As the official sponsor of dairy products for the 2008 Beijing Olympics, the Yili Industrial Group in Inner Mongolia is one of the leading enterprises in China. In this Vision Series interview, Wen Xiong, editor of cWeek, ZDNet Australia's sister publication in China, speaks with IT head honcho Wang Xiaogang about technology challenges in a traditional environment and his vision for innovation. Below are excerpts from the full video interview.
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Q: We all know that the Yili Group is the largest manufacturer of diary products in Inner Mongolia, as well as a sponsor of the 2008 Beijing Olympic Games. Could you tell us about IT investments and operations at Yili?
Wang: Over the past two years Yili has invested a significant amount in IT infrastructure. Yili should be taken as a sort of traditional industry, as opposed to some of today's high tech industries.
Our upstream is agriculture, we are a manufacturer, and downstream are retailers. Our corporate marketing materials identify ourselves as a leading corporate agricultural enterprise. We are growing very rapidly, so our main concern is finding ways to use IT to support corporate development. As China's leading manufacturer of diary products, we have a large number of sales and production facilities established throughout the country, so sometimes when we deal with IT infrastructure, such as our nationwide computer network, the providers of those facilities are surprised when we tell them about all of our locations. They say, 'We've never created a large-scale network before.' This shows just how large and widespread our manufacturing and sales operations are.
So for Yili, the next question is how to manage so many subsidiaries. It takes IT support. Could it be managed in our old ways with manual control? I think that at present it would still be possible in China. It wouldn't be impossible, because harnessing large amounts of manpower is the way things were traditionally done in China. Of course there is a big difference between making it happen and creating effective management. We could hire more people and add more equipment, and employ strict supervision and control of the staff by a strong management team, but it would not meet the needs of corporate development. Perhaps if we relied solely on manpower, a certain task might take ten days, eight days, or maybe a month or two. As a corporation, if we don't react to information for a whole month, then we will not be able to keep up with the market, and be defeated by our competitors. Or even worse, it might not be our competitors who beat us, but ourselves, because we don't understand what's going on within the company.
So if it takes us a month to react to information, then the market may have changed, and by the time we have made [a] decision or plan, the opportunity is lost. So "informationalisation" is very important to Yili.
We have made much progress, but as I see it, we still haven't done enough. I say this because Yili is currently China's leading manufacturer of diary products, we are number one, and we are growing faster and faster every year. Sales in 2005 totalled to 12 billion RMB (AU$2 billion), which represents a 39 percent growth. This is the highest growth rate in the industry. Some former industry leaders such as Bright Dairy only grew at 3 percent last year; so you see the difference between first place and third place.
So right now we are a large and rapidly growing company ... how can we support further development by information? It's a very important question for everyone, from the President down to the directors of the various divisions, and it is one that we have put a lot of thought into over the last few years. Of course, IT changes are something that companies do gradually, no matter what kind of company. At first we just bought some computer equipment and created a small LAN, then we gradually developed a few small systems for ourselves, and when we outgrew these systems, we brought in some larger systems from outside. This lead to a problem that is common in the IT industry -- -information isolation." We have already passed beyond this stage, but what's our next stage, or what do we do now?
We need to integrate these systems, we need to take these old, scattered, individual systems and combine them into a new system, one that will provide sufficient information and data to each executive division and provide better support for the next development stage.
China's diary product industry is very competitive, with manufacturers constantly using new promotional methods. How does IT continuously help your company to achieve product innovation, workflow innovation and even management innovation?
Wang: As a company expanding our use of IT, most of the innovations are employed at the management level. Management is so multifaceted, it's like an old saying: -Management knows no boundaries."
So the question is how to make full use of management potential. Take this year as an example, Yili adopted a new management concept: precise management. How do we achieve precision? We feel that in order to reach a high level of precision, relying on people or relying on traditional methods is not enough. So now that we have this idea that we want to implement, what should we do? I believe that only with the support of IT can we bring this to fruition.
Our offices and subsidiaries all over the country need to transmit their sales figures to the headquarters each day, so we need to find a way to make this efficient and prompt. As I said, if we did this in the usual manner, with this data calculated and transmitted manually, then we wouldn't be able to prevent errors. But the errors wouldn't matter as much as the considerable loss in efficiency. There are many levels in the sales structure, and sales data doesn't get transmitted directly to the head office, but rather changes hand several times, with all the transfers and calculations, efficiency suffer tremendously.
What can we do to fix this?
We must use IT to create efficiency, to increase both effectiveness and efficiency so that management can promptly receive sales information from each region and each network node. This increases corporate efficiency and helps management make decisions.
Last year Yili grew at a very significant rate. But we know that IT is also developing very rapidly. How does Yili view new technologies, and how do you balance IT development with corporate development?
