I recently read an article in the Economist that credited Haier’s success to its CEO’s (Zhang Ruimin) decision to eliminate middle management. The move generated innovation that any Silicon Valley start-up would be proud of. I was not expecting a large Chinese firm to lead the way in being nimble and customer driven but it worked for them and I could see it helping many US companies, particularly game companies.
As a little background, Haier has sales of over $25 billion, is recognized globally for reliability and marketing expertise and has seen its market share grow from 3.1 percent to 9.6 percent.
Haier’s 80,000 employees are organized into 2,000 zi zhu jing ying ti (ZZJYTS), self-managed teams that perform many different roles. Each is responsible for profit and loss, and individuals are paid on performance.
If ambitious employees spot an opportunity, they are free to propose an idea for a new product or service. A vote, which sometimes also includes suppliers and customers, decides which project goes ahead. The winner also becomes the project’s leader. He forms his team by recruiting across the company; employees are free to join or leave ZZJYTS. Zhang describes it as “a free market in talent so the cream rises.”
Zhang also argues that Haier does not need a balance between the chaotic entrepreneurial energy released by the ZZJYTS and the need for corporate control at the top. Zhang feels the dynamic environment keeps everyone flexible, something impossible with corporate control.
By eliminating middle managers, Zhang has also put his engineers closer to consumers. The Economist writes that “By listening closely to demanding consumers, his firm’s fast and frugal engineers came up with clever products like mini-fridges built into computer tables (for students), freezers with a slightly warmer compartment (for keeping ice cream soft) and horizontal deep freezers with two tiers of drawers (for Americans too lazy to dig to the bottom).” These innovations were made possible because there was no layer of middle managers preventing engineers from getting market feedback.
I find Mr Zhang’s attitude and strategy appealing given the issues I identified a couple of months ago with centralization of processes and functions. By eliminating middle management, Zhang has also eliminated the forces that lead to centralization and stagnation. This is a great lesson not only for the maker of refrigerators and TVs but even more importantly for companies in the knowledge business who must be dynamic and customer driven to succeed.
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