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Perspective on the 21st century
Japan and the World Economy 1 (1989) 415-423 Elsevier Science Publishers B.V. (North-Holland)
415
P E R S P E C T I V E O N T H E 21st C E N T U R Y Practical l ~ s s o n s from my Management Experience *
Koji K O B A Y A S H I NEC Corporation, Tokyo 108, Japan Received March 1989, final version received May 1989 The dramatic changes in the industrial structure since World War II owe much to technological advances that have enabled corporations to pursue their endeavors on unprecedented scale, as in mass production and mass retailing. 1 characterized my management emphasis as 'C&C' which stands for the integration of computers and communications. C&C is a technological frontier that has spawned a continuing stream of new products and advanced concepts. C&C. however, is a very different kind of technological advance. As C&C takes hold in society and as information networks mature, information will become the central element in new amalgams with the other traditional corporate resources: people, money, and property.
Keywords: Computers, communication, technological innovations, time axis. spatial axis.
1. Time axis and spatial axis N E C , a l e a d i n g J a p a n e s e electronics m a n u f a c t u r e r that will c e l e b r a t e its 90th a n n i v e r s a r y this year, has been actively cultivating m a r k e t s overseas since the 1950s. I p e r s o n a l l y have strived to b u i l d a n e t w o r k o f r e l a t i o n s h i p s with distinguished i n d i v i d u a l s a r o u n d the world a n d to heighten p u b l i c a w a r e n e s s of N E C . C o m p a n y business has taken me a b r o a d six times in the p a s t six m o n t h s . O n e of these occasions was the o p e n i n g c e r e m o n y for o u r T e l f o r d P l a n t in the U n i t e d K i n g d o m where Princess D i a n a was also in a t t e n d a n c e . I also t o u r e d N E C o p e r a t i o n s in A u s t r a l i a a n d N e w Z e a l a n d . In the U n i t e d States, a university on the west coast invited m e to give a lecture a n d a n o n p r o f i t o r g a n i z a t i o n c o n f e r r e d a satellite c o m m u n i c a t i o n s a w a r d o n me. I also a t t e n d e d i n t e r n a t i o n a l conferences in the Philippines a n d Singapore. These trips a b r o a d allowed m e to see f i r s t h a n d that N E C ' s l e a d i n g - e d g e technology is c o n t r i b u t i n g to n a t i o n - b u i l d i n g in newly i n d u s t r i a l i z i n g econo-
* The Journal will publish lectures and short papers by renowned administrators, statesmen and scholars who have influenced economic policy. This pair is one of those series of policy papers. 0922-1425/89/$3.50 © 1989. Elsevier Science Publishers B.V. (North-Holland)
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mies and furthering the information revolution in industrialized nations. I was able to see how NEC is making a contribution to the economic revitalization of great nations with great traditions. Humankind has achieved stupendous progress in agriculture and industry and is now on the verge of a third revolution: the information revolution. It is because NEC's operations are at the heart of this trend toward an expanded role for information that we enjoy opportunities to operate in nations worldwide. Around the time that I assumed the presidency of NEC in 1964, I was fortunate enough to encounter the works of some insightful scholars who foretold the coming of the information age. Information has been my central theme in managing NEC's operations for about a quarter century - as president from 1964, as chairman from 1976 and as chairman emeritus since 1988. Over this period, we have repeatedly experienced profound changes in virtually all facets of the world economy that had seemed axiomatic and unchanging. The 1970s, for example, were characterized by acute concerns over the world's supplies of energy and other resources. Yet, those concerns have subsided. Even the fundamental Japanese policy of predicating national prosperity on exports has undergone modification. Time after time, even the most overriding issues ultimately show themselves to be subject to the vortex of invisible cycles of change. Further changes of great consequence are sure to occur in the years remaining before the 21st century. In my management philosophy, I maintain that we must keep a perspective on our own position in terms of an internal feel for a time axis and a spatial axis. I firmly believe that changes in our environment occur in forms consistent with the sum of our individual wishes. By evaluating changes objectively in their historical context, we can grasp their essence and discover fundamental principles of genuine permanence among them. This approach will furnish us with a basis for shaping a promising 21st century.
2. The great turning point of 1985 My perception of changes, as I wrote in my published autobiography (Watashi no Rirekisho, Nihon Keizai Shimbun, 1988), is that the world and we who live in it encounter a profound turning point every forty years. Japan, for example, has experienced fundamental changes at about this frequency throughout its modern history, as dated from the Meiji Restoration of 1867. The culturally and industrially enlightened policies of the Meiji government made possible Japan's military victory over Russia in 1905, about 40 years after the Restoration. By doing away with a class structure that had rigidly divided the population into samurai, farmers, artisans, and tradesmen, the Meiji reforms opened the way to a tremendous increase in the strength of the nation.
