In this blog post, we explore the secrets to success and the life philosophy of Kazuo Inamori, known as the “God of Management,” from the founding of Kyocera to the turnaround of Japan Airlines.
The God of Management, Kazuo Inamori
Kazuo Inamori, Honorary Chairman of Kyocera, is considered one of Japan’s most respected business leaders. Having founded the electronics manufacturer Kyocera in 1959 at the age of 27, he is regarded as a “God of Management” alongside Matsushita Konosuke, founder of Panasonic, and Honda Soichiro, founder of the Honda Group. He is a legendary figure who has steadily grown his business without posting a single loss for over half a century since its founding.
He is well known not only as an outstanding executive but also as a deeply contemplative philosopher. After turning 60, he formally converted to Buddhism and became a monk; he also founded a management study group called Seiwajuku to pass on his management techniques to small and medium-sized business owners, traveling to over 70 countries overseas. Through these gatherings, he listens directly to the difficulties faced by small business owners and offers them advice. Even Masayoshi Son, the CEO of SoftBank who has had a major impact on today’s global economy, once participated in these gatherings to learn about management.
His decision to start his own business stemmed from being sidelined from an important development project at his previous company simply because he was not a graduate of a prestigious university. After a dispute with his immediate supervisor over this incident, he rented a dilapidated factory building and founded “Kyoto Ceramics (Kyocera)” with seven colleagues who believed in him and quit their jobs alongside him. At the time, his total capital amounted to just 3 million yen. Half a century later, Kyocera has grown into a global corporation with 70,000 employees.
Kazuo Inamori’s Amoeba Management
In this blog post, we will explore the secrets behind Kazuo Inamori’s success as a business leader and the life philosophy we can learn from him in our daily lives. It is easy to think of him merely as a “contemplative, philosopher-type executive,” but in reality, he is a leader who understands better than anyone else the importance of numbers and accounting techniques in corporate management. “Amoeba Management,” founded by Kazuo Inamori, is a unique management accounting technique—and his signature management philosophy—that involves grouping organizational members into small teams of about ten people and meticulously measuring their performance down to the minute.
At 78 years old, in any country, one is generally considered to be at a stage of life where one wraps up one’s career rather than embarking on new ventures. At this age, when one is typically expected to share the wisdom accumulated over a lifetime with younger generations, Kazuo Inamori stepped forward in 2010 as the “relief pitcher” tasked with saving the Japanese economy. He, who had stepped back from the front lines of management, began to move again. Japan desperately needed his help—so much so that then-Prime Minister Yukio Hatoyama personally made three visits to persuade him. What had happened in Japan that it brought back an honorary chairman nearing his eighties to the cutthroat front lines of management?
Today, Japan Airlines (JAL) is the flagship carrier representing Japan’s aviation industry. However, in January 2010, JAL entered receivership. Receivership is a system in which, when a company is so heavily indebted that it is impossible to save the company on its own, the court appoints a third party as manager to run the company on its behalf. It is intended to revive companies that, while burdened by excessive debt and unable to operate normally, are still deemed to have a chance of recovery.
When Japan Airlines entered receivership, the company was saddled with 2.3 trillion yen in debt, which amounted to approximately $29.6 billion at the exchange rate at the time. The company collapsed due to a combination of reckless management and the sharp appreciation of the yen, known as the “yen high.” It would have been extremely difficult for anyone to restore the company to normalcy in a short period of time. No Japanese executive stepped forward to volunteer to save Japan Airlines. After all, they could have simply focused on running their own companies successfully; stepping in unnecessarily and failing would have only brought disgrace upon themselves.
In that situation, the figure that Japanese political and business circles brought in as the “relief pitcher” to lead Japan Airlines was none other than Kazuo Inamori. Imagine if the same thing had happened in a country other than Japan. If a flagship airline representing the aviation industry were to go into receivership, how severe a blow would that deal to that country’s economy? How many people would lose their jobs? It is clear that the livelihoods of hundreds of thousands of people—not only airline employees but also employees of partner companies and their families—would be thrown into turmoil. The entire economy would suffer a major blow.
That is why, from the perspective of Japan’s political and business circles, Japan Airlines was a company that had to be saved at all costs. After much deliberation, Kazuo Inamori accepted the request to take charge of Japan Airlines, stepping into the role of captain of a drifting shipwreck. In fact, Kazuo Inamori was initially reluctant to accept the request to lead Japan Airlines. A major reason was that, having worked exclusively in manufacturing and telecommunications, he was unfamiliar with how the aviation industry operated. Nevertheless, he reportedly decided to take on the challenge of rebuilding Japan Airlines for the following three reasons.
“First, if Japan Airlines were to go bankrupt a second time under these circumstances, it would deal a massive blow to the Japanese economy, which is already struggling to escape recession. Second, while many employees at Japan Airlines would be laid off under the Corporate Reorganization Act, safeguarding the jobs of the remaining 32,000 employees is of great social importance. Third, if Japan Airlines were to disappear due to a second bankruptcy, only one major airline would remain in Japan. From the perspective of the public, who are the beneficiaries, a monopoly by a single airline is not desirable.”
This was the reason Kazuo Inamori, who had been enjoying a peaceful retirement, stepped in to manage Japan Airlines just as it was on the verge of collapse. The condition he set when accepting the position of chairman of Japan Airlines was very simple.
“Given my age, I won’t be able to devote that much time. It would be difficult to work full-time, but I think I could manage about three days a week. Since this is a temporary position, I don’t need a salary.”
