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Applying Zaibatsu Principles in the U.S.

March 08, 1990|MICHAEL SCHRAGE

John Doerr speaks barely enough Japanese to be able to order sushi instead of sashimi , but his vocabulary turned out to be big enough to ingeniously redefine his business.

Doerr is a partner at Kleiner, Perkins, Caufield & Byers, the astonishingly successful venture capital firm that funded such companies as Genentech, Tandem Computer, Compaq Computer, Lotus Development Corp., Sun Microsystems and Cypress Semiconductor--all leaders in their market niches. "We don't just try to launch successful companies," says Doerr. "We try to launch successful industries."

A few years back, the firm held its first "Presidents' Club," gathering together all its entrepreneurs to give them the chance to meet each another. Doerr surveyed the room and was struck, Zen-like, with his Japanese epiphany: "This," he announced to the crowd, "is the Kleiner Perkins zaibatsu ."

Actually, Doerr says, "I was just shooting off my mouth," but it was a pretty good shot. While Kleiner Perkins is by no means a zaibatsu -like enterprise the scope or scale of a Mitsui, a Mitsubishi or Sumitomo, it isn't just a venture capital firm. The partnership simultaneously serves as a merchant banker, introducer to suppliers and customers, headhunter, joint venture matchmaker, structurer of R&D limited partnerships, and it offers its top entrepreneurs a chance to co-invest in the firm's special zaibatsu fund.

Where other companies have gone consortia-crazy--remember U.S. Memories, Sematech and MCC?--Kleiner Perkins is rapidly evolving into an American-style zaibatsu , with increasingly elaborate networks of formal and informal ties.

" Zaibatsu isn't the best word," cautions Chalmers Johnson, the Rohr Professor of Pacific International Relations at UC San Diego and a leading scholar of Japanese industry. "It has the same connotation as 'monopoly capitalism' and 'big business screwing little business.' " Indeed, Japan's zaibatsu were formally outlawed after the war. These days, Johnson reports, Japan's industrial groups use kinder and gentler words to describe themselves: keiretsu ("lineage") or kigyo shudan ("corporate grouping").

"Basically, these groups came into being in the Meiji era (late 19th Century) as brilliant devices for the rapid importation of advanced technology into a country with scarce capital," says Johnson. "They are unbelievably adaptable and, serendipitously, a perfect fit for high-technology industries where the life cycles are so short and the R&D costs are so high."

This "developmental conglomerate" structure not only offers the benefits of diversification but also, if the relationships are smoothly handled, provides opportunities for creative interactions.

"The zaibatsu promotes the combining of utterly diverse technologies, what the Japanese call 'fusion research,' " Johnson says. "The very nature of the organization produces collaborations between utterly diverse parts of the organization." Which is why a Sony comes up with the Walkman and Watchman, and gobbles up a CBS Records and Columbia Pictures, and a Hitachi can cost-effectively produce for both mass-market color TVs and high-end, high-resolution computer monitors.

Indeed, Johnson describes International Business Machines, with its huge scale and tight relationships with key vendors and customers, as a classic American zaibatsu (even though the company would never describe itself that way).

Similarly, while Kleiner Perkins treats each of its companies as individual entities, a Sun Microsystems actively talks to Cypress Semiconductors and Lotus Development Corp. talks to Businessland. The real value added here won't be found in the legalistic conventions of formal joint ventures but in the tacit and implicit understandings of personal relationships. For all the hype and hoopla surrounding "strategic alliances" and "research consortia," the reality is that companies don't collaborate; people do.

"It's in those informal networks that real candor can occur and the right kind of exchanges can take place," says James F. Moore of GeoPartners, a Cambridge-based management consulting firm that has been a consultant and close observer of these issues for such companies as AT&T-Sun Microsystems and Jim Henson Productions-Walt Disney. "My view is, build the informal first and the formal will follow. Too often, the corporate strategists and financial people are quite far from informal realities. You can't put together a formal relationship and not nurture the informal."

This means that trade associations and companies should become more aggressive about creating informal forums to discuss their mutual concerns and their future investments.

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