Peter Drucker famously argued that culture eats strategy for breakfast, and whenever organizational culture is discussed, a handful of companies are constantly cited for their outstanding, distinctive, and storied cultures – typically Toyota, Apple, Amazon, and Google. These companies regard their culture as a strategic asset and devote serious senior management attention to its role in ensuring competitive success.
One of the most intriguing contemporary culture stories, however, belongs to the world’s leading home appliance maker, Haier. Committed to a 40-year battle against bureaucracy, the Chinese company stands out among mature old-economy industries. Its culture is a profound departure from the revitalization/reorganization culture that characterizes many of its peers. Haier’s unique approach is strongly rooted in its guiding principles and is evident at all levels of the organization.
Here, we offer the first analytical effort to examine how this works at the level of Haier’s most basic organizational building block: the microenterprise.
All exceptional organizational cultures have a mythology about them, based on largely anecdotal foundations, and Haier is no different. But in 2023, Haier’s leadership pursued a more analytical approach to identifying how its culture works at the lowest levels in the organization. That’s where we came in. We conducted a series of intensive, semi-structured interviews focusing specifically on how culture works at the microenterprise (ME) level across Haier, as well as conducting a Denison Culture Survey within each microenterprise which measured employees’ beliefs and assumptions around four specific performance traits: mission, adaptability, involvement, and consistency.
At the heart of Haier’s culture is RenDanHeYi, an operations philosophy that has grown out of four decades of experience in the fight against bureaucracy. RenDanHeYi is based on three central pillars of belief:
Distilling RenDanHeYi into three core pillars runs the risk of creating an illusion of simplicity, which is far from reality. RenDanHeYi is a continuous organizational cultural transformation on a large scale. As the foundation of Haier’s market success since the company was founded in 1984, it shifts the strategic center of gravity in the firm from staff planning to entrepreneurial experimenting.
After four decades of building the RenDanHeYi philosophy, Haier’s senior management felt the need to verify that the cultural system was still relevant and working with a new generation of employees – and despite the tumultuous changes taking place within not only the customer experience but the home appliance industry itself.
Haier has always taken its culture seriously. Its Haier Model Institute (HMI) keeps the company’s culture under observation so that it can be promoted, and to ensure that the cultural objectives of RenDanHeYi are maintained.
As a trial, HMI selected six microenterprises that they considered worthy of emulation by the other microenterprises within the organization based on their market performance and impressions of their adherence to Haier’s guiding principles. These six were: Smart Home Appliances, GE Appliances’ clothes care business, the ThundeRobot computer gaming unit, Haier’s smart vaccine business, Haier’s smart energy business, and a Haier factory, operating as a profit center, producing front-loading washing machines.
This sample includes both domestic Chinese and foreign acquisitions (GE Appliances in the US), complex ecosystems (Smart Home Appliances), and more focused microenterprises (ThundeRobot) as well as a factory (front-loading washing machines), end-to-end commercial microenterprises (Smart Vaccines), start-ups (ThundeRobot and Smart Vaccines), and older activities that have morphed from classical business units into microenterprises (Smart Energy).
We carried out an intensive interviewing process with each of these organizational units involving, in most cases, a cross-section of the organization’s leadership team. What follows is a summary of the findings of this investigation, which we believe provides a detailed, analytical investigation into how Haier works.
“In the review of hundreds of hours of recorded interview transcripts, six cultural elements stood out as being significant in each of these high-performing microenterprises.”
In the review of hundreds of hours of recorded interview transcripts, six cultural elements stood out as being significant in each of these high-performing microenterprises:
Haier’s basic philosophy remains relevant and instructive. Each of the microenterprises studied identified RenDanHeYi as an essential part of their cultural make-up and a guide to their operational actions, both in conversations and observed behavior. One microenterprise manager said that “the culture of a company is its soul” but “we are on a constant, everlasting journey of exploration. To continue to be effective, RenDanHeYi must be translated into ideas that speak to a younger generation.”
We attributed the existing vitality and influence of RenDanHeYi to a second, unexpected, finding. Every microenterprise went beyond the three major tenets of RenDanHeYi and added its own additional guiding principles. We saw this as adopting RenDanHeYi to fit their particular situation and as a sign of distributed ownership of the philosophy. This required the microenterprises to interpret RenDanHeYi principles in words and actions that were immediately relevant to every one of their members.
Since there was significant diversity in skills, outlooks, and experiences among these various microenterprises, the result is that RenDanHeYi is expressed quite differently across the Group, but always in the service of the same three core principles, which resulted in these principles being living sources of guidance rather than abstract aspirations.
By far, the most frequently mentioned cultural element was pursuing zero distance between the user and Haier, which took on the role of the operating engine that makes Haier so dynamic.
