The Hindu Business Line : Whither the Japanese way of business?

Sony's attempt to fix its problems by laying off workers goes against the grain of the Japanese management way. This is a culture that stresses the family approach to employees in the company and the mutual sense of responsibility between the company and its employees.

MANUFACTURING sites to be closed. Product lines to be trimmed. Ten thousand workers to be laid-off. This could well be the announcement from any major US corporation and it would warm the hearts of stock analysts looking for a quick boost in stock price. And such announcements have almost become routine. But the fact that this particular one comesfrom the new CEO of Sony Corp of Japan, makes it not just unusual but almost heretic. Layoffs are not quite routine for Japanese companies.

Sony has been in trouble for some time now. The electronics business, which accounts for 70 per cent of the company's sales, has been sluggish and the company has posted losses for the last two years in this division. Sony has even lost market share in areas such as televisions and music systems, product lines where it used to dominate the market. The company has been in turnaround mode since 2003, but without any perceptible improvement. Then the board decided to bring in Mr. Howard Stringer as CEO.

A Welsh-born US citizen, Mr Stringer made a name for himself by successfully turning around the company's US operations, which is dominated by the entertainment business. Mr Stringer is Sony's first attempt at bringing in a non-Japanese as the chief executive.

The only other major Japanese company that has tried a non-Japanese leader, the auto-maker Nissan, managed a remarkable turnaround under CEO Carlos Ghosn, a Brazilian. Mr Ghosn was brought in by its French parent Renault.

When the Japanese economy was booming in the 1970s, Japanese management was the rage. Japanese companies focused on market shares and let profits take care of themselves. Their shareholders were more patient, and their banks willingly came forward to lend money.

The 1980s saw Western scholars produce dozens of books analysing their employee-friendly human resource practices, consensus decision making styles, participative management processes, and governance policies of the Japanese. To be fair, the Japanese did not export their `management style,' but left it to the rest of us to observe and draw our conclusions. And the consensus seemed to be that their unique style of management was the reason for their success.

By the close of the 1980s, the Japanese economy began settling down to a long slumber that lasted all of the 1990s.

With the US economy doing reasonably well comparatively, one stopped hearing praises for the Japanese style of management. Of course, particular techniques, such as just-in-time production systems and quality circles continued to find favour with the west, but overall, Japan was being written off as an also-ran, notwithstanding its size as the second largest economy in the world. China has taken centrestage although without any accompanying fascination for their style of management.

Sony's attempt to fix its problems by laying off workers goes against the grain of all we have heard about Japanese management. Life-long employment is a feature that co-founder of Sony, Akio Morita, proudly discusses in his book Made in Japan.

Published in 1988, the book lays out the growth of Sony right from its inception and his deep pride in the culture of the company is evident in every page.

This is a culture that stresses the family approach to employees and the mutual sense of responsibility between the company and its employees. Morita writes, `I cannot understand why there is anything good in laying off people. If management takes the risk and responsibility of hiring personnel, then it is management's ongoing responsibility to keep them employed.'

He goes on to say, `When a company is in trouble, it is the top managers who take salary cuts before the lower-level employees.' (Mr Stringer has not announced anything in this regard.)

There are several interesting features to the long-term employment promise. It was not really a traditional Japanese practice but came about fairly recently due to the stringent labour laws imposed on the country by the US Occupation Forces after the Second World War. The Japanese internalised it and built it into their HR practice. More recently, these laws have been relaxed allowing workers to be employed on short-term contracts.

Moreover, the practice of long-term employment was exclusive only to the big companies. In addition, women did not seem to enjoy similar benefits in Japanese enterprises, and were often seen as a badli worker is in India. That is, they would be employed to take into account seasonal variations in production.

But Japanese enterprises certainly treated their human resource more humanely than the average US company. In return, the employee mortgaged his soul, stayed late at work, was content with slow salary raises and promotions, accepted transfers at company's will, and showed high levels of motivation and commitment. One does not know the thinking of Sony's board in approving Mr Stringer's plans. Maybe, it was a case of `Oh, we need to sack people. We can't do it ourselves. Let's bring a gaijin (foreigner) to do it.' While the announcement stressed the reduction in people, product lines and other restructuring, it did not indicate what plans the company had to revitalise the innovation engine that it was known for.

Making cuts can shore up numbers in the short run, but Sony is not in the desperate situation that needs shoring-up numbers. It needs a careful re-consideration of its positioning for the future. The money in consumer electronics these days appears to be not in hardware, Sony's strong point, but in software.

Mr Ghosn, of Nissan, also managed significant reduction of personnel, though much of it was through attrition. Mr Stringer's initial attempt appears to be to take Sony completely by its scruff and give it a good shake.

But it is a sign of the times that even that is not considered good enough. A Japanese securities analyst is quoted in the Japan Times as saying that he was unimpressed with the restructuring plan and that the job cuts are not drastic enough. (He must have received his training in the US.) Surely, Morita must be turning in his grave.

Delta Airlines, which has been in trouble for some time, also recently announced its decision to lay off thousands of employees. But the management will also share some of the pain.

The CEO will take a 25 per cent pay cut, officers 15 per cent, administrative personnel 9 per cent and many front-line employees 7-10 per cent.

With Sony's problems and the appointment of Mr Stringer as CEO, the editor of The Economist said in an article in the Wall Street Journal that `There is no longer a Japanese way of doing business.'

With Delta behaving more like a Japanese company and Sony turning out more like a US company, you can forgive him for his confusion.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. His Internet address is: cgopinat@suffolk.edu)

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