Corporate Rebels has written, “No longer need we look west to Apple, Amazon or Google to learn about experiments and innovation in large corporations. Instead, we invite you to look east: and to Haier specifically. Maybe they will become your benchmark. For us, they are the most pioneering corporation of our times.”

Haier, China’s global domestic appliances giant, is the world’s largest supplier of such appliances, and one of the world’s largest IoT (Internet of Things) companies and, as the quote above indicates, perhaps the world’s most pioneering company. Visited by 10,000 people every year, and the subject of scores of university case studies and magazine features, it was the first large, global company to implement the principles of Quantum Management Theory. Whole books have been written about Haier and its RenDanHeyi management model. Here, I can outline only a few of the company’s main features.

Zhang Ruimin, the Chairman and CEO of Haier, is called the world’s most radical CEO and is known as China’s “philosopher CEO.” His striking humility, scholarship, bearing, and grace of movement give him more the appearance of a Taoist sage than a business leader. Fitting for a man who says he aspires to leverage traditional Chinese wisdom and philosophy in his management model for today’s IoT world. Zhang reads five books every week, and his speeches are always peppered with quotes from great philosophers, both Eastern and Western. Each of his company’s internal communications offers a quotation from an ancient Chinese text like the I Ching, the Tao Te Ching, or the Analects of Confucius to illustrate his message. Though the head of one of the world’s leading IoT companies, Zhang famously has no mobile phone or social media accounts, no social circle of friends, and avoids company parties and social activities. He finds such things a waste of time and says, “My time is better spent reading.” He has his own very large library in his private office, which is decorated with Chinese traditional art and calligraphic wall hangings bearing quotations from Chan Buddhism and the Tao Te Ching.

Like so many boys of his generation, Zhang was forced to leave school in his mid-teens during the Cultural Revolution and sent to work in a rural factory. While there, he had what he told me was the formative experience of his life. “Many of fellow young workers and I,” he recounts, “had ideas for how the factory could be run better and improve its production, but we were always told by our supervisor, ‘You are not here to think. Just get to work and do as you are told.’ I vowed then that one day I would found a company in which people would be allowed to think.”

That was one of his motives for devoting his life to business leadership, but there was another. In a recent conversation I asked Mr. Zhang why a man with his intellect had chosen a business career. “You could,” I said, “have been a very distinguished scholar, or even a very senior leader of the Party.” (He is currently a member of the Communist Party Congress, and until recently was an Industrial Representative on the Party Central Committee.) His answer spoke directly to the passion for personal autonomy that drives his business philosophy.

“If I had become a professor, I would have had to become part of the academic system, and my thinking would have had to conform to academic fashion. And, of course, the Party has its own system, and as a Party leader I would be expected to follow that. But as a company leader, I could design my own system.” And, indeed, as the CEO of Haier he has designed the radically new and pioneering RenDanHeyi business model that has won global admiration and acclaim. Recently, after having made several visits to Haier, Chinese Prime Minister Li Keqiang recommended the RenDanHeyi model as the business model for all Chinese companies should adopt, and many are doing so.

Zhang Ruimin joined Haier as CEO thirty years ago when the company was a small and struggling refrigerator company making very poor quality goods. One of his first acts as boss was to order the very dramatic “Smashing.” In the presence of journalists, he ordered employees to line up 150 of the company’s shoddy products and then smash them to pieces with a sledgehammer. “That is the end,” he said, “of Haier’s association with junk. From now on this company will offer our customers high quality products.” But it was not yet the end of hard times.

In the mid-1990s, there was a month when Haier could not meet its payroll. Knowing that would mean his employees, who lived from paycheck to paycheck, could not buy their families’ rice, Zhang went to a wealthy land owner in a village near company headquarters in Qingdao to borrow the $10,000 needed to pay his people. However, knowing well that Zhang did not smoke cigarettes or drink alcohol, the landlord decided to play a trick on him. He placed a large bottle of whiskey on the table at which they sat, and said, “I will lend you $1000 for each glass of whiskey that you drink.” The young Haier executive who told me this story continued, “And Mr. Zhang drank the ten glasses of whiskey and was able to walk away with the $10,000. He did that for his people, and that is why we love him so much.”

