The document discusses organizational challenges facing Japanese companies as their traditional employment model changes. It outlines shifts in recruitment toward more temporary workers, changes in pay structures, and newer performance management systems. Current challenges include talent shortages, retention of younger workers who change jobs more, excessive overtime, implementing oversight systems, developing management skills, and managing knowledge transfer as communication changes. These challenges may impact overseas operations of Japanese firms if not addressed.

1. Overtime and Oversight:
The Organisational
Challenges Facing
Japanese Companies
Pernille Rudlin
Rudlin Consulting/Japan Intercultural
Consulting
Japan Discussion Group
October 12th 2007

2. Agenda
 The classic Japanese employment model
 Changes in the 1990s-2007
 Change 1: Recruitment
 Change 2: Pay
 Change 3: Performance management
 Current challenges
 Challenge 1: Recruitment
 Challenge 2: Retention
 Challenge 3: Overtime
 Challenge 4: Oversight
 Challenge 5: Management ability
 Challenge 6: Knowledge Management
 Conclusion & impact on overseas operations

3. The classic model
 Lifetime employment, seniority based
promotion and pay
 Control through apprenticeship and
‘shame’ rather than checks and
procedures and threat of firing
 Trust staff who are seishain, lifetime
employees, to act in the company’s best
interests. Ignore the rest.

4. 120
100
Trust
80
US
60 UK
Japan
40
20
0
0 5 10 15 20 25
Number of years in the company

5. 1. Changes to recruitment -1990s
to 2007
 2004 amendment of Temporary Staffing
Services Law
 Non-regular workers (hi seiki koyou) increased
from 20% of labour force (64m) in 1990 to 1/3
today
 Net café nanmin = 5,400 according to one
survey, either in 50s or 30s, 60% male
 Freeters – 2m? 5m? – getting older
 NEETS – 620,000 (static, slight decline)

6. Labour force
34
32
30
Percentage
28 Hi-seishain/non-
regular
26
24
22
20
1994 1999 2004

7. 2. Changes to pay - 1990s to 2007
 Making bonus discretionary, introducing
performance based pay, clamping down
on overtime claims
 9 straight years of decline in average
annual wage (females and manufacturing
sector hardest hit)

8. Changes to pay - 1990s to 2007
 Number of employees with annual wage of
< ¥3m rose 1.2% 2007, > ¥10m rose 0.2%
 Households on welfare 1.08m, up 3.3% on
previous year (2005) – elderly 44%,
handicapped 37%, single mothers 9%
 More than 19m below poverty line?

9. 3. Changes to performance
management - 1990s to 2007
 New performance management systems
introduced in most companies c.1995
 80% of companies now have a “seika-shugi”
performance based HR system
 Took 3 to 4 years to have positive impact on
performance of most companies
 Many companies now “reviewing” their
performance management systems

10. Challenges

11. Challenge #1. Recruitment
-Talent shortage
 1.89 vacancies for every new graduate or
post graduate in March 2007
 Set to be 2.14 vacancies for every new
graduate and post graduate March 2008
 Employers not happy with quality of
current graduate intake

12. Recruitment - solutions
 Recruit overseas?
 Recruit mid-career, mid-term?
 Better utilisation of female workforce?
 Recruit Freeters
 One survey result: 90% of male Freeters, 74% of
females would like to gain seishain status
 Another survey shows that 75% of male Freeters
18-29 in Tokyo in 2001 tried to become salaried, but
in 2006 only 50% did. 75% successful in 2001, 59%
2006 (Japan Institute for Labor Policy & Training)

13. Recruitment – signs of change
 Toyota union admitted 4,000 contract workers
with at least one year of service at 12 domestic
factories – intends to call on management to
improve their conditions and give opportunity to
become permanent employees
 Complaint filed against Canon by temporary
workers
 Uniqlo, NTT planning to convert temporary
workers to permanent

14. Recruitment – signs of change
 NEC, Fujitsu to employ 1000s of foreign
software developers
 Tensions surrounding integration of
immigrant workers’ families, ‘trainees’

