Leadership For A Digital World (Annika Steiber) (Bibis - Ir)

Management for Professionals
Annika Steiber
Leadership for a
Digital World
The Transformation of GE Appliances
Foreword by
Edgar and Peter Schein
The Springer series Management for Professionals comprises high-level business
and management books for executives. The authors are experienced business
professionals and renowned professors who combine scientific background, best
practice, and entrepreneurial vision to provide powerful insights into how to achieve
business excellence.
Annika Steiber
Leadership for a Digital

World
Foreword by Edgar and Peter Schein

Annika Steiber
Menlo College
Menlo Park, CA, USA
ISSN 2192-8096 ISSN 2192-810X (electronic)

ISBN 978-3-030-95753-7 ISBN 978-3-030-95754-4 (eBook)
https://doi.org/10.1007/978-3-030-95754-4
The Haier Model Research Institute

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Foreword by Edgar and Peter Schein
The Haier GE Appliances story embodies critical lessons and principles for the
twenty-first century business leaders and students of management and innovation.
While we can think of great business combination successes, this case is uniquely
modern in how it forces us to re-think everything, to imagine a complete and
systemic transformation of a century-old American “white goods” stalwart com-
pelled by a 1980s Chinese startup to re-emerge as something better, more competi-
tive, more profitable, and designed for the next century.
The GE Appliances model that has emerged in the last five years is frequently
advocated in theory yet rarely implemented successfully in practice. It is now widely
accepted that the more complex, systemic, and dynamic the business problems, the
more important it becomes to push decision-making power and autonomy to the
level which has the most relevant information and the capacity to act on that
information. Three sets of questions arise for the typical organizational hierarchy.
First, design: How low should power and decision-making autonomy be assigned, or
allowed? Can an organization allow for, and design for, power to be greatest where
information (market insight) is most likely to be found? Second, coordination: How
should coordination between the units of the organization be managed or allowed to
“self-organize” as much as possible? If top-down oversight of self-organizing is
required, is it self-organizing? Third, human relationships: Can and should the
working relationship between employees at all levels be open and trusting (“level
2”)? Or will the organization regress to transactional “level 1” relationships because
conventional professional distance appears safer and more scalable?
All three of these challenges—Design, Coordination, and Human
Relationships—are, by definition, cultural problems, because the transformation
requirements require rethinking some of the most fundamental assumptions of
conventional management culture, such as the core assumption that organizations
should organize as predictable, consistent hierarchies with power and autonomy
rising as one goes up the hierarchical ladder. In today’s multinational organizational
context, however, talent at all levels, especially in selected specialties, are actively
creating alternative hierarchies that enable an increase in autonomy, agility, status,
and compensation for those specialists most valued by the enterprise. Endowing
such specialists with autonomy and self-management, whether as individuals or as
groups, requires a major change in the deep underlying assumptions of leaders.
v
vi Foreword by Edgar and Peter Schein
Business system transformation, and cultural change, is always very challenging and
requires significant effort and emotional commitment, on a daily basis, from key
leaders.
Perhaps what is most intriguing here is the impact of two leaders from dramati-
cally different backgrounds, along with their respective senior management teams,
aligning around a shared set of new assumptions about motivating humans at work.
The “micro-enterprise” approach and “RenDanHeYi” philosophy offer autonomy
and responsibility instead of control and accountability.
This may not sound new in the ideal; we believe it is rare in practice.
What makes it work now, and in the future, may well come down to how the GEA
team copes with the fundamental tensions of transformation. As they emerged from
the tough days in 2015, their “survival anxiety” was a powerful and understandable
catalyst for change, and hence a driving force for the Haier RenDanHeYi transfor-
mation. Yet as we know, this drive to survive can also be resisted by the anxieties
associated with learning a new way, particularly such a radical proposed change. As
the change equation goes, survival anxiety must exceed learning anxiety for the
transformation to succeed. This case suggests, even further, a refinement to the
equation, that the learning energy, both anxiety and anticipation, may have added
tailwind to the survival anxiety to propel GEA to such remarkable improvement
within the first five years.
This is certainly an important story to understand in 2021, and continue to study
well beyond, since we suspect there will be much more to learn as two aligned
leaders from divergent traditions develop the vision and find the space to challenge
each other to continue changing. Transformation only ends when an entity ceases to
exist, and it only succeeds when humans at work are given the autonomy and trust in
each other to continually refine the change to suit conditions on the ground, as close
to the customer as possible.
Palo Alto, CA, USA Peter A. Schein

Palo Alto, CA, USA Edgar H. Schein
October 2021
Preface
Industries, companies, and public organizations will all be disrupted in the years
ahead, both by digital technologies and by adjustments to the alarming onset of
climate change. The context for this book is that the future will force companies to
migrate to a new management model better suited for the new time, the Digital and
Sustainable Age.
I first observed key elements of this new approach in use at Google. My findings
were published in an award-winning journal article and in my 2014 book The
Google Model: Managing Continuous Innovation in a Rapidly Changing World.
Then, starting early in 2014, I expanded my studies. The goal was to ascertain
whether I was, in fact, on to something that might be widely applicable. So, I combed
through writings by a multitude of eminent business scholars, consultants,
journalists, and executives worldwide, searching for evidence on what works best
for managing amid rapid change. At the same time, I widened my own inquiries to
look at companies which, like Google, had become well known for their growth and
innovativeness in Silicon Valley. These companies were Tesla, Apigee, and the
social-networking leaders Facebook, LinkedIn, and Twitter. I found a remarkable
convergence. The companies turned out to be using management principles and
practices that not only were similar to each other’s, and to Google’s, but were also
congruent with the best management practices identified in my global review of
leading research literature.1 I labeled these practices “The Silicon Valley Model”
because, at the time, the Valley was where they appeared to be most highly
developed and most thoroughly applied. The results of the further study—including
a detailed description of the model—were published in The Silicon Valley Model:
Management for Entrepreneurship by Steiber and Alänge in 2016.
Then shortly afterward, Haier, the global home appliance firm, invited me to visit
its headquarters in China. People at Haier wanted to discuss their own management
model, which in their view was even more advanced than the Silicon Valley Model.
That visit became the trigger for my third book Management for the Digital Age:
1
Research disciplines covered were, for example: strategy, management, management innovations,
management of technologies, innovation management, diffusion of innovations, learning
organizations, open innovation, transformation and change management, system theories, entre-
preneurship, and more.
vii
viii Preface
Will China Surpass Silicon Valley? which further extends the inquiry begun in the
first two. The third book is based on an extensive literature review about China and
six case companies: Haier, Alibaba, Tencent, Baidu, Xiaomi, and Huawei. The
literature review was conducted over one year and was complemented with selected
interviews with people who had good knowledge about China and/or any of the
Chinese case companies, and preferably could also relate this knowledge to one or
several of the Silicon Valley-based companies. The result was surprising.
As a consequence of the new digital economy, as well as of lessons learned over
40 years, the Chinese case companies applied the same management principles as do
the ones in Silicon Valley. Further, China seemed to have become the next cradle of
management innovation.
Why does that matter? Because management innovations are as important to
economic progress as technological innovations. In fact, management innovations
make more technological innovations possible. And conversely, technological
innovations, which contribute to increased business value, often require manage-
ment innovations. This means that the regions/countries that take a lead, not only in
technological innovations but also in management innovations, will have a major
business advantage over regions/countries that take the roles of followers and are
always in a “passive react mode.” Furthermore, research shows that management
innovations disseminate much more slowly than technological innovations. This
means, in the best of cases, that a region/country taking a lead in management
innovations could have competitive advantages for decades, before others have
adopted the new management principles and implemented new operational practices.
The epicenter of management innovations has moved over time from the U.K., and
Europe at the end of the 1800s, to the East Coast of the USA from the 1920s, and
then later in the 1900s, first to Japan and then to Silicon Valley, and now, as it seems,
over to China. The result is not only that Chinese companies can scale and remain
highly innovative, but also that the Western world now needs to start learning
management innovations from China, rather than the other way around.
The present book has been written for a combination of reasons: first, to summa-
rize why a new management model is needed in a digital economy, as well as to
outline the necessary core capabilities of this “new” form of organization. Second, to
highlight some common characteristics of leading “digital winners” in Silicon
Valley and China, two cradles of digital technology innovations as well as manage-
ment innovations. Next, the story of the Chinese firm Haier will be described, to
provide a context and explanation of why the company decided to transform itself
from a traditional manufacturing company into an IoT-based enterprise, fit for the
digital economy. The result, the RenDanHeYi model, will be illustrated and then
compared with the Google Model from Silicon Valley, in order to discuss how
“novel” RenDanHeYi really is. Finally, the author wants to provide a practical U.S.-
based case, showing how an organization active in a traditional hardware
manufacturing industry can conduct an absolutely transformative change of its
business by using the principles behind RenDanHeYi. In these ways, the author
will first help the reader to zoom out and see the big picture, and then zoom in to
learn from a specific case.
Preface ix
This book is intended to make a unique and original contribution to the manage-
ment field, as it is the first not only to weave together many interrelated strands of
leading-edge management research, but also to provide a real-life example of how to
transform a traditional business into one better fit for the digital age, all within a short
volume. To assist with further practical application, the final two chapters provide
key points of managerial advice and a big-picture summary.
The hope is that you will find the book to be a very useful collection of the latest
management knowledge. Ideally it will help to promote further conversation about
the need for new management models, and spur interest in learning from models now
found at some of today’s leading companies. It will also hopefully generate new
questions that need to be answered through more research and discussions. The book
can be a valuable resource for current business managers, boards of directors,
consultants, scholars, policy makers, and educational institutions that want to
teach the next generations about the changes needed in management. Hopefully
the book will also spur a necessary debate on how management can help all of us to
build a sustainable world. More research is needed on how climate change will affect
the “digital economy set of management principles” presented here. I urge
companies and organizations that have developed new knowledge in this area to
step forward and share their knowledge, so that all managers may lead our human
institutions successfully into a sustainable future.
Finally, I hope the synthesis presented in this book does justice to the work of
many, by bringing it into a new light. If that is the case, the book will be a conduit of
provocative and useful learning to business leaders, scholars, educators, and policy
makers everywhere, for years to come.
Menlo Park, CA, USA Annika Steiber

Acknowledgments
I wish to express my deepest gratitude to Haier Management Research Institute

(HMI) and specifically to the company’s Chairman Emeritus Zhang Ruimin, along
with Ji Guangqiang, Shi Lutong, and Guan Junhui. Furthermore, I gratefully
acknowledge Kevin Nolan, Antonio Boadas, and other interviewees at GE
Appliances; Professor Bill Fischer, who helped with the GEA study; Edgar and
Peter Schein for their support and belief in my work; Steve Denning and Curt
Carlson for challenging me; as well as my husband and daughters, and the publisher
Springer DE, which always has believed in my work. I also wish to thank Mike
Vargo, the writer/editor who helped with writing the book. I could not have found a
better, more curious, and trustworthy colleague to join me in this project.
December 15, 2021 Annika Steiber
xi
Introduction
Management Disrupted: What Will the Future Look Like?
The forces of change seem to be gaining momentum. At the time this book was
written, during the second half of 2021, there had been growing numbers of reports
and articles about the need to re-think organizational structures and management.
And it wasn’t hard to see what had triggered the wave of interest. People were
responding to the disruptions caused by the Covid-19 pandemic.
For example, remote work became a major subject of inquiry: In what forms
should virtual staffing be continued? How can remote teams best be managed? (See,
for example, Malhotra, 2021) Taking a broader view, researchers at IBM and Oxford
Economics surveyed thousands of executives worldwide, asking them about their
priorities and concerns for the post-pandemic future. The top two concerns were
“cost management” and “enterprise agility,” each cited by about 87% of
respondents. (IBM, 2020)
All of these issues are worth addressing. But in fact, the need for new manage-
ment models was evident long before Covid-19. Today the need is more urgent than
ever. And, to achieve the innovativeness, “agility,” and speed that our new age
requires, many organizations will have to make fundamental changes—not just a
series of crisis-driven adjustments.
Most large companies still operate by a model developed for the old Industrial
Age. Although these companies adopt new technologies and follow the latest trends,
they are essentially bureaucratic. Beneath the modern trimmings, they are built upon
systems that were designed for predictability and control. In today’s unpredictable
times, they often have trouble charting new courses effectively. At a time of high
uncertainty and complexity, their corporate cultures don’t maximize the
organizations’ adaptability, speed, or the creativity of the people they employ.
Such companies tend to be good at doing what they have customarily done. They
may succeed for a while despite their limitations. But the longer they persist, the
more likely they are to miss emerging opportunities, and the more vulnerable they
become to unforeseen threats. Practically every industry is now global, evolving on
many fronts at once. The result is a classic VUCA environment: volatile, uncertain,
complex, and ambiguous. These conditions favor companies that can respond
xiii
xiv Introduction
rapidly and innovate constantly. As the management scholar David Teece wrote,
more than a dozen years ago:
The foundations of enterprise success today depend very little on the ability to engage in
(textbook) optimization against known constraints or capturing scale economies in produc-
tion. Rather, enterprise success depends upon the discovery and development of
opportunities . . . (Teece, 2009, p. 6)
In the chapters ahead, we will hear from other observers who affirm Teece’s view.
The fundamental need, then, is for a new management model to enable capabilities
that support agility, speed, and ongoing “discovery and development” throughout
the organization.
Explorations in Search of New Models
For years, the author has spent much of her research time looking for new models
that fit this description. There appear to be several already in use at various
companies. The book you are reading is the latest in a series describing these new
approaches to large-firm management. It focuses on a striking model which may be
the most promising of all.
• In the book The Silicon Valley Model: Management for Entrepreneurship,

co-authored with Sverker Alänge (Steiber & Alänge, 2016), the author identified
the key features of a management model used by leading Valley firms such as
Google/Alphabet, Apigee, Facebook, LinkedIn, Tesla, and Twitter. A notable
quality of these companies is their ability to remain entrepreneurial—i.e., fast-
moving, innovative, and adaptable—even while growing to sizes far beyond the
startup stage. Their core management principles and practices also turn out to be
similar to each other (with variations among the companies, of course). The
similarities are strong enough to constitute a shared model, and the present
book will give an overview of that model, which until recent times has appeared
to set the standard for management in today’s VUCA world.
• The author’s follow-up volume was Management for the Digital Age: Will China
Surpass Silicon Valley? (Steiber, 2018). Although firms in the Valley have been
at the cutting edge of reinventing management, it was clear from the start that they
are not alone in this regard. Further studies pointed to China, where a number of
high-growth companies appeared to be using their own, enhanced versions of the
Silicon Valley Model. This book, like the first, emphasized how management
innovation and technology innovation go together. New forms of management
enable companies to develop new tech-based products and services in rapidly
changing markets, while new technologies enable new management innovations.
Clearly this has been the case in China. The country’s economic reforms, over the
years, were accompanied by the rise of founders and CEOs who departed
radically from the bureaucratic management style of traditional state-owned
Introduction xv
enterprises. Their companies have done very well. Management in the Digital
Age suggested that some of these companies may indeed be more advanced,
management-wise, than their Silicon Valley counterparts. Chinese companies
profiled briefly in the book included Alibaba, Baidu, Huawei, Tencent, and
Xiaomi—along with one that is now brought front and center, in detail, in the
present book: Haier.
• Haier is a gigantic home appliance company that stands out for multiple reasons.
Formerly a failing local refrigerator factory, Haier executed a stunning turn-
around, rocketing to prominence under chairman and CEO Zhang Ruimin. The
company made major strides within China’s huge domestic market while also
expanding into other markets globally. To help fuel this growth, Haier has
evolved a distinctly new management model, RenDanHeYi. The new model is
wrapped in a vision of the future that embraces major shifts now under way.
RenDanHeYi and the Internet of Things
RenDanHeYi could be described briefly by using a quote from Haier:
The RenDanHeYi model follows “human value maximization,” reinvents the traditional
organization hierarchy by building EMCs [Ecosystems of Micro-Communities] which
feature self-organization, creates the best user experience based on their needs, and realizes
decentralization and disintermediation (Haier Group, 2020).
This whirlwind summary may be hard to understand without context. Indeed, the
RenDanHeYi approach is complex and far-reaching, touching and transforming
every aspect of the enterprise. Chapters ahead will provide the needed context as
part of a close examination of RenDanHeYi.
The larger vision can be summarized more clearly. Just as the Internet
revolutionized business in the 1990s and the 2000s, a second-wave phenomenon is
now in progress: the emergence of the Internet of Things. According to a white paper
from Cisco Systems, the number of devices connected by networks surpassed the
number of people in the world more than a decade ago and will continue growing
into the tens and hundreds of billions (Evans, 2011). Therefore, we are already in the
IoT Age, with implications that are tremendous.
Basically, the Internet of Things consists of smart (i.e., digitally equipped)
products and components that can report what they are sensing and be controlled,
either automatically or by human command, via linkages over wired and wireless
networks. These “things” can range from systems in motor vehicles to wearable or
implanted medical devices, smart appliances in homes and buildings, and much
more. As the IoT continues to grow, it brings people, technologies, and
organizations ever closer together, allowing them to interact on an informed basis
constantly and quickly, if desired.
xvi Introduction
Haier has a deep interest in the possibilities of the IoT Age. And the RenDanHeYi
model is key to the company’s strategy for this new age. It is a “zero distance” model
designed to reduce, and eventually erase, the boundaries between people who create
smart products and the customers who use them.
To bring the entire picture into sharp focus, the later chapters of this book describe
how RenDanHeYi principles are being applied in the transformation of an over
100-year-old American company. In 2016, Haier acquired GE Appliances, which
will serve as our primary case company. GE Appliances (GEA) was once a flagship
division of the General Electric Company. Before its sale to Haier, GEA also had
begun experimenting with new methods of innovation and product development. A
key hub of experimentation was—and is—GEA’s FirstBuild facility, where product
designers interact with the maker community and with pilot customers to create and
test new appliance concepts.
However, cutting-edge practices cannot really take root if they exist on an island
within the organization. After Haier’s acquisition, all of GEA became a proving
ground for the introduction and ongoing refinement of the RenDanHeYi model. This
unique story is told here in a comprehensive form. Ingrained with the story are
lessons and implications for managers everywhere, who may wish to transform their
companies before it is too late.
Looking Ahead
Throughout the book we will combine big-picture views of the management land-
scape with up-close analyses of how various management models work in particular
companies. The goal is to give a concise but thorough understanding of what the
future of management may look like. Such an understanding is possible because in
progressive companies—notably, in Haier and GEA—the future is being
invented now.
The rest of the book is arranged as follows:
Part I—Why Management Needs to Change and Key Capabilities for a Digital
Economy
Chapter 1—This chapter pulls together observations from management experts
who explain why traditional, bureaucratic models do not meet the demands of
today’s business environment. We introduce the concept of Dynamic
Capabilities, which are needed to thrive in dynamic, ever-changing markets.
Then we explore some key capabilities necessary to support dynamic capabilities
in a digital economy.
Introduction xvii
Part II—Two Current Cradles of Management Innovations

Chapter 2—Silicon Valley’s leading companies have been standard setters in
management innovation. Here we see how and why the companies came to be
this way, by tracing the history of the Valley and the emergence of principles that
its early technology firms adopted.
Chapter 3—This chapter describes the shared features of the management
model used by selected major companies and compares the Silicon Valley Model
to the traditional “Machine Bureaucracy” model, still used by many other firms.
Chapter 4—Economic reforms in China, followed by supportive government
policies and the rapid growth of the opened-up economy, have helped to breed
new companies deploying new approaches to management.
Chapter 5—Now we review key elements of the management approach used
by six leading Chinese companies, which compares closely to the Silicon Valley
Model but in some ways may be even more disruptive—especially at Haier.
Part III—Haier, RenDanHeYi, and the Google Model

Chapter 6—Haier is not a recent IoT-based startup. Rather, it is a mature
manufacturer and the world market leader in what seems to be a traditional
category, consumer “white goods.” The remarkable aspect is that while staying
in this market over the past four decades, Haier has progressively transformed
itself to a cutting-edge, platform-based tech firm. This chapter traces the stages of
the transformation, explaining why each stage was undertaken and how they all
have contributed to the revolutionary RenDanHeYi philosophy.
Chapter 7—Now we come to an intensive description of Haier’s radically new
(and still evolving) RenDanHeYi management model, which combines system-
wide reorganization with digital technology to unleash people power.
Chapter 8—Here we compare the RenDanHeYi approach, point-by-point, to
the Google Model developed in Silicon Valley. The comparison shows that the
two models are quite similar in their underlying principles, but they differ at the
level of practical application, with RenDanHeYi indeed appearing to be the more
disruptive of the two.
Part IV—GE Appliances in 2016 and 2021 and the Interpretation of RenDanHeYi
Chapter 9—When Haier acquired GE Appliances (GEA) in 2016, it inherited a
U.S. company grounded in old management methods that hampered innovation
and growth. This chapter begins GEA’s transformation story with descriptions of
the company’s former status quoted directly from interviews with senior leaders
and key staff members.
Chapter 10—To complete the before-and-after picture, the same senior leaders
and key persons now describe how dramatically GEA has changed since adopting
Haier’s RenDanHeYi model.
Chapter 11—This chapter launches a closer look into how the transformation
of GEA was accomplished. A key guideline of Haier’s global expansion has been
xviii Introduction
to localize operations, meaning that every aspect of a local subsidiary should fit

with (and, to the extent possible, be created by) the people living in that part of the
world. Therefore, leaders at GEA tell us how they perceived the RenDanHeYi
approach and thought they could apply it in their own firm.
Part V—A Framework for Better Understanding a Business Transformation

Chapter 12—This chapter steps back into theory, presenting a conceptual frame-
work that the author has developed for analyzing and understanding diffusion of
management innovations, as well as organizational change and transformation. In
order to fully comprehend GEA’s transformation, the author recommends that
you read this chapter before delving into the chapters that follow.
Part VI—The Transformation of a 100-year-old Company

Chapter 13—Wishing to have a new management approach is one thing;
implementing it is another. Here, GEA leaders describe the first stages of
accepting a change and adopting the RenDanHeYi philosophy. The chapter’s
format aligns with the framework which the previous chapter introduced.
Chapter 14—Now comes a step-by-step overview of how the transformation
was performed and what GEA has accomplished to date, as well as what the
future looks like.
Part VII—Managerial Advice and Concluding Summary

Chapter 15—Drawing mainly from the GEA experience, the chapter offers a
commentary on what may be possible at your firm, with a special section on key
points to keep in mind if you wish to transform your organization, and adopt
RenDanHeYi in navigating this transformation.
Chapter 16—The closing chapter is in the form of an executive summary,
reviewing and highlighting the core messages of the book.
With this general outline in hand, we move on to Chap. 1. It addresses a
fundamental issue: why new forms of management are needed at all and what the
new core capabilities are.
References
Evans, D. (2011, April). The Internet of Things: How the next evolution of the
internet is changing everything. White paper, Cisco Internet Business Solutions
Group.
Introduction xix
Haier Group. (2020). The 4th International RenDanHeYi Model Forum:

Autopoiesis, Coevolution. Accessed November 9, 2021, from https://www.
haier.com/global/2020920/
IBM. (2020, September). COVID-19 and the future of business: executive
epiphanies reveal post-pandemic opportunities. Report from IBM Institute for
Business Value.
Malhotra, A. (2021). The postpandemic future of work. Journal of Management,
47(5), 1091–1102. https://doi.org/10.1177/01492063211000435
Steiber, A. (2018). Management in the digital age: Will China surpass Silicon
Valley? Cham, Switzerland: Springer.
Steiber, A. & S. Alänge. (2016). The Silicon Valley model: Management for
entrepreneurship. Cham, Switzerland: Springer.
Teece, D. (2009). Dynamic capabilities and strategic management. Oxford: Oxford
University Press.
Contents
Part I Why Management Needs to Change and Key Capabilities

for a Digital Economy
1 Why New Management Models Are Needed: And the New
Management Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 The Old Model: Mass Efficiency and Control . . . . . . . . . . . . . . 4
1.2 The Changing Nature of Change (And What It Means for
Management) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 “Dynamic Capabilities”: The Key to Managing in a Dynamic
World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Some Core Ingredients for Building Dynamic Capabilities . . . . . 9
1.5 Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Part II Two Cradles of Management Innovations

2 Silicon Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 The Origins of Silicon Valley: How a New Era, Long ago,
Shaped Today’s Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 The Birth of an Industry Ecosystem: The Growth
of a Management Mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3 Innovation in Technology and in Management: An Ongoing
Dance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3 The Silicon Valley Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1 The Silicon Valley Model Versus the Traditional Model . . . . . . 25
3.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4 China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.1 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
xxi
xxii Contents
5 The New Chinese Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.1 Visionary and Externally Focused Top Leaders . . . . . . . . . . . . . 33
5.2 Culture and People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Organization, Coordination of Resources, and Digital
Ecosystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.4 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Part III Haier and the RenDanHeYi model

6 Haier: A Traditional Firm Transforming into a Digital Winner . . . 41
6.1 Haier’s Six Development Phases . . . . . . . . . . . . . . . . . . . . . . . 42
6.1.1 Brand Building Strategy (1984–1991) . . . . . . . . . . . . . 42
6.1.2 Diversification Strategy (1991–1998) . . . . . . . . . . . . . . 43
6.1.3 Internationalization Strategy (1998–2005) . . . . . . . . . . 43
6.1.4 Global Branding Strategy (2005–2012) . . . . . . . . . . . . 45
6.1.5 Networking Strategy (2012–2019) . . . . . . . . . . . . . . . . 45
6.1.6 Ecosystem Strategy (2019-Present) . . . . . . . . . . . . . . . 46
6.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7 The RenDanHeYi Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.1 Becoming User Centric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.2 Organizational Experimentation . . . . . . . . . . . . . . . . . . . . . . . . 50
7.3 Release Talents and Entrepreneurship Within . . . . . . . . . . . . . . 50
7.4 Principles and a New Language . . . . . . . . . . . . . . . . . . . . . . . . 51
7.5 Change of the Game: The Internet of Things . . . . . . . . . . . . . . . 52
7.6 The Result: RenDanHeYi . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.7 Key Principles of RenDanHeYi . . . . . . . . . . . . . . . . . . . . . . . . 55
7.7.1 Strategy: Ecosystem Brand . . . . . . . . . . . . . . . . . . . . . 55
7.7.2 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7.3 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7.4 Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.7.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.7.6 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.8 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8 RenDanHeYi Versus the Silicon Valley Model . . . . . . . . . . . . . . . . 59
8.1 Strategy: Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2 A Networked Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.3 Entrepreneurs and Dynamic Partners . . . . . . . . . . . . . . . . . . . . 63
8.4 Users and Zero Distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.5 Compensation and Pay-By-Users . . . . . . . . . . . . . . . . . . . . . . . 64
8.6 Nonlinear Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.7 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Contents xxiii
Part IV GE Appliances in 2016 and 2021 and the Interpretation

of RenDanHeYi
9 GE Appliances in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.1 Triggers for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.2 GE Appliances in 2016: Evaluation Methodology . . . . . . . . . . . 73
9.3 Top Leaders’ Main Focus and Its Direction . . . . . . . . . . . . . . . 74
9.4 People and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.5 Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.6 Leadership Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.7 Organization, Coordination, and Digitization
of Communication Processes . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.8 Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.9 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10 GE Appliances in 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.1 Top Leaders’ Main Focus and Its Direction . . . . . . . . . . . . . . . 81
10.2 People and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.3 Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.4 Leadership Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
of Communication Processes . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.6 Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.7 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11 GE Appliances’ Interpretation of RenDanHeYi . . . . . . . . . . . . . . . . 89
11.1 Key Objectives and Principles . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.1.1 Set Leading Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.1.2 Zero Distance to Users . . . . . . . . . . . . . . . . . . . . . . . . 91
11.1.3 Align the Organization Toward Users . . . . . . . . . . . . . 92
11.1.4 Pay by Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
11.1.5 Ecosystems and EMCs . . . . . . . . . . . . . . . . . . . . . . . . 94
11.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Part V A Framework for Better Understanding a Business

Transformation
12 A Framework for Understanding a Business Transformation . . . . . 99
12.1 A Deeper Look at How Transformation Occurs . . . . . . . . . . . . . 100
12.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
xxiv Contents
Part VI The Transformation of a 100-Year-Old Company

13 From Desire to Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
13.1 Disrupting the Organizational Trajectory . . . . . . . . . . . . . . . . . 108
13.2 The Desire to Change Is Ignited . . . . . . . . . . . . . . . . . . . . . . . . 108
13.3 New Governance and a “Light-Touch” Guiding Hand . . . . . . . . 111
13.4 RenDanHeYi Becomes a “Feasible” Solution . . . . . . . . . . . . . . 112
13.5 Flying Without a Pilot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
13.6 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
14 Key Steps Taken by GE Appliances . . . . . . . . . . . . . . . . . . . . . . . . 117
14.1 Transformation Step-by-Step . . . . . . . . . . . . . . . . . . . . . . . . . . 117
14.1.1 A New Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
14.1.2 Updated Compensation Model and Zero Distance
to Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
14.1.3 “House of Brands” . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
14.1.4 Becoming More Diverse and Inclusive . . . . . . . . . . . . 121
14.1.5 Next Up: Ecosystems and EMCs . . . . . . . . . . . . . . . . . 122
14.1.6 Sustaining the Transformation . . . . . . . . . . . . . . . . . . . 122
14.1.7 The COVID Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
14.2 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Part VII Managerial Advice and Concluding Summary

15 Managerial Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
15.1 Lessons Learned from the GEA Case . . . . . . . . . . . . . . . . . . . . 128
15.1.1 Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
15.2 Lessons for Adopting RenDanHeYi . . . . . . . . . . . . . . . . . . . . . 131
15.2.1 RenDanHeYi Is Not ONE Recipe . . . . . . . . . . . . . . . . 132
15.2.2 RenDanHeYi Does NOT Have an Endpoint: It Is a
Journey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
15.2.3 Top-Leader Commitment and Support Are Essential . . . 133
15.2.4 Involve Your People in the Change Processes . . . . . . . 133
15.2.5 Challenge Your Traditions . . . . . . . . . . . . . . . . . . . . . 133
15.2.6 Change Is Hard: Fight the Antibodies . . . . . . . . . . . . . 134
15.2.7 Transformation Is an Evolution . . . . . . . . . . . . . . . . . . 134
15.3 Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
16 Concluding Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
List of Figures
Fig. 1.1 An organization visualized as a system (Steiber, 2014) . . . . . . . . . . . 12

Fig. 7.1 Haier’s experiments with achieving user linkage through
organizational design (Fischer & Steiber, 2021) . . . . . . . . . . . . . . . . . . . 50
Fig. 7.2 Haier’s objectives (Fischer & Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . . 51
Fig. 7.3 A visualization of RenDanHeYi (Fischer & Steiber, 2021) . . . . . . . 53
Fig. 7.4 Ecosystems vs. traditional value chains
(Fischer & Steiber, 2021) .. . . .. . . .. . .. . . .. . . .. . . .. . .. . . .. . . .. . .. . . .. . . 53
Fig. 7.5 Win–win value add statement (Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . 54
Fig. 9.1 Perception-based ranking of GEA before the acquisition
(Steiber, 2021. Scale 1 to 6) . . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . . 74
Fig. 10.1 Perception-based ranking of GEA in February 2021
(Steiber, 2021. Scale 1 to 6) . . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . . 82
Fig. 11.1 An illustration of GEA’s interpretation of RenDanHeYi
(Steiber, 2021) . . .. . . . .. . . . . .. . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . 90
Fig. 11.2 Transformation of principles and cultural beliefs
(Steiber, 2021) . . .. . . . .. . . . . .. . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . 95
Fig. 12.1 A framework for management transformation
(Steiber & Alänge, 2015) . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . 101
Fig. 15.1 Key events enabling GEA’s transformation (Steiber, 2021) . . .. .. . 129
Fig. 15.2 Success factors (Steiber, 2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Fig. 15.3 Leadership and Organizational transformation (Steiber, 2021) . . . 131
xxv
Part I
Why Management Needs to Change and Key
Capabilities for a Digital Economy
Why New Management Models
Are Needed: And the New Management 1
Capabilities
If we look at the history of the past 250 years, it may seem odd to refer to our current
age as one of constant, disruptive change. People in previous times were affected
profoundly by changes in technology and business, arguably to a greater extent than
we have been.
The first Industrial Revolution, driven by technical and organizational
innovations that ranged from the steam engine to the factory system, disrupted the
basic patterns of life for many millions of people. Societies that once were made up
largely of farmers and craft workers became heavily urbanized and massively
mechanized, with a focus on producing goods in quantities not seen before. The
Second Industrial Revolution, from the late 1800s into the early 1900s, then
amplified the disruptions of the first. This period saw automation and mass produc-
tion carried to new heights, along with new sources of power and new methods of
transportation and communication: electricity, automobiles and aircraft, radio, and
motion pictures. Many authors have described the sweeping changes of these eras;
see, for example, Stearns (2013).
By comparison, the changes we have experienced in our lifetimes may appear to
be minor. But there are some significant differences between past and present. As the
researcher and management consultant Gary Hamel wrote, “change itself has
changed” (Hamel, 2012, p. 85). Situations in the business environment shift more
rapidly than in the past; competitive challenges take shape differently, and the
resulting demands on a company are different. This has serious implications for
management. Most large firms still use a management model that evolved during the
prior Industrial Age and is no longer suited for today’s requirements.
The following sections of this chapter trace the roots of that now-obsolescent
model and describe its key features. Then we will see how “change itself has
changed” and what the new age requires in terms of new approaches to management.
# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 3

A. Steiber, Leadership for a Digital World, Management for Professionals,
https://doi.org/10.1007/978-3-030-95754-4_1
4 1 Why New Management Models Are Needed: And the New Management Capabilities
1.1 The Old Model: Mass Efficiency and Control
Corporations grew truly large during the second phase of the Industrial Revolution,
from the second half of the nineteenth century into the early 20th. New giants that
emerged during that time included big, multilocation oil and steel companies; long-
line railroads; and a growing assortment of mass-market manufacturers and retailers.
The flows of finished goods were unprecedented. Companies now aimed to sell
millions of units of complex products, from shoes and light bulbs to automobiles and
processed foods.
Therefore, an Industrial Age management model took shape to direct and coordi-
nate these enterprises. The model was designed for efficiency and control at high
volume. Companies did compete on a basis of innovation, trying to develop products
that customers would like and prefer. But eventually, there would emerge a domi-
nant design for a given type of product—see Utterback and Abernathy (1975) for a
description of this concept—and from that point, the key to success was making
more of the same thing to the same specs as rapidly and cheaply as possible.
Companies that flourished by taking this approach included Ericsson with its early
telephones, Bayer AG with its trademarked aspirin, and of course Ford with its
Model T cars.
The management model of that age was built around features that still character-
ize it today:
• Strategic decisions are made by small groups of top executives.

