Re-Conceiving Japanese Management for the 21st Century--Identifying the Ideal Form for Japanese Companies at the 11th Topos Conference

On September 22, 2017, the 11th Topos Conference was held at Academyhills (Roppongi Hills Mori Tower). Hosted by the World Wise Web Initiative (w3i), a research organization, the Topos Conference is a series of international conferences by which people from industry and researchers gather to discuss solutions to global challenges. Topos means "place" in Greek.
The 11th Conference took up the theme of "Re-Conceiving Japanese Management for the 21st Century" in order to discuss Japanese management, once praised by Peter Drucker, a leading expert in business administration.

Opening

HondaJet and Innovation

Video message from Michimasa Fujino, President & CEO, Honda Aircraft Company, Inc.

The 11th Topos Conference began with a video message from Michimasa Fujino, President & CEO of Honda Aircraft Company, Inc.

Honda Aircraft Company is headquartered in Greensboro, North Carolina, U.S.A. The company is responsible for the design, manufacturing, sales, service and support of the revolutionary HondaJet. The HondaJet incorporates many technological innovations in aviation design, including the Over-The-Wing Engine Mount (OTWEM) configuration, which has won various awards as a significant innovation in aviation industry. Additional aeronautical breakthroughs such as Natural Laminar Flow wing and nose, composite fuselage structure and advanced avionics enables the HondaJet to achieve its superior performance, efficiency, quality and value. In December 2015, the HondaJet was awarded type certification from the U.S. Federal Aviation Administration (FAA).

"Our thorough efficiency in organizational operation has enabled a small team of 40 people to build the most advanced light jet in the world. We are proud of obtaining the FAA type certification and successfully entering the service. This achievement is not only valuable for our company, but also for the entire aviation industry. Honda Aircraft Company now employs over 1,800 people with customers around the globe enjoying the benefits of operating their HondaJets," said Mr. Fujino.

What is Japanese Management?

Drucker identified the following four features of Japanese management:
(1) Effective decisions based on consensus
(2) Flexibility of the labor force by a seniority system
(3) Acceptance of change by continuous training
(4) Development of young professional managers

Video message from Ikujiro Nonaka, Professor Emeritus, Hitotsubashi University

At the start of the conference, Ikujiro Nonaka, a Topos Conference founder and professor emeritus at Hitotsubashi University, explained that the reason why Japan achieved astounding economic growth immediately after its defeat in the war lays in unique Japanese-style management that focuses on continuous improvement.

However, he noted that because of the loss of confidence that followed the traps of success and the challenges of the burst economic bubble, Japan itself rejected Japanese-style management, which had been its strength. He explained that phenomena such as over-analysis, over-planning, and over-compliance are having an adverse effect on the vitality of Japanese companies today.

Next, he remarked that this Topos Conference would discuss how to rebuild the "intellectual mobility" of Japanese management and what shape Japanese companies should take as well as how they should proceed in the 21st century.

Topos 1: Japanese Management in the Age of Innovation

The 11th Topos Conference was conducted in three sessions.
In the first session (Topos 1), under the theme of "Japanese Management in the Age of Innovation," Dr. Richard Straub (Founder & President of the Peter Drucker Society of Europe, President of the Global Peter Drucker Forum) and Ms. Teiko Kudo (Managing Executive Officer, Sumitomo Mitsui Banking Corporation) took the podium.

The Importance of Entrepreneurship

Richard Straub, Founder & President of the Peter Drucker Society of Europe, President of the Global Peter Drucker Forum

In this session, Dr. Straub first talked about the importance of entrepreneurship according to Drucker's management theory. Entrepreneurship is the willingness to create new businesses by boldly taking big risks.

Dr. Straub stated that in European art, historically everyone in an era followed the same principles and tendencies, which limited innovation. On the other hand, Japan has a different history.

