Article - Strategic Importance of Interim Management

Interim Talent, or Interim Management, is a temporary hiring in terms of leadership and professional talent. This artice is written by Mr. Yasunobu Sawada, who has extended experience at consulting firms such as A.T. Kearney, from the perspective of a management and strategy consultant.

Interim management is "management by external personnel on a temporary basis as needed." In Europe and the United States, it has been one of the effective means of securing high-level human resources for decades, but in Japan, it has not been common for various reasons. However, due to a number of environmental changes recently, it is gradually becoming known and used.

The following are some of the environmental changes in Japan that are behind this:

1. Changes in the values ​​and lifestyles of workers

2. Progress in work style reform

3. Ongoing establishment and revision of labor-related laws and regulations

4. Progression of labor shortages

5. Evolution of occupations/organizations/industrial structure

6. Advancement of technological innovation

Each of these items is accompanied by major changes, but as a whole they are interrelated and are currently forming one big wave, forcing the industrial sector and the workplace to respond in a complex and difficult way. In other words, when considering the possibility of utilizing interim management, it is effective and important to keep in mind not only the immediate temporary/short-term need of "filling vacant positions as quickly as possible," but also the "strategic significance suggested by interim management," and to take the lead in utilizing it along the path of mid- to long-term organizational and HRM innovation and evolution that the above environmental changes structurally encourage.

First, let's take a quick look at each of the environmental changes in Japan mentioned above.

Regarding "1. Changes in workers' values ​​and lifestyles," there are improvements in work-life balance to ensure sufficient private time, a tendency to choose less stressful workplaces, occupations, and positions, a tendency to think about work in line with personal self-realization and values, and a change in attitude from joining a company to being engaged in a job, etc. In other words, while people are not forgetting the values ​​and overall view of the organization, there is a growing tendency to seek individualistic values ​​relatively speaking.

These trends are not only seen in Japan but worldwide, and have progressed along with the globalization of various activities, including those of companies and individuals, due to the spread of the Internet over the past 30 to 40 years. In particular, in recent years, this has become more clearly evident in the globally shared values ​​of the so-called Generation Z, which has been strengthened by the increase in global risks such as climate change and the COVID-19 pandemic. In other words, it has become a global trend, and it is necessary to consider it as a premise in labor issues as well.

Regarding "2. Progress in work style reform," various changes related to work style reform, such as shortening and flexibilizing work hours through the introduction of part-time work and flextime, promoting the introduction of remote work, encouraging the acquisition of paid leave, encouraging the acquisition of childcare leave for both men and women, ensuring fairness in various employment forms, and (although some people see this as contradictory) relaxing regulations on side jobs and concurrent jobs, are occurring in various workplaces, including the government, local governments, companies, and organizations. Although it cannot be said that these movements have yet reached a high and stable level of satisfaction for both labor and management, it is therefore expected that they will continue as a trend in Japan for some time to come, with some implementation errors and backlash.

Regarding "3. Continuous establishment and revision of labor-related laws and regulations," the enactment of the "Act on the Development of Related Laws to Promote Work Style Reform," the so-called Work Style Reform-related Act, which has been gradually implemented since April 2019, was a major force in bringing about the concrete movement of work style reform in 2. The background to this was that specific related problems had accumulated and the need to solve them had increased in the workplace. Currently, it can be said that many issues have been resolved or progressed toward improvement, but the basic problem situation still continues, and it is likely that various labor-related laws will be reviewed and strengthened intermittently in the future.

However, the most important recognition underlying the Work Style Reform-related Act was that it was part of various measures to "improve labor productivity, which is directly linked to Japan's national income and national power." In the past, the era of "Japan As No.1" was symbolic in that robots were widely used in Japan to replace skilled labor jobs, and the effectiveness of the "keiretsu" system, represented by the "kanban system," was maximized, greatly increasing productivity in automobile factories. However, times have changed dramatically, and the so-called "Lost 30 Years" have emerged, causing a significant decline in Japan's international competitiveness. The cause of this is thought to be a combination of various factors, but the biggest factor is that Japan missed the boat on the development and utilization of ICT, which Western developed countries and China were strategically investing in. In other words, both the public and private sectors did not invest enough in important areas to build the future. Since then, the times have progressed rapidly, and we need to pay attention to the situation in which AI and robots are rapidly replacing physical work, service work, and intellectual work in all kinds of occupations around the world.

