Adopting and Adapting Innovation in Japan's Digital Transformation 9819903203, 9789819903207

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Economics, Law, and Institutions in Asia Pacific

Anshuman Khare William W. Baber   Editors

Adopting and Adapting Innovation in Japan’s Digital Transformation 123

Economics, Law, and Institutions in Asia Pacific Series Editor Makoto Yano, Research Institute of Economy, Trade and Industry (RIETI), Tokyo, Japan

The Asia Pacific region is expected to steadily enhance its economic and political presence in the world during the twenty-first century. At the same time, many serious economic and political issues remain unresolved in the region. To further academic enquiry and enhance readers’ understanding about this vibrant region, the present series, Economics, Law, and Institutions in Asia Pacific, aims to present cutting-edge research on the Asia Pacific region and its relationship with the rest of the world. For countries in this region to achieve robust economic growth, it is of foremost importance that they improve the quality of their markets, as history shows that healthy economic growth cannot be achieved without high-quality markets. High-quality markets can be established and maintained only under a well-designed set of rules and laws, without which competition will not flourish. Based on these principles, this series places a special focus on economic, business, legal, and institutional issues geared towards the healthy development of Asia Pacific markets. The series considers book proposals for scientific research, either theoretical or empirical, that is related to the theme of improving market quality and has policy implications for the Asia Pacific region. The types of books that will be considered for publication include research monographs as well as relevant proceedings. The series show-cases work by Asia-Pacific based researchers but also encourages the work of social scientists not limited to the Asia Pacific region. Each proposal and final manuscript is subject to evaluation by the editorial board and experts in the field. All books and chapters in the Economics, Law and Institutions in Asia Pacific book series are indexed in Scopus. Editorial Board Reiko Aoki, Japan Fair Trade Commission, Tokyo, Japan Youngsub Chun, Department of Economics, Seoul National University, Seoul, Korea (Republic of) Avinash K. Dixit, Department of Economics, Princeton University, Princeton, NJ, USA Masahisa Fujita, Institute of Economic Research, Kyoto University, Kyoto, Japan Takashi Kamihigashi, RIEB, Kobe University, Kobe, Hyogo, Japan Masahiro Kawai, Graduate School of Public Policy, University of Tokyo, Tokyo, Japan Chang-Fa Lo, WTO, Geneva, Switzerland Mitsuo Matsushita, Nagashima Ohno and Tsunematsu, Tokyo, Japan Kazuo Nishimura, RIEB, Kobe University, Kobe, Hyogo, Japan Shiro Yabushita, Org for Japan-US Studies, Waseda University, Tokyo, Japan Naoyuki Yoshino, Keio University, Tokyo, Japan Fuhito Kojima, Graduate School of Economics, University of Tokyo, Tokyo, Japan

Anshuman Khare · William W. Baber Editors

Adopting and Adapting Innovation in Japan’s Digital Transformation

Editors Anshuman Khare Athabasca University Athabasca, Alberta, Canada

William W. Baber Graduate School of Management Kyoto University Kyoto, Japan

ISSN 2199-8620 ISSN 2199-8639 (electronic) Economics, Law, and Institutions in Asia Pacific ISBN 978-981-99-0320-7 ISBN 978-981-99-0321-4 (eBook) https://doi.org/10.1007/978-981-99-0321-4 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

Objective and Background This book investigates current and near-future business management aspects of Digital Transformation (DX) in Japan, East Asia’s most developed country. The book expands on recent interest in digital developments in the Far East, especially in Japan. Despite a high level of economic development, education, and political stability, Japan has struggled to implement and benefit from digital strategies and technologies on a broad scale. Nonetheless, some organizations have been able to leap ahead while others flounder in paperwork and repetitive tasks inherited from previous decades. Despite the challenges, Japan is highly incentivized by the conditions created by an aging population, labor shortages, and changing lifestyles to harvest the benefits of successful DX. Specifically, this book aims to understand what boosts or limits DX among Japanese businesses in terms of six lenses of focus: . strategy, technology, organization, and corporate culture (Keuper & Hiebeler, 2013), as well as . human resources and external pressure from society and business partners. These lenses provide the overall framework for the book. The editors see DX as the primary activity, opportunity, and threat of Japanese business management in the near term. DX refers to the radical change accompanying new digital technologies and their implementation. Merely replacing analog and manual processes with electronic ones that function the same way does not result in DX. There may be an improvement in speed and quality brought by substituting manual processes with digital ones, but the transformation is lacking. DX is the full realization of the power of digital technologies and the emergence of new processes they make possible plus the new organizational cultures they inevitably spawn. Below are definitions the editors and authors rely on, critique, and further develop in their chapters:

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. DX means digital interconnection and adaptation of the organization to digital technologies internally and externally (Bloching et al., 2015; Rachinger et al., 2019). . DX means systems-level reorganization of socio-material structures due to digital diffusion within and among organizations due to multiple innovations (Bloching et al., 2015; Matt et al., 2015; Yoo et al., 2010). . DX means radical change to the organization (Hinings et al., 2018). The chapters in this volume address the six themes mentioned above in relation to Japanese business management. Specific topics may also include barriers and reasons for failure. A range of management topics are considered including those mentioned in Transforming Japanese Business: Rising to the Digital Challenge (Khare, Ishikura, & Baber, 2020) and other recent publications on Japanese management. Audience for this book This book is targeted at business academics and leaders who take serious interest in Digital Transformation, business management, business in Japan, and Japan in the context of the new challenges of politics, disasters, accelerated emergence of technology, and other stresses. Business students seeking to understand what might come from Japan or be welcomed into Japan will be especially interested in this book as will be business managers arriving in Japan from other countries as they determine what is possible or needed in their workplaces. Review Process Full chapters submitted were peer-reviewed by academics and practitioners familiar with the issues and hailing from institutions around the world. The review process was double-blind, except where the volume’s editors contributed reviews or comments. Athabasca, Alberta, Canada Kyoto, Japan

Anshuman Khare William W. Baber

Reviewers

Goi Hoe Chin, NUCB Business School Mami Goto, Nagoya Institute of Technology Jocelyn Grira, Athabasca University Abu Haddad, University of Southern Mississippi Faith Hatani, Copenhagen Business School Jim Hoadley, Georgia Institute of Technology Kanji Kitamura, Illinois College Tuukka Lehtiniemi, Helsinki University Serena Leka, Aarhus University David Marutschke, Osaka University of Economics Kumiko Nemoto, Senshu University Nobutaka Odake, Humanware Network Initiative Yuko Onozaka, University of Stavanger Eko Heru Prasetyo, Kansai University Paul Rosenbaum, Uppsala University Makoto Sarata, Doshisha University Peetu Virkkala, University of Oulu

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Contents

Part I 1

Digital Transformation of Business in Japan . . . . . . . . . . . . . . . . . . . . . William W. Baber and Anshuman Khare

Part II 2

Introduction 3

Strategy

Digital Platform for Improving Development Efficiency and Profitability of Robot System Integrators . . . . . . . . . . . . . . . . . . . . Mami Goto and Masahiro Arakawa

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Part III Organization 3

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Quality Fintech in the Context of the Japanese Main Bank System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kanji Kitamura

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Incremental Digital Transformation in Finance: Creating an Unstoppable DX Ratchet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . William W. Baber, Aya Samy, and Arto Ojala

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Part IV Technology and Innovation 5

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DX and Innovation in Small and Medium-Sized Enterprises (SMEs) with Prototype and Small-Lot Production . . . . . . . . . . . . . . . . Nobutaka Odake and Anshuman Khare Perceived Quality and Quality Inspection in the Light of Automotive Mobility’s Digital Transformation—A Perspective of Car Importers in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David Marutschke

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Carbon Neutrality and Carbon Footprint (CFP) Assessment Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Nobutaka Odake and Anshuman Khare

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Digital Transformation and the Evolution of the Additive Manufacturing Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Yukako Harata and Nobutaka Odake

Part V 9

Human Resources

Digital Transformation in Japan: Potential in Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Anna Maria Dzienis

10 Digital Transformation, Leadership, and Gender Equality: Are They Related? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Yuko Onozaka and Kumiko Nemoto Part VI

External Pressures from Society and Business Partners

11 Demography and Digital Transformation in Japan . . . . . . . . . . . . . . . 177 Brian Stewart 12 More Than a Certification Scheme: Information Banks in Japan Under Changing Norms of Data Usage . . . . . . . . . . . . . . . . . . 193 Harald Kümmerle

Editors and Contributors

About the Editors Anshuman Khare is Professor in Operations Management at Athabasca University, Canada. He joined Athabasca University in January 2000. He is an Alexander von Humboldt Fellow and has completed two post-doctoral terms at Johannes Gutenberg Universität in Mainz, Germany. He is also a former Monbusho Scholar, having completed a postdoctoral assignment at Ryukoku University in Kyoto, Japan. He has published a number of books and research papers on a wide range of topics. His research focuses on environmental regulation impacts on industry, just-in-time manufacturing, supply chain management, sustainability, cities and climate change, online business education, etc. He is passionate about online business education. Anshuman serves as the Editor of IAFOR Journal of Business and Management, Associate Editor of International Journal of Sustainability in Higher Education published by Emerald, and is on the Editorial Board of International Journal of Applied Management and Technology. William W. Baber has combined education with business throughout his career. Currently, he is teaching and researching negotiation and business models as an Associate Professor at the Graduate School of Management, Kyoto University. He has also taught as a visiting professor at the University of Vienna and the University of Jyväskylä. Additional experience includes economic development in the State of Maryland and supporting business starters in Japan. He is the lead author of the textbook Practical Business Negotiation and co-editor of Transforming Japanese Business. Recent articles include The Effectual Process of Business Model Innovation for Seizing Opportunities in Frontier Markets as well as Identifying Macro Phases across the Negotiation Lifecycle. Negotiation simulations include Mukashi Games and Pixie and Electro Car Merger, both available through TheCaseCentre.org.

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Contributors Masahiro Arakawa Nagoya Institute of Technology, Nagoya, Japan; Gokiso-cho, Showa-ku, Nagoya, Aichi, Japan William W. Baber Graduate School of Management, Kyoto University, Kyoto, Japan Anna Maria Dzienis SGH Warsaw School of Economics, Warsaw, Poland Mami Goto Nagoya Institute of Technology, Nagoya, Japan; Owariasahi, Aichi, Japan Yukako Harata Nagoya Institute of Technology, Nagoya, Japan Anshuman Khare Athabasca University, Athabasca, Alberta, Canada Kanji Kitamura 1101 W College Ave, Jacksonville, IL, USA Harald Kümmerle German Institute for Japanese Studies, Tokyo, Japan David Marutschke Osaka University of Economics, Osaka, Japan Kumiko Nemoto Senshu University, Tokyo, Japan Nobutaka Odake Humanware Network Initiative, Nagoya, Japan Arto Ojala School of Marketing and Communication, University of Vaasa, Vaasa, Finland Yuko Onozaka University of Stavanger, Stavanger, Norway Aya Samy Graduate School of Management, Kyoto University, Kyoto, Japan Brian Stewart Simon Fraser University, Burnaby, Canada

Part I

Introduction

Chapter 1

Digital Transformation of Business in Japan William W. Baber

and Anshuman Khare

Abstract Japan lags behind other advanced economies in Digital Transformation (DX) progress. This state continues despite government warnings about the Digital Cliff and top-down initiatives embodied by the Ministry for Digitalization and the recently declared war on floppy drives and other outdated technologies. Meanwhile, industry large and small has approached the question with increasing energy, albeit with widely varying approaches and motivations. This chapter considers six aspects of DX as it impacts organizations in the context of Japanese business and government. While some firms take incremental approaches, others are leaping forward to employ technologies that will allow them to radically improve their position in the industry and stabilize their business models for the long term. Questions remain as to whether management and implementation skills are up to the task. Keywords Strategy · Technology · Organization · Human resources · External pressure · DX

1.1 Introduction Even before entering the 2020s, Japan’s government saw a gap in Digital Transformation (DX) and the ability to close it. Warning of a “Digital Cliff” in 2025 (Study Group for Digital Transformation 2018), the national government discussed and proposed various plans. More recently, the Japanese government has created the Digital Agency, a ministry level office for this transformation. The Digital Agency has declared war on outdated technologies, for example targeting the floppy disk in September 2022. That the floppy disk is specifically required by some regulations, along with reliance on fax machines, will come as a surprise to observers not familiar W. W. Baber Graduate School of Management, Kyoto University, Yoshidahonmachi, Sakyo Ward, Kyoto 606-8317, Japan e-mail: [email protected] A. Khare (B) Athabasca University, Athabasca, Alberta, Canada e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_1

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with Japan. Such out of date technologies, however, are symptomatic of government agencies that rely on top-down initiatives and perceive neither ability nor motivation to pursue best practices or innovation from the bottom up. While the national government struggles to make progress decisively, businesses have seen some successes. Despite the attention of major organizations such as Japan Business Federation (Keidanren) there remains no apparent uniform improvement to point to at the level of an industry. Other industry organizations have also moved to promote long term changes in society thinking, decentralization, cyber security and other issues (Digital Policy Forum Japan 2022). Successes, instead, have come at the level of individual organizations. Broadly, Japanese firms appear to struggle with implementing technologies and the related cultural and organizational transformations required to fully exploit those technologies (Gane 2020; Karim 2020). Yet some organizations have seen success, from upstarts like Mercari and DMM to much smaller technology firms in manufacturing (Baber et al. 2020), agriculture (Schaede and Shimizu 2022) as well as in government (Holthus et al. 2020). With this background of industry level support and government initiatives, but mainly recognizing successes at the level of individual organizations, it makes sense to consider factors of DX as they relate to organizations. The factors in consideration in this book include four previously discussed in the literature: technology, strategy, organization, and corporate culture (Keuper and Hiebeler 2013) as well as two more, human resources (Schaede and Shimizu 2022; Study Group for Digital Transformation 2018), and external pressure from other organizations in the value chain (Baber et al. 2019; Böttcher and Weking 2020; Liere-Netheler et al. 2018; Verhoef et al. 2021).

1.2 A Brief Look at Key Literature Broadly, we take an institutional view (Hinings et al. 2018) that the organization’s digitalized technologies and processes are inextricably linked to DX at the systems level (Bloching et al. 2015), the organization’s culture (Bloching et al. 2015; Chanias and Hess 2016), and the environments inside and outside the firm (Bloching et al. 2015; Rachinger et al. 2019). Further we hold that these changes and deep transformations must be viewed in the context of strategy, technology, organization, and the corporate culture (Keuper and Hiebeler 2013) as well as human resources, and external pressure from society and business partners (Khare et al. 2020). Additionally, we hold that managers pursuing DX must consider impacts on their organizations starting from the earliest planning of the transformation process (Tabrizi et al. 2019; Stewart and Khare 2021). Such impacts may include retraining or new hiring of staff, decrease in staff, change of reporting structures including flatter hierarchies, and creating novel processes rather than digital copies of analog processes. Lastly, we consider that DX may generate such new processes and culture as to create or allow new business models in and among organizations (Hanelt et al. 2021).

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Human resources in the context of DX especially refers to the talent of upper management, availability of IT workers, and the ability of the organization to incorporate diverse staff including women and foreign workers. The tight labor market for advanced IT workers in Japan has been exacerbated by the pandemic’s blocking of foreign workers. For almost two years, visas were denied to new entrants to Japan, leaving traditional firms such as banks competing for locally available talent against tech titans such as Google. Although new workers were blocked from Japan due to the Covid pandemic, Japanese industry has an available, if underrecognized, pool of culturally skilled workers who are already in or can enter positions as hybrid managers (Schlunze and Plattner 2007) or serve as highly functional cultural informants (Baber 2012) to aid the adjustment of new foreign experts in Japan. These potential human resources however need to be activated through digital technologies and processes in order to aid in the transformation of organizations. On the job training of human resources, especially in smaller organizations, is broadly emphasized in Japan (National Association of Small and Medium Enterprise Promotion Organizations 2018). This approach however may leave companies unable to leap into new skill sets. Thus, some entities are turning to external training as in the examples identified by Schaede and Shimizu (2022, p. 55). External pressures come as business partners, domestic and overseas, demand interoperability and instant transfer of data in order to cut costs and beat the speed of competitors. As previously considered (Khare et al. 2020), these pressures will not be avoidable for Japanese firms unless they restrict themselves to the domestic market and the shrinking number of Japanese partners willing to operate in conventional formats. Thus we consider what allows DX to go forward in an organization. Some of these antecedents exist outside the firm such as market conditions, new technology developments, value network, and other situational factors; inside the firm are resources, features of the organization from facilities to culture, and the thinking of managers (Zhang et al. 2021). These are broad categories; thus, the details may be partly or wholly different, even unique, from firm to firm. Such details and examples are discussed in several chapters of this volume.

1.3 Discussion 1.3.1 Motivations In addition to antecedents, there are motivations to act in order to move DX forward, or to act in order to inhibit DX. Motivations to act include fear of long-term failure, for example fear of being beaten by competitors who are able to use technology and new behaviors more effectively and rapidly. When the risk of changing exceeds the risk of not changing, firms will be motivated to undertake DX (Yanagawa 2018). This fear is similar to the fear of missing out (FOMO) that may motivate managers

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and organizations to act simply in order to not be doing nothing. Some managers and especially startup businesses may be motivated by opportunism as they grasp opportunities that appear in the market through new technologies and regulation. At the same time, the motivation not to act includes managers’ fears that they may damage their career as there is potential to be dismissed, demoted, or shunted aside as a troublemaker (Haghirian 2019). Institutional bureaucracy is another demotivation; the concern that there is no way to overcome the existing bureaucracy. Other motivations, such as managerial ambition, the desire to succeed through successful DX implementation, appear to be omitted or are at least less evident in Japan. Similarly, the desire to seek organizational or product excellence also does not seem to spur DX action in Japan. Perhaps these apparently missing motivations will surface in the future.

1.3.2 Barriers While motivations may overlap with barriers, these deserve specific attention. A key barrier has been the lack of technical understanding by senior management (Karim 2020). This barrier is the result of generalist managers rising to top decision-making roles and not having appropriate technical skills. Management and promotion practices are broadly seen as a DX barrier in Japan (Schaede and Shimizu 2022). Another barrier is the lack of skills needed for change management and implementation by middle and senior management in Japanese organizations. The chapters in this volume speak directly to the issues presented in this introductory chapter and many more. In the following sections, a brief comment appears on each chapter.

1.4 The Research It appears that Japan is moving in fits and starts at the governmental level as well as at the level of industry. As long as government remains concerned with its own regulations and practices, it is likely to continue to be unable to effectively lead industry. Industry meanwhile is partly reacting to pressures from outside and partly undertaking its own initiatives. A small percentage, perhaps a growing one, is taking matters into their own hands. Such firms are willing to task serious financial risks in the face of shrinking profitability and market. Main goals of such firms include survival into the next generation and improving their profitability. Awareness of these goals is one of the key antecedents for action. Efficiencies introduced by DX are often perceived as a threat by employees as it means fewer workers can do the same work. Indeed, the Covid experience showed that some firms could accomplish the same work with markedly fewer workers. Thus even minimal digitalization steps revealed inefficiencies that could lead to lower

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employment. Accordingly, most workers in Japan, where long term employment is the norm, will see DX as a threat. Managers may view it as an opportunity and alert ones will see that retraining for digital processes using digitalized training systems will take less time and cost than traditional analog training. They can propose DX and the attendant reskilling to workers as a source of opportunities to move into new careers and better jobs. However, managers should also see that before attempting transformation involving deep reaching digital change, they should consider the likely changes to and impacts on the whole organization and its members. In this way they can better plan for mitigation of negative impacts and exploit opportunities that may emerge. Thus, prescriptively, for the practical use of managers facing DX issues and planning, the authors propose a process of holistic assessment of the organization, planning to mitigate challenges and exploit opportunities, and subsequent implementation. Regarding theory, the authors propose that after DX antecedents have ripened, review of the organization’s parts, functions, and members, as well as its position in the value chain, is necessary before implementation of DX plans. Keuper and Hiebeler’s (2013) four aspects (technology, strategy, organization, corporate culture), together with human resources and external pressures comprise the key elements that should be drawn into consideration. These six elements form the framework of inquiry of the chapters of this book (Fig. 1.1).

Technology

Strategy

Organization

Corporate culture Corporate philosophy

Human resources (staff, top management)*

External pressure (social, partner organizations)*

Fig. 1.1 Context factors in digital transformation (Adapted from Keuper and Hiebeler 2013; Khare et al. 2020*)

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1.4.1 Strategy One of the strategies presented in this book addresses Japan’s declining birthrate which is recognized as a social problem. This has led to replacing manual work with automation and robots in a number of manufacturing sites. However, it is argued that the introduction of this system has not progressed sufficiently. Based on interviews and questionnaires, the study summarizes the characteristics of the problems and countermeasures faced by robot system integrators (SIers), which are responsible for the automation of manufacturing sites using industrial robots. The chapter proposes the construction of a strategic digital platform for customers to understand the expertise of the robot SIer and the technology they possess and increase points of contact between potential customers and the robot SIer. This study goes further to describe the characteristics and operation of the proposed system and platform and establishes the expected effects and business development methods concerning this DX initiative.

1.4.2 Organization In this section we examine what boosts DX in the Japanese banking sector, focusing on the non-technical side of fintech in the context of the Japanese main bank system (MBS). The author identifies Japan’s country-specific business purposes by looking at the economy, institution, and individual levels of the society. Using countryspecific elements as case themes, qualitative case studies reveal that compatible fintech with local cultural values of preference leads to successful technological development. The findings suggest that quality DX supports country-specific strategies established to benefit the society. This chapter makes three contributions: refining the notion of quality technology, developing the concept of compatibility as cultural compatibility to discuss country-specific elements, and clarifying literature concepts regarding institutional change. The authors of the next chapter emphasize that increasing digitalization of business activities, many organizations are going through powerful DX. Surviving in the market competition requires changes, not only in technology, but also in organization structures. This brings new opportunities and challenges. In some sectors, like the highly regulated financial industry, change is even more critical than, for example, in IT or manufacturing firms. If a transformation project goes poorly, financial institutions might face catastrophic outcomes that could impact a large population and bring severe economic harm. For this reason, this study investigates DX of a major Japanese banking institution. The authors were especially interested in antecedents, barriers, and lessons learned during the DX process.

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1.4.3 Technology and Innovation This section includes some of the key papers in this book. Technological trends such as IoT, AI (artificial intelligence), etc. are having a significant impact on processes, products, services, and business models, and the speed and impact of the resulting changes are noteworthy. Most of these technologies are not innovative per se, but develop innovative strengths through significant efficiency gains, significantly better networking possibilities, and their widespread use. While economies of scope are realized in the world of customized production or small-lot production, servitization serves as a platform to expand the scope of business. Digitalization efforts in the manufacturing industry will also bring significant changes to the supply chain. This is discussed using case studies. The authors then explore the impact of automotive mobility’s DX on quality management and customer-perceived quality. Special focus is put on foreign car brands which are ranked among the most innovative within the automotive industry. It is argued that DX contributes to an increase in product appeal and provides new opportunities to make vehicle inspections more efficient. On the other hand, quality problems recognized by customers may shift from defects and malfunctions to design-related usage problems during the transition period. Many companies participating in the Science Based Targets (SBT) Initiative and RE100 cite enhanced stakeholder confidence, reduced risk posed by regulations, increased profitability and competitiveness, as well as increased innovation as their primary motivations. A calculation of supply chain emissions is required. CFP/GHG emissions calculation can be done either by a cloud-based platform or by individual consulting services. The leader of the calculation service is an intermediary organization that has been accumulating expertise having been commissioned by the Japanese government to do so. The standardization of data format and cross-industry data sharing are necessary to view the entire supply chain. Digital technology is a key factor in its success. We then focus on the players in the Additive Manufacturing (AM) industry, one of the key technologies for DX, who are developing their service businesses. AM is attracting attention as one of the key technologies to realize digital manufacturing. Metal AM is shifting from prototype applications to product applications and is increasingly being applied to high value-added products. Service bureaus that engage in contract processing utilize the strengths and networks of each company to provide solution services, including pre- and post-process support for the processing process. The highly specialized service bureaus have established a service structure that crosses the technologies of each specialist, such as machines, powder materials, and the fabrication processes. On the other hand, software companies are also selling machines and creating business models based on their own software platforms. In this rapidly changing market, it is suggested that not only service bureaus specializing in contract processing, but also solution providers who intervene from the stage of showing issues that can be approached by AM will play a keystone role that surpasses that of service bureaus.

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1.4.4 Human Resources Japan’s manufacturing sector is one of the most technologically advanced in the world. So why does it fall behind in terms of the overall performance of transformation in digital contexts? The chapters in this section look into the country’s specific socio-economic and cultural context, which has shaped mindsets, behaviors, practices, and values. Japanese employers used to rely on traditional employment practices and the young hires thought of a hiring company as the one they would commit to for a lifetime. As one of the consequences, their otherwise highly educated human resources acquired firm-specific skills, not necessarily corresponding with the market needs. Another chapter addresses the question of how DX is related to leadership and gender equality. The literature argues that people-oriented, transformational leadership is the key to employee innovativeness and DX success. Existing research supports the finding that women often engage in more committed and effective leadership than men, especially in exercising a more people-oriented, transformational leadership. Following these arguments, the authors theorize that women leaders are associated with a higher level of transformation including DX. An implication is that Japanese firms have yet to fully utilize the high-quality human capital that women represent, which may deter or delay the DX progress of industries in Japan.

1.4.5 External Pressures from Society and Business Partners In this section we acknowledge that Japan is the world’s third largest economy with global leadership in the automotive sector and industrial manufacturing supported by a world class education system and a culture that incorporates a strong work ethic. Despite these advantages Japan’s digital competitiveness is not reflective of their global standing. Japan is also the oldest, demographically, of the advanced economies with 28 percent of its population aged 65 and over, triple the world average and a median age of 48.4 in 2020 (Bloom 2020). The section examines the following aspects: how will an aging society affect the adoption rate and depth of digitally enabled business transformation? Another interesting angle is that the Japanese certification scheme for information banks has recently received attention as an important example in the regulation of data intermediaries. Recognizing that the certification scheme has fallen short of expectations in the short term, this section also looks at why information banks matter for processing customer data in Japan and as theoretically rich examples of data intermediaries more generally. This is the first study tracing the information bank concept to its origins in the 2000s, providing sufficient context on how the certification scheme came into existence in the late 2010s. Privacy concerns were receiving attention internationally from 2013 to 2019, at a time when the Japanese

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government tried to increase the circulation of data among private and public entities. In spite of this, the model of a regional information bank is considered to be promising especially when deployed in combination with Mobility as a Service (MaaS). As the adoption of data technology has significantly gained momentum through the COVID-19 pandemic internationally, restrictions on the use of health information in the certification scheme have been relaxed. Medical information banks are now deployed in “special health zones” or regions with selective support, such that market mechanisms among certified information banks will likely remain ineffective in the short to mid-term. The long-term success of the information bank concept nationally would be eased if Japan succeeds in promoting Data Free Flow with Trust (DFFT) for less sensitive data internationally.

1.5 Concluding Remarks Challenges to business appear only likely to propagate as the world continues a VUCA trend with surprises beyond the chip shortages, logistics difficulties, natural disasters, and conflict that have characterized recent years. These trends limit the forecasting horizon and require that firms maintain multiple supplier sources and keep expensive supplies and inventory on hand. These same developments make it more and more difficult to move expert staff and supplies, increasing logistical costs. However, new digital processes and thinking are already decreasing the requirement for expensive transfer of people and products. Where data can be transferred to local and decentralized production sites, there are significant supply chain efficiencies to be gained. Similarly, communicating and experiencing through video, virtual reality tools, and with augmented reality support will decrease the cost and frequency of human transport. Digitalized processes and the new thinking they will afford will allow new efficiencies and business models to emerge. With time, the metaverse may have offerings based on digital tools that decrease travel costs even further by obviating proximity or by creating opportunities organizations and managers have not yet considered. Further benefits and opportunities and new business models are like to co-evolve as DX matures within organizations and globally (Hanelt et al. 2021). Of key importance is to consider impact on the organization in advance of DX while understanding technology, strategy, organization, corporate culture, human resources, and external pressures. DX holds out the hope that firms can navigate the new complexities while maintaining function and profitability.

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References Baber WW (2012) Adjusting to a distant space: cultural adjustment and interculturally fluent support. In: Schlunze RD, Agola NO, Baber WW (eds) Spaces of international economy and management: launching new perspectives on management and geography. Palgrave Macmillan, London, UK, pp 254–268 Baber WW, Ojala A, Martinez R (2019) Effectuation logic in digital business model transformation Insights from Japanese high-tech innovators. J Small Bus Enterp Dev 26(6/7):811–830. https:// doi.org/10.1108/JSBED-04-2019-0139 Baber WW, Sarata M, Tsukamoto M (2020) Business model innovation: a Japanese SME driven to full digitalization by corporate philosophy. In: Khare A, Ishikura H, Baber WW (eds) Transforming Japanese business: rising to the digital challenge. Springer Nature, Singapore, pp 91–104. https://doi.org/10.1007/978-981-15-0327-6_7 Bloching B, Remane G, Leutinger P, Quick P, Oltmanns T, Rossbach C, Shafranyuk O (2015) The digital transformation of industry. Muenchen Bloom (2020) Population 2020, demographics can be a potent driver of the pace and process of economic development IMF Finance and Development. https://www.imf.org/en/Publications/ fandd/issues/2020/03/changing-demographics-and-economic-growth-bloom Böttcher T, Weking J (2020) Identifying antecedents and outcomes of digital business model innovation. In: Twenty-eighth European conference on information systems (ECIS2020). AISEL, Marrakech, pp 1–14 Chanias S, Hess T (2016) Understanding digital transformation strategy formation: insights from Europe’s automotive industry. In: Pacific Asia conference on information systems, PACIS 2016. Proceedings. Digital Policy Forum Japan (2022) Seven perspectives for realizing a data-driven society. Tokyo. https://www.digitalpolicyforum.jp/wp-content/uploads/2022/06/proposal_en.pdf Gane K (2020) Digital transformation execution in Japan. In: Khare A, Ishikura H, Baber WW (eds) Transforming Japanese business: rising to the digital challenge. Springer Nature, pp 31–44 Haghirian P (ed) (2019) Japanese business concepts you should know. Tokyo Hanelt A, Bohnsack R, Marz D, Antunes Marante C (2021) A systematic review of the literature on digital transformation: insights and implications for strategy and organizational change. J Manage Stud 58(5):1159–1197 Hinings C, Gegenhuber T, Greenwood R (2018) Digital innovation and transformation: an institutional perspective. Inf Organ 28(1):52–61 Holthus B, Gagné I, Wolfram Manzenreiter A, Waldenberger F (eds) (2020) Japan through the lens of the Tokyo Olympics. Routledge Karim R (2020) Digital transformation challenges in the Japanese financial sector: a practitioner’s perspective. In: Khare A, Ishikura H, Baber WW (eds) Transforming Japanese business: rising to the digital challenge. Springer Nature, pp 45–54 Keuper F, Hiebeler MM (2013) Leadership and talent management in a digital world. Logos, Berlin Khare A, Khare K, Baber WW (2020) Why Japan’s digital transformation is inevitable. In: Khare A, Ishikura H, Baber WW (eds) Transforming Japanese business: rising to the digital challenge. Springer Nature, Singapore, pp 3–14. https://doi.org/10.1007/978-981-15-0327-6_1 Liere-Netheler K, Packmohr S, Vogelsang K (2018) Drivers of digital transformation in manufacturing. In: Proceedings of the 51st Hawaii international conference on system sciences. pp 3926–3935. https://doi.org/10.24251/hicss.2018.493 National Association of Small and Medium Enterprise Promotion Organizations (2018) White paper on small and medium enterprises in Japan. Tokyo. Rachinger M, Rauter R, Müller C, Vorraber W, Schirgi E (2019) Digitalization and its influence on business model innovation. J Manufact Technol Manage 30(8): 1143–1160. https://doi.org/10. 1108/JMTM-01-2018-0020 Schaede U, Shimizu K (2022) The digital transformation and Japan’s political economy. Cambridge University Press

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Schlunze RD, Plattner M (2007) Evaluating international managers’ practices and locational preferences in the global city—an analytical framework. Ritsumeikan Bus Rev 46(1): 63–89 Stewart B, Khare A (2021) The critical relationship between organizational design and digital transformation (Blogpost). https://xm-institute.com/xm-blog/the-critical-relationship-between-organi zational-design-and-digital-transformation Study Group for Digital Transformation (2018) Report on digital transformation (DX)—overcoming of “2025 digital cliff” involving IT systems and full-fledged development of efforts for DX— (summary). Tokyo. https://www.meti.go.jp/english/press/2018/pdf/0907_004a.pdf Tabrizi B, Lam E, Girard K, Irvin V (2019) Digital transformation is not about technology. Harv Bus Rev 97(3):2–7 Verhoef PC, Broekhuizen T, Bart Y, Bhattacharya A, Qi Dong J, Fabian N, Haenlein M (2021) Digital transformation: a multidisciplinary reflection and research agenda. J Bus Res 122(July 2018):889–901. https://doi.org/10.1016/j.jbusres.2019.09.022 Yanagawa E (2018) Digital transformation in Japan’s banking industry. Journal of Payments Strategy and Systems 12(4):351–364 Zhang H, Xiao H, Wang Y, Shareef MA, Akram MS, Goraya MAS (2021) An integration of antecedents and outcomes of business model innovation: a meta-analytic review. J Bus Res 131(August 2019): 803–814. https://doi.org/10.1016/j.jbusres.2020.10.045

William W. Baber has combined education with business throughout his career. Currently he is teaching and researching negotiation and business models as Professor in the Graduate School of Management, Kyoto University. He has also taught as a visiting professor at University of Vienna and University of Jyväskylä. Additional experience includes economic development in the State of Maryland and supporting business starters in Japan. He is the lead author of the textbook Practical Business Negotiation and co-editor of Transforming Japanese Business. Recent articles include Transition to Digital Distribution Platforms and Business Model Evolution as well as Identifying Macro Phases across the Negotiation Lifecycle. Negotiation simulations include Mukashi Games and Pixie and Electro Car Merger, both available through TheCaseCentre.org. Anshuman Khare is Professor in Operations Management at Athabasca University, Canada. He joined Athabasca University in January 2000. He is an Alexander von Humboldt Fellow and has completed two post-doctoral terms at Johannes Gutenberg Universität in Mainz, Germany. He is also a former Monbusho Scholar, having completed a postdoctoral assignment at Ryukoku University in Kyoto, Japan. He has published a number of books and research papers on a wide range of topics. His research focuses on environmental regulation impacts on industry, just-in-time manufacturing, supply chain management, sustainability, cities and climate change, online business education, etc. He is passionate about online business education. Anshuman serves as the Editor of IAFOR Journal of Business and Management, Associate Editor of International Journal of Sustainability in Higher Education published by Emerald and is on the Editorial Board of International Journal of Applied Management and Technology.

Part II

Strategy

Chapter 2

Digital Platform for Improving Development Efficiency and Profitability of Robot System Integrators Mami Goto and Masahiro Arakawa

Abstract In Japan, the severe declining birthrate is decreasing the working population, which is strongly recognized as a social problem. Therefore, replacing manual work with automation and robot is unavoidable at manufacturing sites; however, it can be argued that the introduction of this system has not progressed sufficiently. Based on interviews and questionnaires, this study summarizes the characteristics of the problems and countermeasures faced by robot system integrators (SIers), which are responsible for the automation of manufacturing sites using industrial robots. We propose the construction of a strategic digital platform for problem-solving. By utilizing the platform, we expect to solve the following problems: “It is difficult for customers to understand the expertise of the robot SIer and the technology they possess,” and “There are few points of contact between potential customers and the robot SIer.” Specifically, the robot SIer organizes its proprietary technology around the concept design technology in the upstream process and presents it to the customer in an appropriate form. We create a place for dialogue and information extraction, and develop a design process that assumes modularization of subsystems in the robot system, enabling efficient examination and development of the system. Moreover, the platform has a system in which the robot SIers composed of multiple companies can cooperate with each other and allocate SIer operations to appropriate companies through the exchange of technology information using networks. Accordingly, we expect to reduce the problems that occur in matching users with the robot SIers and in the development of robot systems. This study describes the characteristics and operation of the proposed system and platform and establishes the expected

M. Goto (B) · M. Arakawa Nagoya Institute of Technology, Nagoya, Japan e-mail: [email protected] M. Arakawa e-mail: [email protected] M. Goto 4-213 Ida-cho, Owariasahi, Aichi 488-0024, Japan M. Arakawa Gokiso-cho, Showa-ku, Nagoya, Aichi 466-8555, Japan © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_2

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effects and business development methods concerning this digital transformation (DX) initiative. Keywords Robot SIer · Robot system · Conceptual design · Digital platform

2.1 Introduction Japan’s manufacturing industry comprises many small and medium-sized enterprises (SMEs) implementing key technologies, but their manufacturing sites rely on human labor and automation lags. However, Japan’s severely declining birthrate is decreasing the working population, which is strongly recognized as a social problem. Therefore, it is inevitable that the manual labor employed at manufacturing sites will be replaced by robots and automation. However, it is difficult for robots to replace humans who can flexibly respond to on-site situations. Therefore, the introduction of robot systems has not sufficiently progressed. In robot automation, a robot system integrator (robot SIer) often plays a role in manufacturing equipment (robot system) by listening to the requests and problems of clients that require automation of production and improvement of manufacturing processes. Given that a robot system is built according to the user’s requests, it is an exclusive, fully customized, one-of-a-kind made-to-order product that caters to the needs of a specific user; hence, it should be customer-oriented and satisfy clients. However, because it is difficult for a robot to replace a human, various problems must be solved before the completion of the robot system. First, given that many of the users’ problems and requests are unique to the factory or company, it is necessary to consider and develop a solution plan for each case. Although robot SIers can enable robots to imitate human performance, it is not always possible to perform an exactly similar action. Furthermore, if clients are not accustomed to automating the manufacturing process, it is hard to predict the costs involved and whether their needs are feasible. Therefore, the robot SIer’s ability to determine the technology required for problem-solving and the degree of the clients’ knowledge of automating manufacturing processes affects the robot system’s success and failure. In previous research, new product development in business-to-business (B2B) has discussed the concept of “information stickiness” (e.g., Von Hippel 1994; Ogawa 2000) and acquiring latent customer needs (e.g., Nobeoka and Takasugi 2014). However, these studies have focused on how manufacturers provide the technology required by users and the organizational structure of the manufacturing company. Therefore, other concerns, such as how to bridge the gap in technological capabilities and enable value co-creation, have not been adequately considered in these studies. We conducted interviews and questionnaires with robot SIer companies and inquired about the problems and countermeasures faced by SIer businesses. Further, we summarized the characteristics. Based on these characteristics, we propose a digital transformation (DX) for problem-solving. Accordingly, the construction of a strategic platform is expected to increase the profitability of each company by

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improving the efficiency of the business process of robot SIers and utilizing the connections among the companies in the industry. Currently, robot SIers rely on the experience and achievements of engineers; however, their efficiency can be improved by introducing digital technology into the process. Additionally, the platform will have a system in which robot SIers composed of multiple companies can cooperate with each other and allocate SIer operations to appropriate companies by exchanging technological information using networks. This can help reduce the problems that occur in matching users with robot SIers and developing robot systems. We present the expected effects and business development methods of this DX effort by revealing the characteristics and operation of the system and platform. The remainder of this paper is organized as follows. Section 2.2 covers global trends in the robot market and the situation in Japan, and literature review. Section 2.3 shows interviews with robot system integrators, and problem analysis based on interviews. Section 2.4 proposes the countermeasures for the problem. Section 2.5 discusses the contents of the proposed system. Finally, Sect. 2.6 presents a summary and future issues.

2.2 Background 2.2.1 Market Trends of Industrial Robots and Robot System Integrators According to the International Federation of Robotics, the expansion trend in the global industrial robot market temporarily dipped in 2019 and 2020. However, in 2021, it returned to a level above 2018. The installed base is expected to grow by 6% annually (see Table 2.1). There are five major markets for industrial robots, namely, China, Japan, the United States, South Korea, and Germany. By 2020, China was expected to account for 44% of the world’s total installed robots, while Japan was supposed to account for 10%. A total of 80% of the robots made in Japan are shipped overseas, accounting for just under 60% of the global market (Ministry of Economy, Trade, and Industry (METI) 2019) (see Table 2.2). Although Japan has implemented advanced automation of industrial production, the proportion of robot installation remains significantly high (IFR 2021a). This may be caused by the increasing demand for automation of production, which is Table 2.1 Annual installations of industrial robots 2015–2020 and 2021*–2024* (Forecast) ‘000 of units

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

254

304

400

422

382

384

435

453

486

518

Source International Federation of Robotics (2021b)

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Table 2.2 Total number and value of shipments of industrial robots from Japanese manufacturers ‘000 of units

2015

2016

2017

2018

2019

2020

2021

155.5

175.6

233.3

242.1

196.6

196.6

261.6

Percentagea

13.2%

12.9%

32.9%

3.7%

−18.8%

0.0%

33.1%

Valueb

683,413

716,022

895,603

932,294

803,733

781,336

962,358

Percentagea

15.8%

4.8%

25.1%

4.1%

−13.8%

−2.8%

23.2%

a Percent

change from the previous year, Source Japan Robot Association (2021)

b Millions

of yen

motivated by the problem of labor shortages across the manufacturing sites in Japan. The government has positioned Robotics as an important national industry and is promoting its introduction in manufacturing companies, especially in manufacturing SMEs, where automation has not progressed. Therefore, robot SIers, who handle the manufacturing systems for installing robots, seem to be favored. However, this introduction is not progressing as expected, which is a problem (METI 2019). Robot SIers have a role in manufacturing production equipment for customers. They use industrial robots and integrate them with other equipment and machines to automate the manufacturing process. Many production equipment manufacturers, mostly SMEs, develop and manufacture special-purpose machines, including robot systems, in cooperation with the production technology departments of the clients. A robot system is provided as a solution based on customer requests. Essentially, each product is uniquely manufactured to cater to each customer’s needs. Therefore, the work of the robot system integrators is a project type. In the next section, we identify the issues in these products using previous research.

2.2.2 Literature Review The following two issues should be considered in the manufacturing of unique and project-based integrated products. First, manufacturers should determine how to acquire information from customers and whether they can solve their problems using their own technology. This is because manufacturers need to accurately understand the details and problems, which vary from project to project. Iansiti (1997) argues that technology integration requires more than just a mere understanding of the customer, but it also involves a choice of feasible and effective technical policies that can transform purpose into substance. Second, manufacturers must determine whether the products they manufacture can truly provide solutions that will be appreciated by customers. Macdonald et al. (2016) defined a business solution as the joint process and resource combination of the manufacturer and customer to create value-in-use for the customer.

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Regarding the issue of acquiring customer information, if the content of the customer’s request is difficult to understand, manufacturers need to spend personhours inspecting the actual product located at the customer’s site and conducting repeated interviews. Without knowledge of the manufacturer’s technology, it is difficult for the customer to provide the information necessary to convey their needs. Von Hippel (1994) and Ogawa (2000) explain the difficulty of information transfer using the concept of “information stickiness” in the process of new product development. According to them, highly sticky information is distributed to multiple locations, such as manufacturers and customers. Von Hippel (1994) indicates that if the information repeats between sites and is cumbersome to collect, steps are taken to remove the stickiness of the information. Additionally, Nobeoka and Takasugi (2014) discussed methods for manufacturers to discover latent needs that customers are unaware of and provide solutions. It is stated that the person in charge of manufacturing discovers these needs by asking questions to the customer and addresses them using the company’s technology. At that time, the person in charge of manufacturing provides an appropriate solution by examining various problem-solving cases that have been compiled into the company’s database and shared with employees. Furthermore, Souder (1988) argues that it is necessary to consider the degrees to which the customer understands their needs, can translate them into product specifications, and the development side understands these product specifications and expresses the technical means. It should be noted that the management style changes according to the situation on the customer’s and manufacturer’s side. Therefore, according to these previous studies, manufacturers should pay attention to the accuracy of information when acquiring customer information, which often depends on the customer’s situation. Therefore, the first research question is how to improve the level of understanding on the customer’s side to improve the accuracy of the information acquired by the robot SIer in the construction of the robot system. Conversely, from the viewpoint of value co-creation, co-production and value-inuse should be considered (Ranjan and Read 2016). These values are created when customers combine the knowledge embedded in the goods with their own knowledge (Vargo and Lusch 2004). Hobday (2000) argues that project performance indicators differ between mass-produced and capital goods. Moreover, customer demands differ from project to project, and changes in customer demands affect project progress. They also suggest that it is difficult to transfer the experience and knowledge gained from each project. Similarly, Gann and Salter (2000) indicted the need for efficient operations because project-based companies often struggle in bidding and competitive quotations. Blindenbach-Driessen and Van den Ende (2006) argue that, in B2B project-based product development, the customer’s contribution to individual projects is low because the customer is already well understood. However, Hobday (2000) confirms that project-based manufacturers suspend the project and reassess costs and lead times if customer requirements change during the project. Therefore, project-based work should consider the ongoing involvement of the customer.

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Accordingly, the second research question is how robot SIers can provide their technology and achievements in the process of co-creating robot systems with customers to enable high-quality product development.

2.3 Problem Analysis of Robot System Integrators 2.3.1 Research We conducted a questionnaire to establish the problems faced by robot SIer companies in promoting business. Additionally, we interviewed four companies and confirmed their consistency with the questionnaire results. The summary and results of the questionnaire are as follows. • A request was made to the managing companies (23 companies) of the FA/Robot System Integrators Association, and 10 responses were received (shown as “A” to “J” in Fig. 2.1). • The questionnaire was conducted from January 11 to 31, 2022. Question 1: In terms of hurdles to overcome (degree of “barrier” to receiving orders) for five situations regarding problems that occur with customers before business negotiations lead to orders, please rank these from 1 to 5. (1. Not a problem ~3. Occurs but can be resolved ~5. Cannot be resolved and may not accept orders)

Evaluation value

Questionnaire 1

Evaluation value

Questionnaire 2

Fig. 2.1 Results of questionnaire. Note The bars of the chart shows the numerical values (1–5) of each company’s questionnaire responses as the difference from the average value (3). The bars extends above the zero axis for questions with a large impact. Therefore, the question with many bars appearing on the upper side is regarded as more problematic

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S1: Determine specifications based on customer requests S2: Find out the customer’s problem and make it understood by the customer S3: Resolving technical issues (realization of functions and performance required by customers) S4: Judgment of customer’s introduction propriety (internal approval) S5: Price negotiation/Agreement on price Based on the descriptive answers to this question, we identified the following characteristics: • In many cases, the customer themselves cannot decide on the specifications. This requires a lot of person-hours in the development process. • If automation does not lead to direct profit for customers, it is often canceled during the internal approval process. • If the customer has a lot of knowledge about the equipment, the level of difficulty in its development will be low. However, most new customers have little knowledge. • Customers’ technical requirements are increasing year by year, and there are cases where it is not possible to meet customers’ needs using the company’s technology. • There are many technical issues because customers require robotization of handassembled products. • The correct understanding of robots is not widespread. Question 2: “Ability required for system integrators to build customer-oriented robot systems.” Please select levels 1 to 5 to indicate the importance of the following eight abilities that a robot SIer should have. (1. Low importance/basic level is fine, to 5. Highly important/high ability required.) S1: Mechanical design ability S2: Electrical (control) design ability S3: Robot teaching ability S4: Conceptual design ability S5: Project management ability S6: Overall system adjustment and finishing ability S7: Equipment (system) assembly ability S8: Software develop ability that adds value to robot systems Based on the written answers to this question, we established the following: • About 80% of the cost and specifications are determined using conceptual design. Furthermore, project management skills are required to deliver the fixed specifications and adjust them according to the customer’s expectations. • Conceptual design before development is important. It is necessary to embody what the customer wants and establish mutual understanding. • Mechanical design is the basis of the system, and a wide range of mechanical design knowledge generates good ideas. • Nothing progresses without conceptual design, but managing it is the role of the project manager.

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• The most important thing is how well engineers understand the “site.” Knowledge and wisdom based on empirical rules are required. • Equipment depends on the basic concept. In addition to this questionnaire, we individually interviewed four robot SIers. The findings based on these interviews are summarized as follows. • It is important for customers to determine the shape and quality of their own products. However, in many cases, customers are not aware of automating the manufacturing process. Therefore, negotiations are started without knowing what kind of information to convey to the robot SIer. • It is difficult for outsiders to understand the technology that robot SIers possess. Robot SIers basically manufacture robot systems one by one. Hence, even if users know what their company requires, it is difficult to know which system integrator to place an order with. The factors contributing to the second characteristic are that the robot SIer, who listens to requests, has to ask for the necessary information each time and determine whether the company’s technology can solve the problem. This is because the features and manufacturing methods of the customer’s products and factory environments are different each time. Therefore, although robot SIers have their own areas of expertise, some problems cannot be solved using their technology. Therefore, if the matching fails, the customer’s problem and the robot SIer’s proprietary technology to solve it will not be properly combined. This may result in equipment that is difficult for the customer to use. One interviewee mentioned that they were consulted by a customer about the robot system developed by another SIer because the equipment did not meet their expectations. Based on these facts, we discussed the issues related to the work and operation of robot SIers and separated them into the following two parts: “issues associated with receiving orders” and “issues in the development of robot systems.” The contents are analyzed below.

2.3.2 Issues Associated with Receiving Orders Given that robot systems are expensive and directly involved in the manufacturing of the users’ products, their introduction significantly affects the user’s business. Therefore, in many cases, the customer who places the order needs to receive approval from the management to do so. From the perspective of robot SIers, because the period from order to delivery is long, the financial burden during manufacturing is large. Moreover, they always face the risk that the business will not be stable because if the order is missed, the impact on sales will be significant. Therefore, it is desirable to connect customers with robot SIers who have the technology to solve their problems; however, this is difficult because there is a gap in the information possessed by both parties. Although trading companies and robot manufacturers sometimes act

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as mediators between customers and robot SIers, there must be restrictions on the commercial distribution and robots that can be used, which is also a disadvantage. Therefore, for customers to take more efficient ordering, they should be provided with the necessary information from the robot SIer and simultaneously extract appropriate information from customers. In the interviews, it was highlighted that the number of inquiries for robot SIers fluctuates over time. Therefore, many robot SIers complain that there are times when they are too busy to respond, or there is not enough work to do. Moreover, because each company has different specializations (areas of expertise), it is not possible for one company to solve random inquiries using its own technology. Therefore, if the client and robot Slers know each other’s expertise and abilities, they can take their inquiries to appropriate companies; however, they recognize that such information is not readily known or shared with other companies.