• A well-defined but often narrowly defined view of the company’s purpose. The
classic example was Ford’s stated purpose to make a practical car at ever-lower
prices, in “any color that [a customer] wants as long as it is black” (Ford &
Crowther, 1922, pp. 72–73).
• Performance at every level is judged and rewarded by the standards of control and
efficiency. Ideal employees are those who execute orders to the company’s
standards and meet their targets.
• Tightly specified work-roles and procedures, spelling out what people should do
and how to do it.
• Hierarchical structures that lock these systems in place and allow branching
layers of management to monitor and control every aspect.
The modern-day scholar Henry Mintzberg, in describing this type of manage-

ment, called it the “Machine Bureaucracy” model (Mintzberg, 1980, pp. 332–333).
And it is very good at doing what it was meant to do. It literally enables a company to
function like a machine, repeating the same tasks predictably and reliably. But when
the task becomes to change the task—seeing new market openings, pivoting
quickly, developing new products or business ideas, and mobilizing people around
them—the positive aspects of the Machine Bureaucracy model turn into negatives.
For example:
1.2 The Changing Nature of Change (And What It Means for Management) 5
• The top-level strategists, being few in number and perhaps committed to

strategies that led to previous success, are liable to either miss or discount new
threats and opportunities. Henry Ford kept Ford Motor focused on producing its
Model T for too long, and although the company later rebounded, it lost its market
lead. In more recent times, Nokia stayed too long with its Symbian operating
system for cell phones and plummeted from market leadership in that product
category to dropping out of the market entirely.
• The rigid bureaucratic structures are hard to realign in pursuit of flexibility and
speed.
• Worse yet, the people within the structures become conditioned to thinking and
acting in narrow channels. They are urged to focus on current business to a degree
that may exclude thinking along new lines. This can limit the company’s
prospects and many people in the current workforce do not like it, either. People
ranging from young professionals to executives and consultants complain that the
bureaucratic culture stifles innovation and is unpleasant or de-motivating. The
researcher Julian Birkinshaw of London Business School summed up these
perceptions in severe terms, calling most of today’s big companies “miserable
places” where “fear and distrust are endemic” and “creativity and passion are
suppressed” (Birkinshaw, 2016).
One could argue that large corporations are often quick to adopt or at least try out
new management tools and trends. However, the tools and trends will not funda-
mentally update the company if they are applied mainly as add-ons to a bureaucratic
infrastructure that remains in place. It could also be argued that many companies
continue to do well despite using a supposedly obsolete management model. But this
is somewhat like assuming that an extremely old car or appliance will keep running
indefinitely, just because it has survived until now. In 2009, the management expert
Gary Hamel convened a panel of leading CEOs, scholars, and consultants who
agreed that the old model’s days are numbered. They recommended a litany of
drastic changes, which were published in the famous Harvard Business Review
article “Moon Shots for Management.” In his summary of the article, Professor
Hamel simply wrote that “tomorrow’s business imperatives lie outside the perfor-
mance envelope of today’s bureaucracy-infused management practices” (Hamel,
2009).
Let us now consider why this is so. Starting with shifts in the business environ-
ment, we can then proceed to the quest for new management solutions.
1.2 The Changing Nature of Change (And What It Means

for Management)
In the past Industrial Age, companies had to contend with—and try to profit from—
big, dramatic changes such as the introduction of electric power. Compared to
today’s world, however, these changes were relatively less frequent and happened
more gradually. Also, when great competitions occurred, it was usually easier to see
the main competitive issues and to trace how the contests were going. Everybody
knew the race was on to build a railway from one point to another, or to win the war
of currents between AC and DC systems in the early electric power industry.
Today’s environment presents a different sort of playing field. Companies are
faced with a constantly swirling, buzzing cloud of change. As Richard Florida
described it, change is “pervasive and ongoing” (Florida, 2002, p. 5), so that
competition becomes less a matter of fighting pitched battles and more like guerilla
warfare. Just about every firm is surrounded by unpredictable innovations, shifts in
the marketplace and other events that can quickly render a long-reliable strategy
obsolete. Furthermore, new competitors can emerge from seemingly nowhere. For
years the US hospitality industry was dominated by major hotel chains such as
Hilton, Hyatt, and Marriott, until a new kind of company rapidly became a signifi-
cant player in the market. Airbnb began as an unheralded startup with inexperienced
founders who stumbled unsuccessfully at first, but after they circled in upon a
winning formula, the company took off (See, for example, Gallagher, 2017).
No single factor has brought the business world to its present state of constant and
unpredictable change. Lynda Gratton’s book The Shift described five broad “forces”
that are shaping the future of work: technology, demographics, globalization, soci-
ety, and energy resources (Gratton, 2011, pp. 23–48). As shown below, each can be
a profound source of change in itself—and they all interact and combine.
Technology It is not entirely true that technological change is exponential. Some

technologies, such as computer chips, have grown remarkably more powerful while
others have evolved just incrementally. But the overall impacts of technology can
spread very rapidly due to combinatory and multiplier effects. Eugene Fitzgerald, a
scientist and inventor at MIT, has pointed out a pair of facts that are often
overlooked: Most products do not consist of a single technology, but rather a
combination of technologies old and new; while at the same time, almost any single
technology has multiple possible uses. Furthermore, he noted, technologies also can
be combined with different business models and market applications (Fitzgerald
et al., 2010, especially pp. 19–30).
There are examples of how these effects, taken together, can lead to cascading
waves of change. Telephones were invented long before microprocessors and for
nearly a century worked quite well without them. But then, after mobile phones
became commercially viable, advances in microprocessor chips and other
technologies rapidly transformed the phone. During the early 2000s it grew from a
device for voice communication to a multipurpose product that eliminated the need
for standalone cameras, portable music players, GPS direction-finders, alarm clocks
and more. Meanwhile, computing and network technologies have also found a wide
range of applications in areas from stock trading to surgery. With more people than
ever in the world making combinations from an ever-growing pool of technologies,
one can see how the pace of change multiplies and becomes unpredictable from this
“force” alone.
1.2 The Changing Nature of Change (And What It Means for Management) 7
Demographics and Society The business world is impacted whenever people

change, and they can change in any number of ways: in terms of how they live,
what they value, and what they are willing or not so willing to buy and do. Consider
the rapid rise of Airbnb. The company conducts its transactions on a web platform,
but internet technology was only one enabling factor. Airbnb’s business model
ultimately depends on people. The company came on the scene at a time in modern
society when many people were willing to act as hosts, renting out parts of their
homes to travelers, and many more people were willing to stay in such
accommodations.
Demographic and societal changes tend to occur gradually, but their cumulative
effects can show up rather swiftly, and they may affect how people behave both as
consumers and as workers. For example, economic growth since World War II has
steadily made more of the world’s people more prosperous. As the long-running
World Values Survey has shown, prosperity correlates with changes in values.
People move up the scale in Maslow’s classic hierarchy of needs. In the Survey’s
terms, they move from a “Survival” mindset to a way of thinking that values “Self-
expression” more (World Values Survey, 2021). Richard Florida’s book The Rise of
the Creative Class described some impacts of this shift in the United States. In one
case, the author’s home state had a shortage of young people willing to be trained for
well-paid jobs as machinists while there was an oversupply of young people
becoming hair stylists, a lower-paying but more “creative” line of work. The impacts
on market demand are significant, too (Florida, 2002, pp. 152–154 and 166–176).
China in recent decades has become a gigantic case study in social and demo-
graphic change, with hundreds of millions of people moving up out of poverty, many
of them into the equivalent of Western middle-class lives. We’ll look at changes in
China more closely in chapters ahead.
Globalization This is an obvious factor, as we all can see how an interconnected

world creates hyper-competition and volatility. Numerous major industries, from
shipbuilding to steelmaking to clothing manufacture, have moved on a massive scale
from Western countries to Asia. Supply chains are now global and so is innovation,
as larger numbers of people around the world attend college and enter the scientific
and technical professions. Globalization also creates market opportunities, as
companies that come up with anything new—from new consumer goods to new
methods of finance—find they can sell their products and services worldwide and
expand internationally.
Energy Resources Gratton’s final category relates to the broad area of growing
environmental concerns. Climate change has become an urgent issue affecting many
industries. Under pressure from regulators, automobile companies rush to change the
kinds of vehicles they sell. Oil-producing nations must find new sources of revenue
while makers of solar panels flourish. More dramatic changes loom on the horizon,
as climate-driven natural disasters and migrations begin to disrupt many societies.
Finally, these various sources of change interact continually, adding up to the

proverbial VUCA1 world: highly volatile, uncertain, complex, and ambiguous. The
so-called Next Big Thing, or the Next Big Threat, might come from almost
anywhere.
1.3 “Dynamic Capabilities”: The Key to Managing

in a Dynamic World
There has been considerable rethinking of what it takes to survive and succeed in a
VUCA world. During the late twentieth century, two common theories were that
firms could achieve strategic differentiation by choosing the right industry and
position themselves within it—for example, via Porter’s Five Forces model (Porter,
1979)—or, by identifying and developing their unique resources and “core
capabilities” (also called “core competences”). But as the researcher Dorothy
Leonard-Barton pointed out, core capabilities can become “core rigidities” that
inhibit adaptation in times of change (Leonard-Barton, 1992).
A more fundamental view comes from David Teece and his colleagues, who
simply state that a firm in today’s world needs Dynamic Capabilities. They have
defined the term formally as follows:
The ability of an organization and its management to integrate, build, and reconfigure
internal and external competences to address rapidly changing environments (Teece et al.,
1997).
Teece then elucidated the concept in practical terms. He said Dynamic

Capabilities consist of three basic activities: “sensing,” “seizing,” and
“transforming.”
• Sensing “means identifying and understanding opportunities and threats.”

• Seizing is “mobilizing your resources to capture value from those opportunities.”
• Transforming is “continued renewal”—that is, constantly reorienting the com-
pany for the next opportunities to come, as well as for “periodic major strategic
shifts” (Kleiner, 2013).
These three points define what a company must be able to do. They lead to a
deeper question, namely: What are the underlying corporate capabilities that would
enable a company to have Dynamic Capabilities? Below are some answers, drawn
from the author’s research and from previous work by a variety of scholars,
consultants, and observers.
1
The VUCA acronym originated from use in military intelligence studies. Shortly after, during the
1990s, it came into common use for describing any situation marked by volatility, uncertainty,
complexity, and ambiguity.
1.4 Some Core Ingredients for Building Dynamic Capabilities 9
1.4 Some Core Ingredients for Building Dynamic Capabilities
If we combine the insights from numerous sources, we can find five general
sub-capabilities that companies ought to have and indeed need to have to be
dynamic.
A People-Centric (Or Human-Centric) Approach Various companies over the

years have used slogans or advertising campaigns that essentially say, “People are
our most important assets.” The challenge is to act according to this principle rather
than merely stating it. In a fast-changing and uncertain world, people in fact become
the most important asset, if the company treats them as such. Assets like efficient
production machinery and big cash reserves are good to have but they cannot
innovate. Innovation is done by humans. Therefore, they must be managed in a
way that allows and encourages them to create the new solutions the company
will need.
Researchers have found that people want and need to be creative and will be
creative in settings where they can exercise their skills (Florida, 2002; Høyrup,
2012). Companies can provide this kind of setting, in part, by placing people in roles
that fit with their inner passions, motivations and key strengths. People-centric
companies also try to have simple, well-defined structures, and routines only
where needed, otherwise giving people the freedom and responsibility to self-
actuate. Management’s roles include supporting people to help them develop their
ideas (Leifer et al., 2000), setting a cultural tone and providing a reward system that
energizes everyone to go on innovating (Dallenbach et al., 1999), and putting forth a
strong, shared vision (Nanus, 1992) that inspires people to innovate toward the
company’s principal goals. A company that fully unleashes the creative capabilities
of people is said to be like a river system with unencumbered movement (Tidd &
Bessant, 2009), in which streams of work and ideas flow together ever more
powerfully.
A Continually Changing Organization It is not sufficient for companies to react

only when changes or problems in the business environment become apparent. In
many cases it is too late by then. Researchers at Kodak developed key technologies
for digital photography, but the company resisted bringing digital cameras to market
until many other firms had done so. Kodak’s leaders worried that the new products
would cut into their film business and hoped the digital wave would be a minor fad.
When Kodak finally entered the market, it was too late to reap profits, while the film
business wound up being devastated anyway (See, for example, Hamm & Symonds,
2006).
In their book Competing on the Edge, management scholars Shona Brown and
Kathleen Eisenhardt argued that companies must always be engaged in proactive
change. They described two levels of such change above merely reacting:
anticipating and leading. Anticipating means detecting early signs of change in
the environment, and then preparing for it by creating strategic options and lining up
the resources that would be needed. Leading is taking actions that “force other firms
to follow” (Brown & Eisenhardt, 1998). To allow for this, the authors emphasized
the importance of a mindset focused on constant change, a semi-structured organi-
zation, and frequency of communication (including horizontally), as well as specific
methods and tools used in areas such as product development.
An Ambidextrous Organization Dynamic companies can be said to work with one

hand in the present and one in the future. In technical terms, they can “exploit” and
“explore” at the same time, exploiting their existing lines of business for maximum
returns while also exploring potential new revenue streams (O’Reilly & Tushman,
2013). What is difficult is to combine and balance the two functions. Many big
companies in the past have pursued ambidexterity by separating the two, with
operating units that focused on existing operations while major innovation was
concentrated in an R&D center. However, by the end of the twentieth century this
approach was falling out of favor. One reason was that companies often had
difficulty bringing their innovations “over the wall” from R&D into practical use,
and as a result they would see competitors emulating those innovations or applying
the ideas more successfully in the marketplace.
While Bell Laboratories invented the semiconductor, the first company to ship a silicon-
based transistor was an oilfield services company, Texas Instruments. While IBM pioneered
the concepts behind the relational database, it has ceded market leadership to Oracle. While
Xerox funded tremendously innovative work in user interface technologies, Apple and
Microsoft scooped up the profits (Chesbrough, 2001).
Author and corporate advisor Steve Denning later pointed out a basic flaw in the
system of relying on internal R&D centers:
The idea of looking at R&D as a separate function from production is obsolete. R&D is
merely one input into innovation. R&D spending in particular is a poor measure or
determinant of the innovation on which the future of the firm rests (Denning, 2012).
Subsequent chapters of this book will show how entrepreneurial firms in Silicon
Valley and China have devised new approaches to ambidexterity. Although the
internal R&D lab still has a role to play in many of these companies, they have
integrated the “explore” function more organically throughout the organization, and
indeed throughout their larger ecosystems.
An Open Organization that Networks with Its Surroundings Dynamic companies

today have moved beyond the not-invented-here mentality, in which a firm shows
little interest in capitalizing on innovations created elsewhere. Instead, they have
“open” boundaries, seeing the company as a vehicle for exchanging and developing
ideas along with external parties. Years ago, two noted business scholars raised a
warning as follows: “Firms that fail to exploit . . . external R&D may be at a severe
competitive disadvantage” (Rosenburg & Steinmueller, 1988).
Although it has long been common to license external technologies for specific
uses in one’s own products, dynamic companies do much more. These firms network
1.4 Some Core Ingredients for Building Dynamic Capabilities 11
and partner for innovation in a multitude of ways. They sponsor research at

universities; they invest in, or acquire startup companies; they work with multi-
party consortia—Google’s Android operating system was developed by an open-
source consortium (Open Handset Alliance, n.d.)—and they practice means of
exchange that can range from informal contacts to formal strategic partnerships.
These forms of openness and networking took hold over a period of years and
were described as a major strategic approach by Henry Chesbrough with his
introduction of the open innovation concept (Chesbrough, 2003). He noted several
reasons to become more open, including the one often attributed to Sun
Microsystems co-founder Bill Joy: There are always more smart people outside
your company than inside it (see, for example, Jernigan, 2016). Chesbrough also
noted that as product life cycles become shorter and speed to market becomes
critical, adopting ideas from outside sources and integrating them into product
development can help a company to stay ahead of the pace. In later chapters we
will see that Haier and its subsidiary, GE Appliances, are expanding the reach of
open innovation by making it a core part of their management philosophy.
A Systemic Approach According to the business theorist Eric Rhenman, a

“system” is:
a collection of components with certain properties, with connections among the components
and among the properties of those components (Rhenman, 1962).
To be truly dynamic and innovative, companies must adopt a “systemic

approach” (O’Connor, 2008). This will enable them to see how various aspects of
the company can be aligned and leveraged toward a primary strategic goal.
Figure 1.1 shows an organization visualized from a systemic perspective. Key
elements of the system include: the company’s vision and mission, the board of
directors and management team, company culture, daily managers, employees,
organizational structure and processes, systems for performance evaluation, promo-
tion and recognition, systems for learning, and the company’s brand/corporate
communication. (See Steiber, 2014, which used similar elements when describing
the corporate system for innovation at Google.)
In Fig. 1.1 we have arranged the elements in a ring revolving around the
company’s main strategic intent, shown at the center. The “or” means that the
strategic intent can vary, depending on what a company considers to be most
important. A conventional large firm would pursue efficiency and control, typically
with the aim of maximizing near-term profits. A dynamic company would empha-
size innovation, with the aim of sustained growth.
The companies that we will examine in Silicon Valley and China are innovation
oriented. As we shall see, all their system elements have been aligned around this
primary purpose.
Fig. 1.1 An organization visualized as a system (Steiber, 2014)
One More Factor: Digital Technology

Finally, it should be noted that dynamic enterprises tend to make intensive use of
advanced information technologies. These technologies play several key roles. As
the scholar Homa Bahrami pointed out, they allow people throughout the firm to
communicate and update each other constantly, which reduces the need for layers of
middle management to act as overseers and go-betweens (Bahrami, 1992). Other
information technologies are used to analyze data and develop new products, which
facilitates the “sensing” and “seizing” activities. Also, advanced IT is very often
embedded in the products themselves and can even serve to keep the company linked
with its end users. For these reasons, leading-edge companies are managed in ways
that maximize the full range of advantages offered by digital technologies.
References 13
1.5 Looking Ahead
This chapter has immersed us in the study of new management models. It has shown
why the traditional “Machine Bureaucracy” model is no longer sufficient for today’s
world and has given an initial overview of the kinds of capabilities that new models
should enable.
There are more explorations to come. As they take us deeper into the subject, they
will bring us directly to the front lines—where new models are being used by real
people, in real companies, today. We will first revisit Silicon Valley and after that,
we will revisit Chinese innovative companies. These revisits will prepare us to focus
tightly on Haier and its RenDanHeYi Model and then on the transformation of GE
Appliances.
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Part II
Two Cradles of Management Innovations
Silicon Valley
2
Silicon Valley is known for innovation in technology, but over the years it also has
been a cradle of innovation in management. New management approaches were
developed, in part, out of necessity. The Valley’s primary industries, electronics and
information technology, are fast-moving and constantly changing. They have been
that way from the start. To thrive, companies must be flexible and entrepreneurial—
not only responding to change, but in many cases initiating change, by mobilizing
quickly to create new products and seize new market opportunities.
Companies in Silicon Valley have done this repeatedly. Today, the brand leader
in mobile phones is Apple, and most mobile phones operate on software from
Google (Statista, 2021). And yet neither company had roots in mobile communica-
tion. Apple’s initial success was built in personal computing and Google’s in internet
search. Both displayed their dynamic capabilities by jumping into mobile tech and
taking leadership roles.
It is very hard to imagine that the companies could have accomplished what they
did, if they had been managed under the old Machine Bureaucracy model. The same
is true when we look at major companies elsewhere in the Valley. Facebook, for
example, has a dominant position in social media. In mid-2021 the core site had over
2.8 billion monthly active users, more than one-third of the world’s population
(Facebook, 2021). The company grew to this level despite waves of competition
from other social media. And throughout much of its growth, Facebook used the
famous slogan “Move fast and break things,” which told employees: do not hesitate
to challenge or change something if you see a better way of doing it (Statt, 2014).
Would such a message ever be posted on the walls of a bureaucratic, conventionally
managed company?
This chapter will show that Silicon Valley firms have evolved toward a manage-
ment model which is, in many respects, the polar opposite of Machine Bureaucracy.
The chapter draws from the author’s previous research at leading companies includ-
ing Google, Facebook, and Tesla. Companies like these, operating by what we call
the Silicon Valley Model, are structured differently than traditional bureaucracies.
As the scholar Homa Bahrami reported in an early (1992) study of the Valley, they

https://doi.org/10.1007/978-3-030-95754-4_2
18 2 Silicon Valley
tend to minimize command-and-control hierarchies, with each firm organized more

like “a federation or constellation of business units” around a corporate “center.” All
parts have specific roles to play, but they share expertise and collaborate, and much
of the structure can be reoriented quickly to pursue new projects (Bahrami, 1992).
However, the organizational structure is not the only difference. Companies
managed by this new model differ from the old in terms of leadership style, culture,
and the kinds of people they attract. All these, in turn, are driven by a difference in
strategic focus. Whereas the bureaucratic model is geared to controlling and
maximizing the assets that a company already has, the Silicon Valley Model aims
for innovation and growth. It is fundamentally more forward looking, and thus better
suited to a world moving ever forward into uncertain futures.
Whether it is the best model is another question. As we shall see in chapters
ahead, some Chinese companies have adopted advanced approaches, and Haier’s
RenDanHeYi model is producing results at GE Appliances that look especially
promising. For years, however, the Silicon Valley Model has been a standard-
setter. It embodies the idea that companies need to remain entrepreneurial as they
grow large. The principles that it is based on appear to be sound. Indeed, models now
emerging from China are to a large extent inspired by the same principles, which
they implement in newer forms.
Therefore, it is well worth reviewing how the Silicon Valley Model came to be
and what it consists of. The sections below trace the story behind its development.
Included along the way is a (very) brief history of Silicon Valley itself, as both social
and technological factors played roles in shaping this model. The story will then
carry us into an outline description of the model, with a point-by-point comparison
showing how it departs from a typical Machine Bureaucracy.
2.1 The Origins of Silicon Valley: How a New Era, Long ago,
Shaped Today’s Principles
Many people consider that Silicon Valley began with the founding of Hewlett-
Packard in 1939. HP went on to be large and influential and is still active today.
The humble garage where Bill Hewlett and David Packard did their first work is now
a landmark with a sign proclaiming it “The Birthplace of Silicon Valley.” But in fact,
the electronics industry in this broad California valley began with another company
founded decades earlier, in 1909. And the forces leading to the birth of that company
took shape even farther back in time: in the 1840s.
The present US state of California was then essentially a wilderness, untouched
by the Industrial Revolution and far from any big city. Nominally, Alta California
was a territory of Mexico, covering a coastal area larger than Italy. Yet by most
estimates, the entire expanse was home to no more than a few hundred thousand
people—most of them indigenous peoples living in scattered villages, plus some
missionaries, ranchers, and assorted adventurers (See, for example, PBS, 2006).
Then two events in 1848 changed everything. At the end of the Mexican-
American War, Mexico ceded California to the United States, and gold deposits
2.1 The Origins of Silicon Valley: How a New Era, Long ago, Shaped Today’s. . . 19
were discovered in the hills of Northern California. From 1848 to 1855, the ensuing
Gold Rush brought an estimated 300,000 immigrants to this single region of a vast
and still largely ungoverned territory. Many of course were prospectors hoping to
find gold (as many did). But many more were entrepreneurs aiming to start
businesses around the activity. The Gold Rush was a disaster for the local indigenous
peoples, who often were driven from their hunting-and-planting grounds or died
trying to hold out. Meanwhile, a singular experience awaited the newcomers.
Great numbers of them arrived in a land that was, by modern standards of the
time, a blank slate. They found little to no infrastructure or social order in place.
Along with starting businesses and constructing roads and buildings, they had to
create public institutions, services, and formal or informal systems of working
together. Much of this unfolded in the San Francisco Bay Area, which had the
best port reasonably close to the goldfields for people coming by sea. It is tempting to
say that over the next few decades, San Francisco “grew” from a tiny seaside outpost
to a burgeoning metropolis. But the growth did not simply happen. Everything had
to be envisioned, invented, and made real. For everyone involved, it was an ultimate
entrepreneurial exercise.
The new arrivals proved to be up to the task. In his travel memoir Roughing It,
Mark Twain described the Gold Rush participants vividly as follows:
It was a splendid population—for all the slow, sleepy, sluggish-brained sloths stayed at
home—you never find that sort of people among pioneers . . . It was that population that gave
to California a name for getting up astounding enterprises and rushing them through with a
magnificent dash and daring . . . (Twain, 1872)
And, as historians of more recent times have noted, the whole phenomenon laid
the cultural groundwork for managerial and technical innovations to come (See, for
example, Bahrami, 1992). Principles that were established in the Bay Area from the
mid to late 1800s, and which later turned up as elements of the Silicon Valley Model
(!), included:
• The notion of embracing and executing big, inspiring visions.

• The knowledge that institutions and work methods often need to be created anew,
instead of merely being add-ons to what exists.
• The perception of people, with their initiative and their talents, as being the key
ingredients for creating new things.
• Last in this short list but not least, the value of networking and of reaching across
boundaries to create new knowledge and business value.
Partnering, for instance, was common during the Gold Rush. Levi Strauss, a
merchant who came to San Francisco to open a wholesale fabrics store, teamed with
a customer who was a tailor, and had designed work pants for miners and others.
Soon they started a factory to produce the patented Levi’s blue jeans, creating one of
the nation’s longest-running and most successful clothing companies (Levi Strauss
& Co., 2021).
20 2 Silicon Valley
Another Gold Rush newcomer, Leland Stanford, was a precursor of the modern-
day tech executive or professional who learns to wear many hats rather than settling
into a niche. Stanford started and/or ran multiple businesses, from retail to railroads.
He served a term as governor of California. And at the end of his career, along with
his wife Jane, he co-founded a university.
Stanford University was built on the family’s horse farm south of San Francisco
and ambitiously staffed with faculty from across the United States. When it opened
in 1891, some critics mocked the Stanfords for starting a lavish new school in a horse
pasture (Tutorow, 2004). But here was an example of embracing a big vision, which
paid big returns. Within a short time, this closing act of the Gold Rush era—financed
by the fortune that the Stanfords had accumulated—provided a direct bridge to the
origin of the Silicon Valley era.
2.2 The Birth of an Industry Ecosystem: The Growth of a

Management Mindset
One of Stanford University’s well-funded academic units was an engineering school.

