Methodologies for Designing and Managing Interfaces, Modules, Standards, and Processes

Abstract

Throughout this book, the essential commonalities among organizations—interfaces,¹ modules, and standards—have been explored. Module structure is determined by interfaces rather than the module body. A standard is defined as a condition under which interfaces are shared by the majority. Processes correspond to interfaces per se. For these managerial devices, which are essentially identical, common design methodologies should be applied. As discussed thus far in this book, transaction costs are reduced by the development of interfaces, but the results would be very different depending upon the technologies of the design and operation of interfaces.

Interfaces, modules, standards, and processes are essentially identical and therefore are designed and managed by identical methodologies.

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

6.1 Common Requirements for Design Methodologies of Interfaces, Modules, Standards, and Processes

Counterbalancing the multiple factors is critical in designing interfaces.

Throughout this book, the essential commonalities among organizations—interfaces,¹ modules, and standards—have been explored. Module structure is determined by interfaces rather than the module body. A standard is defined as a condition under which interfaces are shared by the majority. Processes correspond to interfaces per se. For these managerial devices, which are essentially identical, common design methodologies should be applied. As discussed thus far in this book, transaction costs are reduced by the development of interfaces, but the results would be very different depending upon the technologies of the design and operation of interfaces.

The key factor in designing interfaces and standards is designing specifications that can be used many times (N) over a long period of time and sharing them by all related entities (M) to reduce development costs of the transaction interfaces by 1/N and 1/M, to enhance operational efficiencies, and to reallocate the surplus resources to improve effectiveness as needed.

External interfaces and standards (with customers and suppliers) take the forms of product specifications and transaction conditions, which are described explicitly in contracts. Because those are also utilized as internal interfaces, the same concept can be applied to design methodologies. In contrast, internal interfaces (within organizations) take various forms such as business processes, institutions, systems, information exchange rules, conference rules, and IT; in addition, internal interfaces include implicit (such as trust and habits) and unfixed (i.e., ad hoc) ones. Therefore, internal interfaces are much more complicated to deal with.

In this chapter, the methodologies for designing internal interfaces, which could be also applied to external interfaces, will be discussed, referring to the specific cases of external interfaces if necessary.

• (1) Counterbalancing fixing and creative destruction

  Interfaces should be fixed and shared to economize both parties of transactions. However, fixing frequently leads to rigidity, which would obstruct changes, growth, and innovation. Therefore, achieving balance in this mutually colliding structure would be important. Extreme ideas like “systems (interfaces) should be avoided as much as possible because they will make people rigid,” which is similar to the argument that “cars should be abolished since they kill people,” can be observed often. It is not necessary to deny all automobile usage based on only one negative aspect. Rather than being trapped by negative considerations, positive actions to solve the structural issues should be sought.

  However, situations in which only the disadvantages appear without improving efficiency and effectiveness are actually observed quite frequently. Two approaches should be applied to solve this problem: one is by improving methodologies of design, which will be discussed in this chapter, and the other is by enhancing the basic innovation capability of companies, which will be discussed in Chap. 10.

  Although this is not limited to interface design, it is impossible to sustain growth without the basic capability of innovation, which facilitates continuous, creative destructions to respond to changes in the business environment. Successful experiences should be shared by everyone, but any innovation will certainly become obsolete someday, and changes in the present fixed procedures for the innovation will be required. Any organization, strategy, piece of production equipment, and so forth is implemented by fixing, and therefore, the innovation capability would be a prerequisite for continuous growth. The capability of innovation can be covered to some extent by the design capability, which is the object of this chapter. However, as innovation is also a collection of transactions, the transaction costs would obstruct the process of innovation. Improvement of those specific transactions is essential to promote innovation. This will also be discussed in detail in Chap. 10.

• (2) Counterbalancing between proper design and enforcement of use

  It is significant for fixed interfaces to be used by every related member. Transactions through a fixed interface would be impossible to execute if one party does not use it, and costs of ad hoc interfaces on top of the fixed cost are incurred at each transaction. An inefficient and troublesome situation in which fixed interfaces can be used sometimes or not used other times depending upon transaction partners would result in a vicious cycle in which the fixed interface would be used less and less. A proper design suitable for all users is indispensable for being used by all the users. Even if the design is proper, substitution costs are incurred by the users; changing familiar operations and transaction procedures and getting accustomed to new, fixed interfaces also bring huge mental burdens in addition to physical costs, and this will easily cause resistance to change.

  On the other hand, the designers of the fixed interfaces who believe their works to be the best, without considering that these may not be used by users, tend to be careless in promoting the uses of the interfaces. It is necessary to encourage the users to change by explaining the benefits and giving every possible support regarding the new operations and procedures. There is also an easier way to force the users by authority. However, it is also easy for the users to claim that the design is too poor to use, and it is quite difficult for the designers to refute such objection logically due to the fact that the effectiveness cannot be evaluated objectively.

  The essential problem here is that there is a structure in which there is a conflict of interests between the designers and the users of interfaces. It is impossible for a fixed interface to satisfy 100 % of users, so a compromise must be found from the perspective of ROI, which is difficult to judge. Blame games arise when the introduction fails; the unclear location of the responsibility obstructs the modification and improvement. After repeated such failures, interfaces would be deemed useless and negated, as a whole even before consideration.

  Designers may be tempted to abuse their authority to enforce the use of their interfaces through the users, but they should rather take sufficient time and cost to ensure the explanation, education, and training as much as the design. With a strong tendency of top-down management, global companies face fewer problems in the enforcement of learning and using interfaces in general. However, in the case of companies with democratic cultures, like Japanese companies, which tend to respect all employees’ benefits too much, enormous amounts of time and cost must be expended. An information systems manager in a company that has utilized information systems unexceptionally well explained that he visits their users in all of their offices all over the country with several hundreds of PowerPoint slides whenever they introduce new systems. Interface design should not be started before understanding the structure of such conflicts of interest.

  This concept is also applied to companies that intend to standardize their products in the market. The products with the best design do not always acquire the standard position. Mac OS was said to provide higher performance than Windows OS, but Microsoft’s strategy for promoting the use of its OS was better. In the competition of VCR standardization, Sony’s Betamax, which had technical superiority, was eventually defeated in the market, which also demonstrates the importance of product promotional campaigns. In addition to a good design, sufficient efforts to motivate users to use the product should be devoted in order to activate the positive feedback effects and to bring the product up to a standard. To do so, remarkable price cuts and user service enhancements are needed. Those marketing activities (explanation, persuasion, and education, in the case of inside companies) are as crucial as the design for the establishment of interfaces and standards.

  In the following sections, these methodologies of proper design (Sects. 6.2 and 6.3) and marketing (promoting) of use (Sect. 6.4) will be discussed.

6.2 Methodologies for Design

In the first place, the characteristics of interfaces should be essentially understood.

6.2.1 Return on Investment Analysis as Asset

Fixed interfaces correspond to assets.

In this section, four basic requirements for designing interfaces will be explained. First and most importantly, fixed interfaces should be acknowledged as assets. It may be difficult to recognize them as assets because they are intangible, not physical like a manufacturing facility. With designing interfaces in practice, the various problems caused by this lack of awareness occur frequently.

As interfaces are assets, their development means an investment; the more they are used, the higher the ROI becomes. As a matter of course, the ROI of an assets should be carefully examined. When facing a low return, the causes should be investigated and the problems solved, the result of which should also be applied to future investments. For physical assets such as manufacturing facilities, analyses like capacity utilization and evaluation and improvement of investment are typically executed. However, for interface designs and developments, those analyses are rarely practiced. Rather than scientific analyses, sentimental excuses and sophistries are more influential. In this chapter, scientific and quantitative methodologies of the ROI analyses will be proposed, but even evaluation on the basis of gut feeling alone would be much better than nothing. Just by conceiving of interfaces as assets, a huge difference in the ROI will easily be obtained (Fig. 6.1).

Fig. 6.1

Cost structure of transactions with and without fixed interfaces

In the case of not fixing interfaces (shown in dark), transactions are executed by establishing ad hoc interfaces at every transaction, which incur large transaction costs. On the other hand, transaction costs would be reduced if a fixed interface was introduced (shown in white); however, a large initial cost of planning, designing, and developing is required instead. With a proper design and a certain number of uses, a sufficient ROI would be obtained; the ROI increases as the number of uses increases. Conversely, the initial investment would become a total loss if the interface is not used.

In short, to increase the ROI of fixing an interface, the interface must be designed to make the usage frequencies as high as possible and the use period as long as possible; users’ needs must be analyzed and understood precisely. As users’ needs are continuously changing every moment, the usage frequency will increase if changes in the future are well anticipated and prepared. In contrast, without forecasting the changes precisely, the interface would become useless earlier. It is an inevitable condition that is applied to any kind of asset. Without the awareness that interfaces are assets, the design requirement of increasing the usage frequency and period is easily neglected. And thus the only negative aspect is emphasized, despite the important requirements not being processed.

Meanwhile, obsessions like “interfaces should be fixed for any scene” or “fixed interfaces should be able to handle any case” are typical misunderstandings on the designer side. First of all, fixed interfaces should not be introduced when users’ needs are uncertain or when the sufficient ROI is not expected. For example, when facing continuous trials and errors right after a product is launched into the market, all departments are cooperating and adjusting for enhancement of the product performances by all means. They do not have enough experience or information for fixing interfaces; even if they are fixed, they will be changed instantly with a high probability. Price and diversified product line are not important factors for early adopters in the market, the customer segment at this stage. Optimizing adjustments without modular structure would be most important in this situation. When the competition becomes fierce, however, lower prices, quick responses, and diversification of product lines to accommodate the various needs in the market become more important. For the first time in this situation, efficiency improvements of resources by fixing interfaces become valuable for competitiveness.

The timing of modularization or fixing interfaces has become harder to determine in the global markets these days. In the past, there was enough time from launching products to modularization, which allowed the costs of the development and adjustment for the new products to be recouped relatively easier. Companies with advanced technologies, such as Japanese companies, were able to accumulate profits before low-priced products were required. However, in emerging markets in recent years, such as China and India, customers require low prices while at the same time having surprisingly diversified needs. To accommodate those needs, it is essential to diversify the product lines. The time to adopt modular structures for diversification and lower prices becomes shortened overwhelmingly. That is also because the technology of modularization has highly progressed, while Japanese companies have neglected the management methodology, and also because some companies have already started taking enormous risks at very early stages in the intensified global competition. In any case, there is no doubt that these practices have brought Japanese companies’ continuous declines in the global markets.

6.2.2 Proper Design for Satisfying Users’ Needs

Interfaces must satisfy users’ needs anyway.

The design of fixed interfaces must satisfy users of interfaces (employees as well as customers). Fixing interfaces corresponds to the selection and the standardization of transaction activity patterns that users should comply with. There would be users whose needs match with the patterns as well as users whose needs do not. Minimizing the number of the latter is a major premise of proper design. However, as a perfect design is impossible, unfairness and inequality are structurally inevitable. Capabilities of consensus building and interest adjustment are required for companies. This is not limited to interfaces, and unfairness and transfers of vested interests occur with every decision and change. Capabilities to overcome the small conflicts of interest for achieving the major goal would result in the essential competitiveness of companies.

However, it is also true that there are many designers who justify the properness of their designs that actually deviate from needs by using sophistries and who easily depend on enforcement of use. It is significant for the designers to consider fully the actual situations including the conflicts of interest among users and to extract the greatest common factors in their needs.

6.2.3 Proper Selection of Objects to Be Fixed

For proper design, objects to be fixed are properly selected.

To perform the design that properly satisfies users’ needs and does not bring any obstacles to their operations, it is important to select the right objects to be fixed properly, as follows:

• (1) Selecting the transaction activities that will not change in the long term

  For example, at the time of the writing of this book in 2013, no one would oppose the development of an e-commerce system based on the Web for the reason that the future of the Web is uncertain. However, the judgment could be different if it were in the early 1990s. For another example, the decision regarding whether to shift to HTML5 from HTML4, which has been the mainstream of Web commerce technology, still involves some risks: although HTML5 is an expected technology for the future, the specifications are not yet standardized. Selecting technologies and products that have been used for a period of time in the society and established as a standard would decrease the possibility of changes and increase the ROI.

