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Case 7
aie Organizing to Build a Smart Ecosystem B a d
Introduction
Yong Wu walked through Haier’s Qingdao headquarters
on his way to the weekly group strategy meeting. As leader
of Haier’s Internet of Food (IoF) sub-field, he oversaw the
core business of kitchen appliances as well as products and
services related to food and cooking. Since adopting a new
strategy in , Haier’s business revolved around providing
“smart home solutions”.
Wu had joined Haier in as an intern after graduating
from Tianjin Business School, starting out at the refrigera-
tor factory in Qingdao, where he ultimately became director.
From to he had worked internationally, managing
two of Haier’s acquisitions in Southeast Asia and Japan. In
, Wu returned to headquarters in Qingdao to focus on
delivering “smart” products and solutions in the refrigerator,
food and cooking space. He was made responsible for creat-
ing a platform focused on delivering novel ‘food and kitchen
experiences’ to users. This involved encouraging an ‘entre-
preneurial’ approach among the people working in the sub-
field. In four years, Wu had turned it into an ecosystem with
more than , partners covering sectors including food,
cooking, home decoration, supermarkets & retail, maternal
& infant, and beverages. He was also tasked with providing
feedback on how the recent evolution of Haier’s organizing
model and its ecosystem micro- communities (EMCs) could
be better aligned with company strategy.
As he prepared for the strategy meeting, he wondered
whether any changes needed to be made to the organizing
model to continue building on the IoF’s recent success.
Haier Group History
The Haier Group (Haier) is a China-based manufacturer of
large and small household appliances and consumer elec-
tronics, founded in with collective ownership. By the
late s, the Chinese market was increasingly sophisti-
cated, prompting a number of foreign refrigerator brands
to enter the market. For Haier, the only way to survive was
03/2022-6724
This case study was written by Professor Michael Y. Lee, Assistant Professor of Organisational Behaviour, Professor Wesley Wu-Yi Koo, Assistant Professor of Strategy,
both at INSEAD, and Joost Minnaar, Co-Founder of Corporate Rebels. It is intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Special thanks to Haier, the Haier Model Institute, and Ms. Guan (Sylvia) Junhui for facilitating the authors’ research.
To access INSEAD teaching materials, go to https://publishing.insead.edu/
Copyright © INSEAD
Copies may not be made without permission. No part of this publication may be copied, stored, transmitted, translated, reproduced or distributed in any form or
medium whatsoever without the permission of the copyright owner.
Part 4: Case Studies
to focus on producing high-quality products and excellent
customer service. Its initial success in growing the refriger-
ator business led to a government request that the company
take control of failing companies. As a result, it acquired a
string of local firms that covered nearly the entire range of
home appliances.
By , Haier had about , employees worldwide as
well as a network of external partners who jointly developed
and delivered co-branded products and services through
Haier’s distribution channels. Its seven brands–Haier,
Casarte, Leader, Aqua, Fisher & Paykel, GE Appliances, and
CANDY–were present in Asia-Pacific, Europe, the Americas,
the Middle East and Africa. The Haier Group traded on the
stock exchanges of Shanghai (A shares), Frankfurt (D shares)
and Hong Kong (H shares) through its principal subsid-
iary, Haier Smart Home Co., Ltd., which in reported
operating revenues of . billion RMB ( billion)
and net profits of . billion RMB ( . billion). In ,
overseas operations represented % of total revenue (see
Exhibit ). In the ten years prior, gross profits in Haier’s core
appliance business grew percent per year and revenues
grew percent per year.
