Ken Kusunoki explains why some Japanese companies are possibly failing at DX.
Professor Ken Kusunoki has some strong words for companies taking on DX, SDGs and other contemporary business challenges.
The celebrated author and business strategy expert joined Rakuten senior executive officer Ryo Matsumura at the most recent Rakuten Optimism conference for a session titled “Digital Transformation and SDGs: Why Do So Many Companies Only Call for Change Instead of Driving It?”
The duo discussed the ever-changing landscape of Japan’s business world and the danger of jumping headfirst into every new trend.
De-noising the power words of yesteryear
Business buzzwords like DX and SDGs are part of the natural ebb and flow of the business world, Kusunoki reckons. But he cautions against getting caught up in the hype.
“Day after day, we hear in the media all about DX and SDGs. But this is hardly a new phenomenon. These power words have always been a topic of hot debate.”
For his recent book Looking Back to the Future, Kusunoki took it upon himself to trawl through stacks of old business magazines and other media to find other power words from the past 70 years.
“My takeaway from this was that contemporary business magazines don’t have a lot to teach us,” he told Matsumura. “But if you look back at magazines from a decade ago, they become much more interesting. Over time, these ideas undergo a kind of detox, and the fundamental logic they follow is laid bare for all to see.”
Exploring these older ideas can be insightful for business strategies today. Kusunoki reminded the audience of a relatively recent business trend: consumer-facing subscription services — an idea that has spread from online music and movie streaming to somewhat less intuitive sectors like hotel accommodation, car rentals and printers.
“These new ideas are often mentioned in the same breath as some dazzling success story,” he explained. “Adobe, for example, used to sell individual software packages. They changed their business model to work on the cloud as a subscription service and succeeded in boosting sales, profits, their market cap and everyone lived happily ever after! The age of the subscription has arrived!“
“The subscription model has been around for a long time, particularly in the B2B space. But what happens when these ideas become power words, is that they lose their original context.”Professor Ken Kusunoki, Hitotsubashi Business School
It’s at this stage in a trend’s lifecycle that Kusunoki believes businesses often stumble.
“Everyone starts throwing around this subscription power word, launching their own subscription services, failing and giving up. It’s total chaos. You have fashion subscriptions, yakiniku (grilled meat) subscriptions,” he laughed. “One restaurant chain offered a 10,000-yen monthly subscription for all-you-can-eat yakiniku. Of course, some thrifty subscribers caught on and started fasting every day before coming to eat their fill. You couldn’t get a reservation anywhere! You really need to think these things through. But for whatever reason, companies fall into this trap.”
What’s important for businesses looking for inspiration from innovative success stories is to ground themselves in real-world context: “Adobe’s success with the subscription model came after five, ten, fifteen years of polishing its products towards this very idea. Their success story happened within this specific context.”
Context is everything for business buzz
“The subscription model has been around for a long time, particularly in the B2B space,” Kusunoki pointed out. “But when these ideas become power words, they lose their original context.”
When the business world latches onto a new idea, a torrent of noise can drown out the finer details.
“Someone achieves a great success story and everyone’s ears prick up. They see these keywords like DX, or subscription model,” Kusunoki lamented. “People start saying things like, ‘It’s a magic bullet! Don’t miss the boat! Immediate results!’ and all of this contemporary noise fills the space.”
This noise can make it difficult to judge whether a new idea is really the right idea for a given company: “What was originally a single element of one company’s strategy becomes an all-purpose weapon, ripped out of its original context. Then, companies paste that exact idea into their own businesses — a completely different context — and of course, it doesn’t go well.”
The solution, however, is not to ignore trends and power words entirely, but to dig a little deeper.
“You need to think about these things within their original context,” he urged. “There are all sorts of success stories you can be inspired by, but don’t just look at the parts you want to emulate. In the case of Adobe, think about why they achieved long-term profitability. Understand the entire strategy. That will give you an understanding of the logic behind this seemingly abstract success. And that logic is what will be most useful to you in business.”
DX is not a goal, but a tool to boost profitability
“DX is definitely important, but it’s not an objective in itself. It’s an important tool to help you achieve your goal of long-term profitability.”
Kusunoki floated the idea that what many companies are doing in the DX space is not actually digital transformation, but something else.
“We’re taking things that were once analog and substituting them with something digital. So I think we should call it DS — digital substitution,” he proposed. “With DX, it’s a transformation — you’re changing the whole formation.”
Calling the process a transformation makes it a challenge that only company leadership can take on, Kusunoki suggested.
“Some companies offload their DX strategies to some ‘DX Promotion Department’ full of techy employees, but really that’s only DS,” he reckoned, adding that he still considers it an effective way for employees to boost efficiency and lower costs. “DS and DX are chasing different objectives. On the ground, no matter how skilled the employee, they aren’t looking to completely change the way a company makes money.”
Truly transformational DX, meanwhile, should be employed as an effective tool for the greater goal of long-term profitability.
“If a business leader really, really wants to make money, they’ll see that there are so many digital tools that can help them. DX will be a natural part of their business strategy; there’s so much more potential for profit.”
Business is simple — keep it that way
Kusunoki has a simple business formula he employs: [profit] = [willingness to pay] – [costs]. To grow profits, companies must either boost the customer’s willingness to pay or decrease costs — or do both.
“In this age of digital transformation, the world feels like a very complicated place. But what I want to tell people is to keep things simple.”
Kusunoki finds beauty in the simplicity of business — in how it works towards a singular objective: profitability. A profitable company can hire and retain employees, boost value for shareholders and pay more corporate tax. It’s also the most compelling indicator that its products provide enough value that customers choose them over competing offerings.
“The winning condition of any business is long-term profitability,” he stated. “Compared to other pursuits, this winning condition is incredibly straightforward. That’s what I really appreciate about the business world.”
A strong drive towards profitability, Kusunoki believes, is the only way for companies to properly embrace truly valuable ideas like DX and sustainability. He reminded the audience of serial entrepreneur and “father of Japanese capitalism” Eiichi Shibusawa’s philosophy of sustainable corporate value and the idea that in the long run, ethical business will always win out.
“Even in the realm of consumer goods, sustainability is entirely a matter of real consumer demand,” he declared. “Today, sustainability is profitable. Any truly ambitious business leader should go out of their way to embrace it.”
Rakuten’s own embrace of sustainability is a central pillar of its philosophy. Rakuten Group, Inc. realized 100% renewable energy adoption in 2021, and Rakuten is further improving the efficiency of its energy use and promoting the transition to renewable energy in order to achieve carbon neutrality in 2023. Meanwhile, major businesses such as Rakuten Ichiba have embraced consumer demand for sustainable offerings through services like Earth Mall with Rakuten.
Kusunoki left the audience with some strong words for business leaders who only embrace SDGs and DX as optional side projects.
“If you’re only taking on these challenges like homework you’ve been given at school, you lack ambition. I think you should hand the reins over to someone more ambitious.”