1994 INTERNATIONAL SYSTEM DYNAMICS CONFERENCE
A Promising Way of Re ping the State-Owned Enterprises In China
Qifan Wang , Wang Huihua, Jin Yin and Wang Xianyong
School of Management
Fudan University
Shanghai, 200433, China
Abstract
Chinese state-owned enterprises, which have decades of experience under planning economic system,
have been inured to the simple production function far from market. Therefore, when China began to
strive for developing the market-oriented economy, the challenge and influence they met are severe.
Some experiences have been accumulated in the past years' reform, but how to make the state-owned
enterprises more vigorous is still a critical problem that should be solved immediately. This article
tries to discuss how to apply the learning organization, a theory and method
used in the Westem Countries universally, to the organization-constructing of Chinese state-owned
enterprises so as to find out a commonly effective means to envigor the enterprises. The characters
and problems of Chinese state-owned enterprises as well as the features of learning organization
applied in China are illustrated in the article at first. Then the procedures of building learning
organization in a typical enterprise are discussed, aiming at developing the basic principles and
commonly used methods of realizing a learning organization. The combination of learning
organization and generic structure are developed. Because the principles and methods are rooted in
the Chinese realization. it is possible to be applicable to our purpose.
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A Promising Way for Revamping the State-Owned
Enterprises in China
J. History and Realization of the Chinese State-Owned Enterprises
The state-owned enterpeises in China have their own development process in the past 4 decades,
which made them quite different from those in Western Countries.
1. Many of them are invested by government, which calls for no economic returns. Therefore, they
exist mainly as administrative units, instead of economic ones.
2. Their functions are simple: accepting plans from the higher level without other choices and
finishi di task. It is not imp for them to have a knowledge of producing for whom or
why produce. And they need not to worry about sale, nor the material purchasing -- thus results the
supply plan. Under such circumstances, it is natural to regard the completion of the task as the main
index.
3. A lot of the state-owned enterprises have a long life-time with low efficency. Prior to 80s' late
years, the Mainland had not a formal company bankruptcy law, as the conception of bankruptcy is
thought unfit for the socialism. As a result, we have not the records of large number of enterprises’
disappearance, only the ever increasing number of total enterprises. Once a plant is set up by the
nation, it never terminates even if it is d. Ol ly, many prises built in 50s’ have
about 40 years’ history.
This kind of enterprise model is not adaptable to the global economy development. The central
government at last realized the problem, even though it has already thwarted the national economy.
Thus the reform and opening policy are dedicated to revise the situation. With the experiences and
lessons being collected, we step forward. Last year, the focus was put on the transfer of operational
mechanism, and it is effective in the form of law. This means that the obsolete state-owned
enterprises will never exist from now on. And the enterprises must expose themselves to the market,
of course, without the protection of the nation. Their existance is determined by their profit directly.
They are thrown into a competitive environment.
The various changes bring about huge shock and challenge to the enterprises. Above all, state-owned
enterprises must complete their transfer in function, i.e. from simple production model to production
and operation -- this demand has been prompted for some years, but it does not become crucial until
the objective model of "Socialistic Market Economy” is ascertained. It is clear that these enterprises
should and must produce the best-selling product and improve their ability to develop new product in
order to survive. And they must obtain the required material from the market. Factors that are ignored
such as price, cost, quality before will be positioned properly. This means that some natural mindset
in the past must be turned over. Simply speaking, state-owned enterprises are more and more similar
to the companies in the Western Countries in respect of function and action. Therefore, they should
absorb the successful management experiences and techniques.
On the other hand, statistics and studing on organization theory in last two decades showed that the
largest industrial enterprises commonly have an average life-time. The enterprises which approach
this limit hardly could avoid the depression in efficency. This limit was thought to be about 40 years.
The effective way to aviod this kind of di ion is i ion, mainly in as well as in
technique. Only by the way of i ion, can the ization is made ion and able to
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sustain their vigor so as to exceed this limit. This concept is very important to the state-owned
enterprises in China. The obvious reason is that they all have a long life-time with low efficency.
The success of the application of learning ization of systems thinking advocated by Dr. Peter M.
Senge in many famous companies such as Royal Dutch Shell, IBM, Apple shows that the theory is
ffective in the of i in thoughts and in management innovation.
