Efforts are underway to explore a new way of working with an eye to a post-COVID-19 world. There have been lively discussions about job-based employment. When discussing this matter, the key is to understand the state of human resource management (HRM) in Japan and the United States objectively and in relative terms. This column aims to contribute to that understanding by examining how U.S. companies have changed their HRM practices in the face of drastic changes in their surrounding environments since the 1980s.
A survey paper concerning internal labor markets written by Professor Michael Waldman of Cornell University, who is a prominent expert on labor and human resource management economics and who also has an in-depth understanding of the Japanese employment system, provides us with a reference starting point. Waldman pointed to the perspective of "traditional HRM practices versus innovative HRM practices" as a major point of discussion in recent studies on HRM practices.
"Traditional HRM practices" are those which were typical in the United States before the 1980s and which may be considered to represent the classic job-based employment system. Under the classic employment system, usually, the scope of a job is narrowly defined, and wages are job-based and are rarely linked to results, and workplace transfer is rare. As workers are required to have the skills necessary for performing their jobs when they are hired, formal, on-the-job training is seldom provided.
Moreover, as the classic employment system is based on thorough division of work, the level of information sharing among employees is very low, and in that sense, there is no concept of teamwork. In times of recession, companies make labor adjustments by laying off employees.
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On the other hand, "innovative HRM practices," which are also called high-performance-oriented practices, are intended to enhance employees' skills and information sharing. Among major HRM practices are participation in voluntary, problem-solving teams (e.g., QC circles), implementing workplace transfers, strengthening selective hiring, introducing and making use of on-the-job training programs that are adaptable to highly diverse jobs, offering results-based incentive pay and enhancing job security (see the table below).
The practice of broadening the scope of individual jobs and expanding the range of wages accordingly with respect to the payment of job-based wages, which is a traditional HRM practice, has also been spreading, although it is usually distinguished from the above innovative HRM practices.
It was the remarkable success of the Japanese manufacturing sector, mainly the automobile industry, that acted as a catalyst for the spread of innovative HRM practices among U.S. companies, particularly manufacturers, in the 1980s-1990s. U.S. companies learned that the presence of innovative HRM practices was the underlying factor of the Japanese "lean production" approach, including the just-in-time system. However, it is a mark of U.S. companies' shrewdness that instead of merely imitating the Japanese methods, they adopted a revised version after independently studying and improving on the theories in place to better suit their circumstances.
Indeed, a research team led by Professor Casey Ichniowski of Columbia University, who analyzed HRM practices used in production lines in the U.S. steel industry and their impact, found that the levels of productivity and product quality were higher in production lines where more innovative HRM practices were implemented. In particular, to the degree that innovative HRM practices generate a greater impact when implemented together, this research showed that those practices have strong complementarity with each other. In addition, it was found that implementing a set of innovative HRM practices together generates a positive impact on corporate earnings.
While the merits of innovative HRM practices for companies have become clear as described above, it is known that those practices are not necessarily spreading universally. They are used more frequently at new factories and factories that reopened after a change of management, and in relatively complex production processes. Similar merits have been observed as a result of analyses of the situations in other manufacturing industries and in other countries. Meanwhile, although there have only been a few analyses conducted with regard to services industries, some studies found that implementing innovative HRM practices raises the sales growth rate of companies in those industries.
Innovative HRM practices were derived from the HRM practices employed at typical large Japanese companies (in manufacturing industries), but among them is one practice that is alien to Japanese companies. That is the introduction of results-based incentive pay. Why was it necessary to introduce it together with the other practices?
For example, participation in a problem-solving team is based on the premise of voluntary engagement among employees on the frontlines of production. However, the classic job-based employment system is, if put in very simple terms, a regime in which employees are merely pawns that act on commands from seniors and managers. Therefore, voluntary engagement by frontline employees requires the delegation of powers to those rank and file employees, or in, other words, employee empowerment.
Meanwhile, if employees are to bear a significant degree of responsibility as a result of such empowerment, it becomes necessary to provide them with incentives to act accordingly. As a result, the idea of introducing results-based incentive pay has emerged. In addition, to promote teamwork, group incentive pay plans, which are based on the performance evaluation of entire groups, have also been widely adopted.
From the above, it is clear that when U.S. companies learned from Japan, they didn't merely adopt the whole of the Japanese system as it was, but made very shrewd selective choices. In the case of Japanese companies, it is not necessary to introduce employee empowerment or incentive pay plans as a way to promote teamwork, because meticulous information sharing and the emphasis on teamwork are embedded in the Japanese membership-based system, under which employees are members of companies.
When U.S. companies introduce a teamwork initiative, they do not think of adopting the Japanese membership-based employment system, which is characterized by long-term employment and deferred wage payment. The reason is that the principle of at-will employment (under which companies may dismiss employees at any time and for any reason) is prevalent in the United States. That brings us to the question of how job security, which is an innovative HRM practice, can be achieved. One possible explanation is that employee retention is expected to increase if companies either place emphasis on in-house training and commit themselves to enhancing employees' skills or if they introduce group incentive pay plans.
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It is natural that both the United States, where job-based employment is prevalent, and Japan, where the membership-based system is the norm, would adopt—whether deliberately or not—what is good about each other's systems if they are to overcome challenges amid changes in their respective surrounding environments, and this trend is expected to continue in the future. However, that does not mean a gradual convergence of the Japanese and U.S. employment systems toward a single system.
In the Japanese HRM industry, there is a strong tendency to try to sell client companies on trendy concepts originating in the United States. Among examples are "coaching," "one-on-ones" (a meeting between a boss and a subordinate), and "mental security" (a team environment where members can speak out with no qualms).
However, naturally, behind the attention paid to such concepts is the willingness to complement elements that were absent in the traditional job-based employment system, such as tutoring of subordinates, information sharing, and teamwork. Those concepts may be ones that Japanese companies have unconsciously been practicing. Japanese companies should be smart enough to avoid the folly of blindly embracing concepts coming from America as trendy ideas and not realizing that their origin may actually be in Japan.