Haier has become one of the largest and fastest growing manufacturing companies in the world over the past 20 years, attracting increasing research from the academic and business community (Wu et al., 2011, Hong and Yintao, 2012; Huang et al., 2012; Liu and Li, 2002). Fischer et al. attempt to characterize the factors behind Haier’s success from the innovation point of view. They propose that the success of Haier in the white goods industry can be explained by its advances in new products, business models and corporate culture innovation. In addition, they conclude that Haier has become famous because of its fast responses in markets, its customer-centric marketing and its ability to attract and utilize talent, as well as its leadership. Furthermore, the authors show that the skills of Haier are different from those of other firms, including the skill to design and produce what customers really want, the skill to design superior business models and the skill to reinvent itself while still being successful. At the same time, the authors explain how established management methods, including Overall Every Control and Clear (OEC), Business to Business (B2B), Business to Customer (B2C), Business Process Reengineer (BPR), and zi zhu jing ying ti (ZZJYT), are adopted in a particular way to promote Haier’s development. The authors explain Haier’s success from the perspective of entrepreneurial spirit, corporate culture, the strategically agile organization and the ability to embrace change. The authors use actual work reports of Haier to describe these aspects in great detail.
In Chapter 1, the authors describe the main reasons for Haier’s success. Firstly, there is a variety of new questions about specific Chinese features, such as the focus on the behavior of the national government in emerging markets and the local Chinese market. These questions drive companies to think ‘out of China’ (i.e., in the context of global competition). The discussion of the case of Haier can provide some inspiration to learn more about China, and the secrets of Chinese management. Secondly, facing the uncertainty of competition, Fischer et al. believe that ‘strategy is to make and execute decisions’. Successful organizations, like Haier, are those making different choices with respect to competitors, such as innovating instead of imitating new products, or executing a strategy similar to that of competitors but carrying out this strategy in a more efficient manner. Thirdly, just as Peter Drucker (1987) raised such questions as ‘What is business?’ and ‘What should business be like?’ half a century ago, Fischer et al. ask a new question: How to realize the business goal or mission? Furthermore, the strategic change is not only about three aspects (business goal, business psychology and business result), but also about the order in which to make decisions. Fourthly, Haier develops a strategy according to the expected demand, and then assesses the available capability to implement it before entering a new target market. In this case, Haier will completely reconstruct its business model and corporate culture. Fischer et al. find that the main factors for the success of Haier are innovation, being fast, being customer-centric and a talent engine, and leadership.
As the white goods market in Western countries is already saturated, and profit margins are gradually decreasing, many Western home appliance firms have to choose a kind of internationalization strategy in order to protect the local market share and develop the international market simultaneously. The authors provide details of home appliance development during 1998–2011 in the retail market in China, the US and Europe. The book describes some cases of failures of multinationals entering China, including Whirlpool, General Electric, Maytag, Electrolux, Bosch-Siemens, and Japanese and Korean brands. These cases show that foreign brands have to value the local competitors, understand local consumer demands, build consistent brand strategies based on fluent communication between the headquarters and local partners, and effectively cooperate with local value chain partners.
Fischer et al. develop a conceptual model to describe Haier’s four strategic development phases:
Stage 1 (1984–1991): brand building through focusing on quality and manufacturing excellence;
Stage 2 (1992–1998): diversification by ‘eating the stunned fish’;
Stage 3 (1998–2005): business process reengineering and market chain development;
Stage 4 (2005–2012): zero distance to the customers – the ZZJYT (zi zhu jing ying ti, literally translated as ‘independent operation unit’).
The authors address Haier’s strategic development from the perspective of different business models, which include key partners, key activities, value propositions, customer relations, customer segments, channels, cost structure and revenue streams. They investigate the reasons for ZZJYT and its procedures, modes and schemes. In addition to the dynamic adjustment of the business model, Fischer et al. also give credit to a corporate culture based on the fusion of Chinese Confucianism and Western market methods. By continuously reconstructing effective corporate culture according to the company’s needs, Haier has achieved great success both at home and abroad.
In Chapter 4, the authors caution that the redesign of corporate culture can sometimes result in negative influences in both the short and the long term. The authors summarize Haier’s cultural rejuvenations in six different areas (Haier thinks of itself as a service company: ‘Service is best achieved if there is zero distance between Haier and its customer, and so on’). When explaining these fields of cultural rejuvenation from the perspective of ZZJYT, Fischer et al. highlight how to foster talents within the firm. Haier has built ZZJYT in different business areas, including marketing, product development and manufacturing. In addition, it has established seamless contacts with customers in the first tier (directly customer-facing), the second tier (one level back from the customer) and the third tier (two levels back form the customer). Through ZZJYT, employees can learn about customer demands directly, and can quickly adjust their work to market change. With ZZJYT, employees can design their job to suit organizational development, which contributes to the match between individual development and organizational goals, and facilitates the synergetic development of centralization and decentralization. In some cases, unbridled competition among employees can affect the authority of the leadership. In this way, ZZJYT gives employees an opportunity to maximize their individual initiatives, tap their potential capabilities and show their talents.
