December 12, 2013 12:00 am JST

Bottling the magic

KOICHI SAKAI, Managing Editor, Nikkei Asian Review

TOKYO -- If imitation is the sincerest form of flattery, then General Electric must be feeling pretty good about itself. 

Jatco President Takashi Hata speaks with foreign staff members at the auto transmission maker's head office in Japan. Hata makes a point of inviting employees from overseas units to come and discuss the challenges they face.

    Companies in Asia are increasingly implementing strategies straight out of the U.S. conglomerate's management playbook, often under the direction of former General Electric employees. They are discovering that key elements of the "GE way" -- including bold growth strategies and a strong focus on nurturing human resources -- are just what they need to gain an edge in a crowded and fast-changing marketplace.

     Having a little GE in its DNA has certainly not hurt Singaporean startup Mach 7 Technologies. In 2012, U.S. research company Frost & Sullivan named it the entrepreneurial company of the year for its technology for digitizing and managing medical data. The software for the so-called PACS system enables the efficient management of a massive array of data -- from X-rays to medical charts to patient payment records -- and it can be scaled to accommodate clients as diverse as tiny clinics to large hospitals. More than 600 medical institutions, including Osaka University, already use it. 

Recipe for growth

Ravi Krishnan, Mach 7's co-founder and chief innovation officer, attributes the company's phenomenal growth to its use of GE management practices. It sought out Nobuhiko Ito, president of GE's Japanese arm from 2005 through 2007, and made him a director to get his advice on how to run the company.

     Ito joined GE Japan in 1989 and stayed there for more than 20 years. He also has extensive experience in the medical device field. Ito worked with Jeffery Immelt back when the GE chief executive was heading the medical device department. Krishnan also came from GE.

     Mach 7's business model, which focuses on cultivating overseas markets and setting its products apart from those of rivals, is based on input from Ito and Krishnan's experiences at GE. High-tech startups tend to focus on honing their innovative technologies to perfection, but Mach 7's priority is ensuring that its products are easy to use.

     "The advice I offer the company is based on what I learned at GE," Ito said. "User-friendliness is a must for any product and should be its primary selling point." Krishnan says his company adopted GE's Six Sigma quality control techniques to ensure that its products are of the highest caliber.

     It speaks volumes about GE's reputation that more Asian businesses are appointing former executives from the U.S. company as their presidents. Lixil, a Japanese manufacturer of building materials and housing equipment that was created through the merger of Tostem and four other companies, appointed Yoshiaki Fujimori, a former GE senior vice president, as its president in 2011. It took Tostem  Chairman Yoichiro Ushioda three years to persuade Fujimori to accept the job.

     That same year, another former GE executive became president of Jatco, a Japanese autoparts supplier affiliated with Nissan. Up until that point, it had been customary for a former executive from the carmaker to become president of Jatco, but Nissan President Carlos Ghosn was so impressed with Takashi Hata, who had once headed the Japanese arm of GE Plastics, that he was willing to break with tradition. Ghosn himself conducted the interview.

     These appointments underscore the determination of Lixil and Jatco to build themselves up by expanding overseas. Lixil aims to triple its annual sales to 3 trillion yen ($29.2 billion) in five years and raise the share of its overseas revenue to 30% from the current roughly 4%. Jatco wants to boost its annual sales from 600 billion yen to 1 trillion yen in five years and lift the percentage of its overseas production from 25% to 70%.

     Corporate restructuring of this magnitude obviously entails considerable risk, but bold growth strategies are generally seen as essential to establishing a global market presence. Given that GE helped write the book on how to do this, a growing number of companies are adopting its expansion techniques.

     The U.S. conglomerate, which has been around for more than a century and has operations in more than 100 countries, has built up a shining reputation for its dedication to developing human resources and pursuing innovative management techniques -- two areas famously associated with former GE boss and management guru Jack Welch. GE is proud of having educated many top leaders who are internally promoted as well as those who are going to be officers outside the company.

Wholesale change     

Hoping to channel some of that success, Asian companies are putting former GE executives in top posts with the lofty goal of changing their corporate cultures in one fell swoop. Jatco is one such company. In September it started operating a factory in Thailand that makes continuously variable transmissions -- a type of automatic transmission system for automobiles -- creating its third overseas production base following those in Mexico and China. The move involved hiring a large number of workers and teaching them how to do their jobs from scratch in a country where Jatco was largely an unknown entity.

     Up until then, Jatco had little experience running overseas factories, so few of its Japanese employees had ever worked abroad. This, combined with the time-consuming task of training local workers, made the launch process a daunting task. Still, the company pulled it off on schedule. Hata attributes it to strong leadership at all levels of the workforce, a GE trait.

     "I asked our employees in Japan and Thailand again and again to demonstrate leadership," he said. "This is what I learned at GE about how to run a company."

     For instance, English was chosen as the official language at the Thai factory. Even the best Japanese engineers would have been useless at the plant if they had not been able to effectively teach the technical skills needed by Thai workers in English. Because Jatco was starting from zero in the country, its new hires knew next to nothing about manufacturing autoparts, so it was especially important that they be trained in a way that is easy to understand.

     Jatco's Japanese employees explained everything about the production process and technology in English. Those who did not have the best grasp of the language were instructed to compensate by preparing easy-to-understand charts and giving on-site demonstrations.