The Consumer Market and the Rise of
Smart Products and Services
As Apple, Google, Facebook and Amazon transformed
industries–including entertainment, cloud computing, adver-
tisement, retail and logistics–by leveraging and building on
their core products and services, it became increasingly clear
that the competitive landscape for consumer goods was no
longer confined to a company’s own industry or market
segment. Instead, Haier believed that the leading firms of
the future would be companies that created an ecosystem
around their products to deliver an integrated user experi-
ence. From the iPhone and the Apple Watch to Google Nest
and Amazon Echo, the most successful products were per-
sonalized to users’ changing needs and offered much more
than a single function. They were linked to other products
Case 7: Haier: Organizing to Build a Smart Ecosystem Brand C-89

Exhibit 1 Haier Smart Home’s Key Accounting and Financial Data 2020
VII. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS IN THE
RECENT THREE YEARS
(I) Key accounting data
Unit and Currency: RMB

Key accounting data 2020 2019 Yoy change (%) 2018

Operating revenue 209,725,821,099.44 200,761,983,256.57 4.46 184,108,481,959.27

Net profit attributable to shareholders
of the listed company 8,876,593,208.19 8,206,247,105.96 8.17 7,483,659,016.04
Net profit after deduction of non-
recurring profit or loss attributable
to shareholders of the listed
company 6,457,813,335.37 5,765,164,700.75 12.01 6,601,505,599.79
Net cash flows from operating
activities 17,599,111,715.51 15,082,630,942.73 16.68 19,142,782,481.20

At the end of
2020 At the end of 2019 Yoy change (%) At the end of 2018

Net assets attributable to

shareholders of the listed
company 66,816,422,614.55 47,888,319,765.92 39.53 39,742,745,893.42
Total assets 203,459,495,879.65 187,454,236,283.17 8.54 168,091,571,652.14

Note: Revenue of COSMO was no longer included in the fourth quarter of 2020 since the business of COSMO was stated
by the end of September 2020. For example, business revenue of COSMO was not included in the fourth quarter
of 2019, representing an increase of 8% and 20% in 2020 and the fourth quarter, respectively.
Source: 2020 Annual Report of Haier Smart Home Co., Ltd

with which they operated in tandem to deliver an integrated
experience–hence, the term “smart”.
With the rise of digital technologies and the internet of
things (IoT), the ability to form links between products–
like nodes in a network– expanded. Seamless connections
between software and hardware gave rise to previously
unimaginable levels of flexibility and adaptability that
threatened to disrupt established firms across multiple
industries.
Despite rising demand for smart solutions, however,
smart products had proven hard to develop and manufacture.
They often required participation by external partners, and
collaboration between these disparate stakeholders was diffi-
cult as most ecosystems could not be governed hierarchically.
For example, when Amazon first marketed Kindle e-readers
in , it faced resistance from publishers. To overcome the
resistance, not only did Amazon provide financial subsidies
and incentives, it also developed a novel security feature to
ensure that e-books on the Kindle could not be easily dupli-
cated and shared, allaying publisher concerns about intellec-
tual property theft.
Pursuing an Ecosystem Brand
Strategy at Haier
From , top managers at Haier saw the potential for an
“ecosystem brand” strategy in the home appliances business.
As Yong Wu put it:
“As early as , Haier started to think about transform-
ing the traditional home appliances business into an eco-
system or platform. In , we saw the phenomenon of
smartphones and other smart appliances, and the direc-
tion of IoT and mobile internet was clear… Because IoT
is about the connections between one appliance and other
things, we started to explore what can form the basis of
connection between home appliances.”
Zhang Ruimin, chairman of the board and CEO of Haier
Group, proposed to turn Haier’s electrical appliances into
networked devices that created “smart home solutions” cen-
tered around the needs of users. Employees were encouraged
to integrate the internet and IoT into every product that Haier
made. Over the next few years, the company recruited more
C-90
software developers to ‘software-ize’ traditional home appli-
ances, creating smart products that could connect through
Wi-Fi or Bluetooth to other devices.
One example of a successful ecosystem that fulfilled
Haier’s vision was their Community Laundry business. This
business was built on over forty thousand internet-connected
washing machines across a thousand Chinese college cam-
puses. Students could schedule and pay for the machines via
a smart phone app. Haier built a platform that connected the
million users of the app with other relevant businesses,
such as food delivery companies and dorm room furniture
sellers. Haier took a share of revenues for every purchase on
the platform.
In October , Haier unveiled a new brand called
the “Three-winged bird” that sought to capture all of the
company’s smart product ecosystems under a single brand
umbrella. These included, for example, smart products to
personalize and synchronize the working of appliances to
specific user behaviors, such as taking a nap. In this case,
the user’s voice activated three appliances– the electric cur-
tain, the air conditioner and the humidifier– to create an
environment conducive for napping (by raising the room
temperature, closing the curtain, and increasing ambient
Exhibit 2 Illustration of the Three-Winged Bird “scenario brand”
Source: Haier Group
Part 4: Case Studies
humidity). The appliances also interacted and adjusted to
each other in unison: the air conditioner and the humidifier
adjusted their power levels depending on whether the cur-
tains were closed or open. In addition to hardware devices
working in concert, Haier’s vision was to integrate other
applications and e-commerce storefronts: imagine a smart
mirror that could show and recommend new outfits and
direct customers to clothing retailers’ websites where they
could purchase the items with one click.