2.3.3 Issues in Development of Robot Systems The case commonly recognized among robot SIers is that if production proceeds without sufficient information exchange in the initial stage of development, rework may be necessary at a later stage (Mase et al. 2020, 2021). Given that the customer’s situation is highly unique, the information is sticky. If the information required by the robot SIer cannot be extracted, as development progresses, the divergence between customer requests and system specifications increases. This may lead to design changes, implementation modifications, schedule delays, and increased costs; moreover, the completed equipment may be difficult for customers to use. Primarily, the robot SIer’s “conceptual design” ability plays an important role in this aspect. In conceptual design, the degree to which the robot SIer can recognize various latent constraints and how to solve them depends on the engineer’s (designer) ability to use tacit knowledge. The interviews revealed that relatively few engineers possess this ability because it requires extensive achievements and experience. To build a user-oriented robot system by utilizing the technology possessed by each robot SIer, a structure or system is required for engineers to efficiently perform conceptual design. In recent years, there has been a tendency to develop and manufacture a wide variety of products in a short period to meet the diversifying tastes of consumers. Therefore, for robot SIers, the loss caused by rework has a greater impact than before. In terms of profitability, robot systems are produced on a case-by-case basis and cannot generate stable income as mass-produced products. Furthermore, in the context of human resources, building a robot system requires knowledge from many fields and broad experience. Therefore, the burden of human resource development is heavy while profitability is unstable. Hence, it can be argued that the risk associated with robot SIer businesses is high.

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2.3.4 Summary The issues can be summarized as follows. First, it is necessary to solve the difficulty of determining the robot SIers with the technology to meet the customer’s needs. The content of automation that users want to realize is diverse, and highly specialized technology may be required to embody it. Therefore, if the information is visible, it will be easier for customers to decide. If a suitable partner can be found without the intermediation of a trading company or robot manufacturer, and if a cooperative system can be established between the robot SIers and matched customers, the robot SIers will be more flexible, and the burden of ordering and receiving will be reduced. There must be merits for both sides because the hurdles in introducing robots will decrease on the customer’s side, and the business of the robot SIers will stabilize. Second, we must be able to accurately define requirements for robot system manufacturing. If this is not done properly, customers’ desired systems cannot be built. However, given that the customer’s information is highly sticky, it depends on the engineer’s experience and ability to recognize the exact information. If we can improve the individualized approach and allow more engineers to perform conceptual design with a certain level of accuracy, it may become easier to manufacture robot systems that meet customers’ needs. Third, in the development of robot systems, it is necessary to reduce the impact of changes in user specifications and designs. Reducing rework in the manufacturing process through easy communication with customers shortens system manufacturing lead times and reduces costs. In the next section, we consider the measures that should be taken to address these issues.

2.4 Development of DX System for Robot SIer Business 2.4.1 Analysis of the Issues In this section, we analyze the issues identified in the previous section. We consider that the following solutions are required for the two issues: A: Problems related to receiving orders for robot systems A strategy to find a company that can develop the robot system required by the customer. B: Problems in developing robot systems Measures to check progress and coordinate between the customer and the robot SIer in the process of design, manufacturing, and operation. Regarding policy A, it is effective for the customer to search for a company that has experience in developing a robot system similar to the one they require. If there

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are developed examples of a similar robot system in the robot SIer, customer can easily imagine the construction of a specific system in the form of a diagram. The results of the interviews with robot SIers indicate that each of them has its fields of expertise technologies. This depends on the characteristics of the robot system developed in the past. The robot system is frequently developed for operation under the strict conditions required by customers, and high technology is required for manufacturing. The robot SIers will obtain advanced technology from the manufacture of the system when the required order is completed. Even though engineers in the customer’s company have the technical knowledge to understand the characteristics of the required robot systems, they may be less experienced in the development of the robot system than working for robot SIer companies. Particularly, if the structure of the robot system is precise and the operation of the system is complex, it is effective for customers to order the system from robot SIers that have highly skilled experience in designing and manufacturing the system. Therefore, a robot SIer presents the achievements that the company has developed in the past using diagrams and comments so that the customers can easily create images of the system. Regarding policy B, the countermeasure is applied in the process of developing the system. After receiving an order, the robot SIer develops a robot system based on the specifications provided by the customer. Here, the gap in the robot system or the robot SIer and the customer is affected by the accuracy and roughness of the specification description. If the specification provided by the customer is vague, the robot SIer needs to reconsider the creation of the functional requirements and conceptual design of the system. However, if the specifications and the schematic diagrams are close to the detailed design, the robot SIer can start creating a detailed design. This condition indicates that the gap is reduced. To reduce such a gap, it is necessary for customers to express the features and specifications of their systems in detail. We consider the development of a “mechanism” that provide necessary information for the customer to search for the appropriate robot SIer to answer the first research question. Furthermore, to answer the second research question concerning the widening gap during the development process, we consider developing a function that presents the progress information provided by the robot SIers and collects opinions from customers.

2.4.2 Countermeasures for Upstream Process in Robot System Development In this section, we discuss the cause of the gap and develop a DX system to improve the efficiency of work. First, we consider the causes of the gap from the perspectives of customers and robot SIers. From the interviews, we identified the following problems faced by customers: • (U1) A suitable robot SIer has not been selected.

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• (U2) They do not have a concrete image of the system to be developed in advance. • (U3) In addition to the difficulties involved in technical problems regarding their request, customers cannot assess the characteristics and difficulty of implementing the technology. • (U4) Even if they know the specific image of the system and characteristics of the technology included therein, it is difficult to explain the detailed contents to the robot SIer due to a lack of expertise or consideration. Problems faced by robot SIers are as follows: • (S1) They cannot imagine the system to be developed from the customer’s explanation. They cannot conceive an image of implementation methods using specific technologies. • (S2) They cannot assess the characteristics and difficulty of the technology necessary to develop the system. • (S3) They cannot anticipate the processes and causes of problems in manufacturing the system to be developed. • (S4) In the process of system development, confirmation with the customer has not been carried out. (U1) is a problem that occurs before confirmation of an order and corresponds to the processing of policy A. This processing is performed based solely on the judgment of the customer. Therefore, we construct a “mechanism” in which the customer can use the information presented by the robot Sier to easily evaluate the feasibility of manufacturing their robot system. Here, the information presented by the robot Sier includes technical data, characteristics of its specialty, and achievements of robot system development. Conversely, (U2) to (U4) and (S1) to (S4) are problems that arise after determining the candidate robot Sier. In these processes, we apply strategy B. Problems in this process are thought to be gaps that arise due to a lack of knowledge of specialized technology and explanation by the customer and misunderstandings between companies. Here, we consider a method to reduce the recognition gap by promoting information exchange between customers and robot SIers in the process of designing and manufacturing robot systems. The schematic workflow in the development of robot systems is illustrated in Fig. 2.2. The area indicated by the dotted line corresponds to the range referred to as conceptual design. If the information provided by the company is only specification information, the robot SIer is required to start designing the basic design after reconsidering the specification information. This result indicates that the robot SIer’s workload is affected by the level of accuracy of the provided information. Additionally, the gap between the systems assumed by both companies is enlarged when the accuracy of the provided information is lower. Generally, when a robot system is introduced into a production factory, it is necessary to consider the work method and process design for operation in the production process preceding the designing of the mechanism and structure of the system. Therefore, when the aforementioned are not considered, robot structures that are difficult to realize are often designed in

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the initial step. In such cases, the accuracy of the conceptual design information was considered to be low. The flow of items to be considered when designing a robot system from the viewpoint of designing a production process is illustrated in Fig. 2.3. The “accuracy” of the contents is thought to be lower in the upstream of the examination stage, and the examination of the production process is not sufficiently considered. When the technical level is low, the examination of the production process is not sufficiently considered. If the “accuracy” of the information provided by the customer is low, there is a gap between the companies because the customer makes fewer considerations. Therefore, to narrow this gap, customers should increase the number of technical considerations and improve the technology of the information provided. The area requiring work design and process design Conceptual design

Requirements definition

Creation of specifications

Functional requirements

Accuracy (Low)

Detailed design

Basic design

Initial conceptual design

Manufacture

Test

Accuracy (High)

Fig. 2.2 The schematic workflow in the development of robot systems

Mechanical Design Conceptual design

Requirements definition

Accuracy (Low)

Control Design

Initial conceptual design

Work design

Process design

The area to provide conceptual design by customers

Design of robot system

Manufacture of robot system

Accuracy (High)

The area to construct robot system by robot SIers

[A]

[B], [C]

Fig. 2.3 The flow of items to consider when designing a robot system from the viewpoint of designing a production process

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2.4.3 Proposal for the DX System: Mechanism and Countermeasures In this section, we outline a concrete mechanism for improving the design efficiency of robot systems. A: A countermeasure to find a company that can develop the robot system required by the customer company. To embody the countermeasure, we develop the following process: • Customers can obtain information on the development process of robot systems through the Web. Additionally, they can obtain information about the robot system by referring to the target “work.” • A schematic diagram of the robot is displayed in relation to the work content so that the user can visualize the operation and structure of the specific robot system. • Previous development and introduction achievements are provided so that the customers can foresee whether the robot SIer can realize the target work. Here, work contents, work conditions (processing speed, work scale), robot system structure, and other factors are presented. • Input information related to these designs is used as a search item to make customers aware of work and process design when searching for robot SIers. Examples of input information include task name, characteristics, task, and cycle time. B: A countermeasure to check progress and coordinate between a customer and their robot SIer company in the process of design, manufacturing, and operation. To embody the countermeasure, we develop the following process: • Information is shared between the robot SIer and the customer. Specifically, milestones are set for the development plans of the robot SIer. For each milestone, the robot SIer presents the design and manufacturing information to the customer and exchanges opinions. C: A countermeasure to efficiently design the robot systems in robot SIer. To embody the countermeasure, we use an information system that reuses previous design information of a robot SIer. Here, design information refers to information included in the conceptual design, and the following information and processing functions are included. • Regarding examples of robot systems developed in the past, the following data are stored: work characteristics, process characteristics, robot system structure (conceptual diagram), specification-related information, and design drawings. • For the purpose of reuse, a function that allows searching for information about previous achievements based on work content, technology characteristics, et cetera, is incorporated.

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2.5 Development of DX System for Problem-Solving Measures Based on Sect. 2.4.3, we present a development of the DX system for countermeasure A. The implementation of countermeasure A requires a function that guides the customers to select the robot SIer of an appropriate company to develop their robot system. Figure 2.4 presents an image of the displayed screen of the developed system. The scenario until the customer selects the suitable robot SIer is created as follows: User: Customers Preconditions: Customers use the website to search for robot SIers Scenario: 1. Enter the information on the characteristics of the work required by the customer. The characteristics of the process and robot system are then entered as additional information. Finally, the “Search” button is pressed. 2. The database is searched for development examples of robot systems that match or are similar to the input information. 3. The following information is displayed as search results: the “system name,” “work characteristics,” “process characteristics,” “mechanism/technical characteristics (of the robot system),” and “system overview (figures/videos).” In “work

Fig. 2.4 The image figure of a GUI screen of DX system developed under the policy

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characteristics,” the name and characteristics of the work are displayed. In “process characteristics,” the cycle time and process characteristics are displayed. “Mechanism/technical features” displays the features of the robot system and the degree of similarity between the system evaluated and the entered information. “System overview (figures/videos)” displays a schematic diagram or a video of the robot system. This diagram or video simplifies the visualization process by displaying the mechanism and structure of the robot system. If multiple systems are searched, the information for each system is listed and displayed in order of degree of similarity. 4. If there is a system or automation equipment that meets the functional requirements of the robot system to be developed from among the examples of multiple robot systems, press the “Select” button. 5. By pressing the “Select” button, a screen for contacting the company will be displayed, on which the selected system name is described. The result items are selected from the searched results as “information emphasized for selection.” Additionally, the contact information and the person in charge of the customer’s company can be entered on this screen. 6. The robot SIer receives information from the customer and contacts the person in charge at the customer’s company. Here, the person in charge inputs information on the defined requirements of the robot system and information on work and process designs. Alternatively, this information is provided together with the specifications and documents related to the conceptual design provided by the customer. To realize this, the following technical information on the robot SIer is stored in the database. 1. Area of expertise in automation. 2. Skilled technology possessed by the company. 3. Information on the developed robot system. 3.1. Name of the robot system 3.2. Characteristics of work performed by the robot system: work name, work characteristics, the difficulty of systematization, et cetera. 3.3. Characteristics of the work process: cycle time, process characteristics, number of processes, automation rate, et cetera. 3.4. Features of the mechanism and technology of the robot system: automation mechanism, robot operation, technology, technical level, et cetera. 3.5. System overview diagram (or video). 4. Requirement definitions, functional requirements, conceptual design-related information, work-related information provided by customer companies, process-related information, et cetera. Figure 2.4 presents an example of a graphical user interface (GUI) screen developed under the aforementioned policy.

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2.6 Conclusion From the perspective of appropriate matching between customers and robot SIers, and efficiently building a customer-oriented robot system, we identified the issues faced by robot SIers and proposed solutions. The DX system indicated herein is expected to have the capability as a platform among the relevant companies for robot systems. A schematic diagram of this platform is shown in Fig. 2.5. By sharing information regarding multiple robot SIer companies on the platform, other robot SIers can be introduced when it is difficult to receive an order. In such cases, by examining the information exchanged between the robot SIer and the customer’s company, the initial work of defining can be eliminated. The Lean Canvas model (Gierej 2017; Qastharin 2015) for operating this platform to explain the business model is reported in Table 2.3. The value of this business model is as follows: • Customers are capable of finding a system similar to the required robot system because they can access information on previously developed robot SIers. • Customers can find a suitable robot SIer by searching for robot development cases from the characteristics of work and work process with considering levels of technology. Additionally, this business model includes the following advantages: • The platform provides a method for investigating past development examples of robot SIers by associating them with technical information and work characteristics.

Customer Customer Customer

Customer

Customer

Platform (DX System)

Robot SIer

Robot SIer Robot SIer

Fig. 2.5 Schematic diagram of the platform

Cost Structure • Cost to build the system • Operating cost

Problem • Customers are difficult to find suitable robot SIer to develop the robot system • Many customers do not know the technical level to develop the required robot system • Many redesign and modifications of the robot system are generated at the upstream process of development

KPI • The number of visitors of customers • Number of visits of each customer • Pages which visitors viewed and number of times

Solution • Customers can easily imagine the characteristics of robot system to be developed from work and work process • Customers can easily find robot SIer that can develop the required robot system since the development examples and specialties of each robot SIer are shown

Table 2.3 The Lean Canvas model for developed DX system

Channels • Advertising (online)

Advantage • A method for researching past development examples of robot SIer is provided by associating the examples with technical information and characteristics of work • Due to the participation of multiple robot SIer, customers can choose a candidate from a wide range of robot SIer • If the robot SIer company selected by a customer cannot receive an order, the development period can be shortened by introducing other companies and taking over the information on the consideration contents by linking information between the robot SIer

Revenue Streams • Currently, we plan not to anticipate any income related to system operation • In the future, we plan to insert advertisements and collect advertising fees

Value proposition • Customers can find a system similar to the required robot system because they can know the development examples of robot SIer • Customers can find suitable robot SIer because they can search for robot system development cases from the viewpoint of work by evaluating the characteristics and levels of technology that the robot SIer possess • Multiple robot SIer can jointly develop one robot system by sharing information on this platform. Every robot SIer can be assigned to work with specialties of technology of the company • An organization can be built with multiple robot SIers participating on the platform for training human resources and for jointly developing new technologies to enhance robot SIer business

Customer Segments • Customers that plan to introduce robot systems into their factories • Robot SIer that want to obtain orders from customers

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• Given that multiple robot SIers participate on the platform, the range of companies that customers can choose will expand. • By sharing information between robot SIers, multiple companies can jointly develop a single robot system. If each company shares the work, it will be possible to reduce the burden on each and assign appropriate tasks that consider the technical proficiency of each company. • Given that many robot SIers are SMEs, it is possible to continuously develop the robot SIer business by building an organization with multiple companies. This promotes human resources and joint technology development as an organization on the platform. As can be seen in the proposed business model, this research does not aim to achieve profits through the operation of the DX system. Instead, it focuses on customer acquisition issues and promotion of the work process by considering customer companies’ weaknesses. Particularly, this research discussed the mechanism of attracting customers and business promotion and proposed the construction of a DX system based on the same. In recent years, due to the shortening of the product life cycle in Japan, the changeover of production lines in factories has shortened. We consider that the DX system developed in this research is effective for improving business efficiency, acquiring customers, and solving social issues such as the decrease in the working population.

References Blindenbach-Driessen F, Van den Ende J (2006) Innovation in project-based firms: the context dependency of success factors. Res Policy 35:545–561 Conference for Promoting Social Transformation with Robots (2019). Changes in the environment surrounding robots and the direction of future measures-social transformation promotion plan with robots-, Ministry of Economy, Trade and Industry. https://www.meti.go.jp/shingikai/mono_i nfo_service/robot_shakaihenkaku/20190724_report.html (in Japanese) Gann DM, Salter AJ (2000) Innovation in project-based, service-enhanced firms: the construction of complex products and systems. Res Policy 29:955–972 Gierej S (2017) The framework of business model in the context of industrial Internet of things. Procedia Engineering 182:206–212 Hobday M (2000) The project-based organization: an ideal form for managing complex products and systems? Res Policy 29:871–893 Iansiti M (1997) Technology integration: making critical choices in a turbulent world. Harvard Business School Press, Boston, MA International Federation of Robotics (2021a) Executive summary WR 2021 industrial robots. https:// ifr.org/free-downloads/ International Federation of Robotics (2021b). IFR presents world robotics 2021 reports. https://ifr. org/news/robot-sales-rise-again (downloaded on August 26, 2022) Japan Robot Association (2021) Table of statistic data for transition of production and shipments of manipulators and robots. https://www.jara.jp/data/dl/yeartable.pdf (in Japanese) Macdonald EK, Kleinaltenkamp M, Wilson HN (2016) How business customers judge solutions: solution quality and value in use. J Mark 80(3):96–120

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Mase Y, Arakawa M, Odake N (2020) Training robot industry human resouces: training young robot system integrator (Robot SIer). Japan Society for Production Management (JSPM) Journal 27(2):29–38 (in Japanese) Mase Y, Arakawa M, Odake N (2021) Proposal of educational method for robot SIer training: survey of current educational institutions and analysis based on case studies of companies. Japan Society for Production Management (JSPM) Journal 28(1):45–54 (in Japanese) Nobeoka K, Takasugi Y (2014) Authentic customer value of industrial products: management of solution value creation. Hitotsubashi Bus Rev 61(4):16–29 (in Japanese) Ogawa S (2000) Inobeisyon no hasseironri: meka syudou no kaihatsutaisei wo koete (Logic of innovation occurance: Beyond the manufacturer-led development structure). Chikura Shobou, Tokyo (in Japanese) Qastharin AR (2015) Business model canvas for social enterprise. The 7th Indonesia international conference on innovation, entrepreneurship, and small business (IICIES 2015), pp 1–10 Ranjan KR, Read S (2016) Value co-creation: concept and measurement. J Acad Mark Sci 44:290– 315 Souder WE (1988) Managing relations between R&D and marketing in new product development projects. J Prod Innov Manag 5(1):6–19 Vargo SL, Lusch RF (2004) Evolving to a new dominant logic for marketing. J Mark 68(January):1– 17 Von Hippel E (1994) “Sticky information” and the locus of problem solving: implications for innovation. Manage Sci 40:429–430

Mami Goto is enrolled in the doctoral program at Nagoya Institute of Technology. She earned a master’s degree (MBA) from the University of Illinois at Chicago and is working for an equipment manufacturer as a senior managing director. She has consistently worked in the manufacturing industry, previously worked for FA parts manufacturer, and semiconductors equipment manufacturer. She is interested in manufacturing business management and B2B marketing, and member of the Japan Society of Production Management, Japan MOT Society, Japan Society of Marketing and Distribution. Masahiro Arakawa is a Professor of Systems Management at the Nagoya Institute of Technology, Japan. He has a Doctor of Engineering from Saitama University (1995). His research area includes Production Systems Engineering, Operations Research / Management Science, and Systems Engineering. His work focuses on the optimal algorithm and mathematical modeling for production scheduling, process and work designs for production, and service design considering product design. In addition, he has interest in technological methods to create services and products and develops IoT and DX systems for the manufacturing process and service management.

Part III

Organization

Chapter 3

Quality Fintech in the Context of the Japanese Main Bank System Kanji Kitamura

Abstract This chapter discusses what boosts digital transformation (DX) in the Japanese banking sector, focusing on the non-technical side of fintech in the context of the Japanese main bank system (MBS). This chapter first identifies Japan’s countryspecific business purposes by looking at the economy, institution, and individual levels of the society. Using country-specific elements as case themes, qualitative case studies reveal that compatible fintech with local cultural values of preference leads to successful technological development. The findings suggest that quality DX supports country-specific strategies established to benefit the society. This chapter concludes that, although Japan’s DX appears to be lagging behind, their fintech development is generally compatible with local strategies. This chapter makes three contributions: refining the notion of quality technology, developing the concept of compatibility as cultural compatibility to discuss country-specific elements, and clarifying literature concepts regarding institutional change. Keywords Compatibility · Cultural values of preference · Fintech · Japanese main bank system · Post transformation state · Quality technology

3.1 Introduction Digital transformation (“DX”) has become a buzz word in various segments worldwide. DX is inevitable in Japan (Khare et al. 2020b), and managers are aware of it. So far, however, few studies have discussed the key question of what management should transform their business into. Literature urges businesses to transform themselves into something technologically novel, while providing few insights into the to-be state: for instance, “DX is radical change” (Hinings et al. 2018). Although DX may be described this way from the perspective of institutional studies, there is a dearth of guiding studies exploring what needs to be changed and achieved.

K. Kitamura (B) Illinois College, Jacksonville, IL 62650, USA e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_3

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A recent Harvard Business Review article Digital Transformation is not about Technology discusses practical considerations of transformation and offers the following five lessons: “1) figure out your business strategy before you invest in anything, 2) leverage insiders, 3) design customer experience from the outside in, 4) recognize employees’ fear of being replaced, and 5) bring Silicon Valley start-up culture inside” (Tabrizi et al. 2019). The first lesson is highly country specific: the post-transformation constituents are shaped by employees driven business strategy. The body of literature in international business suggests that the notion of effective business strategy is not always uniform across the world (Cavusgil et al. 2020). For this very reason, there exists Japanese style management (Abegglen 2006), which is exemplified by country-specific systems, including the main bank system (Hirota 2009) and long-term employment (Ono 2010). The Japanese systems and business strategies work in tandem with each other (Gotoh 2020). Country-specific management styles are pertinent to this chapter. This book has its society-level focus, provided that Japan as a whole is not progressing as quickly at DX as peer countries. If it is said to be true, the root cause can be country specific. This presupposition implies that company-specific accounts, such as corporate culture, will unlikely explain the given issue at the country level. Based on these premises, this chapter tackles the research question of what boosts DX in the Japanese banking sector. To answer the question, this chapter explores the non-technical side of fintech in the context of the Japanese main bank system (MBS). Research in banking and related sectors is meaningful as, broadly speaking, the percentage of workers engaged in the tertiary industry exceeds 70% in Japan (Ishikura and Khare 2022). This chapter first identifies Japan’s country-specific business purposes by looking at the economy, institution, and individual levels of Japanese society. Qualitative case studies reveal that compatible fintech with local cultural/philosophical values of preference leads to successful technological development. The findings suggest that quality DX supports country-specific strategies established to benefit the society. This chapter concludes that, although Japan’s DX appears relatively slow, its fintech development generally aligns with the purposes of the MBS.

3.2 Theorizing Quality Fintech for Japan’s Main Bank System A major reason for the obscurity of DX objectives can be that the post-transformation state is not uniform across organizations. Fleischmann (2019), a professor in information technology, offers a useful clarification: “Technology must be evaluated based on how it is used, by whom, for what purpose - and also on how it is designed, by whom, and for what purpose”. Similarly, in defining the term technology, Amiel and Reeves (2008) write “A device has no particular bias - it is up to humans to decide what purpose it should serve”. In their discussions, purpose is a determinant of quality technology, which can be a vital constituent of DX.

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In a similar vein, Adamson (2012, p. 21) ponders the concept socially beneficial technology, asking helpful questions: “What is beneficial? What is society? What benefits society?” Adamson’s questions are relevant to this chapter’s country-level focus. Based on the literature, this chapter presupposes that quality technology for the Japanese means support of Japan’s country-specific business purposes established to benefit Japanese society. Alternatively said, quality technology is to be aligned with country-specific strategies in Japanese business. This description is the working definition of quality technology applicable to DX, including fintech, in this chapter.

3.2.1 Diffusion of Fintech The theory diffusion of innovations (“DOI”) (Rogers 2003) is useful for this chapter’s country-specific focus. Although originating in the field of communication studies, DOI is frequently used across academic disciplines, including business and finance in recent research (Cardona et al. 2019). Under the DOI framework, an innovation can be “an idea, practice, or object that is perceived as new by an individual or other unit of adoption” (Rogers 2003, p. 12). Fintech, as well as DX in general, is considered an innovation. The DOI framework consists of the following five attributes of innovations: (1) relative advantage, (2) compatibility, (3) complexity, (4) trialability, and (5) observability. Relative advantage is “the degree to which an innovation is perceived as better than the idea it supersedes”, compatibility is “the degree to which an innovation is perceived as being consistent with the existing values, past experiences, and needs of potential adopters”, complexity is “the degree to which an innovation is perceived as difficult to understand and use”, trialability is “the degree to which an innovation may be experimented with on a limited basis”, and observability is “the degree to which the results of an innovation are visible to others” (Rogers 2003, pp. 15–16). With these attributes, one can analyze various innovations. For example, the widely recognized success of PayPal can be explainable as follows: PayPal exhibits a high level of relative advantage in pricing and convenience over traditional money wiring. PayPal’s system is compatible with incumbent banks (in particular, bank accounts) and email programs. PayPal is easy to use, and so on. Rogers (2003) observes “Many innovations require a lengthy period of many years from the time when they become available to the time when they are widely adopted” (p. 1). The MBS is Japan’s time-honored innovation with nearly a 100-year history (Okazaki and Okuno-Fujiwara 1999) with changes and adjustments (Hirota 2009). It has remained in the nexus of Japanese systems because of its high level of compatibility with Japanese social norms (Gotoh 2020). As for DX innovations, some fintech startups have succeeded as exemplified by PayPal, while many others have not. Compared to incumbent technologies, fintech is relatively new and continuously evolving, generally being in an early stage of diffusion. The concept of diffusion can be defined as “the process in which an innovation is communicated through certain channels over time among the members of a social system” (Rogers 2003, p. 5).

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This chapter’s theme can be described as the diffusion of fintech, which is to be implemented through the MBS channel.

3.2.2 Cultural Compatibility of Fintech Among the five aspects of DOI, compatibility is particularly relevant to this study. This chapter primarily focuses on that attribute and refers to it as cultural compatibility to emphasize a focus on country-specific specificities. The word culture is added because the body of literature uses it to refer to country and/or society-specific themes (Huntington 2011). The attribute of cultural compatibility represents the degree to which a fintech product/service is perceived as being consistent with county-specific cultural values of preference, past MBS experiences, and needs of potential adopters in the Japanese banking sector. Regarding past experience in the attribute of compatibility, there is a related concept path dependency in business/institutional studies. Campbell (2010) writes “Institutions typically do not change rapidly – they are sticky, resistant to change, and generally only change in path-dependent ways” (p. 90). The concept of path dependency is described as “a process where contingent events or decisions result in institutions being established that tend to persist over long periods of time and constrain the range of options available to actors in the future, including those that may be more efficient or effective in the long run” (Campbell 2010, p. 90). The concept appears to contradict the literature idea of DX as radical change (Hinings et al. 2018) reviewed at the outset. This chapter returns to this disagreement after analyzing the findings.

3.2.3 Legal Landscape for Fintech Development Before moving on to the next section, it is instructive to review Japan’s legal landscape that governs their fintech development. This review effectively explains the DOI attribute of trialability as to fintech. The government legislation is part of the fintech ecosystem consisting of five entities that synergistically work together: “startups, technology firms, government, customers, and traditional financial institutions like banks” (Muthukannan et al. 2020, p. 1). At the highest level, government regulations determine the future of fintech. For example, if a country’s government forbids cryptocurrency or its development, cryptocurrency has no future in that country. In the case of Japan, the country amended their Banking Act in 2017 (referred to as 2017/2018 Act hereafter) by introducing a new legal framework to support collaboration between banks and electronic settlement agency service providers, usually referred to as third party providers (TPPs) (Japanese Banking Association 2017). The 2017/2018 amendment is considered a major step forward as it promotes open API initiatives in Japan’s banking sector. An API stands for Application Programming

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Table 3.1 Japanese banks’ API deployment plans (created from Financial Services Agency 2020) Money center banks (Megabanks)

Total

Deployers

Refrainers

4

4

0

Trust banks

12

8

4

Regional banks

102

102

0

Other banksa

16

15

1

Subtotal (domestic banks)

134

129

5

Foreign banks (including Trust banks)

58

0

58

Totalb

192

129

63

a Other

banks include internet-based banks and Japan Post Bank sum includes banks and excludes regional cooperative financial institutions such as shinkin banks

b The

Interface, which generally refers to “connection specifications that enable functions and managed data of an application to be accessed and used by another application” (Japanese Banking Association 2017, p. 1). The initiatives allow the banks to communicate with TTPs regarding their confidential customer information. Several years later, Japan’s Financial Services Agency (FSA) publicly released information about the banks’ responses regarding their plans to or not to implement APIs. Table 3.1 summarizes the banks responses as of March 31, 2020. As shown in Table 3.1, 129 (or 96.3%) domestic banks are planning to implement APIs. Table 3.1 suggests that the 2017/2018 regal reform has improved the attribute of trialability at the government level by paving the way forward for the banks and TTPs. Japan’s legal environment appears to have been recently made ready for the fintech ecosystem to grow in real terms. Having outlined the theoretical foundation, the following section examines country-specific business purposes that drive business strategies in the respective societies.

3.3 Country-Specific Business Purposes As discussed at the outset, the literature suggests that it is critical to set DX objectives that align with business strategy. Business strategies are established for business purposes to attain business goals. Arie de Geus (2002) discusses countryspecific business purposes by introducing the concept of an entity’s persona, originally coined by a famous German psychologist, William Stern, who developed the intelligence quotient formula. According to de Geus (2002), “To Stern, each living being has undifferentiated wholeness, with its own character, which he called the persona” (p. 84). To explain the concept, de Geus (2002) introduces a vertical ladder that William Stern drew in 1919. The ladder has five levels, namely, Deity/Divinity/Godhead being on the top row, followed in descending order by Nation, Tribe, Family, and Individual on the lowest row, each of which is “a

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persona in its own right” (de Geus 2002, p. 87). Borrowing Stern’s ladder, de Geus (2002) illustrated a company (e.g., Royal Dutch/Shell discussed in his book) using a ladder with seven levels, namely, Society being on the top, followed in descending order by Corporation, Company, Division, Work Group, Team, and Individual. This chapter adopts the idea of a ladder to explore country-specific personas, assuming three levels—economy, institution, and individual—for reviewing country-specific concepts in an orderly fashion (see Kitamura 2022 for the three-level framework). Discussing by level is necessary because the personas are interrelated yet each of them is dynamic.

3.3.1 Economy Level There is a useful study for understanding country-specific patterns at the economy level in the comparative context: Hall and Soskice (2001) propose the typology of capitalism: liberal market economies (LMEs) and coordinated market economies (CMEs). Australia, Canada, Ireland, New Zealand, the UK, and the USA are typically LMEs, and CMEs include Japan, and certain continental European and Scandinavian countries (Hall and Soskice 2001, p. 20). In LMEs, “firms coordinate their activities primarily via hierarchies and competitive market arrangements”, and “market relationships are characterized by the arm’s-length exchange of goods or services in a context of competition and formal contracting” (Hall and Soskice 2001, p. 8). The arm’s-length principle (ALP) is the LME paradigm’s keyword. As for CME, Hall and Soskice (2001) write “In contrast to LMEs, where the equilibrium outcomes of firm behavior are usually given by demand and supply conditions in competitive markets, the equilibria on which firms coordinate in CMEs are more often the result of strategic interaction among firms and other actors” (p. 8). In simple terms, this “strategic interaction” is central to Japanese style management, including Japanese financing, trading relation, and human resources management. Japan’s business purposes involve CME strategic interactions that can be one determinant of the quality of technology. This chapter treats the LME and CME paradigms as two modal types. These two types are considered two extremes of a linear continuum that captures the social realities between them. For instance, Japan is closer to the CME end, rather than the other. The idea of a linear continuum with two extremes are shared across the levels in this study.

3.3.2 Institution Level Japan’s financing system is often referred to as the main bank system (“MBS”) (Aoki and Patrick 1994; Hirota 2009). The concept of a main bank is best understood as “a financial institution that keeps money flowing to a group of industrial concerns” (Miyashita and Russell 1994, p. 43). This quote precisely exemplifies

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“strategic interaction” in the definition of CME in the preceding paragraph. A main bank exists not exclusively for it but that the main-bank functions take it into account (Gotoh 2020). Because of this country-specific characteristic, the MBS is considered an intense manifestation of relationship banking (Aoki and Patrick 1994). The technology of relationship lending is used as a risk-mitigating strategy to deal with various borrowers in any size, though LMEs tend to use it predominantly with informationally opaque SMEs (Berger and Udell 2006). CMEs, including Japan, tend to use it with borrowers in any size regardless of the quality of obligatory financial information (Kitamura 2022). As mentioned above, the LME paradigm has its key characteristic, the ALP. Based on the literature, this chapter refers to LMEs’ market-based system of external financing as the arm’s-length system (ALS) as opposed to the MBS. The idea here is not to propose the two rigid types but to use them for discussion purposes. The ALS and the MBS are not mutually exclusive. The Japanese banks are more of the MBS between the two modal types. This discussion is not to suggest one system is better than the other, but it is a matter of preference and compatibility that the next section discusses.

3.3.3 Individual Level It is well known that Japan has a collectivist culture (Thomas and Peterson 2017). Collectivism may be expressed as the primacy of collective interest (Chen et al. 2002). Collectivistic cultural values are grounded in the individual level and come out as various forms of collectivism observable in the business sector. For example, the MBS has primacy in keeping money flowing to a collective of industrial concerns showing through the institution level. For Hall and Soskice (2001), this financing activity appears to be a CME type of strategic interaction. For de Geus (2002), the LME and CME patterns boil down to the primary reasons for being in business at the individual level: There are in fact two different types of commercial companies in existence today, distinguished by their primary reason for being in business. The first type is run for a purely “economic” purpose: to produce maximum results with minimum resources. This sort of “economic company” is managed primarily for profit…. The economic company is not a work community. It is a corporate machine. Its sole purpose is the production of wealth for a small inner group of managers and investors. It feels no responsibility to the membership as a whole…. The second type of company, by contrast, is organized around the purpose of perpetuating itself as an ongoing community…. Return on investment remains important. But managers regard the optimization of capital as a complement to the optimization of people. The company itself is primarily a community. (pp. 100–103)

This quote discusses the economic and community purposes. This chapter refers to the former as the LME type and the latter the CME type, since these types of purposes conceptually represent the LMEs of the English-speaking countries and the CME of Japan. This chapter postulates that the two types of purposes exemplify

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the LME and CME personas at the individual level, respectively. The three levels are interconnected, as individuals make business decisions that drive business activities at the institution level, and the economies are the aggregate results of the corporate activities in the respective societies. This chapter presupposes that quality technology, including fintech, meets the LME and CME purposes in the respective societies. As for the CME-type purpose, the notion of a “work community” or “a community” in the preceding quote (de Geus 2002) may require an additional explanation. Culturally speaking, the CME purpose can be viewed as a type of collectivism: the primacy of collective interest of “perpetuating itself as an ongoing community”. A CME-type company can be described as a community with the primacy of collective interest of perpetuating itself. The CME-type purpose applies to various industrial groups besides companies to varying degrees. For example, the Japanese type of corporate alliance keiretsu is a diffused form of a CME-type community.

3.4 Case Illustrations This section illustrates three business cases: (1) the fourth megabank project at SBI Holdings, Inc. (SBI), (2) Minna Bank with Fukuoka Financial Group (FFG), and (3) interview data on Japan’s fintech development offered by the Federal Reserve of San Francisco (FRBSF). The cases are independent from each other but share the case theme of Japan’s fintech development. Cases 1 and 2 contain their success factors for their DX. Case 3 has comparisons between the CME of Japan and the LME of the United States.

3.4.1 Case 1 SBI is a successful financial conglomerate in Japan. SBI was established in 1999 originally as part of the Softbank group in Japan and became independent from Softbank in 2006. According to CEO, Mr. Yoshitaka Kitao, SBI has three lines of business: (1) what Kitao calls “an internet financial ecosystem”, (2) asset management through investments, and (3) others including medical informatics (SBI Holdings 2022a, p. 4). SBI’s competitive advantage is built on their business ecosystem, which is “a new organizational structure that realizes high growth potential through synergies and coevolution that a single company alone cannot achieve” (SBI Holdings 2022a, p. 4). Backed by fintech, SBI has been changing the landscape of the Japanese banking industry. SBI’s strategies including its project to position their banking operation as a fourth megabank in Japan (the “project”). Their banking operation includes Shinsei Bank that SBI acquired in 2021. The project is that SBI creates an alliance of Japanese regional banks equivalent to a Japanese megabank (that colloquially refer to one of the top three largest banks: Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho) in service quality and possibly in

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size. In SBI’s words: “Through the establishment of a new company, creating a system that will operate as a community that will support the actualization of collaboration opportunities” (SBI Holdings 2019, p. 72). According to Ono (2020), the project originally began in 2016 and became concreate as the fourth megabank project in 2019. The project consists of three stages: (1) offering financial products to the regional banks, (2) offering SBI’s fintech and IT services to the regional banks, and (3) creating an IT platform for the regional banks to use for their cost curtailment (Ono 2020). SBI has moved onto the third stage (Ono 2020). The project has been successfully progressing and attracting significant attention in the nation as it may transform the landscape of the Japanese banking sector and rescue the regional banks currently suffering difficulties by reducing their operating expenses through SBI’s fintech products and services. Mainichi Shimbun (2022), a Japanese newspaper, reports that Shinsei Bank and ten regional banks have joined the project. Japan has 102 regional banks as shown in Table 3.1. Roughly 10% of the Japanese regional banks are with the project. Shinsei Bank is formerly known as the Long-Term Credit Bank of Japan (LTCB), which used to be one of the top-tier banks in the nation before their bankruptcy in 1998.

3.4.2 Case 2 The Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange (TSE) jointly select several dozen shares of companies with a nationally notable DX project as “Digital Transformation Stocks (DX Stocks)” under their annual Digital Transformation Stock Selection program in Japan (Ministry of Economy, Trade and Industry 2020). Their program has two categories: DX Stocks and Noteworthy DX Companies. In June 2022, METI and TES selected Fukuoka Financial Group (FFG), among others, as a DX Stock 2022. FFG is a consortium of three regional banks, namely Fukuoka bank, Kumamoto Bank, and Juhachi-Shinwa Bank, and is the only financial company selected by METI and TSE this year. Hiroshi Hatakama, a PhD in systems management, writes an analytical article (2022) about FFG’s DX project, which is the establishment of Minna Bank (minna no ginko, literally a bank for everyone). Minna Bank is Japan’s first digital bank in the sense that all banking services are available and to be completed with a mobile phone. FFG describes their digital transformation as follows: Our iBank business…, Minna Bank, which we launched this year (2021), are creating touchpoints for customers that have been difficult to reach with existing businesses, generating new ideas, and fostering a new corporate culture. iBank services as a banking and electronic payment agent. Existing corporate customers can easily access existing financial and nonfinancial services via smartphone, and it is used by customers of the six regional financial institutions, including the three banks of FFE…. Minna Bank is performing as planned. As of the end of September (2021), the app has been downloaded 330,000 times, and 140,000 accounts have been opened. In terms of customer age groups, most of the customers who have open accounts are of the digital native generation as initially expected, with people aged

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FFG refers to their DX as “two-way approach” to have “adaptation of changing environment and achievement of sustainable growth” consisting of “deepening of existing business” and “a future bank (Minna Bank) designed by back-casting from the future state” (Fukuoka Financial Group 2022, p. 27). Hatakama (2022) analyzes FFG’s two-way approach: FFG is improving the existing business (asis) while pursuing the future state of banking (to-be). FFG offers digital currency, Wallet+, launched in July 2016. Wallet+ provides multiple services including life plan advising, coupon offerings, marketing for business clients, in addition to standard financial services. Wallet+ has been downloaded 2,000,000 times (Hatakama 2022). Other banks are in talk with FFG in view of joining Wallet+ (Hatakama 2022). Despite being a regional financial institution in the Kyushu area, FFG’s Minna Bank has customers across Japan: 42% from the Kanto area, 16% from the Kansai area, and 15% from the Kyushu area (Hatakama 2022). Minna Bank uses their own fintech system developed together with Accenture. Developed in the Google Cloud platform, their system has the following base specifications: microservice, open API, big data, AI, BaaS (Banking as a service), and cloud (Hatakama 2022).

3.4.3 Case 3 In relation to the development of Japanese fintech, there is a useful interview podcast offered by the Federal Reserve of San Francisco (FRBSF) (Creehan and Tierno 2019). The podcast is based on the FRBSF’s fintech team’s interview with a Japanese fintech professional regarding the 2017/2018 regal reform to promote open APIs. Their interview summary includes the following: Roughly 80 percent of all consumption in Japan is cash-based, placing Japan as a distinct outlier relative to other developed economies. One of the key factors for Japan’s high dependence on cash is the lack of a dominant electronic payment network that is universally accepted in Japan. Compared to China’s Alipay and WeChat Pay, for example, Japanese providers are fragmented and lack merchant integration. In its early stages (of the 2017/2018 Act), there are already around 20 Japanese companies using open APIs to provide account information services. Personal finance and corporate accounting services are expected to be significant beneficiaries of open API. Other opportunity sectors will likely include peer-to-peer payment platforms and the development of personal electronic money accounts. Fintech development in Japan is happening quite differently from the way it is evolving in the United States. The U.S. model is based on small disruptors creating a very successful user experience and using this base to alter specific banking functions. In Japan, by contrast, fintech development is occurring in partnership with the larger, more traditional providers. In part, this reflects the difference in Japan’s credit landscape, where households are generally happy with current banking services and SMEs have not faced credit constraints the same way U.S businesses have post-crisis. (Creehan and Tierno 2019)

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This interview comment articulates the different ways of fintech development between Japan and the US. In the US, small disruptors initiate the evolution of fintech. In Japan, it occurs in partnership with larger industry players, just like SBI. The following section discusses the implications of the findings.

3.5 Discussions The preceding case illustrations include the following three topics: (1) SBI and FFG’s successful business DX projects, (2) the landscape of the existing infrastructure, and (3) the Japanese way of fintech development. The shared success factors can be described as the consistency with country-specific cultural values of preference and MBS strategies. It is striking that SBI and FFG’s development patterns exhibit a high level of cultural compatibility with the existing collectivist values of preference through Japan’s MBS to serve the CME purpose.

3.5.1 Cultural Compatibility as a Success Factor SBI is explicit about their main banks: “Funding through indirect financing: Sumitomo Mitsui Trust Bank, which promotes join ventures, will support making the further leap for SBI Group, in addition to the two megabanks, the main bank; Mizuho Bank, and Sumitomo Mitsui Banking Corporation, which is newly positioned as a quasi-main bank” (SBI Holdings 2022b, p. 47). Not only does SBI follow the MBS protocols for own banking transactions, but also SBI’s fintech products/services embrace the MBS. SBI offers newly developed fintech products not to alter the MBS but to replace the legacy computer systems for accounting, booking, and marketing for cost curtailment. FFG’s two-way approach encompasses the existing business (as-is), as well as the future state of banking (to-be). The as-is part keeps their cultural compatibility in the MBS context as-is with technological improvements. The to-be part replaces the traditional way of communication between the incumbent banks and their clients with the new technology offered through smartphones. In simple terms, the communication channel is changed, and the CME-type purposes remain unchanged. SBI and FFG’s key success factors include their management’s continued respect to the MBS protocols. This continuity helps other regional banks join their project/system without cultural dissonance. Not only do their fintech products and services allow the partner banks to keep their business purposes and strategies but also help reduce operating expenses. The MBS coexists with Japanese collectivist values, and the partner banks can continue being “Japanese”. The findings show what boosts DX: It is to have cultural compatibility. Successful fintech products and services are culturally compatible with the country-specific values of preference through the institution-level systems.

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There is one difference between SBI and FFG cases regarding their development orientation. SBI appears to be forming their fintech ecosystem consisting of Japanese domestic partners: for example, their next generation core banking system is developed with a Japanese company, Future Architect (SBI Holdings 2022c, p. 116), whereas FFG’s partner is Accenture. Future Architect and Accenture use Amazon Web Service and Google Cloud, respectively, as their cloud platform (Yamabata 2022). While their systems are built in the US-based public cloud platforms, SBI appears to be more of a “Japanese” style. SBI’s orientation may produce long-term coherence and stability beyond mere nationalism and generate CME synergies in the next generation or the one after that: for example, 30 years from now. FFG has achieved their success of Minna Bank quickly as a fintech innovation.

3.5.2 Japanese Way of Fintech Development Another distinct pattern shared among the case findings is that Japan’s fintech development is institutionally arranged. Culturally speaking, Japanese fintech is collectively developed. In the US, in contrast, small disruptors independently create a successful use experience to penetrate the financial market by function. Each pattern distinctively exhibits the uniqueness of individualism/collectivism. The CME of Japan tends to keep the “community” (de Geus 2002) not to be disrupted wherever possible. Alternatively said, their development orientation has an elevated level of cultural compatibility with local cultural values of preference in the respective societies. The Japan’s collectively arranged pattern of DX is apparent across industries. Hiroshi Hatakama, a PhD in systems management, offers a list of 95 Japanese DX cases (Hatakama 2022). The list consists of corporate DX cases, mostly on-going projects, carried out by the listed (public) companies in Japan. The list excludes minor projects (non-transformational activities) and vendor projects. The list shows no small disruptors. Hatakama’s findings and FRBSF’s interview results support each other. Nikkei Xtech, part of the prominent newspaper Nikkei, reports on Japanese DX’s latest trend (Suzuki 2021): Osamu Yonetani, Executive Officer and General Manager of the Group DX with Seven & I Holdings Co., Ltd. says that, if IT and DX are positioned as important, the company should not use outsourcing for that. His intention is to develop IT and perform DX in a collective in-house approach. Yonetani announces that the company has hired 160 IT/DX professionals since 2019, which is when the company created their in-house IT/DX team (Suzuki 2021). The company is the world’s nineth largest retailer (National Retail Federation 2022) and the owner of the chain of 7-Eleven convenience stores in Japan. Thew news article introduces five other companies that created an in-house IT/DX team across industries. None of them are small disruptors.

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3.5.3 Relevance with Literature The second section of this chapter has reviewed two opposing concepts in the literature: DX as radical change (Hinings et al. 2018) and the concept path dependency (Campbell 2010). This study’s findings support the latter. Another literature work helps clarify the discord: Abegglen (2006) writes that institutional changes occur “within very clear cultural constraints” in Japan (p. 9). This argument also supports the concept of cultural compatibility, which signifies the intrinsic connection between business practices and cultural values of preference: in the case of this chapter, fintech development in the MBS context and Japanese collectivist culture. Incumbent institutions are unlikely to change radically especially in Japan, where the companies tend to be the CME communities. The literature provides the opposing concepts partly because the researchers look at different units of analysis. The idea of DX as radical change is based on their examples that include AirBnb, Uber, digital product platforms, blockchain, and ERP systems. All these are new startups and new technologies that appear as radical changes from the incumbent specificities. Nevertheless, the idea of radical change does not fully explain the whole universe of DX, which should include existing institutions. The idea of radical change is helpful, but it alone is rather too simplistic. Using both concepts is more sensible than not. In general, the discussion of institutional change helps envisage the posttransformation state. The future of fintech can be determined by negotiation between the field of technology and the sector of finance. Skinner (2018) says that there is a chasm between the two parties. This gap is best explained by the question of which it is, fintech or techfin. The technology innovators tend to view Fintech as “taking financial processes and applying technology”, whereas banking professionals generally regard “taking technology to work with financial processes as techfin” (Skinner 2018, p. 141). Hirano (2021) categorizes Japanese fintech companies into three: (1) start-ups with financial technology, (2) incumbent banks adopting financial technology, and (3) other companies with financial technology to support incumbent banks. The first type is driven by the fintech view. The second type holds techfin views. The third is a combination of both. The second and third categories are path dependent. Fintech is the marriage of various players with the different viewpoints. The future of fintech hinges on how negotiations turn out.

3.6 Conclusions This chapter has made the following contributions: refining the notion of quality technology, developing the concept of compatibility as cultural compatibility to discuss country-specific elements with specific reference to Japanese fintech, and clarifying literature concepts regarding institutional change. The findings show what boosts DX is to have cultural compatibility between post-transformation state and cultural

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values of preference. While culture does not determine everything, cultural values shape the primary purpose of business. Quality technology is designed for a specific purpose. This chapter has discussed the concept of quality technology from a nontechnical perspective. The findings suggest that non-technical or human factors are as important as technical specifications. While DX is a recent concept, the posttransformation state seems to accord with old sayings: for example, “Minotake ni atta keiei” in Japanese, or “Cut your coat according to your cloth” in English. A good DX coat is to be made according to the fabric of society. This chapter has explored Japan’s fintech with the case-study method. Naturally, the findings are limited to the banking sector. However, the focused findings may be applicable beyond banking. For instance, the Japanese are known for their preference for relatively time-consuming consensus decision making over quick decisions made by individual teams. What matters to the Japanese is collective decision making, rather than speedy decisions made independently. Quality technology supports consensus decision making for the Japanese. The idea helps envisage the future of DX. Collective approaches better suit Japan than speedy disruptors. DX comes with technology changes, but what matters to a society tends to remain unchanged in the nexus of ecosystems. This chapter’s findings highlight the significance of human factors in digital transformation and the Japanese pattern of fintech development. Quality technology for the Japanese serves the Japanese business purposes with locally suitable strategies. The conclusions seem to imply that simple country-level DX comparisons do not make much sense. If two societies have different perspectives on the term purpose, the definition of quality technology or socially beneficial technology may differ between the societies. If two technologies are designed for different purposes, they cannot be compared meaningfully. Technology is a matter of preference and compatibility. A culturally compatible technology in one society is not necessarily superior nor inferior to another society.

