What can we learn from Japanese Management? Part II of III

In the previous post we read about "Decisions by Consensus" which is the first & top most concern  of top management. Today we will write about the second concern which is "Security & Productivity".

Security & Productivity

Just as many Americans have heard about consensus as the basis for Japanese decisions, so many of us know about Japanese “lifetime employment” policies. But the common understanding of “lifetime employment” is as far off the mark as is the common interpretation of consensus.

Myths & realities

To be sure, most employees in “modern” Japanese business and industry have a guaranteed job once they are on the payroll. While they are on the job, they have practically complete job security which is endangered only in the event of a severe economic crisis or of bankruptcy of the employer. They also are paid on the basis of seniority, as a rule, with pay doubling about every 15 years, regardless of the type of job. To be accurate, the picture must be qualified with such facts as the following:

  1. Women are almost always considered “temporary” rather than “permanent” employees; so they are exempted from the benefits.
  2. In most “traditional” Japanese businesses, such as workshop industries producing lacquer, pottery, and silk, workers are hired and paid by the hour.
  3. Even in the “modern” industries there is a slowly shrinking, but substantial (perhaps 20%), body of employees who, by unilateral management decision, are considered “temporary” and remain in that category for many years.

But, while job security and compensation are quite favorable for Japanese workers as a whole, the picture does not have the implications a Western businessman might expect. Instead of a rigid labor cost structure, Japan actually has remarkable flexibility in her labor costs and labor force. What no one ever mentions—and what, I am convinced, most Japanese do not even see themselves—is that the retirement system itself (or perhaps it should be called the nonretirement system) makes labor costs more flexible than they are in most countries and industries of the West. Also, it harmonizes in a highly ingenious fashion the workers’ need for job and income guarantees with the economy’s need for flexible labor costs.

Actually, most Japanese companies, especially the large ones, can and do lay off a larger proportion of their work force, when business falls off, than most Western companies are likely or able to do. Yet they can do so in such a fashion that the employees who need incomes the most are fully protected. The burden of adjustment is taken by those who can afford it and who have alternate incomes to fall back on.

Official retirement in Japan is at age 55—for everyone except a few who, at age 45, become members of top management and are not expected to retire at any fixed age. At age 55, it is said, the employee, whether he is a floor sweeper or a department head, “retires.” Traditionally, he then gets a severance bonus equal to about two years of full pay. (Many companies, strongly backed by the government, are now installing supplementary pension payments, but by Western standards these payments are still exceedingly low.)

Considering that life expectancy in Japan is now fully up to Western standards, so that most employees can expect to live to age 70 or more, this bonus seems wholly inadequate. Yet no one complains about the dire fate of the pensioners. More amazing still, one encounters in every Japanese factory, office, and bank, people who cheerfully admit to being quite a bit older than 55 and who quite obviously are still working. What is the explanation?

The rank-and-file blue-collar or white-collar employee ceases to be a permanent employee at age 55 and becomes a “temporary” worker. This means that he can be laid off if there is not enough work. But if there is enough work—and, of course, there has been during the past 20 years—he stays on, very often doing the same work as before, side by side with the “permanent” employee with whom he has been working for many years. But for this work he now gets at least one third less than he got when he was a “permanent” employee.

The rationale of this situation is fairly simple. As the Japanese see it, the man has something to fall back on when he retires—the two-year pension. This, they freely admit, is not enough to keep a man alive for 15 years or so. But it is usually enough to tide him over a bad spell. And since he no longer has, as a rule, dependent children or parents whom he has to support, his needs should be considerably lower than they were when he was, say, 40 and probably had both children and parents to look after.

If my intent were to describe the Japanese employment system, I would now have to go into a great many rather complicated details, such as the role of the semiannual bonus. But I am concerned only with what we in the West might learn from the Japanese. For us, the main interest of the Japanese system, I submit, is the way in which it satisfies two apparently mutually contradictory needs: (a) job and income security, and (b) flexible, adaptable labor forces and labor costs. Let us look at the way this is done and draw comparisons with the U.S. system.

