Long Read: How innovation works in Japan’s #1 internet firm

Rakuten is the “Amazon of Japan”. Its online marketplace sells more than eBay. Operations span travel websites, insurance, marketing companies, and cryptocurrencies. The founder Hiroshi Mikitani is still the CEO and chairman. Most teenagers know the brand best as the shirt sponsor of Barcelona.

Fergal Downey holds a plum job in this Japanese giant. He's the vice-president of engineering at Rakuten's Blockchain Lab, located in Belfast. His role puts him a position to work with Rakuten Bank (the biggest internet bank in Japan); the PayPal-style service Rakuten Pay; and the company's belief that blockchain can revolutionise just about anything and everything.

We met Downey over Zoom to discover what it's like to be an innovator in Japan's #1 internet firm. Downey has a reputation as an advocate for agile methods of innovating at warp speed – but what does that actually mean?

And for the record Downey was wearing the Rakuten-branded Barcelona home strip during the chat.

It's not just about 'failing fast'

“There is a cultural difference between here and Silicon Valley,” says Downey. “I lived in the Valley for a couple of years so I know what it's like. You only have to look at the number of start-ups there are in San Francisco compared to Tokyo.”

The Valley's mantra of fail fast and break things is rejected. Instead, Rakuten takes longer to mull over ideas. “We say 'Speed, speed, speed', but not speed in the wrong direction,” says Downey. “We take a bit of time to make sure we've got the right decision, and get everyone on board. Then when we move, we move together as an organisation.”

When a breakthrough is made it is shared company-wide.

“We have something called shukumika. It's a process for innovation. You start with a hypothesis, then you put that into practice and validate it. And if it works you put Shikumika into action.”

The word means “systematise”. It originated with the founder Mikitani-san, who asked, “What is the value of a great idea if it never makes its way through the entire company? Great ideas, to be truly successful, must make a final leap and become systems.”

Innovation must spread internally

A lesson from one Rakuten division must filter through to others. For Downey, this means working across multiple divisions and departments. One of the biggest Blockchain projects completed recently was the cryptocurrency exchange (Rakuten Wallet_, which allows Rakuten members to exchange their Rakuten loyalty points (Super Points) for cryptocurrencies such as Bitcoin and Ethereum.

Right now he's working on a way to authenticate news in India. The “hashing” technology used by blockchain can confirm if a news article has been tampered with to prevent fake news being spread online.

A conglomerate of this complexity requires serious effort to keep divisions connected and united. This is achieved with a flurry of cross-company meetings.

“We have asakai and shimakai,” explains Downey. “Asakai is a town hall meeting where the CEO talks to the entire company of mor than 20,000 people every week. Shimakai are more focused.

Plus, we have executive summits. There's a CEO summit for all the company CEOs. There's a CTO summit, which is great for getting support for an idea, or funding.”

This high level of integration is to support innovation. An employee can spontaneously conjure up a project and find support from a distant division. “A colleague developed an app for suicide prevention in his spare time,” says Downey. “It's personal for him, as his brother took his own life. We promoted the concept internally, then he wanted help with the UX. We have UX specialists at our Aquafadas division, based in Montpellier. We went there for a week and they provided the tools he needed.”

Keeping the spirit of small

Which raises a question. If Rakuten is so vast, how can teams stay small and nimble? Normally, the more people involved the slower the movement. It turns out there's a fantastic answer.

“We use contracts. Not in the commercial sense, rather contracts as a technical term.” In simple English – teams are autonomous, and generate an output which other teams can use. APIs are critical. An API is a way for an app, or part of an app, to talk digitally to another digital service. “We expose our services by an API to other technical teams who consume our services,” says Downey. This means teams are free to work how they want to produce results. The output is presented in an agreed format to other autonomous teams in Rakuten.

In a philosophical way, this method mirrors how software applications are designed today. Monolithic applications are chopped up into “microservices” – defined as autonomous chunks which communicate via APIs. It allows faster innovation as each microservice can be upgraded one at a time – the other microservices simply consume the output as before.

Apps built using this Downey recognises the parallel: “Absolutely. When people are focussed on an autonomous piece of software they can move faster, compared to working on a monolithic block.”

We all need to understand containerisation

He offers another technical insight. Rakuten uses a software technology called “containerisation” which allows for software to be upgraded without going offline. Upgrades can thus be done hundreds of times a day, if needed. Amazon, for example, upgrades its code every 11 seconds. This way of upgrading replaces the traditional big bang “new version” upgrades.

“We do green-blue deployment,” says Downey. “We launch an upgrade, called the blue version, and if it doesn't work we can roll back to green, the old version.”

The end result is, upgrades can be done with low risk, and without taking services offline.

“We deploy upgrades every two weeks on schedule,” says Downey. “We had to explain this agile concept to parts of the company used to the old way of working,” says Downey. “There were worries that as we were updating the code a lot that this could be riskier. We explained that since each change is much smaller than with the old method, the risk was much lower.”

It's worth knowing that all cutting-edge tech companies use microservices, containerisation, and green-blue deployment, including Amazon, Netflix, Uber, Spotify, and Google.

Take rest seriously

Downey ends with two gems.

“At Rakuten we do Zoom conference calls, so we can see each other. Japanese culture means we wait for latecomers. It's important we all see each other to know we are all participating and included. Previously I used audio for calls and I used to wonder if people were still awake.”

And second: “At weekends, unless there's a huge problem, you won't hear a thing from colleagues. Japanese culture is to work long hours. But there is work-life balance. They take holidays and weekends very seriously.”

Japanese work culture was a fad in the early 1990s, with kaizen and the Toyota Way becoming common parlance. Perhaps shukumika, asakai, and shimakai can take hold too.

Innovation is key to making your organisation last into the future – interested in what the future of work will look like? Read CMI's Management 4.0 research to find out.