This paper will present the key elements of a human resource development program that will be implemented in Japanese trading company Esagan. As should be well known, the company has for many years been responsible for selling Dakok chemical and electronic imaging materials and equipment on the Japanese market. As Esagan has been acquired and will become a part of Dakok Japan, it is necessary to integrate the company in an efficient manner. With 250 employees and a traditional Japanese human resource development system, it is essential that the efficient parts of the system are kept while others are replaced.

To help us successfully develop the program, we consulted several experts to hear their views and ideas on the matter. Perhaps not surprisingly, opinions differed widely, and the suggestions made in this paper must be considered on the basis of there being no consensus on how a program can be successfully created. However, there was agreement on what parts would need to be addressed. These include the incentives structure, promotion, retirement, evaluation, control, and the status of women in the workplace. While evidently interlinked, they will be studied independently in order to allow for an evaluation of what should be altered and what should not.

Before commencing, it is important to emphasis that there is no easy approach to developing the program. Although Stanford Professor Masahiko Aoki’s "Information, Incentives, and Bargaining in the Japanese Economy" provides relatively easy-to-understand descriptions of typical Japanese and American companies, the real world is a bit more complex than what can often be interpreted from academic theories. While Aoki contrasts the A-Firm with the J-Firm, it is becoming increasingly difficult to find a pure example of particularly the J-Firm. In addition, the integration of Esagan into Dakok implies that the Japanese unit can not continue to operate completely independently from its American holding company. For instance, if Dakok workers in America are offered the opportunity to purchase stock options, the company’s Japanese employees should not be denied the same right. To look at the issue from a different perspective, it is interesting to observe that Toyota adjust its human resource development system to the different markets in which it operates. However, Toyota does not hesitate to introduce traditional Japanese management practices abroad whenever it is believed that doing so will increase production efficiency. Dakok should take a similarly flexible approach when implementing organisational changes in its foreign subsidiaries. Still, the fact that various parts of the Japanese human resource development system are interlinked complicates the situation, as it is likely that modification on one part will have an indirect impact on another. The lifetime employment system is a good example of just this.

Lifetime employment is defined by the Japanese Ministry of Labour (JMOL) as the "practice of companies to hire their core employees primarily from among new graduates and other young persons, to plan their continual training and development, to continue their employment within the company group over a long period of time, and not to discharge or lay off such employees except in very unusual circumstances". Although the extensiveness of the lifetime employment system is often exaggerated in the West, it is important to have in mind that the system was designed at a time when Japan was experiencing very rapid economic growth. In the early post-war years, turnover was extremely high and strikes very rampant. After a few challenging years, workers and management developed an understanding of being in the same boat, a principle that has later become known as the stakeholder system. As the relationship established with a long-term perspective of providing benefits to both parties, Professor Robert Ballon comments on Japanese workers that "They do not work for the enterprise; they are the enterprise".

It is clear, however, that the reality facing Dakok Japan does not resemble that of Japan’s high growth era. Rather than growing, the market is in fact shrinking, and deflation is putting an increased pressure on company profits. As a consequence, Dakok Japan will not be able to guarantee employment at the firm for the next 20-30 years. Still, this does not imply that it is not longer important to offer a stable work environment for employees. If workers can not expect to stay employed with Dakok for the rest of their professional career, it is necessary to compensate them with alternate incentives. The latter will not, however, be reliant on maintaining the seniority-based pay and promotion system.

JMOL defines the system as "a practice which emphasises number of years of service or age and educational background in determining pay and promotion". Evidently, the lifetime employment system is dependent upon some form of mechanism that ensures that workers are rewarded according to the number of years they stay with the company. The seniority-based pay and promotion system certainly serves this function, although it is only one of several incentive structures determining the compensation rewarded to each employee. According to a 1996 survey by the Japan Productivity Centre (JPC), and referred to by MIT Professor Gregory K. Ornatowski, only ten percent of Japanese companies supported maintaining the seniority system as it is. A substantial majority, however, expressed a desire to keep the lifetime employment system. On the other hand, it is quite difficult to imagine how the lifetime employment system can successfully continue without relying on the seniority-based pay and promotion system. If a man is to commit himself to a company for the rest of his career, he is likely to demand some form of guarantee that his salary and status will rise with time. At Dakok, the only way a worker can guarantee is job is through performing. While this may become the reality also at our subsidiary in Japan, there may be different ways of evaluating the performance of an employee. The goal of Dakok Japan is to increase shareholder value, and in that sense the company may not prove any different from its mother company in the United States. Still, different ways of reaching that goal should be allowed and encouraged.

