Tokaibane - Marketing Strategy POA

Attn: Yoshiki Watnabe (President) • April 30, 2007 • From: Irketing Manager)
fntroducti on

Tokaibane Cour company') bas-been-successful in the recent
effective and efficient use of our e-Coruruerre prn:ta1,since the po s However, in order to
sustain this momentum and also secure the growth strategy of o<ar busnless, it is imperative that we address
..
certain key concerns affecting the company and also confirm the strategic direction of our business. The
purpose of this memo is to assist you in taking a more informed decision by (I) Iding a comprehensive
analysis, (2) alternative courses of action and their evaluations, arJd a
specific recommendation in terms of the future direction of the business along with an plan.
Problem Statement
One or a combination of the below mentioned options will result in a for our
company. Choosing the right option or combination of options is imperative to the Sllccess of the company in
tC!u-t:'Llre. The options are:
I. aggressive customer a uisitio hrough the recently upgraded web-based ordering systems
customer} ase to further expand customer lifetime value (,CLY')
3. on aownstream integration and start offering new relate services convert itself from a pure
manufacturing firm into a more service-producing organization
analysis are provided in Appendix 1. The analysis of the 4Cs and the 4Ps are
summanzed in AppendIx 2.
meet customer specifications in terms of design
and quantity. The products a e goodwill earned
can be used to expand into other emerging markets to ex and our customer base
• OUf vast experience in designin acturing a wi e range of spri g of rna Y--Shapes,--ll)ateriais
and performance requirements hold us in goo-,L_stead in the market and..- provide us with ample
-
opportun ities 1o..start
.-- ")
• The a wide range of CRM tools provides us
with necessary potential to retain customers In e uture. Our anufacturing
-
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (President) • April 30,2007 • From: ' l arketing
information of our cllstomers since 1983 and this pool of information will help us obtain repeat orders
from customers in the future
Internal Analysis:
• Our competitive advantage lies in
avoiding the mass production market
ucing custom made springs and
')
• We have a g management team with vast industry
opportunities to our engineers with 7 levels of engineering certification ensures that
advancement.
• Our most critical weakness is the inef.:ftei 1) which results in rejection of
200/0 of OUf annual 0 In
orders * 100/80 * ¥64,625 per order) and our bottom line by ¥42 million (¥435 million * 9.64% profit
J
margin).
Addressing key concerns and Identification of Alternatives:
The issues relating to operational inefficiencies as detailed above wi ll be addressed as part of the
"Operational Re-design" paper to be presented by our senior managin the first
week of May 2007. This paper will involve recommendations on improving the cycle time and lead time for
the manufacture of springs and in turn improve capacity
>- Also, a separate deck from our HR manager on suggestions to retain, foster and motivate young talent in the
organisation would be provided around the same time "0 e-design" pape resented
In relation to choosing the best strategic direction from a marketing perspective,
evaluating the following 3 options as described in our problem statement:
1) Focus on customer ac uisif (Page 14 of the case)
2) r<lil'leXistmg co lOlll d (Page 15 oflhe case)
3) Pursue c
v
g by expanding into (Page 15 oflhe case)
Evaluation Criteria
As a company looking to customer_b_as_e_ a_n_d __ +-___ ____ -----
pursue an aggressive hybrid strateg¥-5-wh ich can be classified as B-1
s on
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (Presidei'll) i (Marketing Manager)
immediate term - Improving of tbe....existing
/ /services apart from products and also improving customer retention rate
G. Long term - After improving operational inefficiencies, target the domestic and
"0 . customer base. Our short term strategy wou ld provo . t e necessary i 1petus to
H,o W fAj:

__ other wo':: ,
Evaluation of Alternatives
The pros and cons of each alternative are assessed below.
1. Pursuin
Pros
raded web-based orderin s stems
• Aggressive customer acquisition would provide us with an expanded potential for
increased reverl!.JeS and profitabi r 1(" .
• rt would enable employees to share a common goal wh!ch is critical to the compani s future. 11 would
also lead to higher lab;: efficiency in the long r:- V
• It wou ld provide us with necessary funds.J9 invest in R&D and i

technology like the i-Me spring
Cons
been having a steady growth of new customers since 2003. Pursuing an aggressive
----------
- tl1 in the same direction might not represent the optimum use of resources
• Currently, we are facing a lot of . e ficiencies because of which we have to reject 20% of
orders. Pursuing a str: tegy of customer expansion without setting right the inefficiencies
might result in heavy losses - ,..-
,-
• Also, pursuing customer expansion rapidly would involve
plants. This would in turn put strain on resources availa
• Detailed analysis in Appendix 3 indicates that new cust
Pursing expansion of customer base would involve more
.
strategy must be to improve profitability of the existing custo r base
L
Tokaibane - Marketing Strategy POA
Attn: Yosltiki Watnabe (President) • A ril 30 2007 • From: (Marketing Manager)
• Targeting the existing rovide us wi 1 lot of repeat orders
etting orders fro I new custot rs. See appendix 3 for detaI led analysis
• mpro g customer retention using t isting CRM s stem would not require any further
minor changes to reflect current trends WJlulc;l be required.
• Appendix 5 on CLV computation indicates that there is significant potential froJB e';91
/
existing
customer tOgeneiaLe more revenues and protitability by increasing their retention the current
840/0 to 90% or 950/0.
>- Cons
• Very limited room available to im
improving it to 90% or 95% would require sign ificant investment of time and resources. The higher
the rate, tiw-mOt'c th&effort
• Most of the employees would have could sometimes
affect the morale of the employees if they cannot realise quick new product development
like a successor for i-MC would not progress rapidly which could impact long term revenues.
and start offer in
>- Pros
• Iy custom made springs might not be enough for sustainable growth in the future. Providing
end product and service solution will help to achieve sustainable growth
• will provide us with an opportunity to achieve future growth by combining our products
Ywith Tokaishoji's service or sharing customer information with Tokai Engineermg.
• This option would involve working on provding services t-;the existing customer base. This in turn
ripple effect on obtaining repeat orders and thus improvmg m>tomer retention rates . It
also lead to inTpUrVel'f1effrm revenue generare-cr -per employee which is currently low in
Tokaibane (Appendix 4 for detail ed analysis)
Cons
• Market does not perceive
ourselves as a service producing 0 b
}

:- It Inight take sometime for us to establish
Tokaibane - Marketing Strategy POA
Attn: Yoslliki Watnabe (President) • April 30, 2007 • From: I (Marketing Manager)
e iver servi ces properly WI on our product orders
Recommendation:
Based on the situation anal with the 4Cs and 4Ps anal

lv

sis (Appendix 2) and a et ·
carefully considering the pros and cons of the alternatives available, it is recommended that we should pursu
improving customer retention as envisage ))
. 'i',
Implementation Plan 'e?rV
The following needs to be performed on a priority basis to offeri6g additional services to the existing
customers and also to address above mentioned key concerns:
.. . Person S c·· D I
,...,.ctlon 1"1 'bl uccess ntena ue ( ate
,esponSI e
I. Improvement in operational inefficiencies to improve
capacity. OI Operaitonal Re-design" paper to include
"0 . Paper due on
peratlo e- Ma 7 2007.
Senior MD
Tatsuo
Sakaguchi
deslgn" paper to y ' .
th
'd t Plan executlOn
analysis ofTorces the industry CEurte? five
forces.}_ and also cl e-;r1 _ articulate dtategic
e presl en .
. to be completed
ExecutlOn of by End of CY
positioning in the market (1 J
t •
strategy 2007
2. Employ additional resources to m.e.e.Li.ncLeased
demana=-mr addl ft onal services and products. HR
paper on suggestions to re.ta.ln, fu ster and
young talent in the organization would address
tuffiovel rate cmrcerns
3. Identify and adopt the list of additional services that
H!'paper to
V presi nt.
HR Manager Employment of
additional
resources

can--he-p11 VI e y us. It can include serVlces like Clear list of
advising customers on the type of springs to be use (M k . services to the
in the.i- ptoducts-alid ploviding Mar etm\g President
fi IT . d anager). . i-I
resources to ffl-lfit-o-t elr pro uct p A-v-W\ ' ...
4. Identify list of industries based on existing custom ' /
prot-reJ 111 w ich we can provide al ternate c sulti g Services along
with industries
services. This could include industrIes ITke po er (Marketin
and industrial components Man
to the president
- R Paper-
May 7, 2007
Additional
resources - as
required
May 31,2007
June 15, 2007
Tokaibane - Marketing Strategy POA
Attn: },oslliki Watflabe (President) • April 30,2007 • From: larketing Manager)
A. t· Person S C· · 0 I
t"-C IOn R .bl uccess ntena ue ( ate
5. Improve the "pull" marketing techniques adopted by
us before by populati n,@ q,ur website with
technological information r¢lao/ti to springs. Include
information on the additi c!njl( downstream services
that we intend to provide jl(ong with explaining our
vast industry and product background
6. The "Push" marketing laboratories visit)
techniques adopted o ;nar,keting group must be
continued to include ad . 10nal services that can be
provided by us. We s ould educate customers on
these additional services that can provided
7. Co-ordination employees
organizations Tokaishoji
Engineering). Ad t' onal training to
(Sales and engin ring) to provide
services
of the 3
and Tokai
employees
these new
8. Development of robus corporate plan in line with
revised strategy of xpanding into new services
along with manun ture of existing products. Plan to
be prepared in conjunction with the marketing and
sales department
esponsl e
IT Manager

