NMIMS SOL

PRINCIPLES OF
MANAGEMENT

[MANAGEMENT IN
XIAOMI WITH
RESPECT TO
PLANNING]
Devesh Mohan (A040); BBA LLB (Hons.); Trimester 3

SVKMS

NARSEE MONJEE INSTITUTE OF

MANAGEMENT STUDIES
School of Law

A Project Submitted on

Management in Xiaomi with respect to

Planning
(In compliance to partial fulfilment of the marking scheme for Trimester III of
2014-15 in the subject of PRINCIPLES OF MANAGEMENT.)

Submitted to: Prof. Rohan Mehra

Submitted By - Devesh Mohan (A040)

Class - BBA LLB (Hons.)
Date 11th March 2015
Time 4:00 PM
Received ByDate Time

2 | Page

ACKNOWLEDGEMENT

In performing my assignment, I had to take the help and guideline of some respected persons,
who deserve our greatest gratitude. The completion of this assignment gives us much
Pleasure. I would like to show my gratitude to Mr. Rohan Mehra, Principles of
Managemenent Professsor for giving me a good guideline for assignment throughout
numerous consultations. I would also like to expand my deepest gratitude to all those who
have directly and indirectly guided us in writing this assignment..

Many people, especially my classmates, have made valuable comment suggestions on this
proposal which gave us an inspiration to improve this assignment. I thank all the people for
their help directly and indirectly to complete our assignment.

3 | Page

ABBREVIATIONS

Inc.-Incorporation
CEO-Chief Executive Officer
CNY-Chinese Yuan Renmindi
USD- United States Dollars
R&D- Research and Development
OS- Operating System

4 | Page

TABLE OF CONTENTS
Serial Number

Contents

Page Number

6
EXECUTIVE SUMMARY

7
INTRODUCTION OF THE
TOPIC

10
INDEPTH ANALYSIS OF
FACTS AND FIGURES OF
THE CASE AND THE
AREA OF STUDY OF
PRINCIPLES OF
MANAGEMENT

5 | Page

MAPPING OF THE CASE

WITH AREA OF STUDY
WITH PRINCIPLES OF
MANAGEMENT
LEARNINGS

BIBLIOGRAPHY

17

23

27

EXECUTIVE SUMMARY

In August 2013, Xiaomi hired Googles Head of Product Development (Android), Hugo
Barra, to lead its worldwide expansion plans. The company has yet to reveal the complete
roadmap for its overseas expansion plans, but it has announced its next market: Singapore.
Xiaomi has not announced an official launch date for this market, but it is expected to be in
the first half of 2014. The manufacturer has repeatedly mentioned the importance of
differentiating its strategy for each country, based on the markets strengths and user demand,
and has suggested that it will look for partnerships with operators in countries where postpaid
users are provided with handset subsidies. Operators worldwide will want to monitor
Xiaomis progress, given the surging demand for its handsets in China, Hong Kong and
Taiwan. It has yet to be seen whether the manufacturers business model of generating
revenue primarily from software and services will be sustainable in non-Chinese speaking
countries, where Google dominates the market for Android apps.

6 | Page

INTRODUCTION OF THE TOPIC

Introduction of the Case

Xiaomi Inc., headquartered in Beijing, China, is a privately owned electronics company that
designs, develops, and sells smart phones, mobile apps, and other technology products. It was
co-founded by eight partners (Lei Jun (CEO), Lin Bin, Li Wanqiang, Zhou Guangping,
Huang Jiangji, Hong Feng, Wang Chuan, and Liu De) on June 6, 2010.
The company began its operations with the launch of its Android-based firmware MIUI 1
(pronounced "Me You I") in August 2010, which is a heavily modified and hard-coded user
interface which brings in features from Apple's iOS and Samsung's TouchWiz UI. Further, it
expanded into other consumer electronics products, including tablets, smartphones, MiWiFi
network router, MiTV Smart TV, MiBox set-top box, MiCloud cloud storage and cloud
computing service, MiTalk instant messenger, and Mi power bank.
It has over 3,000 employees in China, Taiwan, and Singapore, and has based its international
headquarters in Singapore for its global expansion activities. It runs six storage centers, 18
flagship stores, and 436 after-service outlets in China. The predominant market for the vendor
is Mainland China, though it has forayed into Taiwan, Hong-Kong, Singapore, and Malaysia
recently, with plans to launch its products to other countries, including India, Indonesia,
Philippines, Russia, Thailand, Turkey, Vietnam, Brazil, and Mexico in the near future.
To foster its growing sales and expansion activities, the local Smartphone vendor has raised
three rounds of funding from various institutional investors amounting to $317 million.
During its third round of funding in 2013, Xiaomi was valued at $10 billion. Xiaomi has also
actively invested in other tech companies, including Cheetah Mobile, Westhouse, Shenzhen
Thunder Networking, and Xunlier.
Within a short span of time, Xiaomi is stealing the show in the Chinese Smartphone market
with a vision to replicate the same in the international boundaries. This local smart phone
vendor has risen tremendously in previous few years, often being cited as the Apple of
China2 and is giving cut throat competition to established players such as Samsung, Apple,
Lenovo, Huawei, LG, ZTE, etc.
1 MIUI 6; http://en.miui.com/
2 Why Xiaomi, the Apple of China, has generated hype in India;
http://businesstoday.intoday.in/photoplay/xiaomi-mi3-flipkart-qualcommsnapdragon-800/1/512.html
7 | Page

