IHT Article on Japanese Business Practices

It hardly seems coincidence that following my series of posts on Japanese business practices, published at Asia Business Intelligence, there was an article published in the International Herald Tribune eerily similar in content and theme. Titled "Made in corporate Japan: New approach to business," the article is written by Patrick L. Smith and contains some nice quotes from a variety of people that complements my own writing. On the other hand, I believe the article leads to conclusions that rely too heavily on evidence from Japan's 1st tier companies.

Interestingly, Mr. Smith quotes Mr. Abegglen, the author of Kaisha, the book I mentioned in Part I of my article:

"A lost decade? Nonsense. A painful transition? Yes," said James Abegglen, chairman of the Asia Advisory Service and an expert on Japanese corporate organization. "Companies have done what had to be done to redesign themselves. They've retained basic values while changing what had to be changed."

Being one of the authors of Kaisha, I doubt Mr. Abegglen could be expected to use the "lost decade" label. But, not all Japanese companies have "retained basic values while changing what had to be changed." In reality, I believe the majority of Japanese companies are "trying to retain basic values while also attempting to change what has to be changed" and thus the foundation of corporate Japan and society--what I argue is found in its 2nd and 3rd tier businesses--is still enduring this painful transition.

Next, Mr. Smith goes on to discuss the "hybrid management system" that I illustrated via my personal experience on the ground:

With Japan now recovering, what is emerging here is a hybrid management strategy that is partly Japanese and partly Western, or a kind of "third way" in the corner office. Executives, management experts and consultants say this is producing a reinvigorated corporate sector that is more focused on primary businesses, better able to maximize human capital, more dedicated to advanced technologies such as robotics and second to none in cost-effectiveness.

The example used by Mr. Smith, Toyota, is of course the company from which Denso, the company I worked for and discuss in my article, was born:

The corporate ideal as this hybrid takes hold here is Toyota, Japan's leading auto maker. Company executives, notably the chairman, Hiroshi Okuda, have long been known for their cutting- edge management methods even as they espouse Japan's traditional corporate principles. Companies should not devote themselves solely to profit, Okuda said often during his just-ended tenure as head of Nihon Keidanren, the leading business association here - they are also social institutions with obligations to the communities in which they are embedded.

I think the oversimplification here of Western, particularly American, businesses being solely profit-driven without regard for communities is unhelpful. Toyota and Denso management ratios in the USA are heavily American, an environment which hasn't been a hinderance to the firms' success. This suggests that American management can be very flexible in balancing the profit motive with a more holistic focus on corporate health.

The below paragraph on Toyota helps explain Denso's parallel success as Toyota's #1 supplier throughout Japan's down period:

With aggressive overseas expansion and shrewd product development, Toyota weathered the years of sluggish growth at home as well as or better than any other Japanese company. In the last fiscal year, which ended on March 31, the company increased capital investment by 41 percent to ¥1.53 trillion, or $13.1 billion. In the three months to June 30, the first quarter of its current fiscal year, it reported a 39 percent rise in profit to ¥371.5 billion.

As I illustrated in my article, the actual execution of the expansion and product development mentioned above was key for Denso, as well as Toyota--establishing a human capital management system that could assimilate via leveraging the best aspects of American people and culture melded with Japanese business principles, particularly those in manufacturing.

The quote below stood out to me as referencing my point about the competition that comes with globalization and how Japan's 2nd and 3rd Tier companies are no longer as protected as before by market barriers erected by the Japanese government:

"We used to hear all about Japan as No.1 and the virtues of Japanese management," said Shin Kanada, Toyota's senior managing director. "Then in the 1990s the pendulum swung the other way. I'm a little jaded at this point. Of course culture and tradition are factors, but what determines management strategy is what has always determined it, and that's competition."

Thus, as I concluded, domestic Japanese companies have to adopt almost global strategies even while confining themselves to operating only within Japan. As a result, this phenomenon complicates statements such as the one made below:

Fujio Mitarai, the president and chief executive at Canon, who recently succeeded Okuda as the head of Keidanren, is noted for drawing a distinction between the global and local aspects of corporate management. The new-look Japanese company, according to Mitarai and other executives, accepts world standards in terms of balance sheet and cash flow management, transparency and cost controls while preserving Japanese practices in areas such as employment and close ties to suppliers.

While I have long agreed on the enhanced supplier relationships developed and cultivated by Japanese firms, my experience is in fundamental disagreement with preserving practices in employment. I am not talking about pure numbers and length of employment, or even severance practices--my focus is on how employees are recruited, trained, developed and retained.

The hybrid management model now emerging carries with it a fundamental truth, executives and consultants say. No company can incorporate import ideas without reference to the society in which it operates. The machinery company Fujitsu, for example, briefly adopted an across-the-board compensation system a few years ago based on performance instead of seniority. When the only tangible results turned out to be frustration and conflict among employees, Fujitsu soon dropped the new system.

I am also not arguing that Japanese-Western management practices are zero-sum--I believe also in the hybrid model.

"An Anglo-American method such as this it assumes employees can manage themselves independently and place the highest value on financial reward," said Shintaro Hori, the chairman in Japan of Bain, the global consultancy. "It doesn't succeed if people are trained differently and have different values. Pursuing financial interests alone is not a virtue here - it's a negative."

Again, I believe the "pursuing financial interests alone" meme is a misunderstanding of Western business practices today. But if you live and work in Japan today in the 2nd and 3rd Tier foundation of the Japanese economy, you will see that the way people are trained is not in tune with the Japanese society and culture of today. So while a complete introduction of Western management tools may be a mistake, retaining human resource management practices already exist in their complete form also does not address and adapt to the changes in Japanese society that I described in my article and that I see and hear about every day.

Many analysts say they expect Japan's emerging management model to have a significant impact on its presence in world markets. "Coming out of this are highly sophisticated companies that will keep Japan a manufacturing nation far longer than, say, the United States or Britain," said Abegglen, the chairman of the Asia Advisory Service.

I touched on this phenomenon in my post on Toyota in China utilizing American management methods.

In the end, the hybrid management systems that came from larger Japanese companies adapting overseas will lag in implementation at Japan's 2nd and 3rd tier businesses. Companies in industries that have strong international linkages--such as manufacturing and logistics--will face the most immediate threats in terms of competition even if they don't operate overseas. Managers in these firms must not only understand the positioning of their business in the domestic market, but also how it relates to the global market and the markets its customers compete within. Simultaneously, this contextual knowledge must be passed onto employees towards better training and cultivation in facing such a dynamic environment versus what Japanese firms experienced in the isolated Japanese markets of the past. Lastly, in my opinion and iterated in my article, this training and development must occur more quickly with more accurate placement of people in the right roles and positions.

Comments

[Rob Parrish]

Shawn -

Just back from a week at the beach and need to catch up on my reading of your blog. Meanwhile, I just got a message from the guys at 3PLWire. Their hosting company has had a major melt down and their blog is completely gone. They are temp blogging at:

http://3plwire.blogspot.com/

Drop 'em a good word, if you get the chance.

Rgds,

Rob