- Typical Corporate
Organization Chart
- Reporting
Channels for QC Circles
The organization and employment practices of Japanese
companies and those of U.S. and European firms differ in many respects, and
these differences have important implications when dealing with Japanese
firms. Although the general organizational structures of Japanese companies are similar to those of
companies in other nations, a major distinguishing feature appears to be the
presence of numerous viable mechanisms for bottom-up communication, both
formal and informal. This is closely related to the emphasis on maintaining
a family-like atmosphere, which encourages more discussion and a greater
degree of informality in communication. The sense of a company being similar
to a family is reinforced by such factors as the commitment of the employee
to the company until retirement, the practice of age-linked compensation and
responsibility, the system of job rotation that emphasizes the development
of generalists rather than specialists, and an approach to evaluation that
emphasizes experience, personality, and, in effect, the ability to train and
lead subordinates like a senior family member.
Some of the principal implications of these characteristics for decision
making are the following:
With certain exceptions, full responsibility for making decisions
of importance is seldom delegated to a single individual. However, as in any
efficient organization, routine decisions within established guidelines are
handled by individuals. There is a proclivity among Japanese employees to
discuss all aspects, particularly of major decisions, in detail with parties
who are likely to be affected by or interested in the decision. Serious
conflicts can develop if affected sections or departments are left out of
the decision-making process. Intersectional conflicts of interest can
complicate and lengthen the decision-making and implementation processes.
While initially the decision-making process may be slow in comparison to a system where
authority is delegated to an individual, the implementation of the decision
reached can be rapid. Smooth execution of any decision requires the
cooperation of all sections affected by that decision, even where authority
is highly delegated and individuals have substantial decision-making powers.
Quick decisions made without consideration of all concerned parties may lead
to the implementation being sabotaged or delayed by those who must
ultimately carry out the orders. In the Japanese system, interested parties
have at the very least had their views heard and are therefore usually more
willing and prepared to go along with the decision.
It should be kept in mind that every Japanese company is different.
While the previously mentioned generalizations appear to hold and provide a
contrast with U.S. or European decision-making practices, there are
companies in Japan, especially those directed by their founders, whose
decision making is Western in character. Decision making in companies led by
the founder, or "one-man" companies, as they are described in
Japan, can be particularly complicated, since a U.S. or European style of
management is sometimes superimposed on a Japanese style. The middle and
lower levels of the organization think of themselves as a uniform group of
workers, while the founder thinks of himself as the leader of the company.
For this reason, decision making can be a mixture of styles, with some
decisions made by the president himself and others by the consensus method,
with the president giving the final go-ahead.
Internal Communications
One point that appears to distinguish
Japanese companies from their counterparts overseas is the structure of
internal communication channels. Japanese companies' channels for bottom-up
communication are probably the most obvious of these and have been the
subject of much attention. However, these communication channels can only be
understood properly in the overall context of information-channeling
policies and structures. While these policies and structures obviously vary
among companies, some general traits can be identified.
Japanese firms generally have more extensive formal and informal
communication channels than Western firms. This is because Japanese managers
tend to have a broader conception of those who need to be informed of
particular items or decisions than their Western counterparts.
An example of a formal communication channel that is used both by Japanese
and Western firms is the teian boshu, or suggestion box system,
through which useful employee suggestions are rewarded with monetary or
other types of recognition. A formal communication channel that Japanese
managers and their Western counterparts use somewhat differently, however,
is the circulating memo. Within the administrative sections of many Japanese
companies, memos containing both major and minor news are stamped kairan
(for circulation) and passed from desk to desk within the section. At the
discretion of the section head, a kairan memo may have a list of
managers' names attached to it and be circulated vertically or horizontally
outside the section. While Western companies also circulate memos, the
Japanese practice is distinguished by the larger number and broader range of
people reached.
Indeed, a Japanese manager in doubt as to whether he ought to pass on a
certain item of information to his colleagues is far safer to inform them.
