened that the Japanese yen was strong in the foreign exchange market. Ten years later, when we started to repay our loans, we realized that we had made an error of judgment by taking loans in a single currency. Due to the depreciation of the Chinese RMB against the US dollar and the Japanese yen, our loss in foreign exchange every year was worth RMB 500 million. Learning from this lesson, we borrowed 15 percent of commercial loans in Chinese RMB when we bought six aircraft in 2000. In 2001, we bought 17 aircraft all through commercial loans in RMB. We thus managed to avoid losses in foreign exchange.
At the same time, based on investigation into the domestic market, we adjusted our fleet and sold two Boeing 747-400s with a flying history of 15 years. Then we worked with Boeing to exchange our 747s for ten 737s, as these aircraft better suited our domestic flights sector. This represented a major adjustment to our fundamental business strategies. The 747 is mainly designed for long-distance, intercontinental routes. It is spacious and can accommodate 550 passengers. This capacity would not be fully used if flying domestic low-cost flights. This poorly designed fleet structure with too great a number of large aircraft was to some extent the result of Air China’s former strength as an international, long-haul airline.
Apart from saving costs, we also explored other means to gain additional revenue. Air China began to spend a great deal of effort on marketing in order to transform the previous “waiting-for-customers” style. Concerted efforts went into building outlets, direct sales, and customer visits. We also developed solid relationships with a number of important customers. During the first half of 2001, we signed sales contracts directly with 78 customers in Beijing and 232 with customers in other parts of the country, accounting for 80.6 percent of our direct-sales target. Meanwhile, we continued to tap business class and first class travelers, as well as regular individual and corporate travelers. Among these, the number of regular individual travelers reached more than 350,000. Through building the Beijing airport hub, we improved our transfer flights, connecting flights to all major cities in China. As a result, the number of transfer passengers increased from dozens a day to more than three hundred. All these measures helped boost our revenue.
After experiencing three consecutive years of loss from 1998, Air China finally started to make a profit by the end of 2001. The total air traffic was 3.458 billion ton-kilometers that year, up 5.8 percent from the year before. It transported 89.824 million people, posting a year-on-year increase of 11.5 percent. The cargo and postal traffic was 3.456 billion tons, up 6.2 percent from the year before. After a series of internal reforms, the increase in overheads was far below the input for operations. We had a loss of RMB 647 million in 2000, while in 2001 we ended with a profit of 34 million, an absolute increase of 681 million. The long-awaited profit really excited us. To mark the event, Air China issued two extra months’ salary to its employees. Hope appeared in the first year the new leadership took office. Our employees put aside their doubts and became confident in the future of the company.
Of course, for any giant enterprise such as Air China, a profit of RMB 34 million is not much at all. Someone joked, “If we deposit our RMB 2 billion-worth net assets in the bank, the interests earned will be more than the profit.” We were soberly aware of this. How could we continue to make a profit the following year and the year after that? In future, how could we fly higher?
Once in a while, I thought back to a cultivated green plot I had known when I had been stationed in the desert. I was 19 years old when I left my hometown Zaozhuang in Shandong Province to join the army. I volunteered to work at a radar station located in a desert near the Sino-Mongolian border. Few people lived there. The water was salty and had a horrible stench. Vegetables and fruit became a luxury. I refused to surrender to the harsh environment. Looking at the wild grass, I said, “Why can the land grow grass but not vegetables?” The next year we had cucumbers, melons… Other battalions began to learn from our example.
Air China is at present just like that green vegetable plot that began to bear fruit on an unfertile soil. What lay ahead for us was harder work and bumper harvests.
BE RESOLUTE IN DECISION-MAKING
In the military, people often say that work style and combat-worthiness are indispensable to each other. There are numerous historical and modern examples, which have proved that a loosely organized army would definitely be defeated. Only when every order was carefully and firmly carried out could the soldiers win the war. The style of a military team reflects the style of its commander. A Chinese proverb says, “If a soldier is useless, then he is just one useless person; but if the commander is useless, then the whole team is useless.” Why? Because a useless commander loves useless soldiers, even cultivates useless soldiers, and so in the end, there is no one left with any worth at all.
Military management requires orders to be carried out in a fast and resolute way. This is equally true of corporate governance. Now, when I look back on the past, I realize that if it had not been for our quick and resolute style, we would not have been able to solve many of the problems we faced efficiently. In other words, if we had been hesitant and irresolute, we would have missed opportunities and ended up with no achievements and possibly more problems.
Take the case of clearing investment companies for example. After the company had decided to take profit making as the breaking point, we started out by clearing our investments so as to stop the “bleeding point,” and prevent business performance from sliding ever downward.
The early 1990s was a golden period for the Chinese aviation industry. Passenger traffic increased at an annual 25 percent. However, behind this prosperous facade structural conflicts and long-standing weaknesses began to surface within Air China. Against this healthy business climate, the company overlooked its strategic development, and invested in many irrelevant sectors such as real estate, printing, and aquatic products. This caused huge economic losses and a tight budget. At the same time, under the impact of the long-term planned economic system, problems such as poor management, redundant personnel, and low efficiency increasingly began to have a detrimental effect on Air China.
Obviously, adjustments made to subsidiaries would affect the interests of all related aspects. Back then, Air China had more than 100 subsidiaries. To screen all these branches thoroughly was a great challenge. Complaints, disputes, and conflicts were heard every day.
