Latest tweets from Haier

Haier

China's global leader in white goods

Sector: Futuremakers
Themes:

Haier is a smart living home solution platform leading in the internet era. 100 million users in more than 100 countries, 24 overseas plants, 10 R&D centers, 60 distributors and 140 thousands retailers, the world's number one white good's manufacturer.

Haier, now the world’s largest white goods business, recently celebrated 10 years of its rendanheyi (or win-win) business model. CEO Zhang Rhuimin sees the approach as a way to stay small and focused – maintaining the entrepreneurship, intimacy and speed of a start-up – despite now being a $32 billion multinational with 70,000 employees. Haier is actually a family of 200 micro-businesses, each largely autonomous, and 70% of them with revenues exceeding $20 million last year.

The Qingdao-based company has stretched far beyond its refrigerator origins of 1984, now on the cutting edge of robotics and connected home devices. Just this year it launched Coton, a pocked-size washing machine, ready for any emergency. Haier is a shareholder in each of its micro-business, alongside all of its employees, who share in their own profits.

Rhuimin, who has seen Rendanheyi deliver 28% annual growth for the last 10 years, and profits grow by 1200%, is now looking to co-creation as the next phases in his journey, and for Haier to become leading player in the sharing economy.

Yoshiaki Ito, Haier’s CEO and President for Asia, on winning in an era of hyperconnectivity – where consumers are more connected to information and are relying on the Internet for information, not the manufacturers:

Zhang Ruimin has led several revolutions at Haier since 1984. Under his leadership, Haier was transformed from a near-bankrupt manufacturer of poor quality refrigerators to the world’s largest white goods manufacturer (with a 10.2% retail market share, by volume). They manage to move before they really need to. They are rarely late in adapting.  They seem to have a masterful sense of timing—selecting the right moment to abolish the old and embrace the new.

Zhang says that ‘successful companies move with the times’. But instead of only talking about it (like so many others) he also walks his talk. Over 30 years he has led Haier through five strategic cycles—with great success.

There are 5 phases in the Haier story:

1984 – 1991 Brand Building Stage

The Ruimin era begins in 1984. He followed several predecessors who failed to turn the loss-making factory in Qingdao around. So, the municipal government of the city appointed this young man as boss. It was a gamble.

Suddenly he found himself in charge of a lousy local factory. But he was determined to turn it to excellence. Inspired by Taylorism, Zhang first implements 13 ground rules—and posts them on the factory walls. These regulations must transform the factory from chaos to order. The workplace was miserable, as one of the 13 rules makes clear: “No urination or defecation in the working area.“

The next standout moment in the transformation happens a year later, when Zhang receives a customer complaint about the quality of a refrigerator. He immediately orders an inspection of all fridges in stock. To his shock, 20% have a defect!

This moved him to a symbolic act that won him national fame. After lining up the 76 defective fridges in the main hall, he invites the employees to join him in destroying them with sledgehammers. Together they smash all the fridges to a pulp. (At that time, a refrigerator was worth about two years salary for a factory worker.)

This symbolic act sent a strong message. Defective products are no longer tolerated. Zhang develops an obsession with quality and branding, a rarity in China at the time. (Other Chinese enterprises often acted as OEM manufacturers, and focused on volume.)

Creating a famous brand became Zhang’s top goal. It was also a way to win honour for the nation. And they did. In the ‘Brand Building Stage’ Haier developed high-quality refrigerators via constant innovation—aided by the introduction of Lean and Total Quality Management principles. This established them as a famous (domestic) supplier. It all happened at breakneck speed.

1991 – 1998 Diversification Stage

After establishing the brand in China, Zhang guides Haier to the next stage—earning a reputation in the global market.

He also knows that to grow the company they need to diversify the product line beyond refrigerators. In this ‘Diversification Stage’ Haier expands by merging with, and acquiring, other local firms. The strategy is to acquire loss-making rivals, and turn them around. Zhang calls them “stunned fish“: firms with strong products but poor leadership. He turns many around solely by introducing a new style of management.

Haier expands rapidly, and offers a rich diversity of top-quality white goods and services. Their expanded product line—refrigerators, washing machines, air-conditioners, freezers and TVs—illustrates this success.