According to Masahiko Aoki, the Japanese incentive structure is made up of three important elements. First, internal promotion is discriminately applied to workers on the basis of merit rating. Second, merit rating and seniority determine the wage system, an issue that has already been discussed in some detail. Finally, at the time of mandatory separation from the company, a lump sum payment is made to the employee. While the seniority system is undesirable and the lifetime employment system unrealistic, the system of internal promotion will constitute an important part of the incentives structure also at Dakok Japan. "Those employees who have established a reputation over time for developing contextual skills, which they still appear capable of developing", Aoki comments, "may be given better opportunities for promotions and transfers within the firm". As Japanese corporations traditionally operate using an horizontal information structure where contextual skills are of utmost importance, it is extremely challenging to enter the company as an outsider without this skill-set. For this reason, the company will operate more efficiently if managers know the company, and they will do so if they reached managerial positions through internal promotion. Evidently, internal promotion should only be considered when qualified personnel are available within the organisation. The value of internal promotion as an incentive, however, should be recognised.

The lump-sum payment at the time of mandatory separation from the company may serve as an incitement to stay with the company long-term, and thus helps promote both the lifetime employment and the seniority system. As Dakok Japan will not include the principles of seniority-based pay and lifetime employment as part of the human resource development program, the lump-sum payment will thus cease to serve any valuable function. Instead, the focus should be on improving the company’s bonus structure.

Bonuses in Japan are generally paid twice a year, and the level of payment is determined by annual collective bargaining after the performance of the firm has become known. "There has been considerable debate", Aoki says, "as to whether the Japanese bonus system is a form of deferred wage payment or profit sharing". Still, the Professor basically answers his own question by commenting that "the ratio of the average amount of annual bonus relative to that of regularly paid remuneration is in general fairly stable over a period of time and is not as sensitive to the short-run performance of the business". In fact, the system of Japanese bonus payments can be traced back to World War I, a fact well described by Andrew Gordon’s "The Evolution of Labour Relations in Japan". The author writes that bonuses came into existence due to the high turnover ratios experiences around the war, and that "managers usually offered them only to workers with over one year on the job", and consequently that the bonuses would serve "as an incentive for newly hired workers to stay with a company". With this in mind, it should be in the interest of Dakok Japan to move in direction of a bonus system that is in fact based on the principle of profit sharing, which again may serve to protect certain values of the stakeholder system. By replacing the lump sum payment at the time of mandatory retirement and the bonus system based on deferred wage payment with a generous bonus system based on profit sharing, Dakok Japan may create a system capable of stimulating growth. Although the evaluation system will be discussed in more detail shortly, the performance bonus at the company should be provided in two parts. One part will represent the overall performance of the company, and should be regarded as a collective benefit rewarded for work well done. The second part, however, should be rewarded on the basis of individual performance.

Evidently, the compensation system at our subsidiary in Japan can not be changed immediately, and the transformation should occur in agreement with the company’s current workers. In "The M-Form Society", Professor William G. Ouchi comments upon the clan culture that exists within Japanese companies, and that equity is achieved serially rather than on the spot. "One clan member may be unfairly underpaid for three years before his true contribution is known"; Ouchi writes, "but everyone knows that his contribution will ultimately be recognised". A major challenge with regard to the implementation of a new human resource development program is to ensure that the clan culture survives somewhat intact, and the reform of the incentives system is not meant to communicate a will to relinquish other parts of the system that actually work. Still, as a natural consequence of the seniority system being made obsolete, Dakok Japan should be able to attract workers on the lookout for a higher starting salary. Although this will make it more difficult to attract workers searching for lifetime employment, it will provide an opportunity for workers wanting to be rewarded for their contribution to the company.

Although it even in Japan is becoming increasingly popular to talk about performance-based pay, a largely unresolved issue is how employees are to be evaluated. Co-workers may be not be neutral in the evaluation of a fellow co-worker, as the latter can constitute a potential competitive threat in terms of promotion and bonuses. Similarly, it is difficult for a supervisor to maintain a clear picture of the performance of each employee, and his neutrality can not be ensured. Still, it can be argued that any non-objective effect will mitigate over time, as for instance a manager will become increasingly unpopular if giving evaluations that seem unfair to his employees. Still, many Japanese companies are moving toward incentive systems increasingly based upon individual performance. It is therefore of utmost importance to ensure that the evaluation is fair and accepted as such among the company’s employees.

