There are, in fact, two Japans. One is the highly competitive Japan, the country familiar to Westerners. It consists of relatively few export industries for an economy as large as Japan's, such as cars and consumer electronics. Government has played a surprisingly small role in the success of these industries. The other Japan consists of a far greater number of uncompetitive industries, such as agriculture, chemicals, consumer packaged goods, and many types of services; and inefficient domestic industries, such as transportation, construction, and energy. Many are protected by trade barriers and other government policies. The more Japan protects, the more the economy becomes bifurcated.
Protectionism drives up the Japanese cost of living. What is less well understood is that it also drives up the cost of doing business, and harms the competitiveness of the rest of the economy. Construction costs are too high. Logistics costs are too high.
So what do Japanese companies do? When they expand capacity, they don't expand in Japan, but overseas. So you see large Japanese investment in Malaysia, Singapore, China, and elsewhere in the world. Investment in Japan has been stagnant, because the economic sense of further capacity in Japan was compromised.
There is a growing recognition that these problems are structural, not financial. But there has been a lack of political will, as well as governmental consensus, to go forward.
Let's talk about the Japanese management model. What's right, and what's wrong, with the model?
What's right is the concept that a company has to continually improve cost and quality. It has to incorporate every new technology and new idea that advances best practice. That's what I call improving operational effectiveness.
These are ideas such as total quality management, continuous improvement, and just-in-time.
Yes. All those are best practices, better ways of organizing production, reducing defects, improving efficiency, and so forth. Japanese companies taught the world how important these approaches were. The problem is that when you are competing on operational effectiveness, it's very hard to sustain an advantage, because everybody, of course, tries to imitate. The Hewlett-Packards and the Motorolas studied very carefully what the Japanese companies did, and they started implementing those practices themselves.
In two respects, American companies surpassed the Japanese. One was to more aggressively deploy information technology. Japanese companies were chronically slow in incorporating information technology, and they remain behind.
The other way that American companies surpassed Japanese best practice was in understanding the customer and segmenting markets.
What's wrong with the Japanese management model?
Japanese companies are weak at strategy. In fact, most companies don't have strategies. Essentially, they are competing on best practice.
Isn't pursuing market share a strategy?
Market share isn't a strategy. Market share might be a good thing to have, but not necessarily. In some industries, having the largest market share is the least profitable position, because of powerful large customers or the presence of substitutes.
How do you define strategy?
I define strategy as the choice of a unique mix of value, or unique value proposition. "Choice" doesn't mean that you have figured out the universally best way to compete that your competitors should imitate. Choice is where you make trade-offs. Where you decide, for example, that you are going to become incredibly good at manufacturing computers to order that are essentially marketed over the phone and over the Internet. Customers that want intensive service, to be able to go to a showroom or a retail center, are not served. That is a trade-off: in order to deliver one kind of value, you have to give up delivering other kinds of value.
The sign of a strategy is that a company sets limits--it is not trying to offer everything to everybody. Japanese companies, with very few exceptions, don't have strategies in that sense of the word. They try to maximize market share and grow as rapidly as they can. That leads them to enter every product segment, offer every feature and service, and imitate relentlessly anything that their rivals offer.
Why does that happen?
The first reason it happens is the goal structure. There is little corporate-governance pressure--the board in Japan has no outsiders, and shareholders have little power--so Japanese companies never had to earn high returns. As long as they made an acceptable profit and weren't on the verge of bankruptcy, that was OK.
But aiding and abetting that lack of strategy are two other conditions. One is a style of decision-making in which everybody has an equal say. If there is no clear leader and nobody to decide, then a company ends up doing everything.
The final condition is the keiretsu structure. A keiretsu is a group of companies bound by ownership interest. If you are owned by a family of other companies, there are pressures to serve sister-company needs. If you have to serve all their needs, and if your keiretsu has 100 companies, it's hard to have a strategy.
Reader Comments» Post a comment