Meeting workers’ needs

In the West, during the last 25 years, more and more employees have achieved income maintenance that may often exceed what the Japanese worker gets under “lifetime employment.”

There is, for instance, the Supplementary Employment Compensation of the U.S. mass-production industries which, in effect, guarantees the unionized worker most of his income even during fairly lengthy layoffs. Indeed, it may well be argued that labor costs in U.S. mass-production industries are more rigid than they are in Japan, even though our managements can rapidly adjust the number of men at work to the order flow, in contrast to the Japanese practice of maintaining employment for “permanent” employees almost regardless of business conditions. Increasingly, also, we find in the heavily unionized mass-production industries provisions for early retirement, such as were written in the fall of 1970 into the contract of the U.S. automobile industry.

Still, unionized employees are laid off according to seniority, with the ones with the least seniority going first. As a result, we still offer the least security of jobs and incomes to the men who need predictable incomes the most—the fathers of young families (who also may have older parents to support). And where there is “early retirement,” it means, as a rule, that the worker has to make a decision to retire permanently. Once he has opted for early retirement, he is out of the work force and unlikely to be hired back by any employer. In short, the U.S. labor force (and its counterparts in Europe) lacks the feeling of economic and job security which is so pronounced a feature of Japanese society.

We pay for a high degree of “income maintenance” and have imposed on ourselves a very high degree of rigidity in respect to labor costs. But we get very few tangible benefits from these practices. Also, we do not get the psychological security which is so prominent in Japanese society—i.e., the deep conviction of a man of working age that he need not worry about his job and his income. Instead we have fear. The younger men fear that they will be laid off first, just when the economic needs of their families are at their peak; the older men fear that they will lose their jobs in their fifties, when they are too old to be hired elsewhere.

In the Japanese system there is confidence in both age groups. The younger men feel they can look forward to a secure job and steadily rising income while their children are growing up, the older men feel they are still wanted, still useful, and not a burden on society.

In practice, of course, the Japanese system is no more perfect than any other system. There are plenty of inequities in it; the treatment of the older people in particular leaves much to be desired—especially in the small workshop industries of “preindustrial” Japan and in the multitude of small service businesses. But the basic principle which the Japanese have evolved—not by planning rationally, but by applying traditional Japanese concepts of mutual obligation to employment and labor economics—seems to make more sense and works better than the expensive patchwork solutions we have developed that do not come to grips with the problem itself. Economically, it might be said, we have greater “security” in our system—we certainly pay more for it. Yet we have not obtained what the Japanese system produces, the psychological conviction of job and income security.

More meaningful benefits

Today there is talk—and even a little action—in U.S. industry concerning “reverse seniority” to protect newly hired blacks with little or no seniority in the event of a layoff. But we might better consider applying “reverse seniority” to older men past the age of greatest family obligations, since so many labor contracts now provide for early retirement after age 55. Under current conditions, these men may be expected to be laid off when they qualify for early retirement. Why not give them the right to come back out of early retirement and be rehired first when employment expands again? Some such move that strengthens the job security of the younger, married employee, with his heavy family burdens, might well be the only defense against pressures for absolute job guarantees with their implications for rigid labor costs.

Even more important as a lesson to be learned from the Japanese is the need to shape benefits to the wants of specific major employee groups. Otherwise they will be only “costs” rather than “benefits.” In the West—and especially in the United States—we have, in the last 30 years, heaped benefit upon benefit to the point where the fringes run up to a third of the total labor cost in some industries. Yet practically all these benefits have been slapped on across the board whether needed by a particular group or not.

Underlying our entire approach to benefits—with management and union in complete agreement, for once—is the asinine notion that the work force is homogeneous in its needs and wants. As a result, we spend fabulous amounts of money on benefits which have little meaning for large groups of employees and leave unsatisfied the genuine needs of other, equally substantial groups. This is a major reason why our benefit plans have produced so little employee satisfaction and psychological security.

