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For Ricoh, it's a sink-or-swim moment

CEO Yoshinori Yamashita will have to reel in the company's 'lifeline'

Yoshinori Yamashita,CEO of Ricoh, briefing on medium-term management plan in April.

TOKYO -- Ricoh is facing its biggest crisis ever. So President and CEO Yoshinori Yamashita has decided to "Break with Past Management," as his slogan says.

Ricoh is staring at huge losses as the market for multifunctional printers, Ricoh's cash cow, evaporates and its global sales network racks up high costs.

Yamashita, who took the helm in April, is respected in-house for his management ability, but whether he can keep the renowned office equipment maker profitable is another question entirely.

Yamashita in the middle of April began visiting Ricoh's sales outlets in Japan, the U.S. and Europe, urging senior officials to pursue profits instead of more market share.

At one meeting after another, Yamashita was asked the same question: "Is it really OK to pass on deals that do not generate profit?"

His answer was the same every time: "Yes, it is."

The new policy is to rid Ricoh of its emphasis on market share above all else. This is a gamble, perhaps more so considering that gunning for market share is in Ricoh's DNA. The company will have to make a 180-degree pivot, even though doing so could further dampen sales teams' morale and further erode earnings.

Yamashita two months ago briefed reporters on Ricoh's medium-term management plan "We will incur a loss of tens of billions of yen three years from now if nothing is done," he said. "People around me warn that our survival will then be questioned."

Multifunctional printer dependence

The Imaging and Solutions division, which primarily handles multifunctional printers, contributes 90% of Ricoh's consolidated sales. For the fiscal year that ended in March, the division's profit plunged, lowering Ricoh's operating profit to sales ratio to 4.6%. This is less than half the ratio at Canon, which suffered a setback in the same segment.

Ricoh was also less profitable than Fuji Xerox and Konica Minolta, which are also suffering as corporations buy less office equipment and instead concentrate on cutting costs.

Even sales of printer toner and other consumables -- which carry high profit margins -- remain in the doldrums.

As the dormant business winds show no sign of picking up anytime soon, Yamashita has adopted a cost reduction target of 100 billion yen ($912 million) for the three years through March 2020.

Much of the reduction will have to come from Ricoh's global sales and services network, which used to underpin the company's strength. Ricoh's groupwide workforce is more than 100,000 strong, over 70% of which is made up of office equipment sales reps and repairmen.

The medium-term business plan includes cutting back-office employees in North America and reviewing Ricoh's sales network there.

Since the middle of the 1990s, Ricoh has spent more than 400 billion yen acquiring overseas sales companies, capturing the largest share of the global market along the way.

Job cuts, be they at home or abroad, are difficult.

In North America, the review is expected to end with a call for outsourcing sales. "We have already picked more than 20 sales agents in the U.S.," Yamashita said, "and have begun transferring customers from our local subsidiary to these firms."

Ricoh will continue dealing with big companies and other major customers in the U.S. via its U.S. marketing subsidiary. But the subsidiary will still have to trim its workforce and could end up losing competent salespeople to Xerox and other rivals.

Trauma of 2011

Ricoh is unable to push ahead with drastic reforms due to the "trauma of 2011," an executive said.

Shiro Kondo, who became president of Ricoh in 2007, began cutting 10,000 jobs, or 10% of the Ricoh group's global workforce, that year. It was an attempt to correct the marketing division's high-cost structure and to prepare for the days ahead when office equipment demand would begin tapering off.

But the move greatly weakened morale in Japan, and sales plunged. Although earnings began to pick up in 2012, thanks to special demand for color multifunctional printers, "it was extremely difficult to recover the motivation of salespeople," the executive recalled.

Ricoh has a corporate philosophy first laid down in the 1940s by founder Kiyoshi Ichimura:

  • Love your neighbor.
  • Love your country.
  • Love your work.

Together, they are referred to as "the spirit of three loves."

Like Idemitsu Kosan, which has an it's-all-one-big-happy-family corporate philosophy, Ricoh never had a labor union nor nudged employees into quitting -- until 2011.

The 2011 job cuts were made after managers held talks with employees on an individual basis. Ricoh was later sued for the illegal dismissal of designated workers, and an awkward air prevailed within the company.

Today, Ricoh cannot improve earnings without drastically cutting costs at its sales force, but the division holds an awful lot of sway inside the company. Even Yamashita -- who, remember, is calling for a clean break from the past -- is approaching the task with caution. Job cuts, he said, will come through "attrition" -- mandatory retirement and workers leaving of their own volition.

Ricoh's office equipment sales force has been the company's lifeline. So now -- even with that market dissipating -- shortening it is risky business. Will Yamashita sink?

Or swim?

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