JAPAN: shares may be down but not management.

JAPAN: shares may be down but not management. - Japan's present troubles have to be seen in the right perspective.

by Robert Heller.
Last Updated: 31 Aug 2010

Japan's present troubles have to be seen in the right perspective.

The 1980s were the era of Japan: the age when America's management reputation, and some managements, were swept away by the tide of Japanese success. But are the seeds of decay that lurk within every success sprouting? Japan never was immune to the general run of either history or economics - and the country's rocky start to the 1990s seems to confirm the fears (or hopes) of the Jeremiahs.

The evidence is certainly ugly: a leader like Sony plunging into loss; the financial community mired in scandal, rotten loans and sagging balance sheets; asset values plummeting; swingeing slashes in investment; domestic turnover falling; and export prospects darkening.

Nobody argues that the Japanese are moving backwards in absolute terms. Their companies are still awesome competitors. True, in the US car market, domestic and Japanese quality are in many cases equal, while Chrysler has succeeded in launching a new sports model (admittedly, on a short production run) within a Japanese time-scale. Yet the 1990s are still Japan's era, in both management and competitive terms. Exported competition, far more than exported goods, is what has galvanised the more alert, or most bruised, Western competitors into learning new lessons. To stay with cars, nearly 250 American parts companies are wholly or partly Japanese-owned. The same process has been flowering vigorously in Europe.

The first profit for Nissan's Sunderland plant is a swallow announcing more than one summer. The mistake for European managers would be to identify Japan's macro-economic troubles with its micro-economic potential. For managerial prowess hasn't followed the plunge of the Tokyo stock market.

That prowess, true, may have been exaggerated. As with companies riding high, soaring national economies encourage misplaced belief in superior quality of management. While the performance of Japan's overseas operations appears to endorse that quality, so did that of America's European affiliates in their time: set up shop on a greenfield site, back local management with all the parent's resources in money, technology and expertise, and if you don't win, you should be ashamed. Nobody is more shamed by bad performance than a good Japanese manager. That would certainly apply to the bluechip blues now being reported. But Sony, for example, has been in the profit wars before, when the Betamax fiasco ravaged its earnings. The upshot was a marvellous exhibition of "cost-down" and innovation that elevated the electronics company out of the war-zone - for VCRs were the only important area where its grip had slackened.

The crucial issue of the next 18 months is whether Japanese managements as a whole can demonstrate this celebrated resilience all over again. The current economic weakness, to the extent that it arises from bursting the previous megabubble, can be interpreted as a portent of good, not harm. Get the economy back on a solid base (which, says Fortune, is what's afoot) and the management rocket will take off once more.

If that happens, any time lost while the Japanese are licking their wounds will be most grievously wasted. The West has a split mind about its competitors: praising Japan's more obvious achievements (like the car quality that pulverised Detroit) while belittling its progress in key industries - like computers. Sure, Japanese firms, outside Japan, have only 3% of the world market in computer systems; but they have a dominant and growing share in many components, notably in Europe.

Even if no further thrusts forward were to be made, the penetration achieved makes these managers the team to beat. They won't be overcome without applying the same techniques, or finding new and improved approaches, to the vital business of achieving more with less - more in output, and in every attribute of importance to the customer, but with less cost, less man-hours and less error.

It's no help, though it should be, that Japanese management methods are mostly founded on Western insights and precepts. The puzzling reluctance of most managers in the US and Europe to practise what's preached in Western sermons persists. The official total quality movement in Europe is less conspicuous for its select group of leaders than for the multitude who haven't joined the long march.

If quality were a question of products alone, that would still matter, but to a lesser degree. Total quality, though, is really about creating and maintaining far better managed businesses. And there the Japanese still lead - like it or not.

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