Magazine article Strategic Finance

OEC: Effective OEC Management Control at China Haier Group: The Company Has Become Successful through Excellent Customer Service, Product Quality, Operating Efficiency, Innovation, and Speed to Market

Magazine article Strategic Finance

OEC: Effective OEC Management Control at China Haier Group: The Company Has Become Successful through Excellent Customer Service, Product Quality, Operating Efficiency, Innovation, and Speed to Market

Article excerpt

In 1984, Zhang Ruimin took over a nearly bankrupt refrigerator factory in Qingdao, China. In 2003, the company's global sales hit $9.7 billion with a growth rate of 70% during the previous 19 years. Today, Haier Group 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 the 100 most recognizable brands. Haier was the only Chinese brand on the list.

So how did they achieve their 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 Haier choose to implement the OEC system? According to CEO Zhang, "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."

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 with 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" line the factory walls. One large bulletin board says, "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.

BUSINESS STRATEGY

Haier CEO Zhang Ruimin and President Yang Mianmian say the firm developed three major strategies over three stages: brand building or recognition strategy, expansion or diversification strategy, and globalization strategy (see Figure 1).

[FIGURE 1 OMITTED]

Called the famous-brand strategy, the first stage lasted from 1984 to 1991. During this period, the company created and built Haier-brand products and set up a quality-assurance system. In April 1985, Zhang gathered all employees and battered the first poor-quality refrigerator with a hammer, and then the employees responsible for these goods battered 76 defective refrigerators. The event woke up the quality awareness of all employees and established the concepts of "defective products are wasters" and "excellent products are produced by talented employees." The thinking shifted from volume as the priority to quality and brand recognition being the priorities.

From 1991 to 1998, the second stage featured an expansion or diversification strategy within China. Since the firm bases itself on quality instead of quantity, it decided that if someone bought a Haier Group refrigerator, then maybe they would want to buy something else from the firm. …

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