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case 3 : Innovation

please follow exactly the following subheading:
•Summary (One to one and a half pages)

•SWOT Analysis

•Answers to the questions

•Learning / Conclusion

Q:01 What are the advantages of sharing information with the people at all levels in the organization ? How does it help developing innovation culture ??

Q:02 Think of applying tataki-dai and zo-awase principles in your respective organizations. What could be the constrains or impediments you expect to hit in the process??

Case Studies
©2005 Joe Tidd, John Bessant, Keith Pavitt
Kao Corporation1
The Kao Corporation is Japan’s largest soap and cosmetic company. They have developed
from being a minor player to being number two in the Japanese market in less than ten years
and are the sixth largest soap and cosmetic company in the world.
Innovation Claim to Fame
Kao was founded in 1890 as the Kao Soap Company with the motto, ‘Cleanliness is the
foundation of a prosperous society’. In the 1940s Kao launched the first Japanese laundry
detergent, and in the 1950s the company launched dishwashing and household detergents.
In the 1970s and 80s the company grew more rapidly than ever, based on innovative
products and new businesses. For example, they diversified into cosmetics, hygiene and
floppy disks. By 1991 sales were $4.7 billion and the company made 564 household
products; by 2000 these figures were around ¥100bn across 650 products.
How They Manage Innovation
Kao combine the strengths of a disciplined and formalized product development system with
the cultural values of learning and continuous improvement to ensure that steady-state
innovation succeeds on a continuing basis. At the same time their commitment to R&D and
to developing and exploiting strong technological competencies provides a rich pool in which
to fish for new development possibilities. Targeting where to move next in volatile consumer
markets is helped by rich and extensive information systems which connect the market
rapidly with the R&D and manufacturing heart of the business.
Innovation Strategy and Leadership
Innovation is a core value of the business but is generally expressed in terms of learning (see
later) – the sense is that Kao needs to be continuously learning about technologies, users,
key trends in society, etc. and then to be able to combine these signals into new
combinations of products and processes. It sees itself as a knowledge-based company and
takes its competencies seriously. It has mapped them; a simplified version of the Kao
Competencies map (1996) is shown on the following page.
Case contributed by Dr. David Francis of CENTRIM at the University of Brighton. It is based on
interviews and secondary materials.
Case Studies
©2005 Joe Tidd, John Bessant, Keith Pavitt
Enabling the Process…
New Product Development (NPD) at Kao is guided by four principles:
1. Every product must be useful to society.
2. Products must use innovative technology.
3. Products must offer customers value.
4. We must study consumers needs and reactions to our products.
At every stage in the product development process ideas are developed, criticized, discuss,
refined or altered in the light of any new information or new learning. Theconscious aim to
‘pour in’ all relevant technologies so that a genuine advance can be made in the product
The company has identified five fundamental sciences from which it derives its products.
These sciences are:
• Fat and Oil Science
• Surface Science
• Polymer Science
Case Studies
©2005 Joe Tidd, John Bessant, Keith Pavitt
• Biological Science
• Applied Physics
From these fundamental sciences the company has developed products in a wide range of
application domains.
The company funds corporate research centrally (based on the five fundamental sciences);
the company view is that ‘original technology, developed through basic research, forms the
foundation of Kao’s ‘future’.
Products are developed by Product Development Groups. As a product moves from the idea
stage to test marketing so different groups become involved – but, since the company has an
open communication system, all those involved know what is happening. There are formal
NPD review meetings built into the system but much of the development work is conducted
in informal meetings.
Kao test the potential market for their new products by sending out ‘intelligence collectors’ to
assess pricing, positioning, the competition and, above all, the customers. Groups of
customers are asked to discuss their views about the product and this information provides
very detailed market research. For example, it was through these ‘focus groups’ that Kao
learnt that the way for them to sell a new cosmetic (Sofina by influencing the store manager’s
wife who, they discovered, had the real influence in deciding what cosmetics the store should
Decisions are taken quickly. For example, whilst test marketing Sofina the decision to
improve the design of the sample package was taken at 3:30pm and an engineer started
redesigning the shape of the bottle on the same day at 6.30pm.
Once a product is launched Kao form a ‘free, two-way flow of information with customers’.
This means that the product, pricing, packaging, marketing, sales methods and many other
factors could be constantly monitored and improved. For example, company set up a helpline to advise women who bought the Sofina products – from a careful analysis of calls it
proved possible to improve many aspects of the product. Although the company has many
technical competencies, they have also developed skills in computerized social science
research which enables the company to see patterns in the 40 000 enquiries that it receives
each year; ideas for product improvement flow from the analysis.
One computer system links everything – sales, shipping, production, purchasing, accounting,
R&D, POS tils, thousands of salesmens’ handheld computers, etc. The information system is
so complete that the annual accounts can be produced by lunch the day after year-end.
Many of the 300 000 retail outlets stocking Kao products have computer links with Kao
(through their POS tills) and can receive orders within 24 hours (an average order of seven
