Zhang Ruimin, CEO of Haier Group:
Start Businesses, or Leave
Fresh off its acquisition of GE’s venerable home appliance unit, Haier is now the world’s biggest home appliance brand. CEO Zhang Ruimin, at the helm since 1984, is taking bold steps as he sets out to “change the world.”
Start Businesses, or LeaveBy Kuo-chen Lu
From CommonWealth Magazine (vol. 598 )
No corporation can escape the massive changes that “Internet Plus” is engendering.
Three years ago, Haier, the world’s largest home appliance brand, based in the Chinese coastal city of Qingdao, conducted a sweeping restructuring effort. So extensive was the undertaking that even former IBM chairman Lou Gerstner was astounded, marveling to Haier CEO Zhang Ruimin that no one else from the current generation of entrepreneurs would ever dare attempt such an overhaul.
When the dust had settled, only three types of employees remained at Haier: platform heads, micro-enterprise heads, and entrepreneurs. This presented only two options for company officers: found a startup or leave. Haier currently employs 60,000 people, down from 110,000 employees at its peak, demonstrating the magnitude of the restructuring.
Over the past three years, Haier has sired more than 200 startups or teams known as “micro enterprises.” Among these, more than 100 have achieved annual revenues topping NT$500 million, 22 have attracted venture capital investment, a dozen are valued at over NT$500 million, and over 3,800 micro enterprises and micro stores await incubation.
How has Haier, with 50,000 fewer employees, been able to create over 1.3 million employment opportunities?
Haier has retained the title of world’s biggest home appliance company for the last six years running. Why, then, would it chance undertaking such a dramatic overhaul?
Zhang has observed rapid market changes, with the Internet not only addressing asymmetric information flow, but also delivering both speed and convenience. Following the revolutionary adoption of the Ford assembly line and Toyota’s management systems, the era of customer-driven products is now upon us, forcing corporations to confront a tumultuous time of change. The road ahead is untraveled and unmarked, Zhang says, and there will only be one of two outcomes for both real-world and on-line companies: either the platform operates you, or you operate the platform.
User Experience Paramount
In 2015, Haier recorded revenue of more than NT$940 billion, yielding profits of more than NT$90 billion, for 20 percent growth over the previous year. Following on this success, early this year Haier announced the acquisition of General Electric’s home appliance business.
Haier is like a gargantuan aircraft carrier completely overhauling its power and weapons systems even as it continues to sail full steam ahead.
How could the entire staff become entrepreneurs? Zhang says, “It’s not that we’ve made everyone into entrepreneurs, but rather we’ve made all the entrepreneurs into our employees.”
How has Haier done it? Beijing’s iBaking is a startup selling a new style of Haier roasting ovens, backed by a team hailing from ZTE Corp. and the formidable BAT (Baidu, Alibaba, Tencent) alliance. Although iBaking CEO Ma Gang had never worked at Haier, the company nonetheless extended its resources to help him achieve the dream of starting his own business.
Zhang shattered the management hierarchy and salary structure, introducing the concept of “users pay the wages.” “Users are the ones that determine products in the Internet age,” he says. Entrepreneurs and micro-enterprise heads with their fingers on the user’s pulse are able to make money and start businesses.
Accordingly, Haier’s air conditioning manufacturing plant was turned into a C2B facility, allowing users to decide such changes as making the A/C units’ styling round instead of rectangular. In the notebook computer realm, they responded adroitly to users’ needs, with Thor Technology going from an internal startup to independent company and from zero to over five billion NT dollars in sales in just three years.
With Zhang at the helm, Haier has instituted a consistent approach from top to bottom – the customer experience decides everything.
According to Zhang, the Internet has changed the relationship between the user and the corporation, signaling the arrival of a zero-gap era, under which everyone is a center, and enterprises must become platforms for maximizing people’s value. After all, only by becoming platforms can enterprises attract both people and resources, and for Haier, the whole world acts as its research and development and human resource departments.
As it would happen, CommonWealth has interviewed Haier chief executive Zhang Ruimin on many occasions since 1989, a span now approaching 30 years. The following is our latest conversation with Zhang on May 3rd, edited for clarity and brevity.
CommonWealth (CW): What changes have you seen the Internet engendering in the world?
Zhang Ruimin (Zhang): What has the Internet done? Information that used to be asymmetric suddenly became symmetric. This applies to enterprises and customers, and the same for your (corporate heads’) relationship with employees.
