Can Japanese service firms compete in global markets?

Main 850When Satoshi Hirose, a former A.T. Kearney management consultant, was hired by US-based private equity firm Bain Capital to help one of its investee companies ‘go global’, one of his first missions was to cease all overseas operations. Hirose felt that the firm had tried to impose domestic practice onto the global market, when it was wiser to first introduce global best practice at home.

Global call centerThe firm, BellSystem24, Inc., operates one of Japan’s largest call-center businesses within the domestic $6 billion customer contact support outsourcing industry. With sales of $1.1 billion, it employs 27,000 communicators in Japan. Yet like so many other Japanese firms in service industries, including its domestic competitors, BellSystem24 is non-global.

That’s a problem because many of Japan’s domestic markets are shrinking along with its population. It also presents an opportunity because services rather than goods are the predominate form of trade in advanced nations. For example, 79.4% of US trade is in services. Therefore, service firms that gain a toehold into global markets can profit handsomely.

Hirose wants Japanese service firms to thrive in global markets. BellSystem24 represents his latest challenge. He is experienced in corporate revitalization and cultural change. Early in his career he worked at Long-Term Credit Bank of Japan during its bailout. Afterwards he joined the management consultancy, A.T. Kearney, where he helped revitalize more than ten client companies. During a seven-year stint on assignment at American International Group (AIG), he helped steer the insurance giant through nationalization after its near collapse in the wake of the Lehman crisis in 2008.

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Now Hirose is applying lessons learned at A.T. Kearney to BellSystem24. He thinks practices used by Japan’s manufacturers are transferable to Japan’s call-center business and in other service sectors. He points to Toyota, Nissan and Honda which assign management responsibility to specialized roles within their firms. This, he says, gives Japan’s car manufacturers the edge when competing against GM, Ford and Chrysler in global markets.

“When Toyota goes to North/South America, Europe and South East Asia to set up production, they bring specifications to train people in functional roles,” he says adding, “That helps them quickly transfer knowledge and experience to new markets.” He believes service firms like BellSystem24 could therefore better compete globally if managers were held accountable for performing more specialized roles.

But typical of Japan’s service industries, the call-center business still operates in the ‘traditional way’ rather than the ‘global way’. “Here, call-center supervisors are responsible for managing everything from information technology, training, recruiting, and quality management,” he quips.

Multinational clients too, he found, were not happy with Japanese call-center operators that have failed to innovate in recent years. They preferred to do business with innovative global vendors based in the US, the Philippines and India that, for example, offer pay-for-performance based contracts against clearly stated key performance indicators (KPIs). Such contracts are often 200 pages in length. Japanese vendor contracts, on the other hand, are typically only four or five pages long. They stipulate one fixed price for each employed call-center communicator, regardless of performance.

Ironically, Japanese clients are happy with the service provided by domestic call centers. Here omotenashi, Japan’s culture of hospitality, maintains service levels without the need for formal organizational structures, KPIs or incentive based pay. The problem, Hirose suggests, is that omotenashi is not easily exported. It can arguably, however, be emulated in other cultures through standardization. He concludes that if BellSystem24 is to compete successfully abroad it must acquire the skills to compete in the ‘global way’.

His ideas were at first disregarded until Bain Capital, wishing to carry out strategic revitalization, installed David Garner as BellSystem24’s new chairman in May 2013. Garner had spent seven years as CEO of global competitor Sitel, a top US contact center. He had also led another top international competitor, Sykes. Garner liked Hirose’s ideas. He said, “Satoshi. Do it!”

BellSystem24 started a new division called Multi-National Client (MNC) to develop global best practice. Acting as co-chief operating officer in charge of MNC, Hirose structured business processes along functional lines. He also adopted a pay-for-performance incentive scheme now affecting some 500 – 800 communicators.

Hirose recruited a handful of global-minded middle management executives from abroad with experience working in call centers from countries like India, the Philippines, Egypt and South America. They filled jobs as site directors and division managers – middle management positions that Hirose thinks are critical to achieving ‘buy-in’ at all levels. In addition, BellSystem24 sent two dozen of its best people from the traditional side of the business to lead MNC. Hirose acts as intermediary between the Japanese leaders and those brought in from overseas. But change management is a job simpler said than done.

About half the global leaders could not adjust to Japanese corporate life and have since left the company. Further, only half the traditional Japanese managers sent to MNC by the executive management had the needed skills to fill available positions. Hirose’s bosses got angry when he told them that BellSystem24’s best people that were sent to him and who had succeeded in the past, might not succeed in the future.

His biggest challenge remains convincing Japanese managers they must change the way they have performed their work over the past 30 years. They ask, “Why do we have to do this?” After all, they are already successful. These managers, once proud of handling everything for clients, can feel demoted when shifted from generalist positions into narrower, more specialized roles. And if that is not difficult enough, Japanese managers must learn to speak in English and work with culturally diverse people from abroad.

The risks to implement cultural change on this scale are huge. Management gurus typically seek to mitigate that risk by replacing bureaucratic hierarchies with leaner structures. They dream of aligning employee goals with those of the company. It seems counterintuitive to institutionalize delivery of quality standards when Japan’s culture of harmony is already predisposed to providing service without need of carrot and stick.

As Dr. Bob Tobin points out in his new book, What do you want to create today, when managers introduce quotas, staff motivation can dissipate. “A singular focus on goals,” he says, “is often an indication of a lack of trust,” which we imagine could result in call-center communicators treating end users with inginburei, a superficial, even rude form of politeness. In addition, specialization can create ivory towers that hinder inter-company communication and innovation.

In the past Hirose has dealt with problems like these. He restructured AIG’s sales organization along vertical lines, significantly reducing costs by segregating functions. When he worked there, “I became a hero,” he says adding, “But after three years the attrition rate went up and the unity of the organization deteriorated.” Hirose is determined not to make the same mistakes twice.

He feels transformational change at BellSystem24 is within reach and he has also begun to introduce the ‘global way’ into the traditional side of the business. Although the change is resisted, with a bit of luck the firm will be ready to ‘go global’ in about a year and a half, Hirose reports.

The stakes are high and the road uncharted. As competition in service industries becomes more intense, vendors must deliver ever higher levels of customer service or suffer the consequences. With today’s social media, Hirose notes, end users who gripe about customer satisfaction can break a company’s reputation overnight. He believes innovation is key to delivering consistently high levels of customer satisfaction.

What he learns gets passed on to future business leaders at Globis University’s Graduate School of Management where Hirose is professor of corporate revitalization and cultural change. With his thought leadership, Japanese service firms may yet succeed in global markets.

Satoshi Hirose bio 640 px

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