The Japanese software industry is a paradox, at once highly productive
and yet unsuccessful. What does this contrast suggest? This paper pro
vides an analysis of the overall structure of the industry. Its user-d
riven nature, that is the role played by the large users of software a
s compared to the roles of independent software houses, is shown to be
an important factor. The paper demonstrates that when information tec
hnologies are introduced, sustaining shopfloor usability, rather than
stressing technological innovation, is Japan's most salient characteri
stic. The structure explains the fact that the Japanese software indus
try is characterized by a high degree of customized software and that
the efficiency gains can be obtained by software factories in several
of the large computer-related companies. However, the structure of the
Japanese software industry has inhibited the development of packaged
software and also the evolution of innovative independent software hou
ses. With the current trend in the computer industry towards down-sizi
ng and open systems, the structure of the Japanese software industry p
resents critical weaknesses.