Huawei - How Much Room There Is for Cost Cutting

Now, cost cutting is a hot topic companywide at Huawei. However, how much room is there for this? My own observation and thinking convince me that there is much room for cost cutting at Huawei. Of course, cost reduction is an engineering project, which needs to be finished through detailed, comprehensive work instead of through one or two measures.

1. Be holistic and bear overall costs in mind

As the Company strengthens its cost review of all the departments, they are under great cost reduction pressure. Therefore, they all try to identify and calculate the costs they have incurred so that they will not pay for those they have not incurred. Unfortunately, in doing so, they are getting into a kind of "trap", which will be shown in the following examples.

During a certain exhibition, for hotel cost control, the sponsor (usually a certain department of Huawei) selected a hotel some 30 kilometers from the exhibition venue, with shuttle buses going to and fro. In fact, because many representative offices' participants in the exhibition needed to communicate with the customers, they would miss the shuttle bus departing at a fixed time. They had no choice but to take a taxi, which was very expensive. However, the sponsor did not consider such cost, for it was the participants who would get the taxi fare reimbursed back at their department. As for the sponsor, it effectively controlled its own cost – the exhibition cost. If the cost incurred by the participating representative offices was calculated, however, the total cost of the whole company was high.

This is a good case in point where the sponsor does not have a holistic perspective. While the cost on the book of a certain department goes down, the total cost incurred by Huawei goes up. In addition, we have not yet taken the overheads into consideration.

When a staff member goes on a business trip to a certain representative office, he should, according to our company's financial rules, get his hotel accommodation expenditure reimbursed back at his department instead of settled at the representative office that would in turn allocate the expenditure to his department. But have we ever thought of the cost for document processing? After making analyses, a certain telecom equipment vendor has found that the average cost for processing a document is about 90 euros. According to the same analyses done on Huawei's processes and efficiency, our cost per document may be higher than 90 euros. If we handle the reimbursement otherwise, namely, if the hotel accommodation expenditure is settled at the representative office and financially allocated, then our cost for document processing will come down significantly as a whole.

Like others, a certain representative office used to request its staff on business trips to collect prepaid phone cards. They could have their phone expenses reimbursed after they were back from their trips. After a phone expense analysis, they found that calls between Huawei employees' post-paid phone cards are free (through a junking system) but calls between prepaid cards or between prepaid and postpaid cards are expensive. So, the representative office decided to replace prepaid cards with postpaid ones and control the amount of phone expenses eligible for reimbursement. At a first thought, postpaid cards do not have a capping like prepaid ones, possibly leading to high phone cost. But the result is just to the contrary: After 50 prepaid cards were replaced with postpaid ones, the total phone cost has not risen, but gone down instead. Or it is safe enough to say that the total cost of Huawei has been reduced correspondingly.

In short, we need to develop a holistic perspective in order to cut our costs radically.

2. Cut costs through lean management

There is a time cost. If they feel a shortage of manpower, some of our grassroots managers request the HR department to make recruitment or ask the headquarters to assign some people from somewhere else "ASAP (as soon as possible)". But they often do so without thinking clearly about the amount of work, the required manpower, the constraints, and the meaning of "ASAP". Very often, when the people are available, they have nothing to do, demonstrating that preparation has been very poor. In this sense, "ASAP" indicates a sense of urgency not justified; it does not represent the reality.

Also we have to consider HR (human resources) cost. However, some of our managers do not have any idea of HR cost. Some local staff members asked me, in bewilderment: Why is labor cost put at the end of many of project proposals, without any focus on analyzing how our solution saves human resources for our customers. Studies show that, in Europe, labor cost accounts for 48% of the total cost of a telecom operator. Therefore, when encountered with financial crises, many European companies think of laying off people first.

Or, labor cost in Europe is five times that in China. If we manage roughly in our European operations as we did before, high cost will be inevitable for us. Now the Company is enhancing its review of our HR budget, quite in time. In my opinion, we should shift our control of the number of employees to that of total HR cost. If we are only concerned about the number of people, our managers will not take the HR structure into account. As a result, we may have some high-end people doing simple work or offer high salaries to those with low qualifications. In effect, when making recruitment, many European companies have a compensation concept, that is, there is a certain range of salaries for a certain post. This range helps identify the people qualified for the post.

Lastly, there is a communication cost. An analysis of our workflow reveals that, to complete a task, a lot of internal communication and coordination is required. Some people dare not make decisions, so they seek instructions and approvals up the workflow. Suppose that some positions are allowed appropriate freedom (or authority) to make decisions as a way of encouraging them to do so and balance is achieved through a control system. Then this helps save our time by some 30%, and a lot of cost at the same time. Besides, we need to ask ourselves: Why do we have so many meetings? Do all the participants have to attend?

3. Raise awareness of planning to cut costs effectively

The best way to cut costs is to improve efficiency. Such improvement can be achieved through advanced technology, improved management, and most important of all, an improved awareness of planning.

Any visitor to Europe should come away with an impression that it is very clean and tidy. It seems that the people are not moving or working at a fast pace, but they are actually highly efficient. As everyone is acting by the plan, things are usually done satisfactorily. Of course, sometimes they have to get their work redone, but not as frequently as we are. In our case, we usually start without thinking carefully. When finding something wrong after the work proceeds for a while, we have to redo it. Or, when a task is finished, it is found to be different from what the leader wanted it to be, and then work is redone. Or, even if we have a plan, but we change it or are forced to change it later.

In our work or life, there are plenty of cases where we lack the awareness of planning.

According to the statistics by a certain representative office, 80% to 90% of its staff will not book air tickets until 24 hours before embarking on their business trips. These tickets are called "last minute" tickets, which can be expensive at some times or cheap at some other times. When they are expensive, the price is several times higher than the normal price. Therefore, the reduction of travel expenses depends on a good travel plan. However, how many of us can make a good travel plan? Is it that difficult to make such a plan? The answer is no, of course, for some of us simply do not want to do it. A certain colleague was on a business trip from China to country A, for example. Shortly after arriving at country A, he left for another country, where he required his air ticket and hotel booked for him. Then he went back to country A where he booked a ticket for a flight to another country. This shows that he did not have a travel plan at all.

Also, there are a lot of cases where poor planning directly gives rise to increased cost. Let us take the application for work permits for example. As we have found an effective way to apply for a certain type of work permit, the successful visa rate is very high. So many people apply for it. Sometimes some senior managers will email the representative office, telling them that a certain person is badly needed or even indispensable for a certain overseas project. Of course the office does what it can to get the permit. When notified that the permit has been secured, the office is also told that the person will not come, for he/she has gone back to China or some other country. Incurring a by no means an exception; actually such applications account for more than 10% of all our permit applications. This is abnormal, absolutely. Some people think that the labor cost for a Chinese employee is low, but a careful calculation shows that the cost assigning a Chinese employee to work overseas is high, even higher than the labor cost of the locals. For this reason, we should make a sound plan for such assignment by asking ourselves: Why the assignment? What is the strategy? What kind of cost will be incurred?

We all know the mantra "Think before moving". If we can walk the talk, perhaps our cost will come down naturally.

source : Huawei -  Publications - Huawei People lssue 176