01
A Question Worth Reflecting on for the Connector Industry
Let me start with a true story.
There was a company, M, whose core business had long been over-the-counter topical medications, which performed exceptionally well and captured more than 30% of the patch market. However, further growth in this segment became difficult. As a result, the company decided to launch two new businesses: one focused on stomach medicine and the other on health supplements. The stomach medicine was developed, but its marketing strategy followed the same approach used for patches—entering hospital pharmacies first and relying on doctors to recommend it to patients. Yet, despite years of effort, it failed to gain traction. The health supplement line faced the same issue. Although a dedicated health supplement division was established, the performance targets and management practices adopted were identical to those used in the pharmaceutical division, yet they too failed to succeed.
Where is the problem? The logic behind new and old businesses differs. Plaster medicine is prescribed by surgeons, while stomach medicine is prescribed by gastroenterologists. Marketing personnel have already mastered the distribution channels for plasters and are reluctant to promote stomach medicine because building new channels is labor-intensive. Health supplements directly target ordinary consumers, making their marketing approach entirely different from that of pharmaceuticals. There’s no issue with the product development path, incentives are generously provided, and the team isn’t lacking in capability. The real problem lies in the failure to keep pace with organizational development for the new business.
This case serves as a strong warning to the connector industry.
Today’s connector industry is facing similar challenges. The global connector market has reached nearly $100 billion, and China has become the world’s largest single market for connectors. However, the industry remains highly fragmented—among approximately 30 publicly listed connector companies in China, only a few such as Luxshare Precision, AVIC Optoelectronics, and Changying Precision have revenues exceeding 10 billion yuan, while most listed firms remain stuck in the 1 to 2 billion yuan range. There is overcapacity in low-end production, reliance on imports for mid-to-high-end products, and increasingly fierce price competition.
Against this backdrop, an increasing number of connector companies are exploring new business opportunities: expanding from consumer electronics into automotive electronics, shifting from traditional connectors to high-speed and liquid-cooled connectors, and transforming from component suppliers into system solution providers. But how should these new businesses be managed? Should they be handled as a side project within the existing business framework, or operated independently as separate entities?
Practice from both Chinese and foreign enterprises shows that the divisional structure is the most effective organizational model for cultivating new businesses. Let me elaborate in detail.
02
What is the Divisional Structure? – From Sloan to Midea
2.1
The Birth of the Divisional Structure: General Motors’ Century-Defining Comeback
Before the 1920s, Ford dominated the automobile industry, capturing as much as 70% of the global market. However, Ford’s once-unshakable position eventually shifted-economic development in the United States led to a more segmented consumer base, with higher-income groups developing personalized consumption needs.
Ford wanted to launch a new model, but under his autocratic, top-down management style, other executives were merely his subordinates-no one could independently take the lead in building a new business. Meanwhile, General Motors entered its vibrant golden era.
Sloan divided the company into separate divisions based on different vehicle segments-high, medium, and low end-each with its own dedicated management team. These divisions focused intensively on their respective products and markets, creating a comprehensive challenge to Ford.
By the end of World War II, General Motors had captured 60% of the global automotive market, while Ford’s share had shrunk to just 10%. This marked a brilliant victory for an advanced organizational model over a more outdated one in the business world.
2.2
The Chinese Practice of the Divisional Structure: Midea’s Journey from 2.6 Billion to 458.5 Billion
If General Motors’ divisional structure was an “invention”, then Midea Group is the best example of taking that model to its ultimate extent within Chinese enterprises.
In 1997, when Midea implemented its business unit reform, its annual revenue was only 2.6 billion yuan. Prior to that, Midea faced the same challenges as connector companies do today: rapid expansion placed increasing management pressure on a centralized model, resulting in low operational efficiency and sluggish market responsiveness. Instead of adopting short-term strategies such as shifting resources from one area to another, He Xiangjian chose to start with fundamental organizational governance, establishing a sixteen-character principle: “centralized control with principles, decentralized authority in order, delegation according to rules, and power use within limits.”
After the business unit reform, Midea fully revitalized its organizational vitality-reaching over 10 billion yuan in revenue by 2000. By 2025, Midea Group’s annual revenue had grown to 458.5 billion yuan. The leap from 2.6 billion to 458.5 billion was driven primarily by the business unit structure as the core engine of growth.
