Ma Huateng’s Open Letter: Working with Shades of Gray to Build a Living Organization

Seven Dimensions of the Principles for Working in Shades of Gray Author: Ma Huateng, Chairman and CEO of Tencent — introductory guide On July 9, 2012, the first anniversary of Tencent’s partner conference, Ma Huateng sent partners an open letter sharing seven “principles for working in shades of gray” for the internet industry. The concept was inspired by Ren Zhengfei’s well-known article 管理的灰度 (Gray Areas in Management, descriptive title). Ren’s gray areas focus on values and are more philosophical; Ma’s principles have a more concrete meaning. Taking an ecological perspective, he reviewed the successes and failures of Tencent’s fourteen entrepreneurial years and proposed principles for creating a living organization, with a more systematic and practical approach. The seven dimensions he identifies—demand alignment, speed, flexibility, redundancy, openness and collaboration, capacity to evolve, and innovation—can be seen as seven survival indicators for the distinctive organism that is a business. Tencent’s success rests on an intense focus on users. A product manager at heart throughout his career, Ma sees demand alignment as the first driver of a company’s evolution, echoing Huawei’s customer-centric philosophy. Tencent product managers’ 10/100/1000 rule, discussed in the letter, provides a direct methodology. On speed, Ma explicitly means rapid iteration to achieve a breakthrough at a single point, differing somewhat from Lei Jun’s internet mindset. Tolerance of failure is a prerequisite for business innovation. Ma’s redundancy is a philosophical description of Tencent’s internal horse-race mechanism: not merely allowing failure in general, but reserving space for it to support innovation’s success across the system. Openness and collaboration reflect painful lessons after the 2010 3Q conflict, as well as the initial results of a year implementing Tencent’s open strategy. Flexibility, capacity to evolve, and innovation are common characteristics of living organizations. The letter’s most distinctive feature is not a forecast of industry trends but a systematic account of Tencent’s entrepreneurial methodology: the basic experience running through its passage from survival to growth across a competitive canyon. The secret of Tencent’s continuing growth lies below. --- Ma Huateng: Hello, partners! A year has passed since last year’s partner conference. Together, we have taken the first step toward a new, open internet ecosystem without boundaries. Many entrepreneurial partners have emerged on Tencent’s open platform, and quite a few teams have achieved initial success. Seeing these developments makes me happy, but also conscious of our considerable responsibility. In the past, Tencent’s performance may have affected only our employees and shareholders. Now it affects everyone. Tencent must also help the platform prosper and succeed alongside our many partners. This change repeatedly makes me ask: beyond sharing the “hardware” of traffic, technology, and services, what else can Tencent offer? How can we open up the experience and capabilities we have accumulated to make the entire internet ecosystem healthier and more prosperous? Over the past year, observing partners on our open platform, I have found that making one good product is not particularly difficult for many people. Keeping it operating, however, and transferring the experience of one successful product to create a series of successful products are much harder problems. I would like to share some thoughts drawn from Tencent’s fourteen years of experience and lessons. I hope they will help. In Tencent’s product development and operations, one term comes up repeatedly: “gray areas.” Ren Zhengfei, a senior entrepreneur I greatly respect, has also thought deeply about this and written 管理的灰度 (Gray Areas in Management, descriptive title). His emphasis is chiefly on compromise and tolerance in internal management. In the internet era, I think gray areas in product innovation and management also mean staying flexible, close to ever-changing user needs, and responsive to emerging trends. How do we find the right degree of latitude rather than run farther down the wrong road? How can we keep a company operating effectively while giving innovation a flexible environment—neither stifling it nor entering an innovative dead end? We must find the right balance amid rapid change. The internet is an open, interconnected, rapidly changing ecosystem. Companies, as species within it, need the characteristics of natural organisms: connecting with the ecosystem, living in harmony, and coexisting symbiotically. From that ecological perspective, I have summarized Tencent’s internal changes, experiences, and lessons over fourteen years as principles for working in shades of gray for creating a living organization. They have seven dimensions: demand alignment, speed, flexibility, redundancy, openness and collaboration, capacity to evolve, and innovation. Let me briefly discuss each. --- 1. Demand alignment User needs are the product’s core. How well the product reflects those needs determines how much the ecosystem needs the company. You may think talking about users is a cliché. I repeat it in different settings because the simplest things are precisely the hardest to do. One common product-development mistake is that developers treasure and protect a product they have labored to create as though it were their child—the