Contemporary Approaches for Performance Measurement and Management in Japanese Companies Located in the Czech Republic

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1 Contemporary Approaches for Performance Measurement and Management in Japanese Companies Located in the Czech Republic MICHAELA BLAHOVÁ, ADRIANA KNÁPKOVÁ Centre for Applied Economic Research, Department of Finance and Accounting Tomas Bata University in Zlín, Faculty of Management and Economics Nám. T. G. Masaryka 5555, Zlín CZECH REPUBLIC Abstract: This paper deals with contemporary approaches for performance measurement and management in Japanese companies located in the Czech Republic based on the quantitative research (questionnaire survey) that was carried out in cooperation with Japanese companies that were granted (or were promised) investment incentives in the Czech Republic from April 1998 to November The main aim of the research was to find out whether Japanese companies located in the Czech Republic use similar performance measures like Czech companies located in the Czech Republic and whether performance indicators of Japanese companies in the Czech Republic achieve better results than performance indicators of Czech companies in the Czech Republic due to Japanese management practices utilized in every subsidiary of a Japanese company all over the world. The list of Japanese companies located in the Czech Republic was provided by the Czech Investment and Business Development Agency CzechInvest. The analyzed results of the questionnaire survey served as the basis for performance comparison (based on Return on Equity = ROE) in Czech and Japanese companies (transport equipment manufacturing sector) located in the Czech Republic and led to recommendations for companies in the field of performance enhancement. The results showed that Japanese companies in the Czech Republic use similar management tools like their Czech counterparts. However, performance indicators based on ROE showed better results in Czech companies than in the Japanese ones. Key-Words: performance, measurement, management, Japan, Czech Republic, strategy 1 Introduction The competitive edge of modern-day businesses emerges from creation or discovery of a high performance management system. A system that increases efficiency, decreases costs or enhances quality confers immediate competitive advantage on its creator and sets a standard for the rest of the industry to follow. But once disseminated across the field of competition, it becomes the standard. Therefore, it is essential to keep on creating competitive advantage of a company continually [1]. Enhancement of a company s performance has always been considered as one of the most important prerequisites for a long-term existence of a company. Many businesses have failed in performance enhancement because they have not been able to formulate right business strategies and strategy frameworks or have failed to implement them effectively. Japanese companies have been very well known for using specific management techniques (often very effective) to run their businesses. Decisions by consensus, lifetime employment, continuous training and many more distinctive practices have brought a remarkable economic success to many of them. Therefore, what are performance measures that matter in Japanese companies in the Czech Republic and do they vary significantly from those that have been used in Czech companies so far? Do performance indicators in Japanese companies in the Czech Republic achieve better results than in the Czech ones? If so, can we consider it as a result of unique Japanese management techniques? The survey carried out from January 2012 to April 2012 in cooperation with Japanese companies located in the Czech Republic focused on current utilization of various concepts and tools for performance management and measurement. These tools aim to help to analyze and plan a company s strategic, tactical and operational position and provide answers to important questions. In the course of the research, selected methods of Japanese management practices were taken into ISBN:

2 account in order to distinguish and compare results achieved within the project entitled Creating A Model for Measuring and Managing Performance of Companies supported by Czech Science Foundation (Grant Number 402/09/1735) that was effectuated at the Faculty of Management and Economics of Tomas Bata University in Zlín from 2009 to The survey outcomes were analyzed and compared to a ROE-based performance evaluation in Czech and Japanese companies in the transport equipment manufacturing sector in the Czech Republic. 