The front cover of the January 27 2020 edition of Nikkei Business, one of Japan’s leading business magazines, must have made their PR department’s hearts sink. どうなってる？Panasonic (dounatteru? -” what’s going on?” maybe even “what the hell is going on?” depending on tone of voice) it says in stark letters across a simple blue cover. The inside is not much more cheering.
Culture change has nothing to do with me
It talks about the change in corporate culture that new internal companies like Connected Solutions are bringing about, but notes that there are plenty of veteran employees who think it has nothing to do with them, don’t want a culture change or suspect it will only last as long as the “returnee” President of Connected Solutions, Higuchi Yasuyuki, lasts.
Panasonic’s President Tsuga Kazuhiro has been in post for nearly 8 years. The usual term for Panasonic (and most other Blue Chip Japanese company) presidents is 6-7 years, so there must be a thought that he will not be president for much longer. Nikkei Business closes its interview with him by asking about this. Tsuga says he hoped to step down at the centenary of Panasonic’s founding, in 2018, but “I wasn’t good at quitting”.
The Nikkei opens its interview with him by asking him about the forecast Panasonic has made for the current financial year, that both turnover and profits will be down on the previous year.
No regrets on shift to B2B and automotive
Tsuga admits that he had aimed to increase turnover and raise operating profit to 5% of turnover, but blames about 80% of the decline on US-China trade friction which damaged the profitability of Panasonic’s operations in China. The EV battery venture with Tesla is also not at full operational strength.
Tsuga maintains he was right to shift Panasonic to business to business sectors, including automotive, despite the current problems facing the automotive industry. He describes the problems popping up in the various sectors he expected to generate stable growth as a game of “whack a mole”.
Panasonic is not an ordinary company
Nikkei Business points out that Panasonic seems to be going against Western business orthodoxy, that companies should specialise in what they are good at and cut out any remaining businesses. Tsuga says that is because Panasonic is not an ordinary company. “We persist in staying close to the every day lives of our customers… that is our strength.”
“We will continue to have an integrated, comprehensive strength and we need to have a model for our future business otherwise we cannot explain “why Panasonic?”. People might say they cannot understand our model very easily but I don’t think it’s necessary for it to be that easily understood. We’ve been going for 100 years, if we fall over in the next 10 or 20 years that’s a problem. We have to change into the right shape to deal with the changing times. ”
Bringing in outsiders
This why Panasonic has been proactive in bringing in outsiders, says Tsuga. When Matsushita Konosuke first set up Panasonic, there was a shortage of top quality employees. “Now Panasonic has grown to a point where it attracts people from the top universities, but this means there is a certain uniformity to the type of employee working here.”
Tsuga has high hopes for the team headed up by Matsuoka Yoko, known as Yoky, who joined Panasonic from Google in 2019. “She starts from thinking about “koto” (situations) rather than “mono” (things). I have an image of Yoky being the centre of starting up various venture companies together. To create internal companies that people want to acquire or partner with.”
Other outsiders who have recently joined Panasonic include Baba Wataru, who used to be CIO at SAP Japan, and Eiichi Katayama as Chief Strategy Officer who used to head up the research division at Merrill Lynch Japan Securities.
Tsuga also reduced the number of Corporate Executive Officers from 49 to 16 – including Katayama and Higuchi – so no wonder Panasonic old timers feel sore – outsiders are taking up increasingly scarce senior level jobs.
4 diseases impeding growth
Nikkei Business points to four “diseases” which have prevented Panasonic from growing. One is that the strategy and business model were not based on market needs, but what Panasonic’s product manufacturers wanted to do. This is a very common issue for Japanese manufacturing companies.
The second problem was a lack of funds for investment – a lot of capital was expended on absorbing Sanyo, and yet turnover did not increase, so there was a lack of free cash flow for big investments that were needed in automotive (although they did acquire Ficosa and Zetes in Europe).
Again, like many Japanese companies, Panasonic had a silo organisation – with big vertical walls between each business, making having an overall strategy for developing Internet of Things business in sectors such as air conditioning very difficult – the Life Solutions company (focused on lighting, energy, housing) and the Appliance company (household appliances, airconditioners) kept bumping up against each other.
And the fourth problem is that to try and fix this, Panasonic kept reorganising itself, but this in turn weakened Panasonic’s ability to deliver.
Turning the “tap water philosophy”
The final part of the Nikkei Business special feature looks at what other companies have done to turn themselves round – Microsoft, Siemens, Sony and Hitachi. It concludes that consistency of strategy over several generations of CEOs is necessary. It looks as though Tsuga, by hanging on, has adopted this approach.
Nikkei Business quotes the founder of Panasonic, Matsushita Konosuke, as saying that in a changing society, new value cannot be created just by imitating the master’s methods, which were based on what is known in Panasonic as the “tap water philosophy“. New value shoud be created by absorbing this philosophy and updating it to improve people’s lives as they are currently lived.
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