JAPAN: The best known Westerner in Japan.

JAPAN: The best known Westerner in Japan. - When Japan's fifth largest car maker Mazda hit the rocks, its American partner Ford sent a Brit, Henry Wallace, to lead the rescue. Western managers once took their cue from Japan, but it seems the tables are n

by Bob Murray.
Last Updated: 31 Aug 2010

When Japan's fifth largest car maker Mazda hit the rocks, its American partner Ford sent a Brit, Henry Wallace, to lead the rescue. Western managers once took their cue from Japan, but it seems the tables are now turned.

They say, with surprising candour, that he is the most recognised Westerner in Japan after General MacArthur. People stop him in the street and ask for his autograph. At the airport (he is often at the airport) the joke is that while Japanese customs officials inspect other people's passports, he is waved through with a familiar, 'Good morning, Wallace san'.

Henry Wallace, president of Japanese car manufacturer Mazda, says he was unprepared for such a high profile, and doesn't much enjoy it. 'But it comes with the territory,' he says. Indeed. For the first non-Japanese president of a large Japanese company, a certain standing was unavoidable. What he's got, though, is star status. Not for what he is - though a six-foot-plus, moustachioed Scotsman in Hiroshima is never likely to blend into the background - but for what he is doing.

The 52-year-old former Ford executive is moving the goal posts for a whole generation of Japanese managers. He is daring to reward talent and ability over seniority. He is unafraid to talk of an end to that most central of Japanese work ethics - a job for life. He is putting feminism on the agenda. And it is all seen as such a force for good that he fronts his company's press advertisements.

The irony is not hard to see: Mazda, Japan's fifth largest car manufacturer, forced to seek help from Ford. The £12-billion-a-year giant was, in Wallace's words, 'out of financial control'. The Japanese had got it wrong, at home.

Not for the first time, Mazda had overreached itself, producing too many cars, concentrating on niche models rather than its core markets, and, near fatally, watching its home market share decline (from 7.6% in 1990 to 4.6% in 1995). A strong product development ability - the best in the car world, say Ford bosses - and huge manufacturing flexibility had become completely out of step with the sales reality. When this happened before, in the 1970s, idle production workers sold cars door to door; it worked then, but Wallace disapproves of such tactics this time. He has rather more far-reaching plans.

'We weren't doing a good job in sales and marketing, or brand image,' says Wallace. 'In some markets, one model (the MX-5 sports car) has a stronger image than Mazda itself. We were too early to the game with too many products.' Profits declined during the early '90s and by 1994, the company had tipped into the red by $430 million when Ford - a 25% shareholder since 1979 - finally acted. Wallace, then president of Ford Venezuela, was drafted in at the head of a four-strong advisory team.

Despite improved domestic sales, the strengthening yen added to Mazda's export woes and the company continued to lose money - $420 million in 1995. By spring 1996, it was clear that more drastic measures were needed.

At the behest of major shareholder Sumitomo Bank, Ford was persuaded to mount a rescue, paying $430 million to increase its stake to the maximum 33.4% allowed under Japanese law. Ford also took operational control, installing Wallace as president, along with a bevy of top-flight Ford executives for support, chief among them Ron Leicht, the new sales boss, and Martin Leach. In the most recent management shake-up at the end of June - which saw 10 Japanese board members retire - Leach became managing director of product planning and design. Leach is 40, comes from Billericay in Essex and used to race karts. Not exactly the average Japanese car company executive.

Despite the blow to its corporate pride, Mazda has embraced its saviours with a passion. Its Japanese managers admit that the company didn't just need rescuing, it needed saving from itself. The unspoken but implicit suggestion is that all other large Japanese companies will sooner or later need the same medicine. Suddenly, Japanese management, post bubble economy, is starting to be seen as insular, old-fashioned and out of step.

Wallace is characteristically diplomatic. 'Since the war, the country has been through a period of outstanding, steady growth,' he says. 'The Japanese management model has been attuned to that with a focus on quality and cost reduction to grow business. Soft changes, a soft landing - a nice steady, self-perpetuating circle.

'But Japan is now such a big part of the world economy that it can't stay in this cocoon. There is now a recognition that Japan needs more leadership and more progressive policies if it is to continue to prosper,' he says.

'There are some good things in Japanese management, and the seniority system has some very strong benefits, but it won't stand the test of the 21st century. Unless we modernise our practices, we won't get the best people.'

Revealing stuff from the head of a Japanese manufacturing giant. But getting results involves huge management challenges; what use a decree from one man against thousands of years of Japanese culture? 'There are obvious difficulties,' says Wallace. 'There was no blueprint for me when I arrived. Having worked internationally for a long time, I have a certain cultural sensitivity. And as long as the direction is right, how you get there doesn't matter, as long as you get there.'

For the moment, Wallace is getting there with an interpreter constantly by his side. He is learning Japanese but he admits, 'I can't have a real conversation yet, let alone conduct business'. Inevitably, using an interpreter tends to stifle spontaneity and free discussion. For Mazda though, it's the message rather than the medium that is important.

Today Wallace sees his task at Mazda as focused on three priorities: to make the company customer - rather than engineering-driven; to run it as an independent and successful car maker; and to build synergies with Ford by sharing components, facilities and expertise. In all this, says Wallace, a Ford bean counter in the classic tradition, the profit motive is uppermost.

Slowly but surely the message has been getting through. Mazda, once a byword for innovation run wild, is being transformed. The process was started by Wallace's predecessor Yoshihiro Wada - brought in as president from Sumitomo Bank five years ago and now chairman of the company. In just three-and-half-years, the company has halved the number of models from 24 to 12, closed the corporate guest house along with an unsuccessful creative design shop on a piece of prime Tokyo real estate, shut down sales channels, sold a rent-a-car company, taken some 140,000 unsold cars out of worldwide inventory, axed three product plans and, through early retirement and a halt to recruitment, reduced the workforce from 30,000 to 25,000. It has also got into production - in a record-breaking 15 months - a new model that's a big hit with young people in Japan.

The results so far are more encouraging than spectacular. The $5.4 billion debt pile has been reduced by one-third. Last year the parent company posted a net profit of $3.4 million, its first in three years, after selling securities. A similar tactic helped boost profit to $49 million for the year to March 1997, although at operating level it still lost money ($43.5 million). Production hasn't yet turned the corner: Mazda currently produces about one million cars a year, with its flagship, highly-automated Hofu plant running at just 40% capacity. But by concentrating on more mainstream models, premium-quality cars up-market of Ford and and Vauxhall, the company hopes to hit 1.5 million by 2000 - giving it 2% of the world car market.

But it is, perhaps, in the style of management that Wallace has had the greatest impact. Executive-committee meetings were one of the first aspects to change. As Wallace explains: 'When I first arrived, these major policy meetings were very much a rubber-stamping exercise. Everything had been agreed behind the scenes. We now have more discussion but still not as much as I'd like.' He says the change meant Japanese executives, who traditionally would have left the details to their juniors, have had to swot up in order to take part in the discussions.

It is those junior managers, though, who stand to benefit most. The Japanese seniority system - with promotion after years of service for those who do their job and keep their heads down - has been thoroughly overhauled. 'Young Japanese people today want to be measured more on their performance,' explains Wallace. 'They aren't prepared to work for companies for the whole of their lives like their fathers did.

We've speeded up promotion and changed our system of evaluating performance.

Mazda managers now know they can aspire to board positions in their 40s - before they'd have to be 50 or more to be a director.'

This also means that not everyone expecting to move up has done so. Are there a few miffed Mazda managers about?

'It is threatening in some cases. A big block of middle managers have put in their years on the basis that things will move nicely along for them, now here we are saying we're going to change the rules of the game.'

The change to a more open and accessible management style has seen Wallace adopt a high profile quite unlike that of his counterparts at the other car companies. In June, for example, he spoke to 5,000 European Mazda dealers at a sales conference in Berlin. Japanese car company presidents wouldn't usually talk to Japanese dealers, let alone travel around the world to do it.

And then there was his press ad for Mazda. Wallace jokes that he was cheaper than Mazda's previous celebrity salesman, Sean Connery, but the truth is that currently in Japan a Westerner in charge of a Japanese company is seen as a plus. Sales chief Leicht, who dreamt up the ad, says that, 'at first it scared me to death that it would backfire, but we tested it on 600 people in Tokyo and they all overwhelmingly approved'.

Change on this scale is inevitably difficult and even for Wallace some things are still taboo, like compulsory redundancy. Asked whether this figures in his plans, Wallace will say only that, 'mandatory lay-offs are not acceptable in Japan right now'. How long it can remain so is open to question. There are limits to how far you can go with voluntary redundancies and recruitment freezes, and it's difficult to ensure that you keep the best people.

But for a country where the job-for-life concept is still jealously guarded, this is one Western innovation that may have to wait. The old consensus approach to management is too entrenched to be changed overnight.

'Japanese culture places great emphasis on harmony,' says Wallace. 'In business, the Japanese would much sooner find a soft landing for every issue. I want to get the issues on the table and resolved. The need to get harmony and consensus naturally slows these things down. There is a tremendous strength in Japanese industry and practices, but there is a question mark over whether or not they can all be retained for the future.' l

HOFU PLANT - Robots operate at 40% capacity

Mazda was into niche marketing before most car companies knew what it meant. Integral to its policy of model proliferation was Hofu, a highly automated assembly plant that could churn out up to 12 different models on the same lines without interruption. The robots - some 876 fully automated assembly operations - even put on the wheels and install the seats.

State-of-the-art Hofu opened 15 years ago. A match for anything Ford has, it is currently running at just 40% of its 400,000-cars-a-year capacity.

Mazda found that niche models were fine if people bought them. But despite some hits - the MX-5 sports car, for example - a lot of the time people didn't. Mazda's image suffered and sales of core models in its home market, Mazda's bread and butter, took a dive.

While other car makers are rediscovering the power of niche models, and the cost and efficiency benefits of large-scale component sharing, Mazda is reverting to safer, more mainstream cars. Mazda hopes this approach, epitomised by its latest model, the 626, will push Hofu production up to 60%. But its extreme production flexibility and cost-effective way of producing small numbers of different models won't be wasted. With Ford now in control, and a mandate to synchronise model ranges by the year 2000, Hofu is one of the most powerful weapons in the Ford/Mazda armoury.

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