Innovation Culture and Global Knowledge Economy: Haier Group - Assignment Example

Innovation culture and global knowledge economy: Haier Group Executive Summary As businesses worldwide are becoming increasingly complex as well as competitive, company are bending towards innovation as an effective and durable source for achieve long-term competitive advantage. Most of the organisations which are thriving in this competitive environment have implemented innovation as an essential strategy in their business and decision making process. A similar approach has been used by Haier, the organisation under study. With the objective of maintaining a sustainable and long term success in this uncertain and fast changing environment, Haier worked by constantly updating its corporate structure and organisational culture. This helped the firm to achieve competitive edge and creative adaptation for surviving in a turbulent economy. This paper is an extensive review of the leadership, cultural and structural activities implemented by Haier group. Innovation culture followed by Haier is described through its various initiatives such as Win-win model and OEC control groups. The paper also throws light on the various acquisition and expansion strategies which Haier took so as to achieve competitive edge. The company has evolved from being a profit oriented to customer oriented. The study has also analysed the critical relation between its internal innovation strategies and its importance while meeting the changing demands in a knowledge economy. Sufficient facts and information has been providing confirming that Haier has successfully established a fit state with the objective of maximising its opportunities for future innovation and gain sustainable competitive advantage. Contents Introduction 4 Company Background 4 Findings and Discussion 5 Haier’s Leadership in the knowledge Economy 5 Organisational structure 7 Innovation culture 10 Conclusion 12 Reference List 14 Introduction Marketers and analysts have long realized the importance of innovation. However, it is also true that for long term survival and success in any industry, it is essential to develop a powerful innovation culture. Such culture can be easily recognized within a firm which is known as an authentic and genuine innovator in the external marketplace. The culture is also known to harbour innovation friendly and dynamic environment in its internal workplace. It is also a known fact that innovation culture is very uncommon in the current business environment. A major factor behind this is the inclination towards predictability and stability as they are a readymade path for earning profit. On the contrary, innovation is about change and adaptation where survival and profits can be extremely difficult to achieve, at least during the first few years of implementation. So, innovation has become one of the top priorities for both large and small companies. Based on the above premises of innovation culture, the current study will analyse Haier Corporation for its internal strategies and capabilities that have provided sustainable competitive advantage. The study will throw light on the culture, leadership and structure of the organisation and how these factors have helped Haier in surviving and growing in the external knowledge economy. The study involves a deep insight into the cultural and leadership practices followed by the management as well as employees in the organisation. The organisational architecture will help in identifying the innovative strategies followed by Haier. The important functions and programs of the organisation giving it a competitive edge have also been analysed. Company Background Haier is a multinational Chinese firm established in Qingdao, China. The company is into manufacturing and distribution of home appliances and electronics for consumers. It manufactures designs and distributes products including mobile phones, air conditioners, microwave owns, computers, refrigerators, washing machines and television (Haier, 2014a). Few of the leading brands under the retail giant are Goodaymart, Leader, Casarte, Aqua and Fisher& Paykel (Market Watch, 2014). A refrigerator manufacturing site was established in Qingdao during 1920, supplying to the Chinese market. After china went republic, the manufacturing site was transformed into state-owned firm, marketing the operational launch of Haier group (Haier, 2014g). Haier is categorised in the consumer electronics sector. There has been a significant growth in the consumer electronics sector worldwide. This is mainly because of innovation and rapid technical development in IT, communication as well as associated sectors across the economy. According to industry reports, the global market for consumer electronics is expected to increase at 6.7 percent from 2014 to 2018 (Economist, 2013). United States and China are considered as biggest markets for consumer electronics as together they account for around 37 percent of total global consumer electronics industry. The above numbers indicate the attractiveness of the market for consumer and white goods. Major Haier competitors include Electrolux, GE Appliances and Whirlpool (Haier, 2014e). Findings and Discussion Haier’s Leadership in the knowledge Economy The birth of knowledge economy is compelling organisations to find new paths for measuring and evaluating successful leadership strategies as well as creating models which can deliver constant value to the shareholders. Two major reasons behind this are constant demand for a result driven leadership by the shareholders and obsolete traditional leadership which are of new use now. Traditional leadership accounts for three different management layers. However, these layers are not adding any value in the present economic and business environment. Another factor which needs to be changed is the concentrated decision making process, taking place only at the top management level. This slows down the implementation process and also creates a huge gap between the management goals and readiness of employees to take up and complete the task. Thereby, it is important for CEOs to evaluate closely the design, leadership structure and innovation environment of its organisation. A good CEOs will try to involve every individual in the decision making process as well as entice its employees to contribute their ideas and innovative concepts for strategic directions (Western, 2008). One of the major