How to Reinvent a Business: The Secrets of Haier CEO Zhang Ruimin

It’s rare that a CEO would be associated with something as humdrum as a sledgehammer. But that’s exactly what comes to mind at the mention of Zhang Ruimin.

When he was sent to try to revive the failing Qingdao Refrigerator Plant in 1984, Mr. Ruimin would not have anticipated the level of difficulty that the company was experiencing. Among other shortcomings were the perpetual complaints from customers who had paid premium prices on damaged fridges.

In a move to do away with the old and usher in a new company, Zhang gathered his workers at a yard, armed them with sledgehammers and asked them to destroy 76 low quality refrigerators.

This was a symbolic start of a series of reinventions that would transform the Qingdao Company into Haier, the world’s largest manufacturer of white household products, employing up to 80,000 workers globally.

Here are a several lessons on reinventing a business in the face of pervasive change:

Anchoring your brand on quality and service

Haier is one of the very few Chinese brands with a global market. But it wasn’t always this way. Like most companies in China at the time, the Qingdao Refrigerator Company was producing substandard products and then sold them at a premium due to the immense demand. However, Zhang realized that this model was unsustainable in the long term and he completely overhauled the production and quality process. The process began by branding the products, which were initially unbranded. Zhang also created expectations of quality and service, and entrenched these elements to become Haier’s organizational culture.

From responsiveness to intimacy

Following his success in fostering a culture of service and quality in the manufacturing process, Zhang’s next step in the reinvention course was to reach  out to the customers. He did this by fostering a win-win business model that would facilitate the move from responsiveness to intimacy. So far, Haier had been responsive to the needs of its customers by offering high quality products and reliable services.

The prevailing slogan in the company concerning customer engagement is ‘zero distance from the customer.’ How does Haier do this? The 80,000 global employees are  organized into small, organization-like teams with profit and loss accounts. These teams are however catering to the needs of internal customers.

The teams are made up of a manager, product designers and those who make the products.

Teams get product ideas by keeping in close contact with customers. If an idea is viable, the team goes to work to produce the product.

Replacing silos with fluid structures

To ensure that workflow, communication, manufacturing and all organizational processes flow efficiently and uninterrupted, Zhang eliminated the middle management tier. In effect, the workers can easily access the top management to obtain approval for product ideas.

Haier’s top management also eliminated departmental silos to foster a true spirit of teamwork, competition and entrepreneurship. So, instead of assigning projects to specific departments, workers are allowed to bid on a project, create a team and implement the project.

Other than encouraging organization fluidity, this method also fosters a culture of innovation, nurturing of talent and a people-centered business.

Strong management is indispensible

Zhang is a pioneer and proponent of the ‘management without leaders’ business model. However, the success of Haier would not have been possible without a strong top management. Evidentially, reinventing a company or building one to attain such great success requires charismatic leadership; a leadership that anticipates change and one that is completely open to input from bottom tier workers.

The Success Continues

The internet continues to revolutionize how Zhang Rumin and his company reach out and engage with customers. Customers are able to get in touch with product designers, and the designers are able to directly interact with those who make the product. In many ways, Zhang’s aspiration for ‘zero distance from the customer’ is what makes the business so successful.

How can you effect a zero distance from the customer policy in your business?