Power Sheet - January 21, 2015

A salutary effect of last Monday’s news that Haier Group will buy General Electric’s appliance business is that maybe, finally, Americans will get acquainted with Haier’s longtime CEO and one of the great business leaders of recent decades, Zhang Ruimin. Leaders of every kind have a lot to learn from him.

A few basics you may not know about Haier: Despite its German-sounding name, the company is Chinese. By market share it’s minuscule in the U.S. but No. 1 globally. Revenue in 2014 (most recent available) was $31 billion. GE doesn’t report its appliance revenue, but its appliances and lighting group had 2014 revenue of $8.4 billion.

More important is how Zhang has built this behemoth as CEO since 1984. Back then it was Qingdao Appliance Co., a maker of shoddy refrigerators. Zhang gave an early sign of his managerial goals by ordering his workers to haul all the defective refrigerators out of the warehouse – there were 76 – and destroy them with sledgehammers, on the street in public view. This was shocking beyond words in 1984 China, and Zhang has continued to surprise ever since.

This product of Maoist collectivism became an avid student of Western management literature, especially the work of Peter Drucker. Mindful of Drucker’s warning that a failure to “say goodbye to yesterday” was the downfall of many businesses, Zhang resolved that his company would change continually, saying goodbye to yesterday every day.

He began by revolutionizing quality in his plants and setting a new standard for China. He simultaneously achieved unheard-of efficiency in China’s then-backward manufacturing sector. He organized employees into teams and pitted them against one another for performance-based bonuses, and he began evaluating every employee every day on objective criteria, with the results posted publicly. More than just shattering Chinese norms, he was beginning to devise management practices that even most Western firms would reject as too radical.

Then he realized that Haier, as it became known in 1992, needed to develop a new competency, responding to customer wishes faster and more insightfully than any competitor. Even today, reports Strategy + Business, Haier’s U.S. r&d engineers are required to talk with consumers about the products the engineers are working on, and their pay is based in part on the eventual sales of those products. He has since reorganized the company into self-managing teams, more than 4,000 of them the last time I talked with Zhang, a few years ago in Beijing. “If the members of a unit don’t like the way their manager is performing, they can vote him out,” he told me.

And now he’s revolutionizing the company again to make Haier appliances not just products but Net-based platforms for which others can write apps. “Haier is not interested in becoming the GE of China,” IMD business professor Bill Fischer told Bloomberg recently. “They want to be the Apple of China.”

Zhang’s next objective is clearly to make GE Appliances the Haier of America. Even today, at age 67, he’s as driven as he was 32 years ago. Watch and learn.

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