Talent strategies for innovation japan

Following on from a global survey of 179 senior executives on the same topic conducted in mid-2009, this paper analyses the results of a new survey of 50 senior executives from Japanese

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A report from the Economist Intelligence Unit Supported by the Government of Ontario, Canada

Talent strategies for innovation: Japan

© 2010 The Economist Intelligence Unit All rights reserved All information in this report is verified to the best of the author’s and the publisher’s ability However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Economist Intelligence Unit.

Talent strategies for innovation: Japan is an Economist Intelligence Unit research paper, supported by

the Government of Ontario, Canada The Economist Intelligence Unit’s editorial team conducted the

interviews, executed the survey and wrote the report The views and opinions expressed in the report are

those of the Economist Intelligence Unit alone

Gavin Blair was the author of the report and David Line was the editor Gaddi Tam was responsible for

layout and design Our thanks go to all survey respondents and interviewees for their time and insights

September 2010

Executive summary

Talent strategies for innovation: Japan examines how Japanese companies face the challenge of recruiting,

nurturing and retaining talented people to ensure their organisations remain innovative Following

on from a global survey of 179 senior executives on the same topic conducted in mid-2009, this paper analyses the results of a new survey of 50 senior executives from Japanese companies, comparing and contrasting them with the results of the earlier research In doing so it reveals several aspects of talent-management strategy that are unique to Japanese companies—and suggests ways in which the pressures

of competition and globalisation are forcing them to evolve these strategies Its key findings include:

•Japanese companies place less emphasis on the importance of talent management in their organisation’s ability to innovate, and consequently delegate responsibility for it lower down the chain

of seniority In the survey 56% of Japanese respondents rate talent management for innovation as “very

important”, compared to 75% globally Consequently just 38% of Japanese companies report that C-level executives have responsibility for the formulation of talent-management strategy, compared to 65% in the global results But they think this is changing: 51% of respondents in the Japanese survey expect C-suite executives will be more involved in defining strategy in five years’ time, compared to 38% of global companies

•Japanese companies are more likely to employ structured, long-term talent-management strategies, and rely on internal development Employee loyalty and a lack of labour mobility mean many

Japanese companies place a greater emphasis on graduate schemes to attract talent, and internal training schemes to develop it But these characteristics are changing with the demands of global competition: although 78% of respondents in Japan say training internal staff to fill key positions is a major part of their talent-management strategy now, only 24% expect this to be the case in five years’ time

•Japanese companies tend to value technical knowledge and learning ability over creativity and entrepreneurship The surveys uphold the common perception that Japanese companies value different

attributes in their search for talent than those elsewhere in the world: the most highly-valued attributes are the ability to learn quickly (picked by 78% of respondents) and a high degree of technical knowledge (60%), while the global results placed a higher value on creativity and collaboration However, many Japanese firms, although emphasising the importance of a unified corporate culture, recognise the need to broaden their search for talented staff to remain innovative

•The pressures of globalisation and competition mean Japanese companies will have to look farther afield for talent Japanese companies are certainly aware of the need to attract employees from a broader

“Talent management is the single most important factor for Japanese companies to continue to

operate successfully on the global stage.” So says Michihiro Homma, senior general manager of

the Human Resources Development Centre at Canon, a camera and office equipment manufacturer and

one of Japan’s most successful international brands

That Canon thinks this way is testimony to the evolution of the Japanese corporation Many of the

Japanese companies that were at the forefront of the post-war “economic miracle” have seen their once

seemingly unassailable competitive edges eroded by both lower-cost manufacturing rivals from Asia,

and innovative competitors in technology and software from the West However, even as international

competition has become tougher, faced with a shrinking domestic marketplace, many Japanese

companies beyond the established electronics and automobiles exporters are seeking to expand their

operations overseas

With the global marketplace evolving at an ever faster pace, the need to innovate more quickly has

never been greater Companies that don’t acquire and nurture the best talent available simply won’t

be able to innovate effectively enough to compete Research conducted globally by the Economist

Intelligence Unit in 2009 showed that 98% of companies regard talent management as either “important”

or “very important” to their ability to innovate

That research, entitled Talent Strategies for

Innovation (also produced with support from

the government of Ontario, Canada) took an in-depth look at the relationship between talent management and innovation This paper,

Talent Strategies for Innovation: Japan, based on

interviews and a survey of 50 Japanese companies, looks at the particular challenges facing Japanese corporations in nurturing innovative workforces

It also examines the differences in attitudes and approaches to talent management between Japanese companies and those surveyed in the previous global paper, and whether there are differences between domestic-focused and export-oriented firms in Japan

About the survey

A total of 50 executives from Japanese companies with annual sales of between US$250m and US$10bn took part in the online survey Some 72% of respondents were C-level executives and the remainder were senior vice-presidents, vice-presidents, directors or managers

