Danger of Bankruptcy - Urgency When Facing the Abyss

At the end of March 2000, Hokushin held a total of \16,600 million of corporate bonds, and the time limit their redemption was March 2003. Moreover, the bond loan conditions specified that "there should not be three consecutive periods of deficits". However, since the years ending March 1999 and 2000 had shown consecutive deficits, it was essential that the period ending March 2001 should show a profit. With a request from the bond administering company, it was judged that third party assistance would be required to develop a new business plan that should include fund procurement for corporate bond redemption. Following a recommendation from the administration company, Hokushin was strongly encouraged to seek JMAC's consulting services.

Tetsuro Irino, who was the Project Sub-Leader, looks back on that time as follows:
"Hokushin was in a desperate situation, but inside the company it was strongly felt that the company could still solve the problems itself. 'If we have to raise capital, is it really necessary to invest in the new expense of taking on a consultant? Since we are the people who have to take action, wouldn't it be better to add this expense to the profit?' But the real situation was that our company had already reached the situation where it was incapable of fixing itself."

Current Hokushin President Hideo Taira, who at the time was involved as a part-time director at Hokushin's parent company Kanematsu Corporation, describes the situation: "If the company continued on the same course, there was a possibility that it would become bankrupt. This was not only the viewpoint of the banks, but of people inside the company too. However, we did not know how to turn the company round, and could only propose general solutions such as reducing the number of employees and cutting expenses. We were the kind of company that wouldn't repair the buildings even though they needed fixing, if there was no link with sales. To be honest, it was highly possible that the company would have collapsed."

Scenario for Reform - Boosting Sales, Reducing Costs

In August 2000, the first joint project with JMAC was begun, in spite of the resistance to reform inside the company. Five JMAC consultants were sent to Hokushin, led by Director and Senior Consultant Kamiyakko, and including Takeshi Uchikoshi, responsible for sales and marketing, and Masanaka Yokota, responsible for production division cost reduction. The project title was "Support for Achieving a Surplus through Business Structure Reforms", and the reforms focused on "enhancing promotion in sales (marketing)" and "reducing costs in production".
At the end of September, the proposed reforms based on a strict analysis by the consultants were submitted to Hokushin. The core of the reform was to change the organization from an area/product basis to a strategic business unit basis that would include both sales and production. The reforms also included the major structural reorganization necessary for this change. According to Director Irino, "In less than two months, we were being told what was required and shown what to do. We were impressed by JMAC's professionalism. Of course, the reforms were based on the precise information that we had provided, but it would not be possible to produce such proposals unless JMAC had completely understood the industry's current situation and our company's unique condition. However, I can still remember being told by JMAC that the proposals only showed the way as the first steps in a new start, and that the most important point was whether the proposals could be implemented or not."
Director Irino took these words to heart and led the reformation activities. By January of the following year, the organizational reforms based on the scenario were carried out, and cost reduction meetings under the guidance of JMAC were started. The initial target of avoiding a deficit was achieved. The operating profit at the end of March 2001 was \238 million, achieving a final profit of \10 million. For the planned corporate bonds, \5,000 million was redeemed without problem.

Second Project with JMAC - Not Possible to Create Something from Nothing!

Building on the experience of the first project, a moderate profit was achieved in the first half of 2001. However, the existing corporate culture proved to be an obstacle for the reform group led by Mr. Irino to implement project activities. Resistance was encountered from some of the management executives, and executive age limit retirement, which should have been the main feature of the cost-reduction measures, was not implemented. Further, the rescue of a consolidated subsidiary, SWA, in Australia and further economic recession due to the effects of the September 11 terrorist attack meant that the results forecast for the second half of 2001 were extremely poor.
In this situation, in July 2001 Hideo Taira was appointed vice-president with full rights to conduct executive reform. President Taira states, "When I was involved with the SWA rescue, I had a completely different concern from Mr. Irino and his supporters. That was, if the company handled this situation badly, it would look like we were window-dressing the figures. Speaking plainly, I thought that if the company had no chance, we should let it go under, but if there was even a slight chance of recovery we should make every effort to save it. However, I felt that this would not be possible through our own efforts, since it is not possible to create something from nothing; no matter how hard you try, nothing can be created from zero. So here I decided to once again ask JMAC for their assistance."
In November 2001, a second project, named the "Dream Project" was begun. In the first project, JMAC supported the reform plan, but this time JMAC provided follow-up for the implementation. In the project, JMAC became as one with the client, one of JMAC's basic stances.
In fact, a little before this, Mr. Irino had become exhausted with fighting alone against the resistance to reform, and had submitted his resignation to the then president. Of course, his request was not accepted, but Mr. Irino had determined to leave at the end of October. It seems that behind the former president's decision to appoint Mr. Taira as vice-president at that time with full rights for reforming the company was a wish to support Mr. Irino's enthusiasm.
"As long as Mr. Taira is the leader, and we are backed up by JMAC", that is, with reliable top management working together with JMAC, Mr. Irino once again took up his fight for reform.

