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Management Practices in the United States, Japan, and the People's Republic of China

by Heinz Weihrich

Author's note: In researching this article, literature on U.S. and Japanese management practices was reviewed extensively, and information was gathered during a visit to Japan and from research conducted with Japanese managers operating in the United States. In identifying Chinese managerial practices, the limited information available was supplemented through surveys and interviews with scholars, students, and managers from mainland China. I would like to acknowledge the contributions and assistance of many Chinese scholars and managers, especially Ms. Jie Yu and Mr. Zhijian Yang. Mr. Yang, a Chinese reporter, investigated the recent political and economic changes in China.

Productivity levels are of great concern to every country on the face of the earth. In recent years, many U.S. businesses have looked to Japan to find the answer to the productivity crisis in the United States, while many Japanese scholars attend universities in the United States to learn about management. Japan's phenomenal success in increasing productivity is often attributed to its managerial approach and low wage rates. But with the rise of the Japanese yen and the fact that the labor cost component of products becomes increasingly less important, managerial competence becomes even more crucial. There is an abundance of literature on both U.S. and Japanese management; one such book even made the bestseller list. But the literature on Chinese management is very sparse. Since Japan and the United States present contrasting managerial approaches, Chinese managers probably could adopt aspects from either approach. But which country uses managerial practices that would be appropriate for making Chinese businesses more effective and efficient? The first step should be to identify Chinese managerial practices and to analyze whether they are closer to the U.S. or the Japanese model. Then they should be compared and contrasted with current practices used by large, state-owned businesses in China. There is general agreement on the basic characteristics of Japanese and U.S. management, but there is less agreement-and certainty-about the transferability of the practices (not the science) of management to other cultures. In the 1960s, scholars and practitioners were very much concerned about the universality and transferability of management. A great deal of controversy centered on the question of whether management is culture-bound. Some suggest it is, while others point to the universality of management. Harold Koontz, who developed one of the most comprehensive models of comparative management, concluded that the opinion differences about the universality of management can probably be attributed to the fact that management as science-organized knowledge-has universal application, but the practice of management is an art and as such must be adapted to the situation. To understand what management is, we have to ask "What do managers really do?" One of the most widely used frameworks for structuring managerial knowledge is to take the managerial process and divide it, as a first order classification, into the functions of planning, organizing, staffing, leading, and controlling. Key managerial activities are then grouped within these functions. We will first discuss these functions and then point out the differences of managing in the United States and Japan. The managerial functions will serve as a framework for comparing and contrasting the managerial approaches in these three countries (see sidebar). At the outset, a word of caution is in order. It is obvious that not all companies are managed the same way as discussed here. We must also realize that very few empirical studies exist, especially for Chinese management, and that most of the available literature is descriptive. Many writers point out the differences in the managerial practices in Japan and the United States, or in the West in general. But others report that, for example, no differences have been found in participation in the decision making process or in job satisfaction in Japan and elsewhere. Therefore, the contrasting managerial approaches are suggestive. In Japan, planning is greatly aided by cooperation between government and business. After World War II, Japan developed policies for economic growth and strength as well as international competitiveness. These policies harmonized monetary and fiscal policies within the industrial structure. In this kind of relative economic predictability, environment planning is less risky. Planning is choosing the purpose and objectives of the organization as a whole or a part of it and selecting the means to achieve those ends. It requires making decisions. The Japanese, in general, have a longer-term orientation in planning than U.S. managers. One reason for this is that in Japan banks are the primary providers of capital and their interest is the long-term health of the businesses.

Industrial Management Heinz Weihrich

China, Japan, and the United States: A Management Comparison

United States Management

Japanese Management ! ! ! ! !

Chinese Management ! ! ! ! !
Long-term and short-term orientation (5year plan and annual plan) Decision-making by committees. At the top often individual Top-down-participation at lower levels. Top-down-initiated at the top Slow decision-making / slow implementation. (Now changing)

! ! ! ! !

Primarily short-term orientation Individual decision-making Involvement of a few people in making and selling: the decision to people with divergent values Decisions are initiated at the top and flow down Fast decision-making; slow implementation requiring compromise, often resulting in suboptimal decisions

Long-term orientation Collective decision-making (ring) with consensus Involvement of many people in preparing and making the decision Decision flow from bottom-to-top and back Slow decision-making; fast implementation of the decision


! ! ! !