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Kanji Kitamura is a faculty member with the Department of Global Studies and the Department of Business Administration at Illinois College. He is also an adjunct faculty member with Loyola University Chicago and Hawaii Pacific University. He is a former bank executive with 20year experiences in corporate banking. He is currently a PhD candidate with Monash University. His interests center on comparative studies of Japan and Japanese-related areas, including corporate finance in a real-world context, credit analysis primarily of MNCs, cross-cultural studies, intercultural communication, international business management, and translation studies. He is particularly interested in what mitigates cross-national difficulties and what suits the respective societies, considering the effectiveness and ineffectiveness of translated and imported specificities developed overseas. He prefers qualitative approaches to uncover the unknown, while he has been involved in number-crunching professional duties.

Chapter 4

Incremental Digital Transformation in Finance: Creating an Unstoppable DX Ratchet William W. Baber , Aya Samy, and Arto Ojala

Abstract Due to the increasing digitalization of business activities, many organizations are going through powerful Digital Transformation (DX). Surviving in the market competition requires changes, not only in technology, but also in organization structures. This brings new opportunities and challenges. In some sectors, like the highly regulated financial industry, this is even more critical than in IT or manufacturing firms. If a transformation project goes poorly, financial institutions might face catastrophic outcomes that will impact a large population and impact severe economic harm. For this reason, this study investigates DX of a major Japanese banking institution. We were especially interested in antecedents, barriers, and lessons learned during the DX process. To collect empirical data, we conducted a total of four interviews with the key decision-makers involved with the process. We found eight barriers and nine ways they are being overcome. A one-way ratchet that moves incrementally toward digitalization and transformation along with satisfaction about successes appear to be the most important methods to overcome barriers to DX. Keywords Digital Transformation (DX) · Finance · Banking · Japan · Innovation

4.1 Introduction Industries of all sorts find themselves in a time of challenge and opportunity as digital technologies become available bearing immense social and organizational transformations. Traditional financial institutions around the world face similar challenges as new entrants bring services and seek to skirt regulators and norms. Survival issues W. W. Baber (B) · A. Samy Graduate School of Management, Kyoto University, Yoshidahonmachi, Sakyo Ward, Kyoto 606-8317, Japan e-mail: [email protected] A. Ojala School of Marketing and Communication, University of Vaasa, Tervahovi B302, Wolffintie 32, 65200 Vaasa, Finland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_4

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for incumbent global organization include handling old as well as new competitors, applying new technologies, replacing legacy systems, and creating structures and processes that are more resilient and profitable. Technology, culture, and change, the core concepts of Digital Transformation (DX), however questions remain how these are implemented and processed in practice by managers. In particular, consideration of DX at global financial institutions has lagged with notable exceptions considering business versus IT alignment (Kitamura 2020), barriers to change (Gane 2020; Karim 2020), a central bank (Berkani et al. 2019), and potential impacts (Hirai 2021). While successful digitalization, technology implementation, and DX may be a lifeline for firms, the costs of failure can be extraordinarily high for financial institutions. If a manufacturing or IT firms fails in a DX, they may lose profits or even face bankruptcy. In manufacturing, however, these issues may often be handled as just another round of investment to be managed through recapitalization. It is different for the highly regulated financial industry. Here, if a transformation project goes poorly, the institution could face additional catastrophic outcomes such as decertification by the authorities, sudden attack by cyber criminals, or even malicious installation of espionage systems by national actors. In this study, we aim to gain insights into the reality of Japanese managers facing DX. In Japan, established banking firms find themselves entangled by a strong mix of behaviors that are typically deeply rooted in the corporate culture. Some frequently found examples include promotion by seniority, and a preference for generalist managers. Often in the banking world, departmental siloes such as front, middle, and back offices with clearly defined tasks and jobs, are locked in place due to decisions taken long in the past. For many such companies, teams able to handle advanced technologies are overtaxed and elite teams are often controlled by vendors. All these elements are not unique to Japan, but the presence of so many such features in combination makes Japan’s global banking institutions an especially interesting hothouse for observing DX under challenging circumstances. In particular, conditions in place in advance of change that make it possible, antecedents, can help understanding of success and failures in DX efforts. Thus, there may be positive and negative lessons to be learned through examination of Japan’s major banking firms as they undergo DX. To learn from such an organization, we investigate the antecedents of BMI and the outcomes. This research elucidates the process and motivations of DX at a large Japanese financial institution. Research questions posed in this study include: (1) What are the antecedents of a large, globalized Japanese financial institution to undertake DX? (2) What specific barriers does such an institution face when transforming and how do they overcome such barriers? (3) What kinds of lessons can be learned about internal and external stakeholders during DX? Additionally, this study contributes to theory around the concept of antecedents in BMI. In order to accomplish our goals, we review literature on BMI and DX. We then present the case and thereafter we present and discuss findings from the case.

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4.2 Literature Review DX has been widely explained and commented in management literature. We take the view that it refers to deep changes in the processes, abilities and business models of an organization in ways that take full, systemic advantage of new technologies and associated new thinking and culture to create new value offerings and constellations of actors (Hinings et al. 2018; I-Scoop 2016; Kavanagh and Bussa 2015; Rachinger et al. 2019). DX can be seen as the logical culmination of a series of phases, for example Digitization, Digitalization, and DX (Verhoef et al. 2021). It is further seen as an ongoing process that relies on continuous repositioning of the firm as phases of transformation cycle onward (Kääriäinen et al. 2020). To clarify it further, DX does not refer solely to digitizing data, repeating analog processes in digital environments, or merely providing digital versions of conventional products and services. On the contrary, DX requires technological changes as well as deep cultural changes. Other authors (Ifenthaler and Egloffstein 2020; Teichert 2019) highlight that cultural aspect is of vital importance as transformation involves people as much or more than technologies. DX in banking has been theorized as three phases that start with developing new channels and products, continue with adapting technology infrastructure, and move on to organizational changes (Cuesta et al. 2015). This view is echoed by Rachinger et al. (2019). A countering viewpoint is that the three phases would include creating closer alignment between the business and IT, then becoming ambidextrous (able to exploit existing markets while developing new ones), and thereafter reorganizing based on capabilities (Sia et al. 2021). Yet others hold that organizational situating must first be clear before implementation of technology can succeed (Stewart and Khare 2021). The situating process may become an ongoing state of awareness and positioning (Kääriäinen et al. 2020). Meanwhile resistance to change may center on employee acceptance (Kitsios et al. 2021) as well as leadership by top management (Diener and Špaˇcek 2021). Another viewpoint is that misalignment of the business and the technology, or IT, sides is of particular importance in banking (Kitamura 2020); if this is so, the two sides may be at loggerheads unless united in some manner. The external factor of digitalization in the environment of a financial firm, i.e. customers and regulators, may be particularly stimulating to DX in financial institutions (Tsindeliani et al. 2022).

4.2.1 Antecedents to DX Simply, an antecedent means “something that happened before” (Cambridge English Dictionary 2021). In academic writing, antecedent generally refers to conditions that come before and which possibly enable later states and events (Carnevale and de Dreu 2006), and is used in business research to refer to chronologically previous conditions (Black 1991; Hult et al. 2004). It is worth noting precisely that an antecedent state is

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not an event and not a goal, but a condition which may have unclear relationship to outcomes and final states (Carnevale and de Dreu 2006). Thus, a statement to transform is not an antecedent, merely an event. If the staff actively seek to transform after receiving the statement, they are in a state of attempting to transform; and that is an antecedent. In the case of macro model, summarized by Verhoef et al. (2021), digitization and digitalization are antecedents to DX. Antecedents have been considered widely in DX as well as BMI as elements in place before DX has completed (Foss and Saebi 2017; Saebi et al. 2017). The academic world has been charged to learn more about these, “As a minimal starting point, BMI theorizing should clearly identify the antecedents and consequences of the focal phenomenon” (Foss and Saebi 2017, p. 211). We hold that DX cannot happen with BMI as an output. Thus, we must consider the meaning of antecedents in DX and BMI, yet no definition of “antecedent” has appeared nor has a method of selecting antecedents to consider. Antecedents can be divided into internal and external (Böttcher and Weking 2020; Demil and Lecocq 2010; Zhang et al. 2021). Zhang et al. specify four external (market opportunity, situational factors, value network, technology innovation) and three internal antecedents (managerial cognition, internal resources and capabilities, and organization characteristics). Similarly, digital maturity has been identified as a necessary condition for DX (Westerman et al. 2014); this would be an internal antecedent. Another internal antecedent is cultural readiness as a necessary precondition for DX (Stewart and Khare 2021). Another internal antecedent identified for DX is the ongoing activity of positioning (Kääriäinen et al. 2020) a firm and its management; if the management cannot position and reposition, DX is likely to fail.

4.2.2 Barriers to Digitalization Diener and Špaˇcek (2021) summarize barriers to digitalization in banking from various studies as well as their own executive interviews arriving at eight categories: benefits (i.e. lack of public funding), customer, employee, knowledge and product, market, participation, strategy and management, technology and regulation. Specific barriers such as legacy systems, concerns about cyber security, lack of operations level skills, complexity (Gane 2020; Khare et al. 2020; Kitamura 2020; Vial 2021) that have been identified in the context of Japan and its banking systems seem to fall appropriately into the eight Diener and Špaˇcek categories. Another challenge is that banks often have weak IT assets and are beholden to elite IT vendors (Slodkowski 2022). Overcoming barriers, however, has been less well investigated in the literature although it has been identified as a target of investigation (Vial 2021; Vogelsang et al. 2019). Some specific instances of overcoming barriers to DX appear in the literature, such as external pressure in public service (Tangi et al. 2020), stakeholder pressure in logistics services (Cichosz et al. 2020), scaling and coping in introduction of Agile (Fuchs and Hess 2018), but work remains to be done.

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4.2.3 Path Dependence in Banking Decisions made in previous eras of an organization can directly impact the current range of action and the framing of issues. This is referred to as path dependence and can be found in corporate organizations including banks in Japan and elsewhere (Bebchuk and Roe 1999). Specifically, sunk adaptive costs include corporate structures that are appear preferable even if recognized as inefficient (Bebchuk and Roe 1999). Path dependence may limit or slow the ability of a firm to change for the better until the inefficiency of the status quo limits its own persistence (Schmidt and Spindler 2002).

4.3 Methodology In this study, we apply qualitative case study method that enables a holistic and in-depth overview of the case under the study (Yin 2017). To study DX in a real life context, we selected a major Japanese banking institution for this study. This case was selected as a typifying case, that is one which is likely to hold examples and insights that are similar to its peer organizations (Gerring 2006). The case was also selected as it offers, based on the authors’ network, a rare opportunity for high level access to institutions that rarely discuss their planning and experiences openly. Because of the access to high level decision makers, this case is positioned as a “thick” description of the organization, one which has considerable detail and takes on the case’s own issues in its richly developed context (Stake 2005). As a major MNE headquartered in East Asia, this case helps to work against the bias of selection in academic writing on international cases, wherein only a small number of leading MNEs, mainly Western, are investigated (Collinson and Rugman 2010). Two interviews were conducted with the global lead manager for DX in September and November 2021. The interview in November was extended to include the head of IT and the global IT architect. In total, four interviews were conducted, each lasting 45–90 min. In terms of the conflicting interests of the financial business and IT services, the transformation executive and head IT executive could reasonably claim to embody both—a significant issue in their selection of strategic DX goals—while the IT architect was entirely from an IT background. A follow up interview was held with the two senior executives in late February 2022. This follow up interview allowed confirmation of facts, timelines, explanatory graphics, while revealing new insights. The interview in September was completed by taking manual notes only and was not recorded. The November and February interviews were recorded, transcribed by software, and notes were made which were scanned and shared among the authors. The automated transcriptions were checked by two of the authors in sequence to correct and clarify transcription errors and poorly audible sections. The transcripts and notes were subjected to a process which identified main themes and subordinate ones which were selected into categories with the participatory knowledge of the

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authors (Gioia et al. 2013). In addition to identifying themes, data condensing (Miles et al. 2018) was conducted to simplify, organize, and interpret the data. Various approaches were taken including tabularizing quotes, creating a timeline, generating graphic representations of events and relationships, and establishing chains of states and events. In order to map chains of states and events (Miles et al. 2018), the transcripts and notes were carefully examined to determine sequence as well as possible root causes, triggers, and intermediate steps and states. Where root causes were unclear, they were subjected to a why-why procedure in which each answer to “Why did an event happen?” was iteratively subjected to another why until a root cause appeared. In this case study analysis, we differentiate trigger events, root causes, antecedents, and milestone states, and milestone events as follows: Antecedent:

An ongoing situation or state, not a brief instant or action; it may be a permanent or short term state that is created or occurs without the effort of the firm; it may be internal or external to the firm; an antecedent may also be a cause or milestone state, but it is not a goal or end state. Example: Customers expect that the case study firm will upgrade a technology to become compatible.

Final (targeted or achieved) state: An outcome whether achieved or not yet achieved; this includes goals. Example: An innovated business model. Trigger event:

An instantaneous event or action. Example: A senior manager indicates that a new Agile process must be followed.

Root cause:

An original cause of an event. Root causes may or may not be antecedent or states. Example: An event such as a new national policy change to 0 interest (root cause) caused a state of needing improved revenues, lower cost, and better ROI.

Milestone event:

events (instantaneous or brief) that happen in the process of gaining a final state. Example: An expensive consultant is removed and replaced by an internal team.

Milestone state:

Temporary states or states of partial fulfillment of final state. Example: Front Office staff become compliant and comfortable with the multiple sign offs required by Agile project management.

To select an antecedent appropriate to the analysis, there was a considerable latitude for maneuver. Our approach was to sort chronological states based on evidence from interviews, media, and collateral materials. Thus, a state of recognizing a need to change or recognition of an environmental input could be an antecedent. However, for example, a statement to change would not be an antecedent, it would be an event after that state. In previous works, researchers have chosen antecedents based on what “many researchers have concluded” as well as their “aim to study” (Bhatti et al. 2021). Other researchers have selected antecedents such as industry structure including market maturity (Waldner et al. 2015), demands of partners (Tsindeliani et al. 2022), and firm’s innovation capabilities (Kiani et al. 2019). In this study, a full

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Table 4.1 Selected antecedents from the case firm Antecedent in this case

Zhang et al. categories

Other research

Intention to move from Waterfall project management

Managerial cognition

Berkani et al. (2019)

Perceived need to keep up with Managerial cognition foreign firms for market share in Japan Shrinking of domestic market

Value network

Perceived problem of siloes

Managerial cognition; Organization characteristics

Tsindeliani et al. (2022) seek new partnerships

Revenue loss and cost increase due to zero and negative interest rate policies

Market opportunity; Situational factors

Tsindeliani et al. (2022) low profit; loss of monopoly status

Service innovation capability ready

Organization characteristics

Service innovation capability (Kiani et al. 2019)

Organizational readiness at top management level

Organization characteristics; Managerial cognition

Organizational readiness (Stewart and Khare 2021)

list of antecedents is not presented, rather those antecedents deemed most pertinent were selected from the case data and are shown in Table 4.1. The seven antecedents in Table 4.1 have been further explained in Table 4.2, in the findings section, in the context of related events. The event chains (Miles et al. 2013) are shown from the root cause, progressing chronologically toward the as yet unachieved final targeted state.

4.4 Overview of the Case The case firm is a major Japanese financial institution, a household name in Japan and a recognized organization worldwide. The corporate body comprises independent bodies such as retail banking, securities, and other firms (we investigate securities firm in this case study). The firm is broadly separated into three siloes common in the financial industry: the front, middle, and back offices. The front office trades securities and sells products to investors. The middle office settles transactions. The back office includes siloes such as human resources, planning, and IT. As has been standard in the financial industry until recently, the firm operates on largely traditional lines with a clear divide between what is casually called “the business” and IT. The business generally refers to the commercial activities around finance such as trading securities and developing investment products and marketing those products to investor organizations. IT functions as a support service to the business by providing digital tools as requested. In order to create the large number of tools, IT is supported in turn by external technical consultants who outnumber the IT staff five to one. IT manages these projects and the business interacts with these workers

Arrival of Mr. U NA and Mr. H with inside knowledge about foreign banks in Tokyo

Realization that cost is too high and technology is not under control

Intention to move Perceived need to Shrinking of from Waterfall keep up with domestic project management foreign firms for market market share in Japan

Individual projects done by Agile

Trigger(s)

Antecedent

Milestone event(s)

Chain 3

Chain 4

Chain 5

New technology Hiring of Mr. partner appeared; U and Mr. H New AI marketing technology created; New price prediction tool created; Strategy to reduce the 2000 consultants

Revenue loss and cost increase due to zero and negative interest rate policies

NA

Individual Decision to seek projects done by substitute Agile revenues; Development partners found; New development started; Resources allocated to create substitute revenue sources;

Perceived problem of siloes

Realization that front and back offices are not aligned

Awareness of Legacy National policy technology gap structures of previous decades

Chain 2

Concerns about low relative profitability

Chain 1

Outsourcing practices of past 20–30 years

Root cause

Table 4.2 Event-state chains Chain 6

Mr. U and Mr. H became aware of low capacity of innovation; Mr. U and Mr. H built innovation capacity

Service innovation capability ready

Hiring of Mr. U and Mr. H

Concerns about low relative profitability

Chain 7

(continued)

Willingness to hire Mr. U and Mr. H

Organizational readiness at top management level

Failures in 2014 and 2016

Pre-Transformation

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Chain 1

Recognition from Front Office that Agile works; Recognition from upper management

Final targeted state

New product on market

Confidence in ability to make new products

Chain 2

Full implementation Improved of Agile practices profitability

Achieved state Recognition of successes

Milestone state(s)

Table 4.2 (continued) Recognition from Front Office that this works

Chain 4

New cadre of highly skilled IT workers; Closing of the gap

New product on market

Development in process

Chain 5

Career path from Improved IT to front office profitability

Some products NA created

Successful project deliveries

Chain 3

New products to offer; New revenue streams

Proven ability to create

Development in process; Successful project deliveries

Chain 6

Transformed organization

New processes in place; New processes normalized

Hiring of Mr. U and Mr. H

Chain 7

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through IT. The IT and business managers traditionally follow career paths that are in siloes, never to converge. This traditional structure remains the status quo for the case firm and the transformation to a new structure is the subject of this case study. The firm’s current situation and environment is an example of path dependence as the front, middle, and back structures were designed early in the firm’s development in line with industry norms. The transformation is built on a variety of antecedents that came together chance and design. The top management of the case firm recognized, perhaps 8–10 years ago, that problems and inefficiencies abounded. Profitability was especially under pressure because of Japan’s zero interest rate policy. Fears were widespread in the industry that there would be a move to negative interest rates, which indeed occurred briefly in 2013 and restarted in autumn 2016. The experience of zero and negative interest rates created a key antecedent to DX: recognition of the urgent need to improve profitability through operations improvement. To this Mr. H said a key issue is to “optimize the IT expense IT cost and then deliver more.” The greatest motivation however comes from recognition of market challenges, “If we do nothing, we may lose opportunity.” Meanwhile the Japanese market continues to shrink, Mr H pointed out and even the Japan based business now earns more from foreign customers than domestic ones. Mr. U underlined the symbolic importance of this recent shift. Additionally, there is recognition of other problems such as siloes, communication, project management, and managers lacking specialist skills. Recognition of problems has led to desire and willingness to undergo DX. Ability to transform, however, remained lacking. Two major efforts, in 2014 and 2016, had been made to update traditional processes digitally, however these efforts failed in part because of not having suitably skilled leadership. In autumn 2017 and summer 2018, the case firm hired the two key informants of this study into global decision-making positions in order to overcome the barrier of management inability. Mr. H was hired in autumn 2017 to a senior position to lead the modernization process. Mr. H arrived from a technology leadership position at a New York technology firm and with start-up experience at another firm as well as having been CTO at the Japanese branch of a major European bank. In short order he brought from the London office, on secondment, the global lead for technology architecture. Thereafter he hired Mr. U from the top operations position at the Japan branch of another leading European bank. Mr. U had previously worked for the case firm as a back office business analyst but left in 1999 to work for other global banks. Over the following 20 years he lived in London and visited regional banking centers around the world. He was exposed to old problems, new solutions, and advanced technologies. In summer 2018, he returned to the case firm to work as the global head of transformation. Upon returning, he found many of the same legacy systems that had been identified as problematic when he had left the company in 1999. Moreover, there were more systems patch worked together by consultants to handle communications between legacy systems and new interfaces. Worse, a leading IT consulting firm had control of key operations technology, locking itself into a vital, and expensive, position. There was no strategy

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for correcting these issues, and many other issues had not even been specifically identified. Despite the arrival of experienced talent, initial efforts and DX did not succeed. The first steps toward transformation by Mr. U and Mr. H were to persuade senior management through logical argumentation about the right steps and urgency of action. However, these efforts largely failed due to resistance of top management to authorize major changes. The next approach was to institute a large scale modernization project with focus on DX. This effort failed too. The following step was to have a leading technology manager from the London branch provide a training session to upper management about Agile development. The training was conducted but Agile processes were generally rejected. Nonetheless, our informants stated that this training made some positive impact on senior management and they were better prepared to perceive the needs and challenges facing the firm. After these events, Mr. U and Mr. H committed to a novel way forward in which every new project develop according to Agile project management with more interactions and sign offs and all digitalized processes. They posited that each new project would bring satisfaction to both the business side and the IT side. No new projects would be done in the old way with waterfall processes and timelines; meanwhile old processes would slowly become extinct. Thus, a sort of DX ratchet would be implemented that would eventually cause a major transformation bringing together the business and IT siloes while saving time, improving satisfaction, creating new financial products, and building in-house expertise. Mr. U and Mr. H are of similar minds about leading the DX at the case firm: every new, small project, will proceed with Agile, digital processes until all parties have transformed. The result will be an organization that has been de-siloed, is comfortable with Agile and Continual Delivery practices, has career paths for talented IT workers to develop into with higher pay and greater agency. Their advancement will in time mean an organization with greater technology capacity and less reliance on external consultants. This result will also allow for greater control of technology. To this end, Mr. H seconded the firm’s Global IT Architect, Mr. K in this study, from London to conduct his work in Tokyo as a direct report to Mr. H. This long term process will have begun, but not completed, but the end of the current 5-year plan, 2019–2024. While the new, transformed organization will not appear for some time, the ratchet devised by Mr. U and Mr. H appears to be working. By adapting and persevering, they have brought steady change to the organization. Mr. K, the technology architect, is the “thin edge of the wedge” that Mr. U and Mr. H are using to incrementally bring the organization to the tipping point of change. Mr. K manages a key team that is globally spread out with about half the individuals in Tokyo. He is a technologist, but is fully aware of the nature of the social changes and interactions that must be conducted bit by bit to manage the intended changes. His position as a direct report to Mr. H, and, in matrix management, to an IT hierarchy, allows him to creatively play one part of the organization against another as the hierarchy elevates disagreements to Mr. U who naturally decides in favor of Mr. K. This interaction is part of the DX ratchet. Although the DX ratchet is already

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underway, only time will tell if the process can successfully lead to DX of the case firm.

4.4.1 Inside the Firm Broadly speaking, top management, who are stakeholders at the case firm, support the mission of Mr. U and Mr. H to update and modernize the firm. Nonetheless they also represent a source of resistance to the specifics of that mission. It is not clear how well they understand the benefits of removing siloes within the company and the steps toward that. It is also not clear that they fully understand, as the case informants do, that DX is not a one-time project with a clear resolution, but a transmutation into an organization that constantly changes with or in advance of the environments that impact it. Thus, the top management may not always fully support the effort and may hinder it. Stakeholders such as workers and middle level managers also are a source of resistance that blocks change. In some instances, resistance comes from the front office workers who need support from the back office—the old ways work from their point of view so new procedures may be hard to understand or seem pointless. This resistance is likely to fade, the case interviews tell us, as new projects resolve faster with better results and as the two siloes merge into one. Middle level managers often have an additional concern: namely that the process of managing Waterfall style projects is clear where as Agile management seems confusing. In Waterfall, the more they complete the more they justify their presence. However, in Agile, confirmation of progress and quality devolves to the individuals initiating and conducting the development work. These managers may then reasonably fear for their jobs and purpose. As workers in a Japanese firm, they do not face a direct threat of firing, however they may face irrelevance or removal to less compelling work and positions and even eventual loss of job through restructuring. In any case, they are not well motivated to support DX. The arrival of Covid highlights this point about the employees in general. Of the workers sent home, only about 70% could in fact conduct work remotely, yet productivity remained the same, according to the case firm informants. The firm is thus tasked with repurposing 30% of the staff for other positions at a time when new and different skills are increasingly asked for.

4.4.2 Outside the Firm The environment around the firm includes an increasingly complex world of derivative products, savvy new fintech entrants, tough compliance policies, and competitive incumbent firms. The case firm has to maintain or improve its position by adjusting to the technology standards of customers and improving its reputation as technologically savvy. If it cannot do this, not only may customers leave, but employees,

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especially in key overseas locations, will likely leave to join companies they feel can pay better or more successfully defend their jobs. Technology is judiciously developed in house or outsourced, depending on its centrality to the business and the degree to which it differentiates the firm from the competitors. The case firm has made partnerships with individuals and a university to create advanced technologies that differentiate them from competitors in relationships that will allow the firm to control the technology. At the same time a multi-year strategy is in place to replace at least some of the 2000 on-site IT contractors with a subsidiary, bringing control and expertise to the firm. In these ways they are overcoming the barriers around limited technology skill.

4.5 Findings and Discussion 4.5.1 Antecedents The general motivations of the case firm to attempt DX are as one would expect: concerns about profitability and worries about losing market share. These motivations are also antecedents to DX. Certain antecedents are of particular interest as requirements to or part of the mechanism of DX. Nonetheless, the academic conversation has moved beyond the antecedents such as digitization and technological ability that inherent in any DX. Of the other antecedents found in this case study, using the categories of internal and external (Zhang et al. 2021), the authors identify the following as required for the case firm to make progress: Internal Antecedents: – – – –

Intention to move from Waterfall project management; Perceived problem of siloes; Service innovation capability ready; Organizational readiness at top management level;

External Antecedents: – Revenue loss and cost increase due to zero and negative interest rate policies; – Shrinking of domestic market; – Perceived need to keep up with foreign firms for market share in Japan; The seven antecedents are set within causal chains (Miles et al. 2018) in Table 4.2. The causal chains trace change from root causes through triggers that set the process in motion to antecedents to milestones to final states. From these causal chains we learn how the antecedents came to be and how the changes they presage proceed. Each chain leads to current states that are new; nonetheless, all the chains are in progress and none have completed. The chains show the process overall and in detail. Key points from Table 4.2 are as follows.

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Chain 1 Decades of outsourcing have left the firm with a rigid process where IT gains little skill and users (front office) have low expectations and no sense of shared responsibility. Incremental move to Agile is gaining recognition, an important part of gaining support and overcoming barriers among management and workers. Chain 2 Recognition of poor profitability has galvanized Mr. U and Mr. H to create new products. These are part of the DX as they are early successes that allow new thinking and revenues. As a result of the intervention of Mr. U and Mr. H, this chain has been very productive with four milestone events that have high impact on the firm. Chain 3 There was awareness of the technology gap before the hiring of Mr. U and Mr. H. With them, however, came precise knowledge of the gap and strategies to close it. Thus this chain is of key early importance in the firm’s movement towards transformation. Chain 4 In siloes, IT and Front Office have no mutual interests other than as client and customer. Faster and better product development is possible if they are aligned. A career path from IT to Front Office would create motivated specialists who could add value to the firm and their own work. This chain represents the most important thread in the overall success because it should unify the motivations of groups that are central to the bank’s profitability and competitiveness. Chain 5 Revenue losses from lending (zero and near zero interest rates) and the expense of holding money (negative interest rates) made it necessary to seek new products and revenues. Multiple states have been achieved, and the firm’s operating profitability may be improving. Chain 6 Recognition of poor profitability has caused Mr. U and Mr. H to gain cognizance of the weakness around innovation. In turn, this awareness galvanized them to create new products. These are part of the DX as they are early successes that allow new thinking and revenues. Chain 7 This is a historical chain which set the ground for the hiring of Mr. H and Mr. U who built on the lessons of previous failures. This new team selected an incremental approach after trial and error. The vision for the final targeted state is not fully clear. Previously we introduced three approaches to understanding DX in three phases. One is that new channels and products lead to adaptation of the technology infrastructure and that leads to organizational changes (Cuesta et al. 2015; Rachinger et al.

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2019). Another is that alignment of the business and IT is followed by organizational ambidexterity and reorganization (Sia et al. 2021). The third is that misaligned business and IT can become aligned and a united, situated organization can move into technological change and transformation (Kitamura 2020; Stewart and Khare 2021). The case firm’s experience lends credence to the last of these three as it is the changes at the top of the organization that are leading to alignment that develops incrementally from the bottom up in addition to the acquisition of new technological skills and infrastructure. It is too early in the arc of this story to know if an ongoing state of positioning (Kääriäinen et al. 2020) will develop, but currently and over the past year, awareness in the case firm’s top management has become strong and continues growing. Thus, there is partial confirmation of organizational change leading technology and culture transformation as posited by Kitamura (2020) and Stewart and Khare (2021).

4.5.2 Barriers Barriers include the top management, middle management, the mindsets of the business (Front Office) and IT sides, previously weak leadership, the siloed structural relationship of IT and consultants to the Front Office, and the lack of technical ability. These barriers are however dynamic and currently becoming weaker. Top management largely agrees that DX must happen in order to prevent a long term downward spiral of the case firm. However, they are not fully comfortable with Agile management and the updated practices proposed by Mr. U and Mr. H. The barriers related to the top management are becoming weaker due to repeated messaging, explanations, and the arrival of various successes. At the same time, pressure from outside the organization grows, for example 2021 was the first year in which the domestic share of the case firm’s total business was less than the share of foreign business. This decrease is part of a well understood long term trend, nonetheless Mr. H and Mr. U described it as an important psychological event that built support for their transformation efforts. This kind of pressure from outside an organization has been described in other industries (Cichosz et al. 2020). The mindset of Front Office and IT staff is also changing and becoming more favorable toward the targeted changes. As Mr. H pointed out, “Maybe front office already switched to that model.” For the Front Office workers, the benefits are clear in that they get better project results faster from IT. As for IT, they may have a tendency to resist until they are aligned more closely with the business as represented by the Front Office (Kitamura 2020). Withal, Mr. K shows some pessimism saying, “we have two defensive organizations … things could get very difficult.” New procedures brought an uncomfortable feeling to some IT managers of losing control, “But the rest of the management, …obsessed with control. …because in Agile way you do pass the control,” said Mr. K. Nonetheless successes may make these parties more accepting of change. As Mr. U indicated, “IT and Front Office can see this is better.” Additionally, once a procedure is established, those individuals may not return to

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Table 4.3 How barriers have been overcome Barrier

How overcame or overcoming

Upper management

Iterative messaging; New products now available; Increased external pressure

Front Office worker mindset

Satisfied with outcomes

IT worker mindset

Not allowed to return to Waterfall; Preparing new career paths

Middle Managers

Not allowed to return to Waterfall; Satisfied with outcomes

Weak leadership talent

Hired Mr. H and Mr. U from outside the firm

IT and Consultant relationship to Front Office

Not allowed to return to Waterfall; Developing core group that will become a subsidiary; Preparing new career paths

Siloed Front Office and IT

Preparing new career paths

Lack of strong technical ability

Developing core group that will become a subsidiary; New partnerships; Preparing new career paths

previous management and interaction protocols. There is “no going back” as Mr. H and Mr. U flatly declared; they enforce the ratchet as a matter of operations policy. Employees at the middle of the organization appear to remain weak in leadership talent, especially regarding technology, Agile management, and horizontal work. Thus employees, as well as knowledge, remain issues as found in other banking cases (Diener and Špaˇcek 2021). Meanwhile new partnerships have given rise to new services and products. Alignment of IT and business motivations and goals (Kitamura 2020) will allow organizational evolution (Stewart and Khare 2021) that seem poised to enable deeper transformation. The most important way barriers are being overcome is the ratchet mechanism that allows expansion of digital and Agile processes but blocks a return to Waterfall (see Table 4.3). Thus far, three years into the five-year plan and two years after the start of transformation activities, the ratchet appears successful. Project managers, workers, and consultants have no choice but to use digital Agile processes. For the time being, it is successfully moving the firm bit by bit closer to its DX goals, as seen in Table 4.2. The question remains, however, as to whether or not the ratchet will prove fast enough at delivering new products and cost efficiency to prevent the firm from losing market share irretrievably.

4.5.3 Lessons Although the case firm’s transformation is in process, there are several lessons to be drawn from their progress so far. Regarding internal stakeholders, a key issue is to gain the support of top management through repeated messaging and presentation

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of new outcomes, especially new technology based products. In order to gain those new products, it is necessary regain control of core technologies instead of hiring consulting firms. This in turn requires making partnerships with manageable individuals and organizations based on contracts. Regarding digital restructuring of the organization, the most important point however is to create career paths that unifies the motivations and purpose of workers in the IT and business siloes and which allow them to transcend the siloes as they cooperate. With consideration of internal stakeholders, we draw the conclusion that preparing the organization itself is a suitable approach as proposed by Stewart and Khare (2021) rather than seeing technologies as a prerequisite to DX as has been widely proposed. New technologies and the products and services based on them are instrumental, but not prerequisite, for DX. This case demonstrates that the top management needs to gain sufficient awareness and willpower to move forward. In part this may come through hiring of figures powerful enough to act even without the wholehearted support of the top management. The sequence of major events in the case firm was the at least partial realization of the top management of the need to act, the hiring of skilled upper level executives, introduction of new management techniques, development of new products and services, and the implementation of a gentle but irreversible move towards new practices and ultimately realignment within the organization. Lessons regarding external stakeholders are to control and minimize those IT consulting firms which own key segments of technology. Because the external IT consultants may not directly communicate with the business side due to labor laws around dispatched and permanent workers, they must largely be eliminated or brought into new structures inside the firm. Any new relationships must be contractually designed to minimize development risks and to maintain decision making power over use and development of any output. The most important lesson of this case firm however may be development and use of the DX ratchet which works in small but irreversible steps to win over workers and management while imprinting digital processes on workers at all levels and slowly removing the silo barriers to cooperation.

4.5.4 Limitations Some limitations in this study include the qualitative nature of the data. Such data cannot be reliably interpreted however the authors have used a process of writing and confirming with the informants to be reasonably sure of their understanding. Where the researchers have not been accurate or have introduced errors, the informants have corrected and explained further. Additionally, the researchers have posed specific follow up questions to the informants to gain clearer understanding. Lastly, in order to triangulate (Urquhart 2001) meaning, the researchers have reviewed information from the case firm website and news media. Due to the strategic level of decision making needed to create DX, the researchers have interviewed only three members of the organization, each with significant decision making power. In the future, the

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authors plan to interview also lower level staff to discover their experiences. Ultimately, qualitative studies are generalizable only with caution and expertise. Case studies may not be generalizable, though application of theory such as path dependence may help to expand validity beyond the immediate horizon. We hope that this study contributes insights to those studying and transforming major financial institutions in Japan and around the world.

4.6 Conclusions Important findings in this case study are that barriers are being overcome through small steps, enforcement of new management policy, and consistent messaging. The small steps have allowed individuals to experience success and built confidence, and awareness, among the workers and managers. Enforcement of the policy to employ digital processes and Agile techniques with no return to analog processes and Waterfall management has consolidated gains made by individual successes. Meanwhile, consistent messaging from top managers such as Mr. H and Mr. U has led to clarity about and confidence in the transformation process. Further, a longer term vision proposes purposeful development and creation of opportunity for IT staff who have been previously locked into an engineering silo. The benefits of this goal are unclear as insufficient time has passed for examples of success to appear. To conclude this case study, we must answer whether or not the changes created by the ratchet mechanism are transformative or not (Table 4.4). To be transformative, DX must change the organization, its digital infrastructure, and its digital building blocks of the organization (Hinings 2018). Additionally, the thinking of managers and the culture of the organization must show change (Ifenthaler and Egloffstein 2020; Teichert 2019). All these changes must be substantial, not superficial, temporary, or trivial (Westerman et al. 2014). Lastly, the organization should enter a state in which digital change is constant and iterative (Kääriäinen et al. 2020).

4.6.1 The Verdict on Success As of this writing, it is too soon to confirm that the DX in the case firm is fully successful. For the moment however the DX ratchet is in place and bringing satisfaction to workers and managers. This shows that a path dependent status quo in the banking industry can be approached by an incremental process. A major future milestone will be when an IT engineer moves to the trading group and builds their own tools with support of IT workers. In conclusion, the DX ratchet appears to be a successful approach for this global corporation that is catching up to its overseas peers.

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Table 4.4 Transformative or not Transformational goal in progress

Example

Transformative?

Organizational structure

Siloes between business and IT broken down

Not yet. This will be a radical change from current practice and radical for the industry

Digital infrastructure

Digital processes of Agile Partly. A complete change is management are in place. While underway from analog process algorithmic trading has been in to new, digital only process place for some years, the upcoming level of sophistication will see humans removed from the trading loop

Digital building blocks

Rather than separated job descriptions managed by traditional HR, one former silo provides human talent to the other as the siloes merge

Cognition

IT workers can see a path that Yes. Current cognition is only improves their careers and about engineering incomes while benefitting the firm. IT workers’ successes build corporate success. From IT engineers as servants to becoming digital capable traders

Culture

From Waterfall micromanagement to Agile horizontal management

Change becomes constant

The Digital Transformation Yes. The experience of change is ratchet makes constant progress. evolving from rare, large Meanwhile the business and IT projects to constant small steps workers have embarked on a continuous journey of building their skills and tools

Not yet. These changes are not yet fully developed

Yes. Agile represents a sharp departure from previous practice

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Miles MB, Huberman AM, Saldana J (2013) Qualitative data analysis: a methods sourcebook, 3rd edn. Sage, Los Angeles Miles MB, Huberman AM, Saldaña J (2018) Qualitative data analysis: a methods sourcebook, 4th edn. Sage, Thousand Oaks, CA Rachinger M, Rauter R, Müller C, Vorraber W, Schirgi E (2019) Digitalization and its influence on business model innovation. J Manuf Technol Manag 30(8):1143–1160 Saebi T, Lien L, Foss NJ (2017) What drives business model adaptation? The impact of opportunities, threats and strategic orientation. Long Range Plan 50(5):567–581 Schmidt RH, Spindler G (2002) Path dependence, corporate governance and complementarity. Int Financ 5(3):311–333 Sia SK, Weill P, Zhang N (2021) Designing a future-ready enterprise: the DX of DBS Bank. Calif Manage Rev 63(3):35–57 Slodkowski A (2022) SoftBank’s main lender Mizuho “unconcerned” about tech group’s financial health. Financial Times, April 26, pp 3–4. https://www.ft.com/content/5c643d91-4e90-4c1a927f-a60cfa03d15e Stake RE (2005) Qualitative case studies. In: Denzin NK, Lincoln YS (eds) The Sage handbook of qualitative research, 3rd edn. Sage, Thousand Oaks, CA, pp 443–465 Stewart B, Khare A (2021) The critical relationship between organizational design and DX. https://xm-institute.com/xm-blog/the-critical-relationship-between-organizational-designand-digital-transformation/ Tangi L, Janssen M, Benedetti M, Noci G (2020) Barriers and drivers of DX in public organizations: results from a survey in The Netherlands. In: International Conference on Electronic Government. Springer, pp. 42–56 Teichert R (2019) DX maturity: a systematic review of literature. Acta Univ Agric Silvic Mendelianae Brun 67(6):1673–1687 Tsindeliani IA, Proshunin MM, Sadovskaya TD, Popkova ZG, Davydova MA, Babayan OA (2022) DX of the banking system in the context of sustainable development. J Money Laund Control 25(1):165–180 Urquhart C (2001) An encounter with grounded theory: tackling the practical and philosophical issues. In: Urquhart C (ed) Qualitative research in IS: issues and trends. IGI Global, pp 104–140 Verhoef PC, Broekhuizen T, Bart Y, Bhattacharya A, Qi Dong J, Fabian N, Haenlein M (2021) DX: a multidisciplinary reflection and research agenda. J Bus Res 122(July 2018):889–901 Vial G (2021) Understanding DX: a review and a research agenda. In: Managing DX. Taylor & Francis, London Vogelsang K, Liere-Netheler K, Packmohr S, Hoppe U (2019) A taxonomy of barriers to DX. In: Proceedings of the 14th International Conference on Wirtschaftsinformatik (WI 2019), pp 736–751 Waldner F, Poetz MK, Grimpe C, Eurich M (2015) Antecedents and consequences of business model innovation: the role of industry structure. In: Baden-Fuller C, Mangematin V (eds) Business models and modelling, vol 33. Emerald Group, Grenoble, pp 347–386 Westerman G, Bonnet D, McAfee A (2014) The nine elements of DX. MIT Sloan Manag Rev 55(3):1–6 Yin RK (2017) Case study research and applications: design and methods. Sage, Thousand Oaks Zhang H, Xiao H, Wang Y, Shareef MA, Akram MS, Goraya MAS (2021) An integration of antecedents and outcomes of business model innovation: a meta-analytic review. J Bus Res 131(August 2019):803–814

William W. Baber has combined education with business throughout his career. Currently he is teaching and researching negotiation and business models as an Associate Professor in the Graduate School of Management, Kyoto University. He has also taught as a visiting professor at University of Vienna and University of Jyväskylä. Additional experience includes economic development in the State of Maryland and supporting business starters in Japan. He is the lead author

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of the textbook Practical Business Negotiation and co-editor of Transforming Japanese Business. Recent articles include The Effectual Process of Business Model Innovation for Seizing Opportunities in Frontier Markets as well as Identifying Macro Phases across the Negotiation Lifecycle. Negotiation simulations include Mukashi Games and Pixie and Electro Car Merger, both available through TheCaseCentre.org. Aya Samy is a research student at the Graduate School of Management in Kyoto University. Her background is with IBM where she served for 11 years—mainly as TL—using English and Japanese for both Skye Customer Service and Cairo eLearning Services. She was responsible for coaching and monitoring her team members to evaluate their productivity, quality assurance, customer satisfaction level and other key performance indicators. Aya holds a bachelor’s degree from Ain-Shams University in Japanese Language and Literature along with English as a second language. Her undergraduate program included a one-year scholarship at Tsukuba University as an award from JASSO organization. As of writing, she is a student in the MBA Program at Kyoto University, Graduate School of Management. Arto Ojala is a Professor of International Business in the School of Marketing and Communication at the University of Vaasa, Finland. He is also an Adjunct Professor in Software Business at the Tampere University, Finland. His areas of research include topics such as global digital business, international entrepreneurship, and business models. His articles have been published in the Information Systems Journal, Journal of World Business, Journal of Systems and Software, Journal of Cleaner Production, IEEE Software, and IT Professional, among other academic venues. He holds a PhD in economics from the University of Jyväskylä. In his doctoral thesis, he investigated Finnish software firms’ foreign market entries and operations in the Japanese market. He is additionally an editor-in-chief of the Scandinavian Journal of Information Systems.

Part IV

Technology and Innovation

Chapter 5

DX and Innovation in Small and Medium-Sized Enterprises (SMEs) with Prototype and Small-Lot Production Nobutaka Odake and Anshuman Khare

Abstract Technological trends such as IoT, AI (artificial intelligence), etc. are having a significant impact on processes, products, services. In addition, business models, and the speed and impact of the resulting changes are noteworthy. Most of these technologies are not innovative per se, but develop innovative strengths through significant efficiency gains, significantly better networking possibilities, and widespread use. While economies of scope are realized in the world of customized or small-lot production, servitization serves as a platform to expand the scope of business. Digitalization efforts in the manufacturing industry will also bring significant changes to the supply chain. The following case studies are discussed: a startup that provides online quotation and ordering services for design data in the cloud, a consortium of robotics and system integrators that is working to make the manufacturing industry smarter, and an AI-based company that is fully automating machining programming and completing a smart factory. The chapter analyzes these cases from the viewpoint of business ecosystems. Keywords Customized production · Cloud engineering service · CPS · AI · Smart factory · Platform strategy · B to B

5.1 Introduction The trend toward digitization is having a profound impact on processes, products, services, and business models. Technologies such as IoT offer new opportunities for companies, but at the same time pose serious challenges. They are moving from a traditional product-centric approach to a digital-based, service-oriented one and are being forced to create entirely new business models (Paiola and Gebauer 2020). N. Odake (B) Humanware Network Initiative, Nagoya, Japan e-mail: [email protected] A. Khare Athabasca University, Athabasca, Alberta, Canada e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_5

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Digitization refers to the conversion of analog data into digital data, all data into digital data, as well as material information into a digital form, while digitalization refers to the use of digitization to change business and society (Ritter and Pederson 2020; Aoyama 2020). The speed and impact of the resulting changes are also noteworthy, as they renew an organization’s business model and create a better way to serve clients and partners. Much of the transformation taking place in the business world is not due to innovative technologies in specific industries, but rather due to the deployment of a broad set of technologies (bundles) and behaviors in the business world, as symbolized by digital transformation (DX). The commoditization of AI (artificial intelligence) in the so-called machine learning domain is also an important factor. This transformation has had a significant impact on development and manufacturing processes, value chains, business-to-business relationships, customer approaches, etc., through significantly increased efficiency, appreciably better networking possibilities, as well as their widespread use. Stolterman and Fors (2004) define DX as “The digital transformation can be understood as the changes that digital technology caused or influences in all aspects of human life”. The Ministry of Economy, Trade and Industry (2020) reads as follows: Companies should respond to rapid changes in the business environment and use data and digital technology to transform their products, services, and business models based on the needs of customers and society, as well as their operations themselves, organizations, processes, and corporate culture and climate, in order to establish a competitive advantage. The digital transformation can be understood as the changes that digital technology causes or it also means that companies should use data and digital technology to transform their products, services, and business models based on the needs of customers and society, as well as their operations themselves, organizations, processes, and corporate culture and climate to establish competitive advantage. (METI 2020)

On the other hand, most small and medium-sized manufacturing companies are in the Business-to-Business world, and even though the total number of workers has been increasing since 2012, the ratio of workers in the manufacturing industry to the total number of workers has continued to decline (InfoCom Research Inc. 2021). The trend toward subcontracting of a wide variety of products in small quantities has led to a decline in orders for value-added parts due to a decrease in the processing area and other factors. Custom-made and small-lot production, rather than mass production, are what Hobday (1998) calls CoPS (Complex Products and Systems). They are highcost engineering-intensive products, systems, networks, and contracts. Complexity reflects the number of customized components, the range of knowledge and skills required, and the degree of new knowledge involved in making them. In these areas, digitization is a promising option for deployment, and ICT has been noted to have had an enabler effect in the processing and assembly manufacturing industry (Suga and Minami 2021). In order to achieve this, it is an urgent task to promote new automation and smart manufacturing in the manufacturing sector.

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5.2 Digitalization Trends in Manufacturing Supply Chain The number of corporations and employees involved in the manufacture of custommade parts is on the decrease, while the market is seeing an increase in demand for custom-made products and small-lot production. Since many companies are involved in the design, production, and procurement of custom-made parts, it takes a lot of time to communicate information in a way to ensure the confidentiality of procedures and product information in transactions. In the world of small-lot production, which accounts for about one-third of the entire manufacturing industry, or in the world of customized parts manufacturing (e.g., large transportation equipment, industrial machinery, medical equipment industry, etc.), various social issues exist on both the ordering and receiving sides, such as unstable ordering and receiving, time and effort required for ordering and quotation, procurement costs and high deficit ratios on the production side. The following is a brief overview of the problems. Improving labor productivity is essential to meet the market’s custom-made demands. As various operations in the manufacturing industry become remote, services that support on-demand machining orders are increasing. Looking at the global market, Protolabs (U.S.), Xometry (U.S.), and others are attracting attention, and the web of the custom-made machining service market is growing rapidly at an annual rate of 20% and is projected to reach 800 billion JPY globally by 2025 (Fuji Keizai 2018, Stasia (n.d.), Strainer (n.d.)). On-demand contract manufacturing of prototypes, small-lot production by injection molding and CNC machining using a proprietary digital manufacturing system are all options and by uploading 3D CAD data, the company can provide an estimate with a manufacturability analysis in an average of three hours. Xometry, a Nasdaq-listed startup that operates an online marketplace for the manufacturing industry, matches customers who want to procure machined parts with supplier partners. Customers first upload 3D CAD data of the parts they wish to purchase to Xometry’s online quotation engine. The customer then selects through several criteria, such as manufacturing process, material (aluminum, copper, plastic, etc.), and finishing process, and within minutes receives a price quote. Xometry forwards the customer’s order to the supplier partner that the algorithm determines is best suited and capable of manufacturing the part, and the partner decides whether to accept the order (IDATEN Ventures 2021). In Japan, there have been efforts to establish matching between manufacturers (NC Network’s Emidas, the Small and Medium Enterprise Agency’s J-Good Tech, Marubishi Manufacturing’s ASNARO, etc.) for some time. In recent years, there has been an increase in the number of online ordering platforms, such as services that provide quotations when 3D data of parts are uploaded to the Web, or through a search for processing factories to undertake processing. MISUMI Group Inc. (Misumi 3D2M) is a trading company for stamping die components and has been promoting standardization to eliminate the need for “drawing” and “quotation” since its publication of a “catalog” in 1977. In other words, customers select specifications such as shape, material, surface treatment, and dimensions from a catalog and order by catalog number. A parts procurement platform

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called ‘meviy’ established in 2016, enables customers to upload 3D CAD data on the web for an immediate quotation and provides one-day shipping. In addition to the manufacture and sale of “standard items” ordered from catalogs, which is the main business of the company, the platform also supports “drawing items” which are manufactured from drawings. The design scene and items consist of “FA mechanical parts” (sheet metal parts and machined plates) for equipment and device design, “rapid prototyping” (prototypes) for development and product design, and “mold parts” for mold design. CADDi is the name of an order and supply platform for the manufacturing industry. The processing side selects registered companies that are judged to be optimal in terms of quality, delivery time, and price. The CADDi inspects and delivers the finished product. A business model patent has been obtained for this platform (CADDi Press Release 2019; Your Intellectual Property Department 2020). Kabuku Connect is an on-demand manufacturing platform for prototypes and custom-made products operated by Futaba Electronics Group’s Kabuku Inc. (established in 2013) since 2016, a service that supports process reform and business innovation by leveraging software development capabilities and manufacturing technology. The service includes an immediate quotation service, a batch procurement service for machined parts for equipment, a service in which manufacturing professionals provide VE proposals for optimal QCD and services from planning and design to prototyping, as well as a simple design and procurement service in which plates made of 6-face milling material can be procured. Kabuku Inc. of ‘Kabuku Connect’ is the first company to be certified under the Small and Medium Enterprise Agency’s new certification system for businesses that act as a liaison between the client and the SME subcontractor to create business opportunities that take advantage of the strengths of SMEs (PR Times 2021). Factory Agent Corporation (established in 2020), a JTEKT Group company, uses its own network and programs to match “clients” looking for designs and machined products with “clients” possessing machining technology (Kyakukuru 2021). Zero-Four Co., Ltd., founded in 2007, has been providing 3D data analysis software “iQ35-Web,” which can be operated on the Internet, to the “iQ series” of automated 3D data cost estimation software for metal parts and can manufacturing since 2021 (Dream News 2022). Orizuru 3D, a pseudo-search AI for 3D models provided by Core Concept Technologies Inc. and Terminal Q, a cloud quotation software provided by TERMINALQ Inc. have also been born. Kanamori Industries Co., Ltd. has also launched a PlaQuick service specializing in plastic materials (minsaku 2018). Table 5.1 shows a summary of online ordering platforms for presenting design data in Japan.

