Dialogue - Part.2 : i-PRO's growth strategy
The 2nd part of the dialogue will focus on two pillars of i-PRO's growth strategy: open policy and time-based competition.
A text version of this video is also available.
Nakao, who has reformed numerous manufacturing companies, was entrusted with the management of i-PRO in 2019, which had just been spun off from Panasonic at the time. Among its businesses, Nakao was astonished to learn a fact about its historical surveillance camera business, which once boasted the top market share.
Maoko Kotani, Moderator So you joined the company in 2019 to rebuild i-PRO, aren't you?
Masato Nakao, Chairman and CEO, i-PRO Co.,Ltd. (Nakao) Rather than "rebuilding", it was originally one of divisions of Panasonic. The division was spun off as a separate company, and external capital was brought in to make it independent.
Kotani What was the situation at the time?
Nakao When I joined this company, I was told, "Panasonic's technology is among the best in the world." I thought that was certainly true. Unfortunately, however, when I looked at the evaluations by third-party organizations that evaluate cameras. I was so surprised at the result. "What? Panasonic's cameras were ranked last". I asked a staff "What? Why we were ranked so low?" They replied, "Well, that's right, it's a four-year-old product. Other products by competitors were evaluated with released a year ago or the latest products. When I asked why they didn't look at our latest product, they said, "Because we haven't released our latest product yet.
The reason for the loss of competitiveness was the inability to launch new products quickly. In fact, Professor Fujimoto points out that there is a problem in the manufacturing methods often seen in Japanese manufacturers.
Professor Takahiro Fujimoto, Research Faculty, Waseda University (Fujimoto) In manufacturing, there are two ways of making things: "integral" and "modular". Automobiles are made entirely of special parts when taken apart, and they are truly made using integral architecture. PCs are made by buying parts in Akihabara for example and assembling them together. The U.S. and China are strong in the type of goods like PCs, while Japan is a country of teamwork, so products such as automobiles, which are made by teams working together, are strong. However, while we say, "Customers will not be pleased if we don't make it by integral architecture," the Americans and Chinese say, "If we devise well, we can make the same product with a combination of modular parts. From this point of view, Japan is overdoing it.
Nakao Once we decided to make the specific model, we were very particular about it. It took us more than two years from the time we started designing to the time we sold the product. So I think this is one of the reasons why we have been losing.
In order to make a better product, Japanese monozukuri (making of things) involves the careful "matching" of parts that are made one by one exclusively for that product. However, in the age of rapid change, the method of "combining" general-purpose parts gathered together to speed up the manufacturing process, is said to be overwhelmingly advantageous in some cases.
Kotani Certainly, as a consumer, I want it as soon as possible. There may be a difference in superiority if you compare the two, but technology is ever-evolving, so in some cases, people may say, "I will eventually replace it, so I just want it as soon as possible."
Fujimoto If there is a big difference in quality between "integral" and "modular", then Japan can make good products and win. But if the difference is slight, then if you say things like "this difference is important," you will lose on speed, and if you do that, you will lose on the overall business model.
Nakao That is exactly what we are doing. How quickly can we use the latest sensors, the latest semiconductors, and deploy the latest technology in our products? Let's do this. Today, I have brought you a simple example of this.
In fact, this electronic board is the key to our growth strategy.
Nakao This is the same content as the surveillance cameras in towns.
Kotani I have seen cameras in my hometown. Is this in it?
Nakao Here it is. It has three layers of components.
Kotani I see.
Nakao (Pointing to the relevant part) This is the lens of the camera.
What secrets are hidden in this electronic board? We visited i-PRO's development department.
We can combine them at will, and if a customer says, 'I want an AI function,' we can change everything to come with an AI."
i-PRO has independently developed a camera that is produced based on a new design concept called the modular system. By combining the bases of several types of cameras and operation control parts prepared in advance, according to the customer's requirements, a customized camera can be produced in a fraction of the time.
