Leadership for a Digital World: The Transformation of GE Appliances (Management for Professionals) 3030957535, 9783030957537

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Management for Professionals

Annika Steiber

Leadership for a Digital World The Transformation of GE Appliances Foreword by Edgar and Peter Schein

Management for Professionals

The Springer series Management for Professionals comprises high-level business and management books for executives. The authors are experienced business professionals and renowned professors who combine scientific background, best practice, and entrepreneurial vision to provide powerful insights into how to achieve business excellence.

Annika Steiber

Leadership for a Digital World The Transformation of GE Appliances

Foreword by Edgar and Peter Schein

Annika Steiber Menlo College Menlo Park, CA, USA

ISSN 2192-8096 ISSN 2192-810X (electronic) Management for Professionals ISBN 978-3-030-95753-7 ISBN 978-3-030-95754-4 (eBook) https://doi.org/10.1007/978-3-030-95754-4 The Haier Model Research Institute # The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword by Edgar and Peter Schein

The Haier GE Appliances story embodies critical lessons and principles for the twenty-first century business leaders and students of management and innovation. While we can think of great business combination successes, this case is uniquely modern in how it forces us to re-think everything, to imagine a complete and systemic transformation of a century-old American “white goods” stalwart compelled by a 1980s Chinese startup to re-emerge as something better, more competitive, more profitable, and designed for the next century. The GE Appliances model that has emerged in the last five years is frequently advocated in theory yet rarely implemented successfully in practice. It is now widely accepted that the more complex, systemic, and dynamic the business problems, the more important it becomes to push decision-making power and autonomy to the level which has the most relevant information and the capacity to act on that information. Three sets of questions arise for the typical organizational hierarchy. First, design: How low should power and decision-making autonomy be assigned, or allowed? Can an organization allow for, and design for, power to be greatest where information (market insight) is most likely to be found? Second, coordination: How should coordination between the units of the organization be managed or allowed to “self-organize” as much as possible? If top-down oversight of self-organizing is required, is it self-organizing? Third, human relationships: Can and should the working relationship between employees at all levels be open and trusting (“level 2”)? Or will the organization regress to transactional “level 1” relationships because conventional professional distance appears safer and more scalable? All three of these challenges—Design, Coordination, and Human Relationships—are, by definition, cultural problems, because the transformation requirements require rethinking some of the most fundamental assumptions of conventional management culture, such as the core assumption that organizations should organize as predictable, consistent hierarchies with power and autonomy rising as one goes up the hierarchical ladder. In today’s multinational organizational context, however, talent at all levels, especially in selected specialties, are actively creating alternative hierarchies that enable an increase in autonomy, agility, status, and compensation for those specialists most valued by the enterprise. Endowing such specialists with autonomy and self-management, whether as individuals or as groups, requires a major change in the deep underlying assumptions of leaders. v

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Business system transformation, and cultural change, is always very challenging and requires significant effort and emotional commitment, on a daily basis, from key leaders. Perhaps what is most intriguing here is the impact of two leaders from dramatically different backgrounds, along with their respective senior management teams, aligning around a shared set of new assumptions about motivating humans at work. The “micro-enterprise” approach and “RenDanHeYi” philosophy offer autonomy and responsibility instead of control and accountability. This may not sound new in the ideal; we believe it is rare in practice. What makes it work now, and in the future, may well come down to how the GEA team copes with the fundamental tensions of transformation. As they emerged from the tough days in 2015, their “survival anxiety” was a powerful and understandable catalyst for change, and hence a driving force for the Haier RenDanHeYi transformation. Yet as we know, this drive to survive can also be resisted by the anxieties associated with learning a new way, particularly such a radical proposed change. As the change equation goes, survival anxiety must exceed learning anxiety for the transformation to succeed. This case suggests, even further, a refinement to the equation, that the learning energy, both anxiety and anticipation, may have added tailwind to the survival anxiety to propel GEA to such remarkable improvement within the first five years. This is certainly an important story to understand in 2021, and continue to study well beyond, since we suspect there will be much more to learn as two aligned leaders from divergent traditions develop the vision and find the space to challenge each other to continue changing. Transformation only ends when an entity ceases to exist, and it only succeeds when humans at work are given the autonomy and trust in each other to continually refine the change to suit conditions on the ground, as close to the customer as possible. Palo Alto, CA, USA Palo Alto, CA, USA October 2021

Peter A. Schein Edgar H. Schein

Preface

Industries, companies, and public organizations will all be disrupted in the years ahead, both by digital technologies and by adjustments to the alarming onset of climate change. The context for this book is that the future will force companies to migrate to a new management model better suited for the new time, the Digital and Sustainable Age. I first observed key elements of this new approach in use at Google. My findings were published in an award-winning journal article and in my 2014 book The Google Model: Managing Continuous Innovation in a Rapidly Changing World. Then, starting early in 2014, I expanded my studies. The goal was to ascertain whether I was, in fact, on to something that might be widely applicable. So, I combed through writings by a multitude of eminent business scholars, consultants, journalists, and executives worldwide, searching for evidence on what works best for managing amid rapid change. At the same time, I widened my own inquiries to look at companies which, like Google, had become well known for their growth and innovativeness in Silicon Valley. These companies were Tesla, Apigee, and the social-networking leaders Facebook, LinkedIn, and Twitter. I found a remarkable convergence. The companies turned out to be using management principles and practices that not only were similar to each other’s, and to Google’s, but were also congruent with the best management practices identified in my global review of leading research literature.1 I labeled these practices “The Silicon Valley Model” because, at the time, the Valley was where they appeared to be most highly developed and most thoroughly applied. The results of the further study—including a detailed description of the model—were published in The Silicon Valley Model: Management for Entrepreneurship by Steiber and Alänge in 2016. Then shortly afterward, Haier, the global home appliance firm, invited me to visit its headquarters in China. People at Haier wanted to discuss their own management model, which in their view was even more advanced than the Silicon Valley Model. That visit became the trigger for my third book Management for the Digital Age: 1

Research disciplines covered were, for example: strategy, management, management innovations, management of technologies, innovation management, diffusion of innovations, learning organizations, open innovation, transformation and change management, system theories, entrepreneurship, and more. vii

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Will China Surpass Silicon Valley? which further extends the inquiry begun in the first two. The third book is based on an extensive literature review about China and six case companies: Haier, Alibaba, Tencent, Baidu, Xiaomi, and Huawei. The literature review was conducted over one year and was complemented with selected interviews with people who had good knowledge about China and/or any of the Chinese case companies, and preferably could also relate this knowledge to one or several of the Silicon Valley-based companies. The result was surprising. As a consequence of the new digital economy, as well as of lessons learned over 40 years, the Chinese case companies applied the same management principles as do the ones in Silicon Valley. Further, China seemed to have become the next cradle of management innovation. Why does that matter? Because management innovations are as important to economic progress as technological innovations. In fact, management innovations make more technological innovations possible. And conversely, technological innovations, which contribute to increased business value, often require management innovations. This means that the regions/countries that take a lead, not only in technological innovations but also in management innovations, will have a major business advantage over regions/countries that take the roles of followers and are always in a “passive react mode.” Furthermore, research shows that management innovations disseminate much more slowly than technological innovations. This means, in the best of cases, that a region/country taking a lead in management innovations could have competitive advantages for decades, before others have adopted the new management principles and implemented new operational practices. The epicenter of management innovations has moved over time from the U.K., and Europe at the end of the 1800s, to the East Coast of the USA from the 1920s, and then later in the 1900s, first to Japan and then to Silicon Valley, and now, as it seems, over to China. The result is not only that Chinese companies can scale and remain highly innovative, but also that the Western world now needs to start learning management innovations from China, rather than the other way around. The present book has been written for a combination of reasons: first, to summarize why a new management model is needed in a digital economy, as well as to outline the necessary core capabilities of this “new” form of organization. Second, to highlight some common characteristics of leading “digital winners” in Silicon Valley and China, two cradles of digital technology innovations as well as management innovations. Next, the story of the Chinese firm Haier will be described, to provide a context and explanation of why the company decided to transform itself from a traditional manufacturing company into an IoT-based enterprise, fit for the digital economy. The result, the RenDanHeYi model, will be illustrated and then compared with the Google Model from Silicon Valley, in order to discuss how “novel” RenDanHeYi really is. Finally, the author wants to provide a practical U.S.based case, showing how an organization active in a traditional hardware manufacturing industry can conduct an absolutely transformative change of its business by using the principles behind RenDanHeYi. In these ways, the author will first help the reader to zoom out and see the big picture, and then zoom in to learn from a specific case.

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This book is intended to make a unique and original contribution to the management field, as it is the first not only to weave together many interrelated strands of leading-edge management research, but also to provide a real-life example of how to transform a traditional business into one better fit for the digital age, all within a short volume. To assist with further practical application, the final two chapters provide key points of managerial advice and a big-picture summary. The hope is that you will find the book to be a very useful collection of the latest management knowledge. Ideally it will help to promote further conversation about the need for new management models, and spur interest in learning from models now found at some of today’s leading companies. It will also hopefully generate new questions that need to be answered through more research and discussions. The book can be a valuable resource for current business managers, boards of directors, consultants, scholars, policy makers, and educational institutions that want to teach the next generations about the changes needed in management. Hopefully the book will also spur a necessary debate on how management can help all of us to build a sustainable world. More research is needed on how climate change will affect the “digital economy set of management principles” presented here. I urge companies and organizations that have developed new knowledge in this area to step forward and share their knowledge, so that all managers may lead our human institutions successfully into a sustainable future. Finally, I hope the synthesis presented in this book does justice to the work of many, by bringing it into a new light. If that is the case, the book will be a conduit of provocative and useful learning to business leaders, scholars, educators, and policy makers everywhere, for years to come. Menlo Park, CA, USA

Annika Steiber

Acknowledgments

I wish to express my deepest gratitude to Haier Management Research Institute (HMI) and specifically to the company’s Chairman Emeritus Zhang Ruimin, along with Ji Guangqiang, Shi Lutong, and Guan Junhui. Furthermore, I gratefully acknowledge Kevin Nolan, Antonio Boadas, and other interviewees at GE Appliances; Professor Bill Fischer, who helped with the GEA study; Edgar and Peter Schein for their support and belief in my work; Steve Denning and Curt Carlson for challenging me; as well as my husband and daughters, and the publisher Springer DE, which always has believed in my work. I also wish to thank Mike Vargo, the writer/editor who helped with writing the book. I could not have found a better, more curious, and trustworthy colleague to join me in this project. December 15, 2021

Annika Steiber

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Management Disrupted: What Will the Future Look Like? The forces of change seem to be gaining momentum. At the time this book was written, during the second half of 2021, there had been growing numbers of reports and articles about the need to re-think organizational structures and management. And it wasn’t hard to see what had triggered the wave of interest. People were responding to the disruptions caused by the Covid-19 pandemic. For example, remote work became a major subject of inquiry: In what forms should virtual staffing be continued? How can remote teams best be managed? (See, for example, Malhotra, 2021) Taking a broader view, researchers at IBM and Oxford Economics surveyed thousands of executives worldwide, asking them about their priorities and concerns for the post-pandemic future. The top two concerns were “cost management” and “enterprise agility,” each cited by about 87% of respondents. (IBM, 2020) All of these issues are worth addressing. But in fact, the need for new management models was evident long before Covid-19. Today the need is more urgent than ever. And, to achieve the innovativeness, “agility,” and speed that our new age requires, many organizations will have to make fundamental changes—not just a series of crisis-driven adjustments. Most large companies still operate by a model developed for the old Industrial Age. Although these companies adopt new technologies and follow the latest trends, they are essentially bureaucratic. Beneath the modern trimmings, they are built upon systems that were designed for predictability and control. In today’s unpredictable times, they often have trouble charting new courses effectively. At a time of high uncertainty and complexity, their corporate cultures don’t maximize the organizations’ adaptability, speed, or the creativity of the people they employ. Such companies tend to be good at doing what they have customarily done. They may succeed for a while despite their limitations. But the longer they persist, the more likely they are to miss emerging opportunities, and the more vulnerable they become to unforeseen threats. Practically every industry is now global, evolving on many fronts at once. The result is a classic VUCA environment: volatile, uncertain, complex, and ambiguous. These conditions favor companies that can respond

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rapidly and innovate constantly. As the management scholar David Teece wrote, more than a dozen years ago: The foundations of enterprise success today depend very little on the ability to engage in (textbook) optimization against known constraints or capturing scale economies in production. Rather, enterprise success depends upon the discovery and development of opportunities . . . (Teece, 2009, p. 6)

In the chapters ahead, we will hear from other observers who affirm Teece’s view. The fundamental need, then, is for a new management model to enable capabilities that support agility, speed, and ongoing “discovery and development” throughout the organization.

Explorations in Search of New Models For years, the author has spent much of her research time looking for new models that fit this description. There appear to be several already in use at various companies. The book you are reading is the latest in a series describing these new approaches to large-firm management. It focuses on a striking model which may be the most promising of all. • In the book The Silicon Valley Model: Management for Entrepreneurship, co-authored with Sverker Alänge (Steiber & Alänge, 2016), the author identified the key features of a management model used by leading Valley firms such as Google/Alphabet, Apigee, Facebook, LinkedIn, Tesla, and Twitter. A notable quality of these companies is their ability to remain entrepreneurial—i.e., fastmoving, innovative, and adaptable—even while growing to sizes far beyond the startup stage. Their core management principles and practices also turn out to be similar to each other (with variations among the companies, of course). The similarities are strong enough to constitute a shared model, and the present book will give an overview of that model, which until recent times has appeared to set the standard for management in today’s VUCA world. • The author’s follow-up volume was Management for the Digital Age: Will China Surpass Silicon Valley? (Steiber, 2018). Although firms in the Valley have been at the cutting edge of reinventing management, it was clear from the start that they are not alone in this regard. Further studies pointed to China, where a number of high-growth companies appeared to be using their own, enhanced versions of the Silicon Valley Model. This book, like the first, emphasized how management innovation and technology innovation go together. New forms of management enable companies to develop new tech-based products and services in rapidly changing markets, while new technologies enable new management innovations. Clearly this has been the case in China. The country’s economic reforms, over the years, were accompanied by the rise of founders and CEOs who departed radically from the bureaucratic management style of traditional state-owned

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enterprises. Their companies have done very well. Management in the Digital Age suggested that some of these companies may indeed be more advanced, management-wise, than their Silicon Valley counterparts. Chinese companies profiled briefly in the book included Alibaba, Baidu, Huawei, Tencent, and Xiaomi—along with one that is now brought front and center, in detail, in the present book: Haier. • Haier is a gigantic home appliance company that stands out for multiple reasons. Formerly a failing local refrigerator factory, Haier executed a stunning turnaround, rocketing to prominence under chairman and CEO Zhang Ruimin. The company made major strides within China’s huge domestic market while also expanding into other markets globally. To help fuel this growth, Haier has evolved a distinctly new management model, RenDanHeYi. The new model is wrapped in a vision of the future that embraces major shifts now under way.

RenDanHeYi and the Internet of Things RenDanHeYi could be described briefly by using a quote from Haier: The RenDanHeYi model follows “human value maximization,” reinvents the traditional organization hierarchy by building EMCs [Ecosystems of Micro-Communities] which feature self-organization, creates the best user experience based on their needs, and realizes decentralization and disintermediation (Haier Group, 2020).

This whirlwind summary may be hard to understand without context. Indeed, the RenDanHeYi approach is complex and far-reaching, touching and transforming every aspect of the enterprise. Chapters ahead will provide the needed context as part of a close examination of RenDanHeYi. The larger vision can be summarized more clearly. Just as the Internet revolutionized business in the 1990s and the 2000s, a second-wave phenomenon is now in progress: the emergence of the Internet of Things. According to a white paper from Cisco Systems, the number of devices connected by networks surpassed the number of people in the world more than a decade ago and will continue growing into the tens and hundreds of billions (Evans, 2011). Therefore, we are already in the IoT Age, with implications that are tremendous. Basically, the Internet of Things consists of smart (i.e., digitally equipped) products and components that can report what they are sensing and be controlled, either automatically or by human command, via linkages over wired and wireless networks. These “things” can range from systems in motor vehicles to wearable or implanted medical devices, smart appliances in homes and buildings, and much more. As the IoT continues to grow, it brings people, technologies, and organizations ever closer together, allowing them to interact on an informed basis constantly and quickly, if desired.

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Haier has a deep interest in the possibilities of the IoT Age. And the RenDanHeYi model is key to the company’s strategy for this new age. It is a “zero distance” model designed to reduce, and eventually erase, the boundaries between people who create smart products and the customers who use them.

The Transformation of GE Appliances To bring the entire picture into sharp focus, the later chapters of this book describe how RenDanHeYi principles are being applied in the transformation of an over 100-year-old American company. In 2016, Haier acquired GE Appliances, which will serve as our primary case company. GE Appliances (GEA) was once a flagship division of the General Electric Company. Before its sale to Haier, GEA also had begun experimenting with new methods of innovation and product development. A key hub of experimentation was—and is—GEA’s FirstBuild facility, where product designers interact with the maker community and with pilot customers to create and test new appliance concepts. However, cutting-edge practices cannot really take root if they exist on an island within the organization. After Haier’s acquisition, all of GEA became a proving ground for the introduction and ongoing refinement of the RenDanHeYi model. This unique story is told here in a comprehensive form. Ingrained with the story are lessons and implications for managers everywhere, who may wish to transform their companies before it is too late.

Looking Ahead Throughout the book we will combine big-picture views of the management landscape with up-close analyses of how various management models work in particular companies. The goal is to give a concise but thorough understanding of what the future of management may look like. Such an understanding is possible because in progressive companies—notably, in Haier and GEA—the future is being invented now. The rest of the book is arranged as follows:

Part I—Why Management Needs to Change and Key Capabilities for a Digital Economy Chapter 1—This chapter pulls together observations from management experts who explain why traditional, bureaucratic models do not meet the demands of today’s business environment. We introduce the concept of Dynamic Capabilities, which are needed to thrive in dynamic, ever-changing markets. Then we explore some key capabilities necessary to support dynamic capabilities in a digital economy.

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Part II—Two Current Cradles of Management Innovations Chapter 2—Silicon Valley’s leading companies have been standard setters in management innovation. Here we see how and why the companies came to be this way, by tracing the history of the Valley and the emergence of principles that its early technology firms adopted. Chapter 3—This chapter describes the shared features of the management model used by selected major companies and compares the Silicon Valley Model to the traditional “Machine Bureaucracy” model, still used by many other firms. Chapter 4—Economic reforms in China, followed by supportive government policies and the rapid growth of the opened-up economy, have helped to breed new companies deploying new approaches to management. Chapter 5—Now we review key elements of the management approach used by six leading Chinese companies, which compares closely to the Silicon Valley Model but in some ways may be even more disruptive—especially at Haier.

Part III—Haier, RenDanHeYi, and the Google Model Chapter 6—Haier is not a recent IoT-based startup. Rather, it is a mature manufacturer and the world market leader in what seems to be a traditional category, consumer “white goods.” The remarkable aspect is that while staying in this market over the past four decades, Haier has progressively transformed itself to a cutting-edge, platform-based tech firm. This chapter traces the stages of the transformation, explaining why each stage was undertaken and how they all have contributed to the revolutionary RenDanHeYi philosophy. Chapter 7—Now we come to an intensive description of Haier’s radically new (and still evolving) RenDanHeYi management model, which combines systemwide reorganization with digital technology to unleash people power. Chapter 8—Here we compare the RenDanHeYi approach, point-by-point, to the Google Model developed in Silicon Valley. The comparison shows that the two models are quite similar in their underlying principles, but they differ at the level of practical application, with RenDanHeYi indeed appearing to be the more disruptive of the two.

Part IV—GE Appliances in 2016 and 2021 and the Interpretation of RenDanHeYi Chapter 9—When Haier acquired GE Appliances (GEA) in 2016, it inherited a U.S. company grounded in old management methods that hampered innovation and growth. This chapter begins GEA’s transformation story with descriptions of the company’s former status quoted directly from interviews with senior leaders and key staff members. Chapter 10—To complete the before-and-after picture, the same senior leaders and key persons now describe how dramatically GEA has changed since adopting Haier’s RenDanHeYi model. Chapter 11—This chapter launches a closer look into how the transformation of GEA was accomplished. A key guideline of Haier’s global expansion has been

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to localize operations, meaning that every aspect of a local subsidiary should fit with (and, to the extent possible, be created by) the people living in that part of the world. Therefore, leaders at GEA tell us how they perceived the RenDanHeYi approach and thought they could apply it in their own firm.

Part V—A Framework for Better Understanding a Business Transformation Chapter 12—This chapter steps back into theory, presenting a conceptual framework that the author has developed for analyzing and understanding diffusion of management innovations, as well as organizational change and transformation. In order to fully comprehend GEA’s transformation, the author recommends that you read this chapter before delving into the chapters that follow.

Part VI—The Transformation of a 100-year-old Company Chapter 13—Wishing to have a new management approach is one thing; implementing it is another. Here, GEA leaders describe the first stages of accepting a change and adopting the RenDanHeYi philosophy. The chapter’s format aligns with the framework which the previous chapter introduced. Chapter 14—Now comes a step-by-step overview of how the transformation was performed and what GEA has accomplished to date, as well as what the future looks like.

Part VII—Managerial Advice and Concluding Summary Chapter 15—Drawing mainly from the GEA experience, the chapter offers a commentary on what may be possible at your firm, with a special section on key points to keep in mind if you wish to transform your organization, and adopt RenDanHeYi in navigating this transformation. Chapter 16—The closing chapter is in the form of an executive summary, reviewing and highlighting the core messages of the book. With this general outline in hand, we move on to Chap. 1. It addresses a fundamental issue: why new forms of management are needed at all and what the new core capabilities are.

References Evans, D. (2011, April). The Internet of Things: How the next evolution of the internet is changing everything. White paper, Cisco Internet Business Solutions Group.

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Haier Group. (2020). The 4th International RenDanHeYi Model Forum: Autopoiesis, Coevolution. Accessed November 9, 2021, from https://www. haier.com/global/2020920/ IBM. (2020, September). COVID-19 and the future of business: executive epiphanies reveal post-pandemic opportunities. Report from IBM Institute for Business Value. Malhotra, A. (2021). The postpandemic future of work. Journal of Management, 47(5), 1091–1102. https://doi.org/10.1177/01492063211000435 Steiber, A. (2018). Management in the digital age: Will China surpass Silicon Valley? Cham, Switzerland: Springer. Steiber, A. & S. Alänge. (2016). The Silicon Valley model: Management for entrepreneurship. Cham, Switzerland: Springer. Teece, D. (2009). Dynamic capabilities and strategic management. Oxford: Oxford University Press.

Contents

Part I 1

Why Management Needs to Change and Key Capabilities for a Digital Economy

Why New Management Models Are Needed: And the New Management Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The Old Model: Mass Efficiency and Control . . . . . . . . . . . . . 1.2 The Changing Nature of Change (And What It Means for Management) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 “Dynamic Capabilities”: The Key to Managing in a Dynamic World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Some Core Ingredients for Building Dynamic Capabilities . . . . 1.5 Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Silicon Valley Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Silicon Valley Model Versus the Traditional Model . . . . . . 3.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part II 2

Two Cradles of Management Innovations

Silicon Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Origins of Silicon Valley: How a New Era, Long ago, Shaped Today’s Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Birth of an Industry Ecosystem: The Growth of a Management Mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Innovation in Technology and in Management: An Ongoing Dance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The New Chinese Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Visionary and Externally Focused Top Leaders . . . . . . . . . . . . . 5.2 Culture and People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Organization, Coordination of Resources, and Digital Ecosystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III

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Haier and the RenDanHeYi model

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Haier: A Traditional Firm Transforming into a Digital Winner . . 6.1 Haier’s Six Development Phases . . . . . . . . . . . . . . . . . . . . . . 6.1.1 Brand Building Strategy (1984–1991) . . . . . . . . . . . . 6.1.2 Diversification Strategy (1991–1998) . . . . . . . . . . . . . 6.1.3 Internationalization Strategy (1998–2005) . . . . . . . . . 6.1.4 Global Branding Strategy (2005–2012) . . . . . . . . . . . 6.1.5 Networking Strategy (2012–2019) . . . . . . . . . . . . . . . 6.1.6 Ecosystem Strategy (2019-Present) . . . . . . . . . . . . . . 6.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The RenDanHeYi Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Becoming User Centric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Organizational Experimentation . . . . . . . . . . . . . . . . . . . . . . . 7.3 Release Talents and Entrepreneurship Within . . . . . . . . . . . . . 7.4 Principles and a New Language . . . . . . . . . . . . . . . . . . . . . . . 7.5 Change of the Game: The Internet of Things . . . . . . . . . . . . . . 7.6 The Result: RenDanHeYi . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 Key Principles of RenDanHeYi . . . . . . . . . . . . . . . . . . . . . . . 7.7.1 Strategy: Ecosystem Brand . . . . . . . . . . . . . . . . . . . . 7.7.2 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7.3 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7.4 Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7.6 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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49 49 50 50 51 52 52 55 55 56 56 57 57 57 58 58

8

RenDanHeYi Versus the Silicon Valley Model . . . . . . . . . . . . . . . 8.1 Strategy: Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 A Networked Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Entrepreneurs and Dynamic Partners . . . . . . . . . . . . . . . . . . . 8.4 Users and Zero Distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Compensation and Pay-By-Users . . . . . . . . . . . . . . . . . . . . . . 8.6 Nonlinear Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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59 60 63 63 64 64 65 66 67

Contents

Part IV 9

10

11

GE Appliances in 2016 and 2021 and the Interpretation of RenDanHeYi

GE Appliances in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Triggers for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 GE Appliances in 2016: Evaluation Methodology . . . . . . . . . . 9.3 Top Leaders’ Main Focus and Its Direction . . . . . . . . . . . . . . 9.4 People and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6 Leadership Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 Organization, Coordination, and Digitization of Communication Processes . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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71 72 73 74 75 76 76

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77 78 78 78

GE Appliances in 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Top Leaders’ Main Focus and Its Direction . . . . . . . . . . . . . . 10.2 People and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Leadership Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 Organization, Coordination, and Digitization of Communication Processes . . . . . . . . . . . . . . . . . . . . . . . . . 10.6 Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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81 81 83 83 84

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85 86 87 87

GE Appliances’ Interpretation of RenDanHeYi . . . . . . . . . . . . . . . . 11.1 Key Objectives and Principles . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.1 Set Leading Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.2 Zero Distance to Users . . . . . . . . . . . . . . . . . . . . . . . . 11.1.3 Align the Organization Toward Users . . . . . . . . . . . . . 11.1.4 Pay by Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.5 Ecosystems and EMCs . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89 89 90 91 92 93 94 94 95

Part V 12

xxiii

A Framework for Better Understanding a Business Transformation

A Framework for Understanding a Business Transformation . . . . 12.1 A Deeper Look at How Transformation Occurs . . . . . . . . . . . . 12.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 99 . 100 . 103 . 103

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Contents

Part VI

The Transformation of a 100-Year-Old Company

13

From Desire to Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 Disrupting the Organizational Trajectory . . . . . . . . . . . . . . . . 13.2 The Desire to Change Is Ignited . . . . . . . . . . . . . . . . . . . . . . . 13.3 New Governance and a “Light-Touch” Guiding Hand . . . . . . . 13.4 RenDanHeYi Becomes a “Feasible” Solution . . . . . . . . . . . . . 13.5 Flying Without a Pilot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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14

Key Steps Taken by GE Appliances . . . . . . . . . . . . . . . . . . . . . . . 14.1 Transformation Step-by-Step . . . . . . . . . . . . . . . . . . . . . . . . . 14.1.1 A New Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1.2 Updated Compensation Model and Zero Distance to Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1.3 “House of Brands” . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1.4 Becoming More Diverse and Inclusive . . . . . . . . . . . 14.1.5 Next Up: Ecosystems and EMCs . . . . . . . . . . . . . . . . 14.1.6 Sustaining the Transformation . . . . . . . . . . . . . . . . . . 14.1.7 The COVID Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 117 . 117 . 117

Part VII 15

16

107 108 108 111 112 114 115 115

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119 120 121 122 122 123 123 124

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127 128 129 131 132

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132 133 133 133 134 134 135 135

Managerial Advice and Concluding Summary

Managerial Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 Lessons Learned from the GEA Case . . . . . . . . . . . . . . . . . . . 15.1.1 Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 Lessons for Adopting RenDanHeYi . . . . . . . . . . . . . . . . . . . . 15.2.1 RenDanHeYi Is Not ONE Recipe . . . . . . . . . . . . . . . 15.2.2 RenDanHeYi Does NOT Have an Endpoint: It Is a Journey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2.3 Top-Leader Commitment and Support Are Essential . . 15.2.4 Involve Your People in the Change Processes . . . . . . 15.2.5 Challenge Your Traditions . . . . . . . . . . . . . . . . . . . . 15.2.6 Change Is Hard: Fight the Antibodies . . . . . . . . . . . . 15.2.7 Transformation Is an Evolution . . . . . . . . . . . . . . . . . 15.3 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Concluding Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

List of Figures

Fig. 1.1 Fig. 7.1 Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 7.5 Fig. 9.1 Fig. 10.1 Fig. 11.1 Fig. 11.2 Fig. 12.1 Fig. 15.1 Fig. 15.2 Fig. 15.3

An organization visualized as a system (Steiber, 2014) . . . . . . . . . . . Haier’s experiments with achieving user linkage through organizational design (Fischer & Steiber, 2021) . . . . . . . . . . . . . . . . . . . Haier’s objectives (Fischer & Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . . A visualization of RenDanHeYi (Fischer & Steiber, 2021) . . . . . . . Ecosystems vs. traditional value chains (Fischer & Steiber, 2021) .. . . .. . . .. . .. . . .. . . .. . . .. . .. . . .. . . .. . .. . . .. . . Win–win value add statement (Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . Perception-based ranking of GEA before the acquisition (Steiber, 2021. Scale 1 to 6) . . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . . Perception-based ranking of GEA in February 2021 (Steiber, 2021. Scale 1 to 6) . . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . . An illustration of GEA’s interpretation of RenDanHeYi (Steiber, 2021) . . .. . . . .. . . . . .. . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . Transformation of principles and cultural beliefs (Steiber, 2021) . . .. . . . .. . . . . .. . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . A framework for management transformation (Steiber & Alänge, 2015) . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . Key events enabling GEA’s transformation (Steiber, 2021) . . .. .. . Success factors (Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leadership and Organizational transformation (Steiber, 2021) . . .

