Global telecoms major, Ericsson will pursue a more focused business strategy to revitalize technology and market leadership, improve group profitability and enable customer success.
The overall strategy is to enable service providers to expand their business across industries and into new profit pools. We will drive the development of market-leading solutions, fully leveraging the potential of 5G, IoT and cloud.
Restoring profitability is key and the company will start by focusing the portfolio to fewer areas and securing effectiveness and efficiency in operations.
Börje Ekholm, Ericsson President and CEO, says: “For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns. In our strategy review we have listened carefully to customers around the world and made an in-depth analysis of our portfolio and performance. To enable us to immediately take action and move with speed in execution we are today outlining our path to restoring profitability and to lead with innovation and best in class solutions in areas we have decided to focus on.”
Ericsson will take the following steps to focus and strengthen the core portfolio:
Accelerate and increase investments in key areas in Networks to support a continued global rollout of 4G and establishing a leading position in 5G.
Target the Network Rollout business on Ericsson’s own networks portfolio. Ambition is to optimize the end-to-end offering to address our customers’ needs. The work to improve profitability in this area will be further sharpened.
For the newly created Digital Services Business Area, including cloud based virtualized network infrastructure and applications, management and monetization software (OSS/BSS) and related services capabilities, the near term focus is on re-establishing profitability.
Shift the IoT strategy from a systems-integration-led approach to a platform- and solutions-led strategy to better leverage our global scale and industry expertise.
Refocus Managed Services strategy with emphasis on automation, fully leveraging our global scale and OSS capabilities, to provide high-tech services and cost efficient operations. Full attention on turning business around from a negative result in 2016, addressing low- performing operations and contracts.
Ekholm continues: “With these changes I am confident that we will create the most intelligent and efficient networks, deliver the most competitive solutions and constantly innovate to enable our customers to succeed in a fully connected world.”
Profitability and efficiency
In addition to the actions above, the company will continue its work to rationalize legacy portfolio and drive company-wide efficiency measures. Combined, these actions will establish a new and stronger earnings level for Ericsson.
Ekholm says: “While we will continue our work to take out cost at high pace with targets surpassing current ambitions, we will not guide on cost levels going forward as it is an isolated part of the profit and loss statement. With the actions announced today, and assuming stable market conditions, we foresee significant improvements already in 2018. And beyond that I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin, excluding restructuring charges. But even more importantly, I think that we can deliver a return on capital employed that will create value for our shareholders.”
Short term financial implications
As a consequence of the change in Group strategy, certain intangible assets including capitalized development within current segments Media and IT & Cloud will be impaired in Q1. Ericsson estimates the operating income impact of this in Q1 to SEK 3-4 b. with no impact on cash flow.
As a result of a planned higher pace in cost reductions, with current visibility we estimate restructuring charges for 2017 to amount to approximately SEK 6-8 b., compared to previous estimate of SEK 3 b, of which approximately SEK 2 b. in Q1.
New company structure
The company also announces an organizational structure to support the long-term strategy. A set of changes will be made to simplify the organization to increase efficiency and speed up time to market and customer responsiveness.
In addition, actions are taken to increase accountability and empowerment throughout the organization. Today the company has significant common costs that are allocated. These resources will gradually be moved out to business and market areas.
The new organization and P&L structure is built on a simplified model, combining products and services where relevant into solutions to increase internal efficiency and better reflect customer needs and requirements. The new structure will have three Business Areas, Networks, Digital Services and Managed Services as well as two separate units for the Media business, Ericsson Broadcast & Media services and Ericsson Media Solutions.
The current 10 regions are reduced to five Market Areas, all represented in the Executive Team. The new Market Area set up will align better to our global customers and reduce the number of interfaces for them.
Ericsson simplifies organization
In line with the business strategy announced today, Ericsson is simplifying its organizational structure by removing the two-tiered leadership structure, Executive Leadership Team and Global Leadership Team, and forming a single Executive Team.
In addition, the geographical setup with ten regions will become five market areas, and the business areas are re-defined and reduced to three. The new Executive Team roles and the new organization will take effect April 1, 2017.
Ericsson President and CEO Börje Ekholm says: “To execute quickly and successfully on the next phase of our strategy, a new leadership team will immediately start working together. We will use the near future to solidify ways of working for the new structure, which will be more efficient and responsive to market and customer needs.”
The following Business Area and Market Area structure will apply to the Ericsson Group as of April 1, 2017:
•Business Area Networks; Business Area Digital Services; Business Area Managed Services
•Market Area North America; Market Area Europe & Latin America; Market Area Middle East & Africa; Market Area North East Asia; Market Area South East Asia, Oceania & India
Effective April 1, 2017, Ericsson’s Executive Team members will be:
President and CEO – Börje Ekholm
Business Area Networks – Fredrik Jejdling, Senior Vice President, currently head of Business Unit Network Services
Business Area Managed Services – Peter Laurin, Senior Vice President, currently head of Region Northern Europe and Central Asia
Business Area Digital Services – Ulf Ewaldsson, Senior Vice President, currently head of Group Function Strategy & Technology
Market Area North America – Rima Qureshi, Senior Vice President, currently head of Region North America
Market Area Europe & Latin America – Arun Bansal, Senior Vice President, currently head of Business Unit Network Products
Market Area Middle East & Africa – Rafiah Ibrahim, Senior Vice President, currently head of Region Middle East
Market Area North East Asia – Chris Houghton, Senior Vice President, currently head of Region North East Asia
South East Asia, Oceania & India – Nunzio Mirtillo, Senior Vice President, currently head of Region Mediterranean
Technology & Emerging Business – Niklas Heuveldop, Senior Vice President, currently head of Group Function Sales
Finance & Common Functions – Carl Mellander, Senior Vice President, currently acting Head of Group Function Finance & Common Functions
Human Resources – MajBritt Arfert, Senior Vice President, currently acting Head of Group Function Human Resources
Marketing & Communications – Helena Norrman, Senior Vice President, currently in same role
Sustainability & Corporate Responsibility – Elaine Weidman Grunewald, Senior Vice President, currently in same role
Legal Affairs – Nina Macpherson, Senior Vice President, currently in same role
Advisor to the CEO – Jan Frykhammar, Executive Vice President currently in same role
Advisor to the CEO – Magnus Mandersson, Executive Vice President, currently in same role
Per Borgklint, Anders Lindblad, Jean-Philippe Poirault and Charlotta Sund will leave the Executive Leadership Team effective April 1, 2017.
Ekholm says:”As we form a new team, I would like to thank those leaving the executive groups. They have contributed to the leadership of Ericsson during important times of change and we appreciate their dedication and perseverance.”