1998 – 2005 Internationalization Stage

In 1999, Haier became China’s biggest fridge-maker. Two years later, China joined the World Trade Organization (WTO). Zhang seizes this opportunity to initiate a new strategy—the ‘Internationalization Stage’. Haier adopts a new global approach to brand building.

And competition flows the other way. From the mid-1990’s, the Chinese market was targeted by foreign multinationals. Fierce competition resulted. Zhang addresses this. He calls the multinationals ‘wolves’, saying ‘in order not to be eaten by the wolves, Haier had to become a strong wolf itself, and should be able to dance with the other wolves.’

One result is that Haier decides to expand overseas, too, with it’s own brand (instead of as an OEM exporter). They choose a difficult path. Instead of targeting less competitive regions like South-East Asia or Africa, Haier chooses to enter, and conquer, the most competitive markets of America and Europe.

They choose markets with the strictest entry standards, first. This forces the company to learn how to satisfy the world’s most demanding consumers. Eventually, this bold strategy succeeds. Haier successfully enters both developed and emerging markets. It is now well established in the world market, with a global network of operations.

2005 – 2012 Global Branding Stage

As the world enters the Internet era, Zhang is determined to lead yet another transformation, into the ‘Global Branding Stage’.

In this period, Haier shifts the focus from high quality, mass production to the customers, and their personalized requirements. ‘Globalization’ now means taking advantage of global resources to create mainstream, local brands. Haier actively integrates its unique management culture into local operations and cultures to deliver ‘on-demand manufacturing and delivery based on zero-inventory’.

This new strategy requires them to manufacture more products locally. Haier acquires famous local brands like Japanese Sanyo’s white goods business, New Zealand’s iconic home appliance brand, Fisher&Paykel and, most recently, GE Appliances.

2012 – 2018 Networking Stage

But Haier doesn’t want to be just a firm in the Internet era, they want to establish a real Internet presence. In the early 2000s, Zhang publishes an article with the title ‘My opinions on the new economy’. He writes: ‘No Internet, No Future‘, meaning Haier enters the ‘Networking Stage’ for good.

According to Zhang, in the era of the Internet, a firm either owns a platform or is owned by a platform. So, in April 2005, Haier proposes a ‘1000-day process re-engineering’ plan to prepare for a platform-based, and networked, enterprise. In December 2012, Haier makes their move, and puts the networking strategy into top gear.

They transform their internally focused, closed system, into an open one that can connect to all kinds of resources. They aim to move from mass production to mass customization. They make their focus a ‘platform-based enterprise‘, with ‘entrepreneurial employees‘ and ‘personalized user experience‘.

A ‘platform-based enterprise‘ no longer functions as a self-contained system, but as a network platform; one that integrates the Internet into everything they do. It gives seamless access to word-class resources. All stakeholders can co-create with shared interests, risks and successes.

‘Entrepreneurial employees‘ means employees are no longer passive workers, but are active partners—stakeholders in the firm. They are encouraged to be innovative and entrepreneurial makers who can grow together with the firm.

‘Personalized user experience‘ means customers are no longer passive, one time consumers, but long term users who can be involved in all aspects of the manufacturing and innovation processes.

Experimentation and adaptation in management

Arguably the real uniqueness of Haier’s transformation journey lies in its constant attempts to adapt, and to continually experiment with its organizational structure to meet employee and user demands. They constantly challenge the status quo, and a clear change in management style can be observed in all the stages.

Let’s look at these one by one. It reads like a journey through contemporary management history:

1984 – 1991 Traditional hierarchical pyramid

In the early days, the small and somewhat chaotic firm needs to be brought to order. The typical hierarchical pyramid structure, with its top-down management style, helps them achieve a high level of productivity and quality of product.

1991 – 1998 Matrix Organization with Strategic Business Units

The traditional, line-function pyramid soon proves unable to meet the company’s needs during rapid expansion. The rigidity has a negative impact on competitiveness. It became time to re-engineer the primary business processes to improve flexibility.

So, Haier implements a matrix organization with separate Strategic Business Units (SBUs). This divisional structure with a decentralized management approach (‘cell division’) is designed to improve flexibility. It gave promising business units the autonomy to operate independently.