\(Zhuji
Watanabe)

Detailed
deployment
schedu Ie to be
prepared f n
- ue
to semor /
Schedule of
visits along
with feedback
from cust9fn¢
-Due tM e
president
Training
J0'the
prds.itfent.
Execution of
training

Corporate plan
to the president
and board
Deployment
le -
July 3 ' .2007
Depl y ent-
En ofey
2007
Schedule of

Sch du -
July l2007
Train ing - End
ofCY 2007
iL.l,
2007
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (President) • April 30, 2007 • From: . (Marketing Manager)
Appendix 1: Situation Analysis
INTERNAL ANALYSIS
Strengths
/'
• Government and business award or strategic use of
IT leading to increased publicity.
• Redesigned and robust IT and
advanced CRM capabilities)
• Focus on custom made i9/ii mited lot SIzes,
thus avoiding the strategy of <l9-.fupeting in the mass
production market
• Steady growth of new through
its e-Commerce portal which pro'r11oted its technology
to its customers
• Visionary leadership from Mr wataDlbe' of
resortIng to custom made springs, l..t 1US avoiding
discounts to customers and introduction of IT based
CRM system as early as 1970s to understand customer
requirements
• Very experienced labour force with ex e
tech craftsmanship resulting in sup
quali t)r"ancH
Weaknesses
• Inefficient which has to be
improved to cater to increase in new customers_
Currently 20% of all orders are being turned down
• Lack of business cpIlabpration between subsidiaries
resulting in
• Focus on custom results in lack of
economies of scale available in the mass production
market. This in turn results in lower profit margins
E
. d ' lIppv: / k.(:' . h
• xpenence engl&> tng wor lorce III t e
organization is ageing coupled with high turnover in
the young workforce.
• Training system insufficient especially
with regards to training young people.
EXTERNAL ANALYSIS
Opportunities
• Large market to pe etr which include indispensible
componen s rom Industrial products to consumer
durables.
• Ex pans ion into 0 th er
fo r expaM-i-ftg-etl"starrreJ"b
of the company
Threats
• Automobile and electronic companies who require
mass produced springs to China or India.
Threat--2f-p-ower plants or industrial com an' es---
fo f'f();ing suit and relocating factories to these
countries.
• Not abi toADld new to train them and carry the
tm-s-co.lnpan yfol'ward
• Improve retention of customers and target to get more
repeatorders through effecti ve 1 e ntiJSe of the- · Investme9-R-&tJ'iTIay not
CRM !Ystem de which could impact the future growth
• Expand and provide new services through
or;:sut5sldtari eS. I his will selling
opportunities to existing customers and improve
prolt1ablhty. ) =-
,,- » I
e Company
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (President)
Appendix 2: 4Cs and 4Ps Analvsis
customers)
Customer Profile
Largest customer
share
Customer
Retention Rate
Certifications
66 yrs
3,300 (2007)
Power Plants,
Machinery and Valve
com
87%
5 per order
¥65,000 per order
TORS
IT vendors, S te
suppliers,
Subsidiary
federation of
national standards
(ISO)
• April 30, 2007 • From: ,
68 yrs 68 yrs
NA NA
Major Automoti
companies
260/0
NA
Several thous to
million yen
(Marketing Manager)
90% of industry. Less
than ¥IOOm
NA
10
Major Automotive and
industrial mfring
com ies
300/0
90%
Several tens of
thousands to several
million 11
Steel Suppliers and
Automotive
Companies
Most of them with
Worldwide
federation of
national standards
certification
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (President) • April 30, 2007 • From: ' (Marketing
4Ps COMPETITORS
ANALYSIS Tokaibane Piolax NHK Springs Industry Players
PRODUCT
Custom made
Automotive
springs, disc spring
Suspension Springs,
Automotive Seats,
called
Precision Spring &
80% mass produced
Product Variety i-Me spring, volute
Components, HDD
springs and 200/0
springs, Tool
suspensions and
custom made spri ngs
remake, metal plates
ech . ical
etc.
Built to suit each
customers ased on "Elasticity' ·
Mass production
Product design & requirements using technology in both
manufacture combination of steel and plastic
through technology
labour and components
and labour
technology
PRICE
A verage Price per
¥13,000 NA NA
Less than one yen to
Spring several hundred yen
PLACE
Combination of
Account manage ent Account manage ent
Channel to e-commerce base
with major auto otive with major autom tive Majority of the players
Market website and direc
players and a so players and als adopt a Direct sales
sales force
through Direct ales through Direct s les force approach
force force
PROMOTION
Function based sal s
Direct sales fo ce for Direct sales for e for
group which offer
personal sell mg personal sell ng
personal selling.
Customers usually
large customers
No discounts offere like Fasteners, rive extracting price and
for sale of springs system, clamp p rts, volume discounts from
to achieve e onomies small players
Sales Promotion Website provides
of sc Ie
through
information on
enabling automoti v Majority follow direct
advertising, trade
technological
to get
sales approach
discounts etc.
knowhow and
everything in one
manufacturing
place ·n volume of Flexibility of
process. Keeps its
production to meet
transparent
Trade discounts customer needs and
offered to custome I ustry leader in demands
Several government
based on volume 0 ( nOvation with a
and business awards
purchase I
/ trong brand name
providing publicity

r
s'
Tokaibane - Marketing Strategy POA
Attn: }'oshiki Watl1abe (President) • April 30, 2007 • From:
Appendix 3: Profitability analysis of new internet customers - Tokaibane
Total Sales (Exhibit 4a) ---(A) $1 ,298,394,000 $1,489,468,000
Total Number of Orders (Exhibit 4a) ---(B)
.,
20)865 23, 167 25,081
Average Order Size (Exhibit 3) ---(C) U 5 5 5
A verage price per spring
0
$12,446 $12,859 $12,815
---(D) = {(A)/(B)*(C))
J Net Profit (Exhibit 4a) ---(E) $18,333 ,000 $20,843,000 $77,725,000
Revenues from New Internet customers vs. Repeat customers
Internet - New Customers (Exhibit Sa)
---( F)
.;
- Repeat customers (Exhibit 5a) V
---(G) J
No. of orders from internet customers (Exhibi tV'
Average order per internet customer
J
Sa) ---(H)
---({l) = ( H/F)
Total Internet revenues ---«(1) :=: (C*H*D)) "I
customer revenue benchmark .J'
Revenues from new internet customers
based on 2003 --- __
106
184
2
$11 ,450 ,012
$11,450,012
181 233
16 68
498 749
3 2
$32,017,744 $47,990 ,919
$19,551,435 $25,168,422
R? es-m m repeat customers
= (J -L» _ $- , $;'::822,496
Profit from New Internet customers vs. Repeat customers
Net Profit - Intemet Customers ---(N) $161 )671 $448,043 $2,321 , 121
Profit per new internet customer benchmark
with 20% growth each year $1,525 $1,830 $2, 196
---(0)
Profit from new internet customers
$161 , 171 $331,274 $511 ,735
---«P) "" (O*F))
Profit from repeat customers
$- $116,769 $1 ,809,385
---«(Q) = (N-P))
Pr ofit Margi n % from new customers
1.41 % 1.69% 2.03%
---« R) = P/ L)
Profit Margin % from repeat customers
0.0% 0.94
0
/ 0 7.93%
---((S) = (Q/M
Assumptions:
} Average size per order assunLe.t.¥Cs units (Exhibit 3) andlle .c.e-p.ci.ce-perspring comp, U(.::;" d...-, .. .--,,-
..
,vlarketil1g Manager)
26,897
5
$12,925
$167,598,000
279
103
1,019
3
$65,853 ,344
$30,137,295
.....
$35,7 J 6,049
$6,349,495
$2,636
$735,318
$5,614,177
2.44%
>- No Inten:,et and custom: rs " V" / / I
» Allihe revenues lind profils reJaling 10 in/emel orders in 2003 have Th es {
profits from each customer have been assumed to be the benchmark for all new customers from 2004 to 2006. The profits have
been subject to an improvement of 20% each year.
Tokaibane - Marketing Strategy POA
Attn: Yoshiki Watnabe (President) • From: Harketing Manager)
A dix 4: Revenue
(Exhibit 4a, 4b, 4c)
Total Revenues (Exhibit 4a) ---( A) $1 ,607,023,000 $1 ,738,23 1,000
Number of Employees (Exhibit 4a) ---(B) 62 61 57 63
Revenue per employee -- -«C) = (Al B)) 24,417,508 $28,193 ,386 $27,590,968
Total Revenues (Exhibit 4b) ---( D) $1,184,322,000 $858,407,000 1, 15t ,624,000
Number of Employees (Exhibit 4b) ---(E) 10 9 10 14
Revenue per employee ---«F) = (DI E) $ 131 ,591,333 $85 ,840,700 $82,258,857
Total Revenues (Exhibit 4c) ---(0) $143,925,000 $ I 60,021,000
Number of Employees (Exhibit 4c) ---(H) 6 6 5
Revenue per employee ---«(I) = (O/H) ) $)9,413,000 $23,987,500 $32,004,200
"
I
I
I
Tokaibane - Marketing Strategy POA
Attn: },oshiki Watnabe (President) • April 30, 2007 • From:, (Marketing Manager)
Appendix 5: eLV computation per customer from Exhibit 8:
Average Reten tion rate per customer from Exhi bi t 8 ---( A) 83.83% 90% 95%
Average number of annual orders per customers from Exhibit 8 ---
73 73 73
( B)
Average revenue per order per customer from Exhibit 8 ---(C) $75,633 $75,633 $75,633
Average annual revenue per cllstomer ---«(0) = (B*C)) $5,496,022 $5,496,022 $5,496,022
Average profit margin % from Exhibit 8 ---(E) 52.07% 52.07% 52.07%
Average annual profitability per customer ---( F) $2,861,688 $2,861,688 $2,86 1,688
Revenue CLV Computation
V
6.2 10 20 CLY = (l/(l-CR) ---«(G) = (I /(1 -A))
Total Revenues per customer CLV ---((H) = (G*O))
V
$33,996,014 $54,960,222 $109,920,444
Incremental eLV per customer compared to current CR $20,964,208 $75,924,431
V $17,701,164 $28,616,882 $57,233,764
Profit CLV Computation
Total Profitability per customer CLY ---«I) = ( F*G»
Incremental CLY per customer compared to current CR $10,915,718 $39,532,600
I
To: and the Management Team
From; / } Manager
DatU November 2S} 2012
Subject: Tokaibane's Future Strategy
Introduction
After seeing years of rapid increase in revenues and profits} Tokaibane e s the need
to re-examine evelopment strategy so f and to explore opportunities for future growth. It is
important t a tions that would conform
to a clear long-term strategy. as well as to identify the most promising moves we ought to take in
the near term.
Examination of Past Development Model
Different approaches have been used to examine our past development strategy. Please refer to
Appendix 1-4 for details.
Historically, we have successfully differentiated ourselves fr commoditized market of
spring manufacturing by focusing on


