Conflicting Business Approaches of Two Generations: The Otsuka Family Showdown
| Case Code: LDEN118 Case Length: 13 Pages Period: 2014-2016 Pub Date: 2017 Teaching Note: Available |
Price: Rs.500 Organization: Otsuka Kagu Ltd. Industry: Retail, Furniture and Furnishings Countries: Japan Themes: Family Business Management, Conflict Management, Succession Planning |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Business Approach of Katsuhisa
OKL operated large-scale retail stores primarily in urban areas. Generally, newly married couples indulged in the purchase of new furniture. In 1993, Katsuhisa introduced the ‘membership system’ in his company. Under this system, when customers entered the showroom, they were required to fill in an information form and sign a membership form at the desk. An attendant was then assigned to each group of customers to escort them through the showroom. In the process of communicating with the customer, the attendant determined their needs. He/she then showed them items based on what they were looking for. If there was a disagreement among the customers over the purchase of a particular piece of furniture, the attendant resorted to consensus building, giving suggestions on the products based on his/her rich product knowledge. The attendants not only gave general information about the products but also detailed explanations on the specific items to be bought according to the customer’s need. The objective of the membership system was to sell the products at a reasonable price....
Sales Decline After 1990s
The interior retail market dropped to ¥3 trillion in 2011 from ¥4.5 trillion in 2001. In earlier times, families bought huge wardrobes and standalone cabinets as there were no pantries or closets. But with many new homes having walk-in closets and built-in storage features, the possibility of investing huge amounts in furniture from the showroom was negated, said analysts. Another reason for the fall was that consumers did not consider the Japanese cabinetmakers and carpenters the best in the world. Traditionally, the craftsmen in Japan had used hardwood from broad leaf trees. But during World War II, most of these trees were destroyed and the fast-growing Japanese cedar (sugi) was grown instead of the former. The Japanese cedar was unfit for furniture making as wood was soft. Therefore, hardwood was imported. The domestic manufacturers of furniture were negatively impacted by the import of good hardwood, analysts said...
Internal Trading at Otsuka Kagu
In 2007, OKL was found guilty of insider trading and a fine of ¥30.44 million was levied on it for violating the Securities and Exchange Surveillance Commission rules. 18 The violation pertained to the company listed on the Jasdaq market purchasing its own shares before it disclosed an important fact. An officer of OKL, in the course of his job duties, came to know that the company was going to revise the estimated amount of dividend...
A Change in Business Approach
In March 2009, with an eye on revitalizing the company after its series of losses and winning back its customers, Katsuhisa appointed his daughter Kumiko as President of the company, while continuing to remain Chairman. Kumiko had served in Fuji Bank from April 1991 to March 1994. She then joined OKL and served in many positions before becoming President. According to Kumiko, ever since she had become President, she had been stressing the need to include outsiders on the board. Until 2007, the company did not have any director from outside the family. The clash of opinions between father and daughter started in 2013 when the company welcomed three new directors who were not from the family in 2013...
Boardroom Battle and the Public Spat
The public battle started the very day Katsuhisa sacked Kumiko from the post of President. They both blamed each other for the decline in the performance, strategy, leadership style, and the corporate governance of the company. In December 2014, OKL registered a loss for the first time in four years. Sales declined from ¥56.23 billion in 2013 to ¥55.50 billion in 2014. The sales level was close to what it had been five years earlier in 2009 (¥57.93 billion) when Kumiko was appointed President. 28 After looking at the sales figures, the Board of Directors held a meeting in January 2015, at which the majority decided not to re-nominate Katsuhisa but to re-appoint Kumiko as President of the company...
Who Wins?
On the deciding day March 27, 2015, at the general shareholders’ meeting of the company where around 200 shareholders were present, the two sides’ contrasting business strategies were presented. Katsuhisa stuck to his high-end, club style model that he thought had served the company well whereas Kumiko wanted OKL to appeal to a broader customer base. Kumiko stressed that people still thought of Otsuka as an expensive furniture selling store which was accessible only to its members...
Exhibits
Exhibit I: Key Financials of Otsuka Kagu Ltd. (2005-2014)
Exhibit II: Key Statistics Related to the OKL Stores (2005 – 2014)
Exhibit III: New Housing Starts in Japan (in Units)
Exhibit IV: Annual Trends in Number of Marriages in Japan (In Units)
Exhibit V: Sales of Major Home Furnishing Store Groups in the Japanese Market (FY 2011) (In ¥ Million)
Exhibit VI: The Forecast by Katsuhisa and Kumiko for 2017
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