  As forecasting the future of the market becomes increasingly difficult, the companies that take such risks and succeed in it are likely to overwhelm their competitors. Although a risky decision will result in failure with high possibility, it becomes more crucial for competitiveness enhancement to challenge risks in the intensified winner-takes-all competitions. Companies should be flexible enough to challenge new interfaces, and their adaptiveness can be developed by challenging changes in the current turbulent and uncertain environment. Also, the managerial effort to eliminate feelings of fear and rejection of change becomes more important than ever.

• (2) Selecting seemingly irrelevant activities

  A seemingly irrelevant transaction activity can be explained as follows: fixing of the particular activities would affect the whole very limitedly; the necessary cost is limited; the outcomes or effectiveness of this transaction will not be deteriorated by fixing; it is not defined as a source of differentiation of the company; and it has less added value. In short, these are the activities, the changes of which would incur little cost and not impair effectiveness. For example, although differences exist in conference reservation procedures, all of them share the same purpose, which is to manage the reservation of conference rooms, without making any substantial difference in effectiveness. The cost of changing the procedures is small. Also, with selections of e-mail software and file-sharing systems, no significant differences can be observed among all the candidates. Despite some of the features becoming unusable due to changes to standard products, there is little possibility of bringing a large detriment to the transaction activities. In a database for data-sharing, the formats or forms are not crucially significant when it is introduced for the first time. Any data entry can be handled fully if there is an input item named “miscellaneous.”

  What matters is that, by ignoring slight differences, transaction costs can be significantly reduced as a whole. But the perception of the magnitude of this cost of change is subjective and thus is different from person to person. For example, when fixing and sharing an interface like an interdepartmental information system, differences in code systems (such as product code and customer code) and definitions of terms among departments cause problems. Typically, those have been built historically and customarily by each department, which have already been familiarized with them. Therefore, the consequent costs of change will be incurred by all parties. Even after the unification of codes and terms, the standardization activities of each department incur significantly higher costs. A group of companies that are willing to challenge these changes by accepting large costs will eventually become accustomed to managing them. This further decreases the costs of change; the companies become more and more flexible. On the contrary, another group of companies refusing changes will be burdened with the increasingly larger costs of change. Companies should encourage all their employees to adopt changes and innovations and streamline those seemingly irrelevant activities. The ability to respond flexibly to changes that correspond to the changes of interfaces would form the foundation of innovation capability.

As discussed above, the objects to be selected and fixed include the following: the required change is relatively small both at present and in the future, the necessary cost is limited, the technologies are already matured, little value will be added, the effectiveness will not be deteriorated, and the efficiency is more significant. Conversely, the objects not to be selected and fixed include the following: technological innovation is proceeding vigorously, it is defined as a source of differentiation and value add of the company, and it is more significant to have flexibility and originality without any rigidification. When companies generate more innovations more quickly, more activities will need to be fixed. Surplus resources obtained from the fixings can be reallocated to value-added activities to create differentiation, a result of which would bring the whole companies into a virtuous cycle where innovation would accelerate further. In contrast, companies without innovation would fail in fixing as they fear becoming more rigid. Efficiency is not improved without fixing, which results in the lack of resources to execute new challenges. Fixing and innovation are inseparable in companies, and the competitive companies can find more seemingly irrelevant activities to be fixed.

6.2.4 Design as “Simple Is Best”

If an interface is simple, the transaction costs are reduced.

Simple structure and specification are most significant in the design of interfaces. As described in Chap. 2, although interfaces are supposed to have hierarchical structures, their complexity due to interrelation will increase when the entirety becomes larger, which makes understanding and using more difficult. This will cause a serious problem in promoting uses to users. If an interface is simpler, the costs of understating and using it (i.e., the transaction costs of the interface per se) will be smaller, and it becomes even easier to deal with the expansion.

In recent years, two concepts have been emphasized in the design arena of IT and software: product architectures and architects who are responsible for the architecture design. This is due to the increasing significance of total frameworks that enable concurrent and consistent activities among functions (e.g., design, development, operation, maintenance, and extension) under the situation that products and systems have increased their sizes and complexities. An architecture corresponds to a collection of interfaces. Inconsistent design of architectures will significantly increase confusion. Architectures with integrity can dramatically reduce the transaction costs such as the costs of explanation, understanding, sharing, modification, and problem solving.

The term architecture involves multiple factors. The proper architecture should cover strategy and marketing plans in order to clarify the concept and purpose, and organization and business processes in order to ensure the execution. For example, to determine the platform/modular structure as the specifications of products, the issues on both the market side (priorities of the target segments and basic specifications of the products) and the technology side (a structure that configures a platform, core functional modules, and peripheral modules) must be resolved in advance. At the same time, future expansion of own technologies, motivation of engineers, and differentiation from competitors should also be considered. Architects should determine all the basic elements that serve as a foundation of all fixed interfaces. The concept generally known as “architecture” just covers a portion of them. Architectures cannot be designed properly if the designers are trapped with only a part of the whole idea, like “architecture means components structure.”

Japanese companies in recent years have little perception of the significance of architecture and interface designs; their products increase in complexity, and consequently their organization structures increase in complexity as well. Thus, there is much room for improvement in their design methodologies. Their attitude of “products with high quality are marketable,” which deprecates lower prices and higher cost performance, shows their lack of marketing sense even though this approach was a success factor in the past. Which market segment, providing what specification with how much price and how and where promoted—that is, the concept-makings of grand designs and underpinnings of a detailed implementation plan—should be prepared precisely.

Interfaces aggregate to structures such as organizations, processes, and modules. The overhead view of the whole structure should be conceived easily. Parts with the weakest relationships should be located separately, and parts with the strongest relationship should be located closely. By making everything from the whole to all the details in this simple manner, both a grand design and detailed descriptions can be understood easily. As a result, information regarding relationships and locations of each part in the whole can be transferred instantly; the transaction costs of implementing the interface will be reduced greatly.

6.3 Required Capabilities for the Designers

Logical thinking is indispensable for proper design.

Fixing interfaces improperly never contributes to efficiency improvement, and it even causes huge losses to all the users by forcing irrelevant activities. Biased opinions like “any fixed interface is valueless and should be avoided” could arise in this situation. In order to avoid this pitfall, the capability to complete proper design is required, of course.

Because interfaces must be used in as many occasions as possible to obtain the highest ROI, specifications that ensure the uses in more areas and in longer period are required. This is the thinking process to extract commonalities from countless events, which can be embodied by inductive logical thinking (a thinking process to extract commonalities) and deductive logical thinking (a thinking process to recall various possibilities of combinations).²Inductive thinking and deductive thinking are shown in Fig. 6.2. In short, the thinking process required here is recalling infinite matches of a specification and uses (by the deductive thinking), evaluating all the relations, and extracting the specification that the ratings of the relations amount to the highest (by the inductive thinking). In other words, it is the thinking process necessary to evaluate all the relations of ∞ versus ∞ and extract only one from them. The traditional thinking process of recalling a one-to-one pattern from memory, which is still popular in higher education, can hardly achieve these ends. Incidentally, inductive logical thinking and deductive logical thinking construct the core of logical thinking.

Fig. 6.2

Inductive thinking and deductive thinking

As a collection of interfaces, an architecture must be simple. In this regard, defining contexts (preconditions and premises of reasoning) objectively and explicitly plays a significant role. In logical thinking, ensuring objectivity,³ that is, low transaction costs of transferring information due to the consistency in individual interpretations, is critical. It ensures accurate and effective transmittance of information. At that time, objectivity is embodied by decomposing (branching) and defining contexts. Misunderstanding occurs easily when recognitions of a context are different, which may not even be noticed in many cases.

Here are illustrative examples, including a popular case of a syllogism to explain the importance of objectivity in information transfer:

• (1) In the case of the proposition “blue sky → no rain → do the action outside,” there are two equivalence relations generated: “no cloud = no rain” and “one of the implementable activities while no rain = the action.” There exists a large difference in logicality between “Let the space shuttle return because there is no cloud in the sky” and “I will go jogging since there is no cloud in the sky.” Because a space shuttle is just a glider without a self-propulsion function, the definition of raining is restricted to scientific analysis of weather conditions. In contrast, the people who insist on accuracy in everyday conversations about weather related to activities like jogging or shopping are annoying, because they set contexts quite differently from the majority. In this case, the significance in the accuracy of the weather forecast is the context, the difference of which makes confusion and trouble in discussions despite the logical syllogism being appropriate. Those people who lack objectivity, who are simply argumentative, have been mistakenly labeled as logical in Japan and have ruined the image of logicality in the society, even in businesses.

• (2) The reason for the endless argument between one group of researchers who claim “tacit knowledge is the most important resource of an organization,” another group of researchers who claim “tacit knowledge (as information) that cannot be recognized by the brain cannot exist,” and yet a third group of researchers who claim “tacit knowledge (as know-how) that cannot be standardized cannot be shared” is because of different definitions of tacit knowledge as a context (or a premise). Even when the definitions are described explicitly, there are still more cases in which the definitions are not objectively conceived to construct contexts. For example, even if tacit knowledge is defined as knowledge that is difficult to transfer, the possibility of misunderstanding is not eliminated totally. There are still many different axes to decompose it. In addition to the one above, which is whether it is possible to transfer, there are whether it is possible to systematize, whether it is possible to verbalize, whether it is recognizable by the brain, and many more. As such discrepancies in understandings and communications pile up, the chances that complicated discussions will fall into chaos increase. At the same time, cases in which just reaching a consensus is prioritized by hiding the discrepancies, using ambiguous expressions, and concealing the issues are widely observed, a result of which is to collapse the discussions and even the relationships. Such incomplete transactions incur large ex post processing costs.

To decompose the situation for defining the context and facilitating common interpretation, the concept of Mutually Exclusive Collectively Exhaustive (MECE) plays important roles. As shown in Fig. 6.3, MECE is a structure in which a situation is decomposed without an overlapping or a missing element, and it can be clearly understood by anyone with no misunderstanding (i.e., objectively). This structure can dramatically reduce the transaction costs in communication. For example, man and woman, input and output, buyers and sellers, revenues and costs, internal and external, 20 or older and under 20 years of age, and PDCA (Plan-Do-Check-Action) are deemed as in the MECE structure. In contrast, high-income people and elderly people, hot area and dry area, strategy and tactics, and data and information are not in MECE because there are overlaps and missing areas in them. Men and women is in the MECE in most cases, but its traditional idea has brought great confusion to the discussion of gender identity disorder issues. Problems due to these ambiguous classifications causing confused discussions are seldom recognized in day-do-day operations.

Fig. 6.3

Concept of MECE

It seems too strict to many people generally, but in order to avoid the confusions in practice, the strict decomposition and the configuration of the context are very significant.

Because organizations, processes, products, systems, and architectures are collections of interfaces, those should be designed as simply as possible. This is a typical case that MECE is applied to. By applying the MECE structure, the mutual independence is embodied, while the whole entirety is covered, and the objectivity is ensured. In other words, without misunderstanding, each participant can understand accurately and respond quickly, thus incurring much lower transaction costs. For example, as AC power module and PC body are clearly separated, it is easier to process all the activities in design and manufacturing organizationally. A PC body can be decomposed into hardware and software and then further into system software and application software. The processing unit of a PC can be subdivided further into the central processing unit, graphic processing unit, network/communication processing unit, and so forth. Setting such a MECE structure as the context, people can perform their work independently and smoothly without misunderstanding, mistakes, and confusion.

