ORGANIZATIONAL BEHAVIOR

A Behavioral
Framework of Corporate
Transformation
Through Renewal and
Revitalization
The key to the long-term success of an organization has
changed from sustainable competitive advantage to
continuous self-renewal. This article details the process of
corporate renewal and revitalization. The key to making the
process of corporate renewal work is a carefully planned
sequence of steps, which would lead to revitalization. The
framework of sequential steps includes reorganizing,
realignment and rejuvenation. Reorganizing is breaking
down the firm into small units in which, individual initiative
and discipline can be instilled.

ate sequence. Second, the managers

of the successful companies recognized that transformation is as
much a function of the individuals
behaviors as it is of the strategies,
structures and systems that top
management introduces. As a result,
rather than becoming preoccupied
with downsizing and re-engineering programs, they focused much attention on the changes required to
fundamentally reshape the
companys cultural context.

A Phased Sequence of Change

ealignment is cohesiveness
of cross-business units relationships, and providing the
necessary support, stretch and trust
for them to work effectively together.
Rejuvenation is ensuring continuous learning across the entire
organization.
The model is illustrated using
detailed examples from Kao Corporation of Japan.
There are ample examples in the
corporate field in which many organizations have tried to transform
themselves through revitalization

and self-renewal. Yet, for every successful corporate transformation,

there is an equal story of a prominent failure.
What accounts for the success
of some corporations and the failure of so many others? In observing,
how the successful corporate transformation processes have differed
from those that struggled or failed
outright, it is observed that first
successful transformation processes
almost always followed a carefully
phased approach that focused on
developing particular organizational capabilities in an appropri-

A study of the failure of corporate

transformation efforts reveals that
companies that failed tried to
change too much, rather than
change too little. Faced with the
extraordinary demands of their
highly competitive, rapidly changing, operating environments, managers have eagerly embraced the
flood of prescriptive advice that
consultants and academics have offered as solutions, typically in the
random sequence of a supply-driven
market for management fads. In
many companies, the frontline
managers were bewildered when

2009 The Icfai University Press. All Rights Reserved.

Electronic copy available at: http://ssrn.com/abstract=1885289

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ORGANIZATIONAL BEHAVIOR

faced with multiple, inconsistent

priorities. In contrast, companies
that were most successful in transforming themselves into more flexRSible, responsive organizations pursued a much simpler, more focused
sequence of actions.
One widely recognized phased
transformation has been Jack
Welchs revitalization of General
Electric, and, as such, the GE model
has broad applicability. It rests on
the simple recognition that any
companys performance depends on
two core capabilities: the strength
of each of its component units and
the effectiveness of their integration.
This assumption defines the two
axes of the corporate renewal model
represented in the Figure. The
model on which the framework of
corporate renewal is built, primarily
rests on three factors: the type of
reorganization efforts proposed by
the company, the type of realignment methodologies, and the capability of rejuvenation. Different
companies may follow different
paths and sequences for their corporate renewal. However, the emphasis here is, not on the path, but
on the objectives that are attempted
at while trying to reinvent the company.
As they face the renewal challenge, most companies find themselves with a portfolio of operations: 1) a few strong but independent units and activities (the closely
knitted but separate circles in quadrant; 2) another cluster of being independent operations that, despite
their better integration, are not performing well individually (the
looser, overlapping circles in quadrant; 3) and a group of business
units, country subsidiaries, or func-

units from returning to their old

modes of operation. However, while
the goal of developing an organization built on well-integrated, efficient operating entities is clear, the
road map to this organizational rejuvenation is not well-defined.

