es Networks’ Unique Business Model

Prof. Kusunoki

es Networks’ way of doing things is incredibly important to the customers who are its target. And I understand you’re offering a service that isn’t available anywhere else, but what makes it more profitable compared to other ways?

Suhara

First of all, having our resident consultants embedded into the heart of the customer’s company leads to stable sales, but of course this only amounts to sales proportional to the number of staff. However, because our staff is at the customer’s in-house accounting and management headquarters and planning offices, it’s like for example if an excellent salesman from a securities company visits frequently for 3-5 years and in the course of doing so acquires a wealth of information from the company president; we quietly accumulate knowledge in that way. When information such as M&A or third-party finance allocation planning rapidly gathers, it’s time for the consulting unit to operate based upon that information. Whether it is possible to get ahold of this information is to a large part contingent on residency.

Prof. Kusunoki

I see. So there is a flow from the work site to consulting as a career path.

Suhara

Our consulting unit is actually composed of our resident unit, and though this resident unit deals with daily management tasks. There is also consulting happening from the field.

Prof. Kusunoki

Between on-site residency and consulting, is consulting a larger portion of company profits?

Suhara

In terms of profits, on-site residency is larger as a base amount, but consulting is more profitable.

Prof. Kusunoki

But naturally, consulting is more unstable, isn’t it?

Suhara

That’s right. Because it’s not something to be built up.

Prof. Kusunoki

But the possibility of a lot of big events occurring in the future will increase.

Suhara

If the frequency of occurrence increases, of course there is that possibility. However, residency is our company’s origin, and it remains unchanged as a big pillar.

Prof. Kusunoki

Many companies use consulting to enter the “inside” and obtain information. This is a story often considered. However, often a major consulting firm will, for companies in their growth period likely to aggressively invest, offer this service in regards to relatively important projects, “please, use our staff.” The staff dispatched at times like this are of course excellent, they fit well with the client and enjoy working as hard as they can.
From the consulting firm side, they are dispatching staff with the expectation of being able to efficiently acquire contracts. So if you take this expectation out in from the opening, from the side of the company accepting the talent—since they are using them as firepower to accomplish the mission—they will no longer need that kind of person.
This is a dilemma. If the dispatched individual is put into the company and comes to enjoy it, this isn’t interesting for the dispatching consulting firm, and when the consulting firm side takes a happy action, the company on the receiving side is not happy. But with es Networks’ way of doing things, this dilemma doesn’t exist.

Suhara

Yes, we haven’t had that kind of problem so far.

Prof. Kusunoki

I think that es Networks’ status doesn’t necessarily mean that our business residencies exist for the purpose of designating consulting matters. In the end, in terms of results, as trial and error occurs proactively on the “inside” and human connections are made, there is a flow where information is gathered and consulting matters arise in response, isn’t there?

Suhara

Quite so. And that flow is extremely natural.
If you try to raise the frequency of consulting unit deployment, this flow will be hindered. And the resident unit will undoubtedly start to rush, ask strange questions, and things will become more and more unnatural, until they start to look like bad spies.
That’s why we take the stance that we don’t mind if our resident units withdraw after the mission has been completed without ever having connected with consulting. In fact, there have been many cases where contracts have finished with only practical business residencies.
However, on the other hand, with a customer who became the first MBO of the year, we had resident staff with them from before their IPO, and a strong relationship of trust had been built, and I think that’s why we were able to speak naturally.

Prof. Kusunoki

I see. By the way what kinds of opportunities does the consulting unit have to make an appearance?

Suhara

Financial work supporting things like IPO, M&A, MBO, and fundraising, for example finding sources of investment capital, negotiating with banks during corporate renewal; so-called FA work.

Prof. Kusunoki

And in those cases as well the consultant goes as a resident. They enter thoroughly as CFO, with a capital-focused perspective.

Suhara

They enter as people who want to become that in the future.

Prof. Kusunoki

The inclinations of that resident staff, their thinking, that’s quite different from the way in which other companies dispatch consultants.

Suhara

Even if we appear the same, ordinary companies don’t have the culture, storytelling, and experience of success that we do, so it may be that they don’t have much of a sense of identity as residents with the customer. On that point, in the case of our company, the act of having strongly management-minded consultants take up residency with customers is itself, if this were war, deployment to the front line, and despite what is when seen from the management side a harsh command to advance to the battlefield, they nevertheless find success.

