Haier CEO Zhang Ruimin recently engaged in discussions with Professor Andrew Van de Ven of the Carson School of Management at the University of Minnesota, and the renowned Chinese scholar of economics Ai Feng. During the discussion, the two scholars referred to the "peak/valley paradox" that must be confronted in large business transitions. In response, Mr. Zhang repeatedly stressed the use of a transition path involving both elimination and creation to confront this paradox.
Professor Van de Ven was co-chair of the US Academy of Management's (AOM) annual meeting. When Zhang Ruimin attended the meeting last year, Professor Van de Ven engaged in an in-depth discussion of the individual-goal combination model with Mr. Zhang, and offered a professional critique. Professor Van de Ven believes that large business transitions inevitably involve a period of declining performance, followed by a gradual improvement, after which the path to rapid growth can finally be achieved. This view is consistent with the "peak/valley paradox" described in Kevin Kelly's earlier book Out of Control, i.e. that businesses transitioning to the Internet will experience a process involving a peak and a valley before climbing back up as they move online.
However, after a recent visit to Haier, during which he witnessed the stunning levels of learning and adaptability in the company's micro-enterprise organization, Professor Van de Ven has reached a new conclusion. This powerful ability to learn and adapt will help Haier to navigate its own path through the internet era, which has seen out-of-control innovation, and create management out of disorder. Professor Van de Ven believes that the Haier model of innovation may break with the peak/valley paradox.
In his discussions with Chinese economic scholar Ai Feng, Mr. Zhang further emphasized that the Haier model is intended to implement the idea of "Business is all about people," giving every person their own orders, and making every micro-enterprise an independent marketized team. For example, if the fall from the peak and subsequent rise back from the trough referred to in the peak/valley paradox represents an entire mountain, then at Haier, each micro-enterprise is a mountain; individual micro-enterprises may live or die, but the overall ecosystem will continue to move forward and develop. Following the discussion, Ai Feng believes that Haier has made big business smaller, thereby turning a single life into millions of lives - and the presence of so many lives is the key to Haier's enduring survival.
When Professor Van de Ven left Haier, he commented that the radical changes at Haier are an exciting process of evolution; he noted that he will continue to follow Haier's progress with great interest, and hopes to play the role of a constructive critic and researcher. In reality, the doubts of Professor Van de Ven or Ai Feng all represent questions that we must answer in the course of our development, as they are larger trends that big businesses around the world all wish to follow. These businesses don't have an answer, and neither does Haier, but we will use our actions and practical experience to face up to and resolve this paradox. This paradox was always something that could be resolved using simple common sense, but now the Internet has provided us with a historic opportunity.
On May 28, the business history scholar Wu Xiaobo made a speech at the 2014 Mingdao Conference, in which he said that traditional manufacturing industries will be impacted by the Internet over the next five years or so, with some 50% of manufacturing companies likely to go bankrupt. If we want to be part of the 50% that doesn't fail, we only have one choice: to confront this challenge as we innovate and explore, and to use our actions and our practical experience to solve the paradox.
