Business and Management Reforms through the COVID-19 Experience

Autonomous-Decentralization and Reforms will Transform Society as a Whole
2020.8.1

Key Points

  • Telework has prompted business and management reforms in various fields
  • Management reforms toward autonomous-decentralization by each company will lead to transformation of society as a whole
  • Reforms at the company, individual, and national level will, if coordinated, potentially bring about significant outcomes

1. The COVID-19 Accelerating Changes in Business and Life

With the spread of COVID-19, we have witnessed a rapid and somewhat compulsory progress in the use of telework as part of our daily lives. As a result, both employees and companies have come to appreciate its benefits that include being free from rush hour congestion and the issue of having to secure meeting rooms in the office. While we have also seen some management challenges in communication, supervision and so on, if we can handle these challenges, telework will become an integral part of our new normal lives.

The secondary merit of telework is that it greatly contributes to digitalizing and streamlining work. We can identify uneven distribution of work or unnecessary tasks by accumulating and visualizing data on daily operations and employees’ actions, from which we examine and optimize them. By accumulating data on sales, internal meetings and other non-routine tasks, beyond simply streamlining routine work, we can advance business reforms in all areas of work within a company and improve productivity.

As digitalization proceeds, the day-to-day middle managers’ work, such as approval procedures unique to Japan is likely to disappear. The ability to yield results will become more important than managing supervisees. Mid-level managers will have to play roles of leaders and advisors who can clearly explain an organization’s policies and allow junior employees to work comfortably and grow. Reforming the roles of mid-level managers while training and developing their ability will be a new challenge for business executives in this new era.

Business changes have been seen in the way companies contact their customers. More importance has been placed on digital contacts with customers on the Internet. Only the necessary parts will be physically done in the real world where higher quality than before will be expected. For example, on fashion e-commerce sites, only physical measurements and fitting will be done at brick-and-mortar stores when customers visit. The clothes that match customers’ tastes will be ready at these stores prior to their arrivals based on online information. Combining digital information with actual customer services in real stores will provide higher customer value than before (Figure 1).
Figure 1: Business Reforms leading to Social Transformation
Figure 1: Business Reforms leading to Social Transformation

2. Triggering A Chain Reaction of Management Reforms

The above-mentioned changes in business and digitalization will have a major impact on the overall management of companies and trigger a chain reaction of management reforms.
Digitalization promotes a work style that will not be constrained by time and place. We can expect active participation of those who have capacity and ability to work but could not be fully utilized in the conventional labor market. These include women who are raising their children, the older adults who have constraints in terms of the distance they can commute, and those who have special family circumstances. Digitalizing communication and improving the accuracy of machine translation will make it possible to incorporate diverse workforce into work by placing the right people at the right positions, regardless of where they live or what language they speak.

Under these circumstances, we can expect that an increasing number of people will try to make more effective use of their spare time, seeking opportunities for side jobs as well as new challenges and personal growth. The key to corporate sustainability and growth is to attract potential workers, particularly so-called millennials, who wish to improve the quality of life as well as an affinity between their work and their own values. In an era in which talented people seek more changes and move around, companies will need to actively promote reforms to meet their needs rather than stopping them, and establish a human resources system and work environment that will attract and inspire these people.

The locations of offices will also change significantly. Functions and space required for centralized office system can be reduced by distributing them to satellite offices and homes. Digitalizing customer contact means greater flexibility in workplaces. It will be a natural trend to have central offices keeping only minimal functions and have multiple scattered workplaces connected online.

If the shift from the real to the digital work model, including customer contact points, can further advance, business expansion will become easier. If we promote the use of digital contacts and AI to reach new customers, the costs to secure sales offices and salespersons can be reduced. We are moving away from the era of competition, based on sales and speed and entering a new era of added value of products, services as well as the quality of planning and design. There are some concerns that the digitalization and decentralization of workplaces may not generate as creative or innovative ideas as having people physically work in the real offices. This will be our new challenge to overcome.

3. Autonomous Management Reforms to Prompt Social Transformation

A major transformation in a society may occur as the ripple effect of companies’ initiative to promote innovation and reforms toward a digital society and a new normal triggered by the spread of COVID-19.

Changes in the way companies utilize their human resources will allow various flexible work styles. For instance, those who has left their jobs due to childcare or nursing care will be able to work again. More flexibility in work locations means that it will become possible for them to work in accordance with their preferred pace and lifestyles. These changes will not only improve the quality of life of individuals but also greatly contribute to solving societal issues such as securing workforce in an aging society with the declining birthrate. The birthrate may rise if it becomes easier to balance work and childcare, which allows more people to move from metropolitan to rural areas where they can enjoy better living environment. The reforms of work styles at individual companies will also lead to regional revitalization and a coping plan for the aging society and declining birthrate.

