00:00:00
Many of these Japanese
companies, to us anyway, are kind of creating the future. Not
only for them, but a future that
00:00:07
we can see through them, that
may be our own future. So that's why we wrote the book. Wanted to
tell the Japanese— the story in
00:00:13
Japan. People in Japan know the
story. So this is really not for people who are living it. It
really is for people who want to
00:00:22
think about their own
leadership, their own firm, and how they too, just like these
Japanese, these turnaround
00:00:29
resolute new leaders in Japan have turned around many
companies there. Dan Loney: Welcome to <i>The Ripple Effect,</i>
the podcast that takes you on a
00:00:37
journey through the minds of
Wharton faculty. I'm your host, Dan Loney, and in each episode,
we'll be diving deep into the
00:00:43
inspiration behind the
groundbreaking research that Wharton professors have
conducted and exploring how
00:00:49
their findings resonate with the
world today. Well, we know that Japan
is an extremely
00:00:56
important economy
on a global scale, and it has also had a very unique
corporate leadership style with
00:01:02
its largest companies and within
its government. But a new book looks at the shift going on
within the country in regards to
00:01:09
that leadership model and why
there are changes afoot right now, and they are leading to an
amazing comeback. Pleasure to be
00:01:17
joined here in studio by Wharton's
Harbir Singh and Mike Useem. They are part of the author trio
of the new book <i>Resolute Japan:</i>
00:01:26
<i>The Leaders Forging a Corporate
Resurgence</i>. Great to see you both. Great to have you in
studio.
00:01:31
Dan, thanks for having us. So let's start with what
happened and why did it happen?
Harbir?
00:01:38
So, this is just to acknowledge our third author, Professor Ikegami, from
Waseda University.
00:01:44
Japan kind of was
at his peak in the stock market in the late '80s. And after
that, it began to
00:01:51
decline. And many people thought
that the argument was that the companies had kind of— were wedded
to the manufacturing model,
00:01:58
which was a total quality
movement and so on, but not as much in services and information
technology-based businesses and
00:02:06
so on. And what we've seen in
the resurgence now is really a discovery on the part of these—
several corporation's leaders,
00:02:14
that they need to pivot to
technology-based industries. Gaming, media. And they have to
be— adapt the model. And so what
00:02:23
they did was they actually
brought in processes that they saw in various parts of the
world and incorporated them into
00:02:31
the Japanese model, retaining
the process discipline. So you have this idea of, you know,
pivoting into new industries,
00:02:40
you know, creating a sense of
tolerance for failure, but also entrepreneurial activity— which
is a huge shift for them— and
00:02:48
also then understanding that you
cannot have the same hierarchies as you had before. You had to
have a flatter organization. And
00:02:56
that leaders needed to be more
approachable and be more informal and seek ideas from the
middle of the organization and
00:03:04
the lower levels in the
organization, and bring a sense of ferment and exploration in
these companies. And the best
00:03:10
performance— it so happened, we
were studying models of management and trying to
understand what's unique about
00:03:15
Japanese-headquartered firms?
Many of them are global. And we found that there were four
elements. The first one was
00:03:22
really a question of a
stakeholder view of the firm. That the firm is more than just
responsible to shareholders.
00:03:30
It's responsible to customers,
employees, shareholders and communities. But importantly,
it's a flywheel. It kind of— they
00:03:37
reinforce each other. And that
sense of momentum is what they were trying to bring in the
current reality. And the second
00:03:45
part was the idea of learning
from the— for the long run. Leading for the long run, more
like 10 to 15 years. So they
00:03:53
retained that principle. And the
third one was exploration versus exploitation. Really enhancing
the exploration piece and
00:04:01
allowing for some internal
venture capital. And the fourth one was really addressing
inspiration of employees and
00:04:08
bringing a sense of empowerment
into the organization, and really following what we've seen
in the tech world here. So that
00:04:15
blend— really a hybrid of modern
management techniques in many parts of the world and the
traditional Japanese model, is
00:04:23
what we call the hybrid
leadership model that they came up with. And I know Mike will
have a lot more to say.
