All In The Household

Japanese companies are committed to maintaining the strengths that characterize the best of family businesses everywhere.

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Americans seem desperate to find a mystic exlanation for the success of the Japanese economy. They kept William Ouchi's Theory Z: How American Business Can Meet the Japanese Challenge on the best-seller lists for five months. More recently they have bought so many copies of Book of Five Rings, a seventeenth-century volume on samurai military strategy, that two publishers have printed 411,000 copies. ("Now, the secret of Japanese success in business can be yours," one edition proclaims on its cover.) While these aren't bad books, many of the business secrets they hold may seem remarkably familiar: Theory Z, in fact, is essentially a method for maintaining the best qualities of familybusiness.

Japanese businesses work better than those in the United States, Ouchi argues, because their typical form of organization is superior to that found in the United States. He applies the Theory Z label to the ideas used by such American companies as IBM, Hewlett-Packard, Procter & Gamble, and Eastman Kodak. The policies he considers common to Japanese business and Theory Z companies are:

* long-term employment

* loyalty to the philosophy of the founder

* decision making on a group basis

* refusal to let numbers dominate business judgment

* movement of people from department to department.

These are indeed key elements of most Japanese companies, large and small, as well as of a few Western corporate giants. Yet Ouchi seems unaware that similar policies are followed by thousands of Western family businesses, that these policies are often adopted in Japan explicitly to keep businesses familylike, and that the strengths they promote are the strengths commonly achieved by family-style businesses in any country: unity and careful attention to long-term prospects.

The commitment to retaining a family spirit may be what most clearly distinguishes Japanese companies from typical U.S. competitors. Given the success of Japan's familylike businesses, Ouchi is surely right in arguing that the policies the Japanese use to maintain this commitment carry important lessons for U.S. business.

Japanese culture profoundly encourages family-style companies. lndeed, the familial nature of Japanese society and business has ancient roots -- in traditional rice cultivation that required extensive cooperation, in a language that imposes a deep awareness of social relationships, and in traditional philosophies that emphasized both interdependence and hierarchy. Borrowing from Chinese Confucianism, Japanese social philosophy put money-grubbing merchants in the lowest class. No Japanese has ever defended greed as persuasively as Adam Smith or Milton Friedman have in the West. Thus there has been far less encouragement for Japanese businessmen or employees who might want to ignore the familial ideals.

A traditional bclief in long-term, family-like employment is the most obvious business legacy of this history. The two oldest employees of leyoshi Yamada, a proprietor of a $500,000-a-year electrolytic metalforming shop in an old Tokyo neighborhood, are in their 50s and only a few years younger than he is. Yamada refers to the two, Tadao Yamaya and Kenji Sato, as "my children."

Yamada, Yamaya, and Sato are a link between the poverty-stricken Japan that existed until the 1950s and the Japan that today has the strongest economy in the world. Traditionally, business or farming households like Yamada's were the basic organizing units of Japanese society. A shop or farm was not "owned" by members of a household; the household and the business were viewed as identical.

Until well into the 1950s young employees could rarely earn enough to rent their own rooms. Living with their employers was normal. The two employees joined Yamada's business in 1950 and for years shared bedrooms with members of Yamada's biological family. There might have been little freedom, but at its best such a relationship to a household resembled that of a younger son. By the time Yamaya and Sato were ready to marry, Yamada's business was prospering, and he helped them first rent apartments and later build their own houses.

Although employees hired today are unlikely to share bedrooms with his relatives, Yamada still works to preserve the householdlike feeling of his company, which he has grandly named Japan Metal Arts Research Center Ltd. He maintains the Japanese tradition of hiring only people recommended by acquaintances, for example. "In Japan small businesses always hire only with an introduction," he says. "It makes the management very smooth because the people know each other."

And following another Japanese tradition, Yamada says he and entrepreneurs he admires would never lay off regular employees: "If we get rich, we get rich together. If we've got no business, it just means we're poor together."

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