What does the arrival of a new CEO, Zhou Yunjie, mean for the innovative management philosophy of the Chinese white-goods giant, Haier? Thinkers50’s Stuart Crainer reports on the new CEO’s first major speech.
The Chinese white goods company Haier has become a global brand. It is one which is known as much for its organizational and managerial innovations as its products and services. It is the embodiment of the twenty-first century organization characterized by agility, teamworking, the absence of middle management, entrepreneurial employees, and a relentless appetite for change.
During decades under the leadership of Zhang Ruimin, Haier emerged from obscurity to global brand, becoming the world’s largest manufacturer of white goods. Equally intriguing was the development of the company’s own management philosophy, RenDanHeYi, a potent combination of employees, customers and value creation; a uniquely Chinese take on the practice of management in a modern global corporation.
Now, with Zhang Ruimin becoming chairman emeritus, Haier is entering a new era under chairman and CEO Zhou Yunjie. Mr. Zhou’s first major speech as CEO—delivered on 17 January at Haier’s 2021 Summary and Commendation Conference—is not only a personal and corporate landmark, but it also maps out the issues, insights, ideas and competitive forces likely to shape the company’s future. In the same way as Steve Jobs’ presentations to the Apple faithful set the tech agenda, Zhou’s speech establishes the organizational and managerial agenda for the years ahead. It is, says Haier, a ‘policy manifesto’, part strategy, part inspiration, combining a sense of inheritance with a commitment to innovation.
Zhang Ruimin’s speeches were lengthy and wide ranging, as likely to quote Aristotle as Michael Porter, and as comfortable with abstract concepts as market data. Two-months into his tenure Zhou Yunjie looks set to continue this approach, more thought provoking and challenging than tub thumping and self-congratulating. His speech quotes the Japanese novelist Haruki Murakami: ‘And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure whether the storm is really over…But you can be sure that when you come out of the storm, you won’t be the same person who walked in.’ Mr. Zhou’s appointment and statement of intent can be seen as Haier pressing re-start after the global pandemic.
Four big themes stand out from Mr. Zhou’s first speech.
The first is the company’s continuing commitment to change. The starting point for the future is a willingness to embrace change. ‘Rather than slowing down in the post-pandemic world, change is picking up speed and becoming a constant,’ says innovation strategy expert Kaihan Krippendorff, CEO of Outthinker. ‘New technologies are being adopted faster, and disruption – by competitors, technological innovations, or unforeseen external forces – is ever-present. To survive in the future, your organization needs a strategy that can adapt and flex with the pace of change; one that offers creative options to keep you among the disruptors, rather than the disrupted, and that opens up space for continuous innovation and perpetual transformation.’
Change is in the Haier DNA. Zhang Ruimin’s speeches were notable for their relentless quest for improvement. Typically, an hour long speech by Zhang would not re-visit any of the issues or concerns of a speech six months or a year earlier.
As Zhou Yunjie puts it: ‘Not developing is the biggest risk.’ Mr. Zhou identifies three elements to change which the company must excel at: understanding change, seeking change and adapting to change. Understanding change requires the organization to come to terms with the opportunities presented by the fourth industrial revolution. In Haier’s situation, Zhou argues that tech convergence leads to exponential growth and that the industrial internet will unlock a much larger marker than that created by the mobile internet. More precisely, he identifies opportunities in decarbonization and green energy; continued digitalization; and the rise of the metaverse.
The recognition that change demands both a proactive and reactive response is an interesting take on this much-examined issue. The balance between the two is likely to be a much discussed challenge in the years to come. In an overall context of low or negative growth, the organizations which prosper will be those which still have the ability to seek out change. Mr. Zhou argues that Haier’s belief in ‘self-organization’, giving people and teams the freedom to organize in the best ways for the overall organization offers a potent counter to continuing uncertainties. He makes a persuasive distinction between the role of government (the visible hand), the market (the invisible hand) and self-organization (the invisible heart).
The second big theme presented by Zhou Yunjie is the reinvention of governance for IoT era. A great deal of what Haier practices and preaches is now accepted management best practice—agile teamworking, empowering and enabling teams to solve customer problems, and so on. But what has lagged behind management best practice are the systems and governance of global organizations. This is something which Haier has been seeking to tackle over recent years. It has, for example, been leading the way in re-inventing the nature of contracting within and outside the organization so that contracts become more dynamic and reflective of a fast-changing reality where delivery of projects relies on an ecosystem of individuals and organizations.
Mr. Zhou puts a new model of corporate governance in the IoT era as a central pillar of the future. He directly links the need for perpetual transformation to governance. The competencies of understanding change (the ability to extract business insights); seeking change (the ability to monetize business opportunities); and adapting to change (the ability to evolve and adapt to change as a self-organization) are directly identified as responsibilities of board members.