Regarding "4. Progressing labor shortage," it is noteworthy that despite the current rapid changes, in Japan, in an era of population decline and labor shortage, interim management has emerged as one of the effective means of securing highly skilled human resources. In the past, especially in Japanese companies and some foreign companies operating in Japan, when it was difficult to increase staff or hire new full-time employees due to sickness, childcare, or nursing leave, M&A, major organizational restructuring, new projects, etc., vacancies in existing positions, or the need for new work, the surrounding organizations and staff have often absorbed the work burden or reduced some of the burden through temporary dispatch labor. However, this has led to problems such as dissatisfaction among those around, or conversely, being too concerned about it makes it difficult to take time off.

Here, the reason why interim management is attracting attention from other human resource acquisition support businesses is that it can respond quickly even to temporary needs, and that it targets advanced positions and human resources, including management positions, rather than the relatively simple tasks and human resources that are the main target of temporary dispatch and recruitment businesses. Another difference is that the contract form of interim management is not centered on people, unlike those of temporary dispatch or recruitment businesses, but is centered on the tasks to be performed, and takes the form of a business outsourcing contract. Of course, people and work are two sides of the same coin and cannot be separated, but the approach to performance differs slightly depending on which one is the starting point.

Namely, in temporary dispatch and recruitment businesses, the candidate is accepted first, and the work is carried out as a result, but in interim management, the target work is first determined, and the company performing the interim management ultimately guarantees its proper execution as an organization, regardless of the person assigned. In other words, it has a quality assurance function.

In legal terms of business outsourcing, interim management is similar to management consulting, which is often basically carried out in the form of business outsourcing. However, it differs in that the work content is often undefined or highly discretionary in the case of strategic consulting (so quality assurance is difficult in principle), whereas in the case of interim management, the work content is often clearly defined within the organization and is highly standardized.

By the way, the labor shortage situation in Japan, except for a period during the COVID-19 pandemic when there was a large labor surplus, has been consistently increasing in the percentage of companies experiencing labor shortages since the Lehman Shock in 2008, and recently, due to the economic recovery after the COVID-19 pandemic and expectations for it, more than half of companies are experiencing labor shortages.

However, today, it is necessary to consider not only the quantitative aspect of the labor shortage, but also the qualitative aspect more deeply. In other words, not only in cases of M&A/PMI and organizational reform, which are subject to rapid change, or in cases of new projects, where it is necessary to secure personnel with advanced work experience from outside the company, but even in cases of temporary filling vacancies in indirect departments such as accounting and HRM, where standardization is supposed to have been progressing, it will become increasingly necessary to consider the qualitative impact that ICT innovation, including AI, will have on all types of jobs. This is particularly significant in interim management, which deals with highly skilled personnel, and it can be said that it is not only one of effective means of securing highly skilled personnel but also potentially advantageous.

If we think about this issue more strategically, the introduction of AI and robots is currently driving major changes in the workplace worldwide, with "reskilling" already becoming an urgent issue for companies and individuals, and we are faced with the question of how to respond to this in terms of talent acquisition measures. We will look at the key points of this approach in 5. and 6. below.

Regarding "5. Evolution of occupations/organizations/industrial structure," it can be noted that technological innovation is causing major changes in the work content that makes up a single occupation (job type), the overall structure of various occupations, the organizational structure of the companies that are made up of these, and the overall structure of the economy that is made up of various industries, as mentioned above.