As an example, he cited culture and society during the Edo period: at that time, diversity included various schools and imitators from which many innovations were born. He explained that together, "diversity" and "conformity" created a good tension throughout the whole of society, and this dualism led to a strong tendency to innovate.

Though startup companies are often referred to as typical examples of innovators, Drucker wrote in one of his later books that, "It is not only startups that make innovations happen." He explained that human beings made rapid advances thanks to entrepreneurship, predicting that entrepreneurship was important for everyone and that entrepreneurs with different backgrounds from those of the past, such as housewives and students, would appear in the future. According to Dr. Straub, such an entrepreneur society is nearly upon us.

In addition, "Japan is the country Drucker regarded most highly. In order for Japan to really be like 'Japan,' it should pursue that which matches Japanese human relations and the country's spirituality. That is the right way for Japanese companies to proceed in the future," Dr. Straub said, concluding his presentation.

Efforts to Create a Space for Open Innovation

Teiko Kudo, Managing Executive Officer, Sumitomo Mitsui Banking Corporation

Next, Ms. Kudo presented initiatives for innovation at Sumitomo Mitsui Banking Corporation (SMBC). SMBC is implementing various measures while considering how it can adapt to the changes happening now and achieve sustainable growth together with customers.

One initiative is the "Triple I" (Incubation & Innovation Initiative) business consortium that encourages collaboration among different industries to provide a place for open innovation.

The consortium was established in February 2016 by SMBC and the Japan Research Institute to support commercialization of highly innovative technologies and business ideas that will become the foundation of Japan's strategic growth. Its activities include support of technology and business idea commercialization as well as research and study of legal systems and policy design recommendations. The consortium has set up various subcommittees and promoted projects where companies in different industries collaborate with each other, including those working on new technologies such as blockchain, future town planning, robots and AI, and IoT (Internet of Things).

In addition, SMBC holds the "Mirai" pitch contest for startup companies. Approximately 100 venture companies participate each year. The Bank is also strengthening its support system for business partners by promoting open innovation support for venture companies and large- and medium-sized companies through partnerships among industry, government, and academia.

SMBC has invested in approximately 30 venture capital companies with expertise in various industry sectors, such as manufacturing, IT, agriculture, biotechnology, and healthcare. SMBC has also established a support system that facilitates seamless collaboration among group companies, including the Japan Research Institute, SMBC Venture Capital, Sumitomo Mitsui Finance and Leasing, and SMBC Nikko Securities. Meanwhile, it is working to develop an external network with the aim of building an ecosystem that supports discovery and development of venture companies.

SMBC has also established a Social Impact Bond (SIB) to solve social challenges in Japan. SIB works to reduce medical expenses and administrative costs, and it has already helped promote Kobe City's diabetes aggravation prevention program.

SMBC released a financial application programming interface (API) through which the Bank and its business partners collaborate to provide a variety of services, combining their respective information and services.

The discussion after the two speakers' presentations concerned the current challenges facing the realization of an entrepreneur society. Ms. Kudo said, "Innovative ideas to solve social problems are born through companies' efforts to increase dialogue with individuals, communities, and governments as well as to get governments and individuals more involved."

Drucker noted that the Japanese corporations have a high intellectual level but a low intellectual productivity. Dr. Straub said this exactly expresses Japan's current situation, commenting, "In an entrepreneur society, opportunities that have never existed before will appear, and innovations are necessary to turn such opportunities into reality."

Topos 2: Fundamental Values and Systems of Japanese Management

In the second session (Topos 2), under the theme of "Fundamental Values and Systems of Japanese Management," Professor Steven K. Vogel (Professor, University of California, Berkeley) and Dr. Takeshi Nakano (Critic) took the podium.

Features of the Japanese Management Model

Steven K. Vogel, Professor, University of California, Berkeley

Professor Vogel presented the advantages and disadvantages of the Japanese management model from the viewpoint of a US researcher. He characterized Japanese management as a "stakeholder-focused model" that "favors stakeholders over shareholders and long-term growth over short-term profits, and relies on cooperative ties with workers, banks, and business partners."