1998 – 2005 Satellite Companies with project teams

In order to serve local customer demands faster, the structure is further flattened. It gives new levels of autonomy to satellite companies, and forces the SBU model all the way down to project teams. They aim for ‘zero distance to customers’, and promote self-management principles among employees.

Realizing that everything should be connected to the market, Haier re-engineers workflow. The market chain is now the main link. The essence of the market chain is to transform external market pressure into internal market pressure, so that every project team faces the market directly. All project teams become self-managing SBUs with assigned company goals. They become the primary resources for innovation.

2005 – 2012 Inverted pyramid with self-managed teams

The firm’s employees still work in distinct silos like manufacturing, sales, R&D, production and so on. It turns out the next obstacle to innovation and satisfying personalized customer demands forces Haier to turn the organization upside down.

They invert the traditional pyramid and organize themselves into circa 2,000 zi zhu jing ying ti (ZZJYTs). ZZJYTs are self-managed teams that perform many different roles. Each functions as an independent unit, responsible for their own profit and loss.

Anyone in the firm can propose to develop a new product or service. Voting by stakeholders (employees, suppliers and customers) will decide which proposed projects become real ZZJYTs. The winner of the voting process becomes the ZZJYT’s leader. He or she will form a team by recruiting employees from across the whole firm. Employees are free to join or leave any ZZJYT, and are paid based on performance.

2012 – 2018 Entrepreneurial Microenterprises

The era of the platform-based networked enterprise forces Haier to abolish the inverted pyramid for good. They eliminate the firm’s entire middle management, about 10,000 employees!

Subsequently, Haier reorganizes into small, independent companies (microenterprises). Currently, Haier comprises of 200+ customer-facing microenterprises and 3,800+ service and support microenterprises. It feels like an ecosystem of start-ups, Haier calls it the RenDanHeYi model. This model leaves only three different kinds of roles within Haier; the ‘platform owner‘, the ‘microenterprise owner‘ and the ‘entrepreneur‘.

Each microenterprise enjoys power over its decision-making, personnel selection, and profit distribution. The microenterprises are no longer linked by administrative connection, but by a market-driven contracting mechanism.

Entrepreneurs within the microenterprise often become shareholders, which makes them self-employed, self-organized and self-motivated. Through the global platform they can attract all kinds of research and development resources (e.g. finance, HR, legal, IT) from around the world.

The platform also enables the microenterprises to interact closely and intensively with users, allowing them to participate in the development and production process.

Stuart Crainer from Thinkers50 reports from the first International Rendanheyi Model Forum in Qingdao, China:

Some thirty years ago I went to interview Peter Drucker in London. At the time, I knew very little of his work.  He was an old man who had written a few important books.  When you are young you tend not to worry about such details.  Suffice to say, I was sketchily prepared to interview the founding father of modern management in any vaguely intelligent way.

During the interview, my eyes were opened. Drucker was a veritable fount of knowledge and stories.  As a child in Vienna he had met Sigmund Freud. He was also an expert on Japanese art.  And he re-read Jane Austen annually to remind himself of what great writing is.

There was much more. Drucker talked for an hour or two. Along the way he commented that the book we all want to write is, ‘How to make a million and still go to heaven’.  I would still like to write this.  I escorted him down the road to a pharmacy — as I remember, he needed something for an old skiing injury.

I left my meeting with Drucker convinced of the timeless nature of management — after all, it took management to tend the Hanging Gardens of Babylon or to build the Great Wall of China.  Drucker taught me that management was also universal and had the power to change the world.

I was not alone.

Also during the 1980s in Qingdao in China, a young man by the name of Zhang Ruimin discovered an old, battered copy of Drucker’s The Effective Executive.  The book opened his eyes.

Fast forward to 2017 and I am sitting in a state of the art conference venue in Qingdao and alongside me is Zhang Ruimin, chairman and CEO of the world’s largest white goods manufacturer, Haier.

Under Zhang’s hugely innovative leadership, Haier has evolved from a basically bankrupt manufacturer of poor quality fridges to one of the most innovative companies in the world in terms of its management.

