Zhang Ruimin
| Zhang Ruimin | |
|---|---|
| 张瑞敏 | |
| Born | January 5, 1949 (age 77) Qingdao, Shandong, China |
| Nationality | Chinese |
| Citizenship | People's Republic of China |
| Education | University of Science and Technology of China (MBA) |
| Occupation | Business executive |
| Years active | 1984–2021 |
| Employer | Haier Group |
| Company | Haier Group |
| Title | Founder, chairman and chief executive officer of Haier Group (1984–2021) |
| Known for | Building Haier from an insolvent Qingdao refrigerator plant into one of the world's largest appliance manufacturers; the Rendanheyi management model |
| Awards | Thinkers50 Ideas into Practice Award (2015) Dale Carnegie Global Leadership Award (2012) Forbes China Lifetime Achievement Award (2019) |
| Political party | Chinese Communist Party (from 1976) |
Zhang Ruimin (张瑞敏; born 5 January 1949) is a Chinese business executive who founded the Haier Group and served as its chairman and chief executive officer from 1984 until 2021. He took charge of an insolvent collective refrigerator plant in Qingdao with roughly 600 employees and debts it could not service, and left an appliance group reporting more than 300 billion yuan in annual revenue and holding the largest share of the global major-appliance market.
Zhang is unusual among Chinese industrialists in having become known internationally less for the scale of the company he built than for the management doctrine he developed inside it. He was the first Chinese business leader to speak from a Harvard podium, in 1998, and his firm has been the subject of Harvard Business School case studies since the 1990s. The model he developed from 2005, which he called Rendanheyi, dismantled Haier's conventional hierarchy into several thousand self-managing micro-enterprises, each with its own profit and loss account and each contracting with the others and with the market. The management theorist Gary Hamel described him as a chief executive representative of the internet era, and he was ranked among the Thinkers50 in 2015.
The episode that made him a household name in China came in 1985, in his first year in charge. Having received a customer complaint and inspected the plant's stock, Zhang identified 76 defective refrigerators, assembled the workforce, distributed sledgehammers and required the employees who had built the machines to destroy them. A refrigerator then cost roughly two years of a worker's wages. The demonstration is recounted in Chinese business literature as the founding act of the country's modern quality movement, and one of the hammers is held in the National Museum of China.
Zhang joined the Chinese Communist Party in 1976 and was elected to its 16th Central Committee in 2002. He stepped down as chairman of Haier in November 2021, remaining as honorary chairman.
Background
Chinese industry before reform
The enterprise Zhang inherited in 1984 was a product of the economic system that the reforms of the preceding six years had begun to dismantle, and its condition was typical rather than exceptional.
Under central planning, a Chinese industrial enterprise did not sell to customers; it delivered an assigned quantity to an assigned recipient at an assigned price. It did not compete, could not fail, and had no mechanism by which the quality of what it produced affected its position. Managers were appointed administratively and were accountable for meeting output targets measured in units. Consumer durables were chronically scarce, which meant that anything produced would be bought regardless of whether it worked.
The consequences for quality were structural. There was no penalty for defects and no reward for their absence, and the vocabulary of quality control, in the sense understood in Japanese or German manufacturing, was largely absent from Chinese industry.
Reform and opening
The reforms initiated under Deng Xiaoping from 1978 introduced market allocation gradually and unevenly. Enterprises were permitted to retain a share of profits, to sell output above plan, and from the mid-1980s to contract with managers held responsible for results. Foreign technology could be licensed. Township and village enterprises and collectives, of which the Qingdao refrigerator plant was one, occupied an ambiguous position: nominally collectively owned and supervised by municipal authorities, but increasingly exposed to competition.
The exposure was severe. Chinese consumers acquiring purchasing power for the first time in a generation could compare domestic products against imports, and domestic manufacturers of consumer durables, of which several hundred existed in the refrigerator sector alone, competed on price with products that frequently did not work. Consolidation was inevitable, and most of those manufacturers did not survive the following decade.
Qingdao
Qingdao, a port city in Shandong province, had been a German concession from 1898 to 1914 and retained an industrial base and an unusual degree of exposure to foreign commerce. The Qingdao General Refrigerator Factory was a municipal collective producing a small volume of poor-quality refrigerators under licence, and by 1984 it was insolvent, with accumulated debts of about 1.47 million yuan, no working capital, and a workforce that had gone unpaid.