K. Kobayashi / Lessons from my management e.xperience
417
Subsequent policies coupled national prosperity with military might and plunged the nation into the debacle of the Second World War, with defeat coming 40 years after the end of the Japan-Russia War. Resolving unanimously, 'Never again', the Japanese set about building a nation based entirely on economic vitality. They succeeded in creating a major economic power devoid of military might, an achievement unparalleled in human history. In 1985, 40 years after Japan's disastrous defeat in World War II, the United States became a debtor nation, while Japan had amassed the world's greatest economic surplus. I believe that the events of 1985 signal major change that will carry into the 21st century. U.S. efforts to cope with the shift in the state of the nation have included the passage of an omnibus trade bill in 1988 and the implementation of a free-trade agreement with Canada in 1989. The European Community is implementing a plan announced in June 1985 for integrating the national markets of the EC member nations in 1992. I should also note that trade in the Pacific Basin exceeded that in the Atlantic region in 1985 by the largest amount ever at that time; the Pacific Basin was clearly destined to account for a growing share of world trade. As the world economy enters a major transition, which began around 1985, we are beginning to see signs of emerging regionalism on every continent. Whether or not this regionalism gains substantial momentum is a matter of great consequence for the global economy. I would like to think that regionalism can be a good thing and that it can - provided it does not become insular and exclusive - contribute to global economic growth by stimulating the economies of the countries involved. All of us engaged in corporate management must be greatly concerned with the ramifications of this ongoing historical transition for the globalization of our operations. I would like to outline three key issues in this regard; namely, how we are to cope with: (1) the pervasive role of information, (2) the accelerating pace of technological innovation, and (3) the increasing global context for corporate activity.
3. Coping with the pervasive role of information The role of information in economic activity is boldly quantified in a 1962 book by the late Professor Fritz Macklup, who was then a professor at Princeton and later at New York University. In this book, The Production and Distribution of Knowledge in the United States, Professor Macklup quantifies a concept that more or less corresponds to what we now know as the information industry. The November 1964 issue of Fortune magazine carried an article by Fortune editor Gilbert Burck that was based on Professor Macklup's book and that, for me, was even further reaching than the book in its presentation of key aspects of the information revolution. Japan's Ministry of International
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Trade and Industry surely took note of the ideas being expressed in the United States in books and articles like these when it chose 'knowledge-intensive' as the keyword in its industrial outlook for the 1970s. This perspective acknowledged that information would become increasingly important relative to physical necessities and energy in terms of value to civilization, and too, that information would take a place alongside people, money, and property as the fourth corporate resource. I know from long experience in telecommunications, for example, that researchers will examine every conceivable aspect of technological means of manipulating an electrical signal, but that they invariably stop short of probing the essence of the signal itself. In the information society, people's attention is at last shifting from the mere conveyance of information to the effective use of information. The inevitable trend encouraged me to stake our future on information at NEC, where I focused our operations on four fields: communications (for conveying information), computers (for processing information), home electronics (for reproducing information) and microelectronics (for supporting products in the other three fields). I characterized my management emphasis as 'C& C' which stands for the integration of computers and communications. The integration of computers and communications is what information technology is all about. Telecommunications technology removes the limitations of time and distance from people's inborn capacity for conveying information. Computer technology, meanwhile, liberates our capabilities in preparing, processing, and storing information from human limitations as to time, knowledge, and quantitative capacity. C & C consists of integrating these two technologies to the benefit of humankind. I became the first person to advocate the C & C concept as such when I outlined it in a talk in Atlanta in October 1977, at Intelcom 77, the large international forum and trade show for the telecommunications industry. In retrospect, I am gratified to have been able to culminate several years of formulating the C & C concept by articulating it at last in the centennial of Alexander Graham Bell's invention of the telephone. C&C is a technological frontier that has spawned a continuing stream of new products and advanced concepts. These include an automatic fingerprint indentification system developed by NEC using principles of artificial intelligence. Another example is a personal 'neurocomputer' that we have developed, which is capable of learning and doing inductive reasoning. Systems based on C&C must be easy to use. Electronic equipment - including the latest, most expensive models - typically requires a great deal of specialized skill to operate. Even home appliances can be frightfully difficult for elderly consumers. The key to bridging this man-machine gap lies in software for investing C & C systems with human intelligence. Advances in hardware will be important, in this regard, and we want to count on assistance from progress in personal computers, optoelectronics, bioelectronics, and superconductive
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materials, as well as other areas. Software, however, will be the central moving force in the C&C networks which will further the information revolution.
