Friday, June 24, 2005

Sony needs to grow up!

Two days ago, at the Takanawa Prince Hotel, Sony held it's general shareholders meeting, where they elected a new head, Howard Stringer.  The hotel's large conference hall is often used by large corporations for big meetings, as it seats around 2,000. My own company had a large employee meeting there shortly after I joined two years ago. At that time the meeting was all about the new possibilities that we were facing, and how we were going to vanquish our rivals.  The Sony meeting probably has a similar feel to it.  The problems that they face in reaching their goals are also similar to the ones that we have faced, and not yet really resolved:
  • The tendency of folks to build silos, or so-called 'vertical business' within the company, yet not integrated with the company.  You may have all kinds of good things to say about the Playstation 2, but it is a perfect example of being a product of this sort of organisation: What kind of memory did the original Playstation 2 use? Of course, as the inventor of Memory Sticks, you would assume that would be the removable memory format used, but NO! It used a proprietary memory.  You would assume that as one of the largest ISPs in Japan, with So-Net, that Playstation 2 would have had some kind of tie-up and real push to online gaming. But NO! Online gaming has largely been dominated by X-Box. Having mobile versions of Playstation games pre-loaded onto Sony Ericsson mobile phones would seem to be a no-brainer, but that hasn't happened either.  Ken Kutaragi, head of Sony Computer Entertainment, has been known to comment that the company couldn't get rid of him if it wanted, since such a large portion of profits come from the Playstation, which he helped to develop.  He is known as a maverick, and has run SCE as a kind of fiefdom. 
  • Because of the above-mentioned silo mentality, Sony has a ton of different businesses that it should or shouldn't be in, but that are adept at protecting themselves from the vagaries of an overall strategy. A great example is Sony Chemicals. This company is in two businesses: one is the production of various kinds of media, like video tape, DVDs, etc., as well as batteries; the other produces specialty products used in electronics production.  Despite there being a market for these products, and that Sony may depend on some of the products that are produced by Sony Chemical, how does this business fit into a focus on entertainment?  Answer: It doesn't. The margins at the business are also not what I would call stellar, and considering the research and capital-intensive nature of the business, it doesn't seem to make a lot of sense to hold on to it, except perhaps for strategic reasons 
  • What is the strategy?  Sony have been asking themselves for the last decade what kind of company they want to be when they grow up.  Well, they have been grown up for a while, so it is time to decide. Do they want to be a G.E. type of company, with lots of different business, and focused on operational and financial efficiency in each one, something that Samsung has done extremely well in the last few years; or do they want to be a new kind of company, focused purely on entertainment, with a value proposition that says 'if you buy Sony hardware or software, they will all work together always.'  Get over your Gen X angst and make up your mind!
When I was a kid, we had a Trinitron T.V. It was beautiful! It worked perfectly, was designed well, and had the first truly square screen I had seen.  It was worth paying a premium to have one.  Sony has never had this kind of reputation in Japan.  But most of their ideas come out of Japan.  The trouble they have had in realsing the synergies of their businesses is, I would venture, typical in a country that is only 140 years removed from feudalism.  Somehow bringing the company towards enlightenment will be, I think, Sir Stringer's biggest challenge.

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