Why is that we accept new product, process, and even business model innovation as
normal, but significant organizational innovation not? After all, it is not as if our organizations continue to maintain their vitality as they age. Like fading iPhone batteries, the energies that drove their creativity a decade ago, are no longer necessarily the energies that we need to take us into the future. Yet, for a host of reasons, it is as if organizational redesign, and cultural reimagining, are always off the table whenever it comes to planning whatever new offerings will better make us “future ready.”
Ironically, we continue to ignore the diminishing performance from our organizations, despite growing interest in alternative organizational designs. Much of this has been inspired by the four-decade transformation journey of a single company: Haier. Haier is a major global player in the home appliance industry; an old-economy industry in the throes of a high-tech revolution ushered in by the confluence of smart appliances and the internet of things. Headquarted in Qingdao, China, Haier has long produced refrigerators, washing machines, air-conditioners, and other technologies for the home. What makes Haier truly unique, however, is its four-decade long commitment to organizational innovation, which is notable by the continuity of its persistence, the scale of its enactment, and the commercial successes it has generated. All of this, despite Haier not being a Silicon Valley startup, but a large incumbent market leader of more than 100,000 employees, operating in a mature industry; real people making real things; makes it the ideal role model for so many organizations suffering from the pathologies of ever-increasing bureaucracy.
Twenty years ago, mid-way through this continuing transformation journey, Haier gave-up its efforts to twist and shape hierarchical structures into something more responsive, such as: decentralizing into smaller pyramids; reorganizing around strategic business units (SBUs); building matrix organizations; and experiments with intrapreneuring; and decided to essentially abandon hierarchy entirely; adopting, instead, a profoundly human-centric approach to organization. Haier adopted the goal of “zero-distance” with their users as the key to ensuring responsiveness and chose to rely upon latent entrepreneurial energies as the motive force to fulfill the expectations created by the resulting customer intimacy. The result was a radical rethinking of how to maximize the human value, inside and out, that could be created by an different type of organization, and changing the role of leadership in the process.
Self-Renewal Through Dissipative Organizations
Recently, Haier sponsored a conference in Beijing to reappraise what has been learned, so far, by this journey; and invited many organizations who were, themselves, experimenting with alternative organizational innovations. One of the key conclusions drawn by Haier’s founder and Chairman Emeritus, Zhang Ruimin, was that transformative organizations for the future needed to be consciously and explicitly self-renewing, rejecting the inevitability of increasing entropy associated with aging, and thriving in chaos in order to maintain their relevance in fast-changing business environments.
Haier’s transformation journey has always been about removing the pathologies of hierarchies and control; a theme that was echoed throughout the conference by many organizations, large and small, commercial and non-commercial. In his keynote finale to the conference, Mr. Zhang argued that future organizational success in chaotic environments would best be achieved by employing an organizational design metaphor of building dissipative structures; an idea authored by Chemistry (1977) Nobel Laureate Ilya Prigogine. Dissipative structures are organizations that owe their continued relevance to receiving energy -and idea-flows from their external environment. They see chaos not as a crisis, but as a source of new ideas and new opportunities. This takes some doing however, and the organization and its practice of leadership need to be thought of differently than the present managerial models we have relied upon for so long.
Zero-Distance To The User
Recent studies of Haier’s culture have concluded that “zero-distance to the user” plays a piviotal role in creating self-renewing organizations. Being so close to the user that you truly understood their user-journey is a short-cut to successful product or service innovation. Such intimacy also facilitates an explosion of previously invisible, or overlooked, value-proposition opportunities. Practicing such co-creation is being accelerated by the connectivity of new smart appliances, and the ability of Haier to use these for insights into “jobs in the users lives” that need to be filled. Haier-owned, General Electric Appliances (GEA) has established a digital headquarters to do just this, and Haier-Qingdao has filled a previously unimagined customer need of having a three drum clothes washer, instead of a single drum, so that the user could wash running shoes, and underwear, simultaneously with a normal washing load. Strange as this request may seem, 88,000 of the new machines were sold in the first week of the appliance’s market appearance; reinforcing the notion that all too often we don’t know the customer as well as we think we do. A recognition that good ideas can come from the most unexpected places is also emphasized by a rebutal to your Mother’s advice to not talk to strangers, and appears on the entry wall to Gummy Industries’ design studio in Brescia, Italy, where it reads, in large letters: “Always Talk To Strangers.”
From Zero-Distance To Zero-Boundaries
The impermeability of boundaries have long been a major cause of organizational vulnerability to disruption. Such classic organizational deficiencies as being caught unprepared by technology upheavals, out of touch with customers and users, and too slow to respond to customer and user needs can often by attributed to distances, both physical and collaborative, between organizations and their key stakeholders. The boundaries that frustrate closer correspondence are many but must be addressed by organizations who seek new ideas and better engagement with users and employees.
Stuart Crainer, of Thinkers50, has observed that “RenDanHeYi has made management a competitive advantage,” yet Zhang Ruimin has argued that “the value of zero-distance relies upon the autonomous individual.” Which is it? Is it more management that leads to greater advantage, or more employee autonomy? The answer ultimately lies in less management, and more leadership. If we are to build dissipative organizations, we need to break down boundaries in order to get more ideas from the users; harnessing co-creation as a competitive advantage. Such zero-distance is best practiced with zero-boundaries, and zero-boundaries are best exploited, again according to Crainer, by individuals who have a high tolerance for ambiguity. If we can make it easy for such people to start their own businesses based on the ideas they are exposed to, we can call them “leaders,” rather than “managers.”
