February 2010

Based on an interview with Tetsu Horie,
Chief Executive Officer, Aon Consulting Japan

The challenge

After nearly 20 years in the doldrums, the Japanese economy presents few opportunities for growth and profitability for large Japanese businesses. Many Japanese companies are struggling to increase revenue and profits from their domestic operations. Slow growth and a saturated market limit their options. With dim prospects at home, offshore markets have become increasingly critical to the success, and even survival, of a growing number of Japanese firms. The largest Japanese firms already have significant operations overseas but many believe that their future is tied to further expansion into markets abroad.

While a large proportion of large Japanese firms are global players, few have global management. Many Japanese companies continue to conduct their overseas business through their Japanese relationships. Japanese expatriate managers run the overseas operations and conduct business primarily with other Japanese suppliers and customers.

One company Aon Consulting has been working with is trying to break the shackles of the mold. Historically, this company, which is in the transport sector, operates like a classic Japanese company. Its overseas operations are staffed by Japanese while most customers and suppliers outside Japan are also Japanese. This Japanese-centric model of operation limited the growth of the company.

The company now realizes it needs to break out of this inhibiting mold. Part of its future survival is dependent upon growing its portfolio of non-Japanese customers. The company has set an ambitious target of doubling total revenue, and increasing overseas revenue to 50% of total revenue.

To spearhead this new direction, the company will need to draw on the skills of its non-Japanese managers and introduce new management methods among its Japanese expatriate managers. The company's non-Japanese managers require more training and integration into management decision making while its Japanese expatriate managers must transform their roles into mentoring the new managers and preparing them to take on greater management responsibility.

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How Aon Consulting helped with the transformation

Aon consultants worked with the company's corporate planning department to jump start the process of transformation. First, Aon surveyed the MDs (managing directors), senior managers and HR directors of overseas subsidiaries to gauge their primary concerns and challenges as well as assess the kind of support they needed from headquarters. Aon then prepared a report that summarized the results and proposed a new direction for the next two or three years. The report was subsequently used as the basis for discussions that Aon consultants facilitated at the company's top management meeting where they brought together the managing directors of all of the overseas subsidiaries. The objective of the meeting was to build support and then consensus for new initiatives in line with the findings and recommendations.

In its recommendations, Aon Consulting proposed a series of critical initiatives including:

• Developing non-Japanese managers to prepare them to take on greater management responsibilities.
• Reviewing and restructuring the global organization to make room for non-Japanese executives.
• Training Japanese expatriate managers in counseling, coaching and mentoring skills.
• Defining the company's underlying philosophy and communicate it to non-Japanese employees with the intention of gaining their support and buy in.

Develop Non-Japanese managers. An initial focus will be on the development of non-Japanese employees. In the past, non-Japanese managers had little client interface at the highest level as most clients were Japanese. Strategic sales and relationship management training for non-Japanese employees had therefore been unnecessary. Such training will be essential if the company is to grow its portfolio of non-Japanese clients.

The first step in the process is to assess the current quantity and quality of non-Japanese employees and to identify high-potential individuals. Once the company has identified high-potential candidates and the talent gap, it will then determine the best means to fill the gaps (e.g. job rotation, training, coaching) and define development plans both at the group and individual level. The intention is to kick off the leadership development programs for the non-Japanese in 2010 with one or two concrete development programs.

Restructure organization. The organization operates informally based on close, longstanding relationships among Japanese executives who have been with the company their entire careers. Now there is a need to analyze and clarify the roles and reporting relationships among executives in global headquarters, regional headquarters, each country, and each subsidiary in order to integrate non-Japanese managers into the existing organizational structure.

Develop Japanese expatriates. In the past, the company did not have a specific development plan for Japanese managers who were working overseas. Going forward, there is a need for change. The company needs to define the role of Japanese expatriates and conduct assessments of the expatriates that are similar to those done for the non-Japanese employees. The company plans to analyze the current quantity and quality of the Japanese expatriate management team and then create a development plan that addresses the gaps that have been identified.

Promote the corporate philosophy and culture. The company has a strong culture and operating philosophy that underpins its operations. The philosophy is well understood and accepted in Japan among Japanese employees. However, the company has not really tried to communicate the philosophy to employees outside Japan. The survey conducted by Aon Consulting showed that non-Japanese employees were interested in knowing more about the company's corporate philosophy and how that philosophy has driven the business throughout its history.

Aon Consulting recommended that the company define its corporate philosophy and culture in a manner that can be understood and accepted by the non-Japanese employees. The company would then communicate and promote the philosophy broadly throughout the entire organization via the values and competencies they look for in managers; the development programs that they create; and the systems and processes they use to manage performance and motivate employees. 

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Challenges ahead

The biggest challenge that the company faces is common to many Japanese companies ─ balancing the need for short-term results against building a sustainable long-term business. Generally speaking, top management, both at headquarters and overseas, agree that the development of non-Japanese managers is a high priority that is critical to the future growth of the company. However, support for implementation often is lacking when it comes to taking specific actions to accomplish that goal.

For example, the MDs fully support the idea of creating a development plan for their high-potential mid-level non-Japanese executives. However, these same individuals often resist implementation when it comes to the actual assessment and training. They are reluctant to make judgments about high potentials, are concerned about the cost of development and feel that they cannot afford to have these individuals step away from their critical day-to-day responsibilities.

Another overriding factor is the pull between the long-term strategy and the short-term demands of the business. Managers generally agree on the long-term focus on non-Japanese businesses but in the short term, they are pulled into the vortex of keeping up with the demands of working with existing Japanese customers. Cultivating non-Japanese business will take time and effort. Many feel that they cannot afford the investment right now as they are busy enough with Japanese companies. Many are also impatient, knowing the pay back from investments in non-Japanese business will take many years.

Patience and persistence will overcome these problems with time. Advocates of change in the company hope to build on small successes and win over skeptics. Top management and MDs of overseas subsidiaries will embrace the change once they see the returns from initial investments in development. 

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The value that Aon Consulting delivers

Aon Consulting has delivered value to the client in two areas. The first is in facilitation of the meetings and the second is the insights that our consultants provide into the experiences of other companies facing similar issues. Aon consultants' facilitation skills and prior experience working with Japanese global companies is invaluable to organizations seeking to transform their organization. Aon consultants act as a sounding board as well as knowledgeable and impartial third-parties who not only help guide the discussion but also provide valuable insights that form the basis for informed decision making. 

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Contact

For more information on Aon Consulting's organizational transformation solutions, please contact Tetsu Horie, Chief Executive Officer of Aon Consulting Japan at tetsu_horie@aon-asia.com. 

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