For those of us who work in Corporate America, Monday morning is the week’s greatest gift: a fresh start. The crucial conversations of last week are a distant memory, and the calendar is full of opportunities to make a positive impact within the organization, its customers, and your colleagues.
After leaving my daily standup, I take 30 minutes to organize my calendar, prepare my notebook, and grab a fresh cup of coffee (ok, let’s be honest, it’s a Red Bull) before heading off to conquer the world.
Then I hear it: “Adam, do you have a second?”
Monday has taken an all too familiar turn. Bureaucracy. Politics.
The modern business climate has been under development for roughly the last two centuries. The structures put in place were developed to manage complicated manufacturing processes to assure quality, safety, and profitability. The complex structure that is lines of business, departments and specialty groups was designed to ensure the productivity of a workforce who was mostly uneducated, a competitive advantage in an age where strength was dictated by size, fluid communication when the distribution of information was manual, and to manage change through a multi-year plan.
Though it may seem obvious that business and people have changed considerably over the last two hundred years, our bureaucratic structures have ballooned. According to the Harvard Business Review, the number of managers in corporate America has grown by more than 100% since 1983, where the total number of people in all occupations has increased by only 44%.
What does this mean to business in 2018? That there are far too many people standing between our brilliant builders and our customers.
It is time to declare the bureaucratic structure of business done. Time of death, 2018.
AN EXAMPLE OF THE FUTURE: HAIER v. GE
Often credited for the 4,000% growth of GE during his tenure, the philosophies of Jack Welch have been the foundation for management programs for decades. What few will recognize however is that the same practices which led to General Electric’s (GE) meteoric growth are also responsible for the company’s 2018 delisting from Dow Jones, as well as similar fates that have plagued many others who have blindly followed the Jack Welch playbook.
Some may wonder how a method that worked so well for so long could also be responsible for such a rapid decline in competitiveness.
Times have changed. People have changed. What drives value has changed.
What has led Chinese appliance maker Haier to $35-Billion in revenue, 23% year-over-year business growth, and an 18% annual growth in profitability, while a juggernaut in the same space is bleeding cash?
To put it simply, a fundamental difference in management philosophy.
Below are six key differences embraced by Haier in their Rendanheyi operating model that you can begin applying today to gain or retain your competitive advantage.
(1) OUT WITH ENTERPRISE, IN WITH MICROENTERPRISE
Most large organizations are consolidated into a few large areas of business and run in a monolithic fashion, each with its own culture and strategy.
Consider a bank, who provides financial and insurance products to its customers. The organization may be broken into three distinct lines of business: Property and Casualty Insurance, Banking, and Investment Services. This sort of structure is typical of most modern companies.
Even companies of larger scale, such as GE with it’s 29 active business units, operate much in the same way.
These structures leave organizations vulnerable to disruption and blind to emerging market trends and threats. In short, they are much too large to remain viable in the supersonic pace of business in 2018.
Haier is much different. In positioning itself as a leader in modern business, Haier has divided itself into more than 4,000 microenterprises (MEs), each containing 10 to 15 teammates. Some MEs, such as specific manufacturing teams, may be larger, but even within the larger structure decisions are made by autonomous teams.
According to HBR, Haier is currently funding 200 “transforming” MEs that are focused on evolving their core product offerings for a tech-enabled world (such as Smart Refrigerators) 50 “incubating” enterprises that are focused on emerging market trends, and around 3,800 “node” MEs that are focused on core products, along with services such as technology, HR, and design.
Each ME is free to form, evolve, and disband as the ME determines necessary, similar in structure to a Community of Practice (CoP) but follow similar practices for setting targets, contracting, and coordination.
(2) OUT WITH INCREMENTAL GOALS, IN WITH THE LEADING TARGET
In organizations of days gone, multi-horizon planning, sometimes looking ahead as much as a decade, was used to plan product offerings, staffing, promotions, and investment. Leaders were asked to develop 3 to 5 years of plans, with adjustments made annually based on emerging conditions.
As business began to speed up the planning horizons began to contract with annual planning and quarterly adjustment being the trend to address market demand.
Even this is not enough. In an ever-evolving business climate, our plans need to be as fluid as the market itself. At Haier an independent market assessment team analyzes the market of each ME and establishes leading targets for the teams. This target is what drives the evolution and progression of a team and holds each ME accountable for success.
