Lucas Umbreit

The Strategic Managament (KAO Corporation)

Seminar paper

Document Nr. V197196 http://www.grin.com ISBN 978-3-656-23492-0

9 783656 234920

University of Sunderland

(Off Campus)

Strategic Management
Individual Assignment Case Study- KAO Corporation

Name:

Lucas Umbreit

University: Submitted on: Words:

Euro Business College Berlin 10.04.2012 3236

Executive Summary This report is going to investigate the Kao Corporation, the market leader of detergents and shampoos in Japan and a worldwide recognized cosmetics industry. The focus of the report is a case study Kao Corporation by Sumatra Ghoshal and Charlotte Butler who explain why Kao is such a interesting company. The report tells why Kao has become a pioneer in its industry and what makes Kao so special using different strategies. The first part of the report is going to identify the strategy formation process at Kao which is mostly affected by the principles of Dr. Yoshio Maruta. The reader will notice what the effects of Dr. Muratos leadership have been: Effects of incrementalism, flexible strategy and democratic structure at Kao and the using of information and knowledge The current activities and chances compared to the case study The Kao way and the CSR PESTLE Analysis and Porters Five Forces are going to clarify the industry factors which affect Kao The second part of the report tells the reader about the learning organisation at Kao and how it uses knowledge and information to be creative and innovative. The learning approach is most important at Kao and leads to a closer look to the following aspects: Group learning and information development The organisational structure and culture, values and beliefs and the leadership style of Kao The last part of this report is going to provide information on the success and ideas of Mr. Marutas leadership style. In order to answer this question the report explains todays achievement and the secret of success for Kaos business.

Table of Content Introduction ................................................................................................................. 1 Question 1 .................................................................................................................. 1 1.1 Strategy Formation Process at Kao ...................................................................... 1 1.1.1 Kaos Adaption of the Strategy Formation Process .................................... 2 1.1.2 The Incrementalist Approach ...................................................................... 2 1.1.3 The Democratic Culture .............................................................................. 3 1.1.4 The Informational Process .......................................................................... 3 1.1.5 Principles of Information Development ....................................................... 4 1.2 Current Activities at Kao.................................................................................... 5 1.2.1 The Kao Way .............................................................................................. 5 1.2.2 Corporate Social Responsibility and Management Systems ...................... 6 1.3 Industry Factors affecting Key Players and Cosmetics Industry ....................... 6 1.3.1 PESTLE Analysis ....................................................................................... 6 1.3.2 Porters Five Forces .................................................................................... 8 Question 2 .................................................................................................................. 9 2.1 Learning Organization at Kao ........................................................................... 9 2.1.1 Learning Features ...................................................................................... 9 2.1.2 Group Learning........................................................................................... 9 2.1.3 How Reading an Article is different to Kaos Approach ............................ 10 2.2 Building a Learning Organization .................................................................... 10 2.2.1 Know How due to Democratic Structures ................................................. 10 2.2.2 Values and Beliefs .................................................................................... 11 2.2.3 Kaos Leadership Styles ........................................................................... 11 Question 3 ................................................................................................................ 12 3.1 Secret of Success Genba-ism ...................................................................... 12 3.2 Effects on Advance for Kao ............................................................................. 13 3.3 Core Competencies due to Worldwide Synergies ........................................... 14 Conclusion ................................................................................................................ 14 List of References ..................................................................................................... 16 List of Appendices .................................................................................................... 17

List of Figures Figure 1:The main activities of a strategy formation process ...................................... 2 Figure 2 The Kao Way ................................................................................................ 5

List of Appendices Appendix 1 Cosmetics industry in the Japanese Market .......................................... 17 Appendix 2 Quality Management .............................................................................. 18 Appendix 3 Informational Development System ....................................................... 19 Appendix 4 Cosmetics of Kao Corperation 20

Introduction Kao is one of the largest companies in the cosmetics business. Furthermore Kao is Japans market leader in shampoos and detergents and has its hugest success in South East Asia. Kao has become more global in Europe and the US over the last 3 decades and has an essential market share in cosmetics worldwide. The secret of Kao is the strategy formation process and the learning organization which are the most important parts of the well working Kao Corporation. The company founded in 1887 also has a close customer relationship due to affordable prices of its products. This report is going to investigate why Kao is such a good example how learning through information can lead to success in business worldwide.

