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The Haier’s Tao of Innovation: A case Study of the Emerging Total Innovation Management (TIM

Xinru Liang
Research Center for Innovation & Development, Zhejiang University Hangzhou, China liangxr@zju,

Gang Zheng
Research Center for Innovation & Development, Zhejiang University Hangzhou, China

Qingrui Xu
Research Center for Innovation & Development, Zhejiang University Hangzhou, China sbaxuqr@diaI.zju,

Abstract This paper explores Haier group’s Tao o f innovation mainly by the practice and experience of Haier Group. Based on it, the authors put forward the theoreticalfiamework of the emerging new paradigm of total innovation management (TIM). Case in this leading Chinese enterprise has shown some exciting evidences that implernenting TIM can have positive relations to the value creaf enterprise as well as the accumulation of its tiadadded o core competency. Beginning with the introduction of Haier ‘s development and achievements, this paper explores the Haier’s Tao of innovation in detail, which includes the evolution of all the innovation agents such as strategy. management, culture, organization, technology and so on, and analyzes the relations and interactions of them. Based on it, the authors indicate that it’s the effective and systemic synergy and management of all the innovation agents that contribute to the rapid development of Haier Group.Grasping the marrow of TIM and putting it into practice is one of the crucial approaches at present for Chinese enterprises to reduce the gap with international advanced enterprises as soon as possible.

placed Haier 5th of the world top manufacturers for white electrical appliance producers. Why can Haier keep a steady and rapid growth in the past 18 years? Haier has gradually accumulated and shaped the unique Tao of innovation based on its excellent innovation culture, since 1999. According to our research, it’s just the interaction and systemic synergy of all the agents mentioned above, plays key roles for Haier’s rapid growth. We named the emerging new paradigm as total innovation management (TIM). Haier’s performance in recent several years has proved that the new paradigm is very successful, which has greatly improved Haier’s core competency and the market competitiveness. The innovation initiative of all the employees is activated, and innovation has becomes the focus of attention and indispensable pan of every one’s job. The development of new products has been greatly speeded (Tablel). It’s estimated that the direct benefit of implementing process innovation is about 42 million dollars during the period of July 1999 to June 2000. The indirect benefit of implementing TIM is much more than it. The fast growth of sales can provide some positive evidences to certain extent. Table 1. RBD performance and time to market are improved sharply ()

Keywords Total innovation Management; Innovation Synergy; Everyone as Innovator
1. INTRODUCTION 18 years ago Haier was a small collective factory named Qingdao Refrigerator Factory (the predecessor of Haier Group) with sales of US $0.42 million only, but with debts of US $ 0.18 million. Due to poor quality of products, the factory was on the verge of collapse. Zhang Ruimin, the CEO of Haier Group, was appointed as the leader of the factory at the end of 1984. Surprisingly, 18 years later, Haier has become the Noldomestic electrical appliance producer in China with total sales of US $ 8.7 billion and an export value of US $ 1 billion in 2002. Haier has witnessed an annual sales increase of 73.8% and made significant achievements in the past 18 years. Haier now produces a wide range of household electrical appliances in 86 categories and 13,000 specifications, and products are exported to more than 160 countries. Domestic market shares of Haier refrigerators, freezers, airconditioners and washing machines are all more than 30%. Statistics of the Euromonitor from a market survey 2002

1 New products

1 1999 I 2000 1 1 253 1 316 \

2001 340

I 2001

I 380 1


(Source: RCID data collected from Haier Group yearbook and other documents, 2003)
2. RESEARCH METHOD We explore the Tao of Haier’s innovation by case study, and the primary research methods are interview, meeting with discussion, literature and documents review etc... Interview. The practice experiments of Haier’s staff and top managers are the major sources supporting this research. Research team conducted many interviews to more than 30 persons of Haier with wide diversification, such as

