Manufacturing as an ecosystem of entrepreneurial innovation at ASA Group
After several years of disappointing performance and the challenges caused to manufacturing by COVID-19, ASA Group identified Haier’s RenDanHeYi as the only progressive organizational approach with the characteristics, level of formalization, and concrete applicability to respond to their business challenges. This is a synthesis of the interview with Francesco Amati, ASA Group’s General Manager, and Michele Amati, the Group’s Sales and Marketing Director in which Boundaryless explored the drivers that attracted them to Haier’s philosophy and operating model, the soft and hard benefits the company intended to achieve, how the RenDanHeYi has been implemented in ASA and what can be learned from it.
Emanuele Quintarelli
Abstract
Since 2019, Boundaryless has been studying and collaborating with Haier Group and its Haier Research Model Institute to contextualize, abstract, evolve, and take inspiration from RenDanHeYi, their disruptive philosophy and organizational model, outside of China. Its open-source 3EO Toolkit, training, and consulting services have pragmatically helped firms to embrace an entrepreneurial, enabling, and ecosystemic mindset and constructs across the globe.
This post is part of 3EO Conversations, opportunities for exploring and reflecting on the rationales, solutions, and lessons learned from the evolutionary journey of companies adopting practices in line with Haier’s RenDanHeYi in different industrial sectors and regions.
ASA Group is a metal packaging company, born about 65 years ago in the small Republic of San Marino with a substantial history of growth and expansion that led it to 7 production sites with a total turnover of 135 million euros exclusively reached through its core business in the production of tinplate steel cans. Its primary markets are:
- The chemical sector with cans for paints, varnishes, thinners, solvents, etc
- The food sector, especially olive oil containers, since Italy is one of the main producers and milk powder in Switzerland, but also coffee, seeds, and dried fruit.
- Packaging production for aerosol spray cans
The group operates in four countries: the Republic of San Marino, with one production site; Italy, with four production sites fairly distributed across its national territory; and Switzerland and England, with one site each. ASA employs 500 people and collaborates with a large network of partners and suppliers, such as drivers for Logistics or technological counterparts.
ASA Group is also a family business, with owners of the same family that decided to spin it off from an earlier product company based in Riccione (Romagna region). It started with seafood containers, later complemented by businesses in different sectors. The seven production sites that today make up ASA Group, except for the parent company, are all the byproducts of acquisitions that have taken place over the last 65 years.
During the last 12-18 months, the group has engaged a large, heterogeneous, transversal portion of its internal stakeholders to set up a strategic plan for its evolution through a participative activity. Both senior and junior representatives from various functions and markets contributed to defining ASA’s direction and growth, including the ambition of doubling its turnover in five years while protecting current margins along the following pillars:
- Organic growth through the further development of markets in which the company operates already and the optimization of internal processes to increase efficiency and overall performance.
- Mergers and Acquisitions (M&A) to achieve growth by external lines through the selection, acquisition, and integration of other firms.
- Diversification, especially around sustainability and environmental challenges, in the form of greener packaging, reduced emissions, lower energy consumption, etc.
If you want to learn more about RenDanHeY, Please consider joining our online 3EO/ RenDanHeYi Self-Paced Training at any moment or express your interest in 3EO / RenDanHeYi Live Masterclasses that will be scheduled in 2024.
ASA Group today and in the future
- The chemical sector with cans for paints, varnishes, thinners, solvents, etc
- The food sector, especially olive oil containers, since Italy is one of the main producers and milk powder in Switzerland, but also coffee, seeds, and dried fruit.
- Packaging production for aerosol spray cans
The group operates in four countries: the Republic of San Marino, with one production site; Italy, with four production sites fairly distributed across its national territory; and Switzerland and England, with one site each. ASA employs 500 people and collaborates with a large network of partners and suppliers, such as drivers for Logistics or technological counterparts.
ASA Group is also a family business, with owners of the same family that decided to spin it off from an earlier product company based in Riccione (Romagna region). It started with seafood containers, later complemented by businesses in different sectors. The seven production sites that today make up ASA Group, except for the parent company, are all the byproducts of acquisitions that have taken place over the last 65 years.
