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1. General Aspects 

Japanese industrial enterprises began to import American management methods
and practices from the second decade of the twentieth century. In the inter-war
period, the most successful fibre spinning companies and the leading ship-building
and electric machine companies in Japan successfully adopted the core principles
of scientific management, represented especially by time and motion studies. It
should be noted that not only did the most successful industrial enterprises learn
much about American management methods such as the Taylor system, but they
almost simultaneously developed indigenous Japanese management practices,
such as lifetime employment and promotion by seniority.
In the two decades after World War II, feeling that Japan’s defeat had been the
result not only of America’s technological superiority but of superior in
management methods as well, Japan absorbed almost all the advanced
management practices that were developed in the US. The establishment of the
Japan Productivity Center (JPC) in 1954 reflected the growing interest in
management and management education,  and sparked a boom of interest in
American management practices in Japan. In the 1950s and 1960s, almost all
elements of American practices were eagerly absorbed. Some management

practices, methods, and programmes were found to be very relevant and had
important lasting effects. Yet even those most influential practices proved useful
only after considerable modification. Some essential aspects of the so-called
‘advanced scientific managerial approaches’, such as using linear programming,
decision sciences, mathematical models, and others, were hardly adopted at all in Japan.
Quality control, the most successful management practice transplanted to Japan, is
a good example of how American methods were modified. American statistical
quality control techniques, which were  usually imposed from the top, with
workers being required to implement procedures on the basis of manuals provided
by head office, were completely transformed in Japan during the 1960s, into the
total production control (TQC) techniques that came to be recognized as a unique
development of the Japanese management system. TQC was based on measures
worked out through discussions between managers and shop-floor employees,
with a strong emphasis on input from the workers who would be responsible for
carrying out the procedures, and on widespread agreement among all concerned.
Nippon Denso had already introduced statistical control techniques in 1950 when
it was designated as a parts supplier for the United States Army. These practices
were reinforced arid enhanced by Nippon Denso’s contract with Bosch, which led
to the standardization of production management and parts procurement. In 1957,
the company embraced total quality control and rationalized its systems of
production, distribution, and management.
In 1961, Nippon Denso won the Deming Prize for outstanding quality control
performance.
Although the Japan Productivity Center advocated efforts to increase productivity
and improve business management, it was not a blind adherent of American
practices. After a visit to the US and Europe, chairman of the JPC, proclaimed the
aims and principles of the JPC, saying that efforts to raise productivity should be
made using Japan’s own practices as the base, and incorporating American ideas
(efficiency) and European attitudes (humanity)”.
In the postwar period, as in the pre-war era, institutions of higher education did
not consider business management to be important enough for inclusion in their
curricula. Only in the late 1970s were any faculties of business administration
estabilished at undergraduate level, after there had been earlier a cooling off of the
earlier acute interest in management. In the 1960s, many large Japanese firms had
sent their young college graduates to join MBA progammes in the US, but this
experience was found to be almost useless, because sophisticated American
management theory and practice could not be applied in their original forms to
Japanese shop-floor oriented management.
Throughout the 1970s, Japanese industrial firms overcame the two oil crises that
hit the Japanese economy severely (through their efforts to rationalize and develop
energy- and labour-saving innovations). In the mid-1980s, the consistent growth
of Japanese firms, and in particular the resilient improvement in their international
competitiveness, drew the attention of the world business community to Japanese
business and management. This culminated with the amazing success of Toyota
Motors in global markets.
As these brief historical observations show, Japanese management practices are
not based on culturally dogmatic attitudes, but have evolved over time to become
institutional arrangements.
Japanese management practices, together with labour management practices
which are well known and documented, are two of the basic elements of Japanese
industrial enterprises. Looking at Japanese enterprises from a historical
perspective, one can make the following observations that will point out the
contrasts with what are generally considered to be the characteristic features of
enterprises in the United States.
First, as independent industrial firms, Japanese enterprises are not always large in
size. They are less vertically integrated less diversified, and less multinational in
character than their American counterparts. Among the two hundred largest
industrial enterprises in Japan, only paper, rayon fibre, and petrochemicals are
highly integrated, and in terms of diversification (strictly double-digit, non-related
diversification in different industrial categories), quite a few companies can be
found. As is well known, Japanese enterprises are the least multinational in the
world.