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Table 5.1 Online ordering platform Online ordering platforms

Services offered

meviy

MISUMI Group Inc. provides a platform for accepting orders for machine parts over the Internet. Customers upload 3D CAD data of machined parts they have designed, and MISUMI provides immediate quotations and parts procurement

CADDi

The ordering side enters drawings and specifications, and an estimate is automatically calculated. CADDi accepts bulk orders for inspection and delivery of finished products, as well as parts production and assembly of equipment

Kabuku Connect

The on-demand manufacturing platform consists of several services, including an “instant quotation service” that allows users to upload 2D/3D drawing files and request everything from quotations to manufacturing orders on the spot. A service that acts as an intermediary between the parts purchaser (who requests design, development, and manufacturing) and the order-taker

Factory Agent

The JTEKT Group matches the customer with a factory selected by the JTEKT Group to help solve problems related to parts procurement in terms of price, delivery time, quality, and man-hours

Zero-Four

The “iQ Series” of quotation software for sheet metal and can manufacturing processes performs cost calculations and provides instant quotations for sheet metal parts, and also offers a 3D-CAD add-in. Gokuu” is a platform that connects manufacturing companies and metalworking companies

PlaQuick

Ltd. provides “PlaBase” (plabase.com), a database of plastic molding materials, and “PlaQuick” (plaquick.com), which supports plastic molding prototyping issues with short delivery times, small lots, and low costs

Sources The Small and Medium Enterprise Agency (2019), Kyakukuru (2021), Deam News (2022), minsaku (2018)

5.3 Examples of Companies Working on Upgrading Their Manufacturing and Processing Systems The trend toward custom-made and small-lot production is advancing, but many companies at the base of the supply chain are in a difficult position due to serious labor shortages and delays in automation. In such a situation, there have been cases of startups and small and medium-sized enterprises (SMEs) promoting the advancement of processing systems by utilizing AI and cloud computing, as well as smart factories at robot SIers. In this section, we discuss the cases of CADDi Inc., Team Cross FA (consortium), and ARUM Inc., which are on a growth trajectory.

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5.3.1 CADDi Inc. CADDi, Inc. is a startup established in 2017 and a developer of IT services that has been selected as a supported company under J-Startup, a public–private startup support program led by the Ministry of Economy, Trade and Industry (hereinafter, METI) (The Small and Medium Enterprise Agency 2019). Since its establishment, the company has been committed to the mission of “Unleashing the potential of the manufacturing industry,” providing the manufacturing order and supply platform “CADDi” and addressing structural issues that are latent in the entire value chain. The company has also been promoting DX to address structural issues that are latent throughout the value chain. The company receives orders from industrial machinery and plant manufacturers for complete sets of custom fabricated products, mainly sheet metal, cutting, and can manufacturing, as well as undertakes integrated production, including quality assurance. In the hardware side of their business, the company offers a fabricated parts manufacturing service that uses automated quotation technology to connect custom-order customers to fabrication companies nationwide. Using a proprietary pricing, optimal ordering, and a production management system, the company optimizes QCD and responds to capacity expansion and fluctuation. The system is based on the concept of “uploading 3D data of products (parts) to the cloud to calculate quotations and place orders. In fact, 3D data can be created for any part at the manufacturing site, and the system enables the manufacturing and prototyping of parts simply by uploading the 3D data. CADDi’s business model is characterized by a detailed understanding of steel materials, and the machining company’s range of capabilities, and strengths. The ordering and receiving platforms are linked to the respective systems for drawing analysis, cost accounting, production control, and partner factory coordination. The company guarantees the final manufacturing responsibility and takes responsibility for everything from quotation calculation and production management to final quality assurance and factory audits (CADDi 2019). The company has partner contracts with approximately 600 processing companies nationwide (as of June 22, 2021), and it reduces costs by checking the company’s capacity and then requesting from reliable factories. The company subdivides the machining process into several steps and builds up the process, and then works out the prices with customers and partners. The company has established its own standards for each processing process, conducts necessary inspections (standards) for appearance, packaging, standard quality, etc. on a customer-by-customer basis, and performs full inspections and spot-checks upon request. The other part of their business is the software business, which includes cloud software that automatically analyzes and manages drawings and CADDi DRAWER, a service that creates value from past drawings and turns them into intellectual assets (PR Times 2022). The software builds a data structure that facilitates the creation of value by aggregating the most important data (2D drawings) with peripheral information such as quotation history, order conditions, supplier information, quality defects, and delivery delays. This software is not just a simple “data storage,” but is designed

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to improve the quality of judgment and decision-making for the purpose of cost reduction, order optimization, standard design, etc., and to make the data usable as an asset. The total amount of funds to be raised in 2021 is over 8 billion JPY, which will be invested in the recruitment of human resources, the development of CADDi, and new business ventures, including global recruitment. The funds will invest in new businesses. Through these efforts, the company aims to become a global platform by accelerating the DX of the entire value chain from design to manufacturing, logistics, and sales, and by establishing a de facto standard in the digitalization of the manufacturing industry.

5.3.2 Team Cross FA (Consortium) Team Cross FA (TXFA) is a consortium that aims to be a one-stop factory builder for smart factories, with a robot System Integrator (SIer) business at its core. The consortium is composed of seven management companies and partner companies. The consortium was founded based on the recognition that although there are many vendors and companies in Japan with cutting-edge technologies in each industry, and many manufacturers of equipment and machinery, including robots, and specialized trading companies, these companies are unable to respond to the needs of a smart factory that is optimized for the whole. TXFA has technical capabilities cultivated through its knowledge of various industries such as automotive, electronics, food, materials, and logistics; experience in all kinds of “processes” such as processing, assembly, packaging, inspection, and logistics; and accumulated achievements using the latest equipment, products, tools, and IT systems. With a core of robot SIers serving as the main organizer, as well as being in cooperation with official partners, FA/robot SIers around Japan, public organizations, and local communities, and in collaboration with Japan’s national strategy “Connected Industries,” the organization aims to contribute to DX and smart factories in manufacturing in a wide range of industries. The contact company is FA Products Inc. which is a company that provides comprehensive support for smart factories and smart energy in the manufacturing industry. It plans and sells smart factory packages such as equipment operation monitoring and failure prediction devices, production simulators, and robot systems. The nucleus of TXFA is a consortium of small and mediumsized companies led by FA Products. All of the companies are mutually beneficial and in complementary networks of multi-vendors that do not depend on a specific manufacturer, and their executives serve each other concurrently. In addition to the seven managing companies, five other companies, Dentsu International Information Services, Ltd. (ISID), Hitachi Systems, Ltd., Mitsuiwa corporation, Kajima Corporation, and Nikken Total Sourcing Inc., are participating as official partners, playing a role in social implementation (Team Cross FA 2022). TXFA, whose core business is as a robot SIer, has opened a series of smart factory showrooms. Smart factories are made up of both software and production equipment. Even if the IoT collects vast amounts of data and AI produces optimal solutions in

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the cloud, it is necessary to construct production lines that are digitally appropriate in order to provide feedback for execution. Industrial robots consist of core components such as software, reduction gears, controllers, and servo motors, to which are connected cameras, AGVs (automated guided vehicles), AMRs (autonomous collaborative robots), and many more specialized machines. TXFA considers such showrooms as places where visitors can experience DX and production lines in the manufacturing industry through actual demonstrations by applying digital technology and the use of data to actual production and robot systems. TXFA’s technical services for smart factory construction include overall analysis, product design, and process concept design, which are then digitized and placed in a digital factory, where various elements are simulated digitally. The system then drops them into the real factory for implementation, and then feeds the data from the real factory to the cloud to realize data management and visualization (Team Cross FA 2019).

5.3.3 ARUM Inc. Founded in 2006, ARUM Inc. is a small to medium-sized company with about 40 employees. Initially, the company worked on automation, robotization, and AI for manufacturing processes as mechatronics and electronics businesses based on contracting. The company’s original business was ODM development of automation equipment and software, and its manufacturing AI software, called “ARUMCODE1,” which automatically generates NC programs from 3D CAD data using AI and was released in 2021, received the highest award for bringing about a productivity revolution in the cutting industry (METI Hokkaido Bureau 2021). The company processes approximately 60,000 parts per year, but there are almost no repeat orders. Many custom-order companies do not reproduce the same parts for each individual order, and only the machining part is automated by machining, while most of the other parts are done by human operators. On the other hand, ARUMCODE 1 is a software that automates the creation of NC programs by using AI. The software automates all six processes, including shape analysis, determination of the type of machining required, tool selection, cutting condition setting, machining path generation, and program creation. In 2014, the company launched a concept plan for software that would automatically create NC programming to run machining centers (MCs) by inputting drawing data. OSE Corporation in Akita city, was engaged in cutting, electrical discharge/wire machining, and grinding operations. OSE was originally ARUM’s largest outsourcing partner, but due to succession problems, ARUM took over the business (The Nihon Butsuryu Shinbun 2022). ARUM designed and manufactured production line automation, robot systems, and AI software, while OSE was engaged in parts business, mechatronics business and control systems business. After the merger, the company spent several years developing a database of OSE’s onsite expertise and is now offering software that realizes full automation of NC programming by

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utilizing AI technology as a new service. The Kanazawa facility designs and manufactures automation equipment and software, while the Akita facility manufactures ultra-precision machined parts to verify development results. The company’s representative entered the mechanical field with his experience developing analysis software for structural calculations in the architectural field and developing engineering software that can fully automate machining programs with AI software. Data science creates big data algorithms for small-lot production of several tens of thousands of items per year. ARUMCODE, which claims to be the world’s first manufacturing AI, analyzes the shape of the machined part, selects the optimal tools, sets machining conditions and toolpaths automatically, and displays material and tool set instructions instantly by simply loading CAD data. The system automatically sets the optimum tool for each process based on the machining allocation data and tool information registered when ARUMCODE was installed, and automatically displays the material and tool set instructions. ARUMCODE1 calculates the optimum machining conditions quickly according to a proprietary algorithm. Based on the set machining conditions, ARUMCODE automatically calculates efficient machining paths and draws machining simulations. The number of vices and the gripping allowance (in mm) can be registered in advance and can be checked in the model viewer. A machining program is automatically created based on the information up to this point, and at the same time, work instructions and quotation information describing the tools to be used and machining conditions are also created. Users upload such diverse information to the cloud, and the system is designed to store a variety of data within the company. The company is developing the system while repeatedly conducting design reviews, which is a priority for the company. On the other hand, the NC program itself is only an output device, so a camera device has been developed as an input device to enable measurement. In 2022, the ARUM Inc. was made the project leader and has been commissioned by Japan’s New Energy and Industrial Technology Development Organization (NEDO) to undertake a large-scale project. With an eye on both edge AI and cloud AI, a consortium is being formed with major telecommunications, security, and cloud service providers to develop machines, AI engines, and new control methods in-house, with an eye on both edge AI and cloud AI. The consortium is promoting the construction of a smart factory that aims for fully automated online production with variable and simultaneous participation by multiple entities, while the public sector can also be a component of the ecosystem.

5.4 Discussion Efforts to develop efficient production systems are progressing amid the increase in custom-made production, small-lot production, and one-off production. The development of ICT and AI has led to the development of automation as well as the

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construction of databases. The required capabilities are digitalization and analytical capabilities, etc. Modern companies operate within a loose network of suppliers, distributor outsourcers, manufacturers of related products and services, providers of related technologies, and other organizations that influence or are influenced by the production and delivery of their products, a so-called ecosystem (Iansiti 2004). Tatsumoto (2017) states that business ecosystem-type industries are the existence of firms with different roles (firm types), inter-firm networks with direct and indirect relationships, and the emergence of very specific firm types that are influential in the evolution of the industry. CADDi Inc., which is building a supply chain platform, says that it is characterized by services that create optimal matching, and that it takes full responsibility for everything from quotation calculation and production management to final quality assurance and factory audits. It is a cloud-based two-sided platform for both customers and suppliers. The digitization of paper-based drawing data (2D) is an intellectual asset that creates value from past drawings. By integrating a variety of peripheral information into the digitalized data, a data structure is constructed that facilitates the creation of value. Digitization reduces the number of design man-hours and the number of parts by utilizing reusable drawings. Automatic analysis of drawings leads to optimal control, i.e., DX. TXFA is a consortium with the production function of FA products at its core, and as a group of robot SIers, it excels in conceptual design and possesses the latest equipment, products, tools, IT systems, and other technical capabilities, and has a system that provides comprehensive support from overall concept to launch. The consortium has the ability to simulate conceptual designs digitally, implement them in real factories, upload data to the cloud, and realize data management and other operations as a digital twin. The consortium is developing technical services for smart factory construction, with industrial robots at the core. The consortium of autonomous companies is at the core of the platform, which incorporates partner companies and develops the ecosystem. ARUM Inc. has a background in AI and is designing automation programs and building a system to store user input parameters. Once the software, ARUMCODE, is installed in a customer’s production system, the cloud system makes it possible to incorporate data from the customer side into the production process, and the manufacturing industry itself will incorporate supply services into its business. Servitization plays the role of a platform for expanding the business domain, and in the future, while further developing AI learning, the company aims to expand its business not only to the cutting process but also to post-process inspection, casting, surface treatment, and other fields, where the formation of various partnerships is important. The commissioning of NEDO project can be an opportunity for the development of the ecosystem. A manufacturing site is a system in which various machines are interconnected and organically interlocked. To increase the productivity of the entire site, it is necessary to collect various data generated not only by individual machines but by all the machines and equipment present on the site, share and analyze them, and in order

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to increase overall productivity. It is an open Cyber Physical System (CPS) in the sense that the individual data collected are widely shared and utilized throughout the entire worksite (Shibata, 2022). Open CPS may include not only the company’s own factories but also those of other companies. ARUM’s approach is an open CPS. The dynamic combinations created can be seen as business models or architectures. The source of added value lies in the entity that constructs the business model. These keystone players are small and midsize companies and start-ups, for whom organizing an ecosystem can be a strategy for competitive advantage. The basis of DX is the repetition of value creation through the accumulation and capitalization, analysis and utilization of data, as well as the creation of intellectual assets through a cloud-based data storage system for user input and design work. In all of these initiatives, DX is expected to develop as a secure open system that is completed by working together with users and suppliers, rather than creating a finished product all at once. In addition, the companies in the case studies are securing various advantages, mainly through participation in projects supported by the Ministry of Economy, Trade and Industry (METI) and its related organizations, or through participation in collaborative projects. The public sector can also be a member of the ecosystem.

5.5 Conclusion As custom-made production, small-lot production, and single product production increase in the manufacturing industry, efforts to develop efficient production systems are progressing. Digitalization efforts are achieving economies of scope, while servitization plays the role of a platform for expanding business domains. Cloud systems have become widespread, and services that support online ordering, including machining, are increasing. The cloud is an open CPS in the sense that it is not only a user service but also a system that collects and multiplies various data generated by machines and equipment existing on the manufacturing sites, a system that makes them into intellectual assets, and a system that is widely shared and utilized throughout the manufacturing sites. To evolve smart factories, it is a prerequisite to have both open and secure systems. In the manufacturing industry, the evolution of on-demand engineering services that utilize the cloud is impacting the IoT ecosystem and keystone players are relatively small. One of the strategies for competitive advantage is the business ecosystem, which requires the formation of various partnerships, including consortiums and strategic alliances, in which the ability to conceive and produce business models will play an important role.

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References Aoyama M (2020) What is DX (digital transformation)? Part 1: current status and prospects of DX. Information Processing Society of Japan (IPSJ) magazine 61(11):e1-e7 (2020-10-15) (in Japanese) Excite News (2022) CADDi launches SaaS offering for the manufacturing industry, turning drawings into assets through AI analysis, optimizing procurement, and reducing search man-hours (June 23). https://www.excite.co.jp/news/article/Techable_181079/ (in Japanese) CADDi Press Release (2019) Patented business model and automated quotation program (January 31). https://corp.caddi.jp/press/20190131/ (in Japanese) Deam News (2022) Zero- Four, a 3D estimation software that calculates the cost of 400 metal parts in 10 minutes at the fastest speed, launches the WEB version of “iQ35-Web” to support “promotion of 3D data conversion” by manufacturing companies (January 1). https://www.dre amnews.jp/press/0000251310/ (in Japanese). FUJI KEIZAI (2018) Actual market conditions and future outlook for NEXT FACTORY-related markets 2018 (September 14). FUJI KEIZAI GROUP (in Japanese) Hobday M (1998) Product complexity, innovation and industrial organization. Res Policy 26(6):689–710 Iansiti M, Levien R (2004) Strategy as ecology. Harv Bus Rev 82(3):1–11 IDATEN Ventures (2021) Xometry: High-profile startup developing an online marketplace for manufacturing listed on Nasdaq (July 5). Xometry: 製造業オンラインマーケットプレイス を展開する注目スタートアップがNasdaqに上場 (idaten.vc) (in Japanese) InfoCom Research, Inc. (2021) Contracted research report on the economic impact of digital transformation (March 2021). https://www.soumu.go.jp/johotsusintokei//linkdata/r03_02_houkoku. pdf (in Japanese) Kyakukuru (2021) Introducing factory agent’s advertising rates and reputation (Autumn 5). https://www.shopowner-support.net/attracting_customers/btob/manufacturing/factoryagent/ (in Japanese) METI Hokkaido Bureau (2021) The grand prize was awarded to ARUM Inc.—No MAPS Dream Pitch 2021 was held (November 16). https://www.hkd.meti.go.jp/hokig/20211116/index.htm (in Japanese) Ministry of Economy, Trade and Industry (2020) DX Report 2 (Interim Report). Compiled as Interim Report by Study Group for Acceleration of Digital Transformation (December 28). https://www. meti.go.jp/english/press/2020/1228_001.html (in Japanese) minsaku (2018) What is the difference between PlaQuick, a prototyping service provided by a trading company specializing in chemicals, and other companies’ services? (July 2). https://min saku.com/category02/post202/ (in Japanese) Paiola M, Gebauer H (2020) Internet of things technologies, digital servitization and business model innovation in B-to-B manufacturing firms. Ind Mark Manag 89:245–264 (August 2020) PR Times (2022) CADDi launches new service “drawing data utilization cloud” ‘CADDi DRAWER’ (June 22). https://prtimes.jp/main/html/rd/p/000000044.000039886.html (in Japanese) PR Times (2021) Recognized as the first company under the Small and Medium Enterprise Agency’s certification program for businesses that create business opportunities for small and medium-sized subcontractors (December 22) https://prtimes.jp/main/html/rd/p/000000104.000007606.html (in Japanese) Ritter T, Pederson CL (2020) Digitization capability and the digitalization of business models in business-to-business firms: Past, present, and future. Ind Mark Manag 86:180–190 (December 2019) Shibata T (2022) CPS in the context of the history of digital transformation of the manufacturing industry FY2021, Comparative Study of Industry and Technology Report Changes Toward DX (Digital Transformation) -Analysis on CPS [Cyber-Physical-Systems] (III)-, Shokokaikan, pp 6–19

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Stasia (n.d.) Revenue of Protolabs from FY 2016 to FY 2021. https://www.statista.com/statistics/ 1244004/revenue-of-protolabs/ (in Japanese) Stolterman E, Fors AC (2004) Information technology and good life. https://www8.informatik.umu. se/~acroon/Publikationer%20Anna/Stolterman.pdf (January 2004) Strainer (n.d.) Proto Labs, Inc. [PRLB] Performance and Financial Data https://strainer.jp/compan ies/5853/performance?attributes%5B%5D=operating_income_ratio (in Japanese) Suga R, Minami T (2021) Examination of the enabler effects of information and communication technology on the servitization of processing and assembly type manufacturing industries. Japan J Serv 5(3):1–12 (October 2021). ISSN 2435-5763 (in Japanese) Tatsumoto H (2017) Future of IoT. J Sci Policy Res Manag 32(3):279–292 (in Japanese) The Nihon Butsuryu Shinbun (2022) Automatic generation of NC programs for fully automated cutting (March 25). https://www.nb-shinbun.co.jp/columns/nc/ (in Japanese) The Small and Medium Enterprise Agency (2021) Certified as a business operator creating business opportunities for small and medium-sized subcontractors (1 company) based on the Act on the Promotion of Small and Medium-sized Subcontractors (December 17). https://www.chusho.meti. go.jp/keiei/torihiki/2021/211217shinko.html (in Japanese) Team Cross FA (2022) Consortium launches integrated support for smart manufacturing and logistics (January 2022). https://connected-engineering.com/wp-content/uploads/2022/01/brochure_ teamcrossfa_202201.pdf (in Japanese) Team Cross FA (2019) Details of smart factory implementation steps (Hideki Iino) (September 6). https://www.youtube.com/watch?v=FeZ8L0A1VF8 (in Japanese) The Small and Medium Enterprise Agency (2019) 2019 White Paper on Small and Medium Enterprises in Japan, p 378 (June 25). https://www.chusho.meti.go.jp/pamflet/hakusyo/2019/PDF/chu sho/05Hakusyo_part3_chap1_web.pdf (in Japanese) Your Intellectual Property Department (2020) Business model patents for start-up ventures (February 2020). https://chizai-bu.com/2020/02/modelip/ (in Japanese)

Nobutaka Odake is Executive Director of the Humanware Network Initiative. He is former Professor, Department of Techno-business Administration (2003–2017). He has a Ph.D. (Eng) from Nagoya Institute of Technology (2002) and a MD (Eng.) from University of Tokyo (1976). His research fields include (1) Innovation system and technology management such as manufacturing technology, agent system for knowledge creation and transfer, business development in manufacturing firms, academy-industry cooperation, regional development, (2) corporate behavior such as manufacturing management, SME networks, knowledge community, (3) regional economic development such as development of clusters, regional planning. He has experience with several companies before joining the university and visited more than one thousand SMEs and organizations. He is associated with various academies: the Academic Association for Organizational Science; the Japan Society for Science Policy and Research Management; the Japan Society for Production Management; the Japan Academy of Small Business Studies; the Society of Chemical Engineers, Japan; Japan Society for Intellectual Production; Japan MOT Society; Japan Association for Management Systems; International Society for Standardization Studies; Richard-Wagner Gesellschaft Japan. Anshuman Khare is Professor in Operations Management at Athabasca University, Canada. He joined Athabasca University in January 2000. He is an Alexander von Humboldt Fellow and has completed two post-doctoral terms at Johannes Gutenberg Universität in Mainz, Germany. He is also a former Monbusho Scholar, having completed a postdoctoral assignment at Ryukoku University in Kyoto, Japan. He has published a number of books and research papers on a wide range of topics. His research focuses on environmental regulation impacts on industry, just-in-time manufacturing, supply chain management, sustainability, cities and climate change, online business education, etc. He is passionate about online business education. Anshuman serves as the Editor of IAFOR Journal of Business and Management, Associate Editor of International Journal

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of Sustainability in Higher Education published by Emerald and is on the Editorial Board of International Journal of Applied Management and Technology.

Chapter 6

Perceived Quality and Quality Inspection in the Light of Automotive Mobility’s Digital Transformation—A Perspective of Car Importers in Japan David Marutschke Abstract This chapter explores the impact of automotive mobility’s digital transformation on quality management and customer-perceived quality. Special focus is put on foreign car brands which are ranked among the most innovative within the automotive industry. The chapter studies the current quality inspection process of major car importers in Japan as well as customer evaluations on product quality and discusses the implications that emerging technology has on these issues. It is argued that the digital transformation contributes to an increase in product appeal and provides new opportunities to make vehicle inspections more efficient. On the other hand, quality problems recognized by customers may shift from defects and malfunctions to design-related usage problems during the transition period. Therefore, importers need to better integrate customer-perceived quality into the future inspection processes. Keywords Quality management · Customer satisfaction · Inspection · Emerging technology · Internet of Things (IoT)

6.1 Introduction Over the last decades, car importers in Japan have been playing an important role in the internationalization of Japanese trading and in introducing state-of-the-art technologies to the premium car segment. The proper deployment of quality inspection and improvement activities has been crucial for importers to compete with Japanese brands, which have achieved worldwide reputation to produce vehicles with high reliability, initial quality, and long-term durability, with Toyota being the leader in total quality management. Maintaining a high level of perceived quality and overall satisfaction is crucial for business success because they have positive effects on purchase intentions and loyalty (Tsiotsou 2006).

D. Marutschke (B) Osaka University of Economics, Osaka, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_6

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With the spread of digital platforms, mobile technologies and sensory systems, the automotive industry is undergoing massive digital transformation. The acronym CASE, which was first introduced by the German car manufacturer Daimler in 2016, has been popular in the media since and stands for the development of Connected, Autonomous, Shared and Services, and Electric vehicles. The accelerating digitalization and interconnectedness of products and services poses new challenges in quality inspection and improvement needs that go beyond assuring legal conformity and reliability of cars. Quality inspection and improvement efforts traditionally focused on reducing variations in the production process and ensuring that the products meet technical specifications (Dahlgaard-Park 2011). However, Wen et al. (2022) performed a bibliometric analysis based on quality management (QM) literature since 2001 and found that QM is evolving from practices to reduce defects and conforming with specifications to a service-oriented view that enhances the value for customers. As QM uses more advanced technology such as Big Data, IoT or intelligent manufacturing, it becomes more important for companies to pay attention to customer engagement, i.e. the ability to collect, analyze, and act on customer feedback (Wen et al. 2022; Pansari and Kumar 2017). Therefore, this chapter focuses on two aspects of QM which are greatly affected by the accelerating digital transformation of the manufacturing industry: one focusing on the company efforts and the other on the outcome as defined by customer-perceived quality. More specifically, the aim of this chapter is to explore the impact of automotive mobility’s digital transformation (hereafter DX) on quality inspection by car importers in Japan and what impact the increasingly digital and interconnected products can have on perceived quality. First, the chapter explains current trends of the automotive mobility DX and discusses new quality management concepts. After that, the chapter provides an overview of the Japanese import market, the current quality inspection process at major German car importers in Japan, followed by a review of quality studies published by the market research firm J.D. Power. The final part explains the implications that evolving QM and related challenges on perceived quality have on a company’s business model. This exploratory study offers new perspectives on customer perceived quality of products with emerging technology such as the Internet of Things (IoT). The car importer market is chosen for two reasons. First, the market share of car importers has been steadily growing in the overall saturated automotive market, and Japan imported over 300,000 cars in 2017 for the first time in two decades. Foreign brands are also ranked most innovative Automotive OEMs (Center of Automotive Management 2021). It can therefore be assumed that cars from import brands in Japan have relatively many new features of advanced technology. This makes them a particularly interesting study object within the automotive industry that has traditionally been a leading industry for the introduction of technological innovations. Second, import brands in Japan seem to be facing particularly big challenges regarding perceived quality of car owners. According to the J.D. Power Japan Automotive Performance, Execution, and Layout (APEAL) Study which measures owners’ emotional attachment and level of excitement with their new vehicle, import

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brands have consistently outperformed the industry for years. However, these brands have underperformed during the same time when looking at the number of problems indicated by owners after purchasing the vehicle, as measured in the J.D. Power Japan Initial Quality Study (IQS). In other words, the owners of import cars recognize more quality problems despite owning more attractive cars compared to Japanese competitors.

6.2 Automotive Mobility DX Digital Transformation (DX) is a fundamental process of change using digital technologies and has become imperative for organizations around the world to meet changing market requirements. This process is revolutionizing the automotive industry in particular, because the increasing use of digital technologies, such as electric drive technology, big data, autonomous driving or the digitalization and interconnectedness of the vehicles is fundamentally changing how cars are developed, produced, marketed, and used (Winkelhake 2021; Hanelt et al. 2015). The different technological developments are often summarized by leading car manufacturers under the acronym CASE. Connectivity (C) refers to the access and easy use of online services, by connecting the car and accessories to the Internet. For example, Vehicle-to-everything (V2X) systems enable cars to calculate the fastest routes in real-time and to communicate with other vehicles, infrastructure, and pedestrians, which have the potential to reduce traffic accidents (Japan Patent Office 2020; Fukushima 2011). Furthermore, Internet-based infotainment systems can download audio data such as music and podcasts with specially designed apps. Autonomous driving (A) focuses on driving systems that require only little human intervention with the goal of a fully automated system that does not need any driver. The Society of Automotive Engineers (SAE) has divided vehicles based on their capabilities into five levels from “no automation” (Level 0) to “full automation” (Level 5) (Doll et al. 2020). Shared & Services (S) entails new mobility services such as car sharing or renting, and leading car companies are already cooperating with various freefloating car sharing start-ups. The accelerated development of Electric (E) vehicles is the result of stronger environmental regulations around the world which are pushing manufacturers to lower vehicle emissions. The European Union countries have reached a deal in June of 2022 to reduce carbon emissions that will ban the sales of fossil fuel powered vehicles with internal combustion engines for new cars by 2035 (Deutsche Welle 2022). The Japanese government has similar plans, although a final agreement has not been made yet (Landers and Tsuneoka 2020). The electrification of vehicles is accompanied by an advancement in digital and self-driving technologies, which requires the cars, components, and accessories to be interconnected. This is made possible by connecting cars to the Internet and link them to online services and devices—such as smartphones, tablets, PCs, and other devices—via a network, which is called the Internet of Things (IoT) (Gerpott and May 2016). Such technology makes it possible to use devices to control the

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functioning of the car, identify the exact location of the vehicle and optimize their routes (Hwang et al. 2016). According to the ITU (International Telecommunication Union) Association of Japan, these “connected cars” will play an even higher role in the digital transformation of Japan than specific technologies such as 5G (Inoue 2019). Japan is an important market for connected vehicles and IoT technology. According to a nationwide market study published by Fuji Keizai Group, the share of connected cars among newly sold vehicles in Japan is estimated to be 47% in 2021 and to grow to 86.9% by 2035 (Fuji Keizai Group 2021). The study also points out that import brands play a leading role in the market diffusion of new technologies related to the DX. For example, the integration of car navigation and infotainment systems with voice-controlled interfaces are strongly pursued by European brands. While such systems used to be available only for the premium segment, Volkswagen was the first to introduce such technology to the Japanese mid-range market with the launch of the new Golf model (Fuji Keizai Group 2021). Similarly, BMW is particularly active in developing automated parking systems that support remote controlling via smartphones or special keys, and the total number of cars with such technology is expected to quadruple by 2035 (Fuji Keizai Group 2021). In fact, the German manufacturers Volkswagen, Daimler and BMW have been ranked recently among the top four most innovative Automotive OEMs, together with Tesla (Center of Automotive Management 2021). It can therefore be assumed that they will play a leadership role in the diffusion of new technologies and the digitalization of Japan’s automotive landscape. While the promise of manufacturers is to enhance the convenience and functionality of cars, the integration of hardware and software also increases the complexity of the value chain, since many different suppliers and industries are involved. The traditional value chain consists of well-known automotive suppliers such as Denso, Aisin and Panasonic that deliver parts and components to the manufacturer which are then assembled into the final car. The CASE era however requires manufacturers to cooperate with new partners. For example, the value chain for an infotainment unit alone can include many technology partners such as Google, Microsoft, Apple, Nvidia, Qualcomm and Spotify (Winkelhake 2021; Coutris and Grouvel 2016). Therefore, a major challenge is not only to meet basic driving and safety requirements of the car, but also to make sure that it interacts properly with other smart devices and that new features and functionalities are properly inspected and maintained.

6.2.1 Automotive Quality Management and Control in the Context of DX The deployment of proper quality control and management systems has played a critical role in Japan and is associated with the post-war Japanese “Economic Miracle” (Dahlgaard-Park 2011). In the 1980s, the Toyota Production System (TPS) got

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worldwide attention for its ability to attain high quality and efficiency levels, and many studies have been published since that investigate the management philosophies such as Total Quality Management (TQM) and Lean Management. Important factors that contributed to the success were efforts to maintain a consistent quality standard through a careful quality control planning process, the use of integrated databases and information systems as well as continuous improvement efforts, constantly striving towards a high-quality standard within the organization (Binshan 1991). As mentioned in Sect. 6.1, this chapter focuses on two areas of quality management research, which are heavily affected by the accelerating digital transformation of the manufacturing industry: one focusing on the company efforts and the other on the outcome as defined by customer-perceived quality. The first category refers to the digital transformation of quality management processes themselves, often described under the term “Quality 4.0” or “Quality Control 4.0”. Although there is no common definition for this concept, it can be understood as a new approach to manage quality in the context of digital transformation and disruptive technologies (Kumar et al. 2021). Quality 4.0 is therefore a concept that covers many areas such as creating a smart factory with cyber-physical systems (CPSs) linked to one another via Internet of things (IoT), fully automated warehouses that can exchange data/information or smart quality management systems using artificial intelligence (AI) (Thekkoote 2021). Broday (2022) points out, however, that Quality 4.0 does not completely replace existing quality management methods such as TQM but is a natural evolution, using new tools such as big data and artificial intelligence for inspecting, classifying, evaluating, and repairing quality problems. The other category of quality related research focuses on the role DX plays in the conceptualization, measurement, and improvement of perceived quality, which reflects the perspective of customers’ perception. The main idea is that subjective evaluating criteria depend on the customer expectations, which means that perceived quality can differ from actual or objective quality and can have a positive influence on customer loyalty and repeat purchases (Gale and Buzzell 1989). The concept is not new, since scholars suggested already in the 1980s that there are subjective and objective aspects of quality, emphasizing the need to investigate the correspondence of these two aspects (Kano et al. 1984). However, scholars are focusing more recently on adapting existing methodologies to reflect the accelerating digitalization and use of advanced technology. The most discussed methodologies which are relevant for product, service, and experience quality in the automotive sector are briefly summarized in Table 6.1. All these methodologies have in common that they will play an increasingly important role during the automotive mobility’s DX since they provide manufacturers, distributors, and importers a better understating how to manage and prioritize quality features in the context of emerging technology.

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Table 6.1 Perceived quality methodologies Methodology

Description

Application in the Context of DX

Sources

Quality function deployment (QFD)

• Focus on • Share quality manufacturing deployment • Identify customer information digitally needs using market within the whole research and translate supply chain them into technical • Use information requirements beyond the initial • Insights used to design stage, e.g. prioritize product feedback information quality characteristics from IoT after the manufacturing process

Kiran (2017) and Chan and Wu (2002) Kiuchi and Nakashima (2022)

SERVQUAL

• Focus on service • Evaluate service quality in the context • Capture Voice of the of digital and customer (VoC) to self-service measure quality • Measurement across technologies, such as five quality E-SERVQUAL dimensions, such as (online interactions), service dependability, SSTQUAL (alternate knowledge and self-service channels) attitude of employees and IoT-SERVQUAL (interaction with emerging technology)

Parasuraman et al. (1988), Parasuraman et al. (2005), Lin and Hsieh (2011), and Hizam and Ahmed (2019)

Kano model

• Focus on • Empirical analyses to Kano et al., (1984) manufacturing and find drivers for high and Chaudha et al. service customer satisfaction (2011) • Prioritizing technical in IoT enabled cars features by • Identification of connecting them with attractive features of customer satisfaction advanced technology

Quality of Experience (QoE)

• Focus on end user experience of applications and services

• Holistic evaluation of Lauhari and Connelly the user experience of (2012), Deng et al. IoT-enabled services (2010), Shin (2017)

6.3 Quality Inspection and Perceived Quality in the Case of Japanese Car Importers Since the liberalization of car imports in 1965, Japan has been a market of particular interest for foreign automobile manufacturers. The elimination of custom duties in 1978 and the appreciation of the yen against foreign currencies helped early market entrants to get a foothold in the market. However, strong sales growth was realized in the late 1980s and 1990s when foreign manufacturers took aggressive efforts to enter the Japanese market by offering more competitive prices and finance services as well

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14%

12%

10%

8%

6%

4%

2%

2020

2021

2019

2017

2018

2015

2016

2014

2013

2011

2012

2010

2009

2008

2006

2007

2005

2003

2004

2001

2002

1999

2000

1998

0%

Fig. 6.1 Market share of non-Japanese car brands between 1998 and 2021 (based on JAIA, n.d.)

as expanding the dealer network under the management of fully owned subsidiaries (Takamoto, 1998), or with the help of Japanese sales companies. Figure 6.1 shows the market share development of all non-Japanese brands between 1998 and 2021. Despite a drop in 2008/09 in the aftermath of the financial crisis, foreign brands were able to grow their market share continuously, even in recent years which were heavily impacted by the COVID-19 pandemic. In the last decade, German premium brands such as Mercedes-Benz, BMW, and Audi have introduced more entry models which are priced comparably to mainstream Japanese brands (e.g., Mercedes-Benz A class, Audi A1, and BMW 1 Series). These “premium compact cars” attracted many young customers and resulted more car owners to switch from Japanese to foreign brands (Nakagawa, 2014).

6.3.1 Current Quality Control and Inspection Process of Car Importers An importer does not manufacture the cars itself but plays a vital role in quality control by understanding and responding to the unique needs and expectations of its local market. An importer is required to properly execute quality inspection, conduct market research on customer’s perceived car quality, share quality related information with dealers and manufacturers and respond quickly to new market trends and developments. This is especially true for Japan, since Japanese consumers are particularly demanding in terms of quality and how well a product fits to individual needs (Synodinos, 2001). Consequently, major car importers in Japan operate more than

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simple warehouses. For example, German import brands such as Volkswagen and Mercedes-Benz use the port of Toyohashi as a full-scale import base with service factories conducting quality inspection and adjusting the cars to Japanese specifications (Takasaki, 1992). Furthermore, import companies operate centers for technical training, parts distribution as well as market research. Mercedes-Benz Japan Co, Ltd. operates a “Service, Parts, and Training Center” with the purpose of satisfying after-sales needs of car owners. Volkswagen Group Japan operates an office in Tokyo in addition to the import management office called “Technical Representative Tokyo (VTT)”, which is engaged in vehicle testing and market monitoring. Figure 6.2 shows the quality inspection points during the entire import and after sales process of two major car importers which together import seven car brands, with a combined market share of 35%. The pre-delivery inspection process covers the stages when the vehicle arrives at the port until it is sold and handed over to the customer. The figure contains a visual representation of this process as described in three articles published by the Japan Automobile Importers Association (JAIA 2008, 2016a; b). The post-delivery inspection process contains legally mandated checks and maintenance as mandated by the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT). The black dots represent those steps of the process which include quality inspections. It should be mentioned that the customer also acts as a quality gate as he evaluates the car during the initial and regular use. Although minor differences in the work step order might exist between the two represented import companies, all processes have in common that they undergo quality inspection at six major points. The first inspection is conducted after the cars have been unloaded from the ship and supplied with fuel. During this function and road test, examiners check whether key functions are working, such as the functioning of (light) switches and opening/closing of doors. Furthermore, a test drive confirms critical driving functions. During the second inspection, workers perform a visual examination, looking for scratches and dents on the exterior as well as for interior issues, using a specially designed light tunnel. The third consists of a test for homologation, i.e., certifying that the car matches the technical and safety criteria as laid out by the Japanese government. When the car has been delivered to the designated dealer, local staff checks for any remaining or unseen issues as part of the fourth inspection. They also make the Pre-delivery

Post-delivery Customer

Arrival at Port

. Unloading .

cars from the ship Rough visual check for transportati on damages

Function and Road Test

Pre-work

. Fuel supply . Testing . Removing doors, covers

.

switches, lights etc. Testing driving functions

Car Cleaning

. Cleaning

and polishing

Test for Prepare for Visual Homologation Delivery to Examination dealer

. Looking for . Final testing . Attach exterior and interior issues

to comply with Japan Road Transport Vehicle Law

protective film, car silo storage

Arrival at Dealer

. Inspection

by dealer staff at arrival and/or before delivery to customer

Annual Maintenance

. Mechanical .

maintenance checks Oil and oil filter change

Biennial Inspection

. Overall safety .

check (e.g., breaks, speedometer, headlamps) Check for illegal modification

Fig. 6.2 Automobile inspection process by Japanese car importers (based on JAIA 2008, 2016a, b)

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car ready for usage prior to handover to the customer, performing minor adjustments such as setting up the clock and navigation system, preloading required software and adjusting tire air pressure. The remaining two points of inspection are included in the after-sales service. Here, the customer brings the car in for regular maintenance checks and compulsory inspection in the coming years, and workshop technicians provide repair services if necessary. Overall, Fig. 6.2 shows that major car importers in Japan conduct rigorous and reliable quality inspection focusing on legal conformity and product reliability, with a primary focus to check parts and components with established technologies. It also shows that the roles and responsibilities are clearly defined in each step. The first three points of inspection are managed by the importer, while dealers oversee the remaining ones. The main purpose of this inspection process is to prevent defects and to reduce the necessity of repair or readjustments after the car has been handed over to the customer.

6.3.2 Perceived Quality of Imported Cars in Japan The quality inspection process ensures that the car is presented and delivered in the best and most attractive condition possible. Ideally, new car owners would not report any problems such as defects, malfunctions, or usage issues. To confirm how Japanese customers evaluate the quality of imported cars, the following summarizes the findings from quality studies conducted by the market research firm J.D. Power Japan Inc. from 2015 to 2021. Overall, the studies provide an indication that owners of import cars recognize more quality problems despite owning more attractive cars compared to Japanese competitors, and that emerging technology plays an increasingly contributing role in recent years. Figures 6.3 and 6.4 show quality index scores by import brands and domestic brands. The scores represent evaluations by Japanese new car owners and have been extracted from official press releases by J.D. Power Japan Inc., a market research company specialized in customer satisfaction research. These quality rankings are published annually and have become the most important benchmarks for the automotive industry (Urban 2004), with a sample size between 18,000 and almost 20,000. Raithel et al. (2011) confirm that the surveys by J.D. Power and Associates cover all relevant attributes for vehicles considered by customers. Car satisfaction data from these surveys have been used in numerous studies, such as in the field of Marketing (Srinivasan et al. 2012; Raithel et al. 2011) and empirical economics (e.g., McCarthy and Tay 1998; Yadav and Goel 2008). To examine the difference in quality perception between import and domestic brands, the average scores have been calculated separately for all nine Japanese brands and six import brands. These two groups are considered as comparable because both have widened their selection of car models and price range leading to direct competition across all compact, mid-size, premium, and high-end segments (Nakagawa 2014). The 2021 data is shown separately, because

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both studies have been redesigned and include more quality attributes, which means these scores cannot be compared directly with the scores from previous years. Figure 6.3 shows average scores of the APEAL study which measures the attractiveness of the new car as reported by the owners. Here, customers evaluate the car across 77 attributes, grouped into 10 categories of the vehicle such as exterior design, storage driving performance and ACEN functions (audio/communication/entertainment/navigation). These evaluations are aggregated to an overall index score (on a 1,000-point scale). Hence, a higher score reflects a higher perceived quality. Figure 6.3 reveals that despite the year 2018, both Japanese and import brands have been able to constantly improve the attractiveness and appeal of their cars on average. More noticeably, import brands significantly outperform Japanese competitors, with differences of up to +63 in total score. While the press releases do not provide a breakdown of scores, the study summaries suggest that new advanced technology plays an important role in establishing product attractiveness. More specifically, it is mentioned that the top four German import brands Audi, BMW, MercedesBenz, and Volkswagen were able to increase their scores more than the industry on average, with advanced technology-related functions related to audio, communication, entertainment, and navigation being among the key drivers (J.D. Power Japan 2019). Figure 6.4 shows the scores of the Initial Quality Study (IQS) which measures the number of initial problems per 100 vehicles reported by new car owners in the Based on a 1,000-point scale (higher is better)

Import Brands

Japanese Brands

740 720 700 680 660 640 620 600 Difference Import / Japanese brands

2015

+42

2016

+54

2017

2018

2019

+61

+62

+63

2020

+58

2021

+38 (Study Redesign)

Fig. 6.3 Index scores of J.D. Power Japan Automotive Performance, Execution and Layout (APEAL) Study 2015–2021 (based on J.D. Power Japan, n.d.)

6 Perceived Quality and Quality Inspection in the Light of Automotive … Problems per hundred vehicles (lower is better)

Japanese Brands

103

Import Brands

210 190 170 150 130 110 90 70 50 Difference Import / Japanese brands

2015

2016

2017

2018

2019

2020

+37

+30

+25

+26

+26

+33

2021

+67 (Study Redesign)

Fig. 6.4 Index scores of J.D. Power Japan Initial Quality Study (IQS) 2015–2021 (based on J.D. Power Japan, n.d.)

first two to nine months of ownership in eight categories, including vehicle exterior, driving experience, controls and displays, and ACEN functions. Problems that are being experienced may include damages, defects, malfunctions, and difficult to use items. Hence, a lower score reflects higher initial quality. Figure 6.4 shows that initial quality has also improved steadily over the years for import and domestic brands on average because customers are reporting fewer problems with their cars in total over time. However, customers report significantly more quality problems for imported cars, with a difference ranging between +25 and +37 more problems per 100 vehicles compared with domestic brands. Summary statements indicate that problems are shifting from defects and malfunctions to designrelated problems and that this shift is driven by the trend for more cars being equipped with advanced technologies (J.D. Power Japan 2020). It needs to be pointed out that these perception gaps cannot be explained entirely by new advanced features since this chapter only investigates total (aggregated) scores across all examined quality attributes. However, they are consistent with findings from Kohli and Singh (2021) and Dominici et al. (2016) who conducted in-depth surveys with car owners using the Kano model. They show that advanced technologies involving IoT, such as integration with smart phones, connecting applications, and built-in 4G LTE Wi-Fi systems are perceived by passenger car owners as attractive features (Kohli and Singh 2021), but customers also put a high level of importance on user-friendliness of such technology (Dominici et al. 2016).

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6.4 Implications on Business Model Development Broday (2022) points out that the digital transformation of Quality 4.0 has not yet broken through the traditional QM stage but can be rather understood as the application of new digital technologies such as Big Data and IoT to existing QM methods. Such technologies will enable companies to improve processes, innovate products and services, and create new business models (Wamba et al. 2015). It is still unknown how fully evolved QM in the context of digital transformation will look like (Wen et al. 2022). The technologies are developed rapidly, which means companies have to adjust their business models—i.e., the way how value is created, captured, and delivered—to new technology trends and environments. Companies in Japan are still slow in the digitalization of supply chains and the implementation of advanced manufacturing. However, established industry leaders in traditional industries such as the automotive, healthcare, retail, and financial sectors are bringing business model disruption in Japan forward (Broeckaert 2022). The following subsections summarize the implications that evolving QM and related challenges on perceived quality have on the company’s business model. They are structured based on the following five business model components that were introduced by Ojala (2016) and later expanded by Baber et al. (2019).

6.4.1 Product/service Product / service specifies how a company’s product is positioned related to other technologies in the market and how it creates value for partners and customers (Adomavicius et al. 2008). As products become more interconnected, usage/design factors will become more significant in value creation than preventing, detecting, and eliminating defects (Wen et al. 2022). This is consistent with Park et al. (2017) who predicted that design quality will become more important than manufacturing quality. Companies should therefore not only focus on the technology of products/services itself but take special care in understanding what drives user acceptance of advanced technology and integrate these insights early in the product innovation process. Marketing research suggests that consumer acceptance and market diffusion of new technologies are strongly affected by how the user enjoys them and by the perceived behavioral control (Zhang and Mao 2008). Hence, to achieve a fast market adoption of new products, customers must understand the new features fast and find them appealing and easy to use. This is also consistent with Kim et al. (2018) who found that perceived usefulness, perceived risk, and trialability are key determinants of perceived quality for new technology.

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6.4.2 Value Network Value network involves key actors, such as partners and customers within a firm’s business model. QM is shifting from a linear inspection process for matured technologies to “supply networks.” In the former, each member of the value chain has clear roles and responsibilities. In the latter, focal companies share quality data across the entire supply network, which are then used by partners for market research, product development, quality improvement, and after-sales service (Wen et al. 2022). These networks may include partners such as manufacturers, importers, dealers/stores, sales companies, technology partners and even 3rd party inspectors and regulators. Furthermore, the customer will play a bigger role in the context of engagement, i.e., a customer’s voluntary resource contribution to a company beyond financial patronage (Pansari and Kumar 2017), because online customer feedback on quality issues will be collected more frequently to be used for product innovation and improvement. With QM methods evolving to digital services such as remote diagnoses and repairs, firms will need to determine who the key actors will be in this network and what their roles and responsibilities are in detecting, preventing, and eliminating quality issues.

6.4.3 Value Delivery Value delivery refers to how value is exchanged between various partners and customers in the network. An important aspect is how a firm gets in touch with its customers to maintain relationships (Osterwalder et al. 2005). The manufacturing industry is shifting from traditional “product life cycle quality management” to “service-oriented” value creation (Lee et al. 2016), i.e. the management of service experiences across the entire life cycle. It is expected that IoT enabled products will increase the number of digital touchpoints between customers, companies, and new technology partners. Management must therefore gain a better understanding of how these touchpoints will affect service satisfaction and how to provide integrated after sales services if malfunctions or usage errors with IoT-enabled products occur.

