Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
The successes of today’s Haier Group — one of the world’s largest home appliance makers and with businesses in logistics, real estate, and financing — began in Qingdao, China, in the 1980s when Zhang Ruimin, its CEO, turned around the company by stressing the production of high-quality products as the country underwent economic reform and opened up to the world.
Beginning as a small manufacturer of refrigerators, washing machines, and air conditioners for the domestic market, Haier now owns 122 manufacturing centres around the world. It made major inroads into the US market in 2016 when it acquired General Electric’s appliances business for $5.4 billion, and it also owns other brands including Fisher & Paykel in New Zealand and AQUA in Japan. Its two public subsidiaries, Shanghai-listed Haier Smart Home Co. and Hong Kong-listed Haier Electronics Group, had annual revenues of CNY 200.76 billion ($30.7 billion) and CNY 75.88 billion ($11.6 billion), respectively, in 2019.
Shao Xinzhi, who was appointed as CFO and vice-president of Haier Group this year, shared with FM magazine her COVID-19 lessons and the company’s rendanheyi management model, which organises employees into a collection of microenterprises within the company, empowers them to make decisions on strategy, and encourages innovation. She said that this management model will play a key role in managing business uncertainties in 2021.
Was there anything that you did after the first wave of the pandemic that you consider a successful response to a crisis?
Shao: The pandemic has indeed brought a huge challenge to our company. Not only did we have to prevent infections [in factories and offices], we also had to think about resuming work and production [to pre-pandemic levels].
The digitalisation of finance’s processes became very important to avoid unnecessary physical interaction between employees. For example, our cloud accounting and reporting system made it possible for employees to submit expenses through a mobile app at any given place and time.
During the crisis period, finance also had the problem of having to do month-end reporting remotely. But through the use of bots, we managed to gather information from our subsidiaries in 33 countries and in ten different languages to accomplish the task. The bots enabled the finance team to operate round the clock and take on other tasks in our accounts payable and month-end reconciliation processes.
What are the biggest threats to your business now, and how are you overcoming the threats?
Shao: The pandemic has brought about a huge impact to the global economy this year. There are a lot of uncertainties for the society and also in business. A big question for us in Haier Group’s management is: How do we manage these uncertainties?
I think Haier's rendanheyi management model is core to how we manage these uncertainties. Ren means our employees, dan means users’ demand, [and] heyi stands for integration of employee value and user value. The rendanheyi model is to realise the maximisation of human value, and it’s central to our management principles.
In this model, the whole organisation and individual employees share the same goals to support Haier’s growth. Through this model, each team is given the freedom and authority to operate and to make decisions independently.
For example, during this pandemic, our forex team within the finance function played a huge role in managing uncertainties and creating value for Haier. During the earlier months of the COVID-19 outbreak, there was a high volatility in foreign exchange prices.
The forex team proactively analysed and locked in favourable rates for our businesses, for example the USD/CNY rate, thus reducing our forex losses. The employees on this team are considered value creators because they created savings for the company. This is an example of the rendanheyi model.
Many organisations are in budgeting season now. What approach are you taking to budgeting and forecasting for 2021? How is that different from past years?
Shao: All of Haier’s activities are based on the rendanheyi model, and the same goes for our budgeting process. Our budgeting process is bottom-up, starting from each team and asking how their activities will meet our bigger goals as an organisation. It’s zero-based budgeting. How we’re budgeting now isn’t different from last year.
The biggest difference between our budgeting process and traditional budgeting is in its perspective. Traditional budgeting emphasises control, and what that does is that it reveals the budget gaming between the company and its employees. For instance, should my budgeted target grow 10% or 20%? There’s repeated back-and-forth discussions and negotiations between management and teams.
At Haier, since we’ve divided employees into teams and microenterprises, they should each find their own goals that will support the organisation’s overall goal. Every team should be focused on users, and the budget is a driving mechanism that will push teams to achieve high-value creation and value sharing in our ecosystem.
After they submit their targets that can drive value for Haier Group, the management will then discuss these and determine if they are indeed able to reach these targets and if the targets suggested fit into the overall goals of the organisation. After the targets are locked in, the teams sign a corresponding agreement that includes how every employee’s goals are quantified, the time it takes to reach the targets, and how success can be evaluated.
How has the pandemic affected Haier’s business strategy?
Shao: The pandemic has accelerated our ecosystem brand strategy. For example, we’ve accelerated our work to build the infrastructure for our ecosystems.
In today’s experience economy and the development of the internet of things (IoT), boundaries between products, companies, and industries are becoming less clear. In the past, a user may be focused purely on a product's features and functions. Now it's about offering users customised experience by user on their pain points.
During this pandemic, it’s not convenient for a lot of users to go to retail stores to buy products. Most users now are already used to browsing products online to look for something that meets their needs. So Haier came up with online experience platforms for each industry we’re in.
Taking the example of washing machines, in the past, people bought washing machines to wash their clothes. But in reality, users’ needs are not merely to wash clothes; the solution they want is to get clean clothes through a delightful experience. That’s why we have IoC (Internet of Clothes), an online platform where we link products to help users match, buy, wash, and store clothes. It’s an end-to-end solution.
In the traditional [manufacturing] model, it’s about producing standardised products for the masses. In our mass customisation model, users participate in our design, production, and sales processes and receive personalised products and services.
What emerging business or technology trends are you paying attention to? How will these trends affect the home appliance sector?
Shao: In a post-pandemic era and in today’s IoT era, technological innovation will be one of the biggest drivers of growth. Whoever controls the latest technologies will be the leaders in this new era.
For us, it's been primarily implementing 5G, artificial intelligence, and blockchain technologies. These will lead to changes as our company transforms from a traditional company to an internet company.
This shift will change our focus on individual products to creating an ecosystem of brands. This is why our strategy is called ecosystem brand strategy (launched in 2019).
These emerging technologies support our strategy. One example is our latest washing machine model. It uses RFID [radio-frequency identification], blockchain, artificial intelligence, and 5G technologies.
What has been your biggest lesson from this pandemic?
Shao: Organisations that keep up with trends of the era are the ones that will be well positioned for future opportunities. My learning is that our finance function's digital transformation is slow, and this includes our technology and employees’ skills. We need to keep changing and innovating to remain at the forefront.
Looking ahead, what is one skill you want to develop in your finance team?
Shao: Our teams need to have well-rounded skills to see the whole business. So we need anything that can increase the depth, width, and height of their understanding of the business.
What is a must-have in your 2021 budget?
Shao: Training to upskill our employees. For the finance team, it will be focused training on strategic management, data analysis, and transformation to support Haier's strategy.
— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.