Transformation at the speed of Haier

Originally written by Lee Bryant on November 26, 2015.

Photo by Doug Kline

The Financial Times published an update on Chinese firm Haier’s ongoing transformation yesterday that provides a useful insight into the thinking of CEO Zhang Ruimin.

We have documented some of the Haier story and its innovative management techniques in Shift*Base for those who are not familiar with it. A process that began with a new CEO taking the now infamous Haier hammer to a line of faulty fridges and promising never again to produce the kind of low-quality products tolerated by old-style state-owned enterprises has now reached the stage of a radical re-thinking of the firm, its structure and how it is run.

The new model appears to be a set of open entrepreneurial platforms that can support an ecosystem of hundreds of micro-enterprises that compete for funding and resources. In a way, this resembles the well-known Wikinomics case study of the Chinese motorbike industry but within a single corporate group and, perhaps most importantly, one that is focused on becoming a platform rather than just a loose collection of firms. As part of this journey, Haier has removed over 10,000 middle management roles and inverted the centre-periphery power dynamic, meaning that the closer managers are to customers and markets, the more important they are, compared to those who sit at the centre administering the system.

The FT asked Zhang what this might mean for the role of the CEO?

“If one day companies no longer exist, CEOs will also disappear. But I believe organisations will still exist and there may be some role for a person to design the way organisations work and how they grow. Maybe my title can be changed to something like ‘designer for the organisation’.”

Aware of the wider context of experiments with new operating models, Zhang commented:

“…always alive to new management models, has studied Zappos, the Amazon shoe-retail subsidiary that is moving to a managerless system known as Holacracy. Zappos is a fraction of Haier’s size and the well-publicised transition is proving painful. But Mr Zhang says “we don’t think they’re radical enough”.

But what fascinates me is not just the model, which I think is a great blueprint for a corporate group of companies in related markets, but the speed of evolution Haier has been able to achieve compared to large European firms. China is obviously a very fast-moving business environment that is evolving faster than more established European and US markets, but Haier have also brought evolutionary dynamics inside the firm as well, with competitive techniques such as OEC and Catfish managers. Comparable European firms have yet to find the confidence to shake up their internal cultures in quite the same way.

Whatever the right model might be for a large firm that wants to become more agile and responsive to change, the key to making it work is creating evolutionary dynamics on the inside, and that means foregoing the comfort of positional authority and embracing competitive and (genuinely) meritocratic dynamics to improve every team’s focus on creating value for customers. Any firm that can manifest its core business value creation processes in a platform, and allow teams to self-organise on top to innovate around customer needs, is likely to unleash evolutionary dynamics that take them forward faster than any management team could achieve through conventional planning alone.