During the last 12-18 months, the group has engaged a large, heterogeneous, transversal portion of its internal stakeholders to set up a strategic plan for its evolution through a participative activity. Both senior and junior representatives from various functions and markets contributed to defining ASA’s direction and growth, including the ambition of doubling its turnover in five years while protecting current margins along the following pillars:
- Organic growth through the further development of markets in which the company operates already and the optimization of internal processes to increase efficiency and overall performance.
- Mergers and Acquisitions (M&A) to achieve growth by external lines through the selection, acquisition, and integration of other firms.
- Diversification, especially around sustainability and environmental challenges, in the form of greener packaging, reduced emissions, lower energy consumption, etc.
The interest in Haier’s philosophy and operating model
For ASA, both 2018 and 2019 had been rather disappointing years regarding performance results. When COVID-19 came along in 2020, it had a shocking and shattering impact on the full packing sector and a company already struggling in previous years. Almost by chance, a first crisis unit was created to face the unprecedented and unexpected challenges for the plant near Codogno, where case zero, hence the first outbreak of COVID-19 in Italy, had been identified.
With a big fear of remaining isolated and needing to move quickly, a hybrid team of 15 individuals, including managers, HR, and people from the plant, came together to tackle a life-threatening emergency. Novel menaces also appeared on the business horizon due to logistics turmoil (limitations and price increases in raw materials costs and shipment), making effective and sustainable supply chain management particularly complex in the manufacturing sector.
At that point, ASA realized how an entirely new reality was suddenly emerging and how strategic it was to elaborate an agenda to relaunch the group. The crisis unit had already become a transformation and re-foundation unit with new members and much broader responsibilities. In addition to the need to adopt new collaboration behaviors and interact remotely through digital technologies due to COVID-related prescriptions, part of the team started to feel the importance of substantially rethinking how the company operated. The initial crisis unit had demonstrated that pre-existing governance mechanisms would not have been equipped to compete with lighter, more agile approaches based on new competencies and a higher ability to adapt. Repeated stressors made it clear ASA’s way of running the business had become unsuitable and inadequate.
The lack of validated best practices convinced the Group to launch multiple experiments, including internal peer-to-peer communities. For the first time, a blue-collar company empowered operators to freely and horizontally come together without any top-down mandate or coordination. Four business units were also created to increase power distribution closer to the market. In a separate exploration, employees received a budget to be collectively allocated to health or process improvement initiatives.
Even the company mission was revised to go beyond the mere production of tinplate cans. In an attempt to escape commoditization, ASA bet on three pillars:
- Let’s take hold of the limit to overcome existing barriers and constraints.
- Open our minds to break down organizational walls and the silos.
- Make the first move to empower and invite all employees to initiate problem-solving and explore innovative solutions autonomously.
As yet another experimentation already anticipated above, strategy definition became a participative and collaborative activity with 40 collaborators invited to play an active role in setting the direction and translating it into an operational plan. This last attempt generated a willingness to unlock the entrepreneurial spirit of each colleague, bring them closer to the market, eliminate the distance with customers, intercept emerging needs, and autonomously solve unexpected hurdles. The increased awareness became an explicit desire for change and organizational evolution that had to be supported and strengthened by the right organizational model in a virtuous, self-reinforcing loop.
That’s when ASA had the intuition Haier’s RenDanHeYi would have been the only candidate with the characteristics, level of formalization, and concrete applicability to respond to their business challenges.
Why the RenDanHeYi and the 3EO resonated with ASA
Many aspects of Haier’s RenDanHeYi attracted ASA Group’s interest:
- Distributing autonomy. Its intrinsic idea of bounded autonomy and responsibility represented by Micro-Enterprises (ME) looked like a perfect mechanism to let market dynamics, and actual customer needs get into ASA and reorient its internal functioning. Micro-Enterprises’ accountability sounded ideal for nurturing that sense of responsibility equity owners already had, but that was missing in the rest of the organization. Transferring profit & loss autonomy and allowing an independent choice of the value proposition to teams lower in the hierarchy could let market forces get inside the firm and thus shift organizational culture and behaviors.
- Infusing agility. The rapid, deep, and unpredictable changes in the external environment demanded much higher agility levels. For example, dramatic volume cuts on the demand side in 2020 initially meant layoffs, but also the need to work longer hours and weekends for those left in the company some months later. In 2021, port closures and ship blockages due to the post-Covid logistics crisis in China implied raw material shortages and consequent price inflation. The war in Ukraine made energy provisioning harder and more expensive. Anticipating and timely acting on weak signals required a lean, adaptive, less monolithic governance. More autonomy within a common purpose could only be unleashed through a new organizational model.
