DETERMINED TO BUILD A WORLD AFTER STEVE JOBS | Discuss Japan-Japan Foreign Policy Forum
Economy, No.9  Dec. 6, 2011


A messiah for users

Photo : Natsuno Takeshi

Natsuno Takeshi

On October 5, 2011, Apple Inc. CEO Steve Jobs passed away. The news shocked the world, indicating just how big his global influence was.

Jobs was indeed a messiah for people all over the world. Products he created revolutionized the cell phone and telecommunications industries and their users.

In the early 2000s, long before the release of Apple’s iPhone smartphones, everyone in Japan was using cell phones that could connect to the Internet. Yet such devices were rarely distributed in the West. People thought they could carry around a personal computer that could be connected to the Internet, and single-function cell phones would suffice. Cell phones mainly for voice communication were the most prevalent, and their average price was below $200. As many are aware, Finnish cell phone manufacturer Nokia held an overwhelming global share of 40%.

Since low-priced, single-function cell phone devices were the mainstream, no one was interested in Japanese-made advanced-function phones costing upward of $300. Rather, the telecommunications industry in the West was afraid of being overwhelmed by the Internet industry, and continued refusing to incorporate the Internet into cell phones. Some might say they were working to prevent development of their own industry.

Jobs ignored this iron rule of the telecommunications community and announced the first iPhone model in January 2007. The greatest feature, as everyone knows, was Internet connectivity. Some years ago, I showed a Japanese-made cell phone with Internet connectivity to a person working with the telecommunications industry in the West. He seemed impressed and said, “That’s great.” Jobs gave a form to this sort of response. In this regard, he was undoubtedly a messiah for cell phone users in the West.

Another factor enabled Apple to produce the iPhone. Until the first half of the 2000s, manufacturers capable of making baseband chips, the IC chip that enables telecommunications housed in cell phone devices, and companies developing telecommunications technologies, were the only entities capable of producing cell phones. But in the latter half of the 2000s, companies that commercialized and sold telecommunications technologies, like Taiwan’s MBK and Qualcomm of the United States, started to emerge. These companies enabled computer companies like Apple to manufacture cell phones as well.

What Jobs pursued most vigorously in product development was an interface easy for anyone to use. IT-related products at that time placed emphasis on showing cutting-edge technologies to the greatest extent possible, as if to say that those who did not understand the product did not need to use it; for instance, those who could not handle a keyboard could not use a computer. Jobs, however, thought technologies were only tools, and the most important point was for users to be able to fully utilize them. This thinking was realized in products like the Macintosh, iPod, iPhone and iPad. In particular, devices equipped with the new touch panel interface were easy to use intuitively, even for a three-year-old or a senior citizen.

His products gave clear evidence that consumers wanted something easy to use and easy to understand, rather than the technologies themselves, which completely shifted the mindset of manufacturing in that direction. This conversion is irreversible, and we can never return to the technology-centered world.

The age of top management’s philosophy holding great influence

What is the greatest difference between Jobs and the top executives of Japanese companies? This must be in whether the top management directs the product and service development workplaces.

Major Japanese companies are conglomerates with several businesses under their umbrella. Top management is not aware of the details of each business, and in many cases only governs business activities, and it is often unable to name the company’s products. Such people are unable to select and focus business resources because they are not aware of the business’ actual situations. They are unable to make management decisions to abandon even those businesses that are bringing in scant revenue.

Transfer of authority has also in no way progressed to operating divisions in Japan. Executives and other members of management often turn down the opinions of a division head. The post of division head has turned into a crossing point for career progress; for instance, to be appointed as a managing director, one must have served as the head of a certain division. As a result, an outsider who does not possess required knowledge is often appointed as division head. Moreover, this results in an irresponsible organization that does not clarify who is responsible for its businesses.

With businesses in other countries, including Apple, it is natural that the top management directly issues instructions on its business activities. For example, with the Samsung Group, each operating division is like a company, and meetings of division heads are referred to as presidential meetings. As such, the division heads rank higher than executives at the head office, and each division should formulate its own strategies. The divisions operate independently, such as Samsung Mobile, Samsung Semiconductor and Samsung Display.

Allocation of responsibilities is also clear. The head office only has authority over personnel issues, and will not interfere with any of the divisions if businesses are going well. If they are not, all the executives involved with the business are fired and replaced. The new executives can be appointed not only from among in-house personnel but also from outside. In some cases, such outside appointees bring along their trusted subordinates.

Now that IT has disseminated widely, the top management of business operations and also of a company can contact worksites directly. A system has been established for having opinions at worksites conveyed to the top management.

