Strategies for improving innovation management capabilities of high-tech enterprises based on organizational model reform: case study of Huawei’s organizational structure reform

Hu Guiyu1
1 RUDN University

Статья в журнале

Вопросы инновационной экономики
Том 12, Номер 2 (Апрель-июнь 2022)

Цитировать:
Hu Guiyu Strategies for improving innovation management capabilities of high-tech enterprises based on organizational model reform: case study of Huawei’s organizational structure reform // Вопросы инновационной экономики. – 2022. – Том 12. – № 2. – doi: 10.18334/vinec.12.2.114464.

Аннотация:
The research purpose of this paper to propose strategies for high-tech enterprises to improve their innovation management capabilities through organizational model reform. The innovation of this paper is that this article put forward the specific process of the organizational model reform of high-tech enterprises, and designs a innovative organizational structure that high-tech enterprises can take a reference when design their own organizational structure. Successful organizational reform should also consider reform on strategy, culture, knowledge management, innovation ability, this paper proposed constructive reform suggestions in these aspects. This article also conducts a case study on Huawei’s organizational structure reform. Since its establishment in 1987, Huawei’s organizational structure has undergone several reforms. It has transformed from a linearly managed enterprise to a multivariate matrix organization oriented to regions, customers and products. By analyzing Huawei’s reform,high-tech enterprises can gain valuable experience. Scholars interested in field of high-tech enterprises, innovative management capabilities, and innovative organizational models will also find valuable information from this article.

Ключевые слова: innovation management capability, high-tech enterprises, organizational structure, organizational reform, Huawei

Финансирование:
This paper has been supported by the RUDN University Strategic Academic Leadership Program.

JEL-классификация: M13, O31, O32, O33, M11



INTRODUCTION

The research purpose of this paper is to improve the strategy of innovation management capabilities of high-tech enterprises based on organizational model reform. And through the case study of Huawei enterprises, the role of innovative organizational models in improving innovation management capabilities is explained through actual cases, and practical experience and guidance are provided for high-tech enterprises to further improve the effectiveness of high-performance teams.

According to surveys many companies still adopt the traditional linear model, which complicates the management process. There is always inertia in the development process of enterprises, relying on the original organizational model and unwilling to carry out reforms, but the traditional model is not conducive to the development of innovation activities.

Based on previous research by scholars and the author’s research on major high-tech enterprises, this paper finds that the organizational model of most of the top high-tech enterprises is gradually changing from the traditional linear functional and divisional organizational model to a flat, matrix organization, poject-oriented organization or project-based organization.

The innovation activities carried out by modern high-tech enterprises are often united by one innovation project after another, and the project-oriented organizational model is suitable for enterprises to carry out innovation. According to the characteristics of the project-based organizational model, enterprises need to choose an appropriate organizational model according to the scope and quantity of innovative activities. The author proposes four types of organizations in different stages of innovation, as well as organizational models suitable for enterprises to carry out innovation activities at different stages, which can help enterprises to better carry out innovation management and promote the continuous improvement of innovation management capabilities.

The successful reform of organizational model is not only about the reform of organizational model, but also needs to follow up with deeper reforms, including strategy, culture, knowledge management, innovation ability, management method of communication network, decision-making method, creative stimulation method, etc. So the author puts forward constructive reform suggestions for comprehensive improvement in these aspects. Through the integration of the above information, the author summarizes the process model for enterprises to improve their innovation management capabilities through organizational model reforms.

Finally, this paper conducts a case study of Huawei, and analyzes the difficulties Huawei has experienced in building a high-performance team, the accumulated experience, and the current challenges, through the study of several organizational model reforms in the past 34 years. Enterprises can gain experience and inspiration from its successful organizational model reforms.

Improvement of innovation management capabilities based on organizational model reform

According to the theory of organizational structure, the organizational model of an enterprise should match its operating environment, and an enterprise needs to identify its operating environment to choose the matching organizational structure [1].The operating environment of high-tech enterprises is characterized by uncertainty and complexity [2].

Many scholars have studied the organizational structure of innovation activities in high-tech enterprises, and believe that the organizational structure needs to be gradually transformed from the traditional linear functional and divisional organizational model to a flat, matrix-based organization, project-oriented organization or project-based organization. [3].

The project-oriented organizational structure is to establish project teams and project management offices for temporary tasks in the organization. It has a good matrix management level [4]. This organizational model has strong flexibility and is suitable for high-tech enterprises with intensive innovation activities, and is an organizational structure that supports innovation.

Gareis first proposed the concept of project-oriented organization (POC), that is, the organization’s strategy is “manage by project”; use temporary organizations to implement complex business processes; manage different types of projects in the form of project portfolios; have special permanent organizational unit; using new management paradigms; recognizes itself as project-oriented; has a clear project management culture [6].

The management mechanism of a project-oriented organization takes the project as the main line, and the management mechanism of the enterprise needs to take into account both daily operation management and project management [7]. The strategy of the enterprise is realized through the project, and the success of the project implementation directly affects the realization of the strategic goal [8].

Innovative organizational structure design based on organizational model reform

To realize the reform of the organizational model of an enterprise, the organization is first required to clarify the number of its innovation projects and the scope of its innovation activities, so as to determine the degree and scope of the organization’s project-oriented organization construction.

project scope

Figure 1 - Degree of Project Oriented Organization Achievement

Source: Compiled by the author

The first type of organization has fewer innovation projects, few departments involves in innovation, and only part of the organization to carry out the construction of project-oriented organization.

The second type of organization has a large number of innovative projects, but it is limited to a certain type of business, a certain business unit, or a certain department.

The third type of organization is that the number of innovation projects is small, but the departments involved in innovation projects and the scope of innovation activities are relatively large, and all departments of the organization have achieved a certain degree of projectization;

The fourth type of organization has a large number of innovative projects, and there are many departments involved in project activities in the organization, and the scope of projectization is large. This type of organization has a high degree of project-oriented organization construction, which involves the overall projectization of the organization.

According to the above four different situations, the enterprise can decide the setting of the structure department in the organization according to the actual situation. It mainly includes the following aspects: departmentalization or projectization, flattening or towering; establishment of organizational decision-making methods: centralization or decentralization, centralization or differentiation; standardization or flexibility of organizational processes, and the level of innovation in the organization..

In the first and second types of organizations, company can choose a departmental or project-based organizational structure, because innovation activities are mainly concentrated in specific departments, and an innovative project-based management model is implemented for the departments that carry out innovation activities. At this time, the decision-making of the organization is relatively centralization, decision-makers control most of the steps in the decision-making process, for strategic-level decision-making, it is mainly the top managers of the organization to make innovative strategic decisions.

In the third and fourth types of organizations, the organizational structure can be more flattened and diversified. As projects become more unique, innovative, and complex, a decentralized decision-making approach should be adopted. In the process of idea generation and project execution, a decision-making team can be formed by project team members with different majors, and different recruits are responsible for professional decision-making.

The evolution of the organizational structure that supports innovation can be seen in Figure 2.

Figure 2 - Evolutionary roadmap for an organizational structure that supports innovation

Source: Compiled by the author

Structural Design suggestions for Project-Oriented Organizations

According to the tasks and activities of high-tech enterprises, they can be mainly divided into functional departments for daily operation activities, project teams engaged in incremental innovation and new product development, and independent project teams engaged in basic R&D and original innovation, or breakthrough innovation. 9]. At the same time, an organizational platform for innovation activities and project management needs to be established in the organization.

1. The functional department of the organization and the R&D team in the department

The R&D department must take the lead and carry out the technological innovation activities of the organization. Within the R&D department, according to different R&D tasks, a team for breakthrough innovation, a team for basic R&D and a team for technological innovation can be established.

2. Innovative project teams across departments

Since the process of modeling technological innovation is relatively long, it is necessary to separate the innovation project team from the daily operation organization, grant a certain autonomy based on resources and information, accelerate the full and free ex-reform of information, and quickly transform technological innovation into results. [10]. For breakthrough innovation projects, the independence of the innovation project team can reduce the risk of the enterprise, and with the further development of the innovation project, the innovation task can be completed more effectively.

3. Innovation expert support team

In the process of carrying out innovation activities, some problems that arise during the implementation of the innovation project team can be supported by the innovation expert support team. Organizations are required to have a certain redundancy of resources to ensure that experts can engage in innovative support activities. Addressing key issues in innovation with the support of timely innovation activities to reduce vertical differentiation of the organization.