factors responsible for the success and development of Haier is the strong leadership. As discussed above, the CEO of Haier, Mr. Zhang has exhibited also all characters of a great leader. Majority of Chinese companies are perceived to be manufacturing or designing using cheap products or technology or duplicating other successful services or products. On the contrary, Haier has been globally recognized for its marketing knowledge, quality as well as reliability (Beddos-Jones, 2012). The company first came into national and international attention when 76 malfunctioning refrigerators were destroyed, along with Mr. Zhang, the newly appointed CEO of Haier. The company transformed from a profit oriented firm to a consumer oriented firm which was the first step in successful transition of Haier. Under the strategic leadership of Mr. Zhang, the company also started global acquisition strategy where it opted to acquire local rivals which were loss making (Wernerfelt, 1984). The acquisition strategy focused on companies with qualitative and strong products but weak or inadequate leadership which can be transformed by establishing a superior management. The leadership of Mr. Zhang is very different from the traditional Chinese leaders as he has been focusing on branding and quality. This focus helped the firm in keeping a premium position even during economic downturn and frequent price wars. Another strategic leadership of Mr. Zhang which differentiated Haier from its competitors was its expansion strategy (Porter, 1988; Peteraf, 1993). While, most of the Chinese firms opted for regions such as Africa and South-East Asia as they were less competitive, Haier pushed itself to more competitive markets such as Europe and America. The objective was to learn survival strategies in a competitive and saturated market as well as understand strategies for growth and development while meeting demands few of the most sophisticated markets across the globe. With this strategic philosophy, Haier was able to cross even Japan’s quality standards, which is known to make highest quality consumer goods (Beddos-Jones, 2012). During the early Haier days, most of the workers were distributed into distinct traditional areas such as sales and manufacturing. However, the organisation underwent strategic restructuring where workers are organised in groups which are also known as Self-managed teams (2000 workers in each group), and performed numerous roles according to their capabilities, skills and knowledge. Each group is responsible for their own loss and profit and with proper training on leadership and technical skills; the company has given these groups full power of decision making (Yi and Ye, 2003; (Haier, 2014e). Also, these individuals and groups are paid on the basis of their performance. The company also follows authentic leadership. According to this leadership strategy, having too many leaders does not ensure value creation in the organisation. Therefore, Haier is planning to remove its entire middle management from the organisation. However, removing such a large number of managers from the organisation might create a negative publicity for Haier. Nevertheless, the CEO has been implementing innovative talent management strategies so that only the willing and best candidates are hired for different functions within the organisation. The talent pool of Haier is properly assessed, selected as well as developed on the basis of new work measures, capabilities and complexities needed to succeed in the business (Zeng and Willamson, 2003). During the early Haier days, management were dependent on internal service support such as marketing and service. With the objective of encouraging internal innovation, the company has been bringing outside resources and partners. According to the CEO, Disruption and chaos is necessary for the organisation as it challenges the organisation which is essential for remaining competitive in the industry. The CEO also emphasises on a dynamic and unsteady environment as it is the best pathway for keeping flexibility intact. In order to induce internal competition, the company has introduced many fringe and flexible benefits for employees who perform well and above the mark (Sprague, 2002). The open innovation platform of Haier also involved creative leadership strategy. Here, any employee spotting an opportunity is free to express their views and ideas in front of the management. Once approved, the employees can hire their own teams and start the project on their own. Thus, the company employs start-up characteristics for innovation even though it is an established one. The approval not only includes higher management, but customers and suppliers too. The objective here is to provide free market and business opportunity for right talents across the organisation. Also, employees are always free to leave or join the ongoing projects which shows the flexibility and employee friendly work environment provided by Haier. Organisational structure For majority of firms, the potential for developing innovating solutions on a long term basis depends on the organisational architecture and its coherency with the growth and development of the business. An important challenge when establishing an innovative business is evaluating organisational design that perfectly fits with the business and strategic goals of the organisations and then implementing that design as a sustainable capability (Haier, 2014d). According to Lafley and Charan (2008) for developing an innovation process which is customer focussed, two critical frameworks are essential. These are infusing innovation in the organisational architecture and supporting the design with regular undated mechanisms. After the strategic restructuring of its leadership and business goals Haier’s has shifted its organisational design and architecture from revenue oriented to customer and employee oriented. Also, the company follows an innovative or adhocratic organisational structure. Here, decisions are mainly decentralised and delegation of power is not confined to upper management only. However, these factors can lead to loss of control and Haier will have to ensure that its strategies and organisational structure is well protected from external disruptions. One of the major advantages of using adhocratic architecture is that a central talent pool is maintained from which right talents can be drawn any time for solving issues. It also encouraged highly