About Haier

Zhang Ruimin Discusses IoT and Life X.0

06-01-2018

On January 6, 2018, an annual conference on innovation, themed “Life X.0: Customizing a Better Life for the IoT Era,” was held at Haier Group. At the event, Haier Group Chairman and CEO Zhang Ruimin proposed Life X.0 as a new business concept for the Internet of Things (IoT) era. Although seemingly similar to the buzzword “Industry 4.0,” Life X.0 is a fundamentally different concept. In his presentation, Zhang explained its meaning and origin.

 

Life X.0 is a term inspired by Eric Schaeffer, Senior Managing Director at Accenture, who recently published a book titled Industry X.0 on industrial transformation in the digital age. Thinking from a different perspective than the European concepts of Industry 4.0 or 5.0, Schaeffer believes what users need is not a product in itself, but an outcome enabled by products. That is to say, the IoT era will spell the end of the product economy. Taking its place will be the Outcome Economy (or “usage economy”). Schaeffer’s idea is very close to Zhang’s thinking. After further communication, Schaeffer has expressed a wish to visit Haier, believing that Haier’s new IoT model is of greater value. Zhang is a delegate at China’s 19th Party Congress last year, which made creating “a better life” the key goal for the nation going forward. Reflecting upon Schaeffer’s idea in association with his experience at the Party Congress, Zhang believes that since Industry 4.0 is also essentially people-oriented, it would be wise for Haier to directly target at creating a better life for people, and thus proposing Life X.0.

 

Why is “Life X.0” illustrated by the tagline “Customizing a Better Life for the IoT Era”? Zhang explained that the X represents uncertainties: not only do different individual users have different needs in search of a better life, companies also need to be in an endless pursuit of meeting those needs. The X represents at least two kinds of uncertainties. First, the definition of a better life is uncertain. Everybody has their own take on a better life. A better life for one person is not necessarily so for someone else. Second, the value of a better life is uncertain. What seems to be a better life for today will not necessarily remain so tomorrow. This is also why Haier stresses the importance of nurturing lifelong users, whose constantly evolving needs are satisfied through continuous iteration.

 

The “920 Tipping Point” at Haier

The “920 tipping point” was a high-frequency phrase at this annual event. Every award winner and roundtable panelist talked about it. It refers to September 20, 2018, a tipping point by which the full-scale replication of Haier IoT ecosystem pilots is expected. Zhang Ruimin proposed Rendanheyi for the first time 12 years ago on September 20, 2005 as a business model for the Internet era and arguably the world’s first comprehensive solution to the new digital economy. From then on, September 20 has become the anniversary day for the creation of the Rendanheyi model at Haier.

 

Why will September 20, 2018 be a tipping point? Since Kevin Ashton first proposed the IoT in 1999, companies across the world have been seeking to leverage IoT opportunities to reach a tipping point where they can rise to IoT leadership. While 2016 is considered a landmark year for the IoT, experts believe the IoT economy won’t reach a tipping point until 2019 or 2020. With the forward-looking transformation toward Rendanheyi at Haier, a more ambitious goal has been set: to reach that tipping point on a large scale at Haier by September 20, 2018, or 13th anniversary of the creation of the Rendanheyi model.

 

When Ashton, the father of the IoT, came to Haier last year for an in-depth discussion with Zhang, he said that among the numerous companies he had visited around the world, none was as ready for the IoT as Haier. He has predicted that Haier will become the world’s very first company to reach an IoT tipping point.

 

Haier’s IoT ecosystem follows a completely different growth trajectory than that of traditional e-commerce or social platforms. At Haier, this is called “changing lanes to overtake” – a switch from the traditional product economy and the e-commerce model to the IoT ecosystem model. Three characteristics set the Haier IoT ecosystem apart from traditional e-commerce:

 

First, the ecosystem is characterized by win-win co-creation. Being at zero distance from the user is the shared essence of the IoT and the Internet. However, with traditional e-commerce, there is only traffic from the customer but no real long-term user, let alone being at “zero distance” from them. At Haier, the traditional organization is transformed by the Rendanheyi model into a win-win ecosystem for co-creation of maximized benefits for all stakeholders, the user being a key stakeholder.

