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For as long as anyone could remember, Sony’s annual management meetings had been a homage to hierarchy. Top brass, flown in from around the world, would be seated at the front of the hall, lower ranks relegated to less comfortable seats at the back, for a day of dry presentations from the leadership.
But when managers converged on Tokyo late last month, there was a surprise in store. First Sir Howard Stringer, Sony’s new chairman and chief executive, strode on to the stage and told them that, in the digital age, the 60-year-old company must shift its focus from the product to the customer.
Then came the coup de théâtre. He had, he deadpanned, invited a customer who had used many Sony products over the years to explain how the company could best serve him in the years to come. On walked Steven Spielberg. “The place went wild,” Sir Howard recalls, still gleeful at the memory.
The infusion of Hollywood glamour was classic Stringer. The charismatic Welsh-American had built his career in show business, bringing David Letterman’s irreverent late night talk show to CBS television, then running Sony’s US film studio and music labels, before his unexpected promotion last year to become the parent company’s first non-Japanese leader.
But to long-serving executives at the conference, the true moment of iconoclasm had come at the start when 80 young software engineers were shown to the best seats in the hall. When Spielberg left the platform, theirs were the hands he shook.
The Sony of old would never have allowed such junior employees pride of place but its new boss had a point to make – one that went to the heart of his plans to revitalise the company.
Sony had dominated consumer electronics for decades with iconic products such as the Trinitron television set, Walkman music player and PlayStation games console, but it had lost its way in the age of the BlackBerry, the Palm and the iPod. Sir Howard’s analysis was that poor software and a structure that prized seniority above adaptability had taken it to the brink of crisis in an era when “menus have replaced knobs”.
The message was clear: to regain its lead, Sony must challenge the old ways of working and up-end the old pecking orders. As Sir Howard put it in an interview with the Financial Times: “This is a ground-up revolution.”
Today the 64-year-old Welshman will be on another stage in Tokyo, facing shareholders at Sony’s annual meeting who are hungry for reassurance that, a year into the job, he has a clear vision for its future. Speaking in London beforehand, Sir Howard pronounced Sony on track to hit the targets he set out last year but acknowledged that further profound changes were needed before it could reclaim its status as the world’s leading consumer electronics brand. According to Ryoji Chubachi, Sony president and Sir Howard’s closest Japanese ally in the company, “We are still only halfway there.”
When Sir Howard was appointed, analysts and commentators devoted as much attention to the potential for cultural dissonance between a foreign leader and a company that embodied Japan’s post-war renaissance as to the financial and strategic tasks he faced.
Sir Howard, who came to the job with no experience of the core electronics business, has never underestimated the depth of that divide. When, last September, he announced a $2bn (£1.1bn, €1.6bn) cost-cutting plan that would entail 11,000 job losses, he admitted to feeling trapped between the expectations of a Japanese constituency that felt the job losses were too brutal and western shareholders who thought he had not gone far enough.
Sir Howard’s candid style and insistence on facing up to past failures was hard for some to accept in what he describes as “a proud company”. But insiders now describe his nationality as a non-issue – an achievement they attribute in large part to his inclusive approach. Sir Howard himself insists it is is a more globally minded company than most, saying: “Sony’s issues are organisational rather than cultural.”
He can also report progress against more tangible yardsticks. More than half the planned job cuts have happened, 11 of the 14 factories marked for closure have gone and he has made symbolically important breaks with Sony’s past. Non-core businesses such as its Maxim’s de Paris restaurant chain have been sold, 45 retired senior managers have been told their services as costly “advisers” are no longer required and a sprawling product line has been trimmed of robotic dogs and other distractions.
However the financial scorecard shows the extent of the task ahead. Although Sony’s results for the year to March showed a 68 per cent jump in operating income to Y191bn ($1.7bn, £0.9bn, €1.3bn), the growth came almost entirely from its financial services business, helped by a recovering Japanese stock market. The electronics operations at the heart of the company lost Y31bn.
“I can’t really see clearly what Sir Howard has done,” says Hiroshi Takada, consumer electronics analyst at JPMorgan in Tokyo. But he concedes that Sony is over the worst, saying: “They are standing at the entryway to recovery.”
It has been a year of mixed fortunes. First, Sony was forced to cut its earnings forecasts severely. Then it had to delay the launch of the PlayStation 3 games system before failing to head off a DVD format war with Toshiba, which is betting on a rival second-generation technology. He has also been distracted by a trouble-dogged joint venture that he negotiated before taking the Sony helm. Less than 18 months after he combined Sony’s recorded music assets with those of Bertelsmann, Sony-BMG was shaken by a power-play initiated by his German partner. Sony was also savaged by bloggers when it was discovered that CDs sold by the music business contained copyright protection software that could make users’ computers vulnerable to virus attacks.
