Change Management: The Komatsu Case

Organizations are in cease slight interactions with their purlieus. A modification in the environment will subsequently cause a change in the organization that interacts with it. This change can be positive or negative, and in some(prenominal) cases, it alters the organizations status on many different levels. Dealing with this change on all the levels is a thrum wind factor in minimizing disruptions to the organizations functioning and growth. In other words, change trouble is a managerial and organizational process that realigns an organizations strategy, structure and process in pro-action or reaction to chaos in the environment (Worthy et. al., 1996, p. 16). The process of change focusing, and how it influences an organizations strategy and management, is analyzed herewith in mise en scene of the Komatsu company.Brief HistoryKomatsu Iron Works was a subsidiary of Takeuchi Mining Industry, manufacturing industrial tools for the parent company. In 1921, the founder of the company, Mr. Takeuchi, incorporate Komatsu Ltd. as an independent company. Komatsu originally manufactured mining equipment, but started making agricultural equipment such as tractors by 1931. During the second world war, it was an important manufacturer of tanks, bulldozers, and other heavy machinery. Post-war, Komatsu began focusing on the realm moving equipment (EME market). In the 1950s, the companys machinery was in demand because of the ongoing postwar construction in Japan. Although its customer base was strong at that time, Komatsu did non command a significant market share, and the prize of its machines was inadequate. This was a major factor in customer dissatisfaction, however, the Japanese manufacturers operated in a protected environment at that time, with no significant foreign competitors.In 1963, the Japanese Ministry of Trade allowed the entry of foreign EME manufacturers in Japan. This signaled a complete change in Komatsus market environment. Now the competit ion extended to foreign counterparts, most of whom had long been established as market leaders in the EME category. The following sections discuss Komatsus strategies for managing these challenges, and how they dealt with change in the process.CompetitionMajor heavy machinery manufacturers like true cat, J.I. reference, Fiat-Ellis and John Deere were all technologically more advanced than Komatsu, and had widespread trader networks and manufacturing bases. The most formidable competitor in the EME segment was quat, the worlds largest manufacturer of heavy machinery. computed tomographys equipment was much more sophisticated and of a higher quality, and its distributor and dealer network was in truth solid. Komatsu realized then that it was imperative for the company to upgrade its products and operations, in ordain to survive the competition.The company was headed at the time by Yashinari Kawai, who recognized the urgent bring to revamp the companys product quality, both tech nically and functionally. In rear to bring Komatsu products up to date, the company signed licensing arrangements with two major EME manufacturers, world-wide Harvester and Bucyrus Erie. This gave Komatsu the opportunity to improve the equipment quality for the agricultural and the industrial sector.In addition, Kawai implemented the Japanese concept of TQC (Total quality Control), which led to a huge improvement in the performance, reliability, and durability of the equipment. This was one of the major change management challenges that Kawai handled successfully. Kawai realized that in order to change the customers perception of Komatsu products, it was branch necessary to change the employees own tidy sum of the kind of products that the company made.Changing the mindset of every employee and incorporating the philosophy of uncompromised quality at every level in the company required a strong, skillful leader. Kawai manouvered this change implementation by open communication, reward, and most importantly, backdrop an example for all employees by involving everyone from the top management to the shopfloor workers, in this endeavor. When Komatsu was awarded the Deming Prize for quality control retributory 3 years later, it served as a huge morale booster for the company.Another major change euphony implemented at this time was pop the question A. In the first phase of this project, the employees were instructed to ignore be and contract solely on achieving the best possible quality for their equipment. Once this goal was achieved, the second phase of couch A was implemented, focusing on cost reduction. Each and every aspect of design and manufacturing was closely scrutinized, checking for bottlenecks and wastage of resources.This resulted in a lean, finely-tuned manufacturing process, that complemented the high quality of Komatsus equipment. From 1965 to 1970, the companys domestic help market share grew from 50% to 65%, despite the presence of Mit subishi-Caterpillar. According to Kawai, this feat was achieved largely due to the employee morale and drive at Komatsu. In his words, the prevailing atmosphere was that of a crisis, resulting in a spirit of unity between the management and the staff. This company-wide presence of a common goal took precedence over management and labor issues, and resulted in highly successful change management.Komatsu had implemented a two-pronged strategy to achieve success vertical consolidation and TQC. Vertical integration meant that the entire line of business had to be perfectly aligned and free of defects, estimable from the bottom. To ensure this, they started with quality raw materials. The second aspect was TQC incorporating the philosophy of quality control everywhere and inside everyone in the company. Komatsu also extended the TQC strategy to its franchises, encouraging them to implement the system. This strategy of tackling the problem at the radical and improvising upon it was t he key to strong growth, and enabled Komatsu to offer formidable competition to Caterpillar accomplishing what other companies such as J.I. Case and John Deere could not.Business EnvironmentFrom the time Komatsu started implementing change, the business environment was constantly shifting, in terms of demand, cost good, and regulations. By mid-1970s, the domestic market for EME was stagnating, with Komatsu having 60% of the market, and the Mitsubishi-Caterpillar partnership having 30%. Growth was slowing down in the less essential countries too. Komatsus management responded by geting the V 10 plan, aiming to reduce costs by 10% while improving quality. In 1976, an unexpected event in the financial markets caused further concern. The Japanese pine away was appreciating rapidly against the dollar, rising from 293 in 1976 to 240 in 1977. To cushion the companys exports, Komatsus management followed an upcountry exchange rate of 180 yen to the dollar. This ensured that Komatsus c osts and pricing were well-adjusted to the market conditions, and their exports did not suffer. Komatsus policy of anticipating change and fortifying the company against any adverse effects again worked to its advantage.Problems faced