The Journal The Authority on Global Business in Japan

Have you ever given thought to why rules exist? Some may be of the opinion that rules are there for those who don’t think. Of course, without some constraints, society would collapse in disorder.

But, nevertheless, people who put their minds to work in the pursuit of innovation in some cases manage to change the rules completely.

In the background are the passions and visions of those moved by a desire to create business models that will change the world. Thus changing the rules may also result in the creation of new values.

Take the example of America’s Uber Technologies Inc., which harnesses a mobile application to dispatch vehicles and provide ridesharing services. Despite being the target of numerous lawsuits around the world, its CEO, Travis Kalanick, never held back on disseminating his service.

Beginning in the United States, Uber has successively proceeded to major cities in Asia and Europe, frequently incurring hostile reactions from existing taxi industries. The lawsuits, in Kalanick’s view, can be said to be a testimonial to his attempt to effect change, on a global scale, to an industry’s rules.

Merely over the past 20 years, the upheavals we’ve witnessed in societal rules could even be said to exceed the wildest plots of science fiction movies. We are truly in an era of change. But as long as we remain bound by the old rules, innovation and new ideas won’t be created.

Take Sharp Corporation’s current management crisis, the causes of which originate in the company’s inability to change. I’ve mentioned before that many businesses take pride in their status as “parts shops.”

But, as long as such companies remain complacent, they can’t expect their future to be a bright one. Why?

Let’s contrast Sharp with Apple Inc., which adopted the policy of always dealing with two suppliers. This stems from the view that no matter how excellent a supplier’s products, should something occur to halt one’s production, Apple would be able to avoid the effects by shifting orders to the other supplier.

But there’s another reason for the policy. Since Apple will order more parts from the supplier that offers them more cheaply, this puts the two suppliers in a state of constant price competition. As the cost for parts keeps falling, the supplier’s profits keep dropping.

Efforts to the contrary notwithstanding, Moore’s Law (coined by Gordon Moore in 1965) and its subsequent observations, which in effect state that the costs of components are halved every two years, have become a self-fulfilling prophecy. This is all the more reason that Japanese corporations should abandon their role as parts shops and seek to become platformers, as are Apple and Google.

Despite software’s taking on ever-greater importance, many Japanese corporations still cling to the manufacturer mentality. Sharp, whose very existence is threatened, never managed to cast off its dependence on components.

Recently, it announced the sales launch of a new TV receiver realizing high image resolution equivalent to the so-called 8K format (a system capable of displaying 16 times the detail of the current full hi-vision format).

Sharp’s ability to produce such a superb product notwithstanding, the product is useless without companies to provide compatible image and audio content. Nor can we disregard Moore’s Law, by which the price of this 8K TV display device is fated to see its price drop by half within two years.

Moore’s Law, now an established theory in the technology field, stipulates that, “The performance of a semiconductor will double within 18 to 24 months, while its cost drops to one half.”

In a society where so little is predictable, this law can be said to be one of a very few that accurately forecasts the future. It’s been spot-on for 50 years, and I suppose will continue to be so.

In order to spur innovation, Japanese companies—and not only Sharp—must change their fixed ways of thinking and rules. The other day I had a discussion with a Kansai-based manufacturer’s senior manager, who confessed to me that, “Our company and its workforce are unable to change from their deeply rooted culture.”

But is that really the case? Japanese companies have many excellent human resources, and if members of staff are provided with fair and transparent incentives, I believe that it is possible for them to change dramatically.

One of the companies in which I’ve invested—since its adoption of a system according to which authority is granted, and by which remuneration is based on job performance—underwent an almost complete change merely in one business quarter. Even without changes in its workforce, all staff began to work as if they were different people.

The simplest prescription for raising staff motivation is to adopt a system providing incentives. This is a common situation worldwide.

What’s more, Japanese businesses tend to have an overly strong bias against young people. It is common to hear upper management complain that today’s youth “lack passionate ambition, even when they possess ability,” and that “one doesn’t feel they are sufficiently motivated.”

This is all the more reason that they should be delegated with authority. Assigning them responsibility and authority would nurture their self-confidence and passion.

According to an annual Organisation for Economic Co-operation and Development (OECD) survey that measures labor productivity, Japan ranks lowest among all advanced economies.

According to 2014 statistics compiled by the Japan Productivity Center, Japan’s labor productivity (nominal value added per individual worker) ranked 22nd out of 34 OECD member countries. For the 20 years since 1994, Japan has ranked at the bottom of the seven advanced economies.

On top of this abysmal ranking, Japan’s low birth rate and aging society portend a sharp decline in the working population of the nation, leading one to fear for its very future.

Now, more than ever, Japan needs to confront ways to boost labor efficiency and raise productivity. I look forward to sharing my views on this theme with readers in future articles.

Full-length original article:
http://diamond.jp/articles/-/72519

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William H. Saito is an entrepreneur, venture capitalist, TV commentator, speaker, and author of bestselling novel The Team. He has founded several businesses and serves as a special advisor to the Cabinet Office of Japan and other G-8 governments.

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