fruit of all their effort. A good product has a soul: beautiful design, technology, and operations express its underlying philosophy. Developers sometimes think the more impressive the design, the better. But a good product does not need some supposedly spectacular design. People who think themselves exceptionally clever may deliberately add features that display their cleverness but that users do not need. That puts the means before the end. Tencent has taken wrong turns here too. QQ Mail, now well regarded, once failed to win market acceptance because users found it cumbersome and difficult. We had to rebuild it, studying users’ habits and needs to discover which functions they needed most. That work produced the 10/100/1000 rule: every month, a product manager must conduct ten user surveys, follow one hundred user blogs, and collect one thousand user-experience reports. The method may look laborious, but it works. There is no shortcut to researching user needs. Do not assume you can simply guess their habits. For example, some products supposedly targeting low-end users indiscriminately use cartoon avatars and flashy page decorations, assuming this satisfies their needs. Products supposedly targeting high-end users may instead adopt an air of superiority. Both show disrespect for users and a failure to put them at the center. I believe user groups have objective differences, but there is no such thing as high-end or low-end people. Whatever their age or background, everyone likes clear, simple, natural, easy-to-use designs and products. This is our most natural appreciation and pursuit of beauty. Internet products are no longer the standalone software of earlier years. They are more like services, requiring designers and developers to have a strong feel for users. Be a loyal user of your own product while reaching out to other users to hear their real voices. Only then can you stay grounded and move from imperfection toward perfection, a little at a time. --- 2. Speed Achieve a breakthrough at a single point quickly. Your angle, focus, and especially speed are fundamental to a product’s existence and development in the ecosystem. We often see people spread themselves broadly from the outset, trying to cover everything; others pursue perfection, polishing repeatedly until they consider a product flawless before releasing it. Others understand innovation’s importance but fear failure or wasted resources. These approaches often produce poor results in practice, because the market never waits patiently. In market competition, a good product often begins imperfectly. At the same time, never assume that entering first means you can rest easy. In the internet era, I believe nobody stays five seconds behind someone else in understanding. Competitors wake up and catch up quickly. They may even do better than you, breaching your margin of safety at any moment. My advice is: “Take small, rapid steps and iterate quickly.” Each product update may be imperfect. But if you keep discovering and fixing one or two small problems every day, you can largely polish the product in less than a year and develop a strong feel for it yourself. The first meaning of gray areas in innovation, then, is to allow imperfection so you can make a breakthrough at a single point—but move rapidly toward perfection. --- 3. Flexibility Proactive change is the key to agile companies and rapidly iterating products. It matters more than the ability to react. Because the internet ecosystem changes so quickly, we usually consider responsiveness very important. In fact, the capacity to change proactively matters more. Managers and product and technology staff—not just marketers—can avoid being put on the defensive if they anticipate problems earlier and change proactively. While protecting the foundations and maintaining and strengthening core competitiveness, flexibility throughout the company is critical. Proactive change should be normal in an ecosystem-oriented company. This means more than the usual talk of real-time enterprises, Enterprise 2.0, or socially networked enterprises. Internet companies and their products and services can also develop big-company dysfunction if they lose their sensitivity and flexibility. Tencent had begun to encounter this before 2011. Our business-unit structure, with separate business verticals, had preserved some flexibility in each unit. Looking back, however, that was far from enough. --- 4. Redundancy Tolerate failure, allow some waste, and encourage internal competition and experimentation. Without risking failure, there is no success. Even that alone is not enough. During product development, we also face a concern: what if our product fails? My experience is that innovation requires allowing some waste. What does that mean? If resources permit, even one or two teams developing the same product simultaneously can be acceptable, provided you consider the project strategically necessary. Since last year, many people have seen WeChat’s success. What they do not know is that several Tencent teams were developing mobile communications software at the same time. Each had different design ideas and implementation methods. Ultimately, WeChat won more users’ favor. Can you call that wasted resources? I do not think so. Without competition, innovation dies. Even teams that ultimately lose remain a source of inspiration for the winners. Think of it as internal trial and error. Not all system redundancy is waste. Without risking failure, there is no