James Hollow's Blog about Hybrid Thinking » Japan economy

Japanese Innovation: The machine that changed the world

James Hollow — Tue, 16 Aug 2016 00:57:46 +0000

The management theory classic that told the Toyota story for the first time

A little while ago I read a book called The Machine That Changed the World, written in 1990 as a summary of a 5 year $5m MIT research project into the global automobile market.

I discovered it while looking for the best description of the most sophisticated, long-term-successful manufacturing organisation & method (of complex technology) the world has ever produced, and I am tempted to believe that this book describes it. In fact I was so inspired I ended up writing my own notes and sharing them with some friends who are experts in manufacturing in order to understand what has happened since 1990. These additional insights are added at the bottom of the notes below.

The “machine” in question is, in a word: “Toyota”, and it describes the emergence of their “lean manufacturing” model and its subsequent proliferation to the other Japanese car manufacturers and during the 1980s more broadly to many plants in the US as well. But the story is a lot bigger than that one word, than the car industry alone, and made me realise that I really had no idea how much mass manufacturing had evolved since its invention by Henry Ford, even before Toyota, and Japan’s other “assemblers” revolutionised it from the 50’s through to the 90s. Revolutionised is not in any way an exaggeration it seems.

It also made me think a lot about the potential for coupling machines with the sort of creative problem solving that still only teams of humans can deliver. We are now in the era of AI, but actually the lean manufacturing lesson informs us that we are really in the era of “humans x AI”.

Mass production vs Lean production

The book is structured around this dichotomy, with initially Ford, and then GM representing the most successful mass production strategies in sequence, and Toyota representing the lean model, which has since been copied by pretty much every brand that is not in the process of going extinct, starting with the Japanese brands (Honda, Mazda…) and interestingly Ford on the US side, and GM were trying hard even by the late 80’s. The Koreans have been trying to copy “the Toyota way” quite blatantly since this book was written as well, so it is still going on, although as the Japanese makers have had to globalise their manufacturing operations for various reasons the purity of their model has perhaps been diluted when looked at as a global entity, although all retain manufacturing and assembly plants in Japan.

At the point of writing the book, the lean manufacturers seemed to be unstoppable, and their rivals were scrabbling to catch up by studying and adopting the same management techniques as Toyota and others. Since then Toyota has become the largest car company in the world, the mimickers like Ford have done pretty well, the hard-to-adapters like GM have struggled, and Toyota has achieved this at the same time as having to become a more multi-national, decentralised machine, which many thought it could never become. So the intervening years seem to verify the message of the book. They have certainly not disproved its premises.

How transferable are the lessons from this book?

Perhaps more than anything I was struck by the conceptual clarity of the ideas upon which lean production was founded. It’s two inventors at Toyota, Sakichi Toyoda and Taiichi Ohno should be household names the world over, ranked alongside Ford and Edison. Perhaps though the nature of their ideas for organising people and resources put them nearer Marx, Engels or even Keynes. For sure the ideas emerged from the context their inventors found themselves in, specifically post war Japan, with no capital to deploy, a tiny domestic market, very limited resources, employee-biased labour laws… but then all big thinkers and their ideas are products of their time and place so this should not diminish their achievements.

So these core ideas and how they apply to the various aspects of manufacturing and with what consequence should be essential knowledge to anyone trying to create a business founded on:

– producing a complex assembled technology as a product at scale

– targeting increasing productivity over time

– as well as improving product quality (lack of faults) over time

– where a learning curve plays out for each product model produced

– where new models can be produced without long delays & large capital injections

– retaining skilled employees and loyal, co-invested partners

– where the whole process is tuned into both the markets needs and fundamental science / technology breakthroughs

What mass manufacturing does well

Mass manufacturing replaced the craft industries, starting with bespoke car production, but ultimately pretty much all craft manufacturing, so that craftsmanship was sidelined to small market niches, usually exclusive and expensive. It did this by turning the production process into one big machine, within which tasks were atomised and delineated to such an extent that most of the humans involved in it, everyone in fact except the designers, engineers and business management, were given one simple repetitive task to perform that at most took 5mins to learn and did not require to engage their brains while on the job.

