Global Focus Special Supplement, RenDanHeYi: Pioneering the Quantum Organisation by EFMD Global

The EFMD Business Magazine | www.efmdglobal.org In partnership with Special PioneeringRenDanHeYi:supplementtheQuantumOrganisation

Bill Fischer

The EMC Contract as a smart coordination mechanism

The transformation of GE Appliances with RenDanHeYi

EFMD Global Focus www.globalfocusmagazine.com

Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang

Haier as a Quantum Organisation

Jin Chen

Welcome to the age of ecosystems

Human ecosystems for our human crisis

Santiago Iñiguez

James F. Moore, Ke Rong, Ruimin Zhang

Danah Zohar

Ruimin Zhang

Annika Steiber

Joost Minnar

QuantumPioneeringRenDanHeYi:theOrganisationContents

RDHY certification as a tool for organisational transformation

RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era

Teaching RenDanHeYi in business schools

Stuart Crainer

The role of management education in preparing the next generation of leaders for a different world

The RenDanHeYi Italian style. From creativity to venture incubation at Gummy Industries Emanuele Quintarelli

Martin Moehrle

RenDanHeYi: Pioneering the Quantum Organisation

Eric Cornuel

COSMOPlat: A leading industry internet with advanced management model

Stuart Crainer introduces the age of ecosystems, which James Moore, Ke Rong, and Ruimin Zhang understand, if applied rigorously, as the only way out of the human crisis that we areThisexperiencing.specialissue concludes with three case studies: in the first one, Jin Chen explains COSMOPlat (comparable to Gaia-X in Europe) as an ecosystem enabling technology developed by Haier Group that marks its success in multiple applications in China; Annika Steiber traces in the second case the remarkable transformation of GE Appliances after having been acquired by Haier Group; and in the third case, Emanuele Quintarelli describes the deliberate transformation of the Italian creative agency Gummy Industries, after having learned about RenDanHeYi.

Bill Fischer shares his experience in teaching RenDanHeYi, especially in executive education, and how managers are longing for opportunities to contribute to their organisations’ success. And Martin Moehrle describes EFMD’s RDHY certification scheme for organisational transformation, taking the perspective of the RDHY scorecard to assess the future readiness of an organisation in the IoT era.

Danah Zohar’s work on quantum management coined the title of this special issue. She draws parallels between the transition from Newtonian physics to quantum physics and the one from Taylorism to what she calls quantum management. She differentiates between quantum self, quantum leadership, quantum organisation, and quantum society, and identifies Haier Group as the first quantum organisation. Santiago Iniguez annotated an interview that he did last year with Ruimin Zhang, to clarify the mindset behind the unique success story of Haier Group and the universality of the RenDanHeYi principles.

his special issue of Global Focus provides insights into various aspects of RenDanHeYi (RDHY), a management model devised by the Chinese multinational Haier Group. It is a model for the Internet of Things era where everything is connected with everything and where value creation happens in ecosystems. The world is transitioning into this new reality but, in many cases, still relies on the management models of the industrial age. We would like to raise awareness for this new RDHY philosophy that bets on the ingenuity of humans and ultimately aims at the maximisation of user value and hence, of human value.

Special supplement | RenDanHeYi: Pioneering the Quantum Organisation | Foreword

About the Author

Martin Moehrle

We wish you an interesting immersion into a new world of management.

Martin Moehrle is a Management Consultant and Director of Corporate Services at EFMD.

Ruimin Zhang, Haier Group’s Chairman Emeritus and father of RenDanHeYi, explains what he understands as necessary and sufficient conditions for creating an ecosystem economy in which all agents are aware that the creation of user value comes first, and the sharing of it second. Whilst Eric Cornuel would like to encourage management educators to prepare their students for a future where economic agents, be they individuals or institutions, must thrive on change and will have to manage in a clearly different world than the one we come from. He proposes four avenues for taking on this challenge.

Joost Minnaar provides a brief history of RenDanHeYi and an insight into the ‘workbench’ i.e., the smart contracting capability (EMC contract) that enables Haier’s internal ecosystems and that allows for the full empowerment of small teams to interact without middle management as a coordination mechanism.

By Ruimin Zhang RenDanHeYi: Pioneering the Quantum Organisation

RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era

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3 Special supplement | RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era | Ruimin Zhang

rom the industrial era to the consumer internet era, our economy has evolved from the product economy to the platform economy. Each of these economic models revolved around the self (organisation or platform), and a self-centred economy only creates self-value rather than value for users. The economy for the Internet of Things (IoT) era must be an ecosystem economy. To win in the IoT era of “instant and constant change”, organisations must make the leap from product and platform economies to the ecosystem economy, which is founded on an entirely different set of principles. It is about using ecosystem thinking to create and meet the personalised needs of users while allowing for better provision and iteration of users’ personalised experience. Haier pioneered the innovative RenDanHeYi model, launched the first scenario brand (Three-Winged Bird) and the first ecosystem brand (COSMOPlat), and invented the fourth financial statement for the IoT era (the Win-Win Value-added Statement), which underpins Haier’s leading edge in the ecosystem economy. However, to become a leader in this economy, a systematic approach guided by the RenDanHeYi model must be adopted. I identify three pillars for the ecosystem economy: 1) the necessary condition, 2) the sufficient condition, and 3) the goal of the system, i.e., globalisation.

I. The necessary condition for creating an ecosystem economy: The unlimited evolution of EMC interactions

Back in 2000, Peter Drucker made a bold prediction: the corporation as we know it, which is now 120 years old, is unlikely to survive the next 25 years

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RenDanHeYi: Pioneering the Quantum Organisation

The ecosystem economy is about creating products that fulfil the needs of each individual user with a personalised offer – something that neither the product economy nor the platform economy have been able to accomplish, as they facilitate transactions without interactions. Only the unlimited evolution of EMC (Ecosystem Micro-Community) interactions can give rise to an ecosystem economy. In Haier’s exploration, this is manifested as the EMC contract. The EMC contract is the management model for the IoT era and is qualitatively different from other traditional management models.

The EMC contract is an example of creative destruction against the old models of the product economy and the platform economy. In the product economy, an organisation focuses on only one product. The platform economy differs by having various products available for sale. Conversely, the ecosystem economy implies scenarios, such as a smart home, where user needs cannot be fulfilled by a single product or a single enterprise. Although the platform economy can aggregate products, it cannot support iteration according to users’ specific needs. Only the EMC contract can provide the necessary condition for the ecosystem economy. Users are the core of the EMC contract, and solution EMCs and experience EMCs orbit around users like the yin-yang diagram, interacting with each other in constant motion.

2000

The ecosystem economy is non-equilibrium and non-linear, it is a system in which user experience is created and constantly renewed. This is not possible in the product economy or the platform economy because both are essentially hierarchies. How can Haier lead the way in the ecosystem economy? I would argue that self-disruption is the factor that gives Haier the advantage. Back in 2000, Peter Drucker made a bold prediction: the corporation as we know it, which is now 120 years old, is unlikely to survive the next 25 years. It will be difficult for the hierarchical structure and model of the product economy to survive, in order to progress, the hierarchy and the product economy must be disrupted. More than 20 years later, few companies have evolved along these lines due to a general inertia resulting in a resistance to self-disruption. Drucker had another insight regarding the importance of self-disruption: the most significant aspect of the internet was the elimination of the distance between organisations and users. This provided an important basis for Haier’s development of the RenDanHeYi model.

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RenDanHeYi: Pioneering the Quantum Organisation

James Moore proposed the business ecosystem theory back in 1992. He has enjoyed visiting Haier. He says that after 30 years he has finally seen a company that is putting his theory into action, and which can be encapsulated in two simple statements: first, a business ecosystem is defined as an economic community supported by a foundation of interacting organisations and individuals; and second, these organisations and individuals are the organisms of the business world. These ideas may be easy to explain but are somewhat more challenging to accomplish in the real world.

Additionally, the creative reconstruction of the EMC contract lies in the fact that the EMC contract is a real-world manifestation of the world’s first business ecosystem

An economic community is an open and boundaryless ecosystem organisation. An isolated organisation cannot join an economic community. In the platform economy, enterprises are not tethered to the platforms, nor do they make up an economic community because they do not share in the benefits. It is already difficult to coordinate horizontally within a traditional organisation, and even more difficult for organisations to interact with individuals. How can organisations in the EMC community interact with Haier when they do not necessarily have any kind of affiliation? It is accomplished through the EMC contract, because at the core of EMCs is the iteration of user experience. All the partners within the EMCs interact with one another around other users (our centre), without such interactions, there can be no value-added sharing.

There are many opportunities in the business world, but only by becoming organisms within the community can organisations and individuals capture opportunities and create value. This poses a difficult question: what exactly is meant by the premise that “organisations and individuals are organisms in the business world”? Organisations must be self-organised, and individuals must be autonomous persons. Prior to the ecosystem economy, all business organisations were hierarchical, within which individuals acted according to decisions made by their superiors. The EMC contract we are now perfecting turns formerly rigid hierarchical organisations into spontaneous self-organisations, and economic persons into autonomous persons.

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Second, the EMC contract creates a continuous path of evolution and an upgrade of user experience. The most important nucleus of the EMC contract is the iteration of user experience, i.e., the ecosystem of application scenarios. The ecosystem of application scenarios has no limit, we want users to experience the continuous evolution and upgrade brought about by the EMC contract. As the first step, we deliver a differentiated experience to users. What Haier provides is not a product experience, but the experience of having an EMC contract behind the product to drive constant improvement and satisfaction

For example, we want users to appreciate that the EMC contract behind a product can interact with them and facilitate their needs. As the EMC contract interacts with users, new ideas are generated, which further drive growth and redevelopment. Such authentic interactions characterise the EMC contract, which revolves around users. Without the iteration of user experience driven by the EMC contract, the three-step evolution from a premium brand to scenario brand and then to an ecosystem brand could not happen. Thereby, the value created for users drives “value-added sharing and co-evolution”. Value-sharing under the EMC contract depends on what value, and how much of it, is created for users. Without user value creation, there is no value-added sharing; without value-added sharing, there is no co-evolution. With no value-added sharing or co-evolution the EMC contract cannot be fulfilled.

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Finally, limitless evolution, the purpose of ecosystem interactions, is to make everyone a dynamic user value creator. This foundation of the EMC contract was inspired by Jewish rabbis’ “interpretation and reinterpretation” of the Talmud. There is no one-size-fits-all interpretation of the Talmud. Notwithstanding thousands of years of interpretation by the Jewish people, the meaning of the Talmud is still being debated and updated. I believe that this idea of “interpretation and reinterpretation” can be our approach to generating and iterating innovation. Rather than relying on one person’s decision to dictate innovation, everyone can be involved and have an input, this promotes trust, probably the most important asset. The EMC contract requires everyone to participate and to innovate.

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The ecosystem economy requires all ecosystem partners to work together to create value-added experiences for users. After the value-added experience is delivered, if an ecosystem partner receives no value-added return, the partner’s interaction with the ecosystem will cease and the ecosystem economy will be unable to thrive or expand further. As such, in order to have a more dynamic ecosystem economy, we must have infinite cycles of ecosystem partner value creation. In Haier’s exploration, this is manifested in the Win-Win Value-added Statement (WWVS).

II. The sufficient condition for creating an ecosystem economy: Infinite cycles of ecosystem partner value creation

The purpose of the EMC contract is for everyone to accept that user value creation is the ultimate measure of an individual’s value and dignity.

RenDanHeYi: Pioneering the Quantum Organisation

The three traditional statements show the value of products and ultimately serve the maximisation of shareholder value. The WWVS shows the value of users and ecosystem partners. Concerning the measurement of the ecosystem economy and ecosystem value, Jeffrey C. Thomson, President of the Institute of Management Accountants (IMA), expressed it well: “The WWVS pioneered by Haier is the fourth statement that all companies will need for the future IoT era.” I also agree with another comment: “The idea of the WWVS is to encourage corporate entrepreneurship, innovation, and user engagement.”

First, the WWVS creatively expands the scope of the three traditional financial statements. In the ecosystem economy, all ecosystem partners must receive value-added returns and move with the value cycle. The product economy and platform economy seek the maximisation of self-value, or shareholder value, but the ecosystem economy seeks to maximise the value of user experience –essentially, the maximisation of human value.

9 Special supplement | RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era | Ruimin Zhang

Let’s start with the source. Three of the six components of the WWVS are user resources, resource providers, and total ecosystem value. User resources are not simply customers, but targets for interaction. Through user interaction, the ecosystem creates the best user experience together with resource providers. Add these two parts together and we arrive at the total ecosystem value created. The added value should be shareable, if it is not, then the value cycle cannot continue. Now let’s look at the driver, which shows in the incremental marginal returns. W. Brian Arthur, the founder of complexity economics, suggests that the law of incremental marginal returns leads to a positive feedback loop. The WWVS sets a process for the creation of just such a positive feedback loop.

Second, the creative reconstruction of the WWVS has two main elements: 1) it is the source of ecosystem value creation; and 2) it is the driver of infinite cycles of ecosystem value creation

RenDanHeYi: Pioneering the Quantum Organisation

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Lastly, the infinite cycles of ecosystem partner value creation point to the lifetime value of users. In his book The Management Century, Stuart Crainer argues that every user has a lifetime value, and whether an organisation is able to create lifetime value for all users is the true measure of a company’s success.

III. The goal of creating an ecosystem economy: Infinite splitting of an everexpanding ecosystem (globalisation)

The continuous evolution and upgrade of the infinite value cycle needs to be based on two factors: the first is to design a mechanism and operating system for the positive feedback loop. For the incremental marginal returns to feed into the positive feedback loop, one must not think traditionally, but look to the “three selfs” evolution of the EMC contract – selfemerging, self-splitting, and self-evolving In other words, the premise of incremental marginal returns under the EMC contract is for the personalised experience of the users to self-emerge and then quickly self-split, both in quantity and quality. The spin-out of various personalised experiences can point to some common experience, at which point, the ecosystem partners will mutually self-evolve generating higher incremental marginal returns. The key here is infinite cycles. If the cycle stops, marginal returns will soon diminish. The second is to enable “human value maximisation”. The WWVS must map out the ecosystem cost and ecosystem value of each partner in connection with the total ecosystem value.

The ecosystem economy means a new kind of globalisation. Since the ecosystem economy can create experiential value for users and benefit all ecosystem partners, it can certainly self-split to cover the entire world. In Haier’s exploration, this has been manifested in the globalisation of COSMOPlat.

