Leadership and Management Success in Japan
Chapter 4: Profit-Arithmetic Approach to Business
4. Profit-arithmetic approach to business 1. INTRODUCTION In the previous chapter we explained one successful approach to business observed among outstanding CEOs1 in Japan, namely the proto-image of the firm (PIF) by reviewing Sony’s case supplemented with Yamato Transport’s. In this chapter we will explain a second approach: the profit-arithmetic (PA) approach. Our studies of how successful CEOs approach business decisions seem to indicate their schemata will emphasise (1) profit levers such as cost cutting, (2) daily operations rather than a long-term grand design, and (3) prioritysetting. CEOs whose business approach best exemplifies the characteristics of the PA approach are Shin-Etsu Chemicals’ Chihiro Kanagawa, and Nissan’s Carlos Ghosn. The analysis will therefore compare the approach of these two business leaders with a focus on the aforementioned three characteristics (points), namely, their use of profit levers, conduct of operations, and setting of priorities. For purposes of clarity we will break down the main concept into its three main characteristics. 2. PROFIT LEVERS 2.1 Kanagawa’s Case PA-type CEOs seem to pay more attention to the actual arithmetic of profit and to how to make individual managers act on the levers to produce the profit than to how each individual manager will behave. Charles Allen from UK’s Granada, for example, claimed he was a PVC fetishist (Campbell, 1998). He meant that he focused on price, volume and cost using them as key levers to run the business. Managers were expected to think deeply about how to improve all three levers.2 Much in the...
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