Episode #192: Staff Shortages Change The Business Dynamic Entirely

We are running out of young people in Japan. Covid has slowed down some major structural changes which must happen. The implications of staff shortages are dynamic for Japan. Let’s explore some of these in today’s show.

There is a great Simon Sinek video floating around about how companies say employees are important, but don’t really act like it. He lines up the typical CEO hit list of growth, shareholder value, customers and in fourth place, employees. He notes that even if you elevate customers to number one, employees still come in second in importance. Richard Branson is also a powerful advocate for putting employees first before all else. It makes sense. We want motivated, enthusiastic staff engaging with our customers and going the extra mile.

In many ways, Japan has long had a different order to Anglo-Saxon corporate philosophy. Workers first, then customers and shareholders last. Can we learn anything from Japan’s corporate traditions on how to put workers first?

This system worked fine in an environment of lifetime employment, low growth protected by interlocking shareholdings and price fixing through the dango or cartel system. The foreign ownership of Japanese company shares and the expansion of so many businesses outside of japan has changed things and put more pressure on showing revenue returns. The customer has remained a constant in all of this change though, because culturally, the buyers have very high expectations that must be met.

We can’t rely on importing the Japanese nenkojoretsu system of steady escalator career advancement based on seniority and age. Many Japanese companies still have this system, but today talent is in short supply. In a global economy, awash with disruptive and competitive technologies, waiting for the best and brightest to become older in order to be given their leadership shot is an opportunity cost you don’t want to pay.

These old style Japanese companies often still focus on OJT (on the job training) and technical training alone, for developing the talent base of their people. That is a slow burn into oblivion, when your competitors are laser focused on quality world class training to improve their people’s performance.

Technology makes such a big difference today. President Sugihara of Oracle Japan made the point in a speech to the American Chamber, that rather than thinking that technological efficiencies will cause people to lose jobs, it will instead increase the productivity of the whole existing workforce.

In the past, with a worker surplus, there was no company impetus to work hard to keep people. Japanese risk aversion preferences also kept people in jobs they didn’t really enjoy, because they were scared of having no job and of having a tough time finding a new one. Mid-career entry rarely occurred in the bigger firms.

After the Lehman Shock, Japanese companies moved to creating a lower risk work environment by employing more and more people part-time. The thinking was, if the economy tanks again, it will be easier to fire these part-timers than regular employees. This was seen as a positive, a stable buffer against future unknowns.

The economics of this has led to a decline in consumer spending, the inability of part-time working men to find wives and start families or move into better paying work. The Japanese government was stepping in to force companies to change. They are looking to end the discrimination between the wages and conditions of permanent and non-permanent staff, restrict the use of fixed term contracts and prevent successive renewals of fixed term contracts. In other words, remove the labor liquidity attraction of using part-time workers in preference to full time staff. Covid has put all of this on hold, but it will start again because it has to.

The demographics of less and less young people coming into the workforce will mean labor shortages. Women re-entering the workforce and older workers continuing on working will be preferred to the perceived social disruption of having immigrants come in substantial numbers. The uninvited mass migrations to European countries are seen as a negative example by most Japanese and will make the whole immigration argument harder to promote.

Retaining staff will become harder. Recruiters will have a field day, searching for talent to lift them out of their current firm and place them elsewhere. Automatically, this worker shortage will swing the pendulum to placing workers first above shareholder value and customers. However, we are not going back to the cushy old days of “who cares about shareholder value and corporate performance”, but people will be again at the forefront of company business plans.

Do we have a middle management skillset able to retain our most talented people? Have we replaced the elevation by age and stage with performance evaluations which identify, inspire and mobilise the talent. Do we have the right training in place which will actually lift staff productivity. The soft skills are where the big gains will come from, as we better lead our teams, engage them, motivate them and keep them. This time around, the workers can more easily vote with their feet and leave. Are we ready for the revolution?