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July 2000

The Role of Japan in the IT Revolution

Jiro KOKURYO (Professor at Keio University)

There is a growing perception that Japan can play in the global IT game not by simply imitating the US model but by doing what she does best in the way she performs best. Mobile internet is a symbol, but just a beginning.

Lean (Integral) versus Open (Modular): a Structural Conflict
Before drawing a rosy picture of the future, we need to identify the causes for the apparent inability of the Japanese industry to address the IT revolution in the last decade. From management scientists' perspective, we cannot buy simplistic arguments of Japanese organizational incompetence. It is Japanese industry that exhibited almost limitless flexibility in dealing with the oil crisis and had been the champion of speed in technological progress until the 1990s. Why so slow this time? We need to explain the difference between challenges of the late 70s and the 90s.

Years of analyses and debate brought us to the recognition that the root may be at the structural conflict between "lean production system" and "modularity." Organizational cultures that excel in developing lean products seem to reject the modular product structure of open networks. We fell into the typical dilemma of having to give up existing strengths to embrace new opportunities.

Lean products and lean production systems are created by removing all redundancies in the systems. As a result, the systems become "integral" in the sense that all of the components become highly interdependent. By destiny, integral design requires close communications among people involved. In order to build 1000cc engine vehicles that are fully automatic, air-conditioned and still safe for driving on highways, engineers had to design totally optimized machines that require everyone involved to coordinate closely. Likewise, tightly knit keiretsus were necessary for creating the zero inventory supply chain. It was only natural that lean systems flourished in Japan where there were severe energy constraints and where organizations excelled in building close working relations.

By contrast, we can characterize modular structure as one that allows engineers to work autonomously by utilizing powerful engines, i.e., by designing in redundant capacities. Software engineers and hardware engineers do not have to coordinate heavily when there is abundant memory and processing power. In the design of cars, engine engineers and electrical engineers can work independently when fuel efficiency is not a pressing constraint. The resulting systems may not be totally optimized, but it allows the engineers to work creatively. Such structure allowed small venture companies to realize their capabilities without belonging to large corporate groups.

In a nutshell, modular structure of the 1990s' open architecture systems went directly against the traditional values of Japanese engineers. No wonder they resisted the idea so stubbornly. The modular structures were vulgar, wasteful, unreliable and most importantly lacked the elegance of totally balanced systems. Thank you, but NO!

The Next Generation: Environment Friendly, Convenient and Elegant
Game machines, game software, sub-notebook size computers, mobile terminals, and digital cameras... Japan still maintains competitiveness in areas where integrality is important. Space saving miniaturized gadgets (for which component engineers have to compete for space inside) is a big segment under this category. Fuel efficiencies, cost efficiencies and environmental friendliness (material conservation) are other targets. It is by no accident that Japan succeeded in mobile technologies that require almost all of above.

Mobile reminded us that the Japanese people by nature love gadgets and love to be connected. Right now, the publicity is around schoolgirls exchanging messages, but its application will soon spread to serious business applications in such areas as physical distribution, electronic settlement, and mobile offices. Then the system will be integrated with ITS (intelligent transport systems), banking systems and ASP services.

As the networked devices and applications become more sophisticated we can anticipate larger demands for more integral products, i.e., smaller, more optimized and highly interdependent. Already, device manufacturers are flourishing with IT related orders.

This is not to say that there is no need for Japanese organization to change. In a world in which everything will be connected, systems will have to maintain open interfaces. This means that the conventional practice of pursuing integrality within closed architecture (i.e., among family of products that share proprietary interface) will have to evolve into ones where internally highly-integral systems are connected by open interfaces.

The conversion is already under way. Webs of small manufacturing firms that supported Japan's fast product development cycle are now embracing the net. The infrastructure provides an open environment in which text, sound and 3-D design data can be freely shared among everyone in the supply chain, including consumers and certainly across the traditional keiretsu barriers. The desire of high tech-loving consumers can be quickly transmitted to the network of small companies that integrate their competencies on-line to address the needs. The net is also employed to dramatically cut down product development time. Such systems will break the limitations of "mass customization" (which is essentially about making various combinations of modularized products) to produce highly integral "elegant" products very quickly and flexibly.

We can envision the future as one in which the modular versus lean dichotomy is overcome by the emerging new design philosophy. In summary, the new paradigm will be one in which environmental friendliness, convenience and elegance can co-exist. It will be accomplished through the pursuit for maximum efficiencies in energy and material use while applying bits, i.e., communications capacity, abundantly. Open and broadband communication networks that will be built on the FTTH infrastructure will enable dynamic evolution of open architecture that incorporates benefits of modularity while maintaining leanness. Thus the goal of Japan will be to guide the evolution of lean production systems to ones that are open AND integral.

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