Liu Jiren and two colleagues at Northeastern University in Shenyang, China, founded Neusoft Corporation in 1991. Its first software product was quickly pirated, so the company switched gears and started selling software and services. In less than 20 years, the company has grown to more than 16,000 employees and become China’s largest provider of IT solutions and services, with $600 million in revenue. While most of the rest of the world suffered through a recession in 2009, profits at Neusoft grew by 30 percent. In order to gain the skills it needs to fuel this growth, Neusoft has created a powerful talent network with several IT education and training institutes.
While Liu may not face the same business environment his Western peers do, Neusoft’s chairman and chief executive still must address universal leadership challenges: How do you motivate and retain your staff, and maintain your corporate culture as you expand globally? How do you set strategy and develop business models in the face of uncertainty?
In 2009, Liu was named one of the top ten Economic Persons of the Year in China by China Central Television, the national TV station of the People’s Republic of China. He oversees a company that now serves customers in a wide range of industries, from mobile telecommunications and utilities to health care. About 30 percent of Neusoft’s revenues are generated overseas, a large proportion from Japan. In 2009 Neusoft expanded in the United States and European markets through mergers and acquisitions.
The company also formed a joint venture with Philips in 2004 to develop and manufacture medical imaging systems. The company went public on the Shanghai stock exchange in 1996, creating a wave of millionaires among its employees.
In his conversation with David Michael, a senior partner and managing director of The Boston Consulting Group, Liu discusses leadership. Excerpts from their conversation follow.
What are the leadership secrets, or the most important factors, behind the success of Neusoft?
I have not taken MBA courses. My educational background is not business, but computer science and engineering. So my leadership is mainly based on practice. At Neusoft, we compete against companies that have a lot of capital and talent, so we need to understand our unique position to differentiate ourselves, and we need to know how to execute. Because we are a relatively young company, we need to prove ourselves. I am happy to say that 2009 was our best year ever, with profits rising by 30 percent. We will also try to grow aggressively in 2010.
How do you separate the good opportunities from the bad ones and balance your broad portfolio of businesses?
You need to be very careful and recognize when you are too early or too late for opportunities. There will always be differences of opinions about opportunities, but as a leader you need to make a choice. Generally, we try to enter a business before everybody else thinks it is a good idea. The best opportunities generally come from new and emerging sectors. But no matter how wide we broaden our business portfolio, we will focus on our core competency in software.
How do you think about the risks of entering new businesses?
Opportunities are always accompanied by risks. When entering new businesses, we need to predict the risks and prepare to overcome them. We try to learn from history. After World War II, for example, Japan focused on manufacturing low-priced goods. Later, Japanese companies began to focus on quality and innovation. In China, we need to learn from this example and focus not just on costs but also efficiency, quality, and innovation. Also, as a company, we need to learn from the past success and failures of our competitors, and try to draw valuable lessons from their experiences.
Neusoft has grown rapidly and evolved its strategy over time. How have you adapted your leadership style, especially as Neusoft has become larger and more diverse?
You need to be open-minded, listen to all sides, be sensitive to the environment, and then make decisions. You cannot formulate one strategy to serve for 10 or 20 years, especially when the company is a start-up. At first, our goal was just to survive. We started with three people. You must have one single dream, and our dream was, “We want to be the best software company in China, and then we want to be the leading software company in the world.” But we needed to move one step at a time.
Initially, we used half of our cash just to develop a small piece of software. But by the second year, everybody was pirating our software. So at that time we decided that, in China, being a consumer software company probably was not the right model for us.
Our conclusion was that Neusoft should sell software and services to large companies. We started to develop software in document management, multimedia management, and CAAD [computer-aided architectural design] for big companies and state-owned companies, which need our continuous services. We also developed software for facilities management, power management, and telecom operations. We also embedded our software in hardware or systems.
Software is our core, just as coffee is the core of Starbucks, and it is a very stable model. We now have around 6,000 engineers, for example, developing embedded software for mobile phones, automobiles, and health care and other industries.
So, to answer your question, we tried to be flexible and develop strategies based on our resources. We did not copy other organizations’ models. The leader needs to learn from other people and companies and try to make the right decisions.
You must know yourself. Sometimes you have one small success and another small success and you start to think, “I am great.” But sometimes you are just lucky or you get a great opportunity.