Important Points for Reform - Professionals' Abilities and Top Management's Patience

In the second project, under the strong leadership of President Taira and based on the "New Medium-term Management Plan" (3 years) produced together with JMAC, drastic reforms were forcibly implemented. Reforms continued through the implementation of the executive retirement system, sweeping reductions in administration staff (cut in division and section managers from 38 to 15), thoroughly improving efficiency in the manufacturing processes, and tenacious persuasion of sales division staff, who had strongly resisted reform. Finally, the employees' way of thinking began to change. The cost-reduction meetings that had been led by JMAC and Project Leader Irino became activated meetings as the monthly Saturday Review.

Mr. Irino says, "When the operation rates on the production lines were poor, employees volunteered to work on Sundays. The Review built up a younger generation of employees who were resolved to change things themselves. This was a very large change."
Following trial and error by employees, Hokushin succeeded in reducing costs such as cutting \60 million annually from the electricity bill. However, the personnel-related cost reductions of more than \200 million per year proved painful for employees.
Some temporary confusion in the structural reorganization and unpredicted problems did occur, and some months marked the lowest-ever sales results. But Hokushin never gave up, believing in a successful outcome.

In July 2002, the results of the reforms began to be reflected in the figures. The correctness of the scenario was validated and the feelings of the sales department staff soon began to change. Then in March 2005 at the end of the final year of the "New Medium-term Management Plan", Hokushin achieved results including sales of \11,300 million, operating income of \600 million (5.3%), and pretax profit of \446 million (4.0%), exceeding the targets. The company was also able to once again pay a dividend of \2.5 per share.
President Taira looks back on the success of the reforms as follows, "First, a realistic scenario was developed jointly with JMAC. Then this scenario was implemented by Mr. Irino and myself. And then there was persistence. Areas where investments were required, such as in consulting, were not skimped on, and so for example new IT equipment was introduced to improve the efficiency of meetings. This raised the level of the meetings, thus helping to develop future leaders. And finally, there were the efforts of many employees."

Motivating Force for Reform - Top Management's Strong Leadership

JMAC Senior Consultant Yokota comments, "The main points of the Hokushin project was firstly that top management, strongly convinced of the need for reform, was brought in from outside the company. Unfettered by past connections, and assured of the danger to the very survival of the company if reform measures were not taken at this time, the president himself explained to the executives facing him and appealed to the feelings of employees. It was this leadership which promoted the reform. The second point is the presence of the Project Leader, whose enthusiasm extended to the extreme."
This case is a good example of increased synergistic effect through Mr. Taira's vocation as president and Mr. Irino's enthusiasm, together with the earnestness that spread among the employees, and penetrated through the consultants.

Although this is an outstanding accomplishment of V-shaped recovery, President Taira comments severely that, "This is still only one stage in the growth. My wish is to realize an even steeper recovery pattern."

"One thing we can be thankful for is that our company has many excellent customers. If we can strengthen their trust in our relationship and build relations of mutual dependence, I believe we will achieve stable corporate growth. By further enhancing the level of our salespersons we will build CS appropriate for Hokushin through making best use of our IT capabilities. If we can achieve this target, we can even expect further strong growth."

With the recent focus on environmental measures and health problems, the effective utilization of natural resources is possible, and the performance of products with low emission of hazardous formaldehydes is receiving renewed interest. Favored by these recent trends, Hokushin is making rapid progress towards the next stage.

Go to list of consulting case studies