The Global Applicability of Rendanheyi

From the Perspective of a Senior Partner at McKinsey & Company, the World’s Leading Management Consulting Firm

As a senior partner at McKinsey & Company (US), the top three management consulting firms in the world and the “Goldman Sachs of the consulting world,” Aaron De Smet is particularly interested in the Rendanheyi management model that has “blossomed” around the world in recent years. On May 27th, he interviewed Mr. Zhang Ruimin, Chairman of the Board and CEO of Haier Group, to discuss Haier’s innovative management model and to seek a “golden key” to replicate it in global companies.

Mr. Smet has been a leader in McKinsey’s global organization practice, at the helm of much of the firm’s global work on organization design and agility for the past five years. He has been keeping abreast of the world’s most cutting-edge organization management models. In recent years, he has been driven by the global emergence and practice of the Rendanheyi model. In his article “Nine Keys to Becoming A Future Ready Company,” published in McKinsey Quarterly in January, Mr. Smet used Haier’s MEs as an example of how a completely flat structure can empower a company to get ready for the future. Only four months later, he wanted to speak with Mr. Zhang Ruimin about the global practice of Rendanheyi, and his interest in the model was evident. After the interview, Mr. Smet exclaimed, “I totally agree with what’s covered in today’s exchange with Chairman Zhang, which really threw new light on the field of organizational management for me !”

Zhang Ruimin: Instead of Being the Captain of the Ship, He is More Like a Designer and Architect

Mr. Zhang Ruimin, Chairman of the Board of Directors and CEO of Haier Group

After being asked by Mr. Smet how he would describe his role at Haier, Mr. Zhang Ruimin described, “In the 37 years since Haier was founded, I have always distinguished my role from that of a traditional business leader. If you compare a company to a ship, they are the captain of the company, but I compare myself to a designer and architect”. This is because in the captain’s eyes, the ship and the course are fixed and the destination is determined in advance; but in the designer’s eyes, your task is not to steer this ship to a decided location, but to a new and more valuable destination, just like the Bible says to find the place flowing with milk and honey. He has to keep seeking this kind of destination, and when he does, he has to change the course, or even rebuild the ship, and then reach the destination. Similarly, after the arrival of the Internet of Things era, after more than ten years of exploration of the model, Haier tore down the walled garden created by the previously bureaucratic organization, reshaped the organizational structure, and transformed it into a living rainforest composed of more than 4,000 self-organized MEs. “There is no such thing as a successful company; there are only companies that move with the times” has become the beacon for Haier to always keep pace with the times we live in.

Rendanheyi Empowers Employees to Continuously Create Value for Users and Share the Benefits; and Haier Fulfills Peter Drucker’s Three Predictions about the Future of Business

Mr. Drucker once pointed out in his book Managing in the Next Society published in 2000 that in the future of 2025, three things that we have been accustomed to would disappear: (1) the Internet would eliminate the distance between companies and users; (2) companies would disappear, but self-organizations would remain; (3) the CEOs of companies would disappear, and employees would become their own CEOs. Haier has already fulfilled these three predictions.

After listening to CEO Zhang’s introduction of MEs and EMC contracts under the Rendanheyi model, Mr. Smet, who has 18 years of experience in organizational consulting services, said that Rendanheyi is indeed more efficient than the traditional model, but he was puzzled about what exactly is stopping these medium and large traditional companies from resolving to learn and apply the Rendanheyi model, even in the case of the world’s top 500 companies with decreasing life expectancy year by year? In fact, now many companies want to learn the model but find it difficult. The main reason is that they are very reluctant to give employees the three rights (the right to make decision, the right to hire talent, and the right to distribute compensation) that they are entitled to. Even though tens of thousands of companies come to Haier every year to learn about the model, few of them can really make up their mind to do it because they fear that they cannot control the employees. This is the opposite of the people-centered organization advocated by Mr. Drucker. People-centered organizations are generally embodied in autonomous people and self-organization. In a traditional company, people are not autonomous, and the three elements of management are the leaders as the ones that manage, the employees as the ones being managed, the tools used in a variety of ways to make employees do their jobs. Haier is the complete opposite, where the employees play the single most important role, just like what Drucker’s prophecy mentioned: each employee is his own CEO and has the three rights of an entrepreneur, which is why Haier can now keep up with the development of the Internet of Things era where user experience is king, realize fast, efficient and zero-distance interaction with users, and turn customers into lifelong users.

