A self-organising Chinese multinational

Written by Sarah Spitz, on 05 April 2018

In 2005, Zhang Ruimin, CEO of the Chinese appliance conglomerate Haier, realized that its competitors had caught up with Haier's legendary responsiveness to its market and were threatening its leading position. To stand out, Haier needed to create its products in direct collaboration with its customers. He envisioned restructuring their organization into a network of independent and self-organizing units. But how could a conglomerate of tens of thousands of people function as small autonomous units?

Close to bankruptcy in 1984, the Chinese conglomerate Haier was no stranger to transformation. The first transformation began outside the factory shortly after their new CEO, Zhang Ruimin, arrived, with the smashing of defective refrigerators with a sledgehammer: the message was clear, Haier would now be synonymous with quality. But their competitors caught up with them in the 1990s, and quality was no longer a differentiating factor. Zhang then decided to initiate their second transformation. They would differentiate themselves by offering their customers innovative products perfectly tailored to their needs. Cross-functional teams were formed to work on specific projects, and each work unit ("market chain") was able to trace the impact of its actions on the market.

"An enterprise is like a computer. If the computer is connected to a network, it becomes very powerful. Otherwise, it's useless." - Zhang Ruimin, CEO of Haier

But in 2005, Zhang realized that not only had their Chinese competitors also reached a high level of market responsiveness, but he also identified two major problems in their operations:

  • Time to market for their products was too long
  • Their production estimates were approximate, leading to costly over- and under-stocks

To address these issues, he decided to reverse the group's organizational structure and adopt a model based on self-organized structures called ZZJYTs (abbreviation of zi zhu jing ying ti, which means independent operational unit). The goal: to bring key functions - marketing, design, and production - into direct contact with consumers to understand their needs and anticipate the various pre- and post-production stages from product conception.

Each ZZJYT consists of 10 to 20 people, sometimes spread across multiple locations, and each is drawn from a specific function (Marketing, Design, Production, Finance, R&D, etc.). These entities are created to meet the needs of a specific project, such as creating a new air conditioner for the Chinese market that also serves as an air filter. Each member of a ZZJYT works directly with consumers and other functions involved in product development. Thus, time to market is drastically reduced because from the preliminary phase of the project, downstream stages such as production or after-sales work in concert with design or marketing. Additionally, production needs estimation becomes more precise because teams have better visibility of market demand.

But for ZZJYTs to be truly effective and responsive, they need to be autonomous. Thus, each ZZJYT is responsible for the profits and losses generated by its project and is autonomous to recruit or lay off employees, to spend and manage its budget, or to define bonus distribution rules: it has complete freedom to make operational decisions without the need for validation from superiors.

Moreover, there are no longer really superiors in this configuration, but rather roles related to ZZJYTs and not to individuals, organized into 3 levels. The first level consists of units directly responsible for an operational project, which are in close contact with their markets and customers. Second-level ZZJYTs do not have a control role but are there to help first-level ZZJYTs accomplish their missions by providing the resources and advice they may need. The third level of ZZJYTs includes managers whose function is to set the group's overall strategy and propose new projects.

The different ZZJYTs are also linked by internal contracts. For example, if a ZZJYT needs a market study on a specific region, it sends its request to the ZZJYTs responsible for conducting such studies. If none is able to meet its request, the ZZJYT then seeks to collaborate with external organizations (start-ups, universities, research centers), especially for technological needs. The concept of open innovation is strongly integrated into Haier's culture.

ZZJYTs are not permanently assigned to a project or a fixed role but are formed according to detected customer needs and the company's projects. The projects to be developed are subject to internal competition. Each voluntary employee can then compete to become the leader of the project they are interested in by presenting a business model proposal. The proposals are judged by the third level of ZZJYTs based on the quality of the product/service idea, the attractiveness of its business model, and the feasibility of its project for market launch.

Once designated, the leader is then responsible for recruiting their team from Haier's internal job market and building their "community of interest" (comprising all stakeholders on a project, internal and external). Depending on employees' skills and their past contributions to certain projects, different positions are offered to them in the ZZJYTs under formation. They can then choose to join the ZZJYT that best suits their interests.