Willingness to change

It is the psychological conviction of job and income security that underlies what might be the most important “secret” of the Japanese economy: cheerful willingness on the part of employees to accept continuing changes in technology and processes, and to regard increasing productivity as good for everybody.

There is a great deal written today about the “spirit” of the Japanese factory, as reflected in the company songs workers in big factories sing at the beginning of the working day. But far more important is the fact that Japanese workers show little of the famous “resistance to change” which is so widespread in the West. The usual explanation for this is “national character”—always a suspect explanation. That it may be the wrong one here is indicated by the fact that acceptance of change is by no means general throughout Japan. For example:

  1. The Japanese National Railways suffer from resistance to change fully as much as any other railway system, including the U.S. railroads. But the numerous private railways that crisscross the densely populated areas of Japan seem to be free from such resistance. That the Japanese National Railways are as grossly overstaffed as any nationalized industry in the world may be part of the explanation; the workers know that any change is likely to create redundancy.
  2. The other industries in Japan that suffer from resistance to change are also the ones that are organized according to Western concepts of craft and skill. The industries that apply Japanese concepts, as do the private railways (on the whole), do not suffer from resistance to change, even though their employees may know that the company is overstaffed.

The secret may lie in what the Japanese call “continuous training.” This means, first, that every employee, very often up to and including top managers, keeps on training as a regular part of his job until he retires. This is in sharp contrast to our usual Western practice of training a man only when he has to acquire a new skill or move to a new position. Our training is promotion-focused; the Japanese training is performance-focused.

Second, the Japanese employee is, for the most part, trained not only in his job but in all the jobs at his job level, however, low or high that level is. To illustrate:

  1. The man working as an electrician will automatically attend training sessions in every single area in the plant. And so will the man who pushes a broom. Both of them may stay in their respective jobs until they die or retire. Their pay is independent, in large measure, of the job they are doing, and is geared primarily to the length of service, so that the highly skilled electrician may well get far less money than the floor sweeper. But both are expected to be reasonably proficient in every job in the plant that is, generally speaking, at the same level as their own job.
  2. An accountant is expected to be trained—or to train himself through a multitude of correspondence courses, seminars, or continuation schools available in every big city—in every single one of the professional jobs needed in his company, such as personnel, training, and purchasing.
  3. The president of a fairly large company once told me casually that he could not see me on a certain afternoon because he was attending his company’s training session in welding—and as a student, rather than as an observer or teacher. This is an exceptional example. But the company president who takes a correspondence course in computer programming is fairly common. And the young personnel man does so as a matter of course.

It would take a fat book on Japanese economic and industrial history to explain the origins of this system—though in its present stage it is just about 50 years old and dates back to the labor shortages during and right after the First World War. It would take an even fatter book to discuss the advantages, disadvantages, and limitations of the Japanese system. The limitations are very great indeed. For example, the young, technically trained people—scientists and engineers-resent it bitterly and resist it rather well. They want to work as scientists and engineers and are by no means delighted when asked to learn accounting or when shifted from an engineering job into the personnel department.

Moreover, there are exceptions to the rule. Such highly skilled and highly specialized men as papermakers and department store buyers usually are not expected to know other jobs or to be willing to fit into them. But even these types of workers continue, as a matter of routine, to perfect themselves in their own specialty long after any training in the West would have ended.

Built-in advantages

One result of the practices described is that improvement of work quality and procedures is built into the system. In a typical Japanese training session, there is a “trainer.” But the real burden of training is on the participants themselves. And the question is always: “What have we learned so we can do the job better?” A new tool, process, or organization scheme becomes a means of self-improvement.

A Japanese employer who wants to introduce a new product or machine does so in and through the training session. As a result, there is usually no resistance at all to the change, but acceptance of it. Americans in the management of joint ventures in Japan report that the “bugs” in a new process are usually worked out, or at least identified, before it goes into operation on the plant floor.

A second benefit is a built-in tendency to increase productivity. In the West we train until a “learner” reaches a certain standard of performance. Then we conclude that he has mastered the job and will need new training only when he moves on or when the job itself is changed. When a learning curve reaches the standard, it stays on a plateau.

Not so in Japan. The Japanese also have a standard for a job and a learning curve leading up to it. Their standard as a rule is a good deal lower than the corresponding standard in the West; indeed, the productivity norms which have satisfied most Japanese industries in the past are, by and large, quite low by Western measurements. But the Japanese keep on training. And sooner or later, their “learning curve” starts breaking above the plateau which we in the West consider permanent. It starts to climb again, not because a man works harder, but because he starts to work “smarter.” In my view, the Japanese pattern is more realistic and more in tune with all that we know about learning.

In the West we are satisfied if the older worker does not slacken in his productivity. Declining performance is a problem, too, in some Japanese industries; young women assembling precision electronics, for instance, reach the peak of their finger dexterity and their visual acuity around the age of 20 and, after age 23 or so, rapidly slow down. (This is one reason that the Japanese electronics industry works hard to find husbands for the girls and to get them out of the factory by the time they are 21 or 22.)

But on the whole the Japanese believe that the older employee is more productive; and their figures would bear this out. With pay based on seniority, the output per yen of wages may be much higher in a plant in which the work force is largely new and young. But output per man-hour is almost invariably a good deal higher in the plant that has the older work population—almost the exact opposite of what we in the West take for granted.

Lifetime training concept

In effect, the Japanese apply to work in business and industry their own traditions. The two great skills of the Samurai, members of the warrior caste that ruled Japan for 300 years until 1867, were swordsmanship and calligraphy. Both demand lifetime training. In both one keeps on training after one has achieved mastery. And if one does not keep in training, one rapidly loses one’s skill. Similarly, the Japanese schools of painting—the Kano school, for instance, which dominated Japanese official art for 300 years until 1867—taught that even the greatest master spends several hours a day copying. Thus, he too keeps in “continuous training.” Otherwise, his skill, and above all his creativity, would soon start to go down. And the greatest judo master still goes through the elementary exercises every day, just as the greatest pianist in the West does his scales every day.

When employees and efficiency experts take this attitude toward work, the result is a subtle but important change in emphasis. A leading industrial engineer of Japan told me one day:

“One difference I find hard to explain to my Western colleagues is that we do exactly the same things that the industrial engineer does in Detroit or Pittsburgh; but it means something different. The American industrial engineer lays out the work for the worker. Our industrial engineers are teachers rather than masters. We try to teach how one improves one’s own productivity and the process. What we set up is the foundation; the edifice the worker builds.

“Scientific management, time and motion studies, materials flow—we do all that, and no differently from the way you do it in the States. But you in the States think that this is the end of the job; we here in Japan believe it is the beginning. The worker’s job begins when we have finished engineering the job itself.”

‘Generalist’ vision

The concept of “continuous training” in Japan goes a long way toward preventing the extreme specialization and departmentalization plaguing U.S. business. Generally speaking, there are no craft unions or craft skills in Japanese industry. (The most significant exception is the Japanese National Railways, which imported craft specialization from Great Britain and from Germany, together with steel rails and locomotives, and which is perhaps even more fragmented by craft and jurisdictional lines than American or British railroads are.) Part of the explanation is historical. In the early days of Japanese industrialization, craftsmen flatly refused to work in the new factories. The plants therefore had to be staffed by youngsters, fresh from the farm, who had no skills and who had to be taught whatever they needed to know to do the job.

Still, it is not really true, as Japanese official doctrine asserts, that “men are freely moved from job to job within a plant.” A man in a welding shop is likely to stay in a welding shop, and so is the fellow in the next aisle who runs the paint sprays. There is much more individual mobility in office work, and especially for managerial and professional people. A Japanese company will not hesitate to move a young manager from production control into market research or the accounting department.

The individual departments in an office tend to be rigidly specialized and highly parochial in the defense of their “prerogatives.” Yet the tunnel vision afflicting so many people in Western business is conspicuously absent in Japan. For instance:

The industrial engineer I quoted earlier insists meticulously on the boundaries between the industrial engineering and personnel functions. He himself never worked in any other function, from the day he graduated from engineering school to the day when, at age 55, he was made president of an affiliate company in the corporate group. Nevertheless, he knew the work of every other function. He understood their problems. He knew what they could do for his industrial engineering department and what, in turn, his people had to do for them. He is the purest of specialists in his own work, and yet he is a true “generalist” in his knowledge, in his vision, and in the way that he holds himself responsible for the performance and results of the entire organization.

This approach he attributes to the fact that throughout his career he was subjected to “continuous training” in all the work going on at his job level. When he was a junior industrial engineer, he took part in the training sessions of all juniors, whether engineers, accountants, or salesmen, and since becoming a member of top management, he has belonged voluntarily to a group which meets two evenings a week, usually with a discussion leader from the outside, to train itself in the work of top management.

Adapting the concept

We in the West emphasize today “continuing education.” This is a concept that is still alien to Japan. As a rule, the man or woman who graduates from a university there never sets foot on campus again, never attends a class, never goes back for “retreading.” Normal education in Japan is still seen as “preparation” for life rather than as life itself.

Indeed, Japanese employers, even the large companies and the government, do not really want young people who have gone to graduate school. Such people are “too old” to start at the bottom. And there is no other place to start in Japan. Graduate students expect to work as “specialists” and to be “experts” rather than submit to training by their employers. Resistance to the highly trained specialist is considered by many thoughtful management people in Japan to be the greatest weakness of Japanese business—and of government. There is little doubt that, in the years to come, “continuing education” will become far more important in Japan than it now is, and that the specialist will become more important, too.

But, at the same time, Japan’s continuous training has something to teach us in the West. We react to worker resistance to change and increased productivity largely along the lines of Mark Twain’s old dictum about the weather. We all complain, but no one does anything. The Japanese at least do something—and with conspicuous success.

Continuous training is not unknown in the West. A century ago it was developed by the fledgling Zeiss Works in Germany and applied there to all employees in the plant even though most of them were highly skilled glassblowers and opticians with many years of craft training behind them. The world leadership of the German optical industry until World War I rested in large measure on this policy, which saw in advanced craft skill a foundation for, rather than the end of, learning.

With craft jurisdictions in the United States (and Great Britain) frozen into the most rigid and restrictive union contracts, continuous training is probably out of the question for many blue-collar workers on the plant floor. But it could be instituted—and should be instituted—for nonunionized employees. To be sure, many companies not only have massive training programs, but encourage their younger technical, professional, and managerial people to keep on going to school and to continue their education. But in all too many cases the emphasis in these programs is on a man’s becoming more specialized and on not learning the other areas of knowledge, skills, and functions.

In most of the U.S. company training programs I know, the emphasis is entirely on the one function in which a young man already works; at most he is being told that “other areas are, of course, important.” As a result, he soon comes to consider the other areas as so much excess baggage. And when it comes to education outside—in evening courses at the local university, for instance—a young man’s supervisor will push his subordinate into taking more work in his specialty and away from anything else.

The approach should be the opposite: once a young man has acquired the foundations of a specialty, he should be systematically exposed to all the other major areas in the business—whether in company training courses or in “continuing education” programs outside. Only in this way can we hope to prevent tomorrow’s professional and managerial people from becoming too departmentalized.

Acknowledgement: HBR, March 1971 Issue

In case you missed it, my last post was What can we learn from Japanese Management? Part I of III

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