Accelerating Digital Transformation in Large Enterprises through a Long-Term Perspective: Insights from JAFCO Group's Shozo Isaka

In this series of articles, we will discuss what is necessary for the transformation of major companies, including digital transformation (DX), from the viewpoint of a venture capital (VC) partner. In this fourth installment, we interview Mr. Shozo Isaka, Partner, Jafco Group.

Mr. Isaka says, "It is important to have a long-term perspective. What are the key points for promoting DX in large companies, and what should startups be aware of when collaborating with large companies? We will discuss Mr. Isaka's theory on the transformation of major companies.

DX should progress dramatically in the next few years

--Could you tell us about the importance of DX in your view?

Japan's working-age population (ages 15-64) peaked in 1995 and has been declining since. It is projected to decrease to 52.75 million by 2050, representing a 29.2% drop from 2021¹. This decline underscores future challenges such as labor shortages and a shrinking economic scale due to reduced domestic demand.

There are two major options as a means of resolving these issues. Either the working-age population can be increased through immigration or other means, or productivity per capita can be increased. Unlike other countries, it is unlikely that immigration will proceed rapidly in Japan. In that case, the only way forward is to increase productivity per capita. I believe that DX will play a significant role in raising productivity.

DX is also indispensable for major companies to get back on the growth curve. As venture capitalists, we usually have many opportunities to come into contact with start-ups, but no matter how strong their momentum is, it is only a small part of the overall Japanese economy. I believe that in order to revitalize the Japanese economy again, major companies must be energized, and in this sense, DX is becoming increasingly important.

--What is your view of the current state of DX at major Japanese companies?

We have moved beyond the initial phase of DX and are now entering a more advanced stage. DX at major companies is increasingly being driven by decision-makers in their 30s and 40s, and I believe we are on the brink of significant acceleration. However, DX is not just about replacing on-premise systems with cloud-based ones; it is an ongoing process. True transformation will unfold over the long term.

--What do you think are the challenges in promoting DX?

I believe the situation will change dramatically within the next 3-4 years. Japan remains the third-largest economy in the world, with significant markets in sectors like manufacturing, construction, real estate, finance, and healthcare. However, the systems and rules established during Japan's rapid economic growth may no longer be effective. Adapting to modern technologies and methods is essential for improving productivity and addressing the evolving business environment.

Of course, every company has its own unique structure, and it is not an easy task to completely change it. DX will take some time, but I believe that things will start to change from here.

Behind this is the existence of the so-called Millennial Generation and Generation Z. These generations, who are not averse to digital technology, will make up the majority of the working-age population in the future. As this generation comes to have decision-making authority, their tolerance for new options will expand.

They will think "what is good is good" from a flat perspective, and they will actively engage in DX as a reasonable option. Therefore, I personally believe that in a few years, the situation regarding DX in Japan will have changed dramatically.

The key to DX promotion is to have a "long-term perspective

--What do you think is the key to promoting DX?

As previously mentioned, DX is not merely about transitioning from on-premise systems to cloud computing. It is a long-term process that extends well beyond initial changes.

For example, it takes a certain amount of time to centralize data scattered in various places in the company, to read data in the cloud into AI to create new calculation results, and to formalize the know-how that was previously black-boxed and belonged to a specific person.

However, in major companies, DX staff are often assigned for a fixed period of time, such as "three years," and it would be a shame if, after three years, the staff member leaves and DX is not promoted thereafter. Personally, I believe that the Japanese economy will grow again. Personally, I believe that now is almost the last chance for Japan's economy to grow again, and I hope that major companies will take a long-term view and recognize that DX is something that will continue for a long time.

--By the way, do you feel any change in the stance of major companies over the past few years?

I believe major companies have developed a better understanding of startups. Venture capitalists are also gaining recognition, partly due to the significant growth of startups founded over a decade ago. As more individuals transition from large companies to startups, there has been a noticeable increase in initiatives between large companies and startups.

--What should startups be aware of when working with large companies?

When collaborating with a major company, startups should consider the benefits for both parties. However, startups should avoid being overly swayed by the benefits sought by the larger company. Focusing solely on these benefits can lead to misalignment with the startup’s own goals and potentially divert resources away from their core objectives.

To prevent this from happening, I think we should first discuss with the person in charge at the major company what a win-win relationship would be and then proceed with the project. Also, startups should understand the structure of large companies, such as the decision-making mechanism and the level of quality required.

--Finally, what do you expect from start-ups in promoting DX?

The strength of a startup lies in its focus on a specific area and its ability to achieve results quickly with a clear vision. Enthusiastic individuals come together to drive progress. Although startups may start small, they have the potential to make significant changes and set new standards. I believe these startups will inspire others, and I hope they will persist in their mission with unwavering determination.

Photo by Hiroaki Otake