Lucas Umbreit

The Strategic Managament (KAO Corporation)

Seminar paper

Document Nr. V197196http://www.grin.comISBN 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: Euro Business College Berlin

Submitted on: 10.04.2012

Words: 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:

x Effects of incrementalism, flexible strategy and democratic structure at Kao and the using of information and knowledge

x The current activities and chances compared to the case study x The Kao way and the CSR x 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:

x Group learning and information development x 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

1

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.

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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

Identifying

Diagnosing

Conceiving

Realizing

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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.

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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.

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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 Yoki-

Monozukuri 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

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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

7

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)

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1.3.2 Porters Five Forces

The Porter-Five-Forces-Analysis could be seen as a supplement to the PESTLE-

Analysis.

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)

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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

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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

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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

12

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.

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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

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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_2012/77036

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.uni-mannheim.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

(Europa-Global Insights, 2012)

18

Appendix 2

(Kao Corporation, 2012)

19

Appendix 3

(Kao Corporation, 2012)

20

Appendix 4

(Kao-

Sustainibiltity Report 2011, 2012)