customers. Our ne9'01re, organizational struc culture are generally aligned very
well to that strategyr:-we-h-ave-been-a15 e to s are everyone's knowledge and skills on an extensive
basis} and internalize them into strategic assets of our comps:ii\l. Our IT ved
worthwhile in terms of customer acquisition, customer retention, supply chain management as well
as knowledge generation. These have contributed to the ra id rowth ofTokaibane' past years.
However, a close, well-rounded examination has revealed this past model of
development. For example, our human resource management mi .
and retaining younger employees. Our organizational str cture
-
subsidiary companies effectively to create business synergy. Knowledge generation from customer
and knowledge sharing with subsidiaries ursued actively. Last but not least, despite our
very efficient supply chain management} internal production wtp efficient enough
to match the increase of orders in recent times. All these factors may impose significan s
on our path of development in the future.
Situational Analysis
are provided in Appendix 5. 4Cs/4Ps are summarized in Appendix 6.
ernal An 'SIS
a . ajor customers historically have included nd
machineries. We have successfully managed to maintain a retention rate for most of

these customers, whereas room for development still exists for certain customers like general
indlTst rial equipment manufacturers. Concentrati ng on dome-mc busjilesses:.fflr RQM4,.tha.y are likely
to shift production and operations o: erseas in the Ion r
ew customers acqu ed through the Web have showed a very different profile, most of them
. fast with a higher profit margin in general, these customers
nevert eless have been characterized by less annual orders and a much lower retention rate. Some
of t ha.se-fH=ders were placeLt""from abroad .
. 1.J+.tA_s market, fe or
industrial reputation. However, concerns are that even threatens to become
Increasingly commoditLzed. 0 € of our synergy with
subsidiaries to Igo dowtr9ffeam-'-am s stomers. Obstacles facing this option
II.
customization market with a differentiation strategy,
continue to lie in the unparalleled capa!;ility of meeting more
customers
l
demand for variety and flexibility, in terms of not only products but also services.
However, this long-term strategy should be pursued in a planned and practical way, given our
current strengths and limitations.
Tokaibane's traditional co Ile._te.cbnolagical craftsmanship of
experienced utilization of IT technology has been a boost to our customer
relationship and supply chain management. Corporat e and knowle.dge generation went
well as described in the Examination of Past Model and Appendix 2&3. And finally it was able to
create a superior original product in addition to custom-made springs.
Among all the weaknesses analyzed in t he Examination and Appendix 2-4, particular efforts should
be put into addressi ng the inefficiency of production and the lack of sx,.n ergy between com anies.
Left unsolved, th a.ulddose down important opportunities for future growth.
e are facing is to determine Tokaibane's future growth iliategy. A t
strategy should enable the company to build on its past s7tc"cess and achieve long-term sustainable
growth, in a planned and practical way.
Identification of Alternatives
To design a strategic path of development, we should focus on evaluating the following three
a ernative courses of action for Tokaibane:
(1 ) Aggressively focus on I1eIll""cusfOmer acqu1jjl:i9.Ll
(2) Maximize profits extstrng cUstOn5Jn) s t5YfulJY embracing customer relationship
management (CRM) and f urther expand lifetime value (CLV);
(3) Go do\AtOStTeam and st art way of closer, deeper cooperation
with the two subsidiaries.
Evaluation Criteria
In terms of future growth, profitability should be among the most important evaluation metrics. To
gain more profits from our customers, we can pursue two marketing objectives:
(a) Expanding the size of _____
2
We should evaluate the three alternatives using both of these marketing criteria. In other words,
we need to ask ourselves two questions:
(1) To what extent will each alternative enable us to expand our customer base?
c
(2) To what degree will each alternative help us to increase.!,he profit customers?
Moreover, it should be noted that our company have not been developi ng without problems. Our
current weakne may confine the actions we can actually take within a certain
range of time, that is, until they are finally solved. Thus, we need also evaluate the alternatives in
terms of feasibility, by asking one more question:
(3) To what extent will each alternative be confined by our current weaknesses/limitations,
when/how these confining factors are likely to be solved?
Finally, since sustainable growth in the long run is pursued, one last question sh osited:
(4) To what extent will each alternat ive have the otenti al to address our V
concern, most noticeably the commoditization stom-made springs and the shift of existing
operati ons f rom abroad t o oveJseas?
Evaluation of Alternatives
The pros and cons of e a Ive are assessed below.
(1) new customer acquisition throu
.....
Pros
- "the approach has proved quite efficient in acquiring new customers in 4
froVs'egments and regions we once considered irrelevant.
- If the potential of a huge, fragmented long-tail market that is much less vulnerable to the
sifts of industrial trends.
Iternative could bring us significant growth in revenue and profits in a short time, especially
when thes ew customers tend to place orders with a higher margin.
o -selling opportunities for products like i-Me can be enlarged greatly.
Cons
• typically place much less orders than existing ones, and have a much lower
retention rate. (The former, however, can be good news given our limited production capability.)
-, rate is improved significantly, CLV of new customers - either individual or
lfal - can t hose of existing q lstorners (.Apf)e-Jldix 7). Improving their retention rate
can be both a problem and an opportunity.
- to make it International is presumably' cost ly (the investment for
red.esi(ning the site from 2003-05 was ¥50 milll.o n, p.7). Moreover, export and delivery can be
customer base throu
Pros
............. r..;:;;. o.;.;. fits generated this way are much higher than profits from new customers,
en CLV or long-term val ue is taken into cooside.r:.atiQo..(Appendix 7).
• CRM Skills, experi.ences and techniques developed from this process would be valuable assets to
and can be applied to more customers in the future.
3
• One of the possible CRM tools, the Re-Order-System, is already there ready for use without the
need of extra investment.
Cons
I profit growth cannot be expected by this alternative - it is a way 'll k"""t;f) ,
Uduce opportunity losses, not a way to bring direct growth. / /
st omers could en more iocremental orders -than which is a
urden to our al ready overloaded capacity. Turning orders away is not good for customer
retention and is clearly contradictory to the purpose of this alternative.
of th.e-Cb-\I-ee-r=teeprum ma IC ere, if our major customers will
Komeday follow the industrial t rend and move overseas anyways.
and
• 0 .......... rvi ces and th e oth e r
specialized in R&D are sltioned in providing us with the potential to offer various
professional services to our customers.
• By to customers rather than merely accepting orders, we will the
opportunity to know more about their difficulties and needs, thereby facilitating the development
of more onglnal products t hat are truly val uable to customers.
• This alternative is itself a very pro
• Presumably high margins, low assets/personnel requirement and more steady revenue streams.
=>
Will not en over our production system.
Cons
• Facilitating information sharing and seamless cooperation between Tokaibane and its
subsidiaries 'me-consumin , e;Pe.9P-H giVen one failed cross-selling attempt in
• The true di fflcu1lY lIes.-u:Kre ectingLefie' real value of t he downstrecHn rnarlreL.Wtfile the ratio of
installed springs to new spring sales is undoubtedl hi h given our hi h quality products, it is
questionable how much will the customers· usage cost be.
Recommendation and Implementation Plan
Recommendation
It should be clear from the above analysis that none of the
I hereby
but
feasibility and practicality.
mp
maximize
of alii Tokaibane MUST start immediately to address otproduction ine
could be addressed either by improving the operations management (reward system, standard
setting/control, etc.) or by building new factories, or best both. -
4
Tokaibane should continue to use
strongly recommended t o open t heir own website, too.
Retention of current customers shoul.d be kept along the current level without any aggressive
.....
Tokaibane
with us) about their usage costs of springs, design costs of special springs, and any other apparent
difficulties or needs t he see as related to springs.
It shou - erts f Tokai Engineering to visit its factories and give suggestions over

