16 - Scrutinising Stringer: A year of candour and

resolve has started to energise Sony

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. In a deadpan manner he 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) 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 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), 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 Schaaf, 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.”

Source: Nakamoto, M. (June 22, 2006). Financial Times.

Your tasks

1. Construct a cultural web (see Appendices F and G of this administration guide) of Sony before
Howard Stringer’s arrival.

2. Draw a cultural web of Sony after Howard Stringer’s arrival.

3. What do the above cultural webs suggest about Howard Stringer’s change management programme at
Sony?

Web link:

http://www.sony.net/