Management Practices in Japanese and US Companies

Management Practices in Japanese and US Companies This Research Paper makes a summary comparison of cross-cultural research conducted in the last ten to fifteen years in the areas of Human Resource Management; Management Style and Negotiation Strategies in Japanese and US companies. The different Research Studies in these three areas analyzed the learning possibilities for Japanese and US companies on two different levels: At headquarters and at subsidiary level. For each one of the three research topics, a Roadmap is drafted with concrete steps and strategies as to how these companies should adapt their management practices in these 3 areas in order to be even more successful. The findings of this paper also cover the very central debates in the international Human Resource Management literature: The Convergence vs. Divergence issue and the Standardization vs. Localization issue. The results clearly show that overall the dominance effect is most important (i.e., subsidiary practices appear to converge to the dominant US practices). Hence the results obtained in this paper lead to the rather surprising conclusion that for what might be considered to be the most localized of functions HRM convergence to a world-wide best practices model is clearly present. From the authors viewpoint his is a logical consequence of globalization in all business sectors. Key Words: Road Map; Human Resource Development; Leadership Style, Negotiation Strategies; USA; Japan; Cross-Cultural Introduction to Human Resource Management Practices in Japan and in the USA From a historic perspective, Human Resource Management (HRM) has been identified as a key ingredient for the success of Japanese companies on world markets during the 1980s. In this decade, suggestions as to how Western managers could learn from Japanese HRM practices were plentiful. Only one decade later, however, Japan went into a recession from which its business model has not yet fully recovered. Oddly enough, these formerly superior HRM practices are now being viewed as the root of the malaise of the underperforming Japanese economy A Research Perspective of HRM Practices in Japanese and US Companies In the early 1980s of the last century, the Japanese management model, and in particular its HRM model, have often been depicted as very different from Western-style management, yet much more competitive (Kono Clegg, 2001). Its deep-rooted and unique cultural and institutional characteristics usually were cited as the key reasons for these differences (Pudelko, 2006). Earlier, Frenkel Peetz (1998) described a rapidly speeding up globalization-induced trend towards increasing convergence resulting from global competitive pressures. In parallel, Katz, Darbishire (2000) noted a clear trend towards convergence in key patterns of HRM practices among industrialized countries. This phenomenon they call converging divergences. In parallel, the research of Frenkel Kuruvilla (2002) concludes that employment relations patterns are being determined by the interplay of what they define as three distinct à ¢Ã¢â€š ¬Ã… ¾logics of actionà ¢Ã¢â€š ¬Ã… ¸: The logic of global competition, resulting in the pursuit of global à ¢Ã¢â€š ¬Ã… ¾best practicesà ¢Ã¢â€š ¬Ã… ¸ and ultimately global convergence does not allow local insular cross-cultural happiness and coziness any longer. One reason that the USA has achieved its dominant status in the 1990s was its superior economic performance. The conclusion from these findings were that if the strengths of a successful economy are concentrated in industries characterized by intense international competition such as IT, computers and electronics the attention and the readiness to learn from it tends to be particularly strong. Such industries are often the pioneers for defining and producing à ¢Ã¢â€š ¬Ã… ¾best practicesà ¢Ã¢â€š ¬Ã… ¸ and the place where such global standards of management practice are set. Taylorism, or à ¢Ã¢â€š ¬Ã… ¾scientific managementà ¢Ã¢â€š ¬Ã… ¸, has been the prime example for a management concept claiming universal validity. Other examples were lean production, kaizen, re-engineering and management by objectives once strong points of the Japanese economy, when they were the best practice leader in doing so. Since the implosion of the Japanese economy and with the advent of globalizatio n, speed of action and instant flexibility to adapt to changing global market conditions were key criteria to succeed. Cultural diversity research carried out in the US and in Japan over the last one and a half decades has been that the American management model is particularly well suited to provide the required speed and flexibility to cope with rapidly changing economic and technological conditions. Consequently, the USA became again the dominant role model (Edwards, Almond, Clark, Colling Ferner, 2005). Summary Comparison of Key HRM Practices in Japanese and US Companies The following diagram shows a comparison between Japanese