Chapter 28 - Made in Japan
Today’s Chapter is based on the book “Made in Japan: Akio Morita and Sony”, an autobiography by the founder of Sony, Akio Morita.
Buy it on Amazon here:
https://www.amazon.com/Made-Japan-Akio-Morita-Sony/dp/0451151712
Learning Like A Ronin
“And so I became a ronin. In ancient times a samurai who did not have a master or who had lost his fief was called a ronin, and a student who got off the track and had to spend time studying on his own for his next examinations after graduation is referred to this way even today.”
— Akio Morita
Akio Morita, the founder of Sony, often portraits himself as a ronin, meaning that just like a samurai who had lost his master, he learned and studied on his own rather than through formal education. Morita did not excel at school as the subjects he was truly interested in were not taught at his school in those days. Furthermore, his abilities and love for business were certainly cultivated through his father who was running the family’s sake business. As Morita was the eldest son, he was expected to take over his family’s business when he was older and he was trained by his father to do so:
“When I was as young as ten or eleven, I was first taken to the company office and the sake brewery. I was shown how the business was run, and I had to sit at my father's side through long and boring board meetings. But I was taught how to talk to people who work for you, and I learned while I was still in elementary school something about what goes on in business discussions. Since my father was the boss, he could call his managers to our home for reports and for conferences, and he would always insist that I listen in. After a while I got to enjoy it.”
— Akio Morita
“As a young boy in middle school, my holidays were consumed by business, business, business. My father would take me to the office when he had a meeting and I would sit through it, or listen when reports were made to him.”
— Akio Morita
One of the most important lesson he learned from his father, especially as a young man, was to treat his employees with respect and as equals. His father would often warm him, "Don't think that because you are at the top you can boss others around. Be very clear on what you have decided to do and what you ask others to do and take full responsibility for it."
As a matter of fact, Morita was taught that it was ill advised, when problems arise, to find someone to blame and/or to scold subordinates. The proper thing to do is “to make use of the motivations you share with people to accomplish something that will be to the advantage of both. Everybody wants to succeed.”
“In learning to work with employees, I discovered, a manager needs to cultivate the traits of patience and understanding. You can't make selfish moves or get mean with people. These concepts have stayed with me and helped me develop the philosophy of management that served me very well in the past and continues to serve me and my company today.”
— Akio Morita
As a ronin himself, Morita wanted to break the Japanese companies’ norm of judging individuals’ ability by looking at a person’s academic background rather than on his ability. As such, he established a policy at Sony that school records are a matter of the past and they should not be used to evaluate an individual’s abilities, or to decide if he or she should be hired or promoted.
This is eerily similar to the concept of “education without a degree” that we have learned from Henry Ford and Edwin Land. As a matter of fact, Henry Ford believed that knowledge is obtained through thinking and not solely through the mere accumulation of information for the sake of it. Ford once said: “the object of education is not to fill a man’s mind with facts; it is to teach him how to use his mind in thinking.”
“I established a policy at my company of disregarding school records once an employee was hired so that nobody would be tempted to judge a person on his academic background rather than on his proven ability and performance or what his potential seemed to be. This is because so much emphasis-too much-is placed on the mere name of the university you attend in Japan.”
— Akio Morita
Importance in Having a Strong Name
“A brand is a promise.”
— Warren Buffett
As we have learned previously from Bill Gates, a strong brand name is a competitive advantage as it can provide a perception of quality, reliability and trustworthiness in the minds of customers which can lead to increased customer loyalty and sales. As a matter of fact, Gates was influenced by Rowland Hanson, an ex-VP of Marketing from Neutrogena, and understood the importance for products to be identified by its brand name:
“The brand is the hero, said Hanson, People start to associate certain images with the brand, and that becomes much more important than any single product. What the consumer goods companies realized years ago was that products come and go. You are going to have a product and it’s going to rise and fall. But if you can create a halo around a brand name and create equity in a brand, when you introduce new products under that brand halo it becomes much easier to create synergy, momentum…We decided that we need to make Microsoft the hero. Gates understood the logic of Hanson right away.”
— James Wallace & Jim Erickson
Similarly, Morita understood the importance to find a strong name that can serve double duty: it should be both the company name and the brand name. This is partly due to the fact that the company wouldn’t need to pay double the advertising cost to make both well known. While Morita didn’t mind people knowing that his company is based in Japan, which at the time was known for cheap quality products, but more importantly, he “wanted a new name that could be recognized anywhere in the world, one that could be pronounced the same in any language.”
