komatsu final paper

Running Head: KOMATSU AND SUSTAINABILITY 1

Implementation of Project G at Komatsu Ltd. by Focusing on Sustainability

Learning Team Members: C. Moore, S. Makkani, J. Keavney

Brenau University

Executive Summary

Mr. Katada sought to change the culture of the company as soon as he took charge of Komatsu.

His vision of Komatsu operating and succeeding at a global level meant a change in culture

within the company. He instilled a bottom up leadership style that would encourage creative

thinking and a collaborative brainstorming environment for managers from across the globe. He

sought to make Komatsu “The Earth Company, Unlimited” and rolled out Project G. The case

analysis focuses on the core problem of how does Mr. Katada mitigate risk while implementing

Project G, and what his specific course of action should be for short-term, medium-term, and

long-term. Secondary problems for Komatsu include sustaining excitement within the company,

and how Mr. Katada should integrate international subsidiaries into Komatsu’s overall shared

mission and vision. Some constraints that would limit Komatsu’s future vision would be limited

resources, along with foreign exchange risks, supply chain risks, environmental regulatory and

political threats, and complicated international tax laws. For short-term, Mr. Katada should

ensure that the excitement is not lost by the employees by celebrating small victories and by

KOMATSU AND SUSTAINABILITY 2

engaging employees by forming cross-functional and multi-vela committees. For medium-term,

Katana should introduce sustainability project initiatives such as reducing noise pollution, waste

management and emissions, focusing on renewable energy, and prioritizing recycling. Long-

term, he should plan construction of new state-of-the-art and efficient plants in strategic areas

globally.


Implementation of Project G at Komatsu Ltd. by Focusing on Sustainability

Summary of Background and Facts

During the late 1980’s and early 1990’s, Komatsu Ltd.’s president, Tetsuya Katada,

transformed the company’s vision and strategic mission. Despite his quiet nature, Mr. Katada

was a well-respected, confident leader and was unafraid to be honest with others and take bold

actions. He recognized that times had changed and he cannot simply rely on past strategies to

move Komatsu forward. The most successful companies are flexible to changing conditions and

Mr. Katada embodied this by focusing on diversification and growth while leveraging Komatsu’s

existing resources. Mr. Katada was able to lead Komatsu in new directions by inviting

participation and open communication at all levels within the organization. Changing the culture

from within helped to motivate and inspire employees. Mr. Katada’s vision was integrated into

all processes, but the difference was that it was more abstract and less structured so that it would

foster creativity.

Building upon Komatsu’s changing structure and direction, the new corporate slogan

became “The Earth Company, Unlimited” and Mr. Katada championed a new plan called Project

G, which stood for Growth, Global, Groupwide (Austin, 1997). Katada had a radical vision for a

wide range of new technologically advanced products including in such areas as electronics,

robotics, and plastics. He recognized the potential of all employees to contribute great things.

This less condescending approach to management allowed everyone to take ownership and share

in the success of the company.

Despite the growing excitement within the company, Komatsu was faced with large

obstacles to overcome and uncertainty about the future. In Japan, yen appreciated from 360 yen

per dollar in 1966 to 158 yen per dollar in 1990 and appreciated as high as 121 yen per dollar in


1987 (Austin, 1997). In addition, the company could no longer rely on the domestic construction

equipment industry to survive. 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. Yet, in 1991,

63% of Komatsu’s sales came from construction equipment (Austin, 1997). Clearly, Katada

recognized that something had to change.

Statement of Core Problem

Mr. Katada effectively laid the framework for Komatsu to go in new directions by inviting

participation and open communication at all levels within the organization. However, given Komatsu’s

state of the construction industry, the core issue for the case analysis is how does Mr. Komatsu 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?

Secondary Problems

Secondary problems for Komatsu include: how does Mr. Katada sustain the internal

excitement within the company, what should Mr. Katada focus on as an overriding and cohesive

theme, and how does he integrate the international subsidiaries into Komatsu’s overall shared

mission and vision? These are relevant questions that must be resolved because if the global

employees are not motivated, the momentum will slow and Komatsu will not be successful in the

future.