- Unlocking human potential. Better tapping into human ingenuity, passion, and willingness to add value was another primary driver toward the RenDanHeYi. Haier’s philosophy and organizational model offered an opportunity to accelerate and shape ASA’s ongoing journey from a typical family-owned company toward a business administered by a class of professional managers with appropriate skills and entrepreneurial attitudes. At the same time, the RenDanHeYi represented a way to support ASA’s entire ecosystem of employees, partners, suppliers, and even external stakeholders impacted by its business. The project could help them achieve stronger results, find broader room for decision-making and self-realization, develop new competencies, and secure financial upsides connected to customer outcomes.
- Formalizing an experimental approach. Both before and during ASA’s RenDanHeYi transformation, an explorative, iterative, participative, and pilot-based intervention model became the standard for the Group to empower a broad portion of the employee base to pick, validate, diffuse, and scale new practices and behaviors.
- Fostering information symmetry. No organizational or cultural leap would have been possible without a parallel growth in transparency and confidence regarding internal information sharing. Awareness, expertise, and data were preconditions for effective decision-making and action at the edges. In line with ASA’s existing O&I (Operation and Intelligence) alignment meeting, information symmetry had to include market trends, detailed company performance, emerging opportunities, and threats.
- Getting over managers. Last but not least, a form of self-management with employees picking and coordinating their work as peers instead of being commanded and controlled by a manager resonated much more with the kind of culture role-modeled by ASA’s owners and senior management.
Given RenDanHeYi’s progressive and innovative attitude, getting pragmatic help tailoring it to ASA’s unique context was a final concern. Boundaryless’ experience and open-source toolkits introduced the guide, vertical organizational design expertise and RenDanHeYi direct experience required for a smooth and successful implementation.
How RenDanHeYi’s ideas have been implemented in ASA
Designing and rolling out a new entrepreneurial organizational model inspired by Haier’s RenDanHeYi has been selected as one of the outcomes included in ASA’s multiyear strategic plan.
Boundaryless’ support became an enabler of this long-term transformation project required to help a structured manufacturing player gradually and confidently experiment with radical new constructs through three pilots. Each pilot has been chosen as an archetype, a representative, and a template for addressing and solving a recurring scenario in ASA’s business:
- Logistics. Tapping into the group’s experience in moving large volumes of large products, ASA’s former Logistics department started offering its services to internal units (internal logistics) and the market (external logistics). This is an example of a Shared Service Platform making itself self-sustaining by exposing its service catalog, tracking value exchange with other nodes, and attracting revenues directly from clients to balance costs and potentially become margin-positive. Actual transportation services (e.g., drivers) remain external partners selected and orchestrated by the Logistics ME. This Micro-enterprise is among the first attempts of ASA Group to move from a product to a service focus and from functional departments as cost centers to entrepreneurial units as revenue centers. The profit newly generated by the unit is distributed among the owner and two other colleagues.
- Digital Printing. Traditional offset-based printing was revamped through innovative digital technologies co-created with an external partner to offer quicker, more personalized, and more flexible services to every internal and external counterpart needing to customize the appearance of tinplate cans. The newly formed team detached itself from ASA’s core business (of producing cans) to enjoy all the rights, benefits, and freedom of a Micro-Enterprise funded and incubated by the Group. Digital Printing shows how a Micro-Enterprise can be leveraged to incubate a new revenue stream by extracting part of a core productive process from the firm to maximize its chances of generating competitive advantage and growth through disruptive solutions. Its owner gave up managing one of ASA’s most essential plants (with over 150 colleagues) to start a new business venture from scratch.
- Oil Millers. An Ecosystem Micro-Community (EMC) that developed a new commercial proposal involving, connecting, and aligning the action of multiple units (for example, Accounting and Finance, Manufacturing, Pre-Printing, Logistics, etc.) to investigate, capture, and address the needs of a specific customer segment (olive oil millers and bottlers). Due to the freedom allowed to nodes in the RenDanHeYi, the EMC decided to select and sell both products offered by ASA and other vendors. After much reflection, the EMC has been coupled with a new Micro-Enterprise under the same name and the responsibility for customer intelligence, offering development and sales. The Oil Millers EMC dramatically reinforced ASA Group’s attempt to become more customer-centric and tinkered with the many tradeoffs necessary to optimally balance manufacturing and sales priorities.
