Corporate culture

Medium Term Plan Disease

Many Japanese companies have a Mid or Medium Term Plan, usually covering three years, announced by incoming Presidents, with a second one issued half way through their 6 year term. It is sometimes translated into English, but often in a way that does not resonate with employees outside Japan. This lack of awareness or sense of connection to the MTP outside of Japan HQ is a problem for Japanese companies who want to be truly global.

The difference between a world class company and Japanese companies is reflected in the way the Mid Term Plan is developed, says Hioki Keisuke, a partner at Boston Consulting Group Japan, in a recent series in Diamond business magazine on “Reasons why Japanese companies cannot compete globally”.

He looks at various definitions of global, world class companies and notes that only two Japanese companies can be seen as global – Canon and Sony – by Alan Rugman’s definition of having less than half of their sales in their home region with two other regions representing 20% or more of sales.

Three tests of global maturity

Hioki adds three tests of being truly global:

Can your company count its global cash holdings? How much, in what currency and where, by subsidiary?
Is global talent visible? Is the information needed for discovering, training and promoting talented employees globally available, showing their experience and skills?
Is the direction of the company clear? Are management aware of the environment in which it operates, the strengths, the uniqueness and the businesses to focus on?

He points out that many Japanese multinationals still operate on the old international model, where there is a headquarters, which sits above the business divisions, who in turn control the domestic and international subsidiaries. He calls this the “Group company” model, operating on an “entity base” where there is “a castle in every domain” – a reference to the Edo feudal era in Japan.

The transnational model

World class companies are “one company” operating on a function base. There is a corporate function, but not specifically located in any one geographic region. The business units report into it, and the finance, HR, Legal, R&D, marketing and IT functions supply services across the subsidiaries, and also report into the corporate function.

When I was at Mitsubishi Corporation in the 1990s, I remember getting excited about the transnational model which Sumantra Ghoshal and Christopher Bartlett had outlined in their “Managing Across Borders” book of 1989. Hioki points out that although that seemed a far away ideal then, it is the reality now for most world class global companies.

As well as trying to promote that model internally as an organisational structure for Mitsubishi Corporation, I became involved in helping the Corporate Planning Office turn the Medium Term Plan into something that made sense in English. It was then that I realised that there was something about the Japanese language itself, as well as the way the Medium Term Plan was compiled that meant it was both extremely vague, and yet based on a huge amount of detail, gathered “bottom up”. What was lacking was what a Western company would recognise as a strategy, to link the detailed plans to the vision for the future.

Scenario planning vs vague vision

According to Hioki, the Mid Term Plan in a world class company should be seen as “guidance” across 2-3 years, and a link between the megatrends or scenarios and the annual commitment plans. It should be revised every year and then a commitment plan and forecast for the year and each quarter developed from it.

I remember about 10 years’ ago the bafflement expressed by a group of senior managers working at a German automotive company when their counterparts in a Japanese automotive company said they had never heard of scenario planning. Hioki says many Japanese companies are now working on scenarios and megatrends, but the long term, medium term and short term plans are still independent events. This was not quite the case at Mitsubishi Corporation, but certainly the Corporate Planning Office had an unenviable task in trying to tie what they were told was the plan by each business unit into something that cohered with the vision that the President had.

The origins of the Mid Term Plan

Hioki says the Mid Term Plan has its origins in 1956 when Panasonic’s founder, Matsushita Konosuke first introduced the Matsushita Electric 5 Year plan. “More than 60 years have passed since then. It’s not that a mid term plan is bad, but I think it’s time to adopt a way that suits the present times.”

The transnational model was meant to provide a way to trade off globally efficient integration and regional localisation and optimisation. Production is decentralised, and each region develops its own specialities and differentiated value add, but global management is integrated, knowledge is centralised but R&D and development is done through collaboration and shared around the world.

Functions first, not as an afterthought

Hioki also argues that accounting & finance, HR and legal functions should be actively involved in planning and strategy, rather than coming after the business divisions, cleaning and tidying up. Hashimoto Katsunori, former CFO of DuPont Japan and now professor at Tokyo Metropolitan Business School points out that another difference between world class and Japanese companies is “cash awareness”. The response to the coronavirus crisis should be to stash as much cash as possible to ride it out, but Japanese companies were not quick to do this. Japanese companies tend to be cash rich anyway, but also they do not see their cash reserves as belonging to the shareholders, the way world class companies do. And as a consequence, they prioritise sales over profits. They do not understand that cash flow contributes to corporate value.

Hioki describes traditional HR in Japanese companies as behaving like teachers with a grade book, pulling people up for mistakes and spending their whole time creating systems. In a world class company, HR should be about ensuring that the vision, mission and values of the company permeate throughout the organisation, as well as contributing to the development and growth of the company and its employees.

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“Japanese companies are weak at the top” – Horiba’s CEO

I was recently asked what Japanese company’s mission statement I most admired and I said Horiba’s “Omoshiro okashiku” which is translated into English as “Joy and Fun” (but the fun also means quirky, or as Horiba says “interesting” which is what I think many Japanese companies are to Western eyes, and that’s a good thing). I know from reports from our consultants in Germany that this ethos is transmitted to the overseas subsidiaries too. This interview with the President of Horiba in Nikkei Business by Higashi Masaki, the Editor, is so interesting, I have not made a precis, rather with big help from Google Translate, have left it pretty much as is.

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Since Horiba Atsushi took office as president, sales have increased more than five times, and overseas employees are now the majority, transforming it into a global company. He has also developed a unique corporate culture, including calling employees “Horibarians” regarding them as part of the family. We asked about Japan’s challenges as seen by companies competing globally in technology development.

