Rendanheyi in USA

This is an excerpt from our book titled 'Start-up Factory'

An American Icon Acquired

Back in 2015, General Electric decided to sell its appliances business. After a year of negotiation with Electrolux, a $3.3bn offer was blocked by US anti-trust authorities. This was an opportunity for Haier to gain purchase on US soil. Within weeks, the century-old GEA business had been bagged — by a company that most of the American employees had never heard of — for a staggering $5.4bn.

Why did GE sell to Haier? Because there’s no decent margin in making appliances when the competition can do it for a lower price. GE had more lucrative business to do.

This makes sense, if only through the eyes of GE. Yes, it sold its appliance business because apart from anything else, it could no longer make a decent profit on its products. But Haier did not buy GE to compete on cost. It saw the opportunity to make bigger margins in different ways. Legacy firms (like GE) that had essentially been doing the same thing for decades did not develop product differentiation. They neglected technological change, and this threatened their core business. Digital technologies have the potential to bring differentiation to almost every traditional industry.

Technology-driven companies have convinced their customers to enter long-term relationships, instead of interacting in a transactional way. This has allowed them to accumulate value over time. Haier is essentially following this lead. The company is transitioning one-off sales of kitchen appliances into recurring service offerings through GEA’s own technology platforms. These recurring revenue offerings are less vulnerable to short-term disturbances and can cover the weaknesses of a legacy hardware business. By integrating the hardware and software sides of the business (as Apple did with its iPhone, Wearable and App Store lines) Haier might even be on the path of combining high growth with high margin. This is something not all firms are able to do. Haier had created other factories in the US, but without much success. Acquiring GEA and leveraging its strong brand was just the opportunity Haier had been looking for. On top of that, there seemed to be a personal angle. One can hear the pride in Zhang Ruimin’s voice when he reminds everyone that in the early ‘90s, General Electric had vowed to eliminate Haier.

The tables had been well and truly turned.

Up for Adoption

“It was like having a parent who didn’t really love us,” says GE Appliances CEO Kevin Nolan. “The one hope was that Haier had bought us because they wanted us, and we were curious to find out what that would mean.” The iconic American firm that dated from 1907 was an established brand. Almost every citizen grew up with GEA products in the household. Since 1951, its headquarters had been based in Louisville, Kentucky, and it was there that Haier intended to introduce America to Rendanheyi.

Many GEA workers found the acquisition hard to digest. It didn’t seem to be heading for a happy ending. But the eventual results speak for themselves. Since the Haier take-over, GEA has increased its market share every quarter. Even during the Covid-19 pandemic, there was growth across all categories.

Introducing the Model

Kevin Nolan: “In the first year, Haier told us: ‘We’re going to let you run the business the way you want’.” Nolan, who started with GE in ’97 and was CTO at the time of the acquisition, couldn’t believe it. “You don’t spend five billion dollars and not get involved,” he said.

He felt the need to better understand Haier’s thinking, and spent a good part of that first year in Qingdao. “On the surface, it’s a hard company to understand,” he admits. “I remember sitting in a meeting, and we talked about the CTO role. Things took an unusual turn. I was given the role — and the next moment, I was being introduced to another CTO, and then another! How do you have three? I thought: ‘This doesn’t make any sense!’ But now I know that it does.”

Fear of Change: It Must be Fought

Like others before them, Kevin Nolan and his colleagues struggled to understand Haier. It took them more than a year to begin piecing things together, with much lost in translation. Tom Quick, vice-president of Human Resources at GEA, shared a typical example. “Haier kept referring to ‘690’,” he said, “We would just look at each other and think, ‘What are they talking about?’ We eventually figured out that 690 was the nomenclature of Haier’s stock, and they were simply referring to themselves.”

More confusion was to follow, and Nolan realised that the successful adaptation of the Haier model would require some serious study — and he intended to get his knowledge from the source. “The first year was critical for me,” he recalled. “You can learn the company philosophy, but that doesn’t mean you can copy it. Some things would never work in the US, so I looked for the most valuable parts of the system. Instead of copying, we looked where Haier was going.”

Once he was sufficiently confident to start implementing elements of the Haier model, Nolan returned to the States. Home was still “home”; since the takeover, almost the entire GEA management team had remained intact. “That’s the beauty of this model,” he says. “It’s not about replacing people; it’s about enabling them.”

Nevertheless, the GEA folks were nervous. There was still speculation about Haier’s motivation and intentions. “Many of our people got nervous in the early stages,” said Quick. “There were rumours about the salary system, and how Haier was going to lay-off a whole bunch of staff when the one-year acquisition date had passed.

