Reinventing Giants

How Chinese Global Competitor Haier Has Changed the Way Big Companies Transform

Bill Fischer, Umberto Lago, Fang Liu

• Publisher: Jossey-Bass
• Year: 2013
• Print ISBN:
  9781118602232
• Edition: 1
• eBook ISBN:
  9781118602249
• Topic: Business
• Subtopic: Management
• Index: Business

A compelling profile of an emerging Chinese competitor

Chinese firms are reinventing their business models, their corporate cultures, and themselves, becoming global competitors who increasingly offer knowledge rather than cheap labour in their quest to join the ranks of the "world's best" companies. This book offers a compelling profile of the most ambitious of these emerging Chinese competitors, the Haier Corporation (the world's largest manufacturer of home appliances), and shares insights on how one organization has repeatedly reinvented its business model and corporate culture in an effort to sustain its success.

Reinventing Giants provides an exclusive look within the Haier Corporation and shows how managerial accountability and responsibility have been repositioned at every level of the organization, with the core value of market-centricity, while aligning strategy on each level of management. It includes actual work reports that show this process in detail from the ground up. The authors emphasize how a belief in the liberation of employee talent has consistently been the driving force underlying Haier's success.

• Includes the remarkable story of Haier's turnaround and how these lessons can be applied to other organizations
• Contains information for any company grappling with competition in the global marketplace
• Shows how to liberate employees' talent to drive business success
• Written by Bill Fischer, Professor of Innovation Management at IMD in Switzerland, Umberto Lago, Professor of Management at Bologna University, Italy, and Fang Liu, Research Associate of IMD

Reinventing Giants helps global managers rethink their own business models and accompanying corporate cultures in order to be able to apply Haier's lessons directly to their own organizations.

CHAPTER 1

MOVING A COMPANY WITH THE TIMES

What Makes Haier Unique?

Change is the only constant in the brave new world of global competition. Organizations that do it well flourish; those that do not can find themselves looking at their possible demise. Either way, change is inevitable: change in offerings, change in locations, change in strategy, and ultimately change in the organization itself. None of this is easy or natural. Jack Welch of GE was famous for saying, “When the rate of change outside [an organization] exceeds the rate of change inside, the end is in sight,” and IBM’s former CEO, Sam Palmisano, observed, “Organizational culture thrives only to the extent that it is open to being re-created.”1 But change, especially big change, is difficult, and frequently it is something that all too many organizational actors hope can be avoided, or at least minimized, at all costs. Not surprisingly, those who succeed in orchestrating big change are regarded with admiration by students of business; those who do it more than once are considered exceptional.

This book is about transformational change—the reinvention of a corporate business model and culture not once but at least three times within thirty years. Since change for change’s sake is never a good idea, and certainly not noteworthy enough to merit book-length attention, this book is also about the context in which big strategic change takes place: the whys and wherefores that mandate and shape change. And it is about change leadership as well—the hows—because big change is never easy to accomplish, and when it is successful, it is inevitably the result of leaders’ ability to create a vision and mobilize the workforce to take this vision seriously and move determinedly toward the desired objectives.

Haier Group

This is a book about transformational change in an old-economy, mature industry. This is not about change in high-tech razzmatazz but about change in household appliances, where margins are thin and innovations few. It’s about management fundamentals, such as quality, brand, and supply chains. And the overriding message is that you can’t discount the potential for transformational change in any industry or any geographical location. The leadership of any organization must be prepared for the challenge of creating such change, no matter what the industry or location.

Household appliances have been produced in the port city of Qingdao, on China’s northeast coast, for quite some time. In the 1920s, a refrigerator factory was built in the city, and over time, after the founding of the People’s Republic in 1949, this evolved into a collective factory administrated by the municipal authorities of Qingdao. In 1984, this same factory, which at that point was possibly best known for its poor quality and indifferent work ethic, was placed under the leadership of a young municipal official, Zhang Ruimin, and allowed to experiment with a variety of managerial initiatives that form the basis for much of the story that follows. By 2012, Haier, as it had come to be known, was one of the world’s largest producers of refrigerators. It had broadened its product line to include air conditioners, mobile phones, computers, microwave ovens, washing machines, and televisions, and it had the world’s largest brand share in major home appliances, 8.6 percent,2 creating what was likely China’s most recognized global brand. Haier is also one of the world’s biggest refrigerator producers in terms of both brand and market share.