Within a group that had become used to harder knocks, however, such setbacks have been eclipsed by notable wins. Most important, the success of Bravia, its new liquid crystal display television range, has allowed it to reclaim the lead in the US television market.
Morale has risen as a result. “I can tell that there is a definite improvement,” says Mr Chubachi, speaking of a “sparkle in [employees’] eyes” noticeable to customers.
He knew that improvement was needed. After an extensive tour of Sony’s operations when he was appointed, the energetic engineer had concluded that “trust between management and employees had weakened”. Even after Sony made a commitment last September to attain 5 per cent consolidated operating margins and 4 per cent margins in electronics, some employees were not convinced.
Sir Howard, who travels around Sony’s operations at a rate of 30,000 air miles a month, recognises that poor communications between head office and Sony’s far-flung operations were directly responsible for the “Sony shock” of 2003, when it unexpectedly announced its biggest quarterly deficit in more than eight years.
“I studied that Sony shock quite extensively,” he says. “I think that was about vertical communications in a period of changing management. We are now open enough that surprises are less likely.”
Sir Howard’s message that the “silos” within the company needed to be broken down required some translation for Japanese employees – literally, since the word does not exist in their language – but here, too, there has been progress. Sony’s decentralised structure allowed different divisions and product groups to pursue independent agendas, resulting in duplicated effort and poor co-ordination.
As he spread his rallying cry of “Sony United” across the group, Mr Chubachi set up five strategy committees – product, technology, production, procurement and sales – to span the different electronics businesses. The system has already helped to yield the Bravia. Sony has also introduced a new software development structure that involves software engineers at the earliest stages of product development.
The two men have also taken steps to bring Sony’s once disjointed electronics, entertainment and games operations closer together. Some analysts remain doubtful of the synergies between electronics and media content, but Masahiro Ono, electronics analyst at Morgan Stanley in Tokyo, credits the new management with improving the co-ordination of entertainment and games launches with Sony’s hardware.
Mr Chubachi has also had to spread the word that Sony needs to make products that consumers really want, rather than getting carried away by ground-breaking technology for which there may be no real market.
It was a lesson they learnt the hard way last year, when consumers shunned the Cyber-shot T7 digital camera which, while impeccably innovative, failed to do the one thing potential buyers cared about: reduce blur from hand movements.
Perhaps the company’s most symbolic challenge will be to produce a portable music player successful enough to topple the Apple iPod and allow Sony to reclaim the ascendency it once enjoyed, courtesy of the Walkman. Mr Chubachi says: “We won’t give up. We will bring out a Sony-like Walkman, not an Apple copy. We want to be the final winner.”
Its best hope may lie in the Sony Ericsson joint venture, which sold 31m MP3-enabled mobile phones last year, just shy of the number of iPods sold by Apple. “Dedicated MP3 players [such as the iPod] will become a smaller and smaller part of the mobile music industry,” argues Miles Flint, head of Sony Ericsson.
Sir Howard is cautious, saying: “I tell everybody, don’t call anything an iPod killer because Steve Jobs [of Apple] is always thinking.” But he hopes consumers will be attracted by handsets running BlackBerry e-mail software or allowing users to send pictures to a Google blog at the touch of a button.
As he reviews his first year’s achievements, Sir Howard admits that there is still some resistance to overcome: “We still have a few silos that need probing, but most of the walls have come down.”
So what are his priorities for the next 12 months? One, he says, is building a strong software culture within the company. Tellingly, he has hired Tim Schaaff, a former Apple executive, to help improve its record on software development. In a sign of the company’s recovering confidence, another priority is expansion in fast-growing markets such as Brazil, Russia, India and China.
The most immediate goal, however, is successfully to launch a number of new products. While Sir Howard mentions the Alpha digital SLR camera and the Reader, an electronic book technology he has championed, he leaves no doubt that the PlayStation launch, now expected in November, will be the most important.
The last two models of Sony’s games console have sold 100m units each. But each initially lost money and PS3 will be no different (“PlayStation has always gone through [a cycle of] heavy cost and high profitability,” he notes).
This time round, however, there is even more at stake. Each box will include a Blu-Ray player, potentially taking Sony’s next DVD technology into living rooms around the world. If Sony can create a market for the Blu-ray disc “the synergies between the games, entertainment and Blu-Ray could be significant”, says Mr Ono. But if PS3 flops, “it will be a huge problem” for Sony, says Mr Takada.