Ing certain production processes.
Finally, formal communication mechanisms should be established between three companies
t hrou h r monthly meetings, starting from managers and later employees.
Phase 2 (2008-2009)
It the completi on of at least one new fa.ctory,
tools like the Re-Order-System can be aggressively promoted at this point of time, to improve
retention of Web as well as past customers.
..
According to the feedback f rom Tokai Engi neering, introduce a few new machineries in the
c •
factories if This would bring multiple benefits including increasing efficiency, reducing
>
over-reliance on human resources, reducing working fatigue, help standardizing the operation
process, and attracting young employees. (No! everyone is Iikel).l nrjtgke!) _
According to the feedback from the investigation rou set u reali sti
or
example, if customers are interested in
production, people from Tokaibane and Tokai Engineering may be ali gned to provide that service. If,
..
on the other hand, customers are interest ed in comprehensive services like on-site maintenance,
--- ::",
IS OJI will have to ma e its contribution.
cbon plan startingjlere would reall y depend on t he olltcome tv.'O--.pba.se&:-l.f=gfewt-fl is
as expected, we may need to open a few more factories. Automation should be progressed to a
reasonable extent, with machineries custom-designed for ourselves (by Tokai Engineering).
Various services may be developed, among which Web-based services would be .

This is not only because they usually have a higher margin, but also because they could serve to
retain both Web and non-Web customers, seize the long-tail market, and add to our attractiveness
tOOverseas customers. Moreover, as more and more companies would start using the Internet
-
We - especially engineers from Tokal bane and Tokai Engineering - should try our best to utilize
.
thes-e-senll ces as learning opportunities about customers
l
needs. In that way we are better
positioned to cross-sell appropriate products/services t o appropriate customers, and design new
<
product s/services if certain needs from a broad range of customers cannot be satisfi ed by existing
-
ones.Once a SECI cycle is successfully established, innovation and growth will be largely ensured.
----------------------------
,
5
Appendix la. Porter's Five Forces Analysis - The Spring In
1. Threats of New Entrants: High (p.3)
• Low investment required .
• Highly standardized product.
• Never been protected under the government's trade policies; exposed to fierc competition
from foreign manufacturers.
2. Bargaining Power of Suppliers: High (pp. 4, 12)
• The number of suppliers of tokushu-ko, a special type of steel used for manuf
was limited.
• The number of spring manufacturers were large (more than 3,000).
As a combined result of scarce supply, long lead time, and pressure from
customers/competition} spring manufacturers were required to keep a stockpil of that steel so
as to respond to customers' orders quickly.
3. Bargaining Power of Customers: High (pp. 3-4)
• The customers' Switch cost was very low because springs were a commodity an there were
many competitors in the spring industry.
• 3,000 or so companies relied on a few customers in the automobile and consumer ectronics
industry based on B2B contracts.
of springs were mass produced for those big customers. Some companies even epended on a
single customer for over 50% - 60% of their revenues.
• As a consequent, customers constantly pressured manufacturers to reduce th
4. Threat of Substitutes: Low (pp. 2-3)
• Springs have always been indispensable components in a wide range of pro
industrial products to consumer durables.
5. Rivalry among Existing Competitors: High (pp. 3-4)
• Difficult for competitors to differentiate from each other due to highly standardi ed product.
• More than 90% of the competitors were small and midsize companies tha did not have
stablished close relationship with major clients. ..l-
• Price war was possible given customers' high power and demands
1) I \.4/ ,MV\ ,mtrr'-
;;f'c.v. );t
Y
6
f {f'J fu
tl
tp
6
1. Threats of new entrants were greatly reduced (pp.l0, 13):
• Difficult for major spring manufacturers to enter the custom-made spring business dominated
by Tokaibane, because they focused on mass producing springs and lacked sufficient, capable
human resources necessary to the business.
• Difficulty to meet the high specifications and diverse needs of custom-made springs required
by customers were another entry barrier for new comers.
2. Bargaining power of suppliers were weakened (p.7):
• Redesigned website improved supply chain management by integrating information received
directly from suppliers and customers. This would presumably reduce the need of continuously
stockpiling raw materials from suppliers.
3. Bargaining power of customers were neutralized:
• Few competitors in the segmented market; even fewer capable of meeting the customers
l
specifications (p.13).
• Stopped price discounting in 1989; revenues were increasing nevertheless. (p.6)
• Relatively high customer satisfaction level (87%) given a large customer base (3,300, Exhibit 3).
• High profit margin (30% - 40% from existing customers, p.12).
• Customers did not think of Tokaibane as a subcontractor, but rather a partner (p.12).
4. Threats of substitutes remained very low.
• Custom-made springs were even more difficult to be replaced.
• However, potential threat might come from clients standardizing their components and thus
reducing their reliance on specifically designed parts.
S. Rivalry among existing competitors had been weak (pp.13,15).
• By focusing on custom-made springs, Tokaibane did not directly compete with the large spring
manufacturing companies and many small/midsized companies.
• Few direct competitors were competent enough in terms of technological capacities and many
other aspects.
• However, recently the commoditization had gradually become noticeable even in the
custom-made spring segment (p.1S).
7
Appendix 2. Congruence Model Analysis as in April, 2007
1. Performance/Opportunity Gap Analysis
Vision and mission: Not clear.
Value: "Clean, Fair, Open"j"Maximize each person's potential"
Strategy and Goals so far (summarized from the case text):
• Focus on the custom-made spring segment.
• Build a sustainable core competency in terms of technological capacity} operations efficiency,
customer acquisition and customer retention, mainly by actively utilizing IT technologies.
• Increase market share, revenues and profits given the segment market.
Actual Performance (positive):
• Rapidly growing revenue and operating profit (Exhibit 4a).
• Number-one market share in the field of industrial machinery (p.10).
• Increased customer base from 2,500 by 2003 to 3,300 by 2006 (p.11).
• Customer retention rate is high given the large customer base.
• Material stock was reduced by 17% (p.8).
• Percentage of complaints about shipment delays was only 0.16% (p.8).
Actual Performance (negative, p.ll):
• Insufficient training opportunities for the sales force.
• Inefficient production system.
• Lack of new products.
• Sometimes unable to retain younger employees.
Opportunities and threats (pp.13-15):
• Acquire more customers by further improving the website and providing/promoting attractive
new products.
• Maximizing profits from existing customers through more effective retention methods and
exploring their cross-selling potentials.
• Expanding into new services by further collaborating with Tokaibane's subsidiaries.
• Imminent threats from the commoditization of custom-made springs, and major clients
shifting their operations overseas.
2. Critical Tasks according to the Performance/Opportunity Gaps:
• Set clear new goals for the next stage of development. Decide which opportunities should be
explored, and how priorities should be assigned among them.
• Realign formal/informal corporate components to the adjusted strategy and goals, so that
existing problems could be solved, future growth be ensured and potential threats be addressed.
3. E nment
aximize each person's potential".
----------------------- • Average salaries were above aver age among companies with the same size. (p.9)
• Regu ar JO rotations without taboo} so that each person could choose his/her own specialty
and mismatched job assignment could be avoided $ .8).
• Abundant training opportuniti es for engineers, which were also open for non-engineers (p.9).
• Tokaibane' s salespeople, half of whom w""€re women, were highly motivated to build close
eldtiollsliips with eXisting customers and efficiently handled the high volume of daily orders from
r ea cus 'omers (p.m.
8
___ have to prepare materials for successors or train them (pp.8-9).
• While it mi ght avoid the creation of hierarchy and allow the successor to have freedom
and independence, it might also prolong the successor's learning curve and hinder his/her
adapti On to the new position.
• "First come, fi rst served" (p.9t
• Lack of even the most basic examinatjo!l,.of motivation, diligence, career expectancy, etc.
could be a significant cause of employee turnover, especially for younger people.
• Rea lly capable and suitabl e appljcant s could be tlirnecLofL be ause he/she came late.
• Compensat ion was li nked t o internal career ste.ps._and sa lades were determined by skills and
work attitude (p.9).
• Whil e intrinsic e problematic to
have no reward nor punishment related to performance metrics like efficiency and quality.
• Employees were evaluated only through one-on-one interviews with executives (pp.9-10).
• The lack of a might not be good for them to identify their true
weaknesses, and thereby set reasonable personal goals.
• l ack of rigorous t rai ning system for the salespeople. Opportunities were limited to on-the-job
training (OJT) system (p.13).
• Lack of a clear vision/miSSion, which could be especially demotivating to younger employees.
2) Alignment of organizational structure
Pros
• Flat struct ure three I·ayers.
-- • Mont hly ali d ac::tiorr-plaFl l'Aeet.ings (p.9).
• t Q.Prod uct/fu nction- based (p .12).
Cons
• slibsidiarJes basicall¥-Q.p-eLated without any business
collaboration (p.11), part of which was..a1tributed to the lack of communications among the
employees in each company (p.1S).
3) Alignment of culture
Pros
• The most basic core helped establish trust between the employee
r
and mamgelJlenl(p.13).
• E 1o..¥.e.eLc.o.nfld.eJ+Ge-aflti-rrrotivatiunilTcreosed-continuously as the result of:
• More media exposure, increasing number of visitors, and successful customer acquisition
over the Internet (p.13);
• Tokaibane's high reputation among customers and in industry for craftsmanship (p.12);
• The policy that stated "everyone should work for him/herself" (p.8).
• Employees became united and energized by pursuing a common goal of sharing information
with each other, which was partly a result of redesigning the company's Website (p.8), and partly
the outcome of the regular meetings and groupware mentioned above.
Cons
• AL"mentioned in the organi zational st ructu re alignment, the spirit of sharing was confined
-
primarily within Tokaibane rather than among all the companies.
• The a ppreCiafiOl'rforefficre n-cv-lIcrd' 11 Olyet- as part of Tokaibane's working
culture, th USlnt ri nslCniotivatibn towara effiCiencycOiJlrl be limited.
9
? 0 WfM;I-)
en-rdu.Stl-)..,,) ·
Appendix 3. Knowledge Generation in Tokaibane - SECI Model Analysis
1. Socialization:
While Tokaibane did maintain a good partner-like relationship with its customers, it seemed
(from the case text) that the engineers did not had the chance nor motivation to visit the
customers directly, thereby knowing their true needs and difficulties. This could be a cause of the
company's lack of new products.
2. Externalization
This process was what Tokaibane had been doing best. With its monthly meetings, action plan
meetings, groupware and redesigned website, knowledge and information from management
and employees of all levels were able to be externalized and shared regularly, which contributed
significantly to problem solving and knowledge generation.
However, as mentioned in Appendix 2 this sharing process was largely confined within Tokaibane.
Although employees from subsidiaries were required to attend the action plan meetings, they
were not so much involved in the monthly meetings and groupware framework. This directly led
to problems in the 3rd process, Combination.
3. Combination
Historically Tokaibane and its two subsidiaries had been operating independently without a
synergy effect. One attempt to pursue that effect by cross-selling Tokai Engineering's products to
Tokaibane's customers failed because the customers' needs between two companies were
different. In other words, the two companies did poorly in combining the knowledge about their
separate products and customers.
The introduction of communication mechanisms like groupware and action plan meetings among
companies would certainly improve the externalization as well as combination processes.
However, it would be better if there were regular, formal opportunities for these companies to
work together and serve for the same customer/project .
4. Internalization
Not talking to problems among companies, Tokaibane itself had been rather successful in
internalizing past experiences and tacit knowledge from skilled engineers into corporate strategic
know-hows. With the help of knowledge sharing processes, training programs and knowledge
management system backed up by IT technology, it was able to meet the most challenging
demands from customers (p.10) and managed to build the reputation "if Tokaibane cannot do it,
nobody can." (p.8) However, this process might be utilized further, together with the combination
process, to integrate craftsmanship with machinery/automation technologies and improve
Tokaibane's competitive advantage to a higher level.
10
far nobody cared about the
time consumingL and that the current ineffi cient producti on system
to the Increase In customers.
Limited infon:nation regarding specific operation processes in Tokaibane are given within the case
text and the website video. However, it is still likel y t rying to a few possible causes for the
low-efficiency problem as well as to provide some
1. Lack of motivation L {
As mentioned in Appendix 2, one poss' cause of production inefficiency could be the lack of
either extri n . . ic motiv ion. On the one hand, Tokaibane had been evaluating the
engineers on the basis of skills and working attitudes but not efficiency. On the other hand, its
corporate culture seemed to have overwhelmingly focused on the promotion of craftsmanship
and quality of products. As a consequence, even highly self-motivated employees were likely to
focus on the quality rather than efficiency part of their work (which could be observed from the
the observatiOn of superior compet itors. However, Tokaibane itself had been leader in the
custom-made spring segment, and therefore was rarely challenged/pushed to set up a high
efficien cy co ntro _______ -----
The diversity ana complexity of custom-made springs also contributed to the difficulty of setting
a practical standard through comparison, since it could be hard to find competitors, or even past
production experiences, that were truly comparable. On the other hand, similar standard was
\\ much easier to set for mass produced, standardized springs.
Finally, while it was obvious that quality control standard was important to meet the requirement
of customers, it was not so obvious that efficiency control standard was equally important to
reduce opportunity costs. Thanks to the IT system in Tokaibane, shipment delays could be
controlled within a very small percentage. However, this fact threatened to create an illusory
confidence among the management that "our efficiency is already high enough to satisfy all
customers". Only few managers were able to realize orders turned down because of insufficient
capacity (20% of all orders, p.13) were opportunity losses that could have been avoided.
3. sb.ould be introduced rather than avoided
While Watanabe was absolutel 'ustified to say "that handmade is the best way to achieve the
best quality" (p.10), it might not be right to conclude cutting-e g
em II pi 0 III is bs i-te-v.i.deo, it 5 eeme.dJj1 at
qui several steps like etting hot springs out of the forge) involved little craftsmanship but
were rather time-consuming. Introducing automation tec ·m-j·hM processes could
both ffiff-ea·se efficie
o
0/ and
quality.
it should be considered carefully what kind of automation technology could be
or even designed) to which process-es to nc while retaining high
Engineering
or help, who mllch-expe.rieoced in automat e
11
Appendix 5. SWOT Analysis
INTERNAL ANALYSIS
Strengths







