IMD International


Learning from the best in China

By Professors Katherine Xin and Vladimir Pucik (July, 2006)

Professor Vladimir Pucik

Excerpt from webcast: HR differentiation as a competitive advantage (2:50)

China today is probably one of the most competitive markets in the world. It is not the low-cost economy it used to be, and many local and foreign companies are facing the challenge how to build and maintain competitive advantage in a rapidly changing environment - with a permanent shortage of talent.

How can HR increase the company capability to compete? The best Chinese companies can provide some useful lessons. How can HR add value?

A good example is Haier Group, a Chinese company that grew aggressively over the last twenty years. Starting in 1984 with 100 employees, Haier today is the world’s third largest home appliance producer. CEO, Zhang Ruimin says, “We must think about talent management and performance management. How can we change the mindset of the employees to get the results we need?”

Holistic HR management
The cornerstone of Haier’s HR system is transparency and fairness. It is a holistic system, aligning every HR activity from recruitment to performance management to the company’s business strategy – relentless focus on growth, quality and innovation.

Performance management
Foundation of Haier’s people strategy is rigorous performance management; employees are ranked daily on results, managers monthly on performance; quarterly on potential. The system is fully transparent - evaluations of all employees, including managers, are openly displayed. This is fundamentally different from what typical Chinese or foreign firms do in China. Haier’s performance management is linked to employee rewards and development.

The race-track model
Career progression in Haier is based on a race-track model. Promotion is based on performance and internal competition is ongoing. Low-performing employees are retrained, but terminated if there is no improvement – managers can be demoted if they do not succeed at the higher level.

Champions must compete
Each promotion means another race starts. The opportunities and talent pool are open. Whoever has talent and capabilities, and can produce results, will be recognized and rewarded. It is competitive, but perceived as equal and fair. Without competition, anybody can be a champion. It is only when there is a race going on that you can say “I’m number one!”

Global deployment of HR practices
Haier attempts to expand its HR system beyond China. But for a typical American manager, having a performance ranking exposed in the company cafeteria is difficult. “This performance system is too Chinese – this will never work in America”. Haier’s answer? The company wants to stand apart – it doesn’t hire “typical” Chinese or Americans. They hire people whose values are consistent with its management philosophy; aligned with its business strategy. Around the globe, Haier makes sure that it has employees who understand and are aligned with this approach.

Focus on differentiation
What can we learn from Haier? Start with a clear vision of where you want your business to be: the organization capabilities required to support your strategy; behaviors you want your people to exhibit; the kind of HR practice you have to put into place to drive the desired behaviors. Yet this may still not be enough to win the race. What you really need is “differentiation”. Competitive advantage does not come from copying others – be it GE, Microsoft, or Haier! If you want organization capability that keeps you ahead of competitors, you must have courage to differentiate your HR practices. It's a question of HR leadership - be there, on the front line and willing to make that critical choice, in China, and in the rest of the world.

Professor Pucik teaches in the Orchestrating Winning Performance program and Professor Xin in the Program for Executive Development.

For information on IMD's China Research Center

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