What this machine did really well, as still does where conditions suit it, is make one thing at scale, taking advantages of economies of scale to drive down costs. This is exactly what Ford wanted to do with the Model T, and succeeded, and only failed in the end because ultimately the market’s needs fragmented and began to evolve faster than Ford’s big manufacturing machine could adapt to, and therein lies a key weakness of this model. Knowledge is embodied mainly in the hardware of the manufacturing machine itself, not the people running it. This hardware is expensive, and optimised for scale (e.g. stamping out steel plates at 50 per minute) but cannot be optimised for flexibility (stamping different sized sheets, or speed to switch to an alternative shape). Consequently, when he changed car models, Ford would have to throw out half his machinery too. This still made economic sense throughout the 1920’s, but by the mid 1930s GM had got their more flexible “shared platforms, different models” up and running and it was starting to cost Ford dear.

GM took over the gauntlet through the business genius of a guy called Sloane, who created 5 consumer facing brands (Lincoln, Chevrolet etc) that shared most of the same platforms and parts with each other, and hence enjoyed the benefits of scale as Ford’s model, actually more so, but by having 5 distinct brands, was able to meet the increasing diverse needs of the vast majority of Americans, and via overseas subsidiaries like Opel and Vauxhall, a lot of Europe too. So as a model it had more plurality and options, but was still essentially driven by the same manufacturing machine, and the role of humans as unthinking cogs in the machine remained the same as in Ford’s original conception.

Characteristics of the mass production machine:

It tends to invest in big hardware, to achieve economies of scale (e.g. massive steel panel pressing machines with high throughput), and in so doing become systematically vested in the status quo, defined by the technical capabilities of the hardware, and less able to adapt to change
Because “feeding the machines” and an ethos of “move the metal” become dominant, the system requires large inventories, e.g. weeks or months worth of steel panels piled up waiting to be fed into the steel panel press outside. Big inventories are financial liabilities in times of change and or downturns and again create inflexibility
Because of this same “move the metal” ethos, and because the employees, if they are thinking anything, it is to keep things moving to meet today’s production quota, mistakes in assembly, flawed parts get built into products, and layers of assembly bury them, until they are incredibly hard to discover or put right. Hence the MP machine is prone to quality issues and is actually not very efficient at all.

What “quality” becomes in the mass production model

Because of the mass production machine’s tendency to output faulty products, all of the big car plants had testing facilities and massive product recovery areas devoted to discovering the root cause of problems and putting them right, often failing or at best patching a problem. Hence reliability issues were always present in the products shipped to consumers.

Throughout the era of mass production dominance, perhaps from the 30s to the 90s, and perhaps still today with some manufacturers, quality equated to the investment into the recovery yards: then rigour that went into testing and the extent of the artisanal efforts to fix problems. So for instance the high end German brands reputations right through tothe 90s and perhaps still today to some extent are built on the “craftsman”-like skills of fixing flaws in cars that came off a production and assembly system essentially no more sophisticated than that of Henry Ford’s.

Again, this is not an efficient model and only works because of economies of scale that are built up, often state supported.

Inspiration for lean production model inventors

Ford’s flagship plant in Detroit became a Mecca for aspiring car manufacturers, and Ford was commendably open about showing people round. Most visitors were awestruck and went home with the intention to emulate it’s scale and automation as best they could.

Perhaps because they were quite late to the party, visiting in the late 40s and perhaps because they understood that emulation was not viable being from a country as weak as Japan was after the war, (any small businesses likely to get gobbled up by Uncle Sam’s corporate giants), Toyoda and Ohno went away thinking “there is waste in that system, waste we cannot afford” and hence they had important clues for how their model needed to be different.

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So the lean model itself; let’s start by reviewing its achievements. Lean manufacturing has proven itself beyond all doubt to deliver:
– higher productivity (ready-to-ship products per unit inputs: capital investment, operational costs, workers, physical space)
– higher quality (fewer errors hiding in shipped products)
– greater agility: faster and cheaper development of and switching of production to new products
– robustness to market cyclicality (although this one alone is a complex)

Founding insights

The early insights that Toyoda and Ohno observed that underpinned their thinking:

The best mass production plants have a lot of “muda” = waste, not least in the rework shops that fix faulty products that come off the end of the line, 25% of human resource, 20% of space are typical
Because of the focus on “move the metal”, i.e. getting as many completed units off the end of the assembly line, so an unwillingness to stop the assembly line, errors (faulty parts, badly fitted parts etc) were compounded as they went down the line, errors that were hard to fix (lots of reworking) or impossible to find (faulty shipped products)
Smaller batches work out cheaper than big ones. Much of Ford and GMs success had come through developing massive machines to make parts in massive batches, e.g. steel panel presses, with very high throughput. But embodying so much value and knowledge into these machines compromises their ability to change what is produced, and errors in the parts were multiplied faster. By focusing on being able to CHANGE the output much easier, and making “Just enough” sized batches, the overall efficiency could be greatly improved.
The mass production “machine” demotivated its workers, so they had no stake in catching errors and improving quality, only in meeting quota day by day.