a
Introduction of the Principle of Management : Planning
Planning means looking ahead or to foresee 3. To foresee means, both to assess the future and
make provision for it. To plan means to foresee and provide means for future. The process of
planning includes:

The identification of organizational goals

The aim of any insurance company is to insure life or property of the human being. The goal
is to insure maximum number of person or the property so that the risk can be spread on
number of persons.

The line of action to be followed

Once aim is set to insurer human being or property then the next step is how to insure human
beings or property. The action will be to create a Marketing Department for a company.

The various stages through which the action would pass

To sell the insurance product only marketing department at one place i.e head office cannot
achieve the results therefore various offices at different location to be set up to sell the
insurance products.

The method to be used to achieve the desired goals

The next issue comes how to sell the insurance products. Whether it should be through
Agents or Corporate Agent or Broker. Accordingly the action of the insurance company will
start to recruit the manpower.

Why have I chosen Xiaomi?

Xiaomi, founded in June 2010 in China, is one of the fastest-growing smartphone vendors in
the region, thanks to a disruptive business model that allows for high-quality builds at very
3 PRINCIPLES OF MANAGEMENT; Module 1;
http://www.nios.ac.in/media/documents/VocInsServices/m1-4f.pdf
8 | Page

low price points. Its recent performance indicators should be enough to make manufacturers
and operators worldwide take notice. In less than 3 years, Xiaomi has become a top-five
smartphone manufacturer in China.
The manufacturer holds the fifth-largest share of Chinas smartphone market in terms of units
sold, and overtook Apple in 2013. According to its CEO, Lei Jun, Xiaomi sold 7.2 million
smartphones in 2012 and18.7 million in 2013, generating CNY 12.6 billion (USD2.1 billion)
and CNY 31.6 billion (USD5.2 billion) in revenue, respectively. Xiaomi aims to sell 40
million smartphones in 20144.

Relevance
Xiaomi is the brain child of a serial tech investor and entrepreneur Lei Jun, who is creating
the next wave in the Smartphone industry with the launch of smartly designed Android
phones at very moderate costs. The company after coming into existence in June 2010, has
already shaken the Chinese market in a span of 4 years and is aiming to be the next buzz
word in the international market. This paper analyzes the companys innovative business
model which doesn't rely on hardware to drive revenues but uses it merely as a platform to
sell its services, it sells its products primarily through its website, doesn't maintain inventory
and holds weekly sales, offers products at very reasonable prices, focuses on social media and
hunger marketing and doesn't leverage traditional marketing and sales channels. The
company has recently begun to expand internationally predominantly to Asian countries.

4 Xiaomi becomes one of the top-five smartphone vendors in China and looks set to
disrupt the worldwide market; Satvik Singhania and Ronan de Renesse

9 | Page

INDEPTH ANALYSIS OF FACTS AND FIGURES OF THE

CASE AND THE AREA OF STUDY OF PRINCIPLES OF
MANAGEMENT

Detailed Analysis of Facts and Figures of the case

Figure: Xiaomis smartphones sold and revenue, 20122014 [Source: Analysys Mason,
2014] 5

Xiaomi is more than a smartphone vendor; its product portfolio also includes:

an online digital content store, which includes apps, games, wallpapers and themes,
and ebooks, andwhich ranks among the top-five android app stores in China in terms
of number of downloads (Xiaomi claimed in August 2013 that its store had about 5
million downloads per day and 1 billion in total in the year since launch)

5 Xiaomi becomes one of the top-five smartphone vendors in China and looks set to
disrupt the worldwide market; Satvik Singhania and Ronan de Renesse

10 | P a g e

applications and services such as MiTalk (an IM service) and MiDrive (cloud
storage)

other hardware such as the MiBox (a smart set-top box for the TV), the MI Wi-Fi
(Wi-Fi router), MI Charger (portable phone charger) and the MiTV (a 47-inch smart
TV)
accessories such as earphones, screen guards and a USB cable.

Xiaomi prices smartphones aggressively because its software and service sales
compensate for low hardware margins6
Xiaomis smartphone portfolio is limited, but aims to cater for different income levels (see
Figure 2). It offers outstanding specifications at each price point. The Mi3 is comparable to
the best smartphones available on themarket (such as Apples iPhone 5S and Samsungs
Galaxy S4), but at half or less than half the price. As a result, the devices have proved popular
in the manufacturers domestic market. Xiaomis entry-level model, the Hongmi, attracted
7.45 million pre-order reservations and its first batch of 100 000 sold out in 86 seconds.

