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Human Resource Management In Japan
Philippe Debroux Soka University Faculty of Business
Historical Development
After WWII, a type of corporate governance developed in large companies centered
on stable long-term oriented shareholding. Criteria of performance were based on a
long-term growth-oriented market-share maximizing strategy. The stability of
ownership facilitated the adoption of a HRM system offering long-term guarantee for
the permanent employees and a seniority-based pay. The HRM system developed
on the logic of internal labor market with employees almost exclusively newly
graduates. Managers were rising up from the ranks of corporate employees. HRM
department was in the center of the system in charge of the recruitment and
selection, organizing the dispatching and rotation of personnel all over the company
and developing training programs.
In the early post-war period, industrial relations were marred by disputes. The
situation changed with the creation of an in-house union based system that has been
a key element of the employment system since then. The unions played a key role in
the diffusion of information between labor and management, and they were
instrumental in the acceptance of new technologies. As a result, different work
patterns could be adopted by which labor could also take on a productive function by
working together with management to improve the management processes.
Multi-levels integrative networks with constant cross-fertilization of interconnected
knowledge favored the creation of the tacit knowledge embedded in each employee’
mind. Workers were expected to cope independently with needed changes or
problems and it required problem-solving capabilities (Fujimoto, 2007). Since the
mid-1960s, OJT and OFF-J-T training has been available and methods of job
enlargement and enrichment widely applied, especially at the shop-floor level.
To motivate employees required an incentive mode that allows individual workers to
commit fully to the teamwork process without fear of losing compensation. In the
skill-grading system that became dominant in the 1970s, merit is taken in account in
pay and promotion but it depends only partly on a particular job or output.
Continuous evaluations assess potential ability, based on adaptability to technical
changes as well as soft skills such as loyalty and the ability to cooperate well with
other workers.
Grade classes are set up depending on the levels of job performing ability to
determine the promotion and wages. The planning and implementation of operations
are not strictly hierarchically structured, and the rotation is frequently practiced for
both white and blue-collar workers. Training is constantly monitored and appraised
during the entire career in order to get a close fit between the employees’ individual
needs and these of the organization (Salmon, 2003). The rational has always been
that the investment in skills that workers have made would not be sunk even if
workers switch to a different type of job (Koike, 1994).
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To assess individual training needs and monitor career development management
by objective (MBO) appraisal method have been utilized since the 1980. Then, since
the end of the 1990s companies have also started to utilize self-appraisal and 360
degrees type of appraisal systems. Overall wages differential has remained small up
until now but the speed of promotion and, thus, the level of remuneration always
varied. A large number of average performers could expect to be promoted to middle
management while outstanding employees could aim to positions where they could
enjoy much higher wage and fringe benefits during the later stage of their career.
Conversely, under-performing employees could be confined to activities that would
not lead to a promising career, or be relegated to minor subsidiaries or related
companies.
Welfare corporatism and the absence of a large external labor made permanent
employees dependent on their employers (Gordon, 1998). They faced pressure to
act in accordance with management wishes, lest they would lose their status and fall
into the category of the unprotected peripheral workforce. Companies were always
legally authorized to unilaterally change the working conditions, including the place
and type of work (Araki, 2002). Lifetime employment was never based on any explicit
contractual promise nor constituted a fiduciary duty on the part of the company. But
an employment relationship was deemed to be continuous. The legal doctrine and
court precedent since the 1950s conclude that an employer would only be found to
have just cause for termination if all less drastic alternatives had been ruled out
(Araki, 2002). Therefore, management was in command although there was to some
extent an effective balance of power with the state intervention.
HRM policies and practices were rationalized according to ethical and cultural
principles insisting on social harmony and collective efforts (Sugimoto, 2010).
Bargaining power favored management but it could be argued that Japanese
companies nevertheless became more than purely institutional devices. Genuinely
loyal sentiments developed in many of them (Matanle, 2003). In such context lifetime
employment grew into much more than just an agreement between the parties where
separate interests are based on individualistic utilitarian assumptions. It became a
social norm enjoying large societal legitimacy.
Long-term employment and welfare corporatism’ ideals were always shared beyond
the circle of the large companies. But stress was put on market rationality to justify
the creation of dual labor markets. Large companies have never considered up until
recently the use of contingent labor denied of access to fringe benefits and working
for low wage without job guarantee, and the wide wage gap between large and small
companies, as incompatible with high pay and cooperative long-term work
arrangements with their permanent employees. Institutional structures, persistent
patriarchal gender norms and stereotypes, limited women’s position in the labor
market. They were considered as a buffer, ancillary type of workforce, kept at the
lower end of the job market, and considered as not worthy of much investment in
training up until the end of the 1980s (Sugimoto, 2010).
