We have been serving Japan’s leading organizations for nearly 20 years, guiding our clients toward making Change that Matters while contributing to the growth of the world’s third largest economy.
We help both Japanese and multinational companies transform their businesses through technology, globalization, and operational excellence. We partner with the business community and local society to build capabilities so that Japan and its people can meet their most pressing economic goals in a sustainable way.
A culturally attuned approach is required.
Leaders across Japan’s private and public sectors are trying to reignite growth and achieve levels of performance and productivity on par with global standards. From “Abenomics” to the 2020 Olympics, the case for change in Japan is firm and visible. Ever-increasing competition and a shift of innovation away from sectors where Japan was traditionally strong (from hardware manufacturing to services and software, for example) are pushing Japanese champions to globalize their practices.
Slow domestic growth and sluggish modernization of the operating model mean that multinational companies must struggle to deliver the profits they once did in Japan. Many services that have been streamlined and digitized in the West, for instance, are still human powered, at a high level of customization.
But global companies trying to take a page from the usual change-management playbook may struggle in Japan. Domestic experience is limited, and a more effective approach has yet to emerge. Change management is a complex endeavor inspiring multiple perspectives. Research suggests that only a third of change-management programs globally achieve their original objectives. Employee resistance is a factor in a significant proportion of programs that fail.
A few core elements of change management are universally recognized: inspirational and effective change leaders to act as role models; a change story, with real meaning, to persuade leaders and employees; new mind-sets and behavior among employees; and the orchestration of change in an expanding, self-sustaining wave throughout the organization. But our experience supporting change efforts in leading Japanese organizations (and in multinational organizations in Japan) suggests that this approach must be adapted to the country’s specific conditions.
A change-management approach focused on “the last man standing”—in addition to the “change leader or agent” model at the core of most Western approaches—may be the one most suitable for consensus-driven organizations in Japan and other cultures. Leaders in Japan understand that change programs fail at the middle-management level, where just a few people (or even one) can impede the consensus-building process. We believe that change-management programs can increase their chances of success not by fighting a consensus-oriented culture (or by strengthening the top-down communication cascade) but by focusing greater effort on the potential blockers. A set of simple practices can increase the chances of success in major transformations.
Here we share our observations and lessons on how to drive change in Japan. The objective is not to treat the subject exhaustively but rather to provide empirical observations from our experience.
Five tenets of change management and why they fail in Japanese organizations
Certain tenets of change management are well accepted in global businesses but don’t work well in Japanese organizations (exhibit).
The role of the change leader (or ‘first mover’) is significantly diminished in ‘middle-up’ Japanese organizations
Change leaders have a pivotal role in driving change. They take the first step in a new direction, they show others a new way, they take risks, and they trigger a cascade of change throughout their organizations. First-mover leaders in the West have a strong sense of mission, a passion for innovation, financial incentives, pressures (for instance, from shareholders)—or a mix of all these. CEOs are usually groomed and chosen to drive change at various levels of the organization because of their record in driving performance. Most important, global CEOs are appointed with a mission and chosen for their ability to deliver on goals. Shareholders believe that these leaders are up to the next challenge and the next opportunity.
But Japanese companies are “middle-up” rather than top-down. Many (though not all) senior leaders of traditional Japanese corporations hold their positions in recognition of their past contributions and their ability to navigate disparate divisions of the organization through long rotation programs. Pressure from shareholders is lower; many companies still do not have independent boards that represent them. Finances are managed on longer cycles—midterm plans cover three to five years, with only a negligible emphasis on quarterly performance. A culture of harmony values coordination and smooth collaboration rather than standing out or pushing unilateral initiatives. This culture makes it less likely that change leaders will emerge and assert themselves by taking risks and role-modeling new ways of working. The conditions in which that might happen simply do not exist.
Although this mind-set survives crisis situations, a crisis does help to identify leaders of change. Those in Japanese companies tend to fall into either of two categories. The first consists of outsiders: company executives initially rotated outside of headquarters and brought back to take on a risky challenge. Middle managers, the second category, take responsibility for driving change because they are committed to the future of the organization or to a vision of how the company could change.
