Combining Associative And Price-Based Systems Of Exchange: The Case Of CyberAgent Inc In Japan
Updated: Jan 19, 2021
By Rick Delbridge, Takahiro Endo and Jonathan Morris
The success of Japanese firms in the 1980s and 1990s provoked considerable interest in their management practices. Research suggested that some of the leading Japanese firms such as Toyota, Nissan, Sony and Hitachi did things differently to the typical ways in which activities were managed in North America or Europe. In particular, the manner in which the leading Japanese manufacturers managed their production processes, their employees and their suppliers all drew considerable attention from western academics, consultants and commentators. That period saw the widespread acceptance of the argument that the distinctive character of Japanese employment relations was key to understanding the country’s economic resurgence in the post-war period. The ‘Japanese three pillars’ of lifetime employment, seniority based pay and promotion, and enterprise trade unionism were seen as central to the success of large Japanese corporations.
These characteristics of Japanese employment relations were argued to have produced mutual reciprocity and obligation that brought together the interests of employees and employers. Organizations, where the expectation was that employees would build an entire career, were able to stage promotion and pay on the basis of time served and experience gained; employees expecting to work for the same organization throughout their careers created a sense of identity and commitment to that organization. This mutual obligation or reciprocity was not just to be found in employment relations. The structure of Japanese industry also promoted a sense of shared destiny between firms, particularly those that were part of the same ‘industrial family’ (keiretsu) or involved as a key actor in the supply chain network (kyoryokukai) of a major manufacturer.
The combination of this mutuality at both employee and supplier level led to the conclusion that Japanese large firms did things differently and that the characteristics of their economic exchanges were distinctive from the market-based nature of the increasingly widespread neoliberal market approach associated with the US and UK economies. At least this was the argument in the 1980s and early 1990s while Japanese firms made significant inroads into global markets and the Japanese economy prospered. It was these features that led us to describe a distinctively ‘Japanese’ approach to capitalism and its systems of exchange as ‘associational’ in the typology of systems of exchange (Biggart and Delbridge, 2004). Exchange relations – between buyer and supplier, employer and employee – were particularistic in nature, long-term and founded on some sense of shared destiny and mutual obligation. The exchanges were informed by an instrumental rationality underpinned by commitments to efficient and effective processes, continuous improvement and quality that held sway over simple price and cost outcomes.
While individual Japanese firms have continued to be successful in the subsequent period from the early 1990s, the Japanese economy has stagnated. The economy has remained very large until recently it was still the world’s second-largest, but growth has disappeared. Japan’s approach over the ‘Lost Decade’ and beyond has borne distinctive characteristics and while there have been pressures to adopt more ‘Western’ neoliberal and free market-based approaches in, for example, corporate governance, the Japanese economy and its leading firms have remained distinctive in their character. For example, while there has been an increase in the stratification of the labour market, unemployment has remained comparatively low and the largest corporations still retain long-term commitments to their core employees. At the same time, researchers have identified both a growing recognition of the diversity of the post-World War II institutional and organizational arrangements of the Japanese economy and the downsides of these, particularly for employees outside the large corporations. The past 20 years have seen an increasing variation in the Japanese model and a growing role for employees in non-standard employment arrangements (Keizer et al, 2012).
This was the context for a Cardiff University study of how the Japanese model of employment relations has developed over the post-bubble period. One of the organizations that were studied in detail provides a fascinating example of how employment relations and management practices have been developed by individual firms in responding both to new economic conditions and the distinctive challenges of a particular industry sector. The company, CyberAgent, operates in the IT sector and began selling internet advertisement in the late 1990s. It has become a widely recognized success story in Japan and has grown rapidly, diversifying into the production of computer games for mobile phones and other applications for the virtual and mobile markets.
The company displays many of the characteristics of a new economy firm with a low average age of the employee, many bright posters and decorations throughout its open-plan offices, and numerous company parties and social events. At the same time, it seeks to preserve the conventions of a long-term commitment to its employees and strongly promotes a corporate identity and mutual obligation between employer and employee. But what is perhaps the most interesting feature of the organization is how it has combined some of these associational exchange features of the Japanese model with the generation of highly entrepreneurial, competitive and price-based mechanisms in order to promote innovation and business growth. In the rest of this article, we feature the key aspects of how CyberAgent has developed new systems to drive forward its business in ways that are distinctively different to conventional Japanese corporate practice.
