An American Icon Being Acquired By A Chinese Giant: The Story Of GEA
“It was like being with a parent that didn’t really want us”, says CEO of GE Appliances, Kevin Nolan. He explained: “The one hope everyone had was that Haier bought us because they wanted us, and we were curious to find out what that would mean”. 4 years later, we visited to find out how GEA was doing. Getting to talk to them was harder than we thought: “Our managers and executives are currently working on the assembly lines.” They are doing what!?
Acquired by an unknown giant
This American icon had been acquired by a relatively unknown Chinese company with its unique, and pretty-hard-to-understand management model. To many, it didn’t sound like this story would have happy ending. Especially if you’ve seen “American Factory”. (If you haven’t, it’s great!). However, the results speak for themselves. Since Haier acquired GEA they have managed to grow their market share every quarter. Even during COVID-19, they did so across all categories in which they compete. What happened?
Back in 2015, General Electric decided to sell their appliance business. After a year of negotiation with Electrolux, a $3.3 billion offer was not accepted. For Haier, it was an opportunity to get their feet firmly on the ground in the US. They followed up. Within weeks(!)a company unknown to most GE employees had acquired the century-old GEA business for a staggering $5.4 billion.
Managers and executives were helping at the assembly lines: "That would never have happened in the old model."
The first year
Kevin: “In the first year Haier came and told us: We’re going to let you run the business the way you want to run it.” Kevin, who started at GE in ’97, and was Chief Technical Officer when Haier acquired GEA, couldn’t believe it. “You don’t just spend five billion dollars to not get involved in something.” He felt the need to understand their thinking better and spent a good part of that first year in Qingdao. “It’s a hard company on the surface to understand. I remember sitting in a meeting, and we talked about taking the CTO role for the company, I actually still hold the role of CTO for one of the global platforms, and then it started being unusual. I got the CTO role and the next moment I was being introduced to another CTO, and then another! How do you have three CTO’s for one company!? Back then I thought: This doesn’t make any sense! But now I know that it does.”
It took him more than a year to understand what was going on and how things really worked. “The first year was super critical for me. You learn the company’s philosophy but that doesn’t mean you can copy it. There were numerous things that would never work in the U.S., so I tried to see what was valuable and good about the system, and how we could apply it back home.”
And home was truly ‘home’, because after Haier acquired GEA the management team remained intact. Many had worked for GEA for over 20 years(!). Kevin: “That’s the beauty of this model: it’s not about replacing people. It’s about enabling them.”
“That’s the beauty of this model: it’s not about replacing people. It’s about enabling them.”
Two powerful questions to change a mindset
In the early months, the Haier person overseeing the acquisition asked two questions. “You're not number one, why?” and “What's your plan to become number one?" These questions made Tom Quick, VP Human Resources at GEA, realize this really was something else. “Very simple questions. But nobody had asked them before.” These simple questions made an impact. People started thinking and behaving differently, making different choices and, according to Tom, changing their mindsets.
Adopting the RenDanHeYi model
Tom: “For the first year, there was only a handful of us that really had any interaction with Haier on RenDanHeYi, which changed when Kevin became CEO.” During that transitional phase Mr. Liang, the representative of Haier responsible for the acquisition, stayed to help in Louisville as well.
“I remember that Mr. Liang invited us to a meeting room and told us to listen while he explained the concept of RenDanHeYi in full. We had to sit for an hour and could only ask questions once it was completed.” Joost and I needed to ask: “How was that for you? Someone coming in and making you feel like you’re going back to school again. Was it anything like we’d seen in the American Factory documentary?” Tom laughed “It was not! But you know what’s interesting, if this had happened in 2016, nobody would have liked it. Now we had 13 months of experience under our belt. We knew Mr. Liang, and he knew us. And even more importantly, Haier had by that point already signaled to us, ‘Hey, don’t worry, we trust you and think you run a good business.’ That made a huge difference.”
