Entovation International - Knowledge Sun Rising in Japan

Given the extraordinary economic success of Japan in the 1980’s, the knowledge agenda is no secret to the Japanese. Indeed, the roots of the movement in the United States are based in the relative technology transfer – redefined as Knowledge Exchange – between the two nations. In fact, the Asian roots are a tribute to Ikujiru Nonaka and his student Hiroyuki Itami, author of Mobilizing Invisible Assets (1987). However, with the economic downturn described as the "Bubble Economy" and the Asian financial crisis, Japan has been rather invisible in the worldwide knowledge circles; but the dawn may now be approaching.

Under the leadership of Eiko Kouno, President of Recruit Co, Ltd, and Yukio Okubo, Head of their Works Institute – http://www.works-i.com, a research team directed by Reika Sho organized a 3- month project resulting in a forum of nearly two hundred managers representing almost as many Japanese firms in a Symposium entitled: "Intellectual Capital Management." The event featured an entire issue of the Works Journal dedicated to the topic as well as three case study videos expertly produced featuring leading examples of Human Capital programs in action.

In the opening remarks, Recruit leadership outlined their definition of Intellectual Capital – complete with a corporate value enhancement model illustrating the interrelationship between Human, Relational and Structural Capital. At the heart is the distinction from and relationship between the ‘Knowledge Worker’ and the ‘Knowledge Community’ with Human Capital Management (HCM) – the next generation of Human Resource Management in organizations. Mr. Okubo asked the audience "How will Intellectual Capital take root in the Japanese society?"

Based upon US State Department Notes, Japan operates as a Constitutional Monarchy and is the second-largest economy in the world after the United States. It has a reservoir of industrial leadership and technicians (67 million workers), well-educated and industrious workforce (99% literacy), high savings and investment rates, and intensive promotion of industrial development and foreign trade that have produced a mature industrial economy. While Japan’s long-term economic prospects are considered quite good, Japan has been experiencing its worst recession since WWII. Of particular note is the significant multi-billion dollars of direct foreign investment to China, Taiwan, South Korea, Russia, the Middle East (including Palestine), Africa, Latin America, Eastern and Western Europe – not to mention leadership in the Gulf War. In fact, they are noted as the world’s largest aid donor ($9B+) since 1989.

It is interesting to note, however, that there are some discrepancies in recent reporting statistics that show Japan rated #1in terms of technological innovation according to recent Michael F. Porter analysis; but they are listed as last (i.e., #46th) in terms of educational application in recently published IMD studies. Noted economists, such as MIT’s Rudi Dornbush have little faith in the future of Japan’s positioning as articulated in a 1998 Convocation, but Peter Drucker – in conversation with Isao Nakauchi – in a book called Drucker on Asia (1997) suggests that "…within the next twenty or thirty years Japan will develop a vigorous social sector of their own." This "social sector," far more than government or business, represents the traditional values of a culture. It represents the traditions and values of the local community. The book further outlines the shift from government as the leader of the people’s society to one of the assertion (or contribution) of every Japanese citizen.

Also of note, Recruit is featured as a young company with a corporate spirit of freedom and magnanimity. Their corporate philosophy, rare in Japan, stresses the individual ability of each employee…Innovative ideas and proposals from younger employees are actively utilized." This is consistent with the notion of the "unit of one" that was researched at Digital Equipment Corporation in the 1980’s and is now prevalent in the knowledge literature.

They were vivid examples – complete with video interviews – some of the best I’ve seen.

First, the Skandia Futures Center (Vaxholm, Sweden) was featured as it has been in nearly every industry example. What was unique about the Japanese treatment of the video was likening the concept to the ‘Ba’ described by Ikujiru Nonaka I the California Management Review (Spring 1998). Through a series of interviews, Skandia managers were able to outline precisely how individuals can produce value and how that value can find itself to the bottom-line. With a focus on the environment, auditors can spend more time on success factors than documenting indicators of cost. This is the structural way to look at many complex variables. This is not dissimilar to what the ‘Ba" environment provides for the conversion of tacit to explicit knowledge.

