SUCCESSFUL CASES OF MANAGING INNOVATION
                                    
                        ORIGINALITY IN MANAGEMENT

[by] Professor Hidaki Yoshihara - Research Institute for
Economics and Business Administration: Kobe University

Yamato Transport is a company that delivers parcels about the
size of a box for tangerines for ´1,000 and by the next day to
almost any location in Japan. A very precise physical
distribution system covering the whole country makes this task
possible. 

The strategic change of the company from a large volume
industrial transportation to a home-delivery parcel service was
initiated by then managing director, Mr. Masao Ogura, who later
became president and then chairman of the board, a position he
currently holds. (Yamato Transport can be considered as "NTT
(Nippon Telegraph and Telephone) of the physical distribution"
from a macro-economic perspective. Yamato Transport's Parcel
Express Service was inaugurated in 1975.) At first, all directors
opposed the change. But, after exercising considerable
persuasion, Mr. Ogura obtained their agreement and made a
decision to start the new business. Other large trucking
companies, such as Nippon Express, considered Yamato's move as
incredible. 

At that time, trucking companies were actively concentrating all
their resources on long-distance, large volume cargos. Yamato
Transport's decision to change its strategy went against the
industry's main-stream.

Here is another part of the story that can also be considered
unconventional. In 1979, the parcel express business showed some
success after initial difficulties. Yamato stopped doing business
with Mitsukoshi (a department store company) and Matsushita
Electric Industrial (Mitsukoshi had been an important customer
since the beginning of Yamato's establishment) even though the
founder (the father of Mr. Masao Ogura) repeatedly advised
against a decision that would imply a lack of respect towards
Mitsukoshi. 

Further, Matsushita was the company's largest customer,
accounting for 60 percent of total sales at the Osaka Branch.
Nevertheless, Yamato Transport decided to drop these two
important customers.

What was then the reaction of Yamato's competitors? "They're out
of their minds." However, they had to admit later that Yamato's
decision had been right, as the parcel express business
explosively expanded until the present.

Matsushita Electric Industrial's custom-made bicycles... The next
case is that of Matsushita Electric Industrial's Bicycle
Division. This division developed a new business called POS, an
acronym for Panasonic Order System. It is an easy-order system by
which a customer goes to a bicycle shop, orders a bicycle that
fits his or her body structure and, two weeks later, receives the
custom-made product.

This system was created by Mr. Atsushi Komoto, who never had any
relationship with the bicycle division until he was appointed its
head. He was a novice in the bicycle business. Mr. Komoto had
been working at Taiwan Matsushita Electric, and I had had several
opportunities to talk with him. Komoto consulted with his
subordinates about his easy-order idea, but the reaction of all
the veterans at the bicycle division was negative: "We are tired
of that idea. We are already producing order-made bicycles for
professional bicycle racers, but it is not a profitable venture."
People who did not oppose the initiative were cool.

Nonetheless, the new system was a great success. It was accepted
to such an extent that we have a comic book titled POS, written
by Fujio Fujiko, the author of the famous cartoon Doraemon.

Up to this point I have been talking about unconventional
strategies. But this idea of unconventional [approaches] applies
not only to strategies but to other fields as well. For example,
it also applies to personnel management. 

Nomura Securities' self-renewing personnel department... Nomura
Securities' personnel department is also unconventional.
Consequentially, Nomura Securities frequently is a subject of
conversation. The company is famous for the youth of its managers
and a "keep young" management style. At age 35 an employee can
become a head of a branch, at 45, a director, and at 55, a
president. Recently these figures are being further decreased by
two or three years. While conducting interviews at Nomura
Securities for my research on its "keep young" management style,
I came across a topic even more interesting - the two-year
rotation system for the employees working in the personnel
department. (Nomura Securities is a company with approximately
10,000 employees, 5,000 of which are men. The section of the
personnel department that evaluates these 5,000 people and
decides important personnel matters is staffed with less than ten
people.)

