The BBC recently published an article about the transformation of the Chinese company Haier. The article opens by
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mentioning the sledgehammer on display in the company’s boardroom. I will come back to the symbolism of this momentarily. So the story begins: In 1984 the Qingdao Refrigerator Plant was a failure. It produced terrible products and was effectively bankrupt. Sent in by the municipal government to turn the ship around, Zhang Ruimin took control of the company.
Initially, he made two decisive moves. First, he quickly arranged for the company to borrow money from a workers coop in the surrounding countryside which enabled them to pay employees and continue operations. Employee morale was at its nadir. Second, Ruimin gathered the factory’s employees and had 76 defective refrigerators smashed with sledgehammers in front of them. Thus began Haier’s quest for quality. The article goes on to describe how Ruimin has essentially fused western management philosophy with eastern thought, fusing together a highly competitive strategy. The companies strategy is distinctive and enabled it to succeed in a way that few Chinese companies have matched.
Haier describes its model as the “win-win” model, and seeks to match products closely to customer needs through increased communication business-wide. In doing so management has been aggressively decentralized. The company of 80,000 employees is broken into numerous mini-enterprises with their own profit and loss statements. Each group leader knows three bad months and they will forfeit their job to a “shadow manager” who was named in advance to step in following a groups failure. This has led to high performance in all divisions of the company. Ruimin contends “We’re still in a trial and error period and we are still exploring new models.”
Clearly, past strategic efforts have paid off. Haier is one of the only Chinese companies that from the start targeted western consumers with high-end goods, developed in China. Some of the technology did come from Leibherr, its German JV partner (Author Peter Day was not very descriptive about it). However, Haier improved quality and was successful in targeting the German and US market. The story of Haier and Zhang Ruimin is truly incredible.