Explain the strategic reasons behind each of the reorganisations

(2005, 2012 and 2018) undertaken by Tencent. Ma Huateng (‘Pony’ Ma) founded Tencent in 1998 as a provider of Internet-enabled instant messaging in China.

Twenty years later, Tencent had become Asia’s most valuable company, active in investment, messaging, gaming, entertainment and cloud services. In 2018, Pony Ma was still Chairman and Chief Executive. He was also China’s richest man, owning just under 10 per cent of Tencent’s shares.

But Tencent’s twentieth anniversary year proved a hard one, the company’s share price falling by one-third. Poor internal coordination, new competition and a slow move into cloud services were among the reasons given for the company’s troubles. Tencent’s solution to its challenges was a major reorganisation, the third in its 23-year history.

The reorganisation was hailed by the company as ‘a new beginning for the next twenty years’.

Earlier reorganisations Tencent’s two previous reorganisations had each confronted different problems. The company’s first major reorganisation came in 2005, when Tencent was approaching a scale of 4,000 people. By training, Pony Ma was an engineer and product manager, always inclined to examine the details of the company’s new products. However, the businesses were getting too big and complex for him to manage directly anymore, and internal coordination was falling down. The solution in 2005 was to divide the organisation essentially into two independent business groups, ‘Business’ and ‘Platform Development’, each led by their own senior managers, with a series of business units reporting to them.

The second reorganisation had come in 2012. Tencent’s original messaging service (QQ) had been struggling for some time. One of the problems was how QQ was spread over three different business units (PCs, wireless and internet), themselves in different business groups (business or platform development). One result was a slow response to the rise of smartphones, particularly the Apple iPhone which was becoming very popular in China.

In a sense, QQ’s sluggishness provided an opportunity for Tencent’s next great product success, WeChat (Weixin), a multi-purpose messaging, social media and (from 2013) mobile payment app. WeChat originated through Tencent’s characteristic process, internal competition between rival projects. Faced by the rise of smartphones, Pony Ma described the two-month development process as ‘a matter of life or death’ for the company. WeChat was the winning project and, released in 2011, acquired 100 million users within a year (by 2018 it had a billion users).

However, WeChat’s success – and other developments –

created what Pony Ma called ‘big company illness’. By 2012, Tencent had 24,000 employees. Ma asked in an email: ‘When the size of the team grows bigger, it is easy to breed big business problems. How can we overcome the big business problem and build a world-class Internet company?’ His answer was the 2012 reorganisation, a split into seven distinct business groups: Interactive Entertainment, Online Media, Mobile Internet, Social Networking, WeChat and Technology and Engineering.