OEC management-control system helps China Haier Group achieve competitive advantage; the combination of a new corporate culture that emphasizes excellence, a changed business strategy, and a management-control system of work rules and discipline turned a nearly bankrupt company into a success

Management Accounting Quarterly, Spring, 2005 by Thomas W. Lin

In 1984, CEO Zhang Ruimin took over a nearly bankrupt refrigerator factory in Qingdao, China. In 2003, Haier Group's global sales hit $9.7 billion with a growth rate of 70% during the previous 19 years. Today, Haier is recognized as a worldwide brand. On January 31, 2004, the firm ranked 95th after such household names as Coca-Cola, McDonald's, and Nokia, which were the top three on the World Brand Laboratory's list of 100 most recognizable brands. Haier was the only Chinese brand on the list. According to an October 2003 article in the Harvard Business Review, Haier is one of the five Chinese "National Brands to Watch."

How did it achieve its success? As one of China's fastest-growing companies, Haier Group fits a 1999 Gallup survey profile for a successful company. Customer service, product quality, operating efficiency, innovation, and speed to market are among the top seven factors for success. Haier excels in all these areas.

To achieve success, the company developed its corporate culture, business strategy, and OEC management-control system, which enforces firm work rules and discipline. Haier's Human Resource Management Director Wang Yingmin explains the OEC acronym: "O stands for Overall; E stands for Everyone, Everything, and Everyday; C stands for Control and Clear. OEC means that every employee has to accomplish the target work every day. The OEC management-control system aims at overall control of everything that every employee finishes on his or her job every day with a 1% increase over what was done the previous day."

Why did CEO Zhang choose to implement the OEC system? He says, "If you observe Chinese people's behaviors at the traffic lights, when the red light is on, people simply ignore it and cross the street anyway. At the workplace, Chinese people also tend to ignore rules and do not pay enough attention to details. We need a tough management system with fair rewards and penalty features to help our workers get things done properly." To focus on customer needs, product quality, innovation, and speed and to improve operating efficiency, the firm developed and implemented the OEC management-control system in the early 1990s.

OEC works. When I visited Haier's air conditioner manufacturing facility in the Haier High-Tech Industrial Park at Yellow Island in July 2004, the factory floors were clean, and workers wearing uniforms and photo ID badges operated in an orderly manner at the assembly lines. Banners featuring quotes such as "A Product with Defects Is Useless" and "Innovation Is the Soul of Haier Culture" lined the factory walls. One large bulletin board said, "Every day is a new day; all activities are completed in the same day by innovations." The OEC management-control system implementation has resulted in satisfied customers, efficient and effective processes, motivated and prepared employees, sustainable revenue, and profit growth.

Let's look at how OEC helped turn the company into one of the world's top brands.

COMPANY SNAPSHOT

Haier was not always a success story. When Haier CEO Zhang Ruimin took over this refrigerator company from a government official in 1984, the company had total assets of $300,000, a net loss of $178,000, sales revenues of $421,000, and 600 workers. In 2003, it had total assets of $2 billion, 30,000 employees, more than $100 million profit, and sales revenues of $9.7 billion.

The firm now manufactures a wide range of household electrical appliances, such as air conditioners and freezers, in 96 categories with 15,100 specifications; exports products to more than 160 countries; and has established 58,800 sales outlets globally. In 2000, the firm opened a $35 million refrigerator factory in Camden, South Carolina, and Wal-Mart and many other national and regional chains sold Haier products.

On March 4, 2002, Haier unveiled its American headquarters in a landmark neo-classical building, the former offices of the Greenwich Savings Bank on Broadway in New York City, indicating that the firm had moved into a new phase for globalization of product design, manufacturing, and sales. The move demonstrated a strong determination for long-term development in the United States. In 2002, Haier had a 30% U.S. market share for refrigerators 230 liters and under and a 35% U.S. market share for refrigerators in the 230- to 280-liter range. Its U.S. sales had reached $300 million in 2002, and it wants to hit $1 billion in U.S. sales in 2005.

Haier also has been successful in European markets with a 10% market share in Europe's air conditioning market. The latest Euro-monitor statistics on company sales show that it is fifth among the global white-goods manufacturers and has the largest world-market brand share for refrigerators. Its short-term goal is to be among the world's top three white-goods manufacturers.

CORPORATE CULTURE AND CORE VALUES

Haier established an enterprise culture department to actively promote and educate employees. An 80-page handbook about the Haier Enterprise Culture includes the following key features: