Episode #383: How Decisions Are Really Made Inside Japanese Companies

The President of a company is a very powerful force. They drive the direction, the strategy and the culture formation inside the enterprise. In Western corporations, there are big salaries and big incentives tied to the leader’s performance, especially around profit achievement and share price gains for shareholders. We project this idea on to Japanese companies and imagine they are basically built in the same way. This idea seems fine, until you ever have to get a decision from a Japanese company. This is when you enter the twilight zone of differences about how things are really done here.

Japan has some specific features which make the leadership terrain quite unique. Mid-career hires are the norm in the West and the exception in Japan, as far as larger firms are concerned. New graduates are malleable and the company leadership wants to install their group think, culture and conservative action methodologies in them. Seniority is a respected Confucian attribute in Japan, which has little currency in the Darwinian, performance outcomes oriented West. Age and stage make sense in Japan, when you spend your entire career with the one firm and are part of the fabric of that company, gradually being stitched in over decades.

The risk aversion predominance in Japanese business weighs against change and bolsters constancy. We foreigners represent change. To become a trusted partner with a Japanese firm means they have to make some internal changes to accommodate the new thing we bring to them or the old thing we are tweaking in a new way. The question is, who inside the Japanese decision making hierarchy is going to take responsibility for the change. In Western companies there is a big personal payoff to taking risks, but Japanese salaries and bonuses are not on the same planet as a country like America. So, the upside of taking a risk in Japan is far outweighed by the potential career damage if there is a failure.

We have all grown up with a British Raj model of decision making. Convert the leaders and you get the whole company to snap into gear and get with your programme. It doesn’t work like that here unless the President is the founder or the owner. This is the “one man shacho” formula, the classic dictator President, who rules with an iron fist and drives everyone to do what ever they say. Most big corporates though, have a structure where the President has P&L responsibility for the whole company, but the direct reports have P&L responsibility for their part of the business. The President can’t force them to make expenditure allocations impacting their turf without their agreement. Hence the reputation of Japan as the country of glacial decision making. I find this is a bit boring, because the Raj approach is much faster and easier for me. No one in Japan could care less what I want.

I deal with a lot of Presidents, as I try my best “convert the Raj” techniques to get them to buy my training services. Being the President of my firm, I can get access to the senior echelons of the client company and get a hearing. This is where Western logic departs from Japanese best practice. The leaders I speak with won’t personally do anything themselves. The company has internal compliance methodologies to reduce risk and protect the firm. The work to investigate my idea will get sent right down to the very bottom of the pile. That lower level designated officer or tanto will start pulling together information on our company, our offer, our pricing, the market, the competitors, resources required and the prospective ROI.

The tanto will then present that report to their superior, the next up the line, who if they approve it, will place their hanko or personal seal on the document. This is a public acknowledgment that it has passed their stringent evaluation process and they are willing to take responsibility and place it before their superior. The hanko marks on the document will also include any divisions or sections that will be impacted by the buying decision. This is an internal harmonisation and communication process to provide checks and balances. In this way, there are no surprises and no issues, when it comes to coordinating the execution piece.

This process is repeated all the way up to the President’s direct reports who have P&L responsibility to fund the deal. If it is a big enough decision, there may be a senior executive meeting required. This is usually a formality to bless the decision, rather than make a decision. The plan executive sponsor will outline the idea at the meeting, there will be no questions and it is therefore agreed. Next item! The surprising thing is that the President isn’t the final decision maker. And I had such a good meeting with that President too and I thought I had the Raj technique working on steroids!

Actually, the person I needed to meet was the tanto. I could either work with them directly or I could supply the information they required, for them to do their due diligence. When meeting with the President, I need to finish the meeting off, by asking to have my people get together with their tanto, to supply whatever information they need. Japan being such a polite culture, the President will happily make that introduction even if knowing that there is no chance of this deal going anywhere. This is because it conveniently avoids anyone having to tell me a direct “no”. If it has legs, then the tanto’s job is to navigate the decision through the system.

So in Japan, it is better to start at the bottom and work your way up, than try to go top down, as we are more familiar with in the West. The tanto has to become a key messenger for us. If we can’t win over a relatively junior, seemingly unimportant staff member to our cause, then the decision outcome will be remain vague and lifeless. Now we don’t want that do we.