Haier Group is China’s biggest white goods maker, and the fifth largest in the world. Incorporated in 1984 as a producer of refrigerators, Haier makes household and electrical appliances around the globe, spanning 15,100 varieties of items in 96 product lines, and exporting products to more than 100 countries. Chairman and CEO Zhang Ruimin, who has been at Haier’s helm for some two decades, has overseen the company’s transformation from a small factory into a global corporation with annual revenues of $12.1 billion in 2004. Last year Fortune magazine ranked him No. 6 among Asia’s “most influential business leaders.” In a recent discussion with Wharton management professors Michael Useem and Marshall W. Meyer, Zhang spoke about his globalization strategy and other issues.
Useem: What leadership skills were most essential for building the company in its early years, going back now almost two decades? Could you also describe the distinctive leadership skills required by the company in more recent years?
Zhang: Twenty years ago, when Haier started, it was a small factory on the verge of bankruptcy, and it had only 600 people. At that time, the top priority for the leaders was to make quick, tough decisions and ask subordinates to execute them accurately. Our management style had to be militaristic: We worked like marshals and generals and asked people to carry out our instructions. This was because our biggest concern was to boost the confidence of our workforce. As leaders we needed to hold ourselves accountable for all our decisions, which we required our people to execute very quickly. We followed Frederick W. Taylor’s theory of scientific management in those days because the technology and morale of the workers were low and often disrupted.
As Haier developed, it evolved from 600 to more than 50,000 employees. The company’s market has expanded from being local to global. It is impossible today to rely upon a single person or just one management team to make decisions responding to the challenges in the global market. Therefore, we have made multiple efforts to enhance our position. The first is flattening our organizational structure. With this, we will be able to adapt more quickly to the evolving markets and respond more efficiently to changes. The second approach has been to build small operating teams within the company, which we call MMCs (Mini mini corporations). These MMCs can respond more swiftly to the needs of their respective markets and win more customers by independent innovations.
Useem: You have made thousands of decisions over your career…could you identify the most difficult decision made during your nearly two decades at the helm of Haier. And could you identify the single most important decision you’ve made during your entire career?
Zhang: At Haier, we have made many decisions but the toughest one is the “next” one. We think the most challenging decision is the follow-up decision you have to make after having made a decision. Since the marketplace is changing so fast, companies are often tied, or constrained, by their own previous “right” choices. This could, however, lead to failure if your next big decision were to be based on the mindset of the previous one.
According to statistics, the average lifecycle of a company is only three to four years in China. Once a company has achieved good results, often it tends to grow complacent and doesn’t move any further. Its previous decisions constrain the next ones, but my view is that in this information age with a fast-changing marketplace, your decisions have to be able to keep up with change. To take an analogy from boxing, you can’t beat your rival with a single attack; you have to win through with a combined strategy. We ought to break through our self-restrictions, to conquer ourselves, not be chained by our own previous victories and old mindset. That explains why the most challenging decision for us is the next decision after the right decision.
As for the most important decision in my career, that took place in 1991 to 1992, when we decided to build an industrial park to produce multiple products. Before that, the refrigerator was our only product – and it was a bestseller. Many consumers had to buy our products in the black market by paying extra 1,000 yuan on top of the original 1,700 price. We made huge profits in those days. Lots of people expected us to stay in that mode, but we anticipated that the market would be saturated one day. So in 1991 we made a very important decision: To set up an industrial park to expand our product range from refrigerators to washing machines, air conditioners and other home appliances.
The budget required for that was 1.5 billion yuan. We had only 80 million yuan in our coffers at the time, and the government would not finance us, because Haier was not a SOE (state-owned enterprise. If we had not done what we did at the time, we would have lost a huge opportunity. So our decision was made. That decision was risky, but it came at the right time as well.
In 1992, Deng Xiaoping’s speech during his visit to Southern China had accelerated economic reforms in China and the capital market in China had also begun to develop. We tried to get listed in the Shanghai Stock Market. With the funds raised there and other profits from some successful projects, we were able to build and finance the industrial park which paved the way for our years of rapid growth. Today we have 13 industry parks across the world. For Haier’s development, that decision was a key step.