Based on these, I believe there are three key concepts that hold the keys to the lean model:

1) Fragility drives productivity

For me perhaps the most brilliant, insightful idea that Ohno came up with was that you could create the most efficient and error-free manufacturing machine by making it extremely fragile.Anything can stop the manufacturing machine moving at any time:
– every single person on the assembly line has a chord they could pull to stop the whole line, and are encourage to do so the moment they suspect a problem with half-assembled product on the line. (In mass production lines only the factory foreman had a switch, and would hate to stop it because it could mean they miss quota that day)
– parts arrive literally “just in time” before the previous delivery runs out, and many parts deliveries would be as frequent as hourly. (In contrast mass production’s assembly lines would typically have months worth of parts piled up at its side)
– parts are actually MADE just in time. The box carrying the parts arriving back at the supplier factory is the signal to start making more of those parts

But surely making it so easy to stop would lower production since it would be stopping all the time? Yes, this is true, at the start, but over time “the machine” learns how not to have to stop all the time. How does it learn? People is how. Instead of the mental paradigm being to push units off the end of the line, it switches to tracing the source of errors UP the line.

2) People as agile problem solvers

In the mass production model the people are only there because a machine has not been invented yet that could do their job. (Still the case for many manufacturing jobs, but not for much longer!). They are not required to think.

In the lean production model the workers are required to be super-sensitive to the condition of the machine, it is so fragile after all, and react as problem-solvers to fix issues in real time, whatever their nature and irrespective of the nature of the issue:
– they have to learn to spot problems, even tiny ones, say with a part that does not quite fit snugly.
– they have to learn to snoop out the origin of problems. Ohno and Toyoda came up with the “5 why’s” practice back in the 50s: basically ask why at least 5 times in rooting out the cause of a problem to REALLY make sure you have got to the very bottom of it, often requiring a trip to the suppliers. Nothing moves until you do.
– they have to support each other, literally all rushing to help fix a problem if and when it arises, usually grouped into a small team with complementary but overlapping skills
– working groups have a “leader” usually the most experienced, so that they can cover for any one of the team if they are sick or away, so the people have to solve people issues too as a team

**3) The philosophy of continuous improvement (kaizen)**

This is the one that everyone knows, to the extent that it has almost become a cliche. It is thesame as 2) really, only applied to the system as a whole, and focused on improvements not just solving problems, e.g. in the supply chain, distribution, marketing, everything. In contrast to the various macro-areas of the system, especially the supply chain, acting as self-serving agents, with the ‘invisible hand’ supposedly assuring efficient interaction and transaction, all parties in the system are co-invested in its continuous improvement, e.g. in terms of minimising errors, reducing costs, increasing flexibility, sharing financial risk.

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There is a lot else to say, but I believe that these two ideas are the fundamental ones that all the other beneficial effects spring from.

So from these:
1) make the machine ultimately fragile
2) empower its people to be the ever vigilant, ever problem-solving nurturers of the machine
3) collective striving for continuous improvement
… the effects below emerge as behaviours of the machine. In this way I think the overall system is actually closer to an organism, or organic system, than to a “machine”. Or perhaps the lean model is the point in history at which complex industrial machines become more fundamentally “alive”.

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A lean core

Toyota as a company employs fewer people, has smaller plants, carries less inventory, owns less manufacturing equipment per unit shipped than any car company, and that’s why it is themost successful. Ford first and later GM gained unprecedented scale by pushing the balance of “make or buy” way over to the make yourself extreme than anyone had attempted before, and that is what grew the car industry into the world’s biggest, because it drove economies of scale, but also created vast “muda”.

In contrast Toyota strikes the balance towards the “buy” extreme, but in a very different supplier < > assembler dynamic that pushes the same problem-chasing mentality, and shared responsibility for minimising waste, kaizen, and producing cars to a target product price, called “value engineering”, that lean manufacturers employ internally.

