Platform Organizations: The Next Big Thing?
Around 2000, Zhang Ruimin (CEO of Haier) became aware his slow-moving multinational was rapidly losing competitiveness to more progressive firms.
“Firms are full of energy when they are small. But as they grow bigger, we introduce more and more layers into the structure. This creates more distance between the firm and its customers.
Because of this, firms eventually loose their competitiveness—especially in the rapidly changing digital age. As Professor Gary Hamel says: Bureaucracy must die.
At Haier we faced exactly this issue. Bureaucracy was ruling and no one took real responsibility. As soon as I realized we were facing this issue, I knew we needed to make a big change.”
Ruimin shared these observations with us during one of our visits to Haier’s headquarters in Qingdao, China.
At Haier bureaucracy was ruling and no one took real responsibility. As soon as I realized we were facing this issue, I knew we needed to make a big change. - Zhang Ruimin (CEO Haier)
The rise of the platform organization
Ruimin realized that the most progressive firms are engaging employees and users directly via the Internet and digital tools. He saw them building open platforms that were able to leverage all kinds of resources, from all over the world. With the use of platforms, progressive firms were able to respond more rapidly to user demands.
“I knew that the internet, and the Internet of Things (IoT), were golden opportunities for us to start interacting with our users directly. Then we would be able to truly understand and satisfy their needs. Even more, I started to realize that if we did not fully embrace the internet we could die faster than one could imagine.
That’s when I started to play with the idea of transforming the firm to a platform—a platform full of entrepreneurs who could interact directly with their users and all kinds of other stakeholders and resources.
I saw the window of opportunity arising in the early 2000s and decided to make the transformation—despite the warnings of others about the risks.”
Haier's RenDanHeYi model
Zhang Ruimin introduced the RenDanHeYi model in 2005. The main goal was to be able to truly adapt the firm to the internet age. The model needed to “eliminate bureaucracy, to tear down organization walls, to shorten response time to users, and to encourage employees to become entrepreneurs.”
He envisioned the firm of the future as a platform for entrepreneurship: a platform where employees, and even people outside the firm, could start enterprises, all of which are connected to each other.
So Ruimin transformed a traditional manufacturing company into an ecosystem of platforms that incubate entrepreneurs. Functional departments were gradually replaced by independent, self-managed micro-enterprises directly interacting with their users and other kinds of stakeholders.
Zhang Ruimin (CEO of Haier) envisioned the firm of the future as a platform for entrepreneurship: a platform where employees, and even people outside the firm, could start enterprises, all of which are connected to each other.
Independent self-managed micro-enterprises
Now, Haier operates over 20 platforms in 5 industries (white goods, real estate, investment & incubation, financial holdings and cultural industry). Micro-enterprises are incubated on the platforms with the help of Haier resources, but without company supervision.
Micro-enterprises are expected to engage their users throughout the entire business process: from R&D to product design to production and delivery. Users can offer feedback at any time in the process. In this way, Haier wants to turn the one-time customer into a lifetime user.
You might ask: What then is the firm’s role? The answer is: Haier sets the rules and provides resources (like start-up funding) to the micro-enterprises.
How to setup a micro-enterprise?
Micro-enterprises can be setup in 3 different ways:
- Self-start-up: Entrepreneurs identify a market niche they turn into a business opportunity in which the firm then invests.
- Self-organization: Entrepreneurs bring different resources together to develop a business opportunity in which the firm invests.
- Self-motivation: Entrepreneurs invest their own money, or the money of other investors, in a business opportunity.
When micro-enterprises are successful, they grow bigger. They are then bought by the Haier Group, or go public on their own.
Moreover, when micro-enterprises grow, they are expected to start incubating micro-enterprises of their own. Eventually these turn into separate platforms, instead of growing into one large traditional firm.
An example - Thunderobot
Zhang Ruimin often uses the micro-enterprise Thunderobot as an example to illustrate this philosophy. Thunderobot was one of their first, fully established and successful micro-enterprises. On one of our earlier trips we met with Lu Kailin, the former manager of Haier’s laptop division who became an owner of Thunderobot.
Together with his co-founders, Lu identified the niche of gaming laptops and established this micro-enterprise in the summer of 2013. “We use Haier’s platform for different kinds of resources such as help with our supply chain, logistics and after-sales service. Without this help I do not think we would be able to be so successful as a start-up.”
During its lifetime, Thunderobot has leveraged knowledge and feedback from its users—from their first prototype to their newest product. As a result, Thunderobot, which started as a company that only sold gaming laptops, pivoted along the way into a company focused on live streaming of online gaming competitions.
Thunderobot has grown rapidly over the years. In December 2013, they introduced their first laptop. The company surpassed $100M in revenue in 2017. In the meantime it has incubated more than 5 microenterprises around its gaming operations.
The company is now listed on China’s National Equities Exchange and Quotations (NEEQ) and operates not only in China, but also in Taiwan, Singapore, Malaysia, Hong Kong, Spain and Russia.
Is the platform organization the future?
Haier seems to be the first non-digital multinational to embark on a transformation toward a platform organization. They report fascinating results. More than 4,000 micro-enterprises are on Haier’s platforms. Over 100 of them have annual revenues of more than $15M.
Haier embarked on a transformation toward a platform organization. They report fascinating results; 4000+ micro-enterprises are on Haier's platforms, 100+ of them have annual revenues of more than $15M.
Moreover, the new micro-enterprises on Haier’s platform have a survival rate of 40%, while the average survival rate of start-ups is less than 10%. (The survival rate in this case is defined as the percentage of start-ups able to reach a series A funding round.)
Are these kinds of incubation platforms the future for multinationals? And will Haier be the first for many others to follow? Or are they on the wrong path altogether?
Only the future will tell…
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Very cool stuff!! Really appreciate your pioneering explorations. A question - I get how these micro-enterprises are connected to Haier during the start-up phase. What connects them for the long-term? Do they also stay connected through sharing a certain % of profit back back to Haier, for life, for example? And Haier provides some on-going resource support to them as well?
In 2012, Haier gave 12,000 managers a choice: "you can leave, or join our new structure." Some left, many stayed and joined one of 4,000 small independent companies within Haier—the so-called 'microenterprises' (MEs). Many academics, management gurus and other companies were amazed with how the ME structure stimulated entrepreneurship. So why the hell would Haier fiddle with it's structure, again?
Yash Pakka is a compostable tableware manufacturer in Faizabad, Uttar Pradesh. Their products are made from sugarcane waste and are 100% compostable, and the factory is even powered by its own power grid that uses rice husk as fuel. But they’re innovative not just in terms of what they make, but how they organise.