Through analyzing the experience of a ZZJYT fridge project, Fischer et al. provide details about why, when and how different layers and types of ZZJYT work simultaneously to support the existing business model. The findings show that the success of ZZJYT lies in a liberal and open culture. This culture grows by spontaneously assembled teams, where members are selected by a corporate committee, engaging in internal coopetition. Every ZZJYT is linked and embedded in other ZZJYTs. As a result, different tasks are divided into multiple projects. Different ZZJYTs work together through signed contracts in which authority, responsibility, obligation and so forth are specified. In order to improve the performance of individuals and teams in ZZJYT, Haier designs strategic income statements, called Zeus. There are four steps in ZZJYT:
develop an appropriate strategy;
deploy the right person to do the job;
execute the task with speed and agility, and
match the performance of the person and provide rewards.
The book summarizes the existing literature and explores the reasons why some organizations achieve high performance. Successful organizations possess some characteristics that other organizations do not have, including the ability to outperform these organizations in terms of speed, ambition and being in touch with the world around them. Successful companies, such as Oction, Morning Star, ABB (Asea Brown Boveri), and Nash Confectionery in India, reveal that high-performance organizations provide an open culture for employees by various effective methods. For example, they usually reduce the authority of leaders, shorten the distance between leaders and employees, highlight cooperation and remove the ‘boss concept’, and design job responsibilities in conjunction with employees. Confronting faster, more complicated and more uncertain change in the future, firms have to react more quickly than their competitors. They do this by encouraging their employees’ autonomy, risk acceptance and entrepreneurship. In addition, firms also need more flexibility; again, Haier is a good example.
Haier continues to reduce transaction costs by engaging in an efficient system of inter-enterprise networks, partner relationships and alliance management. These inter-firm networks can reduce operating costs and build strong ties through trust. Haier makes a distinction between inside and outside networks to discourage employees from focusing on their own work rather than on organizational objectives. Haier adopts new methods, such as B2B and B2C, to coordinate its activities. It is worth noting that the company’s business model overturns the traditional principal-agent theory. The market becomes the client, ZZJYT becomes the agent and employees become regulators. All of this leads to the effective integration of incentives in the market and in the hierarchical context.
Fischer et al. identify particular attributes of Haier’s development. Firstly, Haier’s clients and employees are realizing value creation together, leading to a symbiotic evolution of business model and corporate culture. Secondly, organizational culture can be overturned. For example, with customers as the top priority, the organization can be reconstructed around this core concept. Haier believes that creating value for customers is creating value for individual employees and the company. In order to realize zero-distance contact with customers, Haier lets employees become entrepreneurs. The success of its business model depends on the support of this corporate culture. The lessons are to be learnt from Haier, for instance, selling talents instead of fridges, releasing employees’ talents and capabilities through trust and merits, pursuing corporate culture that can drive scalable learning rather than focusing on efficiency only, making continuous culture revolution a normal part of working style, encouraging risk-taking and drawing lessons, and advocating strong self-confidence and top-down leadership.
Despite all these contributions, there are still limitations to the book. Firstly, the book discusses Haier’s development and success mainly from the perspective of human resource and organization management. It is a real pity that technological factors are rarely examined in the book. Secondly, the book refers to network ties: ‘interpersonal relationship networks (guanxi)’, ‘good communications and coordination between the foreign headquarters and the local venture’ and ‘the desirability to efficiently collaborate with local value-chain partners when entering emerging markets’. However, the focus of the book is on Haier’s own capability and its own activity rather than on cooperation. Although the authors refer to cooperation with users, channels and the like, their real interest lies in Haier’s strategy choices and their execution in competition. Co-innovation has always been important in Haier’s development, but there is little notion in this book of standing on the shoulders of giants. Thirdly, in developing Haier’s business model, the authors list Haier’s key partners, but give no details to support these statements. Who Haier’s partners are, and when, why and how they cooperate with Haier, are not discussed. Indeed, even the list of partners is incomplete.
This book is aimed at policy makers interested in studying Chinese companies and their distinct management style. Increasingly, Chinese enterprises are participating in international competition in Western countries. However, Western management methods and ideas are not always suitable for Chinese companies. There is a thirst to know more about the rapid development of China and its enterprises. In particular, policy makers want to know more about the role the Chinese government plays in new high-growth Chinese companies.
From this book, strategy scholars can learn how to formulate dynamic development strategy, how to realize the accurate selection and effective execution of strategies, and how to destructively reconstruct and renovate organizational missions, culture and structure. In advocating the idea of governing by doing nothing, the book provides a challenging read for managers. This idea is aimed at supporting new management structures as the original pyramid organizations are overturned and replaced by flat structures (the so-called ‘inverted triangle’), closely linked to customers. From this book, entrepreneurs can learn how to eliminate the obsession with hierarchy that besets managers and staff, and how to eradicate inefficiencies in communication, coordination, authorization, supervision and guidance by making staff fully autonomous.
School of Management, Wuhan University of Technology
penghuatao@123456126.com
© 2014, Huatao Peng
http://dx.doi.org/10.1080/08109028.2014.949423