(Interviewer: Masaki Higashi, Editor-in-Chief of Nikkei Business)

PROFILE

Atsushi Horiba was born in 1948 in Kyoto Prefecture. After graduating from Konan University Faculty of Science in 1971, he joined Olson Horiba, Inc. of the United States. He then joined HORIBA, Ltd. in 1972. He is also graduated from the Department of Electronic Engineering, Faculty of Engineering, University of California, USA in 1977. After that, he directed the overseas expansion of the group, and after working as a director in 1982 and managing director in 1988, became president in 1992. He has also served as chairman since 2005. He has been in his current position for18 years. He is also the face of the local business community, such as serving as the vice chairman of the Kansai Economic Federation. He is the eldest son of Masao Horiba, the founder of HORIBA, Ltd.

The automobile industry is greatly affected by the new coronavirus.

It was a difficult time for car makers even without the coronavirus. This is because there is a dramatic switch towards “CASE” (Connected, Autonomous, Sharing, Electric). It is necessary to move from the “hard” industry, which competes through productivity gains to steadily manufacture high-quality cars, to the “light” industry, which has become IT (information technology) intensive. What was a simultaneous equation with one variable has now become treble the pain.

HORIBA has the largest share of car exhaust gas inspection equipment in the world. The main business is conventional car-related products.

Electric vehicles will be the mainstream in urban areas. However, the combustion type will not disappear in areas with harsh climates. Regulations will also become stricter. However, it is not a growing market, so I would like to expand the CASE field.

How to secure human resources is very important. In 2015, we acquired a British company called Mira (which supports the development of automobiles). We wanted the excellent R & D unit of about 600 people, but it also had test equipment related to CASE. Mira’s test track has research bases for automobile manufacturers such as Toyota (automobile) and major parts manufacturers, so tests and research can be done together.

The company motto is “Joy and Fun”, but is that feeling the same even with the coronavirus?

Now more than ever is the time to have “joy and fun”. All managers are at a loss now. Even so, we don’t feel so sad because we are working in various fields under this company motto. “Fun” does not mean “funny” but “interesting”. With that idea, we shifted our direction. It’s not absolute, but I feel that this helps us be responsive.

It is necessary to strike a good balance between being extremely advanced in a specific field and expanding the range in order to foster new businesses?

To be honest, I don’t think this is managed properly. But that’s what’s interesting, and it’s made up of the enthusiasm of each unit. Trust is at the base. For example, if you are studying optics, you can think of many people who would be good to consult with within the company.

It is unreasonable to expect people who are developing the products that are profitable now think about what the future needs will be. There is no Superman in the world. In many cases, human resources are crushed in search of Superman.

What kind of human resources are you looking for?

I often say that I don’t want a guy who has a good memory, that is, a guy who just graduated from a good university with good grades. Some of the students who are considered to be excellent in the world outside join us, but from our point of view, they are also “stupid” children (laughs). I often join in on the quiz shows for highly educated people on TV, but they are just competing for memory and have no sense.

What does ‘sense’ mean?

Whether you are interested. That is, whether you can do “joy and fun” However, if only “sharp angled” human resources are hired, the company will collapse. That is the balance.

In order to maximize the breadth of the business, it is necessary to have an organizational structure for that purpose.

Now, the biggest issue is the wall between each department. In a pyramid-type organization, individual departments do their best, but there is no interface to connect the results. But if the organization is flat, it’s not necessary. It’s in a mixed state. Instead, the person above needs to be a Superman who can figure out where and what is going on (laughs).

Is the solid financial structure with an equity ratio of over 50% also a factor that guarantees the realization of “interesting and funny”?

Companies with weak internal reserves will have a hard time during coronavirus. When it was said that it was bad to retain earnings, I thought that retained earnings should definitely be increased. This is to ensure that opportunities for M & A (merger / acquisition) are not missed. If you have to ask the bank for money, it may be too late and the target is acquired by someone else.

What do you see as the challenges facing the Japanese economy now?

We manufacture all the key products such as detectors, filters and electronic boards in-house. The problem with Japan is that we have go outside to get the basic science for these key products. You cannot apply knowledge if you do not have the basic science. Nevertheless, Japanese industry and academia are only doing applied science.

We have R & D units in France, Germany and the United States because the academia of these countries never let go of the basic science. Not only is China accumulating product know-how, but it is also conducting basic research. China is the best-selling market for the latest optical analyzer developed in France. It’s neither Japan nor the United States. We need to be aware of the fact that China is doing this very thoroughly.

It is a worry that China’s technological capabilities are rising rapidly.

Japan has not lost yet. I just don’t know after 4-5 years where we’ll be. They are thinking very clearly about the combination of academia and industry. The winners and losers in a battle of comprehensive strength are becoming clear. How do you get around this? I don’t like the word “niche,” but we’ve survived because we’ve put more people and money into a specialty than a giant company.

The Japanese, and Japanese technology and schools are excellent. However, various regulations and past shackles are in the way. For example, why does the faculty council have personnel rights even at universities? At Tsinghua University in China, the top management is steadily being replaced with excellent human resources. But in Japan, once you get tenure, you stay in academia until retirement. This is such an unfair situation.

Are there any other obstacles to your competitiveness?

If I weren’t Japanese, I would have headquartered in California, USA, and the company would have been three times as large as it is now. Taxes are high and fixed costs are high in Japan. Our main medical base is located in France because of problems with Japanese regulations. We just pay lip service to “deregulation” and in the meantime Japan declines.

Industry-academia-government must think about industrial policy and decide what to make a strength.

