Japanese Formal Organizations

Abstract

The differences between Japanese and American business organizations tend to be along the axes of external forces (including history and culture), general management principles, manufacturing approaches, and human resource practices. Business organizations seek not only to survive, but to thrive, particularly within today's increasingly competitive global marketplace. A number of theorists have posited various ways to improve productivity, in particular through organizational management. One of the popular approaches that came out of the latter part of the twentieth century is Theory Z, which takes its principles from lessons learned in Japanese business organizations. However, one cannot simply transfer Japanese practices to organizations in the United States and expect them to succeed. There are many shortcomings in much of the research in this area, and it is impossible to completely and seamlessly transfer principles that have evolved in one cultural and historical context to a different setting without major revisions. However, there are lessons to be learned from Japanese business organizations, many of which are still being applied today.

Overview

One of the primary goals of business organizations is to survive. However, most business organizations want to do more than that: they want to thrive. This is particularly important in today's global marketplace, where one's competitor may be not a single business around the corner but many businesses around the world. Improving the effectiveness and profitability of the organization is typically done through some combination of lowering prices and offering a better product than the competition. However, there are many ways to accomplish these goals. To lower costs, for example, products can be redesigned or made with less expensive materials so that production costs are lowered. Similarly, the organization could pay their workers lower wages or outsource production to a company that can manufacture theirs for less. Each of these options—as well as the numerous other options available—is not without its risks, however. Reducing the quality of the product could potentially result in a loss of customer loyalty and selling fewer products than before. Reducing employee wages could result in the loss of skilled or experienced employees and the cost of replacing them, or it could lead to a strike that could halt production completely. Outsourcing of product manufacturing could also potentially mean that less qualified workers are making the product and could concomitantly result in higher cost for waste as well as for supervision of the employees. In general, therefore, there are three approaches to gaining or maintaining a competitive edge in business: costs, quality, and human resources. Although all three factors are important from a business point of view, it is the human resource variable that is of particular interest to social scientists.

Theory X Managers. One of the classic theories of human motivation in the workplace was articulated by Douglas McGregor in his influential book The Human Side of Enterprise (1960). The book was written in part as a reaction to the classic organizational theory of bureaucracy as posited by Max Weber. McGregor theorized that the beliefs held by managers about their subordinates influence the way that they manage them. To help explain his theory, McGregor hypothesized two contrasting managerial approaches. The first of these he labeled as Theory X. This approach to management is based on the belief that subordinates need to be controlled in order to meet the goals of the organization, and if managers do not control or focus their employees, the employees will become apathetic and resistant. Other assumptions of Theory X include that most people dislike work and will avoid it as much as they can, that employees need to be continually controlled, coerced, and threatened in order to do their work, and that they have little or no ambition, try to avoid responsibility, and seek security above other considerations. As a result, Theory X managers tend to be more likely than other managers to use a system of rewards and punishments in order to control their employees.

Theory Y Managers. Theory Y managers, on the other hand, have a management style based on the assumption that their subordinates are active and responsible and can be motivated to achieve organizational goals without the rigid use of concrete punishments and rewards. As opposed to Theory X managers, Theory Y managers believe that both physical and mental work is natural and that most people find work to be a source of satisfaction. They are motivated, self-controlled, self-directed, creative, and ingenious not only in pursuit of their own goals but also in the pursuit of the goals of the organization. These managers seek or learn to willingly accept responsibility; they usually do not have their full potential tapped in the organization. As a result, Theory Y managers are much more likely than Theory X managers to offer their subordinates expanded responsibilities and challenges. Although McGregor intended his descriptions of Theory X and Theory Y managers to only be examples of possible approaches to management, many managers misunderstood the fact that these examples are only endpoints on a continuum and an entire range of management behaviors exists between them. In reaction to this perceived dichotomy, a number of other management theories have since been posited. Among these is Ouchi's Theory Z, based on observations of management styles in business organizations in Japan (1981).