In the first three quarters of , Haier sold ,
smart home solutions, each consisting of multiple connected
home appliances, other products and services, for a total of
. billion RMB ( . billion USD in ), representing %
year-over-year growth.
History of Rendanheyi: Haier’s Unique
Organizing Model
As of , Haier’s organizing model, rendanheyi (meaning
“what is valued most by the customer is compensated best”)
was guided by the principle of “human value maximization”.
This involved motivating all employees “to be their own
CEO”, to aim for “zero distance to users”, and to create an
Case 7: Haier: Organizing to Build a Smart Ecosystem Brand
ecosystem based on “co-creation and win-win”. Although the
principle had been consistently applied over the previous two
decades, how it was manifested had evolved enormously.
2005-13 Market chain & ZZJYTs
Inspired by Michael Porter’s value-chain concept, the first iter-
ation of rendanheyi organized the business into “market chains”
of strategic business units. Within a given market chain, goods
and services were traded and transacted as if on the open
market. The goal was to bring more entrepreneurial energy
and market-based dynamics into the organization.
As a result of tensions that arose with turning collaboration
into internal transactions and the desire that more teams be
market-facing, there was a move towards a team-based struc-
ture, called Zi Zhu Jing Ying Ti (meaning “independent oper-
ating units”) or ZZJYT. The , + ZZJYT units were orga-
nized into three tiers. Tier- consisted of marketing, product
and manufacturing units performing core activities. Tier-
delivered support services such as logistics, HR, IT, R&D
and finance, and were intended to support Tier- . Tier-
provided the other ZZJYT units with strategic direction.
ZZJYT units were given the power to make their own
decisions, essentially operating as mini start-ups. This rad-
ical change attracted employees who could sense entrepre-
neurial opportunity. In addition, it created an internal labor
market where individuals bid for work from various ZZJYT
units, mimicking the external labor market. As part of this
change, , middle management jobs were eliminated–
those managers either had to find a new role or leave.
However, after experimenting with variations of ZZJYT
units, it became apparent that the Tier- units lacked the
decision power to allocate the technical and financial
resources to bring new products and services to market, and
that the incentives were too weak to promote the type of
entrepreneurial activity and risk taking envisioned.
2013-19 Platforms & MEs
To resolve weaknesses in the ZZJYT model, Haier restruc-
tured its , ZZJYT units into , micro-enterprises
(MEs). There were “user MEs” that were in direct con-
tact with end-customers, and , “node MEs” that provided
the user MEs with services and products via a competitive
internal market system.
Each ME—both user and node MEs —comprised ten
to fifteen employees and operated like a stand-alone enter-
prise, with its own balance sheet, own P&L, and lifespan (an
ME could cease to exist if it underperformed for a pro-
longed period). It had the authority to develop and market
their products and services–to be paid for by other (node)
MEs or by end users. MEs could decide which other MEs to
collaborate with, which staff to hire, and how to distribute
rewards and set compensation. User MEs were free to pro-
cure resources from external partners when they felt that
internal (node) MEs could not meet their needs.
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The shift to MEs turned Haier into a network of loosely
connected autonomous units, each with the authority to
act in its own interest, reproducing the competitive dynam-
ics of a marketplace. They were grouped by market segment
into or so platforms, whose role was to incubate new MEs,
provide the necessary resources, create a system of internal
contracting between MEs, establish “presets” or rules of
engagement, and diffuse best practices.
This internal contracting system was not without ten-
sions, as each ME’s income was based on the performance
of the unit - not the performance of the MEs they collabo-
rated with, nor the larger platform they were part of. This
incentivized MEs to focus on their own profits and perfor-
mance even when it came at the expense of the company
as a whole.
The tensions became more apparent when Haier saw
a shift in customer demand towards “smart” products
and services. MEs were encouraged to evolve their busi-
ness model from selling standalone hardware products to
one-time customers to building ecosystems around smart
products and services that could generate recurring reve-
nues from engaged, active users. The development of smart
products and services required new levels of collaboration
amongst MEs that had become accustomed to operating
independently. To accommodate this new strategic focus,
Haier again adapted its organizing model.
Evolving Rendanheyi to Deliver Smart
Ecosystem Brands: Ecosystem Micro-
Communities (EMC)
Initiated in , the next evolution of the rendanheyi
model was designed to facilitate Haier’s transition from a
traditional appliance manufacturer to an ecosystem that
delivered smart products and services. To accomplish this,
Haier introduced ecosystem micro-communities, or EMCs.