Although those examples above are just simple ones for an illustrative purpose, to construct the MECE framework in real, complicated situations actually requires considerably high capabilities (or rather capabilities that are difficult to obtain in general education systems.) Products, organizations, processes, systems, modules, architectures, concepts, and visions as collections of interfaces necessitate the high structuring capability that can be called genuine talent, as it is an extremely rare talent that is usually not required by a traditional sense of problems. Without this structuring, transaction costs will surely increase and competitiveness will decrease. It is not exaggeration to argue that this capability is deemed most basic to handling complexities. As will be described in Chap. 9 in detail, this is also applicable to exercising individual creativity and originality. As Bill Gates of Microsoft took the position of chief architect after CEO, the significance of architects who design architectures has been recognized, especially by leading-edge technology companies. The capability and the number of architects determine the competitiveness of a company. The reason for the drastic weakening of the competitiveness of Japanese electronics companies, such as in the mobile industries, is because they have ignored the development of such capable architects, prior to their council system.

This discussion can be applied not only to IT-related products but also to all the products that are increasing the complexity. Software becomes the key success factor for the differentiation of automotive and even pure mechanical parts, such as propeller blades and motors. It can be argued that software development competences and the development of architects increase the significance in any industry without exception. It is no longer possible to survive in the global competition without those capable architects.

Japan has been successful in memorizing technologies and information, putting its first priority on catching up with Western countries. In order to achieve that, it has mastered one-to-one pattern recognition capability, thoroughly depending on education by rote instead of logical thinking—that is, thinking capability to extract the most suitable pattern from ∞:∞ combinations by means of evaluation and comparison.

Meanwhile, education and self-learning of logical thinking, which includes inductive logical thinking to extract commonalities, deductive logical thinking to recall various possibilities of combinations, hypothesis and verification thinking, and objectivity, have boomed even in Japan these days. More than 300 logical thinking books with similar titles and contents have been published in the market. Companies have started screening candidates for their logical thinking capability at their employment examination, and students are eager to learn to prepare themselves for job interviews. Hopefully, they will quickly be able to overcome their lack of the capabilities.

6.4 Marketing Methodology for Promoting Uses

Both within companies and in the market, marketing activities are indispensable for promoting and encouraging uses of interfaces.

Assuming that a fixed interface is designed properly, its use should be promoted to members within companies as well as users outside companies (e.g., customers and suppliers). The more frequently it is used, the higher the ROI becomes; as it reaches a standard position, the number of users will increase by the positive feedback effects.

However, designers and developers of interfaces have a strong tendency to believe that all their work is completed when the interfaces are built and that the users have responsibility for the use, as frequently seen with information systems department people. In fact, users do not start using without such marketing activities by the developers and do not reach the number to activate the positive feedback effects.

Besides improvements of the design quality, methodologies to increase the usage frequency are basically the same as the measures for standardization described in Chap. 3, regardless of their being implemented within companies or in the market. This will be explained by classifying methodologies into enhancement of the awareness; reduction in the user fee; education, training, and support; and enforcement, management, and evaluation of the use.

• (1) Enhancement of the awareness

  Users of an interface must be aware of the existence, meaning, and significance of the interface before using it, as a matter of course. Great benefits gained from using the interface should be explained explicitly in advance. Although a limited number of companies can succeed in the maximum utilization of information systems, particularly in Japan, information system departments in all the exceptionally successful companies have paid persistent efforts to persuade users. As reluctance and anxiety to change are strong, steady activities to increase the number of users by answering every single question are required.

• (2) Reduction in the user fee

  As a lower price can promote the use, it is necessary to restrain the user fee, especially at the beginning. These days, most commercial software providers offer some features or time-limited uses free of charge. Even within companies, the same approach can be applied.

• (3) Education, training, and support

  When a new interface is introduced, the users will become confused because the ways of transactions are changed. In many cases, it is difficult to know even where and how to find the user instructions. In order to increase the usage frequency, it is necessary to eliminate any obstacle. To solve this problem, the appropriate support system is required for both internal users and external customers. Not only online manuals but also support desks to respond to questions by telephone or e-mail quickly should be provided.

• (4) Enforcement, management, and evaluation of the use

  To avoid the huge costs generated in (1), (2), and (3) above, it is possible for top management to depend on enforcement to use the interfaces. It is especially effective for the users who stick to self-interest and ignore the overall optimization. The top management commands the use of the interfaces, sets the responsibility of its managers to manage the use, and monitors and evaluates the level of usage in each department and team. Top-down enforcement works only when the top management has both strong leadership and an essential concept of an interface. For example, the probability of successful utilization of information system increases overwhelmingly if the top management understands the significance of introduction and the issues for utilization. If the top management acknowledges the necessity of the introduction, it must exert explicit and implicit pressure, which clearly enhances the usage. On the other hand, the “Don't think. Feel” type of top management, which is still the majority in most countries, may not be able to take the initiative due to lack of such understanding. The interface, as it can be recognized by logical thinking, cannot be understood essentially without this capability. The lack of leadership in the old-style management of Japan also poses a very serious problem for increasing the investment efficiency of interfaces. However, even in Japan, start-up and growing companies are demonstrating the appropriate utilization of interfaces under strong leadership. This exhibits one of the biggest differences between the conventional companies and the emerging companies there.

Products should be promoted in the market, as a matter of course. As the discussion here is about increasing the users of fixed interfaces, namely, standardization, the measures to take the majority for standardization in Chap. 3 are directly applied. The three positive feedback effects for standardization—network externalities, bandwagon effect, and economies of scale—should be utilized properly here as well.

6.5 Methodologies for Operation

Various measures in each transaction element must be implemented in the operation to enhance the effectiveness of interfaces.

6.5.1 Steady Implementation of the Effective Cycle

Running PDCA cycles by steady implementation of necessary steps is significant for effective utilization.

The methodologies for utilizing interfaces mentioned in Sects. 6.2 and 6.3 will be redescribed using the framework of effective cycle, which puts emphasis on the operation as well as the design. Steady implementation of the effective cycle in Fig. 6.4 is indispensable to making interface function as designed.

Fig. 6.4

Effective cycle for utilizing interfaces

• (1) Determination of basic policies for interfaces

  The basic policies (which correspond to the basic interface for the design), such as premise, philosophy, vision, objectives, targets, constraints, and scope of the application, should be determined for the detailed design. Users’ requirements should be clearly understood, and the basic specifications and options that satisfy as many main targeted users as possible should be determined. The basic structure, consisting of a platform and modules, should be designed from the two viewpoints: users’ needs and technologies. Unclear principles will confuse the developers and, consequently, the users. An aggregation of confused interfaces will be rejected by the users, making it impossible to achieve the goal of uses by as many users as possible. To what extent interfaces should be fixed and be left as exceptions (unfixed and determined ad hoc at the locales) also should be considered. These items can be conceived as the core portion of an architecture.

• (2) Interface detailed design

  Following the methodologies for design described in Sect. 6.2, interfaces should be designed in detail properly.

• (3) Countermeasures for exceptions

  While emphasizing the significance of fixing, it is impossible to fix all the activities without any exception, which would reduce the efficiency. Therefore, the structure in which the exceptional individual parts are clearly separated and handled by ad hoc interfaces should be designed.

  A fixed interface is one in which the transactions with high frequencies are extracted and fixed as forms, such as systems, processes, and rules. Originally, it is not applied to 100 % of transactions; the exceptions should also be considered and prepared instead of just being ignored. Explicit and easily understandable countermeasures using ad hoc interfaces must be designed and provided for all exceptions. Users generally have the misunderstanding that fixed interfaces are designed to handle 100 % of their activities. Accordingly, when events to which fixed interfaces cannot be applied arise, they think those are incomplete, defective, and difficult to use, leading to mistrust and rejection of fixed interfaces without consideration. Therefore, countermeasures should be prepared so that every single exception can be handled by issuing ad hoc interfaces.

There are two types of ad hoc countermeasures for exceptions:

• (a) Some interfaces are intentionally excluded from fixing.

  As fixed interfaces become user-unfriendly due to increasing complexity associated with increased size, some interfaces should be left for ad hoc determination at the locales, which results in much simpler structures. The designers as well as users must understand that the fixed interfaces do not handle all events because it would complicate the interfaces unnecessarily. As for the countermeasures for those exceptions, the responsibility and authorities regarding who and how to set the ad hoc interfaces should be clarified.

• (b) To some extent, it is allowed to overrule fixed interfaces.

  Some fixed interfaces cannot respond to reality. If people attempt to handle all activities only by means of fixed interfaces, those possibly become rigidified and difficult to respond to all realities; fixed interfaces are likely to be criticized as rigidified or bureaucratic attitudes. Therefore, ad hoc interfaces should be set beyond fixed interfaces with explicit designation of the area and the extent to which they are allowed. Although the seriousness of this problem varies with the organization, the reconstruction of organizations should be considered. As this requires extensive solution, the countermeasures for bureaucracy and rigidification will be discussed in Sect. 6.7 separately.

• (4) Promotion and enforcement

  As described in the previous section, the countermeasures of enhancement of the awareness, reduction in the user fees, and enforcement, management, and evaluation of uses must be properly implemented.

• (5) Education, training, and support

  Based on the basic policies, education and training for users, including the countermeasures for exceptions, must be executed. Flexible and prompt support systems must also be established.

• (6) Monitoring and evaluation

  Currently, almost all interface development terminates somewhere between (1) and (5) above, without completing the effective cycle. This monitoring and evaluation step in particular is neglected quite commonly. Even though various contingencies may have been considered, situations keep changing. Interfaces become obsolete and satisfaction decreases every day after the moment when those were implemented. Without improvement, interfaces become ineffective, which leads to low utilization and low efficiency. The problem solving of this step depends on companies’ essential capabilities of innovation. Therefore, it is quite difficult for companies without innovation capabilities to complete this step and the effective cycle. CMMI also puts the capability of handling this step effectively and sustainably as the condition for the highest ranking.

6.5.2 Accomplishment and Continuation of the Cycle

The effective cycle should be kept running to avoid obsolescence of interfaces.

When issues and improvements are extracted from results of monitoring and evaluation, it is significant to go back to the first step of the effective cycle and start the new cycle; it functions as the PDCA cycle. As fixing interfaces may lead to rigidification, monitoring the deviation from the actual situation and solving the issues are necessary. However, confusion occurs if interfaces change frequently because these are also communication interfaces. It is important to maintain the balance between rigorous fixing and flexible changes. Changes should be implemented only after thorough planning and notices in sufficient advance. Extensive support systems are also indispensable.

The significance of the effective cycle, which spans basic design, detailed design, education and supports, and promotion and enforcement through monitoring and evaluation and back to the first basic design for improvement, is applicable to all kinds of interfaces such as strategies, organizational structures (roles, processes, systems, rules, IT, and so forth), and action plans at lower levels of organizations. First, visions and objectives are determined; then those are decomposed into strategies, further refined, and described in detail for implementation. The outcomes are monitored and evaluated for whether they are functioning as designed. After modifying or improving the interfaces as necessary, the next cycle starts. This PDCA cycle of interfaces is a universally essential concept for strategies, organizations, processes, systems, and plans.

6.5.3 Avoidance of Bureaucratic Rigidification: Reconstructing Organizations for Flexible Decision Making

The surplus resources obtained from efficiency improvements should be first allocated for enhancing effectiveness by avoiding bureaucratic rigidification.

Because fixed interfaces standardize activities, they will lead to increasing the outcome quality of low performers and, at the same time, to weakening the organizational processing capability for special or exceptional cases. That is, the quality of the lowest level will be improved, but that of the highest level will be decreased; the decrease is usually criticized as too rigid and bureaucratic. In order to build flexible organizations, it is significant to foster individual moral under which each employee seeks for deliveries of quality higher than designation by fixed interfaces. At the same time, it is also necessary to equip an organizational function (another fixed interface) to allow individual countermeasures beyond fixed interfaces only for exceptional situations. Only in this way can the organization respond flexibly and promptly to the exceptional cases to which fixed interfaces cannot be applied.

When a system becomes too large and complex, organizations become basically decentralized, which is evidenced in delegation and distribution of authorities, such as division of businesses in companies and transfers of power from a central government to local governments in the society. This reduces the distance between the final decision maker and locales, consequently improving the flexibility and agility to respond to exceptional situations. Even the smallest innovation is impossible for the organizations in which managers stick to unreasonable and unrealistic interfaces, ignore constantly erroneous judgments, and try to evade their accountabilities by all means.

