5. Overcoming the Lehman Shock
1997-
(1) Implementing Structural Reforms
- 2009
- The impact of the Lehman Shock was immense, leading DENSO to its first financial loss. To reform internal awareness and mobilize collective effort, President Kato took the unprecedented step of halting all regular operations for an entire day to conduct a company-wide “Structural Reform Discussion Day.”
Entering the 2000s, DENSO experienced rapid sales growth, particularly overseas, achieving record-high sales and profits in the fiscal year 2007. However, beneath this favorable performance, the company’s profitability was gradually deteriorating, and fixed costs had significantly increased.
In the U.S., a crisis was brewing. The housing market was booming, creating a bubble that burst in the summer of 2007 when housing prices began to fall. This culminated in the Lehman Shock in September 2008, leading to a massive global stock market crash. Auto sales plummeted worldwide, and production activities stagnated.
In June 2008, Nobuaki Kato assumed the role of President at DENSO and began exploring long-term growth strategies. However, the Lehman Shock shifted the focus dramatically. Immediate survival became the priority over long-term growth. President Kato’s initial policy speech, planned for October, instead addressed the severe downturn in performance and stressed the urgent need for short-term profitability and mid-term structural reforms.
- Deep DiveEmergency Measures for the Second Half of Fiscal Year 2008
- On October 30, 2008, DENSO announced the “Emergency Measures for the Second Half of the Fiscal Year” to secure profits. President Kato called on all employees to thoroughly control spending. During the period of steady sales growth, unnoticed inefficiencies and waste had crept into various aspects of the company's operations.
To address this, DENSO reviewed the necessity of meetings and committees, and extended the cost-saving, postponement, and cessation efforts to all areas of business, including research and development, which is vital for future growth. Employees were encouraged to return to the core roles of their departments and simplify tasks that did not directly impact customers, thereby strongly promoting improvements in operational efficiency.
For short-term profit preservation, DENSO quickly implemented stringent expenditure control measures as part of its “Second Half Emergency Measures.” However, the pressing issue was how to execute mid-term structural reforms. After thorough reconsideration, the previously developed long-term vision for 2015 was abandoned. Instead, DENSO decided to concentrate on structural reforms over the next three years, with President Kato determined to drive these changes top-down.
First, executives established the “Structural Reform Policy,” which was communicated across all departments. The “Three-Year Structural Reform Plan,” an execution plan, had to be promptly developed.
- Deep DiveExecutive Discussion Meeting
- To examine the content that should be incorporated into the “Structural Reform Policy,” DENSO convened an Executive Discussion Meeting in December, gathering all executives for a full day. During this meeting, various proposals were made regarding the company's response strategies and core activities from perspectives such as sales expansion, technological development, operational efficiency, and overall corporate strategic planning.
Based on these discussions, the “Structural Reform Policy” was formulated and swiftly disseminated company-wide on December 25. With the start of the new year, each department began the process of creating their respective execution plans, known as the “Three-Year Structural Reform Plan.”
- Deep DiveCommitment to Returning to Profitability
- In the fiscal year 2008, DENSO experienced its first-ever loss since its founding, and a further decline in sales was anticipated for 2009. Amidst these challenges, President Kato was determined to turn the company around to profitability, not just as a financial goal but also to boost morale and motivation within the organization.
He consistently emphasized the need for a positive and energetic mindset, reminding employees that “streamlining is a means, not an end; the goal is the next stage of growth.”
Meanwhile, the business environment continued to deteriorate. By February 2009, production levels had further declined, with the manufacturing floor anticipating a lack of work, resorting to cleaning and maintenance activities.
Despite these efforts, President Kato felt that the sense of crisis among employees was still insufficient. Drastic measures were necessary. President Kato decided to stop all regular operations for a full day across all departments.
The goal was for all employees to focus on how to achieve the necessary structural reforms. This unprecedented move, named “Structural Reform Discussion Day,” was conducted on February 20.
The implementation office prepared clear materials outlining the current issues and necessary considerations for structural reforms and distributed these to all departments. On the day, all executives visited various factories and workplaces, encouraging employees and conveying the company’s serious commitment to the reforms.
Reference：Overview of Structural Reform Discussion Day
- Deep DiveConsideration of Structural Reforms
- The themes for the “Structural Reform Discussion Day” included not only “efficiency improvements through business process review” but also “initiatives for future growth.” DENSO's approach was to maintain a forward-looking attitude, even in the face of adversity.
On the day of the event, implementation office staff visited various workplaces and were deeply moved by the unexpectedly high level of seriousness with which employees engaged in the discussions. The outcomes of these discussions were compiled at each workplace and reported internally within the departments. These reports were then consolidated to identify key issues, which were subsequently integrated into each department’s “Three-Year Plan.”
Despite these efforts, DENSO could not avoid a deficit in the fiscal year 2008 (ending March 2009). However, by the first quarter of the fiscal year 2009 (ending March 2010), the company had returned to profitability by the second quarter. This collective effort transformed the company’s crisis into actionable change, leading to new growth opportunities and becoming a valuable experience.
Throughout this period, President Kato remained firmly committed to “Human-Centered Management,” regardless of the severity of the crisis. He ensured that no employees, whether regular or temporary, were laid off, emphasizing collective effort and perseverance. This experience instilled new confidence in the company’s ability to harness “Collaboration” during critical times.