The employees at this personnel department, without exception,
are rotated every two years. For example, at one time, the head
of the sales section at its Kyoto Branch was appointed chief of
the personnel section at the head office, located at Nihonbashi
in Tokyo. After working there for two years, he was transferred
to the Hiro-shima Branch as deputy chief of the sales section. In
this section of the personnel department not even one employee
specializes in personnel affairs.

When referring to Nomura Securities personnel practices to some
people working at the personnel department of other firms, I
usually got the following comments: "That is a personnel
department composed of amateurs. In two years one cannot master
all the knowledge required to run the department." As I replied
that the company has been having excellent profitability, they
would answer in return: "Well, it's just a result of good 
luck in the game of zai-tech (financial technology)". "Really," I
would say, and change the subject matter.

I wanted to investigate the matter further in order to collect
materials for a book that I was writing. So I visited Nomura's
head office and talked with the managing director, Mr. Genji
Ashiya, who was in charge of personnel affairs at that time. What
follows is a dialogue I had with Mr. Ashiya, who is now the
president of Ichiyoshi Securities in Osaka.

I asked: "When I talk with personnel people of other companies
about Nomura's personnel department, they say that it is a
department of amateurs. What do you think?"

"After all, Professor, what do personnel people do?" he asked
back.

"Well," I said, "they evaluate employees and make decisions
regarding their positions, promotions and the like." "Who are the
employees?" he asked further. I replied: "In the case of Nomura
Securities, people working in sales offices, and salesmen, I
would say..."

"Who are most qualified to evaluate salesmen and make decisions
regarding personnel matters?"

"Obviously, people who understand sales problems."

"Who are they?"

"They are those who are really selling, aren't they?"

"Therefore, in our company, employees working in sales evaluate
other employees working in sales. What is wrong with that?" he
explained.

I said, "I see."

And then, I asked Mr. Ashiya, "In other companies, factory
employees or sales employees are evaluated by people who enter
the personnel department and stay there for their whole careers,
and who have never worked in the company's operations. Aren't
their personnel management practices irrational?"

"You are right," he answered.

After listening to Mr. Ashiya, I became completely convinced of
the validity of his reasoning. 

"It's absurd" and "I see": key success factors

At first glance, the system by which Nomura Securities rotates
its personnel department's employees every two years looks
irrational. It goes against the conventional wisdom of not
letting amateurs run the personnel affairs of a firm. However,
upon listening very carefully to Mr. Ashiya's explanation, we
cannot do less than say, "I see!"

At that time, I was in the reception room at Nomura Securities
head office. I still remember vividly the evening scene when I
realized that the combination of "It's absurd" and "I see" are
two key factors for managerial success. After that, I re-examined
diverse research materials and found a considerable number of
examples that confirmed my theory.

We have previously discussed that Yamato Transport changed its
strategy completely, and concentrated on the business of
home-delivered small parcels when other competitors were pursuing
with all their might the business of long-distance, large-volume
transportation. Executives of other companies considered Yamato's
strategy as unconventional and irrational. Then, in what sense
was the other factor of "I see" included in the strategy of
Yamato Transport?

Market, know-how and a model - Three points have to be
considered. The first one is that there was a market. At that
time, small parcels could be sent only through the Japan's
National Railways or the Post Office. "Bring it. We'll deliver
it." "Hmm... I've sent it, has it got there?" "I don't know."

Market... That was the situation. An "Uncle Sam will foot the
bill" attitude prevailed and there was increasing dissatisfaction
on the part of the public. Therefore, the first rationale is that
there was a need to be met.

Know how... The second rationale is that the company had
accumulated know-how through the years. Yamato Transport had
become a large company using as one of its main pillars the
business of delivering goods for Mitsukoshi. The company had been
doing home delivery of Mitsukoshi's parcels for many years, and
had accumulated the know-how required to do the home-delivery
express parcel service.

Model... The third point was the case of United Parcel Service
(UPS); it is a successful company for small parcels operating in
the United States. There was a precedent in America; a model to
follow.

Mr. Ogura understood these reasons, so he was not discouraged by
the opinions of outside executives who maintained that Yamato's
strategy was ridiculous.