4. Coping with accelerating technological innovation C&C is becoming a dominant trend in the world we live in, and it has already taken hold solidly in the information industry, as was convincingly apparent at the Forum '87 symposium sponsored by the International Telecommunications Union in Geneva in October 1987. In my keynote address at that symposium, I was able to comment with confidence on the evolution of C & C along a human axis and examine its likely impact on society. The impact of C&C on social systems will be immeasurably profound. C&C will act on every phase of the cultural legacy of centuries of progress: social frameworks, traditions, legal systems, lifestyles, and values. More, therefore, than a mere technology or business segment, C&C is becoming the byword for a mode of cultural change. In other words, as C&C is manifested in the end products and services, it becomes the infrastructure for every sphere of human activity. The potential scope of the impact of C&C on industrial and social structures is therefore unlimited. The dramatic changes in the industrial structure over the forty plus years since World War II owe much to technological advances that have enabled corporations to pursue their endeavors on unprecedented scale, as in mass production and mass retailing. C&C, however, is a very different kind of technological advance. As C&C takes hold in society, and as information networks mature, information will become the central element in new amalgams with the other traditional corporate resources: people, money, and property. New production formats and other innovations will appear, as explained by the Austrian economist, Dr. Joseph A. Schumpeter. New markets will emerge, complete with new business opportunities. Indeed, companies are increasingly targeting investment specifically on technology and information because they recognize these resources to be the sources of innovation. A recent newspaper story in Japan (Nihon Keizai Shimbun, February 8, 1989 issue) reported that 70% of the capital spending by Japanese corporations in 1988 consisted of investment in R& D facilities and automated or otherwise streamlined production formats, whereas only 30% of the capital spending went into increased production capacity. This distribution of investment represents a reversal of the ratio that prevailed as recently as the late 1960s, when Japan was agressively pursuing quantitative expansion. If we assume that all products result from the input of material and information, then we see that the composition of products is beginning to shift in favor of the latter. C&C does service in the public sector, in business, and in the home. NEC is involved in C&C projects for the public sector that include local informational development schemes planned for regions throughout Japan, a medical
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surveillance system for the Ministry of Health and Welfare, and a satellite broadcasting education system. In the business sector, the multitudinous applications for C &C encompass office automation, factory automation, store automation, and intelligent buildings, as exemplified by NEC's new headquarters building, which is scheduled for completion this year. Among the applications for C & C in the home are automation systems incorporating security, fire-protection, and control functions and information systems, such as direct-broadcast satellite reception formats and personal computer networks. With C & C expected to permeate every area of society in the 21st century, we can classify industrial sectors according to whether or not they make extensive use of C&C. Such as: (1) primary industries that use C & C and those that don't; (2) secondary industries that are equipped with C & C information technology and those that aren't; and (3) C&C-oriented tertiary industries and tertiary industries that are no more than a human tide of simple service functions. In practical management, however, we will do our best to place our major emphasis on identifying a business sector so compelling in its suitability as to justify staking the company's future on the perceived potential. We should dedicate ourselves enthusiastically to fostering sound corporate operations oriented toward realizing that potential.
5. Coping with the increasingly global context for corporate activity Globalization is a pressing management issue for Japanese corporations, including NEC where we are moving fast to address the exigencies of an increasingly borderless world economy. The urgency of this issue stems from the Plaza Accord of September 5, 1985, in which the representatives of five leading industrial nations agreed to undertake coordinated intervention in currency markets to raise the exchange value of the yen relative to other currencies. The appreciation of the yen propelled more Japanese corporations onto Fortune magazine's listing of the world's largest companies, and Japan, no longer in the role of playing economic catch-up to the world's other industrialized democracies, became firmly established as a major economic power. NEC's 'go global' experience might furnish some lessons for the 21st century. We began cultivating overseas markets, as I have mentioned, in the 1950s. Those initial efforts were limited by the terms of our relationship with a U.S. corporation with whom we had capital and technological ties. I sensed, however, that the public-sector market in Japan, which accounted for the bulk of our sales, would become saturated one day. I was therefore determined that NEC should press ahead in overseas markets. The establishment of technological advantage became an important part of our overseas strategy. We won a contract in 1962 to supply our U.S. partner
