Success by training, developing high-caliber personnel

On an evening in late March at the headquarters of Works Applications in Tokyo's Akasaka district, the eyes of 300 students clad in "recruit suits" are trained on an instructor. Some are smiling, while others look tired. It is the last day of a seven-day internship program, and as the students' performance appraisals are announced, their various reactions are evident in the expressions on their faces.

One of them, Atsunori Hirosawa, 24, began crying convulsively. Was he upset about a poor appraisal?

"No, I received an A, but I have a friend who didn't get a company pass."

His tears were in sympathy for a fellow student whom he had only met a few days earlier.

Works Applications began this internship program in 2002 to discover potential staff with problem-solving skills. Students are given the task of making their ideal clock, and must consider the challenge from scratch. Students who perform best are given a pass that allows them to join the company at a time of their choosing within one year of graduating from college.

Works Applications CEO Masayuki Makino, 49, believes that companies similar to Apple and Facebook don't emerge in Japan because of the difficulty of assembling high-caliber personnel.

"I want to make this the kind of company where absolutely brilliant people can create new value from zero," Makino said.

In the Japanese edition of this year's "Great Places to Work" ranking, compiled by a U.S. research firm that encompasses 45 countries, Works Applications came in second only to Google for the second year running. Although it is an unostentatious company that develops and sells personnel management and accounting software packages for corporate use, it rated more highly than better-known firms such as Microsoft Japan and Mitsui Sumitomo Banking Corp.

30 MILLION YEN INVESTMENT WITHOUT HESITATION

Makino first became involved in software development when he joined a major construction company. It was a workplace where promotions were made on the basis of seniority. There were even staff who moved up in the ranks despite a lack of accomplishments, due to their skill at currying favor. Eventually he became frustrated by its corporate environment where staff were not rewarded for their true competency and resigned after a year and a half.

He switched to a systems development company and was transferred to a foreign-owned firm. As he worked as a systems consultant, he gradually gained an awareness of the problems that many Japanese companies were facing.

"IT costs for major corporations were three or four times more expensive than those of foreign companies," Makino said.

One of these costs was that of software for core corporate operations such as personnel management and accounting. It was standard for foreign companies to use cheap readily available products known as package software, but many Japanese companies commissioned software catering to their needs. It was similar to the difference between buying a suit off the rack, or having one tailor-made.

Makino quit the systems development company after seven years of service in 1994 to create package software locally. Two years later, he established Works Applications with two partners. At the time he made the rounds of around 100 venture capitalists, to little avail. Then he sent an e-mail out of the blue to venture capitalist Yoshito Hori, 50, now dean of the Globis Graduate School of Management.

Hori decided to invest 30 million yen ($374,000) in this thirtysomething, passionately spoken individual because he could sense his strong confidence.

"Instead of leaving sales to others, he devoted himself to making phone calls," Hori said. "I got the feeling that he had explosive talent."

Funding gradually began to gravitate toward Makino.

Package software development requires a vast amount of programming, in excess of 10 million lines of computer code. Imagination is also necessary. Makino was determined to recruit only the best personnel.

However, he had great difficulty finding such people. It was no wonder, considering that the company's office was based in an apartment in Tokyo's Mita Ward and had a staff of only 10.

"Why don't we bring in inexperienced staff and train them?" suggested chief operating officer Takashi Abe. In the IT industry, where it was more common to hire people with experience, it was an unprecedented move.

Then the Asian currency crisis occurred, which also had repercussions for Japan, such as the bankruptcy of Yamaichi Securities Co. The employment model from Japan's period of rapid economic growth, in which a person would be set for life if hired by a major corporation, was collapsing.

"There must be highly capable people in their second or third year with first-rate companies who are concerned about this," Abe recalls thinking.

After half a year of discussion, Makino decided to implement Abe's suggestion to hire inexperienced staff.

They hired young and inexperienced IT engineers, and paid them the same salary they had received at their previous workplace while improving their skills over six months of training.

When they placed an ad in a recruitment magazine that read, "We'll turn people who can learn into people who can work," applications flooded in from 300 hopefuls, including employees of major financial institutions.

Eventually, the number of applicants rose to over 4,000. Six years after the company was founded, it had gained the top share of the domestic market for personnel and payroll management package software. In 2001, it was listed on the stock market.

STILL ONLY AT THIRD STATION

With his glinting eyes and roguish goatee, Makino can appear to be somewhat intimidating.

According to those who know him, he has a passionate side. When a deal is sealed with a client, he praises his staff with watery eyes, and on the other hand, he sometimes bursts into tears when scolding them during morning meetings.

Abe remembers a time not long after the company started when Makino had a gloomy look on his face for a change. One of their staff was resigning. He had been asking himself for days, what did we do wrong?

"He's so pure-hearted, it was like looking at a child," Abe said.

After a period of rapid expansion, the company reached a plateau. Earnings became sluggish around the time of the collapse of Lehman Brothers in 2008, and the company was forced to cut back on its investments in personnel. Its share price, which had topped 200,000 yen per share, fell to the low 30,000 yen mark in 2009. Buyout offers came in every year from leading foreign companies.

"Selling was an option, as we would have made a stunning profit. Even so, we were nowhere near achieving the ideas we set out when we started the company," Makino said.

In January 2011, the company announced that it would delist via an MBO (a buyout of the company's shares by its management). An acquaintance had warned them that a hostile takeover was imminent. There was also a desire to direct funds toward research and human resources without being concerned about immediate profits.

Currently, the company is also attempting to discover talented personnel overseas. It has already established a research center in Shanghai, and will open another in Singapore this year. The intention is to see what happens when engineers from India and China are thrown in together with young staff from Japan.

Sixteen years after its founding, how much of Works Applications' ambitions have been accomplished?

"I guess we're at about the third station (of 10)," said Makino, comparing the situation to that of a mountain climber taking on Mount Fuji.

* * *

Masayuki Makino

Born in 1963 in Hyogo Prefecture. Put in charge of software for a major construction company. Switched to a systems development firm, and worked with venture companies from the United States and Ireland for two years. Became an independent systems consultant in 1994. In 1996, he established Works Applications, a company that creates package software for major corporations, and has been CEO since 2001.

Memo

Founding partners: Every day Makino exchanges information over lunch with chief operating officer Abe and chief technology officer Yoshiro Ishikawa, 50. However, they rarely go drinking together in the evenings.

Spare time: "Work hard, play hard" is Makino's motto. Once the day's business is completed, he goes drinking every night with old and trusted friends. Around four years ago, he drained four bottles of tequila over three long nights with Hideaki Inoue, 48, president of Park Corp., which operates the florist chain Aoyama Flower Market. "He hates it when things are done half-heartedly, so he always orders his alcohol on the rocks or straight," Inoue said. "He got angry at me when I tried to have a drink mixed with water."

Sports: For a time, Makino was an avid triathlete, but lately he is taking a break as "everyone else has started doing it." He has also starting playing golf again for the first time in years. However, he says he can't stand the functional golfwear that is currently in fashion, and makes the rounds of courses wearing 1950s-style neckties and shirts. He shoots around 90.