In nature, few complex systems are organised through hierarchies. We need to develop businesses that are living, adaptive, “collectively conscious” organisations. In an extract from my new book “Business Recoded: Have the courage to create a better future”, I explore the future of organisations. 

Qingdao is the home of Haier, the world’s leading home appliances business. Over the years, the company’s CEO Zhang Ruimin has become an innovator not only of washing machines and refrigerators, but of organisations and entrepreneurship too.

Once a devotee of the “six sigma” approach, Zhang has developed his own management ideology: rendanheyi. By dividing a company up into micro-enterprises on an open platform and dismantling the traditional “empire” management system, rendanheyi creates “zero distance” between employee and the needs of the customer.

At the heart of rendanheyi is the cultivation of entrepreneurship – by removing the costly level of middle management (Zhang famously eliminated the positions of 10,000 employees), you encourage innovation, flexibility and risk-taking.

The quantum mechanics of business

On meeting, we quickly found a common background, having both studied physics, and specifically quantum mechanics. I was curious about how he had embraced the ideas of physical science into his vision of how Haier should work as an organisation. We quickly got into a passionate, and somewhat technical discussion about atomic structure and wave theory. Whilst I’m not sure atomic physics would be many business people’s ideal topic, I was intrigued.

“When I first studied physics, I was amazed by the perpetual motion of subatomic particles. Electrons and protons coexist in a dynamic equilibrium, created by their equal and opposite charges. This sustains a continual existence, it enables atoms to come together in many different formats as molecules, each with their own unique properties, and within these atomic structures is huge amounts of energy”.

The application to business becomes clear, and also much of the founding ideas behind why and how he has developed his rendanheyi model of entrepreneurial businesses.

“Applying this idea from physics to business” he says “small teams of people with different backgrounds, skills, and ideas, can co-exist incredibly effectively. It is the ability to create small diverse teams where ideas and actions are equally dynamic, that enables a business to sustain over time. They become self-organising and mutually enabling. Ideas, innovation and implementation are continuous. And they can easily link with other teams, like atoms coming together as molecules, for collaborative projects and to create new solutions.”

As a result, he challenges the old supremacy of shareholders in the value equation, putting a premium on employees, and the value created by them and for them. However, at the same time, he recognises the need to empower employees to be more customer intimate. As a result, the rate of growth has risen from 8% to 30% in recent years.

“People are not a means to an end, but an end in themselves. We took away all of our middle management. Now things are working much better. Zero signature, zero approval. Now we have only one supervisor, which is the customer.”

Haier’s evolution has been rapid and relentless, as Zhang has driven the company from an old refrigerator factory – where indiscipline and poor quality was so rife that he took to shock tactics, taking a sledge hammer to some of the products to demonstrate that such mediocrity was no longer acceptable – to a pioneer of digital tech.

In the 1990s, Haier focused on the Chinese market, building a portfolio of high-quality standardised products. The 2000s was about internationalisation, reaching across the world, and then adding more localisation and customisation. The 2010s have been all about digitalisation, embracing the power of automation and data, to the point where Haier is now one of the world’s leading producers of “smart” products, embedded with Internet of Things, IoT, and connected intelligently.

However, the implications are profound. Today, Haier is not motivated by seeking to create the best product. With a brand purpose that seeks to make people’s lives better, it looks beyond products to services, to how it can do more to help people live in their everyday lives, with a focus on the intelligent home.

“In a digital world of globalization, connectivity and personalization, there is no such thing as a perfect product. People will buy scenarios, or concepts, where the products might be free and act as enablers for services. Haier’s products embrace IoT to ensure that they connect with other devices, with other partners in our ecosystems, and with people and their homes. In the future, maybe the product will be free, and people will pay for services – from food delivery, to home entertainment, security or maintenance.”

Organisations as living organisms

The way we manage organisations seems increasingly out of date.

Most employees are disengaged. Too often work is associated with  dread and drudgery, rather than passion or purpose.

Leaders complain that their organisations are too slow, siloed and bureaucratic for today’s world. Behind the façade and bravado, many business leaders are deeply frustrated by the endless power games and politics of corporate life.

Frédéric Laloux offers an alternative. In his book “Reinventing Organizations” he uses the metaphor of an organisation as a living system, with radically streamlined structures that facilitate active involvement and self-management.

He envisions a new organisational model, which is self-managed, built around a “wholeness” approach to life and work, and guided by an “evolutionary purpose”.

Wholeness means that people strive to be themselves, rather than putting on a mask when they go to work. This, he argues can only be achieved when they let go of the idea of “work-life balance” which encourages a compromise. By aligning personal and organisational purpose and passions, you have less stress, and contribute more.

