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Japan-Update

At Casio, a generational split opens path back to prominence

President preparing electronics maker to function minus his charismatic dad

Casio Computer President Kazuhiro Kashio

TOKYO -- Behind silver-frame glasses and beneath a mop of wavy, graying hair, soft-spoken Casio Computer President Kazuhiro Kashio cuts a far more subdued figure than his charismatic, take-charge father, Chairman Kazuo Kashio.

But the intellectual engineer's relatively hands-off approach could be just what the electronics company needs after a decade of struggling to regain its former stature by force of will.

Casio is at a turning point, Kazuhiro revealed in a recent interview with The Nikkei. While calculators and wristwatches carried the company to prominence starting in the 1970s, earnings have faltered of late. If nothing changes, "we won't be here in a decade," the 51-year-old president said. More than two years into the job, Kazuhiro is ready to do what it takes to turn things around -- whether or not that means clashing with his father.

Fixed ideas

Kazuo Kashio, the chairman, has an unparalleled track record as an energetic innovator and salesman. Along with his three brothers, he helped bring desk calculators to market in Japan and in the early 1970s unveiled a compact calculator less than a third the price of its predecessors. The device sold a million units in 10 months, helping make Casio a global household name. The quartet's other inventions, ranging from more advanced calculators to musical instruments and watches, helped the company diversify into a true electronics giant.

Now, at 88, Kazuo says he is "still on the front lines on development."

The Kashio brothers: Yukio, Kazuo, Tadao and Toshio.

"I'm not just popping in for a taste" of development work -- "I'm actually working," he explained. The chairman remains the driving force behind Casio's watch division and is spearheading development of new watch modules geared toward emerging markets.

But Kazuhiro takes a darker view of the company's development efforts, acknowledging that what he has to say may run counter to his father's point of view. "Casio is losing its founding spirit," the ability to dream up innovative products from nothing, the president argued. "Our own management systems are part of the problem."

"As a company, we've become less appreciative of young engineers working freely and experimenting as they please," he said.

Casio's electronic musical instruments business is emblematic of the problem. The business is hardly a minor one. Casio and rival Yamaha control more than 80% of the market for electronic keyboards, and instruments overall brought in a healthy share of the company's 321.2 billion yen ($2.86 billion) in sales for the year ended March 2017. But innovation there has withered.

Several years ago, after years of the musical instruments business bleeding red ink, the head of keyboard development planning identified cost as the greatest strength of the department's upcoming offerings. Designers set about ensuring this was the case, making keyboards smaller, even at the expense of functionality, to cut down on pricey shipping materials.

The focus on price-competitiveness "is not wrong in and of itself," Kazuhiro said. But, he explained, engineers would likely prefer to put their talents toward innovating and dreaming up new offerings than to simply cutting costs.

A tight grip

The strong will that made Kazuo a standout salesman also made him an intense top-down manager when he became president in 1988. Yuichi Masuda, a senior executive managing officer who once oversaw the hit G-Shock line as chief of watch operations, recalls how, as one of the four Kashio brothers, Kazuo seemed untouchable to most employees.

Casio Computer Chairman Kazuo Kashio

This served the company well through fiscal 2006, when robust cellphone and digital camera sales handed Casio its largest operating profit ever and more than 600 billion yen in sales. That year, the company set its sights even higher, targeting 1 trillion yen in sales and 100 billion yen in operating profit in fiscal 2009.

That was not to be. Instead, Casio logged a massive loss in fiscal 2009 amid a slump in cellphones and liquid crystal displays, and sales fell to half their former level.

The fall has certainly not stopped Casio from dreaming big. The company's earnings targets are often shockingly ambitious, even to employees. But Casio frequently fails to deliver on those bold plans.

Such was the case in May 2015 when, at the same event where he announced that Kazuhiro would take over as president, Kazuo declared that Casio would double operating profit to 75 billion yen in a few years. Were he to remain president, the company could more than meet that target, the now-chairman said, challenging his son to rise to the occasion.

More shocking than the headline figure was that 10 billion yen of the 75 billion yen was to come from new businesses, including a series of video lectures where Kazuo and others would pass on the secrets of their managerial successes to a paying audience. But with profit having plunged in fiscal 2016, such customers could prove difficult to find. The time frame for realizing the target was pushed back by a year. 

Kazuhiro endured a barrage of questions from foreign investors during a meeting at the end of November. They wanted to know what progress Casio had made toward its postponed profit goal, as well as detailed breakdowns of each business operation, according to the president.

"In the past, investor relations were not that active," said Kazuhiro.

But the shareholders were hungry for results, putting the company in a bind. If achieving the profit target is a must, the company would be forced to boost sales this fiscal year at the expense of next fiscal year's result, said the younger Kashio.

"In that context, we couldn't load up on new ammo heading into the future, even if we wanted to," he added.

The days when the elder Kashio inspired the staff with ambitious goals seem nostalgic in comparison. Now that shareholders are essentially auditing those lofty ambitions, staff morale has taken a hit, throwing Casio into a negative spiral.

The reluctant heir

Kazuhiro succeeded his father as company president at the age of 49. Some expressed doubts about the future of the company given his young age, in addition to his more demure attitude.

Upon graduating from college, he entered the family business, working in advertising operations. He was even assigned to a U.S. office.

Kazuhiro was finally promoted to a position overseeing management strategy in 2007. That signaled his grooming as the eventual president of Casio, though his father outwardly kept his options open.

"The next president will be chosen on merit," Kazuo was keen on saying. "The successor may even come from outside the Kashio clan."

In the end, the leadership was kept in the family, but not without reservations from the inheritor himself. "At one point, Kazuhiro-san seemed to be hesitant to the idea of becoming president," a company insider said. Each of Kazuhiro's three uncles had successors as well. "Kazuhiro-san seemed to think they were more capable," said the source.

Whoever succeeds a strong leader is expected to live up to that reputation. However, Kazuhiro's words and actions appear to go against that thinking.

"It took a genius to give birth to an electronic calculator," he said, adding that even absent a genius at the helm, the company's methods allow it to create just the same. The era of Casio taking on challenges armed with the instincts of geniuses and gamblers was over.

Putting out the China fire

The report for the quarter ended in December 2016 contained an odd note about "a production delay due to quality issues" in the segment for electronic musical instruments.

Casio "completely outsourced production of keyboard products to a down-market Chinese electronics manufacturing service company, which resulted in a large number of products that did not meet shipment quality," said a person familiar with the situation.

Even the calm and collected Kazuhiro had little choice but to act to deal with this situation caused by taking cost-cutting to the extreme. Previously, production of almost all of Casio's keyboards had been outsourced. But as of last July, the company had reassigned production of its entire lineup to a plant it owns in Shandong Province in eastern China.

Casio also took the opportunity to implement on-site reforms at factories, an issue that had more or less been treated lightly in the past.

Meanwhile, Kazuhiro continues to battle against the side effects of what was once a one-man regime. "Earnings will improve from last fiscal year's floor," said the son.

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