Introduction: According to Liu Qiangdong, regardless of country or social environment, a company's failure is solely due to its team's inadequacy; all other factors are excuses. Therefore, he believes JD.com should focus most on team-related matters, sparing no effort or cost. This "simple and direct" viewpoint has its own logic. Let's see how he manages 75,000 people.
I hate talking about chicken soup for the soul, so today I won't share any inspirational quotes, especially words of encouragement for entrepreneurship. As an entrepreneur, if your passion needs to come from others' encouragement, I think that's terrible. Passion always comes from within, not from others' encouragement.
Managing a company involves two most important powers: personnel and finance—managing people and managing money. In this first lesson, I'll share how JD.com manages people. When we started e-commerce in 2004, we had 36 people. As of last night, we have over 75,000, and by year-end we'll add nearly 40,000 more, plus tens of thousands of rural promoters.
First Table: Ability-Values System
Let me share a few internal tables from JD.com.
The first table is called the Ability-Values System. This is JD.com's first and most important table for managing people. We use it for selecting, retaining, and even dismissing employees. We classify all employees into five categories:
First, those with average ability—meaning mediocre performance and low scores. Values don't have a score for high or low; values are about alignment. Every company must define its values, which are the core of corporate culture. You need to assess each person's value alignment, for example, through questionnaires. During the three-month probation period, a person's behavior is influenced by their values. By observing their daily work behavior within three months, you can basically determine how well their values align with the company's. Through questionnaire tests and daily behavior observation, you get the value alignment.
If ability is average and values score is low, we internally call them "scrap iron." Such employees should generally not be hired; discard the scrap iron, otherwise you get no performance and values that don't match. What's the significance of values? At JD.com, values come first, ability second. If a person's values don't align, we never use them. Ability is assessed second.
Second, those whose values match the company very well but whose ability and performance don't meet standards. Ability is average, but values alignment is high. We call these "iron." For iron employees, we generally give at least one chance for a transfer. For example, if you're in sourcing and have high values alignment but can't meet performance, what to do? Do you have other interests or talents? Maybe you can go to another department. In short, we give at least one opportunity, either training or transfer. However, since the company is not a charity and faces survival pressure, if after the opportunity they still don't perform, after one transfer or training and performance still doesn't meet requirements, we ask them to leave.
Third, the majority—80% of employees—score between 90 on both ability and values. We call them "steel." This is the core employee base. Generally, a normal, stable structure has 80% steel.
Fourth, employees who are very strong, with very high values alignment and excellent ability. We call them "gold." A stable structure has 20% gold, which could be technical staff, not necessarily managers.
There's another type: employees with very strong ability and excellent performance, great at sourcing, but their values don't match yours. These are the hardest to handle; every boss finds it difficult to decide. Especially when they don't make mistakes, what to do? We call these "rust." We eliminate rust immediately—they're worse than scrap iron. Why? Scrap iron has poor ability and values, so it doesn't cause severe negative impact.
Who is the world's biggest rust? Hitler. Rust is corrosive and capable. Such people become group leaders, eloquent and capable. If one day they sabotage the company, they can have great influence and lethality. For rust, regardless of how much business loss, we don't keep them for a minute. We'd rather leave the position vacant, rather than let rust stay. Of course, such people are capable and hidden; initially you might not notice their values differ significantly. Whether they've worked for one, two, or more years, once discovered, we immediately crush them.
This is a very important table for selecting and using people. Every year, all mid-to-senior managers, above deputy director level, undergo a 360-degree assessment. This includes their ability, with scores from four consecutive quarters of performance. Through 360-degree interviews with peers, superiors, and all subordinates, we conduct anonymous scoring and voting.
Also, their behavior—if values are poor, what they said or did that suggests poor values, or if values are excellent, you must provide examples. If values scores are low, after verifying facts, we immediately remove them.
Some may wonder why gold is 20% and steel is 80%. Many companies, including JD, have struggled for over a decade. When the workforce grows but business growth slows, it might be because there's too much gold. Too much gold creates an unstable structure that hinders development. Salaries and other resources are limited, which might lead many gold employees to leave and start businesses, being poached.
If gold is only 1%, management teams will have many problems. If a company faces financial issues, team issues, or department issues, it's often because the gold ratio is too low. If senior executives frequently resign, it means there's too much gold. That is, your cash, bonuses, various resources, and stocks support 20% gold. The 80/20 rule exists in the world; the talent structure with 80% steel and 20% gold is a relatively stable team structure.
Second Table: ABC Principle
After personnel authority comes delegation. How to manage people? Who manages whom? How? Our second table is the ABC Principle. It's our HR ABC. For example, our group company spends hundreds of millions daily, but I only need to sign two or three tables each week.
What does ABC mean? According to level, C reports to B, B reports to A. With two-level personnel authority, C's salary increase, dismissal, bonus, and equity are decided by A and B. For instance, I can only manage vice presidents; hiring a director doesn't require my interview. I don't know about promotions, raises, delegations, or dismissals. But we have a CEO, which I know.
So according to ABC, I am A, and the vice presidents under subsidiaries are C. This avoids one person having sole say. Meanwhile, HR is alongside, but HR has no nomination rights; they can't skip A or B to decide C's promotion or raise, but they can review. Nominations for C are done by A and B together; A can't skip B to give C a raise or promotion. HR supervises whether your decisions align with company values and general HR policies. Through this AB resource, we avoid a single employee having the power of life and death.
Third Table: 8120 Principle
The third table is the 8120 Principle, another table for managing people. What does it mean? We believe an ideal management span is 8 to 12 people, allowing enough time for strategic thinking without being idle. We see many companies where one person manages two; that's not allowed at JD. If that happens, merge with the upper A to form a team.
Each manager must manage at least eight subordinates; if fewer, merge. In principle, no more than twelve, so business units shouldn't be split. If a vice president manages nine directors, and there's only one VP, there can't be two. If a VP manages twelve, thirteen, or fifteen—over twelve—the company can consider a second VP.
What does 20 mean? For the lowest-level managers, we require each supervisor to manage at least 20 people. Why? Because grassroots employees have simpler tasks; we require at least 20, and sometimes we have 50 to 80. This avoids overstaffing with too many officials and too few workers.
Fourth Table: 2N Principle
The last principle is the 2N Principle. Two things are prohibited in the company. All who join the group, with past work experience, can bring at most one person from their previous unit. If they bring more, they're welcome but must go to other departments.
In your department, you can bring at most one person. In principle, the company doesn't welcome any manager bringing people from their previous unit; we encourage coming alone. Many companies have a department head bringing many from their old unit. When that head leaves, all those people leave too. That's terrible; the loss is great when they leave, so we can't allow it.
The second prohibition: all managers are given one year to find a company-approved replacement. If not found, the next year you won't get new business or a raise. If after two years you still can't find one, you can't just point to anyone; we'll investigate. If not found, the company asks you to leave; you must resign.
The first principle avoids cliques; the second ensures the company has backups so business doesn't halt if a senior executive leaves. Many say they fear having a backup because they're easily replaced. But at JD, I don't say anyone is absolutely safe, not even me. If the company performs terribly, I have voting rights with shares, but I don't have to be CEO. Everyone must consider the company.
So the four tables above form the basic principles for selecting, using, and retaining people. Of course, every company is different, and all industries differ. These are just the tables JD has used over the past decade or so.
For example, pure tech companies might adapt them appropriately. But regardless, managing people is the hardest and most important thing for startups. If a company fails, it's absolutely not due to money but to team problems. Success and failure always stem from the team. If any problem arises, we never blame intense competition, policy factors, or market factors; we look at people. Poor performance means the team has problems.
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