Toshiba to cut 6800 jobs, focus on storage and energy

Action plan announced as company tries to recover after the $US1.25bn accounting scandal revealed in July

Toshiba CEO and President Hisao Tanaka (right) addresses a press conference on July 21, 2015, in Tokyo at which he resigned over an accounting scandal. Chairman Masashi Muromachi (left) replaced him.

Toshiba CEO and President Hisao Tanaka (right) addresses a press conference on July 21, 2015, in Tokyo at which he resigned over an accounting scandal. Chairman Masashi Muromachi (left) replaced him.

Toshiba Corporation has announced that Toshiba Group will implement a series of management measures under a Toshiba Revitalization Action Plan. This plan will include reducing its headcount by 6800, about 30 per cent of its global total.

It has four strands: Decisive Action on Business Structural Reform; Strengthen Internal Controls and Reform the Corporate Culture; Review the Business Portfolio and Operational Structure; and Reforming the Financial Base

The company said by implementing and "resolutely executing this action plan", it hoped to regain the trust of shareholders, investors and all stakeholders, and to achieve a strong corporate constitution.

The plan follows the announcement of a $US1.25bn accounting scandal revealed in July.

The full details of its action plan as presented in a statement follow.

Decisive Action on Businesses Structural Reform

In addition to previously announced restructuring measures, Toshiba has decided to pursue structural reform of the PC, Visual Products, and Home Appliances businesses in the Lifestyle Products and Services business segment.

Through these measures, the Lifestyle business segment will reduce its headcount by 6800 employees by March 31, 2016.

(1) Basic Policies

 PC Business
: Further realize low cost business operation, and consider alliances with third party companies as future option.

 Visual Products Business: End all development, production and sales outside Japan and replacing with brand license business structure in overseas market. Concentrate on the Japanese market

 Home Appliances Business: Further improve operational efficiencies, and consider alliance with third party companies as future option.

(2) Action Items

 PC Business:

・Concentrate on B to B: The PC business will concentrate on its B to B business, where further global demand is expected, and build up its enterprise customer base as a means to generate healthier profit. B to C operations will concentrate on the Japanese and the US market where stable business can be expected.
・Reform of business structure: In order to transform to an operational structure that generate profits, with the downsized global sales of the scale of 3 million units a year, the number of indirect employees will be reduced, operating sites will be optimised, and business processes will be changed to reduce fixed costs. In addition, the PC business will end consignment of design and manufacturing to outside vendors, and cease buy and sell transactions. By concentrating on in-house design and manufacturing, product platforms will significantly be reduced to below one-third of the current number.
・Company Split: The Personal & Client Solutions Company will be split off from Toshiba Corporation and merged with Toshiba Information Equipments Co., Ltd., a B to B PC sales company in Japan, to improve operational efficiency. This Company Split is planned for April 1, 2016

 Visual Products Business:
 ・Withdrawal from operations outside Japan: The TV business has already shifted to a brand-licensing model in North America and Europe. Business in Asia (excluding China) will also shift to this model, and ownership of the company’s TV manufacturing plant in Indonesia is planned to be transferred to a third party company. Business in the Middle East and Africa will also shift to brand-licensing model through the sale of part of the shareholdings in two joint venture companies in Egypt that respectively manufacture and sell TVs. These companies will become non-consolidated companies of Toshiba.
・Reform of business structures in Japan: In Japan, the TV business will reduce fixed costs and strengthen profitability by enhancing development efficiency and reducing the number of indirect employees. It will also downsize TV sales to the scale of 600 thousand units a year, and concentrating on profitable high-end models.

 Home Appliances Business:
・Reform of business structure: The Home Appliance Business will cut fixed costs by reducing the number of indirect employees globally, optimising operating sites in Japan, and improving operational efficiency.
・Withdrawal from the sales and production of twin-tub washing machineS: Manufacturing of twin-tub washing machines will end at the production facility located within the same site as TV manufacturing plant in Indonesia, which will be also transferred to a third party. As a result, Toshiba will end sales of twin-tub washing machines in Japan and other countries.

