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https://dspace.jaist.ac.jp/

Title

製造業のサービス化に向けた顧客とのインタラクショ
ンを促進する情報システムのインフラストラクチャー：ハイアールの事例研究

Author(s)勇, 聶CitationIssue Date

2017‑03

Type

Thesis or Dissertation

Text version

ETD

URL

http://hdl.handle.net/10119/14236

RightsDescription

Supervisor:小坂滿隆, 知識科学研究科, 博士

Japan Advanced Institute of Science and Technology

An IT System Infrastructure Promoting
Interaction with Customers for Manufacturing Servitization:
A Case Study of Haier
Yong Nie
School of Knowledge Science
Japan Advanced Institute of Science and Technology
Keywords: servitization; customer self-serving platform; customer self-actualization;
value co-creation; information service infrastructure.
This research explores how manufacturers involve their customers to makeknowledge and value creation via technological convergence. It aims to clarify theinteractive infrastructure of customer interaction for driving servitization in
manufacturing in the mobile Internet era.
Servitization, first introduced by Vandermerwe and Rada in 1988, is a competitive
strategy for product companies to create a differentiation advantage by adding
services to products. Most manufacturers are adopting a servitization strategy toinnovate organizational capabilities and processes to better create mutual value
through a shift from selling product to selling a product-service system (PSS) (Baines
et al., 2007).
However, for many manufacturers, the PSS only brings them a short-term
advantage. Soon after, another commodity trap happens in services, just as it occurs in
products. The service commodity leads to increased service offerings and higher costs
but does not lead to correspondingly higher returns (Gebauer et al., 2010). The
weakness of the PSS approach is that services are still regarded as distinct
characteristics of products to deliver to customers. The roles of customer engagement
caused by the mobile Information technology are not taken into full account. Hence,
regardless of how hard it is for a manufacturer to develop its PSS, if its customers
cannot be involved in the process of value creation as easily and deeply as they like,these firm-based solutions cannot satisfy customers’ tacit needs.
While we focused on thinking about the above issues on servitization research,
Haier, the world’s biggest home appliance manufacturer, came into our sight. The
firm sees customer interaction as the critical strategy of corporate development. Iteven formulates the creed “No interaction, no Haier”. We think these characteristics
are pretty suitable to developing the servitization research from the perspective ofcustomer interaction: Haier is well known for the abilities of understanding consumer
needs precisely through service innovation; it regards customer interaction as thepremise of innovation, otherwise, neither incremental innovation nor disruptive
innovation can ensure its customer value; it interacts with one million fans on averageper day, committed to changing the situation of ‘guessing customer needs’ and instead
listen to their voices carefully before production.
The research employed the methodology of ground theory to construct and analyzeithe data. Grounded theory is an appropriate method for the research because it aims tofind the new theories on servitization from the advanced business practices in themobile Internet era. As Strauss and Corbin and Strauss (1990) defined, Grounded
Theory is a research approach by which theory is derived from data, systematicallyorganized and analyzed through the research process. In the method, a researcher does
not begin a study with a preconceived theory in mind. Instead, the research begins
with an area of study and gets the theory from the data. Data collection, analysis, andthe final theory stand in close relationship to one another. The findings are extracted
from data to offer insight, enhance understanding, and provide a meaningful guide toaction (Mays & Pope, 1995; Strauss, 1987).
In order to make the analysis process proceed logically and clearly, we selected thequalitative analysis tool of MAXQDA software to deal with the data. We utilized it toaid the analysis of the transcribed text. All the text was imported into the software.
Data interpretation and evaluation were done by sorting materials into 91 labels, 20
concepts, and 9 categories and using a hierarchical coding system to analyze. The
software could define variables, provide tabular overviews and assign colors andweights to text segments. Furthermore, every step of the process was easily tracked,
and results could be accessed with just a few clicks. The data was coded repeatedly
with trial and error until it logically generated the theories.
Through the analysis of the 9 categories, their association with the 21 concepts andthe interactive comparison with the raw context, we found the saturation of theory
describing the information system infrastructure of customer interaction as Customer
Self-Serving Platform. New customer values are co-created when the interaction is
upgraded into customer engagement. We define customer engagement as a process ofcustomer self-actualization, where customers use their enthusiasm and knowledge todo what they are interested in. Customers are attracted to engage timely and deeply indigital, knowledgeable and social ways. The emotional award, which customers getfrom the self-actualization, also develops the traditional service concept. It activates a
positive circle of knowledge and value creation between Haier and its customers.
Moreover, customer self-actualization, as a new experience adds to the total customer
value. Customer value is far beyond product function and is anything that customers
think is useful to them.
We organize the dissertation in six chapters. The general outline of this research ispresented in chapter 1. The following chapter is a literature review on service,servitization and the emerging theories in service science. Based on the study ofliterature, we analyze the dilemma of servitization and the gap in the current research.
In chapter 3, we present the design of the research and why we collect data from thecase company. The next two chapters, we go deeper in the analysis of the datacollected and discuss the new trend of servitization through upgrading customer
interaction. In the final, we summarize the major findings by answering researchquestions, proposing theoretical and practical implications. Research limitations andsuggestions for future research are presented.

ii

Contents
List of Figures....................................................................................................................... v
List of Tables ....................................................................................................................... vi
Chaper 1 Introduction..................................................................................................... 1
1.1 Research background ........................................................................................................ 1
1.1.1 Servitization as a competitive strategy ............................................................................... 1
1.1.2 Services becoming increasingly homogenized in PSS .................................................. 2
1.2 Objectives and research questions ................................................................................. 3
1.3 Originality and significance of the study ...................................................................... 4
1.4 Research Methodology ...................................................................................................... 5
1.5 Definition of terms ............................................................................................................. 6
1.6 Research Structure ............................................................................................................ 7

Chaper 2 Literature Review .......................................................................................... 8
2.1 What are service and servitization? ............................................................................... 8
2.1.1 What is service? .......................................................................................................................... 8
2.1.2 What is servitization? ............................................................................................................. 11
2.1.3 The drivers of servitization ................................................................................................... 13
2.1.4 The phases of servitization development ......................................................................... 13
2.2 Emerging theories and perspectives in service science ............................................172.2.1 Service-dominant logic .......................................................................................................... 17
2.2.2 Service field ............................................................................................................................... 19
2.2.3 Customer value-driven Marketing 3.0 .............................................................................. 20
2.2.4 Customer knowledge, customer value and value co-creation ................................... 21
2.3 Servitization research with the focus on information technology .........................26
2.3.1 Digital transformation: Social, Mobile and Cloud Computing ................................. 26
2.3.2 Knowledge management architecture for IoT ................................................................ 28
2.3.3 ICTs architecture for servitization ...................................................................................... 30
2.4 Summary: The dilemma of servitization and the gap in research ........................32

Chaper 3 Research Methodology and Implementation ........................................ 36
3.1 Research Design ...............................................................................................................36
3.1.1 Grounded Theory ..................................................................................................................... 37
3.1.2 Interview ..................................................................................................................................... 39
3.2 Attributes of data sources ..............................................................................................41
3.2.1 Why selecting Haier as the case company?..................................................................... 42
3.2.2 The profile of Haier Group ................................................................................................... 43
3.2.3 Attributes of interviewees ..................................................................................................... 46
3.3 Data Collection .................................................................................................................47
3.3.1 The types of primary data...................................................................................................... 47
3.3.2 The implementation of Interview ....................................................................................... 47
3.4 Data Analysis ....................................................................................................................49
3.4.1 The principle of analysis........................................................................................................ 49
3.4.2 The assistive tools for data analysis ................................................................................... 51

Chaper 4 Narrative Analysis and Discussion .......................................................... 52
4.1 Introduction.......................................................................................................................52
4.2 Building an agile organization for upgrading customer interaction ....................52
4.2.1 Why a manufacturer transformed to a platform of incubating entrepreneurs ...... 52
4.2.2 Developing corporate strategy towards a closer relationship with customers ..... 54
4.2.3 Innovating organizational behaviors to effectively interact with customers ........ 59
4.3 Upgrading customer interaction to drive innovation ...............................................67
4.3.1 Being smart: from Home Appliance to Internet Appliance ....................................... 68iii

4.3.2 Interacting effectively with customer through social big data .................................. 70
4.3.3 Discerning customer knowledge in online communities ............................................ 74
4.3.4 Deep engagement from three types of opinion leaders ............................................... 83
4.4 New service values coming from the new interactions .............................................89

Chaper 5 Data Coding and Theoretical Proposition ............................................. 93
5.1 Introduction.......................................................................................................................93
5.2 Open Coding .....................................................................................................................93
5.2.1 The purpose of open coding ................................................................................................. 93
5.2.2 Labeling ....................................................................................................................................... 93
5.2.3 Conceptualization .................................................................................................................... 96
5.3 Focused Coding ............................................................................................................. 113
5.3.1 The purpose of focused coding......................................................................................... 113
5.3.2 Categorization ........................................................................................................................ 113
5.4 Theoretical Coding and findings ............................................................................... 120
5.4.1 The intrinsic logic of categories ....................................................................................... 120
5.4.2 The upgrade of customer interaction .............................................................................. 121

Chaper 6 Conclusions ................................................................................................. 124
6.1
6.2
6.3
6.4
6.5

Answers to research questions ................................................................................... 124
Theoretical implications .............................................................................................. 128
Practical implications ................................................................................................... 130
Research limitations ..................................................................................................... 132
Suggestions for future research ................................................................................. 132

Acknowledgement .......................................................................................................... 133
References.. ...................................................................................................................... 135
Appendix 1: Interview application and semi-instructed questions ..................... 141
Appendix 2: The list of research achievements....................................................... 142

iv

List of Figures
Figure 1-1: The similar product images of the top three excavator brands .................. 2
Figure 2-1: Identification of service fields................................................................... 19
Figure 2-2: Value-driven Marketing 3.0 ...................................................................... 20
Figure 2-4: Three components of big data ................................................................... 28
Figure 2-5: Data, information, and knowledge ............................................................ 29
Figure 2-6: Knowledge reference architecture for IoT ................................................ 30
Figure 2-7: Common architecture for ICT ................................................................... 31
Figure 3-1: Combinative research flow chart .............................................................. 38
Figure 3-2: The world’s number one Major Appliances Brand ................................... 44
Figure 3-3: The integration of label, concept, and category with data in MAXQDA . 51
Figure 4-1: Haier Five Development Stages ................................................................ 55
Figure 4-2: Haier Platform Organization Ecosystem Structure ................................... 60
Figure 4-3: Traditional Cascade R&D ......................................................................... 63
Figure 4-4: Haier Iteration R&D.................................................................................. 63
Figure 4-5: Infrastructure of HOPE platform .............................................................. 66
Figure 4-6: Social CRM Platform ................................................................................ 71
Figure 4-7: Examples of customer engagement........................................................... 79
Figure 4-8: The distribution percentage of the desired shape of air conditioner ......... 80
Figure 4-9: Examples of customer engagement on creative functions ........................ 81
Figure 4-10: The preliminary sketch of a creative air conditioner .............................. 82
Figure 4-11: The virtual prototype of a creative air conditioner ................................. 82
Figure 4-12: The iterative air conditioner .................................................................... 83
Figure 4-13: Open Innovation ...................................................................................... 86
Figure 4-14: Hair Brother: cartoon image of Haier brand ........................................... 88
Figure 4-15: The example image of Haier Brothers drawn and shared by users ......... 88
Figure 4-16: Knowledge Interactive Ecosystem .......................................................... 91
Figure 5-1: Flow chart of data collection and analysis ................................................ 93
Figure 5-2: An example of labeling in MAXQDA ...................................................... 97
Figure 5-3: An example of conceptualization in MAXQDA....................................... 98
Figure 5-4: Using MAXQDA to create the tree structure of categories .................... 114
Figure 5-5: The intrinsic logic of 9 categories ........................................................... 120
Figure 5-6: The upgrade of customer interaction ...................................................... 121
Figure 5-7: The three aspects of customer engagement............................................. 122
Figure 5-8: Self-actualization as the upper level of customer value .......................... 123
Figure 6-1: Customer Self-Serving IT Infrastructure ................................................ 130v

List of Tables
Table 2-1: The definition of service............................................................................... 8
Table 2-2: The definition of servitization .................................................................... 11
Table 2-3: The drivers of servitization......................................................................... 13
Table 2-4: The definition of after-sales services.......................................................... 14
Table 2-5: The definition of Product Service-System ................................................. 16
Table 2-6: The roles of customer in two kinds of logic ............................................... 18
Table 2-7: The definition of customer value................................................................ 22
Table 2-8: Research issues arising from literature review ........................................... 34
Table 3-1: The information of interviewees ................................................................ 46
Table 3-2: The steps of data collection at Haier Group ............................................... 48
Table 5-1: Labels to the raw text ................................................................................. 95
Table 5-2: The tree structure of categories (with concepts and Labels) .................... 114
Table 5-3: Labels, Concepts, and Categories............................................................. 117
Table 6-1: The contrast of three phases servitization ................................................ 131

viChaper 1

Introduction

1.1 Research background1.1.1 Servitization as a competitive strategy
Not long ago, most of a product’s added value was derived from the production
processes that transformed raw materials into products. However, the product is easily
caught in a commodity trap, and differentiation is rarely sufficient to reverse this(Chesbrough, 2010; Mont, 2002). Chesbrough (2010) argued it is far more difficult todifferentiate companies just analyzing from the fine management, precisely becausesome management techniques, like Six Sigma, Total Quality Management (TQM),
Supply Chain Management (SCM), Customer Relationship Management (CRM),
have been widely implemented in both advanced economies and the developing
economies. The situation leads directly to commoditization in products and lower
price competition in the markets.
Currently, product companies are looking for ways to regain a competitive advantage,by seeking for alternative approaches to value creation. Adding more service sectors
in their business is a new competitive strategy for companies to create differentiation
advantage in a growing number of industries on a global scale (Oliva and Kallenberg,
2003; Vandermerwe and Rada, 1988). Service industries have grown significantly andhave become a dominant concept in the current economy (Baines and Lightfoot,2013; Vargo and Lusch, 2008). Similarly, services increased their proportion within
the manufacturing industry; their role in providing value is ever more important.
Manufacturers expect to hugely benefit from servitization and avoid thehomogenisation of competition (Baines and Lightfoot, 2013; Oliva and Kallenberg,
2003). Servitization, introduced by Vandermerewe & Rada (1988), is now widely
recognised as the process of creating value by adding services to products. Also as
Baines and his colleagues (2007) pointed that servitization is the innovation of anorganization capability and processes to better create mutual value through a shift
from selling the product to selling the product-service system. With this strategy,
products are evolving to play the additional role of integrating a wide-ranging set ofservices to meet customers’ need and create greater value for customers (Alter, 2008).
Hence, many manufacturers have begun to adopt servitization to gain a competitive
advantage (strategic driver); furthermore, they want to obtain higher profit margins
and income stability (financial driver) and promote the sales of more products1

(marketing driver) by servitization (Baines et al., 2007).
1.1.2 Services becoming increasingly homogenized in PSS
IBM had kept being a leading example of successful servitization by providing
Product-Service System (PSS) for the last decades (Baines et al., 2007; Vandermerwe
and Rada, 1988). Indeed, IBM’s services including consulting service were superb.
Moreover, IBM also had competitive hardware products and software, such as
mainframe servers, storage products, and business intelligence software. IBM wasable to combine these three core businesses into total solutions, such as smart city andsmart planet. This combination sounded very attractive. Moreover, as IBM soldsuccessively its low-profit personal computers and PC servers, it was also seen by theindustry as selling the low-value products and implementing the decisive strategy toenhance its servitization (Merli, 2014). Manufacturers’ decisions to develop newservices when their customers would not need these services become a disaster for thetransition. The consulting services from IBM, Accenture, McKinsey, and othercompanies are similar. As more customers have their computing done cheaply in thecloud, IBM is selling less hardware, which imperils its software and consulting
services (Summers, 2014).
Besides the information technology industry, the construction machinery industry is
another servitization field deeply studied by scholars. In order to avoid
commoditization in products (Figure 1-1) and lower price competition in the markets,
the top three leading companies namely Caterpillar, Komatsu and Hitachi taking
advantage of information technology to expand their customer services and develop
new businesses (Arakawa, 2002; Baines and Lightfoot, 2013; Matsuda and Kosaka,
2016). Undoubtedly, their respective customers are benefiting a lot from theservitization. However, new services based on new IT are becoming as similar as theirproduct functions. The similar description of the services can be found not only fromthese academic research but also from the official introduction from their website. We
take the proactive services as an example:

Figure 1-1: The similar product images of the top three excavator brands

2Caterpillar:“Condition Monitoring provides valuable, proactive information, helping equipment
owners set up effective, comprehensive maintenance and repair plans. Analyzing datafrom a combination of condition monitoring "elements" - including simple
inspections and regular fluid analysis to careful tracking of electronic data andanalysis of equipment history - helps to accurately assess the health and operating
condition of critical equipment.”1
Komatsu:“By proactively using information gained from KOMTRAX-equipped machines,
Komatsu is making a contribution in respect to after-sale support activities for ourcustomers' machines throughout their lifetime, resulting in enhanced availability andlowered maintenance cost.”2
Hitachi:“Hitachi’s remote machine monitoring systems give you the power to optimize youroperation and maximize your profits. With Hitachi’s ZXLink™ and Global eService,
you’ll have access to all the information you need to make informed decisions about
your fleet.”3
Their new services based on IoT and GPS are becoming increasingly homogenized,
which are monitoring the connected machine, getting and analyzing data from it,
providing proactive services and keeping it in healthy condition. In this condition,
what is the next servitization strategy to getting differentiated competitiveness?
1.2 Objectives and research questions
This research aims to explore how manufacturers involve their customers to makeknowledge and value creation via technological convergence in the mobile Internet
era. It is to clarify the interactive infrastructure of customer interaction for driving
servitization in a B to C manufacturer.
To achieve the above objectives, the qualitative research aims to find out the answers
to the following research questions.
Major Research Question (MRQ):

1 http://www.cat.com/en_IN/support/maintenance/condition-monitoring.html
2 http://www.komatsu.com/CompanyInfo/profile/product_supports/
3 http://www.hitachiconstruction.com/service-support/3What new customer interactions did the manufacturer develop to accelerate
servitization strategy implementation in the mobile Internet era?
Subsidiary Research Questions (SRQ):
SRQ1: Why did it have to upgrade customer interaction in the mobile Internet era?
SRQ2: How could it upgrade the interaction with customers?
SRQ3: What kinds of service values had been created through these interactions?
1.3 Originality and significance of the study
While servitization is regarded as a hot topic in both academic and practical research,
the research continues to contribute toward a deep understanding of servitization fromthe perspective of knowledge and value creation, as well as insightful focus on the
integrative influence of human factor (Customer Engagement) and technology factor(Mobile Internet).
The servitization research has undergone the first phase of focusing on productrelated services. In the past two decades, many scholars have moved beyond the firstphase to focus on the concept of Product Service System (PSS) and develop theresearch on servitization. The research of PSS suggested manufacturers should
transform from product-oriented business to service-oriented business and provide an
integrated solution of products and services, in order to meet customer needs andrealize a recyclable society.
The weakness of the PSS approach is that services are still regarded as distinct
characteristics of products (such as intangible or unstorable) to deliver to customers.
The roles of customer engagement caused by the mobile Information technology are
not taken into full account. While servitization strategy is proving increasing popularwith policy makers and academics, there are only a few guidelines on macro-levelissues such as challenges, drives of servitization and organizational strategy, withalmost no tools or models available (Baines et al., 2009).
In order to close the gap, the dissertation integrates the main three influential elements
to structure the research: information technology, customer interaction, andknowledge creation. It explores how manufacturers make knowledge creation andinvolve customers to co-create value via technological convergence in the mobile
Internet era.
With the development of servitization, the emerging challenge for manufacturers is toengage customers outside their organizational span. When manufacturers commit
themselves to design the services and products that customers truly want, to be4

effective, they must involve customers as early as possible in the process. However, inthe traditional business practices, although companies could utilize many methods toinvolve customers, such as interviews and conferences, as well as inviting customers
to work at their offices to participate in the early stage of designing a new product orservice, the co-created result is narrowed for a small number of customers.
Mobile information technology provides manufacturers with the ability to innovate
services together with their customers on an all-purpose open platform. This
innovation is an effective means to escape the pressures of commoditization that
impact not only many product businesses but also, increasingly, service businesses.
More importantly, customers could participate in a manner that they like, at any timeand at any place they prefer.
Japan government is also implementing national policy ‘ICT Restoration Vision 2.0’
to build infrastructure networks to enable firms to create new services through cloudstrategy. Application of information technology in manufacturing can be organized ina service-oriented manner. Technological convergence (cloud computing, M2M,
Mobility, etc.) contributes to the process of servitization. It creates a brand newopportunity for manufacturers and is emerging as one of the major enablers totransform their business model.
1.4 Research Methodology
The research employed the methodology of ground theory to construct and analyze
the data. In order to make the process proceed logically and clearly, we utilized thequalitative analysis tool of MAXQDA software to deal with the data.
Strauss and Corbin (1998) defined Grounded Theory as a research approach by which
theory is derived from data, systematically organized and analyzed through theresearch process. In the method, a researcher does not begin a study with apreconceived theory in mind. Instead, the research begins with an area of study andgets the theory from the data. Data collection, analysis, and the final theory stand inclose relationship to one another. The findings are extracted from data to offer insight,
enhance understanding, and provide a meaningful guide to action (Mays & Pope,
1995; Strauss, 1987).
Dey (1999) claimed in order to keep sensitive to the data and achieve theoreticalsensitivity, the researcher began to analyze data with as few predetermined ideas as
possible. Although the concepts and theories in extant literature can also be used to
inform the development of categories, the categories should not be forced to fit them.
However, it does not mean the research should start with an empty head, instead,5

holding an open mind. The literature can be used to make the difference and enrich
the analysis.
We selected qualitative data analysis software MAXQDA as the data analysis tool toanalyze the transcribed text. First, all the text was imported into the software. Then,data interpretation and evaluation were done by sorting materials into labels,
concepts, and categories and using a hierarchical coding system. It could define
variables, provide tabular overviews and assign colors and weights to text segments.
Furthermore, every step of the process was easily tracked, and results could beaccessed with just a few clicks. The data was coded repeatedly with trial and error
until it presented a concise and logic theory.
1.5 Definition of terms•

IoT: Data coming from these devices and sensors provide business insights thatwere previously out of reach. The invaluable insights enabled by harnessing andanalyzing the data from these connected devices are what the Internet of Things is
all about.

•

Application programming interface (API): Software programs comprising of
protocols and tools to build interoperability across programs running in the sameenvironment.

•

Social: Social is the people working with, selling to, buying from, and living
with- all gathered in various cooperative and collaborative groups.

•

Mobile: Mobile means connected access to everyone and all of our businesses via
key tools such as the smartphone.

•

Cloud computing: It is computing as a utility-infrastructure ‘somewhere’ thatenables us to do everything, including Software-as-a Service and Infrastructureas-a-Service.

•

Big data: The use of large and broad data sets along with analytics to understandevents, trends and activities in much deeper and effective ways.

•

Connected devices: various equipment and devices that connect to one anotherthrough the Internet.

•

Global positioning system (GPS): A system that uses satellites in space topinpoint the location of objects on the earth.

•

Industrial Internet: A term coined by GE to describe the use of connected
equipment, software and wireless technology to communicate among machinesand humans.

6

•

Machine-to-Machine (M2M): Computing devices and other machines exchange
information and perform actions using software without the involvement of
humans.

•Smartphone: A mobile phone with sophisticated sensor and digital computing
capabilities, including a camera, GPS and electronic data exchange.

•

Traditional medias: Traditional medias include newspaper, broadcast, televisionand magazine. The definition was made with the contrast of ‘New media’, whichrefers to the medias running based on the Internet.

•

Six Sigma: Six Sigma is a quality-control program created by Motorola in 1986
that emphasizes cycle-time improvement and the reduction of manufacturing
defects to a level of no more than 3.4 per million.

•

Maker: A maker in the context is a person who loves to create things rather than
only do what others ask.

•

Micro-enterprise: Micro-enterprise refers to a small business that employs a small
number of employees. In the case studied, it refers to a start-up company inside
the corporate.

1.6 Research Structure
We organize the dissertation in five chapters. The general outline of thisresearch is presented in chapter 1. The following chapter is a literature review onservice, servitization and the emerging theories in service science. Based on the
study of literature, we analyze the dilemma of servitization and the gap in thecurrent research. In chapter 3, we present the design of the research and why wecollect data from the case company. The next chapter, we go deeper in the analysisof the data collected and discuss the new trend of servitization through upgrading
customer interaction. In the final, we summarize the major findings by answeringresearch questions, proposing theoretical and practical implications. Research
limitations and suggestions for future research are presented.

7

Chaper 2

Literature Review

The chapter is a literature review of previous studies regarding servitization and therelated theories in service science. Through the review, we aim to find the meaningful
issues existing in the current servitization research.
2.1 What are service and servitization?
To catch the essence of servitization, it is indispensable to interpret the meaning ofservice.
2.1.1 What is service?
Service is the application of one party’s competencies for the benefit of another(Vargo and Lusch 2004). Maglio and Spohrer (2008) defined service systems arevalue-co-creation configurations of people, technology, value propositions and shared
information. Service science is the study of service systems, aiming to create a basis
for systematic service innovation.
Since it was introduced by Vandermerwe and Rada (1988), servitization has beenstudied by a range of scholars (Baines et al., 2007; Oliva and Kallenberg, 2003).
Service is a comprehensive term and has different characteristics from one
manufacturer to another. Each organization understands the meanings of service indifferent perspectives owing to its different development strategy and industry field(Table 2-1).
Table 2-1: The definition of service
AuthorDefinition of service

Goedkoop et al. (1999)

An activity done for others with an economic value andoften done on a commercial basis.

Kotler et al. (1999)

Any activity or benefit that one party can offer to anotherwhich is essentially intangible and does not result in theownership of anything

Kameoka, 2008

A supporting activity to help an individual or organizationto achieve its objective

Vargo et al. (2008)

The application of competences such as knowledge andskills by one party for the benefit of another

Lovelock et al. (2009)

Anything that brings benefits without ownership

Source: Own preparation.