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Key Factors Determining HRM Practices and Policies
The decline in stocks and land prices, atone internal demand, and excess capacity
led to stagnation in the 1990s and shaky economic recovery since then. A more
shareholders’ driven corporate governance concurs to a swift decline of the share of
profit going to labor since the 1990s (Iki, 2009). Companies focus on core
competences and divestment of activities creates a large group of redundant
employees. Moreover, adoption of flexible new business model with high degree of
standardization of parts reinforces outsourcing and renders obsolete many workers’
skills and experience. The necessity to answer to short-term product development
and change in demand while keeping prices down imposes longer and more flexible
working hours, and lower labor cost.
The HRM reforms since the 1980s had not cut the link between age/tenure and merit.
Promotion criteria and appraisal rules had remained unchanged under the
skill-based classifications, based on the assumption of ‘being capable of doing’
because of supposedly mastered skills. The need for reform led to the introduction of
performance-related pay (PRP) in the 1990s. Academic credentials, age and
tenure-based pay components are removed or drastically reduced. Welfare
corporatism is fading away and the allowances that complemented salary are also
curtailed. For managers ability/skill pay is increasingly abolished whereas it plays a
fast decreasing role for average employees (Conrad, 2009). Automatic yearly pay
raises is becoming a thing of the past at all stages of the career and ‘dummy’
managers without subordinates (Salmon, 2003) and managerial responsibilities are
rare to be seen anymore. Focus is put on work-related skills with performance linked
to ‘actually doing’ assessed through MBO–based appraisal now also utilized in
reward determination.
Pay of managerial and non-managerial personnel reflects more and more a
particular job class or hierarchical role. The job or role component consists of a fixed
amount and another one where competency framework is linked to performance.
This makes demotion and wages decrease possible every year. At the same time to
gain more financial and functional flexibility companies introduce salary
annualization and broad-banding of salary scales and job/competency types. Both
schemes give the opportunity to rapidly assess employees’ progress without
increasing the cost. Broad-banding, while encouraging training, also allows to
promote more rapidly younger workers and retrain some of them without demotion
and large wage loss.
The seniority element of the retirement lump sum is reduced while the weight of the
competency/performance element is increased (Meyer-Ohle, 2009). At the same
time, companies focus more on the bonus component that is usually paid two times a
year. Unions have always considered the bonus as part of regular pay but it is
comparatively easier to negotiate its variation. A minority of listed companies have
removed the bonus altogether. In most cases, one part of the bonus is still paid as a
certain multiple of base pay but the remaining is based on individual performance
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with larger differences than before. Some companies (estimated at about 1/4% of
listed companies) now use profit-sharing plans of a kind, where the total amount of
bonus is linked to corporate performance generally measured by profit (Conrad,
2009). Stock options are not becoming a significant incentive tool so far in most large
companies.
Wage differentials increased in the last fifteen years especially for the university
graduates. But although larger magnitude of the gap inside job classes is observed
they remain limited overall even for managerial personnel (Ministry of Health, Labour
and Welfare, 2009b). External benchmarking is increasingly important because there
is now a sizeable external labor market for some managerial occupations. But
companies are reluctant to rely too much on the external labor market to determine
pay, lest it would disrupt their long-term oriented HRM policy. To control labor cost
and create incentives they prefer to introduce a pay component linked to companies’
performance connected to the evolution of the markets for raw materials,
semi-finished products, and the financial markets (Nakata and Miyazaki, 2011).
Since the 1980s the policy makers have broadened the powers of the companies to
deal more flexibly with working conditions and the category of workers themselves.
But, at the same time, they have tried to keep the balance with job stability. Since
2003 the judicial doctrine against unjust dismissal is incorporated in the Labor
Standards Law. Some laws have reinforced the workers’ rights in line with changing
social values. The Whistleblowers Protection Law (2004) prohibits dismissal of
whistleblowers in the public interest. The law responds to the need for a greater
opening of companies to society to fulfill their social responsibilities. Likewise, the
new amendment of 2006 to the Equal Employment Opportunity Law strengthens the
right of women at work, including dismissals attributable to direct and (for the first
time) indirect discrimination. REPERE
Conversely, the Law for Dispatch Workers enacted in 1985 increased the opportunity
to offer and utilize short-term employment contracts in 26 categories of jobs (Araki,
2002). The scope was enlarged to all types of jobs, including in manufacturing, in
2003 (Hisano, 2007). The Labor Standards Law contains since 1998 an amendment
introducing a discretionary work scheme defining work time by reference to the tasks
that are completed rather than the hours worked. It allows companies to control their
overtime budgets while responding to the needs for accommodation of diverse life
and working-style and to satisfy the demand for short-term and specific expertise.
