Group CEO Yuki Kusumi on the True Meaning of Structural Reform—Determination to Change and Grow

On May 9, 2025, Panasonic Holdings (PHD) announced its financial results for FY3/2025. On this occasion, Group CEO Yuki Kusumi communicated the progress being made on group management reforms, including planned optimization of 10,000 personnel, and expressed his firm resolve to undertake necessary initiatives to break free from 30 years of stagnation and position the Panasonic Group for strong and renewed growth for the future. We spoke with him to learn more about his intentions, his message to employees, and his determination for the future of the Panasonic Group.

Why have you decided to carry out such large-scale structural reforms now, when the company is still profitable? Can you explain the background and need for these reforms?

If we look at the current performance for fiscal 2025, particularly operating profit margin, it may not seem that bad relative to our past performance. However, compared to other companies in the same industry, our profitability remains low, and the Medium-Term Strategy for FY3/23 through FY3/25 fell far short of its goals.

The biggest challenge facing the Panasonic Group is that we have not achieved any real growth over the last 30 years. While the Group has decisively implemented structural reforms many times in the past, a vicious cycle has repeated itself: adjusted operating profit margin would reach 5 percent, fixed costs would immediately rise to support growth strategies, and then operating profit margin would stagnate again.

Lower profitability relative to our competitors means that we lag behind them in terms of returning value to shareholders and employees, and in investing for the future. If this continues, achieving growth in the face of stiff competition will be impossible. It is imperative that we get ourselves out of this situation.

Our selling, general and administrative (SG&A) expenses ratio, in particular, is extremely high when compared to competitors who have already implemented reforms. Unless we immediately address this issue, we will not be able to return to growth. For this reason, profitability improvement has to be the top priority, and this includes reforming our fixed-cost structure. We cannot afford to waste any more time.

The high SG&A ratio means that we have major issues with labor productivity, particularly in sales and indirect departments. I believe that this situation has emerged because many departments have continued to use business processes that were introduced more than 20 years ago. Basically, as long as a business achieved an operating profit margin of 5 percent, it was considered “good” and there was little interest in conducting operational reforms to achieve higher profits. So if you wanted to increase sales without making changes to the operation, then the only resort was to hire more people—and the result was an increase in fixed costs.

Even if sales increase, fixed costs, including labor costs, should not increase; marginal profits should be increased by certain percentage each year, while fixed costs should be contained by a certain amount. This should be the basis of our management cycle Groupwide, and it is important that we follow this principle. Now, I would like to make it clear that we are going back to these fundamentals not just to reduce labor costs, but to modernize our business processes and workstyles.

A major decision has been made to reduce the workforce by 10,000 people Groupwide. Can you explain the thinking behind this decision?

Based on my direct experience with personnel optimization when I was in charge of loss-making businesses in the past, I thought that I would never again carry out employment structural reforms. This time, however, recognizing the critical need for change, this was an unavoidable decision. I felt that if we did not conduct reforms and change our management foundation now, then it would be impossible for us to grow sustainably over the next 10 to 20 years. After much deliberation, and discussions across the Group, including the presidents of our operating companies, we made the decision to proceed with these reforms.

This figure of 10,000 employees is the aggregate result of careful consideration of the kind of fixed-cost structure that each operating company should have to achieve their respective profitability targets, and how they should address areas where labor productivity lags behind other companies. We would like every employee to understand that we do not intend to increase this figure.

Panasonic Group’s history includes an episode when Founder Konosuke Matsushita ordered that “not a single employee be laid off” during the Great Depression, and some see employment structural reforms as the antithesis of this ideal. Please share your thoughts about protecting human resources and employment?

Human resources are extremely important. The founder’s statement has significant meaning for all of us in the Panasonic Group. For that reason, there is a great deal of resistance within the Group toward optimization of personnel when we are profitable. However, the current business environment is very different from our founder’s era. Back then, there were great expectations for economic growth ahead, but the market we live in today is much more complex, and includes areas with growth potential, areas with no such potential, and areas we must move into. Under these circumstances, and with an eye on the future, we decided that optimizing our workforce was unavoidable.

As Group CEO, I acknowledge the impact of the decision to carry out these reforms, especially personnel optimization on such a large scale. However, taking no action today would inevitably place a heavier burden on future employees. To put the Panasonic Group back on track for growth, I believe that instead of placing the burden on the next generation, the current senior management team, myself included, must pool their wisdom, make decisions, and take responsibility to get this done.

Some employees are probably feeling anxious, so how do you intend to explain the reforms and seek their understanding?

I understand that these changes may cause uncertainty, and it is a difficult period. We wanted to ensure that all employees correctly understood the situation, so the day the reforms were announced externally, I sent a video message to all employees, explaining the background of the reform and its goals. In addition, we provided a detailed explanation of the current situation to approximately 300 management executives, including division directors and business unit managers, asking for their understanding. However, I believe that employees and their families, especially those who have only been with the company for a short time, have serious concerns. I will continue to carefully explain the true meaning of the reforms and continue to communicate positive messages so that employees will not feel anxious. I truly want to help them find opportunities for their own growth and success as part of this transformation.

Following the structural reform, what kind of future will Panasonic Group be aiming for?

First and foremost, this structural reform is an initiative that must be carried out in order to rebuild the management foundation of the Panasonic Group and ensure strong growth for the future. We are determined to achieve a profitability improvement effect of 150 billion yen by FY3/27.

Next, as I mentioned in my February 4 announcement, Panasonic Group will focus on the Solutions area while increasing the profitability of the Devices area and the Smart Life area centering on home appliances. The essence of the value that we provide to customers, including comfort and peace of mind, will not change, but by making full use of data and AI, the methods and substance of our offerings will become more sophisticated, thereby strengthening our competitiveness.

The Solutions area has two main pillars: supply chain management solutions, and energy management. As for supply chain management solutions, at the ICON event in early May, Blue Yonder, our subsidiary with growth potential, announced its Cognitive Series—a suite of SaaS solutions for planning systems that deploy generative AI-based agents, which we expect to be a major strength in various supply chains where issues are becoming increasingly more complex.

In energy management, in addition to energy storage solutions for data centers and AI-based home energy management systems (HEMS) for households, which already have a proven track record, we will develop Panasonic HX—a future-oriented decarbonization solution for factories, offices, and public facilities that controls pure hydrogen fuel cells, solar cells, and storage batteries by means of an AI-based energy management system.

Will Panasonic Go, announced at CES this year, play an important role?

Panasonic Go will play a role in accelerating these efforts. Blue Yonder’s Cognitive Series, which I mentioned earlier, is one such example. In addition, we are considering expanding the data platform that forms the basis of the AI agent service Umi, also announced at CES, into a variety of fields while considering privacy, security, and ethics. We are also actively promoting the use of generative AI within the Group, with a bottom-up approach, to thoroughly improve labor productivity as we move forward with the current management reforms.

Following these reforms, what kind of company will the Panasonic Group become?

We are now discussing this internally, but basically, we believe that the fundamental values we provide to customers can be summed up as “comfort,” “peace of mind,” and “reliability.” We cherish the long-standing trust of our customers—“You can count on Panasonic”—and no matter what business we develop in the future, we will continue to pursue contributions based on these values.

As we look towards the future, 10 or 20 years from now, these structural reforms are merely the first step in our journey to break away from the stagnation of the past 30 years. Going forward, we will seek to achieve high labor productivity in every Group business and turnarounds in both new and existing areas. To further improve productivity and strengthen the competitiveness in our Solutions business, we must also be unrivaled in the use of AI.