8

To catch the essence of servitization, it is indispensable to interpret the meaning ofservice. We summarize service from the following three perspectives.
1) Service as an intangible productThe intuitive understanding of service is to compare the word product. Products are
physical entities that are manufactured from raw materials. Services are non-physicalentities that are the applications of knowledge and skills for the benefit of a party(Vargo and Lusch, 2008b). The most famous characteristics of services that
distinguish them from products are intangibility, heterogeneity, inseparability andperishability, now known as the IHIPs (Gummesson, 2007). This understanding is
also consistent with the definition of servitization that was originally coined.
Servitization is now widely recognised as a shift from selling products to selling an
integrated system by adding services to products.
There are a variety of forms of servitization in the current research. Baines et al.
(2007) claimed that the concept of a PSS is a specific case of servitization. A PSS
embraces the service-led competitive strategy rather than simply offers lower priced
products. Product firms achieve differentiation through adding services in theirofferings because services are more difficult to imitate (Gebauer and Fleisch, 2007;
Oliva and Kallenberg, 2003; Vandermerwe and Rada, 1988).
In these discussions, services are viewed as intangible products although they havenow been claimed to be obviously distinctive, tangible products. Views are primarily
focused on the internal environment of manufacturers and on how to produce
additional services to complement the products offered. Tukker (2004) argued that
this research has predominantly explored ‘function-oriented business models’ inwhich services and products are integrated to meet specific customer needs.
2) Service as a contextual experience
As goods and services become commoditised, the customer experiences thatcompanies create will matter most (Pine and Gilmore, 1998). The researchers claimed
an experience occurs when a company utilises services as the stage and products asprops to involve customers in a manner that creates a memorable event. Grove andFisk (1992) applied the sociological concepts of dramaturgy to services andintroduced the model of service experience as theatre. Customers’ evolving
expectations and continuous interactions provide firms with the needed information to
guide their behaviour toward a desired outcome. Schmitt (1999) introduced thesimilar concept of experiential marketing. He argued that customers could not beviewed solely as rational decision-makers who care about functional features and9benefits. Moreover, as emotional beings, customers are concerned with achieving
pleasurable experiences. Kosaka (2012) argued the role of the service field to service
value is consistent with that of the electromagnetic field in physics. The service fieldmodel can be specified as (Service value) = (Service) × (Service field). The identicalservice may generate very different value as the service field changes. The value ofthe service a provider delivers depends on the context such as customer knowledge,
needs, place, and time. A high service value for the customer is generated when theservices are provided in the high potential service field.
These discussions extend the focus from product companies’ capabilities for adding
service offering to the concern with customers’ experience, feelings and knowledge.
Although customers are involved, sensory, emotional, cognitive, behavioural andrelational values replace functional value (Gouillart, 2011; Schmitt, 1999).
3) Service as a value co-creating process
A service can be defined as a knowledge creation process for customers’ value;
knowledge creation for new service value is essential for service innovation. With theproposal of service-dominant logic, Vargo and Lusch (2008b) provided a newperspective to observe the economic phenomenon. Two propositions become
prominent: first, the fundamental source of competitive advantage is not operandresources (e.g., materials and equipment) but operant resources (knowledge andskills); second, the customer becomes a co-creator of value who determines the valueof service.
Prahalad and Ramaswamy (2000) explained that customers could be a source ofcompetence. Companies must find the means to process what they learn from
customers so they can encourage dialogue and actively involve customers. Involving
customers instead of treating them as passive consumers generates meaningfulexperiences that will satisfy their ideas and that they are willing to reward. In theprocess, customers contribute their knowledge, particularly tacit knowledge that isdifficult to convey and difficult for others to know (Chesbrough, 2010; Gebauer andFleisch, 2007; Kotler et al., 2010; Payne et al., 2008).
Product-oriented companies implement a function-oriented business model and regard
customers as consumers at the end of the value chain. These companies manufacture
their products or deliver their services based on their research, in which it is assumed
they know their customer well. However, much of the knowledge involved in theservice field is tacit, which customers gain from experience. The best means forward
for open service innovators is to become integrators of both internal and external

10knowledge. Co-creation can provide greater value to customers and a greater
competitive advantage for the manufacturer (Chesbrough, 2010). The company that
can attract the most numbers of co-creators would be king in a service businessindustry.
2.1.2 What is servitization?
Manufacturers add services to their products, a process widely recognized asservitization (Vandermerwe and Rada, 1988). Based on the various understanding ofservice, servitization is studied in the corresponding manners. Similarly with service,servitization has various definitions owing to the different views and focuses of theresearchers (Table 2-2). Manufacturing companies are increasingly being pressured tochange their business from a technology-based one to one based on both technology
and service (Shirahada et al., 2015). Servitization in manufacturing is a key issue forobtaining a competitive advantage, and service value creation is indispensable forcustomers in the 21st century. It is developed based on core competencies to provide
extended services for customers throughout the entire product lifecycle (Gebauer etal., 2010; Oliva and Kallenberg, 2003; Vandermerwe and Rada, 1988). Somemanufacturers regard services as the basis of their competitive strategy (Baines andLightfoot, 2013). Li (2011) claimed that manufacturers with well-developed service
operations could develop a strong relationship with customers based on loyalty andcommitment. Owing to its specific industry, organizational capacity, anddevelopmental strategy, each manufacturer has a different interpretation of service
when it implements a servitization strategy.
Table 2-2: The definition of servitization
Scholars

Definition of manufacturing industry servitization

Vandermerwe (1989)

Modern manufacturing enterprises provide customercentered and integrated bundles instead of pure products.
This bundle can be made up of tangible products, services,supports, self- providing services and knowledge

Tellus Institute (1999)

The emerging of product-based services made it difficult
to separate manufacturing industry from traditional service
industry

Verstrepen and Van
Den Berg (1999)

To add service components to core products

White et al. (1999)

It’s a dynamic changing process that manufacturers change

11from product provider to service provider
Desmet et al. (2003)

It’s a trend where manufacturing companies provide more
and more services

Szalavetz (2003)

The definition is double layered: first is that internal
service efficiency becomes increasingly important tocompany competency; second is that customer attaches
higher importance on product related services. Productservice covers purchasing, financing, transportation,
installation, system integration and technique support aswell as maintenance and repairing

Lewis et al. (2004)

The strategy for product function transition while entering
the market

Ward and Graves(2005)

Manufacturers increase scope of service

Ren and Gregory(2007)

Aiming at meeting customer demands, increasing
competency and sales, the changing process where
manufacturing companies become service oriented ordevelop more and better services.

Baines (2007)

The change from selling products to products and service
systems, by which to create multi-value organizationcompetency and business process

Liu et al. (2008)

From connotation, it means the change of value chain frommanufacturing centered to service centered in order to gain
competitive advantage; from denotation, it includes input
servitization and output servitization

Zhou (2010)

Manufacturing industry servitization is an economic trend
in which service element takes an increasing proportion in
the input/output activities in manufacturing industry; on
micro-level, it is the managing strategy to meet market
demands, realize differentiation and win the competition;
on meso-level, it is an upgrade strategy to realize industry
transition and extension to both ends of the value chain; onmacro-level, it is the result from development ofknowledge economy, representing new trends of economy
growthSource: Wang, Kosaka &Xing, 2016.

122.1.3 The drivers of servitization
Manufacturers stand at a critical point. As technology and economic climate shift,manufacturers must innovate their service while making product innovation, in orderto face various challenges. They may need a good grasp of current business models.
They may be experiencing a gradual decline in traditional revenue streams or margin
erosion due to commoditization. There are new competitors emerging from
unexpected places or adjacent industries. Cheaper digital substitutes for their products
or services are making inroads in markets (Westerman et al, 2014).
Commonly, the literature suggests three sets of factors that drive companies toimplement a servitization strategy: financial, marketing and strategic. Yet, someresearchers add the reduction of environmental impact as the driver of servitization.
The drivers of servitization are summarized in table 2-3.

Table 2-3: The drivers of servitization
DriverDescription

Financial

1.Higher profit margin
2. Stability of income(Baines et al., 2007;Gebauer and Fleisch, 2007)

Marketing

1.The use of services to sell more products
2. Improvement of product performance
3. Improvement of customer relationship(Gebauer and Fleisch, 2007; Mont, 2002)

Strategic

1.A customized strategy to overcome the homogeneity of a
product
2. A differentiating strategy difficult to imitate(Oliva and Kallenberg, 2003; Gebauer and Fleisch, 2007)

Environmental

Reduction of environmental impact (Mont, 2002)

Source: Own preparation.

2.1.4 The phases of servitization development
The evolution of servitization is catalogued as the two distinct phases according to thecontent of services as well as the extent of customized needs.

13

Table 2-4: The definition of after-sales services
AuthorDefinition

Ehinlanwo & Zairi(1996)All activities geared towards maintaining the quality andreliability of the car carried out after the customer has takendelivery with the goal of ensuring customer satisfaction.”

Asugman et al.
(1997)

Those activities in which a firm engages after purchase of its
product that minimize potential problems related to productuse, and maximize the value of the consumption experience.”

Urbaniak (2001)

Customer service can be defined as those activities thatenhance or facilitate the role and use of the product

Johansson &Olhager (2004)

The supply of after-sales services, including tangibles such as
spare parts and consumables, related to the maintenance ofindustrial goods.

Morschett (2006)

If services are provided post product purchase, they are called
AS [after-sales service]. Included are warranty services,maintenance, repairs, user training etc. In most instances, theseare services which enhance the productivity and efficiency of
the good being sold.”

Cavalieri et al.
(2007)

Traditionally confined temporally as taking up those activities
occurring after the purchase of the product and devoted tosupporting the customer in the usage and disposal of thegoods.

Saccani et al.
(2007)

After-sales services for manufactured goods encompass the setof activities taking place after the purchase of the product,
devoted to supporting customers in the usage and disposal ofgoods.

Rigopoulou et al.
(2008)

To describe services that are provided to the customer after the
products have been delivered.”

Source: Jönke, 2012.
1) Product-related services
To enhance the productivity and efficiency of products and avoid thecommoditization of products, most manufacturers provide various services to theircustomers. Frambach et al. (1997) classified these services into three different
categories according to their sequence with the purchase decision. ‘Pre-sale product14

services’ are used to stimulate the purchase decision and to reduce the perceived riskof adopting the product (such as demonstrating and offering trail use of the product.
‘Sale product services’ are those that will help the customer utilize the product (suchas installation and training). Finally, ‘post-sale product services’ are designed togarner customer satisfaction (such as repair and maintenance). In this phase, mostmanufacturers focus on the development of after-sale service to differentiate theircompetitiveness from opponents. The definitions of after-sale services are shown in
Table 2-4.
These services are devoted to minimizing the potential problems that are related to
product use and maximizing the value of the customer experience. The proposed
benefits for manufacturers include extra revenue outside product sales, steadier cash
flows from maintenance and training revenues, and better profitability from the highly
profitable spare part (Rigopoulou et al., 2008).
In this phase, services are recognized as intangible revenue-generating products andas a differentiation strategy of winning customer satisfaction in the commoditizationera.
2) Product-service systems (PSS)
With the implementation of servitization, manufacturers have the capacity and desire
to pursue more from their customers’ business, such as providing business advisory
and a total solution around their products. A PSS is an integrated combination of
tangible products and intangible services that is designed to fulfill specific customer
needs (Tukker, 2004). The term has been defined as “a marketable set of products andservices capable of jointly meeting a user’s need, or a system of products, services,supporting networks and infrastructure that is competitive and satisfies customer
needs” (Mont, 2002).
Tukker (2004) compiled a seminal typology and identified three categories for PSS.
Product-oriented services systems are based on conventional transactions, selling
products and offering services. User-oriented services mean leasing, renting, sharing
and pooling products. In this case, the customer uses the product and pays for its use;the product does not shift in ownership. The third category, result-oriented services, isthe most advanced service system. Compared with the second category, the customer
no longer pays for the use of the product; instead, it pays for the results it demands.
The PSS logic is utilized to take advantage of the specialized knowledge of customers
to both increase value as an output and decrease physical resources as an input to asystem. Product and service components are designed in an integrated manner to15

provide the proper functionality of PSS (Baines et al., 2007; Claude and Horne, 1992;
Morelli, 2003). PSS values asset performance or utilization rather than ownership.
Manufacturers integrate products and services to concentrate on the usage value for
their customers.
Table 2-5: The definition of Product Service-System
AuthorDefinition of Product Service-System

Goedkoop
et al. (1999)

A product service-system is a system of products, services,
networks of “players” and supporting infrastructure that
continuously strives to be competitive, satisfy customer needs andhave a lower environmental impact than traditional businessmodels.

Mont (2001)

A system of products, services, supporting networks andinfrastructure that is designed to be: competitive, satisfy customer
needs and have a lower environmental impact than traditional
business models.

Manzini (2003) An innovation strategy, shifting the business focus from designing(and selling) physical products only, to designing (and selling) a
system of products and services which are jointly capable offulfilling specific client demands.

Brandsotter(2003)A PSS consists of tangible products and intangible services,
designed and combined so that they are jointly capable of fulfilling
specific customer needs. Additionally PSS tries to reach the goalsof sustainable development.

Wong (2004)

Product Service-Systems (PSS) may be defined as a solution
offered for sale that involves both a product and a service element,
to deliver the required functionality.

ELIMA (2005)

A
product
service-systemisdefinedasa system of products, services, supporting networks andinfrastructure that is designed to [be]: Competitive, Satisfy
customer needs, & Have a lower environmental impact than
traditional business models.

Baines et al.
(2007)A PSS is an integrated product and service offering that delivers
value in use.

Source: Baines et al. (2007) and own preparation.
Undoubtedly, compared with solely providing product-related services around16

products, PSS is a more competitive strategy if manufacturers can implement it
successfully. For the customer, PSS is expected to provide value through morecustomization and higher quality; for conventional manufacturers, PSS is claimed toprovide strategic market opportunities and to enhance competitive edge (Baines et al.,2007).
However, as with the first phase of servitization, in this phase, the manufacturer
continues to focus on its internal capacity, which is also been concluded from thedefinition of PSS by the scholars collated in table 2-5. Customers are external to thevalue creation process. Manufacturers design a PSS based on their own research andassume it will fulfill their customers’ needs. The design of services is significantly
different from the design of products because services have fuzzy characteristics, highcost and low standardization. Furthermore, customers may not be enthusiastic about
services that manufacturers deliver. PSS remains a manufacturer-based solution fromthe customer perspective.
2.2 Emerging theories and perspectives in service science
According to Oliva and Kallenberg (2003), customer-oriented servitization consists of
two kinds of transformation: transforming the service offering from product-oriented
services to the end-user’s process-oriented services, and transforming the nature ofcustomer interaction from transaction-based to relationship-based. We review the
related theories emerging in service science to understand the direction of customeroriented servitization.
2.2.1 Service-dominant logic
Vargo and his colleagues (2008a) defined service is “the application of competencessuch as knowledge and skills by one party for the benefit of another” (p.145) andservice system as “an arrangement of resources (including people, technology,
information etc.) connected to other systems by value propositions” (p.149).
With the proposal of service-dominant logic (Vargo and Lusch, 2004) provided a newperspective to observe the economic phenomenon. It gave a distinct answer to theunsolved problems in the goods-dominant logic. They originally provided eightfoundational premises (FP) that underpin their case for the S-D logic. After
substantial concurrence, debate, dialog and inquiry, Vargo and Lusch (2008b, p. 7)
modified and extended the original FPs into ten, as described below.
FP1: Service is the fundamental basis of exchange.
FP2: Indirect exchange masks the fundamental basis of exchange.
FP3: Goods are a distribution mechanism for service provision.

17

FP4: Operant resources are the fundamental source of competitive advantage.
FP5: All economies are service economies.
FP6: The customer is always a co-creator of value.
FP7: The enterprise cannot deliver value, but only offer value propositions
FP8: A service-centered view is inherently customer oriented and relational
FP9: All social and economic actors are resource integrators.
FP10: Value is always uniquely and phenomenologically determined by thebeneficiary.

Based on the above foundational premises, two propositions become prominent:
first, the fundamental source of competitive advantage is not operand resources but
operant resources, which are mostly stored in the employees’ brains; second, thecustomer becomes a co-creator of value who determines the value of service andwhose satisfaction and loyalty are mostly affected by the employees of the service
provider. In service dominant logic, the customer is always buying a service flowrather than a tangible product. We contrast the key distinctions between gooddominant logic and service-dominant logic in the table 2-6.

The foundational

proposition of S-D logic is that organizations, markets, and society are fundamentallyconcerned with exchange of service—the applications of competences (knowledge
and skills) for the benefit of a party. S-D logic embraces concepts of the value-in-use
and co-creation of value rather than the value-in-exchange and embedded-value
concepts of G-D logic.
Table 2-6: The roles of customer in two kinds of logic

Dominant logic

Goods-dominant Logic(GDL)

Service-dominant Logic(SDL)

Role of customer

The customer is the recipientof goods

The customer is a co-producer ofservice

Determination andmeaning of value

Value is determined by the
producer

Value is perceived anddetermined by the consumer on
the basis of “value-in-use”

Interaction

Customers are acted on tocreate transactions withresources

Customers are active
participants18

2.2.2 Service field
Kosaka (2012) argued that the service value a provider delivers depends on thesituation such as customer knowledge, needs, place, time and the like. The identicalservice might generate very different value as the service field changes. The role ofservice field to service value is consistent with that of the electromagnetic field inphysics. The service field model can be specified as (Service value) = (Service) ×(Service field). The concept of the service field is shown in Figure 2-1.
This new proposal to create and improve service values is based on service fields andservice systems, and it can be applied to various services where providers andreceivers co-create service values. This means that the service system and the conceptof service fields are applicable to modeling service value creation.
A high service value for the customer is generated when the services are provided
in the high potential service field. A high potential means that the requirement for theprovided service is high. The provider should pay more attention to identifying thecontext among them and customers. Any of both sides play a vital role in the service
value. The fact that service value depends on service field requires service providers
to learn more from customers and local culture. It is indispensable for service
providers to design the service with customers from the beginning and conduct theservice activities together in the process. The service value is different even thoughprovided service is the same, because it depends on service field (e.g., customer’s
needs, knowledge, characteristics, time, place, condition, situation.) 。

Figure 2-1: Identification of service fields(Source: Kosaka, 2012)

19

The firm identifies the service field before it determines what kind of service ismost valuable for the specific customer. Service value depends on the interaction
between the service and service field. Kosaka defined four steps to maximum theservice value. The first step is to define the service system. Stakeholders participating
hold the same understanding and objectives of the service system. Step two is
identification of the service field. Next step is creation of new service ideas. New
knowledge is created for the expected service based on the identification of service
field. The final step is to implement the new knowledge created.
2.2.3 Customer value-driven Marketing 3.0
Kolter and his colleagues (2010) defined the new model for marketing-marketing
3.0. In today’s mobile Internet era, the old rules of product-based and consumer-based
marketing will not satisfy the knowledgeable and informed customers (Figure 2-2). It
sees customers not as the final consuming end but as the multi-dimensional humanbeings. Customers make self-expression and collaboration with other customers.
Marketing has shifted to inviting customers to participate in the process of value cocreation. Hence, the marketing is creating services and corporate culture that areconsistent with the values of target customers. As the example given in the book,Apple’s Steve Jobs engage with customers’ emotions through the compelling stories
around his ideas. Providers used to listen to the customers’ voice to understand theirminds and capture market insights. The firm used to make a product with minimalcustomer testing in the beginning or extensive customer input and testing later, but
now it shifts to provide ideas and co-create with customers.

Figure 2-2: Value-driven Marketing 3.0

20

(Source: Kotler et al., 2010)
Now customers play the key role of creating the value through co-creation of
product and services. The new ways of creating product and services are realized
through collaboration of companies, customers, supplier, and other partners connectedby the mobile Internet in a global network. Like Amazon and eBay, they leverage thepower of consumer networks by the platform of consumer communications.
While marketing 3.0 emphasizes the human spirits and emotional marketing toembrace outside customers, Appelo’s management 3.0 (2010) provides the similar
perspectives on inside employees. The latter recognizes that the firm is living,networked systems, where management is primarily about people and relationships.
Employees are the most important parts of a firm and managers must do all they can
to keep employees active, creative and motivated. Leaders cannot inspire employees’
creativity with the management system based on the industrial production anddivision of labor.
2.2.4 Customer knowledge, customer value and value co-creation
In the value creation process, manufacturers tend to emphasize how many functions
their products chartered, how many intelligent employees they have and the market
share of their products. These factors are used to persuade manufacturers and external
stakeholders that their products are powerful and competitive. However, whenmanufacturers focus on themselves, the important power of customers is often
ignored. Prahalad and Ramaswamy (2000) claimed that companies can no longer
operate their business autonomously with minimal interference from customers.
§ Customer value
Customer value is the benefit that customers enjoy or experience from the receipt
of products and service (Gale, 1994). When customers purchase a product or service,
they form desires for certain attributes based on achieving the desired consequential
experiences. Customers also learn to desire certain consequences based on the ability
to help them satisfy their goals and purposes (Woodruff, 1997). Sweeney and Soutar(2001) discussed that costumers evaluate products, not just in functional terms of
expected performance, value for money and versatility; but also in terms of theenjoyment or pleasure derived from the product and the social consequences of what
the product communicates to others. Anderson and her colleagues (2013) claimed
services could affect consumer well-being owing to their pervasiveness in the
consumer environment. MacKay (1999) discussed that a product’s or a service’s
appeal is an amalgam of rational and emotional factors. The emotions play a part in21

every purchase decision. Both theoretical and practical knowledge about customer
value have been broadened and deepened, as reflected by the definitions of customer
value concept collated in Table 2-7.
Table 2-7: The definition of customer value
Author

The definition of customer value

ZeithamI (1988)

Value is the consumer's overall assessment of the utility ofa product based on perceptions of what is received andwhat is given

Gale and wood
(1994)

Customer value is market perceived quality adjusted for the
relative price of your productButz and Goodstein(1997)The emotional bond established between a customer and a
producer after the customer has used a salient product orservice produced by that supplier and found the product toprovide an added value

Woodruff (1997).

A customer's perceived preference for and evaluation of
those product attributes, attribute performances, andconsequences arising from use that facilitate (or block)achieving the customer's goals and purposes in use
situations

Sweeney and Soutar(2001)

Functional value, social value, emotional value

Kameoka (2007)

Customer value =Product value + Service Value +Customer added value

Source: Own preparation
The target of service is all the processes that lead to customer satisfaction; for that
purpose, many physical products are used. Figure 2-3 illustrates the concept of thecustomers’ total value, as defined by Kameoka (2007). The customers’ total value
consists of product value, service value provided by service providers, and customers’
added value. Product value is offered by the product functions. Service is added to
product value and to promote the customer experience. Customers can add an
important component to the total value. A value added service can be created by a
product provider, new service provider, and user through collaboration; this activity
leads to service innovation.

22

Total Value
Product function
Customer’s
total value=

Product value

Service function+

Product provider

Added function

Service value +Customer’s
added value

Maintenance

Customer’s
operations

New valueadded service

User

New Service provider
Figure 2-3: Customers' Total Value defined by Kameoka

Advanced management of technology moves its focus to the higher value added
services innovations by integrating more sophisticated service functions to theconventional products and systems (Kameoka, 2008). The percentage of service value
is gradually increasing, and product value is decreasing because IT technology andmany new participants are expected to enter the high value-added service field(Kosaka, 2012). A pair of shoes does not only belong to dressing, it can now also
allow users to interact via a social network, measure performance, and play withfriends. A new challenge for the manufacturing industry is to employ information
technology to integrate the service function, which leads to the incorporation ofcustomer satisfaction into products; furthermore, it connects products to service
innovation (Shelton, 2013).
§ Value co-creation with customers
Companies can do more to involve customers in their innovation process than simply
watch them. Prahalad and Ramaswamy (2000) explained that customers can be asource of competence. Companies have to find ways to process what they learn from
customers so they can encourage the dialogue forward and make customers actively
involved. It is essential to mobilizing customers’ community and manages customer
diversity in the Internet era. Solutions can be seen as ‘ on-gonging relational
processes of defining, meeting, and supporting customer’s evolving needs’ (Tuli et al.,2007). Another way for services companies to focus on customers is to create a23personalized experience for customers. In services, customers’ perceptions of theirexperiences are as important as the design and delivery of the service.
Chesbrough (2010) explained that the customers are willing to pay for tailoredservice solutions that address their unique needs. Customers’ involvement instead oftreating customers as passive consumer generates meaningful experiences that will
satisfy their ideas and they are willing to reward. In the process, customers contribute
their knowledge, especially tacit knowledge that is hard to convey and know by others.
Co-creation can bring greater value to customers and greater competitive advantage
for the firm. The firm conducts three key processes for co-creation. First, the firm
creates a platform to attract and support the collaboration of its stakeholders. Thencustomers customize the platform to meet their own unique needs. At the third step,
the firm further enriches the platform by incorporating all the customization efforts
with customer feedback (Kotler et al., 2010).
Armed with new connective tools and dissatisfied with available choices,
customers now seek to exercise their influence in every part of the business.
Chesbrough (2010) argued some companies have had great success in letting
customers create designs that they would like. Also like in music industry, a morecustomers-driven view would invite customers to be co-creators of their producer.
Co-creators are active, engaged seekers of new music, not passive recipients. Friesen(2001) used the example of eBay to elucidate the co-creation process, in which
eBay’s contribution is the software and process, and the seller’s contribution is the
specific content. Likewise, security is co-created by both buyers and sellers throughthe enforcement of a rating system that serves as a control mechanism during cocreation. Note that there is involvement at both ends in creating the experienceenvironment, with customers playing an active role in the process. The ability to
manage tacit knowledge from knowledge can create a competitive advantage forcompanies. The mobile Internet can further enhance the explicit knowledge movefaster, but it cannot play the same important role of transfer tacit knowledge. In somesense, tacit knowledge cannot share by the Internet so that it becomes increasingly
valuable. Companies have the unique advantage to get such valuable knowledge fromtheir customers if they have corresponding policies to encourage their employees to
do so.
The roles of customers are becoming increasingly important. That means,customers can not defined only as those who have money to buy a product or service,
but consider customers are human, they have emotional needs, that cannot be met by
the traditional offerings, how to satisfy the emotional needs is critical for24manufactures to build new type of relationship with customers. Moreover, customers
have knowledge and skills that firms do not have, how to harness the competence iscritical for manufactures to gain a new competitiveness.
§ Enhancing value co-creation through harnessing customer knowledge
Customer knowledge creates value when companies incorporate it into planning andoperating activities (Lesser et al. 2000). As Prahalad and Ramaswamy (2000)
discussed, harnessing the knowledge and skills of customers is not an easy task.
Especially, it is complicated enough for a large firm. They claimed four realities forfirms to grip with in harnessing customer competence.
(1) They have to engage their customers in an active, explicit and ongoing
dialogue
The Internet has empowered the customer to be an interlocutor. Firms have torealize that their dialogue is equal and firms no longer have a monopoly on oreven an advantage in information access. In the process, firms are going to try
to process what they learn from customers timely in order to keep customers
interested and bring the dialogue forward.
(2) They have to mobilize communities of customer
Thanks to the Internet, customers currently are easier to join or form theirown, self-selecting, and quite tightly knit virtual communities. These
communities are increasingly exercising a powerful influence on the market.
“Viral marketing” of word of mouth from the customer’s collective
personalized experience is replacing the traditional management of brands thatwas operated through advertising, packaging and the like. Furthermore, smart
firms are finding ways to mobilize communities and invite customers tocontribute their knowledge to the maximum customer value.
(3) They have to manage customer diversity
Firms are becoming more vulnerable to customer diversity. Especially forfirms of technology-intensive products, they are sensitive to variations incustomers’ sophistication. The sophistication includes their skills as users,
their sensitiveness on privacy and security, and so on. Besides technology,
globalization in the marketplace also heightens the diversity in customer
sophistication.
(4) They have to co-create personalized experience with customers
Harnessing the knowledge and skills of customers involves more than justconducting a dialogue. They are pursuing the total experiences around a
product rather being interested in purchasing it. Moreover, customers

25increasingly want to shape those experiences themselves rather than accept
experiences fabricated by firms.
Personalization differs from customization. The latter requires the
manufacturer to design a product to meet a customer’s needs. Personalization,on the other hand, is about the customer becoming a co-creator of the content
of their experiences. In the process, firms are also expected to provide aplatform for customers discussing their ideas with in-house experts and othercustomers.
Gouillart (2011) further argued how the company go about transforming inert touchpoints into live interactions that co-evolve with customer processes. He suggested thecompany should design engagement platforms-the physical and virtual places throughwhich customers could interact with the company and other stakeholders in order todesign their own personalized experiences. The company can make the four types ofinteraction into such engagement platforms through its products, its people, thephysical places it does business, and the digital sites it possesses.
In sum, the relationship with customers can promote the total value received by thecustomer as value is created and delivered over times as the relationship develops(Arnould and Thompson 2005; Payne et al., 2008; Vargo and Lusch, 2004;)
discussed). Product-oriented companies regard customers as consumers at the end of
the value chain. They manufacture their products based on their research, where it isassumed they know their customers’ want and customers are willing to pay for the
products. But, much of the knowledge involved in service field is tacit that customers
gain from experience. Tacit knowledge interferes with the ability of providers andcustomers to communicate with one another. If providers cannot conduct deep
interaction with customers, it becomes impossible to understand what a customer
really wants and make use of customer knowledge to maximize the total value.
2.3 Servitization research with the focus on information technology
Can Information Technology (IT) be the enable for servitization? Can IT change theinteraction with customers making it more effective and more efficient? With thesequestions, we made review on the current development of IT and the research ofservitization focusing on the factor of IT.
2.3.1 Digital transformation: Social, Mobile and Cloud Computing
New information technologies such as IoTs, mobility and social media areempowering firms to get closer to their customers, connect customers in engaging
ways and fuel customer-driven innovation (Westerman et al., 2014). Shelton (2013)26

claimed the new technology is reducing the two largest components in the cost of
doing business: communication and coordination. He defined the new IT as Social,
Mobile and Cloud. Social is not just online parties for personally chatting and posting;social is also the business communities in every industry and the mechanisms thatpeople use to work with one another, which is impacting the supply chain, employee
behaviors, customers behaviors and competitors. It is transforming many firms fromhierarchical organizations and command and control business processes to peer
networks and collaborative business processes. Mobile is how people get to work andthe work gets to people. It means everywhere and on the move. It connects access toeveryone and all of our businesses via key tools such as the smartphone. The mobile
ability has been embedded into products. The cloud is where the office is, the newplace people work. It is computing as a utility-infrastructure always existing‘somewhere’ that enables us to do everything.
Social gives people the network to engage with others, but mobile makes it possible toengage whenever and wherever or seen as everywhere and all the time in practice.
Social and mobile working together break down barriers to productivity and promote
peer communication. Social networks and cloud computing are building blocks for
systems that can change the way people create value-sometimes called social
production, or more commonly co-creation.
Westerman and his colleagues (2014) suggested the four digital interventions forfirms to change the customer value equation. First, they figure out customer behaviors
and enhance the customer experience digitally. Second, they provide user-friendly
mobile apps and develop rewarding social experiences. Third, they regard customer
data as the lifeblood for designing compelling customer experiences. Data helps firms
move from guesswork to inspired predictions and continuous hypotheses testing.
They use scientific ways to inform the changes, proactively offer personalized deals
and design predictive marketing campaigns. Finally, they work to seamlessly combine
the physical and digital experiences.
An engaging customer experience creates value for both customers and manufacturers.
But delivering a compelling customer experience is a challenging task. First, customer
expectations have increased. Second, integrating new digital channels into current
operations is organizationally challenging. Third, these digital interactions require atransformation in corporate culture (Westerman et al., 2014)27

2.3.2 Knowledge management architecture for IoT
At the core of the Internet of Things is the Industrial Internet, providing theunderlying infrastructure that supports connected machines and sensors. The term,
generally attributed to manufacturing giant GE, means the integration of machineswith sensors, software, and communication systems that enable the Internet of Things.
The connected business world is generally regarded as Industry 4.0, which is fostering
the fourth wave of disruptive industrial innovation (Greengard, 2015).
Greengard (2015) discussed in his book the total number of mobile devices is now
exceeding 2.5 billion. The ability to tag physical objects and transform anyone
carrying a smart device into a potential data point has remarkable and far-reaching
implications. Various chips and sensors as well as human input from a smartphone ormobile device generate vast amounts of data. Smart phones, cloud computing, Radio
Frequency Identification (RFID) technology, sensors, and miniaturization areconverging to make a new generation of embedded and immersive technology, which
unavoidably generates an era of Big Data.
Laney (2001) pointed out exploded big data management challenges in e-commerce
era in three dimensions: volume, velocity and variety (Figure 2-4). Volume refers to
the amount and the depth of data, increased by a transaction or any point ofinteraction; velocity refers to the speed at which data are generated and put to use.
And variety refers to the breadth of data that now exist in incompatible data formats,non-aligned data structures, and inconsistent data semantics.

