To Survive, Organize Like A Chinese Firecracker Factory
Bucket List visits are rarer while the corona crisis keeps us at home. But there is time to finally read some classic management books on my shelf. One was Jack Stack’s 'A stake in the Outcome' which reveals the secret of the Chinese Firecracker Factory to illustrate how to take your company from being good now into one that is constantly preparing for the future. This secret is too good to not share!
Stack describes meeting Mike Ingram. "Mike Ingram had recently returned from a buying trip to China, which was just beginning to open itself up to trade with the United States.
Conditions were harsh. There were all kinds of currency problems, language problems, transportation problems, you name it, and Ingram was full of stories from his trip.
He talked about buying a rug and about the difficulties of converting dollars into Chinese money. Mainly, however, he talked about his visit to one of the big firework manufacturers, with which he wanted to cut a deal.
The manufacturer, he said, was located in a remote region of the country, and there was no easy way to get there. From Beijing, he'd taken a rickety airplane to a distant city, where he'd picked up a guide and set off by truck to the fireworks factory.
After driving for several hours, they'd come to the base of a hill. The guide had told Ingram that the factory was on the other side.
I guess he was pretty excited that he'd finally found it. He talked about the anticipation he'd felt as they drove up the hill. Then a weird expression came over his face. When they reached the top, he said, all he could see was a village with hundreds of little huts.
'Where's the factory?' he'd asked his guide.
'Down there,' the guide had said, pointing to the village.
Ingram didn't understand. 'The fireworks company,' he said. 'Where do they make the fireworks?'
'Down there, down there,' said the guide.
Ingram still didn't get it. 'I mean, the factory. I only see huts.'
'The huts are the factory,' said the guide. 'They put two workers in each hut. If one hut blows up, it doesn't destroy the whole village.'"
Decentralized group of autonomous teams
It turns out that the secret of the Chinese Firecracker Factory is exactly how large Bucket list organizations like Buurtzorg, Haier, ner Group and VkusVill organize themselves. (Learn more at our Academy)
All their companies are decentralized collections of autonomous teams, and grow team by team. As a result, these companies not only get bigger as the teams grow, they also strenghten themselves in the process.
Stack: "No company can last unless it protects itself against the surprises of the market, and diversification is still the best form of protection anyone has come up with."
A growth strategy based on building a decentralized group of autonomous teams turns out to be ideally suited to diversification. You can use your knowledge of an industry to diversify into all kinds of new businesses.
Think of different products, customers and even market segments. Haier, for example, is moving into the biomedical space, from traditionally being a white goods manufacturer. Buurtzorg is moving into health-care segments beyond home-care.
This kind of diversification also protects jobs. At ner Group, for example, if disaster strikes at one of their companies, they avoid layoffs by placing people from the struggling company into more successful companies in the group, or they try to provide the struggling company with extra work.
2. Innovation & entrepreneurship
Stack: "Beyond diversification, every business is under pressure these days to reinvent itself constantly, if only to keep up with changes in the competitive environment."
Innovation and entrepreneurship are key to staying ahead of the curve. (These are the two guiding principles of Haier). This is why Haier, Buurtzorg, ner Group and VkusVill all pioneered similar entrepreneurial mechanisms that allow them to turn innovations into successes.
There is a really simple idea here. They let their employees run their autonomous teams as little start-ups, with limited resources. This almost always brings out the spirit of entrepreneurship in team members. And we know how resourceful people can be when they're operating on a shoestring.
3. Personal development
Stack: "You need to get your people ready to take advantage of the opportunities they see. There is never a shortage of opportunities. What you need is the people that go after them."
Haier, Buurtzorg, ner Group and VkusVill turned their companies not only into decentralized groups of autonomous teams, but also into incubators of entrepreneurs. And being an entrepreneur requires another level of responsibility.
That's why they train their people to run their own autonomous teams. They teach them how to read financials, how to forecast, how to set goals, how to work as a team, how to make major decisions, how to communicate and motivate, how to hire and fire, etc.
This gives people opportunities to develop not only their team, but it also creates new career paths for themselves. It provides all in the organization with the experience and skills to keep their teams, and thus the organization, successful.
To remain competitive in the long term you also need a culture of experimentation. Stack: "You need to keep trying out new ideas, taking chances, running into obstacles, making mistakes, and doing all the other things that allow you to learn and move forward."
The decentralized groups of autonomous teams are perfectly structured for conducting a wide range of experiments. Indeed, any autonomous team can experiment on its own without putting the rest of the company at risk.
Just as Stack writes about the Chinese Firecracker Factory: "If one of the huts blew up, the village would still be safe."