items). The owner of one store said, ‘A Kao salesperson comes to see us two or three times a
week, and we chat about many topics. To me he is both a good friend and good consultant.’
Masayuki Abe, Kao’s systems development manager, said, ‘The purpose is to maximize the
flexibility of the whole company’s response to demand’.
Kao’s Marketing Intelligence System (MIS) tracks sales by product, region and market
segment, and provides raw market research data. All the information is sifted to provide
clues about customer needs and then linked to R&D to provide ‘seeds’ to create new
Case Studies
©2005 Joe Tidd, John Bessant, Keith Pavitt
products. Brand managers see daily figures on sales, stock and production. Within a day they
can learn of a competitor’s sale or change of policy and react accordingly.
Building an Innovative Organization
Kao is committed to the principles of ‘equality, individual initiative and the rejection of
authoritarianism’. Work is viewed as ‘something fluid and flexible’ and the organization is
designed to run as a ‘flowing system’ to stimulate the spread of ideas in every direction and
at every level.
Kao has a flat organizational structure that Dr Maruta likened to a paperweight. He said:
“In the pyramid (which many Western organizations use for their structure) only the person
at the top has all the information. The Kao Corporation is like the paperweight on my desk. It
is flat. There is a small handle in the middle, just as we have a few senior people. But all of the
information is shared horizontally, not vertically. Only then can you have equality. This is the
basis for trust and commitment.”
The Kao organization practiced ‘biological self-control.’ As the body reacts to pae
Corporation sensed if there was a problem and sent help. ‘If anything goes wrong in one
department, the other departments should know automatically and help without being
asked.’ For example, a Kao factory making a cream product was only achieving 50% of the
production of Nivea Cream. Workers at the factory voluntarily formed a small team with the
people in charge of production, quality, electricity, process and machinery. Within a year
production had been raised to 95% of target.
All Kao employees were seen as ‘priests’ whose task was to learn and practice the truth – this
meant that it was considered wrong to defend a personal interest. The ‘truth’ was sought
through discussion, testing ideas and investigating until something was learned. Every
employee was expected to be a coach – both to themselves and to everyone else,whether
above or below them in the organization
Information was regarded as living and valuable – to be shared and exploited to the utmost.
Dr Maruta had said, ‘In today’s business world, information is the only source of competitive
advantage’. He went on to say that ‘Every piece of information from the environment is a
potential key to a new positioning for the product or, indeed, a new product. All managers
are expected to ask themselves at all times the question “how can we use this piece of
In Kao the ‘classified’ stamp does not exist. The computer system gives all employees equal
access to information. The principle used was explained like this: ‘It is necessary to share all
information. If someone has special and crucial information that the others don’t have that is
against human equality and will deprive us and the organization of real creativity’. Terminals
installed throughout the company ensured that any employee could retrieve data on any
subject – for example, any sales record or the latest findings from Kao’s research
Case Studies
©2005 Joe Tidd, John Bessant, Keith Pavitt
Linkages and Networking
Top management ‘emphasize that 80% of its own time must be spent on communication and
the remaining 20% on decision making’. The task of all Kao managers is to take information
directly from the competitive environment, process the information and transform it into
knowledge. This enables the company to keep up with the many factors which can affect
business; the emphasis is on ‘what will be useful tomorrow?’
The slogan of R&D is ‘learning through cooperation’ and the emphasis is on information
exchange – both within and without the department. Research results are communicated to
everyone for whom the work has possible relevance. Researchers themselves (not their
managers) make frequent presentations and weekly ‘open space’ meetings are held on
current research projects that can be attended by anyone in the corporation.
At Kao no-one owns an idea as ideas are shared to enhance their value. The principle
adopted is tataki-dai (present your ideas to others at 80% completion so that criticized or
added to before they become a proposal). This gives zo-awase (a commonperspective).
The cross-fertilization of ideas is encouraged by the physical layout of the Kao building. On
each floor (including the President’s) there is a large amount of open space with flip charts
and overhead projectors readily available. This is know as ‘Decision Space’. There are tables
and chairs for formal and informal meetings, in which all contribute as equals.
Learning and Capability Development
This is a company where learning is perhaps the core cultural value. A flavour of the
approach can be gained from comments made in an interview with one of the Presidents, Dr
Yoshio Maruta, who introduced himself as a Buddhist scholar first and the president of the
company second. The philosophy of Kao was that it was a company that not only learned, but
‘learned how to learn’. In Dr Maruta’s words the company was ‘an educational institutional
in which everyone is a potential teacher’. Dr Maruta believed in creativity at every level of the
business and said, ‘We are determined to explore and develop our own fields of activity’.
Kao develops a stream of new products ahead of its competitors. The director of the overseas
planning department said in the early 1990s that the company’s success was ‘due not merely
to its mastery of technologies nor its efficient marketing and information systems, but to its
ability to learn’.


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