Individual responsibility and accountability Clarity and specificity of decision responsibility Formal bureaucratic organizational structure Lack of common organization culture; identification with profession rather than with company

! ! ! !

Collective responsibility and accountability Ambiguity of decision responsibility Informal organization structure Well-known common organization culture and philosophy; competitive spirit toward other enterprises

! ! ! !

Collective and individual responsibility Attempts to introduce the factory responsibility system Formal bureaucratic organization structure Identification with the company but no competitive spirit


! ! ! ! ! ! ! !

People hired out of schools and from other companies; frequent company changes Rapid advancement highly desired and demanded Loyalty to the profession Frequent performance evaluation for new employees Appraisal of short-term results Promotions based primarily on individual performance Training and development undertaken with hesitation (employee may go to another firm) Job insecurity prevails

! ! ! ! ! ! !

Young people hired out of school; hardly any mobility of people among companies Slow promotion through the ranks Loyalty to the company Very infrequent formal performance evaluations for new (young) employees Appraisal of long-term performance Training and development considered a longterm investment Lifetime employment common in large companies

! ! ! ! ! !

Most hired from school, fewer from other companies Slow promotion, but regular salary increase Lack of loyalty to both company and profession Infrequent performance review (usually once a year) 5-year plan, otherwise short-term targets Promotions are supposed to be based on performance, potential ability, and education. But family ties and good relations with top managers are important Training programs available. State exam administered for managers


! ! ! ! ! ! ! ! !

Leader acts as decision-maker and head of group Directive style (strong, firm, determined) Often divergent values; individualism sometimes hinders cooperation Face-to-face confrontation common; emphasis on clarity Communication primarily top-down

! ! ! ! !

Leader acting as social facilitator and group member Paternalistic style Common values facilitating cooperation Avoidance of confrontation, sometimes leading to ambiguities; emphasis on harmony Bottom-up communication

! ! ! ! !

Leader as the head of the group (committees) Directive. Parent-child relations (in TA terms) Common values. Emphasis on harmony Avoidance of confrontation Communication top-down

Control by superior Control focus on individual performance Fix blame Limited use of quality control circles

! ! ! !

Control by peers Control focus on group performance Saving face Extensive use of quality control circles

! ! ! !

Control by group leader (superior) Primary control by groups-but also by individuals Try to save face Limited use of quality control

Industrial Management Heinz Weihrich

In contrast, U.S. managers are often under pressure by stockholders to show favorable financial ratios each time they report them. This, unfortunately, may not encourage investments that have a payout in the more distant future. Also, Americans usually stay in their managerial positions only a relatively short time and myopic decisions can seldom be traced to the manager who had made the decision. Yotaro Kobayashi, the executive vice president at Fuji Xerox, has admitted that the Japanese learned a great deal about systematic long-range planning from the Americans. In China, the situation is quite different. Most of the businesses are state-owned, and it is only more recently that some private companies have come into existence. In our comparison, however, we focus only on the former. In these businesses, both long- and short-term plans are prepared. The five year plan is prepared at the top (the State Planning Commission) while more detailed plans are made at lower levels. The orientation is to meet objectives and achieve the assigned plan, rather than to be successful in the market. There is also the difficulty of integrating organizational and personal goals because the achievement of organizational objectives has little bearing on individual benefits. One of the most interesting aspects of Japanese management is the way decisions are made. In a typical organization, several levels are involved in making the decision. Actually, the most important part of the process is understanding and analyzing the problem and developing various alternate solutions. The final authority for making a decision still rests with top management, but before a proposal reaches the executive's desk, the problem and the possible solutions have been discussed at various levels in the organizational hierarchy. Top management still has the option to accept or reject a decision. But more likely a decision is returned to subordinates for further study, rather than being rejected outright. A proposal is confirmed through the "Ringi" process. The "RingiSho" is a proposal document prepared by a staff member. This paper is circulated among various managers before it goes to top management for formal approval. The document, which is usually initialed by those involved in or affected by the decision, elicits cooperation and participation of many people. This, in turn, assures that the problem or the decision is examined from different perspectives. That this decision making process is time-consuming is obvious. But after a consensus is reached, the implementation of the plan is rather swift because the understanding of the plan, the clarification of the problem, the evaluation of the different alternatives, and the involvement of those people who will implement the decision. But the sharing of the decision power and responsibilities can also result in a problem so that no one feels individually responsible for the decision. In U.S. organizations, decisions are made primarily by people and usually only a few people are involved. Consequently, after the decision has been made, it has to be sold to others, often to people with different values and different perceptions of what the problem really is and how it should be solved. In this way, the decisionmaking is rather fast, but its implementation is very time-consuming and requires compromises with those managers holding different viewpoints. The decision that is eventually implemented may be less than ideal because of the compromises necessary to appease those with divergent opinions. It is true that decision responsibility can be traced to people, but at the same time, this may result in a practice of finding "scapegoats" for wrong decisions. In all, the decision power and the responsibility is vested in certain people in U.S. companies, while in Japan people share both decision power as well as responsibility. In China, major decisions are made by people at the top, but many people are involved in operational decisions. Lower-level managers have very little authority to make decisions. Decision-making through the central planning bureau is under the direct control of the state. This, unfortunately, results in a lack of flexibility in the implementation of the decisions. Although there is a realization of the need to change, managers in the upper echelons of the hierarchy resist reforms because it would mean giving up some of their privileges they have as officials. Organizing involves setting up a structure to coordinate human efforts so that people can contribute effectively and efficiently to the aims of the business. This requires determining roles, responsibilities, and accountability.

