Casio’s Eccentric Product Culture, Built on Embracing Failure
My 2003 profile of Casio and co-founder Kazuo Kashio, who passed away this week
[I originally published this article under my byline in the December 2003 issue of Business 2.0 Magazine. I’m reposting it here in appreciation of Kazuo Kashio, who died on June 18.]
A stylish woman sitting nearby at my favorite Tokyo sashimi joint snaps a picture of her boyfriend’s fatty tuna. But what catches my eye is her camera. It’s so thin — like a sleek, metallic credit card. “Kakkoii desho,” she says, seeing me stare. Cool, huh?
Incredibly cool, and that’s what’s so weird. Because the camera she’s holding — the Exilim S1 — is made by Casio Computer. That’s right, nerdy-calculators Casio. Cheap-digital-watches Casio. This is not a company with a reputation for being hip and trendsetting. Don’t get me wrong: I owned a Casio calculator watch like all my friends in seventh grade. It’s just that all my friends in seventh grade were on the math team.
Casio has released so many unpopular products in its 47-year history that the respected Japanese magazine Nikkei Business recently surmised that no company has failed as often. Ill-fated Casio calculators of the 1970s and ’80s include the QL-10, which doubled as a cigarette lighter; the PG-200, which doubled as a pachinko machine; and the QD-151, which, long before anyone wanted one, doubled as a mobile stock-trading device.
In the 1990s, Casio bet big on Casio-Tele, a video telephone. Its most recent disappointment was Cassiopeia, an early Windows handheld, whose poor sales were primarily responsible for the company’s first operating deficit since its 1970 initial public offering — a 10.4 billion yen ($78 million) loss on sales of 382.2 billion yen ($2.9 billion) in the fiscal year ending March 2002.
Yet there, on the counter next to my soy sauce, is what is undeniably the coolest camera I have ever seen. And I’m not the only one who thinks so: This year [2003] Exilim was the hottest-selling digital camera in Japan — the world’s most competitive digicam market — and an object of desire for American early adopters. Thanks to Exilim, Casio rebounded in its fiscal year that ended in March with a 15.3 percent revenue gain — larger than any of its competitors’ — and net profit of 5.6 billion yen ($47 million). Casio’s stock price has more than doubled during the last 22 months, and the company is on track for a 13 percent sales gain and a 95 percent jump in earnings this year. “Casio strikes out a lot,” says Masaharu Sato, an analyst at Daiwa Institute of Research. “But Exilim is a spectacular home run.”
In fact, this is how Casio has always played: a string of strikeouts followed by a sensational, game-saving blast. All companies stumble, of course. But Casio has made a business model out of betting big on risky ideas and staying with them — sometimes relentlessly. In a world of copycats, knock-offs, and me-toos, the result is a brand that is unorthodox, distinctive, and — at long last — cool. “Other manufacturers’ products look alike,” Sato says. “Casio has retained its uniqueness.” What kind of corporate culture makes that camera on the counter possible? I went to Japan to find out.
The Calculator War
West of Tokyo, in the lobby of Casio’s Hamura Research and Development Center, ropes cordon off the last surviving Casio 14-B, a 1959 calculator the size of a desk. Here’s where I meet 73-year-old Yukio Kashio, the youngest of Casio’s four founding brothers. When I ask him point-blank how Casio came up with the idea for Exilim, he pushes aside the ropes and, in what is a thrill for a former junior high school mathlete, teaches me how to divide 1 by 3 on the 14-B. Then, as hundreds of metal switches click and clack to form the circuits that yield the answer, he reveals what guides everything at Casio: a 30-year-old story about an unlikely victory in what electronics industry veterans call “the calculator war.”
By 1949, the biggest hit the Kashio brothers had produced in their Tokyo metal shop was a wearable pipe — a ring welded to a cigarette holder. (They marketed it to assembly-line workers who smoked on the job.) Nevertheless, when the two eldest, Tadao and Toshio, spotted American-made Marchant calculators in a department store, they immediately decided to build their own. No Japanese company had ever made such a machine. It took the Kashios five years to build a prototype, which dealers rejected because it couldn’t perform continuous arithmetic. (After adding two numbers, users had to re-enter the sum to perform a follow-on calculation.) The brothers planned to demonstrate a second prototype in Sapporo, but airport agents deemed it too big for the cargo hold and forced them to dismantle it. When they put it back together, it wouldn’t multiply.
