The EFMD business magazine

The EFMD business magazine

Teaching RenDanHeYi in business schools

Haier’s transformation journey
Bill Fischer shares his experience in teaching RenDanHeYi, especially in executive education, and how managers are longing for opportunities to contribute to their organisations’ success.

If it is possible to distil a lifetime’s experience of working in executive education into one summary observation, my entry would be that: “inevitably, and unfortunately, the executives in the classroom are better than their organisations allow them to be at work.” They are more knowledgeable, more committed, and more energetic than they can display in their day-to-day jobs. They come to business schools for what they see as a rare opportunity to develop new skills and insights that will make them better managers, or more effective leaders, and they make the most of it. They are full of curiosity and ambition, and are delighted by our case discussions of Apple, Google, and a wide variety of other exciting organisations. They throw themselves into comparisons of Steve Jobs, Elon Musk, Jeff Bezos, even Ruimin Zhang, or whoever the current leadership icon might be, but, at some point, they realise that they are destined to return to big, complex, often successful bureaucratic organisations that are inclined to resist innovation, be it bold new products, unprecedented business models, or the most unthinkable of all, organisational transformation. You can almost hear the energy being sucked out of the classroom on a programme’s final day, as questions are raised regarding “how can I convince the management above me to even consider such organisational change?” Ironically, what we in business schools lack, at a time when business has never been more interesting, are credible instructional vehicles that allow these participants to dream again.

“Inevitably, and unfortunately, the executives in the classroom are better than their organisations allow them to be at work.”

This is not to suggest that daring efforts to revitalise mature organisations cannot to be found; Bosch Power Tools, Fujitsu Cloud Services in Western Europe, Buurtzorg Nederland and Zappos, are among a small, but growing group of organisations who are restless for revitalisation of their work culture, and who have recognised that their old ways of organising have seriously constrained how well they serve their customers, and how enervating their work environment is for the skilled talent that they employ. Each of these transformation journeys offer interesting insights into the exploration of organisational approaches that provide more autonomy and more engagement than today’s typical bureaucratic pyramid. Each of them has also, in one way or another, been influenced by the transformation journey of Haier, the world’s largest home appliance manufacturer, and its RenDanHeYi philosophy, which stands as the most expansive, and boldest, path to real organisational transformation available today. As a result, Haier is an especially valuable example for business education; Haier gives us a glimpse into how 21st-century leadership can be experienced in a mature, complex and successful, non-digitally native organisation, in an old-economy industry. Instead of hip young people running around in flip-flops, developing algorithms and apps for a metaverse, Haier represents real people, making real things. It is the ultimate silver bullet learning example for weary executives, worn out by bureaucratic organisations; it reaffirms the hope, and belief, that meaningful work might well be only a mindset away.

Why Haier? Why RenDanHeYi?

Haier is an exceptional illustration of organisational transformation for several reasons:

  • Haier has been on its transformation journey for forty years, and there is an abundant amount of experience that has been generated along the way.
  • Haier’s transformation journey has been marked by a number of bold managerial choices that have given it the lift to rise above the rest of its industry peers. It may be an extreme example, but one which is particularly instructive.
  • Haier’s RenDanHeYi philosophy is directly tied to business model validation; it is not simply transformation for transformation’s sake.
  • There are at least 70,000 employees involved; this is not a pilot experiment. Everyone at Haier is involved.
  • Qingdao is not Silicon Valley. Haier has been doing this in a venue that is not known to be uniquely favourable to entrepreneurship.
  • Going well beyond aspirations, Haier’s RenDanHeYi approach offers a highly detailed infrastructure of managerial choices that have increased the likelihood of success.
  • Haier Group has been experimenting with adapting RenDanHeYi to its member organisations in international cultures as different as the US (General Electric Appliances: GEA) and Japan (the former Sanyo home appliance business).
  • And, perhaps most important, it has been successful! Haier has moved from near bankruptcy in 1984, to a world-leading position in home appliances.

The history of Haier teaching materials

There is no shortage of teaching materials on the Haier transformation journey. A casual review of the case database at thecasecentre.org indicates that there are at least sixty cases on Haier in their archives; the vast majority of which (53) are in English. The first case was written in 1998, at the Harvard Business School, by Robert J. Crawford for Professor Lynne Sharp Paine. This was followed in 2000 by two cases, one at INSEAD, written again by Robert J. Crawford, and Ming Zheng, for Professor (and later CEIBS Dean) Helmut Schütter, and the other, published jointly by IMD and CEIBS, written by William A Fischer, Ge Jun and Li YunLu.

