In areas where Haier leads, the target is more modest but still a multiple of the market baseline. While ambitious, the targets do get adjusted when circumstances change. Every market-facing ME is also expected to make a transformative leap from selling products and services to building an ecosystem.
A good example is Community Laundry. Today the Community Laundry platform hosts dozens of other businesses and takes a share of the revenue they generate. Every market-facing ME is expected to eventually build a business ecosystem. Like their market-focused siblings, node MEs have leading targets that are pegged to external benchmarks. A manufacturing node, for example, may be responsible for lowering costs, cutting delivery time, improving quality, and further automating its production facilities.
In most organizations, a significant percentage of employees are insulated from market forces. They work in functions that are, in essence, internal monopolies, such as human resources, research and development, manufacturing, finance, information technology, and legal affairs.
A typical user ME will have agreements with dozens of nodes. If an ME believes that an external provider would better meet its needs, it can go outside for services. Senior executives virtually never interfere with internal negotiations.
Usually, two or three nodes will respond with proposals. The ensuing discussions provide an opportunity for all parties to challenge existing practices and brainstorm new approaches.
Nodes that are unable to provide competitive service can and do go out of business. When a customer unit fails to meet its leading targets, the node takes a hit. Instead, they are paid by customers. This compensation model has three benefits. First, it discourages mediocrity.
Second, it unites everyone around the goal of creating great customer experiences. When a user ME seems in danger of missing its targets, representatives of all its supplier nodes quickly come together to resolve the problem. Third, it maximizes flexibility: Market-facing MEs are free to reconfigure their network of service providers as new opportunities emerge. How does a company with more than 4, independent operating units synchronize major investments in technology and facilities?
How does it build cross-business capabilities such as manufacturing automation? In a start-up, coordination happens spontaneously.
As a company grows and operating units become more siloed, coordination becomes increasingly difficult. The typical solution involves more layers, mandates, and corporate-level functions. Haier has a different approach: organizing all MEs into platforms. Some platforms bring together MEs operating in a similar category, like washing or audiovisual products, while others focus on building new capabilities, such as digital marketing and mass customization.
A typical industry platform encompasses more than 50 MEs. Haier is made up of thousands of microenterprises MEs , which are grouped into platforms. Below is a map of the refrigeration platform. Any user ME is free to hire and fire nodes as it sees fit—or to go outside for services if it believes an external provider can better meet its needs. Critically, no one reports to the platform owner, nor does the platform owner have a staff. Platform owners have leading targets and are expected to grow their platforms by developing new MEs.
Platform owners are as much entrepreneurs as facilitators. Like platform owners, integration nodes encourage collaboration rather than exert control. MEs also rely on the expertise of competence-focused platforms. Two of the most important are smart manufacturing and marketing, each of which employs fewer than individuals. The largest node within the manufacturing platform provides technical support for mass customization.
Another node, smart engineering, deploys advanced production tools for the company. The primary role of the marketing platform is supplying customer information. The idea is to unearth cross-business insights and build predictive models that help MEs respond to emerging customer needs. One example: alerting MEs in the washing platform that a customer has bought a refrigerator and an oven and may be in the midst of a remodel that will call for new laundry equipment as well.
While the marketing and manufacturing platforms do set standards—for brand visuals and factory automation software, for example—they issue few commands. And like other units at Haier, they have a financial stake in the success of their internal clients.
The shared ecosystem, XCook, now encompasses million end users and partners. In most companies, coordination means sacrificing speed and responsiveness for greater efficiency. Zhang believes that such trade-offs are best made by those closest to the customer, by MEs that are free to choose when to collaborate and when to go it alone.
The coupling of MEs is decidedly loose but still strong enough to ensure that Haier exploits its size and scope. Turns out it really is possible to achieve coordination without centralization. Bureaucracies are insular. Typically, they make sharp distinctions between insiders and outsiders and are characterized by secrecy and a reluctance to tap external partners for mission-critical tasks.
Recognizing this, Haier sees itself not as a company but as a hub in a much larger network. The implications of this view are profound. First, every new product or service at Haier is developed in the open. More than 30 million responses flooded in. Lei Yongfeng, the project leader, then invited more than , users to go deeper and share their thoughts about pain points and detailed product features.
Minimizing that risk became a key priority and led to a radical rethink of the fan blade. Within a week the challenge had attracted several proposals. The winning design, mimicking a jet turbofan, came from researchers at the China Aerodynamics Research and Development Center. In all, 33 institutions contributed to the development of the air conditioner. When it launched, at the end of , the Tianzun Wind Tunnel was an instant hit.
Suppliers that contribute to the early design process also get preferred consideration when it comes to vendor selection. Meetings are longer, more frequent, and involve more people. Everyone seems to want a voice in a decision. But if we can extrapolate from the work of Nobel Prize winner Daniel Kahneman and others on individual human behavior, we may obtain insights into situations in which bureaucratic processes are beneficial. System 1 is characterized by informed intuition, speed, and decisiveness.
It is especially appropriate when addressing complex problems we have not encountered before. But both Systems 1 and 2 can lead to poor decisions both in terms of content and timing. Can we roughly equate bureaucracy to System 2 thinking? If you think so, you may want to stop reading here. If not, are there ways of capturing the deliberative advantages of bureaucratic decision processes without paying the price of so many meetings, delays, decision screens, and minority vetoes?
Are there ways of creating an effective bureaucracy either in business or government? James Heskett's readers debate the need for bureaucrats.
Original column The process leading up to a transfer of leadership in the United States, just as in other countries, always seems to be accompanied by several similar themes.
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