Learning from Japanese companies and Japanese transplants in the United States.
Foreign investment in the United States now exceeds $2 trillion. Foreign companies now have control over more than 12 percent of U.S. manufacturing assets and have employed 3 million U.S. workers. There are more than 300,000 U.S. employees working for Japanese-owned companies in the United States.
Today, many U.S. companies are looking at Japanese management principles and trying to integrate the strengths of Japanese management style into their own management principles.(2) Therefore, it is important for us to identify some of the primary areas in which we can learn from Japanese manufacturing and the Japanese transplants in the United States. In this article, we examine the following four areas: employee relations, management, quality, and strategy.
Within the area of employee relations, there are three subtopics of interest: training, working conditions, and labor-management relations.
Training and Human Resources Development
As business and nonprofit organizations face unprecedented change and a growing complexity of personnel and technology issues, lifelong learning for all employees in organizations has become essential. U.S. plants spend only 12 percent as much as Japanese plants on training in North American plants. A worker at an average U.S. manufacturing plant receives about 46 hours of training, whereas a worker at the GM-Toyota joint venture, New United Motor Manufacturing Inc. (NUMMI), receives about 250 hours during the first six months.
Another example of training commitment is evidenced by the Nissan manufacturing plant located in Smyrna, Tennessee. Out of a total capital expenditure of $500 million, $56 million was spent on training, with almost $30 million of that for training of technicians alone. According to Stanford B. Golden, manager of training and organization development, after producing 500,000 vehicles, the Nissan plant showed two things: First, U.S. workers are just as productive and skilled as the Japanese; second, the plant is one of the most efficient, highest-quality plants in the world.
However, there are definite signs that U.S. plants are making progress toward closing that gap. GM and Ford agreed to set aside $3.35 billion and an amount not to exceed $284 million, respectively, for training programs. At Ford, college classes are taught at no cost to employees. Chrysler is spending $30 million to implement a massive training program aimed at improving the way its dealerships handle shoppers and owners.
Also, Saturn, located in Spring Hill, Tennessee, plans to spend 13 days per employee per year training its workforce. In 1990, Saturn logged more than 800,000 hours training 2,000 to 4,000 employees using an independent training program developed specifically for each worker. Since the spring semester of 1993, many undergraduate and graduate courses have been offered to employees as well as local students at Saturn by professors from Middle Tennessee State University. Saturn has realized that the smarter its employees become, the more they can help the company.
According to the American Assembly of Collegiate Schools of Business (AACSB), U.S. companies spend about $40 billion a year on continuing education and $12 billion on executive education. Further, about $5 billion of that is provided by university-affiliated business schools. Charles Hickman of the AACSB stated that executive education probably represents the largest growth area for business schools across the country. Employee training and development in organizations will need strong top-management support in order to be successful.
Perhaps one of the most significant differences between Japanese transplants and U.S. companies is in the area of working conditions, social and environmental conditions, in particular. In some cases, the Japanese plants have exaggerated their Japanese origins to make the point that they are Japanese companies and things should be done the Japanese way. In other cases, at Nissan for example, there are few cultural references. Japanese personnel are at a minimum.
One major cause of differences in working conditions is the culture. For example, if you ask, "How much time do you spend on training today as compared with three years ago?" a U.S. employee would be likely to make a rough estimate and respond quickly. However, a Japanese employee would be likely to carefully consider the question and collect data before responding.
K. Ishikawa, a quality expert, stated, while speaking about implementing Japanese quality-control practices, that problems related to control and management involve differences of a social nature.(3) He listed 14 distinct areas of difference such as pay systems and religion. He also noted that matters were compounded because in many Western companies managers are not working for the company but for themselves. Western managers seem to change their jobs easily for a higher salary.