Let us first consider that the infinite splitting of an expanding ecosystem can happen on a worldwide scale because it disrupts the traditional model of organisation-based globalisation. In the product economy, the globalisation of an enterprise happens through

a centralised structure, where the headquarters instructs subsidiaries to sell products, increase market share, and extract the most value from customer transactions. This model cannot expand autonomously. However, since we put human value first and allow value creation and dignity for all participants, our expanding ecosystem can split infinitely thanks to the creative destruction of the product and platform economies. GEA is a case in point regarding self-splitting, change wasn’t forced on GEA, yet the company has seen transformative results. What can explain this success? It is a result of their quest to maximise individual value through user value creation. This value proposition can apply to every market.

Special supplement | RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era | Ruimin Zhang

Second, globalisation creatively reconstructed the operating system and self-driving force of ecosystem expansion. In terms of an operating system, Haier pioneered the model of “EMC contract + quantum ministore”. Unlike boutique stores in the product economy, or the livestreaming e-commerce stores in the platform economy, quantum mini-stores are important places for new user experiences to emerge continuously within the ecosystem. These stores are the nerve endings and capillaries that touch and collaborate with users on the edge. This system also needs to expand faster and replicate both at home and abroad. On the other hand, the self-driving force allows for autonomous expansion and iteration,

As a next step, the infinite splitting of an expanding ecosystem will evolve and upgrade domestically and internationally. Domestically, the infinite splitting of an expanding ecosystem must create differentiated value under increased macroeconomic interventions because an increase in total supply and demand does not warrant a breakthrough if what you offer does not meet users’ need for personalised experience. The test for us is not to compete on products, but on the ecosystem. The infinite splitting of the expanding ecosystem must create new user experience and cover every user need with an EMC. We want to lead the development of international standards, and we want to upgrade and iterate these standards continuously through infinite splitting. The RenDanHeYi standard should be constantly upgraded and iterated on a stand-alone basis and together across the three international standard systems. Why do I suggest upgrading through infinite splitting? The standard we developed was the distillation of the experiences of many microenterprises’ using the methodology of induction. The issue here is that the “theory” distilled by the inductive method needs to be expanded and deepened by incorporating new experiences, and new experiences depend on continuous splitting and the inclusion of additional microenterprises. For us, the standard will come to a screeching halt if there is no steady flow of new experiences. Therefore, the adoption of our standard is just the beginning, not the end.

and it requires three ingredients, namely the “3E” – ecosystem order, ecosystem revenue, and ecosystem brand. The ecosystem economy creates an ecosystem brand that allows you to “sell more” and “make more”.

RenDanHeYi: Pioneering the Quantum Organisation

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Ruimin Zhang is Founder and Chairman Emeritus of the Board of Directors of Haier Group.

About the Author

RenDanHeYi can be the beacon for reaching the shore of a Haier-led ecosystem economy, within which the value of each individual person is acknowledged.

Special supplement | RenDanHeYi - pioneering the ecosystem economy in the Internet of Things era | Ruimin Zhang

Lastly, I think the objective of infinite splitting of an ever-expanding ecosystem is to achieve an extended order. Friedrich Hayek introduced the concept of extended order in his final work, The Fatal Conceit. Hayek had previously proposed spontaneous order, an example of which is the invisible hand of the market, it does not need to be organised by anyone – the order forms spontaneously. The extended order is similar to an ecosystem today, which shows how advanced Hayek’s theory was. His expression of the extended order is twofold. First, the extended order fully utilises the knowledge of all members of society. Second, the extended order enables total strangers to cooperate with one another. The cooperation that emerges in this extended order is reciprocity. This relates to Haier’s definition of an open ecosystem without boundaries. Haier’s EMC contract seeks to fully utilise everyone’s knowledge, reflect everyone’s value, and allow more people to join and shape an open, unbounded ecosystem. Ecosystem partners can cooperate with their respective objectives. It is not about commanding others but mobilising resources to create value for user experience and value-added return that can be shared. Each partner has its objective for value sharing and understands that value creation for user experience must come first – something that is only possible through collaboration. The extended order is all about sharing.

Secondly, by fostering learning agility and curiosity, and thus the self-learning capacity of students. This is not an easy task and requires the sponsoring of live cases, learning expeditions and experiential learning.

Firstly, by not only focusing on established organisations for research and teaching, but by cultivating an entrepreneurial spirit that activates the energy of our students, supporting a startup environment and the ongoing creation of new businesses, offering incubators and accelerators, and by celebrating entrepreneurial ventures and the successes of students and alumni. Many schools already follow this avenue successfully.

I would like to propose four avenues for management education to take on this challenge.

anagement education, as practiced by academic institutions and professional bodies around the world, should not only prepare their students and learners for the world of today, but also for the world of tomorrow. But are we as educators really doing our best in this regard? Or do management practices, developed and refined in the 20th century, that assume stability and predictability, still dominate current business curricula? Even though we already live in a world of unpredictability that will require economic agents to be highly adaptive to change, and even to thrive on change. So, what can we do about it?

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RenDanHeYi: Pioneering the Quantum Organisation

The role of management education in preparing the next generation of leaders for a different world

By Eric Cornuel

15 Special supplement | The role of management education in preparing the next generation of leaders for a different world | Eric Cornuel

These are just three examples of the manifold approaches to tackle the downsides of hierarchies and bureaucracies that we erected in the 20th century and that still define the identities of our private and public organisations: introspection instead of market orientation, risk aversion

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Christensen argued later in his Innovator’s Dilemma for autonomous units to scale innovative technologies and client solutions, as successful market leaders tend to codify their success formula and eliminate experimentation at theTheperiphery.agilemovement, spilling over in the last decade from the IT function to other parts of the organisation, understands work as a team effort in a decentralised organisational setup, with short rhythms of planning and retrospection to achieve a goal that can be adjusted to circumstances, with ongoing course correction and a maximum level of transparency.

RenDanHeYi: Pioneering the Quantum Organisation

Thirdly, by exploring new ways of organising work and of rejuvenating mature businesses. As early as 1978, Gifford Pinchot III argued for small and independent business units, limited corporate policies and a strong focus on the customer when coining the term intrapreneurship

instead of entrepreneurial risk-taking, pushing through long-term plans instead of adaptability, organising work around machines and policies instead of organising it around people.

Our management practices were developed in the industrial age. As we move from the industrial age to the knowledge era, managing productivity is less a matter of flawless execution, but increasingly a matter of exploration and experimentation and of collective intelligence and inspiration around a purpose.

A lot has been published about unleashing human potential and liberation of the workforce, but in most cases the real issue remains unchallenged: the willingness to allow for a significant empowerment of the workforce and a power shift from the organisation to the individual.

And this brings me to the fourth avenue that I would like to propose: as business schools and management educators, we must actively advocate a stakeholder approach and put an end to the shareholder management approach. Business schools have a critical role to play to rewire our missions for relevance and impact, and to be close to the needs and address real issues of society and economy. At EFMD, we have been strong advocates of a broader approach to the role of business and management education, and we try to encourage business schools and companies to follow this route toward responsible leadership, sustainability and ecosystemic thinking.

About the Author Eric Cornuel is President of EFMD.

Haier Group did exactly that. Its RenDanHeYi management model, developed and perfected since 2005, is such a radical approach that it merits being called a philosophy in its own right, it puts the individual and human potential at the centre. It empowers its employees to the fullest, thereby replacing middle management through a smart contracting capability. A lot can be learned from this example.

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EFMD is proud to have translated this philosophy into a RDHY certification scheme for organisations in transformation, described later in this publication. We also plan to provide management educators with teaching material on RenDanHeYi, for inclusion in their curricula, to allow students to explore management in the digital era, and guidance on how to adopt a new approach.

But RenDanHeYi is more than selforganisation. It regards itself as fundamental to an ecosystem economy and pledges for ecosystemic thinking that invites collaboration in creating one thing: user value. Only if this value is created, can it be shared among collaborators within an ecosystem community.

By Danah Zohar

RenDanHeYi: Pioneering the Quantum Organisation

Haier as a OrganisationQuantum

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Special supplement | Haier as a Quantum Organisation | Danah Zohar

he management model used by most large organisations and many smaller ones was conceived by Frederick Taylor in the early 20th century, to meet the needs of the Industrial Revolution. The world in which companies operated at that time was very different from that of the 21st century. Things were simple and more stable, change was slow and seemed predictable, markets and supply chains were more localised and isolated, communication far slower and more restricted, employee and customer expectations lower, and technology that was almost wholly machine-based. Today, business leaders are struggling to thrive in a world that is complex, unstable and uncertain, often chaotic, characterised by rapid change and constant innovation, and globally interconnected. Communication is instant, and quantum physics has given rise to all the new digital technologies, new materials, and new manufacturing processes that business relies on in the 21st century. Many feel that Taylorism no longer serves business needs and are calling for a new management model. I believe that Quantum Management Theory, as implemented in Haier’s RenDanHeYi Management Model, meets that Taylorism,need.the basis for all traditional management theory, took its inspiration and its organisational model from Newton’s 17th century mechanical physics, and the general world view (or paradigm) to which it gave rise. Newton saw the universe as a giant machine. It was simple, law-abiding (deterministic) and predictable; human beings were unique and distinct from both ‘nature’ and the cosmos; human beings regarded themselves as privileged and ‘nature’ as a resource to be exploited. Just as the cosmos was structured hierarchically, human beings were naturally

But Newton’s physics was replaced in the early 20th century by quantum physics, and a new theory of how the universe operates and how it is constructed. Entangled quanta of energy replaced Newton’s isolated and material atoms. Heisenberg’s Uncertainty Principle replaced Newtonian determinism. Simplicity and stability were replaced by complexity and dynamic, constant change. The separateness of the human observer was replaced by a participatory universe in which the observer and the observed were a co-creative entity. Human beings were not separate from ‘nature’ and the universe after all. Instead, our questions, our observations, and our experiments play an active role in making the world – something we now realise all too clearly from our destructive role in climate change. And the later discoveries of quantum science’s offspring, complexity science and quantum biology, have demonstrated that we human beings are living quantum systems (‘complex adaptive systems’) – made of the same stuff (energy) that everything else in the universe is made, and our ‘stuff’ is organised and acts according to the same principles as all life on earth, both plants and animals. Quantum physics has thus given rise to a new paradigm that calls upon us to rethink everything, including the management of companies.

sorted into a hierarchy of potentials, roles, and functions – with the ‘higher’ governing the ‘lower’. All these assumptions were built into the management of a Taylorian company. Just as Newton saw the universe as a giant machine made up of separate atomistic bits, so Taylor opined that the organisation should function as a well-oiled machine, divided into atomistic separate, functional ‘divisions’ organised hierarchically and controlled from the top with well-defined bureaucratic rules.

• Self Organisation: Both the quantum universe and complex adaptive systems are self-organising, ‘nature’ has neither hierarchy nor bureaucracy. Quantum Management calls upon companies to do away with control from the top, rid themselves of bureaucracy and middle management and to allow their workforce to self-organise. The Haier CEO has surrendered all controlling power, seeing his role as an inspiring facilitator, serving those he leads. Haier cleared out all bureaucracy and middle management, and the organisation now consists of 4000 independent, self-controlling, self-motivating and self-rewarding small microenterprises. Former, mere ‘employees’ have become ‘entrepreneurs’.

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Haier was the first large global company to transform itself into a quantum organisation. It did so, starting in 2012, by putting its pioneering and revolutionary RenDanHeYi Management Model in place. RenDanHeYi is Quantum Management in practice. Indeed, in ways that I shall now describe, Haier has used RenDanHeYi to implement every one of the key defining principles of both quantum physics and Quantum Management.

RenDanHeYi: Pioneering the Quantum Organisation

Quantum Management Theory, itself a new management paradigm, takes its inspiration and lead from the defining ideas and principles of quantum physics, and it sees companies as quantum organisations - living quantum systems, social examples of the complex adaptive systems described by complexity science. Quantum organisations are holistic, everything is interconnected, ‘Zero Distance’. They are constantly evolving and redefining themselves through co-creative dialogue between the company’s employees and its customers and between the company and the wider external environment – other companies, society, the planet. Like all living quantum systems, quantum organisations are also self-organising, calling for both hands-off, non-directive leadership and the removal of stifling bureaucracy. They also call for removal of hierarchy and the formation of small, self-organising, multi-functional teams in which all employees can reach their full potential. And, finally, because quantum organisations are human systems, the purposes, values, aspirations, and motivations of people working in them are seen as an important part of their system dynamics.

Haier’s RenDanHeYi Model

Quantum Management calls upon companies to break down borders and boundaries (siloed work functions), and to build networks of cooperation and cocreation. ReDanHeYi itself is roughly translated as ‘value to employee aligned with value to customer’. Each microenterprise has an intimate, cooperative and co-creative partnership with its customers, Haier has become an ecosystem in which each microenterprise, now called EMCs (‘ecosystem micro communities’) is in a cooperative and co-creative partnership with others, and this internal ecosystem now embraces an external ecosystem of outside companies with whom temporary, mutually beneficial partnerships are formed. With RenDanHeYi, there are now ecosystem brands for scenario products made by several EMCs internally, or externally with others, and Haier has now even introduced an ecosystem economy.

• Holism: In the quantum universe, everything is interconnected, ‘entangled’ as it were, with everything else, and a principle of Zero Distance applies in every quantum system and the cosmic system as a whole.

Special supplement | Haier as a Quantum Organisation | Danah Zohar

• Relationship Makes Reality: The quantum universe is not a universe of cause and effect, but rather a universe both created and governed by relationships. Reality is fundamentally made of relationships. Thus, Quantum Management calls upon companies to extend and strengthen their relationships, both internally and externally. RenDanHeYi’s close relationship with customers, the ecosystem network, the ecosystem brands, and the ecosystem economy all perfectly fulfil this principle.

• Exploratory: Quantum systems evolve by constantly sending out feelers for the future (‘virtual transitions’). Each is an experiment to test the best way forward. Quantum Management calls upon companies to constantly innovate, and thus to encourage experiment and allow risk. Each of Haier’s 4000 independent EMCs is an experiment, each a feeler into the future, an engine of innovation. Allowance is made for failure, if one company does not succeed, there are many others that will. Haier is a company of startups.

RenDanHeYi: Pioneering the Quantum Organisation

• A Universe Made of Energy: Our material universe is actually a universe made of quanta of energy bound together in a relationship. Matter is really just concretised energy. Quantum Management calls upon companies to be energy systems - dynamic, flexible, responsive, and adaptive. Haier calls its EMCs ‘energy balls’ because they have exactly these qualities. The company as a whole is a system in constant, dynamic change, each part responsive to other parts, to changing customer needs and to external challenges and opportunities. RenDanHeYi reinvents itself constantly.