Differentiated market segment, market
share, rapidly growing sales/n profits
(10%1109% CAGR, 2003-2006) . /
Technological strength, varieJY and
flexibility in quantity,
customers and in the industry.
Effective utilization of IT tech 010
acquire new customers, im ro
operations, and generate k t; wed e.
High alignment of people, orga . ational
structure and culture to the f-q pany's
strategy and goals 2).
Successful Externalization and
Internalization of knowled Ie ppendix 3).
Had been able to design d manufacture
a competent original spring).
Specified subsidiaries wit« [ spective
strengths (services/R&D'
Weaknesses



De-alignment factors remained within
Tokaibane as wef as it and its two
subsidiaries 2) .
Socialization and Combination processes
of knowledge ere not well
conducted (APpe?tJix ,resulting in few
original products t;.P cross-selling
opportunities.
Opportunity losses of orders due to
insufficient cap a Sity, wh·, h was partly
caused by low f o tion efficiency (see
Appendix 4) .
EXTERNAL ANALYSIS
Opportunities /
• Further utilize the
approach to acqui ew customers in
domestic and international markets,
which could increase revenues and
profits as well as cross-selling
opportunities of
• Satisfaction leve a retention rate of
existing custo er: might be further
improved thr h more effective CRM
initiatives, which could increase the
customer CLV dramatically and also
create cross-selling potentials.
• 'Go down (ream' by pursuing a
synergis 'c e ect among Tokaibane
and its t subsidiaries, greatly
expan g the cross-selling potential
of different products and services.
Threats


commoditizav/( tion become gradually
noticeable ev ·n the custom-made
spring segm t.
fs m ig ht shift
production/o e [ ion overseas in the
long run foil ing the trend in
manufacturing i ti ustries.
• Limited produ io capacity could exert


exploration of the first two opportunities.
Lack of comrfuJJleation and synergy
between coppa! ies could hinder the
realization of t e last opportunity.
craftsma " with difficulty in retaining
younger employees, might lead to the
gradual loss of Tokaibane's advantage.
12
Appendix 6. 4Cs and 4Ps Analysis
/ /
COMPE
L,..V
Parts
Industry Average ComQanies also
manufacturing
-
4Cs ANALVSIS (mainly
Tokaibane divisions within
mass-prod uction custom-made
aUtomo6J1 e and
----
companies) V products
..
electronics firms
/
COMPANV/
1.7B (06)

