In a session for the Leading Complexity Program 2022, Bill Fischer shared his knowledge about Haier’s Entrepreneurial Ecosystem and RenDanHeYi, the culture behind it. Here is a summary of the session. If you want to see the recording of the session, please sign up for this year’s program.
Here are some insights:
- Haier’s philosophy, RenDanHeYi, focuses on good customer experience and letting employees use their skills fully.
- Haier is a big company that still manages to be innovative thanks to some Agile ideas like small teams and customer focus.
- Haier lets even the low-level employees make choices. This makes the company fast and keeps it close to the market.
- Micro-Enterprises: Small units within Haier act like small businesses. They take risks and focus on winning, not just avoiding loss.
- Haier believes in the platform economy and creates ecosystems in collaboration with other companies.
In this session, Bill Fisher, an MIT professor and expert in innovation and management, discusses his extensive research on Haier, a leading home appliance company. Bill has not only studied Haier for many years but also consulted with them.
The focus of the talk is on Haier’s unique management philosophy called RenDanHeYi, which emphasizes customer experience and the effective use of employee talent. According to Bill, unlike many large corporations that fail to fully utilize the skills of their workforce, Haier sets itself apart by prioritizing customer satisfaction over mere cost-cutting. Bill believes that Haier serves as an excellent model for how businesses can be more successful by fostering an open environment that allows employees to maximize their potential.
In 1984, Haier was close to bankruptcy due to faulty products. Their new manager, Zhang Ruimin, made a bold move by having workers smash 76 defective refrigerators in public. This marked the start of Haier’s transformation into a global leader in home appliances. The company values continuity in its strategy, having only a few big ideas over the years but executing them well. Today, Haier owns multiple global brands and continues to innovate, showing the success of their long-term vision and strategies.
Bill points out that while Haier follows what Steve Denning calls the “three laws of agile” (small teams, customer focus, and network value), it is not a typical agile organization. Haier is a large company with 70,000 employees all involved in change, not a small startup. The company shows how mature organizations can be revitalized and become innovative by focusing on small teams, customer needs, and networking.
Haier focuses on customer experience rather than just solving problems with their products. They’ve shifted decision-making to the lowest levels in the organization, doing away with corporate strategy. This allows them to act more like a startup, being faster and better informed about market changes. Employees at Haier have the freedom to make choices, contributing to a culture that values opinions and authority at the ground level. The company aims for a more ad-hoc, decentralized approach, focusing on opportunities rather than hierarchy. This has resulted in Haier leading in global retail sales for 12 consecutive years, half of which comes from outside China.
Bill talks about RenDanHeYi, Haier’s guiding philosophy, which is about creating a great customer experience, empowering workers to be entrepreneurs, and sharing the value created. This philosophy is present at all levels in the organization. The first principle focuses on customer experience over traditional metrics like shareholder value. The second principle is about freeing up workers to be entrepreneurs who are continuously in touch with the customer’s needs. The third principle is about sharing the value created with everyone involved in the process, not just as a variable pay but as a direct share in the profits. This approach has been central to Haier’s success for over 40 years.
Bill explains how Haier evolved its business model and culture over time to adapt to market needs. Initially, in 1984, the focus was on quality, branding, and discipline, to differentiate themselves in a market full of defective products. This involved tying wages to output and quality. By 1998, Haier realized that good quality alone was not enough; they needed to offer better service. This led to disassembling the hierarchy and focusing on market-driven units. The company continued to measure daily performance and tied rewards to it, but now extended this to market-oriented goals. These shifts resulted in a more autonomous and adaptable organization, responsive to specific market outcomes.
Bill told us a story to illustrate Haier’s innovative approach to business, specifically in creating a vaccine storage solution. Haier leveraged its existing small refrigerator unit business to create specialized vaccine cabinets. The initiative was spearheaded by a small group of entrepreneurs within Haier who saw a market opportunity. They didn’t just create the product but also improved the entire customer experience around it. Using internal and external resources, they built an ecosystem that includes appointment scheduling through WeChat, and even selling insurance at these vaccination centers.
