Japan ABC System Ltd.

Case1: Chairman Saito and Myself – A Process for Planning Organizational Reform –
(before Covid-19 situation)

Background:
You were headhunted to be the third CEO of Japan ABC System Ltd. The
company’s core business is development and maintenance of the production control
systems for manufacturing companies. The company was established 30 years ago by Mr.
Saito, who is the current chairman of the board of the company. He single-handedly
developed the company from a small family business into a large company, which has 70
employees and 2 billion yen in annual revenue by end of this year. Most of the current
executives in the company were taught and groomed by him since early in their career.
Japan ABC System is currently an unlisted company, has three branch offices within Kanto
region and the Headquarter is located in Tokyo. The company is privately owned by Saito
and family.

The main customers of Japan ABC System are SMEs in manufacturing industry
that has the headquarters located in the Kanto region. However, as their customers are
expanding their businesses and are opening factories abroad, Japan ABC System finds that
sales are slowing down. In the past 3 years, sales haven’t been improving and although the
company is not making a loss, profit has been very small.

With the increasing salary cost in Japan, one of the issues that Japan ABC System
has to consider is whether they should open a development center overseas or not. In
addition, the company is considering about targeting their customers’ factories located
abroad. Under such circumstances, the company has started employing SEs from India in
the Tokyo headquarter and also outsourcing some of their systems to a company in Vietnam.
Slowly, Japan ABC System is globalizing its organization.

Although Saito is the chairman of the Board, at the age of 68-year-old, he rarely
shows up at the company but instead, he spends most of his time in his holiday house in
Karuizawa. When Saito stepped down from his position as CEO 3 years ago, Mr. Okuno,
was brought in from a big electronic company and replaced him as the second CEO of the
company. After becoming the CEO, Okuno tried to implement a lot of changes to the
company, especially on their marketing strategy and organization’s structure. However, his
actions received strong rejection from the employees and many employees ignored his
directions. One of the difficulties faced by Okuno in gaining acceptance from the employees
is the fact that Japan ABC System is a typical technology company and most of their
employees have science or engineering background. Therefore, it was difficult for the
employees to relate to Okuno who doesn’t have background in science or engineering and
is not well-versed in technology. In addition, the employees were used to Saito’s autocratic
style where he made all the decision while Okuno who was from a big company had a more
democratic style and wanted more involvement from other people.

At first the relationship between Okuno and Saito was pretty close and they were
supposed to work closely together to improve the company. However, as time goes by, the
relationship between Okuno and other employees became worse. During the final 6 months
of Okuno’s term as CEO, three of the executives who have worked with Saito for a long time
went around Okuno and instead went directly to Saito for instructions. Saito also heard
negative comments about Okuno from other employees. In the end, Saito was unable to
ignore the comments and decided take action against Okuno. Okuno was forced to resign
3 months ago, due to his poor performance for the past 3 years.

You were introduced to Saito by a headhunter 2 months ago. The two of you hit it
off instantly and Saito offered you the position as the CEO of the company soon after that.
You, however, did not have the opportunity to discuss thoroughly about the company’s future
with Saito before you signed the offer letter. Since you certainly would not want to follow
Okuno’s footsteps, you have to be careful with what you do and how you do it. Last month
you attended a seminar titled “A Congruence Model for Organizational Change” by David
Nadler, an American scholar. You haven’t understood it fully, but you are thinking of applying
this theory to Japan ABC System in order to improve the situation.

On the very first day you became the CEO, you had the opportunity to talk with
Saito about the company. In the discussion, Saito set some aggressive goals for the next 3
and 5 years.

(in million yen)

Performance this year (forecast) Goal for Year Three Goal for Year Five
Sales: 2,000 Sales: 3,000 Sales: 4,000
Profit: 0 Profit: 300 Profit: 600
Some of the thoughts that Mr. Saito shared with you:

1. Okuno was a little bit too idealistic. As a result, no one wanted to follow him. Even
though he is from a manufacturing company, his background is not from science or
engineering and he has some difficulties in understanding technology. This also led to
some difficulties in communicating with the employees.
2. Our company consists of mostly people with engineering background which gives us a
disadvantage in the management and profit-making side of running a business.
3. Maybe because of poor organizational structure, there is a lack of communication and
cooperation between departments. This, sometimes, leads to major errors involving
important customers. When I talk to the department heads, it seems that they always
complain about other departments.
4. It will be essential for our survival to provide products and services that fits the
customers’ demand. Since our core service is the system support to manage our
customers’ important production sites, it is really important that we improve the
cooperation between our sales representatives, engineers, maintenance team and
customer service team.
5. From now on, it is not individual battle; we have to work as a team. However, it seems
that there are too many self-centered SEs in the company. Some of the young SEs are
more skilled in system architecture than their supervisors. They don’t like to be
evaluated by supervisors who are less skilled than them and these young SEs doubt
the value of their supervisors’ existence in the company.
6. Japan ABC System purchased a small company 10 years ago. Mr. Yamamoto a
talented researcher from that company is now the head of the R&D department. He
recently invented and patented a small microwave Doppler sensor. This new sensor is
able to monitor biometric information of factory workers such as heart rates and blood
pressures. This sensor could be used in a wide range of application; for example, by
monitoring workers’ physical conditions, it can prevent major human errors at
production sites. Once the sensor is introduced to the world, our business performance
would increase dramatically.
7. Some personnel in the sales department and system development department think
that it is more important to focus on the existing products that can increase today’s sales
rather than those that require longer time to get a return. They feel that R&D department
uses up too much money and some managers doubt that the company needs its own
R&D department.
8. I (Saito) think two main factors for the future of Japan ABC System Ltd. are the newly
invented sensor and the globalization of the company. Globalization is important
because most of our customers are moving their businesses abroad. There are cases
where they completely moved their production sites to other countries by shutting down
their factories in Japan. We as a company also need to think about expanding our
business abroad in order to achieve the overseas’ sales ratio of >60% within next 5
years, which is only 5% this year. Currently, however, only a few of the employees have
experience working abroad. Also, only a few employees have English speaking ability.
We have to train our employees to be global talent as quickly as possible.
9. At the same time, we want to hire more foreign employees in Japan in order to provide
diversity in the headquarter. Moreover, in the future, I’m hoping to ask them to go back
to their countries such as India or Vietnam, be a pioneer to build relationships with local
companies and provide them with our services. In fact, Shiraji an Indian SE, who was
recently hired in Japan, is an outstanding individual and have surprised the people
around him with his skills. It will be interesting to see how the future develops with these
talents.
Structure of the organization and the number of employees in the company:

Chairman - Saito

CEO - Yourself

Administrative Department Sales Department System Development Department

(Okano) (Morita) (Kobayashi)

System Department 1 (10)

Finance Department (4)
Personnel and Administration (3)
IT Department (3)
Tokyo Sales Department 1 (4)
System Department 2 (10)
Tokyo Sales Department 2 (4)
System Department 3 (8)
Yokohama Office (3)
Maintenance Department
Utsunomiya Branch (2)
-Tokyo HQs (7)
Chiba Branch (2)
-Yokohama Office (1)

-Utsunomiya Branch (1)

-Chiba Branch (1)

R&D Department (4)

To Do:
Before Saito left for his vacation house in Karuizawa, he told you “ I am planning
to come back to Tokyo in a couple of weeks. Please think about the process you want to
take to reform the company by then.”
Please describe below the steps you would take to make the “Organizational
Reform Plan”. (※Please note that you are not requested to make the organizational reform
proposal itself at this stage, but to propose the process and action plans to develop such
proposal.)