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Zhang Ruimin. Photo: Reuters
Zhang Ruimin. Photo: Reuters

Challenge yourself, overcome yourself: Haier’s Zhang Ruimin

If you don't change or transform, you might not look like you've failed, says Haier CEO Zhang

It’s a story that has become part of business folklore in China. In 1985, Zhang Ruimin, the young general manager of loss-making Qingdao Refrigerator Plant (now known as Haier), decided it was time to turn things around. He got his factory workers to smash 76 defective refrigerators with sledgehammers. To drive the point home that there would be no tolerance for low quality, he delivered the first blow himself.

Three decades later, Haier is the world’s largest white goods manufacturer and boasts cutting-edge innovation. Now chief executive officer, Zhang has led the company through several path-breaking business model changes. He is now leading the company through yet another transformation. He is, in essence, “breaking up" the company. The enterprise will, in effect, become an investment platform, and the departments and divisions will be like entrepreneurial teams, which he calls “microenterprises".

Zhang summarizes his management philosophy as: “Challenge yourself, overcome yourself". Edited excerpts from an interview:

Even when Haier was a very small company, you would benchmark it with the best in the world, like GE (General Electric). Also, your strategy was to go to the more advanced countries first. Why?

Compared with those brands, Haier was significantly lagging behind (when I took over). The best way to narrow the gap is to compete with them on the same stage. By doing this, our shortcomings would be exposed. We have learnt a lot from competing with GE and, of course, from cooperating with GE. We absorbed GE’s Six Sigma and many other lessons. For Haier, it was more about learning while competing with those well-established brands.

How did you foresee that the current business model was becoming obsolete?

We felt the threat a few years back and the chief reason is that the boundary between an organization and customers no longer exists. E-commerce platforms are able to reach a broader user base and offer much lower prices. In other words, the Internet blurred the line between organizations and consumers. In a sense, we were forced to make a change. Hence, we came up with the model of connecting orders with personnel because if we want to meet users’ particular needs, we will have to connect the staff with the users. In order to succeed in this, the old structure must be dismantled.

You have changed Haier several times already and you are doing it yet another time. How easy is it to mobilize an organization (of 70,000 employees when you started this journey) towards a radically different way of working?

This is a very key issue because transitions will inevitably affect some peoples’ interests. We have many senior executives sitting high on the hierarchy and their status might be lowered after the transition. There also are some people who joined Haier very early and they might be a bit, so to speak, “outdated". They might be left out as time goes by.

The path we took is to change people’s mindset first. Do people agree to transition? They might say no. But if we don’t change, we might end up in a deadlock. A company is like a very delicate machine, which is very dangerous in the Information Age. Now we’ve convinced people that in today’s context, a company must be made of an army of smaller enterprises.

How have your leadership skills evolved during different stages of Haier’s growth?

There actually is a guiding thread right from the beginning. First and foremost, we will always challenge ourselves. This is rarely seen in other enterprises, which stick to the model that made them successful. We have always been a firm believer of the notion that time will always change ahead of us. Hence, if we realize that it is time to change and make a move before the actual change happens, we might still have a chance. So whether we are speaking of leadership style or corporate culture, this is a very critical guideline for us.

Major transitions also create a sense of unease among employees. Comfort zones vanish. To what extent is this healthy or unhealthy?

Although Haier has been through several transitions, the current one is totally different from the previous transitions. We set clear goals for our previous transitions, and we were learning from Japanese or American enterprises, because many big international companies have had similar experiences. However, nobody has experienced the current transition before. We can’t learn from other enterprises at all, so we have to start from scratch. Regarding employees, this has a huge impact on them. In the past, employees would do what they’ve been told, while now they have to build a business of their own. This is extremely different. But we are not transitioning in one go, but gradually letting them adjust to the changes.

How does Haier as an organization view failure?

This is a key issue. If you don’t change or transform, you might not look like you’ve failed. But in that case, the entire organization will become a failure. If you do, failures are inevitable. For me, I need to think of how I can curb the failure ratio. Microenterprises must be industry leaders and they need to be evaluated as well. If the microenterprises are not performing well, they will be told to stop. Now we are trying to keep the number of failed microenterprises as low as possible. Although it sounds easy, the real management is much harder.

Read an unabridged version on www.foundingfuel.com, printed in an exclusive partnership with CKGSB Knowledge.

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