Since 2003 the legal maximum limit for an employment contract is three years
instead of one. It gives the opportunity to make strategic, medium-term recruitment
of skilled workers while partly externalizing the costs of training. At last, the new
Company Act (2006) allows the creation of more flexible forms of management
structure, and thus of employment patterns while reinforcing shareholders’ rights
(Wolff, 2011).
Since the 1990s Japanese companies have tried to keep R&D and value-added in
Japan while investing abroad. It is argued that to create products with unique
features still requires the cooperation of white-collar and blue-collar at both design
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and point of production. The long-term personal relationships with internal and
external partners, and cultivation of broad integrative skills and problems solving
abilities have to remain at the center of HRM strategy (Itami, 2011). Therefore, the
internal labor market logic must be pursued.
But response to short-term product development and to the need for access to world
knowledge, as well as the mastering of intangible assets such as branding and
intellectual property rights requires a different composition of the workforce.
Companies continue to mostly recruit new graduates and to devote important
resources to the selection process and subsequent training. At the same time, since
the 1990s they have adopted the concept of employment portfolio combining long
and short-term employment (Nikkeiren, 1995). High performance working systems
(HPWS) are adopted for the core employees, with the utilization of specialist for
specific tasks and projects, and atypical workers of different kinds for the routine jobs.
Those specialists can be recruited from outside. But, since the 1990s companies
give a growing importance to the nurturing of a pool of professional managers with a
technical and/or management background (Salmon, 2003). They are given the
opportunity to progress in the hierarchy while specializing, and rewarded
consequently.
Training remains a key element of the HRM system, with an increasingly
involvement of the employees in the programs’ organization. It goes with the
management of deskilled types of jobs due to the use of micro-electronics-related
and information technologies (Hisano, 2007). Distinctions between the managerial
and the clerical track rankings are scrapped. Companies devise ‘family friendly’
policies with flexible working provision in order to retain the best female employees
while utilizing more part-time and dispatched female workers for the routine
positions.
The traditional knowledge management practices where knowledge is built through
high context and intensive personal interactions among members (Nonaka and
Takeuchi, 1995) is put in question. The homogeneity of membership is said to lead to
rigidity and difficulties to read the markets. Moreover, the high level of
institutionalization of personal relationships may be simultaneously jeopardized by
the growing external mobility of the managerial and technical personnel and by the
lower inter-department’ mobility that reduce personal contacts. This problem is
compounded by the fear of losing the embedded knowledge of the older generation
that will retire in a few years time (Henscher and Haghirian, 2011).
Access to implicit knowledge and the ways to make it explicit require mechanisms of
exchanges, sharing and new combinations modes that are more widely and easily
available not only internally but also globally. This is conducive to a shift towards the
use of virtual platforms. More codified knowledge as in documents and databases, is
more easily accessible to outsiders in Japan and abroad. It can be utilized in
interactive learning and competency management, and by the corporate HR
department to provide custom-made services to the departments.
The long-term dynamics of efficiency and effectiveness, for instance the sustained
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ability to compete on the basis of quality and responsiveness to customers’
specialized needs is said to come from a corporate value system linked to the loyalty,
commitment, ethics of work and discipline of the workforce. The principles that are
inculcated during the companies’ induction period are parts of this tradition. For
instance, the ‘five S’ principles applied in the workplace (seiri, seiton, seiso, seiketsu,
shitsuke) are embodied in the moral fabric of Japanese society influenced by
Confucianism, Buddhism and Shintoism (Yui, 2008).
As a result, the employment patterns in large companies have provided social
anchors as well as ideals to be strived for everybody. The legitimacy of the concept
of company as a ‘community of fate’ has been internalized to such an extent that all
students and their parents still have in mind that large companies can be expected to
continue to recruit a large number of new graduates every year and provide
long-term job guarantee and career opportunities. Responsibility towards the
permanent employees still continues to be thought to extend beyond mere respect of
labor contracts. Lay-off may be unavoidable but it is still considered as a managerial
failure and should remain a measure of last resort, not something that can be done
just for short-term economic convenience.
