What Large Enterprises Need for Transformation: "Leadership Capital" | Tomoko Namba of Delight Ventures

As digital technology continues to lower the barriers between industries, the businesses and organizations of the major companies that have driven the Japanese economy must transform to create new business opportunities and economic value. In this series, we will explore what it takes for major companies to transform, from the perspective of a venture capital (VC) partner. In this first installment, we interviewed Tomoko Nanba, Managing Partner of Delight Ventures. Nanba asserts that 'leadership capital is essential' for the transformation of major companies. What is leadership capital? What are the current challenges faced by major companies and what are the key points of digitalization? We will take a closer look at Ms. Nanba's insights on the transformation of major companies.

Adapt to change by replacing molecules

--From your point of view, what do you think are the challenges facing major Japanese companies?

The Japanese economy is still dominated by traditional major corporations, but I believe this very structure is a significant issue, with many challenges in how these corporations are organized. First of all, there is a lack of mobility of human resources. There is not enough energy to reject the conventional way of doing things and start something new. In the past few years, I have heard the words "DX," "GX," and other such terms of transformation, but the people who are saying them are mainly 30 or 40 year warriors who have been working for the same company for 30 or 40 years. Transformation means to change the form. It is not so easy to change the form of a group of old employees.

DeNA, of which I am the chairman and representative director, has been in business for more than 20 years, but major failures and stagnation have occurred when we have stayed in the same old ways for too long. I have come to realize that if we do not question the way we do things from the moment we start to feel that we are succeeding, we will be hurt later on.

The larger the size of the company, the more difficult it becomes to change the current way of doing things. They dislike things that have never been done before and try to maintain the status quo as much as possible. In a world that is changing so rapidly, this stance will lead to falling further and further behind and eventually being left behind. We must be careful.

What is important is to maintain the culture and climate of the company, but to replace the molecules in the organization, such as human resources and business. In biologist Shinichi Fukuoka's book, "Dynamic Equilibrium: Why Life Lives There" (Kirakusha), he says, "Organisms are able to adapt to changing environments because the molecules in their bodies are constantly being replaced.

It is crucial to refresh the organization by reshuffling the business portfolio in line with changing times and strategies, and by boldly appointing people with diverse backgrounds to executive positions. If we do not do so, we will fall further and further behind in adaptation and be left behind in the changes of the world.

The government is aware of this and has launched various initiatives to promote regulatory reform, but the individual issues are not progressing well. To begin with, the Japanese economy is structured to protect vested interests, and it takes an enormous amount of political capital to bring about major change. In the first place, I believe that the biggest problem of the Japanese economy is that the social and political structure is designed to support "constancy" in the face of so much change in the world.

--Against this backdrop, the government recently announced the "Five-Year Plan for Startup Development. It also includes "promoting open innovation.

I feel that we need to be careful because open innovation is often discussed from the perspective of how major companies can take advantage of startups. Of course, there are initiatives that benefit startups, but we need to switch to the perspective of exploding the number of startups that can overcome the large corporations that currently form the core of the Japanese economy. Otherwise, the Japanese economy will not be revived. Dynamic renewal is necessary not just for corporate organizations but for the economy as a whole.

The Keidanren, which is seen as a group of large corporations, has also taken this viewpoint and proposed a vision for a startup breakthrough in March of this year. I believe that the most important thing is to create an environment that welcomes startups that will achieve significant growth and create such entities one after another.

Leadership capital is needed to transform major companies

--What do you think are the key points for major companies to promote digitalization?

I have already mentioned the importance of start-ups, but it goes without saying that it is also important for major companies to maintain and strengthen their global competitiveness, and digitalization is indispensable for this. However, the reality is that digitalization is lagging behind because of the generation gap. Simply put, many decision-makers in companies are not well-versed in the digital domain.

In terms of the digitalization of major companies, the target users are frontline employees, but they lack the authority to make decisions. Such twists in the decision-making process and a lack of understanding by decision-makers is a major problem, isn't it?

First of all, I recognize that no matter how hard I study, I will never be able to catch up with the level of technology understanding of employees 20 to 30 years younger than me who work in the field. Then, I think a wise manager would think about how to prevent his or her own ignorance from distorting the decision-making process.

Of course, I do not believe that the major companies will just continue to sink. I think it will take another 10 years for a GAFAM-class startup to emerge from Japan. In the meantime, I believe that it is major corporations that will support the Japanese economy. Compared to the rest of the world, Japan is a country where major corporations are more vigorous than small and medium enterprises and start-ups. I believe that start-ups are the trump card for economic growth, but large companies have abundant assets that start-ups do not have. I would like to see Japan evolve by utilizing such assets without fearing change.

--We are not afraid to change.

It is not enough to simply digitize existing methods; the operations themselves must be optimized. If we do so, there is a possibility that those who have built and protected the existing operations will rebel. But it is not necessarily true that we can leave hundreds of thousands of people unhappy in order to avoid the unhappiness of a very few. The voices of those who think, "I'm a little unhappy, but I just have to put up with it," are not visible because they are the silent majority, but those who have been protecting the operation are in a position to lose their jobs, so their voices will inevitably become louder.

That is where leadership is required. Japanese politics is often unable to deal with the opposition of some people for fear of damaging political capital, and the same is true of corporate organizations.

Just as in politics, thick political capital is needed to make bold changes for the betterment of society, I feel that in a company it is necessary to build sufficient leadership capital and make bold decisions for the success of the company, even if some people may complain.

I would like to believe that such companies are few and far between, but when leaders are in an "up" position, they try to maintain the status quo and finish their terms of office for a few years, not wanting to "end up hated" or "end up in disrepute," and the company continues to decline in a friendly atmosphere, The result is that the whole group is unhappy.

Over the past 30 years, the Japanese economy has been in a steady decline. Even with such low interest rates, the economy has not improved. After all, there is a limit to monetary policy alone, and the key is how to increase industrial competitiveness. However, Japan is a country that is incapable of bold deregulation, which is greatly opposed by some people. As a result, the country has become stiff and outdated. I believe that what is happening in the country is also happening in the company.

--What do you think is most necessary for major companies to change?

I think that every company has its own "oddballs," or people with a sharp point of view within the company. I believe it’s important to spotlight these individuals and help them thrive. The current situation results from relying too much on people who share similar ideas. I believe the key to transforming major companies is to create an environment where unconventional thinkers are placed at the center of the organization and allowed to flourish.

Photo by Hiroaki Otake