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August 22, 2006

Reflections on Transitions in Japanese Business Practices from the Bubble Era to Today (Part II)

[Editor's Note: Today's post is the second in a series by Shawn Beifuss of Asia Logistics Wrap. Shawn continues his discussion of Japanese business management practices begun here.

On the subject of Japanese transformations, you may also wish to read "Major Legal Reforms Expected to Bring Wave of New Lawyers in Japan."]

After graduating from college and entering the workforce in the summer of 1998, I discovered that Japan’s leading companies were learning to adapt in markets outside of Japan quicker than many might have realized, or wanted to believe, in the Western business community. What opened my eyes was a four-year stint working for Denso Corporation as a production engineering liaison. Denso is arguably the world’s current leader in the auto parts industry and Toyota’s lead supplier. I worked in Denso’s Battle Creek, Michigan plant, Denso Manufacturing, MI (DMMI), where approximately 2600 American employees are currently led by a mix of American and Japanese management. The facility was the first established in the USA by Denso in response to Toyota’s own venture into Kentucky, and began production in 1986. A book titled “Small Town, Big Corporation” about the story of DMMI’s establishment is an excellent case study to read, but unfortunately is out of print and difficult to find. However, the point I want to make is that even while the Japanese corporate system was being advocated during the 1980’s and oppositely criticized throughout the post-bubble period, Denso was already establishing a hybrid of American and Japanese best practices at Battle Creek that would become the foundation of its strong business success and resiliency across North America throughout the 90’s and into the 21st Century.

As a liaison, I witnessed on a daily basis the tension of such a hybrid management system, but at the same time observed the characteristics that made the company quite adaptive and competitively stronger than American suppliers, such as Visteon and Delphi. This can be seen in the firm’s resilience and upward trajectory throughout the automotive industry’s struggles post-IT bubble and the 9/11 terrorist attacks—a period during which its customer base was almost 50% non-Toyota auto makers. Steeped in the principles advanced by Toyota via the Toyota Production System, Denso’s management succeeded in bringing about a culture where the predominantly American workforce adopted Japanese best practices and vocabulary in terms of team-driven, quality management and continuous process improvement. For example, words like kaizen, genba and heijunka do not need translation (continuous improvement, work floor, and leveling, respectively). Americans work alongside Japanese peers for every production line start-up and regularly participate in global innovation and quality circle tournaments sponsored by Denso Corporation headquarters.

At the same time, the predominantly Japanese management developed the ability to lead with the performance-based incentives and directness desired by American employees. Every Japanese president has been known to make regular visits to production lines to converse with employees; management feedback forums are held once per month so that employees can directly bring concerns from the genba to DMMI executives; and a famous process improvement incentive program supports individual kaizen suggestions that save DMMI money, but also over time provide employees with increasingly bigger rewards—the largest prize being a completely new, personally selected automobile via a DMMI customer. DMMI was able to do this through a unique co-management system where American managers pair up with Japanese transplant managers up to the vice president level (the president is always Japanese). Despite regular, ongoing tension regarding information sharing between Japanese and American managers, DMMI has been able to capture the strengths of both cultures in a management system that provides regular reviews, transparency, and a dedication to employee development and empowerment that has made the firm truly a model place to work.

Stepping back to the see the bigger picture, however, these advances by Japanese firms operating abroad often face barriers toward being modified and adopted, even partially, for Japan’s domestic business environment. My next post will look at some of the key challenges domestic Japanese operations face and provide some thoughts to remember for future discussion.

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