It is unavoidable that some kind of arbitrariness is introduced into organizations when overruling authorities are delegated to managers for assuring flexibility. However, because the effectiveness of business activities cannot be evaluated, it is impossible to judge objectively whether decisions are arbitrary or not. The only way to avoid arbitrary decisions that are not beneficial to organizations is evaluating and rewarding the business performances of final decision makers.

It is possible to instruct complex interfaces more easily by providing databases that archive the information regarding various cases in the past that were judged as exceptions with background information and logics of judgments. Many companies in Silicon Valley started exchanging such information among employees through their internal SNSs. As it is not anonymous, every contribution can be rewarded. Organizations can be flexible much more than before using databases and networks in this manner. The surplus resources obtained from efficiency improvements by fixed interfaces should be allocated to this kind of exception processing with a higher priority in order to increase effectiveness.

This structure can also prevent cunning employees from outmaneuvering the rules. If interfaces are widely separated from reality and common sense, employees who desperately think about the benefits of companies need to ignore the rules sometimes. Such good men who seriously work toward increasing others’ benefits are expelled easily on charges of breach of rules by bad men who constantly try to snatch others’ properties. The situation in which unrealistic interfaces are complied with rigidly is considered to be the biggest defect of fixed interfaces. This excellent capability of organizations to respond to exceptional situations is able to change the structure in which good men who breach rules are punished uniformly and bad men who backstab the good men batten, and to bring healthy vitality.

In the first place, innovation begins with destruction of rules. Innovators who destroy conventional rules have a characteristic of neglecting rules (or at least not considering them seriously) which enables them to make innovations. From this viewpoint, the innovation-oriented talents are considered to include the anti-rule or even antisocial personalities. As the innovation-oriented talents who do not comply with unreasonable rules are expelled by the backstabbers during organizations’ ordinary activities, they, the seeds of innovations, must be protected institutionally. Otherwise, the adverse effect of fixed interfaces outweighs the expected benefits.

Innovation is generally difficult for mature organizations because their structures have been rigidified historically. The maturity of organizations corresponds to the expansion of fixed interfaces, and there occur strong inertias that have been formed in the history of changing their value to better utilize the power of fixed interfaces. The symptom in which companies are too exhausted with changing value and diffusing fixed interfaces internally to encourage innovations is called “Big Company Disease” in Japan. In order to outgrow the vicious cycle of stagnation and decline, the value should be changed again. As discussed in Chap. 5, this change is extremely difficult, making it an essential differentiation factor for companies.

6.5.4 Appointment of Managers Responsible for the Effective Cycle

It is impossible to run the effective cycle without a manager responsible for the management.

The responsibilities and authorities have to be clearly appointed for not only countermeasures for exceptions but also the whole effective cycle. It is impossible to ensure the implementation of the steps and to accomplish the effective cycle without them. Designers and developers tend to believe that users are responsible, and the users think to the contrary. It is only final decision makers (i.e., CEOs of companies or division managers) who can be responsible for the complicated aggregation of those multiple functions.

The introduction and design of interfaces should be proposed by CEOs (final decision makers) and implemented under their responsibilities and authorities (the CEO should be accountable even if he/she delegates the authority to managers). Many of the effective cycles of IT development projects have not been implemented effectively due to the unclear responsibilities (which are even intentionally left unclear). Without the understanding of IT as an interface, many CEOs have started development projects just because salespersons informed them that their competitors deployed certain products. After launching the projects, the CEOs have no responsibility for or any interaction with the projects. It is impossible to make the IT systems function as desired in this manner. In contrast, the CEOs of companies that utilize IT systems successfully understand interfaces essentially and lead the projects practically by themselves. Not limited to IT, the successful utilization of interfaces strongly depends on the knowledge, project leadership, ownership, and commitment of the CEOs.

6.6 Background of Rejections of Interfaces and Countermeasures

Rejections of interfaces are not logical.

6.6.1 General Rationales for Rejecting Interfaces

All kinds of arguments against interfaces will be presented.

6.6.1.1 Exaggerating Disadvantages of Fixed Interfaces

The benefits of interfaces have been discussed mainly thus far; however, there are two sides to every coin, especially in management. Fixed interfaces also have some disadvantages, as described previously. The advantages are often ignored and the disadvantages tend to be exaggerated, especially by people who dislike change or suffer losses from the introduction of new interfaces. It is necessary to prepare counterarguments and countermeasures to the typical rejections by understanding the disadvantages and the background accurately.

There are six typical arguments supporting the rejection of the disadvantages of fixed interfaces. Those are totally identical with arguments for the rejection of systems, processes, IT, standards, modularity, and architecture (it is absolutely natural that the arguments are common, because all those are also interfaces).

• (1) “Fixing interfaces accompanies risks.”

  Business corresponds to investment, and investment inevitably accompanies risks. Interfaces are assets, just the same as factories and equipment; the development costs equal investment. Business, or even life, is the competition to make the right selections and implementation. There are risks with even the selection of a greengrocer or fishery as a profession. A person’s choice to study liberal arts or science, his/her choice of business school or law school, and his/her choice of which company to work for are also fixing activities. If fixing is regarded as too risky, it is impossible to continue business or even life. Business is strategy, and strategy is to concentrate resources on the spots where others neglect or ignore, taking risks. A key success factor for management is the capability to handle those risks. Ensured running of the effective cycle can improve fixed interfaces constantly and reduce risks greatly.

• (2) “Fixing robotizes employees and freezes their brains.”

  Manuals (especially of the conventional type) are a typical example; many managers, especially CEOs of SMEs, often express concern that when interfaces are fixed, employees will become too dependent on them and cease thinking creatively. Most of the concerns seem to be caused by their own experiences in or with large-scale companies that suffer from “Big Company Disease.” Their policy to educate and enforce employees to create everything by themselves without providing manuals is seemingly reasonable. In fact, it is a profound problem that people cannot find how to work without direction, which is caused by rote memory study in the education system, which is prominent in Asian countries like Japan.

  It was reported that there was no emergency operation manual (of safety venting) at the Fukushima nuclear plant disaster. The emergency procedure was designed ad hoc based on the blueprints found in the pile of mess right after the earthquake. It illustrates the current situation in which the processing capabilities at lower levels of management are quite high, while their value is not placed on manuals. This is the typical style of operation in Japanese companies.

  “What can the manuals do?” “Only we know the situation!” “I don’t want to teach my knowledge to others!” It is quite natural for employees at lower levels of operation to respond this way, but it is problematic if top management compromises them and leaves the issues unsolved. Top management is likely to ignore the fact that they have no manual, the manual is useless, or employees cannot respond to emergencies even with an excellent manual because they are not familiar with it. They complain about the insufficient results, even though it is mainly because of their lack of understanding about the value of manuals.

  As to the countermeasure for the robotization problem, the seemingly irrelevant activities described previously should be the first target to be fixed. That is, the most basic activities are fixed and, at the same time, employees are requested to increase the value added.

  Despite the fact that the manual-driven operation of McDonald’s is criticized anywhere in the world, it has established outstanding manuals that assure the most basic quality of the operation by juvenile part-timers. Its hierarchical management and education system are also well organized, corresponding to the manuals. It might be easier to convince the managers who reject manuals by illustrating manuals as the basic standard for beginners and low-wage workers while more flexible operations are expected and trained for skilled workers.

  It is important to note that the essential countermeasures for this issue are fostering the culture of innovation as well as designing properly. The effects of manuals are achieved only when fixed interfaces and innovation-oriented cultures work together. Otherwise, organizations become rigidified and start adhering to past experiences. It is highly possible for employees to be robotized and for organizations to be rigidified without the base of an innovation culture.

  However, this problem has existed regardless of fixed interfaces. Separated from the disadvantages of interfaces, fostering the culture for challenge and innovation is always important. This is the universal management issue common to all the stagnated companies, including Japanese conglomerates; the rejection of fixed interfaces is just the tip of the iceberg. This subject will be discussed in detail later in this chapter.

• (3) “Inappropriate fixing will be counterproductive.”

  There is no need to say that inappropriate fixing results in a worse situation in which ineffective and inefficient activities repeat. The problem of interfaces becoming obsolete as time passes despite functioning appropriately right after their development can also be included in this argument. First of all, activities that are anticipated to remain unchanged in a sufficiently long term and seemingly irrelevant activities—in other words, activities of which fixing will not deteriorate the effectiveness—should be selected assuredly as the first target to be fixed. However, in the reality of development of processes, systems, and so forth, the activities that are most difficult to fix (e.g., high-level managerial judgments) are likely to be selected or included. This is caused by the developers’ general characteristic of challenging unrealistic feats to satisfy their professional interests. The basic investigation regarding the ROI from comprehensive and managerial perspectives is neglected here.

  Kao Corporation, an equivalent of P&G and the leader in IT utilization in Japan, has a policy called “the 80 % rule for systemization,” meaning only 80 % of activities should be selected for systemization. In fact, 20 % of activities may be enough for companies who are beginners in systemization.

  It is important to monitor whether interfaces function properly and modify them when necessary. This is the most basic management for assets such as machinery and equipment. As interfaces cannot satisfy 100 % of cases universally and are deeply influenced by their contexts, the effectiveness diminishes day by day. It is necessary to monitor constantly how interfaces are used and what benefits are being obtained, to evaluate the effect and take improvement actions. In companies like Japanese companies that depend on customs and tacit knowledge, organizational mechanisms to make the PDCA cycle function appropriately are generally weak, as the PDCA cycle does not function or rather is avoided in customs and tacit knowledge. That becomes the serious limitation for implementing fixed interfaces.

• (4) “Fixed information will be leaked to the outside.”

  As fixed interfaces are described by documents that are usually stored in the servers, the information may be leaked at any time. The influence of this security problem will be much more serious than others if interfaces consist of the core competences of companies. However, many companies, like Japanese companies, are too sensitive about the concern that standardization leads to leakage of expertise and reduction in competitiveness. There seem to be some lack of understanding as follows:

  • (a) Inappropriate selection of activities to fix

    The security issue can also be solved by fixing seemingly irrelevant activities. It will not damage companies, no matter how much information that is irrelevant is leaked. The basic objective of fixing interfaces is to pursue the efficiency, not to develop the most advanced technology. The surplus resources that have been obtained are reallocated to more effective and complicated activities. Furthermore, fixed interfaces function among departments and companies as interfaces that are originally opened and shared by as many as possible. Therefore, fixing interfaces does not relate to information leakage problems if it is properly managed.

  • (b) Underdevelopment of information security

    Japanese companies generally deem themselves as big families based on mutual trust and are less conscious about internal information leakages, which has been pointed out by the Japanese governmental report regarding information security issues. All the data and knowledge have to be managed effectively using IT systems; permission should be requested for information download, and access rights and session log records should be strictly controlled. Business has already entered the era in which all the data are stored in databases and accessed by all employees through networks. If someone rejects to fix information, it is impossible to utilize IT systems and networks. As frequently mentioned throughout this book, the development and utilization of databases and networks have been accelerating in the global open economy. However, Japanese companies are still hampered by conventional ways of closed communication, such as face-to-face meetings and tacit knowledge interactions. Those should be modernized as soon as possible to adjust to global open transactions before the development of information security.

  • (c) Overvaluation of the transferrable value of interfaces

    Interfaces are business processes. It is difficult to transfer their real value to others, including competitors.⁴ It takes time for others to understand, modify if necessary, and become accustomed to them. It is even easier for a company to develop its own interfaces instead of transferring, implementing, and standardizing ones developed specifically for others. If a company is capable of copying and implementing others’ interfaces properly, there is absolutely no need for it to steal from others because it must have the capability to design, develop, and utilize interfaces efficiently and effectively. Companies that are excessively conscious about leakages are inferred to lack expertise in interface technologies. The most significant thing is not the interface per se but the capability of designing, developing, and utilizing it—the expertise of the effective cycle. The companies that have utilized interfaces successfully are challenging developments and advancements of their interfaces continuously, not the security systems to protect their obsolete interfaces. Fixed interfaces provide value only with the culture of challenging innovations. That is, the information leakages do not become a serious problem because the companies have already innovated their interfaces at that moment. The companies with no innovation culture depend on others’ interfaces, which would not bring any change to them. The culture to challenge advancements, improvements, and innovations is the most essential core competence of companies. Therefore, the companies with utilization capabilities do not need to be excessively conscious about this problem. It rather deprives their competitors of opportunities to develop the capabilities.

