Haier: A Company Worth Studying!
We have exciting news! At the start of August, we started an in-depth research project on Haier.
You might remember from previous blogs that we feel Haier is one of the world’s most pioneering companies today. Now, we have started collaboration with them. They will provide us with privileged access to their organisation, and we will develop an even better understanding of what they do, how it works and what their culture is like.
We want to know how they became one of the largest self-managing organisations on earth. And of course, we will share all that we learn with you.
Why do we do this?
We think there is a lot to be learned from Haier. How do they run a self-managing organisation of 80,000 people? How do they transform themselves, radically, every 7 years?
Clearly, Haier is unique. We hope that a more in-depth understanding will allow us to learn and share valuable lessons. In turn, this should lead to more large organisations believing there are options besides just telling employees what to do—and expecting that they will follow their directives.
What are we going to do?
In the coming year we will:
- Visit Haier Micro-Enterprises in China.
- Visit Haier Micro-Enterprises in the United States. (Haier acquired GE Appliances in 2016 and has since introduced their organisation model to GEA. We are interested in finding out the progress of its implementation.)
- Visit Haier Micro-Enterprises in Europe.
During these visits we will have access to different parts of the organisation. We can discover, firsthand, how it all works.
We’ll conduct field research. We’ll read as many relevant books and academic papers as we can find. We’ll chew on them, ask Haier lots of questions, and then share what we learn with all of you.
We will share all of this via a number of blogs, and a book that focuses entirely on Haier. (This not to be confused with the soon-to-be published Corporate Rebels book.)
What is Haier?
Haier started as a small Chinese factory making refrigerators. Now, 35 years later, it is a multinational owning many well-known brands (like General Electric Appliances) and employing over 80,000 people. It does all of this in a non-hierarchical and self-managing manner.
Haier's CEO, Zhang Ruimin has said: '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’.
This will possibly be the most abstract summary of the Haier journey: a journey of 35 years of constant experimentation and evolution. To better understand this, here’s a summary of the stages they have already been through:
This will possibly be the most abstract summary of the Haier journey: a journey of 35 years of constant experimentation and evolution.
1984-1991 Brand Building Stage
Their epic journey started in 1984 when Zhang Ruimin took over as the general manager of the Qingdao Refrigerator Plant that had been in a state of insolvency and on the verge of bankruptcy. He laid down 13 ground rules and posted them on the factory walls. He wanted to bring order to the chaos in the factory. The workplace was miserable. How miserable it was, was clearly shown by: Rule #10 "No urinating or defecating in the working area."
After a year, Zhang received a customer complaint about the quality of a refrigerator. He immediately ordered an inspection of all fridges in stock. Eventually seventy-six other refrigerators were found to have similar problems. His reaction to that gained him national fame and still makes a great story.
He ordered that all 76 defective fridges be placed in the center of the factory. He gathered all the workers, gave them sledgehammers, and invited them to smash the faulty products.
This had tremendous impact. At that time, a fridge was worth two years of salary! But most of all it was the start of a new philosophy. Defective products were no longer tolerated. This became Zhang’s most important focus, as he continued to build a brand that stood for impeccable quality.
1991-1998 Diversification stage
Now the brand had gained a respectable and trustworthy reputation in China, Zhang could aim for bigger goals. Making his company a global success. Zhang knew that before he could do that, he needed to diversify.
Prior to this, Haier only manufactured refrigerators, and from then on, Haier focused on manufacturing a diverse range of products. An important strategy to achieve that was, what Zhang called “revitalizing stunned fish”.
Those stunned fish were loss-making rivals with hardware capabilities but poor leadership. Zhang Ruimin turned them around by introducing a new style of management and corporate culture, that of Haier.
Haier acquired a total of 18 companies, rapidly expanded its scale and reach into many other fields: refrigerators, washing machines, TVs, air-conditioners and freezers.
1998-2005 Internationalisation stage
In 1999, Haier became China's largest fridge-maker. When China joined the World Trade Organisation, Zhang seized the opportunity to implement a new strategy. This was the beginning of 'The internationalisation stage'.
During this period, the competition was fierce. Foreign multinationals now targeted the Chinese market and forced Haier to develop a global strategy. Instead of focusing on less competitive regions like South-East Asia or Africa, Haier chose to enter, and learned to thrive in, the most competitive markets of the U.S. and Europe.
In 1999, Haier went to South Carolina and opened an Industrial Park. At that time, there was no cost advantage to set up factories in the U.S., nevertheless Haier was convinced this was the correct decision to be able to successfully meet the needs of the U.S. consumers.
In Europe, Haier acquired the Italian Meneghetti Refrigerator Factory in 2001, together with Haier's design centers in Lyon and Amsterdam and marketing center in Milan to truly realize a localized operation of "three in one" - combining design, manufacture and sales.
2005-2012 Global branding stage
As the world entered the Internet era, Zhang was determined to introduce yet another transformation—the 'Global Branding Stage’: to focus on customers’ personalised requirements.
Haier integrated its unique management culture into local operations and cultures. They can now deliver 'on-demand manufacturing and delivery, based on zero-inventory and zero distance to users'.
During this stage, Haier focused on exploring a business model that creates users that remain loyal to their brand during the Internet era. This is the basis for what Haier calls ‘the win-win management model of RenDanHeYi’.
That model was evaluated by two management gurus, Michael Porter and Gary Hamel who believed that the introduction of this management model was a pioneering move. (more on this model in the blogs to follow!)
2012-2018 Networking stage
According to Zhang, in the era of the Internet, a firm either owns, or is owned by, a platform. They transformed their internally focused and closed system into an open one, now able to access all kinds of resources. Their strategy moved away from mass production to mass customisation. Their focus became a 'platform-based enterprise', with 'entrepreneurial employees' and 'personalised user experiences for customers'.
