Human Resources Management: Haiers Global Success

Introduction and Background

Haier Group (Haier) is the largest home appliance brand in China and one of the world’s leading manufacturers in white goods home appliance. Haier was founded in Qingdao, Shandong Province, China in 1984.

In 1985, Zhang Ruimin was appointed as director to run the lackluster state-owned refrigerator factory now known as Haier Group Co. He asked the worker to smash 76 defective models of the 400 into pieces with a sledgehammer in order to awaken his employees’ quality awareness.

In 1986, Haier’s Human Resources Management first implemented the “OEC Approach” to entail clear and comprehensive control over all company functions. The purpose of OEC Approach is to achieve each day’s plan, evaluate that plan, and improve upon those daily accomplishments by all employees 1% better than the day before.

Their HR management philosophy is a blend of international management principles and Chinese wisdom, with innovation and excellence as its cornerstones. Haier’s “OEC”, “Market-chain” and “Individual-goal combination” management performances have been recognized worldwide. Haier’s experiences have also been introduced into case studies of business mergers, and to financial management and corporate cultures of many foreign educational institutes, including Harvard University, University of Southern California, Lausanne Management College, the European Business College and Kobe University. Haier’s Market-Chain Management practice has also been recommended to the EU for Case Studies and “Individual-goal combination” management concept has been recognized by worldwide management researchers as a feasible solution of commercial over stocks and accounts overdue.

Objectives

The objective of this paper is to see how human resources management tools, namely the HR scorecard system, on-the-job training and the promotion process, applying to Haier in order to achieve better strategic planning and general decision-making as well as overall performance.

All the information is based on the references and bibliography as listed below.

Literature Review

In order to achieve success, Haier’s HR developed its corporate cultures, business strategy and a series of management system which enforce the company’s work rules and discipline. It consists of:

Daily OEC management system,

6S footprints,

Recruiting and promotion,

SST market-chain-based compensation system,

Appraising managers, and

Individual monthly SBU profit and loss statements for each employee.

OEC management system

Haier’s Human Resources Management introduced the OEC management-control system (O stands for Overall; E stands for Everyone, Everything, and Everyday; C stands for Control and Clear) which aims at overall control of everything that every employee finishes on his or her job every day, with a 1% increase over what was done the previous day. Production workers are required to fill out an OEC 3E Card daily with items of production quantity, quality, defective product material used, technology level, equipment evaluation, safe operation, and labor discipline evaluation. If an employee earns more points on the 3E card than required, he or she makes a higher wage and bonus, and both management and the employee know his or her daily wage and why not achieving target. The company also uses quality-check coupons to provide an additional incentive mechanism. Each employee has a quality-check coupon booklet that contains red coupons for rewards and yellow coupons for penalties. The booklet lists all quality problems the firm has detected and provides guidelines for checking each defect. If an employee failed to find and check a quality problem that was later found by his or her team member during a cross-check or by the superior during a managerial check, the employee will lose a red coupon and receive a yellow coupon that will count against that day’s wage and bonus. As further motivation, each employee earns a daily grade for actual performance and progress toward achieving his or her target. Workers see the daily evaluation results the next day on the factory’s bulletin boards. The employees who are acknowledged as the best workers for three consecutive days have the honor of telling their experiences to fellow workers. The employees who become the best workers most frequently in one month are considered the best workers of the month. They have more opportunities to attend job training and enjoy social benefits, while employees who become the worst workers most frequently in one month are demoted to probational workers. Each month, both the best and the worst employees have their names publicized on the firm’s bulletin board. Each employee also receives a red smiling face (excellent), green face with neutral expression (average performance), or a blue sad face (poor performance) monthly.

Beyond acknowledging the best and worst employees, Haier implements the 10-10 principle. In a team, 10% of the members are the best, and 10% are the worst, so to improve the team’s overall performance Haier encourages the 10% best to help the 10% worst.

6S Footprints

Haier’s workers in China and in U.S. factories are imbued with the disciplines of a 6S daily routine. An adaptation of the 5S quality-control movement from Japan, 6S takes its name from the initials of five Japanese words: seiri (discard the unnecessary), seiton (arrange tools in the order of use), seisoh (keep the worksite clean), seiketsu (keep yourself clean), and shitsuke (follow workshop disciplines). Haier added a sixth, the English word “safety.” To promote the 6S routine, small yellow 6S squares are painted on every factory floor. At the beginning of each workday, team leaders stand inside the squares to give a briefing on that day’s work and relay any news to the employees. At the end of each workday, some workers will be called to stand on the footprints to criticize themselves for making some errors during the day, and the best employees will stand inside the squares to offer insights on their good work.

