Business in China: The Haier Case Study

Zhang Ruimin 01Photo by Wang Jun Qd

 

In 1984 Zhang Ruimin stepped up and took over the leadership of the then state-owned appliance maker. Haier was close to bankruptcy. At one stage he had to borrow money to pay his staff. Now it is the world’s largest manufacturer of white goods, with revenue in 2013 of HK$224 billion (roughly AU$37 billion, or GBP19 billion).

Assumptions? China is a one-party communist state, and it has a reputation for discouraging people from thinking ‘out of the box’. Empowerment must be a dirty word. And leadership equates to authoritarian dictatorship.

So … how has Zhang achieved all this?

Let’s take one example, shared by Benjamin Robertson in the South China Morning Post. In 2014 the CEO and chairman warned his staff that 10,000 of its 70,000 strong workforce would lose their jobs. However, outgoing staff would be welcome back if they had a credible business plan. This is part of his long term strategy to turn the company into an ‘entrepreneurial platform’, which reminds me of Ricardo Semler’s radical strategies with Semco in Brazil (‘Maverick!‘ and ‘The Seven Day Weekend‘).

Employees, including senior executives, are expected to be part of product development teams, and pitch ideas to a committee which has the power to allocate start-up capital and resources. And former Haier staff can get company backing, using the Haier platform, while working for themselves. Zhang himself puts it this way: “We now have a lot of entrepreneurs at Haier who don’t work inside the company. Some aren’t interested in joining, preferring to stay outside in society, partner with the company, and use our platform for pioneering work. Those inside the company are also free to leave at any time, and still use the Haier platform for their work, though they would no longer actually work for the company. In the long run, there won’t be any company employees to speak of—only the Haier platform.” [strategy+business, Nov 2014]

Zhang also has a strong focus on quality. Staff still talk about how he handed out sledgehammers so that 76 faulty fridges could be pulped. 

Prof Bill Fischer of IMD Business School in Switzerland  wrote ‘Reinventing Giants‘, an analysis of Haier’s growth. He reports that “The thing we learned from Haier is that if you don’t have strong self-confident leaders at the top, you can never unleash the voices from below, because an unconfident leader is suspicious, threatened by people from below”.

So empowerment, engagement and entrepreneurship are clearly all core values in the company.

Fortune magazine ranks Zhang 22nd in its global list of people for energising their followers and making the world better. Meanwhile he is flattening this huge company to eliminate unnecessary chains of management and to speed up decision making. Decentralisation has gone to the extent that there are now 2,800 “counties”, each with 7 employees or less.

Art Kleiner, editor-in-chief of strategy+business magazine: “Every part of the organization has its own P&L, makes autonomous decisions (including which other parts of Haier to work with), and can reach out independently to customers, potential employees, and collaborators. R&D projects now often reach beyond Haier’s walls to include academics, independent designers, and even competitors. Zhang sees this as a natural evolution for all major companies, particularly those focused on business innovation in the Internet age.” And Haier aims to lead the world in making all of this work.

Zhang Ruimin has built a company without borders, a company without internal or external barriers, where change is now normal.

End users, other companies and even competitors are brought into the product development process. Haier’s expertise is openly shared: Alibaba spent HK$2.8 billion getting Haier to help build out its logistics network.

Where there used to be complete secrecy pending patents, now there is a greater value placed on collaboration to mutual benefit. Haier has a slogan “Forever honest” which means that there is now a culture of transparency.

Zhang again: “Those inside Haier, especially managers, understand that it’s crucial that we adapt to the evolving needs of users and the changing market environment. A few people who have gone from Haier to work for other companies have written to me telling me that the biggest difference between Haier and their new company is Haier’s transparent interpersonal relations. They say that this is unheard of at other companies”.

I contend that resilience is THE competitive advantage for the future, and Haier is a prime example. If you want help with building a resilient organisation staffed by resilient people, get in touch!

Every success,

Hugh

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