2 Problem Formulation Performance management can be defined as a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of getting better results from the organization, teams and individuals by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements [2]. Other scientists consider performance management as the development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organization which supports and encourages their achievement [3]; or as the process of directing and supporting employees to work as effectively and efficiently as possible in line with the needs of the organization [4]. Performance management has to focus on organizational as well as individual capability. Processes for improving individual performance will not necessary result in improvements in organizational performance. A strategic approach is required that involves fitting the performance management strategy to the firm s business strategy and context, and supporting the business and HR strategies through activities designed to improve organizational effectiveness [5]. In order to secure continuous (event. discontinuous) improvement of company performance managers started to use several models (tools) that helped them to analyze its strategic, tactical and operational position, e.g. Van Assen, Van Den Berg and Pietersma categorized these models in a matrix [6]. The strategic part involves e.g. BCG matrix, Blue Ocean Strategy, Porter s Five Forces, SWOT Analysis or Value-Based Management, whereas the tactical part deals with Benchmarking, Six Sigma, the EFQM Excellence Model or Kotler s 4Ps of Marketing. The operational part complements the model with e.g. Balanced Scorecard, Kaizen/Gemba or Mintzberg s Management Roles. Although the models can none the less provide valuable insights and a sound framework for making appropriate business choices, they can help managers and consultants to gain clarity in business by reducing the complexities and uncertainties involved. Companies in particular must assume a broader role than simply delivering value to their shareholders. To be successful over time, even for and on behalf of shareholders, businesses must think about the wants and needs of all of their stakeholders and endeavour to deliver appropriate value to each of them [7]. Therefore, it is highly important to measure and manage company s performance as well as use effective and dynamic leadership and cooperation with allied partners, suppliers, etc. to stay competitive in future. In the past few years, many experts on Japanese management have isolated distinctive practices that seemingly account for Japan s remarkable economic success [8]. While top executives in the United States (or in many other Western nations) would rank as the most important concerns of top management making effective decisions; harmonizing employment security with other needs such as productivity, flexibility in labor costs, and acceptance of change in the company; and developing young professional managers, Japanese managers would apply different principles, approaches and policies to tackle each of these problems. These policies, while not the key to the Japanese economic miracle, are certainly major factors in the astonishing rise of Japan in the last 100 years, and especially in Japan s economic growth and performance in the last 20 years [9]. On a manufacturing level, Japanese managers have achieved the excellence mostly by doing simple things but doing them very well and slowly improving them all the time [10]. The Japanese workplace is characterized by order, stability, predictability, and cohesion emerging from the subtle and not so subtle controls devised by powerful managers. In well-run companies, all of this methodical regimentation can be quite effective. Managers provide employees with the training and resources to do what is expected of them and are eager to hear any employee ideas about how to do the job better [11]. Therefore, do some Japanese management techniques have an influence on a company s performance? The aim of the research was to find out whether Japanese companies in the Czech Republic use similar performance measures like Czech companies ISBN:

3 in the Czech Republic and whether performance indicators (based on ROE) of Japanese companies in the Czech Republic achieve better results than performance indicators of Czech companies in the Czech Republic due to Japanese management practices implemented and utilized in every subsidiary of a Japanese company all over the world. 3 Problem Solution 3.1 Research Methodology Contemporary approaches for performance measurement and management in Japanese companies located in the Czech Republic were examined on the basis of the quantitative research i.e. a questionnaire survey. The survey took place from January 2012 to April 2012 and was focused on Japanese companies that were granted (or were promised) investment incentives in the Czech Republic from April 1998 to November Within the research, 39 Japanese companies of different size, legal form and business focus were approached ( /phone) to complete a questionnaire composed by 6 questions, and, until 30 April 2012, 15.4 percent of questionnaires were delivered. Another 15.4 percent responded that they could not provide required information to the third party due to a company policy percent promised to send the filled questionnaire within May 2012 or June 2012, no later than by the end of August The remaining 17.9 per cent did not respond. All completed questionnaires that were delivered back to the authors came from manufacturing companies. 