Haier Smart Home has transformed from a home appliance maker to a world-leading home appliance brand and smart home ecosystem builder. Now, it is on the list of Fortune Global 500 and Fortune World’s Most Admired Companies. We spoke with Huagang Li about the company’s storied organizational model and how it has enabled the company to rapidly innovate with the times.
What’s the secret to Haier’s success?
Huagang Li: Ruimin Zhang, founder of Haier Group, said that there is no such thing as a successful business, only a business of its times. Haier is successful because we have captured the opportunities presented by our times. Along the journey, the most important success factor has been our continuous focus on human value maximization, or what we call Rendanheyi. [The word is created by combining three Chinese words.] Ren means employees. Dan refers to user value. Heyi means integration. This means every employee gets to create value for users. Whatever your value, it is mirrored in the value you create for users.
When I joined the company 30 years ago, it was a small refrigerator manufacturer. As the company started to grow and diversify, Haier acquired a washer manufacturer and an air conditioner manufacturer on the verge of bankruptcy. We sent only three employees to each manufacturer, and they were able to quickly turn them around. It was not because of funding, but because we implemented the Rendanheyi model to change people's mindset and unleash their creativity.
The Rendanheyi model has also played a key part in the success of our international M&As. We did not send leaders to these companies, but instead asked local management to implement the Rendanheyi model. For example, when we acquired GE Appliances, they asked whom they should report to during our first meeting. We replied that we all should report to the users. By following the Rendanheyi model, they realized their value, earned recognition, and generated impact while serving the users. Today, GE Appliances has become one of the fastest-growing home appliance companies in the United States.
By following the Rendanheyi model, they realized their value, earned recognition, and generated impact while serving the users.
How does the Rendanheyi model help Haier evolve with the times?
Huagang Li: Our core value of Rendanheyi, or human value maximization, has four aspects. First, we encourage our employees to innovate and meet the constantly changing needs of our users in the best possible ways. Second, we maximize value for our ecosystem of partners by creating win-win situations. Third, we create equal opportunities and motivate and empower employees so they can be at their best. Fourth, we maximize the enterprise value. When we create the best experience for users, the number of our lifelong users increases, and our employees are motivated. As a result, we deliver sustainable returns to our shareholders in the long run.
For example, we launched a platform in 2019 to provide better services to users. The platform also collects user reviews, helping us improve our production and logistics services. More importantly, this platform enables us to build an ecosystem based on user needs on the platform where all parties can share resources, co-create, and innovate to provide the best solutions to users.
State of Organizations: Lessons from leaders
How does the Rendanheyi model shape the organizational model at Haier?
Huagang Li: Traditionally, companies tend to implement a top-down management model. Under the Rendanheyi model, companies transition into a bottom-up user-centric model. That is, we provide products and services, and set up an organizational model based on the needs of users.
The model also requires horizontal collaboration. At Haier, any employee can form a micro-enterprise with decision-making, employment, and resource distribution rights. However, they do not work in silos. They collaborate with other micro-enterprises to form an ecosystem micro-community (EMC), which is a self-evolving organization that focuses on delivering the best user experiences. It’s like a jellyfish. A jellyfish doesn’t have a nerve center, but when a tentacle finds prey, the other tentacles will immediately help catch it. This kind of self-organization maximizes the autonomy and creativity of our employees.
Could you share an example of how the EMC model works?
Huagang Li: Take Kitchen as an example. We used to focus on providing the best products, such as refrigerators and range hoods, to our users. But our users’ needs are rapidly evolving. For example, they want their range hoods to be connected to the ranges, refrigerators connected to the ovens, kitchen appliances to become part of the kitchen design, and kitchen design to match the overall home design. What the users need is no longer a set of products but smart home solutions.
What the users need is no longer a set of products but smart home solutions.
That’s how the EMC model came into being. It breaks down silos across teams and across the boundaries of the industry. EMCs partner with each other to innovate and create the most user-centric solutions.
How does Haier attract and develop talent under the EMC model?
Huagang Li: Haier continuously attracts global top talent by providing both a platform and an environment that enable everyone to become entrepreneurs and achieve their lifelong dreams. It creates a positive cycle in which the company attracts talent, talent helps the company succeed, and the success motivates talent.
In addition, Haier believes that all employees have potential, and it’s our job to create the right mechanism to develop them. At the center of this mechanism is on-the-job learning. We provide a playing field, no matter how big or how small, for all employees to unlock their full potential.
The State of Organizations 2023
This interview is part of the Lessons from leaders collection within The State of Organizations 2023 report. These conversations were conducted by members of McKinsey’s People & Organizational Performance Practice with leaders of organizations that exemplify best practices relating to the ten most significant shifts facing organizations today.
Huagang Li is the senior vice president of Haier Group and CEO of Haier Smart Home.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.