(see Chart 1) Some 40% of respondents are in the HR department

• Respondents represented a range of industries, with 32% coming from the manufacturing sector, 22% from retailing and 16% from consumer goods

• Survey totals may not add to 100 either due to rounding or because respondents could pick multiple answers

C-Level responsibility

The value of talent management is being increasingly recognised in Japanese companies, with

100% of survey respondents regarding it as either “important” or “very important” to their

organisation’s ability to innovate However, companies worldwide place a slightly greater emphasis

on this, with 75% in the 2009 survey citing it as “very important”, whereas just 56% in Japan rate it

the same way (see Chart 2)

Reflecting this, the responsibility for talent management is still being delegated lower down the

corporate ladder in Japan relative to global practice At the very top, just 38% of Japanese companies

report that C-level executives have responsibility for the formulation of talent-management strategy,

compared to 65% in the global results

Slightly lower down the chain of command the story is the same: at only 20% of Japanese companies

are senior vice-president, vice-president and director level executives in charge of formulating

talent-management strategy, whereas at firms globally the figure is 49% For the execution of these strategies,

only 18% of Japanese companies say senior vice-president, vice-president and director level execs are

responsible, compared to 46% globally (Respondents in both surveys were able to choose more than one

level of executive.)

Although the surveys show that on average

Japanese companies are placing less emphasis

on talent management than their global

counterparts, with fewer senior executives taking

charge of it, many of the nation’s most

forward-looking organisations are placing it at the heart of

their business strategy

Canon, which has been an early adopter in

the field, began implementing a formal talent

management strategy in 2000, and involvement

goes all the way to the top “Our CEO, [Fujio]

Mitarai, is fully committed to talent management

and puts a lot of effort into its development,” says Mr Homma

It is not only Japan’s technology powerhouses that have taken the importance of talent management

on board “Our way of innovation is not the technology innovation that Japan is famous for, but creating

innovation in terms of ideas and ways of working, and developing talent that can do that,” says Yotaro

Okuda, deputy director of the Corporate Strategy Division at Dentsu, which controls over 20% of the

Japanese advertising market

At Namco Bandai, a maker of toys and electronic games with sales in the financial year 2009-10 of

¥378.5bn (US$4.2bn), innovation is also essential to the success of the company

Not at all important Somewhat important

1 0

44 23

Chart 2 How important is good talent management to your organisation’s ability to innovate?

(% respondents)

Source: Economist Intelligence Unit

“Because of the nature of our business, making games and toys, if we don’t develop good talent and they don’t enjoy their working environment and create innovative products, we can’t survive as

a company,” says Norifumi Hayashi, general manager of human resources “So the organization is important, but individual development is the most important thing we have.”

Case study 1: Canon

With less than half of its 194,000 worldwide workforce based in

Japan, and just over a fifth of its US$37bn sales in calendar 2009

coming from the domestic market, Canon has for decades looked at

business through a global perspective The company has also seen

the core activity of its operations, optical imaging, become almost

entirely digitised in a relatively short space of time “In recent

years technological advancement is so fast that the challenge is to

do business at that speed,” says Michihiro Homma, senior general

manager of the Human Resources Development Centre at Canon

The company’s comprehensive talent management system

covers employees from new recruits through to senior executives,

and includes three levels of Canon Innovative Leader courses

for managers, which are held at different locations worldwide

In addition, there is a Canon Corporate Executive Development

Program which was created with the IMD business school in Lausanne, Switzerland This course, for around 20 people per year,

is designed for senior foreign managers and Japanese managers who work overseas, so is all conducted in English For senior

executives a Keiei Juku, or intensive management course, focuses on

management training and personal development “At present [this course] is only designed for Japanese executives, but in the future is likely to be taken by foreign executives too,” Mr Homma says Canon was one of the few major manufacturers not to post losses during the global slowdown, though Mr Homma is reluctant to credit the company’s talent strategies “It’s true we didn’t go into the red, and the managers responsible were brought through by Canon,”

he says, “but we couldn’t say it’s due to our talent management policies The program started formally from 2000 so the results should be visible from here on in.”