"When a customer orders a combination of different lenses, different sensors, different system-on-chips, and different interfaces, we say, 'Yes, understood, Sir! We combine them all together and ship them. We can make a one-of-a-kind camera by simply combining them."
For example, by choosing a module equipped with AI for image analysis, a camera that can run an image analysis application can be created instantly. The kind of products made possible by the development of this modular system can be realized in "1,500 combinations of all kinds of differences, and you can buy them from a single unit. And you can buy them in one piece."
In fact, i-PRO has dramatically increased the number of new products that can be launched in a year. The development time for a single product has also been reduced by half.
This is Nakao's strategy, time-based competition.
Kotani So it's a combination.
Nakao It's all a combination. There's an AI function in this one.
Kotani I see.
Nakao If you buy one of these, put in the AI app, and connect it to your computer, the camera will count how many people are here on its own. The camera will even tell you how many of them are wearing/not wearing masks, and all that. All without having to connect to a server. The big difference this time around is that we have taken such a highly functional system and made it modularly designed so that it can be deployed in all kinds of ways. We have changed from the "integral" design of the past to a "modular" design.
Fujimoto In short, the ability to customize at a low fixed cost is a breakthrough. Japan loves customization, but people used to say, "Customization is expensive," and therefore, "Japan gets a pass". But since Japanese products are good to begin with, people say, "If there was inexpensive customization, I would like to buy it," and there is a possibility that work will return.
Kotani Can I use the analogy of having a certain amount of "soup stock"?
Nakao Yes, that's right! It is just like preparing food in a restaurant.
Kotani The module is called "soup stock". It can be used for soup or simmered dishes, and it is the most important core.
Nakao That's right. Actually, this modular design sounds kind of easy, but it is technically difficult to design a module that can be used universally. This is because you mentioned soup stock earlier. The best soup stock for soup and the best soup stock for simmered dishes may be slightly different. However, to make a good soup stock for both, you have to put a lot of thought into it. The same can be said for this. So, just in the right fit, we have to build this universal module.
Fujimoto Nowadays, delivery time is becoming more important than cost.
Nakao Yes, you are absolutely correct.
Kotani Is that so?
Fujimoto With so many pandemics happening right now, factories everywhere are shutting down due to lockdowns, but not many Japanese factories are shutting down. There is a saying that it does not matter if Japan is 10 yen or 20 yen more or less expensive when considering the lost profits due to the shutdown.
Nakao It is as you say.
Fujimoto In that sense, this speedy competition is also a story about the rebuilding of the global supply chain.
Actually, Nakao, when he ｊjoined i-PRO, he noticed another problem. That was the strategy of providing all of its own business, a strategy that had been in place since the days of Panasonic.
Nakao Security cameras does not work in standalone. They are networked together so that they can be viewed in a surveillance room. Panasonic is trying to deliver all of these products together to our customers, and our strategy is to say, "We can no longer make money by manufacturing products, but by making intangible things. Sell solutions, not products. However, our cameras are originally sold only to system integrators who create such systems. However, we were competing with system integrators by taking away their work as well. Panasonic as a whole may be right in its approach to solutions.
Fujimoto It may be a play on words, but we often say "from (tangible) things to (intangible) things”. But strictly speaking, the phrase "from things to things" is a misnomer. Without tangible things, intangible things would not be born.
Kotani You are right.
Fujimoto If there were no cabs, there would be no cab drivers. It is a matter of having good drivers, good roads, and good cars. It is a matter of "from a thing to a thing". The question is, then, whether we should go from "things" to "things" based on that, or whether we should create things properly and connect with people in the "things" field. It is not a question of which is better or worse, but rather a judgment of the situation at that time.
Another strategy that Nakao has put forth is the open policy.
This is a strategy of concentrating on camera production while partnering with anyone to develop systems and software that can be connected to cameras.