Some U.S. companies are also making significant improvements in adopting the Japanese goals regarding working conditions. In 1984, a 99-member team of UAW and GM representatives, the "Group of 99," divided into small groups to visit automotive, manufacturing, and service companies and began three years of intensive research into successful organizations around the world to study world-class processes, organizational structures, and corporate cultures. This group, which established Saturn, concluded that employees did best when they felt that they were a part of the decision-making process.
Saturn uses semiautonomous, self-directed work teams that have responsibility for quality control, budgeting, material handling, hiring, and even ordering some of their own material. Line workers at Saturn who encounter defects often phone the supplier to recommend a fix. Saturn employees have been promised Japanese-style lifetime employment.
The aim is to make the workers feel like coowners with as big a stake in the future of the company as the executives or shareholders. If the intellectual ownership can be increased, then workers are empowered. Their participation in decision making is broadened. They also implement decisions.
In addition to the social or environmental conditions in the company, the question of job criteria such as salary, overtime, and job security are of interest. To reduce the desire for workers to unionize and to avoid accusations that southern workers are being exploited, both the Toyota and Nissan transplant companies tie wages to national car-industry levels, taking an average of pay at U.S. and other carmakers.
The Saturn plant has taken a similar approach. At Saturn, production workers are hired only from within GM's existing ranks. Everyone at the plant is on salary, and the line workers are paid $34,000 per year, as reported in 1990. In addition, Saturn's plan is to have about 20 percent of the employees' base wages at risk, tied to the performance of the company.
The parent Japanese plants are widely known for their policy of "lifetime employment." The Japanese transplants in the United States have also tried to follow this philosophy. Although the no-layoff policy is not guaranteed at a Nippondenso company in Battle Creek, Michigan, a vice president states that "We cannot conceive of ever laying off anybody. We don't even have a policy addressing the issue. It's simply not a part of our system." The two primary methods that are used to allow this strategy to work are (1) keeping between 5 and 10 percent of the workforce as temporary workers and (2) using overtime much more frequently. If demand increases, workers work overtime until management decides the demand is sustainable, and then additional workers are hired.
Saturn has tried to duplicate some of these ideas with their policies. Saturn agreed to guarantee lifetime employment to 80 percent of its workforce, barring severe economic conditions or catastrophic events. In addition, there are no time clocks, no private dining rooms, and no privileged parking. Moreover, Saturn recently allowed anyone who was dissatisfied with the Saturn system to leave with severance packages between $15,000 and $50,000.
There are several differences between the Japanese transplants and many U.S. companies regarding how a plant is run. Given that General Motors, Ford, and Chrysler had combined losses of $7.5 billion in 1991, it is reasonable to conclude the U.S. plants have room for improvement. Stephen Wheelwright stated, regarding plant management strategy, that "American managers view manufacturing operations as necessitating trade-offs between such competing sets of priorities as cost and quality or flexibility and dependability. For the Japanese manager, the issue is not to force an unnecessary choice between cost and quality, but to identify those approaches to quality improvement (as a means) that will help reduce costs (as an end)."(4)
Another difference between Japanese transplants and U.S. companies is the way in which supplier relations are handled. In contrast to many U.S. companies that view their suppliers as a renewable commodity, the Japanese tend to have a much different attitude. The Japanese prefer to treat suppliers as if they were part of a department in their own firms. Design work, ideas, and manufacturing methods are all swapped back and forth.
The former CEO of General Motors, Robert Stemple, indicated that, by 1995, both the salaried workforce and the hourly workforce of GM would be half what it was in 1985, due in large part to the fact that even on U.S. soil, foreign competitors manage their plants better than their U.S. counterparts. In a U.S. plant, it takes an average of 24 hours to assemble a car, whereas it takes 21 hours in a Japanese plant in the United States. U.S. plants average 82 defects per 100 cars, whereas the Japanese have 65.
Some methods that appear to have been successful for the Japanese are process simplification, cycle-time reduction, and continuous improvement activities, otherwise known as "kaizan." An astounding 88 percent of U.S. companies do not regularly use process improvement, whereas Japanese companies typically are relentless in acquiring a thorough understanding of their business practices. In fact, about half the Japanese companies typically use both process simplification and cycle-time reduction more than 90 percent of the time.
