Thank You for Disrupting

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Thank You for Disrupting Page 5

by Jean-Marie Dru


  and German hair-care brand Wella. I remember Ed Artzt, the

  chief executive at the time, telling me what a predominant place

  the beauty business was going to occupy at Procter & Gamble.

  P&G was leader in every category it operated in, so he thought

  the company would naturally dethrone L’Oreal to become num-

  ber one of the worldwide beauty market. . . . Three decades later,

  in 2016, P&G’s renouncement was spectacular. The company

  sold more than half of its activities in the sector.

  There are several possible explanations for this. I would like

  to dwell on just one that is not often mentioned by other observ-

  ers, but to me appears essential. Procter & Gamble, like all con-

  sumer goods companies, is driven by the quantitative. I would

  go so far as to say that, at P&G, whatever cannot be measured

  is practically considered nonexistent. This evidently constitutes

  a barrier to imagination and creativity. Conversely, at L’Oreal,

  the quantitative does not prevail over the qualitative, the intan-

  gible is crucial. Its people don’t hesitate to open themselves up to

  things of an artistic or intuitive nature, even within the context

  of their jobs.

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  THANK YOU FOR DISRUPTING

  I was invited to Cincinnati in the nineties to give a presentation

  on L’Oreal’s approach to marketing. The fact that I am French

  might have given P&G’s management the impression that I knew

  a little about L’Oreal’s specific ways of doing things. During our

  discussions, I was able to measure the distance that separated

  L’Oreal and P&G. I was struck by the fact that the people in the

  two companies did not give the same importance to the same

  things. Far from it. Form, execution, and style are essential ele-

  ments for L’Oreal. They contribute to the brand essence. At the

  time, this was less the case at P&G. Anyway in the long run,

  L’Oreal managed to keep Procter & Gamble at bay.

  Many mainstream brands are now trying to move upscale and

  enter the premium area. Often, this is because they are look-

  ing to penetrate market segments with higher margins. Such a

  move requires managers to change their habits. Rather than only

  focusing on their products’ functional performance, they must

  also take into account the symbolic values of their brands. They

  need to avoid being excessively rational and learn to trust their

  intuition.

  By intuition I don’t mean superficial flashes of brilliance,

  but rather a combination of impressions and experiences that

  suddenly rise to the surface to form a brand idea or a brand

  territory. Intuition is an incomparable driver. It is the lifeblood

  of the luxury industry. Bernard Arnault was once described by

  Le Figaro as “the intuitive businessman par excellence.”3

  In the final analysis, it is a unique blend of business acumen

  and intuition that counts. On this, Bill Bernbach, the most famous

  adman of the last century, said, “Knowledge is ultimately avail-

  able to everyone. Only true intuition, jumping from knowledge

  to an idea, is yours and yours alone.”4

  Chapter 5

  Zhang Ruimin

  ON DECENTRALIZATION AND

  CUSTOMER-CENTRICITY

  Zhang Ruimin has run Haier for 35 years. This world-

  renowned Chinese company sells white goods in a very

  mature market where products are most often commoditized.

  Perhaps because of this Zhang has adopted and even invented

  completely new management practices. Indeed, he has dramat-

  ically shaken up the organization of his company several times

  and, in doing so, he has accomplished something that might have

  been more expected of a leader in the new economy.

  For Zhang, companies that fail to disrupt themselves are

  condemned to be disrupted by others. It is inconceivable to

  him that a company can eternally depend on the same busi-

  ness model. One day or another, it will find itself obliged to

  self-disrupt.

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  THANK YOU FOR DISRUPTING

  Zhang has forced himself to reinvent his company, continu-

  ously. This former Red Guard and civil servant was inspired by

  American and Japanese business literature. The works of Peter

  Drucker, Gary Hamel, and Kenichi Ohmae no longer hold

  secrets for Zhang, who was a serious business student. As a busi-

  ness leader, he applies the most pertinent ideas, following them

  to the letter. He complains that active sources of inspiration are

  drying up. According to him, American theoretical thinking is

  now at a standstill.

  At Haier, Zhang sought to invent the company of the future.

  It proved to be an arduous task. The company he took over was

  provincial in scope, making products that were often defective.

  He had to fight against two very different aspects of Chinese

  culture. On the one hand was the heritage of Confucius, which

  consecrates harmony and the cult of ancestors. Those practices

  and beliefs could favor stagnation. On the other hand were the

  vestiges of the Cultural Revolution, which had led to a certain

  chaos inside the factories and to a disregard of quality standards.

