April 19, 2021

“What company would put their trust in a fly-by-night foreign software firm?” – Overcoming the trust deficit with Japanese enterprise customers

Japan Cloud Influencer Interviews

This is the first in an infinite number of interviews we plan to do with opinion leaders in Japan’s IT and business circles. Our hope is that these conversations will yield valuable insights for enterprise cloud companies and investors with an eye on Japan--the second largest enterprise software market in the world.

“Japanese companies are perfectly justified in being cautious about working with global software companies… [they] have been burned so many times by companies that promise everything but don’t deliver! You need to look at things from the customer’s point of view.” - Naoki Togawa, Manager, Intelligence Group, ICT Innovation Research Institute, Nikkei Business Publications

I recently had the opportunity to chat with Mr. Naoki Togawa from the Intelligence Group at the ICT Innovation Research Institute at Nikkei BP. Previously an editor and reporter for over 20 years, Togawa-san covered the nexus between business and IT for Japan’s leading publications such as Nikkei Business and Nikkei Computer. He is known for his in-depth features on massive software deployments at companies such as Toyota, NTT, Panasonic and consumer products giant Kao, among many others. More recently, as a producer and researcher, Togawa-san launched The IT Innovators Conference, a highly curated annual event bringing together Japan’s top Chief Information Officers and Chief Digital Officers. Togawa-san also compiled The DX Surveys, a two-volume compendium of survey responses from over 900 Chief Information Officers on how they are leading digital transformation at Japan’s most influential companies.

The country manager conundrum

Aruna: Thanks so much for your time Togawa-san. Moments earlier we were chatting about the ideal profile for country managers at global enterprise software companies in Japan. Global firms struggle with hiring good people. What is your take on the ideal profile of country managers?

Togawa-san: I understand what you are saying, and yes, hiring good country managers is a big problem for global software companies in Japan. It’s hard to attract good people to companies that few people have heard of. 

Over the past 20 years, many country managers were alumni of IBM Japan, and more recently you see people from Salesforce and Microsoft. These executives tend to be hard-charging sales and marketing people. They can sell high to senior executives. They themselves do the selling, not just their teams. They’re salespeople to the core. Some last a couple years at one company and then move on to the next. Companies like SAP, Oracle and Salesforce, which were all run by ex-IBMers in their early days, are exceptions.

This seems so obvious that it may not seem worth mentioning, but global companies can’t just hire good salespeople and leave the rest up to them. It comes down to balance. They of course need to hire country managers who can sell to senior executives but they also need to attract good people and develop them. How do they expect to scale? This is true for all companies. I don’t know if you can find one person who can do all these things, but I do think there needs to be more balance in the type of people they hire. 

Be ready to sip the muddy water

Aruna: I think it comes down to long-term commitment. Companies can’t gain the trust of Japanese companies if they keep hiring and firing, which is often the case. Which brings me to my next question. There is a perception that Japanese companies are very risk averse when it comes to working with global vendors. Do you think this is true? If so, how can global cloud companies prove their commitment and build credibility with customers early on? 

Togawa-san: Japanese companies are perfectly justified in being cautious about working with global software companies. As you point out, churn at the country manager position is one of the reasons why. What company would put their trust in a fly-by-night foreign software firm? The fact is, Japanese companies have been burned so many times by companies that promise everything but don’t deliver! You need to look at things from the customer’s point of view.

If companies want to build credibility with customers, they should partner with established systems integrators, like NTT Data, Hitachi or Fujitsu, as well as with emerging cloud specialists such as Uhuru or Classmethod, that have trusted relationships with Japanese companies. They should work with them not just for sales but to really understand their customers’ needs and provide solutions. They need to leverage partners to provide post-sales support and make sure their products integrate with their customers’ environment. They need to sell and support “with” them, not just “through” them.

I realize this may be a hard pill to swallow for cloud vendors that are accustomed to working directly with customers. I understand that they may be reluctant to bow down to partners and give away margin on top of that. 

But I’m not saying global companies should depend entirely on partners to establish themselves in Japan. They absolutely should develop a direct sales strategy and work directly with customers as well. I’m just saying global companies need to work with Japanese systems integrators and become a part of the local ecosystem in order to overcome the trust deficit they have with customers. Sometimes you have to “sip the muddy water,” so to speak, in order to succeed.

Localization nation

Aruna: How about localization? Do global vendors need to localize everything, even training materials, marketing content and contracts, to show their commitment to customers? 

Togawa-san: There’s no question that companies have to adapt their product to local business processes. Global providers need to get their product right before anything. That’s a given. 