The size of Japanese firms is significantly smaller than the size of firms in the
United States. For example, in 1992 Toyota, the largest company in Japan, had
65,000 employees, producing 4.5 million vehicles a year, while General Motors
had 750,000 employees who produced almost 8 million vehicles per year. On the
other hand, almost all Japanese firms have extensive inter-company networks that
form enterprise groups. Typically, most major companies that produce items such
as machinery, automobiles, electric appliances, or other complex products, have a
string of subcontractors. These subcontractors are usually smaller in size, and in
turn have their own subcontractors.
Second, within the company the head office is relatively small, and neither greatly
specialized nor stratified, though one result of the bubble economy has been a
blurring of this aspect. Instead, Japanese companies have administrative offices at
factory level, with their own distinct managerial organization and a complete set
of managerial functions. At times the size and complexity of the organizational
structure of main factories rivals or even surpasses that of head office.
Much of the reason for this focus may be found in the existence of multifunction
manufacturing sites. A basic definition of such factories is a production site with
appended planning, design, development, and process-engineering capabilities,
plus an ambition to accumulate, combine, and concentrate experience for the
propagation and improvement of products and processes. Focal factories exploit
opportunities for  intrafirm  economies of scope by amassing and reshaping
organizational capabilities in the midst of integrating product design, process
development, and manufacturing. Factories with such capabilities were not at all
common before World War I, increasingly so during the inter-war era, and widely
present since the high growth 1960s.
The Japanese enterprise as a system is based on “strategic interaction and
alignment of three basic forms of organization—factory (shop floor), firm, and
inter-firm network”.
Third, both in the head office and at the factory level, executives are salaried
managers, promoted from within the company, and as a result the rate of turnover
is extremely low. Almost all top executives are promoted from the ranks of middle
managers who have had experience both at head office and the factory level. High
levels of company-specific experience and know-how are coupled with in-house
promotion and information exchange.
Fourth, demarcations between and within organizational boundaries are not rigidly
fixed, so that a functional group at the factory (or laboratory) has the flexibility to
perform the work of other groups. An engineer working in R&D at Factory A can
take on work at the request of Factory B, without transfer payments or additional
remuneration. It is not unusual for the head of production engineering at a major
factory to be the factory manager at the same time.
From the logic of management theory such flexibility and duplication of function
may lead to confusion, but because turnover is low, the volume of communication
among managers is high, and employees are trained in general rather than
specialized tasks, such difficulties are largely avoided. In addition, coordination at
each level and between departments is often facilitated by a General Affairs
Department, which frequently covers secretarial and legal affairs, and personnel
functions—a seemingly unique Japanese solution.
Based on these fundamental organizational features, we can make the following
observations about strategy and decision-making.
1  Japanese enterprises excel in manufacturing a full line of goods with
‘finetuning’ and in diversifying closely related products, but they are not
always good at unrelated diversification.
2  Because of the emphasis on human resources at the factory or shop level,
the momentum for decision-making comes from the middle or bottom,
rather than from the top of the organization.
3  The high volume of communication and information within the company
allows Japanese corporations to take full advantage of technological and
market opportunities in their areas of specialization both in domestic and
global markets.
4  The board of directors does not control management, but is rather
controlled by management. The committee of senior executives whose
members are career managers, is the locus of de facto decision-making.
However, this committee does not actually assume the responsibility of
dealing with decisions of high uncertainty. Its function is usually to select
from among the policy alternatives proposed by middle management.
This may be part of the reason why the compensation of Japanese
executives is remarkably low by American standards.
Many so-called Japanese management practices could thus be considered as being
derived from these basic features of the organizational structure of Japanese
business enterprises.
Based on these observations, the failure of Japanese enterprises in the late 1980s
and the early 1990s – the other so-called bubble economy – cannot always be
attributed to faults in the basic Japanese management system itself, but the
‘mistaken approaches’ of some firms as they confronted ‘global standards’ such as
growth in the size of the firms, strategies of unrelated diversification, overseas
investment, and financial operations, which had not been customary for Japanese
industrial enterprises. In other words, during the  bubble economy Japanese
enterprises had attempted to emulate the very different American type of
organizational capabilities rather than enhancing their own organizational
strengths.
Actually, most Japanese enterprises are now beginning to recover their
international competitiveness through rationalization, reducing the number of
employees, and retrenching out of diversified business and speculative overseas
operations. It is worth noting that quite a few companies, such as Toyota, Honda,
Sony, Matsushita, Fuji Film, Bridgestone, and others, are now successfully
regaining international organizational capability as well as competence. By
contrast, many firms, including most of the financial corporations which over-
expanded their operations under the umbrella of government protection, are now
struggling to survive.