12 50 51 53 53 54 74 82 90 95 101 129 129 131

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Part I Why Management Needs to Change and Key Capabilities for a Digital Economy

1

Why New Management Models Are Needed: And the New Management Capabilities

If we look at the history of the past 250 years, it may seem odd to refer to our current age as one of constant, disruptive change. People in previous times were affected profoundly by changes in technology and business, arguably to a greater extent than we have been. The first Industrial Revolution, driven by technical and organizational innovations that ranged from the steam engine to the factory system, disrupted the basic patterns of life for many millions of people. Societies that once were made up largely of farmers and craft workers became heavily urbanized and massively mechanized, with a focus on producing goods in quantities not seen before. The Second Industrial Revolution, from the late 1800s into the early 1900s, then amplified the disruptions of the first. This period saw automation and mass production carried to new heights, along with new sources of power and new methods of transportation and communication: electricity, automobiles and aircraft, radio, and motion pictures. Many authors have described the sweeping changes of these eras; see, for example, Stearns (2013). By comparison, the changes we have experienced in our lifetimes may appear to be minor. But there are some significant differences between past and present. As the researcher and management consultant Gary Hamel wrote, “change itself has changed” (Hamel, 2012, p. 85). Situations in the business environment shift more rapidly than in the past; competitive challenges take shape differently, and the resulting demands on a company are different. This has serious implications for management. Most large firms still use a management model that evolved during the prior Industrial Age and is no longer suited for today’s requirements. The following sections of this chapter trace the roots of that now-obsolescent model and describe its key features. Then we will see how “change itself has changed” and what the new age requires in terms of new approaches to management.

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_1

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1.1

1

Why New Management Models Are Needed: And the New Management Capabilities

The Old Model: Mass Efficiency and Control

Corporations grew truly large during the second phase of the Industrial Revolution, from the second half of the nineteenth century into the early 20th. New giants that emerged during that time included big, multilocation oil and steel companies; longline railroads; and a growing assortment of mass-market manufacturers and retailers. The flows of finished goods were unprecedented. Companies now aimed to sell millions of units of complex products, from shoes and light bulbs to automobiles and processed foods. Therefore, an Industrial Age management model took shape to direct and coordinate these enterprises. The model was designed for efficiency and control at high volume. Companies did compete on a basis of innovation, trying to develop products that customers would like and prefer. But eventually, there would emerge a dominant design for a given type of product—see Utterback and Abernathy (1975) for a description of this concept—and from that point, the key to success was making more of the same thing to the same specs as rapidly and cheaply as possible. Companies that flourished by taking this approach included Ericsson with its early telephones, Bayer AG with its trademarked aspirin, and of course Ford with its Model T cars. The management model of that age was built around features that still characterize it today: • Strategic decisions are made by small groups of top executives. • A well-defined but often narrowly defined view of the company’s purpose. The classic example was Ford’s stated purpose to make a practical car at ever-lower prices, in “any color that [a customer] wants as long as it is black” (Ford & Crowther, 1922, pp. 72–73). • Performance at every level is judged and rewarded by the standards of control and efficiency. Ideal employees are those who execute orders to the company’s standards and meet their targets. • Tightly specified work-roles and procedures, spelling out what people should do and how to do it. • Hierarchical structures that lock these systems in place and allow branching layers of management to monitor and control every aspect. The modern-day scholar Henry Mintzberg, in describing this type of management, called it the “Machine Bureaucracy” model (Mintzberg, 1980, pp. 332–333). And it is very good at doing what it was meant to do. It literally enables a company to function like a machine, repeating the same tasks predictably and reliably. But when the task becomes to change the task—seeing new market openings, pivoting quickly, developing new products or business ideas, and mobilizing people around them—the positive aspects of the Machine Bureaucracy model turn into negatives. For example:

1.2 The Changing Nature of Change (And What It Means for Management)

5

• The top-level strategists, being few in number and perhaps committed to strategies that led to previous success, are liable to either miss or discount new threats and opportunities. Henry Ford kept Ford Motor focused on producing its Model T for too long, and although the company later rebounded, it lost its market lead. In more recent times, Nokia stayed too long with its Symbian operating system for cell phones and plummeted from market leadership in that product category to dropping out of the market entirely. • The rigid bureaucratic structures are hard to realign in pursuit of flexibility and speed. • Worse yet, the people within the structures become conditioned to thinking and acting in narrow channels. They are urged to focus on current business to a degree that may exclude thinking along new lines. This can limit the company’s prospects and many people in the current workforce do not like it, either. People ranging from young professionals to executives and consultants complain that the bureaucratic culture stifles innovation and is unpleasant or de-motivating. The researcher Julian Birkinshaw of London Business School summed up these perceptions in severe terms, calling most of today’s big companies “miserable places” where “fear and distrust are endemic” and “creativity and passion are suppressed” (Birkinshaw, 2016). One could argue that large corporations are often quick to adopt or at least try out new management tools and trends. However, the tools and trends will not fundamentally update the company if they are applied mainly as add-ons to a bureaucratic infrastructure that remains in place. It could also be argued that many companies continue to do well despite using a supposedly obsolete management model. But this is somewhat like assuming that an extremely old car or appliance will keep running indefinitely, just because it has survived until now. In 2009, the management expert Gary Hamel convened a panel of leading CEOs, scholars, and consultants who agreed that the old model’s days are numbered. They recommended a litany of drastic changes, which were published in the famous Harvard Business Review article “Moon Shots for Management.” In his summary of the article, Professor Hamel simply wrote that “tomorrow’s business imperatives lie outside the performance envelope of today’s bureaucracy-infused management practices” (Hamel, 2009). Let us now consider why this is so. Starting with shifts in the business environment, we can then proceed to the quest for new management solutions.

1.2

The Changing Nature of Change (And What It Means for Management)

In the past Industrial Age, companies had to contend with—and try to profit from— big, dramatic changes such as the introduction of electric power. Compared to today’s world, however, these changes were relatively less frequent and happened more gradually. Also, when great competitions occurred, it was usually easier to see

6

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Why New Management Models Are Needed: And the New Management Capabilities

the main competitive issues and to trace how the contests were going. Everybody knew the race was on to build a railway from one point to another, or to win the war of currents between AC and DC systems in the early electric power industry. Today’s environment presents a different sort of playing field. Companies are faced with a constantly swirling, buzzing cloud of change. As Richard Florida described it, change is “pervasive and ongoing” (Florida, 2002, p. 5), so that competition becomes less a matter of fighting pitched battles and more like guerilla warfare. Just about every firm is surrounded by unpredictable innovations, shifts in the marketplace and other events that can quickly render a long-reliable strategy obsolete. Furthermore, new competitors can emerge from seemingly nowhere. For years the US hospitality industry was dominated by major hotel chains such as Hilton, Hyatt, and Marriott, until a new kind of company rapidly became a significant player in the market. Airbnb began as an unheralded startup with inexperienced founders who stumbled unsuccessfully at first, but after they circled in upon a winning formula, the company took off (See, for example, Gallagher, 2017). No single factor has brought the business world to its present state of constant and unpredictable change. Lynda Gratton’s book The Shift described five broad “forces” that are shaping the future of work: technology, demographics, globalization, society, and energy resources (Gratton, 2011, pp. 23–48). As shown below, each can be a profound source of change in itself—and they all interact and combine. Technology It is not entirely true that technological change is exponential. Some technologies, such as computer chips, have grown remarkably more powerful while others have evolved just incrementally. But the overall impacts of technology can spread very rapidly due to combinatory and multiplier effects. Eugene Fitzgerald, a scientist and inventor at MIT, has pointed out a pair of facts that are often overlooked: Most products do not consist of a single technology, but rather a combination of technologies old and new; while at the same time, almost any single technology has multiple possible uses. Furthermore, he noted, technologies also can be combined with different business models and market applications (Fitzgerald et al., 2010, especially pp. 19–30). There are examples of how these effects, taken together, can lead to cascading waves of change. Telephones were invented long before microprocessors and for nearly a century worked quite well without them. But then, after mobile phones became commercially viable, advances in microprocessor chips and other technologies rapidly transformed the phone. During the early 2000s it grew from a device for voice communication to a multipurpose product that eliminated the need for standalone cameras, portable music players, GPS direction-finders, alarm clocks and more. Meanwhile, computing and network technologies have also found a wide range of applications in areas from stock trading to surgery. With more people than ever in the world making combinations from an ever-growing pool of technologies, one can see how the pace of change multiplies and becomes unpredictable from this “force” alone.

1.2 The Changing Nature of Change (And What It Means for Management)

7

Demographics and Society The business world is impacted whenever people change, and they can change in any number of ways: in terms of how they live, what they value, and what they are willing or not so willing to buy and do. Consider the rapid rise of Airbnb. The company conducts its transactions on a web platform, but internet technology was only one enabling factor. Airbnb’s business model ultimately depends on people. The company came on the scene at a time in modern society when many people were willing to act as hosts, renting out parts of their homes to travelers, and many more people were willing to stay in such accommodations. Demographic and societal changes tend to occur gradually, but their cumulative effects can show up rather swiftly, and they may affect how people behave both as consumers and as workers. For example, economic growth since World War II has steadily made more of the world’s people more prosperous. As the long-running World Values Survey has shown, prosperity correlates with changes in values. People move up the scale in Maslow’s classic hierarchy of needs. In the Survey’s terms, they move from a “Survival” mindset to a way of thinking that values “Selfexpression” more (World Values Survey, 2021). Richard Florida’s book The Rise of the Creative Class described some impacts of this shift in the United States. In one case, the author’s home state had a shortage of young people willing to be trained for well-paid jobs as machinists while there was an oversupply of young people becoming hair stylists, a lower-paying but more “creative” line of work. The impacts on market demand are significant, too (Florida, 2002, pp. 152–154 and 166–176). China in recent decades has become a gigantic case study in social and demographic change, with hundreds of millions of people moving up out of poverty, many of them into the equivalent of Western middle-class lives. We’ll look at changes in China more closely in chapters ahead. Globalization This is an obvious factor, as we all can see how an interconnected world creates hyper-competition and volatility. Numerous major industries, from shipbuilding to steelmaking to clothing manufacture, have moved on a massive scale from Western countries to Asia. Supply chains are now global and so is innovation, as larger numbers of people around the world attend college and enter the scientific and technical professions. Globalization also creates market opportunities, as companies that come up with anything new—from new consumer goods to new methods of finance—find they can sell their products and services worldwide and expand internationally. Energy Resources Gratton’s final category relates to the broad area of growing environmental concerns. Climate change has become an urgent issue affecting many industries. Under pressure from regulators, automobile companies rush to change the kinds of vehicles they sell. Oil-producing nations must find new sources of revenue while makers of solar panels flourish. More dramatic changes loom on the horizon, as climate-driven natural disasters and migrations begin to disrupt many societies.

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Why New Management Models Are Needed: And the New Management Capabilities

Finally, these various sources of change interact continually, adding up to the proverbial VUCA1 world: highly volatile, uncertain, complex, and ambiguous. The so-called Next Big Thing, or the Next Big Threat, might come from almost anywhere.

1.3

“Dynamic Capabilities”: The Key to Managing in a Dynamic World

There has been considerable rethinking of what it takes to survive and succeed in a VUCA world. During the late twentieth century, two common theories were that firms could achieve strategic differentiation by choosing the right industry and position themselves within it—for example, via Porter’s Five Forces model (Porter, 1979)—or, by identifying and developing their unique resources and “core capabilities” (also called “core competences”). But as the researcher Dorothy Leonard-Barton pointed out, core capabilities can become “core rigidities” that inhibit adaptation in times of change (Leonard-Barton, 1992). A more fundamental view comes from David Teece and his colleagues, who simply state that a firm in today’s world needs Dynamic Capabilities. They have defined the term formally as follows: The ability of an organization and its management to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece et al., 1997).

Teece then elucidated the concept in practical terms. He said Dynamic Capabilities consist of three basic activities: “sensing,” “seizing,” and “transforming.” • Sensing “means identifying and understanding opportunities and threats.” • Seizing is “mobilizing your resources to capture value from those opportunities.” • Transforming is “continued renewal”—that is, constantly reorienting the company for the next opportunities to come, as well as for “periodic major strategic shifts” (Kleiner, 2013). These three points define what a company must be able to do. They lead to a deeper question, namely: What are the underlying corporate capabilities that would enable a company to have Dynamic Capabilities? Below are some answers, drawn from the author’s research and from previous work by a variety of scholars, consultants, and observers. 1

The VUCA acronym originated from use in military intelligence studies. Shortly after, during the 1990s, it came into common use for describing any situation marked by volatility, uncertainty, complexity, and ambiguity.

1.4 Some Core Ingredients for Building Dynamic Capabilities

1.4

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Some Core Ingredients for Building Dynamic Capabilities

If we combine the insights from numerous sources, we can find five general sub-capabilities that companies ought to have and indeed need to have to be dynamic. A People-Centric (Or Human-Centric) Approach Various companies over the years have used slogans or advertising campaigns that essentially say, “People are our most important assets.” The challenge is to act according to this principle rather than merely stating it. In a fast-changing and uncertain world, people in fact become the most important asset, if the company treats them as such. Assets like efficient production machinery and big cash reserves are good to have but they cannot innovate. Innovation is done by humans. Therefore, they must be managed in a way that allows and encourages them to create the new solutions the company will need. Researchers have found that people want and need to be creative and will be creative in settings where they can exercise their skills (Florida, 2002; Høyrup, 2012). Companies can provide this kind of setting, in part, by placing people in roles that fit with their inner passions, motivations and key strengths. People-centric companies also try to have simple, well-defined structures, and routines only where needed, otherwise giving people the freedom and responsibility to selfactuate. Management’s roles include supporting people to help them develop their ideas (Leifer et al., 2000), setting a cultural tone and providing a reward system that energizes everyone to go on innovating (Dallenbach et al., 1999), and putting forth a strong, shared vision (Nanus, 1992) that inspires people to innovate toward the company’s principal goals. A company that fully unleashes the creative capabilities of people is said to be like a river system with unencumbered movement (Tidd & Bessant, 2009), in which streams of work and ideas flow together ever more powerfully. A Continually Changing Organization It is not sufficient for companies to react only when changes or problems in the business environment become apparent. In many cases it is too late by then. Researchers at Kodak developed key technologies for digital photography, but the company resisted bringing digital cameras to market until many other firms had done so. Kodak’s leaders worried that the new products would cut into their film business and hoped the digital wave would be a minor fad. When Kodak finally entered the market, it was too late to reap profits, while the film business wound up being devastated anyway (See, for example, Hamm & Symonds, 2006). In their book Competing on the Edge, management scholars Shona Brown and Kathleen Eisenhardt argued that companies must always be engaged in proactive change. They described two levels of such change above merely reacting: anticipating and leading. Anticipating means detecting early signs of change in the environment, and then preparing for it by creating strategic options and lining up the resources that would be needed. Leading is taking actions that “force other firms

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to follow” (Brown & Eisenhardt, 1998). To allow for this, the authors emphasized the importance of a mindset focused on constant change, a semi-structured organization, and frequency of communication (including horizontally), as well as specific methods and tools used in areas such as product development. An Ambidextrous Organization Dynamic companies can be said to work with one hand in the present and one in the future. In technical terms, they can “exploit” and “explore” at the same time, exploiting their existing lines of business for maximum returns while also exploring potential new revenue streams (O’Reilly & Tushman, 2013). What is difficult is to combine and balance the two functions. Many big companies in the past have pursued ambidexterity by separating the two, with operating units that focused on existing operations while major innovation was concentrated in an R&D center. However, by the end of the twentieth century this approach was falling out of favor. One reason was that companies often had difficulty bringing their innovations “over the wall” from R&D into practical use, and as a result they would see competitors emulating those innovations or applying the ideas more successfully in the marketplace. While Bell Laboratories invented the semiconductor, the first company to ship a siliconbased transistor was an oilfield services company, Texas Instruments. While IBM pioneered the concepts behind the relational database, it has ceded market leadership to Oracle. While Xerox funded tremendously innovative work in user interface technologies, Apple and Microsoft scooped up the profits (Chesbrough, 2001).

Author and corporate advisor Steve Denning later pointed out a basic flaw in the system of relying on internal R&D centers: The idea of looking at R&D as a separate function from production is obsolete. R&D is merely one input into innovation. R&D spending in particular is a poor measure or determinant of the innovation on which the future of the firm rests (Denning, 2012).

Subsequent chapters of this book will show how entrepreneurial firms in Silicon Valley and China have devised new approaches to ambidexterity. Although the internal R&D lab still has a role to play in many of these companies, they have integrated the “explore” function more organically throughout the organization, and indeed throughout their larger ecosystems. An Open Organization that Networks with Its Surroundings Dynamic companies today have moved beyond the not-invented-here mentality, in which a firm shows little interest in capitalizing on innovations created elsewhere. Instead, they have “open” boundaries, seeing the company as a vehicle for exchanging and developing ideas along with external parties. Years ago, two noted business scholars raised a warning as follows: “Firms that fail to exploit . . . external R&D may be at a severe competitive disadvantage” (Rosenburg & Steinmueller, 1988). Although it has long been common to license external technologies for specific uses in one’s own products, dynamic companies do much more. These firms network

1.4 Some Core Ingredients for Building Dynamic Capabilities

11

and partner for innovation in a multitude of ways. They sponsor research at universities; they invest in, or acquire startup companies; they work with multiparty consortia—Google’s Android operating system was developed by an opensource consortium (Open Handset Alliance, n.d.)—and they practice means of exchange that can range from informal contacts to formal strategic partnerships. These forms of openness and networking took hold over a period of years and were described as a major strategic approach by Henry Chesbrough with his introduction of the open innovation concept (Chesbrough, 2003). He noted several reasons to become more open, including the one often attributed to Sun Microsystems co-founder Bill Joy: There are always more smart people outside your company than inside it (see, for example, Jernigan, 2016). Chesbrough also noted that as product life cycles become shorter and speed to market becomes critical, adopting ideas from outside sources and integrating them into product development can help a company to stay ahead of the pace. In later chapters we will see that Haier and its subsidiary, GE Appliances, are expanding the reach of open innovation by making it a core part of their management philosophy. A Systemic Approach According to the business theorist Eric Rhenman, a “system” is: a collection of components with certain properties, with connections among the components and among the properties of those components (Rhenman, 1962).

To be truly dynamic and innovative, companies must adopt a “systemic approach” (O’Connor, 2008). This will enable them to see how various aspects of the company can be aligned and leveraged toward a primary strategic goal. Figure 1.1 shows an organization visualized from a systemic perspective. Key elements of the system include: the company’s vision and mission, the board of directors and management team, company culture, daily managers, employees, organizational structure and processes, systems for performance evaluation, promotion and recognition, systems for learning, and the company’s brand/corporate communication. (See Steiber, 2014, which used similar elements when describing the corporate system for innovation at Google.) In Fig. 1.1 we have arranged the elements in a ring revolving around the company’s main strategic intent, shown at the center. The “or” means that the strategic intent can vary, depending on what a company considers to be most important. A conventional large firm would pursue efficiency and control, typically with the aim of maximizing near-term profits. A dynamic company would emphasize innovation, with the aim of sustained growth. The companies that we will examine in Silicon Valley and China are innovation oriented. As we shall see, all their system elements have been aligned around this primary purpose.

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Fig. 1.1 An organization visualized as a system (Steiber, 2014)

One More Factor: Digital Technology Finally, it should be noted that dynamic enterprises tend to make intensive use of advanced information technologies. These technologies play several key roles. As the scholar Homa Bahrami pointed out, they allow people throughout the firm to communicate and update each other constantly, which reduces the need for layers of middle management to act as overseers and go-betweens (Bahrami, 1992). Other information technologies are used to analyze data and develop new products, which facilitates the “sensing” and “seizing” activities. Also, advanced IT is very often embedded in the products themselves and can even serve to keep the company linked with its end users. For these reasons, leading-edge companies are managed in ways that maximize the full range of advantages offered by digital technologies.

References

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Looking Ahead

This chapter has immersed us in the study of new management models. It has shown why the traditional “Machine Bureaucracy” model is no longer sufficient for today’s world and has given an initial overview of the kinds of capabilities that new models should enable. There are more explorations to come. As they take us deeper into the subject, they will bring us directly to the front lines—where new models are being used by real people, in real companies, today. We will first revisit Silicon Valley and after that, we will revisit Chinese innovative companies. These revisits will prepare us to focus tightly on Haier and its RenDanHeYi Model and then on the transformation of GE Appliances.

References Bahrami, H. (1992). The emerging flexible organization: Perspectives from Silicon Valley. California Management Review, 34(4), 33–52. Birkinshaw, J. (2016). Reinventing management [abstracted from his 2012 book of that title]. Oxford Leadership. Accessed November 9, 2021, from http://www.oxfordleadership.com/wpcontent/uploads/2016/08/oxford-leadership-article-reinventing-management.pdf Brown, S., & Eisenhardt, K. (1998). Competing on the edge: Strategy as structured chaos. Harvard Business Review Press. Chesbrough, H. (2001). Is the central R&D lab obsolete? MIT Technology Review, 24 April 2001. Accessed November 9, 2021, from https://www.technologyreview.com/2001/04/24/235895/isthe-central-rd-lab-obsolete/ Chesbrough, H. (2003). Open innovation: The new imperative for creating and profiting from technology. Harvard Business School Publishing. Dallenbach, U. S., McCarthy, A. M., & Schoenecker, T. S. (1999). Commitment to innovation: The impact of top management team characteristics. R&D Management, 29(3), 199–208. Denning, S. (2012). Is R&D really the secret sauce? Forbes.com, 19 April 2012. Accessed November 9, 2021, from http://www.forbes.com/sites/stevedenning/2012/04/19/is-rd-reallythe-secret-sauce/ Fitzgerald, E., Wankerl, A., & Schramm, C. (2010). Inside real innovation: How the right approach can move ideas from R&D to market—And get the economy moving. World Scientific Publishing Company. Florida, R. (2002). The rise of the creative class. Basic Books. Ford, H., & Crowther, S. (1922). My life and work. Garden City Publishing Company. Gallagher, L. (2017). The Airbnb story: How three ordinary guys disrupted an industry, made billions . . . and created plenty of controversy. Mariner Books. Gratton, L. (2011). The shift. HarperCollins. Hamel, G. (2009). Moon shots for management. Harvard Business Review, 87(2), 91–98. Hamel, G. (2012). What matters now. Jossey-Bass. Hamm, S., & Symonds, W. C. (2006). Mistakes made on the road to innovation. Bloomberg Businessweek, 26 Nov 2006. Accessed November 9, 2021, from http://www.bloomberg.com/ bw/stories/2006-11-26/mistakes-made-on-the-road-to-innovation Høyrup, S. (2012). Employee-driven innovation: A new phenomenon, concept and mode of innovation. In Employee-driven innovation (pp. 3–33). Palgrave Macmillan.

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Jernigan, M. (2016). Applying Joy’s law to open innovation at NASA. MIT SDM Systems Thinking Webinar Series, 6 June 2016. Accessed November 9, 2021, from https://sdm.mit.edu/applyingjoys-law-to-open-innovation-at-nasa/ Kleiner, A. (2013). The dynamic capabilities of David Teece. Strategy + Business, 11 November 2013. Accessed November 9, 2021, from http://www.strategy-business.com/article/00225? gko¼d24f3 Leifer, R., McDermott, C. M., O’Connor, G. C., Peters, L. S., Rice, M., & Veryzer, R. W. (2000). Radical innovation: How mature companies can outsmart upstarts. Harvard Business School Press. Leonard-Barton, D. (1992). Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13(Special Summer Issue), 111–125. Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research on organization design. Management Science, 26(3), 322–341. Nanus, B. (1992). Visionary leadership: Creating a compelling sense of direction for your organization. Jossey-Bass. O’Connor, G. C. (2008). Major innovation as a dynamic capability: A systems approach. Journal of Product Innovation Management, 25, 313–330. O’Reilly, C., & Tushman, M. (2013). Organizational ambidexterity: Past, present and future. Academy of Management Perspectives, 27(4), 324–338. Open Handset Alliance. (n.d.). Consortium website. Accessed November 9, 2021, from openhandsetalliance.com Porter, M. (1979). How competitive forces shape strategy. Harvard Business Review, March 1979. Accessed November 9, 2021, from https://hbr.org/1979/03/how-competitive-forces-shapestrategy Rhenman, E. (1962). Det administrerade systemet: En organisationsmodell [The organization as a control system]. Ekonomisk Tidskrift, 3, 87–107. Rosenburg, N., & Steinmueller, W. E. (1988). Why are Americans such poor imitators? The American Economic Review, 78(2), 229–234. Stearns, P. N. (2013). The industrial revolution in world history. Westview Press. Steiber, A. (2014). The Google model: Managing continuous innovation in a rapidly changing world. Springer Science & Business Media. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. Tidd, J., & Bessant, J. (2009). Managing innovation: Integrating technological, market and organizational change (4th ed.). Wiley. Utterback, J., & Abernathy, W. (1975). A dynamic model of product and process innovation. Omega, 3(6), 639–656. World Values Survey. (2021). Homepage of the organization in charge of the survey. Accessed November 9, 2021, from https://www.worldvaluessurvey.org/wvs.jsp

Part II Two Cradles of Management Innovations

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Silicon Valley

Silicon Valley is known for innovation in technology, but over the years it also has been a cradle of innovation in management. New management approaches were developed, in part, out of necessity. The Valley’s primary industries, electronics and information technology, are fast-moving and constantly changing. They have been that way from the start. To thrive, companies must be flexible and entrepreneurial— not only responding to change, but in many cases initiating change, by mobilizing quickly to create new products and seize new market opportunities. Companies in Silicon Valley have done this repeatedly. Today, the brand leader in mobile phones is Apple, and most mobile phones operate on software from Google (Statista, 2021). And yet neither company had roots in mobile communication. Apple’s initial success was built in personal computing and Google’s in internet search. Both displayed their dynamic capabilities by jumping into mobile tech and taking leadership roles. It is very hard to imagine that the companies could have accomplished what they did, if they had been managed under the old Machine Bureaucracy model. The same is true when we look at major companies elsewhere in the Valley. Facebook, for example, has a dominant position in social media. In mid-2021 the core site had over 2.8 billion monthly active users, more than one-third of the world’s population (Facebook, 2021). The company grew to this level despite waves of competition from other social media. And throughout much of its growth, Facebook used the famous slogan “Move fast and break things,” which told employees: do not hesitate to challenge or change something if you see a better way of doing it (Statt, 2014). Would such a message ever be posted on the walls of a bureaucratic, conventionally managed company? This chapter will show that Silicon Valley firms have evolved toward a management model which is, in many respects, the polar opposite of Machine Bureaucracy. The chapter draws from the author’s previous research at leading companies including Google, Facebook, and Tesla. Companies like these, operating by what we call the Silicon Valley Model, are structured differently than traditional bureaucracies. As the scholar Homa Bahrami reported in an early (1992) study of the Valley, they # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_2

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tend to minimize command-and-control hierarchies, with each firm organized more like “a federation or constellation of business units” around a corporate “center.” All parts have specific roles to play, but they share expertise and collaborate, and much of the structure can be reoriented quickly to pursue new projects (Bahrami, 1992). However, the organizational structure is not the only difference. Companies managed by this new model differ from the old in terms of leadership style, culture, and the kinds of people they attract. All these, in turn, are driven by a difference in strategic focus. Whereas the bureaucratic model is geared to controlling and maximizing the assets that a company already has, the Silicon Valley Model aims for innovation and growth. It is fundamentally more forward looking, and thus better suited to a world moving ever forward into uncertain futures. Whether it is the best model is another question. As we shall see in chapters ahead, some Chinese companies have adopted advanced approaches, and Haier’s RenDanHeYi model is producing results at GE Appliances that look especially promising. For years, however, the Silicon Valley Model has been a standardsetter. It embodies the idea that companies need to remain entrepreneurial as they grow large. The principles that it is based on appear to be sound. Indeed, models now emerging from China are to a large extent inspired by the same principles, which they implement in newer forms. Therefore, it is well worth reviewing how the Silicon Valley Model came to be and what it consists of. The sections below trace the story behind its development. Included along the way is a (very) brief history of Silicon Valley itself, as both social and technological factors played roles in shaping this model. The story will then carry us into an outline description of the model, with a point-by-point comparison showing how it departs from a typical Machine Bureaucracy.

2.1

The Origins of Silicon Valley: How a New Era, Long ago, Shaped Today’s Principles

Many people consider that Silicon Valley began with the founding of HewlettPackard in 1939. HP went on to be large and influential and is still active today. The humble garage where Bill Hewlett and David Packard did their first work is now a landmark with a sign proclaiming it “The Birthplace of Silicon Valley.” But in fact, the electronics industry in this broad California valley began with another company founded decades earlier, in 1909. And the forces leading to the birth of that company took shape even farther back in time: in the 1840s. The present US state of California was then essentially a wilderness, untouched by the Industrial Revolution and far from any big city. Nominally, Alta California was a territory of Mexico, covering a coastal area larger than Italy. Yet by most estimates, the entire expanse was home to no more than a few hundred thousand people—most of them indigenous peoples living in scattered villages, plus some missionaries, ranchers, and assorted adventurers (See, for example, PBS, 2006). Then two events in 1848 changed everything. At the end of the MexicanAmerican War, Mexico ceded California to the United States, and gold deposits

2.1 The Origins of Silicon Valley: How a New Era, Long ago, Shaped Today’s. . .

19

were discovered in the hills of Northern California. From 1848 to 1855, the ensuing Gold Rush brought an estimated 300,000 immigrants to this single region of a vast and still largely ungoverned territory. Many of course were prospectors hoping to find gold (as many did). But many more were entrepreneurs aiming to start businesses around the activity. The Gold Rush was a disaster for the local indigenous peoples, who often were driven from their hunting-and-planting grounds or died trying to hold out. Meanwhile, a singular experience awaited the newcomers. Great numbers of them arrived in a land that was, by modern standards of the time, a blank slate. They found little to no infrastructure or social order in place. Along with starting businesses and constructing roads and buildings, they had to create public institutions, services, and formal or informal systems of working together. Much of this unfolded in the San Francisco Bay Area, which had the best port reasonably close to the goldfields for people coming by sea. It is tempting to say that over the next few decades, San Francisco “grew” from a tiny seaside outpost to a burgeoning metropolis. But the growth did not simply happen. Everything had to be envisioned, invented, and made real. For everyone involved, it was an ultimate entrepreneurial exercise. The new arrivals proved to be up to the task. In his travel memoir Roughing It, Mark Twain described the Gold Rush participants vividly as follows: It was a splendid population—for all the slow, sleepy, sluggish-brained sloths stayed at home—you never find that sort of people among pioneers . . . It was that population that gave to California a name for getting up astounding enterprises and rushing them through with a magnificent dash and daring . . . (Twain, 1872)

And, as historians of more recent times have noted, the whole phenomenon laid the cultural groundwork for managerial and technical innovations to come (See, for example, Bahrami, 1992). Principles that were established in the Bay Area from the mid to late 1800s, and which later turned up as elements of the Silicon Valley Model (!), included: • The notion of embracing and executing big, inspiring visions. • The knowledge that institutions and work methods often need to be created anew, instead of merely being add-ons to what exists. • The perception of people, with their initiative and their talents, as being the key ingredients for creating new things. • Last in this short list but not least, the value of networking and of reaching across boundaries to create new knowledge and business value. Partnering, for instance, was common during the Gold Rush. Levi Strauss, a merchant who came to San Francisco to open a wholesale fabrics store, teamed with a customer who was a tailor, and had designed work pants for miners and others. Soon they started a factory to produce the patented Levi’s blue jeans, creating one of the nation’s longest-running and most successful clothing companies (Levi Strauss & Co., 2021).

