Kazuo Inamori Management Philosophy Guangzhou Report Meeting

“Amoeba Management Brings Sustainable Growth”

Under the theme of "Amoeba Management Brings Sustainable Growth," Inamori made comments on topics such as "the three objectives of Amoeba Management" and "how to build an Amoeba organization." This briefing session was held for students at a Seiwajyuku school in China.

This lecture is included in the book Selected Lectures on Management, by Kazuo Inamori, Vol. 6: The Essence of Corporate Management.

The origin of Amoeba Management

Amoeba Management was born out of practicality. In effect, it is a management accounting system to assist leaders in running a business. Amoeba Management has been a great driving force behind the growth and development of Kyocera and KDDI to this day. It was also a major factor fueling the turnaround of Japan Airlines.

The three objectives of Amoeba management
 1) Establish a market-oriented divisional accounting system

In many industries, finance departments post-process accounts with cost and other performance data lagging behind. Because market prices are constantly changing, accounts based on historical costs cannot accurately reflect the reality of the operation, making improvement countermeasures impossible. To overcome this, the entire operation must be divided as necessary into small units, called Amoebas. This will enable real-time awareness of operating results, such as sales and costs, for each Amoeba.

In other words, under Amoeba Management, market dynamics are transmitted directly to internal Amoebas. The company as a whole is then able to respond to market changes in real time. In fact, this is a market-oriented management control system.

The three objectives of Amoeba Management
 2) Develop leaders with managerial awareness

As the company grows, it becomes increasingly difficult for one person at the top to oversee the entire operation. Therefore, the organization needs to be divided into smaller units. For each small unit, a leader is appointed and given managerial responsibility. The leader of each unit carefully watches that unit's profitability. In effect, each Amoeba takes the form of an independent small or medium-sized enterprise whereby the Amoeba leader is able to develop managerial awareness.

The three objectives of Amoeba Management
 3) Practice "Management by All," based on the Kyocera philosophy

Kyocera was founded at a time of intensifying labor-management confrontations in Japan. I was convinced that conflict between labor and management would disappear if managers and workers could share a certain mindset and awareness. I therefore placed the Extended Family Principle in the framework of Kyocera's management philosophy and company mission, "To provide opportunities for the material and intellectual growth of all our employees, and, through our joint effort, contribute to the advancement of society and humankind." This enabled us to rise above the confrontational structure of managerial egoism and worker egoism. The result was "Management by All."

How to build an Amoeba organization

Amoeba Management includes the three objectives I just described. In actually using it, there are a number of points to bear in mind. Let us begin by considering "How to build an Amoeba organization."

The first point is, "Clarify unit income and expenditures, and ascertain whether the unit is able to function as an independent profit center." In other words, the unit needs to have clear income, and clear expenditures used to produce that income. The organization is divided into units that meet these conditions.

The second point is "Subdivide the organization into units that can function as viable businesses." Subdividing into units that function in the same way as individual, independent companies encourages creativity from the leaders, and stimulates a feeling of motivation.

The third point is "Ability to accomplish the original objectives of the company." For example, an organization may satisfy the conditions needed to operate as a profit center. However, turning it into an independently functioning Amoeba may, in some cases, create obstacles to managing the overall company in a consistent way. In these cases, the organization should not be turned into an independently operating Amoeba.

Pricing between Amoebas

There is one more point to consider in applying Amoeba Management. That is, "Pricing between Amoebas." When an Amoeba organization is set up within each process, individual Amoebas will engage in sales and purchases with each other. Selling prices must be decided between Amoebas. However, since each Amoeba is determined to generate as much profit as possible, collaboration can become exceedingly difficult. Leaders must have a full understanding of the work involved in each Amoeba in order to assess the expenses and labor from a logical perspective. They need to come to a fair agreement on the selling price.

Nonetheless, even if price is decided between Amoebas in this manner, there is the question of clashing interests, and subsequent conflict. This kind of conflict results from trying to protect our self-interests. Under Amoeba Management, with the company divided into small organizations, each managed as a profit center, it becomes easier to strengthen the group's conscious efforts to obtain as much profit as possible. Originally, though, whereas each unit strives diligently to protect itself and grow, the Amoeba should also be putting every effort into maximizing profit for the company in total. In other words, harmonizing the single and the whole is vital.

A leader needs a Philosophy

To resolve conflict between Amoebas, a firm "philosophy" becomes necessary to rise above our differences and make decisions in a higher dimension, while still pursuing profit for our own Amoebas. When such a universal philosophy is shared throughout the enterprise, Amoeba leaders will be better able to abandon negative attitudes like "all is well if I am well." Only then will they be able to base decisions on positive thinking expressed as determination to do what is needed for the good of the company overall.

Further, people with the capacity for leadership do, by nature, lean strongly toward assertive self-interest. Because this places them at higher risk of engaging in negative behavior, they need to control their own actions with a universal philosophy. In other words, they need to acquire a higher-dimension philosophy that helps them restrain their selfish behavior so Amoeba Management can function correctly.

If Amoeba Management based on such a philosophy permeates the Kyocera Group, our growth is assured.

Notable Quotes from This Lecture

Here are some excerpts from what Inamori expressed in this lecture.

The larger an organization grows, the more difficult it becomes to assess its performance and identify wasteful practices. Necessary improvements are not applied, and the business itself may be turned in the wrong direction. Consequently, despite devoting serious efforts to developing the enterprise, it falls into decline. There is no end of real-life examples. As an organization grows, wasteful practices proliferate. To eliminate even just a bit of waste, the organization needs to be subdivided into smaller units. For each unit, you must build a system that enables prompt and clear understanding of sales and expenditures, month by month.

Management accounting differs from the business information disclosed in fiscal accounting for stakeholders, or in tax accounting. Management accounting gives managers a grasp of the true state of management. It is used to make better decisions and manage business performance. Born from real-world practices, Amoeba Management is a management accounting system that enables managers to control their operations.

An enterprise can grow and develop if the manager has a strong will, passion, creativity, and a desire to work harder than anyone else. However, rapid growth has another side. The organization gradually becomes bloated, waste grows increasingly unrecognized, and accounting becomes a slipshod affair. In too many cases, the enterprise then begins to slide down the path of decline. For an enterprise to achieve sustainable development far into the future, sound management accounting is a must. It is essential that the system gives a real-time understanding of the true state of each operating unit, to enable prompt application of necessary countermeasures.

For Amoeba Management to function correctly, the leader must possess a high-minded philosophy and a wonderful human nature. Such a person must have a well-balanced character. A leader in Amoeba Management must be an outstanding person in all aspects of character. Such a leader can continue to develop an organization far into the future.

Kazuo Inamori Management Philosophy Guangzhou Report Meeting (September 25, 2011)

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