You are on page 1of 3

publicly listed, diversified holding company with 18 profit centers and six list ed companies spread over eight

economic sectors throughout China. To facilitate changes across such a wide swath of CRC, Jiang in 1999 began imple menting what CRC called "6S management." Profits and revenues increased after 6S. Equally important, he thought, was the potential for 6S to facilitate the development of a strategy-driven culture in a ll of CRC's profit centers. CRC evolution: As such, CRC effectively monopolized trade between China and the rest of the wor ld. CRC was mainly responsible for exporting Chinese goods. CRC's other responsibili ties included importing for China as well as creating supply chains and distribu tion networks for imports and exports. The 1954 acquisition of three local trading firms helped push CRC toward interna l specialization, which was done at first by setting up three import divisions ( in metals and materials, machinery and equipment, and chemicals) and eight expor t divisions (in native produce, minerals, food, retail goods, silk, tea, cereals and oils, and animal by-products). Policies introduced under Deng spelled the end of CRC's monopoly on China's trad e and forced CRC into a struggle for survival. Chinese firms flocked to the SEZs for state benefits, and their foreign partners used SEZ facilities as a low-cost assembly platform in their global division of labor. Each of these trends disintermediated CRC. At the same time, the Chinese government began to reform its foreign trade polic y, vastly reducing the importance of CRC's role as a general agent and narrowing the scope of goods it handled. Broad changes to China's industrial policy had similar ramifications for CRC. All these developments led to many SOEs set up purchasing, distribution, and tra ding companies of their own, all of which cumulatively began to compete directly with and effectively disintermediate CRC from its traditional role in Chinese f oreign trade. With the rapid elimination of its preferential role as state trading agent, CRC fell back on its existing international trade skills. CRC worked with firms in China and elsewhere to develop strategic alliances, joi nt ventures, and other collaborative efforts. As CRC grew with the Hong Kong eco nomy through the 1960s and into the 1980s, the company already had begun to dive rsify its investment focus, broadening its interests beyond trade toward manufac turing and infrastructure investments. CRC moved into areas as diverse as electr ic power generation, breweries, light industry, and textiles. During the 1990s, CRC embarked on a different growth strategy, centered on acqui ring listed assets. The Need for Focus By 1996, however, it was clear to CRC management that the group's assets and ope rations had become too diverse and poorly controlled. To improve central control and group earnings power, CRC that year moved to rationalize its structure and streamline operations. At the central level, CRC improved its financial controls and management, strengthened the balance sheet, and improved cash flow. Still, many companies CRC held were opportunity driven rather than strategic. It was very important for them to have holding company diversification and [subs idiary] specialization. "6S" Management Jiang expected that a new focus on management systems and performance measuremen t would promote greater focus on business profitability and long-term strategy i n CRC's multiple subsidiaries.

6S: The six elements included profit center coding, management reporting, budget ing, internal audit, performance management, and manager appraisal. From 1999 to 2003, the 6S management system would evolve substantially as Jiang moved to make it the core strategic management system within CRC. Most notably, by the end of 2003, the profit center coding system would be replaced by the pro fit center business strategy system and the balanced scorecard would be formally incorporated into the management reporting and performance management systems. 1999-2003: Beginning in May 1999, a cross-functional team was formed to design a nd implement a performance management system for CRC. The team began the difficu lt task of regrouping thousands of multitiered legal entities into "profit cente rs." Profit centers were classified on two dimensions: type of business and impo rtance (tier) of business. CRC restructured subsidiaries operating similar businesses in the same industry into single, "tier-one" profit centers based on measures of total assets, sales turnover, and profits. Each tier-one profit center might itself be a relatively large holding company, sometimes with many subsidiaries of its own, which CRC du bbed "tier-two" profit centers. By June 2005, CRC had 24 tier-one profit centers and six publicly listed compani es. In June 2000, CRC directors announced that the group's operations would hencefor th be organized around four core business categories: retail and distribution, p roperty, technology products manufacturing, and strategic investments. By the end of 1999, authority over the management of daily operations was delega ted to profit center management, while several functions of the profit centers r emained centralized at the holding company (CRC) level. Centralized functions in cluded review and approval of business strategies, appointment of top managers, financial accounting policies, financing arrangements, and budgetary control. 2003 and after By 2003, the profit center coding system had been replaced by wha t CRC called the "profit center business strategy system." Under this system, fo rmal methodologies for strategy definition and formulation were prescribed by CR C. Strategy formulation within each profit center was conducted with the use of detailed, standardized templates for strategy definition Management Reporting 1999-2003 With the profit center coding system in place, Jiang and the rest of t he top management team of CRC moved to evaluate the strategic direction and perf ormance of CRC's 24 tier-one profit centers by implementing the second "S" in th e 6S framework, the management reporting system. Both CRC and the profit centers created and reviewed monthly management reports. Each report consisted of a brief summary and analysis of business operations fo r the current month and a set of key performance indicators (KPIs). KPIs could b e classified into two types: group identical KPIs, mainly financial, and profit center-specific KPIs. 2003 and after Despite these initial efforts, Jiang and CRC CEO Charlie Song-Lin saw many profit centers as lacking clear frameworks for developing and executin g business strategies. By the beginning of 2003, in conjunction with the development of the profit cent er business strategy system, the management reporting system had evolved substan tially to include traditional balanced scorecards of financial and nonfinancial performance measures specific to the unique strategies of the individual profit centers. Jiang was starting to require profit center managers to develop and lin k performance measures to explicit "strategy maps" detailing how they intended t o create long-run sustainable performance. Budgeting 1999-2003 By December 1999, a new budgeting process had been implemented as part of the 6S management system. Before this, CRC budgeting consisted of an annual

planning process in which profit center management simply provided high-level fi nancial performance targets and operational targets related to volume and effici ency.

You might also like