Theory Z Managers. There is good reason that business theorists looked to Japan for inspiration. During the period between 1890 and 1990, the per capita gross domestic product of Japan increased at an annual compound rate of 3%—a growth rate 60% higher than that of the United States (Godo & Hayami, 2002). As Japan became an increasingly important industrial giant, business theorists turned their attention to determining what lay behind this phenomenal growth. Among the factors posited for the success of Japanese businesses was the Theory Z approach described by Ouchi (1981). This was offered in part as an alternative to McGregor's Theory X and Theory Y approaches.

Theory Z is the result of a Stanford study into the differences between business organizations in Japan and the United States and how those differences contributed to the relative success observed in the organizations. Based on his observations of management approaches and Japanese versus American business organizations, Ouchi posits two models of business management that he sees as being polar opposites (see Table 1). According to Ouchi, employment in American business organizations tended to be a relatively short-term (e.g., 50% to 90% annual turnover in manufacturing and clerical occupations). Such a high rate of turnover, however, costs the organization money; Ouchi states that an organization may spend as many as 15 days to train a new employee in a position, only to have him or her quit after six months of employment. Such high rates of turnover also extended to management and executive positions. For example, Ouchi points out that 25% per annum turnover rates for such positions were not unheard of, which means that organizational management could potentially be in a continuous process of learning about the organization, thereby making it difficult for organizational leadership to move the company ahead.

One of the organizational implications for a high rate of turnover is that organizations must, therefore, have a rapid cycle of performance evaluation and promotion within the company. Further, this situation often also results in an attitude, particularly among young managers, that if one has not received a major promotion within two to three years, then one's career is stalled within that particular organization, prompting the person to look for another job outside that company. This reinforces the continuing cycle of short-term employment and rapid evaluation and promotion. This cycle, in turn, leads to specialization in career paths. Ouchi posits that because of the high degree of turnover, there was an increasing degree of specialization in many American business organizations so that the loss of one employee would not be devastating. According to Ouchi, this situation led to a more segmented concern among individual employees in American organizations, with concomitant individual decision making and responsibility and the need for explicit control mechanisms. In short, Ouchi believes that the majority of American organizations are bureaucratic in nature.

Further Insights

Cultural & Structural Differences. In addition to the differences between American and Japanese management approaches discussed by Ouchi as shown in Table 1, Keys, Denton, and Miller point out several other differences between the two cultures that led to the differences in their respective organizations (1994). In general, management practices in the two countries tend to be different. Japanese organizational patterns typically have "an unusually large number of vertical levels" (at least by American standards), "overlapping organizations, and corporate research units reporting to top management within the organization" (Keys, Denton, & Miller, 1994). Most Japanese organizations also use cross-functional teams that overlap project and product management. The Japanese mentality is also particularly amenable toward the persistent pursuit of long-term goals. This plays out in the relationship between Japanese business organizations and their financial institutions, better enabling them to pursue such goals. In addition, decision making in Japanese organizations tends to be done by consensus rather than by fiat. This also appears to be a culturally influenced preference, since Japanese culture tends to value collective responsibility and accountability.

In addition to these differences in general management practices between the United States and Japan, there are also differences between their manufacturing systems. In particular, Japanese manufacturing organizations tend to emphasize just-in-time manufacturing (a manufacturing philosophy that strives to eliminate waste and continually improve productivity), total quality management (a management strategy that attempts to continually increase the quality of goods and services as well as customer satisfaction by raising awareness of quality concerns across the organization), quality circles, research development, and other methods to encourage continuous improvement within the organization. Finally, there are also differences in the human resources practices between Japan and the United States. As discussed above, Japanese culture supports lifetime employment and generalist career paths. In addition, evaluation, promotion, and compensation in Japan tend to be based on seniority rather than on performance, an approach diametrically opposed to the self-made-person mentality in the United States.

