and German hair-care brand Wella. I remember Ed Artzt, the
chief executive at the time, telling me what a predominant place
the beauty business was going to occupy at Procter & Gamble.
P&G was leader in every category it operated in, so he thought
the company would naturally dethrone L’Oreal to become num-
ber one of the worldwide beauty market. . . . Three decades later,
in 2016, P&G’s renouncement was spectacular. The company
sold more than half of its activities in the sector.
There are several possible explanations for this. I would like
to dwell on just one that is not often mentioned by other observ-
ers, but to me appears essential. Procter & Gamble, like all con-
sumer goods companies, is driven by the quantitative. I would
go so far as to say that, at P&G, whatever cannot be measured
is practically considered nonexistent. This evidently constitutes
a barrier to imagination and creativity. Conversely, at L’Oreal,
the quantitative does not prevail over the qualitative, the intan-
gible is crucial. Its people don’t hesitate to open themselves up to
things of an artistic or intuitive nature, even within the context
of their jobs.
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I was invited to Cincinnati in the nineties to give a presentation
on L’Oreal’s approach to marketing. The fact that I am French
might have given P&G’s management the impression that I knew
a little about L’Oreal’s specific ways of doing things. During our
discussions, I was able to measure the distance that separated
L’Oreal and P&G. I was struck by the fact that the people in the
two companies did not give the same importance to the same
things. Far from it. Form, execution, and style are essential ele-
ments for L’Oreal. They contribute to the brand essence. At the
time, this was less the case at P&G. Anyway in the long run,
L’Oreal managed to keep Procter & Gamble at bay.
Many mainstream brands are now trying to move upscale and
enter the premium area. Often, this is because they are look-
ing to penetrate market segments with higher margins. Such a
move requires managers to change their habits. Rather than only
focusing on their products’ functional performance, they must
also take into account the symbolic values of their brands. They
need to avoid being excessively rational and learn to trust their
intuition.
By intuition I don’t mean superficial flashes of brilliance,
but rather a combination of impressions and experiences that
suddenly rise to the surface to form a brand idea or a brand
territory. Intuition is an incomparable driver. It is the lifeblood
of the luxury industry. Bernard Arnault was once described by
Le Figaro as “the intuitive businessman par excellence.”3
In the final analysis, it is a unique blend of business acumen
and intuition that counts. On this, Bill Bernbach, the most famous
adman of the last century, said, “Knowledge is ultimately avail-
able to everyone. Only true intuition, jumping from knowledge
to an idea, is yours and yours alone.”4
Chapter 5
Zhang Ruimin
ON DECENTRALIZATION AND
CUSTOMER-CENTRICITY
Zhang Ruimin has run Haier for 35 years. This world-
renowned Chinese company sells white goods in a very
mature market where products are most often commoditized.
Perhaps because of this Zhang has adopted and even invented
completely new management practices. Indeed, he has dramat-
ically shaken up the organization of his company several times
and, in doing so, he has accomplished something that might have
been more expected of a leader in the new economy.
For Zhang, companies that fail to disrupt themselves are
condemned to be disrupted by others. It is inconceivable to
him that a company can eternally depend on the same busi-
ness model. One day or another, it will find itself obliged to
self-disrupt.
35
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ously. This former Red Guard and civil servant was inspired by
American and Japanese business literature. The works of Peter
Drucker, Gary Hamel, and Kenichi Ohmae no longer hold
secrets for Zhang, who was a serious business student. As a busi-
ness leader, he applies the most pertinent ideas, following them
to the letter. He complains that active sources of inspiration are
drying up. According to him, American theoretical thinking is
now at a standstill.
At Haier, Zhang sought to invent the company of the future.
It proved to be an arduous task. The company he took over was
provincial in scope, making products that were often defective.
He had to fight against two very different aspects of Chinese
culture. On the one hand was the heritage of Confucius, which
consecrates harmony and the cult of ancestors. Those practices
and beliefs could favor stagnation. On the other hand were the
vestiges of the Cultural Revolution, which had led to a certain
chaos inside the factories and to a disregard of quality standards.
At Haier, as elsewhere, a lack of discipline was the norm. Any-
thing and everything went.
