Is there a need to change the current management model, which normally is not bult up around a human imperative?
The simplest answer is YES as the world has changed. The emergence of a VUCA environment has led to a re-thinking of what it takes for companies to survive and succeed. One of the new basic management principles of ‘management of the firm’ in the 21st century, is to put a human imperative at the very core of the organization.
Models for the digital age
Many of the companies born in the Internet age, such as Google, Facebook, Amazon, and Netflix, have already adopted a new model, more fitted to the digital age. This model is based on a human imperative at the core, which in turn enables innovating rapidly and scaling faster.
With an increasing threat from these new entrants in every industry worldwide, traditional firms have either been proactive, or been forced, to transform their own business models and organizations, including becoming more human-centric. Some cases worth mentioning are Haier, Microsoft and GE Appliances (GEA) in the USA.
Drucker Forum 2021
How GEA transformed
GEA is of interest as the transformation repositioned the company from a non- growing company to a company with double digit growth rate in only five years.
GEA was established in 1905, and was owned by General Electric (GE), a company known for its technological leadership. GEA was the outlier within GE, as it was primarily a B2C company, whereas GE’s other businesses were B2B. GEA was, however GE’s public ‘face’ to the consumers, which meant that GEA had to live up to the GE brand of high quality and reliability. This changed in 2016, when GEA was acquired by Haier, the largest provider in the world of home appliances.
As a result of living up to the GE brand, and being a cash cow, GEA was viewed by GE senior leaders as a ‘machine’. The focus of the top management was therefore cost efficiency and profitability, not growth. The leadership style was top down and command and control, and people were hired because of their deep and multiple- years operational experience, not because they were entrepreneurial or brought new competences to the firm. The overall feeling among the people was that the company was slowly dying.
When the leadership in GEA decided to divest the Water Heater business, a business that had a great growth rate and potential, the former CTO, Kevin Nolan, addressed this matter to the new owner Haier, who assured him that they were not behind this decision and that if GEA would have applied the philosophy of Rendanheyi, this would never have happened. Haier explained why by clarifying the fundamental beliefs behind the Rendanheyi philosophy:
“You unleash the potential of every person, and you drive down decision making to the lowest possible layer. Further, you focus on the marketplace first and align the whole business towards the users and their needs. Then you reward the people for how well they do this.”
GEA’s now CEO, Kevin Nolan, applied this philosophy, and GEA went through a full enterprise transformation in less than five years, including transformation of culture, leadership, organizational structure, and most importantly people.
By January 2021 senior leaders in GEA were focusing their attention primarily on growth of the company as their goal was to become the leading home appliance provider in North America. To achieve this goal, GEA had to release the human potential by changing its leadership from top down to coaching. GEA also had to become flatter and decentralized, and people with an entrepreneurial competence and with new knowledge and skills had to be invited to the company. GEA was now enabling a human imperative at the very core of the organization.
When trying to pinpoint key success factors, the Chief Communication Officer at GEA, Antonio Boadas, emphasizes four key success factors: leadership, organization, culture, and alignment.
GEA key success factors
For leadership, a change was needed on both the CEO level as well as on the level of the micro enterprise (ME) leaders. The CEO had to change his role from centrally controlling and managing, setting short-term goals, to instead enabling, removing barriers, setting vision and identify gaps, and being an advisor.
Similarly for organization, the company has moved from strong reporting lines, powerful functions, static product lines, a forced cross-functional collaboration and internal competition to common contracts, enabling platforms, agile micro enterprises, ‘natural’ cross-functional collaboration under MEs and an integration and collaboration between MEs and platforms (former functions).
The last two success factors are culture and alignment. The aim of the cultural change has been, and still is to turn employees into entrepreneurs through empowerment and promoting ownership. For GEA this is zero-distance between the company’s goals and individual contributions. It is like defying gravity. People with power have a tendency to accumulate more power, instead of distributing it. Therefore, there is a constant need to fight this tendency of ‘centralization of power’ around certain people in the organization.
Finally, align employees around company’s goals and user value by using broad communication of goals, metrics and results, allowing people to understand how they will contribute to achieve those. Also, connect rewards to company’s results and MEs’ results (paid-by-the-user) and complement with symbolic rewards and recognition programs.
Meta management principles
GEA is a successful case of an industrial firm transforming itself into a ‘company for the digital age’. GEA choose the philosophy of Rendanheyi in navigating their transformation. This philosophy represents a number of ‘meta management principles’ that all are needed for companies and organizations in the 21st century. Companies might call the application of these ‘meta principles’ different things, such as the Google model, the Netflix model, the Siemens model etc., but these companies all follow the same principles although adopted and applied in different ways.
On a high level the principles are the following:
- Ecosystem for co-creation and win-win partnerships instead of the vertical and well-integrated model
- A networked organization that gets rid of barriers between employees and users instead of a tall, hierarchical structure
- Entrepreneurs and dynamic partners instead of ‘employees’
- Zero distance to users instead of a clear division line between the company and the customers/users
- Pay- by- users instead of pay-by-fixed salary that doesn’t reflect true value created
- Coaching and facilitating leadership instead of a top down and a command-and- control leadership
(Source: Steiber, 2021 inspired by the Haier Dictionary of RenDanHeyi)
About the author:
Dr. Annika Steiber is a Professor, Best-Selling Author, Speaker, Founder, Investor and the Director of the Rendanheyi Silicon Valley Center.
She is the author of soon eight management books including The Google Model: Management for Continuous Innovation in a Rapidly Changing World, The Silicon Valley Model: Management for Entrepreneurship, Managing in a Digital Age: Will China Surpass Silicon Valley? And the Transformation of GE Appliances.
This article is one in the “shape the debate” series relating to the 13th Global Peter Drucker Forum, under the theme “The Human Imperative” on November 17, 18 & 19, 2021.