VolumeBig Data

Variety

Velocity

Figure 2-4: Three components of big data
Source: Laneny, 2001.

28

Within the context of IT systems, the term ‘knowledge’ is closely related to the twoother concepts: data and information. The most common paradigm of knowledge inthe literature is the knowledge hierarchy illustrated in Figure 2-5 (Davenport andPrusak, 1998). It depicts the conventional knowledge transformation, where data istransformed into information, and information is transformed into knowledge. Data
means unstructured facts and figures that have the least impact on the typicalmanagers; Information is data that has been contextualized, categorized, calculated,and condensed to provide relevance and purpose for the decision-makers in question(Holler et al., 2014). From another different perspective, Nonaka and his colleagues(2008) defined knowledge as a dynamic human process of justifying personal belief
toward the truth. They claimed tacit knowledge and explicit knowledge as the twomain types of human knowledge. Explicit knowledge is defined as objective andrational knowledge that can be represented in words, numbers, or diagrams. Such as
theoretical approach, manuals, books, database, know-what knowledge. Tacit
Knowledge is subjective and experimental knowledge that cannot be presented inwords, numbers, or diagram. It includes cognitive skills such as belief, image andmental model, and technical skills such as craft and know-how knowledge. The key toknowledge creation lies in the interaction between tacit knowledge and explicit
knowledge.

Knowledge

Information

Data

Figure 2-5: Data, information, and knowledge
Holler and his colleagues (2014) claimed that data-driven knowledge discovery is an
important emerging paradigm for IoT and cloud computing. With sensor data andsimilar types, it is critical to understand how to organize data effectively in order to29extract knowledge from it, depicted in figure 2-6. The are three levels: data sources,
data integration, and knowledge discovery and information access.

Figure 2-6: Knowledge reference architecture for IoT
Data sources refer to the broad variety of data that is available to build enterprisesolutions, which

may come from sensors, Operational Support System (OSS),Business Support System (BSS) or other Data Base (DB) sources. The data
integration layer transforms data from different formats into a manner that can beused by the information access and knowledge discovery tools. Strong staged data
refers to data stored in traditional database formats that often have the analysis
defined beforehand. Weak staged data is data that is not well structured according totraditional database techniques, such as streaming data for data from sensors. Oncedata has been collated and processed, it can be used to develop insights from the data
via retrieval. Information access essentially means displaying the data in a form that is
easily understandable and readable by users. Knowledge discovery means thatdecisions may be able to be taken on the outputs.
2.3.3 ICTs architecture for servitization
Data coming from the sensors embedded in product provide business insights thatwere previously out of reach. While we have had incredible access to informationfrom our desks for a decade, only in the last several years has that information been ina mobile way, available as an immediate extension of our memory (Shelton, 2013).
The invaluable insights enabled by harnessing and analyzing the data from theseconnected products are critical to service innovation. Remote product sensing and30

cloud computing are critically important to the successful delivery of advanced
services. Currently, manufacturers can monitor the condition of their products andcapture the relevant information about location, use, performance, consumption andthe like. Based on the case companies they analyzed, Baines and Lightfoot (2013)
formulated the common architecture for information and communication technologies(ICTs) on servitization of manufacturing (Figure 2-7).

ICTs largely focus onproviding the manufacturer with visibility of their product or asset as it is used by thecustomer.

Figure 2-7: Common architecture for ICT
Source: Baines and Lightfoot, 2013, p.171.
The architecture is grouped into five functions.
(1) Monitor
Monitoring is fundamentally related with the sensing of critical systems of the
products and capturing data from transducers located in it. Advanced services
frequently require a wide portfolio of additional data, so other equipment like
GPS is important to supplement the data. The data captured is commonly fed
into a localized microprocessor to generate and store fault codes.
(2) Transmit

31

In the stage, two forms of data are transmitted: raw base data and fault code
data generated by the on-board microprocessor.
(3) Store
Store is related with maintaining records of the transmitted data in hard andsoft storage systems.
(4) Analyze
Analysis is processed in terms of diagnostics and prognostics, identifying thecurrent and likely future condition of a product. It deals with translating
various data into valuable information. Some analysis is carried out
automatically. Computer-based algorithms can analyze particular trends
among the data and compare it with symptoms of failure. Signals of alert aresent as matches occur.
(5) RespondBased on the analysis information, the manufacturer can deliver advanced
services on product performance, availability and reliability to the customer,
such as optimizing advice, proactive maintenance and replacement ofcomponents。
The above ICTs capabilities involve the operations of the manufacturer, customer andother partners. Data capture takes place within the operations of the customers; themanufacturer usually processes in-depth data analysis; the transmission and thetechniques for in-depth analysis may be provided by partners of the manufacturer.
2.4 Summary: The dilemma of servitization and the gap in research
In this section, we will summarize our findings from the literature reviewed. As theliterature argues, the servitization of manufacturing is a competitive differentiation
strategy, which is developed based on core competencies to provide extended services
for customers throughout the entire product lifecycle. However, a servitization for
manufacturers’ dilemmas exists.
First, service is a must. All manufacturers offer various services for their customers(Baines and Lightfoot, 2013).
Second, service is high cost. This statement applies not only to manufacturers but
exists for all service businesses. For example, if one eats a bowl of noodles at a fivestar hotel, one must pay much more than the cost of the noodles itself because of thespecial service. In fact, for the manufacturers, the material cost of products represents
only a small portion of all expenses. The remainder is used to organise all kinds ofservices, which range from production-related activities, such as research, product32

design, logistics, planning, and maintenance, to the back office support services thatexist at all companies such as accounting, financing, and personnel functions (Mont,
2002). Neely and his colleagues (2011) claimed the comparative data highlights theservitization paradox. More combined manufacturing and services firms wentbankrupt than pure manufacturing firms while some servitized firms are extremely
successful both in terms of profitability and market valuation. The finding helps
manufacturers think what changes are fundamental. Moreover, the servitization of
manufacturing is clearly influenced by local economic circumstances, which forms ofservices can be categories in terms of installation and implementation services,
consulting services, financial services, outsourcing and operating services, and thelike (Neely, 2007). The manufacturers may be concerned with pricing, absorbing risks,and organisational transformation, which require time and money to facilitate (Baines
et al., 2007).
Third, although service is expensive, when manufacturers provide the expensive
service to customers, in many cases, their customers do not like it at all. Baines et al.
(2009) argued that there is a huge difference between product and service design.
“Most product manufacturers were confronted with the following phenomenon:
extended service business leads to increased service offerings and higher costs but not
to correspondingly higher returns” [Gebauer et al., (2005), p.24]. Abstract demands
are often difficult to translate into concrete (quality performance) indicators, whichmakes it difficult for the providers to determine what they must supply and difficult
for the customers to know whether they have obtained what they requested (Tukker,
2004). What is riskier is that services do not last, cannot be stored and disappear
instantly, as opposed to products (Edvardsson et al., 2005). Manufacturers’ decisions
to develop new services when their customers would not need these services becomea disaster for the transition. IBM’s consulting service, for instance, is superb.
Moreover, IBM also has competitive hardware products and software, such as
mainframe servers, storage products and business intelligence software. IBM is able
to combine these three core businesses into total solutions, such as smart city andsmart planet. This combination sounds very attractive; however, IBM is increasingly
complying with their customers’ demand for mobile applications, in addition toselling its personal computers and PC servers. As more customers have their
computing done cheaply in the cloud, IBM is selling less hardware, which imperils its
software and consulting services (Summers, 2014).
Some academic research has argued the use of value co-creation to solve the above
problem. However, two crucial questions are easily ignored. Are customers willing to33

accept the invitation from manufacturers to co-create value? Additionally, if so, how
can these customers participate in the process? First, customers are external tocompanies, and the value-added interaction is very limited. Although companies
could utilize many methods to involve customers, such as interviews and conferences,
as well as inviting customers to work at their offices to participate in the early stage ofdesigning a new product or service, the co-created result is narrowed for a small
number of customers. The second adverse factor is that customers’ creativity andinspiration are discounted when the so-called value co-creation is gathered in a
specific place and during a limited time span.
Table 2-8: Research issues arising from literature review
The Phases of Servitization
Features

1st Phase

2nd Phase

Product-Related
services

Product Service-System

Role of
Product

Full offering

Key offering

Value

Product function

Manufacturer-based
solution

Value
CreatorNext Phase?

Manufacturer

Core
Capacity

Product function, costand brand

Expert in the field ofcustomer business

Risk

Commodity trap

Service cost-effectiveness1.Human Factor:
Customers are out of value creation;
Limitations
2.Technology Factor:&
The research on the effect of new IT (IoTs, M2M
Opportunitiesetc.) mainly focuses on the interaction withmachines customers buy, little on the interaction
with customers.

(New
opportunities
emerge throughovercoming thelimitations)

Undoubtedly, compared with solely providing product-related services aroundproducts, PSS is a more competitive strategy if manufacturers can implement it
34

successfully. For the customer, PSS is expected to provide value through morecustomization and higher quality (Baines et al., 2007). However, as with the firstphase of servitization, customers are stillout ofthe value creation process.

Manufacturers design a PSS based on their own research and assume it will fulfill
their customers’ needs. PSS remains a manufacturer-based solution from the customer
perspective. The contrast is depicted in table 2-8.
Prahalad and Ramaswamy (2000) asserted that customers are not willing to accept
experiences that are fabricated by manufacturers. Increasingly, customers want toshape these experiences themselves or in tandem with other customers. To design
effective services, early involvement with the customer is essential for manufacturers;
this enables them to achieve a solution that responds to customer wants and needs(Baines et al., 2009). Customer orientation, acknowledged as a key success factor inservitization, is an increasing trend among industrial business; it results in thetransformation of manufacturers’ service offering and customer interaction (Bainesand Lightfoot, 2013; Oliva and Kallenberg, 2013). However, the servitization
literature lacks empirical insight into value co-creation that would enhanceservitization of an industrial company.
Mobile information technology brings a promising solution to the dilemma ofservitization and value co-creation. As Shelton (2013) discussed, social gives people
the network to engage with; mobile makes it possible to engage whenever andwherever-which in practice means everywhere and all the time. Social media andsocial networks are building platforms that can change the way we create-sometimes
called social production, or more commonly co-creation. It is when you add a purpose,an objective, to social interactions that a real transformation results.
The external environment has changed. The business model has been transformed
from division to distribution, the manufacturing model is from mass manufacture tomass customization, and consumption pattern has been disrupted from producteconomy to experience economy.
Hence, we start our journey to explore how the leading manufacturer integrates the
emerging concepts “value co-creation”, “customer knowledge” and “mobile
information technology” with its business operation, and opens a brand new avenue
for servitization research.

35

Chaper 3

Research Methodology and Implementation

The chapter focuses on the design of qualitative research and its implementation.
Qualitative research is comprised of three major components: data collected fromvarious sources, procedures to interpret and organize the data, and written or verbal
report of finding (Strauss and Corbin, 1998). The research collects data throughinterviews and employs the grounded theory method to code and analyze the data for
the findings.
3.1 Research Design
The aim of the research is to clarify the interactive infrastructure with customers forturning information technology into service value to drive servitization of
manufacturing. The research aims to solve two critical issues. First, most research
focuses on how manufacturers conduct corporate transformation and business process
re-engineering to adapt the service design and delivery distinction. However, once
manufacturers complete the transformation, their added services remain firm-based
solutions. Customers primarily await the delivery of the offerings; in addition, theirtacit needs are difficult to satisfy. Second, certain scholars have claimed that utilizing
value co-creation can solve the above problem. However, are customers willing toaccept the invitation to create value in combination with manufacturers? How cancustomers participate in the process?
As Marshall and Rossman (2014) claimed, research is a process of trying to gain abetter understanding of human interactions in social or applied fields. Throughsystematic means, the researcher gathers information about actions and interactions,reflects on their meaning, arrives at and evaluates conclusions, and eventually puts
forward an interpretation (p.15). Researchers working in the field of social scienceand interested in studying human behavior found increasing difficulty when trying to
explain human behavior in quantifiable, measurable terms (Hancock et al., 1998;
Williamson, 2002). Qualitative research focuses on how people or groups of people
can have (somewhat) different ways of looking at reality (Hancock et al, 1998).
Qualitative research interviews aim to elicit participants’ views on their experienceand feelings and address questions concerned with developing an understanding of themeaning and experience dimensions of social world (Fossey et al, 2002; Williamson,2002).
Grounded theory, introduced by (Glaser and Strauss, 1967), is a method of deriving
theory from data, systematically collected and analyzed through the logic research
progress. The procedures of grounded theory are designed to develop a well-36integrated set of concepts that provide a thorough theoretical explanation of social
phenomena under study (Corbin & Strauss, 1990). In this method, data collection,
analysis, and eventual theory stand in close relationship to one another. Strauss andCorbin (1998) pointed out the following characteristics contributed are very helpful tounderstand the method.
(a) The need to get out into the field to discover what is really going on;(b) The relevance of theory, grounded in data, to the development of a discipline
and as a basis for social action;(c) The complexity and variability of phenomena and of human action;(d) The belief that persons are actors who take an active role in responding to
problematic situations;(e) The realization that persons act on the basis of meaning;(f) The understanding that meaning is defined and redefined through interaction;(g) A sensitivity to the evolving and unfolding nature of events;(h) An awareness of the interrelationships among conditions, action andconsequences (p. 9-10).
The research aims to build the infrastructure model of customer interaction for
turning information technology into service value to drive servitization of
manufacturing. We conduct the research with a combinative qualitative methodology,
collecting data through interviews and following the procedures of grounded theory
method to analyze data.
We combine the qualitative research flow and the procedures of grounded theory,
respectively defined by Williamson in 2002 and Glaser & Strauss in 1967, to form theresearch flow employed in the paper (figure 3-1).
3.1.1 Grounded Theory
Strauss and Corbin (1998) define Grounded Theory as a research approach by which
theory is derived from data, systematically organized and analyzed through theresearch process. In the method, a researcher does not begin a study with apreconceived theory in mind. Instead, the research begins with an area of study andgets the theory from the data. Data collection, analysis, and the final theory stand inclose relationship to one another. The findings are extracted from data to offer insight,
enhance understanding, and provide a meaningful guide to action (Mays & Pope,
1995; Strauss, 1987).

37

Research objectives

Literature Review

Basic Theories

Formulating research questions

Qualitative research design

Defining sample (Criterion &person)

Supplementing data

Data collecting and analyzing

Building preliminary theory

Theory saturation

Theory unsaturation

Conclusion and findings

Figure 3-1: Combinative research flow chart

Strauss and Corbin (1990) conceived data “are inductively derived from the study ofthe phenomenon it represented and are verified through systematic data collection andanalysis of the data” (p. 23). The main feature is the development of new theory
through the collection and analysis of data about a topic. It is phenomenological but it
goes beyond phenomenology because the explanations around the topic are used todevelop new theories. One characteristic of grounded theory is the reciprocal
relationship between data collection and data analysis. Data analysis do not be started
only if data collection is completed, but the two jobs are supposed to go on at thesame time, which means collection leading to analysis and analysis leading to further
data collection.
The constant comparative process, which is seen as the essence of grounded theory,
presents this reciprocal relationship between data collection and analysis (Glaser &Strauss, 1967; Strauss, 1987). Strauss and Corbin (1990) emphasized a researcher

38

who employs grounded theory does not begin with a theory and then prove it. Rather,
it is a procedure for analyzing data and a means for generating theory. In the process,concepts, categories, and propositions-three basic elements are used to build arigorous and logic structure.
§ Concepts
Corbin and Strauss (1990, p. 7) describe “conceptualization of data” as follows:
Theories can’t be built with actual incidents or activities as observed or reported; thatis, from “raw data”. The incidents, events, happenings are taken as, or analyzed as,
potential indicators of phenomena, which are thereby given conceptual labels. If a
respondent says to the researcher, “Each day I spread my activities over the morning,
resting between shaving and bathing,” then the researcher might label thisphenomenon as “pacing.” As the researcher encounters other incidents, and whenafter comparison to the first, they appear, to resemble the same phenomena, thenthese, too, can be labeled as “pacing.” Only by comparing incidents and naming likephenomena with the same term can the theorist accumulate the basic units for theory.
§ Categories
Corbin and Strauss (1990, p. 7) describe “categories” as follows:
Categories are higher in level and more abstract than the concepts they represent.
They are generated through the same analytic process of making comparisons tohighlight similarities and differences that are used to produce lower level concepts.
Categories are the “cornerstones” of developing theory. They provide the means bywhich the theory can be integrated. We can show how the grouping of concepts forms
categories by continuing with the example presented above. In addition to the conceptof “pacing,” the analyst might generate the concepts of “self-medicating,” “resting,”and “watching one’s diet.” While coding, the analyst may note that, although theseconcepts are different in form, they seem to represent activities directed toward asimilar process: keeping an illness under control. They could be grouped under a more
abstract heading, the category: “Self Strategies for Controlling Illness”.
§ Propositions
Propositions indicate generalized relationships between a category and its concepts
and between different categories (Pandit, 1996).
3.1.2 Interview
Corbin and Strauss (1990) suggested the data for a grounded theory can come fromvarious sources as in other qualitative approaches. The data collection procedures39

involve interviews and observations as well as such other sources as public
documents, videotapes, newspapers, and books--anything that may shed light onquestions under study.
Bogdan & Biklen (1992) claimed that an interview is a purposeful communication
used to produce rich, descriptive data about how interviewees interpret thephenomena in their context and reveal the meanings that they have for things andpeople. Interviews are particularly useful for getting the story behind an interviewee’s
experiences. The interviewer can dig in-depth information around the topic.
Interviews may be useful as follow-up to certain respondents to further investigate
their responses (McNamara,1999). Qualitative researchers usually employ “semistructured” interviews to collect data. Semi-structured interviews are used to facilitate
in-depth exploration around a specific topic, using an interview guide. Interview
guides usually contain a list of questions designed to guide the interview in a focused,
yet flexible manner (Fossey et al., 2002).
The interview is conducted with a number of open-ended questions around the
topic areas that the researcher focuses on. The open-ended nature of the questions
defines the topic under interview but provides opportunities for both interviewer andinterviewee to make discussion go smoothly and seek for more detail information. If
the interviewee has difficulty answering a question or provides only a little
information, the interviewer can use the contextual information to encourage theinterviewee to consider the question further (Hancock et al., 1998; Mays and Pope,
1995). Fossey and his colleagues (2002) argued this approach to data collection isadvantageous in ensuring sensitivity to interviewees’ language and privileging theirknowledge.
§ Preparation for Interview
McNamara (2009) applies eight principles to preparing for an interviewing which
includes the following ingredients:(1) Choose a setting with little distraction;(2) Explain the purpose of the interview;(3) Address terms of confidentiality;(4) Explain the format of the interview;(5) Indicate how long the interview usually takes;(6) Tell them how to get in touch with you later if they want to;40

(7) Ask them if they have any questions before you get started with theinterview;(8) Don’t count on your memory to recall their answers.
Following the above suggestions, we conducted a successful interview at Haiergroup.
First, the interview was held in a quiet meeting room of Haier headquarters without
any disturbance. At the beginning of interview, we explained our purpose carefully
but tried not to give any hint about what kinds of answer we wanted and not to leadthe conversation.
Then we promise the confidentiality in written form and get their approval: “Datagetting from the interview are only for use in journal papers and writing dissertation.
Personal information (name, address, email address etc.) will never appear on any ofpublic websites or journals. We sincerely appreciate your real ideas for thesequestions.”
In order to avoid ignoring any detail, we got the permission from them andrecorded all the interviews.
§ Procedure of the Interview
Valenzuela and Shrivastava (2002) suggested the following points conducting aninterview smoothly.
(1) Occasionally verify the tape recorder is working;(2) Ask one question at a time;(3) Attempt to remain as neutral as possible;(4) Encourage responses;(5) Be careful about the appearance when note taking;(6) Provide transition between major topics;(7) Don’t lose control of the interview;
3.2 Attributes of data sources
Owing to its business model of interactive innovation with customers, the researchdata is mainly collected from Haier Group (Haier), the world's largest home appliancemanufacturers.

41

Besides the primary data getting from the interview, we also collect a great amount of
secondary data from media coverage, books, and third-party data to verify the selfconsistency of primary data.
3.2.1 Why selecting Haier as the case company?
While we focused on thinking about the above issues on servitization research, Haier,
the world’s biggest home appliance manufacturer, came into our sight. The firm seescustomer interaction as the critical strategy of corporate development. It evenformulates the creed “No interaction, no Haier”. We think these characteristics are
pretty suitable to developing the servitization research from the perspective ofcustomer interaction: Haier is well known for the abilities of understanding consumer
needs precisely and innovating rapidly to meet these needs; it regards customer
interaction as the premise of innovation, otherwise, neither incremental innovation
nor disruptive innovation can ensure its customer value; it interacts with one million
fans on average per day, committed to change the situation of ‘guessing customer
needs’ and instead listen to their voices carefully before production.
Haier has achieved a periodical success in driving innovation to create more value
through encouraging entrepreneurial spirit to focus on customer interaction. In 2015,
Haier achieved a global turnover of 188.7 billion yuan with a compound growth rateof 6% over the past decade, and a total profit of 18 billion yuan with a 20% year-onyear growth rate and 30% compound growth rate over the past decade, 5 times that inrevenue. Haier is well known for the abilities of understanding consumer needs
precisely and innovating rapidly to meet these needs. In 2015, Haier interacts with
one million fans on average per day. It comes up with over 200 originalities. Many
products, such as “Jhukna Mat” refrigerator in India, Adiabatic icebox without
power more than 100 hours in Pakistan, and Handheld washing machine “Coton”,
came from the interaction with customers. By the end of 2015, Haier's platforms haveattracted over 4,700 first-rate external resources, 3 billion yuan of VC fund, 1,330 VC
institutions and 103 incubators, setting the stage for 1,160 projects. Over 3,800 node
microenterprises and nearly one million microstores on Haier's platforms aresocializing their capital and human resources. More than 100 microenterprises boast
annual revenue of over 100 million yuan, and 24 have introduced VC, and 12 arevalued at over 100 million yuan. Due to Haier’s transformation throughdecentralization, disintermediation and removing the “insulated wall”, the employees
have decreased 45% from the highest, but Haier's platforms have offered over 1.3

42million jobs for the whole society4.
Haier’s business model shows the value of a person and gets respected in return. As
a result, it is warmly received by staff members from Japan, America and Europe andrecognized by the famous scholars in the world (Appendix 13).

Don Tapscott – Economist and business strategy master,“the father of digital

economy”“Haier will transform from a manufacturer of the old industrial age to a leader of
new business model because Haier is lucky to have a great leader. Mr. Zhang Ruimin
is one of the greatest leaders of our age.”Bill Fischer – Professor of innovation management, IMD“The innovation advanced by Haier focuses more on the challenge of people, which isquite unconventional. In a conventional organization the employee does what the
manager orders without any excitement; while in the innovative organization of Haierthe employee is constantly challenged, feeling continuous excitement.”
Marshall W. Meyer – Professor of Wharton School, University of Pennsylvania“Haier’s management model is very innovative. It has surpassed the traditional
management theories and is creating the theories of management for the next
generation.”
Andrew H. Van de Ven- Professor of Carlson School of Management, University of
Minnesota“I fully support and highly praise Haier’s management practices on its way ofcreating innovative organizations. Haier has become an international role model interms of encouraging organizational innovation and expressing entrepreneurial
spirit.”3.2.2 The profile of Haier Group
Haier group was founded in 1984 in Qingdao, China. It focuses on home appliancesand consumer electronics brands worldwide. In 2015, Haier achieved a global
turnover of 188.7 billion yuan with a compound growth rate of 6% over the past
decade, and a total profit of 18 billion yuan with a 20% year-on-year growth rate and30% compound growth rate over the past decade, 5 times that in revenue. Haier
dedicates on designing smart, user-friendly home products for the company vision.
4 Hair’s corporate strategy - The authorization document gotten from Haier (similarly hereinafter).

43

Based on the insight of growing IoT market, Haier is one of the earliest Chinesecompanies to get in the Smart Home industry with its original niche background.
(1) The world’s number one Major Appliances Brand

Figure 3-2: The world’s number one Major Appliances Brand5
Haier is the world’s number one Major Appliances Brand for sixth consecutive
years (Figure 4-1). Its global headquarters are based in the Chinese city of Qingdao
and regional headquarters in both Paris and New York to serve its clients in Europe
and America. Haier has 5 R&D centers in the United States, Europe, Japan, Australia
and China, 66 trading companies and 21 industrial parks worldwide.
(2) Haier’s Core Values: Customers always right
Haier’s Vision: Supplier of better life solution in the Internet AgeHaier’s Mission: Through its perseverant pursuit of innovation and the creative winwin model of individual-goal combination, Haier commits tobecoming a leader in the global household appliance industry, aleader in integrating end-to-end user experience driven by virtualphysical networks and build a world-class brand of the Internet Age.
Haier’s Core Values:
On right and wrong: The customer is always right and we should always be selfcritical (Haier’s motivation to create more customers)
On growth: Entrepreneurship and innovation (Haier’s cultural DNA)On rewards: Individual-Goal combination (Haier’s cornerstone of sustainable
operation)
5 Euromonitor International Limited; retail volume sales in units based on 2014 data.

44

(3) Home products and brands
Haier provides products including air conditioners, mobile phones, computers,
microwave ovens, washing machines, refrigerators, and televisions etc. It has thefollowing product brands.

Looking at the world as an interconnected whole where value
increasingly comes from integrated solutions, rather than individual products orservices. The principle of “360°” thinking, understanding the consumer drivers,decisions and uses of products and services through their entire life-cycle, rather thanjust at the point-of-sale.

From self-cleaning ranges to ice and water dispensers, tospeedcook ovens and refrigerators that make coffee, GE Appliances has electrified
and modernized life for more than 125 years. In June 2016, GE Appliances officiallybecame one family member of Haier.

In 2006 AQUA was born. Carrying world’s first unique
technologies and functions AQUA emerged at the right moment with the principle of“washing machines that cherish water source”. As exemplified by the electrolyzed
water cleaning in 2001 and ozone cleaning in 2006, unique technologies were usedwhile the principle of environmental protection remains the same. March 2012,
AQUA officially became one family member of Haier.

Casarte is an international premium brand fashioned after Italianelegance, and its core product lines include artistic consumer electric appliances andintegrated kitchenware. The line-up of Casarte products cover the following 9 main
product types, spanning 39 series and over 380 types of products: refrigerators,
cabinets for drinks, air conditioners, washing machines, water heaters, electric
kitchenware (exhaust fans, cooking utensils, sterilizing cabinets, baking ovens,
steamers, microwave ovens, and dishwashers, etc.), small scale electrical household
appliances (coffee machines, toasters, blenders/juicers/hand-mixers, cup warmers and45

electric water heaters, etc.), televisions and integrated kitchen cabinets, etc. Products
from Casarte have already entered nearly one million high-end households.

As a brand for household appliances of Haier Group, the Leader
brand provides tailor-made household appliances in the Internet age. Consumers aredesigners for Leader products, the ones manufactured completely based on
consumers’ demands.

Fisher & Paykel has been designing cooking products since 1934and has grown into a global company operating in 50 countries and manufacturing in
New Zealand, China, Thailand, Mexico, and Italy. In January 2016, Fisher & Paykel
officially became one family member of Haier.
3.2.3 Attributes of interviewees
Among the seven interviewees, five of them are in charge of customer interaction indifferent divisions; one of the rest is responsible for the development of entrepreneurs
projects which start from the customer interaction, another is the coordinator from theenterprise culture center of Haier group who gave us a big picture of Haier’s business.
All names of interviews have been coded in order to respect and protect privacy. The
detailed information of interviewees is listed in table 3-1.
Table 3-1: The information of interviewees
No.