Similarly, in 2020, when the Covid-19 pandemic caused an uproar in the world and the global economy was in the doldrums, Haier and those companies using the Rendanheyi model were able to grow against the headwind and even improve their performance compared to the year before, which testifies the autonomy and flexibility that self-organization brings to companies. The MIT Sloan Management Review article “How Autonomy Keeps Companies Resilient in the Face of Crisis” suggests that the reason Haier performed better than Toyota and Apple during the pandemic was that it had more flexible organizational conditions than other rigid companies. Haier’s MEs could still create markets spontaneously during the pandemic, and the mask ME is a typical example. During the domestic epidemic in China, four Haier employees found that masks were in short supply in the country. They quickly realized that this was a great opportunity and formed a new ME spontaneously, combining various external suppliers of masks that were not originally part of Haier’s main business into a supply EMC of masks, and signed an EMC contract driven by value-added sharing to create value for users. They soon created a large market, satisfying users’ demand for masks, and at the same time, the members themselves gained their corresponding share of the value created. Haier has many other cases like this, which are the results of its delegation of the three rights to employees so they can become autonomous to establish self-organizations with the support of the Rendanheyi model. These autonomous people always keep an eye on user needs, and continuously create value for users and share the benefits from the value added, forming a positive feedback loop of value.

In Haier’s current eco-brand strategy, the biggest difference with traditional product brands and platform brands is that user value continues to grow in a cycle. A product brand focuses on product iteration, and the transaction is terminated after the product is sold to the customers. A platform brand is similar, with the focus on traffic, aiming at attracting customers to shop on the platform, and does not care whether each customer’s needs are effectively met. However, the most important thing in the IoT era is each user’s experience, which requires each employee to spontaneously and effectively interact with the users at zero distance, supported by a strong information and resource platform behind to ease their worries, so that they can be assured and quickly capture and meet the needs of each user. Thus, Haier not only reshapes the organizational structure, but also transforms the traditional thinking of the management community for employees, customers and partners into the thinking of lifelong users, entrepreneurs and ecosystem parties, providing an ecosystem environment for everyone to realize their maximize value with the iterative changes of the times.

Rendanheyi Supports Open Thinking Rather Than Closed Rules and Haier’s Salad-style Culture is Universally Applicable

Although Mr. Smet agrees with the concept advocated by Rendanheyi during the interview, from the perspective of a professional consultant, he raised the question that almost every company that wants to transform with the help of Rendanheyi will ask: how to overcome the difficulties of transitioning from the traditional bureaucracy to self-organization when practicing the Rendanheyi model? In fact, any company on the transformation path will certainly encounter a lot of obstacles. Actually, it is not difficult to find that companies are mainly faced with two major problems: first, most of the leaders are holding on to the traditional way of thinking. They want to get from Haier a series of established rules, and then adopt the so-called Haier model step by step, hoping to be successful in this way. But the Rendanheyi transformation is not linear, and there are no fixed standards or processes that can be followed. Secondly, they are worried that once they abolish the bureaucracy, the company will become out of control and chaotic, which is part of the reason why leaders cannot let go of the power — the fear of losing control. But in fact, with the help of the eight Rendanheyi research centers across the globe, there have been some successful adoption of the model for business transformation which has helped those companies improve their performance. They did not abandon the old bureaucracy completely and all of a sudden turned into MEs, but choose a different transformation path according to what’s happening in their own country, nationality and business, which is also what Haier has been advocating — the salad-style culture with Rendanheyi as the salad dressing while each company provides seasonal vegetables and fruits according to its own style.

In the case of GEA, which Haier merged with in 2016, the two countries are very different in terms of cultural background and market environment. Haier did not send anyone to manage GEA at that time, but kept all of the 12,000 employees, and the only requirement Haier had was that the business transformation must be in accordance with Rendanheyi. But the requirement was not to break the original organizational structure completely at once, but to empower business units of GEA to become MEs first, and then into teams, such as air conditioner ME, washing machine ME, etc.. After the pilots succeeded, the practice was replicated. At that time, many employees and leaders who did not understand before were beginning to accept the model, and the organization gradually and slowly transitioned from a traditional one.

Haier’s acquisition of Japan’s Sanyo is also a classic case. Japan has one of the world’s most traditional cultures. Previously in Sanyo, employees were promoted by seniority, and each employee’s salary was a fixed amount of 12-months’ worth of basic salary plus 4-months’ worth of bonuses, without exception. When Haier proposed to set the salaries based on work and contributions, even the Japanese labor union opposed it. It was only after the pilot was implemented for some time that it was slowly accepted by everyone, and now some people will earn a lot more than their old salary, while others will only get 14 or 12 months’ salary, depending on how much user value they can create. Therefore, Rendanheyi is not only effective for a certain company or country. As Immanuel Kant said, “human beings should be treated as an end in themselves and not as a means to something else”, Rendanheyi is a model of thinking that reflects human dignity and inspires each person to maximize their value, which makes it universally applicable.

I’m a model researcher from Haier Model Research Institute, doing research into Rendanheyi model, the management paradigm for IoT era.