Immediate followers are amplifiers in global organizations, but they are often the ‘black hole’ of change in Japan
Immediate followers play a key role in the transformation of global organizations. By adopting and mirroring the change leader’s behavior, these executives bring it into the mainstream, amplify it, make it acceptable to the rest of the organization, and redefine the norms of the broader group. A first-mover change leader who doesn’t rapidly build a critical mass of managers is just a visionary without impact.
In traditional Japanese organizations, the followers’ role is equally important, but reversed. Top leaders are appointed to recognize their past contributions, but people on this second level are under pressure to prove their capabilities and improve the company’s performance. This creates a risk-averse environment where mistakes are costly. In the absence of meaningful role-modeling from the top, decisions about change are made without any sense of what the leader will accept. What’s more, a consensus-oriented culture discourages behavior that could be perceived as negatively affecting someone else. At the beginning, any change does trigger negative consequences for others, since it requires related changes to accommodate an overall new way of working.
In summary, the conditions in which immediate followers could follow do not exist in Japan. Creating them would not be a simple change-management process—it often involves achieving the change itself. Second-level management often becomes an obstacle to any change and stifles the drive for innovation and improvement in the corporate operating model and culture.
A change story that inspires and motivates employees fails without a detailed description of the new model in Japanese organizations
A well-crafted change story describes why change must happen, provides a case for it, connects intimately with employees, and is relevant for all of them. Far from acting in isolation, the change story should be accompanied by programs to build new processes and capabilities. The first step is getting people to buy into change, with details to follow.
Many Japanese companies still rely on practices and processes learned through apprenticeship, over years of collaborative work, rather than through structured corporate capability-building programs. Role descriptions are often vague, and responsibilities are shared among many employees; as a result, accountability is diluted. Changing this unwritten way of working, established at companies where many employees have spent years working together, is harder than changing a well-articulated, periodically refreshed business process. To drive change, leaders need to be more specific about what is expected from whom.
Successful change programs trigger self-propelling cascades in global organizations; in Japanese organizations, change must immediately involve the periphery
The hierarchical nature of traditional Japanese organizations is mistakenly interpreted as top-down: leaders set the pace, and the rest of the organization executes. This is true only in mature execution settings. In turbulent times, hierarchical organizations look upward to gauge and interpret what the leadership wants and find little direction, since leaders and followers alike resist acting. Wary of making the first step, they also look around for guidance to their peers. This keeps change from spreading and sustaining itself.
A “cell-to-cell” approach involves the early and detailed engagement of the front line in defining the new model, coupled with extensive peer-to-peer endorsement and advocacy. The level of detail and specifics would be considered premature or too detailed in Anglo-Saxon organizations, but in our experience, this approach works best at lending credibility to change programs in Japan.
Traditional programs place too much attention on change agents, but in Japanese organizations blockers must also be considered
In a consensus-oriented organization, a single individual can derail change—even in late stages and even in lower levels of the organization. Management practices devote too little attention to identifying this so-called last man standing, who is unusually averse to change, in traditional Japanese organizations. Any leader in Japan is familiar with the extensive time invested in cultivating support, even at low levels and in peripheral parts of the organization. While it can be tempting to dismiss this approach as inefficient, we suggest devising more efficient ways to turn it into an instrument of change.
Practical suggestions to drive change in consensus-oriented Japanese organizations
What is the way forward for Japanese organizations? Several suggestions can be useful:
Define the end state in detail and provide a road map quite early. In our experience, the vision of change leaders has little practical effect if it isn’t accompanied by a detailed description of the new model early in the process. Consensus-driven organizations need a detailed description of the end state to engage with it and establish a new consensus. Western companies launch a transformation based on a vision and engage the organization to define the new model. But in Japanese companies, this step must occur earlier, before a broader group is engaged. “Building a plane as we fly” is never easy, but in these Japanese organizations it is a nonstarter.