Code ofInterviewees

1

A.LX

2

B.SR

3

C.KW

4

D.CG

5

E.PY

6

F.LD

7

G.TP

Position of Interviewees

Main Responsibility

As one of the three cofounders, he is
The cofounder of Haier's
mainly responsible for conducting highThundeRobot laptop company
quality interaction with customers
In charge of user interaction in theUser interaction director
refrigerator field
In charge of user interaction in the air
User interaction director
conditioner field
Interactive director ofInteractive director of operation
operation
In charge of user interaction atCreative director
innovation resource center
Supporting the development of young
Minister of youth
entrepreneurs
Research coordinator at enterprise
Coordinator
culture center of Haier group46

In order to catch the ideas directly from customer, we additionally interviewed two
active users with screen names of“枕 海 听 涛”and “sobershell”

on Haier’s“zhongchuanghui” platform, which is a user interactive customization platform as thefront end of Hair interconnected factories.
3.3 Data Collection
3.3.1 The types of primary data
We collected the data from Haier by interview, memos, annual internal meeting
reports and documents (Confidential-content-cut version), management files, pictures,videos and annual reports.
3.3.2 The implementation of Interview
We conduct the interview on Haier Group with in-depth interviews through thefollowing four steps (Table 3-2).
Step 1: Preparations for interview
Haier is a big multinational corporate group. The managers are willing to discuss withus carefully while they are busy with business work. Hence, before the formalinterview, we make enough communication for a compact interview.
We connected with the coordinator supporting industry-research cooperation andgot the authorization to employ Haier as a case-study company and its nonconfidential business data. Especially, I asked the coordinator for arranging the idealinterviewees I expected to interview. After that, we made the interview plan together
and I sent the interview questions to them in advance.

47

Table 3-2: The steps of data collection at Haier Group
No.

Steps

Date

Main Purposes

Tools ofCommunication

1. Getting the authorization
Step 1

Preparations

11/7/2015

2. Asking for arranging the ideal

E-Mailfor interview~

interviewees

Telephone

2/27/2016

3. Sending semi-structured questions

Wechat6and making a feasible plan together
1. Face to face interview for vivid
Step 2Formalinterview

2/29/2016

non-public data～

2. Building good personal friendship

3/3/2016

and keeping connection for further

Interview

discussion
1. Asking for authorized document
Step3

On-site datacollection

2. Visiting headquarters offices of
3/3/2016

Haier Group
3. Visiting the development museum

Discussion
Visitof Haier Group
Repeatedly
discussing
Step 4during3/5/2016〜

writing the

1. Discussing on unclear questions
2. Supplementing more data for

Wechattheory saturation

dissertation

Step 2: On site interviews
We conducted formal interviews at the meeting room of Haier headquarter. Eachinterview lasted for two hours or so. Under the approval of interviewees, the content
of interview was all recorded.
Besides the formal interviews at office, the author was welcomed and treated bythem in Haier’s headquarters restaurant. It was also a valuable opportunity to learninteresting information in a casual atmosphere, such as the episodes when they held
parties with fans.

6 Wechat: the most popular SNS tool in China, like Facebook. It also has the payment

function, which can be used even in many departments in the world, including Japan.

48

The formal interviews and informal get-together meal ensured integral and vivid
information about the strategy and activities of customer interaction. It also brought
us the opportunity to build personal friendship with them, so we can keep connection
with them and ask for information when we need.
Step 3: On-site data collection
When completing the formal interviews, at the last day we asked for the authorized
official documents about Haier, such as Haier strategy, corporate culture,organizational structure, strategy and stories of user interaction.
With the special introduction, we visited its headquarter and museum. At its
headquarter, we felt its determination and direction of customer interaction based
reform through the slogan hung in the building. At Haier museum, we saw the
precious materials in the development history of Haier, such as the management rulein 1984 that regulated it was not permitted to pee at workshop (Its picture wasillustrated in appendix 2). The two visiting activities enriched our cognition about
Haier’s current reform. We were allowed to take pictures (130+) in the process, someof which are illustrated in the appendix.
Step 4: Repeatedly discussing during writing the dissertation
Facing confusing questions when writing the dissertation, we discussed repeatedly
with A.LX, B.SR, E.PY and F.LD via SNS Wechat to get supplementary data for our
findings.
Additionally, in the final phase of writing the dissertation, in order to understand the
motivation of customer engagement, we made audio interviews with two active users
on Haier’s platform, respectively on December 16th and 22th, 2016.
3.4 Data Analysis
3.4.1 The principle of analysis
As Cho and Lee (2014) suggested, data collection and analysis are parallel ingrounded theory, and the procedure is neither linear nor sequential. The researcher
begins to analyze data with as few predetermined ideas as possible. Although theconcepts and theories in extant literature, and prior knowledge and experience of theresearcher, can also be used to inform the development of categories, the categories
should not be forced to fit them. The amount of data for analysis is based not on
availability but on saturation.
According to Strauss and Corbin (1998), the defining characteristics of groundedtheory include critical analysis, conceptual abstraction, openness to emerging ideas,49

and reliance on empirical. “Sometimes, one has to use common sense and not getcaught up in worrying about what is the right or wrong way. The important thing is totrust oneself and the process. Students should stay within the general guidelines ... anduse the procedures and techniques flexibly according to their abilities and the realitiesof their studies.” (P.295)
Charmaz (2006) argued the coding process with different ways, which could help us
to understand and employ the method. In coding process, initial coding is similar toopen coding, during which the researcher develops categories of information. Focusedcoding is a process designed to narrow initial codes down to frequent and importantcodes. Theoretical coding, a process used to find relationships between codes andcategories, has the potential to result in a theory.
The main feature of grounded theory is getting grounding theory from data, but
creativity of research also is an essential ingredient. Qualitative evaluation inquiry has
the characteristics of both the science and the art, drawing on both critical andcreative thinking (Patton, 1990;Sandelowski, 1995; Strauss and Corbin, 1998). Patton(1990) suggested a list of useful behaviors for promoting creative thinking inqualitative research (pp.434-435):(1) Being open to multiple possibilities;(2) Generating a list of options;(3) Exploring various possibilities before choosing any one;(4) Making use of multiple avenues of expression such as art, music, andmetaphors to stimulate thinking;(5) Using nonlinear forms of thinking such as going back and forth andcircumventing around a subject to get a fresh perspective;(6) Diverging from one’s usual ways of thinking and working, again to get a fresh
perspective;(7) Trusting the process and not holding back;(8) Not taking shortcuts but rather putting energy and effort into the work;(9) Having fun while doing it.
In this research, we employ the combinative approach of programmatic ground theory
and constructivist ground theory. That means, we understand the significance of thelogic procedures defined by Strauss and Corbin (1998), but in the meantime, we takeadvantage of co-constructive approach suggested by constructivist grounded theory.

50

3.4.2 The assistive tools for data analysis
In order to make the analysis process proceed logically and clearly, we utilize thequalitative analysis tool of MAXQDA software to deal with the data. We selectqualitative data analysis software MAXQDA as the data analysis tool to analyze thetranscribed text. All the text will be imported into the software. Data interpretationand evaluation are done by sorting materials into labels, concepts, and categories andusing a hierarchical coding system to analyze . It defines variables, provide tabular
overviews and assign colors and weights to text segments. Furthermore, every step of
the process is easily tracked, and results are accessed with just a few clicks. The datais coded repeatedly with trial and error until it logically presents the saturation
theories.

Figure 3-3: The integration of label, concept, and category with data in MAXQDA

51

Chaper 4

Narrative Analysis and Discussion

4.1 Introduction
In this chapter, narrative analysis and findings of the study are present. The empiricalfindings of the current investigation are based on interviews at Haier Group. Any data
related to customer interaction is collected until the data with similar meaning
repeatedly appears to show the related data is saturated. We present how the corporate
accelerates its servitization strategy by upgrading customer engagement.
4.2 Building an agile organization for upgrading customer interaction
Start with openness and willingness to be wrong, which helps firms learn from failure
timely rather than being afraid to fail (Shetlon, 2013). Haier states the same belief in
its core values, the customer is always right and Haier should always be self-critical.
It is the basic motivation for Haier to create more customers (a1)7.
4.2.1

Why a manufacturer transformed to a platform of incubating
entrepreneurs

When it decided to make the latest innovation in corporate strategy in 2012, Haier had
retained its place as the world’s No.1 Major Appliances brand with an 8.6% retailvolume share8. Even holding such a big strength in the marketing, Haier still decides
to disrupt itself again because they though Haier would be full of the below risks soon
if no innovative strategy were adopted (a2).
§

Slow-moving and cumbersome response to customer needs in mass
manufacturing

The process of traditional manufacturing includes market research, solution
verification, prototype design, new product introduction and mass manufacturing etc.
The whole process is irreversible. Facing the diverse needs in the Internet era, thismanufacturing model becomes cumbersome. With the power of big data and strong
interaction between people, it becomes possible to realize the timely integration
between demand and supply. Manufacturing in the Internet era is iterative. All
stakeholders can get together to make changes and improvements continuously.
Haier still has many advantages such as technology innovation and corporate
brand. But the most valuable one is the different view on customer value. We
have been considering how to know customers’ ideas timely and meet their
7 (a1) and the subsequent (a2), (a3)......(a91), are the labels of data, labeling for the next

chapter of data coding.
8 Euromonitor International Limited; retail volume sales in units based on 2012 data.

52

diverse and easily changing needs quickly (a3) (F.LD).
§

The enthusiasm and passion of employees in large enterprise

In the traditional large organization, the terrible things were that employees worked
responsibly for their boss and no one considered for their customers9.
To inspire employees, Haier is transforming its staff from employees and passive
performers to entrepreneurs and dynamic partners. Any employee who has the ability
to meet customers’ unsatisfied needs, can organize a team or even a registeredcompany with the support of Haier’s platform. With the transformation, employees
are active to meet the individualized needs of users by means of community featuring
ecosystems with the best experience. In its compensation mechanism, “pay by users”
has superseded “pay by the enterprise” (a4), driving employees to become
entrepreneurs who create value for users while realizing their own value.
§

IoT eraInnovation-driven enterprise always prepares well for catching the new development
chance form a new information technology. Haier, as the world leading home
appliance company in the world, has hundreds million of users in over 100 countries.
Haier thinks over the relationship with users and is committed to filling the gap
existing in the situation. Haier could not meet its customers, so did among thecustomers, because in the past it just sold its products to customers through one-way
transaction (a5). Now it has the ability to change the situation. It can know theircustomers timely by smart products with sensors and intelligent chips. Moreover,customers can take part in the product design as early as they are willing. Haierendeavors to realize zero distance with its customer and involves them in the wholeprocess of production from product design to interconnected manufacturing.
We think each user exists in a unique way. We can find the new chance and the
new knowledge from users by focusing on their timely experience (C.KW).
§

China has not advantage on manufacturing factors
The CEO of Haier thought there is no obvious advantage to the manufacturing in

China from the comparative business data (a6). When Haier built the first factory inSouth Carolina of America in 1999, the salary of a worker there was 20 times as muchas that in China, but now the multiple has declined to 4 times. Meanwhile, the fuelcost in China is twice that in America, and toll fee is 18 times. Facing the Industry
4.0 in Germany and the Advanced Manufacturing in America, Haier has to find the
9 The interview on CEO of Haier by Xinhuanet on May 28 201553

innovative way for competitiveness10.
4.2.2

Developing corporate strategy towards a closer relationship withcustomers

Haier is transforming from an enterprise that manufactures household appliances to aplatform that incubates entrepreneurs for the whole society. In the Internet age, Haieraims to become a Networked Enterprise that can overturn its self-contained enclosed
system and can connect various resources. In the past, leaders of enterprise anddepartments made all the decisions, but now Haier pursues each of its employees has
to think of these basic questions: who are Haier’s customers? Where are they? What
do they demand? If there is not a platform to support the work, it is difficult to findthe answers. So Haier advocates the belief of “no platform, no Haier”. It builds
platform structure to support employees to interact with users effectively.
“There are no successful enterprises, only enterprises that adapt to the pace oftimes” is a sentence often referred by Chairman and CEO of Haier Group, and has
become a landmark for leading innovation and development of Haier (a7). There
should be a team inside a company with the mission to destroy the company (Shetlon,
2013). The only immutability of Haier is constantly changing to stamp on the correct
era beat. Until now, Haier has gone through the following four development stages(Figure 4-2). The greater thing is that Haier innovated its management system in eachstage in order to achieve its strategic objectives. These innovative management
theories and tools are still being studied and utilized by many other Chinesecompanies. Harvard University and European famous universities have adopted someof them as teaching cases.

10 Hair’s News (2015) - The authorization document gotten from Haier (similarly

hereinafter).

54

A management model in
the Internet age being built
The world’s No.1 white
goods brand built
An international
brand created
The No.1 appliancebrand built
The No.1 refrigerator
brand built

Networking
Strategy

Global Brand
StrategyInternationalizati
on Strategy

Diversification
Strategy

Brand Building
Strategy
Inverted Triangle
Organizational Structure

1984-1991

1991-1998

OEC
Self-organizing Unit

SBU Business
Unit System

1998-2005

Market Chain

An Ecosystem for
Collaborative Innovationand Shared Success

2005-2012
ZZJYT(the Three Powers)

2012-2019
Microenterprise,
Entrepreneur(the Three-Selfs)

Win-win Model of Individual-Goal Combination

Figure 4-1: Haier Five Development Stages11§

Brand building strategy (1984-1991)
Haier started with the virtually bankrupt (a8). When CEO Zhang Ruimin took overthe Qingdao Factory from government in 1984, Haier had total assets of $300,000, a
net loss of $178,000 (a huge sum at that time), sales revenues of $421,000, and 800
workers12.
At that time, Haier had poor resources and management. The factory was very old,the doors and windows of which were broken and the machinery of which were out ofdate. Employees took down the wooden window frames and doors to make fires towarm themselves in winter. More badly, some employees peed on the workshop floor.
The management situation was changed gradually by from formatting theunimaginably basic rules example listed as follows (the full version of the firstmanagement rules illustrated in Appendix 2)
ü DO NOT pee on the workshop floor (the 10th Management Rule);ü DO NOT burn cotton yarn or diesel for warmth (the12th Management Rule);
11 The Post on Haier Headquarters
12 Hair’s History

55

Besides the above necessary rules, Haier started to innovate its management
philosophy from that time. At this stage, it created the famous management method
named

“OEC”

management

andcontrolsystem(Overall;Everyday/Everyone/Everything; Control and Clearance). O stands for Overall; E
stands for Everyone, Everyday and Everything; C stands for Control and Clear. OECmeans that every employee has to finish on his or her job plan every day before
calling it a day and improve on what’s accomplished the previous day (a9).
Even in such an operational difficulty, Haier made quality a priority with acomprehensive quality management system to implement Brand Building Strategy. At
that time of China, household appliances were in short supply, which led to many
companies striving to expand their scale at the expense of quality. Instead offollowing this trend blindly, Haier focused on producing high-quality products with
“Zero Tolerance of Error ” in mind. Regarding the quality mindset, there happened afamous story that is widely spread even after 30 years. Soon after Zhang Ruimin took
the role of general manager, he received a complaint letter about a defective productfrom a customer. He realized there was no future if there were no high-quality
products. He called staff of quality control department down to the warehouse andinspected all the 400 refrigerators in the warehouse one by one (a10). If there wasany problem with a product, they pulled it out and labeled the responsible employee’s
name. They total found 76 defective refrigerators. In order to change the perception of
product quality and improve to the level of “zero tolerance of error”, its CEO lined up
those 76 defective refrigerators in the street outside the factory. He picked up asledgehammer and passed it to the corresponding responsible employee to smash
his/her defective refrigerator. The episode expressed a clear strategy: products shouldbe the first rate without defective. Today, the sledgehammer has been collected by
China’s National Museum in Beijing. The picture of its copy one kept in Haier
Museum is illustrated in Appendix 3.
When finally there was an oversupply in the household appliance market, Haier
was already well positioned to win with its differentiated quality and the number one
refrigerator brand in Chinese market.
§

Diversification strategy (1991-1998)
After becoming the number one refrigerator brand in China, Haier started to

implement diversification strategy and over time acquired altogether eighteen
domestic companies at the stage. Haier succeeds in revitalizing these acquiredcompanies by implanting Haier’s corporate culture. The case was defined as "Haier
Culture Activating Stunned Fish" by Harvard University and selected into its case56

library (a11).
With the extension in scale and business field, Haier continued to innovate its
management system. Haier introduced the management approach-Strategic Business
Unit (SBU). SBU was one business unit in terms of total organizational goals. Haier
had many functional SBUSs such as research and development SBU, marketing SBU
and Manufacturing SBU. Each SBU created its revenue by providing the best service
to the SBU in the next step downstream. Haier designed a unique financial statement– “SBU Operating Results Checking Statement”. The revenue of each SBU equaled“the price of labor” minus “loss” and plus “the commission of added value”. If a
statement showed positive, it meant the SBU did a good job; otherwise, it meant the
SBU made a loss and could not get any reward despite the finished results. It pushedeach employee to be an independent profit center with the responsibility to makeprofit. The SBU goal was to transmit the marketing pressure to each employee,
instead of limited only to front marketing staff in the past (a12). The working output
of each employee is evaluated by his or her internal customers.
Through implement the diversity strategy and management innovation, Haierbecame the number one home appliance brand in China.
§

Internationalization strategy (1998-2005)
While China acceded into the WTO at the end of the 1990s, Haier decided to go

abroad to build its brand in the world. Hair came up with the “three-step strategy” of“going out, going in and going up” (a13). That was, first made into the niche marketof the traditional major household appliance markets like Europe, USA and Japan.
Next, entered into the main channels of local markets with localized products to meet
local user needs, and ultimately became the market leader of high-end and innovative
products.
In order to implement internationalization strategy and improve the efficiency of
resources allocation to international market, Haier restructured its organization,
shifting from a traditional function structure to a flat and order-centered market-chain
structure. Haier created a unique transaction system of market chain between two
activities inside the organization (a14). The system was operated on the three rules:
claim reward, claim compensation, and switch (Trip). Claim Reward meant each unit
got revenue from the following procedure unit. Claim Compensation meant a unit
should get compensation from its upper procedure unit if the unit did not perform well.
Switch meant if there was neither Reward nor Compensation in a collaborative
process (a15). The information system would switch or trip the process automatically57and the situation had to be analyzed to find the business problems.
Haier integrated past functional management departments into three innovative
order’s support divisions, which are known as 3R processes (R&D, HR and CR), andthree basic supportive processes for common orders, which are known as 3T
processes (Total budget management, Total facility management, Total quality
management). 3T and 3R were all registered as independently working service
companies under the control of Haier.
§

Global brand strategy (2005-2012)
After it got success in internationalization strategy, Haier started again to innovate

its development strategy to build global brand. Haier thought internationalization andglobalization had different meanings to itself and its customers. “Internationalization”
meant creating international brands with an enterprise's own resources, while"globalization" referred to making use of global resources to create localized
mainstream brands, the core of which was localization. Thus, the vast majority ofHaier's management and employees in any foreign country were local people, because
they better understood the local culture and customer desire and they could design anddeliver quality products to meet consumer demand (a16). With the strategy, Haierfinished the acquisition of the refrigerator, washing machine and other consumer
electric appliance businesses of Japan's SANYO in March 2012, New Zealand's
Fisher & Paykel Appliances Holdings In November 2012, and GE Appliances inJanuary 2016.
In its organizational structure, Haier transformed from the pyramid to an inverted
triangle. The executives were at the bottom and employees at the top of the triangle(a17). Managers provided employees support instead of giving orders. Employees
were empowered with greater decision-making authority and freedom of action. It
was designed to create a self-managing, agile and fast-reacting organization to serve
customer needs with zero distance in the age of Internet. Employees were given the
power to make their own decisions, hire their own employees, and distribute theirown profits (a18).
§

Networking strategy (2012 ~ now)
In the Internet era, Haier is empowering employees with passion and creativity

through the Win-win Model of Individual-Goal Combination. Going through theprevious development stages, its organizational structure has been transformed
fundamentally from a traditional pyramid into an "inverted triangle". In the stage, its
structure is being further flattened into a platform for co-creation and winning58

together, where employees are encouraged to become entrepreneurs to provide
personalized user experience.
Now we have a very flexible mechanism. In order to meet customer needs, themanager of each unit is authorized to make their own decisions on how to use
the resources inside and outside (F.LD).
4.2.3

Innovating organizational behaviors to effectively interact with customers

The external environment has changed. First, customer satisfaction is changing
with age. In Internet age, it is defined as the satisfaction of the experience on wholebusiness processes. It leads to the disruption of development, production andmarketing inside organization (Arnould, and Thompson, 2005). In the process ofdevelopment, Haier advocates the world is its R&D. When several employees wanted
to provide new products to meet the needs of some pregnant ladies lying in bed towatch TV, they looked for solution openly online and attracted the world high-classresources including from Silicon Valley and Wuhan Guanggu. The new products cameinto markets soon. For manufacturing, production and sell are integrated. Like
Platinum air conditioner, it was developed and produced by crowd-customization.
Users had reserved all the manufacturing products. The model did not bring any
inventory. In marketing, Haier is committed to the user ecosystem and build thesocialnomics with new user experience. It forms a positive circulation: users provide
ideas and needs; micro-enterprises develop and manufacture; users give feedback
timely; micro-enterprises upgrade and iterate products quickly (a19).
Second, The classic theories of management are summarized into two categories:
assembly line production and bureaucracy management (Appelo, 2010). They defined
the management rules from the top down and the feedback system from the bottom
up. The main functions were coordination and consistency. The business model has
been transformed from division to distribution, the manufacturing model is from mass
manufacture to mass customization, and consumption pattern has been disrupted fromproduct economy to experience economy. Corporate brand was closely connected tomarket share, but it is being determined by the competitiveness of platform. Haier iscommitted to realizing ‘a platform-based enterprise, entrepreneurial maker
employees,

andcustomized

user

experience’.

“Platform-based

enterprise”

corresponds to the Internet thinking of enterprises, or boundless enterprises.
“Entrepreneurial maker employees” corresponds to the value embodiment of staffs,
which means staffs become interactive entrepreneurs and innovators. “Customized
user experience” corresponds to the Internet tenet of enterprises, or the creation ofend-to-end best user experience.
59

§

From inverted triangle to platform structure

Its organizational structure has been transformed fundamentally from a “triangle” into
an “inverted triangle” in 2009, and been further flattened into platform structure(Figure 4-3). The whole organization is driven by customers rather than leaders andmeets customer demands through internal and external resources. The innovation
model has been recognized by world-famous business schools and management
experts, and is considered to be likely to solve the existing management problems in
big manufacturers. Although platform structure enables Haier to overcome theinternal constraints in product and service innovation, Haier needs managerial
capabilities to manage the innovation process and the necessary absorptive capacity tobenefit from it.
In order to connect employees more closely with customers, Haier made the first
disruptive transformation on organizational structure in 2009, from a traditional
hierarchy structure to an inverted triangle structure. 80,0000 employees were reorganized into 2000 self-managing business units (a20). From the foundation, Haier
has been keeping both customer-centered and fast to act, but in traditional triangle
organization, employees mostly followed the intention of their managers and lack of
creativity and entrepreneurship. Haier decided to re-organize the company to inverted
triangle structure. The employees in Units were at the top, the supporting departmentsin the middle (the traditional middle managers) to support the front employees withresources, and the executives in the bottom to format its strategy.
Microenterprises

External
resources
platform

Iteration-Driven

Shared(User)

platform

Drive
platform

Figure 4-2: Haier Platform Organization Ecosystem Structure13

13 Drawn according to the authorization documents gotten from Haier60

Each unit was independent and collaborated with other units based on the specified
contracts. Taking manufacturing unit as an example, each production line was a unit
with an average number of twenty employees. There were more than 100 such units.
When a production order was presented, it was set to take auction. Each unit can bid
to get the order according to its performance indicators such as the quality and thedelivery date. The profit by formulated by its rules was retained and shared by its
team members. Self-managing unit strategy was designed to pull employees to focus
on efficiency and creativity to create their own profits (a21). With the bottom-up
organization structure, Haier aimed to build a fast executing company that could
involve each employee to self-manage and work with the competitive market rules
while providing employees with their due wages based on their output performance.
Now we are in platform structure. It is totally different from the previous
structures, but I think each time the motivation to change our organizational
structure is same. That is to connect with our customers as closely as we can. If
there were no continuous changes before, now we would not have enoughconfidence to make such a disruptive re-organization. From my view, if thechange is toward connecting with customer more closely, today’s employees ofHaier believe we can realize the vision (E.PY) (a22).
Haier did realize flatter structure and promote customer consciousness of the whole
company via the inverted organizational transformation, but Haier did not stop
disruptive innovation and continued to think over the emerging limitations in the new
structure. The good execution that led to the previous success became the obstacle offostering the entrepreneur culture. The elaborate and linear management including
over 200 flows became the obstacle of getting rid of decentralization anddisintermediation. Because there still existed a big group of middle management, it
was a big obstacle in the way for the most effective allocation of resources.
Functional departments work to provide their supporting functions. It was difficult toalign them with the customers.
Hence, Haier determined to get rid of 10,000 middle mangers and transform thefunctional departments into driving forces (a23). Haier turns the functional
departments into two platforms: a platform for sharing, a platform for driving. The
platform for sharing is to support the business flexibly and orderly, and the platform
for driving aims to plan and prepare to win in advance. Taking finance platform as an
example, while the volume of business transaction process has increased ten times,
the number of employees served by one financial professional has risen from 50 to350. The platform for sharing is transmitted to make full use of information61

technology, the efficiency of which is improved with no Chaos. The disruptive pointof Drive Platform over traditional departments is to turn thermometer into thermostat.
The metaphor means the responsibility of traditional departments only focused onreading the temperature (dealt with the past numbers). Past numbers cannot contributemuch to the future numbers. Now they are transformed to be a Thermostat, which isable to change status quo to the expected temperature. Through decentralization anddisintermediation, the employees have decreased from the highest 110,000 to lessthan 60,000.
Haier innovates iterative value-added process. The traditional development processof products in most of multinational manufacturers is like a waterfall, going fromconceptualization, to survey, design, research and development, production and sell
(Figure 4-4). The cascade process involves many complicated procedures and steps,
but it does not involve the customer, and still company-centered process. Only after
products were released on markets, could manufacturers know whether products met
the majority of customers. If products were not recognized by customers, all theinvestment would turn into sunk costs, add the pressure of inventory and reduce theefficiency of operation.

Haier innovates an iterative research and development

process, which starts from creating value for the user. To create more value for thecustomers, Haier does not rely on merely its own resources. It builds aninterconnected process to integrate external resources, based on a win-win model.
Shetlon (2013) suggested it is time to turn the business into a social enterprise, where
every function and every process are transformed by people working more effectively
together. Every move occurs simultaneously; customers and partners are involved in
making changes and improvement continuously (Figure 4-5).