Zhang Ruimin’s passion for personal autonomy became the central driving principle of all his reforms at Haier: a belief that every employee has unlimited potential and a desire to unleash that potential for the good both of the employee and the company. “In every big company,” he says, “employees are treated like tools to be used by the company. Western companies are dedicated to maximizing share holders’ value, not employees’ value. I wanted to emancipate these people in accordance with Quantum Management Theory. That is why, from day one when I became leader of this company, I have never stopped thinking about providing opportunities and platforms where everybody can realize their potential. This is the essence of RenDanHeyi: putting the value of people at the center and fully realizing people’s potential.”

Giving Up All Power

In 2012, after several developmental pilot reforms along the way, Zhang finally introduced and began implementing the RenDanHeyi management model that has now made Haier both globally famous and a very large and successful global company with healthy profit and growth figures. In the years since, it has grown from being the world’s largest white goods company to a diverse corporate group now involved as well in clothing, food, health care, biotechnology, sporting technology, agriculture, finance, and real estate, and the areas of diversification seem to be expanding exponentially. As I described in Chapter 3, that involved getting rid of all middle management and its associated hierarchy and bureaucracy and transforming Haier into a “company of companies,” more accurately “a company of start-ups,” that today comprises 4000 independent and self-organizing, multifunctional microenterprises (ME’s), each designing and manufacturing its own products in a close, co-creative dialogue with its own users. Each microenterprise has its own CEO and comprises a team of usually four to twenty members. These are now grouped into cooperating Ecosystem Micro Communities (see below), making Haier a very quantum “systems within a system.” All are supported by key company service platforms.

In keeping with Quantum Management Theory, and the Taoist philosophy that “The highest leadership isn’t felt,” Zhang Ruimin saw that to empower his employees he must give up all centralizing, top-down power himself. He ceded to each ME what he calls, “The Four Selves,” the traditional powers of the CEO and top management: Self-Organization, Self-Motivation, Self-Direction (strategy and hiring), and Self-Remuneration. ME teams are not paid salaries by the company but instead generate their own revenue from sales and services to users and keep a very large share of all profit realized. Hence one key meaning of RenDanHeyi: “The value realized by the employee is aligned with the value realized by the user.” If an ME is to succeed, and its members to earn their living, it must bring appreciated value to users. Each team then decides for itself how to distribute profit income among themselves.

People looking on at all this from the outside, of course, ask Zhang what is left to him with his job as CEO if he has given up all power. “My job,” he answers, “is to serve.” Seeing himself as a servant leader within the context of Quantum Management, Zhang says, “A leader should not seek to be an entrepreneur himself but instead see it as as his job to create entrepreneurs. My role as a leader is to create opportunities for my people, provide resources and support for their own entrepreneurial activities, vitalize and energize the ME’s, and constantly to enlighten employees to use their own intellect to realize their own infinite potential.” He sees management itself as a support function, not a supervisory function.

Because of his own very deep humility, Zhang himself would not mention the other things his leadership provides to his people. His humility, and a constant eagerness always to listen to others and care for others, is part of his character that is so loved and admired by his very devoted employees. That character, his extensive learning, wisdom, and reputation for constant inventiveness and experimentation have made him a hero in wider Chinese society. In 2019, Zhang was one of one hundred “Reform Pioneers” personally awarded a medal by President Xi Jinping for “laying the foundations of the new China after the Great Opening Up.”

