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The Declineofthe Japanese Systemof Management
The Declineofthe Japanese Systemof Management
The Declineofthe Japanese Systemof Management
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S. Prakash Sethi
City University of New York - Bernard M. Baruch College
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All content following this page was uploaded by S. Prakash Sethi on 27 April 2015.
Reprinted from S. Prakash Sethi, Nobuaki Namiki, and Carl L. Swanson, The False Promise
of the Japanese Miracle: Illusions and Realities of the Japanese Management System (Pitman
Publishing Inc., 1984) with permission of the publisher.
35
36 S. PRAKASH SETHI, NOBUAKI NAMIKI & CARL L. SWANSON
The system has worked so far because employers have given first prefer-
ence to the interests of the employees in making structural decisions.
Employee loyalty was fostered through lifetime employment, a seniority-
based wage system, and a generous sharing of corporate prosperity. How-
ever, the new employer tactics are causing strains in the traditional com-
pany-union relationship.
In the past, Japanese workers and unions had willingly embraced auto-
mation because it improved productivity and wealth. Now, unions are
viewing the new trend toward automation with alarm. Driven by a need
to cut costs rapidly, Japanese companies have quickened the shift toward
automation and robotics, with the primary objective of reducing the size
of the workforce. They are paring their existing payrolls and hiring fewer
new workers. In 1982, for example, Nissan Motor Company hired 2,650
new blue collar workers. In 1983, it planned to hire less than half that
number. Nissan's explanation for fewer new recruits was increased com-
petition from such low-wage countries as South Korea, lower auto exports
to the United States and West European countries due to voluntary quotas,
and reduced need for workers due to extensive investment in robotics
and other labor-saving equipment. ^^
The worsening unemployment situation has been exacerbated by new
automation. Added to these are the structural changes brought by the new
manufacturing technology. Older workers are finding their skills obsolete,
and are increasingly being reassigned, often repeatedly. In the past, reas-
signments were infrequent and confined primarily to younger, unskilled
workers. Older workers are also being asked to work under the supervision
of younger, more technically trained workers, thereby disrupting the tradi-
tional seniority-based relationships. Among the younger workers, there
is an increasing disparity in wages. The technically trained few, the new
elite on the shop fioor, receive higher wages compared to the vast majority
of similar-age but unskilled workers.
Even more important, the robotic-based automation has increased the
trend toward greater use of part-time employment because previously
skilled tasks can now be performed by relatively unskilled workers pushing
buttons. Some 4.2 million of Japan's 58.3 million workers are part-timers,
up 21 percent from five years ago. More than two-thirds of them are
women. A large majority of part-time workers put in seven hours or more
a day in some occupations. They receive between one-half to two-thirds
the wages of the full-time employees and have no fringe benefits. ^^
As a consequence of all these changes, there is beginning to be a
noticeable shift in the traditional union acquiescence to management needs
and willingness to accept management's explanations at face value. In
particular:
• The General Council of Trade Unions of Japan has launched a campaign
to spread work by reducing the average work week firom 5.5 days to
5 days.
DECLINE OF JAPANESE MANAGEMENT SYSTEM 43
• Unions have won agreements aimed at protecting the job of older work-
ers. These include provisions for training in new skills, protection against
job or wage downgrading, and sharing the productivity benefits of new
technology.
• To save the jobs of older workers, unions are also demanding an increase
in the current mandatory retirement age of 55 years. They have already
won this concession from some major trading houses, and from steel
and electric appliance makers.
• To help offset the effect of these measures on new recruits, Japan's
Council of Metalworkers' Unions and other labor groups have begun a
nationwide campaign to persuade employees to spread the work by
taking all the paid vacation time they earn each year.
• Efforts are also underway to cut the growth of part-time jobs.
If these efforts do not succeed, they may very well force the unions to
become more militant. However, to the extent that they do succeed, they
will dissipate some of the savings in wage costs generated by the companies
through automation. They will also adversely affect Japan's international
competitive position and potentially hurt its exports and domestic em-
ployment.
The New Ferment in Japanese Society—There are also indications
of social unrest in Japanese society that are likely to weaken the traditional
bonds between corporations and workers. The high-technology indus-
tries—especially electronics, telecommunications, and biotechnology—are
being influenced by management practices in Silicon Valley. Three factors
account for this tendency:
• Decision making by consensus, employed by many large companies,
offen discourages initiative and the pursuit of imaginative ideas. The
basic premise of consensus decision making is homogeneity among mem-
bers, not heterogeneity.
• Personnel policies such as seniority-based wage and promotion systems
cannot better compensate highly specialized employees who are fully
aware of the value of their services to the company.
• Probably most important, many Japanese have started to question the
notion of single-company loyalty and compensation based on seniority
rather than performance. Most Japanese workers still acquire company-
specific skills through in-house training, and are reluctant to move. This
practice is reinforced by strong social norms that make it difficult for
employees to find work with other employers. ^*
However, as the Japanese become more exposed to Western culture and
standards, their traditional norms are weakening. Workers with high-
technology skills arefindingit easier to change jobs and demand skill-based
wages.
44 S. PRAKASH SETHI, NOBUAKI NAMIKI & CARL L. SWANSON
For the first time, young engineers and other individuals with specialized
skills are forsaking the security of large corporations and are joining smaller
firms or opting to establish their own firms, in search of quick growth and
bigger financial rewards. ^^ The most dramatic demonstration of this
phenomenon came to light in early 1980 when 80 computer technicians
and salesmen walked out from lifetime jobs at Ishikawajima-Harima Indus-
tries, Japan's second-largest heavy machinery maker, and formed Cosmo-
80, a computer systems design consultingfirm.^^The company is owned
and operated by the employees.
