Leadership Strategy Services

Since Egon Zehnder International pioneered executive appraisal over 15 years ago, it has provided Management Appraisal (MA) services to companies worldwide, evaluating around 5,000 executives every year. In Japan, where demand for MA is rising due partly to increased mergers & acquisitions activity, we have evaluated over 500 executives in recent years. Based on our experience and market data, I would like to highlight the differences revealed by MA globally and in Japan and analyse its causes.

Key appraisal criteria: market benchmarking and potential

Market benchmarking

At interview our candidates are rated on the following four categories:

1) Outstanding (there is nobody in the market equivalent to him/her).
2) Good (s/he is well-qualified, but there are others with equivalent qualifications in the market).
3) Some reservation (s/he will not be an external candidate due to some issues, but could be an internal candidate).
4) Major reservation (s/he is not acceptable as a candidate).

Interestingly, the ratio of “outstanding” Japanese executive candidates is only 8%, versus 18% globally. At the other end of the scale, the ratio of Japanese executives with issues (“some reservation” plus “major reservation”), is 42%, 10% higher than the global figure (32%). Moreover, the ratio of “major reservation” Japanese executives is also 5% above the global average (10%). These statistics would seem to indicate that a relatively large number of Japanese executives may be able to take their current job internally, but would find it hard to land the same job outside their company.

Figure 1: Market Benchmarking

Many Japanese companies still follow lifetime employment practices whereby employees are rotated in different positions, even if they lack the experience or skills required for a given post. Moreover, in Japan’s age-based HR system, people tend to be promoted because of tenure, not improved skills.


Potential

We rate the potential shown by a candidate as: “high” (should be promoted immediately), “middle” (can be promoted within a couple of years) and “low” (difficult to promote further). As figure 2 shows, the number of “low” potential Japanese executives (45%) is less than the global average (53%). The fact that there are fewer low potential executives in Japan would seem to suggest that there is a solid foundation for further leadership development.

Figure 2: Potential

Our analysis of these two criteria (benchmarking and potential) reveals that Japanese executives generally do not have sufficient skills/competencies to excel in their job. On a brighter note, however, Japan’s top managers do show potential for further growth and development.


Competencies

At Egon Zehnder, we have a standard set of nine competencies: result orientation, team leadership, collaboration and influencing, strategic orientation, change leadership, developing organisational capability, customer impact, market knowledge and commercial orientation. Each of these competencies is scored on a scale of 1-7 levels. For our purposes, we excluded “commercial orientation” from the set (since it did not have enough samples), and added “functional competency and intercultural sensitivity,” which were popular competencies with many clients.

The results, illustrated in Figure 3, reveal a significant gap of over 0.5 points between global and Japan averages in the “market knowledge and functional” competency. Other groups showing a gap of over 0.2 points were “results orientation”, “collaboration and influencing” and “change leadership.”

Figure 3: Japan vs. Global

Such large gaps in “market knowledge” and “functional competency” are largely due to the typical Japanese practice of job rotation under the lifetime employment system. This rotation includes international assignments as country managers, even if Japanese executives do not have sufficient knowledge of their local markets.

What about the other competencies where Japanese executives fall down (“results orientation” and “collaboration and influencing,” for example)? The Japanese have a reputation as hard workers, who are committed to their job and highly collaborative. So why are there such gaps in these competencies? I believe that the reasons are related to our scoring system for competencies. For “results orientation”, for example, someone who steadily achieves targets set for him/her is rated at level 3 only. To be rated at level 4, individuals must not only achieve targets, but also proactively set challenging goals for themselves.

Similarly, the average level of “collaboration and influencing” skills of Japanese executives is around 3.2, versus 3.5 globally. Again, individuals who are collaborative in a passive sense are rated level 3 only. To reach level 4 they need to involve others and motivate them to collaborate, which is the currently challenge facing many Japanese leaders.

Future challenges for Japan’s top talent

Our experience suggests that Japanese executives definitely need further development in terms of expertise. They only stand to gain such knowledge by stepping outside the traditional lifetime employment system and exposing themselves to areas outside their own field. At the same time, firms need to bring in more outsider experts and professional managers to stimulate their staff.

As far as proactiveness is concerned – (“result orientation”, “collaboration and influencing” and “change leadership”) - companies need to work on their long-term planning. A change in recruitment methodology and processes for new graduates is called for; with a focus on hiring proactive individuals, rather than those with a high IQ. Even after they hire new graduates, companies need an HR policy that encourages employees to choose their job proactively via internal job postings, rather than receiving assignments from above.

It is also important to establish a culture that does not disadvantage proactive young individuals, even if they are a little too aggressive. Lastly, companies need appropriate rewarding systems that encourage proactive behaviour and do not punish failures resulting from their proactive initiatives. Although it will take time to promote proactive behaviour among young leaders, we believe that this could have a significant positive impact on company performance in the long run.