Thoughts on Management by a Top Executives: Sanden December 08, 2008

Kazuyuki Suzuki
Director and President, Sanden

Interviewer: Kinjiro Nakano

Executive Vice President of JIPM Solutions

Value Creation Starts in the Genba* Growing the Company through

Consistent Behavioral Guidelines

Few top executives are as concerned with the Genba as Sanden's President Kazuyuki Suzuki,
who continually stresses the importance of the 'Four Perspectives' and the 'Genba Approach'
for strengthening business competitiveness. We asked him about senior management's
philosophy and roles at Sanden, together with the idea of the 'talking Genba' which underpins
these.

Times of Change Offer the Biggest Opportunities!

Kinjiro Nakano (KN): To begin with, could you please describe the business environment in
which Sanden now finds itself?

Kazuyuki Suzuki (KS): Since Sanden's major focus is automobile components, the impact on our
business of the worldwide financial crisis sparked off by the USA's sub-prime loan problem is
by no means small.

However, ours is certainly not the only company affected; all businesses are in the same boat,
and since Sanden is not part of a keiretsu** corporate grouping but is independently
capitalized, we are able to offer our products in various forms to a wide range of customers.
This means that the situation is not at all bad for us, and our main challenge is how to respond
rapidly to the changes currently taking place; after all, it is times of change which provide the
greatest opportunities.

Even looking at the domestic market, while there are problems such as a drop in consumption,
a population of around 120 million must offer a lot of potential. To exploit this potential,
Sanden is shifting its emphasis from stand-alone products and is developing into various
business areas including systems and services.

Also, it is certainly true that the keiretsu groupings in the automobile industry are quite strong,
which makes it tough for us as an independently capitalized company; but our automobile air-
conditioning units, which have gained such a high reputation abroad, are beginning to be
adopted on the domestic market. Thanks to this, we are making new moves in Japan, including
building a new factory for air-conditioner parts, our first production facility outside Gunma
Prefecture*1.
KN: Isn't the change in the environment a negative one?

KS: I joined Sanden in 1968, when it was focused on the domestic market and was an
approximately 10 billion yen business. Since then, it has grown into a global corporation with
53 factories in 23 countries and regions around the world, with a high proportion of overseas
business, in both production and distribution.

This is the result of its exploiting change as opportunity and building up the Sanden business
stance, by offering new technologies and original products. Of course, I didn't do it all by
myself! (Laughs). It is due to our solid, consistent culture and the strength that derives from
not belonging to a keiretsu.

KN: What is Sanden's biggest strength?

KS: It's the fact that our corporate philosophy and culture are clear and consistent. I was
posted overseas for around two years, and I felt the importance of this very keenly when
looking in from the outside.

I carry Sanden's 'Company Principles Handbook'*2 around with me all the time. I've used it so
much the cover is pretty tattered! (Laughs). It describes the spirit in which our business was
founded and contains our corporate philosophy and the 'Sanden Way'. All our employees carry
a copy and use it to guide their actions, even when they are overseas working in a different
cultural environment.

Of course, it is important to respect the particular culture of each country, but a shared culture
and a basic philosophy underpinning the principles of how employees are expected to behave
are indispensable in a global corporation. Our employees must have this country they are in,
and it is solid because it permeates the entire workforce. I believe this really is our greatest
strength.

KN: Conversely, what is your biggest weakness?

KS: We developed very rapidly abroad, and it cannot be denied that our resources have
become rather thinly spread as a result of putting so much emphasis on our overseas
operations, in both finance and personnel. It might seem as if our domestic operations,
important as they are, have slowed down somewhat. However, we are now addressing this by
implementing a range of strategies designed to strengthen our position in the home market.

Focusing on Manufacturing and Technology Development

KN: Could you explain in a little more detail how you plan to rebuild your business in Japan?

