Dissipative Structure and Basic Values
In 1969, Ilya Prigogine, a Belgian physical chemist, proposed his theory of dissipative structure on the basis of the Second Law of Thermodynamics. A dissipative structure is an open system that exists far from thermo- dynamic equilibrium, with the ability to efficiently dissipate the heat generated for self-sustenance. Entropy production can be minimized or even turn negative, and a higher level of orderliness would, therefore, take form. According to the theory, more orderly dissipative structures would emerge as various systems evolve or degenerate, driving the physi- cal world into growing diversity and complexity. The theory of heat death held by some pessimists was, therefore, shattered.
This is a great discovery. In 1977, as the founder of modern thermo- dynamics, Ilya Prigogine was awarded the Nobel Prize in chemistry for his contributions to nonequilibrium thermodynamics, particularly the theory of dissipative structure. This shows man’s optimism about nature and the law of life. On the other hand, Rudolf Clausius, who discovered the Second Law of Thermodynamics, received little recognition among scientists; he had been harshly criticized for proposing the concept of heat death of the cosmos. Approximately 100 years after Clausius’s discovery, the concept of entropy and the principle of entropy increase were recog- nized as the most fundamental scientific concept and principle applicable to human society as well as nature, but the theory of entropy remained a cold and relentless scientific law.
In contrast, the theory of dissipative structure is much warmer, because it gives human beings courage and hope. It says that so long as we are in an open system where energy is exchanged and released, any natural or human organization may escape chaos and return to order. Therefore, entropy may decrease and the body may be renewed. This is no doubt the best endorsement of human endeavors.
In July 2012, Ren Zhengfei said in a speech,
Later, my interest shifted from heavenly bodies to social dynamics. I care more about how to keep people going and motivate them to create wealth. This is the source of our reform initiatives. This is also the basis of our core value proposition: Dedication is the key to success.
Further, Ren said:
So what is a dissipative structure? If you jog every day, you are in a dissi- pative structure. Why? You are dissipating your energy and turning it into muscle and improving blood flow. If you dissipate all redundant energy, you will avoid diabetes and obesity. You will get healthy and beautiful. This is the simplest concept of a dissipative structure. Then there is another ques- tion: Why do we need any dissipative structure? We are saying that we’re committed to the company, but most often it is because the company is paying too much. This is not sustainable. Therefore, we must first dissipate such commitment based on excessive pay, and substitute with dedication based on certain mechanisms. There is a difference between working hard to gain the benefit and having something handed to you before hard work. We must dissipate our latent energy and then form new momentum.
Huawei is determined not only to dissipate the commitment of its people, but to also dissipate their pride. Ren Zhengfei said, “We must dissipate blind pride. What are we proud of? Instead, we should feel the crisis. We know the best how hard our life has been.” He further stated:
We have been alternating from stability to instability, from equilibrium to non-equilibrium, from certainty to uncertainty. We are doing this over and over again to maintain the company’s vitality. If you eat a lot of beef and don’t exercise, you will become fat. But if you exercise hard enough after eating beef, you will become a tough athlete. In both cases you are eating beef, but you end up in a completely different shape, depending on whether you dis- sipate energy or not. Therefore, we are determined to hold on to this system. This system is called a “dissipative system.” What would Huawei dissipate? Its rich man’s disease, its laziness, and its hedonism. And then, hard work will build up tough muscle in Huawei’s culture. Dedication is the cor- nerstone of Huawei’s core values, and the gene that has allowed Huawei to grow and mature. As the company flourishes, however, this primitive DNA of Huawei could mutate. In fact, some people and some depart- ments have already lost their shape. In this context, Ren Zhengfei argued in 2006, “When we talk about dedication, it’s more of a mental dedica- tion, or always going the extra mile to look for the better, than physical hard work.”
It is easier said than done, however. A perfect idea may deform and decay when it is materialized in any strategy and tactics, and a value may be diminished to an empty slogan and finally forgotten. Then how has
Huawei instilled its values across the company and passed them down for so long? While it surely helps that these values are cited and repeated almost every month and every day for over 20 years, the company’s insist- ence on self-criticism is all the more essential.
Self-criticism is an important tool to enhance and consolidate core values. In a turbulent age when people are torn apart between grow- ing economy and declining ethics, companies must try to conserve the uniqueness and purity of their own values, but this is a tough challenge. Therefore, self-criticism is no doubt the best means to effectively suppress increase of entropy in the organization with the least disruption. Ren Zhengfei clearly stated:
Huawei will insist on openness for the long-term. We won’t waver under whatever circumstances. If we don’t open up, we cannot absorb any outside energy and grow up stronger. At the same time, we must also insist on self- criticism. We must treat ourselves critically; otherwise our openness cannot last long.
However, self-criticism may not be able to hold back the irreversible increase of entropy, and, therefore, it is especially important to introduce negative entropy flow through radical reform to offset entropy increase. In this way, the organization will be able to escape chaos and regain vitality. Huawei has conducted a number of radical reforms, including process transformation, mass resignation of the sales department, and the buyout of 7,000 people, which have reshaped the organization, dissipated sub- group politics and its hierarchy, and placed people with stronger sense of mission, crisis, or hunger at the forefront of the company.
