Digital Transformation in Japan

Business forms that require fax numbers, governmental agencies requiring floppy disks, hard copy forms at the bank – Japan looks like a fertile ground for digital transformation. All these slow processes and manual tools that vanished decades ago around the world are still in use in Japan. Entrepreneurs can imagine dozens of ways to improve these legacy operations by shifting to their cloud based, cutting edge, highly flexible scheduling/ERP/HR/finance tool. Especially since it is already a popular around the world. Such opportunity!

And then, three years later, they shut their Japanese office and wonder why everyone kept their old system, instead.

Reddit, Medium, and the Japan focused LinkedIn groups have dozens – if not hundreds – of posts with similar stories. People with great ideas who built well designed tools that just never got adopted by large organizations in Japan, even when the needs are obvious. While any digital transformation is difficult, as shown by this article on CIO.com, Japan has a few additional challenges that need to be accounted for.

Cultural Hurdles

There are three cultural norms that can disrupt transformation projects in Japanese organizations:

Resistance to Change: Tokugawa Ieyasu established a Japan-wide national government with a large bureaucracy to manage activity throughout Japan in the early 1600s. And a lot of it is still here. There are multi-century old companies and governmental agencies that have a history predating the Meiji Restoration. The phrase “we’ve always done it this way” might have multi-generational weight. But even organizations without that extended history can have a high “default level” of resistance to change. Many Japanese organizations take “if it ain’t broke, don’t fix it” and go to eleven, like Spinal Tap. In Masao Miyamoto’s 1995 book Straightjacket Society : An Insider's Irreverent View of Bureaucratic Japan, he describes how some people saw changing policy and procedure as an attack on the previous policy maker. Changing things today “proved” that the previous people had made a mistake. This cultural mix of history, disinterest in rocking the boat, and the possibility of ex post facto social disruption results in a very strong resistance to change.

Risk/Reward Imbalance: To oversimplify, Japan corporate culture is a demerit based. The journey from fresh college graduate to bucho (department head) depends on never making a noticeable mistake. A person who exceeded their goals every year, landed big customers, made millions for the organization, but made a mistake that embarrassed the boss 5 years ago will be passed over for their classmate that quietly met minimum expectations for last couple of decades. This may seem exaggerated for narrative effect, but I have met more than a handful of Japanese salarymen who lived through this. This creates a radically different risk/reward calculation for Japanese career employees compared to their American or European counterparts. When taking a risk and succeeding gets you a handshake and maybe a nice dinner but failure permanently derails any future career, the reluctance to push for a radical digital transformation project is obvious.

Multi-level Consensus Building: In any book about doing business in Japan, you will come across the term nemawashi which has a colorful literal translation of “turning the roots” which is related to how you transplant a tree. In Japanese organizational dynamics, it used to describe the consensus building process that occurs between various teams and departments when new ideas or potential changes are being discussed. Nemawashi is mentioned so many times in so many books that it is easy to think it is just a cliché or stereotype about Japan, but I have found it to be quite real. Even if two-thirds of the C-suite, the CEO himself, and everyone you talk to think that your digital transformation project is a perfect idea, that may not be good enough to move forward. It only takes two or three key groups uncomfortable with the risks or not seeing the benefits can delay a project.

What can be done?

Over the past decade and half in Japan, I have seen several techniques for getting Japanese organizations to accept change and actually digitally transform.

Build Champions at Multiple Levels: The nemawashi consensus building process can conceal who are the key influencers. Even if a senior finance person was an influential “no” on a particular digital transformation project, it might because a small FP&A team in their department firmly rejected the idea. It was the “no” from the team which resulted in the “no” from the senior level person, but you may have been unaware. Spending time explaining the digital transformation project to a mix of people at different levels can help avoid these hidden opinion makers. Aim to build a set of champions at junior, middle, and senior levels instead of concentrating at just the top. This can facilitate peer-to-peer discussions that then feeds into the nemawashi process, leading the organization as whole to accept the project.?

Put the “Why” at the Center: When big changes are deployed, many teams turn to published Organizational Change Management (OCM) frameworks to help guide the changes. Unfortunately, many of these focus on the HOW of the change – this the new tool, this is how you use the new tool, this is how you get help, etc. – and gloss over the WHY. Employees in Japanese companies are generally technically competent and can adapt to new tools with even basic how-to directions but if they are not convinced – truly convinced – that the new tool and new process is really better than the old way, the new digital transformation will fail. OCM efforts that emphasize and re-emphasize the reasons behind making the change (i.e., clearly describe the current problems, show what needs to be changed, show how things will get better, etc.) have a higher success rate.

Demonstrate the Quality: However, no careful nemawashi strategy or well-planned OCM campaign will succeed if your tool cannot deliver. Japanese organizations have a high expectation of quality in everything – including digital tools. A Japanese version of a Minimum Viable Product (MVP) tool would be a v3 or v4 product in other markets. Anything buggy or unreliable will tarnish your reputation and sink your project so be careful in how you present it. However, when you are confident in your solution quality, regular product demonstrations to junior, middle, and senior level customers that show the value and stability of the product will help overcome the strong risk aversion common in Japanese organizations.

Can DX succeed in Japan?

Those dozens, hundreds, or thousands of opportunities for digital transformation in Japan are real and are good match for that next-generation, high-tech solution you want to sell. However, there a few cultural and organizational norms that can derail everything. However, if you have the time and patience to tailor your presentation and wait for the results, you can get your transformation project past the finish line even in a very traditional Japanese company.