Performance Management at Haier

Abstract

In less than two decades, Haier grew from a state-owned refrigerator factory which was on the verge of bankruptcy into an innovative international giant. The company has become China's first global brand and the sixth largest appliance seller in the world. What are the secrets of Haier's success? Many researchers have conducted extensive studies on Haier's exceptional development pattern and found one of the key factors is its distinct management style.

Therefore this paper tries to recount the journey of Haier's achievements to excellence by first exploring the characteristics of its performance management system, and analysed its influences in motivating the employees. Then discusses whether China's past and current leadership preferences are actually supported or opposed by any aspects of Haier's performance management system, and lastly provides an analytical assessment whether this unique management style could potentially be adopted by similar plants or organizations abroad. For example those in western countries which have lots of contrasting cultural traits from China or other eastern counterparts in general, and one such case worthy to study is by comparing it to work motivation and performance management in Australia.

Introduction

Haier Group is one of China's fastest-growing companies and one of the world's top brands. In 1984, the firm was a nearly bankrupt refrigerator factory in Qingdao. At that time, Haier experienced common obstacles faced by many local Chinese state-owned enterprises, like high bureaucracy, inefficiency, poor costing and little regard for quality control and customer needs. It was until a new appointed CEO Zhang Ruimin stepped in a year later, who first introduced a revolutionary management control system in the firm and followed by numerous business strategies including international expansion, then the ailing company transformed to be massively profitable. And over the next thirty years afterwards, Haier Group has grown aggressively and prospered in the global market economy to become one of the world's leading manufacturers of household appliances.

According to a survey profile of what makes a successful company, among the top seven keys to success are customer service, product quality, operating efficiency, and speed to market (Lin, 2007). Today Haier shows to excel in all of these areas. We believe this achievement is resulted from the revolutionary change which Zhang the CEO brought into Haier's corporate culture, by imposing an innovative performance management model, called OEC. By Haier's definition, O stands for Overall, E stands for Everyone, Everything, Everyday, and C stands for Control and Clear. Basically OEC management aims at overall control of everything that every employee does every day.

The core element of OEC performance management system comprises of three parts. They are individual target, close control of monitoring system, and open quantifiable incentive mechanism. Which in fact at Haier's factories are rigorously exercised through various working procedures and principles in their daily operation, applied to all levels from the bottom up. Some of the mechanisms in use such as: coloured footprints floor mats aimed to both awarding outstanding achievement and pick on low performing worker; the 80:20 principle for governing workers responsibility; employee's 'bankbook' accounted to record monetary value of good and bad jobs done; and posting employees' chart-ranking publicly on notice boards (See case). Obviously all these show Haier management's attempts to encourage motivation and build competition among the workers, consistent with OEC management philosophy of control.

Characteristics of the OEC Management Model

The performance management system at Haier has the following key characteristics (Yoshihara, 2002):

- First, workers are evaluated individually. Evaluation of group performance or teamwork does not exist, or as a matter of fact only marginally considered in the evaluation.

- Second, wages are determined by the evaluation which is exclusively focused on results, ie. the quantity of outputs. Inputs, processes, or other factors such as age, skills, and seniority of workers do not directly influence their wages.

- Third, the wage comprises of rewards and penalties, and there is no portion of fixed wages in the total. That is the quantity of jobs correctly done less the defects costs or inefficiency caused.

- Fourth, evaluation is done instantaneously when the job is done. Daily evaluation results are displayed to workers on the notice boards in the factory; promotion and demotion are published in the company's newspaper.

- Fifth, performance evaluation is open and there is no room for discretionary evaluation by the management. Wages are calculated by evaluation rules, and managers practically have no power to influence the pay of workers.

It is interesting to observe, the management system at Haier has many similarities with Frederick Winslow Taylor's scientific management from the early days of capitalism in US. His theory put forward the idea that workers are motivated mainly by pay, therefore managers should break down production into a series of small tasks and workers should be paid according to the number of items they produce in a set