62

Conceptualization

Development

SurveyValidation

DeliveryMaturity

Exit

Figure 4-3: Traditional Cascade R&D

Idea

Needs

Experience

Added Value
(User/Partner
Interaction)

Iteration

Presell

Wisdomproduction

Figure 4-4: Haier Iteration R&D14
Under the structure, Haier is turning customers of one-time transaction into usersof timely best experience. Haier attracts and allows users to participate deeply incomments, product design and development. For example, the product of water
purifier device was co-created with users. The team used to develop the product in thecompany by themselves, but now they keep timely interaction with users to tailor the
product, which leads to a rapid iteration and triple market. Another example is theThunderobot game laptop, which was not developed or upgraded from Haier’s
existing products; instead, it came from customer interaction (a24). One of its cofounders spoke the following story in the interview.
Based on the analysis of over 30,000 bad ratings and complaints on game laptop
from social network systems, we interacted deeply with advanced users by QQ
community15 and concluded with the main problems on game laptop. Users did
not only contribute their ideas in the early stage, even after the first 50 laptops oftrial production was made (a25), it was these users that tested the laptops and
14 Rendanheyi 2.0

15 The most popular and earliest chat tool in China

63

gave their professional comments to improve the function before the mass
manufacturing (A.LX).
§

From Position to NodeHaier aims to disrupt its self-contained enclosed system to become a Networked
Enterprise. It can connect various resources as an open Internet node, establish a usercentered ecosystem for value co-creation and winning together, and integrate them to
add value for all stakeholders. Users and partners can make collaboration with Haierto deliver disruptive user experience through directive interaction with each other.
Haier is achieving the transformation through decentralization, disintermediation andremoving the “insulated wall” inside its organization. Haier has got rid of 10,000
middle-level manager and the employees also have decreased from the highest
110,000 to less than 60,000.
With the transformation to platform organization, regarding the roles of a unit or
employee in the new structure, Haier emphasizes the orientation of Node instead of
Position. Position is empowered by the organization or direct supervisors, but theexistence of node is based on a business contract or order, which means an objective.
At Haier, a node may be a self-managing unit or just an individual employee. But nomatter however it is, each node has its specific customers, and holds the clear
objective of turning customers needs into orders. The revenue of the unit or employee
salary is decided by the completion status of the orders.
Nodes equally exist in the networking organization, driven by customers rather
than leaders and meets customer demands through open connection with external
resources (a26). Every employee may be a center to keep zero distance withcustomers. The motivation model has been studied and recognized by world-famous
business schools and management experts, and is considered to be likely to solve themanagement problems in the Internet era. After the case of "Haier culture activating
stunned fish" is studied by Harvard Business School, the case of "Haier's cross-culture
integration featuring individual-goal combination" has been listed in the case libraryof European IESE Business School.
§

From Employee to Entrepreneur

After eliminating the hierarchy in organizational structure, Haier is now transforming
into a networked platform, which accumulated more than 3,800 nodes ofMicroenterprise. Haier is moving consistently toward participative management,
decentralized decision-making, and autonomous but responsible work teams. Haierwants to unleash the employees’ creativity that was bounded in the bureaucratic64organization, and transform them from passive performers to active entrepreneurs.
Haier starts the initiative to connect staff much closely with customers byreorganizing internal structure into numerous independent, self-managing teams.
Employees could start their businesses on the platform, interacting directly with users
and creating values. The whole company is transforming into a node of Internet,
which could connect with all different resources in the world.
With the chances Haier’s platform creates, an employee could become a realentrepreneur. The employee may choose the internal venture capital to expand new
business (a27), or get funding from the society to organize a registered company. The
direct influence of this transformation is that “pay by the enterprise” has been
replaced “pay by users” in the compensation mechanism to drive employees tobecome entrepreneurs.
The core of platform organization is “everyone is a maker”. Everyone is expected tocreate a new business on Haier’s platform, or not using the brand of Haier. The
transformation sounds very exciting, but we concerned about the difficulty torealizing it in such a big organization. One of interviewees explained as follows.
As the company makes transformation, employees must take actions actively totransform themselves. No one can think in the way that I cannot get used to the
new role and ask the company to give it up. As our CEO said, it is impossible toturn every employee to be an entrepreneur, but it is possible to attract
entrepreneurs to be our employees. We must challenge, otherwise looking for thefamiliar job in other traditional companies. In fact, with the consciousness ofentrepreneur, most of employees could create much more value than they
expected themselves before (D.CG).
Another important issue on the transformation is if an employee could be turned
into an entrepreneur, why does he or she choose to start a business on Haier’s
platform? Is it better to leave Haier? One of interviewees explained it as follows.
If we three left Haier from the beginning and started the business by ourselves,
we could not succeed. I just tell a very little case as an example. After survey anddesign, we wanted to make a trial production of only 50 laptops, which were used
to test its performance by our fans. At that time, we were just a very small
company. Not speaking of 50, even about 50,000 laptops, no factory would liketo customize the game laptops with specific designs. However, because our
micro-enterprise is from Haier and the partner manufacturer would like to believe
Haier, they accepted the customization order of 50 laptops (a28). Hence, we can65run our business at a low cost. Like that, we get a lot of resources from Haier
platform (A.LX).
§

From Closed to OpenHaier is changing the traditional closed model of innovation, by which investment andtalents were invested into R&D departments to innovate new solutions andtechnologies. The activities usually were tightly protected as company secrets. Instead,
Haier insists it is prerequisite to become a truly Internet-Based company open to theworld, which overturns its self-contained enclosed system and fits into the Internet as
a node. The staff could bring in their own ideas and recourses to develop new
products and services for customers, with a view to building post-e-commerce
ecosystems based on user value interaction for co-creation and winning together to
add value for all stakeholders. “The world is my R&D department”, which is the coreidea of the Haier Open Partnership Ecosystem (HOPE) platform, launched in October
2013. The platform is comprised of three platforms: user interaction platform,
technology platform and creative community. User interaction platform focuses onfinding customer demand such as pain points, daily life applications, future trends
identifications. Technology platform focuses on technology match such as O2O
technology transfer. Creative community focuses on screening out high-quality
opinion leaders and appropriate resources to make professional community
discussions (Figure 4-6).

User
resources

User interaction
platform

Technology
platform

Creative
community

Technology
resources

Screening out high-quality
leading users andappropriate resources todeeper discussion

Figure 4-5: Infrastructure of HOPE platform
In the traditional business, a manufacturer existed between customers and provider.

66

Interactive behaviors between customers and providers were few and realized via the
manufacturer. Haier builds the open innovation platform to crack down the separation
barrier. All the stakeholders, even some of which do not belong to Haier group, canutilize the platform with frictionless entry and interact with each other to add value(a29). The customers in the world can interact and aggregate freely with partners tohave the rapid conversion and incubate the innovative project. Crowd storming,
crowdsourcing and co-creation are all facets of a new capacity for firms to empower
their employees, break through organizational walls and connect with business
partners and customers for solving problems (Shetlon, 2013). Haier states the same
belief in its core values, the customer is always right and Haier should always be selfcritical. It is the basic motivation for Haier to create more customers
Now, more than 500 ideas are being created each month and 200 innovation projects
being incubated on the platform each year 16.
From the first one, all of Thunderobot game laptops are manufactured by Haier’s
partners. In the past, we cannot do like this way, because Haier has its own
manufacturing lines. If we did so, we must have been asked: why you let othermanufacturers make money rather than Haier’s own factory. Now, Haier’s
employees have not thought of business like that. Our own factories are not thebest one to manufacture game laptop, why we choose them? Moreover, ourfactories can accept other orders they are better at, why they must accept ours?
All the processes are open to competitive resources. To anyone at Haier, you haveto make yourself, your unit, become competitive. Otherwise, you are replaced
freely by others or outside resources (a30). It is much, much better than you must
follow an imperfect solution (A.LX).
By the end of 2015, Haier's platforms had attracted over 4,700 first-class external
resources, 3 billion yuan of venture capital fund, 1,330 venture capital institutions and
103 incubators, setting the stage for 1,160 projects. Over 3,800 node microenterprises
and nearly one million micro-stores on Haier's platforms are socializing their capitaland human resources. More than 100 microenterprises boast annual revenue of over
100 million yuan, and 22 have introduced VC, and 12 are valued at over 100 million
yuan (a31). Haier's platforms have offered over 1 million jobs for the whole society17.
4.3 Upgrading customer interaction to drive innovation
The creed “No customer interaction, no Haier” is written in Haier’s development
16 The statistics released in the end of 2015 in Haier Hope Platform
17 Haier Profile67

strategy. Haier is well known for the abilities of understanding consumer needs
precisely and innovating rapidly to meet these needs. Currently, Haier regards
customer interaction as the premise of innovation. In the next sections, we analyze theintrinsic and extrinsic factors one by one to explore how Haier views and carry out thecreed.
4.3.1

Being smart: from Home Appliance to Internet ApplianceIn the IOT ear, information resources are changed. The physical world itself is
becoming a type of information system. In the past, information was gathered mainly
from internal information systems (ERP, MES etc.) and external sources (public
sources, information suppliers etc.). Exclusive information was stored in databases
and analyzed to form various reports, which were shared through the management
chain. IoT is built on networks of sensors embedded in products, which are mobile,
virtual, and instantaneous connection through wired and wireless networks. When
products can both sense the environment and interact, they become tools forunderstanding the personalized condition of users and responding to it swiftly. The
technology brings up the real value through the intersection of gathering data andleveraging data. It also promises to create new business models, improve businessprocesses, and reduce costs and risks.
With the application of machine to machine (M2M) and Internet of things (IoT)
technology, Haier updates its home appliances to Internet appliances. Internet
appliances are playing an important role in happy life solutions in the Internet age.
Haier has launched a variety of Internet appliances in each of seven smart ecosystems:
food, air, cleaning, water, security, entertainment and education. These products areinterconnected to be the entry for smart life. Haier has seen the data collected fromInternet appliances as the top-drawer data asset in future. These products bring thetimely interaction among machine, human and environment, and collects the datafrom temperature, to energy cost, using time, using place, using habit, air quality andthe like. The knowledge getting from big data informs the creation of new service
offerings and the design of future products (a32).
Internet appliance brings the innovative transition from big data to technology andto products and services. Data about products and services, user preferences andintent can be captured and analyzed. Internet appliances are being the bridges tocreating new customer value and building an open smart ecosystem of big data. Haieris building business ecosystems through making more appliances interconnected.
Home appliances, not like cell phone, do not have operation system. Haier cannot
develop an ecosystem like Apple and acts in a different way. Internet appliances are
68becoming part of service platform, turning selling number into user resources. More
importantly, it can attract external partners to create new service value. Taking
Haier’s smart oven as an example, 40% of its total revenue comes from third party
partners. Haier organizes business partners like recipe services and organic ingredientcompanies together, to update customer experience.
In the air conditioner field, tens of millions of data on user behaviors and air
conditioners is uploaded per day and over 40 trillion data entries have been
accumulated. The related data on this open air conditioner platform has covered
nearly 30 countries and regions globally (a33). The data is used to create new services
with regards to air quality, malfunction, parts conditions and the like. Haier makes useof these data to form the national chromatographic of air quality in China, which
supports the building of smart city. Moreover, Haier clarifies customer needs on
health, comfort and energy efficiency through data mining. It helps Haier’s fiveglobal R&D centers to develop the unique machine-human interactive technology torealize automated cleaning, smart interconnection, intelligent voice, and the like.
Even on elaborate aspects, Internet appliances are playing a more important role.
Based on the analysis of indexes such as electricity usage and customers’ coolingtemperature, Haier recommended its customers to set the cooling temperature at 26°c,
which made people feel the most comfortable while reducing the usage of electricity
power (a34).
In the refrigerator field, Haier XingChu refrigerator has connected with the Internet,
foods and third-party services to form a food interactive ecosystem. Users can listen
to music or watch video, refer to recommended cooking recipes or learn from theirmothers by video while cooking. As it is integrated with third party e-commerce, it isconvenient to directly supplement other foods online when checking the foodinventory and avoiding repeat buying. When putting food into the refrigerator, it has
voice interface to manage the shelf time of foods. It is bound with its APP insmartphone and users can control it or check the foods remotely.
Through making Internet appliances, Haier is producing a major engine for creating
new services. Shelton (2013) argued increasingly the product is merely a component
in the total customer experience. The real goal for the firm is to create this total
experience. Haier is learning how to do this with each of its products. Taking theabove case as an example, there is a life circle of engagement with eating fresh foods
that include buying a refrigerator as a small component. Haier maximizes the rest of
the experience. Listening music when cooking, watching the recipe video by experts
online or video chatting with a master according to the contents inside, buying the69

lacking foods immediately, and so on (a35).
In Internet era, it is no doubt user data turns into a crucial resource to the firm,
because when it is accumulated to a scale, a new business model will be createdthrough data mining. Data-driven strategy is becoming a crucial way for leading Haier
to outperform its rivals. Now, more and more products have been embedded sensors
monitoring and tracking all sorts of data. With interconnected network and cloudbased apps, cloud computing is translating these data into useful information ortransmitting it to products and services with real-time responses.
4.3.2

Interacting effectively with customer through social big data

Haier has accumulated the data of 200 million families in China in its Social
Customer Relationship Management data platform, among which active members has
exceeded 30 million. It is estimated there are 430 million families in China, so nearly
half of Chinese families are using Haier’s products18. Besides the real name customer
data, the platform still includes 1,90019 million anonymous data. With the power of
information technology, the stage of customers paying for their buying, which used tobe the end of transaction, now turns into a new stage of interaction. Besides the dataof registration, products selling and after-sales, the platform adds the dynamic data ofcustomer interactive activities on social communities, so the platform is called Social
CRM (SCRM). It includes all the data related to the relationship between Haier andits customers (Figure 4-7), and the data is not isolated but interconnected (a36).

18 The data is the latest statistic number by April 20, 2016, got from Haier website:

http://www.haier.net/cn/about_haier/news/jtxx/201604/t20160427_306202.shtml
19 The strategy of Big data from Haier70

Pre-Sale Data
Dynamic Data

Anonymous Data

Dy

na

mi

cD

ic

n

Dy

ata

am

Da

ta
After Sales Data

Dynamic Data
SCRM
Data Platform

ic Data

Offline Data

Da

ta

Dynam

es
roc
pp
oo
d-l
se
Clo

Dy

Dynamic Data

na

m

s

ic

Real Name Data

Interaction Data
Online Data

Closed-loop process

Transaction Data

Figure 4-6: Social CRM Platform
The big data has three key values: providing proactive services, accurate marketingand interactive innovation. The data, getting from the smart appliances and theprediction according to product lifecycle, provides proactive services to avoid causinginconvenience. Data mining also helps Haier know which customers will buy new
home appliances soon and conduct useful services by accurate marketing. Moreover,through data analysis, Haier can discern the active customers to make interaction,
which leads to interactive innovation,
Data is turned into valuable information only after it is interconnected. Eachbusiness unit has its own information system in large organizations, which is liable tobuild isolative islands of information. In order to build the enterprise-level customer
database, Haier integrates business operation data, social behavior data, interactive
data and the data from smart products, among which customer data is seen as the core.
The close integration is to form a complete image of customers in all directions andhold an accurate insight into user demand. SCRM integrates the data from different
systems. Through data cleaning, Haier discerns each user: name, telephone, age,
address, email, products and the like. Moreover, in order to wholly know users,
SCRM gets the data of user social behavior online. All the integrative data can
describe the characteristic, likes and life habits of each Haier user. The data is coded71with tags, which have 7 levels, nearly 150 dimensions and more than 5000 nodes(a37).
Excellent enterprise is to meet the needs while the great enterprise is to createneeds. The core of data mining is to make prediction about the future consumption
behaviors and further needs beyond the existing products and services. Haier utilizes
the technology of data fusion and user identification and has built 10 data models in 3
categories, which define well the priority of user potential needs . Meanwhile, theapplication of data is to meet the requirement of different scenarios (a38). The data
platform analyzes how to use data mining to solve the problems business divisions
face in the process of business development. After the scenarios of businessapplication are sorted out, it becomes necessary to develop the corresponding productof data to deal with each scenario. For example, from one perspective, the scenario
can be defined as online scenario and offline scenario. The online scenario includes
Internet surfing, electronic shopping, and social online; offline scenario has home life,
shopping and telephone communication. Whichever scenario users exist at, theplatform is able to provide the suitable products or services.
Through two cases (Data product for marketing and data product for customer
interaction), we explain how Haier utilizes data products to support accurate
marketing and interactive innovation in the next paragraphs.
Haier has conducted an inter-organization and inter-platform accurate marketing,which was the cooperation among Haier, Weibo20 and an e-commerce platform. The
general strategy was matching anonymously between the encrypted user data of Haier
SCRM and the encrypted data of Weibo. The match was conducted in the same secureand safe data port of third party. When the matched users showed up at Weibo, they
were instructed to another e-commerce platform to purchase the products or servicesof Haier. Based on the data model of demand forecasting, SCRM predicted accuratelythat over 30 million users had the needs of upgrading and cross purchasing. Over 5
million of them also had their information at Weibo, who were the overlap potential
users in the activity. The marketing solution, designed by Haier and the e-commerce,
was pushed specially to those customers. During the promotion, 1.2 million users of
the 5 million overlap users logged in Weibo. The effectiveness was 3 times better thanthe ordinary marketing.
Data product for interactive innovation is made to help developers understand user
pain points, the characteristics of popular products, the distribution of user interests
20 Weibo is the most popular microblog in China, like Facebook.

72

and the active customers for interaction. In order to make research and development,
developer used questionnaires to analyze customer needs, but it was difficult to ensure
the precision of data gotten from questionnaires and it was easily mixed with garbage
data. Now, it is possible to discern users precisely with the data of 200 million users.
The platform has four applications for developer: radar of active users, radar of user
pain points, radar of user interests and user life circle.
Radar of active users, whose base is the data model of user activeness, can telldeveloper which users would like to interact with Haier. For example, if somedevelopers are going to organize a face-to-face offline meeting to discuss the using
experience with users. It was difficult to find those users who would like to attend
such activities. Now, with radar of active users, it is easy to find adequate user
candidates who meet the requirements of buying products, living region andactiveness. The meeting information, including the topic of interaction, time andcontent, is sent automatically to the cell phones of the corresponding users. In theprocess, no one can see the private data of users, because all the data is sent by thesystem interface.
Radar of user pain points is the result of data mining on the accumulative data,
which increases over one million data per day. Developers can get visual information:
what complaints users have, which products and which function; experience pain
points, and which experience should be optimized. If developers want to know the
feedback of a certain air conditioner, and its strength and weakness comparing withother popular air conditioners, the system provides the feedback collected fromvarious channels. All information is categorized according to product series andproduct model. The feedback, such as noise of product or difficult to clean, can bepresented in more detailed level. It helps employees to upgrade and iterate productquickly and correctly.
Radar of user interests is gotten from the analysis of more than 50 millions selling
products per year. Each product has its tag, which may mean healthy, energy-efficientor technological. The type of products users would like to spend money reflects theextent they are interested in. It becomes possible to judge current customers’ interestby purchasing behaviors. When developers know the information timely, they can
maximize a certain interest point to the biggest selling point. Haier is committed tobuilding a business ecosystem by knowing customers’ more needs except for home
appliance. User Life Circle provides the multi-dimensions information of users’ living
condition. It uses big data mining to analyze the topics Haier users are discussing,which users are opinion leaders and their likes.

734.3.3Discerning customer knowledge in online communities

Haier has been valuing the interaction with users since it was founded, which isregarded one of key factors for which Haier succeeds in being a market leader andbeing able to keep sustainable innovation (Yip & McKern, 2016). We held bigquestions before the case study: would customers really like to interaction with Haier?
Who are they? How are they motivated? Is their contribution so useful to a
manufacturer? When we asked seven interviewees about these questions, each ofthem answered in a free and relaxed intonation. It could be seen as a normal situationthat they had got used to.

Their answers indeed verified they valued customer

knowledge and were able to interact with different users.
In Haier’s perspective, the industry 4.0 is not just to replace the human labor withintelligent machine. The revolution needs not only high efficiency but also highaccuracy, which refer to an issue of producing for whom. In the Internet era, user's
demands have become the main driving force for service innovation. In order tosatisfy personalized needs of customers, Haier realizes zero-distance interaction with
global customers by building a community of global innovation through knowledge
and resource sharing. It has established various online user group communities tocollect ideas about the most desired product features and improvements. It uses thecustomer knowledge and global resources to iterate the innovative services andproducts. Haier is good at discerning, mobilizing and utilizing each level of customer
knowledge, which exists in different context.
The economy is changing from economy of scale to socialnomics. The
multinational manufacturer usually implemented brand strategy to induce customers.
It was propaganda-oriented and firm-centered.

The traditional economy was

economy of scale: the bigger scale led to the lower cost; the bigger market share led
to the stronger brand. In the current socialnomics, it is necessary to make interaction
effectively with customers and turn the interaction into the process of value creation.
Haier discern customer knowledge mainly through the following three aspects.
§

Scenario information

Many customers would like to communicate and speak out their ideas if they like theway and feel the fun there. It is no doubt that most people do not like to talk about the
products, their functions. These topics are boring to people. So in Haier’s online
community, there is no such a special topic to talk about their products. Instead, there
are almost the topics closely related to the living scenarios, such as ‘Super Mamas’
Domination’ and ‘Super Foods Street’. It is easier to attract more regular customers to74

immerse themselves in these interesting topics and speak out what they are thinking(a39).
We use scenario show instead of functional discussion. In fact, customers do not
like talking about product, and would more like to discuss and join in interesting
topics. The more important thing is they talk much more in this way than they are
asked to answer questions. We find a lot of unmet needs in their posts. The
Internet refrigerator is a good example. When customers chat on cooking, some
said they wanted to search for menu when cooking, some young mothers further
expressed they wanted to chat by video with their mothers for delicious cooking
methods (a40). Around this topic, there was other similar information, likewanting to listen to crosstalk or music when cooking, the reminder of foods’
expiration date or directly making orders to e-commerce shops after lacking
foods. Based on the information, we formulized it to customer potential needs
and design the Internet refrigerator (a41). Besides the functions from the above
needs, it also recommends recipes according to the foods available inside andreminds users of what they need to buy when going shopping (B.SR).
Traditional business model on a product was to look for its customers, but in theInternet age, it is changed to seek the solution or products for users based on theirneeds. Customers used to accept a product by its mass advertisement. However, today
there are too many products customers can select. Beyond that, what customers aremostly impressed is the whole process of experience. Since January 2014, Haier has
decided not to invest any advertisement on the traditional medias21 (a42). Haier used
the tactics to push itself to develop Internet mindset. Now most of its products, theinteraction with customers start from the designing stage. Developers not interactingwith customers are seen to using a laggard way-closing the door and designing inside
the firm by themselves. In this case, certainly they have to rely on the advertisement
to promote these products.

At Haier, it is becoming a rule that if you needadvertisement, it means your products or services still exist a far distance with yourcustomers (a43).
Knowledge is not created by experts only, instead, everyone can share great ideas
and be an expert in his/her specific field. People may think the messages Internet
users send are just for show or fun, but there is much useful information andknowledge among them. The ideas of Haier newly launched products, like
Tianzun air conditioner and Thunderobot game laptops, came from customer
social information (C.KW).
21 Haier Profile- The authorization documents gotten from Haier.

75

Haier values the comments from customers, no matter wherever they are, on its
own website or other social networks. From the release of its advanced household
heater and air conditioner with air purifier, named Tianzun, we can see how Haier
used big data of customer comments to innovate their products and services. Take thedevelopment process of an air conditioner as an example. In QZone22, Weibo23, andother social media networks, there are more than 67,000 users joined in the online
discussion around such a simple question: “what kind of air conditioner do you want?”
It produced 30 million responses, the most recognized view of which was the conceptof ‘cool, but no cold’. Many Asian users do not like the refrigeration effect of the
traditional air conditioner, which made people feel cold. They prefer the feeling ofcool but not cold, which is more beyond temperature from the view of industrial
technology. Haier got customers involved in developing the advanced product fromthe very beginning. Moreover, the concept of ‘cool but not cold’, got from users’
responses, became the tagline for the product in Chinese promotion. The concept was
the insight from customers, as opposed to a catchword imagined by marketing
professionals (a44).
Moreover, for the traditional Call Center, Haier has turned it to a User Experience
Exchange Center. Haier initially had only one telephone communication center. But
now, it has eight channels, like online chatting, interactive platform and social medias,
to provide zero distance service to its customers and create faster and more directinteraction with its customers (a45). Haier is getting rid of the distance and making
interaction with customers as soon as it wants to design a new product or service.
There is no iteration if no interaction with customers. In the experience economy, it
is crucial to transforming customers into participating users. From that, Haier iscreating various interactive communities for value creation. All users like to go to talkabout things that interest them. For example, Haier smart oven is a good case. The
ultimate goal for this product is to create baking ecosystem. It means the focus is on
the baked foods and how to bake them better, instead of on the oven itself. Users
spread the words about their experience of baking, which apparently are not about the
product of oven itself. Based on the interaction, there is a continuous iteration on theoven (a46). In the process, Haier has also integrated baking ingredients into a baking
ecosystem.
The reason why I often join the community lies in two factors. First, there are somany smart and humor netizens here. Their posts are interesting and useful.
22 Qzone is the biggest social network in China, developed by Tencent Holdings Limited.
23 Weibo is the most popular microblog in China, like Facebook.

76

Second, there is a new identity for me in the community. Because of my posts,
many users like me very much. (Customer “枕海听涛”)
Certainly, it is a big issue to attract more customers engaged in the process ofcorporate innovative experience. Haier has accumulated many successful methods tointeracting with customers. The principle is creating fun for customers, not asking
them to do what they feel reluctant. Customers just do what they like at the time when
they want. Then, Haier takes full use of the information and knowledge customers
contribute in the process.
In order to attract customers to come to our interactive platforms, we have also
recruited many new employees who can create fun, such as movie directors,
attractive persons, or joke tellers, to interact with customers. Actually, some
opinion leaders in customers also have such characteristics. In some cases, it
actually makes the interaction more smoothly and creates more original posts(E.PY).
§

Complaint information

In the description of corporate core value, Haier explains its ‘Rights and Wrongs’:“Users are always right while we need to constantly improve ourselves.” In Internet
age, there are thousands of forums, social networks and e-commerce platforms forcustomers to vent their dissatisfactions and complaints. While it values users’
knowledge and strengthens the interaction, Haier also regards users’ complaint as oneof the best sources of customer data it can have. To complaints against Haier, besides
dealing with them well first, Haier regards them as opportunities to fix its internal
processes (a47). To complaints against products or services of other companies, Haieralso sees them as business opportunities. The internal entrepreneurial project camefrom it, and the project was developed into a registered company named Thunderobot
Electrical Technology Limited (Haier has 72% of its total shares).
The new product series of game laptop is a good example for explaining how
complaint information could be turned into a great business opportunity. Three young
people started Thunderobot. They found a popular demand for premium game laptops
in the market and no products to meet this demand. Based on the user comments in
Jingdong e-commerce platform, they developed a new series of game laptops withhigh-class hardware and performance, which quickly reached the top in the market
segment.
In 2013, the common laptop was entering a hard time. Our department was undera huge pressure and we were thinking what was the new opportunity for us. I

77with two colleagues analyzed closely over 30,000 items of customer commentson the game laptop at JD.com (a48). We found customers’ needs were notsatisfied by the existing product yet. Customers even complained about one very
expensive laptop running down when used to drawing. Most of them had the
problem of heat dissipation. We realized it would be our opportunity to re-design
it with big memory and big graphics chip and improve the performance of heatdissipation (A.LX).
§

Skillful knowledge

Taking one of Haier’s the most popular air conditioners named Tianbo as an example,
we study how common customers participate in the process of designing. The
creativity of this round air conditioner came from an Internet user-a common designer(a49). The designer was going to design a new air conditioner. He wanted to makethe cool air more confortable，and change the traditional image of air conditioners.
After proposing the creativity on Haier’s platform, the designer together with theeffectively engaged customers， came up with the very creative air conditioner.
July 2016: Creative interaction and iteration
In order to verify whether the idea was acceptable and understand users better, hemade the interaction with users on the “ZhongChuangHui” interactive customization
platform.
More than 30 enthusiasts joined in the designing process and over 1,700 users gave
a quick feedback about the ideas (a50).
Examples of interaction on the desired shape are shown in figure 4-8, which isgetting from Haier’s online community (hereinafter inclusive):

78

Figure 4-7: Examples of customer engagement

The above Chinese posts are translated into English as follows.
User ‘lazarus’:“First I have the following ideas:
1. Slim design, running along the wall;
2. Make size as small as possible, square or circular is OK.
3. Design integral enclosure with various patterns and shapes. Users can selecttheir likes according to its pattern.
You are not only manufacturing air conditioner but also creating an art for users,changing the user experience (a51).
The ultimate goal of user experience is:
An air conditioner may be a painting, may be a wall clock. That means it can beanything users can imagine as wall ornaments (a52).
Today’s air conditioners are a heap of engineering materials, no any humanbeautification, no communication with people...”User ‘hbsztw’:“I like the round hanging machine, which can also be seen as a home decoration. But
I am afraid of the location. Because home decorations are usually set in the middle
part of the wall, if the condition installed there, its pipes affects the esthetic
appearance.” (a53)
Use ‘忘记密码的藤子’:“The round shape is nice! There should some Chinese-style pattern on its panel. But,
where should the outlet be considered? Is it on the rim? That is very funny!”79

Rhombus
3%
Crescent
3%
Fan
4% Square
4%

Triangle
3%

Semicircle
2%

Donut
1%

Circular
24%

Free Change
6%
Cartoon
7%

Oval
11%

Invisibility
18%
Spherical
14%

Figure 4-8: The distribution percentage of the desired shape of air conditioner

The result getting from the great amount of interaction with customers at this stage is:the highest proportion on the desired shape of an air conditioner is circular, which
accounts for 24% (Figure 4-9). Until now, the shape of the existing air conditioners issquare, not circular. The circular air conditioner could be very popular amongcustomers. (a54)
Examples of interaction on how to deliver more comfortable air (Figure 4-10):80Figure 4-9: Examples of customer engagement on creative functions

The above Chinese posts are translated into English as follows.
User ‘悠爸悠妈’:“It is a little difficult to realize delivering air from 360 degrees with no blind corner,
but if it is equipped with infrared eyes to perceive the location of people and thedeflectors in air outlet, it is possible to deliver multi-angle and soft air toward theperceived location.”“In order to get the effect of cattail leaf fan, we need the chirp sound of insects
accompanying us. The sound begins to play while the deflectors start to work, andcloses automatically after its hosts sleep.”
User ‘apingu’:“The following points should be considered: Gust-style delivering like the naturalwind, automatic shaking deflector, round and emanative air outlet, automatic rotation
to change air direction.” (a55)User “宁静的夏”：“I get an inspiration from the post which suggested a combinative use of fan and air
conditioner. Since air conditioner with a combination of fan can make the cool air
flow around, why does not install a device to scatter the cool air, such as air outlet thatcan rotate, or a deflector with the function of fan, as other netizens suggested.”“Plus, to increase the comfortable feeling of experience, which is like the feeling ofusing the PMV system in TIANZUNDIZUN. It will be nice to have such a function.”
The result getting form the great amount of interaction with customers in this stage is:customers suggested a conditioner with the following functions can deliver more
comfortable air like natural wind: multiple air outlets, delivering air in a rotating way,
the device of deflectors etc. (Figure 4-11).