The Meaning of Killer Pass, "Revolving Door"

Prof. Kusunoki

The dispatch of the consulting unit that we’ve been talking about, if we begin by thinking of the motivation in terms of “manager development,” naturally that includes going “outside” of es Networks and becoming a part of the company to which one is deployed. You could say you’re making that a part of your business.
Is that itself what you mean by “revolving door*”?
*A concept born in-house along with the corporate vision. To take part in management planning as a manager at client companies, achieve certain defined results, and then to return home.

Suhara

That’s right. “Revolving door” holds the nuance of going out as a manager, so more than going at the level of an onsite section chief, it refers to taking part in management planning as a CFO-class manager. It’s hard as contractors of practical work, and since various balls drop from the work site, it is seemingly irrational at a glance, but this is also our company’s killer pass.
“Revolving door” takes the form of going forth as an officer in response to the customer’s call. For example, after many years of achievements with our company, and with a good understanding of the way things work in-house, this sort of talent will certainly receive requests, and since this is the kind of world where if that individual comes to me and says, “please let me go,” I will agree, we believe it is difficult to turn it into a system/product. Of course, if that were possible it would be best.
However, if you ask why it is “revolving,” it means that we want our talent to head out as officers, seize the objective with the customer and accomplish the mission, and then come back to us.

Prof. Kusunoki

Are there cases where this happens?

Suhara

Yes.

Prof. Kusunoki

As well as people who actually came back?

Suhara

There are. But at the time of going, no one has made any promises about whether or not they will come back. Still, if you ask why we are doing this, consultants tend to become a bit half-hearted rather than doing something fully to completion with a sense of ownership. The residency system also exists so that this doesn’t happen, but a little bit of this kind of tendency still remains. But once you try acting as a manager, become directly involved, and revolve back to our company after having the experience of joy and pain that comes with being directly involved, it also leads to you powering-up as a consultant. That’s why you could say that this is a training grounds.

The Growth of es Networks

Prof. Kusunoki

I don’t think it would be a surprise if es Networks were to grow much larger.
Looking back on what we’ve talked about so far, the originality of es Networks for the customer lies first of all in having work done through residency, something that is only understood after some time passes. You could say that is a strength. After all, as for your targets, they are likely to increase domestically in Japan, and one could assume that you will continue to grow without stopping. It sounds very good.

Suhara

In terms of the meaning of company growth, it really is a matter of the time it takes for personal growth. Of course I would like to examine and consider other factors as well. But there is the worry that in terms of human resources, the population is low.

Prof. Kusunoki

One thing I thought was really interesting this time around is that people who are trying to do the same thing are in fact falsely similar.
For example, in used car sales they claim to buy your vehicle at a high price, and at the same time advertise super-discount sales, and although this kind of thing is established as “the way it is,” in reality it is a complete contradiction. By poking at that contradiction, the strategy story of Gulliver’s “purchasing specialty” came out. Since this contradiction exists in any industry, I think there is some fundamental contradiction in the accounting and finance industry that is es Networks’ principal battlefield. And I’m wondering if you’re setting out to break it.

Suhara

It makes me happy to hear you say that. But it is true that at the time of our founding, the world was such that when we said that we were launching an accounting outsourcing business, the reaction was, “what?!!” To begin with, it’s something done as an auditing corporation, otherwise to a certain extent, the only career paths available were people accumulating experience at an auditing corporation and then going independent and starting their own accounting offices, or a minority who entered companies and worked from there. There was no market for a company which record its sales from a service where their staff completely enters into practical work through residency.

Prof. Kusunoki

That’s because as a way of thinking, the concept of “all you can eat” is included. Rather than sending people to the customer and having them used as they will, having them work unseen from the outside and delineate by time saying something like “due to internal controls some new items came up and costs increased” is something that the customer has no choice but to accept. Moreover, the term “all you can eat” usually has an implication of “up to a certain degree,” but es Networks is delicious despite being all-you-can-eat, and what’s more new items are always being added to the menu. Even though up until then, part of this meant that if you didn’t draw a line indicating the limits of work to be undertaken, or yourself indicate such limits, you couldn’t receive orders. Real work changes as it is being done, and if you yourself clearly cut it off, inconsistencies arise. In the midst of this reality, es Networks’ method has resolved this dilemma.

Suhara

I didn’t understand everything from the start, but it does turn into that kind of thing. Even now I’m often told by other companies, “I can’t believe you do that kind of thing.” The reasoning being that generally, if your staff is attached there all the time, since you will have to pull them out at some point, it’ll turn into a tough situation if there’s a claim made. But everyone’s too afraid to do it.

Prof. Kusunoki

That must be the culture of es Networks. That’s why I want you to become a company with a scale of 10 billion yen. Thinking about the real meaning of “management support” and “management development,” I want to see a real impact made. It’s the creation of a new model that could be called the “es Networks way,” so for example when a company trying to do the same sort of thing comes out, it could be good to say, “Why not try the ‘es Networks way’?”
No, but in reality that would be really tough. Do you have any good methods to effectively increase human resources?

Suhara

I was hoping you’d tell me something about it if you knew (laughs). I think all one can do is keep a level head when making a choice at the time of hiring, cultivate the talent over time, and steadily continue doing these obvious things. Continuing to act in this way, we’ve finally reached about 200 members. But in terms of the industry, over the course of ten years it’s changed, and we no longer get the “what?!” reaction. It’s no longer the case that auditing companies are the only place for accounting talent to shine, and I really feel like the places of activity are spreading.

Prof. Kusunoki

Is auditing also done by resident staff?

Suhara

Our company doesn’t take any auditing jobs. This is also a special point of ours. If we were to have both a practical accounting unit entering “inside” the customer company and looking at various things, and auditing staff, it would cause a kind of contradiction. We’ve actually received requests to do audits many times, and I think that we would have pretty amazing sales numbers if we accepted them, but it has been difficult to fit into our strategy, and we’ve continued to refuse.

Prof. Kusunoki

But that’s wonderful. Another killer pass.

Suhara

Mr. Ryo Iida, Secom Co., Ltd. (founder, current top adviser) wrote in his book that from the very beginning Secom’s security services were prepaid. He said, “we will accept nothing but prepayment,” and continued to refuse requests as such. Regardless of receiving lots of offers saying “we will make an offer if it isn’t prepaid.” In the end, the important point is not to make exceptions.

Prof. Kusunoki

Being able to refuse despite being asked by those around you why you don’t do it, though of course it is painful for the one making the decision as well; whether or not one can persevere in that position, I think that is one sign of a superior strategy.

Suhara

I’m constantly telling our staff this, but our company doesn’t sell accounting and finance knowledge. The service that we sell is one that makes our customers feel secure and at the same time able to act decisively through consulting. Since this is always a source of controversy, taking the form of something like “so we’re knowledge laborers,” and if you have knowledge with an edge, you tend to get money from customers. But that’s not what we’re about. Imparting a sense of security is what we’re about.

That’s what es Networks is aiming for.

Prof. Kusunoki

In our work we also do this sort of sales-oriented movement, so I get it. Sales largely depends upon with what intention the other side is coming to you. For example, asking the president to “make an opportunity to explain a little bit,” or approaching to be introduced to the person in charge. If this leads to going to meet, then you’re already completely a visiting contractor. I’ve been asked things like “what are the merits?” On the contrary, if a company president comes to consult with me, when I said “we have this kind of thing,” the reaction of the other side was totally different even thought I was doing the same thing.

Suhara

The way of entry is completely different.

Prof. Kusunoki

Oh yeah, all of the section managers were lined up waiting in the president’s office (laughs).
In the former case, I was told something like “that’s too expensive, we can’t pay,” but the latter case, I wonder they might pay even if I overcharged by 100 times. I thought that was an interesting situation. That’s why I think there may be a benefit of sales in this world. With the concept of show-off sales, making the president of a big bank wait, showing up late, and when he says, “I’ve been waiting for you!”, being able to say, “I’m sure you have been.”
I think about how I can go about bringing that into this.

Suhara

That is the eternal challenge.
To be honest, in the beginning we also used to try to ingratiate ourselves in sales. Since there was no relationship of trust, and they didn’t know us from some shady characters on the street. We did walk-ins and telephone appointments, too.

Prof. Kusunoki

There are people who are like real heroes of consulting, aren’t there? If you listen to those people’s secret selling strengths with clients, the answer is chatting. They’re always going here and there, chatting. If you riposte, saying “what the hell, you’re just making small talk!”, the person who is the most skillful, the one who wins the trust of customers and wins the contracts; they’re constantly chatting. That made me want to see what kind of chatting they were doing, so I had a friend who is a consulting wonder bring me with him to a chat with a client. It was really just small talk.

