Haier - Insights, Learnings and Experiences (Post 2 - The New Economic Engine)
Mirko Kleiner - As a Thought Leader in Lean-Agile Procurement and a Registered Scrum@Scale Trainer, my personal mission is to unite various movements—Agile Leadership, Extreme Manufacturing, Scaling Agile, Lean-Agile Procurement, and more—to push the boundaries of Business Agility across organizations.
One company that stands out, and perhaps the only one of its kind globally, is Haier. With over 50 years of history as a white goods manufacturer, Haier has undergone its sixth major transformation, evolving into a network of over 4,700 Micro Enterprises (ME), all interconnected within Ecosystem Micro Communities (EMC).
Each ME operates with its own balance sheet, its own people, and collaborates closely with partners who share in the ECM’s success. This win-win philosophy, implemented on such a massive scale, is truly unprecedented and sets Haier apart as a pioneer in organizational and management innovation.
For over two years, the LAP Alliance has partnered with the Haier Model Institute (HMI), itself a Micro Enterprise within the Haier Group. Its mission is to spread the word about Haier’s New Economic Engine, or RenDanHeYi, which serves as the foundation of Haier's management model. For those unfamiliar with Haier, it is arguably the most disruptive and successful organization in the world, operating with virtually no bureaucracy and achieving an impressive annual growth rate of 20% over the last decade.
In this series of blog posts, I’ll be sharing key insights, learnings, and experiences from my visits to Haier, and why I believe the future of business lies in a New Economic Engine driven by AI and Business Ecosystems.
Post 2 - RenDanHeYi the New Economic Engine
In Post 1 - Visiting Haier, I briefly mentioned the New Economic Engine, and in this post, I’d like to dive deeper into its details. This should also demystify how thousands of Micro Enterprises (MEs) are effectively organized within Haier.
It all began over 50 years ago when Haier’s former CEO, Zhang Ruimin, introduced the first wave of groundbreaking improvements. He firmly believed that true transformation must start at the management level and focus on how people are treated, setting the foundation for what Haier has become today.
image source: HMI
RenDanHeYi an overview
After years of continuous refinement, a New Economic Engine emerged, rooted in the Haier Management Model, RenDanHeYi. It’s important to note that the development of RenDanHeYi is still evolving—and may never truly be "finished." This flexibility and constant adaptation are part of what makes it so powerful and future-proof.
image source: HMI
RenDanHeYi is a blend of three elements: Ren (the people), Dan (user value), and HeYi (the combination of employee and user value). At Haier, there are no traditional employees—everyone is treated as an adult or, as they put it, an entrepreneur. At the heart of all their activities is the user and their needs, whether that’s an internal user or the ultimate customer.
While many companies have shifted towards customer-centric models, Haier’s approach stands out. They place equal value on their employees (entrepreneurs) and users (customers), creating a win-win mindset where everyone, including third-party partners, shares in the success. This goes far beyond traditional gain-sharing models, putting shareholders last and focusing on long-term user relationships rather than one-off transactions.
“We are paid by the user”
— ME Owner
The key to this system’s success lies in the alignment of thousands of Micro Enterprises (MEs). Each ME operates completely autonomously, fully empowered, and accountable to the user—literally, as they often say, "We’re paid by the user." Since each ME manages its own balance sheet, this is very much the reality.
This extreme decentralization is unified by the user scenarios. MEs form Ecosystem Micro Communities (EMCs) to ensure maximum alignment and collaboration. The glue that holds these EMCs together is the EMC contract, which ensures clear roles, responsibilities, and shared objectives.
Strategy lies within the ME
I’ve had the privilege of meeting and exchanging ideas with Kevin Nolan, President and CEO of GE Appliances, a Haier Company, on two occasions. What he shared about Micro Enterprises (MEs) might sound unsettling to anyone unfamiliar with full empowerment. He explained that he's no longer the one to direct or overrule the MEs in terms of strategy, objectives, or decision-making. Instead, the MEs—being closest to the market and the users—are the ones who own and define their strategies and goals.
Can you imagine the speed and motivation this level of autonomy unleashes? It’s a radically different way of working, where those with the most direct insight into user needs are fully empowered to act.
image source: HMI
In fact, under Kevin’s leadership and by applying first principles of the RenDanHeYi model, GE Appliances went from being on the brink of bankruptcy to becoming the market leader in the United States in just a few short years. It’s a testament to the power of this approach, where empowering Micro Enterprises and aligning them with user needs has driven remarkable transformation and success.
image source: HMI
Haier itself has now fully transformed into nearly 5,000 Micro Enterprises (MEs), with a total of over 80,000 entrepreneurs. This shift significantly reduced the need for more than 10,000 middle management roles, creating a streamlined and minimum viable bureaucracy. By eliminating excess layers of management, Haier has built a more agile, empowered organization focused on innovation and rapid decision-making.
