The Way of Reforms: Trust-Based Management
Sep. 03, 2018
Going forward, managing Japanese corporations will likely become far more difficult than ever before. The reason for this can be roughly broken down into four parts.
The first is that the effects of digitalization are greatly accelerating the speed at which industrial structures are changing. With the barriers between industries disappearing, companies are now suddenly being confronted by the arrival of competitors they had never anticipated. In the IT world, within five or ten years’ time we might see a new company emerge from a different industry that wouldn’t even consider Google a threat.
The second is that the Japanese market is maturing due to the declining birthrate and aging population, and companies will be forced to operate while facing chronic labor shortages.
Thirdly, emerging nations are rising to prominence at an extremely rapid pace. It’s now impossible for Japanese companies to ignore the nations of the developing world, whether as competitors, as partners, or as markets. There’s no longer any sense in stating for instance that “developing nations have low labor costs”, or otherwise comparing their relative merits or speed of progress to Japan’s, as they will come to be Japan’s equals whether existing as its rivals or as its partners.
Lastly, for the above reasons, global operations will become even more essential than ever before, and we are entering an age where global organizational structures in particular will be the norm.
In summary, what Japanese companies will need from now on is a style of management that’s globally optimized and suited to the current ecosystem.
Japanese Companies Will Need to Let Go of Their Successful Past Experiences
When environmental changes are mild, the bottom-up or middle-down style of Japanese management is an excellent method when it comes to motivating workers on the ground floor. This approach has led Japanese companies to success in the past, and has functioned as a source of competitive strength. Yet when environmental change happens more rapidly, and leads to greater uncertainty, it becomes necessary to view your long-term strategy from a more comprehensive standpoint, and to continually make agile decisions that are optimal for the whole organization.
That’s difficult to do entirely on the ground-level. The only level that’s capable of this is management, which can take responsibility for making alert decisions. When it comes to decision-making at the management level—in other words, leadership—it’s essential to be capable of carrying out structural reforms or execute M&A deals for navigating environmental changes from a long-term perspective, even if this means sacrificing short-term results. Evolution is always accompanied by birth pains. Yet those pains are an extremely important part of management-level decision-making, or leadership.
Thus far, Japanese companies have found success by maximally leveraging their superlative ground-level worksite capabilities. Those who would raise any objection to this idea would likely find themselves in the minority. NRI too is a company that has grown in the past precisely because of its ability to leverage such workplace skills to the utmost effect. Western companies have even marveled at the industriousness of Japanese workers.
But what if within this supposed strength lies a fatal pitfall?
This sort of rhetoric concerning Japanese companies would seem to involve a bias known as the “success dilemma”, which is often cited in business management studies. This bias appears for instance when someone suggests that “Our techniques are exceptional, so there’s nothing to worry about”, or that “Japan’s core strength lies in its manufacturing style, with its heavy focus on improvement activities on the production floor. Japan’s competitive superiority can’t be maintained just by imitating or following the West.” When we hear this kind of unfounded confidence, it lulls us into complacency over our past successes and leads us to make errors in judgment.
For companies to become truly global, they need to let go of their notions about Japan for a moment, as a sort of thought experiment. The uniquely Japanese management style that relies on non-verbal communication and tacit understanding isn’t something that can be applied indefinitely if you’re seeking to expand on a global scale. On the contrary, this approach could very well be a hindrance in growing your company’s business globally.
The key thing here is to transform your management knowhow into explicit, systematized organizational knowledge. In the field of management, that’s ultimately what it will take to achieve smooth global operations. This point cannot possibly be overstated.
Building Relationships of Trust to Promote Organizational and Management Reforms
In the media, we see things like the Fourth Industrial Revolution, IoT, AI, work-style reforms, the productivity revolution, business successions, labor shortages, and venture investments get treated as separate, individual issues. However, for the business world, there may be a single solution to these issues. The solution involves utilizing the management resource of your “zero-marginal cost software”, that is, your human talent, evolving to handle a more diverse range of business, and drawing out your employees’ creativity to the maximum, which will bring you recognition as a global enterprise with the potential to help solve various challenges around the world.
n other words, the kind of creative wisdom that leads to higher productivity is a type of “software” with limitless potential, and so companies should be thinking long and hard about how they can fully tap this wisdom.
Furthermore, organizational management can only be achieved when you have an underlying relationship of trust with your personnel who bring various kinds of wisdom to their work. This is precisely what’s meant by the phrase “mutual respect”. And only by having that trust in place can you hope to reform your organization—and indeed, to reform your management itself. The “Way of Reforms” can ultimately be summed up as the way of managing reforms based on relationships of trust built across your organization.
NRI Research Paper Knowledge Creation and Integration July, 2018