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Productivity: Lessons from Japan
Productivity: from Japan Warren
Lessons
J. Keegan
Baruch College, The City University of New York
The purpose of this article is to compare Japanese productivity on an industry basis with the U.S. and European companies, and then to examine the factors and methods that underlie the Japanese success to determine what, if any, lessons Western companies can draw from the Japanese approach.
T
HE MAJOR CHALLENGE FACING INDUSTRIALIZED
countries seeking to increase or even to maintain real standards of living is productivity. Only productivity can offset increasing costs of energy, other raw materials, and wage and salary increases. Without productivity improvements, prices of manufactured goods will continue to rise to offset rising costs. These increases will be met by further increases in prices of energy and materials by producing countries’ cartels and by continuing upward wage and salary pressures in the industrial countries as workers attempt to maintain their real standard of living which will result in further cost and price increases of manufactured goods. If one assumes that producing countries will insist on maintaining their recent gains from price increases, and that workers in industrial countries will attempt to maintain their real incomes, there are only two exits from the current inflationary spiral. One is a reduction in real standards of living in the industrial countries, and the other is an increase in productivity. In effect, the former alternative would reallocate a fixed gross world product while the latter would permit a sharing of an expanded gross world product. Clearly, the latter alternative is the most desirable way for the world economy to extract itself from the current stagflation crisis. Professor Keegan is on the Staff of Baruch College, The City University of New York, 17 Lexington Avenue, N.Y., N.Y. 10010. Copyright @ 1976. Warren J. Keegan.
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1975
JAPANESE AND PRODUCTIVITY
WESTERN
COMPANY
The spectacular growth of Japan since 1945 is weil known. Today, Japan is the third largest economic system in the world after the United States and the U.S.S.R. The real compound rate of growth in Japan during the 1960s of 11-I per cent is a reflection of the aggregate success of Japanese approaches to managing organizations. This overall result is of course the sum of all the enterprises in Japan. At the enterprise level, how do Western and Japanese companies compare? To make this comparison, we have adopted a simple yardstick of productivity : average sales per employee. First, we compared Japan’s largest 500 industrial companies with the 500 largest U.S. and 200 largest European industrials as shown in Table 1. We found that in all categories based on size, Japanese sales per employee are higher than in the U.S. or Europe. Even more striking, perhaps, are the company comparisons as shown in Table 2, which reveal that in every major industry, Japanese companies have significantly higher productivity levels than their U.S. and European counterparts. This data is clearly interesting but is subject to distortion due to possible lack of comparability of sales and employee data.’ One cannot conclude from these data that Japanese companies are more productive than their Western counterparts, but the data nevertheless suggest the extent to which Japanese companies have caught up with and possibly even surpassed their Western counterparts. There is, however, other evidence that the Japanese have been extraordinarily successful in raising productivity levels. As shown in Tables 3-5, the remarkable increases in productivity (19.4 per cent in the 1966-1970 period as compared with 2 per cent for the U.S.) have allowed impressive noninflationary annual increases in wage rates which have brought Japanese wages up to European levels.
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Table
1.
Comparison
of U.S.,
Japanese,
Top 10 1971
Sales U.S. Japan Europe
1971
1971
Top
and European SO
Company
Sales
per Employee
Top 100
Top 200
Top
500
Sll8,258,875 28,531,403 53,583,803
$233,785,111 62,717,686 137,756,089
s310,045,542 83,608,436 183,860,355
$396,499,756 102.340.352 231564,299
5502,897,988 126.412.150
2,960,823 550,753 2.043.883
5,957,369 1,267,281 6598,481
8,428,939 1.655.692 8.949.126
11,055,083 2,142,749 11,701,520
14,324,890 2,813,058
39,941 51,477 26,216
39,235 44,490 20,878
36,783 49,893 20,545
Employees U.S. Japan Europe
Sales/Employee U.S. Japan Europe
35,865 47,761 17,790
35,106 44,938
Data Sources: U.S. Data, Fortune, May, 1972; European Data, Fortune, August, 1972 (converted at end of 1971 Foreign exchange rates) ; Japanese Data, The President Directory, 1973 (converted by author at Y270 - SU.S. 160).
Table
2. 1971 Sales per Employee-U.S. Japanese Compsny Comparisons (Japanese sales are converted 270 Y = $1.00. European sales are converted at the exchange rates prevailing at the end of 1971) Sales $1 ,ooo Transportation Equipment Japan Toyota Motor Nissan Motor U.S. General Motors Ford Chrysler Europe Volkswagenwerk (G) Dailmer-Bent (G) Fiat (I) British Leyland Motors (U.K.) Renault (F)
s 3,797,809 3.633.979
Electrical Equipment Japan Matsushita Electric Hitachi Sanyo Electric U.S. Westinghouse General Electric Western Electric Europe Philips (Netherlands) Siemens (G) AEG-Telefunken (G) General Electric (U.K.) Cie. Generale d’Electricite (F) Chemical Japan Jakeda Chemical Ind. Suminoto Chemical Mitsuibishi Chemical Ind. Asahi Chemical Ind. U.S. E.I. DuPont de Nemours Union Carbide Dow Chemical Allied Chemical Europe ICI (U.K.) Farbwerke Hoechst (G) Montedison (I) Basf (G) Bayer (G)
62
.
Employees
at
Sales/Employee
41,024 48,413
s92.575 75,062
28.263.918 16,433,OOO 7,999,339
773,352 433,074 227,397
36,547 37,945 35,177
4,967,OOl 3.459.828 2,942,810 2,836.467 2.746555
202,029 146,996 182,501 193,703 155,ooo
24,585 23,536 16,124 14,643 17,719
2,771,935 2.897506 917,115
45,930 97,353 17,245
60,351 29,762 53,181
6,630,530 9.425.300 6,045,216
180,714 363,000 207,015
25,623 25,966 29,201
5188,884 3,815,053 2,690,lOO 2,217,600 I,69851 3
367,000 306,ooO 166,700 225,000 118,000
14,138 12,467 16,204 9,856 14,394
633,883 895,332 885,834 1.010.616
12,893 14,767 9,015 20,264
49,164 60,630 98,262 69,872
3,868,200 3.037.529 2,052,711 I,325893
106,593 99,181 47,800 34,012
36,101 30,626 42,943 38,983
3,716,792 3,487,231 3.270.341 3.204.756 2649,067
190,000 142,110 174,100 104,518 104,232
19,562 24,556 18,795 30,710 25,471
LONG
RANGE
PLANNING
Table
2-continued Sales $1 ,ooo
Steel Japan Nippon Steel Nippon Kokan Sumitomo Metal Ind.
Employees
s4,531,906 2.304.524 1,614,528
87,755 43,473 32,521
$52,642 53,125 49,645
4,928,244 2,963,602 1‘384,800
183.940 115,000 42,951
26,792 25,770 32,241
3216,305 2,406.335 2,100,OOO 1843,042 1.604‘471
238,000 96,000 56,000 79,000 30,902
13,513 30,250 37,500 23,329 51,921
792,158
19,060
41,692
2.175.200
60,469
35,984
1.962.373
95,058
20,643
Textiles Japan Toray Industries Teijin
1 ,106,574 790.648
25,908 13,482
45,634 54,644
U.S. Burlington Industries
1 ,127,045
82,000
21,061
Europe Courtalds (U.K.) Coats Patons (U.K.)
1.696,496 739.587
160,000 78,000
10,603 9,481
Glass, Ceramics Japan Asahi Glass
540,630
11,609
46,569
U.S. Corning Glass Works
603.382
32,110
18,791
1,914,458 728,861
119,985 46,000
15,955 15,866
1.932‘073 1,001,948 845,206
3,041 5,224 2,840
635,341 191,797 297,607
U.S. Standard Oil of N.S. Mobil Oil Texaco
18.700.631 8.243,033 7.529.054
143,000 75,300 75,192
130,773 109,469 100,131
Europe Royal Dutch/Shell (Neth/UK) BP (UK) Cie Francaise des Petroles (F) ENI (IR) ELD Group (T)
12.733.790 5.190.928 2.396.316 2.172.360 1,825.417
185,000 70,600 24,000 76,000 19,856
68,831 70,525 99,804 28,583 91,932
428,734
10,465
40,968
2.975.928
109,700
27,127
U.S. U.S. Steel Bethelem Steel Republic Steel Europe British Steel (U.K.) August Thyssen-Hutte BHP (Australia) Krupp-Konzern (G) Arbed (Lux)
(G)
Machinery Japan Komatsu Manufacturing U.S. Caterpillar Tractor Eutope Gutehoffnungshutte
Europe Saint-Gobain-Pont BSN (F)
(G)
a Mousson
Petroleum Japan Nippon Oil Maruzen Oil Mitsubishi Oil
Photographic Japan Fuji Photo Film U.S. Kodak
Table prepared by author. Data Sources: U.S. company data, Fortune, May, 1972; August, 1972 ; Japanese Data ; The President Directory. 1973.
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Sales/employee
1975
European company data, Fortune,
63
Table
3.