  At Haier, as elsewhere, a lack of discipline was the norm. Any-

  thing and everything went.

  Haier has known three distinct periods under Zhang’s lead-

  ership. Each time, he totally changed the organization of one of

  the oldest collective firms in the country. First of all, he trans-

  formed a company making low-quality goods into one cited not

  just in China but also throughout the world for the irreproach-

  able quality and reliability of its products. From the year 2000

  on, he began building a global brand by exporting products

  Haier manufactured in China and then producing them in the

  new factories Haier built from Southeast Asia to South Caro-

  lina. The company has since become the world’s largest seller

  of washing machines, refrigerators, air conditioners, and other

  Zhang Ruimin

  37

  major appliances. With 2017 global revenues of $37.2 billion, it

  is well ahead of its American and Swedish rivals, Whirlpool and

  Electrolux. Finally came Haier’s most recent and maybe most

  significant phase: evolving from a manufacturer of goods to a

  service provider—in every sense of the word.

  Managing through self-disruption is Zhang’s trademark, an

  approach that makes him and his company stand out from the

  crowd. One story in particular illustrates Zhang’s emphasis on

  product quality. It has become a legend in the world of Chinese

  business. After a customer complained about a broken refriger-

  ator, which he brought back to the factory, Zhang checked the

  entire stock of 400 refrigerators, looking for a replacement. In

  doing so, he discovered a total of 76 defective refrigerators. He

  then selected 75 employees and asked them what they should

  do with the faulty machines. Some suggested selling them at a

  discount, while others recommended giving them away to Haier

 
; employees. Zhang grabbed a hammer and destroyed one of the

  faulty refrigerators, ordering each of his stunned employees to

  do the same. Then he said, “We cannot expect to smash refrig-

  erators every day. But actually, I think about doing it every day.”1

  That singular act of destruction impressed on employees that

  poor quality would no longer be acceptable.

  Just imagine the impact of this gesture in a country where, at

  the time, a refrigerator could cost nearly as much as a worker’s

  annual salary. This event became a cult moment in the com-

  pany’s history and was a tipping point on its path toward qual-

  ity. The hammer is now on display, like a relic, in the company

  museum near its Qingdao headquarters.

  This was the first step in a long journey that made Haier a

  model for Chinese companies and, judging by the press coverage

  of its success, for the rest of the world, too.

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  THANK YOU FOR DISRUPTING

  everyone Is a CeO

  Haier’s history is one of a culture in constant evolution, of an

  organizational model always being challenged. Zhang relies on a

  simple observation: Companies rarely know how to get the best

  out of their employees, which leads to consequential waste. This

  is why he is always looking for organizational models that allow

  his people’s talent to be best expressed—and supported.

  Haier puts responsibility at the very heart of its culture. The

  degree of autonomy given to employees at the lowest part of the

  hierarchy is far greater than even in the most forward-thinking

  Western companies. Haier comprises over 2,000 autonomous

  units, each one operating as a small business. These micro-

  companies are responsible for their own P&L and include between

  20 and 30 employees from sales, finance, logistics, and marketing.

  The rest of the company—Haier employs 80,000 people—

  supplies resources to these autonomous units on a contractual

  basis and is paid for the services it provides.

  Any employee can propose a new idea, be it a simple prod-

  uct improvement, a true innovation, a new service, or a better

  process. Employees vote on whether an idea should be put into

  practice. For ideas that pass muster, the person who proposed it

  becomes the project leader. The project leader selects the team

  that will undertake the venture. In this manner, Haier’s busi-

  ness units operate just like start-ups. The team will last for the

  duration of the project, which could vary from six months to

  two years. Should team members feel their leader is underper-

  forming, they can request a new leader, someone they can elect

  themselves.

  At Haier, compensation is directly linked to individual per-

  formance. Every day staff members are awarded points; the

  amount depends on their contribution. At the end of the month,

  Zhang Ruimin

  39

  points and other awards are added up, while penalties are sub-

  tracted. The final number is used to calculate an employee’s pay.

  This draconian approach would obviously be difficult to import

  to the West. But what is interesting, as states Peter Hinssen in

  Forbes, is that:

  Basically what Zhang Ruimin did, was to create a culture of

  entrepreneurship inside his company by copying and trans-

  ferring the rules of the outside market inside his company.

  He thus created a network of small “companies” compet-

  ing against one another inside Haier and made sure that the

  remuneration depended on the end-users.2

  This has led to a highly competitive, but also quite uncom-

  fortable environment. And yet, virtually all the employees accept

  it. Haier is also one of the most attractive companies for young

  graduates because the company allows them to believe they could

  grow there better than anywhere else.

  What Zhang has succeeded in creating is a bold and innovative

  organization within a traditional commodity manufacturer. Haier

  is a company built with extraordinary precision and on a scale never

  before attempted. Staff members are not simple employees con-

  tent to receive and execute their superiors’ orders. They are entre-

  preneurs who feel they are their own bosses. They have become

  CEOs of their own, as stated in internal company documents. This

  organizational innovation is like a “bottom-up liberation.”3

  In this structure, the uncommon becomes typical. For

  instance, Zhang goes as far as encouraging his micro-unit lead-

  ers to seek out venture capital firms to co-finance their innova-

  tive ideas. That is further proof that the independence of these

  micro-units is not just for show. So far, no fewer than 200 teams

  have raised venture capital this way, which would obviously be

  unimaginable in Western companies.

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  THANK YOU FOR DISRUPTING

  Haier’s model rendered middle management obsolete, so

  Zhang removed it from the organization. In 2013, he fired 10,000

  middle-management staff.4 As a result, control by upper-level

  management tightened. Upper management’s role is to define

  the company’s overall direction, to set performance standards,

  and to provide frontline employees with the resources they need.

  The employees’ achievements are measured daily. Performance

  indicators are multiple, comprehensive, and thorough. There

  are detailed three-year, yearly, quarterly, monthly, weekly, and

  even daily plans. Staff members are briefed on results from

  the previous week in order to plan for the next one and the six

  that follow. Inspired by Japanese management books, Zhang

  has introduced processes that allow the control of everything,

  everyone, and every day.

  This level of control might at first appear to undermine the

  independence of his employees, but a closer look reveals that

  the opposite is true. As Bill Fischer said in Reinventing Giants,

  “optimal innovation occurs at the moment when team members

  believe that they have absolute freedom to contribute their tal-

  ents, and management believe that it is in complete control—

  both at the same time.”5

  In addition to the pairing of freedom and control, Haier

  thrives on another paradox: complexity and agility. On the one

  hand, Haier’s organization is far from simple. It is constantly

  becoming more complex. But on the other hand, having thou-

  sands of autonomous units injects great agility into the enter-

  prise. This is not the least of the Haier model’s contradictions.

  Many observers believe that Zhang is one of those entrepre-

  neurs that will have a profound effect on business worldwide.

  Time will tell. But it’s already clear that he has been able to

  impose an enormous cultural change on an enterprise that, at

  one time, could not have been more traditional. He innovated

  Zhang Ruimin

  41

  in a way that Western firms often do not, in the organization of

  the company.

  Reading about and observing Zhang can give one the feel-

  ing that t
he corporate organizational structure of the future will

  come from China. For more than a century and a half, all over

  the world, companies have been organized in departments, each

  given a precise function: research and development, production,

  marketing, sales, logistics, sourcing, human resources, finance.

  This seems immovable, cast in stone. At Haier, these functions

  still remain, but they have broken free from the confinement of

  the typical organizational structure. Gone are the silos of func-

  tion and department. Everything has become interdisciplinary.

  In the West, when innovation is discussed, it is most often in

  terms of products, services, and business models. Organizational

  redesign is not typically part of the conversation. Yet, it is proba-

  bly from this field that managerial insights will emerge in China

  in future years. This is one of the contributions China will bring

  to the rest of the business world.

  The system Zhang has put into place is intended to liberate

  the talent of his employees, get the very best out of each indi-

  vidual, and avoid waste in HR management. Zhang often quotes

  Peter Drucker, one of his greatest influences: “The purpose of

  an organization is to make ordinary people do extraordinary

  things.”6

  Zero Distance with the Customer

  To follow up on the story of Zhang and the hammer, I’d like

  to share this telling anecdote about a potato. A client from the

  Chinese countryside complained that his washing machine was

  not working. Haier’s local technician discovered that the client

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  THANK YOU FOR DISRUPTING

  was also using the machine to clean freshly unearthed potatoes.

  He informed headquarters, where Haier’s engineers saw the op-

  portunity to satisfy other customers; this client was surely not

  alone in how he used his washing machine. They conceived

  the first-ever machine designed to wash not only clothes but

  also vegetables. At the beginning, the new machine, equipped

  with oversized pipes, provoked incredulity, especially outside of

  China. But since its launch, Haier has sold over half a million of

  them. And it happened because the company listened so care-

  fully to one of its customers. Zhang takes this to the point of

  obsession.

  Zhang explains that he has turned a manufacturing com-

  pany into a customer-oriented organization. It may sound trivial

 

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