This mindset increasingly clashes with the spirit of the reforms of the HRM system
during the last two decades where emphasis is put on individual performance and
equality of opportunity and not of outcome. Conversely, concern about social
exclusion and perceived growing inequality is expressed since the last decade. It is
thought that letting differences in income grow too much may lead to the point at
which the sense of community is endangered, be it at the levels of the country,
neighborhood, or company (Sugimoto, 2010). In a period where corporate social
responsibility is increasingly part of business strategy such feeling must also be
taken into consideration in the HRM reforms.
The last decade has seen the continuation of the decline of the labor unions with
unionization rate dropping below 18% (MHLW, 2010a). The individualization of
contracts and diversification of status limits the impact of collective bargaining.
Workers with skills in demand do not need the protection of the unions. They are
more concerned by their career, capability and employability. Unions revealed
unable to gain wage increase and improve employment conditions since the 1990s.
Their strategy during the yearly ‘Spring Offensive’ has shifted toward security of
employment since then. However, it is also difficult to protect employment of the
skilled workers with obsolete skills (Nitta, 2009). The decline can also be partly
explained by the evolution of the industrial structure. More than 90% of the new jobs
during the last twenty years have been created in service sectors that have
traditionally a low unionization rate. Conversely, manufacturing has shed about two
million of jobs during the same period (Hisano, 2007). It is to be pointed out, however,
that probably due to their specificity of being ‘in-house’ unions, no trend toward an
anti-union ‘unitarism’ has appeared in Japan. In most companies the restructuring
plans have been negotiated with them.
The mergers of the four national centers in the 1980s had been conducive to a
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stronger role of the moderate unions coming from the private sector (Nitta, 2009)
However, it is not excluded that the growing uneasiness about income inequality
lead to a regain of militancy. Unions attempt to enlarge their membership to the
non-permanent workers. From 2004 to 2009, the share of non-permanent workers
rose from 3.6% to 7% of the total of unionized labor (MHLW, 2010a). It is difficult to
amalgamate workers who constitute a heterogeneous group. Many non-permanent
workers have little trust in traditional unions that had neglected them so far. They
prefer to create community unions organized at local level.
However, the potential of unionization of the ‘core non-permanent’ ones is not
negligible because they may share more and more common concern with the
permanent workers related to access to skills, pay and pension for example. The
growing number of individual legal problems has pushed a number of managerial
level employees to start for the first time union activities. It has led to the creation of
so-called horizontal unions that are not linked to any company. There is also a still
timid shift towards creation of occupation-based unions. The first initiative was taken
by the Japanese Electrical Electronic and Information Union (Denki Rengo). But the
development is limited by the slow rise of external labor markets for many
occupations (Debroux, 2003).
At the federation and confederation levels unions enlarge their activities beyond
wages and working conditions. They intend to play a growing role in long-term policy
in the tripartite system with employers and government representatives in order to
devise elusive ‘fair, effective and efficient’ rules on the workplace environment (Nitta,
2009).
Key Challenges facing HRM
Large companies diversify the ports of entry to broaden talent mix but still tend to
recruit in the same institutions because of the stratification of the educational system
and the strong links with specific universities. Management remains mostly
composed from Japanese graduates from a limited number of Japanese universities.
Optimizing the talent of non-Japanese human resources remains difficult, even those
of foreign subsidiaries (Brannen, 2011). Companies recruit more women in
managerial track. However, except for a small number of high potential employees
they most often do not offer yet a working environment permitting average women to
pursue a career while creating a family. Work-life balance schemes are adopted but
the male bread-winner family model is not significantly put into question. It continues
to reinforce the lifetime career pattern of male employment and perpetuate the
under-utilization of female talents.
So far, the trend towards specialization concerns a small segment of the human
resources. Most companies still have too many workers with common career
patterns. They recruit less new graduates but fewer promotion opportunities are
offered and they struggle to respond to the career and reward expectations. The
adoption of PRP systems renders irrelevant the career pattern where workers in the
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later stages of their careers receive salaries that surpass individual productivity that
compensate lower salary below productivity in the first career stage (Lazear, 1979).
In absence of a large enough external labor market for average performers they run
the risk of ending up with employees feeling trapped. This may explain the level of
engagement lower than in US companies (Gallup, 2008) that offer less job stability.
Trapped workers not only may not be highly productive but it may also impede the
recruitment of better employees with a higher level of engagement.