• (5) “Fixed interfaces decrease my value by transferring know-how to others.”

  The biggest obstacle to the fixing, which does not frequently appear in arguments, is the rejection from employees who will lose their value and competitiveness in their companies. When their know-how becomes exposed to others and decreases the value of individual differentiation, they will lose their authorities. Some managers apprehend that they can no longer control their staffs. This is a quite reasonable response from employees.

  Top management is also responsible for this issue. The employees who are capable of developing new expertise constantly after the know-how is shared with others should be valued. Developments of new know-how are vibrant without such rejections in the creative and competitive organizations where know-how is actively shared. In contrast, organizations cannot develop their competitiveness where self-interest takes precedence over the organizations’ benefit. If people take actions to protect their value and current status naturally, managers in charge of the entire company’s benefit should be responsible for overcoming the rejections and leading the projects for describing, fixing, and standardizing interfaces. From this viewpoint, fixed interfaces or standardization cannot be implemented by the bottom-up approach, which Japanese companies prefer.

• (6) “The standardization is important, but it is impossible to apply to our tasks that are so special.”

  There is an objection: “I agree with the standardization in general, but our task is too complicated to standardize or routinize.” The correct way to say this is, “I am not able to standardize this” instead of “it is not possible to standardize my task.” As described previously, standardization and interface design are extremely difficult challenges that need high-level thought capabilities and essential understanding of the organization. Even the standardization of the simplest task will still be difficult for those with insufficient capabilities.

  There seem to be too many people in Japanese companies who object to standardization for these reasons. Although nearly all the people showed this attitude against standardization or IT projects, hardly any task is unable to be standardized, according to the author’s experience.

  The background of these rejections will be examined further in the following sections. There are several significant points to be noted.

6.6.1.2 Disrespect for Systems

Systems here include rules, processes, regulations, manuals, procedures, IT, structures, and plans—namely, the fixed interfaces discussed in this book. All the intuitive rejections of systems have a common mechanism. They argue that only on-site workers understand the realities, while systems employ a desk theory, which is unrealistic and valueless. The typical examples are tacit knowledge and the integral model or the denial of modularity, which are undermining Japanese companies where disrespect for systems and plans is deeply rooted. It surely obstructs utilization of fixed interfaces. To utilize systems and interfaces, various types of technologies and capabilities need to be equipped; falling into the entire denial without executing the musts frequently occurs.

6.6.1.3 Disrespect for Indirect Costs

It has been pointed out that the Japanese companies’ design engineering departments have the problem that the “Design” in Computer-Aided Design (CAD) has been turned to “Drawing.” The original purpose of the CAD system was to improve design efficiency by reusing components of designs that were archived with the expectation of being frequently used (i.e., it is an application of the module concept by IT systems). However, engineers do not utilize the reuse function of CAD system but use it as a simple drawing tool.

Furthermore, they still adhere to 2D CAD systems, and the craftsmen who are skilled in 3D configuration using 2D CAD systems are admired. It is a complete contrast to Chinese companies, which started their CAD operation in 3D. Literally, 3D CAD systems provide an additional dimension of functions such as interference computation, structural calculation, and operation verification simulation. This could be a possible cause for the decline of their mechanical manufacturing industries.

One of the reasons for this problematic situation is that their design departments, like their other departments, have run into an extreme policy that all indirect costs should be eliminated completely, while they have been trying to reduce costs by all means. If parts designs are reused frequently in the future, it will reduce time and effort. However, the costs for the future reduction are deemed as just waste costs for current products; the expenditure of such indirect costs became prohibited.

Japanese manufacturing companies, which are quite influential to all other industries, tend to deem their indirect departments: administrative departments with supporting functions (e.g., personnel, general affairs, and accounting), as necessary evils. One of the main functions of the indirect departments is to extract commonalities from all of their direct departments and to develop and promote systems, processes, procedures, platforms, and modules. Therefore, the disrespect for indirect departments corresponds to the disrespect for systems, processes, and modules essentially.

Because all systems and fixed interfaces incur only indirect costs, it is significant for companies to utilize the indirect costs in indirect departments effectively. In particular, Japanese companies should grow out of the extreme policy that denies all indirect costs and develop the technologies to better utilize indirect costs—that is, fixed interfaces.

6.6.2 Mechanism of Rejection and Exclusion of Modularization

Industry-level rejection and exclusion work against modularization.

6.6.2.1 Reversal of Vested Right Structure Caused by Modularization Occurring in Product Life Cycle

6.6.2.1.1 Universal Implications from Cases of Modularization

Modularization strategy has been deemed almost as a national disgrace with a nationalistic reaction in Japan: “If you are Japanese, you can’t accept modularity.” This fact provides many universal implications regarding the difficulties in implementation of modularity. There are several background factors:

• It is difficult to understand.

• It is difficult to utilize.

• It is difficult especially in Japanese culture.

• Innovation is difficult in Japan.

• The public opinion has been developed politically to protect vested rights.

Most of these are essentially identical with the rejection arguments for systems, fixed interfaces, and standards. In this section, the structure of political rejection and exclusion against modularization will be examined to extract universal implications.

6.6.2.1.2 Progress of Modularization in Product Life Cycle

The inevitable generation and expansion of modularization in product life cycle is shown in Fig. 6.5. Four stages of the progress will be examined from the viewpoint of the relationship between end product assembly manufacturers and parts manufacturers.

Fig. 6.5

Progress of modularization in the product life cycle

• (1) Stage 1: Introduction of a product by an end product assembly manufacturer (1:1)

  This is the stage in which a new product is introduced into the market. An end product assembly manufacturer plans and designs the new product and procures the parts from parts manufacturers according to the product specification that is an intellectual property of the end product manufacturer. The parts manufacturers have no right to supply the parts to any other companies. Therefore, the relationship between the end product manufacturer and the parts manufacturers becomes inevitably closed; as a result, business groups become formed (the end product assembly manufacturer has more than one parts manufacturer, but the relationship is expressed here as 1:1 for illustrative purpose). Only the parts manufacturers that are capable of complying with the interfaces (the specification, delivery schedule, and other transaction conditions) of the finished product manufacturer are adopted. Thus, the finished product manufacturer comes to have an overwhelming price bargaining power and the parts manufacturers become settled in a subcontractor position.

• (2) Stage 2: Competition between end product manufacturers (1:N)

  Other end product manufacturers launch similar products, and the price competition becomes fierce, especially when commoditization starts. At this stage, the end product manufacturers with strong price bargaining power exert cost reduction pressure on the parts manufacturers to a level that are, in Toyota’s case, expressed by a metaphor: “squeeze a dry towel.” The weakest end product manufacturer that suffers from the price competition comes to the point at which it must procure parts from suppliers in its competitors’ business groups to reduce its costs. The price competition continues, and the number of end product manufacturers that follow the decision increases. At this time, the relationship between the finished product manufacturer and the parts manufacturers becomes 1:N.

• (3) Stage 3: Introduction of modules by parts manufacturers (N:N)

  When the relationship turns into 1:N from 1:1, it means one parts manufacturer starts supplying more than one end product manufacturer. That is, the relationship will change from 1:N to N:N naturally; the business relationship goes beyond groups to become a free competition. At this point, since orders from multiple customers concentrate on the most competitive parts manufacturer, the suppliers start negotiating with their customers to purchase parts with their own fixed specifications in return for better transaction conditions. Some end product manufacturers have to accept this offer to reduce their costs. Consequently, parts from the parts manufacturers come to be used commonly by many end product manufacturers; this marks the start of modularization.

• (4) Stage 4: Standardization by parts manufacturers

  The parts manufacturers that started supplying modules enhance cost reduction and performance improvement with their increasing competitiveness. This accelerates the concentration of orders and further strengthens the cost competitiveness of the suppliers. This will lead them into the positive feedbacks of standardization; the parts become indispensable for the end product—that is, they become standards in the market. The relationships have turned to N:1 from the original 1:N. By this time, the parts manufacturers dominate the market with the bargaining power on various transaction conditions such as prices. In other words, the end product manufacturers can no longer control their profitability but are controlled by the parts manufacturers, contrary to the relationship at Stage 1. If the same structural changes occur with every part of the finished product, the end product assembly will no longer create value. The assembly is a manufacturing process that can easily be replaced, even by manufacturers in the emerging countries. The value of the end product assembly manufacturers in developed countries has inevitably been decreasing. The end product assembly manufacturers start looking for new sources for value added, such as consumer finance, customized services, and consulting, in addition to brand marketing.

6.6.2.1.3 A Case of the Computer Industry

The case of the computer industry illustrates the structural change described above very well. IBM used to dominate the industry until the early 1980s. It was widely known as a manufacturer that produced all parts in-house, including OSs, CPUs, printers, disk drives, and application software. Other computer manufacturers also never considered another option besides their in-house products. However, when IBM entered into the PC market in the 1980s, the company made a strategic decision to outsource the key components, an OS and a CPU, in order to reduce the time and cost of the development. The suppliers were the famous Microsoft and Intel. This corresponds to the transition from Stage 1 to Stage 2.

Those two companies supplied their products, modules with their own specifications, to all the end product companies, not only to IBM. As a result, they became the dominant companies, even overwhelming IBM. In the early 1990s, IBM had fallen from its crowning point into a bankruptcy crisis in just a few years, thus reaching Stage 3. In order to advance to Stage 4, IBM invited Louis V. Gerstner, Jr. to be the new CEO. He drastically changed the company into an excellent service company that has become prominent all over the world. The “service science” advocated by IBM to enhance the awareness of the value in services, their services in particular, has even strongly affected the universities and the government of Japan. IBM’s PC manufacturing business was sold to a Chinese company, Lenovo, and its HDD business, one of the key parts, to Hitachi.⁵

6.6.2.1.4 A Case of the Semiconductor Industry

By now, the horizontal division and specialization of functions has spread in all PC-related industries. The miniaturization of semiconductors such as CPUs has advanced dramatically; the number of transistors mounted has increased one million times more than the number 40 years ago. Many special production technologies and functions must be integrated to realize the ultraminiaturized manufacturing. The semiconductor manufacturers outsourced semiconductor production to subcontractors (foundries) instead of producing them by themselves. The most successful company among them is TSMC of Taiwan, which was the role model for Taiwan’s national strategy. GLOBALFOUNDRIES of the USA, UMC of Taiwan, and SMIC of China have all grown rapidly. There is also a strong trend for semiconductor manufacturers to outsource even their semiconductor designs to technology companies called design houses.

MediaTek of Taiwan, which once monopolized the markets⁶ of almost all kinds of baseband IC⁷ in mobile phones, concentrates its resources on the design function by outsourcing production to TSMC. MediaTek started its business with Chinese manufacturers of “Shanzhai,” the mobile phones with imitation and pirated brands, providing the chip set (an integrated chip with functions of CPU, graphics, memory, and GPS signal processing) that enabled Chinese start-up companies with no technologies to launch every kind of mobile phone. Since then, the company has become a top-notch global company conducting joint research with the world’s top universities and hiring a large number of Ph.D. holders.

MediaTek outsources not only its production but also chip layout designs, semiconductor intellectual property core modules, to companies such as Qualcomm and TI, which have numerous technology patents for mobile phones. These companies also supply the modules to the countless design houses.

ARM of the UK has gained attention as a fabless semiconductor manufacturing company recently. The company supplies CPUs for embedded systems in mobile products like smartphones, mobile devices (e.g., the iPad), digital cameras, game machines, and automobiles, excluding PCs. Those products have strict constraints of power, time, and memory in common that make the CPU specifications totally different from ordinary ones for PCs. ARM has already become a dominant company with 90 % market share.

ARM is an IP core vendor, a type of company that only licenses chip layout designs to customers. ARM partners with TSMC and SMIC, which provide the business system and interfaces to enable their customers to produce products with high-level miniaturization requirements just by executing a simple transaction. Thus, they have been increasing their customers all over the world.

