---
title: "Dialogue with Lu Minfang, CEO of China Mengniu Dairy: Rekindling the Dream and Glory of a Dairy Giant"
description: "This year, BCG launched the 'Asia Business Leaders' Wisdom' research project in Asia, aiming to comprehensively analyze the success paths of Asian leaders through interviews with outstanding Asian business leaders. As the second article in this interview series, BCG recently conducted an in-depth dialogue with Mr. Lu Minfang, CEO of China Mengniu Dairy. Mr. Lu, a professional manager from foreign FMCG companies, has led Mengniu since September 2016. In just four years, he has driven category innovation and built an international brand, while rapidly and decisively implementing large-scale organizational changes, stimulating frontline innovation, boldly rewarding the excellent and eliminating the poor, and reigniting the spirit of struggle."
author: "BCG波士顿咨询"
publisher: "New Distribution"
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published: "2021-01-26"
language: "en"
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# Dialogue with Lu Minfang, CEO of China Mengniu Dairy: Rekindling the Dream and Glory of a Dairy Giant

> This year, BCG launched the 'Asia Business Leaders' Wisdom' research project in Asia, aiming to comprehensively analyze the success paths of Asian leaders through interviews with outstanding Asian business leaders. As the second article in this interview series, BCG recently conducted an in-depth dialogue with Mr. Lu Minfang, CEO of China Mengniu Dairy. Mr. Lu, a professional manager from foreign FMCG companies, has led Mengniu since September 2016. In just four years, he has driven category innovation and built an international brand, while rapidly and decisively implementing large-scale organizational changes, stimulating frontline innovation, boldly rewarding the excellent and eliminating the poor, and reigniting the spirit of struggle.

This year, BCG launched the 'Asia Business Leaders' Wisdom' research project in Asia, aiming to comprehensively analyze the success paths of Asian leaders through interviews with outstanding Asian business leaders. As the second article in this interview series, BCG recently conducted an in-depth dialogue with Mr. Lu Minfang, CEO of China Mengniu Dairy.

Mr. Lu Minfang, a professional manager from foreign FMCG companies, has led Mengniu since September 2016. In just four years, he has driven category innovation and built an international brand, while rapidly and decisively implementing large-scale organizational changes, stimulating frontline innovation, boldly rewarding the excellent and eliminating the poor, and reigniting the spirit of struggle.

This has helped Mengniu achieve an annualized total shareholder return of 24%, 15% higher than the industry (as of December 31, 2019), and brought the dairy giant back to double-digit sales growth 'fast lane'.

Especially under the pandemic at the beginning of this year, he led Mengniu and its ecosystem partners to overcome difficulties together and weather the crisis.

Adhering to the development philosophy of 'consumer-centric, becoming an innovative, century-old nutrition and health food company,' Mengniu Dairy (Group) has become one of the fastest-growing dairy enterprises in China since its founding in 1999, with a sales growth rate of over 1,400 times in 18 years. To date, it has been ranked among the top 20 global dairy companies for 10 consecutive years, and ranked eighth in the global dairy enterprise ranking released by Rabobank.

**Q: How do you define whether a CEO is 'successful' or 'failed'?**

**Lu Minfang: The primary criterion is definitely the growth of the enterprise itself.** As a listed company, investors care about market value, which reflects the company's growth, profitability, and shareholder returns, representing the final outcome.

**Second, the company's leadership and competitive position in the market, as well as its corporate image, are also important.**

**Third, the vitality of the team and employees reflects whether the company has drive, cohesion, and combat effectiveness, and whether it can retain the entrepreneurial spirit from its founding.**

For Mengniu, what is gratifying over the past four years is that the mental outlook of the team and employees has undergone tremendous changes, which is also a positive impact brought by the improvement in market value and market position.

**Q: What do you think is the secret to implementing rapid organizational change and driving continuous transformation in a company as large as Mengniu? What specific things did you do right?**

**Lu Minfang: First, unite people and build consensus.** Let the team rethink whether Mengniu should continue to strive, whether it is worth striving for, why we have come this far, and where our difficulties lie going forward.

**Second, reshape BUs and streamline delegation.** I believe Mengniu's true combat effectiveness lies at the frontline, so after taking office, I initiated an organizational change involving all 40,000 employees, fully delegating power so that frontline personnel who can hear the gunfire can make decisions.

Previously, supply chain, marketing, and sales functions were integrated, resulting in major business decisions being made by the CEO, which brought a series of problems.

For example, although supply chain integration is efficient, if the head of a business unit cannot bear responsibility for the entire value chain, they often cannot effectively make business decisions.

Another example is on the sales side: because Mengniu has over 30 brands and more than 1,400 SKUs, if the sales side is fully integrated, the team will naturally choose brands that are easy to do well, resulting in all strategic new products and brands that are profitable but not large enough in market size dying out.