In 1909, at the urging of his favorite professor, a young graduate named Cyril Elwell
chose to start a company instead of taking a job at one. Seed funding for the startup
came from Stanford’s president and the head of the electrical engineering department
(Sturgeon, 2000; Norberg, 1976). Already we can see a precedent being set, as close
relations between the university and industry would become a hallmark of Silicon
Valley’s later growth. But Cyril Elwell’s startup set major precedents of its own. It
was the first advanced technology company in the region then known as the Santa
Clara Valley.
Federal Telegraph Company, a misleading name in today’s context, was formed
to make radio transmitters for the US Navy. Radio (or “wireless”) in its early days
was seen mainly as a medium for sending messages to and from ships at sea. Elwell
had learned of a transmitter design in Denmark that seemed best-of-breed. So, he
licensed the rights to it and brought in Danish engineers to help refine and build the
bulky, powerful machines. These men were arguably the first immigrant tech talent
to arrive in the Valley (Sturgeon, 2000; Norberg, 1976).
Then came further precedents. As Federal Telegraph grew and prospered, it
briefly employed the famous inventor Lee DeForest, who used the company’s Palo
Alto facility to perfect his three-element vacuum tube—the compact device that
became the basis of the explosive growth of radio, television, and nearly all
electronics for years to come (Sturgeon, 2000; Norberg, 1976). The vacuum tube
would make Federal Telegraph’s original transmitters obsolete, but that was not a
great concern. The company had learned a truth that governed the nascent electronics
industry and would also inform the management of companies in the industry:
Progress is inevitable. Change is to be expected. Management must be aware of
the changing environment and prepare the company to catch the next wave.
Today one hears little about Federal Telegraph. Although it operated successfully
for decades, the company was merged and remerged from the 1920s onward, making
2.3 Innovation in Technology and in Management: An Ongoing Dance 21
much of its later life anonymous. Before that, however, Federal Telegraph produced
a spinout impact across the Valley and Bay Area. Employees left to start new
companies, most prominently Peter Jensen, who co-founded Magnavox. The vac-
uum tube business also spread, as clusters of new shops arose making tubes of
various kinds (Sturgeon, 2000; Norberg, 1976).
The overall result was the formation of an ecosystem: one in which networking
proliferated, while skilled people moved frequently from one company to another
seeking new opportunities to do innovative work. These ecosystem effects, too, have
influenced management approaches in Silicon Valley. Open innovation has
flourished, through alliances and acquisitions. A notable recent example is Google/
Alphabet. The company had its Android operating system developed by an open-
source consortium; Google Maps was developed internally from acquired technol-
ogy, and altogether the company has made more than 240 acquisitions since 2000.
Furthermore, the mobility of talent in the ecosystem has helped to drive home the
importance of attracting and retaining good people. Hewlett-Packard was one early
leader in this regard. Through its growth years, HP was able to attract top talent, not
necessarily with high pay but with an innovative culture featuring a “decentralized
corporate structure and informal management style, [and] its emphasis on teamwork,
shared responsibility, and entrepreneurship” (Saxenian, 1994). Another early leader
was the medical equipment company Varian Associates, now part of Siemens.
Varian ascended in the post-World War II period by offering “top-flight researchers
. . . an environment where they could create without restriction,” as well as a
cooperative ownership arrangement (Towers, 2002).
During this author’s research on the Silicon Valley Model, all companies that
were interviewed placed an emphasis on attracting and retaining the right kinds of
people. In general, this meant people who would respond to an environment that
invites them to be innovative and entrepreneurial, and we will hear more on the
subject shortly. First, however, a note on the effects of technology.
2.3 Innovation in Technology and in Management:

An Ongoing Dance
Silicon Valley got its nickname in the early 1970s, from the companies like Intel that
had sprung up to make integrated circuits on silicon-based chips. The micro-
transistors in the chips made DeForest’s vacuum tubes obsolete. And they ushered
in a new age of rapid, dizzying change. As chip-making progressed via Moore’s
Law, delivering more computing capacity more affordably, it became possible to
have personal computers. Software emerged as an industry to create ready-made
applications running on computers. Then, with the advent of interlinked networks,
the public Internet and web arrived . . . followed by the revolution in mobile
technology, and currently, the growth of the Internet of Things.
“Information technology” actually seems too narrow a term to describe what has
become available to us. It is a technology of embedded intelligence and expansive
22 2 Silicon Valley
communication interwoven through every realm of human activity. And it has had a
double-edged effect on management.
• On one hand, the pace of technical innovation has increased the imperative to
innovate in management. Every company in every industry must now find new
ways to manage flexibly, responsively, and entrepreneurially.
• At the same time, on the other hand, technical innovation has enabled the creation
of new ways to manage. Years ago, in Homa Bahrami’s, 1992 study of Silicon
Valley, she pointed out that advances like “electronic mail” were helping to
flatten layers of management at the companies, by taking over much of the
communication and coordination for which middle managers would otherwise
be responsible.
Today we have come much farther than using email. Companies that are truly at
the cutting edge of management apply information technology extensively, not just
to replace humans, but to enhance the human capacity for working together.
2.4 Moving Ahead
Now we turn to a descriptive summary of the Silicon Valley Model, and a compari-
son table showing how it differs from the Machine Bureaucracy model.
References
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from https://www.levi.com/US/en_US/features/about-us
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the Institute of Electrical and Electronics Engineers, 64(9), 1314–1322. https://doi.org/10.1109/
PROC.1976.10321
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wgbh/americanexperience/features/goldrush-california/
Saxenian, A. (1994). Regional advantage: Culture and competition in Silicon Valley and route 128.
Harvard University Press.
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2021, 29 June 2021. Accessed 9 November 2021, from https://www.statista.com/statistics/272
698/global-market-share-held-by-mobile-operating-systems-since-2009/
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References 23
Sturgeon, T. (2000). How Silicon Valley came to be. In M. Kenney (Ed.), Understanding Silicon
Valley: The anatomy of an entrepreneurial region. Stanford University Press.
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gutenberg.org/files/3177/3177-h/3177-h.htm#linkch28
The Silicon Valley Model
3
In her previous research, the author found that the innovative Silicon Valley
companies were almost diametrically opposite from more traditional industrial
companies. The conclusion was therefore that their management principles could
represent a new management model, better suited for the digital economy.
Briefly, the Silicon Valley Model could be described as follows:
The senior leadership in the new model focuses primarily on continuous growth and is
externally focused. Further, the firm searches for, and promotes entrepreneurial and diverse
skills, and the culture in the new model focuses on being unique, adaptable and on allowing
risk and learning fast. The daily leaders act as facilitators and coaches, applying a
decentralized leadership, and the organizational structure is aimed at being flat and semi-
structured. In addition, sources for innovation come from anyone and anywhere and
everyone is part of the innovation process. Finally, the degree of automation of communica-
tion processes is high.
The author’s summary, based on Steiber & Alänge (2016)
We will examine all of these features more closely by comparing the Model with
the traditional “Machine Bureaucracy” model as described by Henry Mintzberg
(Mintzberg, 1980).
3.1 The Silicon Valley Model Versus the Traditional Model
Eight key dimensions have been chosen for this comparison. Each of the dimensions
differentiated leading Silicon Valley firms from traditional ones in the author’s
earlier research. Table 3.1 outlines the differences, which are explained in more
detail below.
Top Leadership At companies using the Silicon Valley Model, top executives favor
strategies that emphasize innovation and growth. In pursuit of these goals, much of
their attention is focused externally on emerging opportunities and threats, rather

https://doi.org/10.1007/978-3-030-95754-4_3
26 3 The Silicon Valley Model
Table 3.1 The traditional “Machine Bureaucracy” model versus the Silicon Valley Model (Steiber
& Alänge, 2016)
Element Traditional model Silicon Valley model
Strategic intent Cost reduction, profit maximization Innovation and growth
of top leaders
Primary focus Internal External
of top leaders
People Valued for operational competencies Valued for entrepreneurial qualities
and experience and adaptability
Culture Emphasizes control, efficiency, and Emphasizes adaptability, innovation,
quality and speed
Leaders Managers. Set direction and Coaches. Together with the teams,
priorities. Instruct what should be set direction and priorities but leave
done and in many cases how it the HOW to the team members.
should be done. Follow up and Support the team if problems arise
control
Organization Bureaucratic, highly structured, use Organic, semi-structured, and flat,
of larger units. Vertically distributed high use of small teams. Selective
decision power, power concentrated decentralization to local decision
in higher levels of the organization. makers, usually the teams.
Internally generated innovations Temporarily, decision power can be
centralized to the top.
Innovation from anyone and
anywhere
Coordination Through standardization of work Through compelling vision, culture,
mechanisms processes, job descriptions, skills, simple rules, and clear performance
and output and evaluation systems focused on
key priorities
Automated Low. Cost of communication is low. High. Cost of communication is
communication Information can be managed through high, which requires automation of
processes traditional channels communication processes
than internally.1 Also, the top leaders have a founder’s mindset, cultivating the
entrepreneurial culture within the organization. In the more traditional bureaucratic
model, the strategic emphasis is mostly on cost control and profit and the focus tends
to be more internal. Traditional top leaders, therefore, tend to have a “business” or
“financial” mindset instead of a founder’s way of thinking. This suggests why
Silicon Valley firms are likely to be more ambidextrous since top leaders set a
tone for valuing new business as well as the existing operations.
People The Silicon Valley Model requires people who are adaptive, passionate,
question the status quo, and are collaborative. The desired qualities can be summed
up by saying that above all, a company in a digital economy needs people who are
1
However, the top leadership at several of our case companies divides the responsibility for an
internal efficiency-oriented focus and an external, more future-oriented focus between different
individuals.
3.1 The Silicon Valley Model Versus the Traditional Model 27
entrepreneurial and adaptable. Operational and technical skills are still important but
need to be constantly updated due to a changing environment, which is one reason
why fast learning is highly emphasized. In more traditional firms, hiring managers
commonly emphasize operational and/or technical skills based on experience and
tenure, often favoring experience in the same firm or in similar organizations/
industries.
Culture In the author’s research on the Silicon Valley Model, the interviewees at
the case companies stressed the importance of building and maintaining a strong
culture. And, while each company’s culture is distinctive, all share the same funda-
mental ethos. Their cultures value uniqueness and product innovation, which means
that judicious risk-taking is encouraged. Adaptability and speed are also highly
valued. Both decision-making and tasks are expected to be done as quickly as
practicality allows, and experimentation with anything new is usually accomplished
through rapid test-and-learn cycles. A traditional bureaucratic firm may have a
strong culture, too, but it is typically a culture that values efficiency, quality control,
and minimization of risk. Thus, it can be difficult to get buy-in for rapid experimen-
tation and decision-making in these firms.
Daily (or mid-level) leadership in the Silicon Valley Model consists mainly of
coaching teams to excellence. Leaders establish objectives, goals, and priorities,
often working together with their teams on these points, and then give the team
members considerable autonomy in choosing how they will execute. Daily leaders
must be adept at balancing operations with innovation and, of course, must be able to
support their teams when problems arise. In the traditional bureaucracy, daily
leadership is more micromanaging and top-down. Along with setting directions
and priorities, leaders typically instruct team members on what should be done,
how and by whom.
Organization Silicon Valley Model companies are “semi-structured,” with a flat,

non-bureaucratic, and loose (or organic) organizational form. Limited
standardization of work processes and job definitions, along with the use of small,
highly independent teams, makes the companies adaptable and responsive.
Decision-making and strategizing are selectively delegated to local persons and
teams. A temporary hierarchy exists when top leaders set an overall strategy for
the firm, or when there is a need to transform the business model to seize
opportunities or respond to competitors’ moves. Traditional bureaucratic firms are
not organized in these ways. They tend to have stable, formal structures housing
large internal units, which operate at a large scale by virtue of having standardized
work processes and job descriptions. Further, decision power is usually stacked
vertically, with top executives and upper-middle managers either making key
decisions or needing to approve them.
Coordination of people and tasks is another area where the models diverge
profoundly. In the Silicon Valley Model, companies rely to a large extent on “soft
28 3 The Silicon Valley Model
control”—such as clearly communicating the firm’s mission and cultural values, to

create the expectation that people will align with these—and the soft mechanisms are
backed up by rigorous systems for evaluating performance in terms of key priorities.
The traditional bureaucratic model relies much more on its highly standardized work
and procedures.
Cost of Communication Finally, these costs are high in the Silicon Valley Model,
which requires a networked organization, openness, and transparency. Communica-
tion and information-sharing processes therefore need to be, and are, facilitated by
intensive use of automated IT in multiple forms. In traditional bureaucratic firms,
however, information is not shared freely or widely and thus the costs of communi-
cation are lower. For example, a significant amount of information moves vertically
and much of it may be “locked in” to certain groups that are told to treat it as
confidential. This way of communicating is almost a necessity if the organization
does not use automated systems to deal with increased, real-time, rapid flows of
information.
3.2 Moving Ahead
We have now conceptualized the Silicon Valley Model and compared it to a

traditional bureaucratic model, with the latter described mainly according to the
work of Mintzberg (1980). The comparison vividly shows that the new model is the
polar opposite of the old in every major respect. Next, we turn our gaze to China,
where new conditions and new companies have led to management models that are
similar to the Silicon Valley Model but may in some respects surpass it.
References
Management Science, 26(3), 322–341. https://doi.org/10.1287/mnsc.26.3.322
Steiber, A., & Alänge, S. (2016). The Silicon Valley model: Management for entrepreneurship.
Springer International Publishing.
China
4
The emergence of advanced technology companies in China has been enabled and
supported by a series of economic reforms and government initiatives since the
1970s. The first reforms were launched in 1978 under Deng Xiaoping and aug-
mented by further steps, and they had multiple effects. They allowed greater
autonomy in the formation and leadership of businesses, so that an economy
dominated by state-owned enterprises gradually came to include ambitious new
ventures, and generally became more responsive to the market forces of supply
and demand. These reforms also opened China to direct foreign investment and
world trade. As a result, China became the world’s largest recipient of foreign direct
investments from OECD countries by 2003 (See, for example, OECD, 2004).
In 2005, an important new policy was implemented: “Go Global.” One purpose
was for Chinese firms to invest more actively outside China, toward a goal of
balancing inward and outward foreign direct investments. By 2014, the outward
flow had reached a total of US$103 billion, while inward foreign direct investments
reached US$120 billion (Yip & McKern, 2016).
In 2006, the Chinese government issued its National Long-Term Science and
Technology Development Plan 2006–2020, which laid out a national strategy for
making China an innovative country within 20 years (Zhang & Zhou, 2015). The
clearly declared intention was for China “not only to catch up with the West, but to
re-establish itself at the forefront of technological innovation” (Yip & McKern,
2016, p. 1). One result of this policy was that the contribution of tech industries to
economic growth increased from 20.9% in 2010 to 55.3% in 2015 (State Council,
People’s Republic of China, 2016).
China has been building up its capabilities to innovate since the 1980s. The
learning curve for Chinese companies took off when they had to start from scratch
after markets were permitted. With very limited experience in the management of
technology, they started to learn from Western companies. According to the
researchers George S. Yip and Bruce McKern, they began by simply imitating
Western products and services, and then progressed to adapting the goods to their
own markets. The authors labeled this phase as a movement “from copying to fit-for-

https://doi.org/10.1007/978-3-030-95754-4_4
30 4 China
purpose” (Yip & McKern, 2016). Entrepreneurs in China thus learned the skills of
incremental innovation by altering and improving the imitated products and services.
New competition from foreign tech companies led to the next phase in China’s
evolution, in which Chinese companies increasingly emphasized reaching world
standards to compete with foreign products (Steiber, 2018). In the current third
phase, Chinese companies aim for technological leadership (Yip & McKern, 2016).
The country is also using its earned cash to invest in the developed world, as
mentioned above, securing brand names, market access, global talents, and
technologies.
There have been several facilitators behind this evolution, as presented in Steiber
(2018). One important factor has been the Chinese cultural heritage. The social
psychologists Geert Hofstede and Michael H. Bond argued that Confucianism was
behind economic growth in the Four Asian Tigers, Hong Kong, Singapore, Taiwan,
and South Korea (Hofstede & Bond, 1988), implying why it also has benefited
China. Virtues of Confucianism noted in their book include being “self-cultivating,”
the pursuit of “lifelong learning,” “tolerance of mistakes,” and “moderation”
(Hofstede & Bond, 1988, p. 97). According to the authors, Confucianism
emphasizes that fundamental human relationship starts with self-cultivation, and
this self-cultivation supports having patience and endurance in innovation activities,
which are not always guaranteed success. Confucianism also emphasizes that every-
one should be proactive in their learning by adopting an agile learning attitude.
Another important factor has been the Chinese education system. According to
scholars Fan et al. (2017), “Modern [Chinese] higher education, based first on
European models and later on American colleges and universities, has been a
major part of the transformation of China in the past century.” According to
China’s Ministry of Education, more than nine million college students were on
track to graduate in China in 2021 (Global Times, 2021). This is over 10X higher
than the number in the late 1990s and well over twice the number of 2021 college
graduates in the United States (Hanson, 2021). The growth in the number of
engineers has been explosive, and the government’s “Made in China 2025” strategy
to become a global high-tech leader has created many opportunities for graduates in
engineering, science, and economics. The tremendous rise in the number of
graduated students is an effect of 1999 reforms in which the Chinese government
launched a program to massively expand university enrollment.
Other factors of importance were the buildup of Chinese cross-sector platforms
for innovation, and massive corporate R&D spending on new technologies. For
example, the Chinese government promoted the formation and development of
national and provincial-level science parks. By 2006, there were 54 national science
parks with 43,249 high-tech firms connected to them (Zhang & Sonobe, 2011).
Firms located at these science and industry parks were required to create or apply
advanced technologies, invest at least 3% of gross revenues in R&D and employ at
least 30% college-degree workers (Campbell, 2013). As a consequence, several
industry clusters were developed rapidly (Zhang & Zhou, 2015), and important
actors in the ecosystem such as universities, research institutes, and businesses
themselves conducted both basic and applied research in order to increase China’s
References 31
innovation rate. Further, according to a China Daily report, the rise in research and
development spending was a result of China’s conscious shift from competitive cost
advantage to advantages in innovation to win in the global market. The report noted
that in the 2016 Global Innovation 1000 Study from Strategy&, 130 Chinese
companies were among the top 1000 spenders on R&D, and that these companies
combined had spent US$46.8 billion on R&D, up 18.6% from US$39.4 billion in
2015 (Zhang & Zhou, 2015). Further, in 2020, China’s spending on research and
development climbed 10.3% to a record 2.44 trillion Chinese yuan—or US$378
billion at the time of writing (Shead, 2021).
Finally, several macro-factors played important roles in China’s movement
toward innovation and growth. These factors included the country’s huge and
increasingly prosperous domestic market, harsh competition within that market,
and an increasing access to capital.
4.1 Moving Ahead
This chapter has given a brief overview of the factors that led to new companies with
new forms of management in China. Next, we will look at some common
characteristics of a new Chinese management model that has been put into practice
at several leading companies.
References
Campbell, J. R. (2013). Becoming a techno-industrial power: Chinese science and technology
policy. Paper in the Brookings Institution series on Issues in Technology Innovation, Number
23, April 2013.
Fan, M., Wen, H., Yang, L., & He, J. (2017). Exploring a new kind of higher education with
Chinese characteristics. The American Journal of Economics and Sociology, 76(3), 731–790.
https://doi.org/10.1111/ajes.12192
Global Times. (2021). Fresh grads in China face ‘complex, arduous’ job searches as record 9m
leave universities in 2021, 14 May 2021. Accessed November 18, 2021, from https://www.
globaltimes.cn/page/202105/1223464.shtml
Hanson, M. (2021). College graduation statistics. Updated 9 August 2021 at Educationdata.org.
Accessed November 18, 2021, from https://educationdata.org/number-of-college-graduates
Hofstede, G., & Bond, M. (1988). The Confucius connection: From cultural roots to economic
growth. Organizational Dynamics, 16(4), 4–21. https://doi.org/10.1016/0090-2616(88)90009-5
OECD. (2004). Foreign direct investment into OECD countries fell in 2003 for third consecutive
year. Organization for Economic Co-operation and Development website, 28 June 2004.
Accessed November 18, 2021, from http://www.oecd.org/general/
foreigndirectinvestmentintooecdcountriesfellin2003forthirdconsecutiveyear.htm
Shead, S. (2021). China’s spending on research and development hits a record $378 billion. CNBC,
1 March 2021. Accessed November 18, 2021, from https://www.cnbc.com/2021/03/01/chinas-
spending-on-rd-hits-a-record-378-billion.html
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innovation. Chinese government website, 8 August 2016. Accessed November 18, 2021, from
http://english.gov.cn/policies/latest_releases/2016/08/08/content_281475412096102.htm
32 4 China
Steiber, A. (2018). Management in the digital age: Will China surpass Silicon Valley? Springer
International Publishing.
Yip, G. S., & McKern, B. (2016). China’s next strategic advantage: From imitation to
innovation. MIT.
Zhang, H., & Sonobe, T. (2011). Development of science and technology parks in China,
1988-2008. Economics: The Open-Access, Open-Assessment E-Journal, 5(6), 1–25. https://
doi.org/10.5018/economics-ejournal.ja.2011-6
Zhang, Y., & Zhou, Y. (2015). The source of innovation in China: Highly innovative systems.
Palgrave Macmillan.
The New Chinese Model
5
As a result of the evolution of China and of technologies, companies in China

emerged with cultures and management approaches similar to those in Silicon
Valley (Steiber, 2018).
In fact, Haier sparked the idea for the author’s previous book on Chinese
management by calling attention to the subject. In 2016, shortly after The Silicon
Valley Model was published, representatives of Haier contacted the author. They
said Haier could be viewed as following the same model—except that in certain
ways, their version was even more advanced than what the Silicon Valley case
companies were doing. Naturally, this led to further exchanges with Haier, and it
raised several questions. Might there be more Chinese companies also using
“advanced” versions of the Silicon Valley Model?
To answer this question, the author spent one year (2016–2017) conducting
research on innovative Chinese companies. Much of the research focused on six
case companies: Haier, the “big three” Internet firms Alibaba, Baidu, and Tencent,
and the fast-rising mobile phone company Xiaomi, with Huawei also partly covered.
All were identified as highly innovative in their ways of managing the firm, and the
author found similarities to Silicon Valley’s case companies in multiple respects, as
follows.
5.1 Visionary and Externally Focused Top Leaders
The author found that the entrepreneurial founders of the Chinese case companies
still held top executive posts at the firms and played leading roles in their growth.1
The personal histories of the founder/top leaders showed that they had displayed
visionary qualities beforehand and then continued driving their companies to
1
In 2019, after the author’s research, Jack Ma stepped down as executive chairman of Alibaba.
However, by that time he had led Alibaba through 20 years of growth and expansion.

https://doi.org/10.1007/978-3-030-95754-4_5
34 5 The New Chinese Model
innovate. For example, Baidu’s founder, Robin Li, was an early innovator of search
technology while working in the United States (New York Times News Service,
2006). After starting Baidu he personally reworked the company’s business model
and technology, making it China’s largest search portal (Greenberg, 2009), and later
took Baidu into artificial intelligence and other fields for potential global expansion
(Jing, 2016).
Often, the leaders of these companies have been hailed as visionary heroes in the
business media. Zhang Ruimin, chairman emeritus and former longtime CEO of
Haier, has been compared to Jack Welch, the legendary former head of GE (Kleiner,
2014). Xiaomi’s Lei Jun has been called “the new Steve Jobs” (see, for example,
White, 2020), while Jack Ma literally came to be identified with his company—as in
the book title Alibaba: The House that Jack Ma Built (Clark, 2016).
Most of the companies have some form of dual top leadership, in which the
founder looks ahead and around the corner for growth opportunities while his partner
is focused on operations and development of these. At Tencent, Pony Ma and Martin
Lau have been compared to Mark Zuckerberg and Sheryl Sandberg at Facebook in
their division of focus (Stone & Chen, 2017).
Further, the Chinese top leaders stay very closely involved with strategic business
projects. An interviewee at one company said:
The CEO is extremely committed . . . It is all about the business. It is prioritized before
anything else . . . The CEO had frequent long meetings that could be two to five hours or
more. They didn’t leave the room until the problem was solved.
Further, the case companies’ founding CEOs were perceived as having a long-
term mindset. At several firms it was said that the founders play the role of
“evangelist” or “advisor on long term direction,” and in certain cases drive their
own strategic pet projects toward the bold vision and mission. Brian A. Wong
(2017), then a group vice president at Alibaba, said:
The senior leaders must see the big trends but also understand the details of the operation.
They need to inspire their team and point out the right direction.
Wong also said that Alibaba uses Eastern philosophy together with Western
know-how and tries to give teams on lower levels room for innovation, as businesses
in fast-changing fields cannot be run by blueprints and the people best suited to see
what works, are those closest to the problems.
5.2 Culture and People
The Chinese case companies’ top leaders appear to strive for cultures that emphasize
innovation, speed, and adaptability rather than stability and control (Rabkin, 2012).
Words such as “flat,” “collaborative,” “open,” “innovative,” “non-bureaucratic,” and
“flexible” were used by the Chinese companies. In recruiting, the Chinese
5.3 Organization, Coordination of Resources, and Digital Ecosystems 35
companies look for people with qualities similar to those sought in Silicon Valley.
The companies used terms like: “entrepreneurial spirit,” “non-bureaucratic,”
“embrace change,” “not a corporate person,” “open minded,” “collaborative,”
“humble,” and “willing to challenge and be challenged.”
5.3 Organization, Coordination of Resources, and Digital

Ecosystems
The Chinese companies were perceived to have fewer formal processes than typical
Western corporations and therefore to be much more agile and flexible. One key to
this was the development of organizational solutions consisting of a number of
independent smaller business units. Scale was achieved by means that included,
e.g., using the same platform(s) for all businesses. This structure is reminiscent of the
approach that Homa Bahrami (1992) of UC-Berkeley observed in Silicon Valley in
the early 1990s. Her work was cited previously, and to quote from it more fully:
The emerging organizational system of high-technology firms is more akin to a “federation”

or “constellation” of business units that are typically interdependent, relying on one another
for critical expertise and know-how. Moreover, they have a peer-to-peer relationship with
the [corporate] center. The center’s role is to orchestrate the broad strategic vision, develop
the shared organizational and administrative infrastructure, and create the cultural glue.
Further, the Chinese companies have displayed considerable duality. They have
been able to grow rapidly, adding new features to their products and branching into
new lines of business—all while maintaining complex existing operations (Steiber,
2018). Regarding coordination of people and their work, Yip and McKern (2016)
found that the Chinese firms were less oriented to using strictly defined work
processes but used individual and team-based incentives and milestones. For exam-
ple, the author of this book was informed that Alibaba sets “monthly targets for
salespeople and quarterly or half year targets for operations teams” (Wong, 2017),
and Baidu uses both quarterly reviews and personal development plans. Yip and
McKern (2016) also found the companies having a high degree of horizontal
communication across departments and units, which can be effective in coordinating
projects and tasks. Further, employees are also coordinated through involvement,
effective communication, and direct intervention from the top manager (Steiber,
2018). The frequent use of messaging platforms internally, such as WeChat at
Tencent and Alibaba’s DingTalk and Aliway, was mentioned, not only to commu-
nicate but also to work together efficiently on special projects, for example. In
several cases, such as at Huawei, the CEO himself was directly involved in messag-
ing team members to provide feedback to strategic project teams.
Finally, the Chinese case companies all have embraced open innovation
(Chesbrough, 2003) and the power of ecosystems. The American consultants
Nunes and Downes (2016) writing in Forbes.com observed that
36 5 The New Chinese Model
Haier has fully embraced the open innovation model as part of the company’s ongoing
transformation from a traditional manufacturing concern. Long-time CEO Zhang Ruimin
sees the company’s new incarnation as an Internet platform supporting autonomous
operating units called “microenterprises,” which may be partly or fully independent of Haier.
Tencent, Alibaba, Baidu, and Xiaomi also have completely adopted an open
innovation and ecosystem approach. In fact, McKinsey stated in October 2021 that
China had the fastest evolving digital ecosystems in the world (Bu et al., 2021). This
could be illustrated by the fact that Haier alone had over 4000 microenterprises
connected to its Hai Chuanghui (HCH) entrepreneurial accelerator platform (Haier,
n.d.). These ecosystems are enabled by technologies such as the Internet, cloud
computing, big data analytics, artificial intelligence, and blockchain (Steiber, 2021).
5.4 Moving Ahead
Of all the Chinese companies that were studied, Haier has transformed itself the most
dramatically and impressively. The next chapters tell the story in full, tracing Haier’s
strategic development and its revolutionary management model called
RenDanHeYi.
References
California Management Review, 34(4), 33–52. https://doi.org/10.2307/41166702
Bu, L., Chung, V., Leung, N., Wang, K.W., Xia, B., & Xia, C. (2021). The future of digital
innovation in China: Megatrends shaping one of the world's fastest evolving digital ecosystems.
McKinsey & Company, 4 October 2021. Accessed 14 November 2021 at https://www.
mckinsey.com/featured-insights/china/the-future-of-digital-innovation-in-china-megatrends-
shaping-one-of-the-worlds-fastest-evolving-digital-ecosystems?cid¼other-eml-alt-mip-mck&
hdpid¼50658e70-0465-4138-aa00-0c4e815cdba8&hctky¼11328475&hlkid¼965627cb0
7e84157a2b1d46c2425172c. Accessed 18 November 2021.
Chesbrough, H. (2003). Open innovation: The new imperative for creating and profiting from
technology. Harvard Business School Publishing.
Clark, D. (2016). Alibaba: The house that Jack Ma built. Ecco.
Greenberg, A. (2009, September 16). The man who’s beating Google. Forbes. Retrieved December
1, 2021, from https://www.forbes.com/forbes/2009/1005/technology-baidu-robin-li-man-whos-
beating-google.html?sh¼1549ba33bc1b
Haier. (n.d.). About HCH. Accessed November 18, 2021, from https://www.haier.com/global/hch/
Jing, M. (2016). Baidu will shift its business model to AI. China Daily, 11 May 2016. Accessed
December 1, 2021, from http://www.chinadaily.com.cn/business/tech/2016-05/11/content_2
5202540.htm
Kleiner, A. (2014). China’s philosopher-CEO Zhang Ruimin. Strategy+Business, 10 November
2014. Accessed November 18, 2021, from https://www.strategy-business.com/article/00296?
gko¼8155b
New York Times News Service, Beijing. (2006). Robin Li’s vision powers Baidu’s internet search
dominance. Found in Taipei Times online, 17 September 2006. Accessed November 18, 2021,
from http://www.taipeitimes.com/News/bizfocus/archives/2006/09/17/2003328060/1
References 37
Nunes, P., & Downes, L. (2016). At Haier and Lenovo, Chinese-style open innovation. Forbes.
com, 27 September 2016. Accessed November 18, 2021, from https://www.forbes.com/sites/
bigbangdisruption/2016/09/26/at-haier-and-lenovo-chinese-style-open-innovation/?sh¼5b2
988852b15
Rabkin, A. (2012). Leaders at Alibaba, Youku, and Baidu are slowly shaking up China’s corporate
culture. Fast Company, 9 January 2012. Accessed November 18, 2021, from http://www.
fastcompany.com/1802729/leaders-alibaba-youku-and-baidu-are-slowly-shaking-chinas-corpo
rate-culture
Steiber, A. (2018). Management in the digital age: Will China surpass Silicon Valley? Springer
Steiber, A. (2021). Personal interview with Haier on the ecosystem brand “Internet of Clothes,”
19 April 2021.
Stone, B., & Chen, L. Y. (2017). Tencent dominates in China. Next challenge is rest of the world.
Bloomberg.com. Accessed November 18, 2021, from https://www.bloomberg.com/news/
features/2017-06-28/tencent-rules-china-the-problem-is-the-rest-of-the-world
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innovation. MIT.
Part III
Haier and the RenDanHeYi model
Haier: A Traditional Firm Transforming into
a Digital Winner 6
Haier has been transforming itself continually over a period of almost 40 years. The
company’s major phases of evolution and growth will be presented below. Each
phase brought new insights to the company, which eventually were used in the
development of the company’s current management philosophy, “RenDanHeYi,”
which in turn has been adopted by other companies around the world, such as GE
Appliances in the United States and Fujitsu in Europe. The key principles of
RenDanHeYi will be described in the next chapter.
What makes the Haier story particularly interesting is that it has not been a typical
transformation journey. Haier’s transformation is noteworthy for several reasons:
• The company is not a digital native. It is a market leader in what is usually thought
of as an old-economy industry, home appliances.
• Haier is a large, complex organization, with about 100,000 employees and
operations worldwide.
• Despite facing many obstacles to change, Haier has continued evolving and
transforming step by step for nearly 40 years, driven by the former CEO Zhang
Ruimin’s vision of the optimal organization in an IoT era.
• And most important, Haier has been successful!
This gives the story a credibility that is hard for other companies to dismiss
because of size, or industry, or nearly any other excuse. The Haier story is about real
people, making real things, and reinventing the organization along the way.
Managers in firms that hesitate to change dramatically may say: “If Haier can do
it, why can’t we?” (Fischer & Steiber, 2021).
According to Zhang Ruimin—who led the company from 1984 until retiring as
Chairman and CEO in November of 2021—the transformation has been a hard and
circuitous one. Difficulties have included misunderstandings, opposition, and erratic
implementation. Haier addressed these issues by creating pilots to show employees
that (a) change is possible and not as difficult as they might have thought, and

https://doi.org/10.1007/978-3-030-95754-4_6
42 6 Haier: A Traditional Firm Transforming into a Digital Winner
(b) they get a share of the value created in the pilot, which makes them motivated to
join the movement.
Throughout the long transformation process, Zhang led Haier to focus on a set of
underlying management principles that are now embodied in its revolutionary
RenDanHeYi philosophy. Before going deeper into these principles, let us provide
a more holistic view of the company’s evolution over the last decades.
Except in places where other sources are cited, all material in the rest of this
chapter is drawn from a combination of the following sources: a report written by the
author for Haier Management Institute (Steiber, 2021a), presentation given by
Professor Bill Fischer at MIT’s Sloan School of Management (Fischer & Steiber,
2021), and the author’s interviews with Mrs. Shi Lutong at Haier (Steiber, 2020) and
with Mr. Ji Guangqiang at Haier (Steiber, 2021b). Inspiration also has been drawn
from The Haier Dictionary of RenDanHeYi (Haier, 2016).
6.1 Haier’s Six Development Phases
On a high level, Haier Group divides the history of its strategic development into six
main phases. They are:
1. Brand Building Strategy (1984–1991)