Viewpoints

Although Theory Z was developed as a "better" approach to leading American business organizations and was met with much acclaim when it was originally released, it has been less than successful. This is in part because the mindset resulting from the Japanese culture is so different from the American mindset, due to different historical and cultural backgrounds. One of the classic illustrations of these differences concerns a Japanese company with a plant in the United States. The company attempted to require the plant's employees to sing the company song each morning before starting work. The attempt was less than successful, to say the least, and all efforts in that direction were soon stopped. Although this may sound like an extreme example, many have documented shortcomings in American organizations trying to implement principles of Theory Z and Japanese management style. These attempts often failed not only due to the different cultural backgrounds but because the American executives did not understand the underlying principles.

In many ways, Ouchi (1981) sees Japanese business organizations as the philosophical and managerial opposite of American organizations. The reasons for these differences in managerial styles lie in the differences in culture between the two countries. Unlike the United States, with its vast expanse of land and relatively low population density, Japan has little flat land suitable for agriculture and is often harder hit by natural disasters such as earthquakes and hurricanes. As a result, houses tend to be small and built close together, not only to conserve potential agricultural space, but also to reduce the probability of injury and increase the ease of rebuilding following a natural disaster. Historically, modern Japan was born from a feudal culture in which subjects were often restrained by their feudal lord from moving to another village so that the other village could not become a threat to his domain. This is much different from the historical background of the United States, in which people were encouraged to move away from population centers, explore, and develop new homesteads. The historical and cultural background of Japan makes Japanese employees culturally more comfortable with lifetime rather than short-term employment, which in turn results in slower evaluation and promotion processes when compared with the United States.

Other aspects of Japanese culture that distinguish it from American culture include a "collective mentality, a great persistence in the face of difficulty, a strong emphasis on social reciprocity as the governing principal of relationships, a physically concentrated and culturally homogenous society, and an uncommon appreciation for education and learning, appreciation for learning and education" (Keys, Denton, & Miller, 1994, p. 375). Further, the philosophies of Confucianism and Zen Buddhism as well as a samurai tradition have helped shape the culture of Japan and its concomitant management style. In addition, different industrial and government structures have also contributed to the contrasting nature and needs of Japanese business organizations and their American counterparts (Keys, Denton, & Miller, 1994).

The influence of traditional Japanese culture on formal organizations in the country has also had significant implications in terms of gender. Most notably, it has contributed to male domination of the business world, as women are traditional expected to care for home and family above all. While this perception has changed over time, its roots continue to influence formal structures. The shortage of women in professional roles, especially at upper levels of management, shifts organizational perspectives and management strategies. While the United States and other Western societies also tend to have statistically male-dominated workplaces, the expectation of traditional gender roles is much less engrained in mainstream culture than in Japan.

In short, the historical and cultural background of Japan has led to a much different organizational philosophy from the one that developed in the United States. This led Ouchi to posit a third type of organization, governed by Theory Z. These organizations operate on the premise that employees want to have cooperative relationships with their employers and coworkers. The theory requires a high degree of employee support (e.g., secure employment and opportunities to develop multiple skills), and it holds family life, culture, tradition, and social institutions to be as valuable as material success. Theory Z managers are dedicated and self-disciplined, with a well-developed sense of moral obligations; they can make and collect decisions through consensus (Keys, Denton, & Miller, 1994).

Reasons for Failure. Keys, Denton, and Miller (1994) point out several reasons why the application of Theory Z and Japanese management principles met with less than overwhelming success in the United States. First, many researchers attempt to explain the success of Japanese management practices based on an examination of only a small part of the total managerial environment. This means that the conclusions reached based on such an incomplete data set are unlikely to be widely applicable. The authors also point out that other researchers have focused primarily on their own functional areas of interest to the exclusion of others. However, like the story of the blind man trying to describe an elephant, such an approach is unlikely to be able to articulate fully the nature of Japanese management style or the reasons for its success. In addition, the cultural differences between the two countries need to be taken into account in order to better understand why principles and practices that are successful in one country may or may not be in the other.