“People would come to me and say, ‘Well, Tom, why aren't you putting something out, a communication?’ And I thought to myself: ‘I'm not going to buy into all these crazy rumours. After the first year, things will settle down’." And settle down they did. It became apparent that Haier trusted the US team to run the business in its own way.

The Chinese giant applied the approach it had successfully used with Fisher & Paykel. It wasn’t going to tell anyone what to do; it simply offered GEA executives the opportunity to learn, and to apply knowledge at their own speed. Haier kept its word: when it became clear that GEA leaders could still make the important calls, concern was replaced with curiosity. The same pattern occurred externally, recalls Quick. “The community saw that we didn't retrench. We continued to give to United Way and the philanthropic groups. We still had a strong community volunteer organisation. Even the mayor of Louisville will tell you: GEA never missed a beat here.”

GEA was able to continue the things that were important to its culture. In the first year after the acquisition, there were no significant attempts to implement the Rendanheyi model. “Only a handful of us had any interaction with Haier on the subject,” says Quick. During the transitional phase, the Haier representative responsible for the acquisition, one Mr Liang, went to assist in Louisville. “He invited us to a meeting and explained the concept. We had to sit for an hour and were only allowed to ask questions once he was done talking.”

This was the first time Haier had demanded that the GEA executives shut up and listen. It could be argued that this coercion contradicted Haier’s non-intrusive philosophy, but in practice things were more nuanced. “Some companies want to turn acquisitions into clones of themselves,” said Quick. “That's not been the case with us. Haier was like, ‘Okay, we've acquired you. You are where you are in your journey. We've got some things that — if you adopt them — can help you. You know your culture better than we do. Take the best of this and blend it to be as successful as you can’.

“You know what’s interesting? If this meeting had happened in 2016, nobody would have been happy. But now we had 13 months of experience under our belt. We knew Mr Liang, and he knew us. And even more importantly, Haier signalled: ‘Hey, don’t worry, we trust you and think you run a good business.’ That made a huge difference.” Liang succeeded in transmitting the basic concepts of Rendanheyi: being customer-focused, striving to set leading goals, and unlocking the potential of employees. The meeting, the growing trust in the relationship, and the appointment of Kevin Nolan as CEO meant Rendanheyi could gradually be implemented on foreign shores.

When GEA was still a part of GE, it was serving the market — but its real customer was corporate headquarters. Keep HQ happy, or funding would be cut and there would be reorganisation. Now, operating alone, GEA could focus on customers. Directly copying the Haier solutions wouldn’t work; they had to be adapted to the US culture while remaining true to the original philosophy.

But where to start?

“One of the first things Kevin and I did,” says Quick, “was hold roundtable sessions with the executives, just the two of us and 15 to 20 of them around a table, talking about the basic concepts.” Quick and Nolan tried a similar approach as Liang. They set out to educate, actively engaging people and encouraging them to ask questions. The approach helped to reveal what GEA needed, which Rendanheyi elements would work, and which needed to be adapted. Workers were getting on-board with the idea. Things started to change.

Some Powerful Questions

The GEA mindset started to change, leaving behind the old ways and moving towards entrepreneurship. Liang knew that asking the right questions at the right time could speed-up the process. “You're not number one. Why not?” and “What's your plan to become number one?" Tom Quick recognised something new. “Very simple questions,” he says, “but nobody had asked them before.” GEA staff started thinking and behaving differently, making better choices — and believing that they could become part of a winning team.

“The interesting thing was that our employees started to see us competing. They saw our market share growing. They started to feel like, ‘Wow, we can do something. We can be better. We can be stronger.’ There was this recognition that to be Number One in North America was going to take an awful lot. But now people had started to believe.”

Haier had learned a lot from its earlier acquisition of Fisher & Paykel, and GEA could learn from that experience as well. Fisher & Paykel had renamed the Rendanheyi model People Plus Goal, which was easier to understand and sounded more familiar to Kiwi ears.

“We knew we were different to Fisher & Paykel,” says Quick, “and that the language was not going to work for us. Let Fisher & Paykel do what it needs to in its culture. We'll do what we think will be successful at GE Appliances.”

GEA chose its own terminology for Rendanheyi. “We called it end-to-end.” Changing the language to fit the culture changed the way people spoke and felt about the model. At the same time, it helped to remove any lingering reservations about being acquired by a Chinese company. But as employees became familiar with the term, it became used as well. “Nowadays, when we say things like RDHY or Rendanheyi, we don’t get those blank stares.”

Nolan again: “We knew that certain things that Haier does in China wouldn’t work here. But instead of saying, ‘That just won’t work’, we said ‘That part might not work — what will?’ That really helped us with one of the biggest challenges.” When he took over as chief executive, GEA was still organised in a hierarchical way. “If you look at Haier's model, you still have functions, but those functions are platforms,” he said, “distribution, for example, or HR. So, we changed that right away. We still have a manufacturing ‘leader’, but he's no longer a functional leader, he's a platform leader.”

