Management Implications of the Japanese Catastrophe

My undergraduate students were not yet born when the American media played up the supposedly inexorable Japanese economic power.  When, in the 1970s, Toyota began to out-shine GM, and American television manufacturers failed to keep pace with Sony and Sanyo, many in the United States attributed Japan's success to culture.  A foundational work on Japanese culture is Ruth Benedict's The Chrysanthemum and the Sword, which she wrote during World War II at the behest of the United States government.  The Japanese are more collectivist and team-oriented than Americans are.  They tend to put greater weight on loyalty and, like other Asian cultures, on saving face.  Benedict identified indebtedness to others, on and giri, as fundamental to the Japanese ethical make up.  While Americans base their ethics on guilt, Benedict claimed, the Japanese base theirs on shame.  Shame leads to collectivism.

Because of the numerous cultural differences between the Japanese and Americans, many argued that the Japanese firms were successful because of Japanese culture. According to this argument, management skills are rooted in culture. Toyota is successful because the Confucian philosophy underlying much of Japanese culture supports participation in family-like units such as corporations. The strong cultures of Japanese firms result from on and the Japanese's collectivist orientation.  Their firms are better managed because of cultural characteristics that cannot be duplicated elsewhere.

But many Japanese firms are badly managed.
 
Firms are well managed if rationality prevails over politics.  Cultural differences do not guarantee success or failure. Rather, the brokerage of interests within firms and within societies frequently inhibits optimal courses of action.  Experimentation and imagination are the sources of progress, and these threaten the status quo.  The Japanese excel with respect to management systems, but the Americans have been the most innovative nation.  Both approaches, as well as many others, can be successful if and only if trial and error can prevail over custom and political power.

Today we see a tragic catastrophe in Japan.  The Wall Street Journal reports that Tokyo Electric Power Company has mismanaged not only the nuclear reactors that have caused the potential radiation disaster but also the staged blackouts that it is implementing to manage the loss of power.  Radiation fallout has reached Tokyo, although reports are that the levels, though earlier more than twice as high as normal, are not dangerous and are falling.  Nevertheless, the management of the nuclear plants improperly ignored safety standards, resulting in the release of radiation.  Is culture to blame for the power outages and radiation threat as well as lean management and total quality management?  I think not.

The world has adopted the Progressive approach to economic progress. Progressivism advocates large firms that enjoy  economies of scale. Such firms are inherently inefficient and unstable. We have seen this recently in the financial system and the BP oil catastrophe.  Large scale enterprise has significant long term costs that increasingly offset economies of scale over time. Therefore, Progressivism works only with government support, and the support needs to increase over time, leading to socialist stagnation. But there are additional costs to the large scale approach besides the end of economic progress.  Large organizations create a sense of dependency and detract from one's sense of responsibility for one's actions.  A single error, such as Coca Cola's rejection of its traditional formula in the 1980s, can result in catastrophic losses to the economy.  Enron is another example. Progressivism leads to the slowdown in innovation, alienation, and risks of large scale economic crisis and environmental catastrophe.

The involvement of government in the economy becomes increasingly necessary to sustain scale because management inefficiencies get worse in large firms.  They get worse because the lack of competition (due to government protection) permits the accumulation of power centers that do things for their own benefit.  This results in economic decline for several reasons. State support depends on political power. Political power aims to suppress innovation.  Hence, Progressivism forces a decline in the economic progress that generated its possibility in the early twentieth century.

Japan's nuclear meltdown is a function not only of its mismanagement of its nuclear industry but of the entire mercantilist approach that state activist liberals since Theodore Roosevelt and the Progressive era have advocated. Japanese government-supported business caused today's crash in the Nikkei stock market.  The quality glitches and indifference to safety were due to Japanese social planning and its state-supported government.

This is not to say that all Progressive institutions lead to quality reduction. For instance, until the 1980s AT&T provided good quality service.  But over time Progressive institutions decline in quality because the government-created monopolies that they enjoy (through a variety of mechanisms, including access to credit) lead to reductions in competition and ever lazier management.

A Modern Management Parable

H/t Don Rubenstein who e-mailed this:

A MODERN PARABLE . . .

A Japanese company ( Toyota ) and an American company (Ford) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had eight people rowing and one person steering, while the American team had eight people steering and one person rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to four steering supervisors, three area steering superintendents, and one assistant superintendent steering manager.

They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners, and free pens for the rower. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India.

The End.

Here's something else to think about:
Ford has spent the last thirty years moving most of its factories out of the US, claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter's results:

TOYOTA makes $4 billion in profits while Ford racked up $9 billion in losses.

Ford folks are still scratching their heads.
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