00:04:28
I think I would just
add, Dan, that we went into
this study of Japanese top management on the
premise that Japan was
00:04:38
languishing, and it was for a
couple decades. Just to go back a little bit on the history of
Japanese business in the '60s and
00:04:46
'70s. Japan, around the world,
became known as number one. Hugely successful companies, not
just in auto making, but just
00:04:55
about everything, including
banking. And a professional colleague wrote a book called
<i>Japan Was Number One</i>, which
00:05:03
aptly described many of the
methods that had carried them well through the '70s and then
through the '80s. But around 1990,
00:05:11
Japan kind of went off a cliff.
And for the last three decades, it's been kind of in retreat.
And as summary, to pick it up from what
00:05:18
Harbir said, there are— the four
specific points, I think, is captured by a phrase that comes
from a very well-known executive
00:05:25
coach, Marshall Goldsmith. It's
a great phrase. I'm going to take it out of context. He uses
it in a slightly— slightly
00:05:30
different way than I'm going to
reference it here. But he basically has said that as you
look at careers develop, what
00:05:37
got you to where you are won't
get you— what got you here won't get you there, the next five or
10 years. And I think that's
00:05:44
what happened in Japan. What got
them to this "Japan is number one" status— worldwide best practice,
everybody wanted to be like
00:05:52
Japanese companies, Mitsubishi,
Nissan, Toyota and so on. And I think picking up on the
particulars that Harbir just
00:06:02
offered up, over the last 20
years— or the last 30 years, really— sometimes now I'm
refer to it as the lost 30s.
00:06:10
Over 30 years, Japanese
companies languishing because it's taken that long, believe it
or not, to shake off what was
00:06:16
serving them well back in the
'70s and '80s, in favor of a new set of principles for leading
big companies.
00:06:23
Well, and I guess— you know, from the
outside looking in, Harbir, you hear the stories about— and you
kind of alluded to not accepting
00:06:31
failure. You know, that's one of
the components that you— you hear was legendary within kind of
the Japanese structure for such
00:06:38
a long period of time. I'm sure
they don't accept failure, but they kind of moderate with it,
now that failure is kind of
00:06:45
a component in business. But you can become
better off of it, correct? Yes, so, exactly right. And it is
very much ingrained in the
00:06:54
societal culture and history,
you know that you— failure is not an option. And that goes very
far in process discipline. And
00:07:02
many companies explicitly
created a sort of a context in which you could experiment, and
if it didn't work, you pivot. So
00:07:09
they kind of got into this idea
of pivoting and the idea of agility. So a company called
Asahi glass, which was number
00:07:16
one in glass in the world, found
that the glass industry was commoditizing, and so they
needed to get into some other
00:07:23
things. So the head of that
company actually created a business development function to
allow them to explore various
00:07:30
ideas. And he had a three-
element process. Materials— try new materials. Try to incubate.
And try to transfer. And they
00:07:38
went through a 10- or 15-year
period of driving that. And they ended up going
from glass to applications of
00:07:45
different materials, including
even life sciences. And they were able to make that
transition. And that is sort of
00:07:51
an example of retaining process
discipline, but allowing for exploration, which is very
interesting.
00:07:56
In there a component of this, Mike,
that, while we're speaking about this in the business
perspective, that this is also,
00:08:04
to a degree, a cultural change
in terms of how Japan views itself and what it should be in
the decades ahead?
00:08:12
It's a great point in the sense that
as we went into the study, just by way of a context here, we
didn't have any priors as to
00:08:19
what was happening or why it
should be happening, or what kind of changes were underway.
