by Doug Kirkpatrick, US Partner at NuFocus Strategic Group
A hungry dragon is stirring in the Far East. Its name is Haier.
In the fall of 2012, I visited Haier (pronounced “higher”) headquarters in Qingdao, China to meet its legendary Founder and CEO, Zhang Ruimin, its Cofounder Ms. Yang Mian Mian, and other key leaders to discuss and debate the theory and practice of organizational self-management.
Accompanied by Leighton Gao, senior manager of Haier’s Corporate Culture Center (and interpreter extraordinaire), my hosts arranged a tour of the Haier heritage center, where visitors are greeted by a giant sledgehammer—symbol of Haier’s birth in 1984. Walking through the center and reflecting on Haier’s journey, one feels the power of their story from humble origin to global business legend.
According to Haier’s website, in 1984 young entrepreneur Zhang Ruimin took a post as Director of Haier’s precursor, the Qingdao Refrigerator Factory. At the time, the company was drowning in debt and only produced about 10,000 refrigerators each year, with terrible quality. Workers were so unkempt and dysfunctional that Zhang had to stop them from urinating on the shop floor. In frustration, he lined up 76 refrigerators, handed out sledgehammers, and issued a command to the workers: “Destroy them!” Zhang himself smashed one of the defective refrigerators to drive home his key point: the existing culture must be demolished and replaced. Out of this primal act of catharsis, the modern Haier Group was born.
Over the course of three days, I met with multiple business unit leaders, including leaders from finance, marketing, quality and human resources. Now-retired Cofounder, Chairman and Executive Director Ms. Yang Mian Mian was a key leader of Haier’s global expansion. Named by Forbes as one of The World’s 100 Most Powerful Women, she shared a keen interest in the practicalities of self-managed organizational governance. As the key person responsible for corporate strategy and management policy, she voiced thoughtful questions that reflected her intense curiosity in finding the proper balance of workplace freedom and accountability.
Today, Haier is the world’s largest home appliance manufacturer, with global revenues exceeding $32 billion USD in 2014 and profits of $2.4 billion USD. Haier’s 70,000 employees run global operations including 10 R&D centers, 7 industrial parks, 24 manufacturing plants, and 24 trading companies worldwide. To manage it sprawling enterprises, Haier created a localization mode of "three in one" - combining design, manufacture and sales - to provide ongoing support for global brand development. Boston Consulting Group called Haier one of the ten most innovative companies in the world, and the most innovative company in the consumer and retail categories. It is a true global powerhouse.
What makes it so unique?
First, Haier is a master of strategy. CEO Zhang Ruimin, Ms. Yang Mian Mian and their team have arguably displayed some of the finest strategic business thinking on the planet over the last three decades. Jim Stengel, former Global Marketing Officer of Proctor & Gamble and author of Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies, rates Zhang Ruimin as his choice for head of strategy among the world’s finest business leaders.
The results have been nothing short of spectacular. According to the Haier website, the company grew from a small money-losing operation in 1984 to achieve global revenue of 188.7 billion yuan in 2015 and total profit of 18 billion yuan with 20% year-on-year growth. Haier was named by Euromonitor International as the number one major appliance brand in the world for the seventh consecutive year in 2015, attaining a 9.8% global market share by retail volumes. Even in 2013’s sluggish economy, the company posted sales growth of 14%. The Haier name is universally known in China, it’s also one of the relatively few Chinese brands with global recognition. Haier opened the first Chinese-owned factory in the U.S. in South Carolina in 2000 to manufacture refrigerators for the American market.
As Zhang Ruimin told the BBC’s Peter Day: "I believe in getting the best of both worlds, both from Chinese culture and from the West. The good thing about Chinese culture is that it treats something as a whole system, the forest not just the trees. You can see this in the difference of approach of traditional Chinese medicine and Western medicine. Western medicine treats symptoms; traditional Chinese medicine treats the whole body, holistically. Western culture wants everything quantified... so we have also adopted some Western management concepts.”
