Looking Ahead After Reforms That Reshuffled 70 Pct. of Personnel: SGI Japan Pres.
November 1, 2001 (TOKYO) -- Indifferent to the business slump of its parent company, Silicon Graphics Inc. of the United States, SGI Japan Ltd. has increased sales for nine consecutive quarters.
In October 1998 Norio Izumi, then the vice president of Compaq Computer KK, was installed as president of SGI Japan, and since then, he has carried out drastic reforms on a large scale that are considered to have worked out successfully. The reforms were accompanied with a great deal of pain, he said, including the replacement of 70 percent of the employees.
Witnessing this success in Japan, parent SGI has begun to reform its businesses based on SGI Japan as a model. Izumi has accomplished a series of reforms, some of which were opposed by U.S. SGI. BizTech interviewed Izumi about the points of reforms and future plans.
BizTech: SGI Japan announced that it increased sales by 24 percent over the past three years. As various IT-related companies have been facing a tough business environment, how have you been able to increase sales that much?
Izumi: Immediately after I assumed the presidency, I set out to review the company's overall business systems. I think this has resulted in the sales increase. It is too bad that I cannot disclose our concrete sales amount and profits.
There are several points worth review, but I think there are three major points. First, we shifted our focus from the conventional workstation-based business to servers and systems integration-based business.
Second, we narrowed application fields down as our sales targets so as to commit our management resources collectively. Third, we recognized the waste that existed, and by eliminating it, we made efficient management possible.
The first thing I dealt with was to grow out of the business that had depended on workstation sales. It is true that our company had grown up as a top vendor of graphics workstations. I think it was okay as our business model, but I judged that as the environment of the IT industry had changed, we would not be able to grow on this model.
For the past 10 years the hardware prices have dropped dramatically, especially, in the areas of PCs and workstations. If we developed competition only in these fields, we would be unable to increase sales and profits. SGI has one more strong point, which is the field of UNIX servers for scientific calculation, and I directed my attention to it. In addition, not only selling the main units of servers, but also developing service businesses such as SI, we have been migrating to the business structure with higher added values.
In terms of hardware sales in value, the ratio of servers increased from 36 percent in fiscal 1999 (July 1998 - June 1999) to 62 percent in fiscal 2001 (July 2000 - June 2001). Also in terms of the ratio of hardware-versus-software sales, hardware accounted for 76 percent in fiscal 1999, but decreased to 56 percent in fiscal 2001. We are making a business plan that the sales of software/service will exceed that of hardware within one or two years.
Regarding the application fields as our sales targets, we narrowed down to the three fields -- large-scale technical computing, content distribution via broadband network and the traditional scientific visualization.
Q: I think that when you want to change your business structure, there must be the issue of "personnel" or human resources.
A: Yes, of course, there was. First off, regarding our employees, there has been no change to the number of employees for the past three years. Instead, focusing on the employees who engaged in the workstation/PC-related businesses and CG image production, I replaced 70 percent of the whole. Therefore, only about 30 percent of those who were here three years ago remain currently in our company. In place of those who left, I recruited from outside talents who are more server- and service business-savvy.
In addition, in order to carry out such a big reform as this, I had to clarify such things like who has a right to do so and who is accountable for it, and I took various steps based on that. The most important one is that I became the only executive who has the right of representation, and made clear accountabilities for all. That is why I could take the drastic reforms.
I also changed the sales system. In the traditional workstation sales, indirect dealer sales were dominant. I have been gradually increasing the ratio of direct sales, and in fiscal 2001 the ratio of direct versus indirect sales has become 50:50. I will increase the ratio of direct sales further in the future. Part of the reason is that it generates high profitability. Another is that I want to create a business model where we directly interface with customers and reflect their needs correctly into our service businesses.
Anyway, changes are the key to growth -- a drastic review of everything in our business system. Of course, in the course of that, we had no choice but to experience pain.
Q: SGI in the United States also tries to have a similar business structure as that of SGI Japan, right?
A: At the very beginning when I set out to implement our management reforms, our parent eyed at us, saying, "What on earth are you doing?" But as SGI Japan gradually showed better performance, the U.S. side changed itsir way of looking at us. At present they are putting into practice what SGI Japan has been doing. Soon I hope our parent will also be able to achieve better performance.
We will continue to implement our management reforms in the coming three years. Our sales goal is to attain two-digit compound annual growth rate, and I believe that we can do it.
The interview was conducted on Oct. 2., 2001.
(Kazumi Tanaka, Deputy Editor, BizTech News Dept.) |