Swarup Kumar Dutta

Faculty Member,
IBS, Ahmedabad.
The author can be reached at
swarup_dutta@hotmail.com

Benefits of the Study

tional entities that dont perform
well individually and are also inef- Companies Following Path-A:
fective in linking and leveraging Reorganizing and Realigning Together
each others resources and capabili- General Motors during the 1980s,
ties (unconnected circles in quad- for instance, tried to take the direct
route represented by the diagonal
rant 1).
The overall objective of the path in the figure. While intellectransformation process is to move tually and emotionally stimulating,
the entire portfolio into quadrant this bold approach of trying to imfour and find ways to prevent the prove performance on both dimenFigure: The Stages of Corporate Revitalization
High

Rejuvenation
B

Realignment

Quality of
Integration
across
units
C

Reorganizing

Low

1
Low

2
Quality of Performance of Each Unit

30 HRMReview

Electronic copy available at: http://ssrn.com/abstract=1885289

High

A BEHAVIORAL FRAMEWORK OF CORPORATE TRANSFORMATION ...

sions simultaneously, has typically

ended in failure due to the complex,
often contradictory demands that
overload the organization. Similarly, IBMs attempt in the late
1980s to improve both unit performance and corporate integration
also caused the companys transformation program to stumble.
Companies Pursuing Path-B:
Realignment Followed by Reorganizing

Other companies like Philips in the

late 1980s, for example, followed a
more focused path, pushing first for
integration on the assumption that
better synergies among units would
help each improve its individual
performance. However, this change
model, represented by path-B, has
also proved unsuccessful.
Companies Following Path-C:
Reorganization Followed by
Realignment

This is the path taken by General

Electric with good results. This path
defines the most effective sequence
of transformational change processes. This is the path which Kao
Corp followed for organizational
transformation. As the study of organizational transformation was
taken, three distinct phases of activity were evident,phases that are
defined as simplification (reorganizing), integration (realignment) and
regeneration (rejuvenation).
The Purpose Behind the Study

The simplification phase at Kao,

attempted at strengthening the performance of each of the companys
business by developing sophisticated information systems, that allowed managers to capture and process vast amounts of data, adding
value and transforming it into usable knowledge. It shifted the focus

from adaptation to creativity and

innovation by instilling discipline
and extending necessary support to
its employees.
The integration phase of Kao in
the early eighties were attempted to
leverage the individual resources
and capture opportunities for crossunit learning. It concentrated on
building a shared responsibility platform. Also, to adhere to creating a
sense of stretch and trust, at Kao, a
philosophy of collective identity was
developed throughout the organization. This was reinforced by creating a platform of personal commitment.
About a decade after the above
process was undertaken, Kao Corporation had simplified the organization and integrated its business,
and as a part of self -renewal, ensured continuous learning and commitment to organizational collaboration. Collaboration was aimed at
achieving what Maruta of Kao Corporation described as, The power
of collective accumulation of individual wisdom and relied on an organization Designed to run as a
flowing system.
Building the Initiative

The study focuses on Kao Corporation of Japan. Founded in 1887, for

its first 50 years, Kao had been a
family-run soap manufacturer. The
company was built on the basis of a
simple strategyproduce soaps
equal in quality to imported brands
but at more affordable prices. The
management and the employees of
Kao soap company believed strongly
in the rather grand motto they developed for their tiny company.
Cleanliness is the foundation of a
prosperous society. For over half a
century, the company grew, improv-

ing its products and building its distribution. Then, in the immediate
postwar era, following an explicit
policy of imitating and adapting
foreign technology and marketing
approaches, Kao launched the first
Japanese laundry detergent. In the
following years, the company expanded into dishwashing detergents
and household cleaners, establishing itself as one of the three major
Japanese companies that dominated
the domestic household cleaning
market.
It was not until the 1970s and
1980s that Kao began to pull ahead
of its competitors and inflict some
humiliating market defeats on the
newly arrived foreign players,
Unilever and Procter & Gamble. It
was in this era under the two decade leadership of Yoshiro Maruta,
that Kao developed a management
philosophy and organizational capability that wove continuous renewal into the fabric of the
companys ongoing activities.
As Maruta stated, Distinct creativity became a policy objective,
supporting our determination to explore and develop our own fields of
activity. By 1990, after it had expanded into personal care products,
hygiene products, cosmetics, and
even floppy disks, Kao was ranked
by Nikkei Business as one of Japans
top 10 companies, along with
Honda, Sony, and NEC, and ahead
of such icons as Toyota, Fuji-Xerox,
Nomura Securities, and Canon.
Reorganizing: Building Discipline and
Embedding Support

