Home appliances group Haier Electronics is pioneering new management methods focused on instigating digital entrepreneurship, innovation and the creation of business platforms. These are stress testing the company’s maxim “the user is right”. Haier impressively shows how traditional operating models can be pivoted to a new life by turning into a completely new appliance ranges that are designed, made and marketed as platform products. By doing so, a unique digital technology stake is embedded into entirely new or heavily re-engineered legacy appliances, agile management structures. Two smart connected products stemming new to the sector, works well. They have, in fact, earned the company the position of world leader in its market. Digital maturity in China is famously high. Serving a sophisticated domestic consumer market, AI and other smart technologies are reinventing China’s products more than almost any others in the world.
Chinese Haier Group refers to itself as “The world’s fastest growing home appliance company.” On the back of various recent acquisitions. It has grown to become the biggest brand in the global appliances market, currently controlling a 10.5% volume share.
A sprawling business organisation, Haier has been led for more than three decades by CEO Zhang Ruimin. He is seen as a visionary who has reorganised the company’s once sclerotic hierarchies to make them more agile for the digital age. Central to Zhang’s thinking is the creed that an appliance maker, in order to survive the disruptive force his sector faces and succeed in a digitally enabled consumer world, has to operate not only as a platform business but also as a creator of product platforms – rather than just being a traditional hardware product manufacturer and manager of brands.
Having decrentralised its organisations from its home base in China to operate all around the globe, Haier now runs 66 trading entities, 10 research and development centres, 108 manufacturing locations and 24 innovative industrial parks, dotted across all major continents. The group employs over 70,000 people and in 2018 its global revenues stood at RMB 241.9 billion (around USD 36 billion), representing a 20% leap from the previous year.
Headquartered in Qingdao, Haier designs, develops, makes and distributes a wide range of domestic products such as refrigerators, washing machines, microwave ovens, televisions, air conditioners, mobile phones, and computers. Each brand and product line has its own market position and provides, to a larger or lesser extent, smart house experiences to users. The brand portfolio includes names such as Haier, Casarte, Leader, GE Appliances, AQUA, and Fisher & Paykel.
One of Haier’s most digitally advanced products is a 72-bottle wine-cooling cabinet, enabled for connection to the Internet of Things (IoT). The product is designed for use in private households, restaurants and wine merchants and, as a smart product, it acts as a platform around which an ecosystem of partners can be formed.
Also from Haier’s range of cooling products, the company’s intelligent ‘link cook’ refrigerator is another smart product designed to become a domestic product platform in the future.
Both of these devices derive from close studies of Chinese consumer trends. In the case of the wine cooler, detailed market research found that the peculiarities of the Chinese wine market allow for a hub appliance that not only stores wine bottles in adequate temperature and light environments, but also shares information and data and facilities commercial interaction between wine markers and wine drinkers.
Although wine has been cultivated in the region for more than 1,000 years, China has not yet become a wine country in the western European sense, with established mass markets, an authoritative wine guide culture and consumers commanding the necessary purchasing power. China’s current wine consumption still only stands at 0.4 litres per person per year, compared to France’s 50 litres. But Chinese wine consumption is likely to grow commercially, driven by the country’s economic boom and the rise of a solvent consumer middle class. Overall demand is estimated to reach USD 23 billion by 2021 and, on the back of its huge population, the country has already become the world’s largest wine market.
Wu Yong, director of cooling for the China region at Haier comments, “Despite all this, a really sophisticated wine culture is only just emerging in China. Consumers have not gathered much experience with the enormous breadth of wine types on offer. There are literally thousands of brands and labels in many different languages available and prices vary widely.” He adds that most wines consumed in China are still imported from abroad and that there is a need for transparency across the various wine categories, origins and varieties. There is, in his view, also room for background education on wine making and wine consumption:
“We want to create something useful for the wine producer and the retail merchant as well as for the wine drinker. We want to foster the creation of a community that shares the lifestyle of wine drinking.”
Haier’s wine cooler cabinet boasts some cutting-edge functional features that make it stand out from the crowd of competing devices. As one of the first of its kind, it works with a compressor-free cooling technology, reducing wine-damaging vibrations to zero. The unit offers different temperature compartments for various wine types so that reds and whites can be kept in an adaptable range between 5 and 20 degrees Celsius. The cooler’s glass front is also designed to filter UV radiation protecting the wine from light damage.
Though all these features make the product a really advanced piece of appliance engineering, they do not yet render it an intelligent device, a status only conferred by the sophisticated IoT features built into the cabinet. These enable it to analyse data, connect to the cloud and use artificial intelligence to deliver true consumer interaction. The parallels with devices like Apple’s smartphone are obvious. The iPhone was a highly engineered and innovative box that gave them the competitive edge even before its platform qualities came into their own.