Competition and selection in the growth of new businesses
These characteristics can be seen in the way the company seeks to articulate and communicate its corporate culture. CyberAgent makes extensive use of virtual communication, including blogs from its senior managers, that promote the company’s ‘code of conduct’. This code captures the aspirations for innovation and growth of CyberAgent and states that the company will look to identify and promote talented individuals. But it also commits the firm to giving people ‘a second chance’ and to the promotion of a shared sense of corporate identity. The full code of conducts is as follows:
Always positive, never give up.
To take actions is better than to review actions.
Be proud of creating a new industry by ourselves.
The first-tier people make the first-tier team.
Give a second chance to those who challenged.
Aim to create the strongest corporate brand.
Always challenging, always grow.
Energize Japan through the internet and young people’s power.
One employee spoke about the company’s culture in this way:
‘I think our corporate culture is frequently described as “polite aggressiveness”… I mean, you should not do something offensive or impolite, but you need to “push” yourself and your product in a polite way, but to a full extent… Our culture respects very strong passion for growth, aiming for faster promotion and bigger responsibilities… We respect fast performers, so promotion is rapid for fast performers’.
The CyberAgent mission statement (Company Report 2013: 10) contains the following: ‘We must create an environment where our valuable employees can stay with us throughout the years. We must promote the rise of the young. Promotion by seniority is forbidden’. In direct contrast to the nenko system of seniority-based pay and promotion that underpins careers in large Japanese corporations, CyberAgent has a number of mechanisms that encourage competition between individual employees and cultivate new ideas for business development in order to identify and selectively promote the most able and innovative of their employees. These competitions are integrated into the business and run on a regular basis.
The first is Jigyotsuku, a business plan competition that all CyberAgent employees are encouraged to apply to. The best of these ideas may be selected to become a spin-out subsidiary company and the proposers are installed as the senior managers in charge of the new venture. The first of these was held in 2004 and attracted ten entries but the programme has grown rapidly with the number of entries increased in the 15th competition rising to 359 business plans and 16th and latest had 828 business plans submitted. This has been reflected in the number of subsidiaries that emerge from the process. There are currently 49 subsidiaries (Company Business report 2013), of which interviewees recently reported (January 2014), 25 are new in the last three years and 16 of these were set up in the last year.
The second and related activity is the Ashitakaigi, this is a ‘conference for tomorrow’ which is hosted by the CEO and sees teams each led by one of the board of directors compete on the quality of their proposals for new business plans, including suggestions for improvements in strategy, HRM, finance and so on.
The intention of the senior management team with these initiatives is to make the most of the energy and ideas of their youthful workforce and to grow new businesses. This approach also ensures that they are providing opportunities for young employees who are ambitious and are not expecting the long-term career commitment of the established Japanese corporations.
The schemes tend to lead to the appointment of new CEOs for the subsidiaries who are still in their 20s and often involves new recruits to the firm. For example, Applibot, one of the largest subsidiary firms, was established through the business competition when the current CEO was working as an arubaito (fixed-term temporary worker) in his final year at university. At the time of the 2013 company report, 20 new graduate recruits had gone on to become Presidents of new subsidiaries with a total of 42 employees involved as directors of subsidiary boards. CyberAgent sees these mechanisms as a way of promising employees learning about management and business decision making ‘on-the-job’ and provides various supports to the subsidiary senior team.
The subsidiary firms are in competition with each other to see which ones grow and establish themselves. The company also uses the principle of internal competition between divisions through its CyberAgent Jigyo and Jinzai (CAJJ) Development Programme (business and personal development) which sees business units ranked annually on their sales, services and financial performance. This programme provides clear criteria for business withdrawal (that is the closing of a subsidiary business) or promotion decisions. There are strict and widely understood rules that underpin this programme. For example, a subsidiary has 18 months to establish itself and deliver consistent profitability. If this is not achieved, either the business is closed or the CEO is replaced.
This principle has begun to be devolved through the organization as unit members pick up the initiative and establish their schemes. In our latest trip to Tokyo in January 2014 we heard of the development of a ‘Designer Royale’ (named after the novel and movie Battle Royale) competition amongst the firm’s 60 or so designers. This is a competition run by and for designers and focused on suggestions for improvements in existing designs. Even in the new economy of IT firms, this is an unusual practice in Japan. We talked to the designer whose idea it was to establish the competition and he commented that, ‘I worked for another firm before also as a designer… In the previous workplace, it was not considered polite to clarify skills or abilities, it was all implicit and revealed only when necessary, such as you deliver your design plan and get feedback from the boss… In this firm, it is, on the contrary, encouraged to reveal your design skills… I talked to the CEO about the plan and he said carry on!… We already held [Designer Royale] twice, participants were very serious and not only participants but also the audience were serious for learning’.
