Japanese companies bounce back

19 Aug 2013

Japanese companies haven’t had the easiest ride, but new governance strategies are helping corporations to bounce back.

Japanese corporations’ resilience has been tested to the limit in recent years. A fter the Bank of Japan’s (BoJ) inaction over interest rates following over-investment in the 1980s, a period of stagnation followed. The last 20 years have seen slow or non-existent economic growth become the norm – until the BoJ’s recent spring foray into quantative easing, which has helped restore growth. Many Japanese companies have been grappling with changing workforces, mutating key industries and gradual structural disruption.

The economy wasn’t – and isn’t - the only pressure. Severe catastrophes over the past few years have threatened the very survival of many companies. Here we look at two such groups – Hitachi and Lawson (a convenience store group) to see how each has developed the necessary resilience to cope with both dramatic events and long-term changes.

Breaking with the past

The sacrifices both companies made, and the risks they took would once have been unthinkable in corporate Japan. At Hitachi, the once-iconic TV business was shed, as part of a shift away from consumer goods. Lawson was willing to break with the entrenched interests of large shareholders and form new alliances – encouraging face-to-face management practices and uprooting long-established interests.

Open to new ideas

At Hitachi, a restructuring of the board to include seven external members – three of whom were not Japanese – out of a total of 13 provided the anchor for a pivot towards a more international focus. At Lawson, they embraced full meritocracy which supported long-term innovation and lessened the likelihood of knowledge stagnating. Both company leaders had to weigh the benefits of these changes against the risk of compromising Japanese cultural norms, where loyalty to companies is long-heralded.

Broadening horizons

At Hitachi, managers were instructed to benchmark against international competition as the company reoriented itself towards providing infrastructure solutions globally. Lawson tapped into the market opportunities provided by the demographic shift in Japan towards older people with growing concerns about the environment – it developed new product ranges that reflected these trends. Both organisations illustrated risk resilience by turning competition or tricky demographics to their advantage.

Strengthening flexibility

At Lawson in particular, management spotted the need to decentralise decision-making and provide incentives to create stronger local autonomy. The trade-off was to let go of some control at headquarters, but the upside was a more f lexible and nimble organisation, which triggered more innovation and stronger motivation.