Case Study Description of Komatsu Ltd. (A): Target Costing System
Komatsu, a leading manufacturer of construction equipment, seeks to expand aggressively through the 1990s. Key to its competitiveness is a strict adherence to target costs throughout the product development process. Komatsu conducts several design-for-manufacturability cost studies to ensure a product's profitability, sets target costs for suppliers, and uses cost reduction techniques when necessary. Because it is a crucial element of the design and manufacturing processes, Komatsu's target costing system is central to the firm's plans for growth, globalization, and diversification.
Swot Analysis of "Komatsu Ltd. (A): Target Costing System" written by Robin Cooper includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Komatsu Target facing as an external strategic factors. Some of the topics covered in Komatsu Ltd. (A): Target Costing System case study are - Strategic Management Strategies, Costs, Design, Growth strategy, Operations management, Product development and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Komatsu Ltd. (A): Target Costing System casestudy better are - – digital marketing is dominated by two big players Facebook and Google, talent flight as more people leaving formal jobs, increasing commodity prices, increasing government debt because of Covid-19 spendings, increasing energy prices, challanges to central banks by blockchain based private currencies, there is increasing trade war between United States & China,
supply chains are disrupted by pandemic , increasing household debt because of falling income levels, etc
Introduction to SWOT Analysis of Komatsu Ltd. (A): Target Costing System
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Komatsu Ltd. (A): Target Costing System case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Komatsu Target, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Komatsu Target operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Komatsu Ltd. (A): Target Costing System can be done for the following purposes –
1. Strategic planning using facts provided in Komatsu Ltd. (A): Target Costing System case study
2. Improving business portfolio management of Komatsu Target
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Komatsu Target
Strengths Komatsu Ltd. (A): Target Costing System | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Komatsu Target in Komatsu Ltd. (A): Target Costing System Harvard Business Review case study are -
High switching costs
– The high switching costs that Komatsu Target has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Finance & Accounting industry
– Komatsu Ltd. (A): Target Costing System firm has clearly differentiated products in the market place. This has enabled Komatsu Target to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Komatsu Target to invest into research and development (R&D) and innovation.
Organizational Resilience of Komatsu Target
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Komatsu Target does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Diverse revenue streams
– Komatsu Target is present in almost all the verticals within the industry. This has provided firm in Komatsu Ltd. (A): Target Costing System case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Cross disciplinary teams
– Horizontal connected teams at the Komatsu Target are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Superior customer experience
– The customer experience strategy of Komatsu Target in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Innovation driven organization
– Komatsu Target is one of the most innovative firm in sector. Manager in Komatsu Ltd. (A): Target Costing System Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Highly skilled collaborators
– Komatsu Target has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Komatsu Ltd. (A): Target Costing System HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Strong track record of project management
– Komatsu Target is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to recruit top talent
– Komatsu Target is one of the leading recruiters in the industry. Managers in the Komatsu Ltd. (A): Target Costing System are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Komatsu Target digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Komatsu Target has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
High brand equity
– Komatsu Target has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Komatsu Target to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Weaknesses Komatsu Ltd. (A): Target Costing System | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Komatsu Ltd. (A): Target Costing System are -
Slow to strategic competitive environment developments
– As Komatsu Ltd. (A): Target Costing System HBR case study mentions - Komatsu Target takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Skills based hiring
– The stress on hiring functional specialists at Komatsu Target has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Need for greater diversity
– Komatsu Target has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow decision making process
– As mentioned earlier in the report, Komatsu Target has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Komatsu Target even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Interest costs
– Compare to the competition, Komatsu Target has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Komatsu Ltd. (A): Target Costing System, in the dynamic environment Komatsu Target has struggled to respond to the nimble upstart competition. Komatsu Target has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High operating costs
– Compare to the competitors, firm in the HBR case study Komatsu Ltd. (A): Target Costing System has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Komatsu Target 's lucrative customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Komatsu Ltd. (A): Target Costing System, is just above the industry average. Komatsu Target needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Capital Spending Reduction
– Even during the low interest decade, Komatsu Target has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
No frontier risks strategy
– After analyzing the HBR case study Komatsu Ltd. (A): Target Costing System, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Komatsu Target is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Komatsu Ltd. (A): Target Costing System can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Komatsu Ltd. (A): Target Costing System | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Komatsu Ltd. (A): Target Costing System are -
Buying journey improvements
– Komatsu Target can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Komatsu Ltd. (A): Target Costing System suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Komatsu Target can use these opportunities to build new business models that can help the communities that Komatsu Target operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Komatsu Target can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Better consumer reach
– The expansion of the 5G network will help Komatsu Target to increase its market reach. Komatsu Target will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Komatsu Target to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Developing new processes and practices
– Komatsu Target can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Using analytics as competitive advantage
– Komatsu Target has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Komatsu Ltd. (A): Target Costing System - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Komatsu Target to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Building a culture of innovation
– managers at Komatsu Target can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Learning at scale
– Online learning technologies has now opened space for Komatsu Target to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Low interest rates
– Even though inflation is raising its head in most developed economies, Komatsu Target can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Komatsu Target is facing challenges because of the dominance of functional experts in the organization. Komatsu Ltd. (A): Target Costing System case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Loyalty marketing
– Komatsu Target has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Komatsu Target in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Threats Komatsu Ltd. (A): Target Costing System External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Komatsu Ltd. (A): Target Costing System are -
Regulatory challenges
– Komatsu Target needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Komatsu Target business can come under increasing regulations regarding data privacy, data security, etc.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Komatsu Target can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
High dependence on third party suppliers
– Komatsu Target high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Komatsu Target with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Shortening product life cycle
– it is one of the major threat that Komatsu Target is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing wage structure of Komatsu Target
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Komatsu Target.
Stagnating economy with rate increase
– Komatsu Target can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Komatsu Target.
Technology acceleration in Forth Industrial Revolution
– Komatsu Target has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Komatsu Target needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Komatsu Ltd. (A): Target Costing System, Komatsu Target may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Komatsu Target in the Finance & Accounting sector and impact the bottomline of the organization.
Weighted SWOT Analysis of Komatsu Ltd. (A): Target Costing System Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Komatsu Ltd. (A): Target Costing System needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Komatsu Ltd. (A): Target Costing System is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Komatsu Ltd. (A): Target Costing System is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Komatsu Ltd. (A): Target Costing System is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Komatsu Target needs to make to build a sustainable competitive advantage.