flexible work environment. In general, Haier workers are transferred across projects and teams. This helps in skill enhancement, better team work and management capabilities of employees. An innovative organisation structure is always updating itself to meet the changing demands of the external environment as industry economy. Since its inception, Haier has been focussing on consumer demands. Over time, the company has been changing its strategic goals to keep a competitive edge over others. After the implementation of branding strategy, internationalisation strategy, diversification strategy and global strategy, the company has shifted to networking strategy. According to this strategy, the company has opened its enterprise platform for global exposure (Haier, 2014d). In order to reach customers in low-income and remote markets, Haier has included an innovative franchise model in its organizational structure. Companies are positioning themselves in front of middle income group customers by building strategic brand equity. However, this task is extremely difficult as excessive control over local distributors can result in ruined brand reputation. It can also lead to unsustainable brand operations in these regions. Thereby, with the adoption of a strategic franchisee model, Haier has been able to establish a balance between cost control and brand ownership and has successfully built a differentiated and most respected brand across rural China (Accenture, n.d). For the successful establishment of the franchisee model, the organisation structure of Haier was transformed in order to form better partnership with the local government. When the government launched a new subsidy program, Haier underwent modification of its organisational structure by launching a team whose only responsibility was to manage and oversee ongoing and future government partnerships. This team has been playing a critical job in making sure that all regulations and policy guidelines of government subsidy programs are properly complied by Haier. This team also identifies opportunities where production costs can be minimised and Haier’s quotes can be reduced during the process of bidding. Thereby, Haier is considered as a major valuable participant in numerous subsidy schemes by the government for rural China. At present more almost 30 percent of home appliances and white goods sold to rural customers come from Haier group (Accenture, n.d). The organisational size of Haier has also seen huge transformation over the year. At present, the company employs more than 80,000 people across various offices and manufacturing facilities. Thus, it is essential for the firm to update its organisation structure so that changing demands of its internal customers are met. As the organisation structure of Haier is customer centric, the role of senior managers has been transformed from being supervisors and commanders into being providers and supporters, who can ensure that independent units are met with adequate resources. This is important for meeting the current requirements and enhancing the responsiveness of the organisation towards changing demands of the customers (Economist, 2013). Since managers are not in direct touch with the customers, decision making control is generally given to the front-line executives and floor managers. These are employees who help in reducing the space between customer perception about organisation’s service and products and organisation’s perception about customers. They also include executives positioned at unique crossroads where customer and market information can be used for innovation (Jassawalla and Sashittal, 2003). The overall organisational agility of Haier ensures measured and tactical reaction to the rapid or unexpected market changes and customer needs, and most of the time these changes are better, cheaper as well as faster compared to its rivals. An example of the above agile performance is the customer care service in China, where executives are committed to answer any call in minimum time as well as technician is dispatched to the service area in less than three hours, even during Sundays. Innovation culture An innovation culture exhibits particular characteristics which are different from those following traditional culture. Some of the characteristics of innovation culture include un-predictability, seeking novelty, focussing on edge competencies, reinforcing the organisational networks, focussing on creative disruption and tension and embracing surprises, change and ambiguity (Clieaf, 2001). It also includes abandoning status quo and looking for data and information which contradict the present management practices. The culture of Haier is embedded in its core value. These innovative core values include differentiating between right and wrong, development concept and interest concept. The first and foremost focus of the innovation culture at Haier is to believe that a customer is always right and it is the duty of the organisation and its employees to constantly enhancing its efficiency (Raskin, 2003). The above philosophy has become the core culture or driving force which forces Haier employees to create differentiated value for its users. Constant improvement is the only process which will help in overcoming future challenges and bringing innovation during change. Haier’s management uses an innovative approach for achieving both organisational and individual goals. It is known as Win-win Model. Here, employees are encouraged to inject creativity and vitality into the firm. At the same time, they are allowed to create significant value for themselves and users (Haier, 2014c). The organisational structure of the company has been transformed into inverted pyramid from pyramid. The structure is further flattened into platform which is dynamic and network based consisting of numerous self-management units. This network is user driven and is also open to external resources with the objective of fulfilling user needs. The company has also been focussing on digital marketing and usage of internet as a channel for faster solution delivery and involving customers in a two-way communication platform for exchanging issues, feedback and opinion (Clieaf, 2001). An innovation culture can only be achieved when managers consider it as a priority. It has been seen that inability to be innovative is because of managers failing to try. Thus, Haier’s innovation culture focuses on building innovation spirit