Figure: The main products in Xiaomis smartphone device portfolio [Source: Analysys
Mason, 2014]

6 Xiaomi becomes one of the top-five smartphone vendors in China and looks set to
disrupt the worldwide market; Satvik Singhania and Ronan de Renesse

11 | P a g e

Xiaomi started out as a software and services company, but entered the mobile device and
consumer electronics market using the same strategy as Amazon in the tablet market and
video games console manufacturers: that of providing extremely inexpensive hardware
almost at cost and making money on software and services. The manufacturer generates
more than CNY30 million (USD4.95 million) per month in revenue from its software
services. Its customised UI, MIUI, has more than 30 million users worldwide at present. It is
preloaded on Xiaomi smartphones, and is also available to download for other Android
phones.
Xiaomi outsources the manufacturing of its smartphones and keeps tight control over its
supply chain and costs to maintain a minimum margin on its hardware. It focuses its
marketing efforts on social media, and spends nothing on advertising. Xiaomis primary retail
channel is its website, which avoids the additional margin requirements of third-party
vendors. The manufacturer also has some physical stores in China and some operator deals
outside the country.
A primary focus for Xiaomi, and one of its core strengths, is the development of close ties
with consumers through user interaction and feedback. Xiaomi operates many user forums (in
as many as 21 countries), which it monitors closely for feedback from consumers even
allowing them to vote on any disagreements between the users regarding, for example,
specific functions of the phones or the UI, such as shortcut buttons. It then incorporates users
suggestions into its weekly software updates, which it distributes over the air or through the
PC every Friday.

Highlights and standout points

New products.
With its recent launch of the Mi3 smartphone and Red Rice (Hongmi) low-cost smartphone,
Xiaomi has signalled its intention to become a leading smartphone maker in China.

Ambitions to become a global player.

Xiaomi recently hired exGoogle top management/product director Hugo Barra to lead its
global division, with a view to expanding its global business and strengthening its ties with
the US company. Xiaomi expects Barra to be instrumental in helping to expand its presence
overseas, and join the ranks of the big multinational players.

12 | P a g e

Business model includes hardware, software/content, and social networking, backed by

MIUI operating system.
Xiaomi aims to provide a refined user interface (UI) for Android smartphone users through its
MIUI platform (launched in 2010), which provides a weekly stream of updates that
encourage close interaction between the company and the sizable base of users of its
products. Xiaomi thinks MIUI has set a precedent for the potential success of its app, content,
service, community service businesses.
Xiaomi is seen as Chinas answer to Apple.
Xiaomi is widely viewed in China as attempting to build up its brand as the countrys answer
to Apple, with its unique operating system (MIUI), positive buzz among the young
generation, and marketing acumen. The company often sees a shortage of its smartphones,
selling out its new models online within five minutes of launch. Internet sell-through also
brings cost efficiencies, given the lack of retail marketing costs. Indeed, a shortage of its
Hongmi smartphone pushed up the secondhand price on-line to CNY1,000, from an original
price of CNY799.

Xiaomi is competitive on price/ performance.

Xiaomi tries to provide similar specs to those of Apple smartphones (even using
Apples component suppliers) but at a much lower price for online sales, with profits
expected to come through later in the products life cycle. Its Mi1/Mi2/Mi3 models
have similar specs to Apples iPhones but are priced at CNY1,999 (compared with
over CNY3,300 for the equivalent Apple product).

This year, Xiaomi has been tapping the local supply chain as well as Apples
component suppliers. Its Hongmi smartphone, priced at CNY799, leverages
Mediateks solutions as well as components sourced from China-based players7.

Detailed Analysis of the Area of Study of Principle of Management

Planning is one of the four functions of management. Planning involves defining the
organizations goals, establishing an overall strategy for achieving these goals, and
developing plans for organizational work activities. The term planning as used in this chapter
refers to formal planning.

Purposes of Planning
7 Xiaomi: Chinas answer to Apple; http://asiaresearch.daiwacm.com/eg/cgibin/files/china_tech_food_chain_130925.pdf
13 | P a g e

Planning serves a number of significant purposes.

Planning gives direction to managers and non managers of an organization.

Planning reduces uncertainty.
Planning minimizes waste and uncertainty.
Planning establishes goals or standards used in controlling.

Planning and Performance

Although organizations that use formal planning do not always outperform those that do not
plan, most studies show positive relationships between planning and performance. Effective
planning and implementation play a greater part in high performance than does the amount of
planning done. Studies have shown that when formal planning has not led to higher
performance, the external environment is often the reason.

The Role of Goals and Plans in Planning

Planning is often called the primary management function because it establishes the basis for
all other functions. Planning involves two important elements: goals and plans.
Goals (often called objectives) are desired outcomes for individuals, groups, or entire
organizations.