0-7803-8150-5/03/$17.0002003 IEEE


namely Suochou (ask for payment). OEC management pattern is composed of the objective system.senior executives (as President. The special method helped Haier save much cost of diversified expansion. the latter one can ask for compensation. A firm’s capacity comes from not only the activeness of employees. CEO. Obviously. and many related materials have been collected. by which to master the evolution and trends of innovation %m&“hese investigations. Suopei (ask for compensation) and Tiaozha (cut the market chain when problem occurs).1 From OEC to S S T Haier’s managerial & institution innovation OEC means 0-Overall. Some published materials and Haier website c w w is also an important source of the research. C-Control and Clear. the former (provider) work position will ask payment when they provide latter one with the semi-products. OEC might in some degree put workers as a “screw” of the enteerprise “machine”. from managers to every ordinary employee. The essence of OEC is to ensure the persistent improvement by strict and careful management of process. daily control & clear system and the incentive mechanism. where workers did not directly face to the market and customers. the former processes and latter ones are linked up with market chain. Using the invisible cultural capital to activate the visible “shocked fish” enterprise. especially in the early days of Haier’s development. named Market Chain “SST” is the abbreviation of three Chinese words. Haier Newspaper. visits and interviews. E-Everyone. It’s exciting that if the daily control and clear can improve the performance by I%. daily control & clear should leads to daily improvement by at least 1%.). the relationships among employees are changed from functional to process-based. Generally. engineers and workers. 6 . the related third party (often the supervisor) will cut the market chain and solve the problem. and if there is any delay in the former position. All workers are innovators. Based on the OEC management. No matter “do the things right” or “do the right things”. What’s more. However. OEC pattern also embodies the thought of people first and high involvement of everyone. the performance will double after 70 days. and from the superiorsubordinate or colleague to market relations. several Haier-related cases studies and academic articles have been published recent years. Trace study. building up common Haier value. The aim of Market Chain is to achieve “every one as a S B U . by which to link one’s job with another. By providing every employee with the individualized room for business and innovation to resolve the problem. the essence of Haier’s Market Chain is to transfer extemal market pressure to internal market pressure. Haier designed the “responsibility chain”. and definite detailed responsibility of every employee toward firm’s objectives. OEC require: never delay today’s work to tomorrow. institution and technology innovations were successfully integrated into a whole system under the unique innovative cultural circumstance. namely “every one is boss”. Members of research team have reviewed a plenty of academic literatures related with innovation management both native and abroad. managers. Prof. OEC pattern was developed and implemented to ensure the fundamental management of daily operation. and influenced by Ruimin Zhang. functional departments. SBU(strategy business unit)s. the qualified people are fundamental. CTO. Research team collected and examined many company’s unpublished documents such as employee handbooks. which establish the foundation for the later thought and innovation of “everyone as SBU”. and other materials and data about Haier’s development and economic performance.2 Haier’s people-first based culture innovation: Everyone is innovator During the evolution of Haier’s development. Haier’s strategy. Haier began its “diversified development” period in early 1990s. an innovative culture has been shaped and strengthened gradually. and so motivate everyone’s vigor to satisfy the individualized market demand. by which to make every one facing to market directly. It means that. but also “the trust of individual value throughout the enterprise”. Everyday and Everything. It can improve the quality remarkably by strict process control which emphasizes rules and orders. The core of people-first culture is that the creativity and the activeness are the instinct of people. organization. more than ten members of RCID have frequently visited Haier and made indepth investigations & researches on Haier’s innovation management. This cultural circumstance makes everyone in Haier. 3. namely everyone should be innovative. Haier went to cany out a new revolutionary management. The market can play the role of monitor and control as well. Data collection and analysis. etc. CASE STUDY HAIER’S TA0 OF INNOVATION MANAGEMENT 3. When there is something wrong during the fulfillment of orders. “daily control & clear” and the goal of “improvement of 1% everyday” also indicates the thought of continuous improvement and the need of innovating all of the time. it is not enough to “do the things right”. head of Central Research Institute. In the past 9 years. Actually. they will be full of creativity and vigor. Qingrui Xu and his colleagues in Research Center for Innovation and Development (RCID) of Zhejiang University have paid continuous attention to Haier Since 1994. 3. it is necessary to “do the right things”. By “Market Chain” management. Literature review. Haier’s culture is people-first culture.