Midea’s experience shows us that the divisional structure is not exclusive to large enterprises, but rather an organizational tool that any company aiming for new business growth and scale expansion must master. Midea was able to implement a divisional structure when it had a revenue of 2.6 billion; today, many connector companies have already reached revenues of hundreds of millions or even billions. There is no justification for saying “we’re too small for a divisional structure,” especially since the unit price of connectors is on a completely different scale compared to white goods.
03
Why Do Connector Companies Need a Divisional Structure?
3.1
New businesses remain attached to old ones and fail to grow independently.
In the connector industry, there’s a common phenomenon: companies want to expand into new business areas-such as moving from consumer electronics connectors to automotive connectors, or from traditional connectors to high-speed connectors-but often choose to integrate these new ventures into their existing systems, treating them merely as side activities.
What’s the result? The new business never grows.
The reason is simple: the old business is the company’s “cash cow,” with resources, processes, and performance evaluations all centered around it. When new businesses are placed within this existing system, they’re like M Company’s stomach medicine-marketing staff are already comfortable with established channels, enjoying stable revenue, and thus have no incentive to promote new ventures. R&D resources are prioritized for the old business, production schedules favor older products, and new initiatives always end up at the bottom of the list.
The core logic of the business unit structure is to “separate” new businesses from the existing business system, enabling them to independently assume responsibilities, allocate resources, and face the market. Different business models are divided into independent business units, each of which takes full operational responsibility-including market responsibility, profitability, asset management, and employee accountability.
3.2
Successful precedents in the connector industry
The divisional structure is not new in the connector industry, as leading companies have already implemented it:
Amphenol: A “decentralized” empire with over 130 independent business units. Amphenol operates more than 130 independently managed business units worldwide. Each unit functions as a standalone entity with its own profit and loss accountability. This highly decentralized organizational structure enables Amphenol to make swift decisions and flexibly respond to diverse market demands. In 2022, the company restructured its business units into three major divisions-Rugged Environments Solutions, Communication Solutions, and Interconnect & Sensor Systems-each comprising multiple business units with similar operational characteristics.
It was precisely this organizational structure-featuring multiple business divisions competing and advancing collaboratively-that enabled Amphenol to leap from being a long-standing “second-place” player in the global industry to become the world’s most valuable connector company. Amphenol’s success demonstrates that the divisional structure is an effective organizational model for connector companies seeking to achieve significant scale growth.
TE Connectivity: Strategic Investment in Automotive Division. TE Connectivity has established a dedicated automotive division and invested $150 million to build an advanced manufacturing base in Nantong, Jiangsu, primarily producing core products such as high-voltage connectors for new-energy vehicles and high-speed, high-frequency data connectors for automobiles. Through the independent operation of this divisional structure, TE can rapidly expand and boldly invest in the emerging market for smart electric vehicle connectors.
Junchuang Technology: Establishing a Connector Division to Enter New Growth Areas. Junchuang Technology has set up its connector division based on two key considerations: first, the company has long served leading new-energy clients, accumulating strong technical expertise and supply chain capabilities in precision injection-molded components for the three-electric systems; second, connectors represent a core growth area amid the wave of electrification and intelligentization, offering vast market potential. The division aims to comprehensively expand into low-voltage, high-voltage, and high-speed connectors in phases.
These cases demonstrate that, whether for global giants or growing enterprises, the divisional structure is an effective organizational tool for connector companies to expand into new businesses and enter new markets.
04
How to Build a Divisional Structure?
A Practical Guide for Connector Companies
4.1
The prerequisite for the divisional structure: Five elements of organizational governance
A divisional structure is not simply about “dividing business into several departments.” A complete organizational governance system comprises five key elements: organizational design, an effective decision-making system, performance evaluation system, control system, and incentive mechanism. Without any one of these, the divisional structure may deviate from its intended form.
The construction of an organizational governance system should revolve around four objectives: aligning with strategy to form an integrated whole; enhancing the company’s and its new businesses’ market competitiveness; ensuring timely and sound decision-making; and streamlining internal relationships to foster dynamic growth-neither constraining business development nor allowing unchecked expansion, achieving effective control without stifling vitality, and maintaining order without rigidity.