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Another Gold Rush newcomer, Leland Stanford, was a precursor of the modernday tech executive or professional who learns to wear many hats rather than settling into a niche. Stanford started and/or ran multiple businesses, from retail to railroads. He served a term as governor of California. And at the end of his career, along with his wife Jane, he co-founded a university. Stanford University was built on the family’s horse farm south of San Francisco and ambitiously staffed with faculty from across the United States. When it opened in 1891, some critics mocked the Stanfords for starting a lavish new school in a horse pasture (Tutorow, 2004). But here was an example of embracing a big vision, which paid big returns. Within a short time, this closing act of the Gold Rush era—financed by the fortune that the Stanfords had accumulated—provided a direct bridge to the origin of the Silicon Valley era.

2.2

The Birth of an Industry Ecosystem: The Growth of a Management Mindset

One of Stanford University’s well-funded academic units was an engineering school. In 1909, at the urging of his favorite professor, a young graduate named Cyril Elwell chose to start a company instead of taking a job at one. Seed funding for the startup came from Stanford’s president and the head of the electrical engineering department (Sturgeon, 2000; Norberg, 1976). Already we can see a precedent being set, as close relations between the university and industry would become a hallmark of Silicon Valley’s later growth. But Cyril Elwell’s startup set major precedents of its own. It was the first advanced technology company in the region then known as the Santa Clara Valley. Federal Telegraph Company, a misleading name in today’s context, was formed to make radio transmitters for the US Navy. Radio (or “wireless”) in its early days was seen mainly as a medium for sending messages to and from ships at sea. Elwell had learned of a transmitter design in Denmark that seemed best-of-breed. So, he licensed the rights to it and brought in Danish engineers to help refine and build the bulky, powerful machines. These men were arguably the first immigrant tech talent to arrive in the Valley (Sturgeon, 2000; Norberg, 1976). Then came further precedents. As Federal Telegraph grew and prospered, it briefly employed the famous inventor Lee DeForest, who used the company’s Palo Alto facility to perfect his three-element vacuum tube—the compact device that became the basis of the explosive growth of radio, television, and nearly all electronics for years to come (Sturgeon, 2000; Norberg, 1976). The vacuum tube would make Federal Telegraph’s original transmitters obsolete, but that was not a great concern. The company had learned a truth that governed the nascent electronics industry and would also inform the management of companies in the industry: Progress is inevitable. Change is to be expected. Management must be aware of the changing environment and prepare the company to catch the next wave. Today one hears little about Federal Telegraph. Although it operated successfully for decades, the company was merged and remerged from the 1920s onward, making

2.3 Innovation in Technology and in Management: An Ongoing Dance

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much of its later life anonymous. Before that, however, Federal Telegraph produced a spinout impact across the Valley and Bay Area. Employees left to start new companies, most prominently Peter Jensen, who co-founded Magnavox. The vacuum tube business also spread, as clusters of new shops arose making tubes of various kinds (Sturgeon, 2000; Norberg, 1976). The overall result was the formation of an ecosystem: one in which networking proliferated, while skilled people moved frequently from one company to another seeking new opportunities to do innovative work. These ecosystem effects, too, have influenced management approaches in Silicon Valley. Open innovation has flourished, through alliances and acquisitions. A notable recent example is Google/ Alphabet. The company had its Android operating system developed by an opensource consortium; Google Maps was developed internally from acquired technology, and altogether the company has made more than 240 acquisitions since 2000. Furthermore, the mobility of talent in the ecosystem has helped to drive home the importance of attracting and retaining good people. Hewlett-Packard was one early leader in this regard. Through its growth years, HP was able to attract top talent, not necessarily with high pay but with an innovative culture featuring a “decentralized corporate structure and informal management style, [and] its emphasis on teamwork, shared responsibility, and entrepreneurship” (Saxenian, 1994). Another early leader was the medical equipment company Varian Associates, now part of Siemens. Varian ascended in the post-World War II period by offering “top-flight researchers . . . an environment where they could create without restriction,” as well as a cooperative ownership arrangement (Towers, 2002). During this author’s research on the Silicon Valley Model, all companies that were interviewed placed an emphasis on attracting and retaining the right kinds of people. In general, this meant people who would respond to an environment that invites them to be innovative and entrepreneurial, and we will hear more on the subject shortly. First, however, a note on the effects of technology.

2.3

Innovation in Technology and in Management: An Ongoing Dance

Silicon Valley got its nickname in the early 1970s, from the companies like Intel that had sprung up to make integrated circuits on silicon-based chips. The microtransistors in the chips made DeForest’s vacuum tubes obsolete. And they ushered in a new age of rapid, dizzying change. As chip-making progressed via Moore’s Law, delivering more computing capacity more affordably, it became possible to have personal computers. Software emerged as an industry to create ready-made applications running on computers. Then, with the advent of interlinked networks, the public Internet and web arrived . . . followed by the revolution in mobile technology, and currently, the growth of the Internet of Things. “Information technology” actually seems too narrow a term to describe what has become available to us. It is a technology of embedded intelligence and expansive

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communication interwoven through every realm of human activity. And it has had a double-edged effect on management. • On one hand, the pace of technical innovation has increased the imperative to innovate in management. Every company in every industry must now find new ways to manage flexibly, responsively, and entrepreneurially. • At the same time, on the other hand, technical innovation has enabled the creation of new ways to manage. Years ago, in Homa Bahrami’s, 1992 study of Silicon Valley, she pointed out that advances like “electronic mail” were helping to flatten layers of management at the companies, by taking over much of the communication and coordination for which middle managers would otherwise be responsible. Today we have come much farther than using email. Companies that are truly at the cutting edge of management apply information technology extensively, not just to replace humans, but to enhance the human capacity for working together.

2.4

Moving Ahead

Now we turn to a descriptive summary of the Silicon Valley Model, and a comparison table showing how it differs from the Machine Bureaucracy model.

References Bahrami, H. (1992). The emerging flexible organization: Perspectives from Silicon Valley. California Management Review, 34(4), 33–52. https://doi.org/10.2307/41166702 Facebook. (2021). Facebook reports first quarter 2021 results, 28 April, 2021. Accessed November 9, 2021, from https://investor.fb.com/investor-news/press-release-details/2021/FacebookReports-First-Quarter-2021-Results/default.aspx Levi Strauss & Co. (2021). About us: Levi Strauss & Co. history. Accessed November 9, 2021, from https://www.levi.com/US/en_US/features/about-us Norberg, A. L. (1976). The origins of the electronics industry on the Pacific coast. Proceedings of the Institute of Electrical and Electronics Engineers, 64(9), 1314–1322. https://doi.org/10.1109/ PROC.1976.10321 PBS. (2006). The California Gold Rush. Accessed November 9, 2021, from https://www.pbs.org/ wgbh/americanexperience/features/goldrush-california/ Saxenian, A. (1994). Regional advantage: Culture and competition in Silicon Valley and route 128. Harvard University Press. Statista. (2021). Mobile operating systems’ market share worldwide from January 2012 to June 2021, 29 June 2021. Accessed 9 November 2021, from https://www.statista.com/statistics/272 698/global-market-share-held-by-mobile-operating-systems-since-2009/ Statt, N. (2014). Zuckerberg: ‘Move fast and break things’ isn’t how Facebook operates anymore. CNET, 30 April 2014. Accessed November 9, 2021, from https://www.cnet.com/tech/mobile/ zuckerberg-move-fast-and-break-things-isnt-how-we-operate-anymore/

References

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Sturgeon, T. (2000). How Silicon Valley came to be. In M. Kenney (Ed.), Understanding Silicon Valley: The anatomy of an entrepreneurial region. Stanford University Press. Towers, S. (2002). The Silicon Valley management style. Institute for Management Excellence, April 2002. Accessed November 9, 2021, from http://www.itstime.com/apr2002.htm Tutorow, N. (2004). The governor: The life and legacy of Leland Stanford. Arthur H. Clark Company. Twain, M. (1872). Roughing it. American Publishing Company, Hartford, Connecticut, Chapter LVII. On Project Gutenberg. Accessed November 9, 2021, from http://www. gutenberg.org/files/3177/3177-h/3177-h.htm#linkch28

3

The Silicon Valley Model

In her previous research, the author found that the innovative Silicon Valley companies were almost diametrically opposite from more traditional industrial companies. The conclusion was therefore that their management principles could represent a new management model, better suited for the digital economy. Briefly, the Silicon Valley Model could be described as follows: The senior leadership in the new model focuses primarily on continuous growth and is externally focused. Further, the firm searches for, and promotes entrepreneurial and diverse skills, and the culture in the new model focuses on being unique, adaptable and on allowing risk and learning fast. The daily leaders act as facilitators and coaches, applying a decentralized leadership, and the organizational structure is aimed at being flat and semistructured. In addition, sources for innovation come from anyone and anywhere and everyone is part of the innovation process. Finally, the degree of automation of communication processes is high. The author’s summary, based on Steiber & Alänge (2016)

We will examine all of these features more closely by comparing the Model with the traditional “Machine Bureaucracy” model as described by Henry Mintzberg (Mintzberg, 1980).

3.1

The Silicon Valley Model Versus the Traditional Model

Eight key dimensions have been chosen for this comparison. Each of the dimensions differentiated leading Silicon Valley firms from traditional ones in the author’s earlier research. Table 3.1 outlines the differences, which are explained in more detail below. Top Leadership At companies using the Silicon Valley Model, top executives favor strategies that emphasize innovation and growth. In pursuit of these goals, much of their attention is focused externally on emerging opportunities and threats, rather # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_3

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Table 3.1 The traditional “Machine Bureaucracy” model versus the Silicon Valley Model (Steiber & Alänge, 2016) Element Strategic intent of top leaders Primary focus of top leaders People Culture Leaders

Organization

Traditional model Cost reduction, profit maximization

Silicon Valley model Innovation and growth

Internal

External

Valued for operational competencies and experience Emphasizes control, efficiency, and quality Managers. Set direction and priorities. Instruct what should be done and in many cases how it should be done. Follow up and control Bureaucratic, highly structured, use of larger units. Vertically distributed decision power, power concentrated in higher levels of the organization. Internally generated innovations

Valued for entrepreneurial qualities and adaptability Emphasizes adaptability, innovation, and speed Coaches. Together with the teams, set direction and priorities but leave the HOW to the team members. Support the team if problems arise

Coordination mechanisms

Through standardization of work processes, job descriptions, skills, and output

Automated communication processes

Low. Cost of communication is low. Information can be managed through traditional channels

Organic, semi-structured, and flat, high use of small teams. Selective decentralization to local decision makers, usually the teams. Temporarily, decision power can be centralized to the top. Innovation from anyone and anywhere Through compelling vision, culture, simple rules, and clear performance and evaluation systems focused on key priorities High. Cost of communication is high, which requires automation of communication processes

than internally.1 Also, the top leaders have a founder’s mindset, cultivating the entrepreneurial culture within the organization. In the more traditional bureaucratic model, the strategic emphasis is mostly on cost control and profit and the focus tends to be more internal. Traditional top leaders, therefore, tend to have a “business” or “financial” mindset instead of a founder’s way of thinking. This suggests why Silicon Valley firms are likely to be more ambidextrous since top leaders set a tone for valuing new business as well as the existing operations. People The Silicon Valley Model requires people who are adaptive, passionate, question the status quo, and are collaborative. The desired qualities can be summed up by saying that above all, a company in a digital economy needs people who are

1

However, the top leadership at several of our case companies divides the responsibility for an internal efficiency-oriented focus and an external, more future-oriented focus between different individuals.

3.1 The Silicon Valley Model Versus the Traditional Model

27

entrepreneurial and adaptable. Operational and technical skills are still important but need to be constantly updated due to a changing environment, which is one reason why fast learning is highly emphasized. In more traditional firms, hiring managers commonly emphasize operational and/or technical skills based on experience and tenure, often favoring experience in the same firm or in similar organizations/ industries. Culture In the author’s research on the Silicon Valley Model, the interviewees at the case companies stressed the importance of building and maintaining a strong culture. And, while each company’s culture is distinctive, all share the same fundamental ethos. Their cultures value uniqueness and product innovation, which means that judicious risk-taking is encouraged. Adaptability and speed are also highly valued. Both decision-making and tasks are expected to be done as quickly as practicality allows, and experimentation with anything new is usually accomplished through rapid test-and-learn cycles. A traditional bureaucratic firm may have a strong culture, too, but it is typically a culture that values efficiency, quality control, and minimization of risk. Thus, it can be difficult to get buy-in for rapid experimentation and decision-making in these firms. Daily (or mid-level) leadership in the Silicon Valley Model consists mainly of coaching teams to excellence. Leaders establish objectives, goals, and priorities, often working together with their teams on these points, and then give the team members considerable autonomy in choosing how they will execute. Daily leaders must be adept at balancing operations with innovation and, of course, must be able to support their teams when problems arise. In the traditional bureaucracy, daily leadership is more micromanaging and top-down. Along with setting directions and priorities, leaders typically instruct team members on what should be done, how and by whom. Organization Silicon Valley Model companies are “semi-structured,” with a flat, non-bureaucratic, and loose (or organic) organizational form. Limited standardization of work processes and job definitions, along with the use of small, highly independent teams, makes the companies adaptable and responsive. Decision-making and strategizing are selectively delegated to local persons and teams. A temporary hierarchy exists when top leaders set an overall strategy for the firm, or when there is a need to transform the business model to seize opportunities or respond to competitors’ moves. Traditional bureaucratic firms are not organized in these ways. They tend to have stable, formal structures housing large internal units, which operate at a large scale by virtue of having standardized work processes and job descriptions. Further, decision power is usually stacked vertically, with top executives and upper-middle managers either making key decisions or needing to approve them. Coordination of people and tasks is another area where the models diverge profoundly. In the Silicon Valley Model, companies rely to a large extent on “soft

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The Silicon Valley Model

control”—such as clearly communicating the firm’s mission and cultural values, to create the expectation that people will align with these—and the soft mechanisms are backed up by rigorous systems for evaluating performance in terms of key priorities. The traditional bureaucratic model relies much more on its highly standardized work and procedures. Cost of Communication Finally, these costs are high in the Silicon Valley Model, which requires a networked organization, openness, and transparency. Communication and information-sharing processes therefore need to be, and are, facilitated by intensive use of automated IT in multiple forms. In traditional bureaucratic firms, however, information is not shared freely or widely and thus the costs of communication are lower. For example, a significant amount of information moves vertically and much of it may be “locked in” to certain groups that are told to treat it as confidential. This way of communicating is almost a necessity if the organization does not use automated systems to deal with increased, real-time, rapid flows of information.

3.2

Moving Ahead

We have now conceptualized the Silicon Valley Model and compared it to a traditional bureaucratic model, with the latter described mainly according to the work of Mintzberg (1980). The comparison vividly shows that the new model is the polar opposite of the old in every major respect. Next, we turn our gaze to China, where new conditions and new companies have led to management models that are similar to the Silicon Valley Model but may in some respects surpass it.

References Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research on organization design. Management Science, 26(3), 322–341. https://doi.org/10.1287/mnsc.26.3.322 Steiber, A., & Alänge, S. (2016). The Silicon Valley model: Management for entrepreneurship. Springer International Publishing.

4

China

The emergence of advanced technology companies in China has been enabled and supported by a series of economic reforms and government initiatives since the 1970s. The first reforms were launched in 1978 under Deng Xiaoping and augmented by further steps, and they had multiple effects. They allowed greater autonomy in the formation and leadership of businesses, so that an economy dominated by state-owned enterprises gradually came to include ambitious new ventures, and generally became more responsive to the market forces of supply and demand. These reforms also opened China to direct foreign investment and world trade. As a result, China became the world’s largest recipient of foreign direct investments from OECD countries by 2003 (See, for example, OECD, 2004). In 2005, an important new policy was implemented: “Go Global.” One purpose was for Chinese firms to invest more actively outside China, toward a goal of balancing inward and outward foreign direct investments. By 2014, the outward flow had reached a total of US$103 billion, while inward foreign direct investments reached US$120 billion (Yip & McKern, 2016). In 2006, the Chinese government issued its National Long-Term Science and Technology Development Plan 2006–2020, which laid out a national strategy for making China an innovative country within 20 years (Zhang & Zhou, 2015). The clearly declared intention was for China “not only to catch up with the West, but to re-establish itself at the forefront of technological innovation” (Yip & McKern, 2016, p. 1). One result of this policy was that the contribution of tech industries to economic growth increased from 20.9% in 2010 to 55.3% in 2015 (State Council, People’s Republic of China, 2016). China has been building up its capabilities to innovate since the 1980s. The learning curve for Chinese companies took off when they had to start from scratch after markets were permitted. With very limited experience in the management of technology, they started to learn from Western companies. According to the researchers George S. Yip and Bruce McKern, they began by simply imitating Western products and services, and then progressed to adapting the goods to their own markets. The authors labeled this phase as a movement “from copying to fit-for# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_4

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China

purpose” (Yip & McKern, 2016). Entrepreneurs in China thus learned the skills of incremental innovation by altering and improving the imitated products and services. New competition from foreign tech companies led to the next phase in China’s evolution, in which Chinese companies increasingly emphasized reaching world standards to compete with foreign products (Steiber, 2018). In the current third phase, Chinese companies aim for technological leadership (Yip & McKern, 2016). The country is also using its earned cash to invest in the developed world, as mentioned above, securing brand names, market access, global talents, and technologies. There have been several facilitators behind this evolution, as presented in Steiber (2018). One important factor has been the Chinese cultural heritage. The social psychologists Geert Hofstede and Michael H. Bond argued that Confucianism was behind economic growth in the Four Asian Tigers, Hong Kong, Singapore, Taiwan, and South Korea (Hofstede & Bond, 1988), implying why it also has benefited China. Virtues of Confucianism noted in their book include being “self-cultivating,” the pursuit of “lifelong learning,” “tolerance of mistakes,” and “moderation” (Hofstede & Bond, 1988, p. 97). According to the authors, Confucianism emphasizes that fundamental human relationship starts with self-cultivation, and this self-cultivation supports having patience and endurance in innovation activities, which are not always guaranteed success. Confucianism also emphasizes that everyone should be proactive in their learning by adopting an agile learning attitude. Another important factor has been the Chinese education system. According to scholars Fan et al. (2017), “Modern [Chinese] higher education, based first on European models and later on American colleges and universities, has been a major part of the transformation of China in the past century.” According to China’s Ministry of Education, more than nine million college students were on track to graduate in China in 2021 (Global Times, 2021). This is over 10X higher than the number in the late 1990s and well over twice the number of 2021 college graduates in the United States (Hanson, 2021). The growth in the number of engineers has been explosive, and the government’s “Made in China 2025” strategy to become a global high-tech leader has created many opportunities for graduates in engineering, science, and economics. The tremendous rise in the number of graduated students is an effect of 1999 reforms in which the Chinese government launched a program to massively expand university enrollment. Other factors of importance were the buildup of Chinese cross-sector platforms for innovation, and massive corporate R&D spending on new technologies. For example, the Chinese government promoted the formation and development of national and provincial-level science parks. By 2006, there were 54 national science parks with 43,249 high-tech firms connected to them (Zhang & Sonobe, 2011). Firms located at these science and industry parks were required to create or apply advanced technologies, invest at least 3% of gross revenues in R&D and employ at least 30% college-degree workers (Campbell, 2013). As a consequence, several industry clusters were developed rapidly (Zhang & Zhou, 2015), and important actors in the ecosystem such as universities, research institutes, and businesses themselves conducted both basic and applied research in order to increase China’s

References

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innovation rate. Further, according to a China Daily report, the rise in research and development spending was a result of China’s conscious shift from competitive cost advantage to advantages in innovation to win in the global market. The report noted that in the 2016 Global Innovation 1000 Study from Strategy&, 130 Chinese companies were among the top 1000 spenders on R&D, and that these companies combined had spent US$46.8 billion on R&D, up 18.6% from US$39.4 billion in 2015 (Zhang & Zhou, 2015). Further, in 2020, China’s spending on research and development climbed 10.3% to a record 2.44 trillion Chinese yuan—or US$378 billion at the time of writing (Shead, 2021). Finally, several macro-factors played important roles in China’s movement toward innovation and growth. These factors included the country’s huge and increasingly prosperous domestic market, harsh competition within that market, and an increasing access to capital.

4.1

Moving Ahead

This chapter has given a brief overview of the factors that led to new companies with new forms of management in China. Next, we will look at some common characteristics of a new Chinese management model that has been put into practice at several leading companies.

References Campbell, J. R. (2013). Becoming a techno-industrial power: Chinese science and technology policy. Paper in the Brookings Institution series on Issues in Technology Innovation, Number 23, April 2013. Fan, M., Wen, H., Yang, L., & He, J. (2017). Exploring a new kind of higher education with Chinese characteristics. The American Journal of Economics and Sociology, 76(3), 731–790. https://doi.org/10.1111/ajes.12192 Global Times. (2021). Fresh grads in China face ‘complex, arduous’ job searches as record 9m leave universities in 2021, 14 May 2021. Accessed November 18, 2021, from https://www. globaltimes.cn/page/202105/1223464.shtml Hanson, M. (2021). College graduation statistics. Updated 9 August 2021 at Educationdata.org. Accessed November 18, 2021, from https://educationdata.org/number-of-college-graduates Hofstede, G., & Bond, M. (1988). The Confucius connection: From cultural roots to economic growth. Organizational Dynamics, 16(4), 4–21. https://doi.org/10.1016/0090-2616(88)90009-5 OECD. (2004). Foreign direct investment into OECD countries fell in 2003 for third consecutive year. Organization for Economic Co-operation and Development website, 28 June 2004. Accessed November 18, 2021, from http://www.oecd.org/general/ foreigndirectinvestmentintooecdcountriesfellin2003forthirdconsecutiveyear.htm Shead, S. (2021). China’s spending on research and development hits a record $378 billion. CNBC, 1 March 2021. Accessed November 18, 2021, from https://www.cnbc.com/2021/03/01/chinasspending-on-rd-hits-a-record-378-billion.html State Council, People’s Republic of China. (2016). China to boost scientific and technological innovation. Chinese government website, 8 August 2016. Accessed November 18, 2021, from http://english.gov.cn/policies/latest_releases/2016/08/08/content_281475412096102.htm

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Steiber, A. (2018). Management in the digital age: Will China surpass Silicon Valley? Springer International Publishing. Yip, G. S., & McKern, B. (2016). China’s next strategic advantage: From imitation to innovation. MIT. Zhang, H., & Sonobe, T. (2011). Development of science and technology parks in China, 1988-2008. Economics: The Open-Access, Open-Assessment E-Journal, 5(6), 1–25. https:// doi.org/10.5018/economics-ejournal.ja.2011-6 Zhang, Y., & Zhou, Y. (2015). The source of innovation in China: Highly innovative systems. Palgrave Macmillan.

5

The New Chinese Model

As a result of the evolution of China and of technologies, companies in China emerged with cultures and management approaches similar to those in Silicon Valley (Steiber, 2018). In fact, Haier sparked the idea for the author’s previous book on Chinese management by calling attention to the subject. In 2016, shortly after The Silicon Valley Model was published, representatives of Haier contacted the author. They said Haier could be viewed as following the same model—except that in certain ways, their version was even more advanced than what the Silicon Valley case companies were doing. Naturally, this led to further exchanges with Haier, and it raised several questions. Might there be more Chinese companies also using “advanced” versions of the Silicon Valley Model? To answer this question, the author spent one year (2016–2017) conducting research on innovative Chinese companies. Much of the research focused on six case companies: Haier, the “big three” Internet firms Alibaba, Baidu, and Tencent, and the fast-rising mobile phone company Xiaomi, with Huawei also partly covered. All were identified as highly innovative in their ways of managing the firm, and the author found similarities to Silicon Valley’s case companies in multiple respects, as follows.

5.1

Visionary and Externally Focused Top Leaders

The author found that the entrepreneurial founders of the Chinese case companies still held top executive posts at the firms and played leading roles in their growth.1 The personal histories of the founder/top leaders showed that they had displayed visionary qualities beforehand and then continued driving their companies to 1 In 2019, after the author’s research, Jack Ma stepped down as executive chairman of Alibaba. However, by that time he had led Alibaba through 20 years of growth and expansion.

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_5

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The New Chinese Model

innovate. For example, Baidu’s founder, Robin Li, was an early innovator of search technology while working in the United States (New York Times News Service, 2006). After starting Baidu he personally reworked the company’s business model and technology, making it China’s largest search portal (Greenberg, 2009), and later took Baidu into artificial intelligence and other fields for potential global expansion (Jing, 2016). Often, the leaders of these companies have been hailed as visionary heroes in the business media. Zhang Ruimin, chairman emeritus and former longtime CEO of Haier, has been compared to Jack Welch, the legendary former head of GE (Kleiner, 2014). Xiaomi’s Lei Jun has been called “the new Steve Jobs” (see, for example, White, 2020), while Jack Ma literally came to be identified with his company—as in the book title Alibaba: The House that Jack Ma Built (Clark, 2016). Most of the companies have some form of dual top leadership, in which the founder looks ahead and around the corner for growth opportunities while his partner is focused on operations and development of these. At Tencent, Pony Ma and Martin Lau have been compared to Mark Zuckerberg and Sheryl Sandberg at Facebook in their division of focus (Stone & Chen, 2017). Further, the Chinese top leaders stay very closely involved with strategic business projects. An interviewee at one company said: The CEO is extremely committed . . . It is all about the business. It is prioritized before anything else . . . The CEO had frequent long meetings that could be two to five hours or more. They didn’t leave the room until the problem was solved.

Further, the case companies’ founding CEOs were perceived as having a longterm mindset. At several firms it was said that the founders play the role of “evangelist” or “advisor on long term direction,” and in certain cases drive their own strategic pet projects toward the bold vision and mission. Brian A. Wong (2017), then a group vice president at Alibaba, said: The senior leaders must see the big trends but also understand the details of the operation. They need to inspire their team and point out the right direction.

Wong also said that Alibaba uses Eastern philosophy together with Western know-how and tries to give teams on lower levels room for innovation, as businesses in fast-changing fields cannot be run by blueprints and the people best suited to see what works, are those closest to the problems.

5.2

Culture and People

The Chinese case companies’ top leaders appear to strive for cultures that emphasize innovation, speed, and adaptability rather than stability and control (Rabkin, 2012). Words such as “flat,” “collaborative,” “open,” “innovative,” “non-bureaucratic,” and “flexible” were used by the Chinese companies. In recruiting, the Chinese

5.3 Organization, Coordination of Resources, and Digital Ecosystems

35

companies look for people with qualities similar to those sought in Silicon Valley. The companies used terms like: “entrepreneurial spirit,” “non-bureaucratic,” “embrace change,” “not a corporate person,” “open minded,” “collaborative,” “humble,” and “willing to challenge and be challenged.”

5.3

Organization, Coordination of Resources, and Digital Ecosystems

The Chinese companies were perceived to have fewer formal processes than typical Western corporations and therefore to be much more agile and flexible. One key to this was the development of organizational solutions consisting of a number of independent smaller business units. Scale was achieved by means that included, e.g., using the same platform(s) for all businesses. This structure is reminiscent of the approach that Homa Bahrami (1992) of UC-Berkeley observed in Silicon Valley in the early 1990s. Her work was cited previously, and to quote from it more fully: The emerging organizational system of high-technology firms is more akin to a “federation” or “constellation” of business units that are typically interdependent, relying on one another for critical expertise and know-how. Moreover, they have a peer-to-peer relationship with the [corporate] center. The center’s role is to orchestrate the broad strategic vision, develop the shared organizational and administrative infrastructure, and create the cultural glue.

Further, the Chinese companies have displayed considerable duality. They have been able to grow rapidly, adding new features to their products and branching into new lines of business—all while maintaining complex existing operations (Steiber, 2018). Regarding coordination of people and their work, Yip and McKern (2016) found that the Chinese firms were less oriented to using strictly defined work processes but used individual and team-based incentives and milestones. For example, the author of this book was informed that Alibaba sets “monthly targets for salespeople and quarterly or half year targets for operations teams” (Wong, 2017), and Baidu uses both quarterly reviews and personal development plans. Yip and McKern (2016) also found the companies having a high degree of horizontal communication across departments and units, which can be effective in coordinating projects and tasks. Further, employees are also coordinated through involvement, effective communication, and direct intervention from the top manager (Steiber, 2018). The frequent use of messaging platforms internally, such as WeChat at Tencent and Alibaba’s DingTalk and Aliway, was mentioned, not only to communicate but also to work together efficiently on special projects, for example. In several cases, such as at Huawei, the CEO himself was directly involved in messaging team members to provide feedback to strategic project teams. Finally, the Chinese case companies all have embraced open innovation (Chesbrough, 2003) and the power of ecosystems. The American consultants Nunes and Downes (2016) writing in Forbes.com observed that

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Haier has fully embraced the open innovation model as part of the company’s ongoing transformation from a traditional manufacturing concern. Long-time CEO Zhang Ruimin sees the company’s new incarnation as an Internet platform supporting autonomous operating units called “microenterprises,” which may be partly or fully independent of Haier.

Tencent, Alibaba, Baidu, and Xiaomi also have completely adopted an open innovation and ecosystem approach. In fact, McKinsey stated in October 2021 that China had the fastest evolving digital ecosystems in the world (Bu et al., 2021). This could be illustrated by the fact that Haier alone had over 4000 microenterprises connected to its Hai Chuanghui (HCH) entrepreneurial accelerator platform (Haier, n.d.). These ecosystems are enabled by technologies such as the Internet, cloud computing, big data analytics, artificial intelligence, and blockchain (Steiber, 2021).

5.4

Moving Ahead

Of all the Chinese companies that were studied, Haier has transformed itself the most dramatically and impressively. The next chapters tell the story in full, tracing Haier’s strategic development and its revolutionary management model called RenDanHeYi.