6.4.4 Revenue Model The revenue model specifies how products/services generate financial revenue for the firm. It can be expected that digital and service-oriented products will lead to new pricing types using subscription, one-time payment, or pay-per-use models (Lehmann and Buxmann 2009). In most cases, companies use an IoT revenue model, in which revenues are generated on the basis of product-based upfront payments,

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which means services are not monetized (Fleisch et al. 2016). Japanese companies are struggling to generate as much revenue through DX as their global peers (Broeckaert 2022). With IoT-enabled products that reduce the necessity for physical inspection and maintenance, a growing challenge for management will be the question how to improve the digital readiness of key actors in the value system, how to generate revenue from advanced QM activities and how to distribute it among the actors.

6.4.5 Information Flow Information flow refers to the various types of information shared among the company, partners, and customers (Baber et al. 2019). While Japanese companies have played a leading role in quality data management and analytics, they lag behind American or European peers when it comes to advanced methods such as predictive analytics using deep learning and AI (Broeckaert 2022). Furthermore, digital quality data of connected products will be offered through digital mobility platforms and industry clouds, to which all value actors have access to, including new technology partners. Therefore, a critical challenge is not only the development of new analytical capabilities but also to determine the types of quality data needed, who collects them, and how the information is exchanged within the value network without compromising customer privacy.

6.5 Conclusions, Limitations, and Future Research This article has reviewed trends of the automotive mobility’s digital transformation as well as developments in quality management research in the context of emerging technologies. Special focus was given to car importers in Japan, who are considered the leaders behind the introduction of advanced technology including the Internet of Things (IoT). Import brands achieve a higher level of product appeal compared to domestic brands but also face more initial problems as reported by new car owners. It is argued that the digital transformation of the manufacturing industry will fundamentally change how companies perform quality inspection for connected products with advanced technology. These changes will also have important implications on the company’s business model, because they affect how value is created, captured, and delivered. A limitation regarding the measurement of perceived quality should be pointed out. The exploratory study in this chapter relies solely on publicly available data, and the index scores discussed in Sect. 6.1.2 only reflect perceived quality on an aggregated level. Therefore, it cannot be validated how much new advanced technology factors alone contribute to the perceived quality gaps between domestic and import brands. An empirical study is needed which determines the degree of correlation

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between the introduction of digital technology such as IoT and quality perception by car owners. Since both domestic and import brands have widened the product line-up and price range in recent years, a deeper analysis is required to investigate perception gaps for each compact, mid-size, premium, and high-end segment.

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David Marutschke is Associate Professor in Marketing at Osaka University of Economics, Japan since 2021. Prior to his current role, he was Lecturer and Associate Professor at Soka University from 2016 to 2020 and from 2020 to 2021, respectively. His research focuses on Customer Experience Management and Service Quality, and he published a number of articles and book chapters on various topics concerning the automotive and retail sector, such as a customer experience study of Japanese new car buyers, holistic experience management methods and the emergence of private brands in the Japan retail market. He also wrote a book on continuous improvement strategies in retailing published by Palgrave Macmillan. He graduated in International Business Administration (Diplomkaufmann) and Japanese Studies (BA) at Tübingen University in Germany and holds a PhD in Japanese Studies from Tübingen University (Dr. Phil.). He was a JSPS Research Fellow at Kyoto University Graduate School of Management and a Research Fellow at German Institute for Japanese Studies (DIJ), Tokyo, Japan. He also worked as a consultant at a global market research and consultancy firm in Tokyo for five years.

Chapter 7

Carbon Neutrality and Carbon Footprint (CFP) Assessment Business Nobutaka Odake and Anshuman Khare

Abstract Many companies participating in the Science Based Targets (SBT) Initiative and RE100 cite enhanced stakeholder confidence, reduced risk posed by regulations, increased profitability and competitiveness, as well as increased innovation as their primary motivations. A calculation of supply chain emissions is required. CFP/GHG emissions calculation can be done either by a cloud-based platform or by individual consulting services. The leader of the calculation service is an intermediary organization that has been accumulating expertise having been commissioned by the Japanese government to do so. It has been emphasizing the creation of various networks since the early stage of the project. The diffusion of this service to the industry as a whole will require the use of a cloud-based platform. The ease-of-use of cloud-based platforms and the enhancement of databases are necessary for the diffusion of this service throughout the industry. The standardization of data format and cross-industry data sharing are necessary to view the entire supply chain. Digital technology is a key factor in its success. Keywords TCFD · CDP · RE100 · ESG investment · SCOPE · LCA · GHG · Carbon neutral · Platform · Carbon tracing system · Ecosystem

7.1 Introduction The Task Force on Climate-related Financial Disclosure (TCFD), an international information disclosure framework launched at the same time as the Paris Agreement, has provided common recognition and guidance to issues to be addressed globally. CDP (formerly the Carbon Disclosure Project) is an international NGO working in environmental fields such as climate change that collects climate change-related N. Odake (B) Humanware Network Initiative, Nagoya, Japan e-mail: [email protected] A. Khare Athabasca University, Athabasca, Alberta, Canada e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_7

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information of interest from companies discloses it to institutional investors. It has expanded its influence to become one of the most referenced data sources in the world for ESG investing (Enokibori 2019). The movement toward decarbonization management is progressing through the TCFD, RE100 (a declaration to conduct 100% renewable energy business activities), Science Based Targets (SBT), and other targets set by the government. Japan ranks first in the world with 757 companies endorsing the TCFD, third in the world with 173 companies certified under SBT, and second in the world with 66 companies participating in RE100 (March 31, 2022) (Ministry of the Environment, 2022). Many companies participating in the SBT initiative and RE100 are aiming to strengthen the trust of their stakeholders. Many of the companies participating in the SBT Initiative and RE100 cite enhanced stakeholder trust, reduced risk posed by regulations, increased profitability and competitiveness, as well as increased innovation as their motivations. Global standards for the Circular Economy are shown in Table 7.1. While an increasing number of companies are taking proactive measures such as disclosing information in compliance with the TCFD, and setting reduction targets consistent with Science Based Targets, Carbon Footprint of Products and Service (CFP) is becoming an important tool for companies to reduce their carbon footprint. CFP, which calculates CO2 emissions throughout the life cycle of products and services, is attracting attention as a means of visualizing carbon management of corporate activities, communicating with consumers, and improving the evaluation management by investors and financial institutions. Since the reorganization of the Tokyo Stock Exchange (TSE) market in April 2022, companies listed on the prime market are required to collect and analyze necessary data on the impact of climate change-related risks and profit opportunities on their Table 7.1 Circular Economy and Global Standards Formulation of SBT

Establishment of the SBT (a corporate version of the 2 °C target) as a joint initiative as one of the reduction targets to meet society’s requirements and to improve company’s corporate value

RE100

An environmental initiative that aims to achieve 100% coverage by renewable energy, a relatively easy and effective emission reduction measure

CDP Questionnaire

One of the globally accepted climate change information disclosure frameworks. The contents include the TCFD

TCFD Recommendation

All companies are required to (1) assess their own climate-related risks and opportunities using climate scenarios such as the 2 °C target, (2) reflect them in their business strategies and risk management, and (3) understand and disclose their financial impacts

Carbon Neutral

The amount of CO2 emissions that cannot be fully reduced will be offset by CO2 credits to become carbon neutral (plus or minus zero CO2 emissions)

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business activities, earnings, etc., as well as to enhance the quality and quantity of disclosure based on the TCFD or equivalent frameworks. As these moves toward decarbonization accelerate, major corporations and financial institutions are increasingly seeking to reduce “greenhouse gas (GHG) emissions, including indirect emissions,” and there are increasing calls for small and medium-sized enterprises (SMEs) to promote decarbonization. Furthermore, the Enforcement Regulations in the Banking Law of 2021, which deregulated business operations with the aim of engaging in a wide range of operations that contribute to building a sustainable society, such as digitization and regional development, have been revised. In line with this, some initiatives have begun to fall under the newly added category of a “business that contributes to regional revitalization, improvement of industrial productivity, and the building of other sustainable societies.” The Ministry of Economy, Trade and Industry (METI) has concretized its policy on financing the transition to decarbonization by announcing the Climate Innovation Finance Basic Guidelines in May 2021, from the perspective of “transparency of implementation,” “quantitative evaluation,” and “objective evaluation” (FSA, METI & MOE, 2021). In relation to ESG investment, an increasing number of financial institutions have set a goal of achieving virtually zero GHG emissions, including GHG emissions of their investees (financed emissions). The Partnership for Carbon Accounting Financials (PCAFF), an international initiative for the measurement and disclosure of financed emissions, has more than 180 participating financial institutions, including Japan’s three megabanks. Since the decarbonization of SMEs is essential to achieve such decarbonization goals, including cleaning supply chain and financed emissions, there are increasing demands for SMEs to decarbonize coming from large corporations and financial institutions (The Japan Research Institute, Limited., 2021). In this chapter, we will discuss and compare organizations that support the preparation of global standard reports, LCA, and CFP assessments, and extract their implications based on the efforts of CO2 emissions visualization and emissions calculation.

7.2 CDP Scoring and CO2 Emissions Calculation and Visualization Efforts 7.2.1 Carbon Tracing and the Bloockchain The task of indicating the degree of decarbonization by product during the transition to a decarbonized era will be an additional cost for companies. To perform this work efficiently, it will be increasingly necessary to establish a system for tracing greenhouse gas emissions such as CFP (Nomura Research Institute 2021, Uemura et al. 2021). A carbon tracing system is a system that supports the understanding of greenhouse gas emissions in the supply chain by visualizing the environmentally

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friendly performance of products and services (e.g., the use of recycled materials, production using renewable energy, etc.) using LCA methods, etc., and making this information easily accessible using QR codes among other means. CFP (SuMPO) is a system to measure and display greenhouse gas emissions throughout the entire life cycle of a product or service from raw material procurement to disposal and recycling, utilizing the life cycle assessment (LCA) method. One of the initiatives for decarbonization is the use of renewable energy and the use of offset through the purchase of environmental value certificates. However Green Power Certificates, J-Credits, and Non-Fossil Certificates are operated as separate systems, and these systems are not designed to be referenced at any time by various entities such as certificate users, suppliers, consumers, environmental NGOs, governments, or auditing firms, etc. In such a situation, the blockchain itself is expected to be widely used by guaranteeing the proof of renewable energy by keeping track of its own evidence. In fact, blockchain technology is being used in the energy field (Andonia et al., 2019, International Renewable Energy Agency, 2019 etc.). The electricity generated by photovoltaics (-PV) and wind power is unstable and difficult for retail electric utilities to reliably procure. They also incur costs that are not required to prove that the energy is renewable. A Blockchain (distributed ledger) is a generic term for an electronic database in which all transaction information is recorded in a chain of “blocks” of data that collectively record transactions executed within a certain period of time, with each new transaction being linked like a chain. Chaintope Inc. and Miyama Power HD Inc. are developing a prototype system that visualizes the regional circulation of energy and other resources in Saga City using blockchain technology and converting the environmental value of municipal solid waste generated electricity for local consumption into electronic certificates. (Chaintope, 2021). The objective and quantitative visualization of CO2 emissions and reductions by local governments and companies has led to the development and provision of an Application Programming Interface (API) to accelerate the transition to a decarbonized society. The API is a generic term for the interface of software to the functions of an operating system. As the first user, the company concluded an API use agreement with Saga City and has begun operating the system at the Saga City Cleaning Plant and other facilities. In addition, Digital Grid, Inc. is commercializing a trading market using blockchain, and is promoting the standardization of transaction prices through the Digital Grid Platform (DGP) in its certificate of renewable energy (CRV) trading platform project and is conducting a P2P electricity trading demonstration project to evaluate the on-site consumption status of renewable energy in remote areas in a tradable form (Abe, 2018; Toyoda, 2021).

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7.2.2 Cloud Services for Visualization and Calculation Systems Cloud services for corporations have been established one after another to calculate, visualize, and reduce CO2 emissions. “e-dash,” established by Mitsui & Co., Ltd. enables companies and municipalities to automatically and easily calculate CO2 emissions by their business by simply uploading electricity and gas bills, thereby reducing the time and effort required for the aggregation and calculation of the data. Supply chain emissions (Scope 3) can also be calculated and visualized by the software. “Zeroboard” provided by Zerobord Inc. is a cloud service for corporate customers that calculates and visualizes CO2 emissions and is capable of managing CO2 emissions reductions, simulating cost-effectiveness of such moves, and outputting reports that are compatible with international disclosure formats such as TCFD and other reporting formats under existing environmental laws and regulations in Japan (Zeroboard, n.d.). Asuene Inc. provides comprehensive services for companies and local governments to promote corporate decarbonization management through its cloud service for the visualization and reduction of CO2 emissions throughout the supply chain in Scope 1–3, using its consulting service “Asuzero,” and its one-stop solution for decarbonization, “Asuene”. Asuene Inc. has been certified as both a CDP climate change consulting partner and a CDP scoring partner (PRTimes, 2022). Zeroboard, boost technologies Inc., and Asuene Inc. were featured as part of Toyo Keizai’s “100 Amazing startups in 2022” (Weekly Toyo Keizai, 2022). All of them have succeeded in raising funds from venture capital. Established in 2015, boost technologies, Inc. features a “CO2 emissions management and accounting platform for companies and organizations” that enables easy measurement and management of carbon emissions centralized offsetting reporting, has released the cloud-based energy management system “ENERGY X,” and the CO2 emissions visualization and decarbonization cloud “ENERGY X GREEN” (Energy X Green, n.d.). Sumitomo Chemical Co., Ltd., a materials manufacturer, states that the scope of CFP calculation is “Cradle to Gate,” which covers everything from resource extraction, raw material production, and in-house product manufacturing to shipment, and that it will provide CFP to other companies free of charge (Toma et al., 2022; The Chemical Daily, 2022). As shown in the partners in Table 7.2, data management is at the core of all systems, and co-creation partners are important. The ecosystem is being formed by the emergence of a user-oriented platform for emission calculation systems.

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7.2.3 Third-Party Verification Systems for Greenhouse Gas (GHG) Emissions Responding to TCFD recommendations and preparing responses to CDP questionnaires requires skill, and while CDP scores responses to questionnaires, CDP Scoring Table 7.2 CFP/GHG emissions calculation system Systems (Providers)

Outline and others

e-dash (Mitsui& Co., Ltd.)

e-dash was established to provide cloud services for CO2 emissions visualization and reduction, and has formed partnerships with a number of regional banks

Sustana (Sumitomo Mitsui Banking Corporation)

‘Sustana’ allows users to import data on various corporate activities, calculate emissions, and use the data to report and disclose emissions to suppliers

NRI-CTS (Nomura Research Institute)

A carbon tracing system to track/understand information related to CO2 and other greenhouse gas (GHG) emissions in the supply chain

Circular Navi (JEMS)

Provides a platform for businesses and consumers involved in each step of a product’s refurbishment process to verify proof of handling in the supply chain

Fujitsu + Ridgelinez

Consulting services that contribute to the realization of sustainability transformation (SX), and cloud services that calculate and visualize CO2 emissions in the supply chain

EcoAssist-Enterprise (Hitachi Ltd., Hitachi Consulting Co., Ltd.)

A GHG emissions calculation support service that combines a system that supports the disclosure of non-financial information, such as CDP responses and SBT certification, which are used as ESG investment indicators, with consulting services

CFP-TOMO (Sumitomo Chemical Co., Ltd.) Developed a simple and quick CFP calculation tool for the unification of rules in the industry, and made it available to other companies free of charge. The scope of calculation covers everything from resource mining to raw material production, and from in-house product production to shipment zeroboard (Zeroboard Inc.)

By linking with Toshiba’s cloud services, Zeroboard develops GHG emissions calculation and visualization cloud services and provides high-value-added services such as GHG emissions monitoring in the supply chain and consulting services for GHG reduction (continued)

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Table 7.2 (continued) Systems (Providers)

Outline and others

Asuzero (Asuene Inc.)

A cloud and consulting for companies and municipalities to visualize and reduce CO2 emissions in the entire supply chain of Scope 1–3. Providing comprehensive services to promote corporate decarbonization management through a one-stop solution for decarbonization

ENERGY X GREEN (boost technologies Inc.)

Providing one-stop support and systems necessary for a carbon-free future, including CO2 emissions visualization and reporting, procurement and supply of CO2-free electricity, carbon offsets, and supply and demand management

EcoNiPass (Wingarc 1st Inc. and Suzuyo Shoji Co., Ltd.)

A CO2 emissions visualization platform for aggregating and visualizing CO2 emissions in the supply chain. Automatically links the CO2 emissions of suppliers to the CO2 emissions of the company, thereby reducing the workload of reporting and tallying

GHG Emissions Visualization Platform (NTT Data Corp.)

Provides the construction of calculation methods suitable for companies based on business characteristics and data held by the company, and the calculation method which incorporates the emissions reduction efforts of suppliers into the same reductions at the procuring company side

Sources Mitsui & Co., Ltd. (2022), Sumitomo Mitsui Banking Corporation (2021), Digital Cross (2022), PR Times (2021), Circular Economy Hub (2022), Fujitsu + Ridgelinez (2021), The Nikkei (2021), Toma et al. (2022), The Chemical Daily (2022), Toshiba Digital Solutions Corporation (2022), The Nikkei (2022), Energy X Green (n.d.), Wingarc1st (2022), NTT Data (2022)

Partners, a third-party organization trained by CDP to provide response support services, conducts the scoring. There is also a system for third-party verification of GHG emissions: ISO 14065 stipulates the principles and requirements for organizations that perform validation and verification of environmental information, and the Japan Accreditation Board for Conformity Assessment (JAB) has accredited seven companies in Japan as “greenhouse gas validation and verification organizations,” as of the end of August 2021.

7.3 Cases of Consulting Organizations Under these circumstances, the need for LCA and CFP support services is increasing, and calculation services for individual products are expected to become more available. Supply chain emissions refer to not only a company’s own emissions, but also

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the total of all emissions related to its business activities and from the entire supply chain flow, including raw material procurement, manufacturing, distribution, sales, and disposal. The calculation of GHG emissions in the entire supply chain/value chain of a company consists of SCOPE 1, 2, and 3: SCOPE 1—direct emissions of the organization, SCOPE 2—indirect emissions from energy use and SCOPE 3— emissions from SCOPE 1 and 2: the purchase of products and services. The total amount of GHG emmisions is the sum of the following. In areas with industrial clusters such as the domestic automobile industry, there is a strong need for manufacturers to understand emissions in detail. The Toyota Group has requested that suppliers set up specialized departments and calculate LCA for each component. In order to respond to such requests, it is necessary to connect to a database (DB) and perform calculations in accordance with the customer’s business activities. Several consulting-type calculation support organizations for corporate carbon neutrality, etc., have emerged, and many of these are small and medium-sized intermediary organizations. This section analyzes the following organizations: Wastebox, which started as a waste consulting company; Sustainable Management Promotion Organization (SuMPO), which was spun off from another organization to provide LCA calculation support; and Zeroboard Inc., a start-up company that provides a cloud service that facilitates the calculation of CO2 emissions.

7.3.1 WasteBox Co., Ltd. Founded in 2006, Wastebox (hereafter referred to as Company W) started out as a waste consulting firm, but in 2008 it began offering a carbon trace system and has since added other functions. The company visualizes the environmentally friendly performance of products and services (e.g. use of recycled materials, production using recycled energy, etc.) using LCA methods, etc., and makes this information easily accessible using QR codes, etc. New functions are currently being added. Since 2018, they have been in charge of the support desk for the Ministry of the Environment’s program to promote corporate value enhancement through decarbonization management, and they have been performing commissions from the Ministry of the Environment, the Ministry of Economy, Trade, and Industry, and others. The work includes the monitoring of CO2 emissions in compliance with SCOPE 3, an international standard. These are key indicators for ESG investment and the SDGs. The company has been involved in allowance trading, which became popular in the early to mid-2000s, and has accumulated expertise in calculating CO2 emissions for each company, which is vital for confidence in the rights. The company is a certified business under the SBT (Science-Based Targets), an international initiative to reduce greenhouse gas emissions, and is the first Japanese company to be certified using the standards for small and medium-sized enterprises established in April 2020. In addition, in August 2020, MHI was certified as the only CDP climate change consulting partner in Japan.

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Due to the rapid expansion of the business, including the utilization of the “visualization calculation” of SCOPE 3 in the financial report, Company W collaborated with financial institutions, major consulting firms, and major non-life insurance companies (by outsourcing the secretariat function) to provide calculation expertise, work support, and inspections, as well as apply for subsidies such as the “Subsidy for the Project to Promote the Creation of New Regional Growth Industries (Regional Industry Digitalization Support Project)” from the Ministry of Economy, Trade and Industry (METI). The company also assists clients in applying for such grants. For their calculations, Company W utilizes the GHG Protocol, SimaPro8, and IDEAv2n databases, which are the result of the merger of the World Resource Institute (WRI) and the World Business Council for Sustainable Development.

7.3.2 Sustainable Management Promotion Organization (SuMPO) The Sustainable Management Promotion Organization (SuMPO) was established in 2019 as a spin-off of the Japan Environmental Management Association for Industry (JEMAI) to achieve sustainable business management by supporting the development of new business models that help solve social issues such as global environmental problems. From the beginning, JEMAI has focused on LCA and has provided support for SCOPE 3 calculations in response to recent carbon neutrality trend. One of the representative directors is from the Ministry of Economy, Trade and Industry (METI), is familiar with the national system and has accumulated expertise through various contracted services. In addition, external use of PCR (Product Category Rule) has been started. The company has enhanced its human resource development menu, offering courses for management executives and employees in specialized departments. The SuMPO Environmental Labeling Program (Japan EPD program by SuMPO), which quantitatively discloses the environmental impact of products and services throughout their life cycles from the procurement of raw materials to disposal and recycling (i.e. cradle to grave), is operated by SuMPO, having taken over from JEMAI. SuMPO has developed MiLCA, an LCA software with an inventory database (IDEA) developed by the National Institute of Advanced Industrial Science and Technology (AIST). MiLCA includes an inventory database (IDEA). Since proficiency in the use of MiLCA is required, a special personnel training program has been initiated.

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7.3.3 Zeroboard Inc. With the global trend toward decarbonization and carbon neutrality, zeroboard was developed zeroboard. In 2018, an MBO (Management Buyout) of the zeroboard business created by A.L.I. Technologies, Inc. was made and Zeroboard, Inc. was launched (zeroboard, 2021). Zeroboard provides a cloud service that facilitates the calculation of CO2 emissions in the supply chain by collecting data through various business tools used by the company and API linkage with suppliers. Zeroboard enables efficient collection and visualization of Scope 1 and Scope 2 data, as well as calculation and visualization of supply chain emissions (Scope 3) based on global standards (GHG Protocol). The main objective of Zeroboard is to create a decarbonization ecosystem. The system not only efficiently visualizes CO2 emissions, but also enables more efficient management decisions by providing functions to estimate the costs of introducing electric vehicles and renewable energy and calculating the CO2 reduction effects. Furthermore, through Zeroboard carbon neutrality can be accelerated by creating a data infrastructure for CO2 emissions providing services to financial institutions that receive disclosures, and supplying electric and gas companies or other manufacturers with decarbonization solutions. The company is collaborating with a variety of companies, industries, and sectors to achieve their motto that “decarbonization efforts = corporate valueenhancing efforts” (Zeroboard, n.d.). In particular, the company has formed alliances with regional financial institutions, manufacturers, trading companies, and others, and aims to visualize CO2 emissions throughout the supply chain by providing applications to their investment and financing partners as well as supply chains. SOCOTEC Certification Japan K.K., a CDP scoring partner, provides third-party assurance of the conformity of the “zeroboard” system, a GHG emissions calculation and visualization cloud service developed by Zeroboard, based on ISO 14064–3 and SOCOTEC’s procedures. In April 2022, the English version of zeroboard was released, aiming to amplify the decarbonization effect by incorporating overseas manufacturing sites and their supply chains.

7.4 Discussion Efforts toward creating a carbon neutrality have been spreading in a manner that encompasses and reinterprets energy and resource conservation, as well as productivity improvement, among other things. Due to the shift in industrial policies in various countries, international standardization is transforming into a strategic tool for each company (Tatsumoto et al., 2008). The global standard framework is shown in Table 7.1, and is expected to progress regardless of its size in the future due to disclosure and reporting requirements for companies in the TSE prime market in relation to ESG investment, and the requirement of responses from suppliers in the

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automotive industry, etc. The CDP or TCFD framework is not merely a disclosure practice, but also a part of strategy formulation as well as a tool for the development of ESG investment strategies. Therefore, it is necessary to have a broad collaboration not only among sustainability departments but also within the entire organization. Furthermore, collaboration among companies and industries will become important. A circular economy is a constraint, but it is becoming a strategic tool at the corporate level, and new strategic combinations among organizations, so-called ecosystems, are being generated. In the CFP/GHG emission calculation system, the cloud-based platforms are mainly provided by start-ups, such as trading companies, financial institutions, consulting firms, and material manufacturers.Although some aspects of these systems are developed at the supply chain level and industry level, it can be said to be an ecosystem formed by technology platforms, as pointed out by Na (2012). Among the consulting firms discussed in the previous section, Wastebox and SuMPO have built a network with domestic and international stakeholders through their experience as contact persons for government-commissioned projects, and are familiar with the GHG Protocol, access to inventory databases such as IDEA, and calculation methods such as these used in their software. SuMPO is familiar with calculation methods used by protocols-such as GHG protocols, access to inventory databases such as IDEA, and the use of other software. On the other hand, cloud- and platform-based zeroboard and Asuene are collaborating with regional financial institutions as well as various manufacturing companies, and are building systems that can collect a large amount of data. Partnerships with various industrial sectors, including regional financial institutions and within the manufacturing supply chain, provide a competitive advantage as an ecosystem. The organization of the ecosystem as a starting point for competitiveness is important, but the role of keystone companies to provide a platform within a community of stakeholders, including customers, is required, and startups and SMEs as intermediary organizations can be the key players. Keystone companies are the players that provide a platform and help the players in the ecosystem create profits (Iansiti and Levin, 2004). Platforms create value by associating and coordinating constituencies that can innovate and compete, or by creating and exploiting economies of scope in either supply or demand (Gawer 2014). Cloud-based systems make it easy to collect, store, update, and retrieve information, and enables efficient collection and visualization of Scope 1 and Scope 2 data, as well as calculation and visualization of supply chain emissions (Scope 3) based on global standards (GHG Protocol), which used to require cumbersome data collection. Scope 1 and Scope 2 can now be efficiently collected and visualized.In addition, digital technology, such as standardization of data formats and API linkage, is key to viewing the entire supply chain as a whole. In addition, third-party certification using blockchain verification is required for the spread of carbon credits. All of these efforts are based on the calculation and visualization of CO2 emissions, but the subsequent process requires concrete efforts to reduce CO2 emissions at the field level. The Ellen MacArthur Foundation has identified three principles for

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transitioning to a circular economy: eliminate waste and pollution, keep products and materials in use, and regenerate natural systems. (Ellen MacArthur Foundation, n.d.). In addition, it is important to link these goals to real activities, including the introduction of renewable energy and the promotion of energy conservation, which have been conducted to date.

7.5 Conclusion In this chapter, we have discussed the trend of global standards and assessment businesses that plays a role in the CFP calculation system for the development of carbon neutrality. Pressure from capital markets, supply chains, and stakeholders have prompted not only large corporations but also small and medium-sized enterprises (SMEs) to become carbon neutral. The approach to the circular economy is integrated with business management, and it is important to consider CDP and TCFD disclosures as part of corporate strategy development. Calculation systems that quantify and visualize supply chain emissions and CO2 emissions per product require data management and data processing. Visibility is important for such systems and software, and ease of use is required. The main players in these areas are start-ups, which are growing through a variety of collaborations. For widespread use throughout the industry, the ease of use of cloud-based platforms, as well as the enhancement of databases, is necessary throughout the industry. Standardization of data formats and cross-industry data sharing are necessary to view the entire supply chain easily, and digital technology is the key. Carbon neutrality is becoming a strategic element at the corporate level, and it can be an opportunity to promote initiatives at the industrial ecosystem level, rather than at the corporate level.

References Abe R (2018) Research and practice of blockchain-based electricity trading—digital grid concurrency matching platform (DGP), electrical review, Summer 2018 additional issue, pp 16–20. In Japanese Andoni M, Robu V, Flynn D, Abram S, Geach D, Jenkins D, McCallum P, Peacock A (2019) Blockchain technology in the energy sector: A systematic review of challenges and opportunities. Renew Sustain Energy Rev 100:143–174 Chaintope (2021) News release: Participated in the development and verification work of a system to electronically certify the environmental value of locally produced and consumed waste-generated electricity in Saga City, January 12. In Japanese https://www.chaintope.com/2021/01/12/saga_c arbon_neutral. Circular Economy Hub (2022) JEMS Inc. Plans to sell a traceability system for the manufacturing industry in January 2022. In Japanese https://cehub.jp/news/jems-circular-navi/

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Digital Cross (2022) NRI demonstrates system for tracking greenhouse gas emissions in the supply chain, March 3. In Japanese https://dcross.impress.co.jp/docs/news/003047.html. Ellen MacArthur Foundation (n.d.). Let’s build a circular economy https://ellenmacarthurfoundat ion.org/ Energy X Green (n.d). Decarbonization platform: C02 emissions management and carbon accounting platform, https://green.energyx.jp/. In Japanese Enokibori M (2019) Environmental information disclosure promoted by CDP and its use in financial markets, J of Life Cycle Assess 15(3): 242–248, July 2019. In Japanese FSA, METI & MOE (2021).Basic Guidelines on Climate Transition Finance (May 2021). In Japanese. https://www.meti.go.jp/shingikai/energy_environment/transition_finance/pdf/003_ 03_00.pdf. Fujitsu and Ridgelinez (2021). Started providing consulting services to support customers’ achievement of the SDGs and services to calculate and visualize CO2 emissions in supply chains, Fujitsu UVANCE, December 24. In Japanese https://pr.fujitsu.com/jp/news/2021/12/24.html Gawer A (2014) Bridging differing perspectives on technological platforms: Toward an integrative framework. Res Policy 43(7):1239–1249 Iansiti M, & Levin R (2004) Strategy as ecology, Harvard business Review, March, pp 1–11 International Renewable Energy Agency (2019). Blockchain: Innovation landscape in brief, IRENA https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Sep/IRENA_Blo ckchain_2019.pdf. PR Time (2021) JEMS Inc. A traceability system to support the transition to a circular economy in the manufacturing industry, November. In Japanese https://prtimes.jp/main/html/rd/p/000000 007.000065645.html. PR Times (2022) Asuene was certified as a CDP climate change consulting partner, August 25. In Japanese https://prtimes.jp/main/html/rd/p/000000131.000058538.html. Ministry of the Environment (2022) Formulation of various guides on the promotion of decarbonized management, April 26. In Japanese https://www.env.go.jp/press/110818.html Mitsui & Co., Ltd. (2022) Established e-dash Co. Ltd., a cloud-based service for CO2 emissions visualization and reduction: Official version available April 1. In Japanese https://www.mitsui. com/jp/ja/topics/2022/1242915_13393.html Na HK (2012) Diversity and dynamism of business ecosystem formation, J of Bus Innov Manag, pp 143–161. In Japanese Nomura Research Institute (2021) Nomura Research Institute, Ltd. develops carbon tracing system to support understanding of greenhouse gas emissions in the supply chain—started demonstration tests of a more accurate measurement system based on actual values, December 15. In Japanese https://www.nri.com/jp/news/info/cc/lst/2021/1215_1. NTT Data (2022) Launch of greenhouse gas emissions visualization platform, February 21. In Japanese https://www.nttdata.com/jp/ja/news/release/2022/022101/ Sumitomo Mitsui Banking Corporation (2021) Development of “Sustana,” a cloud service for calculating and visualizing greenhouse gas emissions and start of an advance trial, November 22. In Japanese https://www.smbc.co.jp/news/pdf/j20211122_01.pdf Tatsumoto H, Ogawa K, Shintaku J (2008) Profiting from technologies through international standardization and core technology management. J of Intellect Prop Assoc of Japan 5(2):4–11 In Japanese The Chemical Daily (2022) Sumitomo chemical, CFP calculation tool free of charge, leading the way to unify rules in the industry, 住友化学、CFP算定ツール無償で、業界内ルール統一を 先導 - 化学工業日報 (chemicaldaily.co.jp), March 23 The Japan Research Institute, Limited. (2021) Banking sector key to decarbonization of SMEs— urgent need to create a mechanism to provide multifaceted support, research focus, No.2021–045, December 27 The Nikkei (2021) Hitachi begins providing “CO2 calculation support service” for EcoAssistEnterprise, an environmental information management system, April 5. In Japanese https://www. nikkei.com/article/DGXLRSP607932_V00C21A4000000/

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The Nikkei (2022) Asuene; Daytona introduce decarbonization solutions for Asuzero, a cloud service for CO2 emissions visualization and reduction. https://www.nikkei.com/article/DGXZRS P634609_X10C22A6000000/ Toma M, Yokogawa N, Osawa H, Manabe S, & Hayashi M (2022) Concept of product carbon footprint calculation based on costing information and its system development, SCEJ 87th Annual Meeting, Kobe, March 13–15. In Japanese Toshiba Digital Solutions Corporation (2022) Collaboration with Zeroboard on GHG (Greenhouse Gas) Emissions Calculation and Visualization Service—Enhancing Cloud Services for Supply Chains to Achieve Carbon Neutrality, February 4. In Japanese https://www.global.toshiba/jp/com pany/digitalsolution/news/2022/0204.html. Toyoda Y (2021) The full scope and future vision of the Digital Grid Platform (DGP), which will lead to the expansion of renewable energy, Technology and Economy, December 2021. In Japanese Toyo Keizai Inc. (2022) Special Feature: 100 amazing ventures 2022 edition, weekley Toyo Keizai September 17–24, pp 42–131. In Japanese Uemura T, Hyakutake T, Minami T, Kobayashi Y, & Negishi M (2021) The need for a GHG emissions and decarbonization tracing system that links multiple entities toward real decarbonization, Knowledge creation and integration, Nomura Research Institute, June 2021. In Japanese Wingarc1st (2022) Launched EcoNiPass, a CO2 emissions visualization platform, May 31. CO2排 出量可視化プラットフォーム 「EcoNiPass (エコニパス) 」を提供開始|ウイングアーク 1st (wingarc.com). In Japanese Zeroboard (2021) Zeroboard Inc. conducts MBO of “zeroboard”, a cloud service for calculating and visualizing CO2 emissions, September 22. https://zeroboard.jp/151. In Japanese Zerobord (n.d). Zerobord News, https://zeroboard.jp/news. In Japanese

Nobutaka Odake is Executive Director of the Humanware Network Initiative. He is former Professor, Department of Techno-business Administration (2003-2017). He has a Ph.D. (Eng) from Nagoya Institute of Technology (2002) and a MD (Eng.) from University of Tokyo (1976). His research fields include (1) Innovation system and technology management such as manufacturing technology, agent system for knowledge creation and transfer, business development in manufacturing firms, academy-industry cooperation, regional development, (2) corporate behavior such as manufacturing management, SME networks, knowledge community, (3) regional economic development such as development of clusters, regional planning. He has experience with several companies before joining the university and visited more than one thousand SMEs and organizations. He is associated with various academies: the Academic Association for Organizational Science; the Japan Society for Science Policy and Research Management; the Japan Society for Production Management; the Japan Academy of Small Business Studies; the Society of Chemical Engineers, Japan; Japan Society for Intellectual Production; Japan MOT Society; Japan Association for Management Systems; International Society for Standardization Studies; Richard-Wagner Gesellschaft Japan. Anshuman Khare is Professor in Operations Management at Athabasca University, Canada. He joined Athabasca University in January 2000. He is an Alexander von Humboldt Fellow and has completed two post-doctoral terms at Johannes Gutenberg Universität in Mainz, Germany. He is also a former Monbusho Scholar, having completed a postdoctoral assignment at Ryukoku University in Kyoto, Japan. He has published a number of books and research papers on a wide range of topics. His research focuses on environmental regulation impacts on industry, just-in-time manufacturing, supply chain management, sustainability, cities and climate change, online business education, etc. He is passionate about online business education. Anshuman serves as the Editor of IAFOR Journal of Business and Management, Associate Editor of International Journal of Sustainability in Higher Education published by Emerald and is on the Editorial Board of International Journal of Applied Management and Technology.

Chapter 8

Digital Transformation and the Evolution of the Additive Manufacturing Business Yukako Harata and Nobutaka Odake

Abstract In this chapter, we focus on the players in the AM industry, one of the key technologies for DX, who are developing their service businesses, and identifies their roles and functions in the AM ecosystem through case studies. AM is attracting attention as one of the key technologies to realize digital manufacturing. Metal AM is shifting from prototype applications to product applications, and is increasingly being applied to high value-added products. Service bureaus that engage in contract processing utilize the strengths and networks of each company to provide solution services, including pre- and post-process support for the processing process. The highly specialized service bureaus have established a service structure that crosses the technologies of each specialist, such as machines, powder materials, and the fabrication processes. On the other hand, software companies are also selling machines and creating business models based on their own software platforms. In this rapidly changing market, it is suggested that not only service bureaus specializing in contract processing, but also solution providers who intervene from the stage of showing issues that can be approached by AM will play a keystone role that surpasses that of service bureaus. In addition to the efforts of these companies, there is also a movement toward public–private consortiums to promote the use of AM. The AM ecosystem has been led by AM suppliers represented by machine manufacturers, but in Japan, AM users are not only accumulating know-how and improving their technological capabilities, but also organically connecting with other companies to ensure openness and growth. This is expected to lead to market growth and the reorganization and sharing of upstream/downstream know-how and knowledge fixed at each layer. AM and the cloud manufacturing mechanism will enable DX that can be provided anywhere in the world at short delivery times without incurring logistics costs.

Y. Harata (B) Nagoya Institute of Technology, Nagoya, Japan e-mail: [email protected] N. Odake Humanware Network Initiative, Nagoya, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_8

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Keywords Industrial Internet of Things (IIoT) · Additive Manufacturing (AM) · Digital Manufacturing · Service Bureau · Business Ecosystem

8.1 Introduction Additive manufacturing (AM) using 3D printers is attracting attention as one tool to promote the digital transformation (DX) of the manufacturing industry. DX is not simply the introduction of digital tools, but refers to the transformation of business models through the use of digital technology. AM, also known as 3D printing, is defined by ASTM (American Society for Testing and Materials) Committee F42 as “a process of joining materials to make objects from 3D model data, usually layer upon layer, an opposed to subtractive manufacturing methodologies”. AM is a process that is suitable for customization, complex shapes, and multi-material manufacturing. AM has been considered an effective tool for meeting the needs of mass customization. AM technology is a digital manufacturing technique that directly links design and manufacturing, and is therefore expected to be a tool for reforming traditional manufacturing business models, via the realization of local cloud production systems (Hashiguchi et al., 2017) and the elimination of a physical inventory. Using AM technology can also significantly shorten the manufacturing process because it can digitize craftsmanship that was previously difficult to digitize into data. Furthermore, the use of 3D design shortens the design process and simplifies the work. As described above, there have been an increasing number of cases in which product or process innovation through the use of AM has greatly transformed business models in the manufacturing industry and realized a DX. On the other hand, the introduction of AM in industrial applications is not easy, and AM processing cannot be performed on the same day a machine is purchased, especially in the case of AM fabrication of metal products. It takes a considerable period of time to become proficient in using the machine. This chapter discusses examples of AM business entrants, analyzes their business models from an ecosystem perspective, and argues that growth in the ecosystem is essential for the expansion of the AM business as a means of DX.

8.2 Previous Studies Sisca et al. (2016) compare AM with conventional manufacturing methods and argue that AM offers significant product innovation in that it is a manufacturing technology that enables direct manufacturing and is good at customization and crafting complex shapes. They also state that process innovation can be realized by reducing the time from design to market. Mellor et al. (2014) focus on the transformation of the supply chain and point out that, theoretically, the only inputs needed for AM production are raw materials and data, and that the elimination of tooling will enable distributed

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manufacturing to meet demand. Niehues et al. (2018) also discuss the impact of AM on the supply chain, pointing out that it increases in-house production without relying on traditional suppliers, minimizes risk by distributing production sites closer to customers, and reduces the environmental impact by reducing inventory. They also emphasize the importance of building a network with external partners and customers in order to realize a supply chain that takes advantage of AM’s characteristics. In the AM industry, there has been a movement to view such networks as ecosystems (Conner, 2013). Takeuchi (2019), for example, states that there are many hurdles to overcome in AM, including business planning, design, materials, processing, finishing, quality assurance, standards, and data management, as well as the machine itself. She provided an example of an ecosystem in which a major European machine manufacturer compensates for these issues by collaborating with external partners, group companies, venture capitalists, etc. She stated that similar movements have started not only overseas, but also in Japan. Harata and Odake (2022) examine the role of service bureaus in the Japanese metal AM sector, noting that service bureaus are located at the nodes of machine manufacturers, material manufacturers, and user companies, and the business networks they build can be seen as an ecosystem. Pillar et al. (2015) pointed out that AM needs to be considered in the context of digital value chain activities and state that the AM ecosystem encompasses activities that combine both traditional manufacturing value chains and digital value chains in product design and distribution. Savastano et al. (2018) discussed how DX, including AM, is changing the manufacturing value chain through the examination of Italian companies. Arguing that business processes and business models need to be completely redesigned, they stated that AM is a manufacturing technology situated within a digital ecosystem. Wang (2018) argued that the challenge of reducing the time required for product delivery can be approached by equipping an intelligent manufacturing ecosystem that includes AM. In this way, there are two major ways to view AM from an ecosystem perspective. One is to consider the inter-company network formed by AM players that have entered the AM business as an AM ecosystem, and the other is to consider the digital manufacturing industry itself, including AM, as an ecosystem. The reason why the definition and scope of AM ecosystems are not unique may be due to the different characteristics of AM businesses that each study attempts to explain with the help of the “ecosystem” concept. Since “ecosystem” is a concept that is often used in practice and is quite versatile, we summarize the history of ecosystem research in order to clarify the definition and scope of the AM ecosystem used in this study. The concept of ecosystems was introduced to the field of business administration by Moore (1993), Iansiti and Levien (2004) established the framework of business ecosystems. An ecosystem requires three elements: a high degree of modularity, a high degree of coordination, and incentives for participating players. Tatsumoto (2017) summarized the characteristics of business ecosystem-type industries in three ways: (1) the existence of firms with different roles, (2) the formation of networks of firms with direct and indirect relationships among them, and (3) the emergence of very specific types of firms (platforms) with influence on industrial evolution. As for the firm species, or players in the ecosystem, Iansiti et al. drew

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on the concept of keystones as a metaphor from biology and proposed strategies to increase the health, productivity, and robustness of the business ecosystem. Keystone firms are those that increase the robustness of the network by continually investing in new innovations, integrating them, and providing reliable reference points and interface structures for other members of the ecosystem. They are also responsible for leveraging their position as hubs at the core of the network to create and share value with other members. While the individual members of a business ecosystem change like an ecosystem in biology, the system as a whole survives with its keystone. Ecosystems are also a concept that describes a collaborative mechanism among businesses, and have a high affinity for industries that require a high degree of modularity and coordination when the market is in its growth stage and a hierarchical market structure and well-developed supply chain have not yet been established. Based on the above, this chapter understands ecosystem as a concept that describes the organizational structure and business model that promotes open innovation by taking advantage of direct or indirect network effects, which is a shift from the organizational structure and business model of vertically integrated companies that tried to take maximum advantage of economies of scale and scope. This concept describes the movement of companies that intend to jointly develop new products and services and expand the market, especially in the AM industry, where the market is in a growth stage, a hierarchical market structure and a well-developed supply chain have not been established, and the players have not established businesses, services, or business models, but are in a state of flux. In order to describe the movement of companies that intend to expand, we use the concept of an ecosystem as a framework of network forms that can flexibly incorporate change. Based on the organization of Pillar et al. (2015), the scope of the AM ecosystem is classified into AM suppliers, AM users, and AM supporters as players involved in the AM business, and the network including the three parties and end users is considered to be the AM ecosystem (Fig. 8.1). AM is modular in that it combines components provided by various players to create optimal solutions, and because the interfaces between such components are not completely standardized, integration and coordination require time and skill (Heising et al., 2020). Such modularity and a high degree of coordination require an ecosystem for the entrant firms. There has been a tendency to call the closed networks formed by major European and U.S. machine manufacturers “ecosystems,” but this has not always been an appropriate analysis in light of the fluid and dynamic nature of these networks. It has been pointed out that the nature of the networks formed by AM suppliers, as represented by machine manufacturers, has resulted in high machine prices as well as a limited development of new materials which has hindered the growth of the AM market as a whole (Heising et al., 2020). On the other hand, the hypothesis of this chapter is that AM users, represented by emerging machine manufacturers and service bureaus, may play a keystone role in the AM ecosystem and enhance its soundness by forming an open, semi-open, autonomous, and decentralized ecosystem. This chapter not only describes ecosystems of the AM industry, but also examines what it means to grow as an ecosystem. In particular, considering its influence on the manufacturing industry as a whole, the target field is metal AM. In addition, the service bureaus included in the AM users discussed in

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Fig. 8.1 Ecosystem of company A

this chapter are organized as follows. Mizuno (2018) classifies the nature of service bureaus into two main categories. One is a service bureau that specializes in 3D printers. These service bureaus provide highly convenient services for individual users, such as allowing users to submit data via the Internet and settle payments by credit card. On the other hand, many of these services do not include post-processing, making them more suitable for prototyping. The other type of service bureau is a traditional prototype manufacturer providing contract manufacturing services, which often includes the post-processing process to ensure the quality of the final product. In these cases, companies, that originally engaged in prototyping by using cutting and injection molding, provide contract manufacturing services using 3D printers in addition to their existing prototyping services. Although the price is higher than in the above-mentioned case, some companies request the entire process, including before and after processing, as well as the creation of 3D data and mass production. This chapter focuses on the latter type of service bureau. This study is a hypothesis-testing case study. The research method was based on previous studies, lectures/seminars, and interviews with survey targets. Through the case studies of AM users in the following sections, the hypotheses about the roles and functions of AM users in the AM ecosystem derived in the previous section are tested in the discussion section.

8.3 Case Study on AM User In this section, we discuss two examples of AM users: a service bureau that provides contract processing services and a solution provider that uses proprietary software and workflows.

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8.3.1 Service Bureau Service bureaus are companies that provide business services for a fee. Many service bureaus focus on contract manufacturing, receiving drawings and data, and outsource design. Most of them are small to medium-sized companies, and in many cases, they also sell machines. Service bureaus must consider total process design, including pre- and post- fabrication processes, in addition to the design capability of the fabrication process. It is also necessary to discuss the certification and standards with the customer in advance. Especially in the case of mass production, it is necessary to specify the work to be performed so that there is no difference in the maintenance of the machine and powder materials among operators. Although there are dozens of service bureaus in Japan that provide metal AM services, the range of processing services that can be provided is quite limited unless the company owns multiple machines, due to the fact that different machines can use different mediums and that replacing material powders is time-consuming. Therefore, we selected case studies of service bureaus based on the number and type of machines they operate, and selected the case of Company A. The company is the first service bureau in Japan to provide integrated services, from material powder production to processing and support for certification acquisition, in the metal AM field. It was established as a joint venture between Company B, which has strength in casting technology, and Company C, a general trading company that is also involved in joint research with the Institute for Materials Research at University D. In September 2020, Company A entered into a technical alliance with Company E, which specializes in automotive R&D, to jointly provide services related to DfAM (Design for Additive Manufacturing). The partnership will combine the design and analysis technologies of Company E, which specializes in automotive R&D, with Company A’s AM technologies to provide integrated services from design and prototyping to manufacturing, including product development that takes full advantage of AM features such as optimization of part shape and integration of multiple components using DfAM, as well as analysis to optimize the function and structure of materials used in parts. This is the first time for the company to offer such services in Japan. In addition, in October 2021, the company entered into a technical alliance with Company F, which excels in highly efficient powder production through gas atomization, in order to provide one-stop service from powder prototyping to processing and evaluation. In April 2022, Company A started joint sales, order-taking, and manufacturing activities with Company G who is in the same business. Through the collaboration, the two companies hope to apply a business model of practical, small volume production, applying Company G’s lead in resin 3D printers to the metal AM field, and to share their networks, knowledge and know-how. Figure 8.1 summarizes the business network described above. The number of collaborative partners is expected to increase further in the future.

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8.3.2 Solution Provider The contract processing services provided by service bureaus have several restrictions such as the time required to remove support materials and replace powder materials in the post-process is large, in many cases, existing products are fabricated by AM because the customer prepares 3D data and passes it to the service bureau due to the issue of the demarcation point of responsibility, and genuine products are required in terms of software and powder materials. On the other hand, there are signs of change in the AM market with the development of technology and software. In this section, we describe the case of Company H, as a company that is growing its AM ecosystem through a service business that is not contract processing. Company H, founded in 1927, is a small to medium-sized manufacturing company specializing in steel processing which entered the AM business in 2016. The company was initially involved in contract manufacturing of metals and resins, but stopped contract manufacturing of metal products in 2019, and established its own “AM optimized design workflow” based on 3D model data diagnostic software I and optimization simulation tool J, which it had begun to develop in-house, and 3D CAD (Computer Aided Design) engineering software developed by Company K in the United States. One of the challenges of AM is that it takes time to acquire processing know-how, and software I is a tool that addresses this issue. 3D model data is read in as STL (Stereolithography) or STEP (Standard for the Exchange of Product Data) files, and a diagnostic method is selected for prototyping or mass production. The type of processing machine, materials, etc. are selected, and the model data, design data, and processing machine are adjusted based on the derived diagnostic results. Japanese Society of Additive Manufacturing, a consortium in which Company H is a member was established in March 2022, taking over the activities of Kansai3D Practical Application Project, which began in 2014 as a public–private partnership, and its promoter, the L Association (Japanese Society of Additive Manufacturing, 2022; Kansai Bureau of Economy, Trade and Industry, 2022). The consortium consists of more than 40 companies, including Company H, and aims to contribute to the development of the manufacturing industry in Japan and around the world by improving and disseminating AM technologies and enhancing the quality and performance of AM modeling products. In Kansai-3D Practical Application Project, the consortium conducted verification of the introduction of AM tools such as 3D design and 3D printers in various fields, including robotics, machinery, and medical devices, at each of the three stages of “design/design,” “modeling/post-processing,” and “evaluation of modeled products” with collaborating companies, including machine manufacturers and software makers (Fig. 8.2). The project has been evaluated highly as a test ground in which not only the company and its departments, but also people with various skills and positions can participate, and the participating companies have come to recognize AM technology as “a technology that provides opportunities for small and medium-sized companies to enter upstream processes such as design and development” (The Nikkan Kogyo Shimbun, 2021a; The Nikkan Kogyo Shimbun, 2021b). The association will further recruit regular and supporting members in related

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Fig. 8.2 Project scheme (New Switch, 2021a)

technical fields, and will engage in activities such as events to disseminate the latest information, technical consultation and introduction support for user companies in each process, introduction of reference user cases, provision of human resource development programs, collaboration of various solutions by member companies in each field, and provision of opportunities for user companies to collaborate (Japanese Society of Additive Manufacturing, 2022). Such consortiums are expected to be the soil from which AM users such as Company H will emerge in the future.