It is also now clear that businesses in other countries utilize IT, while those in Japan do not. This was evidenced in what I saw when I attended the Summer Davos meeting in September. While executives from the West all had their own devices (iPad, etc.) and exchanged e-mails with subordinates directly, executives of Japanese companies rarely did so. As before, their accompanying secretaries took care of all the clerical tasks. The situation is like the battle at Nagashino in 1575 between the troops of Oda Nobunaga, armed with guns (analogous to executives in the West), and that of the cavalry of Takeda Katsuyori (like the Japanese). Japanese business owners appear totally behind the times.

This gap will widen even further between companies with top management who direct the product development processes and those who only manage the organization. Dissemination of IT dramatically enhanced the communication and information-gathering capacities of individuals. Consumers’ preferences change rapidly, and are irregular. It is meaningless to analyze past trends or conduct marketing, and it is difficult even to foresee what will happen in the near future. What is justifiable at this moment might not be a year later. We can no longer catch up with the times if we continue closely examining available information and conducting extensive debate.

This being the case, we can no longer count on an agreement reached by members when making a judgment or a big decision. The determinant should be the philosophy that top management advocates. Never before has the philosophy advocated by the top management of businesses influenced the company or society as much as it does today. Jobs always made his philosophy known clearly. He always made the significance of his business activities clear, such as the purposes of his company and what products it should make to contribute to society.

His philosophy was to completely stand by the users’ side and create devices that are operable without special knowledge. His employees sided with this clear vision, offered their own wisdom and pursued and developed an even more agreeable interface. Jobs was a great business administrator in this regard as well, in that he prompted his employees to organize themselves and inspired and motivated them.

Of course, a great number of businesspeople like Jobs are found in Japan also. Kutaragi Ken of Sony, who developed PlayStation, is one of them. However, Japanese companies with the issues discussed above cannot effectively utilize such human resources.

Will Japanese cell phone businesses be totally wiped out by 2020?

Is there potential in Japan for a company like Apple to be established, or a new type of cell phone to be developed? In this regard, an obstacle peculiar to Japan stands in the way.

In the United States, if venture capital firms judge it to be promising, they will invest enormous amounts of venture capital totaling several billion yen in a newly established service company, even before it generates profit. About 1 billion yen was invested in Google and about 5 billion yen in Facebook. A benefit here is that with these vast funds, new startups can overwhelm the world as soon as they are established.

Also to note is that overseas venture capital firms send experienced human resources in to the management, along with investments. An example is Erick Schmidt, who was the CEO of software development company Novell, Inc. and appointed as CEO of Google. Each time a new investor comes around, a business manager trusted by the investor joins the management. No founding member other than CEO Mark Zuckerberg is working with Facebook anymore.

In other words, enormous amounts of investment and leading human resources are sent into a company before it makes any profit. In this way, the perspective of the company continues expanding.

On the other hand, the amount of funds gathered at the time of startup in Japan is at least two digits lower. People who used to work with indirect financing form most of the venture capital firms in Japan, and they rarely take the risk of direct investment. They will never deviate from the steady way of lending they learned while working as bankers, and lend money only if surety is placed and after surveying the borrower’s credibility. While overseas fund managers adopt a policy that 80% of investments do not work, but a big return is obtained from the remaining 20%, the Japanese rarely adopt the principle. In the future, it will be better if a greater number of experienced businesspeople join investment funds.

There are many excellent ventures in Japan as well. However, the mobility of human resources is low, and the same members present at the time of establishment are still operating some of them. Most such companies are not managed by administrators whose quality matches the company’s scale. In other countries, a company’s management ability is questioned if the board consists only of members who have worked many years with the company. Such companies sometimes even fail to meet the listing criteria. The above applies to most Japanese companies. The management has often comfortably secured its position, regardless of skills and capacities.

As discussed, the business environment in Japan does not make fostering of ventures easy. It is quite difficult to foresee a new type of cell phone being developed. So then, is there such potential with the existing cell phone companies?

I regret to say that I believe the existing Japanese companies (businesses) handling cell phones will be totally wiped out by around 2020. Today, these companies develop products based on Android, the platform developed by Google. As such, it is now difficult to differentiate Japanese-made products compared to how it used to be. Since half of the product value is derived from the Android software, there is no chance for products made in Japan, where personnel costs are very high. For instance, Samsung and Sony Ericsson make half of NTT Docomo’s devices, and domestic manufacturers are competing over the remaining half.

The only way to break through the situation is by the Elpida method. Elpida Memory, Inc., an electric instrument manufacturer in Japan, separated its core semiconductor business and revived it by inviting a business manager from outside.