References Bahrami, H. (1992). The emerging flexible organization: Perspectives from Silicon Valley. California Management Review, 34(4), 33–52. https://doi.org/10.2307/41166702 Bu, L., Chung, V., Leung, N., Wang, K.W., Xia, B., & Xia, C. (2021). The future of digital innovation in China: Megatrends shaping one of the world's fastest evolving digital ecosystems. McKinsey & Company, 4 October 2021. Accessed 14 November 2021 at https://www. mckinsey.com/featured-insights/china/the-future-of-digital-innovation-in-china-megatrendsshaping-one-of-the-worlds-fastest-evolving-digital-ecosystems?cid¼other-eml-alt-mip-mck& hdpid¼50658e70-0465-4138-aa00-0c4e815cdba8&hctky¼11328475&hlkid¼965627cb0 7e84157a2b1d46c2425172c. Accessed 18 November 2021. Chesbrough, H. (2003). Open innovation: The new imperative for creating and profiting from technology. Harvard Business School Publishing. Clark, D. (2016). Alibaba: The house that Jack Ma built. Ecco. Greenberg, A. (2009, September 16). The man who’s beating Google. Forbes. Retrieved December 1, 2021, from https://www.forbes.com/forbes/2009/1005/technology-baidu-robin-li-man-whosbeating-google.html?sh¼1549ba33bc1b Haier. (n.d.). About HCH. Accessed November 18, 2021, from https://www.haier.com/global/hch/ Jing, M. (2016). Baidu will shift its business model to AI. China Daily, 11 May 2016. Accessed December 1, 2021, from http://www.chinadaily.com.cn/business/tech/2016-05/11/content_2 5202540.htm Kleiner, A. (2014). China’s philosopher-CEO Zhang Ruimin. Strategy+Business, 10 November 2014. Accessed November 18, 2021, from https://www.strategy-business.com/article/00296? gko¼8155b New York Times News Service, Beijing. (2006). Robin Li’s vision powers Baidu’s internet search dominance. Found in Taipei Times online, 17 September 2006. Accessed November 18, 2021, from http://www.taipeitimes.com/News/bizfocus/archives/2006/09/17/2003328060/1

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Nunes, P., & Downes, L. (2016). At Haier and Lenovo, Chinese-style open innovation. Forbes. com, 27 September 2016. Accessed November 18, 2021, from https://www.forbes.com/sites/ bigbangdisruption/2016/09/26/at-haier-and-lenovo-chinese-style-open-innovation/?sh¼5b2 988852b15 Rabkin, A. (2012). Leaders at Alibaba, Youku, and Baidu are slowly shaking up China’s corporate culture. Fast Company, 9 January 2012. Accessed November 18, 2021, from http://www. fastcompany.com/1802729/leaders-alibaba-youku-and-baidu-are-slowly-shaking-chinas-corpo rate-culture Steiber, A. (2018). Management in the digital age: Will China surpass Silicon Valley? Springer International Publishing. Steiber, A. (2021). Personal interview with Haier on the ecosystem brand “Internet of Clothes,” 19 April 2021. Stone, B., & Chen, L. Y. (2017). Tencent dominates in China. Next challenge is rest of the world. Bloomberg.com. Accessed November 18, 2021, from https://www.bloomberg.com/news/ features/2017-06-28/tencent-rules-china-the-problem-is-the-rest-of-the-world White, G. (2020). 13 things you didn’t know about Xiaomi’s Lei Jun: Smart manufacturing. Manufacturing global. Retrieved December 1, 2021, from https://manufacturingglobal.com/ smart-manufacturing/13-things-you-didnt-know-about-xiaomis-lei-jun Wong, B. A. (2017). Author’s interview with Brian A. Wong VP at Alibaba, 23 July 2017. Yip, G. S., & McKern, B. (2016). China’s next strategic advantage: From imitation to innovation. MIT.

Part III Haier and the RenDanHeYi model

6

Haier: A Traditional Firm Transforming into a Digital Winner

Haier has been transforming itself continually over a period of almost 40 years. The company’s major phases of evolution and growth will be presented below. Each phase brought new insights to the company, which eventually were used in the development of the company’s current management philosophy, “RenDanHeYi,” which in turn has been adopted by other companies around the world, such as GE Appliances in the United States and Fujitsu in Europe. The key principles of RenDanHeYi will be described in the next chapter. What makes the Haier story particularly interesting is that it has not been a typical transformation journey. Haier’s transformation is noteworthy for several reasons: • The company is not a digital native. It is a market leader in what is usually thought of as an old-economy industry, home appliances. • Haier is a large, complex organization, with about 100,000 employees and operations worldwide. • Despite facing many obstacles to change, Haier has continued evolving and transforming step by step for nearly 40 years, driven by the former CEO Zhang Ruimin’s vision of the optimal organization in an IoT era. • And most important, Haier has been successful! This gives the story a credibility that is hard for other companies to dismiss because of size, or industry, or nearly any other excuse. The Haier story is about real people, making real things, and reinventing the organization along the way. Managers in firms that hesitate to change dramatically may say: “If Haier can do it, why can’t we?” (Fischer & Steiber, 2021). According to Zhang Ruimin—who led the company from 1984 until retiring as Chairman and CEO in November of 2021—the transformation has been a hard and circuitous one. Difficulties have included misunderstandings, opposition, and erratic implementation. Haier addressed these issues by creating pilots to show employees that (a) change is possible and not as difficult as they might have thought, and

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_6

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6 Haier: A Traditional Firm Transforming into a Digital Winner

(b) they get a share of the value created in the pilot, which makes them motivated to join the movement. Throughout the long transformation process, Zhang led Haier to focus on a set of underlying management principles that are now embodied in its revolutionary RenDanHeYi philosophy. Before going deeper into these principles, let us provide a more holistic view of the company’s evolution over the last decades. Except in places where other sources are cited, all material in the rest of this chapter is drawn from a combination of the following sources: a report written by the author for Haier Management Institute (Steiber, 2021a), presentation given by Professor Bill Fischer at MIT’s Sloan School of Management (Fischer & Steiber, 2021), and the author’s interviews with Mrs. Shi Lutong at Haier (Steiber, 2020) and with Mr. Ji Guangqiang at Haier (Steiber, 2021b). Inspiration also has been drawn from The Haier Dictionary of RenDanHeYi (Haier, 2016).

6.1

Haier’s Six Development Phases

On a high level, Haier Group divides the history of its strategic development into six main phases. They are: 1. 2. 3. 4. 5. 6.

Brand Building Strategy (1984–1991) Diversification Strategy (1991–1998) Internationalization Strategy (1998–2005) Global Branding Strategy (2005–2012) Networking Strategy (2012–2019) Ecosystem Strategy (2019–present)

Each phase reflects the company’s proactive response to external and internal opportunities and challenges.

6.1.1

Brand Building Strategy (1984–1991)

Haier dates its history from 1984, when Zhang Ruimin was named manager of a collectively owned refrigerator factory in the city of Qingdao. Product quality was very low, the factory was poorly maintained, and employee discipline and morale were low, as the enterprise was losing money and workers often were not paid on time. For the short term, Zhang was able to win their confidence by assuring regular payment of wages, but clearly the business could only survive if products were improved, and customers came to respect the brand. To help make the point, he staged an event that became famous. Finding 76 defective refrigerators in the finished inventory, Zhang took a sledgehammer and began smashing the faulty units to pieces, one by one. This astonished the employees, because the value of one refrigerator equaled the annual income of two workers. Zhang said “If I allow these 76 refrigerators to be sold from here, there will be 760 or even more defective

6.1 Haier’s Six Development Phases

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refrigerators sold in the future!” The employees then smashed the rest of the bunch. After that, factory spaces were cleaned up and some commonsense workplace rules were instituted. New equipment was brought in, along with modern production processes that Zhang had learned of, to assure quality and reliability as well as gaining efficiency. Much of this was done through partnership with a major German company, Leibherr. Further, employees were trained in the new production methods. By the end of this Brand Building stage, a failing factory had been turned into a stateof-the-art company with a reputation for making refrigerators that people wanted to buy. To increase the value created by people in the organization, this phase emphasized that “everyone is in charge of something, and everything is managed by someone.” The company, however, was still organized according to a traditional hierarchical structure.

6.1.2

Diversification Strategy (1991–1998)

Following the reforms that had opened up China to foreign investment, competition in the refrigerator market became fierce. Despite the improvements made at Haier, CEO Zhang saw that relying on a single business unit and product line would be risky. Qingdao officials had urged Haier to take over other struggling appliance companies in the region, and therefore acquisition became the path to diversification. Haier acquired manufacturers of air conditioners, washing machines, and more. CEO Zhang described the ideal acquisition candidates as “stunned fish”—not companies that were dead in the water, but ones with good products that were being held back by poor management (The Economist, 2013). The idea was that these “fish” could be revitalized if they were brought into a healthy environment. To further increase the value generated by the company’s people, this phase emphasized: “Everyone manages a market; everyone is a market.” The structure was changed to a matrix organization.

6.1.3

Internationalization Strategy (1998–2005)

In this phase, Haier faced both international and domestic competition. Domestic competitors offered low prices on rapid copy-and-paste products while foreign companies brought more advanced goods into the Chinese market. Whereas the domestic market had been a seller’s market, in which customers would accept almost anything that was usable, it became more of a buyer’s market. The demand for product innovation grew more urgent and product life cycles began shrinking. In addition, China formally became part of the World Trade Organization in 2001. Haier continued to expand, acquiring new companies in the domestic market, and later started to compete with the best players in Europe and America. Haier was committed to using its own brand and making it world-famous rather than becoming an OEM. The goals for international expansion were to “go out,” raising awareness of the Haier brand in overseas markets, as well as to “go in,” which meant entering mainstream channels and selling mainstream products in those markets. As an illustration of Haier’s strategy, the company focused on unserved user needs in the

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US market, introducing new products like the mini-refrigerators used by college students in their rooms. During this phase, most of Haier’s home appliances were manufactured in China and exported to the new countries. As local brand awareness and market access improved, Haier changed its model and started manufacturing locally. On April 30, 1999, Haier established its first overseas industrial park in the US state of South Carolina. The decision would help Haier to better understand the preferences of local users and improve production processes to quickly meet their needs. From the perspective of process innovations, for the internationalization strategy to work, both efficiency and value to the end user had to be extremely high. Process reengineering was aimed at achieving “three zeros”—zero inventory, zero distance to the customer, and zero working capital. In addition, CEO Zhang visited the World Economic Forum of 2000, which that year had the theme “overcoming complacency.” After he returned to China, Zhang wrote the article “My Opinions on the New Economy,” in which he began to share his view of a new management paradigm for the networked era. Some key insights were: • First, embrace the internet or become irrelevant. For CEO Zhang, just embracing the use of internet technology was not enough. The company’s hierarchical structure had to change into “internet nodes” and the system needed to become an open entrepreneurial system. • Second, technology innovation. The company should take advantage of the internet to align technology resources around the world for its own use and create new demand (and new markets) with innovative technologies. • Third, people are an important factor for successful innovation. Everyone should be encouraged to innovate by providing them space to thrive, taking advantage of shared information and shortened information chains by flattening the organizational structure, improving, and challenging each employee, allowing each to fulfill his or her own value, and creating synergies in the form of teams. These ideas were the foundation behind the current RenDanHeYi model that would be announced by CEO Zhang in the next phase. In this phase, Haier aimed to increase the value generated by the people by proposing that “everyone is to be a SBU [strategic business unit].” This meant that everyone was to become a profit center and assume sole responsibility for their own profit and loss. Haier implemented this system to inspire autonomy among employees so they could proactively respond to ever-changing market needs. As an illustration, Haier eliminated the sign-off system on travel expenses. Instead, each person’s travel expenses directly affected the profitability of the team to which the person belonged, and without profit, there would be no profit-sharing to team members. Haier at this time had very high travel costs, but within a year of implementing the SBU concept, travel costs were reduced by one-third. When everyone became an SBU, market goals were also broken down to the individual level. The ambition was to make employees self-driven and self-innovating.

6.1 Haier’s Six Development Phases

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Another illustration is the case of product developer Xu Sheng, who developed a very advanced washing machine in 2002. His role went from being a developer to being the model manager, which affected not only his title, but his motivation. Further, the better his products did on the market, the more pay he received, which in turn led to an increased focus on the users.

6.1.4

Global Branding Strategy (2005–2012)

During this phase, the global financial crisis unfolded, and many companies built a multi-continental presence. But internet technology, which allowed zero distance to users, was now unstoppable. Haier, therefore, established its “glocal” branding strategy and moved to the next level in its internationalization strategy, which was to “go up.” To go up involved building “three-in-one” centers (local R&D, manufacturing, and marketing), while connecting first-class resources around the world to build localized products. For example, Haier designed a one-person laundry room for single women in Japan, and a washing machine that could wash 12 large burqas for markets in the Middle East. In this phase, RenDanHeYi was launched, and through global adoption of RenDanHeYi, Haier aimed to build its famous “glocal” brands. The quest for increasing value created by the people now changed from “everyone being a strategic business unit” into “employees working in ZZJYT teams” (independent small teams), within an inverted pyramid structure in which the teams were to focus on users and top managers were to support the organization in delivering user value. The ZZJYT concept was introduced in 2009 and was experimented with until 2012, when the teams were grouped into, and labeled “communities of common interests,” to create further synergies between related ZZJYTs. In 2013—during the phase to be covered next—the communities of common interests would become “xiaowei,” which provided the basis for the small-team “microenterprises” that permeate Haier today (Frynas et al., 2018). These changes in organizational structure indicate how CEO Zhang finally found what he was searching for, to unleash the human potential, by experimenting over many years.

6.1.5

Networking Strategy (2012–2019)

As a result of the growing importance of the internet and of Haier’s review of its strategy every seventh year, Zhang Ruimin in 2014 said: “In the future, Haier will no longer manufacture products. We will incubate makers. If we manufacture products, we’ll be bound by ourselves, but if we incubate makers, we will have a lot of new products and new ideas” (Cision, 2020). Networked transformation of the enterprise had become an inevitable trend and the objective of this new phase was to adopt an internet mindset and the three “withouts,” meaning an “enterprise without boundaries, management without

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leaders, and supply chain without limits” (Ma et al., 2016, p. 103). These three “withouts” correspond to: • The enterprise transforms into a network. • Employees transform into entrepreneurs. • Generic users become personalized users. According to Haier, the three “withouts” are necessary for working in the Internet of Things era, as an IoT enterprise needs to focus on new user needs through realtime monitoring and forecasting (data), emphasize synergies across multiple products, and reduce manual intervention in production/service processes through sensors, connectivity, and intelligence. In addition, according to Haier, there are two main differences between the traditional mindset and the IoT mindset: zero distance and networking. In fact, the relationship between the enterprise and employees, users, and partners must change from a zero-sum game to an ecosystem relationship of win–win cooperation. One important aspect of this ecosystem is to work in parallel, rather than sequentially. The traditional model was sequential with R&D followed by development, marketing, and so on. Haier changed this process into several parallel streams, all co-creating value for the users. This is what Haier means by a “networked mindset” and it was realized by developing the microenterprise (ME) structure, in which employees could be either a maker, an ME founder, or a platform owner. Further, management without leaders means that employees move from passively taking orders to become self-driven entrepreneurs. As a result, the employees are to report to the users rather than to managers. Haier’s role is not to provide employees with jobs, but with entrepreneurial opportunities. Therefore, the employees become like entrepreneurs. They contribute value to the network through entrepreneurship and innovation. Further, entrepreneurship is not limited to employees on the payroll, as value-creating entrepreneurs can be anyone in the ecosystem. Finally, a supply chain without limits is based on the belief that users change from passive buyers to active participants in shaping their own experience. A traditional company has limits in its supply chain as it sells through other parties such as wholesalers or retailers. A supply chain without limits means that the company should fill user needs when such needs arise. This has led to a change of the classical R&D-manufacturing-sales model, into a process that is demand-and-supply driven. In this scenario, users no longer choose among a given range of products, but rather let the company know their personalized needs.

6.1.6

Ecosystem Strategy (2019-Present)

In his book, The Rise and Fall of American Growth, the economist Robert J. Gordon noted that average productivity growth in the United States after 1970 was only one-third of the rate during the period 1920–1970. In other words, the major inventions of the second industrial revolution, such as cars, electricity, and home

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appliances, have almost reached perfection today and new growth will not come in the form of more advanced cars or home appliances. Economic growth will instead require new engines (Gordon, 2017). Further, internet technology and the penetration of digital devices have shifted the balance of power from the companies into the hands of users. For those reasons, according to Zhang Ruimin, the current fourth industrial revolution requires the development of ecosystems and ecosystem brands. Part of being a networked organization is to have a clear strategy of what to focus on and be best at, and in which areas to collaborate with others in ecosystems. The use of ecosystems provides efficiency at scale together with learning at scale. Haier, therefore, created an “ecosystem brand” for the IoT era. The ecosystem brand is a measure of how competitive Haier and other companies are in the IoT era, and the ability of a company to meet all user needs under a consistent strategy. To build a strong ecosystem brand, the company needs to build a trusted ecosystem around user experiences, enabled by networking capabilities. The ecosystem generates income and social value through value-added sharing among all the stakeholders and forms a compelling constellation of companies gravitating around users’ needs. Part of this evolution is that products turn into “scenarios,” which means that it is not a washing machine you sell, but a great laundry experience. An illustration of this is how Haier has created its ecosystem brand “Internet of Clothes,” which is an extension from a traditional washing machine business to provide full life-cycle intelligent solutions across washing, caring for, storing, mixing-and-matching, and purchasing clothes. Another example is Haier’s “balcony scenario,” which started by focusing on an environmental problem that occurs when water from the washing machine is transported in the rainwater drainpipe, as many Chinese in Shanghai have their washer on the balcony of an apartment building. Haier, together with the city, expanded the vision into a “balcony makeover program” that meets additional user needs, such as having pets on the balcony or being able to do fitness exercises on the balcony. The result was that other companies also wanted to contribute value to this “balcony scenario” and an ecosystem within Haier’s larger ecosystem—an ecosystem micro-community (EMC)—was created. This EMC later spun off 13 sub-EMCs to offer 13 types of smart balcony scenarios. An EMC in turn is an ecosystem consisting of a microcommunity of microenterprises focused on a specific user scenario. These microenterprises are independent units, connected in parallel rather than sequentially. An EMC is dynamic, as it dynamically reconfigures and upgrades according to users’ needs. There are two types of EMCs, solution EMCs and experience EMCs. The experience EMCs focus on the market and have touchpoints for the users. The solution EMC is responsible for the implementation. Between the microenterprises within an EMC there is an “EMC contract.” An EMC contract is designed for effective incentives and coordination of each microenterprise in the EMC. Through the contracts, EMCs can avoid price wars and

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achieve the Nash equilibrium1 of “the sum of optimal strategies for all players.” This protects everyone in the ecosystem from a race to the bottom. An EMC contract is focused on a “leading goal” rather than a goal based on the internal limitations of one company. It also solves the problem of an incomplete contract in economics,2 as the EMC contract is not a procurement relationship, but an agreement for co-creation among parties in which they all share the value created. Finally, the EMC contract is an infinite contract with the purpose of continuing the “game.” To create the best user experience, the ecosystem can expand with new players, and as user needs keep changing, the game continues.

6.2

Moving Ahead

Haier itself continues to change and evolve. The history presented in this chapter has been meant to give an understanding of both the nature of Haier, as a company, and the distinctive management principles and structures that it has developed. Now it is time to see how these ingredients come together in RenDanHeYi. The next chapter will take us there.

References Cision PR Newswire. (2020). China creates new model of startup incubation; HCH incubates 5 listed companies, 30 November 2020 at https://www.prnewswire.com/news-releases/chinacreates-new-model-of-startup-incubation-hch-incubates-5-listed-companies-301181426.html. Accessed 1 December 2021 Fischer, B., & Steiber, A. (2021). The transformation of GE appliances. Management Course Materials, June 2021; unpublished. Frynas, J. G., Mol, M. J., & Mellahi, K. (2018). Management innovation made in China: Haier’s Rendanheyi. California Management Review, 61(1), 71–93. Gordon, R. J. (2017). The rise and fall of American growth: The U.S. standard of living since the civil war. Princeton University Press. Haier. (2016). The Haier dictionary of RenDanHeYi. Haier Group. Ma, H., Meng, Z. Yan, D., Wang, H., Guo, K., & Si, X. (2016). The Chinese digital economy. CITIC Press Corporation, Beijing (English translation: Palgrave Macmillan). Steiber, A. (2020). Author’s interview with Mrs. Shi Lutong at Haier, 6 July 2020. Steiber, A. (2021a). The transformation of GE appliances (pp. 1–45). Report for Haier Management Institute. Steiber, A. (2021b). Author’s interview with Mr. Ji Guangqiang at Haier, 3 November 2021. The Economist. (2013). Haier and higher, 12 October 2013 at https://www.economist.com/ business/2013/10/11/haier-and-higher

1

In game theory, the Nash equilibrium, named after the mathematician John Forbes Nash, Jr., is the most common way to define the solution of a noncooperative game involving two or more players. In a Nash equilibrium, each player is assumed to know the equilibrium strategies of the other players and no player has anything to gain by changing only their own strategy. 2 The incomplete contracting paradigm was pioneered by Sanford J. Grossman, Oliver D. Hart, and John H. Moore.

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The RenDanHeYi Model

Haier’s management philosophy or model, “RenDanHeYi,” is a result of Haier’s almost 40-year-long learning process that began in 1984 and progressed through the six phases described in the previous chapter. The learning and transformation have not stopped but are still ongoing as the world continues to change. Below, the development of the underlying objectives and principles of RenDanHeYi are described and visualized, leading to a summary of the key elements of the RenDanHeYi model.

7.1

Becoming User Centric

In 1984, when CEO Zhang urged his employees to pull defective refrigerators from inventory and destroy them with sledgehammers, he was clearly calling attention to the importance of quality. The message was “We will never build such poor-quality products again!” But at the same time, a deeper message was implicit in this gesture: the importance of not disappointing the customers. Zhang had been moved to inspect the inventory, and to find the defective units, after a customer complained about problems with a refrigerator he had bought. Therefore from the very start, the smashing of faulty refrigerators symbolized not only a dedication to quality but also a focus on customer centricity, which later would be emphasized even more in the goal of achieving “Zero Distance” to the user. CEO Zhang was a great admirer of Peter Drucker, and he established the objective of delivering a great customer experience as the first guiding principle of his new management approach. A corollary of this principle is that getting closer to the customers is the best way of understanding what they want, in order to provide great experiences. The Zero Distance concept, an important part of RenDanHeYi, can thus be seen as flowing from a principle demonstrated in the earliest stage of Haier’s transformation. # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_7

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Fig. 7.1 Haier’s experiments with achieving user linkage through organizational design (Fischer & Steiber, 2021)

7.2

Organizational Experimentation

The pursuit of being closer to the customer has inevitably led to continued experimentation with organizational structure, as illustrated by the drawings in Fig. 7.1. The drawings show that over years, Haier has changed from having a traditional pyramid structure to overturning the pyramid, to creating hyper-interconnected ecosystems. (As noted earlier, the ZZJYTs in the fourth drawing were small teams with high degrees of autonomy. They can be thought of as forerunners of what are now called microenterprises.) Although it is easy to become fascinated by organizational architecture, Haier’s transformation process has involved much more than organizational redesign and restructuring. Many details are not captured by the simple sketches in Fig. 7.1, and furthermore, the concept of zero distance to the user requires more than a new structure. It requires a new mindset, a new compensation model, and new uses of digital technology, to name just a few changes.

7.3

Release Talents and Entrepreneurship Within

Another of Haier’s guiding principles is to recognize that there is a lot of talent hidden in most complex organizations, which can be freed up by combating bureaucracy. Encouraging entrepreneurial behavior is the most powerful way to break the hold of hierarchy and bureaucracy on an organization’s talent. Peter Drucker observed that “the entrepreneur always searches for change, responds to it, and exploits it as an opportunity” (Drucker, 1985, p. 28).

7.4 Principles and a New Language

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The opportunity is to create great customer experiences, which leads to attracting and keeping customers. Encouraging entrepreneurship redistributes power within an organization, and, as a result, most transformation efforts involve increased autonomy at lower levels in (what used to be) the hierarchy. Those who are newly involved in key decision-making must be provided with a compass that guides them in the right directions, and in many successful transformations, this takes the form of guiding objectives or “simple rules.” We have seen two of Haier’s three guiding objectives already: (a) focus on customer experience and (b) human value in the form of entrepreneurship. Sharing value with all concerned is the third, through new compensation models. If this can be realized, then it is fair to say that the user is paying your wages, to the extent that an employee’s income is based directly on the sharing of value created in the marketplace. In cases where an entrepreneur (i.e., a maker) does not create any value for 3 months, that person needs to leave (Cicero, 2020).

7.4

Principles and a New Language

Figure 7.2 shows Haier’s three guiding objectives in a concise form. It is important to recall that these have guided the company’s transformation journey for nearly four decades. It is also important to appreciate that, in a fractal-type fashion, each of the objectives is manifested in the activities at each level of Haier, from the organization, down to the individual. At every level, there is a striving for a great customer experience. At every level people think of themselves as entrepreneurs, and at every level the value created is shared among those who have created it. Changing vocabulary helps us see the familiar in a different light. CEO Zhang described traditional stakeholders and value distribution in new terms that have led to profound behavioral changes. People who buy Haier’s products are perceived not as “anonymous customers” but as “lifelong users, or co-creators”; employees have been redefined from “order-takers” to “entrepreneurs,” and new approaches to compensation ensure that value is not only created and captured differently, but also distributed differently.

Fig. 7.2 Haier’s objectives (Fischer & Steiber, 2021)

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7.5

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Change of the Game: The Internet of Things

In 2000, when CEO Zhang visited the annual World Economic Forum in Davos, he correctly foresaw that the introduction of the Internet of Things, and the hyperconnectivity that accompanies it into the home, would change everything. Customer buying patterns would change, as they would buy sets of connected appliances rather than individual units, and their expectations regarding customer experience would change dramatically as well. The customer experience journey went from one transaction every 12–15 years, to interactions with Haier 12–15 times a day. Recipes, food tracking, wine pairings, even visits to producers were all now becoming part of the customer experience, and they required access to domains of expertise that were far outside Haier’s traditional competencies. Being closer to the user was imperative, no longer an option, and this encouraged consideration of radical openness and greater inclusion—not only of customers/users, but of companies with the desired expertise. Today everything has changed because of IoT, and as a result, organizational architectures and practices that were fit for purpose in the past are not necessarily just as fit for the future. In addition, digital-native insurgents such as Amazon, Apple, and Google were all suddenly in the same competitive space as Haier,1 and given their lead in voice-activated connectivity, they threatened to own the customer as well.

7.6

The Result: RenDanHeYi

There is great utility in thinking about leadership in terms of the choices that are made and not made. Haier’s transformation story is a story of choices, and it is impressive to notice their strategic focus. These choices all have been directed at one or more of the guiding objectives of Haier, and they are mutually reinforcing. What Haier had to do was to go beyond vocabulary and begin to change the entrepreneurial nature of the organization, enabling newly minted entrepreneurs to get underway and changing the architecture of the organizational structure to make it easier for all of this to happen (Cicero, 2020). While the magic is in the details, among the most visible changes were these: the adoption of the principle “Zero Distance to users,” together with the principles of aligning the organization towards users’ needs in the form of micro-enterprises; and the distribution of value created, based on value contributed by the various parties involved (Fig. 7.3). Central to Haier’s choices, in the effort to get closer to the user, was the creation of microenterprises. They are the basic units of Haier’s IoT ecosystems, and they are self-organizing and autonomous. The microenterprises’ mission is to meet users’ needs, and Haier is an incubation platform, with the role of supporting, nurturing, and providing resources and 1

The management scholar Rita Gunther McGrath has said we should no longer think of companies as being in certain “industries,” but rather as being active in various “competitive arenas.”

7.6 The Result: RenDanHeYi

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Fig. 7.3 A visualization of RenDanHeYi (Fischer & Steiber, 2021)

Fig. 7.4 Ecosystems vs. traditional value chains (Fischer & Steiber, 2021)

technical support to all MEs that identify users’ needs. When they work well, the microenterprise members also succeed as equity owners of the MEs. Because of their small size, microenterprises need partners. This has led to a willingness to share revenues derived from partner co-creation, moving the ecosystems away from operating as traditional value chains. Traditional value chains are typically run by command-and-control approaches aimed at gaining maximum dependability and efficiency. They are designed to reduce variance at any link in the value chain. Ecosystems, on the other hand, are for inviting relationships that are characterized by value-enlarging activities. Ecosystems require a fundamentally different approach to engagement than do traditional and typically closely managed value chains; see Fig. 7.4. Ecosystems cannot be managed if they are to thrive, and ultimately, if they flourish and succeed, they will even move away from customer-centricity, as the customers come to be seen as partners in the ecosystem’s activities, not simply consumers of its products (Cicero, 2020). Executives at Haier say that given the importance of ecosystems, the relationships that form them will become their most valuable assets in the future.

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Fig. 7.5 Win–win value add statement (Steiber, 2021)

Haier has chosen a novel approach to working with ecosystems, one that is literally aimed at creating an enterprise without boundaries. The ecosystem microcommunities (EMCs) consist of MEs from Haier, as well as third parties not owned by Haier. Also, members of EMCs need to be aligned when facing users and their needs, as together they can create more value for users than they could by operating alone. Alignment between actors is done by using EMC contracts, in which each party commits to certain responsibilities and outcomes. The EMC contract is a further developed version of a smart contract, with blockchain technology used to calculate if goals were achieved and how much value each player created and delivered. A new player can “bid” for a certain job or task when the contracts are to be renewed. By allowing this, Haier enables the value to users to self-evolve to higher and higher standards. Haier uses one tool to both align the ecosystem and to calculate value created and distributed to each player. This tool is called the “One Statement,” formally titled the “Win-Win Value Add Statement”; see Fig. 7.5. If you are interested in learning more about how ecosystem value is calculated, please read The Haier Dictionary of RenDanHeYi (Haier, 2016). Haier’s RenDanHeYi approach has taken the company a long way toward fulfilling Peter Drucker’s admonition that “innovation and entrepreneurship have to become an integral life-sustaining activity in our organizations, our economy and our society” (Drucker, 1985, p. 255). Haier is one of a very few organizations in the world that have busted bureaucracy, and for that reason is worth studying. As previously said, the company’s philosophy for operating a firm in the IoT age is based on objectives and principles that have been a work in progress for nearly four decades. Haier has explicitly called this philosophy “RenDanHeYi” since 2005, and, as the company has developed, different versions of RenDanHeYi have been developed as well. In its current form, it involves perhaps the most sweeping reinvention of corporate structure and management that has yet been seen.

7.7 Key Principles of RenDanHeYi

7.7

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Key Principles of RenDanHeYi

We have mentioned that RenDanHeYi as a model, system, or philosophy can be thought of as a fractal: a “never-ending pattern of activities that are self-similar across many different organizational levels.” In Haier’s case, these patterns of relationships and behaviors are reproduced at the organizational level, at the microenterprise level (as well as throughout the communities of microenterprises in ecosystems), and at the individual level. For an approximate translation of the term “RenDanHeYi,” Haier refers to employees (Ren), user value (Dan), and to the integration of employees’ value creation and user value realization. In short, this means that all employees should be focused on creating user value, and they are rewarded according to the user value they create. The objectives are, as have been mentioned before, to aim for great customer experience, to release and use the entrepreneurial energy of everyone— employees as well as external partners—and to provide a structure for sharing the value created among all involved. Now we can delve into the principles for achieving these objectives. The RenDanHeYi model operates based on six core principles: • • • • • •

Ecosystem as the strategy Networked organization Employees as entrepreneurs Zero distance to users Pay-by-user compensation Nonlinear management

The six principles are described below. For more detailed information about each of the principles, please turn to Haier (2016).