Another area in which the Japanese companies have excelled is production-control methods. Robert Hayes described Japanese factories as clean and orderly, with only small work-in-process inventories. He reported that two-week production targets are ironclad and not subject to last-minute changes. He further indicated that there is a "no-crisis atmosphere." These conditions are in sharp contrast to many U.S. plants where "putting out fires" is a common occurrence. Saturn has made considerable progress in the area of production control. It runs one of the tightest just-in-time inventory systems in the country.
In addition to employee relations and plant management, the area of quality is of interest. One of the most basic problems facing U.S. manufacturing, one in which the Japanese have excelled, is quality-control management. In a study conducted by David Garvin on the small, room air-conditioner industry, he found that the poorest Japanese company had a defect rate less than half of the best U.S. manufacturer. Garvin also noted that at 9 of the 11 U.S. plants, first-line supervisors reported that much more emphasis was placed on meeting production schedules than on quality.
A major difference in the quality of products from these two countries is the fundamentally different approach taken to quality. In Japanese companies, quality tends to be "designed in," whereas in U.S. companies, quality tends to be "inspected out."
As Gotthard von Boetticher of Mercedes-Benz noted, 80 percent of a product's quality and costs are determined during the product-development process. The "designing in process" by the Japanese firms also includes manufacturing design. It has been noted that U.S. engineers concentrate on systems and tolerance design and largely neglect the possibilities that exist to improve the product through process-design changes or improvements. Japanese firms have embedded quality into the organization so thoroughly that it cannot always be as easily separated as it can be in U.S. companies.
The Saturn Corporation has gone a long way toward bridging the quality gap. It now produces the highest quality U.S.-made cars, and Saturns have fewer defects than Hondas.
In the competitive race between the companies of different nations, it is interesting to researchers and managers to look at some of their strategies. It has been said many times by U.S. manufacturing plants that the Japanese do not play the game by the correct rules, that they do not play fairly. Much time has been spent trying to get the Japanese to play the competitive game of manufacturing by the rules made in the United States, yet there seems to be little chance of this happening. After all, the goal of a company in business is not to create a "level playing field" as demanded by many U.S. executives, but to tilt the field in its own direction.
Forty years ago, when the United States was the only superpower around the world, it was understandable that the United States could set the standards which everyone else had to follow. But now it is not realistic to think that Japan or any other country should be run by the rules made in the United States. The economic systems that are in place are simply different.
One of the first strategy differences that one might notice between most U.S. and Japanese companies is the different perspective on time needed before showing a profit. The Japanese tend to be oriented toward much longer time frames than are most U.S. companies. This philosophy shows up on the production floor where short-term manufacturing decisions are placed at the service of long-term strategies. The Japanese have traded off short-term flexibility for the more permanent benefits of a strategic operations policy. This philosophy is starting to show up in U.S. companies.
At Saturn, the production workers have the right and responsibility to stop the production line when there is a problem; this is known as "jidoka" in Japan. There is some evidence that the Japanese are starting to take notice. The head of Honda's engine research department, Hideyo Miyano, stated that "We are watching Saturn closely. We are worried and that's not simply flattery."
Saturn no longer is GM's $3-billion experiment in creating a new way to build and sell small, competitive U.S. cars. It has become a major part of the mainstream in the U.S. small-car market. GM even has plans to sell Saturns in Japan, home market of the car's most formidable rivals.
So far, no Japanese carmaker has been able to 100-percent reproduce its native strengths abroad. (Although they have been very competitive due to other strengths.) Until the long supply lines are shortened by increased local sources and other changes are made, it is unlikely that they will be able to do so. Therefore, the long-range Japanese plan is to have a full range subsidiary in the United States and one in Europe. Each will design and build cars to suit the local tastes. If they are successful, they have a chance to overtake General Motors and Ford in a decade or so.