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with technology for microwave and transmission communications systems. It was in the 1960s that we began competing in the world market for microwave systems. By developing and offering technology unavailable from competing manufacturers, we won a major share of that market. Competition with top-flight corporations in the world electronics market provided us with opportunities to refine our technology, streamline our production, strengthen our manufacturing and earn the confidence of the users. Well before the recent wave of trade frictions and regionalism, we were adhering to a policy of manufacturing products as close as possible to the customer. Our emphasis in selecting overseas sites for production facilities, to be sure, has shifted from user proximity to overall suitability. I expanded on this theme when I was invited to deliver an address to help commemorate the centennial of the Institute of Electrical and Electronics Engineers, Inc. (IEEE) in Philadelphia in October 1984. In a talk that outlined my views on high-technology industries in the 21st century, I proposed an international division of labor supported by C & C networks. NEC presently operates 25 plants in 12 nations besides Japan, and we are seeking an optimal international division of labor within our organization. Parts that we make in the United States, for example, are assembled into finished products at an NEC plant in Singapore and sold to users in Japan and the United States. Another example is the NEC plant in the United States which makes finished products using parts that we produce in Mexico. These are just two instances of the many ways that we are stepping up the linkage among overseas NEC plants located at the sites best suited for the kinds of work they handle, and they illustrate that work need not be routed through Japan. We began operating a value-added network (VAN) in November 1988 between Tokyo and Boston that handles orders for parts and materials 24 hours a day, and we will expand this network to NEC facilities worldwide to help facilitate our international division of procurement. We are also beginning to build networks that will link our facilities around the world in support of IC design work and software development. The approach I am describing is inherently at odds with the concepts of high-technology industries as the exclusive province of industrialized nations. C&C networks provide an excellent basis for handling new, technologically sophisticated work in industrialized nations while involving developing nations in the process by entrusting assembly and other labor-intensive work to them. This changes the international division of labor from a win (industrialized nations) and lose (developing countries) situation to a win-win one. People in every nation can share equally in the fruits of C&C. I have frequently insisted that C&C will change the world and that it will eliminate economic national boundaries. Another important consideration in setting up overseas operations is the need to strive to become part of the local community. NEC America, which is
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headquartered in New York State, received an award from the Governor of New York in 1985 for contributions to employment and economic development in that state. NEC Australia, a wholly owned subsidiary that manufactures telecommunications equipment, has received official recognition for becoming a 'completely Australian company'. In support of research and education, our activities in the United States have included endowing chairs at prestigious universities, establishing scholarship funds and creating the Koji Kobayashi Prize at the IEEE. We established the Foundation for C & C Promotion in Japan in 1985 and followed it with scholarship funds in Thailand and the Philippines and a research facility in Malaysia. In industrialized nations and newly industrializing economies alike, we are taking concrete measures in the name of mutual benefit. True globalization for corporations will consist of organically integrating the kinds of local efforts I have been describing. A clearly defined and internationally understandable corporate vision is a prerequisite for this organic integration. Global management is, after all, a matter of integrating operations in diverse cultural and economic spheres and in diverse markets. The key for this management is an ability to exercise the company's strengths and principles optimally around the world. Japan's new role as a nation that accounts for more than one-tenth of the world economy mandates a new perspective on global responsibility. Amid the deepening interdependence of nations, Japan cannot exist in isolation but must actively fulfill the role of a contributing member of international society - no less can be expected of Japanese corporations. And that is one perspective on the 21st century. 6. Perspective on the 21st century
I have long said that, in the absence of careful maintenance, a corporation will begin to decline in about 60 years. Historically, all industries have peaked and declined, and companies are subject to the same fate. The crucial question for executives is how to position their companies in tomorrow's tide before today's tide begins to ebb. The answer is for companies to change themselves. When the business environment is unstable, competition is intense and profits hard to come by, companies must modify themselves in whatever ways are necessary to overcome the difficulties at hand. The greater the difficulties, the more energetically the companies must endeavor to make the necessary improvements. A company that undergoes this experience a number of times emerges stronger for it - and is more likely to take full advantage of growth opportunities. A company with the capacity to change itself can remain stable over the long term, whereas a company whose outward appearance of stability is merely a sign of rigidity is always at the risk of failing to catch the tides of
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change. Any company must foster a feasible organization in which people will not rest on their past successes of creation but will strive unceasingly for continued transformation. Our challenge is to adopt this spirit of spontaneous self-improvement and to be ever attentive to the bellwethers of megatrends. We must take the initiative in getting rid of what should be discarded and preserve what should be preserved. This active challenge we value most is our path to further growth and development in the 21st century; when C&C networks will support the free, supranational interchange of people, things, money, and information. Just as the mariners in the Great Age of Navigation of the 15th and 16th centuries relied on their compasses, we will navigate an equally exciting age with the aid of C&C tools and principles that will enhance the scope of our judgment and equip us to cope advantageously with technological innovation, the information revolution, and globalization.
415
P E R S P E C T I V E O N T H E 21st C E N T U R Y Practical l ~ s s o n s from my Management Experience *
Koji K O B A Y A S H I NEC Corporation, Tokyo 108, Japan Received March 1989, final version received May 1989 The dramatic changes in the industrial structure since World War II owe much to technological advances that have enabled corporations to pursue their endeavors on unprecedented scale, as in mass production and mass retailing. 1 characterized my management emphasis as 'C&C' which stands for the integration of computers and communications. C&C is a technological frontier that has spawned a continuing stream of new products and advanced concepts. C&C. however, is a very different kind of technological advance. As C&C takes hold in society and as information networks mature, information will become the central element in new amalgams with the other traditional corporate resources: people, money, and property.
Keywords: Computers, communication, technological innovations, time axis. spatial axis.
1. Time axis and spatial axis N E C , a l e a d i n g J a p a n e s e electronics m a n u f a c t u r e r that will c e l e b r a t e its 90th a n n i v e r s a r y this year, has been actively cultivating m a r k e t s overseas since the 1950s. I p e r s o n a l l y have strived to b u i l d a n e t w o r k o f r e l a t i o n s h i p s with distinguished i n d i v i d u a l s a r o u n d the world a n d to heighten p u b l i c a w a r e n e s s of N E C . C o m p a n y business has taken me a b r o a d six times in the p a s t six m o n t h s . O n e of these occasions was the o p e n i n g c e r e m o n y for o u r T e l f o r d P l a n t in the U n i t e d K i n g d o m where Princess D i a n a was also in a t t e n d a n c e . I also t o u r e d N E C o p e r a t i o n s in A u s t r a l i a a n d N e w Z e a l a n d . In the U n i t e d States, a university on the west coast invited m e to give a lecture a n d a n o n p r o f i t o r g a n i z a t i o n c o n f e r r e d a satellite c o m m u n i c a t i o n s a w a r d o n me. I also a t t e n d e d i n t e r n a t i o n a l conferences in the Philippines a n d Singapore. These trips a b r o a d allowed m e to see f i r s t h a n d that N E C ' s l e a d i n g - e d g e technology is c o n t r i b u t i n g to n a t i o n - b u i l d i n g in newly i n d u s t r i a l i z i n g econo-
* The Journal will publish lectures and short papers by renowned administrators, statesmen and scholars who have influenced economic policy. This pair is one of those series of policy papers. 0922-1425/89/$3.50 © 1989. Elsevier Science Publishers B.V. (North-Holland)
416
K. Kobayashi /Lessons from my management experience
mies and furthering the information revolution in industrialized nations. I was able to see how NEC is making a contribution to the economic revitalization of great nations with great traditions. Humankind has achieved stupendous progress in agriculture and industry and is now on the verge of a third revolution: the information revolution. It is because NEC's operations are at the heart of this trend toward an expanded role for information that we enjoy opportunities to operate in nations worldwide. Around the time that I assumed the presidency of NEC in 1964, I was fortunate enough to encounter the works of some insightful scholars who foretold the coming of the information age. Information has been my central theme in managing NEC's operations for about a quarter century - as president from 1964, as chairman from 1976 and as chairman emeritus since 1988. Over this period, we have repeatedly experienced profound changes in virtually all facets of the world economy that had seemed axiomatic and unchanging. The 1970s, for example, were characterized by acute concerns over the world's supplies of energy and other resources. Yet, those concerns have subsided. Even the fundamental Japanese policy of predicating national prosperity on exports has undergone modification. Time after time, even the most overriding issues ultimately show themselves to be subject to the vortex of invisible cycles of change. Further changes of great consequence are sure to occur in the years remaining before the 21st century. In my management philosophy, I maintain that we must keep a perspective on our own position in terms of an internal feel for a time axis and a spatial axis. I firmly believe that changes in our environment occur in forms consistent with the sum of our individual wishes. By evaluating changes objectively in their historical context, we can grasp their essence and discover fundamental principles of genuine permanence among them. This approach will furnish us with a basis for shaping a promising 21st century.
2. The great turning point of 1985 My perception of changes, as I wrote in my published autobiography (Watashi no Rirekisho, Nihon Keizai Shimbun, 1988), is that the world and we who live in it encounter a profound turning point every forty years. Japan, for example, has experienced fundamental changes at about this frequency throughout its modern history, as dated from the Meiji Restoration of 1867. The culturally and industrially enlightened policies of the Meiji government made possible Japan's military victory over Russia in 1905, about 40 years after the Restoration. By doing away with a class structure that had rigidly divided the population into samurai, farmers, artisans, and tradesmen, the Meiji reforms opened the way to a tremendous increase in the strength of the nation.