As described thus far, a very advanced distribution structure of modular functions among companies has been established in the semiconductor industry; semiconductor manufacturers do not any more either produce or design internally but purchase the licenses for the chip layout designs. Furthermore, even in the design activities, Electronic Design Automation (EDA) plays a significant role, and the vendors of the systems have established the position of indispensable module suppliers in the manufacturing process. There are also companies that specialize only in testing finished semiconductors. The efficiencies of designing, manufacturing, and selling CPUs and semiconductors have been improved to the utmost limits by such a refined modular structure.

In contrast, the Japanese semiconductor industry has been falling behind in the modularization. All the companies, such as Renesas Electronics (the SoC⁸ manufacturing company that merged the semiconductor businesses of NEC, Mitsubishi Electric, and Hitachi), Sony, Toshiba, Fujitsu, and Panasonic, and all the national projects, such as Selete, STARC, ASUKA, ASPLA, HALCA, and MIRAI, have been in trouble. It is getting harder and harder for companies to survive in the global market without adapting themselves to the new global competition rules.

6.6.2.1.5 A Case of the Mobile Phone Industry

The Japanese electronics companies executed large-scale investments in the Chinese mobile phone market with their common missions to rank in the top three suppliers of this strategically significant market with no room for failure. The number of the products in China is 20 to 50 times larger than in Japan, and at the same time, the life cycles are much shorter. It has been absolutely important to keep developing an abundant variety of low-priced products to meet the market needs.

However, they wasted time and the cost of developments, which were reportedly a few dozen times more than those of Chinese domestic competitors, due to their over-specification orientation and lack of modular structure. As a result, all their projects and even businesses collapsed.

From the global perspective, the diversity of the Chinese market is just the tip of the iceberg. The US and European markets had been their only targeted customers for a very long time; however, the markets of BRIC (Brazil, Russia, India, and China), VISTA (Vietnam, Indonesia, South Africa, Turkey, and Argentina), MIKT (Mexico, Indonesia, Korea, and Turkey), and Next-11 (Iran, Indonesia, Egypt, Korea, Turkey, Nigeria, Pakistan, Bangladesh, the Philippines, Vietnam, and Mexico) have been increasing their significance. Benefited from the global economy, many other countries like Thailand, Malaysia, Australia, and the Eastern European countries are following. The diversification of the global markets is growing rapidly. It is impossible for Japanese companies to survive in the global competition with their anti-modular structure. This is not just about the mobile phone industry but all other industries, including the automotive industry.

6.6.2.1.6 A Case of the Automotive Industry

Modularization is advancing even in the automotive industry. It was considered the industry in which it would be most difficult to deploy modularity despite its maturity in the product life cycle. It is well known that the relationship between the end product manufacturers and their suppliers had been 1:1 for a long time. Long-term, trust-based relationships in business groups work effectively as long as the expectation of the sustainability of high economic growth goes on. However, in the turbulence of intensified global competition, the business groups began to dismantle in quest of lower costs, which started from the weakest European groups.

It is difficult for the suppliers to pursue economies of scale only in the closed market of a business group. Sharing of the parts by modularization is proceeding beyond the business groups to reduce the costs. The major parts manufacturers declared their sales goals of more than 50 % from outside of their groups and became independent from the groups, as was the case with Delphi of GM and Visteon of Ford (after their bankruptcies). Those companies, including Bosch of Germany and Valeo of France, are expanding their scales rapidly, mainly by acquiring their competitors; the presence of parts manufacturers is increasing remarkably. It may be no exaggeration to argue that the parts manufacturers are going to overwhelm the automotive manufacturers. Without question, this trend will become even stronger when the new era of electric vehicles begins.

The automotive manufacturers in Japan are also beginning parts standardization and sharing under the direction of the Ministry of Economy, Trade and Industry (METI). Because the Japanese companies had been boasting the strongest competitiveness in the world market, they could have been able to oppose the wave of modularization to the last, which would possibly reverse the power relationship with the parts manufacturers. The activities to obstruct the wave have been reasonable; they might have been trying to form the public opinion against the modularization directing and supporting domestic academia and media. However, hunger had no law for some of the automotive manufacturers, which were almost ejected from the competition. They adopted the new structure of modularity to come back. This is the structural reason why the European companies led the modularization and the Japanese companies were preceded by the US companies.

If the automotive industry should have already entered into Stage 4 (the automotive manufacturer N : the parts manufacturer 1), the automotive manufacturers should start searching for the next source of value added. In the computer industry, the service markets, such as system integration, system consulting, and business process consulting, have been great opportunities for the computer manufacturers. In contrast, the automotive manufacturers have successfully developed only the consumer finance businesses thus far.

They may be able to explore more possibilities that increase their values, such as functions corresponding to IT system integrators. For example, the manufacturers may customize the design and development of cars specifically satisfying a certain customer. Car designs have been too unified from the era of the Ford T Model. There is a possibility that an abundant variety of vehicles specifically designed for taxies, delivery trucks, shuttle buses, cars for sharing, cars for carrying babies/kids, and so forth will be provided at much lower prices. Development of the next-generation intelligent transportation systems collaborating with governments of emerging countries is also considered. In emerging countries that have been suffering from intense traffic congestion, there are very strong needs for the development of total infrastructure. It will integrate new transportation systems, car sharing, and navigation systems with controlling capabilities of distances not just between cars but also between cars and roads. These technologies should be completed before Google provides Google-branded self-driving cars, which are produced by contract automotive manufacturers located somewhere in South East Asia.

6.6.2.2 Lessons from Negative Examples of Declining Japanese Companies

6.6.2.2.1 The Innovator’s Dilemma

The remarkable economic growth of Japan from the 1970s to 1980s had heavily depended on manufacturing, especially the consumer electronics industry and the automotive industry. Their technologies of handling lathe machines and fabricating their molds with extremely high accuracy were so competitive that the global market was dominated by Japanese companies that manufactured super-compact, high-quality products. One of their biggest sources of competitiveness was the capability of polishing and adjusting mold parts during the process of assembling them to a finished mold. Since the phrase polish and adjust (“Suriawase” in Japanese) was used to refer to anti-modular structure (the “polish and adjust model”) by some researchers and Japanese media, using modules—thus undermining the national strength—came to be seen as unpatriotic.

In English, the term “integral” is widely used to emphasize the whole instead of only parts. Modules certainly correspond to parts, which leads to the widely accepted understanding that the modular methodology adheres to only details, neglecting the whole. However, when interfaces are focused, it is apparent that the whole is more importantly considered as the architecture. Therefore, the understanding that the modular methodology does not consider the whole, which is represented by the expression of the contrary concept as “integral,” is totally wrong.

The essential difference does not reside in emphasis on the whole or the detail, but on the design—whether the interface will be used once or frequently, whether it will be used locally/short term or comprehensively/long term, and whether it will avoid risks unconsciously or manage risks intentionally.

Designing interfaces with a comprehensive and long-term perspective increases the usage frequencies, the consequence of which increases ROI and decreases risks. Therefore, the more integral perspective becomes indispensable for the modular methodology. As the modular methodology involves multiple products, multiple businesses, and future modifications, it rather considers the larger scope than the ordinary or non-modular methodologies.

The phrase, “mono-dukuri,” meaning “production” in Japanese, has been repeatedly reconfirmed as the strength of Japan that should be pursued continuously. The term “mono” in “mono-dukuri” refers to tangible products/parts. That is, it is intended to emphasize the significance of physical production over software, intellectual properties, and services, which have been pointed out as the weakness of Japan. It is understandable that “mono-dukuri” has been well accepted and supported by all of the Japanese people who played very important roles in the past.

However, it is obvious that software, intellectual properties, and services have become much more important for adding value to products than they were in the past. In addition to the digitization of products, the digitization of product design, production equipment, sales force automation, online distribution, and R&D activities is progressing. As described throughout this book, those reductions of transaction costs further decrease other transaction costs.

The denial of changes and the rejection of the necessary innovations are typically symptomatic of “the innovator’s dilemma” syndrome, in which the most successful person in the past is most likely to fail in innovations. It is true anytime and anywhere that changes cause pain. It is surely unfortunate that their past success factors had lost value drastically only in 20 years, but the escape from reality only works like morphine, which will not solve the problems.

6.6.2.2.2 Exceptions in Japan: The Module-Oriented Companies of Kyoto

Despite the fact that few companies pursue modularization in Japan, there are a dozen unique companies in Kyoto with business performances three to eight times better than ordinary Japanese companies in terms of profitability and growth rate due to the adoption of the modular strategy. The examples include the following:

• Kyocera: electronic components and electronic equipment

• Nidec: precision motors

• Murata Manufacturing: electronic components

• Nitto Denko: high-performance films and adhesive tapes

• Keyence: integration and manufacturing of FA equipment

• Omron: electronic components and electronic equipment

• Nichicon: capacitors

• Horiba: measuring equipment

• Tose: game software development

These companies have the following features, which are commonly observed with globalized companies:

• (1) Specialization of technologies and products

• (2) Acquisition of de facto standard products (parts)

• (3) Focus on open global markets (not Keiretsu group businesses)

  Furthermore, there are some more common features as the consequences of the features above:

• (4) No intention to move their headquarters outside of Kyoto

  Successful companies that are located not in Tokyo tend to move their headquarters to Tokyo after they reach a certain size, spending much more for office rental. However, none of those Kyoto companies moved to Tokyo. Their head offices do not need to be in Tokyo because personal networks, supports, or businesses from the central government are not strategically important to them, unlike ordinary Japanese companies. Their focus is the global market. Kyoto also offers a higher quality of life and authentic Japanese culture, allowing companies to better entertain their global customers.

• (5) Competitive governance structure

  Different from the community-type governance of ordinary Japanese companies, their decision makers’ responsibilities are clear so that their performances are strictly evaluated. Their unique performance evaluation and management systems, including the Amoeba Management of Kyocera and the 3D matrix organization of Murata Manufacturing, have obtained attention.

• (6) Utilization of M&A as their engines of growth

  Despite M&As still being emotionally denied in Japan’s society, those companies are well known for utilizing M&As actively.

Among those, the following companies have particularly unique characteristics:

• Nidec is strictly focusing on precision motors and has realized the high market shares in fields like electronics products, automotive parts, and industrial and home appliances.

• Murata Manufacturing and Nichicon also have a modular organizational structure, which is commonly applied by their domestic competitors such as TDK and Alps Electric. This is because all electronic components are modularly structure more or less.

• Keyence and Nitto Denko have implemented modular structure in product development, technology development, and application service integration. Modules of technology are integrated into products, which are also integrated to customized applications efficiently.

• Horiba is the most cited example of a successful venture start-up company in Japan. All those companies have commonly strong innovation-oriented entrepreneurship, critical thinking, and independency culture.

• Tose has built multiple partnerships with game makers, not subcontracting relationships, in which it provides them development and planning functions, clearly declaring that they will never compete with their customers by directly selling games to consumers with their own brand. The company has dominated the game software outsourcing market of Japan.

The features described above may not be worth pointing out because they are common to all the globally growing companies. However, the innovation culture, the entrepreneurship, the critical thinking, the independence, and the leadership/governance that enabled their achievements in the adverse environment of Japan should be reconfirmed as universal key success factors in the global open economy.

6.6.3 Difference of Benefits and Attitudes by Stakeholders

Destruction of fixed interfaces by vested rights groups is possibly avoided.

6.6.3.1 Stakeholders Who Desire Fixed Interfaces

In this section, the stakeholders who desire fixed interfaces and those who reject them will be clarified. First, stakeholder groups that advocate fixed interfaces include the following:

• (1) Business owners and statesmen

  Organizations, markets, and societies flourish economically when transactions are promoted by the establishment of fixed interfaces. Therefore, business owners and statesmen must establish interfaces to benefit organizations and societies as a whole. Nations with statesmen who put the first priority on the establishment of interfaces such as infrastructures are likely to improve prosperity. However, once those people acquire monopoly positions, they may reject the introduction of new fixed interfaces such as deregulation. To avoid this, governments in developing countries should utilize private activities including private finance initiatives (PFIs) and public-private partnerships (PPPs) for railways, postal services, highways, electric power, and telecommunication, thus maintaining their small size.