and US firms HRM practices. Areas discussed are: Recruitment and release of personnel; training and human resource development; employee assessment and promotion; as well as employee incentives. The comparison clearly illustrates the individualistic HRM approach in American firms as compared to the collectivism-oriented HRM orientation in Japanese firms. It is obvious that in the high technology sector especially the team and consensus oriented HRM philosophy of the Japanese is a hindrance to success. It appears that there are several other reasons for the declining importance attached to key attributes of Japanese model (kaizen, kanban, total quality management, quality circles, team work). Just like the Japanese firms have to learn from best practice solutions from other countries, these attributes have already been adopted by American HRM managers in the last 20 years, therefore are less significant in the future as sources for orientation. The changes brought about by globalization in the competitive environment probably also have played a role. For the future, fundamental developments such as globalization require substantial on-going responses from multi-national companies to maintain competitiveness. Figure 1 compares Japanese and US HRM practices and their competitive impact on HRM management in general. Figure 1: Comparison of Japanese US HRM Practices in 4 Key Areas HRM Sector: Japanese HRM Practices: US HRM Practices: 1. Recruitment Release of Personnel: Recruitment of new graduates to a permanent position Selection based on inter-personal skills Life-long employment philosophy low staff turnover rate= high loyalty Managerial positions filled with internal staff only Finding the best candidate internally or externally available Selection based on performance/expertise Job hopping philosophy pouts individual goals above company interests Positions filled with best expert available Competitive Effects of respective HRM Practices: Slowness towards innovation Lack of external expertise Promotes rapid innovation from inside or outside Low loyalty to employer HRM Sector: Japanese HRM Practices: US HRM Practices: 2. Training HRD Development: Broad training towards generalist knowledge Extensive training based on work group approach Employee is trained to fit corporate culture Specific training for specific tasks only Training is limited and focused on the individual only Little effort to mould the employee towards the corporate culture Competitive Effects of respective HRM Practices: Focused on corporate culture building Focused on individualism to promote success HRM Sector: Japanese HRM Practices: US HRM Practices: 3. Employee Assessment Promotion: Emphasis on seniority and not on performance Emphasis on group achievements Qualitative informal evaluation criteria Career path broad based in several Divisions Emphasis on individual success only Emphasis on individual achievements Quantitative measurable criteria and objectives Career path mostly confined to one functional part only HRM Sector: Japanese HRM Practices: US HRM Practices: 4. Employee Incentives: A mix of material and immaterial incentives Pay increases based upon seniority Little difference between top management pay levels and workers: Low with 20:1 Emphasis is on material incentives: Pay + bonus Pay based upon individual performance only Very large differences between top management and workers: High with 100:1 Competitive Effects of respective HRM Practices: Slow promotion for top performers Slow climate of innovation Quick promotion for top talents Innovative staff ensures innovative corporate climate Proposed cross-cultural Roadmap for a strategic HRM Approach Throughout the research reports analyzed for this paper, Globalization demands a broader-based strategic HRM response by Japanese firms on this more than 90 % of the interviewed Japanese Executives agreed. The results from the American respondents showed that they considered it to be a particular strength of the American HR management. Japanese managers agree in turn, that their process based incremental improvements concepts will lose in significance in the future. Furthermore the research data clearly shows that only Japan management has a distinct desire to change its own HRM model in a rather comprehensive way. This definitely can be described as a paradigm shift. The following Figure 2 gives some key thoughts and elements for such a strategic approach to HRM tasks in the future. Figure 2: A cross-cultural Roadmap for a strategic Approach to HRM Tasks in the Future Drivers of Global Changes in HRM: Elements causing Changes: Impacts of Change Elements on HRM: Need to reduce costs Speed of product innovation Quality of service Knowledge of client needs Staff motivation Training in design to cost method Innovative methods in product management Staff motivation and skills training Market knowledge has to be communicated Individual performance alone counts Risks involved: Overall corporate management philosophy has to