81

Figure 4-10: The preliminary sketch of a creative air conditioner
September 2014: Virtual designing
With the engagement from the powerful and creative customers, in September 2014
the engineers of Haier made the virtual designing based on the creative ideas (Figure ).
Moreover, in the process of designing, more than 20 external designing resources,
such as Chinese Academy of Science, Xi’an Jiaotong University, and Mitsubishi,
were involved to co-design (a56). The whole process was open to customers onlinefrom end to end, so the designing was continuously iterated with the advice fromnetizens (a57). Finally, the virtual prototype was made as illustrated in figure 4-12.

Figure 4-11: The virtual prototype of a creative air conditioner

February 2015: 500 Early Adopters
In February 2015, early adopters of 500 customers reserved the air conditioner (a58).
The customers could further customize the pattern according the style of their homedecoration. After the order, they could get the visualization of the whole process of82

order, production and logistics position (a59).
It also has many smart functions. For example, wherever its users are, they cancontrol its settings by smart phone; if the users forget to close, the reminder of closing
air conditioner will be sent if the leaving distance exceeds 1 Kilometer; it is connected
to clouding service system, if there is any running problem, the servicemen will know
it and provide proactive services to customers.
July through September 2015: Continuous interaction and iteration
Now, it becomes popular among customers. Moreover, according to the suggestions
from customers, the second creative designing was made. The new product of 1.5
horsepower and more patterns were supplemented (Figure 4-13).

Figure 4-12: The iterative air conditioner
Haier internet factories also have the websites to interact with users.
Zhongchuanghui platform is for users to customize products; HOPE platform is forworldwide R&D resources to provide creative solutions based on interaction;
Haidayuan platform is for module companies to provide competitive customized
modules to Haier based on customer personalized needs. These platforms are
independently operated but share data.
4.3.4

Deep engagement from three types of opinion leadersZhangruimin, Haier’s CEO, divides enterprise development into three phases. The
first phase is traditional era. Getting customers meant all. The firm that held big
customers had a strong brand. People looked for products with high-quality andpowerful functions. Big firms liked to invest hugely on advertisement over the world.
The second is flow era. The firm that had big flow would win the market. It stillrequired marketing and channels. Now it enters the third phase－user resource era.
User resource means community (a60). If Haier can organize various communities

83around products, it can not only iterate products and services continuously, but also
create new value.
Especially when Millennials become the main force of consumption, it is necessary
to re-think the interactive methods owing to their distinctive lifestyles (a61).
Millennials are the most digital connected generation, making consumption acrossmultiple online channels. Taylor (2014) explains 71% of them are daily users ofsocial networks. They check their smartphones 43 times and spend 5.4 hours on social
media averagely per day (a62). Their involvement is crucial to product iteration.
Otherwise, neither incremental innovation nor

disruptive innovation can ensure its

customer value. Obviously, the best way to interact with them is through social
networks and platform.
The strategy of customization does not mean Haier can provide a different productor service to each customer who has a different need. Haier gives importance todeveloping customer communities to realize mass customization because there an
opinion leader usually represents masses of customers who have the similar needs(a63).
Idea kings
Users were always the unchangeable core resource of Haier. Haier is well known for
the abilities of understanding consumer needs precisely and innovating rapidly tomeet these needs. Haier interacts with one million fans on average per day (a64). It
comes up with over 200 originalities (a65). Many products, such as “Jhukna Mat”
refrigerator in India, Adiabatic icebox without power more than 100 hours in Pakistan,and Handheld washing machine “Coton”, came from the interaction with customers(a66) .
Besides valuing the resources from its web community and various social networks
form outside, Haier builds the specialized platform named Zhongchuanghui in orderto make full use of ideas from customers. The ideas to customize a productcompletely come from users and the evaluation of feasibility to the product is also
made by users. Those who like the creative ideas will reserve the product. The orderand its information will be automatically sent to Haier’s interconnected factories tomanufacture. Its washing machine named U WICK is such a customized product,
which users can set the washing parameters freely, such as water volume, washingtimes, washing lasting time, washing intensity. The earliest idea of the product camefrom a user, who wanted to wash his woolen sweater just for a little of time. But his
washing machine only had fixed procedures. What he could do was to select one of84them and stop it in the midst of washing. Now at the platform, the washing machinewith all functions freely setting was customized. It solves the problem that confusedsome young people of how to wash a woolen sweater well. It is said the product gets areally nice reception at the users whose zodiac is Virgo (a67). At the platform, it isusers that design many products they are in favor of, such as Mikey Little Refrigerator
and Removing Formaldehyde Air Conditioner. For these products, all ideas from thecreative work to the shape came from users.
Our colleagues found the needs online: some pregnant ladies wanted to lie in bed
to watch TV, or at other comfortable angles. Then he looked for resources fromboth inside and outside. They attracted high-class resources from Silicon Valley
and successfully developed the series products of “I see mini”, which meet theneeds of customers like those pregnant mothers (G.TP).
Millennials have the strong self-awareness and are going to go to the trouble ofpursuing individuality. They have various ideas to enrich their life (a68), wanting the
products with distinctive colors or modules, desiring the appliances embedded thelatest technology they are in favor of. Haier’s interactive platform is committed tobeing an entry of those inspirations. Haier regards it as an inspiring direction of masscustomization to combine design practice and the era of minority group in the age of
network.
Even people without any designing experience or we say zero-base, may create
some popular ideas to which our professional designers would not like to pay
attention. A user, who is a young mother, said at community if meter scale isdesigned on refrigerator, it might promote the appetite of children. She said herchild did not like having meals. But, children usually like playing refrigerator,
looking at the height and having the interest to know what to eat to grow faster(a69). Her idea really became a popular refrigerator with meter scale, which was
popular among young families (B.SR).
Geeks
Geeks refer to people who would like to spend a great amount of time in a specificfield; most of them even have different major with that field. Geek, being proud of
their identity of outsider, believes strongly in the power of technology, liberty, andcreativity. They do not like the common sense but like to explore new experience, do
not say impossible to new ideas but take the independent route to challenge.
Comparing with its negative meaning in the past, the role of Geeks is valued greatly
by big companies who have platforms like Haier.

85

Geeks are playing a more and more important role in products development, testingand iterating. With the platform organizational structure, Haier turns into a platformin the business ecosystem: one side is the interaction with common users and geeks;another side is the influx of open resources from the world (Figure 4-14). Haieremphasizes the interaction with geeks before production. Haier is committed tochange the situation of ‘guessing customer needs’ and instead listen to their voices
carefully before production (a70).

User
resources

User interaction
platform

Technology
platform

Creative
community

Technology
resources

Screening out high-quality
leading users andappropriate resources todeeper discussion

Figure 4-13: Open Innovation
When we interviewed one co-founder of ThundeRobot, we were impressed at geeks’concentration on the contribution. These geeks do not get monetary rewards fromHaier. The motivation why they do is just because they like those things.
Many geeks actually are our big fans. When we design a product, we always can
get professional and valuable comments from them. As we started up the business,
we sent our first 50 trial game laptops to these fans for testing. Some fanssuggested we must change the design and use two copper pipes to dissipate heat
instead of one (a71). By our own testing, we judged one copper pipe was enoughbecause we did not find the problem of dissipation. We often chatted online orphoned for several hours to listen to their various experiences with the product(a72). After the product going in market, their valuable advice was verified to beright (A.LX).
These technology fans not only participate in product testing, but also in providing
86

services to the common users. For example, some sections of the online user
community are run by these geeks, who are moderators there and responsible foranswering users’ daily technique questions (a73). The employees are responsible forthe questions on product iteration. The collaboration between them is well integrated.
Their contribution to ThundeRobot is great, but what they really pursue is just for
fun, not for money (a74). When we made offline get-togethers to know and thankthem. We found most of them do not like face-to-face meeting and they still
focused on their smartphone (a75). Now we interact with them mainly at onlinesocial community (A.LX).
Zealous posters
According to McKinsey annual report in 2014, China had 633 million Internet users
and the number of smart devices also rose from 380 million to 700 million in 2013
alone. These devices connecting to Internet networks are coming together to define
the new customer situation. Social networks are essentially a range of online activities
that connect individuals to one another. The firm’s ability to activate those activities
is a key barometer of ability to survive (Shetlon, 2013). They are forming an
unprecedented power on marketing and sources of data that firms cannot ignore (a76).
In today’s social networks, customers have more power than ever. As Blackshaw(2008) argued, a satisfied customer may tell three friends about good experiences,whereas an angry customer has the potential to tell 3,000 friends in social networks
and communities (a77). For the complaints from unsatisfied customers, Haier makes
great efforts to fix the internal processes or rules to make customers happy again. On
the other hand, Haier is also good at making full use positive comments to provide
social proofing and attract new customers (a78).
As we discussed in the previous parts, Haier has been actively making use of social
media, where users are invited to participate in end-to-end processes including
product design and R&D. Besides that, Haier also proactively invites the user to act as
the creator and ambassador for marketing promotion through social networks.
In May 2016, Haier held a social activity named ‘the most (adjective) Haier family’.
All users could participate in the activity. Complementing the topic, uploading thepicture related to Haier’s home appliance, writing a short story and so on. The activity
involved more than 10 thousands of users (a79). Haier extracted the most impressing
stories from them to enrich its brand story.
There is another simple but interesting activity: drawing your image of Hair
Brothers. Haier Brothers are the cartoon image of Haier brand. Haier wanted to design87

an interactive marketing activity, which users can enjoy and pushes the interaction
between users and enterprise and user one another. Together with the drawing, users
were also expected to speak out anything they wanted to Haier. The image of HaierBrother was made at its startup when Haier introduced advanced manufacturing
technology and equipment from Germany. Haier cartooned one eastern boy and one
western boy to form Hair Brothers (Figure 4-15), earnestly hoping a successful
cooperation with the west technology. Soon, a professional company made a TV
animation using the name and image of Haier Brothers. It exerted a great influence inChinese Millennials. Many of them said they began to love the brand from watching
the positive and wonderful animation. The activity was shared popularly online
among the community of Millennials. Many of works created by users were read tensof thousands of times (Figure 4-16). It was not an advertisement but an interactive
marketing, where users helped Haier promote the marketing (a80).

Figure 4-14: Hair Brother: cartoon image of Haier brandFigure 4-15: The example image of Haier Brothers drawn and shared by users
Fun is a motivator, one of the rewards (a81). Through various interactive activities
with zealous netizens, Haier Brothers has gathered users to form a Haier BrotherCamp online. The active involvement from users is inspiring Haier to create morebusiness around Haier Brothers. Now Haier is planning to develop a culture platform
88

based on the cartoon image, including cartoons, mobile games, movies and derivative
industries such as Haier Brother theme park (a82). In Internet age, not only can“Drawing Haier Brothers” attract a mass of zealous users online to interact actively,
which manufacturers cannot imagine before, but also it can draw a big picture forHaier to develop a new culture industry.
4.4 New service values coming from the new interactions
Through the deep interaction, Haier, its customers and even its relevant partner cocreate service values.
§ Proactive and cloud computing services
Haier is using data obtained from sensors embedded in appliances to create innovative
after-sales service offerings such as proactive maintenance to avoid using failures. Big
Data can be used to develop the next generation of products and services. Haier
provides “automatic diagnosis, automatic feedback and proactive services” to users on
Internet appliances embedded with intelligent sensors (a83). It updates the mode ofmaintenance service from “providing reactive services after users’ report” to“providing proactive services before the problem occur”.
Cloud computing is particularly regarded as one of the major enablers for Haier totransform their business models from being product oriented to being service
oriented. The cloud computing system can provide the solutions whenever users needin their daily life, automatically diagnose the type of the problem when an exception
happens, and send the information to service providers and users simultaneously.
As we discussed before, when a temperature anomaly occurs to a refrigerator
suddenly, APP will alert the user to check whether its door is closed properly. If the
exception continues after the user checks, servicemen will connect proactively andprovide onsite services. If there are foods not in date, the system will send a reminder.
When the air quality inside gets bad, the cloud computing system will send a message
to the user and start the sterilization to work. Users can also ask for the weather
information, recipe, entertainment video, life information and social interaction byvoice command. The smart air conditioner can interactively connect with the cloudcomputing system and detect the air condition of user homes. When the quality turns
bad, the air conditioner will automatically activate the healthy function and provide
the best healthy solution to users. If the users forget to close, the reminder of closing
air conditioner is sent if the leaving distance exceeds 1 Kilometer As the user forgets
to shut off the power of water heater and leave for a trip, the heater will monitor thecondition of hot water not been used for a long time and alert users to check whether89

it is necessary to shut off the power through the program of APP installed. After theuser approves, the hot water will be shut off. Combining the information of local
water quality, the system can provide the users of water purifiers with the timely
suggestions about how to keep a high cleanliness (a84).
Haier’s Internet appliances provide timely connectivity with a broad selection ofmobile devices, allowing user to manage and control home appliances from anywherein the world. Users are able to retrieve information and remotely control theirappliances either from home or outside, allowing users to do more and worry less(a85). It also maintains appliances in good condition and reduces lifecycle costthrough the highly precise detection and proactive services. The system provides thebest customer experience in the whole process of product lifecycle.
§ Services added by ecosystem
Through building open partnership ecosystem, customers get additional services fromthe ecosystems. The services mainly have two types: one is knowledge sharing or
creation from the interactive communities and another is convenience from thebusiness ecosystem.
No matter the user is a common customer, a geek, a designer, or even a professional
partner, he or she can find his interesting position and topic in the ecosystem (Figure4-17). Users can utilize others’ knowledge to develop their interests through theinteractive ecosystems (a86).
At first, I came to the community in order to find some specific solutions in daily
life. Gradually, I found there is more helpful information than I expected. It isinteresting to communicate with people having the similar interests. (Customer“sobershell” )90Solutions

Technology
matching

Community
Interaction

nt
me
lop
ve tionDe irecdver User
ific
ati
on

Interactive
Platform

Creativetransformation

Figure 4-16: Knowledge Interactive Ecosystem
Moreover, users can get faster and easier services from the business ecosystems
Haier has built. As we discussed, for the users of smart oven, they can get the packageof ingredients in suggested proportion directly through its smartphone APP. The usersof smart refrigerators can purchase the supplementary foods conveniently from thedisplay window where the services from Haier’s e-commerce partners are embedded(a87).
§ Self-actualization
The current users, especially Millennials, have the strong self-awareness and creativeideas to enrich their life. When their posters are liked and forwarded by other netizens,the users are encouraged positively to create more with the next things.
The users, whose creative work were read by tens of thousands of people, got thehighest satisfaction they never got before just from product functions. When theirideas became products of Haier, their feelings were even more amazing. Fun is a
motivation; self-actualization is one of the rewards (E.PY) (a88).
When these users do what they like, where they do it, how they do it, or how theyinteract with others is totally the purview of the customers. Users could do things forfun and determine their own courses of decision and action on social communities.
Creativity is often undermined unintentionally in conventional work environmentsthat were established to maximize business imperatives such as productivity andcontrol. Users will be more creative when they feel motivated primarily by the91interest, satisfaction, and challenge of the work itself and not by extra managerialpressures (a89).
The satisfaction, getting from the self-actualization of customers, upgrades the
traditional service concept. A service was always defined as a delivered activity froma provider to a recipient. But in current business model, Haier’s users are highly
satisfied by the services of self-actualization, which actually are their contribution toHaier although. The two-way interaction brings new services to customers (a90). It
activates a positive circle of knowledge and value creation between Haier and its
customers, even other partners (a91).
When adding great services and value to customers, Haier is also getting great
returns from its business model. Its profits jumped 20 percent year-on-year to 18
billion yuan ($2.7 billion) in 2015. It gets a high customer loyalty with more than 200
million families Using Haier appliances in China and the world's number one Major
Appliances brand in 2015. Owing to the loyalty, some series of products have been
reserved by users. This helps Haier really realize zero inventories and reduce the riskof business. More importantly, with the business model, Haier hold a steady stream ofcreative ideas from users, which keeps its business innovation sustainable, effective
and efficient.

92

Chaper 5

Data Coding and Theoretical Proposition

5.1 Introduction
As discussed above, the data is coded in three levels: open coding, focused coding,and theoretical coding. The process of coding is being continuously conducted before
the theoretical saturation (Figure 5-1). As is well known, theoretical saturation is aprocess of breaking down and analyzing data until no new theoretical insights arebeing discerned from the data (Glaser and Strauss, 1967).
Data collecting and analyzing

Data supplementing

Building preliminary theory

Theory saturation

Building theory

Theory unsaturation

Figure 5-1: Flow chart of data collection and analysis
5.2 Open Coding
Open coding is to conceptualize the collected data from business step by step. Basedon the rule of grounded theory, the large amount of data is interpreted in progressive
levels: labels, concepts, and categories, showing its content accurately. In the process,the labels and are being thoroughly broken, classified, re-organized and induced toform concepts. The concepts were deemed pertinent to the content of the data.
5.2.1

The purpose of open coding

The purpose of open coding is identifying phenomena and defining concepts. These
concepts and the coming categories in the next phase are all convergent to form thetheory reflecting the studying phenomena.
5.2.2

Labeling

First, the collected data in the above is labeled with “a + Arabic numerals”, and thengiven a label to define its meaning. An example of labeling is shown below.
An example of labeling:(1) Labeling a text with a label （“a2”）:
When it decided to make the latest innovation in corporate strategy in 2012,Haier had retained its place as the world’s No.1 Major Appliances brand with an
8.6% retail volume share. Even holding such a big strength in the marketing,93

Haier still decided to disrupt itself again because they though Haier would be fullof the below risks soon if no innovative strategy were adopted (a2).
(2) Initializing a label with the essential meaning of its text (“a2: Risk
consciousness”)
The above text is mainly about Haier’s risk consciousness, because it happenedeven when Haier is in the position of No.1 and its rivals have not started to makesuch a disruptive reform.
Thus, we define the label “a2” with the meaning of “risk consciousness” andwrite it as “a2: Risk consciousness”.
Using this method, we make 91 labels and give the meaning to each label according
to its context located (Table 5-1).

94

Table 5-1: Labels to the raw text

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

Labeling of Data
a32: Changes of information anda1: Self-critical32
knowledge resources
a2: Risk consciousness
33 a33: Big data from connected appliances
a3: Eager to know users as well as
34 a34: New value from big data
possiblea4: Salary by user instead of enterprise
35 a35: More partners connected
a5: Beyond transaction
36 a36: Big social data of customer
a6: No advantage soon
37 a37: Big picture of customer by big data
a7: Keep pace with times
38 a38: Scenario application of big data
a8: start-up from bankruptcy
39 a39: Making interaction funny
a9: Progress everyday
40 a40: Customer always righta10: Quality consciousness
41 a41: knowledge in customer chata11: Praised by famous business school 42 a42: No pulling but attracting customers
a12: Marketing initiative inside
43 a43: No development behind closed door
a44: Mutual value created by customers
a13: Bold in global market
44
on community
a14: Mutual contribution
45 a45: Experience exchange center
a15: Stringent regulation
46 a46: No interaction, No iteration
a47: Customer complaint as ana16: Localization
47
opportunity to fix internal process
a48: Customer complaint as a businessa17: Entrepreneurial spirit
48
opportunity
a18: Empowerment
49 a49: Customer as skillful expert
a19: Crowd customization
50 a50: Active community
a51: Mutual encourage between one
a20: Eliminating middle management51
customer and the othera21: Self-managing
52 a52: Customer Brainstorming
a22: Confidence to reform
53 a53: Customer reminding
a23: Internal driver
54 a54: Interactive design
a55: Customers creating new knowledge
a24: Daily interaction with customer
55
through interaction
a25: Customer deep involvement
56 a56: Open resources from society
a26: Each employee as a parallel node
57 a57: Timely iterative design
to customers and resources
a27: Internal venture capital for
a58: Customer reserve co-designed
58
entrepreneur
product before production
a59: Visualization of order, production
a28: Brand as resources59
and transport processes
a29: Open platform for adding value
60 a60: User resource means community
a30: Equality between internal anda61: Different lifestyles of Millennial
61
external resources
generation
a62: Digital connected generation making
a31: Success of micro-enterprises
62
timely iteration coming true95

70

a63: Customer community as one key
factor for mass customization
a64: Huge timely interaction
a65: 200 originalities per day
a66: Local customer knowledge for
localization
a67: Customized by the same zodiac ofcustomers
a68: Individuality driving
Customization
a69: A small customer idea opening amarket segment
a70: Not “guess” customer needs

71

a71: Geeks working as developers

86

72

a72: Amazing enthusiasm of fans

87

73
74

a73: Geeks serve other customers
a74: Fans pursue for fun, not for money

88
89

75

a75: Geeks prefer the virtual world

90

76

a76: Running social community is
actually running business

91

77

a77: social network empowering
customers

5.2.3

Conceptualization

63
64
65
66
67
68
69

78

a78: customer as marketer

79
80

a79: Brand stories made by customers
a80: Interactive marketing81

a81: Fun as reward82

a82: Zealous users triggering a new
industrial business83

a83: Proactive service on smart appliance84

a84: Cloud computing service85

a85: APP-based customer experiencea86: Knowledge ecosystem forknowledge sharing and creation
a87: Professional and convenient service
from business ecosystem
a88: Self-actualization as reward
a89: Creativity booming in free context
a90: Incubating self-actualization asservicea91: Self-actualization motivating a
positive circle of knowledge and value
creationOn the basis of the above 91 labels, the next step is to further conceptualize theselabels. However, it is not a one-time event. In order to find the accurate concepts andcategory that can reflect the essence of the case, it is necessary to analyze repeatedly
among data, labels, concepts and categories. In the process, we also contacted withseveral interviewees many times to discuss the critical issues and implement new data.
In this stage, in order to deepen the work of refining and downsizing, concepts andcategories are gradually used to replace the raw data temporarily. Then, the task ofanalyzing the huge amount of data is simplified into delving into these concepts,
especially the relationship and intrinsic logic between concepts. Through the open
coding, the collected data is coded into concise units that are suitable for deep
analysis.
We build 20 concepts, which are respectively marked with the alphabet A plus
numbering. In the process, we use MAXQDA qualitative analysis software to build96the tree structure of data and keep the connection between data and concepts. The
details are analyzed step by step as follows.
Using MAXQDA software to build the tree structure of data and trace raw text
First, in the meantime of labeling the text in the paper, we import the text into
MAXQDA and label the text in the same way (Figure 4-19). Each label is linked tothe sentences or paragraphs of interview transcripts with which it is associated.

Figure 5-2: An example of labeling in MAXQDA
Second, we focus on analyzing the intrinsic relationship of all labels. The relevantlabels are organized together temporarily to form a variety of groups. Then we thinkover the meanings each group reflects and the logic among them. If its meaning or the
logic is not suitable to be put in the same group, the label is been moved out of thegroup. The process is made repeatedly until all groups are given accurate meanings toform the corresponding concepts. For example, as illustrated in figure 5-3, after
analyzing repeatedly, the group of labels including a65, a49, a73, a54, a57, a 71, a45,
a62, a41, a5, and a3 is defined as “A3: Zero distance with customer knowledge”. The
figure shows a snippet of interview script on the right, along with its associatedconcepts on the left. In the tree structure of A3, its labels not in sequence show therepeated process of analyzing.

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Figure 5-3: An example of conceptualization in MAXQDA

The meaning of each concept is explained one by one as follows.
Concept A1: Humility(1) Definition
It refers to Haier’s humble attitude of organizational behavior when facing its
achievement, customers’ complaints and the like.
(2) Correlative labels
a47: Customer complaint as an opportunity to fix internal process; a40: Customer
always right; a1 Self-critical24(3) Explanation
In Haier’s core value, it is written that the customer is always right and we should
always be self-critical and constantly improve ourselves, which is regarded asHaier’s motivation to create more customers. Thus, Haier can consider users’
complaints positively as one of the best opportunities to fix its internal processes;
Haier can value any need from customers even sometimes which seems strange
to other companies and develop a product or service to meet it. When customers
said they wanted to search for a menu when cooking or chat by video with theirmothers for delicious cooking methods and the like, Haier developed the productof Internet refrigerator and the service of providing various cooking recipes on
the screen of the refrigerator by attracting third-party partner involved in thebusiness ecosystem.

24 Itslabels not in sequence show the process of analyzing repeatedly (similarly
hereinafter).
98

Concept A2: Crisis awareness(1) Definition
It refers to the sense of crisis, making Haier always innovate proactively to
prepare for the emerging challenges.
(2) Correlative labels
a9: Progress everyday; a7: Keep pace with times; a6: No advantage soon; a2:
Risk consciousness(3) Explanation
As its CEO Said: “There are no successful enterprises, only enterprises that adapt
to the pace of times”, Haier is always holding the sense of crisis and innovative
actively to adapt to the changes of technology development and businessenvironment. When it decided to make the latest innovation in corporate strategy
in 2012, Haier had retained its place as the world’s No.1 Major Appliances brand.
Even with such a big strength in the marketing, Haier still decided to disrupt itself
again, because they though Haier would be in crisis soon if no innovative strategy
was adopted.
Concept A3: Zero distance with customer knowledge(1) Definition
Haier endeavors to realize zero distance with its customers and utilize theirknowledge to differentiate customer experiences in the whole process of value
creation.
(2) Correlative labels
a65: 200 originalities per day; a49: Customer as skillful expert; a73: Geeks serve
other customers with no charge; a54: Interactive design; a57: Timely iterative
design; a71: Geeks working as developers; a45: Experience exchange center;a62: Digital connected generation making timely iteration coming true; a41:
Knowledge in customer chat; a5: Beyond transaction; a3: Eager to know users aswell as possible(3) Explanation
Haier has many advantages such as technology innovation and corporate brand.
But the most valuable one is the different view on customer value. Haier thinks
over the relationship with users and is committed to filling the gap existing in thesituation. Haier could not meet its customers, so did among the customers,
because in the past it just sold its products to customers through a one-way
transaction. Now it has the ability to change the situation. Millenaries havebecome the main force of consumption. Taylor (2014) explains 71% of99Millenaries are daily users of social networks. They check their smartphones 43
times and spend 5.4 hours on social media averagely per day. Haier can know its
customers timely by smart products with sensors and intelligent chips. Moreover,customers can take part in the product design as early as they are willing. Haierendeavors to realize zero distance with its customer and involves them in thewhole process of production from product design to interconnected
manufacturing.
To realize the objective of keeping zero distance with customers and making useof their knowledge timely, Haier builds the interactive open platform. Haierinteracts with one million fans on average per day. It comes up with over 200
originalities.

Many products,

such as “JhuknaMat” refrigerator in India,

Adiabatic icebox without power more than 100 hours in Pakistan, and Handheld
washing machine “Coton”, came from the interaction with customers. At theplatform, it is users that design many products they are in favor of, such as Mikey
Little Refrigerator and Removing Formaldehyde Air Conditioner. For theseproducts, all ideas from the creative work to the shape came from users.
Moreover, the whole process was open to customers online from end to end, so
the designing was continuously iterated with the advice from netizens.
Haier has been considering how to know customers’ ideas timely and meet theirdiverse and easily changing needs quickly. Haier has transformed its Call Center
to a User Experience Exchange Center. It initially had only one telephone
communication center. But now, Haier has eight channels, like online chatting,interactive platform and social medias, to provide zero distance service to its
customers and create faster and more direct interaction with its customers.
As many interviewees claimed, they believe Knowledge is not created by experts
only, instead, everyone can share great ideas and be an expert in his/her specificfield. People may think the messages Internet users send are just for show or fun,but there is much useful information and knowledge among them. The ideas ofHaier newly launched products, like Tianzun air conditioner and Thunderobot
game laptops, came from customer social information. Now most of their new
products can involve customers in the early age of design. Like the developmentof the game laptop, fans suggested Haier should change the design and use twocopper pipes to dissipate heat instead of one. These technology fans not only
participate in product testing, but also in providing services to the common users.
For example, some sections of the online user community are run by these geeks,
who are moderators there and responsible for answering users’ daily techniquequestions. The employees are responsible for the questions on product iteration.

