Kyocera Corp.’s distinctive management system seeks to promote profitable growth by extreme decentralization — with thousands of small, customer-focused business units.
A persistent challenge for companies as they become larger and more established is how to maintain the high level of dynamism and employee commitment that drove their success in the early days. Over the years, thoughtful managers and management theorists have formulated an array of approaches for dealing with the problem, including self-managing teams, self-organizing systems and division spinoffs — all designed to give managers and employees a more direct feeling of responsibility and accountability for the performance of their own profit centers. But very few companies have taken things as far as Kyocera Corp.
Founded in 1959 as Kyoto Ceramic Co. Ltd., Kyocera, headquartered in Kyoto, Japan, produces a range of industrial ceramics, semiconductor components, electronics devices and information and telecommunications equipment. In the year ending March 31, 2012, it had revenues of $14.5 billion and employed more than 70,000 people globally. The company reported net income of $1 billion for its fiscal year ending in March 2012 — which represented Kyocera’s 53rd consecutive year of profitability.
During its more than five decades in business, a key driver of Kyocera’s growth and success has been its distinctive entrepreneurial culture, known internally as “amoeba management.” The use of the word “amoeba” is meant to capture the concept of an entity at its smallest, most elemental level, as well as to describe its ability to multiply and change shape in response to the environment.1 In other words, amoeba management is intended to offer a spontaneous, homeostatic response to a business world characterized by rapid, dynamic change.
The Leading Question
What can executives learn from Kyocera’s amoeba management system?
- Each “amoeba” unit is expected to operate independently and to develop its own ways of working with other amoebas to achieve profitable growth.
- Amoeba management is best suited for business environments characterized by intense competition and fast technological change.
- Organizational cultures that foster collective, collaborative behavior are more compatible with the use of amoeba management than highly individualistic cultures.
Unlike other successful electronics manufacturers, Kyocera is structured as a collection of small, customer-focused business units. Kyocera founder Kazuo Inamori developed the amoeba management system to make it easier for ordinary employees without operations or finance backgrounds to see how they can contribute to the success of the business. Inamori, who gave up his CEO role in 1997 after serving for more than three decades, began without any management experience or leadership support to speak of. He decided that the best way to operate the company was to encourage people to base management decisions on whether they were the “right thing to do as a human being.”2 (See “The Inamori Way.”)
The Inamori Way
Within Kyocera, there are some 3,000 amoebas, although the exact number fluctuates as individual units divide, merge and dissolve. While serving different sets of customers, the amoebas share a common set of strategic goals and objectives: a commitment to price, quality, timely delivery and extending the corporate values of fairness, integrity, diligence and philanthropy to employees. Each unit, generally made up of between five and 50 employees, is expected to operate independently and to develop its own ways of working with other amoebas to achieve profitable growth. Both the culture and the incentives are designed to support this objective.
Like other decentralized management systems, amoeba management is designed to spur market agility, customer service and employee empowerment. But it is also supposed to reinforce performance management processes such as human resources selection and training, accounting and organizational development to promote positive performance. Amoeba management is further intended to promote the successful implementation of the organization’s strategy, at the overall organizational level as well as the business unit level. As such, amoeba management embodies the characteristics of a full and complete performance management system.3
Although amoebas are expected to promote Kyocera’s existing products, services and processes efficiently, they are also expected to explore opportunities for new breakthroughs. In this sense, amoeba management shares many similarities with the management concept of organizational ambidexterity.4 Just as ambidextrous organizations are expected to efficiently exploit their existing products, services and processes, while they explore opportunities that present significant breakthrough innovations in business process, technology or product or service offerings, so, too, are amoebas. A key difference between amoeba management and organizational ambidexterity has to do with the driving force. With organizational ambidexterity, the primary driver is senior management; with amoeba management, successful growth is supposed to be a shared responsibility.
How Amoeba Management Works
The recognition that collective employee contributions are essential to Kyocera’s success seems to be broadly accepted within the organization. Many of the employees we interviewed described amoeba management as a “joint effort” and “management by all.” (See “About the Research.”) The idea is to empower Kyocera employees to act like independent owners and business partners with people in other parts of the company. Formal daily group meetings spark much of the internal discourse. The meetings are used to review the upcoming month’s budget, compare the previous month’s plan to actual results, discuss the prior day’s output, brainstorm ideas for continuous improvement and promote customer service. Typically, the meetings are attended by all employees concerned, representing the production departments as well as other areas, including research and development and quality assurance.
About the Research
In examining Kyocera’s management system, we conducted 21 semistructured interviews with senior managers, plant managers, plant/group vice presidents and amoeba leaders at various locations, including the company’s headquarters in Kyoto, its Tokyo offices and its manufacturing plants in Kagoshima, Japan, and San Diego, California. Most of the interviews lasted about two hours. When permission was granted, we taped the interviews for later transcription and comparison with our field notes.
