Made In Japan

by Akio Morita

  “Compared with this,” he went on, “Japanese managers seem to have a kind of Oriental ‘sixth sense.’ | Probably instead of putting one fact together with another, they grasp a general idea as a whole and then use this information, together with that ‘sixth sense,’ in making decisions. This way they have a better grasp of the general idea than one can get only through careful reasoning.”

  I use Bill Bernbach’s comment to illustrate the point that it is essential that the people who run the business know the business and the environment and are prepared to take risks based on their knowledge and indeed even on this so-called sixth sense. I hope the reader will not consider it too much of a boast if I refer to my hunch that the portable stereo player, the Walkman, would be a successful and popular product despite a lot of skepticism within my own company. I was so certain of this that I said, “If we don’t sell one hundred thousand pieces by the end of this year, I will resign my chairmanship of this company.” Of course I had no intention of doing that; I just knew this product would be successful.

  In the United States today, because managements are so highly mobile—I am told that the average white-collar employee works at three different companies in his lifetime—it is common that the man running a company knows little or nothing about the technical side of the products his company makes. If that is the case, he will naturally lack this intuition about his products and their impact on the market, especially if he is, say, an accountant running a consumer products company. There are remarkable exceptions to this, of course, but I believe they are few. It is my observation that such an executive, lacking knowledge and unsure of himself, will hesitate to take risks, will feel the need to justify his every move, and will often turn to the consulting firms.

  Next to lawyers, I think these people are the most overused and misused businessmen on the scene in the United States and Japan. I use consultants selectively and have found the best ones can do valuable information gathering and market analysis. But their use can be brought to ridiculous extremes, and it has been. Often when the market research proves to be wrong, the excuse is heard that market conditions changed after the study was done. So what is the use of it? Mainly, I am afraid, to avoid risking jobs. I know of a case where the American home office of a joint venture company didn’t think that the plans of the Japanese partner were right, so they had their American representative in the joint venture employ a prestigious management consulting firm based in Tokyo to do a study.

  It happened that the American representative, who is a vice president of the joint venture, agreed with the Japanese partners about their plan and had told his home office so in a recommendation to them. But his boss in the States didn’t trust his own man in Tokyo or the Japanese partner. When the American in Tokyo discussed the project with the consulting firm, he told them the whole story and the results he “expected” they would find. It may be coincidence that they found just what he was looking for. The Japanese firm was right all along, as was proved later, but it cost the company a large sum of money for the consultant’s fee; a great deal of time was lost while the executives were interviewed; it subtly undermined the trust between the partners; it made their representative feel and look foolish and ineffectual; and nothing new was learned. But an executive in the United States in charge of the international operations of his company had covered himself in case the project failed.

  If I have written a lot about top management and workers so far, I have not meant to exclude middle management, which is so important and in Japan differs from the Western model. Many Japanese companies operate on the “proposal” system, in which middle management is expected to come up with ideas and concepts to be proposed to top management for judgment. This of course differs from the concept of one-man or small-team management that is so common in the West, and especially in America, where it may be a legacy of the frontier or pioneer spirit. (In Japan we have been exposed to American movies since before the war, and we have come to assess the American spirit in those terms, which is probably not altogether a good or accurate thing. But we like the idea of “fighting spirit,” and sometimes in sports and even business we admire the player with the best spirit, even if he loses.) It may sound like a contradiction to say that Japanese companies, as opposed to Western companies, are run by consensus in light of what I have already written about the individuality we prize at Sony and other Japanese companies such as Honda, Matsushita, and some others, where a strong central figure traditionally makes bold decisions, seemingly all by himself. But it is not a contradiction.

  The concept of consensus is natural to the Japanese, but it does not necessarily mean that every decision comes out of a spontaneous group impulse. Gaining consensus in a Japanese company often means spending time preparing the groundwork for it, and very often the consensus is formed from the top down, not from the bottom up, as some observers of Japan have written. While an idea may arise from middle management, for example, top management may accept it whole or revise it and seek approval and cooperation all down the line. When I pulled my bluff on the Walkman, threatening to resign, my colleagues knew that I was ahead of them, that I was using all of my experience and knowledge of marketing and consumer psychology in making my decision. And because of it they committed themselves 100 percent to helping make the project a success. If we had failed with the Walkman, I could not have pointed to any market research as the cause of the fiasco.

  Once a decision is reached, whether it originally came up from the shop floor or down from the front office, it is the Japanese way for everyone to devote every effort to implementing it without the sniping and backbiting and obstructionism that is sometimes seen in some Western companies. It is a fine situation to be in, because everybody is doing his share of the work, but getting there can be difficult.