Revenue(¥) 10 M-
1.68 (05)
(small/midsize)
Operating profit
186M (06)
N/A
149M (OS) N/A (presumably
168M (06) lower profitability)
(presumably
Net profit b.tax
78M (05)
generally
N/A
26,897 (06)
performing
# Orders Tens to Millions inferiorly than
25,081 (05)
Tokaibane)
Average order 65K (06) Tens of thousands
size(¥} 64K (OS) to Millions
# Employees
63 (06)
1,00
1
(17)
57 (05)

Power plants;
V
Machinery;
General
industrial Locomotives;
equipment; Automobile Construction
Segments of Valves; companies; machinery;
major customers River gates; Consumer (presumably Their own firms.
(Targeting) Universities and electronics also Tokaibane's
R&D labs companies target
(mostly Web customers)
customers,
some from
abroad)
Order size and Varying.
profitability by See case text
N/A
customer p.12, also
segments Exhibit 8. N/A N/A
3,300 (2,500
# Customer base existing and 800 10
new)
13
# Order-placing
customers
Retention rate
Relationsh i P
with customers
Share of largest
customer
Share of
individual
segment
Suppliers
Business
partners
4Ps ANALYSIS
Major type of
product
Production
method
Variety
Quantity (#
Springs/order)
950 (06)
880 (OS)
87% (33%-
100% for
different
segments)
"Partner
ll
14%
1s
t
market share
in industrial
machinery
N/A
90%
Large companies
had close
relationship with
major clients based
on long-term
contracts.
"Subcontractor"
30%+
N/A N/A
Raw material manu turers, The number of companies that could supply a
special type of steel was limited.
Subsidiaries.
Clients?
Tokaibane
N/A N/A
COMPETITORS
Industry Average
(mainly
mass-production
companies)
Companies also
offering
custom-made
products
N/A
N/A
N/A
N/A (maybe
larger than
Tokaibane ?)
Tokaibane
(for springs they
could not
produce
themselves)
Parts
manufacturing
divisions within
automobile and
electronics firms
Custom-made
(to firms)?
N/A
Not very high -
have to turn to
Tokaibane
sometimes.
N/A
14
Few were able
to meet the
Quality High
N/A (little specifications
N/A
differentiation) Tokaibane
customers
required.
PRICE
13,{y/
N/A
Average Less t
11 to
(presumably
Price/spring(¥) Hundreds lower than
N/A
Tokaibane ?)
PLACE
./"
Direct sa les
Online salEf


Presumably
Direct
cust ers di ct mainly direct
acquired since
2003)
/
/ PROMOTION
Discounts No
f
Ii Yes N/A No?
Advertisements Web Ads
/
Governme V'
and business
awards.
Public relations
TV/Print media
features.
Factory visitors.
Tokaishoji
provided "tool N/A N/A N/A
remake", a
grinding service,
to its customers.
Other
Tokai
Engineering
specialized in
advanced
products R&D.
15
Appendix 7. Customer Life Value (CLV) Analysis - Improving retention rate vs.
% of general industrial equipment = 6%
No. of general industrial equipment = 150
Retention rate = 70%
v
No. of annual orders per customer = 44, Amount per order = ¥41,SOO, Profit margin = 38%
Annual value per customer, by profit = 44 *41,500*38% = ¥693,880
CLV per customer = 693,880/(1-70%} = ¥2,312,933
Total CLV = 2,312,933*150 = ¥346,939,950
% of other segments = 94%. Retention rate = 100%. No room for improvement.
Sensitivity analysis: Improve the retyhtion rate of general ind ' stripr::uiPment custom!'rs
/
20% incre s ease
Current retention rate 70% 70% 70%
Retention rate after 80% 85% 90%
i provement
2,312,933 2,312,933 2,312,933
V/customer(¥)
, CL'-\'customer after 693,880/(1-80%) = 693,880/(1-85%}
=
693,880/(1-90%}
improvement(¥} 3,469,400 4,625,866 6,938,800
/
Incremental 1,156,467 2,312,933
CLV/customer(¥)
Incremental CLV/total 346,939, 0 693,880,050
150 customers(¥)
Retention rate = 33%
=
Assume the rest new customers (procurement, trading companies, individuals) all have a similar
profile (which is an optimistic assumption).
No. of annual orders per customer = 2, Amount per order = 40,300, Profit margin = 54%
Annual value per customer, by profit = 2*40,300*54% = ¥43524
CLV per customer = 43,524/(1-33%} = ¥64,961
Sensitivity analysis: Acquire new customers without improving retention rate
800 new customers 1,600 new customers 3,200 new customers
Retention rate 33% 33% 33%
CLV / custo me r(¥)
64,961 ____
64,961
--
-&4,961
J
CLV/total (¥) )3)",971: 200 207,884,800 V
v
16
V
3. Acquiring new customers AND improve their retention rate
Here assume only 73% of the new customers acquired via web - R&D/ universities and labs - are
likely to be retained at all (which is a conservative assumption).
is: Acquire new customers, AND improve their retention rate
rs
Effective rate
No. of effective customers 584
Current retention rate 33%
50%
43/524/(1-50%) =
87/048
43,524/(1-65%) =
124,354
(lV/total (¥) 72,622,736
80%
ClV/customer{¥)
43/524/{1-80%) =
217/620
ClV /tota I (¥) 127,090}080
90%
43,524/{1-90%} ==
435,240
(lV/total (¥) 254,180/160
custo
73%
1168
33%
50%
87,048
101,672,064
65%
124,354
145,24SA72
80%
217,620
254,180,160
90%
435,240
508,360/320
customers
73%
2336
33%
50%
87/048
65%
124,354
290,490,944
80%
217}620
508,360,320
90%
435240
( (
~ l ; ' . ·
17
To: Yoshiki Watanabe, CEO
From: Vlanager
Date: Lbtl1 at November, 2012
Subject: What opportunity to pursue in order to secure the future of Tokaibane.
qualitative in nature, which is aimed to help :rou make a decision. You also find
eco men arion based on the analysis, and a 121al1 of action regarding how to implement the initiative
<=
·tsetf as well as how to gear up for opportunities I believe the com any shOll- d act on further in the
Situation Analysis:
Before deciding how best to move forward it is impOliant to be clear on where we stand, and to
identifY bo1l"il5pportunities and potential threats we must act on to remaincdTnp-etitive. The context of this
section touch on the most relevant points from the SWOT, 4C and 4P analyses that can be found in
3 respectively.
I our uyers have over us been mitigated, but also Tokaibane has managed to change customer 12erception
. that we are considered a miner rather than a subtracter (pg. 12). This, I believe, has bee a' or

factor in our cf t mer final point I want to touch on is that tll . wide customer se
we have due to the nature of our product protects us in many ways from the fluctuations the spring
manuiaetminginduslr-yfeelsGuring economlc ownturns. or example, a'iii1"i1gthe ten year period
1991 ...... 2000 the indust ha e.r.ag..e_gLowth rate..oW 4{)%-w-her-eas-w@-f).m.y-hacLa negative average
ck of predictability of when fe-orders will it difficult!
oangerous..19.. depend on theexlsting customer base too heavily for sales. That said, the·website has
helped signiti-caltt-ly -in actd(ess1Og that weakness, enabling the company to break out of the stagnation it
experienced in the 1990s (pg 6). The new customer acquisition rate has created a new weakness however
- we are unable to meet customer demand. According to some of our s are cUlTently
y all orders. (p..g 13) That repre.sents_a.huge..opportunity_c.0.S-1,As-outlined in
be viewed as an 0pPoliunity can a way to our of
mareFfa- S oc eve s. mifi ennore, desplte..DUl:..-we.eS-l-t-B-B-H-Ly.. beIng avallable 10 Japanese a number of
came from overseas (pg 14). Imagin!'Jlow many more would come if we had a website appealing
!directly to those markets. Finally, if better synergy between each lnember of the entire Tokaibane gronp
r OUld be found, that too would present a huge opportunity.
these-trends tlmtru:CTargely affecting the spring manufacturing industry as a whole, but as you have
-1 ) It wou en 0 to them.
Definition of the question at hand:
Knowing now that the changes we made to our website in the early 2000s successfully met the
goals of that project (pg. 8), it is time again to move our
need to answc:.. is which of a number of options is the best to pursu .
Identification of Alternatives:
We can continue to focus--on new customer ac ing our website to appeal to
global markets. In contrast, we can focus on '-1=0 Its from 1e existing custom.,g..b sc
etTIploying CRM techniques ty1 luate the "Customer Lifetime Value" (CLY) eac of our clients
represents. Finally, we cane cross-selling opportunities services and seeking
synergistic opportunities between all members of the Tokaibane group. (pg. 14-15)
Evaluation Criteria:
The next initiative we take
1. Continue to expa d sale -y acquiring new customers.
a. Although we cantlOt fill all order requests, without new customers OUf growth will stagnate again if
V
of existing customer base (CLY).
1 ,. 1reats resented by outsourcing overseas and/or ·conun oditizatiqn. 7-
4. Reduce, or aJJh -very least not increase of ; de;;= we have to reject.
a. This represents a huge oppOliunity cost, as shown in Appendix 5. We certainly shouldn't increase
its impact.
to focus on Customer Acquisition through the website: Go Overseas