Recruiting and Promotion

Haier has a job-rotation policy for management positions in which the average stay in a management position is three years and the maximum is six. The company uses a job system that is based on the racetrack concept for new job openings and promotions. All employees can apply and compete for work-related races such as job openings and promotions, but winners have to keep racing to defend their current jobs. The company keeps a talent pool of managers based on monthly performance results. These talent pool managers have a higher chance of being promoted, but some managers may be eliminated from the talent pool during each quarter’s review. Every month, the Human Resources department publicizes the job openings and the requirements and conducts strict performance reviews, written examinations, and interviews. As a result, a number of motivated and experienced line workers keep moving into management positions, and a number of young college graduates obtain managerial positions after being trained in the low-level line positions.

Compensation System

In 2001, Haier created a unique transaction job-recording system between two of the activities in the market chain called SST: Claim Compensation, Claim Payment, and Stop!

*S (Suo Chou): Claim to the downstream activity party for compensation. If an upstream activity employee can perform his or her activity or job well, he or she should claim compensation from the employee (i.e., his or her internal customer) downstream in the market chain. For example, the logistics department follows a product division’s monthly and weekly production plans to deliver materials to various production workstations and makes a daily or weekly “claim” to the product division for the service provided according to the contract price.

*S (Suo Pei): Claim to the upstream activity for payment. If an upstream activity employee does not perform his or her activity or job well, his or her next downstream activity employee (i.e., his or her internal customer) should claim payment from him or her. For example, if the logistics department delayed the delivery of materials, then that product division can make a claim for its loss.

*T (Tiao Zha): Stop. If there is neither a claim for compensation nor a claim for payment, the computer system will stop the process. The responsible party should pay the claims. The final decision on whether or not to pay for any job is up to the downstream activity customer because at Haier the customer is always right! For example, whether there is a production delay or material delivery delay, the responsible party should pay the claims.

Appraising Managers

Each manager’s performance is reviewed weekly according to several quantifiable goals and qualitative criteria such as process improvement and innovation. At month end, managers receive a grade of A, B, or C. These grades are openly displayed at the company cafeteria entrance, with a green or red arrow indicating that a manager’s performance improved or regressed that month. All promotions and/or demotions are also published in the weekly newsletter called Haier Ren Bao.

High-performance managers are put in the talent pool for future promotions and are given opportunities for extensive training. The 80 best mid- to upper-level managers are sent to case- and brainstorming-based training courses at Haier University every Saturday morning conducted either by CEO Zhang Ruimin or President Yang Mianmian.

How does Haier deal with low performers? Haier classifies low performers into three categories. First, if a person needs to make minor improvements, the employee or manager is put in an online pool for training. Second, unqualified people get demoted if they cannot accomplish the production tasks or if they seriously break the regulations while being reviewed. Third, the company can fire the worst performers. In Haier, dozens of employees are fired every month because they do not meet the company’s requirements: “Whoever tarnishes the brand of the company will be dismissed by the company.”

In addition, mediocre people get moved around in the firm. Haier encourages elderly employees whose knowledge and abilities do not enable them to meet the requirements of their positions to transfer to the firm’s managerial positions in the service sector. The company then gives them adequate training for these positions, which do not call for much expertise or skills. On the other hand, this enriches the job of the transferred employees, motivates them, and increases the efficiency of human resources utilization.

Individual Monthly SBU Profit and Loss Statements

Every employee is a strategic business unit (SBU), which means that each employee is an independent profit center with the responsibility to make a profit. Each employee generates his or her revenue by providing the best service to the employee who works at the next step downstream and incurs expenses or costs by receiving services or resources from the employee who works at the previous step upstream. The following January 2003 data is from the Technical Equipment Business Division’s Information Plastic Subdivision’s Painting Plant:

“Mr. Liu, a painting worker, updated an SBU profit and loss statement catted a “resource passbook” in his workplace every day. On December 29, 2002, he used 11.96 kilograms of paint to paint TV boxes while the budgeted volume was 11.87 kilograms. If the paint were convened to money, it meant he lost $0.84. According to the 10% ratio, he owed $0.08 to his company. On January 5, 2003, however, he used 13.91 kilograms for painting while the budgeted volume was 18.78 kilograms, and he earned $14.88 that day.