  My second son, Masao, worked for Morgan Guaranty Trust in New York and London for two and a half years after he graduated from Georgetown University, and he finds the Japanese way of reaching consensus and planning tedious. His viewpoint is very interesting to me, and very Western. “In a Japanese company they like to have meetings,” he complains. “They spend hours and hours at it, and I am always frustrated because I want to know exactly why we are meeting and what we are going to decide. I have trouble keeping my eyes open after the first five minutes. At Morgan I worked in foreign exchange trading, and time was so precious that we didn’t waste it in meetings. If we had to make a presentation, we would always give the conclusion first, and if anybody wanted to know how I arrived at the conclusion they would ask. In Japan they like to explain first and they don’t tell what they have decided until the very end. But sometimes it is difficult to understand all the explanation without knowing where it is headed.”

  This is a problem that seems to bother foreigners who are exposed to the system. A journalist who came to Japan to do a lot of interviews of Japanese businessmen visited me near the end of his trip. I asked him what his impression was and he was very frank. He said that after several weeks he had finally figured out how to understand the Japanese: “I don’t have to listen to the first part of what they say. I only have to begin to pay attention when they say ‘however …’ because up to then they are expressing everybody else’s ideas. After that they are expressing their own ideas.” You have to be very patient in dealing with the Japanese. It takes most Japanese a long time to tell people what is really on their minds.

  The group management system of Japan, where decisions often are made based on proposals from younger management, can be an advantage for a company. Young managers can be expected to remain with the same company for twenty or thirty years, and in ten years or so they will move into top management jobs. Because of this the young managers are always looking ahead to what they want the company to be when they take it over. If top management looks down at middle and lower management and is always pressing them to show profits this year or next, as is common in the West, and fires these managers for not producing profits, it is kill
ing the company. If a middle manager says his plan or program may not break even now, but will make big profits ten years from now, nobody will listen to him, and he may even be fired.

  Our encouragement of long-range plans from up-and-coming employees is a big advantage for our system, despite all the meetings and the time spent in discussing and formulating plans. It enables us to create and maintain something that is rare in business in the West: a company philosophy. Since our employees stay with us a long time, they can maintain a consistent outlook. Company ideals do not change. When I leave the company, the Sony philosophy will continue to exist. In the United States it is rare for any company to have its own philosophy, because whenever top management changes, the new person imposes his own very strong views. In fact very often boards of directors will go far out of the field of business of their company to bring in a new top officer to “clean house” and change everything in the company.

  Recently, one of these outsiders came into an American company, closed down several factories, laid off thousands of employees—and was hailed by other executives in articles in The Wa Street Journal as a great manager. In Japan such a performance would be considered a disgrace. Closing factories and firing employees and changing corporate direction in a business slump may be the expedient and convenient thing to do and may make the balance sheet look better at the end of the next quarter, but it destroys the company spirit. And when the business rebounds, where will the company go to get experienced workers who will produce quality goods and work hard and loyally for the company?

  I think one of the main advantages of the Japanese system of management over the American or the Western system in general is this sense of corporate philosophy. Even if a new executive takes over he cannot change that. In Japan the long-range planning system and the junior management proposal system guarantee that the relationship between top management and junior management remains very close and that over the years they can formulate a specific program of action that will maintain the philosophy of the company. It also may explain why in the initial stages progress is very slow in a Japanese company. But once the company communicates its philosophy to all employees, the company has great strength and flexibility.

  When crises hit various industries, such as after the oil shocks of 1973 and 1979, Japanese companies showed this flexibility. Shipbuilding companies began to manufacture antipollution equipment, computer software, even dishwashers. A mining company began to make bowling machines. A textile company, Kanebo, started making cosmetics and is now a major factor in the local market. When movie attendance declined, a Japanese studio started a leisure industry using its movie theater properties.

  More recently, with the fall in world demand for steel, steel makers, already the most efficient in the world, have begun to sell their byproduct gases, such as carbon monoxide and hydrogen, to chemical companies as feedstock, which also lessened the chemical companies’ reliance on petroleum. Now there is lively competition among Japanese steel makers in marketing these gases.

  In another recent example, a Japanese steel company joined with an American semiconductor maker to produce silicon wafers for making masterslices for semiconductor gate arrays and very large-scale integrations for telecommunications circuits. This was the first case of a steel maker entering the market for semi-custom logic chips. The steel company’s experience as an efficient producer of small-batch customized steel products, using computerized production control and quality assurance systems, seems to make a fine fit with the American manufacturer. Both companies will learn from this experience, and especially the employees of the Japanese firm, who will be looking into the future having had the experience of working in a shrinking industry.

  Such corporate moves make more sense to me, as a Japanese manager, than some I have seen in the United States. Americans pride themselves on being rational in their business judgments: the total logic of the American business schools seems to be cold, deemphasizing the human element. We in Japan see the bases for success in business and industry differently. We believe that if you want high efficiency and productivity, a close cordial relationship with your employees, which leads to high morale, is necessary. Sometimes it is more important to generate a sense of affinity than anything else, and sometimes you must make decisions that are, technically, irrational. You can be totally rational with a machine. But if you work with people, sometimes logic often has to take a backseat to understanding.

