Innovation Theater or Real Impact? What Japanese Companies Need to Do to Promote Innovation

Innovation is a favorite keyword of Japanese organizations these days, and it appears regularly in speeches, websites, annual reports, and even the names of entire departments. But do Japanese companies realize that how they manage themselves often squashes innovation rather than encouraging it?

Well actually, some Japanese organizations do realize that. I have heard it said that Japanese companies should “quarantine” their innovation activities so that they can operate free from the oppressive atmosphere of the main operations that tend to squelch new ideas. Following this advice, many Japanese companies do things like setting up innovation departments or “labs”, creating open innovation programs to work with startups, or establishing corporate venture capital arms to invest in startups.

I’m not saying it’s a bad thing for Japanese companies to do these things. There are many examples of corporate innovation labs producing innovative products that became important to their companies, and many companies have had excellent results from collaborations with startups. I also serve as a mentor to startups through 500 Global and other programs. Many of the startups I have mentored have pursued collaborations with Japanese companies that have been fruitful for both parties. So I have seen first-hand that startups are a vibrant source of new ideas that can be helpful to Japanese companies.

However, I am concerned that in many cases, these kinds of activities are merely cosmetic. At worst they can be considered “innovation theater” – something that looks good and can be pointed to as proof of the company’s innovative credentials, but that lacks real substance or impact. Often the innovation labs or CVCs have offices with trendy modern furnishings and the staff all wear Silicon Valley style casual wear. They look good. But the question is, are they truly making an impact on the company overall? In some cases yes, but in some cases no.

My concern is that just relying on some activity or entity that is outside the mainstream of the company as the only source of innovation is not a good idea. Because based on my years of working in Silicon Valley, I have also seen many cases where relying on startups or separate innovation departments or labs didn’t work so well. Many Japanese firms have a very strong not-invented-here kind of attitude, so even if their innovation lab comes up with a good idea or their corporate venture capital arm introduces a startup with an attractive technology, it may be difficult to get the central R&D function or the relevant jigyobu to be interested in adopting it. And even if collaboration starts, it might proceed at a snail’s pace, which is a significant turnoff to most fast-paced startups and the entrepreneurial types who work in the innovation labs. Or the cultural clash between a nimble startup’s way of doing things and a hidebound traditional corporation’s internal processes is so large that it dooms the project. I have even seen firsthand and close-up more than one situation where a Japanese company purchased a startup in the U.S. for millions of dollars, failed at successfully integrating it into the overall company’s operations, and ended up shutting down the acquired company down a few years later. This kind of waste is of course terrible.

So while I’m not recommending that Japanese companies shutter their innovation labs and open innovation programs (and perhaps some other time I will write in more detail about how to improve the way those programs interface with the rest of the organization) I think that Japanese companies need to do something else in addition. Something that transforms the way the rest of the organization works. In other words, rather than only trying to do innovation in some safe space away from the main organization, Japanese companies should figure out why the main organization is so hidebound and figure out how to change that.

In my new book in Japanese, ＤＸ時代の部下マネジメント―「管理」からサーバントリーダーシップへの転換 (Servant Leadership for Digital Transformation), I go into more detail about how Japanese companies can transform their corporate culture to create an environment that better fosters innovation.