Haier boss sees future in the internet

At a staff conference last summer at Qingdao-based Haier Group, the world's largest white goods manufacturer, the firm's chief executive gave an ominous warning: 10,000 out of its 70,000 workforce worldwide would lose their jobs. But unlike the usual lay-off warnings, it came with a soothing caveat - outgoing employees were welcome back if they had a credible business plan.

The unusual offer was part of an attempt by Zhang Ruimin, who is also Haier's chairman, to turn the company into what he likes to call an "entrepreneurial platform".

It is part of a continual process of reinvention that dates back to 1984, when at 35, Zhang was first handed the stewardship of the then struggling state-owned appliance maker.

"One of the things that Haier has done very well is to really think strategically about when it's time to give up the old and embrace the new," said Bill Fischer, a professor at IMD Business School in Switzerland and author of Reinventing Giants, an analysis of Haier's growth.

The recipient of countless industry accolades, and recently ranked 22nd by Fortune magazine among global figures from business, politics and society for "energising their followers and making the world better", Zhang is in year three of a campaign to eliminate the middle management from a firm that posted 180.3 billion yuan (HK$224 billion) in revenue in 2013.

The idea of a nimble behemoth, where employees and ideas have space to flourish free of corporate hierarchy stemmed from a vision of business in an internet-dominated future. For Zhang, staff are either front-end in direct touch with consumers and the marketplace, or in upper management and support roles.

Even among senior executives, employees are expected to join product development teams and pitch ideas to a selection committee that hands out start-up capital and resources to concepts that past muster.

"A flat management structure empowers managers to look for new areas of growth," said Nicholas Studholme-Wilson, an analyst at Sun Hung Kai Financial who maintains a "buy" rating on the group's Hong Kong-listed Haier Electronics.

By cutting salaried headcount, the company can also keep boosting average employee profitability at a time when global growth in household manufacturing goods is stagnating.

On a recent visit to Qingdao, Fisher met a team that had commercialised a touch-screen games console called Thunder Storm. The former Haier staff were backed with Haier money but worked for themselves.

"As a Haier executive, my goal is no longer to be a maker of home appliances, but to be an agent of interaction and networking among people who might be anywhere. I want to turn Haier into an internet-based company, a company unrestricted by borders. Whoever is capable, come and work with us," Zhang said in an interview with Strategy+Business magazine.

Now the world's largest seller of large home appliances by market share, according to Euromonitor, Haier was close to bankruptcy when Zhang took over. Quality was slipshod until Zhang famously handed out sledgehammers to staff a year after taking over and invited them to help smash 76 faulty refrigerators. The event quickly passed into company lore and one of the hammers used now hangs at the National Museum.

A fastidious follower of international management techniques, Zhang quickly introduced notions of quality control to the factory floor, and borrowing heavily from German manufacturers, he focused on building one of China's first household brand names.

Zhang thinks contextually and is intensely curious, says Fischer, who rates the Haier boss as one of the world's top business minds. "He has met everyone and read everything … Most executives are indifferent to what goes on around them. The thing we learned from Haier is that if you don't have strong self-confident leaders at the top, you can never unleash the voices from below, because an unconfident leader is suspicious, threatened by people from below."

One idea introduced early on: encourage workers to believe they can design the next super gizmo. This led to some zany products: potato washing machines and fridges with no exposed wires for rats to nibble through, all targeted at niche markets, often rural or lower income that were ignored by competitors.

Haier's big breakthrough in America, its largest overseas market, reportedly came from designing mini fridges aimed at university students in dormitories.

Back home, the group last year teamed up with Alibaba, the country's largest e-commerce group, which injected HK$2.8 billion into Haier Electronics to help build out its logistics network. For a fee, rival manufacturers and other third-party distributors will be able to piggyback Haier's Goodaymart-branded logistics chain, which boasts 2,400 franchise stores and 190,000 village "liaison stations".

"His organisation has made change normal," said Fisher. Elsewhere, "change is something people want to avoid".