Haier has known three distinct periods under Zhang’s lead-
ership. Each time, he totally changed the organization of one of
the oldest collective firms in the country. First of all, he trans-
formed a company making low-quality goods into one cited not
just in China but also throughout the world for the irreproach-
able quality and reliability of its products. From the year 2000
on, he began building a global brand by exporting products
Haier manufactured in China and then producing them in the
new factories Haier built from Southeast Asia to South Caro-
lina. The company has since become the world’s largest seller
of washing machines, refrigerators, air conditioners, and other
Zhang Ruimin
37
major appliances. With 2017 global revenues of $37.2 billion, it
is well ahead of its American and Swedish rivals, Whirlpool and
Electrolux. Finally came Haier’s most recent and maybe most
significant phase: evolving from a manufacturer of goods to a
service provider—in every sense of the word.
Managing through self-disruption is Zhang’s trademark, an
approach that makes him and his company stand out from the
crowd. One story in particular illustrates Zhang’s emphasis on
product quality. It has become a legend in the world of Chinese
business. After a customer complained about a broken refriger-
ator, which he brought back to the factory, Zhang checked the
entire stock of 400 refrigerators, looking for a replacement. In
doing so, he discovered a total of 76 defective refrigerators. He
then selected 75 employees and asked them what they should
do with the faulty machines. Some suggested selling them at a
discount, while others recommended giving them away to Haier
; employees. Zhang grabbed a hammer and destroyed one of the
faulty refrigerators, ordering each of his stunned employees to
do the same. Then he said, “We cannot expect to smash refrig-
erators every day. But actually, I think about doing it every day.”1
That singular act of destruction impressed on employees that
poor quality would no longer be acceptable.
Just imagine the impact of this gesture in a country where, at
the time, a refrigerator could cost nearly as much as a worker’s
annual salary. This event became a cult moment in the com-
pany’s history and was a tipping point on its path toward qual-
ity. The hammer is now on display, like a relic, in the company
museum near its Qingdao headquarters.
This was the first step in a long journey that made Haier a
model for Chinese companies and, judging by the press coverage
of its success, for the rest of the world, too.
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everyone Is a CeO
Haier’s history is one of a culture in constant evolution, of an
organizational model always being challenged. Zhang relies on a
simple observation: Companies rarely know how to get the best
out of their employees, which leads to consequential waste. This
is why he is always looking for organizational models that allow
his people’s talent to be best expressed—and supported.
Haier puts responsibility at the very heart of its culture. The
degree of autonomy given to employees at the lowest part of the
hierarchy is far greater than even in the most forward-thinking
Western companies. Haier comprises over 2,000 autonomous
units, each one operating as a small business. These micro-
companies are responsible for their own P&L and include between
20 and 30 employees from sales, finance, logistics, and marketing.
The rest of the company—Haier employs 80,000 people—
supplies resources to these autonomous units on a contractual
basis and is paid for the services it provides.
Any employee can propose a new idea, be it a simple prod-
uct improvement, a true innovation, a new service, or a better
process. Employees vote on whether an idea should be put into
practice. For ideas that pass muster, the person who proposed it
becomes the project leader. The project leader selects the team
that will undertake the venture. In this manner, Haier’s busi-
ness units operate just like start-ups. The team will last for the
duration of the project, which could vary from six months to
two years. Should team members feel their leader is underper-
forming, they can request a new leader, someone they can elect
themselves.
At Haier, compensation is directly linked to individual per-
formance. Every day staff members are awarded points; the
amount depends on their contribution. At the end of the month,
Zhang Ruimin
39
points and other awards are added up, while penalties are sub-
tracted. The final number is used to calculate an employee’s pay.
This draconian approach would obviously be difficult to import
to the West. But what is interesting, as states Peter Hinssen in
Forbes, is that:
Basically what Zhang Ruimin did, was to create a culture of
entrepreneurship inside his company by copying and trans-
ferring the rules of the outside market inside his company.
He thus created a network of small “companies” compet-
ing against one another inside Haier and made sure that the
remuneration depended on the end-users.2
This has led to a highly competitive, but also quite uncom-
fortable environment. And yet, virtually all the employees accept
it. Haier is also one of the most attractive companies for young
graduates because the company allows them to believe they could
grow there better than anywhere else.
