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Overtime and Oversight:The Organisational Challenges Facing Japanese Companies
Pernille RudlinRudlin Consulting/Japan Intercultural ConsultingJapan Discussion Group October 12th 2007
Agenda
The classic Japanese employment model Changes in the 1990s-2007
Change 1: Recruitment Change 2: Pay Change 3: Performance management
Current challenges Challenge 1: Recruitment Challenge 2: Retention Challenge 3: Overtime Challenge 4: Oversight Challenge 5: Management ability Challenge 6: Knowledge Management
Conclusion & impact on overseas operations
The classic model
Lifetime employment, seniority based promotion and pay
Control through apprenticeship and ‘shame’ rather than checks and procedures and threat of firing
Trust staff who are seishain, lifetime employees, to act in the company’s best interests. Ignore the rest.
1. Changes to recruitment -1990s to 2007 2004 amendment of Temporary Staffing
Services Law Non-regular workers (hi seiki koyou) increased
from 20% of labour force (64m) in 1990 to 1/3 today
Net café nanmin = 5,400 according to one survey, either in 50s or 30s, 60% male
Freeters – 2m? 5m? – getting older NEETS – 620,000 (static, slight decline)
2. Changes to pay - 1990s to 2007
Making bonus discretionary, introducing performance based pay, clamping down on overtime claims
9 straight years of decline in average annual wage (females and manufacturing sector hardest hit)
Changes to pay - 1990s to 2007
Number of employees with annual wage of < ¥3m rose 1.2% 2007, > ¥10m rose 0.2%
Households on welfare 1.08m, up 3.3% on previous year (2005) – elderly 44%, handicapped 37%, single mothers 9%
More than 19m below poverty line?
3. Changes to performance management - 1990s to 2007 New performance management systems
introduced in most companies c.1995 80% of companies now have a “seika-shugi”
performance based HR system Took 3 to 4 years to have positive impact on
performance of most companies Many companies now “reviewing” their
performance management systems
Challenge #1. Recruitment-Talent shortage 1.89 vacancies for every new graduate or
post graduate in March 2007 Set to be 2.14 vacancies for every new
graduate and post graduate March 2008 Employers not happy with quality of
current graduate intake
Recruitment - solutions
Recruit overseas? Recruit mid-career, mid-term? Better utilisation of female workforce? Recruit Freeters
One survey result: 90% of male Freeters, 74% of females would like to gain seishain status
Another survey shows that 75% of male Freeters 18-29 in Tokyo in 2001 tried to become salaried, but in 2006 only 50% did. 75% successful in 2001, 59% 2006 (Japan Institute for Labor Policy & Training)
Recruitment – signs of change
Toyota union admitted 4,000 contract workers with at least one year of service at 12 domestic factories – intends to call on management to improve their conditions and give opportunity to become permanent employees
Complaint filed against Canon by temporary workers
Uniqlo, NTT planning to convert temporary workers to permanent
Recruitment – signs of change
NEC, Fujitsu to employ 1000s of foreign software developers
Tensions surrounding integration of immigrant workers’ families, ‘trainees’
Challenge #2. Retention
0.9
0.95
1
1.05
1.1
1.15
1998
2000
2002
2004
2006
Mil
lio
ns
25-34 yearolds who leftjob within thelast year
Soumusho Labour Survey
2. Retention
Yes
No
Don't know
Don't have aretirement date
Yes
No
Don't know
Don't haveretirement date
20-29 year-olds 30-39 year olds
Do you intend to stay with your present employer until your retirement date? (Nikkei BP Consulting survey 2006)
Challenge #3 Overtime
Average full time employee worked 2,141.2 hours in 2006, up from 2,028 hours in 2005
Government prepared a revision to the Labor Standards Law to increase overtime pay and a new White Collar Exemption bill
Keidanren want exemption cutoff to be employees earning > ¥4m annual income – thought to represent ¥11.6 trillion in overtime pay that would not be paid
Challenge #3 Overtime
Some companies are switching lights off, air conditioning off after 10pm etc
Government inspections have forced back payments
Overtime hours worked in manufacturing sector dropped 1.8% to 15.8 hours for second consecutive month (Oct 07)
Overtime pay increased 1.2% for first time in 2 months (Oct 07)
Challenge # 4 Oversight
Japanese Sarbanes Oxley – naibu tosei, in force from April 2008
Processes and systems throughout the company must be documented, tested and signed off
Oversight - solutions
Hire in overseas experts (securities house) Outsource to professional services
company (car manufacturer) Integrate systems & processes from
acquired overseas company (glass manufacturer)
Japanese staff do it in-house (bank)
Challenge #5 Management ability
Seika shugi helped cut pay rolls in 1990s, but challenge now is talent management (right person for the job, demotion, fair appraisals)
“Are you effectively guiding subordinates?” No = 56.9%, yes 43%
“Are your superiors effectively guiding you?” No= 54.4%, yes = 45.3% (Nikkei survey 2006)
Management ability
Percentage of each age cohort in management positions has declined over past 15 years
Average number of staff reporting to a manager has declined over past 15 years (from 15.5 to 13.5)
Management ability
0
10
20
30
40
50
60
18-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
Age
Perc
en
tag
e
Have sufficientskills and expertise
Working Person Survey 2004 RecruitWorks Institute
Training investment
1.5
1.6
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
Age
Perc
en
tag
e Training aspercentage ofpayroll costs
Ministry of Health, Labour & Welfare report
Challenge #6 Knowledge management Rising workload E-mail/mobiles replacing face to face
communication Performance management causing internal
competition Result:
Decline in OJT Less face to face communication Refusal to share knowledge, to protect self
Conclusion 1
“Most Japanese companies seem to be conforming to the accelerating wave of economic globalization. However whether it is R&D, manufacturing or sales, they are remarkably behind in terms of ‘people and organisation’”
Three key words are “trust”, “knowledge” and “motivation”
(Hay Consulting Japan)
Performance management
Management ability
Retention
Oversight
Recruitment
Overtime
Knowledge Management
Conclusion 2 – impact on overseas operations of Japanese companies Japanese multinationals operating in Britain have
more autonomy, less oversight from head office than US etc multinationals – because more Japanese in management positions
Invest less in training, less HQ based training More informal in the way information moves around the
company This will have to change?
(Study by Paul Edwards, Tony Edwards, Anthony Ferner, Paul Marginson and Olga Tregaskis , 2007)