Leading Business Transformation in a Digital Age

We are standing in front of a paradigm shift. The issue is that we try to fix things at a practice level, but that is not working. We need to change the underlying assumptions about how to run a company. Management assumptions must evolve. Being agile, flexible, and fast-moving is one of the most important assumptions behind the new management model.

When we adopt this new set of assumptions, we see the development of new concepts, which then lead to new practices. One way to accelerate the transformation of companies is to provide examples of these new management concepts in the form of holistic management models. These models can demonstrate how this transformation can be executed from a total enterprise perspective.

Historical Perspective on Management Innovation

It is interesting to go back and study history. I am a management innovation history nerd, and I find this topic fascinating—I hope you will too. Many of these management principles will be familiar to you.

• Bureaucracy (1905) – Introduced by Max Weber, emphasizing structured, rule-based management.
• Specialization of Labor (early 1900s) – Introduced by Frederick Taylor, focusing on efficiency through division of labor.
• Management Duties (1929) – Outlined by Henry Fayol, detailing planning, organizing, staffing, and controlling.
• Human Relations (1932) – Recognized that people are motivated by being seen, valued, and involved.
• Systems Theory – A modern approach emphasizing the interconnectivity of management components.
• Peter Drucker’s Modern Management Theory – Introduced concepts such as management by objectives and decentralization.
• House Theory – Recognized that as complexity increases, rigid bureaucratic structures no longer work.

I call the new modern era of management the Internet Theory of Management. We are in a digital age, where digital technology is disrupting everything we know—marketing, sales, HR, and organizational design. The new theories of management are shaping new concepts, which in turn lead to new business practices.

Emergence of New Management Models

Management innovations and technology innovations have always gone hand in hand. The new management models first appeared in Silicon Valley. Research from Berkeley University in 1992 (Bahrami) identified an emerging flexible enterprise in Silicon Valley. These firms were at the forefront of dealing with the challenges of the information era. They operated in a new way—flat, decentralized, agile, and fast-moving—enabled by information technology.

Today, we see this new management model in several well-known companies:

• Tesla Motors – A strong example of agility and decentralized decision-making.
• Google – A pioneer in data-driven management and innovation.
• Haier – A Chinese company that has transformed from an industrial manufacturing company into an internet platform-based company over 20 years.

There are also examples of traditional companies successfully transforming themselves, such as GE Appliances, Bosch Power Tools, and Buurtzorg (Netherlands). My upcoming book, Leadership for a Digital World, explores these transformations in detail.

The Case of GE Appliances

GE Appliances (GEA) was, in their own words, "slowly dying" by 2016. GE, as the parent company, had treated GEA as a cash cow, focusing on profitability while minimizing risk. As a result, the company was internally focused, efficiency-driven, risk-averse, and bureaucratic. Innovation was nonexistent, and leadership was entirely command-and-control.

In 2016, GE Appliances was acquired by the Chinese company Haier. With the acquisition came a new management paradigm based on Haier’s RenDanHeYi Model. This model is centered around:

• Ren – The people
• Dan – The goals and objectives, particularly the needs of the users
• HeYi – The link between people and user needs

GE Appliances adopted six core principles:

1. Zero Distance to the Users – Removing barriers between employees and users to ensure great customer experiences.
2. From Bureaucracy to Networked Organization – A decentralized structure with distributed decision-making.
3. From Employees to Entrepreneurs – Employees are viewed as entrepreneurs who can start their own initiatives.
4. Paid by User – Compensation is aligned with value contribution to users.
5. From Linear to Non-Linear Management – Moving from top-down control to self-managed teams.
6. Ecosystem as a Strategy – Embracing open innovation and business ecosystems.

Transformation Journey of GE Appliances

GE Appliances implemented its transformation in two phases:

Phase 1: Micro-Enterprise Phase (2017-2020)

They restructured from a centralized hierarchy into a network of decentralized micro-enterprises. Each product line became its own business unit with full end-to-end accountability. Senior leadership shifted from control to vision-setting, enabling innovation and future growth.

Phase 2: Ecosystem Phase (2020-Present)

They expanded beyond internal transformation by integrating external partners, creating a business ecosystem to meet user needs collaboratively.

Their cultural transformation was driven by:

• Shifting Leadership – From command-and-control to enabling empowered leaders.
• Redefining the Organization – From competing functions to collaborative micro-enterprises.
• New Cultural Norms – Encouraging accountability, transparency, and trust.
• Aligning Compensation – Employees are paid based on their contribution to users.

Results and Key Takeaways

The transformation of GE Appliances has yielded remarkable success:

• Fastest-growing appliance company in the U.S. (2021)
• Recognized leader in smart home appliances for four consecutive years
• Certified as a "Best Place to Work" by employees

According to Edgar Schein, the father of corporate culture: "I'm intrigued how GEA was able to get the present set of bosses to behave according to McGregor's Theory Y. They had to make a massive change in their own daily behavior."

GEA's transformation serves as a blueprint for other companies looking to evolve their management models. It shows that even large, traditional companies can successfully embrace agility, decentralization, and a user-first mindset.

Conclusion

Management models must evolve to keep pace with technological and market shifts. Companies that embrace agile management principles, decentralized decision-making, and user-first strategies will thrive. The RenDanHeYi model provides a powerful framework for rethinking how organizations operate in the digital age.

For more insights, check out my books, including Leadership for a Digital World, which explores these concepts in depth.

Thank you, and I am happy to take any questions.