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Beauty Inc issue 08/08/2014

It’s just past 11:30 on a Tuesday morning in Tokyo and eight young Shiseido executives are meeting in a conference room brainstorming marketing platforms for the 2020 Olympics, which will be held in the city. The group—comprised of people from Japan, France, China and the U.S.—is speaking English, and phrases like “No Rules!” and “Think Creative” are written on the whiteboard.

This story first appeared in the August 8, 2014 issue of WWD. Subscribe Today.

Suddenly, Masahiko Uotani bounds into the room, a big smile on his face.

He’s been president and chief executive officer of Shiseido Co. Ltd. for just 78 days, but it’s clear he’s no stranger to this gathering as he rips off his seersucker blazer to reveal a bright blue Japanese soccer jersey underneath, emblazoned with the number 10 and his name.

Japan has just lost its first World Cup match, but no matter—the group eats it up.

That Uotani has chosen the number 10 seems only fitting. It is the jersey of the Japanese midfielder Shinji Kagawa, heralded by Sports Illustrated for his “vision, technique, movement and deft passing.”

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Those are words that could just as easily apply to Uotani, the first outsider to be appointed president and chief executive in Shiseido’s 140 year history, whose chief mission is to globalize, diversify and modernize Japan’s most iconic cosmetics company. “Fundamentally,” says Uotani, “the transformation of this company is needed and everybody sees it.

“The numbers are showing we are not growing as we wanted,” he says. “We are the number-one cosmetics company in Japan, with almost $8 billion in revenues, but compared to our aspiration to be more competitive in a global market, no one is really satisfied with where we are. People, particularly the younger generation, have a strong sense that we need to move quickly. The sense of urgency is there.”

Indeed, that’s the reason this team is together today—inspired by Uotani’s message and management style, and eager to learn and improve their company’s standing, this self-selected group meets voluntarily on Saturdays to pore over marketing case studies, many of which have been hand-picked by the ceo himself.

“In Japan, people can feel that other Asian countries are growing really fast, so there is a crisis in the whole Japanese society and that influences the culture inside of the company as well,” says one member, Akiko, who works in international marketing. “People want to change, but don’t know how to.”

Adds another member, Yusuke, “We need to change because the market is changing. We need corporate innovation, and the young people in all of the departments—marketing, sales, research and development—need more marketing background. Traditionally we are a successful company, but now we are a little slower than the market, so that’s why we need to change and that’s the reason why we get together and study, to gain these skills.”

The problem isn’t endemic to Shiseido alone. The need for action is being felt across Japan’s corporate landscape, as both the government and the citizens grapple with continued economic stagnation, an aging population and demographic trends that predict the population will decline from 124 million today to about 80 million people in 2050.

That’s where Uotani comes in. The executive, who spent 17 years at Coca-Cola Japan and rose to the position of chairman, is himself part of a larger trend of traditional Japanese companies appointing leaders from multinational global corporations in order to more nimbly position themselves for the new realities confronting the country. “A president should be able to have an accurate understanding of the trends of the times, with the ability to perceive the current situation not only in the beauty industry, but also within society,” says Yoshiharu Fukuhara, the grandson of Shiseido’s founder, who led the company’s international expansion starting in the Sixties and continuing through the Nineties during his tenure as president and chief executive officer. “He needs to be able to establish a vision that determines what direction the company should take in such environments.” Today, Fukuhara serves as honorary chairman of the company and maintains an office on the sixth floor of the Ginza building where the company’s cosmetics division was founded in the early 1900s. He first met Uotani about a decade ago, when both served on the same corporate board. After seeing him in action in that capacity, Fukuhara has given his full approval to the new ceo. “I believe he is equipped with the energy to bring something new to Shiseido,” he says.

Uotani has already passed the first hurdle of Fukuhara’s litmus test: bringing a clear vision and direction for future growth. He believes Shiseido must transform itself into a truly global company if it is to survive and thrive in the long term. “If we simply follow the statistics, the [Japanese] market is going to shrink,” Uotani says. “We can’t see our business in Japan growing 50 percent in 10 years. Therefore, looking outside is the opportunity.”