Leif Edvinsson (now with UNIC) in his follow-up presentation suggested that the Knowledge Economy is raising the bar on innovation – as companies and as nations. Now a professor of Knowledge Economics, Leif described the new economic rules. 1+1=2 is industrial mathematics. 1+1=11 is holistic mathematics – capitalizing upon the combinatorial factors outlined by M’Pherson that were described in Creating the Knowledge-Based Business - http://www.entovation.com/backgrnd/practice.htm. "Unless you take advantage of driving for the 9 differential, you will lose the future in seconds. Measurement systems should be based upon the business potential by calculating resources for the future often found outside – not inside – an organization."

Second, Michio Matsui, President and CEO of Matsui Securities Co., Ltd., explored the evolution of the company which now enjoys a top ranking in the number of on-line trading transactions in contrast to 5 years ago when it was ranked only 30th. What might be some of the secrets of success for an 80-year old company who within the last 10 years has transformed itself and may be providing leadership for the industry?

In 1998, Matsui became an on-line broker and no longer provides other financial products. The customer target is the individual investor who wants to trade stocks at a low commission without receiving any investment advice. Although the President appears to be making all the decisions, in actuality – the employees connected by a LAN are involved in the decision-making mechanism that is agile and takes advantage of accumulated knowledge. In short, Matsui’s innovation capability – idea to action – enables a new rate that is one-third the existing rate. With an innovative "box-rate" system – modeled after Disneyland (USA), they have been able to provide a unique and distinctive competence to the market and capitalizing upon unexpected and lucrative trading volumes.

The company has been able to realize significant success by implementing some of the core concepts of the Knowledge Economy:

The decision-making mechanism is fast, vast and simultaneous
All employees are considered knowledge-workers, responsible for expanding the company’s information-base.
Accumulated knowledge becomes the source of accountability to customers. There are no branches or sales representatives. The support center handles all customer inquiries.
One potentially risky decision was to eliminate customers who were not interested in the company’s new product direction, rather than the reverse, which is ordinarily the case.
Matsui’s human capital is its employee base and the knowledge thereof. It’s relational capital is its customer base and the structural capital is the decision-making mechanism.

The company is an excellent example of the new Knowledge Value Proposition that balances the economics, behavior and technology in ways that benefit its constituency.

Third, Mirai Kogyo (translated Future Industries) was the third video featured. This company originating in 1965 is a lead organization with a late entry into the electric equipment and parts market. The corporate principal – "Always Think" – is displayed in every corner of the buildings and company literature. The company enjoys more than 1,600 patents with an impressive 30% market share. In contrast to Matsui (above), this company caters to customers providing many products to customers that do not even reap a profit. Regardless, the company maintains a gross margin and operating profit of significant levels – 40% and 18.5% respectively.

Mirai Kogyo has managed to transform what might be considered as a guideline into an operating principle and the corporate culture.
Mirai believes that fewer rules is better in order to concentrate on the core principle.
Mirai always thinks of the needs of their users, equipment constructors and installers (i.e., the Strategic Business Network) simultaneously. They gather information (and knowledge) directly by visiting them on site.
Mirai promises next day delivery even though such products may be manufactured at a loss.
Company employees are rewarded $4.50 for each new idea proposed. Each year, nearly 10,000 proposals are reviewed.

These three examples are diverse illustrations of how the concepts and principles of the Knowledge Economy can be put into practice with significant economic benefit for companies willing to experiment with new management methodologies.

In the closing panel, it was the first time in the evolution of the 13+-year knowledge movement that Ikujiro Nonaka, Leif Edvinsson (notably the first CKO) and Debra M. Amidon shared the platform. The essence of the dialogue was too robust to share here; but a request was made for the video to be made available in English and at that time will be outlined for ENTOVATION^® readers.

In separate meetings, we were able to speak with ENTOVATION^® colleague, Dr. Akira "Stoney" Ishikawa who is featured on the Global Knowledge Leadership Map and participated in Global Learn Day IV - http://www.entovation.com/whatsnew/learn-day-entovation.htm. Chairman of the International Exchange Committee of Aoyama Gaknin University, he published an article – "Framework for the Intellectual Olympics" - in the Journal of International Politics, Economics and Business (1998). The concept originating in Japan in the 1960’s (i.e., almost 35 years ago) provides for a well-balanced development of the physical, spiritual, technical and intellectual power of humans. "Knowledge and intelligence need to be used and widely shared for the sake of sustainable development of this our global village."


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