Mr. Wang, a leader in Mr. Liu’s team, has a resource passbook, too. The only difference is that he does not use paint as the criterion. Instead, he uses a utilization ratio. On December 29, 2002, Mr. Wang’s team still owed $0.65 to his company; on January 5, 2003, they already earned $14.88!

Mr. Zhang Yongxun, a person who is in charge of steel plate purchasing, started to prepare his SBU profit and loss statement in 2002. He has been acting as a steel plate profit unit by growing sales of steel plates from $112.5 million in 2002 to $225 million in 2004 and increasing profit from $1.24 million to $4.47 million.”

What is the magic that significantly changed these employees’ data? According to Wang Yingmin, “We are using an innovative SBU profit and loss statement, resource passbook management system.” An employee resource passbook is similar to a bank passbook since there are debits and credits in both of them. In this case, the credit side is the company, which provides budgeted resources to employees according to operations standards; the debit side is the employee, who uses the company’s resources. Basically, the company provides fixed amounts of resources, and the employee has the authorization to use the resources. In the long run, it is in the employee’s best interests to have a resource passbook with more credit than debit. The final result is the connection between the self-managed market effect and the employee’s individual income.

Here’s how the SBU flowchart works:

The client manager’s superior SBU is the commodity manager who provides supporting platforms including motivation platform/capital-flow platform and customer relationship management (CRM) platform of commodity flow. The client manager’s suppliers are the product departments, and his/her markets are clients or customers served.

The vertical bridges around a client manager are target process flows. The client manager and his/her superior set the business strategic target jointly; the item below the client manager is the supporting platform(s) (e.g., commodity flow, physical flow, quality management, cash flow, and incentive system) provided by the commodity manager to coordinate with various supporting departments to support/help this client manager to accomplish his/her strategic target.

The horizontal bridges around a client manager are order process flows. Customer orders, according to specific target value(s), are shown on the right side, and product department resources that support orders are shown on the left side.

Performance evaluation is connected with the target (annual) and customer orders (daily information clearance and performance report).

Finding and Analysis

Haier provides a fair, just and open competition platform to its employees for the promotion of senior position. But their HR mechanism and policy is different from the most of HR departments. They are concerning about who should be trained and who should be promoted to the position of leadership in three different kinds of career designing: 1) For administrators; 2) For professionals; 3) For workers. Each of them has one direction towards his promotion.

Haier will provide on-the-job training to the potential cadre to work in related department as an ordinary role in order to gain experience. Sometimes they will let the cadre lower his position and work as a common staff or assign him to certain department to have so-called internship. Although it is tough for a cadre under such high pressure, he is finally trained and cultivated his integrated skills.

Haier also introduce Market Chain management in which there are 2 markets involved in one enterprise, the internal and the external. The internal market is to meet the requirements of the staff to arouse their initiatives while the external market is to meet the requirements of the clients. Each staff supposes to have no responsibility to his supervisor occasionally, but the most important thing is he must have the responsibility to the market all the time. Market chain mechanism, initialized as “SST” based on Chinese pin yin, that is to say: Firstly, we need to serve our client and acquire the related rewards; and if we cannot match the market’s requirements we must give corresponding reimbursement. Neither rewards, nor reimbursement, it could be a blank in the mechanism that means problem will occur. Therefore, the group is under the mechanism, and there are many people in their position under the spirit of “managing yourself” where people treat their own as a host in their division of the Group. They manage their position as operating their own boutique so that they have extraordinary efforts in such as saving energy, decreasing consumption, improving quality etc.

Haier issues Staff Rewarding Regulation for Inventions to encourage new technical invention and innovation, and based on the economic and social effectiveness that achieved, and the enterprise, the administrators and the staff have equal chances to win the awards respectively.

Haier Online HR Database will give a quick feedback to the qualified candidates with its HR mechanism on providing wide development space and equitable competition environment, and with its competitive working environment.

Recommendations and Conclusion

Human resources management is the process of acquiring, training, appraising, and compensating employees, and of attending to their labor relations, health and safety, and fairness concerns.

Through the HR scorecard, on-the-job training and a series of promoting process, Haier has come in a long way from a nearly bankrupt company to a recognized worldwide brand. Through making employees responsible for meeting OEC criteria, Haier will continue to excel and achieve its short-term goal of becoming one of the world’s top three white-goods manufacturers. In this current competitive market economy, many companies have much to learn from Haier’s culture and OEC management-control system. (Lin, 2005)