In terms of sales, Shiseido is halfway there—in theory. Fifty percent of its business is currently done outside of Japan, a number that Uotani projects will be 70 percent by 2020. “That doesn’t mean we are going to diminish our Japanese business. That is going to grow, too,” he says. “But the speed of growth is going to be much higher. The fastest-growing market will be emerging markets in Asia, and second, China coming back to growth again. In the U.S. and Europe, we will create a much stronger position in the prestige business.”

To more effectively compete in those global markets, Uotani believes that Shiseido must decentralize its business from being a Tokyo-centric company where decisions are made in the home office and implemented worldwide to one where the local markets have a much more active voice based on their understanding of individual market needs. “It’s clear when you talk to him that nobody is looking to change the core values of Shiseido,” says Heidi Manheimer, ceo of Shiseido Cosmetics America, “but everyone is interested in broadening our horizons, and bringing someone in from a marketing background as strong as Coca-Cola sends a huge message around the organization that they’re serious about wanting to change and grow.”

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The ceo made his position clear during his inaugural speech to employees when he assumed his position on April 1, the traditional starting day for all new employees of companies in Japan. “This office,” Uotani says, referring to Shiseido’s Tokyo headquarters, “has been taking care of the Japanese business. We are much more focused on the internal. Some people are looking outside of the country, but are we really a global company? The answer is no.”

Uotani’s definition of a truly global company is one that understands the nuances of consumer needs in each market it trades in with a boots-on-the-ground infrastructure able to act and react quickly. “We want this company to be much more consumer focused,” he says. “Consumers should be the center of all of our activities, starting from R&D, marketing, communications. Particularly when we think about Asia—everybody is not the same—the type of skin, their needs, their involvement.”

Uotani uses China as an example of the changes that are to come. Shiseido was an early player in the country, but more recently growth slowed, due to anti-Japanese sentiment in the country and a sluggish marketing program. For the fiscal year ending March 31, 2014, Shiseido had sales in China of about $1.1 billion, or about 15 percent of its total $7.8 billion turnover. Its four main brands in China are the global brands Shiseido and Clé de Peau Beauté, and the locally marketed Urara and Aupres lines. The first three are subsidiaries of the parent company, Aupres is a joint venture with Beijing City, but by and large each is managed and controlled from headquarters in Tokyo. If it all sounds complicated, it’s because it is.

“In China, we still have Japanese people who have been stationed there for many years and people who we have hired locally, many of whom have the [skill] of being fluent in Japanese, not necessarily for being professional marketing people,” says Uotani, who notes that despite the size of the business, Shiseido still has a “bit of an old model, sending Japanese there and developing the markets with the help of local Chinese who are willing to work with the Japanese.”

When Uotani visited China for the first time in early June, he delivered a bold proclamation. “I made a commitment to change the business model to having many more Chinese people who know the local market very well doing the work of consumer insights there and coming up with brands, products and marketing concepts,” he says. His message to the team was “Tell us what you want to do. What support can we give you? And at the end, the responsibility, the accountability, is in their hands.”

Uotani’s thinking about China is emblematic of his larger ambitions for Shiseido. “We are putting the focus on consumers, consumers, consumers,” he says. “I am a strong believer in think global, act local. We are going to build that and shift our focus to local markets, where they have consumer insights. If local markets come up with new product ideas, we are going to put the development function there. The creative function should be done more in the local markets. Supply chain should be done in the local markets in the most efficient ways.”

During his time in China, Uotani held a town hall–style meeting with employees, inviting them to share their ideas for growing the business. One person questioned why the company wasn’t more aggressively marketing men’s products, an idea Uotani immediately seized upon. “I’m not necessarily saying we should have a product line or a brand—that’s not my point,” he says. “But why don’t we have deeper consumer insights into Chinese men? Likewise for women—there has been a healthy class of people who have led the economic growth in China and led our business, but now it’s a little stuck,” he continues.

“The market is not growing as it once did. On the contrary, the premium side of the mass market is growing very quickly. Are we really capturing this growth?” he questions. “How? What do they really need? What is this class of people looking for compared to previous upper-class wealthy people—not just in income, but in their values, their lifestyles.” He barely pauses to take a breath, before concluding, “So the market is changing rapidly, particularly a market like China. Are we really adapting ourselves to that change locally? That is my question.”