• (2) Customers (consumers and buyers)

  All customers are positive about fixing interfaces, which increase the quality of products/services and decrease prices by intensified competition, with exception of those who do not appreciate standardized products/services without knowing their values.

• (3) Competition-driven and growth-driven companies (suppliers)

  Companies that have higher-quality and lower-cost products and expect expansion of their businesses are likely to desire the establishment of fixed interfaces so that they can enter into competition. Examples are venture start-up and foreign-affiliated companies.

• (4) Competition-driven and growth-driven managers and workers

  Individuals who have higher capabilities with self-growth motivation welcome competition, which increases opportunities. Therefore, they are positive about fixing interfaces.

• (5) Some managers and workers with creativity

  Creative individuals want to outsource their valueless tasks by introducing fixed interfaces (e.g., manuals) so as to focus on more creative work. Therefore, they are likely to be positive about fixed interfaces. In contrast, uncreative individuals reject them to avoid the competition.

• (6) NPO activists with philosophies of sharing resources and unification

  NPO activists who support sharing resources such as Free Software, Open Source, Creative Commons, and the Internet-related NPOs regard a society free of transaction costs as ideal. None of them are communists, but they are in quest of the society in which people are interconnected. They conduct those activities expansively in the world to achieve the ideal.

6.6.3.2 Groups of Stakeholders Who Reject Fixed Interfaces

The positive feedbacks regarding standardization described in Chap. 3 occur because consumers, companies, and markets desire them. Consumers purchase products that are expected to meet standards, resulting in supporting the companies that intend to acquire standard positions. As fixed interfaces construct layered structures, new standards are built on existing standards, the structure of which easily generates vested rights. When those standards become obsolete, they are supposed to be replaced by an innovation, but the groups with the vested interests of existing standards frequently obstruct it.

The substitution of existing interfaces by new interfaces is perceived as a threat by those who benefit from the vested rights of the established system. That is, people who oppose the introduction of fixed interfaces generally are those whose benefits are decreased by competition. They enjoy making profits easily with their lower-quality and higher-priced products. Therefore, they reject and obstruct such substitutions by any available means. Introductions of fixed interfaces will likely be denied before competition is promoted and substitutions are enforced. Even though their present vested interests were gained by their hard efforts of self-innovation in the past, they adhere to and protect their present positions. This stance is particularly noticeable in the following groups:

• (1) Managers and workers who avoid self-improvement activities

  Individuals who are reluctant to streamline their own tasks and improve their performances may reject fixed interfaces. An example is tacit knowledge workers who lose their jobs when their individual know-how is described explicitly as fixed interfaces such as manuals and rules and shared by young workers.

• (2) Companies that avoid self-improvement activities

  Companies that do not implement innovations for lower prices and higher quality may reject fixed interfaces in their organizations. Examples are companies that cannot control the mentality of their employees who avoid self-improvement.

• (3) Corrupt politicians

  Politics are likely to be influenced or controlled by political funds from vested rights holders with abundant resources and select policies to protect vested rights prior to social benefits. They are likely to obstruct the introduction of fixed interfaces.

As described above, the introduction of fixed interfaces promotes competition and substitution of resources, and therefore, it contributes to majorities such as consumers and buyers. However, the vested rights of small groups are inevitably compromised. As they have enormous political power commensurate with their size, majorities are not able to deal with the minor groups’ unreasonable obstructions. This problem is serious but not unsolvable if the structure is recognized by all members of an organization and the countermeasures that were described in this chapter are well prepared.

6.7 Essential Issues Behind the Rejections

Difference in value and preference on competition is most essential.

6.7.1 Differences in Raison d’etre of Organizations

Transformation from a village community to a competing organization is required for companies.

In this chapter, requirements and interferences for designing interfaces, including modules, standards, and systems, have been discussed from various points of view. The introduction and improvement of interfaces correspond to innovation, and the success largely depends on the organizational capability of executing innovation. To discuss the organizational capability of innovation, the six factors for executing innovation shown in Fig. 6.6 will be discussed. For explanation, organizations are divided into two groups by the value for raison d’etre (purposes for existence), applying the concept of community versus organization⁹ that was proposed by Peter F. Drucker. How those factors are implemented properly in those two groups, respectively, will be examined.

Fig. 6.6

Differences in raison d’etre of organizations

The left side of the two in the comparison is the group aiming at peaceful lives of all members, which will be referred to as village communities hereafter. The right side is the group with goals and willingness to sacrifice to win competitions, which will be symbolically referred to as competing organizations hereafter. How the two types handle the factors for executing innovations will be described below.

• (1) Allocation of profit as an incentive for innovation

  Innovation is executed with an aim to create benefits to communities or organizations. At that time, the proper allocation of the benefit is important for encouraging innovation internally. As achievements of innovation are fundamentally difficult, strong incentive must be provided. In village communities, equality and absence of sacrifice to any member are deemed right. Thus, degradation of even one individual’s life is disliked. If profits brought by innovators are allocated to them unequally, it will result in relative degradation, deterioration, and even demotion of life and status of the others. This problem does not surface as long as the communities are growing, but the antipathy toward the weighted allocation of profits to the contributors increases during their aggravation. This would add enormous cost and risk to potential innovations, which takes away the motivation and inhibits the emergence of innovators.

  In contrast, competing organizations believe that the larger the weighted allocation to those who achieved innovation, the more innovation is promoted. Having achieved numerous internal changes (individual self-improvement) and external changes (innovation leadership in organizations), the innovators may also be referred to as high performers. As the disparity favors high performers and disfavors low performers, to eliminate it would be equal to favoring low performers and disfavoring high performers (by transferring profits earned by high performers to low performers). However, excessive preferential treatment toward high performers would result in the accumulation and the explosion of social discontents; thus, the disparity leads to political instability.

• (2) Rigorous and accurate evaluation of innovations

  The second factor that promotes innovations is evaluation. Evaluation of results is indispensable for modifications and improvements of innovations, which make innovations more efficient and effective. The more detailed and elaborative the evaluation is, the more accurate the management of innovation becomes. If monitoring and evaluation in the effective cycle for usage of interface is executed properly, the possibility of success can be greatly increased.

  In village communities, occurrence of disparity by changes of remuneration and promotion or demotion through the result of evaluation is disliked. In addition, more basically, ranking of colleagues by evaluation tends to be disliked. Actually, as evaluation means to evaluate the effectiveness, it is impossible to be executed objectively. However, competing organizations spare no effort on developing and improving the methodologies and the capabilities required for evaluation. Being typical village communities, Japanese companies have been indifferent to internal evaluation; there existed a history of introducing performance-based evaluation systems by copying Western companies. With the common negative attitude toward evaluation, the introduction failed, not being able to overcome the aforementioned difficulties, and resulted in a reconfirmation of an entire negation of evaluation.

• (3) Promotion of competitions

  It is not an exaggeration to argue that innovation exists only in competitive environments. This is because earning various rewards and benefits by winning competitions is the biggest incentive to lead changes that are accompanied by huge individual risks and costs. A motto such as “innovations for our society” is significant idealistically, but the realistic driving force is rather instinctive and materialistic. Thus, it is necessary to explicitly praise and reward the innovators according to the results of the competition, but this would create a relative loser, which village communities dislike. Impassioned argument that asserts competition as inhuman, saying “the competition principle corresponds to the law of the jungle,” is widely repeated there.

  On the other hand, in competing organizations, the competition principle is positioned as an important philosophy that enables growth, wealth, and revitalization of the society. Furthermore, competition encourages and revitalizes individual growth, which brings people satisfaction and a sense of accomplishment.

• (4) Utilizing entrants from outside

  In many cases, outsiders that try to enter communities or organizations have high abilities and seek for opportunities for growth and success in the new environments. It causes internal competition, which further brings weighted reallocation of resources and profit. For example, if a venture start-up company thrives or a foreign-affiliated company enters village communities, losers may be generated. Therefore, mobilization of human resources that causes new competition is disliked; various practices and protocols that can only be understood internally and path-dependent systems are created to obstruct new entrants, both intentionally and unconsciously.

  In contrast, in competing organizations, new, high-caliber entrants who will strengthen their competitiveness only at low cost are highly welcomed. In the Internet society, where mobilization of human resources has increased dramatically, competing organizations that are capable of accepting and utilizing outsiders and entrants possess huge advantages in any competition.

• (5) Promotion of diversity

  Along with the exclusion of new entrants, another important policy for village communities is elimination of diversity. If heterogeneous values and behaviors existed in the communities, they would cause various conflicts with the preexisting robust conventional practices, resulting in confusion and chaos. Then the peace and calm life would collapse. It is significant to transfer preexisting values to all members, automatically leading to the introduction of an education system and spontaneously generated disciplines that emphasize obedience and homogeneity. The psychological mechanism that denies heterogeneous thoughts is embedded there.

  On the other hand, in competing organizations, the concept of diversity cannot be overemphasized for enhancement of competitiveness from a long-term perspective. Introduction and acceptance of diversity is also an extremely difficult challenge. If discrimination issues are included, it can be argued that it is the biggest challenge to mankind. However, rather than abandoning or denying diversity as a whole before consideration, competing organizations endlessly attempt to build societies and organizations that can accept and utilize diversity.

  Generally speaking, Japanese companies have relied on tacit knowledge and customs as interfaces until now. These were generated spontaneously in the homogeneous society, rather than being developed artificially, not like processes and systems that were designed to manage diversity. As customs and tacit knowledge take a long time to become established, these cannot respond promptly to the increasing and accelerating changes in today’s environments. Interfaces must be in easily manageable forms such as systems and processes to design, develop, monitor, evaluate, and modify.

  Designing interfaces necessitates two basic capabilities: logical thinking and leadership, the development of which is closely related to diversified environments.

  In the first place, patterns in which interfaces are used frequently and in the longer term should be extracted from among various phenomena. In this process, the capability for induction and deduction is required. For designing interfaces, risk evaluation is also important. This is not a blind, risk-taking action but a scenario prediction based on logical processing of past experiences and information analysis, the accuracy of which must be much higher than that of the competitors. Innovation is achieved by convincing others who possess various values, experiences, preferences, and logical thinking capability to accept the offered scenario and making them conquer the fear of taking risks and moving forward. Leadership is another key to make it occur.

  As conceptually shown in Fig. 6.7, there is a different characteristic in the distribution of human resources¹⁰ in every field of Japan, including business, arts, sports, music, and so forth. Under the values of village communities, the strong homogenization pressure raises the capability level of the bottom and at the same time drags down the top. It is true not only in a comparison with the USA; the distribution widths spread further in India and China. In the globalizing world, such distribution is growing wider in all areas and regions

  Fig. 6.7

  

  Difference in the distribution of human resources

  Organizations with strong homogeneity probably win the competition of human resources in the left side of the figure, namely, the competition in the lower level, and lose in the right side, the competition among high-caliber people

  The weakness of the organizations with such concentrating distribution of human resources includes the absence of leadership, strategy planning, and innovation, as described previously. On the other hand, their strength is the higher operation capacity. That is, such distribution of human resources would exhibit extremely high competitiveness in environments where the direction and strategy are clearly set and shared without question and all members are highly motivated. The high-growth period of Japan after World War II corresponds to this kind of environment where the homogeneous society exhibited an overwhelming competitiveness to the confused societies struggling with diversity. The homogeneous society will be surpassed by a diversified society when various techniques that can dramatically reduce the transaction costs among diversified entities have been developed

  Design capabilities for interfaces are basically identical with capabilities of handling diversities; therefore, they are more developed in diversified environments. As Japanese society and companies have had a tendency to ignore their weaknesses, the enhancement of diversity has almost never been discussed, developed, or taught. For companies that are competing on the right side of the distribution, the development of this capability should be recognized as a critically urgent issue.

