Problem Statement: How to improve the HPWS in Haier China, and implement it in Haier facilities worldwide.

by akshita88 (student)

University Degree Business and Administrative studies

Problem Statement:

How to improve the HPWS in Haier China, and implement it in Haier facilities worldwide.

Environmental Trends

External Macro environment (PESTC)

Political

China’s economic reforms started in 1978 under the leadership of Den Xiaoping. This was followed by a series of reform measures like opening up of the country to foreign investment, contracting out of state owned enterprises etc. 4

We see that Haier’s turnaround also started around 1985, and this might not have been possible without the rapid reforms that the Chinese government implemented.

Economic Trends

The effects of globalisation play a major role in the prospects of Haier and other Chinese companies. Globalisation allowed Chinese companies to compete with established companies, in developed and attractive markets.

The lower costs of manufacturing in China gave a significant advantage of Chinese companies like Haier (though foreign rivals offset this to an extent by setting up factories in China themselves).

Also, global supply chain operations meant that Chinese companies could source the best quality and cost effective raw materials from anywhere in the world.

Social

China’s society also underwent a massive transformation during this period. The Chinese became aware of the opportunities that were thrown up by globalisation and were eager to take advantage of it and improve their lives.

This resulted in people migrating from rural areas to the cities in search of jobs. The Chinese also became willing to change their traditions and habits to match the requirements of the new industries.

Technological

Not Relevant

Cultural

China was always influenced by its centuries of traditions and culture. Authority and hierarchy was respected. Traditional values were passed on from generation to generation and adhered to. The Chinese culture also resisted changes and influence from modern and foreign elements.

SWOT Matrix for Haier

Factors

1. Sustainability of Haier’s labour practices

2. Influence of Chinese culture

3. Leadership at Haier

4. HR as competitive advantage

5. Haier’s competitive strategy

6. Innovation vs Control

7. Legacy of State Owned Enterprises

Discussion of Factors

Sustainability of Haier’s labour practices

The work culture of intense pressure may have worked well for Haier during its turnaround and growth phases, but it is difficult to sustain in the long run. Studies have highlighted the risks involved in such systems.

For example, in 'The ‘Talk’ versus the ‘Walk’: High Performance Work ...

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Factors

1. Sustainability of Haier’s labour practices

2. Influence of Chinese culture

3. Leadership at Haier

4. HR as competitive advantage

5. Haier’s competitive strategy

6. Innovation vs Control

7. Legacy of State Owned Enterprises

Discussion of Factors

Sustainability of Haier’s labour practices

For example, in 'The ‘Talk’ versus the ‘Walk’: High Performance Work Systems, Labour Market Flexibility and Lessons from Asian Workers'( Asia Pacific Business Review, 12, 2, pp. 149-161), the authors point out the lessons from a study on Malaysian and Sri Lankan workers:

“In countries where maintaining ‘face’ or public respect is very important, the widespread humiliation resulting in loss of face from being unable to attain performance levels, in a sense has to generate adverse effects… “

The resentment built up in these cases eventually led to boycotts, the extreme competitive pressure led to mass outbreak of hysteria among female employees.

Haier’s case is no different. The Chinese psyche is very similar – ‘face’ is extremely important. The system of yellow and green ‘footprints’ and workers being asked to publicly ‘reflect’ on their failings, for example, can be very humiliating for a Chinese worker.

These practices might have been tolerated so far due to the lack of opportunities elsewhere in China and the strong elements of following authority and hierarchy. But this may not always remain the same. The rapid reforms and changes that we discussed in the PESTC analysis, will eventually lead to the workers (and managers) questioning and maybe rebelling against the work culture of Haier.

Also, forced distribution method, practiced in the performance management system of Haier has many inherent problems. Studies have found out that it damages employee morale. It can also be misused by management. It reduces flexibility. It is especially relevant in Haier’s case as research shows that ‘attempting to install a forced ranking in a previously laid-back environment can be risky’.1

Influence of Chinese culture and society

Haier’s success, the problems it had to overcome, and its future prospects are heavily influenced by the unique characteristics of Chinese culture.

Chinese firms had two common problems to face – hierarchy and Guanxi. A rigid hierarchy restricts innovation and slows down decision making. Guanxi can lead to even more serious problems like nepotism, cronyism, formation of cliques etc. 3.

