As Sony struggles, many see cautionary tale for Japan

When Sony announced some $6 billion in losses in May along with plans to cut 10,000 jobs, it wasn't taken here simply as evidence of an iconic electronic titan in trouble. To many Japanese, it symbolized a larger problem: a society clinging to outmoded ways and rigid seniority in a world where rewards increasingly go to the entrepreneurial. 

That Sony would prompt such a reaction is riddled with irony. In the mid-1980s, Sony revolutionized people's relationship to their music with the introduction of the Walkman. The epitome of cool, it nearly banished boom boxes from the streets and became a darling of runners. 

"It's a systemic issue, and Sony exemplifies Japan as a whole," says William Saito, a venture capitalist and council member on national strategy and policy at the Japanese government's National Policy Unit. Mr. Saito believes that Japan has failed to adapt to its shrinking and aging population, and instead clings to the belief that success can come from focusing on the domestic market. 

Too many Japanese firms "are seniority-based, where the ideas of globally connected people are not realized," Saito says. "When the domestic market was enough, that was OK, but not now."

Joi Ito, an entrepreneur and director of MIT’s Media Lab in Cambridge, says Japanese firms need to rip up their centrally designed plans and "embrace serendipity." 

"If you plan everything you can't be lucky, and you need a lot of luck [to succeed]," Mr. Ito said at a meeting of the Japan Society. "The Japanese have very good talent; but the minute you institutionalize, and you create all the hierarchy and the process, and bring in all of the gyosha [trading companies], it suddenly becomes this thing that's very difficult."

That can result in ill-considered visions for expansion that make little sense in the long run, says Yasunori Tateishi, who cites Sony's ultimately disastrous acquisition of Columbia Pictures in the mid-1990s as evidence that empire-building clouded its focus on the products that helped it make its name in the 1970s and '80s: consumer electronics.

New vision?

The last time Sony turned a profit was in 2008. And last year was the worst fiscal year in its 66-year history and sent shares in Tokyo to their lowest level for more than three decades.

On top of rough economic times and a wider malaise in Japan that stifles innovation and entrepreneurship, Sony has performed poorly amid foreign competition from Apple and Samsung, according to Mr. Tateishi, author of "Farewell, Our Sony." It's because the company has overextended its reach, he says. 

"Having so many faces is Sony's biggest problem," he says. "It's increasingly unclear what kind of company it is."

While Sony dabbled in nontraditional areas from financial services to chemicals, its rivals in Asia have played to their innovative strengths.

Samsung is now the world leader in high-end TVs; and despite its history, Sony has not come close to producing a music player to rival the iPod – the legacy of infighting between Sony engineers and developers under Howard Stringer, the former president of Sony.

The task of reviving Sony's fortunes now falls to Kazuo Hirai, who replaced Mr. Stringer as president recently.

Mr. Hirai speaks with conviction about the need for Sony to change its ways. He has vowed to offload unprofitable non-core sectors, although he is adamant that the loss-making TV business – which he describes as part of the company's DNA – will stay. 

Saito, like many others, identifies the in-house rivalry among Sony engineers as the cause of a breakdown in communication, which ultimately stifled creativity. But he says Sony is not the only Japanese company resisting new ways of thinking behind product development.

"The Japanese are very intelligent as individuals, but as a collective they become incompetent," he argues, adding that one solution would be to allow a greater diversity of people from different disciplines, including those from outside, to work through problems together. "The Japanese companies that are growing have founders who embrace that diversity and are not looking at Japan as a market," he says. 

Risk averse culture

Japan needs to address its risk-averse corporate culture, Saito says. "For innovation work, you need crazy thinkers to turn ideas into something. That entails a certain level of risk, but it has to be managed intelligently. Japan needs to redefine words like failure, which has very negative connotations here. Sometimes you have to allow failure to happen."

Japan may also have been hindered by a strong focus on hardware. Compare Sony's attempts to offer a unified, comprehensible, platform that marries its devices to software and Apple's formidable iPod-iTunes combination.

Hirai, who led Sony's successful gaming business, says the firm would concentrate on games, cameras, camcorders, smart phones, and tablet PCs. Yuji Fujimori, an analyst at Barclays Capital, believes Hirai is sincere about making changes.

"Good managers are people who work hard to improve the company, not come up with good products," Mr. Fujimori says. "In a huge company like Sony, it's very unlikely that the management themselves come up with the good products, Rather, the president's role is to do business. Once Hirai knows what he wants to do, I think he will act very quickly." 

It is not as if Hirai is without a canvas on which to create that new vision. Sony's PlayStation hardware and software has brought the company profits. Its technological prowess, too, can sometimes be forgotten in the media preoccupation with the bottom line. And Sony aims to return to profit by March 2013 on the sales of smart phones and tablets.

"Sony makes the thinnest smart phone in the world. It has good display and image-processing technology, and good camera technology," says Fujimori. "It now has plenty of elements with which it can differentiate itself from its competitors."