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."
If entrepreneurs like Yamada must let people go, however -- because they are going out of business, for example -- they make a high priority of placing their employees in new jobs. But Yamada hasn't had to lay off a full-time worker in the 32 years since he first hired anyone. And by now he has enough capital that he is confident he will never have to. "I have six people under me. Even if we have no business for a year, we can still eat," he comments.
The employees, in turn, are just as loyal to Yamada. After 32 years, Kenji Sato says, "I never thought of moving." Some Japanese are so attached to their business households that they have a hard time understanding questions about whether they want to change jobs. When Tomio Miyamoto, the fifth-generation president of Miyamoto Electric Horn Co., is asked whether he ever thought about doing work that was more glamorous than making automobile horns, he responds, "Yes, even now I'm considering it. You know the buzzers that indicate cars are going too fast? We're thinking about making them now." Had he ever considered doing anything glamorous outside the auto parts industry? "Well," he replies, "I am the heir to the family line, so I can't think of that."
The ideal of lifetime membership in a household has never worked perfectly, however. Significant numbers of workers have always left companies -- especially small ones -- long before they became old enough to retire. Many Japanese argue that entrepreneurs only rarely lived up to the household ideal until after World War II, when labor unions and the increased competition for workers in an improving economy made an enlightened personnel policy a good investment. And today Miyamoto admits that he is unsure whether his own son will follow him into the family business. But no Japanese can avoid being deeply influenced by the ideal of the household.
When the first two employees joined Yamada, his business survived by producing tiny copper portraits of geisha girls to adorn souvenir cigarette lighters for American GIs. It has built a good enough reputation that today it need only accept such jobs as reproducing samurai swords for sale in museum gift shops. But Yamada has deliberately avoided expansion otit of fear that the company might lose the feeling of a household. "If you have a big staff you can't transmit the same feeling to all of them," he says.
"Making a small company into a big company is a great adventure," says Yamada. "But what's important is maintaining the character of a small company." A large company can be inspired, Yamada thinks, if it has a vision appropriate to it He notes that owners of larger Japanese companies have struggled to develop visions that would unite their workers and that they seem to be able to do this better than the U.S. companies he has read or heard about.
Mitsuboshi Cutlery Co., an exporter with 200 employees, illustrates how a company vision and other aspects of the household ideal function in a mediumsize company. When Japanese companies grow much larger than Yamada's, entrepreneurs typically adopt a company slogan or statement of ideology to keep their company spirit intelligible to the growing number of employees. Mitsuboshi has at least seven company slogans. The official "management ideology" is a brief slogan adopted just after World War II when the owner, Zenkichi Watanabe, realized that Mitsuboshi should move itself from dependence on the domestic market toward exports.
"Aim at developing the international economy through trade," Watanabe told his company, and the phrase still appears on the first page of the company's brochures. lt indicates not just that the company will seek orders abroad but also how it will seek orders that provide long-term benefit to both the receiving country and the people of Seki, the rural city, population 50,000, where Mitsuboshi is located. James Parker, owner and president of Parker Cutlery Inc. in Chattanooga, Tenn., an importer who has knives custom-made through Mitsuboshi and about 25 other Japanese cutlery companies, says that Mitsuboshi employees really are committed to building long-term international relationships -- passing up orders from small companies, for instance, while giving excellent service to companies that are big enough to maintain a long-term relationship. That, he says, is a key reason he chose Mitsuboshi as a long-term partner in a joint venture that will make bone-handled knives under a new brand name, American Blade.
But company ideologies are supposed to inspire a company's people as well as give them some basic business strategy. In addition to the one central slogan, Mitsuboshi has simple slogans for each workday. Although homespun slogans written by Japanese in English inevitably sound stilted, English is used at Mitsuboshi to encourage a sense of unity in serving foreigners. Before work on Monday employees recite in unison, "Respect customers' advice and knowledge." Tuesday, "Be nice to sources of supply." Wednesday, "Try to tackle the whole world," and so on until Saturday (many Japanese companies still work two Saturdays a month), "Try to create somethingnew."