• Waves and Particles: All quantum entities are both wave-like and particle-like at the same time. As particles they appear separate and can act independently, and yet as waves each is connected to all the others and to the whole. Quantum Management urges companies to be both particle-like and wave-like. And with RenDanHeYi, each of Haier’s 4000 independent EMCs is an individual functioning company in its own right, a point source of action, while at the same time each is a participating member of the larger company ecosystem.

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RenDanHeYi expresses its purpose in its commitment to enabling every individual to fulfil his/her potential, to bring every customer high quality products and excellent personal service that meets their needs and enriches their lives, while serving the wider community and the environment. In all these ways, Haier has succeeded in its vision to become a quantum organisation, and RenDanHeYi is Quantum Management in practice.

Special supplement | Haier as a Quantum Organisation | Danah Zohar

• Purpose: The quantum universe has a sense of purpose and direction – to form ever more relationships that create ever more complexity and thus ever more information. Quantum Management finds the equivalent of this drive towards growth in a company’s sense of purpose.

• Infinite Potential. The source and underlying reality of everything that exists in the universe is the quantum vacuum. The vacuum is a ‘sea’ of infinite potentiality. Everything is possible. Quantum Management calls upon companies to realise more of their potential. Haier was founded on Ruimin Zhang’s conviction that every employee has infinite potential, and he designed RenDanHeYi to enable them to fulfil this. The self-organisation, the freedom to experiment, and the openness to new ideas means that anyone can set up a new EMC, and each EMC is like a net dipped into the sea of infinite possibility with the potential to bring up something new. A company that began as a domestic appliances company now also deals in clothing, food, wine, real estate, agriculture, finance, health care, and healthcare equipment. And RenDanHeYi allows infinite expansion!

About the Author

Danah Zohar is Visiting Professor at the School of Economics and Management at Tsinghua University and at the China Academy of Art, author of The Quantum Leader and Zero Distance, and the originator of Quantum Management Theory.

At the helm of this Chinese global home appliance giant was its Founder and Chairman for more than three decades, now Chairman Emeritus, Ruimin Zhang (1949, Laizhou, China), whose vision has transformed Haier into one of the most innovative corporations in its sector and on the international stage. Chairman Zhang began his career working on the production line, and so understands the workforce’s experience and concerns. Over time, he also completed an MBA.Here he discusses a career characterised by a passion for other cultures, as shown in the many examples he uses to illustrate his ideas.

RenDanHeYi: Pioneering the Quantum Organisation

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Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang

By Santiago Iñiguez

aier, one of the world's leading home appliance companies, has grown over the past two decades not only through organic development, but also through successful acquisitions based on an innovative implementation process that puts people front and centre.

Special supplement | Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang | Santiago Iñiguez

RenDanHeYi: Pioneering the Quantum Organisation

Santiago Iñiguez: One of the riskiest business growth strategies is mergers and acquisitions (M&As) especially among international corporations. They generally destroy value, as the objectives that justify them—exploiting synergies, scale or scope economies, entering new markets— are difficult to implement. In addition, the conflict between the two cultures of companies after an acquisition often hinders integration, along with other obstacles arising from the dynamic interaction between the various stakeholders. Were you aware of these risks, in addition to the potential negative reaction that procurement by companies in China can generate?

Chairman Zhang: We started the business in 1984, and we only made refrigerators at that time, but we gradually began producing other home appliances. Our objective at that time was clear: to establish an international home appliances brand along the lines of Matsushita, GEA and Sony. However, with the arrival of the internet, I adjusted these objectives, not with a desire to create a product brand, but to make an ecosystem-brand. In simple terms, products are now inexpensive, there are no consumer gaps, there are numerous players, and the same categories of products are all part of a discount price war. Therefore, I believe that certain products will be replaced by ecosystems. For example, you don’t make a smart home based on just one product, or even from just one industry. So, if you don’t make this product into an internet appliance and connect the two together, into a service for users, that is, a user-experience service, then this product will have no value. This is because everyone feels that the household internet is actually a personal internet, and that bringing people together creates a personal emotional experience and emotional needs.

Chairman Zhang: When I merged with or acquired other companies, I was always looking at the experience of others, including those bought by Chinese or foreign outfits, and I noticed that many M&As had failed, which meant we had to act differently. This meant addressing the problems faced by companies which had failed. Where did their problems lie? Principally in the belief that the methods used to make their own companies successful could be replicated in the company they were merging with or had acquired. However, this is just one of the changes to the model. I believe that the most significant reason why these M&As were not successful was a failure to motivate the workforce.

2016

When we bought GEA in 2016, the head of the company asked: “Now you have acquired us, how are you going to manage us?”

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Special supplement | Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang | Santiago Iñiguez

Taking General Electric as an example, I knew that American society is highly individualistic, so I thought I could also ask them to take their original leadership services and change them into user services. When we bought GEA in 2016, the head of the company asked: “Now you have acquired us, how are you going to manage us?” To which I replied: “I have not come here to manage you, I am only your shareholder. We both have the same leader, and that is our users.” This means that you only have to create value for your users, and this will reflect your own self-worth and self-respect. Regardless of the individualism of the United States or the collectivism in Japan, the RenDanHeYi model is working for them, our subsidiaries in these two places have been enjoying double-digit growth during the current pandemic. Therefore, I feel that it is not just a case of buying a company, but that its subsequent development must be peopleoriented, and therefore must reflect the maximisation of an individual’s personal self-worth.

I believe that within global companies, regardless of their nationality, everybody who works there all have one objective, which is to see their self-worth and self-respect reflected in that company. This was identified by the 20th century psychoanalyst Carl Jung in his work on the collective unconscious,1 that is, the realisation of our identity through belonging to a larger reality, even if we don’t fully understand the process. So, we implemented our RenDanHeYi model.2 The basic meaning of RenDanHeYi is that each employee should directly face users, create user value, and realise their own shared value by creating value for users. Employees are not subordinate to posts, instead, they exist because of users. Without user value, there would be no employees.

value yourself. So, Haier shed 12,000 middle managers, eliminated the middle management layer, and established 4,000 micro-enterprises, each made up of approximately 10 people. These micro-enterprises could create value in the market themselves, and they could collaborate and combine into a connected chain of groups, that is, an Ecosystem Microcommunity (EMC), with between 10 and 20 micro-enterprises connected together. Ultimately, after implementing value-creation, they were able to go to market and become their own bosses. So, this method was a little like quantum mechanics. There is a very interesting phenomenon inside quantum management, known as Schrodinger’s cat.3 If you apply this within a company, it means, how do you know, if you have not given this person an opportunity, whether or not they are capable? So that means that we do not have the same evaluation system as the big companies in the rest of the world, who this person should be, who this person is, what kind of academic background or qualifications they have, and in actual fact, this is not how you create value, or reflect your own value.

Haier shed 12,000 middle managers, eliminated the middle management layer, and established 4,000 microenterprises, each made up of approximately 10 people

RenDanHeYi: Pioneering the Quantum Organisation

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12,000

Santiago Iñiguez: Unlike other companies, where workers wait for their bosses to assign them tasks, Haier has adopted the Individual Goal Approach, whereby employees set their own objectives, work on how to innovate their products, interact with potential users, and their compensation is calculated based on the value they generate for customers. Haier has implemented this system in successive acquisitions, so that the workforce feels motivated and stays with the company, unlike what happens with many other mergers.

Chairman Zhang: This is a problem being explored by companies everywhere. We previously collated various methods used by US corporations, that is, we carried out a personnel evaluation. We no longer do this, as we believe you cannot carry out a static evaluation; you cannot say that this person is doing well or not, because you do not know the potential that every individual has. But Haier is not a Western company where you can divide employees into different levels, and where you don’t have KPI indicators, so what do you use? If you have an opportunity to set up a business, you can create

Santiago Iñiguez: Haier's experience with Sanyo and GE shows that RenDanHeYi can be applied to a variety of cultures as a way of identifying people's contribution to their businesses.

Special supplement | Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang | Santiago Iñiguez

Chairman Zhang: We started using the RenDanHeYi model in 2005, and since then a lot of people have visited Haier to learn about RenDanHeYi firsthand, which allows them to see it from different perspectives. Traditional management models see people as middlemen. In contrast, we believe that to be entrepreneurial, the workforce should be autonomous. This means that the enterprise does not manage people. This approach is beautifully argued in many of the maxims 17th century Spanish philosopher Baltasar Gracián’s provides in The Art of Worldly Wisdom, 4 a classic book that became a best-seller again in the 1990s. For example, The Art of Worldly Wisdom mentioned: “More is needed nowadays to deal with a single person than was required with a whole people in former times.” That means you shouldn’t “deal with” a person, but help a person to demonstrate his/her own wisdom

In China, we also have a saying which translates as: “10,000 people seek autonomy.” This means that even the most intelligent person in the world cannot deal with 100 people, and much less 10,000 people. Applying this to a company or an organisation means that it is better to give the workforce a platform they themselves can develop. The solution is for everybody to be autonomous, this is the foundation. Our experience is that many people come to study Haier’s RenDanHeYi model but fail to grasp this concept because they are not willing to allow employees to become autonomous.

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The second point is the organisation. The RenDanHeYi model has become a microenterprise, it has become an organisation. Unlike traditional companies, it does everything itself. I went to Spain a few years ago and was impressed by the architect Gaudí. He had a saying: “The straight line belongs to men, the curved one to God.5 Companies are the same: traditional ones are linear, and we are creating one which is not. These companies are changing on a daily basis, and have full autonomy to be entrepreneurial.

RenDanHeYi: Pioneering the Quantum Organisation

Finally, there’s mindset. For many years, everyone thought that this model would fail. Everyone believed it was impossible, because the world doesn’t work like that. However, we have insisted upon doing this until now, and we

This is one of the outcomes of the organisation during the process of its selfevolution. This outcome, you could say, presents both a scenario brand and an ecosystem-brand, and these are what the internet needs. However, what is the interlinking axis connecting these two things together? Value-added sharing. If you create value for the user, everyone is able to share that value. If you cannot create, then you need to disband. We do not have a human

were compared to Don Quixote. I guess we have a little of the Don Quixote mindset, that is, to be single-minded in pursuing our objectives.6 To date, the RenDanHeYi model has proved a success, because the entire company has changed into an ecosystem type organisation, focused on the internet.

6 Cervantes M., Don Quixote (New York, NY: Penguin, 2003)

Special supplement | Management lessons from Haier’s experience: An interview with Founder and Chairman Emeritus, Ruimin Zhang | Santiago Iñiguez

5 This quote is attributed to Antoni Gaudí, the Spanish architect (1852-1926).

resources department, and we don’t pay fixed salaries, so if I don’t give you a fixed amount of money, then all I need is for you to create value for the user, and then, the higher the creativity, the more that you can share this. However, sharing and traditional organisations are not the same thing, it is not the sharing of any department, but the possibility of sharing this with the company’s external collaborators. That is to say, traditional organisations might be a zero-sum game. This means that I don’t care if others make money or not; as long as I earn money, that’s all that matters. However, we create together and share together, creating value for the user together, and we share this.

About the Author Santiago Iniguez is President of IE University.

Footnotes

1 According to C.G. Jung, the human collective unconscious is populated by instincts as well as archetypes or universal symbols. Collected Works, (H. Read, M. Fordham, G. Adler, W. McGuire eds.) Vol 9. P. I (Princeton, NJ: Princeton University Press, 1957).

The literal interpretation of RenDanHeYi is based on “Ren”, which refers to the employee; “Dan” refers to the user value; and “HeYi” means combining the user value realisation with created user value. A further explanation of RenDanHeYi (Individual Goal Combination model) in: L. Zhou and R. Jing, “Management After Acquisition Inside Multinational Companies from Emerging Economies: The Haier Experience”; in S. Iñiguez de Onzoño and K. Ichijo (eds.), Business Despite Borders. Companies in The Age of Populist AntiGlobalization (London: Palgrave Macmillan, 2018), pp. 213-24.

The Schrödinger’s Cat is a thought experiment in which a hypothetical cat is placed in a sealed box with a sealed vial of cyanide, above which is suspended a hammer attached to a Geiger counter aimed at a small lump of mildly radioactive uranium. The box is sealed, and the experiment is left to run for some set amount of time, perhaps an hour. In that hour, the uranium, whose particles obey the laws of quantum mechanics, has some chance of emitting radiation that will then be picked up by the Geiger counter, which will, in turn, release the hammer and smash the vial, killing the cat by cyanide poisoning. The idea is that until the box is opened and the cat's status is evaluated, it will remain in a superposition of both living and deceased. See D. Castelvecchi, “Reimagining of Schrödinger’s cat breaks quantum mechanics -and stumps physicists”, Nature 18 September 2018. https://www.nature.com/ articles/d41586-018-06749-8

4 Gracian, B., The Art of Worldly Wisdom (New York, NY: Doubleday, 1992). Gracián notes: “There is more required nowadays to make a single wise man than formerly to make seven sages, and more is needed nowadays to deal with a single person than was required with a whole people in former times.”

The EMC Contract as a smart coordination mechanism

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RenDanHeYi: Pioneering the Quantum Organisation

By Joost Minnar

A new organisational structure

This was also the moment that can be regarded as the birth of the RenDanHeYi model. Since that defining moment, the model has seen three significant evolutions.

This led them to break down their hierarchical pyramid into a network of thousands of autonomous units in the early 2000s. Ruimin Zhang, Haier’s iconic founder, gave the company’s 10,000 middle managers a lifechanging choice: ‘Join our new structure or leave.’ Many left, and some stayed.

Guided by their ambition to boost high levels of entrepreneurship and innovation in the firm, Haier has always aimed to motivate all their employees to, in their words, ‘be their own CEO’ and to have ‘Zero Distance from their customers.’

33 Special supplement | The EMC Contract as a smart coordination mechanism | Joost Minnar

n December 2019, Haier developed an internal digital tool called Workbench to facilitate its internal market mechanisms. This tool relies on algorithms, smart contracts, and blockchain technology to make the whole greater than the sum of its parts.

Why would a firm need fancy things like blockchains, smart contracts, and algorithms in the first place? To understand this, we first need to understand the historical context of Haier and its pioneering management model, RenDanHeYi.