The interview data were complemented by various archival data, including financial statements and internal performance reports. These data offered opportunities to direct interview questions and facilitate further comments and clarifications during the course of the interviews. They also served to help corroborate the interview data. In addition, we attended meetings involving amoeba leaders, department heads and divisional heads, as well as a monthly plantwide assembly.
To assure the reliability of the collected data, interviewees were invited to comment on a preliminary working paper for the expressed and limited purpose of bringing factual inaccuracies to the attention of the researchers. No inaccuracies were reported. The interview transcriptions and researchers’ field notes were independently read through several times to identify repetitions of common words and phrases, including “amoeba,” “hourly efficiency,” “transparency” and “management by all.” Subsequently, we examined the paragraphs in which the high-frequency words and phrases appeared to identify the main idea being communicated. Some words and phrases were usually connected to a single idea; others had connections to multiple ideas. For example, the word “customer” was sometimes associated with descriptions of the operation of amoeba management; on other occasions, it described Kyocera’s customer-focused organizational culture. By reviewing the field notes and interview transcripts, we identified six themes that form the basis for the article: operating mechanics of amoeba management; environmental factors; strategy and order-winning criteria; organizational culture; employee selection, recruitment and training; and leader behavior.
Amoeba management, which has been implemented at the company’s plants not just in Japan but elsewhere too, demands the active involvement and participation of all employees. For example, a senior manager at the company’s San Diego manufacturing plant estimated that machine operators and others below the level of amoeba leader attended an average of 30 minutes of meetings a day; the leaders and vice presidents attended formally scheduled meetings of 45 to 60 minutes. Such meetings provide the framework for Kyocera’s internal communications. They are a critical means of ensuring that employees throughout the company receive information about corporate values, philosophy and market feedback.5
Kyocera has always operated in a dynamic industry environment, with extremely fast-changing technologies and brief product life cycles. As the semiconductor industry has moved into smaller, more powerful products, Kyocera has been under ongoing pressure to reduce the size of its components as well. At the same time, the company has faced stiff competition in every market segment it competes in, requiring it to constantly revisit the issues of price, quality and time to delivery. Failure to be competitive on any one dimension puts business at risk. Although some strategy experts argue that organizations need to focus on their distinctive competencies and features to find uncontested market space,6 others concede that differentiation is not always possible. As a result, they accept the need for confrontation strategies, including head-to-head competition.7
In complex, competitive environments, many researchers have found that decentralization can generate positive results.8 Decentralization, together with employee empowerment, permits companies to adapt quickly to competitive pressures. However, research shows that it also can come with a cost: uncoordinated, discordant behavior. Therefore, decentralization alone isn’t sufficient.9 For decentralization to be effective, managers need to have adequate mechanisms for conflict resolution. Amoebas, for example, often compete for the same customers, employees and scarce capital resources. Unless these conflicts are carefully managed, the interests of individual amoebas may clash with those of the organization. Kyocera’s culture serves as the primary mechanism for making sure that the interests of the organization come first. This is achieved through liberal use of interdepartmental (or, more precisely, inter-amoeba) meetings.10
When Inamori first began experimenting with amoeba management in the early 1960s, his goal was to create an information and performance management system that was straightforward and easy for employees to understand. In his view, understanding a manufacturing business should be as easy as understanding the business of a small food vendor. Rather than have the company work through a centralized purchasing department, Inamori wanted the amoebas to function like independent entities and negotiate transfer prices among themselves and outside customers. To keep matters simple, the amoebas would do everything on a cash basis, thus avoiding the need to account for inventories and accruals.
Putting decision making in the hands of the individual amoebas had the advantage of clarifying options and accelerating actions. Amoeba management gives Kyocera business units the diagnostic controls and mechanisms to make adjustments to price, quality and delivery schedules as needed. If the market price of a product declined or orders slowed, the amoeba (as opposed to a centralized accounting department thousands of miles away) was expected to respond, for example, by lowering its own prices or cutting output. Such decisions wouldn’t be influenced by abstract accounting rules. To further facilitate the empowerment of its amoebas, Kyocera operates a highly simplified management accounting and reporting system. (The way amoebas calculate performance intentionally omits labor costs because employees are not considered a cost or resource. Instead, they are viewed as business partners.)
Organizational Culture Kyocera’s organizational culture is greatly influenced by Japanese culture, particularly its emphasis on high collectivity and group loyalty. In Japan, as compared to North America, employees have traditionally been more willing to put the needs of their group ahead of their own personal needs.11 This collective orientation has promoted organizational integration; rather than working just for themselves, amoebas work for the greater good of the company. In Japanese society, work is viewed less as something people need to do to acquire time for leisure than as something of value in and of itself.12
Although senior managers at Kyocera’s San Diego manufacturing plant concede that U.S. workers tend to show higher levels of individual and self-centered behavior than workers in Japan, they compensate for those qualities by choosing job applicants who are more collectivist and altruistic than their U.S. peers.13 As one manager explains, Kyocera’s employee selection process screens for “humility” and “work ethic.”14 Part of the screening comes from current employees recommending individuals they are familiar with and who they believe would fit well with the company. Further screening occurs during the formal interview process, when prospective employees are asked questions to gauge their attitudes.
