The first cutbacks
As we have seen, Ericsson’s earnings slumped in the first quarter of 2001. Hellström had seen which way the wind was blowing and in connection with the quarterly report he announced a decision to cut costs. The company needed to save SEK 20 billion; consultants and overlapping operations were to be the worst affected. Another measure was to merge many Ericsson companies.
Hellström summoned Sandström back to Sweden from his position as head of Ericsson North America in May 2001. In a newly created position as Chief Operating Officer, Sandström was to be “interior minister” and take responsibility for the necessary cuts while Hellström was to be “foreign minister’ with responsibility for customer relations.
“Not even in our wildest dreams could any of us in the executive team imagine how deep this crisis was going to be,” Sandström says. “Now in retrospect I can say that I had no idea what I was letting myself in for.”
He found there was plenty of scope for savings. “It was like lowering the level of a reservoir. As we went further, we discovered more things that were not needed.”
Soon there was a conflict between the trade unions and the employer about the cuts, which had obviously been planned on Ericsson’s terms. “The employer had not done its homework properly,” says the engineers’ union representative Anders Johansson. “They had not done a thorough enough analysis of who was going to have to leave.”
Everybody learned lessons during the process, however, and the later redundancies were mainly planned in agreement between Ericsson and the trade unions.
And jobs had to go. A grocery store that loses half of its takings overnight has to halve its costs. A family that suddenly loses half of its income has to halve its expenditure if it cannot get any welfare benefits, and there is no such support for companies in the telecom sector.
500 MILLION A WEEK
Sandström again: “The cuts early in 2001 marked the start of a process in which we were going to save SEK 500 million a week for 100 weeks.” Of course, at that time nobody could know the scale of the savings required. Sandström appointed a special management group to organize the process: Einar Lindquist, Björn Olsson, Åke Persson, Bert Nordberg and Sandström met every week – not only to make decisions but also to ensure that these decisions were implemented.
“Constant monitoring is crucial if you are going to cope with a reorganization as large as this,” Sandström points out. “Inspect what you expect.” The traditional “civil disobedience” had brought benefits – not least in technological development – but when severe cuts are needed for survival, there is no room for that sort of behavior.
The profits warning and the savings package came as a shock for the government. Hans Karlsson, formerly chief negotiator for LO, the Swedish Trade Union Congress, was appointed to be the government’s coordinator and to monitor the cuts.
“This was Sweden’s largest company and several sites were affected. The government obviously had to act. The idea was to put pressure on Ericsson so that they behaved themselves. I was probably viewed to begin with as the government’s hatchet man,” Karlsson later said in Dagens Nyheter.
During 2001 the number of employees fell from 107,000 to 85,000.
Author: Svenolof Karlsson & Anders Lugn