“Winning. institution innovation. flexibility of innovation process.4 “Creating Markets and Customers”: Market Innovation in Haier When Haier went through its development from the brand strategy to the globalization strategy. this paper summarizes and constructs a platform model of Haier’s technology innovation and its supporting system (Figure I). the market segmentation of refrigerators takes foumtandards. and so on. At the same time. Based on market division. Haier has not accessed to:market by competing for what is existed. Haier realizes that traditional technology develop pattem in many developing enterprises. Haier’s capacity of indigenous innovation has been improved significantly. Haier spent seven years to build up the famous brand in refrigerators through well-planned TQM (total quality management) system.imitating again”. then caused a large amount of stock. and the goal of BPR is to realize zero distance with market and customers. Haier bas introduced a business process reengineering system linked with “market chain” since 1999. and combining the idea of technology innovation platform. By far Haier has changed its organizational form to a flatted and process-based network structure. 3. For example.1 The formation process of TIM in Haier The launch of TIM in Haier was under the effect of both internal and extemal factors. introducing experts. Haier has chose some strategic fields to do exploring study by its 11 leading-technology institutes and 10 world-class technique labs. During these years. Haier developed mass innovation and synergized all the achievements of every department and every employee to form the innovative platform of the firm. now Haier’s technology innovation is a synergy of each innovation agent on the total innovation platform. indigenous management of employees etc. Flatted and process-based network structure (since 1999). such as: “introducing . With the aim of building an international famous brand.the value-added war. to compete with world-class enterprises. frequency-conversion technology of air conditioner. Haier makes pertinent development and marketing to every subsection. “Make new cake” Since the beginning. The intemal factors included strategy. which focuses not on task but on performance. management innovation and market innovation. but according to the valuable market order won by innovating and improving the added value of the products. Freon-free technology of refrigerator. With the increasing scale and the complex of management. which is a revolutionary organizational change. there came many new thoughts on market innovation. and integrating all innovative resources native and abroad. but lied in not catching the user’s needs. enabled and accelerated by modem ICTs (Information and Communication Technologies). The effective construction of Haier’s innovative technology organization gradually finished after continuing indigenous innovation these years. the dominant organizational form was a hierarchical and functional structure. To foster some promising technologies with wide market potential by which to win sustainable competitive advantage in the future. In this stage. which are style. only makes the firm’s technology development in vicious circle. .3. Employing these four standards. The extemal factors included globalization economy. For example.3 Orderly non-equilibrium structure: Haier’s organization innovation Haier’s innovation in organization structure can be divided into three stages: Hierarchical and functional structure (1984-1991). but not the price war” The key of the price war did not lie in the price. but hy “making new cake” through technology innovation. the networked home appliance based on blue-tooth technology. business unit was launched and dominant during this stage. estate. and the firm will not reach the world-class product forever. intemational competitive environment. Haier‘has constructed a fargoing extemal innovation network all over the world that formed powerful support for Haier’s R&D system. Haier has reached or exceeded the advanced international level in some fields such as car GPS technology. organization innovation. Haier implements it’s fined market segmentation strategy and have found many new markets. Business unit structure (1992-1998). culture innovation. location and climate. 3. OBSERVATION & DISCUSSION 4. “Precise market segmentation” Haier focuses heavily on market division. macroeconomic policy etc. 4.5 Technology innovation is on the platform of total innovation management As a whole. The secret of Haier is that never produce for the stock. after implementing advanced research instruments. Analyzing Haier’s developing process of strategy innovation. always laggard behind.imitating -introducing again .

All these need innovation to he all of the time and throughout the world. innovation of all time and innovation of everybody. satisfying customized needs by TIM. reduced costs. shorten the time to market. Haier integrated all the related resources throughout the value chain. as important part of innovation system. 6 design branches. great benefits have gained. The causes and goals of this engineering are 1) preventing Haier from the “Sickness of Large Enterprise”.2 Features of Haier’s TIM Innovating by everyone. CONCLUSIONS a OUTLOOK As we discussed.China and abroad in international competition vs. they realized the 24-hour continuous R&D. which includes 15 R&D centers. such. dealers and stockholders. The trends of globalization and’network economy and wave of ICTs based new technology revolution. global innovation. the R&D of Bluetooth Internet appliance is just such an example. innovation can occur at anytime. Haier induces the parallel approach to developing new products by integrating the global technical and intelligent resources. . need of innovation in each respect. all the employees in Haier are being motivated greatly. As a result. and IO S&T information stations that located throughout Europe. that is. Need of diversified development vs. such as suppliers. Need of quick response to market and shortening cycle ofR&D. American technologies.Main internal factors were as follows. Under the paradigm of TIM. e Competition in all aspects. Haier Group put the “ERP system linked with Market Chain” into practice. It is gradually forming an effective Tao of innovation and corresponding mechanism of managing total management in practice. Innovating throughout whole processes. Innovating at anytime. by which the customms both native and abroad can design their favorable customized products online. Instead of the internal and linear development mode. requires innovation in each respect. Haier’s 18 years innovation practice has provided us with the interesting experiences. Technological and non-technological factors are not integrated in quality. especially Haier innovation and its philosophy. Haier cooperated with Ericsson and worked in relays to keep a continuous development. There are more than 9200 basic product models and 20000 basic modules on the e-commerce platform. and the advanced ICTs such as internet and mobile phone make them realizable. Need of dealing with the increasing complexity in innovation management. For example. during the developing process of Internet appliance series. novelty. suppliers and dealers as co-innovators. When R&D personnel in Haier were coming off work at 9:OO pm. service. Haier brings forward the action of “Design the icebox yourself” in recent years. 2) transferring Haier from traditional form which is vertical integrated and function-based to horizontal and process-based network form. They were as follows: Inconsistency between supply and need after market’s transform vs. In order to speed the R&D cycle. the R&D personnel in Ericsson were just beginning to start work at 2:OO pm. performance. and speed etc. which greatly speeded the developing efficiency. and gains more than 1 million customized orders every year. We named it as “Total Innovation Management” (Figure 2). flexibility. Japanese experts. the innovation cost is shared and reduced largely. The essential causations for Haier’s. The internal factors were main ones to drive Haier to TIM. What’s more. by the help of internet. 4. 5. How to integrate resources in. By integrating the resource of users. In this way. For instance. and R&D cycle is remarkably shortened. TIM were five inconsistencies faced with Haier. They went on the R&D based on the Haier’s achievements. And “Market Chain” give more chance to staff to find the disequilibrium. which is low efficient. What’s more. it grcatly improved Haier’s intemational competitiveness. North America and Asia-Pacific regions. More individualized market demand and shorter time to market. The practices in recent years have proved that it optimized the business processes. TIM based collaboration among all innovations by all factor. Need of globalization strategy in Haier. the products are more customized. Haier has been paying much attention to invite users (or potential users) as co-innovators. to the point where innovation is as natural as breathing. Oriented by the strategy of globalization. Innovation speed and ability needed by globalization strategy is poor vs. which was a ICTs-based revolutionary process engineering to face the challenge of Internet economy. as well as the visual design from France fashion designer. Haier has realized the globalization of all the innovation processes. by which to realize “Zero Distance with Customers”. were systemically integrated together. o Need of improving quality and innovative competence of employees. In 1999. The external factors were as follows. Innovating throughout the whole value chain. Globalization of innovation. Since the implementing of TIM. and are becoming innovative SBU. and the external factors determined external conditions and requirement. et al.

