Lessons From Matsushita's Playbook

If new Sony Corp. (SNE ) boss Howard Stringer wants a few tips on how to turn around an ailing Japanese electronics giant, he might do well to hop on the Shinkansen bullet train to Osaka for a chat with Kunio Nakamura. He's the mastermind behind a turnaround at Sony's archrival, Matsushita Electric Industrial Co. (MC ), the maker of Panasonic-branded TVs, stereos, and DVD players.

Three years ago, Matsushita's uninspired products had lost their luster with analysts and consumers alike. The result was a $3.6 billion loss in the year ended March, 2002. Now those dark times are fast becoming a distant memory. Operating profits for the current fiscal year are expected to jump more than 50%, to $2.9 billion, as sales climb 17%, to $83.4 billion. Today the rejuvenated Matsushita, the world's biggest consumer-electronics maker, is also one of the most successful. Nakamura aims to boost operating margins to 5% by March, 2007, up from 3.4% today. While still well behind the double-digit margins of Korean rival Samsung, that probably would have had Sony's outgoing chairman and CEO, Nobuyuki Idei, doing cartwheels in the executive suite.

Nakamura's secret: the kind of extensive cost-cutting few executives -- other than Nissan Motor Co. (NSANY ) boss Carlos Ghosn, perhaps -- thought possible in Japan. While Sony dithered, Nakamura shaved billions of dollars from Matsushita's cost base by slashing its domestic workforce by 19% since 2001, to 112,000, and closing 30 factories. While Matsushita has invested in factories overseas, it has also boosted productivity at home. "The sense of shock changed the mindset of the remaining workforce," says Yuki Sugi, an analyst at Lehman Brothers Inc. (LEH ) in Tokyo. And the 65-year-old Nakamura shows few signs of letting up: In January, Matsushita announced plans to trim $1.15 billon more from costs over the next two years.

Cost-cutting, though, tells only half the story. While Sony often missed the boat on technologies and products -- flat-screen TVs and digital music players leap to mind -- Nakamura supplemented cutbacks with an increase in research and development spending and a renewed focus on creating innovative goods. Unlike Sony, where each business unit often decided on its own products, Matsushita senior managers have to sign off on new offerings. The results have been remarkable. In digital cameras, where Matsushita was nowhere just a couple of years ago, Panasonic's slim, 4-megapixel Lumix DMC-FX7 was the best-selling camera in Japan in the fourth quarter. Meanwhile, Panasonic made an early push into DVD recorders, giving it more than 30% of the Japanese market. In plasma TVs, Panasonic has 40% share in Japan. "Matsushita is better at introducing the right technologies at the right time," says Koya Tabata, an analyst at Credit Suisse First Boston Securities (CSR ) in Tokyo.

Sir Howard might also pick up a few management tips from Nakamura-san. Although he's known for being soft-spoken and polite to a fault, Nakamura is also quick to make tough decisions. And while Idei struggled to tame the rivalries among Sony's various units, there's no question about who calls the shots at Matsushita. "All the senior managers are fully aware of their responsibilities," says Masahiro Ono, an analyst at Morgan Stanley (MWD ) in Tokyo.

Perhaps more than anything, Matsushita's turnaround shows that Sony, while wounded, shouldn't be discounted. As Nakamura knows well, with the right strategy and management, even stumbling giants can regain their footing.

By Ian Rowley, with Hiroko Tashiro, in Tokyo

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