Haier's Performance Management System

1. Key practices and guiding principles of Haier’s performance management system

The key practices of the system can be discussed from the following two dimensions.

From workers’ perspective, Haier makes use of multiple tools to motivate workers - the colored footprint allows workers to learn from top performers and at the same time, recognizing employee’s contribution to operating efficiency and product improvement; the performance board allows them to engage in goal-setting, evaluation and control processes together with supervisors on a daily basis; the three-phase system offers training opportunities and sends a warning signal to the poorly performed workers.

As for managers, their performances are reviewed on a weekly and quantifiable

First, a guiding principle named OEC takes all performance measures into consideration and ensures every employees are involved in self-assessment. Second, the 80:20 principle, which holds managers accountable for their subordinates’ performance – reward them when standards are met and punish them in the form of fines if not. Third, the “racetrack model” encourages competitions among employees in work fields and only with effort for keeping up the high standard performance can they defend their titles.

2. Reasons for the success of the system and the potential pitfalls involved

Haier’s performance management system is effective in terms of boosting retail volume and profits. Below are some of the keys leading to the success of the system.

Firstly, the system can create internal pressure through ongoing competitions. Unlike some of the traditional appraisal approaches, promotion is not permanent nor guaranteed in Haier. Workers and employees need to maintain high level of performance in order to receive rewards and get promoted. For those who are constantly considered as bottom performers will be dismissed. Thus, everyone in Haier is driven to deliver the best, resulting in improvements in both individual and company

According to Exhibit3, transparency aversion is one of the common features of SOE managers. By adopting measures like reviewing performance objectively and making result public, Haier’s employees would be more aware of the means to achieve their set goals and may rely less on “guanxi” to obtain promotion opportunities and rewards. Perceiving the system is bias-blind, employees may have greater motivation to work towards their set goals.

However, the system may be overly performance-oriented and would bring negative impacts to Haier. Laying over emphasis on competitions may hinder collaborations and undermine staff morale. For instance, the company only considers the relative performance (i.e. ranking) when deciding whether to retain a manager; in fact, the bottom performers might have performed equally well, indicating the system fails to capture and recognize their improvements in full.

3. Discussion on the effectiveness of applying the system in the U.S. and recommendations

When Haier’s performance management system is put into place in the U.S., it might not be as effective as it in China due to the following contextual