Established in 1920, the consumer electronics giant Panasonic was at the forefront of the rise of Japan to the status of major economic power during the 1970s and 1980s (before 2009 Panasonic was known as Matsushita). Like many other long-standing Japanese businesses, Panasonic was regarded as a bastion of traditional Japanese values based on strong group identification, reciprocal obligations, and loyalty to the company. Several commentators attributed Panasonic’s success, and that of the Japanese economy, to the existence of Confucian values in the workplace. At Panasonic, employees were taken care of by the company from “cradle to the grave.” Panasonic provided them with a wide range of benefits including cheap housing, guaranteed lifetime employment, seniority-based pay systems, and generous retirement bonuses. In return, Panasonic expected, and got, loyalty and hard work from its employees. To Japan’s postwar generation, struggling to recover from the humiliation of defeat, it seemed like a fair bargain. The employees worked hard for the greater good of Panasonic, and Panasonic reciprocated by bestowing “blessings” on employees. 

However, culture does not stay constant. According to some observers, the generation born after 1964 lacked the same commitment to traditional Japanese values as their parents. They grew up in a world that was richer, where Western ideas were beginning to make themselves felt, and where the possibilities seemed greater. They did not want to be tied to a company for life, to be a “salaryman.” These trends came to the fore in the 1990s when the Japanese economy entered a prolonged economic slump. As the decade progressed, one Japanese firm after another was forced to change its traditional ways of doing business. Slowly at first, troubled companies started to lay off older workers, effectively abandoning lifetime employment guarantees. As younger people saw this happening, they concluded that loyalty to a company might not be reciprocated, effectively undermining one of the central bargains made in postwar Japan. Panasonic was one of the last companies to turn its back on Japanese traditions, but in 1998, after years of poor performance, it began to modify traditional practices. The principle agents of change were a group of managers who had extensive experience in Panasonic’s overseas operations, and included Kunio Nakamura, who became the chief executive of Panasonic in 2000.

First, Panasonic changed the pay scheme for its 11,000 managers. In the past, the traditional twice-a-year bonuses had been based almost entirely on seniority, but now Panasonic said they would be based on performance. In 1999, Panasonic announced this process would be made transparent; managers would be shown what their performance rankings were and how these fed into pay bonuses. As elementary as this might sound in the West, for Panasonic it represented the beginning of a revolution in human resource practices. 

About the same time, Panasonic took aim at the lifetime employment system and the associated perks. Under the new system, recruits were given the choice of three employment options. First, they could sign on to the traditional option. Under this, they were eligible to live in subsidized company housing, go free to company-organized social events, and buy subsidized services such as banking from group companies. They also still would receive a retirement bonus equal to two years’ salary. Under a second scheme, employees could forgo the guaranteed retirement bonus in exchange for higher starting salaries and keep perks such as cheap company housing. Under a third scheme, they would lose both the retirement bonus and the subsidized services, but they would start at a still higher salary. In its first two years of operation, only 3 percent of recruits chose the third option—suggesting there is still a hankering for the traditional paternalistic relationship—but 41 percent took the second option. 

Questions  

1. What were the triggers of cultural change in Japan during the 1990s? How is cultural change starting to affect traditional values in Japan?

2. How might Japan’s changing culture influence the way Japanese businesses operate in the future? What are the potential implications of such changes for the Japanese economy?

3. How did traditional Japanese culture benefit Panasonic during the 1950s–1980s? Did traditional values become more of a liability during the 1990s and early 2000s? How so?

4. What is Panasonic trying to achieve with human resource changes it has announced? What are the impediments to successfully implementing these changes? What are the implications for Panasonic if ( a ) the changes are made quickly or ( b ) it takes years or even decades to fully implement the changes?

5. What does the Panasonic case teach you about the relationship between societal culture and business success?