Even if the government and others hold meetings to gather the top executives of large companies, they cannot take the plunge because they have a company. When I first became President I was called by the Ministry of International Trade and Industry (currently the Ministry of Economy, Trade and Industry), and when I talked about what I thought, I wasn’t called on again. The people around me just gave textbook answers.

However, the current Ministry of Economy, Trade and Industry is different from that time. What is worrisome is that bureaucrats who are trying to reform in line with our opinion tend to be off the career track.

Do they not want to change?

Perhaps they prioritize their own lives rather than the country. The sense of life or death of officials and politicians of the Meiji era is not there. I’m afraid that there is no sense of crisis about the fact that Japan is buying in more and more technology now.

China’s “brain” is talented people educated in the United States. There is no brain in Japan. People who are active (at the forefront) don’t end up leading government councils. Even if the technology and the times change, Japan still has excellent human resources, but they cannot “overtake” the incumbents. It’s the same with the top executives of large companies.

Because the term of office is fixed, the number of “salarymen” in top management has increased.

There is absolutely no business that will produce results in 6 years [the usual stint as President of a Japanese company] after investing from zero. It just means continual losses.

It takes at least two years for our products to be researched, tested, designed and finalized. It will be five years if the basic research is redone. It will take another 2-3 years to make a profit from it. Many things can be done with technology and machines, but this is useless if you do not develop people as well.

When the top executive who started a growth business retires after six years, and that business is making losses, he is said to be the “worst executive”, and when the next top executive harvests from what his predecessor has sown, he is celebrated as “great”. That shouldn’t be the case.

Don’t avoid developing leaders

What does it take to enable top management to think about things in the long run?

Japan is overwhelmingly strong in terms of both technology and human resources. The only weakness is the top. The United States and China are working hard on how to raise the elite. If we don’t train leaders, society won’t progress. On the other hand, in Japan, “elite” is a forbidden concept. In Japan, both politicians and business owners are a disorderly mob.

Japan is in a very dangerous state now. It has become a bogus democracy. True democracy has competition, and everyone is different. In the United States, they first educate elementary school pupils about how different each person is. But in Japan, it’s like “stop it, you’re annoying the old guy.” The responsibility of the media is also heavy.

It’s rare for a person at the top of a listed company to have a beard.

I nearly died of hepatitis when I was about 35 years old. Until then, I was just being the diligent president’s son. But at that time, I thought this is a turning point and I thought I would live a life where I do what I think is best, no matter what others say. My beard is a proof of that. From then on it became a lot easier.

You don’t know what works and how it works.

It feels like God only knows the future (laughs). However, there is a belief that we will make the best decision at that time by listening directly to the stories of people on the front line. I’ve done my best so I can’t help if it doesn’t work. However, people end up worrying about seeking more than the best.

You end up just wanting the correct answer.

The difficulty of management is that there is no correct answer. Everyone has the illusion that there is a correct answer, but there isn’t. The answer will come.

Side note from the interviewer Higashi Masaki

I don’t know if it’s because Japan has become richer or there is more inequality now, but as Mr. Horiba points out, “how individuals live” rather than the desirable way of organizations such as countries and companies should be has become increasingly the priority. It is important to note that the pursuit of personal well-being can sometimes be inconsistent with the interests of the organization.

For example, there is a tendency for top management to change and quickly write off assets of unprofitable businesses to generate a deficit. Then their predecessor has not made a loss, and the successor is certain to recover in a V shape during his term. The rewards for the two executives may be good, but is the timing as an organization optimal? As the mobility of talent increases, the relationship between individuals and organizations can become more difficult.

Top 10 Japanese corporate charity donors in the UK

Japan-owned companies in the UK contributed over £17 million to charity in 2019. £10 million of this, however, was the donation made by First Sentier Investments (formerly First State Investments), owned by Japan’s MUFG Group since 2019.

£8.5m of the £10m went to the Maitri Trust which was established by the Stewart Investors team members (part of First Sentier Investments) in 2006, and helps educational initatives in India, South Africa and Mexico. The other £1.5m was given to the Charities Aid Foundation. 2019’s donation was a substantial increase on the £5.5m First Sentier donated in 2018.

The biggest Japanese corporate donors (>£100,000) increased their charitable budgets over the past two years, but overall the total dropped 3% on a like for like basis (not including First Sentier as they were not Japan owned in 2018/9).

Benchmarking Japanese corporate charitable donations

It’s difficult to benchmark Japanese companies’ charitable activities in the UK against FTSE 100 companies as many of the Japanese companies in the UK operate on a regional or global basis and the charitable donations are on that basis too. Only around 10% of the 1000 or so Japanese companies in the UK put a monetary figure on their charitable donations in their annual reports, or specifically state that they do not donate to charity.

The Charities’ Aid Foundation issued a report in 2018 on FTSE 100 charitable donations, which estimated that the FTSE 100 donated around £1.9bn in 2016. The report uses donations as a percentage of pre tax profit as a benchmark. Unfortunately some of the biggest Japanese companies in the UK such as Toyota, Nomura and Dentsu have been making losses in recent years so this is not a benchmark which can be readily applied to them. However, CAF’s cut off point of “at least 1% of pre-tax profits” as being an indication of commitment to charitable giving means that it is possible to say that JTI, Dentsu (using 2018 figures), Mitsubishi Corporation, Fujitsu Services and Ricoh are all in the “above 1%” category.

The Top 10 Japanese corporate givers

The next biggest donor after First Sentier was Japan Tobacco International through their Gallaher subsidiary in the UK. They donated £3.24m in 2019, a similar level to 2018. Gallaher “works with leading charities to improve the lives of socially isolated older people as well as those who are homeless, disabled or excluded from society in other ways”. They have a UK Community Investment Programme which has been accredited with Business in the Community’s CommunityMark. Employees have an allowance of up to 6 days’ a year to get involved in community fund raising and volunteering.