As for the other content you mention, I believe they should be localized, the training and marketing content especially. Global companies need to put themselves in the market and see things from the customer’s point of view. They need to understand the issues. Some global issues are relevant to Japan, some are not. 

Everything should be in high-quality, idiomatic Japanese. There’s nothing worse than bad translation. It’s easy to tell which vendors know what they are doing and are really committed to the market just through the quality of their materials and programs. 

Where’s the money?

Aruna: What are Japanese companies investing in, by industry, over the next couple of years? What are they willing to put their trust in, so to speak?

Togawa-san: I’d rather have you purchase the DX Survey, but I will give you a high level overview (laughs). Digital transformation-related investments will remain steady overall, with some industries, especially those with distributed work environments, investing more aggressively. COVID has been an accelerator in these industries, of course. I’m sure this is the case in the U.S. as well.

Manufacturing is the weakest in terms of investment. Of the 285 companies we surveyed, approximately 20 percent will increase their budget. Around 45 percent indicated their investment level will remain unchanged, while 20 percent said they will reduce their spend. Manufacturing is struggling. Keep in mind, though, that 45 percent will maintain their current budget, which is still significant. It comes down to selling to the right companies.

Industries like Financial Services, Logistics/Distribution and Construction and Real Estate will increase their spend on digital transformation. They are investing in workplace solutions, Ecommerce and security as well as ERP. Both large and medium-sized enterprises are investing in cloud solutions. No surprises here either.

Companies are also looking for ways to gather and analyze data, although AI and IoT are low on their list of priorities, which is a bit puzzling. Not many companies are interested in Blockchain.

Overall, the survey results indicated that companies are focused on the basics. I’m sure the situation in the U.S. and elsewhere is similar.

Systems integrators, revisited

Aruna: Are systems integrators doing all the development work? As you know, Japanese companies are known for keeping few engineers in-house, and outsourcing most of their development work, despite the growing need for speed and agility. Do you think Japanese companies are overdependent on systems integrators?

Togawa-san: My thinking is pretty clear on this matter. For core systems such as ERP, or Systems of Record, I think it makes perfect sense to work with systems integrators. Companies shouldn’t outsource indiscriminately, but they should delegate transactional work. In fact, this is key in allowing them to be more agile.

Development work for Systems of Engagement like CRM, Marketing, Content Management or AI is another matter. This should be done internally. There’s a great deal of knowledge to be gained. Companies should also partner with startups to move more quickly. Open innovation is important. It’s probably cheaper too.

The problem with many Japanese companies is that they are unbalanced in how they outsource. There’s nothing wrong with outsourcing but many companies delegate too much to systems integrators and become overdependent on them. This of course is not good.

Walk the walk with Customer Success

Aruna: My last question has to do with Customer Success, which is practically religion for enterprise cloud companies. Do you think Japanese customers understand how Customer Success works and how it benefits them? I think Customer Success is also one of the keys to building trust with customers.

Togawa-san: I know how important Customer Success is for cloud companies, but frankly, I don’t think Japanese customers know the difference between Customer Success and customer satisfaction. My understanding is that Customer Success is all about vendors enabling customers to use their products more effectively so they can derive value from them. If this is indeed the case, then these companies should dedicate more resources to telling stories about how customers succeed with their products. They need to show evidence. They need to walk the walk. 

And yes, telling customer stories is the surest way to build trust in Japan, or anywhere else. Customer stories were all I did throughout my career. Maybe this is because I don’t really trust vendors much (laughs).

Aruna: I will let all our partners know that they need to engage their customers in their marketing. I will also suggest that they purchase your DX Surveys!

Togawa-san: Thank you. I’d appreciate that (laughs).

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March 16, 2021

Escaping the Corporate Comfort Zone: How to Hire Top Cloud Leadership in Japan

Aruna Basnayake, CEO and Partner, Japan Cloud

The second of three posts on Japan market entry.

If anything keeps enterprise cloud CEOs up at night in Japan, it’s not a lack of opportunity. Japan is fertile ground for cloud services that can help businesses succeed in a data-driven, hybrid world. If CEOs lose sleep at night in Tokyo, it’s because they struggle to find top talent.

A Costly Conundrum

The average tenure of Japan country managers over the past 10 years at firms listed in Bessemer’s Emerging Cloud Index is 22.6 months, according to Japan Cloud research. Companies often fall into a vicious cycle of hiring and firing. The cost in terms of time, money and reputation is incalculable.

But there’s a way out of this costly conundrum. Global cloud leadership must escape their corporate comfort zone. They need to think twice about candidates who seem the obvious choice. Seasoned sales people whose resumes include familiar global cloud brands and who impress HQ with their English skills may be a great corporate fit, but they’re not always the best fit for growing and managing a business in Japan.

