The quantum mechanics of Chinese manufacturing … talking physics and business, Asian leadership and better living, with entrepreneur Zhang Ruimin, CEO of Haier

November 22, 2019

Zhang Ruimin is Chairman and CEO of Haier, the world’s leading white goods business.

From his base in Qingdao, Haier has revolutionised the world of refrigerators, washing machines, air conditioning, and many other home appliances. Not just in China, but increasingly as a global brand. Zhang has become a world-renowned entrepreneur, creating a unique, innovative, evolving business model that fuses management philosophies of east and west.

In 1984 Zhang became director of the Qingdao Refrigerator Factory, the predecessor of Haier. Over 30 years, he turned a small, collectively-owned factory with a 1.47 milion yuan loss into a global enterprise, with a turnover of 188.7 billion yuan (2015). In 2016, he sealed a $5.4 billion deal with GE to buy GE Appliances (GEA).

Zhang’s innovative management philosophy blends the essence of traditional Chinese culture with modern western business concepts. Once a devotee of the “six sigma” approach, Zhang has developed his own management ideology: rendanheyi. By dividing a company up into micro-enterprises on an open platform and dismantling the traditional “empire” system of management, rendanheyi creates “zero distance” between employee and the needs of the customer.

At the heart of rendanheyi is the cultivation of entrepreneurship – by removing the costly level of middle management (Zhang famously eliminated the positions of 10,000 employees), you encourage innovation, flexibility and risk-taking.

The physics of business

Today we’re in London for the Thinkers50 Global Summit, a meeting of enlightened mind, celebrating the best ideas in business thinking, including the biennial ranking of the top 50 gurus. Zhang was the winner of the 2015 “Ideas into Action” award, and has now risen to 15th in the global ranking. He also hosts Thinkers50 regional hub in China, as a way to help encourage more entrepreneurs, more new thinking, and more innovation across Asia.

I’ve met Zhang before, but I hadn’t previously had the opportunity to explore our common background, both as physicists. I was curious about how he had embraced the ideas of physical science into his vision of how Haier should work as an organisation. He was delighted, and quickly got into a passionate, and somewhat technical discussions about atomic structure and wave theory. Whilst I’m not sure atomic physics would be many business people’s ideal topic, I was intrigued.

Atomic theory and self-organising teams

Zhang Ruimin: “When I first studied physics I was amazed by the perpetual motion of sub atomic particles. Electrons and protons coexist in a dynamic equilibrium, created by their equal and opposite charges. This sustains a continual existence, it enables atoms to come together in many different formats as molecules, each with their own unique properties, and within these atomic structures is huge amounts of energy”.

The application to business becomes clear, and also much of the founding ideas behind why and how he has developed his rendanheyi model of entrepreneurial micro businesses.

Zhang Ruimin: “Applying this idea from physics to business, small teams of people with different backgrounds, skills, and ideas, can co-exist incredibly effectively. It is the ability to create small diverse teams where ideas and actions are equally dynamic, that enables a business to sustain over time. They become self-organising and mutually enabling. Ideas, innovation and implementation are continuous. And they can easily link with other teams, like atoms coming together as molecules, for collaborative projects and to create new solutions.”

As a result, he challenges the old supremacy of shareholders in the value equation, putting a premium on employees, and the value created by them and for them. However at the same time, he recognises the need to empower employees to be more customer intimate. As a result the rate of growth has risen from 8% to 30% in recent years.

Zhang Ruimin: “People are not a means to an end, but an end in themselves. We took away all of our middle management. Now things are working much better. Zero signature, zero approval. Now we have only one supervisor, which is the customer.”

Wave theory and entrepreneurial brands

Zhang Ruimin: “Additionally as we think more about quantum physics, it is wave theory that is responsible for how energy is transmitted – in forms such as light or heat, magnetism or sound. The idea of waves being a relentless force of progress, which can be reinforced when two waves come together and resonate with more than double their impact. The Doppler effect. Waves can be sustained over great distances, and with different frequencies, into what we know for example as pitch and volume”.

