Haier Group CEO Wants to Change Company Management Structure / Haier Group

Chang Ruiming, CEO of the world's fourth-largest home appliance manufacturer Haier Group, is the hero of many instructive stories. For example, Chang once found 76 faulty refrigerators in a warehouse, ordered them to be taken outside and smashed with sledgehammers. He quelled the workers' discontent by saying, "If we don't destroy these refrigerators today, the market will destroy our company in the future."

Asked if he will miss the power after decentralization, Chang says: "If the company dies one day, it will not have a CEO either. But I believe that it will survive and that there will be a job for someone who can chart the way forward."

The 66-year-old Chinese enthusiastically studies Western management models. He has already tried some of them in the company he has headed since 1984. That year, the young municipal official was assigned to take care of the unprofitable Qingdao refrigerator plant. Haier's revenue is now 200 billion yuan (about $31 billion). The shares of its subsidiaries Qingdao Haier and Haier Electronics are traded on the Shanghai and Hong Kong stock exchanges. Chang himself was the first Chinese citizen to enter the Thinkers50 rating, immediately taking 38th place.

But just when people start to believe they have grasped Chang’s management principles, he completely rewrites them. Bill Fisher, a professor of innovation management at IMD Business School, published a study of Haier’s business model, Reinventing Giants, in 2013. But even before he had finished the last chapter, Haier had begun to change again.

Until recently, one of Haier’s revolutionary technologies was self-management of management teams and “communities of interest” that competed with each other to launch new models or create design projects. But now Haier wants to destroy these schemes as well. The concern is transforming itself again – this time into an open community of “entrepreneurial platforms” consisting of hundreds of micro-enterprises. They will not only compete in the design, production and distribution of equipment, but also fight with each other for personnel and money – both for Haier’s budget and for third-party investments.

The main thing is the Internet

Haier was conceived as a transnational corporation. Its name arose during the joint venture with the German Liebherr. But presence in the markets of different countries is no longer a priority for the company. Now the task is to use the possibilities of the Internet in management.

The 20 business platforms include a “diet ecosystem” (smart refrigerators), an “atmosphere ecosystem” (air conditioners and air purifiers), and Goodaymart Logistics, which is responsible for fulfilling Haier’s promise to deliver its products anywhere in China within 24 hours. Goodaymart already operates independently, working closely with Alibaba to deliver goods not only for its parent company but also for its arch-rivals. The company operates with the help of subcontractors. They are called “micro-auto enterprises,” in other words, they are truck owners.

Chang believes that it is time for white goods to be made to suit the needs of a specific person. One entrepreneurial team, called iSee Mini, is working on a niche of TVs that project images onto the ceiling, making it easier for pregnant women to watch. China Daily recently reported that another team, on behalf of a loving son, delivered an air conditioner to the city of Hefei as a gift for his calligrapher father. It was engraved with the old man’s favorite phrase: “God rewards the diligent.”

A decade ago, Chang’s job was to study the market, develop strategy, hold meetings and monitor how his subordinates implemented his ideas. Faced with slowing growth, the company laid off 10,000 mid-level managers in 2013–14 as it cut its workforce from 86,000 to 60,000. Chang later said that many became small entrepreneurs, such as trucking for Goodaymart.

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Management / Management

Today, Haier still provides a range of services, such as accounting and HR. But it is gradually becoming a shareholder in a network of micro-companies. Eventually, it will become a venture capital firm and a business incubator, rather than a global manufacturing holding company. But this experiment is risky, and Chang knows it. “We will face a lot of risks,” Chang admits. “When you face serious challenges, you can try to sit back. But the only outcome is your own death. We think it’s much better to fight. You can call it a gamble, but we know exactly where we are going, and that’s what sets us apart from other players.”

On the other hand, by breaking up the current divisions into potentially less efficient units and abandoning the traditional levers of corporate power, Chang risks creating an unruly corporation. He has closely studied the experience of Zappos, with its management system called holacracy. Zappos is a company comparable in size to Haier. Its experience has been at times quite painful. But Chang assures: “We don’t think they have done anything radical.” The most problematic area, he believes, is cultural change, which is difficult for employees to come to terms with. “Corporate culture is a double-edged sword. What helped you succeed in the past may not be successful in the future,” Chang says. But despite his confidence, Chang is hesitant to say exactly how Haier’s experiment will end.

FT, 26.11.2015, Anton Osipov

Haier Group Wants to Change Management Structure