HAIER

The Chinese electrical goods maker Haier beloved of business schools has yet another radical shift in mind. Zhang Ruimin has many of the attributes of a leader of the new corporate China. He has a deferential entourage, a willingness to make visionary public speeches, and he figures in a muchcited morality tale from the early days of Haier, the white goods company he heads.

The story goes that he ordered staff to drag 76 faulty fridges on to the street and smash them to pieces with sledgehammers, sending a strong signal of the group's commitment to quality.

But if his latest radical plans to transform the management structure of Haier are pursued to their logical end point, Mr Zhang will not be giving the orders any more. Asked if he will put himself out of a job if he pursues the decentralisation of Haier, Mr Zhang is silent for 20 seconds before he responds, through an interpreter: 'If one day companies no longer exist, CEOs will also disappear. But I believe organisations will still exist and there may be some role for a person to design the way organisations work and how they grow. Maybe my title can be changed to something like "designer for the organisation".'

The 66-year-old, an avid student of western management models, has already run through several designs for the manufacturer of electrical goods he has headed since 1984. That was when the young municipal official took charge of the city of Qingdao's fridge factory. Haier now generates Rmb200bn of revenue, has listed subsidiaries in Shanghai (Qingdao Haier) and Hong Kong (Haier Electronics) and has become one of China's most analysed companies. It is lauded by Gary Hamel, among other management thinkers, and has been written up in 17 Harvard Business School case studies since 1998. But no sooner do staff, management scholars and authors think they have understood the blueprint Mr Zhang is working from, than it is torn up and redrawn. Bill Fischer, a professor of innovation management at IMD business school in Lausanne, co-wrote 'Re-inventing Giants' about the Haier model, published in 2013. But, he says: 'Before we even finished the book, they were saying to us, "We're moving on".'

One revolutionary element of Haier's approach was, until recently, its self-managing teams and 'communities of interest', which competed internally to run the next production or design project. Haier now wants to break down even these basic building blocks. In its home country, the group is reinventing itself again as a set of open 'entrepreneurial platforms', serving - and served by - hundreds of 'micro-enterprises'. Not only will these microenterprises compete to design, build and distribute products Haier users say they want, but they will also be able to vie with one another for staff and for capital, from Haier and from outside investors. Haier is, in Prof Fischer's words, 'deHaierising'.

Its 20 platforms include its 'diet ecosystem' (based around smart fridges), its 'atmosphere ecosystem' (air conditioners and purifiers) and Goodaymart Logistics, a distribution network that is the key to fulfilling the company's promise that it can deliver anywhere in China within 24 hours. Goodaymart now operates independently, in partnership with Alibaba, the ecommerce group, distributing goods for Haier's competitors as well as its original parent. It works through some subcontracted 'vehicle micro-enterprises' (truck owners, in other words).

Mr Zhang has absorbed and put into action the maxim of Peter Drucker, whom he reveres, that the purpose of business is to create and keep a customer. At the Global Peter Drucker Forum, a conference held earlier this month in honour of the late management thinker, he made clear he wanted to go further. He says the arrival of the internet makes it vital to free Haier to respond directly and at speed to users' demands, and to customise goods that others mass-produce. One entrepreneurial team, calling itself iSee Mini, uncovered a market for televisions that projected the image on to the ceiling so pregnant women could watch more comfortably. China Daily recounted recently that another part of the group had supplied a loving son in Hefei with an air-conditioner for his calligrapher father, embossed with his dad's favourite phrase - 'God Rewards the Diligent'.

Ten years ago, Mr Zhang's job was to study the market, develop strategies, hold meetings with his managers and follow up to check they had implemented the strategies. But faced with slowing growth, Haier laid off 10,000 middle managers as part of a reduction from 86,000 to 60,000 full-time employees in 2013 and 2014. Mr Zhang claims many have found roles at micro-enterprises, such as the truck companies serving Goodaymart.

The chief executive says he now devotes himself to 'ensuring our organisation is open to outside resources'. Haier itself, while still providing some central services such as accounting, finance and human resources support, will ultimately turn into a shareholder in a network of micro-enterprises, he says, owning both majority and minority stakes. In theory, it will look more like a venture-capital incubator for growing businesses than a multi-national manufacturer. Is it an experiment? 'Yes. We are facing a lot of risks,' Mr Zhang responds. Is it a gamble? He laughs and there is another long pause: 'When faced with a huge challenge, you can choose to just sit there, but the only result is that you're going to die. We think it's a better choice to fight . . . So you could say that this is a gamble, but we have a determined direction, and that's what makes it different from other gambles.' On the one hand, Haier could slip back into more conventional ways. The longstanding dominance of sclerotic state-owned enterprises means it is hard to sustain innovative management structures in China. 'Recidivism is quite a powerful force,' agrees Prof Fischer. 'But at Haier you have younger entrepreneurs who don't have state-owned enterprise mentality.'

On the other hand, having split existing units into potentially less-efficient pieces, and given up traditional levers of corporate power, Haier's experiment could spiral out of control. Mr Zhang, always alive to new management models, has studied Zappos, the Amazon shoe-retail subsidiary that is moving to a managerless system known as Holacracy. Zappos is a fraction of Haier's size and the well-publicised transition is proving painful. But Mr Zhang says 'we don't think they're radical enough'. Haier's chief executive concedes that culture change is his 'biggest headache' and has been hard for some staff - or ex-staff - to accept. He points out that 'corporate culture can be a doubleedged sword: something that helped you become successful in the past may prevent you from future success'. Mr Zhang's determination to press on is obvious. But for all his high public profile and outward confidence, it is obvious he cannot himself predict how the Haier experiment will end.

Almost from the outset, Haier aspired to be a multinational. Its name derives from that of an early German joint venture partner, Liebherr. The group sponsors, or has sponsored, cricket in Pakistan, basketball in the US, football in Italy and baseball in Japan. But Zhang Ruimin says that becoming a multinational is not now 'our ultimate goal. Our goal is to become . . . a company that can seize the opportunity' of the internet. As for the platform approach, he says it must develop in China before being transferred abroad (although there is a Haier micro-enterprise in Russia). 'There are many local differences in other countries and it would be hard for a model that's not yet mature to be replicated on a large scale,' says the chief executive.

Questions Using the evidence in the Haier case study, and other publicly available material on the company, address the following questions:

1. Discuss the importance of corporate culture on Haier's competitiveness in the industry.

2. Describe the possible negative consequences of team conflict arising from Mr Zhang's leadership style. Suggest how Haier can avoid this.

3. Suggest the appropriate change management process Haier should undertake to ensure a smooth operation and an improved business performance.