But we discovered in talking
00:08:26
with people, say at the head of
this glass company, or at Mitsubishi or Nissan, and well
beyond, that a number of the top
00:08:35
managers in these firms were
kind of coming to terms with the fact that their stock price has
been down, their earnings have
00:08:43
been off, and they're really
going to have to reinvent themselves. And that, in our
view, is the driver. Is, a
00:08:49
number of people— some already
in office, some brought into office, with the support of their
board—and by the way, Japanese
00:08:56
governance changing along with
top management in its attitude about this— saying, "Look. The old
way, the old ways of running
00:09:05
firms worked very well back in
the '70s and '80s. But it's— they're doing very poorly in a
much more competitive global
00:09:12
market." And therefore they said,
"We've really got to help people
00:09:17
working for us rethink what
they're doing and how they're doing it." Moving away from
lifetime employment, for
00:09:24
example, or the assumption that
once you're there at a given company, you're going to be
there for life, and it's just a
00:09:29
matter of kind of regular upward
procession. Many of the people we talked with said that they
began that way in their own
00:09:35
career, but they came to
appreciate that if they didn't get the people working for them
to really focus on what the
00:09:42
market was doing, and getting
rid of some old business that was no longer all that
competitive, and appreciating
00:09:50
that new methods of
manufacturing, new materials, new products, were going to be
important. They set about a long
00:09:59
remake. And this— the remake we
describe in the book actually probably goes back at least five
or 10 years. And, in part, because—
00:10:07
back to your initial point, Dan—
because the culture ultimately has had to be changed as part of
everything else. So a new focus
00:10:17
on talent and its development,
as opposed to taking for granted the people who are hired in by
you are going to do well. They
00:10:25
don't need a lot of coaching. A
different attitude about the role of top management. In a
nutshell, the old method of
00:10:35
speaking from on high, if you
were a CEO. And everybody's going to hear and apply what you want
them to do in their own work
00:10:42
life, no longer was working. And
so the culture change now that is underlying all that we've
said—the four particular points
00:10:49
that Harbir referenced up
earlier— we think is the— is the fundamental platform by which
Japan resolutely is coming back
00:10:57
from the disaster it faced. So how are we starting to see,
then, those four points play out,
00:11:02
Harbir, in terms of the
corporations that are trying to lead this comeback right now?
00:11:08
So one of the most fundamental
things that we see among the leaders is that they're actually
instilling a sense of vision
00:11:15
that is kind of a wider
aperture. It's not just that particular business, not just
the product. It is kind of a set
00:11:22
of services, a set of, you know,
new knowledge that they're trying to develop. Then also,
there's a sense of going beyond
00:11:30
the traditional hierarchy,
creating a greater element of informality. Interestingly, they
have a lot of town meetings, the
00:11:37
most successful. Because you need
to— you need to mobilize people, you know? So almost walking— you
know, and kind of walking around
00:11:43
in shirt sleeves with a
microphone in hand, not sitting at a table, and then
broadcasting the message. So
00:11:51
there's a sense of activism, a
sense of momentum, inspiration. And then also accompanying that,
a sense of processes and
00:11:59
incentives and so on. And the
other point that's very interesting is, as Mike
mentioned, the talent part. They
00:12:05
tend to retain talent. They of
course, shut down factories. They lose talent in those
situations, but they've learned
00:12:12
how to redeploy talent. And
there's a lot we can learn in our context. And it's because
they have a longer time horizon
00:12:18
to build businesses. They're a
little more patient with capital in their business. So they're
retaining some of the
00:12:24
traditional Japanese skills, but
modifying them. So off of something that Mike
said, I think it's interesting. That
00:12:30
component of hearing the message
from on high and it being passed down to the employees, and the
employees just implemented,
00:12:39
that's unique to see that change
because of how historical that is within the culture of
business within Japan. - Exactly.
00:12:46
In fact, they even said that in
some cases they used to have meetings with seating charts.
And they got rid of the seating
00:12:51
charts. So it's a kind of a
level of formality that is beyond anything you might
imagine. And one of the leaders
00:12:57
actually said that he used to,
sort of— to make— to convey the sense of approachability, he
said, you know, "I'm the one who
00:13:03
takes out the garbage." You know,
sort of— you have to say, "I'm every man, every person." You
know. And metaphorically, he was
00:13:12
saying, "All of us need to do
that." You know. All of us need to be in charge of our own
situation. And that, I think,
00:13:18
was fascinating. That was, in
fact, Mr. Kaz Hirai from Sony. And this— he led a 10- or 12- year
horizon of changing Sony's
00:13:28
portfolio. Sony was struggling a
lot. You know, when Apple began to dominate consumer
electronics. And they were not
00:13:34
doing well so much in the— in the
production, theater, movie production business. They had to
change the whole portfolio of
00:13:40
businesses. So I think that's an
example. Now it's only about a third of the companies that have been
able to do that. That's also
00:13:47
interesting, because— and then I
think they're the leaders. And we're presuming the others might
follow.