and entrepreneurship spirit, which in turn increases the core capacity of its employees for maintaining competitive advantage (Zoller and Fairhurst, 2007). The company encourages employees to put forward their entrepreneurship qualities by removing all mentorship and persuading them to independently manage by becoming their own CEO. The innovation culture of Haier thrusts on moving along with the drastic changes across the globe, fastening the speed with which user variation takes place; thus making the inheritance of innovation more permanent (Haier, 2014c). A Fundamental spirit of innovation is creation of new value which in turn, occurs when new users are created. Also, the overall interest of company’s stakeholders such as users, employees, stockholders and investors are of prime concern. Thereby, fulfilling their needs and demands require constant creation of new internal and external business models. According to the Haier’s management (Haier, 2014f), “OEC stands for Overall Every Control which means accomplish what’s planned each day and improve on what’s accomplished the previous day.” The objective of this internal business model is to ensure the each and every employee is aware of his or her everyday tasks and has control on all those factors which can affect or influence the normal working process. Another objective of the OEC management was to ensure that every employee increases his or her performance by at least one percent compared to previous day work. This control system works on three aspects. These are setting a target, controlling and checking of performance and clearance of unwanted efforts and third being incentive mechanism. Awards are given on the basis of quality at work. Penalty cards are issued for weak and negative performers and promotional decisions are decided on the basis of open bidding process in order to ensure a fair awarding system (Clieaf, 2001). As discussed above, the major focus of the innovation culture at Haier was to listen closely to the demanding customers and move out of the comfort zone for meeting those demands. The frugal and fast engineers from Haier were able to successfully create innovative products such as Mini-refrigerators built inside computer tables especially for students, horizontal freezers with two drawers and freezers with warmer compartments so that ice-creams remain soft. The company also developed into new niche segments such as cheap and affordable wine fridges which were ignored by its western rivals. An analysis of the above strategies and initiatives suggest that the company is in a fit state in order to maximise future innovation opportunities as well as enhance its competitiveness. The restructuring process and strategic partnership helped Haier to become biggest refrigerator seller in China in 1999. Since 2000, the overall revenues have of Haier have increased fourfold passing 26 billion dollar mark. Tax before profits were almost six fold in that period. The above strategic moves also made the company eighth innovative, beating companies such as Amazon. The company has also been able to maintain its position as number one brand for global home appliances for the past five years. The overall market share of Haier increased to 9.7 percent and share of retail volume rose to 11.6 percent in 2013. Thus, it is clear that the company is supported by a strong leadership and flexible cultural environment fostering innovation and competitiveness (Economist, 2013; Haier, 2014b). Although Haier is partially public owned, technically it operates as a collective company, which means that the organisation is owned by its employees. This structure has greatly helped the organisation in delivering its services to customers without facing interference from the government or other policy making entities. However, a major threat comes when government forces organisations like Haier to take up ailing or unprofitable companies, which might be a loss making step for the acquiring nation. Never the less, till now Haier has been able to filter its acquisition process strategically and plans to diversify in further niche segments for gaining innovative edge over its competitors. Conclusion From the above analysis, it can be suggested that most Haier’s achievements a direct result of its innovation culture and strategies. An introduction into the company’s business helped in understanding the present positioning and status of Haier. The company is recognized as a major contributor of white goods and electronic appliances across the globe. Haier has been able to achieve this status by endorsing authentic and strategic leadership, innovative culture and an innovative structural architecture. These evidences are a clear indication that Haier has been harnessing its strengths for competing in its industry. The leadership activities undertaken by the management helped in overcoming its weaknesses and use its capabilities to fullest providing a sustainable competitive advantage. With the help of diversification and strategic acquisition strategy, Haier penetrated international and local markets and successfully positioned itself in those foreign markets. Contrary to traditional expansion strategies, Haier opted to expand in western nations fostering challenges and subsequently innovation. This also helped in enhancing its perception in the minds of western counterparts and customers as opposed to traditional Chinese organizations. The company has successfully established itself as one of the most innovative across China as well as western nations. The organisational structure suggested that following an open and bottom up pyramid approach helped the organisation in utilising its talent and fostering creativity among employees. Lastly, the company has been constantly innovating itself with respect to its culture and internal environment for establishing a healthy position in the future of its business. Reference List Accenture, n.d. Haier Case Study. [pdf] Accenture, Available at: [Accessed 29 April 2014]. Beddos-Jones, F., 2012. Authentic Leadership. People Management, 7, pp. 44-47. Clieaf, M.V., 2001. Leading and Creating Value in the Knowledge Economy. [online] Available at :< http://iveybusinessjournal.com/topics/leadership/leading-and-creating-value-in-the-knowledge-economy#.U186ZKLtMW4> [Accessed 29 April 2014]. Economist, 2013. Haier and higher. [online] Available at: [Accessed 29 April 2014]. 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