Then, what can we say about Matsushita Electric Industrial's
easy-order POS system for the bicycle business? In this case the
rationality of the "I see" applies as well. First, we could say
that there were market needs... a trend towards
"de-massification," and personalization, that is, people
disliking being just like everybody else. In recent years this
has been an important market trend and one which is becoming more
intense. So, there was an increasing demand for the bicycles
which fitted customers' individual requirements.

Then, is it possible to manufacture bicycles following an
easy-order system? Yes, it is possible for two reasons. The first
one is related to the information technology revolution. Your
order made at bicycle shops can reach the factory in real time
through facsimiles. 

The second one is that, thanks to flexible manufacturing systems
(FMS), it is possible to manufacture bicycles one by one.
Considering these two technological developments, the
satisfaction of demands in the bicycle market through an 
easy-order system was not so inconceivable.

I have been saying that "It's absurd" and "I see" are two
critical factors for management success. Putting it a little more
formally, the "It's absurd" strategy means an unconventional
strategy. It aims at being different from others. "I see," on the
other hand, represents the rationality of strategy. In order to
achieve success in business, we have to combine two factors:
uniqueness and rationality.

Respected innovation versus disdained innovation -
Unconventionality or differentiation can be divided into two
types. The first type gains the respect of competitors and other
companies: "Ah! What they are doing is very good. It's
beautiful." The second is the type of differentiation I have been
talking about today from the beginning: the "It's absurd"
differentiation. This type of differentiation invites other
companies, including competitors, to scorn and make fun.

There are many instances in which the "It's absurd"
differentiation, which is scorned at by other companies, is more
effective than the differentiation that gains respect. Is this
due to chance? No, I don't think so. Disdained differentiation is
better than respected differentiation, why? There are two
reasons. The first reason is that other companies are slow to
imitate "absurd" ideas. "Ah! What they are doing is very good.
Let's do it, too." This is the kind of reaction prompted by the
type of differentiation that wins other companies' respect. 

In a fiercely competitive market such as Japan, respected new
products such as Minolta's A7000 camera, or Funai Denki's home
bakery equipment are imitated almost immediately by other
companies and a tough competition starts. The originator of the
idea does not even have time to obtain the entrepreneurial
profits.

On the other hand, there will be no immediate imitation in the
case of "absurd" strategies, since other companies tend to think
"That's ridiculous!," "Poor guys..." Only later, when success
becomes quite obvious, the attitude changes to "It seems that
they were right, let's try it anyway." Thus, the company can
enjoy the promoter's profits and, sometimes, can build a strong
position in the market.

The second reason is related with the nature of innovation. What
is innovation? Briefly, innovation means denying existing
conditions, or changing the existing order of things, or values,
or systems. 

How do people react when innovation occurs? The side that is
surpassed, or whose ideas are denied, often reacts negatively and
their evaluation of the new ideas is derogatory: "That's
impossible;" "Nonsense!" "Poor guy...." This attitude is
understandable, since being outdone by others is not pleasant.

Consequently, when a strategy, a product, or a project is really
innovative, negative reactions are to be expected. I do not mean
that all innovations are initially rejected, but it is a fact
that there are many cases of innovations that receive a negative
initial evaluation.

Thus, when you develop something new and upon showing it to your
competitors, or to university professors like myself, you get
derogatory judgements, please relax - it is likely that your new
development is truly innovative. If your case is further backed
up by the rational "I see," it is likely that the two most
important conditions for managerial success are met.
On the contrary, if, upon seeing a new business, product, or
strategy of your competitors, your reaction is "That won't work,"
or "It's nonsense," then, you should be careful, because the
innovation might turn out to be excellent.

History teaches us that this is not only a Japanese phenomenon,
but something that also occurs in the United States and Europe,
where there are many examples of companies that go through
difficult experiences. Upon seeing innovations, they scorn and
call them "absurd" and treat them like toys. And then, they are
defeated by toys.

If someone tells you "It's absurd," please relax, because you are
probably on the road to success. If you tell someone else "It's
absurd," please take your time to think twice about the
innovation you have just seen.