be benchmarked against industrys best practice Key Changes needed: HRM has to install and accompany a change management process Individual performance evaluation has to abolish consensus-based group performance evaluation concepts Conclusions: HRM has to become the driving integrative force for the implementation of the Corporate Business Plan Resulting Roadmap for HRM Strategy: HRM Parameters that need to improve the Competitiveness of Corporations: HRM Parameter: Expected Benefits from HRM Changes: Strategic HRM Plan has to be part of Business Plan Future staff qualifications are in sync with corporate business plan Business Plan has to contain Change Management Concept HRM develops a long term focus linked to strategic corporate objectives Innovative Career Development Allows quick promotion of top performers Innovation oriented recruiting Speed up innovation cycles Promotion based on merit only Does away with risk minimizing attitude Introduction Best HRM Practice Concept HRM does self-control of its performance against key competitors Strategic HRM Implementation Roadmap: Overall Strategic HRM Objectives: HRM is the binding link of overall corporate business strategy to the employees of the company HRM promotes innovation and change culture in the company Planning Horizon of chosen HRM Strategy: Long term plan over 20 to 30 years Strategic plan over 5 years Operative rolling plans over 2 to 3 years Top Management Support required to implement new HRM Strategy: HRM has be a board level responsibility with staffing and budget to implement HRM Strategy chosen Introduction to cross-cultural Management Styles Globalization has changed the managerial tasks of US and Japanese mangers dramatically: Many have to work now in an international environment, in Japan or in the USA. Reasons for these changes were joint ventures, mergers, acquisitions and cooperation alliances. In the 1980s, Japan taught the work what kaizen; kanban, total quality control, etc meant in terms of competitive advantage. So the US managers had to learn these concepts. Towards the end of the late 1990s, the US had caught up with this cross cultural learning approach. Then the globalization effect came to full speed suddenly the individualistic type of US management proved to be much more flexible and successful then the slow consensus-based Japanese management style. Research findings towards different Business Cultures in Japan and in the US The research for this paper showed that the business cultures in Japan and in the US differ in 5 key categories: 1. Power Structure: National level versus international level; egalitarian approach versus non-egalitarian approach; centralized management forms versus decentralized management practices. In the authority-driven business environment still prevailing in Japanese companies, aspects of power play a critical role. This slows down decision making, as power issues dominate business cultures dominating innovative US companies (Browaeys 2009). 2. People Relationships: Collectivism versus individualism; team orientation versus individual focus. Japanese collectivism is documented in its overemphasis on team issues; where consensus finding warrants longer times until a decision is being taken (Dickson 2003). Management emphasizes group loyalty, relationships in groups prevail over individual tasks. Americans have lesser loyalty to their companies, they see employment as a temporary issue for the mutual benefit of employer and employee. 3.Tolerance for Risk-taking: High avoidance levels versus low avoidance levels; bureaucratic orientation versus non-bureaucratic orientation. The consensus-based Japanese business culture tries to minimize uncertainties through an over-emphasis on planning. As a result, they do not like to change plans once they were approved (Yamazaki 2008).US companies treasure the opportunities offered in risky endeavors a horror for traditional Japanese companies! 4. Masculinity/Femininity: Role differentiation between males and females at society and organizational levels. Japanese managers are expected to be assertive and decisive, with sex roles clearly defined. This means fewer women progress to managerial positions in Japan, whereas in the US women climb to executive posts on a much more regular basis (Jacofsky 1988). Work for Japanese managers is seen as the center of life interests. Edwards 2005) 5. Time Orientation: Long term view versus short term view in business planning and strategy formulation. The time perspective in their business philosophy: Past/present in Japan versus present/future perspective in US companies. American companies are a lot quicker to react to new opportunities what was successful in the past is less important than new opportunities which lay ahead in the near future (Dahl 2004). The retrospective business approach of Japanese companies has them look for long-term relationships. US companies take the present and look quicker and often farther into the future. This speeds up their decision