When Trains Start Running Late: Japan’s Digital Awakening
I love going to Japan, where everything works flawlessly and where customer obsession, or “omotenashi,” is deeply engrained into the culture of every institution: This is where, for instance, train operators apologize when their trains leave the platform 25 seconds earlier than scheduled. It’s also an economy stifled by a widespread risk-averse culture, a shrinking population, and very low work productivity. In spite of its challenges, I’ve always believed in a digital awakening in Japan. So since I moved to Asia about a decade ago, I have been looking for signs that Japan is finally stepping into the digital era.
It’s increasingly clear to me that these winds of change are now blowing stronger in Japan. Last week, I met a dozen large organizations in Tokyo; most discussions revolved around their own digital transformation initiatives and related challenges. One large media agency has been hard at work trying to cut the number of hours employees work by almost 20% using process re-engineering, outsourcing, and robotic process automation. This is a significant transformation for a company that was highly regarded in Japan for its extreme work culture.
The government is also becoming more vocal as it pursues a more directive role in the digital transformation of Japanese businesses. The Ministry of Economy, Trade and Industry (METI) recently published a report in which it warns Japanese organizations of a “2025 digital cliff.” In short, the legacy systems of utilities, transportation, financial services, and other firms are at risk due to a dire shortage of personnel trained in the maintenance and operations of these systems. According to the report, if nothing is done to replace these infrastructures with modern, open systems, Japanese firms will face unbearably high operating costs and the Japanese economy will lose more than 2% of its GDP every year.
Interestingly, the report also highlights that most companies in Japan have started their own digital transformation but face strong cultural headwinds, with employees often rejecting the transformation. While this report sends a strong message to Japanese organizations, it will probably not suffice to create a burning platform and accelerate Japanese organizations’ digital transformation programs. While the idea of rising costs and lack of competitiveness will make CFOs and C-level executives uncomfortable, most employees will probably remain frozen to this idea. Having said that, I believe there are a few additional points that will nudge Japanese firms toward becoming more digital:
- Empowered tourists bringing new expectations and new ideas. Tourism has skyrocketed in Japan over the past four years. From 2013 to 2017, the number of tourists visiting Japan almost tripled. About one-third of them are from China, which hosts some of the most empowered customers in the world. They come to Japan with money and high expectations for both offline and online experiences.
- Digital giants setting new CX expectations. Japan is the third-largest technology market in the world. It is also one of the largest and fastest-growing eCommerce markets globally. This size and growth attract investments from digital giants such as Google, which recently launched a new AI lab in Tokyo. Initiatives in the digital payment space, such as the Mizuho Suica for Apple Pay as well as the rollout of Amazon Pay and SoftBank’s partnership with Paytm, will spread mobile payments in a still-cash-heavy society.
- Local heroes pave the digital transformation path. While the omotenashi service culture is omnipresent in the brick-and-mortar world, digital omotenashi is lagging far behind. This is changing as companies such as Fast Retailing, owner of the UNIQLO brand, aim to transform into digital consumer retail companies: The company is overhauling its entire organizational structure, from sales through to the supply chain, to transform work practices and foster a customer-centric culture among all employees across online and offline channels.
I noticed one crucial omission in the METI report: It never once mentions the importance of customer obsession as the North Star for firms’ digital transformation programs. This, I think, will be the real burning platform for Japanese firms.
Failing, siloed systems will inevitably disrupt the legendary reliability of Japanese social and economic functions. When trains start running late and customers start complaining, companies and employees will know they must change their ways. Becoming digital will become a question of survival and a matter of pride.