Industrial Management Heinz Weihrich

In Japanese companies, largely due to the search for consensus in decision-making, the emphasis is on collective responsibility and accountability. Individual responsibilities, then, are implied rather than explicitly defined. Although this may discourage placing the blame for an incorrect decision on people, it also can create a great deal of uncertainty. In fact, the organization structure is rather ambiguous and the de-emphasis on formal authority promotes informality and egalitarianism. Another characteristic found in Japanese companies is a common organizational culture and philosophy that places a high value on unity and harmony within the organization. At the same time, there is a competitive spirit toward other businesses. Organizational change is accomplished by changing processes, with the aim of maintaining harmony among those affected. Also, the change agent (OD consultant) is virtually always an employee of the company. Organizations in the United States emphasize individual responsibility, with efforts to clarify and make explicit who is responsible for what. Job descriptions are perhaps the best evidence of this. Many organizations, especially those operating in a stable environment, have been rather successful in using the formal bureaucratic organization structure. As far as the climate is concerned, not many managers make special efforts to create a commonly shared organization culture. This may indeed be difficult because professionals-managers as well as technical people-often have a closer identification with their profession than with a particular company. In addition, the work force often consists of people with different values derived from diverse heritages. Many U.S. companies have a high employee turnover rate, which is partly due to the great mobility of the people in this country. With a relatively short duration of employment with any one company, the loyalty toward the company is at times rather low. Organizational change is often accomplished by changing goals instead of processes. But organizations using change agents with a behavioral science orientation may focus on interpersonal processes to reduce conflicts and improve performance. In the United States it is quite common to use outside organization development consultants. This is almost never done in Japan. Chinese managerial practices are very much influenced by the fact that the businesses are owned by the state and guided by government officials. This results in a bureaucratic organization structure that does not respond well to changes in the environment. This may not have been crucial in the past (although it is ineffective) because managers did not have to respond to competition. While factory managers, as people, are expected to achieve the yearly plan, on lower levels the notion of a vague collective responsibility prevails. Within the formal bureaucratic structure the relationships among people are rather informal. Recently, attempts have been made through the "factory responsibility system" to delegate more authority to lower levels. In fact, factories are allowed to make profits, though these profits are specially taxed. Like in Japan, there are strong organizational cultures in Chinese businesses. Research indicates that the degree of identification with the business may vary greatly. Even with a low degree of commitment to the company, this does not result in frequent organizational changes because it is very difficult to change jobs among state-owned organizations. And there is a lack of competitive spirit among Chinese employees. Staffing requires identifying human resource needs and filling the organization structure-and keeping it filledwith competent people. It is in the management of human resources, in addition to the decision-making process, where the Japanese and Chinese approach to managing differs greatly from that of the United States. In Japan, people are hired out of school. For a young man, choosing a place to work is one of the most important decision he makes after selecting a spouse and a university. After a person has joined a company, there is hardly any opportunity to find employment in another company. Promotions are rather slow, and for most young people the first 15 or 20 years with a company are pretty much the same. Still, employees develop a strong identification with the company, the company takes care of them, and employees repay with their loyalty. After joining a company, performance is very infrequently evaluated. In fact, it may take ten years before a formal performance evaluation is made. This does not mean that the progress is not monitored, but it is monitored on an informal basis. Working together with others in an office, without walls separating employees and superiors, leaves little doubt how well people perform. Furthermore, infrequent appraisals, encompassing a long period of time, reduce the probability that luck or misfortune influence the evaluation. What is evaluated is the overall, long-range success and decision capability of the person. This practice results in linking rewards (such as promo-

