Not Made In Japan

The innovation crisis is in large part rooted in the country's peculiar corporate culture. Japan Inc. still remains dominated by big, vertically integrated dinosaurs with little maneuverability and a marked disinclination to creativity. Sony CEO Howard Stringer was brought in from America to shake things up in 2005 and has acknowledged his struggle ever since to break down the barriers between company divisions. The strict hierarchies of Japanese companies discourage people with radical new ideas. One notorious example involves Shuji Nakamura, the scientist who invented a revolutionary energy-saving blue-diode light source only to find himself mired in years of litigation as he struggled to extract royalties from the company that had profited from his invention. Nakamura ultimately abandoned Japan for California. Fasol recalls asking scientists at the University of Tokyo if they considered his departure a blow. " 'Not at all,' they told me. 'It might be good to have someone more ordinary'." Sergey Brin and Larry Page, the cofounders of Google, wouldn't have stood a chance in Japan.

Nor would Google's remarkable culture of chaotic cross-pollination. In Japan, boundaries between groups (even inside companies) are clearly defined and hard to cross. Carl Kay, a U.S. consultant who has spent years analyzing Japanese service companies, recalls encountering several representatives of a Japanese computer maker at an Internet conference in the United States back in 1995. "We went to Starbucks together, and they said, 'We don't get it. Why would we want to use the Internet to talk to people outside of the company?' " Insular Japanese companies are evidently ill poised to craft the sort of personalized, culturally specific content that is at the heart of much of technology and telecom development today.

Takahiro Fujimoto, an economics professor at the University of Tokyo, offers another theory: PCs, software and hybrid gadgets like the iPod are "modular" products, made up of existing components that "people mix and match in an innovative way." The Japanese tend to excel at "integral" products like cars, with components designed from scratch. "We are not good at dealing with genius individuals," Fujimoto says. "We're good at teams."

One intriguing exception: Nintendo, whose easy-to-use interactive Wii console has enabled it to break away from rivals like Microsoft and Sony. But Nintendo is also the exception that proves the rule—it has cultivated an outsider image and pursued a strategy of tapping consumer groups traditionally uninterested in gaming. It's no accident that Nintendo, like several other more innovative companies, is based in Kyoto—far from staid Tokyo.

The cautionary tale of DoCoMo continues to be relevant. Today it is trapped in a domestic market with a diminishing population, watching as its nimbler rivals at home grab an ever-bigger piece of the shrinking mobile pie. Its only hope for decisive growth would have been to leapfrog into the global market. But it didn't happen. Just three years ago the value of DoCoMo's shares amounted to about 10 times that of Nokia's. Today Nokia (based in Finland, with its population of 5 million versus Japan's 127 million) has a market cap more than double that of DoCoMo's. That puts Nokia in the realm of other global giants like Apple and Google.

The lesson for the Japanese isn't necessarily to be more like Americans. But they will have to change decisively. Over the next century, disruptive innovations won't be coming only from countries like the United States. They'll also be emerging from dynamic, hungry, rising economies that offer plenty of room for risk-taking, flights of fancy and cross-border synthesis. If the Japanese want to be a part of that club, they'll have to revamp not only how they think about technology, but how they think about themselves.

With Akiko Kashiwagi in Tokyo

© 2008