The next round of cuts was about as large as the first. About 20,000 employees had to go. This was another major cutback and when the decision was made early in 2002, it was expected to be enough. Calle Leinar:

“The general opinion was that the problems in the market were merely sand in the works, that the demand from the operators would soon be back to normal. Now, looking back, you could perhaps feel that we should have realized that the operators would be short of funding for a long time to come.”

Åke Persson says: “Before the crisis, we had tried to stop hiring without succeeding. But suddenly the same people were really focusing on cutting back, and then it all happened more quickly than we had dared to plan for. There was no disagreement in the management about the cuts. ‘This is working quite well. We can go a bit further’.”

One positive item of news was that the shift to GSM continued. In the fall of 2001 Cingular Wireless, which because of a merger (of Southwestern Bell and Bell South) had become the second-largest mobile operator in the US, placed an enormous order with Ericsson based on GSM.

At the time, only 10 percent of the mobile telephony in the US was based on GSM. Now that the mobile networks had to be geared up for data services requiring higher transmission capacities, Cingular realized that GSM offered the best alternative.

However, confidence in Ericsson had been so eroded that CFO Fornell had to present the accounts and try to convince Cingular that the company would continue to exist and be able to deliver. Ericsson also had to accept Cingular’s condition that whenever it liked it could cancel the entire order and return the equipment without incurring any costs and without having to give any reason.

STOCKHOLM IS A SMALL CITY

Karl-Henrik Sundström began as a financial trainee with the company in 1985 just after graduation. He became Ericsson’s CFO in 2003, having experienced the cutbacks from within. 

 “I discovered what a small city Stockholm is. My daughter came home from school and asked me: ‘Daddy, why have you taken Veronica’s mother’s and father’s jobs away from them?’ I explained that Ericsson had run out of money so then we could not pay wages to so many people.”

At the same time he points out: “You can find shortcomings in Ericsson’s culture. But even so it has incredible strength. When we have our backs to the wall, we can cope with anything.”

Like many of his colleagues in Ericsson’s senior management, Sundström expresses great respect for the way the trade unions dealt with issues during the crisis years. “The trade unions consist of knowledgeable and sensible people. If they had insisted we apply the principle of ‘First in, last out’ consistently, Ericsson would never have survived. I take my hat off to the trade unions.”

Bert Nordberg recalls: “It is important to make the most of the incredible wisdom in the trade unions. The credit for saving Ericsson should not go to the executive management. The people who deserve praise are the sensible individuals further out in the organization. They had to do the dirty work.”

Leinar adds: “The trade unionists have the most difficult role. We managers get paid for doing our job anyway. Whatever the trade unions do is wrong in some way. There are always people who feel – and maybe are – unfairly treated. Why pay dues to the trade union if you are still going to get sacked?”

He also points out that working with the cuts was upsetting for everyone. “But probably most of all for Kurt Hellström. He really hated doing it. He is incredibly good at marketing and sales, but not the kind of person who enjoys dismissing people.”

Hellström confirms this impression himself: “If you are a normal person, it breaks your heart to say goodbye to so many fellow workers. God almighty, many of them were my friends! Of course I suffered, every day.”

Author: Svenolof Karlsson & Anders Lugn

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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