MANAGING PERFORMANCE AT HAIER (A)

Group E2

Problem Statement How to improve Haiers performance management system and make it adaptable or applicable in other regions of the world?

Environmental Analysis (PESTC) Political: In 2006 company exported to 160 countries valuing to $ 1.7 billion, however they have not established their manufacturing base outside the China. While venturing to different geographies they would be exposed to different labour and wage laws. Different political setups in terms of laws and regulations would impact the performance management system of the Haier. Cultural: Commonalities that can be characterised between Chinese culture and management practices at Haier are money, penalties, individuals, competition, openness, quantitative approach, instantaneous evaluation, competitive bidding, arithmetic evaluation rules and anti nepotism. However the cultural setup in different geographies of world is different than Haiers. Japanese culture is if measured on the scale of 5 for difference in cultural values would rate at 4. Team work, qualitative approach, discretionary power to managers, non monetary awards and punishment and fixed wages are the characteristics of Japanese management culture. American culture would rate at 3 on scale of 5 for difference in culture. American culture reflects pretty similar traits as of new Chinese culture; however, there are prominent differences too. Teamwork, qualitative and quantitative approach etc are prevalent in American culture South Asian countries (Taiwan, Hong Kong, Singapore, Malaysia, Thailand, and Indonesia) share common culture tradition as of China. Economical: Due to globalisation, companies have their offices and employees spread across the globe. World has opened for the trade and commerce. Opportunities are greatly enhanced. Companies are exploiting resources available across the geographies. Dynamics in terms of volume of sales, selling speed, market share and business development has changed. Performance management system needs to be attuned to the prevailing economic factors in the world. Technological: Technological advancement, innovation and creativity have become need for survival and growth. Electronic appliances market is highly competitive with large number of established players. Haier group ranked number 5 on the global ranking amongst Large Kitchen Appliances players in 2007.

SWOT analysis of Haier Strengths High emphasis on quality Unique performance management system Source of national pride 86 different products with 1300 specifications High on innovation and creativity International technological alliances and joint ventures Innovative human resource management practices High performance work environment Opportunities Advantage in the domestic market Increasing demand for kitchen appliances Niche targeting Weaknesses Highly individualistic work environment System being followed in China cannot be adapted globally

Threats High competition Low quality and price image

SWOT analysis of Performance management system at Haier Strengths Principles integrated Japanese management philosophy, American innovation and traditional Chinese culture Internal marketing structure OEC guiding principle- laid groundwork Training- Haier University Greater responsibility to managers Race track Model to increase competition MMC- highly individualistic and quantitative Footprint method- Motivation Weekly evaluation for managers Publishing performance results Weaknesses Methods like Yellow footprint, hospitalized characterization can be embarrassing for low performers which ultimately lead to de motivation Low team synergies Could result in low knowledge base development Make system highly competitive internally.

Opportunities Haier management principles and culture is less distant to American culture. Haiers neat transition to organic structure, despite the prevailing Chinese mechanistic structure during the time of its growth Evolved culture

Threats Haier beliefs and policies, although were successful in China, but can face daunting task to sustain in other geographic diversities

Critical Factors Explosive growth of Haier Chinese culture HPWS model followed by Haier High competition in Electronics kitchen appliances industry

Analysis of Factors Explosive growth of Haier Since Zhang Rubin took over the leadership as CEO, Haier has shown remarkable improvement. Zhang laid strong emphasis on the quality. Faulty products are removed from the line and destroyed completely. Under his leadership Haier turned from loss making refrigerator factory to group of 240 plants and companies. Haier revenues jumped from RMB 3.48 million to RMB 104 billion. Now, Haier wants to continue this growth by expanding to different geographies. Increased competition globally and its current standards would demand the adoption of highly efficient system and strategies to continue on the path of growth. Chinese Culture Traditional Chinese culture was characterised by bureaucracy and in efficiencies. Several characteristics of Chinese SOEs were informal conduits, functional silos, risk averse, averse to transparency, coalitional, informal contacts, inflexible. Chinese culture evolved slowly and Haier made it a hybrid with philosophies taken from Japanese management and American innovation. Chinese cultural values taken Haier management principles are harmony, face, relationship and hierarchy. Haier current management principles have evolved and are adaptable to South Asian countries. Since they want to expand to geographies in all the directions, management

should use CAGE framework given by Mr Jagdish Seth to analyse differences categorically with their culture. This framework measures Cultural, Administrative, Geographical, and Economical distance between two geographical entities. This would be explained more in recommendations. HPWS followed at Haier High performance work cultures have following characteristics Semi autonomous work teams Quality circles Employee involvement and participation Information meetings Staff suggestion schemes Job Rotation Range of human resource management practices like pay for performance Person organization fit Intensive training