So Toyota sits atop an ecosystem of co-vested, usually co-owned (e.g. Toyota has a 10 / 15% ownership of Denso, Denso owns a few % of Toyota) companies that are free to work with other assemblers, and with which cost-reduction margin gains are shared, hence allowing the partner suppliers to invest in improving their own manufacturing operation (people, machines, analytics etc). This kind of designed mutuality is not unique to car manufacturing in Japan, and something similar can be seen in the zaibatsu structures as well.

Anticipation & judgement

The machine’s humans learn to react with speed and agility to solve problems, but over time as they get tuned into the machines characteristics they learn to anticipate its needs and issues, and act “just before” a problem occurs. This includes the people that work at the parts suppliers as well, since they are “wired into” the machine very tightly also.

Judgement is decentralised, shared between everyone involved, so that everyone’s judgement can effect everyone else. This pressure has the effect of making people think more not less.

Shared responsibility for avoiding mistakes and “kaizen” – i.e. vested partnerships

If a supplier delivers a batch of faulty parts, the whole machine will stop, the 5-why’s process exposes the cause, and everyone in the whole ecosystem of supply and assembly will know what happened. This has the effect of creating transparent accountability and extending the mental awareness of what constitutes “the machine” among operators throughout. More pressure on everyone to not screw up – yes, but more meaningful and rewarding when the whole process sings along with zero flaws. In the mass manufacturing model where this sort of transparency does not exist units are assembled and the problems are buried under layers of assembly and hence hard to assign accountability.

So across and up and down the organically structured interrelationships lean manufacturing creates shared responsibility. It’s accountability. Same goes if a work group high up on the assembly line keeps making assembly errors. It goes for everything. Arguably this is “stressful” but most research has shown that workers prefer to be part of this psychological paradigm than one in which no one cares about quality, and an individual is treated as a yet-to-be-automated disposable non-asset.

The more positive flip side of this is the fact that anyone from any level or any area is empowered to, actually required to suggest improvements to their part of the system or in fact the whole system ensuring it is always progressing and evolving. This is not just about the removal of errors. The essence of kaizen is to find innovative ways to evolve the machine over time. Not innovation to reinvent the whole machine, but smart “hacks” that increase efficiency, speed, reduce waste… And these improvements are rewarded in a number of ways, not least through the profit sharing, savings-sharing financial relationships between supplier and assembler, thus incentivising genuinely creative thinking not just vigilance. Suppliers are able to apply these incremental breakthroughs to other supplier contracts, hence improving profit across their business.

Information, Data & central control

When early American converts to lean production went on rare pilgrimages to Toyota back as early as the 1960s a common reaction was “oh my god, the DATA those guys have on productivity, it was mind blowing”. The lean manufacturing machine’s performance is obsessively measured. Information is not captured and kept hidden in a central “brain” (see the organism metaphor keeps suggesting itself), but is shared with everyone in real time.

For instance, from the 80s display screens were placed on the assembly lines showing a status dashboard of information. Productivity data and analysis is shared with partners to help them make better judgements too. Of course there has to be central governance, but it is not total control as it is in Mass Production. Nor is it totally decentralised, like an ant-colony with all its parts pre-programmed to react in certain collective ways. It is a balance of central and decentral control and evolution.

Fixed costs vs variable costs, assets

An economic consequence of the lean approach is that unlike mass production which treats human labour and supplier relationships as variable costs that can be adjusted to the cyclicality of the market, both are counter intuitively in the lean model fixed costs. Neither employees nor supplier partners are disposable in tougher market conditions. Instead the lean model can respond by dropping product prices, increasing cost competitiveness to protect sales volume, better than competitors can (for whom big inventories become a bigger issue). Lean producers can also shift to different car models faster than mass producers can, to respond to a surge in demand for smaller, more fuel efficient cars, for instance, or to bigger SUVs as has been the recent trend.

What happened after 1990?

When the book was published in 1990 Toyota was half the size of GM, then the world’s biggest company. Twenty years late Toyota became the biggest car company in the world. Although the story is a lot more complex since 1990, history has clearly shown lean manufacturing and the Toyota way to be world beating.