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 world-class resources. All stakeholders can co-create based on shared interests, risks and successes. This allows Haier to provide more value to customers.
To make this possible, Haier reorganised its structure to allow it to operate as a network. Their solution was to eliminate the entire middle management (about 12,000 employees) and replace it with thousands of small, independent companies. Haier refers to these as 'Micro-Enterprises’ and they are an essential part of Haier’s success.
2019 - Ecosystem of Micro-Communities
Haier intends to start adopting a new concept in the coming year. They call it a concept of Ecosystem Micro-Community (EMC). Building on the open network organisation that was created during the previous stage - a network of MEs - this strategy intends to stimulate open and dynamic co-creation within an ecosystem that focuses on creating products and services that change one-time buyers (customers) into lifelong users.
So instead of selling you a product (such as a washing machine) one time, they strive to provide a scenario ecosystem, to simply put it, they focus on user's complex needs and provide users with one-stop services by attracting various stakeholders and integrating a wide range of resources to fulfill that user's needs.
To simplify that; Your fridge knows what food you bought, and because it is connected to a platform where another stakeholder can show you recipes you could cook with the ingredients you have in your fridge. Missing something? No worries! The recipe shows you exactly what is missing and so you can directly order those ingredients and get them delivered to your doorstep, using the Haier platform.
All of these changes for what?
Haier has become one of the most innovative companies in the world. It has innovative management structures, and now, innovative products that perfectly align with specific customer demands. We were most impressed by the washing-machine that allows you to wash sweet potatoes: exactly what you need when you're a farmer in rural China.
Being innovative is vital for an organisation to survive and thrive. Many organisations struggle with this. Zhang describes the problem in a way that seems to be the motivation for how Haier has evolved: "The cornerstone in today's world is sustainable innovation, or the ability to rapidly build a range of competitive advantages and upgrade them to seize transient, 'instantaneous' competitive advantage. If you want to make changes in the Internet age, it is very difficult to seize the opportunity without a complete overhaul of ideas."
As you might know, we love radical ideas and when an organisation of such scale has made radical ideas the core of their strategy, we want to learn as much as we can!
One of the key concepts that has influenced them is an almost obsessive focus on adding value for customers.
We have lots of topics in mind that we'd like to understand better, and then share what we learn with you. Some of you have already posted reactions to previous articles we wrote about Haier. You asked us questions and suggested topics you'd like to know more about. Here are some:
- "How does salary work? How are salaries defined?"
- "I'm curious about how it's done and why they did it?"
- "What are Haier's practices?"
- "How is Haier structured?"
- “What is it like to work in a Micro-Enterprise in Haier?"
- "What different roles are there?"
- "Please hurry and write the book on Haier, it is a great example of a progressive organisation."
We want that list to grow, and then provide you with as many answers as we can. Please continue to let us know what you want to know about Haier…below.
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I’m curious what it’s like for Haier to operate in the Chinese political situation, with heavy censorship and controls in place from government, e.g. “The Great Firewall of China”?
Your earlier article says employees are “self-employed,” “free to join or leave any [biz unit team],” “paid based on performance,” and “self-organized” into “microenterprises” which “are no longer linked by administrative connection, but by a market-driven contracting mechanism.” This sounds potentially awful, like the worst of competitive capitalism. What’s it like? Do people there have any job security, or stability of any kind?
I’m delighted you are researching the interesting example of this company, and worried you may become corporate shills.
Hi Tree! Thanks for your reply and your questions.
We too believe that the specific context is important to take into account, however our research is strongly focused on the organizational side of things. This is because of the fact that we can never fully experience how it is to work in that specific context, simply because we are not working there.
What we can and will do is identify mechanisms within Haier that allow it to operate in the way it does. By describing those and by seeing how these mechanisms work in the “Land of the Free” at GEA, or in Europe.
I agree that, the ingredients you mentions could potentially be used to create a very toxic and competitive cocktail. I appreciate (and share at least some of) your scepticism, however for me that doesn’t make sense with the fact that the RenDanHeYi model apparently is also used successfully in different contexts.
We’re delighted as well, and we think we can learn a lot from them!
Regarding your concern, I’m not sure if I can take that away from you. (Or at least if I suspect someone from shilling, then I would most likely not believe there answer anyway.) So instead I’d refer you to the fact that we are transparant about our collaboration with Haier, as you can see in the first paragraph of the blog;
“Now, we have started collaboration with them. They will provide us with privileged access to their organisation, and we will develop an even better understanding of what they do, how it works and what their culture is like.”
I think that that transparency kind of ruins the possibility for shilling, don’t you?
Thanks for your reply.
Re the RenDanHeYi model being used successfully elsewhere, that depends on what “success” means. Uber, for example (a company running entirely on contingent labor where the drivers are, indeed, self-employed), is by some measures quite successful, yet it’s not a company i would seek to emulate, because their basic values appear off. They do not exist for the good of drivers nor of passengers, thus i would prefer to see that company replaced entirely by a worker co-op that is mission-centered and service-oriented.
While i hear that for you, if you suspect someone of shilling you would not believe their answer anyway, for me that’s not the case; if it were i would not bring it up. I’m more trying to say don’t just become corporate cheerleaders, rather keep your eyes open and report back to your loyal readers the problems and warts you see as well as all the fantastically good ideas worth celebrating.
The idea of self-management tends to be received with both interest and cynicism. Amongst the varied reactions, there is one recurring doubt that I hear time and time again. That doubt is deep. That doubt, is trust.