The third largest Japanese corporate donor was advertising and marketing group Dentsu Aegis Network, (soon to be rebranded as Dentsu International) whose global headquarters are in London. They donated £1m to charity (£0.9m in 2018) – but this is likely to be a worldwide, excluding Japan total. Dentsu announced in 2017 that “Society” was now one of its official stakeholders and announced a new social purpose of a digital economy for all. They are aiming to reach a billion people with sustainable development goal led campaigns and support 100 female founded businesses. They are launching a digital skills initiative to support 100,000 people to improve their skills.

Close behind are Toyota Motor Manufacturing UK, who donated £0.9m in 2019, slightly down on the previous year of £0.95m. It “seeks to support good causes in the areas local to its manufacturing operations” [Burnaston in Derbyshire and Deeside]. It has a charitable trust that makes donations in the areas of road safety, social inclusion and deprivation and health. As well as fund raising it makes in kind donations of cars, parts and volunteering hours (included in the £9.08m). Its nominated charity of the year was the Derbyshire, Leicestershire & Rutland and Wales Air Ambulance Service.

Mitsubishi Corporation donated £267,000 in 2019/20 (up from £140,000 in 2018/19) – to the British Museum , the Earthwatch Fellowship Programme, the University of Cambridge Faculty of East Asian Studies, the UK-Japan Music Society and the Mitsubishi Corporation Fund for Europe and Africa, which engages with partner organisations in environmental conservation.

Hitachi Capital donated £250,000 (up from £200,000 in the previous year) in 2019/20. Their national charity partner is FareShare which redistributes food going to waste to charities and community groups – contributing to the sustainable development goal of “no poverty”. Hitachi Capital staff also volunteer at FareShare. The group also works with Young Enterprise and The Wildlife Trust.

Nomura established The Nomura Charitable Trust in 2009, “supporting disadvantaged young people in the local communities in which it operates through both grant making and employee engagement in the form of volunteering and other engagement initiatives.” It gave £235,659 to 11 charities which aligned with the objectives of the trust and were recommended by Nomura employees in the year ending March 2019.

Eisai, the Japanese pharmaceutical company with a factory in Hatfield donated £212,000 in 2018/9, up from £116,00 in 2017/8. Around half of this was to patient organisations such as Alzheimer’s Research UK and Breast Cancer Now, according to their “Transparency” page on their website.

In 2018/9 Fujitsu raised over £200,000 for its partner charity Macmillan Cancer Support as well as 5,500 volunteer hours spent by employees volunteering and skill sharing.

The Olympus KeyMed group via KeyMed (Medical and Industrial Equipment Ltd) gave £122,621 within the UK, of which £45,905 was to healthcare charities, £40,202 was to “other”, £33,856 was to cancer charities and £2,658 to children’s charities. This represented a 10% decrease on the previous year

Ricoh UK made £110,426 in charitable donations in 2019, a significant increase on the previous year’s £66,285. The sum represents both financial and in kind, providing products and people to support charitable activities.

The others

Many of the larger Japanese companies in the UK not mentioned above do contribute to charities but do not put a price tag on this in their annual reports. Nissan Motor Manufacturing, for example, launched a Days for Change Europe wide programme where employees can take days “off” to volunteer. Kwik Fit, owned by Japanese trading company Itochu announced in 2019 that its charity partner was Children with Cancer UK, and a target of £1m to be raised through its sponsorship of the British Touring Car Championship.

Hitachi Rail says it made no charitable donations in 2019, seemingly leaving this up to its employees, who raised £156,846 for the Railway Children charity “to date.”

Canon UK describes its “social value policy” as comprising “employability skills training, education support, community and charitable activities” but goes into no further detail.

Conclusions

Japanese executives who had lived in the UK have occasionally remarked to me how many charity shops there are in the UK and how often they are approached by their employees to help with fundraising initiatives. According to Charities’ Aid Foundation, the UK is number 6 in the world in terms of individual charitable giving (money and time), after Indonesia, Australia, New Zealand, USA and Ireland. Japan is at 128 but in 6th position in terms of the number of people who volunteer time for charitable causes.

Certainly I remember when living in Japan and working for Mitsubishi Corporation that there were plenty of opportunities to get involved in volunteering via the company. Conversely, to my relief, noone ever asked me to sponsor them to take a charity ramen bath. I have vivid memories of being in a group of employees who took severely disabled people to Tokyo Disneyland. National disasters such as the Fukushima earthquake and tsunami also saw thousands of employees of various companies giving up weeks on end to go to the region to help.

Those Japanese companies who do give substantial amounts of money to charity in the UK tend either to have acquired established British companies and therefore their legacy of charitable activity (JTI, Dentsu, Fujitsu, Olympus KeyMed) or are manufacturers employing large numbers of staff and looking for ways to engage with the local community such as Toyota, Eisai and Ricoh. In many cases, the decision makers will also be local executives looking to raise the brand profile in a globally appealing way, so a specifically “Japanese” flavoured proposition may not be of great interest unless part of their corporate purpose is to represent Japanese interests abroad.

There are plenty of funds in Japan set up by companies such as Toshiba, Honda, Panasonic (Matsushita) but these tend to be educational in orientation and more in the business of awarding prizes, scholarships and research grants. Japanese companies will sometimes endow foundations overseas (Nissan Institute of Japanese Studies at Oxford, Daiwa Anglo-Japanese Foundation) which are also educational and dispense scholarships and grants.