Engage the front line very early and create opportunities to endorse change. Spend time in the field (for example, on the factory floor or with the sales force) to define the details of the new model, anticipate issues, and allow people to participate emotionally in the process of change by sharing their frustrations and aspirations. Instead of relying on the immediate followers in the organization’s second level, companies should identify, groom, and deploy champions of change on the front line.
Map the organizational network and tackle the last man standing. Mapping organizational networks can identify and empower change agents. Identifying potential blockers isn’t difficult, and that is even more important for successful change. Action can be taken to convert or neutralize change blockers early in the process.
Expose top management extensively, broadly, and directly. The typical change cascade propagated through change agents often struggles in traditional Japanese organizations for the reasons described above. Town-hall meetings, Q&A sessions, and other venues where top management is directly exposed to a large audience are much more effective. While this approach sacrifices intimacy, it does break through the organization’s vertical walls, overrides internal factions, and conveys a call to action that engages each member of the organization directly.
Create a team to tackle the last man standing. To mitigate the risks emanating from the last man standing, organizations need a “last team standing.” That team should not only include diverse skill sets and cover complementary areas but also embrace a common determination to drive change and endure the short-term difficulties that come with it. Investing up front in such a purposeful team goes a long way in sustaining change and embedding the new model’s procedural and cultural elements.
In this context, the “third generation” of leaders, roughly in the age bracket of 35 to 45 years old, is becoming an important source of energy for change. We have briefly touched upon the attitudes and roles of top management and its immediate followers above. People in the third group, emerging from years of economic stagnation, never experienced the golden times of productivity growth and innovation in Japan. Increasingly, they realize that they have a future to build, not a legacy to protect. Their decreased sense of security makes them more open to risk than previous generations and willing to undergo change if they are well supported within the organization.
Japan’s aging and shrinking population and slow economy make the need for change loom larger than ever in Japanese companies. The lack of generally accepted approaches for managing change is one of the key obstacles to the modernization of the public and private sectors. In this paper, we have shared lessons from successful change programs based on culturally attuned principles.
Five facts showing that companies should invest in digital customer engagement in Japan.
Japan has not been at the forefront of digitization, as any traveler or resident can attest. Those industries that on a global basis have most visibly been disrupted by digital technologies (such as banking, retail, and travel) have resisted change in Japan. Among Japan’s demographically older population Internet adoption has been slower than in other developed nations: older age groups have tended to hold on to their feature phones, which can process email but don’t provide access to the full Internet or apps like modern smartphones—this is changing very rapidly, however. Feature phones are phasing out with sales plummeting 80 percent year on year as consumers now standardize on smartphones. Within a shrinking retail market, Amazon, like many other online merchants, has grown by double digits each year, and joined the “1 trillion yen” club next to the traditional giants such as Seven & i, which are themselves experiencing flat or declining top-line growth. Fintech is growing rapidly, with new government regulation enabling further growth.
The pharmaceutical industry is fully involved in this acceleration and can no longer ignore it. Physicians and patients are ahead of the industry in how they use technology; they are used to and expect a more modern and sophisticated level of digital engagement than pharmaceutical companies currently offer. This is a missed opportunity and those organizations that move rapidly and at scale stand to benefit.
Yet, many executives are still skeptical and timid when it comes to investment decisions. While a very few companies are preparing for big transformations, we still observe many sub-scale pilots with insufficient vision and aspiration. In this short paper we would like to share five reasons why we believe pharmaceutical companies should invest at scale in digital customer engagement in Japan. These are based on observations from our daily practice and real world data.
Five facts show that pharma companies should invest at scale in digital customer engagement in Japan
In Japan today you can reach over 85 percent of physicians without a sales representative. Client examples in the recent months showed us we reached a tipping point as more than half of physicians have already shifted away from the sales rep as their primary information source, and 40 percent use digital sources as their primary source of information. Moreover, 85 percent of physicians in Japan use digital sources as their primary or secondary source of information today. In contrast, less than 15 percent of physicians are still reliant on the sales representative as their only source of information—and those are typically of an older, retiring demographic.
