This paper reviews the changes of the business model of big Japanese firms1 over the past 20 years from a perspective that the basic energies of these changes are the vectors for how to pursue total optimization from multiple partial optimizations, equipped with individual missions in firms under a quickly changing domestic and external business environment. It shows that they need further changes in more innovative ways and how the missions of firms and their education and training should be toward the future.
The business world or that of an individual country is not the same with the natural world. In the business world, governments intervene in various ways by legalizing how to compete, charging taxes, supporting the socially weak and setting up lots of artificial barriers which prevent free movement of resources among countries/areas, for instance.
1 I omit to write on some 4.6 million small and medium-sized enterprises in Japan (number-wise, it shares 99% of the total firms), only due to the space restraint. Some 1,500 Tokyo Stock Exchange-enlisted companies are by far influential in shaping the Japanese economy and in the relations with the rest of the world.
But still, similar phenomenon are observed in the globalizing business world as we see in the natural world. Charles Darwin once stated that the winners of the natural world are not the strongest nor the wisest, but those that most flexibly adapt to the changes. It appears most distinctively when the natural environment undergoes dramatic changes, such as the advent of the Ice Age. It may be a bit exaggerated to compare the business conditions when Japanese firms tackled the socioeconomic difficulties for over ten years with the Ice Age of the earth. But, for those who had recorded the best performance for over 30 years after World War II, the "lost decade" looked literally like the Ice Age. They have become slim and reinvigorated in recent years through "sweat and tears" over a long time. What was Japan's "lost decade" like? Is there some similarity in Japan's economic recovery process with that of the US in the 1980s and 1990s?
Wrong financial and fiscal policies on too quick appreciation of the yen-US dollar exchange rate in the latter half of the 1980s,2 the subsequent collapse of the "bubble economy" and the delay of the policy change by Japanese government for "small government" brought about an unprecedented miserable macroeconomic performance. Japan recorded a historically low annual averaged growth rate of only 1% in the 1990s, with continued deflation. Simultaneously, such changes in international politico-economic environment as follows gave the Japanese government, firms and individuals sightless challenges:
(a) Japan's strategic (military) importance to the western world, the US in particular, was suddenly gone when the Cold War ended. In addition to asking for "managing trade" of semiconductors, etc., the US government aggravated negotiations with the Japanese government by asking for a complete structural change3 to realize a "common playing field" by the US standard.
(b) European Union (EU) and North American Free Trade Area (NAFTA), two trading blocs comprising majority of OECD countries, were set up in the early 1990s, leaving only Japan, South Korea,
2 Japanese yen rate per US dollar was appreciated from ¥250 just before the Plaza Accord in September 1985, and reached ¥120 (yen's value doubled) within two and a half years. No other country has experienced such a drastic appreciation.
3 The US-Japan negotiation named Structural Impediments Initiatives (SII) was convened from 1989 to 1990. This SII was aimed at reforming structural problems of both sides, but the US has never completed its promise, to increase domestic savings, for example.
Australia and New Zealand outside. As the business model of Australia and New Zealand is more or less of the Anglo-American type, Japan and South Korea became "stray sheep". Free and open multilateralism gave a seat to a new type of "global regionalism", though one cannot compare it to the pre-WWII "bloc economy". Japan has had to conclude FTAs with ASEAN countries, Mexico, Chile and others.
(c) The Big Bang of capital market had to be done from 1996 to 2001 under the severest recession as scheduled, as Japan wished to keep its capital market internationally competitive.
(d) Japan has had to reform its industrial structure dramatically as China, the most energetic newly emerging country with a population of 1.3 billion, is Japan's neighbor, whose averaged per capita income has been 3% to 5% of Japan's, and the transportation cost from Japan and China is one of the lowest in the world. Although China has offered its expanding domestic market over time to the world including Japan, the pressure for factor cost equalization in labor-intensive and resource-oriented industries in Japan is still amazingly strong. Another neighbor, Korea, also emerged as one of the strongest manufacturers of electronics and cars in the world.
How have Japanese firms survived under such severe conditions? Briefly, they made every effort to restructure and reform (kaikaku), particularly amid the financial fiasco at home as well as the Asian financial crisis from 1997 1998 and the "IT bubble" burst in the US in the early 21st century. It was just the time when the newly-born Koizumi Cabinet began to undergo drastic institutional reform. Japan was lucky in that the world trade has grown fast, which helped its recovery as a state and firms. Now, most of Japan's macroeconomic indicators show that the economy has revived and is entering the normal orbit of business cycle, except still-increasing fiscal debts. GDP growth rates of FYs 2004, 2005 and 2006 were 2.0%, 2.4% and 2.4% respectively. Ratio of current profits of major Japanese firms (some 20,000 firms) vis-à-vis total sales recorded the highest level of 4.5% in the second quarter of 2006 since 1960. Outstanding of the total aggregated value of Tokyo Stock Exchange (TSE)-listed firms as of the end of March 2007 reached ¥556 trillion, almost 100% of the current GDP, nearing to the past peak figure in 1989, which showed a big jump from ¥297 trillion or the corresponding figure of some 60% in 2002, the lowest level after the bubble economy collapsed. The unemployment ratio, which was 5.5% at the worst period in 2002, fell to 3.6% in July 2007. The growth rates of Japan in 2007 and
2008 estimated by OECD as of May 2007 are 2.4% and 2.1% respectively, which are almost equal to those of the Euro Area and the US, if not higher. On top of that, the Japanese economy, which had long grown fast assisted by strong public policy, has been transformed to the private sector-led economy.
It was not the deterioration of their technologies in most cases, but the economic model and corporate business model of Japan simply did not fit with the changed environment that needed drastic reform (kaikaku). Our Project & Program management (P2M) was conceptualized circa 2000 under such a basic question why many Japanese firms equipped with excellent technologies could not raise enough profits.4 Now, a new question is raised in the extension of P2M: how have Japanese firms transformed themselves under harsher global and domestic pressures and continued to raise higher profits? Is there some similarity with the recovery of the US economy and firms in the 1980s and 1990s? And what is the relation between the new corporate business model of Japan and KPM (Kaikaku Project Management),5 the 4th generation phase of P2M?6 Clarifying these questions is the main subject of this chapter.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.