How To Disrupt A 70,000 Employee Manufacturing Company
In 2018 we had the chance to research in depth one of the world’s truly progressive organizations, Haier. It is a huge source of inspiration on how to unleash employee engagement—on a massive scale.
Indeed, we’ve travelled to China three times on this learning journey. More recently we met with CEO Zhang Ruimin in Vienna. Here’s what we discussed.
Disrupting the past
Many organizations live in the past. Their structures and processes were designed 100 years ago. They have clearly missed a few crucial upgrades. It’s like playing the latest Rockstar game on a Nokia 3310. The inevitable outcomes are frustration and anger.
CEO Zhang Ruimin believes Haier was in this position a decade ago. He felt they lacked entrepreneurship, motivation and speed. He decided to disrupt things – in three ways.
1. Disrupting the role of employees
The first disruption was the positioning of employees. Ruimin set out to design an organization that functions as a platform for entrepreneurship. Employees, then, are no longer pawns executing the commands of senior management. They become entrepreneurs. In fact, Haier now refers to employees as entrepreneurs.
But this is more than a change in title. They aim to emancipate and mobilize the ability of people. Not simply to recruit, train, deploy and retain them, but to leverage their entrepreneurial skills via a platform built for that purpose.
Indeed, Haier now allows both internal and external entrepreneurs (employees and independent contractors) to join their platforms. Organization boundaries melt away as they blend. It aims to allow both to fully unleash their talents. (There is a powerful example in previous blog posts on Haier.)
2. Disrupting the organization
The second disruption is aimed at destroying bureaucracy. That is, eliminating the structures that held employees back– leaving them as cogs in a machine.
This was massive. It included the tough choice to eliminate 10,000 middle management positions. They simply didn’t exist in the new model. Now, entrepreneurs were in charge of their own decisions – without the interference of other managers. The consequence was highly reduced organization systems. Many were dismantled. Self-organizing processes replaced them.
CEO Zhang Ruimin: “We replaced the bureaucratic model with a model based on self-employment, self-motivation, and self-organization. Our goal is to let everyone become their own CEO – as the wise Peter Drucker used to say.”
CEO Zhang Ruimin: 'We replaced the bureaucratic model with a model based on self-employment, self-motivation, and self-organization. Our goal is to let everyone become their own CEO .
For example: the company was split into more than 4,000 micro-enterprises. This pushed entrepreneurship and decision-making to those on the front-line. Inside the micro-enterprises, employees select their own leaders – enabling supportive leadership to flourish. All employees have the possibility to unleash their inner entrepreneur.
And entrepreneurs can set up their own micro-enterprises, in one of three ways:
- Identify a market niche, and turn it into a business opportunity in which Haier then invests.
- Combine with other resources to develop a business opportunity in which the firm invests.
- Invest their own money and/or funds from outside investors in an opportunity.
These options illustrate the huge change in Haier’s organization model. They removed lots of bureaucracy, and replaced it with a platform for entrepreneurship.
3. Disrupting compensation
The third disruption involved Haier’s compensation model. Many companies expect entrepreneurship from employees, but are unwilling to support it with a compensation model that rewards the very nature of entrepreneurship.
Haier tries to avoid that trap. They focus their entrepreneurs on the users. Their fixed income model moved to a “pay-by-users” model, and the added value of entrepreneurs is rewarded by – among other things – financial returns.
Let’s clarify with an example. In many traditional organizations an HR department gets a budget to provide support services to other departments. That budget is paid for by these other departments and is commonly allocated in a fixed manner. At Haier though, HR can be a micro-enterprise and treated like a separate entity that provides services to other micro-enterprises.
Meaning, the better it provides these services, the more value it adds. The more value it adds, the more the micro-enterprise (ME) reaps the benefits. However, if the HR ME provides poor service it will not be hired, and income will decrease. Eventually, the micro-enterprise will cease to exist – as with any company that doesn’t generate enough income.
Clearly, entrepreneurship is strongly promoted within Haier, partly via its disrupted compensation model.
Embracing the future
With these three disruptions Haier has radically reinvented itself. They have unleashed entrepreneurship on many levels. They pioneer what organizations of the 21st Century can look like.
Many organizations live in the past. Their structures and processes were designed 100 years ago. They have clearly missed a few crucial upgrades. It’s like playing the latest Rockstar game on a Nokia 3310.
They have found an antidote to what Gary Hamel calls “the bureaucracy disease”. They show what can be done to upgrade our old-fashioned operating models: one app at a time, and on a massive scale!
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Haier is a fascinating example as current state. An interesting follow up article would be a description of the Haier transformation journey in terms of intermediate transitional stages.
That points to a project and vision.
1) Review every organization and entity on the CR Bucket List.
2) For the companies,
2a) Capture all of their major intermediate transitional stages that carried them from traditional command and control to wherever they are today, and
2b) Capture the specific "moves" that carried them from one transitional stage to the next.
==> that must have been done through specific, conscious policy decisions, emanating from the C&C hierarchy.
3) For the "Academics / Writers / Gurus"
3a) Mine their case studies for further examples of companies and their transition states and moves.
3b) Outline all of their suggested "moves".
4) Compile evaluations of all the moves: success/failure criteria, "how to's", risks, etc.
5) Cross reference all the moves to the all the case studies and add freeform search.
That's a very large amount of work. However, it should not be extraordinarily difficult in analytic terms. And the analysis and construction work could be distributed in an "open source" project. For example university business schools could set up supporting programs that MBA students could participate in. I can imagine MBA students seeing it as a feast. And the academics / writers / gurus could provide guidance, running commentary and debate on different merits.
The target output would be a knowledge repository, something like a cross between a wiki and an online adventure game, that would provide a "meta-roadmap". Organizations could use this to develop specific roadmaps for transforming beyond command and control towards any number of alternative future states.
As a temporary name, it could be called the TRICK: Transformation Roadmap for Industry - Construction Kit. It would be a neat TRICK to build such a thing. The community could decide on a more permanent name.
This would also potentially up-level the "disruptive transformation" consulting business from what is essentially a cottage industry to a full-fledged discipline.
Of course there would be obstacles. The companies might not want to divulge their journeys at that level of detail. The academics / writers / gurus might not want have their ideas/brands pooled and integrated. And the universities might want to adhere to their current programs. However, there might be sufficient participation from these contributing groups to get started and create a critical mass of viral interest.
Actualizing such an approach would require a small launch team to a) outline the startup/development program, b) recruit a group of prominent leaders for an initial leadership council and c) promote the concept in order to start enlisting the larger group of contributors.
So all it really needs is one person who would take responsibility for recruiting and organizing the launch team.
Oh, and my original intent was to post the idea at the URL below, in reference to the Haier story. This might also contribute to the larger program idea.
In a previous post on Haier's RenDanHeYi forum in Shanghai we shared which speakers we were looking forward to, hoping they would provide “Management Fireworks”. Last year we were hosting the forum, but this year we could sit back and listen. Now it’s time to share with you. So, strap in and enjoy!