Irina Lebedeva
SOME SPECIAL FEATURES OF JAPANESE MANAGEMENT SYSTEM
In order for some or other management model to work successfully, the company employees should see it as serving the purpose and making sense. In other words, the tools and methods of management and organization of production should coincide with the employees' idea of what the company is and how it should be managed. The Japanese model of management meets these requirements by and large because it is based on wide use of elements that take into account peculiarities of the national mentality and national culture.
Usually, the impact of culture and tradition on organization of production and management in Japanese companies is seen in the lifetime employment system, a system of pay based on seniority and trade unions organized on a company or firm basis. In reality, however, this influence affects a much wide range of fundamental characteristics of Japanese companies. I will touch on some of them in this paper.
It should be first of all noted that people in Japan and in the West have rather different ideas of what a company is. According to the classical view widespread in the West, a company is an organization with a set of certain production functions, which converts market factors into competitive products. In the short term, it seeks maximum profit and in the long term, it seeks to increase the company's market value in the eyes of the stockholders. The company is owned by stockholders who, on the one hand, take the risks involved and responsibility for economic results, and on the other, they direct and control its activities. Managers and other workers are employed on contract that can be ended if one of the parties wishes to do so (employees or employers).
In Japan, fundamentally different views prevail. The key difference hinges on who owns a company. Whereas Western countries think that companies are owned by stockholders, they think in Japan that companies also belong to their managers and employees, They are regarded as three components or three subjects of their activities. Furthermore, in many Japanese companies their employees (let alone their managers) are regarded as being not only component parts of companies but also parts which are more important than the stockholders. [1]
Japanese researchers note that such views began to form in Japan back during the Edo period when first capitalist-type enterprises emerged, and at their basis is the high position that work has been traditionally occupying in the system of values of the Japanese. [2]
These views grew even stronger in the postwar period: Owing to the widened gap between capital as property and capital as function, the positions of managers and employees within companies became even stronger while stockholders came to play a relatively smaller part.
The difference of opinion with regard to owners of companies leads to a string of other fundamental differences between the Japanese and Western models of management beginning with the status and the missions of top management and ending with relationships between managers and ordinary employees.
Whereas in Western (primarily American) companies there are top managers who are hired elsewhere and professionals who can be fired at any instant by the decision of assembled stockholders or the body that represents them, the position of managers in Japanese companies is more stable: They are almost exclusively "company-men" who have worked their way from the bottom to the top and enjoy absolute trust and prestige. In Japanese companies, it is the president and the board of directors who make all the key decisions including personnel decisions whereas meetings of stockholders are mainly a matter of form.
Since Western managers' main objective is to care for the stockholders' interests and create conditions for stable development of companies as a whole, all of their efforts are directed at getting as much profit as possible on capital invested. And since dividends are paid every quarter or twice a year, they have to do all they can to maintain a high level of profitability even on the quarterly basis and this substantially curtails their freedom and possibilities with regard to day-to-day management and strategic planning.
Top managers in Japanese companies focus on creating conditions for stable development of companies rather than on caring for the interests of stockholders. Relieved of the burden of daily care for maximum profit, Japanese managers have much more leeway than their Western counterparts and concentrate on developing general strategies of their companies that would make possible for them not only to hold onto their share of the market but also to increase it.
Another feature of Japanese companies is the "deficient" positions of their stockholders. This "deficiency" shows not only in the nominal role of stockholders in decision making but also in the payment of dividends in accordance with the so-called "leftover" principle. Whereas Western management's role consists in increasing profits to enable higher dividends for the stockholders, the main objective of Japanese companies management is to create conditions for company growth and the dividends policy is closely tied to making it possible to provide finance for priority areas of development. Notable, however, is the fact that even if faced with financial constrains, Japanese companies do their best to pay the dividends (they even borrow money or sell part of their assets for the sake of it) on the premise that nonpayment of dividends would harm the company prestige in the eyes of its partners.
