Global Economics

Nakamura Hands Matsushita Over


Is the new boss merely a shadow of the old boss? Matsushita Electric Industrial's (MC) newly installed president, Fumio Ohtsubo, like all successors who follow a proven turnaround artist, will have to work mightily to dispel such talk. In his July 7 public debut before analysts and reporters, he was careful not to tip his hand about any radical departures as his watch begins.

After all, he follows Kunio Nakamura, one of the most respected leaders in Japan, and a guy who earned an unassailable reputation as a cost cutter over his six-year tenure (see BusinessWeek.com, 6/30/06, "Matsushita's Transformer Steps Down").

So not surprisingly while Ohtsubo, 60, promised to double operating margins to 10% by March, 2011, boost overseas sales, and invest in hot-selling flat-screen TVs, chips, and car electronics, he didn't depart much from his predecessor's script. Many details remain unclear. His own three-year growth master plan for Matsushita (best known for its Panasonic brand) won't be fleshed out until next January. "My mission is to achieve growth," Ohtsubo said. "I won't be all talk and no action."

HARD ROAD. That remains to be seen. His predecessor got points from investors for reaching tough financial targets by attacking taboos and excessive spending, and cooling internal rivalries. Now that the company is healthy again, Ohtsubo's task is different. He must deliver innovative technologies that can make Panasonic a brand-name powerhouse for all kinds of consumer electronics, not just TVs.

He'll also have to see every division bring in higher revenues, reach higher margins, and sell more of their goods overseas. (Currently, less than half of the divisions have operating margins of 5% or higher, and more than three-quarters of all profits come from Japan.)

With so many low-cost competitors around and electronics prices sliding by the double-digits annually, it could be a hard slog. "It may be difficult to reach an operating margin of 10% in four years' time," Nomura Securities' Eiichi Katayama wrote in a July 7 report, adding that 7% to 8% margins were more realistic.

REPUTATION FOR EFFICIENCY. Based on Ohtsubo's first showing alone, some have branded him a "sarariman shacho"—a bland exec who blends in with Japan's dark-suited masses. The label is an all-too-familiar one for management teams at other tech makers, including NEC, Pioneer, and Hitachi, where lackluster results led to reshufflings in recent months. "I don't see him [Ohtsubo] as a real risk-taker," said Standard & Poor's tech analyst John Yang. "He'll need that if he wants to stir growth."

One reason for the skepticism is that Ohtsubo's predecessor left on such a high note. In the fiscal year through March, Matsushita reported a $3.6 billion operating gain—the company's largest in 15 years. Its stock, up 37% in the past 12 months, has outstripped the TOPIX Electrical Appliances Index, a Japanese tech-industry benchmark. By next March, the company forecasts a 20% rise in net profit to $1.7 billion, on a 1% rise in sales, to $78 billion.

Still, Ohtsubo is hardly an accidental chief exec. By all accounts, he has shown a talent for running a highly efficient organization over the past four years. As the head of Matsushita's audio-video unit—which brings in over a third of total revenues and profits—he made Panasonic TVs into a worldwide hit, solidifying the company's standing as the planet's No. 1 plasma-TV maker.

GETTING TO MARKET FASTER? Known for setting ambitious targets, Ohtsubo had engineers rush new models to market in record time, outpacing the likes of Sharp (SHCAY), Sony (SNE), and Samsung (SSNLF), which dominate in flat-screen TVs with liquid-crystal display (LCD).

"Three years ago, it took us 25 months to launch any new TV model in every market," says Hirotoshi Uehara, Matsushita's general manager of flat-screen TV R&D. "Ohtsubo is the reason we're now managing simultaneous worldwide launches. And by next year, he wants us to be able to do twice-a-year launches."

He also put engineers working on different projects in closer proximity to each other to encourage a freer exchange of ideas. One example: Engineers from several areas collaborated on the company's Viera Link technology. It's a remote controller that lets you use the TV set's digital connector to beam commands to any other Panasonic electronic device on the living-room network.

ENGINEERING MIND. According to company officials, Ohtsubo has spent the past few months boning up on the company's vast manufacturing operations. During a May visit to a factory in Saga, southern Japan, he spent hours inspecting the facility, which had been rearranged into "cells," or clusters of robots instead of the traditional assembly-line layout.

The plant was one of the first to test the system, which has been green-lighted for other divisions as well. "He wanted to know details about our methods for raising efficiency and limiting inventories of parts and products," said Hitoshi Hirata, manager of Matsushita’s factory in Saga. "His engineering background shows—he understands what we're doing."

That's the kind of on-the-ground approach he'll need if he is to cure what still ails Matsushita. His biggest headache is one that he inherited from his predecessor: Victor of Japan. JVC, which accounts for 8% of Matsushita's total sales, racked up $60.5 million in losses in the fiscal year through March.

CASH HOARD. That offset the profits of other divisions and led to calls for Matsushita to cut its losses by selling its 52.4% stake in JVC. Cell phones are another low-profit area that could give Ohtsubo problems unless he sorts out a tieup with NEC and finds a way to get economies of scale by expanding overseas.

Some analysts say Ohtsubo can't succeed without spending part of the company's $13 billion cash hoard on M&A. Ohtsubo has called M&A "one use of surplus cash," but clearly prefers to spend on in-house R&D and streamlining global production. That's because he thinks that having snazzier products and lower day-to-day costs could raise margins to near 8%.

It's unlikely that Ohtsubo has reached such conclusions on his own. With ex-president Nakamura sitting in the chairman's office nearby, he's probably getting plenty of coaching from a proven pro.


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