Abstract

In this webinar, Boundaryless hosted an honest conversation regarding the hurdles, uncertainties, and fears of adopting RenDanHeYi practices in real organizations. Whether small or large, regardless of the geographical region and industry, we shared our learnings and openly discussed areas for further exploration.

Introduced by Emanuele Quintarelli, Partner and 3EO Micro-Enterprise Leader in Boundaryless, the event featured our firm’s experience and held the space for participants to share their own questions and reflections.

The recording is now available below. This post summarizes the main community’s learning, and conclusions from the event.

 

Click to access the recording.

Going deeper into the RenDanHeYi with our community

Whether in a 3EO / RenDanHeYi masterclass, a consulting engagement, or a public event, leaders, managers, and practitioners tend to have a common set of questions regarding Haier’s disruptive management model.

It may be because of the huge distance between the mainstream design solutions they are used to and what the Chinese white good appliance leader has been validating for decades. It could be the intrinsic cultural clash between command and control, vertical leadership, and peer-to-peer, trust-based entrepreneurship. It may also be because of the difficulty of making sense of fluid, network-based, largely emergent ecosystem of value-sharing, hardly reconcilable with traditional organization charts.

Whatever the reason, the “Will the RenDanHeYi work for me?” event has been the perfect chance to collect recurring doubts, augment them with those shared by our community and facilitate an honest, open co-learning opportunity and conversation. You’ll find below a curated, slightly integrated synthesis of the major topics that emerged, together with the knowledge Boundaryless and other organizations (such as MAQE and Intesa Sanpaolo) shared at the advantage of a diffused awareness, comprehension, and application of the RenDanHeYi.

What the RenDanHeYi doesn’t address

Coming from previous experiences and frameworks, especially agile ones (imagine dailies, stand-ups, reviews, and retrospectives), it is entirely natural to ask yourself if the RenDanHeYi establishes standard roles, rituals, and procedures that have to exist in every Micro-Enterprise, or if Micro-Enterprises are completely free to decide how to organize their work and inter-team relationships.

Here it is essential to acknowledge how the RenDanHeYi doesn’t specify what happens within Micro-Enterprises, but only the interfaces among them and other organizational structures. When discussing Micro-Enterprises, as Boundaryless, we often refer to them as black boxes, with autonomous, entrepreneurial, self-managed, and self-organized teams whose goals and services have been explicitly and publicly shared through Valuation Adjustment Mechanisms, still with full freedom about how to best proceed for delivering the value expected.

More specifically, the Micro-Enterprise benefits from 3 rights: the chance to decide its direction (strategy), to select its members (team allocation), and to pick the best rewarding scheme (compensation). The owner/leader (or often owners) is the only mandatory role in a usually limited (8-10 people) group whose goal is exploring new opportunities (incubating Micro-Enterprises) or introducing significant improvements (transforming Micro-Enterprises) to existing processes, in isolation or more often, through the collaboration with other Micro-Enterprises (Node MEs and Ecosystem Micro-Communities) and support functions (Shared Service Platforms), thanks to investments granted by the firm (Industry Platforms).

On the contrary, the decision-making model (from autocratic to consensual), the skills and responsibilities, the working rhythm (rituals), the power balance (less or more flat teams), and communication aids (in person or remotely supported by technology) are demanded to each Micro-Enterprise. It’s precisely such characteristic that lets the RenDanHeYi function so well in conjunction with frameworks such as Sociocracy / Holacracy (with fractal aims, consent-based governance, and double-linking), Teal organizations (regarding evolutionary purpose), and Agile (in terms of team management).

The role of the leader

As we have just seen for Micro-Enterprises, even within an often relatively flat and peer-to-peer environment, there is always at least one individual explicitly putting their face for the team. The owner bears the overall responsibility for success/unsuccess, takes care of people, and guides unit creation by negotiating the VAM with Industry Platforms. They also select members and discuss their compensation package.

The same logic applies to any organizational artifact in the RenDanHeYi, including Ecosystem Micro-Communities and Industry Platforms. Each one of them is headed by one colleague that, while not having hierarchical control for the team within the structure or the other teams interacting with it (think about MEs interacting with Industry Platforms for the VAM or MEs entering in an EMC for a user scenario), will beat the drum and orchestrate activities to achieve usually stretchy goals. When things go south, the team can even agree to replace the leader with other members considering themselves more apt to achieve outstanding results.