According to my follow up research study with friends and acquaintances in manufacturing, which while less well funded than MIT’s seemed to reveal a reliably consistent story, the lean model is now the standard in all of major auto manufacturers globally, having been copied to various degrees of success by the US, European and Asian car companies. Hyundai for instance have systematically hired retired Toyota line managers to teach them the model. It is without doubt Japan’s single biggest contribution to the global industrial complex, and its principles are employed in numerous other manufacturing arenas where similar conditions prevail, namely high-unit volume combined with market demand for quality and durability.

In the car industry there has not been a significant new “revolution” on top of lean manufacturing, (although the use of sophisticated robotics is certainly a significant evolution), and lean manufacturing has probably never been achieved to the same level of perfection (flawless cars shipped, symbiotic efficiency etc) outside Japan but there have been a host of other economic and global market factors that make the narrative more complex than the one leading up to 1990, e.g. consolidation among European car brands and sharing of platforms across brands, different emissions standards in Europe meaning Diesel engines have had a perhaps unfair advantage, the financing requirements to invest in emerging markets requiring consolidated purchasing power (e.g. the NISSAN RENAULT Alliance), and of course currency fluctuations, to name but a few.

Today the pinnacle of lean manufacturing in terms of flawless models being shipped is apparently Lexus, Toyota’s luxury marque, models which are mostly manufactured in in Japan still.

Is the iPhone the product of a lean manufacturing model? Chinese assembly plants have achieved economic leanness of cost through mean-minded cost control (not my words!) and punitive control on quality, but the symbiotic partnerships and empowerment of factory workers has not been replicated, indeed FoxConn employs suicide nets in its manufacturing facilities, but the relative short life, disposable nature of smartphones, as well as their electronic as opposed to mechanical guts mean that the comparison is harder to make.

More Japanese innovation? Human x Machine / AI hybrids

Despite the unstoppable march of electronic devices and accompanying dematerialisation of so much of our everyday lives, humankind still needs hardware. In fact the climate crisis we face requires an industrial phenomenon to solve it, and efficiently too. Whether it is wind turbines, nuclear reactors, solar panels and batteries, and more than likely a combination of the above and some new stuff to boot, we are going to have to scale up production of zero-carbon generation hardware like never before while finding a learning curve to drive costs and energy inputs down at the same time. Efficiency will one hopes become even more incentivised across manufacturing as a whole, so it is quite possible that lean manufacturing’s biggest contribution is yet to come.

On a more conceptual level, the way the lean manufacturing approach coupled the potential of machines and humans to mutually empower them may point the way to the next industrial revolution. On losing to Deep Blue the chess grand master and one would assume handy problem-solver Garry Kasparov established a chess league of what he called “The Centaurs” – a chess master combined with a chess AI, since he realised that the AI’s advantage lay in being able to access more game experience data than his brain could alone during play. The “Centaur” type hybrid chess masters of course trump any human or AI separately and represent just one example of how humans augment with AI, or vice versa, are becoming the new standard. But as the lean manufacturing story tells us humans have been amplifying the performance of mass machines for at least 50 years, and the co-evolution of technology and humans may be what defines us as a species since our origin as the tool-manipulating ape.

In academia today there is a burgeoning new arena of AI used as part of researchers’ armoury – drug developers use evolutionary simulations to develop original molecules for instance that might have medical capplication. And of course in everyday life with Google’s AI in our pockets we have already, on the quiet become the AI-augmented species. I have little doubt that industry is going to go the same way, and not least in Japan. Japan biggest R&D spenders, all of them mass / large scale manufacturers, listed AI as one of the most important areas of research and one of the reasons for onshoring more of their R&D budgets, where the onus will be on the human partner to be creative and inventive.

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The Japanese Advertising Industry in a Nutshell #2

James Hollow — Thu, 12 May 2016 22:24:38 +0000

The Japanese advertising industry is not well understood from the outside. In fact, I am not sure it is that well understood from the inside. In a post I published in 2014 called “The Japanese Advertising Industry in a Nutshell” I tried to sum up what makes it unique, the characteristics of the advertising itself, and explain why it has remained dominated by domestic agencies.

