- By Region
It is not often the plans of a Japanese company president remind you of the slogans of Chinese dictator Mao Zedong.
But two of the most important strategies of Kazuhiro Tsuga, newly charged with turning round Panasonic, are uncannily reminiscent of slogans coined by the late Communist Party Chairman.
First, there is “Bombard the Headquarters” – the words with which Mao in 1966 declared war on a party core he saw as an obstacle to leftist revolution.
The personable Mr Tsuga is not about to unleash a horde of fanatical Red Guards against Panasonic’s headquarters in the western city of Osaka – but nor is he pulling his punches. He readily seconds the view of a former president of the electronics group who accuses HQ staff of being ignorant of the “importance of added value” and being “preoccupied with internal negotiations”. Mr Tsuga plans a radical restructuring in which most HQ functions will be re-categorised, distributed to business units or simply removed.
“Currently the headquarters employ about 7,000 [people]”, says Mr Tsuga, who became Panasonic president last month. “We are trying to minimise it to several hundred.”
Then there is Mao’s 1957 instruction to China: “Let a hundred flowers bloom and a hundred schools of thought contend” – a line of classical poetry the great helmsman turned into a call for progress by means of freer thinking by intellectuals and scientists.
Mr Tsuga, who has degrees in bioengineering and computer science, is less poetic than Mao – and convincingly denies seeing the chairman as an inspiration. But he too hopes to lead to a flowering of creative thinking and competitive instincts at Panasonic’s nearly 90 business units.
Under his plan to cultivate “autonomous responsible management”, units generating healthy profits will be left largely alone. But those with operating profits of less than 5 per cent will come under the slimline HQ’s scrutiny and be forced to demonstrate how they can recover.
The idea is to re-energise a company Mr Tsuga himself likens to a cluster of small and medium-sized enterprises. To survive, units must show they can find their own way: “They should compete with each other.”
Whether these new approaches work matters not only to Panasonic, its 330,000 employees and its shareholders – who have seen the company’s shares slide from more than Y2,800 in 2005 to only Y610 on Tuesday.
Success would offer desperately needed inspiration for an electronics sector that was Japan’s pride, but which is being battered by US, South Korean and Chinese rivals.
Further affected by slowing overseas demand, a rising yen and natural disaster, the sector has been awash with red ink.
Panasonic’s net loss of Y772bn for the year to March was the biggest in its 94-year history. Sony suffered its own record annual loss of Y457bn. Sharp set a new company low by losing Y376bn.
Mr Tsuga says Panasonic is already on track for a “V-shaped recovery”. And he is surely right to reject its past approach of seeking higher profits from larger sales, particularly of TVs – an increasingly commoditised product where high-cost Japan used to dominate but now struggles.
Still, some observers doubt Mr Tsuga’s confidence that a smaller TV business can be put back in the black.
His strategy faces other challenges. One is that it relies on changing how managers think: making them more profit-conscious, more self-reliant and more aware of developments outside their silos.
Mao could wash brains with mass-struggle sessions; Mr Tsuga must use gentler tactics. Tinkering with seniority-based pay is one option, but details are scarce. “We need to discuss how we can realise such profit-oriented, performance-based remuneration,” he says.
To devolve power and to diversify also carry risks, although Mr Tsuga points out that focusing on the wrong things – such as TVs – merely caused bigger losses. Instead of focus, he intends to redefine businesses in reference to the customers they serve, with an overarching emphasis on “green” products.
The failure of past Japanese electronics turnround plans means investors should remain sceptical. Panasonic has recently fallen far short of the utopian dreams of founder Konosuke Matsushita, who thought manufactured goods should be as plentiful and cheap as tap water.
Yet Mr Tsuga will surely do better than Mao, whose Hundred Flower campaign degenerated into a leftist crackdown and whose HQ bombardment deepened the chaos of the Cultural Revolution. Unlike the late Chairman, Panasonic’s new president is at least trying to go in the right direction.