Whether it is because of the slogans, the culture, or a combination of the two, Japanese companies do possess a cozy enough spirit to command a significant amount of mutual familial loyalty. Toshio Yamada, manager of the section of Mitsuboshi Cutlery that supervises exports to the United States, acknowledges that he might earn twice as much working for foreigners in Tokyo as he earns in Seki. Yamada (no relation to leyoshi Yamada) speaks English well and understands international trade. But he insists that he wouldn't change jobs, because his best friends are at Mitsuboshi, his work is crucial to the economy of Seki (which is heavily dependent on Mitsuboshi subcontracts), he wouldn't like the crowding in the big city, and he wouldn't want his neighbors to say, "Look at that guy, he changed jobs." Although Mitsuboshi constantly trains poorly educated rural recruits to speak English and understand foreign trade, Yamada and other Mitsuboshi managers say it has never lost an employee to a better-paying trading company.
Just as the culture fosters employee loyalty and company policy that is well thought out, it encourages managers not to make decisions without considering the opinions of employees. Indeed, even the Japanese story of creation revolves around a group decision, with a conference of some 800 deities. The group concept was deeply institutionalized 300 years before the opening of Japan to the West in 1858, when rulers decreed that entire villages would be punished if a resident committed such crimes as practicing a trade forbidden to his caste. Today, enryo, or self-restraint in deference to the group, is a cornerstone of Japanese etiquette. (The idea that a proper person should let others assert their will before he acts has occasionally left several members of leyoshi Yamada's family standing indecisively at home because none wishes to suggest which restaurant to visit for the evening.)
Self-restraint helps the Japanese manager determine what others are thinking before he makes a decision. ln studying Japanese business methods, Rodney Clark, a British specialist, examined a medium-size company that was unusually autocratic by Japanese standards -- its president had achieved the title of general manager by age 29 and retained overwhelming power for 20 years. But, when he was planning something as important as a new factory, the plan was explained at a meeting of employees not as a final decision but as an example of "how upper management is thinking." If the rest of the company acquiesced, the plan proceeded. But if upper management's "thoughts" became the subject of wry jokes or cynical comments about how out-of-touch the top managers were, the plan was changed.
Virtually all Japanese managers say that everyone in a company should be included in decision making. At the company Clark studied, vast quantities of paper, including reports on all major decisions under consideration, circulate to everyone. Similarly, at Matsuura Machinery Corp., a small machine toolmaker by the Japan Sea, vicepresident Masamori Matsuura notes that designers' reports on possible changes in production methods sometimes spark months of discussion among employees. He frequently sends ordinary production workers abroad to examine foreign factories, and he encourages Americans to do the same.
Japanese culture doesn't directly encourage all Theory Z approaches. But virtually all family businesses employ one element of Theory Z: a refusal to let numbers alone determine decisions. And most employ another: the shifting of people from department to department.
In Japan long-term employment, well-communicated corporate philosophies, and group decisions make these last two family-style approaches possible and extremely useful in large organizations. The commitment to group decision-making almost precludes making long-term judgments purely on the basis of financial calculations Ouchi notes that internal accounting systems, which large U.S. companies have constructed to rationalize decision making, are much less well developed in large Japanese companies.
When key decisions must be made, a team of three employees commonly canvasses the 60 or 80 people who will be most affected and gathers their advice before a team makes the decision. And many large Japanese companies care so much about their job-rotation systems that they assign their most respected director to oversee the personnel department, which is responsible for shifting employees from department to department.
Ieyoshi Yamada feels that few companies, even in Japan, achieve the unity of a good, small family business. He feels he has been right to avoid growth. Only a minority of people, in fact, care about business philosophies, he thinks. "Most people are working to assure their livelihood," he declares. Many accept a company's philosophy implicitly while failing to find any significant meaning in it. Japanese white-collar workers are notorious for remaining at their desks after 5:30 in the evening when they have finished their work, simply because their colleagues are still working and they don't want to be first to leave.