In the context of my readership the post “went viral”, still gets a lot of traffic, led to a bunch of speaking offers, and sparked off a lot discussion among my peers who work in advertising here in Tokyo. From all of this I learned a tremendous amount and it helped to solidify the ideas, and hence this post is an overdue follow up that aims to:

Summarise the original article’s assertions
Describe the context within which the advertising industry has come about, and so help to explain why it is
Address the question of whether Japanese consumerism is fundamentally different or not
Revisit the claim that the western agency planning model does not work in Japan, explain where I stand now on this point
Bring the story up to date – what if anything has happened in the last few years to suggest that change is afoot

Japanese advertising in a nutshell – the original

The central assertions of the original essay, all of which I still stand by, are:

The Japanese advertising scene has been “captured” by a sort of cartel made up of the TV stations (who make the programming that creates the celebrities), the talent agencies (who “manage” the celebrities’ commercial contracts) and the advertising agencies (the dominant one being Dentsu, who effectively auction off access to programming and celebrities).
The most powerful entity in this symbiotic ecosystem is Dentsu (the middleman prevails!), and most outsiders assume it is based on exclusive access to media, but actually it is just as much to do with controlling access to the celebrities
The rise of CyberAgent is a proof point of this reality: the web media company (actually today it is essentially a Dentsu style agency for the web) which rose to prominence off the back of AMEBA, the celebrity studded blogging platform, are the upstarts that beat the agency establishment at their own game, but on the web, by creating a business model based around access to celebrities and selling its associated media and influence
Because of Japan’s relatively more homogeneous society and consumer mindset of wanting to be integrated into the whole of society, Japanese advertising aims more to fit brands into the communal cultural zeitgeist, to feel “of the now”, than it does to make them stand out in a conceptual way
Hence Japanese executions tend to have lots of small cultural references, thematic and aesthetic, that make them “highly crafted” in a way that obviously foreign creative directors and award show judging panels will always struggle to appreciate
Casting TV talents who are currently a la mode (and these trends are rapid) is an expedient way to achieve “of the now”, make the brands relevant to consumers here and now, especially those who like watching TV, without having to think too hard about communication strategy, while keeping the client happy and excited at the same time.

Japanese celebrities are typically manufactured on TV, and access to their endorsement is controlled by the big agencies

This brand sponsored-entertainment complex is a monster, and it’s not budging. Since I first arrived in Japan the decline and fall of its lead protagonist, the chief bully in this old-boys playground, DENTSU, has been confidently predicted but it has not happened yet. Such a complex cannot exist in isolation from the broader consumer economy, but rather it sits on top of it, dependent on it for all the string-pulling it gets away with. And there are characteristics of the system that allow the model to be sustained and help explain its robustness.

Japanese advertising’s broader context

Broadly speaking I think there are 5 key factors that the advertising industry (with a focus on the dominant TV media) has co-evolved with, and which need to be understood as part of and underpinning the status quo in Japan:

Japanese manufacturing is more agile, so product variants come to market at a much higher frequency than in other countries, so many brands can stay salient through announcing new products regularly without having to think much about long term brand positioning or making advertising that supports a long term emotional role
Fed on this diet of product innovation (continuous functional evolution) the trade / retailers have a less than sophisticated appreciation of the potential role of advertising to sharpen emotional relevance, and generally like to see i) high awareness campaigns ii) with big celebrities iii) announcing product news, and will reward this formula with more shelf space or equivalent priority status.
Advertising space in Japan tends to be cut up into smaller chunks, because the media-revenue-driven agencies can make more money that way and it fits the expectations of the retailers. Taking TV as a case in point, the vast majority of TV spots in Japan are 15secs, rather than mix of 15, 30 and 60secs you see in most other developed markets. Creative execution quality being equal, a 15sec spot-based media spend provides perhaps a 10% increment in awareness over a 30sec based media flight, so for short term salience-grabbing campaigns, the 15sec model is pushed by media planners and tends to prevail.
15secs gives the creative teams less options to create a conceptually-driven ad, particularly when the client is keen to see the celebrity that they have just been sold by the agency at vast expense in every single frame of the 15secs (not to mention the other media channels) if at all possible. Since TV is still in general the central spend, this tends to drag everything else down.
Japanese TV is almost pure escapism, and tends to be dominated by “noisy” programming (variety shows, celebrity panel discussion shows, stand up comedy, edutainment style shows also with talent panels, with some fantastical dramas thrown in), combined with the fact that most households have digital TVs with recording functions that allows ad-skipping on playback, hence advertising needs to be entertaining and eye catching first and foremost, and there is truth in the idea that some viewers are interested in seeing what the celebs are up to in their endorsements

Of course every market has its unique set of factors that can be drawn on similar dimensions as those outlined above. Is Japan just a bit of an outlier in where it sits on all those dimensions, or is it fundamentally different?