Question 1 1.1 Strategy Formation Process at Kao A strategy formation process is defined as: the process by which a realized strategy is formed (De Wit & Meyer, 2010, p. 108). In order to transfer the strategic intention into a perfect strategic result Kao needs four stages which are shown in the following figure.

Identifying

Realizing

Diagnosing

Conceiving

Figure 1: The main activities of a strategy formation process (De Wit & Meyer, 2010, p. 109) The deliberating strategy which could be used together with a planning perspective is normally the first choice of forming a strategy but Kao has adapted the emergent strategy (De Wit & Meyer, 2010, pp. 115-116). 1.1.1 Kaos Adaption of the Strategy Formation Process At Kao all stages go fluidly into another and the following report is going to investigate why. The vision of Mr. Maruta is: We aim to be the global group of companies that is closest to the consumers and customers in each market, earning the respect and trust of all stakeholders (Kao Corporation, 2012). Vital for the whole Kao Corporation is the mission, the values, the vision and the principles of the company. 1.1.2 The Incrementalist Approach In the strategy formation process the vision determines the purpose and identification of a company. The vision is significant for Kao and the strategy is an essential part of 2

the strategy formation process. The vision helps the whole team to focus on the important issues and to find the right solutions (De Wit & Meyer, 2004, p. 730). Kao develops its flexible strategy steadily and it is important to act as an incrementalist in order to achieve success in the strategy process due to this approach. Kaos strategy formation process is more open and flexible compared to other companies which have fixed strategies such as Colgate-Palmolive (De Wit & Meyer, 2010, pp. 123-125). Vital for the company are the demand for deliberate strategizing and the demand for strategy emergence. Flexibility learning and employees entrepreneurships are important characteristics of Kao (De Wit & Meyer, 2010, pp. 115-116). 1.1.3 The Democratic Culture Kaos culture is affected by an open and democratic style in which every person has the responsibility to identify problems in the organisation. Due to this aspect it is essential to share all information of threats and opportunities in order to develop ideas widely within the organization. 1.1.4 The Informational Process The informational process could be described as focusing on a problem in a constant and easy way which is also flat and intuitive. Kaos organization does not concentrate on analytical procedures or task transmission by managers in order to classify problems (De Wit & Meyer, 2010, pp. 179-181) it is more a flat approach of sharing information.

1.1.5 Principles of Information Development Every individual person who is affected or interested by an issue may work together with colleagues in order to solve issues. Hence, employees form groups (diagnosing) to develop new and innovative ideas or participants of an issue can meet formally or informally. (De Wit & Meyer, 2010, p. 136). Information and ideas which are developed by the employees at Kao are normally shared more widely in the organisation. Kao operates with the tataki-dai principle (conceiving) meaning it presents your ideas at 80 per cent of completion so that others can criticise and contribute to them before they become a proposal (De Wit & Meyer, 2004, p. 727). Ideas can grow strongly and enhance the quality in order to help creating zoawase a helpful perspective view at Kao. Managers can also be affected at this level to support and strength the plausibility of plans. In order to make the strategy a success all employees are included in the strategy formation process. (De Wit & Meyer, 2004, p. 726) Kao issue strategy is to develop ideas, proposals and plans which could support existing strategies. If the strategies develop at Kaos organization the knowledge and the wisdom can enlarge (realizing). In conclusion Kaos approach is on the one hand incrementalistic and on the other hand Kao develops a learning approach. Important is how Kao develops the strategy process with both approaches in order to support the decision and action part and furthermore to improve the knowledge and abilities in the company.

1.2 Current Activities at Kao The current activities of Kao depend on the attitude of the learning organization. In 2012 Kao still operates in four businesses including beauty care, human health care, fabric and home care and chemicals (Kao-Fields of Business, 2012). Especially the chemical business has been expanded worldwide by Kao due to the YokiMonozukuri meaning to provide excellent products globally. For the strategy formation process and all other business activities at Kao this belief is of highest importance as well as a guideline of doing business (Kao-Message, 2012) 1.2.1 The Kao Way The Kao principles mentioned before were renewed in The Kao way in 2004 and define the mission, vision, values and principles in order to develop a strategy to solve problems in the day-to-day and long term business (Kao-Kaoway, 2012). The adaption of a further approach of its strategy was necessary due to the increase of business in all terms and acquisitions of other companies such as Molton Ltd. and Kanebo Cosmetics in China. In order to transfer the Kao strategy to these companies the Kao way has been essential for a good integration (Kao- History, 2012).