Second, Haier organizes around core values. According to Haier’s website, its success rests on three of those values. The first value is that “Users are always right; we need to improve ourselves.” Haier believes that this is the driving force to create value for users. The second value is that the twin spirits of entrepreneurship and innovation are at the heart of Haier culture. This value envisions the shift in mindset from being a managed worker to embracing the possibility (however challenging) of becoming the CEO of an entirely new enterprise. The third value is the idea of the ZZJYT, shorthand for zi zhu jing ying ti, which in English translates into independent operating units—self-managed teams.
So exactly what does a ZZJYT look like, anyway?
A Seismic Wave of Change
Zhang Ruimin is extraordinarily well-read. From Peter Drucker he learned that employees realize their value by making decisions (in his presentation at the 2015 Global Drucker Forum, he described his vision of Rendanheyi—connecting employees directly with end users). From Immanuel Kant he learned that human beings should be treated as ends rather than as means. And from Clay Shirky, author of Here Comes Everybody: The Power of Organizing without Organizations [Penguin Press, 2008], he learned about the power of the internet to collapse distances between customers and suppliers—and between managers and workers. Haier had been organized into a traditional hierarchy, with silos for R&D, finance, and the rest. Information was supposed to flow up and down the chain of command to create ultimate value for customers.
In 2009, Haier’s visionary leader had had enough. He retooled the organization to radically empower self-managed teams. Workers would have information about customers and markets via the internet. All workers would be free to develop an innovative idea—for example, for a new refrigerator model. If he or she could sell management on the idea, that worker would be given the chance to recruit and lead their own project team staffed with subject matter experts attracted to the idea, who would then receive a share of any profits.
By the end of 2012, Zhang eliminated most of the middle management in the company to allow the self-managed teams to flourish—which they did, quickly growing to some 2,000 teams—the multidisciplinary ZZJYTs. The sheer size and scale of the move was breathtaking—Zhang clearly believed that the risk of standing still far outweighed the risk of radical change. He did, however, recognize the risk of a system in constant upheaval. For example, organizational self-managers could organically shift back and forth between teams, which would form and then dissolve like the clouds over Qingdao harbor.
“I have to find a balance between reform and risk,” Zhang says. One of Haier’s inspirations is Morning Star, which began practicing organizational self-management in 1990. “The most difficult thing is that in the past the employees would listen to their bosses, but now they don't have any bosses they have to listen to the users,” Zhang observes. His goal for Haier’s self-managed teams is to create zero distance to the customer.
Haier America has begun implementing the reforms, and Zhang intends to extend his vision of a company full of self-organizing entrepreneurs worldwide. As he said to Forbes contributor Jim Stengel in 2012, the future of organization design will be more self-managed.
The Power of the Haier Platform
Haier’s powerful internet platform enables limitless collaboration with suppliers, customers, universities, competitors, the public and multiple other stakeholders.
When the company entered the water purification business, it learned that consumers were more likely to buy water filtering equipment while using Haier’s impressive website to customize household appliance purchases. Haier trained its consultants to research complex details about water quality by neighborhood, and to install proper filters for the specific pollutants in a given area. The company created even more value by posting water quality data for 220,000 communities in China on its website.
In this example and others, Haier showcases stakeholder integration of the highest order, coupled with stellar organizational performance. Haier also demonstrates that individuals are never a means to an end, but the reason for one’s existence in the first place.
From its humble beginnings with 76 sledgehammers to the present day workplace of the future (and recent purchaser of GE Appliances), Haier is finally acquiring the reputation for innovation and excellence it richly deserves---in its products, services and organizational design.
The dragon is rising.
Doug Kirkpatrick is the author of Beyond Empowerment, The Age of the Self-Managed Organization. He is an organizational change consultant, TEDx and keynote speaker, executive coach, writer, educator and SPHR.
He played the first season of his business career in the manufacturing sector, principally with The Morning Star Company of Sacramento, California, a world leader in the food industry, as a financial controller and administrator. He now engages with the Morning Star Self-Management Institute, Great Work Cultures, The Center for Innovative Cultures and other vibrant organizations and leaders to co-create the future of management. Contact Doug at Twitter @Redshifter3.