Anyone wishing to approach Japanese companies may need to bear these differences and distinctions in mind. For local giving, it will be necessary to win over the local employees, and for large, prestigious donations, much of the funding available may be controlled from Japan.

“I love Japan but I don’t want to work in a Japanese company”

Japan is more popular than ever amongst young Europeans, who have become familiar with it through anime and manga, or love of Japanese food. Yet “securing human resources” continues to be the key operational challenge for Japanese companies operating in Europe, according to JETRO’s annual survey.

Young people love the playful popular culture of Japan but they assume that this is not going to be the Japan they will experience if they join an engineering and manufacturing oriented Japanese company.

A more serious reason for not wanting to join a Japanese company is the lack of career development opportunities, when it looks like top management reserved for Japanese only. The larger Japanese companies have made efforts to overcome this by having European or global graduate recruitment and training programmes, often involving spending time in Japan.

I suspect it is the medium to small sized Japanese companies who are having the hardest time recruiting the people they need. Their European operations are still basically sales arms of the Japan headquarters. This means when they hire qualified engineers, they are disappointed that the job is more sales than engineering in content.

Japanese companies in Western Europe are most in need of management personnel but are facing already high labour costs. Japanese companies in Central and Eastern Europe are most in need of factory workers and cite the rapid growth of labour costs as their biggest operational challenge. Presumably they are having to compete with better known Western companies who are also facing a tight labour market. The obvious solution is to offer higher salaries, but that of course undermines the economic rationale of have manufacturing in Central and Eastern Europe.

Rather than engage in a price war for scarce management or technical staff, Japanese companies need to offer something different and attractive, which brings us back to the Japanese popular culture loved by young Europeans.

I was surprised recently that the European participants in my seminar who were 15+ year veterans of a Japanese technology company listed “the eccentric, child-like mindset” as one of the positives of working in a Japanese company. My 17-year-old son also noticed this on his first trip to Japan with me last month – and happily joined in by buying a Pokemon Piplup plushy and a Shiba dog pencil case which now have pride of place amongst his philosophy, maths and economics textbooks.

“Strengthening the company’s brand” was the top initiative selected for selling products and services in Europe in the JETRO survey. But this should be less about advertising to customers, and more about having an employee brand that appeals to young people. They will then be able to see a future for themselves where they make, design, manage or sell on behalf of a Japanese company, and have fun at the same time.

A video of Pernille Rudlin’s presentation on this topic is available on the Rudlin Consulting YouTube channel here in English and here in Japanese.

The original version of this article was published in Japanese in the Teikoku Databank News. Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” is available as a paperback and Kindle ebook on Amazon.

“There is no point in workstyle reforms if you don’t change everything at once” – Fujitsu’s President Tokita

President Tokita of Fujitsu was interviewed by Saeki Shinya of the Nikkei Business magazine in August 2020. The beginning of the interview focused on the impact of the pandemic and China on Fujitsu’s business but the bulk of the interview was regarding Fujitsu’s recent announcement of various workstyle reforms (the English translation of hatarakikata kaikaku, a government led initiative to change Japanese workplaces).

Tokita felt Japan was unlikely to recover economically from COVID-19 until the end of FY 2021. As for China, clearly this was a delicate subject and Nikkei Business had to issue a correction to how they described what Tokita said. He said the progression of nationalism should not be welcomed. It would be disrespectful to say it’s a great chance for Fujitsu if the USA or Europe move away from Huawei, however the need for a secure communication infrastructure is important, regardless, for a more resilient society, and this is helping Fujitsu employees to “reset their mindset”.

The Q&A regarding workstyle reforms I have translated as below:

Q: Why did Fujitsu announce work style reforms such as a 50 percent reduction in office space, the abolition of commuting passes, the introduction of telework allowances and job-type employment (to assign and evaluate human resources after clarifying duties such as roles and skills to be fulfilled) all at once?

Mr. Tokita: It just happened that way – actually I narrowed down the scope somewhat.

In the first place, we didn’t announce it in July just because of coronavirus. We have been introducing telework since 2017, and we had already introduced a job type system overseas – only Japan was different. Since I became president last year, I realised Fujitsu’s biggest value is that its 130,000 employees can move in the same vector. Therefore, I wanted to unify the way we work, and we thought that we should utilise good governance as a global company.

Q: You had experience of being assigned to Europe – you had doubts yourself about the difference in personnel systems in Japan and overseas?

Mr. Tokita: My desire for globalization was strong. In fact, I hated the phrase “one Fujitsu” when I first became president. It was used because we were not “1” but there was no point in using it like a slogan if behaviours don’t change. I used it officially for the first time in June when we celebrated our 85^th birthday, because our internal systems and communication have now improved, and we are convinced that it can happen.

Work style reforms have been carried out in many different ways. There are also criticisms that the results based system failed and there were people saying “how much longer are we going to use man-months as a basis for calculation?” I understood all of this. That’s why this time it happened all at once.

So far, we have been reforming little by little. Because it is a large company, it is scary if the change is too big. However, the reason why it did not work was that the personnel system itself had not changed in nature. Changing if you only change the structure and operations superficially will not work. I decided to go with the idea to change everything at once.

Q: Isn’t there an overlap between the new “job type” system and the failed results based system [known as seikashugi in Japanese – introduced in many companies in the 1990s]?

Tokita: There are many viewpoints – some say the results based system failed, and I haven’t heard many stories of it succeeding.

However, a job type system will be different from company to company and for Fujitsu. Evaluations are no longer top down. We have no choice but try to make sure it will lead to Fujitsu’s growth and sustainable business. Of course there are some lessons to be learnt from what happened in the past but I try not to worry too much about that.

