Management Innovation: Toward a New Corporate Model

Taizo NISHIMURO (Chairman of the board, Toshiba Corporation)

As globalization, digitization and networking impact on management, unprecedented change at a remarkable speed characterizes today's business environment. Throughout the economy, these forces are stimulating a complementary role between hardware-based operations and software services and solutions that bring added value to business. The final result is that companies are increasingly required to make urgent and sweeping changes.

Rapid progress in IT is creating a networked society that is putting an end to the physical limits of time and place, eliminating boundaries to business and changing the way companies compete. It is also requiring companies to change themselves. This is the world's third industrial revolution, the "IT revolution." This third revolution follows the first industrial revolution experienced during the middle of the 19th century and the second revolution which witnessed mass-production in consumer electronics during the mid 20th century.

One result of the advances in IT is that suppliers and customers now work more closely together than ever before, emphasizing a need for customer-oriented approaches and a total commitment to customer satisfaction. This is especially true as suppliers seek to back up their products with enhanced services and support, bringing added benefits for both vendor and customer. At the same time, globalization has intensified consolidation on a global scale. Companies have been forced to concentrate on core businesses and to define their roles and missions clearly. Major companies have concentrated their resources as a means to engage in the full-scale, mega-competition that characterizes today's world market.

These recent changes in the business environment have shaken Japanese business at its foundation, and have prompted government, business, universities and individuals to forget past successes and to rebuild the system and its structure.

Starting in the late 1980s, American companies tackled change head on and this has supported long term economic development in the United States. The Japanese economy is now at a point where it is approaching a full-scale recovery period; but it also has to build management systems to nurture a group of strong, competitive companies able to compete and win on a global scale in a situation of mega-competition.

Toshiba, as a comprehensive electronics maker, has reached the limits of managing varied and extensive businesses to a uniform standard, and has had to face up to problems such as lack of speed in decision making and taking action. Recognizing the reality of world trends, and acting with a sense of crisis, Toshiba has sought to overcome group weaknesses and to forge a strategy for success amidst global competition.

Since 1998 the company has promoted innovation in three areas: reform of its management structure; rebuilding its business portfolios, and redefining its culture.

We took our first step towards management reform in June 1998, when we introduced a smaller Board and a system of executive officers. Under this system, the Board develops the overall group strategy, while executive officers are responsible for managing their own businesses. The reduction in the size of the Board stimulated a more focused discussion and promoted faster decision making. The executive officers in each business also had more autonomy in their own domains, and could act more quickly and decisively.

Our next step was the April 1999 launch of our in-house company system. Fifteen business groups joined to become eight in-house companies and one joint-venture subsidiary company. The management of each company was given the resources required to compete and the autonomy needed to develop and promote business strategy. In return, each company was expected to prove its competitiveness against specialized global competitors.

Along with reforms in the in-house company system, we introduced the idea of a small corporate headquarters. This centralized staff functions to support the progress of the Toshiba Group, and also audits the performance of each company and the group as a whole. In addition, there are specialized organizations supporting such areas as basic R&D, procurement and logistics, IS, accounting and welfare programs.

In rebuilding our business portfolio, we have taken a long hard look at our global competitors and have made decisions regarding in which businesses to concentrate resources. By honing our abilities to compete against strong, specialized companies, we are making alliances and promoting M&A. Our aim is no longer to be a comprehensive electronics maker, involved in each and every aspect of the electronics industry, but a company comprised of dedicated operations closely focused on the key areas of the electronics market. A central goal of this paradigm shift is a strategy to direct resources towards growth areas, particularly in IT.

Our current mid-term plan underlines this approach through its growth strategy based on IT investment. Our main efforts here are being directed toward the digital, mobile and networking fields. This covers three broad business areas: system solutions, services and content; IT-related equipment, such as information, communications and imaging equipment; and components.

We are promoting cultural change throughout the Toshiba Group in our Management Innovation 2001 program (MI2001). Launched in April 1999, this implements the six-sigma methodology to bear on reforming management practices and their quality, as well as the development of a culture oriented to total customer satisfaction. We are also using the MI2001 to build our competitiveness through creative destruction and to shape this new culture with the participation of all employees. Ultimately, we want to recreate Toshiba as a strong, globalized company ready to meet the demands of the 21st century.

We are aware that these kinds of initiatives can result in more planning than concrete strategy and achievements. However, we are determined to make the values of MI2001 an integral part in the way our employees think and act, and to make the program a part of daily life in Toshiba.

The initiatives described above have already achieved a lot in terms of management innovation. However, that does not mean we are at the end of the process. If anything, we are at the start, and real innovation has yet to come. We cannot ignore the fact that we live in an age of ceaseless change, and we too must change if we are to survive. We know that there is no structural change that we can make that will overcome all of our problems. Instead, we need to encourage business structures that support flexible and rapid organizational change in response to changing business conditions.

Ultimately, support for management innovation means instilling managers with an understanding of the need for innovation and encouraging them to exercise constant leadership. We aim to train employees not to be afraid of innovation, and to strengthen such training as a "company in learning". We desire a climate in which people are constantly learning and teaching, and plan to train employees to achieve this.