4. Innovation team organization integration platform

It is necessary to organize a platform for innovation team integration, build a project management department, allocate organizational resources as a whole, ensure the construction and dissolution of innovation teams, and at the same time evaluate innovation teams to ensure innovation team efficiency and long-term development. The project management office is responsible for the formation of the project team, coordinating the project team, and assisting the project manager in coordinating the interface between the team and the functional departments.

Figure 3 - Project-Oriented Organizational Structure

Source: Compiled by the author

After the organizational model reform, organizational culture, innovation strategy and knowledge management all need to be constructed to adapt to the development of innovation.

Suggestions on the construction of innovative organizational culture based on organizational model reform

1. Establish organizational innovation values and vision

Organizations need to implement innovative management concepts, so that employees’ innovative behaviors can be supported in the organization, with organizational support to carry out innovative activities and challenge traditional organizational support. The top management can make the organization realize the direction of the organization’s reform and the strength of the reform through the mobilization meeting, so as to reform the concept of operation by traditional functional departments to the concept of teamwork, emphasizing cooperation, communication and organizing around projects activity.

2. Establish an innovation incentive mechanism

Establish an incentive mechanism for innovative activities for teams and individuals, restrict rewards and punishments, performance appraisal, etc., to promote the development of organizational innovation activities.

3. Build innovative atmosphere

Build an organizational atmosphere and communication system suitable for innovation, encourage organizational members to implement and practice ideas, and promote organizational members to continue to be creative in the process of project development. The organization also needs to establish an innovation culture and atmosphere that tolerates failures. For innovation failures, it is necessary to adopt innovative feedback and evaluation methods, analyze the reasons for innovation failures, and actively face possible failures.

Formation of innovation strategy based on organizational model reform

1. Innovative project-led organizational strategy

Establish an innovative project-led organizational strategy to ensure that the development of innovative projects can support the organizational strategy. Establish evaluation criteria for innovation projects, establish evaluation criteria for project priorities from a strategic level, and ensure the rational allocation of innovation resources. Support, plan, supervise and control innovation management from a strategic level, ensure that the organization operates with projects as the core, and promotes The application of innovation strategy and innovation management concept in organization.

2. Establish an organization and mechanism for carrying out innovative environmental monitoring

Continuously identify reforms in the internal and external environment of the organization, monitor various opportunities and reforms in the environment, and actively respond to reforms and opportunities. For the organization’s innovative strategic goals, the organization needs to build an organizational structure that can quickly adapt to strategic reforms and carry out strategic implementation, maintain continuous innovation activities, and combine long-term and short-term goals of innovation.

3. Establish a project-oriented resource allocation method from the strategic level

The innovation investment is mainly invested in the R&D center and R&D department, which leads to the lack of motivation for other departments to carry out innovation. In a specific innovation project, by adjusting the rights system, the rights can be tilted toward the project manager, and the principles of promoting resource acquisition and rational allocation can be followed.

4.Enterprise leaders’ support for innovation management

The top of the organization needs to have a clear concept of innovation management, as well as the need to have an entrepreneurial spirit, realize the importance of innovation and actively participate in innovation activities, in order to promote the development of organizational innovation.

Establishment of Organizational Knowledge Management Mechanism Based on Organizational Model reform

1. Carry out organizational learning and knowledge transfer

Determine the goals and sources of knowledge required by the project, collect and share information around innovative projects; through individual learning and organizational learning during the project development process to form knowledge, and through the transformation of personal and organizational knowledge , and continuously accumulate knowledge resources that form an organization.

2. Management of innovative ideas

Conceptualize innovation perspectives, identify innovation types, complexity and risks, etc.
Acquire and identify, select and evaluate innovative ideas. In the process of innovative idea management, the steps to establish and improve the realization mechanism of innovative ideas are shown in the following figure:

Management of sources of innovative ideas, establishment of processes for the acquisition of innovative ideas
Evaluation of innovative ideas and initial screening

Figure 4 - Management and selection of innovative ideas

Source: Compiled by the author

Through the integration of the above information, the process model for enterprises to improve their innovation management competences through organizational model reforms is shown in Figure 6:

Figure 5- Improvement of innovation management competences based on project-oriented organization construction

Source: Compiled by the author

Case study of Huawei’s Organizational Structure Reform

Huawei is a representative high-tech enterprises in the world, it has developed rapidly for its innovation. It has develop from a small private trading company to a multinational high-tech enterprise, transformed from a linear management model to a multi-dimensional matrix organization oriented to regions, customers and products.

