Constructio Strategic Management

nManagem Design and Construction

entCIEN41 Group 5
35E

GROUP ASSIGNMENT: KOMATSU LTD.: PROJECT GS GLOBALIZATION

Due March 30

Instructions

Please read the Komatsu Ltd.: Project Gs Globalization Case.

After reading the case, please answer the questions on the following pages. To
encourage conciseness, I have indicated the space limits for each question, along
with the preferred format for answering the questions.

You should submit the written assignment before the class period, as this will help
us maximize the benefits of any in-class discussion.

Please also indicate your names below.

Group Member Names:

Group 5
Aishwarya Kondapalli
Yufei Zhao
Sisi Du
Luis Carlos Jesurum

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
Page 2 of 8
 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

I. How was Komatsu able to evolve from a $169 million company with low-quality products to
become a real challenge to Caterpillar by the early 1980s? How would you evaluate Mr.
Kawai's performance? (25 points)

Based on his fathers steps right after CAT announced its entry into the Japanese market, Kawai built on
his legacy by further implementing strategy aimed directly at leveling Komatsus product quality to those
of CATs. This involved acquiring and developing technology that allowed Komatsu to considerably
increase product quality, double its warranty period, all while lowering claim rates by two-thirds. By
rapidly implementing these managerial decisions, Komatsu retained and even increased its market share
to 65% by 1970. Kawais ability to quickly adapt to changing conditions also allowed Komatsu to ride
economic downturns effectively.

1. Strategy Formulation (9/10)

Kawai was able to set a common objective for the company, which demanded higher quality products and
services. This is what Kawai designated as management-by-policy system, in which all staff members can
fully understand what the company is aiming for in a specific period. For Kawai, it was imperative that
Komatsu increased or at least maintained market share when CAT entered the market. This set common
objectives and an eye on the prize.

2. Relevance of Strategy to Specific Market Needs (9/10)

Kawai was effective at adapting to market conditions. When a direct competitor entered the market,
Kawai set forth a series of policies that allowed Komatsu to adjust its products and services to the
competitions standards. During economic turbulence, Kawai implemented a cost down program aimed
at reducing costs while maintaining overall quality, and additionally, expanded Komatsu into international
markets to reduce its exposure to domestic sales.

3. Strategy Implementation (9/10)

Kawai effectively transmitted ideas and objectives to his employees. This was crucial in obtaining
common results. The timing of his policies was adequate to market conditions and through the creation of
management-by-policy, he could impose strategy in the form of a policy, which standardized procedures
and targets.

Overall, Kawai is responsible for Komatsus rise to stardom.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

II. Why did performance deteriorate so rapidly in the mid-1980s? What grade would you give to
Mr. Nogawas term as CEO? (25 points)

Answers:

In the mid-1980s, the performance of Komatsu deteriorated drastically due to two major reasons: falling
market condition and unsuccessful management strategy. In 1982, after Shoji Nogawa become the CEO,
the market for heavy equipment industry entered a period of dropping demand, global price war,
appreciating Japanese yen and trade frictions.
Facing dramatic market change, a good leader should lead his company to adjust to new environment and
seize new opportunity, which Nogawa failed. His lack of vision and management skills together with the
unoptimistic market, has brought crisis in Komatsu.

Evaluation:

1. Strategy formulation (5/10)

Nogawas strategy is usually formulated under public and political pressure. Nogawa was reluctant to
adapt and adjust to the new market. In the period that needs quick and active action, Nogawa react very
slowly. As the CEO of Komatsu, he should be more fearless and decisive with carrying out new strategies
and steering the companys aim.

2. Relevance of Strategy to the specific market needs (5/10)

Nogawas strategy has relevance to market condition, but it was way too conservative. Initially Nogawas
strategy is cutting cost and aggressively pricing, and then after pressure, he decided to expand overseas
market. His strategy should be more active and responsive to market needs.

3. Strategy implementation (5/10)

Nogawa didnt fully implement his strategy. He approved two important oversea plants, however he was
reluctant to embrace them fully into Komatsus strategy. This failure to implement new strategy had led
the company to lose many overseas opportunities.

Overall, he may be a very good engineer and manager, but not a competent CEO.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

III. How appropriately has Mr. Tanaka dealt with the problems he inherited? What is your
evaluation of his brief tenure as CEO? (25 points)

Answers:

When Masao Tanaka was named the CEO of the Komatsu, the company was truly in risk and had no time
to lose. The company needed a complete change. There were four main problems that Mr. Tanaka had to
deal with. They were demand falling, worldwide price wars, a rapidly appreciating yen, and heightened
trade frictions throughout the industry. But Mr. Tanaka dealt with most of them successfully.
His strategy for demand falling was not to carry out a price war but to reduce production, which would
lead a virtuous cycle to the market. The market indeed responded positively to Tanakas efforts. Though
the market share fell down a little, but the overall profits rose.
Tanaka also had an aggressive expansion plans overseas. Not only focused on internationalizing sales and
market exposure, but also aimed to establish autonomous bases with regional capabilities in
manufacturing, sales, and finance in the core international markets. This is a good way to face the
Japanese yen appreciation.
In response to an antidumping suit, the company began sourcing other companies in other countries like
Britain, Germany, and Italy. The company moved even bolder in the United States, entering into a joint
venture with an American oil services company. However, this policy was controversial.