100

The collaboration between them is well integrated.
Concept A4: Unafraid of change(1) Definition
It refers to the organizational reforming capability proved by the successful
experience of continuous reforms.
(2) Correlative labels
a13: Bold in global market; a22: Confidence to reform; a11: Praised by famous
business school; a8: start-up from bankruptcy(3) Explanation
In the past 33 years since the foundation in 1984, every 7 years Haier made areform in corporate strategy, organizational structure and management. Throughthe uncommon experience, Haier is able to make a disruptive reform promptly
when needed.
Haier started with the virtually bankrupt. When CEO Zhang Ruimin took over the
Qingdao Factory from the government in 1984, Haier had total assets of$300,000, a net loss of $178,000 (a huge sum at that time), sales revenues of$421,000, and 800 workers.
In the subsequent 30 years, Haier implemented five different strategic reforms tomaximize customer value and grasp the market opportunities: branding：brandbuilding, diversification, internationalization, global brand, and networking
strategy. Accordingly, Haier made five disruptive management innovation: OECand self-organizing unit, strategy business unit, market chain, the Three Powerand the system of Entrepreneur.
With the corporate gene of changing, the staff of Haier is unafraid of changing
and adapt to it. Haier has been changing from the start up, but the constant themeof change is kept much closer to its customers. As one interviewee said, if thechange is toward connecting with the customer more closely, today’s employees
of Haier believe we can realize the vision. Now, Every employee may be a centerto keep zero distance with customers. The motivation model has been studied andrecognized by world-famous business schools and management experts and isconsidered to be likely to solve the management problems in the Internet era.
After the case of "Haier culture activating stunned fish" is studied by Harvard
Business School, the case of "Haier's cross-culture integration featuring
individual-goal combination" has been listed in the case library of European
IESE Business School.
Concept A5: Open platform101

(1) Definition
The platforms Haier builds to utilize crowd storming, crowdsourcing and cocreation to empower its staff, break through organizational walls and connect
with its customers and partners to solve problems.
(2) Correlative labels
a56: Open resources from society; a86: Knowledge ecosystem for knowledge
sharing and creation; a28: Brand as resources; a29: Platform for adding value(3) Explanation
Haier builds the open innovation platform to crack down the separation barrier.
Crowd storming, crowdsourcing, and co-creation are all facets of a new capacityfor Haier to empower their employees, break through organizational walls andconnect with business partners and customers for solving problems. Haier has
built various interactional platforms to meet the different needs of customers andpartners. Zhongchuanghui platform is for users to customize products and makefull use of ideas from customers. HOPE platform is for worldwide R&D
resources to provide creative solutions based on interaction; Haidayuan platform
is for module companies to provide competitive customized modules to Haier
based on customer personalized needs. These platforms are independently
operated but share data. All the stakeholders, even some of which do not belong
to Haier group, can utilize the platform with frictionless entry and interact witheach other to add value.
Through building open partnership ecosystem, customers get additional services
from the ecosystems. The services mainly have two types: one is knowledge
sharing or creation from the interactive communities and another is conveniencefrom the business ecosystem. No matter the user is a common customer, a geek, adesigner, or even a professional partner, he or she can find his interesting position
and topic in the ecosystem. Users can utilize others’ knowledge to develop theirinterests through the interactive ecosystems.
A6: Focus on customer value(1) Definition
Haier is aiming to maximize customer value through meeting the personalized
needs.
(2) Correlative labels
a48: Customer complaint as a business opportunity; a43: No development behindclosed door; a19: Crowd customization; a66: Local customer knowledge for
localization; a4: Salary by user instead of enterprise; a16: Localization; a10:102

Quality consciousness(3) Explanation
In the Internet era, user's demands have become the main driving force forservice innovation. From Haier’s viewpoint, the industry 4.0 is not just to replace
the human labor with intelligent machines. The revolution needs not only highefficiency but also high accuracy. This means the first question Haier ask itself is
producing for whom. As the development strategy requires, each employee is
asked to know who is his/her customers and what values can be created for them.
In order to solve the awareness of valuing customers’ needs, in Haier’s
compensation mechanism, “pay by users” has superseded “pay by the enterprise”.
It is driving employees to become entrepreneurs who create value for users while
realizing their own value.
The significance of creating value for customers can be tracked from the stage ofstart-up. Thirty years ago, home appliances were luxuries in China and there were
few products in the markets. The maximum customer value at that time wasfunctional value-good-quality products. Haier promised to provide the first-rate
products without defective. However, soon after Zhang Ruimin took the role ofgeneral manager, he received a complaint letter about a defective product from acustomer. He realized there was no future if there were no high-quality products.
He called staff of quality control department down to the warehouse andinspected all the 400 refrigerators in the warehouse one by one. They totallyfound 76 defective refrigerators. In order to change the perception of productquality and improve to the level of “zero tolerance of error”, the CEO picked up asledgehammer and passed it to the corresponding responsible employee to smash
those 76 defective refrigerators.
Now Haier has already outdone the stage of mainly focusing on product quality.
It is aiming to maximize customer value through meeting the personalized needs.
Haier implements various strategies to achieve the goal. The vast majority ofHaier's management and employees in any foreign country were local people
because they better understood the local culture and customer desire and they
could design and deliver quality products to meet consumer demand. Moreover,many products, such as “JhuknaMat” refrigerator in India, Adiabatic icebox
without power more than 100 hours in Pakistan, and Handheld washing machine“Coton”, came from the interaction with local customers.
In the marketing strategy, the idea is also implemented. At Haier, it is becoming arule that if you need advertisement to make promotion, it means your products orservices still exist a far distance with your customers. Thus, in the phase of103

creating ideas for product design, developers would begin to make deep
interaction with customers. In order to understand what kind of air conditioner
customers really wanted, Haier’s developers had involved over 67,000 customers
to join in the online discussion and got 30 million responses.
The new mode of interaction with customers forms a positive circulation to
maximize customer values: users provide ideas and needs; micro-enterprises
develop and manufacture; users give feedback timely; micro-enterprises upgrade
and iterate products quickly.
Concept A7: Empowering employees(1) Definition
Employees are able to bring in their own ideas and recourses to develop new
products and services through the organizational platform.
(2) Correlative labels
a31: Success of micro-enterprises; a27: Internal venture capital for entrepreneur;
a26: Each employee as a parallel node to customers and resource; a17:
Entrepreneurial spirit; a18: Empowerment; a21: Self-managing(3) Explanation
Haier made the first disruptive transformation on organizational structure in
2009, from a traditional hierarchy structure to an inverted triangle structure. The
executives were at the bottom and employees at the top of the triangle. Managers
provided employees support instead of giving orders. Employees were
empowered with greater decision-making authority and freedom of action. With
the bottom-up organization structure, Haier aimed to build a fast executing
company that could involve each employee to self-manage and work with thecompetitive market rules while providing employees with their due wages basedon their output performance.
From 2012, Haier has been implementing the networking strategy. It can connect
various resources as an open Internet node, establish a user-centered ecosystemfor value co-creation and winning together, and integrate them to add value for all
stakeholders. Regarding the roles of a unit or employee in the new structure,
Haier emphasizes the orientation of Node instead of Position. Position isempowered by the organization or direct supervisors, but the existence of node isbased on a business contract or order, which means an objective. At Haier, a node
may be a self-managing unit or just an individual employee. Nodes equally exist
in the networking organization, driven by customers rather than leaders and meets
customer demands through open connection with external resources. Every104

employee may be a center to keep zero distance with customers.
With the new strategy of networking, staff could bring in their own ideas andrecourses to develop new products and services for customers, with a view tobuilding post-e-commerce ecosystems based on user value interaction for cocreation and winning together to add value for all stakeholders. With the chances
Haier’s platform creates, an employee could become a real entrepreneur. The
employee may choose the internal venture capital to expand the new business or
get funding from the society to organize a registered company.
By the end of 2015, Haier's platforms had attracted over 4,700 first-class external
resources, 3 billion yuan of venture capital fund, 1,330 venture capitalinstitutions, and 103 incubators, setting the stage for 1,160 projects. Over 3,800
node microenterprises and nearly one million micro-stores on Haier's platforms
are socializing their capital and human resources. More than 100 microenterprises
boast annual revenue of over 100 million yuan, and 22 have introduced VC, and
12 are valued at over 100 million yuan.
Concept A8: Keeping organization agile(1) Definition
Haier is committed to make the organization respond flexibly and effectively toadopt the philosophy of “customer-value first.”(2) Correlative labels
a30: Equality between internal and external resources; a23: Internal driver; a20:
Eliminating middle management(3) Explanation
In order to keep the organization agile, Haier got rid of 10,000 middle managers
and transform the whole organization into a platform structure. It turns thefunctional departments into two platforms: a platform for sharing and a platform
for driving. It emphasizes the reason that everyone or every unit exists is morecompetitive than their counterparts in the outside markets. As one interviewee
said: “ To anyone at Haier, you have to make yourself, your unit, becomecompetitive. Otherwise, you are equally replaced freely by others or outside
resources.”
Concept A9: No customer interaction, no Haier(1) Definition
It refers to the forefront strategy about the significance of customer interaction.

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(2) Correlative labels
a32: Changes of information and knowledge resources; a46: No interaction, No
iteration; a70: Not “guess” customer needs; a64: Huge timely interaction;
a76:Running social community is actually running business; a82: Zealous users
triggering a new industrial business; a24: Daily interaction with customer(3) Explanation
The creed “No interaction, no Haier” is written in Haier’s development strategy.
Haier is well known for the abilities of understanding consumer needs precisely
and innovating rapidly to meet these needs. Customers are always theunchangeable core resource of Haier. It regards customer interaction as thepremise of innovation. Otherwise, neither incremental innovation nor disruptive
innovation can ensure its customer value. Haier interacts with one million fans on
average per day. It is committed to change the situation of ‘guessing customer
needs’ and instead listen to their voices carefully before production.
Concept A10: Powerful interaction(1) Definition
It refers to the customer engagement of being able to create the personalized
value, replacing the common interaction between providers and customers.
(2) Correlative labels
a44: Mutual value created by customers on community; a72: Amazing
enthusiasm of fans; a69: A small customer idea opening a market segment; a25:
Customer deep involvement(3) Explanation
Haier got customers involved in developing the new products from the very
beginning. They are making various powerful contributions to Haier. For thedevelopment of one game laptop, customers did not only contribute their ideas in
the early stage, even after the first 50 laptops of trial production was made, it wasthese users that tested the laptops and gave their professional comments toimprove the function before the mass manufacturing. For one air conditioner, theconcept of ‘cool but not cold’, got from users’ responses, became the tagline forthe product in Chinese promotion. The concept was the insight from customers,
as opposed to a catchword imagined by marketing professionals. For one
refrigerator, a young mother’s ideas really became a popular refrigerator withmeter scale, which was popular among young families. There are lots of otherexamples showing the powerful interaction with customers.
The powerful interaction is effective. As one interviewee experienced, “I often

106chatted online or phoned with our fans for several hours to listen to their various
experiences with the trail product. After the product going in the market, theirvaluable advice was verified to be right and help us avoid market loss.”
Concept A11: Zero distance with customer usage(1) Definition
It refers to the timely connection with customers through the sensor andminiaturization embedded in the product.
(2) Correlative labels
a85: APP-based customer experience; a83: Proactive service on smart appliance;
a84: Cloud computing service; a33: Big data from connected appliances(3) Explanation
The cloud computing system can provide the solutions whenever users need intheir daily life, automatically diagnose the type of the problem when an exception
happens, and send the information to service providers and users simultaneously.
Haier is using data obtained from sensors embedded in appliances to create
innovative after-sales service offerings such as proactive maintenance to avoid
using failures. Haier provides “automatic diagnosis, automatic feedback andproactive services” to users on Internet appliances embedded with intelligent
sensors. It updates the mode of maintenance service from “providing reactive
services after users’ report” to “providing proactive services before the problem
occur”. It also maintains appliances in good condition and reduces lifecycle costthrough the highly precise detection and proactive services. The system provides
the best customer experience in the whole process of the product lifecycle.
Haier has many advantages such as technology innovation and corporate brand.
But the most valuable one is the different view on customer value. We have been
considering how to know customers’ ideas timely and meet their diverse andeasily changing needs quickly. Haier’s Internet appliances provide timely
connectivity with a broad selection of mobile devices, allowing the user tomanage and control home appliances from anywhere in the world. Users are able
to retrieve information and remotely control their appliances either from home oroutside, allowing users to do more and worry less.
Concept A12: Interaction among customers(1) Definition
It refers to the interaction customers make between each other.

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(2) Correlative labels
a51: Mutual encourage between one customer and the other; a55: Customer
creating new knowledge through interaction; a52: Customer Brainstorming; a53:
Customer reminding(3) Explanation
At the online communities, except for the interaction between Haier and its
customers, we can also see the active interaction among customers.
“I get an inspiration from the post which suggested a combinative use of fan andair conditioner. Since air conditioner with a combination of the fan can make thecool air flow around, why does not install a device to scatter the cool air, such as
air outlet that can rotate, or a deflector with the function of the fan, as othernetizens suggested.” “I like the round hanging machine, which can also be seen
as a home decoration. But I am afraid of the location. Because home decorations
are usually set in the middle part of the wall, if the condition installed there, its
pipes affects the esthetic appearance.”“An air conditioner may be a painting, may be a wall clock. That means it can beanything users can imagine as wall ornaments.”
A13: Adapting to the changing lifestyle(1) Definition
It refers to making organizational innovation to adapt to the new lifestyle in thesocial networking.
(2) Correlative labels
a67: Customized by the same zodiac of customers; a50: Active community; a58:
Customer reserve co-designed product before production; a60: User resourcemeans community; a63: Customer community as one key factor for masscustomization; a68: Individuality driving Customization(3) Explanation
According to McKinsey annual report in 2014, China had 633 million Internet
users and the number of smart devices also rose from 380 million to 700 million
in 2013 alone. These devices connecting to Internet networks are coming together
to define the new customer situation.
Especially when Millennials become the main force of consumption, it isnecessary to re-think the interactive methods owing to their distinctive lifestyles.
One interviewee said: “When we made offline get-togethers to know and thankthem. We found most of them do not like face-to-face meeting and they still
focused on their smartphone. Now we interact with them mainly at the online108

social community.”
Concept A14: Running community(1) Definition
It refers to building the social community online around common interests to help
Haier fulfill the strategy of mass customization.
(2) Correlative labels
a61: Different life styles of Millennial generation; a75: Geeks prefer the virtualworld(3) Explanation
Now user resource has become the competitiveness of Haier. User resourcemeans community. Through organizing various communities around products,
Haier can not only iterate products and services continuously, but also create newvalues.
Millennials have the strong self-awareness and are going to go to the trouble ofpursuing individuality. They have various ideas to enrich their life, wanting the
products with distinctive colors or modules, desiring the appliances embedded thelatest technology they are in favor of. Haier’s interactive platform is committed tobeing an entry of those inspirations. Haier regards it as an inspiring direction ofmass customization to combine design practice and the era of the minority groupin the age of network.
The strategy of customization does not mean Haier can provide a different
product or service to each customer who has a different need. Haier gives
importance to developing customer communities to realize mass customization
because there an opinion leader usually represents masses of customers who havethe similar needs. For the mass customization, the ideas to customize a productcompletely come from users, and the evaluation of feasibility to the product isalso made by users. Those who like the creative ideas will reserve the product.
The order and its information will be automatically sent to Haier’s interconnectedfactories to manufacture.
Concept A15: Just for fun(1) Definition
It means fun is the principle of designing any interactive activity(2) Correlative labels
a42:No pulling but attracting customers; a39: Making interaction funny; a89:
Creativity booming in free context; a74: Fans pursue for fun, not for money; a81:
Fun as reward; a59: Visualization of order, production and transport processes109

(3) Explanation
It is a big issue to attract more customers engaged in the process of corporate
innovative experience. Haier has accumulated many successful methods tointeracting with customers. The principle is creating fun for customers, not asking
them to do what they feel reluctant. Customers just do what they like at the time
when they want. Then, Haier just takes full use of the information and knowledge
customers contribute in the process.
So in Haier’s online community, there is no such a special topic to talk about theirproducts. Instead, there are almost the topics closely related to the living
scenarios, such as ‘Super Mamas’ Domination’ and ‘Super Foods Street’. It iseasier to attract more regular customers to immerse themselves in theseinteresting topics and speak out what they are thinking.
In order to attract customers to come to our interactive platforms, Haier has
begun to recruit many new employees who can create fun, such as movie
directors, attractive persons, or joke tellers, to interact with customers. Actually,some opinion leaders in customers also have such characteristics. In some cases,
it actually makes the interaction more smoothly and creates more original posts.
Fun is a motivator, one of the rewards. For example, customers’ contribution toThundeRobot is great, but what they really pursue is just for fun, not for money.
These customers do not get monetary rewards from Haier. The motivation why
they do is just because they like those things. Customers could do things for fun
and determine their own courses of decision and action on social communities.
Creativity

is

often

undermined

unintentionallyinconventional

work

environments that were established to maximize business imperatives such as
productivity and control. Customers will be more creative when they feel
motivated primarily by the interest, satisfaction, and challenge of the work itself
and not by extra managerial pressures.
Concept A16: Incubating customer self-actualization(1) Definition
It refers to Haier’s customer strategy of helping customers realize their own
interests or ideas with their knowledge.
(2) Correlative labels
a88: Self-actualization as reward; a91:Self-actualization motivating a positive
circle of knowledge; a90: Incubating self-actualization as service(3) Explanation
The users, whose creative ideas are read by tens of thousands people online, got

110the highest satisfaction they never got before just from product functions. Whentheir ideas became products of Haier, their feelings are even more amazing. Fun
is a motivation and self-actualization is one of the rewards.
The satisfaction, getting from the self-actualization of customers, upgrades the
traditional service concept. A service was always defined as a delivered activity
from a provider to a recipient. But in the current business model, Haier’s users
are highly satisfied by the services of self-actualization, which actually are theircontribution to Haier although. The two-way interaction brings new services tocustomers. It activates a positive circle of knowledge and value creation between
Haier and its customers, even other partners.
Concept A17: Enterprise-level big data
(1) Definition
It refers to the big data integrated from different enterprise-levels systems, which
can describe the characteristics, likes and life habits of each Haier user.
(2) Correlative labels
a34: New value from big data; a38: Scenario application of big data; a37: Big
picture of customer by big data; a36: Big social data of customer(3) Explanation
Besides the data of registration, products selling and after-sales, Haier’s CRM
platform adds the dynamic data of customer interactive activities on social
communities, so the platform is called Social CRM. It includes all the data related
to the relationship between Haier and its customers, and the data is not isolated
by interconnected. It uses big data mining to analyze the topics Haier users are
discussing, which users are opinion leaders and their likes. All the integrative
data can describe the characteristic, likes and life habits of each Haier user. The
data is coded with tags, which have 7 levels, nearly 150 dimensions, and morethan 5000 nodes.
The big data has three key values: providing proactive services, accurate
marketing, and interactive innovation. Haier utilizes the technology of data fusion
and user identification and has built 10 data models in 3 categories, which define
well the priority of user potential needs. Meanwhile, the application of data is tomeet the requirement of different scenarios for customer services. Data productfor interactive innovation is made to help developers understand user pain points,
the characteristics of popular products, the distribution of user interests and theactive customers for interaction. Developers can get visual information: whatcomplaints users have, which products and which function; experience pain

111

points, and which experience should be optimized.
Concept A18: Internal market chain(1) Definition
It means the internal process is regulated in consistence with the outside market.
(2) Correlative labels
a15: Stringent regulation; a12: Marketing initiative inside; a14: Mutual
contribution(3) Explanation
From the Strategic Business Unit (SBU), to market chain, self-operation unit, andto current employee-entrepreneur, Haier has always been keeping the roles ofinternal market chain inside its organization. That means every organizational
behavior should be responsible for the requirements from the outside realmarkets; the pressure should not be burdened only by sales or marketing people.
Everyone is required to have the sensitiveness on the changes of customer needs
and seek innovative solutions to meet them.
Concept A19: Business ecosystem(1) Definition
It refers to the ecosystem made through uniting other business partners.
(2) Correlative labels
a35: More partners connected; a87: Professional and convenient service frombusiness ecosystem(3) Explanation
Through making Internet appliances, Haier is producing a major engine forcreating new services. Increasingly, the product is merely a component in the
total customer experience. Customers can get faster and easier services from thebusiness ecosystems Haier has built. Haier’s real goal is to create the totalcustomer experience. It is learning how to do this with each of its products.
Taking the above cases as examples, there is a life circle of engagement witheating fresh foods that include buying a refrigerator as a small component. Haier
maximizes the rest of the experience. Listening music when cooking, watching
the recipe video by experts online or video chatting with a master according to
the contents inside, buying the lacking foods immediately, and so on. Its users
can purchase the supplementary foods conveniently from the display window
where the services from Haier’s e-commerce partners are embedded. The users of
the smart oven, they can get the package of ingredients in suggested proportion
directly through its smartphone APP.
112

Concept A20: Customer as marketer(1) Definition
It refers to the phenomenon of customers acting as the creator and ambassador formarketing promotion through social networks.
(2) Correlative labels
a80: Interactive marketing; a78: customer as marketer; a77: social network
empowering customers; a79: Brand stories made by customers(3) Explanation
In today’s social networks, customers have more power than ever. Haier is goodat making full use positive comments to provide social proofing and attract newcustomers. Besides that, Haier also proactively invites the user to act as thecreator and ambassador for marketing promotion through social networks. Haierutilizes a variety of interactive activities to innovate its marketing.
The 20 concepts above are established based on the analysis of the intrinsic logic
among the 91 labels. They are the basis of the next more refined coding stageFocused Coding.
5.3 Focused Coding
5.3.1

The purpose of focused coding

Focused Coding is employed to identify the emerging core categories. In the process,if the categories cannot establish the logic structure of a case story, it is compulsory toreturn to the stage of data collection to enrich the data until the theory is saturated.
5.3.2

Categorization

On the basis of the 20 concepts, with the tool of MAXQDA, we created 9 categories
to further refine the data towards inducing the line of findings. They are Continuous
disruptive management transformation, Organizational capability, No interaction, no
Haier, Platform Ecosystem, Customer Community, Digital engagement from
customer, Knowledgeable engagement from customer, Social engagement from thecustomer, New customer experience (Table 4-2). These categories are marked withAA plus numbering, such as “AA1: Continuous disruptive managementtransformation”.
Because all the concepts have been given the clear and contextual meanings in thecase, it is easy to understand these categories that are created by integrated relevant
concepts (Figure 5-4). We do not need to specifically define the categories. The figure
shows a snippet of interview script on the right, along with the tree structure of113

categories on the left.

Figure 5-4: Using MAXQDA to create the tree structure of categories
Thus, the tree structure of categories has been completed in the qualitative analysis
software. The structure is exported into the following Excel format (Table 5-2). It
helps us to focus on understanding the relationship between labels, concepts, andcategories. If it is necessary, it is convenient to check its content of the raw text andwriting memos in the software.
Table 5-2: The tree structure of categories (with concepts and Labels)
Code System
AA1: No interaction, no Haier
A6:Focus on customer value
a48: Customer complaint as a business opportunity
a43: No development behind closed door
a19: Crowd customization
a66: Local customer knowledge for localization
a4: Salary by user instead of enterprisea16: Localization

114

a10: Quality consciousness
A9: No customer interaction, no Haier
a32: Changes of information and knowledge resources
a46: No interaction, No iteration
a70: Not “guess” customer needs
a64: Huge timely interaction
a76:Running social community is actually running businessa82: Zealous users triggering a new industrial businessa24: Daily interaction with customer
AA2: Continuous disruptive management innovation
A1: Humility
a47: Customer complaint as an opportunity to fix internal process
a40: Customer always righta1 Self-critical
A2: Crisis Awarenessa9: Progress everyday
a7: Keep pace with times
a6: No advantage soon
a2: Risk consciousness
A4: Unafraid of change
a13: Bold in global market
a22: Confidence to reform
a11: Praised by famous business school
a8: start-up from bankruptcy
AA3: Agile organizational capability
A8: Keep organization agile
a30: Equality between internal and external resources
a23: Internal driver
a20: Eliminating middle management
A18: Internal market chain
a15: Stringent regulation
a12: Marketing initiative inside
a14: Mutual contribution
A7: Empower employees
a31: Success of micro-enterprises
a27: Internal venture capital for entrepreneur
a26: Each employee as a parallel node to customers and resource
a17: Entrepreneurial spirit
a18: Empowerment
a21: Self-managing
AA4: Platform Ecosystem
A5: open platform
a56: Open resources from society
a86: Knowledge ecosystem for knowledge sharing and creation
a28: Brand as resources
a29: Platform for adding value
A19: Business ecosystema35: More partners connected115a87: Professional and convenient service from business ecosystem
AA5: Customer Community
A13: Adapt to the changing lifestylea61: Different lifestyles of Millennial generation
a75: Geeks prefer the virtual world
A14: Running community
a67: Customized by the same zodiac of customers
a50: Active community
a58: Customer reserve co-designed product before production
a60: User resource means community
a63: Customer community as one key factor for masscustomization
a68: Individuality driving Customization
AA6: Digital engagement from customer
A17: Enterprise-level big dataa34: New value from big dataa38: Scenario application of big dataa37: Big picture of customer by big dataa36: Big social data of customer
A11: Zero distance with customer usagea85: APP-based customer experiencea83: Proactive service on smart appliancea84: Cloud computing service
a33: Big data from connected appliances
AA7: Knowledgeable engagement from customer
A3: Zero distance with customer knowledge
a65: 200 originalities per day
a49: Customer as skillful expert
a73: Geeks serve other customers with no charge
a54: Interactive design
a57: Timely iterative design
a71: Geeks working as developers
a45: Experience exchange center
a62: Digital connected generation making timely iteration truea41: Knowledge in customer chata5: Beyond transaction
a3: Eager to know users as well as possible
A12: Interaction among customers
a51: Mutual encourage between one customer and the othera55: Customer creating new knowledge through interaction
a52: Customer Brainstorming
a53: Customer reminding
AA8 Social engagement from customer
A10: Powerful interaction
a44: Mutual value created by customers on community
a72: Amazing enthusiasm of fansa69: A small customer idea opening a market segment
a25: Customer deep involvement

116

A20: Customer as marketer
a80: Interactive marketing
a78: customer as marketer
a77: social network empowering customers
a79: Brand stories made by customers
AA9 New customer experience
A16 Incubating customer self-actualization
a88: Self-actualization as reward
a91:Self-actualization motivating a positive circle of knowledgea90: Incubating self-actualization as service
A15 Just for fun
a42:No pulling but attracting customers
a39: Making interaction funny
a89: Creativity booming in free context
a74: Fans pursue for fun, not for money
a81: Fun as reward
a59: Visualization of order, production and transport processes

Labels, concepts, and categories are arranged as table 5-3 to show in parallel.
Table 5-3: Labels, Concepts, and Categories
Labeling
a1: Self-critical
a2: Risk consciousness
a3: Eager to know users as well as
possiblea4: Salary by user instead ofenterprisea5: Beyond transaction
a6: No advantage soon
a7: Keep pace with times
a8: start-up from bankruptcy
a9: Progress everyday
a10: Quality consciousness
a11: Praised by famous businessschoola12: Marketing initiative inside
a13: Bold in global market
a14: Mutual contribution
a15: Stringent regulation
a16: Localization
a17: Entrepreneurial spirit
a18: Empowerment
a19: Crowd customization
a20: Eliminating middle
management
a21: Self-managing
a22: Confidence to reform
a23: Internal driver

Conceptualization

Categorization

A1: Humility (a1, a40, a47)

AA1: No interaction, no
Haier (A6, A9)

A2: Crisis awareness (a2, a6,
a7, a9)AA2: Continuous
disruptive managementtransformation (A1, A2,
A4)

A3: Zero distance withcustomer knowledge (a3, a5,a41, a49, a54, a57, a62, a65,
a71, a73)

AA3: Organizational
capability (A7, A8,
A18)

A4: Unafraid of change (a8,a11, a13, a22)

AA4: Platform
Ecosystem (A5, A19)117

a24: Daily interaction with customer
a25: Customer deep involvement
a26: Each employee as a parallel
node to customers and resources
a27: Internal venture capital for
entrepreneur
a28: Brand as resources
a29: Open platform for adding value
a30: Equality between internal andexternal resources
a31: Success of micro-enterprises
a32: Changes of information andknowledge resources
a33: Big data from connected
appliances
a34: New value from big dataa35: More partners connected
a36: Big social data of customer
a37: Big picture of customer by big
data
a38: Scenario application of big data
a39: Making interaction funny
a40: Customer always righta41: knowledge in customer chata42: No pulling but attracting
customers
a43: No development behind closed
door
a44: Mutual value created bycustomers on community
a45: Experience exchange center
a46: No interaction, No iteration
a47: Customer complaint as anopportunity to fix internal
process
a48: Customer complaint as abusiness opportunity
a49: Customer as skillful expert
a50: Active community
a51: Mutual encourage between one
customer and the othera52: Customer Brainstorming
a53: Customer reminding
a54: Interactive design
a55: Customers creating new
knowledge through interaction
a56: Open resources from society
a57: Timely iterative design
a58: Customer reserve co-designed
product before production
a59: Visualization of order,
production and transport
processes
a60: User resource means
community

A5: Open platform (a28, a29,
a56, a86)

AA5: Customer
Community (A13, A14)

A6: Focus on customer value(a4, a10, a16, a19, a43, a48,
a66)

AA6: Digital
engagement from
customer (A3, A12)

A7: Empower employee (a17,a18, a21, a26, a27, a31)

AA7: Knowledgeable
engagement from
customer (A3, A12)

A8: Keep organization agile(a20, a23, a30)

AA8: Social
engagement from
customer (A10, A20)

A9: No interaction, No Haier(a24, a32, a46, a64, a70, a76,
a82)

AA9: New customer
experience (A15, A16)

A10: Powerful interaction(a25, a44, a69, a72)

A11: Zero distance withcustomer usage (a33, a83, a84,
a85)

A12: Interaction amongcustomers (a51, a52, a53, a55)

A13: Adapt to the changing
lifestyle (a61, a75)

118

a61: Different lifestyles ofMillennial generation
a62: Digital connected generation
making timely iteration coming
truea63: Customer community as one
key factor for masscustomization
a64: Huge timely interaction
a65: 200 originalities per day
a66: Local customer knowledge for
localization
a67: Customized by the same zodiac
of customers
a68: Individuality driving
Customization
a69: A small customer idea openinga market segment
a70: Not “guess” customer needs
a71: Geeks working as developers
a72: Amazing enthusiasm of fansa73: Geeks serve other customers
a74: Fans pursue for fun, not formoney
a75: Geeks prefer the virtual world
a76: Running social community is
actually running businessa77: social network empowering
customers
a78: customer as marketer
a79: Brand stories made bycustomers
a80: Interactive marketing
a81: Fun as reward
a82: Zealous users triggering a new
industrial businessa83: Proactive service on smart
appliance
a84: Cloud computing service
a85: APP-based customer experiencea86: Knowledge ecosystem forknowledge sharing and creation
a87: Professional and convenientservice from businessecosystem
a88: Self-actualization as reward
a89: Creativity booming in freecontext
a90: Incubating self-actualization asservicea91: Self-actualization motivating a
positive circle of knowledge
and value creation

A14: Running community(a50, a58, a60, a63, a67, a68)

A15: Just for fun (a39, a42,
a59, a74, a81, a89)

A16: Incubating customer selfactualization (a88, a90, a91)

A17: Enterprise-level big data(a34, a36, a37, a38)

A18: Internal market chain(a12, a14, a15)

A19: Business ecosystem (a35,a87)

A20: Customer as marketer(a77, a78, a79, a80)

119

5.4 Theoretical Coding and findings
Through the further analysis of the 9 categories, their association with concepts andthe interactive comparison with the raw context, we can find the saturation of theory
describing the information system infrastructure of customer interaction at Haier. The
theoretical findings from this case are summarized as follows.
5.4.1

The intrinsic logic of categories

As Chandler (1962) suggested, organizational structure must follow strategy. In otherwords, a new strategy can be successfully implemented only if the executives arewilling to wrench their organizations into new forms. Along with the theory, theintrinsic logic of the categories is depicted in figure 5-5.