Still, owners are not the single point of contact or even the unique channel for interacting with a unit. In order to keep bureaucracy at bay, most of the exchanges happen directly in the flow of work by exchanging business or support services, providing reputational feedback, negotiating value sharing, etc. In a sense, the entire model is designed to minimize the amount of human effort required to administrate and guide its components, instead letting technology take care of them.

A massively scalable and decentralized innovation process

It is fair to claim that any organization hosts some percentage of motivated, self-driven, naturally entrepreneurial colleagues that would be willing to foster their (professional and financial) growth by launching new ideas and ventures. Unfortunately, most firms are not equipped to recognize and even less to incubate such opportunities at scale, ending up to kill them before they can stand on their feet. With 4000 constantly evolving Micro-Enterprises and 700 Ecosystem Micro-Communities, Haier indeed represents the perfect place to investigate an effective, friction-less, replicable approach to innovation management and business incubation. 

The Valuation Adjustment Mechanisms is an investment contract (that can be designed through the VAM Canvas contained in the 3EO Toolkit) to allow the firm to invest (similarly to a VC) into potential new Micro-Enterprises. It clarifies their unique value proposition, financial and non-financial goals, targets, timing (e.g., 3/6/9/12 months), investments, costs (including salaries), resources and mechanisms for value sharing withother parts of the company.

Any colleague can propose a new Micro-Enterprise at any time, and multiple Industry Platforms evaluate and potentially fund proposals. The accepted ones go through a stage-gated process of market validation, further attraction of funds, and eventual incorporation into a new entity of which the founding individual may become co-owner together with Haier.

Such a process generates and maintains a continuous pipeline of new ventures that push for opening new markets, new propositions, and customer segments with the energy of startups and the robustness and assets of a global corporate. Combining the best of two worlds, all happens without any centralized pilot evaluation since Micro-Enterprises judge themselves against the VAM, not on some manager’s arbitrary considerations.

Both a competitive and collaborative environment, this mechanism sounds like the perfect implementation of former Chairman Zhang Ruimin’s rainforest, in which millions of trees can thrive, even if the individual plant may end its existence, due to the lack of resonance with external and internal stimuli.

Cracking strategy open

The nothing less than revolutionary take Haier Group brought to management theory arrives even into the golden responsibility of company strategy.

Usually the purview of boardrooms and CEOs, also strategic direction becomes a participative exercise through a mix of top-down and bottom-up input. Industry Platforms (currently renamed Fields and Sub-Fields to recognize their multiple levels of granularity and scope) let the board exercise its top-down prerogative by bringing investments in selected areas, then leaving ample freedom to entrepreneurial teams to decide if and how to play a role within such spaces. Like enabling constraints in complexity theory, Industry Platforms nudge the system to put its attention where the firm believes significant opportunities sit but without imposing governing limits on the decisional independence that individual owners can exert. With the words of Dave Snowden, a form of messy coherence that goes very far in reinventing management in front of nonlinear, unpredictable, fluid scenarios we are all facing.

Taking advantage of both RenDanHeYi and Sociocracy, in Boundaryless, we leverage the Governance Circle (a consent-based team with representation from all Micro-Enterprises) to manage the ME life cycle and investment allocation, in line with Haier’s Industry Platforms.

Should Micro-Enterprises replace or integrate existing designs? Transition strategies.

At some point, Haier asked 10K managers to go and find themselves a job in delivering value instead of coordinating people. Starting, in most cases, from traditionally designed, hierarchical organizations, within which employees follow a chain of command under a formal boss allocating priorities, responsibilities, and deadlines, it is pretty hard to imagine taking individuals out of business as usual and reassigning them to some new entrepreneurial teams.

The question quickly becomes, “How to transition from a hierarchy to an entrepreneurial organization?” or ” How to convince current team leaders or BU directors to let their people get out from their area of control?”.

Letting individuals intentionally and explicitly ponder an entrepreneurial career with 100% of their time invested in launching new ventures is definitely the most solid solution. This entails getting them out of the current role and passing it to a different colleague. A few transition strategies have been utilized in initiatives Boundaryless supported, when an ideally pure approach wasn’t palatable due to cultural distance, fear, or lack of maturity:

• Virtual Unbundling by extracting subteams (e.g., 1, 2 resources) from existing Business Units and considering them as proto-Micro-Enterprises, with a clear definition of the services they can provide and the performance they can achieve but without formally removing them from the existing hierarchy.
• Partial Re-Allocation by allowing members to work part-time in different teams, including entrepreneurial units. The time allotted to a Micro-Enterprise could range from 20% to 80% and vary in time.
• Value Feedback by including traditional BU (even if they are not Micro-Enterprises yet) into VAMs and sharing value back with them to financially benefit from the additional results generated by the members they provide.
• Stage-gated incubation by imagining growing levels of time/money investments on behalf of the firm, as the entrepreneurial team further validates its product/service through market feedback. MAQE has been an example of this kind in its early stages. Both MAQE and Haier Europe now have acceleration journeys for future entrepreneurs.

