Tao Case Study Haier

8/13/2019 Tao Case Study Haier

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The Haiers Tao of Innovation: A case Study o f the Emerging TotalInnovation Management TIM)Xinru Liang Gang Zheng Qingrui XuResearch Center for Innovation & Research Center for Innovation & Research Center for Innovation &

Developm ent, Zhejiang University Developm ent, Zhejiang University Developm ent, Zhejiang UniversityHangzhou, China Hangzhou, China Hangzhou, Chinaliangxr@zju,edu.cn Zhgl213@ zju.edu.cn [email protected],edu.cn

Abst ractThis paper explores Haier groups Tao o innovationmainly by the practice and experience o Haier Group.Based o it the authors put forw ard the theo reticalfiam e-work of the emerging new paradigm of total innovationmanagement TIM). Case in this leading Chinese enter-pri se has shown some exciting evidences that implernentingTIM can have positive relations to the value crea-t iadadded o enterprise as well as the accumulation o itscore competency. Beginning with the introduction oHaier s development and achievements this pa per exploresthe Haiers Tao of innovation in detail which includes theevolution of all the innovation agents such as strategy.managem ent culture organization technology and so on,and analyzes the relations and interactions o them. Basedon it the authors indicate that its the effective and sys-temic synergy and management of all the innovation agentsthat contribute to the rapid development o HaierGroup.Grasping the marrow o TIM and putting it intopractice is one of the crucial approaches at present orChinese enterprises to reduce the gap with internationaladvanced enterprises as soon as possible.KeywordsTotal innovation Management; Innovation Synergy; Eve-ryone as Innovator1 INTRODUCTION18 years ago Haier was a small collective factory namedQingdao Refrigerator Factory (the predecessor of HaierGroup) with sales of US 0.42 million only, but with debtsof US 0.18 million. Due to poor quality of products, thefactory was on the verge of collapse. Zhang Ruimin, theCEO of Haier Group, was appointed as the leader of thefactory at the end o 1984. Surprisingly, 18 years later,Haier has become the Noldomestic electrical applianceproducer in China with total sales of US 8.7 billion andan export value of US 1 billion in 2002. Haier has wit-nessed an annual sales increase of 73.8 and made signifi-cant achievements in the past 18 years.Haier now produces a wide range of household electricalappliances in 86 categories and 13,000 specifications, andproducts are exported to more than 160 countries. Domes-tic market shares of Haier refrigerators, freezers, air-conditioners and washing machines are all more than 30 .Statistics of the Euromonitor from a market survey 2002

placed Haier 5th o f the world top manufacturers for whiteelectrical appliance producers.Why can Haier keep a steady and rapid growth in the past18 years? Haier has gradually accumulated and shaped theunique Tao of innovation based o n its excellent innovationculture, since 1999. According to our research, its just theinteraction and systemic synergy of all the agents men-tioned above, plays key roles for Haiers rapid growth. Wenamed the emerging new paradigm as total innovationmanagement (TIM).Haiers performance in recent several years has proved thatthe new paradigm is very successful, which has greatlyimproved Haiers core competency and the market com-petitiveness. The innovation initiative of all the employeesis activated, and innovation has becomes the focus of atten-tion and indispensable pan of every ones job. The devel-opment of new products has been greatly speeded (Ta-blel). Its estimated that the direct benefit of implementingprocess innovation is about 42 million dollars during theperiod of July 1999 to June 200 0. The indirect benefit ofimplementing TIM is much more than it. The fast growthof sales can provide some positive evidences to certainextent.Table 1. RBD performance and time to market are im-proved sharply ()

Indicators 1999 2000 2001 2001New products 253 316 340 380

NIA(Source: RCID data collected from Haier Group yearbookand other documents, 2003)2 RESEARCH METHODWe explore the Tao of Haiers innovation by case study,and the primary research methods are interview, meetingwith discussion, literature and documents review etc ..Interview. The practice experiments of Haiers staff andtop managers are the major sources supporting this re-search. Research team conducted many interviews to morethan 30 persons of Haier with wide diversification, such as

