Japanese Success Comes From Emphasizing Process, Not Product, Innovation

Tom Peters

Edwin Mansfield, director of the University of Pennsylvania's Center for Economics and Technology, recently testified before The Joint Economic Committee of Congress. He reported on a two-year study conducted for the National Science Foundation, contrasting Japanese and American patterns of technology development. The research involved some 50 Japanese and 75 American firms, randomly selected, representing the chemical industry (including pharmaceuticals), rubber, machinery (including computers), instruments, metals, and electrical equipment.

The results were hardly heartening, as seems to be the case with so many comparisons these days.

1. "The Japanese tend to develop and commercially introduce new products more quickly than the Americans..." Results ranged from a large negative difference in machinery to parity in chemicals.

2. "Japanese firms also developed and commercially introduced new products and processes more cheaply than American firms." We lag in cost even more than we do in time.

3. The Japanese excel (i.e., are faster and spend less money) in "the commercialization part [of innovation] beginning when the product is developed [as a prototype] and ending when the product is first introduced commercially ..." The Americans, on the other hand, are better (spend less time and money) at "the development part ... beginning at the start of R&D and ending when the product is developed."

4. The Japanese are much better (25 percent less time, 50 percent less money) in carrying out "innovation based on external [borrowed] technology than ... based on internal [self-generated] technology." It has often been said that the Japanese succeed by borrowing from others. Professor Mansfield finds that it's not that they necessarily borrow more, but that they are more effective in putting to commercial use what they do borrow. Both nations' firms take about the same amount of time and money to develop projects whose ideas were internally generated.

5. The Japanese typically "make significant technical adaptations of the imitated product and/or reduce its production costs substantially." That is, when Americans do copy, we just duplicate. Japanese frequently make the initial borrowed version almost unrecognizable, by adding numerous modifications.

6. Americans far outspend the Japanese "in marketing start-up costs," with our "emphasis being more on marketing strategies than on technical performance and production cost."

7. Confirming Japan's emphasis on pragmatism, Mansfield finds that "the Japanese firms have obtained much higher [financial] returns from applied R&D than the Americans." That is, they often do better on the commercially oriented, or "D" part, of R&D, while we earn "higher returns from basic research."

8. Overall, Mansfield observes that the two nations' firms spend about equal sums on R&D as a percent of sales. Contrary to conventional wisdom, he also discovered that "the Japanese seemed to devote about as large a percentage of their R&D expenditures to relatively risky ... projects as do American firms.

9. The biggest difference between the two nations involved the share of R&D expenditures aimed at new-product technology as opposed to manufacturing-process technology. In fact, "the American firms in our sample devote about two-thirds of their R&D expenditures to improved product technology and about one-third to improved process technology. Among the Japanese firms, the proportions are reversed." Mansfield points out that many other critics have chided "American industry for neglecting process innovation," which is the springboard for both cost and quality improvement. But, he says, better performance has not come: "... our results do not indicate that there was any perceptible increase between 1976 and 1985 in the proportion of their R&D expenditures devoted to new or improved processes."

Essentially, the Japanese are masters of the art of the practical. We clearly get badly beaten by Japanese dominance in development aimed at commercialization (rather than the early stages of research), in making major adaptations in borrowed technologies and in process technology.

One could write off these findings as just more evidence of Japan's copycat tendencies. But Mansfield clearly demonstrates that Japanese mimicry almost always includes major advances in cost and quality. (In fact, we're the bad guys. When our firms mimic, they don't bother to add much value; we're consumed by marketing tactics that jam products down customers' throats, even if they look, cost and perform just like the next guy's.)

At a deeper level of analysis, it turns out that these Japanese strengths are commonplace among ascending nations. Japan's success during the last quarter century is almost a carbon copy of the American and German sagas, vis-a-vis the British, in the last half of the 19th century. Mansfield, in fact, quotes one noted historian of science who laments that Americans "may have lost the art of creative imitation."

Great nations and companies often drift into arrogance. The NIH (Not Invented Here) syndrome—our attitude that if we didn't make it from scratch, it isn't worth making—is a pox that we can ill afford, given our grave competitive situation.

Many concerned critics, including myself, have sounded these alarms before. The difference in Mansfield's invective is his methodologically sound, exceptionally meticulous, empirical verification of these frightening conclusions. It's one more high
priority item for American firms' competitiveness agenda.

(c) 1988 TPG Communications.

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