When the bubble economy collapsed in the 1990s, the Japanese government and industry attempted to shift to the "shareholder model" typical in the United States. However, the Japanese model did not converge on the US one, but gradually underwent reforms. These reforms, which were promoted in a non-compulsory way while expanding choices, included shifting to in-house company systems, forming holding companies, introducing stock options, restructuring boards of directors by adopting the executive officer system, and appointing of outside directors. However, according to Professor Vogel, all of these were incremental reforms.

In response to the question, "Should Japanese companies have adopted the US model?" Professor Vogel replied no, because academic studies have found many typical features of the US model--such as stock options, share repurchasing, M&A, and hostile takeovers--to be "ineffective in improving corporate performance."

Asked "Do you mean that Japanese companies do not need to reform?," he also said no, because they "must adapt themselves to the international situation." Specifically, this new reality includes the following developments:

  • Changes in population dynamics, such as the aging society with fewer children
  • Market globalization
  • Development of global production chains
  • Transition from manufacturing to services
  • Digitization and other changes

He suggested that new skills and structures will be necessary to respond to these developments. He then asked, "Which is necessary for Japanese companies, new structures or new strategies?," and explained it is a question of strategy more than structure. "Changing an organization does not make everything better," he noted. He offered the following specific examples of new strategies: increase diversity, valuing inputs from a variety of people; internationalize companies; target niches within global production chains; cultivate service-sector skills and software technology for the digital economy; and promote open innovation based on a bottom-up approach.

Conditions to Create Innovative Companies

Takeshi Nakano, Critic

Next, under the theme of innovation-friendly management systems, Dr. Nakano talked about Japanese management from the viewpoint of policy formation as a Japanese critic.

Dr. Nakano defined innovation as mobilizing resources for an uncertain future. He defined the market as a place to evaluate the value of goods and services and trade them. Since innovation is the act of creating goods and services that have never before existed, the market cannot evaluate innovation; innovation never happens just by listening to voices in the market.

He further stated that companies can achieve innovation if they overcome the following challenges: "low possibilities of generating profits," "long lead times that other teams cannot stand," and "large-scale resource mobilization." He expressed the opinion that it is difficult to calculate the profits one can expect from innovations in advance, so innovations must be justified in terms of value other than profits, such as environmental protection or treatment for intractable diseases.

Furthermore, he said that to mobilize large-scale resources, stakeholders inside and outside the company must be persuaded; relationships of trust must be built with stakeholders who share the same values and vision, and that innovation is hard to achieve without long-term, stable human relationships.

Dr. Nakano explained that the fundamental values of Japanese management, such as sustainable, close communication and cooperative behavior among stakeholders inside and outside the company, emphasis on consensus and a closed nature, and high loyalty to the organization serve as keys to realizing innovation. According to Dr. Nakano, Japanese-style management may be disadvantageous in the competition for short-term profits, but "besides Japan, Silicon Valley in the United States is also a typical closed community."

Aiming for Plural Sector-type Management

In this session, Professor Tadao Kagono (Professor Emeritus, Kobe University) and Professor Henry Mintzberg (Professor, McGill University) appeared by video message.

Professor Kagono criticized ROE-oriented management: "Innovations do not always result in success, and they involve risks. So, companies cannot survive without having sufficient capital to cover such risks." Reflecting on an interview with Peter Drucker, he said, "It is not good to run a business by relying on money incentives. Problems may arise if we put too much focus on pursuing profits."