Japanese entrepreneurs, managers, and even personnel directors will readily admit that household-building doesn't necessarily produce a happy company, even when it does create a familylike company. Householdlike Japanese companies can have all the internal problems that families everywhere have.
If pressed, Japanese will even acknowledge that many companies sometimes lack the good features of families. Women are often treated as temporary employees and are asked to resign when times are hard. And even young men frequently leave smaller companies either because they dislike the household in which they find themselves or because their employers encourage them to resign. About 3.6 million of Japan's 25 million nongovernmental, nonagricultural employees -- 14% of the total -- left jobs in 1979, the last year for which complete statistics are available. Twenty-one percent of women and 11% of men were separated from an employer. Turnover is far lower than in the United States, where about 4% of employees left manufacturing jobs every month in 1979. But the turnover still indicates a significant amount of mobility in a nation where most employment relationships are supposed to last until retirement.
But the household ideal remains powerful in Japan. Changes in Japan's companies have occurred remarkably slowly, considering the tumult in the Japanese economy in the past 35 years. Important pressures perpetuate the householdlike business and thus encourage managers to continue the tactics of Theory Z. Compensation systems based on seniority and age encourage companies to limit hiring almost exclusively to new graduates who can be paid very modest wages to start (often less than $500 per month). Company unions and the independence of Japanese management from investor stockholders, which developed after World War II (even the largest companies had been owned by families before the war), have institutionalized the system of paying by age and seniority. Japanese know that unless they enter a rich company immediately after graduation and make it their home for life, they have little chance of ever receiving high wages.
An even more important force perpetuating the business household, however, is its success. The relative unity and longterm goals promoted by the household ideal seem perfectly suited to many modern manufacturing businesses, where hundreds of people must work together and where the results of many efforts to improve design, marketing, and quality often can't be readily measured for years.
The popularity of Theory Z and Book of Five Rings indicates a dramatic conversion of Americans to the view that they can learn from Japanese business households. And for U.S. corporate giants, at least, the new religion is likely to be healthy. It is hard to name a large U.S. company that is decisively overtaking the Japanese. But U.S. businesses are unlikely to beat the Japanese just by adopting Theory Z tactics. Japanese competitors have many other advantages, including the aid of Japan's remarkable government, access to the vast savings of the Japanese people at modest interest rates, and employees who have studied the military philosophy of Book of Five Rings, which -- while not the whole secret of Japanese success any more than Theory Z is -- certainly supports a strong work ethic.
For many smaller companies, however, the Japanese business model -- despite its useful lessons -- may not be superior at all. In small business sectors, whether high-technology portions of the electronics industry or such low-technology businesses as apparel, U.S. companies are holding their own. "I'm not very optimistic about the outlook for American big companies, says Hideichiro Nakamura, a Japanese economics professor who is trying to help organize a venture capital market in Japan. "But I'm optimistic about American small companies."
Like many Japanese, Nakamura admires the innovativeness of many American small companies. He notes that the hierarchical nature of a traditional Japanese business household isn't ideal for the rapidly changing fields that many smaller companies enter. Some young Japanese high-tech companies are innovative in their approach to handling people, he notes, moving toward greater informality and more respect for women, although he says employee turnover is just as low in most Japanese high-technology businesses as in older parts of the Japanese economy.
But a company has to choose what is right for its business and its people. America's smaller businesses don't have the standardized concern for the short-term bottom line that afflicts big U.S. companies, and some of them are already doing a good job of building a sense of family.
Ieyoshi Yamada suggests that defining the right philosophy is the most important step to building a business that is right for the people in it. He says it is common -- in Japan as well as in the United States -- for entrepreneurs to underestimate the difficulty of developing a philosophy that can keep a growing company both honest and familylike. The philosophy must inspire hundreds of people doing thousands of tasks. "In a big company, people have to have a vision for their section as well as a vision for the company as a whole," notes Yamada's eldest son Tomohiko, who is taking over the business from his father. The elder Yamada agrees. He says Western entrepreneurs can learn about vision from the Japanese. It will always be difficult to build an atmosphere where vision will thrive. "But in that," says the elder Yamada, "Japan is relatively good.