Nakao The open policy, in other words, is to expand the range of customers. It means to increase the number of customers who buy our products. In our customers' view, it will be "The former Panasonic's products are absolutely safe" and "They do not threaten our business" so we have a lot of people who are willing to work with us.
Kotani So you will have more friends.
Nakao That's right.
Kotani Moreover, since they are all top of the line, they can produce good products at a tremendous pace.
Nakao The best products are made by the best manufacturers. I myself went around the United States and Europe saying, "Please choose our camera because we will commercialize the best technology and deliver it to you before anyone else. Now that this approach is correct to a certain extent and we can see the growth curve, everyone is running toward it.
Kotani Wasn't it quite difficult at the very beginning to advocate that?
Nakao It was.
Kotani Agreed it was. They would say "Why?" I think it is a very brave thing to do in the early stages. I think it takes a lot of courage in the early stages to say, "No, it's okay, we're going to work with the outside world on something that was a black box inside".
Nakao So many resisting comments came to me. I used a gold rush analogy to convince people of this. They said, "If we give up solutions, we won't make any money". Solutions are all the rage right now, and it's cooler to say you're aiming for AI solutions than it is to say you're a surveillance camera manufacturer. It's a lot like the gold rush, "If you hit a vein of gold, you'll make a fortune". Thousands or hundreds of dreamers all went out the West in the United States and dug around for gold. But who made the most money? As far as I know, Levi Strauss, who made jeans.
Kotani I see, all the workers put on.
Nakao Levi Strauss didn't dig for gold. I said, "Let's give jeans to the gold diggers". "These (modular cameras) are jeans." But in order to differentiate ourselves with jeans, there are other people who make jeans, so how can we become the number one jeans, which is the "time-based competition" I mentioned earlier. Deliver the latest technology faster than others. I convinced them that modular architecture is the key to this.
In other words, an open policy is like a passport. But even if you have a passport, you still need a boarding pass to get to the goal, to your destination. I think of this boarding pass is a time-based competition. We have come up with the idea of time-based competition in order to deliver goods as quickly as possible after receiving an order from a customer. You might say that these two policies are two sides of the same coin, two wheels of a car.
What are the possibilities for Japanese manufacturing that can be seen from i-PRO's two strategies: time-based competition that focuses on speed that makes full use of modular methods and an open policy?
Kotani But what do you think? If we go back to the past, we can see that semiconductors and home appliances were eventually taken over by Korea and China, and it was said that Japanese manufacturing was gradually losing its competitiveness. Has the concept of monozukuri changed?
Fujimoto It hasn't changed at all.
Nakao I don't think it has changed at all.
Kotani It hasn't changed at all? Is that so?
Fujimoto In response to such an illusion, you must have thought, "Ah, it was an illusion". Over the past 30 years, the added value of Japan's manufacturing industry, which was said to be 80 trillion yen in real terms, is now about 110 trillion yen. This is not a decrease at all. In other words, we are selling something, and in the best of times we had a trade surplus of 30 trillion yen, and even now we have a trade surplus of about 20 trillion yen. After all, manufacturing is Japan's strongest area. We have been told a lot of things over the past 30 years. In that context, we have lost several times in local battles, and those were TVs and semiconductors.
Kotani This has become a major focus of attention, and there is a tendency to say that monozukuri is obsolete and that Japan is done with it.
Fujimoto Yes, so it is the opposite of what it used to be. They say that since they lost two local battles, they have lost everything.
Kotani What about you, Mr. Nakao?
Nakao I totally agree with what Prof. Fujimoto say. I think there is still a lot of room to win in the manufacturing industry.
Kotani You would say the old way of doing things is not good enough.
Nakao I think it is no good. In order for people to choose our cameras, our cameras have to be better than those of other companies. There is still a lot of room for improvement. If we can win by a "nose" over other companies, we will surely win if we continue to do so.
"What is Monozukuri in the Age of Globalization?" To be concluded in Part 3.