Why

New values

AA9

Effect

What

AA6

+

AA7

+

Customer

AA8

Engagement Activities

AA5
How

AA4

AA1
AA2

Haier
AA3
Supporting Systems

Strategy×

Structure=

Organizational Capacity

Figure 5-5: The intrinsic logic of 9 categories

In order to realize the creed “No interaction, no Haier” for maximizing customer
value, Haier made continuous disruptive management innovation to get the agileorganizational capacity. Through building the open platforms and customer
communities, customers were attracted to engage deeply in digital, knowledgeable120

and social ways. In the process, customers get brand-new experiences of selfactualization and funny interaction. They used their enthusiasm and knowledge tomeet their own interests that were anything they thought interesting and satisfying.
New value is created solely as a by-product. Therefore, AA6, AA7 and AA8 are thecore categories to the research. They present the three aspects in upgrading customer
interaction.
o Category AA6: Digital engagement from customer
o Category AA7: Knowledgeable engagement from customer
o Category AA8: Social engagement from customer
Among other categories, AA1, AA2, AA3, AA4 and AA5 act as supporting roles tothe core categories, and AA9 as the outcome.
5.4.2

The upgrade of customer interaction

New interaction generates new values. In the early development stages, Haier had
transformed the customer interaction from inert touch points into live interaction by
providing intimate services. Currently, Haier further upgrades the interaction tocustomer engagement by building IT-based open platforms to attract customers
contributing their knowledge (Figure 5-6).

Figure 5-6: The upgrade of customer interaction
New customer values are co-created when the interaction is upgraded into customer
engagement. Gouillart (2011) argued that touch points are only the company’s side of
the interaction. When firms evolve their customer-facing processes with customer
processes, they inevitably find that the customer experience improves. Customer
engagement was depicted as the intensity of an individual's participation in andconnection with an organization's offerings and/or organizational activities (Vivek etal., 2012). We define it as a process of customer self-actualization, where customers
use their enthusiasm and knowledge to do what they are interested in.
The finding is concluded from the comprehensive analysis of the three core
categories: digital engagement, knowledgeable engagement and social engagement

121

from customers. Customers are attracted to engage timely and deeply in digital,
knowledgeable and social ways.

Category AA7:
Knowledgeable
engagement from
customer
Category AA6:
Digitalengagement from
customer

Category AA8:
Social engagementfrom customer

Customer
Engagement

Figure 5-7: The three aspects of customer engagement
In the brand-new customer engagement, it is necessary to highlight the following
two sub-findings.
(1) Self-actualization as a customer value
The sub-finding is concluded from the concept A16 (Incubating customer selfactualization).
Customer value is the benefit that customers enjoy or experience from the receipt
of products and service. Woodruff (1997) defined customer value as: “is a customer's
perceived preference for and evaluation of those product attributes, attribute
performances, and consequences arising from use that facilitate (or block) achieving
the customer's goals and purposes in use situations. (P.142)” Advanced managementof technology moves its focus to the higher value added services innovations by
integrating more sophisticated service functions to the conventional products andsystems (Kameoka, 2008). MacKay (1999) discussed that a product’s or a service’s
appeal is an amalgam of rational and emotional factors. The emotions play a part inevery purchase decision.

122

Figure 5-8: Self-actualization as the upper level of customer value
Sweeney and Soutar (2001) revealed a stable structure of four dimensions to
describe customer value. Functional value on performance and quality refers to theutility derived from the perceived quality and expected performance; functional value
on price and value for money is the utility derived from the product due to the
reduction of its perceived short term and long term costs; social value refers to theutility derived from the product’s ability to enhance social self-concept; emotional
value is the utility derived from the feelings or affective states that a productgenerates. These four-dimension values are created based on the offerings from theprovider. Customer self-actualization, as a new experience adds to the total customer
value (Figure 5-5). We emphasize this point because it is created by customers
themselves. It exists in the interactive process on the open platforms. Customer value
is far beyond product function and is anything that customers think is useful to them.
(2) The service for Self-Serving
The sub-finding is concluded from the category AA9 (New customer experience).
The emotional award, which customers get from the self-actualization, develops the
traditional service concept. A service was always defined as a delivered activity fromthe provider to the customer. But in the current business model, Haier’s customers arehighly satisfied by the services of incubating self-actualization, which actually are
their contribution to Haier although. The two-way interaction brings new services tocustomers and Haier itself. It activates a positive circle of knowledge and value
creation between Haier and its customers, even other partners.

123Chaper 6

Conclusions

In this chapter, we briefly summarize the main points and the reflection on the
research from the following aspects. First, the major findings are summarized throughanswers to the research questions. Then the theoretical implications of such findings
and the model of Customer Self-Serving Platform (CSSP) are presented. Next, we
discuss the practical implications, where we provide some suggestions forpractitioners. Finally, we suggested how the study and research area could be further
developed.
6.1 Answers to research questions
With the previous work of preceded scholars and our qualitative analysis of researchdata we collected from the case company, the major findings from the above chapters
are summarized through answers to each of the subsidiary research questions and asynthesis in the answer to the major research questions.
SRQ1: Why did the manufacturer have to upgrade customer interaction in themobile Internet era?
First, manufacturers try to keep closer with the customer in order to adapt to thechanging markets toward knowledge and information explosion. With the power ofmobile information technology, customers become well-informed and knowledgeable;
they are not willing to accept experiences that are fabricated by manufacturers.
Increasingly, customers want to shape these experiences themselves or in tandem withother customers. Haier could not meet its customers, so did among the customers,
because in the past it just sold its products to customers through the one-way
transaction. Haier thinks over the relationship with users and is committed to filling
the gap existing in the situation. In order to design popular products and services,
Haier wants to realize the earliest interaction with customers to achieve a solution that
responds to customer wants and needs. As many interviewees claimed, they believe
Knowledge is not created by experts only; instead, everyone can hold great ideas andbe an expert in his/her specific field. When others may think messages Internet users
send are just for show or fun, Haier wants to find useful information and knowledge
via effective interaction.
Second, in mass manufacturing, the traditional development methods were slowmoving comparing with the rapidly changing and diverse customer needs. The
process of traditional manufacturing includes market research, solution verification,
prototype design, new product introduction and mass manufacturing etc. The wholeprocess is irreversible. Facing the diverse needs in the Internet era, Haier judged this124

manufacturing model becomes cumbersome. If Haier takes advantage of mobile
Information technology to make deep interaction with customers, it becomes possible
to realize the timely integration between demand and supply. Manufacturing in theInternet era is iterative. Haier is committed to change the situation of ‘guessing
customer needs’ and instead listen to their voices carefully before production.
Moreover, manufacturers have to interact with customers in the way they prefer. As
smartphones are replacing the two things people have long carried in pockets-keys
and wallets, the mobile Internet has changed the way people interacting with eachother. Social media and social networks are building platforms that can change theway we create- called social production or co-creation. Mobile makes it possible toengage whenever and wherever-which in practice means everywhere and all the time.
Call center solely by telephone, email or face-to-face communication lag behind forlistening to customers’ ideas and getting them involved.
SRQ2: How could it upgrade the interaction with customers?
Haier is well known for the abilities of understanding consumer needs precisely andinnovating rapidly to meet these needs. Customers are always the unchangeable coreresource of Haier.
Haier raises ‘customer interaction’ to the height of corporate strategy. It embeds the
creed “No interaction, no Haier” into organizational behaviors. In the Internet era,customer demands have become the main driving force for service innovation. From
Haier’s viewpoint, the industry 4.0 is not just to replace the human labor withintelligent machines. The revolution needs not only high efficiency but also highaccuracy. This means the first question Haier ask itself is producing for whom. As thedevelopment strategy requires, each employee is asked to know who is his/hercustomers and what values can be created for them
Haier made continuous disruptive management innovation to get the agileorganizational capacity. In order to keep the organization agile, Haier got rid of ten
thousand middle managers and transform the whole organization into a platform
structure. It turns the functional departments into two platforms: a platform forsharing and a platform for driving. It emphasizes the reason that everyone or every
unit exists is more competitive than their counterparts in the outside markets. From2012, Haier has been implementing the networking strategy. It can connect various
resources as an open Internet node, establish a user-centered ecosystem for value cocreation and winning together, and integrate them to add value for all stakeholders.
Through building the open platforms and customer communities, customers were125

attracted to engage deeply in digital, knowledgeable and social ways.
SRQ3: What kinds of service values had been created through these interactions?
Through the new interaction, Haier, its customers and even its relevant partner (co-)
create various service values.
First, Haier could provide customers proactive and cloud computing services. Haier
was using data obtained from sensors embedded in appliances to create innovative
after-sales service offerings such as proactive maintenance to avoid using failures.
Haier provided “automatic diagnosis, automatic feedback and proactive services” tousers on Internet appliances embedded with intelligent sensors. The cloud computing
system could provide customers the solutions whenever they need in their daily life,
automatically diagnose the type of the problem when an exception happens, and send
the information to service providers and users simultaneously. Haier’s Internet
appliances provide timely connectivity with a broad selection of mobile devices,
allowing the user to manage and control home appliances from anywhere in theworld. Users are able to retrieve information and remotely control their appliances
either from home or outside, allowing users to do more and worry less. It also
maintains appliances in good condition and reduces lifecycle cost through the highly
precise detection and proactive services. The system provides the best customer
experience in the whole process of the product lifecycle.
Second, customers could get additional services of knowledge sharing and creationfrom the interactive platforms and communities. No matter the user is a common
customer, a geek, a designer, or even a professional partner, he or she can find his
interesting position and topic in communities. Customers could also utilize others’
knowledge to develop their interests through the interactive communications.
Third, users can get faster and easier services from the business ecosystems. For
example, for the users of smart oven, they can get the package of ingredients insuggested proportion directly through its smartphone APP. The users of smart
refrigerators can purchase the supplementary foods conveniently from the display
window where the services from Haier’s e-commerce partners are embedded.
Finally, customers achieved their self-actualization of their own hobbies or interests
through the interaction with Haier and other customers. The current users, especially
Millennials, have the strong self-awareness and creative ideas to enrich their life.
When their posters are liked and forwarded by other netizens, the users areencouraged positively to create more with the next things. They got the highest
satisfaction they never got before just from product functions. When their ideas

126became products of Haier, their feelings were even more amazing.
MRQ: What new customer interactions did the manufacturer develop to
accelerate servitization strategy implementation in the mobile Internet era?
Start with openness and willingness to be wrong, which helps firms learn from failure
timely rather than being afraid to fail (Shetlon, 2013). Haier states the same belief in
its core values, the customer is always right and Haier should always be self-critical.
It is the basic motivation for Haier to create more customers.
In order to know the customer well to maximize customer value, Haier saw thecreed “No interaction, no Haier” as the strategy for product and service innovation. It
regards customer interaction as the premise of innovation. Otherwise, neither
incremental innovation nor disruptive innovation can ensure its customer value.
First, Haier can keep timely connection with its customers through smart products.
Haier updates its home appliances to Internet appliances. Internet appliances areplaying an important role in happy life solutions in the Internet age. Haier haslaunched a variety of Internet appliances in each of seven smart ecosystems: food, air,cleaning, water, security, entertainment, and education. These products areinterconnected to be the entry for smart life. Haier has seen the data collected fromInternet appliances as the top-drawer data asset in future. These products bring thetimely interaction among machine, human and environment, and collects the datafrom temperature, to energy cost, using time, using place, using habit, air quality andthe like. The knowledge getting from big data informs the creation of new service
offerings and the design of future products.
The interaction for knowledge sharing and value creation is made through open
platforms and communities. Now Haier has eight channels, like online chatting,interactive platforms, and social medias, to provide zero distance service to its
customers and create faster and more direct interaction with its customers. Thesechannels help Haier interacts with one million fans on average per day. It comes up
with over two hundred originalities. Many products, such as “JhuknaMat” refrigerator
in India, Adiabatic icebox without power more than one hundred hours in Pakistan,and Handheld washing machine “Coton”, came from the interaction with customers.
Haier realized the visualization of customer experience in the whole process fromorder to production in its interconnected factories and logistics position. Via the APP,
customers are easy to evaluate its services or make comments. Haier’s performanceappraisal system for service staff is running based on the evaluation from customers,
instead of the previous evaluation from their managers.

127

Haier also proactively involved the outside customer in acting as the creator andambassador for marketing promotion through social networks. Haier utilizes a variety
of interactive activities to innovate its marketing. In the meantime, as an internalmarketing rule, the idea is also implemented. At Haier, it is becoming a rule that if thedeveloper needs additional advertisement to make promotion, it means the product orservice still exist a far distance with its customers. Thus, in the phase of creating ideas
for product design, developers would begin to make deep interaction with customers.
Haier interacts with one million fans on average per day. It is committed to change
the situation of ‘guessing customer needs’ and instead listen to their voices carefully
before production. In the process, customers get brand-new experiences of selfactualization and funny interaction. They used their enthusiasm and knowledge tomeet their own interests that were anything they thought interesting and satisfying.
New value is created solely as a by-product. The new mode of interaction withcustomers forms a positive circulation to maximize customer values: users provide
ideas and needs; micro-enterprises develop and manufacture; users give feedback
timely; micro-enterprises upgrade and iterate products quickly.
6.2 Theoretical implications
The research explores how manufacturers can take advantage of mobile information
technology to change the manner in which they interact with their customers, themanner in which value is created, and the manner in which the servitization is
performed.
Many scholars have argued early involvement with the customer is essential for
manufacturers to design effective services. Customer orientation, as key successfactor of implementing servitization strategy, enables manufacturers to achieve asolution that responds to customer wants and needs. (Baines et al., 2009; Baines andLightfoot, 2013; Oliva and Kallenberg, 2013). The servitization literature lacks theempirical insight and model into customer interaction that would enhanceservitization of an industrial company. The present study tries to respond to that voidin the literature by proposing the mode in Figure 6-1.
When manufacturers commit themselves to design the services and products that
customers truly want, to be effective, they must involve customers as early as possible
in the process. More importantly, customers could participate in a manner that theylike, at any time and at any place they prefer. To meet the two critical factors, it isimperative for manufacturers to take advantage of information technology to create
platforms by which customers are willing to contribute their enthusiasm and128knowledge. The platforms are defined as Customer Self-Serving Platforms (CSSP).
Service is the application of knowledge and skills for another party’s benefit (Vargo
and Lusch, 2008a) and a supporting activity to help an individual or organization toachieve its objective (Kameoka, 2007; Mathieu, 2001). A CSSP is a platform on
which customers can exert voluntary efforts that utilize their knowledge to meet theirown interests. Consequently, added value is created. On the platform, customers are
involved as early and as deeply as possible.
When customers are attracted by something funny or inspired by a vision, many ofthem are willing to make voluntary efforts to engage in what they are interested in.
CSSP meets the emerging situation of customer voluntary involvement in the mobile
Internet era. The CSSP incorporates three parts: ‘Product’, running as one part ofservice platforms to ensure customer digitally engaged; the manufacturer’s open
internet platforms, allowing everyone access to making the contribution and keeping
knowledgeable

engagement;

and

the

SocialNetworking

Service(SNS).

Manufacturers have to embed sensors, chips, and wireless connections into theirproducts and upgrade the product to run one part of a service platform. Application
programming interfaces (APIs) provide a standard means for manufacturers to obtaindata from products. In business, the rising value of data and information in products
and services is being attached more and more importance to. Manufacturers, theirpartners or other stakeholders may have creative ideas and innovative businessmodels on how to use the data to create new values. Advanced customers drive
application innovation by contributing their knowledge to the forum and community
via the Internet platform and various communities. These customers play a leadingrole in the platform and SNS. In the We Media era, customers rapidly spread word of
mouth. All, particularly advanced customers, exert the crucial influence on otherpotential customers. This word-of-mouth has primarily replaced the conventional
marketing functions of manufacturers.
These three parts affect and promote each other. The interactive power brings newopportunities for the manufacturer to extend its conventional single business tovarious ecosystems. In the research, we found the manufacturer builds three
ecosystems:§

Business ecosystem§

Knowledge ecosystem§

Social ecosystem

Around the scenario of customer use, the manufacturer allies its partners to form a129

business ecosystem and provide the total service in use, which brings convenience orbrand new services its customers. Around the innovation of product and service, it
attracts common customers, idea kings, geeks, zealous poster and industrial solution
providers to form knowledge ecosystem, which innovates its products and services
customers really want. Around the marketing, it involves customers to form a social
ecosystem, where customers act as creators and ambassador of interactive marketing.

Open Platform• Interactive platform• Community etc.

Knowledgeable Engagement

Customer
Self-actualization

Digital Engagement

Social Engagement

Product• Sensors• APIsSNS• Peer interaction• We Media

Figure 6-1: Customer Self-Serving IT Infrastructure
The CSSP provides the platform on which customers serve themselves and utilizes
their knowledge to meet their own interests. New value is created solely as a byproduct. It is a process of self-serving and eventually motivated by self-actualizationof customers. The emotional award extends the traditional service concept and as a
new experience adds to the total customer value.
6.3 Practical implicationsFirst, it is time for manufacturers to embed sensors and interconnected miniaturization
to make their products smart. It adds enormous value to the customer experience ofusing the product and attracts a mutually beneficial ongoing interaction.
Second, the closed-door mode of research and development is filled with risks, andmanufacturers should re-evaluate it and upgrade the mode according to their industrial

130situation. With the power of the Internet and new digital technology, manufacturers
are able to timely connect with their customers and business partners and makeeffective interaction with them. This helps them develop the products and services
customers really want.
Moreover, it is the time manufacturers should value the power of platform andecosystem business. For the leading manufacturer, it has the ability and necessity tobuild open platforms to attract its stakeholders together to develop ecosystembusiness. For the ordinary manufacturer, it seems not easy or not necessary to build its
own platform. However, it is necessary to find suitable open platforms and join them.
It can leverage resources it does not own and create a compelling experience forcustomers in a similar way.
Finally, the CSSP is a platform on which customers can exert voluntary efforts thatutilize their knowledge to meet their own interests. Consequently, added value iscreated. In the first two phases of servitization, manufacturers focus on their internal
capacity to design services, based on their own research and assuming it could fulfill
their customers’ needs. Comparing the previous two phases, the CSSP produces
blocks for systems that can change the manufacturer’s business model and the meansof interacting with customers. On the platform, customers are involved as early and as
deeply as possible. It can create a differentiated advantage for the manufacturer andgreat value for its customers. The manufacturers’ benefit is that they are able to be
extracted from the dilemma of servitization. A contrast of the three phases ofservitization is summarized in table 6-1.
Table 6-1: The contrast of three phases servitization
The Phases of Servitization
Features

1st Phase

2nd Phase

Product-Related services

PSS

3rd Phase
CSSP

Role of
Product

Full offering

Key offering

One part of theservice platform

Value
proposition

Product function

Manufacturer-based
solution

Customer-driven
solution

Value Creator

Manufacturer

Manufacturer +CustomerCore
Capacity

Product, cost and brandExpert in the field ofcustomer business

Expert in theecosystem of industry

Risk

Commodity trap

Service costeffectiveness

Platform opennessand viscosity1316.4 Research limitations
This research is based on the study of a B2C manufacturer. The extent to which ourfindings may be extended to B2B manufacturer remains to be explored. Whether thefindings will apply equally in other industrial contexts cannot be stated. However, thedepth of evidence is significant and allows analytical generalizations, which could
lead us to tentative propositions for future research.
6.5 Suggestions for future research
Customer engagement is one key success factor for manufacturers to make effective
service innovation in the mobile Internet era. We present the new concepts and modelon customer interaction including self-actualization and self-serving platform. We
suggest this study could be continued to formulate the questions like how to cope withthe challenges of the self-serving platform in B2B industry.

132

Acknowledgement
First, my particular thanks belong to my supervisor, Professor Michitaka Kosaka,
whose guidance and support from the very beginning to the final phase helped me todevelop the dissertation. It is his advice and expertise that helped me set the right
direction from the first discussion we had in November 2011 until now. Thank myprofessor so much for the patience, motivation and acknowledgment on my researchand life. It has been a personal pleasure and inspiration to know my supervisor by mysides.
In this respect, I here want to also thank Associate Professor Kunio Shirahada andProfessor Katsuhiro Umemoto. They are my second supervisors and give me very
many kind supports. I am very grateful for giving me so many valuable instructions. I
thank all professors and staffs in Japan Advanced Institute of Science and Technology
for giving me the support to complete my Ph.D. research.
I want to extend my appreciation to my examiners: professor Kazuhiko Itaya from
Tokyo University of Agriculture and Technology, professor Mitsuru Ikeda, professor
Takashi Hashimoto and associate professor Kunio Shirahada. They take the time andeffort necessary to provide such insight guidance to improve the dissertation.
To build the customer self-serving platform model in my research, I deeplyinterview Haier-the biggest home appliance manufacturer in the world. The six senior
managers and the coordinator for enterprise-university cooperation discussed with me
repeatedly and helped me even with their busy schedule. In Japan, the senior
managers of Hitachi Construction Machinery Co., Ltd accept my interview and giveme so much helpful advice. I owe deep gratitude to all of you.
I would like to thank all the members in Kosaka-Shirahada laboratory for theirgreat help in my research and daily life. The dialogues and discussions with them arealways a good memory for me. Though many of them helped and motivated me, there
are some special friends whose names I must write down here. Ms. Xu Shuang and
Ms. Cai Jingfang often give me valuable help. Mr. Ashmaoy Amr from the School of
information science always helps me whenever I need. Thank you each of you; it has
been a true pleasure with you.
I have furthermore deeply indebted to JAIST and JSPS for giving me thescholarship or research fellowship in my research. With the financial support, I canconcentrate my efforts on my research. This is a great encouragement for me to study
harder and get the good grade for my study as a special thank for their help.
Finally, my deep gratitude goes to my family for their love and support. I have felt
their strong backup during carrying out this dissertation. I would like to thank my133parents and parents-in-law in China. They are always understanding, caring andsupporting me. I owe deep gratitude to my wife Li Xiaoyan who always stands withme. My daughter and little son always could push me forward with great energy andhappiness. I love you so much. Thank you!

134

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Appendix 1: Interview application and semi-instructed questions(The main points of the content are similar to the Research Questions in thedissertation.)

海尔案例研究-采访提纲研究背景
在互联网知识经济时代，企业无法再以产品或制造的思维模式为客户创造价值。企业传统的生产方式是在内部完成价值创造，然后以交易的方式交付给客户(Value-in-Exchange)。客户在价值创造过程中很少或几乎没有参与，这种产品
主导逻辑(Goods-Dominant Logic)在知识经济下缺乏竞争力并远离客户价值需求。
相反，服务主导逻辑(Service-Dominant Logic)主张，有竞争力的价值创造模式是与客户实现价值共创(Value Co-creation)。企业只是借助产品、技术方案或服务进行价值提议，但企业本身并不决定其价值，价值是由客户决定的(Value-inUse)。
在诸多领域，海尔创造了令全球瞩目的管理思想和管理实践。我对于海尔提
出的“用户交互”有极大的兴趣，我认为它很好地体现了企业与用户的价值共创。
我计划从以下几个问题着手进行研究。
采访问题
1. 海尔是如何吸引和激发用户， 以实现有效交互的？
2. 一般认为，与用户交互，量少时成效较小；而来自用户的个性化建议或
创意数量级变大后，如何管理和利用又成为一个课题，海尔是如何解决
的？
3. 您认为在哪些方面用户能够与企业实现共同创造价值？
4. 您对我的研究有什么建议？
预期采访对象熟悉与用户交互平台运作的员工、主管和经理们感谢您的鼎力支持和帮助！

聂勇
日本学術振興会特別研究員
北陸先端科学技術大学院大学 博士后期课程
手机: (0081) 090-8095-5266 电话: (0081) 0761-51-1111
Email: nieyong@jaist.ac.jp http://www.jaist.ac.jp141Appendix 2: The list of research achievements
International Journal Papers
1. Nie, Y., Shirahada, K. and Kosaka, M. (2013). Value Co-creation Oriented
Leadership for Promoting Service-Centric Business. Intercultural Communication
Studies, 22 (1), pp.216-228.
2.Nie, Y. & Kosaka, M. (2014). A New Perspective on Leadership for Achieving
Servitization of Business. Journal of Management Research, 6(4), pp.50-62.
3.Nie, Y. & Kosaka, M. (2016). Customer Self-Service Platform: The Next Practicefor Servitization of Manufacturing. International Journal of Services and Operations
Management, Vol. 25, No. 2, pp.259-273.
International Conference Proceedings
4. Nie, Y.; Shirahada, K.; & Kosaka, M., “Transforming Leadership for Corporate
Transformation”, Proceedings of the 13th International Symposium on Knowledge
and Systems Sciences, CD-ROM, JSBN 978-4-903092-34-8, pp.81-87, Nomi, Japan,
2012.
5. Nie, Y. & Kosaka, M., “The Emerging Factors on Leadership in Service- Dominant
Logic”, Proceedings of the 18th International Conference of the International
Association for Intercultural Communication Studies, CD-ROM, pp.217- 225, Taiwan,
2012.
6. Nie, Y., & Kosaka, M. “Co-creating vision with employees: The driving force ofcorporate transformation”, The 10th International Conference on Service Systems andService Management, pp.41-46, IEEE, Hong Kong, China, 2013.
7. Nie, Y., & Kosaka, M. “Managing the process of value co-creation withcustomers”, The Third Asian Conference on Information Systems, pp.470-476, Nha
Trang, Viet Nam, 2014.
8. Nie, Y., & Kosaka, M. “Taking Advantage of Information Technology to Involve
Customer in the Process of Value Creation ”, The 4th International Symposium on
Business and Social Sciences, pp.392-398, Hokkaido, Japan, 2015
9. Nie, Y., & Kosaka, M. “Building Customer Self-Service Platform: The Next
Generation of Servitization in Manufacturing”, The Fourth Asian Conference on
Information Systems, Penang, Malaysia, ss1-5, pp1-8, Penang, Malaysia, 2015.
Domestic Academic Conferences
10. Nie, Y.; Shirahada, K.; & Kosaka, M.,“The Variation of Relationship between
leadership and Followership,”Proceedings of Technical Meeting on Information
Systems, IEE Japan, IS-12-001-021, pp.37-42, Kaga, Japan, 2012.
11. Nie, Y. & Kosaka, M. “Building Customer Self-service Platform: An Effective
Approach for Servitization”, Society for Serviceology, Poster Presentation, Kanazawa,
2015

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