A case in point was Shandong Yantai Dongfang Industrial Company, an aquatic project in which Air China had invested in RMB 10 million. After years of operation, it had not yielded any profit. In 1995, Air China’s legal department began an investigation, revealing that the company had an appallingly chaotic management, with practices such as having the company operated by others, making indiscriminate investments, and providing guarantees casually. A liquidation plan was proposed but never carried out, causing much trouble to Air China. Neither the investors nor the employees were happy about this. When the company was operated by a third party, 45 employees had their personal records lost, meaning that they no longer officially had any employment or income source. When the news broke that Air China had a new executive, they decided to come to Beijing to complain.
According to the related regulations on bankruptcy, Dongfang Industrial was insolvent, and the money from selling off its real estate was not sufficient to compensate the 45 employees. Thus, we decided to settle the issue immediately. No matter how much they wanted, we promised that funds would be made available so that the problems could be solved in an efficient and satisfactory way. However, one manager came to us and said, “Why don’t we keep the aquatic company? It can bring us fish!” He obviously did not realize that the money lost in the project was enough to have bought a lot more fish! He was not the only person who stuck to this ridiculous, stubborn way of thinking. We did not listen to them, of course. We resolutely got rid of the company.
A hero breaks his own wrist because of his love for others and a strong sense of mission. We love Air China and its employees. It was in the long-term interests of Air China that we had to make some tough decisions. If not, hesitation and instability would only have created more problems.
Dongfang Industrial finally went bankrupt. Air China forked out more than RMB 1 million to help the local government compensate the employees. Those who previously planned to come to Beijing with a petition changed their minds, and sent us silk banners to express their gratitude.
The effect of reforming subsidiaries was evident. By 2002, the number of subsidiaries had been reduced to 42, and subsequently to 27 in 2003. The surgery to “stop the bleeding” was successful. At the same time Air China also decided to cancel more than 300 accounts opened by these subsidiaries, to stop the loss of company assets. This approach touched the most sensitive nerves of some sectors. The first phase was very hard. But our attitude was to be unyielding and resolute. “If you refuse to hand over the accounts, we will remove you from office!.” Within a short period, all unauthorized departmental coffers were canceled, which significantly improved the company’s management.
TO STAND FIRM IS BETTER THAN TO SIT TIGHT
When I joined Air China, two things were powerful spurs to me: people’s suspicions and their constant, well-intentioned reminders. They were like whips motivating me to move forward with a focused mind.
Suspicious people were sharp. “Air China is such a gigantic enterprise. Are you able to handle it?” “Yes, you were a general, but that does not necessarily mean that you can manage an enterprise. Being able to win a battle does not mean you know how to make money.”
The well-meaning reminders were the trickiest. “Mr. Li, one outstanding feature of Air China is that people who sit tight will not be able to stand firm, while people who stand firm will not be able to sit tight. You must be careful!”
It is understandable that people had their suspicions and doubts. They were better than those who were apathetic or hostile. Only people who cared about Air China and who shared the weal and woe with Air China had such concerns. I also thought over those well-meaning reminders, and waited for an opportunity to respond.
Once at a managerial-level conference, when it came to the corporate culture of Air China, I said, “After I came, many people told me: ‘People here who sit tight will not be able to stand firm, while people who stand firm will not be able to sit tight.’ I want to tell all of you today that I would rather stand firm than sit tight. As long as I stand firm, sooner or later, I will sit tight!” My words won deafening applause.
To “sit tight” refers to keeping one’s personal position, while to “stand firm” means to uphold one’s performance and virtues. They do not stand in opposition to each other; rather they complement each other. Why do some people regard these positions as conflicting? Of course, I knew which position was more important and which mattered most. But I came to Air China with a mission rather than a desire for promotion. I did not care whether I would be able to stay at the post for long, but I did care whether I would be able to stand firm as a decisive member of the senior management, and in the image of a military person.
How would I go about standing firm? I have taken bold steps out of consideration for the public interest. Within less than one year, under the broad support from the people, Air China investigated five cases, sentenced nine people, punished 12 violators of rules and regulations, and expelled 12 from the party. These measures recovered economic losses amounting to RMB 42 million. All the major inherited issues were solved.
How would I manage to sit tight? I have practiced strict self-discipline and played an exemplary role. I asked Air China to sell the special car they had bought for me. I spent the money buying more cars to solve the commuting problems of retired leaders. Air China Mansion, in which the company had invested hundreds of millions of RMB, was opened for rent, while the head office continued to work in an old building near the Beijing airport. The company discontinued the policy of buying apartments for newly appointed leaders. Just as with ordinary employees, newly appointed leaders had to solve their own housing issue.
How would I stand firm? I have kept myself abreast of public opinion and done my best to solve those problems of the greatest concern. I helped allocate the 120 apartments to our employees, which should have been done earlier. I decided that the company shuttle bus should use the highway so as to save time. Dining halls were renovated to serve employees better meals. I put in place new methods for issuing bonuses on the basis of performance. I decided that when pilots and stewards were on duty, free meals would be provided so that they could focus on their work.
How would I stand firm? I studied hard and became thoroughly acquainted with the aviation industry. Although the air force and the aviation industry are closely related and have much in common, they are two separate areas. Since I had taken off my uniform and put on a business suit, I had to update myself on new knowledge and skills. I read books and magazines on business management in the office, at home, and while traveling in my car. At the same time, I studied English very hard. In October 2002, when I met up with former American State Secretary Henry Kissinger and started a free conversation with him in English, it surprised all my subordinates. They joked, “Mr. Li, you shouldn’t study English so hard or we will lose our jobs!”
In fact, the “stand firm” and “sit tight” concepts are common philosophies for every leader of a new company. If we consider only how to sit tight while ignoring how to stand firm, we will end up being unable to do either well. If we focus on how to stand firm, we will eventually be able to sit tight. In our life, there are things that you cannot attain, despite repeated attempts, but they come to you unexpectedly when you are concentrating on something else. That’s life.