Looking at the corporation as a company village

The secret weapon of Japanese management is people and how they are treated. This is a conclusion reached after interviews with a score of presidents of companies large and small many of them the most prestigious in the country.

Time and again these busy executives, asked what they considered the most important ingredient of successful management, would reply "people," or "how to treat people."

"People are our most valuable resource and should be treated with consideration," one president said.

"Because of lifetime employment, we get to know our people over a long period of time and can identify potential leaders," said another. A leader must show his subordinates by example, says one of Japan's most senior and respected business leaders. "Do it, and do it, and do it again," this leader said. "Show by your own example how a thing is to be done. That is the only way to train your juniors."

Very few of the presidents interviewed mentioned profit as a primary consideration. Profit is important, but as Konosuke Matsushita, founder of the electronics and electrical appliance company that bears his name, never tires of saying, profit is to be regarded as "a reward for producing something useful to society."

Japanese companies are fiercely competitive. They compete with each other, and, in the world marketplace, they complete against rivals from the United States and Western Europe. But the concern of chief executives here seems to be not so much to maximize profits, but to insure the long-term growth and survival of the often superbly organized and closely knit group of people that make up their companies.

In fact, says Dr. Kenichi Ohmae, one of the most astute observers of the Japanese corporate scene, a Japanese company is best described as a commune, a village, in which all its members, from president to assembly line worker, reside.

They came to their villages by a process of competitive selection -- quite strenuous in the case of blue-chip companies. Once in it they are there until retirement. Unless they prove to be misfits, they cannot be ostracized or cast out.

Their promotion depends partly on seniority, partly on the contribution they make to the welfare and prosperity of the village as a whole. They exist inside the larger village that is Japan: four big islands and thousands of smaller ones strung out some 2,000 miles from north to south off the coast of Asia.

Japan is smaller in total land area than California and jammed with 118 million people -- half the population of the United States. Arable land is only 14 percent of the total. The rest is mostly mountains.

The country is blessed with a temperate climate and abundant rainfall. But except for coal, limestone, and some copper, it has few natural resources. Almost all of its oil is imported. These details are important. All Japanese have had it drummed into them since childhood that they are a crowed, resource-poor nation, that they can make their living only by importing raw materials, processing them, and exporting the finished products.

Whenever conversations with company presidents touched on trade frictions with the United States or Western Europe, these executives always brought up Japan's lack of natural resources, its need to export so as to pay for raw materials. "Our only resource is people," they would exclaim. And workers and ordinary citizens share this feeling.

In the late 1960s Japan achieved the second largest gross national product in the noncommunist world. Had there been no oil shock in 1973-74 and again in 1979 , the Japanese might in time have become accustomed to the idea of abundance. But with fossil fuels now accounting for nearly half their imports, compared with less than a quarter before the oil shock, all residents of the village called Japan feel that hard work, and hard work alone, can keep their lives improving.

Despite highways jammed with pleasure-drivers, despite the riot of colors and varieties in every department store and supermarket, Japan's equivalent of the Protestant work ethic is still likely to be national survival.

"We haven't lost the habit of hard work," said a young taxi driver with a thick northeastern country accent. "But we haven't really learned how to be rich."

A company president put it another way. "A German friend asked me how much vacation I took. 'Oh, perhaps a week in the summer, a couple of weekends during the year,' I replied. The German snorted at me. 'If you don't take a least a month's vacation you'll never really understand how our European minds work,'" he said.

But that is a digression from the main theme, which is the Japanese management has learned how to get the best out of its workers by motivating them with a combination of incentive and security. "Lifetime employment" puts a floor under every resident of the company village, generally until about age 55. The emphasis on teamwork ensures that no one gets far ahead of the others. Within this framework of security, workers do receive incentive pay, a practice imported from the United States in 1950s. They are also made to feel valued members of the company team through such devices as the suggestion box and quality-control circles.

In fact, many workers do not differentiate between white or blue-collar jobs. All are "members of the company," dedicated to its long-term growth and prosperity, which they see as essential to their own progress and prosperity.

Hence the company trade union, to which many company presidents belonged before they reached managerial rank, does not usually take a confrontational attitude toward management. There are exceptions, of course. Invariably these are desperate situations, in which the company's very future (and thus the workers' livelihood) is at stake.

What of the shareholders? Legally, they do own the company. But in Japan most shareholders are institutions like banks or insurance companies, and few own more than a 5 percent interest. They take a long-range view of profits and are often willing to give management the benefit of the doubt. Company executives strenuously deny that they think less of their shareholders than do their US counterparts.

Outside directors are rare, and management often pays far more attention to their banks (frequently shareholders as well) than they do to individual shareholders. This is because banks in Japan often take on the risks associated elsewhere with venture capital. If an inventor can persuade a bank to help with a sellable idea, the bank may supply up to 90 percent of the needed funds. The bank's interest rate is much lower (sometimes as much as half) than the 15 to 20 percent dividend a good company is expected to declare on its shares.

Banks, shareholders, management, and workers are all residents of the village called the company. Management respects shareholders, but not more than it does the other residents of the common village. As Dr. Ohmae puts it in his book, "The Mind of the Stategist" (McGraw-Hill, 1982), "In Japanese eyes a corporation is nothing but an assembly of people, each known as a sha-in,m or member, notm an employee of the corporation. The stockholders are a group of wealthy and interested moneyleaders. Like banks, they are simply another source of capital, willing to invest in the collective viability and wisdom of the corporation."

Dr. Ohmae, managing director for Japan of Mckinsey & Co., an international management consulting firm, notes another important characteristic of successful executives, one that is not unique to Japan: They can see, as clearly and sharply as a photograph, what it is they are trying to do.

For Konosuke Matsushita, the essential vision was to create and sell things useful for the consumer. Matsushita is still tops in consumer electronics. It has not tried to become an all-around maker of heavy electrical machinery like Hitachi.

For Soichiro Honda, founder of Honda Motor Company, it was to make the best possible small car there was. Among presidents interviewed for this series, Ichiro Isoda of Sumitomo Bank was determined to restore his bank to the No. 1 position it had once occupied. Takuya Okada of Jusco, the big Japanese supermarket chain, was similarly determined, not only to supply customers with high-quality goods at the lowest possible price, but to make retail merchandising a socially honorable and respected profession.

Dr. Ohmae sees a parallel between these goals and those of the great founders of American corporations men like Rockefeller or Carnegie or Mellon or Sarnoff or Ford. It is only later, in the period of their successors, that strictly financial considerations focused on the interests of stockholders have come to hold sway, Dr. Ohmae says.

The corollary is that most company presidents interviewed for this series do not understand the US conglomerate and have a low opinion of it. They do not see how a company with expertise in one line of production can expect to successfully manage totally unrelated enterprises. They do not see how a conglomerate can possibly hold what to them is the all-important loyalty of its employees.

Within the narrow confines of a particular island region, shaped by the contours of a particular historical and cultural experience, Japanese management has fine-tuned the art of motivating people and using them effectively. The Japanese have not, so far, universalized this experience.

Although they do business in the far corners of the earth, they have not managed to bring inside their own top management non-Japanese employees from subsidiaries outside the country. The internationalization of Japanese management has barely begun. As Japanese corporations play ever-expanding roles in world affairs, this may well turn out to be the ultimate challenge thrust upon them.