0-7803-8150-5/03/ 17.0002003 IEEE


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senior executives as President, CEO, CTO, head of Cen-tral Research Institute, SBU(strategy business unit)s, func-tional departments, etc.), managers, engineers and workers.Trace study. Prof. Qingrui Xu and his colleagues in Re-search Center for Innovation and Development (RCID) ofZhejiang University have paid continuous attention toHaier Since 1994. In the past 9 years, more than ten mem-bers of RCID have frequently visited Haier and made in-depth investigations & researches on Haiers innovationmanagement, and many related materials have been col-lected.Data collection and analysis. Research team collected andexamined many com panys unpublished documents such asemployee handbooks, Haier Newspaper, and other materi-als and data about H aiers development and economic per-formance. Some published materials and Haier websitec w w s also an important source of the re-search.Literature review. Members of research team have re-viewed a plenty of academic literatures related withinnovation management both native and abroad, by whichto master the evolution and trends of innovationm&hese investigations, visits and interview s, severalHaier-related cases studies and academ ic articles have beenpublished recent years.3. CASE STUDY HAIERS TA 0 OF INNOVATIONMANAGEMENT3.1 From OEC to S S T Haiers managerial & i ns t i -t u t i on i nnova t i onOEC means 0-Overall, E-Everyone, Everyday and Every-thing; C-Control and Clear. OEC require: never delay to-days work to tomorrow, daily control & clear should leadsto daily improvement by a t least 1 . Its e xciting that if thedaily control and clear can improve the performance byI , the performance will double after 70 days.OEC management pattern is composed of the objectivesystem, daily control & clear system and the incentivemechanism. The essence of OEC is to ensure the persistentimprovement by strict and careful management of process.OEC pattern also embodies the thought of people first andhigh involvement of everyone. Whats m ore, daily control& clear and the goal of improvement of 1 everydayalso indicates the thought of continuous improvement andthe need of innovating all of the time, which establish thefoundation for the later thought and innovation of every-one as SBU.Based on the OEC management, Haier designed the re-sponsibility chain, by w hich to link ones jo b with an-other, and definite detailed responsibility of everyemployee toward firms objectives. Obviously, it is notenough to do the things right, it is necessary to do theright things. Haier went to cany out a new revolutionarymanagement, named Market Chain T s the abbreviation of three Chinese words, namelySuochou (ask for payment), Suopei (ask for compensation)

and Tiaozha (cut the market chain when problem occurs). Itmeans that, the former processes and latter ones are linkedup with market chain. Generally, the former (provider)work position will ask payment when they provide latterone with the semi-products, and if there is any delay in theformer position, the latter one can ask for compensation.When there is something wrong during the fulfillment oforders, the related third party (often the supervisor) will cutthe market chain and solve the problem.OEC pattern w as developed and implemented to ensure thefundamental management of daily operation. It can im-prove the quality remarkably by strict process controlwhich emphasizes rules and orders, especially in the earlydays of Haiers development. However, OEC might insome degree put workers as a screw of the enteerprisemachine, where workers did not directly face to the mar-ket and customers. Actually, the essence of Haiers MarketChain is to transfer extemal market pressure to internalmarket pressure, by which to make every one facing tomarket directly, and so motivate everyones vigor to satisfythe individualized market demand.No matter do the things right or do the right things, thequalified people are fundamental. By Market Chain m an-agement, the relationships among employees are changedfrom functional to process-based, and from the superior-subordinate or colleague to market relations. All workersare innovators. By providing every employee with the indi-vidualized room for business and innovation to resolve theproblem, they will be full of creativity and vigor. The m ar-ket can play the role of monitor and control as well. Theaim of Market Chain is to achieve every one as a S B U ,namely every one is boss.3.2 Haier s peop le- f i rs t based cul ture innovat ion:Everyone is inno vatorDuring the evolution of Haiers development, and influ-enced by Ruimin Zhang, an innovative culture has beenshaped and strengthened gradually. Haiers strategy, or-ganization, institution and technology innovations weresuccessfully integrated into a whole system under theunique innovative cultural circumstance. Haiers culture ispeople-first culture. This cultural circumstance makes eve-ryone in Haier, from m anagers to every ordinary employee,building up common Haier value, namely everyone shouldbe innovative.The core of people-first culture is that the creativity and theactiveness are the instinct of people. A firms capacitycomes from not only the activeness of employees, but alsothe trust of individual value throughout the enterprise.Using the invisible cultural capital to activate the visibleshocked fish enterprise, Haier began its diversified de-velopment period in early 1990s. The special methodhelped Haier save much cost of diversified expansion.

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3.3 Orderly no n-equi l ibr ium stru cture: Haiers or-ganizat ion innovationHaiers innovation in organization structure can be dividedinto three stages:

Haiers R&D system. At the same time, Haier developedmass innovation and synergized all the achievements ofevery department and every employee to form the innova-tive platform of the firm.-Hierarchical and functional structure (1984-1991).Haier spent seven years to build up the famous brandin refrigerators through well-planned T QM (total qual-ity management) system. In this stage, the dominantorganizational form was a hierarchical and functionalstructure.Business unit structure (1992-1998). With the increas-ing scale and the complex of management, businessunit was launched and dom inant during this stage;Flatted and process-based network structure (since1999). With the aim of building an international fa-mous brand, to compete with world-class enterprises,enabled and accelerated by modem ICTs (Informationand Communication Technologies), Haier bas intro-duced a business process reengineering system linkedwith market chain since 1999, which is a revolution-ary organizational change. By far Haier has changedits organizational form to a flatted and process-basednetwork structure, which focuses not on task but onperformance, and the goal of BPR is to realize zerodistance with market and customers.

3.4 Creat ing Markets and Customers : MarketInnovat ion in HaierWhen Haier went through its development from the brandstrategy to the globalization strategy, there came many newthoughts on market innovation.Precise market segmentation Haier focuses heavily onmarket division. Based on market division, Haier makespertinent development and marketing to every subsection.For exam ple, the market segmentation of refrigerators takesfoum tanda rds, which are style, estate, location and climate.Employing these four standards, Haier implements itsfined market segmentation strategy and have found manynew markets.Make new cake Since the beginning, Haier has not ac-cessed to:market by competing for what is existed, but hymak ing new cake through technolo gy innovation. Winn ing,the value-added war, but not t h e price w a r The key of the price war did not lie in the price, but lied innot catching the users needs, then caus ed a large amount ofstock. The secret of Haier is that never produce for thestock, but according to the valuable market order won byinnovating and improving the added value of the products.3.5 Technolog y inno vat ion is on the platform oftotal innovat ion managementAs a whole, now Haiers technology innovation is a syn-ergy of each innovation agent on the total innovation plat-form.Haierhas constructed a fargoing extemal innovation net-work all over the world that formed powerful support for

Analyzing Haiers developing process of strategy innova-tion, culture innovation, institution innovation, organiza-tion innovation, management innovation and market inno-vation, and combining the idea of technology innovationplatform, this paper summarizes and constructs a platformmodel of Haiers technology innovation and its supportingsystem (Figure I .

The effective construction of Haiers innovative technol-ogy organization gradually finished after continuing in-digenous innovation these years. Haier realizes that tradi-tional technology develop pattem in many developing en-terprises, such as: introducing imitating -introducingagain - imitating again, only makes the firms technologydevelopment in vicious circle, always laggard behind, andthe firm will not reach the world-class product forever.During these years, after implementing advanced researchinstruments, introducing experts, and integrating all inno-vative resources native and abroad, Haiers capacity ofindigenous innovation has been improved significantly.For example, H aier has reached or exceeded the advancedinternational level in some fields such as car GPS technol-ogy, the networked home appliance based on blue-toothtechnology, frequency-conversion technology of air condi-tioner, Freon-free technology o f refrigerator, and so on. Tofoster some promising technologies with wide market po-tential by which to win sustainable competitive advantagein the future, Haier has chose some strategic fields to doexploring study by its 11 leading-technology institutes and10 world-class technique labs.4. OBSERVATION & DISCUSSION4.1 The formation process of TIM in HaierThe launch of TIM in Haier was under the effect of bothinternal and extemal factors. The intemal factors includedstrategy, flexibility of innovation process, indigenous man-agement of employees etc. The extemal factors includedglobalization economy, intemational competitive environ-ment, macroeconomic policy etc.