One top executive of a major Japanese corporation reflected for a long time
on his sudden fall from favor and concluded that his greatest mistake was to
heed the advice of a subordinate who considered some data inconsequential
and suggested that it not be circulated. His colleagues admitted that the
data concerned was not particularly vital, but their trust in his
willingness to share information was damaged, and they could not function in
confidence with a manager guilty of withholding or disregarding information.
The degree of informal communication within Japanese firms is distinctive.
Even when the information is not of enough significance to merit a memo,
Japanese managers will usually call colleagues who might be interested. Job
rotation, which has exposed them to the perspectives of various sections and
departments and has allowed them to develop personal relationships with
staff members throughout the company, has also made them aware of the needs
and interests of other parts of the company. Sharing information is not just
a favor done for a friend or merely in keeping with good business practice;
a manager's effectiveness, and ultimately his company's success, depends on
his keeping well informed, which in turn requires the assistance of his
peers.
On the whole, it may be concluded that Japanese companies possess more
extensive in-house information channels than Western firms. These formal and
informal information networks transmit information both vertically within
the corporate hierarchy and horizontally between the various departments of
a Japanese company, largely at the discretion of lower-and middle-level
managers.
Decision Points
The decision-making structures of Japanese companies, like their
information channels, are fundamentally the same as those in Western firms.
However, even though most of the major differences in decision-making
processes between Japanese and Western firms are matters of style, these
differences can have significant impact on company performance and are
important factors to consider when dealing with Japanese companies.
Japanese firms' information-gathering and dissemination and
decision-making structures can be visualized as a network of information
channels linking decision points at the top, middle, and bottom of the
corporate pyramid. Lower-level managers pass on information, solve problems
that do not involve expenditures, and formulate solutions to bigger problems
with their peers and superiors. Middle-level managers pass on information,
solve larger problems facing their departments that involve spending within
certain limits, and decide upon solutions to corporate problems to submit to
top management based on their own and their subordinates' ideas. Top
managers receive information, define problems, formulate solutions, and
decide whether to accept, amend, or reject proposals originating from lower
levels.
Various analyses of the top-down and bottom-up aspects of Japanese
decision-making processes have resulted in some confusion. One fundamental
point that these models often fail to adequately convey is that all
important decision are approved by the Japanese firm's top management. The
only significant difference between top-down and bottom-up decisions is that
the former are formulated at the top, while the latter are reached at the
middle or bottom levels of management and sent up to the to for final
approval. At what level a decision is formulated depends entirely on its
content, and this is clearly defined in the practices and policies of the
company.
Statements such as "the president or the board sets goals and
policies," "well-timed decision in crisis situations are the sort
of decisions top managers should make," and "goal-setting is the
job of top managers" are found in Japanese management textbooks and are
almost never disputed. Virtually all Japanese businesses have very clear
rules concerning what types of decisions and what expenditures can be
approved at specified management levels. In general, decisions involving
corporate strategy, investment and crisis management are discussed and
decided on at the top of the corporate hierarchy by the president and the
board of directors.
Examples of Decision at Different Levels
One example of a top-level decision involves a certain company's
resolution to expand its production capacity. A tentative policy decision
was arrived at following discussions between middle and upper management
based on long- term objectives, which had been set by the board of
directors. The next step to be taken was to determine how this expansion of
production capacity would be financed. To aid him in making this decision,
the president turned to his finance department for recommendations. Members
of the finance department discussed the question and drew on the advice of
banks and underwriters outside the firm. This information was then presented
to top management who weighed the issues and made further recommendations.
Finally, the actual decision was made by the president. A decision of this
magnitude involves some discussion and the reaching of a consensus, but is
essentially a top-level matter decided by the president or top management.