Types of goals
a. Financial goals versus strategic goals
Financial goals related to the financial performance of the organization while strategic goals
are related to other areas of an organizations performance.
b. Stated goals versus real goals
Stated goals are official statements of what an organization says and what itwants its various
stakeholders to believe its goals are. Real goals are those that an organization actually
pursues, as defined by the actions of its members.

Types of Plans
Plans can be described by their breadth, time frame, specificity, and frequency of use

On the basis of Breadth plans can be Strategic or operational plans.

14 | P a g e

Strategic plans (long-term plans) are plans that apply to the entire organization,
establish the organizations overall goals, and seek to position the organization in
terms of its environment. Operational plans (short-term plans) are plans that specify
the details of how the overall goals are to be achieved.

On the basis of Time frame plans can be Short-term or long-term plans.

Short term plans are plans that cover one year or less. Long-term plans are plans with
a time frame beyond three years.

On the basis of Specificity plans can be Specific or directional plans.

Specific plans are plans that are clearly defined and leave no room for interpretation.
Directional plans are flexible plans that set out general guidelines.

On the basis of Frequency of use plans can be Single-use or standing plans.

A single-use plan is a one-time plan specifically designed to meet the needs of a
unique situation. Standing plans are ongoing plans that provide guidance for activities
performed repeatedly8.

Relevance to Organization and daily life

In selling the Xiaomi smartphone, Xiaomi employs a strategy that is very unlike other
smartphone makers such as Samsung and Apple. Lei Jun, Xiaomi CEO, said that the
company prices the phone almost at bill-of-material prices, without compromising the
component quality and performance compared to other premium smartphones. To profit from
the narrow margin, Xiaomi sells a model for up to 18 months instead of the short 6 months
used by Samsung to profit from the fall in the costs of components that occurs over time. It
also profits by selling phone-related peripheral devices, smart home gadgetry, in addition to
apps, online videos and themes. In the long term, the company sees the hardware sales just as
a means of delivering software and services, as explained by Hugo Barra, "We are an internet
and a software company much more than a hardware company."
To further reduce overhead costs, Xiaomi does not own a single physical store and instead
sells exclusively from its own online store. It also did away with traditional advertising and
relies on social networking services as well as its own customers to help advertise its
products.
Furthermore, by keeping a tight control over its stock, Xiaomi is able to place cheaper batch
orders as demand dictates. Limited availability flash sales ensure that supply never outstrips
demand and helps create a free marketing buzz around its products. On the other hand,
traditional OEMs have to incur large upfront productions costs in order to ship smartphones
8 Introduction to Management and Organizations; http://discovery.bitspilani.ac.in/dlpd/courses/coursecontent/courseMaterial/mgtszc211/principles_of_
management_notes.pdf
15 | P a g e

out to retailers all around the world, some of which may not sell. This is far more expensive
than Xiaomis model and its the consumers that end up paying the difference.
In terms of building a strong and loyal consumer base, Xiaomis approach involves listening
closely to customer feedback, having them test out upcoming features themselves, and
building an extensive online community. Lei Jun described it this way, "When I was with
Kingsoft, I had the opportunity to work with Nokia and Motorola, 2 mobile phone giants of
their time. One day, I pointed out to their R&D boss, some inadequacies. After that, they
merely acknowledged my input, but never acted upon what I had said. So I thought to myself,
if I make a phone, you can tell me anything you wish for it or what's wrong. If it is justifiable,
we will work on it immediately. I'll give you an update every week and you may even see
your wishes come true within a week." In practice, Xiaomi's product managers dedicate a lot
of time browsing through the company's user forums. Once a suggestion is picked up, it is
quickly transferred to the engineers. Therefore features can turn from mere concept to
shipping products in the span of a week. The company then ships a new batch of phones out
every week on Tuesday at noon Beijing time, containing the new software builds and possible
minor hardware tweaks. Xiaomi calls this process "design as you build."
Finally, by making its operating system MIUI open for download on other Android phones, it
has made Xiaomis apps and content more easily accessible, widening the potential to provide
services to more users.

16 | P a g e

MAPPING OF THE CASE WITH AREA OF STUDY WITH

PRINCIPLES OF MANAGEMENT

Applying knowledge of area of study of Principles of Management with the

case
The success of Xiaomi can be attributed to its business model that leverages incremental
improvements and innovative business models to reinvent the Smartphone business, which is
exploding around the world. As per Fast Companys list of 50 most innovative companies
2014, Xiaomi has been named as the third most innovative company, just behind Google and
Bloomberg.

