He was known as the Prince of Gymnastics; in the 1984 Los Angeles Olympics, he won six medals, three of them gold. Today, the 53-year-old Li Ning is riding a different horse; he is ringing in the changes at Li Ning Co., a Chinese sporting goods company he set up in 1990. Since his return as interim CEO, Li Ning Co. has turned the corner. In 2015, the company made its first net profit — 14 million yuan ($2.2 million) — in four years. Li resumed an executive role at the end of 2014.
Li, who has two million fans on Weibo (a hybrid of Twitter and Facebook in China), has introduced a wave of reforms throughout the company during the last year, including new smart shoes, expanded e-commerce sales and reformed offline retail channels. In this interview with Knowledge at Wharton, he stresses that change is the new strategy of the company. “The world is changing; it is very important for the company to also change.”
An edited version of the conversation follows.
Knowledge at Wharton: After your return as CEO, what has been your overall strategy?
Li Ning: We have made some strategic changes to make our brands focus more on five core categories — basketball, athletics, badminton, training and sports-lifestyle products — through the sales channels of directly managed and franchised stores and e-commerce. We are working hard to improve our capabilities on product design, planning and quality to meet our new strategy and improve our operational efficiency.
The world is changing. It is very important for the company to also change. Technology is evolving quickly, especially with the popularity of the mobile internet. The main issues I need to think about are how to find our position in this market, build up core capability, improve efficiency and finally win the customer’s heart.
Knowledge at Wharton: What is the focus of the future strategy of Li Ning?
Li: In the environment of the mobile internet, there is value and need to explore every commercial context. What I care about is not just technology, but the changes in people’s behavior in this environment, which makes it possible that everyone can get connected with everyone else.
“We are now developing smart sports apparel. These can analyze your body’s performance through censors that measure heartbeat, blood pressure and muscle strength.”
We are in the sports industry. If we can make people interact with each other — in sports or in products — we can reinvent ourselves and find out how we fit best. I hope the company can gradually turn to creating value of such experiences and build up its core competency based on it. Experiencing products, or purchasing, or sports itself and the integration of these experiences is the value of the Li-Ning brand.
In addition, I hope all this is based on a digital foundation, by which I mean you can understand the potential demands of users from the information and data you get. You can then target more precisely to create the experience of purchasing and sports for them. The second-generation products we are developing now are supporting customers using digital information only. We are still at an early stage and have not gone deep enough.
Knowledge at Wharton: What kind of information depth are you expecting?
Li: Much more information and more accurate data on users’ demands. We will then combine that with our own understanding of sports, fashion trends and design-and-process innovation and use it on our channels and users. This will improve our overall operational efficiency and financial returns. After you have achieved this, you will get deeper and more dynamic data, which guides you to the next step.
Knowledge at Wharton: In order to build this competitiveness on creation of experience, how do you expect the pace of reform within your company?
Li: We won’t do all of that at once but gradually guide the business towards that direction. We hope to integrate the process of product design, sales and [the experience of] customers using the product to create the value of experience.
These experiences will ultimately send feedback to sales channels and the production process. What we want to create is the experience of sports, the community of sports and people’s social behaviors. You have a pair of smart shoes and there are many interesting social platforms on running for you to join. Such participation is the kind of change we want to make.
Knowledge at Wharton: Apart from smart shoes, what other plans do you have on digital and smart products?
Li: We are now developing smart sports apparel. These can analyze your body’s performance through censors that measure heartbeat, blood pressure and muscle strength.
“We have to change the rules to motivate our people to constantly reform. Then they can grow together with the company.”
Knowledge at Wharton: Your annual report says that your e-commerce platform accounts for 8.6% of total revenue, almost double the 4.9% last year. And you also mentioned that you would promote O2O (online-to-offline) and all-in-one strategy. What is the progress?
Li: O2O and all-in-one systems mean we have to make online and offline inventory accessible to each other. This is complicated both in terms of the technical aspect and in cost. A story sounds wonderful but if it is too costly it is not good. Technology has to match business. For example, clothes have several colors and sizes. How do you transfer, deliver and clear stock among different channels? Finally, you have to form an integrated module to do this.
Knowledge at Wharton: Li Ning added 507 offline retail stores last year. How have they performed? How many new stores are you going to open this year?
Li: We had 6,133 offline stores at the end of last year. Most of them are doing well because we control the quality of retail stores strictly. In terms of channels, we will expand stores in shopping malls but adjust the number of street-level stores. We are going to add 300-500 stores and reach a total of approximately 6,500 this year.
Knowledge at Wharton: What is your strategy and positioning for the sports-life product line?
Li: On the sports-life product line, we will adopt the strategy of the fast-changing fashion business and focus more on mass demand. It will be a different product line from the professional sports products. We have set up an independent business unit. We have a different logo and an offline retail store system to further explore opportunities in this regard.
Knowledge at Wharton: You said in the beginning that the company will change from selling products to creating experiences. Sales is an action; experience is a process. They differ greatly. How will your team adapt to this change?
Li: Any company faces big challenges during transformation. People are accustomed to going ahead on the existing track. Even when they know there are problems, the first reaction is to protect the old way.
My approach is, first, to reform the organizational structure and human resources. I hope to structure the organization based on business, not on functions. Based on business, what positions and functions do you (the head of the unit) need? For example, the e-commerce unit needs 200 people. [Having decided that], you can create an organizational structure and processes. You can then reform the existing organization step by step.
Secondly, my approach is result-oriented. Once you have set up this business unit and changed the organizational structure and processes, the capability of the team needs to change as well. You either find new people for these new positions, or you train current people.
Now, in our company, both new and old organizational structures and mindsets coexist. We will make breakthroughs gradually every year. I believe we can change step by step to make the company pursue the value of experience.
Knowledge at Wharton: Li Ning is one of the earliest private companies in China to move from a family run business and fully authorize professional managers. What is your concern when the company is transforming?
Li: There has to be adjustment. The Big Pot (Da Guo Fan, which means everyone enjoys same return no matter what their contribution) system is not welcomed anywhere. To have professional managers to run the company is necessary, but this will also lead to the “big pot” which is widely found in western companies. The external world is changing drastically and enterprises and products will have a short lifecycle if they don’t change. So we have to react to market trends. Nothing lasts forever in today’s world. Professionalism is still at an early stage in China; there is a lot of room for professional ethical standards and capabilities.
Li Ning Co. has met huge challenges in recent years. But I don’t think the fault [for mistakes] lies with the managers and the staff; rather it is with the rules. We have to change the rules to motivate our people to constantly reform and adopt the more accurate and more efficient approaches. Then they can grow together with the company.