Productivity-Annual
Average,
1966-I
company is a unique Japanese institution and would not work outside the Japanese system. They are very sincere in this belief. Basically, the Japanese are aware that Japan is admired and respected but they do not feel they have a message for the rest of the world, Are Japanese unique? Ruth Benedict, in her classic work on the Japanese, cites the following characteristics of the Japanese:
970
Japan France West Germany United Kingdom United States Source: The Boston Consulting on Japan”, 1972.
Group : “A Perspective
IS THE JAPANESE EXPERIENCE UNIQUE TO JAPAN?
One of the fascinating qualities of the Japanese is their total lack of the missionary zeal which is so frequently a part of Western character. Western Europe and the United States have always tried to export religion, values, and government to the rest of the world. For example, throughout the nineteenth and early twentieth centuries, the West exported missionaries and colonial administrators. Table
4.
Hourly
Japan West United Germany Kingdom France United States
Earnings
The Japanese are2
But also
Unprecedently polite
Insolent and overbearing Adapt readily to innovations Not easily amendable to control Treacherous and spiteful Timid
Uncomparably
rigid
Submissive Loyal and generous Brave
in Manufacturing-Annusl
Percentage
Increase
1968
1969
1970
1971
1968-I 971 Average
16%
16%
17%
14%
15.75%
4 9 4 6
7 7
13 10 11 6
12 11 11 6
8”
9”:; 8.25 6.25
Source: The Boston Consulting Group: ‘A Perspective on Japan”. 1972.
Table 5. uring-1971
Average Hourly Earnings* in Manufact(in U.S. $ at 1971 Exchange Rates) l-01 1.19 1.33 1.80 2.05 3.56
United Kingdom West Germany United States ‘Including
bonus and major fringe benefits.
Source: United January, 1973.
Nations,
Monthly
Bulletin
of Statistics.
As the West has become more secular, and as the world has become more independent, the West has continued its missionary traditions by exporting management, the French approach to national planning, etc. The Japanese are opposites in this regard. They do almost nothing to dispel the belief that the Japanese experience is unique, and applies only to Japan. For example, when the Brazilians and the Canadians decided they wanted to establish Japanese style trading companies, they contacted Japanese government and trading company officials for technical advice. The Japanese were very polite and helpful, but they explained that the trading
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Concerned about other’s opinions
Have a terrifying conscience
Disciplined
Take initiative easily
Devoted to Western learning
Strongly conservative
Devoted to art and the the cultivation of Chrysanthemums
Are devoted to the cult of sword and warriors
Admittedly, Benedict’s study .is now somewhat dated and the characteristics she contrasts arise under different circumstances and are not of equal weight. Nevertheless, there is much of the Western cultural tradition and orientation on one side or the other of the above tabulation and often, although Westerners seldom like to admit it, Western culture presents its own contrasting faces. For example, the Japanese and Orientals in general are said to be concerned about saving ‘face’ and Westerners are not. And yet, one sees a constant concern for face saving in the West, at the interpersonal, organizational, and national level. Companies, for example, refuse to abandon projects and products that have no real prospect of success to save face. Over the years, many Westerners have had a tendency to dismiss the relevance of the Japanese system while recongnizing that many of the
LONG
RANGE
PLANNING
elements of the Western system have been applicable to the Japanese. Indeed, for a 15year period from 1950 to 1965 a steady stream of Japanese visitors traveled overseas to observe Western management methods. Most Western businessmen assumed that the Japanese were copying superior Western methods, but the fact is that the Japanese have always been careful to adapt ideas to their own system and culture.3 This adaptation has been the key to the successful application of Western techniques, methods, and experience to Japan. In the same manner, the West obviously cannot copy Japanese methods. If Japanese experience is to be made relevant, in most cases it will no doubt be necessary to adapt the Japanese approach to the Western environment. The outright rejection of Japanese methods so common today in the West, is a serious mistake. There are too many similarities between Japan and the West to justify this response. If a Japanese approach is rejected, it should be on the basis of careful study and after full consideration of how the Japanese concept or approach might be adapted to Western culture. KEY FACTORS THE JAPANESE
RESPONSIBLE SUCCESS
FOR
How have the Japanese been able to achieve results which 15 years ago most experts on economic growth would have said were impossible? Many single factor explanations have been proposed. They include the high rate of savings and investment (the gross fixed asset formation in Japan in 1972 was 34.8 per cent of GNP, the highest for any OECD country and compares with 17.4 per cent for the U.S. and 26 per cent for Germany), the Japanese work ethic, the extraordinary degree of government-business cooperation, the Japanese skill and dedication to importing foreign technology and so on. One could expand this list, but unfortunately any single factor is an incomplete and inadequate explanation. In my view, no monistic theory can be validly maintained. Rather, there are a number of interrelated factors which have contributed to the Japanese success. In the sections which follow, I wiIl identify what I believe to be the key factors underlying the Japanese productivity gains and the implications of the Japanese approach for Western businessmen and policy makers who would like to learn from the Japanese example. OBJECTIVES
AND
COMMITMENT
The most striking feature of the Japanese is their commitment to economic growth, development, and their objective of world economic leadership.4 While there is nothing unusual about aspirations to wealth, the Japanese are distinctive in the strength of their commitment. They know what they want, and are dedicated to taking the necessary steps to achieve their goals. There is a wide and deep understanding in Japan that economic growth can only be achieved if all sectors of society make
APRIL, 1975
appropriate contributions. This means innovativeness and adaptiveness on the part of government, management, professionals and workers. It also implies that gains from innovation will be shared among all sectors, i.e. rising productivity wilI result in rising wages and profits and conversely, rising wages and profits must be earned by increasing productivity. This later aspect of the Japanese culture can be best illustrated by a common method of worker protest in Japan : Not infrequently, when Japanese workers want to protest management’s handling of an issue, they protest by increasing production and wearing black armbands. This act typically embamsses and pxeasu~ management to respond to worker demands.
Contrast this method of protest with the Western strike. The Japanese approach suggests a deep understanding on both sides on the non-zero sums nature of economic activity whereas the strike is more of an expression of the zero-sums nature of warfare. In short, this is a social contract or bond of trust in Japan that is essential in an adaptive, changing, modem industrial system. The high level of commitment or motivation to increase productivity in Japan is visible even to the naked eye. The Japanese work very hard. Even though the work week has been shortened to European length, Japanese executives still work longer hours than their Western counterparts. A visitor to Japan is immediately struck by the executive custom of working Saturday mornings, only recently shortened from all day Saturday. Obviously, however, the Japanese have not only worked longer and harder to achieve their objectives, they have worked ‘smarter’. The following sections of this article identify the major elements of the Japanese approach. SAVINGS
AND
INVESTMENT
In the period of 19661973, the Japanese saved an average of 18 per cent of their disposable personal income, as compared with 7 per cent for the U.S.A. Capital investment as percent of gross national product averaged 34 per cent for Japan as compared to only 14 per cent for the U.S. During this period, Japanese output per man hour rose more than four times as fast as that of the U.S. European industrialized countries for this period fall between the Japanese high and the U.S. low for savings, investment, and increase in output per man-hour. The significance of these figures applies to both govemment and enterprise policy. Government policy should encourage savings and investment, and enterprises should constantly scan the world for ideas and opportunities to intelligently invest to improve productivity and competitiveness. The savings and investment opportunities in Japan have been created by an economic system that is committed to obtaining the productivity gains from high level sustained investment. They key elements of
65
this system are described in the following portion of this article. NATIONAL
STRATEGY
One of the most distinctive characteristics of the Japanese approach to economic growth and development has been the Japanese national strategic plan. Under the guidance of the Ministry of International Trade and Industry (MITI), the Japanese have articulated national objectives and goals, analyzed their own resources and capabilities, and have developed time phased strategies to achieve these objectives in the light of their strengths, weaknesses, and resources. Following World War II, Japan’s major strength was a large pool of trainable and relatively cheap labor. The major weaknesses were the low levels of investment and productivity and the gap between Japanese and Western technology. Under the guidance of MITI, markets were analyzed, technology purchased and a systematic effort to upgrade productivity and technology was undertaken. Unlike most countries, the Japanese have seen clearly the advantages of scanning the world for ideas and technology. During the 1950s and 196Ck, they purchased $15 billion of technology from the U.S. alone. This imported know-how had cost the U.S. an estimated $20 billion per year in R & D expenditure. The paradox here lies in the Japanese openness to foreign ideas as compared to the Western tendency, particularly in the U.S., to apply the not invented here (NIH) syndrome to all foreign developments. Unlike most countries who are concerned about the cost of imported technology, the Japanese as a matter of policy have encouraged enterprises to seek out and purchase technology, and have in a 20-year period used this policy to bring their own level of technology and productivity up to and in some cases beyond Western standards. Another major aspect of the Japanese national strategy has been to steer the nation’s resources into the most productive areas of the international economy. Thus, the Japanese have continuously shifted their resources into the areas where value added per worker was higher and have withdrawn from traditional areas of labor intensive lowproductivity activity. To encourage these shifts, they have maintained protected home markets, and have encouraged Japanese firms to consolidate and merge to achieve a scale commensurate with international competitiveness. Thus, Japan has moved from the textiles and cheap consumer products to sophisticated high quality consumer and industrial products, from cheap cameras to precision optics, from simple radios to sophisticated electronic home entertainment products, from bicycles to motorcycles, autos, trucks, and earth moving equipment, from the abaccus to computers, and so on. The combination of rising home wages, increasing pressure from resource producing countries to contribute toward industrialization, and a combina-
66