Furthermore, he and his partner Ibuka agreed that they didn’t want a symbol in their logo as they wanted the company’s name to carry their message. Plus, it would be easier to be recognized and to gain name recognition. As such, Sony became the company’s name and the company’s logo.
“The new name had the advantage of not meaning anything but "Sony" in any language; it was easy to remember, and it carried the connotations we wanted. Furthermore, as I reminded Ibuka, because it was written in roman letters, people in many countries could think of it as being in their own language.”— Akio Morita
“For our first product logo, we used a tall, thin sloping initial letter inside a square box, but I soon realized that the best way to get name recognition would be to make the name as legible and simple as possible, so we moved to the more traditional and simple capital letters that remain today. The name itself is the logo.”
— Akio Morita
Morita and the team at Sony learned the importance of having a trademark the hard way. As a matter of fact, when they released the first ever tape recorder product into the market, the name “tapecorder” became generic overnight. It was a good thing until other competitors began making tape recorders and the public started referring to any maker’s tape recorder as a “tapecorder”. This lesson led the company “to display our company name prominently on our products, even if we also gave the products invented names, such as Walkman, so that the brand, company, and product names were all clear.”
“I have always believed that a trademark is the life of an enterprise and that it must be protected boldly. A trademark and a company name are not just clever gimmicks they carry responsibility and guarantee the quality of the product. If someone tries to get a free ride on the reputation and the ability of another who has worked to build up public trust, it is nothing short of thievery.”
— Akio Morita
Finally, the success of Sony is a great representation of how it can take years to build a brand’s reputation. As Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it.” As a matter of fact, in the early days, it was extremely difficult for Morita to convince distributors to take on their products outside of Japan. Most of the distributors required Sony to become an original equipment maker for other companies, a compromise that Morita was unwilling to take. The story below is a great reminder of how successful businessmen such as Akio Morita are able to sacrifice short-term profits for the long-term success of their company:
“The people at Bulova liked the radio very much and their purchasing officer said very casually, "We definitely want some of these. We will take one hundred thousand units." One hundred thousand units! I was stunned. It was an incredible order, worth several times the total capital of our company. We began to talk details, my mind working very fast, when he told me that there was one condition: we would have to put the Bulova name on the radios. That stopped me. I had vowed that we would not be an original equipment maker for other companies. We wanted to make a name for our company on the strength of our own products.
"Our company name is a famous brand name that has taken over fifty years to establish," he said. "Nobody has ever heard of your brand name. Why not take advantage of ours?" I understood what he was saying, but I had my own view. "Fifty years ago," I said, "your brand name must have been just as unknown as our name is today. I am here with a new product, and I am now taking the first step for the next fifty years of my company. Fifty years from now I promise you that our name will be just as famous as your company name is today."
— Akio Morita
Japanese Management Philosophy
“I cannot understand why there is anything good in laying off people. If management takes the risk and responsibility of hiring personnel, then it is management's ongoing responsibility to keep them employed.”
— Akio Morita
From his business experience in the United States and his native land of Japan, Akio Morita has found a few differences between the American way and the Japanese way of managing a business. First, in Morita’s opinion, the most important mission for a Japanese manager is to develop a good relationship with his employees and to create a family-like feeling among the company. The companies that are the most successful in Japan are those that have created a shared sense of fate among the employees and the shareholders. However, from his experience in America, managers considered their employees more as a tool rather than an individual.
“But in the long run-and I emphasize this-no matter how good or successful you are or how clever or crafty, your business and its future are in the hands of the people you hire. To put it a bit more dramatically, the fate of your business is actually in the hands of the youngest recruit on the staff.”
— Akio Morita
“In the Japanese case, the business does not start out with the entrepreneur organizing his company using the worker as a tool. He starts a company and he hires personnel to realize his idea, but once he hires employees he must regard them as colleagues or helpers, not as tools for making profits. Management must consider a good return for the investor, but he also has to consider his employees, or his colleagues, who must help him to keep the company alive and he must reward their work. The investor and the employee are in the same position, but sometimes the employee is more important, because he will be there a long time whereas an investor will often get in and out on a whim in order to make a profit. The worker's mission is to contribute to the company's welfare, and his own, every day all of his working life. He is really needed.”