  COMPETITION: The Fuel of Japanese Enterprise

  I

  “If Japanese business management is so good,” asked an American friend, “why do eighteen thousand Japanese businesses go belly up each year?” The answer is this: for the same reason they fail elsewhere. As I pointed out in an earlier chapter, there is no magic or secret that will make a Japanese company successful unless a lot of the right things are done, and they must be done by the managers of the business; they can’t be done by bankers or bureaucrats.

  The glory and the nemesis of Japanese business, the life’s blood of our industrial engine, is good old-fashioned competition. It is a severe kind of competition, and sometimes it is so severe that I am worried about its export to other countries. We Japanese are competitive not only in business, but even in life. During the war, the militarists used the emperor’s name as a way of getting obedience, by issuing orders in his name rather than their own. And Japanese would compete with each other to show how devoted and loyal they were to him. In the Tokugawa era, great arrogant swordsmen would come into a village and issue a challenge to all comers, just like the gun-fighters in the Old West of the United States. Seeing who was best was a pastime for many of these people.

  But there was then and there exists now a fine line between competition and destructiveness. In China they say you should not break a person’s rice bowl. In Japan it is understood that you must not destroy a worthy competitor—you must leave him his honor, his face. Still, Japanese competitors are often cutthroat, and it is this keen competition at home that makes our companies so competitive abroad. In business competition, as fierce as it is, the unwritten understanding of competition for a share of the market is not for a single company to greedily take everything. However, if a company simply cannot compete, its competitor will not keep it afloat.

  In the retail business, from the great department stores to the hundreds of thousands of Mom and Pop shops from Hokkaido to southernmost Okinawa, competition is understood to be the normal way of doing business. If we cannot compete in price, we will compete in service. We Japanese also tend to be fad-oriented and somewhat fickle in our tastes for the new, and so one day it’s a Baskin-Robbins ice cream store and a year or so later it’s Haagen-Dazs and maybe tomorrow Famous Amos.

  The competition in our domestic market makes the consumer a king. In Japan today there are more makers of civilian industrial products than in any other country on earth including the United States. And these companies—nine automobile makers and two heavy truck makers, more than one hundred machine tool makers, and over six hundred electronics companies, for example—are the survivors of the competitive struggle. At one time, there were forty makers of television sets; today there are only six major ones.

  I think I have to point out, though, that what I have been talking about mainly are Japan’s really strong industries, all of which export their goods, as well as sell them on the local market. It is in the competition for the local market share that these companies develop the ability to compete abroad. These are companies engaged in electronics, automobiles, cameras, home appliances, semiconductors of some types, precision machine tools, and the like. These are industries that impact directly on the rest of the world and are, I think, of the most interest to the readers of this book. There are many other industries in Japan—chemicals, aluminum, pulp and paper, to name only a few—that are in dire straits and are even being phased down. There are more than seven thousand textile companies competing for a piece of a shrunken market. They have found they cannot co
mpete with cheap textiles from China, Hong Kong, Taiwan, Southeast Asia, and elsewhere, and so they have upgraded the quality of the goods they supply, but eventually they found competition even in high-grade textiles tough. Some companies have been literally junking and breaking up machinery as they scale down. They had to break up the discarded machinery to prevent some ambitious novice from buying it and setting up a business.

  As I said earlier, the smartest and best-financed and managed companies in declining industries have managed to diversify into other fields and some continue to do so. Some so-called “sunset” industries get government support, and companies get low-cost bank loans to help them phase out of one field and retrain employees for another. There are five major steelmaking companies in Japan; all are readjusting to a new era when steel orders are shrinking because of competition with imported steel. They are attempting to lessen their dependence on steel orders and are competing with each other on another battleground: selling byproduct gases, as I have said before, contracting out engineering capability, and making ceramics.

  The copper industry, too, which sees optical fiber replacing copper wire for transmitting information in telephone communications, homes, and even automobile electrical systems, is moving into optical fiber. In fact, these companies got off the mark so fast that they were able to grab nearly 70 percent of the world market by the beginning of the eighties.

  Several Japanese sewing machine makers who fell on hard times because of decreasing demand worldwide have upgraded their old electromechanical technology with the addition of microprocessors and have gone heavily and successfully into electronic typewriters, printers, word processors, and office automation equipment.

  We have a free economic system in which anybody can start any kind of legitimate company, so if something turns out to be a good product, people leap in in big numbers, and they compete with each other tooth and nail for the business. A few years ago Yamaha decided the time was right to challenge Honda for a bigger share of the Japanese market in motorcycles and motorscooters. Honda had a clear lead then, but was investing heavily in a new automobile assembly plant in the United States, and so Yamaha put out a line of new models and began a lively advertising campaign. The Honda management responded instantly, despite its heavy financial burden. It struck back with a new model introduction every single week for over a year! Yamaha could not keep up, and in the end there were top-level resignations at Yamaha.