Role of Managers Kyocera’s amoeba management system depends heavily on strong leadership and effective implementation. Although the company has many employees who are highly skilled from a technical and product standpoint, there is a steady demand for people who can assume general management responsibilities for new amoebas. Kyocera addresses this need in two ways. First, managers and employees receive substantial training in Inamori’s management philosophy when they first join the company and subsequently at the daily amoeba meetings, when managers will often read passages from Inamori’s books and discuss their implications for the amoeba’s work. Second, Kyocera actively promotes its corporate values, which provide a “decision-making compass.” The company’s mission statement says the goal is “to provide opportunities for the material and intellectual growth of all employees, and through our joint effort, contribute to the advancement of society and mankind.” This helps to simplify and focus employees’ attention and decision making.
Since the aim is to promote “management by all,” managers are expected to show high employee consideration and to treat employees both kindly and fairly.15 Leaders who show high employee consideration have opportunities to build relationships with subordinates that are characterized by high levels of mutual trust and respect, as well as good rapport and two-way communication. This encourages employee involvement. When something goes wrong, individuals are expected to diagnose the problem, identify the cause and contribute to a remedial plan.
Trust and Transparency One of the clearest expressions of Kyocera’s commitment to respect and trust is the emphasis it places on transparency. All of the company’s business activities are meant to be conducted in an open and visible manner. The commitment to openness applies to financial and nonfinancial matters. Whereas many Japanese companies, including Toyota, are accustomed to disclosing their production volumes, throughput rates and defect rates internally, they are usually more circumspect about sharing financial information with employees. As an amoeba leader who formerly worked for Samsung remarked, a key difference between working at Kyocera and Samsung is that Samsung shared only nonfinancial information.
Profit Sharing Employees at Kyocera are company shareholders (shares are traded on both the Tokyo and New York stock exchanges). Kyocera’s factory workers are unionized; the employees’ union was started in 1969. A companywide profit sharing plan operates.
Measurement and Management Measuring profit contribution and, in particular, how individual amoebas contribute to the company’s profit is an essential element of how amoeba management works. At Kyocera, hourly efficiency is the primary measure of amoeba performance. It is expressed as a ratio between an amoeba’s value added and the number of labor hours worked. This ratio allows management to make profitability comparisons across amoebas and across time.
In order to secure quality of accounting information, it is critical to see that “accounting data accurately describe and reflect transactions and operations actually taking place.”16 Kyocera works hard to ensure that accounting data accurately and appropriately reflect the external transactions of each amoeba and the internal transactions among amoebas. Although Kyocera’s senior-level managers review the monthly plans and budgets and regularly meet with amoebas to discuss the plans and communicate the companywide aspirations (for example, goals for sales growth over the next few years), the responsibility for managing monthly plans is largely left to the amoebas.
In creating the monthly plans, amoebas work with each other and with support departments such as distribution, quality control and research and development. The individual amoeba plans are communicated to senior managers (for instance, the plant manager at a manufacturing plant), who present the targets at the start of each month at the plantwide morning assembly; the results (sales, production numbers and productivity ratios) are presented at subsequent plantwide meetings at the end of each month. Although senior managers may run these meetings, it’s the individual amoebas that own and are ultimately responsible for managing the monthly plans.
A senior executive described how the process works at the plant level:
We can see the target-achieving game at any factory in Kyocera every month. At the first day of a month, the game starts at eight in the morning. Employees get together at the morning meetings and are told what [are] the month’s targets of the factory, departments and each amoeba. The game begins with the final confirmation of the month’s targets, with business connections, buyers or sellers. All employees aim to achieve their targets through the month. Great efforts are made in all fields to make improvement and achieve the targets. The targets must be achieved by noon of the last day of the month. The calculation of the actual results ends at noon. In the morning of the last day, leaders of amoebas come to the factory at five and try to achieve their targets by noon. At the job site, they watch the electronic bulletin board, which shows the real-time actual results of the factory, departments and each amoeba. Employees finally cooperate with each other in order to finish the job, which is about to be finished even if it is the other amoeba’s job. By the last minute, employees aim to achieve their targets of the whole.
In addition to learning about the targets for their own units, employees hear about the targets other amoebas are shooting for. At these same meetings, employees receive information about the prior month’s performance and learn how well they are doing for the year. Monthly plans are made based on the annual plan, called the “master plan,” which reflects senior managers’ expectations. Actual results are compared to the annual plan at the half-year point and at year-end. When actual performance meets or exceeds the annual plan, the employees are commended and awarded prizes.