The resulting Haier “Makers Culture” (culture of entrepreneurial innovation), that features on the walls of its company museum the slogan, “At Haier, Everyone is a Leader, Everyone is a CEO” has indeed produced a highly motivated, innovative workforce, and very high employee morale. As the leader/CEO of one of the Smart Clothing microenterprises said to me, “Before RenDanHeyi, my wife always complained that I didn’t come home from work until after 9:00 at night, but now she is very patient and proud about the hours I keep because she knows I am building my own company and working for the benefit of our own family. And I am making my own decisions, not acting on the decisions someone else has made.” This man truly felt “emancipated.” As Zhang Ruimin has said, “Being one’s own CEO is being an autonomous person who can achieve self-fulfillment with dignity.”

“The User is the Real Boss Here”

“Traditional companies,” Zhang points out, “serve their shareholders. At Haier, first we serve our people, but our people serve their users.” This statement is key to what makes Haier different, the driving philosophy and methodology of its 4000 ME’s, and even to how it has reinvented its financial statements and criterion of success. Zhang tells his people, “You must know your users better than you know yourselves,” and in the Haier Museum, the slogan, “The User is the Boss,” has pride of place. Emphasis is placed on “user experience,” and every ME maintains direct contact with its own users through the internet, by telephone, and even occasional home visits, and these contacts are both co-creative and lifelong. This dedication to user service and interaction is part of the company’s “Water Philosophy,” drawn from the Taoist insight that “water is the most benevolent element. It doesn’t ask for itself but only wants to do for others.” Water also flows freely everywhere; it has no boundaries. One of Zhang Ruimin’s own lectures about the company’s Water Philosophy is titled, “Haier is the ocean.” In my own quantum language, I would compare the company to the Quantum Vacuum, “a sea of potentiality.”

Between them, ME’s and their users conceive product iterations and even new product designs. “At Haier,” the head of one ME told me, “our users are also our employees and our designers.” This co-creative employee/user dialogue constantly generates new product ideas—like, in response to farmers’ needs, a washing machine that can wash both vegetables and clothes, or another that is extra large to accommodate the cleaning of large and heavy robes worn by Muslim users, or smart kitchen appliances that can be controlled from the bedroom while a pregnant woman rests, also able to enjoy watching a smart ceiling TV while prone. More instances and advantages of the company’s Zero Distance business model. The company has the largest data bank of user experience in the world, and Zhang Ruimin feels it is this constant feedback from and creative dialogue with users that gives Haier a tremendous advantage over large e-commerce sales platforms like Amazon, Alibaba, and Tencent which, he points out, have only transactional, anonymous relationships with their buyers. Haier’s products and services, therefore, are not sold on the big e-commerce platforms.

The goal at Haier is not just to free its employees to use their potential, but also to offer this same opportunity to users. User experience data is collected by way of Haier’s pioneering Cosmoplat IT platform. Working with more than 6000 software solutions and collecting user experience data from more than 40,000 companies, Cosmoplat has made a revolutionary move away from big data to the extensive use of small data. “We want to know why the user is using the product, and how they are using it, what kind of experience it is giving them,” says the owner of the platform. “This allows us to make better design and manufacturing decisions. And we want to free our users from the tyranny of mass production.” Because Cosmoplat enables interactive exchanges with the user, and can in turn respond to these with high-speed product alterations, Haier can now boast that it has replaced mass production with mass customization. “Our people no longer have to buy products and services that we choose to offer them. They can order from us and get what they want.” I observed when hearing this that COSMOplat has created a new kind of “internet democracy.” Haier has in fact given COSMOplat that name Khaos, the original Greek god from whom all other gods sprang. Khaos was known as “the egg of all things.” We adopted this name, says Zhang Ruimin, “because our aspiration is to become ‘the egg of all things’ in the industrial internet, and help all sorts of new species emerge.”