KS: I became president of Sanden in June 2007, at a time when it really was imperative to
respond rapidly to the intensifying global competition driven by the IT revolution and the
development of new advanced technologies, as well as to global environmental issues and
market changes. That is when we decided to strengthen our competitive position as a
corporation through the 'Four Perspectives' of Globalization, Marketing, Technology
Development and Manufacturing.
As I said earlier, Sanden developed its overseas business very fast, sustained by the product
power of our compressors which had been built up by our predecessors. After all, a
manufacturing business lives or dies by the strength of its products, and the foundation of this
is Technology Development and Manufacturing. Without them, there can be no hope of
growth. In fact, they have been an indispensable part of my own career and experience.

KN: Sanden's Behavioural Guidelines for FY 2008 include the admonition to apply a creative,
Genba-based approach to everything, through challenge, innovation and improvement. What
is the position of the 'Four Perspectives' in relation to the Genba?

KS: We deliberately use the Roman alphabet to write the word Genba because, being a global
corporation, we believe it is a key term that should be understood and used by everyone in all
our operations around the world. For example, no matter how excellent the plans and
arrangements worked out by our head office, they will only produce good results if effectively
deployed and implemented by the people on the front line.

Also, the factory floor is not the only Genba. They exist in every department, including
administrative and support departments, sales, and marketing. I even have my own Genba.
They are the places that produce the results, and are where problems are solved and new
value is created. I want our Genba to be workplaces that change the company by continually
feeding information to their upstream processes - in other words, I want them to be 'talking
Genba'. They are what a manufacturing operation should be based on, and they are where all
value is created.

KN: How do you rate the strength of Sanden's Genba?

KS: I think that the global corporation Sanden as it exists in its present form is due of course to
the abilities of its middle managers and senior executives, but also in large part to the strength
of its Genba. The only three members of our 17,000-strong workforce who do not take part in
team activities are our Chairman, our Vice-Chairman and myself! (Laughs).

Sanden really is one big improvement team. In fact, twenty-four Sanden Group employees
were recently chosen for the Japanese Government's Minister of Education, Culture, Sports,
Science and Technology 2008 Award as a result of the way in which our Genba-based
improvement activities have been carried out consistently by successive generations of
employees. The strength of our Genba, built up through a succession of programs such as
TPM, TQM and ISO, is what supports the company.

I am the first Sanden President to have come up from the manufacturing division, and it is
because I believe that the Genba is the basis of the corporation that the Genba is now being
highlighted at Sanden. We needed a time like this. I feel that my appointment was perfectly
timed for making an effort to strengthen the Genba, and I believe it is my job to do so.

KN: What is your own personal connection with the Genba?

KS: Perhaps because I started my career in production, whenever I visit a factory I

automatically head for the shop floor. It is like a conditioned reflex. And when I'm in the
Genba, I treat everyone as my equal. This is because I believe that our organization should
operate on the basis not of hierarchical relationships but of roles.

At Sanden, we use our surnames with the suffix 'san' (Mr. or Mrs.) to address each other,
rather than our job titles. This is part of our company culture, and demonstrates that we relate
to each other not by seniority but on an equal footing, in relationships that enable us to fulfill
our respective roles as members of the organization. I believe it is another of our strengths. I
myself am often called, not 'President' or 'Mr.Suzuki', but by my nickname 'Ikko-san'***, and I
think that this is a sign that people feel close to me.

KN: Why have you introduced so many different programs, such as the Deming Prize, the Japan
Quality Medal, TPM and ISO?

KS: One technique cannot cover everything. TPM is of course needed, and TQM and ISO both
have their good points. Programs like these should not be allowed to get in the way; I could go
so far as to say that they should be used as tools for improving the business. That being so, I
think that it is important to apply the characteristics of each skillfully.

In the very early stages of rolling out these programs into the Genba, people wondered why
they had to do so many activities at the same time, and there appeared to be some confusion.
However, when results start coming through after many years of applying the techniques,
people come to fully appreciate their effectiveness. Sanden is currently running about twenty
different programs, but we don't think that is too many and we have no intention of reducing
their number; in fact, if we find any more effective techniques, we will probably add them to
our arsenal. We think that these programs should always be used as tools, and should be
applied by the right people in the right areas to strengthen and invigorate the Genba.

