# Haier ## Background - The world’s largest appliance maker. ([Location 1951](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1951)) - With revenues of more than $38 billion annually, Haier’s been on a tear. Over the past decade, gross profits in Haier’s core appliance business grew by 22 percent per year, while revenues advanced by 20 percent annually. The company also created more than $2 billion in market value from new ventures. Those feats are unmatched by any of Haier’s domestic or global competitors.2 ([Location 1958](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1958)) - Led by Zhang Ruimin, Haier’s renegade chairman and CEO, the radical makeover focused on three objectives: - ==Turning every employee into an entrepreneur - ==Creating “zero distance” between employees and users== - ==Making the company a power node in an ever-expanding, web-centric ecosystem== ([Location 1962](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1962)) - Haier’s shorthand for these goals is rendanheyi, ([Location 1967](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1967)) - Haier has divided itself into more than four thousand microenterprises (or MEs), each with ten to fifteen employees. ([Location 1972](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1972)) - there are the roughly two hundred “transforming” MEs that have their roots in Haier’s legacy appliance business. ([Location 1974](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1974)) - fifty-plus “incubating” MEs. These are new homegrown startups ([Location 1976](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1976)) - roughly thirty-eight hundred “node” MEs that sell components and services, such as design, manufacturing, and HR support, to Haier’s market-facing MEs. ([Location 1979](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1979)) - MEs are free to form and evolve with little central direction, but share a common approach to target setting, internal contracting, and cross-unit coordination. ([Location 1984](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1984)) - In an entrepreneurial firm, aspiration outstrips resources, and innovation is the only way to bridge the gap. ([Location 1987](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1987)) - In large organizations, by contrast, employees are often insulated from market forces. They work in functions like HR, R&D, manufacturing, finance, IT, and legal that are, in essence, internal monopolies. ([Location 2018](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2018)) - Every ME is free to contract, or not, with other MEs. A typical user ME will have contracts with a dozen or more nodes. If it believes its needs could be better served by an external vendor, it can go outside. Whether internal or external, agreements are negotiated with virtually no interference from senior executives. ([Location 2022](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2022)) - Nodes that are unable to provide competitive service can and do go out of business. A substantial part of a node’s revenue depends on the success of its ME customers. ([Location 2033](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2033)) - ==When a market-facing ME fails to meet its leading targets, the node takes a hit—since every internal agreement has a clause that ties the node’s compensation to the performance of the market-facing ME==. ([Location 2037](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2037)) - Zhang is only slightly exaggerating when he says, ==“At Haier we are no longer paying our employees. Instead, they are paid by customers.”== ([Location 2039](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2039)) - Haier’s approach is different. In pursuing economies of scale and scope, it emphasizes collaboration over compulsion. ([Location 2052](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2052)) - Zhang believes trade-offs are best made by those closest to the customer, by MEs that are free to choose when to collaborate and when to go it alone. ([Location 2100](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2100)) - goal is to create a virtuous circle in which an expanding customer base yields a torrent of insights that can be harnessed to improve the offering and attract still more customers. In a startup, ==customers are cocreators==. ([Location 2103](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2103)) - Note: Are students co-producers or co-creators in an SU? Yes and no - The problem with a closed system is that it doesn’t adapt—it atrophies. Recognizing this, Haier sees itself not as a company but as a hub in a much larger network. ([Location 2109](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2109)) - First, every new product or service at Haier is developed in the open. ([Location 2111](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2111)) - In collaborative projects like the Tianzun, Haier creates a “patent pool” in which its partners confidentially share their inventions—with the understanding they’ll be rewarded if their technology is used in the final product. ([Location 2121](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2121)) - “The border of the company is not important. If you can help create value for users, it shouldn’t matter whether you’re an employee or not.” ([Location 2132](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2132)) - Note: Associate members of the SU. - As Laurence J. Peter, author of The Peter Principle, wryly said, “Bureaucracy defends the status quo long past the time the quo has lost its status.” ([Location 2135](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2135)) - “Microenterprises are like a reconnaissance unit—they