7.7.1

Strategy: Ecosystem Brand

The strategy of a networked enterprise revolves around building an “ecosystem for co-creation and win-win partnerships,” and at the end, an ecosystem brand. Haier’s RenDanHeYi model overturns traditional strategic management, in which the company is viewed as a vertically integrated, closed system competing with others of the same kind. Instead, the company becomes a platform-based organization, open to its ecosystem in the sense that it must be easy for world-class resource providers to get access to users on the Haier platform and create value for users. The platform evolution is characterized by three stages:

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• From closed to open • From static to dynamic • From competitive to win–win An ecosystem brand approach is defined with the three “selfs” (self-motivation by becoming autonomous, self-organization into microenterprises and EMCs, and selfcirculation of ecosystem value) and with the three “news” (new model based on RenDanHeYi, new ecosystem based on EMC contract, and new paradigm based on ecosystem brand). By using an ecosystem brand, a company can create lifetime users.

7.7.2

Organization

The organizational goal of a networked enterprise is to transform from a traditional hierarchy into a network of nodes, microenterprises, which operate on the enterprise platform and can connect with top resources to provide the best user experience. This means that the enterprise also goes from division of labor to a combination of labor. As described earlier, the network nodes make up ecosystem microcommunities (EMCs) that can either be “experience EMCs,” engaging directly with users, or “solution EMCs,” which create user value. Coordination of the microenterprises is done, and decisions are made autonomously through the EMC contracts, without a leadership pyramid or functional departments. For this to happen, three decision powers previously held by the CEO or other executives—namely, power over business, people, and compensation decisions—are returned to the employees at microenterprises, in a shift labeled “the three rights” by Haier.

7.7.3

Employees

As part of a networked enterprise, employees transform from people who execute specified duties to “entrepreneurs and dynamic partners.” Employees are not only to be entrepreneurial in their jobs but can also start a business instead of working for a microenterprise. There is an evolution expected of the employee, from being an order taker and doer to an active, innovative entrepreneur, and then a dynamic partner. The latter means that employees are not limited by the enterprise. They become independent individuals on a platform where “the world is my HR department.” This quotation was inspired by Anthony D. Williams, co-author with Don Tapscott of Wikinomics, when he said, “The world is now your R&D department” (Qatar Ministry of Transport n.d.), and by the popular saying “Collaborate or disappear.” CEO Zhang changed the first into “the world is my HR department” referring to the fact that all human resources in the world are now accessible. Traditional managers assign targets to employees; Haier organizes people around a target. A competent person anywhere in the world can become an entrepreneur on the Haier platform by bidding for a job. Through this transformation of employees,

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the enterprise itself transforms from a product manufacturing company to an “entrepreneur breeding platform.”

7.7.4

Users

For a networked enterprise, the user of a product transforms from a customer with whom the company has a one-time transaction into being part of the enterprise’s community and being in constant interaction with the company. The key to realizing this shift is the Zero Distance concept, which means eliminating the distance between users and the company. Haier, therefore, connects with its users online and offline to learn their demands in the product planning stage and in product design, development, production, manufacturing, and marketing. Traditional companies do business by selling products, while Haier is exploring a way of acquiring user resources and creating lifetime users.

7.7.5

Compensation

The transformation in the compensation model means that the company goes from “pay-by-enterprise” to “pay-by-user.” In traditional companies, staff members are paid salaries or wages based on their positions. This is a fixed compensation system with ex-post-facto evaluation. Haier’s compensation model is based on “commitment-oriented planning.” The investment of resources in each task or project, depends on resources committed by a microenterprise, as well as on co-investment in the ME, instead of on allocation by superiors. The microenterprise takes the initial risk and pays the employees their co-investment capital and a share from profit created. This element is based on the belief that compensation is the driving force for the growth of an enterprise.

7.7.6

Management

Finally, management is transformed from a linear to a nonlinear approach. In a linear management model, the functions of a bureaucratic enterprise are managed by command and control. Nonlinear management provides resources and services for a networked organization on shared platforms. In traditional management, planning is more common than evolving, and the input determines the output. In nonlinear management the focus is on self-evolving, and this is made a reality for employees, thereby driving growth. The moral is that the potential of each person needs to be brought out and facilitated to make each person his or her own CEO.

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Moving Ahead

This concludes the summary of RenDanHeYi’s key principles. The next chapter compares the RenDanHeYi model with Google’s management model, which is used to represent the Silicon Valley Model identified in Steiber and Alänge (2016).

References Cicero, S. (2020). Haier CEO Zhang Ruimin exclusive interview on RenDanHeYi, platforms and ecosystems. (Video interview and conversation conducted by Simone Cicero.) Posted on YouTube by PDT (Platform Design Toolkit), 28 May 2020. Accessed December 1, 2021, from https://www.youtube.com/watch?v¼RgQrz3EVhU0&t¼82s Drucker, P. (1985). Innovation and entrepreneurship. HarperCollins. Fischer, B., & Steiber, A. (2021). The transformation of GE appliances. Management Course Materials, June 2021; unpublished. Haier. (2016). The Haier dictionary of RenDanHeYi. Haier Group. Qatar Ministry of Transport. (n.d.). Wikinomics author encourages Qatar to tap into the power of mass collaboration. Accessed December 1, 2021, from https://www.motc.gov.qa/en/newsevents/news/wikinomics-author-encourages-qatar-tap-power-mass-collaboration Steiber, A. (2021). The transformation of GE appliances (pp. 1–45). Report for Haier Management Institute. Steiber, A., & Alänge, S. (2016). The Silicon Valley model: Management for entrepreneurship. Springer International Publishing.

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RenDanHeYi Versus the Silicon Valley Model

Now let us consider where the RenDanHeYi model stands on the “evolution scale” of new management models. We have traced the course of that development through the opening chapters of this book. • Chapter 1 documented the need for companies to have “dynamic capabilities” in today’s complex, uncertain and fast-changing business environment. The capabilities consist of sensing new opportunities and threats, rapidly seizing the occasion to act by mobilizing resources, and constantly transforming the company for opportunities to come. Chapter 1 also described why conventional, bureaucratic forms of management cannot deliver these capabilities. • In Chaps. 2 and 3, we saw how leading firms in Silicon Valley developed a management approach that gave them dynamic capabilities. If you wish to refer back to those chapters, see especially Table 3.1 and the discussion that follows it in Chap. 3. The table shows that in many respects the Silicon Valley Model is a polar opposite of the traditional “Machine Bureaucracy” model described by Henry Mintzberg (1980). Top leaders in the Silicon Valley Model focus strategically on innovation and growth, rather than on maintaining and optimizing the status quo. The new model decentralizes decision-making and allows for flexibility, instead of locking systems in place through command-and-control structures and rigid rules and procedures; and so forth. • Chapter 4 was drawn from the author’s follow-up research on China, as documented in Steiber (2018). This research revealed that a number of leading Chinese companies had developed management models similar to the Silicon Valley Model. In each case, whether in China or in Silicon Valley, the company behaved less like a bureaucracy and more like an “adhocracy,” a highly adaptive organization that can move quickly and proactively in response to the needs and opportunities that appear before it (Desveaux, 2012). The author’s research in Steiber (2018) concluded that the innovative Chinese companies and the Silicon Valley innovation giants were managed in ways that # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_8

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looked similar on a meta-level. There were, however, differences in practice, and it appeared that the Chinese firms might in some respects be more novel. If we now conduct a deeper comparison, we can see that this may indeed be the case with RenDanHeYi, developed by Haier. For the following analysis, we will compare the RenDanHeYi model to the Silicon Valley Model as it is practiced at Google. Google was chosen as the reference case for two reasons: It is the Valley company that the author has studied most extensively, and Google is also widely known as a leading innovator in multiple areas. Further, since RenDanHeYi is a unique new model, it seems fair to analyze it on its own terms. In Table 8.1 and the discussion that follows, we compare Google and RenDenHaYi based on RenDanHeYi’s six principles as described in Chap. 7. As shown in Table 8.1, the two companies’ management principles do, at least on a high level, seem similar. As the Google Model and RenDanHeYi are not the only management models representing these principles, we might have identified a set of management “meta-principles,” fit for the new digital economy. The implication would be that a paradigm shift in management is already here (Steiber, 2014; Steiber & Alänge, 2016), and it is not an industry-specific or local phenomenon, but a global one. However, it would be wrong to state that Google and Haier apply the principles in the same way. In fact, the two companies differ substantially in their practices, as described below.

8.1

Strategy: Ecosystem

Both Google and Haier emphasize the importance of ecosystems in the new economy. Both companies are building open ecosystems with universities, research institutes, startups, and more. Both also incubate and accelerate startups originated both within and external to the company, as well as investing in or acquiring external startups. However, there is a major difference in how the RenDanHeYi model uses ecosystems to deliver whole scenarios, such as “smart kitchen” or “smart laundry,” to users. To be able to do this, Haier needs to deliver a great user experience, including hardware, software, and services, and this package needs to potentially be produced by several players in an ecosystem, rather than only by a single company. This kind of ecosystem is different from, e.g., Android (open-source operating software for mobiles), Google Play (an application software platform), and Google Kubernetes Engine, or Tensorflow.org (an end-to-end open-source platform for machine learning). Haier’s “UX Cloud Platform” engages users throughout their whole experience journey of designing, building, and servicing a home across a full range of customizable scenarios. Based on user experience, the ecosystem attracts partners that could contribute to the experience journey and potentially also incubate new ecosystem microcommunities (EMCs) if needed. The example of the smart balcony mentioned

8.1 Strategy: Ecosystem

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Table 8.1 A comparison of the Google model and the RenDanHeYi Model (conducted by the author) Principles

Strategy: Ecosystem for co-creation and win–win partnerships

Organization: a networked organization

Employees: Entrepreneurs and dynamic partners

Users: Zero distance

Compensation: Pay by users

Management: Nonlinear, supporting selfevolution

Google model (Source: The Google Model: Managing Continuous Innovation in a Rapidly Changing World, 2014) “Google knows that ideas often come both from within the company and from outside sources. The company has built up a network composed of various outside actors, such as developers, universities, government agencies, and startup companies.” (p. 80) “. . . a flat organization . . . reduced the likelihood of too much top-down management and micromanagement was . . . an undesirable situation . . .” (p. 68) “. . . both founders wished to avoid a hierarchical organization with many layers of management” (p. 69) “The company wants employees that are . . . entrepreneurial (scrappy) and curious, who question the status quo, are energetic, driven, nonpolitical, humble and change-oriented selfstarters.” (p. 62) “Focus on the user” (p. 49). “. . . an employee is expected to concentrate on user benefits early in the development of the project” (p. 52) “The system is built on key accomplishments, an evaluation process, and pecuniary and non-pecuniary rewards.” (p. 71) “Promotions and compensation are connected to the OKR process” (p. 71) “Every employee is expected to be self-organized, be able to lead, take initiative, require little management support, and be skilled in networking and collaborating with others.” (p. 56) “The individuals are daily evaluated by peers for their Googliness.” (pp. 45–46, 56)

RenDanHeYi model (Source: The Haier Dictionary of RenDanHeYi, 2016)

“Enterprises should evolve from vertically integrated closed organizations into open, platformbased organizations driven by the best user experience and aimed at co-creation and win-win partnership for stakeholders.” (pp. 18–19) “Clear the barriers between employees and users through flattening and shared internal information and quick access to external info through the shortest path.” (pp. 30, 32)

“Facing the market directly, each employee creates value for users and evolves into a dynamic partner.” (p. 37)

“Provide the best end2end experience, user interaction online, and user participation along the value chain, everything connected.” (p. 43) “Employees create and are rewarded based on the value for users . . . the compensation system adopts VAM pay related to user value, which requires commitment-oriented planning.” (p. 48) “A non-linear management is providing resources and services for a networked organization. Let employees manage themselves and at the same time be managed by their teams. Let employees get involved in entrepreneurial innovations by focusing on user demands. Target to lead to realize self-evolution.” (pp. 52–54)

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in Chap. 6 could illustrate this. Further, Haier’s experience cloud platform facilitates co-creation by all involved parties and has only one unique relationship with the user, which is custom made (Steiber, 2021b). However, behind the solution could be multiple (N) resources. One illustration of this from 2020 is the ecosystem for “Internet of Food,” which launched “Alphesh,” an IoT ready-to-cook meal platform. The platform provides users with ready-to-cook meals from the farm to the table (Steiber, 2021b). Regarding incubation and acceleration of new ventures, there are also differences between the companies. Google’s corporate parent, Alphabet, holds a portfolio of companies—some mature, some growth companies, and some emergent new businesses. They thereby have a governance structure allowing new ventures to be added to the group. Further, Google has its 20% projects for individuals to explore new ideas, with Area 120 being an internal incubator in which employees with ideas can get facilitation in areas such as design thinking. If the business opportunity is promising, it might become a new business within Alphabet, or the Google employee can choose to leave Google to explore his/her new business. Google is also actively involved in supporting external startups through Google for Startups, which includes a number of incubators and accelerators all over the world. In addition to advice and services, Google for Startups also offers Google products. If the startup seems promising, Google can later choose to invest in the startup through GV, formerly Google Ventures (Steiber, 2014). It is not known by the author if Google uses Google for Startups to consciously funnel tech startups from seed funding to listed companies. Haier’s incubator and accelerator platform could be viewed as a “global factory” of new businesses and is a vehicle for Haier’s self-transformation and future growth. Similarly to at Google, Haier employees can propose new ideas and get support from the platform. Haier employees leave their Haier microenterprise when they start a new one themselves, and they invest and get equity in their own business. Further, external investors are invited, but during the incubation phase, Haier keeps a controlling share of the new business. When the startup starts to scale, current and new external investors, as well as the founders of the new microenterprise can invest in the company (Steiber, 2021b). An example is Mr. Liu Zhanjie who was a technician at Haier and became the owner of a new biomedical ME, which today is listed on the stock exchange in China (Steiber, 2021b). Haier’s incubator and accelerator platform is also open for external startups and has locations in many parts of the world, providing the resources of a large organization to global entrepreneurs. The platform has created its own ecosystem of venture capitalists, other large industrial firms, universities, and more, and can also offer training of entrepreneurs. Because of being a well-oiled “factory” of new businesses, Haier consciously funnels the startups from seed funding to unicorns to public listing. Currently, the platform incubates more than 4000 MEs and has accelerated over 360 projects, of which four have become listed companies, five unicorns, and 46 gazelle companies (Steiber, 2021b).

8.3 Entrepreneurs and Dynamic Partners

8.2

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A Networked Organization

Both companies emphasize the importance of having a flat, networked organization with small, fast-moving teams. On a structural level, Google, however, still uses a matrix structure with functions, products, and geographies clearly defined. Although decision power is decentralized to smaller teams (often product teams), which are encouraged to set the strategy, learn quickly, and move fast, the structure that these teams operate within remains fairly traditional. The RenDanHeYi model is characterized by independent basic units, microenterprises (MEs), organized around users’ needs in ecosystem microcommunities (EMCs). Each ME becomes a node in the EMC. Haier provides strategic guidance, remuneration system support, and some office facilities to the MEs (Steiber, 2021b). There is no hierarchy among MEs, nor among EMCs. This means that Haier doesn’t talk about products, functions, or matrix systems anymore, but about a networked organization with nodes that either serve the end users or other nodes, all of which collaborate to maximize user experience.

8.3

Entrepreneurs and Dynamic Partners

Both Google and Haier want highly entrepreneurial people. In both cases, the companies support employees’ desires to “pursue their dreams” and explore new opportunities. At Google, not only are people encouraged to innovate and to work on 20% projects—i.e., using about 20% of their work time to explore new ideas that particularly interest them—but they are also evaluated according to objectives that are set to stretch every employee’s performance (Steiber & Alänge, 2016). Also, to serve as good role models, leaders on all levels are to be involved in one or several 20% projects and contribute to new value for the firm (Steiber, 2014). If a 20% idea is good and supported by local managers and enough peers, it can be further explored and developed as described earlier, and very promising ideas may become a future business area for Alphabet. Haier uses a system that more closely resembles true entrepreneurship rather than intrapreneurship, as would be the case at Google. Haier employees are expected to transform into entrepreneurs—in fact, the label “employee” is not even used at Haier—and can in the best cases choose to start a microenterprise. It can be either a transformation ME, which is incubated from within Haier and must fit Haier’s strategic direction, or an ecosystem ME, tied to Haier’s strategic vision but having somewhat looser ties to Haier and its existing resources (Steiber, 2021b). Haier has an investment committee that reviews and approves the proposals for ME investments and incubations from the perspective of strategic fit, not necessarily by the criterion of forecasted return on investment (Steiber, 2021b). All new MEs must join an EMC to create, deliver, and share value (Steiber, 2021b). If a new ME brings direct value to an EMC’s users, this will help the new ME to quickly capture market opportunities through the power of the “experience cloud platform.”

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Users and Zero Distance

Both innovation giants focus on users and user value, especially in the research and development process. Experiments together with users and real-time user responses to new features are prioritized by both companies. Simple rules such as “USERS FIRST” make it clear to people at both Google and Haier that they should focus on user value, and not try to develop things that nobody would want. However, there is a difference between focusing on the end users and interacting and co-creating with the end users. Google has interacted with users for many years and used the data to improve its features and products, or for inventing new ones. The company also has let lead users provide feedback on beta prototypes of products (Steiber, 2014). In its quest for zero distance to the users, Haier’s underlying belief is not only to focus on users when creating new value, but to co-create together with users along its experience journey in multiple scenarios. Further, the company serves end users with important information about their purchases and how best to benefit from new products after they are installed in their homes (Steiber, 2021a). Both companies, therefore, strive for stickiness and try to keep users, but at Haier, the focus is on lifetime users, and Haier’s traditional “hardware business model” had to radically transform from a purely transaction-based mindset to a lifetime user and Internet mindset in which the company now can interact with, co-create with, and provide new value to end users daily. This was made possible with the support of the zero distance principle and with the evolution and improvement of digital technologies.

8.5

Compensation and Pay-By-Users

In both companies, compensation is in some way linked to value created by the employees. Both companies use equity as part of the total compensation to employees. Both models emphasize to some degree the democratization and distribution of wealth created to everyone involved. At Google, however, employees get a fair market-based salary and a bonus, as well as equity. The company changed from granting share options to restricted stock units (RSUs), and later to Google Stock Units (GSU), which are full shares granted to each employee (Sarath, 2020). The difference between RSUs and GSUs is that the amount you vest is based on performance. In simpler words, you can get more GSUs if you are a higher performer than you were initially expecting. In short, it works just like a bonus system. By comparison, Haier puts more emphasis on the direct link between employees’ compensation and the value the employee creates for users. In Haier’s system, there is no such thing as a market-based salary. People are paid according to how much they create value for users. Leading targets are therefore vitally important to Haier employees. Under the “pay-by-user” scheme, Haier employees should be paid 1.5 times the industry average (Steiber, 2021b). If the final compensation is below this mark, it means the employee is part of an EMC that does not hit its leading target or

8.6 Nonlinear Management

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is unable to achieve a high percentage of the shared profit, based on his/her own performance. In other words, Haier employees need to be competitive (Steiber, 2021b). The ones that are not will not be able to get a high compensation. On a ME level, the ME makes its own compensation decisions regarding who is to get what share of profits, based on their performance. Regarding equity, as was mentioned earlier, Haier has the controlling stake of the company in the incubation phase (Steiber, 2021b). In the scaling phase, people in the microenterprise, as well as external investors can buy more equity through investments. As can be seen, Haier’s employees are compensated more like entrepreneurs on an open market. To support employees’ transformation into true entrepreneurs, they are evaluated according to how well they self-evolve internally in Haier, and how well they achieve value in their ecosystem. On the HCH platform they can also get entrepreneurial training. To learn more about the RenDanHeYi scorecard, visit the RenDanHeYi Certification website (EFMD Global, 2021) or read The Haier Dictionary of RenDanHeYi (Haier, 2016).

8.6

Nonlinear Management

Finally, both companies strongly believe in a flat organization with decentralized decision power given to smaller, cross-functional teams. The top leader’s role, therefore, changes from a typical command-and-control approach to one of setting a vision/direction and coaching the organization and its teams for success. The role of the middle manager in this organization is questioned, as middle managers should not be needed anymore. At Google, the most successful leaders are not those who know the most or control the most information and resources. Rather, they are the leaders who build the most successful teams providing great value to users (Steiber, 2014). This usually means that leaders who might have been high achievers in the past, now must attract and support the success of other great people in their teams (Steiber, 2014). However, the Google model still has an explicit top executive team, with VPs, directors, and managers. Even if these executives allow their direct reports considerable freedom to solve problems and create user value, they are still these peoples’ managers and there is a formal hierarchy in place, with greater benefits at the top. Employees who do not make it to a higher level usually leave the company after some years. The RenDanHeYi model strives for a system “without” leaders (Steiber, 2021b), by making everyone an entrepreneur, or even a founder of a microenterprise. Therefore, at Haier, they do not talk about executives, vice presidents, or managers. At Haier, the people are ME owners, entrepreneurs, or makers. In the best-case scenario every employee should be an entrepreneur, not a job holder. According to the RenDanHeYi philosophy, these entrepreneurs and the MEs should be selfevolving. Haier employees compete internally and can challenge their colleagues by bidding for a job position that they believe they could do better (Steiber, 2021a). Google also strongly believes in having people who are entrepreneurial, self-driven,

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and self-organized (Steiber, 2014, p. 56); however, employees do not challenge each other and bid for each other’s positions. This “internal market” is much more explicit in the RenDanHeYi model.

8.7

Moving Ahead

By this point in the book, it should be clear that both Haier’s RenDanHeYi model and Google’s version of the Silicon Valley Model are very significant departures from the traditional forms of bureaucratic management. The two companies are managed in ways that better fit the IoT era and that focus on innovation, agility, and speed. Both have achieved results that appear to validate their respective models, as Google and Haier each have innovated and grown tremendously since they were founded. In fact, on November 8, 2021, Google’s listed parent Alphabet was valued at $2 trillion and was the top performer among the five biggest US tech stocks in 2021, with a more than 70% advance, fueled largely by the growth in Google’s advertising business (Lewis & Grant, 2021). Similarly, Haier Smart Home (HSM) achieved revenues of $111.6 billion in the first half of 2021, an increase of 16.6% over the first half of 2020. In the same period, HSH in China grew 29.9% in revenues, supported by digitization of its domestic business (Steiber, 2021b). The above comparison of the two companies is, according to the author’s knowledge unique and has never been done before. It has revealed similarities on the level of principles of the two models. When we consider that Haier and Google have operated in very different markets and industries—Haier primarily in white goods, i.e., appliances for the home, and Google in fields from internet search to mobile technology—the core similarities in their management models become even more striking. The companies may have arrived at a set of principles that are widely applicable. Perhaps either of their models could be viewed as avatars of the future of management, worthy of emulation by companies that wish to survive and thrive in almost any industry. But a closer comparison of the models does reveal substantial differences in practices applied. We have seen how the RenDanHeYi model goes beyond the Google model in making use of ecosystems, creating a networked organization, treating employees as entrepreneurs, working closely with end users, tying compensation to true employee-related user value creation, and deploying a nonlinear management style. Some would argue that these further steps might be possible due to national differences in culture and regulations. For now, however, the bottom line is simply this: The RenDanHeYi model could in certain aspects be viewed as very disruptive, specifically for companies in Western countries. In the chapters ahead, we will examine what happened when RenDanHeYi, a Chinese model, was introduced at GE Appliances, a more than 100-year-old American company.

References

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References Desveaux, J. A. (2012). Adhocracy. Online encyclopedia article in Brittanica. Accessed November 19, 2021, from https://www.britannica.com/topic/adhocracy EFMD Global. (2021). RDHY certification. Accessed December 1, 2021, from https://www. efmdglobal.org/assessments/companies/rdhy-certification/ Haier. (2016). The Haier dictionary of RenDanHeYi. Haier Group. Lewis, L., & Grant, N. (2021). Google market value passes $2tn mark on back of share rally. Irish Examiner, 8 November 2021. Accessed November 15, 2021, from https://www.irishexaminer. com/business/companies/arid-40739982.html Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research on organization design. Management Science, 26(3), 322–341. https://doi.org/10.1287/mnsc.26.3.322 Sarath. (2020). Google employee benefits: Google stock units (GSUs). Eqvista, 14 August 2020. Accessed November 19, 2021, from https://eqvista.com/google-employee-benefits-googlestock-units/ Steiber, A. (2014). The Google model: Managing continuous innovation in a rapidly changing world. Springer International Publishing. Steiber, A. (2018). Management in the Digital age: Will China surpass Silicon Valley? Springer International Publishing. Steiber, A. (2021a). The transformation of GE appliances (pp. 1–45). Report for Haier Management Institute. Steiber, A. (2021b). Author’s interview with Mr. Ji Guangqiang at Haier, 3 November 2021. Steiber, A., & Alänge, S. (2016). The Silicon Valley model: Management for entrepreneurship. Springer International Publishing.

Part IV GE Appliances in 2016 and 2021 and the Interpretation of RenDanHeYi

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GE Appliances in 2016

GE Appliances (GEA) is an American home appliance manufacturer based in Louisville, Kentucky. GEA was incorporated in 1905 and was for many years a part of General Electric (GE) (Glader, 2010). However, on September 08, 2014, GE agreed to sell the company to Electrolux, a Swedish appliance manufacturer for US$3.3 billion in cash. The transaction was terminated in December 2015 after the United States Department of Justice filed a lawsuit to block the deal (Mann & Hansegard, 2015). Instead, in June 2016, Haier acquired GEA for $5.6 billion. Under the terms of the sale, Haier would have the right to use the GE brand name until 2056. GEA now operates as an independent subsidiary of Haier and remains headquartered in Louisville (Haier, 2016; Mann, 2016). While GE and GEA had been known as innovative companies, GEA’s growth rate in 2016 had stagnated, and the internal focus was primarily to “do no harm to the GE brand and keep the current market position” (Steiber, 2021). By 2016, the company had gone from being one of the leading home appliance companies in the United States to fourth, almost fifth, in the US market. After Haier’s acquisition, the company went through a multi-year transformational change of its culture, leadership, and structure. The result is best described as “disruptive” as the company since 2016 has had double-digit growth 4 years in a row and been the fastest-growing home appliance company in the United States. Even more impressive is that some of the businesses, such as Clothes Care, grew by 50% in sales and 200% in EBIT and the company reduced time to market, from idea to execution, from 2 years to 3 months (Steiber, 2021). To understand how this was possible, it is first important to understand the company’s situation in 2016 and the key drivers behind the change, and thereafter how the company was perceived in 2021. When this is known, the transformation between these years can be described. This chapter will focus on the situation before the acquisition in 2016.

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_9

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GE Appliances in 2016

Triggers for Change

In 2016, GEA was part of GE. GE was, and is, known for technological leadership and for the famous inventor Thomas Edison, whose work led to GE’s founding. Over the years the company had invested in multiple industries, primarily offering enterprise (B2B) products and services, from power generation equipment to electric locomotives and jet engines. GE Appliances, a B2C company, was therefore an outlier in GE’s portfolio (Steiber, 2021). As a B2C company, GEA was GE’s public “face” in the mass market, which meant that GEA indeed had to make sure no harm was done to GE’s overall image for high quality and reliability, by focusing on those factors similar to the B2B units. In 2001, Jeff Immelt became the CEO of GE, following Jack Welch. Immelt continued as CEO until 2017, during which time GE’s stock value dropped by 30% while the S&P 500 index rose by over 100% (Shen, 2017). As the share price fell, Immelt decided to tighten the company’s portfolio by divesting multiple businesses, one of which was GEA (Steiber, 2021). The company had been used as a cash cow within the portfolio, and for divestment purposes, it had to be dressed up by further improving short-term profitability. The people in GEA, who had been a proud part of one of the world’s most innovative companies, now faced a situation in which the parent company had tried to divest their appliance business multiple times (the first had been in 2008). These stop-go-stop-go phases affected their self-confidence as a company, while at the same time they were being pressured to focus on short-term results. One person recalled a feeling among GEA staff that the company was treated as a “foster child, not really wanted, but being abused by its parent company” (Steiber, 2021). Therefore, many people in GEA felt frustration. One very key person among them was the CTO at the time, Kevin Nolan, who would later be promoted to CEO (Steiber, 2021). Nolan had started at General Electric as an engineer in GE’s Industrial business and felt strongly for the factory he worked for, later closed due to the outsourcing trend in the 1990s. As a result of the outsourcing, Nolan began to travel to Asia and saw with his own eyes the discrepancy in productivity between the plants in Asia and plants in the United States. This concerned him greatly, as he believed that keeping manufacturing close to the rest of the business and the consumers was important, both for the country and for the company (Steiber, 2021). To add to his frustration, Nolan showed a strong trajectory of being entrepreneurial, which was difficult to do under the cost-cutting policies of Immelt. Therefore, after being made CTO of GEA, Nolan took a step that combined an entrepreneurial mindset with at-home manufacturing. Together with Natarajan Venkatakrishnan, in 2014 he started a new appliance unit called FirstBuild. Still operating today in Louisville, FirstBuild is a micro-factory for building pilot quantities of innovative new products that are conceived and designed on an openplatform approach. GEA engineers work with external innovators, pilot customers, and others in the FirstBuild development process. Although FirstBuild was (and is) only one part of GEA, its founding was based on principles that in several ways happened to resemble those being used at Haier.

9.2 GE Appliances in 2016: Evaluation Methodology

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CEO Zhang Ruimin at Haier, which would acquire GEA in 2016, had been convinced since the early 2000s that home appliances companies would need to transform to stay relevant in an IoT age. As described in Chap. 6, he had started Haier’s own disruptive transformation in 1984 and introduced the new management philosophy “RenDanHeYi” in 2005. People’s frustrations at GEA, together with Nolan’s vision and Haier’s own conviction and transformation, all acted as important triggers of the change process that was started after the 2016 acquisition.

9.2

GE Appliances in 2016: Evaluation Methodology

To gauge the condition and status of GEA at the time of its acquisition, senior leaders were asked in early 2021 to think back to that time and then rank how the company stood along eight dimensions. The dimensions were inspired by those used by Steiber and Alänge (2016) to distinguish an innovative, growth-oriented company from the conventional Machine Bureaucracy described by Mintzberg (1980). They are: • • • • • • • •

The primary area of top leadership focus. The direction of this focus. The main cultural emphasis. Leadership style. Desired employee characteristics. Organization and coordination of people/tasks. Digitization of communication processes. Innovation processes.

After the concepts and ranking system were explained to the senior leaders, they were asked to rank the company on a scale from 1 to 6 for each of these dimensions. A low number would characterize the company as a closed Machine Bureaucracy, while a high number would mean a company closer to the Silicon Valley Model—or a RenDanHeYi-inspired firm as described in Chap. 8. When the rankings were totaled and averaged, it was clear that the senior leadership team perceived GEA in 2016 as having been a Machine Bureaucracy. See Fig. 9.1. In the next chapter, we will see how the scores changed after GEA’s transformation process. For now, however, let us dig deeper into the company’s pre-acquisition, pre-transformation status. The senior leaders were also interviewed about their rankings, so as to explain the scores they gave, and to elicit more open-ended comments and descriptions of what GEA was like in 2016. Their responses are summarized and sampled below. All quotations are from the interviews, with the individual interviewees kept anonymous.