The meeting was a success. The basic concepts of RenDanHeYi, being customer focused, striving to set ‘leading’ goals, and unlocking the potential of employees, came across to those attending. They started implementing elements of the model. They knew that copying the Haier solutions directly would never work. They adapted them to the local culture, while remaining true to the original philosophy.
Peter Pepe, VP of the Clothes Care Business, explained, “We adopted not necessarily the exact structure of Micro-Enterprises, but more the concept of it. The ownership. That people really feel and act as owners of the laundry business.” Throughout GEA the movement to the ME structure was being made. Their ME’s commonly had more than a couple of thousand employees, much larger than those in China. But otherwise, they function almost the same way. They manage their own Profit & Loss, and VP’s of the ME’s can decide where to put the money themselves. Over the last year, smaller ME’s are also emerging. Peter: “For products that aren’t exactly the same, but are adjacently tied to the bigger ME, we’ll create new ME’s. For example, if we wanted to start selling detergent, we’d set up a new ME for that.”
Using the foundations of the ME structure allowed GEA to adopt other elements as well. They moved decision-making down, enabling those closest to the end-user to make more decisions. And they changed the incentive mechanisms to be connected to the performance of the ME.
A new incentive mechanism
Peter: “When Haier took over, there were great rumors saying that everyone’s pay is going to go down by 20% etc.” The rumors probably came from the salary model adopted by Haier in China, where employees indeed receive a lower basic income in combination with a secondary income source that is based on their individual and ME’s performance. At GEA, this wasn’t adopted. “What everyone was making from a compensation standpoint stayed the same. There was no going backwards.” One reason was they knew it wouldn’t work the same way as it did in China: partly from a legal perspective, and more so from a cultural perspective. Instead, they figured a way to make it work by redesigning the bonus structure.
Peter: “Before, each function was really there to be the best in their own area. You're the best manufacturing plant operation, or the best finance person, or the best technology organization. And yes, you worked for the product line, you worked within the product line. But now the whole goal is betterment of the product line, the micro enterprise, our consumers and the market place. Yes, it's a very subtle focus shift, but it's a big deal for us.”
GEA has adopted a bonus structure where, generally, half is based on the business overall, and half is based on THEIR business. Tom: “We started with that in 2017. So now, even if you're a finance person who's dedicated purely to the laundry business, that individual's bonus, at least half of it, is derived specifically from the success of the laundry business. That person's peer could be, let's say, the finance person supporting the cooking business. Well, 50% of that person's bonus is derived from the success of the cooking business.” Before, bonuses were only available to executives. But since 2017, they became available for more and more throughout the organization, and now everyone in the salary population has an opportunity to get a bonus, based up on the success of the organization or their Micro Enterprise.
Throwing away the corporate playbook
Kevin: “If you look, I'd say the corporate playbook hasn't really been able to help people through this COVID crisis because there's no playbook. I think the fact that we're nimble and able to look at a situation and adapt…is really showing the potential of Haier’s business model. We had issues with so many people being out due to COVID and we're like, "Well, we've got to run these factories. What are we going to do?" We felt the opportunity in the market and then we just asked people to sign up on Friday and on Monday they were on the floor working—including me!” There's a huge industry out there around your corporate playbook, and consultancies and many others that want to give you advice on how to run things. Quite frankly, I'd say we're listening to the market more than to consultants for what we need to do, and what we need to do to be successful and it’s working great for us!”
CEO Kevin Nolan: "There's a huge industry around the corporate playbook, and consultancies and many others that want to give you advice on how to run things. We're listening to the market more than to consultants!
GEA has managed to implement some fundamentals of the Rendanheyi model. No, they did not get rid of all management layers. No, their ME structure isn’t as refined as that of Haier. And no, not every employee can make all decisions on their own. So, is GEA mature in the model? Kevin: “No. And I think that's what's promising in this thing. You don't have to get as mature as Haier. In the industries we're in, just even scratching the surface of this showed great power for us in our ability to differentiate ourselves versus competitors.”
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