The story illustrates Haier’s organizational principles: focus on customer experience, encourage entrepreneurship, and share the value created. Unlike traditional top-down or bottom-up approaches, Haier has “unorganized” its structure. This allows for quick decision-making and “permissionless innovation,” where employees like Mr. Gong can initiate new ventures. Haier’s approach is defined by its guiding principles, which align different parts of the company even though their behaviors might differ.
In Haier’s innovative business model, micro-enterprises play a crucial role. These small, agile units have end-to-end responsibility and are focused on ‘playing to win,’ unlike many competitors, which are more about ‘not losing.’ Haier’s approach allows these units to be entrepreneurial and make strategic decisions. The risk is taken by the entrepreneurs in the micro-enterprises, not by Haier itself. Haier essentially places many small bets on various future opportunities through these units. The goal is to reach out to external actors for collaboration and ideas, facilitated by platforms that enable scalable learning. This setup allows Haier to take bigger chances and adapt quickly.
Here is another story about the creativity at Heier. In response to the challenges of COVID-19, which disrupted the traditional Chinese New Year gatherings, Haier’s food platform business created a micro-enterprise. They partnered with renowned chefs to create special recipes and another micro-enterprise to package and distribute the necessary ingredients. This allowed families across China to share the same meal virtually. Despite the complexity and tight deadline, the initiative was a huge success, selling 120,000 New Year’s dinners across 168 cities. Haier’s flexibility and focus on relationships rather than just assets made this possible. This example showcases Haier’s approach as not merely agile but as a transformative, relationship-focused model that anticipates change.
Questions from the audience
One question was about how Haier manages technical dependencies within their autonomous self-organizing teams, especially in the connected product world. The response indicated that this was less of an issue during 2013-2015 as products were mostly electromechanical and the “Internet of the Home” had not yet been fully developed. The teams, known as ZZJYTs, were customer-facing and self-organizing. They sourced the skills they needed from the market rather than having them allocated by corporate departments. Also, certain professionals like those in HR, IT, and legal formed their own ZZJYTs to offer internal services to other teams, creating an internal market within Haier. Skills mattered, but they were resources to be attracted rather than allocated.
Another question was about how Haier’s autonomous and entrepreneurial culture fits within the general corporate culture in China, which is often perceived as more traditional and hierarchical. The response emphasized that there’s no single “Chinese culture” and pointed to the influence of Taoist philosophy at Haier. The company has used its autonomous and entrepreneurial culture as an employment brand to attract like-minded individuals. The speaker also cautioned against stereotypes, mentioning that Haier was surprised to find less entrepreneurship than expected when they acquired General Electric Appliances in the U.S. Overall, Haier’s culture is not traditionally Chinese but is more complicated and nuanced.
The follow-up question was about whether other companies are emulating Haier’s autonomous and entrepreneurial culture, especially in terms like “tribes” and “squads” used by companies like Spotify. The response confirmed that yes, several well-known companies like Bosch and Fujitsu are adopting similar approaches. However, each company is doing it differently. One of the most challenging aspects for these companies to emulate is Haier’s model of sharing value with employees, as many are locked into traditional pay systems or union agreements that make variable pay based on performance difficult to implement.
The discussion covers how Haier manages its business through micro-enterprises that focus on specific market needs. These units have the freedom to make decisions and are the real profit and loss centers. If a unit fails to make a profit, it can be shut down or spin off. Haier is experimenting with various directions and is not limited to just appliances; they are expanding into broader platforms like clothing management. The company values customer experience and is willing to shut down units that don’t align with its values, even if they are profitable. Equity in each micro-enterprise is negotiated and can be different. The discussion also touched on challenges like interconnectivity between appliances and how different companies approach it. There are plans for future sessions and a book called “Reinventing Giants” was mentioned.