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The Hon Hai Group

Extreme Restructuring in Extreme Times


An economic slump does not have to be bad news. In these turbulent times Taiwanese electronics giant Hon Hai is preparing to go through a crucial restructuring. But will it help Hon Hai to widen its lead over its competitors?



Extreme Restructuring in Extreme Times

By Jimmy Hsiung
From CommonWealth Magazine (vol. 408 )

In mid-October Hon Hai boss Terry Gou summoned the leading managers of the 12 enterprises under the Hon Hai Group to the Hon Hai headquarters in Tucheng, Taipei County. Gou personally presided over the one-and-a-half-day meeting of high-ranking supervisors.

At the meeting Gou again displayed his trademark strong leadership style, not mincing words when pointing fingers at the chief executives of poorly performing group companies. "It seemed like a big critique meeting," notes a Hon Hai supervisor in describing the conference atmosphere.

Even though business results are closely related to the overall business environment, Gou is known to despise those who use a slumping economy as an excuse for lackluster performance. For Gou, nothing but the figures count, and he does not want to hear about the whys. Reportedly, Tai Feng-shu, president of Foxconn International Holdings, was one of the executives that drew Gou's fire at the meeting for failing to meet performance targets. Due to a dramatic decline in consumer demand in the United States and Europe, Foxconn International, Hon Hai's handset manufacturing arm, had suffered a substantial drop-off in handset orders.

Why has Gou, who already announced plans to retire from day-to-day business management this year, jumped back into the fray?

"In these extreme times of global recession the chairman definitely needs to personally lead his troops into battle," says Hon Hai spokesman Edmund Ding, taking great pains to explain Gou's change of mind.

Media reports had said that Gou decided to put off handing over the baton after Hon Hai's share price fell below the NT$100 mark, the lowest level since 2001. Ding notes that leadership succession within a company is a gradual process in the first place and that Gou began to get increasingly involved in day-to-day management again after April 1 this year. "It would be impossible to come to a certain point in time and just have the chairman's role in the company suddenly change," says Ding in justifying Gou's continued involvement.

In reality, Gou has always preferred to view the mission of Hon Hai as fighting against hard challenges, not resting on its laurels.

The Time Has Come to Prove One's Mettle!

"The most important thing is a competitive environment," Gou emphasizes in The Golden Rules of Terry Gou, a copy of which is given to every Hon Hai employee. "Training innovative talent means giving them a competitive environment that allows them to train on the job, learn from setbacks and think amid competition," Gou says in his rules.

Therefore, with another Great Depression looming and no one able to predict how long it will last, Hon Hai is steeling itself for the challenge. "Contrary to what you might think, we are very excited. These turbulent, disturbing times are the best opportunity to build a strong team amid adversity," Hon Hai business division general manager Lu Songqing said on Oct. 16 at the awards ceremony for CommonWealth Magazine's most admired companies. Lu, who has always been touted as the most likely Gou successor within the group, argues that only in such difficult times is it possible to prove one's capabilities.

He also notes that an economic downturn is the best time to push for organizational restructuring. "Who is going to store rice in the summer?," Lu asks rhetorically. "Everyone would feel that we're already doing very well as it is – ‘Boss, why do you need to push for organizational reform?' In the end no one would be vigilant anymore."

Lu spells out Gou's long-held belief that an economic recession is the best time to look back and reflect on one's own management skills.

Actually, the Hon Hai Group is currently in the process of carrying out a "top secret" organizational restructuring. A senior supervisor reveals that the restructuring this time aims to give Hon Hai a lead of more than one year over its competitors. Therefore, group employees have become all the more careful and cautious not to leak any details to the outside world.

The Top Secrets of Hon Hai's Restructuring

But what we can infer is that this wave of restructuring will not only allow the group to save a huge amount of costs in these dramatically changing times, but that the entire group's competitiveness will greatly increase after the reforms, because they will break down departmental barriers.

Citing an example a Hon Hai supervisor notes that one way of cutting costs amid changing times is to prepare employees for internal personnel shuffling. He argues that if production capacity is insufficient, orders will be lost to competitors, and if production capacity is greater than demand, it will be a burden on the company. But as long as employees are prepared to move to new positions within the company, production lines will not sit idle nor will orders be lost due to a product's economic cycles.

"The reforms we are currently carrying out throughout the entire group will further deepen this concept," says the supervisor in explaining the direction of restructuring. In ordinary times it is quite difficult to carry out reform within a business group of Hon Hai's caliber and size. But as Lu has observed, now that the whole world has slid into recession, it is the most opportune time for organizations to launch reforms.

What we can see so far is that the Hon Hai Group has revoked the right of supervisors at all levels to decide personnel matters. Now headquarters uniformly decides personnel appointments, reassigning employees among different group units, depending on whether it views the respective units as overstaffed or understaffed at any given time. In the past Hon Hai has been famous for its relentless cost-cutting, dubbed "wringing drops from a dry towel," which reduced costs to the absolute minimum. Now the electronics manufacturer is elevating that approach to a higher level by demanding greater flexibility from its employees. Based on different cost sources, Hon Hai implements different forms of cost control.

Amid the current economic downturn, Hon Hai is particularly displaying the quintessence of Gou's business philosophy – namely, "work hard, work hard, work even harder," and "learn, learn, learn even more."

Two years ago Hon Hai launched an industrial engineering institute at its manufacturing base in Longhua, Shenzhen City in southern China, while Jacob Jen-Gwo Chen, a former dean of the College of Science and Engineering at the University of Texas-Pan American, took the helm of Hon Hai's in-house EMBA Business School. At the beginning of this year at the Hon Hai headquarters in Tucheng, Lee Ji-ren, the former National Taiwan University Executive MBA director, and other scholars and experts launched the "Yungning Project," a high-powered training program that aims to build Gou's successor team.

Hon Hai early on transformed itself from an industrial conglomerate into a technological powerhouse. Yet today the world's largest OEM electronics manufacturer has not stopped there, but has begun to make this giant elephant dance.

Perhaps when the current economic downturn passes and Hon Hai, the world's biggest electronics OEM behemoth, has carried out its extreme restructuring for extreme times, it will have widened its lead with every step, making it unreachable by its rivals.

Who says that an economic slump is bad news for companies?

Translated from the Chinese by Susanne Ganz

Chinese Version: 鴻海 非常時刻,非常改造