Q: What does Fujitsu want employees to do with the introduction of a job-type personnel system?

Mr. Tokita: It’s about each and every employee being autonomous. If the general employees, the managers, the executive, and I are all autonomous individuals, the collective body becomes stronger. Ideally, a strong individual can both work collaboratively and create a healthy conflict. We stopped uniform education by hierarchy and year of entry to the company. Instead, we encourage people to advance their careers through free educational programs online.

Q: How do you get your employees to collaborate once they haves become autonomous?

Tokita: We are currently working with in-house culture change teams. In order to work collaboratively, physical contact is necessary, so it is important to create space in various offices where people can discuss each other’s opinions.

Q: It is said that young people are disadvantaged because they do not have enough experience of the job-type personnel system, what are your thoughts on this?

Tokita: Is that so? I didn’t think it was an advantage or a disadvantage. I know OJT (on-the-job training) was inadequate. Rather, I hope that young people will be able to take on challenges without any restraints.

Q: Some say that the reforms, which will reduce office space by 50 percent, are just about cutting costs.

Mr. Tokita: It’s not just about cutting the office space in half. It will also cost money for renewal.

The aim is not to cut costs, but to increase the choice of employees. The main objective is to help employees to feel engaged in their work. Whether there is a coronavirus pandemic or not, there are many employees who have problems with commuting time, childcare, and nursing care, and we have been building telework and satellite offices to solve this. It is true that Coronavirus became a driver to push this. But I’ve been thinking about it for a long time. Future behaviours and growth will show if this is correct or not

Q: Many people say that the corona shock will accelerate digital transformation (DX). Isn’t this is an opportunity for Fujitsu, which advocates DX for companies?

Mr. Tokita: I’ve been working longer hours at home so I saw a daytime show which said that digital transformation of medical institutions, public health centers and education is very behind in Japan.

However, DX does not take root just by promoting systemization and IT. The essence of DX is whether each and every one of us can be autonomous, acquire skills, collaborate, and create new value. This is also a challenge for Fujitsu. No matter how much IT as a tool is implemented, it will not be the whole solution.

Q: So DX hasn’t taken root in Fujitsu yet?

Mr. Tokita: I don’t think it has.

It doesn’t make sense for DX only to develop in certain industries. Fujitsu has been promoting IT by forming teams across industries. It will not function unless the whole aspect of an issue is grasped, rather than small points, and the issue is addressed as a society.

Coronavirus has increased the need to do this, but we need a system that allows us to collaborate properly. It’s easy to standardize in the IT industry, but without a deeper or higher level of common understanding of rules, no one will be able to make it work.

Q: Japan as a whole needs to deepen its understanding of DX. What should we do?

Mr. Tokita: It will be difficult to discuss on a national basis. We have no choice but to move forward with small communities and companies. In that sense, Fujitsu has a responsibility. We are a global large company and have a mission to solve Japan’s problems because we are based in Japan.

Inside the company, I often say, “Think about what it means to work for a large company.” Large companies have large company sized responsibilities. A large company can make big ripples in society – that’s a kind of responsibility.

Mr. Tokita: We will make use of our own knowledge and experience. This will make Fujitsu stronger. Companies that have accumulated their own experience and can turn it into a business are definitely stronger. If you don’t do it yourself, you’ll end up in running a race in borrowed shoes, and you can’t be a strong company.

If you want to hear more from Mr Tokita, he’s one of the keynote speakers at the Fujitsu ActivateNow digital event in October – more information here

If you want to understand further about the history and changes to Japanese corporate HR systems, I made a 5 minute video on this for my Japanese Business Mysteries Explained series – here.

Japanese business mysteries explained in 5 minutes #3 Antiquated technology

Non-Japanese people who work in Japanese companies are often shocked at how antiquated the IT is in Japanese companies, considering how much Japanese people love new technologies.

Why is this, and will COVID-19 force change?

The next in our series “Japanese Business Mysteries Explained in 5 Minutes”

Surviving the end of lifetime employment in Japan – if you’re an underworked uncle

Plenty of Japanese companies went virtual, scaled back, cancelled or postponed their entrance ceremonies for new graduate recruits this year, because of COVID-19. Hitachi had already cancelled its entrance ceremony, however, and changed it to a Career Kick-off Session (which has also been postponed) to mark the radical departure it has made from lifetime employment and seniority based promotion.

Since its record breaking loss in 2008/9, Hitachi has moved away from simply cutting employee numbers to reduce costs and instead radically altered its business portfolio and introduced a new HR system. President Nakanishi was responding to the often heard concern in the company that “we don’t have any leaders who are effective globally” – a major problem when Hitachi was moving away from being a purely domestic supplier to Japanese energy companies to be more active globally in social infrastructure.

Japan HR as “just one of the regions”

In 2011 Hitachi tore down the 3 distinct layers of its old HR structure – Hitachi HQ’s own HR division, the HR divisions of the Hitachi group companies and the HR divisions of overseas subsidiaries. Now there is a global HR division, 30% of whose employees are non-Japanese. Each region reports into the global HR division, with Japan being one of the regions along with Europe, the Americas, Asia etc. The HR departments of the subsidiaries within those regions report into the appropriate regional HR division. This presumably means the group companies have far less autonomy and Hitachi HQ and Japan are just “one of” the regional or subsidiary divisions.

Hitachi also moved away from the “Shokuno” model much used by Japanese companies – where experience and potential of the employee are the key factors in deciding pay and grade to the “job” model – where each post carries a detailed job description and the pay is determined by the market rate for jobs requiring similar levels of skills and experience.

