Amoeba Management

The Dynamic Management System for Rapid Market Response

Kazuo Inamori

• Publisher: Productivity Press
• Year: 2012
• ISBN:
  9781466578913
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

Especially effective in dynamic and highly competitive environments, the Amoeba Management System has received attention from the Harvard Business Review and has already been successfully adopted at more than 400 companies around the world. At the heart of this innovative management system is a business philosophy based on doing the right thing as

Section I
Amoeba Management

1

Each Employee Will Take an Active Role in Their Own Respective Unit

THE ORIGINS OF AMOEBA MANAGEMENT

A Company Started with Seven Colleagues

To help you understand Amoeba Management, please let me give a brief description of Kyocera’s founding and its management rationale.

After graduating from the Department of Engineering at Kagoshima University, I joined Shofu Industries, an insulator manufacturer in Kyoto. In Shofu, I researched, and had succeeded in commercializing, a new field of ceramics. I had a difference of opinion concerning new product development with my boss, the newly appointed head of research. Unable to realize my goals as an engineer, I left the company.

Fortunately, I was supported to establish a new company. With seven colleagues who left Shofu Industries with me, I set up a company called Kyoto Ceramics. I did not have sufficient capital to start a company. Kyoto Ceramics was thus founded with financial support from many people who wanted the company to become a venue for presenting my technology to the world.

Had my family been affluent, or had I been able to create the company using personal funds, then the nature of the company would probably have been very different. However, I had no money, no experience, no advanced technology, and no sufficient facilities. What I did have was a company founded on the basis of a partnership with colleagues with whom I enjoyed mutual trust.

In starting the company, I became deeply indebted to Mr. Ichie Nishieda, who at the time was an executive director for Miyagi Electric Company. He said to me, “I invested money because I believe your thinking is sound and you have strong potential. When you start this company, you must not let money lead your management by the nose. You are to consider your technology as capital, and hold shares in your own name.” Therefore, I started as a so-called owner-operator, holding “shares” of my investment by means of my ideas. The company began with this kind of wholehearted support, and the heart-to-heart bonds of colleagues sharing mutual trust became the cornerstone of Kyoto Ceramics’ (and, later, Kyocera’s) operations.

Being a novice in management, I was constantly worrying about “what the foundation for management should be.” Before long, I began thinking about the importance of the human mind as a solid footing for management. This concept became Kyocera’s foundation. The human mind is exceedingly changeable. Yet, once firmly bound, there is no stronger force in the world. A glance into history reveals countless examples of the great achievements made possible by the human mind. Ultimately, I concluded there is no surer way to lead a group than by reliance on the bonds of human minds.

Amoeba Management is based on the human mind. The human body has tens of trillions of individual cells, all of which work in harmony according to one will. Similarly, if thousands of amoebas in a company can unite their minds, then the company can function as one body. Even if there is occasional competition among amoebas, our mutual respect and support will allow the company to wield strength as a unified entity. Therefore, the bond of trust is an essential requirement for every person, from top management to members of each individual amoeba.

Establishing a Management Rationale

In the second year of the company, I hired about ten new high school graduates. A year later, just as they seemed to be getting used to the work, they suddenly came to me and demanded better conditions. They handed me their demands, which had been signed in blood.

Among their demands were “guaranteed wage increases and regular bonuses in the future.” When I hired them, I told them, “At this point, I don’t know how much we will be able to achieve. However, I intend to do my utmost to turn this into a fine company. Do you have the will to work in such a company?” Yet, after working for only one year, they threatened to quit if I did not provide guarantees for their futures.

I told them outright that I could not accept their demands. We had been operating for only about two years, and I still lacked confidence regarding the business. Giving guarantees for their employment in order to prevent them from leaving would have been deceitful. I told my young employees that I would give all my energy to provide them with future conditions even better than their demands.

Our discussions reached no conclusion at the company and continued late into the night at my home. They were stubborn and refused to yield. Over the following days, I tried to make them understand that I had not the slightest thought of personal gain as a businessman, but wanted to create a company in which each employee would be truly pleased to be a member. However, they were young and high-spirited, retorting that “capitalists and managers always put such a pleasant face on things to deceive workers.”

