The Radical Transformation of Haier

Exploring Haier in the Hard and Soft model of change. Were there any Problems ?

Presented by: Dharani Sridharan Heena Mehra Jane Cristel Sagar Chhadva Yashodhara Rajaraman

Presentation Outline

Haier Situational Analysis:

- Problem Analysis- TROPICS Test: Analysis of Change environment

Problem Analysis: Haier (A) China & (B) US

TROPICS Hard Soft

Time scales Medium to long timescale

Resources Clarity in identifying resources such as – Technology – (R & D, Product innovation), Manpower – (Better productivity, performance management system), Capital (Joint ventures foreign players, Market expansion (international technology alliance, market penetration)

Objectives Clear & Quantifiable Objectives – Quality, Cost & Output

Perceptions Consensus – in terms of problem and solution In Case of US Haier case differing views but not conflicting

Interest Limited and well define

Control Control within the management

Source Originates Internally

TROPICS: Analysis of Change Situation

Source: Paton and McCalman (2000)

Locating Haier - Change Spectrum

Hard/mechanistic

Flexi/grey

Soft/complex

Low

Medium

High

Inte

rdep

ende

ncie

s

Complexity and variability of the change environment

Soft Model Of Change

• Planned Change Effort• Total system• Behavioural Science intervenes with the Strategy and

Technological implementation• Critical Aspects : Change Agent and Action Research

OD

Total Organization

System Approach

Support by Top

Management

Emphasis on Groups/ Teams

Use Behavioral

Science

Value System

Goals

Ongoing long term

Planned

Interdependence

Group processes

Climate for Change Change agents

Humanistic

Open relationships

Change Attitudes (Behavior)

Action research

Experimental learning techniques

Company Decision MakingProblem Solving

Basic Assumptions of OD Model Of Change

Underlying principles in the OD Change environment

Source :Fleming and Senior, 2010

GOALS

BEHAVIOURAL SCIENCE

Participative Management Top Down Management

VALUE SYSTEM

TOTAL ORGANISATION SYSTEM APPROACH

EMPHASIS ON GROUPS/ TEAMS

SUPPORT BY TOP MANAGEMENT

LOWHIGH

• Quantifiable performance indicators set at all level of organisation• Decision Making & problem Solving – immediate & Direct

•Exploitative authoritative (fear & threat to control employees) & Power distance high• Lack of Action Research

• Quick fix & Crisis control• Change Short term perspective

• Change process team effort was absent • Singularly / Independently managed.

• Supported by Top Management

• Horse Racing System• Relationship is compartmentalized & Hierarchical

Mapping ‘Underlying principles in the OD Change environment’ in HAIER

The OD Model for Change

(5) Assess andreinforce change

(3)Develop anaction plan

PRESENT STATE(1a) Diagnose

current situation

FUTURE STATE(1b) Develop a

vision for change

(2) Gain commitmentto the vision

(4)Implementthe change

CHANGE AGENT

Lot of time spent in diagnosing situation in consultation with

stakeholders to arrive at Vision & strategy

Once Change process completed no new change initiatives introduced nor

revisited

No continuous feedback nor revisit of stages

• Haier change model is linear - single loop (Argyris & Schon 1996) and adaptive. Neither iterative loop nor generative (Senge 1990)• Haier Case A (China) & B (US ) Change processes are goal oriented which indicates HSMC

HAIER DOES NOT FIT OD MODEL – DID NOT FOLLOW SSMC

Source :Fleming and Senior, 2010

HSMC follows three linear stages of change process

Haier: Hard Model Of change?

Source :Fleming and Senior, 2010

Description 1 Situation summary

TROPICS showed hard complexityMulti-cause diagram•Socialist enterprise with bureaucratic functioning•Substandard products•Bankruptcy

2 Identify objectives and constraints

Profit making venture• Improve quality • Increase profit•Constraints- external market, late entrants, no core technology

3 Identify performance measures

•Based on costs, sales targets, quality standards, performance targets and market growth.

