On Haier and the drive to minimise decision making — (HowTo #3)

This is part 3 of a series of 10 LinkedIn articles discussing "Corporate Rebels: Make Work More Fun" chapter-by-chapter. This part considers the chapter titled "From hierarchical pyramid to network of teams". Part 1 can be found here. An overview of all articles in this series is provided at the bottom of this article.

The second chapter of “Corporate Rebels: Make Work More Fun” brought home the breadth of their inquiries to me. And with it a better understanding of the depth of their knowledge and understanding of organisational structures. I am, quite simply, impressed.

After writing at length about “expertise” and “perceptiveness” in the previous article, this article will focus on “decisions”. First, I will take a closer look at what a “decision” actually is (according to the dictionary). Then I will use this “clarified” definition to put Joost’s and Pim’s observations in this second chapter — which includes an overview of various organisational structures — in a different and, hopefully, also illuminating perspective.

In the first article I wrote: “linguistic categories influence perceptions. The words we use also affect how we think and how we see the world.” In the second article I made an explicit distinction between “experts” and “specialists,” defined the essential difference between the two (level of perceptiveness), and proposed that it is possible to determine someone’s level of perceptiveness by observing behavioural characteristics.

What happens when there is no word for “blue”?

Now I’ll try to explain why it is essential to make a distinction between “decisions” and… “decisions”. This distinction is a paradigm shift. It questions the very purpose of the “decision making industry”. It forces a library of books written on organisation and management to be reinterpreted. It is revolutionary. It is also what lead my wife to call me an idiot. And why I labelled my approach “Decision Free Solutions” (which is to be read as decision-free solutions).

The fact that we don’t have a word to distinguish between “decisions which increase risk,” and “decisions which minimise risk” — both of which we call “decisions” — has catastrophic consequences. If we don’t have a word for it, we can’t see it. Quite literally! Because making a distinction between these two types of decisions is so vital going forward, I want to bring this point home visually.

If you agree that “decisions increase risk,” the world will never look the same again

Researcher Jules Davidoff traveled to Namibia to investigate possible links between language and colour perception, specifically addressing the question of whether you can truly see a colour if you don’t have a word for it. He performed an experiment with members of the Himba tribe, who speak a language that has no word for “blue.” Instead, their term conflates the colours blue and green. Vice versa, when it comes to the colour green, the Himba have a wider vocabulary than English speakers. Where the Himba could not easily identify the one blue square among eleven green ones, they easily picked out the green square with a slightly different hue from the rest while native English speakers consistently failed (Figure 1). Our language determines perception.

If, in a couple of minutes, you agree that “decisions increase risk,” you will have made a paradigm shift. The world will never look the same again.

The earliest inspiration for “Decision Free Solutions” is found in Kashiwagi’s “Best Value Approach”. It is an approach which is predominantly used, somewhat marginally, in procurement. Intriguingly, the approach states that “decisions increase risk”, and that decisions thus must be avoided.

The logic was compelling: if you know exactly what to do next, you simply go do it. There is no need for decision making. But if you don’t know what to do, then you have to make a decision. If you make a decision, you might get it wrong. Hence, decisions increase risk.

All inspirational organisational structures have one thing in coming: a drive to minimise decision making

It drove my wife nuts. Fool that I am I kept on trying the “logic” on her. It made her angry. Why try to give new meaning to a word everybody uses all of the time already! It is in the dictionary! This “discussion” remained unresolved until, finally, I thought I might as well have a look in the dictionary.

The Oxford Dictionary definition of decision is: “A conclusion or resolution reached after consideration,” and that of consideration: “Careful thought, typically over a period of time”.

A decision is thus defined as “a conclusion or resolution reached after careful thought”.

Starting from this definition the following is derived:

1. In order to be able to make a decision there must be something to choose between: a decision is therefore a kind of choice.
2. There is “a something” that is given thought to, and the decision will affect this something. In other words, there is a purpose or an intent to a decision: a decision is made in the context of a desired outcome (an aim) that is to be achieved.
3. When something is totally transparent to you (like “gravity”), there is nothing to think about (you know, without thinking, what will happen when you let go of a glass). Vice versa, when something is given “careful thought,” this is indicative of this something not being fully transparent.
4. If someone comes to a conclusion or resolution in a situation which is not fully transparent, the impact it will have on the desired outcome is uncertain. If a situation is not transparent, it is not possible to fully substantiate how and in what way the desired outcome will be affected. 

The definition of “decision” can thus be clarified — not redefined! — as follows:

When all three elements are present — a choice, a desired outcome, lack of substantiation — a “decision” has been made. The risk the desired outcome will not be achieved has subsequently been increased.

I will argue that all the inspirational organisational structures mentioned in chapter 2 by the Corporate Rebels — regardless of their degree of radicality — have one thing in coming: a drive to minimise decision making.