Evaluation:

1. Strategy formulation (8/10)

Starting from a terrible condition, Mr. Tanaka led the company to get on the right track by giving some
successful strategies. His policies about the price way and production have been proved very correct.
What he has done saved the company successfully. But at the same time, some of his strategies were
controversial within the company, such as his pricing and sales policies and the joint venture policy. And
some of the achievements were related to Mr. Katada, the director for corporate planning. So, we give him
a not bad grade considering his predecessors and successors performance.

2. Relevance of strategy to the specific market needs (9/10)

Thats the part Mr. Tanaka did best of his brief tenure. He chose to reduce production instead of carrying
out a price war in the crisis era of domestic market. Though the market share fell down a little from 35%
to 31%, the overall profits rose. He kept the power of the company. At the same time, he opened the
oversea market though the yen kept appreciating, which was a good start for the company to become an
international manufacturer giant.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

3. Strategy Implementation (7/10)

The general orientation that Mr. Tanaka thought was right. But some of his policies was controversial
within the company. He saved the company but Tetsuya Mr. Katada did better. Mr. Tanaka was replaced
by the latter soon. He had no time to implement his following strategies.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

IV. How effectively has Mr. Mr. Katada taken charge? How do you assess his new vision for the company?
His new strategy? His new cultural and behavioral objectives? What grade would you give him for his
performance to date? (25 points)

Answers:

Mr. Tetsuya Katada took on the mantle of President in 1989 and did not inherit an easy situation, with
sales at levels of 7 years prior, and half the profits. Worldwide demand was up-and-down, with changing
demands for lighter equipment. As Mr. Katada saw the situation, Komatsus management is focused on
catching up with Caterpillar and it had stopped thinking of making strategic choices. Further, he was
concerned that the inflexible top-down approach that had become embedded at Komatsu has crushed the
spirit of enterprise among middle and front-line managers.
Mr. Katada moved away from the inherited culture, which he called bureaucratic, and instilled a spirit of
challenging enterprise. He pointed out that the international environment had become by this time a global
economy, requiring more international harmony. His own approach was inclusive and encouraged free
discussion. Mr. Katadas new vision was to radically depart from Komatsus traditional strategic maxims
and management directives: centralized production, total control over product development, whole
ownership of subsidiaries, and Japanese style management worldwide. His strategy enabled Komatsu to
think long term and more creatively than getting stuck with a closed target of beating one competitor.
His new strategy was called the Three Gs: Growth, Global, Groupwide. The long-term strategic plan,
Project G, was launched, with a focus on growth, by developing sales, and overseas production facilities,
and expansion into electronics, robotics, and plastics. His vision was, in short, to reinvent Komatsu as a
total technology enterprise, a globally integrated high-tech organization that integrates hardware and
software as systems, with 50% of sales in non-construction business. Under a new banner of Growth,
Global, Groupwide the Three Gs, Mr. Katada encouraged management at all levels to find new growth
opportunities through expanding geographically and leveraging competences. He pushed for
regionalizing production even during Tanakas tenure, reducing their yen exposure. He formed a 50% JV
with U.S. Dresser, which was controversial because some didnt see Dresser as a valuable addition with a
neglected product line, low quality and plants.
Mr. Katada will be playing a difficult balancing game of maintaining home (Tokyo) control as the rest of
Komatsu grows to meet his vision. He loosened the traditional company policy of whole ownership and
control over subsidiaries to allow flexibility and local participation. He focused not just on globalizing
Komatsus presence but also on localization efforts by extending the responsibilities of overseas firms and
banking on the skills and culture of the regional engineering teams which had a great impact on the local
morale. Though localization created some problems, the Japanese and western management practices
were converging, with each group learning from the other.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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 Constructio Strategic Management
nManagem Design and Construction
entCIEN41 Group 5
35E

Evaluation:

1. Strategy Formulation (10/10)

Mr. Katada took over Komatsu when the demand for worldwide construction equipment was down,
competition was up, and Komatsus profits were in steady decline. He replaced the companys strategic
intent to catch up with and beat Caterpillar with a broader objective of Growth, Global, Groupwide,
which was designed to liberate rather than constrain the organization. Mr. Katada's success became clear
quickly. Sales had been declining since 1982, but after Mr. Katada initiated the new business strategy,
sales began to climb again. Komatsu's non-construction business grew by 40 percent between 1989 and
1992.

2. Relevance of Strategy to Specific Market Needs (10/10)

Mr. Kawai had done very well for the market needs of his time. However, the market changed when Mr.
Katada became the president. Mr. Katada had rightly recognized the need of the day and changed
Komatsus strategy and vision and led it in the right direction to become a market leader.

3. Strategy Implementation (10/10)

Mr. Katada worked continually towards the implementation of his Project G. He believed in the power of
bottom up approach. He encouraged initiative from below and brought a direction to the company with
the inputs of all his managers. More than a strategy Komatsu had a corporate purpose, to which its
managers could commit and in which they had a voice.

We have evaluated each of the Komatsus employees based on three criteria (i) Strategy Formulation (placing the forces
before the action), (ii) Relevance of strategy to specific market needs, (iii) Strategy implementation (managing the forces
during the action)
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