Haier’s Management Philosophy and Model
Haier's global branding process combines the best in eastern and western management thinking to create a foundation for further innovation. Since its founding in 1984, Haier's unique philosophy has merged the business experience of East and West to become an international model of corporate management.
OEC Approach
The "All-around Optimized Management Approach" was Haier's first major initiative in innovative management. First implemented in 1986 and later named the "OEC Approach", this management style entails clear and comprehensive control over all company functions. The purpose of the "OEC Approach" is to achieve each day's plan, evaluate that plan, and improve upon those daily accomplishments 1% better than the day before. The "OEC Approach" has been the cornerstone of Haier's management culture for more than 20 years. In 1993, then vice premiers Zhu Rongji and Li Lanqing, together with then secretary of the CPC Shanghai Municipal Committee Wu Bangguo signed a joint directive to promote Haier's "OEC Approach" nationwide.
The "Ball-on-Slope" Theory
As part of implementing the OEC model, Haier developed the "Ball-on-the-Slope" theory. A company is akin to a ball on a slope. Two forces are needed to move the ball uphill: one to keep the ball from rolling back down the slope (business management) and the other is the force necessary to keep the ball moving upwards (the company's capacity to innovate). These two forces are key to a company's continued success.
The "Activate Shocked Fish" Theory
During Haier's Diversification Development Phase, company management proposed the concept of "Activate Shocked Fish." A 'shocked fish' is a company with good tangible assets but which has been managed poorly and faces bankruptcy. Haier would then purchase these companies and use advanced management techniques to realize and maximize a struggling firm's latent potential and turn a profit. For example, in July 1995, Haier merged with the Hongxing Electronics Company. It took less than three month for Haier management to move Hongxing from the red to the black. Haier also used mergers with struggling companies to carry out capital restructuring. Haier used intangibles such as its corporate culture and management theories to maximize the tangible assets of the merger target. This also allowed Haier to expand the scope of its business quickly while keeping overall costs low. Beginning in the early 1990s, Haier began a decade of expansion, purchasing 18 Chinese companies; 14 of those companies had combined losses of nearly 5.5 million RMB. Haier turned the struggling firms around and by the end of the decade, all 14 companies were profitable. In that same time span, Haier transformed itself from a refrigerator manufacturer to a home appliance giant featuring a diverse product line including refrigerators, freezers, air conditions, televisions, and water heaters.
Market Chain Management
Haier's expansion in both the domestic and international market tested long-standing procedures, organizational models, and human resource strategies. As a result, in 1998 Haier began a process of re-engineering which continues to this day. The objective of the re-engineering drive is to remove barriers between the company and the market, as well as those within the company between different departments, to build an "end-to-end" market chain process that operates smoothly inside and outside of the company, and turn every employee into their own individual strategic business unit (SBU). The end result is that everyone in the company is a master of corporate marketing objectives.
Individual-Goal Combination Management System
Haier's "Individual-Goal Combination" management system means that every employee is an independent and innovative SBU with the goal of achieving primacy in the marketplace. The "Individual-Goal Combination" aims at creating a competitive market target for each SBU. Zhang Ruimin's management innovations have been recognized widely by international management institutions. In 1998, Mr. Zhang was invited by the Harvard Business School (HBS) to deliver a speech on his corporate philosophies. Haier's "Activate Shocked Fish" strategy, whereby a failing company's latent potential is realized and maximized, was used as a case study by HBS. In 2000, Mr. Zhang delivered another speech to IMD in Switzerland. Haier's strategy has also been studied at numerous institutions including the University of Southern California, IMD, INSEAD, Kobe University (Japan). Haier's "Market Chain" management was included in the European Union's case study database. Haier's "Individual-Goal Combination" management sytem is currently assisting companies around the world to better manage their storage and due receivable systems.