Cash flow in focus
The effects of the 3G auctions did not stop at a decline in orders from Ericsson’s customers. Their payments were delayed as well. In the first quarter of 2001, Ericsson’s cash flow was in deficit to the tune of SEK 18 billion. The figure would have been SEK 5.5 billion worse if Ericsson had not divested itself of its holding in Juniper during this period. On one occasion the situation was so dire that the Ericsson had to borrow funds to cope.
From now on, cash flow became a concept of intense internal interest. The work focused initially on ensuring a positive cash flow and operating margins of more than 5 percent. Costs had to be trimmed and the capital tied up in inventories and outstanding receivables reduced. Employees were urged to identify everything that could cause delays in invoicing and keep an eye on customers who were careless about paying. At the same time work on increasing the order book could not be ignored. The management was well aware that savings on their own would not guarantee survival.
The bonus program for key executives was now linked to cash flow. An instructional computer game was developed for the company’s intranet: employees could play “The Way Cash Flows” to learn more about cash flow and how it can be affected.
The next concept on the list was “cost of sales” – what invoiced goods and services cost. “Savings General” Ingemar Blomqvist continually pushed its potential – an SEK 10 billion reduction in cost of sales would increase Ericsson’s profit the same as boosting sales by SEK 30 billion.
Ericsson’s training programs offered another area for improvement because they had been run without any coherent planning of needs or costs. At the beginning of 2001 the company launched Ericsson University – an organization in which all the group’s training needs had been gathered together under one management. It was to be “a university with 103,000 students in 140 countries,” as its operational manager and “principal” Per-Olof Nyqvist proudly informed Ericsson’s Contact staff magazine when it was launched.
The following year, it was announced that the organization was being closed down.
One important change related to the global structures that Ericsson’s customers were beginning to acquire, with Vodafone, Deutsche Telekom, France Telecom/Orange, Telecom Italia and Telefónica as typical examples. This meant that Ericsson’s staff had to be able make deals that extended across several markets. It therefore set up global customer teams that could deal with the customers no matter where they were.
With global customers, pricing also became a problem. Customers previously had been buying products according to a local price list. Now it was obvious straight away where Ericsson had the highest and lowest prices. It did not take long before a global minimum price became the only standard.
The number of market units (local sales companies) dealing with small and medium-sized customers was also reduced, from more than 100 to just over 20. In May 2002 the business division for multi-service networks was merged with the mobile systems division to form one division with the pithy name of Systems. The background could be found in customer demands for integrated fixed and mobile network solutions.
The mergers of units led to redundancies and the process of change made “major demands on the flexibility of the staff,” to use the words of Contact.
Author: Svenolof Karlsson & Anders Lugn