Why Enterprises Exist

The fundamental purpose of enterprises is not to make money.

What then is the fundamental purpose of an enterprise? It is to create users.

Imagine a two-dimensional graph, with a vertical and a horizontal axis. The horizontal axis is substantially the same as other general businesses, we call it ‘enterprise value’ – the market goal is, in short, to create customers. Customers and users are not the same thing, and should be separated. ‘Customers’ make a one time transaction with the enterprise: you make a product, the customer buys it, you hand it over, and there is no further contact. ‘Users’, on the other hand, interact with you, are brand loyal and give their opinions, so you can continue to improve. So, the horizontal axis is customers, and the vertical axis is users, we call it the ‘value of network’. The vertical axis fully shows how you are creating users. In the Internet era, this is through interaction with users.

We have changed the perspective. In the past I would ask about our market share. I would ask how many tens of thousands of products we had sold and whether the market share had reached 20 per cent. But things are different now. We are concerned about whether those 20 per cent of users are interacting with us. If there is no interaction, then this is only a customer and not a user in the real sense. We used to say that making money was the end of the sales process, but now that is the start of a new sales process. In the past, users were just purchasers, whereas now users have become participants.

In the past there may not have been any interaction, but there was a kind of gaming. This so-called gaming could apply to suppliers, for example, mainly around the price, meaning we would use whatever was cheapest. While, the relationship with the user is more like a marketing game, where the question is how we can use promotional materials to make you believe in our products. Because of information asymmetry, whoever communicates most is more likely to get the user’s favour. For employees, the game may be about getting more control, how to strengthen the enterprise development by controlling employees. So, we first need to change our conception, changing from gaming to interaction, and we want interaction in every aspect to add value.

About the author

Zhang Ruimin is CEO of the Haier Group (haier.net).

This is an excerpt from Strategy@Work, a Brightline and Thinkers50 collaboration bringing together the very best thinking and insights in the field of strategy and beyond. This is an edited extract from Haier Purpose by Hu Yong and Hao Yazhou (Thinkers50 and Infinite ideas, 2017).