Imitative innovation and seeking advanced models - Some people
think that the type of strategies or management practices
characterized by the "It's absurd" and "I see" expressions can
only be expected from highly creative individuals. Is this really
so? Probably not. Imitation of good models is a good way to
develop creative strategies; this method can be practiced by many
ordinary people. I am using the word "imitation," but, speaking
less formally, I could equally say "answering the test while
looking at the answer sheet," that is, cribbing. Cribbing is an
important method to develop creative strategies.

The world, our society, is not evenly developed. There are
advanced places and backward places. Writing his or her company's
test sheet while looking at the answers given by more advanced
companies is part of a manager's job.

Where are the advanced models? There are basically two sources.
One of them is foreign countries. For Japanese companies, foreign
countries mean the USA and European countries.

As I mentioned earlier, one of the idea sources for Yamato
Transport's parcel express was America's United Parcel Service.
Using my new terminology, we could say that Mr. Ogura, while
looking at UPS, took it as a reference and wrote his company's
answer sheet.

In fact, since the Meiji Era, many businesses raised up in Japan
and many people made fortunes on the basis of answering their own
answer sheet while looking at foreign answers. Before World War
II, people introduced things from Europe that were not available
in Japan, taking into consideration timing and adopting the new
products to local conditions. After the War, the United States
became the model.

The Haseko Corporation... I would like to give you an example.
Haseko Corporation is a large company that builds apartment
houses. The company entered the apartment house business in 1968.
At that time, the company was no more than a medium-sized company
with its head office in Osaka. From that time on, it specialized
in the growing business of apartment buildings and grew very
quickly to become a leading company.

Why did the company enter the apartment building business? In
1960, Mr. Takehiko Hasegawa, then the company president, visited
Europe to attend the International Exposition of Architecture in
Berlin. And he saw apartment houses of several stories. Ah!
Perhaps, this type of construction will become common in Japan's
large cities such as Tokyo and Osaka. He just wondered when?

The first boom of apartment construction coincided with the Tokyo
Olympics, but the buildings erected during this first boom were
targeted to a minority of high-income people. The apartment
building boom for the masses started in 1968. Mr. Hasegawa said
"Let's go now," and constructed the first building at Ashiyahama
in Hyogo Prefecture. Following its first building, the company
specialized very quickly in the business of constructing
apartment buildings.

The Durban Company... And here's a second example. Durban is a
subsidiary of Renown established in 1970 by Mr. Kiyoshi Onoe, who
was at that time Renown's president. Durban is a leading
manufacturer of gentlemen's clothes.

Once, a magazine journalist asked him, "It was a hard decision,
wasn't it?" Mr. Onoe answered: "Not at all, success was
guaranteed. After all, there were precedents." Mr. Onoe's answer
had three parts. The first one was related to the United States
and West Germany. Around 1965, Mr. Onoe started to conceive the
idea. At that time businessmen who wanted to dress neatly wore
tailor-made suits. Ready-made suits were looked down upon. But at
that time, in the United States and West Germany, the proportion
of ready-made suits for gentlemen was already 95 percent. Mr.
Onoe thought, "In due time, the same thing would occur in Japan."

By then, Mr. Kensuke Ishizu had already started a new business of
ready-made suits for the young generation and the diffusion of
these suits grew fast. The change towards ready-made clothes was
also clear in what was Renown's major business, ladies' articles.
While in the past ladies would buy plain cloth and have their
dresses made by a dressmaker in their neighborhood, they had
already shifted their consumption habits and started to buy
ready-made dresses. While looking at these examples, Mr. Onoe
gave the go-signal in 1970.

Is the US still a place for advanced models? I have been talking
about the United States, but recently, due to a series of
problems, people are starting to say that the country cannot
serve as a model any longer. Nonetheless, I believe that it is
not a country that can be disposed of so simply.

