Zhang Ruimin: Achieving Excellence through Reinvention of Business Model and Corporate Culture at Haier
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Case Code: BSTR477 Case Length: 13 Pages Period: 2012-2014 Pub Date: 2015 Teaching Note: Not Available |
Price: Rs.300 Organization: Haier Group Industry: Consumer Appliances Countries: China and Global Themes: Business model reinvention, Corporate Culture, Innovation, Customer Engagement |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Zhang Ruimin and the Sledgehammer Story
In December 1984, Zhang Ruimin (Zhang) was appointed the director of the Qingdao General Refrigerator Factory to turn the company's fortunes around. It did not take Zhang long to realize that the Chinese consumers were unhappy with the quality of the products his company was making. He saw too that the company would lose its market share if it did not come out with quality products, and that it would eventually be driven out of business, given the fact that domestic and foreign competitors were making their mark in the Chinese consumer appliances market. Hence, Zhang decided to leave the unprofitable washing machine market altogether, and to focus exclusively on the more promising refrigerator market.....
Forming the Haier Group
Zhang noted that quality issues were not the only problem plaguing the Qingdao General Refrigerator Factory, there were other major issues such as lack of discipline and order among the workers, who had no incentive to work at all. According to Xie Jingchang (Xie), senior staff member of Haier’s Enterprise Culture Change, "Zhang saw two bad things had been hampering the factory: inferior-quality products and too large an inventory. You may not know that the way of the government in factories was to have reservoirs. Reservoirs hold a lot of inventory, in hope that, someday, someone will want it. In those days, there was no competition, and there was no issue of demand and supply.....
Fostering a Culture of Internal Competitiveness and Innovation
In the 1980s and 1990s, Zhang realized that merely meeting targets was not good enough; the focus had to be on the important aspect of employees showing consistent improvement over time. Haier had a management model called OEC (O stood for Overall; E stood for Everyone, Everything, and Every Day; and C stood for Control and Clear), which stated that each employee should finish the assignment of the day, add a little more to what had been done the previous day; and thus attain a 1 percent gain in productivity. Zhang's focus was not just on shaping the employees by rewarding or penalizing them but on using the OEC as a first step in altering the mindset of employees, or, as he described it, their culture.....
Reinventing Haier
Zhang decided to have a three-step goal, each step taking about seven years, to turn around the company. He said, "The first was to establish a brand name. It was something new in China to have quality design in appliances. In 1984, there were three hundred refrigerators factories, most of them making poor products. We wanted to distinguish ourselves, and eventually we did.".....
The Results
Industry experts felt that Zhang's focus on reinventing Haier's business model and corporate culture, identifying it as a key strategy to develop the brand, had paid off. According to the 2012 World's 50 Most Innovative Companies list published by the Boston Consulting Group, Haier was the only Chinese company in the top 10, as well as the top-ranked consumer product retailer.....
Looking Ahead
By December 2014, Haier had some 200 "micro-enterprises" out of which only 10 percent had become fully independent and were able to earn all their revenues through market-oriented innovations. According to Zhang, "It takes time, as it inevitably will, for workers to adapt to the change and to tap the new resources they can use."....
Exhibits
Exhibit I: A Note on the OEC Management Model
Exhibit II: The Three Stages of Haier's Management Mode Innovation
Exhibit III: Haier's Organizational Structure
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