Omron 2010 Annual Report Download - page 21

Interview with the President
Balance between Business Autonomy and
Synergies
——— From the perspective of synergistic effects,
wouldn’t integration of the three control-based busi-
nesses, like you had before, be more beneficial?
If synergies were the only concern, there is the option
of reverting to the past system and integrating the
three businesses. For Omron, however, being mutu-
ally dependent and less able to address changes in
the business environment are more problematic.
“Business autonomy” is not the same as being able
to do as one pleases.
Omron has five business companies, including the
spun-off entities, as well as their associated busi-
nesses that are still in the incubation stage. However,
these are made up of a further 80 business units. There
are the parts that make up the whole, and the whole
that makes up the parts. They have a complementa-
ry relationship. Maintaining a relationship that is neither
too close nor too remote is not easy, and will depend
on the skills of management. Omron won’t grow if the
parts become too assertive and fragmented, nor if the
whole becomes too strong and subsumes the parts.
The Omron Group has a unique organizational
structure. Our recent structural reforms, including the
spinning off of AEC, reflect the type of Group operat-
ing structure that we believe will survive on the global
stage ten years in the future, after setting priorities
from various viewpoints, including synergies and
autonomous operations.
——— What is the secret to demonstrating syner-
gies while maintaining autonomy between the
different businesses?
I’ll use the analogy of manufacturing to explain.
Omron’s manufacturing processes can be classified
into two broad categories. One is the process of
procuring raw materials to manufacture parts, which
are assembled to create a finished product with a par-
ticular function. The other is the processing of parts
purchased from the marketplace and assembling them
together into a product. To be sure, there are no such
synergies possible in the development of blood pres-
sure monitors and fare payment systems for railway
companies. However, if we think in terms of these
manufacturing processes, there is plenty of room for
synergies in a variety of processes.
Because our three control-based companies were
combined in the past, there should be lots of syner-
gies, not only in product development, but also in
manufacture, sales, and support. However, without a
sense of crisis, the respective companies for some
reason are unable to identify items that could be
shared, even though such an approach would be com-
mon sense. The end result is an inefficient utilization
of resources. Before we knew it, we also lost com-
petitiveness, which should have been one of our
strengths.
For fiscal 2009, we initially forecast zero operating
income, although it ended up being ¥13.1 billion. One
reason for this improvement was our ability to identi-
fy attributes in common that had previously been
ignored, enabling us to generate synergies valued at
between ¥4.0 billion and ¥4.5 billion. Specifically, we
reduced variable costs by using central purchasing for
common materials.
I call this sort of activity “Common, Module,
Option” (CMO), in which we classify our operational
processes into three categories—Common, Module
and Option—to raise overall efficiency through “shar-
ing, standardizing, and creating a common platform.”
If each company were to concentrate senselessly on
their own uniqueness, there is no way we could be
globally competitive. We need to identify and increase
attributes shared laterally across the different com-
panies, create modules, and extend their scope of
application. By doing that alone, however, we’d end
up with a bunch of clones, so we need to add features
that meet market needs and elements that differen-
tiate as options. The key to our generation of synergies
lies in asking what we can use as a platform, to what
extent we can increase attributes which can be shared,
and what features should be added as options.
Building a Robust Earnings Structure for the
Medium and Long Terms
——— So is CMO the keyword for your quest to
make your robust earnings structure sustainable?
Yes, it is. The objective of “building a robust earnings
structure” is to achieve a cost of sales ratio of 58% (it
was 65% in fiscal 2009). I believe that the CMO con-
cept is essential for achieving this ratio.
——— Where does the CMO concept come from?
I first came up with CMO some 20 years ago. At the
time, I was manager of the electronic temperature
controller business. We made them at the Okayama
factory, where we also made timers and counters.
However, because the products were affiliated with
different departments, the parts for each product were
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