Three directors had left the post in the preceding year. Zhang, then a 35-year-old deputy manager in the Qingdao municipal household appliance division, was appointed in December 1984.
Early life
Zhang Ruimin was born on 5 January 1949, weeks before the founding of the People's Republic, to a working-class family in Qingdao. Both parents worked in a local garment factory.
His schooling was interrupted by the Cultural Revolution. With schools closed, Zhang joined the Red Guards as a teenager, travelled to Mao Zedong's birthplace and attended rallies in Beijing. When the movement was wound up he avoided being sent to the countryside, the fate of a large part of his cohort, and instead entered industrial employment in Qingdao as a manual worker.
He worked his way from the shop floor into administration over the following decade and a half, studying in his own time. He took a master's degree in business administration at the University of Science and Technology of China, and read extensively in Western management literature — Peter Drucker in particular, whom he cited throughout his career, along with Michael Porter, Gary Hamel and later Clayton Christensen. His reading was unusual for a Chinese manager of his generation and became a distinguishing feature of his public persona; he was often described in the Chinese press as a philosopher-executive, and quoted classical Chinese sources alongside Western management theory.
By 1984 he was a deputy manager in the Qingdao municipal appliance administration, responsible in part for the failing refrigerator plant that he was then sent to run.
Haier
Taking charge, 1984
Zhang arrived at the Qingdao General Refrigerator Factory in December 1984 to find a plant in advanced decay: windows broken and the frames burned for heat, workers urinating on the shop floor, absenteeism unchecked, and equipment idle. His first act was to post thirteen rules, of which the first prohibited urinating in the workshop and the second prohibited stealing factory property.
He borrowed money from a neighbouring village collective to pay wages before the new year, and negotiated a licensing agreement with Liebherr, the German appliance manufacturer, for refrigerator technology and production equipment. The brand name Haier derives from the transliteration of Liebherr into Chinese — Libohaier — of which the last two syllables were retained.
The refrigerators, 1985
The episode on which Zhang's domestic reputation rests occurred in 1985. A customer complained of a defective machine; Zhang inspected the warehouse and found 76 of the 400 units in stock defective.
The conventional response would have been to sell the defective units at a discount to employees, which was standard practice and which his managers proposed. Zhang instead had the 76 machines moved to the factory yard, assembled the workforce, and distributed sledgehammers, requiring the workers who had built each machine to destroy it himself. He took the first hammer.
The economics were deliberately shocking. A refrigerator sold for around 800 yuan against an average monthly wage of about 40, so the demonstration destroyed roughly two years of wages per machine at a company that could not pay its staff. Some workers wept. Zhang's stated reasoning was that if the defective machines were sold, the plant would go on producing defective machines forever.
Haier won China's first national gold medal for refrigerator quality in 1988. The hammer used has been displayed in the National Museum of China, and the episode is a fixture of Chinese business education. Zhang returned to it in later decades chiefly to make a different point: that the lesson was not about refrigerators but about the willingness to destroy an asset that had become an obstacle, a principle he applied subsequently to Haier's own organizational structure.
Building a domestic position, 1985–1991
Zhang introduced practices that were novel in the Chinese state sector. Employee pay was tied to the sales of the products the employee had made rather than to output volume. A worker who made an error was required to stand before colleagues and explain it — a practice drawn from Chinese political custom and applied to manufacturing quality. Responsibility for each machine was traceable to named individuals.
He also introduced customer feedback as an input to design, at a time when Chinese manufacturers had no mechanism for it. The best-known instance concerned Sichuan province, where washing machines were failing at an unusual rate; investigation established that farmers were using them to wash sweet potatoes, which clogged the drains. Rather than treating the misuse as the customer's fault, Zhang had the machines redesigned with wider drains and marketed them as suitable for washing produce as well as clothing. The story became a standard illustration in Chinese management teaching of designing for the customer actually present rather than the one assumed.
Diversification and the acquisition strategy, 1991–1998
Haier Group was formally established in December 1991 with Zhang as president, and the company began to diversify beyond refrigerators into washing machines, air conditioners, televisions and other categories.