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RenDanHeYi 2.0 enabled Haier to reproduce the competitive dynamics of a marketplace in their firm. However, micro-enterprises were only rewarded based on their own performance—not on the performance of the partners they collaborated with. Over time, this started to create tension, especially with the rise of the Internet of Things (IoT), which resulted in customers demanding ‘smart’ products and services that required new levels of intense collaboration amongst micro-enterprises and their external partners.

RenDanHeYi 1.0 – Independent Operating Units

The micro-enterprises hired their own staff, distributed their own profits, set their own strategic directions, and decided which other micro-enterprises to contract and transact with. Micro-enterprises were even free to go beyond their organisational borders and contract with external partners when they thought it to be in their best interest.

RenDanHeYi 2.0 – Micro-enterprises

In 2012, intending to resolve the tensions inherent in RenDanHeYi 1.0, Haier restructured the 2,000 independent units into 4,000 microenterprises, which initiated the second iteration of the RenDanHeYi model. As a result, microenterprises were given even more decisionmaking power and started to act as mini start-ups with their own balance sheet, P&L statement, and lifespan.

The independent units were given farreaching decision-making rights and permitted to transact with each other as if they were on the open market. The introduction of this RenDanHeYi 1.0 model enabled Haier to successfully bring market dynamics into the firm. However, the independent units were organised into three different hierarchical levels, which mostly obstructed the decision-making of the lowest-level units.

In 2005, inspired by the work of Michael Porter, the first version of RenDanHeYi organised the firm into market chains of around 2,000 ‘Independent Operating Units,’ or ZZJYTs. Simultaneously, Haier introduced an internal labour market where employees must bid for work in one of these independent units.

RenDanHeYi: Pioneering the Quantum Organisation

In 2019, aiming to solve the tensions caused by the rise of the IoT, Haier launched its latest organisational innovation, Ecosystem Microcommunities, or simply EMCs. This essentially kickstarted the third evolution of the RenDanHeYi model. EMCs can be seen as temporal alliances of micro-enterprises and external partners that must work closely together to deliver smart products and services to its users.

Special supplement | The EMC Contract as a smart coordination mechanism | Joost Minnar 2000

Haier launched a handful of EMCs in early 2019. Within two years, the number had organically grown to more than 400. However, this also meant a rapid rise in transaction costs to run all the EMCs successfully. In fact, when EMCs were first established, the collaboration within and between EMCs occurred mainly during offline meetings. EMC contracts were primarily signed on paper.

RenDanHeYi 3.0 – Ecosystem Microcommunities

A dedicated contract is signed to align all the members of one EMC, which outlines the goals and responsibilities for every member, the deadlines for work, and profit-sharing agreements. When the EMC makes a profit, all its members share in the results. Conversely, when the EMC struggles, no one benefits.

Haier restructured the 2,000 independent units into 4,000 micro-enterprises, which initiated the second iteration of the RenDanHeYi model

RenDanHeYi: Pioneering the Quantum Organisation

This all changed with the introduction of the Workbench at the end of 2019. The tool digitalised and automated many of these offline processes that were still being performed manually, thereby radically reducing the transaction costs inside the firm. As such, the Workbench allowed Haier’s EMCs to selforganise in a wholly digital manner. However, the tool not only radically decreased transaction costs but also brought three other advantages: market efficiency, ecosystem transparency, and common prosperity.

Before any micro-enterprise can become part of an EMC, it must successfully engage in a digital bidding process facilitated by the Workbench. EMCs are supposed to tender out all their goals (or ‘dan’ meaning ‘business opportunities’) they hope to achieve via the internal marketplace. The goals must outline what the EMC hopes to outsource, along with contextual information, in-depth analysis, and a clear description of the goal.

These goals come in all shapes and sizes. Some are minor projects, others are grandiose and ambitious: building a state-of-the-art factory, for example, or achieving a 10 percent market share in a specific region. There is an art to formulating these goals. They must be sufficiently clear, and the potential rewards attractive enough, for the micro-enterprises to bid on them.

Bidding on the internal marketplace gives micro-enterprises the freedom to choose their work. However, Haier’s bidding process is not only open for internal micro-enterprises but also for external partners—the best bids are awarded a place in the EMC.

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All parties must be mindful about their biddings: They must bid high enough to get a place in the EMC, but the risk of overbidding is also present. If one can’t deliver on their promise, they are essentially ‘punished’ by compromising their credibility within Haier’s star-based performance rating system. The rating is significant, as parties will eventually be disadvantaged in future bids if their rating is tooThelow.Workbench has completely digitalised and automated these goal-setting and bidding processes while greatly increasing the efficiency of Haier’s internal market mechanisms. (To give you a sense of scope: each month, more than 4,000 bids are made through the Workbench, of which 100 are successfully turned into new contracts.)

The Workbench

Market efficiency

Special supplement | The EMC Contract as a smart coordination mechanism | Joost Minnar 4000 ...bids are made through the Workbench, of which 100 are successfully turned into new contracts

Ecosystem transparency

EMC contracts are ‘smart contracts’ stored in blockchains (Ethereum) to create increased transparency around the contracts. Smart contracts are self-executing agreements in which a chain of action is triggered when certain conditions are met. These contracts are automatically enforced through the Workbench and cannot be altered.

During the duration of the contract, the Workbench breaks down the goals and subgoals via detailed daily activities and deliverables for all members of the EMC. The tool also tracks the daily performance of the members compared to their respective deliverables. This allows all members to easily and rapidly spot any differences between planned and actual performance. The Workbench makes this process of real-time performance tracking transparent to all members in their respective ecosystems.

When the members of the EMC are identified based on their winning bids, it becomes time for the next step: the contract. The Workbench automatically generates the EMC contract once all parties in the EMC agree with the terms of collaboration, as this is the place where templatebased EMC contracts are digitally initiated, created, signed, and periodically updated.

Let’s illustrate how an EMC works with a real example. One day, Haier employee Yu Zhang went out for dinner to enjoy one of China’s most famous dishes: Peking roast duck. The dish is somewhat complex and challenging to cook; most people can only enjoy it by getting a table at a fancy restaurant.

Common prosperity

The Workbench also automatically generates rewards proposals between the different members of one EMC, which are guided by Haier’s remuneration system based on profitsharing mechanisms. Every micro-enterprise shares in the profit of the EMC they are part of when the goals outlined in the EMC contract are reached. Haier’s profit-sharing mechanisms include specific objectives and events that will trigger certain bonuses. In a nutshell: Do better than the market average, and you’ll get a share in theHaier'sprofits.profit-sharing remuneration system is built around the Chinese concept of ‘common prosperity.’ It enables the EMCs to make the cake bigger and divide it fairly among all members of the ecosystem. The Workbench automatically executes the profit-sharing agreements as guided by common prosperity, with members of an EMC only sharing in the profits when the entire ecosystem succeeds at making a profit.

A real example

EMC had sold more than 20,000 ducks and achieved a revenue of four million RMB (USD 600,000)

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RenDanHeYi: Pioneering the Quantum Organisation

20,000

While enjoying his dinner, Yu’s entrepreneurial idea was born: He would help ordinary people cook restaurant-quality dishes at home through Haier’s smart kitchen appliances. And he was going to start his entrepreneurial adventure with the iconic Peking roast duck. Yu launched the Smart Cooking EMC in May 2019 through the Workbench to make this happen.

Profit-sharing is based on agreements on the value and size of the contribution by each member of the EMC, which are re-evaluated each month. Any changes in profit-sharing agreements are made through the Workbench, as all EMC members can alter conditions in their smart contract as long as they find consensus with each other.

In the meantime, Yu set out internal tenders via the Workbench to attract micro-enterprises to the EMC that could help them develop the necessary smart technologies. For example, they needed a micro-enterprise that could help

Once all the necessary partners were integrated, an EMC contract was automatically generated through the Workbench. The smart contract specified what partners were expected to invest in time and money, the goals they needed to reach, and agreements about future profit-sharing percentages. The contract was updated monthly on critical metrics, but only by consensus of all leaders of the different micro-enterprises and the external partners that made up the EMC.

In short, RenDanHeYi has enabled Haier to become the largest and most successful start-up factory in the world.

About the Author

In September 2020, after only six months of development time, the EMC successfully launched its first Peking roast duck product on the market. Three months later, the EMC had sold more than 20,000 ducks and achieved a revenue of four million RMB (USD 600,000). The profits were shared automatically with all partners via Workbench. But this was just the beginning. In the months after, the EMC would expand its offerings by bringing 16 more complex dishes to consumers’ homes.

them identify the best cooling conditions for people to store semi-finished ducks in their home refrigerators. They also needed a microenterprise that could help them develop a new programmable oven that could roast the duck with a push of a single button. Multiple internal micro-enterprises then joined the EMC via a successful bidding process.

Yu’s entrepreneurial dream had become a reality. He set up his own start-up and became an entrepreneur thanks to RenDanHeYi and its EMC concept. As Yu’s story shows, the EMC concept allows everyone to be an entrepreneur, to have Zero Distance to customers, and to create common prosperity for all.

Joost Minnaar is Co-Founder of Corporate Rebels and co-author of Start-up Factory: Haier's RenDanHeYi model and the end of management as we know it.

Yu knew he needed to recruit partners to make his EMC a success. He required both internal micro-enterprises to develop new smart kitchen appliance solutions and external partners with knowledge about Peking roast ducks. Yu started by searching for a chef that could develop the optimal Peking roast duck recipe and eventually found an ally in Chef Weili Zhang. The two then searched for a farm that could supply them with ducks, a food processing factory, a partner that could provide them with unique packing material, and a logistical partner.

Special supplement | The EMC Contract as a smart coordination mechanism | Joost Minnar

Teaching RenDanHeYi in business schools

RenDanHeYi: Pioneering the Quantum Organisation

By Bill Fischer

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f it is possible to distill a lifetime’s experience of working in executive education into one summary observation, my entry would be that: “inevitably, and unfortunately, the executives in the classroom are better than their organisations allow them to be at work.” They are more knowledgeable, more committed, and more energetic than they can display in their day-today jobs. They come to business schools for what they see as a rare opportunity to develop new skills and insights that will make them better managers, or more effective leaders, and they make the most of it. They are full of curiosity and ambition, and are delighted by our case discussions of Apple, Google, and a wide variety of other exciting organisations. They throw themselves into comparisons of Steve Jobs, Elon Musk, Jeff Bezos, even Ruimin Zhang, or whoever the current leadership icon might be, but, at some point, they realise that they are destined to return to big, complex, often successful bureaucratic organisations that are inclined to resist innovation, be it bold new products, unprecedented business models, or the most unthinkable of all, organisational transformation. You can almost hear the energy being sucked out of the classroom on a program’s final day, as questions are raised regarding “how can I convince the management above me to even consider such organisational change?” Ironically, what we in business schools lack, at a time when business has never been more interesting, are credible instructional vehicles that allow these participants to dream again.

41 Special supplement | Teaching RenDanHeYi in business schools | Bill Fischer

This is not to suggest that daring efforts to revitalise mature organisations cannot to be found; Bosch Power Tools, Fujitsu Cloud Services in Western Europe, Buurtzorg Nederland and Zappos, are among a small, but growing group of organisations who are restless for revitalisation of their work culture, and who have recognised that their old ways of organising have seriously constrained how well they serve their customers, and how enervating their work environment is for the skilled talent that they employ. Each of these transformation journeys offer interesting insights into the exploration of organisational approaches that provide more autonomy and more engagement than today’s typical bureaucratic pyramid. Each of them has also, in one way or another, been influenced by the transformation journey of Haier, the world’s largest home appliance manufacturer, and its RenDanHeYi philosophy, which stands as the most expansive, and boldest, path to real organisational transformation available today. As a result, Haier is an especially valuable example for business education; Haier gives us a glimpse into how 21st century leadership can be experienced in a mature, complex and successful, non-digitally native organisation, in an old-economy industry. Instead of hip young people running around in flip-flops, developing algorithms and apps for a metaverse, Haier represents real people, making real things. It is the ultimate silver bullet learning example for weary executives, worn out by bureaucratic organisations; it reaffirms the hope, and belief, that meaningful work might well be only a mindset away.

• Haier’s RenDanHeYi philosophy is directly tied to business model validation; it is not simply transformation for transformation’s sake.

• Qingdao is not Silicon Valley. Haier has been doing this in a venue that is not known to be uniquely favourable to entrepreneurship.

• There are at least 70,000 employees involved; this is not a pilot experiment. Everyone at Haier is involved.

RenDanHeYi: Pioneering the Quantum Organisation

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Haier is an exceptional illustration of organisational transformation for several reasons:

• Haier Group has been experimenting with adapting RenDanHeYi to its member organisations in international cultures as different as the US (General Electric Appliances: GEA) and Japan (the former Sanyo home appliance business).

Why Haier? Why RenDanHeYi?

The History of Haier Teaching Materials

• And, perhaps most important, it has been successful! Haier has moved from near bankruptcy in 1984, to a world-leading position in home appliances.

• Haier has been on its transformation journey for forty years, and there is an abundant amount of experience that has been generated along the way.

There is no shortage of teaching materials on the Haier transformation journey. A casual review of the case database at thecasecentre.org indicates that there are at least sixty cases on Haier in their archives; the vast majority of which (53) are in English. The first case was written in 1998, at the Harvard Business School, by Robert J. Crawford for Professor Lynne Sharp Paine. This was followed in 2000 by two cases, one at INSEAD, written again by Robert J. Crawford, and Ming Zheng, for Professor (and later CEIBS Dean) Helmut Schütter, and the other, published jointly by IMD and CEIBS, written by William A Fischer, Ge Jun and Li YunLu.

• Haier’s transformation journey has been marked by a number of bold managerial choices that have given it the lift to rise above the rest of its industry peers. It may be an extreme example, but one which is particularly instructive.

• Going well beyond aspirations, Haier’s RenDanHeYi approach offers a highly detailed infrastructure of managerial choices that have increased the likelihood of success.

In 2013, Reinventing Giants, by Bill Fischer, Umberto Lago and Fang Liu (Jossey-Bass), provided a detailed case examination of Haier’s early (1984-2013) transformation journey, which is nicely complemented by Beijing University’s Professor Hu Yong’s and Hao Yazhou’s Haier Purpose (Thinkers 50, 2017). Most recently, an excellent treatment of Haier can be found in Corporate Rebels’ Start-Up Factory, (September 2022) and Professor Annika Steiber’s Leadership for a Digital World: The Transformation of GE Appliances (Springer, 2022), which provides a unique, analytical and comprehensive review of GEA’s transformation journey.

Special supplement | Teaching RenDanHeYi in business schools | Bill Fischer

1. The necessity to get close enough to the customer/user to guarantee a great customer experience: zero-distance to the customer!

2. A recognition that entrepreneurial work is the only way to achieve effective zerodistance and effective response: everyone is an entrepreneur, not an order-taker

3. Those that share in creating value, should share in the distribution of that value: entrepreneurs’ income should be paid directly by the customer/user

Transformation is profoundly different than mere reorganisation (or decentralisation)1. Real transformation requires a well-developed vision of how the firm is going to compete in its arena(s), and a willingness to change anything organisational that can better support the achievement of the vision. In Haier’s journey, the consistency of three fundamental “guiding principles” has informed every managerial choice that was taken along the way. Haier’s three guiding principles are:

Teaching Notes

The learning objective here is not necessarily to adopt Haier’s guiding principles, but to explore what type of guiding principles might be relevant for our participants’ own organisations.

RenDanHeYi: Pioneering the Quantum Organisation

Central to Haier’s transformation journey is the unleashing of entrepreneurial energies to create a growth engine. This growth engine requires increased autonomy at all levels of the organisation so that employees close to customers (zero-distance) can make the key decisions that will justify their incomes which are generated directly by the value created. Increasing autonomy becomes a key managerial choice to consider, and the Haier transformation journey provides an almost stop-action video of the progressive granting of ever more autonomy, from 1984 onwards. But how much autonomy is right for our participants’ organisations; and what form would it take? This is a rich and important conversation, even for organisations not looking for complete transformation, and can be made even more impactful by the work of Simone Cicero and Boundaryless, which is affiliated with the Haier Model Institute network, and whose canvases allow real analytical consideration not only of the scope and mechanisms of potential autonomy, but also a detailed look at the contractual mechanism necessary to make such autonomy work.

One way to think about Haier’s transformation journey is that it is a single story with several different chapters. From 1984 until 2013, the chapters were remarkably, and monotonically, consistent in experimenting with Haier’s internal situation, so as to better achieve the guiding principles. In the middle of the second decade of the twenty-first century, however, the imminent arrival of the Internet of Things, and the consequential introduction of hyper-connectivity to the home, made renewed attention to Haier’s external relationships imperative. This has led to experiments in radical openness for the organisation, and a greater reliance upon

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Aside from executive education, emphasised in this article, RenDanHeYi can be an effective addition to organisational behavior and strategy classes at both the undergraduate and MBA levels, especially where the daring nature of Haier’s leadership and cultural choices open up generous conversational opportunities to discuss: guiding principles, increased autonomy and business-model innovation, as well as speculating on “the organisation of the future.”

ecosystems as a means of generating new ideas and accessing unfamiliar expertise domains, all in the service of a better customer experience. As a result, the period, beginning around 2013 until the present, when Haier moved from self-organising, autonomous work groups, with admittedly, a still fair-amount of centralised influence (the so-called ZZJYTs), to really independent microenterprises, introduces an entirely new set of important, and timely, discussion issues around the formation of multi-partner ecosystems, that enlarge market opportunities and which, deliberately, do not follow conventional value-chain logic. With these topics, I find transformation journey-mapping and the application of Chris Rangen’s (Engage/ Innovate) canvases to assess senior management support for a transformation idea, to be especially helpful in moving the classroom discussion from aspirational to tactical.

Bill Fischer is Senior Lecturer at the MIT Sloan School of Management, Professor Emeritus of IMD Business School, and co-author of Reinventing Giants

1 Bill Fischer, “GE, Toshiba, J&J: Reorganizing Is Not Transformation,” Forbes.com, November 21, 2021: transformation/?sh=6129837a1609billfischer/2021/11/21/ge-toshiba-jj-reorganizing-is-not-https://www.forbes.com/sites/

Footnotes

About the Author

45 Special supplement | Teaching RenDanHeYi in business schools | Bill Fischer

ince 2005, the Chinese multinational Haier Group has implemented and refined its RenDanHeYi management model in an ongoing evolving manner. RenDanHeYi has become the reference model in how to thrive in a digital economy by promoting human value creation, entrepreneurship, self-organisation, zero distance to users and ecosystemic thinking. In some respects, it resembles agile management practices and Objectives & Key Results, but it goes way beyond that in enabling ecosystems of autonomous small enterprises and external partners to co-create value for users. Haier Group’s international acquisitions GE Appliances, Sanyo, Candy, or Fisher & Paykel have successfully explored and implemented RenDanHeYi in their own way.

RDHY certification as a tool transformationorganisationalfor

By Martin Moehrle

RenDanHeYi: Pioneering the Quantum Organisation

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47 Special supplement | RDHY certification as a tool for organisational transformation | Martin Moehrle

RenDanHeYi: Pioneering the Quantum Organisation

Value

To make it easier to understand for outside parties, Haier has distilled its model into a two-dimensional RDHY Scorecard. The vertical dimension illustrates the self-organising capacity and the horizontal dimension the value expansion capacity of an organisation (cf. figure 1) i.e., its organisational practices (vertical) and its market practices (horizontal). Organisations that evolve on both axes by realising RenDanHeYi should enjoy exponential growth opportunities. Haier Group has just done that for the last decade or so.

Self-organisation

Self-optimisedSelf-organisedSelf-driven Premium brand Scenario brand Ecosystem brand 23 1 ABC

Figure 1 RDHY Scorecard 2.0

• Strengthening the internal credibility of a transformation initiative: many initiatives start at grass roots-level; the certification can help to gain credibility vis-à-vis major stakeholders and to mainstream the approach.

Exponential growth expansion

• Access to a community of like-minded ‘transformers’: certified organisations will be invited to share experiences and practices and learn from each other; they will also be invited to participate in the Zero Distance Award.

In collaboration with the Haier Model Institute (HMI), EFMD launched in 2021 a RDHY certification scheme that builds on the RDHY Scorecard. It is delivered entirely online and open to all organisations, exploring self-organisation, agile ways of working, human value maximisation, client-centricity, and how to engage in an ecosystem. Thereby, it makes RenDanHeYi accessible to all kinds of organisations outside Haier.

• Accelerating a transformation that aims at self-organisation and client-centricity: through reflection of an organisation’s transformation journey and the provision of an unbiased outside-in view from external experts through the lens of RenDanHeYi, the transformation roadmap can get solidified and accelerated.

The RDHY certification aims at the following three outcomes:

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The RDHY certification is built on two pillars:

Figure The RDHY support by RenDanHeYi Research Centres

Anticipate

• Firstly, the RDHY Standards & Criteria as a model of excellence that defines key success factors in realising the RenDanHeYi management philosophy. These Standards & Criteria are based on the two axes of the RDHY Scorecard. Currently there are four standards with three criteria each for both axes (cf. figure 2). They will evolve with the underlying philosophy and its application.

Special supplement | RDHY certification as a tool for organisational transformation | Martin Moehrle

brandBuildrevenueGenerateexperienceecosystemanecosystem

• Secondly, the RDHY certification process that comprises four stages and an optional fifth stage as per below (cf. figure 3).

certification process Stage 1: Application Stage 2: Self-assessment Stage 3: External review Stage 4: Certification stage 5 (optional): Transformation

mindsetInstilloptimisationcultureDriveecosystembetweenEnableentrepreneurscollaborationautonomouspartnersaperformanceandcontinuousagrowth

Chapter B: Value expansion evolving user Continuouslyneeds improve the user

Turn

Chapter Self-organisationA: employees into

Figure 2 The RDHY Standards

Stage 3: External review

Stage 2: Self-Assessment

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The candidate organisation agrees with EFMD and the certification team lead on a schedule of interviews with representatives of the candidate organisation. All interviews are performed online and should not exceed a total time of four hours.

Stage 1: Application

All relevant information about the RDHY certification and respective forms can be found on the EFMD website: RDHY CertificationEFMD Global weaknesses,i.e.,context,onlytheinformexpertsofsheetsendingassessments/companies/rdhy-certification/).(https://www.efmdglobal.org/Interestedorganisationscanapplybytheirfilled-inapplicationformanddataandbyacceptingthetermsandconditionscertification.EFMDappointsateamoftwocertificationandateamlead.Thedatasheetshouldthecertificationexpertsofthescopeoforganisation(theentireorganisationorapartofit)underreviewanditsbusinessandshouldcompriseaSWOTanalysisarealisticassessmentofstrengths,opportunities,andthreats.

The self-assessment stage should serve as a means of strategic self-reflection and clarification of the current position and future ambition, and in addition provide the certification experts with an overview before they start with their review.

RenDanHeYi: Pioneering the Quantum Organisation

Upon clearing of the application, a candidate organisation is asked to compile a concise self-assessment-report (SAR). The SAR should provide evidence of how the organisation performs against the Standards & Criteria. The data sheet and self-assessment report should not exceed ten pages in total and can be supplemented with attachments.

The certification expert team compares business practices in the organisation under review with the RDHY Standards & Criteria, thereby taking the respective business context intoTheaccount.team compiles a feedback report summarising observed strengths and areas of focus and providing an outlook, and then awards one of the following levels of certification (cf. figure 4):

• Leader: here, the organisation has progressed significantly on both dimensions (organisation and market practices) to lead the way in the IoT era.

Value expansion capabilities

• Explorer: the organisation is still at the initial stage of its transformation and may have the desire to learn more about potential next steps.

Stage 4: Certification

Martin Moehrle is a Management Consultant and Director of Corporate Services at EFMD.

• Challenger: the organisation has progressed well on the self-organisation dimension but has not yet formed and leveraged ecosystems to deliver superior client value.

About the Author

Stage 5 (optional): Transformation support by RenDanHeYi Research Centres

capabilitiesSelf-organisation

Figure 4 RDHY matrix

Special supplement | RDHY certification as a tool for organisational transformation | Martin Moehrle

• Innovator: at this stage, the organisation has developed or engaged in an ecosystem that drives innovative solutions, but still relies on traditional ways of organising work.

The value of going through the certification process should largely lie in the clarification of the current strategic position of the certified organisation, and of its future strategic development options. Therefore, the certification team provides an outlook into future growth opportunities and required capabilities for their realisation.

If the organisation under review wishes post-certification transformation support, any of the RenDanHeYi Research Centres will be happy to provide training, coaching, or consulting services. The Centres are listed on the Business Ecosystem Alliance website: About us - Business Ecosystem Alliance ecosystem-alliance.org).(https://www.business-FujitsuWesternEurope(fujitsu.com)was the first organisation that got RDHY certification, and MAQE (maqe.com) was the second. Both started their transformation journey, following the principles of RenDanHeYi, with the aim to overcome their specific management and organisational challenges which were quite different. In both cases, the certification process turned out to be very helpful in clarifying the way forward.

EXPLORERCHALLENGER INNOVATORLEADER

Welcome to the age of ecosystems

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RenDanHeYi: Pioneering the Quantum Organisation

By Stuart Crainer

The age of ecosystems we are now in alters the fundamental currency of strategy. Over the seventy years or so since the field of competitive strategy has been in existence, the unit of study has predominantly been the company. Nearly every major competitive strategic concept –from the resource-based view (RBV) to Porter’s Five Forces to Christensen’s Disruption Theory – has sought to explain why one company outperforms another company.

The world is different and will continue to change rapidly. The onus on leaders and organisations is to embrace and understand this difference. As the wonderful Japanese novelist Haruki Murakami puts it: ‘And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure whether the storm is really over… But you can be sure that when you come out of the storm, you won’t be the same person who walked in.’

The key words are interaction, complex, and system. Viewing the organisational world as an endless array of often interlocking ecosystems and to see an individual corporation as an ecosystem of stakeholders in various locations provides a challenging change in perspective. Henry Ford would likely have shaken his head.

53 Special supplement | Welcome to the age of ecosystems | Stuart Crainer

rom the corporate giants of the early industrial age to the contemporary tech behemoths of Silicon Valley, companies can’t help seeing the world as a place to be controlled. The mass-producing organisations of the twentieth-century thrived on control, it was what they were designed to take advantage of. In the twenty-first century, the organisational dynamics are radically different. The new reality is messy and uncertain. Organisations sprawl globally. They compete in fast-changing markets against equally fast-changing competitors. They compete for people. They compete for customers. And their suppliers are dispersed worldwide.

In this context, there needs to be greater appreciation of the fact that change demands both a proactive and reactive response. The balance between the two is likely to be a much-discussed challenge in the years to come. In a world of low or negative growth, the organisations which prosper will be those which still possess the ability to seek out change.

With the arrival of platform-based businesses such as Facebook, AirBnB, and YouTube, many of these strategic concepts were applied to advance our understanding of the competitiveness of such platforms.

Any feeling of control is illusory. Think of the impact of COVID-19 on the world.

So, the starting point for the future is a willingness to embrace change. ‘Rather than slowing down in the post-pandemic world, change is picking up speed and becoming a constant,’ says innovation strategy expert Kaihan Krippendorff, CEO of Outthinker. ‘New technologies are being adopted faster, and disruption - by competitors, technological innovations, or unforeseen external forces – is ever-present. To survive in the future, your organisation needs a strategy that can adapt and flex with the pace of change; one that offers creative options to keep you among the disruptors, rather than the disrupted, and that opens up space for continuous innovation and perpetual transformation.’

For organisations and all those who work within them, at the heart of understanding this new reality is the concept of ecosystems. The Oxford English Dictionary defines an ecosystem as ‘a biological system composed of all the organisms found in a particular physical environment, interacting with it and with each other. Also in extended use: a complex system resembling this’.

• What new sources of competitive advantage are relevant to ecosystems?

• How can we predict which ecosystem will win?

• And, what skills and perspectives will individuals and organisations require to Thesucceed?answers are fraught with intellectual, logistical and practical challenges. Many are only now slowly emerging. That is why it is important to bring together practitioners and thinkers to grapple with what ecosystems can mean – and need to mean – in the new competitive reality. Sharing knowledge and possessing an openness to ideas will be critical in the ecosystem era. That is the driving force behind the creation of the Business Ecosystem Alliance (BEA), a partnership between Thinkers50 and Haier.

Ecosystems and the increased openness they require also have broader implications on how organisations are run. Hand-in-hand with the world of ecosystems must be a reinvention of governance. This is long over-due. While agile teamworking, empowering and enabling teams to solve customer problems, and so on, have emerged as management best practice, the systems and governance of global organisations have lagged behind. They would be familiar to Henry Ford!

