Haier Group, formerly Qingdao General Refrigerator, was a bankrupt refrigerator manufacturer in Qingdao.
With a net debt of RMB 1.47 million, it was on the verge of closure. Banks refused to lend them further money, and their plants were crumbling, with workers defecating inside the premises and stealing components from warehouses. Moreover, wage payments had been delayed for several months, and sales were at an all-time low.
Once Zhang Ruimin took over as group director, he made a lot of adjustments to help the company rise from the ashes.
At this point, Haier was still a hierarchical organization. This was satisfactory until China began liberalizing its trading practices and attracting companies from all around the world. This is when new competitors like General Electric and Samsung emerged.
When it came to making decisions and getting products to market, Haier's hierarchical systems slowed them down. Haier shifted from a 13-level hierarchical and bureaucratic structure to 4000 agile micro-enterprises to attain competence and growth.
Haier had to reinvent itself—it introduced Rendanhayi—a new working method. Rendanhayi translates to “integration of people and goals.” After its inception, Haier became a highly responsive, diversified online-based entrepreneurial conglomerate.
What is Rendanhayi and how does it work?
The term Rendanheyi can be broken down into three parts—”Ren” stands for the employees, “Dan” stands for the user value, “Heyi” refers to the combined force of the user value realized and the user value created.
In Rendanhayi, every person was responsible for the outcome/product’s perception. For example, in traditional companies, those working in R&D might not be responsible for sales as they're disconnected from the sales teams.
But in Haier, the R&D department is responsible for sales, or lack thereof. Each team is divided into two EMCs, short for ecosystem micro-communities. Each EMC has 6-8 members or more. This means both teams work collaboratively and are responsible for the perception and performance of the product in the market. They’re classified into
- Experience: Consumer-facing functions
- Solution: Internal departments
These two functions work collaboratively together to develop a solution. If the product is a hit, both teams share the profit. If the product isn’t received well, both departments aren’t compensated. This meant that members of the EMC were compensated for outcomes and not for their jobs.
The restructuring at Haier ushered in a new era of technological advancement. As a result, they cut their product development times in half, from six months or more down to two at the most. This strengthened Haier's position as a market leader both domestically and internationally.
So what did Haier do that helped them? They drove innovation by fostering creative thinking and entrepreneurship within their teams. Every EMC at Haier had autonomy at every step. They could seek external funding for their projects and even choose different suppliers.
By decentralizing decision-making and fostering entrepreneurial spirits in their teams, Haier saw innovation and increased profits. Haier Group’s profits increased from 12.8% to 20.3 billion yuan (US$2.9 billion) between 2015 and 2016. The group's revenue skyrocketed to 201.6 billion yuan (US$29.3 billion) the following year.
Not just Haier, every team and leader in today’s world needs to start fostering the spirit of innovation, but how?
Creating an entrepreneurial spirit is key to innovation
Did you know? Google's "20% time" policy encouraged employees to spend 20% of their work hours pursuing personal projects. This policy resulted in the creation of innovative products such as Google News and Gmail.
An entrepreneurial team is more likely to take a proactive approach to problem-solving and find effective solutions to organizational challenges. They’re more likely to prioritize the customer experience and identify and address customer needs more effectively.
“When we tell people to do their jobs, we get workers. When we trust people to get the job done, we get leaders.”
- Simon Senek, author of How Great Leaders Inspire Everyone to Take Action.
However, many organizations struggle to create an entrepreneurial culture, with only 12% of employees feeling that their organization fosters an entrepreneurial mindset.
We saw how Haier did it. Market leaders and disrupters gain a competitive advantage by fostering independent thinking in their people. By promoting an entrepreneurial mindset within their team members, leaders can encourage innovation, agility, and adaptability while also empowering their team members and achieving better business results
Only entrepreneurs create market disrupters in this rapidly changing business world
“The average lifetime of companies is shrinking. If you were listed in the S&P 500 in 1935, the life span of a company was 90 years. Today, it is 18 years. Every two weeks, a company is going off that system"
- Dominic Barton, Mckinsey & Co, MD, 2nd Economic Times Global Business Summit
These words aren’t just what Dominic says; according to Statista, corporate longevity is clearly declining. By 2028, the average lifespan of an organization will be just 15.7 years!
An HBR study mentioned that the shortened life cycle primarily results from rapidly spreading digital disruption in industries.
In a recent podcast featuring John Hennessy, a board member at Cisco, the company presents a unique approach to innovation. Despite having a stated goal of no internal research, Cisco has continued to innovate and stay ahead of the competition for over 30 years.
This success is largely attributed to their ability to "spin in" companies. This approach involves identifying internal teams with innovative ideas, taking them out of the company, providing funding similar to that of a typical venture investor, and then bringing them back into the company once the product has been developed to a certain level.
To protect themselves against the rapidly changing external world, established enterprises should develop new ventures that have start-up-like independence and access to benefits that start-ups often lack
Entrepreneurship is built on mindset
The most successful companies are headed by people who are at ease with uncertainty, use test-and-learn strategies, and are open to failing to succeed in the long run. These organizations are good at finding and inspiring a wide range of professionals (designers, product owners, software developers, data scientists, salespeople, and so on).