Whereas platforms in the previous iteration of rendanheyi
were collections of MEs grouped according to common
product lines without any integration between them, EMCs
were coordinated networks of MEs and external partners
that worked collaboratively. Haier’s new organization struc-
ture was built around EMCs that grouped into sub-fields,
then ecosystems (see Exhibit ).
EMC Case Study: The Peking Roast Duck
Project
An early example of an EMC was the Smart Cooking EMC
and its Peking Roast Duck Project. The leader, Yu Zhang, had
worked for Haier for over years before he took the reins of
the Smart Cooking EMC: three years as a sales representative,
five years working on Haier’s high- end brand Casarte, then
two years launching the similarly named Smart Kitchen ME.
As ME leader, Zhang’s vision was sparked by the nationwide
lockdown in the early months of the COVID- pandemic
when restaurants shut down. In the same way that many
high-quality restaurants purchased “semi-finished” dishes
C-92
Exhibit 3 Conceptual Representation of Haier’s Organizational Structure
Ecosystem Sub-Field
(e.g. Smart home) (e.g. Internet of food)
Sources: A. K. Walker, 2005, Coca-Cola zeros in on growing no-calorie soda market, Nashua Telegraph, July 17, www.nashuatelegraph.com
and used professional equipment to finish the dishes pre-
sented to restaurant diners, he believed that Haier could
offer a similar service to its customers to help them create
restaurant-quality food at home.
Along with other employees, Zhang proposed the
creation of the Smart Cooking EMC, which he officially
registered on Haier’s digital platform in April . Their
first product, Peking Roast Duck, was one of China’s most
famous dishes and consisted of slices of tender roast duck
with crispy skin inside a thin crepe, with hoisin sauce,
green onions and other condiments. Historical evidence
of Peking Duck goes back to the Southern and Northern
dynasties ( - AD), and it was first recorded at the
imperial court during the Yuan dynasty ( - ) in the
form of a recipe written by a royal physician which called
for intricate preparation, including roasting the duck
inside a sheep’s stomach. By the Qing dynasty ( - )
it was consumed by the nobility and praised by scholars
and poets.
It is made from white ducks raised in a free-range envi-
ronment for days, force-fed for to days to fatten
them, then slaughtered and boiled. To enable the skin to
crisp during the roasting process, air is pumped under the
ducks’ skin so that it separates from the fat. The ducks are
then hung to dry and coated with maltose syrup to further
enhance the crispiness of the skin, then roasted in either a
traditional closed oven or smoked over a wood fire.
Given its complex preparation, Peking Roast Duck
was viewed in China as a dish only for special occasions
and meant going out to a fancy restaurant. Mingkai Yu, a
member of the Smart Cooking EMC explained,
All Chinese people think ‘If we want to eat Peking Duck
we need to go to some famous restaurant.’ Even for elderly
people, though it may be difficult for them to move from
one place to another, they have to go [to the restaurant],
because if you take home Peking Duck the taste of it will
change.
Peking Duck was a powerful symbol of what the EMC
hoped to achieve: a way for ordinary people to cook restau-
rant-quality dishes at home. If they could enable this, they
could carve out a niche in the market. The complexity of the
recipe, however, presented several challenges. For example,
they had to identify a partner to source the specialty ducks,
Part 4: Case Studies
Micro-Enterprise
(e.g Manufacturing ME)
Ecosystem Micro-Community
(e.g. Smart cooking EMC)
External partner
(e.g Duck farm)
called tián yā, which are raised on only a few farms in China.
Special packaging was needed to ensure the ducks were still
fresh after transportation and storage. Once delivered to the
customer’s home, ducks had to be stored at a precise tempera-
ture to maintain freshness. They needed chefs to provide the
recipe for preparing the duck, and customers required a pro-
grammable oven so the ducks could be roasted at the touch of
a button (see Exhibit ). Mingkai Yu explained the different
partners with which EMC had to collaborate:
The challenge is because we need to design the whole
process from the ducks, the farms, the factories, and the
cook’s recipes to the IoT appliances and the cooking …
We knew we could not do it alone because Peking Duck is
a very complex dish and it involves a lot of special exper-
tise. Therefore we need to work together with different
teams. Inside Haier we can find MEs who are doing
ovens or kitchen appliances or some MEs specialized in
electronic control ... I’m in charge of IoT appliances and
can do this part. But beside these parts, we still need to
work together with external partners. For example, we
outsourced the packaging work to a Chengdu-based
company, and we also reached out to some professional
cooks who worked in Beijing to cook Peking Duck …
Among the cooks there is the ninth successor of the
Restaurant, Quanjude, which is the most famous Peking
Duck restaurant in China.
To coordinate activity across the various partner nodes
(both internal and external), Zhang utilized an “EMC con-
tract” that specified what was to be delivered by the partner,
by when, and what the compensation or profit-sharing
arrangement would be:
For example, % of the profits will go to the cooks who
sell the recipe to us … For the farms who sell ducks to us …
before they were B B, now they need to change to B C,
they need special packaging for home use, etc, and we
also will negotiate a percentage of profit sharing with
them, for example another % or % . I won’t go into
details on this because it’s kind of a business secret. But
at the end of the day, we can get Renminbi by selling
one duck,. We will use % of the profit for profit sharing
among all internal MEs of Haier … the other % of the
profit will go to the sub-field or go to the whole company,
Case 7: Haier: Organizing to Build a Smart Ecosystem Brand
Exhibit 4 Example of a Peking Duck oven
Source: Haier Group
and the company or the sub-field will use it as the bonus
at the end of the year.
The EMC contracts were updated on a monthly basis to
reflect contribution and changing work needs:
“For example, if you are a developer and this month you
spent a lot of time developing a new recipe or program-
ming a new recipe, your share will increase, it will be high
this month. But next month, maybe you don’t do a lot of
work and your share will decrease.”
Very little start-up capital was needed for the EMC. Part-
ners were not guaranteed compensation. Incentives were
based purely on the potential for future profits. Based on
the initial assessment of the market opportunity and team
capacity, Zhang’s EMC was awarded several hundred thou-
sand RMB of “value-added sharing space”, basically a guaran-
teed profit- sharing pool if the EMC met its initial volume
and revenue targets. The size of the pool attracted other MEs
to bid for the goals set by Zhang. Ultimately, Zhang’s EMC
contracted with nodes (internal and external) to help
develop the product, including the Steaming Oven ME, the
Food Materials ME, the Internet of Things Payment Scenario
Interaction ME, the Finance ME, the Human Resources ME,
and the User Interaction ME. In addition, regional mar-
keting centers joined the EMC.
The Smart Cooking EMC launched the Peking Roast
Duck product—an integrated experience combining the
packaged duck, smart oven, and phone app–for market
testing in October , a few months after conceiving the
idea (see Exhibit ). After tweaking the offering based on
user feedback, they launched on the Haier Smart Home
app. Samples were sent to more than , Haier stores
for sale. In the first month, they sold , ducks and
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generated revenues of several million RMB, twice the orig-
inal target. Chef Zhang Weili, who led the development of
the recipe, cooking process and instructions earned several
thousand RMB from profit sharing in the initial months
after launch.
Even as the Smart Cooking EMC was launching the
Peking Duck product, they were already reaching out to
external investors, planning to spin off the EMC as an
independent company - a process called “upgrading”.
For the EMC, it enabled access to outside capital and
the potential for higher payouts. For Haier, it helped
ensure strategic alignment by spinning off entities that
were not core to its strategy while still sharing in their
upside growth potential. Zhang explained:
Now, we are trying to establish an independent legal
entity, and yes there is a committee inside Haier to make
decisions in making investments. We will also attract
some external VCs to invest in our MEs, and Haier will
also make investments. Haier will establish a panel or
a committee composed of our H.R. departments, legal
department, financial department, and the strategy
department and I will do a roadshow to the committee
as the founder of the company
In the future our business will focus on selling dishes
or selling a solution, how to cook a dish including the
semi-finished products and the ingredients–all of these
things … And this is not the main business of Haier
Group, so we will become an independent legal entity
separate from Haier …You can deem it as kind of an IPO,
and Haier will be my shareholder. I won’t be affiliated
to Haier; we will become kind of a relationship between
shareholders.
C-94
Exhibit 5 Example of Marketing Material for Haier’s Peking Duck Project
Source: Haier Group
Based on its early success, the Smart Cooking EMC suc-
cessfully spun off as an independent company. In November
, Zhang mortgaged his house and then invested over
million RMB ( k USD) in the new company. Together
with other EMC members they invested a total of over
million RMB ( k USD) in their own start-up.
