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Open Access 2019 | Open Access | Book

Built on Value

The Huawei Philosophy of Finance Management

Author: Weiwei Huang

Publisher: Springer Singapore

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Table of Contents

About this book

This book is open access under a CC BY-NC-ND 4.0 license.

This book presents the concept of value as the central component to success and longevity of the global ICT industry player, Huawei. It provides examples of how Huawei focuses on customers to pursue sustainable and profitable growth rather than focusing on capital market valuation which is a familiar scenario among Western companies. It is the business departments that are the creators of value for Huawei, while the finance department is tasked to provide support and services to those business departments during the value creation process. The book illustrates how Huawei Finance sets rules, allocates resources, and builds centers of expertise all over the world to address future uncertainties. More than a decade ago Huawei dedicated seven years to implement the Integrated Financial Services (IFS) Transformation Program with the help of IBM consultants. This book also draws on the leading concepts and successful experience of the IFS Transformation Program. Huawei Finance adopts three types of centralized vertical management from the top down: treasury, accounting, and auditing. It does not transfer such central authority down to lower levels, but delegates all other authority to business organizations across all levels. This management model represents the focus of this book. Built on Value provides an overview of Huawei's finance management and will help academic researchers in Business/Management, as well as practitioners in industry, an accurate and in-depth understanding of Huawei as a company.

Frontmatter

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Part I

Frontmatter

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Chapter 1. Huawei’s Business Goal

Abstract

A company must first have a clear business goal. Huawei’s business goal is to make itself more competitive, build trust among its customers, and survive market competition. These are actually the most basic goals of any enterprise. Without any of the three, an enterprise will find it hard to survive. An enterprise should first ensure that its most basic goals are continuously achieved, rather than seeking to meet a certain target or maximize the interests of a certain group. In reality, any attempt to maximize interests will yield the opposite result.

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Chapter 2. Huawei’s Competition Strategy: A Financial Perspective

Abstract

Huawei creates value primarily through its business operations. The primary task of its financial management department is to support and oversee business departments in creating value. Financially, what are the key points that Huawei focuses on as it creates value? First, Huawei looks at business from an investment perspective and views opportunities strategically. Second, Huawei has always followed the principles of focusing on its core business and keeping a sharp focus in resource allocation. Third, Huawei refuses to be opportunistic in the face of big opportunities.

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Chapter 3. Remaining Flexible to Seize Opportunities Amidst Uncertainties

Abstract

As Huawei evolves from a follower into an industry leader, a new challenge it faces is how to manage uncertainties. The ICT industry is full of change and uncertainty, and a moment of hesitation will cause any company to fall behind. The consequences will be more serious if that company is happy with the status quo, and refuses to make progress or listen to criticism. The more uncertain the future is, the more opportunities there are in store. Uncertainty is exactly where profits stem from.

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Chapter 4. Enhancing Core Competencies through Strategic Mergers and Acquisitions and Corporate Venture Capital Investment

Abstract

Corporate venture capital (CVC) and independent venture capital (IVC) differ in their objectives. CVC is more about its own strategic intent and strategic alignment with the parent company, than direct financial returns from the entity receiving investment. In contrast, IVC pursues financial returns; its strategic intent is usually absent or vague. At Huawei, the strategic intent of CVC is clear: to enhance the core competencies and overall value of the parent company through its strategic and business alignment with the parent company. The goal of CVC is not to solely focus on maximizing the returns of any individual entity that makes investment. Huawei strictly controls the objectives and boundaries of its CVC projects, and prohibits unfocused investment, with the intention of achieving big profits in core business rather than smaller wins across a wider area.

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Chapter 5. Strengthening Risk Control and Compliance Management

Abstract

As the company goes global, Huawei faces many risks both externally and internally. External risks involve geopolitics, financial crises, unstable economic growth, shrinking investment, fluctuating exchange rates, strict controls over foreign exchange, anti-globalization, protectionism, anti-dumping, labor disputes, changes in customer business models, and other challenges. Internal risks include risks associated with blind expansion, product quality, business continuity, supply, long overdue inventory, long overdue accounts receivable, cyber security, user privacy protection, taxation, trade compliance, legal compliance, and corruption. All of these risks pose tremendous challenges to Huawei’s growth in the global market. When the world is in an imbalanced state, will Huawei keep its balance? How will it do so? Despite this, risks are accompanied by opportunities. Huawei does not stop progressing because of risks, nor does it ignore risks as it moves ahead. Huawei’s approach to future risks is to use the certainty of rules to deal with the uncertainty of results and use the certainty of legal compliance to deal with the uncertainty of international politics. The company must strictly monitor internal and external compliance, and strictly operate within the boundaries of its business.

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Chapter 6. Finding the Right Amount of Openness, Compromise, and Huidu, and Properly Balancing Expansion and Control

Abstract

According to Huawei’s management philosophy, a company is an open system filled with contradictions. All contradictions co-exist, interacting with, standing against, and changing into each other. This upward reinforcing spiral creates the momentum that propels the company forward. Properly handling contradictions requires the right amount of openness, compromise, and huidu, and is a key part of the art of leadership. Control and expansion are at odds with each other. The need to exert control is a natural result of expansion as it can cause risks. The purpose of control, however, is to expand more effectively. This chapter elaborates on six contradictions that arise from expansion and control. Other contradictions are integrated into other chapters of this book.

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Part II

Frontmatter

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Chapter 7. Guidelines for Value Management

Abstract

To ensure long-term survival and development, Huawei must first go international, then go global. It must explore new domains and expand its development space. Expansion requires the support of a proper management system. Without such a system, expansion would end in vain and could also be very dangerous. If that is the case, it would be better not to expand at all. Research on theories and new sciences shows that all systems exist and develop on the basis of several major principles. These principles define the overall characteristics and paths of evolution for these systems. Similarly, Huawei’s financial management system also evolves, transforms, and improves according to some basic principles. Summarizing and distilling these basic principles will help people gain a deeper understanding of the essence and rules of financial management. They will also help improve the initiative of management, reduce passiveness and blindness.

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Chapter 8. Financial Management Throughout End-to-End Business Processes

Abstract

At Huawei, business plays a leading role and accounting plays an oversight role. Finance is positioned to serve business and create value, with its oversight role integrated into processes. The goals for the first phase of the Integrated Financial Services (IFS) program are: accurately recognizing revenue, accelerating cash inflows, ensuring visibility of project profits and losses, and managing business risks. These goals are set to address weak links of the company’s end-to-end business processes for value creation. It is a long-term task for Huawei to build and continuously improve its process-based organization and management systems for major business processes. Clouds, rainwater, and channels are how Huawei describes its approach to management transformation. Huawei’s management philosophy is like a cloud; rainwater is Huawei’s business activities; and channels are processes and rules established through systematic transformation after Huawei’s operations were benchmarked against the best practices of Western companies. Clouds are valuable only when they turn into rainwater. And the rainwater needs to be channeled properly in order to generate electricity. Without the right channels to guide the rainwater, it will flow anywhere, and its energy is dissipate.

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Chapter 9. Project Financial Management

Abstract

Projects are the basic units and cells of business management at Huawei. There are different types of projects, including R&D, sales, delivery, and management transformation projects. If projects are not effectively managed, it will be impossible for a company to achieve robust operations. Huawei is working hard to shift its operating model from being function-centered to being project-centered. This is going to be a huge change. It means thousands of field teams will be mobilized. It also means that functional departments will no longer be centers of authority, but centers of expertise and resources. Huawei believes that a project-centered model will help reduce redundancy and avoid the pitfalls experienced by large companies that operate with a function-centered organizational structure. The project-centered model will also make the company more competitive and enable managers to develop rapidly.

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Chapter 10. Optimizing the Management Control System for Responsibility Centers

Abstract

Accurately defining what type of responsibility center (RC) a department will be is vital for a company’s management control system to work effectively. Budgeting, appraisal, accounting, and incentivization all revolve around RCs. The purpose of defining RCs is to properly assign responsibilities, streamline management, and motivate the workforce. How do we define an RC? This is one of the major questions that a management control system must answer. Key considerations include the nature of the business and the type of operating mechanism. All in all, the operating mechanism must be value-driven.