Also worthy of mention is that Japan’s Sony, Toshiba, Hitachi and Innovation Network Corporation will establish a joint venture, Japan Display, engaged in the small- and medium-sized liquid crystal panel business. The COO of Elpida reportedly will be part of the management, and the capital composition indicates that this joint venture is not a subsidiary of a manufacturer. There is a chance for Japanese cell phone businesses to survive if they can integrate their businesses in a similar way; and this is the last chance. There is no manufacturer capable of surviving by itself in the cell phone industry.

Truthfully, cell phones made in Japan used to be leading the global race. Even though they were sometimes derided as so-called Galapagos cell phones (made exclusively for Japan), the world of smartphones, including the iPhone, stems from i-mode (a cell phone service provided by NTT Docomo). People from other countries regard Japan’s i-mode as the forerunner to smartphones.

Japan should have created smartphones equipped with Android functions when i-mode overwhelmed Japan and these Galapagos cell phones became the standard. However, Japanese companies turned their back on Galapagos phones and imported Android smartphones. As a result, smartphones did not spread because they are not equipped with the payment and One Seg broadcasting functions of Japanese Galapagos cell phones. Seeing the situation, the Japanese telecommunications industry added functions unique to Japanese phones and distributed them as Galapagos smartphones. In this climate, cell phone development in Japan stagnated for three or four years.

Users who purchased Android devices at the early stage all regret it. Only scarce functions were available and battery life was short. Improving the situation with Galapagos smartphones was like putting the cart before the horse. Telecommunications carriers were completely wrong in how they recognized the situation.

The recent iPhone 4S is equipped with a helper function called Siri, which is similar to i-concierge (a cell phone service provided by NTT Docomo). The next issue overseas cell phone businesses are addressing is equipping phones with a payment function similar to Osaifu Keitai. How Japanese manufacturers will deal with the development is worth watching.

Progress of IT society continues accelerating

In any case, the mobile telecommunications industry has fundamentally changed. As discussed above, manufacturers in the industry tried to reject participation by Internet carriers until the first half of 2000s in order to protect their business domain. The power relationships completely changed when iPhone first emerged, followed by Android. In short, the telecommunications and Internet industries have merged.

Until just two years ago, cell phone companies announced new services and functions of their phones. Today, however, all developments in the mobile telecommunications industry originate in Silicon Valley. Services unique to cell phone companies are trivial, and the Internet industry is leading the development of the telecommunications industry. Google’s acquisition of Motorola Mobility Holdings, Inc. was a symbolic event, indicating that the hegemony over the telecommunications industry has completely shifted to the Internet industry.

The speed of the telecommunications industry’s development, which used to progress in small steps like the second generation, third generation and 3.9th generation, will be replaced by that of the Internet industry. A big service is likely to emerge every three to five years, the data rate will continue to accelerate and the number of available applications will surge. Steve Jobs triggered these changes.

Apple, which lost the great innovator who stated clear visions and offered services that link directly to human evolution, could for a while see its competence fall. But others who work for the company are likely to review the product groups Jobs left behind and the development processes, and continue searching for products and services that are linked to global progress. All of society may begin to generate products that conform to Jobs’ sense of values, to offer what users find most convenient. Companies other than Apple could emerge that conduct business in similar ways.

I personally would like to help change the world so that technologies available only for certain people will be offered to anyone. I have enjoyed reading science fiction novels since I was young, and I always fantasized about a world in which useful technologies are utilized effectively. I was involved in the development of i-mode, and in the process I harbored an ideal of packing everything that people carry with them into a cell phone. Game machines, wallets, credit cards, memo pads, telephone books, schedule notebooks, portable TV and radio, camera and much more. I wanted to create a world where all that people needed to carry with them is a cell phone.

When trying to accomplish something big, we must discern whether the wind is blowing with us or against us. Just as Steve Jobs discerned when the tide changed in the cell phone industry, if we are going to be successful we must take action when the wind is blowing with us while discerning progress not only in people’s abilities but also of technologies and other services.

In the rapidly changing and irregular IT society, no one knows what will happen three years from now. I do not think I can design my own life by myself, but my continuing wish is to create services that link directly with the development of our society. I intend to continue with my duties with the determination of establishing the world after Jobs, so as not to let his departure impede the development of IT society.

Translated from “Tekunorojii jushi no sekai niwa, wareware wa nidoto modorenai–Jobs-go no sekai wo tsukuru kakugo (We can never return to the technology-centered world–determined to build a world after Steve Jobs),” Voice, December 2011, pp. 153-160. (Courtesy of PHP Kenkyusho)