A unique service-based business model

Xiaomi names its strategy as "The triathlon model", which is an integration of software,
hardware, and Internet service. This kind of an integrated model is unique to the smartphone
industry. The company focuses on Software and Internet services as its primary business
while hardware is just a platform to deliver the services. The three pillars to its strategy are Hardware as a Service strategy, an e-commerce sales model, and a focus on software,
services and content.
Xiaomi plans to adopt a model similar to that of Kindle of Amazon, which relies not only on
hardware, but also on software to generate revenue stream in the long run. The company has
not yet revealed exact plans for the same but users can purchase themes for their phone and
alter the user interfaces look by purchasing the companys Mi credits online.

The aggressive pricing policy

Xiaomi's success has predominantly been attributed to its cost leadership strategy, offering
products at prices as close to the cost, rather 'Bill of materials' as possible. The devices are
offered at much lower cost as compared to the established players. Comparing the end price

17 | P a g e

of Xiaomi with other players goes a great deal in explaining the rationale behind the rage for
Xiaomi smart phones.

Though,
there
are several
quality
differences
when
Xiaomi
Mi3
phones are
compared
to that
of Apple
iPhone or the Galaxy of Samsung, but when it comes to pricing the Chinese vendor takes the
lead.
The Mi3 handset from Xiaomi includes a Nvidia Tegra 4 chip, a 13- megapixel Sony camera
and 2-gigabit RAM and sells for $327. Comparatively, in China, the retail price for Apples
iPhone 5S is $866 without a service plan, while for Samsungs 32GB Galaxy Note 3 it is
$884.
Moreover, Xiaomi has launched its first tablet, which is said to be a replica of Apple Inc.s
iPad Mini-series. The selling price for the 64-gigabyte version tablet is 1,699 Yuan ($273),
which is approx. 3,500 Yuan cheaper than the 64GB iPad Mini, offered by Apple.
Focus on Social media and Hunger marketing tactics
Xiaomi relies basically on Internet to market its products and fuel sales. It maintains very
few, if any, physical stores and doesnt spend on traditional forms of advertising, which
eschews a major portion of the cost incurred in maintenance and staffing of these stores,
unlike other vendors. The company maintains its own online store and offers products on
Tmall.com, one of Chinas largest online retail sites. Xiaomi leverages social media and word
of mouth marketing to create a viral effect among the internet acquainted youths of China. It
encourages regular discussions and interactions that engages customer to give inputs on
product plans and make up for the advertisement through word of mouth publicity. It runs
frequent events, such as the Fan Festival online shopping event with discounts and
coupons. The companys Weibo micro blogging account is tracked by approx. 8.5 million
followers. The company runs various pages on Facebook and has a good following even
though Facebook is banned in its home country China. Xiaomi Facebook page has 565,400
page likes, while its other country pages are also gaining popularity, such as, Xiaomi Taiwan
(226,300 page likes), Xiaomi Hong Kong (148,100 page likes), Xiaomi Singapore (56,700
page likes), Xiaomi Malaysia (19,400 page likes), Xiaomi Indonesia (1400 page likes), and
Xiaomi India (1300 page likes). Xiaomi's Twitter account is being followed by 19,200

18 | P a g e

followers and has 2,190 tweets since the company created the page in September 2011.
Further, its YouTube page has 336,516 views and 4,894 subscribers.
The company has a "Customer-obsessed" strategy where it allows customers to participate in
its design and development process by taking inputs from users through its online forums and
incorporating their feedback to new models/devices.
The limited inventory concept
The carrying cost of inventory creates a huge cost for any company that offers tangible
products. Xiaomi undercuts that by maintaining a very low inventory. When Mi 3 phones
were launched initially, the first batch of 100,000 units sold out in less than two minutes and
the company took another seven days to release 100,000 more units, which were then
immediately sold out again.
An eco-system of Smart products
With the Smartphone industry expected to saturate in China in the coming few years, Xiaomi
has already started its focus on building a smart family, a service platform with better
potential for growth. It launched a second television model, first tablet computer, set-up
boxes, and, routers that can connect electronic devices, such as televisions and tablet
computer and build a family integration system.
This model is expected to evolve the value chain of the smartphone industry, which is
expected to witness chunks of financial gains coming through the applications and services.
Xiaomi provides an integrated model of hardware and software to achieve this9.
However Xiaomi encounters several tricky problems that needs solutions to behold the
success
Generating profit is a big challenge to the Smartphone industry, with most of the companies
incurring a net loss in the segment except Apple and Samsung. While Apples success can be
attributed to its operations in the premium and profitable end of the market, Samsung benefits
from an integrated supply chain and a huge channel presence.
Although the pioneers of Xiaomi are quite confident of its success, there are several
eyebrows being raised as to the longevity and the scale of its performance. The company is
expected to face several hurdles as it tries to make a mark in geographies beyond South Asia
or in a new product line.
Xiaomi might face challenges in implementing its online flash sales model in South Asian
countries like India, Indonesia, Philippines, etc. where internet penetration rates are very low.
9 CAN XIAOMI SHAKE THE GLOBAL SMARTPHONE INDUSTRY WITH AN INNOVATIVE
'SERVICES-BASED BUSINESS MODEL'?; Sonam Gupta and Ishneet Dhillon;
https://apps.aima.in/ejournal_new/articlesPDF/338-Sonam%20Gupta.pdf

