Human Resource Management

Analysis of Case Study: Managing Performance at Haier

Ques 1. Synopsis of the Case?

Answer. This case study is about a Chinese company “Haier” and how the CEO Zhang Ruimin,
under his unique performance management system brought up Haier from a “Bankrupt
Collective Enterprise” to the cover of “Forbes”. Few strategies that it followed to be successful
were that it pursued a strategy of creating than dominating market niches, for example, it
dominated the half of the US market by manufacturing refrigerator for college and hostel dorms.
It believed in product diversification, product innovation to increase niche markets, Market
initiatives to emphasize product quality and market research, globalization and innovative human
resource management practices. Zhang’s management principles integrated Japanese
management philosophy, American innovation and aspects of traditional Chinese culture, as well
as Haier’s own learning. These policies were introduced into an environment framed at the
beginning by the Chinese cultural values of harmony, face, relationships and hierarchy, as well
as by the management practices inherited from state-owned enterprises (SOEs). Zhang remarked
on the importance of effective human resource management policies. He saw that sense of
urgency was heightened by internal competition as well as external. Zhang noted that
“employees can begin to feel market pressures even though they are inside the organization.”
Further, he felt that this philosophy had helped Haier avoid two problems that had traditionally
characterized Chinese organizations. Another fundamental element of Zhang’s performance
management system was accountability, at all levels, at all times.

Haier was among the first Chinese manufacturers to have established manufacturing bases
overseas. An interesting question was whether the performance management practices that had
earned Haier such success in China were transferable to other cultures as it continued with its
aggressive pushes toward international expansion.

Many of Haier’s performance management philosophies were considered groundbreaking not

only for a Chinese company but also for any firm anywhere. Now the question was how could
Haier’s performance management systems be applied in other regions of the world?

Ques 2. What was the situation in the year 1985?

Answer. Haier in 1985 was the Qingdao Refrigerator General Factory, ran into a debt of RMB
1.47 Million that was almost equal to the salaries of 3000 employees and therefore was at the
verge of bankruptcy. At that time the performance of the organization was similar to the other
Chinese locals characterized by
 Poor management
 Bureaucracy and inefficiency
 Little or no focus on cost or quality control of the customer needs
A shift came in the company’s fortunes when Zhang Ruimin was appointed CEO in 1985 and
between 1984 and 2006 Haier’s revenues jumped from RMB 3.48 million to RMB 1.4 billion
since, he had turned the small loss-making refrigerator factory into a group of more than 240
plants and companies, employing over 50,000 workers.

Ques 3. What was the situation in the year 2006?

Answer. Haier in 2006 ranked sixth largest maker of kitchen appliances and had a market share
of about 4% and a strong position in washing machines and refrigerators. Its gains in revenue
jumped from 3.48 million RMB to 1.4 billion RMB. With respect to exports it increased to a 1.7
billion dollars in 2006 and Haier's products were sold in about 160 countries and in 12 of the top
15 European countries and in all top retail chains in North America. It has 86 different product
categories with over 13000 specifications and also innovated to create niche marker and it turned
into a valuable brand in China as well as globally.

Ques 4. How did an ailing socialist enterprise transform to a thriving multinational?

Answer. The reason behind this was Zhang Ruimin, when he was appointed as CEO of the
company in 1985 various performance management tools and management practices were
introduced which led to tremendous motivation and zeal among the employee to grow and
improve. He had turned the small loss-making refrigerator factory into a group of more than 240
plants and companies, employing over 50,000 workers. The company was seen as capable not
only of succeeding in China but also of competing on the world stage.
He combined and integrated the following together:
 Japanese management philosophy
 Traditional Chinese culture
 American innovation

Ques 5. What are the basic components of Haier's PMS?

Answer. The basic components of Haier’s PMS are as follows:
 Product diversification: Haier evolved from one refrigerator model in 1984 to 86
different product categories with over 13,000 specifications, including microwave ovens,
air conditioners, small home appliances, TVs, washing machines and MP3 players.
 Product innovation to create niche markets: In China’s major cities, living space was
limited, families were small and energy was relatively more expensive. Haier invented a
miniature washing machine as a secondary household machine to wash small loads of
laundry daily in summer.
 Marketing initiatives that emphasized product quality and market research: In
contrast to many Chinese manufacturers which competed on price, Haier sought to
differentiate its products. In a recent price war in both the domestic and international
appliance market, Haier actually increased its price to send a message to the market of
Haier’s quality and service.
 Globalization: By 2007 Haier had set up many overseas production bases, service and
sales facilities, procurement networks and international technology alliances and joint
ventures with foreign players to better penetrate international markets.

Ques 6. What are the principles behind the success of Haier's PMS?

Answer. The principle behind success of Haier PMS were the integration of the Japanese
philosophy, American novation and use of traditional Chinese culture, as well as Haier’s own
learning. Some other principles were:
 Frequent appraisal processes
 Generation of the talent pool for hiring or new openings
 Working on the 80:20 principle the supervisors were made accountable for their groups
performance which lead to better results
  High quality product
 Diversification
 Customer focused
 Mutual reinforcement in the team
 Layoff of inefficient employees resulting into very efficient work force

Ques 7. Why does Haier's PMS work?

Answer. Haier’s PMS work because of the following reasons:
 Every employee was given his own set of challenges due to localized nature of PMS at
Haier’s.
 Employees itself were treated as internal customers
 Rewards for proactive behaviour were given
 Individual accountability created a sense of responsibility
 Frequent performance appraisal created a sense of competition among the employees
 Use of the overall every and control and clearance (OEC)
 Haier’s own 80:20 principle

Ques 8. What are the possible pitfalls of Haier's PMS?

Answer. Some of the pitfalls of Haier’s PMS are as follows:
 Too much pressure on employee constantly creates a sense of irritation and defoliates
their enthusiasm
 Back tracking and long-term perspective were missing in the developmental aspect
 Job insecurity was prevailing among employee as they were relieved if their performance
was not up to mark.
 Use of Forced Distribution by the company in which ranking Top 10% and Bottom 10%
of the workers, which damaged the morale of the employees, method was biased by the
recent performance
 Difficulty in the system for determining the appraisal and salary increments for
employees.

Ques 9. It is sustainable? why or why not?

Answer. I think it is sustainable as we can see what the company has achieved in such short
duration. If monitored properly they would result in even better results for the company. The
management principles were integrated with Japanese management philosophy, American
innovation and aspects of traditional Chinese culture, as well as Haier’s own learning. These
policies were introduced into an environment framed at the beginning by the Chinese cultural
values of harmony, face, relationships and hierarchy, as well as by the management practices
inherited from state-owned enterprises (SOEs).

Ques 10. Could it be effective outside China?

Answer. Talking about the effectiveness of the model it will not work that effective outside
China as there are various factors other factor that affects it like Political and Legal, Economic,
Social and Cultural factors involved. It can be effective in Asian subcontinent countries like
India, Bangladesh because the labor productivity in these countries is very low compared to
Japan and other countries. The labor supply is huge in these countries so labor can be hired quite
easily. By applying PMS in these countries will result in better efficiency. Other reason could be:
 There are different policies & regulation in different countries, thus it is difficult for the
company to implement same Performance Management System across the different
country as Haier manly follow the Chinese law, other countries have different labour law
thus makeover of work policies are required as per different -different country’s legal
standard.
 Wages Policy need to be structured as per the living standard of different countries,
according to the country condition HR policies need to be sensitive
 The HR policies need to be re -worked as per social norms & standard of the different
countries at the developed & developing country have different social acceptance &
condition.