I visited the United States last summer and had the opportunity
to think carefully about what I saw there. In particular, I think
that the Americans are very skillful at creating new businesses.
Consequently, we could say that if America is the father of new
businesses, Japanese companies and Japanese executives should
nurture the "babies" and benefit from that. We should think about
this kind of division of roles.

The degree of advancement of Tokyo is a point that also should be
emphasized. It is the capital of the nation, but, more
importantly, it is a world center comparable to New York, London
or Paris. Tokyo has developed to such an extent that, for a
Japanese executive, Tokyo's development is the seed of his
company's profits. Looking at what is going on in that city,
looking at the trends and taking advantage of them is something
that no executive can afford to ignore.

I talked awhile ago about answering the examination sheet while
looking at the answer. The answer, I said, can be found in
foreign lands, particularly in the United States. Moreover, I
have pointed out the importance of a leading city such as Tokyo.
The answer [models] can also be found in an advanced industry.

Previously I mentioned Matsushita Electric Industrial's bicycle
division and its easy-order system. At some point in time, Mr.
Komoto became head of the division. It was a challenging
appointment for him because, generally speaking, the bicycle
business is difficult in Japan. It is a mature business; we might
even say that it is a declining business. The market is not
expanding much, and Japanese manufacturers feel the pressure of
price competition from developing countries. In this context, Mr.
Komoto conceived the easy-order system. Where did his idea come
from?

It came from two different sources. The first one was the ladies'
clothes section in department stores. One day, Mr. Komoto was
walking around the ladies' clothes section in a department store
and saw the following message written on a hanging screen: "It's
not for everybody. This dress is just for you." That message
awakened something in his mind.

The second source was the United States. Mr. Komoto gathered
information on the market conditions in that country. He found
two things. First, 7,000,000 sport bicycles were being sold every
year in the American market. The bicycle was very popular as a
healthy means of transportation. 

In Japan, by contrast, the market size was 600,000 for sports
bicycles per year. Since Japan's population is about half that of
the United States, it was reasonable to expect market expansion
in the future. He further found that in America there was a
recent trend to assemble bicycles with one's own hands: it was a
kind of hobby.

Thus, Mr. Komoto's sources of ideas were the ladies' clothes
section in department stores and the American bicycle industry,
that is, other advanced industries and foreign countries.

There are many examples of companies that write their own answer
sheet by looking at the answers given by more advanced
industries. Perhaps the object that has been most imitated in the
search for answers is Toyota's production system.

Toyota's production system as a model - There is in Osaka a men's
apparel company called Melbo. For a number of years, its
president, Mr. Sadayasu Shimizu, has been trying to develop a
rationalized production process for gentlemen's clothes using
Toyota's system as a model. At Toyota, parts enter the plant and
four hours later a car exits the plant as a finished product. In
a similar way, if a gentleman places an order for a suit in a
department store in the morning, it should be possible for him to
take the product home in the evening. This is Mr. Shimizu's goal.

Kawasaki Denki's story... As another example, let's take Kawasaki
Denki. I remember president Noboru Kawasaki's talk on the fact
that more profits were derived from customized production than
from large-batch production. With the help of a consulting group
called NPS (New Production System), he implemented a customized
production system. 

His decision was strongly opposed by the factory chief and all
his subordinates. But, president Kawasaki made it clear that no
alternative system was being considered, and then implemented the
reform. Contrary to the expectations of those who had been
against the change, production lead-times were reduced by one
order of magnitude, inventories went down rapidly and profits
began to become a reality. 

At Daikin Industries... When I visited Daikin Industries' Sakai
Factory, its head told me that the factory motto was "Abundant
menu, fast delivery. (Small lot production of a large variety of
products and fast delivery)." President Minoru Yamada ordered to
change the system of large-batch production to a Toyota-like
system of production for a variety of articles. In the case of
Daikin Industries too, there was opposition from the factory
chief down to many technicians and foremen. "I will do it
according to my own faith," President Yamada said. Once again,
the new production system worked very well. 

Original thinking - I have so far emphasized cribbing, that is,
answering the examination sheet while looking at the answer, as a
method to develop unique, unconventional strategies that combine
the "It's absurd" and "I see" elements. Nevertheless,
occasionally it is necessary to use one's own wisdom and think
oneself, without depending on already existing concepts.

