In his book, Aoki makes a comparison between what he terms the J-Firm and the A-Firm. While the former can be considered to be a typical Japanese company, the latter is representative of many companies found in the West. This paper will attempt to give a presentation of key elements in both business organisations, with a particular focus on differences in the approach to human resource development. Following a brief discussion on why these discrepancies exist, comparisons will be drawn to the corporate structures presented in William G. Ouchi’s "The M-Form Society". This will be done in order to evaluate what corporate structures best fit with each other.

In The Japan Times edition of June 15, one could read that General Motor Corp. surpassed Ford Motor Co. in auto manufacturing efficiency in the United States during the year 2001. What did not make the headlines, however, was that Japanese auto manufacturers continue to dominate the top four positions on the list. While Nissan spent an average of 17.92 hours per vehicle produced, General Motors needed 26.1 hours. Trailing Nissan were Honda Motor Co., Mitsubishi Motor Corp. and Toyota Motor Corp. As the Japanese superiority in production efficiency has persisted for several decades, there are no simple theories that can explain why the American auto manufacturers have not been able to catch up with the Japanese. If, for instance, a simple shift in management strategy were enough to minimise the 8-hour production efficiency difference between Nissan and GM, the managers of the latter company would certainly have implemented the necessary changes long ago. Unfortunately for the American auto manufacturers, however, the Japanese production efficiency is not duplicated that easily.

"Another possible explanation for the productivity differential among firms", writes Aoki, "is that they may be using different methods of organising and co-ordinating productivity". In this regard, he makes several important points. First, the author argues that Industrial Management (Taylorism) heavily influenced the American Industrialisation, while in contrast, the job organisation of Japanese firms appears to rely more on the flexibility in job demarcation and the versatility of workers. As a consequence, the author argues that American firms have developed what appears to be a professional hierarchical structure. Job categories are heavily specialised, and managers and supervisors serve a control function very different from that found in Japanese companies. In some respects, historical lines can be drawn back to the era when the foreman was regarded as the all-powerful manager of a company. In contrast to American firms, Aoki comments, "The Japanese firm utilises the hierarchy of ranking as an incentive for its employees to develop skills useful for the work organisation, which is less hierarchical in the functional sense". This does, however, not mean that Aoki adheres to a simplistic yet orthodox theory often used to explain the rise of Japanese industry.

A Keio Business Review from 1992 mockingly dispelled the notion that the Japanese consumption of miso soup was an important cause of the country’s economic success story. For quite some time, it was generally believed that cultural traits could be used to explain the rise of Japan, yet Aoki does not agree. "My purpose is to elucidate the limited capacity of hierarchical control and pave the way for my discussion of the nature of the Japanese practice", he argues, "which needs to be understood from the perspective of economics rather than dismissed as a unique cultural phenomenon". Masahiko Aoki does, in other words, take an economic rather than cultural approach to describe the Japanese business efficiency. Thus, the primary explanation for Japan’s unique system of organising and co-ordinating production is that it makes economic sense. The earlier mentioned figures concerning the automobile manufacturing plants in the United States should help underscore this point. If indeed cultural traits were to be credited for the high Japanese efficiency in manufacturing, this would not help explain why Japanese companies can duplicate their domestic production efficiency when building plants abroad.

As commented upon earlier, Aoki argues that the job classification in the J-firm tends to be much broader and simpler than in the A-Firm. Some companies have even implemented regular job rotation, hoping that the experience gained by workers will help facilitate knowledge sharing. Writes Aoki; "The knowledge possessed by a single worker extends beyond a particular job jurisdiction, so that there is considerable overlap in the knowledge of individual workers of different status on the shopfloor". Through this system of knowledge sharing, expertise is shared and embedded within the entire organisation.

The main differences between the J-Firm and the A-Firm are, according to Aoki, that the "J-firm emphasises the capability of the workers�E group to cope with local emergencies autonomously", and the operating task is as a consequence integrated with the task of identifying and finding necessary expedients to prevent and solve emergencies. In the A-firm, however, specialisation and sharp job demarcation are emphasised. Thus, due to the nature of this system, workers tend to become unwilling or unable to perform duties that fall outside their area of specialisation. The willingness of employees to take responsibility constitutes a major component of Toyota’s famous kanban system, which again has received much of the credit for the production efficiency of Japanese automobile manufacturers both in Japan and abroad.

