Management accounting innovation drives corporate strategic transition at Haier Group in China

By Lixia Tan, executive vice president and CFO of Haier Group. From IAFEI Quarterly Bulletin June 2020

In the rapidly changing era of the Internet, the Haier Group is dedicated to transforming itself from a traditional home appliance manufacturer to an entrepreneurial incubator, and striving to build a platform-based entrepreneurial ecosystem. This article discusses the continuous financial and organizational reform of Haier Group, and summarizes the practical experience of management accounting innovation with Chinese characteristics.

Changes and transformation, Haier never stops

Since its founding in 1984, Haier has followed an innovation system centered on users needs in order to drive it sustainable and healthy development. It has grown from an insolvent and bankrupt collective small factory to one of the largest manufacturers all household appliances in the world.

Today, Haier is committed to transforming itself from a traditional home appliances manufacturing enterprise into an open platform for entrepreneurship, building an ecosystem in the post ecommerce era, which focuses on the development of a community economy, and operates on value exchanges amongst users, with integrity and business ethics as its core competitiveness, for the purpose of shared benefits for all. On his journey to the world’s first brand of large household appliances, Haier has been experiencing a variety of changes, destroying defect refrigerators in public to demonstrate its commitment to quality, implementing reforms in its business structure, introducing the concept of market chain management, carrying out process reengineering as well as promoting independent operators. Since its inception Haier has gone through four stages of development: brand building, business diversification, adoption of international practices and standards, and global expansion. It is currently implementing an Internet based growth strategy. Throughout Haier’s growth history, the driving force of transformation and upgrading does not come from established strategies, but from continuous innovation. It is not the traditional lab innovation, but one that is driven by the market and the end users.

The wide application of the Internet reduces information asymmetry. The biggest characteristic of the Internet era is the zero distance between businesses and customers. Firms must be flexible enough to satisfy their customers for their diverse, rapidly changing and demanding needs. More and more they find that to be Internet centric does not mean that manage is must have an Internet mindset, but let the enterprises must operate in a way that is lighter, faster and stronger, and that they can organize resource is and work together efficiently to meet the needs of the users. Kevin Kelly foresees this classic feature of Internet enterprises in his book New Rules for The New Economy. He described the state of flux in the network economy, moving from change to flux of changes, which overthrow existing things, and provide a hotbed for the birth of more innovations. These changes do not occur in an orderly manner, and will form a process of regeneration. In the Internet era, established processes for management, if continued, may be able to avoid internal conflicts and disputes, but may also lead to increased bureaucracy within the company. Production and R&D or on schedule . Business units and their staff are only responsible for the process, not for the results. In this way, the innovation ability of the firm will surely decline. At this time, Internet based transformation is no longer a selective but a question that must be answered. A right answer would be essential to the survival and future growth of the business.

Organizational reform provides strong support for strategic transformation

In the course of Haier’s development, Mr Zhang Ruimin, chairman and CEO of the Haier Group, had put forward a model that aims to align the initiative of individual employees with value creation for the customers. The innovative business model, referred to as “Ren Dan He Yi” for short, encourages each employee, on an individual basis, to be more entrepreneurial and innovative in creating value for the customers, and share the benefits during the process, in a win win situation for the company, the employees and the customers. In other words, Haier asks his employees not just to do things for the sake of the company, but to work for themselves. As a result, Haier have gone through a transformation from a traditional hierarchical company to an open platform for entrepreneurship.

It was a choice that Haier made in the Internet era to rid itself of the soft closing system found in traditional enterprises and become the network node of the Internet. It has transformed from a traditional household appliance manufacturer to a platform of incubation open to the whole society.

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