Thursday, November 04, 2010

Rethinking Japanese Management

Japanese management needs a Japanese-management-style rework. Simply put, some of its strengths have become a dangerous weakness. But other strengths could form the basis of Japan's future emergence.

How so? What brought America’s attention to Japanese style management was Japan’s evolution into a powerful economic rival to the U.S. in the 1980s. What management scholars found when they studied Japan was a set of powerful management principles:
  • A spirit of continuous improvement;
  • A so-called Convoy system in which large, manufacturing-based enterprises created closed networks of suppliers and distributors;
  • Close attention to details of product quality supported by cross-functional communication;
  • Linking a detailed understanding of customer needs with a work environment that motivates workers to satisfy those needs;
  • A willingness to learn from competitors’ best practices;
  • A system of lifetime employment that passes down wisdom from more experienced employees; and
  • Government-directed industrial policies which create controlled Darwinism by spurring the emergence of fierce competitors in targeted industries.
But the flip side of these positive aspects of Japan’s management skill is a set of historical weaknesses, according to the Japanese Association of Corporate Executives, including:
  • A lack of an international perspective leading to weakness in diplomacy;
  • A tendency to base decisions on emotional factors;
  • A conformist mentality: “hammering down the nail that sticks out;”
  • Insufficient self-reliance and independence; and
  • An ostrich mentality -- when faced with challenges, an instinct to simply hope that things will turn out alright in the end.
Since Japan’s bubble burst in 1989, its economy has spent two stagnant decades during which the world has lost its fear of Japan. Since then, Japan has gone from the second largest economy to the third. And one of its largest companies, Toyota, continues to be mired in quality problems that threaten a core aspect of its franchise – the idea that it makes the best quality vehicles for which it can charge a price premium.

Nevertheless, many Japanese management principles still make sense. Of these, the spirit of continuous improvement coupled with a desire to keep learning can form the basis of Japan’s economic revival.

To revive economic growth, Japan needs to lose some of its traditional management principles. For example, the convoy and lifetime employment systems lock Japanese companies into inflexible relationships that make it difficult for them to respond to new technologies and to emerging competitors. Japan must also become more international and learn to confront problems instead of hoping they’ll go away.

Nevertheless, there are fundamental tenets of Japanese management which remain relevant around the world. Of these, the four most important ones are as follows: 
  • Linking a detailed understanding of customer needs with a work environment that motivates workers to satisfy those needs. This remains a useful principle, but leading companies are taking it a step further. Instead of merely listening to customer needs, these leading companies are getting ahead of customer needs by thinking about the future trends that will change the lives of their customers’ customers. By thinking about such trends, leading companies come up with new products that anticipate the trends and position their customers for market share gains. The leading companies can, in turn, build an organization that supports those products.
  • Close attention to details of product quality supported by cross-functional communication. This principle continues to be important – particularly for products and services where customers value extremely high quality. In this, Japan remains unparalleled. Unfortunately, Toyota lost its way when it came to quality because it decided to put rapid growth ahead of the need to transfer the quality mentoring process across management generations. But those quality principles still make eminent good sense.
  • A willingness to learn from competitors’ best practices. This scholarly approach to competitors can be very useful – but also risks being a trap. If this analysis is used to identify opportunities to outperform competitors in satisfying customer needs, then it will help companies to gain market share. If the competitor analysis is used merely to keep pace with these competitors, it could be a waste of time.
  • A spirit of continuous improvement. Continuous improvement could be the core of Japan’s economic emergence if that spirit is applied properly. And it is a principle that companies around the world ignore at their peril. Specifically, Japan needs to turn that spirit of continuous improvement inward to examine the root causes of its two decades of economic stagnation. Moreover, it needs to do something uncharacteristic – which is to confront these causes boldly with creative solutions. From there, it can develop strategies that boost growth. The rest of the business world could do far worse than to emulate this key principle of Japanese management.
These days, the U.S. seems keen on avoiding the many economic policy mistakes that have mired Japan in two decades of deflation. But the world business community owes it a debt of gratitude to Japan for its management innovations -- and these four principles continue as a beacon to managers everywhere.


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