et al. which means that innovate by everyone. Management innovation is operational base. 2002. institutional. on everything. et a1.Theoretical model and case study o f portfolio technological innovation [J]. 2001.. Q i n p i Xu.Gang Zheng. Towards Capability-based Total Innovation Management: The Emerging New Trend o f Innovation Management. Management o f Research. process. Jin Chen. lemma: The Revol~tionaryNational Bestseller That Changed The Way We Do Business. 3) the innovation synergy among innovative elements. Including organizational. The Innovator’s Di- Thoughts and culture innovation is precondition. TIM is still a new trend for both native and abroad. The remarkable difference between the traditional management of innovation and total innovation is that it breaks through the past framework of innovation confined only in R&D department. and at any time.. Figure2 the pentagon model of total innovation management 0 Innovation synergy is approach. Zhejiang University Press. From Portfolio Innovation to Total Innovation: New Development o f Innovation Management. REFERENCES [I] Qingmi Xu. 2000. Russell W. [SI Qingmi Xu. as innovative key element. What it the essence and objective of TIM? 0 Aim at winning the sustainable competitive advantage (value added). The dimensions of TIM inherent elements was as follow: 0 Strategy innovation is the blueprint.3: pp29-35. Gang Zheng. 2002. which is hoped to be useful for reference. With the proper mechanism and tools. et al. Press. ISMOT&ICMIT02 Proceeding. Harper Business. Christensen. cultural. TIM makes innovation pervasive and perpetual throughout the organization. AMACOM. Institution innovation is stimulator. Press. Focus on accumulating and improving the core competency (as core competency not limited to technological ones). [2] Qingmi Xu. et al. 2002. Driving Growth Thmugh Innovation-How leading firms are transforming futures Berrett-Koehler Publisher. at anytime to innovate.The Business of Innovation: Managing the Corporate Imagination for Maximum Results. at everywhere. etc. Ralph Keyes. (Source:Qingrui Xu. ISMOT&ICMIT’OZ Proceeding.l997. 2) it covers the whole space-time dimension and continuous innovation in every department by. Gang Zheng. 0 0 To sum up. 1997. and there are a lot of theoretical and practical problems such as the characteristics and operation mecbanism of TIM.. Zhejiang Univ. The Impact o f Internet Economy on Organizational Innovation: Case Study o f a Chinese Top Enterprise. Bin Guo. [6] Roger Bean. 2000. Tucker. Free Press 0 0 9 . Scientific research management. [7] Robelt B. Radford.Market innovation is orientation.2002. Towards Capability-based Total Innovation Management (TIM): The ---Emerging New Case Study of Trend of Innovation Management-A Haier Group. 2002. [4] Gang Zheng. including the whole value chain innovation. Zhejiang Univ. [9] Richard al.) There are three layers on total Innovation: 1) it involves innovation in all functional area. to be studied and resolved.. This paper only brings forward a preliminary idea and framework of total innovation management. Whoever Makes the Most Mistakes Wins: The Paradox of Innovation.. [3] Qingmi Xu. Organization innovation is stluctural pledge. 2002. Zida Yu. [SI Clayton M. Development and Technologv-based Innovation: Higher Education Press. everybody (all as innovators). ISMOT&ICMIT’OZ Proceedings. IEMC’OZ Pmceedmgs.