Today’s Chapter is based on the book “From Zero to Kyocera A Company Philosophy to Grow People and Organizations” by Kazuo Inamori.
Previously on Kazuo Inamori:
Here’s what I have learned:
Amoeba Management
"We don't make a cent in these offices. The money is made in the stores."
— Alain Bouchard
As we have learned previously, decentralized administration is a standard practice that was followed by a large part of the American industry. Sloan was the first one to promote this concept of “decentralisation with co-ordinated control” as his main government policy when he was at the head of General Motors.
Sloan believed that this policy would provide an opportunity for individuals to shine through with their initiatives as if they were running businesses of their own and it provided the company the ability to pay them accordingly to their success.
As a matter of fact, Sloan mentions that the Bonus Plan implemented by GM is strictly related to the policy of decentralization since it gave the executives the opportunity to be paid according to their accomplishments. This allowed them to attract and retain managerial talent.
Furthermore, Sloan believed that decentralization allowed for better capital allocation for the company as it allowed GM to evaluate the rate of return of each divisions separately. He believed that decentralization allowed General Motors to evaluate the contribution - positive or negative - of each division to the common good of the business.
By doing so, it allows for one to know about the company’s efficiencies and inefficiencies which is primordial to allocate investments appropriately among each divisions. As a matter of fact, it would be ill advised for a company to continue investing in a project or a division that has a low rate of return.
“Under his concept General Motors' economic objective was to produce not necessarily the highest attainable rate of return on the capital employed, but the highest return consistent with attainable volume in the market. The long term rate of return was to be the highest expectation consistent with a sound growth of the business, or what we called "the economic return attainable."”
— Alfred Sloan
Similarly, Kazuo Inamori, through his experience at Kyocera, realized that the larger an organization becomes, the harder it is to run it efficiently. As such, Inamori believed that he needed to divide his large company into smaller units, or cells, in order to manage it more efficiently. He calls this strategy “Amoeba Management”.
This policy allows each small units to control the majority of the operations such as the management plan, the achievement control, the material requisition, and the labor management. This enables Kyocera’s employees “to maximize their personal potential so that they could work with vitality.”
While Alfred Sloan would evaluate his departments’ success in terms of long term rate of return or what he called “the economic return attainable”, Inamori had his own threshold: the “hourly efficiency system”:
”Income and expenditure are expressed using a unique formula that shows how much added value is generated by a given amoeba unit each hour. Simply put, all expenses incurred by a unit are deducted from the sales that were made, and the remainder is divided by the total number of monthly labor hours to arrive at a managerial index. I call this our "hourly efficiency system.””
— Kazuo Inamori
As you can see, for Inamori, profit isn’t the most important thing to define a company or a department’s success. In his opinion, Amoeba Management’s purpose is to “ reach the point where employees can think not about the amount of profit generated by their respective units, but about how much their units contribute through hourly added value to the success of the company as a whole, which embodies the joint destiny of all employees.”
Team Work
“Talent win games, but teamwork and intelligence win championships.”
— Michael Jordan
Kazuo Inamori often mentions how he started Kyocera with zero resources. Notably, at the beginning, he had no capital, land or facility required to run his business and also lacked public trust and name recognition. As such, Inamori realized that if his company was to prosper, he could only rely on one thing: “building a group of people who relied on heart-to-heart bonds of mutual trust.”
This makes sense considering a company can be define as a group of individuals working together. As Isadore Sharp, the founder of Four Seasons, once said, “Our greatest asset, and the key to our success, is our people.” And, as the leader of the company, Inamori’s goal is to make sure that his employees are all working towards the company’ goal.
“For groups to function and bear fruit, they must have a clear goal, with all members in the group oriented in the desired direction.”
— Kazuo Inamori
As such, Inamori understood that, as a leader of a large corporation, he was not running Kyocera to realize his own personal dreams, but to ensure “the livelihoods of employees and their families, both now and in the future.“ He reiterates that managers have the heavy burden to take care of their employees.
And to do so, managers need to make sure that they are persistently improving themselves as the fate of the business relies on their shoulders. Or, as Inamori would say, “To develop a company, the manager must grow as a human being.“
As we have learned previously from Inamori in a previous Chapter, one can succeed as a businessman with little business knowledge as long as the basic and simple yet powerful principle of pursuing what is right as a human being is respected. Inamori said that “This is the most important guideline in my life, and I constantly remind myself of it by asking myself: Is this choice compatible with what it means to be human? Does this decision conform to the most basic ethical and moral principles?”
His reasoning behind this was simple. After all, human relationships are extremely important when running a business, and as such, “the same primitive ethical standards that apply to the treatment of individuals should apply to business interactions.”
By consequence, one can improve as a manager by becoming a better human being.
“At a loss as to how to proceed, I decided that I would be true to what I felt was right as a human being. Don't lie; never harm anyone; don't be greedy or selfish—I took these simple precepts that we learn from our parents and teachers but tend to forget as we grow older and applied them directly to business policy, adopting them as my decision-making criteria.”