When he assumed the presidency

of Kao in the 1970s, Maruta brought
with him a management approach
that reflected his deep involvement
in Buddhist philosophy. His beliefs
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ORGANIZATIONAL BEHAVIOR

were based on the principles of human equality that was expressed as a

profound respect for the individual.
The philosophy manifests itself in a
commitment, not only to give employees their own voice but to help
them achieve their full potential.
Starting from this philosophy, he
introduced a radical concept. He
insisted that his managers view Kao,
not as a soap and detergent company, but as an educational institution. As a part of the reorganizing,
he convinced his managers that the
most basic responsibility of every
member of the organization was to
teach and to learn. As he went about
trying to create a learning organization, Maruta developed sophisticated information systems that allowed managers to capture and process vast amounts of data, adding
value and transforming it into usable knowledge. The traditional focus of Kao was shifted from adaptation to creativity and innovation.
Maruta also insisted that knowledge
building and learning, focus on the
future rather than reflect on the
past. In order to avoid complacency,
he discouraged his managers from
talking about past achievements.
The democratization of information is another important feature
of a learning organization. The challenge of democratizing information
is, not one of installing an IT infrastructure, but a matter of changing
the corporate culture. An environment of trust and support is a vital
prerequisite for creating willingness
and the ability to share information
freely. It is the creation of such an
environment that defines the most
crucial challenge of reshaping a
company as a learning institution.
Information democratization was a
common feature at Kao Corpora32 HRMReview

tion. Maruta described learning as a

frame of mind in which, truth had
to be sought through discussions, by
testing and investigating concrete
business ideas, until something was
learned often, without the learner
realizing it. The primary raw material for this learning process is information. Maruta regarded information for this learning, not as
something lifeless to be stored, but
as knowledge to be shared and exploited to the utmost. He constantly
reminded his managers about information being their prime source of
competitive advantage. The company that develops a monopoly on
information, and has the ability to
learn from it continuously, is the
company that will win, irrespective
of its business.
However, a vital requirement for
information to be used in this way
is its democratization. In order to
make it effective to discuss subjects
freely, it is necessary to share all information. The latest findings from
each of Kaos research laboratories
were available for all to see, as were
the details of the previous days production and inventory of every Kao
plant. By virtue of the terminals installed throughout the company,
anyone could retrieve data on sales
records of any product for any of the
companys numerous outlets.
Realignment: Realigning Cross-Unit
Relationship

Creating a sense of stretch and trust:

It is an important characteristic
exhibited by Kao Corporation.
Stretch is not just about top management redefining its strategic vision in more grandiose terms or substituting seemingly impossible targets for the usual budget objectives.
The bigger challenge is to encourage

those at the middle levels and in the

frontline operations, to see themselves and the organization, not
through the lens of past achievements or current constraints, but in
terms of future possibilities.
However, liberating the organization from the restrictive patterns
of the past and lifting the
employees expectations of themselves and of others is not easy. Yet,
Kao was able to do so by integrating
the following characteristics into
its culture:
v Building shared responsibility;
v Developing a collective identity;
and
v Creating personal commitment.
Building Shared Responsibility

