Eradicating Attrition is Prerequisite to Innovation: The Japanese Company Experience
Before embarking on innovation, a company should implement strategies that will enable it to retain employees as per Japanese companies guidelines given in Figure below – relationships between years of experience and skills level. . The years of experience means continuous service in the same company – without changing companies even in the same industry. For example, in Japan if a person who has worked for Mitsubishi motors, then his experience will not be applicable or acceptable to Toyota motors and similarly converse. So it is very important for company seeking innovation to have long term employees commitment. It is also very clear that Levels L4 and L3 of employees (Figure below) will have huge impact in the viability and success of the organization. It is no wonder that L4 level employee can come with many more innovative proposals than possibly the other three categories (L1, L2 and L3) put together.. The Figure 4.2 also shows the minimum percentage mix of employees by years of experience, which need to be maintained by innovative companies. The competitive position of Japanese companies comes from being able to retain employees for lifetime.
With high attrition no employer would like to train its employees as they will fear that as soon as the employee is trained, he would leave for greener pastures. But if all the employees are not trained, then the supply of ideas into i-pipeline will be very low. On the whole, the company which cannot retain employees would be at a loss
| Level | Percentage Mix of Employees | Years of Work Experience* | Skills and Mastery Level |
| L1 | 20% | 0-3 years | Able to perform what has been instructed but unable to detect the generation of defects or facility abnormality |
| L2 | 40% | 3-10 years | Able to detect the generation of defects and facility abnormalities |
| L3 | 30% | 10-20 years | Able to detect the generation of defects and facilities abnormalities and identify the cause. Able to conduct simple repairs |
| L4 | 10% | 20 years plus | Able to structure worksite systems. Able to design layouts, prepare operation procedure and improve machines and facilities |
Figure 4.2 Relationships Between Years of Experience & Skills Level
- Years worked in the same company (uninterrupted continuous service).
Companies who dominate the markets are there for the passion they hold for the business activity and money making is never in their mind. Companies who make work challenging and exciting are able to retain employees. Employees work in companies like Toyota and Honda because of the challenging work. The employees in Japan are usually more motivated by interesting work than the paycheck. It is another thing they are paid very well but money is never their main consideration. These companies strongly believe in “Do Not Imitate.” They are also constantly challenging themselves and seek out new initiatives and stay at the forefront of innovation.
Lazears Theory on Attrition
Japanese companies are using Lazear’s Theory (Figure above) – a system in which one’s performance and wage are harmonized during the entire course of service in a company.. The line AB shows salary path for a typical Japanese employee. An equivalent employee in other countries has a salary path shown by line CD. A Japanese employee takes a lower salary at start of his carrier (point A is lower than point C). The salary raise for an Japanese employee is much steeper than salary increase in other countries (slope of line AB is steeper than line CD). Moreover, at retirement, a Japanese employee is paid a lump sum amount shown as rectangle F above.
Triangle AEC (Amount Japanese employee is underpaid in the initial years)
Triangle DEB (Amount Japanese employee is overpaid in the latter years)
Rectangle F (Lumpsum amount paid to employee at the time of retirement)
On the whole Triangle AEC < Triangle DEB + Rectangle F
The above graph shows that by retaining employees for lifetime, the Japanese employee is a net winner as in his lifetime reimbursements are higher then equivalents person’s reimbursement in other countries.. Also the employer who successfully retains employees like Japanese employers) is a winner because he is able to draw on much higher skills of employee (see Figure 4.2 Row L4). A long term retained employee is much more skilled and beneficial for the company. This is the main reason why consistently Japanese companies are turning out more innovative products.
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