00:13:51
Well, I was gonna say, are— I mean,
is the— is the landscape open to making change right now, more— more
reticently than maybe it was,
00:14:00
say, 20, 30, 40 years ago? I think it definitely is. Mike and
I remember, you know, the early
00:14:06
start of this work, stages. And
seeing a sense of, you know, sort of some despondency that,
you know, for so many years the
00:14:14
economy has remained stagnant.
And I think a sense of urgency. So I think there's a context in
society where you start seeing
00:14:21
working examples and people
start emulating those. How do you think, then, when you think about leadership, of what
00:14:29
these companies were, and now
what it is and what it could potentially be, it almost feels
to a little bit— a little bit
00:14:36
like you're seeing a shift, a
movement. To a degree, this will play out probably
generationally, with the leaders
00:14:44
that will be there 20 years down
the road, of what these companies and what the expectations of the
leaders will be in the next
00:14:50
couple of decades?
- Well, to speak to that, I think Harbir and
our colleague in Japan
00:14:54
concluded after talking with
102 of these people at the top of the chart— chief executives,
board chairs and so on— that this
00:15:02
has an amazing amount of
momentum. It's happening. It's going to, I think, play out over
the next five or 10 years. And
00:15:09
even more importantly, from our
standpoint, what's developing now in Japan, we think is worth
thinking about, even if you're
00:15:16
not running a company in Japan,
in that they've invented— we tend to call it a bit of a
hybrid. They've kept some of the
00:15:24
old methods that worked very
well. The people at the top of this particular— of these
organizational charts. But
00:15:30
they've also— I'll take one particular
point here to make the point. They've also added in sort of
new pieces to how they do it.
00:15:38
For example, not sitting in the
high castle and casting or pushing directives down, but
actually getting out of your
00:15:45
castle and walking around and
talking with people. So we think longer term, that what's
happening in Japan, it is a kind
00:15:55
of a quiet, largely unseen
revolution in how business is getting business done that is
responding to changes in the
00:16:02
workplace and the competition
these companies are—and we think we can, in a sense, see
some of our own future in
00:16:10
looking at Japan. What do you think is, then, the
potential economic benefit of— of
00:16:16
having this style of leadership,
this change? I mean, obviously, a lot of these companies had
been successful for such a long
00:16:23
period of time, going through
the down cycles that they did, but still they're, you know,
well-known, well-understood
00:16:30
companies and brands. What does
it mean for their fiscal outlook moving forward?
00:16:37
I think that's a very, very
interesting question. I think what it really says is that
those who have been able to
00:16:44
adapt see a very positive
horizon. And others have a sense of urgency to sort of
retire some of the— you know,
00:16:51
the legacy assets, and move
forward. And they've also seen a kind of a more— less stressful
way of doing that, but a longer
00:16:59
time. So they're understanding
the hybrid model. So we think this hybrid model will actually
diffuse through the economy.
00:17:06
There are some structural
elements that are still a problem, that are— it's hard to
reduce employment in Japan.
00:17:13
There are demographic challenges
in Japan as well, and not much immigrant labor coming in. So
they are really looking at the
00:17:21
high tech, high value added
services. And in that, I think they are doing very, very well.
- Mike?
00:17:27
Yeah, I just— I'll offer up an
illustration of the same from the low tech world. In Japan,
there is a chain that's very
00:17:34
much like 7/11 over here, called
Lawson. By the way, 7/11 is also Japanese-owned. Not appreciated
by most Americans. And at Lawson,
00:17:44
the new chief executive came in
some years ago— not so new at this moment— took the view that
the way that Lawson had
00:17:53
traditionally run its 15,000
stores all across Japan, these convenience stores, is to say,
"Look, you’ve got to stock the
00:18:02
following items, and you've got
to follow the rules coming out of headquarters down here in
Tokyo. The new guy that came in—
00:18:10
for us, kind of a paradigm of
what this shift means— has said that it's a little bit nuts in
that local needs are different.