The behavior driven by the clear targets drives interesting behavior for a team. For example, if a product owned by a ME at an airline were responsible for the mobile booking feature within the firm’s mobile app, research may indicate that in a market of five airlines, the platform owned by the team is ranked 4th. The leading target for the team may be to become the #1 mobile booking platform in the world. Together, the team will have to collaborate to understand what separates their product from the others, create a strategy to take over the top spot, determine if they have the right skills in the ME and if they don’t, get them.
(3) OUT WITH MONOPOLIES TO INTERNAL CONTRACTING
Most employees in most organizations are blind to the customer and market that the organization sells. People in functions like manufacturing, research, finance, human resources, legal, and even IT reside in protected spheres that are all but immune to the ideas of customer service. These staff functions are often viewed as forced on the business, and without competitive forces driving excellence, the service offered by these organizations is mediocre at best.
The contracting model at Haier places the burden of financial solvency and customer excellence within each ME. Each is given its budget for things such as design services, HR support, technology services, legal, and so on. It is up to each enterprise to decide to contract with the internal ME offering needed services, or not.
If, for example, a legal team is not providing the level of service that is expected by teams, the teams can contract with another entity who does, the internal team will become financially insolvent, and it will go out of business. The failure is the result of the team failing to meet expectations, and the teammates were the only ones accountable for their destiny. According to HBR, Haier expects each market facing ME to evolve from selling products or services, to creating a and operating within its ecosystem.
Imagine how your organization may perform if each service offering was held to such a standard. How much more efficient could your business be?
(4) OUT WITH TOP-DOWN PLANNING, IN WITH VOLUNTARY COLLABORATION
How does a company comprised of so many MEs synchronize to deliver value? Easy, Scaled Agile Framework (SAFe!)
I kid! However, only a little.
Organizations have done a fantastic job of creating fiefdoms within their bureaucracy. Before we can even begin thinking of a framework as evolutionary as MEs, we first have to get back to the basics of understanding that value flows horizontally through the organization, and that nobody is delivering value solely from within his or her silo.
Constructs such as SAFe can help us begin thinking in those terms. The tools within the framework challenge traditional structures, force economic decision making and put people in positions to encourage spontaneous collaboration.
Though not labeled as such, the collaboration method within Haier’s system is very similar. A typical market platform is a collaborative effort among around 50 MEs. Haier places the responsibility of the Platform Owner to bring together the appropriate ME’s to foster collaboration.
For those of you familiar with SAFe, this will sound very similar to both the “Release Train” and “Solutions Train” constructs in SAFe, as well as the “Product Manager” and “Solutions Manager” roles.
Similar to SAFe, the Platform Owner does not have any direct reports and acts a servant leader striving to provide clarity to the Platform community.
(5) OUT WITH STRONG SILOS, IN WITH OPEN INNOVATION
Similar to my post last week making a call to close the innovation lab, the Rendanheyi makes a deliberate appeal to dismantle the silos and share learnings broadly.
For an in-depth look on this topic, please check out the post mentioned above.
In short, innovation is the result of a culture rooted in Agility and coached within teams, or MEs, throughout the organization.
(6) OUT WITH RESOURCES, IN WITH OWNERS
The Rendanheyi approach to business is dependent more than anything else on changing the way organizations approach the leadership of people. The research conducted by Dan Pink “Drive” suggests that what organizations require to thrive are not followers of orders, but engaged doers who take ownership in the purpose behind their work. What they need are owners. It seems apparent that Haier exemplifies Pink’s findings.
To understand the depth of what needs to change in organizational culture, check out my post on Agile HR.
To remain competitive in our insanely fast-moving economy, businesses have to change their approach to management, planning, innovation, and most certainly people. Though the HBR article that I started off by paraphrasing is recent, my point in doing so is to draw the parallel between their model and a mature state of Business Agility and an Innovation mindset.
Though the constructs of Rendanheyi are nothing new to most American business leaders, what is fascinating by Haier’s implementation is the pace at which they have reached maturity, the scale of their success, and their evolution of some of Reinertson’s core teachings.
As leaders it is time that we put aside the excuses for why we are different, why these methods will not work within our organizations, and take a moment to reflect on the paths of companies such as Sears and GE, and look again to Haier to understand what is possible.
The world is changing with or without you.
Jump on the bus!
It’s going to be a fun ride.
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