67 percent of the aforementioned companies had more than 250 employees, the rest had between 51 and 250 employees (Fig.1). Distribution of Respondents by Number of Employees 67% 0% 0% 33% less than more than 250 Fig.1 Distribution of respondents in the questionnaire survey by number of employees (own research) Within the research focused on Creating A Model for Measuring and Managing Performance of Companies, 402 responses from companies in the Czech Republic were obtained. 27 percent of companies had more than 250 employees, 36 percent of companies had between 51 and 250 employees, 27 percent of companies had between 11 and 50 employees and 10 percent had less than 10 employees. Moreover, 50 percent of companies were oriented on manufacturing, 30 percent on services and 20 percent on commerce [12]. 3.2 Limitations of the Research One major disadvantage of written questionnaires is a low response rate that can influence final results of the survey. Moreover, big differences between small-sized, middle-sized and bid-sized companies in terms of number of employees as well as companies focused on manufacturing, services or business may occur. Respondents may also answer superficially, i.e. a researcher is unable to probe responses. 4 Determination of Research Questions, Research Results and Discussion RQ1: Do Japanese companies located in the Czech Republic use similar performance measures like Czech companies located in the Czech Republic? The research question 1 was confirmed. All Japanese companies that completed the questionnaire used financial measures (100 percent), controlling (100 percent) and quality management tools (83 percent) to measure performance development the most (Fig.2). The modern tools for performance measurement (e.g. Balanced Scorecard, Economic Value Added, Reengineering, etc.) were introduced in 33 percent of Japanese companies. Similar results were accomplished in the research focused on Creating A Model for Measuring and Managing Performance of Companies where 87 percent of firms confirmed the use of financial measures the most, furthermore, in the research study done by Marr [13] which states that 91 percent of firms measure financial indicators, or, in the research performed by Znamenacek [14] that confirms the use of financial indicators in 85 percent of companies. ISBN:

4 Utilization of Contemporary Performance Measures in Japanese and Czech Companies in the Czech Republic him to succeed in this ever-changing competitive environment. Balanced Scorecard ABC/M Reengineering RQ2: Does performance (based on ROE) of Japanese companies located in the Czech Republic achieve better results than performance of Czech companies in the Czech Republic due to Japanese management practices implemented and utilized in every subsidiary of a Japanese company all over the world? Benchmarking Economic Value Added Customer Relationship Management Lean Management Management Accounting Outputs Quality Management Controlling Financial Measures Financial Measures 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Controllin g Quality Manageme nt Manageme nt Accountin Lean Manageme nt Customer Relations hip Economic Value Added Benchmar king Reengine ering Czech companies in the CZ 96,83% 86,11% 56,35% 78,17% 20,63% 40,48% 30,16% 46,83% 17,86% 33,73% 22,22% Japanese companies in the CZ 100% 100% 83% 67% 50% 50% 33% 33% 33% 17% 17% ABC/M Balanced Scorecard Japanese companies in the CZ (transport equipment manufacturing sector) - with outliers Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Total - Japanese companies in the CZ -6.71% Fig.2 Utilization of Performance Measures in Japanese and Czech Companies in the Czech Republic (own research) Performance measures are generally used by organizations to implement and drive strategic objectives. However, they can also be used to reward employees financially and measure if a company meets its goals. Financial measures have been proved to serve as the basis for performance measurement and management across various types of companies from small-sized to big-sized, from manufactureoriented to services-oriented, etc. They are useful indicators of a firm s performance and financial situation and are easy to be calculated from information provided by the financial statements. That is probably one of the reasons why financial measures have continuously been utilized in the majority of companies all over the world. However, these traditional financial measures often fail to capture the true picture of a firm because they focus on the past. Therefore, a smart manager should always take into account other tools that may help Czech companies in the CZ (transport equipment manufacturing sector) with outliers Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Total - Czech companies in the CZ % Table 1 Comparison of in Japanese and Czech companies located in the Czech Republic before removal of outliers (own research) The research question 2 was not confirmed. According to an eight-year ROE-based performance evaluation ( ) of Czech (sample of 18 companies) and Japanese (sample of 24 companies) companies in transport equipment manufacturing sector in the Czech Republic that were granted (or ISBN:

