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New government, new chance to digitally disrupt Japan

Until May last year, health centers in Japan used fax machines to send handwritten reports of COVID-19 cases to the health ministry. Hanko seals (a carved stamp) and paper documents, in lieu of digital ones, are still part of the country’s work culture. Hard cash continues to circulate, due to widespread refusal to adopt digital payment systems. 

Though highly diversified, Japan’s industrial sector has been slow to digitalize, driving production from stagnation into a steady decline. Despite Japan’s innovative image on the world stage, it ranks only 27th in a survey of how countries (and their industries) deploy digital technologies, according to the IMD Digital Competitiveness index. Other reports show that only 13% of Japanese organizations are actively working to digitalize.

What exactly is the holdup when it comes to digitalizing a country seemingly as advanced as Japan?

Answering this question has become a priority for Japanese leaders. It portends to be a long-term competitive catastrophe in the making, which is perhaps why former Prime Minister Yoshihide Suga prioritized digital reform when came into power in September 2020. The country has long struggled to deliver on administrative reforms, which has served as a barrier to admittance in the digital era.  

This week, Japan elected a new prime minister to replace Suga: Fumio Kishida. Kishida is expected to follow through with Suga’s digital reforms, specifically the “digital garden city state” concept that seeks to boost regional economies through the use of advanced  technology.

Ignite News spoke with Junji Yamamoto, an executive advisor for Yokogawa Electric Corporation’s industrial automation and life innovation business, about what’s behind Japan’s societal reluctance to digitalize. 

Why are the digitalization numbers so low across sectors? 

Yamamoto believes one barrier to Japan’s digital transformation lies in the organizational structure of companies. He said that in many cases the “messages around digital transformation (DX) are just a list of IT terms, and it is left to the subordinate vertical organization or the department in charge of the DX to figure it out.” 

“Delegation of authority is not enough,” Yamamoto added. “Rather, it needs to be ingrained in their business model.”

Japan is still, despite its digital lag, the world’s third largest economy and is undoubtedly one of the world leaders in innovation and technology development. The world’s automobile, nanotechnology, and renewable energy sectors, among many others, are dominated by Japanese innovators. Its industrial sector represents nearly one-third of the country’s GDP and employs around one-quarter of the Japanese workforce. 

“Transformation is worth the effort,” Yamamoto said. “It determines how we make changes in automation, how we change our work styles, and how we take advantage of information liberation. The management must consider this deeply and exercise leadership.” 

Why are many Japanese organizations hesitant about using advanced data-driven platforms and solutions to transform? 

“Information has gained complete portability, freed from physical constraints such as paper and hardware products,” Yamamoto said. “The wider the cross-reference range, the more value is created exponentially. However, there is a necessary trade-off between public needs and internal confidentiality.”

“Serious discussions of the legal framework are needed to handle this trade-off,” Yamamoto added.

What do you think are the primary opportunities to increase the digital competitiveness of Japanese companies today? 

“The future of production will consist of autonomous functions that will directly link information between each function with no boundaries or silos,” Yamamoto said. “Making progress toward disassembly and reorganization is a big business opportunity. The winners will be organizations that realize the importance of developing people who can provide such valuable integration, regardless of domain or area.”

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