In 1985 a customer brought a faulty refrigerator back to a failing factory in Qingdao. The new director, Zhang Ruimin, checked the stock and found many more like it. He had 76 of them lined up on the shop floor and handed out sledgehammers. Haier’s official history says he led the smashing himself.
This was a time when, as Haier’s own account puts it, even a refrigerator made of paper would have sold. Three years later the factory won the first national quality gold medal in the history of China’s refrigerator industry. One of the hammers now sits in China’s National Museum.
That was a boss deciding, for everyone, what good enough meant. Haier went on to become the world’s largest appliance maker. Then Zhang began to see the structure that got it there as the next thing to smash.
“As a company gets bigger, there is usually stricter control on its employees and less room for them to take ownership of their work,” he told Time in 2014. In a 2017 speech he named the target: the pyramid, the bureaucracy Max Weber described, which had to be overturned because customers now knew more than the company did.
He had proposed the answer on September 20, 2005, and called it rendanheyi. Ren is the employee. Dan, he said, is not the order but the user’s need. The point was to join the two, a goal he called “zero distance” between employees and customers.
In the same speech he said Haier had at one stage removed more than 10,000 middle managers, leaving no middle management and no functional departments.
When Gary Hamel and Michele Zanini described the result in Harvard Business Review in 2018, Haier had split into more than 4,000 microenterprises, most with 10 to 15 people. About 250 faced the market. Roughly 3,800 were “nodes” selling design, manufacturing or HR support to the rest, and a unit unhappy with a node could buy from an outside supplier instead. HBR counted two layers of management between the frontline teams and the CEO.
Coordination fell to platform owners. A typical platform took in more than 50 units, yet no one reported to its owner, and the owner had no staff.
Each unit has the right to set its own strategy, hire its own people and set its own pay. Leaders live by results. Miss the baseline targets three months in a row and a change of leader is triggered automatically. Hit the baseline but miss the next goal, and a two-thirds vote of the team can remove the leader. Anyone in the company who thinks they could run a struggling unit better can pitch to its team. Zhang, only slightly exaggerating in the authors’ view, put it this way: “At Haier we are no longer paying our employees. Instead, they are paid by customers.”
It hurt, too. In recent years, HBR noted, Haier had dismissed more than 10,000 employees.
In May 2013, four Haier employees wanted to build a laptop for gamers. They wrote to Zhou Zhaolin, head of the platform that included the laptop business, begging for a meeting. “My first instinct was to kill the project,” Zhou told the authors. Then he decided it wasn’t his call. He gave the team 1.8 million RMB of seed money and let the market decide the rest.
In December 2013 the first 500 laptops went on sale on JD.com. They sold out in five days. A little more than three years later, the venture, Thunderobot, listed on China’s NEEQ market at a valuation of 1.2 billion RMB.