Another Corporate Restructure or a “Cool, not Cold” Business Model?

The Chinese collective Haier, a multinational consumer electronics and home appliances headquartered in Qingdao Shandong Province, had been led by CEO Zhang Ruimin over its turnaround since the 1980’s. Its first wave of expansion was in Southeast Asia with countries like Indonesia, Philippines, Malaysia, etc. in the late 1990’s. The collective, a state-owned enterprise that resembles a consumer conglomerate, bought off GE Appliance in early 2016. With a foothold in the US, it seeks to inject innovation to spur growth in the company. It has also expanded and operates in the Middle East with countries like Pakistan, Jordan, etc., making Haier an international player. Ruimin’s next strategy is breaking up Haier to spur stagnating growth in the company.

Two factors play into this- Bill Fischer and Denis Simon of HBR state that although China is the second largest investor in R&D, their companies are not pushing out innovative technologies, so they usually doesn’t introduce disruptive business models. This comes from state policy of appropriating foreign IP coupled with lax IP enforcement. Second, Dominic Barton of Mckinsey has finally shown proof that meeting short-term expectations at the expense of neglecting long term investments in breakthroughs is like shooting yourself in the foot. He’s shown that, in a state of normalization (i.e. not an economic recession), corporations who follow a long-term strategy perform better against their short-term strategy counterparts. Many CEOs and business leaders (e.g. BlackRock CEO Larry Fink) have been rallying against short-termism for good reason; Gary Hamel and Michele Zanini show that the start-up culture hasn’t been giving America high economic growth like it used to as more wealth and power is appropriated to larger corporations. These CEOs have been sending out calls to action to these large corporations to embrace long-termism, and maybe Ruimin’s ambitious experiments will give a sustainable model to support innovation to inject a new growth mentality in Haier.

Haier has entered a new phase of its strategy, Networking Strategy. Essentially the strategy states that Haier will be producing products that meets the personalized demands of the consumers. They employ tactics such gauging customer feedback in social media forums. Ruimin moves further by adopting Open Innovation that has these tenants; user personalization, product innovation acceleration, and industry disruption. Its emphasis is “The world is our R&D center” through a focus on the customer.  Only time will tell whether he’s successful, but Ruimin’s entrepreneurial vigor has already produced a success, the Tianzun or Heaven in Mandarin which reflects this approach and its core principle of “customer service leadership.” Even the slogan comes from its customers that want to feel “Cool, not Cold.”

The major component of the restructure is splitting off existing units into smaller ZZJYT (zi zhu jing ying ti; Independent operating unit) which act has independent start-ups that compete for resources from corporate.  Haier maintains the corporate function in accounting, finance, and human-resource support. This is akin to a network of micro-enterprises with corporate acting like a venture-capital incubator. Ruimin has also taken a tactic from Zappos playbook by adopting Holacracy, a flat management system. The outcome is a customer focus embedded into these ZZJYT’s. With autonomy and control over various functions (i.e. R&D, marketing, sales and finance) to properly leverage the internet to connect with customers and each other. Most certainly, their short-term bottom line will have critics worried, but the new Haier might pan out and give critics those double-digit growth numbers they’ve been craving. Since this a long-term strategy, increase in profits and revenues maybe compromised as they invest in new ventures from the ZZJYT’s.

-Eric Dominguez

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