Zhang's method was acquisition, and his stated theory of it was distinctive. He described the targets as "stunned fish" — enterprises with sound equipment and capable workers whose management had failed — and argued that what such firms needed was not capital but Haier's management system. The approach kept acquisition costs low and made integration a matter of installing procedures rather than of investment.
The most-cited case is Red Star Electric Appliances, a Qingdao washing-machine maker of a size comparable to Haier's own, which had accumulated losses exceeding 100 million yuan and become insolvent. In July 1995 the Qingdao municipal government transferred Red Star's shares to Haier. Zhang sent a small team rather than capital, applied Haier's accountability procedures, and returned the business to profit within months. The turnaround became a Harvard Business School case study, and it was on the strength of it that Zhang was invited to speak at Harvard in 1998 — the first Chinese business leader to do so.
Between 1991 and 1998 Haier absorbed 18 enterprises by this method and developed industrial parks to consolidate production.
International expansion, 1998–2005
Zhang pursued international expansion earlier and more aggressively than most Chinese manufacturers of his generation, and on an unusual principle: that Haier should enter the most demanding markets first, on the reasoning that a product acceptable in Germany or the United States would be acceptable anywhere, while a company that began with easy markets would never acquire the discipline to enter hard ones. He summarized the approach as "difficult first, easy later".
Exports to Europe began through the Liebherr relationship. Shipments to the Middle East and Africa started in 1993 and to South East Asia in 1996. The United States presented the harder problem, since Haier had no brand recognition and could not compete against established manufacturers in full-size appliances.
Zhang's solution was to enter through niches too small for incumbents to defend. Haier concentrated on compact refrigerators for university dormitories and hotel rooms, and on electric wine coolers, a category the major manufacturers had neglected. By the early 2000s Haier claimed a majority of the American compact refrigerator market and up to 60 percent of the electric wine cooler market, and used the resulting distribution relationships to introduce larger products.
In 1999 Zhang committed US$30 million to build a manufacturing plant at Camden, South Carolina, producing full-size refrigerators in the United States — a decision widely questioned at the time on cost grounds, and defended by Zhang on the basis that local production was necessary to be treated as a local brand rather than an importer. Plants followed in Indonesia, the Philippines, Pakistan and Jordan. Over the same period Haier established 18 manufacturing plants, 17 distribution centres and 9 research centres outside China.
By 2005 Haier's revenues exceeded US$12 billion, it employed more than 30,000 people, and the Financial Times listed Zhang among the fifty most respected business leaders in the world. He had been included in the same paper's list of the thirty most respected entrepreneurs in 1999.
Zero inventory and the shift to services, 2005–2012
The Chinese appliance industry entered a prolonged price war in the mid-2000s as capacity outran demand. Zhang's response was to attack inventory rather than price, adopting a policy of producing only against confirmed orders — production on demand for zero inventory.
The policy required Haier to compress its order-to-delivery cycle and to accept lower factory utilization, and it was resisted internally. Its effect was to expose the parts of the business that were producing goods nobody had ordered, and it prepared the ground for the organizational changes that followed.
Zhang described the period as a transition from an organization-centred company to a user-centred one, and from a manufacturer to a service business. The distinction became the basis of his later management model.
Acquisitions abroad
Haier's international acquisitions began in earnest at the end of this period. It acquired the white goods businesses of Sanyo Electric in Japan and South East Asia in October 2011, and completed the purchase of Fisher & Paykel, New Zealand's largest appliance brand, in December 2012; the Fisher & Paykel research centres at Dunedin and Auckland became two of Haier's global research sites.
The largest transaction came after this period: the acquisition of General Electric's appliance business in 2016 for about US$5.6 billion, which gave Haier a major American brand and manufacturing base, and the acquisition of Candy, the Italian appliance maker, in 2018.
The Rendanheyi model
The management system Zhang developed from 2005, and continued to revise for the rest of his tenure, is the reason his reputation extends beyond China.
The name and the idea
Rendanheyi (人单合一) is a compound of ren (person, meaning the employee), dan (order, meaning the user's need) and heyi (unity). The intended meaning is that every employee should be directly connected to a user's requirement, without intermediation by a hierarchy.
