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Things VS Solutions: Different Approaches to Improve Productivity in Different Business Model ErasKazuyuki Motohashi

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2019.02.19

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In recent years, Japan has been suffering a decline in industry competitiveness. There are many complicated factors including an impending labor shortage due to a low birth rate and aging population, insufficient conveyance of techniques and know-how to the next generation, and a lack of successors.
One key to solving these problems is improving productivity.
This professional interview features our discussion with Professor Kazuyuki Motohashi, who is calling for change from “things” to “solutions” in his work at the Department of Technology Management for Innovation at the University of Tokyo.
What should Japanese companies, especially SME, be working towards as the industrial economy transitions to a digital economy? How can they adapt? This 4 part interview covers these issues from the perspective of improving productivity.


Once, Japan was ranked #1 in the world for its competitiveness, but now it ranks around #20. However, Professor Motohashi insists that the reason for this current decline in competitiveness is not due to a fall in Japan’s capabilities. What other factors could cause such a large crash in Japan’s status?
Part 1: Changes in the global economy. In order to understand this perspective of productivity, we need to begin by re-evaluating our definition of “productivity.”

The Previous Era of Productivity

Productivity is usually expressed output in relation to units of input.More specifically, it’s the ratio of how many finished items (output) you can expect from a given quantity of all resources required for manufacturing like raw materials, equipment and machines, land and buildings, and workers (input).
You can usually describe it in a simple formula like this:

■Productivity Formula

Fruits of Labor (Output) / Resources Used (Input) = Productivity

According to the “World Competitiveness Yearbook” released by the IMD (International Institute for Management Development), Japan’s overall ranking was #1 from the first report in 1989 until 1992. After that, Japan continued to hover above #5 until 1996.
Ever since the Meiji Period, Japan copied Europe and North America and managed to catch up with great results. Back then, Japan conquered the global market thanks to its mastery of efficient production which provided high quality items for low cost. This Era of Things business model was simple: make it and sell it. In other words, manufacturing plants were the core of business, making Japan an “industrial economy.”
At the time, the capability to offer both high quality and high productivity was Japan’s great weapon. Companies were eager to increase their productivity, and by following methods like the Toyota Way used for its automobile plants, many achieved improved productivity by eliminating waste as much as possible. Basically, they would take the formula above, and reduce the amount of input in the denominator, which would lead to increased productivity. This method was just making things more efficient.
Productivity in the Era of Things was all about efficiency, we were always thinking about how to reduce input. This approach brought great results in Japan, but our competitiveness is said to have fallen drastically in recent years.

Japan’s Changing Rank in the IMD World Competitiveness Yearbook
Source: IMD World Competitiveness Yearbook data, graphed the Mitsubishi Research Institute

Most people think that improving productivity means eliminating waste to increase efficiency. However, it looks like Japan is currently unable to maintain its global competitiveness through efficiency alone. How is global competitiveness judged, anyway?

Changing Models From “Things” to “Solutions”

apan’s competitiveness hovered around #5 or higher, but its rank fell hard after 1997, and now we’re currently ranked in the 20s. However, I don’t think that Japan’s manufacturing capabilities are declining at all. So, why did our competitiveness fall? There are 2 reasons.

First, just as Japan worked hard to “catch up and go beyond” goals based on Europe and North America, countries like Korea and China are catching up with their role model, Japan. The gap that defines Japanese excellent has been narrowed. If they can match or approximate Japanese quality, then we lose our competitiveness for price. Many of the countries that joined the market later have the advantage of cheaper costs, especially labor. Basically, Japan is now facing stronger competition in this hard battle.

The second reason can be seen in the IMD World Competitiveness Yearbook. This study decides rank based on statistical data and direct surveys with the management of major companies. Survey questions have changed significantly to match the contemporary business climate. Up through the early 90s, the questions mostly focused on quality in the manufacturing work environment, like product quality and labor management. Now there are more management questions like ethical (“white”) productivity, business strategies, and adaptation to a global society.

I would say that these changes in the survey questions reflect a change in the perspective of management at the major global companies that are IMD’s clients. Their priority has changed from competitiveness based on a foundation of manufacturing quality, to the nature of each company’s global strategy.
The reason for this is that although production quality was absolutely essential for making and selling products in the Era of Things, advanced countries like Japan are now expected to offer services bundled with their products. Questions about management strategy reflect the urgent need to transition to a “solutions” model.
For example, the automotive industry doesn’t just make and sell cars anymore, they are also running mobility services using their cars, like ride shares. The IT industry isn’t just pushing hardware and computers, they are switching to cloud software services.
I’m sorry to say that Japanese companies made their advancements thanks to refining their strengths in technology, but they tend to be passive about transitioning to a solutions model based around business innovation. I think that’s why our competitiveness is receiving low ratings.

Japan’s delayed transition to a “solutions” model led to a decline in competitiveness.
So how does productivity work in a “solutions” model?

Productivity in the Era of Solutions

In a solutions model, the management of global companies needs to do more than just sell the “things” that their company makes. Instead, they follow a method that seeks to maximize profits.
One of the big contributions to realizing this goal is maintaining infrastructure like proper online environments that can manage massive stores of big data and science data. Management doesn’t limit themselves to their own intuition and senses anymore. They have built a “solutions” model that is based on hard facts gained through use of big data and other scientific methods.
Solutions models satisfy client needs more deeply than just making and selling things. In-demand services improve added value, leading to an eventual increase in profits.
Compared to the previously mentioned formula for productivity, the goal of solutions models is improving productivity by increasing the output, described as the numerator.

In order to improve productivity in the Era of Things, processes were made more efficient by reducing the input in the denominator. However, making things more efficient is not the only method for improving productivity. Now it is much more important to increase the output in the numerator. Japan needs to hurry up and transition from a “things” model to the new advanced “solutions” model to survive.

Interview Date: January 15, 2019

 

Series

Things VS Solutions: Different Approaches to Improve Productivity in Different Business Model Eras

SME Need Specific Strategies to Survive Open Innovation

Improving Productivity and Increasing Visibility of Strengths Through Academic Collaboration and IoT Tech

Surviving in an Ecosystem: Evolving Into a Uniquely Fabulous Niche Player


Kazuyuki Motohashi
Department of Technology Management for Innovation at the University of Tokyo

Joined the Ministry of Economy, Trade and Industry after finishing his Master’s degree at the School of Engineering, University of Tokyo in 1986. After working for the OECD, he accepted an assistant professor position at the Institute of Innovation Research, Hitotsubashi University in 2002. Next, he returned to the University of Tokyo as an assistant professor at the Research Center for Advanced Science and Technology in 2004. In 2006, he accepted his current professor position at the Department of Technology Management for Innovation, University of Tokyo. Meanwhile, he has also served as a World Bank consultant, OECD consultant, Research Institute of Economy, Trade & Industry faculty fellow, Japan Fair Trade Commission Competition Policy Research Center visiting researcher, National Institute of Science and Technology Policy (NISTEP) chief researcher, Stanford University Asia-Pacific Research Center visiting fellow, and East China Normal University visiting professor. MBA Cornell University & PhD Keio University School of Business and Commerce. Specialties include econometrics, industrial organization theory and technology management theory.

◇Best-Known Books
・“Alliance Management” Hakuto-Shobo Publishing Company, April 2014.
・“We Still Have Time: Reviving Industrial Competitiveness” Nikkei Publishing, February 2014.
・“Global Management Strategies” University of Tokyo Press, March 2013.
・“Japanese Bio-Innovation” Hakuto-Shobo Publishing Company, November 2009.

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