An example of middle management formulating a company's final decision, is
the case of a firm that found itself at a disadvantage in export markets
because of a major product's inappropriate specifications. Relevant
information was quickly gathered and analyzed by middle managers involved in
exports and transmitted to senior management. The middle managers then
discussed the problem among themselves and concluded that it could only be
solved by remodeling parts of the production plant Because such a move would
require a substantial expenditure, they submitted a proposal to the
president. The president found the middle managers' case convincing, and
quickly decided to approve the necessary expenditure. Only a relatively
small number of managers at the middle and top of the company were involved
in this decision.
The system for formulating decisions at the lower or middle levels of
Japanese companies involves the preparation and circulation of a ringi-sho,
or roughly a "project proposal." Under this system, after informal
discussion of a proposal, which may involve various levels of management and
other employees, an individual or group within a section takes the
initiative by writing it up in ringi-sho form. The proposal is then
circulated among interested parties, usually accompanied by a verbal
explanation by one or more members of middle management. After careful
discussion among all the interested parties, various modifications are
proposed. When all parties reach a consensus, the appropriate persons affix
their seals to the ringi-sho and it is sent to those responsible for
making the final decision.
For a proposal involving an expenditure that must be approved by a
director, the pattern of circulation for a ringi-sho would be as
follows: after some preliminary discussion the ringi-sho is prepared
by the division making the request. The ringi-sho is then transferred
to the company's administrative section, which is responsible for processing
and routing these proposals. Next it is forwarded to the administrative
sections of the divisions concerned, and, after revisions and approval, it
is submitted to the board of directors. After the directors approve and
affix their seals to the proposal, it is returned to the company's
administrative section, and then to the division originating the request for
implementation, after possible modification in accordance with management's
wishes.
As these examples indicate, the decision-making structure of Japanese
firms is quite similar to that of Western firms. The most notable difference
is that Japanese corporations possess a specific structure for generating
problem-solving proposals at the lower and middle levels of management. The ringi-sho
system allows the section or bureau closest to the problem to devise
solutions on its own without usurping management's overall control. This
structure would be ineffective, however, without the willingness of
employees and managers at every level to consider the company's problems and
devise solutions.
Another aspect of decision making that is perhaps less well known is that
employees and managers, in addition to their normal full-time duties, often
make voluntary commitments of their time of informal problem-solving groups.
Top managers in Japanese companies sometimes assign managers and employees
from various departments to project teams, the aim of which is to solve
problems that concern them. Moreover, when middle- or lower- level manager
spots a problem that concerns more than his section, in addition to
informing his superiors and the sections concerned, he will often take the
initiative to assemble an informal project team. These teams, which usually
consist of the heads of the sections concerned or their representatives,
sometimes meet after hours or in informal settings. When they reach
consensus, a ringi-sho listing the informal project team as the
originator is sent up for approval.
The Role of Middle Management
The successful operation of the information-channel and decision-making
structures described hinges to a large extent on the role of Japanese middle
management. It is the middle managers who route information, encourage their
subordinates to prepare problem-solving proposals, and compile or refine
these proposals in the form of ringi-sho. Top management relies on
middle management to supply specialized knowledge and to maintain most of
the company's contact with other companies and organizations. The Japanese
middle manager is crucial to the smooth operation of the Japanese firm, and
his role is significantly different from that of his Western counterpart.
The average Japanese middle manager has worked in his company for 15 to 20
years and is only beginning to enjoy rapid increases in wages and
responsibilities. He knows his company, superiors, peers, and subordinates
very well. Such a manager holds a post between section head and department
head and has access to most of the company's information resources. He is
expected to know who is interested in or affected by the information he may
come across and is responsible for routing it to all those concerned or
involved.
Middle managers are closely involved in the formulation and writing of ringi-sho.
They are the immediate superiors to whom employees with suggestions come,
and they know which other section and bureaus should be involved in
discussions. When a proposal is agreed upon, a middle manager draws on his
experience to prepare the ringi-sho, it is returned to the middle
manager, who must renegotiate with all parties concerned and send around a
revised version.