This approach changed the power structure. Once, the manufacturing leader had called the shots; now, there were other ways to achieve goals. “Some people felt as if they had lost all their power,” says Nolan. “We decided to turn product-line leaders into microenterprise leaders — which made it seem as if they had all the power.” That wasn’t the case, but Nolan had to convince his employees. “The whole concept that power is with the user came across. The power is with the customer. We're here to serve that customer, organising ourselves as efficiently as possible to meet those needs and make sure everything we're doing is right.”

Kevin Nolan soon found he needed to reinvent his own role. He started by delegating wherever possible, empowering others to make decisions. “I became more of a coach: someone you can talk to instead of someone who tells you what to do. In practice, something interesting happens. I spent more time with the smaller microenterprises that were trying to gain traction than I did with the larger ones with an established model.”

Peter Pepe, vice-president of the Clothes Care Business, expanded on this: “We adopted not the exact structure of microenterprises, but the concept,” he says, “where workers really feel, and act, as owners of the business.” Across GEA, the swing to the microenterprise structure was gaining momentum. These US microenterprises often had over 2,000 members, more even than those in China, but they functioned in virtually the same way.

This, believes Nolan, is crucial. “What’s typical of conglomerates is that they focus on feeding the ‘strong child’. The weak ones, they just sell off or starve. And you know where that gets you? Nowhere.

“When larger microenterprises need something, we meet, but not very frequently, whereas I meet with the small microenterprises quite a bit. That is where we're trying to gain traction; and the bigger ones, they basically have an established model and do not need my help.”

Smaller microenterprises have started to emerge, says Pepe. “For products that aren’t the same, but adjacently tied to the bigger microenterprise, we’ll create new microenterprises. If we wanted to start selling a new product, we’d set up a new one for that.” Using the foundations of the microenterprise structure allowed GEA to adopt other elements. Decision-making moved down, enabling those closest to the end-user to have input. Incentive mechanisms were connected to performance.

Smiley Faces, Pink Pigs or Teddy Bears…?

To successfully implement Haier’s model requires more than the adoption of big ideas. It’s about considering the smaller elements and seeing how well they fit local needs. Changing smiley faces for teddy bears, for example.

At Haier factories, teams start the day next to a whiteboard bearing the names of team members. Each worker selects an emoji to describe their current mood and places it next to their name. Often it will be a smiley face: the bigger the smile, the happier the employee. This helps colleagues to communicate stress or feelings of being overwhelmed by work or home issues. It allows the team to be aware and act: reschedule tasks, for instance, or send someone home. It’s a simple and effective practice to increase psychological safety and support.

GEA tried to implement the smiley faces, but it didn’t work as planned. In US culture, emojis are used for WhatsApp messages, not workplace whiteboards. GEA employees came up with alternatives: pink pigs and teddy bears. However small and odd this change may have been for outsiders, the effect on behaviour was exactly what had been hoped for. Employees were taking ownership of a problem and coming up with alternative solutions while keeping an eye on the principle at hand. It helped them to understand that they do have an influence — it allowed the true potential of the Rendanheyi model to surface.

There was still some resistance from those who didn’t yet know Haier. “When something is different, a lot of people discount things,” Kevin Nolan notes. “And I get it, we’re basically throwing the corporate playbook out the window. But is that bad?” According to many of the people we have interviewed, not playing by the book is a strength. It works for Haier, making it nimble and able to react swiftly.

For GEA, the Covid crisis brought this strength to the fore. The company is increasingly focused on hands-on problem-solving. “We had issues with so many people being out due to Covid, and we had to run these factories. What were we going to do? We felt the opportunity in the market and then we just asked people to sign up on a Friday, and on the Monday those people — including executives and myself — were working on the factory floor. That would have never happened previously.”

“We’re now able to look at a situation and adapt to it, instead of looking at a playbook. There's a huge industry out there built around your corporate playbook, by consultancies and others who want to advise you how to run things. I'd say we're listening to the market more than the consultants — and that’s working great for us.”

Although GEA had started to heed the market, it did benefit from the experience gained at the source. It has managed to implement some of the fundamentals of the Rendanheyi model and is glad of it. It didn’t get rid of all management layers. Its microenterprise structure isn’t as refined as that of Haier. And not every employee can make big decisions. So, is GEA “mature” in the model? “No,” admits Nolan, “and I think that's what's promising. You don't have to move as fast as Haier. In the industries we're in, even scratching the surface showed great power in our ability to differentiate ourselves from our competitors.”

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