Question 1. Your book discusses the development of the Japanese company Canon from a small optical company to the company of today. As you note, Canon, today not only a camera company but one of the largest high tech companies in the world. What interested you in this story? Why this particular company and does the story you tell in your book have a larger message about Japanese business and even international business?
Interview with
Mr. Omura and Mr. Tokuda
of
Nihon Keizai Shimbon, Inc. (NIKKEI)
on their book: HOW CANON GOT ITS FLASH BACK
The Innovative Turnaround Tactics of Fujio Mitarai
Answer:
Omura
Even while Japanese corporations were suffering amidst the weak economic environment, from the mid-Nineties Canon started on a strong growth path. When you seek the reason behind this, you find it was the ‘fight’ that Fujio Mitarai had upon returning from 23 years in the US. Fujio Mitarai set his sights on managerial reform, and I thought when we put the book on sale that it would be of value to Japan Inc., inasmuch as it has been drifting, with no compass to guide it. I think that the essence of the “Mitarai Revolution” we depict in this book has a number of aspects in the field of corporate management that surpasses national or cultural boundaries.
Tokuda
What attracted my interest was the individuality of the founder (Takeshi Mitarai), and his way of thinking, and how they permeated the organization. I was strongly interested in the question of whether the combination of the founder’s spirit in starting up a venture and paternalistic management could be accepted in the present day. In the United States, the corporate culture at Hewlett Packard is a combination of the spirit of venture and paternalistic management. 3M has maintained a similar corporate culture. I think that even in the US this spirit of venture to which paternalistic management is added can be a source of competitiveness.
Question 2. Canon as you note in your early article titled “Prelude to a Reformation” can be divided into three periods, the era under Takeshi Mitarai, the era under Ryuzaburo Kaku and the third post-1995 era under Fujio Mitarai, the current President. For a company that started in the 1930s, it is remarkable for most western companies of Canon’s size to have such a small number of leaders of a company over a 70-plus year period. Is such longevity in leadership roles common in Japanese companies and does it lead both to a more paternal management style and to other attributes that you could describe for those readers not as familiar with Japanese business style?
Answer:
Omura
Canon was established in 1933. It acquired a corporate organization in 1937, and since then there have been seven persons who have led the company, including the present CEO (and managing directors). But among them, the first president, Takeshi Mitarai, stayed at the helm for all of 32 years, until 1974. Ryuzaburo Kaku was in charge for 12 years, from 1977 to 1989, and the present president has had that position for 9 years so far. This is not to say that there is no criticism in Japan of “entrenched authority,” that extends beyond a decade. But valuation should not be in terms of “years in office” any more than “age,” but rather in terms of “managerial ability.” I think that as far as what term of office is right depends on the company and on the situation that it is in. It seems to me, moreover, that in Europe or the US as well when the president is the founder of a new venture or the company is outstanding in regard to its position in society, there is a tendency to keep the people at the top in place for a long time.
Tokuda
The company has had leaders other than Takeshi Mitarai, Ryuzaburo Kaku and Fujio Mitarai. But the leader between Takeshi Mitarai and Kaku just continued with the management methods of Takeshi Mitarai, without changing them. And the company’s performance declined during the period between Kaku and Fujio Mitarai. Basically, it is the periods when these three were leaders that were important for Canon.
Question 3. In 1996 shortly after Fujio Mitarai, assumed leadership of Canon, Canon had achieved a world renowned name for product quality but also faced a number of challenges, particular with a losing PC division and several other loss inducing business sectors. Could you describe the challenges Mr. Mitarai faced and how his actions differed from those of other major Japanese companies of the time?
Answer:
Omura
As we wrote in the book, during the first year or two in office, Fujio Mitarai took the company out of business areas worth sales of more than 730 billion yen and the company posted a loss of 26 billion yen, while he refrained from massive layoffs. What this speaks of is the ideas of “investing for the long haul,” and “healthy deficit in operations,” are almost a matter of common sense. And he did not pull out of business operations only because they were losing money. It was during this period that Mitarai, applying the very explicit yardstick “’losses are evil,” and “operations that do not produce profits are evil,” rebuilt the operations portfolio, and did so without reducing staff.