I have already presented the two-year rotation system applied to
Nomura Securities' employees working at its personnel department.
Where did this idea come from? Was the method being practiced in
other companies? No. Was it explained in some textbooks on
personnel management? No. Then how was it created? I believe that
it is the result of original thinking, of a process of going back
to the basics of personnel management.

What is good personnel management? It is the management that
promotes, and advances employees (salesmen) who are good at their
jobs and who are admired by their fellow salesmen because of
their abilities and performance. On the other hand, what is bad
personnel management? To put it simply, it is something that
leads employees to ask: "How is it possible that this fool was
assigned this responsibility? His performance does not deserve
the promotion." Who can best evaluate salesmen? Probably, those
who have experience in sales can properly evaluate salesmen.

I think that Nomura Securities' two-year rotation system was born
out of the realization that a good personnel department could be
organized by relying on people whose work experience could allow
them to judge the performance of employees; and the only way to
have this arrangement was by rotating field operating employees
into the personnel department every two years.

Global curiosity, nurturing new ideas and historical perspective
- "Many changes originate in the United States." "It is important
to look at Japan from a foreign perspective." These two
expressions belong to Mr. Setsuya Tabuchi, Nomura Securities'
chairman of the board.

Before becoming chairman, Mr. Tabuchi had been president of the
company for seven years. During that time, he traveled abroad to
observe the conditions in foreign countries four times a year,
two weeks at each time. He understands the importance of looking
at Japan from a foreign perspective, because if you look at the
United States today you can vaguely imagine what Japan will be
like tomorrow or the day after tomorrow. In my own words,
"America is the real father of new businesses, Japan is the
foster father."

Last August, when I went to the United States for ten days, and
visited Washington, DC; New York City; Orlando; New Orleans;
Dallas and Los Angeles, I had opportunities to walk around and go
to shopping centers and leisure establishments. In the United
States, new businesses, buildings, and products are born one
after the other. The country excels at creating new things.

However, the United States does not excel to the same extent in
nurturing newly-born businesses. Consider for example the
shopping centers. I was surprised by the novel ideas that I found
there, but the buildings, their interiors, the physical layout of
stores, the way of arranging articles, the toilets' degree of
cleanliness are not as good as in Japan.

I have referred above to how Japanese executives think of
corporate strategies for their firms while looking at the answers
given by Americans. Out of the new businesses born in the United
States, Japanese firms select the most appropriate ones for
Japan, bring them to this country, and nurture them to a great
extent. Japan might not be excellent at creating new things. But
it is excellent at nurturing them.

To give a few examples, cameras, television sets and automobiles
are products born in Europe or the United States, but they have
been greatly improved in Japan, where they were converted into
world-class products. Likewise, supermarkets, hamburger
restaurants and convenience stores were born and developed in
America, but they are being significantly improved in Japan.

I would like to recommend to Asian executives, that you watch
carefully what happens in America and Japan. Looking at the
movements in America, where new businesses are born, and the
movements in Japan, where they are nurtured, useful hints for
creating new businesses in your Asian countries can be obtained.

John Naisbitt, the well-known author of Megatrends wrote:
"approximately 500 years ago the center of world trade shifted
from the Mediterranean to the Atlantic. Nowadays, the shift is
occurring from the Atlantic to the Pacific."

The center of economic activity, particularly manufacturing,
shifted from Europe, especially England, to the United States.
Later, it shifted once again, this time to Japan, and now is in
the process of shifting to other Asian countries. Without a
doubt, this long-term, historical trend is very desirable for
Asians.

Shutting up oneself in one's own small world is not a good thing.
It is necessary to look outside, to look at the great world that
surrounds us. Please watch what is going on in the United States,
Japan and other foreign countries. Look at industries apart from
your own. 

Try to understand historical, long-term trends, and ride on them.
--1990

Copyrighted 1990 the Journal for Quality and Participation
513-381-1979 USA