“performance-based incentives are linked to productivity”

Productivity problems

European firms offer solutions to help Japan work more wisely


March 2020 Feature / Text by Dan Sloan

Japan’s 2.2% unemployment rate may be a point of pride for the country among the Group of Seven (G7) nations, but its workforce has not historically been a paragon of productivity.

Overstaffing, overtime and unused holidays, as well as lifetime employment and seniority-based pay are all cited as causes of low productivity. However, meagre work place investment and training have also kept Japan in the basement of G7 rankings from 1970 through to 2018, and at 21st of 36 OECD members as of 2018, according to Japan Productivity Center (JPC) data.

It’s not that Japan doesn’t see a problem. It seems to be aware that an increase in productivity can lift national growth and wages. The government recently budgeted ¥384.7 billion to boost productivity at small and medium-sized enterprises (SMEs), while its work-style reforms have led to a historic number of working women, less overtime, greater use of holidays and other labour advances.

In comparison, Germany ranks second among G7 nations, after the US, in per-hour labour productivity even though, like Japan, it faces demographic challenges such as an ageing workforce. One way German firms have succeeded in this area is by focusing on training and empowerment earlier in employees’ careers. Some German businesses have brought their work policies to Japan to ensure productivity stays high at their offices here.

“Actively managing overtime and work hours in Japan continues to be important, and a key objective of the reform policies of the Japanese government,” says Craig Roberts, chair of the EBC HR Committee and director of Human Resources Asia for Germany-based international automotive supplier Mahle. “But a key focus at Mahle Japan has been improving a ‘quality’ mindset, in particular, setting clear and measurable targets, reviewing priorities linked to agreed outcomes, standardising and simplifying processes, and enhancing skills and knowledge.

“Our inclusive policy measures and training programmes focus on developing our diverse workforce and empowering women.”

Japan’s auto industry, and specifically Toyota, is known for kaizen (continuous improvement), yet the country has been out of step in forging a national productivity approach. Japan-watchers say firms employing kaizen have been the exception, while work place inflexibility has been the norm.

“The Toyota Production System specifically, and kaizen in general, is a countermeasure to the inherent characteristics of Japanese society,” says Daniel Markovitz, business consultant and author of Building the Fit Organization. “It’s a lot easier to boost revenue per staff member if you’re laying people off, as US companies do, but much tougher in Japan. Toyota hasn’t had a layoff since 1949.”

It’s premature to say that lifetime employment has come to an end in Japan, but more merit-based pay systems have emerged amid corporate restructuring. According to the JPC, some 58% of Japanese firms, including technology giant Fujitsu, have overhauled remuneration schemes to better reward skills and contribution.



French food-products firm Danone can be held up as an example to Japan. It employs a variety of strategies in its Japanese operations from merit-based pay to telecommuting.

“Advancement and performance-based incentives are linked to productivity, and individual and team contributions are big indicators for our merit scheme,” says Kazumi Hasegawa, general secretary director of Danone Japan. “Our implementation of ‘work anywhere’ has been effective for productivity, especially for working parents, employees who need to take care of families, or those who just prefer to work from home. No one bats an eye when you come to the office or leave.”

A recent Reuters survey of 502 businesses, however, showed most Japanese corporate eyes were still closed to telework, even with the Tokyo 2020 Olympics and Paralympics less than five months away. Currently, some 83% do not allow employees to work from home and 73% aren’t considering permitting telework during the Games. The government introduced a telework campaign in 2017 as part of its labour policy liberalisation ahead of the Olympics, but take-up may only now be beginning to increase as a result of the coronavirus outbreak.

However, on the technology front there has been some progress. Japan’s efforts to support SME innovation have included greater automation, IT adoption and even AI work solutions, all of which aim to raise productivity and address critical labour challenges. The adoption of new technology is considered an important way to improve productivity at European firms. 

“We see the utilisation of technology solutions and digitalisation as having a significant impact on labour productivity and efficiency,” says Mahle’s Roberts.

Danone also believes that IT is one good answer to the low productivity question.

“Our IT infrastructure has definitely evolved over time to drive productivity in our day-to-day work systems and processes,” Hasegawa says. “We invested in new software packages across our business functions — such as finance, sales and HR — that support data management, and these have increased overall company productivity performance. We also expanded our e-learning educational platform, which now provides 24/7 access for all our connected
employees to their chosen learning and development programmes.”

The Reuters survey notes a common rationale for Japan’s rejection of telework in the retail or service industries: staff must be physically present in the work place. However, as the nation’s population falls, some technological measures are helping these sectors reduce reliance on their employees.

Japan’s leader in non-manufacturing worker productivity in early 2019 was beef-bowl vendor Yoshinoya, according to the Nikkei Asian Review. The fast food chain launched more self-service outlets in which customers order, retrieve their meal and clean up, while it added automated cooking and more expensive food options that boosted profitability per employee by over 50 times, as staff presence declined.

This is a clear indication of what is possible, but will Japan be able to revolutionise productivity in a similar way across all industries? The government remains hopeful, but not all are convinced.

“The ageing and shrinking of Japan’s population don’t bode well for the future,” says author Markovitz. “Without a meaningful rise in immigration or miraculous breakthrough in work place robotics, I don’t see how Japan exits its demographic cul de sac. Quality of life in Japan will continue to improve, but productivity? Not so much.” 

“technology solutions and digitalisation [have] a significant impact on labour productivity and efficiency”