Japan’s unique consumerism

When I wrote the original nutshell article I was harbouring an inner dialectic on whether Japan’s brand advertising culture was just an outlier on what are essentially dimensions it shares with other developed consumer economies, or whether it is actually fundamentally different. The 5 differences in the section above are described relative to a generalised western market, the US basically, and hence imply the former.On the other side of the dialectic, one of the first books that piqued my interest about Japan was 1999’s “The Lexus and the Olive Tree” in which the idea that Japan proves that consumerism is not a singular economic and social phenomenon made a particularly strong impression. Friedman actually asserted that Japan was effectively a communist country that happened to have a strong consumerist economy.

Coming to work in Japan in 2002 as a tender 23y/o my naive assumption that consumerism is always driven by individuals’ desire to express their individuality was challenged by Japan’s massive luxury goods market, where at one point practically all adult women owned a Louise Vuitton handbag. Obviously consumerism can also be driven by a desire to fit in as well as stand out, and I now realise these is a lot of this in western luxury consumption as well.

In the last couple of years I have read and thought a lot around this question of whether the “fundamentally different” assertion is valid, and my conclusions can be summarised as follows:

Japan’s consumers are not fundamentally different. Like all people on the planet they come from an extremely tightly defined genetic stock (species homo sapiens only just scraped through a climatic extinction event before we expanded from Africa, so we ALL descend from perhaps as few as a thousand individuals), so the fundamental archetypal emotional responses and drivers are shared by every human alive today
But Japan’s society and culture does make it an extreme outlier among developed countries at the least, which equates to Japanese consumers being programmed very differently to the extent that you really cannot rely on fundamental assumptions about consumer behaviour that you develop in other markets when looking at Japan. And hence when importing advertising strategies and brand propositions developed outside Japan, the same input will hardly ever elicit the same response as consumers in other markets, because Japanese consumers’ cultural programming is different.
The medium is part of the message. All communications have a context, and while superficially the context of a communication may seem familiar, e.g. a TV ad spot, the possibility of the local context implying the need for a localised approach should never be underestimated.

Does the western advertising planning model work in this context?

The assertion that the western agencies have failed to colonise the Japanese advertising space, despite proportionately larger invasions by western brands, is beyond doubt. The biggest western brands here are working with Japanese agencies or joint-venture agencies that tend to be closer in culture to domestic agencies.

The more philosophical question about the western planning method itself requires a deeper analysis and discussion, which I will leave for another post, but by way of a preview:

There are actually a few competing “western planning models”, and they are really quite different in their thinking
The model that has more or less won out is the simpler one to apply, but it’s theoretical underpinnings are deeply flawed, and you could say the best work happens despite its application
It’s shortcomings can be papered over when working in a single market (but not always), but when applied across markets with distinct cultures the shortcomings lead to gaping misconceptions and compromised advertising
This goes a long way to explaining why this model does not give western agencies an advantage in a Japan agency marketplace that does not really distinguish between “strategy” and “creative planning”
The alternative western planning model is based on valid assumptions, being true to human psychology, and should be the one we all apply, and could be applied to global brands across cultures, but brands and their agencies seem unable to apply it, perhaps because it requires a little more subtlety of thought and agility of process than the dominant model

The House of Cards

Could it all come tumbling down at some point in the future? Of course everything is always evolving all the time, and the biggest driver of change today is undoubtedly the internet and digital platforms. LINE for instance has become incredibly successful and profitable in recent years, mainly through selling digital goods, and now expanding its service ecosystem to include eCommerce, even a part time jobs listing service. It also has advertising products, but unlike Facebook and Twitter they do not dominate its revenue streams. Most brands that buy into LINE’s advertising products still do so via their agency where they park their TV and other media budgets, so for that reason I do not see LINE upsetting the Dentsu applecart on its own.

There are examples of brands that have decided to grow through buying digital media directly, disintermediating the big domestic agencies, but they are still only a tiny sliver the of the market. If they grow in scale and number then they can also drive change towards a tipping point. I think that tipping point will come when digital media spend becomes bigger than TV, which will happen at some point, but it is still a long way off.