Haier’s business philosophy is called ‘Rendanheyi’.  To the outsider it appears hugely complex, a large company basically deconstructed into a freewheeling entrepreneurial spider’s web. Middle managers (some 13,000 of them) were eliminated in one dramatic swoop.  Instead of forming another line in the hierarchy, they now have the opportunity to be CEOs of their own businesses within the company.  This has spawned hundreds of micro-enterprises. Wages are directly linked to the amount of value generated by individuals, all individuals.  The author Danah Zohar describes Haier as a “quantum organization”, one in line with the laws of quantum physics rather than the linear world of Newton.

Haier’s model has developed its own — sometimes perplexing and lost somewhere in translation — language but at its heart are a number of key points:

1. Change leads to change.  Haier seems addicted to change.  At every stage when it looks as though a period of calm would be the answer, the energetic Zhang Ruimin has driven through even more change.  Instead of being an isolated initiative or a programme, change is viewed by Haier as a fact of life. It is.

2. Level 5 management: Jim Collins refers to Level 5 leaders.  These are leaders characterized by humility rather than the over-arching egos often on display in the C-suite.  What is interesting about Haier is that humility has become a core part of the company’s culture as well as Zhang Ruimin’s personality.

This is manifest in a variety of ways.  For example, when it takes over companies it does not send over a large swat team to convert the acquired company to their Haier way.  Instead it plays a long and gentle game of persuasion.  A handful of Haier executives may be sent to the acquired company.  Their role tends to be passive rather than active.  It is not missionary work. Instead they wait to be asked, ‘How would you handle this at Haier?’ When Zhang Ruimin visited the United States earlier this year he didn’t visit the company’s most eye catching acquisition, GE Appliances. He was content to let the company find its own way. It is difficult to imagine a Western CEO employing such an arms-length approach to assimilating a business into an already successful organization.

3. Learning constantly.  The lead, as ever, must come from the top.  Zhang Ruimin is a voracious reader.  One of his aides shakes his head at the very thought of how many books he gets through. ‘If we are sitting in an airport lounge he will be there reading a new book he has just picked up. Five a week he gets through sometimes.’

Talking to Zhang the truth of this is quickly apparent. He is hugely well read.  His conversation moves easily from quantum physics to Henry Mintzberg, from Drucker to blue ocean strategy.  He quotes from Kant and Frederick Taylor as well as Chinese inspirations. For a senior business leader, this is highly unusual – perhaps unique.  CEOs, for one reason or another, generally prefer to spend their time differently than devouring the latest business blockbuster.

To the self-educated Zhang Ruimin learning is as natural as breathing.  From early on in Haier’s development he has traveled to meet up with the world’s leading thinkers.  He picks their brains and cherishes the conversations.  Hardly a week goes by without a business luminary visiting Qingdao to meet with Zhang.  Some, such as Gary Hamel, have become intellectual sparring partners.  Hamel’s anti-bureaucracy message has found a willing disciple in Zhang.

And Zhang is not alone.  Listening to the CEOs of Haier micro enterprises it is clear that they are enthusiastic converts. They are effectively creating their own businesses under the Haier umbrella.  The corporate home is reincarnated as an incubator, a platform for individuals and the organization to grow. And so, entrepreneurial energy and dedication — ‘You may see the marks under my eyes, I have been awake for 30 hours,’ one of the microenterprise leaders confides — becomes part of the corporate fabric, or the very loose and large tent which now constitutes a modern corporation.

Stuart adds one anecdote to conclude:

A few weeks ago, we had a tortuous problem with our bank.  We talked to low level employees who were very pleasant but essentially powerless.  Emails to senior directors were rejected.  This situation is all too common in large organizations.  People on the frontline have been stripped of independent decision making and organizational power. Meanwhile, senior executives come up with strategies and seem careless of their execution. In such organizations there is a managerial vacuum.

Management is at a crossroads.  The robotic age will alter the world of work in fundamental ways. The negative perception is that jobs will be lost and that is the end of the story.  Jobs will, indeed, be lost, but therein lies an opportunity.  It frees up workers to assume the innovative position of responsibility created by Haier.

Companies exist to create and retain customers.  Zero distance to the customer is one of many Haier mantras. It is one which Peter Drucker would have approved of.

Find out more