19 | P a g e

The mobile device market in China is mostly retail based wherein any manufacturer gets a
shelf space to sell its products, but in mature markets such as US, the devices are carrier
based. The player will need to partner with the mobile network operators to sell their devices
directly and through authorized dealers.
Xiaomi will be successful in Asian markets as its product line and price hit the mark for
sophisticated users. But the US and European markets will be hard to penetrate as the channel
strategy is different, and building the brand will require a marketing budget that is going to
require huge resources. - Tom Kang, mobile device research director, Counterpoint
Technology Market Research.
Though the company has forayed into smart integration, it lacks the support of the platform
for such integration and has performed only in mediocrity in this division. Xiaomi doesnt
manufacture its own devices and relies on contract manufacturers, such as FIH Mobile Ltd.
and Inventec Corp to build it. It needs to constantly assure the suppliers of its outshining
prospects, so as to persuade them invest in the plant and machinery. This could pose a
challenge in scaling up the production as per international demand. If we consider geography
such as India wherein the customers are not the best of a patient lot, they could end up with
another device rather than waiting for Xiaomi.
Xiaomi also suffers a bottleneck in terms of providing repairs and service to its customers.
The company will have to expand its investment in building maintenance and service centers
and hiring adequate people to deal with repairs and service.
Moreover, there are several legal issues that Xiaomi may encounter as it enters the mature
markets of US wherein the firms are adept in dealing with the litigations related to licensing
fees and patent. Xiaomi is expected to encounter high cost in cutting-edge 4G, where
patented technology is particularly expensive. It would need to hire a strong litigation team to
counter the tricky lawsuits in the Western market.
Xiaomi will need to raise more funding so as to meet the huge scale and presence that the
global Smartphone pioneers have in this industry and to find a neglected niche to cater in
these markets.

Theories
Psychological Theory
This theory is designed to identify what actually goes on in the decision maker's mind when
he makes a decision. Several factors leave an impact on the mind of the decision maker, such
as nature, size and purpose of the organisation, manager's aspiration, attitude, habits,
personally temperament, political learning's, social and organizational status, technological
skill, domestic life, education, experience, level of satisfaction and so on Psychology of a
manager has an important bearing on the quality of decisions he makes. As decision making
is an intellectual process, these psychological factors cannot be avoided altogether.
One of the best-known psychological theories is Herbert Simon's theory, which explain that
the decision maker attempts to satisfies rather maximize. In other words, a manager finds an
20 | P a g e

answer that is good enough. What consequences the manager considers good enough, will
depend on what has been achieved in the past10
It can be clearly seen that all the decisions made by this company are goal oriented, and focus
towards consumer satisfaction and not the sole motive of profit making. This is achieved by
providing smartphones and tablets of the same quality and specifications as provided by the
leading giants like samsung and apple, but at almost one third their price. Hence this theory is
very clearly portrayed in this company.

Formal Authority Theory

According to this theory, formal authority is, the right to command. Formal supervisory
authority is the right to command people, to tell them what they are to do and what they are
not to do, and to guide their actions.
Formal Operational authority, is the right to command things, in the sense that the person
having such authority has the right to acquire assets or to convert assets into other, forms, to
dispose of them. This is the traditional concept of formal authority.
This theory assumes authority as organising at the top of an organisational hierarchy and
flowing downward therein through the process of delegation. Thus, the, authority does not
vest, in a managerial position, but it is delegated from up. Formal authority is a vested right.
It must be bestowed upon an individual. It cannot be assumed.
It can only be delegated to an individual by a superior, who himself must have superior
authority and the right to delegate that authority. However, there are various social factors
laws, political and ethical considerations, and economic factors put certain limits on this
authority, and organisation has to function within, these limits. In this way the basic source of
authority can be traced in social institutions themselves11.
This company works on the basis of formal authority, where work is being delegated to
various members. Moreover a hierarchy is maintained in the system which has to be followed
by all the members.

Order

10 TafreehMela; http://www.tafrehmella.com/threads/different-theories-ofdecision-making.218327/
11 Short Essay on the Formal Authority Theory; Pragati Ghosh;
http://www.shareyouressays.com/120243/short-essay-on-the-formal-authority-theory

21 | P a g e

Both material order and social order are necessary. The former minimizes lost time and
useless handling of materials. The latter is achieved through organization and selection.
Hence we can see that order in the company has been maintained as a set routine or a system
is been followed by all the employees. Material Order is maintained as the best of products
are produced in the smallest time limits, also efficiency is maintained as expected. As Xiaomi
has no stock as such, it has to work in order to meet the demands of the consumers in time.
Social Order is maintained as the best of staff and employees are selected to provide the
desired efficiency to the consumers.

