Six Sigma gives way to Rendanheyi at GE arm

Weeks after sealing a $ 5.4 billion deal to buy General Electric Appliances ( GEA) in 2016, Zhang Ruimin, chairman of China’s Haier Group, stood before 500 anxious GE white- collar workers who asked a barrage of questions about their futures. The irony wasn’t lost on Zhang, revered in China as a pioneering corporate titan but mostly anonymous to the outside world. When Zhang was struggling in the 1990s to transform Haier from a collective village enterprise into a world- class manufacturer, he idolized General Electric Co. because of its reputation for corporate excellence. “We went for courses at Crotonville, studying Six Sigma,” he says, referring to GE’s management training center in New York and the data- driven processimprovement strategy espoused by former Chief Executive Officer Jack Welch. “Now they were looking at me, asking: ‘ What can you do for us?’”

As it turned out, quite a lot. Zhang may have cut his teeth on Six Sigma, but as Haier became the biggest appliance maker in the world, he thought it needed a different playbook to eliminate the sluggish bureaucracy that comes with size. So he created a management philosophy he calls rendanheyi, which translates loosely to “employees and customers become one.”

The ideology seeks to make big companies operate like a collection of startups, emphasizing flexibility and risk- taking— and no middle managers. Zhang thought the approach would help revitalize a stagnant GEA.

For Zhang, Haier’s remaking of GEA reverses the typical narrative that cashrich Chinese companies fail when trying to assimilate Western acquisitions. That script was written by the implosion of such deals as TCL’s acquisition of France’s Thomson Electronics, SAIC Motors’ takeover of South Korea’s SsangYong Motor, and Ping Ang Insurance ( Group)’ s investment in Fortis, which was mostly written off after the Dutch- Belgian financial- services company collapsed during the financial crisis. “Seventy percent of acquisitions fail, and 70 percent of that is because of culture,” Zhang says. “What we are is an example to follow.”

The successful union comes amid increasing diplomatic and trade tensions between the U. S. and China. Zhang says he’s troubled by the disputes, but he’s not worried they’ll affect Haier’s work with GEA. Haier helped bring the company “back to life” and wants to contribute to the U. S., not harm it, he says: “Our GE Appliances employees are feeling fortunate that Haier acquired this company. If not, they might have been laid off.”

Zhang implemented rendanheyi in 2010 at Haier. It advocates dividing monolithic business units into microenterprises that essentially act as startups with quarterly targets. Base salaries are low, with performance- based bonuses added on.

The key tenet of the structure is that every microenterprise has “zero distance” to the customer, he says. Haier organizes business units around individual products instead of traditional functions such as supply chain, factory operations, and distribution. For example, everyone involved, start- to- finish, in the making of a washing machine— from sourcing materials to manufacturing to sales— works in the same microenterprise.

“Thirty years ago the company was a struggling collective enterprise turning out products of dubious quality,” Gary Hamel and Michele Zanini wrote in the November- December 2018 issue of Harvard Business Review. “Today it’s a case study in what can be accomplished when an established company is willing to challenge bureaucracy’s authoritarian structures and rulechoked practices.”

GEA’s old management structure created riskaverse silos that crippled the company’s ability to launch products such as water heaters and packaged air conditioners.