This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Mark J. Greeven (IMD Business School), Katherine Xin (China Europe International Business School), and George S. Yip (Northeastern University)
Chinese companies have successfully scaled up the concept of autonomous teams to groups of several dozen people, particularly in customer-facing roles. For example, at e-commerce company Handu Group, the core women's clothing brand known as HStyle operates using a system of teams responsible for designing, producing, and selling the firm's products. Each team has a minimum of three members, and if the product becomes popular, the team can grow to as many as 25 people.
HStyle sets annual production and sales targets, but the team controls product development, new product launches, discounts, and promotions. The company ranks team performance daily, and the results are accessible to everyone in real-time, creating a competitive drive between teams. If members of a team split off to form a new team, the leader of the new team must pay a fee to the original team for its previous training.
HStyle relies heavily on a digital platform that connects autonomous teams to both Handu and partner factories, allowing for small-batch production at high speed that can be scaled up easily when a product line proves successful. By using cloud-based supply-chain-management software, Handu minimizes its inventory and production costs, making it more efficient and profitable. This frees up Handu to focus on its core competencies while allowing external partners to serve other customers.
In 2005, Chinese appliance giant Haier began implementing a system of small, self-managed autonomous teams to create value directly for its customers. Frontline employees had P&L responsibility and received a share of profits created by the team. Members were connected through a technology platform to back-end resources that enabled access to suppliers, other microenterprises, and partners from within or outside the Haier group.
Haier built on this foundation by allowing teams to incorporate as microenterprises with rights to make decisions, hire talent, and award compensation. As a result, Haier can discover and capitalize on new opportunities, such as incubating biotech companies in refrigeration chains and radiotherapy equipment manufacturing.
Haier currently has a platform of 4,500 self-managed businesses that use shared resources to adjust to market shifts. One recent example is a microenterprise tasked with developing food products that complemented its kitchen appliances. The team found that many families enjoy complicated meals such as roast duck that are normally prepared by professional chefs. The microenterprise approached cooks, restaurants, and food-processing manufacturers to task them with finding a way to make roast duck in a prepared-food package that customers could put in their pre-programmed ovens. The product became an instant hit during the Chinese New Year. The microenterprise team is now expanding to create offerings in dozens of other complex food categories. Microenterprises at Haier now account for $500 million in revenue and are doubling in size annually.
Managerial Implications: Applying the Lessons of DEDA in Western Firms
Chinese firms have an advantage due to their large workforce and collectivist culture. Chinese management encourages faster execution and decision-making by adopting “single-threaded leadership,” which gives a leader a clearly defined task, budget, and timeline. This concept was embraced by electric vehicle manufacturer Build Your Dreams (BYD), which in late January 2020 when the COVID-19 pandemic was beginning to ravage the country, charged key leaders and division heads to find a solution to the mask shortage. The leaders mobilized 3,000 engineers and designers to convert one of BYD's industrial parks in Shenzhen, where in less than two weeks the company began manufacturing masks. By the end of 2020, mask production had lifted BYD's profits by more than 160 percent over 2019, netting the company $640 million.
Cultural and historical differences do not mean that some form of the DEDA system cannot be implemented in the West. For instance, Haier's acquisition of General Electric's (GE) appliance business in 2016 saw the successful introduction of the Chinese company's autonomous team model into a Western organization. The decentralized leadership model, new compensation structure, and entrepreneurial culture have proved popular and effective. GE Appliances has since adjusted its hiring process to attract entrepreneurial individuals, supported by a decentralized decision-making approach that gives employees problem-solving autonomy. While GE Appliances did not adopt Haier's internal market system, the successful incorporation of the autonomous team model demonstrates that Western firms can learn from Chinese business practices by recognizing the importance of bundling capabilities and shared business functions, without increasing power at the top.
German pharmaceutical company Bayer has successfully adopted this incentive system in China by implementing a work-life digital platform for staff management. The company uses non-financial incentives such as “thumbs up” and “thank-you card” messages that employees can send to other staff members. This recognition system has a strong social component and a gamified interaction mechanism that has made it popular with employees, with 4,000 logging into the platform every day. This kind of social incentive has transformed internal communications by flattening layers and speeding up feedback. Employees and managers can adjust both their work goals and their performance rapidly, while freeing up managers to put more emphasis on conversations with employees rather than just performance results.
To adopt an agile DEDA-type approach, Western executives will need to become more open to temporary, highly focused assignments. They need to create their own version of the Chinese culture that resolves tensions between individual and group interests through “individualistic collectivism.” They also need to be more adept in their use of financial incentives.
Greeven, M. J., Xin, K., & Yip, G. S. (2023). How Chinese Companies Are Reinventing Management. Harvard Business Review, 101(3-4): 104-112.
If you are interested in learning more about this work, contact Professor Yip.