A Chinese business model for the Internet age

A shop assistant adjusts a Haier air conditioner in a store in Queens, New York. [Photo/China Daily]

China's economy is in transition. So is every part of it. But what does that mean? Higher productivity, less waste, and more dependence on the domestic consumer market - the answer commonly goes. But for Zhang Ruimin, leader of Haier Group, one of the largest electronic and electric goods manufacturing companies in the country, transition means much more.

Interviewed recently, Zhang said he wants to create a new type of company - not a hierarchy, but a service-oriented platform of innovative groups and creative individuals.

Since the launch of reform and opening-up in 1978, China has imported and adapted international business theories and practices. But the winds of change may be coming as some of the more successful Chinese companies are trying to pursue their own innovative ways to work in the market.

Zhang Ruimin, chairman and CEO of the Haier Group, recently talk about how the company, one of China's largest manufacturers of electronic and electrical appliances, is pioneering new values and practices in its organizational management.

Zhang not only wants to make Haier a big global company, but also a business "platform" where different Haier teams offer niche services to customers.

He says that requires the company change its old pyramid-shaped, command-and control-based organization into a "flattened" community of small business organizations that, to a large extent, are self-managed.

And that is a revolution in Zhang's traditional power as CEO.

"What power?" Zhang asked. "The bosses are not customers, why should the workers listen to them?"

In Zhang's model, the CEO can only earn his authority from the consent of the small "enterprises" operating on the company's platform. The CEO's responsibilities are to coordinate the "system", and to provide expertise-based services to the different units that are essentially self-managing.

There have already been some 200 "micro-enterprises" under the Haier umbrella. But up to now, only 10 percent have become fully independent and able to draw all their revenues from market-oriented innovations. "It takes time, as it inevitably will, for workers to adapt to the change and to tap the new resources they can use," he said.

Haier still doesn't have a mature organizational model, Zhang admitted. But he is quite clear about its basic goal. That is for it to become a company of many innovators and implementers, a company of "makers" who are good at combining new technologies and practical skills.

Zhang has been active in explaining his new management concept at various business forums, although he says it is still too early to obtain tangible results and solid data from the structural change he has initiated.

"As a direction for progress, I think this is absolutely correct", he said, although he noted that such a change will unavoidably meet many uncertainties along the way and will have to avoid contracting the so-called large-enterprise disease, such as rampant bureaucracy. But the key, he stressed, is that in the "Internet age" it needs to be done.

Since 2013, Haier has radically restructured - cutting 26,000 positions for middle-level managers in a company that had 86,000 employees in total.

Zhang explains business in the Internet era has three main characteristics: zero distance from customers, centerless organizations and distributive use of resources.

"Hanging on to the past is just impossible," said the 65-year-old industrialist.

Following these new characteristics of the times, Haier's ongoing organizational change aims to make the company into a platform that encourages employees to become innovators (or "makers", in Zhang's own word) by utilizing the resources within the company and on the Web so they can provide customized products and services to satisfy the demands of customers.

By transforming Haier into an open business platform, Zhang said he hoped that the company would enable customers to access services provided by some of the most intelligent people in the world.

Zhang's determination to pursue change comes from his deep conviction that Haier's growth up to now is mainly a result of its following trends rather than creating trends.

"When a storm comes, pigs can also fly in the sky - although they don't know why," he said.

During that storm in the early 1980s, Zhang turned a bankrupt State-owned refrigerator factory in the coastal city of Qingdao, Shandong province, into a company that takes in 160 billion yuan ($27 billion) in global revenue now.

To achieve that, the company has been engaged in a constant learning process, whether adopting the Total Quality Management from Japan in the 1980s, or the Six Sigma management model from the United States in the 1990s.

"But these models are losing their shine in the Internet age," Zhang said, and so, braving all kinds of criticism and disbelief, he is courageously pursuing his own model.