The Japanese way

Japanese corporate culture is often characterized as being different to that in the rest of the

business world, and although its uniqueness may sometimes be overstated, there are factors that

distinguish it from elsewhere One of these differences is employee loyalty to the company, and a

central tenet of that is not moving from one organisation to another every few years—something that

is “still regarded as kind of immoral in the Japanese business world”, says Izumi Miyajima, deputy

director at the HR Development Department of Dentsu

Although there is more mobility than there once was in the Japanese labour market, at big

corporations in particular, joining the company on April 1st straight after graduation and remaining

there for decades is still far from unusual In line with this, a “fast-track scheme for able graduates” is

cited as the most highly-rated strategy for recruiting talented staff by 58% of Japanese companies,

versus 34% globally Similarly, the survey results found that a far smaller proportion of Japanese

companies than global companies regard the “desire of employees to switch jobs frequently” as a major

challenge to keeping talented staff (20% compared to 43%; Chart 3) “We don’t have a lot of staff who

leave the company,” says Mr Miyajima

Although the lack of mobility between companies undoubtedly makes it more difficult to procure

talent from outside, it does allow organisations to create long-term talent management programmes

that span employees’ working lifetimes According to the survey, more companies in Japan (66%) regard

internal development as the most effective method for talent management than do global companies

(46%; Chart 4)

According to Ichiro Hara, general manager of

Canon’s HR Management Division, the company

does have staff join mid-career, “but their numbers

are pretty low” With this in mind, Canon has

created a comprehensive, company-wide “HR

Development System” that implements talent

management for its workforce—from new recruits

right through to senior management

Dentsu too has a very structured career and

training path for employees to follow through

their working lives at the company “Our basic HR

system is different to Western companies because

employees don’t change careers often, and usually

stay with us for 20 or 30 years,” says Mr Miyajima

“So our development and career plans are based

around that fact.”

Lack of skilled graduates for entry-level jobs

Older employees retiring

36 34 36 20

43 20

45 16

16 4

Restrictive immigration laws

Increasing labour costs

44 Japan Global

Chart 3 Which of the following challenges does your organisation currently face in recruiting and retaining talented staff?

Please select all that apply.

(% respondents)

Source: Economist Intelligence Unit

Internal development

Very effective 1 Japan: 2 Not at all effective 3

Open competition

4 28

3 49

18 54

21 56

18 43

20 52

(% respondents)

Source: Economist Intelligence Unit

Chart 5 Which of the following statements are true about your organisation’s talent-management strategy now, and which will be true in the next five years? Please select those with which you agree My organisation:

(% respondents, select answers)

Looks outside country borders for talent

Trains and develops staff internally to fill key positions

42 40

78 24

Moves staff between countries to address talent gaps

40 38 Locates innovation centres where there is an abundance of talent

Does not consider availability of talent in defining overall strategy

38

48

48 36

Today In five years

Source: Economist Intelligence Unit

The least traditionally Japanese of the three case study companies in this report, Namco Bandai,

takes a more flexible approach to career planning “We have no age-based promotions at all; people who

produce results get rewarded,” says Mr Hayashi Most staff training programmes are negotiated between

the company and individual employees, who are “rarely forced to go on courses”, Mr Hayashi says

Employees joining mid-career is also fairly common at Namco Bandai, reports Mr Hayashi, who himself

had stints in human resources at a number of other companies before his present position

Despite Japan’s relatively strict immigration laws, only 4% of Japanese companies surveyed regard

them as a major challenge in recruiting and retaining talented staff, below the 11% that hold that

opinion globally Dentsu’s Mr Miyajima concedes that while Japanese companies are “behind in terms of

diversity, particularly with regard to gender equality and foreign employees”, he believes the situation is

improving

The current norm of training internal staff to fill key positions looks set to change dramatically,

according to the survey results Although 78% of respondents say this is true of their talent-management

strategy now, only 24% expect this to be the case in five years’ time (Chart 5) However, only 40% of

respondents believe Japanese companies will look outside the country’s borders for talent in five years’

time, compared to 42% today, suggesting slow progress on the lack of diversity Mr Miyajima highlights

Case study 2: Dentsu

Dominating its domestic advertising market to the extent that it is the

envy of agencies worldwide, Dentsu has a history that goes back over

a century Even in the perfect storm that devastated the media and

advertising industries through 2009, the group managed to pull in

sales of ¥1.678trn (US$19.3bn) and return to the black

Although in many ways Dentsu is a traditional Japanese company

with many employees who stay with the organisation for their

whole working lives, its need for creative innovation and overseas

expansion have meant it places a great deal of emphasis on

talent-management strategy Dentsu created a training course jointly with

Virginia Commonwealth University’s Brandcenter that started in

2006 These off-site courses were initially run by lecturers from the

US advertising world, but they have been gradually replaced with Dentsu employees who have taken the courses themselves

In April this year, Dentsu launched two new talent initiatives: the Dentsu Management Institute—a one year course with Hitotsubashi University Graduate School of International Corporate Strategy

in Tokyo—and Dentsu Management Juku (cram school), a

three-month course There are two main reasons for implementing these now, according to Yotaro Okuda, deputy director of the Corporate Strategy Division: “Firstly, the digital media environment that Dentsu and our clients are operating in has become extremely complex [Secondly,] we also need to understand the way our clients’ businesses work and their management strategies in order

to respond to their needs.”