     Hata says it was a true team effort. "It wouldn't have worked well if the Japanese staff had acted like teachers imparting know-how. It was important for them to feel responsible for effectively communicating their job experience to the Thai workers in English. This required leadership in a broad sense. The Thai workers were also involved in launching a new factory, so I think everybody was a leader."

     Jatco wants to use its Thai experience to draft an English-language manual that it can use in opening new overseas facilities. Once the Japanese employees began speaking English at the Thai factory to communicate with local workers, they became acutely aware that Jatco's old model of relying mainly on domestic production was a thing of the past and that the company had to expand overseas aggressively.

 

Lixil executive candidates talk shop by the Great Wall of China while on a training assignment. The home fixture maker takes inspiration from GE's approach to training.

    Another GE-style management technique that Jatco's Hata has adopted is the use of "town-hall" meetings -- informal employee gatherings to discuss ideas and provide feedback. He regularly holds such get-togethers while visiting the company's factories in Japan. The plant workers often tell Hata about their job-related problems and ask him for advice on how to deal with corporate customers. Hata makes a point of speaking honestly as a colleague rather than as a boss giving instructions.

     He also invites overseas employees to town-hall meetings at Jatco's head office to get their feedback. About 40 workers from such countries as Mexico, Thailand and the U.S. attended one such meeting held at the head office in May 2012. Hata used the occasion to explain his definition of "leadership," citing his experience at GE. He went on to say that he expected every Jatco employee to be a leader. When asked about how to juggle work and family and whether he intended to hire more female workers, he said, "Family must come first at all times," and that he intended to hire more women and appoint them to key positions.

     Over the decades, GE's chief executives have typically allotted roughly 40% of their time at work to either talk with or train employees, so that everybody at the company -- from the president on down -- shares the same corporate values and will be motivated to work hard. This is a hallmark of a company that firmly believes its greatest asset is its human capital. Hata is running Jatco based on this principle.

Personnel database

Jatco's similarities with GE do not end there. The Japanese company plans to create a database listing the employment histories and strengths of all employees. This is much like GE's personnel management system, which enables managers to see at a glance all workers' employment histories and job evaluations. Managers use this information to make all personnel decisions, some of which move workers across departments and even national borders. Jatco intends to use this kind of database to place the right people in the right jobs. Under this system, for example, a senior Thai manager at its factory in Thailand might be reassigned to the marketing department at the head office in Japan.

     At Lixil, GE's influence is clear in the way its president, Fujimori, has been strongly pursuing M&As since taking the helm in 2011. Its takeovers include such companies as Germany's Grohe, the North American business of American Standard and India's Star Alubuild.

     Since his days at GE, Fujimori has been saying publicly that he would like to head a Japanese company someday and run it in the style of the U.S. conglomerate. Lixil's zeal for takeovers is an obvious example of this, but GE's influence is reflected in other ways the company is run, too. Fujimori recruited Yosuke Yagi, vice president in charge of personnel matters at GE's Japanese arm, immediately after assuming the presidency, appointing Yagi as an executive officer and vice president at Lixil. Fujimori also hired Kenji Uenishi away from GE this summer and made him an executive officer. Under the trio's direction, Lixil has launched an employee training program similar to the U.S. company's.

     Last year, Lixil spent 100 million yen to build an employee training facility in Sukagawa, Fukushima Prefecture, that is similar in appearance to GE's global leadership institute in Crotonville, New York. Like former CEO Welch, Jeffrey Immelt spends several days at a stretch at the institute with GE employees brought in from around the world for leadership training sessions. Fujimori plans to use Lixil's facility the same way.

Nurturing tomorrow's leaders     

Sixty-seven managers at Lixil, some of whom are expected to become top executives, were picked for the company's leadership training sessions last year. In the program, they discussed how to cultivate demand for Lixil-brand products in China, each drawing up a business plan as if they were president of the company. This kind of elite-track training is rare in Japan, where pursuing excellence often takes a backseat to employee equality. This is probably because Fujimori witnessed for himself how quickly a company could grow under the direction of such capable leaders as former GE boss Welch.

     Lixil targets annual sales of 400 billion yen in Asia in five years. Fujimori says that goal is attainable only if Lixil's Japanese employees are willing to market the products of its group firms, such as American Standard and Italian affiliate Permasteelisa, and look for new takeover targets in Asia.

     "I would like our employees to take a multidimensional approach to the task, thinking of creative ways to sell the various Lixil Group products in Asia," Fujimori said.

     That is why he is keen to increase the number of Lixil employees capable of operating effectively in such countries as China and India. Lixil's aggressive M&A strategy dovetails with its upgraded employee training program.

 

Kyoko Deguchi, corporate executive officer of Bellsystem24, says the key lesson she has drawn from GE is that small numbers can have big implications for management.

    Companies looking to make their mark overseas are not the only ones employing GE techniques. Bellsystem24, a major Japanese operator of call centers, earlier this year announced it had appointed Kenji Komatsu as president and Kyoko Deguchi as a corporate executive officer. Both former GE employees, their appointments came on the advice of an investment fund that had become a major shareholder in Bellsystem24.

     Upon assuming her post, Deguchi launched an employee training program focused on corporate finance. The aim is to teach workers what each item on the company's financial statement means.

     "If you understand what lies behind earnings figures and other financial data, you can make the next move," Deguchi said. "This is the essence of GE's management style."