4.2
Division of Responsibilities between Headquarters and Business Units
The headquarters serves as the strategic and management center, housing functional departments such as human resources, finance, and information processes. Its primary role is to empower the various business units, typically without direct involvement in day-to-day operations. Each business unit operates as a profit center, establishing a complete organizational structure tailored to its specific business characteristics.
The headquarters should establish an Operations and Management Committee (also known as the General Management Office), which serves as the decision-making and coordination body of the management team, responsible for making decisions on major operational and management matters and monitoring and evaluating their implementation.
Depending on the level of control, headquarters’ management over business divisions can be categorized into financial control, strategic control, and operational control. Connector companies typically establish new business divisions to develop a new line of business. For such divisions, strategic control is generally most appropriate-specifically, “one integration, four enhancements, seven controls, and ten liberations” (see detailed explanation below).
4.3
Midea’s 16-Character Guideline and the “1471” System
Midea’s 16-character management guideline for its business unit system-centralized control with principles, decentralized authority in order, delegation according to rules, and use of power within limits. The core idea behind this guideline is that decentralization does not mean laissez-faire; rather, it involves granting authority under clear rules.
At the operational level, Midea summarizes it as “one integration, four enhancements, seven controls, and ten liberations”:
One integration: The integration of responsibility, authority, and benefit (responsibility, authority, and benefit form an equilateral triangle).
Four strengthenings: Strengthening plan and budget management (business divisions may be granted authority, but must report their goals and plans to headquarters; authorization is only granted after the plan and budget are approved); strengthening performance evaluation (no evaluation means no authorization); strengthening audit and supervision; strengthening service. These four strengthenings are prerequisite conditions for delegating authority to business divisions.
Seven controls: Control over objectives, control over funds, control over assets, control over investments, control over development strategy, control over policies, and control over the general managers and financial officers of business divisions.
Ten Delegations: After the headquarters takes control of key areas, all other powers are delegated-departments under business divisions may establish any departments they wish and appoint personnel as they see fit, without interference from headquarters; labor employment is not managed by headquarters; hiring of professionals is left to individual units; employee benefit distribution is not controlled; expenditures within budget and standard limits are not restricted; implementation of planned productive investment projects is not supervised; and authority over production organization, procurement, and sales is fully decentralized.
The lesson this system offers connector companies is that decentralization should be based on the nature of the matter, not the amount involved. Midea does not set investment thresholds for delegation; instead, it differentiates decisions according to the type of activity. For example, new construction investments are classified as fixed-asset investments-once made, they become sunk costs and must be approved by headquarters. In contrast, marketing and promotional investments, even if reaching ten million, are considered operational investments and thus should be decided by the respective business divisions.
4.4
Key Design Considerations for the Divisional Structure
Based on Sloan’s creation of the divisional structure at General Motors and practices adopted by companies such as Midea, the design principles and key considerations for the divisional structure can be summarized as follows:
First, different business models can be divided into independent divisions. Connector companies may organize their operations by product lines (such as Consumer Electronics Connectors Division, Automotive Connectors Division, and High-Speed Connectors Division), customer segments, or geographic regions.
Second, each business unit must assume full operational responsibility, including market responsibility, profitability, asset management, and employee accountability. We must continuously enhance competitiveness and market position, ensuring that product sales not only achieve scale but also generate solid profits.
Third, the core performance metric for each business unit is return on investment (return on equity). There must be a minimum ROI commitment; if the benchmark level is not met, the management team will be replaced.
Fourth, the headquarters implements a strategic control model over the business divisions. At the operational level, this can be implemented by following Midea Group’s approach: “one integration, four enhancements, seven controls, and ten liberations.”
05
Four Bottom Lines That Must Be Upheld
Decision-Making and Evaluation for the New Business Division
5.1
Decision-making System: Two Levels
The decision-making system of the new business division consists of two levels:
At the headquarters level: First, a dedicated executive should be appointed at the highest decision-making level to oversee new business growth, with new business performance included in their evaluation criteria. Second, decisions regarding new businesses should not be mixed with those concerning established businesses; instead, dedicated time should be set aside specifically for discussing new business initiatives.