Francesca Moriani, CEO of Var Group, a four-thousand-plus person, Milan-based, digtal systems integrator, operating in sixteen countries, “supporting [client] companies through their digital evolution journey…” sees “being closer to the market [zero-distance] allowing them to manage the complexity more effectively.” Because they have employed RenDanHeYi as an organizing philosophy, they think of themselves as One Company. Infinite Varieties, which suggests that, without the constraint of formal boundaries, they can harvest flows of external energy and ideas to maintain and evolve their structure through microenterprises, and flourish in a self-organizing manner, no matter how chaotic the external environment. This is best done by appreciating the uniquenesses of their employees to be acutely sensitive to all that is going on around them, and gravitating to where they fit best. If the wherewithal to easily turn those impressions into value-propositions can be realized, then closeness to the user will inevitably lead to more value-propositions, which will lead to even more microenterprises; and more leaders. VAR speaks of this as a widespread leadership model, because big leadership decisions are now being made by more people, lower in the organization.
More Variance Is Better Than Less
Key to unleashing employee leadership is the willingness to organize work around small, self-organizing, autonomous units, micro-enterprises, that can effortlessly be started and led. This makes it easy to nourish new ideas into testable value-propositions. Nearly every organization at the conference, from the ninety-three thousand employee Bayer, to the sixty employee graphic design and brand identity consulting firm, Gummy Industries, have chosen such smaller rather than larger, business units as an organizing principle that defies hierarchy, and emulates start-ups with their fast responsiveness, transparent communications, and value-sharing incentives.
Even Bayer, heavily regulated and one of the world’s premier science-based organizations, has changed its approach to innovation by relying upon just such reasonably autonomous, small mission-teams, each with its own P&L; to which they have added the introduction of a new 90 day “clock” to all that they do, so as to alter the cadence of work in a way that invites experimentation and quick correction; and employing “Dynamic Shared Ownership;” all of which has led to the generation of more value-propositions. Bayer’s new approach to innovation is also “underpinned by a new approach for leadership,” characterized by leadership playing such new roles as:
- visionaries (working with teams to shape their missions);
- architects (reimagining new ways to create value);
- catalysts (fostering empowerment and teamwork);
- and coaches (to help teams work in rapid cycles).
Leaders Creating Leaders; Organizations Creating Organizations
Leaders creating leaders is a compelling proposition, if one has the courage to share power. Kevin Nolan, CEO of General Electric Appliances, has remarked that while at GE he was always looking at how to make such units bigger; today, at GEA, he is constantly on the look-out for how to make them smaller. This turns traditional inherited management wisdom on its head, but generates so many more creative possibilities. One VAR Group leader expressed the optimism inherent in such an approach when he admitted that “Since I think it’s impossible, I believe it will work!”
Making new value-propositions easier, and new businesses to deliver them as well, drives self-renewal. At San Marino-based, container manufacturer, ASA Group, they found that as they experimented with more autonomy at lower levels, the amount of value-propositions that they recognized, and could exploit, expanded, and quickly they became an organization that was actually creating other, new, organizations. This meant that the role and number of leaders were expanding as well. This was also seen at Gummy Industries, where their metaphor of “kitchens” to represent organizational units where new ideas were being “cooked up,” also allowed the employment of “food trucks,” to test new ideas. If they are successful, “restaurants” emerge to launch these ideas. All of which contributes to self-renewal.
Zero-Boundaries to Ecosystems
As user-relations grow in intimacy, they also yield more numerous, more sophisticated, and frequently more complex, user-expectations to be filled; and more complex value-propositions to be delivered. Inevitably, this means gaining access to unfamiliar knowledge domains without adding to an organization’s fixed costs. Ecosystems are the preferred solution, and the announcement of RenDanHeYi 2.0, or zero-boundaries, acknowledges the growing need for partnerships not only with users, but also with suppliers, treated as equals and not as vendors. This raises the primacy of relationships rather than assets in the evolution of an organization pursuing continued relevance.
Zhang Ruimin once suggested the metaphor of “moving like water” as an organizational design principle. Reorganizing by dissolving both internal and external boundaries; encouraging smaller, autonomous, work units; employing autonomy to ensure the removal of approvals; and encouraging more rather than less variance; and are all design choices that emphasize greater organizational fluidity and build towards self-renewal. This fits Prigogine’s definition of dissipative structures as being “non-linear, open systems, far from equilibrium.” The pursuit of more variance, rather than less, speaks to navigating an organization into rougher idea-environments, as opposed to pursuing more vulnerable safe-harbors; this taking the organization far from the dangerous shoals of “equilibrium.” “Non-linear” acknowledges the spontaneity of new microenterprises emerging to deliver new ideas; and “open” increases the likelihood of receiving energy and ideas from outside.
Organizations are the vehicles we use for gathering ideas, expressing them as value-propositions, and then delivering them into the market. If the products, processes and services employed in doing this deserve innovation, then so do the organizations that are involved, as well. Self-renewal is one way of encouraging such innovation, and seeing to it that it emerges from those closest to the action, rather than being directed from on high.
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Bill Fischer has had a long relationship with Haier, and General Electric Appliances, including past consulting, case-writing and research roles, and is a co-author of a 2013 book about the company’s transformation entitled “Reinventing Giants”. He was named to Thinkers50’s Hall of Fame in 2019.