Before, the way things worked was simply that you did what I said. But now, employees catch wind of things faster than you do. The Internet has also resolved the issue of speed. All it takes is a swipe on my mobile phone while I’m at work, and I can receive a delivery at home before I even get there.
Alibaba has a commerce platform, and when everybody goes there they control you. It would be quite something if I had a platform like Alibaba, but that ship has sailed. In the future, either you operate a platform or the platform operates you.
CW: What kind of platform does Haier want to create?
Zhang: With the approach of the post-electronic commerce era, e-commerce merchants are just a platform for transactions and not an exchange platform, preventing them from exchanging experiences with users. This used to be called CRM (customer relationship management); it has now become VRM (vendor relationship management).
What is vendor relationship management? Formosa Plastics Group Chairman William Wang sat right here during his last visit. During our exchange, he told me that when (late FRG Group founder and chairman) Wang Yung-ching was selling rice, he would calculate that a family he sold rice to would finish it in seven days, and instead of waiting until the seventh day, he would just deliver a new rice ration on the sixth day. This is vendor relationship management, where I go ahead and tell you, “You’ll be out of rice tomorrow, so I’ll go ahead deliver more to you now.”
Changing the World with Collective Wisdom
CW: So then how does Haier intend to change in order to grasp customer needs and experiences?
Zhang: There is no way a leader can satisfy every personalized need. Micro-enterprise heads pool collective wisdom. At this point, only three kinds of people remain within Haier’s organization: platform heads, micro-enterprise heads, and entrepreneurs. With the nullification of the hierarchical, departmentalized structure within the organization, only two choices remain: start a business or leave.
I want to establish a platform, the goal being – as the saying goes – “Living to change the world.” We hope to attract top people to become the next Steve Jobs or Mark Zuckerberg. If your purpose in life is just to be a good company soldier, there’s no hope for you.
CW: How is it possible to turn everyone, executive and employee alike, into entrepreneurs?
Zhang: Turn that sentence around and it makes sense. What we’re doing isn’t making entrepreneurs out of every person, but making it so that every entrepreneur comes to our platform.
Ours is an open ecology. If you’re starting a business, just come on over. You don’t necessarily have to become my employee; we can have a contractual relationship instead.
CW: How do you go about mapping out a compensation and wage structure?
Zhang: In accordance with market effects, the customers determine your resources and wages. For instance, there is something called the “0030 system” in Internet finance, where the first zero stands for zero base salary, and the second one is zero cost, but once you exceed the level you set, you start making a lot of money. The last two digits, or “30,” represent the first 30 percent of profits, which is set aside as a risk fund.
CW: What is your goal?
Zhang: The Internet is a chance for a third revolution.
The first revolution was Henry Ford’s assembly line, which brought the price of an automobile down from US$3,000 to 500 dollars. The average person didn’t know anything about Ford’s assembly line, but he knew for sure that he could afford a car. The second was the Toyota management approach, which involves real-time production and precision management, so consumers can enjoy an inexpensive, quality product. This approach made Toyota the world’s largest automobile manufacturer.
The third revolution is the ecosphere economy that begins with the customer experience. Will it necessarily succeed? There are no road signs to guide us, and there could be a cliff up ahead, but if we can get through, the sky’s the limit.
The World is Our R&D Department
CW: What is the biggest obstacle to change at the moment?
Zhang: A company’s success is predicated on people, so the key is whether people can manage to pivot.
CW: What is Haier’s definition of a successful Internet enterprise?
Zhang: What kind of enterprise is an Internet company? It is one that has links to connect with the world. A computer that cannot get onto the Internet is nothing, but when it gets online it becomes infinitely powerful. In the Internet age, enterprise resources are not about how many people you have, but how many people you can integrate. If you can integrate all the best resources, then the world can be your human resource and R&D department.
CW: Haier acquired General Electric’s home appliance division this year. What is your vision for the future in the wake of this acquisition?
Zhang: Back when the Japanese economy was thriving, (Japanese firms) were acquiring American companies like crazy, and everyone said Japan was number one. Now, only 10 percent of those companies have succeeded and 90 percent have failed. Does the same fate await us?
GE is a gigantic aircraft carrier, of which appliances are just a small part. My aspiration is not for the GE appliance unit to become a small aircraft carrier itself, but to become an allied fleet.
How does one go about managing staff from different countries following a corporate merger? In spite of cultural differences, workers everywhere around the world long for the same things – to be respected, and be able to apply their talents. So one just has to keep in mind that “employees are not a means, but the raison d’être.”
Translated from the Chinese by David Toman