The New Art of Japanese Innovation

During the 1990s, dubbed Japan’s “Lost Decade,” the Tokyo Stock Exchange crashed, real-estate prices peaked, and growth plummeted, from 10 percent per year in the 1960s to a limp 1.5 percent.

In the new century, the global financial crisis stymied a brief and unconvincing renaissance: the Japanese economy contracted by 1.2 percent in 2008 and 5 percent in 2009. More recently, Japan lost its place as the world’s second-biggest economy. Worse news is anticipated: The country’s population is becoming older and smaller; by 2050, its working population will be less than that of 1950.

To this can be added the travails of some of Japan’s biggest corporate names. Sony was seduced by Hollywood and has had limited success ever since. Even more dramatically, at the moment Toyota passed GM to become the world’s largest automaker, its metaphorical wheels came off with wide-ranging questions about the quality of its products and processes — the very things that had made it great and been revered by Western manufacturers.

And yet: Visit Japan, and you are struck by the wondrous organization and efficiency of the economy.

Things work. Quietly. It doesn’t feel like a place on the skids. Luxury goods still fill the storefronts of Tokyo’s Ginza shopping district; bars and restaurants are packed. Many have criticized the Japanese—fairly—for burying their heads in the economic sand, but conversations with the country’s business leaders carry a down-to-earth tone. They sound as though Japan’s economic upheavals have left them wiser. There is a sense of realism, a feeling that the practices that worked so well in the ’70s and ’80s need to be re-examined and updated rather than consigned to history.

The new art of Japanese management we identified has a number of key elements, but at its heart is the Japanese appetite for innovation:

It begins with customers—still. In his work during the 1980s, the Japanese thinker Kenichi Ohmae noted that the customer was at the heart of the Japanese approach to strategy and key to corporate values. “In the construction of any business strategy, three main players must be taken into account: the corporation itself, the customer, and the competition. Each of these ‘strategic three C’s’ is a living entity with its own interests and objectives,” Ohmae wrote. This was an eye-opener for Western executives who had focused on the linear lines between corporations and competition rather than on Ohmae’s “strategic triangles.”

In the Western corporate world, processes that give customers a voice, such as open innovation and crowdsourcing, remain the preserve of the experimental few. Customers are generally regarded as unreliable guides: They do not know what the technology is capable of, so how can they tell you what they want or would like? As a result, companies have emphasized retaining talented individuals rather than attracting and retaining high-spending customers. Indeed, many businesses are now based on accepting high customer turnover rather than looking after existing customers.

In contrast, the best-run Japanese companies are old-fashioned in their adherence to the edict that customers come first. In a week of talking to senior executives, we never heard one speak of shareholder value or ROI. Instead, all talked about the vital importance of staying close to customers. Even seasoned executives calculated that they spent 40 percent of their time with customers.

Growing up together. “The relationship we have with our customers is like your daughter going to marry into another family,” observes Fujitsu corporate senior executive VP Kenji Ikegai with a laugh. “We don’t develop a system and then deliver it. We have to be a partner, and our focus is always on that partnership. It is all about understanding the real value of what our technology delivers.” And it is only by being as close as possible to customers that this understanding can be built and developed.

Key to this is the realization that customers are not static; each customer is a growth opportunity. But this does not mean trying to squeeze more sales out of each account. The win-win hope is that as customers grow, your company will grow alongside them. “We have a track record of working with Japanese companies, and there is an opportunity to grow with them—and our other customers—as they globalize. As companies expand, they need to use systems which are consistent, which they are familiar with, and which can receive high levels of support worldwide,” Ikegai says. The message to customers is that the supplier will grow as you do. Win-win.

The questions for Western leaders are clear: How much time do you spend with customers? With which customers are you growing your business?

Embracing mavericks. Ohmae’s The Mind of the Strategist reached America in 1982. It had been published in Japan seven years earlier, but at that time few in the West were interested in how Japan did anything. Ohmae pointed out that unlike large U.S. corporations, Japanese businesses tend not to have large strategic-planning staffs. Instead they often have a single, naturally talented strategist—often the company founder—with “an idiosyncratic mode of thinking in which company, customers, and competition merge in a dynamic interaction out of which a comprehensive set of objectives and plans for action eventually crystallizes.”

For all the apparent order of the Japanese approach to business, the Japanese have a history in which the innovative maverick is supported and given relative freedom. The great Japanese corporations of the last century often trace their lineage back to such figures: Sōichirō Honda; Akio Morita and Masaru Ibuka at Sony; Sakichi Toyoda at Toyota; Iwasaki Yatarō at Mitsubishi; Konosuke Matsushita at Panasonic; Toshio Ikeda, the creator of Japan’s first computer, at Fujitsu.

Problem-solving. In talking with Japanese managers, there is still a sense that for all the outward conformity, theirs is a meritocracy of ideas. Problem-solving is revered. Managers in Japanese corporations’ foreign outposts have told us how surprised they are by the relative freedom they are accorded to sort things out. The message is that just doing it is absolutely fine, so long as it delivers what customers want.

The assumption among Western companies—even fashionable and innovative ones—is that they give employees the flexibility and space they require to make things happen. In too many companies, this is assumed rather than reality. Does everyone in your organization have the freedom to solve problems when they directly impact customers?

Action first. If you had to make a direct comparison between Japan and another country, the most surprisingly comfortable parallels could be drawn with Sweden. In economic terms, Japan dwarfs Sweden, but it possesses similar passions. The Swedes and the Japanese share an engineering tradition—and an appreciation for fashion. The Swedes and the Japanese have an addictive enthusiasm for newness, the latest clothes, the newest gimmick. Problem-solving, continual improvement, order, aesthetics, and appearances are in a constantly changing relationship.

Engineers tend to be intent on doing rather than theorizing and have an elevated view of the likely impact of innovations on broader society: They see engineering as a route to improving the world. They believe in craftsmanship, monozukuri. Dreams and detail are in unusually close alignment.

A sense of permanence. To some extent, the action-orientation of Japanese executives flies in the face of the wisdom we all so enthusiastically applauded thirty years ago. Among the key components of Japanese management that Richard Pascale and Tony Athos identified in the 1980s was that of vision, something they found to be notably lacking in the West. “Our problem today is that the tools are there but our ‘vision’ is limited. A great many American managers are influenced by beliefs, assumptions, and perceptions about management that unduly constrain them,” they wrote. Their book, they said, was “not an assault on the existing tools of management, but upon the Western vision of management which circumscribes our effectiveness.”

It was said that Japanese corporations took the long view, while companies in the West fixated on the short-term delivery of the profits that investors demanded. In the reality of the present, grand visions are in short supply. But even so, there remains a sense of something bigger. Japanese corporations retain a sense of permanence. This permanence is made possible by constant improvement, action, the solving of today’s problems so that customers can prosper tomorrow.  In short, innovation.


Richard Pascale and Anthony Athos, The Art of Japanese Management, Viking, 1982

Kenichi Ohmae, The Mind of the Strategist, McGraw Hill, 1982

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