Success eluded the Kashios for eight long years. Finally, their first model, the 14-A, went on sale in 1957 for 485,000 yen ($4,000, at current exchange rates), about the price of a new car. They inscribed it with the family name, but changed the “k” to a “c” and dropped the “h” because they thought that looked cooler. The machine was a technological marvel: Instead of the gears and motors common in calculators of the day, it employed hundreds of electromagnetic switches called relays, which Toshio knew about from working at the phone company. When success arrived, it was grand. By 1962, Casio was doing $1.7 million in sales — mainly to banks and research institutes — and had 300 employees. Soon after, the industry began buzzing about something called a transistor, but the Kashios were too busy playing golf to notice.
The first shot fired in the calculator war was the all-transistor CS-10A, introduced in 1964 by Hayakawa Electric (renamed Sharp in 1970, after its popular mechanical pencils). With no moving parts and a compact design, the CS-10A sapped demand for Casio’s relay machines overnight. Casio eventually countered with its own transistorized models, but soon American startups like Intel were etching the guts of calculators onto chips that anyone could assemble. By 1970, there were 40 calculator manufacturers in Japan alone, and competition had driven prices down to a few hundred dollars.
The Kashio brothers stopped playing golf. Any other management team, seeing its profits erode, might also have quit the business. Instead, third-eldest Kazuo, known for an uncanny instinct about what people want, proposed betting the company on a calculator that would wow the world. This, it would turn out, was the pivotal moment in Casio’s history.
Based only on his hunch that it would work, Kazuo led an all-out assault on one product attribute — price — even if that meant dropping so-called standard features. His new model, the 1972 Casio Mini, retailed for a then-unheard-of 12,800 yen (about $100). To sell the Mini that cheap, Kazuo reduced the display size from eight digits to six and scrapped both the decimal-point key and the power cord. His own salespeople predicted that it would flop; business users were, after all, accustomed to power cords, decimal-point keys, and eight-digit readouts. But the Mini was the first calculator priced for the mass market. By 1973, Casio sold more than 2 million of them, and was one of just a few calculator manufacturers still standing.
“If you just focus on consumer needs,” Kazuo says now, “you can’t make great products.” The architect of Casio’s triumph, he was named CEO in 1988. Today he works at the top of the company’s 22-story Tokyo headquarters, a new building that feels more like it’s made of waves than of steel. Known as a fierce sumo wrestler in grade school, the 75-year-old boss still looks and talks tough. These days, though, he wages his recreational combat virtually: Every night he signs on to Yahoo and plays three matches of go, the ancient strategy game. He says it’s how he stays mentally fit. “I’m a very aggressive player,” he declares.
Like chess, go is played on a board of squares. But that’s where the similarities end. In chess, a big mistake early will cost you the game. Go rewards the patient player. Failure is reversible. “You can lose a battle,” Kazuo says, “and still win the war.” Experts say it’s a game won on instinct, which is partly why computers have yet to master it. [Note: this was still true in 2003, when this article appeared.] Perhaps all this explains why Kazuo has built an organization that shuns consumer research the way real men once avoided quiche. “To keep competitors from grabbing our profits,” he says, “we have to make things that are uniquely Casio.”
Kazuo has instilled that attitude throughout his ranks. Jin Nakayama, manager of Casio’s digital camera unit, was in grade school when the calculator war was won. But 22 years at Casio has taught him to think like a Kashio: Nakayama did no market research before embarking on the project to build an ultrathin camera. “We don’t usually base new products on consumer surveys,” he says. “We draw on technology to show the market what’s possible.”
Indeed, when he introduced the Exilim S1 in June 2002, Nakayama skimped on the features that consumers generally deem most important in a digital camera. The S1’s resolution barely topped 1 megapixel, it had no optical zoom, and it retailed for 30,000 yen ($250) — about the same price as competitors’ loaded models.