(Kao Corporation, 2012) Figure 2: The Kao Way 5

1.2.2 Corporate Social Responsibility and Management Systems Nowadays Kao still concentrates on Corporate Social Responsibilities and steadily develops new ideas in order to achieve success in global operations, ecology and human development. The employees can work worldwide together due to the Business Conduct Guidelines (BCG) which are introduced in 2003 and can achieve a high solving rate of issues (Kao-Sustainibiltity Report 2011, 2012). At the moment the three largest competitors in Kaos business are Alticore Inc., Colgate and Palmolive and Johnson & Johnson (Hoovers, 2012). Due to the strong competition in the market Kao has developed the Matrix Management System which should enhance the development of group synergies and encourages business units to work together. The knowledge and wisdom can be shared by the whole group to obtain a competitive advantage (Kao-Group Synergy, 2012).

1.3 Industry Factors affecting Key Players and Cosmetics Industry The best methods to explain how industry factors affecting Kao and the cosmetics industry are the PESTLE- Analysis and the Porter-Five-Forces-Analysis (De Wit & Meyer, 2010, pp. 430-431). 1.3.1 PESTLE Analysis Political and Economical In the cosmetics industry the government can set high standards for products such as skin cream or fragrances. Especially governments affect the industry by using safety regulation and these can be varied from country to country. For Kao it is vital to know the regulations in Japan, countries within the EU and the US market. Kao 6

needs to audit products when it exports in the EU due to the prohibition of ingredients in products that could be allowed in Japan or the USA. The fastest growing sector skin care affects the industry as well as the income distribution and disposable income per capita. Economic factors like varied labour costs are essential in order to produce cheaper for instance in Japan up to 25 per cent cheaper compared to Europe. (Europa-Global Insights, 2012) Social and Technological Nowadays the industry is affected by varied unique trends of buying products. The concerns about skin cancer or other diseases which can be caused by cosmetics are growing. The purchasing of antiaging products grows more and more due to the demographic change in the society. The cosmetic sector specialises more in men products today as 10 years ago and the diversification of products still increases. There are also technological breakthroughs such as self-tanning creams which affects the sector as well as the social behaviour of purchasing premium brands at low prices. (Europa-Global Insights, 2012) Legal and Ecological Patents are essential in the cosmetics industry and especially the USA, Japan and Germany have received more than other countries due to the strong and large domestic market. Enhanced ecological regulations were established and had an effect on the price level of varied products. (University of Mannheim, 2012)

1.3.2 Porters Five Forces The Porter-Five-Forces-Analysis could be seen as a supplement to the PESTLEAnalysis. Incumbent Rivals Nowadays cosmetics companies introduce new business lines and expand product ranges in order to achieve success in customer loyalty (University of Mannheim, 2012). Substitutes & Complementors and Suppliers Natural cosmetics are booming on the US market and EU at the moment and Kao and its competitors could export more of these product lines to diverse markets (Cosmetics Business, 2012). New Entrants and Buyers An increased number of pharmaceutical companies push in the cosmetics industry and offer services such as beauty surgeries with Botox. Also small and medium sized companies for instance The Body Shop are growing in the market and increase their market share strongly. At the moment buyers are purchasing increased numbers of products via internet and are not going to the traditional retail shop. This could also lead to lower prices due to decreased labour costs for cosmetic companies (Europa-Global Insights, 2012). For Kao it is important to obtain a competitive advantage in cosmetics. The exports of cosmetics are growing slower than the average exports at 9 per cent in Japan. Cash cows such as hair and skin care have to be developed more at Kao. Following appendix 1 shows details of cosmetics in Japan. (University of Mannheim, 2012) 8

Question 2 2.1 Learning Organization at Kao Team learning is the process of increasing individual and collective capacity to take effective action / to create the desired future of the team (Websweare, 2012) According to Kao learning is simply defined as receiving a better understanding of the truth. Especially the following features describe the essential parts of organisational learning. 2.1.1 Learning Features This includes the continual, collective and intuitive feature which can deliver facts on how Kao is learning. One important part at Kao is that the company is not simply learning, the company learns how to learn in order to be innovative and more competitive (De Wit & Meyer, 2004, p. 721). The learning process at Kao leads to achieving future aims. 2.1.2 Group Learning At Kao learning is a group activity and not a task for an individual person. Developing business ideas and learning in order to solve problems could be done in open group discussions since Kao has perfect conditions on different floors. Kao expects that every employee within the organisation needs to participate in the learning process. The helpful manner for learning is important in order to support the whole group with information rather than share information just with a single person (De Wit & Meyer, 2010, pp. 494-496). Kangyo ichijo is an intuitive approach and most of the employees learn by doing or discussing in a group, in a formal or informal way. With help of the leading personnel the transfer of all information and knowledge can be