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Top leadership main focus Direcon of focus Culture Daily leadership People Organizaon Digitalizaon of info. processes Innovaon source Involvement in innovaon 0

1

2

3

4

5

6

Fig. 9.1 Perception-based ranking of GEA before the acquisition (Steiber, 2021. Scale 1 to 6)

9.3

Top Leaders’ Main Focus and Its Direction

Before the acquisition, GEA was heavily focused on cost-cutting and profitability. This focus became natural in a phase of divesting the company, but it was also driven by the GE culture, which was risk averse: Under GE . . . it was like “Do no harm” We were managing our investments, pricing strategy, and channel strategy to increase profitability

GEA was expected to be a fast follower rather than a leader in the North American market. Further, high quality and reliable products were key for the GE’s brand. GE brand reputation is built around quality and reliability . . . you have to focus on internal processes to ensure that you continue to honor this brand heritage

The focus was therefore primarily internal to secure efficiency and quality, and this, in turn, was done through a high degree of control of operations. Concepts such as Six Sigma and Hoshin goals, and later Lean had been adopted (Steiber, 2021). Several of the interviewees were trained in Six Sigma and became “black belt” advocates for this philosophy and method. Therefore, through the adoption of these concepts, GEA did become focused on processes and efficiency, and there was a checklist for most things. As one example, the marketing department had a checklist

9.4 People and Compensation

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of 50 things to be checked before launch. Further, a large quality department existed, headed up by a vice president for quality assurance. GEA had started initiatives to better understand users and their needs, but bottom line, the company believed in its own ability to figure out new products and features and then push them to market. Further, the retailers wanted “more of the same, but cheaper” (as one interviewee said). Thus, the focus was to turn out standard products in volume and as costefficiently as possible, and what happened after sales was not really followed up on: ... all the measurements of a new product . . . [We]stopped measuring it once the product went out the door . . . For the organization that was the finish line, while for me it was the starting line

The inward focus continued into the first part of 2017. The reason, in this case, was the beginning of the transformation, which during the first year demanded a lot of attention and energy as several changes were implemented at the same time. . . . we were internally focused because we were all trying to figure out things like brand, product lines . . . It was complex

9.4

People and Compensation

In early 2016, most people at GEA had been working there for a long time, many for their whole careers. At this time people were highly regarded for their technical and operational competences. The aim was to hire subject matter experts and leaders in the appliances field. Before, I wanted somebody with a lot of technical competence for the product management role . . . someone that had actually come from our technology team and worked there for years . . . . . . the interview guide was more focused on clinical knowledge than anything else . . . [and] it wasn’t only lack of entrepreneurial competence but lack of diversity

People were primarily hired and promoted from within, so that GEA’s “DNA” in terms of competences and capabilities was little influenced from the outside. Since people had spent years working together, relationships were “family-oriented,” and people collaborated well. However, there was also a perception of internal power struggles, especially because the focus was internal, on peoples’ “own” unit, rather than on the market’s needs. Given a focus that was primarily “Internal First,” people did not really know if GEA was doing as well as it could in the market. Especially in the factories, people were creating stones for a cathedral, without understanding that it was a cathedral they built.

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You couldn’t tell if we were winning or losing on the factory floor

At that time, GEA used a compensation model consisting of three primary parts: salary, GE stock options, and a bonus program. It is important to know here that the bonus program was for the senior leaders and was not linked to individual performance, but to seniority and tenure. Further, the bonus system was perceived as “less transparent,” as it sometimes was hard to understand why a certain leader got some extra percentage points of bonus from the common pool.

9.5

Culture

GEA’s culture was of course then characterized by a strong belief in the importance of defending market position by focusing on quality, reliability, and cost-efficiency. For General Electric, profitability and cash flow were management’s primary concerns, so a growth mindset was not really on the map and was not asked for. The GE mindset was basically focused on cash flow and profit. They didn’t care if we grew; we hadn’t grown for years, right? It’s been the same size of the business since I came to the company

Interestingly, due to the focus on cost-efficiency, the company was still perceived as being adaptable and focused on fast learning. However, the driver behind these things was the potential for gains in efficiency, and not growth. . . . you had to be adaptable to stay ahead of costs . . . and when someone got a new job that person had to figure out what to do pretty fast in order to become efficient . . . to play his/her piece in the standardized operations . . .This is how a machine works.

GEA, therefore, had a learning culture, even if fast learning was used to become even more extremely “lean.”

9.6

Leadership Style

Leadership in early 2016 was described by everyone as having a top-down, command and control style. Further, some described the leadership as “commercially oriented” rather than characterized by a true passion for the products. I’d say it was very top down . . . and we used Lean and Hoshin goals, and not probably in the best way . . . to push down the strategy of the business and what people should work on . . . It didn’t allow anything to pop up organically . . . It was to control the actions of everyone

Although GEA’s leadership was perceived as top-down and bureaucratic, one interviewee, who had worked as a corporate auditor within GE, mentioned that compared to other GE businesses, GEA was less top-down and bureaucratic.

9.7 Organization, Coordination, and Digitization of Communication Processes

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However, because of the focus on control, decisions were cascaded upward in the organization for approval, which slowed down the decision-making process. Investment decisions were made in an Investment Council that consisted of VPs who reviewed the forms that had to be prepared for the meeting, and the approval process was cumbersome. For example, an investment of $50,000 required four meetings, to get signoffs from four different groups of functional people. A leader’s power was based on her/his seniority. Leaders were promoted from within and very few, if any, came from the outside. The dynamic of the top leadership group was described as having no open debates. Instead, decisions to be made were debated in smaller groups, consisting of key stakeholders, before the leadership meeting. In this way, “surprises” could be minimized, and the meeting could focus on agreements and decisions. We couldn’t have any surprises, nor a debate that was open

9.7

Organization, Coordination, and Digitization of Communication Processes

In 2016, GEA had a matrix structure that was primarily functionally oriented. This meant that budgets and power were mainly in the hands of the different functions. The organization was perceived as a typical GE organization, well-structured, and bureaucratic. I came from P&G and they had processes for everything. . .I’d say that this organization was pretty tall and bureaucratic. I would inherently say a bureaucratic top-down structure. . . [was in place] when I came. I would have described it as a machine. . .to the point that if you took the people out, I wonder if it would have just kept running in the same way.

However, as people all knew each other well and had a deep knowledge of their respective roles and responsibilities, interviewees with long tenure at GEA perceived the management structure as somewhere between “tall and bureaucratic” and “flat and decentralized.” We were always extremely well structured, but very flat in our nature

Given the emphasis on cost efficiency, the focus was on process improvements. Each functional unit optimized itself, not from a user perspective but from an efficiency point of view. For this reason, the metrics they used to track how well the company was doing were primarily self-focused rather than on the business as a whole.

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. . . for a lot of the functional owners it was optimizing their own organization, process or product . . . Finance wants to be the best finance team . . . Manufacturing the best manufacturing team . . . and HR the best HR team . . .

People and tasks were coordinated mainly via well-defined procedures, roles, and responsibilities. The Hoshin Kanri method was deployed to make sure that tasks were done according to plan. The general perception was that GEA had a somewhat low degree of digitized information processes in 2016. Some noted that the parent company, GE, drove many of the digitization efforts, wondering why these were not driven by the appliances company itself.

9.8

Innovation Processes

In 2016, innovations were organically generated—that is, from within. The company was perceived as being rather reactive in its work with innovations, e.g., typically acting on what competitors did. When external innovations were used, they came from suppliers upstream rather than from users. One exception to this was First Build. Further, innovation was perceived as technology-driven and done by the R&D and product management people in the firm. Few other departments were perceived to be involved in innovation work. The focus was not on organizational innovations, but some had been adopted, such as Six Sigma, Hoshin goals, and Lean.

9.9

Moving Ahead

The rankings and comments in this chapter have summarized the perceived state of GE Appliances prior to its acquisition and transformation. In every respect, the company was seen as being managed in a style close to that of a classic Machine Bureaucracy, with a strong internal focus on cost-efficiency, profitability, risk avoidance, and related concerns. Next, we will see how dramatically the company has changed because of its transformation.

References Glader, P. (2010, January 5). GE realigns appliances, lighting unit. The Wall Street Journal. Accessed November 30, 2021, from https://www.wsj.com/articles/SB10001424052748703 580904574639092656990778 Haier. (2016, January 15). Haier Group enters into MoU for global strategic partnership with General Electric Qingdao/Haier will acquire GE appliances business. Accessed November 30, 2021, from https://www.haier.com/my/about-haier/news/20190604_74031.shtml

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Mann, D. A. (2016, January 15). GE confirms $5.4 billion deal on appliance unit. Louisville Business First. Accessed November 30, 2021, from https://www.bizjournals.com/louisville/ news/2016/01/15/ge-haier-confirm-5-4-billion-deal-on-apppliance.html Mann, T., & Hansegard, J. (2015, December 7). GE terminates sale of appliances business to Electrolux. The Wall Street Journal. Accessed November 30, 2021. Mintzberg, H. (1980). Structure in 5’s: a synthesis of the research on organization design. Management Science, 26(3), 322–341. https://doi.org/10.1287/mnsc.26.3.322 Shen, L. (2017, June 12). General electric’s value plummeted under CEO Jeff Immelt. Fortune. Steiber, A. (2021). The transformation of GE appliances. Report for Haier Management Institute. Steiber, A., & Alänge, S. (2016). The Silicon Valley model. In The Silicon Valley model (pp. 143–155). Springer.

GE Appliances in 2021

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Let us now turn to how the senior leadership team perceived GEA in early 2021, along the same eight dimensions that were used in the last chapter to rank the company pre-acquisition. As seen in Fig. 10.1, the perception of the company is now more in line with a model similar to the Silicon Valley or RenDanHeYi model, rather than with a “Machine Bureaucracy” model. The transformation cannot be described in any other word than disruptive, and is based on both a social and a technical cultural change at the company (Schein & Schein, 2019). In fact, the leaders’ perception of their company in early 2021 could best be described as it being seen as a “new” company. This will become evident from the commentary in the sections below, which describe changes along key dimensions. As in the previous chapter, all quotations are from the author’s 2021 interviews with senior leaders at GEA.

10.1

Top Leaders’ Main Focus and Its Direction

While the focus of the top leadership in 2016 was on cost efficiency, profitability, and being a fast follower, the focus in early 2021 was totally different. The goal was to be, and to be recognized as, the leading appliances company in the United States. This new level of ambition was initially driven by the new owner, Haier, acting as a strong and consistent trigger for moving toward a growth mindset. What has influenced this is definitely our leading goals...Haier had expectations and saw our potential ... Now we are gaining the confidence that we can move along that path and achieve this growth

The whole organization is now focused much more on growth rather than on cost efficiency. At GEA they refer to “leading goals,” which stretch the entire # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_10

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Top leadership main focus Direcon of focus Culture Daily leadership

People Organizaon Digitalizaon of info. processes Innovaon source Involvement in innovaon 0

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Fig. 10.1 Perception-based ranking of GEA in February 2021 (Steiber, 2021. Scale 1 to 6)

organization to innovate and think out of the box to reach new levels of performance. This change in focus has been perceived as “energizing.” ...it was energizing for everyone and that mentality changes how you approach your business I can’t be the number one leader in my industry if I don’t have growth. . .

Profitability is still important, as is cash flow, but these factors are now more “hygiene factors,” or secondary factors necessary for GEA to be able to continue to grow. . . .a profitable business is necessary to finance growth.

Perhaps as a natural consequence of a “growth mindset,” the direction of the senior team’s focus also has changed and in 2021 was directed externally to a high degree, rather than internally. The external focus is not only a result of an imperative to grow, but also a result of GEA’s increased emphasis on the user and its transition from thinking in terms of “hardware” to user experience. . . .for a lot of the functional owners it was about optimizing their own individual organization, process, or product. Today, it is more focused on our relationships with retailers and with the consumers I think we are much more externally focused...You know, consumer insights and this whole notion of the user experience versus the hardware

10.3

10.2

Culture

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People and Compensation

In early 2021, several interviewees provided examples of how they now search for and hire individuals they would never have hired before. I recently hired a new product manager for the [X] segment. I worked with the recruiter to find somebody with industry experience ... somebody who could help us learn things that we don’t already know. I have always hired product managers that have an engineering background, very competent in quality and design ... I just hired a new product manager, and I rewrote the job description to include competences in not only products but services and ecosystem and IoT ... What we need is to understand how to make something that is value added to our consumers that is not physical ... We have the operational part . . . but we need to be good at leading in the IoT space.

Instead of hiring more of the same, senior leadership now looked for competences they did not have, for example, in new areas of technologies, or new ways of selling not only products, but also services. Key drivers behind this change, according to the senior leaders, have been the leading goals of dramatic growth and the mindset shift from products to offering great user experiences. Another factor that has played an important role, especially as GEA was a “closed” system before, is an initiative to increase diversity and inclusion. The compensation model used in 2021 played a fundamental role in the transformation of the company. According to the RenDanHeYi philosophy, compensation must mirror and reward value creation for the business, team, and individual. Therefore, after the acquisition, GEA gradually started changing its approach to better reflect the principle of “paid by users” (Campbell et al., 2019; Kuhn, 2020). Now that employees are rewarded based on how well they create customer value, they are led to think about what future competences and skills might be needed to reach the company’s leading goals.

10.3

Culture

The company has executed almost a 180-degree turn from a cultural emphasis on efficiency and control to effectiveness and adaptability. Changing a culture commonly takes a long time. The shift in GEA’s culture in only 5 years can therefore be viewed as “fast.” This fact was even noted by some of the senior leaders, who themselves were surprised by how fast things had changed within GEA. I have been in a lot of different cultures...and cultures typically evolve slowly ... it even surprised me as a culture takes years to change

One important explanation for this fast change in mindset was again the implementation of the leading goals.

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You can’t grow at the rate that we’re wanting to grow and not respond to the marketplace . . . This places a high premium on adaptability

Other factors were a change of the structure and delegation of decision power, together with the new compensation model. I think a lot of that has to do with the problem we’re attempting to solve and how we align our organization to solving that problem . . . That expedited our cultural shift

Another interesting shift at GEA is that mindsets have become more long-term. This too has been affected by the new owner Haier. One pillar of the RenDanHeYi model is to ‘invest in the future’ . . . It makes you think more about what you’ve got to do longer term to accomplish your goals

10.4

Leadership Style

When the focus shifts from efficiency and control to effectiveness and adaptability, leadership must change as well. In early 2021, leadership was no longer perceived as top-down, command and control. Instead, the current leadership is described as more delegating and facilitating. Observations that support this view refer mainly to two things, one being the new leadership from the top: I think the biggest driver is the constant reinforcement of Kevin Nolan, our CEO, on how he wants to disseminate down decision making and say, the accountability doesn’t sit with one or a few people . . . He’s been very consistent in driving that point home for quite some time.

The other factor that is referred to is the new organizational structure. A level of hierarchy was reduced early in GEA’s transformation. Profit and loss responsibility, as well as the right to make decisions, have been pushed down in the organization. For example, in 2016, the leader of the laundry business had to ask for permission and approval in several reviews, including a finance review and a CEO review, for reallocating $0.5 million of his budget. In 2021, he has the authority to reallocate as much as $5 million of his budget before asking for any approval. This 10X higher limit gives him the ability to be more autonomous, nimble, and fast-moving, and the rest of the organization has changed similarly. Also, when decision-making is delegated farther down in the organization, the CEO does not need to spend as much time on internal affairs such as reviews and approvals. This gives Kevin Nolan more opportunity today to take a long-term view and to focus on new businesses.

10.5

10.5

Organization, Coordination, and Digitization of Communication Processes

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Organization, Coordination, and Digitization of Communication Processes

The perception of the organization has changed drastically, and it is described in 2021 as flat with decentralized authority. That may seem unusual, as only one level of hierarchy has been removed, and the overall structure is still a matrix structure. However, other steps have been taken, and the experience of working within the structure has become quite different. Budget responsibility in the matrix has shifted 90 degrees. It is now in the power of the various preexisting and new product lines, all of which are labeled microenterprises or MEs. The term “micro” refers not to size but to the qualities of being fast and nimble. In keeping with the RenDanHeYi philosophy, the MEs are treated as standalone, independent businesses, in which all employees face users or internal customers, and are rewarded based on how well they create value for these. As of early 2021, GEA had implemented and was running multiple microenterprises (MEs), some of them large businesses and some small and new. The result could almost be compared to the Google/Alphabet structure, allowing old and new businesses to live side by side. Further, each ME has three rights—the right to make decisions, the right to hire, and the right to distribute rewards and compensation to people working in the ME. Another important change in GEA’s organization is the formation of “platforms” to serve and support the MEs. Functions such as marketing, sales, and legal are now “commercial platforms,” while the functional units for manufacturing, sourcing, and supply chain management are operational platforms. This change is more than one of labeling or structure. It involves a shift in the very mindset of the staff, from “functions are kings” to “functions serve MEs”—which, in turn, serve users. The new arrangement helps to align the organization around users’ needs and growth, while it also has led to more horizontal communication and coordination between the MEs and platforms, which makes the company nimble and fast moving. . . .with this structure they [MEs] have an equal amount of authority and decision making on what we run in our plants. It may seem like more bureaucracy . . . but in reality . . . we communicate better than ever before . . . It is much more collaborative than before, and the speed of decision making has accelerated exponentially.

Meanwhile a new brand concept, “House of Brands,” has increased the alignment between MEs, as each ME has to “live up” to the brands. The idea is that a user of any product within a brand will get the same user experience regardless of whether it is a freezer, stove, or washing machine. The brands, therefore, act as effective alignment mechanisms between MEs that are focused on delivering different products. As to the mechanisms for coordinating people and tasks, they have changed from detailed instructions and standardized processes to the use of leading goals, deployed to each level of the organization, as well as “light” contracts between owners of MEs and platforms.

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Finally, the digitization of communication processes was perceived as much higher in 2021. One factor behind this is that COVID forced every company to become more digital. Since the acquisition, however, GEA has also invested actively in digitalizing communications across the board, which is an important element of the RenDanHeYi principle, zero distance to users (Steiber, 2021). . . . we put a significant amount of energy and effort into ensuring that we have digitized . . . whether it is from a process perspective of how we run our factories, improving automation . . . or making information available at the hands of our operators at the plants or our salespeople . . . We have created data lakes, [and] started getting into business analytics . . .

In autumn of 2020, GEA created direct contact with users through digital channels (Zohar, 2022). One key vehicle for digitization of direct contact with users is the SmartHQ™ program. This end-to-end solution set, which includes a mobile app for users of GEA’s smart products, makes it easy for them to use and manage the appliances, while also enabling business partners to work with GEA and service the products more efficiently. Such a toolkit becomes vital when you consider that GEA now offers more than 450 smart and connected products, from air conditioners and water heaters to kitchen and laundry appliances (GEA, n.d.) The SmartHQ platform includes digital solutions for smart distribution, fleet management, service diagnostics, and end user control, as well as for connecting and coordinating the functions. GEA wants to be the “Android” of appliances and use software solutions from Google, Apple, and other leading players along with its own. According to GEA itself: We’re investing in SmartHQ™ to create smart, real-life digital solutions for distribution, management, service, and the home. We are always striving to better serve our customers and owners. SmartHQ will assure that we continue to lead in an ever more digital world.

Further, according to Zohar (2022), GEA now maintains an extensive factory service system that is unique in the appliances industry. In addition, GEA has taken control of distribution and customer service operations as part of the Zero Distance strategy, and its call centers now deal with over 10 million customer calls each year, according to Zohar (2022).

10.6

Innovation Processes

The focus for new value creation through innovation has moved from being primarily internally driven and technology-centric, to become a bit more externally driven and customer-centric. Again, the leading goal of becoming the number one provider of home appliances in the United States has forced GEA to look for new opportunities, also outside of the firm. Employees’ engagement in innovation has increased overall. Some interviewees referred to Marketing’s and business leaders’ roles in company innovation. They referred to shark-tank initiatives that some of the microenterprises have been involved in. Some believe that GEA’s investment in

References

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FirstBuild has had a positive influence on the company-wide interest in entrepreneurial activities. Interestingly, also the focus on organizational innovation has increased exponentially, as new ways of working are needed to reach the leading goals and stay relevant in a digital age.

10.7

Moving Ahead

The senior leaders’ perception of GEA has changed considerably between the years 2016 and 2021. From an outside perspective, the transformation of the company has been “disruptive” and rather fast. To begin a deeper look into the transformation of the company, the next chapter examines how leaders at GEA interpreted RenDanHeYi for adoption in their company.

References Campbell, D., Meyer, M., Cao, B. Y., & Lau, D. H. (2019, April). GE appliances: Implementing Haier’s made-in-China management system. Harvard Business School Case 119-099. Accessed from https://www.hbs.edu/faculty/Pages/item.aspx?num¼56028 GE Appliances. (n.d.). SmartHQ™ Solutions: Serving America’s homes together. Accessed October 3, 2021, from https://smarthqsolutions.com/ Kuhn, J. (2020). Haier: Strategic leadership in the digital era. Columbia Business School. Schein, E. H., & Schein, P. A. (2019). The corporate culture survival guide. Wiley. Steiber, A. (2021). The transformation of GE appliances. Report for Haier Management Institute. Zohar, D. (2022). Zero distance: Management in the quantum age. Palgrave Macmillan.

GE Appliances’ Interpretation of RenDanHeYi

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For GEA, RenDanHeYi is a constant journey of improvements toward a vision that does not have a defined endpoint and indeed may evolve over time. According to CEO Kevin Nolan, this makes it much different from concepts such as Six Sigma, in which you write a goal statement spelling out finite goals that are supposed to be “specific, measurable, attainable, relevant and time-bound” (Juran.com, 2019). Certainly, people working within the RenDanHeYi model may set finite goals and schedules for tasks or projects. But the overall approach is more in line with Teece’s Dynamic Capabilities, wherein the aim is to make a company become highly adaptive, and therefore able to produce future results that can’t be defined or even predicted at present (see, for example, Kleiner, 2013). To GEA’s senior leaders, RenDanHeYi means creating an entrepreneurial enterprise all the way from the group level down to everyone: I think of it as a fractal . . . I see an entrepreneurial enterprise and I zoom in and see microenterprises . . . and I zoom in [closer] and see the individuals who themselves are entrepreneurs

A fractal here means a never-ending pattern that permeates a complex dynamic system.

11.1

Key Objectives and Principles

GEA’s interpretation of RenDanHeYi includes some overall objectives and core principles, all of which inspire underlying processes and practices that are meant to lead, facilitate, and motivate people toward doing excellent innovative work. The three main principles are adopted directly from Haier:

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_11

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Fig. 11.1 An illustration of GEA’s interpretation of RenDanHeYi (Steiber, 2021)

• Providing great customer experience • Reliance on entrepreneurial energies • Sharing value created among all involved Then comes a set of supporting elements that serve as “pillars” to uphold and fulfill the principles. In Fig. 11.1 the author has tried to illustrate the objectives and key principles of GEA’s RenDanHeYi. Notice first that there is an overarching vision at the top of Fig. 11.1, which is really a statement of the company’s new identity and purpose. GEA has declared that it will be “a growth platform in the IoT era.” The main objectives go along with this vision, and beneath them are the key supporting principles. Let us look at each of these in turn. As before, the highlighted quotations are from interviews with the senior leaders.

11.1.1 Set Leading Goals According to Zohar (2022), GEA no longer has a traditional strategy department, and Nolan leaves day-to-day operations to the microenterprises and platforms. Strategic direction now comes largely through the “leading goals” that the company sets. People who inhabit the microenterprises and platforms are then challenged to stretch their thinking, and to expand or reinvent what they do, to help the company reach these ambitious goals. For example, one leading goal has been to move GEA

11.1

Key Objectives and Principles

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from its recent fourth- or fifth-place position in the North American home appliances market up to the top, as the leading provider. This has demanded extensive growth and therefore innovations not only in products, but also in processes, marketing, and organization. Previously, GEA had used the Hoshin Kanri planning system to deploy goals and to control people and tasks. Now GEA has further developed the Hoshin Kanri methodology into a more collaborative and self-organized, bottom-up approach to reach leading goals. . . . my personal incentives are incredibly linked to how the ME is performing

GEA deploys both short-term (1 year) and long-term (3 years) goals, with the long-term goals being related to key initiatives of the firm, such as implementation of the new branding strategy, “House of Brands.” The better that each business, team, and individual “lives up” to the goals, the higher the bonuses they will receive, as the bonus reflects how much value each has created for the users. Senior leaders get bonuses based on progress toward both short- and long-term goals. All others receive bonuses based on how well the short-term goals are met. Although it is not part of Fig. 11.1, one of the senior leaders believed that longterm focus was another important element of the RenDanHeYi philosophy. She called it investing in the future: . . . I am making investments that need investment, which is affecting my ME’s profitability, but I know it will pay off in the long run. It will propel my growth and profitability, so I am trading off some short-term profitability for gaining longer-term benefits for my business.

As units of a Haier business, teams do look 5 and 10 years ahead, and this more long-term planning is part of the Growth Playbook process, a practice started before the acquisition, but which then was limited to 2-year projections (Kanter & Cohen, 2018). Part of the updated, current Growth Playbook process now also involves thinking about possible new microenterprises within the existing MEs.

11.1.2 Zero Distance to Users Zero distance to users means putting the customer, and specifically the end user, at the very center of the universe. Rather than having customers and users orbiting the company, the company must orbit around the customer and user. GEA has adopted this element of the model completely. In every decision we make we focus on the user . . . being close to the consumers’ individual experience is like a holy grail for us

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11 GE Appliances’ Interpretation of RenDanHeYi

Zero distance to the user could be viewed as a vision embodying the idea that every barrier and divider between the business and its users should be erased. One key enabler here is digital technology, including social media and more.

11.1.3 Align the Organization Toward Users The next principle is to align the organization toward the users and their needs and create a true “end2end” accountability within the business for delivering to the needs of the users, and thereby creating lifetime users. GEA has fully adopted this approach and has currently adopted the model of microenterprises supported by platforms. “Micro” here does not mean small, but rather nimble and very sensitive to the users’ needs. For people within a ME to be aligned and accountable for an end2end process and user experience, decision-making must be delegated down in the organization, closer to the market. The MEs, therefore, have a high degree of autonomy, based on the “three rights” that Haier granted to its MEs in China: (1) the right to make decisions, (2) the right to distribute compensation to the people involved in the ME, and (3) the right to hire people. Furthermore, as an interviewee at GEA described it: . . . programs are reviewed at an ME level, and we have to take ownership of making sure the decisions and the products we develop meet the requirements of sales and the branding team . . . Only the double A programs, the biggest ones, still need a review from the executive council.

One example of a “big” program at GEA is a change in the pricing strategy, which would affect the business by many millions of dollars. When talking about alignment of the whole organization, this includes everyone who in some way works with a given ME. These people can either report directly to the head of the ME—as is typically the case with product managers, commercial directors, or merchandise managers (which are common roles in MEs that have fewer than 10 members)—or they may have a dotted line relationship to the head of the ME, which is typical of people in manufacturing, sourcing, or people working for any of the other “platforms.” With the ME structure, GEA has successfully started several new businesses that became their own MEs, with leaders from either inside or outside GEA. For example, in 2019 the company funded a new venture called Chibo, an interactive cooking platform. Although GEA currently does not have a formal incubator program, this example shows that GEA is in fact incubating new businesses as part of its ME structure. The structure allows for the formation and support of businesses that would not meet traditional financial metrics. The funding of new MEs is done either through the normal business planning cycle, or via a reallocation of funds by ME leaders, who have the authority to support these kinds of initiatives. One example of this was the RV (recreational vehicle) initiative, which emerged

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Key Objectives and Principles

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from a group of employees in the Zoneline ME who were passionate about outdoor living. This was then directly funded by the Zoneline ME. The ME structure also allows for new businesses in which GEA already has IP and capabilities, such as the Water Heater business, which was provided $60 million to turn an old facility into a new water heater factory. In cases where MEs cannot get the support they would need from GEA’s own service platforms, they are allowed to go outside to third parties. Another, third funding opportunity is to present the business case for a new ME to the investment council, which has access to an “opportunity fund.” Altogether, the arrangements for forming and funding MEs allow GEA to be more nimble, responsive, and a challenger in the market. One interviewee remarked on the differences from the old system, in which new product ideas were conceived in the FirstBuild unit and then had to be taken “over the wall” into an operating unit to go to market: . . . there was always a path for potential innovations to move from FirstBuild to GEA, but it had to make business sense with traditional metrics and optimization of the factory . . . the ME model created a natural capability to create a business that we’re not in . . . there are multiple mechanisms for funding in GEA and the traditional is through the business planning process . . . we’re probably more open to extended payback periods. . . .we also have an opportunity fund that could be used for a new business pitch or for an incremental opportunity where we have capabilities . . . I can call the investment council and present a whole new microenterprise.

Regarding idea generation for new business opportunities, Shark Tank initiatives have been used by some of the MEs within GEA. This is an ME-led and funded program where employees present ideas to enhance, expand, or improve current and future products and services developed by their microenterprise. At the time of this writing, GEA had new products in the pipeline that were first picked in Shark Tank sessions. Being dynamic and staying relevant to users is also important for established MEs, and an annual planning cycle is not enough to generate these qualities. However, delegation of decision-making and resource allocation to the ME leaders does create a dynamic, responsive environment: The number one thing that is given the microenterprises is the flexibility of allocation of resources . . . over the last two years we have had fantastic performance, but the products I presented to get my budget were not what I ended up delivering by the time we were done

11.1.4 Pay by Users Following Haier’s lead, GEA has changed its compensation model to distribute value to people in relation to how much value they create for the users. This value is distributed as part of individuals’ bonuses. In addition to this, GEA’s employees also get a fixed salary. As described earlier, this “pay by users” concept is one of the

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RenDanHeYi principles, and GEA’s transformed compensation model is in accordance with it.

11.1.5 Ecosystems and EMCs The final principle identified in interviews with GEA leaders is the importance of ecosystems and ecosystem microcommunities (EMCs). Haier strongly believes in the need for any company to move away from being product-centric and instead cultivate ecosystems for creating higher value and better user experience. An ecosystem, according to the Haier philosophy needs to be open like a rainforest. Each actor in the ecosystem plays a vital role and they all live in symbiosis with each other. An EMC is a smaller ecosystem within the larger ecosystem. In China, the MEs are expected to develop EMCs to create the ultimate user experience. GEA wants to become the Android for appliances and has developed and implemented Smart HQ. Users who have multiple interconnected smart appliances can use the Smart HQ mobile app to monitor and control them remotely, and the platform is also designed to let partner companies such as distributors and service contractors coordinate their work with GEA and with the users. To take steps beyond this, GEA has been discussing what ecosystems might mean for them in the future and how they could create ecosystem microcommunities as Haier is doing. The company believes that many different players need to be coordinated in some way. At this writing, late in 2021, GEA had not yet implemented EMC contracts, but was ready for it in 2022.