2. Diversification Strategy (1991–1998)
3. Internationalization Strategy (1998–2005)
4. Global Branding Strategy (2005–2012)
5. Networking Strategy (2012–2019)
6. Ecosystem Strategy (2019–present)
Each phase reflects the company’s proactive response to external and internal
opportunities and challenges.
6.1.1 Brand Building Strategy (1984–1991)
Haier dates its history from 1984, when Zhang Ruimin was named manager of a
collectively owned refrigerator factory in the city of Qingdao. Product quality was
very low, the factory was poorly maintained, and employee discipline and morale
were low, as the enterprise was losing money and workers often were not paid on
time. For the short term, Zhang was able to win their confidence by assuring regular
payment of wages, but clearly the business could only survive if products were
improved, and customers came to respect the brand. To help make the point, he
staged an event that became famous. Finding 76 defective refrigerators in the
finished inventory, Zhang took a sledgehammer and began smashing the faulty
units to pieces, one by one. This astonished the employees, because the value of
one refrigerator equaled the annual income of two workers. Zhang said “If I allow
these 76 refrigerators to be sold from here, there will be 760 or even more defective
6.1 Haier’s Six Development Phases 43
refrigerators sold in the future!” The employees then smashed the rest of the bunch.
After that, factory spaces were cleaned up and some commonsense workplace rules
were instituted. New equipment was brought in, along with modern production
processes that Zhang had learned of, to assure quality and reliability as well as
gaining efficiency. Much of this was done through partnership with a major German
company, Leibherr. Further, employees were trained in the new production methods.
By the end of this Brand Building stage, a failing factory had been turned into a state-
of-the-art company with a reputation for making refrigerators that people wanted to
buy. To increase the value created by people in the organization, this phase
emphasized that “everyone is in charge of something, and everything is managed
by someone.” The company, however, was still organized according to a traditional
hierarchical structure.
6.1.2 Diversification Strategy (1991–1998)
Following the reforms that had opened up China to foreign investment, competition
in the refrigerator market became fierce. Despite the improvements made at Haier,
CEO Zhang saw that relying on a single business unit and product line would be
risky. Qingdao officials had urged Haier to take over other struggling appliance
companies in the region, and therefore acquisition became the path to diversification.
Haier acquired manufacturers of air conditioners, washing machines, and more.
CEO Zhang described the ideal acquisition candidates as “stunned fish”—not
companies that were dead in the water, but ones with good products that were
being held back by poor management (The Economist, 2013). The idea was that
these “fish” could be revitalized if they were brought into a healthy environment. To
further increase the value generated by the company’s people, this phase
emphasized: “Everyone manages a market; everyone is a market.” The structure
was changed to a matrix organization.
6.1.3 Internationalization Strategy (1998–2005)
In this phase, Haier faced both international and domestic competition. Domestic
competitors offered low prices on rapid copy-and-paste products while foreign
companies brought more advanced goods into the Chinese market. Whereas the
domestic market had been a seller’s market, in which customers would accept almost
anything that was usable, it became more of a buyer’s market. The demand for
product innovation grew more urgent and product life cycles began shrinking. In
addition, China formally became part of the World Trade Organization in 2001.
Haier continued to expand, acquiring new companies in the domestic market, and
later started to compete with the best players in Europe and America. Haier was
committed to using its own brand and making it world-famous rather than becoming
an OEM. The goals for international expansion were to “go out,” raising awareness
of the Haier brand in overseas markets, as well as to “go in,” which meant entering
mainstream channels and selling mainstream products in those markets. As an
illustration of Haier’s strategy, the company focused on unserved user needs in the
US market, introducing new products like the mini-refrigerators used by college

students in their rooms.
During this phase, most of Haier’s home appliances were manufactured in China
and exported to the new countries. As local brand awareness and market access
improved, Haier changed its model and started manufacturing locally. On April
30, 1999, Haier established its first overseas industrial park in the US state of South
Carolina. The decision would help Haier to better understand the preferences of local
users and improve production processes to quickly meet their needs. From the
perspective of process innovations, for the internationalization strategy to work,
both efficiency and value to the end user had to be extremely high. Process
reengineering was aimed at achieving “three zeros”—zero inventory, zero distance
to the customer, and zero working capital.
In addition, CEO Zhang visited the World Economic Forum of 2000, which that
year had the theme “overcoming complacency.” After he returned to China, Zhang
wrote the article “My Opinions on the New Economy,” in which he began to share
his view of a new management paradigm for the networked era. Some key
insights were:
• First, embrace the internet or become irrelevant. For CEO Zhang, just embracing
the use of internet technology was not enough. The company’s hierarchical
structure had to change into “internet nodes” and the system needed to become
an open entrepreneurial system.
• Second, technology innovation. The company should take advantage of the
internet to align technology resources around the world for its own use and create
new demand (and new markets) with innovative technologies.
• Third, people are an important factor for successful innovation. Everyone should
be encouraged to innovate by providing them space to thrive, taking advantage of
shared information and shortened information chains by flattening the organiza-
tional structure, improving, and challenging each employee, allowing each to
fulfill his or her own value, and creating synergies in the form of teams.
These ideas were the foundation behind the current RenDanHeYi model that
would be announced by CEO Zhang in the next phase. In this phase, Haier aimed to
increase the value generated by the people by proposing that “everyone is to be a
SBU [strategic business unit].” This meant that everyone was to become a profit
center and assume sole responsibility for their own profit and loss. Haier
implemented this system to inspire autonomy among employees so they could
proactively respond to ever-changing market needs.
As an illustration, Haier eliminated the sign-off system on travel expenses.
Instead, each person’s travel expenses directly affected the profitability of the team
to which the person belonged, and without profit, there would be no profit-sharing to
team members. Haier at this time had very high travel costs, but within a year of
implementing the SBU concept, travel costs were reduced by one-third. When
everyone became an SBU, market goals were also broken down to the individual
level. The ambition was to make employees self-driven and self-innovating.
Another illustration is the case of product developer Xu Sheng, who developed a

very advanced washing machine in 2002. His role went from being a developer to
being the model manager, which affected not only his title, but his motivation.
Further, the better his products did on the market, the more pay he received, which in
turn led to an increased focus on the users.
6.1.4 Global Branding Strategy (2005–2012)
During this phase, the global financial crisis unfolded, and many companies built a
multi-continental presence. But internet technology, which allowed zero distance to
users, was now unstoppable. Haier, therefore, established its “glocal” branding
strategy and moved to the next level in its internationalization strategy, which was
to “go up.”
To go up involved building “three-in-one” centers (local R&D, manufacturing,
and marketing), while connecting first-class resources around the world to build
localized products. For example, Haier designed a one-person laundry room for
single women in Japan, and a washing machine that could wash 12 large burqas for
markets in the Middle East.
In this phase, RenDanHeYi was launched, and through global adoption of
RenDanHeYi, Haier aimed to build its famous “glocal” brands. The quest for
increasing value created by the people now changed from “everyone being a
strategic business unit” into “employees working in ZZJYT teams” (independent
small teams), within an inverted pyramid structure in which the teams were to focus
on users and top managers were to support the organization in delivering user value.
The ZZJYT concept was introduced in 2009 and was experimented with until
2012, when the teams were grouped into, and labeled “communities of common
interests,” to create further synergies between related ZZJYTs. In 2013—during the
phase to be covered next—the communities of common interests would become
“xiaowei,” which provided the basis for the small-team “microenterprises” that
permeate Haier today (Frynas et al., 2018). These changes in organizational structure
indicate how CEO Zhang finally found what he was searching for, to unleash the
human potential, by experimenting over many years.
6.1.5 Networking Strategy (2012–2019)
As a result of the growing importance of the internet and of Haier’s review of its
strategy every seventh year, Zhang Ruimin in 2014 said: “In the future, Haier will no
longer manufacture products. We will incubate makers. If we manufacture products,
we’ll be bound by ourselves, but if we incubate makers, we will have a lot of new
products and new ideas” (Cision, 2020).
Networked transformation of the enterprise had become an inevitable trend and
the objective of this new phase was to adopt an internet mindset and the three
“withouts,” meaning an “enterprise without boundaries, management without
leaders, and supply chain without limits” (Ma et al., 2016, p. 103). These three
“withouts” correspond to:
• The enterprise transforms into a network.

• Employees transform into entrepreneurs.
• Generic users become personalized users.
According to Haier, the three “withouts” are necessary for working in the Internet
of Things era, as an IoT enterprise needs to focus on new user needs through real-
time monitoring and forecasting (data), emphasize synergies across multiple
products, and reduce manual intervention in production/service processes through
sensors, connectivity, and intelligence.
In addition, according to Haier, there are two main differences between the
traditional mindset and the IoT mindset: zero distance and networking. In fact, the
relationship between the enterprise and employees, users, and partners must change
from a zero-sum game to an ecosystem relationship of win–win cooperation. One
important aspect of this ecosystem is to work in parallel, rather than sequentially.
The traditional model was sequential with R&D followed by development, market-
ing, and so on. Haier changed this process into several parallel streams, all
co-creating value for the users. This is what Haier means by a “networked mindset”
and it was realized by developing the microenterprise (ME) structure, in which
employees could be either a maker, an ME founder, or a platform owner.
Further, management without leaders means that employees move from passively
taking orders to become self-driven entrepreneurs. As a result, the employees are to
report to the users rather than to managers. Haier’s role is not to provide employees
with jobs, but with entrepreneurial opportunities. Therefore, the employees become
like entrepreneurs. They contribute value to the network through entrepreneurship
and innovation. Further, entrepreneurship is not limited to employees on the payroll,
as value-creating entrepreneurs can be anyone in the ecosystem.
Finally, a supply chain without limits is based on the belief that users change from
passive buyers to active participants in shaping their own experience. A traditional
company has limits in its supply chain as it sells through other parties such as
wholesalers or retailers. A supply chain without limits means that the company
should fill user needs when such needs arise. This has led to a change of the classical
R&D-manufacturing-sales model, into a process that is demand-and-supply driven.
In this scenario, users no longer choose among a given range of products, but rather
let the company know their personalized needs.
6.1.6 Ecosystem Strategy (2019-Present)
In his book, The Rise and Fall of American Growth, the economist Robert J. Gordon
noted that average productivity growth in the United States after 1970 was only
one-third of the rate during the period 1920–1970. In other words, the major
inventions of the second industrial revolution, such as cars, electricity, and home
appliances, have almost reached perfection today and new growth will not come in
the form of more advanced cars or home appliances. Economic growth will instead
require new engines (Gordon, 2017). Further, internet technology and the penetra-
tion of digital devices have shifted the balance of power from the companies into the
hands of users.
For those reasons, according to Zhang Ruimin, the current fourth industrial
revolution requires the development of ecosystems and ecosystem brands. Part of
being a networked organization is to have a clear strategy of what to focus on and
be best at, and in which areas to collaborate with others in ecosystems. The use of
ecosystems provides efficiency at scale together with learning at scale. Haier,
therefore, created an “ecosystem brand” for the IoT era. The ecosystem brand is
a measure of how competitive Haier and other companies are in the IoT era, and the
ability of a company to meet all user needs under a consistent strategy. To build a
strong ecosystem brand, the company needs to build a trusted ecosystem around
user experiences, enabled by networking capabilities. The ecosystem generates
income and social value through value-added sharing among all the stakeholders
and forms a compelling constellation of companies gravitating around users’
needs.
Part of this evolution is that products turn into “scenarios,” which means that it is
not a washing machine you sell, but a great laundry experience. An illustration of
this is how Haier has created its ecosystem brand “Internet of Clothes,” which is an
extension from a traditional washing machine business to provide full life-cycle
intelligent solutions across washing, caring for, storing, mixing-and-matching, and
purchasing clothes. Another example is Haier’s “balcony scenario,” which started by
focusing on an environmental problem that occurs when water from the washing
machine is transported in the rainwater drainpipe, as many Chinese in Shanghai have
their washer on the balcony of an apartment building. Haier, together with the city,
expanded the vision into a “balcony makeover program” that meets additional user
needs, such as having pets on the balcony or being able to do fitness exercises on the
balcony. The result was that other companies also wanted to contribute value to this
“balcony scenario” and an ecosystem within Haier’s larger ecosystem—an ecosys-
tem micro-community (EMC)—was created. This EMC later spun off 13 sub-EMCs
to offer 13 types of smart balcony scenarios.
An EMC in turn is an ecosystem consisting of a microcommunity of
microenterprises focused on a specific user scenario. These microenterprises are
independent units, connected in parallel rather than sequentially. An EMC is
dynamic, as it dynamically reconfigures and upgrades according to users’ needs.
There are two types of EMCs, solution EMCs and experience EMCs. The experience
EMCs focus on the market and have touchpoints for the users. The solution EMC is
responsible for the implementation.
Between the microenterprises within an EMC there is an “EMC contract.” An
EMC contract is designed for effective incentives and coordination of each micro-
enterprise in the EMC. Through the contracts, EMCs can avoid price wars and
achieve the Nash equilibrium1 of “the sum of optimal strategies for all players.” This
protects everyone in the ecosystem from a race to the bottom. An EMC contract is
focused on a “leading goal” rather than a goal based on the internal limitations of one
company. It also solves the problem of an incomplete contract in economics,2 as the
EMC contract is not a procurement relationship, but an agreement for co-creation
among parties in which they all share the value created. Finally, the EMC contract is
an infinite contract with the purpose of continuing the “game.” To create the best
user experience, the ecosystem can expand with new players, and as user needs keep
changing, the game continues.
6.2 Moving Ahead
Haier itself continues to change and evolve. The history presented in this chapter has
been meant to give an understanding of both the nature of Haier, as a company, and
the distinctive management principles and structures that it has developed. Now it is
time to see how these ingredients come together in RenDanHeYi. The next chapter
will take us there.
References
Cision PR Newswire. (2020). China creates new model of startup incubation; HCH incubates
5 listed companies, 30 November 2020 at https://www.prnewswire.com/news-releases/china-
creates-new-model-of-startup-incubation-hch-incubates-5-listed-companies-301181426.html.
Accessed 1 December 2021
Fischer, B., & Steiber, A. (2021). The transformation of GE appliances. Management Course
Materials, June 2021; unpublished.
Frynas, J. G., Mol, M. J., & Mellahi, K. (2018). Management innovation made in China: Haier’s
Rendanheyi. California Management Review, 61(1), 71–93.
Gordon, R. J. (2017). The rise and fall of American growth: The U.S. standard of living since the
civil war. Princeton University Press.
Haier. (2016). The Haier dictionary of RenDanHeYi. Haier Group.
Ma, H., Meng, Z. Yan, D., Wang, H., Guo, K., & Si, X. (2016). The Chinese digital economy.
CITIC Press Corporation, Beijing (English translation: Palgrave Macmillan).
Steiber, A. (2020). Author’s interview with Mrs. Shi Lutong at Haier, 6 July 2020.
Steiber, A. (2021a). The transformation of GE appliances (pp. 1–45). Report for Haier Management
Institute.
Steiber, A. (2021b). Author’s interview with Mr. Ji Guangqiang at Haier, 3 November 2021.
The Economist. (2013). Haier and higher, 12 October 2013 at https://www.economist.com/
business/2013/10/11/haier-and-higher
1
In game theory, the Nash equilibrium, named after the mathematician John Forbes Nash, Jr., is the
most common way to define the solution of a noncooperative game involving two or more players.
In a Nash equilibrium, each player is assumed to know the equilibrium strategies of the other
players and no player has anything to gain by changing only their own strategy.
2
The incomplete contracting paradigm was pioneered by Sanford J. Grossman, Oliver D. Hart, and
John H. Moore.
The RenDanHeYi Model
7
Haier’s management philosophy or model, “RenDanHeYi,” is a result of Haier’s

almost 40-year-long learning process that began in 1984 and progressed through the
six phases described in the previous chapter. The learning and transformation have
not stopped but are still ongoing as the world continues to change. Below, the
development of the underlying objectives and principles of RenDanHeYi are
described and visualized, leading to a summary of the key elements of the
RenDanHeYi model.
7.1 Becoming User Centric
In 1984, when CEO Zhang urged his employees to pull defective refrigerators from
inventory and destroy them with sledgehammers, he was clearly calling attention to
the importance of quality. The message was “We will never build such poor-quality
products again!” But at the same time, a deeper message was implicit in this gesture:
the importance of not disappointing the customers. Zhang had been moved to inspect
the inventory, and to find the defective units, after a customer complained about
problems with a refrigerator he had bought.
Therefore from the very start, the smashing of faulty refrigerators symbolized not
only a dedication to quality but also a focus on customer centricity, which later
would be emphasized even more in the goal of achieving “Zero Distance” to
the user.
CEO Zhang was a great admirer of Peter Drucker, and he established the
objective of delivering a great customer experience as the first guiding principle of
his new management approach. A corollary of this principle is that getting closer to
the customers is the best way of understanding what they want, in order to provide
great experiences. The Zero Distance concept, an important part of RenDanHeYi,
can thus be seen as flowing from a principle demonstrated in the earliest stage of
Haier’s transformation.

https://doi.org/10.1007/978-3-030-95754-4_7
50 7 The RenDanHeYi Model
Fig. 7.1 Haier’s experiments with achieving user linkage through organizational design (Fischer &
Steiber, 2021)
7.2 Organizational Experimentation
The pursuit of being closer to the customer has inevitably led to continued experi-
mentation with organizational structure, as illustrated by the drawings in Fig. 7.1.
The drawings show that over years, Haier has changed from having a traditional
pyramid structure to overturning the pyramid, to creating hyper-interconnected
ecosystems. (As noted earlier, the ZZJYTs in the fourth drawing were small teams
with high degrees of autonomy. They can be thought of as forerunners of what are
now called microenterprises.)
Although it is easy to become fascinated by organizational architecture, Haier’s
transformation process has involved much more than organizational redesign and
restructuring. Many details are not captured by the simple sketches in Fig. 7.1, and
furthermore, the concept of zero distance to the user requires more than a new
structure. It requires a new mindset, a new compensation model, and new uses of
digital technology, to name just a few changes.
7.3 Release Talents and Entrepreneurship Within
Another of Haier’s guiding principles is to recognize that there is a lot of talent

hidden in most complex organizations, which can be freed up by combating bureau-
cracy. Encouraging entrepreneurial behavior is the most powerful way to break the
hold of hierarchy and bureaucracy on an organization’s talent. Peter Drucker
observed that “the entrepreneur always searches for change, responds to it, and
exploits it as an opportunity” (Drucker, 1985, p. 28).
7.4 Principles and a New Language 51
The opportunity is to create great customer experiences, which leads to attracting

and keeping customers.
Encouraging entrepreneurship redistributes power within an organization, and, as
a result, most transformation efforts involve increased autonomy at lower levels in
(what used to be) the hierarchy.
Those who are newly involved in key decision-making must be provided with a
compass that guides them in the right directions, and in many successful
transformations, this takes the form of guiding objectives or “simple rules.” We
have seen two of Haier’s three guiding objectives already: (a) focus on customer
experience and (b) human value in the form of entrepreneurship. Sharing value with
all concerned is the third, through new compensation models. If this can be realized,
then it is fair to say that the user is paying your wages, to the extent that an
employee’s income is based directly on the sharing of value created in the market-
place. In cases where an entrepreneur (i.e., a maker) does not create any value for
3 months, that person needs to leave (Cicero, 2020).
7.4 Principles and a New Language
Figure 7.2 shows Haier’s three guiding objectives in a concise form. It is important
to recall that these have guided the company’s transformation journey for nearly four
decades.
It is also important to appreciate that, in a fractal-type fashion, each of the
objectives is manifested in the activities at each level of Haier, from the organization,
down to the individual. At every level, there is a striving for a great customer
experience. At every level people think of themselves as entrepreneurs, and at
every level the value created is shared among those who have created it.
Changing vocabulary helps us see the familiar in a different light. CEO Zhang
described traditional stakeholders and value distribution in new terms that have led
to profound behavioral changes. People who buy Haier’s products are perceived not
as “anonymous customers” but as “lifelong users, or co-creators”; employees have
been redefined from “order-takers” to “entrepreneurs,” and new approaches to
compensation ensure that value is not only created and captured differently, but
also distributed differently.
Fig. 7.2 Haier’s objectives

(Fischer & Steiber, 2021)
7.5 Change of the Game: The Internet of Things
In 2000, when CEO Zhang visited the annual World Economic Forum in Davos, he
correctly foresaw that the introduction of the Internet of Things, and the
hyperconnectivity that accompanies it into the home, would change everything.
Customer buying patterns would change, as they would buy sets of connected
appliances rather than individual units, and their expectations regarding customer
experience would change dramatically as well. The customer experience journey
went from one transaction every 12–15 years, to interactions with Haier 12–15 times
a day. Recipes, food tracking, wine pairings, even visits to producers were all now
becoming part of the customer experience, and they required access to domains of
expertise that were far outside Haier’s traditional competencies. Being closer to the
user was imperative, no longer an option, and this encouraged consideration of
radical openness and greater inclusion—not only of customers/users, but of
companies with the desired expertise.
Today everything has changed because of IoT, and as a result, organizational
architectures and practices that were fit for purpose in the past are not necessarily
just as fit for the future. In addition, digital-native insurgents such as Amazon, Apple,
and Google were all suddenly in the same competitive space as Haier,1 and given their
lead in voice-activated connectivity, they threatened to own the customer as well.
7.6 The Result: RenDanHeYi
There is great utility in thinking about leadership in terms of the choices that are
made and not made. Haier’s transformation story is a story of choices, and it is
impressive to notice their strategic focus. These choices all have been directed at one
or more of the guiding objectives of Haier, and they are mutually reinforcing.
What Haier had to do was to go beyond vocabulary and begin to change the
entrepreneurial nature of the organization, enabling newly minted entrepreneurs to
get underway and changing the architecture of the organizational structure to make it
easier for all of this to happen (Cicero, 2020). While the magic is in the details,
among the most visible changes were these: the adoption of the principle “Zero
Distance to users,” together with the principles of aligning the organization towards
users’ needs in the form of micro-enterprises; and the distribution of value created,
based on value contributed by the various parties involved (Fig. 7.3).
Central to Haier’s choices, in the effort to get closer to the user, was the creation
of microenterprises. They are the basic units of Haier’s IoT ecosystems, and they are
self-organizing and autonomous.
The microenterprises’ mission is to meet users’ needs, and Haier is an incubation
platform, with the role of supporting, nurturing, and providing resources and
1
The management scholar Rita Gunther McGrath has said we should no longer think of companies
as being in certain “industries,” but rather as being active in various “competitive arenas.”
7.6 The Result: RenDanHeYi 53
Fig. 7.3 A visualization of RenDanHeYi (Fischer & Steiber, 2021)
Fig. 7.4 Ecosystems vs. traditional value chains (Fischer & Steiber, 2021)
technical support to all MEs that identify users’ needs. When they work well, the
microenterprise members also succeed as equity owners of the MEs. Because of their
small size, microenterprises need partners. This has led to a willingness to share
revenues derived from partner co-creation, moving the ecosystems away from
operating as traditional value chains.
Traditional value chains are typically run by command-and-control approaches
aimed at gaining maximum dependability and efficiency. They are designed to
reduce variance at any link in the value chain. Ecosystems, on the other hand, are
for inviting relationships that are characterized by value-enlarging activities.
Ecosystems require a fundamentally different approach to engagement than do
traditional and typically closely managed value chains; see Fig. 7.4. Ecosystems
cannot be managed if they are to thrive, and ultimately, if they flourish and succeed,
they will even move away from customer-centricity, as the customers come to be
seen as partners in the ecosystem’s activities, not simply consumers of its products
(Cicero, 2020). Executives at Haier say that given the importance of ecosystems, the
relationships that form them will become their most valuable assets in the future.
Fig. 7.5 Win–win value add statement (Steiber, 2021)
Haier has chosen a novel approach to working with ecosystems, one that is
literally aimed at creating an enterprise without boundaries. The ecosystem
microcommunities (EMCs) consist of MEs from Haier, as well as third parties not
owned by Haier. Also, members of EMCs need to be aligned when facing users and
their needs, as together they can create more value for users than they could by
operating alone. Alignment between actors is done by using EMC contracts, in
which each party commits to certain responsibilities and outcomes. The EMC
contract is a further developed version of a smart contract, with blockchain technol-
ogy used to calculate if goals were achieved and how much value each player created
and delivered. A new player can “bid” for a certain job or task when the contracts are
to be renewed. By allowing this, Haier enables the value to users to self-evolve to
higher and higher standards. Haier uses one tool to both align the ecosystem and to
calculate value created and distributed to each player. This tool is called the “One
Statement,” formally titled the “Win-Win Value Add Statement”; see Fig. 7.5. If you
are interested in learning more about how ecosystem value is calculated, please read
The Haier Dictionary of RenDanHeYi (Haier, 2016).
Haier’s RenDanHeYi approach has taken the company a long way toward
fulfilling Peter Drucker’s admonition that “innovation and entrepreneurship have
to become an integral life-sustaining activity in our organizations, our economy and
our society” (Drucker, 1985, p. 255). Haier is one of a very few organizations in the
world that have busted bureaucracy, and for that reason is worth studying. As
previously said, the company’s philosophy for operating a firm in the IoT age is
based on objectives and principles that have been a work in progress for nearly four
decades. Haier has explicitly called this philosophy “RenDanHeYi” since 2005, and,
as the company has developed, different versions of RenDanHeYi have been
developed as well. In its current form, it involves perhaps the most sweeping
reinvention of corporate structure and management that has yet been seen.
7.7 Key Principles of RenDanHeYi 55
7.7 Key Principles of RenDanHeYi
We have mentioned that RenDanHeYi as a model, system, or philosophy can be

thought of as a fractal: a “never-ending pattern of activities that are self-similar
across many different organizational levels.” In Haier’s case, these patterns of
relationships and behaviors are reproduced at the organizational level, at the micro-
enterprise level (as well as throughout the communities of microenterprises in
ecosystems), and at the individual level.
For an approximate translation of the term “RenDanHeYi,” Haier refers to
employees (Ren), user value (Dan), and to the integration of employees’ value
creation and user value realization. In short, this means that all employees should
be focused on creating user value, and they are rewarded according to the user value
they create. The objectives are, as have been mentioned before, to aim for great
customer experience, to release and use the entrepreneurial energy of everyone—
employees as well as external partners—and to provide a structure for sharing the
value created among all involved.
Now we can delve into the principles for achieving these objectives. The
RenDanHeYi model operates based on six core principles:
• Ecosystem as the strategy

• Networked organization
• Employees as entrepreneurs
• Zero distance to users
• Pay-by-user compensation
• Nonlinear management
The six principles are described below. For more detailed information about each
of the principles, please turn to Haier (2016).
7.7.1 Strategy: Ecosystem Brand
The strategy of a networked enterprise revolves around building an “ecosystem for

co-creation and win-win partnerships,” and at the end, an ecosystem brand. Haier’s
RenDanHeYi model overturns traditional strategic management, in which the com-
pany is viewed as a vertically integrated, closed system competing with others of the
same kind. Instead, the company becomes a platform-based organization, open to its
ecosystem in the sense that it must be easy for world-class resource providers to get
access to users on the Haier platform and create value for users. The platform
evolution is characterized by three stages:
• From closed to open