The ceo is putting his money where his mouth is with the short-term goal of hiring 100 marketing professionals globally—in Japan, China, the rest of Asia, Europe and the U.S. He describes his ideal hires as “midcareer executives trained by global companies in strategic thinking, managing brands as a business, having accountability for the P&L of the brand and working together with other functions like sales.”

Increasing the number of women in the organization is another focus, in line with Prime Minister Shinzo Abe’s proposal that women comprise 30 percent of the managerial positions in Japanese companies by 2020. Currently Shiseido is at 27.6 percent and received an award from Nikkei Business Publications for its efforts.

“Organizational transformation is one of the key areas I’m working on,” Uotani declares.

Although such directness is unusual in Japan, it is characteristic of Uotani, who got his master’s degree in business administration from Columbia University in 1983, while he was a young account executive with Lion Corp. (“I think I saw A Chorus Line seven times,” he jokes. “It was the show everyone wanted to see when they came to town.”) The time he spent in New York City was a critical period in the formation of his leadership style. Columbia’s teaching method combined lectures and case studies, and Uotani often found himself shut out of classroom debates because he wasn’t used to the fast-paced verbal to-ing and fro-ing and expressing a strong point of view with confidence, particularly in English. A classmate recommended he take a communications course at the Dale Carnegie Training Center, so he did: three-and-a-half hours, every Tuesday night, for 10 weeks.

“I thought to myself that I really needed to train myself because this was a completely different environment from Japan,” Uotani remembers. The plan worked. “When I went back for the second year of Columbia, whatever the situation was, even if I thought I would be making mistakes in my classroom discussion, no problem. I’d just say, ‘This is my idea. It may not be perfect, but I need you to give me your feedback.’ I was very comfortable, and this actually created the foundation of my business philosophy. I have to be very enthusiastic. I have to be passionate.”

Uotani is currently trying to build that same level of engagement at Shiseido and transform what he calls its “Japanese bureaucratic organizational culture” into a dynamic environment where people feel empowered and engaged to express their opinions. “There is a tendency for Japanese people to think they have to be perfect all the time, so one person will write a memo, go to his boss for feedback, rewrite it and then go to the next person,” says Uotani. “I’ve said to the managers, can you be doubly efficient? I’m not saying work twice as hard, but work more efficiently. Get rid of the meetings. Get rid of the bureaucratic papers. Use bullet points when you write a memo. Be precise. What do you want to do? Why do you need it? How are you going to do it? That’s it.”

In effort to help streamline internal communications, Uotani has even proposed changing the paper executives write documents on, switching from a larger 11-by-17-inch format to a smaller, 8-by-11-inch size.

Still, Uotani knows that switching the paper size is not enough to enact lasting change in a 140-year-old company. He likes to call himself a “people manager”  and his goal is to improve the organization by empowering it. As he told the 20 members of his senior management team on April 1, “I’m not going to change this company myself. That is impossible. You guys are going to really change this company together.” He expects them to take the same ethos to their teams, so that the message cascades throughout the organization.

It’s a management philosophy he honed at Coca-Cola early on. After arriving at 9 a.m. on his first day as executive vice president and chief marketing officer, Uotani was summoned to his boss’ office two hours later and told that rather than being sent to Atlanta headquarters for a three-month immersion, he was being given a specific task: to revive the fortunes of its Georgia coffee brand, whose market share had decreased from 47 to 43 percent. Uotani gathered the brand’s management team for a strategic review and delivered a message that has since become a mantra. “I said to them, ‘What do you think the issues are? What do you guys really want as managers of this brand? Don’t expect me as your boss to tell you what you have to do. My job is to create the environment and go to my boss to ask for approval, but I am not the guy to come up with ideas of communication.

“They said, ‘Can we do that?’” he recalls.

“I said, ‘Sure. That’s your job. Do it. Don’t trust the campaign ideas you are being given because it’s not working. Start from scratch.’”

Two weeks later, the team came back to Uotani with a completely new campaign. Uotani green-lighted the cancellation of production on a new $1 million marketing program, incurring a 50 percent cancellation fee, and used the remaining money to launch the new one.

The result: In three years, Georgia’s market share increased to 53 percent of the $9 billion canned-coffee market in Japan. “Almost $5 billion,” exults Uotani. “It was huge.
“I’m not saying I did it,” he continues. “But I created the environment for people who are involved in this brand to proactively do their job with confidence.”