Evolutionary purpose means that meaning and direction of the business is not defined from above but drawn from what feels right amongst people. It might be articulated in a manifesto which defines the actions most admired, the new projects that receive the most interest. And it is constantly evolving, as both the culture inside, and world outside, evolve too.

Laloux describes humanity as evolving in stages. Inspired by the philosopher Ken Wilber, he describes five stages of human consciousness, with associated colours, and proposes that organizations evolve according to these same stages. They are:

  • Impulsive (red): Characterised by establishing and enforcing authority through power, eg mafia, street gangs. For business, this is reflected in the functional boundaries, and top down authority.
  • Conformist (amber): The group shapes its own beliefs and value. Self-discipline, shame and guilt, are used to enforce them, eg military, religion. For business this means replicable processes, and defined organizations.
  • Achievement (orange): The world is seen as a machine, seeking scientifically to predict, control and deliver, eg banking, MBA programs. For business this means Innovation, analytics and metrics, and accountability
  • Pluralistic (green): Characterised by a sense of inclusion, to treat all people as equal, more like a family, eg non-profits. For business this means a values-driven culture, empowerment and shared value.
  • Evolutionary (teal): The world is seen as neither fixed nor machine, but a place where everyone is called by an inner purpose to contribute, eg holocracy. For business this means self-management and wholeness.

Most organisations today are “orange”, still driven by analysis and metrics, driving profitability and growth. Examples of “green” organisations include Apple, Ben & Jerry’s, Starbucks.

Examples of “teal” organisations in the USA include:

Examples of “teal” organisations in Europe include:

  • Buurtzorg – Dutch home care service, who decided they no longer wanted to be driven by corporate efficiency metrics – Read more
  • John Lewis Partnership – British employee-owned democratic organisation of 90,000 partners and famous for its slogan of “never knowingly undersold”
  • Evangelischen Schule Berlin – Germany
  • Heiligenfeld – German mental health hospital
  • Favi – French brass foundry within the car industry
  • We-Q – created a team diagnostic survey tool that facilitates transformational conversations in the direction of the key teal breakthroughs

The end of hierarchy

What replaces the old hierarchies of organisations?

Henry Ford built his organisation for stability, efficiency and standardisation. Clearly defined processes and controls ensured that it worked like a machine, no space for deviance or change. Some decades later, Kaori Ishikawa went further to systemise the approach with total quality management, seen as the secret of Japan’s industrial success in the late 20th century. Efficiency was the goal, not creativity.

However, today’s world requires a different approach. Business needs to be fast and adaptive to a world of change. Technology has transformed the roles of people inside organisations, automating processes, adding intelligent systems, and digital interfaces. The value of organisations lies in its ideas, reputation and reach. Organisations embrace the connectedness of the outside world, technology enabling knowledge sharing, fast decision making, and collaborative working.

Flat organisations became fast and agile, putting customers at their heart. Yet this is all structural, and did not in itself create difference. In a world where businesses could essentially do anything, they have become more purposeful, and also more distinctive in their character and beliefs.

Expert teams don’t need the old controls. Empowered and enabled, they become more self-managing, and teams collectively work together towards a higher purpose and strategic framework that guides but doesn’t prescribe. As a result, the business develops a human-like consciousness. It resembles a complex adaptive system, where there is a wholeness built on multiple non-linear connections, combining progress with agility.

Buurtzorg, like Haier, is a great example of self-managing teams. The Dutch healthcare business provides home support to elderly people. It recognised that local teams, which acted largely autonomously had a much great commitment to their work, than if they were managed centrally using standard efficiency metrics.

Haufe Group is an innovative media and software business in Freiburg, in the heart of Germany’s Black Forest. As an organisation they have long put people first, sharing in the development of strategy, and the rewards of success. When it came to appointing a new CEO, the company realised that this couldn’t just be imposed on such a democratic structure, and so now holds elections to find who amongst peers will be the leader.

If, as Peter Drucker said, “the purpose of an organisation is to enable ordinary human beings to do extraordinary things” then organisations must evolve to make this possible.

© Peter Fisk 2021. 

 

Interview with Peter Fisk on the future of organisations, and the ability to embrace new talent that drives diversity and creativity within traditional organisations. The article appears in the September 2021 edition of Fast Company magazine:

Fast Company: Is seeking out such swashbuckling, rule-breaking oddballs a sound strategy for upping the innovative IQ of an organization whose leaders don’t naturally think like innovators? Why or why not? 