 

Second, the Haier IoT ecosystem features community-based touchpoint networks. The IoT also shares a distributed nature with the Internet. Haier’s touchpoint networks include 100,000 urban neighborhood service centers called “Lejia Yizhan,” 100,000 rural water purification stations, and 100,000 truck-based microenterprises. In each touchpoint network, Haier concierges interact with users with a human touch and work continuously to create best-in-class user experience.

 

Third, the Haier IoT ecoystem is also characterized by the immediate value of ecosystem revenue. In the Haier IoT ecosystem, users’ constantly emerging needs can be satisfied instantaneously with personalized best-in-class user experience, thus creating immediate value. Previously only as hardware, home appliances are now transformed into Internet-enabled appliances that engage the user, providing not just the product value but service solutions that generate ecosystem revenues. Whereas the price of a piece of hardware is finite, ecosystem revenues can be limitless.

 

Three Cause-and-Effect Relationships Between Life X.0 and the 920 Tipping Point

 

At this annual conference, Zhang Ruimin also discussed three cause-and-effect relationships between customizing for a better life and reaching a tipping point of IoT leadership.

The first cause-and-effect relationship is the one between the theme of this annual conference and the 920 tipping point of IoT leadership.

 

Life X.0 is a result that follows the tipping point of IoT leadership. Without reaching the tipping point, “Life X.0: Customizing the IoT Era for a Better Life” will never be achieved. Traditional sales models and marketing strategies based on offline stores and even e-commerce platforms are transactional in nature – they ultimately lead to price wars. A customized and better life can only be achieved through interaction and engagement enabled by the IoT. Although Kevin Ashton believes Haier is the closest to the IoT among all companies, that doesn’t mean Haier has achieved the vision yet. To turn a “victory in sight” into a “victory at hand,” we must reach the tipping point of IoT leadership.

 

The second cause-and-effect relationship is the one between IoT pilots that are reaching a tipping point of leadership and their full-scale replication.

 

As pilots reach a tipping point of leadership, their full-scale replication will follow as a result. All platforms at Haier are required to launch IoT pilots by the end of last year. The goal is to reach a tipping point across the organization by September 20 this year. Otherwise, Life X.0 in the first cause-and-effect relationship will not be achieved.

 

Whether a pilot can reach the tipping point depends on two things: being at the cutting-edge and replicability. At Haier, a successful pilot needs to be at the cutting-edge of the IoT era. One needs to “change lanes” to the IoT model rather than staying in a conventional game, where leading means merely being ahead of competition “by one or more laps” on the same track. Replicability is achieved by building platforms, which are the cornerstone of an IoT ecosystem, where the user can become an engaged co-creator. Replication is only meaningful when a pilot is both at the IoT cutting-edge and replicable. Otherwise, replication would be fruitless or even counter-productive.

 

Take Haier’s Shunguang Platform and COSMOPlat as examples. These two platforms both exemplify and form the basis of Haier’s Rendanheyi model. Shunguang is a leader on two levels. First, it is a touchpoint network unlike the traffic-dependent e-commerce model that lack touchpoints. Second, it enables value-creating engagement rather price-oriented transactions that take place through e-commerce. Shunguang's touchpoint network is a 3-in-1 integration of online, offline, and WeChat-based stores.

 

In an effort to build Haier’s touchpoint networks, at least three 100,000-strong networks will be built this year. First, we will equip 100,000 of the 200,000 larger residential communities in Chinese cities with centralized package delivery lockers. Second, we will equip 100,000 of China’s 200,000 larger administrative villages (out of a total of 600,000 natural villages) with water stations. Third, we will develop 100,000 truck-based microenterprises that not only deliver packages but also serve as community points of contact. Kevin Kelly has predicted that the greatest e-commerce players of tomorrow will be the largest brick-and-mortar stores. Compared to today’s e-commerce players, Haier is in a uniquely advantageous position to build touchpoint networks, which stand out from the crowd with their human touch. Without a touchpoint network, package locker systems in urban neighborhoods are just iron lockers. In contrast, package lockers managed by Haier have a human touch because they are served by concierges. Today, Haier is commissioned as a community operator by the second largest package locker system player in the market. Another typical example of community engagement through Shunguang is Haier’s Yunxi washing machine. In pre-sales, 200,000 units were ordered. It speaks volumes about the importance of the community econmy to the IoT model, where the user experience evolves with each iteration and ultimately nurtures lifelong users. This is something today’s e-commerce players are still incapable of. There is no problem with where Haier is going with its touchpoint networks. Its challenge for 2018 is the scope and scale of the replication of these community-based businesses.