-1fll ,):.fpt;, suslain Ihe growth we've seen in the
I ,r few years. We know there is an interest.
- Will position usfavorably for our exiting
dolne move operations overseas
W 'lIe also giving usfirst mover S advantage in
compariso , toe/omestic competitors.
6;;: pen up new supply channels as well
- Co an increase in the nurnber 0/ orders
w 'I' -have to reject.
- logistics - will need to learn new
mltrfetslimport laws cr.-
- urther training of our sales/orce who
are according to our sales managers Shuji
Watanabe and Hiromi Okitsu already under-
trained. (pg. 13)
aximize eLV by employing CRM techniques - treat different differently.
Pros -- Cons
- 'ill our relationship with our customers as - will 110 1elp us to prepare for if/when our
partners rather than sub-contractors. custo ers';;;;ve their operations abroad.
- Will relieve some of the pressure on our sales/orce - Will close us offfromfurther developing
b e will befocusing on Clistorners we know. the customer bases we had
- May help reduce the risk of commoditization as Ollr never thought of before (such as individuals,
relatiQ 1ship with our customers will be part of elevator manufacturers etc.)
! what we are selling It is something that cannot be - May j ompromise 1e premium pricing advantage
duplicated. we iJcwe, ,'eating each customer equally by
refusing to discount an order for Kobe Steal was
one of the best strategic moves you made in the

past - acktracking?
SeeltCross-Sellin 0 ortunities and develo
Pros

aturally increase CLl/without compromising - increased training of our sales force
ou
- MayheJp us manage our supply chain more easily -
in projects earlier on U gives us
more time to 3Jdeflnaterials.
- Wilt6cJtr&the risk of commoditization.
ce oriented offering ,
v lo.entified.
as -it more involvement 011 their part
both internally and externally.
- m < e tried to create synergy between our
a ffiliates before and failed. Is it really pOSSible?
- the threat of our

customers moving over-seas.
uilding a website and salesforce team that appeals to the global market will allow us to expand
l!pon 1-8 t'0WH;l- we've already achieveQ.JU1d-will-cQ.ntipue to open our eyes never could
h;lVe-imagin.e,d before-:Thus it number one ad antage of one of our V
t will also reduce t le fisk associ'ataI with the global trend of outsourcing or re-Iocating
----wm· 0 countries which arc less expensive to ?perate in. By creating an international infrastructure and
establishing the required logistics now, we will already be in place for our customers if/when they Inove, C
rl

Proactivity .. . .J2§.en..a-part of our culture-foralo ng ftme' la? -hasoeen a crifI ca -factor in keeping us (
I think w.e...shQu-ld-eemtinnc-in this-tradition. V k' '3/
Of course this option is not witho( drawbacks. is safe to assume a globally oriented webpage -t- 1
II attrac.Lnew-cnslomel's, based on the e already receive 2-3 order requests per month from tf ,
overseas customers despite only offering a Jill?anesc (pg 14) website. However, we already are unable to
keep up with the demand OUf current is creatin. -

(appendix 5) and may decrease customer satisfaction. The second pali of my recommcndatioll..-1l1ay- hdp
to alleviate S01ne of this press 'e, but measures will need to be taken to makc sure we are procuring
enoug matena to serve 0 1 customers.
is that we ,will have to train our sales teams to deal with our over-seas
customers. The language barrier aside, this Inove will com a-BJ-ethora of other
factors-I.,llsure we can't even begin to im.agine. That said, it's better to learn these things now with a
new--stnaH-cus <5'itiCf'" base than wh en our larger here in Japan need us tOl> and when there will be
less romn for and understanding of errors. In fact, b establishin _ ourselves overseas now, it may create a
furthe . ty.-fu :1.1$, k)-effer -G0flsult-ing-servrces:-We-wi-I-raiready-b:ave'va-l:li-able connections ----
cllstomers will need, and will have experience in establishing an overseas
presence.
The other rna' or course of action we should initiate is to
t lan only machine parts. propose that we 5tali by offering consultation Cflii=ing ffie-aeslgn phase of
'm uc s s ruc ures that may use our springs. The long-term goal of this initiative is to find other
to provide service as [laS discOVe-r-- ynergy between ourselves and our subsidiaries to
create cross-selling opportunities II\.--tlle short ter le enefit will be to increa.se eLY as it will further
thcir dependency on us by building.up.on-O-l:l-rre ationship as a partners rather than subcontractors.
Furthennore, by being involved earlier on in the development and design process for at least some of OUf
customers, it will give us more opportunity to procure material as those customers will be coming to us
far in advanced of needing parts. Althou . , . n' t a solution to our stock out problems, it could
celiainly be 0 -Gtion.
The rst co tiisted for this. option, needing to further develop our sales force, is shared with the
website idea, so in thiuespect-it-does-I'1 '-t-addcrrrew cnallcnge to IS plan of action. Training in both
"(
overseas sales and service-sales can be done in conjunction with each other. The J econd is that attempting
to achieve synergy betw. en ourselves and our subsidiaries bas never worked before, but because the first

phase of tIl' . cused on adding service to the Tokaibane b!-and, not the Tokai Group brand, at this
/
'con' is In fact, one potential benefi t of this approach is that by becoming
ll1VO , eSlgn process our customers go t rough, we may De a5telo ideITrtfy opportut1i1tes for
synergyncf\VCen our 6rands that we couldn't see before because we were too far removed from our
custOlner's process to identify them. Finally, while this paIi of the initiative does nothing to address our
concerns about domestic o.perations pOIiion of my
recommendation does. In other words, these two initiatives compliment each other's weaknesses and
---- together address all of the opportunit1eSand threats identified earlier on in this memo.
J mplementatiol1
Translating and developing the new website can start at any time, but the actual site itself should
not be launched until a number of other milestones are achieved. One of the first things we will need to
do 1s audit our cun-ent sales force to see what our talent is able to do already, and what we need to teach
thenft'lr-lecfffYl6." 'SfuijTWatanab>e ani}HTrorill Oklts both expressed concerns about the current
level of sales fUfhrilTg- . 13), so I rec{nmneno ha " g them take a leading role in this process as they are
already committed to the idea.
from/ n\ eral audits and people developlnent. we will also need to-h-ifG-lllOl:e sta' OllLSales
force as it is now cannot support the kind of lnoves I am recommending. It is essential, however, that the
advancement these moves provide go to our eXiSting employees first before we start' hiring people into
these positions.
Furthermorc we will need to create new depatiments within our sales force . The strate ies and
infonnation wilLn.eoe.dlO-kncLw_to.-help_c..usiomerS-Q.\Ler-sGaS-i.s-aoi .... t11€-same_ what our domestic
--- s<Jksforce requires. Also, while sales will be a part of the consulting service I am proposing we creatc, it
is t the onl skill that ' be. J-llc-eo.nsHlt-anf w,i'H-a-lserneed-t{) -have-eTIgrrreefing and spring
manufacturing experience. Speaking specificagyto the ne v· ce t· n of our business, the leaders of
the new consultmg tea! ulcLr:eport dn:€-Gt-l¥ te ME 8- -agHG1H, -as-th@-lHSI.ght-s-we .. gaU=l-fl1a-Y-J7resent new
being the
opportunI Ies.
-------Once we have identified at least a few people who can serve in each function, we can st311 to
offer these expanded services on a small scale, because it will help us to start identifying challenges we
will encounter prior to a full-scale launch. Using our direct sales force channel, and giving any
intelnational inquiries that are generated the dealcated international sales
staff is ho.w...ls.ugg.c..s.Lac.CDmplisbing this 'beta' stage of implementation.
I launching the web.sit:e...an.d.-SeJ;:V-i.ce-f.ull.y.-is the fin.aLtask....ihis....p1an,....b.uLbefor.e....w..e....dQ that we
have to address our supply chain Inanagelnent. One of the key goals you Identified-'wIlen we first started
to develop our web-based service was to reduce our on-site stock of tokushu-ko steal LPg... 7), we
able to accomplish this (pg. 8). It was great to be able to...Le.duc.e the_cost oi.imLentOl:y, however because
our gro-wth bas..sped up so .. nlucb...since th.e launch of the website, this reducti.Ql1 in inventory is now
costing us a significant number of potential sales.
Therefore I think it is imperative that we fe-evaluate OUf base material needs. There is Ii,ale point
in trying to grow fiIft her If we cannot support the increase in production that growth demands. In fact,
repe; tedly dec1iningJQ.SeDLC our customers may damage our brand image in the long run. As I stated
above, one thing that may help alleviate this probleln is the introduction of our consulting set vice to our
customers, but it will only help us when our involvement in the project is early enough that we can order
steal specifically for the project's needs. There is nothing we can do to change the lead-time associated
with tokushu-ko production, so suppliers cannot help us in this matter. It is something that we will or- ______
need to Q..alLe-OllLp.r.o.cuIe.m.e.ot team.e..'laillate.,....an.cialihuugh....this is the last action I list in the
-
implementation pJan,-it...is...the...rru t important in Iny opinion. This, the intelnal sales audit, and the
building (but not launch) of our website should all start immediately. As each o"'f1twse three-things
develops, we can move into the subsequent steps to reach our end goals of offering our full range of
services overseas and broadening the scope of what those services include.
Ap endix 1: SWOT for Tokaibane
.-
> /
- Maha .ei to differentiate from the crowd
. - Custom-made springs (pg 4)
o overly dependent on anyone customer
- ) ,300 customers vs. 10 (large-scale
I company profile) (pg 4)
- AheQ-'o of the industry re: internal use of
}
t , cmology
- Workforce skill quantification (pg 5)
- Customer information (pg6)
- Forecast for demand
- Web-page
- Reorder system (pg 8)
- customer acquisi tion (p g 8)
/ Control Systems (pg 6)
eady 0 shipment delays epg 6)
- High customer satisfaction (pg 8)
- Thought of as a partner rather than a subtracter

