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Status Quo of China's Enterprise Strategy: Relevant Issues to Be Addressed during the Transitional Period1

Dec 15,2010

China Entrepreneurs Survey System of human resource research and training center of DRC

Research Report No 127, 2010

The Entrepreneur Survey System attached to the Human Resource Study and Training Center of DRC has issued 16,000 questionnaires on "Follow-up Questionnaire Survey of Chinese Business Operators 2009" organized by the System. By October 15, 5,016 valid questionnaires had been fed back. The exemplary questionnaires are related to all trades and professions in 31 provinces, autonomous regions and province-level municipalities. Of them, the number of state-owned enterprises and non-state businesses has accounted for 8.8% and 91.2% respectively;the number of large- medium- and small-sized enterprises has constituted 8.7%, 44.1% and 47.2% respectively. The number of enterprise directors or general managers, factory directors and secretaries of Party committees has made up 94.3%.

I. Recognition and Appraisal of the Enterprise Strategy and the Strategic Decision-making

1. Business operators set great store by strategies, but think it more difficult to carry out strategies than to map them out

The survey shows that 47.5% of business operators are "quite familiar with" or "familiar with" relevant strategic theories, while 45.6% of them are "familiar on the whole" and only 6.9% of them are "quite unfamiliar" or "less familiar"; over 70% of enterprises have mapped out written strategic plans for a period of more than one year and less than 1/3 of them have formulated strategic plans for a period of over three years; 73.4% of business operators agree or quite agree that "it is much more difficult to implement the strategies than to map them out", 12.1% of them just agree and 14.5% of them quite disagree or disagree. Therefore, the evaluation of estimate is 3.99 (The evaluation of estimate is calculated on a 5-point basis quite agree=5, agree=4, just agree=3, disagree=2, quite disagree=1. The bigger the point, the higher the recognition. Same below.), being apparently higher than the median of 3.

In general, business operators have basically recognized the importance of the enterprise strategy and know about strategic theories, yet only less than one third of enterprises have mapped out written strategic plans for a period of over three years. Meanwhile, most business operators think it much more difficult to implement strategies than to map them out, which suggests that formulating effective strategies and improving the ability to implement the strategies is a huge challenge currently facing Chinese business operators.

2. Collective decision-making is conducted in state-owned enterprises (SOEs) and personal decision-making is practiced in non-state-owned businesses

With regard to the main work which operators are directly in charge of, the survey shows that 84.7% of the operators have chosen "formulation of strategies", ranking the top and being apparently higher than other choices.

As for final decision-makers of enterprise strategies, the survey shows that 45.7% of the operators have chosen the position of "Director/General Manager", ranking the top, and 38.3% of them have chosen positions in "Board of Directors", ranking the second, with others choosing posts in "manager groups" or in "higher competent authorities" and "leading enterprise Party groups".

The survey shows that director/general manager and board of directors are on the whole the main body to finalize strategic decisions and final strategic decisions are made by directors/general managers in half of the enterprises, with these decisions being made by boards of directors in another half. And final decisions are made by higher competent authorities or manager groups in over 60% of the state-owned enterprises and such decisions are made by directors/general managers in more than 50% of privately-run businesses. It suggests that collective decision-making is conducted at large in state-owned enterprises, while decision-making is personally made in privately-run businesses.

3. Optimizing higher management groups and improving strategic thinking among operators is of critical importance to the enhancement of the decision-making ability

With regard to the methods for improving the strategic decision-making ability, the survey shows that the first three choices by business operators are successively "optimizing higher management groups", "improving strategic thinking among entrepreneurs" and "ameliorating institutional framework and management systems". Other choices include "encouraging employees to participate in decision-making", "transforming personal values of entrepreneurs", "shaping innovative culture" and "optimizing process of strategic decision-making".

The survey shows that, generally speaking, business operators think that the main channels for improving the decision-making ability are successively "optimizing higher management groups", "improving strategic thinking among entrepreneurs", "ameliorating institutional framework and management systems", "encouraging employee participation" and "transforming personal values of entrepreneurs". And the first two are particularly important. What merits attention is that for state and state holding companies, "optimizing equities and corporate governance" is second only to "optimizing higher management groups" and "improving strategic thinking among entrepreneurs", ranking the third, which suggests that, for state and state controlling companies, equity optimization and systematic reform is still one of the main challenges facing the strategic development of enterprises.

4. Strategic decision-making models are mostly "imperative" and "visionary", with less participation by employees

The survey has been made into "imperative", "visionary", "formal strategic plan" and "employee participation" strategic decision-making models. The survey shows that business operators speak highly of "imperative", "visionary" and "formal strategic plan" decision-making models and speak relatively low of the "employee participation" model. It suggests that currently more Chinese enterprises have used the first three models to make decisions and have laid particular stress on "imperative" and "visionary" models. Of these models, the "imperative" model has been scored the highest, indicating that the imperative decision-making is currently the main form of strategic decision-making among Chinese enterprises.

The survey shows that most business operators have adopted the faster and more reacting "imperative" or "visionary" models, which to a certain extent reflects the dynamics and complexity of the business environment in China and stresses the impact of traditional cultural factors like authoritativeness on the decision-making models. In addition, the "employee participation" model has been scored lowly, suggesting that employees of Chinese enterprises have participated less in strategic decision-making.

The survey is aimed at assessing business performance in terms of growth, profitability, overall quality and social performance and, meanwhile, has analyzed the correlation between decision-making models and the business performance (The growth includes sales growth and market occupancy; profitability includes profit margin, profit level and rate of return on investment; overall quality includes competitive position, customer satisfaction and stability of workers; social performance includes social image, environmental protection and government relations. Same below).The survey shows that "visionary", "formal strategic plan" and "employee participation" models have a conspicuous positive correlation with all the four aspects of the business performance, while the "imperative" model has a conspicuous positive correlation only with overall quality and social performance and has no conspicuous correlation with growth and profitability. It suggests that the "imperative" model plays on the whole a part of success and failure in the development of Chinese enterprises and that, to raise the business performance, we should on one hand step up the strategic thinking and decision-making ability of business operators and on the other hand should place importance on "visionary", "formal strategic plan" and "employee participation" models and enhance the rationality of the decision-making models.

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1The report is one of the monographic survey reports on "Growth and Development of Chinese Business Operators 2010"