Highly Adaptive Abroad, Japanese Firms Struggle to Integrate Global Best Practices at Home
[Editor's Note: With many thanks to the author for his insight, we conclude Shawn Beifuss's series on Japanese business management practices. Part I may be found here; Part II, here.]
Fast forwarding from my departure from Denso in 2002 to today, and I currently have spent just over one year employed with a Japanese logistics provider based in Tokyo. Operating in the middle market and family-owned since 1924, this firm’s work environment illustrates the fact that the majority of Japanese companies—primarily the 2nd and 3rd tiers—have been heavily insulated domestically from learning the lessons that firms like Denso have by venturing abroad in the late 1980’s. Especially in the Japanese trucking industry, which is fragmented amongst approximately 60,000 firms, the traditional approaches to strategy management and human resource management remain entrenched.
This traditional style of strategy management possesses a decision-by-committee orientation that encourages highly iterative versus transformative initiatives. By iterative initiatives I refer to activities that seek to improve upon past practices without a significant change in management structure, systems and philosophy. Transformative initiatives on the other hand typically require a paradigm shift where the perceptions of and approaches to a firm’s current business realities experience foundational change. In the iterative environment, improvements can “get by” through reliance on the homogeneity of the Japanese workforce to bond together towards a common goal. This approach doesn’t employ communication tools that explicitly link a pronounced strategy or policy to individual objectives—it is assumed “the group” collectively understands their role in relation to policy announcements.
Obviously, such an iterative approach requires a longer time horizon to effect change; in this context, human resource managers can feel at ease with the traditional seniority-based system that defers to length of employment or age level. Training in such an environment also follows an iterative approach—absent any external effort, employees learn at the pace of the firm. In the past, when Japanese firms could rely on a lengthy if not lifetime period of loyalty from their employees, this system made sense or at least was sufficient. But the Japanese employment picture of today has changed dramatically, and Japan’s 2nd and 3rd tier firms along with the Japanese tertiary educational system are struggling to keep up. Data released earlier this year on the program “Up Close” via NHK, Japan’s public broadcaster, showed that more than 30% of all new employees freshly graduated from college quit their job within three years.
From my experience working in my current firm and discussing this trend with our own new employees just out of college, as well as with friends working in other companies, it seems that the following conditions generally exist:
1.) Lack of fundamentals upon university graduation: The majority of university students in Japan graduate with very few of the skills necessary to be successful employees via their own resources. The university system is such that it is still generally based on the old system of deferring to companies to train and educate the workforce to be productive and successful.
2.) Poor utilization of new human capital on-the-job: Since a significant number of graduating students no longer enter companies with the expectation of seeking lifetime employment or with the loyalty traditionally expected of new recruits, a mismatch between training and employee placement occurs. The result is many university graduates learn on the job at a pace below their abilities—I estimate anywhere from only 30-50%—and quit the firm before the company is able to maximize the contribution of that employee—this in a period of 3-5 years. As an example, one ex-coworker of mine spent three years in the finance department but, after leaving the firm, realized in later interviews that his knowledge of financial management and financial tools significantly lagged his peers of the same age.
3.) Death spiral of low expectations hindering corporate performance: With a significant number of new employees lacking the discipline and resourcefulness to self-educate and the majority of Japanese firms lacking the training systems to maximize employee contribution, there is an increasing trend of looking outside the firm for managerial talent. Often, these management hires are older workers forced into retirement in their 50’s and 60’s by larger firms restructuring or descending from the hiring firm’s own customers. In this case, the often lack of knowledge of the firm and its services/products upon employment ensures at least a short-term drop in corporate performance. At the same time, lower-level employees become more and more discouraged with a system that fails to provide dynamic personnel development and promotional opportunities that match pace with the challenges of today’s rapid globalization. A death spiral ensues where the firm continues to rely on older employees with a lack of practical and current business knowledge for management positions while these managers are considerably negligent in developing younger employees to eventually replace them.
The top-tier firms manage to hold their own in terms of training and have done a great deal to adapt to globalization and the use of global best practices. As the first and only Westerner to be hired in my firm, I am attempting to change the approaches and perceptions described above one step at a time. But these types of firms can hire the best talent in the world and they will be relatively marginalized or fail because they work in a system that does not identify, maximize and reward talent. Rather, a system that does cultivate talent in the appropriate manner can turn ordinary employees into stellar performance contributors.
Even being constrained by the type of system described above, I feel my Western education has cultivated in me the resourcefulness and discipline necessary to educate myself as needed to reach my professional goals. I honestly believe that one reason Westerners excel in innovation and leadership more quickly upon entering the workforce than many Asian employees is due to the Western tertiary education system. Although the students of Asian countries excel at the high school level in the testing of math and science knowledge, the majority of these students fall far behind at the tertiary level—in essence, the critical thinking and intensive focus on individual excellence that drives Western education is very absent in Japan’s universities. The difference can be clearly seen when comparing Japanese who have studied overseas at the university level versus the majority of their peers back home. So as a Japanese university student, if the first firm I work for upon graduation is not going to provide the foundation for success, it is up to that student to make-up the gap in moving along the learning curve. Unfortunately, from my experience so far, this perspective and skill set is difficult to transfer to my co-workers without being in a position as their direct superior.
Gradually, as more and more Japanese domestic firms realize that having a domestic-only business doesn’t exclude them from responding to the demands of globalization, those firms are demanding more from their management systems—especially such tools as metric-based performance measurement. This change will be painful and those Japanese firms that don’t initiate such a transformative effort will find themselves acquired by companies that will force it upon them, or gradually fall into bankruptcy, ceasing to exist. The strength of Japanese companies overseas, especially in the automotive industry, illustrates that it is possible for Japanese firms to succeed when the environment demands it. For Japan’s numerous domestic companies, it is of great importance to benchmark these success stories towards transforming their employee management syste
