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Wednesday, June 30, 2010
CORPORATE MANAGEMENT SYMPOSIUM
New mind-sets needed for growth
Progressive ideas, use of social networking may help corporate strategy in Japan
Japanese firms will need to focus on high-growth markets such as China and India while also putting greater emphasis on domestic demand as post-"great recession" world economies appear to become less globalized.
In an economy that cannot depend on a population increase, growth has to rely on new ideas and technologies, and Japan should encourage entrepreneurship within its large corporations. It's also time that Japanese companies started leveraging social networking technologies to identify customer value and shape their own growth strategies.
These were among the opinions and suggestions given by professors from U.S. business and policy schools who spoke during a June 11 symposium organized by the Keizai Koho Center under the theme "Challenges for corporate management in developing and sustaining a growth strategy." Professor Shigeo Kagami of the University of Tokyo served as moderator of discussions.
If globalization is defined as closer linkages and connections across countries and regions, world economies following the 2008 financial crisis and the global recession look set to be less globalized, said Charles Wolf, a professor at Pardee RAND Graduate School in California.
Among the reasons for a less-globalized world, Wolf said, are the sharply different growth prospects for different countries and regions, emerging signs of various forms of protectionism, uncertainties that prevail over certain nations and subsequent volatility in currency exchange rates.
The post-recession world is set to see a widening gap among rapid-growth countries like China and India; medium-growth nations, including the United States and possibly Japan; low-growth countries in Europe; and "uncertain-growth" countries and regions like Russia and the Middle East, where growth will be highly sensitive to global commodity prices and new energy technologies, he said.
Market responses will vary depending on which category the nations belong to, which will result in an increased debt burden in some countries, widened interest rate spreads, yields on sovereign debt and exchange rate volatility, Wolf said. Hedging and insurance costs will rise in dealing with countries that have volatile currency exchange rates — another factor that will reduce their linkages with other countries, he said.
What do these factors mean for Japanese firms' growth strategies? Wolf said Japanese companies will have to focus on the rapidly growing markets where exchange rates will likely be stable and insurance and hedging costs will be more manageable.
For Japanese firms, one of the key challenges will be the course of the domestic markets, Wolf said, noting that as countries and regions consider how to recover from the recession and return to growth, a greater emphasis needs to be put on developing the domestic market especially in nations posting current account surpluses like China and Japan.
And given that some countries and regions will likely become buyer's markets in the coming years, product and service quality — and reputation of corporate brands — will be crucial, he said. Japanese products have so far maintained an outstanding reputation for their product quality, but how to sustain the quality margin — and repair the reputation where it's been damaged — will be a key challenge especially in buyer's markets, he added.
Economic growth in a country lacking an increasing population requires new ideas and new techniques, and developing new ideas and new processes calls for an entrepreneurial environment that encourages risk-taking and unconventional approaches, said Mark Garmaise, an associate professor of finance at UCLA Anderson School of Management.
Large corporations have various built-in barriers to entrepreneurship, including their rigid hierarchies and the types of people who seek employment at major companies in the first place, but if the barriers are carefully removed and appropriate strategies are applied, big firms with the rich technical and financial resources can actually become "ideal supporters for entrepreneurship," Garmaise said.
Fears of cannibalization — that any new venture could eat into the profits of the firm's existing business lines — is one of the barriers that discourages large firms from engaging in entrepreneurial ventures, he noted. A solution, he said, would be to launch multiple incentives and treat each one of them as an option to be evaluated over time.
"Some of these things will succeed and some will be absolute failures," he said. While supporting the successful in-house ventures with additional resources, it is equally important to shut down new projects that have not demonstrated any promise, he said.
Compensation structures must be established to encourage an entrepreneurial approach within large corporations, Garmaise said. A positive payoff for employees who engage in successful ventures is a good incentive, but companies also need to make sure that workers are not punished in terms of pay or future promotions in case their projects fail, he added.
Garmaise noted that entrepreneurship does not have to come in the form of innovative geniuses. Japan, for its part, has "mastered the form of pursuing innovation in a more structured way," he said.
The examples of companies like Google and Apple does not mean that innovation requires an entrepreneurial CEO, and the greater issue is "policy and openness on the part of senior management," he said. The management "simply must believe in the value of entrepreneurship and pursue policies that encourage it," he added.
Laura Kray, an associate professor at the organizational behavior and industrial relations group at the Haas School of Business at the University of California, Berkeley, discussed the mind-set of corporate managers as a key element in companies' competitive advantage.
"Mind-set helps us to set expectations. . . . It helps us to interpret situations — how we understand our competitors or how we understand failures. Mind-set influences how challenges are met," Kray said.