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Main internal factors were as follows.o

Need of globalization strategy in H aier;Need of improving quality and innovative competenceof employees;Need of dealing with the increasing complexity in in-novation management;Need of quick response to market and shortening cycleo f R & D .The trends of globalization andnetw ork economy andwave of ICTs based new technology revolution. Allthese need innovation to he all of the time andthroughout the world, and the advanced ICTs such asinternet and mobile phone make them realizable;More individualized market demand and shorter timeto market;Comp etition in all aspects, suc h,as in quality, perform-ance, flexibility, novelty, service, and speed etc, re-quires innovation in each respect.

The internal factors were main ones to drive Haier to TIM,and the external factors determined external conditions andrequirement.The essential causations for H aiers, TIM were five incon-sistencies faced with Haier. They were s follows:

The external factors were as follows.

e

Inconsistency between supply and need after marketstransform vs. satisfying customized needs by TIM ;Need of diversified development vs. need of innova-tion in each respect;Technological and non-technological factors are notintegrated vs. TIM based collaboration among all in-novations by all factor;How to integrate resources in,China and abroad ininternational competition vs. global innovation;Innovation speed and ability needed by globalizationstrategy is poor vs. innovation of all time and innova-tion of everybody.

4.2 Features of Haiers TIMInno vatin g by everyone. Since the implementing ofTIM, all the employees in Haier are being motivatedgreatly, and are becoming innovative SBU. And MarketChain give more chance to staff to find the disequilibrium.Global izat ion of innovation. Oriented by the strategy ofglobalization, Haier has realized the globalization of all theinnovation processes, which includes 15 R&D centers, 6design branches, and IO S&T information stations that lo-cated throughout Europe, North America and Asia-Pacificregions. Instead of the internal and linear developmentmode, which is low efficient, Haier induces the parallelapproach to developing new products by integrating theglobal technical and intelligent resources. For example,during the developing process of Internet appliance series,

Japanese experts, American technologies, as well as thevisual design from France fashion designer, were systemi-cally integrated together.Inno vatin g at anytim e. Under the paradigm of TIM, in-novation can occur at anytime, that is, to the point whereinnovation is as natural as breathing. For instance, theR& D o f Bluetooth Internet appliance is just such an exam-ple. In order to speed the R&D cycle, Haier cooperatedwith Ericsson and worked in relays to keep a continuousdevelopment. When R&D personnel in Haier were comingoff work at 9:OO pm, the R&D personnel in Ericsson werejust beginning to start work at : OO pm. They went on theR&D based on the Haiers achievements. In this way, bythe help of internet, they realized the 24-hour continuousR& D, which greatly speeded the developing efficiency.Innova t ing thro ugh out whole processes. In 1999 HaierGroup put the ERP system linked with Market Chain intopractice, which was a ICTs-based revolutionary processengineering to face the challenge of Internet econom y. Thecauses and goals of this engineering are 1 preventingHaie r from the Sickness of Large Enterprise; 2 transfer-ring Haier from traditional form which is vertical integratedand function-based to horizontal and process-based net-work form, by which to realize Zero Distance with Cus-tomers. The practices in recent years have proved that itoptimized the business processes, reduced costs, shortenthe time to market, et al. As a result, it grcatly improvedHaiers intemational competitiveness;Innov at ing throug hout the whole value chain. Haierhas been paying much attention to invite users (or p otentialusers) as co-innovators. Haier brings forward the action ofDesign the icebox yourself in recent years, and gainsmore than 1 million customized orders every year. Thereare more than 9200 basic product models and 20000 basicmodules on the e-commerce platform, by which the cus-tomms both native and abroad can design their favorablecustomized products online. Whats more, H aier integratedall the related resources throughout the value chain, such assuppliers, dealers and stockholders, as important part ofinnovation system.By integrating the resource of users, suppliers and dealersas co-innovators, great benefits have gained. the productsare more customized, and R&D cycle is remarkably short-ened. Whats more, the innovation cos t is shared and re-duce d largely.5 CONCLUSIONS OUTLOOKAs we discussed, Haiers 18 years innovation practice hasprovided us with the interesting experiences, especiallyHaier innovation and its philosophy. It is gradually formingan effective Tao of innovation and corresponding mecha-nism o f managing total management in practice. We namedit as Total Innovation Management (Figure 2).


