We Are Tomodachi Winter 2018

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7of Abenomics, have been used effectively. Monetary policy helped reverse deflationary and negative price trends, while fiscal policy bolstered domestic demand, with supplementary budgets totaling JPY 36 trillion (USD 319 billion) since the start of the Abe administra-tion in 2012. As a result, companies have regained confi-dence and the economy is growing again. Japan has managed to do this while avoiding the social divisions created by the inequality of opportunity or earning potential in the U.S. and Europe.Both outbound M&A and corporate profits have hit record highs. The former is a sign of companies’ increasing appetite for growth. The latter stems from the steady improvement of ROA, which stands in contrast to flat or decreasing ROA in the U.S. and Europe. The economic outlook, in general, is optimistic. In my discussions with Japanese CEOs, I’ve sensed growing confidence in the revitalization of demand.The third arrow of Abenomics—a series of structural reforms—is poised to have an equally profound effect. Since 2012, structural reforms have moved beyond priority industries to encompass a broader transformational agenda, which includes initiatives to accelerate innovation, increase the participation of women and seniors in the workforce, and expand strategic growth opportunities. The government also set out a sweeping vision for what it calls “Society 5.0,” which looks at how technologies such as artificial intelligence, big data, and the Internet of Things will transform how people live and work. More challenges—and opportunities—lie aheadTo build on the momentum generated by Abenomics and avoid losing any ground gained over the past few years, policymakers and business leaders should focus on three critical areas, all of which are relevant to developed economies, in general.Corporate vitality. Having record corporate profits at a time when there is an urgent need to invest in new technologies and next-generation manufacturing raises an important question: Are companies doing enough to sow the seeds for future success? To ensure industrial and national competitiveness, corporate transformation needs to be pursued aggressively, with a focus on upgrading the industrial base and harnessing the power of AI and the Internet of Things. Our recent work with Fortune showed that corporate vitality—the capacity for growth and reinvention—is driven by strategic mindset, technology investment, and managerial renewal. Diversity and innovation. The aging and shrinking workforce will raise the controversial issues of immigration, equal opportunity, and diversity policies. A soon-to-be-published BCG study, based on an analysis of 1,700 companies in eight nations, shows that diversity drives innovation, as measured by the proportion of revenues derived from newer products. Moreover, companies that broaden their approach to diversity—they include aspects such as age, gender, industry background, nationality, and career path—see bigger benefits. The diversity effect is also greater for digital innovation. When we looked at enabling factors like managerial support for diversity, equal opportunity policies, and open communication, we found that less than 40% of companies had these in place, suggesting a huge upside for companies and nations willing to embrace the diversity agenda. Value-based health care. Japan enjoys relatively good health care outcomes at a reasonable per capita cost, thanks to universal access, a single payer system, and strict cost control. But with the rapid evolution of medical technology, expectations for access to this technology, and the realities of an aging population, cost containment alone will not be sufficient. Our studies have shown the effectiveness of value-based health care, where the costs and outcomes of different interventions are measured, shared, and used to guide the selection of therapies across the health care system. This is a tough change-management challenge, but one that Japan has every incentive to pioneer. Japan has an enviable heritage of innovation. We are confident and hopeful that if the tough constraints of the future are embraced with the same courage and cohesiveness that the Japanese government and people have shown to date, Japan can become both a pioneer in building an economy and society for the next genera-tion—with a focus on diversity, renewal, and technolo-gy—and a beacon for other nations that will eventually face the same pressures.