Perhaps in response to this scenario, Dentsu has recently spun off its digital media work into a separate subsidiary “Dentsu Digital”, just as the rest of the world is shifting towards more integration and omni-channel, but then whom am I to judge the wisdom of this stunningly and perennially successful business?

The post The Japanese Advertising Industry in a Nutshell #2 appeared first on James Hollow's Blog about Hybrid Thinking.

Why US brands are investing in Japan today

James Hollow — Sat, 26 Mar 2016 10:09:57 +0000

This post is based on a speech I gave on March 18th at an event to celebrate the opening of my network MullenLowe Profero’s new San Francisco office, attended by friends and clients.

Today some noteworthy Silicon Valley brands are investing in the Japanese market

There is a lot written about Japan and it’s basket-case economy in the US press, and most of it is wrong. The reality on the ground is quite different, and I would like to tell you about a few of the smart American brands that understand this and are profiting.

In doing so I am going to try answer a pretty simple question:
Why do some great American brands choose to double down and invest in Japan today, while others pull out?

Is it hard to do business in Japan? Well, it’s not yet a vassal state of California, but it is a relatively easy country for brands to get up and running in, with the right governance laws, IP protection, an increasingly open minded and multi-lingual, though still diligent labour force.

Opportunities & Efficiencies in Japan

It’s digital advertising landscape too is perhaps the most similar to the US among major economies, dominated by Google, Facebook and Twitter with some noteworthy local players in the mix.

There are some great opportunities for efficient investment as well. For instance in Tokyo alone you have in one contiguous metropolis a population the same as California’s, but squeezed into an area the size of Los Angeles county. Tokyo alone has more consumers than Canada, and 50% more than Australia…

But Japan has not worked out for everyone. A great US brand that recently threw in the towel is FORD, who closed shop in Japan in 2015 after selling only a few thousand vehicles in the preceding 12 months.

Now you could say, well, that’s cars, and Japan is the last place you want to be selling cars. But in the same year Mercedes Benz celebrated its best year in Japan of all time, making over $100m in profit. You would think it’s hard to find double digit growth anywhere these days, but Mercedes notched up 15%.

Of course a few years ago a new American car brand was born not far from here, and TESLA is already a darling among Japan’s many millionaires. TESLA opened a bunch of new service centres in Japan in 2015, and is investing in Japanese language related usability & navigation.

Perhaps with Tesla in mind it is a good time to mention how much Japanese consumers love brands. This is not the shallow materialistic “me too” purchasing culture that frothed uo in 80s & 90s, and you see in other bubbles. It’s the long term, well researched, quality-seeking kind of love that leads to loyalty. It’s a love of brand stories.

Japan’s consumers are brand savants

When Steve Jobs passed away in 2011 I was one of the many thousands who went to Apple’s flagship store in Ginza where a mountain of flowers and messages spontaneously built up. It was interesting to see what those messages said. Although many did say “we love you Steve” it was not simply idolatry, since many belied a much deeper sentiment. In fact more than anything they said “Thank you”. Because Japanese consumers appreciated the fact that Steve Jobs respected Japan, it’s culture, it’s noodles. He understood their love for beautiful design, quality and authenticity, and made great products for them.

Another Silicon Valley brand, one that was spun out of innovation at Stanford back in 1985, has recently decided to double down on Japan. SunPower is breaking free from its Japanese partner distributor to go head to head with Panasonic at the high end of Japan’s residential and commercial solar installations. The solar marketplace is mature, and quite saturated with cheap Chinese makers, so this is not about a land grab. This is about giving consumers an alternative brand choice, with emotional differentiation as much as functional.

And if you think you can see a pattern in the types of brands I have mentioned, let me tell you about one more American brand thriving in Japan that is not known as a tech innovator. In fact it has barely changed in its 80 year history. SPAM. You would not think it had much to bring to Japan, but you would be wrong. It is marketed as a relatively premium product, costs more than fresh chicken by the ounce, and is loved by Japanese housewives. You certainly have to rethink how you tell the story, though, and that’s where we come in, but if you have something unique and authentic to offer, you are in business.

So did I answer the question?

If I had to tell you in single word why smart American brands are investing in Japan today it would be this one: MARGIN. Japanese consumers are prepared to pay for brands they see as offering unique value. That value is not just functional. Actually it’s mostly emotional. And it is created by telling brand stories in a very local way, and if you are lucky, by an agency that gives you an “Unfair Share of Attention”.

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