Zhang's diagnosis was that a large manufacturer's structure necessarily interposes management layers between the people who do the work and the people the work is for, and that those layers, whatever their intentions, come to serve internal reporting rather than external demand. His conclusion was not to reduce the number of layers but to eliminate the structure.
Micro-enterprises
Haier's roughly 80,000 employees were reorganized into several thousand self-managing units, initially called zi zhu jing ying ti and later micro-enterprises. Each unit had its own profit and loss account, hired and dismissed its own members, elected its own leader, set its own targets and contracted with other units and with external suppliers and customers on commercial terms.
A micro-enterprise that could buy a service more cheaply outside Haier was free to do so, and a unit whose internal customers would not buy from it had no revenue. Members were compensated from the unit's results rather than by salary grade, so that pay varied widely between units and could fall to very little.
Zhang eliminated more than 10,000 middle management positions over the course of the transition. Corporate headquarters was reduced to a platform providing capital, shared services and standards, and Zhang described his own role as that of a venture investor in his employees rather than a chief executive directing them.
Catfish management
An associated practice, which predated the full model, was what Haier called catfish management, after the story that live catfish placed in a tank of sardines keep the sardines active. Each division leader was shadowed by a designated deputy prepared to assume the role if the leader missed targets for three consecutive months.
The arrangement institutionalized succession pressure at every level. It was criticized inside and outside the company as producing anxiety and short-termism, and Zhang defended it as the alternative to the tenure that had destroyed the enterprise he had inherited.
The internet of things stage
On Haier's 28th anniversary in December 2012, Zhang announced a further strategic stage organized around networking, and from 2015 he framed the company's objective as becoming an internet of things ecosystem brand rather than an appliance manufacturer.
The argument was that a manufacturer's relationship with a customer ends at the sale, while a connected device creates a continuing relationship through which services can be sold. Haier's expression of this was a series of scenario-based offerings — a kitchen, a laundry, a bathroom — combining appliances, software and third-party services rather than individual products.
The listing of Haier Biomedical on the Shanghai Stock Exchange's STAR Market in October 2019, the first Qingdao company to list there, was presented by the company as evidence that the micro-enterprise structure could generate independent businesses; the offering issued 79,267,900 shares at 15.53 yuan.
Reception
Rendanheyi attracted sustained attention from management scholars. Gary Hamel wrote about Haier repeatedly and described Zhang as the chief executive most representative of the internet era; the model was the subject of a Harvard Business Review cover article in 2018, and business schools in Europe and the United States adopted it as a case study in organizational design. Zhang was included in the Thinkers50 ranking in 2015 and received its Ideas into Practice Award the same year. Haier established a Rendanheyi research centre and has licensed the model to other companies.
Critical assessments have made several points. The model is difficult to evaluate from outside, since Haier is the principal source of information about how it operates. Its transferability is questioned: it developed in a manufacturer with a strong founder in a specific labour market, and attempts to apply it elsewhere have generally been partial. The internal competition it institutionalizes has been described by former employees as harsh, with pay variability that would be unacceptable in other jurisdictions. And the claim that hierarchy has been eliminated sits uneasily with the fact that Zhang exercised unusually strong personal authority over the company throughout the period in which the model was introduced — the elimination of hierarchy was itself a decision taken from the top and not reversible from below.
Zhang's own account addressed the last point directly. He argued that his function was to prevent the organization from re-forming the structures it naturally tends toward, and that the model's survival after his departure was the test of whether it had worked.
Management philosophy
Sources
Zhang's thinking drew on an unusual combination of sources. He read Western management literature closely — Peter Drucker above all, whom he quoted throughout his career, together with Michael Porter, Gary Hamel, Clayton Christensen and the literature on Japanese quality management — and combined it with classical Chinese philosophy, particularly the Tao Te Ching and the I Ching, from which he took the emphasis on continuous change that runs through his organizational decisions.
He was described in the Chinese press as a philosopher-executive, and his public statements were unusually abstract for an industrialist. He maintained that a company's most dangerous condition is success, on the ground that success validates arrangements that the next period will invalidate.
Recurring principles
Several propositions recur across four decades of his speeches and writing.
The first is that quality is not a technical problem but a question of what an organization is prepared to tolerate, which is why the 1985 demonstration took the form it did.