done better. Supporting the progress of implicit knowledge instead of the attainment of formalised knowledge makes Kao a good learning organisation. 2.1.3 How Reading an Article is different to Kaos Approach A person who reads an article differs in all of the parts that I mentioned. One can describe reading as an incidental learning approach not as continual. Reading is also an individual action and has nothing to do with the collective learning approach at Kao. Reading can be a formalised learning like e.g. students at university do most of the time an organisational learning. Reading has ingredients of learning as a process but Kaos learning is defined on other approaches, especially as an organisation. 2.2 Building a Learning Organization Kao has introduced some important features to build a learning organisation. The mission statement is most important because the company believes firmly in the weight of learning. At Kao which is a school everyone is a potential teacher and every person is a student of truth and pursuits for a better understanding because learning, information and knowledge are the vital sources of competitive advantages. 2.2.1 Know How due to Democratic Structures The organisational culture shows the importance of information and Know How through learning and Kao believes it is essential that the company is defined by principles like equality, openness and initiative (De Wit & Meyer, 2010, pp. 510-511). Collectivistic, open, modern and democratic could be a good description of Kaos approach in which people discuss matters equally. The free sharing and the access to all information such as open discussions is a perfect example of openness at Kao. The participation of all employees and every department as a learning organisation is 10

important to help learning through mutual assistance. Kao also needs individual power in order to develop innovative and competitive ideas. Furthermore a degree of autonomy is important for individuals to achieve the most innovative ideas. All in all learning is not just adopting previous facts and act because past actions could be todays obsolete dogma. Moreover Kao thinks about the past activities and adopt useful aspects in order to achieve success in future. The democratic structure which helps Kao with the learning process and the sharing of information one can see in appendix 2. 2.2.2 Values and Beliefs In conclusion Kaos values and beliefs in learning as an organisation are very strong. The culture at Kao includes a variety of elements such as organisational structure which is very flat and designed by just a little hierarchy. Hence, the company can act as a biological self control with the aspects of openness and equality. The information systems have been developed since the beginning of the Kao Corporation and contain the Logistic Information Systems, the Market Intelligence System and Research and Development conferences (De Wit & Meyer, 2004, pp. 724-728). A good working informational system one can find in appendix 3. 2.2.3 Kaos Leadership Styles Every employee has a free and unlimited access to all information systems at Kao. Kaos learning organisation includes a good approach of leadership. The leader is a designer, a teacher and a steward at the same time. A Leader as a designer has the duty to build a social infrastructure in order to build an atmosphere of a learning organisation. As a teacher every employee and leader needs to be a coach and provide ideas for the development of information. In order to serve, connect and

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motivate people within the organisation a teacher needs to be steward as well (De Wit & Meyer, 2010, pp. 513-514).

Question 3 The important vision of Dr. Maruta was to mature by there own company and not copy any competitor. As a company, we do not spend our time chasing after rivals. Rather by mastering our knowledge, wisdom and ingenuity to understand how to supply the consumer with surprise products, we free ourselves of the need to care about the move of our competitors (De Wit & Meyer, 2004, pp. 729-730). 3.1 Secret of Success Genba-ism The objective of him was the transformation of Kao into a learning institution such as a university where everybody needs to learn. In this case learning from customers desires was of highest importance in order to produce a product which provides the needs of them. Learning within the organization and from customers was the secret of the success for Kao. He introduced perfectly principles for the company for instance Genba-ism and the mentioned tataki-dai to help the learning process. At Kao, "Genba-ism" defines the importance of observing things "on-site", in the actual location and environment, both internally and externally, in order to maximize our understanding of the business and optimize our performance (Kao Corp. - The Kao Way, 2012). The Genba-ism is separated in three different Genbas which have the function to help understanding: 1. Understand the costumer Genba: through visiting sites, experiencing and understanding customer behaviours. 12