5 were promised) investment incentives in the Czech Republic from April 1998 to November 2011, it has been found out that the ROE indicator (based on Earning After Taxes EAT) in Japanese companies achieved better results (i.e. 8-year average: minus 6.71 percent) than in Czech companies (i.e. 8-year average: minus percent) see Table 1. However, after removing of outliers using descriptive statistics (boxplots) it has been found out that performance based on achieved better results in Czech companies located in the Czech Republic than in the Japanese ones see Table 2. Japanese companies in the CZ (transport equipment manufacturing sector) - without outliers Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Total - Japanese companies in the CZ -1.95% Czech companies in the CZ (transport equipment manufacturing sector) - without outliers Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Total - Czech companies in the CZ 7.52% Table 2 Comparison of in Japanese and Czech companies located in the Czech Republic after removal of outliers (own research) All Japanese companies that responded to the questionnaire confirmed that Japanese management practices (e.g. KAIZEN, GENBA, RINGI, SENIORITY SYSTEM, JUST-IN-TIME, etc.) are of great importance to them (Fig.3). These practices may have a significant influence on corporate performance; however, there has not been enough evidence to prove it. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Utilization of Selected Methods of Japanese Management Practices in Japanese Companies in the Czech Republic 100% 100% KAIZEN GENBA RINGI SENIORITY SYSTEM 83% 83% 83% 83% 83% 83% JUST-IN- TIME JIDOKA KEIRETSU AMOEBA SYSTEM Fig.3 Utilization of Selected Methods of Japanese Management Practices in Japanese Companies in the Czech Republic (own research) 5 Conclusion This paper focused on the research of contemporary approaches for performance measurement and management in Japanese companies located in the Czech Republic with the main aim to verify whether Japanese companies located in the Czech Republic use similar performance measures like Czech companies located in the Czech Republic and whether performance indicators of Japanese companies in the Czech Republic achieve better results than performance indicators of Czech companies in the Czech Republic due to Japanese management practices utilized in every subsidiary of a Japanese company all over the world. The analyzed results indicated that Japanese companies in the Czech Republic use similar management tools like their Czech counterparts. On the other hand, performance indicators based on ROE achieved better results in Czech companies than in the Japanese ones. The search for new and effective management practices is common to all companies in the world. It is natural that a company willing to enhance its performance tries to investigate the sources and techniques of other companies successes and failures. Therefore, with careful planning, analysis and patience, a company may achieve substantial results. It should not be only worried to try to learn, implement and modify new methods of different management systems that have proved to work on a large scale. ISBN:

6 References: [1] G. Bassett, The Evolution and Future of High Performance Management Systems, Westport: Greenwood Press, [2] M. Armstrong, Performance Management: Key Strategies and Practical Guidelines, London: Kogan Page, [3] J. Lockett, Effective Performance Management: A Strategic Guide to Getting the Best from People, London: Kogan Page, [4] M. Walters, The Performance Management Handbook, London: Chartered Institute of Personnel and Development, [5] M. Armstrong, Armstrong s Handbook of Performance Management: An Evidence-Based Guide to Delivering High Performance, London: Kogan Page, [6] M. Van Assen, G. Van Den Berg, P. Pietersma, Key Management Models: The 60+ Models Every Manager Needs to Know, Harlow: Financial Times/Prentice Hall, [7] A. Neely, Ch. Adams, M. Kennerley, The Performance Prism: The Scorecard for Measuring and Managing Business Success, New Jersey: Pearson Education, [8] Ch. Y. Yang, Demystifying Japanese management practices, Harvard Business Review, Vol. 62, No. 6, November-December, 1984, pp [9] P. F. Drucker, What we can learn from Japanese management, Harvard Business Review, Vol. 49, No. 2, March-April, 1971, pp [10] R. H. Hayes, Why Japanese factories work, Harvard Business Review, Vol. 59, No. 4, July- August, 1981, pp [11] J. J. Sullivan, Japanese Management Philosophies: From the Vacuous to the Brilliant, California Management Review, Vol. 34, No. 2, 1992, pp [12] A. Knapkova, D. Pavelkova, E. Jircikova, The Use of Financial Measures in the Current Practice of Czech Companies, in: Creating Global Competitive Economies. A 360-Degree Approach [CD-ROM], Milan, Italy , Norristown: International Business Information Management Association, 2011, pp [13] B. Marr, Business Performance Management: Current State of the Art, A Survey Report, Cranfield: Cranfield School of Management and Hyperion, [14] J. Znamenacek, How Do Czech Organizations Manage Their Performance, Praha: Ústav vyšších studií ČVUT, ISBN: