Zhang led bankrupt Chinese refrigerator factory to become global enterprise.
New Delhi, Delhi April 20, 2015: Zhang Ruimin, CEO of the Haier Group, Qingdao, China, has been named the first 2015 recipient of the Best Practices CEO Award, presented by Best Practice Institute. BPI presents the award to a few of the world's top CEOs each year who have demonstrated a commitment to developing talent in innovative ways. Best Practice Institute is one of the world's leading talent management associations. Best Practice Institute announced the selection of Zhang this week. A more formal announcement will be made at Talent Management Asia next week. Louis Carter, founder and CEO of Best Practice Institute, will be the featured speaker at the conference, which will actually be a series of events in Malaysia, Singapore and Hong Kong during the last two weeks of April. Zhang Ruimin is exactly the kind of chief executive BPI's CEO Award is all about," Carter said. "What Mr. Zhang did 30 years ago to rescue and revitalize his company was heroic.
Even more important, though, is what Mr. Zhang is doing today to point the way to what talent management looks like in the Internet era." Best Practice Institute is a leadership and management association with more than 42,000 subscribers, including executives and employees of more than half of the Fortune 500. BPI began presenting its CEO awards in 2006. Previous recipients include Phil Martens, CEO of Novelis, and Steve Reinemund, CEO of PepsiCo. From dilapidated factory to global powerhouse Haier Group is a home appliance and electronics manufacturer of refrigerators, washing machines, air conditioners, microwave ovens, computers, televisions and mobile phones. The company has about 70,000 employees worldwide and had annual revenue of $32.09 billion and profit of $2.4 billion in 2014.
Mr. Zhang became director of Haier's predecessor company, Qingdao Refrigerator Factory, in 1984, when he was 35. The dilapidated factory was deeply in debt and on the verge of bankruptcy. With no money to pay employees, Zhang had to turn to private lenders just to make payroll during his first months at the helm. By simultaneously supporting but challenging employees and by continually adapting the company's business model to changing times, Zhang has led Haier to become the largest home appliance brand in the world. Sales revenue has increased by more than fourfold since 2000.
Zhang's covenant with employees
In his first years as CEO, Zhang made it a top priority to improve worker conditions: paying salaries on time, increasing salaries, providing transportation to and from work and enforcing standards that resulted in a better workplace. Having improved things for his workers, Zhang expected something in return: an improvement in work quality. Zhang first attracted attention beyond Qingdao in 1985, when he had 76 substandard refrigerators hauled to the factory yard. He handed the workers who had made them sledgehammers and told them to destroy the shoddy products. The dramatic episode drove home the message that Haier was now a company where quality mattered.
Management in the Internet era
Thirty years later, Zhang has drawn attention from around the world, not only for his remarkable success at Haier but for his innovative management concepts. In a speech last year, he briefly reviewed 200 years of modern management principles, concluding, "With the arrival of the Internet era, I think all these theories have been overturned." At Haier, Zhang has introduced the "Individual-Goal Combination Win-Win Model." It is a mouthful that essentially means aligning employee goals with consumer needs. When each individual worker is driven by the goals of end users, that combination is a win-win. Each employee is expected to know who the end users are and to seek their input in everything they do. The traditional business process, Zhang says, consists of a series of step, from planning to distribution, most of which are insulated from end users. To give his employees more direct contact with their customers, Haier team members work in small, self-contained groups, as independent ventures. Each team does its own strategizing, hiring, procurement and production. Each team is also responsible for its own profit and loss and is paid accordingly. Forbes described it as "small, self-managed, contract-based teams, with no hierarchy and no bosses."
BPI's founder and CEO Louis Carter observed, "The best talent management leaders put their faith in the creativity of their team members and then turn them loose. Nobody has done that so fearlessly and on such a broad scale as Zhang Ruimin."
Zhang has called the approach "management without leaders," and likes to say that the true leaders at Haier are the end users. In a speech last year, Zhang described middle managers as "useless." Haier laid off 16,000 workers in 2013, many of whom where in middle management. Zhang said the goal is to eliminate all levels of the hierarchy and become a "completely flat organization." He said Haier has evolved over the years from the traditional management pyramid, with management at the top and workers comprising the base, to an inverted pyramid with employees at top, to the new goal of a "flat, network-based organization." In a 2013 speech, Zhang said in the Internet area, businesses must provide design, manufacturing and delivery on demand. Achieving that requires moving from large-scale mass production to a resource-rich "platform." The Internet gives every worker and team access to resources around the world, which they must be able to draw upon at maximum speed to satisfy consumers. Another key to Zhang's flat, employee-empowered approach is basing compensation on performance. Employees' annual bonuses can be large, but are contingent on achieving goals. That compensation strategy is familiar in the U.S. at the higher levels of management, but Haier operates that way among the rank and file.
Zhang was selected for the Best Practices CEO Award from more than 500 nominees. The final selection was made by a Best Practices Institute advisory board, which consists of senior vice presidents and talent management and learning and development executives of Fortune 500 and Global 500 organizations.
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