Eastern Promise

When Japanese fever struck western managers in the 1980s it was with good
reason – the nation had proved itself a market leader with model productivity
and cost-efficiency. So as recession looms in our economy, a return to this
long-term approach based on solid principles, excellent HR and enviable market
agility could make even more sense. By Jane Lewis

Japan’s new prime minister, Junichiro Koizumi, is chiefly known in the West
for his flowing locks and love of rock music, but few would question the size
or importance of the task that lies ahead of him.

Koizumi promises to radically revamp the nation’s listless economy – a
monumental challenge. The once impregnable Japanese financial system is now in
such trouble that many economists talk in terms of it being "the Last
Chance saloon". Even before the shock of 11 September sent the Japanese
markets reeling, the Nikkei Index was at its lowest point for 17 years.

For evidence of just how bad the situation has become, you need only look at
the country’s suicide statistics. According to one commentator, Japan’s
prolonged economic woes have produced a new breed of "troubled souls in
three-piece suits". The rising incidence of despairing "salary men"
has contributed to an annual suicide tally that is roughly triple the number of
national road deaths.

It is estimated that as many as a third of all suicides are caused by
work-related stress – the hopeless final acts of thousands of once-proud
businessmen driven into the ground in a desperate quest to help their companies
stave off bankruptcy.

It’s a far cry from the heady days of the 1980s, when the country’s business
system was being hailed throughout the rest of the recession-bound world as a
universal panacea. At the height of Japanese fever, the air routes to Tokyo
were clogged with aspiring western industrialists bent on seeing for themselves
how their Japanese counterparts had managed to achieve such impressive
productivity and cost-containment that world domination in their markets had
become a given.

One managing director of an Oxfordshire engineering firm, who made the trip
five times in less than 18 months, was representative of many when he claimed
he invariably returned "a revitalised, enthusiastic person". The
Japanese, it seemed, had an answer for everything.

Some trace the outbreak of Japanese fever in the West to a single
documentary. In 1990, NBC aired a report highlighting the deficiencies in US
manufacturing companies when compared with the Japanese. The first serious
experiment was a joint venture between Toyota and General Motors at Fremont, California.
The success of this initiative destroyed the widespread idea that the system
could only work so long as squads of humble, drilled Japanese workers were

Japanese management techniques, it emerged, could work equally well in
western work environments.

But this didn’t stop many firms from attempting to go the whole hog. Workers
from Sunderland to Detroit appeared to be thriving on a daily dose of inspiring
tunes like Dawn Rises Over Snow-Capped Mount Fuji blasting from loudspeakers as
the kanban barcodes clicked.

Western bookshops were crammed with tomes exploring the mysteries of
Japanese management styles. Many were taken up by US and European management
experts and reclothed in Western terminology. Total Quality Management, Just In
Time, Business Process Re-engineering, Continuous Improvement – just some of
the influential management theories of the 1980s and 90s that owe their genesis
to Japan.

But then came the Japanese economic crash and the coincidental rise of
Silicon Valley. Suddenly the new management heroes were American – GE’s Jack
Welch, Bill Gates and Andy Gove at Intel.

The valley’s explosive philosophies make Japan’s consensual management seem
positively antediluvian.

But even as managers across the world quietly dropped their Japanese
phrasebooks into their out-trays, the more resilient Japanese companies –
particularly those engaged in car manufacturing and consumer electronics –
continued to dominate their sectors. Their initiatives may no longer have been
fashionable, but they were still effective.

As consultant Dr Steve Smith of Quest points out, "The best Japanese
manufacturing companies are still streets ahead of western firms in basic

For all the genuine advances made by western firms, it is acknowledged that
many failed to match the Japanese, even at the height of the late 1990s boom –
not just through technical inadequacy, but because their people management
skills were inferior.

The sky-high rewards paid to CEOs, particularly in the US, go some way to
demonstrate that western management is still heavily top-down in orientation.

And as the West hits economic trouble, many established Japanese management
techniques – from employee buy-in to the perennial drive to eliminate muda
(waste) – have more relevance for western HR.

Ironically, given the looming recession in the West, it is the Japanese who
are now seeking to reform – abandoning their system of keiretsu (see next page)
in favour of the Anglo Saxon capitalist model.

"The Japanese are seeing that action is possible, that change is
achievable," remarked the country’s ambassador to the US last month.

