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HOME NRI JOURNAL How to Survive in the Era of Digital Capitalism

NRI JOURNAL

Innovation magazine that generates hints for the future

How to Survive in the Era of Digital Capitalism

Yoshio Murata, Senior Corporate Managing Director & Consulting Division Manager

Apr. 08, 2019

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Digital Capitalism, which was published under the supervision of President Shingo Konomoto, Nomura Research Institute (NRI) in 2018, mentions that we are currently in a period of transition from industrial capitalism, which has been continuing since the 18th century, to digital capitalism. In the era of industrial capitalism, the productivity of the labor force was the source of added value and wealth of companies. However, under digital capitalism, wealth will be produced by the accumulation of digital data and its appropriate utilization. In fact, there are pitfalls specific to Japanese companies that are not yet fully recognized.

Perfectionism: An Impediment for Japanese Companies

All Japanese companies, regardless of the type of business, seek perfection even in their business dealings. Consumers and other stakeholders also naturally expect perfection from them. However, this may actually prove to be an impediment in their transition to digital capitalism. For instance, let us compare Japan and the US in terms of unmanned stores.
Various countries have started taking initiatives to use digital technology to transform retail stores, such as supermarkets and convenience stores, into unmanned stores. These are stores where consumers can put the displayed products into their shopping carts and checkout without having to deal with a manned cashier. This helps in coping with resource shortage and reducing labor costs significantly.
However, the Japanese approach for achieving this is quite different from that of the US and China. In Japan, unmanned stores attach an IC tag to each item, and the data is read by a robot cashier. This is a reliable and secure system as there is almost no risk of miscalculation or shoplifting. However, one IC tag unit currently costs around 10 JPY. Although its price is expected to fall to less than 1 JPY in the future, it will not be profitable if IC tags are attached to, for instance, even soft drinks with a retail price of 100 JPY. In addition, the machines are expensive and there is a possibility of breakdown as well. Hence, this may not work as a good solution at the present moment of imminent labor shortages.
On the other hand, unmanned stores in the US and China use cameras installed inside the stores to track the movement of customers, and assume the products to have been purchased the moment they are put in the shopping cart (of course, if they are put back on the shelf again, they would not be considered as purchased). Certainly, the risk of miscalculation and shoplifting cannot be eliminated completely, but its advantages are its low cost of installation and operations and quick implementation. In fact, this system is already being practiced by Amazon Go.
In the era of digital capitalism, your success depends on how quickly you put products and services in the market. Mistakes or losses can be corrected while operating, but you cannot compete without having a clear solution.

Barriers to Digital Capitalism from the Management Perspective

There is one more pitfall of the digital age, workplace autonomy. A Japanese car dealer has started prioritizing their target customers based on big data analysis. They analyze the past data pertaining to sales processes and sales-concluding factors and use it to provide advice on determining promising customers and optimal timing for sales pitches.
However, the judgments of the computer and those of the long-time sales staff on promising clients were not always consistent. The veteran sales staff, due to their long experience, had the supercilious attitude of "I know customers the best", and as a result their efforts were half-hearted. On the other hand, young employees with little sales experience or records unquestioningly accepted what was advised by the computers. They had no preconceptions or unnecessary pride, so they conducted sales in the manner they were instructed. After six months, the new employees who had not performed well earlier delivered sales results that were above average for the period. While the sales performance of all stores was declining, the stores that worked zealously performed better than the previous year.
This fact has extremely important implications that can completely transform the organizational management of Japanese companies. Until now, Japanese companies have respected workplace autonomy at production sites as well as at sales sites, so it was important for the managers to keep employees at the workplace motivated. However, in the digital era, managers will be required to have their juniors religiously execute the instructions given by computers. Computer-derived judgments are efficient as well as effective, but human intervention can pose a risk to it. In other words, the digital era requires a change in the general mindset of organizational managers in Japan.
Through this, I want to emphasize the harsh reality that “strong pursuit of quality” and “respect for workplace autonomy,” which have long been considered the strengths of Japanese-style management in the era of industrial capitalism, may actually become their downfall in the era of digital capitalism if not used correctly. Currently, China is at the forefront of digitalization. It is true that most of the digitalization-related ideas, business models, and new technologies have emerged from the US, but no country can beat China in terms of the speed at which they are first introduced into the market. It is strange to think that a socialist country is at the forefront of digital capitalism, but when I went there and saw their activities, I realized that it is truly so.
I believe that for Japanese companies to survive in the era of digital capitalism, they need to learn from the San-Gen-Shugi (actual place, actual products, and actual facts) as indicated by the computers and adopt them into their business.

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Contact

Nomura Research Institute, Ltd.
Corporate Communications Department
E-mail: kouhou@nri.co.jp

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