11.2

Moving Ahead

GEA’s interpretation of RenDanHeYi has stayed true to the Haier philosophy in terms of core principles. The exception is the belief in an internal market in which employees can compete and bid on positions. The company has, however, tailored the implementation of the principles in the form of practices. Some previous practices, such as the use of Hoshin Kanri and the Growth Playbook, were modified to align with RenDanHeYi. In addition, grassroots initiatives like the Shark Tank program have sprung up. Further distinctive features may emerge as GEA continues to follow the RenDanHeYi model and fills in pieces that are not yet fully developed—notably, the formation of EMCs. However, it seems clear that GEA has already transformed itself 180 degrees from its past regarding fundamental aspects of how the company is managed. GEA’s leaders, along with people throughout GEA, also think about the company differently; their culture and belief systems have changed. Antonio Boadas, GEA’s Chief Communication Officer, drew a chart illustrating these fundamental shifts. It is presented here as Fig. 11.2. The next brief chapter presents a model used to analyze GEA’s transformation. The following chapters will take us back to action at the ground level, as it traces the

References

95 Management Principles

Corporation Management Hierarchy

Cultural change PLATFORM

Employee

ENTREPRENEURS

VISION & LEADERSHIP

Corporate is first

USER IS FIRST

Play not to lose

PLAY TO WIN

MICROENTERPRISE

Top-Down Order

EMPOWERMENT

React to competition

LEAD COMPETITION

Corporate Pay

USER PAY

Risk adverse to new

EMBRACE OPPORTUNITY

Fig. 11.2 Transformation of principles and cultural beliefs (Steiber, 2021)

story of how GEA implemented RenDanHeYi, from initial steps to a company-wide approach.

References Juran.com. (2019, December 19). How to write a six sigma problem statement. Accessed November 20, 2021, from https://www.juran.com/blog/how-to-write-a-six-sigma-problem-statement/ Kanter, R. M., & Cohen, J. (2018, September). Haier in the U.S: Transforming GE appliances. Harvard Business School Case Collection. Accessed December 1, 2021, from https://www.hbs. edu/faculty/Pages/item.aspx?num¼55061 Kleiner, A. (2013, November 11). The dynamic capabilities of David Teece. strategy + business. Accessed November 20, 2021, from http://www.strategy-business.com/article/00225?gko¼d24 f3 Steiber, A. (2021). The transformation of GE appliances. Report for Haier Management Institute. Zohar, D. (2022). Zero distance: Management in the quantum age. Palgrave Macmillan.

Part V A Framework for Better Understanding a Business Transformation

A Framework for Understanding a Business Transformation

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To analyze a company’s transformation, we need a framework or conceptual model that helps us to identify interesting events, and to structure our analysis and findings. For GEA, the framework chosen is based on decades of research on how management innovations, such as TQM, Lean, and the Google model disseminate into and within an organization (Steiber & Alänge, 2015). The framework is a simplified modeling of reality and traces five main steps that organizations most commonly go through when adopting and implementing new ways of working. The five steps are: Desirability—Transformation begins when people in the organization, at least the top leaders, feel and understand the need to make a change. Feasibility—People determine (or are persuaded) that it is in fact possible to introduce a particularly new way of working and to get results from it. First Trial—Typically, the new approach is first tried with a pilot application in a selected unit or units of the company. Implementation—If the pilot is successful, and once adjustments are made from what is learned in the pilot, the new way of working is gradually implemented company-wide. Sustaining Change—This involves seeing that the organization stays with the new approach and continues to change and improve along those lines, instead of backsliding into its old ways. An organization’s ability to take the five steps, as well as the relative ease of taking them, will depend on the company’s historical organizational trajectory, which is cumulative and path dependent. Transformation becomes more difficult if there has been increased return on investment from the existing way of working and if there is inertia among board members, top managers, and employees. Inertia (resistance to change) can be rooted in the organization’s resources (brand, people, equipment, and more), and its structure and processes, as well as in its culture. Of all these, a company’s culture—the prevailing set of beliefs on how to best organize its # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_12

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business operations and its people for success—is the hardest one to change. If the mindset can be changed, then changes in structure, processes, and the use of resources are relatively easier (Christensen & Overdorf, 2000). In cases where a new way of working does not fit the current mindset of the organization, the best strategy might be to test it outside the organization and evaluate the effects. However, before an organization even comes to this point, it must feel a desire to change to be open to alternative solutions and start the search process for them. Further, as noted, the new solution must also be perceived as feasible for one’s own organization and business. The five steps—Desirability, Feasibility, First Trial, Implementation, and Sustaining Change—are all subject to three sets of influencing factors: • The characteristics of the innovation that is to be introduced. • The internal context of the organization. • The external context and “diffusion mechanisms.” A diffusion mechanism could, for example, be a researcher, a consultant, a new CEO, or someone else who presents an idea on a new way of working, thereby creating a desire to change within the organization. Such persons may even present a feasible solution for the organization, based on this idea. The trigger that initiates a search for new organizational solutions could typically be any of several forces: • • • • • • • • •

A perceived economic crisis. A financial crisis within the organization. A new market demand. A new owner’s demands. Changes initiated by “role models” (such as other companies, including competitors, or suppliers or customers). Initiatives driven by the government. Top management’s or board members’ own previous experience. Standardization work done by industry organizations, consultants, and/or universities, e.g., the packaging and description of an organizational solution such as TQM or Lean. Global, national, or industry-specific management fads.

A fad could be viewed as a “management trend.” For example, applying Lean became a “trend” in many countries.

12.1

A Deeper Look at How Transformation Occurs

Putting the transformation process into graphic form will aid with a full understanding of this framework and of the process itself. In Fig. 12.1, the five steps are visualized in a circular pattern around an organization’s improvement trajectory.

Fig. 12.1 A framework for management transformation (Steiber & Alänge, 2015)

12.1 A Deeper Look at How Transformation Occurs 101

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Transformation will involve changing or redirecting the trajectory. This in turn will require recognizing that the current trajectory is cumulative and path-dependent— that is, recognizing that the organization’s history has led it to follow a certain track, which has tended to focus all efforts on particular kinds of organizational improvement (for example, becoming as cost-efficient as possible). Therefore, the perceived desirability and feasibility of any new management innovation, as well as the decision whether to try it and implement it, is affected by previously chosen ways of working. The inner circle in Fig. 12.1 represents the internal context of the organization. Here, the management and board are crucial for the adoption and diffusion of the new mindset and new way of working. Management’s history and experience, knowledge about the new way of working (“user competence”), and top leaders’ overall commitment to change are very important and can either reduce or increase internal resistance to change. Another key point to keep in mind: The search and learning processes that a company undertakes are likely to be cumulative and path-dependent, just as the company’s overall trajectory has been. However, people in the company can break through this by being conscious and systematic in their search for new solutions. The two outer circles in Fig. 12.1 represent the external context and diffusion channels that transfer knowledge and experience to the company. The outermost circle and the area beyond it can be seen as the external environment in the form of local and national business culture, regulations, and history. The external environment also includes industry-specific factors, such as competitive pressure and volatility. Increased competitive pressure and volatility have been found to increase the desirability of organizational change. See, for example, many passages in Steiber and Alänge (2016), which describe how Silicon Valley companies became open to new management approaches and ongoing change, due to the pressures and volatility of the digital technology industries. Chapter 2 of the present book has pointed to this phenomenon as well. Furthermore, the external environment would also include management fads or trends such as Lean. When these fads grow to national or international scope, they can have considerable influence on any organization’s own improvement trajectory. Turning to the inner circle in Fig. 12.1, the dotted area represents diffusion channels such as movement of people (including CEOs), boards of directors, user networks (e.g., competitors, customers, suppliers, and other organizations that could become role models), bridging institutions (such as an industry organization), professors, and consultants. These diffusion channels could all play a role in “showing” and “proving” what is desirable and feasible, regarding management trends and new ways of working. The triggers for each step in the five-step process, visualized as lightning flashes in Fig. 12.1, could typically be any of the things mentioned above. An example of a trigger that influences several steps is “management beliefs,” which in turn are based on management’s perception of, or experience of the management innovation. An example of a trigger that has been found to be more related to a single step is

References

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“consultant experience,” which is commonly found in the First Trial step and less so in earlier or later steps. During the last two steps, Implementing and Sustaining an organizational innovation, management’s belief in the change plays a key role. Change now becomes real to everyone, as existing patterns of work are disrupted and replaced, and a firm commitment from the top is often needed to keep the momentum going. Visible benefits from the new way of working are important, too. They help to build widespread belief in the change and overall internal support for it.

12.2

Moving Ahead

The framework described here was applied in analyzing the transformation process at GEA. The story of that process begins in the next chapter.

References Christensen, C. M., & Overdorf, M. (2000, March–April). Meeting the challenge of disruptive change. Harvard Business Review. Accessed December 1, 2021, from https://hbr.org/2000/03/ meeting-the-challenge-of-disruptive-change Steiber, A., & Alänge, S. (2015). Organizational innovation: Verifying a comprehensive model for catalyzing organizational development and change. Triple Helix, 2(1), 1–28. https://doi.org/10. 1186/s40604-015-0026-1 Steiber, A., & Alänge, S. (2016). The Silicon Valley model (pp. 143–155). Springer.

Part VI The Transformation of a 100-Year-Old Company

From Desire to Implementation

13

In less than 5 years, GEA underwent a dramatic and near-total transformation. It began when Haier acquired the company in 2016, although GEA did not start to fully implement the management principles of the RenDanHeYi philosophy until later in 2017. The transformation involved changing mindsets, leadership, organizational structure, and the alignment of people and tasks. Results changed, too, as GEA rapidly went from zero growth to double-digit growth. How was it possible to do all of this in such a short time? According to Professor Edgar Schein, GEA’s transformation is fascinating and well worth studying: I am intrigued how GEA was able . . . to get the present set of bosses to behave according to McGregor’s Y theory. They had to make a massive change in their own daily behavior, and it will be important to understand how GEA could accomplish that. (Roundtable discussion at the RenDanHeYi OpenTalk, 2021)

This chapter provides the basis for such an understanding. We will delve into the transformation process with a focus on the early groundwork that was done to establish the conditions for success. The framework used will be the framework presented in the previous chapter and developed by Steiber and Alänge (2015), which is based on what we know about how management innovations, like the RenDanHeYi model, disseminate between and within organizations. The framework has been developed and improved over a decade and has been tested on major management innovations such as TQM, Lean, the Google model, and FirstBuild, the innovative unit established within GEA. More recently, the same framework has been used to increase our understanding of digital transformation of companies such as GE Digital and Siemens.1

1

Except where noted otherwise, all further quotations in this chapter are drawn from the author’s interviews with persons at GEA and Haier in early 2021.

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_13

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From Desire to Implementation

Disrupting the Organizational Trajectory

For more than 100 years prior to the acquisition, GEA had been shaped and influenced by the culture of its original parent company General Electric. In the later decades, as we have seen, GEA had focused on near-term profitability and on cost efficiency. Even at times when GEA was not up for being sold, investments in innovation had to prove they could yield good short-term ROI, rather than driving exponential growth long-term. Methods such as Six Sigma and Lean were adopted primarily to improve cost efficiency and product quality, with results assessed by internal measures such as “cost of quality.” . . . we were certainly thinking about quality as an internal metric and not focused on the outcome to the consumer

To propagate the Six Sigma and Lean methodologies, the company had even created a core group of intensively trained “black belts” who were to be the ambassadors and pass-along trainers of a philosophy focused on controlling cost and quality. To leave this trajectory and start a new one, focused on a more long-term mindset and innovation for growth, GEA had to disrupt deeply ingrained systems and beliefs that were rooted in a long-established (but now outdated) perception of the kind of company it was supposed to be. Changing these perceptions is not an easy task for any company, and the few that have managed to do it usually have had to use the leverage of a very strong external or internal force. In the case of GEA there were two strong forces: first the new owner, Haier, which in taking over the role of parent company had enough power to incentivize this kind of disruptive change and bring a whole new mindset to GEA; and second, the emergence of Kevin Nolan as the new CEO of GEA.

13.2

The Desire to Change Is Ignited

During the spring of 2014, Kevin Nolan, then the Vice President of Technology at GEA, felt frustration in his role. He was passionate about the company and its products but felt that there was neither passion within GEA nor a desire to seize new exponential opportunities, and the way of working was not conducive to creating growth. As we have seen, the company at that time was financially focused and risk averse, with an emphasis on near-term profitability. Nolan’s frustration finally led to the establishment of FirstBuild with the former head of R&D, Natarajan Venkatakrishnan (Steiber, 2020). FirstBuild was a totally new way of conducting both research and development of new products. It was, and is based on methodologies such as open innovation, Lean Startup, and platform organizations. The creation of FirstBuild was influenced by new management concepts presented by gurus such as Eric Ries and companies such as Local Motors in the automotive sector. More details about FirstBuild can be found in Steiber (2020). The important

13.2

The Desire to Change Is Ignited

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aspect to underline in this chapter is that by establishing and experimenting with FirstBuild, with its sole purpose of discovering unmet needs, Kevin Nolan learned about new ways of working with R&D by using open platforms and ecosystems. These new ways of working would later be emphasized and celebrated by the new owner, Haier. Haier acquired GEA in June 2016. Shortly after, the water heater business, which Nolan strongly believed in, was divested, and sold. The VP of Technology then asked for a meeting with Liang Haishan from Haier,2 who worked with Haier’s overseas team and had overseen the integration of GEA into the Haier Group. Nolan asked Mr. Liang why he let this happen. Mr. Liang told him that the American leadership team decided to divest that business and that the problem was that GEA had not adopted RenDanHeYi (Frynas et al., 2018). Mr. Liang continued and said: . . . if there is someone as passionate about the business as you are, it would never have been sold if you would have adopted RenDanHeYi.

Nolan said that at this moment, he had a key insight: It was like a light bulb that went off . . . It resonated with me because I had been searching and been annoyed for so long . . . It helped me codify what the problem was . . . lack of passion . . . lack of deep knowledge of the appliance business

As a result, Nolan, who already felt like a rebel within GEA, decided he wanted to learn more from Haier and about the RenDanHeYi model by going to China for 6 months. In addition to his “eureka moment,” Nolan got another important insight when the Chairman and CEO of Haier visited FirstBuild for the first time. Previously, many CEOs from around the world had come to visit FirstBuild and according to Nolan, they all questioned the unit’s ways of working with innovation. However, when Haier’s Zhang Ruimin visited in 2016, his reaction was totally different. He seemed to understand the FirstBuild concept immediately and did not question it, which was a big surprise for Nolan. . . . the chairman came in, and you know, just got it. I was incredibly impressed with this man that came to FirstBuild for only 20 minutes and just got it . . . he saw it differently from any other CEO that had been at FirstBuild

This made Nolan even more determined to go to China and learn what he could. At Haier’s facilities in Qingdao, however, his first experience of RenDanHeYi was very confusing: It was pure chaos

2

As of early 2022, Liang Haishan had become Chairman and CEO of Haier Smart Home. His colleague Zhou Yunjie became Chairman and CEO of the overall Haier Group after Zhang Ruimin’s retirement.

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He found no blueprint or packaging of the model. He quickly learned that RenDanHeYi was a philosophy, which had to be grasped before trying to understand the specific practices used in Qingdao. RenDanHeYi was more of a philosophy that was implicit, and you have to understand it . . .

What was clear for Nolan was that Haier worked in a very different way than GEA. This experience, together with his experiences at FirstBuild, convinced him that RenDanHeYi might be something positive for GEA. Meanwhile, others were learning about the new approach. GEA at that time was led by Charles “Chip” Blankenship, a former longtime General Electric executive. Blankenship had been CEO of GE Appliances since 2011 and was accustomed to managing the company by General Electric’s standards, but now he saw that expectations had changed along with ownership. In a meeting with Haier CEO Zhang Ruimin, Zhang questioned him as to why GEA did not have more aggressive growth targets. Mr. Zhang urged Blankenship to travel with him to Boston, to meet with a consultancy firm that Haier had worked with on RenDanHeYi, and there the two men had a long conversation about GEA and its need for transformation (Kanter & Cohen, 2018). However, implementation of the RenDanHeYi philosophy did not follow quickly after these events. In June 2017, Kevin Nolan became the new CEO.3 Nolan found that by then, many in the company’s management team were ready for change. Several of GEA’s product leaders had travelled to China in 2016 for their respective global product councils at Haier. These councils are held for each product line within the Haier Group, such as for cooking appliances and laundry. The purpose was, and is, to bring together the corresponding leaders at Haier companies worldwide, to disseminate knowledge and create synergies among the companies— for example, around the sensing of trends, the setting of priorities in product development, and the use of platforms. Of course, the GEA product leaders heard about the RenDanHeYi philosophy at these councils: I think it was pretty early on with Haier that we went to meetings in China and were exposed to RenDanHeYi.

Certain aspects of this new philosophy seemed to appeal strongly to them: I think the parts that really resonated with me, a leader of a segment of the business, were the microenterprises and the entrepreneurial elements of really being responsible for your business and accountable to the end user.

3

It is worth noting that GEA’s new CEO was not appointed from the top down by Haier. In keeping with Haier’s nonhierarchical approach, Kevin Nolan bid for the position and won the campaign to be CEO.

13.3

New Governance and a “Light-Touch” Guiding Hand

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Therefore, when Haier appointed Kevin Nolan to be the new CEO of GEA in 2017, resistance to change among the senior product leaders was reduced.

13.3

New Governance and a “Light-Touch” Guiding Hand

As part of the transformation, Haier required a new top executive governance. GEA was to be led through the process by an executive council rather than a traditional executive team. The executive council consisted of only three people: CEO Nolan, Rick Hasselbeck as Chief Commercial Officer, and Melanie Cook as Chief Operating Officer. The three then divided the transformation work among them. While Nolan focused on business leadership and product development, Hasselbeck focused on commercialization functions and Ms. Cook on operational functions. According to Nolan, this pro tem arrangement4 played a helpful role in the transformation of the company as it provided a clear focus on three dimensions at the same time. The Haier executive overseeing the transformation was Liang Haishan. Mr. Liang practiced a “light-touch” management approach and continued to support Nolan as a coach (Zohar, 2022). In 2017, Mr. Liang and the new CEO gathered the current leaders of the various product lines. Mr. Liang explained RenDanHeYi, as the product leaders asked for some advice about the concept. Mr. Liang made it simple for them to understand the philosophy by saying: You unleash the potential of every person, and you drive down decision making to the lowest possible layer. Further, you focus on the marketplace first and align the whole business toward the users and their needs. Then you reward the people for how well they do this.

Further, Mr. Liang pointed out: . . . we do this in China. I understand that what we do in China is not going to exactly translate to what you do in the USA. But we want you to follow the philosophy. How would you do this in your marketplace?

This again resonated with GEA’s product leaders. Nolan, backed by Mr. Liang, then asked them all to come back with what they thought they needed to do to focus on the marketplace first and align the business toward the users and their needs. The product leaders returned to Mr. Liang with a list of suggestions on how they would achieve this. According to one of the interviewees, the list contained probably 15 high-level action items. The GEA leaders and Mr. Liang went through the list together, discussing each item and how to make it work. For the product leaders, this

4

The executive council was eventually dissolved, as its key transformation and transition objectives were accomplished in 2020.

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kind of leadership energized them, and the result was not only a desire to change but also the identification of solutions they could use. In parallel, the Chief Commercial Officer worked with the heads of the commercial functions on changing their mindsets and finding new solutions. Their units were going to become commercial platforms to serve GEA’s businesses. At the same time, the Chief Operating Officer worked with the heads of the operating functions. They also were expected to prepare for a shift to a serving-platform approach. Among all of these, resistance to change existed to a certain extent in the operating functions, so that COO Melanie Cook had perhaps the most challenging task of the three in the executive council. By the autumn of 2017—after approximately 18 months of learning, preparation, and setup work—the new CEO, the senior heads of the product lines, and the heads of the support functions were ready to transform GEA.

13.4

RenDanHeYi Becomes a “Feasible” Solution

The opportunity that Kevin Nolan had been granted to learn about the new philosophy in China, as well as the multiple indications he got that CEO Zhang and Mr. Liang were thinking similarly to himself, had strengthened his belief that RenDanHeYi could work for GEA. Further, the fact that GEA was being given freedom to adapt RenDanHeYi to its own market and situation, made the philosophy look “feasible” not only to Nolan, but also to the senior product leaders. Indeed, there was an active debate between GEA leadership and the leadership in Qingdao on how to apply the microenterprise structure at GEA. The Chinese leaders accepted that GEA’s executives understood the model and were accountable and responsible for their own solution, which was not to copy and paste exactly how things were done in Qingdao, due to differences in the Chinese and North American markets (Kanter & Cohen, 2018). What remained was to make the RenDanHeYi philosophy look feasible to other senior leaders, such as the new platform owners. To help persuade them, the new leadership at GEA could point to the proven potential of RenDanHeYi. They had seen the positive effects that the RenDanHeYi model had on Haier in China, which was in the same industry. Therefore, Haier itself would act as a role model for GEA, and it proved to be a powerful role model indeed. As previously mentioned, the Haier Group has been ranked as the top global brand of home appliances in Euromonitor International for 12 consecutive years. Its IoT-focused subsidiary, Haier Smart Home, has been ranked among the Fortune Global 500. Further, through its approach of becoming an incubator platform, Haier has incubated five unicorn companies and 37 gazelle companies since 2014 (Haier Group, 2021). Yet for the senior leaders of functions such as manufacturing and sourcing, who traditionally had enjoyed a great deal of power internally at GEA, the transformation of the company was not as easy as it was for the product leaders. Before the acquisition, these functions were the center of attention. They represented the biggest chunks of costs within GEA, and since cost efficiency was a primary goal

13.4

RenDanHeYi Becomes a “Feasible” Solution

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under General Electric’s ownership, it was natural to focus on the core functions and also give them power to do what they needed to do in order to keep costs down and produce a sufficient supply to the market. Eventually, however, the senior leaders of these functions realized that they could not oppose the momentum behind the transformation to new ways of working. . . . it was very clear that I needed to adapt to the new structure and that the new structure wouldn’t adapt to me. I had a decision to make . . . Some people have not been able to make the transition and have either moved to different roles or outside of the company

The transition did stress-test these leaders’ individual character and how adaptable they truly were. One of them said that fortunately his personality, characterized as being a “Camelot” type,5 made the transition easier for him. The hardest thing was the transformation of mindset, and it took some functional leaders about a year to adapt. . . . You’re used to having so much control, without any interference . . . Sharing that control with the new microenterprise leaders and truly treating them as my ultimate customers was a very different mindset . . . It took me a better part of a year to really get comfortable. . .

Although change was difficult for the functional leaders, RenDanHeYi proved to be an attractive new philosophy to several of them, which inspired a willingness to keep going instead of giving up: I believed fundamentally that it was an interesting approach, and I was fascinated with it.

There is a lesson to be learned from this. Although the feasibility of the new philosophy and its key elements became clear to the executive council and product leaders, others in the organization had to either adapt or leave for the transformation to be fully implemented. Further, while top leadership “got” the RenDanHeYi model relatively quickly, it took another year and a half before the approach was accepted by people farther down in the organization. I think the provision of proof was important before they believed in it . . . and I think that was what happened . . . pushing down bonuses and showing that we continued to invest our money in innovation and growth

For people on management level three and those under them, evidence and proofs became very important. A key takeaway is that a full-scale transformation needs time

5

In the legends of ancient England, King Arthur’s court was at Camelot, a mythical place where everyone was united harmoniously in the pursuit of high goals and ideals.

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to permeate the organization. At the time of this writing, in autumn of 2021, GEA was still working on “socializing” RenDanHeYi to everyone throughout the firm.

13.5

Flying Without a Pilot

In most transformations, the company starts with a pilot, for example, implementing one or all principles of a new approach in a control unit, such as a function or business unit. The reason is to learn and improve the new way of working before either killing it or disseminating it to other parts of the company. This has typically been the case when implementing Lean, as a company usually starts with manufacturing and then later introduces the method to other areas such as product development or HR (Steiber & Alänge, 2015). GEA did not do a traditional pilot. Instead, the top leaders decided to implement several principles of the RenDanHeYi philosophy at once, across the company, and thereby use all of GEA as the control unit. There were several reasons for doing it this way. The new CEO’s insights told him that the entire system was “already broken,” and that the business risk of staying with the old way of working was higher than trying something new. Also, key individuals had been able to learn about the new philosophy and principles for over a year and had even worked through how they could adapt RenDanHeYi to their own situations. The preconditions for a transformation at GEA were therefore very favorable. First, the owner and the CEO of GEA felt a strong desire to change. Second, the CEO saw that the new way of working seemed to be successful not only in China but also at FirstBuild, and thus could be feasible for GEA. Finally, there was his judgment that the risk of change was low compared to the risk of staying on a course that was not working well. This made the option of “business as usual” not an option at all. For all these reasons, CEO Nolan did not feel any need for a pilot, but pressed forward with implementing parts of the RenDanHeYi philosophy directly throughout the organization. The first selected principle of RenDanHeYi resonated well with what Nolan and others at GEA already had elaborated upon, even before the acquisition in 2016, namely the importance of focusing on the users, which in RenDanHeYi is labeled Zero Distance to the user. In August 2017, the user—now called the “owner”—was declared to be every employee’s boss. This was communicated as part of GE Appliances’ new plan: Transforming GEA to accelerate growth starts with shifting the focus from inside-out to outside-in. We’ve traditionally had the approach of ‘management is the boss’, where we make decisions based on management’s view, assessment, goal, etc. Everything we do now, how we’re structured, what we make, and so on, must be geared to delivering on the owners’ needs/desires. The more focused and connected we are to the owners, the more value we will deliver and the more successful we will be (Zohar, 2022).

References

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The next chapter describes how GEA went about implementing the various pillars of RenDanHeYi company-wide.

References Frynas, J. G., Mol, M. J., & Mellahi, K. (2018). Management innovation made in China: Haier’s RenDanHeYi. California Management Review, 61(1), 71–93. https://doi.org/10.1177/ 0008125618790244 Haier Group. (2021). Company overview. Accessed October 30, 2021, from https://www.haier. com/global/about-haier/intro/ Kanter, R., & Cohen, J. (2018). Haier in the U.S: Transforming GE appliances. Harvard Business School. RenDanHeYi OpenTalk. (2021, September 18). Business ecosystem alliance. Accessed October 30, 2021, from https://business-ecosystem-alliance.org/opt-2021/ Steiber, A. (2020). Corporate-startup collaboration: Its diffusion to and within the firm. Triple Helix, 2020, 1–27. https://doi.org/10.1163/21971927-bja10005 Steiber, A., & Alänge, S. (2015). Organizational innovation: Verifying a comprehensive model for catalyzing organizational development and change. Triple Helix, 2(1), 1–28. https://doi.org/10. 1186/s40604-015-0026-1 Zohar, D. (2022). Zero distance: Management in the quantum age. Palgrave Macmillan.

Key Steps Taken by GE Appliances

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When GEA was acquired by Haier, time had to be spent on decoupling the company from General Electric, which meant that GEA had to think over things like brand, leadership, structure, and compensation model. Moreover, all of these now had to be decided in light of a challenging new leading goal that Haier had given the company—“Be and be recognized as the leading appliances company in the U.S.”—as well as in light of RenDanHeYi. After establishing zero distance to the users as a core principle, next in the process was to set and communicate leading goals, together with the implementation of multiple other RenDanHeYi principles. All of this happened under the new CEO, Kevin Nolan, beginning in 2017.

14.1

Transformation Step-by-Step

Nolan, together with his fellow executive council members Melanie Cook (COO) and Rick Hasselbeck (Chief Commercial Officer), communicated the new leading goal to the company. It was rather disruptive considering GEA’s history of focusing on cost efficiency and only trying to defend its market position. However, the transformation of GEA now proceeded in earnest through a series of steps as described below.

14.1.1 A New Structure Shortly after announcement of the leading goal, the company eliminated one level in the hierarchy, setting the stage for microenterprises to form and to start reporting directly to the CEO. The product lines became microenterprises; the head of each ME was named a vice president, and profit and loss responsibility were delegated to the new vice presidents. By turning the product lines into self-governing “businesses” with strong and experienced leaders, the CEO could then focus long-term on new business # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_14

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opportunities for the company. As a result, several new businesses were created in rapid succession. • Zoneline, formed in 2017, is built around GEA’s line of air conditioning units for the hotel and motel market. • Small Appliances (2018) revives a product category that GEA had exited decades earlier: countertop-sized kitchen appliances such as toasters, blenders, and coffee makers. • Water Heaters (2019) is another revival. Recall that this product line was dropped while CEO Nolan was VP of Technology, much to his dismay. The new business includes conventional tank-type water heaters as well tankless heat-on-demand units and solar powered heaters. • RV Appliances (also 2019) is exploring an entirely new line of business for GEA: appliances such as mini-refrigerators that are designed to fit into recreational vehicles and motor homes. The microenterprise structure allowed the formation of new businesses to come from the bottom up more easily than in the past. As noted in Chap. 11, the RV business was started by employees from the Zoneline ME, and the head of Small Appliances commented as follows: . . . my approach to build a new microenterprise around small appliances. . . made it easier for me to grow the team faster and get incremental funding

In parallel with the changes in leadership and the structural changes that turned product lines into microenterprises, the Chief Commercial Officer and Chief Operating Officer worked with the heads of commercial and operating functions such as marketing, sales, manufacturing, distribution, and sourcing, to change their operations into becoming service platforms with MEs as their internal “customers.” As mentioned earlier, the hardest change for the heads of these functions was a change of mindset, to accept the new arrangement. However, the change also benefited some of the new platform owners. For example, the leader of the manufacturing platform gained responsibility by getting control of the former quality department, as well as inbound logistics for the various factories. New routines were developed in which the heads of MEs approved the budget together with the platform leaders for each “service.” Here it should be mentioned that as part of RenDanHeYi in China, an ME can choose to work with an internal service platform or to use an external third party if the internal service function is not competitive enough. GEA did not choose to create this type of competitive market but gave the ME leaders the right to negotiate the budget with a service platform leader and then follow up the plan on a weekly basis. GEA’s solution could therefore be seen as less of an internal market approach, and more as a partnership bounded by a long-term contract with a joint goal and outcome.

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As a result, functional costs such as material costs and production costs have been reduced so the products can be more competitive. One way of achieving this is for platform leaders to spend more time digitizing their operations: I have been focused on advancing our digitization and the end visibility, as well as on robotics and automation . . . I am more focused than ever on advancing our technical capabilities in our manufacturing plants to ensure that I give our ME leaders a competitive advantage in the marketplace . . . Our vision is to be the lowest cost provider of innovative products.

In cases where GEA does not have the manufacturing capabilities for a certain product, the ME leader can go outside to a third-party contract manufacturer. GEA, based on Nolan’s vision, truly believes in local manufacturing—that is, making your goods in the market you serve, to be nimble and responsive to customers’ and users’ demands. By dedicating one plant for each of the different products, the service platform leader does not have to make trade-offs between products due to scarce production resources.

