Can corporate Japan shake off its analog legacy?

Bullet trains, advanced robotics, scientific discoveries – Japan enjoys a global reputation as a high-tech superpower. But as many living in the country soon discover, there’s one area in particular where this reputation starts to melt away: the realm of the digital.

Once riding high on the back of industrial Japan’s manufacturing prowess, many major companies are now struggling to throw off the shackles of their analog legacies and compete on a digital-dominated global stage. This hot topic was explored by a panel of several prominent members of Japan’s business community at the recent Rakuten Optimism 2023 conference.

The panel – titled Revitalizing Japan’s Corporate Competitiveness Through Digital Transformation – was joined by industry veteran Panasonic Holdings Corporation executive officer and Group CIO Hajime Tamaoki. He lamented that while many of the top global companies today are digital-oriented, companies like Panasonic – a symbol of corporate Japan – continue to face difficulties in the digital space.

DX is crucial – it’s a question of how

“We know that we are not winning on the global market,” he told the audience. “Our share price isn’t moving. We have a sense of peril – we know we need to change, but our feet are heavy. We have this legacy, these processes, IT systems, organizations – and we’re stalled… Everyone agrees that change is necessary, but it’s a question of how.”

Tamaoki was joined by Accenture Japan’s Software & Platform Industry managing director Masafumi Kojima, who stressed the magnitude of this very how question for Japanese companies.

“We’ve all been talking about DX (digital transformation) for a long time now,” he said. “Companies are well past the point of debating the necessity of DX. We’re at the point where they’re trying things out and running into issues.”

In the context of DX in Japan, Rakuten might be considered something of an exception. Since 1997, Rakuten has leveraged digital technology to empower clients and compete on the world stage. First with its online shopping platform Rakuten Ichiba, and later with digital versions of other traditionally analog services like banking, payments and travel. Internally, digital practices such as paperless operations and video conferencing have long been standard.

For companies with a longer analog history, meanwhile, Kojima correlates market performance with digital understanding at the leadership level. Without this understanding, he feels that DX efforts can be misguided.

“It’s tempting to think of DX as a simple change in internal systems and operations. People think it’s something that the IT department has to do. But it’s not,” he explained. “At the core of DX is the question of how it will change how you make money.”

To protect a legacy, you must grow and evolve it

A company’s own employees can often be a significant source of resistance to change, Kojima observes.

“A lot of people are cautious – anxious that what they’ve built up over the years might disappear. But if your company stays on the same course for the next 10 or 20 years, you’ll cease to be competitive,” he warned. “It’s important for everyone at all levels of the company to be aware of this. Without this awareness, any attempt at DX will be fruitless.”

For companies with decades of business success in the analog era, course correction can be tough. “How lightly can you treat the burden of your legacy?”

This very concept of legacy is one that weighs heavily on Panasonic. Tamaoki made the argument that the best way to protect his company’s legacy is to evolve and thrive.

“This company was built by Konosuke Matsushita. Can we really kill Konosuke Matsushita’s company? That’s why we need to change,” he declared. “We’re talking about a corporate transformation. There’s no ROI on that. We’re talking about the company’s very foundation. Its corporate value.”

Embracing change at Panasonic

Tamaoki recently launched the Panasonic Transformation (PX) program, an initiative that symbolizes Panasonic’s strong determination to not only improve its IT infrastructure, but also to position IT at the core of its management strategy and utilize IT to trigger major business and management changes. The launch of PX saw the publication of a signed commitment to seven principles aiming to bring the company up to a global standard to make it competitive in the digital age.

Kojima praised Panasonic’s strong stance, but also stressed that all employees need to adopt a mindset of change.

“I think that everyone needs to feel the need to change constantly,” Kojima told the audience. “Employees in their 20s, 30s, 40s, even 50s – just like their company, if they don’t change, they’ll no longer be competitive and they will become baggage. Having the desire to work hard and change is what leads to DX success.”

Although many companies in Japan struggle with a shortage of IT talent, Tamaoki doesn’t see this as a barrier to Panasonic’s transformational ambitions. What matters is having a vision, he told the audience. IT expertise can be attained externally through consulting, SaaS, or platforms like Rakuten. “There are all sorts of tools out there. It is the people who can connect all of these tools to build a business model who will push DX forward.”

Only change is certain

“We don’t know what the future holds. Do you know what will happen in five years?” Tamaoki posed. “I think it’s about passion – having a strong desire to take your company somewhere. I believe corporate transformation should be led by that passion.”

Kojima added that passion needs to be backed up by an objective understanding of your company’s strengths and weaknesses.

“Passion is important, but judge objectively whether you’re a company that can really change – whether you can move forward, sustainably” he argued. “This perspective is more important than how the market might change in five or ten years.”

Tamaoki left the panel with a profound reminder about the meaning of DX.

“Digital is only one half of DX. It’s also about transformation – about making transformation into a constant thing. That’s the biggest marker of DX success. If we can continue to transform, I really think Japan’s economy can take a strong position on the world stage.”