— Akio Morita
This is eerily similar to the business philosophy of Isadore Sharp who truly believed that his employees were the company’s most valuable asset. In fact, while “the books may show that employees represent the largest share of expense. They don’t show that they also earn the largest share of revenue. Or that long-term service employees are storehouses of customer knowledge, role models for new hires, and advisers for systems improvement—all in all, our best source of added value. If employees are really doing their job, they’re not a cost, they’re an asset, our primary asset.”
“Our greatest asset, and the key to our success, is our people. We believe that each of us needs a sense of dignity, pride, and satisfaction in what we do. Because satisfying our guests depends on the united efforts of many, we are most effective when we work together cooperatively, respecting each other’s contributions and importance.”
— Isadore Sharp
Second, Morita realized that in Japan, employees tend to stay longer in a company compared to American companies. Perhaps, this is because of the way they are treated as mentioned above, but another reason may be because they are motivated by the wrong reasons. Morita mentions that “what we in the industry learned in dealing with people is that people do not work just for money and that if you are trying to motivate, money is not the most effective tool. To motivate people, you must bring them into the family and treat them like respected members of it.“ This speech that Akio Morita once said to new recruits of Sony truly shows how he treat the single one of them as a son rather than a mere low employee:
"First," I told them, "you should understand the difference between the school and a company. When you go to school, you pay tuition to the school, but now this company is paying tuition to you, and while you are learning your job you are a burden and a load on the company.
"Second, in school if you do well on an exam and score one hundred percent, that is fine, but if you don't write anything at all on your examination paper, you get a zero. In the world of business, you face an examination each day, and you can gain not one hundred points but thousands of points, or only fifty points. But in business, if you make a mistake you do not get a simple zero. If you make a mistake, it is always minus something, and there is no limit to how far down you can go, so this could be a danger to the company.”
"We did not draft you. This is not the army, so that means you have voluntarily chosen Sony. This is your responsibility, and normally if you join this company we expect that you will stay for the next twenty or thirty years.”
"Nobody can live twice, and the next twenty or thirty years is the brightest period of your life. You only get it once.”
"When you leave the company thirty years from now or when your life is finished, I do not want you to regret that you spent all those years here. That would be a tragedy. I cannot stress the point too much that this is your responsibility to yourself. So I say to you, the most important thing in the next few months is for you to decide whether you will be happy or unhappy here. So even though we recruited you, we cannot, as management, or a third party, make other people happy; happiness must be created yourself."
— Akio Morita
Finally, another big difference between US and Japanese companies is in the way executives run the businesses. As a matter of fact, Morita mentions that for a Japanese executive, his most important responsibility is the continued employment and the improvement of the livelihood of his workers. While the company must still make profits in the long run, it will never be at the top of the list for a Japanese company in terms of importance. Contrary to in America, Morita says that “Most of the American business executives I know put the highest priority on return to the investors or this year's profit. They have the responsibility because the investors gave it to them, and to stay in their jobs they have to continue to keep the investors happy.” The following story truly reflects this difference in business management:
““But my Sony America (Sonam) president was reluctant to spend the money. He said if we spent a lot on this promotion and if he could not bring in enough sales, we would lose money. I told him over and over, "You must also consider the return that comes in five or ten years, Harvey, not just the immediate return."
The trouble with American management of the Sonam operation in the early days under Schein was that profit was the main goal. In my view, profit doesn't have to be so high, because in Japanese companies our shareholders do not clamor for immediate returns; rather they prefer longterm growth and appreciation. Our bank loans are solid at favorable rates of interest. Of course we have to make a profit, but we have to make a profit over the long haul, not just the short term, and that means we must keep investing in research and development, it has run consistently about 6 percent of sales at Sony.”
— Akio Morita
Building A Market Through Innovation
“Industry is best at the intersection of science and art”
— Edwin Land
Sony was created by Morita and his business Ibuka with one idea in mind; they wanted their company to be a pioneer that never intends to follow others. Their plan was to lead the public with new products rather than to ask the public what kind of products they want. The reasoning behind this is that they believed that the public doesn’t know what is possible, but they do. As such, it is better for them to create an innovative product and to create a market through education rather than doing market research.
“"Through progress, Sony wants to serve the whole world," we said and went on to say that in doing so the company would be "always a seeker of the unknown.””