by KomatsuExporting their equipment to other countries had always been a part of Komatsus vision. This goal constituted the companys Project B. With their improved and technically capable equipment, by 1970 Kawai was eager to launch major international operations for the company. However, in that respect were considerable barriers to this end Komatsus limited international recognition and dealer base, fierce competition, and legal regulations.The engineering license that it had obtained from International Harvester and Bucyrus Erie had imposed export restrictions on them. Komatsu recognized this as an impediment, and established its R&D laboratory in 1966. But there were still significant requirements for establishing an international market presence . Caterpillar, for example, had its dealership centers across the globe, some of which were exclusive dealerships. This made it difficult for Komatsu, with its relatively limited product line and manufacturing base, to make the required dealer network. In order to overcome this obstacle, Komatsu priced its products 30 to 40 percent below Caterpillars. This allowed them to get the intial foothold in the international markets. Komatsu also benefited from the increased demand for construction machinery in less developed countres in Asia and Mexico, and in Saudi Arabia.In the 1970s, Komatsu had also started expanding its product line. Ryoichi Kawai, now the president of Komatsu, made peculiar(prenominal) efforts to build and develop international client and dealer transactionhips. He also instructed managers to regularly visit customers, and get first hand information on their requirements and issues. Keeping abreast of technological changes and being one of the first to adopt and in corporate new technology in its equipment was a key factor to success.Komatsu incorporated electronic technology into all its machinery, creating differentiated, high quality products. In 1979, the worldwide construction industry was at a low. To combat the depressed economy, Komatsus management launched the F and F or Future and Frontiers program, formulated to develop new products and new businesses. Once again, a companywide buzz was created, and suggestions were welcomed from every level within the company. These suggestions resulted in the drudgery of diverse new products such as arc-welding robots and an excavating system for deep-sea sand.In the early 1980s, Komatsu objected to the export restrictions which still act to be imposed on it by Bucyrus Erie. Komatsu won this appeal and gained export rights from Bucyrus Erie. It also managed to free itself from the capital of New Hampshire with International Harvester, and gained full freedom to export its equipment worldwide. T his was a major milestone for Komatsu, and the company took full advantage of its established quality and dealerships. It also capitalized on the embargo that prevented Caterpillar from exporting to Russia in the early 1980s. In 1981, the Siberian Natural Resource Project was handed over entirely to Komatsu. In a absolutely while, Komatsu was expected to outperform Caterpillar in the Russian market.As their international customer base increased, so did the need for customized equipment for different countries, based on the type of work, environment, and legal regulations. Designing customized equipment for each customer separately was not cost effective. To counter this, the management adopted the policy of EPOCHS Efficient Production-Oriented Choice Specifications. The idea was to save costs by standardizing production modules for core projects along with the required number of parts, and adding different specifications as necessary.Around this time, the increasing commitment an d shipping costs, and Japans strained trade relations with the US and Europe were increasingly suitable a cause for concern. It was during this time that the US automakers opposed the import of Japanese cars in the market, and Komatsu was fearful that a confusable plea might be raised by Caterpillar and other heavy-machinery manufacturers. In order to curb these potential problems, Komatsu manufactured the core parts of its equipment in all its plants. This reduced the shipping oftenness as well as the freight costs. It also developed assembly bases in Brazil and Mexico, and was works on a joint suppose proposal with its dealer in Indonesia.Current Situation and OptionsThe case refers to the scenario in 1984, a period of recession around the world. The building and construction industry was also affected, with most players assuming some losses. The biggest source of concern for Komatsu, however, was Caterpillar. Caterpillar had experienced its third consecutive year of losses, and was in the midst of a major labor strike. Kawai knew that this was an opportunity to take over where Caterpillar faltered but it was also an meter reading of the increasingly difficult business environment. Witnessing a large, successful company like Caterpillar struggling to adjudge its position in the market, Kawai became concerned about Komatsu, and what it could do to avoid being in a similar situation.Komatsus options were centered around keeping a close watch on the market and on Caterpillar. Komatsu employees were in the habit of reading Caterpillars monthly news bulletins and press releases, in order to stay informed regarding their competitors activities and plans. Komatsu also realized the need to keep its labor enduringness functioning, and continue keeping the costs down. Their international operations also had to be strengthened at this time, capitalizing on Caterpillars compromised position. These options are evaluated in the following section.RecommendationsI n keeping with its established policy, Komatsu should place particular focus on anticipating change and devising measures to optimize the benefits while curbing the negative effects. To an extent, it was complacency that had cost Caterpillar the managers priority was on increasing the customer base without addressing customer value or employee needs. Therefore, managing labor relations is one of the most important issues for Komatsu. The workers at Komatsu earn significantly lesser than their counterparts at Caterpillar. However, this is offset by high employee morale and strong labor-management relations. Maintaining this status is extremely important for Komatsu, both in terms of employee productivity and controlling costs by minimizing overhead.The second recommendation for Komatsu would be to strengthen its international presence. With the capital that it has accumulated, Komatsu is in a position to either buy out a number of smaller competitors, or bring out a successful al ly. This would further consolidate Komatsus manufacturing operations and distributor channels. It should also continue its R&D efforts and product diversification plans, and stay ahead of the competition. If necessary, Komatsu can form a joint venture with a company to ease the manufacturing and operations of diversified products.ReferencesWorley, C.G., Hitchen, D.E., & Ross, W.L. (1996). Integrated strategic change How OD builds a competitive advantage. Reading, MA Addison-Wesley.