Few people want to work for an

organization that aspires to be
average. It is part of human nature
to want to excel, to be part of a
winning team. Although all good
managers recognize this simple
truth, surprisingly, very few have
been able to respond to the need it
creates within their own
organization. The problem has
usually been that they have tried to
engage
their
employees
intellectually through the logic of
rational strategic analysis, rather
than emotionally, through their
determination or bold ambition. At
the broadest level, this can be an
overarching ambition that gives
more personal meaning to the
companys long-term objectives.
For Kao, such a shared ambition was
instilled into the organization by
Maruta from the moment he
became President in 1971; and till
the day of his retirement, Maruta
wanted every employee to
understand that Kao was obliged to
develop its technologies and apply

A BEHAVIORAL FRAMEWORK OF CORPORATE TRANSFORMATION ...

them in innovative ways. He created

within the organization, a winning
ambition to create a broad portfolio
of products that were useful to the
society and offered good value to the
consumers. Kaos statement of
purposeful ambition was in sharp
contrast to the banality of various
other companies superficial mission
statements printed in annual reports
and then ignored completely.
Within Kao, the creation of useful
new products became the driving
engine of all activities.
Developing a Collective Identity

Setting ones sights on highly ambitious objectives can be an intimidating prospect for many companies
and people, since the bolder and
more aggressive the goals, the greater
is the likelihood that they will not
be reached. Yet, acting in concert
with others, most individuals develop a sense of courage and commitment, they are unable to muster
on their own. Kaos open and mutually supportive learning environment, framed by Marutas concept
of the company as an educational
institution created such a collective
commitment to the companys technology and new product development ambitions.
Creating Personal Commitment

Involving the employees in every

aspect of the companys business, so
that they feel a sense of personal
commitment towards achieving the
companys mission, can be seen as a
common thing in Kao. In Kao, literally every employee was involved
in the decision-making process of
the company. The employees were
encouraged to give their views on
various aspects.
Strategic alignment and challenge is another important feature

of a learning organization. An organization should have clarity and

commitment of its strategy. Employees at every level must share a welldeveloped understanding, not only
about the nature of the companys
business, but also the ways in which,
the company plans to maintain its
competitiveness. Maruta, the president of Kao Corporation, saw himself more as a strategic challenger
than a strategic aligner. It began
with his broad challenge to the organization to stop thinking of itself
only as a manufacturer and marketer
of household cleaning products and
aspire to becoming an educational
institution that developed and applied technology to improve lives
and contribute to society. However,
he did not allow this redefined mission statement to float around in
the rarefied atmosphere that inevitably suffocates lofty visions; he
continued challenging his organization to live up to its new expectations. At the operating level,
Maruta became an active cheerleader for an initiative that began
exploring how Kao could employ its
knowledge base in oil science, surface technology, and liquid emulsification processes that could be applied to the development of a cosmetics line. As a result, Kaos cosmetics were the first to be developed
and marketed, based on functionality, rather than image. In a span of
six years, Kao became Japans second best cosmetics company.
The creation of dynamic processes is another important characteristic exhibited by Kao Corporation Here, the organization is designed to run as a flowing system
where ideas, abilities and resources
flowed freely through the organization. Maruta concentrated on de-

signing Kao to run as a flowing system. Building on this image, he employed a variety of other analogies
and metaphors to focus the
managers attention away from the
structural images and more towards
process-based conceptions of the
organization. In what, he termed
biological self-control, he described an adaptive model in which
ideas, abilities and resources flowed
freely through the organization to
where they were most needed.
Through such evocative metaphors
and through the clearly communicated philosophy on which they
were based, Maruta created an environment that was highly receptive to more flexible cross-unit initiatives. This concept became
highly successful in the company.
Rejuvenation: Ensuring Continuous
Learning
The most difficult challenge for
companies that have reconfigured
their structures and realigned behaviors through the simplification
and integration processes is to
maintain momentum in the ongoing process. This is particularly difficult for companies that have been
through two successive processes
and are striving to maintain an internal context to support both, the
individual initiative for driving the
ongoing performance of front-line
operations and the collaborative
team-based behaviors for supporting resource linkages and best-practice transfers across individual entities. The final stage of self-renewal
is when, organizations are able to
free themselves from the embedded
practices and conventional wisdom
of their past and continually regenerate from within.
As in the earlier transformation
stages, the challenge of the rejuveHRM Review