Traditional corporate governance takes shareholder value primacy as its mission and is based on the principal-agent risk management principle. Haier’s governance model, as described by Mr. Zhou, maximizes human value as its purpose and is based on the ‘empowerment-autonomous governance’ principle of incentive compatibility. The emphasis is on board members being pragmatic, specialized, and robust. In effect, it is applying the same expectations of behavior and outlook to board members as to the rest of the organization. This appears obvious and fair, but is rarely practiced.
What marks apart the Haier approach to governance as described by Zhou is the direct relationship between the company’s objectives and its key board committees. Five specialized committees correspond to five major strategies: to focus on the strategy of growing and strengthening industrial development; to pursue technological innovation to achieve self-reliance and self-improvement; to maintain entrepreneurial programs to inspire and incentivize all employees; to adopt bottom-line thinking to prevent and resolve risks; and to commit to RenDanHeYi and contribute Chinese solutions to organizational challenges.
The third element emphasized by Mr. Zhou in his January speech is the continuing and vital importance of the company’s RenDanHeYi philosophy to the future. RenDanHeYi is seen by him as a management model, a governance model, and a management philosophy. In Zhou’s re-making of Haier’s governance, RenDanHeYi is promoted so that it forms one of the key board committees. His message is that he will resolutely implement the management thinking of RenDanHeYi founded by Zhang Ruimin, adhere to the purpose of maximizing human value, make the RenDanHeYi model a world-leading management philosophy, and develop the ecosystem brand into a universally-applicable system.
First articulated in 2005, the RenDanHeYi model created a dynamic network of employee-run microenterprises. The word translates to ‘employees and users become one’. In this model, microenterprises operate autonomously and team members are self-employed, self-organized, and self-motivated.
After 16 years of experiments and practice with the RenDanHeYi model, Haier has transformed from a product manufacturer to an Industrial Internet ecosystem. The disruptive innovation of enterprise management has unleashed the innovative dynamism of each Haier employee. Motivated by the entrepreneurial system and driven by the incentive and constraint platform, Haier’s Industrial Internet ecosystem has incubated a large number of micro-enterprises that have graduated to financing rounds, one after another. Further to the existing three listed companies, it is anticipated that one to three EMCs will likely go public every year.
‘Since its introduction, the Rendanheyi model has undergone several incarnations, commensurate with deep technological shifts in the external market landscape,’ explains the management researcher Jeffrey Kuhn. ‘In 2019, Haier introduced Rendanheyi “3.0” to support its IoT strategy by recasting its platform structure into a constellation of interconnected ecosystem-based businesses that provide users with integrated IoT-based offerings. Haier’s Smart Home Customization Ecosystem, for example, includes its Internet of Clothing and Internet of Food. As Haier’s ecosystems take root, its products become mediums through which users can co-create unique personalized experiences through a community of ecosystem partners, generating recurring ecosystem revenues and a cycle of increasing returns for both Haier and its ecosystem partners.’
The fourth theme expounded on by Mr. Zhou was openness. ‘Whether for business or for society, openness leads to prosperity, while closure leads to stagnation,’ say Gary Hamel and Michele Zanini in their book Humanocracy (which draws on the example of Haier). ‘Companies should set openness as the default state, and the thick black line we drew to distinguish the inside and outside must go. Only in this way can companies have a chance to become as adaptable and resilient as the great cities.’
A notable element of this process is that Haier is outward looking in its willingness to directly connect with world-leading thinking and thinkers. It draws on an international expert advisory group. Few other companies have sought out leading theorists with the commitment of Haier. Its base in Qingdao welcomes a steady stream of the best minds on business.
Zhou Yunjie proposes the policy of ‘an open system for win-win co-creation’ to improve innovation capabilities in four dimensions: users, employees, ecosystem stakeholders, and the organization. Openness and ecosystem thinking are virtually synonymous in the Haier world-view. Users, employees, ecosystem partners and enterprises are in a constantly evolving dance of value creation. ‘One way of thinking about Haier’s success in repeatedly transforming itself over nearly four decades is that its corporate DNA runs deep by replicating itself at each organizational fractal,’ says long-time Haier commentator Bill Fischer of IMD. ‘This fractal nature of Haier is a source of its strength, an alignment based on similarity of behaviors and attitudes at every level of the organization in the way that relationships are engaged. As a result, it is entirely possible that Haier’s future lies more with its ecosystem relationships than it does with its heritage business lines.’ There is increasing realization that the competition of the future will be based on ecosystems rather than corporations.
With a continuous commitment to change, governance structures in keeping with a global twenty-first century corporation, a coherent but wide-ranging management philosophy, and a commitment to openness and maximizing ecosystems, Zhou Yunjie has laid down a challenge for all those involved with Haier and its many and varied ecosystems, but also to corporations worldwide to re-shape themselves in keeping with the new realities.