Haier’s Chairman, Zhang Ruimin, is one of the world’s most well-known management thinkers, at least in the rarefied world of business strategy and management. His innovations in organization and management are revolutionary, and his vision of where the world of business is headed is a radical departure from business as usual. Haier is the best case study I’ve found for the promise of platform ecosystems and organizational society, as explored in the next section, but we have to revisit Haier’s past to understand the evolution of Chairman Zhang’s thinking over time.
However, Zhang’s vision and the innovations he has introduced at Haier are not generally known in the larger context of business in the West. This is partly due to the fact that Haier is based in China, and until the past decade the company’s products and brands were not well-known outside of Asia. However, Haier is now a global concern, and its practices are becoming more well-known through a growing number of articles and case studies that have been published in the past decades.
Additionally, the organizational revolution that Zhang ushered in at Haier is the model known as Rendanyehi, a term coined by Zhang from three Chinese concepts, and no corresponding term has been created in English to use as a synonym. The term is based on three elements:
- ‘Ren’ means ‘people’, referring to the participants (employees or workers) that comprise the organization. (Note I use the general term participants since in a multi-organizational context participants may work in different organizations, or may be freelancers.)
- ‘Dan’ (‘order’) represents the needs of the user or value to the user, which is foremost.
- ‘Heyi’ (‘combination’) refers to the combination of user value and participant value, where participants can be anywhere in the ecosystem, as employees of Haier or partners.
Chairman Zhang put it this way:
With the RenDanHeYi model we truly enter the network age. But the network aspect is not even the most important. What is more important is that we no longer try to delegate to, or ‘empower’, employees.
It’s now time for every employee to be his or her own boss. Even Peter Drucker told us that ‘everyone can be a CEO’. And if everyone acts as a CEO, we will grow collectively as an enterprise, and no longer be dependent on a few key people.
So, with the RenDanHeYi model we move away from being like an empire (with a traditional, closed pyramid) to be more like a rain forest (with an open networked platform). Every empire will eventually collapse. A rain forest, on the other hand, can be sustained.
Literally, “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.
Notably absent is the idea of managers calling the shots, or employees being told what to do. Rendanheyi is an entrepreneurial philosophy, in which the participants — individuals or groups working cooperatively — first and foremost consider the end user as their ‘boss’: meeting the needs or the end user is the prime directive. In this way, the perception of the dynamics of the organization shift in the minds of the participants. In Rendanheyi, the participants are ‘working for’ the end user, not for ‘the company’ or for ‘management’.
One way to visualize this shift is moving from a vertical conception of an organization, based on the contemporary norm of management hierarchy, and replacing it with a horizontal model, based on the user-centric dynamic that Chairman Zhang proposed.
Haier has undergone a number of transitions, leading to the development and maturation of the concepts that animate and underlie Rendanheyi. These can be compared to the social evolution model of David Ronfeldt, as explored in section 1.
Haier has undergone a sequence of transformations that mirror the social evolution model.
In the earliest days, Haier had a single factory and was a nearly bankrupt refrigerator maker. When Zhang took control in 1984, the company operated like a tribe. He rapidly reorganized the company around the goal of making higher quality products and defined the company’s obsession with quality by famously destroying defective refrigerators. This shifted the thinking of the workers toward the end user of the product, not just production quotas.
Over the next few years, Chairman Zhang transitioned the company into a small and then larger hierarchical, siloed organization, in several stages. First, Haier underwent a leadership-driven transformation to a customer-focused flat hierarchy and an organizational culture of entrepreneurialism. by 1998, Haier was a leading Chinese appliance manufacturer, and ready to expand internationally after acquiring many local competitors.
Chairman Zhang developed the concept of ‘micro-enterprise’ — small, agile, organizational entities that create or manage products for specific end users — in several stages. In the broadest sense, chairman Zhang’s vision is that the company should be viewed as a society of micro-enterprises that serve their many customers and which may interact to create and deliver value.
In that philosophy, the role of central leadership is understood to be creating a context in which customer-focused innovation at the edge by ‘micro-enterprises’ can drive the company forward. In essence, this embodies the Peter Drucker dictum, ‘Management is a necessary evil, so there should be as little as possible’.
In such an organization, instead of managers directing people, the participants in micro-enterprises follow the principles of Rendanheyi focused on meeting customer demands. This is really a form of self-organization, since the members of each micro-enterprise have great latitude in how to deliver value to the end user.
True to the spirit of self-organization, members can form a micro-enterprise by entrepreneurial approaches. They can in effect petition the company to access the equivalent of venture funding. To gain such funding, the members would have to be able to demonstrate demand, such as customer orders for a new product, or investment from a partner company. Alternatively, the company might run a competitive challenge for proposals to undertake a new product, and select the best proposal. And in some cases, a group might propose to take over an existing product line or micro-enterprise that is not doing well. And there have been cases, I’ve been told, when a new micro-enterprise is spun out of an existing one.