tion and economic and political pressures in large developed country markets has led the Japanese to move increasingly toward overseas direct investment which draws upon lower wages and secures a claim upon scarce natural resources in developing countries and which responds to economic and political pressure in developed countries. The nationally planned decisiveness of the Japanese moves in these directions can be contrasted with the unplanned overseas expansion of U.S. companies in the 1950s and 1960s and the agonizing hesitation of European companies to this day on the issue of overseas direct investment. GOVERNMENT CO-OPERATION
BUSINESS
The expression Japan Incorporated was coined to capture the extraordinary degree of linkage between government and business planning and policy formation. The Japanese have evolved a systems approach to resource allocation where the joint objective of government and business has been to achieve the national and enterprise goal of economic development and higher productivity. The West, and in particular the U.S., has developed an adversary system where the government role in economic affairs is limited to managing government responsibilities, (e.g. defense), regulating competition, and more recently worker, consumer and environmental protection. The major difference between Japanese and Western Government Business relations is the much broader participation of Japanese government officials in strategic analysis focusing upon ways of increasing productivity and growth. For example, the Japanese government, under strong pressure from trading partners, has agreed to liberalize limitations on foreign direct investment in Japan. To prepare Japanese companies to compete with new foreign investors, the government is encouraging companies in affected industries to merge into more competitive units. The two policies are closely co-ordinated and will contribute toward further gain in productivity and growth. STRATEGIC
BUSINESS
ANALYSIS
The strategy of Japanese companies is characterized by the following key elements: (1) A global orientation toward environmental analysis. Global scanning for markets and resources is not unique to the Japanese, but it does appear to be more systematic and integrated in the overall corporate strategy than in most Western companies. In interviews with Japanese businessmen, I have found them to be remarkably well informed about the location of world market opportunity and world resources. One executive, a managing director of Mitsubishi Corporation, carries a small rice paper notebook with economic projections for all the major world markets under three sets of growth
LONG
RANGE
PLANNING
assumptions to 1975, 1980 and the year 2000. The notebook also projects alternative forms of Japanese participation and the position of Mitsubishi Corporation in the projected world economy. Japanese companies can be found operating in every part of the globe: North America, Europe, Latin America, Africa and Asia. But perhaps most indicative of all as a measure of the global long range planning of the Japanese is their commitment evidenced by investment and offices, to markets with high potential for future growth: Brazil, Eastern Europe and Southeast Asia. (2) Emphasis on sales volume and market position as major objectives (as opposed to profit). Western businessmen who consider these objectives quaint and primitive, should look again. A recent major research project sponsored jointly by Marketing Science Institute and General Electric based upon a study of more than 300 U.S. businesses indicates that there is a detite positive correlation between share of market and profitability. The ‘Experience Curve Effect’, or the finding that costs on value added for a large number of industries studied appears to decline 2&30 per cent with each doubling of industry accumulated volume, combined with the findings on profitability of the MSI-GE study, point clearly to the reasons for the long range profitability of the company which seeks and achieves a high share of market and the associated volume. The high volume producer is the lowest cost producer, and is therefore in the end a profitable, surviving producer with competitive market prices. A recent strategic concept suggests that there are two kinds of companies, innovators and low-cost competitors. Innovators develop new products which they sell at monopolistic or oligopolistic margins until they are challenged by ‘me-too’ companies who erode their share of market by price cutting. The price cutting companies eventually achieve a commanding high-volume low-cost position in the industry which forces out the original innovator. The obvious lesson to the innovator is to consider ways of adapting strategy over a product’s life cycle to become the low-cost producer. The Japanese, who have not lagged in their innovative abilities, but who have always driven for market position and for cost-volume advantages, have linked strategies of innovation to dominate new growth markets and strategies of driving for volume, cost leadership and share of market systematically over the past 10 years. (3) Emphasis on product quality. Productivity is a measure of output per worker. Output, or value added, is as much a measure of quality as it is of quantity. Japanese companies have recognized that mere quantity without quality is not enough to achieve their goal of economic growth. Thus, in industry after industry, Japanese companies have become world leaders capturing the top price/ quality segments of their product markets. Examples abound, including cameras, optics, con-
APRIL,
1975
sumer electronics, communications equipment, motorcycles, and so on. Quality is a result and expression of commitment to tasks. Without commitment, quality suffers. A U.S. motorcycle dealer with a franchise for an English and Japanese motorcycle explained why he had no English machines in stock, and why Japanese machines were better: “First of all, the English are always on strike. They simply cannot be tied upon. Apparently they have problems with their whole industrial organization. However, even when you can get English machines, there are problems. The English engineering is excellent. But the manufacturing and details are very poor. For example, the English still use cork gaskets for oil plug seals, causing their machines to leak oil. Their attitude is, just wipe up the leaks with a.rag-no problem. The Japanese use a neoprene seal which does not leak An English machine arrives with half the bolts untightened. It must be completely worked over by a mechanic before it is sold. Japanese machines arrive in ready to sell condition.”
The Japanese camera industry is an example of the results of commitment to quality. The industry developed an impressive series of innovations in camera design (most notably the single lense reflex design) and executed these innovations with superb attention to mechanical and optical excellence in manufacture. This commitment resulted in a transformation of the Japanese industry position in world camera markets from an industry which manufactured cheap imitations of Western cameras to an industry whose products today set world standards of excellence. Quality of this kind has been rewarded in the marketplace, and is an important foundation of Japanese gains in productivity. EMPLOYMENT
AND
JOB
SECURITY
These major shifts in industry concentration and production location could never have been undertaken if the gains from these shifts were not widely distributed. The Japanese have managed to shift their energy and attention to new opportunities without abandoning workers and managers on the path of change. Thus, one of the major obstacles to change in the West, the objections of displaced workers, has not developed. A major factor underlying the Japanese success in eliminating the objections to change has been their commitment to job security. Indeed, one of the major achievements of the Japanese has been their ability to achieve a high degree of employment security, that is a strong commitment of the organization to the employee with a reciprocal commitment of employees to the organization, and at the same time a high degree of flexibility to adjust to changing situations. In brief, the Japanese system has the following features: most employees have a guaranteed job once they are on the payroll. While on the job, they have almost complete job security short of a major crisis or the bankruptcy of the employer. They are paid on the basis of seniority and as a rule, pay
67
doubles every 15 years, regardless of the type of job. 05cial retirement comes at age 55 to everyone except those who at the age of 45 become members of top management and are not expected to retire at any particular age. The absence of any man&tory retirement age for top management reflects the Japanese philosophy that those promoted to top management positions have unique ability and that it would be foolish for a company to lose this capability merely because of age. The retiring employee get a a-year pension, which is expected to tide him over while he finds other work. Most older employees seem to have little trouble in finding alternative employment or indeed often stay on as temporary employees of their original employer. The effect of this arrangement is to provide job security for younger employees with families who need it, and a feeling of still being wanted and useful to the older men. There are, to be sure, major flaws in the Japanese system. Large segments of the work force are not included in the lifetime commitment system-for example, women, probationary employees, and workers who join the company at mid career, and it should be added that some observers have concluded that in general the Japanese treat men over 55 poorly. The security of the Japanese system creates by Western standards a remarkable openness toward change in Japanese organizations. In the judgment of most students of Japanese organizations this is one of the real keys to the Japanese success. The Japanese combine their organizational security with a deep commitment to continuous training. Thus, workers neither become obsolete nor do they become overspecialized. This approach is in stark contrast to the commitment of some Western workers, who often have no place to turn, to obsolete skills. In the U.S. for example, highly trained workers, such as engineers, become ‘obsolete’ 10 years out of school and are replaced with fresh new bodies straight out of engineering school. The Japanese build on experience and develop workers to their potential while in the West employees often abandon people in the prime of life. The Japanese employee thinks of himself ‘horizontally’ as an employee of the Matsushita or Toyota and not ‘vertically’ as a member of a union such as the United Auto Workers or as a professional in marketing of finance. In Western organizations, in the final recourse, often employees must rely upon their union or their professional qualifications for security. Thus in the U.S. one sees the spectacle of conflict between management and labor often taken to almost grotesque proportions as in the case of the recent strike by the rail workers against bankrupt Penn Central railroad on the issue of job eliminations. Less obvious are the managers who spend more time protecting their own threatened positions or searching for better positions in other organizations than they do on their own current jobs. The Japanese organization with its two-way commitments releases the energies
68
of all employees to search for new organizational opportunities and more e5cient ways of performing tasks. In Japan there is no job security obstacle to change. Thus the Japanese organization is in many respects suited to a dynamic and changing world in contrast to the Western model where change is often perceived (correctly) by employees as threatening and dangerous to employee welfare. Japanese employees initiate and welcome change whenever it will enhance the company’s welfare because company welfare is synonymous with their own personal welfare. This commitment cuts right across the normal occupational boundaries and division product areas if necessary. For example : A major Japanese electronic calculator manufacturer discovered that it has accumulated a six month product inventory far ln exass of normal levels. It responded by cutting the production schedules, pulling production workers off assembly lines, and sending them out around the country as salesmen!
