Case Study: Matsushita (Panasonic) and Japan’s Changing Culture
Established in 1920, the consumer electronics giant Matsushita was at the forefront of the rise of Japan to the status of major economic power during the 1970s and 1980s. Like many other long-standing Japanese businesses, Matsushita was regarded as a bastion of traditional Japanese values based on strong group identification, reciprocal obligations, and loyalty to the company. Several commentators attributed Matsushita’s success, and that of the Japanese economy, to the existence of Confucian values in the workplace. At Matsushita, employees were taken care of by the company from “cradle to the grave.” Matsushita provided them with a wide range of benefits including cheap housing, guaranteed lifetime employment, seniority-based pay systems, and generous retirement bonuses. In return, Matsushita expected, and got, loyalty and hard work from its employees. To Japan’s postwar generation, struggling to recover from the humiliation of defeat, it seemed like a fair bar- gain. The employees worked hard for the greater good of Matsushita, and Matsushita reciprocated by bestowing “blessings” on employees. However, culture does not stay constant. According to some observers, the generation born after 1964 lacked the same commitment to traditional Japanese values as their parents. They grew up in a world that was richer, where Western ideas were beginning to make themselves felt, and where the possibilities seemed greater. They did not want to be tied to a company for life, to be a “salary- man.” These trends came to the fore in the 1990s, when the Japanese economy entered a prolonged economic slump. As the decade progressed, one Japanese firm after another was forced to change its traditional ways of doing business. Slowly at first, troubled companies started to lay off older workers, effectively abandoning lifetime employment guarantees. As younger people saw this happening, they concluded that loyalty to a company might not be reciprocated, effectively undermining one of the central bargains made in postwar Japan. Matsushita was one of the last companies to turn its back on Japanese traditions, but in 1998, after years of poor performance, it began to modify traditional practices. The principal agents of change were a group of managers who had extensive experience in Matsushita’s overseas operations, and included Kunio Nakamura, who became the chief executive of Matsushita in 2000. Nakamura has said the time he spent as a manager of Matsushita subsidiaries in the United States had a strong impact on him, particularly observing how American managers such as Lou Gestner (who turned around IBM) moved quickly to restructure troubled companies. Under Nakamura, Matsushita changed the pay scheme for its 11,000 managers. In the past, the traditional twice-a-year bonuses had been based almost entirely on seniority, but now Matsushita said they would be based on performance. Matsushita announced this process would be made transparent; managers would be shown what their performance rankings were and how these fed into pay bonuses. As elementary as this might sound in the West, for Matsushita it represented the beginning of a revolution in human resource practices. Nakamura took aim at the lifetime employment sys- tem and the associated perks. Under the new system, recruits were given the choice of three employment options. First, they could sign on to the traditional option. Under this, they were eligible to live in subsidized company housing, go free to company-organized social events, and buy subsidized services such as banking from group companies. They also still would receive a retirement bonus equal to two years’ salary. Under a second scheme, employees could forgo the guaranteed retirement bonus in exchange for higher starting salaries and keep perks such as cheap company housing. Under a third scheme, they would lose both the retirement bonus and the subsidized services, but they would start at a still higher salary. In its first two years of operation, only 3 percent of recruits chose the third option— suggesting there is still a hankering for the traditional paternalistic relationship—but 41 percent took the second option. In other ways Matsushita’s designs are grander still. As the company has moved into new industries such as software engineering and network communications technology, it has begun to sing the praises of democratization of employees, and it has sought to encourage individuality, initiative taking, and risk seeking among its younger employees. Nakamura stated he wanted younger managers to become “rational and logical in their thinking . . . to be aggressive and ambitious, and at the same time to create an organization that can carry out their ambitious plans.” But while such changes may be easy to articulate, they are hard to implement. For all of its talk, Matsushita was slow to dismantle its lifetime employment commitment to those hired under the traditional system. This was underlined early in Nakamura’s tenure when in response to continued poor performance, Matsushita announced it would close 30 factories in Japan, cut 13,000 jobs including 1,000 management jobs, and sell a “huge amount of assets” over the next three years. While this seemed to indicate a final break with the lifetime employment system—it represented the first layoffs in the company’s history—the company also said unneeded management staff would not be fired but instead transferred to higher growth areas such as health care. With so many of its managers a product of the old way of doing things, a skeptic might question the ability of the company to turn its intentions into a reality. As growth slowed, Matsushita has had to cut back on its hiring, but its continued commitment to longstanding employees means that the average age of its workforce is rising. In the 1960s it was around 25; by the early 2000s it was 35, a trend that might counteract Matsushita’s at- tempts to revolutionize the workplace, for surely those who benefited from the old system will not give way easily to the new. Still, by the mid-2000s it was clear that Matsushita was making progress. After significant losses in 2002, the company broke even in 2003 and started to make profits again in 2004. New growth drivers, such as sales of DVD equipment and flat screen TVs, certainly helped, but so did the cultural and organizational changes that enabled the company to better exploit these new growth opportunities.
Case Discussion Questions
1. What were the triggers of cultural change in Japan during the 1990s? How is cultural change starting to affect traditional values in Japan?
2. How might Japan’s changing culture influence the way Japanese businesses operate in the future? What are the potential implications of such changes for the Japanese economy?
3. How did traditional Japanese culture benefit Matsushita during the 1950s–1980s? Did traditional values become more of a liability during the 1990s and early 2000s? How so?
4. What is Matsushita trying to achieve with human resource changes it has announced? What are the impediments to successfully implementing these changes? What are the implications for Matsushita if (a) the changes are made quickly or (b) it takes years or even decades to fully implement the changes?
5. What does the Matsushita case teach you about the relationship between societal culture and business success?