• From static to dynamic
• From competitive to win–win
An ecosystem brand approach is defined with the three “selfs” (self-motivation by

becoming autonomous, self-organization into microenterprises and EMCs, and self-
circulation of ecosystem value) and with the three “news” (new model based on
RenDanHeYi, new ecosystem based on EMC contract, and new paradigm based on
ecosystem brand). By using an ecosystem brand, a company can create lifetime
users.
7.7.2 Organization
The organizational goal of a networked enterprise is to transform from a traditional

hierarchy into a network of nodes, microenterprises, which operate on the enterprise
platform and can connect with top resources to provide the best user experience. This
means that the enterprise also goes from division of labor to a combination of labor.
As described earlier, the network nodes make up ecosystem microcommunities
(EMCs) that can either be “experience EMCs,” engaging directly with users, or
“solution EMCs,” which create user value. Coordination of the microenterprises is
done, and decisions are made autonomously through the EMC contracts, without a
leadership pyramid or functional departments. For this to happen, three decision
powers previously held by the CEO or other executives—namely, power over
business, people, and compensation decisions—are returned to the employees at
microenterprises, in a shift labeled “the three rights” by Haier.
7.7.3 Employees
As part of a networked enterprise, employees transform from people who execute

specified duties to “entrepreneurs and dynamic partners.” Employees are not only to
be entrepreneurial in their jobs but can also start a business instead of working for a
microenterprise. There is an evolution expected of the employee, from being an
order taker and doer to an active, innovative entrepreneur, and then a dynamic
partner. The latter means that employees are not limited by the enterprise. They
become independent individuals on a platform where “the world is my HR depart-
ment.” This quotation was inspired by Anthony D. Williams, co-author with Don
Tapscott of Wikinomics, when he said, “The world is now your R&D department”
(Qatar Ministry of Transport n.d.), and by the popular saying “Collaborate or
disappear.” CEO Zhang changed the first into “the world is my HR department”
referring to the fact that all human resources in the world are now accessible.
Traditional managers assign targets to employees; Haier organizes people around a
target. A competent person anywhere in the world can become an entrepreneur on
the Haier platform by bidding for a job. Through this transformation of employees,
7.7 Key Principles of RenDanHeYi 57
the enterprise itself transforms from a product manufacturing company to an “entre-

preneur breeding platform.”
7.7.4 Users
For a networked enterprise, the user of a product transforms from a customer with
whom the company has a one-time transaction into being part of the enterprise’s
community and being in constant interaction with the company. The key to realizing
this shift is the Zero Distance concept, which means eliminating the distance
between users and the company. Haier, therefore, connects with its users online
and offline to learn their demands in the product planning stage and in product
design, development, production, manufacturing, and marketing. Traditional
companies do business by selling products, while Haier is exploring a way of
acquiring user resources and creating lifetime users.
7.7.5 Compensation
The transformation in the compensation model means that the company goes from
“pay-by-enterprise” to “pay-by-user.” In traditional companies, staff members are
paid salaries or wages based on their positions. This is a fixed compensation system
with ex-post-facto evaluation. Haier’s compensation model is based on “commit-
ment-oriented planning.” The investment of resources in each task or project,
depends on resources committed by a microenterprise, as well as on co-investment
in the ME, instead of on allocation by superiors. The microenterprise takes the initial
risk and pays the employees their co-investment capital and a share from profit
created. This element is based on the belief that compensation is the driving force for
the growth of an enterprise.
7.7.6 Management
Finally, management is transformed from a linear to a nonlinear approach. In a linear

management model, the functions of a bureaucratic enterprise are managed by
command and control. Nonlinear management provides resources and services for
a networked organization on shared platforms. In traditional management, planning
is more common than evolving, and the input determines the output. In nonlinear
management the focus is on self-evolving, and this is made a reality for employees,
thereby driving growth. The moral is that the potential of each person needs to be
brought out and facilitated to make each person his or her own CEO.
7.8 Moving Ahead
This concludes the summary of RenDanHeYi’s key principles. The next chapter
compares the RenDanHeYi model with Google’s management model, which is used
to represent the Silicon Valley Model identified in Steiber and Alänge (2016).
References
Cicero, S. (2020). Haier CEO Zhang Ruimin exclusive interview on RenDanHeYi, platforms and
ecosystems. (Video interview and conversation conducted by Simone Cicero.) Posted on
YouTube by PDT (Platform Design Toolkit), 28 May 2020. Accessed December 1, 2021,
from https://www.youtube.com/watch?v¼RgQrz3EVhU0&t¼82s
Drucker, P. (1985). Innovation and entrepreneurship. HarperCollins.
Fischer, B., & Steiber, A. (2021). The transformation of GE appliances. Management Course
Materials, June 2021; unpublished.
Qatar Ministry of Transport. (n.d.). Wikinomics author encourages Qatar to tap into the power of
mass collaboration. Accessed December 1, 2021, from https://www.motc.gov.qa/en/news-
events/news/wikinomics-author-encourages-qatar-tap-power-mass-collaboration
Steiber, A. (2021). The transformation of GE appliances (pp. 1–45). Report for Haier Management
Institute.
RenDanHeYi Versus the Silicon Valley
Model 8
Now let us consider where the RenDanHeYi model stands on the “evolution scale”
of new management models. We have traced the course of that development through
the opening chapters of this book.
• Chapter 1 documented the need for companies to have “dynamic capabilities” in

today’s complex, uncertain and fast-changing business environment. The
capabilities consist of sensing new opportunities and threats, rapidly seizing the
occasion to act by mobilizing resources, and constantly transforming the com-
pany for opportunities to come. Chapter 1 also described why conventional,
bureaucratic forms of management cannot deliver these capabilities.
• In Chaps. 2 and 3, we saw how leading firms in Silicon Valley developed a
management approach that gave them dynamic capabilities. If you wish to refer
back to those chapters, see especially Table 3.1 and the discussion that follows it
in Chap. 3. The table shows that in many respects the Silicon Valley Model is a
polar opposite of the traditional “Machine Bureaucracy” model described by
Henry Mintzberg (1980). Top leaders in the Silicon Valley Model focus
strategically on innovation and growth, rather than on maintaining and optimizing
the status quo. The new model decentralizes decision-making and allows for
flexibility, instead of locking systems in place through command-and-control
structures and rigid rules and procedures; and so forth.
• Chapter 4 was drawn from the author’s follow-up research on China, as
documented in Steiber (2018). This research revealed that a number of leading
Chinese companies had developed management models similar to the Silicon
Valley Model. In each case, whether in China or in Silicon Valley, the company
behaved less like a bureaucracy and more like an “adhocracy,” a highly adaptive
organization that can move quickly and proactively in response to the needs and
opportunities that appear before it (Desveaux, 2012).
The author’s research in Steiber (2018) concluded that the innovative Chinese
companies and the Silicon Valley innovation giants were managed in ways that

https://doi.org/10.1007/978-3-030-95754-4_8
60 8 RenDanHeYi Versus the Silicon Valley Model
looked similar on a meta-level. There were, however, differences in practice, and it

appeared that the Chinese firms might in some respects be more novel. If we now
conduct a deeper comparison, we can see that this may indeed be the case with
RenDanHeYi, developed by Haier.
For the following analysis, we will compare the RenDanHeYi model to the
Silicon Valley Model as it is practiced at Google. Google was chosen as the
reference case for two reasons: It is the Valley company that the author has studied
most extensively, and Google is also widely known as a leading innovator in
multiple areas. Further, since RenDanHeYi is a unique new model, it seems fair to
analyze it on its own terms. In Table 8.1 and the discussion that follows, we compare
Google and RenDenHaYi based on RenDanHeYi’s six principles as described in
Chap. 7.
As shown in Table 8.1, the two companies’ management principles do, at least on
a high level, seem similar. As the Google Model and RenDanHeYi are not the only
management models representing these principles, we might have identified a set of
management “meta-principles,” fit for the new digital economy. The implication
would be that a paradigm shift in management is already here (Steiber, 2014; Steiber
& Alänge, 2016), and it is not an industry-specific or local phenomenon, but a
global one.
However, it would be wrong to state that Google and Haier apply the principles in
the same way. In fact, the two companies differ substantially in their practices, as
described below.
8.1 Strategy: Ecosystem
Both Google and Haier emphasize the importance of ecosystems in the new econ-
omy. Both companies are building open ecosystems with universities, research
institutes, startups, and more. Both also incubate and accelerate startups originated
both within and external to the company, as well as investing in or acquiring external
startups.
However, there is a major difference in how the RenDanHeYi model uses
ecosystems to deliver whole scenarios, such as “smart kitchen” or “smart laundry,”
to users. To be able to do this, Haier needs to deliver a great user experience,
including hardware, software, and services, and this package needs to potentially
be produced by several players in an ecosystem, rather than only by a single
company. This kind of ecosystem is different from, e.g., Android (open-source
operating software for mobiles), Google Play (an application software platform),
and Google Kubernetes Engine, or Tensorflow.org (an end-to-end open-source
platform for machine learning).
Haier’s “UX Cloud Platform” engages users throughout their whole experience
journey of designing, building, and servicing a home across a full range of custom-
izable scenarios. Based on user experience, the ecosystem attracts partners that could
contribute to the experience journey and potentially also incubate new ecosystem
microcommunities (EMCs) if needed. The example of the smart balcony mentioned
8.1 Strategy: Ecosystem 61
Table 8.1 A comparison of the Google model and the RenDanHeYi Model (conducted by the
author)
Principles Google model RenDanHeYi model
(Source: The Google Model: (Source: The Haier Dictionary of
Managing Continuous Innovation RenDanHeYi, 2016)
in a Rapidly Changing World,
2014)
Strategy: Ecosystem “Google knows that ideas often “Enterprises should evolve from
for co-creation and come both from within the vertically integrated closed
win–win partnerships company and from outside organizations into open, platform-
sources. The company has built based organizations driven by the
up a network composed of various best user experience and aimed at
outside actors, such as developers, co-creation and win-win
universities, government partnership for stakeholders.”
agencies, and startup companies.” (pp. 18–19)
(p. 80)
Organization: a “. . . a flat organization . . . reduced “Clear the barriers between
networked the likelihood of too much employees and users through
organization top-down management and flattening and shared internal
micromanagement was . . . an information and quick access to
undesirable situation . . .” (p. 68) external info through the shortest
“. . . both founders wished to path.” (pp. 30, 32)
avoid a hierarchical organization
with many layers of management”
(p. 69)
Employees: “The company wants employees “Facing the market directly, each
Entrepreneurs and that are . . . entrepreneurial employee creates value for users
dynamic partners (scrappy) and curious, who and evolves into a dynamic
question the status quo, are partner.” (p. 37)
energetic, driven, nonpolitical,
humble and change-oriented self-
starters.” (p. 62)
Users: Zero distance “Focus on the user” (p. 49). “Provide the best end2end
“. . . an employee is expected to experience, user interaction
concentrate on user benefits early online, and user participation
in the development of the project” along the value chain, everything
(p. 52) connected.” (p. 43)
Compensation: Pay “The system is built on key “Employees create and are
by users accomplishments, an evaluation rewarded based on the value for
process, and pecuniary and users . . . the compensation system
non-pecuniary rewards.” (p. 71) adopts VAM pay related to user
“Promotions and compensation value, which requires
are connected to the OKR commitment-oriented planning.”
process” (p. 71) (p. 48)
Management: “Every employee is expected to “A non-linear management is
Nonlinear, be self-organized, be able to lead, providing resources and services
supporting self- take initiative, require little for a networked organization. Let
evolution management support, and be employees manage themselves
skilled in networking and and at the same time be managed
collaborating with others.” (p. 56) by their teams. Let employees get
“The individuals are daily involved in entrepreneurial
evaluated by peers for their innovations by focusing on user
Googliness.” (pp. 45–46, 56) demands. Target to lead to realize
self-evolution.” (pp. 52–54)
in Chap. 6 could illustrate this. Further, Haier’s experience cloud platform facilitates
co-creation by all involved parties and has only one unique relationship with the
user, which is custom made (Steiber, 2021b). However, behind the solution could be
multiple (N) resources. One illustration of this from 2020 is the ecosystem for
“Internet of Food,” which launched “Alphesh,” an IoT ready-to-cook meal platform.
The platform provides users with ready-to-cook meals from the farm to the table
(Steiber, 2021b).
Regarding incubation and acceleration of new ventures, there are also differences
between the companies. Google’s corporate parent, Alphabet, holds a portfolio of
companies—some mature, some growth companies, and some emergent new
businesses. They thereby have a governance structure allowing new ventures to be
added to the group. Further, Google has its 20% projects for individuals to explore
new ideas, with Area 120 being an internal incubator in which employees with ideas
can get facilitation in areas such as design thinking. If the business opportunity is
promising, it might become a new business within Alphabet, or the Google
employee can choose to leave Google to explore his/her new business. Google is
also actively involved in supporting external startups through Google for Startups,
which includes a number of incubators and accelerators all over the world. In
addition to advice and services, Google for Startups also offers Google products.
If the startup seems promising, Google can later choose to invest in the startup
through GV, formerly Google Ventures (Steiber, 2014). It is not known by the
author if Google uses Google for Startups to consciously funnel tech startups from
seed funding to listed companies.
Haier’s incubator and accelerator platform could be viewed as a “global factory”
of new businesses and is a vehicle for Haier’s self-transformation and future growth.
Similarly to at Google, Haier employees can propose new ideas and get support from
the platform. Haier employees leave their Haier microenterprise when they start a
new one themselves, and they invest and get equity in their own business. Further,
external investors are invited, but during the incubation phase, Haier keeps a
controlling share of the new business. When the startup starts to scale, current and
new external investors, as well as the founders of the new microenterprise can invest
in the company (Steiber, 2021b). An example is Mr. Liu Zhanjie who was a
technician at Haier and became the owner of a new biomedical ME, which today
is listed on the stock exchange in China (Steiber, 2021b). Haier’s incubator and
accelerator platform is also open for external startups and has locations in many parts
of the world, providing the resources of a large organization to global entrepreneurs.
The platform has created its own ecosystem of venture capitalists, other large
industrial firms, universities, and more, and can also offer training of entrepreneurs.
Because of being a well-oiled “factory” of new businesses, Haier consciously
funnels the startups from seed funding to unicorns to public listing. Currently, the
platform incubates more than 4000 MEs and has accelerated over 360 projects, of
which four have become listed companies, five unicorns, and 46 gazelle companies
(Steiber, 2021b).
8.3 Entrepreneurs and Dynamic Partners 63
8.2 A Networked Organization
Both companies emphasize the importance of having a flat, networked organization

with small, fast-moving teams. On a structural level, Google, however, still uses a
matrix structure with functions, products, and geographies clearly defined. Although
decision power is decentralized to smaller teams (often product teams), which are
encouraged to set the strategy, learn quickly, and move fast, the structure that these
teams operate within remains fairly traditional.
The RenDanHeYi model is characterized by independent basic units,
microenterprises (MEs), organized around users’ needs in ecosystem micro-
communities (EMCs). Each ME becomes a node in the EMC. Haier provides
strategic guidance, remuneration system support, and some office facilities to the
MEs (Steiber, 2021b). There is no hierarchy among MEs, nor among EMCs. This
means that Haier doesn’t talk about products, functions, or matrix systems anymore,
but about a networked organization with nodes that either serve the end users or
other nodes, all of which collaborate to maximize user experience.
8.3 Entrepreneurs and Dynamic Partners
Both Google and Haier want highly entrepreneurial people. In both cases, the
companies support employees’ desires to “pursue their dreams” and explore new
opportunities. At Google, not only are people encouraged to innovate and to work on
20% projects—i.e., using about 20% of their work time to explore new ideas that
particularly interest them—but they are also evaluated according to objectives that
are set to stretch every employee’s performance (Steiber & Alänge, 2016). Also, to
serve as good role models, leaders on all levels are to be involved in one or several
20% projects and contribute to new value for the firm (Steiber, 2014). If a 20% idea
is good and supported by local managers and enough peers, it can be further explored
and developed as described earlier, and very promising ideas may become a future
business area for Alphabet.
Haier uses a system that more closely resembles true entrepreneurship rather than
intrapreneurship, as would be the case at Google. Haier employees are expected to
transform into entrepreneurs—in fact, the label “employee” is not even used at
Haier—and can in the best cases choose to start a microenterprise. It can be either
a transformation ME, which is incubated from within Haier and must fit Haier’s
strategic direction, or an ecosystem ME, tied to Haier’s strategic vision but having
somewhat looser ties to Haier and its existing resources (Steiber, 2021b). Haier has
an investment committee that reviews and approves the proposals for ME
investments and incubations from the perspective of strategic fit, not necessarily
by the criterion of forecasted return on investment (Steiber, 2021b). All new MEs
must join an EMC to create, deliver, and share value (Steiber, 2021b). If a new ME
brings direct value to an EMC’s users, this will help the new ME to quickly capture
market opportunities through the power of the “experience cloud platform.”
8.4 Users and Zero Distance
Both innovation giants focus on users and user value, especially in the research and
development process. Experiments together with users and real-time user responses
to new features are prioritized by both companies. Simple rules such as “USERS
FIRST” make it clear to people at both Google and Haier that they should focus on
user value, and not try to develop things that nobody would want. However, there is
a difference between focusing on the end users and interacting and co-creating with
the end users. Google has interacted with users for many years and used the data to
improve its features and products, or for inventing new ones. The company also has
let lead users provide feedback on beta prototypes of products (Steiber, 2014).
In its quest for zero distance to the users, Haier’s underlying belief is not only to
focus on users when creating new value, but to co-create together with users along its
experience journey in multiple scenarios. Further, the company serves end users with
important information about their purchases and how best to benefit from new
products after they are installed in their homes (Steiber, 2021a).
Both companies, therefore, strive for stickiness and try to keep users, but at Haier,
the focus is on lifetime users, and Haier’s traditional “hardware business model” had
to radically transform from a purely transaction-based mindset to a lifetime user and
Internet mindset in which the company now can interact with, co-create with, and
provide new value to end users daily. This was made possible with the support of the
zero distance principle and with the evolution and improvement of digital
technologies.
8.5 Compensation and Pay-By-Users
In both companies, compensation is in some way linked to value created by the

employees. Both companies use equity as part of the total compensation to
employees. Both models emphasize to some degree the democratization and distri-
bution of wealth created to everyone involved.
At Google, however, employees get a fair market-based salary and a bonus, as
well as equity. The company changed from granting share options to restricted stock
units (RSUs), and later to Google Stock Units (GSU), which are full shares granted
to each employee (Sarath, 2020). The difference between RSUs and GSUs is that the
amount you vest is based on performance. In simpler words, you can get more GSUs
if you are a higher performer than you were initially expecting. In short, it works just
like a bonus system.
By comparison, Haier puts more emphasis on the direct link between employees’
compensation and the value the employee creates for users. In Haier’s system, there
is no such thing as a market-based salary. People are paid according to how much
they create value for users. Leading targets are therefore vitally important to Haier
employees. Under the “pay-by-user” scheme, Haier employees should be paid 1.5
times the industry average (Steiber, 2021b). If the final compensation is below this
mark, it means the employee is part of an EMC that does not hit its leading target or
8.6 Nonlinear Management 65
is unable to achieve a high percentage of the shared profit, based on his/her own
performance. In other words, Haier employees need to be competitive (Steiber,
2021b). The ones that are not will not be able to get a high compensation. On a
ME level, the ME makes its own compensation decisions regarding who is to get
what share of profits, based on their performance. Regarding equity, as was men-
tioned earlier, Haier has the controlling stake of the company in the incubation phase
(Steiber, 2021b). In the scaling phase, people in the microenterprise, as well as
external investors can buy more equity through investments. As can be seen, Haier’s
employees are compensated more like entrepreneurs on an open market. To support
employees’ transformation into true entrepreneurs, they are evaluated according to
how well they self-evolve internally in Haier, and how well they achieve value in
their ecosystem. On the HCH platform they can also get entrepreneurial training. To
learn more about the RenDanHeYi scorecard, visit the RenDanHeYi Certification
website (EFMD Global, 2021) or read The Haier Dictionary of RenDanHeYi (Haier,
2016).
8.6 Nonlinear Management
Finally, both companies strongly believe in a flat organization with decentralized

decision power given to smaller, cross-functional teams. The top leader’s role,
therefore, changes from a typical command-and-control approach to one of setting
a vision/direction and coaching the organization and its teams for success. The role
of the middle manager in this organization is questioned, as middle managers should
not be needed anymore.
At Google, the most successful leaders are not those who know the most or
control the most information and resources. Rather, they are the leaders who build
the most successful teams providing great value to users (Steiber, 2014). This
usually means that leaders who might have been high achievers in the past, now
must attract and support the success of other great people in their teams (Steiber,
2014). However, the Google model still has an explicit top executive team, with
VPs, directors, and managers. Even if these executives allow their direct reports
considerable freedom to solve problems and create user value, they are still these
peoples’ managers and there is a formal hierarchy in place, with greater benefits at
the top. Employees who do not make it to a higher level usually leave the company
after some years.
The RenDanHeYi model strives for a system “without” leaders (Steiber, 2021b),
by making everyone an entrepreneur, or even a founder of a microenterprise.
Therefore, at Haier, they do not talk about executives, vice presidents, or managers.
At Haier, the people are ME owners, entrepreneurs, or makers. In the best-case
scenario every employee should be an entrepreneur, not a job holder. According to
the RenDanHeYi philosophy, these entrepreneurs and the MEs should be self-
evolving. Haier employees compete internally and can challenge their colleagues
by bidding for a job position that they believe they could do better (Steiber, 2021a).
Google also strongly believes in having people who are entrepreneurial, self-driven,
and self-organized (Steiber, 2014, p. 56); however, employees do not challenge each
other and bid for each other’s positions. This “internal market” is much more explicit
in the RenDanHeYi model.
8.7 Moving Ahead
By this point in the book, it should be clear that both Haier’s RenDanHeYi model
and Google’s version of the Silicon Valley Model are very significant departures
from the traditional forms of bureaucratic management. The two companies are
managed in ways that better fit the IoT era and that focus on innovation, agility, and
speed. Both have achieved results that appear to validate their respective models, as
Google and Haier each have innovated and grown tremendously since they were
founded. In fact, on November 8, 2021, Google’s listed parent Alphabet was valued
at $2 trillion and was the top performer among the five biggest US tech stocks in
2021, with a more than 70% advance, fueled largely by the growth in Google’s
advertising business (Lewis & Grant, 2021). Similarly, Haier Smart Home (HSM)
achieved revenues of $111.6 billion in the first half of 2021, an increase of 16.6%
over the first half of 2020. In the same period, HSH in China grew 29.9% in
revenues, supported by digitization of its domestic business (Steiber, 2021b).
The above comparison of the two companies is, according to the author’s
knowledge unique and has never been done before. It has revealed similarities on
the level of principles of the two models. When we consider that Haier and Google
have operated in very different markets and industries—Haier primarily in white
goods, i.e., appliances for the home, and Google in fields from internet search to
mobile technology—the core similarities in their management models become even
more striking. The companies may have arrived at a set of principles that are widely
applicable. Perhaps either of their models could be viewed as avatars of the future of
management, worthy of emulation by companies that wish to survive and thrive in
almost any industry.
But a closer comparison of the models does reveal substantial differences in
practices applied. We have seen how the RenDanHeYi model goes beyond the
Google model in making use of ecosystems, creating a networked organization,
treating employees as entrepreneurs, working closely with end users, tying compen-
sation to true employee-related user value creation, and deploying a nonlinear
management style. Some would argue that these further steps might be possible
due to national differences in culture and regulations. For now, however, the bottom
line is simply this: The RenDanHeYi model could in certain aspects be viewed as
very disruptive, specifically for companies in Western countries. In the chapters
ahead, we will examine what happened when RenDanHeYi, a Chinese model, was
introduced at GE Appliances, a more than 100-year-old American company.
References 67
References
Desveaux, J. A. (2012). Adhocracy. Online encyclopedia article in Brittanica. Accessed November
19, 2021, from https://www.britannica.com/topic/adhocracy
EFMD Global. (2021). RDHY certification. Accessed December 1, 2021, from https://www.
efmdglobal.org/assessments/companies/rdhy-certification/
Lewis, L., & Grant, N. (2021). Google market value passes $2tn mark on back of share rally. Irish
Examiner, 8 November 2021. Accessed November 15, 2021, from https://www.irishexaminer.
com/business/companies/arid-40739982.html
Sarath. (2020). Google employee benefits: Google stock units (GSUs). Eqvista, 14 August 2020.
Accessed November 19, 2021, from https://eqvista.com/google-employee-benefits-google-
stock-units/
world. Springer International Publishing.
Steiber, A. (2018). Management in the Digital age: Will China surpass Silicon Valley? Springer
Steiber, A. (2021a). The transformation of GE appliances (pp. 1–45). Report for Haier Management
Institute.
Steiber, A. (2021b). Author’s interview with Mr. Ji Guangqiang at Haier, 3 November 2021.
Part IV
GE Appliances in 2016 and 2021
and the Interpretation of RenDanHeYi
GE Appliances in 2016
9
GE Appliances (GEA) is an American home appliance manufacturer based in

Louisville, Kentucky. GEA was incorporated in 1905 and was for many years a
part of General Electric (GE) (Glader, 2010). However, on September 08, 2014, GE
agreed to sell the company to Electrolux, a Swedish appliance manufacturer for
US$3.3 billion in cash. The transaction was terminated in December 2015 after the
United States Department of Justice filed a lawsuit to block the deal (Mann &
Hansegard, 2015). Instead, in June 2016, Haier acquired GEA for $5.6 billion.
Under the terms of the sale, Haier would have the right to use the GE brand name
until 2056. GEA now operates as an independent subsidiary of Haier and remains
headquartered in Louisville (Haier, 2016; Mann, 2016).
While GE and GEA had been known as innovative companies, GEA’s growth
rate in 2016 had stagnated, and the internal focus was primarily to “do no harm to the
GE brand and keep the current market position” (Steiber, 2021). By 2016, the
company had gone from being one of the leading home appliance companies in
the United States to fourth, almost fifth, in the US market.
After Haier’s acquisition, the company went through a multi-year transforma-
tional change of its culture, leadership, and structure. The result is best described as
“disruptive” as the company since 2016 has had double-digit growth 4 years in a row
and been the fastest-growing home appliance company in the United States. Even
more impressive is that some of the businesses, such as Clothes Care, grew by 50%
in sales and 200% in EBIT and the company reduced time to market, from idea to
execution, from 2 years to 3 months (Steiber, 2021).
To understand how this was possible, it is first important to understand the
company’s situation in 2016 and the key drivers behind the change, and thereafter
how the company was perceived in 2021. When this is known, the transformation
between these years can be described.
This chapter will focus on the situation before the acquisition in 2016.

https://doi.org/10.1007/978-3-030-95754-4_9
72 9 GE Appliances in 2016
9.1 Triggers for Change
In 2016, GEA was part of GE. GE was, and is, known for technological leadership
and for the famous inventor Thomas Edison, whose work led to GE’s founding.
Over the years the company had invested in multiple industries, primarily offering
enterprise (B2B) products and services, from power generation equipment to electric
locomotives and jet engines. GE Appliances, a B2C company, was therefore an
outlier in GE’s portfolio (Steiber, 2021). As a B2C company, GEA was GE’s public
“face” in the mass market, which meant that GEA indeed had to make sure no harm
was done to GE’s overall image for high quality and reliability, by focusing on those
factors similar to the B2B units. In 2001, Jeff Immelt became the CEO of GE,
following Jack Welch. Immelt continued as CEO until 2017, during which time
GE’s stock value dropped by 30% while the S&P 500 index rose by over 100%
(Shen, 2017). As the share price fell, Immelt decided to tighten the company’s
portfolio by divesting multiple businesses, one of which was GEA (Steiber, 2021).
The company had been used as a cash cow within the portfolio, and for divestment
purposes, it had to be dressed up by further improving short-term profitability.
The people in GEA, who had been a proud part of one of the world’s most
innovative companies, now faced a situation in which the parent company had tried
to divest their appliance business multiple times (the first had been in 2008). These
stop-go-stop-go phases affected their self-confidence as a company, while at the
same time they were being pressured to focus on short-term results. One person
recalled a feeling among GEA staff that the company was treated as a “foster child,
not really wanted, but being abused by its parent company” (Steiber, 2021).
Therefore, many people in GEA felt frustration. One very key person among
them was the CTO at the time, Kevin Nolan, who would later be promoted to CEO
(Steiber, 2021). Nolan had started at General Electric as an engineer in GE’s
Industrial business and felt strongly for the factory he worked for, later closed due
to the outsourcing trend in the 1990s. As a result of the outsourcing, Nolan began to
travel to Asia and saw with his own eyes the discrepancy in productivity between the
plants in Asia and plants in the United States. This concerned him greatly, as he
believed that keeping manufacturing close to the rest of the business and the
consumers was important, both for the country and for the company (Steiber,
2021). To add to his frustration, Nolan showed a strong trajectory of being entrepre-
neurial, which was difficult to do under the cost-cutting policies of Immelt. There-
fore, after being made CTO of GEA, Nolan took a step that combined an
entrepreneurial mindset with at-home manufacturing. Together with Natarajan
Venkatakrishnan, in 2014 he started a new appliance unit called FirstBuild. Still
operating today in Louisville, FirstBuild is a micro-factory for building pilot
quantities of innovative new products that are conceived and designed on an open-
platform approach. GEA engineers work with external innovators, pilot customers,
and others in the FirstBuild development process. Although FirstBuild was (and is)
only one part of GEA, its founding was based on principles that in several ways
happened to resemble those being used at Haier.
9.2 GE Appliances in 2016: Evaluation Methodology 73
CEO Zhang Ruimin at Haier, which would acquire GEA in 2016, had been
convinced since the early 2000s that home appliances companies would need to
transform to stay relevant in an IoT age. As described in Chap. 6, he had started
Haier’s own disruptive transformation in 1984 and introduced the new management
philosophy “RenDanHeYi” in 2005.
People’s frustrations at GEA, together with Nolan’s vision and Haier’s own
conviction and transformation, all acted as important triggers of the change process
that was started after the 2016 acquisition.
9.2 GE Appliances in 2016: Evaluation Methodology
To gauge the condition and status of GEA at the time of its acquisition, senior leaders
were asked in early 2021 to think back to that time and then rank how the company
stood along eight dimensions. The dimensions were inspired by those used by
Steiber and Alänge (2016) to distinguish an innovative, growth-oriented company
from the conventional Machine Bureaucracy described by Mintzberg (1980).
They are:
• The primary area of top leadership focus.

• The direction of this focus.
• The main cultural emphasis.
• Leadership style.
• Desired employee characteristics.
• Organization and coordination of people/tasks.
• Digitization of communication processes.
• Innovation processes.
After the concepts and ranking system were explained to the senior leaders, they
were asked to rank the company on a scale from 1 to 6 for each of these dimensions.
A low number would characterize the company as a closed Machine Bureaucracy,
while a high number would mean a company closer to the Silicon Valley Model—or
a RenDanHeYi-inspired firm as described in Chap. 8.
When the rankings were totaled and averaged, it was clear that the senior
leadership team perceived GEA in 2016 as having been a Machine Bureaucracy.
See Fig. 9.1.
In the next chapter, we will see how the scores changed after GEA’s transforma-
tion process. For now, however, let us dig deeper into the company’s pre-acquisition,
pre-transformation status. The senior leaders were also interviewed about their
rankings, so as to explain the scores they gave, and to elicit more open-ended
comments and descriptions of what GEA was like in 2016. Their responses are
summarized and sampled below. All quotations are from the interviews, with the
individual interviewees kept anonymous.
Top leadership main focus
Direcon of focus
Culture
Daily leadership
People
Organizaon
Digitalizaon of info. processes
Innovaon source
Involvement in innovaon
0 1 2 3 4 5 6
Fig. 9.1 Perception-based ranking of GEA before the acquisition (Steiber, 2021. Scale 1 to 6)
9.3 Top Leaders’ Main Focus and Its Direction
Before the acquisition, GEA was heavily focused on cost-cutting and profitability.
This focus became natural in a phase of divesting the company, but it was also driven
by the GE culture, which was risk averse:
Under GE . . . it was like “Do no harm”
We were managing our investments, pricing strategy, and channel strategy to increase
profitability
GEA was expected to be a fast follower rather than a leader in the North
American market. Further, high quality and reliable products were key for the
GE’s brand.
GE brand reputation is built around quality and reliability . . . you have to focus on internal
processes to ensure that you continue to honor this brand heritage
The focus was therefore primarily internal to secure efficiency and quality, and
this, in turn, was done through a high degree of control of operations. Concepts such
as Six Sigma and Hoshin goals, and later Lean had been adopted (Steiber, 2021).
Several of the interviewees were trained in Six Sigma and became “black belt”
advocates for this philosophy and method. Therefore, through the adoption of these
concepts, GEA did become focused on processes and efficiency, and there was a
checklist for most things. As one example, the marketing department had a checklist
9.4 People and Compensation 75
of 50 things to be checked before launch. Further, a large quality department existed,

headed up by a vice president for quality assurance. GEA had started initiatives to
better understand users and their needs, but bottom line, the company believed in its
own ability to figure out new products and features and then push them to market.
Further, the retailers wanted “more of the same, but cheaper” (as one interviewee
said). Thus, the focus was to turn out standard products in volume and as cost-
efficiently as possible, and what happened after sales was not really followed up on:
... all the measurements of a new product . . . [We]stopped measuring it once the product
went out the door . . . For the organization that was the finish line, while for me it was the
starting line
The inward focus continued into the first part of 2017. The reason, in this case,
was the beginning of the transformation, which during the first year demanded a lot
of attention and energy as several changes were implemented at the same time.
. . . we were internally focused because we were all trying to figure out things like brand,
product lines . . . It was complex
9.4 People and Compensation
In early 2016, most people at GEA had been working there for a long time, many for
their whole careers. At this time people were highly regarded for their technical and
operational competences. The aim was to hire subject matter experts and leaders in
the appliances field.
Before, I wanted somebody with a lot of technical competence for the product management
role . . . someone that had actually come from our technology team and worked there for
years . . .
. . . the interview guide was more focused on clinical knowledge than anything else . . . [and]
it wasn’t only lack of entrepreneurial competence but lack of diversity
People were primarily hired and promoted from within, so that GEA’s “DNA” in
terms of competences and capabilities was little influenced from the outside. Since
people had spent years working together, relationships were “family-oriented,” and
people collaborated well. However, there was also a perception of internal power
struggles, especially because the focus was internal, on peoples’ “own” unit, rather
than on the market’s needs.
Given a focus that was primarily “Internal First,” people did not really know if
GEA was doing as well as it could in the market. Especially in the factories, people
were creating stones for a cathedral, without understanding that it was a cathedral
they built.
You couldn’t tell if we were winning or losing on the factory floor
At that time, GEA used a compensation model consisting of three primary parts:
salary, GE stock options, and a bonus program. It is important to know here that the
bonus program was for the senior leaders and was not linked to individual perfor-
mance, but to seniority and tenure. Further, the bonus system was perceived as “less
transparent,” as it sometimes was hard to understand why a certain leader got some
extra percentage points of bonus from the common pool.
9.5 Culture
GEA’s culture was of course then characterized by a strong belief in the importance
of defending market position by focusing on quality, reliability, and cost-efficiency.
For General Electric, profitability and cash flow were management’s primary
concerns, so a growth mindset was not really on the map and was not asked for.
The GE mindset was basically focused on cash flow and profit. They didn’t care if we grew;
we hadn’t grown for years, right? It’s been the same size of the business since I came to the
company
Interestingly, due to the focus on cost-efficiency, the company was still perceived
as being adaptable and focused on fast learning. However, the driver behind these
things was the potential for gains in efficiency, and not growth.
. . . you had to be adaptable to stay ahead of costs . . . and when someone got a new job that
person had to figure out what to do pretty fast in order to become efficient . . . to play his/her
piece in the standardized operations . . .This is how a machine works.
GEA, therefore, had a learning culture, even if fast learning was used to become
even more extremely “lean.”
9.6 Leadership Style
Leadership in early 2016 was described by everyone as having a top-down, com-

