Reprinted from Resilience: A journal of strategy and risk Resilience Winning with risk Bouncing back: Two Japanese corporations’ road to resilience By David Jansen and William Macmillan World Economic Forum Annual Meeting 2013 Davos-Klosters, Switzerland www.pwc.com/resilience Bouncing back: Two Japanese corporations’ road to resilience By David Jansen and William Macmillan Recent years have severely tested the resilience of Japanese companies David Jansen is an experienced PwC partner and the country as a whole. Japan has experienced severe catastrophes who provides strategic advice to corporations, governments and heads of state on issues including including earthquakes, typhoons and the Fukushima nuclear plant globalisation, governance, mergers and acquisitions, meltdown. These natural and man-made disasters have occurred in and transformation. David recently authored a country that is also grappling with a struggling economy and a the report, Revitalising Corporate Japan: A Prescription For Growth, and is a frequent shrinking workforce. In this article, we look at how two Japanese lecturer on the issues facing Japanese corporations companies – Hitachi and Lawson, a convenience store group – have in their quest for global, profitable growth. developed the resilience needed to cope with both dramatic events and He currently divides his time between Tokyo gradual, but inevitable, long-term changes that threaten their and New York. existence. Their experience shows that a resilient organisation William Macmillan is a senior associate and a embraces bold leadership, is open to fresh and diverse perspectives, member of PwC’s global Japan Business Network and was a contributor to the recently released monitors mega-trends and is flexible. They also underline the report, Revitalising Corporate Japan: importance of helping people to believe change is needed, unleashing A Prescription for Growth. A graduate of innovation, building agility, fostering the right the Wharton School of the University of Pennsylvania, William splits his time between alliances and creating the appropriate culture. New York and Tokyo. Specialising in post- disaster reconstruction he is currently helping develop innovative strategies in a variety of reconstruction initiatives in the Tohoku region. The risk resilience of Japanese shocks to the system are pretty obvious, Losing ground to companies has been repeatedly gradual change is much more difficult gradual disruption put to the test in recent years. to see happening – and equally important to prepare for. As in most developed economies, The common view sees risk resilience Japan has been grappling with slow, Dealing with gradual and sudden in terms of how a company can or nonexistent, economic growth, a disruption requires a strategically respond to discrete ‘shocks’: natural changing workforce and the mutating risk-resilient mindset. This is a mindset shape of their key industries, among disasters, cyber-attacks, fraud and that embraces strategic risk-taking, other disruptions. And Japanese regulatory actions, for example. and readies the organisation to recover companies seem to be struggling to Even strategic risk is normally viewed from, or even capitalise on, sudden find a new path in a changing world. through this event-driven lens. or gradual change. Is the company equipped to deal with This once thriving economy has built sudden strategic challenges such as So a highly resilient company will be global brands, managed complex sales a disruptive new market entrant, or ready to respond to gradual disruptions and distribution channels, pioneered a production or demand shortfall? with a series of smaller and gradual changes. In contrast, failure to adopt a ground-breaking innovations and But resilience is not just about discrete strategically resilient mindset in time established premier positions in events. It is also a question of how can lead to a point where gradual industries such as chemicals, well companies weather more gradual disruptions must ultimately be aerospace, automotive, electronics disruption to their business. And while resolved with dramatic changes. and infrastructure. 2 I Resilience: Winning with risk Today however, many formerly leading corollary has been a departure from While the business lines were diverse, companies are losing ground to new time-honoured practices, the the business leadership was not. rivals in foreign markets at the same relinquishing of many traditional ties They started right at the top – with the time as the domestic market continues and the need for difficult trade-offs board. As a result, Hitachi now has a two-decade long slide. Gradual between competing priorities. seven external board members on its disruptions are grinding down these 13-member board. Another rarity for once great giants. Healing Hitachi Japanese corporations, the board also In many ways, Hitachi exemplified a has three non-Japanese members: Time for change? traditional Japanese approach to George Buckley, former CEO of business. As one of the largest and 3M, Phillip Yeo, the chairman of In a recent interview with PwC, Singapore’s government development Atsushi Saito, CEO of the Tokyo Stock most prestigious Japanese companies, Hitachi’s wide-ranging business units agency and Sir Stephen Gommersall, Exchange Group (TSE) and former former British ambassador to Japan President of the Industrial Revitalisation stretched from consulting and business services to aeroplanes and nuclear and current CEO of Hitachi Europe. Corporation of Japan, described the reactors. But this sprawling empire situation like this: “Even though many Forging a global perspective became increasingly unmanageable Japanese companies still boast very over time. In 2009, Hitachi posted the The imperative to be global has filtered strong marketing power, production largest loss ever by a manufacturing out from the board all the way through power, or engineering power, they company in Japan, 787.3 billion JPY or the organisation. In another example, are losing their global position. $8.03 billion at 2009 exchange rates. Nakanishi has put in place a system Japan’s first-class companies are now to benchmark Hitachi business units reviewing their strategies and feeling The response was a new broom that against their international peers as the necessity for radical change, but saw Takashi Kawamura named as well as their local rivals, such as the question is how quickly and how chairman, and in 2010, Hiroaki Toshiba and Mitsubishi. This forces effectively can they do this. Everybody Nakanishi taking over as CEO. managers to focus on global trends as can imagine change and talk about Together they began substantial reform. one way of escaping the ‘Galapagos change, but the point is to what syndrome’, which stems from excessive degree can they really change?” Broadening the board focus on the domestic market. There is a growing consensus through- The new leadership recognised that Armed with this broader perspective, out corporate Japan that it needs to an organisation competing in a global managers are better able to assess ‘transform’ itself in response to the marketplace needed to embrace more the potential for new competitors last 20 years of gradual disruption. diversity within. As seasoned emerging from a new geography, like Transformation or ‘radical change’ executives at one of Japan’s most Indonesia or South Korea. This is as the TSE’s CEO put it, is dramatic. prestigious companies, they had the resilience in practice – generating knowledge to be better prepared to But this is the bitter pill that has to political capital to insist on a more respond to changing circumstances. be swallowed for those Japanese global approach to management. companies wanting to position them- selves for faster recovery from future Figure 1 Hitachi stock performance relative to selected peers challenges and changes. The time for small and gradual changes is over. Index FY 2010=100 Although most business leaders would 160 rather avoid the drastic, the good news H 140 is that if dramatic change is well- executed and sustained, it is also a 120 route to resilience. That has certainly 100 been the story of two of Japan’s leading N 80 companies, which have made bold, M and sometimes challenging, moves 60 T to restore their competitiveness and 40 strategic resilience. 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