2. Unification

through

Knowing

Genba:

increasing

the

organizational

potentials and encouraging unification in the Kao group through sharing experiences, and understanding among the operational part. 3. Inspiration from Genba: looking for for inspiration and new ideas in order to innovate products, brands and business processes. The tataki-dai principle worked as I mentioned before with the following conception that an employee had an idea with an 80 % completion and colleagues can critic and develop this idea in order to make the best decision. 3.2 Effects on Advance for Kao All this principles of a learning organization and the company structure which were affected by Mr. Maruta have been paid off in the last decades. The businesses have been expanded dramatically in Europe and North America. In order to advance its revenue and profit Kao introduced household, laundry and industrial products. However, the largest success for Kao was the introduction of the Sofina cosmetics. Kao learning about the western culture increased dramatically due to its joint ventures with Nivea, Colgate-Palmolive or Beiersdorf. After the glory era of Mr. Maruta the company has strengthen and developed its operations worldwide and this could not be happened through the learning principle introduced by Mr. Maruta. The expansion to China and Vietnam in the 1990s and 2000s as one of the first companies increased the success of Kao. Nowadays the company is more attracted by the consumer product business and the chemical business. The three sectors of consumer product business include beauty care, human health care and fabric and home care (see Appendix 4).

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3.3 Core Competencies due to Worldwide Synergies Kao has always used the core competencies that its learned through joint ventures such Colgate-Palmolive, John Frieda (hair products) and Molton Brown (luxury cosmetics). Due to the use of core competencies Kao has become to a global player in cosmetics. The following quote is highly important for using this business strategy in order to achieve success. ...The harmony among people, products and world -wide operations is the most important philosophy to keep in mind (De Wit & Meyer, 2004, p. 737). Nowadays the value of this statement is still recognisable due to the worldwide synergy and branches within the company uses the learning from each other approach to develop excellent products (Kao Corporation, 2012) All principles of Kao still have weight in the corporation and in todays business. Other companies use the principles in order to support the top management but Mr. Maruta liked the vision of stimulation of creativity and innovation at all levels. The vision has made Kao worldwide successful and could be do it in the future as well. Mr. Maruta introduced principles and values which will still be relevant in futures business.

Conclusion Kao is a perfect company where competitive advantages belonging to the usage of information. Due to the free flow of information through the company and the concept of a learning organization with a flat structure, strategy developments and information systems Kao shows that learning is essential and a never ending process. Kaos 14

strategy can be described as incremental, flexible and informal which helps the company to further internationalisation and higher learning ability. The most important aspect is how Kao can learn to continue the learning process at the company in the future and is going to react to unique circumstances.

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List of References Cosmetics Business. (2012). Retrieved 03 30, 2012, from http://www.cosmeticsbusiness.com/market_reports/article_page/Mens_Lines_2012/7 7036 De Wit, B., & Meyer, R. (2004). Strategy Process, Content, Context- An International Perspective (3. Edition ed.). Andover: South Western Cengage Learning. De Wit, B., & Meyer, R. (2010). Strategy Process, Content, Context- An International Perspective (4. Edition ed.). Andover: South Western Cengage Learning. Europa-Global Insights. (2012). Retrieved 3 22, 2012, from http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=4561 Hoovers. (2012). Retrieved 03 30, 2012, from www.hoovers.com/company/Kao_Corporation/ctstsi-1-1njht4-1njhu5.html Kao Corp. - The Kao Way. (2012). The Kao Way. Retrieved March 25, 2012, from http://www.kao.com/jp/en/corp_about/kaoway_03.html Kao Corporation. (2012). Retrieved 3 22, 2012, from http://www.kao.com/group/en/group/kaoway_01.html Kao- History. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group/history_00.html Kao-Fields of Business. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group/business.html Kao-Group Synergy. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group/synergy.html Kao-Kaoway. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group/kaoway.html Kao-Message. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group/message.html Kao-Sustainibiltity Report 2011. (2012). Retrieved 03 30, 2012, from http://www.kao.com/group/en/group_imgs/group/sustainability2011_de_all.pdf The Economist. (2011). Retrieved 03 28, 2012, from http://www.economist.com/node/21542808 University of Mannheim. (2012). Retrieved 03 20, 2012, from http://edz.bib.unimannheim.de/daten/edz-h/gdb/07/study_eu_cosmetics_industry.pdf Websweare. (2012). Retrieved 04 07, 2012, from www.websweare.com

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List of Appendices Appendix 1

(EuropaGlobal Insights, 2012)

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Appendix 2

(Kao Corporation, 2012)

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Appendix 3

(Kao Corporation, 2012)

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Appendix 4

(KaoSustainibiltity Report 2011, 2012)

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