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Those are words that could describe Uotani himself. Standing 6 feet, 2 inches, he has an engaging presence, a quick smile and an active style of listening. During his meeting with the young executives, he asked multiple questions to help them refine their thinking rather than deliver a tutorial, and freely shared experiences from his time at Coca-Cola. Rather than have employees come up to the executive floor of Shiseido’s headquarters, he often goes down to them, and when his appointment as ceo was announced on December 24, he made it a point the next day to visit every single floor—22 in all—to introduce himself. A natural storyteller, he clearly relishes connecting with people and has already brought in some of his friends—including executives from McDonald’s, McKinsey, Nissan and Barneys New York—to talk to Shiseido’s marketers.

“He is a very inclusive and participatory leader,” says Carsten Fischer, representative director and chief operating officer, global business, of Shiseido. “He’s interacting directly with a lot of people, but always makes sure that everybody is involved and has information. He’s not reliant on his lieutenants. You want an interaction across the hierarchies, but you want to make sure it’s transparent,” says Fischer. “He is very transparent, and that is unusual. If you have experience in Japan, this is not necessarily the way.”

Uotani has made it his mission to change that culture and has a rule when it comes to meetings: Everyone must speak up. “I don’t want people who sit quietly and then after the meeting is over go back and say, ‘I don’t agree with that,’” he says. “Everybody should participate.” Now, in senior management meetings, everybody does. Out of one such early gathering grew the five primary areas that the team is working on to revitalize Shiseido. One area revolves around globalization and talent; a second around redefining the missions and values of Shiseido, another around the creation of a matrix organizational structure that will enable the company to more effectively and efficiently globalize brands like Bare Escentuals and Nars, a key area of growth moving forward.

Bare Escentuals, particularly, has been problematic for Shiseido since its acquisition in 2010 for $1.7 billion. In April, 2013, Shiseido was forced to take its first loss in eight years with a $347.1 million impairment loss related to Bare Escentuals. More recently, however, the brand’s fortunes have begun turning, starting with the April launch of bareSkin liquid makeup—a first for the mineral makeup company which was built on the strength of its powder products—and increased involvement on the part of Leslie Blodgett, the creator of bareMinerals who is largely credited with leading the company to explosive growth.

“If you put yourself in the shoes of the people who are acquired by a Japanese company that couldn’t really come up with a long-term strategic vision, some people left and some people were concerned about what’s going to happen,” acknowledges Uotani, heralding the return of the “charismatic” Blodgett. “Now we have a very clear strategy to do something really strong and we came up with a new value proposition and that is working well. Everybody is really pumped up and they are energized.”

The fourth key area Shiseido’s executive team is looking at, strategizing how to finance the changes underfoot, is being overseen by the chief financial officer.

The fifth area strikes at the very core of Shiseido’s being: research and development, particularly how the company can ensure that its strong expertise in innovative R&D drives its business forward. The answer is to link R&D more closely with other aspects of the business, a message Uotani hammered home to European securities analysts when he visited Europe in early July. “Today Shiseido stands for superior technology and quality. But we are not making use of it very well yet,” he says, emphasizing that last word. “It is underleveraged.”

The three most important elements in Shiseido’s approach to R&D are functionality, sensitivity to creating a pleasing texture and experience, and safety, according to Youichi Shimatani, the corporate officer responsible for research and development. That Shiseido is one of the global leaders in R&D is uncontested; it has been very involved in stem cell research and is a pioneer in the field of skin immunity, and has received more awards than any other company from the International Federation of Societies of Cosmetic Chemists. Still, Shimatani has felt the impact of Uotani’s arrival. “What I keenly feel is the rate of speed and also this sense of competitiveness [to understand] our customers,” he says. “Even though only two months have passed since Mr. Uotani took the presidency, I have changed a lot. Our research staff has big expectations as well.”

Already, the company is conducting consumer research on a global scale; Shimatani cites as an example a recent study on sagging in the upper-eyelid area. By comparing MRI images of a Caucasian face and an Asian face, researchers determined that the eyeball in Caucasian women is set within the bones surrounding the eye, whereas in an Asian eye, it protrudes out toward the front of the bone, thus making Western women more prone to upper-eyelid sagging and Asian women more likely to develop pockets underneath the eyes. “We are not just conducting this market research,” says Shimatani. “What we are doing is employing the state of our technology based on dermatology and actually delivering value to the consumer.”

