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Wednesday, August 08, 2001, updated at 16:54(GMT+8)

Haier Rises Through Reform and Opening Up (III)

This is the third and final part of the report on Haier Group. Part II focuses on its management, this part, entitled "Innovation: the Soul of Enterprise Development", is written by the Staff Reporters Wang Yantian and Song Xuechun of People's Daily and is carried on the front page of this newspaper on August 8. Published here are excerpts of this report.

Haier Group's sales income reached 1 billion yuan in 1992, the figure exceeded 10 billion yuan in 1997, surpassed 40 billion yuan in 2000. In the first half of this year, the figure hit 30.9 billion yuan. The sales income of the whole year is estimated to exceed 60 billion yuan.

This string of figures shows that Haier's products are well received by the users.

Why can Haier's products be sold in large quantities and at high speed?

The answer: constant innovation.

Anyone with Fast Development of New Products Can Win More Clients in Market Competition

In the industry full of competition, when production technologies have developed to this date, the productive technologies of various factories are almost at the same level, what technology you can use, I will use it very soon too. One needs to try his best to take the lead technologically, besides, he should compete for the development speed of new products.

At present, Haier's development operational speed: turning out 1.3 new products a day.

The purpose of Haier's development of new products: the clients' difficulty is a question put to the Group.

In July 2000, in compliance with local consumers' personality requirement, a market in Shenyang City made to order 500 silvery gray, 6 kg Haier cylindrical washing machines for the customers. Concerning this new type of washing machine, Haier did not have ready-made products, but Haier quickly developed them and supplied the goods in accordance with the order requirements of the consumers.

Company G is one of the largest household appliance wholesale firms of Japan. In light of Japan's market situation in recent years, they designed a batch of refrigerators, but all along failed to find out ideal cooperative partners. Later, their designing ideas spread to Haier. Very soon, the Japanese firm saw the product suiting its own designing requirements, Haier also received orders worth US$5 million.

Through contacting Haier website by telephone, fax and hit, the clients can get a detailed reply and service concerning information on six links-the development, manufacture, before, during and after sale of products and return visit. A Harbin consumer, through e-mail, placed an order for a refrigerator with left opening door and of a special size. One week later, a Haier refrigerator made in accordance with his requirement was sent to his home. Haier has formed such a mechanism: after receiving an order form, it reacts promptly and goes into action immediately.

Why in summer, the sale of washing machines faces a slack season? Why is there a reduction in the use of washing machines? After conducting a careful investigation, the Haier staffers discovered existing large washing machines not only waste water and electricity, and it is inconvenient to wash every day. From then on, Haier has developed a 1.5 kg "Little Wonder Child" washing machine in which the water level is adjustable. One can use it to wash even a single shirt and the children, after school, can use it to wash their clothes by themselves. In 1996 when the "Little Wonder Child" washing machine made its debut in Shanghai, it was immediately acclaimed by the consumers. Since then, Haier has developed a series of products of the 12th generation "Little Wonder Child". In five years, the sale volume of this variety of washing machine has exceeded 2 million units, today, they are still sell well at home and abroad.

Establishing an Operational Mechanism Completely Connected with the Market, R&D and Organizational Set-up Are Especially Important

While paying attention to development, one must also pay attention to input. Haier's strong technological development capability comes from its unceasing development input.

In 1998, Haier invested 500 million yuan to build the Haier Research Institute which covers 11 realms of research and develops ahead-of-time new products. On June 25, 1999, General Secretary Jiang Zemin came on an inspection tour of Haier, after seeing the Haier Research Institute, he fully affirmed Haier's development of new products.

Over the past 16 years, Haier has invested a total of 7.06 billion yuan in development. Haier has used 6 percent of its sale income for scientific research and the development of new products. Currently, Haier has set up a network for hi-tech development; internally, Haier has set up development companies with independent operational capabilities, such as the Beihang (Beijing Aviation Institute) Haier Software Co. Ltd., the Beijing Haier Integrated Circuit Design Co. Ltd. and the Haier Hagongda (Harbin Industrial University) Robot Technology Co. Ltd. In these companies, scientists and technicians hold over 25 percent of shares. Externally, Haier has set up overseas development design branches in Tokyo, Lyon, Los Angeles and Amsterdam and four other cities, at the same time, it has established technical unions with famous transnational corporations such as Toshiba, Philip, Motorola and Microsoft.

