Creating a‘pedigree’system for innovation to thrive

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–Speech by Guo Ping at the Economist's Innovation Summit, October 10, 2014

In ancient Chinese culture, Akhal-Teke horses were a symbol of strength and courage. They embodied Chinese people's ideals and fantasies.

Over 2,000 years ago, Emperor of the Han Dynasty had a golden horse made to exchange for Akhal-Teke horses. Envoys were sent to far-away lands to make the exchange.


However, the envoys were murdered, and the golden horse was stolen. This led the Han Dynasty to go to war.

After the war, more than 1,000 Akhal-Teke horses were brought back to China’s Central Plains. Unfortunately, this kind of horse did not survive. They failed to thrive because China did not have a pedigree breeding system for these high quality horses.

Innovation is like the Akhal-Teke horse. Without a proper management system, it cannot be sustained. Today, I want to discuss innovation from two aspects: mechanisms and technical philosophies.

We know that, today, the US, particularly Silicon Valley, is the global leader in IT innovation. The US has openness, flexibility, and a spirit of adventure. This culture encourages ideas. It also helps to turn these ideas into competitive products. This culture also attracts the best talent from around the world to the US to pursue their dreams. Learning from this, Huawei established an environment that stimulates and promotes innovation.

First, we established a mechanism to share the benefits of the company’s success, with our customers, suppliers and our people. This inspires passion across the company and in the industry.

Huawei was established in 1987 with only 21,000 RMB of funding capital. Today, our products and services connect one-third of the world's population. Our revenue was $40 billion in 2013.

One of the reasons for Huawei's success is that we grabbed market opportunities both domestically in China and later in overseas markets early with modest plans to make profits for ourselves. We also committed to investing returns into R&D and innovation. We’ve done this every year for the last 27 years. That's why we've grow quickly as the global communications market developed.

By pursuing reasonable profits and sharing rewards of our innovation with customers’ and suppliers, we strengthen the entire industry. Internally, we implement an Employee Stock Ownership Plan. This allows us to share the company's success to inspire passion across the business. We never aimed to create a single "richest person". Instead, we've created a large team of business partners with both aspirations and dignity. Benefit-sharing is the foundation for a continuous innovation mechanism.

Secondly, we combine global innovation platforms and development with China's cost-effective production capabilities. We integrate global resources with comparative advantages, and jointly innovate with the world's best resources.

Huawei has set up 16 research centers worldwide, through which we integrate global capabilities to innovate. Our employees research algorithms in Russia, design and color in France, and materials application in Japan. In China, we've developed strong learning and development capabilities. Each year, we transform over 10,000 new graduates into qualified engineers. We strive to unleash the potential of China's intellectual assets. We have the best employees engaged in ideas, engineering, and design for manufacturing, among others. Our goal is to develop the best products and services through our innovation capabilities.

Thirdly, we continuously learn and improve. We benchmark ourselves against industry best practices.

The ICT industry is constantly changing. In recent years, we've invested nearly one billion US dollars in advice from the world's top consulting firms. We learned from their best practice and improved ourselves. Today, we are changing from a "fast follower" to "a leader in the global ICT industry. We have become a trusted partner of our customers.

In short, countries and enterprises need to create the environment and conditions for innovation, especially disruptive innovation, to flourish.

Thanks to these efforts, Huawei has put an innovation mechanism in place to ensure the launch of competitive products is not a matter of chance, but guaranteed by well-organized systems.

【Technical Innovation】

Next, I want to talk about the philosophies behind our technical innovation from three aspects: one is being customer-centric. Two, is engaging in scientific and engineering research. And three is having a unique competitive advantage.

First, technical innovation should be customer-centric and deliver real value.

The purpose of business innovation is to create products that are well-received in the marketplace.

We've set up 26 joint innovation centers globally where we innovate with our customers. These innovation centers enable us to better understand customer needs, help them succeed, and improve customer satisfaction.

Customer success is the best reward for innovation. Huawei’s distributed base stations for wireless networks resolved a headache for mobile operators in Europe acquiring sites for base stations. We did this by making deployment much easier and more cost-effective. Innovation means leveraging global capabilities to quickly meet customers’ requirements.

Secondly, we advocate innovation by both scientists and engineers.

Over the past 20 years, Huawei has invested in the innovation of scientific products, resulting in almost 40,000 patents. We encourage scientists to unleash their potential in basic technologies that will create the foundations for our future development.

The innovation achievements of engineers might be much easier to understand.

The Mobile Broadband dongle is a good example. The read/write function of the USB interface in communication was invented by Huawei in 2005. This product gave rise to a new market for Mobile Broadband dongles. They sell for less than 30 US dollars, replacing a product that used to cost $400.

Almost 600 million of these dongles have been sold worldwide. The CEO of a European carrier once told me: "The invention and widespread adoption of the Mobile Broadband Dongle convinced me that Huawei is a company capable of delivering innovation."

As a company that pursues innovation by both scientists and engineers, Huawei aims to deliver well-designed products, but also to ensure they are manufacturable, maintainable, and affordable.

Thirdly, to survive and thrive, a company, especially a large company must have its own unique competitive advantages. Huawei has chosen to invest in basic technologies that lie at the bottom of the pyramid. As a multinational company headquartered in China, we believe that all technologies are equal.

Huawei invested 5 billion US dollars in R&D last year, of which 10% went to basic research in algorithms, mathematics, and materials applications. Thanks to these investments, the gross margins of our network products are around 10% higher than our competitors. These are profits built on differentiated advantages.

【Closing Remarks】

In 2007, Akhal-Teke horses were re-introduced to China, in the hope that they could survive and thrive in the long-term. This time, the pedigree breeding system was introduced first.

At Huawei, we hope the innovation mechanisms and technical philosophies we have created will enable us to continuously innovate and create more value for our customers, our industry and our people. We also hope it will benefit the whole society, ultimately enriching people’s lives by building a better connected world.

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