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Engineers Can’t Afford to Ignore the Business World

Ken Takeuchi
Professor, Faculty of Science and Engineering, Chuo University
Area of Specialization: ICT Design

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Although there was a time when Japanese electronics manufacturers dominated the global market, we’re now getting a string of news reports saying they’re hitting dire financial straits. The one that is of most interest to me is Toshiba, where I worked in flash memory research and development before going back to school in 1997.

The inappropriate accounting rumored to have taken place at Toshiba happened after I left, so I don’t know anything more about it than what I’ve seen in the newspapers and other reports. But even when I worked there eight and a half years ago, I did find myself wondering why certain unprofitable projects continued to exist—and it turns out that those projects did pop up later in conjunction with the accounting issues.

Whether it was computers, televisions, or system LSIs, it’s likely that Japanese electronics manufacturers continued to fudge the books all over the place in areas where they were struggling. Toshiba reported being JPY 550 billion in the red this fiscal year, forcing them to have to lay off some ten thousand people.

With one in four of the company’s workforce driven to resign, people I knew personally are most likely among those hit by the restructuring. It’s a sobering feeling. But when you look at it from a management standpoint, it’s probably inevitable that Toshiba is being forced to do this now and deal with those unprofitable projects—ones that other electronics manufacturers would have long since terminated.

At first, I wanted to see Toshiba clear away those dead-end projects and get back on its feet, but as I started to hear reports that they were looking at selling off Toshiba Medical and spinning off their flash memory business into a separate company, something didn’t seem right about it.

Medical devices were expected by Toshiba to be its next growth business. Nikkei Digital Health published a detailed article about it called “Toshiba’s ‘Third Pillar’ Comes to a Strange End: Company to Sell off Its ‘Golden Child’” [Maboroshi ni owatta, Toshiba “Dai-san no Hashira”: “Yutosei” no Toshiba Medeikaru Baikyaku e]new window. Even if you look at the official projections for the current fiscal year on Toshiba’s official websitenew window, you’ll see that their healthcare business is turning a profit.

The flash memory business was also a breadwinner at Toshiba, so much so that Toshiba was said to be “flamingo-style batting” with it—in other words, standing on one leg in order to put all of its force into a powerful hit. I had long thought that Toshiba would be better off making its flash memory business into a separate company, but I never thought that they would actually consider it.

How are Toshiba’s core operations to make any money if they push out their flash memory operations? Perhaps they don’t mind if it’s a separate company, since the profits will still show in their consolidated accounts. But spinning off a key business full of potential is an entirely different story than simply cutting projects that aren’t making the company any money.

Has it really come to that with Toshiba? To put it more bluntly, is the company actually falling apart and headed towards insolvency? The Mainichi Shimbun ran an article entitled “The Giant is Now Rated Speculative Grade: Insolvency Threatens Toshiba” [Tokitaisho ni kakusage sareta meimon Toshiba: Saimuchoka no kyofu]new window, reporting that the company’s owned capital had dropped to JPY 430 billion by the end of fiscal 2015.

Total capital at the end of that year has not been announced, so we don’t have a clear picture—but hypothetically, let’s just say it was the same as the previous year at JPY 6.3347 trillion. That would put the company’s capital-to-asset ratio at just 7%. It might be a little higher than that since actual total capital is likely to be lower than last year due to the restructuring efforts, but it’s probably not out of the 10% danger zone.

Rumor has it that if impairment on energy sector businesses like Westinghouse or Landis+Gyr were to be carried out, Toshiba would in all likelihood collapse. If that’s the case, I can understand why Toshiba would want to uncouple its flash memory and healthcare nest eggs and have them generate some funds.

Despite all this upheaval, however, I don’t get that same sense of impending crisis from the Toshiba engineers I run into at scientific conferences and such. For better or for worse, engineers at big companies tend to think that if they just work on the technology everything will be fine. I was the same way. The only time engineers actually realize that their company is in crisis is at the very end—and I suspect that a good number of them find out about it through newspaper reports and the media.

A journalist asked me the other day if I would help with a piece on engineers who quit Toshiba as a result of the accounting scandal. When I said that nobody I knew had quit yet—possibly because most of them were in the sturdier flash memory sector—the journalist was stunned. “Why not?” he responded. “Things are really falling apart!” In the end, it turned out to be the reporter who educated me on what was going on at my former company.

It’s certainly not my place to judge, but for better or for worse it does seem that engineers tend to be ignorant of business management and other aspects of the world around them. We’ve seen electronics manufacturers endure one crisis after another over the last decade, but a lot of engineers appear to be too slow on the uptake to escape, while those in so-called “social sciences” divisions quickly perceive a threat and transfer to steer clear of it. This is not only true of electronics manufacturers, but with the lifetime employment system now effectively a thing of the past, engineers can no longer afford to turn a blind eye to things like business management if they want to survive.

Given the severity of the situation, I’m certainly willing to do what I can to help Toshiba get back on its feet. Though there’s a limit to what a university professor can do, I’d be happy to support wherever I can from the outside in terms of fundraising or technological development. Despite all the bad press, I still feel a great deal of gratitude towards Toshiba for hiring me on fresh out of graduate school and supporting my development in everything from the way of doing work to studying abroad.

I never thought it would happen, but on January 20 Asahi Shimbun Publications put out my book, entitled What Science Must Do to Survive the Next Decade [Junen-go, Ikinokoru Rikei no Joken]new window. Though it may have been a mere coincidence that the book came out just as my old employer Toshiba hit rough seas, it certainly was an ironic one.

In the past we may have believed that huge companies would be around forever and that engineers just needed to focus on the technical side of things, but those ideas no longer hold water. Even if an industry is doing well today, we have no idea what will happen to it ten or twenty years down the line.

There are probably plenty of people in other industries looking at the mess the electronics manufacturers are in and thinking that the same thing can’t happen to them—but it’s a dangerous time to let down your guard. Twenty years ago, people working in electronics were watching the financial industry go down with Japan’s bubble economy collapse and thinking that their world-class competitiveness made them immune to the same fate. That was back before Google—a time when hardly anyone thought of purchasing an Apple product.

If they’re going to make it in this new era, even engineers will need to develop a good head for business so that they have the personal skills and fortitude to survive should their company head towards trouble. When I was a student we had surprise tests. Our careers are the same way. Any company can go down at any time, and the people who are ready for it are the ones who will be left standing. They say that those who adapt survive, but these days it’s the ones who are ready to change at any moment that will come through in the end.

Ken Takeuchi
Professor, Faculty of Science and Engineering, Chuo University
Area of Specialization: ICT Design
Professor Takeuchi was born in Tokyo in 1967. He graduated from the Department of Applied Physics on the Faculty of Engineering, The University of Tokyo in 1991 and completed his master’s in Applied Physics there in 1993. In 2003, he completed the Master of Business Administration (MBA) program at Stanford University. He acquired his PhD in Electronic Engineering at the Graduate School of Engineering, The University of Tokyo in 2006.
He worked at Toshiba and served as Associate Professor in the Department of Electrical Engineering and Information Systems, Graduate School of Engineering, The University of Tokyo before assuming his current position in 2012. His current research is in extremely low-power, high-capacity memory and computer systems. He provides education in Management of Technology (MOT) with the aim of developing “T-shaped people” whose broad perspective and deep specialized knowledge are like the horizontal and vertical limbs of the letter T. At Toshiba, he succeeded in making flash memory a reality and developed products with the world’s largest memory capacity six different times. He holds 228 patents worldwide. He recently authored What Science Must Do to Survive the Next Decade [Junen-go, Ikinokoru Rikei no Joken] (Asahi Shimbun Publications)