What Zhang has succeeded in creating is a bold and innovative
organization within a traditional commodity manufacturer. Haier
is a company built with extraordinary precision and on a scale never
before attempted. Staff members are not simple employees con-
tent to receive and execute their superiors’ orders. They are entre-
preneurs who feel they are their own bosses. They have become
CEOs of their own, as stated in internal company documents. This
organizational innovation is like a “bottom-up liberation.”3
In this structure, the uncommon becomes typical. For
instance, Zhang goes as far as encouraging his micro-unit lead-
ers to seek out venture capital firms to co-finance their innova-
tive ideas. That is further proof that the independence of these
micro-units is not just for show. So far, no fewer than 200 teams
have raised venture capital this way, which would obviously be
unimaginable in Western companies.
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THANK YOU FOR DISRUPTING
Haier’s model rendered middle management obsolete, so
Zhang removed it from the organization. In 2013, he fired 10,000
middle-management staff.4 As a result, control by upper-level
management tightened. Upper management’s role is to define
the company’s overall direction, to set performance standards,
and to provide frontline employees with the resources they need.
The employees’ achievements are measured daily. Performance
indicators are multiple, comprehensive, and thorough. There
are detailed three-year, yearly, quarterly, monthly, weekly, and
even daily plans. Staff members are briefed on results from
the previous week in order to plan for the next one and the six
that follow. Inspired by Japanese management books, Zhang
has introduced processes that allow the control of everything,
everyone, and every day.
This level of control might at first appear to undermine the
independence of his employees, but a closer look reveals that
the opposite is true. As Bill Fischer said in Reinventing Giants,
“optimal innovation occurs at the moment when team members
believe that they have absolute freedom to contribute their tal-
ents, and management believe that it is in complete control—
both at the same time.”5
In addition to the pairing of freedom and control, Haier
thrives on another paradox: complexity and agility. On the one
hand, Haier’s organization is far from simple. It is constantly
becoming more complex. But on the other hand, having thou-
sands of autonomous units injects great agility into the enter-
prise. This is not the least of the Haier model’s contradictions.
Many observers believe that Zhang is one of those entrepre-
neurs that will have a profound effect on business worldwide.
Time will tell. But it’s already clear that he has been able to
impose an enormous cultural change on an enterprise that, at
one time, could not have been more traditional. He innovated
Zhang Ruimin
41
in a way that Western firms often do not, in the organization of
the company.
Reading about and observing Zhang can give one the feel-
ing that t
he corporate organizational structure of the future will
come from China. For more than a century and a half, all over
the world, companies have been organized in departments, each
given a precise function: research and development, production,
marketing, sales, logistics, sourcing, human resources, finance.
This seems immovable, cast in stone. At Haier, these functions
still remain, but they have broken free from the confinement of
the typical organizational structure. Gone are the silos of func-
tion and department. Everything has become interdisciplinary.
In the West, when innovation is discussed, it is most often in
terms of products, services, and business models. Organizational
redesign is not typically part of the conversation. Yet, it is proba-
bly from this field that managerial insights will emerge in China
in future years. This is one of the contributions China will bring
to the rest of the business world.
The system Zhang has put into place is intended to liberate
the talent of his employees, get the very best out of each indi-
vidual, and avoid waste in HR management. Zhang often quotes
Peter Drucker, one of his greatest influences: “The purpose of
an organization is to make ordinary people do extraordinary
things.”6
Zero Distance with the Customer
To follow up on the story of Zhang and the hammer, I’d like
to share this telling anecdote about a potato. A client from the
Chinese countryside complained that his washing machine was
not working. Haier’s local technician discovered that the client
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was also using the machine to clean freshly unearthed potatoes.
He informed headquarters, where Haier’s engineers saw the op-
portunity to satisfy other customers; this client was surely not
alone in how he used his washing machine. They conceived
the first-ever machine designed to wash not only clothes but
also vegetables. At the beginning, the new machine, equipped
with oversized pipes, provoked incredulity, especially outside of
China. But since its launch, Haier has sold over half a million of
them. And it happened because the company listened so care-
fully to one of its customers. Zhang takes this to the point of
obsession.
Zhang explains that he has turned a manufacturing com-
pany into a customer-oriented organization. It may sound trivial