Tokuda
What I wanted to do in this book more than anything else was this. There are many Japanese companies where we can observe paternalistic management, and a culture of sharing a common destiny, but in 1996 when Fujio Mitarai was making the decision to abandon loss-making operations, there were very few companies that were doing that sort of thing. Canon later bore testimony to there not being a contradiction between paternalistic management and common destiny awareness on the one hand and cutting losses by stopping deficit-producing operations. But there is a conflation, on the part of many Japanese executives, of the common destiny awareness with “mutual dependency” and “shirking of responsibility.” Right now there are many executives that are creating a tenseness in their corporations by dispensing with the principle of sharing a common destiny, but we have s a strong sense of doubt regarding that. The situation is not as simple as that.
Question 4. In the book, you describe Canon’s efforts to transform the company from a conveyor belt manufacturing system to the “cell method” of manufacturing. In the book you point out Fujio Mitarai’s key role as an exponent of change in this process. In terms of the move to the “cell method”, how revolutionary was Canon’s actions and was Canon the clear leader in Japan in this move and did their actions really change many minds about the appropriateness of this method of manufacturing?
Answer:
Omura
Fujio Mitarai confirmed that there were advantages to the cell method of production, when he visited a factory in Japan where it was in use. It enabled him to not only to generate cash internally by reducing the carrying cost of inventory of parts, subassemblies and products, and to realize the inestimable potential of humans (employees) to create value. What is special about Canon is that during the period of merely two years they eliminated all the belt conveyor lines from their factories --- worldwide. Even taking in companies on a global basis, I don’t know of even one that carried out a fundamental change in the production system used at all of its factories in just two years. “Vitality” and ‘concentration” are sources of Canon’s strength.
Tokuda
In the cell production system the number of parts involved is very high, so it was said that the system was not suitable for relatively complex assembly work. There was no precedent for using it throughout an entire company. It was amazing that in Canon’s case first they succeeded in using it for the laser printers, in which the number of parts is high and cell assembly was thought to be difficult, and then they went on to use it for the more difficult work of assemblying copiers.
Question 5. On page 51, you note that “many of Japan’s corporate executives do not fully understand the real threat posed by excess investment and production.” Do you believe that such beliefs still continue to this day and how has Canon’s actions in transforming itself changed popular beliefs in both the boardrooms and in the Universities? Also, do you believe the changing view has run its course or are we still seeing new facets of the move to a cell form of manufacturing?
Answer:
Omura
Executives at Japanese corporations have changed their manner of thinking greatly after experiencing the “Lost Decade” from the beginning of the Nineties and onward for ten years. Up until then, in general, much energy was expended in efforts to maintain levels of capacity utilization in production plants. Keeping operations at a high level lowered the average fixed cost of products, and improved profitability. Tying up capital in fixed assets, and using cash less effectively by accepting high levels of inventory, were matters of lower priority compared to keeping the use of capacity at high levels. But after entering the Nineties, Japanese companies had to confront a situation in which there was no longer robust demand for their products. In the process of facing this situation, attention turned to supply chain management, and efforts intended to free up blockages of goods and funds were begun. Thereupon, the cell system, in which flexible control of production is possible, began to get attention.
Tokuda
If you ask, today, which is the more important of the two, maintaining a certain level of capacity use or keeping inventory low, I think that almost every executive in Japan will answer that is keeping inventory down. But when it gets to the level of the nitty-gritty matter of running a business, we’ve seen the opposite, from those managers who have had the experience of ultimately moving the merchandise even after there had been some over-production. What Canon did was to acquire capability of adjusting output to meet real trends in demand, by use of the cell production system.
Question 6. You also talk about Supply Chain Management (SCM) as practiced by Canon. How would you say SCM as practiced by Canon has differed from other Japanese and Western companies and how has the changing situation in China been both a driver and also a part of this change in SCM?