Summarizing and analyzing the problems, accumulated experience, and current challenges faced by Huawei’s high-performance team building is conducive to providing practical experience and guidance for further improving the effectiveness of high-performance teams.

Huawei is a representative of Chinese high-tech enterprises and an enterprise that has developed rapidly in innovation. Huawei mainly engaged in the R&D and manufacturing of communication equipment products. Huawei has long insisted on investing no less than 10% of its sales revenue in R&D, and insisted on using 10% of its R&D investment for pre-research. Huawei ranks eighth in the list of the 50 most innovative companies in the world in 2021, and ranks 56th in the 2021 Fortune Global 500 list.

According to Huawei’s 2020 annual report, in 2020, Huawei’s global sales revenue reached US$136.7 billion, a year-on-year increase of 3.8%; net profit was US$9.916 billion. In 2020, against the backdrop of the global economic downturn, Huawei will continue to increase investment in research and development. As of the end of 2020, there were more than 100,000 valid authorized patents worldwide. More than 90% of the patents are invention patents. In 2020, there are about 105,000 people engaged in research and development, accounting for about 53.4% of the company’s total number of employees. In 2020, research and development expenses accounted for 15.9% of the annual revenue [16].

Huawei has gone through more than 30 years since its establishment. In these years, its strategy has been continuously adjusted according to different development stage, and its organizational structure has also been optimized following the strategy, so that Huawei can always be in a developmental position.

The 34 years of Huawei’s development can be divided into four stages:

The first stage is from its establishment in 1987 to 1995;

The second stage is from 1996 to 2003;

The third stage is from 2004 to 2012;

The fourth stage is from 2013 to the present and the next few years.

The first stage (1987-1994): from linear structure to functional structure

Подпись: Linear organizational structureIn the early days of the business, Huawei only resold other enterprise’s equipment, with a small number of personnel, only 6 people, and a single department function, which was managed through a straight line structure (Figure 6).

Figure 6 - Huawei’s linear organizational structure (1987-1991)

Source: edited by the author

Подпись: Corporate General OfficeUntil 1992, the sales scale exceeded 100 million yuan, and the number of employees reached about 200. The organizational structure has begun to reform from a linear organizational structure to a linear functional organizational structure. In addition to business process departments, such as R&D, marketing, and manufacturing, there are also supporting process departments, such as finance, administration, etc. (Figure 7).

Figure 7 - Huawei’s Line-of-Function Organizational Structure (1992-1994)

Source: edited by the author

The new organizational structure develop from vertical structure to specialization, the development of this organization occurs naturally. As the number of personnel and business complexity increases, the organization will undergo fission.

Such organizational development will encounter two problems in business operations:

1. Cross-departmental collaboration.

All departments at the same level, so it is difficult to promote work. Many trivial matters have to be reported and made decision by top leaders. Leaders play the role of an arbiter in the enterprise, and a lot of energy is used to balance various relationships within the organization.

2. The resource allocation of various functional departments is unbalanced.

Some departments can easily become the bottleneck of the business. There are not enough manpower, and it is difficult to judge where the problem is. There are a lot of things that need leaders at all levels to promote coordination, and enterprise resources will be consumed internally.

The second stage (1995-2003) from functional system to two-dimensional matrix

Подпись: Board of DirectorsThe period from 1995 to 1998 was an autonomous optimization phase. At this stage, Huawei made a lot of reforms, including the ISO9000 quality system, the establishment of a QCC team to improve the quality control circle, and the collective resignation of the marketing department. In 1996, it began to widely enter the international market. As Huawei’s strategy has undergone tremendous reforms, the organizational structure is also being adjusted, and departments tend to be standardized (see Figure 8).

Figure 7 - Huawei’s Organizational Structure (1995-1998)

Source: edited by the author

During this period, the advantages of Huawei’s original centralized and linear organizational structure have become obstacles to its development, and the disadvantages have become increasingly prominent.