Wang: IT has developed very rapidly over the past two years, you could even say that development has been feverish. But this doesn't have much impact on Yili. Why? As I said Yili belongs to a traditional industry,
and as such our IT decisions are based on a principle: we use IT products that are relatively mature. The reason being, that we believe this minimises risk for the company. By using mature products, we are using products that others have tested and verified. We know they work, so we use them. In certain areas we might try new products, but for the most part we use mature products. So for us the rapid pace of IT development doesn't have such a big impact.
Nonetheless, we don't want to lag behind, we always want to be headed in the right direction. Of course this has to be considered from two different points of view: as we say in the industry, one side is hardware, one side is software. I believe that with software, we should stick to mature products. But with hardware, we should try to use the most advanced products. This way we maintain overall IT development that further supports corporate growth.
Can you tell us the amount of money that Yili has been investing in IT?
Wang: I'm not exactly sure, but I can give you an estimate: in 96/97, we were the first company in Inner Mongolia to start using MRP II software, at the time we were using the US version of MRP II software, and we were the first in Inner Mongolia to do so. So we have been introducing IT for 10 years henceforth. Our company is completely different now than it was 10 years ago, but I would say that Yili has invested 40 or 50 million RMB in IT altogether.
How do you decide how much to invest each year?
Wang: It depends on the company's growth rate, which changes each year. For example, one year it might be 10 percent, the next year 20 percent. In 2005 we probably invested almost 10 million, and in the 8 or 9 years before that we invested 30 or 40 million. In 2006, we will probably invest 10 million, and in 2007 even more.
Our next move is to integrate several older systems. To do this, we are going to need high level, high quality software. It's not small software, that is to say, it's not standalone software, but an integrated, comprehensive software system, which is going to cost much more than any small-scaled software. So that's one aspect. Another is that we are in a traditional industry, so we don't have much experience with these kinds of large-scale software systems. How can we maximise the efficiency of these facilities? We need to bring in more resources, or find someone to help us, and this will also cost money.
And then there is hardware, of course investment in hardware is easier to see, unlike software or management consultation, which are harder to quantify. Especially for managers, hardware is easier to -see". But software is different. We have made a comparison, perhaps not the best, but we say that: buying a software is like buying a disc ... it could cost a couple of million dollars. But when we received the software, our head was not satisfied with it. With hardware, it's not the same. So Yili will continue making these investments for the next several years.
Yili is growing so rapidly, and you have been in the IT business for so many years, I wonder if you could tell us about some of the problems you've run into, some that have really left you scratching your head.
Wang: I've been at Yili for six years, and I've run into quite a few problems, including some related to the new system integration. Right now I'm wondering what kind of problems we will run into with its implementation.
If I don't think of them now, later when we are underway it might be too late.
Right now I think that our biggest problem is internal communication. Internal communication is very complex. I think that the most important thing is knowing what we need to do before we do it. What do we need to do? Why do we need to do it? Which is to say, what exactly do we need? I think this is the most important question. If we can clarify this, everything else will go smoothly. So we need lots of communication to make sure that other departments and executives are all on the same page.
In order to understand what people are thinking, what must we do? What should we be investing in more? What should we be investing in less? If these things are not made clear, I don't think we can succeed from an IT standpoint. So this is very important, and I think that most of the problems that arise are related to this issue. Problems tend to arise particularly when we are getting input from other departments and from management. Because, after all, we belong to a traditional industry so the IT department is not the most important department. For us the most important things are sales and production, as they should be.
So as we increase investment in IT, we are going to run into all kinds of problems. And whether or not people understand the issues, whether or not they have considered these problems, depends on how we explain the issues beforehand, in the course of our communications. Only if everyone is aware of the issues then we can successfully implement IT solutions. So I think that communication is the key issue, especially internal communication.
What do you think is the relationship between Yili's IT strategy and Yili's corporate strategy?
Wang: Yili's IT strategy is currently one part of the overall corporate strategy ... when formulating corporate strategy, we also consider IT strategy.
IT strategy is not independent. Of course, our department will give recommendations, which are then discussed by the directors of a variety of departments including the strategic management department and the operational management department etc. At the same time, we keep the overall corporate strategy in mind, and ultimately determine the IT strategy based on corporate strategy.
Could you describe for us the relationship between IT development and corporate development?
Wang: For Yili, the best word to describe the relationship is "support", because "informationalisation" is a tool for our company and not a deciding factor, but it helps us. What is the best way to use this tool? This is something we need to think about. What is the next step for Yili? As we are growing very rapidly, we need to know the best way to support this development. This is the most important responsibility our department has. So based on this responsibility, I choose this word, because I think that the IT department will support sales growth, and effectively serves the company.