But without surveys or focus groups, Nakayama had decided that if he could make a camera thin enough, people might switch from thinking about digicams as family items to thinking about them as personal gear. With suppliers of lenses and charged-couple devices working together to reduce space between those parts, he got his flat camera — just 11.3 millimeters, front to back. It was the first fully functional model that could slide easily into a pocket. (In Japanese ads, a scantily clad supermodel proclaims, “It becomes one with my body.”) “We changed the whole idea of a camera from something you carry on special occasions to something you carry all the time,” Nakayama says. A newer Exilim, with optical zoom and 3.2-megapixel resolution, debuted in April. Called the Z3, it has been Japan’s hottest-selling model this year.
Pride in Failure
Still, Nakayama acknowledges the downside to Casio’s approach. “We sure do fail a lot,” he says, almost with an air of pride. Often that means bringing products to market before their time, which is what happened with Casio’s first foray into digital cameras. In the mid-1990s, having failed to turn portable televisions into a growth industry, Casio found itself with excess capacity for building tiny liquid crystal displays (LCDs). To sell more of them, Nakayama’s group released the QV-10, the world’s first affordable digital camera, in 1995. Boasting 0.3-megapixel resolution and a street price of about $400, the QV-10 was, for several months, the only consumer digicam on the market. But in typical Casio fashion, Nakayama performed no consumer research before deciding to focus his marketing message on the then-geeky concept that you could transfer photos to your PC. Consumers found picture quality lacking, and Casio fell behind in the megapixel race that ensued. Chalk up another failure.
But at Casio, avoiding screwups isn’t a high priority. The Japanese expression kishikaisei means finding a way to thrive in the face of almost certain death. At every Casio operation I visit, there’s a kishikaisei story in which success rises from the ashes of some failed attempt to innovate. The portable TV flop, for example, led not only to the Exilim but also to Casio’s dominance in small LCDs: More than 40 percent of all digital cameras sold worldwide in 2003 contain a Casio display. In the early 1980s, manufacturing subsidiary Yamagata Casio failed for a year to turn out precision watch casings. “Any normal company would have given up on us,” says CEO Katsuhisa Sorita. Through its persistence, the plant developed technology that today allows Casio to assemble cell phones, a business worth $270 million a year.
I ask Yuichi Masuda, general manager of Casio’s watch division, if a few old-fashioned focus groups might have prevented not only the QV-10 digital camera disaster but also his own area’s recent duds, like the digital camera watch, the MP3 watch, and the GPS watch. He reacts as if I’ve suggested dipping sushi into ketchup. At the leading edge, he says, consumers can’t provide much guidance. “If you asked people 10 years ago if they needed e-mail, would they have said yes?” After all, in 1983 a Casio engineer designed a watch that would withstand a fall from atop a three-story building because that’s the way his own timepiece had shattered when he was a kid. The big and bulky G-Shock line — an odd newcomer to a market of flat faces — languished until 1991, when American skateboarders adopted it. It wasn’t long before Japanese kids were lining up outside stores for the latest G-Shock releases.
When Things Get Interesting
Like everyone else in his company, Kazuo Kashio sees the parallels between the calculator war and the battle over every hot product since. “You have lots of manufacturers, new models every six months, and everyone’s happy because the market is growing,” he says. “But when the growth stops, that’s when things get interesting.”
All companies, of course, face such “interesting” times. Industries mature, competition stiffens. A few players win, but most lose. At the moment of truth, there are those that do what everyone else is doing, and those that, like Casio, try to stand out. Both are risky: The former can lose to innovation, while the latter’s crazy idea might not sell.
Plenty of marketing textbooks can teach you how to act like the copycats. But if you find yourself staring at an engineer’s drawings of your own version of a calculator-cum-cigarette lighter, it might be reassuring to remember Kazuo’s words. “If those airport agents hadn’t ruined our trip to Sapporo,” he says, “we would have done a deal with regional distributors, and that would have been it. We never would have become a global company.” Nobody likes to mess up. But at Casio — and everywhere else — what looks like failure can sometimes be a step in the right direction.
[I originally published this article under my byline in the December 2003 issue of Business 2.0 Magazine. I’m reposting it here in appreciation of Kazuo Kashio, who died on June 18.]