Therefore, I firmly changed the organizational model to a BU system, making the BU heads responsible for everything from front to back. At the same time, we streamlined the headquarters by more than 30% of personnel.

**Third, adjust senior executives, able to go up and down.** I replaced 11 of the 12 executives reporting directly to me within 6 months, with 6 selected from within Mengniu and 5 recruited from outside.

Do not bet your fate on people you cannot trust or who I believe are not capable of leading the company to the growth scale of the next 4-5 years. I cannot compromise on personnel matters, nor can I allow myself to make mistakes.

In a multinational company, you might say that ice cream didn't sell well because of bad weather. But at Mengniu, there are no excuses. If you haven't thought about how to do business in bad weather, it proves you are not qualified for the position—this has become a rigid rule.

Being able to go up and down must be resolute. Some things affect not just one matter or one business, but the culture and values that the entire team and organization uphold. If everyone thinks that poor performance can be negotiated, then many things cannot proceed.

Fourth, incentive reform to stimulate struggle. After taking office, I did a lot of research and found that many frontline teams are willing and able to work hard once given incentives.

**Originally, the core management's rewards accounted for 60%-70% of the total incentive amount, with the CEO taking 30%. Later, I reformed the distribution system: I take at most 10%, core management takes 20%-25%, and the majority goes down to the backbone forces.**

Over the past 4 years, on average, frontline employees' income has doubled, regional managers' income has tripled, and BU core management's income has tripled. In one year, a regional manager's year-end bonus even exceeded my annual salary.

For me, there is no limit to incentives. The more capable you are, the greater the results you achieve. If you dare to do it, I dare to reward it.

Of course, our goals are set very aggressively, so over the years, the company's performance has been good, and everyone knows it's not easy. Although not everyone can get excess incentives, everyone knows 'whoever strives gets incentives' and 'whoever doesn't strive stands aside,' so we also eliminate very aggressively.

I also set a rule: absolutely no one is allowed to give gifts to superiors, regardless of the size of the gift, but superiors can give gifts to subordinates.

Every year, I take my own salary to give gifts to my direct subordinates and write a card to each person. This has also created a demonstration effect.

**Q: Organizational restructuring often affects the whole system. As a parachuted executive, how did you drive such a big change at that time?**

**Lu Minfang:** I believe that the board, capital market, and shareholders will not give a parachuted executive much time to adapt. In the first year, people will have expectations of you. It's like fighting a war: first, you need to deliver results, and then others will give you recognition.

This reform was implemented very resolutely and quickly. Since we recognized the need for change, there was no turning back.

I took office in September 2016, spent 2 months on market research, visiting all Mengniu factories and all sales provinces except Xinjiang and Tibet.

After 2 months, I called the core team together to discuss whether to change to a BU system. During the meeting, I raised four questions: whether to change to BU, when to change, how long it would take, and whether the change would affect business. Then everyone expressed their opinions.

**The final consensus was: change back to BU, the sooner the better, and the change must not affect business.**

The final result was that we started in mid-December and finished by the end of January. In one and a half months, even the systems and authorizations were all changed, personnel were in place, and January performance grew 19% year-on-year, gaining recognition from the organization.

Through this, I found that Mengniu has strong vitality and extremely strong employee execution.

After that, in 17, 18, and 19, I called on the company to fight a hearty victory every year. Only by winning battles will the team continue to strive.

**Q: You just mentioned that you never compromise on personnel. Specifically, what are your experiences and philosophies in using and developing people?**

**Lu Minfang:** Before taking office, I reached a consensus with the board that I would never bring any colleague who had worked with me before to Mengniu. I believe that within the Mengniu team and the external talent market, there are enough capable people for me to use.

To this day, I still have not brought a single former subordinate to Mengniu. Only by doing this can everyone believe in your principle: 'Whoever is capable goes up' and 'Whoever has ability goes up.' Sitting in this position requires a high degree of self-discipline, so I don't bring people, nor do I introduce anyone.

Another point is to boldly use young people. Recently, I replaced some core executives with post-80s, preparing for the future.

Every year, I talk with about 300 managers, each for 1-2 hours. During the talks, I discover and identify talent. Although Mengniu has a mature talent review system, I must do it personally to ensure that I can see 10-20 talents in my eyes.

During the interviews, I also discover many company problems and collect opinions and suggestions.

I believe that good leadership candidates must dare to take responsibility and admit mistakes.

When business is good, many people shine on stage, but when business is bad, how many people will say 'I didn't do well' and 'I am willing to continue to do it well'? It is at such times that you can identify talent.

Another trait is integrity, which affects many people and the team. In addition, being able to fight, daring to fight, daring to make decisions, and daring to take risks are also important.