Micro-enterprise creation in manufacturing tends to demand relevant (multi-million) capital investments by the incubating company / Industry Platforms to cover raw materials, production, and R&D costs. The relevant amount of funds required influenced organization design regarding the optimal level of unbundling and rebuilding the firm reached. For example, the procurement and capital allocation for source materials (tinplate steel for the Digital Printing ME, externally acquired products for the Oil Millers EMC, etc.) have been left under the group’s responsibility to get lighter, simpler, and less capital-intensive entrepreneurial units.
In addition to searching for a recurring and replicable archetype, pilots have been selected by looking for colleagues with an entrepreneurial mindset and the personal interest to experiment with a new Micro-Enterprise owner role.
A peculiar support in the definition of both MEs and EMCs has been provided by the AFC (Accounting & Finance) team. Their consulting advice enabled ASA and future entrepreneurial teams to collect past costs and performance data, produce forecasts, and anticipate the impact of profit-sharing decisions. More broadly, up-to-date, accurate indications about all financial aspects represent an unavoidable support for ME / EMC creation and management. Similar services must be eventually automated through appropriate processes and technology to have a scalable implementation.
ASA’s Micro-Enterprises and EMCs have been designed to achieve the following possibilities and outcomes:
- A distinct profit & loss responsibility. Each Micro-enterprise has to manage its revenues and costs sustainably and credibly.
- Strategic autonomy. Picking and refining the best value proposition is the responsibility of each node. For example, the Oil Millers EMC could decide which product to sell, the pricing, and the go-to-market strategy, even if that meant offering items that hadn’t been produced by ASA or that didn’t fall within the Group’s core business. “Bag-in-box” (containers for the transportation of liquids) products emerged as an attempt to capture and serve unmet customer needs. Strategic autonomy also includes moving the attention from optimizing internal processes to creating a longer-term, premium relationship with customers through a deeper reflection on each ME’s value proposition. The Digital Printing team spent reasonable time and effort to clarify how it could turn a technology-supported process into capabilities that uniquely resonated with the market.
- Funding and support from the group through VAMs. The value proposition, vertical and horizontal leading targets, investment and resource needs, and value-sharing mechanisms are negotiated with the company through VAMs (Valuation Adjustment Mechanisms, a bet-on agreement through which a company invests in another one) investment contrato optimize the overall portfolio of services and avoid cannibalization or excessive duplication. A careful balancing effort lets Micro-Enterprises scale without impacting the existing business or other units. While the Group must still be consulted through a negotiation, Micro-Enterprises no longer need hierarchical approval from the top for most of their choices, instead taking over the skin in the game connected to both action and results.
- Industry Platforms to nudge a smooth and peaceful transition. Industry Platforms have become the vehicle, on one side, to guarantee MEs distributed success and, on the other one, to maintain sufficient central coherence and brand protection in support of the company’s strategic plan. Especially during the necessary transition, they determine the speed, the amount of risk-taking, and the intensity the company exerts in validating and adopting new organizational constructs. They also took responsibility for avoiding undesired friction at the point of contact between the RenDanHeYi and traditional organizational mechanisms such as for two colleagues, one receiving profit sharing from the newly created ME he/she is part of and his/her nearby peer only getting a much lower and static base salary. In addition to capital allocation, Industry Platforms in ASA also fill the knowledge and expertise gap required for creating Micro-enterprises by owners without entrepreneurial experience.
- A unique alignment mechanism through EMCs. Not only VAMs but even more EMC Contracts are leveraged by ASA to elicit and align the potentially conflicting interests of multiple MEs or pre-existing units. For example, the Oil Millers EMC desired exclusive access over its customer segment, thus limiting some of Manifacturing’s go-to-market freedom. Agreeing on such a condition has been possible through the profit-sharing agreement encoded in the EMC Contract. The profit percentage assigned to each node is proportional to its contribution’s strategic relevance (i.e., capital or access to clients).
- Total freedom in service delivery. Once objectives and investments have been locked in VAMs and EMC Contracts, no details have to be shared with or approved by the Group regarding how Micro-Enterprises or Ecosystem Micro-Communities operate to reach the targets agreed upon. Industry Platforms can offer suggestions in case of stumbling blocks or unexpected market challenges, but responsibility remains in the node’s hands, allowing human creativity and ingenuity to be expressed.