Organisations thrive in a world of uncertain yet relentless change on their “cognitive diversity” … much more than a agile mindset, this is the willingness to embrace ambiguity rather than wait for certainty, to embrace extreme insights and ideas over mainstream averages, and to resolve paradoxes with new creative fusions.

Innovation lies in “extreme teams” who have both the stretching challenge, and pyschological safety, to challenge conventions, and to embrace boldness. These become the new powerhouses of organisations, which have replaced formal hierarchies with self-organising organic networks, focusing on customers and opportunities, rather than organised for efficiency and continuity.

A great example is Haier, the Qingdao-based world’s leading home appliances business. In my new book “Business Recoded” Haier’s CEO Zhang Ruimin describes his “rendanheyi” approach to organisations, an organisation of 1000 extreme teams, each essentially a micro-business of no more than 100 people, but each with the support of corporate resources and branded ecosystem.

The same approach to “extreme teaming” – the ability to bring together a juxtaposition of talents, skills, perspectives and experiences – demonstrates the real power of “diversity” in its broader sense, in organisations today. Google’s Project Aristotle recognised these qualities in its search for a perfect team, as did design company IDEO in recruiting eclectic teams of scientists, engineers, artists, and business people in its design teams.

Over the last decade as hierarchical organisations have stagnated, they have sought to embrace an entrepreneurial culture, perhaps through design thinking, corporate venturing, or seeking to follow Eric Ries’ start-up bible. Instead they should play to their strengths, using their scale to embrace much greater cognitive diversity – and ultimately portfolio of projects, innovations, and businesses – in a do what start-ups could only dream of doing!

Fast Company: In our experience, Rare Breed individuals don’t want to work in environments that are dull, repressive, or where they feel they cannot be themselves. They also are more likely to be outside the mainstream in terms of racial and ethnic identity, gender identity, appearance, social interaction, and even hygiene. How can leaders evolve their cultures to be more enticing to such “fringe” people without chasing away the more conservative employees who also play vital roles in keeping things running?

Microsoft’s incredible value-creating rebirth under Satya Nadella will be written about in time, as the model of how large organisations finally reinvented themselves for a post-hierarchical age. Nadella really only used two tools to drive a cultural transformation – inspiring purpose (an empowering focus on what customers do, not the products themselves) and a growth mindset (to experiment, to break rules, to reject the old corporate model).

Today’s most enlightened organisations are becoming “platforms for talent” – creating the space, support and stories for individuals to unlock their full potential. That requires a radical shift in thinking. Of leadership understanding. Of strategic agility. And patience. It goes far beyond Google’s boot-legging or Lego’s creative play. It’s when organisations learn to play jazz, not to follow the classical score – to unlock their humanity, and human potential.

Of course, many organisations are not ready for that, or don’t have the capacity to cope with such chaos – smaller companies seek to retain single-minded focus, finance or pharma have their regulatory excuses – but ultimately they need to embrace such approaches. The Pfizer vaccine emerged out of an ecosystem of partners, most notably Biontech, who were prepared to go to extremes and pursue what seemed like crazy ideas.

The speed of transformation in so many markets around the world, requires this mental as well as physical agility, achieved by cognitive diversity – look at Jio in India, Grab in Singapore, or even more traditional organisations like Siemens in Germany, and Fujifilm in Japan. It is supported by an ambidextrous strategy – to deliver today, whilst creating tomorrow.

This requires dual transformation that builds a customer-centric portfolio of solutions for today, and a portfolio of innovative business ideas for tomorrow. “Fringe” people were only so-named when the organisations only focused on today, on the mainstream, on the core. Now there is more space, and more need. Jobs shift from function roles to projects, stability gives way to speed, crazy ideas and being different is the new human advantage.

Fast Company: Presumably, there are some people like this hidden in the headcount of any large company, afraid to show their true colors. Since it’s much easier to find and develop game changing talent in-house than to try to recruit it elsewhere, how can leaders spot and develop the people who “think around corners” who are already on their payroll?

Eliud Kipchoge is the world’s greatest marathon runner, the first man to break two hours, the double Olympic champion. 6 years ago, a fading track athlete, and having passed his 30th birthday, he was considering retiring. Instead he stepped up distance and took on the marathon. He knew he needed to change. He started doing yoga, he moved out of his nice home into a training camp, and he sought to learn everything from other sports like cycling.

He knew he needed to find something different to perform at a level nobody had done before. In the same way, organisations increasingly recognise that success in the post-Covid 2020s won’t be achieved go getting “back to normal” but by embracing difference. This is a mindset. It needs leaders with a “future mindset”, with curiosity and courage, who seek to find new directions. A mindset, that then becomes a culture in everyone.

