Using Rational Management to Lead a Turnaround

“Some people sighed and said that Christine was growing old. Indeed, we now focus more on building up internal management strengths, conducting self-evaluation and setting benchmarks.”

1999 was a watershed year for Tien-An Lo and his businesses. That year, the majority of Mr. Lo’s assets in Taiwan suffered great losses due to the disastrous Asian Financial Crisis. Christine, a Shanghai-based foodstuff company he had made a small investment in seven years earlier, turned out to be his only remaining intact asset. Badly battered by the financial tsunami, Mr. Lo decided to go to Shanghai and reorganize Christine by dissolving its previous partnership.

His family members and investment partners strongly opposed his decision to acquire a 100% stake in the company. Christine was in turmoil; besides suffering heavy financial losses, it had been badly managed. Rumours swirled that its plant and equipment would be put up for sale; employee complaints piled up; and shareholders were growing dissatisfied and had lost confidence in the company. Nevertheless, Mr. Lo followed his sharp business intuition. He rolled up his sleeves and took the lead in cleaning up the company’s plant and equipment. Under his leadership, Christine gradually began to turn around. It saw its severe losses decline, and its sales begin to increase. In early 2001, Mr. Lo recalled and destroyed a batch of butterfly crackers worth RMB 150,000 because of issues with their quality. By setting an example with his high standards and running the company as a conscientious business, Mr. Lo steadily improved Christine’s reputation among consumers.

Having achieved great success at an early age and then saving his business from collapse, only Mr. Lo himself knew the hardships he had endured in rebuilding his business. He recalled that when he was in his thirties he drove a Cadillac and was surrounded assistants and secretaries. In those days in Taiwan, making money was easy. Nearly all his investments were profitable, and the success was intoxicating. However, when the financial crisis hit, his investments were nearly wiped out.

No one could have expected that this foodstuff firm Christine — once on the brink of collapse — would eventually become the largest bakery brand in the Yangtze River Delta. After all the ups and downs, Mr. Lo will not be complacent about Christine’s current success. Looking at the challenges that lay ahead, he continues to mull the best path for the steady and long-term development of the company. Given the fierce “red ocean” competition in the traditional bakery foods market, it has become a top priority for the company to find a new “blue ocean”, to mitigate potential industrial and corporate operational risks. Mr. Lo believes that thoroughly implementing ISO standards will also be crucial to the company’s sustainable development.

The CEIBS Kaifeng Centre for Family Heritage spoke with Mr. Lo about his experiences and his future vision for the company.

Successful Turnaround, Constant Reflection

CFH: What is your advice to entrepreneurs for handling the ups and downs that their businesses may experience?
Lo: I ran a dozen businesses in my thirties, but at 48 I nearly went broke. I was almost penniless when I arrived in Shanghai. How could all this have happened? I think it was a lack of business focus. Hence, for today’s Chinese entrepreneurs, including second-generation entrepreneurs, I think it is extremely dangerous to let yourself fall into inertia once you are well-off financially. I also urge everyone to avoid making blind investments.

Investing can be a ruthless job and may even cause problems in society. It is a process that requires constant reflection and learning, as well as the courage to identify and face the challenges and the truths. The business world is merciless. This is especially true in Shanghai, a paradise for dreamers. People from around the world want to set themselves up here, and they are doing their utmost to fulfil their dreams. As one among this crowd, you must continuously study and learn, re-examine your priorities from time to time, and push yourself to new heights.

CFH: What do you think is the most important thing to focus on regarding family business governance, and what do you think makes an evergreen business?

Lo: It is very risky to have a business managed by a family or to simply follow regional or national customs. I believe that every business, whether it is family-owned or privately-owned, can be seen as a living organism that should be guided by rules. Without well-defined rules, the family nature of a business can become an obstacle for its further development. For example, when conflicts of interest arise between the family and professional managers, everyone may bicker and the result will be an outcome that benefits no one.

Developing a family business is like building a tall building: without a solid foundation, the building will sway in stormy weather. So, I believe that for both family and non-family businesses, effective rules and internal controls are of great importance. The sustainable development of a family business depends on its degree of openness and effective corporate governance.

The Need for Rational Governance

CFH: In your opinion, should family members involve themselves in corporate activities? What are the potential degrees of involvement and what are their pros and cons?

Lo: I think that the family should have well-defined rules specifying who is involved or not in different corporate functions, and the rules should be observed by every family member. For all businesses, whether or not they are family-owned, it is important to put in place clear, rational rules about this, and to keep decisions driven by bias or emotion outside of the company. Actually, it is often the patriarch of a family who disrupts the family business and hinders its development. Simply put, we need rational management.

CFH: Do family members and professional managers have the same level of emotional engagement in, and dedication to, the family business?

Lo: Steering a business is like managing a big family. As long as the head of the family can set up a convincing vision and strategy for future business development, the professional managers will be as devoted as the family members, and they will identify with the company and understand its needs and objectives. In this way, they work as family members do. What we should do is create an atmosphere that encourages this type of commitment and dedication, as well as a willingness to shoulder responsibility and meet challenges.

Incorporating ISO Standards & the Third Stage of Business Model Transformation

CFH: How has your company’s going public influenced corporate management and your employees?

Lo: It has had a great impact. Unlike in the past, our incentive mechanism is completely transparent now. Issues such as when and how many stock options should be granted are all stipulated in a clear manner. We previously used a cash-based incentive system and subjectively conducted performance appraisals. The evaluations of some managers were based more on emotions, while others were evaluated under a stricter approach, and the results could be unfair to employees. So, now we have introduced the ISO system of standards to promote a fair and transparent incentive mechanism.

CFH: What will the future bring for Christine? What is the company’s next step?

Lo: Christine’s third stage of business model transformation will be a new start for us. Our first transformation was in 1992, when the company was initially set up. I had only acted as an investor and hadn’t participated in its management. The second transformation was initiated 13 or 14 years ago when I arrived here and led our people to reorganize the business. At that time, making money was easy as there were a lot of market opportunities. The third and most important transformation is to fully adopt the “experiential consumption” concept. Specifically, we will encourage deeper interaction with consumers, helping them to experience the improved convenience and health that Christine can bring them. That’s experiential living and experiential marketing in a real sense.

Regarding our next steps, we have expanded by steadily opening new outlets across the country. In the future, we will continue our efforts to explore a new “blue ocean” and take a more multifaceted approach. For example, we will enter the e-commerce sector and also begin providing wholesale lunch foods to hotels, families and businesses. But first we will need to clearly position ourselves for continued growth.