If Hair system is seen w.r.t following diagram

Haier has unique recruitment system where they create vast pool of candidates. New recruits are tried out on different jobs before finalizing. Job rotation was one of the core policies at Haier, nobody was allowed to work on same position more than 6 years. OEC was used as guiding principle, where employees were trained to set the goasl effectively. Every employee have to compete all tasks planned for the day. Targets were continuously stretched. Clearance was conducted through self assessment and discussion with supervisor. According to organizational theory Job satisfaction and Organizational commitment are two factors for shaping attitude at work. These two factors are found to be moderate in Haier. Motivational tools used at Haier were yellow footprint model and performance board. According to Herzbergs two factor theory, context factors such as Salary, supervision, etc. were addressed moderately by associating with performance. Content factors of motivation which involves recognition of achievement, responsibility and advancement have a different way of addressing. This is fine with Chinese culture but in different cultural setups the models can lead to dissatisfaction. For example people in America do not like their bad performance to be exposed on the board to everyone. Haier deal with low performers by categorizing them in put on medication, IV users and hospitalized. According to Equity theory people in these categorise would feel de motivated. According to Drive theory once they are given these categorise there drive to improve would be reduced High Competition in Kitchen Appliance industry There are major established players present in different geographies like Whirlpool, Electrolux, LG, Bouch- Siemens Hausgerate GmbH, Genaral electronic Co etc. To compete with these competitors, all system need to aligned and structured to meet and survive in the competitive environment. Performance management system need to be more aligned with ever changing competitive setup.

Options 1) Change in Reward and Remuneration System Haier should study the geography they are entering in and change the reward system. People in Geographies like Japan and America prefer to have fixed pay packages, which provide them sense of security. People in America would not like to be exposed to others on their bad performance. So existing yellow footprint and performance board system need to be changed. Advantages 1) Sense of security would be imparted amongst the employees, which would result in greater motivational levels. 2) Employees would show higher organization citizenship behaviour 3) Better relationship amongst employees and organization based on trust. Disadvantages 1) Employee performance would become passive slowly 2) Employees would form their comfort zone and would not like to stretch 3) Employees would not work out of their assigned work as a result of not getting any incentive of doing extra work. 4) Characteristic of HPWS would be lost, where employee get share of organizational achievement as a result of their holistic performance. 2) Inclusion of courses on cultures, life sciences and languages should be added in Haier university Haier should provide training on different cultures to their employees so that they can make them adaptable to work in different countries. They should prepare their workforce flexible to work . While recruiting localk staff of the country they are entering in, they should make them aware of the culture of Hair. Advantages: 1) Geographically adaptable work force 2) Employees better aligned the culture of Haier 3) Smooth transition and communication amongst the employees across the geography. Disadvantages 1) Existing HPWS may not be adaptable to the geography. 2) Local employees may not understand the values of the system and may not get aligned to organizational culture

3) Align objectives and frameworks of HPWS with the geography through 5 A models

Act

Align

Assort Assess

Accen tuate

Align: Align your goals with that of the geography. Look at the organizational structure and policies of similar industries to understand the mood and expectations of the country. Accentuate: Develop the objective and communicate it to the stakeholders (i.e. management, employees, shareholders, government and society). Learn if the objective is perceived on a similar by each section of stakeholders. Emphasize the key portions of objective. Assess: Understand the progress of the group. Conduct meeting with each section of stakeholders (ranging from board meetings, manager-team interactions, shareholders meet, etc) and understand what each section has to say about the objective. Assort: Assort the suggestions and key take away from each meetings and re-evaluate if anything needs to be modified from the policies. Repeat the process to make any changes. Act: Each step has to be converted to action before proceeding on to the next.

Advantages 1) This model would help in attuning the performance model with the geography 2) Employees would be better aligned 3) Adaptability of system would improve

Disadvantages 1) This framework would take much time for strategising

Recommendations Use CAGE framework to analyse the geography with respect to China on the following parameters. Cultural Distance: Culture is sometimes referred to as the software of the mind, in that it has a sometimes invisible but indelible in-fluence on people`s values and behaviors. For instance, Japanese believe in implicit mode of communication, where as the Europeans believe in direct mode of communication. Administrative Distance: reflects the historical and present polit-ical and legal associations between trading partners. Administrative Distance, although might not much in sync with organizational theory, is the essence for determining organizational sustainability(for instance cola pesticide scam in India which led to government coming out against the companies).For instance, US government increased the ceiling rates of foreign banks to protect its domestic banks . Geographic Distance: How far apart are trading partners in physical terms: the size of the country, differences in climates, and nature of transportation and information networks? You can think of geographic distance as absolute, in terms of the miles or kilometers that sep-arate a firm from another market or supplier .Geographic distance beacons an implicit signal to organization (especially an extension of cultural distance). It is therefore no surprise to see people of the domestic nation leading the domestic branch of a foreign organization. Economic Distance: Finally, economic distance captures fundamental differences relating to income, the distribution of wealth, and the relative purchasing power of segments of a geographic market. For instance, the wages and salaries were mapped to performance. Is the country ready to accept this sort of appraisal? After analysing the geography make strategic changes in HPWS using option 3 that is 5 A frameworks.