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New Year Letter to All Staff from the Rotating CEO

A New Year Message for 2016
Guo Ping, Rotating and Acting CEO

Moving in the Right Direction and Achieving Transformation with a Platform to Support our Elite Forces

In 2015, Huawei estimates sales revenue of about CNY390 billion, with a solid increase in profits and cash flow. This year, our focus on pipe strategy has taken great effect. Over the past 28 years, we've gone from a few hundred people charging an opening in the city gate, to thousands, then tens of thousands, then hundreds of thousands of people relentlessly charging that very same opening together—never fearing, never giving up. To date, with a yearly investment of over CNY100 billion (about 50 billion in R&D, and 60 billion in sales, marketing, and services), our concentrated focus on that single opening in the gate—massive data transmission—has at last led to a major breakthrough, putting us in a leading position worldwide.

The New Year has arrived. For the next 5–10 years, we embark on a transformation that will enable those in the front lines to call for support more effectively. This is our strategy of building a massive platform to support our elite forces, and of separating centralized administration from front-line command. In this regard, we will progress in steps with a series of management initiatives.

Moving in the right direction is critical. In this age of rapid change, how can Huawei guarantee that it doesn't go in the wrong direction? We need to strengthen our investment in the unknown. Organizations at all levels must take a different approach to known variables and unknown variables in their work: When working with unknown variables, we should measure the outcome; when working with known variables, we should measure efficiency and financial returns.

We must target known variables to expand the depths of our transformation—to build the foundations and platforms that we will use to counter all the risks and changes that lie ahead. When undergoing transformation in unknown territory, we must focus on results and allow room for failure when appraising employee performance. Right now, the Strategy Marketing Department is taking the lead in our transformation efforts. They are addressing the unknowns in our industry and calibrating the direction of Huawei's future development against our strategic focus. Along the way, they will streamline the known variables in their work, and gradually strip away the elements that are less relevant to their workflow.

After finding the right direction, it's important to stay the course and correct ourselves through self-reflection. Only in this way can we amass the long-term, focused effort that leads to great moments of success. Innovation in our chosen field is extremely difficult. It requires strength in the face of solitude.

Our Carrier business is operating in a critical period of digital transformation. We need to face industry challenges together with our customers, remain committed to our pipe strategy, stay agile for the future, build a strong ecosystem, and help our customers achieve business success. In our Consumer business, we should pay attention to global deployment, establish consumer teams in each rep office, and adopt corresponding incentive mechanisms to achieve strategic growth. They must remain dedicated, and continue to embrace a development strategy that places quality and service first. In our Enterprise business, we should continue to narrow our focus to core areas of expertise, and further hone our competitive edge. At present, a small window of opportunity has opened up for our Safe City solution, giving us a foothold in the Smart City domain.

We must be tolerant. We must have the courage to engage in trial and error, and not seek perfection to a fault. The rapidly changing world around us requires nonstop innovation in technology, business, and management. We need to allow for reasonable costs incurred by trial and error—be accepting of the mistakes our managers make when exploring unknown business territory.

In the Second World War, General MacArthur once ignored a series of orders, leading to great loss for the Americans and their allies. However, the American government did not turn its back on him. Rather, it gave him the chance to learn from his defeat and help resolve conflict in the Pacific theater. In the same manner, we should not turn our backs on those who fail in the pursuit of progress, nor should we judge our team members too harshly for making mistakes. Together, we need to open up our hearts, open up our minds—and success will be ours for the taking.

Self-reflection is self-correction—a powerful tool for improving ourselves. No matter how outstanding an organization is, if it doesn't have self-corrective mechanisms for growth, it's destined to fail. For the past three years, we've held semi-annual self-reflection sessions for our executive board members. Similar mechanisms in all functions are flourishing. We're looking issues straight in the face, objectively analyzing ourselves, and driving self-improvement.

At Huawei, we have but one objective: success. Together, we work towards a single goal and benefit from a single source. Guided in the right direction, we charge forward. We advance. Regularly held external advisory councils and self-reflection sessions mark the ongoing development of our corrective mechanisms at Huawei. A few years back, we began employing the "red team and blue team" method of self-reflection. Similar to modern war games, the blue team plays the role of a competitor, always challenging the red team and exposing its faults, aimed at helping the red team improve. The idea is, instead of subjecting ourselves to the repercussions of "black swan events" (or unanticipated, impactful events), we should actively seek out and prepare for the black swans ourselves.

Curious, people on the outside have asked us, "Does the blue team really play the role of a competitor within Huawei?" In response, Mr. Ren replied, "Yes, they do. And the leaders in the red team should be selected from the blue team." This is essential. We must place our red team leaders in the blue team to hone their skills. If they fail to lead the blue team in their efforts to find cracks in the red team's armor—if they fail to challenge the red team's work—then it goes to show that they are better fit for a defensive position, and that they aren't equipped to actively seek out and seize new opportunities. From self-reflection sessions to the blue team methodology, to the Xinsheng Community1  and Improvement2, we use all sorts of mechanisms to ensure that our internal self-reflection capabilities are good and strong. In this way, we keep ourselves on track.

Only with the right value distribution mechanism can we inspire all of our employees to create value. A number of our external advisors have observed that enthusiasm and vitality have noticeably increased among Huawei employees in the past few years. Perhaps the transformation of our incentive mechanisms has taken effect.

We want all of our employees to enjoy their share of the company's success in a more timely manner. To inspire collective dedication, we will continue to promote the "Contribute and Share" bonus mechanism; we will continue rolling out our Time-based Unit Plan (TUP) for global staff, and increase long-term incentives for key talent. In 2016, we will continue to optimize our incentive mechanisms to achieve a 3:1 ratio between returns from labor and investment, and we will provide more incentives to employees in hardship regions. We will move forward with non-monetary incentives as well, including the Future Stars3 awards and Whiz Kids4 recognition, in order to enable dedicated Huawei employees and their families to lead more plentiful and fulfilling lives.

In the next 20 to 30 years, our society is destined to evolve into an information society. By 2025, there will be four billion new broadband users and more than 100 billion connections between things. People will consume more than 500 times the amount of data. Those who can navigate the massive floods of data will be heroes; the information era presents enormous growth opportunities, and we must not let them pass us by.

To scale new heights, we can't use a rainbow as a ladder. We must proceed steadily, our feet on the ground. We must write code, line by line; communicate with one customer after another; resolve one problem after another; and connect information silos, one after another. Through the gradual accumulation of ordinary act after ordinary act, we can seize the opportunities that are unique to this era. Let us work hard to create value for our customers, and for society. By enabling others to succeed, we ourselves succeed.

I wish you all a Happy New Year!

Guo Ping, Rotating and Acting CEO
December 31, 2015

1. Huawei's online forum, a platform for all employees to freely discuss company matters.
2. An internal publication at Huawei aimed at improving all aspects of management.
3. An honorary award at Huawei. Each team votes for winners within their own team based on collectively agreed upon standards.
4. An internal recognition of Huawei managers for exceptional contribution to operational excellence.

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