Phase 1 : Description

Stage 1: Situation Summary

Poor technology Inefficient bureaucratic control

No stringent quality control

Lack accountability

High inventory/production cost

Debt ridden

Substandard products

Lack customer orientation

No proper PMS

Diagnosing HAIER’s Situation- Multi Cause Diagram

Stage 2: Identifying Objectives

HAIER’s Objectives Tree

Profit Making Venture

Improve quality

Decrease production cost

Market growth Improve accountability

Increase profit

Improve Technology

Customer needs

Quality control

Objectives

Constraints

No core technology

External market

competition

Inertia among employees

Late entrants

Increase profit

Customer needs

Accountability

Market growth

Production cost

Improve quality

Technology

Objectives Measures

Improve quality Quality control, quality standards, performance target per person

Improve profit Production cost per person, cost control, volume/sales target per person

Technology Quality standard

Customer needs Complaints, market survey

Quality control Control measures, performance targets per person

Decrease production cost Production cost per person

Market growth Sales target

Improve accountability Performance target, cost per person

Stage 3 :Performance measures

Phase 2 : OptionsOptions 4 Generate options • International alliances, JVs, Product diversification, innovation, new

markets, PMS.

5 Edit options and detail selected options

•Performance management system•OEC•80:20 principle• Individual P/L•Deposit bank• appraisal system

6 Evaluate options against measures

•Quantifiable targets to be achieved in terms of performance targets, quality control measure, quality standards, P/L , cost control measures etc.

Stage 4 -5: Generating Options

HAIER’s Objectives Tree

Profit Making Venture

Improve quality

Improve accountability

Options• 80:20 principle•Deposit book• 10:10

Increase profit

Decrease production cost

Options• OEC •Individual P/L

Market growth

Options• product diversification• New markets (niche market)

Improve Technology Options•International alliances• JVs • T&D

Customer needs

Options• Internal/external customer orientation• product innovation • Customer culture in the company

Quality control

Options

• OEC•3 Es

Objectives/measure JVs Internal/external customer orientation

OEC PMS

Improve technology/quality standard

High quality standard

High standard High quality standard

High quality standard

Customer needs/complaints

Low complaints Low customer complaints

Low complaints Low complaints

Quality control/control measures

High quality control High quality control High quality control High quality control

Decrease cost of production/low cost

Low production cost Indirect effect Low production cost Low production cost

Market growth/sales target

High sales Indirect effect Medium effect High sales

Accountability/performance target

High accountability High accountability High accountability High accountability

Stage 6 : Evaluation matrixOptions

Phase 3 : ImplementationImplementation 7 Develop

implementation strategies

• The above options were chosen and implementation strategies adopted.

8 Carry out the planned changes

• The above mentioned options were carried out.

HAIER-Change Model

HSMC

Consensus on the problem

Quantitative criteria to test objectives and options for change

Simple system prevails

Unitarist ideology

Haier

No opposition to the problem in the ailing company. Facilitated by Chinese culture.

Use of quantifiable performance targets, quality standards, sales targets, quality and cost control measures.

It is a simple system- emphasis on quality and customer needs.

Largely unitarist in China- shared belief among the senior management.

HAIER CLEARLY ADOPTED HARD MODEL OF CHANGE

ManagementStrategyGoalsStructureTechnologyOperations

HAIERCulturePolitics

LeadershipInternal Environment

Socio Cultural Influences

Political-LegalInfluences

Technological Influences

Economic Influences

External Environment

Focus OfHard

ModelsOf

Change

Focus OfSoft

ModelsOf

Change

Were there any Problems?

Cultural

Country Power Distance

Individualism

Masculinity

Uncertainty

Avoidance

Long-term

Orientation

China High Low Moderate Moderate High

US Low High High Low Low

Haier High Low High High High

Source : Hofsede , 1993

Leadership

Fine Tuning

Incremental Adjustment

Modular Transformation

Corporate Transformation

CollaborativeType 1

ParticipativeType 2

Charismatic TransformationConsultative

DirectiveType 3

Forced EvolutionType 4

Dictatorial TransformationCoercive

Source : Dunphy and Stace, 1993

HIGH

HIGH

LOW

LOW

Potential ProblemsKEEP SATISFIED

Few ProblemsDO NOTHING

Definite ProblemsATTEMPT TO

COLLABORATE

Potential ProblemsKEEP INFORMED

Motivation to Block Change

Powerto Block Change

POLITICS

Source :Fleming and Senior, 2010

Force Field Analysis

Change :To make it a

profitable organization

Financial Condition

Domestic Market Competition

Customer Dissatisfaction

CultureLeadership

Power and Politics

Were they strong enough to oppose the

driving forces?

Driving ForcesRestraining

Forces

Source : Lewin, 1951

Despite…..

• HAIER is a Profit Making Organization with its Net Profit Growth staying at 47% as on 2001

• CEO Zhang Ruimin is an acknowledged Global Business Leader

• HSMC achieved Corporate Transformation!

QUESTIONS???