3 Rights of a ME
For a Micro Enterprise (ME) to be fully empowered, it must possess three key rights:
The Right to Make Decisions
The Right to Assign Resources
The Right to Reward Performance
These rights enable MEs to operate autonomously, driving their own strategies, allocating resources, and rewarding success, which fuels motivation and agility within the organization.
image source: HMI
These three rights are crucial for enabling the independence of Micro Enterprises (MEs), allowing each to operate like a startup. During their setup and beyond, MEs are enabled by shared platforms for finance, HR, and other resources, as well as initial funding. Interestingly, ME owners and their entrepreneurs can also invest their own money if they choose, further aligning them with the entrepreneurial mindset. Haier only provides a base salary, typically below market average, with the opportunity for entrepreneurs to significantly increase their income by sharing in the ME’s success.
Interestingly, in all my conversations with ME owners, colleagues at the Haier Model Institute, and others, money was never the key driver for motivation. However, the opportunity to be treated as a true entrepreneur, with both the risks and rewards, was a major motivator, showing that recognition and autonomy are what really matter.
A ME Isn’t Enough
As I mentioned in Post 1, Haier and its MEs are deeply focused on user scenarios. Let’s take another example: Smart Cooking. Clearly, no single ME can design, manufacture, sell, ship, and maintain something as complex as an oven. This is where MEs form temporary alliances with other MEs, creating Ecosystem Micro Communities (EMCs). In my conversations with colleagues from the Haier Model Institute, they shared that, in the early stages or RenDanHeYi, many of the Micro Enterprises (MEs) were primarily focused on their own interests and success.
The key tool for aligning multiple MEs is the EMC Contract. This mutual agreement is regularly updated, typically on a monthly basis. It lays out joint objectives, investments, and potential wealth sharing, along with a structured performance management system. What’s truly unique is that if an ME underperforms, it can be replaced—quickly and without hesitation. This may sound harsh, but it has a powerful side effect: it ensures that if an alliance isn’t producing the expected results, the EMC and even the MEs can swiftly reorganize themselves.
The EMC Contract served as the inspiration for our new Lean Ecosystem Canvas, which I'll explain in more detail through the eRevo success story. Thanks to the canvas, eRevo was able to set up their EMC in just a single day!
Image Source: LAP Alliance
This dynamic system eliminates the possibility of “riding dead horses,” something all too common in traditional projects. At Haier, if something isn’t working, the system adapts, reconfigures, and keeps moving forward—ensuring continuous progress.
image source: HMI
Haier categorizes Ecosystem Micro Communities (EMCs) into three distinct types:
Experience EMCs – These focus on interacting with users through touchpoint networks, capturing new user needs to continuously upgrade the user experience.
Solution EMCs – These are responsible for developing specific solutions designed for implementation, iterating based on user feedback to meet evolving needs.
Shared Service Platforms – These provide essential enablement to the EMCs, such as finance, HR, IT, and legal assistance.
A crucial element of Haier’s RenDanHeYi model is the principle of Zero Distance to the User. This means that all EMCs—whether focused on user experience, solutions, or shared services—are encouraged to establish direct contact with users or customers. Everyone in the ecosystem is responsible for staying closely connected to user needs, ensuring that the entire organization remains aligned with the ultimate goal: delivering value directly to the customer.
Example: Internet-of-Food Smart Cooking EMC
The visualization below illustrates how Haier is organized. In this example the overall topic is the Internet of Food, that includes a user scenario around Smart Cooking driven by an EMC. The EMC consists of multiple ME's including external partners.
image source: HMI
The colleagues at the Haier Model Institute shared a fun story about how this particular EMC has extended their mission. Haier has a long history in the appliances business, but what truly sets them apart is their relentless focus on user needs. One day, an employee remarked that while Haier made excellent ovens, it was still difficult to cook a perfect Beijing Roasted Duck—a dish beloved by almost every Chinese household.
Inspired by this insight, a new Micro Enterprise (ME) was born. This ME partnered with the existing Haier Smart Oven ME and collaborated with a "Super Chef" to fine-tune the oven settings specifically for this dish. The result? An EMC that not only improved the user experience but also catered directly to a cultural favorite!
In almost no time, this initiative addressed a significant user need and enhanced an existing Haier product, integrating it seamlessly with their IoT Menus platform and beyond. This rapid response not only enriched the product but also reinforced Haier's commitment to user-driven innovation.
Conclusions
As a senior Agile Coach, I’m deeply familiar with concepts like empowerment, customer centricity, and scaling team-of-teams. With Lean-Agile Procurement, we've extended these values and principles across organizations. However, RenDanHeYi truly represents a New Economic Engine, taking the best of existing practices and pushing them to the next level. What I admire most is its win-win mindset, the profound trust it places in both internal people and external partners, and its unwavering focus on user needs.
You might be thinking, “This sounds impossible in my context!”—but it’s not. In an upcoming post, I’ll share how Haier approaches the transformation in acquired companies and how you can start small and gradually build towards implementing this New Economic Engine, with big ambitions in mind!
Next Post - Learnings from the Haier ZeroDX Awards
Stay tuned for the upcoming posts in this series!
All Posts of this Series
Post 1 - Visiting Haier in Qingdao China
Post 2 - The New Economic Engine
Post 3 - Preview of the Haier ZeroDX Awards
Post 4 - The Haier ZeroDX Awards 2024