Japanese employees were always likely to look on their managers as people who
had performed (starting from school) better in a fair and relevant competition
(Sugimoto, 2010). So far, employees of all ranks have accepted their positions in a
hierarchy that they acknowledge to be legitimate. As a result, they always willingly
acted in accordance with prescribed roles rather than engaging in a struggle to alter
the distribution of power and rewards. This legitimacy is now put into question with
management coming from different origins, companies more free to terminate
relationships and employees accordingly thinking about their individual careers and
employability in priority. The outcome could well end up in conflict and a breakdown
of cooperation if managers take for granted the legitimacy of the hierarchical social
and industrial order. Different career and reward expectations require new practices
and instruments backed up by different sets of values to reach the right level of
engagement that companies expect.
The seniority system was always linked to the mandatory retirement age. Following
Lazear (1979) assumption, if the retirement age is set correctly the wage sum for the
whole career is equal to the marginal product. So far they were able to keep the
rational of their pay policy despite retirement age moving up from 55 to 60 during the
last 30 years. But the government plan to lift the entitlement age for public pension to
65 years old makes it more challenging. The 2004 law change keeps legal the 60
years old mandatory age but they have to adopt a continuing employment scheme
for the workers wishing to continue working (Conrad, 2009).
The cost implications are big but it also creates a moral dilemma. Early retirement is
costly and transfers are more difficult because of the loosening of inter-companies
relationships. It pushes for an acceleration of the changes of the appraisal and pay
system. Because it includes the possibility of significant wage reduction and even
retrenchment senior workers consider such policy as a breach of the psychological
contract under Lazear-type logic. Companies can still legally select the workers they
want to keep after 60. But letting elder workers unable to keep a decent standard of
living while being years away from receiving their pension is socially unacceptable
and liable to cause reputational problems. It obliges companies to devise training
programs in order to make some of the workers more employable, and to utilize
extensively outplacement services.
There is an increased vagueness in the horizontal division of labor and the
emergence of sub-categorization of both permanent and non-permanent employees.
Although core non-permanent employees are expected to acquire the same skills
and demonstrate the same level of teamwork as permanent employees the gap in
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remuneration and fringe benefits is wide. Besides the issue of social fairness, it could
lead to moral hazard in teamwork and cause deterioration in organizational
efficiency.
PRP systems directly linked to outcome are credited for boosting performance and
creating a new dynamics. But in focusing on quantitative outcome and neglecting the
fact that they depend most often on uncontrollable factors by individuals they are
also accused of being inflexible and of destroying trust. They encourage employees
to eschew extra-tasks and challenging goals in order to protect their own arena of job
responsibilities and hedge the risks of a bad evaluation. Moreover, in discouraging
altruistic behaviors they impose a narrow concept of organizational learning and
knowledge creation (Takahashi, 2004).
In the HPWS too more is expected from core employees than purely utilitarian
personal calculation. But the objective is not to reproduce the community of fate.
High engagement does not exclude mobility from both parties. Mobility linked to
employability is a crucial element of HR cross-fertilization. It fits with the mindset of a
low context culture (Hall, 1977) where public and private concerns are neatly
separated. But it may create mistrust and feeling of betrayal in a high context culture
where professional relationships extend beyond functional purposes. Likewise,
self-development and autonomy have always been promoted in Japanese
companies but it is in well-defined hierarchically organized frameworks and with
subtle social control influencing behavior and attitudes. Teamwork dynamics with
empowerment in flat hierarchical structures presupposes a pro-active management
of conflicts and acceptance of diversity of opinion. But ‘impatience with rule’ and high
discretion in work organization is still difficult to conciliate with deep respect for
hierarchy and a mindset where humility and self-restraint are considered as virtues.
It has been observed that misused HPWS can lead to self-exploitation, burn-out and
mental problems, precisely among the highest committed employees (Docherty et al.,
2002). The increase in work-related mental diseases of employees and managers,
for instance more cases of karoshi (death by overwork) and occupational-related
suicides (Furuya, 2007) show the seriousness of the issue. Karoshi is not a product
of the new HRM paradigm. It is the result of the overburden Japanese traditional
system imposed on the permanent employees. But the fact that it did not disappear
with the use of HPWS indicates that companies are keeping their practices of long
working hours and have not yet integrated the key dimension of work/life balance in
their corporate culture.
Role and importance of Business-HR partnership
The HR department was in charge of the recruitment and selection. It was a key
partner in the devising of strategic HR planning and the design of various HR
processes and programs. So, it was directly involved in actual personnel
inter-department transfers and through monitoring of the rotation system it actively
participated to career development. Up until the end of the 1990s skill development
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was done basically under the HR department’s aegis. However, while powerful the
corporate HR department was always in close contact with line managers. The line
managers were in charge of the intra-department moves and of recruitment of the
non-permanent workers. It has to be also pointed out that the HR manager was
almost never member of the board of directors.