The second is self-negation: that an enterprise must destroy its own successful arrangements before conditions destroy them. Zhang applied this to Haier's product lines, its distribution, and finally to its management structure, and treated the willingness to do so as the only durable competitive advantage.
The third is that scale is a liability as well as an asset. His objection to Haier's hierarchy was that size had interposed distance between the company and its users, and the micro-enterprise structure was an attempt to obtain the resources of a large firm with the responsiveness of small ones.
The fourth is that employees should be treated as entrepreneurs rather than as subordinates — expressed in his description of himself as an investor in his own workforce, and implemented in the profit-and-loss accountability of the micro-enterprises.
Politics
Zhang joined the Chinese Communist Party in 1976. In 2002 he was elected an alternate member of the 16th Central Committee of the Chinese Communist Party, a position reflecting Haier's importance to the Chinese economy and the party's practice of incorporating leaders of significant enterprises.
His political standing was an asset in a system where enterprise autonomy depends on official relationships, and the transfer of Red Star's shares to Haier by the Qingdao municipal government in 1995 illustrates the kind of support it produced. Commentators outside China have noted that Haier's ownership structure — a collective enterprise with municipal origins that became a listed group — reflects the ambiguity of property rights in the Chinese reform period, and that Zhang's authority rested on political as well as commercial foundations.
Later years and succession
Zhang stepped down as chairman and chief executive of Haier Group in November 2021, at the age of 72, after 37 years in charge. He was appointed honorary chairman. Li Huagang succeeded him as chief executive of the listed Haier Smart Home, and Zhou Yunjie as chairman of the group.
The succession was watched as a test of the Rendanheyi model, since a structure explicitly designed to disperse authority had been created and sustained by a founder exercising exceptional personal authority. Haier has retained the model since his departure.
At the time of his retirement Haier reported revenues above 300 billion yuan and held the largest share of the global major appliance market by volume, a position it had occupied for more than a decade. The company operated manufacturing and research facilities across Asia, Europe, the Americas, Africa and Oceania, and owned the GE Appliances, Fisher & Paykel, Candy and Casarte brands in addition to Haier.
Assessment
Zhang's standing rests on three distinct claims.
The first is industrial: he took an insolvent municipal workshop and built from it the largest appliance manufacturer in the world, and did so in a sector where several hundred Chinese competitors began at the same point and almost none survived.
The second concerns quality. The 1985 demonstration is treated in Chinese business history as a turning point in the country's relationship with manufacturing standards, and Haier's early national quality medal as evidence that the standard could be met domestically. Whether one episode deserves the weight placed on it is questionable; what is not is that Haier's quality reputation preceded and enabled its export position at a time when "made in China" was a liability.
The third, and the one that gives him an international reputation, is organizational. Rendanheyi is among the few management models originating in a Chinese company to be studied seriously in Western business schools, and it addresses a problem — the loss of responsiveness that accompanies scale — that is not specific to China.
Sceptical assessments note that Haier is the principal source of evidence about how its own model works; that the company's growth over the relevant period is at least equally explicable by the expansion of the Chinese domestic market and by well-timed acquisitions abroad; and that the model's harshness toward employees is understated in accounts written from management's perspective. Zhang's response to the last was that the alternative had been the plant he walked into in 1984.
In popular culture
C.E.O., a feature film based on Zhang's career and directed by Wu Tianming, was co-produced by the China Film Group and the Shandong Film Studio and released in 2002.
The journalist and academic Hu Yong published Thus Spoke Zhang Ruimin, a collection of his statements and management writing, and Haier's history has been the subject of numerous Chinese-language biographies and of several Harvard Business School case studies.
Awards and honours
- Entrepreneur of the Year, Asia Weekly, 1997
- First Chinese business leader to speak at Harvard University, 1998
- Financial Times Global 30 Most Respected Entrepreneurs, 1999
- CCTV China Economic Personality of the Year, 2001
- Financial Times Global Top 50 Most Respected Business Leaders, 2005
- Forbes China Philanthropy List, 2009
- China's Most Powerful People, BusinessWeek, 2009
- Dale Carnegie Global Leadership Award, 2012
- Thinkers50 ranking and Ideas into Practice Award, 2015
- Forbes China Lifetime Achievement Award, 2019
See also
References