April 2010

Based on an interview with Ryosuke Sasaki,
Senior Consultant, Aon Consulting Japan

In last month’s Asia Connect, we looked at the steps that one large Japanese multinational company is taking to build a truly global management (click here to read article). But the challenges facing Japanese firms extend beyond globally recognized Japanese brands. This month we look at how one mid-sized Japanese company is creating a global HR strategy aimed at both reducing its reliance on Japanese customers and increasing its overseas business.

The challenge

For the past 50 years Japanese industrial products suppliers have built their businesses by servicing the needs of Japan's best-known companies. Close and intertwined business relationships characterized Japanese supply chains. These cozy relationships extended into virtually all aspects of the business from design, to manufacturing, to logistics and to after-sales service.

As Japan's largest global companies moved overseas, their suppliers moved after them and the proportion of these suppliers' sales outside of Japan increased accordingly. But, while the overseas presence of Japanese industrial suppliers increased, the style of management of these suppliers remained firmly Japanese. Senior management outside Japan was comprised of exclusively Japanese expatriates and virtually all business communications were conducted in Japanese.

Now, this classic business model for mid-sized Japanese industrial suppliers is under threat. Stagnant growth in Japan combined with tougher demands from long-time customers and a move toward business based on purely professional arms-length relationships has squeezed these companies. They are now being forced to secure non-Japanese customers outside Japan in order to create new sources of revenue growth and profitability.

The difficulty is that the current business methods make this next to impossible. The primary sales for all operations globally are made by sales teams in Japan. The sales teams work closely with Japanese customers at each stage of the supply chain in order to integrate their components into the customers' product design and manufacturing process.

Even outside Japan, communication with customers and with headquarters is typically in Japanese as the executives from both suppliers and customers are most often Japanese expatriates. Shifting the focus of sales to non-Japanese customers requires an organizational transformation that goes to the roots of how business has been conducted for the past 50 years. 

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How Aon Consulting is facilitating the transformation

The prospect of such an organizational transformation is daunting for many Japanese industrial suppliers; nonetheless, their business survival demands it. One company Aon Consulting is working with has decided to face this issue head on.

The company anticipates that within the next several years 75% of its revenue will come from overseas operations, up from 50% currently. To achieve this level of growth, they will need to dramatically increase the proportion of sales to non-Japanese firms outside Japan. They feel that this can only be accomplished by transforming the fundamental way in which they do business.

Similar to many industrial products suppliers described above, Japanese expatriates manage the company's overseas operations with little intervention from headquarters. The management style often is based on the character of individual managers and tends to be "command and control." Consequently, big communications gaps often exist between Japanese managers and their local employees.

Now, headquarters is trying to change this management paradigm. They want to introduce a more systematic and strategic approach to management, which moves away from informal and relationship-based communications, shifts to English as the language of business, and encourages the promotion of local employees into key positions.

Aon Consulting Japan is helping them make this transition toward being a truly global company. We are working with them to develop global policies that will apply to all of their group companies in Asia. These newly established policies will cover business direction, corporate values, human resource policy, and compensation philosophy. 

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The first steps in transformation

The first step in the project was to nail down the objectives and secure the buy in of key executives both in headquarters and overseas. As part of this process, Aon consultants facilitated a global meeting where all of the HR managers in Asia gathered in Tokyo to discuss the key HR issues in the overseas subsidiaries and the perception of local employees overseas toward the company and its style of management.

The most critical business issue with direct relevance to HR policy is the need to enhance their non-Japanese customer base in Asia. The company's top management believes that to accomplish this within the next several years, they need to minimize the Japanese involvement in the sales and marketing process and give local staff a more prominent role. The difficulty with this is that little has been done to enhance the skills of local staff and hence, they are not ready to take on an increased responsibility for sales or management. Addressing this issue is a key priority for the company.

Before doing so, however, the company needs to address more broad-based issues related to human resource and compensation. Reward and performance management systems are inconsistent and old-fashioned. Salary grading, compensation benchmarking with market data, and evaluation programs all need to be established or improved. In many ways, the company has to create an entire range of HR policies and programs from the ground up.

Based on the issues identified, Aon is working with the company to establish goals to address these issues and then translate them into a master plan with priorities and action steps for the next three years. Aon will work with the company to implement the master plan step-by-step by first focusing on high priority programs that will have immediate beneficial impact. Then building upon that base, will gradually transform the company into a truly global organization.

Building the base for transformation will start with three components:

Vision, mission and values. Aon is helping define and develop a statement of corporate vision, mission, and values. This statement will now serve as the basis for the new management policies. Aon is working with the company to integrate the vision, mission and values into the new HR policies and practices. Subsequently, a communication program will be put in place to ensure that executives and staff are thoroughly familiar with and understand the overarching principles that underpin the organization HR policies and procedures.

Reward and talent management. A second priority is to design and implement a reward and talent management program for each Asian country in which the company operates. The company has never used external consultants or benchmarked their compensation practices outside of Japan. Thus, Aon will be working with the company to design each of these country programs from scratch.

Communication and training. The third priority is to address resistance among Japanese executives and expatriates to this new direction in management. Accustomed to the current way of doing business, many Japanese expatriates are reluctant to change to a more open style of management. Aon is developing workshops for Japanese expatriates to garner their support and buy in by exposing them to global management practices used by successful and well-known Japanese multinational companies. At the same time, Aon consultants are developing assessment programs designed to identify the next generation of Japanese expatriates who will promote or embody these new directions. 

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The value that Aon Consulting delivers

This project is a model for human resource management for other mid-sized Japanese companies that have plans to expand their overseas business. According to Ryosuke Sasaki, Senior Consultant of Aon Consulting Japan, "Often a consultant just works on one aspect of a problem that is facing a company, such as compensation. In this project we are involved from the planning phase all the way through implementation. Our client treats us as a partner rather than an outside consultant."

The extensive overseas experience of Aon's consultants is a key factor in why the company feels secure in this partnership. Sasaki says that, "While executives at headquarters in Japan are quite confident in addressing domestic matters, they have little experience in overseas management. They were looking for a consulting firm that is very strong in global business. Because few Japanese HR consultants have worked overseas, the extensive overseas experience of our consultants is especially valuable. We are able to provide management insights and share the experiences of other Japanese multinationals that are more advanced in global management. This is why they came to Aon."

The challenges confronting mid-sized Japanese companies as they seek to globalize their operations are tough and organizational changes will take time. Yet, with a clear vision, bold, well planned actions and a patient perspective toward change, this mid-sized Japanese company will be well equipped and launched on the path to future success as a global company. 

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Contact

Please contact Ryosuke Sasaki at ryosuke_sasaki@aon-asia.com for more information about how Aon Consulting can assist you in addressing these issues within the specific context of your business.

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