Heirs doing their own thing ©Toshiki Senoue Change manager: Yoshiharu Hoshino's loosening of family control meant staff could suggest ideas for Hoshino Resorts Yoshiharu Hoshino's first at­tempt to turn round his family's 100-year old hotel business backfired when his modernising ideas got him the sack after six months. But three years later the fourth-generation heir-apparent was call­ed back by the management team, which was still dominated by family members, to run the struggling business. Back then, in the early 1990s, the management was one of many aspects Mr Hoshino wanted to change, he recalls, speaking in the modest Tokyo offices of Hoshino Resorts. The way he then set about reforming outdat­ed practices shows how Jap­an's family-run businesses might buck a worrying trend. As family ties loos­en generally, they are struggling to find the right successors to take over. More than 68 per cent of family businesses do not have an heir lined up, according to Teikoku Databank, an independent Japanese research group. Mr Hoshino is not alone: Senri Tanida, who once wanted to avoid his fath­er's health-monitoring equipment business, has remade it into one of the most talked-about companies in Japan, while Masaki Sato turned his grandfather's textile company into a supplier to global fashion brands. All three speak of reforming outdated practices and of overcoming rel­uctance to change among employees. Changing work practices is hard everywhere, but this is especially so in Japan. It is tougher still for smaller, family-run companies, which tend to stick loyally to the management principles of their founders. Yet for them change is often necessary in order to survive. Haruo Takagi, professor at the graduate school of business ad­ministration of Keio university, blames the widespread expectation of lifetime employment. Staff may agree to a call for change but then they carry on as before. "In Japan," he says, "employees can't be controlled with the threat of termination." But it was implementing change that enabled all three heirs to im­prove brand recognition dramatically and to overcome another particularly tough challenge for many family-run companies - attracting skilled, experienced and ambitious staff. Yoshiharu Hoshino After taking the helm, Mr Hoshino em­barked on turning the Hoshino hotel in Karuizawa from a fashionable but small wedding venue into a res­ort management brand that is now well-known across Japan. He introduced an evaluation system so family members no longer made up more than half the board. "The staff worked in poor conditions and the Hoshino family seemed to have special rights," he says. Employee morale was low and staff turnover was high. Mr Hoshino, who says he spent much of his time at Cornell University in the US playing ice hockey bef­ore joining Citibank, may have had a rebellious streak. He did not always see eye to eye with his father, who failed to back him in his first attempt to implement change. Aware that staff morale was low, he says, "for the first three years, I made sure to ask my staff every day if they would come in the next day." He also introduced a merit-based remuneration system to help attract university graduates, and to ensure employees would stay motivated. "We need good people to come to our company, and to do that we have to get people to think we are an interesting company," he says. Mr Hoshino expanded into resort management, a service he thought would be in demand as Japan's asset bubble encouraged construction of new resorts. When asset deflation set in, Hoshino Resorts was able to buy up failing hotels and use its new management expertise to turn them round. Part of his confidence is based on the fact that some innovative proposals, such as eco-tourism, came from local staff. Japanese resorts need professional managers who have ideas, he says. There are still many people managing resorts who are amateurs. Senri Tanida Rejection of his ideas also greeted Mr Tanida in 2001, when he joined his family's company. Unhappy with this third-generation executive's proposed reforms, including cost-cutting, the family exiled him to an outpost in the US. But his father's ailing health brought him back to Japan and, within a year, Mr Tanita was head of the company. By that time, he had picked up techniques for engaging with staff - such as going out for drinks after work or joining them at snack time in the office. That helped smooth his efforts to im­plement big chan­ges, such as how costs were calculated, bet­ter marketing literature and improved products. I just introduced processes that other companies normally have. But his greatest ach­ieve­ment has been to transform Tanita into a role model for businesses seeking to burnish their brands. One idea was a recipe book featuring heal­thy dishes from the company canteen, which be­came a bestseller, making Tanita a household name. As a rebellious young man, Mr Tanida had gone to cookery school instead of university - to the chagrin of his father, with whom he often quarrelled. In fact, he trained as a cook in order to be independent. Then an illness put an end to his plans. But his experience as a cook and a nutritionist helped guide the company towards new products and ways of working. "There were many people who didn't know Tanita unless they went to the bathroom [and stood on the scales] but now there is hardly anyone who doesn't know Tanita and this has been hugely motivating for our staff," he says. The company is a popular choice for job-seekers, ac­cording to Doda, a job search magazine. Masaki Sato Yarn made by Sato Seni was used by Nina Ricci for its knitwear collection in 2008-2009 and Michelle Obama wore one of the company's cardigans to her husband's first inauguration as US president. But when Mr Sato took over 20 years ago, Japan's textile industry was in decline because of cheap Chinese imports. For a while, Mr Sato and his wife were selling unsold stock on street stalls. He had an epiphany when visiting a supplier in Italy. It was a huge shock. The Italian company had customised the machinery and they were making yarn I thought we could never make," Mr Sato says. He was also stun­ned that even the foreman was wearing an open-neck pink shirt, red trousers and sunglasses, and talking about fashion. We made what our customers told us to make. But this blond Italian guy was saying he created fashion. That is when I realised they . . . made what they thought the world wanted. Back home, Mr Sato faced huge resistance from staff. "There was one reason after another why they could not make the kind of yarn I wanted," he says. But one day, his foreman presented him with yarn like nothing he had made before. He realised he could do it and after that, this person who had said he couldn't make anything new became someone who could make anything. "Companies that fail are those with people who keep saying they can't do this and can't do that," Mr Sato adds. Companies that succeed are those that persist in figuring out how to do what they want to do. What is important is for the manager to have that approach. Japanese family businesses, many of which are smaller manufacturers, need to grow out of the subcontractor mentality and come up with their own unique products, he adds. Doing business with the big companies is the worst thing. What they need to do is to do their own thing. He could be speaking for many of his fellow heirs to Japan's family-run businesses.