Managing Performance at Haier (A)

Group A1 Ashwani Rathore Krishna Sandhya Shubham Mitra Subhransu Sahoo Tripta Kaur Bath

Problem Statement
Extending Haiers performance management philosophies to other cultures (other than Chinese), while implementing High Performance Work Systems Approach in order to continue with its International expansion plans.

PESTL Analysis
Political: 1. The Communist party of China keeps a tight grip on state and society, which has wide implications on Haiers policies and strategies. 2. The Communist Party of China has an open policy where suppression for dissent is justified by the need for stability; hence, the company has to toe the partys line. 3. Western countries sometimes view Chinese companies suspiciously as there is a perception that they act as state actors. This view is enhanced even by open support from the Chinese government.

Economic: 1. The rise of private enterprise and the demise of state run industries carries heavy social costs such as unemployment. In the case of Haier, whose structure is opaque and not known, it is still under the government and if it were to become completely private, there would be heavy social implications.

Social: 1. The Chinese culture is such that Chinese managers are information conduits, not decision makers, they are comfortable working only in functional silos, are usually risk averse/compliant, they prefer ambiguity in oversight roles, are averse to transparency, paternalistic in nature, rely on informal contacts, do not fully appreciate the market and are mostly inflexible. This has wide implications for the company because most of its employees are Chinese and they come from a culture that adheres to the above characteristics. Hence, changing their attitude to the new company HR policy might prove difficult in the long run.

Technological: 1. Haiers competitors around the world understand that product life cycles are becoming short and research and development plays a big role to counter short product life cycles. Even though Haier is self sufficient, it is still a state enterprise and a lot of its policies are defined by the government, this might prove detrimental.

Legal: 1. The Chinese communist, socialist philosophy continues to be core to the Chinese culture and may impact the legal environment and therefore foreign investments in the future. 2. Having the image of being Chinese state actor, Haier might be blocked from entering a particular field or may face difficult rules regarding wage and price controls, technology, personnel, financing, and unreasonable taxes.

SWOT Listing:
Strengths: 1. One of the largest manufacturers of Kitchen appliances in the world, Quingdao Haier enjoyed an excellent brand name in the market. 2. Its ability to implement a perfect turnaround strategy was one of its biggest strengths. 3. Highly innovative and talented CEO both in terms of products as well as management techniques. 4. The company created and dominated niche markets earning a high profit. 5. Good quality products were made by the company. 6. Diversified product range, Diversified risks making this a major strength for the company. From one refrigerator model to 86 different product categories with over 13000 specifications including microwave ovens, air conditioners etc. 7. Global presence was another major strength of the company.

8. The OEC practice, as well as sending under performers to the Haier University led to well trained employees. 9. Unique Performance Management System.

Weaknesses: 1. Even though the companys management practices were effective in turnaround, they were very harsh on the employees and their emotions. 2. Workplace competition and internal races among employees could adversely affect work environment and make work culture unhealthy. 3. No such thing as permanent promotion in the company could prove to be a demotivating factor for the employees. 4. Employees may feel humiliated at publically displaying their rankings. 5. Concept of treating every employee as a miniature company could be de motivating as if they did not have enough money in their bankbook, they had to pay. 6. Employees did not have any job security at the bottom. 10% were dismissed. 7. Continuous rotation of jobs among employees led to most of them being jack of all and master of none. 8. Opportunities: 9. Increasing presence in global markets was a major opportunity for Haier to perform even better in the world rankings. 10. Haier has a well trained workforce due to its OEC practices as well as sending employees to Haier University, this was a big opportunity. 11. Innovative Human resource management practices provided an opportunity for higher profits.

Threats:

The 80-20 principle was unfair to the managers and their dissatisfaction is a threat to the organization.

The work culture was more threatening to the employees workplace attitude then motivational like it was supposed to be. Ever increasing work standards put too much pressure on the employees and this can be a threat to the organization in the long run as employees may decide to unanimously quit or take action.

Since Haier was one of the top Kitchen manufacturers in the world, it was facing the threat of a lot of competition from other top companies in the sector.

Factors
Innovative human resources management practices Sense of urgency which was heightened by internal competition Accountability at all levels Performance management system 80:20 principle for management responsibility Tracking individual profit and loss Each one considered a miniature company Penalizing on under performance Classification of low-performing managers Dismissal of extremely low performing employees Recognition and reward for high performing employees

Critical Factors
Performance Management System: 1. The performance management system followed in the company was very unique. It is critical as it pushed its employees to do better and gave a sense of ownership. This was the factor that led Haier to its growth. 2. OEC concept was implemented. 3. An 80:20 principal was followed to manage the responsibility of the managers and the employees.

4. Racetrack Model - Employees were motivated by rewards, punishments and demotions. They were dismissed when they were highly underperforming.

Tracking individual profit and loss 1. Monthly measures were used to track performance, according to the revenue and profit the managers had earned for the company. 2. It was critical as it encouraged high internal competition among employees. 3. Although, each manager was accountable for only a small portion of the overall profits, each one was believed to be a miniature company (MMC). As each MMC profited so did the group.

Constraints:
Chinese believed in Collectivist attitude whereas Americans are known to be Individualist. This is just one comparison which shows the cultural difference between both the cultures. Employee friendly labour laws in other countries Highly professional and educated American and European workforce Cultural disparity among Asian workforce and others (American and European)

Theoretical Linkage:
High Performance Work Systems: Haeir being a high performing organisation followed a HR system that has the features of High Performance Work Systems.

A High Performance Work Systems is a set of human resources management policies and practices that promote organizational effectiveness. These include multi-skilled work teams, empowered front-line workers, extensive training, labor-management cooperation, commitment to quality and customer satisfaction. The policies and practices, high performance work systems differ from less productive ones.

Theory X vs. Theory Y (Douglas Mc Gregor) They are theories of human motivation. Theory X: People dislike work and avoid responsibility. They must be threatened or bribed to put forth effort. Theory Y: People want work and responsibility and will work hard under the right circumstances. Management must provide those circumstances. In the present case of Haier, Theory Y was being implemented. The management was providing the employees with required circumstances. Rewards are of 2 types. They are Intrinsic and Extrinsic. In this case the rewards were externally generated i.e, extrinsic rewards.

Alternatives:
Haier could go ahead and implement policies in other regions after the employees have been trained in those policies. Or, Haier could frame altogether new policies according to the culture of a particular region.

Course of Action:
Haiers innovative policies were introduced into an environment framed at beginning by the Chinese cultural values of harmony, face, relationships and hierarchy, as well as by the management practices inherited from state-owned enterprises (SOEs) i.e. these policies were framed taking the Chinese culture into consideration. Therefore, it would be difficult to replicate them as it is in new regions. We recommend that Haier can train employees from the newer regions in its policies and then implement their performance management system.