Industrial Management Heinz Weihrich

tions) to effective long-tern performance. Still, the differences in pay increases are very small and rewards are essentially based on group and company performance rather than individual contributions. Because the employees are an integral part of the corporate community, promotion practices must be considered by all as being fair and equitable. In Japan, the criteria for promotion is usually a combination of seniority and merit. Also, educational background plays a role in promotion decisions. Japanese companies invest heavily in the training and development of their employees and the practice of job rotation throughout their working life leads to a broad career path in which employees get exposed to many different businesses Perhaps the most pervasive impact on managerial practices is lifetime employment. Japanese companies make every effort to ensure a stable employment until retirement age (around 55). At times of economic slowdown, companies usually dismiss part-time or seasonal employees who are not considered members of the permanent work force, and rather than laying off permanent employees, they are often transferred to organizational units that are in need of additional help. But the practice of life-long employment seems to be on its way out. In an interview, Japanese executives suggested that life-long employment will have to be slowly modified because it is very costly and results in a top-heavy organizational structure. The management of human resources in the United States is quite different from the same practice in Japan. Like the Japanese, U.S. companies recruit employees from schools, but they also hire from other companies. High turnover rates among recent MBAs are quite notorious. Rapid advancement is expected and, if it is not forthcoming, an employee may change companies. Professionals such as engineers or accountants often identify more with their profession than with their company, and job-hopping is not unusual. A common practice in U.S. companies is to appraise the performance of new employees comparatively soon after they are hired. If performance does not meet the company's expectations, employment may be terminated. But even for those who have been with a company for many years, performance is evaluated at least once a year and in many cases their performance gets reviewed periodically during the year. In general, the focus of performance appraisal is on short-term results and individual contributions to the company aims. Moreover, differentials in pay increases are often based on individual performance. These differences in pay may be substantial, especially at upper levels of management. Promotions in U.S. companies are based primarily on individual performance. Although progressive companies provide continuous development, training is often undertaken with hesitation because of the cost and the concern that the trained person may switch to another company. Thus, employees are often trained in specialized functions resulting in a rather narrow career path within the company. Finally, in many U.S. companies, employees feel that they may be laid off during economic hard times which, naturally, contributes to job insecurity. The staffing practices in China have aspects similar to those in Japan. Like in Japan, employees are hired from school. They are expected to stay with the business for a long time. More recently, however, personnel is also hired from other organizations; but people are usually assigned to their positions by higher authorities. As in Japan, employees are promoted slowly through the ranks with regular salary increases. Lacking in China is the dedication and loyalty to both company (as in Japan) and to the profession (as in the U.S.). Performance reviews are done infrequently in China (usually once a year) which is certainly more often than in Japan, and are more like the practice in the United States. Promotions are supposed to be based primarily on performance, education, and potential ability. However, family ties and good relations with the superior greatly influence advancement within an organization. In the past, training programs were available in China only to the chosen few. Recently, however, training has been provided for more managers by educational television and professional night schools. Moreover, some managers now have to pass an exam, sponsored by the State Economic Commission. Jobs are secure; it implies lifetime employment (known as "iron rice-bowl") regardless of performance.

