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Kazuo Hirai’s inheritance of loss
At one point of time, Sony was looked up to with as much (or more) shock and awe as we look up to Apple today. It was credited with disruptive innovation and game-changing products. Today, Sony doesn’t even resemble its former shadow remotely. Is there a way to fix the ailing consumer electronics giant?
Issue Date - 30/04/2012
When Sir Howard Stringer took over as Chairman & CEO of Sony in June 2005, he was an optimistic man. But Stringer’s feelings are not likely to be half as puckish when he steps down from office on April 1. After all, four consecutive years of elephantine losses would make even a die-hard Pollyanna into a sceptical Nouriel Roubini. So now, as he makes way for Kazuo Hirai (Sony’s poster boy of the gaming revolution) to take over the helm of affairs at Sony, Stringer will no doubt look back to his days in office with decidedly mixed feelings.

But to make Stringer the fall guy for Sony’s lingering losses would be laying it on with a trowel. Few global managers have been as ingenious as Stringer in the course of his eventful corporate career. How many people with just $100 to launch their careers have the cojones to get off to a flying start as a journalist, become a producer and then successfully run a full-fledged television network? Not many. But Stringer was made of sterner stuff and he let it show. After serving as President of CBS from 1988 to 1995, he joined the US operations of Sony, where he was soon elevated to the post of group executive. Over the years, despite the gradual deterioration in the company’s health, Stringer continued to repose abiding faith in the Japanese giant. This probably stemmed from the fact that he had grown up in the Sony age – at a time when Apple was still chasing its holy grail of tech wisdom.

Even after moving into the top job at Sony, Stringer realised that he did not enjoy full operational control of the company. So he added the presidency to his roles in 2009 and embarked on a series of moves to nurse the company back to health. He was sure that his plans would pay off by 2011, which he was counting on to be a watershed year. Thanks to extensive cost cutting by way of laying off close to 16,000 workers, and trimming the number of suppliers to 1,200 from 2,400, the company was expecting to record $2 billion in operating profits in 2011. The company had also lined up a slew of products for glitzy new launches – two tablets, a 24 megapixel camera, PlayStation Vita (Sony’s next generation handheld gaming console) and an online network that would be a single touch point for integrating Sony products and services. Things were looking poised for the big leap-off.

But the best laid plans of mice and men can fall to pieces. A cruel stroke of fate put paid to all its hopes of resurgence. In March last year, Japan was struck by a massive earthquake and tsunami, which culminated in the nuclear meltdown at Fukushima. Scores of Japanese blue chip companies were hit by the epic scale of the disaster; among them Sony, which had to shut down 10 of its manufacturing units. Its supply chains were mortally disrupted and before Stringer could contemplate any firefighting (there was hardly anything he could do), Sony had incurred a net loss of $3.1 billion.

Even in the aftermath of the Black Swan event in Japan, Sony was still looking to some slivers of hope. In October 2011, Stringer, in an interview with The Wall Street Journal, declared that Sony was ready to strike back. “I spent the last five years building a platform so I can compete against Steve Jobs. It’s finished, and it’s launching now.” Stringer was referring to the ‘four screen strategy’ – a development by virtue of which Sony’s smartphones, laptops, tablets and television would be integrated and work in perfect harmony with each other. Sadly, Stringer’s plans of leading Sony into the digital age got scuppered because of the hacking fiasco Sony suffered in April 2011, and it is still struggling to get over it. In fact, Sony’s ‘four screen strategy’ has failed to take off as a result of the unprecedented hacking that Qriocity (Sony’s PlayStation Network) was subjected to. The embarrassing breach, which exposed the accounts of 100 million users subscribed to the network (the largest recorded theft of data on the web) have put Sony back to where it had started as far as its digital pursuits are concerned. The setback and subsequent damage is believed to have been colossal. Though the latest results aren’t out, Sony has predicted losses to the tune of $2.9 billion for FY 2011-12.

When Hirai finally steps into the corner office on April 1, he would be inheriting much more than a faltering giant (worth $100 billion at one point of time, Sony’s m-cap now stands at roughly $20 billion). It’s always easy to manage one trouble. Unfortunately for Hirai, Sony is a group of faltering companies (divisions), which work in isolation and have failed to derive synergies from each other. It is precisely due to this reason that despite being a pioneer in portable music players and owning a music label, Sony has failed to create an iTunes-like platform even long years after moving into digital music players. Hirai is also inheriting a company that is mired in bureaucracy. Watching from the sidelines, it’s hard to gauge how bureaucratic Sony actually is. But we got a taste of its leviathan bureaucracy when we visited the media relations web page of the company, which prominently displays a list of 21 contact points. All are meant for the media, but serve different purposes. This is much unlike other leading companies which generally have a single contact point. As can be expected from such a set-up, our request was redirected to the India office (the communications official informed that due to a management reshuffle, Sony won’t be able to comment for this story).

The other malady ailing Sony stems from its operational inefficiencies. Even after all the pruning that Stringer undertook, the company still has a huge girth. Sony continues to be saddled with more resources and products than it can profitably take on. For instance, Sony manufactures nine different 46-inch TV models. Only recently, it has taken steps to split its TV business into three parts in a bid to cut down on costs. The company has also sold off 50% stake in an LCD JV with Samsung for $940 million. Still, Sony remains a bloated ship and can do with more surgical excisions. Riding on the its coattails are 168,200 employees, 41 factories and over 2,000 products, a lot of which now belong to the dinosaur age (cassette Walkman and MiniDisc Walkman were phased out recently, need we say more?).


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