Toyota goes triangular

Toyota‘s President Akio Toyoda has also begun to have doubts about lifetime employment and seniority based pay. Last year, during the “Spring Offensive” when Japanese company unions negotiation with the directors on base pay, bonuses and conditions, Toyoda said “I have never felt such a distance between us as I felt this time”.

So in 2020 he introduced a new triangular negotiation structure – instead of unions and directors being face to face, he sat three groups around a triangle – the union, the management/executive officers and the board directors. From April of next year the use of evaulations in setting pay and bonuses will become much more widespread and automatic seniority based pay rises will cease. Differentials in bonuses will also become much wider from July of this year.

Get motivated, underworked uncle!

Similar changes are being made at LIXIL, Ajinomoto, Citizen, Sapporo Breweries and Eisai Pharmaceuticals. The end of lifetime employment and seniority based promotion is seen as mainly about trying to deal with the “hatarakanai ojisan” or “underworked uncle” – middle aged men who are in their management position and being paid accordingly largely because of the length of their experience in the company than the value they are adding.

The rest of the Nikkei Business special feature includes a handy worksheet for underworked uncles, to regain their motivation and revive their careers, with some case studies of career changers and encouraging words from recruiters. The recruiters say that middle aged employees are good networkers who can link their company to other companies and look out for new ideas, that they have good communication skills, a learning mindset and are good negotiators. Sounds like they are going to need all of these to succeed in the final 15 years’ of their careers, if they don’t want to end up gazing out of a window.

It’s not over yet for Honda in the UK

“Don’t be ordinary, Honda” urges a 20 page special feature in Nikkei Business magazine. It points out that Honda occupies a similar space to Sony in Japanese people’s hearts. They both had maverick founders, produced quirky, innovative products for decades, lost their edge and then had to undergo deep restructuring to survive.

The loss of face for Swindon

Part 1 of the special feature starts in Swindon, lamenting that it has come to a point where Honda, “the face of Swindon”, is having to shut down. “Falling European sales and the chaos of Brexit are not the only reasons”. Honda says it is because of the need to respond to the rise of electric vehicles, a recognition that it had not set up the necessary structure in Europe to deal with the EU’s strict environmental regulations and supply electric and hybrid vehicles.

Going it alone made it difficult to innovate

This lack of preparedness may have been because Honda was going it alone, in contrast to Toyota working with Mazda, Suzuki, Subaru and Daihatsu and Nissan’s alliance with Mitsubishi and Renault. Even adding in Honda suppliers like TS Tech, Keihin, Showa, Musashi and Nisshin, its total supply chain sales amount to a tenth of Toyota’s. Toyota’s supply chain includes other large multinationals like Denso, Aisin, Toyota Industries, JTEKT and Toyota Boshoku. R&D expenditure is similarly tiny compared to Toyota’s spend.

Honda is not in Boston Consulting Group’s Top 50 most innovative companies of the world – whereas Toyota is at #37. It’s not even in the top 50 of Japan’s own ranking of most innovative domestic companies. Toyota is at #2, Honda at #105.

Only 70% of Honda’s sales are 4 wheel vehicles however – 13% are motorbikes, 2.2% power products like lawnmower engines and 14.9% is financial services. Honda has been innovating in these areas as well as becoming active in Mobility as a Service, investing in electric vehicle charging, including in the UK and Sweden.

Honda still has roots in the UK

In fact it’s not over for Honda in the UK by any means. Nikkei Business’s special feature takes a nostalgic look at whether Honda can grab back the “speed” and “challenge” spirit that Honda showed in the Isle of Man TT races, illustrated by a headline from the Daily Mirror in 1961 “The Japs are Laps in Front”. It described the 3 times Honda has left Formula One, only to come back again. Honda R&D and Honda Motor Europe are still based in the UK, and Honda has mainly supplied engines to UK based Formula One teams over the years – most recently to Red Bull in Milton Keynes.

The special feature finishes with an interview with Honda’s President Hachigo Takahiro – who was himself posted to the UK during his career. He shows no interest in merging with Toyota or Nissan in order to achieve scale. “We are not thinking about making a bid for Nissan…We are innovative when we face challenges, like we did with Formula One. As for Toyota, we won’t get very friendly, we will have a fight occasionally. Otherwise the Japanese car industry would be very dull. We have different personalities. We should be good rivals, and help Japan rise up. We have no intention of taking Toyota’s money.”

Even if Honda is shutting down its manufacturing in the UK, the hope seems to be that the UK can play a part in recharging its innovative spirit.

How a failed merger led Tokyo Electron to a world class HR system

Tokyo Electron originally sold car radios when it was founded in the 1960s, but reinvented itself as a manufacturer of semi conductor making equipment in the 1980s. A failed merger (following objections from anti trust regulators in the US) has led it to reinvent itself again. This time, the reinvention is just as much around management as it is product lines.

In 2013 Tokyo Electron spent a year planning a merger with the US’s Applied Materials. They even had a new name and were planning to put their global headquarters in the Netherlands.

To prepare for the merger, Tokyo Electron reduced its stake in an affiliated trading company, Tokyo Electron Device, and withdrew from the solar cell business. This renewed focus on the core business has led to increased profits and turnover.

Role not potential

One area on which it proved difficult to reach agreement with Applied Materials was how the HR system should be configured. Tokyo Electron was still focused on having lifetime employment and salary boundaries based on potential (the untranslatable Japanese word nouryoku) with actual performance influencing take home pay upwards or downwards each year. This was very different from Applied Materials system of having a transparent relationship between actual job roles and compensation and ensuring the appropriate person was assigned to that role, without much thought for maintaining long term employment.