Conclusion

It has been frequently noted that there are major differences between the way that business organizations are structured and managed in the United States and the way that similar businesses are structured and run in Japan. This has led a number of observers, particularly in the latter part of the twentieth century, to posit that the Japanese approach is superior to the American approach and to try to determine how to apply the same principles in American settings. Unfortunately, much of this speculation was based on a limited number of cases, often disregarding Japanese companies that were failing and American companies that were successful, as well as a frequently myopic focus on only parts of the differences between the organizations in the two countries. In addition, despite the fact that many observers attempted to apply the underlying principles in a culture-free way, the fact remains that Japanese formal organizations and the concomitant structures, management philosophies, manufacturing approaches, and human resource practices are, in fact, culturally bound.

This is not to say, of course, that there is nothing that American organizations can learn from their Japanese counterparts. Some of the lessons learned from Japan over the past few decades are still being successfully applied in some American organizations where appropriate (e.g., just-in-time manufacturing, total quality management). However, there is no need for a wholesale transformation of American organizations to be like Japanese organizations, nor will such an attempt work. To design an effective and efficient organization, no matter the country, requires an understanding of the culture and history of that country and the application of principles that incorporate this understanding rather than the blind application of processes not well understood.

Terms & Concepts

Bureaucracy: According to Weber, a formal organization with a hierarchical authority structure, a clearly delineated division of labor, explicit rules, and impersonal relationships.

Consensus: An opinion or decision that has been reached by the group as a whole or by the majority of the group. Consensus does not require unanimity.

Culture: A complex and socially transmitted system of meaning and behavior that defines a common way of life for a group or society. Culture includes the totality of behavior patterns, arts, beliefs, institutions, and other products of human work and thought.

Just-In-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of JIT include having the required inventory only when it is needed for manufacturing and reducing lead times and setup times. Also called lean manufacturing.

Organization: A group of persons who are associated for a particular purpose into an orderly, functional, structured social entity.

Quality Circle: A participative management technique in which a small group of employees of the organization, usually between 6 and 12, voluntarily meet regularly to define, discuss, and solve problems in the workplace related to quality or performance.

Theory X: An approach to management based on the assumptions that most people dislike work and will avoid it as much as they can; need to be continually controlled, coerced, and threatened in order to do their work; have little or no ambition; try to avoid responsibility; and seek security above other considerations.

Theory Y: An approach to management based on the assumptions that both physical and mental work are natural and that most people find work to be a source of satisfaction; are motivated, self-controlled, self-directed, creative, and ingenious not only in pursuit of their own goals but also in the pursuit of the goals of the organization; seek or learn to willingly accept responsibility; and usually do not have their full potential tapped in the organization.

Theory Z: A Japanese management style premised on the idea that employees want to have cooperative relationships with their employers and coworkers. The theory requires a high degree of employee support (e.g., secure employment and opportunities to develop multiple skills), and it holds family life, culture, tradition, and social institutions to be as valuable as material success. Theory Z managers are dedicated and self-disciplined, with a well-developed sense of moral obligations; they can make and collect decisions through consensus.

Total Quality Management (TQM): A management strategy that attempts to continually increase the quality of goods and services as well as customer satisfaction by raising awareness of quality concerns across the organization.

Turnover: The number of employees who leave an organization within a certain period and must be replaced

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Suggested Reading

Amasaka, K. (2013). The development of a total quality management system for transforming technology into effective management strategy. International Journal of Management, 31(2), 610-630. Retrieved October 28, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87835846&site=ehost-live

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Khosrow-Pour, M. (2018). Advanced methodologies and technologies in business operations and management. Hershey, PA: IGI Global.

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McGregor, D. (1960). The human side of enterprise. New York: McGraw-Hill.

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