Executive Management_Leadership_Ver04. _ “Business Turnaround Case 01- Fixing a Mispriced Labor Rate”
- shigenoritanaka3
- 3月13日
- 読了時間: 2分
Mar 13, 2026
Hello everyone,
Today, I would like to share a real case from my experience - how I turned around a company whose profit margin had been stagnating despite stable sales.
■ Introduction
In a manufacturing-focused corporate group where I served as a Group MD, I was first assigned to a company that had reasonable sales volume but consistently low operating profit.
The profitability of its core business was particularly weak, so I began with analyzing the cost structure.
■ The Core Issue: Incorrect Hourly Labor Rate
Through the analysis, I identified a problem commonly seen in many mid-sized companies.
Actual hourly labor cost: 5,000 JPY vs. Hourly rate used internally: 3,000 JPY
This incorrect rate had been used for:
Cost calculation
Quotation
Order acceptance
As a result, projects appeared profitable on paper, but once the real labor cost was applied, the profit margin was significantly compressed.
The sales team believed they were generating profit and therefore had no sense of urgency. This is a classic example of the “invisible red ink” often seen in manufacturing turnarounds.
■ A More Serious Issue: Timing Mismatches
Work-hours were correctly captured but misallocated between WIP and cost of sales, causing large fluctuations in monthly profit.
Costs that should have remained as work-in-process were booked as cost of sales, and vice versa. This type of mismatch is a structural issue frequently found in companies with declining profitability.
■ What I Implemented
I communicated the following policies across the entire organization:
1. Use the actual hourly labor rate (5,000 JPY) for all quotations
“It is natural that previous quotations did not generate sufficient profit.”
2. Negotiate higher labor rates with customers
If negotiation was difficult, we increased the estimated workhours to properly cover actual labor cost.
3. Redesign the ERP system from scratch to visualize project costs
I rebuilt the system so that each project could accurately accumulate:
Workhours
Material cost
Outsourcing cost
This effort took more than three years, but it enabled Sales, Engineering, and Accounting to finally share the same numbers—achieving true “One Truth.”
4. Increase salaries and bonuses (a calculated risk)
To maintain motivation among engineers, we raised compensation based on the expected improvement in profitability.
This prevented turnover and ultimately improved productivity.
■ Results
Profit margin improved significantly
Quotation accuracy increased, changing how Sales evaluated profitability
Project costs became transparent, enabling faster management decisions
Engineer motivation increased, reducing turnover risk
The entire organization began speaking the same language: “the correct cost”
■ Key Lessons learned
Business Turnaround is not only about rescuing companies in the red
Even profitable companies can collapse if structural distortions are left unaddressed
Incorrect cost assumptions create “silent losses”
ERP redesign is a powerful tool in turnaround
Sharing accurate cost information unifies the organization
Investing in people (salary and bonuses) is essential for sustainable recovery
If you are facing challenges with unprofitable business units, feel free to reach out. I offer a complimentary 60-minute initial consultation. info@metricjapan.com
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