- A new go-to-market responsibility. Exposing pre-existing internal processes or new products to the market usually requires the elaboration and execution of a previously missing strategy to identify, reach, convert, and successfully serve customers. Such an interface between employees and users increases early feedback, value co-creation, and internal capability building in alignment with Haier’s Zero Distance concept. In the case of ASA, go-to-market constitutes a subtle area of collaboration and partial overlap since customers are shared between the old and the new RenDanHeYi-based organization.
- Work allocation in the hands of the Micro-Enterprise. Micro-Enterprises receives the opportunity and responsibility to select, attract, and maintain the competencies/team members to execute their value proposition. New colleagues are invited to negotiate their conditions for joining MEs, including potential access to profit sharing.
Profit-sharing mechanisms and customer-paid salaries. Part of the margins produced by Micro-Enterprises and Ecosystem Micro-Communities remain and can be arbitrarily distributed within them. The percentage of withheld profit depended on the level of risk, investment, and support by other units the new node requires for success. The higher the support from ASA, the bigger the portion of profits returned to the Group. Micro-Enterprises and Ecosystem Micro-Communities could decide how this added value should be distributed among team members (MEs) or other nodes (EMCs), but, as a matter of fact, profit sharing and distinct profit & loss responsibility imply that employee salaries are now paid directly by customers.
The road toward a new organizational model
The initial reaction to RenDanHeYi’s concepts and artifacts oscillated between enthusiasm and shock: enthusiasm, since most of the colleagues invited to join the project, manifested a sincere interest in exploring its potential and understanding how to contribute more autonomously and entrepreneurial; shock because the long and detailed path required to design pilot MEs and EMCs generated a bit of preoccupation and confusion, with both moments of extreme acceleration and a feeling of slowness.
Coming from a business reality built around hierarchies and processes, most colleagues have associated the new ideas with anarchy. Appreciating the nature and meaning of RenDanHeYi rules and their ability to balance freedom and coherence took much more than simple training. A basis of curiosity and intuition about its potential had to be complemented by extensive and detailed sessions through which the real philosophy hidden within the model could be absorbed. In other words, faith, top-down sponsorship, and intellectual awareness only represented the preconditions to mandatory experimentation on the field.
An additional complexity for most participants in the transformation was the lack of an overarching understanding of how an organization functioned regarding costs, revenue streams, and processes. Guidance had to be given to bring everybody to a common level of knowledge for an informed and effective contribution. Getting immersed in the creation, evolution, and growth of a Micro-enterprise speeded this learning up, as, in addition to focusing on a specific value proposition, the team must also autonomously manage the unit with a complexity mirroring, at a smaller scale, the same challenges the entire company was facing.
Even project sponsors went through ups and downs with feelings that shifted between excitement, bewilderment, fear, and difficulty in trusting practices so far from what had been validated in the past. And yet, after the conclusion of the preparation phase and at the beginning of the on-field experimentation, a large portion of ASA’s population had been exposed and often involved in RenDanHeYi’s progressive ideas with a perception that the magnitude of the leap at play required a reasonable amount of time to be determined and digested. At the end of such digestion, Micro-Enterprise owners started to share the news with colleagues in other functions still stuck in the traditional organization. In turn, more diffused communication and storytelling raised attention and made the initiative more tangible beyond the initial core team.
At this juncture, like in the movie Matrix, an entirely new reality kicked in with the feeling that any previous organizational model would have been too limiting for ASA to move towards the future it intends to pursue.
The end goal and work toward the future will entail applying entrepreneurial, ecosystemic, and enabling principles to the entire company, even within its manufacturing system of plants in multiple geographical areas.
Are you into future-proof organization design concepts, techniques, and tools?
If you want to learn more about RenDanHeY, Please consider joining our online 3EO/ RenDanHeYi Self-Paced Training at any moment or express your interest in 3EO / RenDanHeYi Live Masterclasses that will be scheduled in 2024.
Before You Go!
As you may know, everything we do is released in Creative Commons for you to use. If you’re getting value out of these reads and tools, we encourage you to share them with your friends as this will help us get more exposure and, hopefully, work more on developing these tools.
If you liked this post, please consider following us also on Twitter.
Thanks for your support!