16. Challenge #2. Retention
1.15
Millions
1.1
1.05 25-34 year
olds who left
1 job within the
last year
0.95
0.9
Soumusho Labour Survey
98
00
02
04
06
19
20
20
20
20

17. 2. Retention
Do you intend to stay with your present employer until
your retirement date? (Nikkei BP Consulting survey 2006)
Yes Yes
No No
Don't know Don't know
Don't have a Don't have
retirement date retirement date
20-29 year-olds 30-39 year olds

18. Challenge #3 Overtime
 Average full time employee worked 2,141.2
hours in 2006, up from 2,028 hours in 2005
 Government prepared a revision to the Labor
Standards Law to increase overtime pay and a
new White Collar Exemption bill
 Keidanren want exemption cutoff to be
employees earning > ¥4m annual income –
thought to represent ¥11.6 trillion in overtime
pay that would not be paid

19. Challenge #3 Overtime
 Some companies are switching lights off, air
conditioning off after 10pm etc
 Government inspections have forced back
payments
 Overtime hours worked in manufacturing sector
dropped 1.8% to 15.8 hours for second
consecutive month (Oct 07)
 Overtime pay increased 1.2% for first time in 2
months (Oct 07)

20. Challenge # 4 Oversight
 Japanese Sarbanes Oxley – naibu tosei,
in force from April 2008
 Processes and systems throughout the
company must be documented, tested and
signed off

21. Oversight - solutions
 Hire in overseas experts (securities
house)
 Outsource to professional services
company (car manufacturer)
 Integrate systems & processes from
acquired overseas company (glass
manufacturer)
 Japanese staff do it in-house (bank)

22. Challenge #5 Management ability
 Seika shugi helped cut pay rolls in 1990s, but
challenge now is talent management (right
person for the job, demotion, fair appraisals)
 “Are you effectively guiding subordinates?” No =
56.9%, yes 43%
 “Are your superiors effectively guiding you?”
No= 54.4%, yes = 45.3% (Nikkei survey 2006)

23. Management ability
 Percentage of each age cohort in
management positions has declined over
past 15 years
 Average number of staff reporting to a
manager has declined over past 15 years
(from 15.5 to 13.5)

24. Management ability
60
50
Percentage
40
30 Have sufficient
skills and expertise
20
10
0
18- 25- 30- 35- 40- 45- 50- 55- Working Person Survey
24 29 34 39 44 49 54 59 2004 RecruitWorks
Age Institute

25. Training investment
2.5
2.4
2.3
2.2
Percentage
Training as
2.1 percentage of
payroll costs
2
1.9
1.8
1.7
1.6
1.5
76
85
95
79
88
98
73
82
91
02
19
19
19
19
19
19
19
19
19
20
Ministry of Health, Labour &
Age Welfare report

26. Challenge #6 Knowledge
management
 Rising workload
 E-mail/mobiles replacing face to face
communication
 Performance management causing internal
competition
 Result:
 Decline in OJT
 Less face to face communication
 Refusal to share knowledge, to protect self

27. Conclusion 1
 “Most Japanese companies seem to be
conforming to the accelerating wave of
economic globalization. However whether it is
R&D, manufacturing or sales, they are
remarkably behind in terms of ‘people and
organisation’”
 Three key words are “trust”, “knowledge” and
“motivation”
(Hay Consulting Japan)

28. Overtime
Performance management Recruitment
Knowledge Management
Management ability Oversight
Retention

29. 120
100
Trust
80
US
60 UK
Japan
40
20
0
0 5 10 15 20 25
Number of years in the company

30. Conclusion 2 – impact on overseas
operations of Japanese companies
 Japanese multinationals operating in Britain have
 more autonomy, less oversight from head office than US etc
multinationals – because more Japanese in management
positions
 Invest less in training, less HQ based training
 More informal in the way information moves around the
company
 This will have to change?
(Study by Paul Edwards, Tony Edwards, Anthony Ferner, Paul Marginson and
Olga Tregaskis , 2007)