His experience, personal contacts at all level s of the company, and quick
access to hard data make the middle manager a trusted aide to top managers,
and the recommendations of middle managers on ringi-sho are treated
with confidence and respect. With the data and human resources they are able
to draw on when researching and formulating proposals, middle managers play
a crucial role in making or breaking a given ringi-sho. While the
final decision- making authority is vested in upper management, the
recommendations off middle management often provide the basis for these
decision.
When top management makes a decision independently and only informs the
middle managers later, the middle managers must take the time to explain it
to their subordinates, persuade them to cooperate willingly, and coordinate
the execution of the decision with other sections or departments.
The middle manager is the link between top management and lower management
and employees. In the Japanese social context this connection is far more
than a link in the chain of command. Like middle managers in other
countries, the Japanese middle manager must respond to the questions,
complaints, and suggestions of his subordinates while at the same time
following the orders of his superiors. When the views of his superiors clash
with those of his subordinates, he must achieve what is described in
Japanese as iken no chosei or an "adjustment of opinions."
In practical terms this means that the middle manager must soothe employees'
damaged pride at not being consulted or at having their opinions overruled,
convince them of the correctness of their superiors' decision, and elicit
their willing efforts in successfully executing the new policy. If he fails
to achieve this, he must at least let the employees know that he is
sympathetic to their feelings and request them to bear with the policy even
if they do not agree with it. Of course, if employee objections are extreme
or well founded, the middle manager must return to top management to explain
the problem and perhaps try to obtain a modification of the decision.
In situations involving an adjustment of opinions, the trust the Japanese
middle manager has earned from his subordinates and his ability to
articulate arguments in a convincing way become extremely important. Unlike
his counterparts in U.S. and European firms, he has virtually no power to
hire and fire but is required to work out compromise solutions.
The Japanese middle manager needs a significant stock of goodwill among
those around him to succeed, and developing it is seen as a major part of
his job. Goodwill and trust must, of course, be based on mutual interest and
respect. Employees want able leaders who will train them for higher
positions, while middle managers want able, loyal, and diligent
subordinates. Thus, employment in Japan is not simply an exchange of work
for wages. It is also the development of rewarding social bonds, the gaining
of the respect of others, and the establishment of a sense of
responsibility.
Managers develop goodwill and rapport in many ways, from attending parties
with subordinates and taking an interest in their personal and other
problems to participating in company-sponsored trips. The bonds of
friendship and loyalty thus cultivated outside the workplace are considered
to be of the utmost importance to effective administration, and the ability
to develop these personal relationships is essential to advancement. Thus,
in addition to objective performance standards, Japanese managers are
evaluated on their ability to develop and utilize personal rapport and
strong bonds of loyalty.
A Broad Perspective
One important factor underlying the Japanese corporate decision-making
system is the preference of Japanese managers for analyzing problems from a
broad perspective. This is a traditional corporate attitude, and today's top
managers are now training middle managers in this analytic approach just as
they were once trained themselves.
While its philosophical origins are a matter for scholarly research, in
practical terms this preference begins with the employee's commitment to
career-long employment with one firm. All new employees in most Japanese
firms undergo orientation training programs usually lasting between one and
two weeks. These programs are devoted to instructing employees of their
company's position in the market and the larger business world and its
long-term development goals. This approach encouraged employees to
anticipate their future within the context of the firm's growth in a broad
and long-term context, rather than focusing on rapid personal advancement.
By the time an employee rises to middle-management level, he will have
experienced the broadening effects of job rotation through many divisions of
the company and made w wide circle of friends throughout the organization.
He will be very familiar with the system of extensive consultation and
consensus decision making. Hence, it is not surprising that Japanese
managers as a whole have a strong preference for viewing situations from a
broad perspective.
In general terms, this approach to analysis may differ in some respects
from that taken by many Western firms. In the West, careers are usually
structured around specialties, and the ideal manager tends to be an
individual who makes quick decisions based on accurate analyses of hard
facts and who can generate profits every quarter. While Japanese managers
respect the strong points of this business styles, they tend to prefer the
broader knowledge and perspective a group lends decision making. They also
prefer analyses based on a larger number of criteria, including social,
political, and strategic factors and do not restrict themselves to
quantitative analysis alone. Well deliberated and broadly accepted decisions
are aimed for whenever possible, even if the process is slow, rather, than
quick decisions, which are more likely to prove wrong or impracticable.