 

By the end of last year, COSMOPlat has achieved its goal of becoming an international standard after competing with German, American, and Japanese standards, representing a significant milestone. In Germany, the Volkswagen Phaeton intended as an Industry 4.0 showcase ended up as a failed experiment. Realizing this as a problem, the Germans put forward the the new slogan “Smart Service World.” As an Internet-based, user-centered factory, Haier’s COSMOPlat has risen to industry leadership because of its focus on people, rather than objects.

 

Haier’s industry leadership is not a coincidence, but an inevitable result of putting people’s value in the first place. This belief in people can be traced back to the 1980s, when Haier stood out from hundreds of refrigerator manufacturers nationwide to win the first national award for quality excellence. While other companies regarded quality as something that could be inspected, Haier focused on cultivating quality as an awareness in every employee and on putting people at the center of quality. In those days, a quality control sheet was labeled onto the back of each Haier refrigerator, a seemingly minute detail with a far-reaching significance as it reflected two key principles of total quality management (TQM): “putting customer first” and “treating the person in the next process as my customer.” In the 1990s, Haier became the first Chinese company to be featured in a Harvard Business School case study. While other companies saw this as an opportunity to become famous and tried to offer money to Harvard to be featured as well, Zhang was told that Haier was selected because of its company culture and its focus on its people. There is never a right or wrong answer to management; the important thing is to build a culture. In the late 1990s, Haier opened a plant in the U.S., a move that many cast doubts on. While other companies were content to be just an OEM, Haier aimed at building its own brand in a more competitive market. Today, Haier is using a salad-bowl approach to cultural integration in the companies it has acquired internationally, another example of the company’s long-standing belief in people first. Now an internationally recognized standard, COSMOPlat will need to address a new challenge in 2018: replicability in the wider community.

 

The third cause-and-effect relationship is the one between creating new markets and entrepreneur ownership as a driving force.

 

Entrepreneur ownership provides a driving force for creating new markets. New markets represent a second curve of growth opportunities when existing markets reach maturity. Entrepreneur ownership as a driving force is based on the speed of differentiation, the win-win value added statement as a touchstone, and self-motivation.

 

The speed of differentiation is a necessary condition, while the win-win value added statement as a touchstone is a sufficient condition. To enter any new market, it is essential to differentiate yourself quickly. This can be illustrated on a two-dimensional dot chart. The horizontal axis represents the traditional product revenue, which is the focus of most companies. However, Haier needs to focus on the vertical axis, which represents evolving user needs and experience. To focus on the vertical axis, one must first get ahead of competition on the horizontal axis “by one or more laps” and then “change lanes.”

 

Based on the user multiplier, the win-win value added statement is a touchstone of lane-changing, highlighting the importance of the ecosystem revenue on the vertical axis. Thus, it is linked to Life X.0: going beyond the product revenue and value to realize the ecosystem revenue and value. Last year, Haier’s washing machine and wine cooler microenterprises generated significant ecosystem revenues. Going forward, the goal is to provide hardware for free and generate revenues purely from software and service solutions, as suggested in the book Free: The Future of a Radical Price by Chris Anderson. This, in turn, will require the ecosystem to scale up considerably.

 

Self-motivation drives entrepreneurs to build new platforms and go beyond the first curve to find a second one. Entrepreneurs’ self-motivation is tested in this process. If they cannot find a second curve beyond the first one, it means they are not sufficiently self-motivated. Entrepreneur ownership as a driving force is something that everyone should think about as they continue to challenge and defeat their old selves.

 

At the end of his speech, Zhang quoted the Annals of Zhou in the Records of the Grand Historian: “One inappropriate move can undo all the previous work.” For companies undergoing a transformation, the challenge is enormous. A traditional company is a walled garden where every element is under control and controllable. Gardeners can trim saplings as they wish. However, Haier aims to build an IoT ecosystem, where the challenge is to provide favorable conditions and mechanisms for species in the ecosystem to prosper on their own in a sustainable way while preventing chaos. Unheard of in the traditional economy, this is a challenge that Haier has posed for itself in this new era. As a concluding remark, Zhang said this as an encouragement to all entrepreneurs: Summon up all your courage to score a great success!

Haier Global