— Akio Morita
However, this was not always the case for Morita and Ibuka. As a matter of fact, they initially believed that by focusing on building innovative products with unique technology, Sony could become a successful company. However, when they first started producing tape recorders, they realized that their products couldn’t sell because people did not know what it was and how it could be of use for them. As such, they learned quickly that they needed to educate the market; they needed to sell their products to the potential buyer by explaining to him the value they were getting.
“I then realized that having unique technology and being able to make unique products are not enough to keep a business going. You have to sell the products, and to do that you have to show the potential buyer the real value of what you are selling. I was struck with the realization that I was going to have to be the merchandiser of our small company. We were fortunate in having a genius like Ibuka who could concentrate totally on innovative product design and production while I learned the merchandising end of the business.”
— Akio Morita
By consequence, Morita had to learn about merchandising and marketing. He learned quickly that marketing is actually a form of communication with the customers. This was not possible if they distributed their products to third or fourth parties to sell their products. As a matter of fact, it is impossible for third parties to have the same interest or enthusiasm for Sony’s products as their own employees. As such, Morita “had to set up our own outlets and establish our own ways of getting goods into the market.”
Sony were well-known to be bringing out products that were never marketed and never made before. In fact, they were known as the “guinea pig” of the electronics industry. Morita mentions that “we would produce a new product; the giants of the industry would wait to see if our product was successful; and then, if it was, they would rush a similar one onto the market to take advantage of our efforts.” This was a huge advantage for Sony as they would have the entire market for themselves for up to a year where they would make a lot of money.
“In the early days, we would often have the market to ourselves for a year or more before the other companies would be convinced that the product would be a success. And we made a lot of money, having the market all to ourselves. But as we became more successful and our track record became clearer, the others waited a shorter and shorter time before jumping in. Now we barely get a three-month head start on some products before the others enter the market to compete with us with their own version of the product we innovated.”
— Akio Morita
As we have learned previously, constant innovation is required for the growth of a company. As Robert Iger once said, “Innovate or die, and there's no innovation if you operate out of fear of the new or untested”. Morita learned that the biggest enemy of innovation is most likely your own company’s sales team. In fact, they often discourage innovation as they need invest a significant amount into new advertising and promotions and as they need to re-educate the sales force about the new products so that they can educate and sell to the public.
“I keep urging my staff to try to figure out ways to cope with the speed of change and turn it to our competitive advantage, because it is obvious that change is a constant and you cannot turn it around, slow it down, or frustrate it. The problem this makes for the production side of an enterprise is obvious: you must keep educating the production people. And the pressures are also very heavy on the marketing people, who are being called on to market products that didn't exist before or models that have new and unfamiliar features.”
— Akio Morita
“Obviously, we can never expect to survive in business if we do not keep improving what we offer to the public, and that takes new technology.”
— Akio Morita
Furthermore, this can also lead to old but popular and profitable items to become obsolete, which can be frustrating for the company’s sales team. This reminds me of the story we have previously learned from Xerox that explains the power of incentives. The sales force at Xerox were promoting the selling of the older and more inferior machine over the newer and better machine due to badly implemented incentives.
“Early in the history of Xerox, Joe Wilson, who was then in the government, had to go back to Xerox because he couldn’t understand how their better, new machine was selling so poorly in relation to their older and inferior machine. Of course when he got there, he found out that the commission arrangement with the salesmen gave a tremendous incentive to the inferior machine.”
— Charlie Munger
But more importantly, discovering a new technology is not enough to be successful in business. In fact, Morita believed that it was necessary for Sony to use new technologies that they have to create new products that the public can use. This is eerily similar to Steve Jobs’ philosophy at Apple of closing the gap between sophisticated technology and mere mortals by building products are easy to learn and use. Jobs once said that “Apple marries state of the art technology with Apple’s legendary ease-of-use to create products that enable users to do more Apple is the world’s premier bridge builder between mere mortals and the exploding world of high technology.”
“Our view of our business is that when we develop a new process, or a new device, we want to make something with it. If we look upon an invention merely as something clever, or as an academic exercise, it is of little benefit to anyone. We believe it is important to use the technology we have to create products that people can use. This is my theory of the three creativities: the creativity of technology, of product planning, and of marketing that I mentioned earlier.”
— Akio Morita
Beyond the Book
Read “Henry Ford and the Actual Value of Education” by Farnam Street
Read “The Ingredients For Innovation” by Farnam Street
Read “The Power of Incentives: The Hidden Forces That Shape Behavior“ by Farnam Street