Can Innovation Be Sparked in a Traditional Giant Industry?

This series follows Dentsu Inc. 'Company Design' team as they uncover the secrets behind vibrant companies possessing 'originality.' In the eighth installment, we delve into the unique approach of CADDi, a company driving innovation in Japan's largest industry: manufacturing.

Manufacturing accounts for roughly 20% of Japan's GDP. CADDi is tackling the deep-rooted challenges within this sector, striving to drive transformation. They approach innovation in this long-established, heavy industry by combining cutting-edge technology with a down-to-earth, human-centered approach. As the term DX (Digital Transformation) becomes widely accepted, the ideal coexistence of tech and human elements will likely become a challenge for all industries moving forward. We spoke with CEO Yushiro Kato to seek insights on this.

Written by: Ryo Seki (Dentsu Inc. 4CRP Bureau)

CADDi
"We propose business models by working backward from the ideal state," says Kato. "To achieve this, we treat digital as a means to an end." He continues to cheer on the skills and pride of craftsmen honed over time. The ideal that emerges from this is precisely the future CADDi envisions.

Innovation Stems from Steady Work

CEO Kato focused on the "subcontracting structure" in manufacturing, often likened to a pyramid. Large corporations place orders for individual parts, and the contracted companies then order the necessary components from subcontractors. Within this system, so-called "price squeezing" occurs. Contracts are sometimes awarded based on "longstanding relationships," meaning companies with superior technology might struggle to secure work no matter how hard they try. "That's unfair, isn't it?" CEO Kato states bluntly.

CADDi is tackling "procurement innovation." It creates a network of small factories with excellent technology and matches them with manufacturers. When a part's drawing data is uploaded, its proprietary automated quotation system presents "how much it can be made for" and "where it's best to order it." This not only dramatically reduces the human cost of procurement but also aims to enhance the efficiency and vitality of the entire manufacturing industry by enabling each small factory to receive the optimal work and optimal compensation aligned with their strengths.

Yushiro Kato
After graduating from the University of Tokyo, he joined the international consulting firm McKinsey & Company in 2014. He was promoted to Manager at the firm in 2016. He led projects supporting manufacturers in Japan, China, the US, the Netherlands, and other regions from multiple angles. He supported major manufacturers in heavy industry, large transport equipment, construction machinery, medical devices, and consumer goods with sales and procurement reforms, while spearheading the IoT/Industry 4.0 domain from its inception. To unlock the potential within the manufacturing sector, he founded Caddy in November 2017.

"I knew it was a bold proposal. But I was convinced that by understanding the reality on the ground, formulating hypotheses, and verifying each one step by step, we could definitely bring about transformation. It's not like Hideyoshi's overnight castle, but innovation can only come from steady, methodical work."

Unlocking the Potential of Manufacturing

CEO Kato repeatedly emphasized the phrase "unlocking manufacturing's potential." He stated that this single point encapsulates everything they aim to achieve.

"For example, imagine a chef working in a Chinese restaurant who is exceptionally skilled at slicing carrots. That skill isn't limited to Chinese cuisine. It should be highly valued in French or Japanese cuisine too. If we can match the right skills with the right place, we can fundamentally transform the manufacturing system," CEO Kato explained.

"And a company that excels at slicing carrots should specialize in that skill—they don't need to chop onions, which they're not good at. Because the more specialized you become, the easier it is for innovation to happen. That's how we transform the manufacturing industry into a flat structure based on strengths. That's what I mean by 'unlocking potential'."

Technology is merely a means

"What matters is achieving the goal of 'unlocking manufacturing potential.' If analog proves most effective for that, I'll always let go of digital."

One characteristic of CADDi is the "Whole Product" concept. CADDi engages not only in narrowly defined product manufacturing but also in the entire operation, including delivery responsibility, to solve business challenges. "In the sense that it enables centralized management of these, digital is a very effective means, but it is only a means. The digitization of manufacturing is not the goal."

CEO Kato during his time with the University of Tokyo Ice Hockey Club (third from left in the front row). This marked a sharp turn from his high school days, when he dreamed of becoming a professional musician. The dynamism of achieving victory through meticulous strategy and teamwork carried over into his subsequent entrepreneurial endeavors.

"Sincerity" as a Rational Solution

The word "sincerity" symbolizes CEO Kato's management philosophy. A calligraphic piece reading "sincerity" is reportedly displayed with care in his home. "While it certainly has a moral aspect, sincerity is more fundamentally a rational conclusion."

He identifies two elements shaping the negative aspects of the subcontracting structure: "distrust" and "buffers." "They'll just ask for a lower price anyway," "They'll demand faster production anyway" – this distrust on the receiving end of orders directly leads to buffers like "Let's quote a bit higher" or "Let's build in extra time." Within the subcontracting structure, when this distrust and buffering become interlinked, it ultimately creates significant losses and reduces the competitiveness of the entire manufacturing sector.

Breaking through this distrust and preventing unnecessary buffers is the spirit of sincerity. CADDi communicates from the outset to both small factories and manufacturers that it "does not engage in bargaining." Only after reaching this agreement does CADDi begin transactions. Then, while discussing future visions and setting common goals, work progresses. Cutting-edge technology and human trust. By balancing both, CADDi challenges the transformation of heavy industries.

Philosophy simplifies management

"I took a personality test once, and the result was that I'm a 'Reformer'. I'm the type motivated by achieving an ideal state."

While various management styles exist, CEO Kato aims for "philosophy-driven" management. He clearly articulates the desired ideal, shares it with his team, and makes its achievement the benchmark for all value judgments. He maintains a consistent philosophy across everything from business operations to personnel recruitment. "I believe everyone has their own outlook on life, so I don't force company loyalty on anyone. However, when the philosophy is shared within the team, decision-making speeds up and becomes more consistent. Management becomes easier. This is also a conclusion reached through logical reasoning."

CADDi's challenge continues toward achieving the shared goal of "unlocking the potential of the manufacturing industry" embraced by all employees.

The company name CADDi originates from CAD + Direct, signifying direct ordering using design data, and also from the golf caddy. We want to stand alongside our clients and provide the best solutions. The "C" formed by our employees' hands embodies this sincere attitude.

Season 2 of the Dentsu Inc. 'Company Design' team's series exploring the secrets of 'vibrant companies' with 'originality.' Episode 8 introduced CADDi, challenging manufacturing structural reform through DX power.

Season 1 of the series can be found here:
The "Company Design" project site is here:

[Editor's Note]

At the end of the interview, the editorial team posed one question to CEO Kato: "Mr. Kato, what are your thoughts on gambling?"

Management is a highly rational endeavor. You could even call it mathematical. It involves minimizing foreseeable risks as much as possible, eliminating all waste, and producing results in numerical form. What exactly are those results? Many executives might say, "Ultimately, it's about money." However, CEO Kato states that the goal is to create an ideal societal structure, and digital technology (or even money?) is merely a means to achieve that end. There is not a shred of logical inconsistency in this view.

On the other hand, I believe the element of "management = gambling" cannot be denied. Suppose there are two options, and no matter how much analysis is done, it becomes clear that neither choice is inherently superior. Time is not on your side. In such a situation, what is required is an "instinct as a gambler" that transcends logic, isn't it?

Even to such a tricky question, CEO Kato remained utterly composed. "I understand your intent perfectly. But I believe management and gambling are polar opposites. What matters is the accumulation of calm, individual judgments and their execution. If you must compare it to gambling, it's about consistently making the right bets. In that sense, things like sports or music might actually be closer to management." A formidable 29-year-old (at the time of the interview).