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Komatsu Presentation
Komatsu Ltd. faced declining demand in the construction industry in the late 1980s and early 1990s. Mr. Katada implemented Project G to focus on sustainability, diversification, and global expansion. Recommendations included short-term employee engagement, medium-term sustainability initiatives, and long-term efficient international facilities to mitigate risks and drive green growth. Focusing on sustainability through innovation, recycling, and renewable energy could help Komatsu address regulatory threats while improving operations and brand value.
Komatsu Presentation
- 1. Implementation of ProjectG at Komatsu Ltd. by Focusing on Sustainability Chad Moore, Sana Makkani, Jessi Keavney Brenau University
- 2. Background • Mr. Katadaintroduced a new bottom up leadership style in late 1980’s that fostered creativity • Project G: Growth, Global, Groupwide • New corporate slogan: “The Earth Company, Unlimited”
- 3. Facts History of AppreciatingYen - Source: Case Analysis Coach
- 4. Facts • Stagnating ConstructionIndustry: • The global unit demand for bulldozers dramatically decreased since 1987, with a % yearly change of -4% in 1989 and -18% in 1990 • Global demand for hydraulic excavators declined as well with a negative 3% yearly change in 1990 • In 1991, 63% of Komatsu’s sales came from construction equipment - Source: Case Analysis Coach
- 5. Facts - Source: CaseAnalysis Coach
- 6. What is theCore Problem for Komatsu in 1991? How does Mr. Katada mitigate risk while implementing Project G (growing globally and groupwide)? What should be his specific course of action short-term, medium-term, and long-term?
- 7. What are Komatsu’sSecondary Problems? How does Mr. Katada keep the momentum and motivation going with Komatsu’s employees? How does Mr. Katada integrate the international subsidiaries into Komatsu’s shared mission and vision? What should Komatsu focus on as an overriding and cohesive theme?
- 8. Constraints and LimitingFactors • Diminishing economy within construction industry • Limited capital • Scarce natural resources – price volatility on commodities and energy • Narrow time period to react to external pressures • Foreign exchange rate risk • Competitive risk • Supply chain risk • Regulatory threats • International tax laws • Geographic risk – vulnerable to natural disasters • Political threats
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- 10. Why is SustainabilityImportant for Komatsu? Sustainability is not just a fad. According to a study conducted by MIT’s Sloan School of Management, 28% of survey respondents believe that sustainability is a permanent and core strategic consideration and 42% say that it is on the agenda to stay (Brokaw, 2012). According to research in 2014 by McKinsey & Co., the value at stake related to sustainability challenges could be as high as 25-70% of EBITDA because of restrictions on license to operate, reputational harm, rising operation costs, and supply chain disruptions.
- 11. Why is SustainabilityImportant for Komatsu? • Mitigate regulatory threats and avoid costly penalties • Lessen political pressure from foreign governments • Reduce costs (recycled materials) and lower cost of capital (risk control) • Create goodwill and improve general public perception • Align with Japanese attitudes about environmental conservation • Differentiate Komatsu from it’s competitors and drive eco-friendly growth through new green product offerings
- 12. Recycling / WasteReduction • The construction industry produces a quarter of total waste each year, of which up to 13% is delivered and unused (Quinn, 2008). • Procurement - use recycled plastic and metal components • Manufacturing - Re-use water in production of steel with less stringent standards - does not have to be fresh, drinkable water; high efficiency lighting; cut stand-by electricity; use heat-insulating paint on roofs; eliminate wood-framed packaging by switching to steel reusable pallets • Office - Institute paperless business transactions • Logistics - minimize transportation cost and conserve fuel by locating factories near resources and concentrated near consumer markets
- 13. Noise Pollution • Improvequality of life and contribute to a more peaceful environment • Safety – reduce hearing loss of factory and on-site workers -Source: Komatsu
- 14. Emissions • The useof non-renewable energy contributes to climate change through the production of carbon dioxide emissions. • Environmental regulation compliance: proactively avoid costly fines and penalties
- 15. Renewable Energy • Windturbines • Water energy (hydropower) • Solar power • Types of Fuel - hybrid
- 16. How Does TechnologyFit Into Sustainability? • Technologically advanced construction equipment and systems can promote ease of use to the consumer. • Innovations can make construction more efficient, reduce noise and emissions, and provide alternate sources of renewable energy. • Technology in design of factories can help to reduce time and cost in manufacturing products.