Organisations of the future are not about status achieved through years of service, depth of expertise, or even historic performance. They bring together young and old, eclectic skills and attitudes, oddballs and misfits. To do so, they will need multiple contracting formats, and multiple working formats. This will be the great legacy of Covid-19’s disruption to the old ways of working, themselves a hangover from the industrial revolution.

At GM, Mary Barra used her acquisition of AI-driving system Cruise to symbolise and galvanise a rebirth of a bankrupt giant. Jim Snabe has done the same over the last few two years at Maersk, turning the world’s largest container shipping company, into a futuristic blockchain-based logistics network. These organisations thrive on transformational projects – forget functional roles, forget job descriptions, even forget old notions of employment.

I started my new book by saying “the next 10 years will see more change than the last 250 years”. We have already  recognise the transformational impact of shifting markets, data-driven tech, and new agendas. But it’s organisations that will make the change happen – the new ecosystems of talent, led with a future mindset, fusing together as extreme teams, and the courage to create a different,  better future.

© Peter Fisk 2021. 

Zhang Ruimin is Chairman and CEO of Haier, the world’s leading white goods business.

From his base in Qingdao, Haier has revolutionised the world of refrigerators, washing machines, air conditioning, and many other home appliances. Not just in China, but increasingly as a global brand. Zhang has become a world-renowned entrepreneur, creating a unique, innovative, evolving business model that fuses management philosophies of east and west.

In 1984 Zhang became director of the Qingdao Refrigerator Factory, the predecessor of Haier. Over 30 years, he turned a small, collectively-owned factory with a 1.47 milion yuan loss into a global enterprise, with a turnover of 188.7 billion yuan (2015). In 2016, he sealed a $5.4 billion deal with GE to buy GE Appliances (GEA).

Zhang’s innovative management philosophy blends the essence of traditional Chinese culture with modern western business concepts. Once a devotee of the “six sigma” approach, Zhang has developed his own management ideology: rendanheyi. By dividing a company up into micro-enterprises on an open platform and dismantling the traditional “empire” system of management, rendanheyi creates “zero distance” between employee and the needs of the customer.

At the heart of rendanheyi is the cultivation of entrepreneurship – by removing the costly level of middle management (Zhang famously eliminated the positions of 10,000 employees), you encourage innovation, flexibility and risk-taking.

The physics of business

Today we’re in London for the Thinkers50 Global Summit, a meeting of enlightened mind, celebrating the best ideas in business thinking, including the biennial ranking of the top 50 gurus. Zhang was the winner of the 2015 “Ideas into Action” award, and has now risen to 15th in the global ranking. He also hosts Thinkers50 regional hub in China, as a way to help encourage more entrepreneurs, more new thinking, and more innovation across Asia.

I’ve met Zhang before, but I hadn’t previously had the opportunity to explore our common background, both as physicists. I was curious about how he had embraced the ideas of physical science into his vision of how Haier should work as an organisation. He was delighted, and quickly got into a passionate, and somewhat technical discussions about atomic structure and wave theory. Whilst I’m not sure atomic physics would be many business people’s ideal topic, I was intrigued.

Atomic theory and self-organising teams

Zhang Ruimin: “When I first studied physics I was amazed by the perpetual motion of sub atomic particles. Electrons and protons coexist in a dynamic equilibrium, created by their equal and opposite charges. This sustains a continual existence, it enables atoms to come together in many different formats as molecules, each with their own unique properties, and within these atomic structures is huge amounts of energy”.

The application to business becomes clear, and also much of the founding ideas behind why and how he has developed his rendanheyi model of entrepreneurial micro businesses.

Zhang Ruimin: “Applying this idea from physics to business, small teams of people with different backgrounds, skills, and ideas, can co-exist incredibly effectively. It is the ability to create small diverse teams where ideas and actions are equally dynamic, that enables a business to sustain over time. They become self-organising and mutually enabling. Ideas, innovation and implementation are continuous. And they can easily link with other teams, like atoms coming together as molecules, for collaborative projects and to create new solutions.”

As a result, he challenges the old supremacy of shareholders in the value equation, putting a premium on employees, and the value created by them and for them. However at the same time, he recognises the need to empower employees to be more customer intimate. As a result the rate of growth has risen from 8% to 30% in recent years.

Zhang Ruimin: “People are not a means to an end, but an end in themselves. We took away all of our middle management. Now things are working much better. Zero signature, zero approval. Now we have only one supervisor, which is the customer.”