As its main interface with users, the smart cabinet carries a 21.5-inch touchscreen, a loudspeaker with voice recognition capability and a camera. This allows wine drinkers or delivery personnel to scan and log bottles going into the cabinet, and lets restaurants and private households keeps track of their stock. Each bottle identifies itself to the cooler via an RFID chip carrying information about taste profiles, originating vineyards and supply routes from producer to consumer. The cloud-based database storing this information, says Yong, holds, at any given time, a minimum of 600,000 wine data points available to consumers. Thus, wine drinkers can also scan bottle labels to get them analysed for background information or they can use the screen to make the cabinet suggest wines for certain meal types. Sitting right above the glass front, the screen can also educate users via videos on wine making and advise on the best drinking experience.
Bottle can be automatically reordered via the interface from a favoured and trusted wine producer, cutting out intermediaries such as wholesalers and importers. Vintners and wine makers, in turn, can use the display screen to show their latest offers and run targeted promotional campaigns based on consumption data shared by the device. So, a wine producer located at a chateau somewhere in the French Bordeaux region can directly tap into the habits of wine drinkers based in Shanghai. Chinese wine drinkers, likewise, can get in touch with favourite winemakers two continents away for suggestions and direct feedback.
Haier crucially positions the product as a platform device. In a major departure from traditional appliance maker business models, the company gives the cooler cabinet away free. For income from the product, Haier signs contracts with its ecosystem partners: wine makers, importers, restaurants, logistics services, and of course, winemakers. These created by the devices – in the shape of wine bottles bought and reordered by consumers and restaurants – lands with the manufacturer of the cabinet.
In a country where red wine consumption stands at around 1.86 billion bottles a year, this can be a viable business model, especially if acknowledges that the model is not yet profitable, although it is expected to be soon. He says it takes around one to two years to recoup the production cost of each wine cabinet.
Haier’s particular platform approach to this product makes it necessary to connect to and maintain relationships with local business entities on both the supply and demand side of the wine market. This confronts this giant organization with the challenge of often complex and extremely granular supply, distribution and relationship management – for instance with wine producers in Europe and Australia. This was one of the reasons, Yong says, why Haier decentralised its organization, therefore achieving better product management quality and greater financial success with its devices. Yong says,
“It is not easy to achieve. But we saw it as a big plus in terms of consumer experience. The platform enables wine drinkers to get their bottles at a lower price, as our platform model cuts out the middleman. And wine drinkers get their favourite brands quicker via direct relationship network the platform creates.”
Like the smart wine cabinet, the Link Cook refrigerator, Haier’s second flagship smart product, was conceived on the basis of meticulous consumer research. Like the wine cooler, this device works with a large touchscreen on the outside serving as its main interaction point with users. Crucially this appliance is connected to Haier’s U+ Smart Home platform, through which the manufacturer orchestrates its range of kitchen appliances.
The smart refrigerator connects through this platform with Haier’s micro ovens and cooker hoods, forming a seamless production line for meals. It is sensorised and camera-equipped so that it can identify, via intelligent algorithms, what its current content is and which items carry which sell-by dates. On this basis, the refrigerator, when consulted by consumers, not only presents an up-to-date shopping list of things that need replacing, it also suggests recipes using the available ingredients, taking into account freshness and expiry dates.
“The device then automatically prepares the micro oven for action by setting the right temperature and cooking time for the meal chosen”, Wu Yong explains.
Its recipe then appears on a seperature screen on the range hood so that the chef can consult it while chopping and mixing ingredients as advised.
The touchscreen also allows users to check the weather, deal with emails or even watch television. Haier’s refrigerator concept aims at matching and boosting various trends in meal preparation among matching and boosting various trends in meal preparation among younger generations in China. Though digitally saavy and fascinated by automated experiences in day-to-day life, this age group has often lost knowledge on recipe ingredients, cooking styles, food handling and preparation methods.
“External assistance such as culinary education, topics on food management and healthy nutrition as well as tutored meal preparation are therefore much appreciated by this target group”, says Yong.
What is more, the kitchen – at least in Asia – is becoming ever more than main social hub of family life. This creates the opportunity to combine meal preparation with socializing, leisure activities, information exchange and digitally supported interaction with the outside world.
Haier sees its smart refrigerators, unlike the wine cooler, as being still in an early phase on the path to becoming a fully developed platform product. Where the wine cabinet is provided to consumers as free hardware, the smart refrigerator is sold like traditional domestics appliance. However, its developers have, from the start, conceptualised the device as a potential platform by equipping it with on-board intelligence and connectivity features that, at a later stage in product development, can serve as anchor points for ecosystem partners.