Haier does not focus on one-time product transactions with customers, but rather on cultivating “engaged users” who are also buying services and enjoying experiences, and who then become “lifelong users.” By multiplying value to these lifelong users through a constant iteration of its product offerings, and consistently multiplying its lifelong users, the company itself enjoys “value multiplication,” and it achieves constant and reliable growth. Zhang Ruimin says, “The essence of RendanHeyi is respect for human value and a mechanism to maximize human value,” and all participants in the company’s complex ecosystem gain from this multiplication of value. The value given to the user feeds back to the company, driving innovation and thus, in turn, adding value to the company. Thus fulfilment of the typically Chinese Haier win/win philosophy, where the winners are employees, users, stakeholders, and the company itself. And these win/win value-multiplication statements have replaced the traditional “profits after deductions” reports as a way of evaluating and communicating the company’s success to shareholders.

Haier is called a “Makers’ Culture,” and most people take this as a reference to its creation of entrepreneurs who make “things” for the IoT market. But underlying this is the far more fundamental truth that, through the RenDanHeyi model, Haier makes relationships, the very stuff of which the universe itself is made. IoT is itself, of course, a relational technology, connecting smart devices to each other and to their users. But RenDanHeyi creates co-creative relationships between the CEO and all who work within or use the company’s products and services, between the service platform leaders and the ME’s they serve, between team members of each ME and that ME’s users, and between the company itself and any citizen who might have a product improvement idea or even an idea that gives birth to a new ME. Everything is in relationship to everything, everything is aligned with everything. And, as we will see now, the model creates co-creative relations between the various ME’s.

Ecosystem Brands

Quoting, “The deepest cut doesn’t sever,” from the Tao Te Ching, Zhang Ruimin interprets this to mean “a holistic (‘entangled’) system consists of various entities that cannot be separated.” This systems theory understanding from both ancient Chinese philosophy and today’s quantum physics first inspired his idea of the microenterprise, and in 2019 it lay behind his new RenDanHeyi initiative, the launch of Haier’s Ecosystem Brand.

Realizing that no user buys a product in isolation but rather as an addition to their overall life or home situation or lifestyle, Haier moved on from providing product and service packages to now selling “scenarios” and “user experiences,” i.e., “total solutions.” By doing so, it broadened both the structure and the meaning of RenDanHeyi by creating a new network of ecosystems to break down internal organizational boundaries and create new opportunities (Fig. 16.1).

Fig. 16.1
figure 1

Haier’s loosely structured ecosystem network

Full size image

If ME’s were to stay small and agile, no single ME could meet the growing complexity of user needs. At the same time, if an ME sold just one product, say a refrigerator, it would at some point become outdated and no longer be wanted. This problem could be solved if several ME’s were to band together and cooperate to provide a full spectrum of associated products and services, leading to the formation of new “Ecosystem Micro-Communities” (EMC’s), and these EMC’s are the latest iteration of the RenDanheyi Model. Groups of ME’s self-organize and agree on a smart, dynamic contract among themselves to cooperate, support each other, and share the profit on providing one or another user scenario. One striking example of this is the Haier Internet of Food (IoF).

Every household needs to consume food, but in doing so, it calls upon a whole range of products and services: appliances like the refrigerator and oven, of course, but also the purchase, storing, and preparation of food, and even perhaps a dietician for good advice. No one Haier ME, or even any collection of Haier ME’s could supply all the goods and services needed, but other companies could. Temporary contracts were formed with these, mutual support assured, and profits shared, and all components of the scenario connected through IoT technology. If one ME sold an oven, another selling food would benefit, as would each if a user hired a dietician via the platform. If one ME in the EMC is struggling, all others step in to help, but critical to the dynamism and organic growth of the RenDanHeyi model, Haier ME’s are allowed to fail, and some do.

