"Rendanheyi" - Transforming HR (Part 1)

tHRive is my weekly newsletter, with ideas and perspectives from outside the typical and traditional HR domain that are highly relevant and support expanding the boundaries of knowledge and application within HR.

This post is about a radical organizational model even for main stream businesses. We will explore if HR can embrace these ideas to reimagine the function and the organization it serves.

Beyond HRBP, COE & Shared Services Model: Embracing Innovative Approaches to HR Management

As organizations navigate the rapidly changing business landscape post-pandemic and in the era of AI, the traditional approach to managing people is proving inadequate to meet evolving needs and challenges. McKinsey recently published an article on a new approach to HR, and introduces an idea called Ulrich+, which encompasses HR business partners, centers of excellence, and shared service centers. This article highlights the insufficiency of the current model in the face of increased volatility, uncertainty, complexity, and ambiguity.

The rapid advancement of workplace technology since Q2 of 2020 has accelerated the adoption of alternative and hybrid working models. These changes have also brought new challenges in monitoring employee conduct and performance. Additionally, the preferences of the majority-millennial workforce have significantly shifted, necessitating a reevaluation of traditional HR practices.

In this rapidly changing landscape, traditional hierarchical structures and management approaches are facing new challenges. For HR leaders, such as CHROs and CPOs, it is crucial to explore innovative models that empower employees, foster collaboration, and drive organizational success. One model that has gained significant attention and acclaim is Haier's RenDanHeYi.

RenDanHeYi & HR: Empowering Entrepreneurship at All Levels

Rendanheyi, pioneered by Haier, is a model that focuses on unleashing entrepreneurship at all levels of an organization. It allows organizations to remove traditional, top-down management structures and instead foster a highly entrepreneurial network of microenterprises. Haier's founder, Zhang Ruimin, describes the shift from an organized empire to an open networked platform, stating that every empire will eventually collapse, while a rain forest can be sustained. In this model, "Ren" represents each employee, "Dan" refers to the needs of each user, and "HeYi" signifies the connection between employees and user needs. Rendanheyi has been adopted by other organizations due to its success in fostering a culture of entrepreneurship, agility, and customer-centricity.

For HR leaders, Rendanheyi presents a unique opportunity to transform the HR functional context, align it with evolving organizational needs, and enable employees to flourish in an era of decentralization. By embracing the principles and practices of Rendanheyi, HR leaders can become catalysts for change and drive organizational growth.

Understanding the "RenDanHeYi" System

Here is a simplistic summary of the ways of working in Haier:

Micro-enterprise Model: Haier operates as a network of thousands of micro-enterprises, each with its own profit and loss responsibility. These small, self-managed teams act as independent units within the company, possessing the autonomy to make decisions and being held accountable for their results.

Customer-Centric Approach: Haier places great emphasis on customer satisfaction. Each micro-enterprise is encouraged to identify and fulfill customer needs in the most efficient and effective manner. One of the core components of the model is the phrase “zero distance to the user”. Employees need to face the user, provide value to the user and keep them at the forefront at all times. Without users, there are no employees. This customer-centric approach drives innovation and continuous improvement throughout the organization.

Flat Organizational Structure: Haier adopts a flat organizational structure, minimizing bureaucracy and fostering a culture of openness and collaboration. Decision-making authority is distributed to the micro-enterprises, enabling faster response times and increased agility in addressing market demands.

Continuous Entrepreneurship: Haier encourages a spirit of entrepreneurship at all levels of the organization. Employees are motivated to think like entrepreneurs, identifying opportunities, taking risks, and driving innovation. This entrepreneurial mindset promotes a dynamic and innovative culture within the company.

Internal Competition and Collaboration: Haier fosters internal competition among its micro-enterprises to stimulate innovation and drive performance improvement. At the same time, collaboration between micro-enterprises is also encouraged, fostering knowledge sharing and synergistic growth across the organization.

Performance-Based Evaluation: Haier utilizes a performance-based evaluation system to measure the success of its micro-enterprises. Performance metrics are tied to customer satisfaction, profitability, and overall business results. High-performing teams are rewarded, while underperforming teams are given the opportunity to improve or exit the system.

Open Innovation and Ecosystems: Haier actively seeks external partnerships and collaborations to fuel innovation and expand its ecosystem. The company engages with external stakeholders, including customers, suppliers, and universities, to tap into a broader range of expertise and ideas.

RenDanHeYi vs traditional organization

Here's a comparison table highlighting the differences in various aspects of work between the Haier model and a traditional organization of similar size:

Risks associated with RenDanHeYi

While Rendanheyi has garnered attention and praise for its innovative approach to work, there are potential risks and challenges associated with its implementation. Some of these risks include:

Lack of Coordination: With a decentralized structure and autonomous micro-enterprises, there is a risk of insufficient coordination between different units. This may lead to duplication of efforts, inefficiencies, or inconsistent customer experiences if effective communication and collaboration mechanisms are lacking.

Potential for Internal Competition: While internal competition can drive innovation and performance, there is a risk that it becomes overly competitive, leading to siloed mindsets and limited knowledge sharing. If micro-enterprises prioritize individual success over collective progress, collaboration and overall organizational growth may be hindered.

Inequality among Micro-enterprises: The performance-based evaluation system in Haier's model can create disparities between high-performing and underperforming micro-enterprises. If not managed properly, this could result in imbalances and potential resentment among teams. It may also raise concerns about fairness and equal opportunities within the organization.

Sustainability of Entrepreneurial Culture: Sustaining an entrepreneurial culture across a large organization can be challenging. As the company grows, maintaining the same level of autonomy and entrepreneurial spirit in every micro-enterprise may become increasingly difficult. Ensuring consistent alignment with the company's core values and vision can be an ongoing challenge.

Complexity of Governance: With a vast network of micro-enterprises, ensuring effective governance and oversight can be complex. Balancing the need for autonomy with the need for centralized coordination and strategic direction requires a robust governance framework and effective leadership.

Employee Burnout and Work-Life Balance: The decentralized nature of Haier's model may inadvertently lead to a demanding work culture, especially if micro-enterprises strive for individual success and profitability. This could result in work-life imbalances and potential burnout among employees, especially if the focus on customer satisfaction overshadows employee well-being.

Potential Resistance to Change: Implementing a radical organizational model like Haier's may face resistance from employees accustomed to more traditional hierarchical structures. Adapting to the decentralized model and embracing the cultural shift can be a significant challenge, requiring change management efforts and ongoing support.

It's important to note that these risks are not exclusive to the Haier model and can exist in any organization. Mitigating these risks requires strong leadership, effective communication, continuous evaluation, and a willingness to address challenges as they arise.

Conclusion: Embracing Transformation for Sustainable Success

We often find ourselves hoping for transformative outcomes while clinging to the same old structures and incentives. However, organizational structures play a crucial role, and financial incentives hold significant sway over CFOs and CEOs when it comes to approving new approaches.

To achieve transformative outcomes, we must be willing to challenge existing structures and incentivize change. Organizations need to recognize the limitations of traditional HR models and embrace innovative alternatives. The Rendanheyi model, as exemplified by Haier, provides an opportunity for HR leaders to drive organizational growth, empower employees, and foster a customer-centric mindset.

Endnote:

In Part 2 of this post, we will explore how HR could transform itself using ideas from RenDanHeyi.