14.1.2 Updated Compensation Model and Zero Distance to Users As a next step in 2017, GEA changed its compensation model to reflect the RenDanHeYi “pay by user” principle, which says that compensation must reflect and reward value creation for the users by each business, team, and individual. This was an important step to create further alignment of the organization with the market and users’ needs. As a next phase in the company’s transformation—now supported by a weekly “transformation pulse team” that consisted of the executive council, the CFO, and heads of Legal, HR, and Communications—the Zero Distance concept was adopted. As has been described, organizations most easily tend to adopt organizational innovations that are close to what they already have or plan to do as part of their improvement trajectory. Zero Distance was perceived as familiar and attractive, as GEA, from its time of implementing Six Sigma and Lean, had initiated several activities and programs to better understand the customers and users: I was one of the first black belts at GE . . . there’s nothing more valuable than hearing it firsthand . . . understanding unmet needs

However, the adoption of Zero Distance involves much more than being usercentric. According to CEO Nolan, the Zero Distance concept requires identifying gaps or problems in the current operations that hinder the company from satisfying every single person’s unique needs. The adoption of this concept came in 2018. Several organizational innovations that were adopted later have been a natural extension of the Zero Distance philosophy, for example, House of Brands.

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14.1.3 “House of Brands” This initiative had its roots when GEA hired Chief Commercial Officer Hasselbeck from Procter & Gamble in 2016. He immediately saw a need for market segmentation and for a stronger focus on understanding different consumer groups: I pushed it strongly . . . We’ve got to think outside-in and we’ve got to bring the consumer to every conversation, so they’re driving our decisions. We have to start the meeting with the consumer. . . Kevin [Nolan] and Melanie [Cook] were very supportive . . . and from Haier’s standpoint, I think this is how they thought too when they used the term Zero Distance.

Then in 2017, after GEA hired Mary Putman as the new VP of Marketing and Brand—also from P&G—the idea of House of Brands was born. This was at the same time as when GEA had adopted a concept called “ownership experience.” As Ms. Putman said: I merged my service experience with my product management experience . . . We did this at a time when Pizza Hut came up with an app where the users could see when the pizza would be delivered . . . and we should be able to do the same thing . . . We tried to come up with how to provide a better experience

Ms. Putman and Mr. Hasselbeck developed the idea of House of Brands together during the autumn of 2017. The concept and new branding strategy were accepted and implemented in 2018. Basically, the concept calls for each GEA product (or line of products) to be marketed under a brand name that will resonate most strongly with the customers in its prospective market segment. For example, within kitchen appliances, GEA has a line of upscale, “ultra-premium” products that are marketed under the Monogram brand. People who want such appliances can thus buy a Monogram refrigerator from GEA, while others who like the reputation of the Haier brand can get a GEA-made Haier refrigerator, and so forth. This changes GEA “from a branded house to a house of brands” (GE Appliances, 2018). The goal is to develop a more fine-grained, personalized sense of brand awareness and brand loyalty among customers, while also helping to target and coordinate the development of products within the company. The implementation of House of Brands was viewed as complex, as people at GEA were still trying to figure out the new organizational structure and their new responsibilities. Now the ME leaders had to add another dimension, differentiation of brands, to their already full plates, to meet leading goals. The shift from a single corporate brand identity to a multitude of brands is a big shift for most companies, but at GEA, this new brand strategy turned out to act like a glue and coordination mechanism between the different MEs. It has resulted in products that have a similar, family-like look and feel within each of the brands. It also equipped GEA to reach and be relevant for many more market segments than previously, for example, reaching both high- and lower-end segments with separate brands.

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14.1.4 Becoming More Diverse and Inclusive In creating Zero Distance to users, diversity and inclusion are also important. Preferably the organization has employees who feel included and meaningful and who represent all kinds of customers/users. Several changes that made GEA more transparent also helped employees to feel, and in fact be, more included in the company’s business. Previously “closed” leadership meetings were opened up to all employees. This was done for example with the quarterly business update meetings, which formerly had been for top leaders only. Also, CEO Nolan began sending weekly videos company-wide to inform everyone of changes, updates, and other news that might affect them in any way. Mr. Nolan has a deep personal interest in diversity and inclusion. He says he has long been inspired by the Chelsea Hotel in New York, which was designed and founded as—and over the years indeed became—an inclusive, egalitarian dwelling where people had a “high tolerance for variations in personality and behavior” (Tippins, 2009). The Chelsea’s chief architect was inspired by the nineteenth-century French philosopher Charles Fourier, whose communitarian social ideas included elements such as full equality for women (Tippins, 2009). In 2018, GE Appliances hired an Inclusion and Diversity Director to open the company to needed new competences and skills. Most existing employees had worked at GEA for a long time, and to create Zero Distance to users, diversity was needed not only to represent each kind of user, but also to provide new capabilities for the digital age. This initiative has had positive effects, as it sets expectations and creates opportunities for hiring people who could make the company more innovative. To summarize GEA’s transformation between 2016 and 2019, the changes can be clustered into two main phases: Phase I (2017) • Goal setting: Establish leading goal • Organization: Set up four core product lines as MEs and turn functions into platforms. • Compensation: Implement short- and long-term incentive programs tied to the MEs and platforms’ metrics for directors and above. • Training: Focus on end2end processes and financial support. Phase II (2018–2019) • Formation of more MEs, now also including non-core businesses. • House of Brands: Moving from product line-centric brands to an owner-centric brand portfolio. • Compensation: Expanding the short-term incentive program to include all salaried employees.

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• Training: Educate all employees in RenDanHeYi principles and how they manifest in the organization by “socializing” RenDanHeYi. Meetings and weekly newsletters.

14.1.5 Next Up: Ecosystems and EMCs The next step for GEA in its transformation is to interpret and implement its version of an ecosystem. GEA already has a platform open to people outside the company in the form of SmartHQ. The ecosystem concept is currently being discussed internally to see what it means for the company as it moves from hardware into IoT scenarios and offers users solutions rather than single appliances. Moving toward solutions and scenarios is therefore also on the list of future changes. Integral parts of this movement will include further digitization of processes and building networks with external partners who will be part of GEA’s future ecosystem. To support the ecosystem strategy, GEA has also devoted time to interpreting Haier’s concept of ecosystem microcommunities (EMCs), to understand what EMCs should mean for the company and how the concept could best be applied. Currently, GEA views it as an internal agreement between platform owners and MEs, and between individual MEs, to improve user experience. To avoid unnecessary bureaucracy and processes, GEA currently does not use formal contracts internally but stays with “agreements” among internal parties. GEA has not yet developed any EMCs with external parties, for example, through blockchain technology. A final item on the list of future changes is to make the organization more “organic” and therefore even more dynamic and responsive to users’ future needs. To Kevin Nolan, GEA is just in the beginning of its transformation, not at the end. The ambition to move from selling hardware to offering scenarios means that he plans to continue to change the company and the ways in which people work.

14.1.6 Sustaining the Transformation Nolan sustains the transformation process by insisting that GEA never stop changing, and by never treating any system or practice as “sacred.” For example, it is not even assumed that the microenterprise structure will be the right one for the future. Everything needs to be questioned and scrutinized in terms of relevance to the current situation and economy. Further, due to unlocking people’s full potential and enabling them to follow their passions, unpredictable new businesses are being started within GEA, such as the RV business and more recently a business in home gardening. For these reasons, according to Nolan, even leading goals such as to be the US leader in home appliances may become limiting and might soon need to be updated. By resetting its leading goals every year, the company keeps on its toes and continues changing and transforming. The regularly updated goals are deployed

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Moving Ahead

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throughout the organization and impact every part. The Hoshin-Kanri planning system, which previously was used to make people focus on exactly what they were supposed to do, is now a key instrument for deploying new goals. In this dynamically changing landscape, trust is of highest importance. Employees need to trust the leadership and trust that change for the good will also be good for them. Here, transparency and authenticity among the leaders are key. The quarterly all-hands meetings and the CEO’s weekly videos are important mechanisms in this regard.

14.1.7 The COVID Effect When the COVID-19 pandemic spread worldwide, GE Appliances reacted dynamically and quickly created a number of guiding principles: “Protect our people. Protect our business. And focus on supporting and meeting the needs of our customers and community” (Zohar, 2022). According to Zohar (2022), “Nolan thought the crisis really brought out the entrepreneurial spirit and everyone pivoted immediately to meet users’ needs and to discover new business opportunities . . . Employees put in 157,000 volunteer man-hours during the crisis and even senior managers, including lawyers, built machines.” Further, “instead of cutting back on production, GE Appliances introduced new product lines and launched direct consumer channels. In addition, no one was laid off or made redundant, instead hundreds of new employees were hired . . . COVID really proved the speed and the agility of RenDanHeYi . . . the crisis moved us forward . . . We must build our companies around the fact of constant, future crises like this. COVID will not be the last. We are no longer living in the world of plans and efficiency” (Zohar, 2022).

14.2

Moving Ahead

As GE Appliances continues transforming itself in accordance with the RenDanHeYi philosophy, it is worth noting that the only real constants within that philosophy are the core objectives: providing great customer experience, releasing the entrepreneurial energies of everyone, and sharing value created among all involved, as well as the key principles adopted. All other aspects of the current model are malleable and dynamic, as indeed they must be, if the company is to continue evolving and transforming itself in fast-changing times. David Teece’s Dynamic Capabilities (Teece, 2007) appear to have found a true form of expression in RenDanHeYi at GE Appliances. The company’s transformation journey is already producing profound changes, and thanks to the new capabilities that are emerging from these changes, GEA looks increasingly well prepared for a dynamic, innovative future. Next, managerial advice and a concluding summary will be presented.

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References GE Appliances. (2018, January 8). GE Appliances moves from ‘branded house’ to ‘house of brands.’ GEA Pressroom. Accessed November 14, 2021, from https://pressroom. geappliances.com/news/ge-appliances-moves-from-branded-house-to-house-of-brands Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. https:// doi.org/10.1002/smj.640 Tippins, S. (2009, December) Charles Fourier: Key to the mystery of the Chelsea Hotel? Association d’etudes Fouriéristes. Accessed November 14, 2021, from http://www.charlesfourier.fr/ article.php3?id_article¼707#nb6 Zohar, D. (2022). Zero distance: Management in the quantum age. Palgrave Macmillan.

Part VII Managerial Advice and Concluding Summary

Managerial Advice

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In the opening chapters of this book, we traced the evolution and development of management models—and of the business world itself—from the early Industrial Age up to the present. Then we took a deep dive into Haier, RenDanHeYi, and the transformation of GE Appliances. Now a reader may ask: What are the key takeaways? Starting in general terms and then focusing more specifically, here are several. The first is that there exists a new set of management principles for organizations in the digital world. These new principles allow companies to be more innovative, agile, and fast moving, compared to their traditionally managed peers. As shown in Chap. 8, a version of the management principles used by both Haier and GEA has been found at other successful companies as well, for example, at Silicon Valley companies such as Google. The comparison between the two “philosophies” at Google and Haier showed them to be based on principles that were to a large extent overlapping. This means that the Haier and GEA cases are not unique, stand-alone cases of a new set of management principles, but could indeed mirror a more universal set of new management principles. We can label these management meta-principles for the digital age. Second, it should be evident from the descriptions of Haier and of GEA in its newly evolved form, that their new management principles allow them to build and strengthen their Dynamic Capabilities. To be dynamic as a firm, you must have a mindset that the organization and business model will constantly need to change and be updated. For this to happen, the firm needs to be people-centric so it can leverage people’s creativity. Further, the firm needs to be ambidextrous—that is, be able to explore new opportunities and create new knowledge and value in parallel with exploiting current knowledge and opportunities. One way of doing this is to allow open innovation, leveraging innovation from outside the firm as well as from within. Co-creation with customers, suppliers, and other partners plays an increasingly important role in innovation today. Finally, the firm needs to apply a systemic approach to succeed. The principles need to be applied everywhere in the firm, not only in selected areas such as new product development. As shown in Chap. 1, these # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_15

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capabilities are essential for today’s world, and both Haier and GEA are demonstrating the required sub-capabilities. Third, traditional companies need to respond soon if they have not already done so. Based on research on the dissemination of new management innovations, as well as on lessons learned from both the Haier and the GEA cases, an enterprise transformation takes years (in the best case less than 5 years), and it is an evolutionary process based on continual learning by the organization. If you do not start the process, you also do not learn. Executives, therefore, need to adopt a “learners’ mindset,” decide a leading goal and one or two guiding corporate principles, and start experimenting, i.e., start their learning process. Fourth, there is not a single, uniform blueprint on how to do this. There are metaprinciples that can guide an organization’s transformation, but practices have to be adapted to the individual firm and its context. In undertaking this journey, the risk is high that the people leading the transformation will block principles that are too far from how the organization has done things historically. And if these new principles are blocked, then the processes, structures, and practices will not be updated. In GEA’s case, the company had to switch out the CEO. The new CEO came from within and therefore had the knowledge, respect, and capabilities to execute a disruptive transformation. The same pattern occurred at Microsoft, another company that recently did an interesting cultural transformation. This suggests that company boards should aim for identifying leaders who are aligned with the new principles for a digital economy and are capable of transforming people’s mindsets, as well as their ways of working. These candidates can come from outside or inside the firm. However, transformation might also require that some board members be exchanged for people who understand and support the new, more competitive way of creating value for companies in a digital and connected era.

15.1

Lessons Learned from the GEA Case

According to Kevin Nolan, the competitive dimensions for his firm are two: 1. Access to, and ability to apply the latest technology. 2. User intimacy (Zero Distance). Both dimensions force the organization to change, as well as force people to change their mindsets. A great test of the “new GEA” came during the onset of COVID-19 when plant managers got 1 week to make sure the plants followed all safety guidelines. GEA’s plant managers made it and became role models to others. To summarize GEA’s transformation and pinpoint key events that enabled it, GEA’s Chief Communication Officer, Antonio Boadas, drew (Fig. 15.1).

15.1

Lessons Learned from the GEA Case

Before 2016 • Kevin Nolan and Venkat Venkatakrishnan start FirstBuild • New Commercial Officer • Electrolux deal failed

2017 • Kevin Nolan appointed CEO • Leading goals are declared • Elimination of 1 management layer • Creation of the first 4 Micro Enterprises • Functions become platforms

2016 • Acquisition announced • Water Heater business sold • Kevin Nolan appointed Haier CTO

2018 • More Micro Enterprises • Launch House of Brands • New VPs in communication, legal and digital technology

129 2019 • GEA reenters the Water Heater Business • Launch Smart HQ • Bonus program extended to 100% to salary population

2020 • GEA reenters the Small Appliance business

Fig. 15.1 Key events enabling GEA’s transformation (Steiber, 2021)

Fig. 15.2 Success factors (Steiber, 2021)

15.1.1 Success Factors When asked to pinpoint key success factors behind the transformation, Boadas emphasized four key factors: leadership, organization, culture, and alignment, as shown in Fig. 15.2. Regarding leadership, roles and mindsets had to change at both the CEO level and the levels of ME heads and platform leaders. The new CEO had to move beyond the previous conception of the position as someone who exercised central control, managed daily operations, set short-term goals, and acted as a chief decision maker. The new philosophy and principles required him to focus on being an

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enabler, removing barriers, setting vision, identifying gaps, and acting as an advisor. As can be understood, it may be hard to “train” traditional CEOs to make these changes, which may therefore require a change of CEO. Nolan’s personality was, and is, well aligned with this new way of managing. The ME leaders (formerly product managers) had to change their roles and mindsets from following orders, limiting risks, and having limited autonomy or accountability, to a new state of being empowered, having much greater ability to take risks, and respond to users and market needs, and being 100% accountable for results. As has been described, this didn’t seem to be a problem for the selected ME leaders, but it was hard for some former heads of key functions to adjust to their new roles as leaders of platforms serving the MEs. Regarding organization, the company was previously characterized by strong reporting lines, powerful operating functions, static product lines, a forced crossfunctional collaboration, and competition between product lines and functions. The new organization is now built around mutual contracts (or “agreements”), enabling platforms, agile microenterprises, “natural” cross-functional collaboration in support of the MEs, and an integration and collaboration between MEs and platforms. These changes are illustrated in Fig. 15.3. The other two success factors are culture and alignment. The aim of cultural change has been, and still is, to turn employees into entrepreneurs through empowerment and promoting ownership. For GEA this is like striving for zero distance between the company’s goals and individual contributions. According to the CEO it is like defying gravity. People with power tend to accumulate more power, instead of distributing it. Therefore, there is a constant need to fight the tendency of “centralization of power” around certain people in the organization. The key enablers for this shift in culture are: • • • •

Straight talk—Proactive communications to promote open collaboration. Transparent management—Open and continuous dialogue. Accountability—Goals, deliverables, and expectations clearly defined. Raising the bar—Empower people to explore, share, test, and make decisions. Connect people to their passions and strongest competencies. • Looking for better ways—Always question the status quo and look for better ways of increasing value to users. • Collaboration—Coming together and solving problems. • Create new possibilities—Be proactive and create new opportunities to increase value for the users, and thereby for yourself and the company. Alignment means aligning employees around the company’s goals and user value. This is done by clearly communicating goals, metrics, and results, and by enabling people to understand how they will contribute to achieve these. Alignment is also supported by the pay-by-user compensation model, which connects rewards to the company’s and MEs’ results, and is complemented with symbolic reward and recognition programs.

15.2

Lessons for Adopting RenDanHeYi

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Fig. 15.3 Leadership and Organizational transformation (Steiber, 2021)

15.2

Lessons for Adopting RenDanHeYi

This section is addressed specifically to anyone interested in adopting the RenDanHeYi philosophy to transform their company. Here are several key points and insights drawn from GEA’s experience.

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15.2.1 RenDanHeYi Is Not ONE Recipe RenDanHeYi is not a one-model approach, but rather a philosophy based on a certain mindset and on fundamental management principles. For any organization to adopt this philosophy, people need to understand and buy into the mindset and its underlying principles. At GEA, this process of understanding and buy-in took between 6 months and several years, depending on which person you ask in the organization. Of course, the transformation can begin once the top leaders truly “get it,” but the key point is this: Each organization then transforms its management model in a way that makes sense for them and is feasible for them. There is therefore not one global model, but rather company-specific models, all following the same underlying principles. These principles can be summarized as: • Focus on the market, taking an outside-in rather than an inside-out perspective. • Align the organization and secure end2end accountability so that focus stays on the users. • Delegate authority and responsibilities. • Adjust the compensation model accordingly. • Use leading goals to stretch yourselves. For GEA, the resulting change in mindset has been “disruptive.” The company’s mindset has gone from: • • • • •

“Corporation first” to “Users first” “Play not to lose” to “Play to win” “Promote a single brand” to “Build multiple brands” “React to competition” to “Lead the competition” “Avoid risk” to “Embrace new opportunities”.

15.2.2 RenDanHeYi Does NOT Have an Endpoint: It Is a Journey RenDanHeYi’s core principles are intended to make an organization more fit for the digital age. However, the RenDanHeYi model that an organization uses at any point in time is never to be perceived as the end state. It is a pro tem model, ever subject to change as the environment constantly changes. RenDanHeYi can therefore be viewed as a new organizational trajectory, based on new design principles. A trajectory is just what the word means—a path that the organization travels, which in this case is a path of ongoing evolution and improvement. It is therefore of highest importance that any firm wishing to move away from its current trajectory, to a new “RenDanHeYi trajectory,” must adopt a learning mindset. The company will never be perfect but will always need to change, sometimes disruptively, to survive in a highly dynamic and uncertain world.

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15.2.3 Top-Leader Commitment and Support Are Essential Kevin Nolan was named CEO in 2017 for a reason. He believed in the new principles, and based on his previous experiences, he was ready to change the company into something better. In his view, continuing to do things the same way as in the past was the course of highest risk. The new CEO was also competitive and wanted the company to become the best in the world in its market, rather than focusing on short-term financial numbers. His desire to go out and win, together with his obsession with the products and the end users, forced him and therefore the people around him to think about what the company could become and how to make this happen.

15.2.4 Involve Your People in the Change Processes For a company to transform its mindset, structure, leadership, and ways of working, it is necessary to create a critical mass of people in the organization who trust and share the belief that a change is good for them and for the company, and ultimately for the users. And for this to happen, transparency and involvement of your people are key. GEA took several steps to open up transparency internally. An important one was the establishment of weekly videos in which the CEO shared both successes and challenges with every employee. Another was broadening the “leadership” meeting from including only senior leaders to everyone. The direct relationship between the company’s success and money in the wallet also contributed to increased trust and transparency, and here the change in the bonus system played a critical role. The many meetings with the new ME leaders and platform leaders also played a key role in building knowledge, trust, and belief. To actively involve the new ME leaders in designing their new way of working, with an increased customer focus and end2end accountability, was a leading practice in change management.

15.2.5 Challenge Your Traditions A company’s traditions are part of its culture. Challenging these traditions is very hard, as it could be compared to challenging the idea of Thanksgiving for Americans. Traditions in a company can be found everywhere, from how meetings are run to how employees are evaluated, and what criteria are needed for promotion. In a transformation, every single tradition needs to be questioned to see if it fits with the new mindset and principles. If it does not, the tradition must change. At GEA, many traditions were changed. One involved who was to receive a company bonus. Here the company went from giving bonuses only to senior leaders to giving them to more or less everyone. Another example is the tradition of whom to hire. Before, it was natural to hire someone who had deep engineering skills and in the best case came from within. Today, GEA hires people who have competences and skills that complement the company’s current ones. GEA also looks for people who can be part

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of building new business value for the company. Further, the traditional view of leadership has changed, from a top-down, controlling leadership to a more delegating and coaching leadership. In a fast-moving, uncertain environment this change in leadership is crucial.

15.2.6 Change Is Hard: Fight the Antibodies People and organizations usually do not want to change if they do not understand the benefits it will have for them and the risks that it might entail. Therefore, a visionary, consistent, transparent, and results-driven leadership is key for an enterprise transformation. Commonly, an initial core team of change drivers needs to be formed to disseminate change further throughout the organization. At GEA, the education and involvement of the product line leaders played a crucial role in forming a first small critical mass of change ambassadors. The benefits on an individual level were less clear for operational function leaders, who now were to become supporting platform leaders. Therefore, the process of getting those people on board took a bit longer. It demanded a high degree of consistency in messaging from the CEO, as well as arranging for the leaders to be compensated based on results from the change—e.g., with more pay for a higher growth rate. For employees at lower levels, getting people on board took even longer and demanded not only consistent communication from the CEO, but also the abovementioned transparency and involvement of everyone. People had to see and understand the new vision of the firm as well as the challenges on the way to realizing the vision, and ultimately, they had to see actual results from the change process. The fact that everyone was to be compensated in a new way, based on improved results in their ME or for the company overall, played an important role in bringing everyone aboard. Altogether, it took a concerted combination of steps to fight resistance to change and move the process forward.

15.2.7 Transformation Is an Evolution GEA did not have a ready-made blueprint for transforming itself in the most effective way. The transformation was, and is still, a learning process. In most cases, companies want to do an initial pilot of a new way of working and evaluate the effects. At GEA, the CEO saw a big risk in not changing the company as promptly as possible. He also had seen the positive results that Haier had achieved with similar changes. This led him to forego a pilot and proceed to a company-wide transformation effort, in stages, starting with changes that he perceived as the least risky. After implementing the first wave of changes, the company paused for a while to see the effects and learn from experiences. These were positive, so the transformation journey continued, and it continues to this day. Based on results at GEA and in other parts of Haier, a company can expect a RenDanHeYi transformation to gain a more-or-less complete foothold in a period of

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2–5 years, or perhaps more. The time and difficulty may depend on several factors, such as top-leader continuity, commitment and support from the board, the complexity and size of the organization, and how different the new way of working is from the old ways (greater difference ¼ higher resistance). The last factor may also be influenced by the local culture. Finally, keep in mind that the very concept of “finally” does not apply to this kind of transformation. At the time we are putting these words into print, the RenDanHeYi philosophy has been understood and accepted by most people at GE Appliances, and most parts of GEA’s RenDanHeYi model are now operative or will soon be. Yet as CEO Kevin Nolan reminds us, in his view, the journey has just begun.

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Moving Ahead

What GEA has really accomplished is to launch itself on a new path into the future. It is a path filled with promise of greater things to come, provided the company continues to grow and evolve—which the RenDanHeYi philosophy now enables it to do. And indeed, this is what makes RenDanHeYi a new management approach worth considering. The most powerful way of managing an organization in today’s world is to make it capable of navigating many, many unknown tomorrows. Next, the key messages in this book will be summarized.

Reference Steiber, A. (2021). The transformation of GE appliances. Report for Haier Management Institute.

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The most important issue facing managers today is the need to make their organizations fit for a world of disruptive change in a digital economy. Our current business environment, fast-moving and unpredictable, already has affected many industries profoundly. Much more disruption can be expected as digital technologies keep evolving, and as societies try to adjust to climate change. Being digitally nimble and environmentally sustainable are therefore two primary needs, but the basic quality a company must have, is the ability to adapt and innovate—quickly and proactively. The leaders will be companies that can shape the future as it comes. Those that merely react will risk lagging behind, and companies that do not change will die. Many large firms appear to be well equipped for the new age but in fact are not. Although they use modern tools and techniques, their underlying management model is a relic of the past. Labeled a “Machine Bureaucracy” by Henry Mintzberg (1980), the model is built around hierarchical structures and elaborate rules and procedures that make it very hard for a company to move in new directions rapidly or substantially. For a concise description of what a future-ready firm must be able to do, we can turn to David Teece. He and his colleagues have urged companies to develop dynamic capabilities, which consist of “sensing,” “seizing,” and “transforming.” • Sensing “means identifying and understanding opportunities and threats.” • Seizing is “mobilizing your resources to capture value from those opportunities.” • Transforming is “continued renewal”—constantly reorienting the company for the next opportunities to come, as well as for “periodic major strategic shifts” (Kleiner, 2013). The question then becomes: What should a new management model look like, to provide dynamic capabilities? The author of the present book has devoted years of research to finding answers to this question. Some core sub-capabilities, found in numerous highly innovative companies, are as follows: # The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Steiber, Leadership for a Digital World, Management for Professionals, https://doi.org/10.1007/978-3-030-95754-4_16

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• A continually changing organization, which adapts to changes in the external environment. • A people-centric approach, fostering an environment that maximizes the entrepreneurial power of the organization’s people. • An ambidextrous organization that can manage incremental improvements and disruptive innovations at the same time. • An organizational ecosystem applying open innovation, which means innovation from anyone and anywhere. • A systemic approach, which assures that every part of the organization will support the management principles. The new management models that were introduced and compared in this book, Google’s form of the Silicon Valley model and Haier’s RenDanHeYi model, are used by firms that have these sub-capabilities and therefore a track record of displaying dynamic capabilities. Further, when GE Appliances (GEA) adopted RenDanHeYi after its acquisition by Haier, the result was a dramatic transformation. Within just a few years GEA launched several new product lines and became the fastest-growing US appliance maker, while staff members reported feeling re-energized and newly empowered. This gives additional evidence of the new model’s ability to enable dynamic behavior. It is interesting that the Google model and RenDanHeYi were developed by different kinds of companies in very different parts of the world. One is a digital native that grew large and multifaceted, the other a non-digital-native home appliance firm that resolved to be a leader in the IoT era. Moreover, as this book’s comparison has shown, the two company’s management models differ from one another mainly on the level of implementation and practice. There is a great deal of overlap in their underlying principles. Therefore, we might call these shared management principles “meta-principles” of the new digital economy. As noted in the author’s previous writing: The implication would be that a paradigm shift in management is already here, and it is not an industry or local phenomenon, but a global one (Steiber, 2014; Steiber & Alänge, 2016).

We can deduce the meta-principles from RenDanHeYi, which at this time appears to be the most disruptive new management model in use by a large, global organization. RenDanHeYi operates based on six core principles: 1. 2. 3. 4. 5. 6.

Strategy focused on evolving into an ecosystem brand. The creation of a networked organization. Turning employees into entrepreneurs and dynamic partners. Zero distance to users. Compensation based on true value creation. Nonlinear management.

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The name RenDanHeYi refers to employees (Ren), user value (Dan), and the integration of employees’ value creation and user value realization (HeYi). In short, this means that all employees should be focused on creating user value, and they are rewarded according to the user value they create. The objectives are to aim for great customer experience, to release and use the entrepreneurial energy of everyone— employees as well as external partners—and to provide a structure for sharing value created among all involved. Furthermore, the RenDanHeYi philosophy permeates the organization, as it can be thought of as a fractal: a “never-ending pattern of activities that are self-similar across many different organizational levels.” Evidence of this can be seen at GE Appliances. Former functions, as well as different organizational levels, are now working more seamlessly and collaboratively than before, and everyone is aligned toward a common objective: serving the users and their needs. That is a fundamental form of alignment that any organization should seek and can benefit from. When a constant focus on users’ needs is combined with RenDanHeYi’s organizational structure—an open-platform structure, with an evergrowing constellation of autonomous small teams forming ecosystems of their own—the overall result adds up to truly dynamic capabilities. An organization that is structured and managed in these ways can continually transform itself as it senses and seizes new opportunities to serve an ever-changing world of needs. Let us end this final chapter (and the book!) with some parting words of counsel. 1. There is a new set of “meta-management principles” better suited for the digital, sustainable world we all face in years to come. 2. Traditional companies need to respond quickly if they have not already done so, as the old management principles are no longer competitive. 3. The new meta-principles can be used to navigate any company’s transformation, but the specific practices must be adapted to the individual firm and its context. GEA is a perfect example of local adaptation of the RenDanHeYi principles. 4. To adopt RenDanHeYi, a company first needs to translate and understand the underlying principles of the model, as well as buy into those. 5. Top-leader commitment and support (including from the board) are essential if you want an enterprise-wide transformation. 6. To succeed in transforming itself, a company will need to challenge its own traditions and involve all its people in the journey, step-by-step throughout the organization. 7. Every company will find that change is hard, so it is necessary to fight the “antibodies” that resist change, with support from the top leadership. 8. Transformation is an evolution. Every organization needs to start the process and evolve by experimenting, learning, improving, and then experimenting again. The companies studied in this book are pioneers in management innovation. They have already begun their journeys and are reaping the rewards. It is the author’s hope that organizations everywhere can learn from the examples and experiences of these leaders. Although the business environment is competitive, and not every firm can

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thrive or even survive, the world is large. There is room for many, many companies to find new ways of meeting humanity’s ever-changing needs. But first, transformation is necessary. We must say goodbye to management methods of the past Industrial Age. To the extent that our organizations and institutions can transform themselves for the future, we will become increasingly able to realize the marvelous potential of digital technologies, and we will develop the world’s vast human potential sustainably. Please keep this ultimate transformation in view as you work to transform your company. It will remind you that you are achieving more than you might imagine. Step by step, and experiment by experiment, you are creating a better world for all of us.

References Kleiner, A. (2013, November 11). The dynamic capabilities of David Teece. strategy + business. Accessed November 9, 2021, from http://www.strategy-business.com/article/00225?gko¼d24 f3 Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research on organization design. Management Science, 26(3), 322–341. https://doi.org/10.1287/mnsc.26.3.322 Steiber, A. (2014). The Google model: Managing continuous innovation in a rapidly changing world. Springer. Steiber, A., & Alänge, S. (2016). The Silicon Valley model: Management for entrepreneurship. Springer.