Week 47, 2021—Issue #179
Haier’s WWVA: Value-Added Statements, Lifetime Customers, and Ecosystem Growth
Each week: three ideas on and about the future of work. This week: three ideas on Haier’s Win-Win Value Added statements. Originally published in the WorkMatters newsletter on Nov 26, 2021.
Customer centricity is an often extolled virtue these days. We tell stories about organizations that empower people to resolve customer needs, no questions asked. And we celebrate practices like that of Amazon which famously reserves a seat for the customer in each and every meeting.
Anecdotes like these can tell us what customer-centricity looks like, but it doesn’t tell us where it comes from or how it’s built. And that’s what I want to focus on today. Specifically, I want to introduce the Win-Win Value Added Statement (WWVA) that Haier uses to capture customer value.
Let’s dig in.
1. Value-Added Statements
Haier’s WWVA is a type of Value Added Statment (VAS) — a financial statement that depicts wealth created by an organization and how that wealth is distributed among various stakeholders. The concept dates back to the 1970s but isn’t widely used… at least not outside Haier. Within Haier, it’s considered a critical piece of the performance puzzle — on par with the balance sheet, income statement, and statement of cash flow. Haier’s WWVA differs from the ‘traditional’ VAS in (at least) two fundamental ways:
2. Lifetime Customers
First, the WWVA is actually not strictly a financial statement; it includes both financial and non-financial components. An example of the latter is how the WWVA categorizes revenue — not by product, service, or customer segment, but by loyalty. Specifically, it asks that we define and distinguish between revenue earned from transactional customers, interactive customers (i.e., customers who partake in the product development process), and, most importantly, lifetime customers.
3. Ecosystem Growth
Another difference from traditional VAS statements is that the WWVA depicts wealth created not just by the organization itself, but the ecosystem in which that organization operates. In fact, the entire purpose of the WWVA is to grow the ecosystem. It’s the not-so-secret secret of Haier’s success: their focus on ecosystem growth has enabled them to keep at bay the law of diminishing marginal utility — thus increasing the marginal income per customer as the ecosystem expands.
Customer centricity is often said to be embedded in organizational culture. You either have it or you don’t. And if you don’t, you need to find ways to change that culture. And that’s easier said than done. But I think Haier’s WWVA provides a compelling answer on how to make that cultural change.
I’ve written previously about the futility of trying to affect cultural change through direct intervention. Indeed, I believe culture equates to behavior and that behavior is a product of mindset which, in turn, is a product of environment. And so to effect change, we must start with the environment.
The WWVA is a practice. And as such, it’s a part of the environment in which Haier’s various organizational units operate. There are no targets handed down from up above. There’s simply a practice that makes clear that Haier cares about value creation — for customers as well as for the ecosystem as a whole.
That’s all for this week.
Until next time: make it matter.
/Andreas
PS. Unless it’s obvious, I’m barely scratching the surface of everything that is the WWVA. If you are curious to know more, I recommend reading THIS overview from Corporate Rebels (you’ll find a section on WWVAs halfway through the document). And if you want to go deep, check out THIS article from Strategic Finance magazine. Last but not least: for more on Value Added Statements in general, you’ll find a good write-up HERE, complete with historical context.