Key changes in the HR function
The HR function is under pressure to bring results. Alignment with investors’
interests makes companies reluctant to invest in HR development if return in the
short-term is uncertain. Less emphasis is put on company’ managed employee
development schemes. Self-development training started already in the 1980s but
they are bound to become furthermore important in the years to come with the
emphasis on employees’ self-reliance in career development. However, the needs
for assisting systems managed by the HR department will increase concurrently.
Corporate HR departments move from a management of employees’ promotion
toward a management of individual careers. Companies proceed to an earlier
selection of the fast career track group. HR department role is to increase the
capability and capacity of the elite members in both internal and external labor
markets. It has to devise and monitor employability schemes and participate to
career design. The role of HR department will thus be to enhance both the value of
the employees and that of the organization. This is important to respond to individual
career needs but, even more importantly, to select and nurture the future leaders. So,
involvement in executive training and coaching is bound to grow furthermore in
importance.
The evolution towards line and department-based profit centers reinforces the role of
line managers in providing career support, coaching and mentoring but also to recruit
permanent and non-permanent employees. But corporate HR plays a growing role of
provider of internal customer service. Implementing HR practices (from recruitment
to integration) reflecting the larger diversity of human capital in terms of status,
career patterns, training needs requires specialized expertise. Corporate HR can
provide career evaluation and consulting service for one specific unit, as well as
consequently design custom-made training programs. HR departments are now
being installed with information equipment to replace some administrative works but
also to facilitate interactive learning under a more codified knowledge management
system. At the same time the corporate HR integrative role is also growing with the
need of binding together company structures that are submitted to strong centrifugal
forces. For instance, it is pointed out that conflicts in the case of inter-departments
personnel transfers are more numerous than before and require HR arbitrage
(MHLW, 2009a).
Changes in the following five years
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Decentralization of HRM going with calculation of cash flow-based and profit
performance at the line and department levels pushes for more flexibility in recruiting
according to their specific needs. Overall permanent employment is unlikely to rise
and systematization of the management of the hybrid permanent and
non-permanent employees is a priority. Already there are more employees recruited
under conditions of no transfer away from their living area, performing only certain
types of work, or with shorter and more flexible working hours while having the status
of permanent employees (MHLW, 2010c). Nowadays, such policies concerns mainly
female employees but it attracts the interest of an increasing number of male
employees. As a result, a broadening and deepening of the concept of life/work
balance can be expected in the years to come.
It is advocated that the treatment of some segments of the non-permanent workers
should also move towards a kind of role/competency-based systems in order to
facilitate their integration in the organization. Some of them should even be
incorporated into the permanent group if they have appropriate potential to adapt in a
long-term perspective (Nakata and Miyazaki).
Balanced score cards are likely to remain key integrative tools. But it is argued that
they have to be utilized more flexibly. Recognizing the drawbacks of a rigid appraisal
and reward system based on outcome companies move away from too rigid systems
with forced distribution rules and quantitative benchmarks. They shift to more holistic
systems that are considered as more consistent with Japanese HRM traditions of
performance and fairness. Performance appraisal is increasingly based not only on
the results of performance attained but also on the process of demonstrating abilities
that contributed to the performance (Nakamura, 2006).
It is pointed out that adoption of a knowledge management system completely based
on low context communication would be detrimental to the organizations (Henscher
and Haghirian, 2011). Maintaining the formal and informal constant exchange of
knowledge inside the whole organization is necessary to retain the meaning of the
communication. The task in the years to come will be to extend it externally outside
of Japan. It requires technology but also the mastering of cross-cultural
communications in view of the persisting cleavage of corporate values and beliefs.
Japanese companies cannot remain competitive without attracting qualified people
from outside Japan. Therefore, they have to develop suitable cross-culture training
programs and design international HR recruitment and career development policy
and practices suitable to non-Japanese people (Brannen, 2011).
An earlier selection of elites than before can be expected. More explicit career fast
tracks are already created. It is the case of Nissan (Gupta and Muthukumar, 2011)
for example that single out certain employees for elite development as soon as they
are recruited. It can be expected that many companies introduce remuneration and
promotion systems that increase opportunities for younger employees entry into
positions of responsibility.
Core employees can expect long-term employment security but with greater
uncertainty concerning remuneration and advancement, including the retirement
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lump sum. The trend towards professionalization is likely to accelerate in the line of
what NEC (Meyer-Ohle, 2009) and Nissan (Gupta and Muthukumar, 2011) are doing.