A Small Change That Brought About a Great Miracle
It was a situation where, if handled poorly, the reputation he had built as the “God of Management” could have been completely destroyed. He took office as chairman of Japan Airlines bringing with him only three subordinates who had previously been responsible for promoting his management philosophy at Kyocera. In fact, even with the involvement of Kazuo Inamori, known as the “God of Management,” the situation Japan Airlines faced was beyond easy recovery. When Japan Airlines collapsed, even the Japanese media assessed it as “inevitable,” describing it as a has-been company that had collapsed due to its history of lax management. Even after he took over, this perception did not change significantly for some time.
However, after Kazuo Inamori took the helm, a result emerged that no one had anticipated. Just eight months after assuming the chairmanship, he halted Japan Airlines’ record-breaking string of losses and turned the company back into the black.
The company then posted record-breaking earnings for two consecutive years. Here are the exact figures: In 2009, the year before entering receivership, Japan Airlines suffered a loss of 133.7 billion yen, but in 2010, it posted a profit of 189.4 billion yen. This represents an increase in operating profit of approximately 300 billion yen in just one year.
Thanks to this improved performance, the company emerged from court receivership after just one year and two months, and was relisted on the stock market in September 2012. In November 2012, a Japanese business media outlet praised Japan Airlines, led by Kazuo Inamori, stating, “Japan Airlines’ operating profit margin is the highest among major airlines worldwide, excluding some low-cost carriers.”
How was this possible? How could a company that entered receivership with an astronomical debt of approximately $29.6 billion make such a rapid comeback? Of course, the support from the Japanese government played a significant role. Another key factor was the improvement in the company’s financial condition following the layoffs of 16,000 employees and a roughly 30% reduction in employee pension benefits, in accordance with Japan’s Corporate Rehabilitation Act. However, many experts agree that even under identical conditions, no other executive besides him could have revived the company in such a short period of time.
On his first day in office, Kazuo Inamori declared, “The purpose of management is to pursue the happiness of all employees.” In fact, he is a role model for Japanese-style management, epitomized by lifetime employment. Since his youth, he has consistently stated that “the purpose of a manager is to protect the livelihoods of employees and their families—both now and in the future—and to instill trust in them,” and he is a businessman who has actively put this into practice. That is precisely why it was all the more difficult to lay off 16,000 of the 48,000 employees in 2010 alone and drastically cut the retirement pensions of the remaining staff. It was also something he had never experienced in over half a century of running the company. However, rather than avoiding the issue, he chose to tackle it head-on. He personally visited the labor union office to persuade employees of the necessity of restructuring.
As explained earlier, he has a deep interest in philosophy—so much so that he once took refuge in Buddhism and became a monk—and has always prioritized employee happiness in his management style. Hearing this story alone might lead one to think of him as a philosopher-type manager, but he was more sensitive to numbers and accounting figures than any other executive. In particular, he devoted a great deal of thought to accurately measuring organizational performance through numbers.
He had always repeatedly emphasized that “accounting serves as a compass for achieving goals in corporate management; it is an indispensable and crucial management task for running a business.” From his very first day in office, he focused on instilling the concept of profitability in Japan Airlines’ employees to revive the company. Simply put, profitability refers to the true profit remaining after subtracting the costs incurred to generate revenue from the total revenue. Kazuo Inamori’s management secret was to constantly encourage employees to think about how much profit their work was generating for the company.
At Japan Airlines, which had been operated so wastefully that it drew criticism from the media, there was little awareness among employees of the need to cut costs. Since business performance was evaluated solely based on revenue, there was no proper assessment of the actual profit remaining after subtracting costs from revenue. Without metrics to calculate profitability, employees saw no reason to actively pursue cost reduction.
To instill the concept of profitability in his employees, he introduced his signature “Amoeba Management” system. He divided the company—which had some 30,000 employees—into small groups of about 10 people, known as “amoebas,” and implemented a system of independent accounting where each amoeba calculated its own revenue, costs, and profits. He explained that this led to a strong commitment to cost-cutting among employees: aircraft mechanics began washing and reusing gloves instead of discarding them after a single use, and flight attendants even washed their own uniforms.
Through Amoeba Management, he instilled his management philosophy of “maximize revenue, minimize costs” in employees while simultaneously embarking on bold reforms. He drastically cut back on unprofitable routes that had previously been maintained out of deference to politicians. By establishing a Route Management Headquarters, he eliminated 20 unprofitable domestic routes—out of 67 in 2009—within just one year. The number of routes, which had reached 247 including international ones, was reduced by about 30% to 173 by early 2012. To cut parts and maintenance costs, he also streamlined the aircraft fleet, reducing the variety to just one or two models per category—large, medium, and small. As a result, the average operating cost per aircraft was reduced by about 20%.
The company, which had been struggling with losses, returned to profitability immediately after he took office as chairman and posted record-breaking profits for two consecutive years. In 2010, his first year in office, the company posted a profit of 189.4 billion yen; in 2011, 204.9 billion yen; and in 2012, 195.2 billion yen. The company, which had faced concerns that it might go bankrupt after entering receivership, was relisted on the Tokyo Stock Exchange in just two years and eight months. Having taken the helm with a special mission to save Japan Airlines, he stepped down as chairman at the age of 81 after the company’s revival. He also resigned from his position as a registered director of Japan Airlines in March 2013. After that, he served as honorary chairman, offering only occasional advice.
Kazuo Inamori recalled his time as chairman of Japan Airlines, when he would make do with two convenience store rice balls for dinner while burning with determination to revive the company.
“I did my best not to lose to anyone.”