The next era of competition will be the era of the business ecosystem. While business ecosystems have competed for many decades – between airline alliances, technologies (e.g., SAP v. Microsoft v. Oracle), operating systems (e.g., Android v. RIM v. iOS) – the prevalence of business ecosystems is being thrust into the foreground. The next era of competition will be defined by the ecosystem.

• Can the principles of company-based competition be applied to ecosystems? How should they be adapted?

• What are the requisite foundational elements you must put in place to initiate an ecosystem that will thrive?

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Haier CEO Zhou Yunjie proposes ‘an open system for win-win co-creation’ to improve innovation capabilities in four dimensions: users, employees, ecosystem stakeholders, and the organisation. Openness and ecosystem thinking are virtually synonymous in this worldview. Users, employees, ecosystem partners and enterprises are in a constantly evolving dance of value creation. ‘One way of thinking about Haier’s success in repeatedly transforming itself over nearly four decades is that its corporate DNA runs deep by replicating itself at each organisational fractal,’ says long-time Haier commentator Bill Fischer of IMD. ‘This fractal nature of Haier is a source of its strength, an alignment based on similarity of behaviours and attitudes at every level of the organisation in the way that relationships are engaged. As a result, it is entirely possible that Haier’s future lies more with its ecosystem relationships than it does with its heritage business lines.’

This raises many questions:

RenDanHeYi: Pioneering the Quantum Organisation

‘Whether for business or for society, openness leads to prosperity, while closure leads to stagnation,’ observes Gary Hamel and Michele Zanini in their book Humanocracy (which draws on the example of Haier). ‘Companies should set openness as the default state, and the thick black line we drew to distinguish the inside and outside must go. Only in this way can companies have a chance to become as adaptable and resilient as the great cities.’

• What are the key ecosystem battles to learn from today?

• What role will ecosystems play in the future of the global economy?

• How do you decide which ecosystem to align with?

Haier’s Zhou Yunjie puts a new model of corporate governance as a central pillar of the future. He directly links the need for perpetual transformation to governance. The competencies of understanding change (the ability to extract business insights); seeking change (the ability to monetise business opportunities); and adapting to change (the ability to evolve and adapt to change as a self-organisation) are directly identified as responsibilities of board members.

There is increasing realisation that the competition of the future will be based on ecosystems rather than corporations. This consigns the emphasis on linear strategies and thinking, as well as the era of control, to history. It raises a host of challenges about strategy, management, governance and leadership, but at the same time the opportunities it offers are potentially enormous.

Again, this is something which Haier has been seeking to tackle over recent years. It has, for example, been leading the way in re-inventing the nature of contracting within and outside the organisation so that contracts become more dynamic and reflective of a fast-changing reality where delivery of projects relies on an ecosystem of individuals and organisations.

About the Author

Traditional corporate governance takes shareholder value primacy as its mission and is based on the principal-agent risk management principle. Haier’s governance model, as described by Zhou Yunjie, maximises human value as its purpose and is based on the ‘empowermentautonomous governance’ principle of incentive compatibility. The emphasis is on board members being pragmatic, specialised, and robust. In effect, it is applying the same expectations of behaviour and outlook to board members as to the rest of the organisation. This appears obvious and fair, but is rarely practiced.

Special supplement | Welcome to the age of ecosystems | Stuart Crainer

Stuart Crainer is Co-Founder of Thinkers50 (thinkers50.com) and Director of the Business Ecosystem Alliance, a partnership between Thinkers50 and Haier, author of The Management Century and Atlantic Crossing, and editor of The Financial Times Handbook of Management.

RenDanHeYi: Pioneering the Quantum Organisation

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Human ecosystems for our human crisis

By James F. Moore, Ke Rong, Ruimin Zhang

Figure 1 Conflicting priorities TechnologyPeoplePlanet Business Figure 2 Towards a circular economy People philosophieswithHumanpotential&technology BusinessdesignsPlanet society&informethicalvaluesthatcontributeto thattochoosecreatedevelop

e face a crisis of planet and people. For their part, business leaders are faced with a profound intellectual and practical challenge: How do businesses simultaneously make progress on renewing, restoring and respecting nature and our planet, while pursuing industrial development to serve the needs of the population? How do we promote what is deepest and most precious in people, while also continuing to establish large organisations including not only enterprises, but cities, regions, and nations? Industrial development has soared, but the planet is increasingly damaged, and human development beyond the most privileged is at best a sidenote to corporate strategies.

57 Special supplement | Human ecosystems for our human crisis | James F. Moore, Ke Rong, Ruimin Zhang

With better philosophies and designs for business, not only can these previously conflicting priorities be achieved together, but each helps the others in a virtuous cycle as illustrated above. People recognise their extraordinary potential as individual human beings and their profoundly dependent and privileged place on the planet. With this knowledge they invent and establish new forms of business.

We can summarise these conflicting priorities in aYetdiagram:webelieve that there are organisations today that are transcending these dilemmas. For example, people in “circular economy” enterprises demonstrate that it is possible to simultaneously advance nature, human potential, business and technological development.

World society has a problem, and it is a human problem. We are moving toward a worldwide population of about nine billion people. We are doing it without adequate technology to care for everyone, and the Earth’s planetary environment cannot sustain us. The answer, it seems to us, is not just more technology—though this is obviously essential, rather we need to engage these nine billion people as co-creators of a better future for themselves, with all of us not as burdens to be shouldered or as customers to be served.

We believe that business can and must take a leading role in addressing our global crises. We also believe that our businesses are limited by the expectations we have for them, particularly in relation to people and human potential, and thus the business community is lagging far behind where we could be in leadership, organisation, and human development.

We note that in science and technology the business community has come to expect advances at an ever-increasing rate. Exponential change is the watchword. On the other hand, when it comes to expecting advances in human potential writ broadly—for example, expectations for the human potential of the eight billion or so people on the planet, we seem to wallow in hopelessness and lethargy, or resign ourselves to cynicism and elitism.

A few thousand technology professionals can’t lead the transformation of life and lifestyles for 9 billion people. At the centre of today’s platform companies there is limited intelligence and sensitivity to the human realities of people

What we need is something else. Something catalytic, something that enables every person to create value and to develop their potential. Haier Group, featured in this insert, is an enterprise that has been working on promoting human potential for three decades and has turned its company into a resource for human development today. Its example inspires us to seek out more approaches to reach the same kinds of achievements.

and how to help people make creative use of their lives, even with IoT everywhere. There is little understanding in any one group for the 9 billion individual and local lives, situations, opportunities, and problems.

RenDanHeYi: Pioneering the Quantum Organisation

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This is not a long-term strategy that can work well. We have only to look at the personal and social crises of the day to see this. It does not have to be this way. The scientific recognition of the expansive and evolving nature of individual human potential grows every day. But to put this knowledge to practice is not simply to add the task to our current agendas. Just as business leaders and scholars have refocused on technology during these past few decades, so we now need at least an equivalent reorientation toward human potential.

In our careers to date we have studied many business ecosystems. The most successful business ecosystems promote creative diversity that spreads virally to millions and sometimes billions of people. In our experience business ecosystems are powered by creative people collaborating on shared purposes, visions, andHowever,goals. society continues to lag in our understanding of how to promote human development and individual potential. For our own small part, we suggest that business ecosystems are human ecosystems. If we frame business ecosystems this way perhaps, we can learn more about the relationships of platforms and ecosystems to people, and people to platforms and ecosystems. Indeed, we can conceive business ecosystems as platforms for human potential and human development, and as making opportunities for connecting people and co-creating value. In this way we can learn how to do both, developing people and creating value. Which seems an important approach for engaging and empowering nine billion people.

1970

Witness the decline in average life expectancy in the United States, and the decline in aggregate productivity since 1970. He argues that this is because some societies lack ways of life that nurture everyday creativity among their people.

Witness the decline in average life expectancy in the United States, and the decline in aggregate productivity since 1970

The economist Edmund Phelps studies grassroots innovation, and, more broadly, what he calls “mass flourishing” of people in society. He believes widespread innovation by people from all walks of life is what has led to the creation of most of the advances in living standards since the middle of the 19th Century. Personal creative freedom, with vitality and imagination has been historically unmeasured, officially largely ignored, and yet he demonstrates with ample data that it is of massive magnitude and of the most fundamental import to society and to human wellbeing. In his understanding, grassroots innovation and the associated human values are like field and soil. In his view the necessary values, the metaphorical soil for human flourishing and grassroots innovation are massively depleted in many modern societies.

59 Special supplement | Human ecosystems for our human crisis | James F. Moore, Ke Rong, Ruimin Zhang

Three decades later the ecosystem form of organisation is widespread in business and well-understood by scholars, and the ecosystem unit of analysis is well established in management science.

In the late 1980s a number of companies began to perfect strategies that were suited to the profound industry structure upheavals of the time. They learned how to design and create new cross-industry structures that were especially hospitable to them and that supported their ambitions for the future. The companies who made up these new structures banded together to co-evolve their capabilities, advancing faster and more surely than those less aligned. These structures and capabilities became characterised as Business Innovation Ecosystems, and eventually by many different versions of ecosystems.

The Human Ecosystem

RenDanHeYi: Pioneering the Quantum Organisation

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But the world keeps changing. The business ecosystems of the 1990s were superseded by the platforms and platform ecosystems of the 2010s. Platforms enabled ecosystems to enroll billions of individual people. Platform participation in turn helped ecosystem members be more productive andTodaycreative.we believe leaders are inventing another new vanguard form of organisation. We call this the “Human Ecosystem.” The purpose of a Human Ecosystem is to foster creative, self-directed, and collaborative people. The Human Ecosystem is a platform business ecosystem designed to promote the creativity and human development of all its participants: customers, producers and extended communities alike. Human Ecosystems are working to become leaders in developing the most under-utilised resource on Earth, human potential.

The most important distinguishing feature of Human Ecosystems is that their designs are philosophically informed. It is in philosophy, defined broadly, that organisation and business designers can find inspiration, insight, and wisdom for understanding people. It is in

of personal and community virtues and how to develop them, and the image of the “good life” for individuals and communities. Human values also include perspectives on nature, on the place of humans in nature, and on knowledge and how to advance it.

Our working definition of the human ecosystem is intended to be simple, inclusive, and open. We talk about the nature of the person, virtues, and “the good life” because for more than two thousand years these topics have been central concerns of philosophers both East and West. We hope to raise these topics and welcome all. Therefore, we use classical language to express the overall subject, and not language from contemporary business or science.

We intend the study of the human ecosystem to complement previous scholarship on business and innovation and other ecosystems, and not replace any of them. Thus, we incorporate these other ecosystem concepts into our definition of Human Ecosystems.

In contrast, we expect that specific studies of human ecosystems will also utilise concepts and terms that are more precise, specialised, and perhaps algebraic--and will include concrete data and examples.

About the Authors

James Moore is a management scientist and the founder of business ecosystem theory, and the author of The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems.

This article was also published as Moore, J.F., Rong, K., Zhang, R., The human ecosystem, Journal of Digital Economy (2022), doi: https://doi. org/10.1016/j.jdec.2022.08.002

philosophy that they find help in learning to foster human potential. Indeed, philosophy is proving to be a great next frontier for business thinking, because it provides range and variation in business design, which in turn broadens the possible solution spaces that designers can explore for fostering human development.HumanEcosystem strategists are inspired by philosophies of human nature and experiment with the design of Human Ecosystems to reflect desirable human values. Thus, here is our definition of a Human Ecosystem:

Human ecosystem: A business and innovation ecosystem characterised by human values encouraged by its philosophies, actions, and ethos. Participants in the ecosystem will vary in their awareness and acceptance of these values. Human values include perspectives on the nature of the person and of human potential, the nature

Ke Rong is Professor and Deputy Director of the Institute of Economics, School of Social Sciences, Tsinghua University, and the author of Business Ecosystems: Constructs, Configuration and Nurturing Process.

Ruimin Zhang is Founder and Chairman Emeritus of the Board of Directors of Haier Group.

We hope to have many conversations on these topics. We are introducing questions, not providing answers. We hope you will join us in this search.

61 Special supplement | Human ecosystems for our human crisis | James F. Moore, Ke Rong, Ruimin Zhang

RenDanHeYi: Pioneering the Quantum

modeladvancedindustryCOSMOPlat:OrganisationAleadinginternetwithmanagement

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By Jin Chen

he rapid development of new generation information technologies, such as big data, cloud computing, artificial intelligence, blockchain, and IoT (Internet of Things), has prompted a full-scale digital revolution on a global scale. The industrial internet has been the primary tool in supporting the digital transformation of traditional manufacturing around the world. As one of the first industrial IoT runners in China, Haier has been exploring smart manufacturing transformation since 2012, which is turning from mass manufacturing into scaled customisation. The COSMOPlat is an industrial internet platform with Chinese intellectual property rights. It was independently researched and developed by the Haier Group, based on “RenDanHeYi” and Mass Customisation models. It provides specific solutions for scenario-ecosystem digital transformation for enterprises in various industries, regardless of their size. It constructs a new industrial ecosystem of “big enterprise co-creating, small enterprise sharing”, in which big enterprises provide the platform for smaller enterprises to begin trading.

63 Special supplement | COSMOPlat: A leading industry internet with advanced management model | Jin Chen

There are considerable technological advantages with the COSMOPlat. COSMOPlat focuses on the platform capabilities of “one body, two wings” (one body: AIoT + Digital

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COSMOPlat is a “cross-industry, crossfunction” industrial internet platform that was established by Haier Group based on over 30 years of manufacturing experience. The platform aims to provide companies around the world with scenario-specific digital transformation solutions. It promotes the transformation of production methods, business models, and management paradigms and pushes the popularisation of new models and new business types. As a result, a high-quality new industry ecosystem is co-created incorporating “government, industry, research, application, and financing”. COSMOPlat is an open, multilateral, interactive platform of co-creation and sharing, which can generate lifelong user values and win-win results for enterprises, users, and resources.

distanceZero

RenDanHeYi: Pioneering the Quantum Organisation

Innovation Capabilities; Two-Wings: capabilities in global sourcing resource allocation and purchase order capabilities in mass customisation). It deepens vertical industries and strengthens particular fields, such as intelligent appliances, the chemical industry, and manufacturing. In addition, it also enhances the “strong country empowered by industrial internet” model; builds a new cross-industry, cross-function, cross-region paradigm of complete digital economic empowerment; and establishes a brand-new ecosystem.

softwarebusinesshardwareservice

Adhering to the idea of “multilateral interaction, sharing added values”, it engages users throughout the entire production process. By disrupting the conventional mass manufacturing model, it enables enterprises to anticipate and understand users' needs. By connecting with platform participants to create solutions, it establishes dual value circulation with an ever-iterating user experience and added value-sharing for all ecosystem collaborators.

