Escaping the “GNP company” (1995)

The size of sales is not strength

The heart of this decision was that a trading house with some of the largest sales in Japan tried to let go of the idea that the sheer size of those sales was proof of strength. A general trading house’s “sales” are turnover — no more than a thin commission piled up over an enormous volume of transactions. Minoru Makihara called the habit of boasting of this figure, which swells in good times and shrinks in bad, as if it were the nation’s GNP, a “dinosaur.” Cutting the unrealized losses of financial engineering early, and re-selecting business investments on the prospect of profit, was the patient work of halting the inertia of volume and steering back toward quality.

The choice of a president with an almost outsider’s career, picked not for sales results but for “the makings of someone who could change the company,” was part of that shift too. It was an unusual elevation by the trading-house convention that those who pile up volume rise to the top, and Shinroku Morohashi declared publicly that he would judge the wisdom of the wager himself within “three years.” That the reforms did not move as fast as hoped shows how deep-rooted the culture of volume was; but placing at the centre of management, so early, the question of measuring a trading house by profit and capital efficiency rather than sales is suggestive as groundwork for the long shift to the later resource- and business-investment model.