Professor Mintzberg advocated the concept of a "plural sector," which is a new framework in society. Here, the concept of "plural" includes NPOs and communities. "It is desirable that the three sectors of government, businesses, and communities form a society, achieving a balance with each other. Plural sector-type Japanese management will be required in the future." (Professor Kagono)

Noboru Konno, a Topos Conference founder and coordinator of the 11th Topos Conference and Professor at Tama Graduate School of Business (second from left), Mirano Haneda, newscaster (far right)

Topos 3: The Potential of Japanese Society and Businesses

In the third session (Topos 3), four business executives--Mr. Jérôme Chouchan (President & CEO, Godiva Japan, Inc.), Ms. Yumiko Kamada (Senior Executive Officer, General Manager of the New Business Development Group, Calbee, Inc.), Mr. Ken Tamagawa (CEO & Founder, SORACOM, INC.), and Mr. Makoto Hamamatsu (Co-Founder/President, One JAPAN)--who are creating new Japanese-style management took the podium to discuss the theme of "The Potential of Japanese Society and Businesses."

Returning to the Origin of Japanese Value

Jérôme Chouchan, President & CEO, Godiva Japan, Inc.

Mr. Chouchan has achieved double-digit growth every year since he took charge as President & CEO of Godiva Japan in 2010. He is also well versed in Japanese culture and began practicing Kyudo (traditional Japanese archery) 25 years ago. "In Kyudo, there is a phrase seisha hicchu, which means that if you do things correctly, you will hit the target. Based on that proverb, I attempt to focus all my energy on maintaining a proper state of mind," he explained.

"I always think about what is right for customers (by applying the concept of seisha to business). Focusing on form without thinking of the target will allow you to hit it naturally.... Sometimes Japanese companies imitate Europe and the United States, but returning to the origin of Japanese value will provide clues to modern society, management, and innovations." (Mr. Chouchan)

Creating Innovation from Work-Style Reform

Yumiko Kamada, Senior Executive Officer, General Manager of the New Business Development Group, Calbee, Inc.

Ms. Kamada experienced developing the concept of ekinaka ("shopping mall in the station") as well as regional revitalization and child-rearing support while working for JR East, the railway company. She now engages in the development of antenna shops and new businesses as General Manager of the New Business Development Group at Calbee, Inc. In the regional revitalization project, she focused on various, attractive regions and producers, and endeavored to examine how to return young people to local areas throughout Japan, which are now threatened with exhaustion, so as to contribute to the areas' growth.

Ms. Kamada explained that at Calbee, a company that promotes diversity, the proportion of female managers has increased year after year: "As ways of working change, innovations have taken place at large companies. I feel our society is becoming better by being inspired by such innovations."

Achieving Innovations with Technologies

Ken Tamagawa, CEO & Founder, SORACOM, INC.

Mr. Tamagawa is the Founder and CEO of SORACOM, an IoT platform provider. Just recently, it was announced that Japan's telecom operator KDDI Corporation had acquired SORACOM. Mr. Tamagawa first joined the IBM Tokyo Research Laboratory, then Amazon Data Service Japan; in 2015, he founded SORACOM as a startup. He touched upon the launch of Dropbox, Instagram, Netflix, and other services that are based on AWS (Amazon Web Services), which provides cloud computing as a service: "An innovation that could be called 'computer democracy' occurred, which provides everyone with equal opportunities. I want to bring the same to the world of IoT."

"Japan has an overwhelming deficiency in software engineering capabilities," Mr. Tamagawa said. SORACOM is developing a global platform from Japan by using its software technology as the core to build a business environment like the one in Silicon Valley locally in Japan. Mr. Tamagawa quoted the phrase "sufficiently advanced technology is indistinguishable from magic" and said he would like to support various new businesses through the power of innovation.

Defeating "Big Company Disease"

Makoto Hamamatsu, Co-Founder/President, One JAPAN

In 2012, while working on the Panasonic Group's recruitment strategy and human resource development, Mr. Hamamatsu launched the "One Panasonic" volunteer group with the aim of revitalizing the organization. In 2016, he established One JAPAN, a platform for assembling voluntary groups of young talent at large companies with the same awareness of challenges, and became its representative. Currently, about 1,000 people from 45 companies come together to work on co-creation and realize new work styles.