Therefore, it is promising that we apply it fo Chinese state-owned enterprises to enforce their vigor
and complete the transfer of
Il. Application of Learning Organization to Solving Problems of Chinese State-Owned Enterprises
Learning organization is an organization that is able to channel the energy of environment change
into a force for ional growth and That is to say, it is an organization with a
good learning ability. The process of organizational learning, just as that of personal learning,
includes goal-setting, action, comparision ( by which to accumulate the experiences ), more effective
action and more suitable goal. It is also a feedback process. In a non-learning organization, aging is
some kind of burden to thwart itself. The longer the age, the more stubborn the collecting unfittful
mindset. This accustomed wrong mindset makes its object further deviated . When some limits arrive,
it is unavoidable for it to collapse. Instead, a learning organization is different. Its age is an
accumulated resource in forms of experiences and lessons, which is beneficial for it to act correctly.
The pursuit for i ‘ion is a shared ch istic of all learning organizati only by which could
the organization maintain energeticly.
Dr. Senge has five for improving the izational learning ability : systems
thinking, shared vision, shared mental model, personal mastery and team learning. The soul of the
disciplines is systems thinking. Building a SD microcosm of the organization to improve and
accelerate the learning process is a concrete method, the famous microcosm -- learning laboratory
such as CLL ( Claim Learning Lab. ) of Peter M. Senge and Bio Industrial Products Laboratory of J.
Morecroft.
It is necessary for organization to build Pp based SD model, not only for solving practical
problems , but also for doing with effective systems thinking. This will involve the correct attitude to
use the computer. We think that of 1) as a hard’ core of numeric simulating
technology plays an important role in software environment of organizational learning. But it is also
our opinion that it itself should neither be our focus, nor the main content studied. During the process
of organizational learning it human brains. But were the interest of the learner absorbed in
it, effective learning would not be acheived. Therefore, when we set up the learning organization of
Chinese state-owned enterprises, two aspects are given extra consideration. First, it is not necessary
to ii the ip Pp inaryly before the real purpose of the learning is understood .
The second is to speed up the process of modeling by application of generic structure theory.
Considering the similarity in structure of state-owned enterprises ( in fact, this similarity exists in the
manufacturing system universally ), we created some generic substructures. When building a model
of some concrete enterprise, what is needed to do is to select the proper substructures, tailoring and
complementing them. We will introduce the division of the generic structure. According to the
functional feature of the manufacturing industry, an enterprise organization is divided into 5
substructures: marketing, ing, finance and 1 (auman and
R&D (research & development ), as can be seen in Figure 1. After function and behavior analysis of
each substructure and coupling among the substructures are deeply studied, some basic sectors are
developed. Obviously, it is more effective to build model based on generic substructure than to do it
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from naught. And it facilitates people to enter the essential learning stage quickly, instead of spending
large amount of energy on modeling and technical skill of
Figure 1. Generic Substructure of a Typical Enterprise
At first, the practice of setting up a learning: ization for typical stat d enterprise is
introduced, involving two sections: modeli ill of generic by example of the
personnel sector -- and five disciplines practice. “This is one of the bases of our developing disciplines
and procedures for state-owned enterprises to build Learning Organization in common sense.
Il. Case -- The Practice of Creating Learning Organization in Shanghai Pump Factory
1. Background.
Shanghai Pump Factory has decades of history. Fits of engine are its main products. Though it is
better compared with the other enterprises of same trade in regard to benefit and sale, there are many
problems.
<1>. Contradition between marketing and ing. Low productivity caused by poor technique
and equipment condition unenable the products to meet the requirement. On the other hand, it also
makes adjustment of technique lag the market demand, which causes some business lost. As a result,
the production waves strongly.
<2>. Training is not considered enough. This has negative effect not only on the whole skill level, but
also on activity of the employees. Our personnel example later will foucs on this.
But, these two problems are not special for the enterprise, they exist in many state-owned enterprises
universally. Therefore, it is important to emphasize them.
2. SD Modeling.
It is helpful to build a SD model to describe the complex structure and mechanism in organization not
only for to ledge and und bl but also to improve their systems
thinking ability. Therefore, modeling weighs in realizing learning organization.
It is not only the problem being resolved of a particular enterprise, but search for an effective way to
envigor the whole state-owned enterprises is also our goal. Subsequently, we pay more attention to
abstracting the common sense. And it is not our task to describe the model in total in this paper.
Therefore, here we will introduce the procedures of applying generic structures to building the model
by example of personnel sector ( ie. human resource ). In order to build it rapidly, we divide the
whole system into sectors. Each substructure is built seperately at first, then they are combined.
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9"
AVERAGE
TRAIN FARE
Figure 2. Personnel Sector Flow Diagram
This system shared the same structure: as that of other manufacturing corporates. It is divided into
five sectors: ing, 1, financial and accounting, R&D, ie. five
substructures. Besides they share the commonness of the generic substructures, each sector possesses
some features which are fit for the organization of its own. The basic model can be obtained quickly
by combining the commonness and features. As a example, human resorece sector is used to illustrate
the modeling procedure.