8.4 Discussion AM technology is attracting attention as a key component to realize product and process innovation as well as to bring DX to the manufacturing industry. On the other hand, AM is only a means to an end, and as we have seen, many hurdles must be overcome before AM can be utilized. The means for overcoming these hurdles lie in the fact that AM grows as an ecosystem, not as a stand-alone entity in the company. While the AM ecosystem has been led by AM suppliers (i.e., machine manufacturers), this chapter focuses on the roles and functions of AM users who develop service businesses, such as service bureaus and solution providers. Highly specialized AM service bureaus such as Company A have established a service system that links the technologies of each specialist, such as machines, powder materials, and fabrication processes. Those service bureaus solve problems by integrating products and services. What makes such services and businesses possible is intellectual asset management, which has strength in the accumulation and utilization of data, and is expressed in the form of AM platforms. Although the platforms are not yet completely open, they are considered to be growing in a semiopen ecosystem, as it meets the aforementioned conditions, in addition the number of players participating in it changes over time.

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While these service bureaus play an important role in the AM ecosystem, such as Company H, are newcomers to the market. The company’s software development is considered to be an advantage because the company is engaged in its own contract processing business and has a user’s perspective as well as a sense of the complex issues involved in AM technology. Company H is a unique case in the Japanese market, where many companies enter the AM industry through machine sales or contract processing. Although a trading company specializing in steel products, Company H has an integrated in-house system that includes modeling machines, materials, software, and post-processing, and its unique workflow enables it to propose essential solutions that address the issues that customers want to solve through AM. This is made possible by the company’s ability to handle the production of custom-made products, which it has acquired through its existing specialty steel processing business, its core business. What the company is doing in this workflow is a key part of digital manufacturing. It is conceivable that more and more AM users from among the members of Kansai-3D Practical Application Project and Japanese Society of Additive Manufacturing, like Company H, who use software as a weapon, could become the kind of platformer discussed by Takanashi (2017). Unlike business models that are based on the principle of receiving data from customers, this suggests that solution providers who intervene from the stage of showing issues that can be approached by AM will play a keystone role that surpasses that of service bureaus. There are also some signs of change that will affect the existing ecosystem, such as the evolution of CAD/CAE (Computer Aided Engineering) software, the decrease in machine prices, and the expansion of third-party materials products. In the case of the evolution of CAD/CAE software, companies, such as Company H, can develop a service business based on their software platform and navigate new entrants. In addition, the expansion of third-party material products will lead to an innovation in material platforms that had once been held by machine manufacturers leading to the formation of more open material platforms. Service bureaus must continue to manage their knowledge assets in the midst of these changes so that they do not remain merely as subcontractors in the machining processes. They must grow an ecosystem that works combining material and machine manufacturers by leveraging their proximity to customers to understand their potential needs, and by providing value-added services, including virtual services such as software and design platforms, as well as physical services such as training in the use of machine, design tools, and screening of components. In the future, AM will be utilized as a means of mass production in an increasing number of cases, and competition with the manufacturing ecosystem in some existing methods is expected to emerge. While such competition promotes market growth, there will be also a struggle for profitability among entrants in the ecosystem. While competition will promote market growth, there will also be a struggle for profitability among those within the ecosystem. In the process of forming a more open ecosystem, the upstream/downstream know-how and knowledge fixed at each layer (AM supplier, AM user, and AM supporter) will be reorganized and shared.

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The basis of DX is the repetition of value creation through data accumulation, capitalization, analysis, and utilization. It is important for AM users to create intellectual assets through data accumulation systems and to provide a platform for both customers and suppliers. The technology of AM and the cloud manufacturing mechanism will enable DX that can be provided anywhere in the world at short delivery times without incurring logistics costs.

8.5 Summary In this chapter, we focused on the players in the AM industry, one of the key technologies for DX, who are developing their service businesses, and identified their roles and functions in the AM ecosystem. It is clear that many of the actors driving the DX of manufacturing using AM are small and medium-sized companies, and that the ability to organize partnerships, manage intellectual assets, and build service businesses is important for their own growth and the growth of the ecosystem. The creation of new business models is expected to continue in the future by utilizing AM technology, which can realize various product and process innovations. The AM ecosystem has been led by AM suppliers represented by machine manufacturers, but in Japan, AM users are not only accumulating know-how and improving their technological capabilities, but also organically connecting with other companies to ensure openness and growth. This is expected to lead to market growth and the reorganization and sharing of upstream/downstream know-how and knowledge fixed at each layer of AM suppliers, AM users, and AM supporters.

References Conner C (2013, September 13) ‘3D printing is an ecosystem, not a device’ : Jennifer Lawton, MakerBot. Forbes. http://www.forbes.com/sites/cherylsnappconner/2013/09/13/3d-printing-isan-ecosystem-not-a-device-jennifer-lawton-makerbot/, Accessed October 23 Harata Y, Odake N (2022) Kinzoku 3D printer business no genjou to kadai: Service bureau no yakuwari ni kansuru kenkyu (Current status and issues of metal additive manufacturing business in Japan: Focusing on the service bureau). Ann of the Soci for Ind Studies, 37:173–181. In Japanese Hashiguchi N, Kodama K, Mitsufuji T (2017) Ryousankoutei ni okeru 3D printer ni kansuru innovation (Innovations on 3D printers in mass production processes). Nenjigakujutsutaikai Kouenyoushisyu (abstracts of Annual Academic Conference) 32:82–85. In Japanese Heising W, Pidun U, Krüger T, Küpper D, Schüssler M (2020) Additive manufacturing needs a business ecosystem. BCG Henderson Institute, Boston Iansiti M, Levien R (2004) The keystone advantage: What the new dynamics of business ecosystems mean for strategy, innovation, and sustainability. Harvard Business School Press, Boston Japanese Society of Additive Manufacturing. (2022, March 17) 日本のAMによるものづくり が世界に追いつき追い越すために『(一社)日本AM協会が大きな推進力として発進しま す!』. https://jsam.or.jp/sys/wp-content/uploads/20220317.pdf, In Japanese. Accessed October 23

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Kansai Bureau of Economy, Trade and Industry. (2022, March 17) “今熱い! 3D 積層 造形技術”新たな業界団体『(一社)日本 AM 協会』が普及・実用化を加速~会員企業数 800 社超の局主導プロジェクトは団体主導に~. https://www.kansai.meti.go.jp/3jisedai/pro ject/3Dkansai/press/20220317_newsrelease.pdf, In Japanese. Accessed October 23 Mellor S, Hao L, Zhang D (2014) Additive manufacturing: A framework for implementation. Int J Prod Econ 149:194–201 Mizuno M (2018) Wakaru! Tsukaeru! 3Dprinter nyumon (Understand! Use it! Introduction to 3D printers ). Nikkan Kogyo Shinbun, Ltd., Toky. In Japanese Moore JF (1993) A new ecology of competition. Harv Bus Rev 71(3):75–86. In Japanese Nieheus S, Berger L, Henke M (2018) Additive manufacturing in supply chains—the future of purchasing processes. Proceedings of the Hamburg International Conference of Logistics (HICL) 25:79–95 Pillar FT, Weller C, & Kleer R (2015) Business models with additive manufacturing—opportunities and challenges from the perspective of economics and management, advances in production technology, 39–48 Savastano M, Amendola C, & Ascenzo FD (2018) How digital transformation is reshaping the manufacturing industry value chain: The new digital manufacturing ecosystem applied to a case study from the food industry, network, smart and open, 127–142 Sisca FG, Angioletti CM, Taisch M, & Colwill JA (2016) Additive manufacturing as a strategic tool for industrial competition, 2016 IEEE 2nd international forum on research and technologies for society and industry leveraging a better tomorrow (RTSI), 1–7, https://doi.org/10.1109/RTSI. 2016.7740609 Takanashi C (2017) Monodukuri kigyou no platform kouchiku to sono youken: CPS to service ka no siten kara (Tips of construction of platforms by device makers from the perspective of CPS and servitization). J of Sci Policy and Res Manag 32(3):316–333. In Japanese Takeuchi N (2019) AM ni yoru ryousanjirei to syuhengijutsu no juyousei (Examples of Mass Production by AM and the importance of peripheral technologies). Kikaigijutsu (Mechanical Engineering) 67(12):38–41. In Japanese Tatsumoto H (2017) IoT ecosystem no syouraizou (Future of IoT Ecosystem). J of Sci Policy and Res Manag 32(3):279–292. In Japanese The Nikkan Kogyo Shimbun (2021a, March 31) 「Kansai-3D実用化プロジェクト」が挑む!3D 積層技術によるモノづくりDXの実践と課題. New Switch. https://newswitch.jp/p/26504, In Japanese. Accessed October 23 The Nikkan Kogyo Shimbun (2021b, June 9) 「Kansai-3D実用化プロジェクト」が挑む! Additive Manufacturingの可能性とかなえる未来. New Switch. https://newswitch.jp/p/27494, In Japanese. Accessed October 23 Wang B (2018) The future of manufacturing: A new perspective. Engineering 4(5):722–728

Yukako Harata works for energy company in charge of new business development and is a Ph.D. student at Nagoya Institute of Technology. She received a M.D. (Philosophy) from Nagoya Institute of Technology, Techno-business Administration. Her research topic is business integration on such as metal 3D printing and renewable energy. She is a member of several academic societies, including the Japan Society for Production Management. Nobutaka Odake is Executive Director of the Humanware Network Initiative. He is former Professor, Department of Techno-business Administration (2003-2017). He has a Ph.D. (Eng) from Nagoya Institute of Technology (2002) and a MD (Eng.) from University of Tokyo (1976). His research fields include (1) Innovation system and technology management such as manufacturing technology, agent system for knowledge creation and transfer, business development in manufacturing firms, academy-industry cooperation, regional development, (2) corporate behavior such as manufacturing management, SME networks, knowledge community, (3) regional

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economic development such as development of clusters, regional planning. He has experience with several companies before joining the university and visited more than one thousand SMEs and organizations. He is associated with various academies: the Academic Association for Organizational Science; the Japan Society for Science Policy and Research Management; the Japan Society for Production Management; the Japan Academy of Small Business Studies; the Society of Chemical Engineers, Japan; Japan Society for Intellectual Production; Japan MOT Society; Japan Association for Management Systems; International Society for Standardization Studies; Richard-Wagner Gesellschaft Japan.

Part V

Human Resources

Chapter 9

Digital Transformation in Japan: Potential in Human Resources Anna Maria Dzienis

Abstract Japan’s manufacturing sector is one of the most technologically advanced in the world. However, when compared to other developed economies, it falls behind in terms of the overall performance of digital transformation (DX). To explain and find the reasons for Japan’s lag in that regard one should look into the country’s specific socio-economic and cultural context, which has shaped mindsets, behaviors, practices, and values. Japanese employers used to rely on traditional employment practices and the young hires thought of a hiring company as the one they would commit to for a lifetime. As one of the consequences, their otherwise highly educated human resources acquired firm-specific skills, not necessarily corresponding with the market needs. The recent acceleration in digitalization of the economy triggered by the COVID-19 pandemic underscored the shortcomings of the system. Limited flexibility in the labor market severely restricts mid-career workers’ options for career changes. The urgent need to reskill employees collides not just with the workload, but is further hampered by little incentive to learn new skills, and a general lack of motivation. Yet, signs of hope can be seen in recent companies’ initiatives, engagement in the development of IT training courses, and their increasing awareness of human resources being at the heart of DX, proving that the speed of change has increased and that the shift is towards empowering talent. Keywords Digital transformation · Japan · Human resources · Reskilling · Skills

9.1 Introduction There are certain pressures that “make digital transformation Japan’s fate” (Khare et al. 2020, p. 9). Two of them that may come to mind first are generational change and population drop—both of which act in different directions. The first one would enable digital transformation (DX) through technologically-versed young people. The latter comes with additional challenges which could become a barrier to DX as, A. M. Dzienis (B) SGH Warsaw School of Economics, Warsaw, Poland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_9

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even though the society is aging, not many foreign workers are being permitted to work in Japan (Khare et al. 2020). The gradual nature and pace of these pressures do allow for working out the optimal approach towards the change and e.g. focus on robotization. However, digital transformation is, by its nature, a radical change (Hinings et al. 2018). It derives from various digital innovations and revolutionizes the ways of thinking and acting in almost every aspect of life. But, as Hinings et al. 2018 point out, even if we are faced with a need for such a radical change, its actual progress can be challenged and stalled by “existing institutional arrangements” (Hinings et al. 2018, p. 57). The recent COVID-19 pandemic has only reinforced the need for swift digitalization in Japan. It exposed delays in digitization in the government, local authorities, and society, showing a shortage of human resources, and inefficiencies due to a lack of systemic cooperation. About 56% of companies in Japan (compared to 79% in the US) are working on DX, but few have achieved sufficient results (IPA 2021). The results of the Executive Opinion Survey conducted by the IMD World Competitiveness Center uncovered more disturbing facts. The assessment of business performance in pre- and during the pandemic differs strongly. In the IMD World Competitiveness Ranking 2022, Japan was placed 34th among 63 countries, down by 9 ranks from 2018. The assessments of digital transformation in companies dropped from the 44th position in 2018 to 63rd in 2022. In the most recent IMD Digital Competitiveness Ranking Japan went 7 ranks down since 2018. While Japan’s indexes for tertiary education, robots distribution, robots in education, and R&D are the highest in the world, this is in stark contrast to the availability of general digital/technological skills (62nd position in 2022), the use of big data and analytics (63rd), and the agility of companies (63rd), which are far below expectations (IMD 2022). In short, the results point to general dissatisfaction with digital skills in companies. Among many actions undertaken by institutions, the Ministry of Economy, Trade and Industry (METI 2021) set up a study group on human resources policy in the digital age. It advocates for reskilling as a universal human resources strategy in the DX era. But while demand for retraining grows globally, only 35% of Japanese workers participate in retraining programs. The share of adults participating in formal or non-formal job-related training is visibly lower than the OECD average, especially for women and non-regular workers. Job-training curricula provided by the state and local governments are prepared mainly by bureaucrats and tend to differ not only from the employers’ actual needs but also from the needs of society (OECD 2021a). Regular workers in Japan have no time to learn new skills (OECD 2021a), the word re-education itself is negatively associated with “being in the restructuring candidate group” (Suzuki 2021). Managers look for excuses not to be digitally competent themselves, e.g. giving priority to soft skills and leadership alone and would rather commission their subordinates to learn new digital skills (Fujisaka 2022). The sociocultural context for change is a key to understanding the way digital transformation happens in Japan. “There is always an interaction between the new and the old because of the embedded nature of socio-cultural expectations and the importance of legitimacy” (Hinings et al. 2018, p. 58). It can also be seen as an interaction of Western

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and traditional, and an attempt to fit DX into the Japanese unique socio-economic and cultural system. This chapter seeks the answers to the following questions: What are the strengths and weaknesses in terms of Japanese workers’ attitudes towards reskilling for digital transformation? What are the (socio-economic and cultural) enablers and barriers to the digital transformation of the Japanese population? Could they explain the contradictory image of the innovative but digitally old-fashioned Japan? The paper begins with a diagnosis of Japan’s advancement in digital transformation against the performance of other economies and continues with a literature review on digital transformation in the country with a key focus on employment practices and workers’ training. The subsequent sections address these issues from three perspectives: Japanese business culture versus digital culture, traditional employment practices shaping people’s attitudes towards work, and employers’ initiatives for digital transformation.

9.2 Key Statistics of Japan’s Digital Advancement Among the crucial technologies for the acceleration of digital transformation, OECD mentions mobility, cloud computing, the Internet of Things (IoT), artificial intelligence (AI), and big data analytics. The organization points to the fact that between the years 2013 and 2016 China, Chinese Taipei, Japan, Korea, and the US accounted for creating 70% to 100% of “the top 25 cutting-edge digital technologies” (OECD 2019, p. 15). Over the mentioned time and group of countries, Japan and Korea had been developing technologies in all ICT fields, together covering from 7% to approx. 68% of total patenting activities in ICT domains. Korea and Japan also lead in robot density in manufacturing, being the stock of robots proportionate to employment (OECD 2019, p. 30). In several sectors, particularly in manufacturing, the level of advancement in digitalization in Japan is one of the highest worldwide. Japanese firms belong to leaders among the OECD countries in cloud computing usage. Nevertheless, the use of advanced technologies is more frequent in large companies and the gap between them and SMEs has been growing (OECD 2021b). Another factor enabling digital transformation is fiber-optic network infrastructure in the implementation of which Korea and Japan are two out of the five OECD countries where fiber optics account for the majority of broadband connections (OECD 2019, p. 98). On the other hand, the share of people using the internet to communicate with public authorities was a mere 7%, compared to over 80% in Nordic countries (56% in 2018 for OECD countries average). In the case of Japan it is hard to say that “public authorities are embracing digital technologies to make processes, services and information more easily accessible and less burdensome” (OECD 2019, p. 126). The pandemic underscored deficiencies as households, firms, and the government strived to employ digital technologies. The use of digital services by the government remains relatively low. Individuals who use the internet to send filled forms to public authorities accounted for 8% in Japan, while the average for G7 was 30% in 2019

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(OECD 2021b, p. 11). People strongly rely on traditional practices and etiquette based on personal contact, omnipresent paper documents, signature in a form of a stamp (hanko), message circulation by facsimile, and other examples of outdated technology. Schools have been too underinvested and undertrained to make substantial use of new technologies and integrate them into their curricula. In higher education, a comparatively low number of students, notably women, chose Science, Technology, Engineering, and Mathematics (STEM) disciplines (OECD 2021b, p. 11). Digital problem-solving among the adult population is relatively good, as 42% of adults, compared to the OECD average of 32%, have solid skills in this regard. Nevertheless, about 25% of adults lack basic ICT skills, whereas the OECD average stands at 19% (OECD 2021b, p. 84). This fact suggests that the skills necessary to utilize and promote digital technologies are not widespread, which stresses the significance of redesigning institutional support to more accurately target people who need upgrading skills and reskilling and thus facilitate their adaptation to new challenges (OECD 2021b, p. 84). Moreover, fewer Japanese students compared to the OECD average have a chance to work with computers in schools (the number of digital devices at school is sufficient in only 27% of cases—59% for the OECD average). They also spend less time on the internet during both school and spare time. Only 27.3% of teachers (65% OECD average) possess basic technical and pedagogical skills to include digital devices in education, thus being “the least prepared to use ICT resources in the OECD” (OECD 2021b, pp. 85–86). Besides, Japan along with Korea are the only economies where “the average ICT task intensity of jobs held by men markedly exceeds that of women” (OECD 2019, p. 170). The aforementioned Digital Ranking is based on the results of the annual IMD survey among managers and supports OECD findings. In 2022 Japan was ranked 29th (22nd in 2018) among 63 countries in terms of overall digital performance. The three factors constituting the index, namely: knowledge, technology, and futurereadiness, were scored 28th, 30th, and 28th respectively. Talent ranked 50th was among the worst performing sub-factors. It was weakened by the lack of international experience (64th), skills, and a shortage of foreign, highly skilled personnel. The survey’s findings point to management being unable to respond to the fast-changing business environment and new challenges, insufficient complementary investments in R&D, in people’s training and organization’s reform, and a regulatory framework not favorable for digitalization (OECD 2021b, p. 72).

9.3 Literature Review Gong and Ribiere (2021), after conducting a thorough review of published definitions of digital transformation, proposed a unified definition of the phenomenon: A fundamental change process, enabled by the innovative use of digital technologies accompanied by the strategic leverage of key resources and capabilities, aiming to radically improve

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an entity* and redefine its value proposition for its stakeholders. (*An entity could be: an organization, a business network, an industry, or society) (p. 12)

The definition clearly states the goal of the change—a radical improvement— and stresses the role of digital technologies and available resources in the strategic management of the process. The authors indicate the significance of the “people factor” for digital transformation and state that both the “mindset of executives and the “commitment, skills or innovative ideas of employees matter” (Gong and Ribiere 2021, p. 13). Khare et al. (2020) emphasize the meaning of changes in thinking and behaviors, without which substantial changes in the digital landscape are not possible (p. 4). Digital transformation involves the destruction of a system’s structure (be it e.g. organization or society) through multidimensional and simultaneous actions in a short time (Gong and Ribiere 2021, p. 10). Hinings et al. (2018) say that the changes associated with the digital transformation “threaten, replace or complement existing rules of the game within organizations, ecosystems, industries or fields”, and as they lead to the rise of new organizational forms, digital transformation is institutional change (p. 55). Japanese firms and managers are aware of the urgency for change. However, how they adapt and the extent to which these changes influence traditional Japanese management practices is still unknown (Haghirian 2016). Pudelko and Haak (2005) explain that to meet the demands of the global business environment, the Japanese management model faces the challenge of balancing “continuity and change” (p. 18). Japan, however, is not famous for its rapidly changing environment (Khare et al. 2020). Unique traditional business practices like lifetime employment and the seniority principle have an impact on the functioning of Japanese firms (Haghirian 2016) and influence both employees and employers (Herbes and Goydke 2016). Lifetime employment adds to the strength of Japanese firms in facilitating their implementation of long-term growth strategies, but at the same time explains their weakness in addressing swift changes (Pudelko 2005, p. 189). Japanese companies used to train workers in-house to strengthen their loyalty (Herbes and Goydke 2016). This lengthy and strenuous process resulted in developing generalists instead of specialists (Haghirian 2016), lowering workers’ eventual employability and empowerment. Japan has concentrated on technical education and preferred accumulation of experience over acquiring specific skills and building managerial competencies. Japanese leaders are described as men usually belonging to the labor pool of a company and who have earned their career path to become a manager, but they do not constitute “a class of their own” (Herbes and Goydke 2016, p. 211). However, in the context of digitalization, and as the Japanese labor market is evolving due to factors such as increased job mobility and more opportunistic behavior of employees (Debroux 2016, p. 162), the lack of personal determination and technical skills, especially in a group of present decision-makers, may become the key challenge for Japan (Khare et al. 2020, p. 12). As specialized knowledge lies at the heart of digital transformation (Platt 2020), multi-faceted professional training and skills acquisition programs offered by firms

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will become crucial for executing digital transformation not only in a company but also in society. The education sector is governed by central authorities, for whom neither modernization nor risk-taking come easily (Khare et al. 2020), hence “alternative learning platforms and the global movement toward lifelong learning may face resistance from the Ministry of Education, Culture, Sports, Science and Technology (MEXT) (Platt 2020, pp. 26–27). This is why a business may play a key role in upskilling and reskilling the workforce and in engaging authorities in the process.

9.4 Digital Culture and the Main Characteristics of Japanese Business Culture WEF (2021) states that an organization has a strong digital culture when its decisionmaking process is based on “digital tools and data-powered insights”. Such an organization would also constantly innovate and collaborate across its structures. The authors state that active promotion and implementation of digital culture stimulate “sustainable actions and value for all stakeholders” (WEF 2021). According to WEF, digital culture is defined as being highly flexible and possessing a labor pool able to find answers to new challenges. It contributes to companies’ competitiveness by three means: “adapt to rapidly changing business environments, effectively use technology, deliver (sustainable) stakeholder impact” (WEF 2021). Furthermore, since an organization’s culture reveals itself in workers’ behaviors and mindsets which are embedded in the firm’s practices and values, which themselves have a role in shaping that organizational culture, cultural transformation is everything but a simple process. The difficulty lies in the need for a simultaneous change in all dimensions: the behaviors and mindsets, the organizational practices, and the company values (WEF 2021). An organization’s cultural transformation is even more complex in Japan, as it is strongly influenced by the general business culture of the nation. Schaede (2020) describes this challenge through the lens of Michele Gelfand’s tight-loose culture theory. Japan’s social culture, business culture specifically, represents a tight culture with clear social norms of behavior, and low tolerance against norm-violating behavior. Japan’s culture is “characterized by strong norms for what constitutes the “right” behavior, as well as strong mechanisms for ostracizing deviants” (Schaede 2020, p. 10). In business relations being polite, behaving appropriately, and not causing any problems, such as making disruptive decisions, is a standard in Japan. Yet, when compared with what WEF (2020) presents as a framework for companies to motivate them to rethink their business model and become more attuned to the “digital mindset”, the Japanese traditional way of doing business does not seem so contrasting. Stakeholder (Herbes and Goydke 2016) and social needs-centered approaches (see Table 9.1) named purpose, social responsibility, and ecosystem together with a longterm perspective have always been present in Japanese business culture. The rules

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Table 9.1 “Seven guiding principles to shift how human capital is valued” (WEF 2020, p. 13) From

To

1

Profit: value for a narrow group of stakeholders

Purpose: shared value between the workforce and a broad group of stakeholders

2

Corporate policy: complying with code of conduct in the workplace

Social responsibility: living corporate values in the community

3

Stand-alone: the organization as a stand-alone entity

Ecosystem: the organization as an integral part of the communities in which it operates

4

Employees and jobs: process-centric matching people to fixed roles

People, work and skills: human-centric empowering talent to focus on meaningful, non-routine work

5

Workforce as an experience: testing talent as a disposable business expense

Workforce as an asset: valuing talent as an asset

6

Backward-looking financial metrics: focusing on past financial performance

Forward-looking value metrics: focusing on the future potential for value creation

7

Quarterly: short-time view

Generational: time agnostic

by which modern organizations function are recognized as parts of a system shaped by a community (kyodotai) that organized everyday life in the Tokugawa period (pre-industrial) village, mura, (Yoshino 1992; Brown 1966) in which economic cooperation and solidarity were basic features (Haghirian 2016, p. 25). These were transferred to the city and its business life during the time of fast industrialization and acute workforce shortages, by migrants from rural areas. An organization thus cared about workers’ socialization to strengthen kyodotai, valued long-term service, and respected elders (Yoshino 1992; Brown 1966). It reinforced a hierarchy with roots in both familism and feudalism guiding individuals through their roles in the organization and defining ways of communicating with colleagues (Dzienis 2021). Until the late 1980s Japanese companies, kaisha, were greatly competitive, successful and their management practices were universally praised (Schaede 2020). As reality started to change quickly in response to increasing global competition enhanced by technological advancement, the traits that constituted the strengths of a Japanese traditional organization began to appear as weaknesses (Pudelko 2005). Schaede (2020, p. 2) observes what she calls the “reinvention” of Japan’s business environment, which is prompting the transformation of employment practices and work processes in the country, and may even lead to the “end of the kaisha”. Nonetheless, a Japanese company generally continues to be a “social entity”, it contributes to the stable growth of the country, shapes workers’ identity, strengthens the community, and fosters progress (Schaede 2020 p. 15). What differs compared to the guidelines proposed by WEF (2020) is the approach to workforce or talent. Current firm-specific skills systems, long-term regular employment dominated by men, process-related routine work overload, and savingsfocused ways of doing things make it difficult for Japanese companies to shift their perception of human capital to one based on forward-looking value metrics

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as explained in “people, work and skills”, and “workforce as an asset” (see Table 9.1). Several efforts have been made to lay the groundwork for the change in working culture and the socio-economic system in Japan. Since 2016 the government has been involved in the implementation of the so-called Society 5.0. The government defines Society 5.0 as a way of solving various social issues by incorporating new technologies (IoT, robots, and AI) into the economy, industry, and social life (Cabinet Office 2018). The concept intends to open up the discourse of innovation from science and technology to all aspects of socioeconomic life (Sugiura 2021). Keidanren sees Society 5.0 as a vision of a society “where digital transformation combines with the imagination and creativity of diverse people to solve social problems and create new value” (Keidanren 2019). The Federation characterizes Society 5.0 by five elements: problem-solving and value chain creation (in opposition to economies of scale in Society 4.0 concept), diversity (vs. uniformity), decentralization (vs. concentration), resilience (vs. vulnerability), and sustainability and environmental harmony (vs. high environmental impact and mass consumption of resources) (Keidanren 2018). The idea of Society 5.0 also signals the importance of meeting global norms for Japan. The country’s failure in this regard “could leave Japan stranded in closed-product ecosystems” (Hirayama and Rama 2021). The government is providing an apparent mandate for change, but it collides with cultural aversion to risk. Also, despite the declining population, Japan is more compelled to innovate relying on its ingenuity, rather than importing talent (Casati 2019).

9.5 Traditional Practices and Attitudes versus Reskilling for DX Currently, only approx. 5% of training for employees or job seekers is done by public institutions, since the general policy supports firm-based training. This results in prioritizing firm-specific skills, which does not necessarily help workers who face the need for reskilling or changing employment caused by digital transformation (OECD 2021b, p. 92). Hence, even though Japanese people are at the top of global skill surveys in literacy and numeracy proficiency (PIAAC, PISA by OECD), relatively few adults chose learning after joining the labor market. The traditional employment system in Japan used to be defined by three characteristics: long-term (or lifetime) employment (shushinkoyo), seniority principle (nenkosei), and company union (kigyobetsu kumiai). These practices have produced the specificity of Japan’s modern socio-economic order. Attachment to predictability, stability, and security has been reinforced by seniority-based career development, internal training designed to acquire firm-specific skills, and an employer’s inability to dismiss an employee. Workers were trained to deliver a range of duties in a company depending on current requirements. Yet, the system supplied people with skills that did not correspond with market needs (Dzienis 2021). Long hours spent at

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work plus an overload of general tasks have discouraged employees from engaging in recurrent education. Furthermore, employment practices associated with seniority-based wages and costly dismissal of an employee, restrict management flexibility (OECD 2021b). The seniority system in particular is a barrier to attracting young IT specialists, engineers, or other experts due to the existing wage adjustment mechanisms, which are based on the number of years working for a firm rather than skills (Methé 2005). This is why there is also a lack of any special pay structure for new but mid-career hires. Finally, the absence of incentives such as getting a pay rise or being promoted prevents workers from enrolling in (costly) vocational schools. As a consequence, in 2021 the jobs-to-applicants ratio for IT professionals came to a record high of 10, while 70% of IT specialists clustered in IT companies (Toshi 2022), which points to a system malfunction. Government representatives are familiar with the issue, and some see the scarcity of skilled IT personnel as “the biggest obstacle to Japan’s digital transformation” (Matsui 2022). At the same time, however, according to Cabinet Office data, in 2018 over 30% of people aged between 35 and 44 were either not in the workforce or were non-regular workers (Okutsu 2020). What additionally complicates the issue of digital skills shortage is the fact that the Japanese labor market has been distinctly divided between the two realities of regular and non-regular workers (seishain vs. hiseishain). The overall approach to the educational system in Japan, and key motivation, was to push a student hard to be able to enter the best possible university in the country, and finally land in a large national company for lifetime employment –evidence of unquestionable success. Non-regulars used to be associated with dropouts and could not earn social trust and respect. Up to the present they have no security and benefits and are deprived of the perspective of career development. It is tough to motivate them and their productivity is lower than that of core workers (Debroux 2016, p. 165). They are said to be “stuck with temporary or part-time positions in a country once known for lifetime employment, and where companies still prefer to hire graduating students en masse rather than looking for mid-career talent” (Okutsu 2020). In terms of the increasing digital skills deficiencies, non-regular workers constitute an underutilized pool of labor.

9.6 Digitalization in Workplaces PM Kishida reassured that digitization together with “investments in green technology and human capital” will be a key driver of Japan’s economic revival. According to Kishida, Japanese firms have focused on developing more costcompetitive products than competitors for years, overlooking investment in people (Whiting 2022). Kishida explained that the government will invest in human capital, a pivotal point of the growth strategy, both in terms of “flow” and “stock”. Producing “maximum value with a shrinking pool of workers,” will be realized by “investment in vocational training, lifelong learning, reskilling, and supporting companies

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to accommodate more diverse and flexible ways of work”, indicating a paradigm shift from savings to investment (Bartlett-Imadegawa 2022). METI forecasts a deficit of roughly 790,000 IT human resources in 2030. IT staff does not directly equal DX human resources, but the shortage points to a lack of deep digital literacy, and consequently a deficiency of DX personnel (biz.teachme.jp). Since there are no prospects for a wave of experienced IT specialists, companies need to train the staff they already have. Doing so will change the way the workplace functions because more time will be consumed on mastering new tools and learning new skills (OECD 2019). IPA’s “Survey on the functions and roles of human resources who promote digital transformation” identified two important challenges to DX advancement in Japanese firms. The first one comes as the lack of the “sense of crisis for the future”, which the authors of the report call a prerequisite of DX. The second one is identified as a strong internal resistance to change (Persol 2022). Surveyed companies were found in need of human resources who could promote drastic reforms (IPA 2019). Nidec founder, Shigenobu Nagamori, believes that Japanese business has been maintaining its strengths such as “technology and hard-working employees who devote themselves to the same company for many years”, but identifies the reasons for its declining competitiveness “in the lack of aggressive leaders” and entrepreneurs (Okutsu 2020). Furthermore, the survey draws attention to the fact that although around 40% of questioned firms set up a specialized internal unit to promote DX (IPA 2019), the post of a Chief Digital Officer (CDO) was present in only about 10% of companies (Nikkei Shimbun 2022). For the study, the Agency defined human resources responsible for promoting DX (DX suishin jinzai) into six categories. The aim was to determine which of these categories was the least available for the reviewed companies. The results came as follows in descending order: producers, data scientists/AI engineers, business designers, architects, UX designers, and engineers/programmers (IPA 2019, for details, see Table 9.2). Table 9.2 Six categories of human resources promoting digital transformation (IPA 2019, p. 7.) Exemplary category for HR

Exemplary duties

Producer

Leaders (including CDOs) who lead the realization of DX and digital business

Business designer

HR responsible for planning, drafting, promoting, etc. of DX and digital business

Architect

HR who can design systems related to DX and digital business

Data scientist/AI engineer

Digital technologies related to DX (AI / IoT etc.) and HR who are familiar with data analysis

UX designer

HR in charge of user-oriented design of systems related to DX and digital business

Engineer/programmer

In addition to the above HR responsible for implementing digital systems and building infrastructure

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Still, many companies do not know how to develop DX human resources inhouse. Workers themselves have doubts such as “Is this training again?”, suggesting overtraining, “Will learning this make our work easier?”, or “Where should we make use of the results of this training?” revealing dissatisfaction with the content and purpose of the training (Persol 2022). In another survey, workers were asked if they can gain new skills at their current workplace. 28% of people with an annual income under 3 million yen answered in the affirmative, compared to 54% of employees with earnings of over 10 million yen per year, who answered ‘no’. Low-income employees tend to work long overtime work hours and have relatively little time for learning (Kitazume and Matsui 2021). Finally, in a survey on the awareness of DX conducted by the Institution for a Global Society (IGS) targeting companies with more than 1,000 employees, 38% of workers in their 40s (or mid-level employees) answered “I don’t want to get involved in DX or digital business”, constituting the highest number by generation. This age group in particular is considered to be the bottleneck for the digital transformation of large companies in Japan (Nikkei Shimbun 2022). METI has developed a number of policies to promote digital transformation in companies, including the so-called “Digital Transformation Promotion Indices” (DX Promotion Indices). These indices are meant as a tool to help companies diagnose the current situation and challenges in their efforts toward digital transformation. In the first stage, it is a self-assessment in which managers, personnel responsible for business operations, digital transformation, IT systems, etc. in the company, discuss and answer the questionnaire. The company then submits the self-assessment to a designated body that analyzes the responses in full confidentiality. The development of indexes and monitoring of the progress of digitization is no longer done by the above-mentioned ministry but by a dedicated unit, i.e. the Information-Technology Promotion Agency (IPA). Based on the results of the analysis, the unit develops benchmarks with which companies are able to compare their results with comprehensive data. Thus, companies aware of the importance of digitization share nonfinancial information on the progress in reforming organizations in this area (METI 2019; IPA 2021). Among the Japanese firms, Fujitsu was named by METI and Tokyo Stock Exchange (TSE) the “DX Company for 2020” for its involvement in initiatives that fundamentally change business models and strengthen competitiveness utilizing digital technologies. The company also promotes “a new-normal lifestyle centered on ‘Data’ and ‘People’ using technology” according to its “Work-Life Shift” concept, introduced in July 2020, at the center of which lies care for the well-being of employees (Fujitsu 2020). Besides, Fujitsu engaged in offering a wide range of free online courses to help their employees (that means around 80 thousand people in Japan) develop skills in AI and programming (Shibata 2020). The company launched a program to “transform talent into ‘business producers’”. It encourages workers’ mobility through a “job-based human resources system” meant for managers and supports employees who seek jobs outside the Group (Fujitsu 2022). Similarly, Hitachi launched digital training for its 160,000 domestic workers in 2020 (Shibata 2020). The company is convinced that although the digitalization strategy is executed top-down, the implementation takes place from the bottom up. Hence all workers

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ought to understand the significance of the process, and only then it is possible to see the results (Hitachi). NEC has been providing workers (approx. 100 employees per year) with courses to deepen their digital skills and started collaboration on the curriculum with Keio University in Tokyo. The company thinks that internal training will be easier than fighting for talent on the market (Shibata 2020). In 2021 NEC established its “NEC Academy for Future Creation Design”, which aims at developing DX human resources, with a focus on service design skills and mindsets to enhance “design thinking” (NEC 2021). Daikin Industries together with Osaka University is to establish “an in-house university” to educate 1,500 AI and IoT specialists by fiscal 2023 “and assign them to the service and marketing departments” (Toshi 2021). There are other examples of Japanese companies that deal with the digital challenge successfully and those given here are by no means exhaustive. They indicate, however, that the Japanese labor market has been evolving and that human resources have become an increasingly important factor.

9.7 Concluding Remarks The high level of education and the spirit of hard work are the undeniable and wellknown strengths of Japanese workers. They are devoted to the same company for years and dedicated to the common goals of their organization. This dedication, however, hardly translates into their commitment to learning new skills and their preparedness to play an active role in digital transformation. There is hope that the speed of change would increase with the generational shift (Khare et al. 2020). Indeed, generational change is happening, but still the group of elder people—consumers and end-users—grows, influencing the direction of the socio-economic change. The slow pace of digital transformation in the education sector is another major problem. From the beginning of the education process, students deal with teachers whose readiness to use ICT resources is the lowest in the OECD. Neither the character nor the content of their work stimulates them to learn new skills. One reason for that is the governance of the education system. On the other hand, it is not only about central authorities but also the cultural mindset of the whole society, especially organizations, employees, and employers. Reliance on traditional employment practices, and the seniority system in particular, restricts management flexibility and makes it difficult to approach the workforce or talent. It is a substantial barrier to hiring mid-career workers, and other experienced specialists in demand. Japanese labor market duality under the shape of regular and non-regular workers—often women, young people, and the elderly does not foster people’s motivation to change. Subsequently, uneven access to training, a tendency to overwork, and the frequent absence of incentives such as getting a rise or being promoted in connection with reskilling or upskilling constitute an important socio-economic wall for the promotion of digital transformation. Under such circumstances, employers may become key change agents in the digital transformation of Japanese society by, for example, taking the initiative of

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reskilling and upskilling employees according to the market needs. In doing so they will need “leadership commitment and direction” and in return, they will receive future-focused, engaged, and qualified employees who would have the opportunity to change positions, learn new skills, remain engaged, or even begin new careers (OPM reskilling toolkit). The process of reskilling and upskilling requires positive interaction with the external environment. In this regard, Japan needs “new leaders” (Herbes and Goydke 2016), able to swiftly respond to opportunities and threats, and with entrepreneurial attitudes. The main challenge, which comes to the fore after one considers several socioeconomic and cultural features which determine organizational culture, people’s and companies’ attitudes and approaches toward training for digital transformation, seems to be the fact that traditional Japanese management practices not only affect the speed of change by constituting an external framework, but they also lead and motivate society “from within” through education and professional career, shaping the mindset of a typical worker. They also polarize society, as in the case of regular and non-regular workers. In the face of rapid changes and skills shortages such division is rather old-fashioned and poses a barrier to the efficient use of resources. The pool of workers should be treated with equal chances for reskilling and upskilling for the sake of the whole society’s transformation. Overcoming this challenge is not an easy task and its complex nature will defy any attempts at finding simple answers. The fact that some of the main hindrances to digital transformation in Japan point to systems and mindsets deeply rooted in Japanese culture, intertwined with it, and passing on their patterns through time, strongly suggests that when searching for solutions one should always review them against the relevant cultural background. Indeed, the best ones that may most readily be accepted on different organizational levels may be those that would have their backbone set in already established elements of Japanese culture and would not be seen as a threat to the work ethos, which is an important part of the nation’s identity.

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Toshi K (2021, September 20) Japan races to hire 270,000 artificial intelligence engineers. Nation has 4th largest number of IT workers but in wrong disciplines. Nikkei Asia. https://asia.nikkei. com/Spotlight/Datawatch/Japan-races-to-hire-270-000-artificial-intelligence-engineers Whiting K (2022, January 19) Japan is ushering in a new form of capitalism to revive its economy. World Economic Forum. https://www.weforum.org/agenda/2022/01/japan-new-form-of-capita lism-revive-economy World Economic Forum (WEF) (2021, June 29) Digital culture: the driving force of digital transformation. https://www.weforum.org/reports/digital-culture-the-driving-force-of-digital-tra nsformation World Economic Forum (WEF) (2020, August 19) Human capital as an asset: an accounting framework to reset the value of talent in the new world of work. https://www.weforum.org/reports/dig ital-culture-the-driving-force-of-digital-transformation Yoshino K (1992) Cultural nationalism in contemporary Japan. A sociological enquiry. Routledge, London, New York

Anna Maria Dzienis PhD, is an adjunct professor at the Department of East Asian Economic Studies,World Economy Research Institute, SGH Warsaw School of Economics. Anna graduated from SGH Warsaw School of Economics. Pursuing her interest in Japanese culture, she simultaneously engaged in Japanese Studies at the University of Warsaw. As a Japanese Ministry of Education scholarship holder in 2008 she became a research student at Okayama University, before enrolling in a PhD course at OU’s Graduate School of Humanities and Social Sciences, which she successfully finished in 2012.For several years she combined both her fields of expertise working as an economist at the Embassy of Japanto Poland. Anna joined the Department of East Asian Economic Studies in 2017.Anna’s research concentrates on the current socio economic and political issues in Japan and ASEAN countries, growth strategies, green and digital transformations.

Chapter 10

Digital Transformation, Leadership, and Gender Equality: Are They Related? Yuko Onozaka

and Kumiko Nemoto

Abstract This chapter addresses the question of how digital transformation is related to leadership and gender equality. The literature argues that people-oriented, transformational leadership is the key to employee innovativeness and digital transformation success. Existing research supports the finding that women often engage in more committed and effective leadership than men, especially in exercising a more people-oriented, transformational leadership. Following these arguments, we theorize that women leaders are associated with a higher level of digital transformation. We gathered data from reliable international sources (e.g., the UN, EU, and OECD) to investigate the linkage. Based on the regression analysis, we find that countries with a high proportion of women in mid- to upper-level management positions tend to have a higher level of digital technology integration in their businesses and more sophisticated ICT tasks performed by women at work, even after controlling for the general size of each country’s economy, productivity, R&D intensity, human capital, and general level of gender equality. Japan is behind in digital technology integration in businesses compared to other developed countries and has the lowest ratio of women business leaders, while fewer Japanese women work in tasks that require a high level of digital skills. Our analysis suggests that if Japan were to improve gender equality in leadership positions, its digital economy performance would be comparable to that of other developed countries. An implication is that Japanese firms have yet to fully utilize the high-quality human capital that women represent, which may deter its digital transformation advancement. Keywords Digital transformation · Leadership · Transformational leadership · People-oriented leadership · Gender

Y. Onozaka (B) University of Stavanger, Stavanger, Norway e-mail: [email protected] K. Nemoto Senshu University, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_10

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10.1 Introduction Significant strategic and organizational changes, such as digital transformation, often require an organizational culture to encourage and embrace new and innovative perspectives. For that reason, digital transformation is not only about the latest technologies and technical capabilities but also about socio-cultural aspects (Hinings et al. 2018), including developing appropriate skills, mindsets, and forms of leadership for the people in the organization (Frankiewicz and Chamorro-Premuzic 2020). Recent research emphasizes the role of leaders as key agents for digital transformation (Cortellazzo et al. 2019). Leadership in organizational change literature shows that leaders’ competencies can be conceptualized into two types of behaviors; taskoriented behaviors, which focus on structure and functions through monitoring and controlling; and person-oriented behaviors, which focus on individual employees’ needs and motivations through interpersonal relationships (Battilana et al. 2010). In digital transformation, task-oriented leadership may increase employees’ stress and adverse emotional reactions to changes and reduce their innovative job performance, while people-oriented leadership can enhance employees’ trust in leaders and innovative job performance (Weber et al. 2022). A related leadership style and one widely acknowledged as positive is transformational leadership, the goal of which is to “broaden and elevate the interests of... employees,... generate awareness and acceptance of the purpose and mission of the group, and... stir... employers to look beyond their own self-interests for the good of the group” (Bass 1990, p. 21). One’s exercise of transformational leadership skills enhances corporate digital transformation through the leader’s encouragement of new thinking and creativity, embracing structural changes, and offering individual attention and support to the organizational members to help them adjust to changes. Personal support by leaders also reduces stress and anxiety associated with the uncertainty stemming from digital transformation (Matsunaga 2021). However, few researchers have explored the relationship between digital transformation and leadership styles (Philip 2021). Furthermore, one of the overlooked aspects of digital transformation and leadership is gender. Studies find that women may demonstrate more effective leadership traits than men, especially with regard to the transformational leadership style (Eagly et al. 2003; Powell et al. 2008). Women leaders contribute to a highly supportive and cooperative workplace environment (Trinidad and Normore 2005) that fosters innovation and enhances R&D performance (Miller and Triana 2009). Even aside from specific leadership styles, women are known to add important resources (e.g., professional credentials, unique perspectives, and relational capital) to an otherwise male-dominant team (Adams and Ferreira 2009; Hillman et al. 2002; Kim and Starks 2016). Women make up only 18.3% of middle- to upper-level management in larger firms in Japan, which is far below the average among developed countries (Gender Equality Bureau Cabinet Office 2020). Given the above arguments, the lack of gender diversity and the inability to utilize female talents in Japanese corporations may be significant

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hindrances to adaptation and progress in digital transformation for Japanese firms. However, theoretical arguments and empirical evidence linking digital transformation to leadership and gender are lacking. This chapter aims to shed light on this issue by summarizing the existing literature that links digital transformation, leadership, and gender equality, and by providing empirical evidence consistent with theoretical predictions using country comparisons.

10.2 Background and Related Literature 10.2.1 Digital Transformation and Leadership In contrast to the commonly held idea that digital transformation is all about installing new technology, research shows that it is more about transforming mindsets and organizing and developing employees’ skills and talents to adjust to the digital future (Frankiewicz and Chamorro-Premuzic 2020). Digital transformation involves drastic, far-reaching, fundamental changes to an organization (Verhoef et al. 2021). Employees’ interests do not always align with the organization’s goals, so they may resist changes. Organizations wishing to implement and succeed in digital transformation thus need to pay attention not only to technologies but also to employees, and must determine how best to support them through the possibly turbulent changes that come with digital transformation. The organizational change literature points out that both task-oriented and person-oriented leadership are key (Battilana et al. 2010). According to Battilana et al. (2010), a task-oriented leadership style focuses on functions and achievements by specifying goals, monitoring performance, and setting incentives and sanctions. A person-oriented leadership style focuses on collaboration and support by emphasizing an interpersonal relationship with their followers and aiming to provide a supportive and safe environment. Closely related to person-oriented leadership, transformational leadership has drawn substantial attention from academics and businesses (Bass 1985). Transformational leadership is a behavioral approach that facilitates the transformation of followers’ behavior and attitudes to align with those of the organization so that they are self-motivated to work beyond expectations. Transformational leaders establishe themselves as a role model, gains followers’ trust, and pursues the goal of accomplishing innovations (Bass 1985, 1990). There are four sub-dimensions for transformational leadership: idealized influence (instilling the leader’s vision and values in followers), inspirational motivation (inspiring followers), individualized consideration (supporting the development of followers by mentoring), and intellectual stimulation (encouraging new ideas) (Bass 1985). Numerous studies link transformational leadership to creativity and innovation, both at the individual worker and the team/organization level (e.g., see Watts et al. 2020, for a review), by encouraging a creative and autonomous work environment (Wang and Gagné 2013) and by facilitating cooperative norms and knowledge sharing between teams (Jiang and

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Chen 2018). Despite the attention it has gotten and its dominant position as one of the most acclaimed forms of leadership, transformational leadership theory has met with sharp criticism in recent years, particularly regarding its ambiguous conceptual definitions, its lack of reliable measurement tools, and its unclear causal mechanisms (Siangchokyoo et al. 2020; van Knippenberg and Sitkin 2013; Antonakis et al. 2010). The literature linking leadership to digital transformation is relatively new, but both person-oriented and transformational leadership have been positively linked to digital transformation. Philip (2021) argues that transformational leadership should enhance digital transformation by demonstrating and encouraging new thinking and creativity and by embracing structural changes, as well as by providing individual attention and support to organizational members to adjust to changes. Although the organizational change literature suggests that both task-oriented and person-oriented leadership are important (Battilana et al. 2010), a recent study shows that focusing only on task-oriented leadership behavior heightens employees’ stress and anxiety and reduces their affective trust in leaders (Weber et al. 2022). The same study finds that person-oriented leadership enhances affective trust in leaders, which is a strong predictor of good job performance and good organizational citizenship behavior (e.g., altruism and conscientiousness in the workplace) (Legood et al. 2021). With the tremendous uncertainty of digital transformation challenging the core functions of business organizations, transformational leaders can provide visionary leadership and act as role models whom followers can learn from, which can enhance both selfefficacy and employees’ adoption of digital technologies (Matsunaga 2021). Transformational leadership is also linked to organizational agility, indicating that transformational leaders promote organizational changes through interpersonal relationships with followers (AlNuaimi et al., 2022).

