Tencent tries to remake itself

March 19, 2019 07:58
Business setbacks and a falling share price prompted Tencent to embark on some initiatives last year to reinvigorate itself. Photo: Reuters

China's Tencent Holdings has been undergoing deep structural reform for the last five months or so, in what could be the internet giant's biggest and toughest reform ever, according to a 16,000-word internal article.

Tencent’s mobile gaming business was battered by policy tightening last year. At the same time, outsiders were questioning if the company was losing the spirit of entrepreneurship.

Meanwhile, its share price took a dive and fell as low as HK$251 in November last year, from a peak of HK$477 in January.

All these have put enormous pressure on founder Pony Ma, according to the article.

Ma was said to have been even more shocked as he found that Tencent’s 40,000-strong employees, too, were beginning to have doubts about the future of the company.

Realizing that the firm could be facing a survival crisis, Tencent’s top management team held a conference in a small restaurant room in Hong Kong in September last year, where Ma and a dozen top executives went through deep discussions to identify the problems.

The meeting lasted from noon to midnight, and finally a consensus was reached and implementation of new measures started right away.

The internal article revealed the changes over 150 days of reform, after interviewing Ma, president Liu Zhiping, senior executive vice president Tang Daosheng and a number of other managers.

In sum, there are four key initiatives.

Promoting more young managers is the first. To Ma’s surprise, there were only less than 10 directors aged below 30. The message is Tencent is facing an aging crisis.

Liu soon announced in the 20th anniversary celebration that 10 percent of identified managers will step down within next 12 months, mostly mid-level managers, to make way for younger talents.

Second, make cloud business a top priority. Tencent has lagged its main rival Alibaba in tapping into cloud business. It’s widely agreed that cloud is the most important strategic tool in the next generation internet business.

Tencent decided to reduce the number of business units from seven to six and set up a new Cloud & Smart Industries Group (CSIG) headed by Tang Daosheng.

Third, Tencent announced a shift in focus from consumers to business clients, marking a major departure from its strategy so far.

Ma also realized that to succeed in serving corporates, Tencent should not try to aggressively disrupt traditional industries. Instead, the company should position itself as an assistant to help them do business.

Interestingly, the 16,000-word article has not mentioned anything about mobile games, implying Tencent may want to gradually reduce its reliance on its current main source of income.

Can Tencent regain its glory? Much depends on whether these new strategies work.

This article appeared in the Hong Kong Economic Journal on March 15

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist