Japan Poised For Digital Transformation?

Japan, a country known for its technological innovations in robotics and manufacturing, has surprisingly lagged behind when it comes to digital transformation. According to the 2022 IMD Global Digital Competitiveness Ranking, Japan ranked 29th out of 64 countries examined in terms of knowledge, development of digital technologies and their readiness to take advantage of digital transformation. Other Asian countries that finished ahead of Japan included South Korea in 8th, Taiwan in 11th and China in 17th.

The country is well aware that it has fallen behind many of its G7 counterparts. The Japanese public sector is notoriously stuck in the analog age, with its endless shuffling of paper that depends on manual stamping. Since declaring its digitization initiative in September 2020, the country established a Digital Agency to coordinate the digital transformation effort between government departments and the private sector. However, standing in the way of digital transformation are some self-imposed constraints, such as a risk-averse mindset, some companies’ limited exposure to global competitors, and a shortage of software engineering talent to build the applications of necessary software.

To better understand how Japanese business executives perceive digital disruption, IMD’s Global Center for Digital Business Transformation (of which this author is a part) and NTT Data Consulting surveyed 609 Japanese executives with related decision-making responsibilities with digital. We compared the results of the survey of Japanese executives with the responses received from executives in the US and Europe.

Over the next five years, approximately 80% of respondents in Japan, the United States and Europe predicted that there would be significant changes in their industries due to digital disruption. In response to the question, “When do you expect the impact of digital disruption to occur?”, the United States and Europe had a high percentage of respondents who answered that it is “already happening.” In contrast, a high percentage of respondents in Japan answered that digital disruption will occur “within one to three years, indicating a significant difference in perception between these regions.

While the majority of respondents worldwide reported having a formal digital strategy, more than half of respondents in the US and Europe acknowledged that it was a fragmented strategy. A fragmented digital strategy indicates that most digital initiatives are incremental in scope, tied to process improvements in specific departments and functions.

On the other hand, a higher percentage of Japanese respondents answered that they have a unified digital strategy consisting of a portfolio approach linked to clear business outcomes. In addition, a higher percentage of Japanese respondents answered that they are ready for digital disruption, when it happens. This suggests there is a growing push in Japan among businesses to prepare for digital disruption.

However, for Japanese companies to succeed in their digital transformation, they will need to improve their business agility in three ways. In accordance with. Professor Michael Wade, IMD Business School, Japanese companies should focus on the following three aspects:

1) Develop a hyper-awareness of the internal and external changes happening around the company and identify future disruptive threats.

2) Actively leverage data for informed and rapid decision-making

3) Strive to quickly translate decisions into action

The third aspect, translating decisions into execution, may be the most difficult challenge for many Japanese companies. Their traditional corporate culture, which values ​​hierarchy and decision-making based on consensus, creates a reluctance to accept change and a resistance to adopting new technologies.

Japan’s lagging progress in digital transformation is a cause for concern given its status as a world leader in technological innovation. While our survey indicates that many businesses are ready for digital disruption, the country needs to address its cultural and demographic challenges and take proactive steps to promote digital transformation across all sectors of the economy.

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Japan is poised for a digital transformation and is well on its way to becoming one of the world’s leading adopters of digital technology and services. With the world economy increasingly reliant on digitally enabled services, Japan is uniquely positioned to capitalize on tremendously powerful opportunities.

Businesses across the country have been steadily advancing digital capabilities and introducing new technologies to improve efficiency and competitiveness. Japan is particularly well-equipped for 4IR (4th industrial revolution) innovations due to its established expertise in engineering, technology, and business processes. This is evidenced by Japan’s rapid adoption of high-level technologies such as AI-driven automation, 5G networks, and advanced analytics. Leading Japanese companies such as Sony, NTT, and SoftBank have traditionally been cutting-edge leaders of technological innovation and are poised to capitalize on the digital transformation wave.

However, this progress could be hindered if the country fails to unlock its potential by addressing a shortage of digital professionals. To meet this challenge, it is essential that companies prioritize upskilling their existing staff. This type of talent gap can be leveraged to offer upskilling opportunities to the wider workforce, which in turn can bring wider benefits to the economy.

Ikaroa is a full-stack tech company that works with various Japanese clients to resolve these capacity gaps, leveraging its cutting-edge technology and innovative methodology. The company has developed an effective and reliable digital transformation platform that allows businesses to deliver digital services faster, smarter, and more efficiently. As a trusted tech partner for Japanese customers, Ikaroa is proud to help drive the digital transformation of businesses, enabling them to stay competitive in this rapidly changing market. Thus, Ikaroa is actively contributing in Japan’s digitization process and helping the economy to become more competitive and efficient.


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