- 17. Possible Solutions toKomatsu’s Problems Focusing on Sustainability 1. Diversify with separate divisions and stand alone product lines (technology, robotics, plastics, metals, energy, recycling) and concentrate on smaller, lighter equipment. • Minimize reliance solely on construction industry • Create vertical integration in the supply chain – maintain control over quality throughout entire process • Utilize transfer pricing models to reduce price fluctuations on supplies -Shinohara, 1989
- 18. Possible Solutions toKomatsu’s Problems Focusing on Sustainability 2. Expand globally by evaluating potential mergers, acquisitions, OEM agreements, and partnerships with companies that are currently experts in their respective industries. • Reduce exchange rate risk • Decrease transportation and freight costs • Minimize threat of natural disasters • Create synergy • Generate economies of scale
- 19. Possible Solutions toKomatsu’s Problems Focusing on Sustainability 3. Invest in research and development and expand marketing budgets to focus on green, innovative products. • Komatsu needs to be able to quickly and proactively adjust to changing global conditions and reduce the time to market for new, cutting edge products to become the leader in its industries • Conduct market analysis and surveys to determine the needs and wants of consumers • Technologically advanced and eco-friendly products can save money for both the company AND customers
- 20. Possible Solutions toKomatsu’s Problems Focusing on Sustainability 4. Set an appropriate tone at the top and capitalize on teamwork within Komatsu to generate innovative ideas and solutions that advance technology while conserving scarce resources. • Employees have sense of ownership, which improves morale • Collaboration will generate more ideas than top down initiatives • Encouraging brainstorm sessions at all levels and all departments within the organization will uncover hidden vulnerabilities • Accountability – tie performance appraisals to sustainability targets • Utilize Enterprise Risk Management techniques within small groups to intuitively rank risks according to probability and severity of consequences
- 21. Recommendations Short-term: • Ensure thatthe momentum of excitement is not lost by celebrating small victories throughout Komatsu • Continue to engage employees by forming cross-functional and multi- level committees to develop solutions for identified challenges • Bring together leaders from all international ventures to ensure teamwork across the entire company and to align everyone to the broad, shared growth mission • Encourage transparent communication and environmental awareness
- 22. Recommendations Medium-term: • Introduce sustainabilityproject initiatives: reduce noise pollution, waste, and emissions, focus on renewable energy, and prioritize recycling • Build R&D investment and utilize new technology to develop environmentally conscious product lines and parts • Capitalize on the increase in brand value by advertising sustainability efforts to consumers • Establish key sustainability metrics to monitor performance towards goals and form accountability while providing incentives to improve
- 23. Recommendations Long-term: • Plan constructionof new state-of-the-art and efficient plants and facilities in the most promising areas internationally, with consideration of the political environment, tax laws, environmental conservation, and closeness to available resources and consumers. • Vertically integrate the supply chain • Build worldwide dealer networks
- 24. Final Thoughts “For asolution to be truly sustainable and good it must have a positive return to the environment and society. At the heart of any design problem is a question: Are we trying to make something less bad or are we trying to make things better?...It’s not just about solving for the negative; It’s about creating a positive.” -Eric Wicks, 2009
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- 26. Acknowledgements • Professor Carol– for assigning the case study…we had fun! • Terry Rose - General Manager, Komatsu in Los Angeles, CA • Norm Gaddis – videographer • Michael Keavney – video editor • Jessi’s co-workers at Wayne Farms for starring as extras in our video • Our family and friends – for supporting us on our MBA journey Thanks for listening!
