Management as Technology Long-run Change in Management Patterns in Japan

1. Management as TechnologyLong-run Change in Management Patterns in Japan 三菱銀行財団主催の経営学会 逗子・湘南国際村2006年8月 スミツカ・マイク Mike Smitka

2. Background to Paper • An initial paper in the late 1980s on the transfer of management to the US auto industry tried to grapple with why there was much change in some areas but none it others • Now beginning a project trying to ask what has changed, and what has not, in the Japanese economy during the last 2 decades • Also have paper on post-bubble change in Japanese auto industry, very slow and backsliding whenever market turned up briefly, just as with Big Three • Have presented but not published, plus don’t have data for 2005, decided not to use here

3. Understanding Change • Economists very bad at it • Differential equations (or worse) • So “comparative statics” as fudge • Is management better? • Esp for strategy, changing organizations is pretty important • The literature I know finesses the issue • Organizational ecology: no change • Resource dependency: complete flexibility

4. Models • Dilemmas • Models must be simple to be useful • But compared to physicists, our reality is complex • Also pressure to use formal statistical analysis • Can we define “organization” or “institution”? • Can we measure features thereof, to be able to speak empirically of change • As an economist, I’m trained in the weaknesses of statistical analysis • Qualitative “data” -- case studies -- are OK!

5. Science Invention Risk Cost Appropriability Development (difficulty to patent) Refinement Outline of modelthe technology literature version • Can we find analogous typologies for organizations? - I’m not sure we can

6. History as source • With apologies to Hikino-san, I sometimes play at business and economic history • Typologies, and potential for change • Labor story well known, Gordon and others • cf. Chiaki Moriguchi on lifetime employment in US • Moriguchi Chiaki and Ono Hiroshi. 2004. “Institutional change in Japan: Japanese lifetime employment: A century's perspective.” • System sensible initially, ill-suited now, but still very evident at the core of large firms • Will therefore skip here

7. Historical context • Finance developed in the context of: • postwar reconstruction • high growth • US financial regulation model • Financial is logical response to environment • Corollary: not peculiar to Japan • As a social scientist, using “Japanese” as an adjective is a denial that my training has value! • So I prefer “management in xxx in Japan” • I try to avoid the phrase “Japanese management”

8. environment • U-type (unitary, single-product-line) firms • Decision: expand what we’re doing or not? • If expand, borrow • Can use rules-of-thumb, market share, returns relative to rivals, etc • In context of high growth, finance-constrained • Banks could pick & choose • Credit analysis not helpful • High variance environment • Could use same signals, more timely too • Use collateral, send in managers when problems • With high growth, ex post measures work

9. Firm side, again • Firms did not need sophisticated finance • Question wasn’t whether to borrow • Question was how much banks would lend • ==> Finance a low-profile clerical function • Being head of personnel guaranteed a high executive slot • Being head of finance was a dead end

10. Finance today • For banks, no longer workable • Rules-of-thumb failed • Collateral lost value • For firms, no longer workable • Multidivisional • Low- and negative-market growth • Need say “no” to expansion • Or even exit

11. Can old dogs learn new tricks? • Banks • Still little evidence of differentiation in risk-adjusted interest rates • Other measures? -- I have no data • Organizational structure within banks • Political clout within banks • Information flows to banks • Premised on credible accounting at customers! • My guess: improved, but only among younger bankers • Needs generational change

12. firms • Even more problematic • Except at trading firms? • Poor internal data for decision making • Book-keeping not sophisticated? • Implies vast shift in power structure • Senior managers more numbers-oriented • Finance / accounting functions outweigh personnel • Why bother? • Challenge contracting, not expanding, where personnel other functions central • Stakeholder forbearance

13. Adding framework • Lots of change in low-level routines • Computers instead of addition machines • Significant investments in hardware and human capital over time, with fairly • Very little change in “basic” strategic direction • Lots of organizations seemed destined to exit rather than change

14. Intermediate • Computers instead of adding machines • But work flow in bank branches seems no different than 30 years ago • How common is “refinement” on the basis of change elsewhere • Implicit: flow from refinement ==> development • What might be analog for “refinement”?

15. Science Invention Risk Cost Appropriability Development (difficulty to patent) Refinement Modified framework Strategic direction mimicry common Organizational structure risk cost ease Integration of low-level routine of Change in low-level routine copying mimicry common Not transparent?

16. Intermediate • New strategic directions as analog to “invention”? • Lots of discussion in financial world • Creation of subsidiaries • But little integration with larger firm? • Low fee income despite passage of time • But maybe a function of regulation, not what firms wanted • Sense that less “innovation” • If “refinement” is hard, then returns to innovation are inevitably low • If financial tools poor, how argue that expansion of new operations should be a priority?

17. Better examples? • Retail sector • Firms with lots of innovations, but no ability to sort among and replicate • Daiei • Seibu, other railroad-linked retail “empires” • Firms with lots of innovations, but have handled better • Seven & I • Aeon

18. Help! • What work on institutional change within management and OB literature? • Lots of “how-to” books, but unhelpful… • Can we develop typologies intermediate between “firm” and “routine”? • Is the finance story here new, and if so, worth telling? • Change costly & risky, yet sometimes occurs • If not then what is role of us academics?