Winners / Selection Rationale

We define the industry as web magazines that target individuals (not business professionals in a specific industry). Web magazines are categorized by their contents, commentaries and reviews, culture and entertainment, or news.

The major strategic variables in the web magazine industry are: 1) the width of the target reader segment; 2) the degree of vertical integration; and 3) the source of income--subscription fees, the sale of advertising space, and online shopping.

There are three strategy groups. The first group tends to be less vertically integrated, incorporates both internally and externally developed contents, and sells advertisement space. The most popular web magazines (those that attract the most readers) belong to this group. Some industry players in this group also provide an online shopping function. The second group provides only the platform function. Such web magazines outsource content development, using consumer-generated contents in most cases. The third group, which uses only internally developed contents, is at the other extreme.

Tokyo Itoi Shigesato Office (hereafter, Itoi Office) runs a web magazine that has become very profitable by adopting a strategy that is a clear departure from the conventional strategy, which relies on advertisements. Nonetheless, it has achieved sales of 2.8 billion yen, with 48 employees.

Itoi Office runs the website "Hobo Nikkan Itoi Shimbun" (lit. Almost Daily Itoi News, hereafter, "Hobonichi"). Founder and editor-in-chief Shigesato Itoi, one of the most influential cultural figures in Japan today, is known for his copywriting, essays, lyrics, Nintendo game creation, and for the web magazine Hobonichi. (Today, his main activity is the operation of Hobonichi.)Hobonichi has been posting new articles every single day since its launch on June 6, 1998. Readers enjoy Itoi's essays on lifestyle topics, as well as interviews, reportage articles, and special features, on topics like "Today's Slops of the Tongue," a column based on readers' contributions and edited by Hobonichi staff. All the contents are generally on the theme of the enjoyment of everyday life. Hobonichi attracts 1.1 million visitors per month.

Hobonichi also produces lifestyle merchandise, which includes the popular Hobonichi Techo (a daily planner), Hobonichi knitted belly warmers, and the Japanese-style nabe hot pot series. These items are sold directly to consumers through the website.

Itoi Office's target customers are individual readers. It intentionally targets the entire spectrum of individuals, ranging from the young to the elderly, both men and women, because its value proposition is to appeal to the universal motivation of individuals, i.e., the enjoyment of everyday life.

Itoi Office offers the same value proposition through its merchandise, and that is to make each day a little bit more enjoyable. For example, the Hobonichi Techo daily planner is not only very easy to use but also helps to make each day more meaningful. For example: 1) it stays open so that users can pencil in information with only one hand--eliminating the need to hold the planner open with the other hand; 2) despite having one page for each day--460 pages in total--it is thin and fits nicely in one's pocket (the paper is thin, but the quality is good enough so that the writing does not show through to the other side of the page); 3) users can enjoy reading the "Quote of the Day"; and 4) it offers flexibility with regard to its use. It can be used as a diary, a photo album, or a scrap book, in addition to being used as a daily planner.

The pricing strategy for Itoi Office is to charge no price for its web magazine. The lifestyle merchandise that Itoi Office produces is relatively high-priced because these are high-value-added items, as exemplified by the Hobonichi Techo daily planner. The Hobonichi Techo daily planner is 3,500 yen, compared with similar planners that sell for 1,000 yen.

Contents planning and development
It views merchandise development as another route for content development. Thus, web contents development and merchandise development activities are well coordinated.

In order to enhance employees' intrinsic motivation, Itoi Office intentionally avoids formalities. So, for example, no sales targets or budget ceilings are set for individual projects or for individual groups. Itoi Office does not conduct periodic planning meetings and it does not have a specific target for the volume of new contents to be introduced. Except for Itoi's top-page column, which must be written everyday, there is no set schedule for the introduction of new contents. Basically, the contents development process starts when an employee comes up with an idea, or when a new idea is brought in from outside. Authorization is not required for starting a new project. Development meetings are held whenever necessary, and are conducted in a casual manner. Itoi Office will arrange a meeting with the editor-in-chief in order to explain a project, get his feedback, and develop the ideas together, but not to obtain his authorization. (Likewise, employees are not required to prepare formal presentations in order to get the editor-in-chief's approval to proceed with a project.)

At the same time, Itoi Office has identified the key factors for successful projects, and employees monitor each project to make sure that it has all three factors. These factors are "motivation, articulation and congregation." Successful projects have all three, and each factor has interaction with society. "Motivation" means that all the projects should start with a staff member's feelings about something of interest. The person may have been impressed by something, or made to feel uncomfortable. The staff member is then asked to elaborate those feelings and raise them to the universal level. "Articulation" means turning that "motivation" into a concrete form, such as an essay, webpage, or merchandise. "Congregation" means to create a situation in which customers can gather and enjoy the contents together.

Itoi Office also practices firm discipline in terms of the quality-side of contents development--it requires that the contents being developed must resonate with readers' "enjoyment of everyday life."Products or essays that appeal only to a niche segment will be rejected for the reason that it does not meet universal needs. The web contents and merchandise should appeal to a wide range of people.

The company does not conduct marketing research, but Itoi Office will always have employees adopt the viewpoint of the consumer. By sending an article draft or product idea to everyone in the entire organization, employees can get feedback from their colleagues, who adopt the viewpoint of the consumer. All employees directly receive all the feedback from consumers as well. Such feedback helps them to understand consumers' latent needs, which include the need for the enjoyment of everyday life.

Operation
Itoi Office fills orders for its online shopping service, but outsources manufacturing and inbound and outbound distribution. Online shopping merchandise is often made to order, and in such case Itoi Office does not carry the inventory.

Marketing and sales
Itoi Office relies on word of mouth to increase customer awareness. It talks about its original products in its web magazine, and it does not use any other advertising tools. It limits itself to sending emails to its readers only a few times a year.

After-sales service
All messages from readers are shared among Itoi Office's entire staff, so that everyone can understand the kinds of topics that are of interest to readers. Replies to customer inquiries and comments are handled by the individual or team to which the original comments were sent. Replies are also shared with all the employees.

Technology development
Itoi Office has developed its own style of editing and communication. It also has developed its own ICT system, customizing it to fit its unique activities.

Human resource management
Itoi's organization is structured around the question of whom to consult for advice and decisions. Within the organization, relatively stable groups have been established. These groups include: Key Products Project Teams, Hobonichi Desk, the Design Group, the Marketing Group, and the Support Group. Each employee has a choice of groups in which to participate. Only in the case of the Key Products Group does the company assign employees to a specific group. This, however, is the exception rather than the rule. Jobs are done through project teams that run across the groups, and each person is expected to join more than one project team. As a result, individual groups are effectively interconnected, in an organic way.

Each project is owned by a team of staff members who are interested in appealing to the same consumer motivations. A single team is responsible for the entire process, from beginning to end. The project leader is responsible for the quality of the contents. Project leaders, however, do not have the authority to give orders, nor are they responsible for evaluating the performance of team members. Their power is based on their commitment to motivating others, their ability to generate unique ideas, their ability to move the project ahead with the cooperation of others, and their willingness to take responsibility for the output.

Itoi Office creates an environment in which evaluation, motivation, and discipline are achieved by making each employee's contribution visible to customers and fellow employees. Information such as the number of hits to the website, sales figures, email messages and tweets from customers, as well as replies to customers are shared among employees on a real-time basis. Teams and other groups have weekly meetings to report their progress and discuss important issues. The minutes from a meeting are shared with the entire organization later on. In this way, each decision, the results of a particular action, and people's comments are shared with everyone in the organization.

Itoi Office encourages its entire workforce to adopt flexible working hours. It also encourages people to mix work and private matters. When schools are on summer break, at Itoi Office you can find the children of employees playing in the office, and some employees might be helping the children with their homework.

Before hiring new staff, the HR staff member holds meetings with employees from the groups that have placed a request for new employees to discuss and elaborate how the work will change in the future, and what kind of skills will be required.

Firm infrastructure
Although Itoi Office has an organizational structure arranged by function, it shares information among the different functional groups. The minutes from the weekly meetings of each functional group are shared with the entire company. Also, every Wednesday, all employees attend a company meeting, at which the CEO, Shigesato Itoi, shares his views on society, business, and the company's mission. He also discusses the value that a particular project is expected to create, shares his personal reflections, and gives an overview of business performance. The seating assignments for all employees companywide are changed three times a year, by means of lottery, to ensure that people belonging to different functional groups have the chance to sit beside each other.

At Itoi Office, activities are selected and coordinated around key strategic choices, namely, the development and provision of contents in an appropriate form to provide more enjoyment of everyday life on a daily basis; a focus on B-to-C business; the management of projects through the monitoring of "motivation, articulation, and congregation"; the fostering of long-term relationships with a large number of customers, and making these relationships based on trust; a flat organizational structure and a free-spirited corporate culture, but one in which all employees share the same vision. (Please refer to Tokyo Itoi Shigesato Office's activity system map, which appears at the end of this report.)

• It positions written contents (such as reviews and columns) and physical contents (such as merchandise) in the same category, called "contents."
• It conceptualizes its readers as neighbors who can freely come and go at their own will, and does not try to corral them. Itoi Office is trying to develop a long-term relationship with readers, one that is based on trust.

In naming its web magazine, Itoi Office decided to call it a newspaper. The company thought that its product was more like a newspaper than a magazine because of its text-based contents and its lack of segmentation. Itoi Office believed that the web magazine could eventually grow to include a broad range of business activities, which also made it seem more like a newspaper company than a magazine company. (In Japan, newspaper companies own baseball teams, host symposiums and other events.) This is how Itoi Office's web magazine came to be called "Hobo Nikkan Itoi Shimbun" (Almost Daily Itoi Newspaper) or "Hobonichi," in the style of a newspaper. The above-mentioned three elements have remained consistent over time.

However, unlike newspapers, Itoi Office does not charge a subscription fee, and it does not sell advertisement space. This has consistently been its policy from the beginning. When Mr. Itoi started Hobonichi, he wanted to communicate with consumers freely on issues that he personally enjoyed. The Internet, offering a platform that is free and fair, enabled the sharing of creative work with consumers. "Ideas that create and accelerate value should be the driver. But ideas easily become distorted for many reasons, such as for business reasons. In order to allow such ideas to be implemented, we are focusing on those activities for which we can make the final decision, as well as activities that we can enjoy." This thinking is what inspired Itoi Office to refrain from selling advertisements or charging subscription fees. The thinking also suggests its commitment to promoting "the enjoyment of everyday life."

When it started, Itoi Office did not know how to make the website financially sustainable. However, it focused on providing excellent contents and developing long-term relationships with readers based on trust, by treating them as neighbors. Almost 18 months after the launch of Hobonichi, in the summer of 1999, employees came up with the idea of selling the T-shirts they had developed as their company uniform. These T-shirts attracted far more orders than they had expected. This prompted them to develop other items, and merchandise became another type of contents, which Itoi Office sold to support its web magazine. The company has begun marketing such products as daily planners, knitted stomach bands, and Japanese-style nabe hot pots. However, it does not engage in sales promotion activities, as such activities are not consistent with the premise of treating its readers as neighbors.

• Does not sell website space for advertisements.
• Does not carry paid articles.
• Does not diversify into such business activities as the publishing of house magazines for other companies.
• Does not follow the news, the value of which depends on "newness," and Itoi Office does not take the initiative in creating value. Instead, employees focus on creating newness by identifying newness in old things or creating something new by themselves, rather than by reporting news that has originated somewhere else. It acknowledges that "newness" can be a source of happiness.
• Does not compete on price.
• Does not standardize the web page design, although standardized page design would allow Itoi Office to post new contents more easily without having to change the layout. It considers the web page design as a mean of expression.
• Does not outsource its ICT capabilities.
• Does not outsource call center activities.
• Does not provide group leaders with the authority to give orders, nor are they responsible for conducting performance evaluations for the other staff members in their group.
• Does not set a sales target for groups, and also does not give them a target for the number of visitors. In addition, the groups are not asked to set such targets themselves.
• Does not use real channels such as paper-based magazines and real stores under its own brand. (It sells "Hobonichi Techo" daily planners through real stores, but these stores are independent retailers, such as LOFT.)
• Does not try to corral customers by creating readers' communities or by encouraging off-site meetings among readers.
• Does not lead readers to the web magazine from other web sites.
• Does not send many emails to readers as a sales promotion activity for its merchandise.
• Does not pursue rapid expansion of readership if it would damage the value proposition.

Both return on invested capital and return on sales exceed the industry average by a wide margin.

Return on invested capital (ROIC)　　　(Unit = percentage point) Inter quartile range (IQR) = 4.6%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)　　　(Unit = percentage point) IQR = 2.1%P
Return on sales =Operating income / Net sales

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