Kunio Nakamura resigned as chief executive at Matsushita Electric Industrial (MC) on June 28 with surprisingly little drama or fanfare. He deserved plenty, given the masterful salvage job he pulled off at Matsushita over the last six years. Nakamura took leadership of a high-tech sprawl in crisis condition.
Today, the $75 billion company, one of the biggest consumer electronics concerns on the planet, is a revitalized earnings machine, delivering its best profit performance in a decade (see BusinessWeek, 7/10/06, "No One Does Lean Like The Japanese").
But while Nakamura's departure was a tightly scripted affair, his tenure was hardly that. In a country where the corner executive suite is frequently a mere way station on the road to retirement, Nakamura was a nonconformist whose impact has been felt beyond Matsushita's global web of factories and offices.
STANDING OVATION. He gave the tech industry a how-to case study for transforming a staid manufacturer into a dynamic innovator, and showed that it doesn't take a demoralizing drumbeat of divestitures and layoffs to get a massive organization moving. "I rank him among the best of Japan's corporate leaders," says M.Y. Yoshino, a Harvard Business School professor and co-author of a 2005 study on the Osaka-based company. "History will remember him as the one who resurrected Matsushita."
Even financial analysts—many of whom were skeptical of Nakamura—have applauded his accomplishments. In April, after Nakamura wrapped up the presentation at his final earnings meeting, analysts gave him a standing ovation. "In more than 10 years of covering the firm, it was something this analyst has never seen before," Morgan Stanley analyst Masahiro Ono wrote in a recent report.
In recent years, only a few Japanese execs have received such accolades. Canon's (CAJ) chairman and CEO Fujio Mitarai won high marks from analysts for his laser-like focus on fattening up profit margins. Sharp's (SHCAY) chief exec, Katsuhiko Machida, has been called a visionary for committing the company to flat-screen TVs when others were still focused making picture-tube sets.
And Toyota Motor's (TM) ex-president and chairman, Hiroshi Okuda, has been a celebrity in business circles since he led the Japanese auto maker to global prominence.
BIG IMPORTS. Generally speaking, the Mitarais, Machidas, and Okudas are an endangered breed. That's because corporate managers in Japan too often fail to hit on a winning formula for change. Either they're overly cautious and wary of challenging long-established traditions, such as seniority-based promotions. Or they go overboard with U.S.-style restructuring and end up with little support from the rank and file.
These days, Japan's top success stories—or those in the making—feature imported managerial talent such as Nissan's (NSANY) Carlos Ghosn or Sony's (SNE) Howard Stringer. They have a far easier time making draconian cuts or setting out in radically different directions.
Many tributes paid to Nakamura center around his speedy results. By 2000, earnings had been going south for years despite restructuring and the company's market cap had shriveled to half that of Sony's. Nakamura told an interviewer soon after taking over that he thought workers were frustrated and needed a morale boost.
A NEW MAP. Known as a no-nonsense taskmaster, Nakamura set out give the troops something to aim for—and made it clear he was serious about reform. "I will take apart everything in this company except for the management principles of founder Konosuke Matsushita," he said at the time.
In short order, Nakamura put an end to the internal rivalries that had led some divisions to develop identical products. He drew up a new organizational chart, eliminated management layers and set tough benchmarks for all division heads.
To save on costs, he authorized a one-time payout for thousands of voluntary retirees and took an axe to the domestic sales network of tiny shopkeepers. He also stressed better design and spent more on in-house technologies, such as advanced chips, plasma-display TVs, and digital cameras with an anti-blur function.
ROBOT CLUSTERS. All this undercut Matsushita's unflattering reputation as an imitator, rather than innovator. (Industry wags used to call the company "Maneshita," a play on the company's name and a word that means "copycat" in Japanese.) The company now pours 70% of its capital outlays into two divisions making TVs, DVD players, and chips and other tech components.
But Nakamura's top priority was a two-pronged strategy to make factories capable of competing against low-cost tech makers in Asia. At older facilities, raising efficiency was key. That meant tearing up the old assembly-line model in favor of robot clusters, called "cells," and using just-in-time scheduling so parts arrived as the robots went online rather than sitting around for days.
The ideas for lowering inventories were first tested at “mother plants” in Japan which act as production laboratories for overseas manufacturing sites. The result: Matsushita's inventories are at a two-decade low of 37 days.
NO FAT. At new high-tech plants, the emphasis was on speed. Two years ago, Matsushita took over a year to roll out each new TV model to the U.S., Europe, and Asia. By making bigger glass to cut TV screens from and creating templates for software, it can now launch any of five dozen models in every market at once.
Among its competitors, only Samsung (SSNLF) can claim such a feat; Sony and Sharp take up to two months to release new flat-screen TVs worldwide. "We've strived for a system of making products when needed, in the amounts needed…and this year we'll use technology to streamline production even more," Nakamura told shareholders on June 28.
The impact on earnings has been dramatic, with Matsushita's rebounding from a $3.7 billion loss in 2002—the worst in eight decades—to a $1.34 billion gain in the year through March. And Matsushita's $47.5 billion market cap now exceeds Sony's. By next March, Matsushita forecasts net profit to grow by more than 20%, to $1.7 billion, on a 1% rise in sales, to $78 billion—an estimate UBS Securities' Fumio Osanai called "conservative."
BIG SHOES TO FILL. That's a hard act to follow for incoming president, Fumio Ohtsubo, but it's only part of the challenge he faces. Months before leaving, Nakamura committed to raising operating-profit margins from below 5% to 10% by 2010. Doing so would put Matsushita on a par with Samsung Electronics of Korea, at 9.4%, and in the middle of the pack in Japan, between Canon's 15% and laggards Toshiba and Sony (3.8% and 2.6%, respectively).
To succeed, Ohtsubo, who headed the TV division, will have to fix the company's cell phone business and its money-losing electronics unit Victor, of Japan. He'll also have to assure investors that the company's cost cutting on plasma TVs and digital cameras will preserve profits even as prices on tech goods decline worldwide. Thanks to Nakamura, Matsushita is on an impressive run. Investors will expect no less of Ohtsubo.
Hall is BusinessWeek's technology correspondent in Tokyo
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