— Kazuo Inamori
This emphasis on working as a team should reminds us on the importance of hiring A-team players. Considering that employees are an important asset of a company, it is primordial to hire and retain great individuals. As Jeff Bezos once said, it is not enough to require to hire the best people, it is also important to hire the right people. In fact, “Hire the right people” became one of Amazon's core pillars for success. And the first thing Bezos does when he sees someone, whether it's to hire him or her or to purchase a new business from him or her, is to assess if he or she is in it merely to make money or because of a true passion for serving customers.
“I’m always trying to figure out one thing first and foremost: Is that person a missionary or a mercenary?”
— Jeff Bezos
As such, before making any hiring decision, Bezos insists his managers to go through the following three criteria:
Will you admire this person?
Will this person raise the average level of effectiveness of the group he or she is entering?
Along what dimension might this person be a superstar?
Here's how Bezos explains the importance of these questions:
“During our hiring meetings, we ask people to consider three questions before making a decision: Will you admire this person? If you think about the people you’ve admired in your life, they are probably people you’ve been able to learn from or take an example from. For myself, I’ve always tried hard to work only with people I admire, and I encourage folks here to be just as demanding. Life is definitely too short to do otherwise. Will this person raise the average level of effectiveness of the group they’re entering? We want to fight entropy. The bar has to continuously go up. I ask people to visualize the company five years from now. At that point, each of us should look around and say, “The standards are so high now—boy, I’m glad I got in when I did!” Along what dimension might this person be a superstar? Many people have unique skills, interests, and perspectives that enrich the work environment for all of us. It’s often something that’s not even related to their jobs. One person here is a National Spelling Bee champion (1978, I believe). I suspect it doesn’t help her in her everyday work, but it does make working here more fun if you can occasionally snag her in the hall with a quick challenge: “onomatopoeia!””
— Jeff Bezos
Customers First
“If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours.”
— Ray Kroc
Similarly to other success entrepreneurs that we have covered previously, Kazuo Inamori is also a believer that profits should not be the priority for any company. Instead, Inamori believes that a company should focus on providing great customer services.
By creating great value to the customers, one can maximize sales and profit is bound to be a consequence from this. Inamori once said that “Kyocera has always placed top priority on customer needs. As a newly established venture company, that approach was in fact the only way that we could survive.”
As a matter of fact, Inamori explains that employees “must become willing servants who thoroughly meet customer needs.” And the first step in doing so, is to build the best product possible while disregarding expenses. Once that is figured out, the management’s goal is to figure out how to achieve mass production at a reasonable cost.
As such, for Inamori, It is much better to build a great product to the customer rather than to build a mediocre one just to become profitable. This methodology reminds me of Henry Ford who once said that “A business that makes nothing but money is a poor business.”
“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
— Henry Ford
Furthermore, Inamori explains that there are may ways to approach product pricing. Companies may choose to either lower the price and sell large volumes with a smaller profit margin, or they may choose to raise the price and enjoy a higher profit margin on a smaller sale volume. But no matter which product pricing you choose, the one thing that matters is the customers’ view on your company.
In fact, Inamori explains that “If you are respected by your customer, you transcend such issues as quality comparisons or slight price differences between you and your competitors. Instead, you establish in your customer a mindset that prefers to buy your products no matter what.”
This is the power of brand name and this reminds me of what Charlie Munger once said about Wrigley’s gum:
“I may see Wrigley gum alongside Glotz’s gum. I know that Wrigley but I don’t know anything about Glotz’s. If one is $.40 and the other is $.30, am I going to take something I don’t know and put it in my mouth – which is a pretty personal place for a lousy dime?”
— Charlie Munger
This concept of putting customer needs first reminds me of Home Depot’s main customer services’ philosophy of “Whatever it takes.” Bernie Marcus and Arthur Blank explains that they would need to do whatever it takes to satisfy their customers’ needs even if it meant they needed to go far out of their way to do so. This is especially true when they were first starting The Home Depot and were struggling to survive.
For example, in the early days, when a customer walked out of the store because the company was not carrying an item, they would ask the client for their name and address and would promise to deliver them the product as soon as possible. They would then purchase it at another store and personally deliver it to the customer’s home. That’s how they often expanded their merchandise section.
“First I would run back inside and order it so we'd have it in the future. Then I would personally go buy whatever it was at West Building Supplies, Handy City, or a wholesale house and personally deliver it to the customer's home, carefully removing the other store's price sticker and charging the customer a lower price than I paid out of pocket.”
— Bernie Marcus & Arthur Blank
Beyond the Book
Read "What is Amoeba Management?" by Kazuo Inamori
Read "Job Interviews Don’t Work" by Farnam Street
Read "The Importance of Working With “A” Players" by Farnam Street