By far, the most frequently mentioned cultural element was pursuing zero distance between the user and Haier, which took on the role of the operating engine that makes Haier so dynamic. These outperforming microenterprises were actively and broadly pursuing ways and means to be in touch with their customers and users intimately and frequently. As a result, they are not only reading market trends in real time, through the eyes of the user, but they are also open to, and engaged in, co-creation with their users and customers to achieve success for all actors involved in market choices.
The founder of Haier’s Smart Vaccine told us that their original idea came from sitting next to an older model cabinet while his children were being vaccinated and noting that the door was always open, reducing the likelihood that any vaccine was being given at the correct temperature. Today, the same physician and nurse “users” are suggesting bandages that warn of infection, and mobile vaccine centers to serve remote rural areas – each of which has since become an entirely new value proposition for the microenterprises.
Zero distance takes on as many forms as there are microenterprises, so that although each was trying to get as close as possible to their users/customers, their approaches varied radically. At gaming firm ThundeRobot, the average age of the microenterprise’s workforce is 26 years old. They are all gamers, so being close to the user is conveniently easy – and incredibly effective.
Deep within one of Haier’s washing machine factories, we found a plant manager who spent his evenings reading daily usage reports from Haier’s smart appliances, which told him that “20% of our users are habitually using the rapid cycle, that washes the laundry in the fastest way, for small loads.” Based on this knowledge, he is designing a new single-function machine that caters to this operationally very simple market segment, estimated to be about 100,000 people in China.
GE Appliances’ clothes care business remarks that people who use their appliances speak about stains emotionally, usually employing “utterances,” rather than well-articulated words, to describe them. As a result, GE Appliances are building an “utterance database” to ensure that those emotions are vividly present in any future design decisions.
The variety of such zero-distance activity at Haier is abundant. In every instance, these microenterprises are intimately in touch with their users every day, and despite the differences in their actions, they are all adhering to the same general principle of getting closer to the user.
At Haier, this is accomplished by the creation of scenarios based on how users engage with Haier’s vision of a product solution and allowing dedicated teams to own those new scenarios so they can devote more attention to a smaller market segment than any rival could hope for.
The best way to appreciate organizational culture is to understand how it supports the prevailing business models. At Haier, there is a curious give and take associated with how microenterprises go to market. It begins with the redefinition of Haier’s markets so that large visions can be applied: the washing machine business becomes laundry, laundry becomes clothes care, refrigerators becomes smart kitchens, and smart kitchens becomes dining. The license to innovate expands dramatically with these broader definitions. Teams that were once focused solely on the refrigerator box are today exploring food origins and dining possibilities. This makes a difference to their business models and to the appropriateness of the managerial choices that affect organizational culture.
Organizations that can get closer to their users – if they listen, learn, and respond – can convert lifelong users into co-creation partners. At Haier, outstanding microenterprises are in a cycle of continuous expansion of their existing target markets and value propositions by pursuing zero distance with their users. Unlike most firms, Haier allows the microenterprises to craft and own their business models, which rely upon understanding ever smaller slices of users’ lives to drill deeper into identifying and fulfilling their unique needs.
At Haier, this is accomplished by the creation of scenarios based on how users engage with Haier’s vision of a product solution and allowing dedicated teams to own those new scenarios so they can devote more attention to a smaller market segment than any rival could hope for. To the extent that their initial market visions are larger to begin with (e.g., clothing care instead of laundry), it is not an exaggeration to consider Haier the market innovation leader per cubic meter of home space in many of these scenarios. We attribute this to the way that scenarios are generated, distributive business models developed, and teams established: unleashing incremental, entrepreneurial visionaries to flourish becomes the ultimate goal.
At computer gaming business ThundeRobot, when they think of what part of the eSports world holds the greatest opportunity, they see three major areas:
ThundeRobot recognizes that “a lot of what we’re talking about has changed the center of the organization. We’re moving away from hardware towards more engagement with other partners, creating a true ecosystem, and the growing external focus changes our own culture. We are partnering with new organizations that are fundamentally different from us, and from our partners in the past. We have a separate team working on an eSports ecosystem, and for that team, the culture is even more open.” Haier’s tolerance for cultural ambidexterity is born out of the license given to every microenterprise to create its own business models, and then the right to make the managerial decisions that will shape an organization to deliver those business models.