Industrial Management Heinz Weihrich

Leading involves the process of influencing people so that they contribute to organizational aims; it is concerned with leadership, motivation, and communication. Japanese managers are seen as social integrators who are a part of the work-group. Using a paternalistic leadership approach, managers show great concern for the welfare of their subordinates. Common values and a team spirit facilitate cooperation. The role of managers is to create an environment of esprit de corps, and they are willing to help out in doing the same work their subordinates do. In an attempt to maintain harmony at almost any cost, managers avoid face-to-face confrontation. This also means that things may be purposely left ambiguous. Leadership requires "followership" and managers are aided by the fact that people are expected to subordinate their self-interest to that of the group and the organization. While managers may not be very directive, influence is exerted through peer pressure. In fact, close personal relationships are nurtured not only by working together on common tasks, but also by meeting and associating outside the work environment. The result is a confluence of organizational and private life. Communication patterns parallel decision-making, with an emphasis on bottomup communication. In one study it was found that in Japanese companies communication was initiated much more often at lower levels than in U.S. companies. This communication pattern is also promoted by Japanese managers, who take a great deal of time communicating with their subordinates. This puts the emphasis on face-to-face contact rather than memos. The managerial function of leading is carried out quite differently in U.S. companies. Leaders are seen as decision-makers heading the group; they are expected to be directive, strong, and determined. Their job is to integrate diverse values, but the emphasis on individualism in the society in general and in organizations in particular may hinder cooperation. Managers are expected to take decisive actions, and clarify the direction of the group or the business, even if this requires face-to-face confrontation with those who may disagree. Although managers work hard, they value their private lives and separate them from their work. Within the organization, the communication pattern is to a great extent from the top down the hierarchy, with considerable emphasis given to written communication. The managerial function of leading in China has characteristics of Japanese and U.S. practices. The leader is the head of the group (in committees, for example), but the leadership style is generally quite directive. One interviewee described the relationship between the leaders and followers as "parent-child" in transactional analysis terms. In other words, it is expected that the leaders' commands are to be obeyed. Leaders, in turn, are responsible to higher authorities for performance and goals, but not for meeting customer needs and demands (but this is slowly changing). Like the situation in Japan, leading is aided by common values and an emphasis on harmony, rather than confrontation. On the other hand, communication is primarily top-down, as with many U.S. corporations. In the view of Western managers, controlling involves setting standards, measuring performance, and correcting undesirable deviations. To the Japanese, this process is less direct. The group, its dynamics, and its pressures have a profound impact on the managerial process. In an office without dividing walls, peers are well aware of the performance of their colleagues. Moreover, managers are a part of the work group rather than separated from employees by an office door. Individual performance is not measured against specific verifiable objectives; rather, emphasis is placed on group performance. Also, the Japanese approach of letting subordinates "save face" would be incongruent with fixing the blame for deviations from plans on people. Control emphasizes process, not numbers. The Japanese reputation for quality is due, in part, to the success of quality control, which requires grassroots involvement with very active participation in quality control circles. Control in the United States often means measuring performance against precise standards. Management by objectives, widely practiced in this country, requires the setting of verifiable objectives against which individual performance is measured. This way the superior can trace deviations to specific people and this frequently results in fixing the blame. In an attempt to maximize individual results, group performance may suffer. We all can think of examples in which the self-interest of people was placed before group or organizational interest. The use of quality control programs is not new. Hughes Aircraft, for example, had such programs for a long time under the names of "zero defects" and "value engineering." Many of these programs were developed in this country and later used by the Japanese in the improvement of their product quality and productivity.
Industrial Management Heinz Weihrich

In China, control is exercised primarily by group leaders. The control focus is on the group, but also on the person. Factory managers, for example, are expected to meet their yearly quotas. Thus, Chinese control practices are a mixture of U.S. and Japanese managerial practices. In identifying deviations from standards, there is a tendency to let the persons responsible for poor performance save face (like the Japanese practice). There is some use of quality circles, but it is not a common practice. Management, once considered a U.S. challenge to Europeans, has become, in the minds of many, a Japanese challenge to managers in the United States. Whether the perception of the superiority of Japanese management practices is correct-and there is some doubt-remains to be seen. In the meantime, many Chinese managers are at the threshold of a managerial revolution in which more government-owned organizations gain greater autonomy. Selectively, competition is encouraged and incentives for private initiatives are promoted. There is an increasing market orientation, and decision power for meeting customer needs is decentralized (there have been even some highly publicized bankruptcies). To adapt to these and other changes, Chinese managers look at both Japanese and United States managerial practices and compare them with their past experiences. Some may be transferable, but others are not. The environment, especially socio-cultural factors, does influence practice, but its impact may have been overstated.

Industrial Management Heinz Weihrich