Suhara

(Laughs)

Prof. Kusunoki

There is absolutely no intention (sales intention) of deriving benefit from chatting, or provoking the customer to reveal what they’re thinking, nothing like that. He’d maintained that relationship for many years that way, giving beneficial input, and if it leads to something taking off, great, if not, no problem.

Suhara

The work of superior consultants like that is, to take the example of a doctor doing brain or heart surgery, first-time customers never come in for something like that. Through long association, “I can just have this person do it” becomes possible, but without “person to person” empathy, it’s probably impossible.

Prof. Kusunoki

But we’re talking about the efforts of a single human being, so no matter how much they do, there is a definite quantitative limit. Returning to what we were talking about, in the case of es Networks, there is a resident unit that exists “inside” the customer company.

Suhara

Yes. And our resident staff are taking the role of hero consultants. So, in terms of the meaning of growth we were talking about earlier, I think we still have room for improvement in the sublimation of projects from resident staff to consultants.

Prof. Kusunoki

No, no. What I’m talking about is expanding what can be done with resident staff. Since a larger portion of revenue comes from resident staff, it might be better to aim for a larger scale here.

Suhara

We want to do that. But actually we aren’t pursuing quantity so much. You often hear things like 20 percent of the people think and provide for 80 percent. Our ultimate goal is to think with 80 percent of our people, and then the 20 percent of people who happen to be below them, we want to do that kind of “reverse Paretian optimum.”

Prof. Kusunoki

I see. I was imagining, for example quantitatively how many managers you’ve developed, but for the company the ideal situation is that even if you don’t maintain the same scale you have now, not reaching 1,000 people?

Suhara

We don’t mind not reaching that number. If we have 1,000 people with 200 of them thinking and the other 800 just hanging on, I don’t want to make such an organization.

Prof. Kusunoki

But if we reach 1,000 people, probably not 80 percent but 60 percent or so will be just hanging on ordinarily.

Suhara

It’s inevitable. However, as a point that has remained unblurred, if there is one thing that is unique about our company even when viewed from the perspective of other consulting firms, I think it is that we are a consulting firm that provides “management support” and at the same time insists on “management development.” From the start we’ve insisted on developing managers because through insisting in this we increase the number of “employees who think with their own heads.” In addition, because there are relatively few managers in Japan. There is a surplus of money splashing around, but in terms of people/things/money, “people” are lacking. I used to think that the president was someone far away, and I still find it strange that I am a president, but if someone gives an encouraging push and they take one more step forward, there are a lot of people in the world who can become presidents. So, for our company to become a catalyst and give that push would be great; that’s our quite pure motivation.

Prof. Kusunoki

The most precious treasure in business is management talent. Why is it so precious? Because it can not be raised, it has to grow up on its own. Though it is necessary to have a place to grow, there is a big contradiction here: even though one cannot become management talent without setting foot in the place of management, one cannot set foot in the place of management if one is not already management oneself. This is a dilemma.
That’s why superior companies provide a place for managers to grow. In short, within a company you are making a lot of units which need a sense of running a business, and entrusting it to talented human resources. And little by little you gradually increase the size of the unit entrusted. With es Networks, the output of the work is itself management talent.

Suhara

I think that you could say that. Time spent at our company, and time spent in contact with the customer, from within these two comes the feeling that “I could become management talent.” The entrance is as a consultant, but as experience is accumulated, at a certain point it is realized.

Prof. Kusunoki

It may seem at a glance that this takes some time, but in an ordinary company it takes 20 - 30 years.

Suhara

Yes. Management talent is also the most valuable thing for the companies that we target, and in order to be management talent one needs to understand the minimum figures. Even if maniac knowledge of accounting is unnecessary, it’s always better to have a manager with a sense of the numbers. And I think that we can respond to that.

Prof. Kusunoki

As CFO-type managers.

Suhara

That is in our case the closest thing.

Prof. Kusunoki

That’s a wonderful spirit. What I found the most interesting in our talk this time is the strategy story of how es Networks has confronted and overcome the implicit contradictions with which this industry is engaged. No one did it because it seems illogical looking at it, but the style of having consultants enter “inside” a company as residents engaged in practical work is very interesting as a model of a strategy story.