Managing Performance at Haier

Managing Performance at Haier

1. Why does Haier’s performance system work?

Haier’s performance system works especially because it is based on transparency and fairness. They created differentiation with a clear vision of where they want the business to be. Thus, they hire people whose values are consistent with the management philosophy and aligned with the business strategy. Another reason is because the performance management is linked to rewards and development. Additionally, career progression is based on performance and internal competition. Another success ingredient is the holistic HR management (align every HR activity to the business) with the relentless focus on growth, quality and innovation.

Haier’s performance system integrates China’s culture with western management techniques, implementing comprehensive quality management. We could find some hints of the equity theory, where staff is motivated in different ways. Motivation is the general desire or willingness of someone to do something (Brown, 2007).

Going more deep into the performance management system, it is a distributed system in which different types of schemes were combined together to form a structure, which yielded output for the company.

First, it was driven by the sense of urgency. There was not just external but also internal competition, which increased motivation. Employees were ranked on performance, and accountability at all levels at all times.

Second the OEC system – Overall, Every, Control and Clearance – which worked as a diversification strategy. Each and every employee should complete the work that was scheduled for the day. The use of footprints encouraged them to performance better. Therefore the standards of the work were increased every time and thus evaluated on a daily basis, leaving employees to select their own set of challenges. As an overall system, all performance dimensions were considered. The OEC system can be considered a self-management system.

Next, the 80:20 principle, where employees held 20% of responsibility, while managers held 80%. This made managers more interested in the good performance of their teams. In order to keep employees motivated, there was an emphasis on recognizing and rewarding creativity.

Then, the racetrack model for career progression, where promotion is based on performance and internal competition is ongoing. The low performing employees are retrained but the contract is terminated in case of no improvement. As the average stay in management position is quite short (around 3 years), the employees had to “fight” (only 8 secure positions and the rest was rotational). All employees were in for the race and even the winners had to stay on the race in order not to lose their position. There was no permanent promotion, and frequent and transparent performance appraisals.

Additionally, there was also the tracking profit and loss account of individual loss (deposit book). In this system, the employees would function as micro profit centers. Employees would earn income based on their contribution to productivity and innovations. They would also have to “pay” for resources used. If income was greater than expenses, a profit is recorded on the employee’s deposit book.

Furthermore, the notice board and floor footing, along with the training at company expenses would be ways to motivate employees.

Regarding managers, there was a job role’s based PMS for managers, which was constituted by weekly reviews. These reviews were based on quantifiable goals and on the degree of innovation and process improvement. This was transparent and openly displayed. Training was also offered to managers and job rotation was crucial to promote development. The transfer into Haier’s talent pool was based on performance.

China is a very peculiar country, especially due to its values. The following cultural dimensions would also affect the performance appraisal system and the employee motivation: harmony, collectivist culture, “guanxi”, hierarchy (high power distance – the Haier system avoids the problem of hierarchy and source of inefficiency with accountability at all levels), masculine society driven by competition and success (competition is crucial. Internal competition was also an essential factor and a strong motivator at Haier PMS – racetrack model, meritocracy, competition for promotions, ranking system based on performance) and high uncertainty avoidance.

Haier’s PMS worked in China as performance based pay increases motivation; evaluation is frequent, transparent and quantitative; it avoids bias from performance appraisers; there are more opportunities to display innovation capabilities, creativity and competitive attitudes; there is a fair system of promotions and the fear of unemployment.

Several factors from the performance system contributed to increase employee motivation at Haier: the job rotation program, the recognition and appraisal for top performers, the rewards for success and creativity, the self-management system, the job training, the continuous feedback, and the fair an unbiased promotion system.