How Haier achieved all of this, and how it did it in such a relatively short period of time despite fierce competition from incumbent global heavyweights, is the central story of this book and one that speaks to the power of business model innovation undertaken at Haier. Despite the company’s reputation for innovation that has resulted in the creation of one new product after another, we believe that the real innovative power at Haier speaks to a competency that is far more powerful than just products. It is instead the ability to innovate, and continue to innovate, the business model and the corporate culture that supports it. This is the key to understanding Haier’s unparalleled success over more than three decades and potential for the future.

Transformational Change in an Emerging Market

This is also a book about innovation in emerging markets. It is not about IBM or GE, or any of the other familiar, big-name, well-established multinational corporations. This is a book about Haier, a domestic Chinese player that has succeeded not only in defending its home market against stronger, better-endowed foreign competition, but also in opening up new markets on a global stage, something that very few other BRIC (Brazil, Russia, India, and China) firms have accomplished.

Globalization could well be the biggest story of the twenty-first century, yet it has been almost entirely depicted from the perspective of Western multinationals. Obvious as it might be, the challenges and strategies of the emerging markets’ champions are virtually invisible. It is as if globalization was a one-way street. But the truth is that globalization is increasingly a two-way story, with BRIC-based enterprises arising to both protect their domestic markets and enter global markets as bona-fide contenders. This book offers an unusual opportunity to get into the details of one such BRIC-based competitor to see how these organizations do it. The lessons here, however, are universal in their applicability. This is particularly important because we have been waiting for several decades for managerial lessons to emerge from the Chinese competitive space, and we believe that there are some to be found in Haier’s experiences.

Peter Drucker, the twentieth-century management gurus’ guru, predicted as long ago as 1997 that China would be a source of fresh, new managerial insights in much the same way that Japan’s industry revolutionized the way we all thought about organizations in the early 1980s.3 Interestingly, but not surprisingly, Japan’s contributions were largely from the operations world, where Japanese companies had built their competitive strengths for succeeding in the global marketplace. The fact that Toyota, for example, is so strong today as a global player is largely dependent on its ability to build reliable, affordable cars, and the reason that it can do this is directly traceable to the management thinkers—both academics and practitioners—who created new approaches to considering operations and supply chains.

What about China, then? Where should we look for a rich source of Chinese managerial secrets? The shelves of international bookstores are already loaded with Sun Tzu’s Art of War and other similar works of classical thought, but these, in and of themselves, are not a practical source of business insight. Interesting as they may be, they have not had a profound impact outside China (or, we suspect, even inside). Similarly, we are told by China scholars that China excels in building effective interpersonal relationship networks (guanxi) within the cultural context of hardworking, face-conscious, bureaucratic, bargaining-oriented, and harmonious approaches to business. Insightful as such learnings might be, once again they are too vague and too culturally specific to gain our attention in the way that Drucker likely imagined.

Where China truly does have something to offer the rest of the world in terms of managerial insight is in the organizing and leading of faster-paced operations and customer relations by some of its most interesting enterprises, and it is here that Haier has some experiences that the rest of us might benefit from. Speed matters today as perhaps it has never mattered before, and the Chinese economy is, arguably, the fastest in the world at both the macro- and microlevels. Repeatedly we hear of instances where the Chinese elements of a multinational corporation are easily outpacing their foreign colleagues in taking on new projects and moving them to successful completion, often through the coordination of multiple partners in pursuit of the same goal. It is in such examples of organizational redesign, such as fast-moving project management, that we believe we should be looking for the Chinese Drucker. The story you are about to enter is very much about how one successful organization is outperforming all sorts of worthy competitors, foreign and domestic, on the basis of being smarter about its customers and faster in its activities, and building an organizational culture that strives to achieve these objectives in a consistent and reliable fashion by getting more contributions out of the talent it employs.