Every aspect of our lives is an experience within a holistic scenario, and if a Haier ME cannot meet the full range of needs required by any one scenario by forming a contract with other Haier ME’s, it is free, as in the examples just cited, to look outside the company to form contracts with other companies to do so. This has been the case with the sporting goods manufacturer Decathlon, for example, whose exercise equipment is included in the balcony scenario total solution and now sold as part of a collective “Ecosystem Brand.” So far, these ecosystems have covered 40,000 enterprises in 15 industries. In 2019, Haier became the first and only IoT ecosystem brand recognized by the BrandZ Top 100 Most Valuable Global Brands list. In addition to the Internet of Food, there is an Internet of Clothing that integrates care, storage, and even stylistic advice, an Internet of Air that integrates the need for healthy air with conditions needed for sleep, and an Internet of Blood that literally brings the blood bank to the operating theatre surgery table. And all are designed to deliver “user experience.” “Products that don’t deliver an experience have no ‘soul’,” says Zhang Ruimin. All of these experiences/scenarios are on display at Haier’s massive Smart Home Experience Center in Shanghai.

There are two types of EMC’s, Experience EMC’s, and Solution EMC’s. Haier knows that user knowledge and user experience is a precious resource, often leading to new business ideas. The Experience EMC’s keep in close touch with users, understanding their needs and “pain points” and hearing their desires. This feedback is then passed on to Solution EMC’s who, of course, create solutions. They design, create, produce, and transport things that address the discovered needs. Zhang Ruimin now believes “products will be replaced by scenarios, and industries will be encompassed by ecosystems.”

Placing the EMC concept within the context of Quantum Management, we see them allowing ME’s to act as both “particles” and “waves.” As particles, each ME performs its own functions of manufacturing, servicing, and delivering its specialities to its own users. As waves, each ME cooperates with others in an EMC to offer users scenarios and total experiences. And all EMC’s act as both particles in providing the scenario in which they specialize, but as waves they are aligned with all other EMC’s to share resources. In this way, again, Haier as a whole acts as a Zero Distance quantum system.

Service to the Community

Most companies boast some sort of CSR initiatives, but at Haier these are integral both to Zhang Ruimin’s philosophy and to the company’s operations. Haier positions itself to create value for society. Just as Quantum Management insists no company is an island, Zhang believes that companies must see themselves as “nodes of the community” and pursue more than their own self-interest. Haier does serve society directly every day just through its “value creation for all” company philosophy, but it also serves the community through extensive training programs and through its chain of Haier Community Stores. There is one of these in every one of China’s 650,000 villages, and each serves as a community center providing after-school child care. The company acts as a service platform for any Chinese citizen who has an entrepreneurial idea that might in any way enhance the value or quality of a Haier product, suggest a new product, or even come forward with a good business model to found a new microenterprise. So anyone can be an employee or a designer for Haier. The company’s Logistics Platform makes it possible for 90,000 individual owners of delivery trucks to earn money through working for it.

In the wake of the [19xx] tsunami that devasted many of China’s coastal villages, Zhang Ruimin himself took a six month leave of absence from the company to join others in rebuilding homes. And during the Covid crisis, Haier put its vast transportation network to the service of delivering medical supplies to hospitals in the most badly hit districts as well as providing materials for face masks. Haier serves the planet through the generation, management, and usage of green energy, and it serves future generations through Project Hope, a program to educate poor children, and by supplying schools in China, Mongolia, and Latin America with tablets and software.

Making RenDanHeyi International

During recent years, Haier has acquired many companies abroad. It now has partner subsidiary companies in Japan, New Zealand, Italy, Germany, Russia, and America (see Chapter 18 on GE Appliances). At each of these, the RenDanHeyi business model is implemented, but they otherwise are afforded the same autonomy as Haier’s own ME’s and EMC’s. Local CEO’s are put in place and all employees are local to their own national region. There are no Chinese supervisors or bosses. “We know,” says Zhang, “that each national region has its own traditions and strengths, for instance the well-known team spirit in Japan, and we believe that each of our international branches should play to this and develop it.” He compares Haier’s entire collection of international companies to a “mixed salad” made up from good local produce. “The various national locations provide the vegetables,” he says, “and we provide RenDanHeyi as the salad dressing.”