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Figure2 thepentagon model of

total innovationmanagement

(Source:QingruiXu,GangZheng,et al.Towards Capa-bility-based To -ta l Innovat ionManagement(TIM): TheEm erging NewT r e n d o f Innovat ion Management-A Case Study o fHaier Grou p, ISMOT& ICMITOZ Proceedings. Zhej i-an g Univ. Press, 2002.)

There are three layers on total Innovation: 1 it involvesinnovation in all functional area, as innova tive key element.Including organizational, cultural, institutional, process,etc., 2) it covers the whole space-time dimension and con-tinuous innovation in every department by, everybody (allas innovators), at anytime to innov ate, including the wholevalue chain innovation; 3) the innovation synergy amonginnovative elements. The remarkable difference betweenthe traditional management of inno vation and total inno va-tion is that it breaks through the past frame wor k of innova-tion confined only in R&D department.Wh at it the essence and objective of TIM?

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Aim at w inning the sustainab le competitive advantage(value added);Focus on accumulating and improving the core compe-tency (as core competency not limited to technologicalones).

With the proper mechanism and tools, TIM makes innova-tion pervasive and perpetual throughout the organization,which means that innovate by everyon e, at everywhere, oneverything, and at any time. The dimensions of T IM inher-ent elements was as follow:

Institution innovation is stimu lator;

Strategy innovation is the blueprint;Thou ghts and culture innovation is precondition;Managem ent innovation is operational base;Organ ization innovation is stluctural pledge;

Market innovation is orientation;Innovation synergy is approach.

To sum up, TIM is stil l a new trend for both native andabroad , and there are a lot of theoretical and practical prob-lems such as the characteristics and o peration mecb anismof TIM, et al., to be studied and resolved. This paper onlybrings forward a preliminary idea and fram ework of totalinnovation management, which is hoped to be useful forreference.REFERENCES[I] Qingmi Xu, Zida Yu, Gang Zheng, et al.

2002 Towards Capability-based Total InnovationManagement: The Emerging New Trend o InnovationManagement. ISMOT&ICMIT02 Proceeding. Zheji-ang U niv. Press.

[2] Qingmi Xu, 2000. Management o Research Devel-opment and Technologv-based Innovation: HigherEducation Press.

[3] Qingmi Xu, Gang Zheng, et al., 2002. The Impact oInternet Economy o Organizational Innovation: CaseStudy o Chinese T op Enterprise IEMCOZ Pmceed-mgs.[4] G an g Z hen g, Q i n p i Xu, et a1.,2002. From PortfolioInnovation to Total Innovation: New Development o

Innovation Management ISMOT&ICMITOZProceed ing. Zhejiang University Press.[S Qingmi Xu., Jin Chen, Bin Guo l997.Theoreticalmodel and case study o portfolio technologicalinnovation [J] Scientific research management,1997 3:pp29-35.[ 6 ] Roger B ean, Russell W. Radford, 2001.The Business

of Innovation: Managing the Corporate Imaginationfor Maximum Results. AMACOM.[ 7 ] Robelt B. Tucker, 2002. Driving Growth Thmugh

Innovation-How leading irms are transforming fu-tures Berrett-K oehler Publisher.[SI Clayton M. Christensen, 2000. The Innovators Di-lemma: The Revol~t ionaryNational Bestseller ThatChanged The Way W e Do Business. Harper Business.[9] Richard Farson, Ralph Keyes, 2002 Whoever Makesthe Most Mistakes Wins: The Paradox of Innovation.Free Press

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Tao Case Study Haier