Self-criticism and organizational reforms have barred reverse selec- tion, or reverse dissipation in Huawei. A healthy and growing organ- ization must first of all possess a strong self-healing and self-restoring power, which means its healthy cells should be able to eliminate and replace decadent and degenerated cells, not vice versa.
From Karl Marx to Louis Kelso
Like a man, an organization in its middle age would often feel tired and diffuse an air of decadence. It is just natural. The organizational fatigue and corruption, as well as the greed of its individual members, may then give rise to some degenerative subcultures, such as subgroup politics, leader worship, collective inaction, treason, and mutiny.
Therefore, leaders of organizations would spend their lifetime fight- ing against organizational fatigue and corruption. The Roman Emperors, the First Emperor of Qin, Vladimir Lenin, George Washington, Mao Zedong, Margaret Thatcher, Bill Gates, Louis Gerstner, Vladimir Putin, Jack Welch, Silvia Berlusconi, and Adolf Hitler have all experienced and witnessed the craze and fatigue of followers, and of their own. This dra- matic change is due in part to the imperfections and faults of the leaders, but the real killer is the fatigue caused by the passage of time.
In history, bloody revolutions and blood-changing reforms have all been intended to punish decadent organizations and conquer the fatigue of nations. The multipartisan political system of Western countries and the leadership transition system of China, from the perspective of orga- nizational psychology, are both based on profound insight into human nature: Everyone is expecting new faces, which will create new passion.
In human history, great thinkers, such as Sakyamuni the Buddha, Jesus Christ, Confucius, Socrates, Karl Marx, Sigmund Freud, Max Webber, and Peter Drucker, were organizational physicians who had tried to examine the health of social organizations (including states and companies) and diagnose and prescribe remedies for their illness. They had reviewed their time, system, society, and country with exceptional coolness and detachment, but in the end, they had inspired and warmed up the public.
For great thinkers, criticism is a sharp scalpel, and the reforms result- ing from their criticism have brought organizations away from fatigue and disease while instilling them with newfound life. In the 1840s, Karl Marx, a Western intellectual, published a book, The Communist Manifesto, which declared the near death of capitalism with a sharp voice like an owl screaming in the dark. He argued that duality between the bourgeoisie and the proletariat would lead to the ruin of capitalism.
Karl Marx, it turns out, did not kill capitalism; instead, he became a great sweeper for capitalism. His resounding “death knell” declaration had inspired another declaration about 100 years later: The Capitalist Manifesto—How to Turn 80 Million Workers into Capitalists on Borrowed Money. The idea was that people could gain income through both labor and capital investment. The book was coauthored by Louis O. Kelso, who is chiefly remembered today as the inventor and pioneer of the employee stock ownership plan (ESOP). Being the man behind the rapid growth of the middle class in the United States since the 1960s, Kelso has helped hold up the sky of the capitalist world.
In 1988, 10 years after the start of China’s reform and opening up, a publisher and friend of mine said with black humor, “Karl Marx’s Das Kapital (Capital: Critique of Political Economy) has been widely read in China, but it seems the real ‘capital’ was left behind in the West while only ‘political critique’ was given to the East.” In 1992, during his tour to the South, Deng Xiaoping said, “‘Do Not Debate’ is one of my inventions.” For about 30 years, following the principle of “Do Not Debate,” China has created the best golden age in its history with miraculous speed. Of course, in this process, China has also acquired a lot of national fatigue and ills.
Today, China seems to be offering more liberty to “debate,” while intending to keep real capital at the same time. There is a multifaceted balance to be maintained, and it is a test for the entire nation, particularly for the elite class, including entrepreneurs.
Survival of the Horrified: A Sense of Fear Prompts Self-Criticism
In 1948, Huang Yanpei, prominent educator, industrialist, and politician, who was also one of the founders of the China Democratic League, visited Yan’an, the wartime capital of the CPC. He said to Mao Zedong with near- abrupt frankness:
For 60 years I have heard with my own ears and seen with my own eyes the rapid rise and fall of individuals, families, groups, and regions. Few have been able to avoid this swift cycle. In most cases, this is because at the start one is focused and dedicated despite difficult conditions. People are forced to fight for life or for a better life. As things turn better with some initial success, they lose their will. In some cases, laziness rises as a natural result of fatigue, and the feeling spreads wider until the whole organization is infected. At this point, no one can turn the table around. I believe this is also true with the Communist Party. You have been fighting for a new life, but I hope you can avoid the deadly cycle.
Mao Zedong answered,
I believe we have found a new path, and we can avoid the curse as long as we go straight ahead. The path is democracy. If the people are allowed to oversee and criticize the government, the government won’t lose its vigi- lance. If every one of us is alert, our future will be safe and sound.