These traits are more important than founders' prior experience in a certain field, especially considering how vital it is for businesses to be flexible enough to refocus on new prospects even if they lie outside the sector they were originally conceived in.
Here’s how leaders can build teams of entrepreneurs -
Macromanage, don’t micromanage
Macromanagement is a leadership style that promotes entrepreneurial thinking and allows people to take responsibility for their job. This entails offering the team a clear vision and direction and allowing employees to experiment and take risks to achieve the goals.
Netflix is an organization known for its macromanagement principles. Its approach to macromanagement focuses on outcomes rather than processes. The organization's culture is based on freedom and responsibility, focusing heavily on autonomy and employee trust. The company's famed "unlimited vacation policy", which enables employees to take as much time off as they need as long as they accomplish their objectives and obligations, is a significant component of this strategy.
Netflix supports experimentation and innovation through its "try and learn" strategy. Employees are encouraged to try new ideas and take chances, even if they fail. The organization uses data to support decision-making and assist teams in identifying areas for improvement.
The company's emphasis on communication and openness is another component of its macromanagement strategy. Netflix’s executives try to speak freely and regularly with staff, offering information about the company's aims and priorities. This promotes trust and ensures that everyone is working toward the same goals.
In macromanagement, the leader's role is to provide resources and help while only intervening when necessary. Macromanagement requires trust in individuals and a willingness to cede responsibility, yet it may result in more creativity and innovation within the team. By encouraging entrepreneurial thinking, teams may become more adaptable and suited to the ever-changing business environment.
Never be scared to fail
"If you're not failing, you're not innovating enough."
- Jeff Bezos
Leaders must be prepared to foster a culture in which team members are encouraged to take chances and attempt new things without fear of repercussions. This entails shifting our perspective on failure and accepting it as an unavoidable step toward achievement. According to an HBR study, if you examine any 10-person startup that has displaced an industry incumbent in the last 20 years, you will likely find a leadership organization that values its failures as much as its successes.
Amazon is one of the companies that takes pride in its failures. The company encourages its people to try out new goods and ideas. Teams are given the tools and support they need to put their ideas to the test, even if they fail. Several successful Amazon products and services have resulted from this culture of innovation, like the kindle, Amazon Prime, Fire TV, Fire tablets, and many more.
Amazon prioritizes continual learning and encourages its workers to take risks and learn from their errors. Failure is viewed as a learning opportunity in the company's culture, and employees are encouraged to share their experiences with their coworkers.
Amazon CEO Jeff Bezos is recognized for his willingness to take chances and belief in the value of failure.
Bezos states, "I've made billions of dollars of failures at Amazon.com. Literally billions... We don't celebrate them, but we don't hide them either."
Amazon's culture pushes employees to dream big, take chances, and celebrate risk-taking. The company operates under the "Day One" idea, which means that every day is its first day in business. This mentality contributes to the development of an innovative and risk-taking culture.
Empower your people to think like entrepreneurs
Encouraging entrepreneurial thinking within a firm may greatly impact innovation and growth. According to McKinsey research, companies that support innovation may generate up to 2.5 times more revenue growth and 8 times more operational profit growth than their less inventive rivals.
People at 3M are encouraged to explore their ideas and initiatives, even if they’re unrelated to their professional duties. This created some of 3M's most popular products, including Post-it Notes.
Spencer Silver, a 3M employee, aimed to produce a super-strong adhesive in the 1970s when he accidentally created a weak glue that could attach to surfaces but be readily removed without a trace. Nevertheless, Silver first saw little value in this idea.
Not until several years later, when another 3M employee named Art Fry became annoyed with his bookmarks always falling out of his hymnbook, did the concept for Post-it Notes emerge. Fry discovered that Silver's brittle adhesive might be used to make a reusable bookmark that would adhere to pages without harming them.
3M has generated a wide range of successful products across many different sectors by allowing their workers to explore their ideas and initiatives, even if they do not fit neatly into their job descriptions.
Empowering entrepreneurial thinking can also lead to increased employee satisfaction and retention. A study by Deloitte found that millennials who felt their company fostered innovation were more likely to stay with that company for the long term.
Additionally, when employees are allowed to work on projects they are passionate about, they are more likely to feel engaged and invested in their work.
Instilling an entrepreneurial attitude in your team members may have a wide range of benefits for both people and the business. Leaders can build a team of self-starters capable of driving development and success in today's quickly changing company environment by encouraging risk-taking, enabling autonomy, and fostering an innovative culture.
"If you constantly do what you've always done, you'll always get what you've always gotten."
- Henry Ford
It's time to abandon old leadership approaches in favor of a more entrepreneurial approach to establish a team capable of tackling future difficulties. Thus, enable your team to take ownership, question the current quo, and follow their most audacious ideas—who knows, you may be the next success story in the making!