Thereafter, the Smart Cooking EMC expanded its offer-
ings by developing new dishes with regional characteris-
tics from around China, such as Beijing, Shandong, Fujian,
Guangdong, and Sichuan.
EMCs as connectors of nodes
As illustrated by the example of the Smart Cooking EMC,
EMCs were temporary structures that connected various
internal MEs as well as external partners. They enabled
Haier to bring various stakeholders together quickly and
Part 4: Case Studies
flexibly to collaborate on a new product or service. In con-
trast to MEs which were relatively stable, EMCs were highly
dynamic. One EMC leader in the IoF sub-field explained:
I think of EMCs as more like a connector, and MEs as
more likely to meet a single demand or to have a single
function. For example, any small team inside Haier can
be an ME. An ME has a single function to meet, a single
need from the user or from anybody inside Haier. But
an EMC is kind of a connector. For example, my EMC
connects over nodes, they are MEs, and we connect
indirectly to nodes and even more MEs, so this way
we are a connector or coordinator of different resources.
An EMC could be created in a planned manner or
more organically. For example, the IoF sub- field of which
the Smart Cooking EMC was a part had seven different
Case 7: Haier: Organizing to Build a Smart Ecosystem Brand
EMCs. Five were initiated in a planned fashion. Other EMCs
emerged more organically in response to customer feedback
and as the vision evolved in response to new data. An EMC
leader in the IoF sub- field, Hang Sun, recalled the origin and
evolution of the seven EMCs:
[A]t the beginning we studied people’s behavior related
to a kitchen. No matter if you are poor or rich, healthy or
not healthy, if you have a kitchen you must carry out the
following actions: eating, buying food, storage, cooking,
washing. And so these are the five EMCs we created or
designed in a planned manner.
Regarding the EMC of Kitchen Renovation and the
Mother and Infant, these two EMCs were created in an
emerging manner. Another example which is a mixture of
both methods, is the EMC of Smart Cooking. Originally
we wanted to develop it into an educational platform
where we could do some offline or offsite education and
teach you how to cook a dish. However, we received a lot
of opinions and feedback from our colleagues, and, even-
tually, we made it an EMC to help customers fully accom-
plish the task of making dishes from semi-finished food.
Like the Smart Cooking EMC, which addressed the
problem of making restaurant quality dishes at home, each
of these EMCs aimed to build solutions that were complex
and required integration across a variety of internal and
external partners. For example, the EMC for Kitchen Ren-
ovation sought to address the widespread problem of small,
antiquated kitchens by creating a service that would allow
households to renovate and modernize their kitchen in three
days. The ambitious vision required Haier to martial exper-
tise both across Haier and outside the company.
Process of Creating an EMC and Attracting
Bids to Participate
To create an EMC, formal evaluation and approval were
required. Anybody could propose an EMC by submitting
the long-term vision, an estimate of the resources required
and the potential profit to an internal committee called
the Great Shared Platform that comprised members of HR,
legal, finance and others. Upon approval, the EMC was
formally registered on Haier’s internal digital platform, the
“Workbench” (see Exhibit ).
Once registered, an EMC could start to attract resources
and partners to achieve its vision by sharing its goals via the
Workbench that others in the company competed for and bade
on. Setting the right goals was an important and non-trivial
part of the exercise. They needed to be specific enough so
that the EMC leader and the Great Shared Platform could
evaluate competing bidders, as Yu Zhang explained:
I think the leader of an EMC is very important. Not every-
body can be the leader of an EMC … Our work is kind
of art. We need to make a specific reasonable achievable
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Exhibit 6 Procedures to Initiate an EMC Contract
Fill in project
Identify target De ne project
name and
customers targets/goals
type
Indicate
Begin review Estimate
process
amount of
project costs
self- investment
Source: Based on internal company documents and interviews
goal, which can also separate or select the best solution
provider. For example, I cannot tell all of my MEs, “Who
can design a machine which can make dumplings?” ...
The oven producer can tell me ‘I can do this and my
cost is , Renminbi,’ and the manufacturer of a pen
can also tell me ‘I can also do this and my cost is only
Renminbi,’ so how can I decide? I need to make the
demand or the need very specific so that I can select the
best one.
Any individual or ME could bid on goals on the Work-
bench. To attract bidders, the vision and profit potential of
the opportunity needed to be compelling. If an EMC strug-
gled to attract bidders, it might indicate that the goal was
unreasonable, the broader vision needed to be revisited, or
that the EMC needed to look for external partners.