In general, at big companies, organizational silos tend to arise. Mr. Hamamatsu noted: "Japanese companies have abundant resources, such as human resources, technologies, brands, history, trust, and money, but despite all these strengths, they have been unable to fully utilize young and mid-career employees." One JAPAN's mission is "to increase the number of individuals who take on challenges, to change organizational climates, and to defeat 'big company disease,' such as organizational silos and the 'useless-to-say' syndrome."

Achieving Innovation

After the four speakers' presentations, the discussion took up the present situations of companies' innovation efforts, the possibilities of social startups, and other topics. One speaker pointed out: "Large enterprises tend to have the incorrect belief that they cannot entrust responsible tasks to young or female employees, which makes them hesitant to plunge into innovations."

Mr. Chouchan said: "Once we succeed, we tend to do the same thing again next year; however, recently the speed of change has become more rapid, so we always have to take on the challenge of new things, and creativity is important to do so.... In the coming era, diversity will be key. Innovations that spread worldwide will be invented by sharing value not only with Japanese but with people from other countries."

Ms. Kamada stated: "Challenges can result in failure or success, but still many companies and personnel evaluation systems highly value individuals who choose to stay on safe ground. Create a system to change the current system to be in line with the times, and also change the environment so that this new system can be rolled out easily, which will change the company's work style. Creating personal networks will also enrich individuals' lives."

Mr. Hamamatsu said: "To make innovation happen, companies must increase the number of individuals who take on challenges and change their organizational climates. If many people want to try new things inside and outside companies, we can create a positive climate for tackling challenges by connecting such people across organizations and having them solve problems together."

Mr. Tamagawa commented: "Recently, startups that have shown steady growth often aim to solve some social problems. Efforts to take on the challenge of addressing a new thing will not move forward without the participants' empathy toward the vision behind the challenge." He also listed unnecessary hesitation as a factor that hinders innovation in Japan. It is sometimes the case that an innovation team does not function properly because the team members feel hesitant to express their opinions in front of their superiors.

Community-oriented Management Will Continue to Be Important

After the sessions, Professor Nonaka summarized this Topos conference.

Professor Nonaka first noted: "Excellent innovation is creative destruction. If an organization becomes bloated and bureaucratic, its entrepreneurship declines." He also stated that innovation under Japanese-style management can be achieved by organizations even though they are large if based on a community-oriented approach.

In a community-oriented organization, even though it is large, all members thoroughly express their opinions and support each other to achieve their goals. "Innovation's essence lies in 'empathy,' which establishes an organizational sense of unity as a team beyond self-interest and individual egos. The key to achieve organizational innovation lies in establishing such empathy," he continued, remarking that in the sessions, the speakers presented concrete case studies on achieving goals by establishing empathy.

"When IT technologies, such as AI, spread in the future, community-oriented management will become necessary. This style of management is advantageous in that it enables Japanese humanity and sensory quality (a concept representing unique textures from specific sensory experiences) to be pursued, but the scientific rationalism of the West should not be abandoned. The world of the future is not so simple as to be explained by a single law, principle, or theory." (Professor Nonaka)

Professor Nonaka continued: "Innovation will be generated if companies identify things from the point of view of 'dynamic duality' in which two seemingly contradictory things are both simultaneously true and aim to achieve varied, flexible management based on the dynamic duality (both/and) approach, rather than a binary opposition (either/or) approach. Intellectual mobility is to respond to things in a timely manner by using all kinds of knowledge and ways of thinking in response to changing circumstances, while understanding that there is no end to improvement and that thought never stops."

He then expressed his view: "By positively engaging the world, it is important to achieve moral growth while exercising creativity and expressing a questing spirit against an un-seeable future."

Finally, Professor Nonaka concluded the Topos Conference with the following message to participants: "I would like to encourage all of you to cultivate your ability to integrate art (intuition) and science (analysis) and put this into practice."