This is the third and last article of my series dedicated to Haier, the Asian high-performer. In my second article, I showed the steps that Haier followed in the last 30 years to reach the top. I will conclude with what we can learn from their story – how to get a high-performer ourselves.
What were the strategic, organisation, culture decisions that brought them to this state?
Here under I will collect the background, principles and the ideas that have made them different.
Haier has combined innovative business models with new organisation model and challenging corporate culture change to become one of the most inspiring models and successful business.
With my belief that flatter hierarchies, minimised overhead, introduction of process organisations, empowered employees with decentralised decision-making, changing corporate culture, eliminating silos, motivating employees, is the way to succeed in the digital agile coming era, I find Haier a big source of inspiration.
What is Haier’s belief?
Zhang Ruimin states that his managerial concept along these years combines the best Chinese thinking with the best Western and Japanese practices (business practices and management techniques). As a Westerner I feel proud of Zhang Ruimin, who was able to combine the best of both cultures. Why western companies have not come to the idea to incorporate some Chinese thinking instead? Are we too proud of ourselves? There are some exceptions (both found in the post of Jorge Zuazola):
- The British author Sarah Alexander suggested in 2014 in her book “Spiritual Intelligence Leadership: From Leader to Manager of Your Own Life”, that many Easter management practices should be taken by the West
- Danah Zohar wrote a case study on Haier comparing the western and Eastern management models.
The core values that have been kept in Haier along his history are the following:
- Entrepreneurship and innovation spirits
- Users are always right while all employees need to constantly to improve
- Autonomous self-manged operation units, called ZZJYTs (zi zhu jing ying ti)
- Breaking always the rules
However, while researching I have found other “side-effect” values, that have appeared along the long way.
- Disruption of corporate culture to support the innovative business model
- Minimisation of middle management
- Decentralisation of decision-making through the self-managed operation units
- High-performance teams
- Leading, motivating, and inspiring employees
- Transparent interpersonal relations
- Commitment to honesty – they advertised the slogan: “Forever honest”
- Freedom with control
- Value-adding activities and processes assigned to a value chain
- Appropriate and adapting incentive mechanisms
Zhang Ruimin states that the corporate cultural change has been his “biggest headache” and not all the staff were ready for that change.
According to Professor Fisher: “What Haier has achieved is not impossible. It is just the result of well-thought-out and well-designed change leadership interventions”.
There are three skills that differentiate Haier and and that will distinguish future leading organisations, according to Alexander Osterwalder:
- “Ability to design and build great value propositions that customer really want”, listening to the customer “in their lives and dreams”. There is an absolute need of local listeners and the ability to grasp customer motivations and to translate them into attractive products
- “Ability to design superior business models”, with the target of high-quality products that benefited the brand. Incorporate local management, not western management
- “Ability to reinvent themselves while they are successful and to do so over and over again”. This means a self-disruption while being in successful phases.
What are the ideas that make them different?
- Zhang Ruimin challenged the world committing to produce high-quality goods rather than low quality ones, starting with smashing faulty fridges in 1984
- Back in the 80s, Zhang Ruimin, did not want to follow the way other Chinese companies were producing in China, producing what others told them to produce. He wanted to produce what they would decide to produce!
- Direct purchase of technology or strategic alliances with high-quality leading firms
- Target of turning all the employees in entrepreneurs who run their own small business. This implies that they have their P&L and the salary is defined by the value created to the customer (Haier used to pay them a fixed base salary and the variable would come from the value created at customer)
- They keep the principles on Open Innovation but moving from there to something new called Open Platform Innovation
- Development of new products were backed by intellectual property rights (IPRs) such as patents, so that the company could ensure the continuity of the brand’s success. Haier owns currently more than 6.000 patents and over 500 software copyrights worldwide.
- Haier registered a trademark for its company name under the international Madrid system. It has also made trademark registrations for its name in the United States with the United States Patent and Trademark Office (USPTO) and in Europe with the Trademark and Designs Registration Office of the European Union (OHIM).