Opportunities:
- verseas customers (pg. 14)
- tP{],0% they' ve had to tum down (pg. )3)
- tlj-;{ter collaboration with Tokaishoji and Tokai
gngineering if synergy can bc achieved.
- Take better advantage of the perception as a
pa11ner.
Appendix 2: 4Cs - Tokaibane
I
Compa1ty:
- SmallJMid sized manufacturer (pg
2)
- See S\VOT for more details .
/
- 2,700 other small spring manufacturers in
general when looking at company classification
(small/mid-sized spring manufacturer) epg. 3)
- Howevcr, very few of these companies
compete with Tokaibane head to head
due to product differentiation. (pg 13)
- In-house pa11s manufacturers (pg 12)
Weaknesses:
- U ab to meet increasing demand
- Must turn down 20% of orders (pg 13)
ugh a large % of orders are re-ordcrs they
re hard (pg.6) .
- Dypen efit on a matenal wIth an extremely long
liacl ime which makes it difficult to be flexible.
- (pg 15)
- CU& Gf operations moving overseas (pg J 4)
/

-
- Tokai-group?
- Question mark because to date attempts
I to find synergy have been unsuccessful.
-
- 828: The "Other" 20% (rg 3 and exhibit 6 pg
24)
- PO\,ver Plants (31 %)
- Machinery Companies (26%)
- General Industrial Equipment (6%)
- Valves (11 %)
- River Gates (5%)
- Other (21 %)
- R&D divisions
- Universities and Research Labs
- Trading Companies
-
- etc.
Appendix 3: 4Ps - Tokaibane
Product:
//
Place:
/./
- Springs of all su?(;
D' rf/ 'b'
- Irect Istn utlOn
- Four major types (pg 3)
- Coil: M(\rket Size Y 788
- Leaf: Market Size Y 150B
- Seat : Market Size V 458
- Twisted Bar: Market Size ¥ 24
- Highly customized
- can be developed for specific
needs (Ferrari example pg. 1O)
- Handmade
/
-
~
Promotion:
/
Price:
L ~
- Direct Sales ForeV' - Avg. 13,000 per spring (pg 4)
- Website - Premium pricing
- Reflects value of custom springs to
customers (pg 5)
- 30-40% profit margin on re-orders 50%+
profit margin 011 new customers (pg 12)
Appendix 4a: Five Force Model Evaluation - Spring Industry in general
Appendix 5b: Five Force Model Evaluation - Specialty Handmade Spring Manufacturers
One could created a new sub-i ry wIthin the Sprmg-Manufactunn
though' . tegic choices and success. Below is an analysis of the attractiveness of this 'sub' ind
they focusing on the more' downstream' se t of the customer se
/
,Ill :- .:.t:..:,' U ? II.)! ':OOQ ul
'L'lk, :hc .nd .... ,u: lher
r
art'
rI .hl' r .TI ;. \ Jr.l'.1
'n r
i . '" t. II ": , . I! .:c L. 1. 1: . ( .. 1., 1 , 1.'\' .1 -'
: ":"1' :. II ' ... . ,\ IIll'

Conclusion: Moving towards the where
the end-user doesn't =:i:hd-ifet.- -y,e-r use (bridges elevators etc), Tokaihane
moverl-a-bout as far allalysis on the
attractiveness of trying to more aggressively move downstream, see Appendix 6. The analysis there
shows that Tokaibane doesn' , downstream. It
may wan 0, lOwever, try to broaden its reach where it's at so that it can take advantage of the unique
wIth Its customers.
Appendix 5: 0ppOliunity Cost Eva::S
I . HDw manyyustomcr reguests, as a number rather than a percentage, are actually turned down?
ja. Of order requests are turned down. Therefore the number for 2006 on exhibit 4a rcpresen
V 80% of total requests . How many requests are tumed down?
i. 26,897 = 0.80x --). x = 33,621 orders are requested per
ii. 33,621 - 26,897 = 6,724 this number represents how rna ' orders were rejected.
2. What amount of potential revenue does that represent?
a. Average order size in yen is 65,000 (exhibit 4a).
i. 6,724
x
65,OOO = 437,060,000 yen --). How much more revenue we could gain if we fulfill ·
1000/0 of requests. / ______
3. How much of that would contribute to net pro!lts') v-----
a. Profit margin on e-orders is 30-40
0
n new customers it's 50% or more. (pg. 12)
b. the ratio ofil - 18 er orders to existing customer orders is unknown. To be
somewhat conservative the assumption in this calculation is that between new customer orders and
repeat customer the margin will average out to 400/0.
c. Because the company posted a 100/0 net profit, we can assume that the 'break even' point has been
met. Furthermorc all \fariable costs arc included in the profit margins quoted on page 12. Based on
the above assumptions the entire 400/0 of the pvoential rev · Hue that represcl)ts profit would have
gone to the bottom line:
i . 0.40*437,060,000 = 174,824,000
4. How"mueh'1f n impac oes rtnn -present?
a:-frwoutdiTIive more thM value of the ' ttom line in 2006. .
1.62,.5-9-8..,D.OD.....- - ___ _
b. Profit Margin hnpact: Increase by 5...lS. point..?!
i. (167 174,824,000)/(437,060,00 + , 3 ,231,000)= 15.750/0
- AppenOix 6:
Industry 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Market Size 409853 389577 358580 347478 342920 327064 336970 303994 283072 297028 267278 271684
/

Growth -4.95% -7.96% -3.10% -1.31 % -4.62% 3.03% -9.79% -6.88% 4.93% -10.020;1 1.65%
.; .:: 1 .424,2' 1.463.1' 1 ,641 ,3 1.486,0' 1 1 ,51 0,3f 1,378, 8f 1,303,8:
-23,320/. -6.920/1 -:.08% 9.B5 % 2.73% 12.18% -9.46% -15,910/. 20.86% -8,71 % -5.44%
Average Gromh Rat{ 7
Growth

) ) )
Appendix 7
§

' ;:)
OJ
'"0

U
:J
Q
Q
::I
C
.s
A
Does moving furt'her downstream mak Dse for Tokaibane?
h
n
fk, 1f ••
"'(j Il l' d, ... IJ
' ....... "
\ ' 1' \tIlTn
rt"llIr
'.
, , " .... " .. f)",,," '" "'" II,.""".,
IIL'fJ(' I ;
I.,' ,'i1r ,\ J,lill.
HilL"':-- .llt:-acm:
,lttractn ['
hut
Not ImJ..:h
The chart above is an adaption of tb,e:.:.J-fo?---::sroJ5fOtl-t--a----QQWB.Slream presented in the Harvard Business RcvJ(:,'w article titled "The New Profit
Impcr'ati-ve"'",-hlo raef of appearance in bot h the anicle and the chart , the njll C-GRl ertaUpOl1 Ratio of installed base to new
product sales-; Life cyclE economic aC-livily a-.; a multlpleofpi'6o-uctc-os t, DJITercTiCc-bctwccn downstream margin and produclmargin, Magnitude of product-based
d i fferentialion, Market' share 0 f top -fiVe o flOtal profit cam<.: (\ from top .20% or cuslomers, [) istri but ion and 11 i ng <.:xpcnscs as a percentage of product Ii ne,
Degree of channel concentration: "Market share of distributor s, DC!!I' ce olcn{l}111cl innovanon or --- --
The ratings prescnled on this chan reflect my perceptiol1 of the weight each CaL:LOr should have 111 deciding Tokaibanc's future in going funher downstream, The chan would
look very different' if it were to represent the IIldUsllY as a whole. but in the case ofTokaibanc I do not see many oppoltunities to move further downstream than iL already has,
Looking al each o[the three broad categories: Although the ratio of install-base to new prodll C\ salcu 'i high __ able LO be madc more "springy" so there is little _
the prot1.iiCt. Al so, because of lAP ciiJ1crsir I - -, ' slomcr base, it is difficult to evaluate the difference between downstream
margi n and the producr ase aile ow I ar downstream l ok,rihane-al.reati-y-is" '------
this sigruiican-H-y-tcrtITe model. Fll1all y, l S the iITc1evanr, · -
..

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