10.2.2 Women, Leadership, and Digital Transformation Gender inequality persists in organizations (Acker, 1990; Kanter, 1977) in which the promotion of women to leadership remains constrained by gendered customs, including (1) the division of labor, (2) the construction of symbols, (3) interactions among workers, (4) individual identity, and (5) organizational logic and assumptions that often shape the organization’s hierarchy (Acker 1990). In male-dominated and masculine settings, women leaders are often confronted with such gender stereotypes and prejudices as being seen as incapable or too masculine. Thus, scholars have argued that, to be effective, women leaders should intentionally and strategically take into account such gendered constraints and disadvantages in their organizations. Research (Eagly 2007; Eagly et al. 2003) has demonstrated that transformational leadership not only enables women leaders to effectively exercise their leadership but also to excel despite gendered stereotypes. Transformational leadership has drawn a large amount of attention because of its highly effective, communal style of leading followers, an approach that simultaneously enables leaders to tactfully demonstrate their people skills and to pursue

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progress in innovation. This is in contrast to the traditionally masculine, hierarchical, and narrowly agentic leadership style (Eagly 2007; Eagly et al. 2003). Researchers (Eagly 2007; Eagly et al. 2003) argue that women leaders exercise their leadership differently from men leaders, not just due to the gender difference in socialization but also as a result of women leaders’ strategic and responsive styles in the corporate milieu. According to Eagly (2007), women leaders may strategically adopt transformational leadership in an organization that is characterized as highly communal and thus traditionally feminine to avoid being perceived as too masculine or too aggressive and to demonstrate their commitment to being a communal leader. Women leaders face a double bind (Eagly and Karau 2002): if they behave in a feminine, or communal, manner, they are judged as being less effective and lacking toughness and competitiveness (Eagly 2007, p. 6), but if they behave in a masculine manner, they are disliked for it and even punished. Eagly (2007, p. 4) writes, Carly Fiorina, former CEO of Hewlett Packard, complained, “In the chat rooms around Silicon Valley.... I was routinely referred to as either a “bimbo” or “bitch”—too soft or too hard, and presumptuous, besides” (Fiorina 2011, p. 173). In particular, women are judged to be less effective than men in highly male-dominated and masculine settings such as the military (Eagly 2007, 6). In some organizations, women leaders may be confined to expressing stereotypical feminine qualities (Saint-Michel 2018, p. 958), and some research simply finds no gender differences in leadership style (Kent et al. 2010). But, on average, women leaders display effective leadership styles more often than men do, and their leadership is often related to organizational success (Eagly 2007, p. 9). This is because women in similar leadership positions as men tend to be more qualified than their male counterparts (Eagly 2007, p. 5). When organizations operate based on a double standard that rewards men over women, it is necessary for women to “be more highly qualified than men to obtain leadership roles in the first place” (Eagly 2007, p. 5). The notion of transformational leadership itself is greatly feminized. Thus, women leaders who describe themselves as having agentic attributes are perceived as more transformational when compared to male leaders who describe themselves as having the same attributes (Saint-Michael 2018, p. 956). It is, therefore, likely that women leaders, in their very existence, are seen as transformational. Eagly’s research indicates how highly qualified women leaders often strategically adopt transformational leadership to navigate organizations even as they co-employ non-transformational, or transactional, leadership, which focuses on clarifying subordinates’ responsibilities and rewarding them for meeting objectives (Eagley 2007, p. 2). Given the arguments above, it is logical to hypothesize that women leaders play a critical role in achieving successful and innovative organizational management and a high level of corporate performance (Dezsö and Ross 2012). Indeed, current research has demonstrated that women leaders are consistently associated with better R&D and innovation outcomes (Chen et al. 2021; Miller and Triana 2009) and that women entrepreneurs and managers adopt new digital processes at a higher rate and attain better innovation outputs (Ferreira et al. 2019).

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10.2.3 Women in Japanese Firms The lack of women in decision-making positions is a structural issue in Japan. The proportion of women in the middle to upper management in larger Japanese firms in 2019 was 18.3% (Gender Equality Bureau Cabinet Office 2020), which is substantially lower than in other countries, such as the US (40.8%), the UK (34.9%), France (34.3%), and Germany (28.6%) (World Bank 2022). Nemoto (2016) discusses the reasons behind the lack of women leaders in Japanese companies. First, Japan’s custom of dual-track hiring favors male workers while keeping women in non-career, temporary positions. Eighty-two percent of women are hired into non-career track positions, and only nine percent of career-track workers are women (Ministry of Health 2015). The lack of women in career-track positions also means that only a small number of women are in the pipeline for leadership positions. Second, Japanese firms still largely operate within the constraints of a traditional patriarchal culture, where senior men dominate the upper echelon of an organization. In this scheme, loyalty and harmony in the workplace are valued, and they serve as the basis for performance valuation and promotion. Based on the traditional gendered division of labor, which places women at home and in child-rearing roles, women are often adversely valued. Third, there is a significant gender gap in enrollment among the top universities in Japan. For instance, the proportion of women at the University of Tokyo and Kyoto University (the top universities in Japan) is 20% (Rich 2019) and 30% (Kyoto University Gender Equality Promotion Center 2021), respectively. Since the university names carry a lot of weight in the Japanese job market, the small number of women graduates from these universities leads to a smaller pool of elite women considered for top management positions. Fourth, due to the slow adjustment in Japan to modern organizational structures and practices, many elite Japanese women prefer to work in foreign firms. Consequently, Japanese companies experience difficulties attracting talented female workers. Japan also differs from the social democratic states, in which governments implement gender-equality policies in various industries, and it also differs from liberal Anglo-Saxon states in which women’s incorporation in industries is seen as leading to higher corporate profits (Shire and Nemoto 2020). Thus, any attempt to increase women in leadership positions in Japan tends to be symbolic, without giving the women actual decision-making power (Torchia et al. 2011). Former prime minister Shinzo Abe introduced his “womenomics” policies, strongly encouraging Japanese businesses to increase the number of women in leadership positions. While the number of employed women soared, the ratio of female managers to male managers in Japanese companies only slightly increased. With his growth policies advancing Japan’s corporate governance reform, and with the goals of raising share prices and increasing the percentage of women leaders to the level found in global firms, the number of outside female directors did rapidly increase (Nemoto 2022). In 2021, almost one in two firms, among over 2000 firms in Japan,

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had outside female directors (Nihon Keizai Shinbun 2021). However, the number of women as middle managers remained unchanged (Nemoto 2016, 2022).

10.2.4 Digital Transformation in Japanese Firms According to McKinsey’s digital industry 4.0 survey that targeted 300 executives, Japanese respondents are very aware that digitalization is “a promising opportunity,” a sentiment shared by respondents in the US and Germany. However, unlike the US and German managers, two out of three Japanese managers feel they are not entirely ready to promote it (Exhibit 4). Transformation efforts in Japan reflect this reticence (McKinsey and Company 2021, p. 7). The Ministry of Internal Affairs and Communications reports that 60% of large companies and 40% of small and mediumsized enterprises (SMEs) in Japan state they are either undergoing or planning to undergo digital transformation (Ministry of Internal Affairs and Communication 2022, p. 90). However, Japanese companies tend to list cost reduction and efficiency gains as the major goals of digital transformation rather than creating new business models and developing new markets and products—typically considered the true objectives of digital transformation. The same report identifies three major obstacles to digital transformation: lack of organizational talents, skills, and digital capabilities. They are likely linked to the particular features of Japanese firms and their practices, such as age-based hierarchy, lifelong employment, and the dominance of older men in decision-making positions. For instance, filling gaps in capabilities from outside a firm is difficult, as making mid-career hires from external organizations is still relatively uncommon. Home-grown employees tend to be homogeneous in skills and perspectives and face challenges in thinking in fresh terms (McKinsey Digital Japan 2021). Despite the generally high-quality human capital in Japanese companies— it is among the best-equipped countries in its number of well-rounded adults with the cognitive skills relevant for a digitally driven society (OECD 2020)—Japanese workers tend to have low digital literacy because of a limited in-house digital talent pool (McKinsey Digital Japan 2021).

10.3 Digital Transformation, Leadership and Gender: The Conceptual Framework We first conceptualize, at a micro level, that leaders set the vision, strategy, and goals of digital transformation for a firm. Leadership groups are then assigned tasks and monitor progress attained through both task- and people-oriented leadership styles. Gender is a mediating factor with regard to leadership styles, in that female

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leaders, on average, exhibit a higher commitment to and effectiveness of peopleoriented transformational leadership, which should enhance the progress of digital transformation. At the macro level, if women leaders are able to provide better support for digital transformation through people-oriented transformational leadership, we should observe, on average, a positive relationship between the digital transformation performance of a country and its proportion of women leaders. Of course, there are likely to be other factors that affect the degree of digital transformation that is correlated with female representation in leadership. At this point, it is useful for us to rely on the general framework of knowledge production. Digital transformation is deeply linked to innovativeness (Ferreira et al. 2019; Nambisan et al. 2019). In the innovation literature, it is widely accepted that two major inputs for innovation are R&D and human capital (Griliches 1979). The basic concept is applied to both firm-level and region-level innovation (Charlot et al. 2015). In a knowledge production function: K r t = g(R Dr t , H K r t , Ur t ),

(10.1)

the production of knowledge (K) of a unit r at time t is governed by the function g(.) that depicts the relationship between the inputs, R&D (RD) and human capital (HK), and the output (knowledge, K). U is the unobserved factor that affects knowledge production. For regional knowledge production, human capital is commonly accounted for as the proportion of workers with tertiary education (International Standard Classification of Education levels 5 and above). Our theoretical conceptualization further posits that human capital also includes the ratio of women leaders, based on the conceptualization that women exercise person-oriented transformational leadership and that such leadership styles are hypothesized to be more effective in digital transformation. The following section introduces the data and the specifications for empirical investigation of the above equation in the context of digital transformation.

10.4 Data and Methodology 10.4.1 Data The data for the analysis were gathered from multiple publicly available sources. As we aimed for country comparisons, we looked for variables that are comparable across countries. Another critical factor was that Japan be included in the statistics so that the analysis would shed light on the situation in Japan. We employed two measures of digital transformation. One is the composite, comprehensive measure of the country’s level of digital transformation, while the other captures the sophistication of digital tasks carried out by men and women at work.

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The degree of digital technology integration in businesses is based on the integration dimension of the International Digital Economy and Society Index (I-DESI). I-DESI is an extended version of the EU Digital Economy and Society Index (European Comission 2020), enabling international comparisons of the digital economy performance by including non-EU nations. I-DESI is a composite index based on five dimensions (Foley et al. 2020): connectivity, human capital, citizens’ use of the internet, integration of digital technology in businesses, and digital public service. We take the integration as our measure for this analysis, based on four indicators: technology availability, technology absorption, SMEs selling online, and secure internet services (Foley et al. 2020, p. 29). Using the integration measure rather than the total score for I-DESI is more appropriate, given the theoretical conceptualization in Eq. (10.1), as it separates what we consider as an input (e.g., human capital) from the outcome (digital transformation). The latest available I-DESI is for the year 2018 (published in 2020), so the remaining data was also gathered for 2018. Average ICT-task intensity at work by gender is another indicator we employed for measuring digital economy performance, taken from the OECD Digital Economy Outlook 2020. It is based on the OECD Survey of Adult Skills (PIAAC) and includes a variety of tasks relating to ICT (e.g., word processing, use of spreadsheets, and programming). It shows the level of sophistication in tasks performed by workers; a higher intensity reflects a higher level of digital integration at work. Because there is concern among politicians and scholars over the digital gender divide—the fact that women and girls are integrated into the digital transition to a lesser degree than men—we use separate measures for men and women for any differential effects. Ratio of Women Leaders is measured by the female share of employment in senior and middle management in the World Bank database. Gender Equality is obtained from the United Nations Development Program and included in the Human Development Report, published annually. We use the Gender Inequality Index (GII), a composite measure based on gender inequality in reproductive health, education attainment (secondary and higher education), number of seats in parliament, and labor force participation. Since it measures gender inequality, a lower score shows higher gender equality. We include the measure of gender equality to identify the differential effect of women leaders as compared to women workers. The size of the economy of the country is measured by the value of GDP, while productivity is measured by GDP per capita. Additionally, the investment in innovation is measured by the R&D intensity (share of R&D expenditures on GDP). All were obtained from the OECD database. Human Capital is measured by the proportion of the adult population (ages 25 to 64) with tertiary education obtained from the OECD database.

10.4.2 The Econometric Model To test if having more women leaders affects digital transformation empirically, we specify the following linear regression model:

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D E Pi =β0 + β1 W L i + β2 G Ii + β3 R Di + β4 H K i + β5 G D P · V ali + β6 G D P · Capi + εi

(10.2)

where the digital economy performance (DEP) for country i is associated with the degree of women Leaders (WL) and gender inequality (GI), R&D intensity (RD: ratio of R&D expenditure on GDP), and human capital (HK). We add controls for the size of the economy (GDP.Val: GDP value measured in US Dollars) and productivity (GDP.Cap: GEP per capital) as it is plausible that the size of the economy itself and the economic productivity of the region would affect knowledge production. The representation of women in leadership roles reflects the degree to which women are in positions with decision-making power in business organizations, while gender equality measures a more general level of gender equality (e.g., in educational attainment, health status, and labor market participation). After accounting for all these relevant factors, our interest lies in testing whether the coefficient β1 is positive and statistically significant, as it captures the effect of women leaders on digital transformation when comparing the countries that are similar in all other factors but that differ in female representation in leadership.

10.5 Results 10.5.1 Descriptive Summary Table 10.1 provides a descriptive summary of collected variables. The last column shows the values for Japan and shows where Japan lies relative to other countries. The first six rows show I-DESI. Japan’s overall score is 58, which is above the average score but behind those of the top EU countries, Iceland, Norway, the US, Switzerland, the UK, Australia, New Zealand, and Canada, and just above that of Korea. Japan’s highest score in the I-DESI connectivity dimension reveals that it has the world’s best broadband infrastructure; the low overall I-DESI is the result of Japan’s low scores in all other dimensions. This shows that Japan is not fully utilizing its infrastructure to improve its digital economy performance. Other dependent variables we are using include the ICT-task intensity at work for men and women. Japan has an above-average score for men but one that is below average for women. Figure 10.1 shows a scatterplot of the ICT-task intensity for men and women. Observations on the 45-degree line indicate equality in ICTtask intensities between men and women. One can see that, for Japan, the score for men is on par with that of countries like Belgium and the UK and lower than that of Denmark and the Netherlands. However, what is most striking is Japan’s low ICT-task intensity for women and the large gender gap. In most countries, women have higher ICT-task intensities than men. Japan and Korea are the few exceptions, countries where women score lower than men.

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Table 10.1 Descriptive Statistics N IDESI: Overall

45

Mean 50.44

Std.Dev 11.04

Min

Max

Japan

34

71

58

IDESI: Connectivity

45

60.64

7.64

43

74

74

IDESI: Skill

45

42.76

12.08

23

80

42

IDESI: Citizen

45

49.13

12.97

25

75

52

IDESI: Integration

45

43.16

21.85

10

86

58

IDESI: Digital Public Service

45

57.71

14.85

26

86

60

ICT-task Intensity at Work: Men

29

49.25

6.23

35.21

58.49

54.46

ICT-task Intensity at Work: Women

29

51.68

4.95

41.09

57.9

46.01

Share Woman Leader (%)

41

32.71

7.03

12.8

44

12.8

Gender Inequality Score

45

0.13

0.09

0.04

0.41

0.10

GDP per capita (in 10,000 USD)

44

4.31

1.89

1.51

11.68

4.22

Share Tertiary Education (%)

34

37.62

10.09

17.98

57.89

51.93

Share of R&D in GDP (%)

35

1.9

1.11

0.31

4.8

3.22

GDP (in 10billion USD)

44

203.41

443.47

2.02

2173.65

534.08

Note The descriptive statistics above include variables that are not included in the analysis but that are descriptive of where Japan lies in terms of international comparison. The last column shows the corresponding value for Japan

Regarding business leadership, Japan has the lowest share of women in the middle to upper management in the included countries. The general level of gender equality is based on the gender inequality index, so higher scores mean countries that are less gender-equal. Japan is quite gender-equal in terms of health conditions and labor force participation, but the small share of women in parliament lowers its overall score. Table 10.2 shows the correlations among the considered variables. The level of digital integration is highly correlated with the ICT-task intensity of both women and men, as well as R&D intensity, human capital (education level of the population), and productivity (GDP per capita). Interestingly, the ratio of women business leaders is not correlated with gender equality or basic human capital, showing that female representation in business leadership is not strongly associated with these measures. Gender inequality scores are moderately correlated with GDP, so the countries with more advanced economies tend to be more gender-equal (or less gender-unequal, with a negative correlation). These correlations are informative, but we are interested in a more refined picture of how the representation of women in business leadership and gender equality might be related to the digital economy performance. For that purpose, we will proceed to discuss the results of the regression analysis.

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Fig. 10.1 ICT-task Intensity of Men and Women (Note The figure shows a scatterplot between ICT-task intensity at work for men and women across countries included in the analysis. The 45degree line indicates equal intensity for men and women. In most countries, women tend to have higher ICT-task intensity at work than men [above the 45-degree line]. It is evident that Japan is an exception, with much lower ICT-task intensity among women) Table 10.2 Correlation among Variables Integration ICT_Women

0.75

ICT_Men

0.84

WLeader GII R&D

ICT_W

ICT_M

WLeader

GII

R&D

HK

GDP.Val

0.82

0.14

0.56

0.13

−0.28

−0.55

−0.55

0.73

0.49

0.62

−0.24 0.03

−0.31

HK

0.67

0.53

0.64

0.28

−0.26

0.45

GDP.Val

0.25

0.1

0.13

0.06

0.42

0.2

0.19

GDP.Cap

0.61

0.57

0.67

0.12

−0.35

0.25

0.41

0.2

Note WLeader is the share of women leaders, GII is the gender inequality index score, HK is the human capital (education level), GDP.Val is the value of GDP, and GDP.Cap is the per capita GDP

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10.5.2 Regression Analysis Results The results from the regression estimation are presented in Table 10.3. Column (1) shows the results using the integration measure from the I-DESI as a dependent variable, whereas columns (2) and (3) show the results with the ICT-task intensity for women and men. The model fit is generally high, with R squared above 0.70 for all three models, and we do not find indications of the violation of the OLS assumptions. We are interested in testing whether having more women in leadership positions and general societal gender equality affects the performance of the digital economy. For the digital integration measure (column (1)), a higher share of women leaders has a positive and statistically significant association with better digital integration, while we do not find any significant relationship with gender equality in general. This may be because gender equality is correlated with other variables, such as GDP measures. As expected, the levels of R&D intensity and human capital are positive and statistically significant in explaining digital integration. For the GDP-related measures, GDP per capita (productivity) seems to affect the level of digital economy performance for a country, but not the size of the economy (GDP value). Table 10.3 Regression Results

Dependent Variable: Integration

ICT_Women

ICT_Men

(1)

(2)

(3)

Share of Women Leaders

0.527* (0.298)

0.275*** (0.091)

−0.060 (0.107)

Gender Inequality Index Score

62.392 (42.773)

−17.890 (14.588)

−30.196* (17.100)

R&D Intensity

11.988*** (2.797)

1.324 (0.757)

1.696* (0.887)

Human Capital

0.560* (0.308)

0.044 (0.084)

0.179* (0.098)

GDP Value

−0.004 (0.007)

0.0003 (0.002)

0.001 (0.002)

GDP per capita

5.238*** (1.479)

1.162* (0.556)

1.573** (0.652)

Constant

−45.040** (18.415)

34.318*** (5.286)

35.939*** (6.196)

Observations

29

22

22

R2

0.777

0.745

0.772

Adjusted R2

0.716

0.643

0.681

Note Dependent variables are the integration of digital technologies in business and job ICT intensity for women and men. Columns (2) and (3) have fewer observations due to missing observations. Standard errors inside brackets. * p < 0.1, ** p < 0.05, *** p < 0.01

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For ICT-task intensity at work (columns (2) and (3)), women’s ICT-task intensity has a positive and statistically significant association with a higher number of women leaders. This indicates that, in comparing countries with the same levels of economic activity (GDP and R&D) and human capital, a country with more women in business leadership positions tends to have higher ICT-task intensity among women. This relationship is not found with men’s ICT-task intensity. Instead, there is a significant negative relationship between gender inequality and men’s job ICT intensity, meaning that more gender-equal countries (those with a lower GII score) tend to have higher levels of men’s ICT-task intensity.

10.6 Discussion As expected, we find digital integration is higher for countries with high R&D and productivity with skilled labor forces. After controlling for these relevant factors, we still find that a higher proportion of women business leaders is positively linked to better digital integration. This empirical finding is consistent with our theory that women leaders can enhance digital transformation. The model predicts that a onepercentage-point increase in the ratio of women in middle and upper management is associated with an increase in integration score of 0.53. If Japan were to increase the level of women leaders from the current 12.8% (the lowest level in the sample) to 25% (a number that is approximately double the current level but still lower than the sample mean), it would correspond to an increase of 6.4 in its digital integration score. This increase would put Japan at a level comparable to that of countries like Ireland, Norway, and the UK. Admittedly, this calculation is crude and overly simplistic, but it illustrates the magnitude of the effect this change could potentially bring. We find a limited association between general gender equality and digital integration. One reason might be that general gender equality often improves with the economy; thus, it would not have a strong association with digital integration once the level of economic activities is taken into account. It is interesting, however, that general gender equality and representation of women in business leadership are not highly correlated, and it is the latter that is linked to better digital integration. With our data, it is impossible to pinpoint the exact mechanism to account for this. Women might be better at supporting employers through digital transformation, which is consistent with our theoretical conceptualization. However, it might also be that the kind of business culture that embraces women leaders is open and inclusive, which is precisely the type of culture that embraces digital transformation. In that case, the ratio of women leaders works as a proxy for an open and inclusive corporate environment. It should be noted that women leaders enhance a creative and cooperative organizational environment (Miller and Triana 2009; Trinidad and Normore 2005), so these two possible mechanisms may be complementary. There is also a significant positive relationship between ICT-task intensity at work for women and the ratio of women leaders. This linkage may occur via two channels: one by women leaders being better at including, encouraging, and enabling

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women for more ICT-intense work tasks (top-down); and the other by having more digitally skilled women in the workforce, which enriches the leadership pipeline and produces more women leaders (bottom-up). Our data do not allow us to identify and verify these mechanisms, so this investigation is left for future research. However, existing research indicates that having more women in top management enhances the gender balance at lower levels, and higher female representation at the lower level enhances the gender balance at the top levels (Ali et al. 2021). Thus, it is likely that both channels are relevant. Men’s ICT-task intensity seems to be driven strongly by economic productivity (GDP per capita), but we also find that more gender-equal countries tend to have a higher ICT-task intensity for men while not being affected by the ratio of women leaders. A close inspection of Fig. 10.1 shows that women tend to have higher ICT-task intensity than men in many countries, but this gap seems to be narrower for more gender-equal countries, such as Norway and Denmark, and this is likely to be reflected in the estimation result. It is also interesting that, at least in terms of ICT-task intensity, we do not see the “gender divide” that is usually discussed, i.e., women having less advanced digital skills (OECD 2018). It is worth noting that Japan (and Korea, but to a lesser degree) seems to be an exception within the sample countries, as it has very low ICT-task intensity for women. This may be attributed to the organizational contexts in Japanese firms, where women tend to be employed in temporary, non-career-track positions. Table 10.4 shows simple exercises to assess the digital economy performance of Japan. Given the levels of GDP (values and per capita), gender equality, and human capital, the regression model predicts Japan’s digital technology integration score to be 55.4. The actual score from the I-DESI is 58, indicating that Japan is doing better than expected (overperforming). However, ICT-task intensity for women is less than predicted (underperforming), indicating that Japanese businesses should be able to do better on this criterion. The ICT-task intensity for men is just about as predicted. Khare, Khare, and Baber (2020, p. 10) point out that one of the fundamental reasons for Japan’s slow pace of digital transformation is “the lack of willpower and technical skills among the current generation of decision-makers,” and argue that this pattern should shift in a more positive direction with time. Similarly, the number of Table 10.4 Comparing Predicted and Actual DX Measures DX Measure

Actual

Predicted

Integration

58.00

55.38

2.62

Overperforming

ICT_Women

46.01

47.69

–1.68

Underperforming

ICT_Men

54.46

54.12

0.34

Overperforming

Difference

Prediction vs. Actual

Note Actual are the observed data points for Japan, wherein Predicted shows the fitted values from the regression models. Difference is obtained as actual minus predicted. Positive difference means Japan performs better than what is predicted by the model (overperforming), given the observed values for all the other variables, and Japan is underperforming if the observed value is less than predicted

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women leaders in Japanese companies may increase when generational adherence to the patriarchal norm is replaced by the global imperative of gender equality.

10.7 Conclusion Successful digital transformation is a key to survival in this increasingly digitalized world. Large economies such as the US, EU, and China are driving these changes, and Japan seems to be lagging behind. The International Digital Economy and Society Index (I-DESI) puts Japan below the top EU countries, the US, the UK, Australia, and Canada. Japan’s rigid company structures and lack of diversity may be major obstacles to the country’s firms making any changes, let alone achieving digital transformation. In this chapter, we have argued that having more women in leadership positions could improve the situation, based on the existing literature stating the importance of the human side—leaders and employees—in successful digital transformation. More specifically, leaders need to provide not only vision and strategies for digital transformation but also inspiration and support to the employees. Such a leadership style is referred to as people-oriented, and indeed transformational, leadership. Women leaders are linked to better R&D and innovation performances, but little research has brought digital transformation, leadership, and gender together. This chapter has aimed to provide descriptive evidence by looking at the proportion of women leaders in countries with varying degrees of digital transformation. We find that countries with a high proportion of women business leaders are associated with higher digital integration and more sophisticated digital tasks for women workers. To the best of our knowledge, this is the first study to show the link between digital transformation and women leaders that still holds after controlling for other relevant factors (R&D, human capital, and GDP). Interestingly, the general level of gender equality in businesses, based on labor force participation, health conditions, and political leadership, is not highly correlated with the ratio of women leaders, and it is the latter that is linked to better digital transformation. The results suggest the importance of having more women in corporate leadership. Our investigation is limited because our data cannot fully address the microprocesses of how women leaders are linked to digital transformation; it only establishes association at a macro level. For instance, countries with a high proportion of women leaders may tend to be more open to changes that enhance digital transformation. Factors other than gender could influence openness to change, such as age and industry composition. Given the importance of digital transformation for businesses and the challenges associated with it, a more detailed investigation, using appropriate data and empirical strategies to understand the mechanisms underlying the relationship, is warranted. These limitations notwithstanding, we believe this chapter provides interesting insights and motivation for further investigation. Finally, our estimation results indicate that Japan’s performance is roughly as predicted or even better than expected, based on its current economic and gender (in)equality conditions. As the estimated models show a significant association between women

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leaders and digital integration and ICT-task intensity for women, it illustrates the potential of tapping into the under-utilized human resources represented by women. Increasing the number of women leaders and facilitating an environment where they can exercise their leadership can lead to a culture that embraces new and innovative ideas and can enhance Japanese firms’ digital performance.

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Philip J (2021) Viewing digital transformation through the lens of transformational leadership. J Organ Comput Electron Commer 31(2):114–129. https://doi.org/10.1080/10919392.2021.191 1573 Powell GN, Butterfield DA, Bartol KM (2008) Leader evaluations: a new female advantage? Gend Manag: Int J 23(3):156–174. https://doi.org/10.1108/17542410810866926 Rich M (2019, December 8) At Japan’s most elite university, just 1 in 5 students is a woman. New York Times. https://www.nytimes.com/2019/12/08/world/asia/tokyo-university-womenjapan.html Saint-Michel SE (2018) Leader gender stereotypes and transformational leadership: Does leader sex make the difference? Manag 21(3):944–966 Shire K, Nemoto K (2020) The origins and transformations of conservative gender regimes in Germany and Japan. Soc Polit: Int Stud Gend, State & Soc 27(3):432–448 Siangchokyoo N, Klinger RL, Campion ED (2020) Follower transformation as the linchpin of transformational leadership theory: a systematic review and future research agenda. LeadShip Q 31(1):101341. https://doi.org/10.1016/j.leaqua.2019.101341 Torchia M, Calabrò A, Huse M (2011) Women directors on corporate boards: from tokenism to critical mass. J Bus Ethics 102(2):299–317. https://doi.org/10.1007/s10551-011-0815-z Trinidad C, Normore AH (2005) Leadership and gender: a dangerous liaison? LeadShip Organ Dev J 26(7):574–590. https://doi.org/10.1108/01437730510624601 van Knippenberg D, Sitkin SB (2013) A critical assessment of charismatic—transformational leadership research: back to the drawing board? Acad Manag Ann 7(1):1–60. https://doi.org/10.1080/ 19416520.2013.759433 Verhoef PC, Broekhuizen T, Bart Y, Bhattacharya A, Qi Dong J, Fabian N, Haenlein M (2021) Digital transformation: a multidisciplinary reflection and research agenda. J Bus Res 122:889– 901. https://doi.org/10.1016/j.jbusres.2019.09.022 Wang Z, Gagné M (2013) A chinese-canadian cross-cultural investigation of transformational leadership, autonomous motivation, and collectivistic value. J LeadShip Organ Stud 20(1):134–142. https://doi.org/10.1177/1548051812465895 Watts LL, Steele LM, Den Hartog DN (2020) Uncertainty avoidance moderates the relationship between transformational leadership and innovation: a meta-analysis. J Int Bus Stud 51(1):138– 145. https://doi.org/10.1057/s41267-019-00242-8 Weber E, Büttgen M, Bartsch S (2022) How to take employees on the digital transformation journey: an experimental study on complementary leadership behaviors in managing organizational change. J Bus Res 143(January):225–238. https://doi.org/10.1016/j.jbusres.2022.01.036 World Bank (2022) Female share of employment in senior and middle management (%). https:// data.worldbank.org/indicator/SL.EMP.SMGT.FE.ZS

Yuko Onozaka is Professor in Market Analysis at University of Stavanger, Norway. She joined University of Stavanger in June 2008. Her research areas span across wide range of topics, including environmental economics and food marketing, with publications in leading journals. In recent projects, she explores the role of gender in leadership and committee/board interactions in business and economic organizations using quantitative text analysis. She was a visiting scholar at Kyoto University (2015) and Doshisha University (2019) and is an adjunct professor at the ITEC (Institute for Technology, Enterprise and Competitiveness) at the Doshisha University from 2021. Kumiko Nemoto is a Professor of Management in the School of Business Administration at Senshu University in Tokyo, Japan. She earned a Ph.D. from the University of Texas at Austin after finishing her BA and MA at Hitotsubashi University in Japan. Her research focuses on gender, work, organizations, and institutional conditions.

Part VI

External Pressures from Society and Business Partners

Chapter 11

Demography and Digital Transformation in Japan Brian Stewart

Abstract Japan is the world’s third largest economy with global leadership in the automotive sector and industrial manufactured supported by a world class education system and a culture that incorporates a strong work ethic. Despite these advantages Japan’s digital competitiveness is not reflective of their global standing with twentyeighth position in digital competitiveness, thirty-ninth in talent, a management practices ranking of 62 out of 63 and the lowest adopter of public cloud technology in the G10, reflecting an economy that is slow to adopt digital in both its private and public sectors (IMD, (IMD, (2021) IMD world digital competitiveness ranking 2021. https://www.imd.org › wcc › docs › release-2021) IMD world digital competitiveness ranking 2021. https://www.imd.org › wcc › docs › release-2021). Japan is also the oldest of the advanced economies with 28% of its population 65 and over, triple the world average and an average median age of 48.4 in 2020 (Bloom (Bloom (2020) Population 2020, Demographics can be a potent driver of the pace and process of economic development IMF Finance and Development https://www.imf.org/en/Publications/fandd/issues/2020/03/changingdemographics-and-economic-growth-bloom) Population 2020, Demographics can be a potent driver of the pace and process of economic development IMF Finance and Development https://www.imf.org/en/Publications/fandd/issues/2020/03/changingdemographics-and-economic-growth-bloom). The low net migration flows of recent decades have combined with a falling birth rate and high urbanization rates to create a unique demographic structure. One that is being increasingly studied as other advanced economies age, in addressing this problem Japan leads the world. The aging of its society has implications for all aspects of Japanese social, political, and economic life. Of relevance here is the impact an older workforce has on the adoption of digital technology and the related management practices and methods that can generate and spur innovation. In composite the question this raises is: how will an aging society affect the adoption rate and depth of digitally enabled business transformation? Restating this, with more of its corporate leadership, managers,

B. Stewart (B) Simon Fraser University, Burnaby, Canada e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_11

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employees, and customers looking forward to years of tranquility rather than transformation how will Japan find a path to adopt digital affordances and to adapt its management traditions? Keywords Digital adoption · Digital transformation · Japanese demographics · Japanese management · Japanese Leadership

11.1 Introduction Demographics are the single most important factor that nobody pays attention to, and when they do pay attention, they miss the point. Peter Drucker (2000)

To develop on Drucker’s statement above, I would hazard that the point, regarding organisations at least, is not to develop population pyramids or to forecast dependency ratios, but to gain insights into behaviours that will have effects at the micro and macro levels. Too often the analysis of demographics has been limited to the macro level used for the development of fiscal forecasts and governmental socio-economic policies. When confronted with a technological disruption similar to those generated by steam, electricity, and computing, we are in need of deeper insights that provide an understanding of how best to respond to the disruptions of major sectors in the economy. One where the rate of change of technology is faster than the adoption rate of people (Kane, 2015), which is faster than organisations and the state is slowest of all. Is it best to invest early, incorporating digital technology into our products, services, and operations and learn through experience? Or is it best to surf the change and learn from competitors? Is it safe to ignore? Will we have time to adapt? These questions can be seen as investment decisions, reflecting a commitment of either human or financial capital with a very high and possibly irrecoverable opportunity cost. Such are normal parts of business life and decision making under uncertainty is nothing new. The difference with a technological disruption is that the stakes are higher, we are not dealing with a portion of the business, but potentially the entire foundation for ongoing sustainability, sometimes extending to include the entire industrial sector the organisation is situated in. To employ a well-used analogy, it is not sufficient to outrun the bear, and beat your competitors, you may need to wrestle with the bear itself. This chapter reviews current academic, business, and international organisations’, published research and reports, to determine the effects of Japan’s demographic profile to its ability to digitally transform. The selection of Japan is prompted by the fact that it is has the oldest population among the world’s most advanced economies and is by necessity one of the first to deal with the challenge of aging and digital disruption. While the Japanese context is unique and provides Japan specific learnings, there are also many similarities with comparators that allow for

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more generalizable findings that add to the literature on factors that affect digital transformation.

11.2 Japan Trends Japan’s population has been declining since 2009, The current population in 2022 is 123.81 million (World Population Review, 2022) a reduction from its peak in the first decade of the twenty-first century. Armstrong (2016) places the decline starting in 2011 and the trend is for it to shrink to below 100 million by 2058 (World Population Review, 2022). The net negative growth is mainly due to the declining birth or fertility rate; indeed, Japan has one of the lowest fertility rates in the world. Secondary factors include increasing life expectancy and a tradition of very low immigration. The fertility rate in 2021 has declined to 1.3, (Reuters, 2022), where 2.1 is considered replacement rate, resulting in an annual rate of net increase of -0.5% (Knoema 2022) while net immigration to Japan stood at 0.56% or approximately 360,000 people. Japan is a very traditional society that is insular in nature and opposed to risking its culture to foreign influences. This may have its origins in the isolationist Sakoku period under the shogunate from the mid-seventeenth to the mid-nineteenth centuries (Cullen 2003). By comparison the average for the Group of Seven (G7) is 3.4. with members all having net migration rates significantly above Japan’s. Two of their regional competitors have similarly low rates of migration China and Korea, while Singapore is more reflective of the G7 countries. The fertility rate is more consistent with the comparators. The high life expectancy of Japanese has compounded with the declining population to leave Japan with the highest proportion of elderly in the world with over 65’s constituting 27.7% of total population in 2017 (Nakatani 2018) rising to 28.4 in 2018 (Japan Times 2019). The continued rise is increasing the country’s economic dependency ratio, requiring an aging workforce to support an increasingly older population with the related societal growth in the health care burden. A concomitant outcome of this maturing is the aging of corporate and organisational leadership (Table 11.1).

11.3 Japan Competitiveness A brief synopsis of related aspects of the Japanese economy shows that productivity, particularly in the Japanese business service sector is below its OECD comparators; it was 28% lower and GDP per capita 19% lower than the OECD best performers. Spending on R&D has consistently been at the top of the OECD ranking and its performance in science and mathematics education is best in class. Japan’s national debt is the largest of all countries, standing at 235% of GDP, Greece seen by many as a country with an almost crippling debt burden is at 222%, while the G7 average per country is 167% of GDP, with only Italy as the other GF country above the average.

180 Table 11.1 Estimated immigration and fertility rates of G7 countries and selected others 2015–2020

B. Stewart Country/region

Emigration rate

Fertility rate

Australia/New Zealand

5.882

1.844

Canada

6.562

1.525

China

−0.245

1.69

Dem. People’s Republic of Korea

−0.212

1.852

France

0.563

1.586

Germany

6.569

1.33

Italy

2.461

1.37

Japan

0.562

1.11

Republic of Korea

0.23

1.209

Singapore

4.724

1.75

United Kingdom

3.898

1.776

United States of America

2.929

1.844

Source UN, 2022

(OECD 2022). The high debt ratio will have significant impacts on Japan’s economic future as it seeks to transform its economy from one heavily relying on manufacturing to one that is at the forefront of digital technological advances. Japan is a trading nation with 17.6% of GDP coming from Exports in 2022 (World Bank, 2022), with a slight positive Balance of Trade over imports of making a joint trade 31.36% contribution to GDP in 2020, down from over 37% in 2014 (Trading Economics 2022). The largest exports in 2020 where Cars ($83.1B), Integrated Circuits ($31.3B), Motor vehicles; parts and accessories ($28B), Machinery Having Individual Functions ($19.9B), and Photo Lab Equipment ($12.1B) (OEC 2022). The employment rate is higher than the OECD average around 78% in 2019 and there has been a significant shift in female employment participation (OECD 2022). A related human development index supports Japan’s relatively egalitarian gender position. The (UN 2022) Gender Inequality Index shows that Japan ranks 22nd globally higher than the US 44th and China 48th but lower than Germany 19th and South Korea at 15th . Both of these trends are seen as favourable to transformation. Private sector digitalization is uneven with manufacturing being seen as globally advanced while business services and small enterprises have not adopted as quickly. The changing skills needed to advance digital adoption will require funding throughout the educational system. Investment in the school system both in educational supports and in the curriculum will improve digital literacy and maturity will provide future generations of employees with the skills to both adopt and develop digital ways of working. For existing workers access to reskilling is a critical requirement as their existing skill sets become redundant and/or are not able to generate sufficient value to provide viable incomes. Such supports should also include leadership and management. These statistics bode well for adoption of new technology and provide solid foundations for Japan to become a leader of the fourth industrial

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revolution. The degree to which Japan can fulfill its potential will very much depend on its leadership and the effectiveness of their decision making. The digital maturity of senior leadership is therefore a critical enabler and signifier of the likelihood of the level of digitization of their organisations. The demographic profile of an aging Japan may be the chink in the armour that inhibits the accomplishing its digital ascendancy.

11.4 Japan Digital Japan faces a stiff rate of digital adoption to move up IMD’s Digital Competitiveness index. Japan has not progressed from its 28th position in 5 years, potentially demonstrating a relative stagnation in its scale and speed of adoption. Broeckert (2022) produced a score card which provided some sobering statistics regarding Japan’s digital position. Only 1% of Japan’s workforce is considered digitally talented, ecommerce penetration is at 6.8% mobile banking 6.9%, telemedicine at 5% and only 7.5% of citizens using digital government apps. More importantly for the focus here Digital Technology and Leadership stands at only 3%. A survey conducted by (Accenture 2021) outlined areas of digital weakness, Lack of partnership with digital players and poor ecosystem: Leveraging DX to create new products and services, Digitalization of user experience remains immature and Insufficient digitalization of operations. This is reflected in Japan’s underdeveloped start-up ecosystem, due to the reliance on large companies to drive innovation through internal research and development. While the start-up community is beginning to grow it remains relatively small compared to its national peers. Japan’s aging demographic also plays against this as start-ups are predominately led by younger entrepreneurs, both in age and career stage. While retirees do participate in early-stage companies, they are much smaller in proportion and impact. One of the more progressive factors that is driving Japan’s growth in new ventures is open innovation. Large companies recognising their need to respond to rapid technological change have begun collaborations with start-ups. Japan’s corporate venture capital (CVC) investments grew to 317 in 2018 and increase of 450% from 2013 (JETRO 2019). Table 11.2 provides a schedule of Japan’s Industries with their related proportion of GDP (Statistics Japan 2020). The largest industries in Japan are Manufacturing, Real Estate, Wholesale and retail trade, Human health and social work activities and Professional, scientific, and technical activities. Table 11.2 compares the distribution of Japan’s GDP by industry with the classification of Frey and Osborne’s study on the probability of computerisation. The table indicates that the largest sectors of Japan’s economy are at the high end of the digitisation curve with approximately 65% of industries making up the GDP are at 70% or greater probability of disruption. It is understood that this is a high estimate and subject to significantly greater complexity than Frey and Osborne’s model, but it does provide a useful first approximation to the potential degree of digital disruption Japanese industries are likely to face and the need for them to be able to respond.

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Table 11.2 Japan GDP by industry 2018, and probability of digitalization Industry

% of Japan GDP 2018

Probability of Digitalization

Primary Sector Agriculture, forestry, and fishing

1.2

0.75

0.1

0.7

20.7

0.7

5.7

0.7

Secondary Sector Mining Manufacturing, Construction Tertiary Sector Electricity, gas and water supply and waste management service

2.6 13.7

0.8

Transport and postal services

5.2

0.7

Accommodation and food service activities

2.5

0.7

Information and communication

4.9

0.5

Finance and Insurance

4.2

0.5

Wholesale and retail trade

Real Estate,

11.3

0.8

Professional, scientific, and technical activities

7.5

0.2

Public Administration

5.0

0.6

Education

3.6

0.3

Human health and social work activities

7.2

0.4

Other Service activities

4.2

0.8

There is evidence of a growing response by Japanese companies particularly in the largest sectors of the economy. A review (JUAS 2021) of key technology trends shows that the social infrastructure (including energy, ICT, distribution and communication sectors), financial industries and machinery manufacturing sectors have relatively higher adoption rates compared to other industries. The review also shows differences in the category of technological adoptions, the financial sector having more maturity in the digitalization of back-office processes, data analytics, and AI. Whereas the construction sector shows higher adoption rate in connected devices, including AR/VR, wearable devices, as well as drones, with the social infrastructure industry having a relatively high adoption when looking at all technology categories. Perhaps of most interest, a major industrial sector, machinery manufacturing, demonstrates a lead in the adoption of IoT solutions and robotics. The adoption curve of each industry reflects the necessary focus and priority in their technological adoption. As would be anticipated, the adoption is being led by large corporations and their level of digital maturity is far advanced over their SME competitors.

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11.5 Demography and Digital Transformation Japan’s population is demonstrably aging and apparently on an irreversible course of continued shrinkage over the next several decades at the very least. This period represents the interval where most of the critical adoptions of digital technologies will be completed. The formation of new streams of value will be created and industrial sectors will shrink or be significantly altered, or alternatively new industries will be incepted, or nascent ones expanded. For Japan the challenge is significant. The country cannot rely on an internal market to stabilise much less grow their economy, it must continue to export and to grow at an ever-increasing rate to replace the domestic market that will decline due to reducing population. The IMF (IMF 2020) projects that Japan will have a negative economic growth of 0.8% over the next forty years due to demographic factors. This projection requires Japan to remain as competitive in the future as it has traditionally dominated such markets as automobiles and consumer electronics. Those traditionally strong markets are non-constant, and they will very probably be disrupted or transformed by digital technology. Thus, the imperative for Japan to reinvent itself to compete is increasing with each reduction in internal demand. Meeting and overcoming the challenge to change will depend on the current and nearterm behaviours of the existing corporate leadership, and how they influence and are influenced by the investment community and the Government’s public policies. With this in mind, we can look to assess their demographic profile and to relate this to psychographic factors for likely clues on corporate leadership’s propensity to adapt and then to provide possible approaches to assist their shift.

11.5.1 Demographics and Psychographics The relationship between demographics and psychographics are very much to the fore in the marketing realm, where a natural tension exists regarding which one provides the most insight in consumer behaviours. There would appear to be no correct answer as they each provide different perspectives that enable a better understanding of how groupings of people are likely to respond to stimuli in given situations. The purpose here is to use these analytical tools to help identify how Japanese corporate leadership may deal with the challenge of technological change. Will the master exponents of lean and continuous improvement be able to scale their incrementalism to transformative level activities? The requirements are very different, incrementalism works within a known environment where the value of an improvement can be calculated effectively and assessed as to its net value contribution. Determining whether to move from an analog switch on an electrical device to one enabled by Bluetooth, such as a home thermostat, and effected by a mobile phone requires a very different calculus. Not least of these is the engineering problem of altering the device to operate within a digital ecosystem where the uncontrolled factors are expanded exponentially by

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comparison with the analog solution. This example serves to demonstrate the fundamental difference between the necessarily narrowly focused mindset of incrementalists (those preferring incrementalism) and the broader more expansionist one of the digitalists (those seeking digital transformation) (Bonnet & Westerman 2021). Indeed, the adoption of cloud technologies into on-premise data centres faces very similar challenges accompanied by a mindset that is committed to reliability, conformance and predictability. The mental models that perfected the service delivery under the on-premise condition are at variance with the cloud alternative. The mindset that perceives the necessity to control as many variables as possible is not easily reconciled with an open system where the level of authority is much lower and the need for co-responsibility is far greater. The learning of these essential meta skills will be made more difficult by their conflict with experience and proven practice. Thus, we are dealing with challenges to patterns of behaviour that have proven to be highly successful and that are still viable. If we ask the common business question, what problem are we trying to solve, the answer is unclear, as it seems not to be a problem but rather a philosophy or a belief that technology is changing and that we must adapt. All without clear evidence on whether the problem is real or what its shape is. We are apparently solving for a phantom.

11.5.2 Personality and Age Ongoing research into the effects of aging are demonstrating that our personalities do change as we age and that these changes are to a degree predictable. Personality is seen as the pattern of thoughts feelings and behaviors unique to a person. Longitudinal studies have shown that as we age our personality tends to get better, that is, we score higher on calmness, self-confidence, leadership, and social sensitivity, this is often termed the maturity principle (Damian 2019). In essence, similar to more recent studies evidencing neuroplasticity, our personalities are similarly flexible and only begin to plateau as we reach our fifties (Roberts 2000). In a study of Japanese centenarians’ personality characters, five personality traits were evaluated using a regression analysis to determine trends over time (Masui 2006). The five traits were openness, conscientiousness, extraversion, agreeableness, and neuroticism, after McRae (1987). Traits more relevant to organizational change would include neuroticism, openness, and extraversion which showed declines from age 55 to 70, while agreeableness increased, and conscientiousness remained constant in men and a slight decline in women. These personality traits trends are important as they reflect the changes in leadership personalities that are and will be evaluating decisions to invest and lead their companies into digital transformations. While reductions in neuroticism are favourable to change as older leaders are likely to better withstand the stresses of VUCA environments, the decline in openness may close minds to the possibilities of untried and risky technological investments. A decline in openness is more difficult to interpret although it will likely lead to a bias to reinforce the more accepted opinion which will tend to favour the status quo.

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This evidence is inferential and at a very early stage of analysis, however the implications to an aging society cannot be ignored. The decisional milieu of leadership teams needs to incorporate the psychological make-up of the team. The work in behavioral and experimental economics demonstrates the emotional aspects of decision making and these are important factors in determining not just consumer choice but strategic decision making. More mature leadership teams are likely to have built up a degree of reliance, trust and loyalty among their group. A need to disrupt this harmony will require decisions to be made based on what is best for the organisation as opposed for the individuals. In psychology the related term is the identifiable victim effect or bias, (Jenni 1997) where we feel greater empathy for specific individuals than for more, but unknown, individuals. The degree of uncertainty and risk compound to greatly heighten the degree of difficulty of determining the optimal direction. The desire for affiliation and the need for support will tend to work against taking the organisational perspective and shift the decision to an individual based one. This tendency is most likely operating in leadership cabinets today and lies at the heart of digital transformation failures as decisions that strain loyalties and introduce new and uncertain relationships are avoided at the expense of transforming the organisation.

11.6 Decision-Making and Leadership Challenges The impact of psychological factors on decision-making has become a rich source of study, particularly the impact of stress on cognition. As leadership teams become increasingly stressed due to the worsening internal and external conditions of their organisations they will revert to type and be more inclined to make decisions consistent with their core beliefs. Their idea of risk will be heavily influenced by their perception of untried versus tried and unknown versus known. The performance stress curve (Yerkes 1908) indicates that initial arousal is positively correlated to cognitive performance, as complex or unfamiliar tasks require stimulation to become engaged with the problem. This reverses however when the stress or arousal becomes distracting and impairs cognitive performance, in addition a shortening time frame will increase focus on the immediate reducing the time scale for any investment decision. Relating this to a period of disruption, the deeper and faster that digital technology impacts the conventional wisdom regarding good practice, the more difficult it will become to make effective decisions. The preference will be to avoid a decision or to make a partial or one of reduced scope. The boldness required to meet the level of risk will be significantly reduced by both psychological and demographic factors. And the greater the degree of authority located in a senior dominated senior leadership the greater the likelihood of more conservative decisions that project the present into the future.