There is evidence that far-sighted U.S. companies are obtaining higher productivity from their employees by following this ‘Japanese approach’. For example : “Delta Airlines has consistently had the reputation for provlding the beat passenger service of any U.S. airline, and it has ken able to avoid the usual airline hiriagfurloughing SW as traf6c grows and contracts . . . (the) feeling of job security among Delta personnel is undoubtedly a factor in the high morale that character& the airline’s servlce.“s
TEAM
SPIRIT
In 1968, the Japan Productivity Center undertook a survey of 721 large Japanese corporations which duplicated the George Steiner survey on ‘Strategic Factors in Business Success’ of 711 U.S. corporations. In both surveys, companies were asked to indicate their importance ranking for business success of 71 factors organized into seven categories. Japanese managers consistently ranked personnel factors higher than their U.S. counterparts as shown in Table 6. The fraternal bond between the Japanese company and its employees is in stark contrast to the sophisticated coolness of the typical Western enterprise. It is very unfashionable to express a ‘rah rah’ spirit in Western companies today. In the U.S., Kirby vacuum cleaner salesmen, who must work up to an arduous day of door-to-door selling, start off the day with yells and cheers, but that is considered a necessary evil and well beyond the normal U.S. company practices. And yet, it is significant that one of the most successful U.S. enterprises of the 20th century, IBM, until very recently and certainly throughout its long period of growth exhibited many of the characteristics of a Japanese company, including enthusiasm-generating song sessions. IBM was a classic non-union horizontal organization with an
LONG RANGE PLANNING
Table 6. Comparative Importance of Strategic Factors in the Area of Personnel aa 5valuated by American and Japanese Managers6 (ordinal rank). U.S.
I Establishing better personnel relations with employees Ability to get along with labor unions Ability to level peaksand valleys of employment Ability to optimize employee turnover (not too much and not too little) Ability to stimulate Creativity In employees.
Japan
10
1
18
2
20
4
52
10
48
12
unwritten rule that no one who kept to the company’s code of conduct was ever fired, and where all promotions were made from within the organization. IBM emphasized the world wide company family and of course, IBM was also a company which encouraged and rewarded individual performance in the Western, particularly the U.S., tradition. The combination of security, team spirit, and incentive has made IBM one of the world’s great enterprises by almost any measure: growth, share of market, profitability, innovation, and last but not least, for thousands of workers, managers and scientists, an exciting and rewarding organization to work for. The similarities and differences between IBM and Japanese organizations are illuminated by a comparison of company songs. The following was a typical IBM verse under the reign of Thomas Watson, senior :
The IBM verse, which is typical of a vast body of song material that was sung throughout the company in Watson’s day, points to the importance of individual leaders and to goals of getting to the top without any reference to what the top is or how this goal relates to anything outside of IBM (i.e. building a better U.S.A. or a better world), and it emphasizes the importance of leaders rather than the group in the accomplishments of the organization. Thus, even when there are major similarities in strategy and style, the song underlines as well significant differences between Watson’s IBM and Japanese social values and attitudes as expressed in organizational life. The current Western emphasis on corporate social responsibility is in fact a move toward the values of the Japanese organization. If IBM were today to resume the practice of singing company songs, they would bear more resemblance to contemporary Japanese company verse than to the traditional IBM verse.
! Contrast
this with the Matsushita
Worker’s
Song:
For the builder of a new Japan Let’s put our strength and mind together, Doing our best to promote production, Sending our goods to the people of the world Endlessly and continuously, Like water gushing from a fountain Grow industry, grow, grow, grow! Harmony and sincerity! Matsushita Electric!
The Japanese verse relates the company goals to national goals, emphasizes cooperation, exports, growth and harmony. Altogether, when analyzed carefully, it is an accurate and straight-forward statement about the company’s mission and performance, and a reflection of Japanese organizational values.
APRIL, 1975
69
and that every member of the organization has an opportunity to contribute to the development of organizational strategies and plans. This system draws upon the talents of every member of the management team thus insuring that the widest possible base of experience, judgment, analysis, and insight is incorporated in the planning process. Additionally, it insures that all proposals are fully co-ordinated. Finally, the system develops understanding and commitment that adds power and quality to implementation efforts. The contrast between the Western and Japanese resource allocation, goal selection, and decision making approach can be illustrated as follows. In Western companies, the Chief Executive Officer must direct co-ordination efforts. In Japanese companies, co-ordination results from the organizational custom of ringi. Western companies rely much more on individual leadership for direction and co-ordination, whereas Japanese companies rely much more upon organizational leadership. The closest Western model of the Japanese ‘ringi’ organizational process occurs in mature matrix organizations such as Proctor and Gamble. P & G introduced its brand of the product management system in 1927. The product/ brand manager under this system has been regarded by P & G imitators as the president of his own company. He draws upon other specialists and co-ordinates everything from manufacturing to research for his own product or product group. The key to P & G’s success with this system has been a rigorous system of check and balances. This is
why so many have not achieved the same results. The system, which bears a striking resemblance to ‘ringi’, was described by a former P & G employee: ‘I had been there three or four months’, he says, ‘and I was asked to prepare a sales promotion involving an expenditure of maybe S300,OOO.My boss, the brand manager, read it and made a recommendation. I revised it, and then it went from the brand manager to the associate advertising manager. He pointed out certain areas and made suggestions. I revised it, and it went back again. This time the associate ad manager sent it to the division vicepresident. It came back with a couple of minor changes. Then it went to the marketing vicepresident, and he ultimately presented it to the executive committee. This is the way authority is delegated and shared. But at this point, whose proposal was iV8
CONCLUSION
Western businessmen and public policy makers must recognize the reality of Japan. Even more importantly, however, Western businessmen must learn from Japan as the Japanese have learned from the West. It is time to return the compliment of the very serious study the Japanese have given to Western methods and approaches with the same kind of serious study of Japanese methods. This is the truly global approach to business which is required to maintain a position of strength and leadership in today’s world where good ideas emerge in disparate locations. Japanese performance presents a challenge to the West to learn from Japanese methods. Obviously, Western managers and organizations
Western Companies
Chief Executive Officer
Marketing
Personnel
Japanese Companies
Chief Executive Officer
Engineering Personnel
70
LONG RANGE PLANNING
cannot simply copy Japanese approaches and methods. There are too many real cultural differences to allow such a simplistic approach. What Western managers must do is study, learn, adapt and create where applicable, Western versions of Japanese methods and approaches. n
announced company’s workforce figures. Another distortion may arise from the Japanese company practice of not according regular employee status to seasonal and part time workers. (2)
Ruth Benedict, The Chrysanthemum and the Sword, Charles E. Tuttle Company, Inc., Rutland, Vermont, 1946, p. 1, 2.
(3)
See for example, Nobuo Noda, How J8pen Absorbed American Menagement Methods, Translation Series
ACKNOWLEDGEMENT The Author would like to thank A. Martin Cohen, The International Development Center of Japan, Eli Ginzberg, Professor, Columbia Business School, Shigeru Masuda, Booz, Allan 8 Hamilton, Inc., N.Y., John R. McHenry, General Electric Company, and Leonard S. Simon, Editor, Interfeces, for their valuable and helpful comments on an earlier draft of this paper.
REFERENCES (1)
These comparisons, which 8re based on published reports of sales and number of employees are subject to two sources of distortion. First, sales is not an accurate measure of each company’s net value added. Part of the “productivity” difference may simply reflect differences in integration among the companies. Secondly, the employee statistics of Japanese and foreign companies are not entirety comparable. In Japan newly-hired employees (fresh from junior and high school) are often hired on a probationary basis and ere not accorded regular employee status. They may or may not be included in the usual publicly
APRIL,
1975
10, Tokyo, Asian Productivity Organization,
1969.
(4)
It is beyond the scope of this article to judge the desirability of economic growth as a national goal. Certainly the Japanese themselves now question economic growth as a sole and overriding national objective. They are, for example, quite sensitive to the change that they are “economic animals”. Today in Japan, there is wide-spread discussion underway concerning goals and the quality of life.
(5)
“The Airlines New Austerity”, March 30, 1974, p. 56.
Business Wee&,
(6) A. Martin Cohen, “Social and Cultural Determinants of Japanese Management Style”, Management Japan, Vol. 7, No. 3, 1974, pp. 26-31. (7)
For an excellent We Can Learn Peter Drucker, April, 1971, pp.
(8) “The
Brand
exposition on this point, see ‘What from Japanese Management”, by H8rv8rd Business Review, March110-122.