The reexamination of the office locations will also change the population movement (currently from rural to metropolitan areas). Digitalization will reduce the geographical and temporal challenges of being in rural areas, which will further contribute to decentralization of business. This will raise the value of living outside of the metropolitan areas as people will be able to enjoy better living conditions and environment in rural areas. A pioneering successor was Komatsu Ltd., which transferred part of its head office functions to Ishikawa Prefecture of Japan nine years ago. Initially, they saw some negative sides which included less popularity of the office location among newly recruits, however, the overall impacts turned out to be quite positive.

In the industrial society until now, companies have tried to improve productivity by integrating people and facilities to increase efficiency. In the future, it will be possible to maintain high productivity in rural offices through digitization. This will promote further relocation of many offices to rural areas. These changes will contribute to regional revitalization, attracting more people. This is an indication of how the new business styles and reforms initiated by various companies due to the outbreak of Coronavirus could serve as a driving force of solving societal challenges in Japan.

4. Accelerating Transformation

The key to accelerating changes in the Japanese society is, first, to change the mindset of business management toward innovation and reforms, and then raise awareness of the need for autonomy and self-reliance among the individuals. The initiatives for changes must go further to the national and social system levels (Figure 2).

(1) Business reforms and innovation through promotion of autonomy and decentralization will be a starting point for a major transformation of society

It might have been the outbreak of the coronavirus that has triggered business reforms currently undergoing across Japanese companies. However, we will be not returning where we were even after this situation settles down. The market will be led by companies that can identify the essential changes to adopt the new normal and accelerate reforms. It will be necessary for business management to carry out uninterrupted reforms with determination, while keeping in mind each circumstance.

We should redesign business from scratch, with telework as a major premise. We also need to expand the scope of business to be better integrated into this new system as part of our continuing digitization effort. In the future, it will become common to let AI learn from the accumulated recording data of various conferences so that it can take over the appropriate agenda, time allocation, and even conference facilitation. We will have to aim at ambitious goals to achieve digitalizing and streamlining business as essential elements for both administrative and non-routine work.

It is vital to create an environment that can accommodate different values of employees who may place a greater importance on improvement of the quality of life. The unique situation of telework where non-verbal communication such as facial expressions and voice tones are difficult to convey may affect not only the productivity of the workplace but also a wide range of other matters including the feeling of employees. Therefore, we would have to find a creative way to manage these challenges. Since managers cannot always monitor the performance of each employee, it is necessary to expand the introduction of job-type work that clearly defines the duties and tasks.

Business reforms must lead not only to improvements in productivity but also to medium- and long-term transformation of society as a while. In the past, many Japanese companies hired regular or full-time contract workers who physically worked in the offices. These companies expanded their businesses relying on the motivation and hard work of these employees. Now it has become more important to appropriately manage outcomes by visualizing them, assuming that employees will have more mobility. Also, what we will need is multi-stakeholder business management that can take into account the quality of life of employees and regional revitalization. This is the prospect for an autonomous-decentralized collaborative society where the effort of each company will lead to transformation of the society as a while.

(2) New work styles and life plans

While people will be able to work flexibly without being constrained by time and place, they will have to plan and manage their own work styles and life plans. Each employee will also have to take her or his initiative and manage the work quality. At the IT company, Cybouzu, Inc, for example, it clearly states that it is the responsibility of the employees to ask the company questions if they have any. On the other hand, it is the responsibility of the company to provide appropriate replies to them.

A sense of self-reliance and autonomy is essential among the employees. They should not depend on their company. They will have to continuously invest in themselves to improve their skills and understand their own characteristics to determine their own life goals. In Japan, lifetime employment and the seniority system will gradually become things of the past. This is the new model of our society, an autonomous-decentralized collaborative society, which will allow people living in different parts of Japan and have different careers and positions to freely participate in and collaborate toward the common organizational goals.

(3) Need for reforms of national and institutional systems

It requires not only efforts on the part of companies and employees but also the commitment of the Government in supporting the changes through institutional reforms to achieve an autonomous-decentralized collaborative society. All those systems optimized in the past for an industrial society will have to be reviewed and redesigned. Japan is ranked low in training and educational opportunities for adults. The Government should come up with measures to utilize human capitals, for instance, by extending the retirement age to seventy years old, rather than leaving all to companies.

Let us make the current situation, which could be called a national crisis, an opportunity for companies, people and the Government to work together toward solving these challenges and aim at transforming an interdependent model to a more autonomous-decentralized collaborative model.
Figure 2: Ways to Accelerate Reforms
Figure 2: Ways to Accelerate Reforms