The bidding process was open to all. Senior leaders could
also bid for roles in EMCs working alongside individuals
who were junior to them. For instance, Hang Sun bid on
goals from other EMCs. He explained:
I also compete for the goals created by other EMCs or
the EMCs under the framework of IoF. For example,
sometimes an EMC will create a goal regarding R&D,
regarding operations, regarding marketing or regarding
some other views, and sometimes I take part in these
EMC goals competing for a role in these opportunities.
Because we don’t have a bureaucratic system in Haier
and … I think everybody who is able should take part
in their role. In this way, I also want to take part in
other EMC contacts so I can also share the profits in
the future.
Sun acknowledged that sometimes individuals he worked
with in an operating role in an EMC might view him as the
boss. He explained:
In my EMC all the people are of the same age and some
of them are younger than me. Some of them were born
in the s and Chinese people born in the s are
very active in their mind. I never try to overrule them,
C-96
I never try to suppress them, suppress their ideas. I always
encourage discussion. And yes, there are some people
who defer to me or think I’m the boss and they need to
follow my instructions or my orders, but normally those
are newcomers. As they spend more time here, they will
know that they can talk very openly with me.
EMCs were able to quickly form and disband. Most
EMCs had very few full-time employees dedicated exclu-
sively to the work of the EMC. Most individuals working
on a given EMC were also members of established MEs that
paid their base salary. Compensation for EMC-related work
typically came in the form of claims on future profits. Product
development cycles were very short–many took just weeks or
months from concept to launch. If EMCs were not successful
in the market, workers lost interest and the EMCs disbanded.
The EMC Contract
The EMC contract was the key coordinating mechanism
between EMC partners. In addition to specifying respon-
sibilities, deadlines and profit-sharing arrangements, it was
updated according to work needs. EMC contracts, including
the profit-sharing percentages, were built on blockchain tech-
nology and were transparent to everyone in the EMC via the
Workbench. A member of the Smart Cooking EMC explained:
Mr. Zhang [the leader of the Smart Cooking EMC] has a
requirement for all the MEs, for example, that by the end
of next month we need to finish the programming of a
recipe in a new device, a new oven. Mr. Lee applied and he
got this task, so he needs to upload this task to his dash-
board in the Workbench so that everybody can see that
he has this responsibility. They will sign an EMC contract
(Mr. Lee and Mr. Zhang) ... that by the end of next month
you need to finish the programming of this new recipe
in this new device. If you make it correctly, you can get a
share of the profits, and if not you cannot get this profit. So
everything will go following the contents of this contract.
The goals, targets, and compensation arrangements of
each EMC contract were decided by the EMC leader and
the Great Shared Platform but were the result of discussion
between the EMC leader, other staff members, and the
partners. The EMC leader needed to continually manage
and negotiate with partner nodes to ensure that people were
aligned and felt fairly compensated. This required the ability
to effectively communicate the “why” behind profit sharing
percentages. Yong Wu explained:
The discussion process is very open and public and fair,
and we adjust the profit- sharing mechanism once a
month. For example, this month if you’re not very happy
with your share, you just tell me and the next month, if
I think it is unfair for you, maybe I will compensate you
with another bonus or another profit. So up to now I
haven’t had any problems with the profit sharing making
anybody not very happy.
Part 4: Case Studies
In addition, partners contracting with an EMC could
contract with other MEs inside Haier to support the comple-
tion of their contracted work. For example, the Smart Cook-
ing EMC contracted with the Smart Kitchen ME (focused
on transforming traditional home appliances into networked
appliances) to deliver a camera inside the oven that could
determine when a food item was cooked. To facilitate this,
the ME worked with a separate Artificial Intelligence ME
inside Haier to help with the image-processing capabilities
needed to accomplish this goal.
EMC contracts were also used with external partners.
For example, with the Peking Roast Duck project, the EMC
needed to contract with duck farms, specifying the volume
of ducks, the packaging needed, and the share of profits.
To negotiate, establish, enforce, and periodically update
contracts between the different partners in an EMC required
communication and coordination. This meant a lot of meet-
ings. A member of the Smart Cooking EMC, Tang Ying,
described a typical working day:
In the morning we will identify all the projects we need to
drive for the day and what are the departments or teams
involved and what the gaps are, and what kind of support
we need, resources we need to drive these projects for-
ward, and there’s a lot of communication, a lot of meet-
ings going on. And at the end of the day we will look at
the progress we have made and the problems we still have
and what are the things that we need to communicate
with other departments, so there’s a lot of meetings and
communication going on during the day.