We are also rolling out a management concept called STQM (Sanden Total Quality
Management) in very specific ways in order to improve the quality of our management. We
characterize it as 'a program me for continually engaging in day-to-day creative and innovative
efforts in order to build a prosperous 21st-century business by raising the individual qualities
of our management and results to the highest possible levels'. This management approach is
based on all our employees implementing various STQM activities such as team working and
improvement suggestions, and the quality performance we have been able to achieve through
this has allowed us to win the trust of, and gain orders from, some of the world's leading
companies.

KN: What does Sanden look for in its employees?

KS: I can definitely say that what we look for above all are passion and action. A person's
academic record is irrelevant. The efforts our employees put into developing themselves, and
what they can contribute to the company's growth, are far more important. The basic policy in
our current medium-term business plan is to grow the business with the environment at its
core, based on global strength and quality power as its major strategic axes.

That is why I urge our employees every day to strive to make Sanden a company of which
people say, "Sanden is fantastic! You can always rely on them to come up with the goods!" The
same thing applies to each individual employee, and I would like everyone on our payroll to
become the sort of person of whom others say, "He/ She is fantastic! He/She always delivers!"
It would be great if every single one of our 17,000 employees around the world did their job
one hundred percent, and we became a company where everyone was a star, wouldn't it?

KN: One final comment, please.

KS: The 'Four Perspectives' and the Genba approach; everyone working with the same
philosophy towards the same goals. These must be consistent and unchanging. As a business,
we must obviously strive continually to increase sales, raise profits, cut costs and improve
quality; but to grow the company over the long term, we must ensure that the factors I just
mentioned permeate every part of the organization, based on sound fundamental concepts
and a clear corporate culture.

The important thing is to hold things on track and never waver. I firmly believe that top
management's commitment and action are what keep the Genba real and make it strong, and
this is how I try to behave every day.

Notes

* The word genba (literally, 'actual place') means the factory floor or other front-line
workplace where the physical work of the business is done. It can also mean the scene of a
crime, or the actual location where a problem occurs.

** A keiretsu is a corporate grouping consisting of companies with interlocking business

relationships and shareholdings, in which companies buy from designated suppliers within the
group.

*** 'Ikko' is an alternate, non-standard way of reading the characters that form Mr. Suzuki's
given name, Kazuyuki.

*1. Sanden built a factory at Toyohashi in Aichi Prefecture in December 2007 in order to
strengthen the sales capabilities of its automobile air-conditioner business at home and
abroad. Constructed on the site of an old warehouse in Toyohashi, the plant produces HVAC
units, a major component of automobile air-conditioners. Sanden also develops and produces
compressors for automobile air-conditioners and light, compact HVAC units at its Yattajima
Factory in Gunma Prefecture, but it decided to build the new factory in Toyohashi because of
an anticipated continued increase in demand for compact automobiles in Japan and overseas.

*2 Sanden's Company Principles Handbook, first published in January 2004, starts with a
statement in both Japanese and English of the spirit in which the company was founded. If
needed, Sanden's overseas subsidiaries translate the handbook into their local language.
Kazuyuki Suzuki

Mr. Kazuyuki Suzuki was born in 1944, he graduated from the

Engineering Faculty of Gunma University in 1968, and joined Sankyo
Electric Company (Sanden's forerunner) the same year. After serving
as General Manager of the Automobile Air-Conditioner Plant at
Sanden's Yattajima Factory, President of Sanden International Taiwan,
and General Manager of the Yattajima Factory, he was appointed
Manufacturing Division Director in 1999. After further appointments
as Managing Director, President of Sanden Manufacturing Europe and
Executive Vice-President of Sanden, he became President of Sanden in
2007.

Photographs by Toshiaki Usami

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