00:18:18
There are a bunch of Lawson
stores, for example, up near the Fukushima area, where we had
this nuclear disaster now going
00:18:25
back to the tsunami, going back
about 14 or 15 years. And he said to the stores, "Think
through what people need in your
00:18:34
area." What people needed was
water, for example. They needed— they needed food, which these
local stores didn't have so much
00:18:42
of. And he just simply said,
"Figure it out. Look at your customers. What do they need?
You're hereby delegated to be
00:18:50
your own leader, so to speak." So
we believe that this form of delegation, intent clear, but
delegation of authority to make
00:18:59
on— on-the-battlefield decisions
is a good idea. It's here to stay. It's helped turn around
the stock market in Japan, which
00:19:06
is now way, way up. That's why
some large investors, including Warren Buffett, are increasingly
looking to invest in Japan.
00:19:14
Quick summary point is, this kind
of quiet revolution behind the scenes, along the lines that
Harbir outlined there at the
00:19:21
very start, is happening. We
think it's here to stay. We think other companies are going
to pick it up. And we think it's
00:19:27
worthwhile, if you're running a
company in Japan— Japan, India, North America, Brazil, Europe,
it's a good idea to take a look
00:19:35
at what's happening in Japan.
Because in some respects, I think it's our own future as
well.
00:19:39
Do the challenges, then— are they there as well? If
you're taking these ideas and
00:19:45
going to other cultures, because
they will have— similarly to what Japan has had for a long
time— they will have their own
00:19:51
philosophies on how to lead, how
to run companies, and— and what they believe is successful. And
how receptive do you think they
00:19:59
will be to— to bringing these
ideas in? It's a great question. And I think
just to pick up on that, and
00:20:04
then, Harbir, over to you— and that is,
I think we've— Harbir and I, and our third colleague in Japan,
have independently come to the
00:20:11
conclusion that one of the best
ways to evolve your own leadership is look around. Other
companies in the US, other
00:20:19
companies in Brazil or China or
Japan. And many of these Japanese companies, to us
anyway, are kind of creating the
00:20:27
future, not only for them, but a
future that we can see through them, that may be our own
future. So that's why we wrote
00:20:34
the book. Wanted to tell the
Japanese— the story in Japan. People in Japan know the story.
So this is really not for people
00:20:43
who are living it. It really is
for people who want to think about their own leadership, and
their own firm, and how they
00:20:49
too, just like these Japanese—
these turnaround resolute new leaders in Japan have turned
around many companies there. We
00:20:57
think that some of the— our
future is seen now in Japan. Thus, good to take a look at what
Japanese companies are doing. We
00:21:03
think it's the future.
- Harbir. So in fact, one of the big debates
in the US today is the issue of
00:21:10
shareholder value and purpose.
Right? That you— shareholder value has a primacy. And very
often, people allude to that and
00:21:16
say, "Therefore, we are shutting
down these divisions," and so on. And at the same time, in many of
our corporations here, there's a
00:21:23
sense of the pursuit of purpose
as a way of, you know, attracting people and giving
them something that they can be
00:21:29
motivated by. I think the
Japanese model we have here, the hybrid model, actually has a
very good sort of example on the
00:21:39
firm's role in society and kind
of seamlessly working with, you know, consumers, employees and
communities. And that's a well-
00:21:47
established tradition. And I
think with about half or more of the Fortune 500 trying to follow
purpose with mixed results,
00:21:55
there's actually a
transferable model from these companies that we have studied
to our corporations over here.
00:22:01
Great to have you both here with
us today. Thanks very much. Harbir,
Mike, great to see you again.
00:22:06
Thank you, Dan.
- Thank you. The book is titled <i>Resolute Japan,
The Leaders Forging a Corporate</i>
00:22:12
<i>Resurgence</i>. And a pleasure to have
two of the authors with us here
00:22:15
in the studio today. Harbir
Singh and Mike Useem, along with their cohort, JJ Ikegami.
00:22:22
Thank you for listening to <i>The
Ripple Effect.</i> We hope you found
this episode informative and
00:22:26
engaging. Don't forget to
subscribe and leave us a review so that we can continue to bring
you the best insight from the
00:22:33
Wharton School.