Another important point made by Aoki concerns hierarchies, and the author argues that the organisational structure of Japanese companies does not resemble the traditional hierarchy found in an American organisation. Instead, he describes what he terms a horizontal information structure. In this system, Aoki writes, "shops themselves are nodal points of the communication network, and it is the downstream shops that "command" upstream shops. Evidently, the horizontal information structure relies on workers that have been fostered by a wide range of work experiences, thereby enabling "each shop to adjust job assignments flexibly in response to the requirements of the downstream operation". Interestingly, Aoki points out that the kanban system emphasises the efficient use of manpower rather than full utilisation of machines, thus adding to the evidence suggesting that Japanese companies have a strong focus on the development of human resources, while A-Firms tend to focus on capital resources. Although the author sees many benefits in the horizontal information structure, he takes care to underscore its potential weaknesses. For instance, he believes the horizontal information structure may be less efficient in markets where demand fluctuates dramatically, and a hierarchical structure may also be preferential if demand is very stable. Similarly, a horizontal information structure may be less ideal in production processes involving smaller steps or continuous processing. Still, Aoki emphasises that this discussion is mainly theoretical in nature, as most firms will use some form of combination of the two. There are also exceptions to the general guidelines drawn by Aoki, but an overall conclusion is that Japanese companies tend to have a more organic organisational structure than American companies.

If the above described horizontal information structure is to operate efficiently, employees must be provided sufficient incentives to develop the expertise, skills, and co-operative attitude that is needed. Aoki comments that both collective and individual incentives must be present, yet it is particularly interesting to observe how Japanese companies reward on an individual level. While employees in a typical A-firm will be rewarded to perform and achieve in competition with other employees, the Japanese incentive scheme sets as a goal to encourage the worker to become a team player over the long term. Contextual skills developed are evidently of ultimate importance, in order words "a relatively wide range of skills (integrative skills) that have been developed and are useful in the context of the non-hierarchical information structure". An article in the June 21 edition of the Japan Times titled "Change at banks starts in personal departments", amply illustrates the J-Firms�Eemphasis on contextual skill. Japanese banks currently struggle to depart from pay based on seniority in order to award salaries based on how well an employee performs at present. Still, the costs involved in training new employees make the banks unwilling to hire skilled midcareer professionals. Minato Asakawa, a consultant at Hay Group (Japan) Ltd., comments to the Japan Times: "Each bank has a different way of addressing letters and memos, for example, and it takes time for recruits to adapt to a completely different culture". This casts some doubt on the initial argument made by Aoki, namely that Japanese companies are organised purely with a regard to economic efficiency.

The Japanese incentive scheme contains, according to Aoki, three important elements. First, the wage system combines merit rating and seniority. Second, internal promotion is discriminately applied to workers on the basis of merit rating. Finally, at the time of mandatory separation from the company, a lump sum payment is made to the employee. All of them entail a preference for a long-term relationship between the employer and the employee, and do therefore constitute a very different system from that of the United States where the employment relationship in some cases is reaffirmed on a month-to-month basis. As a natural consequence, the human resource department at a J-Firm tends to be much more important than the equivalent department at an A-Firm. In this respect, Aoki emphasises what he terms "The Duality Principle" to be of key importance in order to understand the system of the J-Firm. The hypothesis can best be described in the words of the author: "If an organisation is to be effective, it is necessary and sufficient that decentralisation/centralisation in the information infrastructure of the organisation be complemented by centralisation/decentralisation in its system of personnel administration". In other words, while the personnel administration in an A-Firm tends to be decentralised due to the functional hierarchy and other structural characteristics, the personnel department at Japanese companies tends to be centralised. The latter’s centralisation is due not only for purposes of control, but it also helps promote efficient stimulation of the contextual versatile skills of the employee nurtured in the non-hierarchical information structure.

Although the Japanese incentive system tends to encourage a long-term relationship between employer and employee, Aoki takes great care to emphasis that the Japanese lifetime employment system plays a less fundamental part in the system than what is generally perceived in the West. The turnover of Japanese middle-aged employees may be lower than at comparable A-Firms, yet the ratio is not negligible. While the average American worker will change jobs 2.8 times over a lifetime, the Japanese figure is only 2.3, this according to OECD figures presented by the author. Furthermore, J-Firms employs many temporary workers, and the separation ratio among young employees of large firms in Japan is particularly high. Similarly, many workers in their late forties and fifties are relieved of their duties by other means, if not directly fired. Therefore, Aoki argues that "Even among those who started their careers right after they graduated from school with the expectation of lifetime employment, only a minority may fulfil that expectation".

To summarise, Masahiko Aoki points out several key issues that characterise the structural differences between American and Japanese firms. Perhaps most interesting, however, are his comments concerning the limitations of both corporate structures. While the J-Firm may be successful in some markets and under certain circumstances, as for example in the automobile industry, Japanese corporate practices may be less ideal in terms of developing for instance a financial industry. However, it is at the same time important not to underestimate the influence culture has on the development of corporate cultures. The seniority system can, for instance, find its origin in Confucianism, but that has not stopped Japanese firms from transferring efficient corporate practices to their businesses abroad. Cultural differences may complicate the adoption of imported organisational structures and practices, but the operations of Toyota and Nissan in the United States show that these hindrances can be overcome.

Published in the bubble year of 1984, the book was an attempt to explain what America could learn from Japan on all levels of society. The M-Form Society, which the author believes to be the solution to the productivity problems faced by America at the time, entails structuring the business-government interface along the lines of certain multidivisional corporations that try to balance division autonomy with organisational teamwork. Ouchi presents three different kinds of organisations. The first he terms the "U-Form Structure", which simply represents a traditional American company with several related subdivisions. A variation of this, the H-Form Organisation, can be interpreted as for example General Electric, in other words a corporation that has several unrelated subdivisions. The author does, however, view the M-Form Structure to be the most effective and profitable, this both on a societal and company level. This structure can most easily be compared to Aoki’s J-Firm, and also conforms to Aoki’s Duality Principle. Writes Ouchi: "M-Form companies succeed only by stimulating the individual initiative and strivings of each separate division; they can be flexible and adaptable only if they are decentralised". As a consequence, however, he comments on the need for central control functions, just as depicted by Aoki. It can be discussed which of the two remaining forms presented by Ouchi best describes the A-Firm, but common for them both is a focus on the development of capital resources. While the U- and H-Form in this respect share the philosophy of the A-Firm, the M-Form shares a much closer relation with the J-Firm.

As discussed earlier, Aoki argues that the J-Firm’s wage system is composed of three major parts. The first is merit rating and seniority, the second internal promotion determined by rating, and finally a lump sum payment at the time of separation. Interestingly, Ouchi mentions three forms of governance, which chief executives may rely upon in order to offer employees appropriate incentives. These are markets, bureaucracies, and clans. Undoubtedly, the Japanese wage system, as presented by Aoki, serves as a foundation for the long-time relationship that the J-Firm desires to develop with its employees, yet the more informal instruments presented by Ouchi may provide equally strong incentives. Certainly, the first of Ouchi’s forms of governance, the markets, may be somewhat the equivalent of Aoki’s emphasis on internal promotion. While Ouchi perhaps is concerned with a broader picture, in other words the generally stimulating effect competition is believed to have on performance, but he recognises that competition needs to be present: "If competitive conditions are not met, the norms of equity cannot be satisfied, and both morale and effort will decline". This is exactly what Aoki is concerned with when commenting on the competition within the J-Firm for internal promotion.

Similarly, the centralised human resource department described by Aoki can be seen to represent bureaucracy, at least there are lines to be drawn. Ouchi’s focus on the economic clan, however, adds another dimension to the incentive-based system of Japanese companies. "A clan", writes Ouchi, "is an organisation in which the members are bound together over a very long period of time". He continues: "In a clan, however, equity is achieved serially rather than on the spot. That is, one clan member may be unfairly underpaid for three years before his true contribution is known, but everyone knows that his contribution will ultimately be recognised". While Aoki describes this system when he speaks of the ranking system, Ouchi’s is, however, less economic in his approach, although he makes clear that clan governance needs to be combined with both markets and bureaucracy in order to be successful.