But wasn’t this always thus among the country’s best firms? The real
strength of companies like Toyota, Sony and Mitsubishi has always lain in their
ability to learn. At its best Japanese management style continues to combine a
long-term approach based on solid principles and excellent HR management with
enviable market agility. Couldn’t we all learn something from this?

Name: Keiretsu

The philosophy: Not so much a management style as an entire economic
structure. Keiretsu – tightly allied groupings of individual companies linked
together by the dual ties of cross-shareholdings and preferred
customer-supplier relationships – were the bedrock of the Japanese system for
50 years or more. Unlike western companies, the owners of these firms were not
individual shareholders, but other firms and/or banks. The rationale was to
cement relationships with corporate partners. At the height of the keiretsu
system there seemed no end to this cascade: firms owned firms that in turn
owned more firms.

The dream: Mutual benefits all round – sophisticated collaboration
with customers and suppliers. The permanent nature of the keiretsu groupings
was seen as a guarantee of stability, giving Japanese firms a head start over
the fleeting alliances preferred by their western counterparts when it came to
effective long-term planning. The absence of external shareholders had several
important benefits – Japanese firms were shielded from unnecessary stock market
volatility and were able to plough most of their profits back into the
business. Keiretsu ensured that Japan’s firms existed for the benefit of
employees rather than stakeholders. The system provided a guarantee of employee
loyalty and longevity – it underpinned the Japanese job-for-life ethos. If you
worked for Nissan, you drank beer brewed by fellow keiretsu member Sapporo and
supported the Yokohama Marinos football team.

Devotees: Japanese companies large and small. Similar systems also
flourished in other South East Asian countries. More recently, many of the
characteristics of the keiretsu (the blurring between customers and suppliers,
mutual stock-swaps) were adopted by many of the new economy pioneers,
particularly in the telecoms sector.

The flaws: Keiretsu was all well and good so long as the economy
boomed. But problems emerged with the downturn and the system is now the
leading scapegoat for most of Japan’s economic woes. The exclusive, closed
nature of keiretsu meant Japanese companies were poorly equipped to benefit
from an open, global market. Meanwhile, the prevailing jobs-for-life culture
led to a damaging stagnation and a "thin and shallow" labour market.
Successful firms were frequently tied down by the inefficiencies of smaller
suppliers, but unable to loosen the bond. Moreover, when trouble hit one member
of the grouping, all suffered in tandem in a disastrous domino effect. Along
with policies such as lifetime employment, the keiretsu system is now gradually
being dismantled.

Name: Kanban

The philosophy: One of the most influential of Japanese management
philosophies, the origin of kanban – which implies a "just in time",
lean approach to manufacturing and delivery – lies with Japanese car maker
Toyota. Ironically, given the system’s widespread take-up by western companies,
Toyota gained its original inspiration from Ford’s original Model T assembly
line. But a combination of high property prices and traditional Japanese
frugalness led the company to refine the process – distilling it down to suit
smaller plants. In the past 20 years JIT has evolved way beyond its delivery
roots to embrace virtually every area of commercial life.

The dream: Ultra-efficiency. Implemented well, kanban optimises time,
human resources, assets and productivity. Lean manufacturing boosts
productivity by simplifying each stage of production and avoids tying up
valuable capital in stock-piled inventory. In a typical US Toyota plant, some
360 US suppliers are time-tabled to deliver components at the very hour they
are needed. In times of economic stress, kanban’s cost-beating attributes have
never looked better.

Devotees: Who isn’t? Virtually every large manufacturer and
distributor in the world relies on kanban techniques to compete. Supermarkets,
in particular have used the philosophy to revolutionise stock holdings and
boost profitability. Kanban techniques were central to the business models of
build-to-order IT manufacturers like Dell and Cisco.

The flaws: The system is so finely tuned that the slightest problem
can throw it out of joint. The fact we now live in a kanban economy was brought
home hard during the UK fuel crisis last autumn, when it became clear that the
whole country was dependent on an extremely fragile logistical system. Although
modular system architecture makes flexibility possible in theory, in practice
this is often not the case – it is easy to put in a kanban system and then
forget all about it. Kanban-reliant firms are prone to problems with any
significant fluctuation in demand. Moreover, to work effectively it requires a
big IT spend.