At the time, I was regularly sending money home from my meager paycheck to help support my parents. I was the second son in a family with seven sons and daughters. After the war, we struggled in poverty. My brother and sisters had given up on higher education so that I could go to university. Unable to provide even for my own family, how could I guarantee the future of employees who happened to join my company? I felt an increasing sense that I had been allotted more than my fair share of obligation.

Even so, the company had been established. My benefactor, Mr. Nishieda, supported the company to the extent of putting up his estate as security. There was no way I could pull out now. Driven into a corner, I took up the struggle in earnest: “If you have the courage to quit this company,” I said, “then why can you not find the courage to believe in me? I will stake my life to defend this company for you. If it turns out that I am running this company purely for my own self-interest, then you can put a knife through me and take my life.”

Discussions continued over three days and nights, until, at last, everyone was convinced to stay. However, at the end of our negotiations, I could not help thinking anew about the significance of keeping a company in existence. Even now, as young employees joined, they were entrusting this tiny company with their lives.

For several weeks, I pondered the situation with a sense of gloom. Finally, I came to this conclusion: “I originally started this company to realize my dreams as an engineer. Employees now entrust their lives to it when they join. The company therefore has an even more important purpose. The purpose of the company is to safeguard employees and their families, and to aim for their happiness. My destiny is to take the lead and aim for the happiness of our employees.” From that, I established the Kyocera management rationale as follows: “To provide opportunities for the material and intellectual growth of all our employees, and, through our joint efforts, contribute to the advancement of society and humankind.”

The significance of Kyocera’s existence as a company thus became clear: to provide opportunities for the material and intellectual growth of all our employees, and to contribute to society and humankind. Employees came to think of Kyocera as their company, and each person began working as earnestly as if he or she were the owner-operator. From about that time, my relationship with the employees was no longer one of management and labor. There emerged a genuine sense of fellowship among us, with each of us carrying the same degree of determination and sparing no effort in working toward the same goals.

Amoeba Management stimulates “management by all” due to its mechanism of self-supporting accounting for small groups. It is a management control system that concentrates the powers of all employees. However, this presumes the existence of a management rationale and philosophy that allow all employees to involve themselves fully in their work without doubt or suspicion.

Grow an Organization by Dividing It into Small Groups

Kyoto Ceramics soon began developing and commercializing many fine ceramic products that had never existed before—one after another. As a result, the company expanded rapidly. We started out with twenty-eight employees, and within five years we had more than a hundred; before long that number rose to two hundred and then to more than three hundred. Nevertheless, I was racing about overseeing all aspects of our operations, from product development to manufacturing to sales. Physically this was starting to take its toll, and the quality of my work itself began to suffer. It is often said, “A small company is like a balloon; if it grows too large, it will burst.” In other words, when a small enterprise expands on the basis of rough estimates it will become unmanageable and finally collapse. Our company was already approaching that situation.

At the time, I saw that I might be able to solve the problem with knowledge of business management, organizational theory, and other topics useful for controlling an organization that had grown large. However, I had no basic knowledge of such matters, and furthermore, I was working late each night and had no extra time to study.

I was not even aware of the existence of the profession known as management consulting. Had I been aware, I might have scraped up the money from somewhere and sought guidance. In my ignorance, and with no resources to rely upon, I continued to worry alone about how to manage a swiftly growing company.

One day, an idea suddenly flashed in my mind: “While the company still had about a hundred employees, I could handle everything. What if I were to divide the company into smaller groups? At this stage we may have no leaders who can manage one hundred people, but we do have those who are becoming increasingly able to take charge of twenty or thirty people. What if I entrusted the management of small groups to people like these?”

By extension, if I were to divide the company into small groups anyway, why not adopt self-supporting accounting for each group? I could divide the company into the smallest possible groups capable of functioning as discrete business units, and place a leader at the head of each one. Each unit would then be administered independently, similar to small owner-operator workshops and factories.

Administering each organization using a self-supporting accounting system meant that we would need profit and loss statements for each one. However, specialized account statements were difficult for novices to maintain. I therefore adapted the profit and loss statements and devised the simpler hourly efficiency report for use by people with no accounting knowledge. As I will explain in detail (later in this chapter, and in Chapter 4), the report tabulates the implementation of the management principle “Maximize added value,” which results from application of the basic principle “Maximize revenues and minimize expenses.” The hourly efficiency report has a category equating to sales. Necessary expenses (excluding labor costs) are detailed underneath, and the difference is calculated. This mechanism allows us to recognize profitability at a glance.

