Yokogawa top brass take 40% pay cuts

April 3, 2009
North American and European industrial automation vendors and commentators are in danger of becoming so obsessed with their own problems that they fail to notice quite how bad things have become elsewhere.

North American and European industrial automation vendors and commentators are in danger of becoming so obsessed with their own problems that they fail to notice quite how bad things have become elsewhere. Few, for example, seem to have anticipated that, of the world’s major process automation vendors, it is the mighty Yokogawa which is suffering the most pain at this stage in the cycle — so much so that it has announced an “Action Plan” which not only includes the abandonment of the long-trumpeted “Second Milestone”’ targets of its VISION-21 and ACTION-21 corporate strategy, which called for consolidated sales of 600 billion yen and consolidated operating income of 75 billion yen in 2010, but also — and here Western CEOs might take note — cuts in remuneration to directors and officers of between 20% and 40% and to managers of 10%. Whether it’s planning to extend those cuts to staff at Yokogawa’s North American or European subsidiaries is not clear.

Triple Whammy

This dramatic change in policy is the result of Yokogawa finding itself the victim of a triple whammy comprised of plummeting domestic demand, rapidly contracting overseas markets and a soaring yen which has appreciated by some 15% against the U.S. dollar since September. The result is plain for all to see in the company’s recently reported third-quarter figures, which show orders down 25% compared with the third quarter of 2007, sales down 16%, an operating surplus of 800 million yen translated into an operating loss of 10.3 billion yen, and a consequent net loss for the quarter of 41billion yen. To put that into context, that’s the equivalent of some $440 million or £304 million at current exchange rates. As a result, the company has revised down its budgets and is now anticipating orders of 383 billion yen for the full year, against 455 billion yen in 2007, sales of 380 billion yen against 437 billion yen in 2007, and an operating surplus of just 1billion yen for the whole year, against 27.4 billion in 2007.

Although the worst of the pain has been felt in the test and measurement, optics, medical and other businesses, the control business has been by no means immune. Sales for the first three quarters were up by just 0.6% compared with the same period in 2007, orders were down by 8.5% and operating income was down by more than 15%, with the company attributing the slow down to shrinking capital investment in Japan, the impact of postponed projects and of the strong yen on sales outside Japan and rising costs.

According to president and CEO Shuzo Kaihori, Yokogawa’s response will be to drastically reduce fixed costs in order to lower the break-even point to 350 billion yen or less and, hence, increase profitability and to make more efficient use of resources by concentrating on specific businesses and, in particular, on industrial automation and control. As well as the previously mentioned higher level remuneration cuts, he announced a freeze on mid-career recruitment, a 50% cut in graduate recruitment and a halving of capital investment.

Playing to strengths

In the industrial automation and control business the aim is to play to the company’s strengths in oil, petrochemicals, chemicals, electric power and gas and to extend into the alternative energy, environmental and “social infrastructure” sectors. At the same time, the company plans further to strengthen its after-sales service and maintenance operations.

All of which inevitably raises the question of whether Yokogawa is abandoning the objective originally set by Kaihori-san’s predecessor, Isao Uchida, to be the global number one in process automation by 2010. Not at all, according to Yasuko Ishikawa of the “PR&IR” department at Yokogawa HQ, who was responding to the enquiry that Insider had made through the company’s U.K. European PR consultant Peter Bush. Ishikawa-san confirmed the abandonment of the Second Milestone targets of 610 billion yen in orders, 600 billion yen in sales and 75 billion yen in operating income, but said that “The new ‘Action Plan’ announced on Feb. 10 is not abandoning our target of being No.1 in IA by 2010,” and added that the action plan “positions FY2009 and FY2010 as a period for structural reform, with an eye on our next growth phase. In line with this action plan, we will focus on achieving the FY2009 and FY2010 targets.” That may be just bravado, or it may be based on an assessment that, while Yokogawa appears to be suffering more now but is acting early, its Western competitors may yet suffer an even greater contraction in their businesses during the remainder of 2009 and through 2010.

Yokogawa MES

Hard on the heels of Emerson’s announcement of its Syncade Smart Operations Management suite, Yokogawa has announced its own contribution to the growing overcrowding in the MES space in the form of the Real-Time Production Organizer (RPO) suite of “MES platform” packages that it says are designed to “integrate the vertical production execution workflow across departments and empower decision-makers to organize their work quickly and efficiently.”

Yokogawa’s justification for following the lead originally set by Invensys with InFusion is that RPO removes the barriers to integration resulting from poor MES connectivity, misalignment between ERP and MES and a lack of proper tools for “closing loops in business focused manufacturing.” Based on ISA-95 and targeting plant production and operation management in refining, petrochemicals and chemicals, it is designed to implement the definition, dispatch, execution, analysis and tracking functions and, hence, speed up the “plan/do/check/act” cycle.

Five Packages

RPO’s functions are delivered through five platform packages that don’t have to be invested in all at once, but can be implemented in stages within a service-oriented architecture (SOA). Workflow Composer VP is based on Business Process Modelling Notation (BPMN) and standardizes and organizes the execution of business work processes; Production Co-ordinator VP co-ordinates information for accurate scheduling within an end-user computing (EUC) environment; Production Instructor VP issues work orders and supports execution monitoring and analysis; Production Supervisor VP supervises real-time performance by key performance indicator (KPI) monitoring via a role-based dashboard; and Production Tracker VP tracks high-resolution production information for planning and production accounting purposes.

The first two modules, Production Instructor VP and Production Supervisor VP, will commence delivery in the first quarter of fiscal 2009. “The release of RPO marks another major milestone for Yokogawa’s VigilantPlant initiative,” said Satoru Kurosu who, as senior vice president, heads up Yokogawa’s Industrial Automation Business Headquarters. “With RPO bridging the remaining gaps between production management and production control, our VigilantPlant solutions now cover customers’ needs at the device, control system and manufacturing execution system levels.”