Haier had to overcome these issues as well as prevent them from appearing again. However, the fact that such elements are deeply ingrained values could pose a problem in the long term. (The other issues like bureaucracy and inefficiency can be overcome by effective management)

Haier’s success was also partly due to the elements of Chinese culture. The growth of Haier was seen as a ‘source of national pride’. This is unusual in western culture.

This also means that as Haier sets up facilities in foreign countries, it will find it very difficult to transfer the work culture and labour management practices that made it successful in China, to another country.

Leadership at Haier

The turnaround and subsequent growth of Haier could not have been possible without the leadership of Zhang Rumin. The innovative policies that he brought in, the changes that he made to the work culture etc played a vital role in the success of Haier. Indeed, for any turnaround story, a visionary leadership is the most essential element.

Therefore, as Haier looks to transform itself into a major global player, such leadership would be critical to see it through. A change in the top management can be very destabilising for a company like Haier. The continuation of Zhang Rumin and the top management thus becomes a critical factor.

HR as competitive advantage

Globalisation meant that all companies had the same access to most factors of production. These factors then become less important for a company’s competitive strategy2. HR becomes the most critical factor of production and source of competitive advantage. A High Performance Work System contributed immensely to Haier’s success. Therefore, the question of whether the HPWS evolved at Haier is sustainable and transferable to other geographies, becomes very important.

Haier’s competitive strategy

Rather than competing on price, as most Chinese companies did, Haier tried to differentiate itself through a focus on innovation, design, quality, niche segments etc. Cost leadership was never a focus of Haier. A motivated and committed workforce becomes important in this context. The creativity that Haier expects can only come from employees who are satisfied and motivated.

Constraints

Any solutions or changes will have to keep the following in mind:

Haier plans to compete in the international market. Though Haier does not compete on price, it will be important to keep costs low. Hence, large changes which are too expensive should be avoided.

Haier is transforming itself into a global player. Fundamental changes to the way the company is run, can be disruptive at such a time.

Options

Implement different management policies for each country –

Haier could consider customising its HR policies and performance management systems to each market it is present in. The advantage of such a measure is that policies can be fine-tuned and in sync with local conditions. However, the disadvantage is that it entails a lot of extra cost, and makes companywide policies and changes difficult.

Review the current policies and make changes –

Haier could consider reviewing its entire HR practices including performance management, compensation etc to suit the changed realities. This will ensure that it moves with the times. The advantages are that the changes in Chinese society and the corresponding risks, mentioned earlier, can be pre-empted. Also, this will make it possible to adopt modern policies which can be implemented across the globe. The disadvantage of this option is that it entails cost, but more importantly, requires changes in the attitudes and work culture that has been built over many years.

Recommended Option

We recommend that Haier undertake a comprehensive review of its HR systems and policies and make changes where necessary. Any system has to evolve with time, and Haier can continue to maintain its competitive advantage by adapting its HPWS to the present times and thereby remain innovative, creative and quality focused.

Action Plan

Once the top leadership is convinced of and accepts the recommended solution, a meeting of all senior management should be called. The reasons for the proposed review and changes should be explained in detail.
Send out communication to all offices and departments of the proposed review.
Request for suggestions and employee participation in the review process
Conduct focus group discussions among workers and managers to understand the perception of the current system.
Appoint an external consultant to perform the review. This will eliminate any bias or preconceived ideas.
Once the review report is received, discuss the findings and proposed changes at all levels and throughout the company. The meetings and discussions will start at the senior most level and then progress down the line, to entry level workers.
Initiate change management processes. Obtain buy-in from employees.
Prepare a timeline for the changes.
Roll out the changes in two offices – one in China and the other abroad.
Review the effects after a quarter. Modify as required.
Initiate companywide rollout. Continuously monitor the implementation for a year, till the new system stabilises.

References:

Human Resource Management, 12 e, Gary Dessler, Biju Varkey (Chapter 3 pages 103-105,
Caspersz, D 2006, 'The ‘Talk’ versus the ‘Walk’: High Performance Work Systems, Labour Market Flexibility and Lessons from Asian Workers', Asia Pacific Business Review, 12, 2, pp. 149-161

Guanxi and Guanxixue: The Advantage of Personal Connections in Modern China, Thinking Chinese, July 2010 (http://www.thinkingchinese.com/guanxi-guanxixue-personal-connection-in-modern-china)