Because of that possibility, it is important for U.S. managers to consider carefully what actions should be taken and then to take them quickly. Joshua Hammond, president of the American Quality Foundation, noted that "the performance level that Japan has achieved in numerous quality practices and the exponential plans Japan has for integrating the voice of the customer in strategic planning are greater than expected. National parity will come only if the existing rates of increase in management practices across the board in other countries are rapidly accelerated."(5)
Many suggestions for U.S. management have been given. Ishikawa stated that top and middle management must put an end to elitism and promote industrial democracy.(6) He further maintained that management must regard distributors and subcontractors as friends, and not enemies, so that mutual prosperity will be obtained. Companies must reconnect with the workers and adopt a new management philosophy that emphasizes shared values at all organizational levels. Major corporations have entered a period of competition that requires of them a technology-driven strategy, a mastery of efficient production, and an unprecedented capacity for workforce management. However, Joshua Hammond reminds U.S. management that in the rush to implement changes, one should not forget to separate the "why" from the "how." U.S. management needs to be sure that the "how" is based on U.S. strengths, peculiarities, and idiosyncrasies. If this is done, the greatest strategic business payoff will be achieved.
AN INSIDE VIEW
Jerry Lee Davenport, Jr., coauthor of this article, has worked for Tennex Industries, a Japanese-owned company in the United States, for more than seven years and has made two business trips to Japan. He also has previously worked for several U.S.-owned manufacturing companies. The following observations are made based on his personal experiences in the application of many of the concepts and management techniques mentioned in this article.
As in many U.S. companies, employee training has more to do with the particular Japanese company and its management than the fact that it is a Japanese company. Although, in general, Japanese companies do expend more effort to make sure that the information makes it all the way to the people that are actually doing the job. In addition, the information in Japanese plants is often put in a format that is easy for the operator to understand. This information is much more likely to be in the form of a sketch or a flowchart than simply typed-up instructions.
One area of possible weakness in Japanese companies is in the follow-up and enforcement of the use of the instructions and training materials. It seems that it is simply expected that operators will do what they are trained to do. There seems to be little experience with how to handle the situation if they do not. Therefore, at times, situations that are detrimental to the company may be left to fester for a long time. It is plausible that some U.S. workers still have the mentality that quality needs to be "inspected out" in the process.
In terms of working conditions, the physical office space in a Japanese company is very open. Although this allows for an efficient and easy dispersion of information, communication methods must be adjusted to cope with having no interior walls. Again, this may reflect the differences in work-related culture and attitudes in that U.S. culture prefers individualism, whereas Japanese culture favors collectivism.
Also, the decision process can be painfully slow. Usually by the time a decision is made, everyone already knows at least the basics behind it so it is implemented relatively easily. There is also a consistent effort on the part of the Japanese to try to make the employees feel ownership in the enterprise. Unfortunately, a conflict exists that the Japanese do not seem to realize; they are sometimes very reluctant to give up decision-making rights. Of course, this conflict, despite efforts to indicate otherwise, makes it apparent who the actual owners are.
The policy of not laying off people is also strong at Tennex. This is very comforting for the employees. The price that is paid is often long periods of overtime and difficulty in finding and keeping adequate temporaries, as they are needed on an almost constant basis. In general, it has been felt that pay at Japanese-owned companies is somewhat less than what can be obtained with U.S. companies. This may be viewed as one of the chief disadvantages of working for a Japanese-owned company.
Regarding quality, no matter who owns the company the objective is at least to make enough money to remain in business. Therefore, it should not be a surprise that in Japanese companies economic considerations come strongly into play when making quality decisions. Much is written about the amount of time that Japanese companies spend in proactive activities to prevent problems. This has been true, based on our observations. However, there are still unexpected events that are very difficult to solve. Regarding product design, there is usually considerable effort expended and meticulous consideration given to the effects of quality when designing and redesigning products.