- 27. References Austin, R. (1997).Case Analysis Coach: Komatsu Ltd. and Project G (A). Boston, MA: Harvard Business Publishing. Bonini, S., Swartz, S. (2014). Profits with purpose: how organizing for sustainability can benefit the bottom line. McKinsey, 12. Brokaw, L. (2012). Five ways that sustainability commitment is up – drastically. MIT Sloan Management Review. Brundtland Commission. (1987). Our Common Future. Oxford University Press: Oxford. Imamura, K., Nakada, K., & Yabe, N. (2004). Research and development of low-noise bucket for construction machinery. Komatsu Technical Paper, 51(156), 2-3. Retrieved from http://www.komatsu.com/CompanyInfo/profile/report/pdf/156-02_E.pdf Ministry of the Environment. (2014). History and current state of waste management in Japan. Tokyo, Japan. Retrieved from http://www.env.go.jp/en/recycle/smcs/attach/hcswm.pdf Shinohara, I. (1989). Komatsu Ltd.: diversifying away from construction machinery. Tokyo Business Today, 47. Quinn, C. (2008). Key issues in sustainable construction. Constructing Excellence. Retrieved from http://constructingexcellence.org.uk/resources/key-issues-in-sustainable-construction/ Wicks, E. (2009, Dec 19). Solving better problems. The Daily Good. Retrieved from http://magazine.good.is/articles/solving-better-problems
Editor's Notes
- #2 Chad Introduce our Names We are Learning Team 1 Title of our Presentation
- #3 Chad We focused on just Katada’s era of leadership at Komatsu for the case study
- #4 Chad Yen appreciated from 360 yen per dollar in 1966 to 158 yen per dollar in 1990 and has appreciated as high as 121 yen per dollar in 1987
- #5 Chad Think about this: You pay $30000 for raw materials to build a bulldozer. With inflation of the Yen, those same raw materials now cost $60000. So to maintain profitability, where do you cut??? DO you raise the price $30000?? With the loss of sales, Can you reduce staffing by the amount of profits you are losing?? Do you cut R&D that could resolve these issues if full implemented>>
- #6 Chad Shows steady gradual increase in demand then the fall…..
- #7 Sana We identified the core problem for Komatsu as how does Mr. Katada mitigate risk and identifying his long, medium, and short term goals.
- #8 Sana Komatsu's secondary problems include Mr. Katada's ability to sustain the employees' excitement towards the new project and keeping them motivated towards the project. Also, incorporating the company's international subsidiaries into the company's core mission and vision could also prove to be challenging. And finally, identifying an overriding and cohesive theme for the company to focus on is also going to be an important step.
- #9 Sana Some limiting factors we identified are: Diminishing economy within the construction industry, leading to a stagnant demand for construction equipment. Komatsu also has limited capital to invest in its future investments, along with scarce natural resources.
- #10 Jessi *When people think of sustainability, they only think about environmental, health, and safety. *However, when we read about Katada making the new Corporate slogan, “The Earth Company, Unlimited”, it inspired us to think about sustainability as a core strategy for Komatsu. *Focusing on sustainability and using it as the overall cohesive theme in Katada’s Project G implementation can actually address a lot of their problems and we will detail those points a little later in the slides. *So, what exactly do we mean by the term “Sustainability”? *The Brundtland Commission defined sustainability as …. *This was in 1987, just prior to the end of our case study, and about the time when sustainability as a corporate initiative was starting to gain traction. *Also, it is important to recognize that Sustainability touches both the Planet and People as well as Profits.