Manager:
No Longer
King,” Business
Week, June 9, 1973, p. 60.
71
Lessons
J. Keegan
Baruch College, The City University of New York
The purpose of this article is to compare Japanese productivity on an industry basis with the U.S. and European companies, and then to examine the factors and methods that underlie the Japanese success to determine what, if any, lessons Western companies can draw from the Japanese approach.
T
HE MAJOR CHALLENGE FACING INDUSTRIALIZED
countries seeking to increase or even to maintain real standards of living is productivity. Only productivity can offset increasing costs of energy, other raw materials, and wage and salary increases. Without productivity improvements, prices of manufactured goods will continue to rise to offset rising costs. These increases will be met by further increases in prices of energy and materials by producing countries’ cartels and by continuing upward wage and salary pressures in the industrial countries as workers attempt to maintain their real standard of living which will result in further cost and price increases of manufactured goods. If one assumes that producing countries will insist on maintaining their recent gains from price increases, and that workers in industrial countries will attempt to maintain their real incomes, there are only two exits from the current inflationary spiral. One is a reduction in real standards of living in the industrial countries, and the other is an increase in productivity. In effect, the former alternative would reallocate a fixed gross world product while the latter would permit a sharing of an expanded gross world product. Clearly, the latter alternative is the most desirable way for the world economy to extract itself from the current stagflation crisis. Professor Keegan is on the Staff of Baruch College, The City University of New York, 17 Lexington Avenue, N.Y., N.Y. 10010. Copyright @ 1976. Warren J. Keegan.
APRIL,
1975
JAPANESE AND PRODUCTIVITY
WESTERN
COMPANY
The spectacular growth of Japan since 1945 is weil known. Today, Japan is the third largest economic system in the world after the United States and the U.S.S.R. The real compound rate of growth in Japan during the 1960s of 11-I per cent is a reflection of the aggregate success of Japanese approaches to managing organizations. This overall result is of course the sum of all the enterprises in Japan. At the enterprise level, how do Western and Japanese companies compare? To make this comparison, we have adopted a simple yardstick of productivity : average sales per employee. First, we compared Japan’s largest 500 industrial companies with the 500 largest U.S. and 200 largest European industrials as shown in Table 1. We found that in all categories based on size, Japanese sales per employee are higher than in the U.S. or Europe. Even more striking, perhaps, are the company comparisons as shown in Table 2, which reveal that in every major industry, Japanese companies have significantly higher productivity levels than their U.S. and European counterparts. This data is clearly interesting but is subject to distortion due to possible lack of comparability of sales and employee data.’ One cannot conclude from these data that Japanese companies are more productive than their Western counterparts, but the data nevertheless suggest the extent to which Japanese companies have caught up with and possibly even surpassed their Western counterparts. There is, however, other evidence that the Japanese have been extraordinarily successful in raising productivity levels. As shown in Tables 3-5, the remarkable increases in productivity (19.4 per cent in the 1966-1970 period as compared with 2 per cent for the U.S.) have allowed impressive noninflationary annual increases in wage rates which have brought Japanese wages up to European levels.
61
Table
1.
Comparison
of U.S.,
Japanese,
Top 10 1971
Sales U.S. Japan Europe
1971
1971
Top
and European SO
Company
Sales
per Employee
Top 100
Top 200
Top
500
Sll8,258,875 28,531,403 53,583,803
$233,785,111 62,717,686 137,756,089
s310,045,542 83,608,436 183,860,355
$396,499,756 102.340.352 231564,299
5502,897,988 126.412.150
2,960,823 550,753 2.043.883
5,957,369 1,267,281 6598,481
8,428,939 1.655.692 8.949.126
11,055,083 2,142,749 11,701,520
14,324,890 2,813,058
39,941 51,477 26,216
39,235 44,490 20,878
36,783 49,893 20,545
Employees U.S. Japan Europe
Sales/Employee U.S. Japan Europe
35,865 47,761 17,790
35,106 44,938
Data Sources: U.S. Data, Fortune, May, 1972; European Data, Fortune, August, 1972 (converted at end of 1971 Foreign exchange rates) ; Japanese Data, The President Directory, 1973 (converted by author at Y270 - SU.S. 160).
Table
2. 1971 Sales per Employee-U.S. Japanese Compsny Comparisons (Japanese sales are converted 270 Y = $1.00. European sales are converted at the exchange rates prevailing at the end of 1971) Sales $1 ,ooo Transportation Equipment Japan Toyota Motor Nissan Motor U.S. General Motors Ford Chrysler Europe Volkswagenwerk (G) Dailmer-Bent (G) Fiat (I) British Leyland Motors (U.K.) Renault (F)
s 3,797,809 3.633.979
Electrical Equipment Japan Matsushita Electric Hitachi Sanyo Electric U.S. Westinghouse General Electric Western Electric Europe Philips (Netherlands) Siemens (G) AEG-Telefunken (G) General Electric (U.K.) Cie. Generale d’Electricite (F) Chemical Japan Jakeda Chemical Ind. Suminoto Chemical Mitsuibishi Chemical Ind. Asahi Chemical Ind. U.S. E.I. DuPont de Nemours Union Carbide Dow Chemical Allied Chemical Europe ICI (U.K.) Farbwerke Hoechst (G) Montedison (I) Basf (G) Bayer (G)
62
.
Employees
at
Sales/Employee
41,024 48,413
s92.575 75,062
28.263.918 16,433,OOO 7,999,339
773,352 433,074 227,397
36,547 37,945 35,177
4,967,OOl 3.459.828 2,942,810 2,836.467 2.746555
202,029 146,996 182,501 193,703 155,ooo
24,585 23,536 16,124 14,643 17,719
2,771,935 2.897506 917,115
45,930 97,353 17,245
60,351 29,762 53,181
6,630,530 9.425.300 6,045,216
180,714 363,000 207,015
25,623 25,966 29,201
5188,884 3,815,053 2,690,lOO 2,217,600 I,69851 3
367,000 306,ooO 166,700 225,000 118,000
14,138 12,467 16,204 9,856 14,394
633,883 895,332 885,834 1.010.616
12,893 14,767 9,015 20,264
49,164 60,630 98,262 69,872
3,868,200 3.037.529 2,052,711 I,325893
106,593 99,181 47,800 34,012
36,101 30,626 42,943 38,983
3,716,792 3,487,231 3.270.341 3.204.756 2649,067
190,000 142,110 174,100 104,518 104,232
19,562 24,556 18,795 30,710 25,471
LONG
RANGE
PLANNING
Table
2-continued Sales $1 ,ooo
Steel Japan Nippon Steel Nippon Kokan Sumitomo Metal Ind.
Employees
s4,531,906 2.304.524 1,614,528
87,755 43,473 32,521
$52,642 53,125 49,645
4,928,244 2,963,602 1‘384,800
183.940 115,000 42,951
26,792 25,770 32,241
3216,305 2,406.335 2,100,OOO 1843,042 1.604‘471
238,000 96,000 56,000 79,000 30,902
13,513 30,250 37,500 23,329 51,921
792,158
19,060
41,692
2.175.200
60,469
35,984
1.962.373
95,058
20,643
Textiles Japan Toray Industries Teijin
1 ,106,574 790.648
25,908 13,482
45,634 54,644
U.S. Burlington Industries
1 ,127,045
82,000
21,061
Europe Courtalds (U.K.) Coats Patons (U.K.)
1.696,496 739.587
160,000 78,000
10,603 9,481
Glass, Ceramics Japan Asahi Glass
540,630
11,609
46,569
U.S. Corning Glass Works
603.382
32,110
18,791
1,914,458 728,861
119,985 46,000
15,955 15,866
1.932‘073 1,001,948 845,206
3,041 5,224 2,840
635,341 191,797 297,607
U.S. Standard Oil of N.S. Mobil Oil Texaco
18.700.631 8.243,033 7.529.054
143,000 75,300 75,192
130,773 109,469 100,131
Europe Royal Dutch/Shell (Neth/UK) BP (UK) Cie Francaise des Petroles (F) ENI (IR) ELD Group (T)
12.733.790 5.190.928 2.396.316 2.172.360 1,825.417
185,000 70,600 24,000 76,000 19,856
68,831 70,525 99,804 28,583 91,932
428,734
10,465
40,968
2.975.928
109,700
27,127
U.S. U.S. Steel Bethelem Steel Republic Steel Europe British Steel (U.K.) August Thyssen-Hutte BHP (Australia) Krupp-Konzern (G) Arbed (Lux)
(G)
Machinery Japan Komatsu Manufacturing U.S. Caterpillar Tractor Eutope Gutehoffnungshutte
Europe Saint-Gobain-Pont BSN (F)
(G)
a Mousson
Petroleum Japan Nippon Oil Maruzen Oil Mitsubishi Oil
Photographic Japan Fuji Photo Film U.S. Kodak
Table prepared by author. Data Sources: U.S. company data, Fortune, May, 1972; August, 1972 ; Japanese Data ; The President Directory. 1973.
APRIL,
Sales/employee
1975
European company data, Fortune,
63
Table
3.
