CHAPTER EIGHT
Learning from Foreign Management
WHAT CAN WE LEARN from American management? was the question asked all over the world only ten years ago. Now it is perhaps time to ask: What can American management learn from others in the free world, and especially from management in Western Europe and Japan? For Europe and Japan now have the managerial edge in many of the areas which we used to consider American strengths, if not American monopolies.
First, foreign managers increasingly demand responsibility from their employees, all the way down to the least skilled blue-collar worker on the factory floor. They are putting to work the tremendous improvement in the education and skill of the labor force that has been accomplished in this century. The Japanese are famous for their “quality circles” and their “continuous learning.” Employees at all levels come together regularly, sometimes once a week, more often twice a month, to address the question: What can we do to improve what we already are doing? In Germany a highly skilled senior worker known as the Meister acts as teacher, assistant, and standard-setter rather than as supervisor and boss.
Second, foreign managers have thought through their benefits policies more carefully. Fringes in the United States are now as wide as in any other country, that is they amount to some forty cents for each dollar paid in cash wages. But in this country many benefits fail to benefit the individual employee. In many families, for instance, both husband and wife are docked the full family health-insurance premium at work, even though one insurance policy would be sufficient. And we pay full Social Security charges for the married working woman, even though married working women under our Social Security system may never see a penny of their money paid into their accounts.
By contrast, foreign managements, especially those of Japan and Germany, structure benefits according to the needs of recipients. The Japanese, for instance, set aside dowry money for young unmarried women, while they provide housing allowances to men in their early thirties with young families. In England a married woman in the labor force can opt out of a large part of old-age insurance if her husband already pays for the couple at his place of employment.
Third, foreign managers take marketing seriously. In most American companies marketing still means no more than systematic selling. Foreigners today have absorbed more fully the true meaning of marketing: knowing what is value for the customer.
American managers can learn from the way foreigners look at their products, technology, and strategies from the point of view of the market rather than vice versa. Foreigners are increasingly thinking in terms of market structure, trying to define specific market niches for their products, and designing their businesses with a marketing strategy in mind. The Japanese automobile companies are only one example. Few companies are as attentive to the market as the high-technology and high-fashion entrepreneurs of northern Italy.
It is not correct, as is so often asserted in this country, that Japanese and Western European businesses subordinate profits. Indeed, the return on total assets is conspicuously higher today in a great many foreign businesses than it is in this country, especially if profits are adjusted for inflation. But the foreign manager has increasingly learned to say, “It is my job to earn a proper profit on what the market wants to buy.” We still, by and large, try to say in this country, “What is our product with the highest profit margin? Let’s try to sell that, and sell it hard.”
Incidentally, when the foreign manager says “market,” he tends to think of the world economy. Very few Japanese companies actually depend heavily on exports. And yet it is the rare Japanese business which does not start out with the world economy in marketing, even if its own sales are predominantly in the Japanese home market.
Fourth, foreign managements base their marketing and innovation strategies on the systematic and purposeful abandonment of the old, the outworn, and the obsolete. In every single business plan of a major foreign company I have seen lately—Japanese, German, French, and so on—the first question is not “What are the new things we are going to do?” The first question is “What are the old things we are going to abandon?” As a result, resources are available for innovation, new products, new markets. In too many American companies, the most productive resources are frozen into defending yesterday.
Fifth, foreign managements keep separate and discrete those areas where short-term results are the proper measurement and those where results should be measured over longer time spans, such as innovation, product development, product introduction, and manager development. The quarterly P and L is taken as seriously in Tokyo and Osaka as it is in New York and Chicago; and, with the strong role that the banks play in the management of German companies, the quarterly P and L is probably taken more seriously in Frankfurt than it is in the United States. But outside the United States, the quarterly P and L is increasingly being confined to the 90 percent or so of the budget that is concerned with operations and with the short term.
There is then a second budget, usually no more than a few percent of the total, which deals with those areas in which expenditures have to be maintained over a long period of time to get any results. By separating short-term operating budgets from longer-term investment or opportunities budgets, foreign companies can plan for the long haul. They can control expenditures over the long term and get results for long-term efforts and investments.
Sixth, managers in large Japanese, German, and French companies see themselves as national assets and leaders responsible for the development of proper policies in the national interest. One good example may be a group that came to see me in January of 1980. The chief executive officers of the forty largest Japanese companies came to discuss how Japan should adjust to demographic changes; official retirement age is still fifty-five in Japan, while life expectancy is now closer to eighty.
“We don’t want to discuss with you,” said the leader of the group, “what we in Japanese business should be doing. Our agenda is what Japan should be doing and what the best policies are in the national interest. Only after we have thought through the right national policies, and have defi ned and publicized them, are we going to think about the implications for business and for our companies. Indeed, we should postpone discussing economics altogether until we have understood what the right social policies are and what is best for the individual Japanese and for the country as a whole. Who else besides the heads of Japan’s large companies can really look at such a problem from all aspects? To whom else can the country really look for guidance and leadership in such a tremendous change as that of the age structure of our population?”
Any American executive, at all conversant with our management literature, will now say, “What else is new? Every one of these things I have known for thirty years or so.” But this is precisely the point. What we can learn from foreign management is not what to do. What we can learn is to do it.
Each of these six practices is American in origin. Every one the foreigners have learned from us in the thirty years they have come to this country to find out how to manage.
The “quality circles” for productivity and quality improvement which are now being touted in American industry as the latest and most advanced “innovation” were brought to Japan in the fifties and sixties by three Americans—Edwards Deming and Joseph M. Juran, both then at New York University, and A. V. Feigenbaum of General Electric.
The German Meister has ancient roots, but its present form dates back to the fifties and to unashamed imitation of the way IBM, first in this country and then in its European subsidiaries, had restructured the role and job of the first-line supervisor, converting him or her from a foreman into an assistant and teacher.
The Japanese and Germans practice in marketing what every American marketing textbook has been preaching for the last thirty years. The distinction between short-term and long-term budget goes back to DuPont and General Motors in the twenties. Indeed, each of these practices can be found in any management book written in the late forties and early fifties, including mine. We don’t need to learn what the rules are—we invented them. What we need is to put them into practice.