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ORGANIZATIONAL BEHAVIOR

nation phase is not just in changing

the structure or the processes, but
rather, in fundamentally altering the
way, managers think and act.
In most companies, this elusive
self-regenerative capability is based
on long-established, deeply embedded corporate values and organizational norms, often linking back to
the influence of the founder or the
early leaders and this is where Kao
was also no different. Indeed, of the
many companies that have undertaken organizational transformation
programs during the past decades, few
have moved beyond the reorganization stage, and even fewer have successfully revitalized their businesses.
As can be understood from the
previous sections, there were two
management tasks that inevitably
played a central role in the development of such capabilities. The
first was the ability to integrate the
entrepreneurial performance-driving behavior shaped by the contextual elements of discipline and support with the equally vital crossunit integrative learning framed by
the managerial characteristics of
stretch and trust. The second was
the somewhat counterintuitive
task of ensuring that these basic
contextual elements were kept in a
state of dynamic disequilibrium to
ensure that the system never became locked into a static mode of
reinforcing and defending its past.
The Seamless Renewal and
Revitalization in Implementation

Although respect for individual initiative was central to Kaos philosophy, so was the commitment to organizational collaboration, particularly as a means to transfer knowledge and leverage expertise. Collaboration was aimed at achieving
34 HRMReview

what Maruta described as The

power of collective accumulation of
individual wisdom and relied on an
organization Designed to run as a
flowing system.
Throughout Kao, there was
much evidence of this philosophy,
but a most visible manifestation of
its commitment to the sharing of
knowledge and expertise was the
open conference areas, known as
decision spaces. From the 10th
floor corporate executive offices,
important issues were discussed in
the decision spaces, and anyone interested, even a passerby, could join
the debate. Like R&D priorities
were developed in weekly open meetings, and projects were shaped by
laboratories hosting monthly conferences to which researchers could
invite anyone from any part of the
company. In all the forums, information was freely transferred, nobody owned an idea, and decision
making was transparent.
Through such processes, individual knowledge in particular units
was transferred to others, with the
process becoming embedded in policies, practices, and routines that institutionalized learning as the
company way. Similarly, isolated
pockets of expertise were linked together and leveraged across other
units, in the process, developing
into distinctive competencies and
capabilities on which, new strategies were developed.
The vital management role at
this stage was to create and maintain an internal environment that,
not only stimulated the development of individual knowledge and
expertise to drive the performance
of each operating unit, but also supported the inter unit interaction
and group collaboration to embed

knowledge and develop competencies through an organizational learning process. This demanded the creation of a delicately balanced behavioral context in which, the hardedged norms of stretch and discipline were counterbalanced by the
softer values of trust and support to
create an integrated system that
Maruta likened to the functioning
of the human body. In what, he
termed biological self-control, he
expected the organization he had
created to react as the body does
when one limb experiences pain or
infection; attention and support
immediately flows there, without
being requested or directed.
At this stage, the organization
becomes highly effective at developing, diffusing, and institutionalizing knowledge and expertise. But
for a while, context shaped by discipline, support, stretch, and trust is
necessary for organizational regeneration, it is not sufficient. It needs
a second force to ensure that the
contextual frame itself remains dynamic.
Balancing the Dynamic Imbalance

The complementary management

challenge is of preventing a system
from developing a comfortable level
of fit that leads toward gradual
deterioration. The great risk in a
finely balanced system of biological
self-control such as the one Kao
developed is that it can become too
effective at embedding expertise
and institutionalizing knowledge.
The capability risks become a liability when unquestioned conventional wisdom and tightly focused
capabilities constrain organizational flexibility and strategic responsiveness, leading the system to
atrophy over time.

