Reinventing Ericsson

Reinventing Ericsson

Ericsson had almost gone bankrupt when the dot-com bubble burst and the telecom market collapsed in late 2000. When Svanberg (first externally recruited CEO in 60 years) took over in April 2003, he launched yet another cost cutting package (after CEO Kurt Hellström in early 2003), the fourth in two years. Svanberg wanted to do more than just restore the company to break-even, he wanted the latest round of cuts (coupled with revenue increases) to return Ericsson to profit. Svanberg still saw telecommunications as a long-term growth market, he wanted Ericsson to be a more focused and market oriented company and also to harness the company’s energy around a common group strategy and his notion of “operational excellence”, which built on efficiency and continuous improvements in all operations. Practically, there were several areas to consider. First was the business unit configuration, where he contemplated breaking out the radio stations part from the systems division, although insiders believed stations to be an unprofitable commodity. Second, he wanted to reorganize the company so that it more easily could go after new markets, in essence changing its sales and marketing culture. Third, he had to decide how far into the enterprise segment Ericsson should move. Finally, the research and development (R&D), the company’s most important resource, should be managed in a more rationalized way.

In 1876, a 30-year old mechanic named Lars Magnus Ericsson opened a repair shop for telegraph equipment in Stockholm, ericsson had been operating for 127 years. In 1885 Ericsson produced the world’s first handset that combined receiver and speaker. By 1900, it ran operations in countries as spread out as China, Russia and Mexico and realized 95% of its sales outside of Sweden. In 1975, Ericsson introduced AXE, the first computer controlled switch, which helped the company double its market share and facilitate its entry into the US. During the 1980s,...