success; without creating possibilities, it is difficult to turn any into reality. --- 5. Openness and collaboration Expand collaboration as far as possible. Much destructive internet competition can become collaborative innovation. One beautiful feature of the internet is its ability to involve more people in collaboration over a wider scope. The more people participate, the greater the network’s value, the better user needs are met, and the greater the benefits to every participating organization. Appropriate gray areas therefore also mean deepening and expanding collaboration across society while focusing on your own core value. How entrepreneurs can use platforms effectively for collaboration deserves serious thought. Previously, internet products had to build users one by one, while programming, database, and design skills and experience had to be developed from scratch. As platform-based entrepreneurship emerged, large platforms assumed responsibility for infrastructure. The costs and burdens of starting a business fell sharply, allowing everyone to focus more energy on core innovation. Personally, since 2010, 2011, and 2012, I have increasingly recognized the greater responsibility, meaning, and value of Tencent as an internet connector: helping everyone connect with users and with one another. The shift we must make is from doing our own work well for ourselves to building a good platform for everyone, now and in the future. The internet’s essence is connection, openness, collaboration, and sharing. It benefits us because it first benefits others. For Tencent, I repeatedly emphasize internally and externally that a platform company must choose both what to do and what not to do. There are certainly still many shortcomings. We hope to hear your views and suggestions through different channels on running the open platform well. This is not a gesture; it is practical action. A good ecosystem necessarily gives different species different roles that complement one another, rather than having every species evolve in the same direction. With this new approach, much destructive internet competition can become collaborative innovation. Using a platform’s existing strengths to develop broad horizontal or vertical collaboration among partners will be an important direction for innovation in gray areas. --- 6. Capacity to evolve Build a living organization that can evolve and organize itself without a controlling hand. Over the past year, I have increasingly considered what form a company’s organization should take. Its form determines the latitude for innovation it can tolerate. The capacity to evolve means whether a company’s culture, DNA, and organizational structure can evolve, grow, repair, and cleanse themselves. Consider Kodak. Many know it as a photographic-film giant; fewer know it invented the digital camera. Yet an invention that dug the grave of film photography and enabled many companies to grow rapidly was left on the shelf at Kodak. Why? I believe the reason was organizational rigidity. In a traditional mechanistic organization, a “heretical” innovation struggles to obtain resources and support. It may even be rejected for conflicting with past strategies and strengths. Companies seek precision, control, and predictability, leaving many innovations little room to survive. This resembles biology’s “green desert”: large areas planted with the same tree species at the same time. The trees become dense and uniform in height, blocking all sunlight. Vegetation below cannot grow, and the forest itself has little resilience to disasters. Changing this requires a new organizational form, which is why I favor living organizations. Truly vibrant ecosystems may look chaotic and out of control from outside, but the organization is growing and evolving naturally, seeking innovation. Supposed failures and waste are also the biodiversity necessary to a complex system’s evolution. --- 7. Innovation Innovation is not deliberately manufactured. It is the natural product of a living organization rich in possibilities and diversity. Ideas and R&D are not actually innovation’s source. If a company has become ecosystem-oriented, with strong openness and collaboration, capacity to evolve, redundancy, speed, and demand alignment, innovation will keep emerging from its gray areas. In this sense, innovation is an outcome, not a cause; a product, not a source. Companies should create living organizations and expand their gray areas, filling the soil and ecosystems of the present and future with possibility and diversity. That is the space in which gray areas can thrive. The internet increasingly resembles nature. The aim is not simple growth, but leaps and evolution. Tencent’s recent restructuring moves from “large” to “small” to preserve innovation’s vitality and agility, turning the company into a diverse biological community within the wider internet ecosystem. I believe every entrepreneur dreams of success. What I have shared is a little of what Tencent has learned in fourteen years of internet practice. It is certainly incomplete, but it too follows the principle of small, rapid steps and needs gradual improvement. You can continue developing and exploring it. I hope Tencent will be not only a platform where you can make money, but one where the industry explores the future and shares ideas together. Every year, whenever I have learned something about innovation, I will share it with you. #本質2增長的本質 (Essence 2: The Essence of Growth, descriptive title)