Name: Meikiki

The philosophy: Cheekily described as "a nippy approach to
markets". Top management lays down an overall "vision" that
establishes corporate objectives, but within that framework individual
departments and teams are delegated the task of devising and executing their
own strategies. No forecast is set in stone, and strategies are constantly
revised and corrected as market forces change. By changing the basis of
competition continually and searching for multiple sources of competitive
advantage, companies embracing meikiki are difficult to beat.

The dream: The largest possible market penetration, eventually
leading to market domination. In certain sectors, most notably consumer
electronics and the auto market, this dream was swiftly achieved. By planning
only 18 to 24 months ahead in fast-moving markets, Japanese firms trounced
western competitors still mired in a fixed three-to five-year cycle approach to

Devotees: Widely taken up by Japanese consumer electronics and car
manufacturers. Later, many Silicon Valley companies would claim the philosophy
as their own. Also rubber-stamped by Jack Welch at GE.

The flaws: Not many. But the necessity for constant innovation and
ingenuity means high levels of investment are required. An obvious side-effect
of any business thriving on flux and change is greater insecurity for staff.

Name: Kaizen

The philosophy: Continuous improvement: also pioneered by Toyota in
the 1950s. It expresses the belief that anything and everything can be improved
– and must be if a company is to eliminate muda (waste) and operate to its
optimum effect. The approach is based on the conviction that many small
incremental changes will prove more effective than one large revolutionary idea
in the long run. No detail is too small to work on. Kaizen-based companies talk
in terms of regular "kaizen blitzes" in which a multi-disciplined
team is established to thrash out new ideas to particular problems. Western
philosophies such as Business Process Re-engineering and Total Productive
Maintenance owe a good deal to kaizen.

The dream: A commonsense, low-cost approach to improvement with
immediate results. Applying the philosophy reduces costs and raises morale by
demonstrating to employees that the smallest effort can make a big difference
to results. It also helps break down resistance to change and encourages
self-motivation. Some proponents have claimed that regular kaizen blitzes have
had fantastic effects on productivity – an 80 per cent cut in inventory, an 85
per cent cut in lead times and a 30 per cent reduction in labour requirements.

Devotees: Kaizen has been enthusiastically embraced by thousands of
companies in the US. About 100 large UK firms – including Unilever, the Skipton
Building Society and the Co-operative Bank – are converts. But the practice is
gaining ground in small to medium-sized firms. Managing director of AB
Electronics David Oates, says his £15,000 kaizen spend is "probably the
best investment I ever made".

The flaws: "We’ve never had an unsuccessful kaizen" says
one delighted practitioner. But when the philosophy was adapted and repackaged
as BPR, it frequently came asunder, arguably because projects betrayed the
kaizen principle of slow, steady improvement. Moreover, although BPR
occasionally produced wonderful savings, it frequently did little to create
organic growth. Although often seen as a morale booster, handled badly kaizen
could prove a debilitating process for employees. "You should regard how
you currently do your job as the worst way to do it," is a common refrain
among tougher kaizen managers. There is also a risk that changes undertaken by
kaizen teams fail to accommodate other elements in the business process. Too
much attention to detail can cloud the big picture.

Name: Poka Yoke

The philosophy: Essentially, disaster-planning. Before launching a
new product, service or process, Japanese companies have a poka yoke session.
The relevant people get together to work out what could go wrong. The aim is to
identify potential pitfalls before launching plans. On production lines poka
yoke often takes the form of a mechanical checking device.

The closest western equivalent is Total Quality Management.

The dream: Cutting down on error brings a whole raft of benefits –
from reducing repeat work, to staving off damaging public relations debacles. A
company forewarned about potential problems, is a company forearmed.

Devotees: Poka yoke has been less widely adapted in the West than
many other techniques, but some companies, such as Tallent engineering in the
North East, has embraced it wholeheartedly. It might be argued that the Blair
Government has proved equally responsive to poka yoke, but with mixed results.

The flaws: Although poka yoke is a useful safeguard against
unworkable plans, it can lead to damaging over-caution. Potentially great
strategies can be abandoned because they are deemed too risky. Translated into
TQM, the problems multiply – it has been estimated that in the UK 80 per cent
of TQM initiatives failed – and many had a damaging effect on their companies’
competitive strategies. Some commentators argue, for example, that TQM was very
nearly a "tombstone" for one of its leading practitioners Motorola.
Too much navel-gazing meant that a company once considered a competitive top
gun, nearly missed the 1990s digital phone revolution.

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