Two straight years of falling profit — and rethinking diversification (1991)

Not scale, but how to re-bundle its strengths

The heart of this decision was not a symptomatic remedy for one bad year but an attempt to confront a structural change — the maturing of the instrument market — on both fronts at once: the business portfolio and the organisation. Yamaha’s very success in leading the world piano market had, seen from the other side, embedded an instrument-maker’s mentality — “make it and the affiliated stores will sell it” — and a company culture content to rest on it. Tellingly, President Kawakami himself acknowledged that complacency, likening it to the way IBM could not shed the habits of its mainframe era. The downsizing and the spinning-off of promising businesses can be read as an attempt to cut that culture away surgically.

Yet it is hard to deny that what had caused the low investment efficiency and the erosion of earning power was precisely the pursuit of diversification under a finely subdivided divisional structure, with no synergy between the parts. Spinning businesses off was a step toward consolidated management, but it was also a gamble — cutting loose, at a moment when the parent was struggling, operations with little power to earn on their own. In the end the profit decline reached all the way to a change of leadership and the liquidation of Kawakami-family control, and led into the shift to a headquarters-and-committee system the following year. Not to chase scale, but to ask in which mix of businesses and which organisation a company’s strengths are best put to work — Yamaha’s two years of falling profit were an early illustration that a brand company standing in a mature market cannot avoid that question.