“We seek to transform all of Haier’s domestic appliances eventually into “smartphone solutions” that go beyond isolated functionality into a connected experience at home”, says Wu Yong. That means that just as Haier’s wine cooler already links up a community of wine drinkers with merchants and producers, the smart refrigerator could one day establish a “living” real-time relationship between food producers, a consumer goods manufacturers, and logistics partners with whom the appliances maker would then enter into revenue-sharing deals.
This is an energetic push into the smart connected product world, in line with Haier’s declared aim of eventually selling nothing but intelligent appliance ranges. However, it also shows that a very traditional legacy product line should not changed beyond recognition to achieve platform building and service provision. The pivot from old to new might be technologically massive, but it can build on solid know-how in hardware engineering and this will ultimately help drive success in the digital.
Accenture has conducted research into the Haier products under the GE appliance brand – dishwashers, ovens, refrigerators, dryers and washing machines – and their competitors peer group of connected appliances. This shows that Haier’s connected products achieve not only the most versatile value drivers, such as hyper-personalised experiences and third-party ecosystem experiences, but also the highest value creation overall. Even with a smaller number of connected products, GE offers a greater spectrum of digital services than its peers. This must be one of the driving forces behind its recent sprint into the position of world leader in this market.
Both products, the smart wine cooler unit and the smart refrigerator, have been brought to market in just over a year – an extremely short time. This impressive speed from ideation to retail has been made possible by extremely agile organisations structures that aim to establish not only products but also the whole company as a platform.
Long before the two devices were conceptualised – around the year 2005 – Haier’s visionary CEO Zhang Ruimin had already started to prepare the company’s internal structures and processed for the agile development and product management needed in the digital era.
“The internal reorganization went in step with the fundamental reorientation of the whole Haier group towards embedding the whole range of our domestic appliances into the Internet of Things”, Wo Yong recalls.
To achieve this, the colossal organisation was divided into hundreds of micro-enterprises as the most basic cells in a broad delivery platform of domestic appliances with hardly any hierarchy. In each of these units, swift innovation was pushed by direct communication and planning, by extremely decentralised decision making, and by direct two-way interaction between micro-enterprises within Haier and their end-user communities out there in daily life.
“No longer do successful companies compete through their brands. Instead, they compete thorugh platforms – or, put another way, through linkages between independent enterprises, aligned via their interoperable technologies and their creative efforts”, Zhang stated in a recent commentary piece reflecting on his company’s repositioning towards the digital world.
Heeding that creed, Haier, drastically changed its ways of working to allow for maximum flexibility, creative freedom and consumer involvement in the management of Haier’s product lifecycles.
The reformers team gave the new model the Chinese name rendanheyi, where ren refers to the employees, dan means user value, and heyi indicates unity and an awareness of the whole system. “The term rendanheyi suggests that employees can realise their own value during the process of creating value for users. This new model was intended to foster co-creation and win-win solutions for employees and customers”, Zhang explains.
According to Zhang, the new approach to business is marked by three main characteristics and fundamental changes. Firstm the enterprise was transformed from a closed to an open system. This shift happened by the introduction of a network of a self-governing micro-enterprises with, as Zhang puts it, “free-flowing lateral communication between them and mutually creatrive connections with outside contributors.” Second, the role of employees are transformed from being executors of hierarchical top-down directions to self-motivated idea contributors, in many choosing or electing the leaders and members of their teams. In a crucial formed, in the perspective of development and management teams, from traditional customers to lifetime users of products and services designed to sovle their problems and enhance their user experience.
For the development of the smart wine cooler and intelligent refrigerator, dedicated micro-enterprises were created, each with its own CEO. These executives brought in all the necessary talent and even created external entities to support the establishment of the product in the market. There are now 60 to 70 people working for the wine cooler micro-enterprise, for instance, says Wu Yong: “It is a mix of people. Software engineers, of course, but also teams installing the coolers for the customers, application developers and operations staff.”
Haier’s CEO puts the new multi-cellular set-up of his organistions in a nutshell as follows:
“In effect, implementing the rendanheyi model meant tearing part the walls of our enterprise and changing our structure into a collection of entrepreneurial ventures. The Haier platform now connects more than 2,000 microenterprises in various locations around the world. The leaders of each microenterprise have the power to make decisions, hire staff, and control distribution that would ordinarily accrue to the CEO of a company, not to a division leader. They can also manage the capital, recruiting external venture capital and conducting follow-up investment. They are, in effect, partners in their area of the enterprise. Only by this means can new opportunities be secured quickly; only when microenterprises are booming can a company the size of Haier maintain the passion and vitality of a pioneer.”
Case extracted from the book: “Reinventing the Product: How to transform your business and create value in the digital age” by Eric Schaeffer and David Sovie