Today, what is the strategy for many typical Chinese enterprises? They make money fast, easily. They know how to grow by 20 percent a year—but that growth may be driven by the government stimulus plan and overall rising demand. In fact, many of them may not know how to survive if the market’s growth rate suddenly drops.
One of the strengths of Neusoft is your people. How has the people-management challenge evolved as Microsoft, Intel, and other foreign companies have come to China and tried to acquire talent? How do you maintain your advantage in terms of people and culture?
First, if you trust people and give them an opportunity to show their value, people will be passionate about their work. Money is important to employees, but it is not as important as some people think.
Second, I do not want people who just agree with the CEO all the time. They must be free to make their own decisions. We try to build a good career platform for our employees and give everybody enough room to realize their potential.
In the traditional Chinese company, everybody waits for the CEO to make a decision. How do you create the culture in China where low-level people can make decisions and the CEO can learn from them?
I am professor. I am not a manager, I did not know management at first, but I knew one thing: If people are allowed to make their own decisions, if they have an obligation and accountability, then they will become smarter. We expect our managers to be responsible for profit, revenue, and market share. They have a responsibility to hire people, lay off people, and to make decisions. This open culture motivates our managers and unleashes their creativity, which will lead to better performance.
I understand that your senior management team is very loyal?
We have a very low attrition rate, so I think they are happy with their jobs. They get a sense of accomplishment from their work. I am proud of them, and they are proud of themselves.
You have a very young workforce. The average age for your employees is 28 years old. How does your culture enable people, especially young employees, to demonstrate their value?
If people are smart, they will get promoted and face new challenges at Neusoft. This is exciting for employees. When employees get a new job, I tell them, “I trust you can do this. I know you are not good today, but I trust you will be capable if you work hard.”
We also try to share the fruits of our growth with employees. If our goal is to become a leading global IT solutions and services provider, our employees must earn income that is similar to what they would receive at a multinational company. It is okay if we pay 20 percent under the market because we have a good working environment, values, and culture. But we cannot pay 50 percent under the market.
One of the things we need to start preparing for is hiring non-Chinese employees. Eventually, 15 to 20 percent of our employees may be from outside China and we need to have a culture that also appeals to these workers.
What is your overall outlook for the Chinese economy, and what are the biggest challenges for the Chinese economy and for Chinese companies?
I think China has 10 to 20 years of healthy growth ahead of it. Domestic demand is huge, and there is a lot of vigor and potential in the country. The rapidly rising middle class in the country will create a huge consumer market in the near future. People work like crazy in China. If you ask young people, “Do you want to work eight days a week?” many would say, “Yes.”
Developed countries will also continue to send work to China because of our country’s talent and lower costs. China and India are the only countries with large and young populations.
We can handle large volumes of low-cost manufacturing, but we are also quickly climbing the global value chain. Innovation is moving from developed countries toward emerging countries. China will become a major innovation center in the world.
The biggest challenge for the Chinese economy will be how to transform from an export-driven to a consumption-driven economy. We need to optimize our economic structure, invest more in infrastructure and green technologies, and build efficient social-safety nets. This will ensure sustainable growth and long-term prosperity.
For Chinese companies, I think the biggest challenge is how to strengthen their unique competitiveness through innovation. Innovation is not only about technology, but also about business model, cost, speed, and cooperation. In the rapidly changing business environment, companies that can perfectly balance cost, speed, and technological innovation will win.
The global economy is still not stable. What do you think are the biggest risks for the global economy, and what are your biggest concerns?
I think the biggest risk for the global economy is whether it can be successfully transformed to a balanced and sustainable growth model. I worry that people in developed countries have not changed their behavior and will continue to consume too much, while people in developing countries will save too much because they do not yet trust social safety nets.
The world needs a new and more effective global governance system to accelerate the optimization of resources and collaborative innovation. Without a shared vision, objectives, and efforts, the world economy cannot achieve balanced and sustainable growth.
Also, we need new drivers of growth. Innovation will be one of the most important drivers for the global economy.
One of the big themes that emerged from this financial crisis is that the government is going to become very involved in the economy. Does this change the way you have to do business?
In China, that is not a big problem, because many sectors, such as railroads, finance, and telecom, have never been private. We know how to manage in this environment very well.