Productivity-Annual
Average,
1966-I
company is a unique Japanese institution and would not work outside the Japanese system. They are very sincere in this belief. Basically, the Japanese are aware that Japan is admired and respected but they do not feel they have a message for the rest of the world, Are Japanese unique? Ruth Benedict, in her classic work on the Japanese, cites the following characteristics of the Japanese:
970
Japan France West Germany United Kingdom United States Source: The Boston Consulting on Japan”, 1972.
Group : “A Perspective
IS THE JAPANESE EXPERIENCE UNIQUE TO JAPAN?
One of the fascinating qualities of the Japanese is their total lack of the missionary zeal which is so frequently a part of Western character. Western Europe and the United States have always tried to export religion, values, and government to the rest of the world. For example, throughout the nineteenth and early twentieth centuries, the West exported missionaries and colonial administrators. Table
4.
Hourly
Japan West United Germany Kingdom France United States
Earnings
The Japanese are2
But also
Unprecedently polite
Insolent and overbearing Adapt readily to innovations Not easily amendable to control Treacherous and spiteful Timid
Uncomparably
rigid
Submissive Loyal and generous Brave
in Manufacturing-Annusl
Percentage
Increase
1968
1969
1970
1971
1968-I 971 Average
16%
16%
17%
14%
15.75%
4 9 4 6
7 7
13 10 11 6
12 11 11 6
8”
9”:; 8.25 6.25
Source: The Boston Consulting Group: ‘A Perspective on Japan”. 1972.
Table 5. uring-1971
Average Hourly Earnings* in Manufact(in U.S. $ at 1971 Exchange Rates) l-01 1.19 1.33 1.80 2.05 3.56
United Kingdom West Germany United States ‘Including
bonus and major fringe benefits.
Source: United January, 1973.
Nations,
Monthly
Bulletin
of Statistics.
As the West has become more secular, and as the world has become more independent, the West has continued its missionary traditions by exporting management, the French approach to national planning, etc. The Japanese are opposites in this regard. They do almost nothing to dispel the belief that the Japanese experience is unique, and applies only to Japan. For example, when the Brazilians and the Canadians decided they wanted to establish Japanese style trading companies, they contacted Japanese government and trading company officials for technical advice. The Japanese were very polite and helpful, but they explained that the trading
64
Concerned about other’s opinions
Have a terrifying conscience
Disciplined
Take initiative easily
Devoted to Western learning
Strongly conservative
Devoted to art and the the cultivation of Chrysanthemums
Are devoted to the cult of sword and warriors
Admittedly, Benedict’s study .is now somewhat dated and the characteristics she contrasts arise under different circumstances and are not of equal weight. Nevertheless, there is much of the Western cultural tradition and orientation on one side or the other of the above tabulation and often, although Westerners seldom like to admit it, Western culture presents its own contrasting faces. For example, the Japanese and Orientals in general are said to be concerned about saving ‘face’ and Westerners are not. And yet, one sees a constant concern for face saving in the West, at the interpersonal, organizational, and national level. Companies, for example, refuse to abandon projects and products that have no real prospect of success to save face. Over the years, many Westerners have had a tendency to dismiss the relevance of the Japanese system while recongnizing that many of the
LONG
RANGE
PLANNING
elements of the Western system have been applicable to the Japanese. Indeed, for a 15year period from 1950 to 1965 a steady stream of Japanese visitors traveled overseas to observe Western management methods. Most Western businessmen assumed that the Japanese were copying superior Western methods, but the fact is that the Japanese have always been careful to adapt ideas to their own system and culture.3 This adaptation has been the key to the successful application of Western techniques, methods, and experience to Japan. In the same manner, the West obviously cannot copy Japanese methods. If Japanese experience is to be made relevant, in most cases it will no doubt be necessary to adapt the Japanese approach to the Western environment. The outright rejection of Japanese methods so common today in the West, is a serious mistake. There are too many similarities between Japan and the West to justify this response. If a Japanese approach is rejected, it should be on the basis of careful study and after full consideration of how the Japanese concept or approach might be adapted to Western culture. KEY FACTORS THE JAPANESE
RESPONSIBLE SUCCESS
FOR
How have the Japanese been able to achieve results which 15 years ago most experts on economic growth would have said were impossible? Many single factor explanations have been proposed. They include the high rate of savings and investment (the gross fixed asset formation in Japan in 1972 was 34.8 per cent of GNP, the highest for any OECD country and compares with 17.4 per cent for the U.S. and 26 per cent for Germany), the Japanese work ethic, the extraordinary degree of government-business cooperation, the Japanese skill and dedication to importing foreign technology and so on. One could expand this list, but unfortunately any single factor is an incomplete and inadequate explanation. In my view, no monistic theory can be validly maintained. Rather, there are a number of interrelated factors which have contributed to the Japanese success. In the sections which follow, I wiIl identify what I believe to be the key factors underlying the Japanese productivity gains and the implications of the Japanese approach for Western businessmen and policy makers who would like to learn from the Japanese example. OBJECTIVES
AND
COMMITMENT
The most striking feature of the Japanese is their commitment to economic growth, development, and their objective of world economic leadership.4 While there is nothing unusual about aspirations to wealth, the Japanese are distinctive in the strength of their commitment. They know what they want, and are dedicated to taking the necessary steps to achieve their goals. There is a wide and deep understanding in Japan that economic growth can only be achieved if all sectors of society make
APRIL, 1975
appropriate contributions. This means innovativeness and adaptiveness on the part of government, management, professionals and workers. It also implies that gains from innovation will be shared among all sectors, i.e. rising productivity wilI result in rising wages and profits and conversely, rising wages and profits must be earned by increasing productivity. This later aspect of the Japanese culture can be best illustrated by a common method of worker protest in Japan : Not infrequently, when Japanese workers want to protest management’s handling of an issue, they protest by increasing production and wearing black armbands. This act typically embamsses and pxeasu~ management to respond to worker demands.
Contrast this method of protest with the Western strike. The Japanese approach suggests a deep understanding on both sides on the non-zero sums nature of economic activity whereas the strike is more of an expression of the zero-sums nature of warfare. In short, this is a social contract or bond of trust in Japan that is essential in an adaptive, changing, modem industrial system. The high level of commitment or motivation to increase productivity in Japan is visible even to the naked eye. The Japanese work very hard. Even though the work week has been shortened to European length, Japanese executives still work longer hours than their Western counterparts. A visitor to Japan is immediately struck by the executive custom of working Saturday mornings, only recently shortened from all day Saturday. Obviously, however, the Japanese have not only worked longer and harder to achieve their objectives, they have worked ‘smarter’. The following sections of this article identify the major elements of the Japanese approach. SAVINGS
AND
INVESTMENT
In the period of 19661973, the Japanese saved an average of 18 per cent of their disposable personal income, as compared with 7 per cent for the U.S.A. Capital investment as percent of gross national product averaged 34 per cent for Japan as compared to only 14 per cent for the U.S. During this period, Japanese output per man hour rose more than four times as fast as that of the U.S. European industrialized countries for this period fall between the Japanese high and the U.S. low for savings, investment, and increase in output per man-hour. The significance of these figures applies to both govemment and enterprise policy. Government policy should encourage savings and investment, and enterprises should constantly scan the world for ideas and opportunities to intelligently invest to improve productivity and competitiveness. The savings and investment opportunities in Japan have been created by an economic system that is committed to obtaining the productivity gains from high level sustained investment. They key elements of
65
this system are described in the following portion of this article. NATIONAL
STRATEGY
One of the most distinctive characteristics of the Japanese approach to economic growth and development has been the Japanese national strategic plan. Under the guidance of the Ministry of International Trade and Industry (MITI), the Japanese have articulated national objectives and goals, analyzed their own resources and capabilities, and have developed time phased strategies to achieve these objectives in the light of their strengths, weaknesses, and resources. Following World War II, Japan’s major strength was a large pool of trainable and relatively cheap labor. The major weaknesses were the low levels of investment and productivity and the gap between Japanese and Western technology. Under the guidance of MITI, markets were analyzed, technology purchased and a systematic effort to upgrade productivity and technology was undertaken. Unlike most countries, the Japanese have seen clearly the advantages of scanning the world for ideas and technology. During the 1950s and 196Ck, they purchased $15 billion of technology from the U.S. alone. This imported know-how had cost the U.S. an estimated $20 billion per year in R & D expenditure. The paradox here lies in the Japanese openness to foreign ideas as compared to the Western tendency, particularly in the U.S., to apply the not invented here (NIH) syndrome to all foreign developments. Unlike most countries who are concerned about the cost of imported technology, the Japanese as a matter of policy have encouraged enterprises to seek out and purchase technology, and have in a 20-year period used this policy to bring their own level of technology and productivity up to and in some cases beyond Western standards. Another major aspect of the Japanese national strategy has been to steer the nation’s resources into the most productive areas of the international economy. Thus, the Japanese have continuously shifted their resources into the areas where value added per worker was higher and have withdrawn from traditional areas of labor intensive lowproductivity activity. To encourage these shifts, they have maintained protected home markets, and have encouraged Japanese firms to consolidate and merge to achieve a scale commensurate with international competitiveness. Thus, Japan has moved from the textiles and cheap consumer products to sophisticated high quality consumer and industrial products, from cheap cameras to precision optics, from simple radios to sophisticated electronic home entertainment products, from bicycles to motorcycles, autos, trucks, and earth moving equipment, from the abaccus to computers, and so on. The combination of rising home wages, increasing pressure from resource producing countries to contribute toward industrialization, and a combina-
66
