Japan ready for digital transformation?

by The Insights

Japan, a country known for its technological innovations in robotics and manufacturing, has surprisingly lagged behind in digital transformation. According to the IMD 2022 Global Digital Competitiveness Ranking, Japan ranks 29th out of 64 countries surveyed in terms of know-how, development of digital technologies and readiness to harness digital transformation. Other Asian countries finishing ahead of Japan include South Korea in 8th place, Taiwan in 11th and China in 17th.

The country is well aware that it has fallen behind many of its G7 counterparts. Japan’s public sector is notoriously stuck in the analog age, with its endless shuffling of paper relying on hand-stamping. Since declaring its digitization initiative in September 2020, the country has created a digital agency to coordinate the digital transformation effort between ministries and the private sector. Yet, some self-imposed constraints stand in the way of digital transformation, including a risk-averse mindset, limited exposure of some companies to global competitors, and a shortage of software engineering talent to build the necessary software applications. .

To better understand how Japanese business executives perceive digital disruption, IMD’s Global Center for Digital Business Transformation (of which this author is a part) and NTT Data Consulting surveyed 609 Japanese executives with digital-related decision-making responsibilities. . We compared the results of the survey of Japanese executives with the responses received from executives based in the United States and Europe.

Over the next five years, about 80% of respondents from Japan, the United States and Europe predicted that there would be significant changes in their industries due to digital disruption. In response to the question “When do you think the impact of digital disruption will occur?” the United States and Europe had a high percentage of respondents who answered that it “is already happening”. In contrast, a high percentage of respondents in Japan responded that digital disruption will occur “within one to three years, indicating a significant difference in perception between these regions.

While the majority of respondents surveyed globally said they had a formal digital strategy, more than half of respondents based in the US and Europe acknowledged that it was a fragmented strategy. A fragmented digital strategy indicates that most digital initiatives are incremental in scope, tied to process improvements in specific departments and functions.

On the other hand, a higher percentage of Japanese respondents responded that they had a unified digital strategy consisting of a portfolio approach linked to clear business outcomes. Additionally, a higher percentage of Japanese respondents said they are ready for digital disruption when it happens. This suggests that there is growing momentum in Japan among businesses to prepare for digital disruption.

However, for Japanese companies to succeed in their digital transformation, it will be necessary to improve their business agility in three ways. According to. Professor Michael Wade, IMD Business School, Japanese companies should focus on the following three aspects:

1) Develop a hyper-awareness of internal and external changes happening around the business and identify future disruptive threats

2) Actively leverage data for informed and fast decision-making

3) Strive to quickly translate decisions into execution

The third aspect – translating decisions into execution – may be the most difficult challenge for many Japanese companies. Its traditional corporate culture, valuing hierarchy and decision-making based on consensus, generates a reluctance to accept change and a resistance to the adoption of new technologies.

Japan’s lagging progress in digital transformation is concerning given its status as a global leader in technological innovation. Although our survey indicates that many businesses are prepared for digital disruption, the country needs to address its cultural and demographic challenges and take proactive steps to promote digital transformation across all sectors of the economy.

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