At the new business level: The standard for appointing directors is not based on title or mere numbers, but on expertise. The primary goal of appointing directors is not supervision, but empowerment. Decision-making authority regarding operations should be granted as extensively as possible to the new business management team. The board’s responsibility is to identify and nurture aspiring entrepreneurs.
5.2
Evaluation System: Three Fundamental Principles
First, consider the development stage of new businesses and avoid applying evaluation criteria designed for mature businesses to new ones. Mature businesses should be assessed based on profitability and cash flow; growing businesses should focus on growth rate; and emerging future businesses should be evaluated on whether their business models are viable.
Second, the top priority for new ventures is customer value and market competitiveness. Profit generation is not the primary goal. User base matters more than revenue, cash flow more than profit, speed more than profitability, and team more than assets.
Third, the top priority for new ventures is validating the business model and building a core team. Customer reputation takes precedence over profitability, and the capabilities of the core team are more important than the structure and formalities of the system.
06
Control of the New Business Division
Five Key Controls and One Bottom Line
There are five key points for managing the new business division:
Information Control: All forms of control are based on information management. By leveraging IT tools to obtain information, we establish the foundation for effective control.
Strategic Control: When a new business model is still taking shape, the only effective method of strategic oversight is to regularly review and assess the business’s development progress.
Financial Control: Focus primarily on risk management and avoid interfering with finance lightly. In the case of Midea, there is a unified financial platform, so the financial status of each business unit is clearly visible at headquarters. Headquarters must follow established rules when allocating funds.
Personnel Management: The headquarters should be able to objectively and accurately evaluate key executives of the business units, as well as make decisions regarding personnel appointments and dismissals. While the headquarters may assign managers to new teams, it must ensure that the original organizational structure and team motivation of the new business unit are not disrupted.
Audit Control: A post-event control mechanism, serving as the final line of defense within an enterprise’s management system.
The overall principle of control is: break free from path dependency, focus on empowerment, and minimize control. We cannot manage new businesses by simply replicating the same approaches used for past operations.
07
Incentive System
Stimulate Organizational Vitality
The incentive system is the most human-oriented element in the organizational governance system, and it is also the key factor determining whether the divisional system can truly activate the organization.
When connector enterprises design their benefit incentive systems, they need to pay special attention to three points:
- Firstly, the incentives should be stratified – the incentive methods and intensities for the executive team, the business division teams, and the product line teams should be different, avoiding the “one-size-fits-all” approach.
- Secondly, the incentives should be transparent – the assessment standards and distribution rules must be clearly defined at the beginning of the year, so that each business division knows “what to achieve and what rewards to receive”.
- Thirdly, the incentives should be dynamically adjusted – the incentive priorities for new business divisions during the incubation period and the mature period are different. During the incubation period, more emphasis should be placed on milestone achievements and customer accumulation, while in the mature period, more emphasis should be placed on profit contribution and return on investment. When the benefit incentive system is designed properly, the business divisions will shift from “the company makes me do it” to “I want to do it myself”, and the expansion power and vitality of the organization can be truly unleashed.
Conclusion
The Path of the Divisional Structure in the Connector Industry
Returning to the story of M Company at the beginning of the article. If M Company had operated the stomach medicine and health supplement businesses as separate divisions, providing them with independent marketing systems, independent assessment standards, and independent resource allocation, instead of allowing them to “do it as an afterthought” within the old business framework, the outcome might have been completely different.
The connector industry is no exception. New fields such as new energy vehicles, AI servers, and industrial automation have opened up new growth spaces for the industry. However, the success of new businesses not only requires technology, products, and capital, but also a matching organizational structure.
The divisional structure is not an overnight revolution but a continuous improvement process. Connector enterprises can start from the most basic step: separating new businesses from the old system, providing them with independent resources, independent assessment, and independent teams. Then, gradually establish a complete organizational governance system – an effective decision-making system, a scientific evaluation system, an appropriate control system, and a reasonable incentive system for interests.
In the future connector industry, it will belong to those enterprises that can cultivate new businesses through the right organizational approach. Because the competition in the connector industry is not only about technology and products, but also about organizational capabilities and management awareness.