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- 2018-3-14
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Companies practice a form of decentralization that involves much greater information flow among multiple units in the company as well as with suppliers and customers. Japanese and German managers tend to have engineering or technical backgrounds, spend their careers with one company, advance through tenure in one or a few units, and possess a deep knowledge of the company's important businesses. Top managers get involved in all important decisions, which are usually made after extensive face-to-face consultation and discussions aimed at building consensus. This is both an effect and a cause of the fact that companies in Japan and Germany tend to be less diversified than U.S. companies; where diversification occurs, it tends to be in closely related businesses.
Financial control and capital budgeting are part of the management process―but technical considerations a company's desire to ensure its long-term position in the industry drive investments. German companies are particularly oriented to attaining technical leadership; Japanese companies especially value market share, new product development, technological position, and participation in businesses and technologies that will be critical in the next decade.
In comparing the U.S., Japanese, and German systems, important differences in management practices emerge. For example, American managerial innovations have resulted in less face-to-face consultation, information flow, and direct management involvement in investment choices―all in the name of responsiveness and efficiency. Many of these innovations were the American solution to the problems of size and diversity that arose in the diversification boom of the 1960s and preceded the major changes that have occurred in the external capital market.
In contrast, Japanese innovations in management, such as just-in-time manufacturing, total quality management, and greater cross-functional coordination, have resulted in more vertical and horizontal information flow and involvement by management in decisions. This comes at the expense of efficiency in the short run―but often results in greater effectiveness and efficiency over time, as knowledge and capabilities accumulate.
The extensive flow of information is perhaps the most potent strength of the Japanese and German systems. Ironically, the U.S. system, designed to boost management responsiveness to the marketplace, actually limits and constrains managers in responding effectively by limiting the information used in decisions, working against crucial forms of investment, and all but blocking the achievement of cross-unit synergies.
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