Although Kyocera’s amoeba management system contributes in tangible and intangible ways to the company’s success,17 its continued importance faces three notable challenges: 1) the waning influence of Kazuo Inamori as a source of inspiration; 2) the possibility of employee burnout; and 3) the difficulty of attracting and retaining new employees who relish the high level of challenge that Kyocera jobs require.
Inamori’s Waning Influence Kazuo Inamori, now 80 years old, is no longer active in Kyocera’s management and has significantly scaled back his involvement in the company. At some point his influence will fade, and it is probable that future generations of employees will lack the historical context to fully appreciate the challenges he faced and the successes he achieved. Accordingly, his hero status is likely to diminish over time. As this diminution occurs, his impact, both real and symbolic, on the company’s culture will fade. Since Kyocera’s organizational culture serves as the company’s primary integrating mechanism, either the company will need to find some other, more contemporary figure who symbolizes the company’s entrepreneurial and collective organizational culture or develop and rely upon an altogether different integrating mechanism to support the organizational culture.
The Potential for Burnout Kyocera must also take steps to avoid worker burnout. Workers we interviewed all described the work environment at Kyocera as demanding and challenging; one employee we spoke to went so far as to call it “exhausting.” At the company’s San Diego facility, employees say they work significantly longer hours than their counterparts at other companies.
So far, annual employee turnover is relatively low (averaging 1.27% in Japan and 5.25% in the United States over the latest five-year period). Whether these rates are sustainable remains to be seen. Several Japanese senior managers we interviewed noted changes in how younger employees felt about work. One manager noted that younger employees tended to have less patience for company formalities, such as the plantwide morning assemblies, and were more involved in outside, nonwork-related interests than their older coworkers. Two senior managers openly wondered what effect the different expectations and attitudes of these younger workers would have on their work commitment and involvement.
The High-Challenge Factor As the company grows, a related challenge is where Kyocera will find the new people it needs who are able to cope with the demanding work environment and the level of empowerment that comes with amoeba management. Researchers have found that enriched and empowered work environments are not universally desired.18 Some people aren’t interested in high-involvement and high-participation work environments, characterized by “high challenge.” Many people prefer work settings where someone else — generally, a boss — plans, assigns, monitors and evaluates their work.
Based on the interviews we conducted with Kyocera’s Japanese-based managers, the company had a strong reputation among job seekers and was generally viewed as a highly desirable place to work. Although Kyocera’s San Diego plant managers also saw the company as a desirable place to work, their descriptions suggested that prospective employees did not give the company as high a rating. Since the success of amoeba management is positively correlated with the availability of employees seeking high challenge, Kyocera’s ability to maintain (or, in the case of its San Diego manufacturing plant, to enhance) its reputation as the preferred employment destination will be critical to its ability to recruit and hire appropriate candidates.
Could Other Companies Benefit From Amoeba Management?
Ultimately, we don’t think there is a foolproof test to determine whether amoeba management is right for an organization. Management systems that work well in one setting may not be suited in another. The appropriateness and potential success a company could experience from adopting amoeba management is a function of the company’s competitive environment, organizational culture and use of leadership styles that support employee empowerment. In general, business environments characterized by intense competition and fast technological change are better suited to amoeba management because companies that operate in that type of environment require decentralized structures.19 In contrast, stable environments that feature low levels of competition are better served by centralized structures, and therefore amoeba management is probably not well suited for such environments.
Organizations that face similarly high levels of head-to-head competition as Kyocera may benefit from adopting amoeba management. Broadly speaking, we can imagine amoeba management being used effectively by companies in the automobile, computer hardware, household appliances, retail banking, and telecommunications industries — all settings where intense competition and rapid technological change have become the norm.
Although high competition and fast-paced technological change may be necessary preconditions for amoeba management use, amoeba management is unlikely to produce organizational success without the presence of appropriately supportive organizational cultures and leadership styles. In particular, companies interested in adopting amoeba management will require organizational cultures that can simultaneously support entrepreneurially oriented independence and collective inter-unit collaboration. Organizational cultures that foster creative, collective, collaborative behavior — what one could call civic behavior — are more compatible with the use of amoeba management than are competitive, highly individualistic cultures.
Empowerment is at the heart of amoeba management. Organizations that are interested in adopting amoeba management accordingly require leaders who are capable of promoting employee empowerment. Such leaders exhibit considerate leadership styles and help employees to develop a sense of company ownership. This sense of ownership comes as much from employees owning decisions about monthly production plans as it does from employees owning company stock. Organizations that go too far in fostering competitive, individualistic activity are likely to run into difficulty if they try to adopt amoeba management.