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11.6.1 Digital Transformation and Japanese Management Culture We can compare the decision-making propensities with those that are likely to be more successful with regard to digital transformation. Kane (2017) proposed that digitally mature organisations are less hierarchical, having more distributed leadership structures, are more collaborative and cross functional, encourage experimentation and learning, are bold and exploratory with and higher tolerance for risk and are agile and quick to act. Viewing the characteristics through the lens of Japanese management we can see some are consistent with Japanese practices, while others are more challenging. The hierarchical management practices in Japan are more favourable to digital transformation than its western counterparts. Mainly as Japanese organisational hierarchies incorporate greater degrees of egalitarianism, evidenced by mutual respectfulness between leader and subordinate (Meyer 2016). In addition, these relationships encourage and facilitate the openness required for experimentation. Decision making however is highly consensual in Japan (Gane 2019), and somewhat hamstrung by risk aversion with the aim of getting it right the first time. This trait plays both into and against favouring transformation as consensual decisions are consistent with successful transformations, albeit within contextually defined limits. However, the desire to avoid fast failures is inimitable to the experimental nature that enables rapid and agile adaptation, essential to technological adoption. The preference for certainty is also a factor here as the need for specificity in project design and output, the ROI, will tend to increase the length of time to make a decision. These themes were reflected (Hatani 2020) seeing both procrastination and slowness of action in the Japanese auto industry’s adoption of AI, stating that Japan lacks proactive decision-making skills preferring the status quo. Leadership teams in Japan, as in other countries, are required to make longer-term and strategic decisions. It is therefore incumbent upon them to identify the factors that are influencing their decision-making processes, their personal biases, social pressures, economic constraints, political alliances and perhaps most importantly of all the willingness to admit they may be wrong and to seek and trust outside and differing opinions. Mature teams, guided more by personal knowledge will require having a robust and trusted decision-making process that yields an objective decision. One that will need to be accepted as it meets the preconditions and criteria of its formulation, which will include experience, intuition, and knowledge. In addition, to provide a level of assurance that avoids the continuance of a catastrophic decision, the process can be augmented by analysing ongoing feedback, thereby monitoring progress enabling adjustments and course corrections, essentially replicating the agile methodology. Decisions thus made should not be superseded by intuition as there is no appeal to intuition that will be superior, since there is a lack of knowledge and experience in the field. Such a process will be more difficult for more mature leaders as they will be more heavily influenced by their own experience and unwilling to having it devalued.

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11.6.2 Demography and Decision-Making If experience preference is seen as a condition of career maturity, older leadership teams will be subject to a greater degree of expertise obsolescence than younger teams. As Japan ages and its leadership continues to remain on the older spectrum, their ability to reinvent themselves will grow increasingly difficult. This is not just a condition of Japan, but of aging workforces that have more to lose than gain from the disruption of their careers and the erosion of their personal capital. The problem with Japan is that it leads the world in aging but has few if any comparators to learn from. In short, they are showing the rest of the world the way, they are piloting the aging economy in a technological maelstrom for other countries to benefit from. A pertinent example is the ability of leadership teams to select and manage leads for transformation initiatives. In a review of a number of digital transformation projects in the Japanese Financial sector Karim (2020), concluded that technological leadership and staffing is a prerequisite for success. The accountability of assigning scarce and expensive resources falls to a company’s senior leadership, who will require a high degree of technological savviness to make appropriate selections. Implicit biases left unsurfaced and unaddressed will impede mature leadership teams’ ability to make effective decisions, potentially creating a self- perpetuating series of failed projects. Thus, enhancing current state thinking and further increasing the resistance to digital initiatives. The situation presents an almost insurmountable challenge for leadership teams, particularly when they have a personal interest in the outcome. Careers spent honing skills and experiences to be valuable within the current state of technology can be eroded in a decade and become worthless. This does not just apply to rank-and-file staff or middle management, executive leadership is subject to a similar obsolescence curve as their ability to make strategic investment decisions become increasingly compromised by their lack of deep understanding of the outcomes, blinkered by their past experiences their contextual expertise, and numbed by a sense of entitlement bestowed by their elevated positions.

11.6.3 Incrementalism and Transformation Another complicating factor facing Japan’s transition is the propensity for existing technologies to improve rapidly when facing an existential threat. As examples the Welsbach mantle significantly improved gas lighting when faced with electrical substitution and the water wheel was continuously improved for a century after Watt’s steam engine. More recently the improvements in the internal combustion engine as a result of regulation and now competition from electric cars has also been significant. However, the regulated shift to electric vehicles will likely see a lower rate of innovation in internal combustion engine vehicles as the period for payback is condensed. Rosenberg (1983) points to two issues here. One is the rate of

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improvement in best practice technology and the second is the adoption of the best practice methods. The former characterises the ability for current state technologies to innovate and improve to meet the newcomers, essentially forestalling their adoption. While the latter represents the rate of adoption of the emergent best practices. It would be a brave retailer or transit company that has not adopted mobile technology into their operational practices, particularly after the pandemic lockdowns, thus changing what is perceived to be industry best practice. A Forrester survey (Granzen 2022) indicates that Japanese firms are veering in the direction of incremental improvement over transformational change. The survey indicated falling rates of transformation initiatives accompanied by increasing rates of firms with no desire to digitally transform. Instead, Japanese firms are prioritising business growth and product improvements. In Japan’s case the ability to continuously improve, a national competence, will provide a legitimate alternative to substitution of a newly derived best practice form a future generation of technology. Particularly when it is being stimulated by national balance of payments considerations, driving the need to retain export markets. Moreover, the ability to raise productivity levels of existing technologies will likely slow the rate of adoption of next generation technology. Thereby, providing conservative leaders with sufficient evidence to stay the course, further delaying technological adoption. The outcome will be companies inheriting technological deficits in the future resulting in an almost certain erosion of long-term competitiveness with a concomitant inability to react.

11.7 Conclusion The findings presented in this chapter demonstrate that Japan’s progress in adopting digital technology albeit underway, is relatively static, just sufficient to keep them in the same competitive position, but not advancing against other nations. This is troubling for the next generation of Japanese as with the country’s population shrinking and aging, it may lose the wherewithal to transform at the increasingly faster rate that will be required. The future is not yet determined, the country and its leadership still have agency to affect a more favourable outcome. To answer the question at the beginning, how Japan will find a path to adopt digital affordances and to adapt its management traditions, there are a range of options available. Large corporations can increase the scope and depth of digital adoptions and work with government agencies to accelerate transformation across small and medium enterprises. Opening immigration channels to skilled digital workers would bring in much needed talent to fuel an expansion. Favourable tax incentives for digital investments can stimulate capital flows from traditional industries to riskier, future oriented ones. Educational institutions can adopt more digital oriented curriculum and teaching spaces and work with firms through outreach and co-operative programs to accelerate skills transfer. And not to remain unmentioned, firms themselves can use their inherent entrepreneurial and innovative talent to adopt digital technologies into their operations.

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The stakes for Japan could not be higher as individual leaders assess the best path through the maze of technological development for their organisations. There are few if any clear paths and all decisions are clouded in the mystery of unknown outcomes with few signposts to guide the way. This puts Japan on the horns of a dilemma, a need to act quickly and authoritatively combining with a culture of caution and consensus all with the very real potential of an age-old problem becoming an old age problem.

References Accenture, (2021) [DX survey, analysis of state of Japanese firms, Insight on DX adoption based on industry and company size], Quoted in Broekert 2022. Digital Transformation in Japan, EU-Japan Center for Industrial Cooperation, Tokyo, p 26 Armstrong, Shiro (2016) The national interest “Japan’s greatest challenge (and it’s not China): Massive population Decline”. May 16, The national interest. Archived from the original on March 21, 2017. Retrieved June 15, 2022, https://nationalinterest.org/blog/the-buzz/japans-gre atest-challenge-its-not-china-massive-population-16212 Bloom (2020) Population 2020, Demographics can be a potent driver of the pace and process of economic development IMF Finance and Development https://www.imf.org/en/Publications/ fandd/issues/2020/03/changing-demographics-and-economic-growth-bloom Bonnet D, Westerman G, (2021) The new elements of digital transformation. MIT sloan management review, Winter 2021, 62(2) Broeckaert, L. (2022) Digital transformation in Japan, EU-Japan center for industrial cooperation, Tokyo Cullen LM (2003) A history of Japan, 1582–1941, Cambridge University Press, Cambridge Damian RI, Spengler M, Sutu A, Roberts BW, (2019) Sixteen going on sixty-six: A longitudinal study of personality stability and change across 50 years. J Pers Soc Psychol 117(3):674–695 Drucker PF, (2000) Management challenges in the twenty-first century, Harper Business Frey CB, Osborne MA (2013) The future of employment: How susceptible are jobs to computerisation? Oxford Martin Programme on Technology and Employment Gane, K (2020) Digital transformation execution in Japan, Pt. 1 Khare, A., Ishikura, W., Baber, W., Eds. Transforming Japanese business rising to the digital challenge. Springer. Goasduff L (2019) Cloud adoption: Where does your country rank? Gartner Granzen A (2022) Japanese firms are losing their appetite for digital transformation, Forrester, https://www.forrester.com/blogs/japanese-firms-are-losing-their-appetite-for-digitaltransformation/ Hatani F (2020) Artificial intelligence in Japan: Policy, prospects, and obstacles in the automotive industry. Pt. 3 Khare, A., Ishikura, W., Baber, W., Eds. Transforming Japanese business rising to the digital challenge, Springer IMD, (2021) IMD world digital competitiveness ranking 2021 https://www.imd.org› wcc › docs › release-2021 IMF (2020) Japan: 2019 Article IV consultation-press release; Staff report; and statement by the Executive Director for Japan IMF Staff Country Reports. https://www.imf.org/en/Publications/ CR/Issues/2020/02/07/Japan-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Sta tement-by-the-Executive-49032 Japan Times (2019) “Elderly citizens accounted for record 28.4% of Japan’s population in 2018, data show”, September 15, 2019 Jenni K, Loewenstein G (1997–05–01). Explaining the identifiable victim effect. Journal of risk and uncertainty, 14 (3): 235–257

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JETRO, (2019) Has the startup ecosystem in Japan formed? Japan’s strengths and weaknesses compared to major countries, October. https://www.jetro.go.jp/en/jgc/reports/2021/542b32560 55c112e.html JUAS (2021) Quoted in Broeckaert L (2022) Digital Transformation in Japan, EU-Japan Center for Industrial Cooperation, Tokyo, pp 27–33 Kane G, Palmer D, Nguyen Phillips A, Buckley N (2015). Strategy, not technology, drives digital transformation: Becoming a digitally mature enterprise. Deloitte Insights. July 14, 2015. Kane G, Phillips A, Copulsky J, Andrus G (2019) The technology fallacy: How people are the real key to digital transformation. MIT Press, Cambridge, MA Karim R (2020) Digital transformation challenges in the Japanese financial sector: A practitioner’s perspective Pt. 1 Khare, A., Ishikura, W., Baber, W., Eds. Transforming Japanese business rising to the digital challenge. Springer. Knoema (2022), World data atlas. https://knoema.com/atlas/Japan. Mausi Y, Gondo Y, Inagaki H, Hirose N (2006). Do personality characteristics predict longevity? Findings from the Tokyo Centenarian Study. National library of medicine. Dec; 28(4): 353–361. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3259156/ McCrae RR, Costa PT (1987) Validation of the five-factor model of personality across instruments and observers. J Pers Soc Psychol 52(1):81–90 Meyer E (2016) The culture map (INTL ED): Decoding how people think, lead, and get things done across cultures, kindle. PublicAffairs, New York Nakatani H (2019) Population aging in Japan: policy transformation, sustainable development goals, universal health coverage, and social determinates of health, Global Health and Medicine. https:// www.ncbi.nlm.nih.gov/pmc/articles/PMC7731274/. OEC (2022) https://oec.world/en/profile/country/jpn?flowSelector2=flow2. OECD. Org (2022). https://data.oecd.org/gga/general-government-debt.htm https://www.oecd.org/ economy/japan-economic-snapshot/. Porter ME (1979) How competitive forces shape strategy. Harvard business review 57(2):137–145 Reuters (2022) Japan recorded record low births, biggest ever population drop in 2021. June 3. https://www.reuters.com/world/asia-pacific/japan-recorded-record-low-births-biggestever-population-drop-2021-2022-06-03/. Roberts BW, DelVecchio WF (2000) The rank-order consistency of personality traits from childhood to old age: A quantitative review of longitudinal studies. Psychol Bull 126(1):3–25 Rogers D (2016) The digital transformation playbook: Rethink your business for the digital age. Columbia University Press, New York Rosenberg N (1983) Frontmatter, In inside the black box: Technology and economics (pp I–Iv), Cambridge: Cambridge University Press Roy A (2022) Demographics unraveled, U.K. Wily & Sons Ltd. Salsanha T (2019) Why digital transformations Fail, Berret-Koehler Publishers Statistics Japan, (2020) Statistical handbook of Japan. Statistics Bureau Ministry of Internal Affairs and Communications Japan. https://www.stat.go.jp/english/data/handbook/pdf/2020all.pdf Trading economics (2022) https://tradingeconomics.com/japan/trade-percent-of-gdp-wb-data. html. UN Data (2022) World population prospects. United Nations Population Division http://data.un. org/Data.aspx?d=PopDiv&f=variableID%3A85. UN Human Development Programme, (2022) Human development report 2021–22. Uncertain Times, Unsettled Lives: Shaping our Future in a Transforming World. https://hdr.undp.org/con tent/human-development-report-2021-22 World Bank (2022) World Integrated Trade Solution, WITS, https://wits.worldbank.org/CountryPr ofile/en/JPN. World Population Review (2022). https://worldpopulationreview.com/countries/japan-population. Yerkes RM, Dodson JD (1908) The relation of strength of stimulus to rapidity of habit-formation. J Comp Neurol Psychol 18(5):459–482

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Brian Stewart is the CIO at Simon Fraser University, Canada. His role is to provide strategic leadership, vision, and direction for information services and technology and to lead organisational transformation through digitally led innovation. Brian’s background is in strategic, operational, and technology management in the printing and higher education sectors, and he has written and spoken widely on these topics. Brian has an M.A. in Economics from University College Cork and a MBA from Athabasca University. Brian has published a number of papers and presented at conferences on the topic of digital disruption. In 2017, Brian co-edited Phantom ex Machina: Digital Disruption’s Role in Business Model Transformation which was published by Springer.

Chapter 12

More Than a Certification Scheme: Information Banks in Japan Under Changing Norms of Data Usage Harald Kümmerle

Abstract The Japanese certification scheme for information banks has recently received attention as an important example in the regulation of data intermediaries. Recognizing that the certification scheme has fallen short of expectations in the short term, this chapter explains why information banks matter for processing customer data in Japan and as theoretically rich examples of data intermediaries more generally. This is the first study tracing the information bank concept to its origins in the 2000s, providing sufficient context on how the certification scheme came into existence in the late 2010s. By enacting a diffractive genealogy, it becomes clear that the certification scheme tried but failed to strike a balance between the interests of companies and their prospective customers. Privacy concerns were receiving attention internationally from 2013 to 2019, at a time when the Japanese government tried to increase the circulation of data among private and public entities. In spite of this, the model of a regional information bank is considered to be promising especially when deployed in combination with Mobility as a Service (MaaS). Smaller information bank solutions that did not pursue certification have been successfully rolled out in other scenarios. As the adoption of data technology has significantly gained momentum through the COVID-19 pandemic internationally, restrictions on the use of health information in the certification scheme have been relaxed. Medical information banks are now deployed in “special health zones” with selective support, such that market mechanisms among certified information banks will likely remain ineffective in the short- to mid-term. The long-term success of the information bank concept nationally would be eased if Japan succeeds in promoting Data Free Flow with Trust (DFFT) for less sensitive data internationally. Keywords Information banks · Data intermediaries · Privacy · Urban development · E-health

H. Kümmerle (B) German Institute for Japanese Studies, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 A. Khare and W. W. Baber (eds.), Adopting and Adapting Innovation in Japan’s Digital Transformation, Economics, Law, and Institutions in Asia Pacific, https://doi.org/10.1007/978-981-99-0321-4_12

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12.1 Introduction In Japan, information banks (j¯oh¯o gink¯o) are services that enable individual users to control how their personal data/information is used.1 A certification scheme for information banks has been put in place in 2018, but their origin can be traced back into the 2000s. They are of international relevance as some elements in the European Data Governance Act, proposed by the European Commission in November 2020, have taken “inspiration from experiences in other countries in the field of data intermediaries and certification schemes for data intermediaries”, the Japanese “certification scheme for information banks” being one of three mentioned explicitly (European Commission 2020, p. 98). That cooperation between Japan and the EU in this regard is ongoing has been affirmed in the Japan-EU Digital Partnership launched in May 2022: “Both sides intend to deepen at expert level their understanding on the function of data intermediaries (as in the EU Data Governance Act) and the Japanese certification scheme for “information banks” and market-driven initiatives such as Jdex.” (Ministry of Economy, Trade and Industry 2022, art. 66). Already in January 2019, the EU and Japan decided to consider their data protection regimes as mutually adequate (Horibe 2020). However, research on information banks in sufficient depth that would help to deepen such an understanding is still lacking. The little English-language research that already exists (e.g. Min & Son 2022) is limited to the certification scheme in the form that was chosen. The purpose of this chapter is, for one, to reconstruct the origins and the development of the information bank as a concept. This necessitates methods from Science and Technology Studies that help recreate discourses that have persisted locally in Japan but that have largely gone unnoticed in the English-language literature. The chapter aims, for another, to explain why the certification scheme has fallen short of expectations up to now, even though there is still a realistic chance for a readjustment to be successful. This makes it necessary to give context on international trends in the regulation of data usage. It will turn out that limitations introduced into the system that were aimed at winning the trust of customers did not manage to do so. Rather, the Japanese public became more concerned regarding privacy and data security, following growing privacy concerns in Europe and the United States from 2013 until the beginning of the COVID-19 pandemic. The limitations that were introduced have, in part, already been removed, opening up unused potential of the

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While the European General Data Protection Regulation (GDPR) focuses on “personal data”, the corresponding Japanese Act on the Protection of Personal Information (APPI) focuses on “personal information” (kojin j¯oh¯o) and treats “personal data” (kojin d¯eta) as something that is distinct. This tension is unresolvable but not critical, as the “distinction between data and information tends to be underspecified in law” (Streinz 2021, p. 902) even in single law traditions (Bygrave 2015). This chapter takes the pragmatic stance of using the terms as in the literature that is quoted; an analysis focusing on legal issues would have to proceed more thoroughly. Shibasaki Ry¯osuke, the leading developer of the information bank concept, seems to have changed his usage from “personal information” in 2012 (TEDx 2012) to “personal data” in 2019 (World Economic Forum, 2019) when giving talks towards a general public in English.

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original design. The study thus gives insight into the persistence and adaptability of data technology among changing customer expectations.

12.2 Approach In order to achieve these goals, the chapter enacts a diffractive genealogy (Barad 2007; Mauthner 2016) of the information bank concept (see also Kümmerle 2022). In doing so, it highlights the most important continuities, discontinuities and international entanglements that give insight into why the complicated situation explained above—that limitations were introduced and then relaxed—has emerged. Diffractive genealogies focus on the “sedimented” (Barad 2007, p. 207) nature of concepts, assuming that they are shaped by a multitude of processes that are, at times, contradictory. Being attentive to local developments that have been overshadowed by trends in the West is considered a matter of ethical research (Mauthner 2016). This holds all the more since the standards of acceptable data usage have drastically shifted globally during the COVID-19 pandemic. Thus, the approach of this study lends itself to investigations of long-term projects that are developed outside of the well-studied centers of innovation like the Silicon Valley. The material that is used in this chapter encompasses white papers, research papers from computer science, newspaper articles, and business publications on information banks and the broader data infrastructure in Japan. Most of it has been gathered as part of a larger study on the Japanese national data strategy of which (Kümmerle 2022) was the first outcome. The account is primarily chronological, spanning three Sects. (3 to 5) that are divided at years during which important events happened: the leaks of Edward Snowden in 2013 and the outbreak of the COVID-19 pandemic in 2020. An existing study focusing on the norm of digital sovereignty (which also relates data protection laws) has called these events catalytic (Thumfart 2022). In the case of information banks, these events also stand out, but rather as delimiters for a temporary deviation from an international development of norms concerning data usage. Future studies that systematize the findings are desired, especially because with the initiative of Data Free Flow with Trust, Japan is actively shaping international regulation of data usage since 2019.

12.3 Until 2012: Emergence of the Information Bank Concept 12.3.1 Early Big Data Usage in Japan The business model of currently dominant platform companies like Google and Facebook (resp. their parent companies Alphabet and Meta) builds on analyzing

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large amounts of customer data, usually understood as “big data”. After the term big data came to be widely used in the early 2010s, information banks have been characterized as using “big data or, individually, more detailed deep data” (biggu d¯eta arui wa koko no yori sh¯osai na d¯ıpu d¯eta) by the core group of developers (Sunahara et al. 2014, p. 1025). However, the analysis of large amounts of data in a way akin to current big data analysis has a longer history, as the 2013 white paper of the Ministry of Internal Affairs and Communications (MIC) explains. POS (Point of Sales) registers came into widespread use in Japan in the middle of the 1980s. During the rapid spread of convenience stores since the 1990s, POS data was a necessity especially to efficiently run smaller stores. Around the year 2000, larger companies introduced their own point card systems, tying customer IDs to the POS data. In the following decade, the introduction of “common point” (ky¯ots¯u pointo) cards and electronic cash cards made it possible to analyze customer behavior beyond the confines of single companies (S¯omush¯o 2013, p. 163). The Tpoint card system operated by the Culture Convenience Club (CCC) had a dominant position. Originally introduced by the video rental store chain Tsutaya in 2003, it combined the log of video rentals of customers in Tsutaya stores with their purchases in other stores where these cards were accepted for gathering bonus points. Selling the information it gained through data analysis to third parties, the CCC came to act like a consulting company including, but not limited to, the entertainment industry (Kawakami 2013, pp. 94–100). The T-point card system had substantial scale through its nationwide reach, its comprehensiveness, and the fact that this data usage was not clear to most customers. As the mobile internet market was dominated by the i-mode “feature phones” of NTT Docomo (Steinberg 2019), it can be said that many of the dominant platforms for the processing of consumer data were domestic during that time. When the iPhone entered the Japanese market in 2008—an event that, somewhat sensationally, has been compared to the Black Ships of Matthew Perry opening up Japan to the world in 1854 (NHK “Heisei netto shi (kari)” shuzai han, 2021)—, the information bank had already acquired the nature of a larger project. Thus, it makes sense to consider it Japanese in origin.

12.3.2 Shibasaki Ry¯osuke’s Information Bank Information banks in their current form can be traced back at least to a report of the Working Group for the Maintenance of the Value Chain of the Near Future from 2009 (Sakimura 2018). The “information bank working group” was one of multiple teams that, together, had the task of innovating the value chain in Japan. Led by Shibasaki Ry¯osuke, professor at the Center for Spatial Information Science of the University of Tokyo, it consisted of 9 members. Among the companies these members represented were NTT Docomo, Panasonic, and Yahoo; a person from the Ministry of Economy, Trade and Industry (METI) was among the observers (Kin-mirai bary¯uch¯en seibi gur¯upu 2009, p. iii). The task of the group is outlined as follows:

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Proposing the concept of an “information bank”, a function (kin¯o) that keeps information and puts it to proper use like a bank keeps money and puts it to use, we undertake discussions on the realization of such an information bank. Concretely, we gather and make use of information—collected through a variety of sensors that are dotting the living space (in the city, in cars etc.)—with the aim to bring about new services. Concrete items of consideration: • Technology and methods to gather information • Rules and criteria/standards necessary for gathering information (Kin-mirai bary¯uch¯en seibi gur¯upu 2009, p. 3) Information that could be obtained through recorded activities (k¯od¯o rireki), specifically shopping and medical care, was also considered in this process (Kin-mirai bary¯uch¯en seibi gur¯upu 2009, p. 17). It is notable that while information on the former was also collected through bonus cards like T-point to some degree, this was not the case for medical care. In a report of the Information Technology Promotion Agency from 2012, the information that is relevant for information banks is divided into three types: spatial information, purchasing information, and medical information. Moreover, information of individuals (kojin no j¯oh¯o) is not only likened to money, but, more formally, to an asset (shisan). Two business models were considered in particular: one that was substantially the same as that of Personal Data Services that had, by then, been started in various countries abroad, the other being more similar to that of marketing agencies, where third parties could request “made-to-order” (¯od¯am¯edo) anonymized information (J¯oh¯o shori suishin kik¯o 2012, pp. 61–62). Non-commercial aspects were also highlighted: In a talk at a TedX event in Tokyo in 2012, Shibasaki Ry¯osuke called the information bank—referring to it in singular—“a new social hub supported by your trust”. He pointed out the potential for disaster prevention by giving the example of traffic management after the Great T¯ohoku Earthquake on 11 March 2011 and estimating the impact of floodings in Bangladesh, a project he had taken part in. Moreover, the system could be used for personalized health services, for example by making suggestions to pre-diabetics (TEDx 2012).

12.3.3 Tradition of Treating Information as an Asset It is notable that the digital information bank may well have drawn inspiration from an analog precursor. A “town development information bank” (machizukuri j¯oh¯o gink¯o) had been established in 1995 in Miyahara in Kumamoto Prefecture (today part of the town Hikawa). Among those that have been active at the information bank are interns from universities and the Ministry of Land, Infrastructure and Transport, who have engaged in rural revitalization. The activities included surveys and events in cooperation with the local community. Many of the events were aimed at engaging with local children in order to raise the next generation for developing the town against the backdrop of a shrinking and aging population. In addition to an “intern

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newspaper”, a presence on the internet with a bulletin board was set up in 2004 (Inoue 2010). Miyahara’s town development information bank was located in the former head office of the Izeri Bank, a building from 1925 that has been designated as cultural heritage in 2004 (Bunkach¯o 2022). The naming was more than a reference to the building, as participants early on have described the idea behind the town development information bank as local inhabitants depositing information and receiving the promise to have the town developed as interest (Miyahara Suki Netto 2005, p. 8). Although the information bank in Miyahara has, to the knowledge of the author, not been connected to digital information banks in publicly available material, reports in national newspapers had introduced the term to the general public by the 2000s.

12.4 2013–2019: Formalization Among the Need for More Privacy and the Requirement for More Circulation 12.4.1 Heightened Awareness Regarding Privacy Following the Snowden Leaks Events in the year 2013 turned out to be very adverse for those that proposed more intensive use of personal information. Through the leaks by Edward Snowden on the surveillance activities of the American intelligence service NSA in June 2013, problems regarding privacy were brought to the attention of the broader public in many countries including Japan; the country was as high on the intelligence priorities list as Germany and France (Poitras et al. 2013). This heightened awareness contributed to an incident in July 2013, when the selling of anonymized passenger movement data tracked by the IC card Suica of Japanese Railways (JR) East without asking for consent was widely problematized. Although this usage did not constitute a violation under the Japanese law at that time, the company stopped the service among widespread complaints. An article in the Asahi Shimbun in December 2013 referring to this incident provided Shibasaki with the opportunity to introduce the information bank for the first time to the readership of the newspaper. He explained that the system gave users controllability while leaving open the potential for new business models to arise—for example by giving the option to agree to the usage of passenger data by JR East or to refuse it. None of the concrete examples mentioned in the article—managing the personal schedule, suggesting means of traffic, and making the suggestion of stores based on personal interest (shumi)—concerned information as sensitive as health, which had featured prominently in the TedX talk. As a strength, Shibasaki highlighted the private nature (minkan de aru koto) of information banks. It was pointed out that because not everybody had to use it, it significantly differed from a common number system (ky¯ots¯u bang¯o sei) (Kanzaki C 2013). The introduction of such a system, the so-called MyNumber system, had been decided by the Japanese National Diet earlier that year and provoked concerns regarding privacy and security.

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Still in an early phase, the development of the information bank concept was driven forward by a team around Shibasaki at the University of Tokyo and a team around Sunahara Hideki, professor at the Media Design Lab at Keio University. Framing them as technical issues, the complexity of the necessary certification scheme and the dangers of information leaks were openly discussed. Health information still was very much intended to be used (Akiyama et al. 2013; Sunahara et al. 2014).

12.4.2 Reflecting International Trends Towards Privacy Protection Important input on how to concretize information banks in concordance with international trends in data protection came at the MyData conferences, the first of which took place in Finland in the summer of 2016 and “became a formative step for the MyData community” (Lehtiniemi & Haapoja 2020, p. 91). In the emerging international movement MyData Global, Japanese members have since played a notable role (MyData 2021; Watanabe T 2019). According to the details preserved on the website of the MyData 2016 conference, a presentation by Shibasaki and Sunahara introduced the key ideas behind information banks in great generality under the title “Risk or Asset? How to change people’s recognition of personal information; Social-design approach using a metaphor of ‘bank’” (MyData 2016, 2016; Shibasaki & Sunahara 2016); Japanese members have since regularly introduced the system at the yearly conferences. According to recollections of a Japanese MyData Global member, in the beginning, European participants were skeptic; he had the impression that many thought the system was “estranged from the spirit of MyData” (MyData no seishin kara kairi shiteiru). It was only when a more fine-grained mechanism of user assent was clearly reflected in the scheme that such doubts dissipated (Sasaki et al. 2020, p. 167), Business literature on information banks states that when the first certification guidebook was completed in June 2018, the changes had already reflected trends towards stricter data protection in Europe and North America (Morita, 2020, pp. 38– 39). This outcome can be considered a manifestation of the Brussels effect, i.e., of the international regulatory power exerted by the European Union (Bradford 2020). Japanese members of MyData Global now emphasize that the system fulfills the criteria for data intermediaries set forward by MyData Operators (Sakimura 2020).

12.4.3 National Strategy Towards More Data Circulation Although the information banks were modified so as to increase the rights of customers, the broader digital strategy in Japan moved into another direction. In 2015, the strategy document on cyber security for the first time also highlighted positive effects of the digital transformation. This change can, in part, be explained

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by the government broader strategy (Burgers et al. 2021, p. 251). The Fifth Science and Technology Basic Plan, spanning the years from 2016 and 2020, included the vision of building a data-driven society, “Society 5.0” (Hitachi-UTokyo Laboratory 2020). Against this background, the Basic Act on the Advancement of Public and Private Sector Data Utilization was passed in December 2016, providing the legal basis for creating more detailed regulation. Although the Basic Act does not mention information banks explicitly, it stipulated “the smooth circulation of public and private sector data concerning individuals […] with the participation (kan’yo) of the relevant individuals, and to implement other necessary measures while giving consideration to the protection of the competitive position and other legitimate interests of companies” (Ministry of Justice, Japan 2016; art. 12). For the realization of these goals, working groups deciding on the concrete implementation were set up. Attention to detail is necessary here, as the translations related to information banks have not always been consistent: The detailed regulations for information banks have been drafted by a public–private initiative between the Ministry of Internal Affairs and Communications (MIC) together with the Ministry of Economy, Trade and Industry (METI), on the one hand, and Information Technology Federation of Japan (IT Renmei), on the other hand. Of special interest here is the Discussion Commission for Devising the Appropriate Certification Scheme for the Information Trust Function (j¯oh¯o shintaku kin¯o no nintei suk¯ımu no arikata ni kansuru kent¯okai) of the MIC (together with the METI), which met for the first time in November 2017 and has, until October of 2022, met 23 times. Neither Shibasaki nor Sunahara have been members. The MIC released version 1.0 of the Guidebook Concerning the Certification of the Information Trust Function (J¯oh¯o shintaku kin¯o no nintei ni kakawaru shishin)—referred to as “MIC’s Guidebook” below—in March 2018 where requirements for information banks were laid out. The Information Technology Federation of Japan has translated j¯oh¯o shintaku kin¯o not as “Information Trust Function”, but as “Trusted Personal Data Management Service”, whose abbreviation TPDMS is part of the seal for certified information banks and of the Federation’s website address (www.tpdms.jp) concerning information banks. In addition to a regular certification, there is a “P certification” that is easier to obtain. Reflecting heightened privacy concerns, the handling of health information was not possible for systems complying with the requirements of the version 1.0 Guidebook. This regulation was chosen even though right from the beginning, it was considered to pose a severe limitation to create a profitable business model by many (Sasaki et al. 2020, p. 209). Despite the intricate certification scheme resulting from a public–private partnership, almost 80% of people answered they “didn’t want to use” (riy¯o shitakunai) information banks before they were provided with concrete examples according to a government poll (Nihon Keizai Shinbunsha 2019). Privacy law specialists pointed out that the data protection regime in Japan was still not as strict as in the EU, specifically that fines in the case of data leaks were much lower. That Europe was a global forerunner in comprehensively regulating privacy protection was framed by some as a reflection on experiences made during the Nazi era (Asahi Shinbunsha 2018).

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12.4.4 Perception of Continuity A detailed Q&A on information banks by a lawyer in the field clearly delineates the information banks “proposed by” Shibasaki Ry¯osuke from the objects fulfilling the requirements for the information trust function in the certification scheme because the purposes are different (Watanabe M 2020, p. 3). Shibasaki himself, however, sees enough continuity to call the systems that received TPDMS certification “information banks” in a talk given at the World Economic Forum in 2019 (“Modelling the dynamics of cities to improve quality of life”), now emphasizing the importance of regulation and competition among them. He mentioned the relevance of health information (World Economic Forum 2019)—in spite of the Guidebook not allowing for such, although a working group regarding the discussion of this issue had been set up (S¯omush¯o 2022). Sunahara Hideki in an interview in 2019 reaffirmed the importance of information banks, judging that “IoT security and the information banks are the ¯ 2019). foundation of a society that takes the internet for granted” (Ota Among politicians, it is Hirai Takuya, digital expert of the ruling Liberal Democratic Party (LDP) and former Minister of State for Science and Technology Policy, who is especially closely connected with the information bank system. Shortly before the pandemic, Hirai stated that it was difficult to judge whether the infrastructure for data usage in Japan is more advanced than or lagging behind other countries. Concerning information banks, he was convinced that Japan had started pursuing its “own way” (dokuji no michi) (Sasaki et al. 2020, p. 62).

12.5 Since 2020: New Momentum Following the COVID-19 Pandemic More than two years into the COVID-19 pandemic, information banks seem to have failed if the number of certifications is taken as a measure: As of June 2022, only one of the seven projects that successfully obtained a TPDMS-certification (regular or P) still has a valid one; all other certifications have already expired (Nihon IT Dantai Renmei 2022; see also It¯o 2022). However, closer attention is warranted: the certification procedure has been revised several times, and in notable cases, acquiring the certification was considered a pragmatic choice during the creation of a more comprehensive business model right from the beginning (see 5.1). Importantly, the MIC’s Guidebook has been revised so as to allow the usage of certain types of health information. Creating information banks that handle this type of information is now in fact part of the policy for regional development (see 5.2). Moreover, not all of the companies that describe their services as information banks in business publications actually acquired an official certification (e.g., Kamei 2021). Recently, Dai-Nippon Insatsu has been setting up information banks for third parties without TPDMS certification, including for providers of fitness-related apps (DIGITAL X hensh¯ubu 2022).

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12.5.1 Regional Information Banks Most of the services certified as TPDMS were operated by financial institutions and targeted the national market. In contrast, the “regional information bank” (chiikigata j¯oh¯o gink¯o) operated by Chubu Electric Power that obtained P-certification in February 2020 was distinctive for targeting customers only regionally with the aim of circulating personal data (primarily) inside of the region (Nihon IT Dantai Renmei 2020). While the service is still under operation as of October 2022, the certification has expired in February 2022. The presentation in a guide on information banks from early 2020 provides insight on the business model that was chosen: When the leading designer joined Chubu Electric Power in the summer of 2017, he already had a professional connection to the development of the information bank scheme; it was right around this time that the MIC accepted applications from companies interested in pursuing a certification. A two-year preparation phase began in late 2018 in the city of Toyota, Aichi, one of the most advanced smart cities in Japan (e.g., Ishii & Nishihori 2021). During this phase, local companies (mainly stores and venues for events) were approached and asked whether they were interested in using customer information and providing value—in the form of information on events, information on goods, or coupons—in return. Here, a requirement of the certification scheme shaped the business model and helped to uphold security standards: As many of these companies are small or medium and thus cannot be expected to obtain privacy certifications for their own computer systems, the information they receive from Chubu Electric Power cannot be connected to individual customers. When starting the app called MINLY for the first time, a virtual avatar with a chatbot function provided a detailed explanation about the service and what the information would be used for; Chubu Electric Power considered it important that users were aware of how the app worked, including its inevitable risks. Knowing that this would stop many of those who downloaded the app from even finishing with the registration, doing so nevertheless ensured that consent expected from information banks was in fact informed and thus meaningful. The information that users of the app had to enter manually was their place of living, the composition of their family, their hobbies and their interests, information on when and how long they usually went out during a week, and others. Apart from this manually entered information, users provided information through sharing with the companies their search history on events, their history of purchases, and confirmations that they read (etsuran) or liked (ii ne) incoming offers and notifications. Through the matching quality increasing with growing engagement, the information that users received from companies was assumed to approximate the information they were most interested in (Morita 2020, pp. 182–189). That Chubu Electric Power obtained the certification was a pragmatic choice and part of a strategy to build a regional data platform in the broader sense (going beyond the functionality of Fig. 12.1) with the intent to deploy the system beyond the city of Toyota. Intensifying the cooperation with municipalities and combining data from the information bank with traffic data from Mobility as a Service (MaaS) could

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Fig. 12.1 Basic functionality of an information bank as depicted in (S¯omush¯o 2021, p. 414); translated from Japanese by the author

create much value. Regionally specific bonus points or currencies bear the potential to create economic zones through which regions could compete with each other for prospective inhabitants and tourists (Morita 2020, pp. 182–189). The service was also presented during a session of the online seminar on information banks run by the Information Technology Federation of Japan; an accompanying academic presentation concerned the economic aspects of information banks. There, it was pointed out that the benefit provided to customers for their information can also be non-monetary (hi-kinsenteki). Thus, especially for regional information banks, users likely see value in engaging with the community beyond their own financial gain. In this perspective, regionally operating information banks appear as especially promising (Nihon IT Dantai Renmei J¯oh¯o Gink¯o Suishin Iinkai 2020b; see also K¯oguchi 2020). Such information banks would also, incidentally, be in the tradition of that in Miyahara (see Sect. 3.3).

12.5.2 Medical Information Banks With the onset of the COVID-19 pandemic, the value of data for medicine became apparent worldwide. At the first meeting of the information bank online seminar that took place in July 2020, it was pointed out that in China, the spread of the virus was successfully suppressed through the usage of data. Withholding judgments on ethics or on the appropriateness of information banks for this task, it was observed that the value of data for society more generally was under reconsideration (Nihon IT Dantai Renmei J¯oh¯o Gink¯o Suishin Iinkai, 2020a). This observation was well-founded. The pandemic provided an opportunity for the Japanese government to promote the use of new digital technology and to increase the adoption of systems that had already been developed but were met with hesitancy. Bearing in mind that such a perspective may be overly teleological, an account that

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focuses on the actors and systems already described can look like this: A working group in the LDP headed by Hirai Takuya had, already in June 2020, released the strategy “Digital Nippon 2020: Vision for a Digital Garden City Nation of the Corona Age” (Dejitaru Nippon 2020: Korona jidai no Dejitaru den’en toshi kokka k¯os¯o) that aims, among other things, to “construct data governance that puts health at its core “ (kenk¯o o kaku to shita d¯eta gabanansu o k¯ochiku) (Dejitaru Nippon 2020, 2020, p. 12). In an article in the Japanese business newspaper Nihon Keizai Shinbun in August 2020, Hirai stated that he cannot help but feel that Japan has suffered a “digital defeat” (dejitaru haisen) in its handling of the pandemic. Even though many laws had been passed over the years in order to become a “world’s most advanced IT nation” (sekai saisentan no IT kokka), they had not contributed to solving the problems faced during the pandemic. For example, residents did not have the opportunity to complete an application for support money through digital means; he implicitly connected this to the slow adoption of the MyNumber system. He wrote that Japan needed a single “control tower” (shireit¯o) for the digitization of all ministries and agencies (Hirai 2020), which was another element of the Digital Nippon 2020 strategy (Dejitaru Nippon 2020, 2020, p. 112). Correspondingly, the establishment of the Digital Agency was made a priority of the newly formed government of prime minister Suga Yoshihide in September 2020. Hirai was made Minister in charge of the MyNumber system and for Digital Reform; he became the first Minister of Digital Affairs and head of the Digital Agency upon its inauguration on September 1, 2021. In the National Data Strategy passed in preparation to the establishment of the Agency, a more active role for municipalities in the development of information banks was already envisaged (K¯oguchi 2022, p. 34). Up to now, this has been followed through. In November 2021, the Japanese government, now under prime minister Kishida Fumio, adopted the “Vision for a Digital Garden City Nation” (Dejitaru den’en toshi kokka k¯os¯o) as an important policy framework. Since early 2022, three municipalities are, under the designation as “special health zones” (kenk¯o tokku), implementing “medical information banks” (iry¯o-ban j¯oh¯o gink¯o) in order to uniformly manage (ichigen kanri) information related to health and medicine (Kanzaki T 2022; Naikaku-fu chih¯o s¯osei suishin jimukyoku 2022, p. 7). Already before this, publications on e-health had covered the development of medical information banks (e.g., Matsumura et al. 2021); the MIC’s Guidebook 2.1 from August 2021 has clarified that certified information banks are now allowed to also handle less sensitive health-related information (including weight, blood pressure, heartbeat, and calorie intake) (S¯omush¯o 2022). The most recent meeting of the MIC’s Discussion Commission in October 2022 has settled on a workflow on what kind of other health information could be allowed; the data ethics committee (see Fig. 12.1) is expected to gain in importance (S¯omush¯o J¯oh¯o Ry¯uts¯u Gy¯osei Kyoku 2022). Whether this results in a ruinous “race to the bottom” regarding privacy protection or whether customers can indeed develop trust into the system remains to be seen.

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12.6 Discussion While the diffractive genealogy enacted above cannot deny being fragmentary in character, it nevertheless allows for an assessment of the information bank concept far deeper than present in the literature. Central assumptions of information banks as devised by Shibasaki Ry¯osuke and his team, i.e., to treat information as an asset and to provide users with controllability, have been retained into the present. Some aspects of the design in the first version of the MIC’s Guidebook reflected internationally developing norms regarding data protection, mediated through the active engagement of Japanese members in the international MyData Global initiative. A severe limitation of what had been envisioned resulted from the decision to exclude especially sensitive information like health information. Formal discussions and informal calls to weaken this restriction followed almost immediately, and a decision for beginning to do so was made after the beginning of the COVID-19 pandemic. With this new flexibility, it is less grave that the certification scheme has not yet lived up to the expectations than it might appear at first glance. That the Japanese government is now supporting the deployment of medical information banks in “special health zones” shows the complexity of making appropriate use of health information—information that could nevertheless bring with it the greatest benefits in long run. The new momentum gained in the COVID-19 pandemic has, however, been viewed critically by some in Japan: in the eyes of the Citizens Network Against National ID Numbers (CNN), an advocacy group for privacy opposing the MyNumber system in particular, the establishment of the Digital Agency was a symptom of “Digital Leninism” (Heilmann 2016) and neoliberal shock therapy (Klein, 2007) (Ishimura & Nakamura 2021). Putting aside a judgment of this critique, it is warranted to give the context that even in the EU, which had prominently focused on individual rights with the GDPR, politics shaping how data is used seems to have gained acceptance in 2020. The regulation of “data altruism” through which the Data Governance Act aims to facilitate the usage of data for “general interest” bears an inherently political character (Baloup et al. 2021, p. 47). Although some scholars in Japan saw the focus on privacy in Europe as a reflection on the Nazi era (Asahi Shinbunsha 2018), it was especially true for Germany that loosening privacy protection became a topic of debate during the pandemic. At an event on digital technology among a lockdown in early December 2020, Chancellor Angela Merkel called for a debate on privacy protection in order to better identify vulnerable groups, for example. She warned that unless the digital transformation in Germany would gain in speed, Germany would “simply be dead last at some point” (irgendwann einfach Bummelletzter) (WELT 2020). Seemingly unaware of historical precedents of the phrase, of social costs a radical transition necessarily entails, and of the fact that especially harsh mobility restrictions would actively contribute to it, the Federal Government and other public institutions in Germany have welcomed a “Digital Leap Forward” (Digitaler Sprung nach Vorne) that has, supposedly, taken place in the country since the beginning of the pandemic (Bundesregierung 2021; IHK München und Oberbayern 2021). What is at stake here is not the question of whether these

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calculations are legitimate, but rather that in Europe, too, the emphasis on privacy protection was partially abandoned or at least put aside during the pandemic. If the momentum for the adoption of data technology that was gained internationally is lost in the future, be it because of well-argued critique or simple reluctance in adoption by prospective customers, this would, to some degree, hold for both Japan and Europe. This makes the stipulation for deepening the understanding of their respective data intermediation schemes in the Japan-EU Digital Partnership (Ministry of Economy, Trade and Industry 2022; art. 66) all the more relevant. There are aspects in which the current information banks qualitatively differ from how they were first envisioned. Among the arguments given in favor information banks was that users do not need have to use the MyNumber IDs for using the system. While that remains true, the most relevant information banks could be integrated into larger systems where not giving MyNumber ID is not a practical option. The revision in the MIC’s Guidebook 2.2 which forbids various types of profiling has alleviated this to some degree (S¯omush¯o 2022). Another issue is that the closer an information bank is connected to solving a central problem the society faces, the more complex the stakeholder structure becomes—a caveat being that market mechanisms establish competition, but given current experiences with the certification scheme, this seems unlikely in the short to mid-term. The most relevant information banks to society may be those where non-participation inflicts very high costs, conflicting with the assumption of free consent built into the model. Besides the certification scheme, the information bank concept already serves as a framework for deploying solutions to medium-sized companies, communicating throughout the economy the basic assumption that personal information of customers can be seen an asset. The fact that benefits do not have to be financial in this scheme is worth remembering, as it opens up the opportunity for deployment in contexts where a financial benefit is not realistic or would seem inappropriate. Although the Japanese government has created a substantial path dependency by assigning information banks a specific role in the national data strategy, the potential for deploying an information bank solution in a specific case is not directly tied to the success of the certification scheme—at least in the short term.

12.7 Conclusion This chapter has provided a case study of data technology developed over a period of time during which the norms of data usage changed considerably. The project would not have been viable without the continuous support by a national government whose broader digital strategy seemingly went against trends towards privacy protection, but which tried to follow through with it nevertheless. The influence of the Brussels Effect (Bradford 2020), both on Japanese legislation and on public discourse mediated by activists and scholars of law, proved to be considerable. Businesses and governments outside of the EU should be aware of this powerful influence while keeping in mind that the underlying strategies are not necessarily effective and may be finally adjusted.

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This line of argument seems to make the case for persistence and the cautious but dynamic adaptation to changing norms of data usage if the technology in question is sufficiently generic, relegating innovativeness to a matter of secondary importance. The argument definitely does not hold in contexts where disruptive solutions funded by venture capital tend to win out in the end. For legislators, platform regulation remains a complementary task to the development of data intermediation schemes like that of the information banks. It warrants emphasis that offering the functionality of an information bank in its current form (Fig. 12.1) does not provide a business model; for this, adding value in another way is necessary (It¯o 2022). Promising scenarios include those where the value offered to customers includes non-financial aspects and those where Mobility as a Service (MaaS) plays a role. Stakeholders should, however, in hindsight pay attention to the fact that as part of the broader strategy by the Japanese government to increase data circulation, the reforms necessary to establish mutual adequacy with the data protection regime of the EU were in fact carried out successfully. In light of the EU legislation concerning data usage since 2020 that encourages data circulation, Japan may merely have pursued a different path towards a legal regime convergent in many aspects. It appears promising that trust as part of data usage, which is at the basis of the information bank concept, seems to become part of a consensus among parts of the international community: The initiative Data Free Flow with Trust (DFFT) set forward by prime minister Abe Shinz¯o at the World Economic Forum in January of 2019 (Abe 2019) has become a framework of the G7 for data governance (G7 Digital Ministers’ Track, 2022) and has—as a catchphrase—even entered the Declaration for the Future of the Internet (The Declaration for the Future of the Internet Partners, 2022). The Japanese Digital Agency has invested much energy into making the initiative more concrete (Digital Agency, 2022) before the Japanese G7 presidency in 2023. Although Abe in his speech emphasized that the free flow should concern “non-personal data”, data protection regimes do not have this binary approach; aiming to increase circulation of data, the goal is similar to that of the Basic Act on the Advancement of Public and Private Sector Data Utilization from 2016. The degree to which trust can be guaranteed substantially depends on future geopolitical developments: The National Data Strategy from June 2021 states that Japan should collaborate on DFFT with “likeminded countries that share common values” (National Strategy Office of IT, Cabinet Secretariat 2021; p. 22), implicitly excluding Japan’s largest trading partner, China. This approach was chosen particularly because of considerations of cybersecurity and economic security more generally (Kümmerle 2022) before the background of intensifying strategic competition between the United States and China (Sahashi, 2021). Whether Japan can wield enough regulatory power internationally to establish a certain level of trust in the data flow beyond its borders will be an important indicator of whether the government can justify the much higher trust that Japanese citizens need to have in order to use domestic information banks. Acknowledgements The author thanks the Ministry for Internal Affairs and Communications (MIC) of Japan for the permission to use a diagram from the Japanese-language edition of the “WHITE PAPER Information and Communications in Japan” (S¯omush¯o 2021) explaining the

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functionality of information banks from one of its white papers and carry out the translations himself.

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Harald Kümmerle is senior research fellow at the German Institute for Japanese Studies (DIJ) in Tokyo. He studied mathematics and computer science at the Technical University of Munich (TUM), Japanese Studies at the Martin Luther University Halle-Wittenberg (MLU), and Japanese as a Foreign Language at Keio University in Tokyo. His doctoral thesis (Japanese Studies; defended in 2019) concerned the institutionalization of mathematics as a science in Meiji- and Taisho-era Japan. During the time as a doctoral researcher, he was junior visiting research fellow at Keio University, visiting research fellow at the Centre for Science Studies at the German National Academy of Sciences Leopoldina and research fellow at the MLU Halle-Wittenberg. He also was a visiting researcher at the Graduate University for Advanced Studies, SOKENDAI. His interests include the history of mathematics, digital humanities, new materialism, and critical data studies.