 Sale of Ome Complex:
 ・In order to improve asset-use efficiency in the Lifestyle business segment, the Company plans to  
  close and sell Ome Complex in Japan.

Strengthen Internal Controls and Reform the Corporate Culture

(1) Development of Improvement Action Plan:

 Towards ending its designation of its shares as securities on alert, Toshiba is currently
 implementing measures based on the Recurrence Prevention Plan announced on September 7. In
 this connection, the Company is strengthening supervision of top management and internal
 controls, holding awareness improvement seminars and meetings for executive managers and in
 workplaces. Progress to date in major items is detailed in (2) below. Additional measures that are
 under consideration will be announced promptly after they have been finalized.

(2) New Actions Taken to Prevent Recurrence and Reform the Corporate Culture:
 
The following actions are being taken under the new management team appointed in October, as
 part of the measures to prevent recurrence of inappropriate accounting.

 Recurrence Prevention:
・Accounting and awareness improvement seminars
・Training in accounting compliance
・Review on accounting procedures in relation to percentage-of-completion, valuation of
   inventory and recording of operating expenses
・Review of the budget development process
・Review of corporate governance rules
・Reinforcement of the internal audit structure

 Reform of Corporate Culture:
・Evaluation system for the President & CEO
・360 degree surveys of executive managers
・Executive management seminars
・Employee awareness surveys
・CSR workplace meetings
・Improvements in information disclosure

 Examination of the Advisor system
  Abolition of the posts of “Advisor to the Board” and “Advisor” as positions for retired
  executives is being considered.

Review the Business Portfolio and Operational Structure

Within the process of developing mid-term plans, starting from FY2016, the Company will discuss the following items and finalize the plan by the end of March 2016. The Company plans to announce its management policy at the same time as it completes the next mid-term plan.

(1) Business Portfolio

・The Company had redefined its focus business areas, and concluded that it will focus on the energy and storage businesses.
・The Healthcare business has achieved high profitability and a global presence in diagnostic imaging. However, securing further business growth requires the allocation of sufficient business resources for research and development and others. Given this, the Company has decided that, in order for the Healthcare business to realize its potential to the full, and to maximize its value to the full, the best solution is to invite outside majority shareholder(s) to make sufficient support for the Healthcare business. This will also, at the same time, strengthen Toshiba’s balance sheet. Toshiba Corporation and Toshiba Medical Systems Corporation will collaboratively give immediate priority to executing this plan.

(2) Establishment of a small but strong headquarters and review of the business
  operational structure

・The Company will slim down corporate staff functions, and concentrate the corporate staff’s
 mission on strategic planning for the future. In order to downsize the corporate staff, the
Company will create a common platform for the Toshiba group, and enhance the organisational
efficiency. At the same time, in support of the operational shift to independent autonomous management of the in-house companies, functions needed for business operations will be transferred to the in-house companies. Through these measures, the Company aims to establish a small but strong corporate function, and has also decided to implement a personnel rationalization program, including an early retirement incentive program targeting corporate staff members. With this program, and by reviewing activity expenses, the corporate headcount will decrease by about 1000 and operating costs will be cut by approximately 20 billion yen by Marc2016.

・The company will focus on cash flow in planning mid-term business plans, budgets, business performance management and business performance evaluation, and also strengthen management of interest-bearing liabilities by the in-house companies.

Reforming the Financial Base

Reflecting on the fact that it fell into an overriding concern for current profit, the Company will continue to promote business management emphasizing cash flow, and give first priority to restructuring for recovery from a weakened financial platform.

(1)Measures to secure financial platform

The company will set firm rules on limits to investments and make resource allocations based on the redefined business portfolio and in those business domains that will generate cash. Under this policy, the company will focus its FY2016 investments on the Energy and Storage businesses, and limit investments in other areas to refurbishment. Toshiba will also reinforce management of interest-bearing debt on a consolidated basis by the in-house companies so that it will be able to reduce interest-bearing debt.

(2) Sales of assets

・Toshiba will also thoroughly review the assets it holds, such as stocks and real estate, and
  their necessity, and consider selling them off, without any restrictions.

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