K. Kobayashi / Lessons from my management e.xperience
417
Subsequent policies coupled national prosperity with military might and plunged the nation into the debacle of the Second World War, with defeat coming 40 years after the end of the Japan-Russia War. Resolving unanimously, 'Never again', the Japanese set about building a nation based entirely on economic vitality. They succeeded in creating a major economic power devoid of military might, an achievement unparalleled in human history. In 1985, 40 years after Japan's disastrous defeat in World War II, the United States became a debtor nation, while Japan had amassed the world's greatest economic surplus. I believe that the events of 1985 signal major change that will carry into the 21st century. U.S. efforts to cope with the shift in the state of the nation have included the passage of an omnibus trade bill in 1988 and the implementation of a free-trade agreement with Canada in 1989. The European Community is implementing a plan announced in June 1985 for integrating the national markets of the EC member nations in 1992. I should also note that trade in the Pacific Basin exceeded that in the Atlantic region in 1985 by the largest amount ever at that time; the Pacific Basin was clearly destined to account for a growing share of world trade. As the world economy enters a major transition, which began around 1985, we are beginning to see signs of emerging regionalism on every continent. Whether or not this regionalism gains substantial momentum is a matter of great consequence for the global economy. I would like to think that regionalism can be a good thing and that it can - provided it does not become insular and exclusive - contribute to global economic growth by stimulating the economies of the countries involved. All of us engaged in corporate management must be greatly concerned with the ramifications of this ongoing historical transition for the globalization of our operations. I would like to outline three key issues in this regard; namely, how we are to cope with: (1) the pervasive role of information, (2) the accelerating pace of technological innovation, and (3) the increasing global context for corporate activity.
3. Coping with the pervasive role of information The role of information in economic activity is boldly quantified in a 1962 book by the late Professor Fritz Macklup, who was then a professor at Princeton and later at New York University. In this book, The Production and Distribution of Knowledge in the United States, Professor Macklup quantifies a concept that more or less corresponds to what we now know as the information industry. The November 1964 issue of Fortune magazine carried an article by Fortune editor Gilbert Burck that was based on Professor Macklup's book and that, for me, was even further reaching than the book in its presentation of key aspects of the information revolution. Japan's Ministry of International
418
K. Kobayashi / Lessons from my management experience
Trade and Industry surely took note of the ideas being expressed in the United States in books and articles like these when it chose 'knowledge-intensive' as the keyword in its industrial outlook for the 1970s. This perspective acknowledged that information would become increasingly important relative to physical necessities and energy in terms of value to civilization, and too, that information would take a place alongside people, money, and property as the fourth corporate resource. I know from long experience in telecommunications, for example, that researchers will examine every conceivable aspect of technological means of manipulating an electrical signal, but that they invariably stop short of probing the essence of the signal itself. In the information society, people's attention is at last shifting from the mere conveyance of information to the effective use of information. The inevitable trend encouraged me to stake our future on information at NEC, where I focused our operations on four fields: communications (for conveying information), computers (for processing information), home electronics (for reproducing information) and microelectronics (for supporting products in the other three fields). I characterized my management emphasis as 'C& C' which stands for the integration of computers and communications. The integration of computers and communications is what information technology is all about. Telecommunications technology removes the limitations of time and distance from people's inborn capacity for conveying information. Computer technology, meanwhile, liberates our capabilities in preparing, processing, and storing information from human limitations as to time, knowledge, and quantitative capacity. C & C consists of integrating these two technologies to the benefit of humankind. I became the first person to advocate the C & C concept as such when I outlined it in a talk in Atlanta in October 1977, at Intelcom 77, the large international forum and trade show for the telecommunications industry. In retrospect, I am gratified to have been able to culminate several years of formulating the C & C concept by articulating it at last in the centennial of Alexander Graham Bell's invention of the telephone. C&C is a technological frontier that has spawned a continuing stream of new products and advanced concepts. These include an automatic fingerprint indentification system developed by NEC using principles of artificial intelligence. Another example is a personal 'neurocomputer' that we have developed, which is capable of learning and doing inductive reasoning. Systems based on C&C must be easy to use. Electronic equipment - including the latest, most expensive models - typically requires a great deal of specialized skill to operate. Even home appliances can be frightfully difficult for elderly consumers. The key to bridging this man-machine gap lies in software for investing C & C systems with human intelligence. Advances in hardware will be important, in this regard, and we want to count on assistance from progress in personal computers, optoelectronics, bioelectronics, and superconductive
K. Kobayashi / Lessonsfrom my management experience
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materials, as well as other areas. Software, however, will be the central moving force in the C&C networks which will further the information revolution.
4. Coping with accelerating technological innovation C&C is becoming a dominant trend in the world we live in, and it has already taken hold solidly in the information industry, as was convincingly apparent at the Forum '87 symposium sponsored by the International Telecommunications Union in Geneva in October 1987. In my keynote address at that symposium, I was able to comment with confidence on the evolution of C & C along a human axis and examine its likely impact on society. The impact of C&C on social systems will be immeasurably profound. C&C will act on every phase of the cultural legacy of centuries of progress: social frameworks, traditions, legal systems, lifestyles, and values. More, therefore, than a mere technology or business segment, C&C is becoming the byword for a mode of cultural change. In other words, as C&C is manifested in the end products and services, it becomes the infrastructure for every sphere of human activity. The potential scope of the impact of C&C on industrial and social structures is therefore unlimited. The dramatic changes in the industrial structure over the forty plus years since World War II owe much to technological advances that have enabled corporations to pursue their endeavors on unprecedented scale, as in mass production and mass retailing. C&C, however, is a very different kind of technological advance. As C&C takes hold in society, and as information networks mature, information will become the central element in new amalgams with the other traditional corporate resources: people, money, and property. New production formats and other innovations will appear, as explained by the Austrian economist, Dr. Joseph A. Schumpeter. New markets will emerge, complete with new business opportunities. Indeed, companies are increasingly targeting investment specifically on technology and information because they recognize these resources to be the sources of innovation. A recent newspaper story in Japan (Nihon Keizai Shimbun, February 8, 1989 issue) reported that 70% of the capital spending by Japanese corporations in 1988 consisted of investment in R& D facilities and automated or otherwise streamlined production formats, whereas only 30% of the capital spending went into increased production capacity. This distribution of investment represents a reversal of the ratio that prevailed as recently as the late 1960s, when Japan was agressively pursuing quantitative expansion. If we assume that all products result from the input of material and information, then we see that the composition of products is beginning to shift in favor of the latter. C&C does service in the public sector, in business, and in the home. NEC is involved in C&C projects for the public sector that include local informational development schemes planned for regions throughout Japan, a medical
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surveillance system for the Ministry of Health and Welfare, and a satellite broadcasting education system. In the business sector, the multitudinous applications for C &C encompass office automation, factory automation, store automation, and intelligent buildings, as exemplified by NEC's new headquarters building, which is scheduled for completion this year. Among the applications for C & C in the home are automation systems incorporating security, fire-protection, and control functions and information systems, such as direct-broadcast satellite reception formats and personal computer networks. With C & C expected to permeate every area of society in the 21st century, we can classify industrial sectors according to whether or not they make extensive use of C&C. Such as: (1) primary industries that use C & C and those that don't; (2) secondary industries that are equipped with C & C information technology and those that aren't; and (3) C&C-oriented tertiary industries and tertiary industries that are no more than a human tide of simple service functions. In practical management, however, we will do our best to place our major emphasis on identifying a business sector so compelling in its suitability as to justify staking the company's future on the perceived potential. We should dedicate ourselves enthusiastically to fostering sound corporate operations oriented toward realizing that potential.
5. Coping with the increasingly global context for corporate activity Globalization is a pressing management issue for Japanese corporations, including NEC where we are moving fast to address the exigencies of an increasingly borderless world economy. The urgency of this issue stems from the Plaza Accord of September 5, 1985, in which the representatives of five leading industrial nations agreed to undertake coordinated intervention in currency markets to raise the exchange value of the yen relative to other currencies. The appreciation of the yen propelled more Japanese corporations onto Fortune magazine's listing of the world's largest companies, and Japan, no longer in the role of playing economic catch-up to the world's other industrialized democracies, became firmly established as a major economic power. NEC's 'go global' experience might furnish some lessons for the 21st century. We began cultivating overseas markets, as I have mentioned, in the 1950s. Those initial efforts were limited by the terms of our relationship with a U.S. corporation with whom we had capital and technological ties. I sensed, however, that the public-sector market in Japan, which accounted for the bulk of our sales, would become saturated one day. I was therefore determined that NEC should press ahead in overseas markets. The establishment of technological advantage became an important part of our overseas strategy. We won a contract in 1962 to supply our U.S. partner
