Sanyo Electric announced today that it would cut 14,000 jobs, or 15% of its workforce, in a bid to return to profitability. The move followed an announcement on March 31 about a record net loss of Y171.5 billion (about US$160 million).
What's more interesting than the layoffs is the change in strategic direction.
According to the International Herald Tribune:The company said that in a break with tradition, it would put profit before market share.
"We will no long conduct operations that don't produce profits," said Toshimas Iue, president.
Sanyo, like many other companies, has painfully awakened to the one corporate strategy almost guaranteed to lead to failure -- the quest for market share. How many business plans expect to be the market share leader?
Seeking to be a market share leader has numerous failings. It leads to lower pricing, which hurts profitability. It leads to acquisition branding that attracts unprofitable customers. And it leads to price-sensitive customers who are likely to be disloyal.
Other companies have also learned that seeking market share as a strategic goal hurts profitability. GM is probably the best known example.
Acquisition branding that is based on the need to "be number 1" in our market or expand market share inevitably leads to the acquisition of unprofitable customers. On average, 15% of customers are already unprofitable. Why would anyone want to acquire another unprofitable customer?
Remember the famous words of an Australian entrepreneur who downsized his company to expand profitability: "Volume is vanity; profit is sanity."
Too bad Sanyo didn't heed his words earlier.
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