Chairman Zhang early on saw the impact of the internet on the world economy and the structure of business. He realized that the flat hierarchy he had built in Haier — even based on a command-of-teams sort of organization — need to become truly a networked organization. An organization that is as horizontal as possible, and with as little vertical hierarchy as possible. ‘Micro-enterprises’ formed by entrepreneurial teams based on unmet needs of customers, and enlisting others — suppliers, partners, other micro-enterprises, platform partners — to get new innovations to market. This focus is not only good for the business, in increased profits, but good for all participants involved, as individuals are given more opportunity for growth and finding meaning and purpose in their work. And of course, the customer has an improved experience, and greater opportunities for customization.
In the most recent era, Haier has pushed into networked technologies — such as connected smart appliances, Internet of Things, and communication tools — that began the process toward a full-up platform organization. Haier has developed state-of-the-art platforms — like the HOPE innovation platform, and the COSMOplat supply chain platform — and is involved in the transition to a full multi-organizational ecosystem involving employees, partners, suppliers, and customers.
Haier has become an international powerhouse, acquiring famous brands like GE Appliances, and assuming the role of the world’s largest maker of appliances. This is the outgrowth of the application of Rendanheyi, as well as the strategic successes the company has achieved in China and globally.
Chairman Zhang has laid out a vision of the next era: the rise of platforms and the emergence of ecosystem economics:
There will not be a future for the traditional enterprise. The platform organization will be the future. Many platforms will be built, and decentralization will be very important. Competition in the Internet era is not between companies, but between platforms. You either own, or are owned by, a platform.
The platform era will be driven by the fourth industrial revolution, and the communications and information technologies that will support platform ecosystems to flourish (as discussed in section 1). This will start with modern highly scaled computing platforms, but supporting platform protocols that allow ecosystem members to cooperate. This will also involve AI and augmented reality, 5G, and a long list of other emerging technologies that leapfrog ahead, especially platform-based communications and information technologies.
To us in the West, Amazon is perhaps the leading example of a platform ecosystem. Its e-commerce platform involves millions of partners and hundreds of millions of customers. And with each purchase, new customer, or new partner, the value of the ecosystem goes up for all parties, as well as for Amazon.
In the following section I will explore the transition to the economics of platform ecosystems, as chairman Zhang elucidates in his comments, above.
Unlike institutions, ecosystems increase their efficiencies as they grow more complex, like cities do. Instead of chaos, complexity in self-organized systems leads to emergent order, as Henry Mitzberg told us. (These economics are explored in more detail in the next section, The Future of Networks: Platforms and Ecosystems.)
So, we are transitioning to platforms that natively support ecosystems, and the organizational form best suited to this is the team of teams model, such as Rendanheyi.
Platform ecosystems will favor the ‘team of team’ organizational model for the companies participating.
Platforms take on some of the work that markets have been doing in earlier eras, with platform protocols reducing friction in cross organizational and cross-team interactions, and avoiding conflict even in competitive situations.
And the efficiencies take place on several dimensions. Since teams are ‘microenterprises’ — to use the Rendanheyi term — and they can run in parallel, non-linearly.
In such a context, the role of senior leaders is quite different and requires a radical redefinition.
As Chairman Zhang has said, the job of the senior leader is that of a gardener, growing a context in which the entrepreneurialism of all teams can find green fields to bloom and expand. That means leading without directing and creating a context in which others can make their own decisions.
General McChrystal said that the general in today’s world is not playing chess, and the teams and resources at their command are not pieces to be played.
In the Rendanheyi organizational society, each participant, each micro-enterprise determines their own course, shaped by the needs of the user they are focused on. And the senior leadership seeks to remove barriers to their success, and to encourage interconnections between platform participants, to foster healthy adaptive ecosystems.
The Haier Paradox
I have been struck by a phenomenon that becomes evident when you study the story of Haier’s social evolution and the company’s success. I call this phenomenon the Haier Paradox.
Tens of thousands of individuals and organizations have heard about Haier’s success and the Rendanheyi revolution, and visit Haier to learn more. However, very few companies even attempt to adopt the basic principles of Rendanheyi. Why?
My sense is that there are a number of factors.
- Looking at the history of Haier, we see that the company made a series of changes over a long period of time, and not a single giant step. It’s safe to assume that changes of this magnitude require multiple stages, and years of work at each stage.
- Based on what we know about organizational change in general, undertaking any sort of social evolution — and especially to the networked and ecosystem eras will require assistance — consulting, training, and education — as well as the costs associated with either creating an organizational platform, or acquiring and customizing one. Perhaps some micro-enterprise needs to be formed to offer that consulting as a service, and to help others adopt the Haier model.
Ecologists have learned an important lesson when they have tried to recreate complex ecosystems, like reintroducing the temperate savannah in the midwestern US or a reef ecology in a marine research lab. It is not enough to simply mix together all the participants in the ecosystem: that will fail. The various species of animals and plants have to be reintroduced in the proper order, and sufficient time has to pass after each reintroduction before additional species can be brought in.
So, the social evolution from a conventional institution, like Haier in 1984, to a platform-based and horizontal organizational society must be handled like the reconstruction of a reef, or the transition of a town to a city: adding the right elements in the right order at the right pace.
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