Japan's IT skills deficit leaves firms too dependent on vendors

Japan's "maru nage" approach to outsourcing creates over-dependence on vendors and chokes digital transformation efforts

By Hideaki Shirane

Mizuho Bank's repeated failures point to systemic flaws

On February 11th, Mizuho Bank (a part of Mizuho Financial Group - Japan's third largest financial services group) suffered an ATM system failure for over seven hours. The bank was subject to administrative sanctions for this, the 11th time in a year that a failure disrupted the bank's operations. The Financial Services Agency (FSA) pointed to four systemic and governance problems as causes of Mizuho's repeated failures:

  1. Neglect of system-related risks and expertise
  2. Disregard for the realities of the IT field
  3. Insensitivity to the impact on customers and disregard for the realities of the sales floor
  4. A pattern of not saying what needs to be said, and doing only what is said

Masayuki Endo, a professor at Shizuoka University's Faculty of Information Science and Technology, commented that for the bank to get a grip on its vendors: "Mizuho needs to simplify the reporting lines within its organization, and increase its internal knowledge about its systems. Then, as much as possible, it should transfer capabilities from the vendor side to the Mizuho side to build up its in-house production capabilities."

At the time of the recent ATM failure, the bank's CIO was from the Human Resources organization, not from the Information Systems Department. This and the culture of "not saying what needs to be said, and doing only what is said," resulted in a situation that is commonly referred to as "maru-nage," (leaving one's work to someone else). In other words, the wholesale outsourcing of initiatives. Maru-nage also happens with advertising and HR functions, but it's especially problematic in relation to information technology which is central to digital transformation programs.

Japan's ICT professionals are mostly employed by IT vendors

Employment data shows that around 3% of all employees in the US are involved in ICT, against only 1.8% of employees in Japan (see Figure 1). This gap threatens to put Japan's digital transformation agenda in the slow lane.

Figure 1 - Lack of ICT pros may slow Japan's digital transformation
Figure 1: ICT professionals make up 1.8% of Japan's workforce

Furthermore, Japan stands out for having underpowered technology departments at user companies. In Europe and North America, most ICT professionals work for user companies. By contrast, in Japan, more than 70% of ICT professionals work for vendor companies (See Figure 2). This difference limits the strength of in-house technology functions and makes Japanese firms more dependent on their technology providers.

Figure 2 - Most ICT professionals in Japan work for vendors
Figure 2: Most ICT professionals in Japan work for vendors

"Maru-nage" impedes essential transformation

In 2018, Japan's Ministry of Economy, Trade, and Industry warned business leaders that Japan is heading for a cliff edge, since an IT skills deficit stands in the way of vital digital transformation initiatives. Senior management may call for transformation, but IT departments are unable to deliver. They lack knowledge of the legacy infrastructure and systems that they rely on vendors to keep in operation, and they're even less prepared to drive transformation.

For vendors entering the Japanese market, it may be effective to position offerings to serve two types of client organization. While many IT departments want comfort, in the sense of minimizing the burden on scarce, internal IT resources, some are eager look to vendor for guidance. They are ready to learn from vendors that are willing to work with them to build up their capabilities and help them to escape from "maru-nage" dependency.

For the first group of comfort-oriented user companies, vendors should identify the moments of stress and pressure on the over-burdened IT departments and emphasize the vendor's capabilities to relieve that pressure while making progress toward simplifying IT infrastructure. For more guidance-oriented clients, whose CIOs want to raise their organization's capabilities and become drivers of innovation, vendors should take the time to explore the motivations of the IT professionals, collaboratively assess their needs, and map out a path to raising the capability level of the team while pursuing the company's transformation agenda.

Both the comfort-oriented and guidance-oriented approaches require a deep understanding of the motivations, goals, and pain points of the internal IT department as well as the company's objectives. By investing the time to develop this understanding at the start of the relationship, IT vendors can become strategic partners rather than body shops that do "maru-nage" work for struggling clients.