On the one hand, there is a lack of specialized functional structures, the burden on managers becomes heavier and the coordination between departments is also difficult;

On the other hand, the number of Huawei’s employees has also increased rapidly. By 1998, the total number of employees was close to 8,000, and the sales volume was close to 9 billion. If the original organizational structure is still used for management, it will inevitably restrict the company’s further development.

Подпись: CEO's officeTherefore, on this basis, Huawei began to adjust the organizational structure in the continuous management reform work, starting from the division of small business units, and established a two-dimensional matrix organizational structure that combines the business department system and the regional department ( Figure 5).

Figure 8 - Huawei’s two-dimensional matrix organizational structure (1999-2003)

Source: edited by the author

The third stage (2003-2011) from two-dimensional matrix system to matrix-type multinational groups

After 2004, Huawei adjusted its organizational structure again, but it was basically optimized on the basis of 2003, but the main structure was still based on the market and customer demand-oriented product line organizational structure model to minimize profits. A central model that speeds decision-making and adapts to rapidly changing markets.

Подпись: CEOThis organizational reform has made the processes centered on IPD, ISC, and Подпись: CEOCRM more mature; at the same time, the company has comprehensively carried out the company’s business process reform with financial, human resources and other reform projects, introduced practical best practices in the industry, and a complete IT framework was built to support this operation (Figure 9).

Figure 9 - Huawei’s matrix organizational structure (2004-2010)

Source: edited by the author

It can be said that this time reform and adjustment of the organizational structure has fully contributed to the redistribution of its power and the improvement of the operational efficiency of the organization, enabling Huawei to establish an organizational operation system that is in line with international standards.

At the same time, the adoption of the product line format can more effectively conduct extensive communication with customers about products, and timely discover and meet customer needs, thus effectively enhancing Huawei’s international market competitiveness.

At this time, Huawei is already a diversified enterprise, forming three major business systems: operator business, enterprise business, and consumer business.

When an enterprise encounters challenges from the external environment, this network will shrink and superimpose.

In 2011, Huawei adhered to the customer-centric strategy, and continued to improve the company’s organization, processes, and assessment (Figure 10), enabling the company to achieve effective growth. Each BG is a customer-oriented end-to-end operational responsibility center, and is responsible for the company’s effective

Shareholders’ Committee
growth and efficiency improvement, as well as for the achievement of business goals and customer satisfaction of the BG.

Figure 10 - Organizational Structure of Huawei (2011-2012)

Source: edited by the author

Through these years of reform and adjustment, Huawei has gradually transformed from a telecom equipment provider of comprehensive communication solutions to a telecom equipment service provider that provides end-to-end communication solutions and customer or market-driven.

The organizational structure of this period, compared with the organizational structure of the growth period, has undergone a gradual evolution, from the original organizational structure of business units and regional departments to a product line-led organizational structure.

The fourth stage (2012-present) from weak matrix to strong matrix: project-centric operation

Подпись: Shareholders’ Committee

In order to play the role of the big platform, and enhance the flexibility of the organization as well as maintain the ability to respond quickly to customer needs, Huawei further proposed “project-centric”, wanted to use a strong matrix to manage projects.

Figure 11 - Huawei’s strong matrix organization (2012-2018)

Source: edited by the author

The problems that existed before the management reform at this stage were that the division of labor between functional departments was too detailed, and the number of agencies overlapped, resulting in a lot of waste of resources;

The barriers between functional departments are heavy, the information flow is not smooth, and the communication cost is high; The organization is bureaucratic, and some employees lose their initiative and only know how to work step by step;

Under the matrix organization, the business line responsible for business management and the resource line responsible for functional management are separated, and the responsibilities and powers of the two are not equal. The resource line is responsible for providing shells, responsible for quality, and responsibilities;

Functional Platform
In 2019, Ren Zhengfei’s speech at the Consumer BG: “The company’s reform key points this year is the operator BG (CNBG) and the consumer BG. According to the company’s strategy, the organizational model of the company has been reformed again.