Digital is now effective as a primary promotional channel. The effect of sales representatives is limited if a physician is already digitally engaged. Actual sales growth data, collected over a period of six months, shows that when a physician is already engaged in online promotional activities, the additional sales rep detail only makes a further 10 percent sales growth contribution—national data for both primary and specialty care products show that, when brands are growing at 8–15 percent with digital communication alone, they only grow by an additional 2–3 percentage points when both digital and sales representative communication are involved.
Late-stage primary care portfolios show decreasing detailing sensitivity in Japan. 2017 sales responsiveness data among physicians grouped by decile for major primary care products show that even among the most detailing-sensitive physicians (top 10 percent for sales responsiveness), the upside is less than 10 percent for national high-frequency coverage compared with no sales coverage at all. We see a similar trend in specialty care products and on-patent products, but this is particularly striking in long-listed products1 —these represent a substantial proportion of the market for pharma companies in Japan, are still subject to significant promotional activity, and generally believed to be sensitive to promotion. That said, many Japanese physician segments do remain sensitive to detailing, but the important lesson is that pharmaceutical companies can and should move away from general detailing coverage based on account of physician potential, towards segmenting and targeting with different channels based on preference. As a result, they can significantly reduce the number of total in-person details delivered to segments that are simply not responsive.
Each year traditional sales details lose their effectiveness and are now comparable to digital details. Client examples in the recent months showed us that the percentage of physicians who change their prescription after receiving drug information for a specific brand from a sales representative has declined—from 20–30 percent in 2014 to 15–20 percent in 2016—while statistical models forecast a decline to a high single-digit percentage in 2018. When receiving information through e-detailing, 10–15 percent of physicians changed their prescription decision in 2014 and 2016, and this proportion is forecast to remain steady. Thus, in 2018, the effectiveness of traditional in-person sales details and e-details will be comparable. Further, the nature of e-details (their content, format, technology platform) has not changed significantly over time; hence we argue that there is an opportunity to increase the effectiveness of e-details with more engaging and value-adding formats. It is also worth remembering that every year the number of institutions placing restrictions on salesforce access (for instance appointment-based systems, set days or quotas) is increasing. Equally, channel-based segmentation can improve the effectiveness and efficiency of promotional spend
The national government is actively driving digital adoption. The Ministry of Health, Labour and Welfare is supporting a holistic database that will ultimately link (among other things) medical claims data and nursing care data by 2020. The “Law of Next Generation Healthcare Platform” certifies vendors that can anonymize and make use of personal health data; it also allows medical institutions to provide the data in opt-out systems. Shakai Hoken Shinryo Hoshu Shiharai Kikin (the payor foundation that reviews and pays all corporate-based payor claims) is embarking on a transformation designed to streamline claims reviews by increasing the level of automation and introducing artificial intelligence to the process.
An untapped opportunity to shape digital customer engagement
Pharmaceutical companies, and their service providers, do not yet provide an engaging and value-adding digital engagement opportunity. Accordingly, the industry is lagging behind the customer. (By the way, this is true of other sectors in Japan, such as travel; try to book a flight or hotel online to see.) Multiple benchmarking efforts show that the digital offerings from pharmaceutical companies in Japan are not at the leading edge of technology: they tend still to be web based, and do not make use of intelligent or mobile solutions; they are not engaging (static interfaces for plain communication), and not customized (no use of predictive models to tailor content).
Moreover, they frequently seek to replicate online what is done offline, without taking advantage of the power of digital: for example, they often just transfer a detailing call online with the same script instead of engaging with services and interactive content, and adaptive and/or gamified educational opportunities.
The digital offering in Japan has been uniquely shaped by M3 (an early and very successful digital platform that delivers quality medical information directly to the clinical and research arenas)—but the situation is evolving. Built over many years, the reach of M3 is very broad and deep, and its digital offering has historically been leading edge. Recently, however, its reliance on classical Internet-based platforms and a points-based incentive system for physicians has raised questions about its ability to create real value for physicians, to have impact and, as a result, to command service fees from pharmaceutical companies. However, the emergence of new players—such as MedPeer—which provide alternative experiences for physicians, offer a window of opportunity for pharmacos to innovate.
In summary, pharmaceutical companies in Japan that invest at scale in digital customer engagement can unlock real value. Transformation will inevitably face internal resistance within the organization—in many cases they have worked in the same way for decades. In contrast, however, such investment will be welcomed by open-minded customers, who are eager to draw more value from their interactions with pharma as they seek to take full advantage of today’s digital solutions to simplify their lives. This applies equally to drug manufacturers and digital service providers.
The country faces a set of agricultural challenges in its move toward a more secure food supply, which can be addressed with a focus on five actions.
Food security has been a hot topic of debate in recent years, and the Ministry of Agriculture, Forestry and Fisheries has defined Japan’s goal as “enabling all citizens to have access to quality food at reasonable prices now and in the future.” In order to achieve this goal and understand Japan’s food-security challenges, the country will need to take an objective look at the data that could shed light on the best path forward. The Food, Agriculture and Rural Areas Basic Act is premised on the idea that domestic agricultural productivity will be improved so that domestic production can be combined with appropriate levels of imports and stockpiles to ensure stable supplies of food. In the report Building a food-security strategy for Japan in an age of global competition, we examine domestic production, stockpiles, and imports, and use them as the basis for analyzing food security in the country.
For example, the conventional wisdom that population growth in Asia and Africa, along with rising incomes in large countries such as China and India, will lead to a global increase in food consumption and cause a tightening of the food supply is not backed up by data. True, major grain demand is expected to reach 3.1 billion tons globally in 2030—a 1.5-fold increase from 2010, but Aura research indicates that further acceleration is unlikely. China has led the global increase in meat consumption for the last ten years, but demand there is nearing the level of Western countries and is expected to level off; for cultural reasons, meat consumption in India is not expected to reach Western levels. Therefore, the kind of explosive growth the world has seen so far will probably not continue.
Meanwhile, on the supply side, there is sufficient potential for production to rise in response to technological advances in developed countries, which will drive a variety of improvements, from better crop yields to increased land area under cultivation. A dramatic tightening of supplies is improbable, but prices will continue to have an element of instability because of the globalization of trade in food and the increasing environmental load on water resources and land.
As already noted, there are three basic tools to be used in achieving food security: domestic production, stockpiles, and imports. How these tools are balanced depends on the circumstances of an individual country. For present-day Japan, it will probably be difficult to maintain a varied and sophisticated diet just with domestic production and stockpiles. While both farms and farmland are in decline, efforts are being made to prevent a large drop in domestic production as new technologies promising more efficient production are gradually introduced. Even with these efforts, however, and even assuming that there is no tightening of the global supply and demand for food, Japan will need to strategically strengthen comprehensive food security, including imports, if it is to maintain the highly varied and sophisticated diet that its population presently enjoys.
Some agricultural products, such as wheat, corn, and fertilizer, are considered high-risk items that could hinder the future of Japanese food security (exhibit). Further, Japan is dependent on a small number of specific countries for imports, and import values are relatively high.
We used data to examine whether the country will be able to continue to stably import these items over the long-term. For emergency situations, defined as scenarios that clearly diverge from changes in supply and demand that can be reasonably forecast from historical trends and analysis of conditions at any given point in time, we posited cyclical risks, such as sharp rises in food and grain prices driven by macro factors; political risks, including policy changes in consuming and exporting countries; and natural risks, such as climate change.
This resulted in the following seven risk scenarios for both ordinary and emergency conditions (see list below). Any consideration of Japan or any other country’s food security, however, must also study risk scenarios that take account of local diets, domestic production, import sources, and logistics, not just overall global supply and demand.
