A Heretical View of the Once-in-a-Century Stuff

Sunday, December 07 2008 @ 09:43 PM JST

Contributed by: Y.Yamamoto

Dr. Michael Hammer died in early
September as if to remind us of
his unfinished work amid the
global crisis

December 6-12 issue of The Economist observes:

"Were it not for the tax relief they receive, contributors to personal pension plans [for one] would have been better off keeping their money under their mattresses. It will be little consolation to Westerners that savers in Japan have known this empty feeling for far longer."

Although the empathy shown here is something that brings a big consolation to most Japanese, I cannot be very sure Westerners will learn bitter lessons from the "empty feeling" faster than the Japanese, if ever they are able to learn anything from it.

As a matter of fact my fellow countrymen have learned no lessons from what they experienced when the bubble economy burst. That is evident from the way they are responding to the current crisis. Once again, in the face of deja vu of the bust of 1990, they are at a loss. They are very fond of parroting Alan Greenspan's exquisite qualifier "once-in-a-century." Yet they look unable to come up with a single countermeasure which is not too conventional to be workable with this momentous set of circumstances. It's as though they wish deep inside that the former chairman of the U.S. Federal Reserve had been just exaggerating the severity of the situation.

There's nothing new in the Japanese trait shown here. Yet I still wonder how come the recent politico-economic discourse among policymakers, analysts and scholars in America has hardly come any closer to really addressing the once-in-a-century enormity of the problem. Maybe Obama's promise of creating 2.5 million jobs is unprecedented, but he should know that artificially bloated employment will only lead to a larger number of layoffs at a later point in time.

Let me go a little personal here. I started my career in 1959. After going through the high-growth era of the 1960s and 1970s, the bubble years of the 1980s and the post-bubble doldrums, I called it a career in 2005.

When getting into business 50 years ago, I was not mercenarily motivated in part because I came from an upper-middle-class family, and in part because I was born to be an extremely lazy person. In short, I didn't like to work. When I was a senior, I kept asking myself, "Why bother to work in the first place?" In those days, I came across Max Weber's books in which the German political scientist defines the word Beruf (occupation) in the capitalist society as a calling, i.e. a mandate to actualize one's inner values. It was this definition of the word that made me join the herd of Japan's corporate warriors. In that sense I owed my entire career to Max Weber. Also I owed him a very unusual way of viewing man's economic activity.

Actually it took me more than three decades until I could define my mandate more specifically. In the mid-1990s, I stumbled on Dr. Michael Hammer (photo on the top) when heading a series of massive restructuring projects at a mid-size company headquartered in Zurich, Switzerland. Hammer co-authored a book titled Reengineering the Corporation in 1993 in which he theorized how to revolutionize the workplace in a clear departure from Adam Smith's theory on division of labor, and its Henry Ford's version. Most of my colleagues and bosses mistook BPR (business process reengineering) for yet another methodology aimed at incremental improvements such as those attained by Japanese corporations with their obsession with "productivity."

In fact, though, the BPR theory has nothing in common with the drive for Kaizen (incremental improvements,) TQC (total quality control,) Toyota's Kanban (just-in-time) procurement method, or the like.

Most of the time our projects turned out a half-success, where the success factor was the fact that we could avail ourselves of a huge state-of-the-art software package generically called ERP which stands for Enterprise Resource Planning system. But that was far from enough. Peter F. Drucker once observed, "There is nothing so useless as doing efficiently what [needs] not be done at all." Even Hammer himself later admitted that the human factor, more often than not, outweighs the IT-enabled BPR. In other words, what to do is far more important than how to do it when attempting to revolutionize things.

In 1999 I moved on to a software giant based in Walldorf, Germany, that now boasts more than 76,000 corporate customers for its ERP products in more than 120 countries. There again I hit the wall; the company's subsidiary in Japan was, and still is, lagging far behind its sister companies in terms of ERP penetration. The only reason behind this is the fact that despite the protracted doldrums after the burst of the bubble, the Japanese at large still remained caught up in the legacy of lifetime employment. Even today these people are desperately resisting change, let alone a revolution, as they believe they can ensure homogeneous corporate cultures only by putting job security before anything else. The quality of life always comes last.

While working at that company, I once found myself volunteering to translate into Japanese the PowerPoint slides the visiting Hammer had brought along to use for his keynote speech at a conference in Tokyo. The guru's presentation attracted a huge audience but very few seemed to have understood Hammer really meant it when he evangelized on perpetual revolution.

There always is a safety valve in front of you. It's there only to be opened, not closed, whenever necessary. And every time you open it, you will see a lot of pus belching out from inside. The longer you hesitate to do so, the more it's likely you end up seeing something that looks pretty much like disembowelment of rotten entrails. In order to avoid this, you've got to have the wisdom to tell when to fully open up the valve and the courage to do so before it is too late.

Japan's unemployment rate stood at 3.7% in October. On December 6, the Japanese government announced a plan to financially incentivize corporations to refrain from jettisoning 1.4 million people. The idea behind this goal is that since Japan's working population is 63.9 million, another 1.4 million loss of jobs would cause jobless rate to top its previous high of 5.5% marked in 2002. It sickens you to see the Aso administration, which is now on the brink of collapse in a matter of less than 3 months since its inauguration, still leisurely toying with numbers. But more importantly, the Japanese leader, be it Aso or his successor, cannot do anything but to close the safety valve when it should be opened up to the fullest.

It's a no-no to mention the dark secret about the malady deep-seated in this economy, but in a nutshell, the entire nation is virtually unionized as well as cartelized. According to my educated guess, at least 10-15 million of the 63.9 million people are redundant. I don't hesitate to call them that because we could live without them, or we would be even better off without them while they couldn't live without us value-creating people. Needless to say this redundant manpower includes the huge crowd of disguised civil servants on top of a good part of the 2.24 million government employees. They've had to be disguised as something else simply because they are redundant.

If the Japanese still want to put an end to their protracted predicament, now is the time to dump all this fat and pus. In reality, however, it is quite unlikely that they show what little wisdom and courage they have to turn this crisis into a once-in-a-lifetime opportunity.

By now we have been quite used to the inert trait of the Japanese. But what is really disappointing is that policymakers in America are now making the same mistake. They have learned the wrong lesson from Japan, and no lessons, for that matter, from Italy where the nation's flagship carrier Alitalia S.p.A. went belly up in August this year because of, rather than despite, the government's cash injection of EUR 4.9 billion since 1998. It's small wonder that Richard Wagoner of GM and his brethren are blackmailing the Congress by taking hostage hundreds of thousands of their employees. On December 5, congressional Democrats and the "lamest duck" in U.S. history reportedly reached an agreement to squander $15-17 billion on a Band-Aid solution to bail out the failing auto giants.

When interviewed by Newsweek in 2004, Dr. Hammer admitted that initially he had tended to underestimate the human factor and as a result many people had just vilified him for his thoughtlessness for the layoffs resulting from successful exercises for BPR. In the same interview, however, Hammer said, "I don't have a guilty conscience. At a lot of organizations, if they hadn't reengineered, they simply would have gone out of business." Now it seems to me that his death on the eve of the global crisis is a reminder that unless we stop getting around the core issue at hand right away, we will be sunk, for good, as some Asian giants already are because of their tendency toward procrastinating corrective actions.

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