Some large Japanese companies in high-tech industries and markets
have become painfully aware of their inability to promote individual creativ-
ity that goes beyond more efficient application of existing technologies.
Realizing that small size and an entrepreneurial environment are important
for the innovative process, companies like Hitachi and Nippon Electric are
experimenting with self-contained cells or satellite organizations to bring
together employees who possess scarce skills and give them a free hand
to pursue new product ideas. ^^
Japanese business is also giving up some of its hallowed traditions. For
example, in 1982 chief executives of Japan Airlines and Mitsukoshi Depart-
ment Stores refused to resign from their jobs, as is the custom, when
their companies ran into problems. ^^ Some companies are overtly forsaking
traditional practices and operating more like the American companies in
their management style and competitive practices.^
More subtle changes in attitudes are harbingers of more serious prob-
lems for the Japanese business system. For the first time, some Japanese
executives are putting family and home life ahead of work life. Many
managers are willingly changing jobs from big, prestigious companies to
smaller, less well known companies so that they can avoid frequent tours
of duty overseas,^'* spend more time with their families, and have greater
freedom at work. Young people seeking their first jobs are openly expres-
sing preferences for smaller companies and showing a disinclination to
work longer hours at a sacrifice to their personal lives. Public opinion polls
show a growing concern among the Japanese that there is too much work
and too little play. Traditionalists are alarmed that these tendencies, espe-
cially among the young, will undermine the diligence that helped create
the postwar economic miracle. ^^
References
1. Masayoshi Kanabayashi, "Japan Frets over Rising Joblessness," Wall Street Journal.
Apdl 13, 1983, p. 31.
2. Yasuo Okamoto, "Nihon Kigyo no Grand Strategy" [The Grand Strategy of Japanese
Business], Chuo Koron Keiei Mondai, trans. yi^moTnlsWiadi-^^, Japanese Economic Studies
(Summer 1982), pp. 3-47.
DECLINE OF JAPANESE MANAGEMENT SYSTEM 45
3. Masayoshi Kanabayshi, "Economic Woes Spur Firms in Japan to Alter Lifetime Job
Security," Wall Street Journal, December 21, 1977, p. 1.
4. Kanabayshi, "Japan Frets over Rising Joblessness."
5. Masayoshi Kanabayashi, "Japan's Recession-Hit Companies Make Complex Arrange-
ments to Avoid Layoffs," Wall Street Journal, February 17, 1983, p. 32.
6. Ibid.
7. Edward Boyer, "How Japan Manages Declining Industries," Fortune, January 10, 1983,
p. 60.
8. Takafusa Nakamura, The Postwar Japanese Economy: Its Development and Structure,
trans. Jacqueline Kaminski (Tokyo: University of Tokyo Press, 1981), pp. 248-252.
9. "Lifetime Employment May Be on Its Last Legs," Business Week, September 5, 1983,
p. 98.
10. "The Outlook: Japan Worries about a 'Gray' Future," Wall Street Journal, June 1,
1981, p. 1.
11. For some examples of these phenomena, see Nihon Keizai Shimbun, Salary-Man:
Document #2 (Tokyo: Nihon Keizai Shimbun, Inc., 1981); in Japanese.
12. Kanabayashi, "Economic Woes Spur Firms in Japan to Alter Lifetime Job Security,"
p. 25.
13. Naomi Yamaki, Japanese Management {Nihon no Management] (Tokyo: Nihon Noritsu
Kyokai, 1980), pp. 174-179; Ichiro Hattori, "A Proposition on Efficient Decision-Making
in the Japanese Corporation," Columbiajoumal of World Business (Summer 1978), pp. 14.
14. Hattori, "A Proposition on Efficient Decision-Making in the Japanese Corporation,"
p. 12; Richard T. Pascale and Anthony G. Athos, The Art ofJapanese Management: Appli-
cations for American Executives (New York, NY: Simon and Schuster, 1981), p. 33; and
Akihiro Okumura, Nihon no Top Management [Japanese Top Management] (Tokyo: Diamond
Publishing Company, 1982), pp. 100-102.
15. S. Prakash Sethi and Nobuaki Namiki, "Japanese Style Consensus Decision-Making
in Matrix Management: Problems and Prospects," in David I. Cleland (ed.). Matrix Man-
agement Systems Handbook (New York: Von Nostrand Reinhold, 1984), in press.
16. Ichiro Saga, "Japan's Robots Produce Problems for Workers," Wall Street Journal,
February 28, 1983, p. 21.
17. "A Spark of Militancy in the Land of Loyalty," Business Week, September 5,1983, p. 96.
18. Steve Lohr, "Japan's New Nonconformists," New York Times, March 8, 1983,
pp. 25-27.
19. Robert .C. Christopher, "Changing Face of Japan," New York Times Magazine, March
27, 1983, pp. 87-90.
20. "The Exodus That Shook the Establishment," Business Week. December 14, 1981,
p. 118; see also Christopher, "Changing Face of Japan," p. 90.
21. Lohr, "Japan's New Nonconformists," p. 27.
22. Urban C. Lehner, "Heads of Japan Air Lines and Mitsukoshi Department Store Bucking
a Venerable Japanese Tradition," Wall Street Journal, September 22, 1982, p. 35.
23. Masayoshi Kanabayashi, "Japanese Retail Chain Grows Rapidly, Aided by Un-Japanese
Ways," Wall Street Journal, August 21, 1981, p. 1.
24. Kanabayshi, "Some Japanese Balk at Overseas Jobs," p. 21.
25. Clyde Haberman, "All Work and Now a Little Play Make Japan Fret," New York
Times, September 9, 1983, p. A-2.
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