Kaizen 2.0

Rethinking a core Japanese business concept for the digital age

  • Many of Japan’s most important business innovations are based on the principles of Kaizen
  • Japanese companies need to re-apply Kaizen in new ways to digital transformation
  • The focus on continual improvement should be applied to the organization as much as the individual

Japan is a paradox when it comes to technology.

We have created concepts like just-in-time manufacturing that were exported and adopted around the world. Our electronics are second to none, and we are widely regarded as among the most technologically advanced nations in the world.

At the same time, Japan ranks just 23rd out of 63 nations in digital competitiveness, well behind peers like the U.S., China, and South Korea. Our Ministry of Economy, Trade, and Industry estimates the nation will experience a shortage of 120,000 artificial intelligence experts by 2030. It’s no surprise, then, that Japan’s most influential business lobby, Keidanren, has warned that the nation is falling behind.

What explains the shift from leader to laggard? Some attribute it to a culture that values seniority and consensus, as well as to long work hours that wear down employees. In 2018, the Japanese government enacted a series of “Work Style Reform” laws to lessen overtime hours and encourage flexible working. Yet these measures are still in their infancy, and I would argue that until that changes, these factors—plus an aging population—are stifling, not sparking, meaningful innovation.

However, there is another unique Japanese element that bears consideration and addressing.

Kaizen 2.0: Real change for better

Kaizen is a word that translates to “change for the better.” It’s also a Japanese business philosophy that visualizes improvement as a gradual and methodical process, with small improvements creating a significant impact over time.

Kaizen is justifiably celebrated for its creation of world-leading manufacturing processes—it was one of the core influences of the Toyota Production System. And although Kaizen 1.0 has been a proven methodology to improve certain processes at Japanese companies today, it may have become a roadblock to digital optimization in the enterprise.

Consider the use of physical stamps to convey approval of corporate projects. In Japan, COVID-19 is finally ending this antiquated practice, but rather than being grateful for its replacement, I am more incredulous that it survived for so long.

That’s a natural consequence of traditional Kaizen thinking, in which employees are encouraged to pursue continual improvements, but often within a narrow frame of reference. Workers can become overly focused on improving tasks, for example, without realizing that the process they fit into is broken. In essence, they often miss the forest for the trees.

This is why we need to move to Kaizen 2.0—a literal interpretation of Kaizen in which workers explore continual improvements on a much broader scale—from individual and team to organizationwide.

Kaizen 2.0 also requires a sense of urgency that more Japanese companies need to embrace. While many Japanese executives understand the necessity of digital transformation, old habits are stubborn. As the CIO of an industrial painting company told me in my last article: “I know we need to change, but not today, not now.”

COVID-19 changed all that. Companies like Hitachi and Fujitsu, who are now advocating for permanent remote work, are showing that digitization is here to stay. Yet this transformation is as much about culture as it is about technology. Here are three ways Japanese companies can benefit from a Kaizen rebirth.

Build a bridge to the rest of the organization

The CIO of a Japanese Fortune 2000 company confided to me several years ago: “When I get people transferred from other departments to IT, they are quite often useless.”

It wasn’t the employees who were useless, of course, but the antiquated IT organizations that embraced the traditional view of IT as hardware distributors and network janitors with little meaningful impact on the organization. For many companies IT remains the domain of low-level tasks, not business-changing innovation.

I believe Kaizen 2.0 can help turn that around, but it depends on an IT organization empowered to work closely with other lines of business. Today, “change for the better” requires the deployment of digital technology and workflows to streamline processes and create more productive employees. How can IT earn the influence it needs to undertake these challenges?

For many companies IT remains the domain of low-level tasks, not business-changing innovation.

First, the CIO must articulate a clear vision for their department to follow. In my experience, IT is seen as having little meaningful impact—not because it lacks talent, but because it lacks a mandate to drive digital transformation and a clear vision to follow.

Second, for CIOs to drive “change for the better,” they need to do a better job of managing up. CIOs should treat the rest of the C-suite as skeptical customers to be won over. That requires a clear transformation blueprint and relevant proof-of-concept, the latter of which may require identifying and collaborating with forward-looking colleagues.

Learn from peers outside Japan

When I spoke to Japanese companies about international organizations that use digital technology to transform operations, I heard a common refrain: “My processes are the best in the world.”

Smart CIOs, however, realize they must be open to adopting new international standards around software development and digital transformation. Kaizen 2.0 reminds us that “improvement is improvement,” regardless of where it originates. It encourages organizations to adapt and learn from more digitally mature peers overseas.

Many Japanese companies, however, outsource IT to systems integrators that then build complex applications and digital processes. This strategy doesn’t just encourage application sprawl and unhealthy dependencies—it stifles internal development and innovation.

Japan’s top CIOs should instead seek out multinational cloud players to establish visibility, cut costs, and streamline systems. Cloud migration may seem old hat for most U.S. companies, but in Japan, it can still be a game changer. One large Japanese chemical manufacturer, for example, recently shifted its on-premise ERP system to the cloud, allowing it critical flexibility needed when COVID-19 disruption hit. Many other Japanese companies should follow suit.

Encourage cross-functional collaboration

Kaizen encourages employees to constantly improve their own small part of a larger process—rarely to look outside of that narrow view.

Today, most processes rarely touch one department or function alone. Even something as straightforward as new employee onboarding requires multiple teams to work together, such as HR, IT, and facilities. Kaizen 2.0 strives to eliminate barriers between departments and encourage organizations to optimize the whole, not just small parts in isolation.

This concept—to examine the whole—underpins Kaizen 2.0. While the small, continual improvements of Kaizen 1.0 still have value, new technologies are demanding transformational change.

Kaizen 2.0 is how we can encourage that change—and help Japan regain its stature as a champion of business innovation.