Mao Zedong was a great man who slept with his eyes open. Throughout his life he had sought to understand the law of the rise and
fall of states and political parties. In order to prevent organizational ills and national fatigue, he made a unique invention: movements. Every three–five years, he would initiate a movement to stir up the entire coun- try by involving almost every person at every level of the CPC and China. These movements attempted to awaken individuals and organizations that otherwise would have fallen due to laziness and degenerative ills. In essence, Mao Zedong had wanted to achieve national stability by creating uncertainty throughout the country.
“The peoples of China are at their most critical time.” This is part of the lyrics from the national anthem of the People’s Republic of China, and has served as a warning call for the whole nation since 1949. During the past years of ups and downs, the CPC, the ruling party, has insisted on the principle of “criticism and self-criticism,” and every person and orga- nization has followed this principle through every period of development. This alertness to crisis has served the country well.
As a member of the CPC, Ren Zhengfei has experienced almost every change in China over the past 60 years. He also served in the military for several years. Therefore, in his business management, he has been deeply influenced by CPC governance and culture, just like most of his contemporaries.
Worth noting is that Huawei’s self-criticism is a revision of the CPC’s criticism and self-criticism. Criticism means to create alertness against danger. In the history of China and the world, many organizations had appeared extremely powerful, but collapsed easily at a critical test. The great Qin Dynasty of China that conquered and united the whole country lasted only 14 years, falling apart at the challenge of ill-armed peasant uprisers. Again, within 30 years of reform and opening up, China has produced a large number of star companies and business people, but how many of them are still on the stage? In most cases, they perished after achieving some success, as they lost their sense of fear and caution and fell short on self-criticism and introspection.
Ren Zhengfei often warned his colleagues that wood turns into ash after it is burnt red. He required his senior managers to read more about Chinese and foreign history, and recommended books, essays, and TV programs that he had read or watched. He asked them to pay special attention to tragedies that have ruined nations and companies due to internal corruption. He said, “The biggest risk facing the company will come from inside the organization. Huawei has insisted on self-criticism; that’s how we will conquer our internal crises.”
Maurice Greenberg, founder and CEO of American International Group (AIG), is a legendary figure. He is short in stature, yet a financial giant. He once asked Ren Zhengfei, “What is Huawei’s key to success?” Ren Zhengfei answered, “Self-criticism. Huawei has been moving forward through self-negation.” Greenberg said, “It’s a pity I have met you too late. If we had met 30 years ago, I would love to have invited you to work with me.”
In fact, the United States, which is the No. 1 superpower in the world, has won this position because for centuries it has cherished an awareness of crisis and has valued the tradition of self-criticism. There have always been critical voices in the country. None of the political parties, politi- cians, social elites, or presidents have ever relaxed their nerve. Today, however, perhaps because it has been the world leader for too long, poli- ticians and business organizations in the United States have started to get tired, restless, and arrogant.
Huawei’s leadership has not copied ideas from books or other orga- nizations. Huawei has derived its corporate values of more work for more pay and its organizational tradition of self-criticism from the CPC. Ren Zhengfei said, “We have learned all this from the CPC.” Huawei, however, does not advocate mutual criticism. Ren Zhengfei explained:
Mutual criticism is likely to hurt each other and create tension in the com- pany. Self-criticism is much better. Everyone can criticize themselves as much as they can afford. While people who dare to reveal their weaknesses and are willing to get help from others will make progress faster, those who are afraid to lose face will become thick-skinned over time and eventually catch up with the steps of the organization.
Ren Zhengfei on Self-Criticism
For over 20 years, Ren Zhengfei has spoken most often about Huawei’s core values and its tradition of self-criticism. The core values are the company’s spiritual totems to compete and win in the market, while self- criticism is the shield to protect the integrity of its core values. Both are equally important to the company.
When Huawei’s Charter was finalized in 1998, Ren Zhengfei pro- posed to place a stone at the front gate of its new campus with the inscrip- tion: “A company’s long-term success depends on the continuity of its core values and its tradition of self-criticism.”
Let us see how Ren Zhengfei interprets self-criticism. In 1998, he said: We must continue the tradition of self-criticism. No matter how much we have achieved, we must still insist on self-criticism. The world has evolved through constant self-negation. Whether Huawei will collapse depends on whether our management will improve. And this improvement should be measured by whether our core values are be accepted by our managers and whether we will continue to practice self-criticism.
In a 2004 essay titled “From the Realm of Necessity to the Realm of Freedom,” Ren Zhengfei asserted,
In this world only those companies that are capable of self-criticism can sur- vive. In this sense, Andrew Grove, former Intel CEO, was only partially right when he said only the paranoid could survive. One more sentence should be added. One also has to understand grayness and practice self-criticism in order to survive.
This is the first time Ren Zhengfei had placed self-criticism and grayness in parallel as two key factors for a company’s survival.
In 2008, Ren Zhengfei gave a speech titled “Those Who Can Climb Out of the Pits Are Saints,” in which he systematically elaborated on the importance of self-criticism in Huawei’s history:
The past twenty years have told us how important self-criticism is for a com-