Moving beyond core competence

China is emerging as an innovative source of business leadership as its risk-taking entrepreneurs dare to think differently

Ever since Deng Xiaoping stepped on the gas pedal for China's economic reform when he made the now famous "southern tour" to Shenzhen in 1992, companies in China-big or small-have been looking for ways to better manage and develop strategies and capture value.

For the first 30 years of the People's Republic of China, the country was organized under a planned economy. There was no notion of company, shareholder value, management or strategy. So when China's economic reform started and when entrepreneurs first emerged, they by definition wouldn't have had any formal education in modern management and little prior experience of actually running a company.

The rapid growth of China's market and the emerging competition drove many of these entrepreneurs to look for ways to better plan and manage their business.

The first wave of management consulting firms and business schools came to China in the early to mid-1990s, from the West. They brought along established knowledge, theories and frameworks from the West. Chinese businesspeople were attracted to these new ideas as they searched for ways to help run their businesses better.

In the West, from the 1970s to the 1980s, the notion of conglomerates was dominant. Companies like ITT and Tyco in the United States and Hanson Trust in the United Kingdom grew themselves into large amalgamations of businesses, often unrelated. The notion was that big was good.

After a while, the capital market decided that the idea of conglomerates wasn't so good after all, because of the lack of synergies across businesses. As a result of this, in 1990, two University of Michigan business school professors, GaryHamel and C.K. Prahalad, published a book titled The Core Competence of the Corporation, in which they argued that companies that perform well compete based on their strengths, or what they called, "core competences" or capabilities.

This theory caught on quickly in the Western business community and became the governing thought for companies' strategy formulations for the next several decades. Today, this is still the case. Using this theory, the capital market suggests that companies should focus on their areas of strength. And, by implication, companies should not arbitrarily expand beyond their areas of strength.

When management consulting firms and business school academics first came to China, they brought along these frameworks and used them to guide and advise Chinese clients. However, the Chinese executives, while intrigued, very quickly came to realize that something was missing. While useful, these frameworks couldn't quite explain the overall context of doing business in China. The consultants and academics also quickly realized that there's something about China's business that is somewhat different, but they couldn't explain what it was.

In the meantime, the external operating environment was evolving quickly, both in the world and in China in particular. China's fast economic growth, its gradual but consistent transition from planned economy toward market economy, the emergence of highly intensive competition in the open sectors, the increasing prevalence of technology and the availability of angel investing and venture capital funds all contributed to the emergence of waves of entrepreneurship and innovation in China that the country had not seen in the past.

Chinese entrepreneurs, in their search for growth strategies, were typically fast and agile. Some developed as diversified conglomerates, and some decided to focus on following the core competence approach. The results have been mixed.

Interestingly, some, through trial and error, discovered a third way of strategy development called "multiple jumping".When these entrepreneurs see new opportunities evolving, and even if they don't have all the capabilities to fully operate the new business, they decide whether to jump over or not. Some of them have jumped and were successful in latching on and, often, they repeat the process when newer opportunities turn up. When they jump, they try to fill their capability gaps through their own efforts or by collaboration with other companies by building so-called "ecosystems", or both.

Some that jumped but failed to latch on fell to their deaths. Some decided to stay. This approach to strategy is different from a conglomerate approach, because despite multiple jumping, these companies often keep their original heritage as their core. On the other hand, the approach clearly defies the core competence approach, because companies are willing to get into new areas of business without having the needed core competences established beforehand.

So, this multiple jumping approach is another way to think about strategy beyond the conglomeration and core competence approaches. This provides another way for companies to decide how they should develop their business strategies in a rapidly growing, discontinuous operating environment that abounds with fertile opportunities and enablers. A prime example of a company that has adopted this approach successfully is Alibaba. US companies such as Amazon and Google have also grown through this approach.

As China's operating environment continues to rapidly evolve, innovation and entrepreneurship continue to thrive. Companies are looking for even more inspirations for growth. Many entrepreneurs continue to look to the West, especially the US, for inspirations in technology, management and investment models. Some are also examining historical Chinese philosophies for philosophical guide posts.

Today, not only the number of consulting companies, business schools and training companies have grown and proliferated in China, but many corporations have also set up their own "universities" or "academies". Business executives, successful or not, are eager to share their experiences in running businesses, and some have turned into something like modern philosophers.

Conferences and seminars organized around themes of business, innovation and transformation take place regularly in cities throughout China. Airport bookstores, where business-traveler traffic is intense, show a proliferation of business books taking up most of the shelf space. Nonstop videos showing various "business experts" talking about "secrets" of successful business are now commonplace.

Additionally, social media, in particular, has become a regular medium for people to share their points of view on business. People with or without any real experience in business can freely critique others' successes and failures. "Online celebrities" emerge from many corners, and some have captured much attention with their points of view on business trends and remarks on individual businesspeople.

While a fair number of Chinese entrepreneurs are still relying on brute force and guanxi, or connections, to run their business, Chinese entrepreneurs increasingly regard knowledge as the key source for building their companies' sustainable competitive advantages. To this end, they actively search for new ways of building businesses. On the surface, these attempts may seem unsystematic, and perhaps some of them may prove to be futile, but some are creating new patterns that could become cutting-edge thinking. They also could form a new cornerstone for business thought leadership that brings about future inspirations for the rest of the world.

The author is founder and CEO of Gao Feng Advisory Co, a global strategy and management consulting firm with roots in China. He is also the author of China's Disruptors (2015). The views do not necessarily reflect those of China Daily.