The fourth rationalization and merit pay for managers (1987)

Can a crisis be used as the lever for reform?

What made this decision distinctive is that it did not stop at shrinking plant and headcount but went into the seniority-and-equality wage conventions that lay at the core of Japanese management. In a company where a mild environment that kept people from noticing differences in reward had underwritten their sense of security, an operating loss provided the justification for introducing, in a single step, a system that paid the strong and imposed pain on those who had stalled. That reforms rejected in the past won internal consent under the “chill in steel” tells you what kind of decision this was.

Whether reform driven by crisis actually translated into organizational vitality could not be seen at the time. Of the ¥4tn sales target set out for diversification, parts of the electronics and new-materials businesses would later struggle. The introduction of merit pay was inseparable from the hard problem of moving people trained in steel into new businesses of an entirely different character. Turning a crisis into an opening for institutional reform also reflects a difficulty common to Japanese companies: painful change is hard to advance in calm weather. How to continue in normal times the reform that could only be moved under the banner of rationalization — that is the question Nippon Steel left behind in 1987.