Corporate leaders need to put themselves in the market--the second largest enterprise software market in the world--and ask themselves: which candidates have the growth mindset and passion to keep developing their leadership and management skills, as well as their sales prowess, to grow the Japan business to a thousand employees and 10 percent of global company revenue?

This is the executive they want running their business in Japan.

Stuck in Mainframe Days

It’s not hyperbole to say that the recruitment process for country managers in Japan has changed little since the days of the mainframe. While meetings with search firms and candidates may now be virtual, the candidate profile usually includes country manager or sales management experience, preferably with a reputable global software firm, as well as proficiency in English.

In most cases, the management team decides who will lead their Japan business based on feedback from corporate colleagues, a recommendation from the recruiter, endorsements from candidate-nominated references and perhaps the advice of a trusted, local advisor. The new country manager is then “empowered” to hire a team and start closing deals.

There has got to be a better way. The intent isn’t to denigrate the efforts of companies or their partners or consultants. The language barrier and time constraints leave corporate leadership few options but to rely on local experts. But given the challenges software firms have had with their Japan leadership over the decades, it behooves them to do things differently.

They should begin by rethinking their candidate profile.

In Pursuit of “Learn-it-alls”

In addition to evaluating experienced country managers and salespeople, companies should shortlist executives who have limited experience but show potential for growth.

Candidates who have 10 to 15 years of solid sales and management experience in the IT industry and who have a growth mindset are often preferable to English-speaking country managers who talk a good game and boast that they know everyone in the industry.

While English skills are desirable, they’re not as important as local credentials--a degree from a reputable university, for example--and the ability to engage with senior executives at Japan’s leading companies. Companies can always rely on a local partner or consultant to bridge communication gaps with HQ.

Candidates with a strong network are also welcome. But people who have the mindset to continuously grow their network are even more attractive. Executives who can learn to network across industries and keep improving their value-selling skills are exceptional.

If they have the humility and EQ to build trust with customers and employees, they are truly golden. Recruiting and management skills are absolutely critical for the country manager job.

To quote Satya Nadella, “The learn-it-all does better than the know-it-all.” Candidates who are coachable, collaborative and constantly try to improve themselves often trump proverbial “rock stars” who rely heavily on past accomplishments to define their future capabilities. This is true in Japan as it is anywhere else in the world.

Hiring for Customer Success

In the go-to-market phase, corporate leadership should also be involved in the recruitment of the core management team, from marketing to pre- and post-sales. In addition to minimizing the country manager’s overreliance on personal relationships, the goal is to build a foundation for scaling the local team over the next three to five years. While the country manager should be the final decision maker on who makes the team, corporate leadership should have a say in the screening of candidates.

Unlike the country manager, the core management team should have solid enterprise cloud experience. They should live and breathe Customer Success. While seemingly counterintuitive, companies should prioritize hiring a post-sales leader. The objective is to embed Customer Success processes and values in the organization early and to build relationships with systems integrators. Again, English proficiency among core management is desirable, but not essential.

In Search of EQ

In addition to reference checks and third-party feedback, companies should include formal aptitude and personality assessments in their screening process, especially if they are considering candidates who are new to a leadership role.

Despite the widespread adoption of personality testing and job-fit data among U.S. corporations, very few, if any, global cloud companies assess their candidates in Japan. This is not good. Along with fundamental cognitive abilities, companies should test for communication, team-building and organizational skills, among other soft skills that are essential for leadership positions. They need to assess the whole person. The cost of not doing so is simply too great, for candidates, as well as for companies and their customers.

Beyond the Comfort Zone

Global cloud companies need to rethink their approach to talent acquisition in Japan, especially at market entry. Expanding their search while spending more time on screening candidates is the surest way to avoid the hire and fire cycle and to get their business on track.

They shouldn’t be enamored by candidates who fit the corporate bill. They need to escape their corporate comfort zone. Their goal should be to hire leaders who can sell on value as well as achieve operational excellence and Customer Success-driven growth longer term.

How cloud companies can develop their team in Japan and build a company culture anchored in local Customer Success will be the subject of my next post. Stay tuned.