Figure 12 - Huawei’s organizational structure (2019-present)

Source: edited by the author

This period entered a project-centric operation stage. Through the reforms in the above organizational structure year by year, Huawei focused on the balance between centralization and decentralization, unified pace in corporate-level strategy formulation and information release, and implemented small tactics. decentralized implementation and independent operation;

Clarify the project-centered budget and assessment mechanism, conduct resource buying and selling and resource evaluation to functional departments through projects, ensure that everyone enters the project, and realize “marketization of internal resources”; Clear the division of labor between projects and functional departments, functional departments focus on technical planning, capacity building and qualification certification, and project organizations do well in operation management, business management and value distribution.

Huawei has gone through more than 30 years since its establishment. Its strategy is constantly being adjusted according to changes in the environment, and the organizational structure is also being optimized following the strategy, so that Huawei can always be in a process of development.

Through the case analysis of Huawei, we can find that in the process of enterprise development, the organizational model needs continuous improvement and update, through the continuous improvement of Huawei’s organizational model, its innovation management capabilities have been continuously improved, and business operations have been smoother and less labor-intensive under a standardized and flexible organizational model.

CONCLUSION

Choosing an appropriate organizational model plays an important role for today’s high-tech enterprises in the successful development of innovation activities.It is also very important for enterprises in different development stages to choose the appropriate organizational model. Each enterprise has its own characteristics, and the scope and quantity of business development are different. Therefore, the author divides high-tech enterprises into four types of organizations according to the number of enterprise innovation projects and the scope of innovation activities.

The first type of organization has fewer innovation projects, few departments involves in innovation, and only part of the organization to carry out the construction of project-oriented organization.

The second type of organization has a large number of innovative projects, but it is limited to a certain type of business, a certain business unit, or a certain department.

The third type of organization is that the number of innovation projects is small, but the departments involved in innovation projects and the scope of innovation activities are relatively large, and all departments of the organization have achieved a certain degree of projectization;

The fourth type of organization has a large number of innovative projects, and there are many departments involved in project activities in the organization, and the scope of projectization is large. This type of organization has a high degree of project-oriented organization construction, which involves the overall projectization of the organization.

According to the above four different situations, the enterprise can decide the setting of the structure department in the organization according to the actual situation. It mainly includes the following aspects: departmentalization or projectization, flattening or towering; establishment of organizational decision-making methods: centralization or decentralization, centralization or differentiation; standardization or flexibility of organizational processes, and the level of innovation in the organization..

In the first and second types of organizations, company can choose a departmental or project-based organizational structure, because innovation activities are mainly concentrated in specific departments, and an innovative project-based management model is implemented for the departments that carry out innovation activities. At this time, the decision-making of the organization is relatively centralization, decision-makers control most of the steps in the decision-making process, for strategic-level decision-making, it is mainly the top managers of the organization to make innovative strategic decisions.

In the third and fourth types of organizations, the organizational structure can be more flattened and diversified. As projects become more unique, innovative, and complex, a decentralized decision-making approach should be adopted. In the process of idea generation and project execution, a decision-making team can be formed by project team members with different majors, and different recruits are responsible for professional decision-making.

According to the tasks and activities of high-tech enterprises, they can be mainly divided into functional departments for daily operation activities, project teams engaged in incremental innovation and new product development, and independent project teams engaged in basic R&D and original innovation, or breakthrough innovation. At the same time, an organizational platform for innovation activities and project management needs to be established in the organization. Therefore, the author designed a practical and universally applicable, project-oriented organizational structure.

After establishing an appropriate organizational model, the author puts forward feasible strategies for the construction of innovative organizational culture, the formation of innovative strategies, and the establishment of organizational knowledge management mechanisms based on organizational model reforms. Finally, through the integration of the above information, the enterprise achieves a process model for improving innovation management capabilities through organizational model reforms.

Huawei’s organizational model reform is very representative. Through the analysis of its organizational model in the four stages of its development, enterprises can learn from its reform experiences. Through the continuous improvement of the organizational model, Huawei’s innovative management capabilities have been continuously improved, and business operations are more smooth and labor-saving under the standardized and flexible organizational model.

ACKNOWLEDGEMENT

This paper has been supported by the professional talent training program in Russia, Ukraine and Belarus. We thank the distinguished professor L.A. Fedorova provided many suggestions for this article. Thank the enterprises that provided effective dates and materials and highly cooperated with my research work.


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