Closing Case: Boosting Efficiency at Matsushita
Matsushita Electric Works, Ltd. (MEW) comprises of six major businesses: Automation Controls, Lighting products, Electronic & Plastic Materials, Information Equipment & Wiring products, Building products, and Home Appliances. In the year 2000 the market for these products was in deep trouble and was facing highly increase competition as well as both a deflation driven price decline. The employees’ moral was very low till a new CEO was appointed for the company. Mr. Kunio Nakamura brought very brave and dramatic changes to the company’s policy addressing all levels and departments of the company from research and development to employee benefit schemes. He pushed the management to make every possible move that could raise company’s returns. In the very beginning of his tenure he put an end to internal competition by designating skill specific tasks to the concerned departments. He also introduced modernized technology by replacing majority manpower with robots which boosted the pace of work many times. Along with boosting the pace the company also focused on product quality. The shortened time cycle helped the worker to correctly identify the source of the problem.
The results of all these steps were remarkable. The company registered $1.3billion in 2006 after losing $3.1billion in 2002. Moreover, the company’s financials showed a 20% increase in the earnings in 2007. By the time of retirement of Mr. Nakamura in 2006, the company was delivering its best performance in more than a decade.
Q.1.
What are the benefits of eliminating the long-standing policy at Matsushita that different
divisions should be allowed to develop the same basic product? Are there any potential
drawbacks of such a policy change?
The major benefit of eliminating the policy was procuring efficiency gains, as earlier different divisions were allowed to produce identical products and at the end only one division was approved to market the product. This was very discouraging for the rest of the divisions as for the rest the effort was in vein. One potential drawback of this might be that when there is internal competition, the outcome would have been of very high quality as all the division would work their utmost to get the approval.
Q.2.
What do you think were the benefits of life time employment at Matsushita? Why then did Nakamura effectively end the practice? What benefits did he realize for Matsushita by doing so?
Life time employment policy helps the company gain employee’s loyalty for life, yet on the other hand it can make the workers less efficient as there is no fear of losing job whatever may happen. Nakamura effectively ended this policy for this very reason. The company though had to lose few of its loyal employees and there could have been great distress among the workers for this change but the positive impact was that the employees now worked harder to retain their jobs and produced more efficient output. The results of this move were clear in the company’s financials in the following years. Another reason for this could be introduction of the modernized robot system to the company as more technology was brought in lesser manpower was required. The company thus had to slash workforce to 19%. Again this boosted the pace of production many times saving the time, energy and resources of the company. Higher returns were earned by employing comparatively lesser manpower.
Q.3.
What does the example of the Saga factory at Matsushita tell you about the benefits of optimizing workflow for (a) work in progress, (b) the productivity of both employees, and (c) the capital invested in plant and equipment.
Optimizing the workflow in the Saga factory also called as the ‘Mother Plant’ within Matsushita is a great example of more refined work flow, enhanced productivity of the plant and of the employees as well. Along with that complete and efficient utilization of the capital invested in plant and equipment. The optimization leads to more synchronized work flow reducing the chances of errors to as low as possible. As a consequence of which the productivity of the employees and the plant results to be much higher escalating the company’s returns at a faster pace. Producing high quality improved products by using technology oriented optimized system the business can earn much higher profits as compared to the capital vested in the plant and equipment.
Q.4.
What are the benefits to Matsushita of a reduction in defect rates?
Matsushita succeeded in taking the error rate to less than 1% which effectively boosted the productivity and helped the company to strengthen its reputation for producing high quality merchandize.
Q.5.
What does Matsushita examples tell you about the importance of functional-level strategies for competitive advantage?
Functional level strategies are aimed at enhancing the effectiveness a business’ operations. These strategies improve the company’s ability to attain quality, superior efficiency, consumer responsiveness and innovation. At Matsushita these strategies are being practiced and the company takes full advantage of the benefits gained by implementing these through company policy.
Q.6.
Matsushita is a manufacturing company. Do you think that the principles discussed in the case are important for a service enterprise?
The principles discussed in the case are of the same importance to a service enterprise as long as a firm needs to have competitive advantage. Boosting efficiency is the ultimate need of time. We can’t relate this with any specific industry. A service enterprise also should work on the footings of Nakamura and being in policy changes that are important for the profits of the enterprise. Multi level management shall be checked and slashed if required also introduction of technology is a must in today’s world. A smooth workflow and fully synchronized system plays a major role in increasing the returns of any business. Optimizing it makes the life easier and the impact is reflected in the financial statements of the business.
Reference
Charles. H, Gareth. J, Gareth .R. J, (2009). Strategic Management Theory: An Integrated Approach, 140.