The generic substructure of personnel includes two level variables: number and skill of employees,
represented by WORKERS and SKILL in the figure, which is used to reflect the requirement of
quantity and quality of human resource by the company.
Figure 2. shows the basic generic substructure of personnel sector. The main loop of WORKS is
negative feedback loop adjusting to desired number. Hire and fire adjustment, retirement and the
brain drain are involved. In the past, there is only hiring in hire and fire adjustment. But with the
reform of personnel stipulation, both hiring and firing will be involved. So does the SKILL. But
besides retirement, the brain drain, hire and fire adjustment, training and personal initiative have
great infleunce on SKILL, as are h d by learning ion theory. And activity is effected
by company welfare and promotion policies.
Creating a concrete SD model based on generic structure usually includes three steps.
<l>. Generic structure tailoring. including selection, pansion and simplization of
some factors and substructures.
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<2>, ion and selection of Most value of model parameters are determined by the
practical enterprise, such as RETIRE RATE, AVERAGE TRAINING FARE. This is the main one of
the three steps.
<3>. Synthesis of blocks. In each generic substructure, there are some variances named as interface
variable, which are the joints between the sectors, such as REQUIRED WORKERS and REQUIRED
SKILL, which are decided by manufacturing, marketing, and R&D.
Of course, model built on these is a basic one. It needs to be revised, readjusted, and integrated, but it
will be easier than to build it from naught.
3. Implementing the Five Disciplines
The five disciplines provide concrete means to improve learning ability of an organization. In
Shanghai Pump Factory, we these five disciplines in f¢ g three respects.
<1>. Change the Mental Model and Build Up Shared Vision
In many state-owned enterprises, unfit mental model often hinders advocating advanced management
technique and making effective decisions. Managers are so inured to the behavior modes spoiled in
the ossified planning economic structure, many of which are unsuitable for requirement of market-
oriented economy, as to adapt themsel to the new di ly, in order to set up
learning organization successfully, it is critical for state-owned enterprises’ managers to change their
metal model.
To improve the mental model, we built "Inner Special Zone" in the enterprise. In the "Inner Special
Zone", people, machines, materials, funds and are i and strict
disciplines are adopted. That is to say, it is set up for transfer of operational mechanism. When it is
spread, the whole enterprise can improve its management and technique. The “Inner Special Zone"
brings all people to change their mind. Effectiveness in it shows that it is beneficial undoubtedly for
mental model changing.
<2>. Stimulate Personal Mastery and Act Stimulation Mechanism
Personal learning is the base of institutional learning. Without effective personal learning, team
learning can not be acheived. Modern management values person more than ever because it has been
a common opinion that people have unlimited creativity and activity. Only when the organization
provides good environment for personal mastery, could it attract people of capability.
<3>. Team Learning -- Improving the Systems Thinking Ability
System, or an organization is not simply sum of single element. An effective organization can
combine each individual to obtain the optimal. The team learning aims at approaching accordance to
some decision or action by communication. Generic structure and SD model are helpful in team
learning. It let managers have a knowledge of the inner problem clearly. By team learning,
communication as well as systems thinking ability is improved. It is also important in building
Learning Organization.
IV. Principles and Procedures
Based on practice in Shanghai Pump Factory and some other corporates, we sum up some guides and
principles in building learning organization for state-owned enterprises in China.
1. Aiming at crucial problems;
2. The five disciplines focusing on systems thinking are key;
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3. Theory and method of generic structure is used to build SD model. And the built models can
complement the theory and generic substructure sets.
4, Communication and concord between or and are ized in
all stages.
These principles are embodied in the procedures of building a learning organization, as can be seen in
Figure 3.
Goal-Setting and
Problem Defination
election of the
important Sectors
Generic
Structures
[ Modeling and Validating
| Scheme-Designing
Five
Disciplines
Scheme-Implementing
R ig the
Organizational Structure
Evaluation
with the Goal
Figure 3. General Procedures of Building Learning Organization
for Chinese State-Owned Enterprises
REFERENCES
1. Qifan Wang , et al. Theory and Application of System Dynamics , New times Press, 1987
2. Peter M. Senge, The Fifth Discipline , Doubleday, 1990
3. Peter M. Senge, Managerial Microworlds, Technology Review, July 1990
4. Kramlinger, Tom, Training's Role in a Learning Organization Training, July 1992
5. Bao Jiming,The Research on the behavior of Chinese State-Owned Enterprises, Ph.D.
dissertation, 1993.
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