Cleaning up the attic at Panasonic

In a presentation beamed to Panasonic offices around the world last week, Kazuhiro Tsuga, the company’s president, stunned middle managers with the blunt message that their bonuses would be cut more than a third.

A couple of hours later, he warned investors in Tokyo that Panasonic would lose nearly ¥765 billion, or $9.6 billion, in the business year ending next March as it wrote down assets and restructured. That would raise cumulative losses at the 94-year-old company to nearly $25 billion in five years. Tsuga branded Panasonic, the maker of Viera television sets, a loser in consumer electronics.

Tsuga’s action, and its execution, mark him as a bold leader who is not averse to making tough decisions to turn his company around. Along with its Japanese rivals, Sony and Sharp, Panasonic is battling reduced demand in an anemic global economy and facing intense competition with a bloated business portfolio and weakened finances.

Tsuga, 55, who has a liking for muscular cars, preaches survival through tough love.
He warned his managers that businesses failing to earn margins of at least 5 per cent would have no place in a remodeled Panasonic, according to a source.

After a long career in research and development, Tsuga was appointed to his first senior managerial post only four years ago. That relative inexperience, along with his bluntness, could be among his trump cards, breaking the mould of a Japanese management culture that is reluctant to let individual businesses sink.

His promotion to the top last June was a bold move by Panasonic, which is the biggest commercial employer in Japan, with 300,000 employees churning out light bulbs, bicycles, TVs, robotic hair washers and air-conditioners. His order to kill off weak units and beat a path away from consumer electronics to household appliances, car batteries, solar energy and lighting sets him on a restructuring route that his rivals are not taking.

Under Kazuo Hirai, the chief executive, Sony is focusing on consumer devices, building a future around cameras, games and mobile devices, while Sharp’s new president, Takashi Okuda, sees survival in persuading Apple and others to buy its advanced power-saving screens and increasing capital and customers through a tie-up with Hon Hai Precision Industry, the Taiwan contract manufacturer.

Tsuga’s housecleaning, which includes not paying a dividend for the first time in more than six decades, comes at a price. Panasonic shares, which were already at multidecade lows, slumped almost a fifth on the huge loss forecast, wiping $3 billion off its market value and prompting Standard & Poor’s to cut its credit rating to close to non-investment grade. On Tuesday, the stock touched its lowest point since early 1975; it was only slightly higher Thursday, at ¥396.

While the survival of the three big Japanese TV makers is not guaranteed, Tsuga’s no-nonsense approach to turning around a sprawling electronics giant has been well received by some, with Goldman Sachs reaffirming its “buy” rating on Panasonic shares and the JPMorgan Chase analyst Yoshiharu Izumi saying the write-downs are a sign of a “major shift in corporate mind-set.”

Tsuga joined Panasonic in 1979 with a degree in biophysical engineering and was given the job of getting machines to talk with voice synthesizers. His first project was working on an electronic version of the Chinese board game Go.

For the next 29 years, he was in research and development, building up a portfolio of patents but developing little management experience. In 1986, he earned a master’s degree in computer science from the University of California, Santa Barbara.

His shift away from cloistered research centers began in 2003 when he was asked to lead talks with competitors and Hollywood studios on establishing the Blu-ray standard for DVDs.

“Tsuga honed the toughness that is indispensable to a manager” during that time, said Noriko Fukuoka, an engineer who worked with him, in a recent interview with Panasonic’s in-house magazine, adding that Tsuga can “come across as blunt.”

In 2008, Tsuga was put in charge of automotive components, just months before the Lehman Brothers collapse tipped the global economy into recession and battered global car sales. Tsuga’s management inexperience was clear in those early days, said an executive who worked with him then. “He was not seen as someone pegged for the top,” he added.

As orders dried up, Tsuga toured struggling automakers in the United States and Europe and, in a nod to Panasonic’s biggest customer for car parts, he bought a Volkswagen Tiguan sport utility vehicle.

His appeal, and a cost-cutting drive that eliminated a swath of middle managers, returned his division to profit within a year. After a steppingstone year heading the audiovisual unit, where he shut plasma screen production lines, Tsuga had moved into position for the top job.

Installed at the president’s desk in June, he swiftly cut headquarters staffing from 7,000 to 150 to speed up decision making. By April 2013, the beginning of a new financial year, he wants to have identified almost three dozen of Panasonic’s 88 businesses for closure, sale or merger.

Seeking out low-productivity units, Tsuga may tackle the industrial devices business. It employs around a third of Panasonic’s workforce but brings in only a fifth of sales.

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