Howevever when younger Tokyo Electron employees heard about the Applied Materials HR system they had high expectations as they felt frustrated by the traditional Japanese system. Tokyo Electron realised it would have to change its HR system to motivate its younger staff. They recognised, however, that there was a big difference between Japan and the USA, where people job hop frequently in their career.

The new system was introduced worldwide in 2017-8. 6 role categories which were applicable globally were introduced – operations, engineering, sales and marketing, business support, management and executive management – up from three previously: the untranslatable sougoushoku (generalist management), ippanshoku (generalist administration – usually for women) and technical. The number of levels increased from 7 to 20 and they applied to all categories (apart from executive). So someone in a senior business support role at level 8 could be considered to be “doing a highly complex job, with a strong influence over the results of their department” just as much as someone in engineering or sales and marketing.

This might seem vague, but Tsuchii Nobuhito, HR General Manager, justifies it by saying that as the semi conductor business is fast changing, roles need to be kept flexible.

Further changes included making it possible to be promoted in consecutive years. Previously Tokyo Electron employees had to stay in one grade for three years before being considered for the next promotion. Before, the criteria for a job role were evaluated relatively but now there are evaluated by an absolute standard. This is intended to make it more transparent to people where their job role and grade sit within the whole organisation and what their future career path might be.

Inevitable changes as the semiconductor industry globalizes

These changes were inevitable, says Nikkei Business. Japan’s semi conductor industry has hollowed out and most of the customers are overseas. 80% of Tokyo Electron’s sales are outside of Japan and 40% of its employees are overseas. Only around 500 employees in Europe and the Middle East out of 12,500 total. Unsurprisingly, Asia has the largest number – around 2,800. Japan headquarters also has more Asian employees. Nikkei Business interviews one Korean employee in Japan who says she was surprised to have stayed so long. She started as a Chinese/Japanese translator but enjoyed the challenges in her job and stayed on.

Higher than average salaries probably also helped. Tokyo Electron pays an average Y12.7m a year (around US$115K) compared to the industry average of around US$60K. As a result of the new HR system 90% of staff had a pay rise – mainly the younger and middle ranking employees.

Global employee communication

President Kawai has been careful to communicate company strategy and objectives as clearly as possible around the world. He has held 35 employee meetings around the world and also holds smaller discussion meetings with staff to talk about the direction of the semi conductor industry, or whether to continue with M&A activities. He asks them whether the strategic direction is getting through to people, and if it is appropriate for their workplaces.

There are still some issues – how far it is possible to be objective in evaluations, for example. “It will take another 3-5 years before the system really beds in” says Tsuchii. Kawai has set some ambitious targets and is confident there is room for further growth. Whether Tokyo Electron can continue to motivate its staff will be key, says Nikkei Business.

Their website certainly reflects the brand values they aspire to – clear and transparent, with an emphasis on “people, technology, commitment” – although just like every other Japanese technology company, their mission pretty much boils down to “contributing to society through innovative technology”, with added “reliable service and support”.

One of the puzzles of Japanese HR is how employee engagement is so low and yet the employees seem so dedicated and diligent. Kawai at least seems to have found a solution – transparent career paths.

Rudlin Consulting has assisted many European companies acquired by a Japanese parent. Please contact Pernille Rudlin for further details.

“If we carry on like this, Japan will perish” – Uniqlo’s founder Tadashi Yanai

Tadashi Yanai, founder and president of Fast Retailing (Uniqlo) has some hard hitting words for the Nikkei Business magazine series “Wake Up Japan”:

“Japan is the only country which relies mainly on one big intake of domestic graduate hires for its recruitment. But you have to recruit globally. There is competition around the world to hire people, and Japan is falling behind. Only hiring Japanese people is pointless.

At the moment Japan just seems to be hiring raw manpower, but we need to hire people with advanced skills, knowledge workers. Yet we are still just hiring Japanese people for this too.

Japan’s executives need to globalize too

Japan is two steps behind in terms of skills, yet we think we are ahead of the game. We don’t know the reality of the wider world outside. This is because executives are not learning and not going outside of Japan. Executives think they are globalising their companies, but they just send out business unit heads, without actually changing at the executive level. If executives aren’t taking risks, with their own money, it won’t go well.

If you want to hire top non-Japanese, you have to radically change Japan’s HR and reward systems. If you look at compensation, levels in China and Europe are around 2-3 times higher, and around 10 times higher in the USA.

Only non-Japanese who love Japanese culture can put up with Japan’s current HR system

Japanese companies set pay just by looking at other companies in their sector, in Japan. So there is pressure for everyone to toe the line. So if you want good non-Japanese people to join you, you will only attract the ones who love Japanese culture.

The lifetime employment and seniority based promotion systems have become calcified. I think they are good systems, but only if the company is growing. It’s OK if the outcome is lifetime employment and seniority based promotion, but this has become very superficial. If you bring in people from outside Japan, seniority based promotion and lifetime employment will collapse.

For example, if you want to build up strength in robotics and AI, you have to hire top people from Silicon Valley, or India or China and work with them. Seniority based promotion is irrelevant then. If you want to work together, it has to be based on a transparent, fair system.

The need for strong, good values to attract good people

If you want to work with people from all round the world, you have to have strong good values yourself. This attracts good people. Good companies attract good people.

Japan still behaves like a closed country even though it thinks it isn’t any more, just because more and more tourists are coming here. Real globalization means working alongside non-Japanese people. So you have to build a system that enables this.

So I don’t think of career development as being in 10 year increments, rather as 3 year units. Talented people can become directors within three years, even if they are graduate recruits. If you don’t have that kind of system, they will quit.”

Category: Corporate culture