Scenario business models create incremental visionaries within Haier and are the reason that Haier can be termed “a leaderful organization.” Thanks to the autonomy of its microenterprises and their larger visions, Haier is an organization that has more leaders distributed throughout the organization than would be expected from any normal organizational tree. This high leadership density comes as a result of expecting entrepreneurial energy from within every microenterprise, granting every microenterprise the right to act on what it learns from being closer to the user, and by owning a specific scenario and linking take-home pay to the user value created. This also results in a powerful innovation engine. Zero distance legitimizes it, scenarios multiply the range of activities possible, and entrepreneurial energy powers the innovation that ensues.
ThundeRobot illustrates how important it is to have a brand that symbolizes achieving your dreams. They believed that there was no way that Haier could succeed in gaming with Haier computers, as the brand itself was a liability in the gaming community. It was imperative that ThundeRobot be able to create its own non-Haier brand. “Maybe it wasn’t quite as dramatic as smashing refrigerators with sledgehammers, but it was pretty dramatic,” a manager told us, referring to Haier’s own birth legend of intolerance for defective products. “We took a lot of risk in doing that, and we pushed hard to pursue a dream. We were very courageous and bold in pursuing this new business. At the time, there was a transition between the old organizational regime and a new regime, but we succeeded. Now it is the reality.”
If we insist on the same way of approaching or doing things, we're not going to be able to delight consumers.
Running Haier’s microenterprises is far from simple. In every microenterprise interviewed, it was the willingness to share operational leadership within the ME, rather than the power of the position itself, that made the difference.
The very nature of microenterprises leads, inevitably, to compartmentalization, frequently narrower than what the user experience requires. As a result, collaboration inside and between microenterprises becomes a key determinant of leadership effectiveness. At GEA’s clothes care business, we were told: “We are our owners, and we are a diverse group of people. We think differently. If we insist on the same way of approaching or doing things, we’re not going to be able to delight consumers. We want the people that we hire to have completely different mindsets. It makes us stronger. The more diverse opinions and perspectives we have, the more problem-solving abilities we have, because we all are going to think of things that others aren’t thinking of. It just becomes more dynamic.”
Relying on small, autonomous, yet collaborative work units as Haier does creates a need for integrity in everything collaborative leadership engages in. The strength of Haier’s individual microenterprises, and the ecosystems that they form, make “honesty and transparency” essential attributes for effective leaders. The Denison survey revealed considerable concern among microenterprise members that integrity be emphasized and reinforced. There is a realization within the microenterprises that the faster pace of operating based on market-facing intimacy and entrepreneurial energies, as well as the outstanding agility and adaptability of MEs, makes it imperative to maintain credibility and integrity. The leadership of one Qingdao-based ME realized a score on their Denison survey suggested a much higher outcome than might be the case. When presented with the results, they interrupted with the comment, “Wait a minute, that can’t be right – we’re not that good!”
Haier is not your typical complex mature organization which finds itself exhausted and in need of revitalization. What we found was an organization whose culture was one of continuous revitalization, driven not by top management staff positions but by the needs of the customers and users – now seen as co-creators – and which is truly bottom-up.
Haier’s RenDanHeYi philosophy works well in a multi-business organization because each business feels ownership of the principles while cultural alignment is achieved not through common behaviors but through commitment to the same principles. This is important because, at the lowest levels of the organization’s business model, and in the belief that it will lead to lifelong customers and better ideas, co-creation has become the ultimate goal – straight out of Peter Drucker’s playbook.
RenDanHeYi also works well with ecosystem development because, as a result of smart home connectivity, Haier already recognizes that ever-more sophisticated customer and user experience expectations will require ever-more effective partnering, in search of unfamiliar expertise and ideas. Former CEO Zhang Ruimin admitted that 20 years from now, Haier’s strongest asset will be its ecosystem relationships, and RenDanHeYi provides considerable guidance in creating effective ecosystem interactions. The continuous expansion of the microenterprise business model is a central piece of this. It is the license for increased entrepreneurship, which has resulted in greater leadership density – and sufficient autonomy and rewards to take risks and move fast.
Not surprisingly, the microenterprise management teams that we observed were living testaments to all of this. They were young, ambitious, energetic, and well-versed in the intricacies of the customer journey. They loved putting new ideas to work and displayed great leadership poise. In addition, each leadership team appeared to be a strong team of internal stakeholders where the sometimes-oblique objective functions of different business models contend for prioritization. In these instances, what we saw was far from one leader calling the shots, but, more often, shared leadership responsibilities amongst the various stakeholder-leaders.
As a result of this investigation, Haier today knows more about its culture, and how it operates, than ever before. Haier can continue to employ anecdotal evidence of its culture, but, for the first time, with analytical confidence behind the story they are telling. In this instance, “no surprises” was a welcome outcome – an engaging mythology now has empirical support. Haier can also work with not-so-excellent microenterprises to consider what they are missing among the six cultural elements we have found to be the core of Haier’s cultural system.
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