Evidently, it will be not be easy to resolve how workers can be compensated fairly on an individual basis, and it is necessary to allow time for the system to develop. Therefore, initial tests of the system do not have to go further than the guidelines issued by Nikkeiren and JEIC. This involves an annual salary system primarily for managers and general managers, as it is easier to measure the performance of these employees than what is the case with lower level employees. Professor Ornatowski emphasises that "the most important goal of companies using annual salary systems has not simply been cutting white collar labour costs through pay decreases but raising white-collar productivity". Evidently, rather than having the bonus system reflect both individual and group performance, it can be an alternative to let the bonus system remain a collective performance reward while basing annual pay on individual performance. It is necessary to reemphasis, however, that a fair evaluation system is of fundamental importance if the performance-based pay system is to have any simulative effect. Failure to do so may result in a potential employee backlash, which again may serve as an obstacle to the wider spread of performance based systems. Therefore, we need to engage in constructive dialogue with the management in Japan in order to decide how to evaluate and on what basis to do so. In contrast, when it comes to the status of female employees within the Dakok Corporation, there is little room for disagreement.

"Working women and career women both suffer from discrimination", writes Professor Ballon, "but for the former this is a problem in society at large, whereas for the latter it is more directly personal". Due to Japan’s ageing population, the nation is likely to face a labour shortage in the foreseeable future as a substantial part of the labour force will face retirement within the next few years. For this reason, it is important that Dakok is considered to be an attractive employer, both in terms of the compensation and work opportunities offered, yet flexibility and inclusiveness should be two other qualities to emphasise. While Japanese companies are rather known for their stringent and rather inflexible labour practices, Dakok Japan can build upon its strength as a foreign-owned company and become an alternative for workers seeking a progressive employer. In addition, discrimination of any sort within the company shall not be tolerated. Preserving a clan-culture within the firm may provide many benefits, but it is essential that it does not develop into a system characterised by intolerance and exclusiveness.

During the 1990s, many Western observers developed a rather scornful view of the Japanese economy, an attitude that slowly turned into arrogance. The recent corporate scandals in the United States have silenced many of the critiques calling for improved corporate transparency in Japan, yet Professor Ornatowski does not believe Japanese companies are down for good. Instead he comments that "both government policies and national attitudes favour social stability and gradual change as superior to maximising short-term corporate profitability through massive layoffs". Consequently, Japanese companies may arise stronger and healthier than before, although the process occurs at a slower pace than many Western observers would prefer.

The transformation of Dakok Japan, however, should be done in a more efficient manner. Still, no reform of for instance the compensation structure will be successful without the co-operation of the Japanese employees. Due to the clan culture, any attempt at pushing through for example a new set of evaluation measures that have not gained the trust of employees is almost certain to be met by internal resistance. In particular resistance of the passive sort can be tremendously damaging to our Japanese operations. Therefore, the human resource development plan as drawn up in this paper is completely dependent upon making a consensus with the company’s current employees. As a result, the implementation of the program may require more time than what can be considered ideal.

Finally, although Masahiko Aoki draws grand distinctions between the J-Firm and the A-Firm, the burst of the bubble had the same effect on Japanese companies as the tearing down of the Berlin Wall had on socialism. As the latter has undergone extensive reform, the political ideology it represents is quite different from that of the Cold War era. While the example may be extreme, J-Firms have slowly started adopting labour practices that may resemble that of the A-Firm. This does not, however, mean that Japanese companies are making an attempt to become like American companies. Instead, in the words of Ornatowski, the J-Firms continue to focus on "keeping the merits of the existing system while getting rid of its demerits". The same open-minded approach will serve as a foundation for the implementation of a new human resource development at Dakok Japan. Although it cannot be ignored that the company is now a subsidiary of an A-Firm, this certainly does not mean that we shall replace parts of the current system that can be considered valuable for future growth. In fact, we may instead learn from these ideas and consider implementing them at our headquarters in the United States. As such, the human resource development program should not be considered as an isolated attempt at reforming Dakok Japan. Instead, the emphasis should be on improving the efficiency of our operations world-wide. To reach this goal, a certain level of co-ordination of our global activities is required. The human resource development plan as presented in this should be considered as part of this effort.