In this latest episode from the Boundaryless Conversations podcast, hosts Simone Cicero and Eugenio Battaglia interview Professor of Innovation Management, IMD Bill Fischer.
Bill is a long time advisor to Haier Group Chairman Zhang Ruimin, who led Haier from a near bankrupt refrigerator manufacturer to the largest appliance and smart home provider in the world. Zhang’s RenDanHeYi philosophy, which translates roughly as the union of employee and customer or zero distance between employee and customer, has guided Haier’s 35 year transformation from a traditional hierarchical corporation into a loosely-coupled ecosystem of micro-enterprises.
Although the topic of the conversation was about how incumbent organizations will respond to the emergence of platforms and how their organization models and cultures may evolve as a result, much of the conversation centered on Haier Group and their pioneering microenterprise model.
Here is a brief summary of the conversation followed by my thoughts.
The conversation started off about how large organizations lose their entrepreneurial spirit as they grow and scale and how they inevitably expand the ranks of middle management as a result. Simone shared that Haier eliminated their middle management layer, nearly 12,000 people, in the process of implementing their RenDanHeYi model. To respond to the networked world and implement zero distance between employee and customer, Haier transformed their bureaucracy into software and distributed strategy and innovation to the edges of its organization. Simone wondered if this is possible for other incumbent organizations. Bill replied that leadership is critically important to instill a culture and entrepreneurial spirit where people really are looking forward to change. They discussed three things necessary to make this kind of transition: organizational design, technology, and a change friendly and entrepreneurial culture.
The conversation then shifted more generally to how organizations need to change and transform in a way that embeds and integrates these new ideas of platforms, ecosystems and network structures. They discussed the need to expand participation in the innovation process beyond traditional organizational boundaries to include not only business partners, but non-employees and communities themselves as a result of technology (e.g. IoT) changing the relationship between provider and customer (multiple ongoing touch points between smart device and user).
The conversation then moved to the importance of cultural change in addition to organization structure transformation. There was discussion that Rendanheyi has achieved something that resonates with all different stakeholders — a move away from internal competition up the hierarchy toward collaborating in service of the customer. Again, the importance of visionary leadership was stressed in making this happen.
Finally, they discussed examples of companies that have made cultural transformation and concluded that many of them made a conscious effort to help middle management figure out how they could add value in an organization that no longer had that middle management role. In Haier’s case people were given the decision to become founders and entrepreneurs in micro-enterprises and eventually asked to collaborate in shared, scalable learning across micro-enterprises. And it has been a process that’s invigorated and motivated people to reach their potential.
My thoughts on the Haier model
The Haier model is nothing short of miraculous in that it is an incumbent that has embraced ecosystems and is on a journey toward decentralization. They are showing other incumbents that there are benefits to traditional organizations that embrace decentralization and go beyond just thinking of ecosystems as a business model to be leveraged. In the future, I believe that all companies or perhaps a better term would be all future economic value engines will look more like Haier’s entrepreneurial micro-enterprise communities.
Spiral Dynamics and Haier
Let’s explore for a moment what Haier has done in terms of the mindsets and organizational models in Spiral Dynamics. My impression of Haier’s model is that it is a tier one orange vMeme economic model. What’s unique about it is that it demonstrates a key characteristic of tier two mindsets — the willingness to let go of unhealthy aspects that typically accompany a particular worldview and emphasize the healthy attributes. Let’s look at the healthy and unhealthy attributes of the Orange mindset:
Healthy orange: Result-driven, curious, explorative, thinks strategically, pragmatically solves problems, takes risks, entrepreneurial
Unhealthy orange: calculating, manipulative, exploitation of environment, not taking responsibility for externalities, too busy, lacking empathy
What I see Haier doing is letting go of the bureaucracy that frequently demonstrates the unhealthy aspects of the orange worldview as it relentlessly drives and competes for power and loses sight of creating value for customers. This is fascinating because of what one typically sees in transitions from the orange to green mindset. Whereas green thinking typically looks at the orange worldview and capitalism as the root of all evil (remember tier one mindsets compete with each other), the tier two yellow mindset seeks to keep what’s good about orange and let go of what’s bad. This is what I see Haier moving toward. They are letting go of unhealthy orange behaviors and preparing for a tier two world.
Zooming Out From RenDanHeYi Culture
Simone has said previously, platform thinking needs to “zoom out”, and integrate a higher order of human systems complexity. With that in mind, what’s beyond what Haier has done? Let’s look at a possible cultural and organizational progression through a Spiral Dynamics lens.
As I’ve said, I believe RenDanHeYi is a healthy expression of the orange vMeme. How might that evolve?
Green — from RenDanHeYi to RenShèquHeYi
If “Dan” represents “user needs” in a philosophy of zero distance between employee and user, then a green philosophy might replace “Dan” with “Shèqu”, which means community to arrive at a concept of zero distance to community. This might include:
- Expanding participation and economic opportunities within entrepreneurial micro-communities to individuals, prosumers and local communities.
- Enabling a prosumer long tail
Yellow — From RenShèquHeYi to RenSuöyöuShèquHeYi
A yellow philosophy might replace community “Shèqu” with “SuöyöuShèqu”, which means “all communities”, to arrive at a concept of zero distance to all communities. This might include:
- Expanding membership and governance within entrepreneurial micro-communities in a glocal or cosmo-local model
- Holding assets in common in open value networks with contributory value accounting to increase incentives, agility and resilience
- De-emphasizing corporate identity in favor of ecosystem identity. For example, a micro-community around the internet of clothing becomes the ecosystem’s strategy rather than a Haier competitive advantage. That is, it’s no longer about Haier.
Turquoise — From RenSuöyöuShèquHeYi to RenDìqiúHeYi
A turquoise philosophy might replace all communities “SuöyöuShèqu”, with “Dìqiú”, which means Earth, to arrive at a concept of zero distance to Earth. This might include:
- Embedding global resource thresholds and allocations with real-time reporting on resource use and implications to ensure we remain within global thresholds for use
- Accounting for externalities in peer to peer accounting for planetary survival
Closing thought
I’m truly excited about the Haier model because it is a shining example of how a traditional centralized entity is embracing more egalitarian and decentralized models. It also demonstrates that there is a path for collective cultures and mindsets to become mainstream. With that said, a scene from the movie Jurassic Park keeps coming to my mind when I think of Haier and the more broadly the Smart Home space. It reminds me that a healthy orange model is not enough. In the scene, chaos theorist Ian Malcolm responds to Park founder John Hammond, who plans to create an amusement park with live dinosaurs genetically engineered from ancient DNA.
“Your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.”
When I think of what Haier is doing in the Smart Home space, it has me asking myself: how smart do our homes need to be and how many smart homes can the earth support?