In this example the analogy to business can be taken in multiple ways, both in how organisations build a culture and sustain momentum, but also how innovations and brands are sustained in markets.

Zhang Ruimin: “First think of waves inside organisations. They are like ideas that spread between people and teams. Ideas that resonate together can be more powerful, and in time they characterise a culture, a common way of thinking and doing things. Haier is many businesses but one brand. In the same way, in the market, innovations can spread rapidly, and be reinforced by matching with customer needs, particularly as was create more products to improve people’s lives more holistically. As we do this, we create resonance with people, the solutions become more important, and the brand becomes more powerful.”

As a result, brands form a different type of relationship with organisations and brands, rather than transactional, they come relational or even partners.

Zhang Ruimin: “Sales used to be the end of the relationship. Now sales is the beginning of the relationship. We now work in a more connected way, with connected products, and connected partners, and connected customers. It is an ecosystem. ”

Technological innovation that improve people’s lives

Haier’s evolution has been rapid and relentless, as Zhang has driven the company from an old refridgerator factory – where indiscipline and poor quality was so rife that he took to shock tactics, taking a sledge hammer to some of the products to demonstrate that such mediocrity was no longer acceptable – to a pioneer of digital tech.

Zhang Ruimin: “We quickly realised in the early days, that high quality was very important. Approaches like six sigma were very important at the time, and we were one of the first Chinese companies to embrace such techniques. We didn’t just want to compete, we wanted to be the best company. And we needed to be if we were to build a brand recognised globally.”

Whilst Haier in the 1990’s was focused on the Chinese market, building a portfolio of high quality standardised products, the 2000’s was about internationalisation, reaching across the world but with localisation, and customisation. The 2010’s have been all about digitalisation, embracing the power of automation and data, to the point where Haier is now one of the world’s leading producers of “smart” products, embedded with IOT, and connected intelligently.

However the implications are profound. Today it is no longer about standardisation, and creating the best product. Haier’s brand purpose is all about making people’s lives better. Therefore Haier is looking beyond products to services, and how it can do more to help people live in their everyday lives, with a focus on the intelligent home.

Zhang Ruimin: “In a digital world of globalization, connectivity and personalization, there is no such thing as a perfect product. People will buy scenarios, or concepts, where the products might be free and just enablers of services. Haier’s products embrace the internet of things to ensure that they connect with other devices, with other partners in our ecosystems, and with people and their homes. In the future, maybe the product will be free, and people will pay for services – from food delivery, to home entertainment, security or maintenance.”

The ecosystem model is now core to Haier’s future, arguing that Haier is the first true ecosystem brand.

Zhang Ruimin: “We want to create a rainforest of perpetual life”.

From Aristotle’s philosophies to Asian leadership

Zhang is clearly an incredibly thoughtful and well-read leader. His ideas are regularly interspersed with quotes from Aristotle and Plato, Kant and Hemingway, Mintzberg and Drucker, and many others too. His desire to embrace western management techniques marked him out as a thought leader amongst Chinese leaders.

Zhang Ruimin: “I read two books every week, or more. Easy year more than a 100 books. I pay special attention to cutting edge ideas. I read philosophy books.”

Having spent much of my last year exploring Asian businesses and their leadership behaviours, I was intrigued by how far Zhang thought Asia had now come. Is Asia still learning from the west, or do the ideas now come from the east? Certainly, my experience in organising this year’s Thinkers50 European Business Forum, was that the best ideas, new innovations, and leadership inspiration come from Asia, rather than Europe or America.

Zhang Ruimin: “A true leader enables ordinary people to achieve extraordinary things.”

So finally an inspiration from Chinese culture, or Lao Tzu to be more precise. He went on.

Zhang Ruimin: “I believe everybody can learn from everywhere. Yes, Asian companies and their leaders have embraced new ways of working, and responding to their fast growth markets. I admire many of my Asian peers. But I also still admire other companies all around the world, and particularly in the applications of technology. For me it is about taking the best ideas from everybody, and combining them in the right way for your business, your market and your people.”

Higher, further, and faster …

You can read more of this interview, and “the physics of business”, in my forthcoming book, Business Recoded.