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February 8, 2021

Saison Information Systems rapidly transforms accounting operations with BlackLine Japan

Aruna Basnayake, CEO and Partner, Japan Cloud

BlackLine Japan customer Saison Information Systems is the IT subsidiary of Credit Saison, issuer of the third most popular credit card in Japan with some 30 million customers. Saison took its accounting processes online in 2020 with the BlackLine Continuous Accounting Platform, automating more than 50% of its bank statements in just 90 days and integrating data across its global operations as well as improving its quality and visibility. In the process, Saison’s accounting team transformed itself into a strategic partner to management and the company’s front lines. Thank you to Saison and BlackLine for sharing their truly exemplary digital transformation story!
https://www.blackline.jp/customers/saison-information-systems.html

January 25, 2021

Japan’s Future is Hybrid—Market Entry in the Next Phase of Japan’s Digital Transformation

Aruna Basnayake, CEO and Partner, Japan Cloud

This is the first in a series of three posts on Japan market entry.

There’s an upside to COVID in Japan: the pandemic has disrupted Japan’s formalistic business culture, catapulting workers out of stifling protocol, if not packed trains, into a virtual world where executing to plan and achieving results are all important.

While traditional, physical interactions will of course remain, there is no question that remote work and online services will outlast the pandemic. Japan’s future, like the world’s, is hybrid. The productivity gains for Japan’s businesses will be enormous.

For enterprise cloud companies with an eye on Japan, the opportunity is likewise huge.

Japan is Cloud Ready

Comprising the second largest enterprise software market in the world, Japanese businesses have been pursuing digital transformation—albeit with mixed results—for close to two decades.

They are now embarking on the next phase of their digital journey. They are extending and securing their business processes to empower remote workforces and to deliver seamless customer experiences online. They are gathering and analyzing key data across employee and customer touchpoints to make more predictive decisions.

Indeed, more than 40 percent of close to 1900 Japanese executives said they will boost investments in cloud services this year[1], according to a May 2020 survey. A pre-COVID report from IDC Japan projected the market for public cloud services to grow more than 18% annually to around $20 billion by 2024[2]. Japan has never been more cloud ready.

Being Japan ready

For their part, enterprise cloud companies looking to enter Japan need to be Japan ready. They need to have the scale and stamina to meet the demands of large, pragmatic customers. Whether they are digitally transforming existing businesses or launching new ones, Japanese customers want to work with market-tested vendors that can help them achieve business outcomes.

While early-stage startups may find an audience in Japan—especially now over Zoom— technology and vision will get them only so far. If global companies want to do business in Japan, they need to show evidence that they can deliver Customer Success.

Paths to Market Entry

Entering Japan is no small feat. Japan is a massive, highly opaque market. The country is second to the U.S. with nearly 15,000 companies boasting revenues of more than $100 million.[3] Japan usually garners 60 to 70 percent of Asia Pacific revenue, excluding China, for enterprise software companies. It cannot be served from a regional headquarter, whether Singapore or Sydney. Japan is its own region. Building a strong local presence is essential.

Cloud companies can enter Japan directly or in partnership with a local organization, whether an industry incumbent, a Japanese trading company or an enterprise cloud specialist such as our firm, Japan Cloud. While I am of course partial toward the partnership model, many industry experts would agree that companies carry more risk when entering Japan directly. The market’s sheer size, dearth of local talent and persistent language barrier—Japan ranks 55th in English proficiency among 100 non-English speaking countries[4]—make smooth entry a challenge.

Companies are often encumbered by weak direct sales capabilities, ineffective value selling to CxOs and an overdependence on resellers as well as highly procedural PR and marketing. Companies often lack visibility into their local operations other than through their country manager. Many companies fail to gain market traction after years of trying on their own.

Partnering for the Long Term

Although partnering by no means ensures success, companies that enter Japan with a partner should, at the very least, benefit from quicker access to local knowledge. customers, potential recruits and vendors. Introductions to trade and business media should also be included in the partner’s go-to-market menu.

Ideally, partners should support companies far beyond market entry—not only with words of wisdom, but also with hands-on execution. They should be bilingual, bicultural translators of the local culture. They should serve as a company’s eyes and ears into their local operations. They should help companies build a local organization that can deliver stable, long-term growth.

The goal should be to build a thriving Japan business that can contribute 10 percent of global recurring revenue—because Japan comprises 10 percent of the global IT market—within 10 years.

For cloud companies that have the will, wisdom and wherewithal to commit to the second largest enterprise software market in the world, Japan’s hybrid, data-driven future presents an enormous opportunity for innovation and growth.

Stay tuned for my upcoming posts on hiring and building a locally rooted Customer Success culture in Japan.

[1] https://www.m2ri.jp/release/detail.html?id=426

[2] https://www.idc.com/getdoc.jsp?containerId=prJPJ46845820

[3] S&P Capital IQ Database

[4] https://www.ef.com/wwen/epi/

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