tion and economic and political pressures in large developed country markets has led the Japanese to move increasingly toward overseas direct investment which draws upon lower wages and secures a claim upon scarce natural resources in developing countries and which responds to economic and political pressure in developed countries. The nationally planned decisiveness of the Japanese moves in these directions can be contrasted with the unplanned overseas expansion of U.S. companies in the 1950s and 1960s and the agonizing hesitation of European companies to this day on the issue of overseas direct investment. GOVERNMENT CO-OPERATION
BUSINESS
The expression Japan Incorporated was coined to capture the extraordinary degree of linkage between government and business planning and policy formation. The Japanese have evolved a systems approach to resource allocation where the joint objective of government and business has been to achieve the national and enterprise goal of economic development and higher productivity. The West, and in particular the U.S., has developed an adversary system where the government role in economic affairs is limited to managing government responsibilities, (e.g. defense), regulating competition, and more recently worker, consumer and environmental protection. The major difference between Japanese and Western Government Business relations is the much broader participation of Japanese government officials in strategic analysis focusing upon ways of increasing productivity and growth. For example, the Japanese government, under strong pressure from trading partners, has agreed to liberalize limitations on foreign direct investment in Japan. To prepare Japanese companies to compete with new foreign investors, the government is encouraging companies in affected industries to merge into more competitive units. The two policies are closely co-ordinated and will contribute toward further gain in productivity and growth. STRATEGIC
BUSINESS
ANALYSIS
The strategy of Japanese companies is characterized by the following key elements: (1) A global orientation toward environmental analysis. Global scanning for markets and resources is not unique to the Japanese, but it does appear to be more systematic and integrated in the overall corporate strategy than in most Western companies. In interviews with Japanese businessmen, I have found them to be remarkably well informed about the location of world market opportunity and world resources. One executive, a managing director of Mitsubishi Corporation, carries a small rice paper notebook with economic projections for all the major world markets under three sets of growth
LONG
RANGE
PLANNING
assumptions to 1975, 1980 and the year 2000. The notebook also projects alternative forms of Japanese participation and the position of Mitsubishi Corporation in the projected world economy. Japanese companies can be found operating in every part of the globe: North America, Europe, Latin America, Africa and Asia. But perhaps most indicative of all as a measure of the global long range planning of the Japanese is their commitment evidenced by investment and offices, to markets with high potential for future growth: Brazil, Eastern Europe and Southeast Asia. (2) Emphasis on sales volume and market position as major objectives (as opposed to profit). Western businessmen who consider these objectives quaint and primitive, should look again. A recent major research project sponsored jointly by Marketing Science Institute and General Electric based upon a study of more than 300 U.S. businesses indicates that there is a detite positive correlation between share of market and profitability. The ‘Experience Curve Effect’, or the finding that costs on value added for a large number of industries studied appears to decline 2&30 per cent with each doubling of industry accumulated volume, combined with the findings on profitability of the MSI-GE study, point clearly to the reasons for the long range profitability of the company which seeks and achieves a high share of market and the associated volume. The high volume producer is the lowest cost producer, and is therefore in the end a profitable, surviving producer with competitive market prices. A recent strategic concept suggests that there are two kinds of companies, innovators and low-cost competitors. Innovators develop new products which they sell at monopolistic or oligopolistic margins until they are challenged by ‘me-too’ companies who erode their share of market by price cutting. The price cutting companies eventually achieve a commanding high-volume low-cost position in the industry which forces out the original innovator. The obvious lesson to the innovator is to consider ways of adapting strategy over a product’s life cycle to become the low-cost producer. The Japanese, who have not lagged in their innovative abilities, but who have always driven for market position and for cost-volume advantages, have linked strategies of innovation to dominate new growth markets and strategies of driving for volume, cost leadership and share of market systematically over the past 10 years. (3) Emphasis on product quality. Productivity is a measure of output per worker. Output, or value added, is as much a measure of quality as it is of quantity. Japanese companies have recognized that mere quantity without quality is not enough to achieve their goal of economic growth. Thus, in industry after industry, Japanese companies have become world leaders capturing the top price/ quality segments of their product markets. Examples abound, including cameras, optics, con-
APRIL,
1975
sumer electronics, communications equipment, motorcycles, and so on. Quality is a result and expression of commitment to tasks. Without commitment, quality suffers. A U.S. motorcycle dealer with a franchise for an English and Japanese motorcycle explained why he had no English machines in stock, and why Japanese machines were better: “First of all, the English are always on strike. They simply cannot be tied upon. Apparently they have problems with their whole industrial organization. However, even when you can get English machines, there are problems. The English engineering is excellent. But the manufacturing and details are very poor. For example, the English still use cork gaskets for oil plug seals, causing their machines to leak oil. Their attitude is, just wipe up the leaks with a.rag-no problem. The Japanese use a neoprene seal which does not leak An English machine arrives with half the bolts untightened. It must be completely worked over by a mechanic before it is sold. Japanese machines arrive in ready to sell condition.”
The Japanese camera industry is an example of the results of commitment to quality. The industry developed an impressive series of innovations in camera design (most notably the single lense reflex design) and executed these innovations with superb attention to mechanical and optical excellence in manufacture. This commitment resulted in a transformation of the Japanese industry position in world camera markets from an industry which manufactured cheap imitations of Western cameras to an industry whose products today set world standards of excellence. Quality of this kind has been rewarded in the marketplace, and is an important foundation of Japanese gains in productivity. EMPLOYMENT
AND
JOB
SECURITY
These major shifts in industry concentration and production location could never have been undertaken if the gains from these shifts were not widely distributed. The Japanese have managed to shift their energy and attention to new opportunities without abandoning workers and managers on the path of change. Thus, one of the major obstacles to change in the West, the objections of displaced workers, has not developed. A major factor underlying the Japanese success in eliminating the objections to change has been their commitment to job security. Indeed, one of the major achievements of the Japanese has been their ability to achieve a high degree of employment security, that is a strong commitment of the organization to the employee with a reciprocal commitment of employees to the organization, and at the same time a high degree of flexibility to adjust to changing situations. In brief, the Japanese system has the following features: most employees have a guaranteed job once they are on the payroll. While on the job, they have almost complete job security short of a major crisis or the bankruptcy of the employer. They are paid on the basis of seniority and as a rule, pay
67
doubles every 15 years, regardless of the type of job. 05cial retirement comes at age 55 to everyone except those who at the age of 45 become members of top management and are not expected to retire at any particular age. The absence of any man&tory retirement age for top management reflects the Japanese philosophy that those promoted to top management positions have unique ability and that it would be foolish for a company to lose this capability merely because of age. The retiring employee get a a-year pension, which is expected to tide him over while he finds other work. Most older employees seem to have little trouble in finding alternative employment or indeed often stay on as temporary employees of their original employer. The effect of this arrangement is to provide job security for younger employees with families who need it, and a feeling of still being wanted and useful to the older men. There are, to be sure, major flaws in the Japanese system. Large segments of the work force are not included in the lifetime commitment system-for example, women, probationary employees, and workers who join the company at mid career, and it should be added that some observers have concluded that in general the Japanese treat men over 55 poorly. The security of the Japanese system creates by Western standards a remarkable openness toward change in Japanese organizations. In the judgment of most students of Japanese organizations this is one of the real keys to the Japanese success. The Japanese combine their organizational security with a deep commitment to continuous training. Thus, workers neither become obsolete nor do they become overspecialized. This approach is in stark contrast to the commitment of some Western workers, who often have no place to turn, to obsolete skills. In the U.S. for example, highly trained workers, such as engineers, become ‘obsolete’ 10 years out of school and are replaced with fresh new bodies straight out of engineering school. The Japanese build on experience and develop workers to their potential while in the West employees often abandon people in the prime of life. The Japanese employee thinks of himself ‘horizontally’ as an employee of the Matsushita or Toyota and not ‘vertically’ as a member of a union such as the United Auto Workers or as a professional in marketing of finance. In Western organizations, in the final recourse, often employees must rely upon their union or their professional qualifications for security. Thus in the U.S. one sees the spectacle of conflict between management and labor often taken to almost grotesque proportions as in the case of the recent strike by the rail workers against bankrupt Penn Central railroad on the issue of job eliminations. Less obvious are the managers who spend more time protecting their own threatened positions or searching for better positions in other organizations than they do on their own current jobs. The Japanese organization with its two-way commitments releases the energies
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of all employees to search for new organizational opportunities and more e5cient ways of performing tasks. In Japan there is no job security obstacle to change. Thus the Japanese organization is in many respects suited to a dynamic and changing world in contrast to the Western model where change is often perceived (correctly) by employees as threatening and dangerous to employee welfare. Japanese employees initiate and welcome change whenever it will enhance the company’s welfare because company welfare is synonymous with their own personal welfare. This commitment cuts right across the normal occupational boundaries and division product areas if necessary. For example : A major Japanese electronic calculator manufacturer discovered that it has accumulated a six month product inventory far ln exass of normal levels. It responded by cutting the production schedules, pulling production workers off assembly lines, and sending them out around the country as salesmen!
