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Efficiency, innovation and entrepreneurship in Japan

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Are we Japanese efficient, innovative and entrepreneurial?  Tough question.  But here are a few anecdotes which shed some light. 

The other day, Jack groaned to me, “it’s terrible, my efficiency has fallen to Japanese levels”.  And then Fred confessed that he joined a Japanese company when he realized that the Japanese need three times as many office workers as Western companies for doing the same job.  “I realized that I would have a much easier life than in America.  One problem, though.  After being in a Japanese company for some 30 years, my own level of efficiency has slipped way back too.”

Anyone who has worked with Japanese bureaucrats or in a Japanese office knows how inefficient the Japanese are.  Running round in circles, checking, double-checking, doing anything to avoid responsibility.  Bureaucrats invent terrible systems for multiple signatures and approvals.  And because the systems are based on blindly following rules, trust between colleagues never develops as in a dynamic system of results-based management.  It is all about process, process, process, with everyone is watching each other to see if they follow the rules correctly.

What's more there are all sorts of invisible rules that must be followed.  Often these rules are not clear and explicit, but they are managed by the office's "otsubone-sama".  The old female office battle-axe who wields authority over all the younger office ladies, and sometimes even the male bosses who see in otusbone-sama the wrath of their mother, and obey instantly.    

Many staff members, especially junior ones, are almost paralysed by the complex management and social hierarchies, where respect and obedience must be shown to all superiors, although the exact nature of the hierarchy may not be clear.  And when your boss or some superior wants something, you flood him with material, rather than focusing on the essential.  You get higher marks for effort than for results, and you avoid the risk of punishment from misdirected precision.

We are way behind when it comes to global-working.  If we have a foreign colleague, we will never trust what he says, we will always double check with another Japanese.  And we always imagine that these foreigners are ripping off our systems, so we never share all our information with them.  "Japanese global organizations are always split between the Japanese and the gaijin.  We will never win on global markets if we remain so paranoid. 

In her book on the Japanese financial crisis, Gillian Tett recounts the madness in Long Term Credit Bank’s information technology systems about a decade ago.  “The computers themselves were always bought from Fujitsu, a traditional borrower from LTCB.  The system was fifteen years old and the bank maintained two expensive old computer networks, one of which was used for exchanging data and the other for accounting.  The two systems could not talk to each other and could not offer real-time analysis.  Worse, customer accounts were processed branch by branch, meaning that there was no central database.”  In short, it was a computer system purchased on the basis of relationships, not efficiency, and which it was 20 years behind American systems!

Even today, the Japanese have a puzzling relationship with information technology.  They are all wired up with technology.  But when new information technology systems are introduced into offices, they want them to conform to their old paper systems, rather than introducing whole new systems.  They call this retro-fitting computer systems.  It’s as if they still want to check if the computer is right.

There is more to the Japanese economy than office workers.  Thank goodness!!.  There are large parts of the service sector like restaurants and cafes which are incredibly efficient.  No Westerner could cut sushi with the accuracy and precision of a Japanese sushi-man.  No Western could serve a coffee as quickly.  Other parts of the service sector, like banks, are almost as bureaucratic and inefficient as government bureaucrats.

I recently met a certain Kondo-san at a bar.  “I am an electrical engineer.  I like making things.”  This is the real spirit of Japan, the country that invented the Walkman and has flooded world markets with all sorts of products and gadgets for decades. 

A trip to Panasonic, which is still inspired by its founder Matsushita, is enough to show you the greatness of Japanese efficiency.  Its factories are cleaner than hospitals.  They remind you of a bizarre science fiction movie.  There is barely a person in sight, as gigantic robots seem to run the whole operation.  Automatic driverless vehicles transport materials thanks to GPS.  Those staff who are present, are all dressed in factory uniforms recalling the almost militaristic efficiency of these large Japanese firms.

But even here, as you scratch the surface, something seems wrong.  Panasonic has been overtaken by Korean firms on global markets when it comes to television flat screens.  Samsung has 20% of the market, LG has 14% while Panasonic has only 8% just behind Sony at 11%.  Much of its production is now outsourced to other Asian countries.  Panasonic now has 100,000 workers in China, fully one-third of its workforce.

Efficiency is an important concept, but what is perhaps more important today is innovation and entrepreneurship.

Japan obviously has a great history in innovation and entrepreneurship, when you look at companies like Panasonic and Hitachi.  They went from producing small consumer products to becoming mammoth corporate groups. 

They also went from being innovative dynamic companies led by inspirational leaders to being massive corporate bureaucracies with lifetime employment and seniority-based pay.  They are now risk averse, and lack innovative capacity.  And the main source of fresh energy has come from outsourcing low-cost and low-tech activities to China and other Asian countries.  Drive from Japan’s headquarters has been lacking.

Large companies from other Asia countries like Taiwan, Korea and Singapore are more innovative.  My friend at Panasonic told me that Samsung is "just like we were 20 years ago, dynamic, hard-working and aggressive -- we can't keep up with them now".  Even Chinese companies are more innovative than Japanese.  When Japanese companies are launching a strategy or a product, they look first at the local market, and only then do they look overseas.  They should start global.

It is almost shocking that Japan is virtually helping innovation in Korea and Singapore.  We push our corporate old boys out the door at age 60, because we think that they are too old and overpaid.  But companies in Korea and Singapore are hiring some of them for their great expertise, work ethic and may be even their corporate secrets!  As I left the Panasonic factory, my friend asked me to help him find a new job, as he is retiring in a few months time at the age of 60!   

Japanese banks and capital markets are too soft on large company groups.  Many of the subsidiaries are inefficient.  Too many companies are “living dead” companies, as the government pressures banks to keep up the financing of weak companies just to protect jobs.  This means that lots of human capital is just sitting there in these zombie companies.  It also means that finance that could have been used by startups and small enterprises.  If these groups were broken up, it would stimulate innovation.

Innovation and entrepreneurship are not abstract concepts.  The issue is why was the iPod not invented in Japan?  The simple answer is that Japan has not been keeping pace.  And the current Democratic Party of Japan government has no entrepreneurship policy.

What could the government do to stimulate entrepreneurship and innovation?  A free trade agreement with the US would be a good thing, but that will not happen tomorrow.

In many ways, the best thing that government could do is to get out of the road.  Government should stop making it difficult for entrepreneurships with silly regulations and massive red tape.  It should make things easier and less expensive.  Opening a business takes ages.  Those damned bureaucrats again!   

More fundamentally, Japan needs a new cultural mindset.  It needs to learn that risk-taking can be a positive thing.  In the US, Bush, Obama and everyone sing praises to small businessman, the lifeblood of the economy.  No-one does that in Japan.

Without risk taking, there is no innovation, competitiveness is reduced.  But innovation is not just technology like the Japanese think.  Social and organizational innovation is also necessary.  Government also needs to innovate.  We were more innovative in the past.

The government could provide finance to entrepreneurs.  Affirmative action is important for providing finance to startups.  Banks and capital markets should also provide long term, patient risk capital.  Banks themselves are too risk averse.  All finance goes to old large companies.  It is impossible to get a corporate credit card in Japan. 

Fundamentally, education is important.  Japan needs a strong substantive education, but youth need to be encouraged to undertake international studies, and to learn foreign languages.

So there you go, a few anecdotes on efficiency, innovation and entrepreneurship. 

We really are falling behind.