Significantly, the payment of dividends in accordance with the "leftover" principle does not appear even to Japanese stockholders to be a departure from the norm, let alone to the managers and ordinary employees. Apart from the above ideas of the Japanese, of the owners and subjects of company activities, the spreading of such practices was also helped by sharp changes, in the postwar period, in the structure of stockholding of Japanese companies and namely the concentration of a significant part of stocks (up to 75 percent by the end of the 80s) in the hands of institutional investors. [3] As we know, a considerable proportion of the latter are held together by the system of cross-stockholding, which means that stockholders forego pressuring their partners in a bid to up their dividends.
In a rather sharp contrast with the "deficient" position of stockholders is the special position that Japanese managers assign to ordinary employees. They use an extremely subtle and constantly updated system of work control remarkable for its national specificity in order to maintain their high work motivation and loyalty to the company. Since this subject is covered in T. Matrusova's paper, let me mention here only two aspects illustrating the special position of employees in Japanese firms.
First of all, Japanese managers regard the payment of bonuses as a far more important thing than the payment of dividends. Although the latter are paid in accordance with the "leftover" principle, they attach paramount importance to the payment of bonuses. Furthermore, there exists here such a specific type of reserves as reserves for the compensation of payments to employees in the event of layoffs (a firm can hide in them up to 40 percent of the sum that it would need should all its employees happen to be laid off). At the same time, in the event of the company's reorganization (dissolution, merger, and so on) they first of all pay compensations to the employees.
The functions and position inside Japanese companies of medium-tier managers are also very different from Western standards. They are mainly chiefs and managers of sections in charge of day-to-day administration.
As we know, sections in many Japanese companies operate as "centers of profit." This means that their managers are free to make on-the-spot decisions but at the same time they are responsible for the maintenance of the required levels of profitability. In this respect, the functions of Japanese medium-tier managers differ little from those of their Western counterparts. However, at the same time their another extremely important brief is to create a favorable psychological climate among their subordinates. Which is why medium-tier managers in Japanese companies are supposed to have not only appropriate knowledge but also character that commands confidence and respect of their counterparts and subordinates. [5]
Like top managers, Japanese medium-tier managers are mostly "company men." This makes it considerably easier for them to harmonize relationships inside their teams of employees because, as they climb the ladder, they absorb those norms and rules that shape relations between people in Japanese firms.
Since egalitarian Japanese society does not encourage striking distinctions in the position of individuals inside groups, Japanese managers achieve understanding with their subordinates while strenuously avoiding in every way demonstration of their special status, and on the contrary they stress their proximity to ordinary workers. They have no exclusive cafeteria or parking areas, their offices are little different from other offices and their company clothes are plain and modest. On the contrary, Western, and especially American companies widely use such trappings of power as exclusive cafeteria for managers, sumptuous office interiors, expensive company cars, and so on.
One graphic example of differences between the Japanese and Western management ideology can be found in the well-known book by J. Abegglen and G. Stalk "Kaisha. The Japanese Corporation." When owing to some financial constraints a Japanese company is forced to reduce wages of its workers, the top managers and the medium-tier managers first cut their own wages and only then enter into talks with the union on cutting the wages of ordinary workers. In American companies in similar cases, one of the top managers is designated to conduct talks with the union leaders on cutting the workers' wages and, if he succeeds, he is offered a big reward. [6]
This policy of Japanese management prompts the ordinary workers to respond with readiness to share the burden of risk and responsibility for the company's affairs. This shows, in particular, in the fact that no union puts forward demands for higher wages when their company is going through hard times. (The management responds to such understanding with substantial wage increases once the hard situation is over). [7]
Another feature of Japanese-style management born under the influence of the national culture is a special approach to dividing the spheres of responsibility and decision making. It is common knowledge that unlike Western companies, where spheres of responsibility assigned to the employees (or their job duties) are clearly defined, in Japanese companies spheres of personal responsibility are not clearly defined and responsibility is usually placed not on individual employees but on the team. Clearly enough, Japanese companies have inherited in this respect the traits of the mura, or traditional rural community.
However, as Japanese specialists point out, despite all this vagueness employees of Japanese companies know very well the place of each of them in their organizations thanks to implied rules existing in every company which they learn as they receive training, move to new jobs or climb the ladder. [8]
There are close links between the "elusiveness" of organization of Japanese companies and distinctive characteristics of the decision making process. There are three special aspects of the latter: the generation of decisions is done "from bottom to top," it is based on the principle of shared risk and responsibility, decisions are made by consensus after numerous talks and consultations between all interested parties. In this respect we can describe the Japanese decision making model as democratic (unlike authoritarian systems of Western companies where power is concentrated in the hands of top executives and decisions are handed down in accordance with a clearly defined hierarchy).
The shared responsibility and consensus principles guide the operation of the well-known quality- control groups, small groups and so on. But the glowing example of the Japanese decision making system is the ringi system.
A ringi is a written document containing proposals on some or other matter and drawn up by the manager of one of the lower-reaches unit and sent through the chain of command to the top to gather approval of the persons in charge on each level in the management hierarchy. Before drawing up such a document, its initiator holds numerous informal consultations, which came to be called nemawashi (literally, transplanting the roots), with all those interested in it. Even so, of much greater importance for a successful passage of the ringi is the nature of relations of the manager who has drawn it up with his counterparts than the real value of the proposal itself. [9]
Obviously, finding solutions on the basis of consensus inevitably entails dispersal of responsibility for the results of decisions taken. Theoretically it is the initiator who is to be held responsible for the failure (at least for not having carried out the nemawashi procedure painstakingly enough). But since the final decision is the result of consensus, responsibility for the failure is distributed amongst all who were taking it (even so, the measure of responsibility of each individual is never established).
From the point of view of Western managers, the Japanese system for taking decisions and establishing responsibility for the failure to carry them out is ineffective and irrational. From the standpoint of the Japanese, however, although it has some flaws (such as focusing on initiative of lower-ranking managers and ordinary workers while higher-ranking employees remain relatively passive) it has undoubted advantages. The main advantage is that the system makes for harmonious relations between members of the team because, if the results are positive, it enables everyone to partake of the success, and if the results are negative, it does not permit anyone to lose face. [10]
Among the other features of the Japanese management system, which are connected in one or other way with the influence of national culture and mentality, are perhaps special relations between companies and the banks, focusing on long-term relations with partners (its shows most strikingly in the practice of forming groups), special relations between business and bureaucracy, and many others.
As many people know, the Japanese management system used to demonstrate for a long time its high efficiency and was viewed by both Western and Japanese experts as one of the main factors of the nation's economic successes. However, the sharp worsening of the economic situation in the 90s put it to a formidable test and compelled Japanese management to make some changes to it.
To take an example, though the focus on long-term interests still remains peculiar to the Japanese management system, the difficult economic situation compels companies and banks to pay much more attention to ensuring current profitability. The role of direct financing via the stock market has greatly grown in the structure of financing Japanese companies whereas the importance of indirect financing including bank credits has declined. This, on the one hand, has strengthened the position of stockholders within the framework of Japanese companies and, on the other, it has changed the nature of relations between the banks and companies. The grown importance of the factor of economic effectiveness in decision making has resulted in major changes in the nature of relations between partners within the framework of horizontally- and vertically-organized groups. Complex and painful processes of restructuring are also taking place in the system of labor management of Japanese companies, including the lifetime employment system.
Nonetheless, we can hardly expect a total loss of the national peculiarity of the system of Japanese company management as a result of all these changes. After all, there is no doubt that traditions and national cultural features will continue to influence all aspects of life of Japanese society and the character of economic relations.
References
[1] The Annals of the school of Business Administration. Kobe University, 1990, N 34, p. 27-28
[2] Íèõîí-êàòà ìîäýðó âà íàíè êà. Òîêèî, 1993, ñ. 372
[3] Ballon R.,I. Tomita. The financial behavior of Japanese corporations. Tokyo, 1988, p. 108
[4] The economic analysis of Japanese Firm. N.Y. 1984, p. 7
[5] Hasegawa Keitaro. Japanese-Style Management Tokyo, 1986, p. 44
[6] Abegglen J., Stalk G. Kaisha. The Japanese corporation. Tokyo, 1987, p. 198
[7] The economic analysis of Japanese Firm, p. 23
[8] The Annals of the School of Business Administration. Kobe University, 1990, N 34, p. 32-33
[9] Hasegawa Keitaro. Japanese-Style Management. Tokyo. 1986, p. 38
[10] For details see Ibid., Chapter 3
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