Espirit De Corps
It means team spirit and team work. This principle emphasizes on team work. Unity in
strength is the essence of this principle. Fayol suggested that there should be a team spirit in
the organisation and all the employees must consider themselves as member of the
organisation. Organizations should strive to promote team spirit and unity.
This principle of management is very well maintained as the employees as well as the
consumers are involved in decision making. Their suggestions are heard, thereafter the
relevant and viable suggestions are provided to the engineers to work upon an develop so as
to improve the products. This clearly shows that unity is spirit is well maintained. Also as the
company does not maintain stocks it becomes a necessity to meet the demands of the
consumers in time, this again will only be possible if there is unity amongst the employees.

Initiative
Allowing all personnel to show their initiative in some way is a source of strength for the
organization. Even though it may well involve a sacrifice of personal vanity on the part of
many managers
Each and every member on this company is open to give suggestions for better working, and
having an edge over the other competitors. Hence we see that the opinion of not only the
employees but also the consumers is taken and are upheld with absolute importance so as to
strive for continuous improvement12.

12 Principles of Management by Henri Fayol; http://www.cesc.co.in/cesc/eprognya/cms/wp-content/uploads/14_Princioles.pdf

22 | P a g e

LEARNINGS
Learnings from this case

Take customers on the journey with you.

A compelling and authentic purpose is needed to inspire customers to become fans
and help drive your success. Their interest is in making the product work for them,
and your brand succeeds by facilitating this.

Personality goes a long way

Theres a war on for attention. Brands that are timid get ignored. You need to be bold,
brave and interesting to cut through. Xiaomi means little rice a nod to Chinas
communist past. Its cuddly rabbit brand icon wears a communist hat and the red
neckerchief of the Young Pioneers (the youth organisation of the Soviet Union). Its
edgy, postmodern and charming, and people talk about it.

Put your fans at the centre of everything

Identify your most passionate customers and make friends with them. Give them
inside information, early access to products and other treats so they in turn share
stories about your brand with their communities. Theyre the best friend a brand can
have.

Producing timely, relevant content drives engagement

Traditional media is often no longer required to get the word out, but creative content
is still hugely important for engaging people online and on mobile. Act like a
publisher: know your audience, get it out there, keep the pace up. Done is better than
perfect. Responding to today is better than being late to the party next week.

Online listening and responding beats traditional market research

Its now mainstream for people to share their good and bad experiences, ideas and
suggestions in public social media channels and on your own forums. Listen, respond
and make friends with fans as well as detractors they are your most valuable (realtime) source of feedback, new ideas and sentiment about your brand. Find the right
tools to mine this information and harness it.

23 | P a g e

Proactively shape your story, or others will do it for you

While Xiaomi has recently rebranded as Mi for an international audience, not many in
the media seem to have noticed. At the same time, unfair comparisons to Apple
abound because the company is inspired by the companys minimalist approach to
product design (which was itself inspired by the work of Dieter Rams). This is
overshadowing the bigger narrative that Mi is the first truly open door alternative to
Apple, the first brand in the smartphone category thats made by everyone.

Making solid products at great prices

When you are trying to sell a product, the manufacturer must be proud of it. The
device must be a one-of-a-kind, and it must be worth its salt. This is something not
every phone maker can tout, especially when you see manufacturer releasing phones
left and right just for the sake of covering every niche market.
Xiaomi has very few products, but they are all great. The Xiaomi Redmi Note is one
of our favorite affordable smartphones, with a stunning $130 price point and specs
that make the device a great contender. The Xiaomi Mi4 is also an amazing device,
with stunning specs and a $400 price point. The Xiaomi Mi Pad also offers iPad-like
quality for a $300 price.

Focus on long-term revenue, not immediate profits

Xiaomi has taken a hint from Amazons business model, which has proven to be very
effective. As a manufacturer, Xiaomi is not making too much money, but the plan here
is to get more money in the long run, by selling software.
Xiaomi is not making too much money on software right now, but they are thinking
for the future. Get great devices out there, focus on branding and make sure you can
get a phone in a good amount of users hands. Then roll out your paid software and
start rolling in the dough.

Dont make more devices than you can sell

Xiaomi isnt having a huge issue with selling phones (in fact, they always sell out in
seconds), but they are definitely not risking the chance to overstock. Xiaomi sells

24 | P a g e

every device in every batch that they make. Then they continue manufacturing and
release another batch.
It may be a slow process, but its a safe one. Especially for a small startup that cant
afford taking losses. They are trying to keep the demand higher than the supply, while
trying to sell as many devices as possible. They have found a great balance, even if it
may annoy us that its hard to get our hands on a Xiaomi product.

Make it big at your home country first

Needless to say Xiaomi has completely taken over China, which was a smart move
from them. For starters, they have a very powerful home country to cater to. China is
one of the most powerful markets in the world. Them making it at home means they
have a huge chance at making it in a global expansion.