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with technology for microwave and transmission communications systems. It was in the 1960s that we began competing in the world market for microwave systems. By developing and offering technology unavailable from competing manufacturers, we won a major share of that market. Competition with top-flight corporations in the world electronics market provided us with opportunities to refine our technology, streamline our production, strengthen our manufacturing and earn the confidence of the users. Well before the recent wave of trade frictions and regionalism, we were adhering to a policy of manufacturing products as close as possible to the customer. Our emphasis in selecting overseas sites for production facilities, to be sure, has shifted from user proximity to overall suitability. I expanded on this theme when I was invited to deliver an address to help commemorate the centennial of the Institute of Electrical and Electronics Engineers, Inc. (IEEE) in Philadelphia in October 1984. In a talk that outlined my views on high-technology industries in the 21st century, I proposed an international division of labor supported by C & C networks. NEC presently operates 25 plants in 12 nations besides Japan, and we are seeking an optimal international division of labor within our organization. Parts that we make in the United States, for example, are assembled into finished products at an NEC plant in Singapore and sold to users in Japan and the United States. Another example is the NEC plant in the United States which makes finished products using parts that we produce in Mexico. These are just two instances of the many ways that we are stepping up the linkage among overseas NEC plants located at the sites best suited for the kinds of work they handle, and they illustrate that work need not be routed through Japan. We began operating a value-added network (VAN) in November 1988 between Tokyo and Boston that handles orders for parts and materials 24 hours a day, and we will expand this network to NEC facilities worldwide to help facilitate our international division of procurement. We are also beginning to build networks that will link our facilities around the world in support of IC design work and software development. The approach I am describing is inherently at odds with the concepts of high-technology industries as the exclusive province of industrialized nations. C&C networks provide an excellent basis for handling new, technologically sophisticated work in industrialized nations while involving developing nations in the process by entrusting assembly and other labor-intensive work to them. This changes the international division of labor from a win (industrialized nations) and lose (developing countries) situation to a win-win one. People in every nation can share equally in the fruits of C&C. I have frequently insisted that C&C will change the world and that it will eliminate economic national boundaries. Another important consideration in setting up overseas operations is the need to strive to become part of the local community. NEC America, which is
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headquartered in New York State, received an award from the Governor of New York in 1985 for contributions to employment and economic development in that state. NEC Australia, a wholly owned subsidiary that manufactures telecommunications equipment, has received official recognition for becoming a 'completely Australian company'. In support of research and education, our activities in the United States have included endowing chairs at prestigious universities, establishing scholarship funds and creating the Koji Kobayashi Prize at the IEEE. We established the Foundation for C & C Promotion in Japan in 1985 and followed it with scholarship funds in Thailand and the Philippines and a research facility in Malaysia. In industrialized nations and newly industrializing economies alike, we are taking concrete measures in the name of mutual benefit. True globalization for corporations will consist of organically integrating the kinds of local efforts I have been describing. A clearly defined and internationally understandable corporate vision is a prerequisite for this organic integration. Global management is, after all, a matter of integrating operations in diverse cultural and economic spheres and in diverse markets. The key for this management is an ability to exercise the company's strengths and principles optimally around the world. Japan's new role as a nation that accounts for more than one-tenth of the world economy mandates a new perspective on global responsibility. Amid the deepening interdependence of nations, Japan cannot exist in isolation but must actively fulfill the role of a contributing member of international society - no less can be expected of Japanese corporations. And that is one perspective on the 21st century. 6. Perspective on the 21st century
I have long said that, in the absence of careful maintenance, a corporation will begin to decline in about 60 years. Historically, all industries have peaked and declined, and companies are subject to the same fate. The crucial question for executives is how to position their companies in tomorrow's tide before today's tide begins to ebb. The answer is for companies to change themselves. When the business environment is unstable, competition is intense and profits hard to come by, companies must modify themselves in whatever ways are necessary to overcome the difficulties at hand. The greater the difficulties, the more energetically the companies must endeavor to make the necessary improvements. A company that undergoes this experience a number of times emerges stronger for it - and is more likely to take full advantage of growth opportunities. A company with the capacity to change itself can remain stable over the long term, whereas a company whose outward appearance of stability is merely a sign of rigidity is always at the risk of failing to catch the tides of
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change. Any company must foster a feasible organization in which people will not rest on their past successes of creation but will strive unceasingly for continued transformation. Our challenge is to adopt this spirit of spontaneous self-improvement and to be ever attentive to the bellwethers of megatrends. We must take the initiative in getting rid of what should be discarded and preserve what should be preserved. This active challenge we value most is our path to further growth and development in the 21st century; when C&C networks will support the free, supranational interchange of people, things, money, and information. Just as the mariners in the Great Age of Navigation of the 15th and 16th centuries relied on their compasses, we will navigate an equally exciting age with the aid of C&C tools and principles that will enhance the scope of our judgment and equip us to cope advantageously with technological innovation, the information revolution, and globalization.