- All the products communicate with Internet. “If a home appliance can’t communicate with the Internet, it shouldn’t exist” says Ruimin
- Haier has continuously adapted the products to the consumers need. Here are some of my favourite innovations:
- In China, 1996, a customer made a complaint about a washing machine which kept always backing up. A technician went to the customer house and realised that the machine had been used to wash sweet potatoes as well as cloths, and therefore the drain pipes were not able to drain all the water with the additional forage. This observation, brought the idea to produce washing machines adapted for cleaning both sweet potatoes as well as cloths.
- In Pakistan, the Pakistani robes were so big that they were not fitting in the small Chinese ones, with the resistant large hoses already designed. Therefore, for the Pakistan market a new extra-large machine was produced.
- In 1999, in US, the “Thanskgiving turkey refrigerator” was launched that could accommodate an entire turkey
- In 2002, the technology “Safe Care” was introduced at the 66th International Electrotechnical Commission Conference. The appliance gives a warning whenever any electrical leakage pose any risk to the consumer. Products went on sale in 2006.
- Since 2013, with the release of Smart Air Ecosystem, Haier has both launched technological innovation as product developing pattern that is user-experience-oriented instead of product oriented, together with top energy labels for US and EU
- In 2015, it launches: the Clean-Free washing machine that cleans its tube at the same time it washes the cloths, the Xinchu refrigerator, that is connected to internet converting it to an interactive platform and the Coton, pocked-size washing machine, ready for any emergency
- The Zero Water Pressure washing machines that work at nearly zero water pressure adapting to India conditions
- Haier is fast in the response to customers and in the production on new products. 1 week response to customers versus 8 weeks for foreigner’s companies (4 times faster). 2 months for a new product compared to 8 months to foreign companies (3 times faster)
- Haier has a commitment of delivery in 24 hours in China. If not fulfilled, then the goods are free.
- Haier has synchronised delivery and installation
- Hair introduced the Online factories, linking the consumers to factories and suppliers. In 2016, there was a refrigerator factory in Shenyang and an air conditioner factory in Zhengzhou
- Haier brings innovation with services, not only with products. In 2014, Haier comes again to the news as a provider of solutions to consumers’ problems in order to improve the quality of life of consumers. For instance, offering water safety information and purifiers that are designed to remove the specific pollutants in each of the 240.000 communities and 1,4 million villages and towns across China – Haier jointly holds more than 20 water purification patents with Dow Chemical. This movement repositions the company diverging from the so far home appliances (refrigerators, washing and drying machines, entertainment electronics and aircon)
- Internationalisation was started in 1999 in US, instead of most of Chinese companies that started this phase in emerging markets like India or Africa.
- Haier used the “three-step strategy” of “going out, going in and going up”. Step number one: go to niche markets in Europe, USA and Japan and gain ground. Step number 2: Quickly move the market to developing countries. Step number 3: Focus in local user needs in local markets and take the main channels with the target of becoming the market leader with high-end products.
- Haier is using the entire world as their R&D and HR Departments
- Haier involves users already in the development phase of the product keeping them to the review phase. They do not have a closed-doors-design anymore and invite third parties, likes Apple and Samsung, for a close collaboration. They can even invite the competitors for some products.
Professor Bill Fisher, who has been following Haier for more than 20 years, thinks that Haier is stepping into the unknown, creating his own path along it moves.
Zhang Ruimin intention is to extend the vision and the principle of the company worldwide and keep reinventing as nobody else is doing.
I would love to hear from Haier people who has taken part in any of these disrupting processes.
These are the main book references. All the web references are provided in embedded links in the text.
- Reinventing Giants, by Bill Fisher, Umberto Lago and Fang Liu, 2013
- Implementation of Changes in Chinese Organizations: Groping a Way Through, by Ruth Alas, 2009
- Chinese Entrepreneurship: An Austrian economics perspective, by Fu-Lai Tony Yu, Diana S. Kwan, 2015