A BEHAVIORAL FRAMEWORK OF CORPORATE TRANSFORMATION ...

Contrary to their historically assumed role of reinforcing embedded

knowledge through policy statements of the company way and
reaffirming well-established capabilities as core competencies, top
managers in dynamic, regenerating
companies perceive their task to be
almost the opposite. While creating
a context in which frontline and
middle management can generate,
transfer and embed knowledge and
expertise, they see their role as counterbalancing and constraining that
powerful process. By challenging
conventional wisdom, questioning
the data behind accumulating
knowledge, and recombining expertise to create new capabilities, top
managers in Kao created a dynamic
imbalance that proved critical to the
process of continuous regeneration.
Organizational fit and disequilibrium is another important characteristic exhibited by Kao Corporation which stresses on the need
to align individual activity with a
common understanding of strategic priorities. All the elements of
an organizationthe structure,
controls and incentives should
complement each other in an elegant organizational fit, which supports the chosen strategy. However,
there is also a need to balance the
organizational fit with constant
challenge, so that it is offset by occasional disequilibrium. Maruta encouraged internal debate at Kao that
reflected his companys philosophy.
In Kao, the prevailing practice was
referred to as tataki-dai, an operating principle that required individuals to present their ideas to their
colleagues at 80% completion, so
that they could be critiqued and
developed by others before being
locked in as decisions.

Maruta and his colleagues at Kao

maintained this state of slight organizational
disequilibrium
through two major devices: a micro
process aimed at providing continuous challenge to individual thinking, and a macro process based on
regular realignment of the organizational focus and priorities. With
regard to the former, Maruta was explicit about his willingness to
counter balance the strong unifying
force of Kaos highly sophisticated
knowledge-building process. He repeatedly told the organization, Past
wisdom must not be a constraint, but
something to be challenged. One
approach that Maruta adopted to
prevent his management team from
readily accepting deeply ingrained
knowledge as conventional wisdom,
was his practice of discouraging
managers from referring to historical achievements or established
practices in their discussion of future
plans. As one senior manager reported, If we talk about the past, the
top management immediately becomes unpleasant. Instead, Maruta
consistently challenged his managers to tell him what new learning
they had acquired that would be valuable in the future. Yesterdays success formula is often todays obsolete dogma he said. We must continually challenge the past so that
we can renew ourselves each day.
At a more macro level, Maruta
created a dynamic challenge by continually alternating his emphasis on
simplification and integration.
Soon after assuming Kaos Presidency in 1971, he initiated the socalled CCR movement, a major initiative to reduce workforce size
through computerization of activities. This efficiency-driven initiative was followed in the mid-1970s

by a TQM program that focused on

organizational investments and
cross-unit integration, to improve
long-term performance. By the
1980s, an office automation thrust
returned attention to the simplification agenda, which, by the mid1980s was broadened into a Total
Cost Reduction (TCR) program. By
the late 1980s, however, top management was reemphasizing the integration agenda, and the companys
TCR slogan was reinterpreted as total creative revolution requiring intensive cross-unit collaboration.
Through this constant shift between reorganization and realignment, Maruta created an organization that, not only supported both
capabilities, but embedded them dynamically, to ensure that no one
mode of operation became the dominant model. The organizational
context was vital for ongoing business regeneration.
Conclusion

The above study highlights how by

taking path C, the process of corporate renewal is more profound and
found to be a success. Though
path-C is painful and takes comparatively higher time, yet if it is pursued
with renewed vigor as per appropriate stages and context, the chances
of corporate rejuvenation or revitalization is very high. As the study of
Kao Corporation shows, the phased
transformation process is one of the
best ways for corporate renewal.
Thus, the route to corporate renewal
and revitalization can be achieved
effectively, if reorganizing, realignment and rejuvenation are taken up
sequentially, in a planned manner.
This will allow a company or a firm
to renew or reinvent itself.
Reference # 12M-2009-08-05-01
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