The strategies above can be combined and require approval from existing managers. For example, some Micro-Enterprise members (e.g., the owners) can be allotted full time, while those providing very vertical expertise (.e.g, legal professionals) can only dedicate a portion of their time to the initiative.

While not optimal in terms of focus and skin in the game since individuals still report and somewhat maintain duties in the pre-existing structure, they proved effective at mitigating the risk, reducing initial barriers, and accelerating the launch of pilots through which confidence toward more advanced attempts is usually achieved.

How to structure incentives outside of China

European countries are characterized by legislative boundaries and public expectations regarding employee compensation and protection extremely far from those available in China. Finding a rewarding scheme in line with RenDanHeYi but viable in Europe is thus a source of constant reflection in our transformation initiatives.

In absence of a universal basic income and facing the impossibility of changing the basic salary, most of the firms we are collaborating with decide to use some combination of variable pay, profit sharing, and equity to motivate individuals to join Micro-Enterprises.

Even the failure of entrepreneurial teams is managed within the ME lifecycle by providing an initial knowledge transfer from the wannabe entrepreneur to his / her successor in the old position, plus a re-allocation in a new role, should the Micro-Enterprise conclude its goals are not feasible. This also allows for minimizing the impact on existing labor agreements, especially in the initial phases of a transformation journey.

Particularly favorable conditions are currently proposed by firms to get employees enthused in RenDanHenYi evolutions, while innovative contractual options are further explored and elaborated over time.

What is the pocket of centralization that lets the ecosystem function?

As already anticipated, not everything in the RenDanHeYi is decentralized, as it may be easy to believe. A few of the responsibilities still falling in the hands of the Board / CEO are:

• Deciding and allocating budget to Industry Platforms (strategy)
• Formalizing and iterating the overall organizational design (e.g., creating new constructs such as EMCs)
• Communicating and reinforcing a common set of values, culture, and foundational beliefs (through the Culture Platform)
• Picking what to include in Shared Service Platforms (HR, Legal, etc.)

In any project we have seen, carefully selecting the minimum viable structure required to guarantee both the coherence and the freedom necessary for the ecosystem to thrive is the single most important decision.

May this work in highly regulated markets?

Think about financial institutions or pharmaceutical companies and the strict limitations they must adhere to for the protection of consumers and patients. Is the RenDanHeYi desirable and conceivable in this space?

The answer seems to be positive. Intesa Sanpaolo, one of the largest banks in Europe, was attending the event and commented by reinforcing the importance, especially in regulated industries, of walking the path by engaging Governance functions such as Audit, Compliance, and Risk together with Legal, HR, and Organization since the early steps of comprehension of the RenDanHeYi. The goal for them is not copying but tailoring the model to the unique specificities of the business domain. Given the humongous complexity at hand, no single team has, in isolation, all the knowledge and influence required to lift the transformation off. During the event, additional confirmation also came from a bank part of Erste in the Czech Republic with thousands of colleagues.

In comparison to smaller organizations such as MAQE and Gummy Industries, the path Intesa and other big international players are following when taking inspiration from the RenDanHeYi aims at systematically collecting all the important answers at the beginning through a comprehensive metamodel that acts as the experimentation ground and safety net within which launching business pilots.

This may be a long, complex, and potentially inescapable exercise to bring the right stakeholders to the table and facilitate a slow but steady maturation of the entire firm.

Starting from the market. Starting from employees.

Both! A final but crucial aspect has been raised during the conversation regarding the best ignition point to build a customer-centric firm. Having zero distance and value co-creation at its core, this is a question each RenDanHeYi practitioner should carefully address.

At Boundaryless, we love to talk about a Unified Market-Firm theory to substantiate the intimate and still quite ignored connection between business and organization models. Conway’s Law and Ashby’s Requisite Variety help to see how it’s basically impossible to tap into platform strategies without also becoming an entrepreneurial, ecosystem-enabling organization. For this reason, our consulting interventions are founded on the conjunction of two complementary approaches: Platform Design and 3EOs.

Have a look at our masterclass in September to learn more.

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