Looking Ahead
As Yong Wu surveyed the landscape, he was convinced that
Haier’s strategy of pursuing an ecosystem brand strategy was
the right one. Early returns on the most recent evolution of
the rendanheyi model–and the EMC structure–were positive
and indicated that it was enabling the type of complex col-
laborations needed to deliver smart products and services.
However, like earlier shifts in the rendanheyi model, the EMC
model was not without its own challenges. One was how to
harness the market-based entrepreneurial forces at the root
of the model to align with the company’s direction. While
individuals and MEs had decision- making authority and the
autonomy to pursue any entrepreneurial opportunities they
judged valuable, these had to be sufficiently coordinated with
the strategic direction of the broader organization. Yong Wu
explained:
[At the level of the leadership of the company] we need
to make sure that MEs can compete, but the direction
they are competing must align with the strategic direction
of the company, for example to develop home appliance
solutions instead of competing towards other goals.
Competition between MEs for various EMC goals could
only exist when there were multiple buyers and sellers in
Case 7: Haier: Organizing to Build a Smart Ecosystem Brand
the internal market and when MEs had the slack to take
on additional projects. How to allow for enough but not too
much slack was an ongoing concern. Yong Wu described the
delicate balancing act:
As leaders in Haier we also consider how to make sure
that MEs are not doing the same thing, because ... that
means there’s a waste of time and input. For example,
maybe only one solution will be used and other solutions
won’t be used–this will be a waste.
Haier generally relied on market forces to strike this bal-
ance. If an ME was not able to deliver competitive products
or services to the EMC it was eventually phased out. But
some wondered whether Haier should have greater oversight
to shape the composition of the ME portfolio and ensure
alignment between EMCs and corporate strategy. Central-
ized oversight was applied only at the formation stage of
the EMC, which had to be approved by the Great Shared
Platform, but should Haier include additional touchpoints,
perhaps through an annual strategic review process? To
manage slack resources, should Haier more actively mon-
itor the performance of MEs and take the initiative to phase
out the low-performing ones and spur new ones where there
was greater demand and greater fit with the overall portfolio
of MEs at Haier?
The rendanheyi model relied on the entrepreneurial
behavior and capabilities of individuals to be successful.
For those with big dreams and entrepreneurial drive, Hai-
er’s system presented an abundance of opportunities, but
not everyone was cut out for it. Yu Zhang reflected on how
Haier’s system was good for some but not others.
I think now Haier has such a good platform to encour-
age everybody to create their own business to be an
Notes
. Source: Annual Report of Haier Smart Home . For more information on the e-book example,
Co., Ltd see “Wide Lens” by Ron Adner.
C-97
entrepreneur of their start-up. It’s a very good opportu-
nity for me, it can help me realize my dream. But I think
this mechanism is kind of a double- edged sword. If you
are a passive person, you don’t want to start your business,
maybe you will be phased out of this mechanism quickly.
But if you have a big dream and you are an entrepreneur,
Haier’s system can help you grow up rapidly.
The compensation structure at Haier provided low base
pay, equivalent to the minimum wage of the province in
which the company was based. To supplement this, Haier
provided upside potential through numerous profit-sharing
mechanisms. Individuals could receive high financial rewards
for their efforts, but this was dependent on the performance
of the MEs and EMCs of which they were a part. On aver-
age, about % of an employee’s pay came from guaranteed
wages, while % came from profit sharing. In addition, Hai-
er’s entrepreneurial system promoted a culture of high moti-
vation and intense work demands. Acting as an entrepreneur
entailed high workloads and work intensity, and could be
overwhelming for some.
How to strike the right balance between unleashing the
entrepreneurial drive and risk taking of its employees and
providing sufficient predictable income for all its employees?
What percent of an average employee’s compensation should
be guaranteed? It was % now, but should it be higher?
What would be the trade-offs of doing so?
As Yong Wu considered these questions, he realized
that Haier had to remain vigilant and continue to adapt its
organizing model to fit an evolving strategy and emergent
tensions. He wondered what recommendations to make
in the group strategy meeting on how to adapt and refine
the model in light of the questions and tensions he had
observed.
. From “Humanocracy” ( ) by Gary Hamel and
Michele Zanini