• (6) Concentration of decision-making power and acceptance of risks

  In village communities, where the aim is the peaceful and sustainable life of every member, all of them are entitled to participate in decision making. Every decision is made unanimously. No matter how small the change is, there is invariably an individual who will be faced with loss. For example, if a narrow road is constructed, the majority can gain a great benefit. However, there are still disadvantages such as destruction of lands due to the construction or increase in street noise caused by pedestrians. Veto power is exercised and accepted; any small change is very difficult to be embodied. This leaves room for unsolvable emotional arguments. In Japan, headmen of villages, fixers, used to play active roles in coordination of conflicting interests in the past, but due to the rise of individualism in recent years, their functions have greatly diminished.

  In contrast, in competing organizations, the necessity of the concentration of power, especially in emergencies such as wartime, is conceived as a common recognition. The current competitive environment requires continuous innovation, which makes it no exaggeration to say that every day is like an emergency. For example, the role of Chief Technology Officers (CTOs), in whom all decision-making authority related to research and development is concentrated, has been increasing in significance. By concentrating research resources strategically, surpassing larger competitors in terms of resource volume in a targeted area becomes possible. Venture start-up companies usually utilize this mechanism to compete with behemoth companies. In large, village community-type companies, all researchers in their research and development departments are like feudal lords; resistance occurs when reducing resources of the individual researchers or consolidating research projects. It is impossible to win the globally intensified competitions in research and development with such dispersed resources.

  CEOs formulate corporate strategies and shift resources from unpromising businesses to promising businesses to win the competition, as is the case with CTOs in the research and development efforts discussed above. This concept, the concentration of resources, is basic in all strategies, throughout all times and places. Such shifts of resources that inevitably accompany sacrifices are executed in the field of every sport, even in the high schools of Japan, where the critical purpose is to win the competition, and needless to say in the increasing global competition of the business world. The Internet has integrated the global market drastically and has been intensifying the competition further; companies have to increase product quality while decreasing prices to zero in order to win market shares. In such an extreme competitive environment, concentrating decision-making rights to one person and encouraging actively taking risks becomes essential.

  However, in village communities, anyone—even new employees—can veto. Even a slight change in operation requires enormous time and cost spent on informal consensus. Most innovations and changes disintegrate in mid-air, being unable to withstand those demands. Vetoes of every individual are respected; vested authorities that have already become social evils are also protected. Vested rights holders would resist any shift of resources without hesitation, no matter how trifling it is, and would even gain sympathy.

  Execution of a strategy (i.e., selection of an area and concentration of resources) accompanies great risks. An improper anticipation may lead to critical loss, not to mention loss of the peaceful life. However, not taking any risk—not executing any selection or concentration—would also result in loss or collapse in the current severe global competition. Taking risks does not invariably result in winning the competition, but taking no risk would result in losing the competition with higher probability. While it necessitates that companies concentrate power and authority to leaders such as CEOs, CTOs, and business managers, the decision-making system that gives all members a veto is likely to converge on the most risk-averse decisions.

  Dependence on a leader corresponds to selection and concentration, the structure of which is identical to modularization, standardization, and establishment of interfaces that involve risks. Without capabilities, the defects would surpass the benefits. The leader’s capability is absolutely critical.

  Innovation is to move forward in a totally unprecedented direction, dealing with various inexperienced situations instantly, which is highly similar to a crisis response. As for the Fukushima nuclear disaster, many questions were raised about the responses of the leaders. It seems not essential to blame only the leaders, as it is a problem of the social structure, which shares the same root with the social background that innovations do not emerge. Emergency-response manuals were poor, and even the decisions in such emergencies were made in the council system. Accurate judgment capabilities for leadership were not developed institutionally, or high-caliber assistive teams were not provided. Incentives have been too small for such high-risk missions.

  Excessive concentration of power increases the possibility of resulting in incorrect dictatorship; this massive potential cost complicates the matter. The mechanism prepared for this problem is the governance, which is a safety device of democracy to monitor and check the misuse of power. In terms of companies, it would be the distribution of decision-making authority such as a board of directors (including outside directors). The cost for the democracy is large, which has been recognized as an integral cost in order to avoid a runaway dictatorship. However, due to the aforementioned drastic changes in the market competition, successful cases in which decision-making authorities are concentrated and these costs are avoided have become noticeable.

• (7) Active utilization of systems

  Village communities assume basically that people act for and contribute to the societies voluntarily, respecting self-initiative and disrespecting controlling. This assumption typically leads to inadequacy and ignorance of manuals, systems, and processes. In contrast, competing organizations make efforts to manage and control people depending upon the efficiency of the system. With the assumption that people are originally reluctant to innovate or change, they should be managed and motivated through a top-down approach in the hierarchical structure. Conceit and arrogance also depend on mental laziness; thus, management and education of habits are also important in encouraging innovation.

6.7.2 Examples of the Two Groups in Comparison

The difference in competitiveness between the two groups becomes larger in the global economy.

6.7.2.1 Examples of Competing Organizations

One of the most prominent success cases of the transformation from a village community into a competing organization would be South Korea. The breakthroughs of Korean companies including Samsung, LG, and Hyundai KIA Motors have been beating Japanese counterparts, one right after the other; the rank of the GDP per capita of Japan, which can be deemed as an indicator of international competitiveness, has been going down greatly from 4 to 19 (National Diet Library survey) among OECD countries in the past 20 years. Specifically, the global market share of Japanese companies in the strategic products, such as memory semiconductors, LCD panels, DVD players, solar panels, and car navigation systems, has diminished from near 100 % to almost 0 %. The same phenomena are also occurring in other industries like mobile phones, lithium ion batteries, TVs, semiconductor manufacturing equipment, and game software. In the automotive industry, which is believed to be the last stronghold of Japan, Hyundai KIA Motors ranked as the No. 1 customer satisfaction brand in retaining buyers in 2011 (J. D. Power Customer Retention Study) for the first time and already hold a bigger share than Toyota in the Chinese and EU markets.

After the financial crisis in 1997, South Korea acquired the support of the International Monetary Fund (IMF). With a shared sense of crisis among its people, various reforms were executed, including the following:

• Enhancements of international competitiveness by merging companies such as Samsung and Hyundai KIA Motors for efficiency improvements

• Preferential treatments toward large companies such as taxation and foreign exchange rate policies (to weaken the Korean Won)

• Flexible applications of the Labor Standards Act (enhancement of product development capabilities through longer working hours)

• Active use of the FTA to strengthen export industries, with the sacrifice of domestic industries

• Concentrations of decision-making authorities in companies (e.g., CEOs, CTOs) and governments (e.g., the “national CTO” position in the Ministry of Knowledge Economy) and aggressive investments with high risk for enhancing product competitiveness by economies of scale such as semiconductors

• Aggressive developments of emerging markets (India, Middle East, Africa, and so forth)

• Active utilization of external human resources such as lifting the ban on Asian elite immigration and appointing an American to be the head of their sovereign wealth fund

• Clarification of responsibilities, active delegation of power, and rigorous monitoring and evaluation in companies

Under the direct and indirect effects of IMF, the construction of infrastructures for promoting innovations—a social innovation—was executed. In addition, the personal influence of Lee Kun-Hee, the Chairman of Samsung Electronics, which changed its raison d'etre and drove the entire nation to an innovation-oriented country, is also not negligible.

However, the phenomenon of swingback that occurred in the UK, which will be discussed later in this section, can also be observed in South Korea currently. Political pressure for profit distribution to vulnerable groups from significantly exposed disparities intensified, and the government has been increasing the number of policies to respond to it. This may weaken the international competitiveness of rapidly growing behemoths such as Samsung, LG Electronics, and Hyundai.

Singapore is well known for being a country advocating competing organizations with its leadership from the powerful bureaucracy, even stronger than that of South Korea. In fact, a similar tendency can also be observed in Taiwan. In China, although a gap may exist between ideal and reality, the movement toward a competing organization under the Communist leadership is steep, at least in the economy.

The UK used to emphasize equality of all members, just like the village communities, until the 1970s. The concept of competing organizations was introduced in the 1980s by former Prime Minister Margaret Thatcher to break the “British disease.” However, it has been in a swingback period, and The Third Way has been pursued. As for the USA, the basic policy of President Barack Obama, who used to be a lawyer for civil rights activists, focuses on the relief of weak and declining industries, which is deemed the position of a village community. On the other hand, there arises the tea-party movement against the policy in grass roots by the classic group on the right side.

The most successful example of the transformation must be the establishment of the EU. The markets became open to each other by reducing all kinds of transaction costs, and competitions have been promoted. The challenge is still progressing. The bubble once burst due to the excessive expectations, which always accompany remarkable successes, and the influence still remains at present. However, their long-term fundamentals are considered to be very strong.

The competing organizations utilize disparity as an incentive, but there is also an obvious drawback, as previously described. As the number of people who do not gain any benefits from the incentive system takes up the majority usually, dissatisfaction is likely to be accumulated, which may lead to social and political instability. Policies for the majority are likely to be adopted politically, which responds to the dislike of competing organizations. However, circumstances are essentially different within a company. By having proper countermeasures against people who express dissatisfaction, the introduction of the incentive system becomes possible. Specifically, consolation systems, support, education and training for re-challengers, career change systems within a company, and various systems for promoting challenges (e.g., internal competitions for process improvements with rewards) can be considered.

Many global companies have succeeded remarkably in raising morale and awareness of competition among ordinary employees, which coexist with their already-established, outstanding leaders. Competitions among companies seem to have expanded to among ordinary employees beyond corporate leaders. The growing companies have successfully appealed to and recruited high-caliber and qualified employees more and more, resulting in a larger difference in the competitiveness between companies.

Global companies that have been decoupled from countries accelerate the changes to become competing organizations. Support from governments or even understanding by governments will revitalize the economy, but not a policy that impedes the transformation.

6.7.2.2 An Example of a Village Community

The expression “the law of the jungle” is often used to ridicule the competing organizations in Japan. Expected responses to changes from a village community, which can be learned from an example of Japan, will be discussed in this section.

“Follow precedent,” “go with the flow,” and “you can't fight city hall” represent the characteristics of Japanese’s decision-making behavior. The trend becomes stronger in organizations that are closer to the foundations of the state, such as the bureaucracy, state-owned companies, corporate giants, and national universities. As long as people follow previous examples and the crowd, it is obviously impossible to realize any change. Also, “city hall” is usually the vested power holders; as long as the existing system is obediently followed, the vested power will be maintained inevitably. That means the concept of accepting changes is not established in Japan’s society or companies. Although regulations and regulatory authorities are often criticized as impediments to social innovations, the regulations merely appear as the tip of the iceberg that is the sense of value and the system, the raison d'etre. The criticism with an expectation for solution seems to be very irrelevant.

Generally speaking, the heads of not only large companies, but also medium-sized companies and even venture start-up companies, do not possess the power to enforce a change. In village communities, not to mention the power of dismissal, even the exercise of the right of determining remuneration is shunned as a threat to the equality. Pushing the limits further in such environment may result in a backlash, and the leader may be ostracized from his village. The ostracism in village communities is a fatal and enormous risk to any individual. Even when having been succeeded in forcing everyone to accept a change, the profit to oneself is extremely small in the current reward system. The personal ROI of exercising leadership is close to zero or even negative. Especially nowadays, there is a tendency of organizational size reduction in each company; thus, once a failure, which can be observed publicly, is committed, one would immediately become the victim of the purge. Taking no action may be the safest way to cling to the current position for elderly and high-ranked people. Although a leader could make a well-prepared risk aversion by pressing all accountabilities to his/her subordinates as a scapegoat, the potential change agents themselves are vanishing.

Accordingly, the opportunity of exercising a change is very limited; the opportunity to learn leadership skills on the job is also limited. Furthermore, the opportunities to acquire and learn leadership skills, which are very important in competing organizations, are unavailable from internal or external educational institutions. This is a vicious cycle in which the probability of successful innovation achievement is significantly reduced. Pointing out the lack of leadership of a leader as a factor of innovation stagnation would be very cruel to that person.

It is significant to be noted that although all the facts above are specific and special, it is highly possible for any single organization that any of those paralyzing factors may arise if not cautiously directed, organized, and managed.