So, Goliath is dead. And we were all wrong.
In “David and Goliath: Underdogs, Misfits, and the Art of Battling Giants”, bestselling author Malcolm Gladwell laments that we celebrate David’s victory because we do not expect him to win. Pitted against a towering Goliath, common sense tells us that the diminutive David is as good as dead.
True. No one would believe that David won simply because of his size. Yet he did in spite of this perceived disadvantage. Most were blinded that a Goliath could have weaknesses. All failed to recognize the advantages that David has, that is, speed and agility.
According to one observation, “the very same thing that appears to make a company so formidable–its size, its resources–serve as stumbling blocks when they’re forced to respond to a situation where the rules are changing, and where nimbleness, and flexibility, and adaptability are better attributes.”
Blackberry was enjoying exponential growth. Then came iPhone. Two years after, Blackberry was gone. Finnish giant Nokia did everything right, yet somehow something went wrong. While it normally takes decades, Xiaomi became a formidable force in consumer electronics in less than 5 years.
Our sense of security is based on predictability. Yet businesses are not sure what tomorrow will bring. The internet age made everything connected. Yet the interconnectedness made everything complex. The butterfly effect has become the norm. Simple cause-and-effect chains have been replaced by complex interconnected forces and events. When predictability is almost zero, and causality is difficult to identify, one tends to act and behave according to one’s understanding, which one cannot even be certain.
Now, the crucial questions for survival are one, “how much does one know about the situation?”, and two, ”how much can one predict the results of one’s actions?” With an increasing number of risk factors that have to be taken into account, organizations need to be highly flexible, and they have to be fast.
The challenge now is, how can one become a Goliath, yet be as nimble and agile as David?
The Haier Group of China began as a nearly bankrupt refrigerator manufacturer in Qingdao, Shandong province. It is currently the world’s largest appliance maker. It competes with international household names such as Whirlpool, LG, and Electrolux. In 2016, it bought GE’s appliance business. Globally, Haier has some 75,000 employees.
In 2010, Haier created micro-divisions called “zizhu jingying ti” within the organization. Literally “independent operating units”, they operated as virtual teams. Team leaders were given considerable decision-making autonomy. In 2014, Haier transformed the organization into a conglomerate of “xiaowei qiye”, literally micro-enterprises. These enterprises operated as independent companies within the Haier ecosystem, responsible for their own recruitment, operations, and financial decisions.
Haier has more than 4,000 of these “xiaowei”. Most have only 10 to 15 employees. Approximately 200 of these are market facing enterprises that are involved in Haier’s legacy appliance business. About 50 are incubators that are focused on emerging markets such as e-gaming, or app development. More than 3,800 are businesses that sell component products and services to the market-facing enterprises. These include design, manufacturing, human resources, etc.
Although these “xiaowei” operates within the Haier ecosystem, they are “free to buy or not to buy” from each other. If one believes that an external provider would better meet its needs, it can engage outside contractors. Each of these micro enterprises has to compete for “jobs” lest they go out of business. For example, an HR “xiaowei” should continue to deliver qualified candidates required by another, or it may find itself ignored and bypassed by other “xiaoweis”.
Depending on the market importance it generates, a “xiaowei” sets its own compensation packages. Aside from discouraging mediocrity, it also forces all of these units to collaborate, creating value and importance for themselves. Moreover, it also maximizes flexibility. Each is free to reconfigure itself to take advantage of new market opportunities.
For the past 10 years, gross profits of Haier’s appliance business “have increased by 23% a year, while revenue has increased by 18% annually.” Haier has also created “more than $2 billion in market value from new ventures”.
Haier’s model is a radical overhaul of its traditional management model. It takes advantage of the distinct properties of the internet age. By being “small pieces, loosely joined”, it is free to iterate and to take any form it needs.
Goliath need not be dead.
Real Carpio So lectures at the Ramon del Rosario College of Business of De La Salle University. He is an entrepreneur and a management consultant. Comments are welcomed at [email protected]. Archives can be accessed at realwalksonwater.wordpress.com. The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.