scan the battlefield and identify the most promising opportunities. It’s like a giant search function.” ([Location 2180](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2180)) - At Haier, MEs operate as self-managing business units, and their freedoms are formally enshrined in three rights: ==STRATEGY:  The right to decide what opportunities to pursue, to set priorities, and to form both internal and external partnerships PEOPLE:  The right to make hiring decisions, align individuals and roles, and define working relationships DISTRIBUTION:  The right to set pay rates and distribute bonuses== ([Location 2185](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2185)) - If an ME fails to hit its baseline targets for three months in a row, a leadership election is automatically triggered. ([Location 2207](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2207)) - Note: I wonder how this cpuld be applied to Circles or the su in general - Immanuel Kant, the nineteenth-century German philosopher whose “categorical imperative” holds that we must never regard human beings as mere tools. ([Location 2242](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2242)) ### The Principles of Humanocracy - Zhang’s worldview is centered on the power of human agency. ([Location 2267](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2267)) - Iverson’s worldview revolved around the idea of everyday genius. ([Location 2268](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2268)) - What works in one organization may not work in another. Additionally, each process is part of a larger whole. Bolting a single, vanguard process onto a conventional management model is usually a fruitless exercise—like ([Location 2292](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2292)) - The point is this: over time, a system’s performance becomes limited less by processes and practices than by paradigms and principles. ([Location 2310](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2310)) ### The Power of Ownership - Arthur Cole wrote: “To study the entrepreneur is to study the central figure in economic history.” ([Location 2352](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2352)) - Phelps is right when he argues that we’re most alive when we have “the experience of mental stimulation, the challenge of new problems to solve, … and the excitement of venturing into the unknown.”3 ([Location 2361](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2361)) - when economies were populated by small proprietorships, [E]ven the lowest-paid employee, if he had an idea for doing something new or different, could expect a chance to get the ear of someone well up the ladder, if not at the top. ([Location 2365](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2365)) - In a large company, only a fraction of employees are active members of what Phelps evocatively calls the “imaginarium.” ([Location 2373](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2373)) - Decades of consolidation, along with the winner-take-all dynamics of digital technology, have left us with an economy that is dominated by powerful, politically connected oligopolies. ([Location 2376](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2376)) - What percentage of the people who work in your organization would agree with the following statements? - My work is my passion - I get to make meaningful business decisions - I feel directly accountable to customers - I intuitively think lean - My team is small and super-flexible - The success of this business depends critically on me - I measure progress in days and weeks, not months and quarters - Every day I have the chance to solve new, interesting problems - I have a significant financial stake in the success of this business ([Location 2383](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2383)) - In a recent study, 62 percent of Americans said they dreamed of starting their own business. The figure for millennials was even higher, at 77 percent.8 The top-rated reason for taking the entrepreneurial plunge: the ability to “control my own destiny.” ([Location 2410](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2410)) - More than a hundred studies have explored the impact of autonomy and gainsharing on firm performance, and most have found a positive correlation. ([Location 2422](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2422)) - They started by building an eight-factor model of [[servant leadership]]. Critical behaviors included: - EMPOWERMENT:  Increasing the decision-making autonomy of one’s subordinates - ACCOUNTABILITY:  Holding individuals accountable for the consequences of their decisions - SELFLESSNESS:  Giving priority to the needs of others - HUMILITY:  Openly acknowledging one’s limitations and mistakes - AUTHENTICITY:  Relating honestly and openly with others - COURAGE:  Challenging institutional norms in the interest of supporting others - FORGIVENESS:  Demonstrating empathy and a willingness to forgive - STEWARDSHIP:  Taking responsibility for the success and integrity of the institution as a whole ([Location 2425](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2425)) - of the eight leadership behaviors, empowerment was the most highly correlated with employee engagement, job satisfaction, and organizational commitment, while accountability was the strongest factor impacting job performance. ([Location 2440](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2440)) - Note: Get empowerment and accountability right and then take it from there - It is the combination of autonomy and upside that fuels entrepreneurial fervor. ([Location 2480](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2480))