Answer:
Omura
What’s characteristic of Canon is that it took a look at the product codes in use all over the world, and there were about 200,000 of them, and unified them so that there was a common code used everywhere. Because the product codes were unified, it was possible to have full functionality that is supposed to be inherent in SCM. It was after a searching review of the product codes, that are pre-conditions for SCM, that they introduced SCM. That thoroughness is very much Canon-like.
Tokuda
SCM is a tool for adjusting production quantities to match demand trends, the same as cell-method production is. You can say that it is pone way to deal with the challenge of low-cost production in China. SCM being well known as a system, I would say that there are many instances of its adoption by European, American, and also Japanese companies. The characteristic feature in Canon’s case is that unification of product codes and the full preparations that were made
Question 7. In the book at numerous points, the importance of cash flow analysis seems to have played a major role in both Mr. Mitarai’s analysis of what needed reforming, elimination or other actions and certainly as a key indicator of the success of his reforms. Is such a laser-like focus on the bottom line and on the return to investors not a common factor in Japanese business and if not, why in your opinion are not more executives following the lessons that Mr. Mitarai has clearly demonstrated at Canon over the last decade?
Answer:
Omura
Canon derives about 70 percent of its sales outside of Japan. What this means is that 70% of revenue moves up or down with exchange rates. One of Mitarai’s objectives was to create a corporate constitution, and a solid financial make-up, that would not be greatly influenced by the external environment, including exchange rates. Japanese companies are now being called upon to disclose statements of their cash flows. The management mode that gives emphasis to cash flow, that Mitarai was the leader in introducing in Japan, is now spreading among other Japanese companies.
Tokuda
Cell-system production, and similarly SCM, were well known among Japanese businesspeople, as was cash-flow management, and they understand its importance as an outcome of its rationale, but there were few instances of their putting this to practical use. The dramatic point about Mitarai is that he brought it right into the company and, moreover, got it established throughout the company as well.
Question 8. You also note how adopting a consolidated performance-based system changed the relationships business groups shared with the head office and with group companies and that this was an important part of the changes Mr. Mitarai developed at Canon. Many readers may not be aware how Japanese companies and groups work. Can you explain what the situation was prior to Mr. Mitarai changing things and how things operate today? Further, can you also explain how this compares to most other Japanese companies today? Is this new system, common or still something that has not yet been generally adopted?
Answer:
Omura
Prior to the time that consolidated management spread among Japanese corporations, there were many companies that used methods of presenting the appearance of solid performance, by channel stuffing, and recording the sales to the company’s marketing subsidiary in the unconsolidated accounts of the parent company. The technique used was referred to as “the artificial satellite” or, sometimes, “tobashi” (round-robin selling). At Canon, however, the method of evaluating performance that was adopted included subsidiaries and affiliated companies. Now, Japan has shifted to giving foremost place to consolidated financial statements in accounting, and the consolidated management that Canon had adopted has come to be generally adopted by all.
Tokuda
If we look not at cash flow but profits then there has to be deferment of the investment burden. Or, we can push liabilities ahead on the time axis. When unconsolidated and not consolidated accounting was dominant, Japanese companies forced liabilities onto their subsidiaries. Spatially, they were kicking the ball up and back between themselves. What Mitarai did was to eliminate this kind of playing around in time and space, and instituted a brand of management that dealt with realities.
Question 9. In Chapter 6, you also note Canon’s environment-related activities and the concept of “Kyosei” – living and working together for the common good. Could you discuss briefly Canon’s accomplishments over the last decade in the environmental area and how you would rank them in comparison to both other Japanese companies and their western counterparts in terms of environmental considerations?