There is evidence that far-sighted U.S. companies are obtaining higher productivity from their employees by following this ‘Japanese approach’. For example : “Delta Airlines has consistently had the reputation for provlding the beat passenger service of any U.S. airline, and it has ken able to avoid the usual airline hiriagfurloughing SW as traf6c grows and contracts . . . (the) feeling of job security among Delta personnel is undoubtedly a factor in the high morale that character& the airline’s servlce.“s
TEAM
SPIRIT
In 1968, the Japan Productivity Center undertook a survey of 721 large Japanese corporations which duplicated the George Steiner survey on ‘Strategic Factors in Business Success’ of 711 U.S. corporations. In both surveys, companies were asked to indicate their importance ranking for business success of 71 factors organized into seven categories. Japanese managers consistently ranked personnel factors higher than their U.S. counterparts as shown in Table 6. The fraternal bond between the Japanese company and its employees is in stark contrast to the sophisticated coolness of the typical Western enterprise. It is very unfashionable to express a ‘rah rah’ spirit in Western companies today. In the U.S., Kirby vacuum cleaner salesmen, who must work up to an arduous day of door-to-door selling, start off the day with yells and cheers, but that is considered a necessary evil and well beyond the normal U.S. company practices. And yet, it is significant that one of the most successful U.S. enterprises of the 20th century, IBM, until very recently and certainly throughout its long period of growth exhibited many of the characteristics of a Japanese company, including enthusiasm-generating song sessions. IBM was a classic non-union horizontal organization with an
LONG RANGE PLANNING
Table 6. Comparative Importance of Strategic Factors in the Area of Personnel aa 5valuated by American and Japanese Managers6 (ordinal rank). U.S.
I Establishing better personnel relations with employees Ability to get along with labor unions Ability to level peaksand valleys of employment Ability to optimize employee turnover (not too much and not too little) Ability to stimulate Creativity In employees.
Japan
10
1
18
2
20
4
52
10
48
12
unwritten rule that no one who kept to the company’s code of conduct was ever fired, and where all promotions were made from within the organization. IBM emphasized the world wide company family and of course, IBM was also a company which encouraged and rewarded individual performance in the Western, particularly the U.S., tradition. The combination of security, team spirit, and incentive has made IBM one of the world’s great enterprises by almost any measure: growth, share of market, profitability, innovation, and last but not least, for thousands of workers, managers and scientists, an exciting and rewarding organization to work for. The similarities and differences between IBM and Japanese organizations are illuminated by a comparison of company songs. The following was a typical IBM verse under the reign of Thomas Watson, senior :
The IBM verse, which is typical of a vast body of song material that was sung throughout the company in Watson’s day, points to the importance of individual leaders and to goals of getting to the top without any reference to what the top is or how this goal relates to anything outside of IBM (i.e. building a better U.S.A. or a better world), and it emphasizes the importance of leaders rather than the group in the accomplishments of the organization. Thus, even when there are major similarities in strategy and style, the song underlines as well significant differences between Watson’s IBM and Japanese social values and attitudes as expressed in organizational life. The current Western emphasis on corporate social responsibility is in fact a move toward the values of the Japanese organization. If IBM were today to resume the practice of singing company songs, they would bear more resemblance to contemporary Japanese company verse than to the traditional IBM verse.
! Contrast
this with the Matsushita
Worker’s
Song:
For the builder of a new Japan Let’s put our strength and mind together, Doing our best to promote production, Sending our goods to the people of the world Endlessly and continuously, Like water gushing from a fountain Grow industry, grow, grow, grow! Harmony and sincerity! Matsushita Electric!
The Japanese verse relates the company goals to national goals, emphasizes cooperation, exports, growth and harmony. Altogether, when analyzed carefully, it is an accurate and straight-forward statement about the company’s mission and performance, and a reflection of Japanese organizational values.
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and that every member of the organization has an opportunity to contribute to the development of organizational strategies and plans. This system draws upon the talents of every member of the management team thus insuring that the widest possible base of experience, judgment, analysis, and insight is incorporated in the planning process. Additionally, it insures that all proposals are fully co-ordinated. Finally, the system develops understanding and commitment that adds power and quality to implementation efforts. The contrast between the Western and Japanese resource allocation, goal selection, and decision making approach can be illustrated as follows. In Western companies, the Chief Executive Officer must direct co-ordination efforts. In Japanese companies, co-ordination results from the organizational custom of ringi. Western companies rely much more on individual leadership for direction and co-ordination, whereas Japanese companies rely much more upon organizational leadership. The closest Western model of the Japanese ‘ringi’ organizational process occurs in mature matrix organizations such as Proctor and Gamble. P & G introduced its brand of the product management system in 1927. The product/ brand manager under this system has been regarded by P & G imitators as the president of his own company. He draws upon other specialists and co-ordinates everything from manufacturing to research for his own product or product group. The key to P & G’s success with this system has been a rigorous system of check and balances. This is
why so many have not achieved the same results. The system, which bears a striking resemblance to ‘ringi’, was described by a former P & G employee: ‘I had been there three or four months’, he says, ‘and I was asked to prepare a sales promotion involving an expenditure of maybe S300,OOO.My boss, the brand manager, read it and made a recommendation. I revised it, and then it went from the brand manager to the associate advertising manager. He pointed out certain areas and made suggestions. I revised it, and it went back again. This time the associate ad manager sent it to the division vicepresident. It came back with a couple of minor changes. Then it went to the marketing vicepresident, and he ultimately presented it to the executive committee. This is the way authority is delegated and shared. But at this point, whose proposal was iV8
CONCLUSION
Western businessmen and public policy makers must recognize the reality of Japan. Even more importantly, however, Western businessmen must learn from Japan as the Japanese have learned from the West. It is time to return the compliment of the very serious study the Japanese have given to Western methods and approaches with the same kind of serious study of Japanese methods. This is the truly global approach to business which is required to maintain a position of strength and leadership in today’s world where good ideas emerge in disparate locations. Japanese performance presents a challenge to the West to learn from Japanese methods. Obviously, Western managers and organizations
Western Companies
Chief Executive Officer
Marketing
Personnel
Japanese Companies
Chief Executive Officer
Engineering Personnel
70
LONG RANGE PLANNING
cannot simply copy Japanese approaches and methods. There are too many real cultural differences to allow such a simplistic approach. What Western managers must do is study, learn, adapt and create where applicable, Western versions of Japanese methods and approaches. n
announced company’s workforce figures. Another distortion may arise from the Japanese company practice of not according regular employee status to seasonal and part time workers. (2)
Ruth Benedict, The Chrysanthemum and the Sword, Charles E. Tuttle Company, Inc., Rutland, Vermont, 1946, p. 1, 2.
(3)
See for example, Nobuo Noda, How J8pen Absorbed American Menagement Methods, Translation Series
ACKNOWLEDGEMENT The Author would like to thank A. Martin Cohen, The International Development Center of Japan, Eli Ginzberg, Professor, Columbia Business School, Shigeru Masuda, Booz, Allan 8 Hamilton, Inc., N.Y., John R. McHenry, General Electric Company, and Leonard S. Simon, Editor, Interfeces, for their valuable and helpful comments on an earlier draft of this paper.
REFERENCES (1)
These comparisons, which 8re based on published reports of sales and number of employees are subject to two sources of distortion. First, sales is not an accurate measure of each company’s net value added. Part of the “productivity” difference may simply reflect differences in integration among the companies. Secondly, the employee statistics of Japanese and foreign companies are not entirety comparable. In Japan newly-hired employees (fresh from junior and high school) are often hired on a probationary basis and ere not accorded regular employee status. They may or may not be included in the usual publicly
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10, Tokyo, Asian Productivity Organization,
1969.
(4)
It is beyond the scope of this article to judge the desirability of economic growth as a national goal. Certainly the Japanese themselves now question economic growth as a sole and overriding national objective. They are, for example, quite sensitive to the change that they are “economic animals”. Today in Japan, there is wide-spread discussion underway concerning goals and the quality of life.
(5)
“The Airlines New Austerity”, March 30, 1974, p. 56.
Business Wee&,
(6) A. Martin Cohen, “Social and Cultural Determinants of Japanese Management Style”, Management Japan, Vol. 7, No. 3, 1974, pp. 26-31. (7)
For an excellent We Can Learn Peter Drucker, April, 1971, pp.
(8) “The
Brand
exposition on this point, see ‘What from Japanese Management”, by H8rv8rd Business Review, March110-122.
Manager:
No Longer
King,” Business
Week, June 9, 1973, p. 60.
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