Chuo University Speech(Nov 25th, 2011)
"The Structural Transformation of the Game Industry"


Let me derail from today’s main theme just for a little bit. Earlier, I talked about Sony having achieved continuous innovation instantaneityously. I believe that this is a great research theme to discuss about what is Japanese version of innovation.

If I may chat for a moment, I think that innovation is like a chemical reaction. Innovation is delivered when the necessary factors are placed under the optimal environment. From the perspective of how to manage innovation, one will have to learn to do it with self consciousness, at least to be able to identify what are the necessary ingredients, how to procure them, change the mix, and make a series of repeated attempts. I believe the Japanese companies were reasonably strong because they had an extremely excellent regime in accessing the basic elements needed for innovation.

Funding was mainly through bank borrowings. Relatively speaking, companies had ample pockets of financial resource. The cost of equity was extremely cheap as well. In terms of talents, Japan had the lifetime employment system. People have a perception of lifetime employment system as being very rigid. However, it is almost like a religion, and when the employees appreciate the security of lifetime employment, things that cannot be done today were there as available options. For example, the company was able to tell an employee, “you are going to work as a designer in Finland in a week.” He may object and say, “I thought I was hired to work in the Accounting Department.” Then the boss can say, “Once you join a company, you should devote your whole life to the company.” As you can see, the mobility between different companies was scarce, yet personal transfers within the same company or group companies were possible at the free will of the company. The management enjoyed a tremendous level of freedom in HR allocation. People often talk negatively about the lifetime employment, but it had some benefits for the companies as well as for the employees. At the end of the day, given the access to an ample pool of internal resources for the large corporations and conglomerates, many in-house venture business was set up to create many new opportunities. There were no cumbersome oversight like today’s corporate governance, and in effect, it was almost like a dictatorship by the board of directors. If you say that lacked transparency, you may be right. But, extremely quick decisions were made, because back then, there were no requirements for evidence, documentation, nor necessary steps to be taken. The decision was made and that was it. There were some negative consequences, but the large corporations with a few dozen thousands people could make decisions very swiftly as if they were small and medium sized enterprises. The traditional large corporations, lifetime employment, cross share holdings, etc. were all the best things for in-house venture business. That’s true for Sony Computer Entertainment. Sony is a huge company with excellent brand, but nobody joined Sony wanting to develop games, because back then, there were no game industry. People who joined Sony Music because of their aspiration for Beatles were told to go sweet talk the game developers. Those with knowledge about manufacturing of home electronics were told to design a game device. To those who joined Sony out of respect for Mr. Morita were told to replicate Nintendo’s business model and build the PlayStation business model. The finance team was told to work on some long dated funding. They did it in a blink. They were able to bring the best talent in a split of a second, and that was the great strength of Japanese corporations. Some of the talented people may have decided to become entrepreneurs and build their own business. You will know when you attempt this, but this is impossible. You may be able to bring excellent programmers together who share the same virtue and vision. That could be done, but bringing together programmers, designers, business managers capable of making business plan, and legal experts, and pursue a global business in a blink is impossible. Japanese companies were able to do this in the past. To make matters simple, I am using an extreme example. My point is that companies and society were established in consistency with each other, and both were serving the respective roles in harmony.

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