How old-economy firm Haier succeeded without Western-style razzmatazz

How old-economy firm succeeded without Western-style razzmatazz

Created: 2013-6-18

Author:Bill Fischer, Umberto Lago, and Fang Liu

LESS than 30 years from near-bankruptcy to global leadership; reinvention at least three times; trusting nearly 80,000 people to accept leadership roles in self-organizing, autonomous work units. Is it yet another new economy, Silicon Valley razzamatazz success story? Not at all.  This is about a Chinese company making home appliances, and it’s an incredible story about what is possible in old-economy, commodity markets.
It seems as if every form of business media today has gone gaga over start-up type success stories, with a group of twenty-something Silicon Valley entrepreneurs creating yet another miracle success, seemingly out of thin air.

Yet, here is a company that was on the verge of bankruptcy in 1984, suffering from undisciplined workers, poor management, and more than 1.4 million yuan (US$228,290) in debt. Twenty-eight years later, it has become the world’s largest home appliance manufacturer with a nearly global sales presence, and revenues of over US$27 billion.

The company is Haier, now one of China’s most recognized global brands, and the products are as prosaic as washing machines and refrigerators.

While there might be some youngsters running around with new ideas, this is the story of everyday, average people, led by a mature leadership team, showing what they can do when it comes to business model reinvention.

Not another ‘China story’

Don’t let the Chinese part of this story mislead you; this is not just another “China story” of incredible wealth generation.

While China has certainly demonstrated astonishing growth and prosperity over the last 30 years, it is sobering to recall that not all Chinese companies survived the economic turbulence that accompanied this great success. Few of the China Winners have been as successful as Haier, and as a result, we believe there are lessons in Haier’s story that should be valuable to managers in any industry and any market.

Innovation has been a core competency of Haier, at least since the fabled development of a washing machine to clean up fruits and vegetables for the free markets that were sweeping across China in the mid-1980s.

But what has distinguished Haier has not been product innovation, as important as that has been, but business model innovation, with a focus on zero distance to the customer.

Under the leadership of CEO Zhang Ruimin, Haier has launched new efforts to reinvent its business model and corporate culture before a “burning platform” was required. It is so much easier to make big changes when optimism prevails and resources are abundant.

In addition, Haier has never made a big strategic move, no matter how revolutionary, without relying upon a foundation of what it already knows. Haier’s story is “revolution by accretion,” rather than revolution without references to the past. The household appliance industry in China has been a graveyard for well-intentioned, well-endowed and well-known firms.

Quite a few global household appliance incumbents literally “lost their way” in entering the China market (eg, Electrolux and Whirlpool). Some even lost their home market while attempting foreign expansion (eg, Maytag’s loss of leadership in the US market).

Haier, however, has won on the same battlefield. It has also established manufacturing plants in the US and Europe, and acquired New Zealand’s appliance giant Fisher & Paykel and Sanyo’s home appliance business in Japan.

Haier is an example of how the same daring strategic moves that we typically ascribe to new-economy start-ups can succeed in a giant, mature firm in a commodity-type business.

Bill Fischer is a professor of innovation at IMD and program director of The China Strategy Challenge. Umberto Lago is a professor of management at Bologna University in Italy. Fang Liu is a research associate at IMD. Shanghai Daily condensed the article. To read the origina, please visit: http://www.imd.org/research/challenges/china-haier-bill-fischer-umberto-lago-fang-liu.cfm

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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