Strategy Is Choice and Execution

This is also a book about how managerial choices come together to produce the strategic outcomes—speed, customer-centricity, the leveraging of talent—that an organization desires. Strategy can be many things to many people, but if we reduce it to its essentials, strategy is about choice—the choices you make, and the choices not made—and about execution, for without execution, choices are only dreams.

Faced with competitive uncertainty, firms make choices, or they don’t. Either way, their behavior in a marketplace is the outcome of such decisions. Successful firms either make better choices than their rivals or make the same choices and execute better and as a result outperform the others. A great strategy is marked by two characteristics:

• The choices made are appropriate for the competitive situation that the firm is in.
• The choices that are made can be executed.

This is at the heart of everything we look at from this point on: What choices were made? Were they appropriate to the world around the enterprise? What were the competitors doing? And how well did the firm in question execute?

Choosing the Purpose of the Business

Probably the first and foremost choice to be made by any commercial organization reflects the purpose of the business. This sets the stage for everything that comes next; it speaks to the philosophical soul of the enterprise. Ironically, however, despite the importance of such philosophical foundations, it is more typical that whenever change (and culture) are discussed in organizational settings, it is structural change that receives all the attention, probably because of the tangibility of the changes being instituted and their visibility. In discussions of grand strategy, frequently the implicit view accepted is, “Traditional companies are ends in themselves, and the individuals joining them are means for their growth and perpetuation.”4 Only after structure is determined do we turn our attention to the organization’s physiology—the roles, decision-making processes, information flows, and so forth that determine how the organization moves. After this, finally, and only if there is any energy left, does the conversation get around to the matter of organizational purpose (probably because frequently it is so vague and ambiguous as to be meaningless). We think that this is a mistake. We believe, in fact, that the emphasis should be perfectly reversed: purpose first.5 Then, and only after all of this is said and done and agreed on, should we examine physiology and, finally, structure.

The focus should always be on real managers making real choices, and this requires a fundamental understanding of the purpose that drives an enterprise. Despite this, in so many of the firms that we observe, too little attention is given to reflection regarding the purposes that the business serves and what it hopes to accomplish as a result. Consequently, too many managers we see find themselves unable to escape the tyranny of strategic inertia: they keep doing what they’ve always done, only now they do it bigger, faster, or cheaper. Frequently in such instances, choice gives way to extrapolating legacy. Yet as one consulting firm has observed, this is not the only way to work and choose; it is only the most familiar:

The most common template for large-scale modern business design, the multidivisional corporation, is not the only way to do it. The multidivisional form, first realized by General Motors in 1920, has become the standard form today. While phenomenally effective in some ways, the multidivisional form also has significant weaknesses when it comes to innovation.

There are things that seem “obvious” about organization design that are in fact not so obvious at all. Some things that we take for granted as fundamental are in fact only optional.6

We believe that the difference between “obvious” and “optional” is best discerned by starting with a reexamination of the purpose of the business.

At this point in our conversation, Peter Drucker reappears, as it was he who asked more than a half-century ago: What is our business? And what should it be? The question, now so familiar as to appear trite, is in fact of fundamental importance. What the firm believes about its purpose, or its mission, and how clearly it is able to articulate those aspirations, is a necessary starting point for addressing the next question: How will we go about achieving this? Our task, then, in analyzing any company’s approach to strategic change is not only to keep all three of these choices—purpose, physiology, and structure—in mind but also to be equally attentive to the sequence in which these choices are being made.

Choosing How to Grow

To grow or not to grow? The choice, in practice, is not such a big one because most firms instinctively vote for growth. How to go about growing, however, is a much more important choice because there are many ways to attempt it. Here, capabilities and resources are critical. There is no reason to believe that all firms in the same industry will make the same choices because they are all st...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Foreword
• Chapter 1: Moving a Company with the Times
• Chapter 2: The Battlefield
• Chapter 3: The Story of Haier and the Evolution of Its Corporate Culture
• Chapter 4: Liberating Talent
• Chapter 5: Building a Corporate Culture for the Twenty-First Century
• Chapter 6: Haier as a High Performer
• Chapter 7: A True Hybrid
• Chapter 8: A True Disrupter
• Postscript: While We Were Writing . . .
• Appendix: How ZZJYTs Work
• Acknowledgments
• The Authors
• Index