profits were only half those of 1982 (see Exhibit 4). This stagnation ws the incredible growth taking place all around Komatsu. In the Komuatsu’s profits plunged, Japan's GNP grew 43%. Alt construction equipment had rebounded since the 1982/1983 downt smaller, lighter, and therefore, less expensive equipment such as ‘mini-excavator had dampened the impact of the recovery (see Exhibit ‘Worse still, worldwide industry demand was expected to dip years (see Exhibits 2 and 5). (Indeed, demand had already peake With the global political economy in ‘the midst of major upheav: projects on the wane, Katada was pessimistic about the industry’s long-term prognosis, and even ‘more concemed about the suitability of a strategy tightly focused on this declining sector: There are doubts about the future demand for construction equipment. Central and South America and Africa are having problems with accumulated debt; the Soviet Union and China also have their problems; and the price of oil is [depressing demand for construction equipment}. In the places where there is latent demand, the market is dormant.” As a result, 90% of our demand is in America, Japan, and Europe. ... We cannot hope for growth by relying simply on construction equipment! ‘We need to take an objective look at the world economic situation and to discuss future moves within the company. In other words, I want everyone to stop. ‘concentrating simply on catching up with Caterpillar: ‘This call to abandon Komatsu’s long-established competitive slogan surprised many observers. But Katada went even further. He openly challenged many of the company’s deeply ingrained organizational processes and even much of the management philosophy that had made ‘Komatsu the textbook example of management by “strategic intent”? The new president expressed his views openly: The company is now stagnating. It has become stereotyped and bureaucratic. The spirit of enterprise and challenge has been lost. .. . When Mr. ‘Kawai was president, the time and our situation allowed him to employ a top-down approach to lead the company. But times have changed. ... First, the world economy is more and more borderless, and companies must play an important role in developing international harmony. Also, the values of the young people in Japan are changing, and increasingly they question narrow, top-down directions. ANew Culture; A New Direction ‘Managers at Komatsu confirmed that Katada was less autocratic than prior leaders. Said one colleague, “Mr. Katada believes that one can’t manage from the top down, and that any important idea or concept should be fully understood by everyone before a campaign proceeds. ... His style of free discussion is new in Komatsu.” In keeping with his participatory style, Katada encouraged debate over the company’s future direction. In off-site meetings and other forums, he invited a broad spectrum of managers to help shape Komatsu’s new mission. During a June 1989 off-site meeting (billed as a “directors’ free- Aiscussion camp-out”), Katada proposed a new slogan to help crystallize the nascent consensus of the See Gary Hamel and CK. Prahalad, “Stratgic intent” Harvard Business Review, Volume 67, Numbee3,p. 6. s This document is for use only with the Harvard Business Publishing ‘Case Analysis Coach’