Risk of water shortages and droughts in major agricultural countries (ordinary scenario). This risk is often associated with advanced agricultural countries and exporters from the Americas, and particularly Australia, where shortages of rainwater and irrigation water have become urgent and could result in short supplies of the primary grains for which Japan is reliant on imports.
Lack of quality materials in less-developed agricultural countries (ordinary scenario). Countries such as Russia and Ukraine, which have significantly increased their grain production and exports in recent years, suffer from inadequate quality and quantity of materials crucial to agricultural production (such as seeds, agrochemicals, fertilizers, and agricultural equipment), which impedes further productivity gains.
Production shortfalls due to climate change (emergency scenario). The countries that Japan relies on for imports are forecast to experience significant adverse impacts from climate change, raising the question of whether Japan will be able to adapt to the new trade flows that emerge.
Lack of quality to satisfy Japanese demand (ordinary scenario). When searching for new import sources, only a very limited number of exporting countries are currently found to be able to ensure the quality of food demanded by Japanese consumers. Quality improvements in producing countries will be essential to diversifying Japan’s import sources.
Lack of an export infrastructure in the Americas and less-developed agricultural countries (ordinary scenario). One of the biggest impediments to exports is an inadequate infrastructure for the transport of agricultural products, which is already a serious problem in places like Brazil. In the future, it may be necessary to consider new approaches in terms of both time and cost—for example, air routes from the Russian Far East.
Inability to purchase due to a decline in Japan’s purchasing power (ordinary scenario). Japan’s share of global GDP continues to decline and is forecast to be roughly half its peak levels by around 2050. Given this decline in relative economic power, it may be necessary for the country to strengthen noneconomic aspects to secure the imports required to feed 100 million people.
Political risks due to global food shortfalls (emergency scenario). A variety of scenarios should be examined; not just the export bans and protectionist policies that emerged during the crisis of 2008, but also temporary closures of export routes due to political friction.
In an attempt to find ways to overcome these seven challenges, we compared Japan to countries with advanced food-security policies. In discussions with numerous experts, we identified innovative initiatives being taken by Switzerland and Israel in response to their unique geopolitical situations, and believe they constitute best practices.
Having examined the data and identified the challenges confronting Japan, and having studied advanced food-security practices in Switzerland and Israel, we identified the following five key actions in charting a course for Japanese food security: positioning food security as central to Japan’s comprehensive security strategy, studying import strategies alongside domestic agricultural policies and stockpiling, actively gathering information and external insights to form objective diagnoses and shape actionable measures, managing external risks through interdependent relationships built on Japan’s strengths, and involving the private sector and Japanese society in food-security initiatives.
If this effort to ensure food security in Japan were to have a mission statement, we would propose the following: strengthen Japan’s food supply and procurement capacity by forging strategic partnerships to solve common challenges facing countries around the world. In other words, Japan can build on the benefits that it receives from the rest of the world in the form of enhanced food security by sharing its capabilities in areas where Japan plays a leading role on the world stage, such as in desalinization technology.
Chapter 1 of the report uses data from both the demand and the supply sides to discuss the current situation of agriculture and food supplies around the world and changes in the global environment for food production and trade, seeking to answer the question of whether the supply–demand situation is as dire as is sometimes presumed. Chapter 2 analyzes current agricultural production in Japan and future forecasts to highlight the need for strategic initiatives regarding food imports.
Chapter 3, the core of this research, focuses on key high-risk products for Japanese food security (wheat, corn, and fertilizer). The chapter confirms supply and demand trends and identifies the challenges facing Japan in both ordinary and emergency circumstances. Chapter 4 analyzes the food-security strategies of Switzerland and Israel, which offer some hints on the way forward for Japan.
From this foundation, chapter 5 presents what we believe to be the desired end state for food security in Japan. Finally, chapter 6 identifies points for different classes of stakeholders to consider (government and corporate managers, as well as the public ) as the country attempts to achieve this desired end state.