How Fujio Mitarai's East-West Style Revived the Company

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In the early 1990s, Fujio Mitarai was one frustrated executive. He had recently returned to Canon Inc.'s Tokyo headquarters after a 23-year stint in the U.S., where he built Canon's camera and copier businesses into market leaders and befriended top execs of companies from General Electric Co. to American Express Co. His goal was to push U.S.-style practices through the entire Japanese conglomerate in order to cut costs and clean up its finances. Otherwise, Mitarai argued, Canon was headed for serious trouble.

Few colleagues heeded his call. Although he was a senior managing director, Mitarai says, "I wasn't senior enough to get the top executives to listen to me." Then, a stroke of fate forced them to pay attention. In August, 1995, Mitarai's cousin, Canon President Hajime Mitarai, died suddenly of pneumonia. Passing over six more senior executives, Canon's board gave him the job.

That marked the beginning of Canon's transformation. In seven years, Mitarai has turned an unwieldy conglomerate burdened with money-losing subsidiaries into a streamlined organization. During the tenure of Mitarai, who became CEO in 1997, Canon's net profits have tripled, to $1.4 billion, on sales of $24.3 billion. Market capitalization has swelled, from $11 billion to $34 billion, despite the steady decline of Japanese stocks. A big reason: Mitarai relentlessly drives his staff to cut costs and boost profits. Nor has he been shy about closing weak divisions.

There is more to Mitarai's success than aping the U.S. obsession with the bottom line. What some observers dub the "Mitarai Way" also incorporates Japanese practices. He rejects the U.S. belief in appointing outside board members, contending they contribute little. Instead, he has given more power to auditors to oversee executive actions. He bases pay on merit to encourage staff to increase sales and improve products. But Mitarai still promises lifetime employment to inspire loyalty.

While Mitarai is demanding and decisive, he also tries to forge consensus before making a major move. In 1997, for example, he wanted to convert every Canon factory to a new production system that organizes workers into small clusters, or "cells," instead of long assembly lines. Mitarai spent weeks winning over wary senior execs in daily debates on the pros and cons of the arrangement. The result has been a 30% spike in Canon's productivity. "Mitarai combines Western management principles with those of Japan to create his own unique style," says Masao Hirano, McKinsey & Co.'s Japan director.

The formula certainly seems to work, and at a time when Japan is desperate for somebody to lead it out of economic quagmire, this is making Mitarai, 66, something of a hero. His makeover of Canon is the subject of a new book, and the Mitarai Way is lauded in numerous articles in the popular press. "Many company managers now look up to Mitarai as a role model," says Yoshio Nakamura, senior managing director of Keidanren, Japan's influential business leaders' organization.

Not that Mitarai lacks challenges. Weak export markets and the strong Japanese yen should keep net profits and revenues flat in 2002. Digital-camera and copier sales remain robust, but sales of laser printers and chipmaking equipment are off. "He has to come up with a new product or innovation that will drive Canon's growth in the future," says Keio University economist Masaru Kaneko.

Still, Canon is in far better shape than the rest of Japan Inc., which is starting to look to Mitarai for inspiration. Before Mitarai took over, Canon had a dozen major divisions that operated like individual fiefdoms, obsessed with building sales numbers at any cost. Now, there are four key divisions: copiers, printers, cameras, and optical equipment. Canon managers must fund product development and capital investment out of cash flow rather than bank loans and bond issues. "As Canon grew, managers forgot about economy and efficiency," Mitarai says. "I...
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