making processes and facilitates the acceptance of risk taking among their executives (Tsui 2007). Research findings towards Key Managerial Skills in Japan and in the US Effective cross-cultural management skills have to fit the prevailing national business culture where they are being applied to on their workplaces. In individualistic business environments as in the US, new employees are being hired on the basis of their personal records. In the collectivistic business culture of Japan, recommendations from elite universities or from family members who already work for the company play a vital role. The following key managerial functions have been analyzed in research paper: Reward allocation and employee motivation; employee participation and managerial communication; executive development. 1. Reward Allocation and Employee Motivation: The proper allocation of rewards is the driving force of the individualistic US business environment: Rewards are expected to be equity based, i.e. based upon an individuals contribution to corporate success. Rewards are supposed to be equal for equal performance: Rewards have to based upon the specific needs of a position (Riley 2007). In the more equality and group oriented Japanese business culture, rewards are being allocated on a group basis. These research findings did prove that the application of inappropriate reward systems caused feelings of de-motivation and injustice (Buttery 2000) 2. Employee Participation and Managerial Communication: To get employees to participate in goal setting in a US company is daily business, as in this way it increases the employees involvement in how his work environment is being shaped. Given the individualistic US business culture team effectiveness rises if team members are personally accountable for their personal contribution, which can be measured i.e. management by objectives (Javidan 2006). In the more socially oriented Japanese Business culture, employee participation is more socially oriented and the employees display lower levels of power distance between organizational levels (Hofstede 1980) 3. Executive Development: In an American business environment, qualified staff is classified into high potential groups for future executive positions at a much earlier stage of their career and at a much younger age as compared to the Japanese business culture. This encompasses a mix of specialist type of work assignments combined with near executive project assignments, to give them an early feeling of how an executive ticks (Yamazaki 2008). Japanese companies tend to focus on generalist type of assignments with intensive functional and geographic job rotation at almost the same hierarchical levels. Promotion is by seniority criteria mostly (Saee 2010). In consequence this implies: Executive development in US companies is based upon the potential benefits seen in a junior executive, whereas the Japanese approach is more oriented towards rewards for the past performance (Raimo 2009). Proposed Roadmap for a strategic cross-cultural Management Style The following Figure 3 gives a strategic roadmap for a cross-culturally based management style which facilities quick and efficient adaptation to cross-culturally different work environment. Figure 3: A cross-cultural Roadmap for a strategic Approach to Drivers of cross-cultural Management Styles:Management Style Development Common Management Skills Deficiencies: Negative Impacts of missing cross-cultural Management Skills: Lack of employee motivation In-adequate communication style De-motivating reward system Slow pace of promotion system Lack of managerial skills training Performance is not recognized/rewarded Work objectives unclear=de-motivating Individual motivation not released Resistance to innovations Necessary changes do not take place Risks involved: Mix of management skills not suited for work environment High potentials are not identified and promoted High staff turnover; slow pace of innovation and change management Key Changes needed: HRD concept oriented towards cross cultural sensitivity Top management involvement in management skills profile development Cross-culturally oriented career development system Conclusions: An innovative HRD approach is needed Designed by managers with local management experience HRD skills Resulting Roadmap towards a cross-cultural oriented Management Style: Managerial Skills that need to be improved: Management Skills requiring Attention: Expected Benefits better Management Styles: Reward systems motivation tools Keep staff and attract talents Career development system for talents Quick promotion for high potentials Innovative pay system Increased motivation to innovate Clear set of managerial objectives Rewards are measurable and objective Internal PR for new management style More credibility for management styles Top managers have to practice this style Extra motivation to manage/risk changes Strategic Management Skills Implementation Roadmap: Overall Strategic Management Skill