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For Uotani, it all goes back to marketing. “My model, which I will repeat many times here, is that marketing doesn’t just mean product development. Marketing doesn’t just mean advertising. Marketing doesn’t just mean store activities,” he says. “Everything is regarded as under the umbrella of strategic marketing. Everybody in each group, in each function, should be involved with the others working together to achieve the same goal. That is my model and we are getting there.”

That’s a message Japanese securities analysts are eager to hear. Since Uotani took office, Shiseido’s stock price has risen modestly, from a 52-week low of Y1,473 to a high at press time of Y2,046. Uotani conducted analyst meetings in Japan in early June, after which many remained neutral on the company’s prospects. “If these measures were to take off, we think Shiseido could transform itself into a ‘truly global company’ as targeted by Mr. Uotani, though the measures are still being formulated at this stage,” wrote Barclays, a sentiment echoed by Keiko Yamaguchi of Goldman Sachs, who wrote, “On the whole, we think Shiseido’s awareness of issues and related organizational changes are on the right track. We await a plan with specific measures for increasing share in key markets and improving margins.”

The investment bank CLSA was more bullish in its assessment; its analysts, Oliver Matthew and Jun Kato, wrote in a report: “We left today’s sell-side analyst meeting more upbeat than when we went in….We believe the ceo is a catalyst for improvement and that he aims to harvest higher margins from a high-quality brand positioning.”

The analysts are correct that Uotani is painting with broad brush strokes—ask him about cost savings, investments, divestments and the like, and the most detail he’ll provide is that his personal aspiration is to grow revenues to $10 billion with a profit margin of $1 billion by 2020. Still, it’s early days and specifics are expected to be announced by the end of the year. One upcoming project Uotani has publicly announced is a brand geared towards women aged 60 and older, to be launched in Japan in the first quarter of 2015, consisting of skin care, color cosmetics and hair care.

The marketer in him—he’s authored two books on the discipline—is fully aware of the pitfalls that such a proposition presents, but he seems eager to tackle the issue. “Many companies have tried to come up with senior-aged products and marketing programs and almost all have failed,” says Uotani, who himself turned 60 earlier this year. “According to their definition, I’m a senior guy. I don’t want to be treated that way. Psychologically, I’m young.”

The concept Shiseido has created doesn’t treat seniors in an elderly way. “It will be different than anything in the marketplace. We have to talk to their minds,” he says, explaining his view of branding revolves around the idea that building extrinsic value, or the emotional connection, with consumers is just as important if not more so than creating intrinsic value through product development and technology.

“The most important thing is how we create relationships with people,” he says. “We have always described businesses as b-to-b or b-to-c and I am proposing a new way, b-to-h—business-to-heart,” he says. “We have to share the values, the objectives, the emotional excitement with consumers.”

In fact, it’s just that sense of heart that induced Uotani to accept the Shiseido position in the first place, spurred by a conversation with his mentor, Takeo Shiina, the former president and ceo of IBM Japan. “He said to me, ‘You have to work for Shiseido. Working for Shiseido means working for Japan. And working for Japan should mean, in the future, working for the global society,” relates Uotani. “That’s what really convinced me.”

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GETTING TO KNOW YOU

Nickname: Tani
Favorite Recreation: Golf, Overseas Travel
Favorite Golf Course: Augusta National Golf Club
Favorite Restaurant: L’Osier, Tokyo
Favorite Book: “How to Win Friends and Influence People” by Dale Carnegie
Best Piece of Business Advice Ever Received: “The world belongs to the discontented.”
Personal Motto: Having a supreme vision for our future is an important element of our life. But one must understand [that] delivering [the] many small tasks that make up each day is the shortest way to reach that vision. —Ichizo Kobayashi
Proudest Professional Accomplishment: Receiving the best advertising campaign award from the Ministry of Internal Affairs and Communications. The campaign was for Georgia canned coffee and its name was “Tomorrow is Another Day.”
Early Riser or Night Owl: Early riser.