Jan 17, 2011
I recently had the pleasure of hearing legendary Chinese entrepreneur, Shan Li, speak to MIT Sloan’s Finance Club. Li’s list of accomplishments could fill a book; seriously, his resume reads like a novel! When Li opened his presentation stating that he would speak about his dream, becoming an entrepreneur, I knew that I was in for a treat (much to the future bankers’ dismay)! Over the course of an hour, Li detailed his entrepreneurial journey; a story that began with the completion of his PhD at MIT and ultimately led him to build a number of firms and initiatives in China. Li’s story is incredible; the characters involved are some of today’s most powerful people. However, despite the impressiveness of his story, one simple tidbit of Li’s advice struck me as an often unstated but extremely important point:
“Organizational structure is extremely important, ensure that motivations are aligned, relying on a brilliant employee is dangerous.”
Focusing on organizational design is not typical advice that startups in the US hear. The unspoken assumption is that because stakeholders enter into contracts rationally, aligning motivations is not a pressing need (at least early on). However, this situation is not necessarily the case the world over, as I have experienced. For nine years prior to coming to MIT Sloan, I worked in international logistics in Asia, North America, and Europe. One major lesson that I learned from these experiences is that different cultures have vastly different values (yes, I know that this is not particularly insightful). In the current environment of international value chains and culturally diverse teams, it is next to impossible to understand the underlying cultural implications and personal motivations of all employees, coworkers, and vendors/customers, and these cultural values and personal motivations can throw an unprepared manager a curveball.
I experienced something similar in 2007. My company’s parent headquarters (in Europe) decided to combine my division’s experienced sales organization with that of a smaller but more profitable similar business. On paper, the restructuring made a lot of sense, but in reality the move was a complete failure. The strategists failed to understand that the new structure threatened the cultural element that had made the sales staff so successful in the first place. By tasking the sales force with selling a new portfolio of admittedly inferior products, they were asking staff to leverage client relationships for company gain. Publically, the organization welcomed the structure, but privately they refused to damage their hard-won relationships with the new products. In other words, the sales staff valued their client relationships more than they did their relationship with the employer.
This is why Li’s advice makes so much sense; traditionally, organizations rely on contracts to align stakeholders’ interests. However, relying solely on contracts is wrong. The sales people had contracts, but complied only to a certain point (a milestone that should have been obvious). This approach is especially insufficient in cultures in which contracts serve more as suggestions than as binding obligations. Li’s advice advocates increased focus on the design of intra- and inter-organizational relationships (i.e., alignment of motivations). Although seemingly trivial, this focus could be the key to preventing major misunderstandings; and as US startups mature into increasingly international markets, this advice grows in importance.