Development Objectives: Analyze requirements for necessary cross-cultural management skills Incorporate necessary changes into overall management philosophy and corporate mission Document and promote concept at all managerial levels Planning Elements for chosen Management Skill Development Strategy: Assess time and research requirements properly; involve superiors where needed Involve top management team properly and show their support in public statements/info releases Managerial Support required to implement new Management Skill Development Strategy: Develop a strategy paper involving top management and clarify roles and inputs and state resource requirements as compared to potential gains from these improved management skills Introduction to cross-cultural Negotiation Styles Cultural Diversity is one of the most critical issues in international negotiations. A key requirement for successful international negotiation is the extent to which the negotiating parties are capable of understanding the negotiating habits and thoughts of their counterparts who come from another culture (Brett 2000). When entering into an international negotiation process, the full awareness and understanding of the cultural differences, such as cultural background, national character, emotional aspects, rules and regulations of other countries, decision making styles, ways of discussing, meeting and negotiating is of vital importance in order to make the negotiation successful. The difficulty the negotiators are facing have to do with dealing on the basis of different sets of values, attitudes, behaviors and communication styles of the other party participating in the negotiation process. The proper planning and preparation for negotiations, and participating in the negotiation p rocess must take into consideration all these factors. This will avoid setbacks, surprises and shock so often faced in cross-cultural negotiations. A. Basic Research Findings linking Negotiation and Culture A nations culture in itself consists of interrelated patterns or dimensions which come together to form a unique social identity shared by a minimum of two or more people It is the unique character of a social group and the values and norms common to its members that set it apart from other social groups (Brett, 2001;). Consequently for this reason, because of the different values and norms, people from different cultures negotiate differently (Brett, 2001;). Many authors talk of a set of cultural values associated with each cultural group which actually is the determining force for the culture (Tinsley, 2001, Brett, 2001;). The knowledge of these values and norms provides insight into the choices made and influences these very negotiators cognitions, emotions, motivations and strategy. Research shows a clear differentiation: Whilst values refer to what a person considers important (more on cognitive side), norms refer to what is considered appropriate behavior (behavioral aspects) i n a specific culture. Consequently, because of these different values and norms, people from different cultures tend to negotiate differently (Brett 2001). These cultural values and norms shape implicit theories invoked in negotiations (Gelfand and Dyer 2000) and may influence a negotiators response to strategically displayed emotions. In Japanese companies, the emphasis of a group being the core nucleus for negotiations communicates these values to its members and rewards conformity. In this way a members values become thoroughly culturally constituted. Thus, culture creates an overall environment for Japanese companies and their negotiators which in many ways directly or indirectly compels the constituent members to be guided by their cultural value sets while negotiating. B. Research Findings concerning the strategic Framework of cross-cultural Negotiations According to the book The Global Negotiator: Making, Managing, and Mending Deals around the World in the twenty-First Century (Salacuse 2005) there are a total ten particular elements consistently complicating intercultural negotiations. 1) Negotiating goal: Contract or relationship? 2) Negotiating attitude: Win-Lose or Win-Win? 3) Personal style: Informal or formal? 4) Communication: Direct or indirect? 5) Sensitivity to time: High or low? 6) Emotionalism: High or low? 7) Form of agreement: General or specific? 8) Building an agreement: Bottom up or top down? 9) Team organization: One leader or group consensus? 