Based on her study of corporate leadership from psychological viewpoints, Kray referred to what she described as the "fixed mind-set" of some people who believe, for example, that good leaders are born that way — or that people's abilities are relatively rigid. On the other hand, people with what she called a "growth mind-set" tend to think that people's abilities are relatively flexible and that with enough hard work anyone can become an effective leader, she said.
"When fixed mind-set people don't believe they have what it takes to succeed, we see a rapid deterioration in their performance. We see them giving up and less willing to risk failure," she said.
On the other hand, people with a growth mind-set tend to "persist and persevere in a way that fixed mind-set people would not," she said, referring to her research. Managers and organizations with growth mind-sets also show greater willingness to provide developmental feedback to their subordinates, she added.
Kray observed that some aspects of Japanese culture that have contributed to the nation's success — such as a strong consensus about appropriate behavior and an extremely high standard of excellence — could translate into intolerance of failure and unwillingness to risk failure.
"Some of the characteristics of Japanese culture are suggestive of a fixed mind-set. And yet we know that organizational growth and the ability of individuals to grow and develop may be impacted by the growth mind-set of leaders and workers," she said.
Meanwhile, Mark Chun, an associate professor of information systems and director of the Center of Applied Research at Pepperdine University in California, stressed the importance of companies using information technology in shaping their growth strategy.
"Currently, a lot of corporate executives have a difficult time accessing the right data to make strategic decisions. The main reason is that there is an overabundance of data that's available," he said. "What is needed in an organization is the ability to identify which data makes sense for your strategic decision."
With social networking technologies, the Internet provides opportunities for corporations to capture what's important to their customers and data collected through the Internet can be used to identify new growth strategies or new business initiatives, he said.
In Japan, in particular, this provides a chance for small- and medium-size companies, which account for 97 percent of corporations in the country, to better understand the values of their customers and integrate the values through alliances with other small firms, Chun said.
Unlike the perceptions of many corporate executives in Japan, research shows that Japan is quite similar to the United States when it comes to the use of social networking technologies such as blogs and social networking sites, he said.
Previously, the Internet was primarily used to push data to consumers, such as companies putting up their product information on their Web sites, Chun said. The growth in social networking sites in both the U.S. and Japan enables firms to pull information from consumers and understand "what's bothering your customers," he said.
In the U.S., for example, people use Twitter "to tell how unhappy they were with United Airlines." United Airlines goes to these microblogs, using the keyword "United Airlines," to find out what the problems are and to improve customer service, Chun noted.
Chun stressed that companies "need to do a better job of understanding how the customers define value." Companies are "very good at understanding what value means to themselves, but we can do a better job in understanding what value means to our customers," he said, adding that corporate value does not always mean customer value — which changes constantly.
Michael Morris, a professor at Columbia University Graduate School of Business, said companies, as they operate in different markets today, need to understand how the public in each country assigns blame when accidents, product failures and scandals take place — not just in legal terms but in the arena of public opinion.
"We have to understand not only how the public thinks in our own country but how the public thinks in other countries — whether there are differences in the mind-sets that affect how people assign responsibility and blame," he said. A proper response is important "to prevent (a) mistaken response from becoming a bigger problem than the crisis itself," he noted.
Morris said his research on media coverage of accidents and corporate scandals in Japan and the U.S. suggests that attention focuses in the United States on an individual employee who is closest to causing the problem, while Japanese tend to have a more holistic view of the events and look at multiple aspects of the organization that might have contributed to the problem.
In the 1989 Exxon-Valdez oil spill off Alaska — the biggest oil spill in U.S. history until the recent BP case — the public blame went mainly to the captain of the oil tanker that ran aground because he had a blood alcohol level suggesting he had been drinking, he said. The blame focused less on Exxon itself, which had hired a known alcoholic for the job and was found to have had the captain work longer hours than allowed under federal standards, Morris pointed out.
But despite the Japanese tendency to focus on organizational-level factors in accidents and scandals, sometimes the Japanese public will blame one particular individual — often the top leader of a company or an organization — much more than would be the case in the United States, Morris said. This is because the Japanese public, while looking for who is responsible just like Americans do, uses what is called proxy logic, he said.
"If you see the organization as a whole as responsible for a problem, you can't really blame the organization or punish the organization in the same way as you punish the individual. So there is a need to look to an individual to symbolically stand for the organization, to speak for the organization and take the punishment in place of the organization," Morris said.
The research suggests, he said, that "Americans in Japan should learn to apologize on behalf of the firm" when problems arise that involve their corporations, while Japanese corporate executives "might have to learn not to apologize in America" because it might imply admission of causal involvement. Still, companies should not try to deny or minimize the problem and they can respond even before knowing the cause, he added.