In addition, some manufacturers make the mistake of trying to expand way to quickly.
Xiaomi knew how to balance its expansion, and that is why they are succeeding.
Again, even if its annoying not having access to these products.

Adapt to modern, and more powerful, forms of advertising

Major brands have to gain huge profits in smartphones because their companies have
huge maintenance expenses. You got to pay employees, establishments and the like.
One huge expense is always advertising, though.
It costs a fortune to pay for online ads, billboards, TV commercials and other forms of
promotion. Companies often forget we have a very powerful tool that costs very little
the internet. Xiaomi has grown huge by depending on social media and word of
mouth.

Application of these learnings

Other organizations can apply the following points to become better

Make sure your brand stand for something

In a world when all the Android phones, regardless which brand it is from, don't
differentiate that much from one another and hardware innovation isn't happening at
the same pace as it once did, if you cannot successfully establish a clear value

25 | P a g e

proposition and win over consumers in an emotional way, it would be hard to be

successful in this market.

Simplify your product portfolio down to a single digit of phones

Our society's love for individuality apparently does not apply to what phone choice
we make. It's already proven that consumers don't mind holding a phone that millions
of others on the street also carry it. You don't need a wide range of products to cover
the all the market segments. Smartphone brands can be successful with just a few
phones in its lineup.
Unlike Lenovo which makes a lot of different phones. No one really stands out and
sells especially well. Why not focus your R&D, manufacturing, distribution and
marketing resources on only a few models that really resonate with consumers and
help you build brand equity.

Smartphones are a consumer product, so sell directly to consumers

Today smartphone brands need to have an e-commerce operation model with
matching capabilities. This is something Xiaomi has had from day one. This can
prove to be difficult to implement for the other companies but it has to be
implemented as soon as possible so as to remain in the market

Software matters
During Xiaomi's first year of existence as a company, its only known product is its
MIUI mod of the Android OS. It's done a good job making customizations that are
good for the Chinese market, not to mention, with its own OS mod, it's built a
business of app/content distribution and cloud services. Most other Smartphone
brands haven't done nearly as good a job making their own Android modifications.
User reviews that you can see on the Internet would also echo this opinion.
Good software matters because hardware will always eventually fade into the
background. But if you have a large user base of your OS and apps, that's when you
control the user experience and relationship with your customers. It's the reason why
Google don't really try very hard making and selling its Nexus line of phones and
tablets.

26 | P a g e

Other brands need to start doing a better job with software, too. That means both the
OS and cloud services. It's the first step towards building an ecosystem and how to
stay relevant in this business a few years down the road.

Expand into other product categories with phones at the center

Expanding on the idea of the eventual irrelevance of phone hardware and the
importance of owning an ecosystem, Xiaomi cannot be any smarter by making and
investing in other connected devices. With a wireless router, Internet camera, home
security system, air purifier, blood pressure meter, etc., Xiaomi is laying the
foundation of a much bigger business beyond smartphones.

BIBLIOGRAPHY
Websites referred:

http://www.tafrehmella.com/threads/different-theories-of-decision-making.218327/
http://www.teaglegroup.com/articles-to-share/-/blogs/xiaomi-a-case-study
http://www.mi.com/en/privacy/
http://thenextweb.com/asia/2013/09/06/heres-why-you-should-care-about-risingchinese-smartphone-firm-xiaomi/
http://www.pcworld.com/article/2156320/why-are-xiaomi-phones-so-cheap.html
http://www.bloomberg.com/bw/articles/2014-06-04/chinas-xiaomi-the-worlds-fastestgrowing-phone-maker
http://asiaresearch.daiwacm.com/eg/cgi-bin/files/china_tech_food_chain_130925.pdf
http://www.mobilegeeks.com/manufacturers-learn-from-xiaomi/
http://offer.alibaba.com/activities/mobile.html?
imp=5b1aor19g1u261ptna&xp=YET77otRb1REL946b6FVhrM40SaTOhs0ZzFJRnW
D6dK1-Y-w1Gxe_6CgcUC0tCqLMM2scmIlowjRNTStXIfRywxt5qccAirBxMQBFPntL4&pid=16192_
&td=cldlr&aff_id=182850737&ct=1&size=000_000&cn=13355196&an=100000003
6002&bm=cpa&src=saf#source#&tp1=2453268021
http://www.thedrum.com/opinion/2014/09/18/lessons-china-what-western-brandscan-learn-chinese-smartphone-giant-xiaomi
http://www.computerworlduk.com/blogs/open-enterprise/xiaomi-3598075/
http://yourstory.com/2014/09/india-lessons-xiaomi-flipkart-future-plans-hugo-barra/
https://www.linkedin.com/pulse/5-things-other-smartphone-brands-should-learnfrom-xiaomi-allen-hsieh

27 | P a g e

28 | P a g e