10) Risk taking: High or low? Research shows that for a Japanese manager negotiation is also about being sensitive to the personal/emotional factors and hence may sometimes be indirect, informal, and general with less sensitivity to time whereas. On the other side for a negotiator from USA, any negotiation is to the point, direct, formal, with high consideration for time and less care for personal or emotional factors. B. Research Findings concerning Diversity Factors and Strategies in Cross -Cultural Negotiations In countries such as in the US and much of northern Europe, strong, direct eye contact conveys confidence and sincerity while in Japan, prolonged eye contact is considered rude and is generally avoided. In Japan they always prefer personal space during business dealings. With regard to the Japanese, Salacuse shows that 100 percent of the Japanese respondents claimed that they approached negotiations as a win-win process. Communication itself constitutes a basic component of negotiation framework. Diversity in this communication aspect is also very obvious and pertinent. In a culture that emphasizes directness, such as the American one, you can expect to receive a clear and definite response to the proposals and questions. In SE Asian cultures such as the Japanese reaction to proposals made to them may be gained by interpreting seemingly vague comments, gestures, and other signs. Concerning the cultural sensitivity to time, Salacuse in his study quotes Japanese tend to negotiate slowly, and Americans are quick to make a deal. Contrary to this perception of time, for Americans the objective is a signed contract and as for them time is money, they want to close a deal quickly. Americans therefore try to reduce time invested in formalities to a minimum and get down to business quickly. Japanese and other Asians, whose objective is to create a relationship rather than simply sign a contract, need to invest time in the negotiating process so that the parties can get to know one another well and determine whether they wish to embark on a long-term relationship Another crucial aspect in cross-cultural negotiations is risk taking ability. The Japanese tend to be highly risk averse in negotiations, and this tendency was affirmed by the survey conducted by Salacuse, which found Japanese respondents to be the most risk averse of the twelve cultures. Americans in this survey, by comparison, considered themselves to be risk takers. C. Research Factors concerning the Management of Conflict in cross-cultural Negotiations Research findings with regard to managing conflict in cross culture negotiation show that different cultures focus on different aspects. Tinsley (1998), revealed that when managing conflict American managers preferred to focus on interests, while Japanese managers concentrated on status power. The differences could be explained by the American value for poly- chronicity (or multitasking) and the Japanese occupation with hierarchy (or unequal social structures. It is obvious though, that awareness of emotions is vital to negotiation and it plays a key role when it comes to cross-culture negotiation conflicts. In the Japanese business culture, status and power also play an important role in conflict management where parties try to manage conflict by using differences in authority, status and power. To them it is normal that high status parties try to enforce their ideas for resolution on lower status parties. If this is not possible, Japanese negotiation parties try to enhance their st atus by co-opting people of higher status. D. Research Findings concerning cross-cultural Decision-Making styles during Negotiations Decision-making styles vary a lot between Americans and Japanese. When it comes to team based versus individual way of taking decisions one extreme is the American negotiating team with a supreme leader who has complete authority to decide all matters. The Japanese business culture stresses team negotiation and consensus-based decision making. American managers usually tend to make decisions by themselves, while Japanese managers tend to make decisions by consensus. Furthermore, Americans treasure the value of flexibility, whereas once a Japanese manager has reached a decision, may believe it is shameful to change it. Decisions can be taken either through a deductive process or through an inductive process. In his research, (Salacuse 2005) found that Americans do view deal making as a top down (deductive process); while the Japanese tend to see it as a bottom up (i.e. inductive) process. E. Research Findings concerning the Interests Strategy in cross-cultural Negotiations The process of aligning and integrating the best interests of both parties works as a catalyst for successful negotiation. This interests-based strategy promotes the resolution of dilemmas through cognitive problem solving. Research shows is essential to shift focus from position to interest. Several authors suggest that as both parties want to gain their individual interest therefore they always want to implement the negotiation. From their perspective, individual interests of parties are always more important than collective group interests. A cross-cultural Roadmap for a strategic Approach to Negotiation Styles The following Figure 4 shows a roadmap for the development of efficient cross-cultural negotiation styles. Figure 4: A cross-cultural Roadmap for a strategic Approach to Negotiation Drivers of cross-cultural Negotiations: Common Negotiation Difficulties: Negative Impacts on Negotiations: