As layoffs, scandals, and restructurings shake businesses worldwide, HR organizations in Japan and the United States are responding differently, observes Sanford M. Jacoby in his new book The Embedded Corporation. A professor of management at the UCLA Anderson School of Management, Jacoby traces this diversity to national differences in economic history and social norms and to global competition itself. Jacoby spoke with Veritude´s Workforce Insights (www.veritude.com),about the inner workings of HR departments in both countries and suggests how U.S. HR executives can enhance their status.
WI: What led you to investigate HR organizations in the Japan and the United States?
SMJ: There has been much talk lately about "convergence" - this idea that globalization is causing business systems around the world to become increasingly similar. Some say that companies in Europe and Japan are becoming like companies in the United States. Others say they are changing but not that much. To date, a lot of the debate is theoretical. I wanted to look for empirical evidence to see whether this convergence is happening and to what degree. My window on these processes was to look at the HR function in large companies.
WI: Please briefly describe your research methods.
SMJ: In 2001, along with my colleague, Kazuro Saguchi of the Economics Department at Tokyo University, I did paired comparisons of large public Japanese and U.S. companies that are roughly the same size and in the same industry. We also did a large-scale survey of senior HR executives. We asked them about various issues including the company´s HR structure, the involvement of headquarters in operating and strategic decisions and relations between HR and other corporate functions. We also surveyed a group of CFOs in the United States.
WI: What did you find?
SMJ: The perception that Japanese companies have to become more like U.S. companies to survive in this global environment isn´t born out by fact. We found that companies in Japan and in the United States continue to be different in the way they organize the HR function, the role it plays in the organization and the status of the top-level HR executive.
We also found that there´s some overlap. On the one hand there are Japanese companies that are becoming more like those in the United States. But there are some U.S. companies that have an increasingly Japanese flavor to them. So, in each country, there´s a dominant approach, but there´s also a minority of companies that resemble the dominant pattern across the ocean.
WI: Describe this minority of U.S. companies that have a "Japanese flavor."
SMJ: These are companies that view HR as an asset critical to the company´s business strategy. Sometimes this is called a "resource-based view" of strategy. These companies are not just focused on having the lowest-cost product but on having unique internal assets. Often they are human assets. Intellectual capital was the phrase used to describe this in the 90s. These companies invest a lot in training and retention. And the HR executive plays a crucial role in grooming executives for senior posts.
WI: In what companies and industries do you find this model? And is it likely to become more prevalent?
SMJ: It can be found across industries, but it tends to be dominant in companies where there´s some degree of insulation from financial markets; either the company is privately owned - an oft-cited example is SAS in North Carolina - or a founder or family has a significant ownership stake and influence over the corporate culture. It also shows up in companies in which board members have a background in intellectual capital, but it is unlikely to spread, because the emphasis on short-term shareholder value makes it difficult to sustain this kind of approach in the United States.
WI: How does the situation differ in Japan?
SMJ: In Japan, HR is a central function. Most senior HR executives have not spent their career in HR. They follow a general management career path, working for one company for most of their career and getting assigned to different parts of the organization. HR is one of their postings, and it´s considered a plum, because it allows them to network with people throughout the organization.
The top HR executive is seen as a kingmaker - he grooms executives for top management positions and helps decide who makes it to the insider-dominated board of directors. Typically this person sits on the board as well. In Japan, the HR executive is not infrequently in line to become company president. These attributes make it easier to sustain a resource-based approach in Japan.
WI: So, you´re saying that contrary to popular belief, companies in Japan are not in fact becoming "Americanized"?
SMJ: There are Japanese companies that look more like American companies, but they tend to be seen as renegades. They are organizations that, on average, are more likely to hire people mid-career, have boards made up primarily of outsiders and use financial incentives and criteria in their decision making. But they are in the minority. Sometimes they have substantial foreign ownership, which allows them to depart from a traditional way of doing things. Nissan is one example of such a company; Sony is another.
WI: Are the current debates over convergence missing the boat, so to speak?
SMJ: One thing that is missing in a lot of this discussion about HR, and business generally, is a sense of history, especially the notion that dominant models change over time and that each one has its costs and benefits.
Today, we are seeing that there were some real costs associated with the shareholder-value model that led to excesses in companies - think Enron, HealthSouth and WorldCom. In the past, the problematic companies - ITT, Textron, LTV - were the conglomerates that became unwieldy and gave too much power and cash to executives and not enough attention to shareholders.
In the United States, we tend to change models rapidly. In Japan things change more slowly. What exists in Japan today looks a great deal like what one would have seen in large companies 30 to 40 years ago. Some Japanese executives see that as a problem, that Japan is too resistant to change. Others, such as the presidents of Canon and Toyota, see it as an advantage. And the latter group is doing extremely well. They have reoriented themselves so that much more of their trading relationships come from countries in Asia, especially China. That reduces the pressure to become more like the US.
WI: What is your fundamental message or advice for today´s HR executives?
SMJ: The question HR execs need to ask themselves is, "How come CFOs are so influential and how come we aren´t more like them?" There are several answers. One is that CFOs have been able to tell a convincing story about why paying attention to financial markets contributes to a company´s competitiveness and should drive its business strategy. HR people have had a hard time telling a similar story about themselves.
The other thing about CFOs is that in the last 25 years, the theory of finance has become quite complex. People are now winning Nobel prizes in economics for work that they did in finance. There´s a real knowledge base that CFOs can draw on to bolster their expertise. There is a knowledge base for HR executives as well, but my impression is that HR executives have not drawn on it as much to bolster their expertise inside the company. That is something that could be rectified.
WI: What lies over the horizon?
SMJ: Everyone is unhappy with the Sarbanes-Oxley act - the major federal law passed in response to the Enron debacle - because it imposes all kinds of reporting requirements on companies. It is seen as very onerous by American companies who think that Congress overreacted, but I think that there are actually some opportunities there for HR executives.
In some companies that are now taking their boards more seriously and putting more outsiders on their boards, the HR executive is the person who can shape how those corporate governance reforms are implemented. They can put their consulting and team-building skills to work and be a key resource for the compensation committee and other board committees.
I think another result of the post-Enron climate is that some of the bloom is off the rose of the outsider CEO. The mystique of the 90s was that to turn a company around, you had to bring in an outsider. I think that assumption has been tested and found wanting. There´s greater willingness today to consider insiders for senior positions and to pay more attention to executive succession. That´s where the senior HR executive and his or her team have a major role to play: grooming internal talent and serving as an internal headhunter for the CEO.
Finally, we are moving to a world where America´s competitive advantage is based on our intellectual capital. More and more companies realize that their advantage is the brains and morale of their knowledge workers. That inevitably creates an opportunity for HR to be the keepers and builders of that intellectual capital. So, there is a place for HR in the coming years to hitch itself to the creativity-and-knowledge wagon and make the argument that HR execs are a source of competitive advantage.
Related Link:
Attention HR: Trouble at the Top
Sanford M. Jacoby is the Howard Noble Professor of Management at the UCLA Anderson School of Management.
About Veritude
Veritude provides strategic human resources - the talent, technology and tactics that growing firms need in order to anticipate and adapt to changes in the workplace. Veritude is a wholly owned subsidiary of Fidelity Investments Company. Headquartered in Boston, the company serves clients throughout the United States and Canada and is part of Fidelity´s ongoing investment and leadership in outsourced HR services. To review other articles, research and expert analysis relevant to HR professionals seeking to stay informed, please visit www.veritude.com. For more information, contact: inquiry@veritude.com;
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The article originally appeared in Workforce Insightson www.veritude.com.
©2005 Veritude, LLC. Reprinted with permission.