Some employees will be given the opportunity to nurture higher specialized
capabilities and their treatment will be furthermore upgraded in the organization.
It remains to be seen how companies will utilize HRM as competitive advantage to
attract and retain the best employees. They used to base their recruitment policy on
their name value but it is bound to become difficult for companies to stick to relatively
uniform employment practices. Now, they need to devise new attractive working
conditions and career opportunities to both male and female prospects in order to
position themselves as employers of choice.
Case of Nissan Motor Company
The Nissan Motor Company case is interesting in that it condenses most of the
reforms that have been undertaken during the last two decades with their merits and
drawbacks and the limits to implement them in current Japan.
Recruitment and selection policy was very traditional. A high percentage of its
managers and especially engineers were coming from a very limited number of
Japanese universities. In response to production over-capacity Nissan had started
from the beginning of the 1990s to decrease the headcount of permanent employees
in recruiting less new employees and in starting early retirement strategies. To
control the production costs they had adopted a policy similar to that of their rivals,
i.e., they utilized a growing number of contract employees on-site.
They had also taken stopgap measures such as temporary work stoppage on some
of the sites and had convinced the union to renounce to the yearly across the board
‘base-up’ pay increase. They had introduced the basis of a more merit-based system
that would offer faster promotion tracks to the best performers and create larger
wage differential according to performance. So, when Nissan concluded an alliance
with Renault in March 1999 that made of Renault the dominant shareholder,
foundations had already been laid to adopt HRM reforms more rapidly and on a
larger scale.
It started at the top with a drastic reduction of the board members’ number, from 37
to 10 and nomination of external directors. Moreover, seniority would still count but
would not be anymore the sole criteria for membership. The company did not
proceed though straight lay-off but conducted a large-scale early retirement
program: 14% of the total worldwide workforce of 148,000 employees was asked to
retire, to accept a part-time status or to be transferred to a subsidiary. Because of the
low recruitment during the 1990s employees’ average age had significantly risen.
Therefore the reforms concerned a sizeable part of the workforce in Japan. Senior
employees strongly opposed to measures that they considered as a breach of the
psychological contract. They fought against them through the union but it ended up
with the departure of most of them in a relatively short time.
The organization was divided into profit-management units with clear and ambitious
13
objectives. Very precise financial performance control instruments were adopted in
the different units and departments in order to cultivate a culture of quantitative
target-based commitment. It went along with a differentiated HRM policy in terms of
wage, bonus and fringe benefits based on the respective contribution of each unit to
the company performance. Labor costs were not to be considered as fixed costs
anymore but as variable costs. The goal was to create a self-reliant managerial
model, with a strongly performance-oriented pay system including the overseas
divisions that rewarded outstanding performers significantly higher than the average
ones. However, employees were requested at the same time to communicate across
functions, borders and hierarchical lines. Mechanisms using multimedia devices
were put in place to reinforce personal and direct contacts at all levels all over the
world and evaluation criteria included teamwork contribution.
Policies were put in place in order to provide women with more career opportunities.
It had to go along with the recognition that work/life balance is not a ‘women issue’.
So, Nissan started attempts to change the traditional culture of overtime in
encouraging employees to adopt a more balanced working life. The number of
female managers increased afterwards, although it still remains small for the time
being. It was acknowledged that Nissan was not suffering from a shortage of internal
talents but from the too high homogeneity and bureaucratization of its culture. So,
younger managers relatively low in the hierarchy were picked for leading important
projects. Another new practice was the recruitment of specialists at mid-career.
Nissan started to scout for marketing, finance and engineering talents in Japan and
abroad, and gave them important responsibilities in the organization from start.
In the line of the need for differentiation in recruiting policy Nissan started to recruit
elite new graduates in offering a higher initial wage and in putting them on a fast
track without any seniority element in the career progression. It went along with an
internal ‘self-career’ system with employees being offered the opportunity to apply to
jobs offers all over the company. It was linked to the adoption of a pro-active
succession planning policy giving high priority to the training of the future elite.
Assessment of the results of the reforms is mixed. They are widely recognized to
have permitted not only the turnaround of the company but of having created a more
open and dynamic culture. Nissan is now arguably one of the most innovative
carmaker in Japan, putting on the market more attractive models. Progress is rather
slow on some matters, though. Female managers remain few and the recruitment
channels have not significantly enlarged in Japan. Turnover of mid-career recruits is
also considered as high. Similar to critics in other companies in this regard, it is
argued that Nissan strong emphasis on numbers and short-term profitability may
have hindered its longer-term development.
