LBS Case Study: Innovation and Agility at Tencent's WeChat

LONDON,May 18,2019 --London Business School introduced its latest case study "Innovation and Agility at Tencent's WeChat"in its Strategy and Innovation Class. The case represents the beginning of a partnership between the school and Tencent. Both sides will explore deeper cooperation in terms of business thinking and practices,cultivation of talent,and cultural exchange.

London Business School introduced its latest case study "Innovation and Agility at Tencent’s WeChat" in its Strategy and Innovation Class.

Professor Julian Birkinshaw,Deputy Dean at London Business School and Professor of Strategy and Entrepreneurship,commented that the value of the WeChat case study is not just in providing an understanding of the successes and failures of WeChat itself,but as a window into innovation in Tencent,and Chinese tech companies as a whole. Tencent's openness to sharing the innovation practices in WeChat with students around the world,coupled with the research insights provide by LBS,will contribute to the advancement of global business thinking and the building of a more inclusive digital future.

Dickie Liang-Hong Ke,the co-author of the case study and Sloan Fellow at the London Business School commented: "The move from 'Copy to China' to 'Copy from China' is an obvious trend. The innovation and agility seen at Tencent's WeChat are very valuable assets for other companies in their quest of innovation."

One for All,All for One

The case study holds up WeChat as a classic example of a product evolving from application to platform,and then becoming an industry standard.

WeChat was originally a social app,which in the early stage,earned a huge number of users by continuously improving and optimizing its features" says Dickie Liang-Hong Ke. "Then WeChat adapted its open strategy,launched the Official Accounts and created the WeChat Pay ecosystem,and thus successfully converted itself from a social networking app to an influential platform. In 2017,Mini Programs was launched,and quickly became an industry de-facto standard.

The tipping point came when WeChat opened up its platform,allowing third-party businesses and individuals to co-create content and services for free to better serve WeChat users. It became a true One-For-All-All-For-One app,in which WeChat provided ready-to-use developer tools and set up clear rules and regulations,allowing everyone to contribute to WeChat services and benefit from doing so. While most of its competitors in China and around the world were anxious to find a route to profitability,WeChat was considering users' needs first and crafting an excellent design.

Being a platform app is by no means an easy ride. Renjie Hu,head of Tencent Guangzhou Office,recalls: "When we talked to other businesses in those early years (about opening up our platform for free),they said we were 'Buddha-like' in that we kept helping others,but we have also benefited – it's like honeybees benefiting from the honey while pollinating the flowers."

Coherence Goes First

WeChat was born in a bunker where the app's creator Allen Zhang and a team of ten developers created the product. Allen's management style was informal and interactive,he enjoyed rolling up his sleeves and sitting together with a team of software engineers,going through new features,trying to optimize the product. Everyone on the team,from senior management to interns,could offer their thoughts on new innovations. To maintain the coherence of the product,Allen would set the tone for all subsequent features. The team built up a very consistent value.

In its growth from a team of ten to two thousand,WeChat has always kept a flat organizational structure. According to the case study,Allen and the management team have brought down the 2,000-strong team to multiple smaller units of 100-150 people maximum. Breaking down the organization in this way helped with speed and ownership.

As a platform app with multiple features,WeChat's coherence is the other key factor to its success.

In terms of the innovation process,WeChat has applied the top-down style more frequently. The research team found out that the saying "Allen Zhang decides" is brought up frequently when interviewing WeChat team members. "Clear authority and ownership at the top",concludes Professor Julian Birkinshaw in the case study,"If you allow everyone to add their own favourite features,you end up with a complex and messy product."

An early member of WeChat,mentions that this top-down approach is particularly important for entirely new products. "When we are trying to create something revolutionary,a bottom-up process would tear it apart. Users need to be given an extremely clear concept with precise information – and that needs a single architect."

When it comes to incremental innovation,more bottom-up innovation was encouraged,with the optimization of the Red Packet function in WeChat Pay and the newly developed feature Top Stories offering good examples.

WeChat's head of HR shares: "The middle-level management needs to have more capacity to take up the slack. We have many department managers who grew up together with Allen,and they are very clear about his mode of operation. Similarly,they will inherit his thinking and models that they pass downwards. In the process,that inheritance is very important to make sure that uniformity with Allen is preserved."

WeChat Go Global

Talking about the future growth,Allen shares his view: "WeChat has reached one billion users,but actually,we've never thought that the number of users was particularly important…we care more about how to provide our existing users with more services. This is a more important question. To find and then respond to future demand is what we need to do the most."

"Going global"is agreed to be a practical way to grow. As WeChat's pioneer for international expansion,WeChat Pay overseas has a team building relationships with foreign businesses and regulators,in order to make WeChat Pay available for use in foreign markets. WeChat Pay is now available in 49 markets outside of the Chinese mainland,supporting cross-border payment transactions in 16 currencies. According to the latest data,in the year of 2018,the monthly average transaction volume saw an increase of 500% year-on-year,while the total transaction value increased 400%. Meanwhile,the number of service providers witnessed a year-on-year increase 300%,and the number of merchants accepting WeChat Pay increased 700%.

"In the past five years,the progress of mobile payment technology development in China has received global attention,and the digitization of all walks of life has continued at a rapid pace. The real driving force behind this is not just a payment tool,but also the supports of third-party service providers from the various industries. They are the true representatives of digital innovation in China," says Peiku Li,Vice-President of WeChat Pay. The wide variety of functions available within the WeChat Ecosystem will help overseas merchants to smoothly accelerate the digitalization process,in order to better serve Chinese tourists overseas.

In terms of potential growth areas,the case study's co-author Dickie Liang-Hong Ke says "WeChat now has one billion of the world's seven billion potential users,the growth potential in user number can be limited,especially in China. However,there are many other possibilities,for example,the creation of new services,and the exploration and application of new technologies are all possibilities. The change in the technology of human computer interface,such as VR,can present both challenges and opportunities. WeChat must always think about what direction the next disruptive technology will come from."

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