Japanese Corporate Culture

Decision-Making
Class Codes:
CB42119, CM42102, CD42102

Class 4
Chiaki Suematsu
May 9, 2024
chiaki.suematsu.d2@tohoku.ac.jp
 Today’s Theme

● Application of Agency Theory

● Western Decision-Making
 Non-transferrable

● Specific Knowledge, Expertise

● They are valuable.
● They are costly to transfer.
● Culture
● The Idea of Group, Japanese
● Have strong sense of belonging to group.
● Harmony is crucial.
● Japanese Way as unique
 Agency Theory

● Backbone of the decision making in

management of the Western World.
● How would you deal with
“non-transferable?”
● Two key elements are specific knowledge
and agreement.
Agency Theory
 3 Requisites of Agency Theory

● 1. Allocate the authority where the specific

knowledge exists. Decision-making process and
Pertinent information
● 2. Establish the principal-agent relationship.
Sign a contract.
● 3. Reward the agent when it works well for
you, however punish it when it fails to meet
with the target.
Describe the details about exceeding the target or failing to
meet it. REWARD AND PUNISHMENT
 Why Do You Need Specific
Knowledge, Contract, and R+P?
● Because the human beings are driven by the
self interest.
● Human being is REMM, Resourceful, Evaluating,
Maximizing Man.
● Even if a contract is signed, the REMM will
find out ways to satisfy his/her interest most.
● In a company the top of the organization
may try to build the empire.
● Control the self interest by Reward and
Punishment. Match your interests with those
of the agent.
 Apply the Agency Theory
to the Limousine Co. Case
● Agent or not?
● Your subordinate can be an agent if he/she can get
the latest information.
● Allocate the authority.
● Let them choose the best alternative on their
expertise.
● What is the agreement?
● Job description and performance evaluation
● What are rewards and punishments?
● Pay raise, bonus, or promotion
● Pay cut, no bonus, demotion, or termination
 Apply the Agency Theory
to the Limousine Co. Case
● Form the same groups.
● Discuss and answer what kind of rewards
and punishments you would give:
To each department manager
To the department members
To General Manager
● Could you(General Manager or President)
get what you want from them?
 Apply the Agency Theory
to the Limousine Co. Case
● What kind of rewards would you offer?
● Under what kind of circumstances would you offer?
● Would all the departments have the same
rewards?
● What kind of punishments would you impose?
● Under what kind of circumstances?
Apply the Agency Theory. Imagine the
consequences.
Can you accomplish what you want?
 Organization Chart

President

General
Manager

Maintenan
Operations Sales Finance
ce
Dept. Dept. Dept.
Dept.
 Simple Case 1 Limousine Co.
Alternatives and Attributes
Car 1 Car 2 Car 3 Car 4
Style 5 2 3 3
Interior Space 2 5 3 2
Interior Luxury 5 5 3 2
Fuel Efficiency 1 1 3 5
Ride Quality 5 4 3 1
Drivability 5 3 3 2
Max. Passengers 2 5 3 2
Spare Parts Avail 1 2 3 5
Price 1 1 3 5
 What You Learn from Western
Leaders
● The leaders are to make decisions, so they
try to know the decision-making processes.
● Namely, they try to gain the specific
knowledge to evaluate the alternatives.
● Instead of delegating the authority, they try
to gain the expertise of their own and ask
for the pertinent information and
accountability.
● They want to expand their authorities and
build their empires.
 Group Discussion 2-1

● Assume:
You got $1 billion and acquired the
majority of the shares of an automobile
company. Please discuss the following(No
need to make consensus):
● Q1: How would you get involved with the
company? What kind of title would you like
to have?
● Q2: The current CEO asks for the salary
raise. How would you reply?
 Group Discussion 2-2

● Q3: The management made a proposal that they

should produce and supply a compact car. The
sales would go up but the profit would come
down for the next 5 years. The profit would be
great in 5 years and after that. Do you approve
the proposal?
● Q4: The management made a proposal that they
should invest in a tire manufacture that supplies
good tires but is making losses. It is for sale.
They say it’s a good buy now. How would you
respond?
 Group Discussion 2-3 Extra

● Q5 extra: Elon Musk, who acquired Twitter,

decided to become CEO. Why do you think he
became CEO?

He also asked the users a question, “Should I

remain as CEO?” What do you think the
responses were?
 Chapter 2
How Decisions Are Made in Japan

● The Agency Theory is essential.

● Is the agent an only person who needs to
understand the decision?
● How about the people who actually
implement the decision?
● Isn’t there any other way to get the specific
knowledge?
 Chapter 2
How Decisions Are Made
Consensus vs Objectives
● Japan: The main concern is the group. The
leader thinks about ways the whole group
functions. The leader tries to get the
consensus. The implementation should go well
with the consensus.
● Western: The main concern is the job each
member has. The leader is one who
determines objectives.
● In other words, Group vs Individual Job
Please read Chapter 2 of the textbook.