If decisions increase risk, decisions have to be avoided as much as possible. In practice there is oftentimes no time to avoid decision making. But the number of decisions made can still be minimised, and the decisions which can’t be avoided can still be made by the person to whom the situation is most transparent. At all times a decision is to be identified. This way the associated risk can be considered for risk management, and possibly be mitigated.

If decisions increase risk, how to minimise them? First, the desired outcome must be transparent and non-ambiguous. Second, the person to whom the situation is most transparent is to be identified. This person — by definition — is the situation’s expert. Experts become experts through a combination of experience and perceptiveness (the more dynamic the situation, the more important perceptiveness).

What would the worst-possible, most-inefficient, resource-gurgling, expertise-ignoring, least-fun organisation look like?

What do experts need? Apart from a non-ambiguous desired outcome, they need access to information, to specialists, to experts-in-something-else. How can we tell an expert is making a choice which minimise risk? Because he/she is able to substantiate how the choice will contribute to achieving the desired outcome.

So what would the worst-possible, most-inefficient, resource-gurgling, expertise-ignoring, least-fun organisation look like? It would be an organisation which only makes decisions. In which desired outcomes are either absent or understood differently by those involved. Where choices would be made by people solely on the basis of their position within the organisation’s structure. Where those choices would be considered god-given and beyond questioning. Where these choices would be followed up, regardless of the consequences.

How would such an organisation deal with employees who might not be suited to perform tasks which may not make much sense to achieve outcomes which may not be clearly understood? By controlling them, every step of the way. By telling them what to do, how to do it, when to do it, how quickly to do it, what targets to meet, and how to report on it. By implementing rules, regulations, protocols and checklists (many of which contain still more decisions: decisions made in the past).

What would such an organisation be in need of? Management! Layers of management to manage everyone, to create targets out of thin air, to tell people what to do, to check on how they do it. Meetings! Lots of meetings to try to align people’s understanding of what should be done, to coordinate the activities between the layers, to get someone to make a decision on the next micro-step in the process of “getting work done”, to find causes (and appoint blame) why the targets aren’t met. All of this to try to manage the risk associated with decisions which permeate this imaginary organisation like an invisible fun-absorbing virus. All of this because we have only one word for… decisions.

At Haier, each transformation was triggered by a change in the organisation’s goal

In chapter 2 the Corporate Rebels run into author/professor Gary Hamel. He has been battling the “paralysing, organisational organisational ailment of bureaucracy” for many years, with very little progress made. He has shown that “larger businesses are tending to become more conservative and still feature eight or more levels of management.”

Gary Hamel wonders why bureaucracy is increasing, also in light of the financial cost that is associated with it: an approximate $3 trillion every year in the US alone. Research has shown that the average employee spends six hours a week in meetings, and managers 23 (on average). Half of which are deemed to be “unproductive”. By far the majority of organisational leaders in these bureaucracies see that the structure needs changing (92%), but a similar number (86%) don’t know how.

Someone who does know how to change organisational structures is the main focal point of this second chapter: Zhang Ruimin. Ruimin is the 70-year-old CEO of Chinese whitewoods and electronics manufacturer Haier. He turned Haier from a small near-bankrupt fridge company to the world’s largest manufacturer of household appliances.

This remarkable journey, described at length in this chapter, took four decades and five organisational transformations. Here each transformation was triggered by trying to achieve a new organisational goal.

Ruimin started as the head of a local refrigerator company with a poor track record of building fridges (20% failure rate). The first transformation he initiated was “to organise the factory as a pyramid and focus on constant improvement and innovation”. This resulted in Haier becoming a recognised high-quality vendor in China.

Then the goal shifted to achieving global recognition. This meant diversifying, mainly through buying up other factories. When the rapid growth highlighted the limitations of the hierarchical pyramid he implemented the matrix model, accompanied by “initiatives to stimulate innovation”. Haier became China’s largest fridge manufacturer and began exporting fridges under its own brand name.

Success followed, and once again limits of the organisational structure were identified. “Production slowed, frustration set in, internal systems seemed to be losing efficiency. People were spending more time writing reports than working for clients.”

In one big swoop 12’000 middle-management positions disappeared

With the onset of the internet, the organisation had to deal with customers who could compare products and who wanted their specific needs met. Haier decided to produce to order, and increased local production by buying out brands in Japan, New-Zealand and America. But also the “satellite structure” had bottlenecks when it came to the new goal of trying to please clients.

The next transformation was dividing the company up in 2’000 self-organising and largely autonomous units known as ZZJYTs. These units had the freedom to innovate, to propose new products or services. Whenever an idea was good enough to start a new unit, employees could simply join if they thought they would be able to add value.

Triggered by the fast proliferation of the internet, and the development of online platforms, Zhang implemented yet another transformation. This time “with the goal of eliminating bureaucracy, taking down organisational walls, improving response time, and encouraging entrepreneurial thinking.” In one big swoop 12’000 middle-management positions disappeared.

“Eventually, every empire will collapse. A rainforest, on the other hand, will continue.”

Two thousand ZZJYTs became 4’000 micro-enterprises of, on average, 15 employees. The enterprises were responsible for providing products and services, keeping the company afloat, and ensuring optimal customer care. They were able to “take almost all their decisions without consulting superiors or breaking protocol.” All these enterprises connect with each other and create “a market-place where all companies are affiliated with the same online platforms to collaborate and co-operate.” Zhang himself is quoted to say that “we try to organise ourselves like a rainforest. Eventually, every empire will collapse. A rainforest, on the other hand, will continue.”

The authors share many more observations in this chapter, also about an interesting transformation of the Swedish firm Svenska Handelsbanken. They identify a “network of teams” as a much-encountered structure at progressive organisations aiming to “create an environment of flexibility, speed and involvement.”

They end the chapter listing five possible organisational structures, all offering improvements over the traditional bureaucratic pyramid, as there are the inverted pyramid, the autonomous teams in pyramid, flat organisations with autonomous teams, network of teams, and an eco-system of mini-companies.

The evolution in desired outcomes was from no awareness to maximum awareness of (changing) customer needs

From the perspective of DFS this chapter “From hierarchical pyramid to network of teams” is intriguing, and also a goldmine with several parallel developments:

• Haier’s story of transformations is not merely a story of the evolution of organisational structures, it is a story of adapting the structure to meet changing organisational desired outcomes (which themselves are adaptations to a changing world).
• In forty years Haier went from building fridges with no consideration of a customer’s needs to providing products and services which are exactly what customers want (when they want them, in the form they want them). The organisational structure had to change accordingly.
• The evolution in desired outcomes was from no awareness to maximum awareness of (changing) customer needs. To achieve “flexibility, speed and involvement” it had to “unleash” the expertise of its employees by removing as much (hierarchical) decision making as possible. By getting rid of middle management, by providing easy access (platform) to the expertise of all its employees/micro-enterprises, by defining the purpose of a new enterprise, by having those who want to add value substantiate how they will do so — in other words: by creating the conditions to optimally utilise expertise.
• From DFS follows that the later organisational structures require more and more employees to have a higher level of perceptiveness. From DFS’s perspective it is not only the organisational desired outcome, and with it the organisational structure, which transformed into those four decades, but also the characteristics of the employees which thrive in each structure.

Don’t simply reorganise, start with identifying decision making

Two more things DFS has to say about structures, before moving on to the next chapter:

• Hierarchy in itself is not the problem. An organisation trying to flatten itself will not automatically achieve better performance. The problem is hierarchical decision making. Having two, three or four layers shouldn’t matter in principle. Having said that, the more layers there are, the more likely management positions will be filled with people who operate the way they may have done before: by making decisions. Organisations should try to find the right balance between what is required to meet their organisational desired outcome in a given environment, and the organisational structure that is able to provide it. All the while being aware that there is such as thing as "Decision Free Management”.
• To those 92% of organisational leaders who are worried about their traditional structures, and the 86% who don’t how to begin tackling the issue: don’t simply reorganise. Start with identifying decision making. From hierarchical decision making to rules, protocols, checklists and contracts. Ask yourself whether you know what expertise your workforce possesses, what it would take to identify it, in which positions you would need workers with a high-level of perceptiveness, how to begin creating an environment where expertise is actually utilised. A change of structure may be a part of the answer, but it is likely going to be hard. The Corporate Rebels have many of the answers, and so does the approach of Decision Free Solutions.

Finally, when a decision is “a choice which is not fully substantiated,” then what to call a “choice which is fully substantiated”? What word to add to the English (management) vocabulary?

Over the past few years I have tried several words, but none of them stuck with me. The one I liked best was the noun “resolving” (a resolving, several resolvings). Still awkward, but I like its roots in “(re)solution” and the verb “resolve,” which indicates both finding a solution, as well as indicating a change or conversion (‘something resolved itself into something else’)."

The next chapter of “Corporate Rebels: Make Work More Fun” is titled “From directive to supportive leadership”. Sounds like a good chapter to test DFS’ concept of the “Decision Free Leader”.

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Overview of published articles (with original chapter-title of "Make Worke More Fun"):

#1: What is it that makes work fun? (Plunging in (introduction)

#2: The importance of someone's level of perceptiveness (From profit to purpose & values)

#3: On Haier and the drive to minimise decision making (From hierarchical pyramid to network of teams)

#4: Time for a complete overhaul of leadership recruitment (From directive to supportive leadership)

#5: A method for organisations to be successful in a rapidly changing world (From plan & predict to experiment & adapt)

#6: The sustainability of change and women in leadership positions (From rules & control to freedom & trust)

#7: Decision making is the cancer of organisations (From centralised to distributed authority)

#8: Choosing your own salary, the final frontier? (From secrecy to radical transparency)

#9 The outrageous success of “Buurtzorg” is easy to explain and hard to replicate — and there is still plenty of (spectacular) potential!  (From job descriptions to talent & mastery)

#10 TBD (Join the revolution; Seeing is believing)