- #11 Jessi
- #12 Jessi *The first one is obvious and what people normally think of first as a benefit of sustainability programs. Non-compliance can cost a lot of money…both in tangible fines and due to reputational harm. *The second one is important for the “global” part of the Project G plan. If Komatsu takes the environment seriously in foreign countries, their factories will be more welcomed overseas. *Next, sustainability projects can really impact bottom line profits. Recycling is another obvious one and that can reduce costs, but people less often realize that a sustainable company can procure lower cost of capital in investments if they are able to reduce their risks. The construction industry in particular has many environmental regulations and controlling this risk will help the company’s credit. *From a human resource perspective, sustainability is important for a couple different reasons and mainly concerning the “groupwide” portion of Project G… Employees want to work for companies that have the same ethics and values as they do. Also, Japan is a crowded and over-developed country with scarce natural resources so sustainability is growing as an important consideration especially for the younger generation. *Lastly, from a marketing perspective, focusing on sustainability contributes to the “growth” portion of Project G…
- #13 Chad With a Japan being an island nation of limited space, recycling and waste is a major issue. So by looking at ways to integrate waste back into useable commodities, Komatsu is cutting cost by as much as 10% in some areas to deliver a more sustainable bottom lin.
- #14 Sana The bucket of the hydraulic excavator is the noisiest component of the machine. The force and the vibration of the bucket crashing into the earth is what makes the most amount of noise. Researching methods and materials that can be used to reduce the amount of noise cause by the buckets will ensure worker safety and safety of the surrounding residents.
- #15 Jessi The health and economic toll of poor air quality is evident in lost working days, increased mortality, decreased productivity, damage to property, reduced agricultural output, and loss of tourism revenue. For these reasons, governments impose regulations that companies and individuals must follow regarding CO2 emissions. A focus on sustainability at Komatsu, by proactively designing innovative products with low emissions and limiting CO2 output at factories, will help Komatsu to stand out and be a leader in that regard.
- #16 Jessi You think of diesel fuel when you think of construction equipment. However, there are many other types of renewable sources of energy that Komatsu can explore for both factories and equipment in order to be sustainable.
- #17 Jessi Technology is “how” Komatsu can become a leader in the sustainability effort. Katada must build upon Komatsu’s technology resources in order to make the projects happen.
- #18 Chad Komatsu expanding on its global reach should focus on small industrial and commercial applications for machinery such as forklifts, electric pallet jacks, and smaller back hoes. In every midsize city around the world, you will find forklifts and other power industrial equipment. If you look at major retailer like Target, Kroger, or Walmart, they all have powered industrial equipment numbering in the thousands. Acquiring 25% of this market globally could be substantial to the bottom line of Komatsu.
- #19 Chad OEM - Original Equipment Manufacturer - when one company makes a part or subsystem that is used in another company's end product.
- #20 Sana Komatsu could evaluate using recycled plastic and metal in the procurement of materials. Another suggestion would be to partner up with a company that recycles plastic, and build a plastic recycling plant in Japan. Manufacture of materials requires large amounts of water, thus using water treated to less stringent standards will help conserve resources.
- #21 Sana Enterprise risk management techniques could be employed within small group to intuitively rank risks according to probability and severity of consequences.
- #22 Jessi Solutions are not necessarily mutually exclusive. Short-term, we recommend that Katada focus on the “groupwide” part of the Project G plan and these suggestions also address the secondary problems that we identified. A overall theme of “sustainability” will go along with the “the Earth Company, Unlimited” corporate slogan.
- #23 Jessi Medium-term, the focus is on the “growth” portion of Project G while emphasizing sustainability. Must tie everything together and keep up the momentum and visibility….performance metrics.
- #24 Jessi *Long-term, the focus is on the “global” part of Project G. *Komatsu could create vertical integration within its supply chain with separate divisions that encompass technology, robotics, plastics, metals, energy, and recycling. All of these businesses ultimately have ties to the manufacture of construction equipment and complement rather than compete with the core business. *Yet, as the economy shifts, these separate divisions could also produce stand-alone products in their own right. *Komatsu can also take advantage of vertical integration by utilizing transfer pricing models to reduce price fluctuations and stabilize the supply chain. *Another advantage of diversifying with technology, commodity material, and sustainable products is that Komatsu can retain control of quality throughout the entire process.
- #25 Jessi: A quote from Eric Wicks summarizes the reasoning behind our recommendation for Komatsu to emphasize sustainability when implementing Project G… We believe focusing on sustainability is the best strategic approach for Komatsu since it can inspire employees and optimize profitability while at the same time ultimately create a better world for generations to come.
- #26 Chad