14
Conclusion
Japanese companies recognition that they cannot survive without instituting
market-driven personnel systems appears clearly in the policy and practices adopted
the last two decades. It can be reasonably argued that they have made substantial
moves away from their traditional HRM model in terms of the practices or key levers.
Their HRM approaches are increasingly consistent with flexible, high performance
work systems. It is reflected in the adoption of outcome-oriented appraisal methods;
PRP and competency-based systems; formalization of mentoring and coaching
support mechanism; use of employment contracts of miscellaneous types allowing
higher external numerical and functional flexibility. Psychological incentives linked to
CSR and self-career design, are also offered. Japanese companies now have flatter
hierarchy and offer a more explicit fast track to the best performers. Training and
career development are increasingly based on the employees’ own autonomy.
Leadership style is more diversified and reflects a more participative style of
management in many companies. The strong isomorphism among companies is
starting to fade away. Even in the same industry companies develop HRM practices
very differentiated one from each other. Some specific characteristics remain, though.
Recruitment and selection still rely on the standard quality principle, i.e., companies
do not diversify much their recruitment. They also continue to base selection on
formal and rigid examinations. Combined with the slow progress in the treatment of
non-permanent employees, it means that many of them are still neglecting or
under-optimizing the use of important use of human resources and/or still reinforce
the lack of viability of some of them, notably foreigners and female talents.
At the policy level choices, quite significant changes have also been observed. New
15
practices have gradually been internalized in policy choices. For instance, a more
strategic role for HRM managers and HRM departments is emerging. Line managers
are taking a more active role in terms of appraisal, training, career-development and
coaching. The growing professionalization and career diversification are important
steps towards a departure from the internal labor market logic. With growing
employability a higher mobility of managerial and technical resources can be
expected. Companies are fine-tuning their management policy in order to optimize
the process of status hybridization much beyond the simple categorization between
permanent and non-permanent employees.
At the level of architecture or beliefs and assumptions, mixed results have been
observed over the last ten years. Business structures, institutional framework and a
number of socio-cultural attributes remain important constraints on convergence.
Some reforms go in the direction of deeper changes at architectural level. For
instance the Company Law reform that is likely to accelerate the M&A activities,
allows more flexibility to develop differentiated HR policies at departments and
smaller units’ levels and reinforce the pressure from the financial markets. So far, the
changes towards Japanese-style ‘flexicurity’ have proceeded in an orderly manner
typical of the Japanese societal environment. Nevertheless, transformations are not
anymore only incremental and made in succession in the framework of a business
cycle. Different kinds of labor market segments, occupational rules and human
resource practices are adopted, based on new forms of labor contract, recruitment
practices or career formation patterns. It can be argued that they have been
increasingly of disruptive types that are liable in a longer term to put into question the
traditional social contracts and labor stratifications in the years to come.
However, it may still be too early to tell that the specificity of the Japanese HRM and
employment institutions and practices is over, despite their deep transformations.
Considering the deep entrenchment of the Japanese employment practices within
Japanese society (Matanle, 2003), and interdependence of HRM practices with other
managerial practices, notably related to production, market-oriented reforms have to
be conciliated with organization-driven systems. Obvious contradictions and
dysfunctions appear at the organization but also at societal level. The internal labor
market for instance is revealing to have important external maligned societal effect in
a structural low growth period. It is instrumental in creating ‘lost generations’ of
people who because they have been denied access to training in the first stage of
their professional life are likely to have difficulties to enter the labor market in good
conditions for the rest of their life. But its legitimacy is such and it still fits so well with
the production model that Japanese companies want to preserve as basis of
sustainable competitive advantages that it can only be reformed very gradually. It
could be argued that it would require significant changes in the educational system
creating a different mindset in society at large to see it evolve more rapidly.
Japanese companies do not want to replace the secured worker by the unsecured,
frightened one. They want to nurture a talented elite group of professional managers
who have a high level of engagement but they do not want mercenaries. They need
16
to integrate in a long-term perspective a more disparate group of employees in terms
of status, professional and private aspirations and life-style. So, similarly to
companies elsewhere they are looking for elusive practices and policies that would
combine effectiveness, efficiency and fairness.
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Useful websites
The Japan Institute for Labour Policy and Training: http://www.jil.go.jp
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Japan Management Association: http://www.jma.or.jp
Works Institute: http://www.works-i.com
Nihon Keidanren: www.keidanren.or.jp