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Howell, R. and M. Sakurai. 1992. Management Accounting (and other) lessons from the Japanese. Management Accounting (December): 28-34.

Summary by Jackie Margarella
Master of Accountancy Program
University of South Florida, Summer 2001

Japanese Management Main Page | JIT Main Page

The purpose of this article is to compare the management accounting and control methods used in Japanese corporations to those being practiced in U.S. corporations. The authors, Robert Howell and Michiharu Sakurai, are management accounting professors in the U.S. and Japan respectively and have collaborated to better understand the similarities and differences between management accounting practices in their native countries. They led senior finance and accounting executives from U.S. corporations such as AT&T, DEC, Motorola, Mobil and Nestle to Japanese corporations Toshiba, Toyota, Zexel, Nippon Steel, Nissan and Mitsubishi Chemical to compare and contrast U.S. and Japanese management accounting practices. The results of these study missions are detailed in 10 lessons that the authors agree U.S. corporations can learn from Japanese management accounting practices.

Lesson #1 is that there is no "one" Japan. All corporations are different in productivity, manufacturing flexibility and quality and therefore all corporations require a management accounting system custom designed for their own corporation.

Lesson #2 is a world-class customer commitment. Japanese executives understand that to be truly successful they must satisfy their customers better than the competition. This attribute is lacking in U.S. corporations and is a result of a direct emphasis on shareholder wealth rather than customer satisfaction.

Lesson #3 is the "price down/cost down" mentality of Japanese corporations. This means that Japanese managers understand that prices are more likely to fall than increase over time, therefore to continue to earn an acceptable return on investment, costs must also decrease over time. U.S. businesses continue to rely on the cost plus pricing method and therefore don’t consider the long-term costs of production in their pricing strategy.

Lesson #4 is the proactive role of cost management in Japanese corporations. In connection with the price down/cost down mentality discussed in Lesson #3, Japanese businesses manage costs during the product planning stage rather than later in the product life cycle. Accountants play a key role in this process in Japanese businesses; in contrast accountants in U.S. corporations are often the last group involved in the product development process and often report actual results of operation.

Lesson #5 is management reporting. Japanese corporations provide quick relevant feedback that is provided to those employees directly responsible for the results. U.S. management reporting tends to be aggregated and only provided to top management of the corporation where the information is irrelevant.

Lesson #6 is the business planning/budgeting function used in Japanese corporations. Japanese and U.S. corporations differ drastically in how and why budgets are created. In U.S. corporations budgets are used as a means to evaluate overall company performance, which then is directly tied to management bonuses and salaries. On the other hand, Japanese corporations do not use overall company performance to evaluate individual performance and therefore do not base salaries or bonuses on budget results. Also, budgets in Japanese businesses are much less detailed than traditional U.S. budgets and are therefore much quicker to prepare.

Lesson #7 is the use of relevant measures of performance. Japanese companies use Return on Sales (ROS) to measure financial performance whereas U.S. companies continue to use Return on Investment (ROI). Scholars argue that an emphasis on ROI results in a short-term focus where long-term company success is compromised for current period profits.

Lesson #8 is the role of accounting in Japanese businesses. Japanese accountants play a much larger role in the business than U.S. accountants. Japanese accountants are utilized for target costing, budgeting and other management accounting issues more often than accountants in U.S. companies.

Lesson #9 is the human resource management function in Japanese companies. The Japanese culture has adopted the idea of "lifetime employment" where employees gain experience in all areas of the company through a job rotation system and therefore eventually are qualified to make decisions that affect the entire company. Japanese firms invest much more money in their employees than U.S. companies. In fact, accounting personnel are not required to have an undergraduate degree in accounting or business. All of their skills and expertise are taught through company-financed training.

Lesson #10 is the accounting effectiveness and efficiency of Japanese firms. The authors are not saying that U.S. companies are ineffective or inefficient, but that Japanese accountants focus their attention toward more management accounting functions than U.S. accountants who generally focus on historical accounting functions. This will ultimately make Japanese companies more effective and successful in the long run.

The benefit of these 10 Japanese management practices is not proven by higher profit margins or returns to shareholders. Rather, the benefits of these management practices will better position Japanese firms in the future to improve products, processes and reduce costs. In order to compete with Japanese companies in the 21st century, U.S. management must understand the finance and accounting practices of Japanese companies and strategically imitate those practices that will ultimately benefit their own companies.


Related summaries:

Cooper, R. and C. A. Raiborn. 1995. Finding the missing pieces in Japanese cost management systems. Advances in Management Accounting (4): 87-102. (Summary).

Crawford, R. J. 1998. Reinterpreting the Japanese economic miracle. Harvard Business Review (January-February): 179-184. (Summary).

Dillon, L. 1990. Can Japanese methods be applied in the western workplace? Quality Progress (October): 27-30. (Summary).

Hayes, R. H. 1981. Why Japanese Factories Work, Harvard Business Review (July-August): 57- 66. (Summary).

Hiromoto, T. 1988. Another hidden edge: Japanese management accounting. Harvard Business Review (July-August): 22-25. (Summary).

Imai, M. 1986. Kaizen: The Key To Japan's Competitive Success. New York: McGraw-Hill Publishing Company. (Summary).

Martin, J. R., W. K. Schelb, R. C. Snyder, and J. C. Sparling. 1992. Comparing the practices of U.S. and Japanese companies: The implications for management accounting. Journal of Cost Management (Spring): 6-14. (Summary).

Porter, M. E., M. Sakakibara and H. Takeuchi. 2000. Can Japan Compete? (Perseus). (Summary