The hourly efficiency report simplifies cost management for group leaders, enabling them to direct group members to reduce expenses in a specific area to increase the profitability of their department. Furthermore, the hourly efficiency report is clear enough for all group members to follow, opening the way for all employees to participate in management. In other words, while cultivating leaders, it raises interest in management and increases the number of employees who are interested in management and have managerial awareness.

Labor–management confrontation was still intense at that time—it was an era of frequent labor disputes. In such a climate, there was little leeway for thinking in terms beyond a confrontational structure between capitalists and workers. The common sense of the time was for managers to tell employees as little as possible about management, to prevent employees from attacking their weak points. Regardless of the times, Kyocera presented employees with transparent management in the form of the hourly efficiency report, and made the state of the company as open as possible.

Realizing that making the company situation visible to all could raise participation consciousness and stimulate ambition, I decided to place Amoeba Management at the heart of Kyocera’s management control systems. After that, from the perspective of management control systems, Amoeba Management became the mainspring behind the rapid growth of our company.

The Three Objectives of Amoeba Management

Amoeba Management is not management know-how of the kind lionized by the business world. If it were simply management know-how, then it would be enough just to learn the methods and procedures. However, mimicking the methods of Amoeba Management gives little guarantee of a successful result. Why? Because Amoeba Management is a total management control system, based on a philosophy of management and intimately tied to all systems within the company. Since it is closely associated with all aspects of management, giving a clear perspective of Amoeba Management as a whole is difficult. Therefore, when learning about Amoeba Management, a good understanding of the objectives is essential.

In general terms, Amoeba Management has three objectives:

1. Establishing a market-oriented divisional accounting system

2. Developing leaders with managerial awareness

3. Achieving “management by all”

Now we will discuss these objectives one by one.

ESTABLISHING A MARKET-ORIENTED DIVISIONAL ACCOUNTING SYSTEM

Current Figures Are Needed—Not Past Statistics

Like most companies, Shofu Industries—the company I first worked for after graduating from university—had various administrative departments: Accounting, General Affairs, Personnel, and others. Specialized work was entrusted to its relevant department. My job was to concentrate on research and development, manufacturing, and new-product sales. As for accounting, all accounts associated with my division were handled by the Accounting Department. I had no hand in it at all.

When I left Shofu at age twenty-seven and founded Kyoto Ceramics, I was a complete novice at management. Mr. Masaji Aoyama, my superior at Shofu and a benefactor in establishing my new company, gave me an overall introduction to accounting. Mr. Aoyama was general manager of the administrative division at Shofu and was well versed in cost accounting.

Several months had passed since my company had been founded. Mr. Aoyama performed our cost accounting while processing the day-to-day accounting slips. He showed me the results, intending to explain in detail the manufacturing cost of goods shipped three months earlier.

At the time, I was rushing about all day, solely responsible for all aspects of the business, including product development, manufacturing, and marketing. I had no time for a leisurely look at costs from several months before. While giving agreeable responses, I took little notice of what he was explaining. No doubt, Mr. Aoyama felt I was thinking lightly of cost accounting. Nevertheless, he came to me repeatedly to show and explain cost tables.

Somewhat perturbed by his persistence, I said, “Mr. Aoyama, these past figures are of no use to me. Knowing the cost months after the product has been shipped is of no value. I am working each day to produce profits just for this month. Even if I am told these are the figures for several months ago, there is nothing I can do about it now. More importantly, the market for electronic components is highly competitive. Prices for orders received today are falling. Historical costs have little significance.”

Thanks to Mr. Aoyama taking on the work of accounting and administration, Kyocera started off well. Wanting me to be aware of the importance of cost accounting, he came repeatedly with figures and explanations. I truly regretted my impertinence, but I still could not rid myself of the notion that in totaling costs after the fact, he was merely presenting me with a record of my management several months before.

As the field of ceramics was still entirely new, monthly repeat orders were rare. Our company was accepting orders for and delivering brand-new products, and then acceptin...