More Like a City Than a Company

Many recent business thinkers are suggesting that companies should be thought of as more like living organisms than machines, and indeed the complexity scientists at the Santa Fe Institute who study commonalities between biological systems and human social systems agree this is correct thinking. But in his book Scale, Geoffrey West points out that this is actually bad news for companies. Yes, West agrees, companies do function as complex adaptive systems, growing and evolving in dialogue with the market, but just like living organisms, at a point of reaching maturity, companies stop growing, and eventually die. This is because they grow “sublinearly”—they grow until they reach a certain size limitation which exhausts available energy, then they stagnate, cease having new ideas and innovation, grow old, and die.

West contrasts this finite life span of all living organisms and all large companies about which he writes with the constant growth, complexity, innovation, and apparent immortality of cities. Growing “superlinearly” (the larger they grow, the more energy there is available for each element), “cities become ever more diverse as they grow. Their spectrum of business and economic activity is incessantly expanding as new sectors develop and new opportunities present themselves… [They experience] open-ended growth, and expanding social networks – and a crucial component of their resilience, sustainability, and seeming immortality.”Footnote 1 I believe that everything about the way that the Haier system functions makes it more like a city than like other companies, and thus confers on it lasting sustainability and growth—“immortality.” Let’s look at why.

  • West points out that the real essence of any city is its people, who provide its buzz, its soul, and its spirit. We have seen that Haier recognizes this fact and puts its people first—its own people who are employees, and the people who are its users.

  • In cities, it is the complex connections and interactions of people that generate energy, information, and innovation. “cities are emergent complex adaptive social network systems resulting from continuous interactions among their inhabitants, enhanced and facilitated by the feedback mechanisms provided by urban life”.Footnote 2 At Haier, there are constant interactions between the ME’s and their users, internal collaborations between EMC’s and their users and external collaborations between Haier EMC’s and EMC’s formed with other companies, and constant feedback mechanisms are provided by COSMOplat and its huge data bank of user experiences. And all these interactions and feedback mechanisms generate energy, information, and innovation.

  • West points out that companies operate as highly constrained top-down organizations that maximize the efficiency of production to maximize profit. “To achieve greater efficiency in pursuit of greater market share and increased profits, companies stereotypically add more rules, regulations, protocols and procedures at ever finer levels of organization, resulting in increased bureaucracy…at the expense of innovation and R & D research”.Footnote 3 Cities, by contrast, “operated in a much more distributed fashion, with power spread across multiple organizational structures…As such, they operate in an almost laissez-fair, free-wheeling ambience relative to companies, taking advantage of the innovative benefits of social interactions…Cities are places of action and agents of change while companies usually project an image of stasis”. We have seen that Haier rid itself of all top-down control and bureaucracy, achieves constant innovation through the multiple user interactions with its self-organizing ME’s and EMC’s, and pursues “value multiplication” instead of profit maximization. It is certainly a place of action and agent of change.

  • West also points out that while cities are resilient enough to survive all manner of disruptions and catastrophes, “a sizeable fluctuation in the market or some unexpected external perturbation or shock at the wrong time can be devastating to a company”.Footnote 4 During the Covid-19 lockdown, nearly all large companies except the e-commerce ones suffered tremendous losses, and many failed. But Haier’s flexible structure and its ability of its ME’s to source local suppliers and to deliver to users, with whom it remained in constant contact, and the cooperation between ME’s and EMC’s to share resources, meant the company operated at 98.5% of its capacity during the crisis and returned to growth immediately after.

Saying that the key feature of any ecosystem is its ability to generate new “species,” or new business models and players, Zhang Ruimin himself compares Haier to a tropical rain forest, “where every day some organisms are born and some die. The ultimate point is that the ecosystem is able to facilitate the generation of new species.” Tropical rainforests, of course, are “cities” built by Nature (Fig. 16.2).

Fig. 16.2
figure 2

Summary of Haier’s quantum features

Full size image