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Chapter 11. Developing a Better Planning, Budgeting, and Accounting System

Abstract

The primary purpose of budget management is not to only determine what can be done with the resources available, but rather to push a company forward and help achieve goals. At Huawei, budgets are prepared in a way that encourages growth, and budget allocation is aligned with the company’s strategy. Planning, budgeting, accounting, and appraisals at all levels of Huawei are managed in a closed loop. Specifically, planning and budgeting play a guiding role, and accounting is used to assess and oversee the execution of plans and budgets.

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Chapter 12. Service and Oversight Functions of Accounting

Abstract

At Huawei, accounting is about keeping centralized records and is managed from the top down. Over the years, the company has kept accounting an independent function, hoping that it can serve as a “dam”, overseeing business activities and applying checks and balances. Accounting does more than just provide services – it also takes on an oversight responsibility. Its oversight responsibility even outweighs its service function. Accounting must ensure that data is accurate and reliable, with the motto of “answering only to the truth, not to customers, business personnel, or managers”. Accounting is completely separate from business management organizations. The accuracy of financial data depends on standard processes and clean data at the source. Only by regulating business activities at the source can we improve the quality of financial data.

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Chapter 13. Treasury Management

Abstract

Huawei has always been a private company. Growing from within is the core and major driving force behind its future development. The company adopts an asset-light business model, which means it builds wealth by fully extracting value from labor rather than by being asset-heavy. This underlying principle means that as Huawei grows rapidly, its capital needs are mainly satisfied from within, through effective management of its capital structure and indirect financing scale, as well as through increase in working capital efficiency. This business model has raised high requirements for treasury management. Treasury management though, is not the sole responsibility of the Treasury Management Department. Rather, it permeates the company’s entire value creation process.

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Chapter 14. Tax Management

Abstract

Paying taxes is a company’s social responsibility. Huawei believes that the biggest contribution a company can make to society is to serve customers earnestly, do its work the best it can to survive, and pay its fair share of taxes. Paying taxes is also a basic tax management requirement. Tax management must ensure taxes are reasonable, risks are well managed, and operations are secure. Huawei prioritizes tax security for the company as a whole over that for regional and country offices and /or subsidiaries. Their tax planning must not undermine the overall tax security for the company. Huawei strives to avoid implicit tax costs when pursuing explicit tax benefits, and long-term tax burdens when pursuing short-term tax benefits. Improper tax planning is strictly prohibited at Huawei.

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Chapter 15. Internal Controls and Internal Audit

Abstract

Huawei is committed to its fight against embezzlement, waste, jobbery, and corruption amongst senior managers. It seeks to receive income from a single source. Huawei delegates authority to field offices, enabling them to have more autonomy and operate more flexibly and efficiently. Authority delegated must be exercised with effective oversight, and the purpose of oversight is to delegate more authority. To Huawei, oversight is the best way to care for and protect its managers. The company values basic processes and systems, especially the internal control system. When building its internal control system, Huawei insists on “wearing American shoes” and starting from scratch, rather than patching up an existing system.

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Chapter 16. Digital Financial Management

Abstract

Data is the company’s most important asset. We must manage data in the same way as we manage capital. Data is our strategic resource. As we comprehensively mine our data and use it more effectively, we are constantly uncovering and creating new opportunities and new value. High-quality data delivers multiple benefits: effective deployment of human resources, streamlined management, integrated business processes, higher operating efficiency, and more transparency in our business performance.

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Chapter 17. Making Financial Management Process-Based and Professional

Abstract

Finance must be process-based and professional; otherwise, it will incur high costs for the company. We need to standardize and streamline routine matters through processes and professional work. This will help reduce our management and operating costs. Progress in finance is the basis for all management advances. Without robust financial management or reliable oversight, it will be impossible for a company to delegate authority to field offices; nor will field offices be able to call for support directly. In the end, the HQ will become increasingly bureaucratic and bloated. Such a company will not be able to survive and thrive over the long term. Huawei always remains customer-centric, focuses on value creation, continues to streamline management, and works hard to reduce period expenses.

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Backmatter

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Title: Built on Value
Author: Weiwei Huang
Publisher: Springer Singapore
Electronic ISBN: 978-981-13-7507-1
Print ISBN: 978-981-13-7506-4
DOI: https://doi.org/10.1007/978-981-13-7507-1