I believe that in a company, first, you have failed and suffered setbacks; second, you have done miscellaneous work and various things. People with these two points have great potential for development.

**Q: When reforming the incentive system, how did you consider compressing the incentive ratio for management, including yourself?**

**Lu Minfang:** Mengniu had already developed for 17 years before that, and it was the result of many people's struggle. I think it is very rare to be given such a good development opportunity and platform.

Before I started, I had already thought it through: even if I worked for 10 years without getting a penny, if the company grows and becomes a truly world-class enterprise, that is my supreme glory, and this glory cannot be bought with money.

I hope Mengniu can become China's Danone or China's Nestlé. If this cause takes 30 years to achieve, I hope I can do well in these 10 years, and then my successor will continue. I think it is very important that others say you are a professional manager, but I say 'no.' Never treat yourself as a professional manager. Even if you are parachuted in, you must never let others feel that you are just an employee.

If you just want to make money and then leave, no one can trust you. You come to strive together with everyone. You are no different from everyone else, or even worse, because many employees have worked here for 20 years.

To this day, the biggest gain I feel is winning the trust of many middle-level managers and employees at Mengniu.

At the senior executive team level, after taking office, I took core executives to the Red Flag Canal for a market meeting. After all the team discussions, the conclusion was one sentence: **'People need to have spirit.'** I believe that middle and grassroots employees can be motivated by material incentives, but the senior executive team must have a sense of mission.

**Q: When leading the company to respond to the impact of the COVID-19 pandemic, how did you and your team respond?**

**Lu Minfang:** When the pandemic hit this year, on the evening of January 23, we held an executive meeting to discuss several challenges and decisions. At that time, supermarkets on the retail side were closing one after another. Retail dropped 90% at the end of January, and by mid-February, it had recovered to less than 30%-40%.

Furthermore, on the transportation side, traffic was blocked, so milk couldn't be transported in and products couldn't be shipped out. What to do with 16,000 tons of milk coming in every day?

If we didn't accept it, milk would be dumped in society; if we accepted it, it would become inventory if not sold. Mengniu's national inventory capacity could only last 2 weeks, with daily losses of 20 million. At the same time, in the supply chain, upstream feed couldn't be transported in, so pastures couldn't sustain; downstream distributors had inventory pile-up and capital occupation.

I asked everyone what to do and whether it would get better after the pandemic. Most people thought it would get better after the pandemic. Then, would it return to normal, be slightly less than normal, or rebound strongly?

Most executives thought it would rebound strongly, and now it seems that judgment was correct. At that time, we firmly made decisions and endured, because everyone believed it would get better after the pandemic, and then we immediately responded.

First, we ensured that all 57 factories nationwide did not stop work and had no pandemic cases, requiring all frontline sales and production managers to be in place before the fifth day of the Lunar New Year.

Second, we immediately activated the first-level epidemic prevention mechanism and set up an emergency team, with me as the team leader, and epidemic prevention materials were in place immediately.

Third, we converted indoor sports venues and set up 3 mask production lines within 2 weeks.

Fourth, we provided 3 billion yuan in interest-free loans and 10 billion yuan in low-interest credit lines to upstream and downstream pastures, distributors, etc., implementing full-chain protection. We also set a rule: no employee would be laid off during the pandemic, and we would do everything possible to ensure that first-half revenue would not be lower than the same period last year.

We donated a total of 740 million yuan in money and goods to 15,000 hospitals and other anti-epidemic institutions nationwide, and required that within two weeks, through our own and distributors' logistics systems, the goods be delivered to frontline anti-epidemic personnel.

We also donated to build the 'China Charity Federation (Mengniu) Epidemic Prevention and Control Emergency Materials Center,' working with the China Charity Federation and the Blue Sky Rescue Team to fully invest in the transfer of materials in Wuhan, clearing the 'last mile' of material donations in Wuhan and surrounding areas, transporting over 40 million items in Wuhan.

The final result was that, thanks to the execution and fighting spirit of Mengniu employees, despite losses in the first quarter, second-quarter sales increased 20% year-on-year, profits increased 85%, cash flow increased from 2 billion to 2.6 billion, and the industry chain quickly recovered.

No employees were infected, and except for the Wuhan factory, the other 56 factories in China did not stop for a single day, including during the Lunar New Year. More than 20,000 employees below the supervisor level saw their income increase 10% year-on-year.

**Most importantly, this battle did not defeat us; instead, it built the team's confidence and pride.**

At the same time, we formulated very detailed first-level epidemic prevention measures, which became a model for local governments in some regions, and a series of public welfare initiatives also received positive social response.

Source: Boston Consulting Group (ID: BCG_Greater_China)

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