In 2013, Reinventing Giants, by Bill Fischer, Umberto Lago and Fang Liu (Jossey-Bass), provided a detailed case examination of Haier’s early (1984-2013) transformation journey, which is nicely complemented by Beijing University’s Professor Hu Yong’s and Hao Yazhou’s Haier Purpose (Thinkers 50, 2017). Most recently, an excellent treatment of Haier can be found in Corporate Rebels’ Start-Up Factory, (September 2022) and Professor Annika Steiber’s Leadership for a Digital World: The Transformation of GE Appliances (Springer, 2022), which provides a unique, analytical and comprehensive review of GEA’s transformation journey.

Teaching Notes

Transformation is profoundly different than mere reorganisation (or decentralisation)1. Real transformation requires a well-developed vision of how the firm is going to compete in its arena(s), and a willingness to change anything organisational that can better support the achievement of the vision. In Haier’s journey, the consistency of three fundamental “guiding principles” has informed every managerial choice that was taken along the way. Haier’s three guiding principles are:

  1. The necessity to get close enough to the customer/user to guarantee a great customer experience: zero-distance to the customer!
  2. A recognition that entrepreneurial work is the only way to achieve effective zero-distance and effective response: everyone is an entrepreneur, not an order-taker.
  3. Those that share in creating value, should share in the distribution of that value: entrepreneurs’ income should be paid directly by the customer/user.

The learning objective here is not necessarily to adopt Haier’s guiding principles, but to explore what type of guiding principles might be relevant for our participants’ own organisations.

Central to Haier’s transformation journey is the unleashing of entrepreneurial energies to create a growth engine. This growth engine requires increased autonomy at all levels of the organisation so that employees close to customers (zero-distance) can make the key decisions that will justify their incomes which are generated directly by the value created. Increasing autonomy becomes a key managerial choice to consider, and the Haier transformation journey provides an almost stop-action video of the progressive granting of ever more autonomy, from 1984 onwards. But how much autonomy is right for our participants’ organisations; and what form would it take? This is a rich and important conversation, even for organisations not looking for complete transformation, and can be made even more impactful by the work of Simone Cicero and Boundaryless, which is affiliated with the Haier Model Institute network, and whose canvases allow real analytical consideration not only of the scope and mechanisms of potential autonomy, but also a detailed look at the contractual mechanism necessary to make such autonomy work.

One way to think about Haier’s transformation journey is that it is a single story with several different chapters. From 1984 until 2013, the chapters were remarkably, and monotonically, consistent in experimenting with Haier’s internal situation, so as to better achieve the guiding principles. In the middle of the second decade of the twenty-first century, however, the imminent arrival of the Internet of Things, and the consequential introduction of hyper-connectivity to the home, made renewed attention to Haier’s external relationships imperative. This has led to experiments in radical openness for the organisation, and a greater reliance upon ecosystems as a means of generating new ideas and accessing unfamiliar expertise domains, all in the service of a better customer experience. As a result, the period, beginning around 2013 until the present, when Haier moved from self-organising, autonomous work groups, with admittedly, a still fair amount of centralised influence (the so-called ZZJYTs), to really independent microenterprises, introduces an entirely new set of important, and timely, discussion issues around the formation of multi-partner ecosystems, that enlarge market opportunities and which, deliberately, do not follow conventional value-chain logic. With these topics, I find transformation journey mapping and the application of Chris Rangen’s (Engage/Innovate) canvases to assess senior management support for a transformation idea, to be especially helpful in moving the classroom discussion from aspirational to tactical.

Aside from executive education, emphasised in this article, RenDanHeYi can be an effective addition to organisational behaviour and strategy classes at both the undergraduate and MBA levels, especially where the daring nature of Haier’s leadership and cultural choices open up generous conversational opportunities to discuss: guiding principles, increased autonomy and business-model innovation, as well as speculating on “the organisation of the future.”

See other articles from RenDanHeYi: Pioneering the Quantum Organisation.

 Teaching RenDanHeYi in business schools

Bill Fischer is Senior Lecturer at the MIT Sloan School of Management, Professor Emeritus of IMD Business School, and co-author of Reinventing Giants.

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