Its success is doubly crucial because two-thirds of Sony’s semiconductor production will be channelled to PS3. If PS3 does not sell, it will affect not only Sony’s games business but its chip business as well, Mr Takada notes.
With a starting price of $499 – or $100 above that of Microsoft’s Xbox 360 – the jury is out on PS3’s chances. But the importance of PS3 and other new products means “this year is the real test for Sony”, according to Mr Ono.
Sir Howard’s challenge is to focus both on the new products and on the longer-term “ground-up revolution”. “We are collecting more and more collaborators and more and more evangelists,” he says. “Every night I am out with somebody discussing the implications of change and it’s a debate. For the first time we have pretty heated debates within Sony.”
But he knows that the revolution will not happen overnight. “I have to force myself to be patient because I’m in a bit of a hurry. You can’t shock the company into change: you have to manage the company into change. It’s a place where you have to bring people along with you.”
Bravia brings belated success in a screen test
In just a year, Sony has gone from being an also-ran in the flat-panel television market to a front runner, writes Michiyo Nakamoto.
Bravia, its new liquid crystal display range, has helped resuscitate the Sony brand in a segment where it had fallen dismally behind pioneers such as Sharp. The story of how it bounced back offers an insight into the collaborative and consumer-focused culture
Sir Howard Stringer is trying to entrench as chairman.
First Sony – the undisputed king of television sets in the days of chunky cathode-ray tubes – had to swallow its pride and appeal to Samsung for help in making the panels. Having rashly dismissed LCD as an interim technology, it had failed to acquire the expertise to make its own.
Once it had agreed to a manufacturing joint venture it had to transform an old factory into a state-of-the-art plant.
To do so it posted its best LCD engineers for months at a dedicated factory in Inazawa, western Japan. The result fuelled a demand for Bravia that has surprised even Sony executives.
Ryoji Chubachi, president, attributes the success of Bravia to three main factors. First, he cites the advanced picture quality Sony was able to achieve. Unlike previous Sony forays into the LCD market, Bravia incorporates technologies unique to the company, Mr Chubachi says.
Sony has several decades of expertise in picture-making technology but, before joining hands with the South Korean group, was unhappy with LCD screen quality. It had no control over the panels, which it was procuring from third-party manufacturers. Co-operating with Samsung allowed Sony to address that.
A second reason for Bravia’s success was the branding, according to Mr Chubachi. “New sake should be served in new bottles,” he says. Hence the Bravia name.
Masahiro Ono, analyst at Morgan Stanley in Tokyo, argues that while the Bravia-specific marketing helped – commercials feature 250,000 brightly coloured balls bouncing down the streets of San Francisco – it was the enduring strength of the core Sony brand that played the bigger role, particularly in the US.
While the company name no longer carries the weight it did in its heyday, “brands don’t die easily”, notes Mr Ono.
A third reason for Bravia’s success is that the need to revitalise its television business galvanised the workforce, Mr Chubachi says. “Sony is, after all, a TV manufacturer,” he goes on. “TVs make up 20 per cent of consumer electronics . . . so without a recovery of the TV business, there will be no recovery of Sony.”
When employees got that message, he adds, they worked together as one to restore Sony’s supremacy.
MADE IN WALES, THOUGH BY FEWER THAN BEFORE
The force of personality that is powering the Stringer revolution at Sony was on display last week when Sir Howard paid a visit to his native Wales, a year after the company cut several hundred jobs in the principality, writes Tom Braithwaite.
Although too new in the job to have wielded the axe himself, the chairman had borne the brunt of a backlash rendered more ferocious by a deep sense of national betrayal. Peter Foley, a local councillor, accused Sir Howard of ignoring his homeland, suggesting that the “only loyalty he has got is to the yen”.
But to view Sir Howard charming survivors of the cull, at a studio camera plant in Pencoed that had seen its workforce halved 12 months ago, was to understand the warmth and collegiality that are helping him sweep aside the old ways at Sony.
Wearing a badge with Welsh dragon and rising sun entwined, Sir Howard maintained there was an affinity between Japan and Wales that, aided by the entrepreneurial zeal of the Welsh, would keep Sony loyal to Pencoed. He joked: “I used to think it was because Wales and Japan are the only two countries that eat seaweed.”
He was even confident enough to tease his countrymen about their reputation for intransigence. “If you can fire Welshmen, you can certainly fire Japanese,” he said.