The evolution of jobs and occupations, which can be said to be the basic unit, first occurred as a function (e.g., accounting) that arose in a direct division line was established as a job or occupation, and then it proliferated to other lines, resulting in the integration of similar jobs to become a functional department of the indirect department (e.g., the accounting department), which then went outside the company in search of evolution and was integrated to become a professional occupation or specialized institution such as a certified public accountant or accounting firm. Through this process of development and evolution of individual jobs and occupations, the occupations, corporate organizations, and industrial structures of society as a whole have been formed. This process of development and evolution and the structure that has been formed can be said to be the result of being optimized to meet the demands of each era amid a struggle between the desire for process excellence and functional excellence. Job-based employment and the professionalization of employees, which are often mentioned in Japan today, can also be seen as phenomena in this trend.

The occupational structure that has been formed historically in this way is now about to undergo major and rapid change due to the advancement of ICT and AI. In particular, the emergence and spread of generative AI is affecting all kinds of jobs on a global scale, and the extent of this is expected to continue to accelerate in the future. For example, in the case of IT engineers, who are in high demand and change in both quality and quantity, generative AI is replacing traditional programming itself, and instead, the demand for prompt engineers to use generative AI, which hardly existed several years ago, is rapidly increasing.

In addition, indirect division professionals such as accounting and legal affairs, where standardization is progressing, are no exception. Accounting is a field where efficiency has been improved through applications and systems for some time, but even in the legal field, which was previously considered difficult, initial checks of contracts and efficient search and citation of precedents are now easily possible with AI.

Regarding "6. Advancement of technological innovation," it is necessary to understand that the basic driving force behind structural changes occurring at all levels of individuals, companies, industries, foreign trade between countries, and the global economy is the improvement of productivity at each level due to technological innovation. The key to the mechanism by which productivity increases is that technological innovation dramatically reduces vertical and horizontal transaction costs between units at each level, especially information costs. In the extreme case, it is easy to understand if you imagine the processing of multiple related work/business processes being integrated and embedded in a single IC chip. The same kind of change is occurring at every level, between individuals, organizations, and nations.

In short, considering that the progress of ICT, especially today's generative AI, is changing all of knowledge work and that this change will continue to accelerate in the future, it is clear that technological innovation will bring about continuous changes in the structure of occupations and the actual work content of each occupation. It is necessary to anticipate such changes as much as possible and think about the future of organizations (or, more precisely, the division of work within organizations) and the types of jobs and positions within them. It is no exaggeration to say that this is something that must be started right now, not something that is too far in the future. From now on, we will no longer design jobs/ occupations and organizations in terms of people alone, but will design them as collaborative systems that integrate applications, IT systems, robots, AI, and people. Conversely, it may be easier to understand if we think of systems, robots, and AI not simply as advanced tools, but as extremely talented human resources.

Finally, the potential significance of interim management that emerges from these contexts can be summarized as follows, by adding strategic significance to the tactical significance that has traditionally been said. (Here, the functions and skills required for work are replaced with the word "human resources.")

• Providing flexible working styles through outsourcing, in response to changes in the individual values ​​of highly skilled personnel
• Providing opportunities to try out various employment/work/outsourcing styles and explore models, through flexible contract types
• Providing effective means for companies to secure highly skilled personnel, in an era of labor shortages
• Proper execution and maintenance of organizational management, by quickly securing ready-to-work personnel for vacancies
• Appropriate response to an environment of increasing change/uncertainty, by quickly securing short-term/temporary personnel
• Minimization of risks and early stabilization, by introducing experienced personnel during M&A/PMI and organizational transformation, etc.
• Introducing and establishing experience, skills, and know-how that do not exist within the organization, by introducing external highly skilled personnel
• Leading the way in work and organization along the path of reskilling, by introducing advanced highly skilled personnel
• Improving the productivity of individuals and organizations, through the development and effective use of highly professional human resources

In short, the introduction and spread of interim management in Japan is not just a means of securing highly skilled human resources, but if we consider its essence, it can be said that it suggests a path for integrated change and evolution in labor and the environment surrounding labor, including work styles, occupations, skills, workplaces, organizations, employment, and outsourcing in Japan, which are currently undergoing rapid change, for both individuals and companies.

Share this article: