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New technologies open up new customer bases

Interview - March 22, 2016

Tetsuo Agata, President of the Jtekt Corporation, reveals the intensive quality systems in place at the multibillion-dollar corporation, which today is the world’s biggest supplier of car steering systems remains at the forefront of the global bearing industry through constant technological innovation. Mr Agata also discusses his odyssey to create a global human resource management system, and the next generation of opportunities for the company. 

TETSUO AGATA, PRESIDENT OF THE JTEKT CORPORATION
TETSUO AGATA | PRESIDENT OF THE JTEKT CORPORATION

Jtekt Corporation’s share value has more than doubled from ¥814 2013 to now more than ¥1,710 (Jan 2016). What has been the key driver behind the company’s continued development and success so far?

One of the biggest drivers behind our company’s growth for the past two to three years has been Abenomics. Prior to that, we were suffering from the strong yen. With the strategic shift from the Bank of Japan, and the government’s new policy, the currency has gone down, helping push our sales and turnover. This is the major contributing factor so far.

Since my arrival at the head of Jtekt about three years ago, I have established a mid-term management plan, which looks at the next five years. In the automotive component industry, the results for the three years ahead are already known – whether we lost business or if we have been awarded new business. So looking beyond the next three years into the next four or five becomes the real battlefield with our competitors.

We can divide our business into three sections. The first one is our current business. We have to continuously improve quality, improve, and adjust costs to keep our competitive edge. Yet regardless of our efforts in the current business, it will decline over time. That is the nature of our business. The second section is the new business not launched or started yet, beginning in the next two to three years. We have to secure a successful launch, cost wise and quality wise, to fulfill our commitment to our customers. Regardless of our efforts in this new business, this will also decline as well over time. The third section is new business. This is the battlefield that we have to fight and compete with our competitors seriously to maintain the growth of our company. So for every single year, we look at this new business and see which business we get and which ones we lose.

Prior to the time total management system, there were no mid-term strategies. Therefore, I tried to clarify the strategies for the next five years – this way, everybody is clear on what they have to do. For example, a fund person will know they have to work hard to keep our current business with quality and good cost. If I am a production engineer or in the preparation business, I have to work hard to secure the successful launch of the new products. If I am a sales person, or a new product development engineer, I will have to work very hard to earn new businesses. And so forth. This way everybody is clear on what they have to do, which can energize the people in the company.

 

Jtekt obviously is globally recognized for its level of quality when it comes down to the products it offers. How do you implement quality control that differs to that of your competitors?

Quality consists of various kinds of stages. The first stage is development. We have a so-called quality gate system in place. From the start of the project to the launching and also even after the launching of the new products, we have 20 “gates” or stages. At each gate we gather, we discuss, and we try to clarify the conditions. To pass one gate, we have already set key performance indicators (KPIs). If you cannot satisfy this required KPI, you can’t pass that gate. Process by process, we are trying to just quantify our designing and development stage, which is one stage.

Also, in the production preparation we use what is called in Japanese “Ryohin Joken”. Ryohin means good products and Joken means conditions. For example, to mold glass, you are trying to use as much data about the manufacturing condition as possible. The molding pressure is how many tons, molding speed, temperature, etc. Of course we can’t utilize data in 100% of the processes in the real world and require some trial and error as well. Furthermore, we can maintain quality conditions with summarized data, which can guarantee good products, which requires “Ryohin Joken”. Good product condition is required for the production preparation people. For every single day, for every single hour, our production people are watching the conditions and there is no room for error. If the conditions are getting worse and worse and then come within certain criteria and the trend is bad, that means something is wrong. It’s much easier with the conditions that provide quantifiable results so we can more easily control them on a regular basis.

On the floor side we are trying to implement a floor management system. On the floor, each operation is divided into sub-groups that consist of maybe 10 or 20 people with a group leader overseeing the operations.

There are three types of boards within the operations, which is the floor management development system (FMDS). Every morning, prior to the start of the operations, if I were a group leader, I would gather all of my 20 staff members, and in front of the management board discuss the first section, which is changing point management. Changing point is what we are going to do in production from today, such as speeding up production. For example, changing the cycle time to be 20 seconds from 22 seconds. It’s a changing point, where we have to prepare to perform for the production. Also, today we are going to implement a new engineering change for this product, and the like, which requires the staff to pay attention to that. In fact the biggest change for the day may be that Mr. A is absent and Mr. B will be covering in his absence. This is the time where the group leaders, other people and foreigners have to pay much attention to the newcomers. Changing point management is very important for the floor management.

The second board is the KPI board. For this operation, we have to keep KPIs such as quality, safety, productivity, cost, and KPIs within major KPIs, etc. With the day-to-day operations they are going to try different conditions and may encounter something wrong, which will bring us to the third board.

The third board is the counter measure board. This board will try to fix these issues. They will look at what they have to do and what others have to do regarding allocation, time schedules, counter measures, etc. Therefore, within each group we have a focus on self-reliance. This will occur group by group and it will circulate completely throughout.

In summary, in research and development we have 20 gates set to maintain quality. Preparation uses the “Ryohin Joken” conditions. The production phases use the floor management development system for management itself. These are the three pillars that keep our quality in our company, which is our strategy.

 

Moving on to the topic of competitiveness. Quality is inter-dependent on cost, and having all of these processes in place means you do have a heightened level of quality, but how does that affect your cost over the longer period?

Savings and quality are not mutually exclusive because good quality will result in the reduction of our scrap ratio, which can contribute to savings. Our people on the floor in our company work to a very cyclical and rhythmical operation movements. All the sequences are decided and you can’t produce an arbitrary product. Since, all of the procedures are decided, which is one of the so-called “Ryohin Joken”, workers’ movements are very smooth and it is like dancing the waltz. Even though in the night shift might be half tired, the workers can generate a good product. The movements are less complicated than the tango and ideas like that help both cost and quality.

 

Regarding sustainability, how are your operations affected, when it comes down to creating the long-term future in each operation? Since sustainability is a core component to your company’s long-term growth, can you discuss some of your operations in place to enhance the sustainable approach of your company?

The main key component in our operations for sustainability of course is our people, all of the different people I have come in contact with while I was overseeing North America total operations or European total operations in my career. I was in charge of the manufacturing and research and development operations in Europe as well as in North America and then of course in Japan where I was plant general manager. Therefore from all of the different operations worldwide, I know manufacturing very well. It doesn’t matter what kind of technology we have, it will all come down to labor cost. Knowing how to develop each individual and team member will always be a key component to the long-term growth and sustainability.

In my company there is a combined book base of 44,000 people, out of which 17,000 are Japanese and 27,000 are non-Japanese in our worldwide operations. This includes all manufacturing, sales positions and sales operations, which is approximately 140 operations all over the world. I can’t oversee every single person in the world in my company; therefore the key is to know how to motivate the people and how to develop the people. Each team member should be self-reliant and know what is expected from me and not wait for some upper management intervention. But they do have to respect the upper management and the big picture strategy or policy of the company.

The bottom line is that each individual person has to think on his or her own and be self-reliant. The individuals are not just hired hands, but they are human beings.

This is the reason I am implementing and integrating the circular floor management system in our offices all over the world, as well as the global human resource management system. Prior to these systems’ implementation, each area or each location outside Japan was developing or managing their people independently. For Jtekt’s global human resource management system I have classified several hundred positions in my company from all over the world. Mr. A’s position is class 22, Mr. B’s position is class 20, etc. Visualization and clarification of the whole structure of company worldwide is very important for a global company. It took over two years and a huge financial cost to achieve this global human resource management system because I had to hire an outside consultant to conduct individual interviews on what each person is doing, what kind of responsibility they have, what kind of authority they have, what kind of revenue handling they do, etc. It took over two years for the system implementation, but we also established the succession committee as well.

All of this has led to our first global succession committee that took place on October 26, 2015, which might be my most memorable and the key milestone day that we had. This global succession committee has been my dream since my arrival here at Jtekt and it took me two years and a lot of sweat and blood. With all of this in place, we can now track and develop our people. That is key component for sustainability for our company.

 

Can you tell me some of the examples of the next generation of technologies that Jtekt has implemented globally?

One example I have would be in the steering business, which is our bread and butter. The steering business in our company makes up 50% of my revenue and profits. One good example is the Advanced Driving Assistance System (ADAS), and the steer by wire car technology. All OEMs are making announcements about ADAS-related technology, and companies like Google, which is not an OEM, are making those moves as well and trying to get into the market. Therefore, we can’t get rid of this trend nor ignore it. Yet we are not an OEM, but a manufacturer, a Tier One automotive component supplier. Therefore, the total vehicle control should be done by the OEMs. I know the difference between allocation of OEMs and suppliers very intimately because I worked for Toyota for over 35 years.

One example that I can give you is: if I touch a very hot item with my hand, your hand will automatically snap back without thinking. The brain does not have to work; it is an automatic reflex, which is like our steering system to some extent. We have to supply such a control system with the steering system to some extent, but the total vehicle control system is not our business. We have to work together with the OEMs to develop the system to be the number one supplier. We are spending money and manpower to develop the system to achieve this. Recently, I had the opportunity to drive one of the prototype automobiles with steer by wire. It was very enjoyable and fun.

We also have a steer by wire device with no linkage and independent actuators as well. The right tire and the left tire can move separately in different directions – which is really not practical for driving – but gives you an indication of the technology’s capability. These are things that are possible and we can provide that to the industry. We don’t have a choice in developing those technologies if we are going to keep this company going.

 

Mr Abe has stated that in a world that is so deeply mutually interdependent, Japan can’t be inward focused thinking any longer, and must deepen its ties abroad. Jtekt has a growing international network with a heavy focus towards the US. What long-term growth potential do you believe that the US offers you and how are you strategically placing yourself to capitalize on it?

The US or North America is one of the most important markets for us, which is true as you stated. But also I am paying attention to Europe, Mainland China, Southeast Asia and also Japan. I don’t want to grow too fast without the proper elements in place to be able to sustain the growth. I prefer the slow, steady and proper growth, which is why I diversified my investments and operations. All of the OEMs are focusing on the same areas as well, such as Mainland China. For example, GM is investing heavily in Mainland China, but they are struggling in Europe. However, they will not abandon their operations anywhere, but still continue to invest, which is the same for Toyota as well. All of the companies are going to spread their operations worldwide to keep a good balance in their company. If you concentrate on one market too much, the company can be fragile. The US is the number one target for me, but at the same time I don’t want to spend 100% of my money in the North American market if I want to keep a good balance.

 

Looking at the global auto market, how much is the slowdown in China affecting your decision-making and vision?

The slowdown in Mainland China causes some damages and hurt to our company, but it is not fatal for us. The same can be said for our product line as well. The steering system is our biggest pillar now, but we are also manufacturing driveline businesses as well. The driveline means drive shaft, drive control units such as coupling and total control coupling, etc. Furthermore, we have industry machines, mother machines, and bearings. We have four business lines (drive line, machines, bearing and steering). Some analysts say that we should only concentrate on the steering business because it is the most profitable if you look at the return on asset or return on equity. However, in order to keep the company more stable, I think it’s better to have several business units. Each business unit needs to be profitable, but if you have four pillars worldwide instead of just one, it will stabilize the company.

 

I believe in the past you had said that you aren’t satisfied with just dealing with the Japanese automotive industry. Are you looking to diversify your customer base more extensively as well? Where do see other potential for the company, even with America being the number one target market? Where else do you naturally look toward if you are looking to diversify your customer base?

We have already started doing businesses with almost all of the OEMs worldwide. It will be hard to find an OEM that doesn’t have any business with us. I am trying to expand my customer base in more industrialized industries with the bearing business as well with the industry machines and industry machine controlling systems (PLC). 70 to 75 percent of my bearing and industry machines are automotive related at this point in time, which is not a healthy sign.

I would like to expand to a new customer base, from the automotive industry to the industrial area. One of the reasons I am focusing on bearings for industry and not automotive is because of the renewable energy and green energy movement. The windmill industry for example is expanding right now because of the push for renewable energy to temper global warming. If we are the supplier for the windmill tower, we can expand with this push.

Also, in line with renewable energy, saving energy is key at the moment, and explains why railways have become a focus in developing countries as well as the US. If I focus on how to be a good supplier for the railway bearings, I can diversify my customer base. Railway uses a large quantity of bearings, requiring new bearings and replacements periodically, which can create fixed sales for the long term.

Our culture is facing a new era of business chances or opportunity. Business chances or opportunities are what we have to focus on, the items that are limited in nature. Fossil energy is limited, which means energy, as a whole is limited. We have to focus on new energy sources, which provide business opportunities. This is the reason the wind turbine market will grow for example.

Another supply that is limited by nature is our food. Whether because of growing global populations or because of natural disasters, food shortages will inevitably hit us sooner or later in our lifetimes, which creates another business chance or opportunity. We can try to develop automation for the agricultural industry and help the efficiency of the harvest. This is a new horizon with unlimited possibilities. That is why I am teaching my bearing sales force to understand the agricultural machine business. This can be a new area for us to expand in for diversification.

The third limited resources are people and life. Therefore the medical industry can become another important business opportunity. We are already supplying bearings for CT scanners and similar medical devices. Therefore, the medical area can be a new horizon for our high value-added bearings to be sold. Furthermore, we should develop new machines to contribute to the medical machine industry in the future as well. This is my ambition, to diversify in these limited resources areas, which will grow.

 

It sounds like those are all something you are clearly passionate about. I know you are also a great believer in a culturally diverse workforce, but I believe that in Jtekt currently, which although very successful, is still in its infancy, and has only one executive who is non-Japanese. What steps are you taking to change this fact and bring about a change for integration towards an international workforce?

Your facts are correct and that is the reason why I started this global human resource management system and the global succession committee. I don’t want to just grab any person off the street and put a face on a poster and say we have diversified – this is not true diversification.

I am a witness of total globalization of our company. In 1987, I was sent to the United States for the very first time in my career and spent 12 years outside of Japan. This is where I learned the importance of clear core values and common corporate values to have an international and global company. Our company is still young and we still do not have clear core values or common corporate values yet, but we are trying to get there with the above initiatives.

For our 10th anniversary at Jtekt, we are announcing the Jtekt way, the global HR system and then the development system. This is the path to globalize. If truth be told, Toyota had started this globalization effort in 1998 when I was Vice President of Toyota’s regional headquarter working in the United States. Now 17 years later, monsieur Didier Leroy, who is French, has become the first executive vice president of Toyota in charge of Japanese operations, European operations and North American operations. He worked for me for two years during my time at Toyota. There is also Dr Johan van Zyl, who is South African, in charge of African and European operations. It took Toyota 17 years to achieve this kind of globalization, but I can’t wait that long nor will I live that long. Therefore, I have to accelerate this process by taking Toyota’s globalization initiative as a base and copying their success and avoiding their mistakes. I hope to be a fully globalized company within the next five to six years.

This is a truly impressive and fascinating story about diversification. Taking the fast track to make a global company and enhancing the company’s presence in different fields and industries beyond the automotive industry. 

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