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 / Second Quarter 1997 / Issue 7(originally published by Booz & Company)


Steering a New Course for Japanese Management

If Japan is to be a front-runner in the era of innovation it must demonstrate leadership in developing new industries and products. To do so requires managers to adopt a new "hands-on" approach and to take greater risks.

The age in which Japanese companies were relegated to playing catch-up with European and American firms is over. For some time, the Japanese have been showing their true colors as front-runners in their respective industries. Now, however, they are facing a new task: they must demonstrate leadership in developing new industries and new products.

In the catch-up era, the name of the game was to take existing foreign products, to make them better and cheaper and to sell them in large quantities. In other words, it was an era of slavishly following the market, responding to consumer demands and fulfilling consumer needs. Corporate strategy was delivery-oriented, emphasizing production, sales and distribution.

But in the new front-runner era, there are no more product models to which to refer. Japanese companies must learn how to create potentially valuable products that their competitors haven't thought of. This is a 180-degree turn from the previous era.

In the new era, companies must create new markets and discover new consumer needs; they must shift their emphasis from producing the goods that people want to developing the goods that people are not yet aware they need. The era of delivery has become the era of innovation. This transformation of basic business strategy will be impossible without strong leadership from top management.

In the developed economies of Japan, Europe and North America, the basic needs of the market have almost all been satisfied. In Japan, for example, consumer demand has become dormant as the market has become saturated with products. In a recent survey conducted by the Nikkei Industry Research Center of 2,000 consumers in Tokyo and Osaka, 65.5 percent responded that they were interested in buying new and popular products, but 50.8 percent said that at the present time there was no particular item that they wanted to purchase.

Reacting to these figures, Keiji Toyoda, president of Renown, a large clothing manufacturer and retailer, states:

"The results of this survey are quite alarming. It would be a mistake to think that consumers are holding back because we happen to be in a recession now. I think that consumers have developed a new set of values and a different sense of how they want to live their lives. If we manufacturers don't come up with products that are more in keeping with this new lifestyle, even when the economy recovers, consumers will abandon our products."

In other words, not only must companies undergo a transformation from a delivery-oriented approach to a strategy of innovation, but the hurdle that lies ahead for them is parlaying the "invisible" needs of consumers-- the ones that consumers themselves are not even aware of --into concrete goods and services. To put it another way, as new products appear on the market, consumers will become conscious of their needs and demand will be created.

In the present economic climate, it is simply no longer good enough to use conventional market survey methods to understand consumer needs. As Fumikatsu Tokiwa, president of the Kao Corporation, a large manufacturer and marketer of consumer goods, points out, with good reason, "You don't look to the market to find out what people's needs are; you create needs."

Not only Kao, but also companies like Sharp, Canon, Fuji Photo, Toray, Takara Brewing and Secom are giving birth to products that, as Atsushi Asada, senior vice president of the Sharp Corporation, puts it, "Make the consumer realize with astonishment, 'I've never seen anything like this before!' " Even during Japan's long recession following the collapse of the bubble economy, these companies have avoided losing profits or, at the very least, have kept the decrease much smaller than their competitors have, by creating new demand.

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