The Essence of Chinese Management

Guanxi Management

We will come to realize that guanxi management is the key to good governance of self-organized units. Guanxi management is also covered by the Doctrine of Dynamic Balance. ―… in the handling of the realm, a state or a clan, there are nine basic patterns of treatment …‖ actually suggests that the leader should properly manage his relationships with the ministers, vassals, ordinary people, etc. Also, for the purpose of good guanxi management, the Doctrine of Dynamic Balance discusses four ways to prevent us from doing to others what we don't want done to ourselves. This is obviously a characteristic of ethical leadership, as the leader is required to educate all the people through his following a high ethical standard.

Guanxi management is an important part of Chinese management, but what exactly is it? There is no strict academic definition. This term is apt to remind us of bad things in manipulating guanxi (in Chinese term, la guanxi), such as giving bribes or making a deal through the back door by utilizing personal relations. The guanxi management I'd like to discuss herein has, indeed, nothing to do with manipulating guanxi. In reality, actions aimed at short-term gains, such as manipulating guanxi, are harmful to good guanxi management.

Specifically, guanxi management mainly covers two things. On the one hand, there are always numerous types of guanxi in an ego-centered network, such as those of internal followers, of independent teams and of external organizations (e.g., partners and outsourcing service providers). How to establish long-term relationships with these relations such that both sides can cooperate for a long period of time and ultimately realize an all-win situation? This is an issue that guanxi management needs to address. On the other hand, since there is generally, within a Chinese organization, a bureaucracy to control a network of comparatively independent subunits and, outside the organization, a network of cooperative partners, there is a corresponding interface between the formal bureaucracy/institutions/rules and the informal guanxi/networks. How to deal with this interface? What things should be decided in accordance with these institutions and what others should be handled through these networks? How to identify these two types of things so that an organization can operate in a flexible and orderly, rather than disorderly, manner when it is under loosened control? All these issues fall into the scope of guanxi management.

Good guanxi management creates an atmosphere of harmony and trust among all the parties such that various activities can operate smoothly, rapidly and inexpensively. And such phenomena as the so-called ―manipulating guanxi‖ and ―making a deal through the back door‖ result from the misuse of guanxi and networks. The prevalence of these malefactions within an organization demonstrates the leader's failure in guanxi management.

We will expatiate on these issues in Lecture 3, Guanxi Management, and Lecture 4, Dynamic changes of Guanxi.

Become Perfectly Sincere to Build Guanxi Circles

Situation determinism developed by Chinese indigenous anthropologist Francis L. K. Hsu in his book ―Clan, Caste and Club‖ (1963) suggests that Chinese building personal guanxi circles is a cultural habit that they are unable to change. Such circles, however, can become vicious by turning into closed cliques, or places where there are countermeasures to undo policies from higher levels and where tacit rules are followed. Fortunately, you may also make them positive – turn them into powerful incentives through ―enfeoffment‖ (i.e., let them self-organize into self-directed teams and develop themselves in particular fields).

The management mode highlighted in the Doctrine of Dynamic Balance is not hierarchy-based control, but vision- and values-oriented leadership. The primary task of management is, therefore, to become perfectly sincere, according to this Chinese classic. Everything starts from sincerity. It is necessary for the leader to make him a good example for others and to create values and vision for the organization. Only by so doing can he set a common goal for the subordinates, who can then well manage themselves. And this will culminate in harmony based on dynamic balance, avoiding the scenario where all the people work for different goals.

―Able to assist the transforming and nourishing powers of Heaven and Earth‖ is the very goal of the above-mentioned management philosophies. Briefly, we should work to let all things keep growing. Instead of making the organization big and strong and competing for short-term gains, we should build it upon a solid basis so as to realize sustainable growth.

With the enfeoffment-based mode of team building, a Chinese organization tends to be structured such that there is, within the organization, a bureaucracy to control a network of comparatively independent subunits and, outside the organization, a network of cooperative partners. At the top of the organization, there is still a complete set of institutions, regulations and processes, with the emphasis placed on working in accordance with them. Nonetheless, there are a lot of networks, such as internal teams built around the key leaders, semi-independent business units that are contracted out and, outside the organization, networks of outsourcing service providers and strategic alliances. Institutions and regulations within a Chinese organization are therefore not stiff, but flexible enough to allow for the functioning of internal and external networks. Smart leaders are those who know how to leverage the human capital. Instead of restricting the employees with stiff regulations, they know how to use networks to achieve successes no matter where they are. This will grant the employees sufficient power and freedom to develop in particular fields, on the one hand, and assure that they will remain loyal, on the other. For this purpose, there should, of course, be a set of governance mechanisms that center on trust plus institutions. Trust comes from guanxi management, which in turn starts from one's becoming sincere, cultivating oneself and setting a good example for others. In China, therefore, governance is carried out under rituals and laws together.

All these will be detailed in Lecture 5, The Guanxi Circle Theory – Motivation of Chinese to Work.

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