Wave theory and entrepreneurial brands

Zhang Ruimin: “Additionally as we think more about quantum physics, it is wave theory that is responsible for how energy is transmitted – in forms such as light or heat, magnetism or sound. The idea of waves being a relentless force of progress, which can be reinforced when two waves come together and resonate with more than double their impact. The Doppler effect. Waves can be sustained over great distances, and with different frequencies, into what we know for example as pitch and volume”.

In this example the analogy to business can be taken in multiple ways, both in how organisations build a culture and sustain momentum, but also how innovations and brands are sustained in markets.

Zhang Ruimin: “First think of waves inside organisations. They are like ideas that spread between people and teams. Ideas that resonate together can be more powerful, and in time they characterise a culture, a common way of thinking and doing things. Haier is many businesses but one brand. In the same way, in the market, innovations can spread rapidly, and be reinforced by matching with customer needs, particularly as was create more products to improve people’s lives more holistically. As we do this, we create resonance with people, the solutions become more important, and the brand becomes more powerful.”

As a result, brands form a different type of relationship with organisations and brands, rather than transactional, they come relational or even partners.

Zhang Ruimin: “Sales used to be the end of the relationship. Now sales is the beginning of the relationship. We now work in a more connected way, with connected products, and connected partners, and connected customers. It is an ecosystem. ”

Technological innovation that improve people’s lives

Haier’s evolution has been rapid and relentless, as Zhang has driven the company from an old refridgerator factory – where indiscipline and poor quality was so rife that he took to shock tactics, taking a sledge hammer to some of the products to demonstrate that such mediocrity was no longer acceptable – to a pioneer of digital tech.

Zhang Ruimin: “We quickly realised in the early days, that high quality was very important. Approaches like six sigma were very important at the time, and we were one of the first Chinese companies to embrace such techniques. We didn’t just want to compete, we wanted to be the best company. And we needed to be if we were to build a brand recognised globally.”

Whilst Haier in the 1990’s was focused on the Chinese market, building a portfolio of high quality standardised products, the 2000’s was about internationalisation, reaching across the world but with localisation, and customisation. The 2010’s have been all about digitalisation, embracing the power of automation and data, to the point where Haier is now one of the world’s leading producers of “smart” products, embedded with IOT, and connected intelligently.

However the implications are profound. Today it is no longer about standardisation, and creating the best product. Haier’s brand purpose is all about making people’s lives better. Therefore Haier is looking beyond products to services, and how it can do more to help people live in their everyday lives, with a focus on the intelligent home.

Zhang Ruimin: “In a digital world of globalization, connectivity and personalization, there is no such thing as a perfect product. People will buy scenarios, or concepts, where the products might be free and just enablers of services. Haier’s products embrace the internet of things to ensure that they connect with other devices, with other partners in our ecosystems, and with people and their homes. In the future, maybe the product will be free, and people will pay for services – from food delivery, to home entertainment, security or maintenance.”

The ecosystem model is now core to Haier’s future, arguing that Haier is the first true ecosystem brand.

Zhang Ruimin: “We want to create a rainforest of perpetual life”.

From Aristotle’s philosophies to Asian leadership

Zhang is clearly an incredibly thoughtful and well-read leader. His ideas are regularly interspersed with quotes from Aristotle and Plato, Kant and Hemingway, Mintzberg and Drucker, and many others too. His desire to embrace western management techniques marked him out as a thought leader amongst Chinese leaders.

Zhang Ruimin: “I read two books every week, or more. Easy year more than a 100 books. I pay special attention to cutting edge ideas. I read philosophy books.”

Having spent much of my last year exploring Asian businesses and their leadership behaviours, I was intrigued by how far Zhang thought Asia had now come. Is Asia still learning from the west, or do the ideas now come from the east? Certainly, my experience in organising this year’s Thinkers50 European Business Forum, was that the best ideas, new innovations, and leadership inspiration come from Asia, rather than Europe or America.

Zhang Ruimin: “A true leader enables ordinary people to achieve extraordinary things.”

So finally an inspiration from Chinese culture, or Lao Tzu to be more precise. He went on.

Zhang Ruimin: “I believe everybody can learn from everywhere. Yes, Asian companies and their leaders have embraced new ways of working, and responding to their fast growth markets. I admire many of my Asian peers. But I also still admire other companies all around the world, and particularly in the applications of technology. For me it is about taking the best ideas from everybody, and combining them in the right way for your business, your market and your people.”

Higher, further, and faster …

You can read more of this interview, and “the physics of business”, in my forthcoming book, Business Recoded.