portance to cost of capital. EVA determines the amount of economic value created by the corporation. This is done by deducting the cost of capital employed from the net operating profit after tax. EVA is believed to encourage its managers to find more value creating employment of capital. This in turn will make Kao Corporation more competitive. In addition, EVA is able to better the relationship between management and shareholders. The interest of managers and shareholders can conflict at times and this in turn could result in poor performance of the company. EVA will be used as a means to make decisions for daily operations. Employees will be trained on the method of using EVA to create higher awareness of the importance of cost of capital and value creation. Moreover, to ensure the effectiveness of EVA, managers will be compensated through an incentive system which will better motivate the managers to help ensure the success of EVA. In the long run, EVA will be constantly innovated in order to ensure constantly profitability growth in the future. Operational Reform In 1986, Kao Corporation began an operational reform process which is still ongoing till present time. The reformation was aimed at improving work methods and planning process, which would result in the reduction of cost. To this end, Kao Corporate integrated Total Cost Reduction (TCR) in its corporate culture. Currently apart from the implementation of EVA to increase competitiveness, Kao Corporation has undertaken structural reforms in the areas of production, sales and distributions. As of 31 March 2000, the production plant of the Kyushu will be changed into a distribution base in order to facilitate the distribution channels in Japan. In addition, Kao Corporation aims to become the best in customer service in the whole of Japan. In order to achieve this, Kao Corporation has consolidated 8 of its sales company around Japan. On the international front, Kao Corporation se...
