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HOME NRI JOURNAL What Does “Japan-Style DX” Look Like?

NRI JOURNAL

Innovation magazine that generates hints for the future

クラウドの潮流――進化するクラウド・サービスと変化する企業の意識

What Does “Japan-Style DX” Look Like?

Digitally Transplanting Japan’s Strong “On-Site Capability”

Fumihiko Sagano, Senior Corporate Managing Director, Industrial Solution Business Development Division

DX

Jul. 15, 2020

Initiatives for digital transformation (DX), an area where Japan is often said to be lagging behind European, American, and Chinese companies, are beginning to take hold in the Japanese corporate world. The results of various surveys conducted in 2019 showed responses indicating that around 50-70% of companies have implemented or are currently implementing DX initiatives.

However, Michael Wade, a leading authority on DX research and a professor at Switzerland’s International Institute for Management Development (IMD) business school, has noted that the barriers to successful DX can be significant, claiming that “95% of digital transformation projects fail, according to our data. This happens because the areas being managed increase in number and become interdependent, and all of them are changing at once.” *

Manager Ideas and Superior “On-Site Capability” Are the Key to Successful DX

Those of us involved daily in supporting DX at Japanese corporations think observations like this are on the mark, but we also have a different perspective. Japanese industries – particularly manufacturing, distribution, logistics, retail, and the like – encompass many sites of activity. Moreover, the source of the competitiveness of Japanese corporations lies first and foremost in their superior “on-site capability”. Toyota is the most obvious example, but in so many cases, Kaizen improvements led by on-site personnel have increased the productivity and the added value of a company. It seems like there may be such a thing as a “Japan-style DX” that is unachievable in the hyper-specialized production venues of Europe and America, and that is made possible by the presence in organizations of people with deep knowledge of their local site of activity.

Particularly in workplaces that depend on manpower, such as distribution and contact point services, operational optimization is being pursued by utilizing digital technology to compile complex analog on-site knowhow. In other words, digitalizing strong “on-site capability” and transplanting it into organizations is, for many Japanese companies, the first step toward successful DX.

Let’s look at a successful DX case study.

Hirata Corporation is a manufacturing equipment maker headquartered in the city of Kumamoto, and a “manufacturing equipment industry platform creator” that is well known among experts in that field. Hirata is utilizing IoT to thoroughly monitor various types of data from its local production sites, and on the basis of that data, is operating a fully integrated manufacturing process, from design all the way to component manufacture, assembly, inspection, and full-scale production. Through these and other activities, Hirata is increasingly making its presence felt as a manufacturing line system integrator that offers ongoing manufacturing equipment services to its manufacturing industry clients. But Hirata has not met today’s challenges just by drawing on the digital technology of IoT; rather, it has been guided by its ideals of “craftsmanship with rich knowledge of the production site” and “design that understands every aspect of craftsmanship”, and under those ideals, has drawn amply on the analog notion of the “reciprocally fine-tuned techniques” that it has accumulated over its history, and thereby succeeded in building an ecosystem for its particular industry.

It is often said that the role of top management is to hoist the banner for DX that will bring bold operational innovations and organizational reform, but in Japanese companies, the ability to combine management’s ideas with on-site capability is what makes DX successful. To accomplish this, companies need leaders who believe in on-site capability and can guide the vision of those on-site. However, if companies move into the future just by trying to recreate their on-site capability, their efforts will not bear fruit, because we are living in a moment when all of Japan is plunging into an era of labor shortages. The day is coming when every company will have to replace its on-site capability with digital technology. This moment in time, when there are still some leaders around with deep-rooted knowledge of their sites of activity, may be our last chance to transplant on-site capability into the digital age.

Revamping Service Flow for the Post-Corona Era Paradigm Shift

The spread of the novel coronavirus has pulled the emergency brake on the movement of people and things and has caused major damage to the global economy, forcing Japanese companies, in particular, to make far-reaching changes to their existing corporate paradigms. This has happened because unnecessary contact with people increases the risk of spread, and thus has led consumers to demand that companies offer both shopping and service experiences that can be completed with minimal interpersonal contact. To give a familiar example, the home delivery industry has been under pressure to revamp the flow of its services by, for example, introducing rapid drop-off delivery and eliminating seal/signature requirements at the time of delivery.

Japanese corporations seem to have a hardened conviction that they can create conscientious and thorough customer service experiences through face-to-face sales. For example, when a car dealer wants to sell a new car, it will normally seek to increase its face-to-face sale opportunities as much as possible, by repeatedly inviting customers to its showroom, having sales representatives visit customers at home to negotiate, and so on. In contrast, when consumers buy cars in China, their only contact with the dealer is when they sign the agreement. Up to then, the entire process, from product search to dealer comparison to price negotiation, is conducted online. It seems obvious which of these approaches will create more customer satisfaction in the new era.

Providing conscientious and thorough customer service at the venue of sale is obviously not a bad thing, but replacing these methods with a digital approach will be essential to dealing with the coming labor shortages, and appears to be the trend of the times and the approach most in line with consumer needs. Can we transfer our superior on-site capability to the digital realm quickly, while our superior on-site leaders are still with us? For Japanese corporations, the struggle against time will be the answer to this question.

  • * September 26, 2019, from a talk at the “Digital Conference 2019” held in Tokyo
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