Finally, Japanese managers prefer to consider the profit potential of a
decision in the long as well as short term.
At the risk of perpetuating misleading stereotypes, one might say that
American businesspeople view decision making as a discrete event, involving
a few crucial facts and people and taking limited time. It is a hurdle to be
cleared quickly and efficiently, without losing the momentum that will carry
the company over the next one. The Japanese managers, however, tend to think
of decision making as a subtle and complex process, involving many facts and
a large group of people of varying importance and having a number of
potential side effects that might turn out to be either highly rewarding or
embarrassing years later. A decision might be likened to choosing a path
leading from a clearing in the forest where it must be decided which paths
might be open and where they may lead. The right direction, in this case, is
more important than speed.
Case Studies of Decision Making
As the preceding comments have suggested, the Japanese approach to
decision making has a number of advantages, including providing channels for
bottom-up presentation of ideas and encouraging sense of participation among
a broader base of employees, thus facilitating the implementation of
proposals. In recent years, however, changes in the operating environment
have necessitated the adoption of new approaches to many aspects of
business. These changes have included the need, both overseas and in Japan,
to delegate decision making to smaller business units, an increase in the
amount of capital needed to expand operations and enter new fields, and a
growing pressure for quick decision making to best take advantage of
business opportunities.
One example of such changes in the operating climate stimulating an
adaptation in procedure is found in the activities of a Japanese beverage
manufacturer. This company's market segment was characterized by relatively
undifferentiated products, slow growth in demand, and stable market shares,
with the company's own share accounting for about 50% of total sales.
One of the smaller companies in the industry, which held a market share of
approximately 20%, decided to alter the taste of its product significantly
after extensive consumer testing and in-house discussion. The new product
proved popular, and that company's share increased about 10 percentage
points, thus reducing the shares of the leading manufacturer and other
companies in the field.
This created considerable concern among the other manufacturers, who
responded by introducing a variety of new beverage flavors. As products
proliferated, however, manufacturers were faced with leftover inventories of
less successful products. The need had emerged for a more efficient
information network that would allow fine-tuning of product introductions,
manufacturing, and distribution.
The leading company decided to invest in an advanced point-of-sale system
linking several thousand stores that sold its product. This system was
designed to provide on-line, real-time data on sales of the company's
products and permit day-to-day adjustments in raw material procurement,
production, and distribution. The introduction of this system enabled the
company to monitor the performance of products on a daily basis and
introduce new products with a minimal risk of overproduction.
This is an excellent example of a change in the operating environment
stimulating a significant change in the company's decision-making process.
By introducing advanced information systems to provide up-to-the-minute data
for its decision-making processes, the need for human judgment and decision
making regarding many aspects of procurement, production, and distribution
was reduced. At the same time, however, the traditional system of decision
making regarding product planning and selection was left intact; however,
because the data available became considerable more current, the decision
process was made faster.
Another example of evolution in the decision-making process among Japanese
companies comes from a large multinational company with a network covering
major markets around the world. This company found that as its operations
grew increasingly global in scope, the traditional system of having most
decisions reviewed extensively by the head office was too slow and
cumbersome.
In response, the company began to delegate more authority to its overseas
offices. The basic process of decision making was retained, but decision-
making authority vested in overseas offices regarding the size of proposed
projects was increased significantly. The results of this change stimulated
a favorable response from customers almost immediately--they appreciated the
considerable greater responsiveness to their requests and proposals and the
greater confidence on the part of personnel.
