Hiroaki Nakanishi, former CEO and current chairman and executive officer of Hitachi, was instrumental in turning around the Japanese multinational when the international financial crisis exploded. Hitachi had over 900 companies under its umbrella, which were separated by vertical barriers and silos throughout the organization, and in 2009, at the peak of the crisis, it saw around $7 billion in losses. As a response to the company’s troubles, Nakanishi took leadership and, amongst other things, implemented a strategy of ‘concentration by selection’ of the parts of the business that worked, redefined the core business of Hitachi and disposed of unprofitable areas. He also broke down the walls between companies, thereby unleashing the flow of talent throughout the organization and fostering horizontal conversations as opposed to a hierarchical, top-down line of command. This resulted in decentralization, innovation, a renewed focus on the customer and enabled Hitachi to be agile enough to interpret a changing business landscape. Not only did this return the company to profitability, it also impacted the company’s culture which is still leading change in corporate Japan.
His success in Hitachi propelled him to the top of Japan’s corporate world and put him at the center of case studies in management schools. In 2018, Nakanishi was appointed executive chairman of Keidanren, the Japan Business Federation – a role so prominent it is often called the prime minister of business in Japan. Now, he is looking to similarly transform Japan’s overall corporate culture by connecting stakeholders of Japanese society to the world, breaking down barriers between industries and leading the digital transformation of the economy. His vision is turning Japan into a global economic leader where knowledge and solutions to the world’s most pressing challenges are its main export commodities.
You recently said that we are in an age where business circles should be led by the power of personalities, adding that what you will do at Keidanren will be of great significance for the Japanese economy. Why so?
Japan enjoyed an era of high growth between 1960 and the early 1990s, and during this time the dynamic was one of lifetime employment and internal job movement. With the recent dynamic economic changes, in many cases, companies cannot find the most appropriate person internally. This is leading to a changing dynamic around employment. This also means that the top management leaders will become of more significance to their organization, through their personality, the direction they take, and how they choose to lead a company. This is completely different from the old way of managing a company.
Keidanren’s operations were very much very typical of the industries who are part of this organization. Throughout the history of Keidanren, it was always manufacturing or automotive industries. Hitachi, my company, always kept some distance from them and took a different approach to leadership. Recently, because of digitization, one single typical industry cannot represent all of the Keidanren’s activity. Given my background, I was strongly requested to be chairman of the Keidanren to lead the digital transformations from the people to the overall Japanese economy.
You were praised for having turned around Hitachi’s fortunes not only financially but also culturally. To what extent can the experience of Hitachi be applied to the revitalization of the economy of Japan?
This is one of the strong motivations for me to be chairman of Keidanren. The manufacturing industry of Japan is very much run on quality products and technology. These are the big items, but in order to compete, we cannot sell only our products. We can only sell, survive or contribute to the society by changing from a physical product-oriented approach to a more solution-oriented, science-oriented approach. Therefore, we have to change the culture. Japanese companies must communicate with potential customers to create value and provide solutions. This means changing the business model completely.
In the case of Hitachi, it used to be that all of the organizations within the company were single purpose, that is, only sale or product manufacturing. Meanwhile, the management decisions were taken in Japan. It was a very highly-centralized model. Now, in a more solution-focused type of business, those kinds of separated business units cannot work well. We really need supply chains to be set up in some of the regions. If the company is targeting the U.S. market, almost all of the decisions can be made in the U.S., for example. Those are the real global operations. This is internationalization. This is a very typical change of the business model from the viewpoint of the Japanese industry.
Simultaneously, digitization has come in strong waves. IOT, big data, AI, and from the viewpoint of the information, it’s horizontally shared. That is kind of the background that forces us to completely rework our business model.
How do your industry colleagues and the rest of CEOs in Japan feel about this?
Many of them are already making this change. It is a big change, and not everybody can do it. But this is the new way, and we need to recognize that Japan is very much a highly-industrialized country, we don’t have any natural resources, and so we need to make a new type of industry business model.
How would you encapsulate the meaning of Society 5.0, and at what stage of development is it at?
Society 5.0 is the digital transformation, whereby Japan wants to take up this great opportunity to build a clear path to solve various social issues. Japan has great potential from the viewpoint of information technologies, various machine communication capabilities and automation. Simultaneously, Japan is facing social issues including an aging society and a population decrease. That all means upgrades and expansion in areas as diverse as healthcare and infrastructure are required. But the point is that through our technological prowess, we have the potential to solve all of these issues. Society 5.0 is really about how to utilize all that digital power to solve all of the social issues. We believe this would become a solution that could be used by other countries or regions. It would not simply be a case of exporting products or technology; we see Japan as a consultant for other countries facing these societal and demographic problems. That is Society 5.0. Many countries have requested our assistance, and this is also being discussed in line with the Sustainable Development Goals (SDGs).
What are your focuses for Japanese companies in the U.S.?
We believe that President Trump’s current trade policy will be destructive in certain areas of the economy. We see that the tariff schemes and some of the regulatory actions will affect the U.S. economy. So, we try to have conversations not only with Washington D.C. but also simultaneously with some of the regional and state leaders. Our current conversations with state governors and economic leaders are very good. Our aim, therefore, is to set up more networking in the U.S., not only with the federal government.
How would you address comments that Japanese businesses are taking advantage of the United States?
Japanese businesses are very much focused on the U.S. because that market itself is so exciting and is always leading the world. Aside from the business environment, we also seek collaboration with some of the American talent. We cannot ignore the country, it is still very, very important.
In the case of the Hitachi, we changed the U.S. business, and Hitachi’s initial entrance into the market 50 or 60 years ago saw a cross-pollination between U.S. technologies and Japanese R&D.
What advantages does membership to Keidanren bring to American or international companies operating in Japan?
Keidanren’s most important activity is its ability to act as a platform to communicate with the Japanese government. From the viewpoint of the Japanese government, Keidanren enables it to listen to the opinion of the business leaders and also have a very collaborative relationship. In Japan, the public sector has a lot of power, and U.S. business leaders want to know what is going on. Keidanren creates the opportunities for a very frank conversation between both sides.
Keidanren has a liaison entity in the U.S. – Keidanren U.S.A., based in Washington D.C. What is the mandate of that entity?
Washington D.C. is the seat of the U.S. federal government, so we have our office in Washington D.C. to communicate with not only the government but also some of the think tanks. We have good relationships with many think tanks in Washington D.C., which provide us with a very clear view from the U.S. side.
What is your approach to leading Keidanren on its mission to revitalize the economy of Japan together with the government?
There are various discussions coming about through the Keidanren’s own activities, between other organizations and with the government. People are changing their leadership cultures, and top leaders today are very sensitive to the current trends and changes, especially the unstable international environment, be that the Middle East or China and the U.S., and also the European Union. We are now having completely different types of conversations to those we were having two years ago.
What would be your overall message to the global business community?
We are seriously discussing Japan’s leadership role in extending the sustainable development approach at the global level. Japan today, through Society 5.0, is seeking a completely different way forward compared to the previous Japanese business activities.