Answer:
Omura
Canon adopted the corporate concept of « kyosei » in 1987. In 1990 it formulated the company’s position paper on the environment and developed the idea of contributing to the improvement of the productivity of resources as a business ethic. Then in 2000 they adopted the medium-term environmental targets as a means of realizing maximum productivity of resources. Canon adopted environmental matters as subjects of high importance to the organization, and has striven to materialize management that at the same time is involved in the economic development process and the preservation of the environment. The Nikkei newspaper, Japan’s leading business newspaper, has conducted an annual survey since 1997 on responsiveness of management to the environment. Results of the surveys are reported in the newspaper every year. Ever since Canon was at the top at the time of the first survey, it has always been in the top group among Japanese companies, and in 2003 it was again in the No. 1 slot. Its cumulative score for the seven surveys is the highest of all Japanese companies.
Tokuda
It is tough to make a comparison to companies outside Japan, since there are no international benchmarks for environmental management. In my personal opinion I think that Canon is either not inferior to or perhaps at a higher level than Xerox and other rivals in Europe and America.
Question 10. Also in Chapter 6, you ask the question “How much can Japan compete, sandwiched between China and the United States?” Based on your study of Canon and of Fujio Mitarai, how would you answer this question and how confident are you as to the success going forward of Japanese business under this scenario?
Answer:
Tokuda
I can’t say anything on this, as both American companies and Chinese companies are going to be making their own efforts. But Canon now possesses the nature of maintaining “seamless innovations and reforms” (there is more on this in a recent edition in Japan). What we can see as a recent trend is a reduction of costs by integrating development and the method of production. I don’t know how they will change, but American and Chinese competitors are likely to try to develop new approaches so that they are not licked by this.
Omura
Canon has concentrated on image inputting and image outputting, and has moved ahead with the key to that, i.e., technological development. In the course of progress of the development, the strategy is to enhance competitive superiority. Thus in the work of production as well, they have done well by pulling costs down through the use of information technology and so on from the design stage to the actual work on the plant floor, with the intention of making goods in such a manner that cost are not strongly impacted by the price of land or personnel expenses. If this can be accomplished for a large number of products, the company will have the ability to compete with low-cost producers. The path that Canon is taking is, in my opinion, going to be seen as an effective method of winning in competition, by many Japanese companies that find themselves in a similar situation, or by companies in other countries as well.
Question 11. In late 2003, the respected Japanese business newspaper Nikkei Industrial News asked the presidents of 137 major Japanese companies to select the best among their ranks and the result was that Fujio Mitarai topped the list by a large margin over many better known Japanese executives including those at Nissan, Toyota, Sony and other companies. Why is Fujio Mitarai so little known outside of Japan and has this changed since the publishing of your admirable book
Answer:
Tokuda
This point in particular is the purpose of coming out with an English edition. Canon’s products have come to be well known outside of Japan, but the company has not received commensurate attention. It may be a less colorful picture than that presented by Kohnosuke Matsushita, or the founders of Sony, but this is a matter of the responsibility of the media. I hope that through this English edition that this executive, Fujio Mitarai, gets to be recognized abroad.
Omura
I think that the evaluation of Canon, and of Fujio Mitarai, have in both cases risen since the original Japanese edition came out, in 2001.Reflecting the attention that they have gotten in Japan, Asian and American business magazines have begun to have an interest in Canon, and in Mitarai. In 2002, he was selected by Newsweek magazine as one of the top 25 managers of the year. I want there to be more knowledge overseas of interesting people and interesting companies like these that we have in Japan. The English edition has this thought behind it. It would be a good thing for there to be a deeper knowledge of Japan as a result of this book.
About NIKKEI: Established in 1876, Nikhon Keizai Shimbun, Inc. (NIKKEI) has forged a reputation for fair and impartial journalism, both in Japan and abroad. Today, they are expanding their sphere of influence by focusing on their core business - newspaper publishing - while simultaneouly reinforcing their capabilities to meet the growing demand for digital information.
In addition to publishing five newspapers - amoung them the world's largest business daily, The Nihon Keizai shimbun - NIKKEI supplies comprehensive business and economic coverage through a variety of vehicles, ranging from electronic media and data services to broadcasting, publishing, and events. By amplifying their international coverage with a particular focus on Asia, they are working to create an infrastructure capable of filling global news demands.
About the Interviewer: Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
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