mand and control style. Further, some described the leadership as “commercially
oriented” rather than characterized by a true passion for the products.
I’d say it was very top down . . . and we used Lean and Hoshin goals, and not probably in the
best way . . . to push down the strategy of the business and what people should work on . . . It
didn’t allow anything to pop up organically . . . It was to control the actions of everyone
Although GEA’s leadership was perceived as top-down and bureaucratic, one

interviewee, who had worked as a corporate auditor within GE, mentioned that
compared to other GE businesses, GEA was less top-down and bureaucratic.
9.7 Organization, Coordination, and Digitization of Communication Processes 77
However, because of the focus on control, decisions were cascaded upward in the
organization for approval, which slowed down the decision-making process. Invest-
ment decisions were made in an Investment Council that consisted of VPs who
reviewed the forms that had to be prepared for the meeting, and the approval process
was cumbersome. For example, an investment of $50,000 required four meetings, to
get signoffs from four different groups of functional people.
A leader’s power was based on her/his seniority. Leaders were promoted from
within and very few, if any, came from the outside. The dynamic of the top
leadership group was described as having no open debates. Instead, decisions to
be made were debated in smaller groups, consisting of key stakeholders, before the
leadership meeting. In this way, “surprises” could be minimized, and the meeting
could focus on agreements and decisions.
We couldn’t have any surprises, nor a debate that was open

of Communication Processes
In 2016, GEA had a matrix structure that was primarily functionally oriented. This
meant that budgets and power were mainly in the hands of the different functions.
The organization was perceived as a typical GE organization, well-structured, and
bureaucratic.
I came from P&G and they had processes for everything. . .I’d say that this organization was
pretty tall and bureaucratic.
I would inherently say a bureaucratic top-down structure. . . [was in place] when I came. I
would have described it as a machine. . .to the point that if you took the people out, I wonder
if it would have just kept running in the same way.
However, as people all knew each other well and had a deep knowledge of their
respective roles and responsibilities, interviewees with long tenure at GEA perceived
the management structure as somewhere between “tall and bureaucratic” and “flat
and decentralized.”
We were always extremely well structured, but very flat in our nature
Given the emphasis on cost efficiency, the focus was on process improvements.
Each functional unit optimized itself, not from a user perspective but from an
efficiency point of view. For this reason, the metrics they used to track how well
the company was doing were primarily self-focused rather than on the business as a
whole.
. . . for a lot of the functional owners it was optimizing their own organization, process or
product . . . Finance wants to be the best finance team . . . Manufacturing the best
manufacturing team . . . and HR the best HR team . . .
People and tasks were coordinated mainly via well-defined procedures, roles, and
responsibilities. The Hoshin Kanri method was deployed to make sure that tasks
were done according to plan.
The general perception was that GEA had a somewhat low degree of digitized
information processes in 2016. Some noted that the parent company, GE, drove
many of the digitization efforts, wondering why these were not driven by the
appliances company itself.
9.8 Innovation Processes
In 2016, innovations were organically generated—that is, from within. The company
was perceived as being rather reactive in its work with innovations, e.g., typically
acting on what competitors did. When external innovations were used, they came
from suppliers upstream rather than from users. One exception to this was First
Build.
Further, innovation was perceived as technology-driven and done by the R&D
and product management people in the firm. Few other departments were perceived
to be involved in innovation work. The focus was not on organizational innovations,
but some had been adopted, such as Six Sigma, Hoshin goals, and Lean.
9.9 Moving Ahead
The rankings and comments in this chapter have summarized the perceived state of
GE Appliances prior to its acquisition and transformation. In every respect, the
company was seen as being managed in a style close to that of a classic Machine
Bureaucracy, with a strong internal focus on cost-efficiency, profitability, risk
avoidance, and related concerns. Next, we will see how dramatically the company
has changed because of its transformation.
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(pp. 143–155). Springer.
GE Appliances in 2021
10
Let us now turn to how the senior leadership team perceived GEA in early 2021,
along the same eight dimensions that were used in the last chapter to rank the
company pre-acquisition.
As seen in Fig. 10.1, the perception of the company is now more in line with a
model similar to the Silicon Valley or RenDanHeYi model, rather than with a
“Machine Bureaucracy” model. The transformation cannot be described in any
other word than disruptive, and is based on both a social and a technical cultural
change at the company (Schein & Schein, 2019). In fact, the leaders’ perception of
their company in early 2021 could best be described as it being seen as a “new”
company. This will become evident from the commentary in the sections below,
which describe changes along key dimensions.
As in the previous chapter, all quotations are from the author’s 2021 interviews
with senior leaders at GEA.
10.1 Top Leaders’ Main Focus and Its Direction
While the focus of the top leadership in 2016 was on cost efficiency, profitability,
and being a fast follower, the focus in early 2021 was totally different. The goal was
to be, and to be recognized as, the leading appliances company in the United States.
This new level of ambition was initially driven by the new owner, Haier, acting as a
strong and consistent trigger for moving toward a growth mindset.
What has influenced this is definitely our leading goals...Haier had expectations and saw our
potential ... Now we are gaining the confidence that we can move along that path and achieve
this growth
The whole organization is now focused much more on growth rather than on cost
efficiency. At GEA they refer to “leading goals,” which stretch the entire

https://doi.org/10.1007/978-3-030-95754-4_10
Top leadership main focus
Direcon of focus
Culture
Daily leadership
People
Organizaon
Digitalizaon of info. processes
Innovaon source
Involvement in innovaon
0 1 2 3 4 5 6
Fig. 10.1 Perception-based ranking of GEA in February 2021 (Steiber, 2021. Scale 1 to 6)
organization to innovate and think out of the box to reach new levels of performance.
This change in focus has been perceived as “energizing.”
...it was energizing for everyone and that mentality changes how you approach your business
I can’t be the number one leader in my industry if I don’t have growth. . .
Profitability is still important, as is cash flow, but these factors are now more
“hygiene factors,” or secondary factors necessary for GEA to be able to continue
to grow.
. . .a profitable business is necessary to finance growth.
Perhaps as a natural consequence of a “growth mindset,” the direction of the

senior team’s focus also has changed and in 2021 was directed externally to a high
degree, rather than internally. The external focus is not only a result of an imperative
to grow, but also a result of GEA’s increased emphasis on the user and its transition
from thinking in terms of “hardware” to user experience.
. . .for a lot of the functional owners it was about optimizing their own individual organiza-
tion, process, or product. Today, it is more focused on our relationships with retailers and
with the consumers
I think we are much more externally focused...You know, consumer insights and this whole
notion of the user experience versus the hardware
10.3 Culture 83
10.2 People and Compensation
In early 2021, several interviewees provided examples of how they now search for
and hire individuals they would never have hired before.
I recently hired a new product manager for the [X] segment. I worked with the recruiter to
find somebody with industry experience ... somebody who could help us learn things that we
don’t already know.
I have always hired product managers that have an engineering background, very competent
in quality and design ... I just hired a new product manager, and I rewrote the job description
to include competences in not only products but services and ecosystem and IoT ... What we
need is to understand how to make something that is value added to our consumers that is not
physical ... We have the operational part . . . but we need to be good at leading in the IoT
space.
Instead of hiring more of the same, senior leadership now looked for competences
they did not have, for example, in new areas of technologies, or new ways of selling
not only products, but also services. Key drivers behind this change, according to the
senior leaders, have been the leading goals of dramatic growth and the mindset shift
from products to offering great user experiences. Another factor that has played an
important role, especially as GEA was a “closed” system before, is an initiative to
increase diversity and inclusion.
The compensation model used in 2021 played a fundamental role in the transfor-
mation of the company. According to the RenDanHeYi philosophy, compensation
must mirror and reward value creation for the business, team, and individual.
Therefore, after the acquisition, GEA gradually started changing its approach to
better reflect the principle of “paid by users” (Campbell et al., 2019; Kuhn, 2020).
Now that employees are rewarded based on how well they create customer value,
they are led to think about what future competences and skills might be needed to
reach the company’s leading goals.
10.3 Culture
The company has executed almost a 180-degree turn from a cultural emphasis on
efficiency and control to effectiveness and adaptability. Changing a culture com-
monly takes a long time. The shift in GEA’s culture in only 5 years can therefore be
viewed as “fast.” This fact was even noted by some of the senior leaders, who
themselves were surprised by how fast things had changed within GEA.
I have been in a lot of different cultures...and cultures typically evolve slowly ... it even
surprised me as a culture takes years to change
One important explanation for this fast change in mindset was again the imple-
mentation of the leading goals.
You can’t grow at the rate that we’re wanting to grow and not respond to the marketplace . . .
This places a high premium on adaptability
Other factors were a change of the structure and delegation of decision power,
together with the new compensation model.
I think a lot of that has to do with the problem we’re attempting to solve and how we align
our organization to solving that problem . . . That expedited our cultural shift
Another interesting shift at GEA is that mindsets have become more long-term.
This too has been affected by the new owner Haier.
One pillar of the RenDanHeYi model is to ‘invest in the future’ . . . It makes you think more
about what you’ve got to do longer term to accomplish your goals
10.4 Leadership Style
When the focus shifts from efficiency and control to effectiveness and adaptability,
leadership must change as well. In early 2021, leadership was no longer perceived as
top-down, command and control. Instead, the current leadership is described as more
delegating and facilitating.
Observations that support this view refer mainly to two things, one being the new
leadership from the top:
I think the biggest driver is the constant reinforcement of Kevin Nolan, our CEO, on how he
wants to disseminate down decision making and say, the accountability doesn’t sit with one
or a few people . . . He’s been very consistent in driving that point home for quite some time.
The other factor that is referred to is the new organizational structure. A level of
hierarchy was reduced early in GEA’s transformation. Profit and loss responsibility,
as well as the right to make decisions, have been pushed down in the organization.
For example, in 2016, the leader of the laundry business had to ask for permission
and approval in several reviews, including a finance review and a CEO review, for
reallocating $0.5 million of his budget. In 2021, he has the authority to reallocate as
much as $5 million of his budget before asking for any approval. This 10X higher
limit gives him the ability to be more autonomous, nimble, and fast-moving, and the
rest of the organization has changed similarly.
Also, when decision-making is delegated farther down in the organization, the
CEO does not need to spend as much time on internal affairs such as reviews and
approvals. This gives Kevin Nolan more opportunity today to take a long-term view
and to focus on new businesses.
10.5 Organization, Coordination, and Digitization of Communication Processes 85

of Communication Processes
The perception of the organization has changed drastically, and it is described in

2021 as flat with decentralized authority. That may seem unusual, as only one level
of hierarchy has been removed, and the overall structure is still a matrix structure.
However, other steps have been taken, and the experience of working within the
structure has become quite different. Budget responsibility in the matrix has shifted
90 degrees. It is now in the power of the various preexisting and new product lines,
all of which are labeled microenterprises or MEs. The term “micro” refers not to size
but to the qualities of being fast and nimble. In keeping with the RenDanHeYi
philosophy, the MEs are treated as standalone, independent businesses, in which all
employees face users or internal customers, and are rewarded based on how well
they create value for these.
As of early 2021, GEA had implemented and was running multiple
microenterprises (MEs), some of them large businesses and some small and new.
The result could almost be compared to the Google/Alphabet structure, allowing old
and new businesses to live side by side. Further, each ME has three rights—the right
to make decisions, the right to hire, and the right to distribute rewards and compen-
sation to people working in the ME.
Another important change in GEA’s organization is the formation of “platforms”
to serve and support the MEs. Functions such as marketing, sales, and legal are now
“commercial platforms,” while the functional units for manufacturing, sourcing, and
supply chain management are operational platforms. This change is more than one of
labeling or structure. It involves a shift in the very mindset of the staff, from
“functions are kings” to “functions serve MEs”—which, in turn, serve users. The
new arrangement helps to align the organization around users’ needs and growth,
while it also has led to more horizontal communication and coordination between the
MEs and platforms, which makes the company nimble and fast moving.
. . .with this structure they [MEs] have an equal amount of authority and decision making on
what we run in our plants. It may seem like more bureaucracy . . . but in reality . . . we
communicate better than ever before . . . It is much more collaborative than before, and the
speed of decision making has accelerated exponentially.
Meanwhile a new brand concept, “House of Brands,” has increased the alignment
between MEs, as each ME has to “live up” to the brands. The idea is that a user of
any product within a brand will get the same user experience regardless of whether it
is a freezer, stove, or washing machine. The brands, therefore, act as effective
alignment mechanisms between MEs that are focused on delivering different
products.
As to the mechanisms for coordinating people and tasks, they have changed from
detailed instructions and standardized processes to the use of leading goals, deployed
to each level of the organization, as well as “light” contracts between owners of MEs
and platforms.
Finally, the digitization of communication processes was perceived as much

higher in 2021. One factor behind this is that COVID forced every company to
become more digital. Since the acquisition, however, GEA has also invested actively
in digitalizing communications across the board, which is an important element of
the RenDanHeYi principle, zero distance to users (Steiber, 2021).
. . . we put a significant amount of energy and effort into ensuring that we have digitized . . .
whether it is from a process perspective of how we run our factories, improving automation
. . . or making information available at the hands of our operators at the plants or our
salespeople . . . We have created data lakes, [and] started getting into business analytics . . .
In autumn of 2020, GEA created direct contact with users through digital
channels (Zohar, 2022). One key vehicle for digitization of direct contact with
users is the SmartHQ™ program. This end-to-end solution set, which includes a
mobile app for users of GEA’s smart products, makes it easy for them to use and
manage the appliances, while also enabling business partners to work with GEA and
service the products more efficiently. Such a toolkit becomes vital when you
consider that GEA now offers more than 450 smart and connected products, from
air conditioners and water heaters to kitchen and laundry appliances (GEA, n.d.) The
SmartHQ platform includes digital solutions for smart distribution, fleet manage-
ment, service diagnostics, and end user control, as well as for connecting and
coordinating the functions. GEA wants to be the “Android” of appliances and use
software solutions from Google, Apple, and other leading players along with its
own. According to GEA itself:
We’re investing in SmartHQ™ to create smart, real-life digital solutions for distribution,
management, service, and the home. We are always striving to better serve our customers
and owners. SmartHQ will assure that we continue to lead in an ever more digital world.
Further, according to Zohar (2022), GEA now maintains an extensive factory

service system that is unique in the appliances industry. In addition, GEA has taken
control of distribution and customer service operations as part of the Zero Distance
strategy, and its call centers now deal with over 10 million customer calls each year,
according to Zohar (2022).
10.6 Innovation Processes
The focus for new value creation through innovation has moved from being primar-
ily internally driven and technology-centric, to become a bit more externally driven
and customer-centric. Again, the leading goal of becoming the number one provider
of home appliances in the United States has forced GEA to look for new
opportunities, also outside of the firm. Employees’ engagement in innovation has
increased overall. Some interviewees referred to Marketing’s and business leaders’
roles in company innovation. They referred to shark-tank initiatives that some of the
microenterprises have been involved in. Some believe that GEA’s investment in
References 87
FirstBuild has had a positive influence on the company-wide interest in entrepre-

neurial activities. Interestingly, also the focus on organizational innovation has
increased exponentially, as new ways of working are needed to reach the leading
goals and stay relevant in a digital age.
10.7 Moving Ahead
The senior leaders’ perception of GEA has changed considerably between the years
2016 and 2021. From an outside perspective, the transformation of the company has
been “disruptive” and rather fast.
To begin a deeper look into the transformation of the company, the next chapter
examines how leaders at GEA interpreted RenDanHeYi for adoption in their
company.
References
Campbell, D., Meyer, M., Cao, B. Y., & Lau, D. H. (2019, April). GE appliances: Implementing
Haier’s made-in-China management system. Harvard Business School Case 119-099. Accessed
from https://www.hbs.edu/faculty/Pages/item.aspx?num¼56028
GE Appliances. (n.d.). SmartHQ™ Solutions: Serving America’s homes together. Accessed
October 3, 2021, from https://smarthqsolutions.com/
Kuhn, J. (2020). Haier: Strategic leadership in the digital era. Columbia Business School.
Schein, E. H., & Schein, P. A. (2019). The corporate culture survival guide. Wiley.
Zohar, D. (2022). Zero distance: Management in the quantum age. Palgrave Macmillan.
GE Appliances’ Interpretation
of RenDanHeYi 11
For GEA, RenDanHeYi is a constant journey of improvements toward a vision that

does not have a defined endpoint and indeed may evolve over time. According to
CEO Kevin Nolan, this makes it much different from concepts such as Six Sigma, in
which you write a goal statement spelling out finite goals that are supposed to be
“specific, measurable, attainable, relevant and time-bound” (Juran.com, 2019).
Certainly, people working within the RenDanHeYi model may set finite goals
and schedules for tasks or projects. But the overall approach is more in line with
Teece’s Dynamic Capabilities, wherein the aim is to make a company become highly
adaptive, and therefore able to produce future results that can’t be defined or even
predicted at present (see, for example, Kleiner, 2013).
To GEA’s senior leaders, RenDanHeYi means creating an entrepreneurial enter-
prise all the way from the group level down to everyone:
I think of it as a fractal . . . I see an entrepreneurial enterprise and I zoom in and see

microenterprises . . . and I zoom in [closer] and see the individuals who themselves are
entrepreneurs
A fractal here means a never-ending pattern that permeates a complex dynamic

system.
11.1 Key Objectives and Principles
GEA’s interpretation of RenDanHeYi includes some overall objectives and core

principles, all of which inspire underlying processes and practices that are meant to
lead, facilitate, and motivate people toward doing excellent innovative work.
The three main principles are adopted directly from Haier:

https://doi.org/10.1007/978-3-030-95754-4_11
90 11 GE Appliances’ Interpretation of RenDanHeYi
Fig. 11.1 An illustration of GEA’s interpretation of RenDanHeYi (Steiber, 2021)
• Providing great customer experience

• Reliance on entrepreneurial energies
• Sharing value created among all involved
Then comes a set of supporting elements that serve as “pillars” to uphold and
fulfill the principles. In Fig. 11.1 the author has tried to illustrate the objectives and
key principles of GEA’s RenDanHeYi.
Notice first that there is an overarching vision at the top of Fig. 11.1, which is
really a statement of the company’s new identity and purpose. GEA has declared that
it will be “a growth platform in the IoT era.” The main objectives go along with this
vision, and beneath them are the key supporting principles. Let us look at each of
these in turn. As before, the highlighted quotations are from interviews with the
senior leaders.
11.1.1 Set Leading Goals
According to Zohar (2022), GEA no longer has a traditional strategy department,

and Nolan leaves day-to-day operations to the microenterprises and platforms.
Strategic direction now comes largely through the “leading goals” that the company
sets. People who inhabit the microenterprises and platforms are then challenged to
stretch their thinking, and to expand or reinvent what they do, to help the company
reach these ambitious goals. For example, one leading goal has been to move GEA
11.1 Key Objectives and Principles 91
from its recent fourth- or fifth-place position in the North American home appliances
market up to the top, as the leading provider. This has demanded extensive growth
and therefore innovations not only in products, but also in processes, marketing, and
organization.
Previously, GEA had used the Hoshin Kanri planning system to deploy goals and
to control people and tasks. Now GEA has further developed the Hoshin Kanri
methodology into a more collaborative and self-organized, bottom-up approach to
reach leading goals.
. . . my personal incentives are incredibly linked to how the ME is performing
GEA deploys both short-term (1 year) and long-term (3 years) goals, with the
long-term goals being related to key initiatives of the firm, such as implementation of
the new branding strategy, “House of Brands.” The better that each business, team,
and individual “lives up” to the goals, the higher the bonuses they will receive, as the
bonus reflects how much value each has created for the users. Senior leaders get
bonuses based on progress toward both short- and long-term goals. All others
receive bonuses based on how well the short-term goals are met.
Although it is not part of Fig. 11.1, one of the senior leaders believed that long-
term focus was another important element of the RenDanHeYi philosophy. She
called it investing in the future:
. . . I am making investments that need investment, which is affecting my ME’s profitability,

but I know it will pay off in the long run. It will propel my growth and profitability, so I am
trading off some short-term profitability for gaining longer-term benefits for my business.
As units of a Haier business, teams do look 5 and 10 years ahead, and this more
long-term planning is part of the Growth Playbook process, a practice started before
the acquisition, but which then was limited to 2-year projections (Kanter & Cohen,
2018). Part of the updated, current Growth Playbook process now also involves
thinking about possible new microenterprises within the existing MEs.
11.1.2 Zero Distance to Users
Zero distance to users means putting the customer, and specifically the end user, at
the very center of the universe. Rather than having customers and users orbiting the
company, the company must orbit around the customer and user. GEA has adopted
this element of the model completely.
In every decision we make we focus on the user
. . . being close to the consumers’ individual experience is like a holy grail for us
Zero distance to the user could be viewed as a vision embodying the idea that
every barrier and divider between the business and its users should be erased. One
key enabler here is digital technology, including social media and more.
11.1.3 Align the Organization Toward Users
The next principle is to align the organization toward the users and their needs and
create a true “end2end” accountability within the business for delivering to the needs
of the users, and thereby creating lifetime users. GEA has fully adopted this
approach and has currently adopted the model of microenterprises supported by
platforms. “Micro” here does not mean small, but rather nimble and very sensitive to
the users’ needs. For people within a ME to be aligned and accountable for an
end2end process and user experience, decision-making must be delegated down in
the organization, closer to the market. The MEs, therefore, have a high degree of
autonomy, based on the “three rights” that Haier granted to its MEs in China: (1) the
right to make decisions, (2) the right to distribute compensation to the people
involved in the ME, and (3) the right to hire people.
Furthermore, as an interviewee at GEA described it:
. . . programs are reviewed at an ME level, and we have to take ownership of making sure the
decisions and the products we develop meet the requirements of sales and the branding team
. . . Only the double A programs, the biggest ones, still need a review from the executive
council.
One example of a “big” program at GEA is a change in the pricing strategy, which
would affect the business by many millions of dollars.
When talking about alignment of the whole organization, this includes everyone
who in some way works with a given ME. These people can either report directly to
the head of the ME—as is typically the case with product managers, commercial
directors, or merchandise managers (which are common roles in MEs that have
fewer than 10 members)—or they may have a dotted line relationship to the head of
the ME, which is typical of people in manufacturing, sourcing, or people working for
any of the other “platforms.”
With the ME structure, GEA has successfully started several new businesses that
became their own MEs, with leaders from either inside or outside GEA. For
example, in 2019 the company funded a new venture called Chibo, an interactive
cooking platform. Although GEA currently does not have a formal incubator
program, this example shows that GEA is in fact incubating new businesses as
part of its ME structure. The structure allows for the formation and support of
businesses that would not meet traditional financial metrics. The funding of new
MEs is done either through the normal business planning cycle, or via a reallocation
of funds by ME leaders, who have the authority to support these kinds of initiatives.
One example of this was the RV (recreational vehicle) initiative, which emerged
11.1 Key Objectives and Principles 93
from a group of employees in the Zoneline ME who were passionate about outdoor
living. This was then directly funded by the Zoneline ME.
The ME structure also allows for new businesses in which GEA already has IP
and capabilities, such as the Water Heater business, which was provided $60 million
to turn an old facility into a new water heater factory. In cases where MEs cannot get
the support they would need from GEA’s own service platforms, they are allowed to
go outside to third parties.
Another, third funding opportunity is to present the business case for a new ME to
the investment council, which has access to an “opportunity fund.” Altogether, the
arrangements for forming and funding MEs allow GEA to be more nimble, respon-
sive, and a challenger in the market. One interviewee remarked on the differences
from the old system, in which new product ideas were conceived in the FirstBuild
unit and then had to be taken “over the wall” into an operating unit to go to market:
. . . there was always a path for potential innovations to move from FirstBuild to GEA, but it
had to make business sense with traditional metrics and optimization of the factory . . . the
ME model created a natural capability to create a business that we’re not in . . . there are
multiple mechanisms for funding in GEA and the traditional is through the business
planning process . . . we’re probably more open to extended payback periods. . . .we also
have an opportunity fund that could be used for a new business pitch or for an incremental
opportunity where we have capabilities . . . I can call the investment council and present a
whole new microenterprise.
Regarding idea generation for new business opportunities, Shark Tank initiatives
have been used by some of the MEs within GEA. This is an ME-led and funded
program where employees present ideas to enhance, expand, or improve current and
future products and services developed by their microenterprise. At the time of this
writing, GEA had new products in the pipeline that were first picked in Shark Tank
sessions.
Being dynamic and staying relevant to users is also important for established
MEs, and an annual planning cycle is not enough to generate these qualities.
However, delegation of decision-making and resource allocation to the ME leaders
does create a dynamic, responsive environment:
The number one thing that is given the microenterprises is the flexibility of allocation of
resources . . . over the last two years we have had fantastic performance, but the products I
presented to get my budget were not what I ended up delivering by the time we were done
11.1.4 Pay by Users
Following Haier’s lead, GEA has changed its compensation model to distribute
value to people in relation to how much value they create for the users. This value is
distributed as part of individuals’ bonuses. In addition to this, GEA’s employees also
get a fixed salary. As described earlier, this “pay by users” concept is one of the
RenDanHeYi principles, and GEA’s transformed compensation model is in accor-

dance with it.
11.1.5 Ecosystems and EMCs
The final principle identified in interviews with GEA leaders is the importance of
ecosystems and ecosystem microcommunities (EMCs). Haier strongly believes in
the need for any company to move away from being product-centric and instead
cultivate ecosystems for creating higher value and better user experience. An
ecosystem, according to the Haier philosophy needs to be open like a rainforest.
Each actor in the ecosystem plays a vital role and they all live in symbiosis with each
other. An EMC is a smaller ecosystem within the larger ecosystem. In China, the
MEs are expected to develop EMCs to create the ultimate user experience.
GEA wants to become the Android for appliances and has developed and
implemented Smart HQ. Users who have multiple interconnected smart appliances
can use the Smart HQ mobile app to monitor and control them remotely, and the
platform is also designed to let partner companies such as distributors and service
contractors coordinate their work with GEA and with the users. To take steps beyond
this, GEA has been discussing what ecosystems might mean for them in the future
and how they could create ecosystem microcommunities as Haier is doing. The
company believes that many different players need to be coordinated in some way.
At this writing, late in 2021, GEA had not yet implemented EMC contracts, but was
ready for it in 2022.
11.2 Moving Ahead
GEA’s interpretation of RenDanHeYi has stayed true to the Haier philosophy in

terms of core principles. The exception is the belief in an internal market in which
employees can compete and bid on positions.
The company has, however, tailored the implementation of the principles in the
form of practices. Some previous practices, such as the use of Hoshin Kanri and the
Growth Playbook, were modified to align with RenDanHeYi. In addition, grassroots
initiatives like the Shark Tank program have sprung up. Further distinctive features
may emerge as GEA continues to follow the RenDanHeYi model and fills in pieces
that are not yet fully developed—notably, the formation of EMCs.
However, it seems clear that GEA has already transformed itself 180 degrees
from its past regarding fundamental aspects of how the company is managed. GEA’s
leaders, along with people throughout GEA, also think about the company differ-
ently; their culture and belief systems have changed. Antonio Boadas, GEA’s Chief
Communication Officer, drew a chart illustrating these fundamental shifts. It is
presented here as Fig. 11.2.
The next brief chapter presents a model used to analyze GEA’s transformation.
The following chapters will take us back to action at the ground level, as it traces the
References 95
Management Principles Cultural change
Corporation PLATFORM Employee ENTREPRENEURS
Management VISION & USER IS FIRST

Corporate is first
LEADERSHIP
Hierarchy MICROENTERPRISE Play not to lose PLAY TO WIN
Top-Down Order EMPOWERMENT React to competition LEAD COMPETITION
Corporate Pay USER PAY EMBRACE

Risk adverse to new OPPORTUNITY
Fig. 11.2 Transformation of principles and cultural beliefs (Steiber, 2021)
story of how GEA implemented RenDanHeYi, from initial steps to a company-wide

approach.
References
Juran.com. (2019, December 19). How to write a six sigma problem statement. Accessed November
20, 2021, from https://www.juran.com/blog/how-to-write-a-six-sigma-problem-statement/
Kanter, R. M., & Cohen, J. (2018, September). Haier in the U.S: Transforming GE appliances.
Harvard Business School Case Collection. Accessed December 1, 2021, from https://www.hbs.
edu/faculty/Pages/item.aspx?num¼55061
Kleiner, A. (2013, November 11). The dynamic capabilities of David Teece. strategy + business.
Accessed November 20, 2021, from http://www.strategy-business.com/article/00225?gko¼d24
f3
Part V
A Framework for Better Understanding
a Business Transformation
A Framework for Understanding a Business
Transformation 12
To analyze a company’s transformation, we need a framework or conceptual model

that helps us to identify interesting events, and to structure our analysis and findings.
For GEA, the framework chosen is based on decades of research on how manage-
ment innovations, such as TQM, Lean, and the Google model disseminate into and
within an organization (Steiber & Alänge, 2015).
The framework is a simplified modeling of reality and traces five main steps that
organizations most commonly go through when adopting and implementing new
ways of working. The five steps are:
Desirability—Transformation begins when people in the organization, at least the

top leaders, feel and understand the need to make a change.
Feasibility—People determine (or are persuaded) that it is in fact possible to
introduce a particularly new way of working and to get results from it.
First Trial—Typically, the new approach is first tried with a pilot application in a
selected unit or units of the company.
Implementation—If the pilot is successful, and once adjustments are made from
what is learned in the pilot, the new way of working is gradually implemented
company-wide.
Sustaining Change—This involves seeing that the organization stays with the new
approach and continues to change and improve along those lines, instead of
backsliding into its old ways.
An organization’s ability to take the five steps, as well as the relative ease of
taking them, will depend on the company’s historical organizational trajectory,
which is cumulative and path dependent. Transformation becomes more difficult if
there has been increased return on investment from the existing way of working and
if there is inertia among board members, top managers, and employees. Inertia
(resistance to change) can be rooted in the organization’s resources (brand, people,
equipment, and more), and its structure and processes, as well as in its culture. Of all
these, a company’s culture—the prevailing set of beliefs on how to best organize its

https://doi.org/10.1007/978-3-030-95754-4_12
100 12 A Framework for Understanding a Business Transformation
business operations and its people for success—is the hardest one to change. If the
mindset can be changed, then changes in structure, processes, and the use of
resources are relatively easier (Christensen & Overdorf, 2000). In cases where a
new way of working does not fit the current mindset of the organization, the best
strategy might be to test it outside the organization and evaluate the effects. How-
ever, before an organization even comes to this point, it must feel a desire to change
to be open to alternative solutions and start the search process for them. Further, as
noted, the new solution must also be perceived as feasible for one’s own organiza-
tion and business.
The five steps—Desirability, Feasibility, First Trial, Implementation, and Sus-
taining Change—are all subject to three sets of influencing factors:
• The characteristics of the innovation that is to be introduced.