One downside to this careful consideration is excruciatingly slow reactions to and implementations of seemingly obvious improvements to the product. There have been cases of it taking over five years to implement straightforward product improvements, and then, only on insistence by the customer.
One strong point in the Japanese way of handling business is the way suppliers are treated. The Japanese generally treat their suppliers as if they were part of a department in their own organizations. Once a supplier is picked, if the supplier desires, there are many opportunities to improve. The larger the Japanese company, the more this is true. Regrettably, if the supplier's attitude is one of "mind your own business," then the relationship can become strained. However, as long as the supplier maintains competitive pricing, with excellent quality and delivery, the help is not forced on the supplier.
Another strong point in Japanese companies is the practice of continuous improvement. Many Japanese are relentlessly improving the operation in small step-by-step increments. Like compound interest, the effort adds up to huge dividends over time. On the other hand, in general, it seems that most U.S. companies have the "big score" philosophy. The big score is much more glamorous and fun than the drudgery and discipline needed to maintain consistent continuous improvement. In addition, because it is easier to give some particular person credit for a big score, while the small step-by-step incremental improvements are more of a team effort, U.S. employees may be predisposed to try for a big score from a personal point of view.
We do not believe that the process of developing strategy in Japanese companies is much different from that in U.S. companies. However, the time horizon is different. The Japanese have a longer outlook. We believe part of this has to do once again with discipline and the relative amount of wealth felt by the U.S. and Japanese companies. For example, as an analogy, it takes discipline for each of us to save for personal retirement. However, it seems to become easier as we feel richer. As business conditions have worsened for the Japanese, it is plausible that there is more of a tendency to put a higher priority on the short term. Many times, this is at the expense of the best long-term interest of the company.
In summary, there are actually many fewer large differences between Japanese and U.S. companies than most people generally think. There are, however, several areas of differing priorities and emphasis that cumulatively are significant. These differences cannot be easily distinguished or discerned by reading about them. They must be directly experienced over a long period of time to find their nuances. However, after being studied and understood in detail, they can be selectively applied where advantageous.
1. S.C. Harper, "Now the Dust Has Settled: Learning from Japanese Management," Business Horizons (July-August 1988) pp. 43-51.
2. Jim D. Rhody and Thomas Li-Ping Tang, "Learning from Japanese Transplants and American Corporations," 24 Public Personnel Management 1 (1995) pp. 19-32.
3. K. Ishikawa, "How To Apply Companywide Quality Control in Foreign Countries," Quality Progress (September 1989) pp. 70-74.
4. R. Handfield, "Quality Management in Japan versus the United States: An Overview," Production and Inventory Management Journal (2nd Quarter, 1989) pp. 79-85.
5. T. Benson, "Challenging Global Myths," Industry Week (October 7, 1991) pp. 12-25.
6. Ishikawa, cited in note 3.
Jerry Lee Davenport, Jr., is a senior product design engineer at Tennex Industries. He joined Tennex Industries, a Japanese-owned transplant in Murfreesboro, Tennessee, as a product design engineer in 1988. He has earned his American Society of Quality Control Certified Quality Engineer status. Before joining Tennex Industries, he worked as a supervisor at Carter Automotive Products, a division of Fortune 500 Federal Mogul, in Lafayette, Tennessee. Thomas Li-Ping Tang, PhD, is professor of management in the College of Business at Middle Tennessee State University (MTSU), Murfreesboro, Tennessee. He has taught Industrial and Organizational Psychology at MTSU and at National Taiwan University, Taiwan, Republican of China. He has published articles in behavioral science and management journals and was the winner of the Outstanding Research Award by the Middle Tennessee State University Foundation. The authors thank Melissa McCann for her assistance.
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|Author:||Davenport, Jerry Lee, Jr.; Tang, Thomas Li-Ping|
|Publication:||Employment Relations Today|
|Date:||Mar 22, 1996|
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