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The Journal of Management Consulting, to run in 1997
by Fumio Kodama
Boston: Harvard Business School Press, 1995
297 + xxvii pages $35.00
reviewed by John D. Trudel CMC
This is clearly a major, paradigm shifting, change-the-world book. Those with business responsibility in industries that build things – Kodama’s "fabrication industries" – should pay attention.
This extends and refines his 1991 book Analyzing Japanese High Technologies. It won the coveted Sakuzo Yoshino prize for the best book in the social sciences. This was the first time an engineer has ever won. Kodama has obtained unprecedented respect and influence.
Kodama’s are not typical Western books about Japanese business. These invariably emphasize executive management and try to adapt practices into Western frameworks. Professor Kodama is not interested in theory X or Z, but in logical analysis and empirical results.
His stated intent is to ease trade friction by explaining Japan’s success is not because of "exclusionary practices" or "conspiracy," but because they have a better way. He notes the Japanese, being pragmatic, think that systems that work are good systems, and those who complain about them -- that’s us -- appear to be "arguing for the sake of argument."
This book is best read with objectivity and focus on the AND, as opposed to the OR. There is ample evidence (Trading Places by Prestowitz, The Japanese Conspiracy by Wolf, Agents of Influence by Choate, and many others, including Crichton’s popular novel Rising Sun) testifying to the fact that Japan has skillfully used protectionist practices, revisionist history, and other unsavory methods to accomplish its aims.
There is also ample evidence, and Kodama’s book adds to this, that Japan has invented better methods. Even Japan’s critics sometimes admit that Western management is outdated. The prosperity of the Pacific Rim nations is based on Japanese, not American, models.
Major stakes ride on understanding what causes success and failure in the high prosperity industries. As Kodama says, "The collapse of Communism and the resultant end of the Cold War are making it clear that technology drives the world’s political and economic order." Our massive trade imbalances with Japan, Singapore, Taiwan, etc. show we still have much to learn.
Kodama proposes six dimensions of paradigm shift. Manufacturing should shift from producing to knowledge creation. Business diversification should shift from spin-off to trickle-up. R&D from dominant design to interindustry competition. Product development from pipeline to demand articulation. Innovation patterns from breakthrough to technology fusion. Finally, societal diffusion should shift from technical evolution to institutional coevolution.
These are difficult concepts. Institutional coevolution is hard to imagine for the West’s ponderous "Megastate" bureaucracies. The rapid diffusion of CAT scanners into Japan was driven by the fact that Japan’s government and their national health insurance program aggressively embraced the new technology to accelerate its acceptance. They did much the same with FAX machines. Both these Western-invented industries are now dominated by Japan.
Technology fusion is almost the reverse of Western breakthrough invention. The concept is to take (critics say "steal") existing technologies from outside sources, and blend them together for unique competitive advantage. There are Western examples of this practice. Bill Gates bought DOS for a pittance, "borrowed" the Windows interface from Xerox, and NT from DEC. Still, most Western firms are internally focused.
Western firms are organized for and focused on "pipeline" product development. The same basic products evolve by model year. Detroit’s cars, even now, change little from year to year. Intel’s microprocessors evolve very rapidly, but still in a pipeline.
Demand articulation is looking below the surface to create totally new product types. That yields CD players, home video recorders, Walkmans, etc. We do that sporadically. Kodama claims that Japan has developed this into a national system and extended it into public policy.
Spin-off versus trickle-up is another strategic dimension of choice. The West, seeking quick pay-back, stereotypically picks the most complicated and expensive applications for a new technology. Japan prefers low-cost mass markets. Hence, where the West targeted carbon fibers for military aircraft, they started with sporting goods. Japan has won market dominance in carbon fibers, flat panels, and several other large, fast-growing markets that the West invented.
Knowledge creation is perhaps the Kodama paradigm most hopeful for the West. Canon needed breakthrough cost reductions for its copiers. Instead of Western reengineering, downsizing, and squeezing more from less, they instead committed top talent, invested deep thought, spent patient money, and looked all over the world for technologies that would solve their problem.
The copier drum, the source of 90% of copier maintenance problems, had to be precisely round and so very cheap that it was disposable. The breakthrough came at a picnic, when one worker held up his beer can, exclaiming the Japanese version of "eureka." Sure enough, adapting those processes and technologies led to major advantage. Canon print engines now power virtually all the copiers and laser printers in the world.
Where Western theory implies abandoning mature technologies to stay ahead of competitors, Kodama’s methods have allowed high-wage Japan to continue to thrive by exporting seeming commodities such as textiles, chemicals, and, of course, machinery and automobiles.
On a darker side, Kodama’s "technology fusion" concept has driven an attack on Western intellectual property protection. Japan deemed our patent system (a Constitutional right, incidentally) "unacceptable" in 1993. They signed letters of agreement with our Commerce Department in 1994 to change it. (See, for example, "The Great Patent Sell-Out," Upside, November 1995, by Trudel.)
Japan is shifting to knowledge creation as a model. The curve for R&D expenditures crossed over capital investments for overall manufacturing industries in 1985. Japanese high tech companies now spend 80% more on R&D than they do on plant and equipment! A significant 44% of Japanese fabrication firms expect this ratio to increase, while 36% expect it to hold.
Few Western firms can play in that league now, so most compete by manipulating financial abstractions, cutting costs, and trying to downsize their way into leadership. There are alternatives. Kodama suggests some, and there are others. Still, the first step is to acknowledge that there is a problem and to be willing to change. We are apparently not there yet.
Kodama has taught his methods in a few (three: two at Harvard, one at Stanford) Western MBA classes. His students did not respond well. The Japanese are very polite. Still, the kindest thing he could say was, "As few students dropped the classes, I gathered that American graduate students had little difficulty in understanding my arguments, even if they did not agree with me."
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