Haier has the abilities of high efficient operation and quick reaction to market change. As to how to maintain such capabilities, Haier is of the opinion that the enterprise organizational form is vitally important, it is necessary to destroy the old and establish the new. It is essential to make constant adjustment and adaptability, so that the enterprise will always be in an orderly, non-balanced state.

In the 80s, like other enterprises, Haier practiced a "factory system". After the establishment of the Group, the company instituted a "business department system". The Group is composed of four levels-the headquarters, the central business department, the business department and the branch factory, they respectively undertake the functions of strategic decision and investment center, specialized business development center, the profit center and cost center. Haier calls this as a "combined fleet" system.

At the beginning of 1998, Haier made another "revolution" against its original organizational set-up. It revamped the business process with order information flow as the center. All work of the enterprise must be done around orders for goods. The reshaping of the business process has made the organizational structure become more flat and information-oriented. The Group set up four central promotion departments-material flow, capital flow, commercial flow and overseas, through integrating the global supply chain resources and global client resources, the Group has formed a new operational mechanism with order information flow as the center to promote material and capital flow.

After the establishment of the central promotion department of commercial flow, a more scientific and orderly client management system was established, more than 10,000 sales outlets are scattered in urban and rural areas of the country, over 30 telephone centers are operating round the clock, currently, Haier has set up 42 domestic distribution centers which can send tens of thousands of products made to order to more than 1,500 Haier monopoly stores and over 9,000 sales centers.

Innovation Means Creating a Kind of Resources, Making Use of Such Resources to Always Place Enterprises in a Superior Position and Constantly Pushing Enterprise Development

Leafing through the chronology of Haier, it is not difficult for us to come to realize that Haier's innovation is, in essence, the constant innovation of concepts.

The innovation of qualitative concept and of market concept directly accelerates the implementation of "name brand strategy". In 1984, the employees' conception was to divide products into grade-1, grade-2 and grade-3 and off-grade products, so long as products could be used, they could be delivered out of the factory and absolutely could be sold out. But Haier warned: "faulty products are waste products", so it wielded an iron hammer to smash all the 76 qualitatively faulty refrigerators, thus further enhancing workers' quality conception.

"There is only slack season thinking, and no slack season market". Haier put forward a new market concept to sales clerks and all the employees.

In 1992, Haier which had devoted all its efforts to making refrigerators for seven years put forward its new viewpoint on expanding its scale: "after lighting up the east, then turn around to light up the west". After making refrigerator, then turn to produce the second and the third product, expanding the scale gradually. Developing in line with this train of thought, Haier, on the basis of refrigerator, freezer and air-conditioner, extended the production of washing machine and other products and marched toward the fields of "black household appliances" and cream-colored home appliances", finally forming the production capacity for 10,800 kinds of products in 69 categories.

Haier has a famous "sloping sphere theory": the position of an enterprise in the market is just like a round ball rolling forward on a slope, to prevent the ball (the enterprise) from sliding down, it is necessary to rely on two forces: one is braking force, to prevent the ball from sliding down the slope, it is necessary to have solid basic management expertise. The other is climbing force, i.e., innovation, continuing to allow the ball to roll up and to grow larger in the process.

As regards exploration of the international market, in 1990 Haier raised the slogan "creating new brands through exportation" and "taking up difficult things first and then the easy ones". Since 1998, this international strategic concept of Haier has helped accelerate the pace of Haier's entry into the European and American markets.

In the face of the general trend of international economic integration, Haier began the research on the "market chain", this represents another important management innovation of Haier.

The Group's leader Zhang Ruimin said Haier has properly made use of the resources that always put the enterprise in an advantageous position, adding that "just liking mountaineering, the higher position you reach, the larger is the danger. In this industry, the faster its development, you feel the less things you know. I will not retreat just because of the big risk, I don't think one can succeed in anything, I think one should, first, actively make progress; second, one should be cautious."

"Always trembling with fear, always treading as if on ice (be very careful)". That is Zhang Ruimin. That is Haier which is constantly growing in strength.

In This Section

This is the third and final part of the report on Haier Group. Part II focuses on its management, this part, entitled "Innovation: the Soul of Enterprise Development", is written by the Staff Reporters Wang Yantian and Song Xuechun of People's Daily and is carried on the front page of this newspaper on August 8. Published here are excerpts of this report.

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