This is an interesting development since it combines the established practice of continuous improvement (or kaizen) that was a key feature in the success of Japanese manufacturers in the 1980s and 1990s with a much more individualistic and competitive approach to that process.
Maintaining a sense of shared commitment
It is important to emphasize that these individualistic and competitive aspects of CyberAgent have been developed in an organizational context that also retains elements of the associational exchange system of mutuality and reciprocity. The firm has several characteristics often recognised as traditional Japanese management practices, including long-term employment, dense networks and a preference for internal growth and staff development. CyberAgent aims to maintain long-term employment for full-time employees. The HRM director reported that the firm does not lay off full-time employees because of low performance: ‘We deny seniority but do maintain long-term employment… If a manager cannot make an output, it will be simply reflected on the salary… If employees cannot make good progress, it is rather their managers’ fault. That is our basic principle’. In a later meeting, he was clear in explaining that the company also maintains a ‘mismatch approach’ which will see individuals leave the organization if it is concluded that they are not a good fit for the CyberAgent way of working.
We heard from individual employees who were able to confirm that the company is good to its word of giving individuals a ‘second chance’. One said, ‘I made quite a serious mistake and I was very depressed at that time. But, a senpai [senior employee] at the club really took good care of me… I still remember when I returned home, that senpai sent me a text message and it was simply rephrasing one of the codes of conduct, “give a second chance to those who are challenged”… [After that] I was really feeling that I was happy to work for the firm and liked the firm more’.
The firm invests significantly in promoting and maintaining a strong sense of corporate identity. It actively encourages employees to join in-house club activities, such as cooking, tennis, yoga and football and the firm financially supports active participation in clubs. The original intention of this was to increase informal communication networks, which could help prevent employees from leaving the firm. The firm suffered from high levels of employee turnover in its early start-up years. Moreover, the club activities have the further function of reinforcing corporate culture and complementing the associative system of exchange. CyberAgent also promotes social interactions providing 5,000 Japanese Yen per month to each employee to help for them to have a drink together after work. The only condition is that they have to have more than three members of the same division.
Future developments at CyberAgent
In our most recent discussions with the company HRM Director, Tetsuhito Soyama, the emphasis was on how CyberAgent can continue to develop and grow and whether retaining this apparently effective mix of competition and collaboration will be the most effective way to maintain economic performance and good employment relations. Mr Soyama acknowledged that the company looks to combine ‘competition and harmony’ but said that ‘first we have to make harmony so we have team play. When we hire a new grad in April, the first training is in team training, group work and workshop activity. In selection, the first criterion is identifying an honest and good person. We promote harmony with recruits of the same age [i.e. those recruited as part of the same cohort] and afterwards we promote young people who have good ability and start the competition’. Mr Soyama was quick to acknowledge that his company is unusual in Japan: ‘Most Japanese companies are one or the other [harmony or competition]. If we have the only harmony we will not be successful but if we have only competition then the company environment will be very rigid and there will be a lot of conflicts’. One of the keys to maintaining this balance is that the company promotes the right people, that is those who are number one for outcomes and performance but who also show ‘humility and character, it is important to be a CyberAgent person’.
Another of the key issues that will face the company will be how it seeks to maintain the central ethos of CyberAgent as the more successful of its subsidiaries grow. Individual subsidiaries are now starting to turnover in excess of a billion yen per year themselves and the number of employees is increasing accordingly. It will be interesting to see how the parent company maintains its arm’s length influence over the new startups.
A third question will be over how the ‘ageing’ of a young firm is handled. This will first and foremost apply to the parent company and Mr Soyama talked at length about ‘keeping the energy’ of the company in the coming years and the role of HR practices in achieving that. One recent development has seen a broadening of the available career paths in CyberAgent which now provides a more flexible basis for individuals to manage their careers, for example, young mothers can move to a less pressurized career path while they have increased responsibilities at home. Such a development represents a move to ameliorate some of the pressures of the individualistic and competitive elements of the CyberAgent mix and acknowledges the continuing value in maintaining the associative aspects of the system.