• The internal context of the organization.
• The external context and “diffusion mechanisms.”
A diffusion mechanism could, for example, be a researcher, a consultant, a new

CEO, or someone else who presents an idea on a new way of working, thereby
creating a desire to change within the organization. Such persons may even present a
feasible solution for the organization, based on this idea.
The trigger that initiates a search for new organizational solutions could typically
be any of several forces:
• A perceived economic crisis.

• A financial crisis within the organization.
• A new market demand.
• A new owner’s demands.
• Changes initiated by “role models” (such as other companies, including
competitors, or suppliers or customers).
• Initiatives driven by the government.
• Top management’s or board members’ own previous experience.
• Standardization work done by industry organizations, consultants, and/or
universities, e.g., the packaging and description of an organizational solution
such as TQM or Lean.
• Global, national, or industry-specific management fads.
A fad could be viewed as a “management trend.” For example, applying Lean

became a “trend” in many countries.
12.1 A Deeper Look at How Transformation Occurs
Putting the transformation process into graphic form will aid with a full understand-
ing of this framework and of the process itself. In Fig. 12.1, the five steps are
visualized in a circular pattern around an organization’s improvement trajectory.
12.1
A Deeper Look at How Transformation Occurs
Fig. 12.1 A framework for management transformation (Steiber & Alänge, 2015)
101
102 12 A Framework for Understanding a Business Transformation
Transformation will involve changing or redirecting the trajectory. This in turn will
require recognizing that the current trajectory is cumulative and path-dependent—
that is, recognizing that the organization’s history has led it to follow a certain track,
which has tended to focus all efforts on particular kinds of organizational improve-
ment (for example, becoming as cost-efficient as possible).
Therefore, the perceived desirability and feasibility of any new management
innovation, as well as the decision whether to try it and implement it, is affected
by previously chosen ways of working.
The inner circle in Fig. 12.1 represents the internal context of the organization.
Here, the management and board are crucial for the adoption and diffusion of the
new mindset and new way of working. Management’s history and experience,
knowledge about the new way of working (“user competence”), and top leaders’
overall commitment to change are very important and can either reduce or increase
internal resistance to change.
Another key point to keep in mind: The search and learning processes that a
company undertakes are likely to be cumulative and path-dependent, just as the
company’s overall trajectory has been. However, people in the company can break
through this by being conscious and systematic in their search for new solutions.
The two outer circles in Fig. 12.1 represent the external context and diffusion
channels that transfer knowledge and experience to the company. The outermost
circle and the area beyond it can be seen as the external environment in the form of
local and national business culture, regulations, and history. The external environ-
ment also includes industry-specific factors, such as competitive pressure and
volatility. Increased competitive pressure and volatility have been found to increase
the desirability of organizational change. See, for example, many passages in
Steiber and Alänge (2016), which describe how Silicon Valley companies became
open to new management approaches and ongoing change, due to the pressures and
volatility of the digital technology industries. Chapter 2 of the present book has
pointed to this phenomenon as well.
Furthermore, the external environment would also include management fads or
trends such as Lean. When these fads grow to national or international scope, they
can have considerable influence on any organization’s own improvement trajectory.
Turning to the inner circle in Fig. 12.1, the dotted area represents diffusion
channels such as movement of people (including CEOs), boards of directors, user
networks (e.g., competitors, customers, suppliers, and other organizations that could
become role models), bridging institutions (such as an industry organization),
professors, and consultants. These diffusion channels could all play a role in
“showing” and “proving” what is desirable and feasible, regarding management
trends and new ways of working.
The triggers for each step in the five-step process, visualized as lightning flashes
in Fig. 12.1, could typically be any of the things mentioned above. An example of a
trigger that influences several steps is “management beliefs,” which in turn are based
on management’s perception of, or experience of the management innovation. An
example of a trigger that has been found to be more related to a single step is
References 103
“consultant experience,” which is commonly found in the First Trial step and less so
in earlier or later steps.
During the last two steps, Implementing and Sustaining an organizational
innovation, management’s belief in the change plays a key role. Change now
becomes real to everyone, as existing patterns of work are disrupted and replaced,
and a firm commitment from the top is often needed to keep the momentum going.
Visible benefits from the new way of working are important, too. They help to build
widespread belief in the change and overall internal support for it.
12.2 Moving Ahead
The framework described here was applied in analyzing the transformation process
at GEA. The story of that process begins in the next chapter.
References
Christensen, C. M., & Overdorf, M. (2000, March–April). Meeting the challenge of disruptive
change. Harvard Business Review. Accessed December 1, 2021, from https://hbr.org/2000/03/
meeting-the-challenge-of-disruptive-change
Steiber, A., & Alänge, S. (2015). Organizational innovation: Verifying a comprehensive model for
catalyzing organizational development and change. Triple Helix, 2(1), 1–28. https://doi.org/10.
1186/s40604-015-0026-1
Steiber, A., & Alänge, S. (2016). The Silicon Valley model (pp. 143–155). Springer.
Part VI
The Transformation of a 100-Year-Old
Company
From Desire to Implementation
13
In less than 5 years, GEA underwent a dramatic and near-total transformation. It

began when Haier acquired the company in 2016, although GEA did not start to fully
implement the management principles of the RenDanHeYi philosophy until later in
2017. The transformation involved changing mindsets, leadership, organizational
structure, and the alignment of people and tasks. Results changed, too, as GEA
rapidly went from zero growth to double-digit growth. How was it possible to do all
of this in such a short time?
According to Professor Edgar Schein, GEA’s transformation is fascinating and
well worth studying:
I am intrigued how GEA was able . . . to get the present set of bosses to behave according to
McGregor’s Y theory. They had to make a massive change in their own daily behavior, and
it will be important to understand how GEA could accomplish that. (Roundtable discussion
at the RenDanHeYi OpenTalk, 2021)
This chapter provides the basis for such an understanding. We will delve into the
transformation process with a focus on the early groundwork that was done to
establish the conditions for success. The framework used will be the framework
presented in the previous chapter and developed by Steiber and Alänge (2015),
which is based on what we know about how management innovations, like the
RenDanHeYi model, disseminate between and within organizations. The framework
has been developed and improved over a decade and has been tested on major
management innovations such as TQM, Lean, the Google model, and FirstBuild, the
innovative unit established within GEA. More recently, the same framework has
been used to increase our understanding of digital transformation of companies such
as GE Digital and Siemens.1
1
Except where noted otherwise, all further quotations in this chapter are drawn from the author’s
interviews with persons at GEA and Haier in early 2021.
https://doi.org/10.1007/978-3-030-95754-4_13
108 13 From Desire to Implementation
13.1 Disrupting the Organizational Trajectory
For more than 100 years prior to the acquisition, GEA had been shaped and
influenced by the culture of its original parent company General Electric. In the
later decades, as we have seen, GEA had focused on near-term profitability and on
cost efficiency. Even at times when GEA was not up for being sold, investments in
innovation had to prove they could yield good short-term ROI, rather than driving
exponential growth long-term. Methods such as Six Sigma and Lean were adopted
primarily to improve cost efficiency and product quality, with results assessed by
internal measures such as “cost of quality.”
. . . we were certainly thinking about quality as an internal metric and not focused on the
outcome to the consumer
To propagate the Six Sigma and Lean methodologies, the company had even
created a core group of intensively trained “black belts” who were to be the
ambassadors and pass-along trainers of a philosophy focused on controlling cost
and quality.
To leave this trajectory and start a new one, focused on a more long-term mindset
and innovation for growth, GEA had to disrupt deeply ingrained systems and beliefs
that were rooted in a long-established (but now outdated) perception of the kind of
company it was supposed to be. Changing these perceptions is not an easy task for
any company, and the few that have managed to do it usually have had to use the
leverage of a very strong external or internal force. In the case of GEA there were
two strong forces: first the new owner, Haier, which in taking over the role of parent
company had enough power to incentivize this kind of disruptive change and bring a
whole new mindset to GEA; and second, the emergence of Kevin Nolan as the new
CEO of GEA.
13.2 The Desire to Change Is Ignited
During the spring of 2014, Kevin Nolan, then the Vice President of Technology at
GEA, felt frustration in his role. He was passionate about the company and its
products but felt that there was neither passion within GEA nor a desire to seize new
exponential opportunities, and the way of working was not conducive to creating
growth. As we have seen, the company at that time was financially focused and risk
averse, with an emphasis on near-term profitability. Nolan’s frustration finally led to
the establishment of FirstBuild with the former head of R&D, Natarajan
Venkatakrishnan (Steiber, 2020). FirstBuild was a totally new way of conducting
both research and development of new products. It was, and is based on
methodologies such as open innovation, Lean Startup, and platform organizations.
The creation of FirstBuild was influenced by new management concepts presented
by gurus such as Eric Ries and companies such as Local Motors in the automotive
sector. More details about FirstBuild can be found in Steiber (2020). The important
13.2 The Desire to Change Is Ignited 109
aspect to underline in this chapter is that by establishing and experimenting with

FirstBuild, with its sole purpose of discovering unmet needs, Kevin Nolan learned
about new ways of working with R&D by using open platforms and ecosystems.
These new ways of working would later be emphasized and celebrated by the new
owner, Haier.
Haier acquired GEA in June 2016. Shortly after, the water heater business, which
Nolan strongly believed in, was divested, and sold. The VP of Technology then
asked for a meeting with Liang Haishan from Haier,2 who worked with Haier’s
overseas team and had overseen the integration of GEA into the Haier Group. Nolan
asked Mr. Liang why he let this happen. Mr. Liang told him that the American
leadership team decided to divest that business and that the problem was that GEA
had not adopted RenDanHeYi (Frynas et al., 2018). Mr. Liang continued and said:
. . . if there is someone as passionate about the business as you are, it would never have been
sold if you would have adopted RenDanHeYi.
Nolan said that at this moment, he had a key insight:
It was like a light bulb that went off . . . It resonated with me because I had been searching
and been annoyed for so long . . . It helped me codify what the problem was . . . lack of
passion . . . lack of deep knowledge of the appliance business
As a result, Nolan, who already felt like a rebel within GEA, decided he wanted to
learn more from Haier and about the RenDanHeYi model by going to China for
6 months.
In addition to his “eureka moment,” Nolan got another important insight when the
Chairman and CEO of Haier visited FirstBuild for the first time. Previously, many
CEOs from around the world had come to visit FirstBuild and according to Nolan,
they all questioned the unit’s ways of working with innovation. However, when
Haier’s Zhang Ruimin visited in 2016, his reaction was totally different. He seemed
to understand the FirstBuild concept immediately and did not question it, which was
a big surprise for Nolan.
. . . the chairman came in, and you know, just got it. I was incredibly impressed with this man
that came to FirstBuild for only 20 minutes and just got it . . . he saw it differently from any
other CEO that had been at FirstBuild
This made Nolan even more determined to go to China and learn what he could.
At Haier’s facilities in Qingdao, however, his first experience of RenDanHeYi was
very confusing:
It was pure chaos
2
As of early 2022, Liang Haishan had become Chairman and CEO of Haier Smart Home. His
colleague Zhou Yunjie became Chairman and CEO of the overall Haier Group after Zhang
Ruimin’s retirement.
He found no blueprint or packaging of the model. He quickly learned that

RenDanHeYi was a philosophy, which had to be grasped before trying to understand
the specific practices used in Qingdao.
RenDanHeYi was more of a philosophy that was implicit, and you have to understand it . . .
What was clear for Nolan was that Haier worked in a very different way than
GEA. This experience, together with his experiences at FirstBuild, convinced him
that RenDanHeYi might be something positive for GEA.
Meanwhile, others were learning about the new approach. GEA at that time was
led by Charles “Chip” Blankenship, a former longtime General Electric executive.
Blankenship had been CEO of GE Appliances since 2011 and was accustomed to
managing the company by General Electric’s standards, but now he saw that
expectations had changed along with ownership. In a meeting with Haier CEO
Zhang Ruimin, Zhang questioned him as to why GEA did not have more aggressive
growth targets. Mr. Zhang urged Blankenship to travel with him to Boston, to meet
with a consultancy firm that Haier had worked with on RenDanHeYi, and there the
two men had a long conversation about GEA and its need for transformation (Kanter
& Cohen, 2018). However, implementation of the RenDanHeYi philosophy did not
follow quickly after these events. In June 2017, Kevin Nolan became the new CEO.3
Nolan found that by then, many in the company’s management team were ready
for change. Several of GEA’s product leaders had travelled to China in 2016 for their
respective global product councils at Haier. These councils are held for each product
line within the Haier Group, such as for cooking appliances and laundry. The
purpose was, and is, to bring together the corresponding leaders at Haier companies
worldwide, to disseminate knowledge and create synergies among the companies—
for example, around the sensing of trends, the setting of priorities in product
development, and the use of platforms.
Of course, the GEA product leaders heard about the RenDanHeYi philosophy at
these councils:
I think it was pretty early on with Haier that we went to meetings in China and were exposed
to RenDanHeYi.
Certain aspects of this new philosophy seemed to appeal strongly to them:
I think the parts that really resonated with me, a leader of a segment of the business, were the
microenterprises and the entrepreneurial elements of really being responsible for your
business and accountable to the end user.
3
It is worth noting that GEA’s new CEO was not appointed from the top down by Haier. In keeping
with Haier’s nonhierarchical approach, Kevin Nolan bid for the position and won the campaign to
be CEO.
13.3 New Governance and a “Light-Touch” Guiding Hand 111
Therefore, when Haier appointed Kevin Nolan to be the new CEO of GEA in
2017, resistance to change among the senior product leaders was reduced.
13.3 New Governance and a “Light-Touch” Guiding Hand
As part of the transformation, Haier required a new top executive governance. GEA
was to be led through the process by an executive council rather than a traditional
executive team. The executive council consisted of only three people: CEO Nolan,
Rick Hasselbeck as Chief Commercial Officer, and Melanie Cook as Chief
Operating Officer. The three then divided the transformation work among them.
While Nolan focused on business leadership and product development, Hasselbeck
focused on commercialization functions and Ms. Cook on operational functions.
According to Nolan, this pro tem arrangement4 played a helpful role in the transfor-
mation of the company as it provided a clear focus on three dimensions at the
same time.
The Haier executive overseeing the transformation was Liang Haishan. Mr. Liang
practiced a “light-touch” management approach and continued to support Nolan as a
coach (Zohar, 2022). In 2017, Mr. Liang and the new CEO gathered the current
leaders of the various product lines. Mr. Liang explained RenDanHeYi, as the
product leaders asked for some advice about the concept. Mr. Liang made it simple
for them to understand the philosophy by saying:
You unleash the potential of every person, and you drive down decision making to the
lowest possible layer. Further, you focus on the marketplace first and align the whole
business toward the users and their needs. Then you reward the people for how well they
do this.
Further, Mr. Liang pointed out:
. . . we do this in China. I understand that what we do in China is not going to exactly

translate to what you do in the USA. But we want you to follow the philosophy. How would
you do this in your marketplace?
This again resonated with GEA’s product leaders. Nolan, backed by Mr. Liang,
then asked them all to come back with what they thought they needed to do to focus
on the marketplace first and align the business toward the users and their needs. The
product leaders returned to Mr. Liang with a list of suggestions on how they would
achieve this. According to one of the interviewees, the list contained probably
15 high-level action items. The GEA leaders and Mr. Liang went through the list
together, discussing each item and how to make it work. For the product leaders, this
4
The executive council was eventually dissolved, as its key transformation and transition objectives
were accomplished in 2020.
kind of leadership energized them, and the result was not only a desire to change but
also the identification of solutions they could use.
In parallel, the Chief Commercial Officer worked with the heads of the commer-
cial functions on changing their mindsets and finding new solutions. Their units were
going to become commercial platforms to serve GEA’s businesses. At the same
time, the Chief Operating Officer worked with the heads of the operating functions.
They also were expected to prepare for a shift to a serving-platform approach.
Among all of these, resistance to change existed to a certain extent in the operating
functions, so that COO Melanie Cook had perhaps the most challenging task of the
three in the executive council.
By the autumn of 2017—after approximately 18 months of learning, preparation,
and setup work—the new CEO, the senior heads of the product lines, and the heads
of the support functions were ready to transform GEA.
13.4 RenDanHeYi Becomes a “Feasible” Solution
The opportunity that Kevin Nolan had been granted to learn about the new philoso-
phy in China, as well as the multiple indications he got that CEO Zhang and
Mr. Liang were thinking similarly to himself, had strengthened his belief that
RenDanHeYi could work for GEA. Further, the fact that GEA was being given
freedom to adapt RenDanHeYi to its own market and situation, made the philosophy
look “feasible” not only to Nolan, but also to the senior product leaders. Indeed,
there was an active debate between GEA leadership and the leadership in Qingdao
on how to apply the microenterprise structure at GEA. The Chinese leaders accepted
that GEA’s executives understood the model and were accountable and responsible
for their own solution, which was not to copy and paste exactly how things were
done in Qingdao, due to differences in the Chinese and North American markets
(Kanter & Cohen, 2018). What remained was to make the RenDanHeYi philosophy
look feasible to other senior leaders, such as the new platform owners.
To help persuade them, the new leadership at GEA could point to the proven
potential of RenDanHeYi. They had seen the positive effects that the RenDanHeYi
model had on Haier in China, which was in the same industry. Therefore, Haier itself
would act as a role model for GEA, and it proved to be a powerful role model indeed.
As previously mentioned, the Haier Group has been ranked as the top global brand of
home appliances in Euromonitor International for 12 consecutive years. Its
IoT-focused subsidiary, Haier Smart Home, has been ranked among the Fortune
Global 500. Further, through its approach of becoming an incubator platform, Haier
has incubated five unicorn companies and 37 gazelle companies since 2014 (Haier
Group, 2021).
Yet for the senior leaders of functions such as manufacturing and sourcing, who
traditionally had enjoyed a great deal of power internally at GEA, the transformation
of the company was not as easy as it was for the product leaders. Before the
acquisition, these functions were the center of attention. They represented the
biggest chunks of costs within GEA, and since cost efficiency was a primary goal
13.4 RenDanHeYi Becomes a “Feasible” Solution 113
under General Electric’s ownership, it was natural to focus on the core functions and
also give them power to do what they needed to do in order to keep costs down and
produce a sufficient supply to the market.
Eventually, however, the senior leaders of these functions realized that they could
not oppose the momentum behind the transformation to new ways of working.
. . . it was very clear that I needed to adapt to the new structure and that the new structure
wouldn’t adapt to me.
I had a decision to make . . . Some people have not been able to make the transition and have
either moved to different roles or outside of the company
The transition did stress-test these leaders’ individual character and how adapt-
able they truly were. One of them said that fortunately his personality, characterized
as being a “Camelot” type,5 made the transition easier for him. The hardest thing was
the transformation of mindset, and it took some functional leaders about a year to
adapt.
. . . You’re used to having so much control, without any interference . . . Sharing that control
with the new microenterprise leaders and truly treating them as my ultimate customers was a
very different mindset . . . It took me a better part of a year to really get comfortable. . .
Although change was difficult for the functional leaders, RenDanHeYi proved to
be an attractive new philosophy to several of them, which inspired a willingness to
keep going instead of giving up:
I believed fundamentally that it was an interesting approach, and I was fascinated with it.
There is a lesson to be learned from this. Although the feasibility of the new
philosophy and its key elements became clear to the executive council and product
leaders, others in the organization had to either adapt or leave for the transformation
to be fully implemented. Further, while top leadership “got” the RenDanHeYi model
relatively quickly, it took another year and a half before the approach was accepted
by people farther down in the organization.
I think the provision of proof was important before they believed in it . . . and I think that was
what happened . . . pushing down bonuses and showing that we continued to invest our
money in innovation and growth
For people on management level three and those under them, evidence and proofs
became very important. A key takeaway is that a full-scale transformation needs time
5
In the legends of ancient England, King Arthur’s court was at Camelot, a mythical place where
everyone was united harmoniously in the pursuit of high goals and ideals.
to permeate the organization. At the time of this writing, in autumn of 2021, GEA
was still working on “socializing” RenDanHeYi to everyone throughout the firm.
13.5 Flying Without a Pilot
In most transformations, the company starts with a pilot, for example, implementing
one or all principles of a new approach in a control unit, such as a function or
business unit. The reason is to learn and improve the new way of working before
either killing it or disseminating it to other parts of the company. This has typically
been the case when implementing Lean, as a company usually starts with
manufacturing and then later introduces the method to other areas such as product
development or HR (Steiber & Alänge, 2015).
GEA did not do a traditional pilot. Instead, the top leaders decided to implement
several principles of the RenDanHeYi philosophy at once, across the company, and
thereby use all of GEA as the control unit.
There were several reasons for doing it this way. The new CEO’s insights told
him that the entire system was “already broken,” and that the business risk of staying
with the old way of working was higher than trying something new. Also, key
individuals had been able to learn about the new philosophy and principles for over a
year and had even worked through how they could adapt RenDanHeYi to their own
situations.
The preconditions for a transformation at GEA were therefore very favorable.
First, the owner and the CEO of GEA felt a strong desire to change. Second, the CEO
saw that the new way of working seemed to be successful not only in China but also
at FirstBuild, and thus could be feasible for GEA. Finally, there was his judgment
that the risk of change was low compared to the risk of staying on a course that was
not working well. This made the option of “business as usual” not an option at all.
For all these reasons, CEO Nolan did not feel any need for a pilot, but pressed
forward with implementing parts of the RenDanHeYi philosophy directly through-
out the organization.
The first selected principle of RenDanHeYi resonated well with what Nolan and
others at GEA already had elaborated upon, even before the acquisition in 2016,
namely the importance of focusing on the users, which in RenDanHeYi is labeled
Zero Distance to the user. In August 2017, the user—now called the “owner”—was
declared to be every employee’s boss. This was communicated as part of GE
Appliances’ new plan:
Transforming GEA to accelerate growth starts with shifting the focus from inside-out to
outside-in. We’ve traditionally had the approach of ‘management is the boss’, where we
make decisions based on management’s view, assessment, goal, etc. Everything we do now,
how we’re structured, what we make, and so on, must be geared to delivering on the owners’
needs/desires. The more focused and connected we are to the owners, the more value we will
deliver and the more successful we will be (Zohar, 2022).
References 115
13.6 Moving Ahead
The next chapter describes how GEA went about implementing the various pillars of
RenDanHeYi company-wide.
References
Frynas, J. G., Mol, M. J., & Mellahi, K. (2018). Management innovation made in China: Haier’s
RenDanHeYi. California Management Review, 61(1), 71–93. https://doi.org/10.1177/
0008125618790244
Haier Group. (2021). Company overview. Accessed October 30, 2021, from https://www.haier.
com/global/about-haier/intro/
Kanter, R., & Cohen, J. (2018). Haier in the U.S: Transforming GE appliances. Harvard Business
School.
RenDanHeYi OpenTalk. (2021, September 18). Business ecosystem alliance. Accessed October
30, 2021, from https://business-ecosystem-alliance.org/opt-2021/
Steiber, A. (2020). Corporate-startup collaboration: Its diffusion to and within the firm. Triple
Helix, 2020, 1–27. https://doi.org/10.1163/21971927-bja10005
Steiber, A., & Alänge, S. (2015). Organizational innovation: Verifying a comprehensive model for
catalyzing organizational development and change. Triple Helix, 2(1), 1–28. https://doi.org/10.
1186/s40604-015-0026-1
Key Steps Taken by GE Appliances
14
When GEA was acquired by Haier, time had to be spent on decoupling the company
from General Electric, which meant that GEA had to think over things like brand,
leadership, structure, and compensation model. Moreover, all of these now had to be
decided in light of a challenging new leading goal that Haier had given the com-
pany—“Be and be recognized as the leading appliances company in the U.S.”—as
well as in light of RenDanHeYi. After establishing zero distance to the users as a
core principle, next in the process was to set and communicate leading goals,
together with the implementation of multiple other RenDanHeYi principles. All of
this happened under the new CEO, Kevin Nolan, beginning in 2017.
14.1 Transformation Step-by-Step
Nolan, together with his fellow executive council members Melanie Cook (COO)
and Rick Hasselbeck (Chief Commercial Officer), communicated the new leading
goal to the company. It was rather disruptive considering GEA’s history of focusing
on cost efficiency and only trying to defend its market position. However, the
transformation of GEA now proceeded in earnest through a series of steps as
described below.
14.1.1 A New Structure
Shortly after announcement of the leading goal, the company eliminated one level in
the hierarchy, setting the stage for microenterprises to form and to start reporting
directly to the CEO. The product lines became microenterprises; the head of each
ME was named a vice president, and profit and loss responsibility were delegated to
the new vice presidents.
By turning the product lines into self-governing “businesses” with strong and
experienced leaders, the CEO could then focus long-term on new business
https://doi.org/10.1007/978-3-030-95754-4_14
118 14 Key Steps Taken by GE Appliances
opportunities for the company. As a result, several new businesses were created in
rapid succession.
• Zoneline, formed in 2017, is built around GEA’s line of air conditioning units for
the hotel and motel market.
• Small Appliances (2018) revives a product category that GEA had exited decades
earlier: countertop-sized kitchen appliances such as toasters, blenders, and coffee
makers.
• Water Heaters (2019) is another revival. Recall that this product line was dropped
while CEO Nolan was VP of Technology, much to his dismay. The new business
includes conventional tank-type water heaters as well tankless heat-on-demand
units and solar powered heaters.
• RV Appliances (also 2019) is exploring an entirely new line of business for GEA:
appliances such as mini-refrigerators that are designed to fit into recreational
vehicles and motor homes.
The microenterprise structure allowed the formation of new businesses to come

from the bottom up more easily than in the past. As noted in Chap. 11, the RV
business was started by employees from the Zoneline ME, and the head of Small
Appliances commented as follows:
. . . my approach to build a new microenterprise around small appliances. . . made it easier for
me to grow the team faster and get incremental funding
In parallel with the changes in leadership and the structural changes that turned
product lines into microenterprises, the Chief Commercial Officer and Chief
Operating Officer worked with the heads of commercial and operating functions
such as marketing, sales, manufacturing, distribution, and sourcing, to change their
operations into becoming service platforms with MEs as their internal “customers.”
As mentioned earlier, the hardest change for the heads of these functions was a
change of mindset, to accept the new arrangement. However, the change also
benefited some of the new platform owners. For example, the leader of the
manufacturing platform gained responsibility by getting control of the former quality
department, as well as inbound logistics for the various factories.
New routines were developed in which the heads of MEs approved the budget
together with the platform leaders for each “service.” Here it should be mentioned
that as part of RenDanHeYi in China, an ME can choose to work with an internal
service platform or to use an external third party if the internal service function is not
competitive enough. GEA did not choose to create this type of competitive market
but gave the ME leaders the right to negotiate the budget with a service platform
leader and then follow up the plan on a weekly basis. GEA’s solution could therefore
be seen as less of an internal market approach, and more as a partnership bounded by
a long-term contract with a joint goal and outcome.
14.1 Transformation Step-by-Step 119
As a result, functional costs such as material costs and production costs have been
reduced so the products can be more competitive. One way of achieving this is for
platform leaders to spend more time digitizing their operations:
I have been focused on advancing our digitization and the end visibility, as well as on
robotics and automation . . . I am more focused than ever on advancing our technical
capabilities in our manufacturing plants to ensure that I give our ME leaders a competitive
advantage in the marketplace . . . Our vision is to be the lowest cost provider of innovative
products.
In cases where GEA does not have the manufacturing capabilities for a certain
product, the ME leader can go outside to a third-party contract manufacturer. GEA,
based on Nolan’s vision, truly believes in local manufacturing—that is, making your
goods in the market you serve, to be nimble and responsive to customers’ and users’
demands. By dedicating one plant for each of the different products, the service
platform leader does not have to make trade-offs between products due to scarce
production resources.
14.1.2 Updated Compensation Model and Zero Distance to Users
As a next step in 2017, GEA changed its compensation model to reflect the
RenDanHeYi “pay by user” principle, which says that compensation must reflect
and reward value creation for the users by each business, team, and individual. This
was an important step to create further alignment of the organization with the market
and users’ needs.
As a next phase in the company’s transformation—now supported by a weekly
“transformation pulse team” that consisted of the executive council, the CFO, and
heads of Legal, HR, and Communications—the Zero Distance concept was adopted.
As has been described, organizations most easily tend to adopt organizational
innovations that are close to what they already have or plan to do as part of their
improvement trajectory. Zero Distance was perceived as familiar and attractive, as
GEA, from its time of implementing Six Sigma and Lean, had initiated several
activities and programs to better understand the customers and users:
I was one of the first black belts at GE . . . there’s nothing more valuable than hearing it
firsthand . . . understanding unmet needs
However, the adoption of Zero Distance involves much more than being user-
centric. According to CEO Nolan, the Zero Distance concept requires identifying
gaps or problems in the current operations that hinder the company from satisfying
every single person’s unique needs. The adoption of this concept came in 2018.
Several organizational innovations that were adopted later have been a natural
extension of the Zero Distance philosophy, for example, House of Brands.
14.1.3 “House of Brands”
This initiative had its roots when GEA hired Chief Commercial Officer Hasselbeck
from Procter & Gamble in 2016. He immediately saw a need for market segmenta-
tion and for a stronger focus on understanding different consumer groups:
I pushed it strongly . . . We’ve got to think outside-in and we’ve got to bring the consumer to
every conversation, so they’re driving our decisions. We have to start the meeting with the
consumer. . . Kevin [Nolan] and Melanie [Cook] were very supportive . . . and from Haier’s
standpoint, I think this is how they thought too when they used the term Zero Distance.
Then in 2017, after GEA hired Mary Putman as the new VP of Marketing and
Brand—also from P&G—the idea of House of Brands was born. This was at the
same time as when GEA had adopted a concept called “ownership experience.” As
Ms. Putman said:
I merged my service experience with my product management experience . . . We did this at

a time when Pizza Hut came up with an app where the users could see when the pizza would
be delivered . . . and we should be able to do the same thing . . . We tried to come up with
how to provide a better experience
Ms. Putman and Mr. Hasselbeck developed the idea of House of Brands together
during the autumn of 2017. The concept and new branding strategy were accepted
and implemented in 2018. Basically, the concept calls for each GEA product (or line
of products) to be marketed under a brand name that will resonate most strongly with
the customers in its prospective market segment. For example, within kitchen
appliances, GEA has a line of upscale, “ultra-premium” products that are marketed
under the Monogram brand. People who want such appliances can thus buy a
Monogram refrigerator from GEA, while others who like the reputation of the
Haier brand can get a GEA-made Haier refrigerator, and so forth. This changes
GEA “from a branded house to a house of brands” (GE Appliances, 2018). The goal
is to develop a more fine-grained, personalized sense of brand awareness and brand
loyalty among customers, while also helping to target and coordinate the develop-
ment of products within the company.
The implementation of House of Brands was viewed as complex, as people at
GEA were still trying to figure out the new organizational structure and their new
responsibilities. Now the ME leaders had to add another dimension, differentiation
of brands, to their already full plates, to meet leading goals. The shift from a single
corporate brand identity to a multitude of brands is a big shift for most companies,
but at GEA, this new brand strategy turned out to act like a glue and coordination
mechanism between the different MEs. It has resulted in products that have a similar,
family-like look and feel within each of the brands. It also equipped GEA to reach
and be relevant for many more market segments than previously, for example,
reaching both high- and lower-end segments with separate brands.
14.1 Transformation Step-by-Step 121
14.1.4 Becoming More Diverse and Inclusive
In creating Zero Distance to users, diversity and inclusion are also important.
Preferably the organization has employees who feel included and meaningful and
who represent all kinds of customers/users. Several changes that made GEA more
transparent also helped employees to feel, and in fact be, more included in the
company’s business. Previously “closed” leadership meetings were opened up to
all employees. This was done for example with the quarterly business update
meetings, which formerly had been for top leaders only. Also, CEO Nolan began
sending weekly videos company-wide to inform everyone of changes, updates, and
other news that might affect them in any way. Mr. Nolan has a deep personal interest
in diversity and inclusion. He says he has long been inspired by the Chelsea Hotel in
New York, which was designed and founded as—and over the years indeed
became—an inclusive, egalitarian dwelling where people had a “high tolerance for
variations in personality and behavior” (Tippins, 2009). The Chelsea’s chief archi-
tect was inspired by the nineteenth-century French philosopher Charles Fourier,
whose communitarian social ideas included elements such as full equality for
women (Tippins, 2009).
In 2018, GE Appliances hired an Inclusion and Diversity Director to open the
company to needed new competences and skills. Most existing employees had
worked at GEA for a long time, and to create Zero Distance to users, diversity was
needed not only to represent each kind of user, but also to provide new capabilities
for the digital age. This initiative has had positive effects, as it sets expectations and
creates opportunities for hiring people who could make the company more
innovative.
To summarize GEA’s transformation between 2016 and 2019, the changes can be
clustered into two main phases:
Phase I (2017)
• Goal setting: Establish leading goal

• Organization: Set up four core product lines as MEs and turn functions into
platforms.
• Compensation: Implement short- and long-term incentive programs tied to the
MEs and platforms’ metrics for directors and above.
• Training: Focus on end2end processes and financial support.
Phase II (2018–2019)
• Formation of more MEs, now also including non-core businesses.