Constraints and Limiting Factors

Komatsu Ltd. is faced with numerous constraints and limiting factors that ultimately

influence the direction that the leaders take. Radical change most often requires a large

investment of time and money and like every other company, Komatsu does not have unlimited


resources to accomplish their goals. In order to competitive, the company must act quickly and

strategically before opportunities are missed. Some of the risks that the company face include

foreign exchange rate risk, diminishing economy within the construction industry, competitive

risk, supply chain risk, environmental regulatory threats, political threats, and complicated

international tax laws. Our world also has scarce natural resources, which leads to price

volatility on energy and other commodities and rising manufacturing costs. Geographically

vulnerable, Japan is faced with threats from natural disasters such as earthquakes and tsunamis as

well.

Alternative Solutions

Overall, Mr. Katada can help to mitigate risk while growing globally and groupwide by

instituting an over-riding theme of sustainability at all levels within the

organization. In general, the Brundtland Commission defined sustainability as simply

striving to meet the needs of the present without compromising the ability of future generations

to meet their own needs. Everything that Komatsu does impacts people, profit, and the planet

and this concept is at the core of sustainability. Products must be developed that are earth-

friendly while at the same time have a competitive cost in order to be profitable in the market.

Komatsu can accomplish this balance by utilizing technology as a means of increasing efficiency

and economy.

In addition, in order to minimize Komatsu’s reliance on solely the construction industry,

diversification is crucial. However, the company should not completely abandon its years of

experience and expertise developing construction equipment. Instead, 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.

While considering diversification and expanding on its global reach, Komatsu should

focus on small industrial and commercial applications for machinery such as forklifts, electric

pallet jacks, and back hoes. In every midsize city around the world, you will find forklifts and

other small powered industrial equipment. Major retailers like Target, Kroger, and Walmart all

have powered industrial equipment numbering in the thousands. Acquiring 25% of this market

globally could be substantial to the bottom line of Komatsu (Shinohara, 1989). The manufacture

and utilization of smaller, lighter equipment is also more earth-friendly than the large, heavy

equipment that Komatsu has historically produced.

Secondly, Komatsu could expand globally by evaluating potential mergers, acquisitions,

OEM agreements, and partnerships with companies that are currently experts in their respective

industries. If Komatsu entered into original equipment manufacturer (OEM) agreements, they

could make a part or subsystem that is used in another company’s end product, or vice versa.

Making it a priority to expand internationally will mitigate Komatsu’s foreign exchange rate risk

and reduce the threat from natural disasters since facilities are spread out. Also, another

advantage of global expansion would be to decrease transportation and warehousing costs and

conserve fuel since raw materials and final products could be strategically placed near resources

and concentrated near consumer markets. One of the biggest hopes when entering into


partnerships with other companies is that the combination will create synergy and economies of

scale.

In addition, another possible solution for Komatsu would be to invest in research and

development projects and expand marketing budgets to focus on green, innovative products. In

the past, Komatsu was too slow to adjust to changing conditions. Komatsu needs to be able to

quickly and proactively react to the global environment and reduce the time to market for new,

cutting edge products to become the leader in its industries. As part of this solution, Komatsu

could conduct market analysis and surveys to determine the needs and wants of consumers.

Some of the targets for Komatsu’s sustainability investments could include reducing

carbon dioxide emissions, lowering noise pollution, generating renewable energy, and instituting

recycling and waste management programs. According to Quinn in 2008, “the construction

industry produces a quarter of total waste each year of which up to 13% is delivered and

unused”. Komatsu could evaluate using recycled plastic and metal in the procurement of

materials and instituting paperless business transactions. Likewise, the manufacture of materials

such as steel requires a large amount of water. Instead of using clean, drinkable water, there is

no reason why many processes couldn’t use water treated to less stringent standards to conserve

resources. Other suggestions for waste reduction in manufacturing facilities include using high-

efficiency lighting, cutting stand-by electricity, utilizing heat-insulating paint on roofs, and

eliminating wood-framed packaging by switching to steel reusable pallets. In addition, the use of

non-renewable energy contributes to climate change through the production of carbon dioxide

emissions. Sources of renewable energy that Komatsu could consider include solar power, wind

turbines, hydropower, and alternative hybrid fuels. All of these initiatives represent a huge

potential for cost savings so it is a myth that all sustainability programs cost more to implement.


The last solution involves setting an appropriate tone at the top and is actually vital to the

success of the other solutions. Katada must capitalize on teamwork within Komatsu to generate

innovative ideas and solutions that advance technology while conserving and replacing scarce

resources. As a benefit to this leadership approach, employee morale improves since they have a

sense of ownership in results. Collaboration will generate more innovative ideas than a top down

management style and encouraging brainstorm sessions at all levels within Komatsu will uncover

hidden vulnerabilities. Enterprise risk management techniques could be employed within small

groups to intuitively rank risks according to probability and severity of consequences. Finally,

Katada could link performance appraisals to sustainability goals so there is appropriate

accountability.

Implementation of the Best Solution

Solutions focusing on sustainability initiatives are not necessarily mutually exclusive.

For example, projects targeting recycling and waste reduction can complement major research

and development projects producing cutting edge technology since the former will help to save

money while investment dollars are funneled elsewhere. For the short-term, Katada should

ensure that the momentum of excitement is not lost by celebrating small victories throughout

Komatsu and continue to engage employees by forming cross-functional and multi-level

committees to develop solutions for identified challenges. Likewise, he should bring together

leaders from all international ventures to ensure teamwork across the entire company, align

everyone to the shared growth mission, and to eliminate duplicate efforts and redundant costs.

Clearly communicating environmental awareness throughout the company will help to reinforce

Katada’s vision of sustainability.


In the medium-term, Katada should introduce sustainability project initiatives such as

reducing noise pollution, waste, and emissions, focusing on renewable energy, and prioritizing

recycling. Also during the medium-term, Komatsu’s research and development of

technologically advanced, green products and parts should be started. And, coinciding with the

new product lines and company-wide projects, Komatsu should capitalize on the increased brand

value by advertising their sustainability efforts to consumers. Throughout this time period,

Katada should also establish key sustainability metrics to monitor performance towards goals

and form accountability. Longer term, he should plan construction of 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. Alongside these plans, Katada can vertically integrate the supply

chain and build dealer networks.

Justification

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). Also,

research conducted in 2014 by McKinsey & Co. showed that 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. Thus,

sustainability is an important and appropriate target for Komatsu for several reasons and can

have a real impact on bottom line profits. Most obviously, focusing on sustainable goals helps to

mitigate regulatory risks since the company is proactive as opposed to reactive in addressing

environment concerns. Fees and penalties due to non-compliance of regulations can be very


costly and more so if a company is obligated to clean up an environmental accident. By

effectively mitigating risks, Komatsu could have an added benefit due to lower cost of capital on

investments.

In addition, sustainability efforts such as recycling and waste reduction save money by

lowering costs. According to the Ministry of the Environment in 2014, the Japan Plastics

Industry Federation had calculated the plastic production in Japan to be 7,518 tons in the 1980s

(p. 5). This increase in plastics production would be a great opportunity for the company to

invest in the plastics recycling industry. From a marketing perspective, sustainability programs

create goodwill, improve general public perception of the company, lessen political pressure

from foreign governments, and help to differentiate the company from their competitors. Lastly,

employee morale and satisfaction increases when they feel that the company’s values align with

their own. Due in some part to living in a crowded, overdeveloped country, Japanese attitudes

about environmental conservation are becoming more urgent. A quote from Eric Wicks

summarizes the reasoning behind our recommendation for Komatsu to emphasize sustainability

when implementing Project G: “For a solution 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.” 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.


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.

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

Quinn, C. (2008). Key issues in sustainable construction. Constructing Excellence. Retrieved

from http://constructingexcellence.org.uk/resources/key-issues-in-sustainable-

construction/

Shinohara, I. (1989). Komatsu Ltd.: diversifying away from construction machinery. Tokyo

Business Today, 47.

Wicks, E. (2009). Solving better problems. The Daily Good. Retrieved from

http://magazine.good.is/articles/solving-better-problems

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