DifferencesTwo

Disruption of Production methods: Mass customisation model (potential development)

Disruption of Business model: multilateral interaction, value-added sharing (Transformation motivation)

Independent intellectual property right in China World-first to let user experience the whole process User

New Industrial ecosystem resource

COSMOPlat

Industrial Internet Platform Enterprise

Special supplement | COSMOPlat: A leading industry internet with advanced management model | Jin Chen

In terms of specific implementation, COSMOPlat embeds a global-leading BaaS engine industrial internet operating system into the “RenDanHeYi” management model to construct platform mass customisation differentiation advantage. First, it solves productivity problems through digitalised management, networked collaboration, individualised customisation, intelligent manufacturing, extended servicing, and platform design. It helps companies improve product quality, reduce cost, and increase working efficiency. It supports digital transformation and upgrades. At the same time, it adheres to “big enterprises co-creating, smaller enterprises sharing”, and prompts companies to go beyond boundaries, connect with more extensive production elements, and enhance ecological capabilities. Furthermore, it pushes continuous innovation, enlarges the user base, strengthens the ecosystem, and establishes new models.

RenDanHeYi: Pioneering the Quantum Organisation

Only three months after COSMOPlat co-founded its first mass customisation industrial internet platform with Chery Motors, the platform had connected with 375 Chery component vendors

Qingdaoecology

Personalised service according to enterprise needs

Software and hardware integrated solution customisation/generalisationmodularisation/integrationSaaS/software

worldwide. Based on the idea of “big enterprises co-creating, smaller enterprises sharing”, COSMOPlat has co-created vertical industrial internet platforms with leading companies, such as Tsingtao Beer, Chery Motors, Tianyuan Chemicals, and Conch Section Bar, etc. As an example, only three months after COSMOPlat co-founded its first mass customisation industrial internet platform with Chery Motors, the platform had connected with 375 Chery component vendors, the upstream and downstream value system. The warehouse-free rate was increased by 10%, resulting in 10% less inventory. It was successfully nominated as the 2021 Anhui Provincial Dual-Cross (cross-field and cross-industry) Platform. In 2022, COSMOPlat will enable Chery Motors to create a smart connecting super factory and will fully empower the digital transformation and upgrade of other medium-sized and small-sized companies within the industry.

375

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Cross-industry. At present, COSMOPlat has incubated many industrial ecosystems such as chemical engineering, moulding, automotive, etc. It covers 29 industrial categories and 12 regions in China. It empowers over 20 countries

Value-added

share Full ecology, full scene, full element ServicemanagementDigitalextendcooperateNetworkcustomise Value-addedCOSMOPlatsharingPlatformproduceSmartdesign Groupbuild COSMOPlat build Chainpartiesbuild Regionbuildappliancehomemedicallogistics chemical energy model material vehicle profiles beverage WuhuDeyang New ecology of industrial Internet Self innovation; Continuous evolution: mode + technology +

Adhering to the mission of “Add Values for Users, Create Win-Win Ecosystem”, COSMOPlat establishes a multilateral, co-creating, and sharing ecosystem. By connecting both upstream and downstream throughout the value system, it achieves ecosystemic added value, which is full-process, full-element, and full-value for users and ecological collaborators, and a dual-value circulation is established. Meanwhile, COSMOPlat deeply integrates information systems and industrialisation and builds both standard basic and more specialised platform capabilities. Thus, a new cross-industry, cross-functional, and cross-regional “threedimensional digital economy empowerment paradigm” is established.

useraddedvalue-

Cross-function. COSMOPlat empowers companies to go from “corporate digitalisation” to “digital enterprises”, through its new Six Zations model. Chain-driving corporation Choho Industries, which was empowered by intelligent manufacturing is a great example of digitalised, intelligent transformation. COSMOPlat helped companies break through “bottleneck” technical problems in the field of the chain-driving system. At the same time, Choho’s productivity efficiency was increased by 80% and the R&D cycle was reduced by 10%. Therefore, the company entered a new era of high-quality development. Empowered by COSMOPlat, Choho was listed in the 3rd batch of “Small Giants” by MIIT. What’s more, it became the first public corporation in Pingdu City; and was named by Tsingtao City as a Hidden Champions company.

Cross-Region. On the regional side, working with Tsingtao City, COSMOPlat created the “Strong Country Empowered by Industrial Internet” 1+N+X Model. The “1” refers to one industrial internet enterprise comprehensive service platform, the “N” means a certain number of industrial internet platforms in particular fields, and the “X” means a certain number of industrial internet demonstration parks. Based on the industrial internet, this model targets a city's digital economy and constructs “new engines” for the city's digital economic transformation. It produced new ideas on city digital transformation and high-quality development and duplicated it to Wuhu and Deyang successfully. This model was included in APEC’s China Digital Economy Demonstration Models 50 Report: “it created a new paradigm for city transformation and enabled regional industrial digital constructions”.

67 Special supplement | COSMOPlat: A leading industry internet with advanced management model | Jin Chen

2021

RenDanHeYi: Pioneering the Quantum Organisation

Microscopic level. It resolves fundamental production problems at the factory level. The platform empowers companies by providing integrated industrial cloud solutions with multiple advantages like low cost, high added value, high adhesiveness, and direct access to industry best practices.

Macroscopic level. It solves industrial corporate strategy arrangement problems from a national perspective, integrating domestic and international development trends. The platform traces an industrial chain map and leverages the huge backend data resource, by combining with the industrial association’s macroscopic business experience, a national level integrated Chlor-Alkali industrial analysis and decisionmaking ’engine-room’ is created.

Mesoscopic level. It solves inter-company resource synergy problems on a regional level. Based on the six-dimensional capability model, the platform provides data support for governments and enterprises. It also provides a company model for developing investments and facility building, allowing the implementation of precise policies during a company’s strategic development.

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One of the typical applications of COSMOPlat is the industrial internet platform for the Chlor-Alkali industry. In August 2020, relying on COSMOPlat industrial internet parent platform capabilities, the “Haizhi Chem Cloud” platform cooperated with the Tianyuan Group to build China’s first industrial internet platform for the chlorine alkali industry. The platform empowers chemical SMEs in six aspects: knowledge model, data service, sourcing and sales, operational management, consulting construction, and industry-university-research convergence. A win-win ecosystem linking upstream and downstream chemical resources was successfully established. In March 2021, during the 2nd session of the 11th Council Meeting of CCAIA (China Chlor-Alkali Industry Association), the industrial internet platform for the ChlorAlkali industry was formally launched. The implementation created access to IoT devices, edge-end data gathering, edge computing, visualised data analysis, industrial application software development, big data analysis, and established an AI algorithms library. It provides a unified mobile application framework for the construction of the Chlor-Alkali application software ecosystem and intelligent industrial applications for specialised scenarios. This platform will become best practice for the upgrade that will see China evolve from a large Chlor-Alkali country to a strong Chlor-Alkali country.

From the perspective of industry arrangement, the COSMOPlat Chlor-Alkali industrial internet platform establishes an integrated empowerment solution for the chemical industrial ecosystem from macroscopic to mesoscopic to microscopic levels. It provides companies with low-cost information empowerment, directly shares industrial best practices, and constructs a value appreciation model that is supported by highdimension data.

The industrial internet platform for the Chlor-Alkali industry was formally launched

In summary, in contrast to the conventional industrial internet, which focuses on the digitalisation of industry only, COSMOPlat adds a modern management approach: RenDanHeYi. COSMOPlat adheres to the "create value for customers, create win-win ecosystem" mission to build an ecological system with multilateral interaction, co-created and shared. COSMOPlat integrates information systems and industrialisation to build both a common essential platform ability and a modular professional platform ability.

It will not only promote the efficiency of traditional manufacturers but also promote the innovative and entrepreneurial behaviour of every employee and nurture the ecological development of the company. Thus, COSMOPlat has great potential for industries throughout the world.

Special supplement | COSMOPlat: A leading industry internet with advanced management model | Jin Chen

About the Author

After its completion, the platform initially carried out empowerment practice in Haifeng Herui, which belongs to the Tianyuan Group. It achieved consistency in corporate production data and the sharing and visualisation of production information. It standardised the management process of the company’s production and optimised the utilisation of resources. It reduced costs by over 20 million yuan and increased new revenue by 30 million yuan. After passing the benchmark experiment at Haifeng Herui, the platform entered the area of industrial service and focused on industrial and brand resources, building an information service brand, and broadening diversified service and market channels. Currently, it has duplicated the safe scenario solution to Shaanxi Jintai ChlorAlkali Chemical Co., Ltd, helping the company to improve safety management, environmental monitoring, and the quality of emergency disposal.

Jin Chen is Professor at the School of Economics and Management at Tsinghua University, Vice President of the China Management Science Society, and Executive Chief Editor of Tsinghua Management Review.

Some of the key factors behind GEA’s successful transformation were a) a CTO with a new vision and ready for change, b) Haier’s acquisition of the company and their belief in RenDanHeYi, and c) the appointment of a new CEO for GEA.

1. How the senior leadership perceived their company in 2016

By Annika Steiber

To answer this question, a 7-month study was conducted of the company. It focused on understanding three things:

RenDanHeYi: Pioneering the Quantum Organisation

3. How they perceived the transformation of the company

2. How they perceived their company in 2021

In 2016 GE Appliances (GEA) was owned by GE. It was a traditional manufacturing firm with zero- or single digit growth. In June of that year it was acquired by the Chinese company Haier for $5.6 billion. Since then, the company has recorded double-digit growth for over four years straight. How is this possible?

The simplest answer is YES, as the world has changed. The emergence of a VUCA environment has led to a re-thinking of what it takes for companies to survive and succeed.

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The transformation of GE Appliances with RenDanHeYi

The findings were mind-blowing. The company had pivoted 180-degrees between 2016 and 2021. From being a company that focused mainly on cost efficiency and profitability, with a top down and command and control leadership, with an organisation that was perceived as a ‘machine’, to a company focused on growth and targeting market leadership, with a decentralised administration, and an organisation that was perceived as flat and agile. Most people would say that this disruptive ‘pivot’ of a company’s culture, leadership and structure is impossible in less than five years, but still GE Appliances did it. How?

Companies in the digital age need to be AGILE, FAST, and INNOVATIVE — and just one of these attributes is not enough to stay relevant.

s there a need to change our current management model?

Companies born in the Internet age, such as Google, Facebook, Amazon, and Netflix, have already adopted a new model, fit for the digital age. This model is based on new management principles radically different from the traditional cornerstones of management. With an increasing threat from new entrants in every industry worldwide, traditional firms are either proactive, or forced, to transform their own management models.

71 Special supplement | The transformation of GE Appliances with RenDanHeYi | Annika Steiber

A new vision in an old suit

“You unleash the potential of every person, and you drive down decision making to the lowest possible layer. Further, you focus on the marketplace first and align the whole business towards the users and their needs. Then you reward the people for how well they do this.”

Having a positive and strong top leadership, promoting the transformation of the company, became the necessary force to initiate and constantly drive and encourage change of the company. This strong force, together with more ‘technical’ changes in leadership, culture, organisation, and alignment between people made an enterprise-wide transformation possible and successful.

Further changes enabled the transformation

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GEA’s transformation was facilitated by the dissatisfaction that the former CTO, Kevin Nolan was already feeling before the acquisition by Haier. He was frustrated with the bureaucratic organisation, which was focused on efficiency and profitability, rather than on winning in the market. As a result, he created FirstBuild in 2014, which allowed him to explore alternative ways of working with product development and innovation.

RenDanHeYi: Pioneering the Quantum Organisation

Haier’s acquisition of GEA and the deep conviction of its founder Ruimin Zhang of the need to pivot the traditional management model and his development of RenDanHeYi to stay competitive in the IoT era, together with the appointment of Kevin Nolan to become the CEO in 2017, provided GEA with the necessary top leadership to initiate a true enterprise-wide transformation of the company.

Haier’s explained the fundamentals behind the RenDanHeYi philosophy such as:

Leading goal: a simple, memorable, and realistic leading goal is needed to inspire and energise an organisation. It need not be a lofty purpose, or a declaration to change the world. In the GEA case the team aspired to something they didn’t know was even possible: to be and to be recognised as the leading appliance company in the US. After four years, the business and branding results show that the goal has almost been achieved and that the GEA team is unstoppable.

Haier’s acquisition of GEA and appointment of a new CEO

Five simple things were done: a) defining a leading goal b) promoting a culture (r)evolution c) reinventing the organisational structure d) implementing a non-linear management e) redefining the reward system.

• Confront these attacks with open communications and engagement.

• RenDanHeYi, the management model of Haier, is a philosophy, not a recipe.

• Change is hard: resistance and lack of belief will try to bring things back to their previous state.

About the Author Annika Steiber is Professor at Menlo College, Director of the RenDanHeYi Silicon Valley Center, and author of Leadership for a Digital World: The Transformation of GE Appliances (Springer, 2022).

73 Special supplement | The transformation of GE Appliances with RenDanHeYi | Annika Steiber

Non-linear management: when speed and adaptability are necessary conditions, the organisation needs a non-linear management that can adapt. The decentralised nature of GEA empowered the new MEs, as well as the new heads of the platforms, to make and take decisions. The communicated expectations were user focus, accountability, and self-management.

Finally, the reward system refocused on recognising value creation for and with the users. It’s clear and transparent and follows a ‘paid by user’ philosophy in which the value exchange between the entrepreneur (employee) and the user is what really matters - nothing else. The journey hasn’t always been easy, but it has been rewarding. The results are there, and the transformation is evident. As GEA reflect on their learnings, there are some concepts they can highlight:

• To implement it you need to be open to challenging your traditions, removing the structures of power and letting employees follow -or find- their passions.

Structure: when your user is your only boss, there’s no place for a traditional organisational chart. GEA imploded the old rigid organisational brick to create numerous autonomous microenterprises (MEs) that focus on serving their specific categories and marketplaces and are supported by serving platforms.

Culture: this is a matter of offering teams a new frame of reference, modeling and promoting new behaviors. In the GEA case they challenged the old traditions, and offered the space for new practices. For example, they went from serving corporate needs and responding to managers’ directions and commands, to a culture where the user is the only boss and where the only valid direction is the one received from the marketplace, represented by customers and users. Further, GEA went from playing not to lose to playing to win. The company stopped reacting to competition and started to lead. They went from avoiding risk to promoting experimentation. As part of this change, they invited employees to become entrepreneurs.