• House of Brands: Moving from product line-centric brands to an owner-centric
brand portfolio.
• Compensation: Expanding the short-term incentive program to include all sala-
ried employees.
• Training: Educate all employees in RenDanHeYi principles and how they mani-
fest in the organization by “socializing” RenDanHeYi. Meetings and weekly
newsletters.
14.1.5 Next Up: Ecosystems and EMCs
The next step for GEA in its transformation is to interpret and implement its version
of an ecosystem. GEA already has a platform open to people outside the company in
the form of SmartHQ. The ecosystem concept is currently being discussed internally
to see what it means for the company as it moves from hardware into IoT scenarios
and offers users solutions rather than single appliances.
Moving toward solutions and scenarios is therefore also on the list of future
changes. Integral parts of this movement will include further digitization of pro-
cesses and building networks with external partners who will be part of GEA’s future
ecosystem.
To support the ecosystem strategy, GEA has also devoted time to interpreting
Haier’s concept of ecosystem microcommunities (EMCs), to understand what EMCs
should mean for the company and how the concept could best be applied. Currently,
GEA views it as an internal agreement between platform owners and MEs, and
between individual MEs, to improve user experience. To avoid unnecessary bureau-
cracy and processes, GEA currently does not use formal contracts internally but
stays with “agreements” among internal parties. GEA has not yet developed any
EMCs with external parties, for example, through blockchain technology. A final
item on the list of future changes is to make the organization more “organic” and
therefore even more dynamic and responsive to users’ future needs.
To Kevin Nolan, GEA is just in the beginning of its transformation, not at the end.
The ambition to move from selling hardware to offering scenarios means that he
plans to continue to change the company and the ways in which people work.
14.1.6 Sustaining the Transformation
Nolan sustains the transformation process by insisting that GEA never stop chang-
ing, and by never treating any system or practice as “sacred.” For example, it is not
even assumed that the microenterprise structure will be the right one for the future.
Everything needs to be questioned and scrutinized in terms of relevance to the
current situation and economy. Further, due to unlocking people’s full potential
and enabling them to follow their passions, unpredictable new businesses are being
started within GEA, such as the RV business and more recently a business in home
gardening. For these reasons, according to Nolan, even leading goals such as to be
the US leader in home appliances may become limiting and might soon need to be
updated.
By resetting its leading goals every year, the company keeps on its toes and
continues changing and transforming. The regularly updated goals are deployed
14.2 Moving Ahead 123
throughout the organization and impact every part. The Hoshin-Kanri planning
system, which previously was used to make people focus on exactly what they
were supposed to do, is now a key instrument for deploying new goals. In this
dynamically changing landscape, trust is of highest importance. Employees need to
trust the leadership and trust that change for the good will also be good for them.
Here, transparency and authenticity among the leaders are key. The quarterly
all-hands meetings and the CEO’s weekly videos are important mechanisms in this
regard.
14.1.7 The COVID Effect
When the COVID-19 pandemic spread worldwide, GE Appliances reacted

dynamically and quickly created a number of guiding principles: “Protect our
people. Protect our business. And focus on supporting and meeting the needs of
our customers and community” (Zohar, 2022). According to Zohar (2022), “Nolan
thought the crisis really brought out the entrepreneurial spirit and everyone pivoted
immediately to meet users’ needs and to discover new business opportunities . . .
Employees put in 157,000 volunteer man-hours during the crisis and even senior
managers, including lawyers, built machines.”
Further, “instead of cutting back on production, GE Appliances introduced new
product lines and launched direct consumer channels. In addition, no one was laid
off or made redundant, instead hundreds of new employees were hired . . . COVID
really proved the speed and the agility of RenDanHeYi . . . the crisis moved us
forward . . . We must build our companies around the fact of constant, future crises
like this. COVID will not be the last. We are no longer living in the world of plans
and efficiency” (Zohar, 2022).
14.2 Moving Ahead
As GE Appliances continues transforming itself in accordance with the

RenDanHeYi philosophy, it is worth noting that the only real constants within that
philosophy are the core objectives: providing great customer experience, releasing
the entrepreneurial energies of everyone, and sharing value created among all
involved, as well as the key principles adopted. All other aspects of the current
model are malleable and dynamic, as indeed they must be, if the company is to
continue evolving and transforming itself in fast-changing times.
David Teece’s Dynamic Capabilities (Teece, 2007) appear to have found a true
form of expression in RenDanHeYi at GE Appliances. The company’s transforma-
tion journey is already producing profound changes, and thanks to the new
capabilities that are emerging from these changes, GEA looks increasingly well
prepared for a dynamic, innovative future.
Next, managerial advice and a concluding summary will be presented.
References
GE Appliances. (2018, January 8). GE Appliances moves from ‘branded house’ to ‘house of
brands.’ GEA Pressroom. Accessed November 14, 2021, from https://pressroom.
geappliances.com/news/ge-appliances-moves-from-branded-house-to-house-of-brands
Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sus-
tainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. https://
doi.org/10.1002/smj.640
Tippins, S. (2009, December) Charles Fourier: Key to the mystery of the Chelsea Hotel? Associa-
tion d’etudes Fouriéristes. Accessed November 14, 2021, from http://www.charlesfourier.fr/
article.php3?id_article¼707#nb6
Part VII
Managerial Advice and Concluding Summary
Managerial Advice
15
In the opening chapters of this book, we traced the evolution and development of
management models—and of the business world itself—from the early Industrial
Age up to the present. Then we took a deep dive into Haier, RenDanHeYi, and the
transformation of GE Appliances. Now a reader may ask: What are the key
takeaways? Starting in general terms and then focusing more specifically, here are
several.
The first is that there exists a new set of management principles for organizations
in the digital world. These new principles allow companies to be more innovative,
agile, and fast moving, compared to their traditionally managed peers. As shown in
Chap. 8, a version of the management principles used by both Haier and GEA has
been found at other successful companies as well, for example, at Silicon Valley
companies such as Google. The comparison between the two “philosophies” at
Google and Haier showed them to be based on principles that were to a large extent
overlapping. This means that the Haier and GEA cases are not unique, stand-alone
cases of a new set of management principles, but could indeed mirror a more
universal set of new management principles. We can label these management
meta-principles for the digital age.
Second, it should be evident from the descriptions of Haier and of GEA in its
newly evolved form, that their new management principles allow them to build and
strengthen their Dynamic Capabilities. To be dynamic as a firm, you must have a
mindset that the organization and business model will constantly need to change and
be updated. For this to happen, the firm needs to be people-centric so it can leverage
people’s creativity. Further, the firm needs to be ambidextrous—that is, be able to
explore new opportunities and create new knowledge and value in parallel with
exploiting current knowledge and opportunities. One way of doing this is to allow
open innovation, leveraging innovation from outside the firm as well as from within.
Co-creation with customers, suppliers, and other partners plays an increasingly
important role in innovation today. Finally, the firm needs to apply a systemic
approach to succeed. The principles need to be applied everywhere in the firm, not
only in selected areas such as new product development. As shown in Chap. 1, these
https://doi.org/10.1007/978-3-030-95754-4_15
128 15 Managerial Advice
capabilities are essential for today’s world, and both Haier and GEA are
demonstrating the required sub-capabilities.
Third, traditional companies need to respond soon if they have not already done
so. Based on research on the dissemination of new management innovations, as well
as on lessons learned from both the Haier and the GEA cases, an enterprise
transformation takes years (in the best case less than 5 years), and it is an evolution-
ary process based on continual learning by the organization. If you do not start the
process, you also do not learn. Executives, therefore, need to adopt a “learners’
mindset,” decide a leading goal and one or two guiding corporate principles, and
start experimenting, i.e., start their learning process.
Fourth, there is not a single, uniform blueprint on how to do this. There are meta-
principles that can guide an organization’s transformation, but practices have to be
adapted to the individual firm and its context. In undertaking this journey, the risk is
high that the people leading the transformation will block principles that are too far
from how the organization has done things historically. And if these new principles
are blocked, then the processes, structures, and practices will not be updated. In
GEA’s case, the company had to switch out the CEO. The new CEO came from
within and therefore had the knowledge, respect, and capabilities to execute a
disruptive transformation. The same pattern occurred at Microsoft, another company
that recently did an interesting cultural transformation. This suggests that company
boards should aim for identifying leaders who are aligned with the new principles for
a digital economy and are capable of transforming people’s mindsets, as well as their
ways of working. These candidates can come from outside or inside the firm.
However, transformation might also require that some board members be exchanged
for people who understand and support the new, more competitive way of creating
value for companies in a digital and connected era.
15.1 Lessons Learned from the GEA Case
According to Kevin Nolan, the competitive dimensions for his firm are two:
1. Access to, and ability to apply the latest technology.

2. User intimacy (Zero Distance).
Both dimensions force the organization to change, as well as force people to

change their mindsets. A great test of the “new GEA” came during the onset of
COVID-19 when plant managers got 1 week to make sure the plants followed all
safety guidelines. GEA’s plant managers made it and became role models to others.
To summarize GEA’s transformation and pinpoint key events that enabled it,
GEA’s Chief Communication Officer, Antonio Boadas, drew (Fig. 15.1).
15.1 Lessons Learned from the GEA Case 129
Before 2016 2017 2019

• Kevin Nolan and • Kevin Nolan appointed CEO • GEA reenters the Water Heater Business
Venkat Venkatakrishnan start FirstBuild • Leading goals are declared • Launch Smart HQ
• New Commercial Officer • Elimination of 1 management layer • Bonus program extended to 100% to salary population
• Electrolux deal failed • Creation of the first 4 Micro Enterprises
• Functions become platforms
2016 2018 2020

• Acquisition announced • More Micro Enterprises • GEA reenters the
• Water Heater business sold • Launch House of Brands Small Appliance business
• Kevin Nolan appointed Haier CTO • New VPs in communication,
legal and digital technology
Fig. 15.1 Key events enabling GEA’s transformation (Steiber, 2021)
Fig. 15.2 Success factors (Steiber, 2021)
15.1.1 Success Factors
When asked to pinpoint key success factors behind the transformation, Boadas
emphasized four key factors: leadership, organization, culture, and alignment, as
shown in Fig. 15.2.
Regarding leadership, roles and mindsets had to change at both the CEO level and
the levels of ME heads and platform leaders. The new CEO had to move beyond the
previous conception of the position as someone who exercised central control,
managed daily operations, set short-term goals, and acted as a chief decision
maker. The new philosophy and principles required him to focus on being an
enabler, removing barriers, setting vision, identifying gaps, and acting as an advisor.
As can be understood, it may be hard to “train” traditional CEOs to make these
changes, which may therefore require a change of CEO. Nolan’s personality was,
and is, well aligned with this new way of managing. The ME leaders (formerly
product managers) had to change their roles and mindsets from following orders,
limiting risks, and having limited autonomy or accountability, to a new state of being
empowered, having much greater ability to take risks, and respond to users and
market needs, and being 100% accountable for results. As has been described, this
didn’t seem to be a problem for the selected ME leaders, but it was hard for some
former heads of key functions to adjust to their new roles as leaders of platforms
serving the MEs.
Regarding organization, the company was previously characterized by strong
reporting lines, powerful operating functions, static product lines, a forced cross-
functional collaboration, and competition between product lines and functions. The
new organization is now built around mutual contracts (or “agreements”), enabling
platforms, agile microenterprises, “natural” cross-functional collaboration in support
of the MEs, and an integration and collaboration between MEs and platforms. These
changes are illustrated in Fig. 15.3.
The other two success factors are culture and alignment. The aim of cultural
change has been, and still is, to turn employees into entrepreneurs through empow-
erment and promoting ownership. For GEA this is like striving for zero distance
between the company’s goals and individual contributions. According to the CEO it
is like defying gravity. People with power tend to accumulate more power, instead of
distributing it. Therefore, there is a constant need to fight the tendency of “centrali-
zation of power” around certain people in the organization.
The key enablers for this shift in culture are:
• Straight talk—Proactive communications to promote open collaboration.

• Transparent management—Open and continuous dialogue.
• Accountability—Goals, deliverables, and expectations clearly defined.
• Raising the bar—Empower people to explore, share, test, and make decisions.
Connect people to their passions and strongest competencies.
• Looking for better ways—Always question the status quo and look for better
ways of increasing value to users.
• Collaboration—Coming together and solving problems.
• Create new possibilities—Be proactive and create new opportunities to increase
value for the users, and thereby for yourself and the company.
Alignment means aligning employees around the company’s goals and user
value. This is done by clearly communicating goals, metrics, and results, and by
enabling people to understand how they will contribute to achieve these. Alignment
is also supported by the pay-by-user compensation model, which connects rewards
to the company’s and MEs’ results, and is complemented with symbolic reward and
recognition programs.
15.2 Lessons for Adopting RenDanHeYi 131
Fig. 15.3 Leadership and Organizational transformation (Steiber, 2021)
15.2 Lessons for Adopting RenDanHeYi
This section is addressed specifically to anyone interested in adopting the

RenDanHeYi philosophy to transform their company. Here are several key points
and insights drawn from GEA’s experience.
15.2.1 RenDanHeYi Is Not ONE Recipe
RenDanHeYi is not a one-model approach, but rather a philosophy based on a

certain mindset and on fundamental management principles. For any organization
to adopt this philosophy, people need to understand and buy into the mindset and its
underlying principles. At GEA, this process of understanding and buy-in took
between 6 months and several years, depending on which person you ask in the
organization. Of course, the transformation can begin once the top leaders truly “get
it,” but the key point is this: Each organization then transforms its management
model in a way that makes sense for them and is feasible for them. There is therefore
not one global model, but rather company-specific models, all following the same
underlying principles.
These principles can be summarized as:
• Focus on the market, taking an outside-in rather than an inside-out perspective.

• Align the organization and secure end2end accountability so that focus stays on
the users.
• Delegate authority and responsibilities.
• Adjust the compensation model accordingly.
• Use leading goals to stretch yourselves.
For GEA, the resulting change in mindset has been “disruptive.” The company’s
mindset has gone from:
• “Corporation first” to “Users first”

• “Play not to lose” to “Play to win”
• “Promote a single brand” to “Build multiple brands”
• “React to competition” to “Lead the competition”
• “Avoid risk” to “Embrace new opportunities”.
15.2.2 RenDanHeYi Does NOT Have an Endpoint: It Is a Journey
RenDanHeYi’s core principles are intended to make an organization more fit for the
digital age. However, the RenDanHeYi model that an organization uses at any point
in time is never to be perceived as the end state. It is a pro tem model, ever subject to
change as the environment constantly changes. RenDanHeYi can therefore be
viewed as a new organizational trajectory, based on new design principles. A
trajectory is just what the word means—a path that the organization travels, which
in this case is a path of ongoing evolution and improvement. It is therefore of highest
importance that any firm wishing to move away from its current trajectory, to a new
“RenDanHeYi trajectory,” must adopt a learning mindset. The company will never
be perfect but will always need to change, sometimes disruptively, to survive in a
highly dynamic and uncertain world.
15.2 Lessons for Adopting RenDanHeYi 133
15.2.3 Top-Leader Commitment and Support Are Essential
Kevin Nolan was named CEO in 2017 for a reason. He believed in the new
principles, and based on his previous experiences, he was ready to change the
company into something better. In his view, continuing to do things the same way
as in the past was the course of highest risk. The new CEO was also competitive and
wanted the company to become the best in the world in its market, rather than
focusing on short-term financial numbers. His desire to go out and win, together with
his obsession with the products and the end users, forced him and therefore the
people around him to think about what the company could become and how to make
this happen.
15.2.4 Involve Your People in the Change Processes
For a company to transform its mindset, structure, leadership, and ways of working,
it is necessary to create a critical mass of people in the organization who trust and
share the belief that a change is good for them and for the company, and ultimately
for the users. And for this to happen, transparency and involvement of your people
are key. GEA took several steps to open up transparency internally. An important
one was the establishment of weekly videos in which the CEO shared both successes
and challenges with every employee. Another was broadening the “leadership”
meeting from including only senior leaders to everyone. The direct relationship
between the company’s success and money in the wallet also contributed to
increased trust and transparency, and here the change in the bonus system played a
critical role. The many meetings with the new ME leaders and platform leaders also
played a key role in building knowledge, trust, and belief. To actively involve the
new ME leaders in designing their new way of working, with an increased customer
focus and end2end accountability, was a leading practice in change management.
15.2.5 Challenge Your Traditions
A company’s traditions are part of its culture. Challenging these traditions is very
hard, as it could be compared to challenging the idea of Thanksgiving for
Americans. Traditions in a company can be found everywhere, from how meetings
are run to how employees are evaluated, and what criteria are needed for promotion.
In a transformation, every single tradition needs to be questioned to see if it fits with
the new mindset and principles. If it does not, the tradition must change. At GEA,
many traditions were changed. One involved who was to receive a company bonus.
Here the company went from giving bonuses only to senior leaders to giving them to
more or less everyone. Another example is the tradition of whom to hire. Before, it
was natural to hire someone who had deep engineering skills and in the best case
came from within. Today, GEA hires people who have competences and skills that
complement the company’s current ones. GEA also looks for people who can be part
of building new business value for the company. Further, the traditional view of
leadership has changed, from a top-down, controlling leadership to a more
delegating and coaching leadership. In a fast-moving, uncertain environment this
change in leadership is crucial.
15.2.6 Change Is Hard: Fight the Antibodies
People and organizations usually do not want to change if they do not understand the
benefits it will have for them and the risks that it might entail. Therefore, a visionary,
consistent, transparent, and results-driven leadership is key for an enterprise trans-
formation. Commonly, an initial core team of change drivers needs to be formed to
disseminate change further throughout the organization. At GEA, the education and
involvement of the product line leaders played a crucial role in forming a first small
critical mass of change ambassadors. The benefits on an individual level were less
clear for operational function leaders, who now were to become supporting platform
leaders. Therefore, the process of getting those people on board took a bit longer. It
demanded a high degree of consistency in messaging from the CEO, as well as
arranging for the leaders to be compensated based on results from the change—e.g.,
with more pay for a higher growth rate.
For employees at lower levels, getting people on board took even longer and
demanded not only consistent communication from the CEO, but also the above-
mentioned transparency and involvement of everyone. People had to see and
understand the new vision of the firm as well as the challenges on the way to
realizing the vision, and ultimately, they had to see actual results from the change
process. The fact that everyone was to be compensated in a new way, based on
improved results in their ME or for the company overall, played an important role in
bringing everyone aboard. Altogether, it took a concerted combination of steps to
fight resistance to change and move the process forward.
15.2.7 Transformation Is an Evolution
GEA did not have a ready-made blueprint for transforming itself in the most
effective way. The transformation was, and is still, a learning process. In most
cases, companies want to do an initial pilot of a new way of working and evaluate
the effects. At GEA, the CEO saw a big risk in not changing the company as
promptly as possible. He also had seen the positive results that Haier had achieved
with similar changes. This led him to forego a pilot and proceed to a company-wide
transformation effort, in stages, starting with changes that he perceived as the least
risky. After implementing the first wave of changes, the company paused for a while
to see the effects and learn from experiences. These were positive, so the transfor-
mation journey continued, and it continues to this day.
Based on results at GEA and in other parts of Haier, a company can expect a
RenDanHeYi transformation to gain a more-or-less complete foothold in a period of
Reference 135
2–5 years, or perhaps more. The time and difficulty may depend on several factors,
such as top-leader continuity, commitment and support from the board, the com-
plexity and size of the organization, and how different the new way of working is
from the old ways (greater difference ¼ higher resistance). The last factor may also
be influenced by the local culture.
Finally, keep in mind that the very concept of “finally” does not apply to this kind
of transformation. At the time we are putting these words into print, the
RenDanHeYi philosophy has been understood and accepted by most people at GE
Appliances, and most parts of GEA’s RenDanHeYi model are now operative or will
soon be. Yet as CEO Kevin Nolan reminds us, in his view, the journey has just
begun.
15.3 Moving Ahead
What GEA has really accomplished is to launch itself on a new path into the future. It
is a path filled with promise of greater things to come, provided the company
continues to grow and evolve—which the RenDanHeYi philosophy now enables it
to do. And indeed, this is what makes RenDanHeYi a new management approach
worth considering. The most powerful way of managing an organization in today’s
world is to make it capable of navigating many, many unknown tomorrows.
Next, the key messages in this book will be summarized.
Reference
Concluding Summary
16
The most important issue facing managers today is the need to make their
organizations fit for a world of disruptive change in a digital economy. Our current
business environment, fast-moving and unpredictable, already has affected many
industries profoundly. Much more disruption can be expected as digital technologies
keep evolving, and as societies try to adjust to climate change. Being digitally
nimble and environmentally sustainable are therefore two primary needs, but the
basic quality a company must have, is the ability to adapt and innovate—quickly and
proactively. The leaders will be companies that can shape the future as it comes.
Those that merely react will risk lagging behind, and companies that do not change
will die.
Many large firms appear to be well equipped for the new age but in fact are not.
Although they use modern tools and techniques, their underlying management
model is a relic of the past. Labeled a “Machine Bureaucracy” by Henry Mintzberg
(1980), the model is built around hierarchical structures and elaborate rules and
procedures that make it very hard for a company to move in new directions rapidly or
substantially.
For a concise description of what a future-ready firm must be able to do, we can
turn to David Teece. He and his colleagues have urged companies to develop
dynamic capabilities, which consist of “sensing,” “seizing,” and “transforming.”
• Sensing “means identifying and understanding opportunities and threats.”

• Seizing is “mobilizing your resources to capture value from those opportunities.”
• Transforming is “continued renewal”—constantly reorienting the company for
the next opportunities to come, as well as for “periodic major strategic shifts”
(Kleiner, 2013).
The question then becomes: What should a new management model look like, to
provide dynamic capabilities? The author of the present book has devoted years of
research to finding answers to this question. Some core sub-capabilities, found in
numerous highly innovative companies, are as follows:
https://doi.org/10.1007/978-3-030-95754-4_16
138 16 Concluding Summary
• A continually changing organization, which adapts to changes in the external

environment.
• A people-centric approach, fostering an environment that maximizes the entrepre-
neurial power of the organization’s people.
• An ambidextrous organization that can manage incremental improvements and
disruptive innovations at the same time.
• An organizational ecosystem applying open innovation, which means innovation
from anyone and anywhere.
• A systemic approach, which assures that every part of the organization will
support the management principles.
The new management models that were introduced and compared in this book,
Google’s form of the Silicon Valley model and Haier’s RenDanHeYi model, are
used by firms that have these sub-capabilities and therefore a track record of
displaying dynamic capabilities. Further, when GE Appliances (GEA) adopted
RenDanHeYi after its acquisition by Haier, the result was a dramatic transformation.
Within just a few years GEA launched several new product lines and became the
fastest-growing US appliance maker, while staff members reported feeling
re-energized and newly empowered. This gives additional evidence of the new
model’s ability to enable dynamic behavior.
It is interesting that the Google model and RenDanHeYi were developed by
different kinds of companies in very different parts of the world. One is a digital
native that grew large and multifaceted, the other a non-digital-native home appli-
ance firm that resolved to be a leader in the IoT era. Moreover, as this book’s
comparison has shown, the two company’s management models differ from one
another mainly on the level of implementation and practice. There is a great deal of
overlap in their underlying principles.
Therefore, we might call these shared management principles “meta-principles”
of the new digital economy. As noted in the author’s previous writing:
The implication would be that a paradigm shift in management is already here, and it is not
an industry or local phenomenon, but a global one (Steiber, 2014; Steiber & Alänge, 2016).
We can deduce the meta-principles from RenDanHeYi, which at this time appears
to be the most disruptive new management model in use by a large, global organiza-
tion. RenDanHeYi operates based on six core principles:
1. Strategy focused on evolving into an ecosystem brand.

2. The creation of a networked organization.
3. Turning employees into entrepreneurs and dynamic partners.
4. Zero distance to users.
5. Compensation based on true value creation.
6. Nonlinear management.
16 Concluding Summary 139
The name RenDanHeYi refers to employees (Ren), user value (Dan), and the
integration of employees’ value creation and user value realization (HeYi). In short,
this means that all employees should be focused on creating user value, and they are
rewarded according to the user value they create. The objectives are to aim for great
customer experience, to release and use the entrepreneurial energy of everyone—
employees as well as external partners—and to provide a structure for sharing value
created among all involved.
Furthermore, the RenDanHeYi philosophy permeates the organization, as it can
be thought of as a fractal: a “never-ending pattern of activities that are self-similar
across many different organizational levels.” Evidence of this can be seen at GE
Appliances. Former functions, as well as different organizational levels, are now
working more seamlessly and collaboratively than before, and everyone is aligned
toward a common objective: serving the users and their needs.
That is a fundamental form of alignment that any organization should seek and
can benefit from. When a constant focus on users’ needs is combined with
RenDanHeYi’s organizational structure—an open-platform structure, with an ever-
growing constellation of autonomous small teams forming ecosystems of their
own—the overall result adds up to truly dynamic capabilities. An organization that
is structured and managed in these ways can continually transform itself as it senses
and seizes new opportunities to serve an ever-changing world of needs.
Let us end this final chapter (and the book!) with some parting words of counsel.
1. There is a new set of “meta-management principles” better suited for the digital,
sustainable world we all face in years to come.
2. Traditional companies need to respond quickly if they have not already done so,
as the old management principles are no longer competitive.
3. The new meta-principles can be used to navigate any company’s transformation,
but the specific practices must be adapted to the individual firm and its context.
GEA is a perfect example of local adaptation of the RenDanHeYi principles.
4. To adopt RenDanHeYi, a company first needs to translate and understand the
underlying principles of the model, as well as buy into those.
5. Top-leader commitment and support (including from the board) are essential if
you want an enterprise-wide transformation.
6. To succeed in transforming itself, a company will need to challenge its own
traditions and involve all its people in the journey, step-by-step throughout the
organization.
7. Every company will find that change is hard, so it is necessary to fight the
“antibodies” that resist change, with support from the top leadership.
8. Transformation is an evolution. Every organization needs to start the process and
evolve by experimenting, learning, improving, and then experimenting again.
The companies studied in this book are pioneers in management innovation. They
have already begun their journeys and are reaping the rewards. It is the author’s hope
that organizations everywhere can learn from the examples and experiences of these
leaders. Although the business environment is competitive, and not every firm can
140 16 Concluding Summary
thrive or even survive, the world is large. There is room for many, many companies
to find new ways of meeting humanity’s ever-changing needs.
But first, transformation is necessary. We must say goodbye to management
methods of the past Industrial Age. To the extent that our organizations and
institutions can transform themselves for the future, we will become increasingly
able to realize the marvelous potential of digital technologies, and we will develop
the world’s vast human potential sustainably.
Please keep this ultimate transformation in view as you work to transform your
company. It will remind you that you are achieving more than you might imagine.
Step by step, and experiment by experiment, you are creating a better world for all
of us.
References
Kleiner, A. (2013, November 11). The dynamic capabilities of David Teece. strategy + business.
Accessed November 9, 2021, from http://www.strategy-business.com/article/00225?gko¼d24
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world. Springer.
Springer.

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Management for Professionals

Leadership for a Digital

Foreword by Edgar and Peter Schein

ISSN 2192-8096 ISSN 2192-810X (electronic)

The Haier Model Research Institute

Palo Alto, CA, USA Peter A. Schein

Menlo Park, CA, USA Annika Steiber

I wish to express my deepest gratitude to Haier Management Research Institute

December 15, 2021 Annika Steiber

Management Disrupted: What Will the Future Look Like?

Explorations in Search of New Models

• In the book The Silicon Valley Model: Management for Entrepreneurship,

RenDanHeYi and the Internet of Things

RenDanHeYi could be described brieﬂy by using a quote from Haier:

The Transformation of GE Appliances

Part II—Two Current Cradles of Management Innovations

Part III—Haier, RenDanHeYi, and the Google Model

to localize operations, meaning that every aspect of a local subsidiary should ﬁt

Part V—A Framework for Better Understanding a Business Transformation

Part VI—The Transformation of a 100-year-old Company

Part VII—Managerial Advice and Concluding Summary

Haier Group. (2020). The 4th International RenDanHeYi Model Forum:

Part I Why Management Needs to Change and Key Capabilities

Part II Two Cradles of Management Innovations

5 The New Chinese Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Part III Haier and the RenDanHeYi model

Part IV GE Appliances in 2016 and 2021 and the Interpretation

Part V A Framework for Better Understanding a Business

Part VI The Transformation of a 100-Year-Old Company

Part VII Managerial Advice and Concluding Summary

Fig. 1.1 An organization visualized as a system (Steiber, 2014) . . . . . . . . . . . 12

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 3

1.1 The Old Model: Mass Efficiency and Control

• Strategic decisions are made by small groups of top executives.

The modern-day scholar Henry Mintzberg, in describing this type of manage-

• The top-level strategists, being few in number and perhaps committed to

1.2 The Changing Nature of Change (And What It Means

Technology It is not entirely true that technological change is exponential. Some

Demographics and Society The business world is impacted whenever people

Globalization This is an obvious factor, as we all can see how an interconnected

Finally, these various sources of change interact continually, adding up to the

1.3 “Dynamic Capabilities”: The Key to Managing

Teece then elucidated the concept in practical terms. He said Dynamic

• Sensing “means identifying and understanding opportunities and threats.”

1.4 Some Core Ingredients for Building Dynamic Capabilities

A People-Centric (Or Human-Centric) Approach Various companies over the

A Continually Changing Organization It is not sufﬁcient for companies to react

An Ambidextrous Organization Dynamic companies can be said to work with one

An Open Organization that Networks with Its Surroundings Dynamic companies

and partner for innovation in a multitude of ways. They sponsor research at

A Systemic Approach According to the business theorist Eric Rhenman, a

To be truly dynamic and innovative, companies must adopt a “systemic

Fig. 1.1 An organization visualized as a system (Steiber, 2014)

One More Factor: Digital Technology

1.5 Looking Ahead

# The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 17

tend to minimize command-and-control hierarchies, with each ﬁrm organized more

• The notion of embracing and executing big, inspiring visions.

2.2 The Birth of an Industry Ecosystem: The Growth of a

One of Stanford University’s well-funded academic units was an engineering school.

2.3 Innovation in Technology and in Management:

2.4 Moving Ahead

3.1 The Silicon Valley Model Versus the Traditional Model