The company recently introduced this system into its domestic operations,
giving its larger domestic offices located outside of Tokyo increased
decision- making authority. In addition, the company decided to reduce the
number of major divisions within its headquarters from about 100 to only 30
and to introduce a system of interdivisional task forces for those projects
and market sectors that required coordination of the activities of several
major divisions. By reducing the number of operating groups, the resources
available for investment in new areas by individual divisions was expanded
and the authority for final approval of decisions concentrated, yielding
greater speed and responsiveness.
Along with these organizational changes, the company also introduced a
decision-making system that permits managers of departments (which make up
the operating groups) to act as sponsors of ringi-sho after they have
been thoroughly discussed and approved by middle management. Provided these
proposals do not involve expenditure over a specified limit, final decisions
can be made by the general managers of the operating groups.
For projects requiring investment over the specified limit, the ringi-sho
passes to the general manager of the operating group. After his review and
approval, the decision can be made by one of the three top decision-making
groups or individuals: the management committee, comprising senior managing
directors; the investment committee, comprising senior managing directors;
the investment committee, consisting of the general managers of the
operating groups; or the representative director who holds responsibility
for that operating group. The position of representative director in
Japanese companies is held by a member of the board who is empowered to
represent the company on important matters, including major commitments of
funds. In smaller companies, there is often only one representative
director, and the title is equivalent to president. In large companies, the
title of representative director may be held by several senior members of
the board of directors.
As this example suggests, Japanese companies are adapting the traditional
system of decision making while preserving the ringi-sho and process
of bottom-up, consensus decision making; however, by making organizational
changes, they are streamlining decision procedures. This, in turn, is making
it possible for Japanese companies to respond more quickly to local
conditions and proposals and requests from customers.
Analyzing the Decision-Making Process
Despite recent modifications made in response to changes in the business
environment and the introduction of new information gathering and processing
systems, corporate decision making remains more complex in Japan than in
other nations. As noted previously, this is because decision- making power
in Japanese firms is not concentrated in the hands of a few. While ultimate
authority is vested in the top management, the power to make decisions is
diffused throughout upper and middle management to a greater degree than it
is in Western firms.
Overseas businesspeople unfamiliar with the organization and internal
dynamics of Japanese firms are sometimes prone to stereotype them as
mysterious monoliths, but this is neither an accurate nor informative
stereotype. A somewhat more insightful observation is that Japanese firms
are in fact very similar to Western firms in their decision-making processes
and that differences are mainly a matter of degree.
To a great extent this is an accurate view, because similar hierarchical
structures and functional divisions, among other frameworks, are used in
both Japanese and Western firms. But even if differences in corporate
structure are discounted, this view neglects the extremely important
question of Japanese business style--the distinctive way ion which Japanese
managers make these largely uniform corporate structures work.
In general terms, important decisions Involve the input of many sections
of a company, even though final approval is left to top management. What
distinguishes the Japanese system are the formalized structures for making
proposals from below that employees at all levels can make use of.
To move beyond charts or models and truly comprehend Japanese corporate
decision making, it is essential to understand the complex webs of informal
communication and discussion that guide the process. Japanese managers
prefer broad communication networks, and, wherever it is useful, they
consult with a wide range of colleagues about issues. This takes time but
can prevent costly misunderstandings. Japanese managers, particularly at the
middle level, as leaders of their section or department, interpret and
advocate policies from the broad perspective that considerable data affords
them. This means that representatives of outside companies who wish to do
business may have to meet a large number of middle managers and convince
each one of them to accept their proposal. Also, because Japanese managers
are generalists who have been encouraged to develop broad perspectives on
business issues as well as highly practical business skills, they tend to
consider the long-term benefit for their company when making deals as well
as short-term profitability.
Dealing with managers under these conditions can be a frustrating
experience. But this frustration can be relieved by learning about Japanese
corporate decision making and considering how the company being approached
will go about making a decision. This will vary according to the type of
proposal being made--some decisions can be made by upper management quickly,
but many will require talking to middle management and convincing them
first. Analysis of the process, based on the generalizations discussed in
this booklet and information generated firsthand, is essential for knowing
what to expect when approaching Japanese companies.
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