The RenDanHeYi Italian style. From creativity to venture incubation at Gummy Industries

RenDanHeYi: Pioneering the Quantum Organisation By Emanuele Quintarelli

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Gummy Industries initial growth and success came with several drawbacks preventing the firm from realising its full potential. Among these were:

• Even the management team and company strategy detached from market trends and demands

• An invitation to constant and honest feedback

an a complete RenDanHeYi transformation happen in a matter of months? Against all odds, Fabrizio Martire and Alessandro Mininno, co-CEOs of the Italian communication agency Gummy Industries, have shown us how organisational magic can be unleashed, with the transformation of a digital firm with 60 employees into an incubator of new ventures, with employees co-creating and leading them through flat and autonomous teams, sharing services to support scale and a unit already incorporated into a new entity. And all of this achieved in a funny, tongue-in-cheek, Italian style!

• Too much centralisation of decision-making power in the hands of the two founders

After ten years of existence and two years into the pandemics, the company had become aware of social, economic, and technological needs and market dynamics that it was no longer equipped to keep up with. While the transition towards more up-to-date ways of functioning could leverage a small set of principles the company always aspired to:

• The search for a continuous, collaborative, and distributed approach to reinvent the company’s services at the pace of online behaviors and social platform development.

• Eventually, aspiring to be a company that can thrive without a central role for its founders.

• A mounting reduction of the flexibility and speed toward change

Gummy Industries is a medium-sized, ten-year-old digital communication agency based in Brescia, near Milano (Italy), offering web design, branding, advertising, and influencer marketing services to Italian and international enterprises. In addition to serving clients, the company puts a lot of emphasis on the importance of its employees’ work-life balance, the quality of internal and external relationships, and opportunities for creative self-expression in the workplace. The gummy in the company’s name and logo is meant to represent fun, curiosity, discovery, and the interest to connect and interact, typical of this smart, vibrant and dynamic agency.

• The necessity to go through multiple approval levels, even for daily activities, in a reasonably small firm (Gummy Industries currently has 60 employees)

• The belief that an excess of calm and stillness would threaten Gummy Industries’ success.

• Breaking down person-to-person but also team-to-team barriers to support information sharing and collaboration

Freedom and responsibility for an entrepreneurial transformation

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• Minimising rules and leaving employees as much freedom as possible

• A visible distance of new colleagues from customer needs and expectations

Their decennial trajectory speaks not only of excellent financial results but also of a continuous attempt to nurture freedom, responsibility, and a stream of new ideas with value both for clients and colleagues. Testimony to their enlightened approach to working conditions is evidenced in an unlimited vacation policy, full-remote working, complete trust in colleagues even before the pandemics kicked in, and the belief that quality outcomes don’t necessarily require long hours in the office. The exploration of new organisational models, such as the RenDanHeYi, is a natural consequence of the company’s values and DNA, with COVID-19 and the doubling of the company size acting as accelerators.

• A “better done than perfect” attitude with a predisposition for speed over control

• Kitchens. Individuals with business and people responsibility were invited to become entrepreneurs, with the possibility to pick a small multidisciplinary team named a kitchen and autonomously deciding its focus. Both easy to understand and appealing, a kitchen is a perfect example of a high-performing and cohesive team specialising in a particular discipline (e.g., Chinese food) with multiple levels of sophistication (Michelin star restaurants). Each kitchen manages its Profit & Loss and can choose both the professionals and skills it requires. The kitchen, comparable to Haier’s Micro-Enterprises, has the mandate to constantly seek new opportunities and directly contribute to reinventing the company’s services. In Gummy Industries, trust in individuals and the company’s willingness to invest in their entrepreneurial development have been the main driver for the unbundling of the firm. Heading in such a new direction was anything but trivial

• Chefs and Brigades. The six newly created units are led by six chefs, who orchestrate the work in them, as with RenDanHeYi’s Micro-Enterprise owners. Colleagues offering their services by being part of a kitchen started to be known as a “brigade.”

Looking for inspiration, Gummy Industries attended one of the Boundaryless masterclasses, which exposed the company to the entrepreneurial, ecosystemic, bureaucracyfree ideas of RenDanHeYi. With a little surprise on our side, in less than six months, that initial spark had turned into fire with a total upending of the agency’s organisational model through the adoption of most of the constructs pioneered by Haier, even if dressed-up with a typically Italian flavour (pun intended).

since no-one in the company had previous entrepreneurial experience and only a few had managed a team before. Nonetheless, service specialisation quickly emerged during the kitchens’ formation. Some offered help with digital strategy, others focused on brand design, media planning, or content production. Each kitchen is largely unique in terms of its capabilities and dynamics. Industrial sectors (e.g., fashion vs. telcos) acted as secondary areas of specialisation for those kitchens that were initially too close in terms of service provision. Kitchen-to-kitchen competition is an irrelevant preoccupation given the broad spectrum of services the company covers.

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RenDanHeYi: Pioneering the Quantum Organisation

Chefs, kitchens, and food markets

Talking about an entrepreneurial and participative design, the two co-founders and CEOs wisely decided on transparency and to open up the transformation journey by inviting all of their colleagues to an off-site meeting near Turin and asking them to honestly share their hopes, fears, expectations, and initial hypotheses for a Gummy Industries 2.0. As you can tell, Italian passion and the love for food had a role in the eventual outcome:

• The Farmers Market. Not all the responsibilities have been transitioned and distributed to the kitchens. By design, customer-facing units require a set of internal support services such as Legal, Communication, Administration, and HR that should be consistent and able to generate economies of scale. To maintain coherence, kitchens also need strategic direction (Strategy), a common approach to reach the market (Branding and Marketing), support with closing deals (Business Development and Go-to-Market), investments, and financial controls. That’s the purpose of the Farmers Market, a combination of both Haier’s shared services platforms and industry platforms. This area has been the subject of some reflection and differing points of view within the firm. The level of centralisation may change after feedback from kitchens and the market is received in the coming months. Sales are an example of responsibilities that could gradually be distributed to kitchens closer to the market (especially for the more technical aspects of each proposal).

• Priority to innovation, not money. The new system has been optimised for creativity, ideas, experimentation, and learning more than profit maximisation. Kitchens have the right to make mistakes, even to lose clients or see projects fail, as long as this contributes to improvement, refinement, and long-term growth.

Special supplement | The RenDanHeYi Italian style. From creativity to venture incubation at Gummy Industries | Emanuele Quintarelli

• Kitchen-to-kitchen collaboration. Clients may require a combination of services offered by multiple kitchens. Teams can co-operate with other teams, and support can also be sought from external partners. This area of collaboration typical of Haiers’ Ecosystem Micro-Communities, which ultimately leads to a more sophisticated and value-adding experience for the market, doesn’t, as yet, seem to be fully realised within Gummy Industries, although bonuses have been devised for those kitchens that work and succeed together, as a way of encouraging collaboration rather than competition.

Marketing may follow the same path once the recognisability of restaurants reaches a tipping point with a distinctive brand. Rather than exerting control, the aim of the Farmers Market is to relieve customer-facing

• Profit sharing. From the very beginning, kitchens may retain 20% of the profits they generate and independently decide whether to distribute it (to the sole chefs or among the entire brigade) or to use it for investments and other expenses. The other 80% pays for everybody’s salary, including the Farmers Market services and the kitchens’ investments.

INDUSTRIESGUMMYCOURTESYIMAGE

• Infusing a structure into the team. Unlike Haier, the kitchens have a recurring structure of roles filled by the chef and the brigade. Each kitchen is primarily flat, with the chef taking responsibility for the Profit & Loss and one or two project managers coordinating operations. The chef also acts, in a delivery role, as one of the brigade’s members. Interestingly, everybody in the team has the possibility to interact with the client without needing the chef to act as a filter.

• A gradual journey of openness. To remain within a boundary of safety, the first year of operations has already been estimated and budgeted, with an imposed guidance on the goals and limits of kitchens and chefs, although an increase in the level of autonomy is expected in 2023. Due to business continuity reasons and the necessary need for step-by-step learning, chefs, and thus micro-enterprise owners, were initially selected by the two CEOs, with their kitchens associated with specific service bundles (e.g., influencer marketing) and customers (e.g., ten pharma companies). Kitchens also received a target to meet in the first year and an invitation to prioritise internal instead of external hires. It is expected that the process will soon be opened up to individual candidates and there will be greater freedom regarding target segments / industrial sectors / preferred services in the future. Colleagues will be invited to pitch their proposals (e.g., metaverse or blockchain-related capabilities in the fashion industry) to the founders and

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RenDanHeYi: Pioneering the Quantum Organisation

• Preventing disasters. In small enterprises, faith in the entrepreneurial drive of human beings, openness to distribute power, and the training of wannabe entrepreneurs does not altogether prevent the risk of one kitchen severely damaging the entire system. For this reason, the market is also responsible for handling critical situations such as closing a kitchen which is making a substantial financial loss and which has no promising long-term prospects. Just such a situation occurred during the first six months, with the safety net kicking in to protect both employees and the firm by the timely closure of one of the kitchens. Furthermore, through an internal market, the colleagues whose kitchen no longer existed were invited to join another unit within a week.

• Restaurants as a maturation path. Not too different from the approach to microenterprise incubation proposed by Haier, Gummy Industries consider kitchens as just the first step in the ideation, validation, and incorporation journey for new ventures. Through consolidated offerings, repeated sales, and favourable market feedback, small teams have the chance to formally become owners in newly incorporated companies or restaurants (in Gummy Industries’ lingo). Flatmates, a 10-people team co-owned by the Italian communication agency, made up of some former employees, and some external partners, is the testimony of such a growth path that all other kitchens will hopefully follow. Gummy Industries is not interested in gaining a majority share in the newly incorporated entities, it is more interested in nurturing its people’s professional and emotional development by letting them feel in control of their ventures.

more freely manage budgets similar to micro-enterprises signing a VAM with Haier’s industry platforms. Even the percentage of profit-sharing left in kitchens may quickly increase to 50% in the next one to two years, within which time former employees are expected to embrace their new careers as entrepreneurs and co-investors.

teams from tasks that could distract and delay them. A final, but not inconsequential, role of the Farmers Market is in the coaching of chefs in their transition from workers to owners, with regard to notions and mindset.

What Gummy Industries can teach us about RenDanHeYi transformations

• Faith in human potential. The great returns that could be generated by giving ‘ordinary employees’ the power and responsibility to make decisions, hitherto allowed only to business owners, were the first lessons learned by Fabrizio and Alessandro. Seeing copywriters, digital strategists, marketers, and social media experts go from professionals to entrepreneurs, able to instruct and direct themselves and their teams after six months is of immeasurable value to them and the company. For this to be possible, a laidback management approach and a high level of faith in the potential of each and every colleague must be infused into the system.

• One year is enough. Micro-enterprises, prototypical Ecosystem MicroCommunities, industry and shared services platforms, and even the incorporation of the first new entities have all been designed and prototyped in less than six months to be launched and validated within the first year. This is modest compared to both the complexity and timescales of Haier’s journey and the path of many other large enterprises. Together with MAQE, this confirms how quickly a mature RenDanHeYi implementation can happen in smaller environments when the right conditions are met.

• From work to incubation at scale. Even more notable, Gummy Industries commenced a business model transition, from carrying out work to acting as the venture builder and cultivating others to do the work, which more and more firms are attempting. Thanks to their success and experience, the two founders decided to give back to their community of younger colleagues by nurturing their potential to follow the same path quickly, safely, and more effectively. To the best of our knowledge, RenDanHeYi is the best-suited model to support this specific evolution.

We had more than one reason to reappraise our certainties regarding RenDanHeYi transformations after hearing Fabrizio and Alessandro discussing how they had tailored the guidelines created by Haier to Gummy Industries.

INDUSTRIESGUMMYCOURTESYIMAGE

• It must start from the top. In Gummy Industries, it all started and progressed so smoothly because of the willingness of the founders to intentionally step back and proactively distribute their power to the rest of the organisation. This required not just courage but also a natural sensitivity to the challenges emerging in the market, the needs manifested by employees internally, and awareness that new organisational models are unfortunately still rare in founders, leaders, and owners. There is much to achieve to make similar enabling traits a common management starting point.

79 Special supplement | The RenDanHeYi Italian style. From creativity to venture incubation at Gummy Industries | Emanuele Quintarelli

Thanks to this, significant growth rates are projected for the end of the year, and we, at Boundaryless, are committed to checking in again soon with Gummy to keep learning from their experience.

• Still, the company feels monetary returns to be the wrong KPI for the transition. More interesting to them, the introduction of kitchens helped Gummy Industries and its founders to switch to an outside-in relationship with the market by having chefs and brigades swiftly identify and develop the new services that clients desired at a specific point in time. As a result, seven new offerings have emerged in one year instead of the seven years it would have taken with a traditionally sequential

Initial returns to positively look at the future

RenDanHeYi: Pioneering the Quantum Organisation

Are there already tangible paybacks from all this work after only six months? The answer is a clear and promising yes, at least on two levels:

approach. New consulting services for the metaverse are an example of a distributed, forward-looking take to anticipating premium offerings that will soon generate traction. Each new service could attract additional corporate clients, drive hundreds of thousands of revenues and increase the credibility and desirability of the brand

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About the Author Emanuele Quintarelli is Director of RenDanHeYi Open Source Research Center, and Partner & 3EO Micro-Enterprise Lead at Boundaryless.

• Employees stepping forward. At the same time, selected colleagues accepted the challenge to jump ahead, taking over some of the responsibility, risk, and fun by rising to the position of leaders and owners, rather than workers or even bosses. Both parties must embrace the risk by seeing that this is the best guarantee for a thriving future.

• From a financial perspective, by June, the revenues generated by kitchens and restaurants had already offset the entire costs for the fiscal year, months ahead of what had happened in the past. The advantage accumulated will be reinvested in further perfecting the model design and giving greater freedom to entrepreneurial teams.

• The message is the model. Encapsulating the complexity of the RenDanHeYi into cool, simplified, Italian storytelling with friendly, easy-to-understand graphics helped the founders involve their colleagues and energise them towards a profound and potentially unsettling transformation.

Since organisational design rarely warms business peoples’ hearts, creativity must be used to attract, build bridges and make the experimentation more attractive.

byDesign www.jebensdesign.co.ukEFMD aisbl3Box–88GachardRueBelgiumBrussels,1050 Phone: 10086292+32 ax:F 11086292+32 Email: info@efmdglobal.org