Japanese-style Management: A Preliminary Study

(written by: Willy Yanto Wijaya)

As a leading country in Asia in term of economy, Japan has become a magnet to draw attention of foreign countries to study how it conducts the management of its economy, how the economy system and management styles of the companies being conducted, as well as what strength and weakness those systems might possess. This is actually not an easy question, yet it worth so much to be studied. The studies of the economy and especially the management style of Japanese people, as a matter of fact, are so closely linked with the cultures and perspectives of the Japanese people. In the following paragraphs, we’ll go through several management styles (employment practices and financial characteristics) which are very uniquely Japan. We shall also consider some plus and minus points of those management styles.

1. Employment Practices

One of the most couldn’t-be-understandable employment practices in Japan is the “life-time” employment, or we can say that employees are expected to stay or loyal to a certain company until he/she retire. This is so typically unique in Japan which could hardly be found in other countries. Actually, there is a very interesting story about this “life-time” employment practice. This is about Matsushita Electric Company in the years when Japan got defeat at wars and economic slump.¹ Many peoples lost their jobs, social riots and poverty increased significantly, unemployment rate swelled to the peak. At that time, the founder of Matsushita strived to maintain the employees by negotiating with the employee some cuts of the salary; and urged them to endure the time of crisis and difficulties. Having a job was so precious that time, even though got salary-cut, the employees were so heartily grateful to the commitment of the company for maintaining the employment. Since that time, they even worked harder to struggle the crisis and became even more loyal to company. This practice of “life-time” employment later inspired more and more companies to follow the same path.

“Life-time” employment, with the care to the employees even after retirement, will undoubtfully be a strong point in the emotional aspects and loyalty of employees to the company. By this, the companies will not worry about the company-secrets transfer to other companies through the work-force mobility, as well as saving much time in the matter of training new employees. However, on the other hand, this might also give certain disadvantages to the employee, such as less freedom and flexibility. To mention a vivid example, say, that an employee working for several years in a company feels bored and wants to gain a different atmosphere in another company, it will be difficult for him/ her to do so, since the new company where he/ she would like to join also already has the mind-set of “life-time” employment and will feel doubtful to accept this new employee. Another worse case is when there’s a change in the management board of a certain company, and then this board implements bad policies to the workers. The workers have to think twice before deciding to quit, since it’s gonna not easy to find a new job at other companies. This “life-time” employment policy could also become serious problems when the company stop growing and have to re-organize its work-forces. “Life-time” employment policy might also, in certain extends, make the employees lazy and not efficient since they think that in what-so-ever conditions, the company will still maintain them as employees.

Other typical employment practices in Japan are the seniority system and company-based union. These two aspects will also give plus and minus sides as well. Since the salary and promotion in Japanese companies are mostly based on Seniority, this will urge the employees to be loyal and stay longer in a company. However, this kind of system could hamper the achievements of brilliant and talented persons.

Company-based union in Japan, so far as been observed, will cooperate so well with the company. This is certainly good for the productivity of the company (very seldom work-strikes). However, in case the company treats the employees badly, here the employees don’t have much power to resist.

2. Financial Characteristics

The economy of Japan is highly influenced by Keiretsu, a set of companies with interlocking business relationship and shareholdings², which we can view as a type of business groups. It has a long history originating from Zaibatsu (conglomerate) pre WWII which highly dominated Japanese economy. However, while Zaibatsu is more family-controlled vertical monopolies; Keiretsu are controlled by groups of professional managers.

In my opinion, Zaibatsu system will pose an unhealthy mechanism of a Nation’s economy even though I realized that a well-governed Zaibatsu could contribute very well to the development of Nation’s Economy. Too strong Zaibatsu could interfere with political world, monopoly and suppression to small and middle scale companies, and could form the sharp and centralized wealth distribution. When the power of Zaibatsu is being mis-used, or the management system is poorly conducted; a fall of Zaibatsu could destroy severely a nation’s economy. Keiretsu possess some similar characteristics, though with a better sense and more professional management.

Several famous Zaibatsu were: Mitsubishi, Mitsui, Sumitomo, and Yasuda. These four later transformed into several Keiretsu up to now; and even some of them had merged further such as Mitsui-Sumitomo with the core bank SMBC; Mitsubishi with UFJ (formerly Sanwa Bank/ Group) to form MUFG.³ Then why these gigantic corporations still want to merge to form an even bigger giant? One of the reasons, I think, is to consolidate the asset and market segments, as well as to face the challenges from other foreign companies/ corporations. By synchronizing the strategies, the merging Keiretsu hope to better anticipate any further threat from other gigantic companies. This is also pushed by the more growth-oriented and market share orientation of Japanese perspectives, compared to the profit-orientation. This is one of reasons why Japanese products could penetrate many parts of the worlds, which will automatically pushed further the asset capitalization of those companies.

3. Further Analysis

So far, we have discussed several aspects of the strength of Japanese companies that make them succeed, as well as some of the possible weakness/ disadvantages of those characteristics. Then, is there any possibility that some characteristics of Japanese style management might fit very well to some kinds of projects, while not well to some others?

Some of the characteristics such as seniority-based salary might not be so suitable in the creative industries, for example, where ideas, talent do matter the most. Projects that involve a lot of out-sourcing, ideas, and innovations or projects that have short-term period might also don’t fit so well to the several Japanese-style employment practices. However, since the Japanese people are so smart, ideas can be generated to tackle this disadvantage. For example, a major camera company, CANON always asks feedback from all its employees and gives rewards to innovative ideas and creations.

With its typical low cost of equity (low dividend payment), cooperative company unions, less hostile share-holders; the management board of a company could feel more peace of mind and concentrate with the development. This is really one big advantage of Japanese management characteristic. The production will run smoothly, not so much working-strike by employees, and thus increased efficiency and performance.

As if I am an investor, it’s not so appealing to invest money on equity in Japan (low dividend payment). If I am a supplier or employee, it’s very important to choose a company whom you could give trust to (since it might become your “life-time” bond). While thinking of joint research project with a Japanese company, it is very important to:

• Understand the culture of the company and Japanese people.
• What kind of project it is and which type of Japanese-style managements that will not be so suitable.
• Possible ideas to tackle some of the disadvantages of Japanese systems.

References

¹ John P. Kotter. Matsushita Leadership, Simon and Schuster, New York, 1998.

² http://en.wikipedia.org/wiki/Keiretsu

³ Kenichi Miyashita, David Russell. Keiretsu: inside the hidden Japanese conglomerates, McGraw-Hill, New York, 1995.