The Sony Case (Part A)

Japan's well-heeled shoppers have long gravitated to the Ginza district of Tokyo, many to seek out the latest gadgets on display in the landmark Sony building. But these days there is more of a buzz several blocks away, at Ginza`r's Apple store. Even in its home market, Sony is in danger of losing its long-held status as a leader in technology and the smartest brand in consumer electronics. In the west, too, where an electronics enthusiast with a taste for style would often have been a collector of Sony products, the flat panel television to own is arguably now a Sharp Aquos and the portable audio player to be seen with is an iPod. Reality dawned in April 2003, when Sony revealed a sharp deterioration in its electronics business and weak mobile phone sales. It launched a costly overhaul to regain its competitive edge. Yet, barely halfway through that three year exercise and just as it was expected to show signs of a recovery, Sony is again faltering. The group admits being caught out by a plunge in prices that gathered pace late last year - even for new ranges such as flat television sets and digital versatile disc recorders. To some extent, its woes are the result of industry-wide changes that have come through the implementation of digital technology. That has lowered entry barriers to the sector, increasing competition and spurring price wars. "A big problem right now is that almost anybody can make the finished products, because the key parts are readily available. That makes it difficult to differentiate your product," says Katsumi Ihara, chief financial officer. But Sony, as is being demonstrated in quarterly results due today, is faring much worse than competitors - notably Matsushita (with brands including Panasonic) and Sharp, which both remain on a growth path. Sony's plight has been aggravated by problems that are specific to the group and rooted in its recent history. One critical factor behind Sony's current problems is the legacy of its past success, which has hampered management's ability to grasp market trends. "Sony has missed the market . . . because its former products were so profitable and successful that it was unable to move forward," says Yasuo Nakane, electronics analyst at Deutsche Securities in Tokyo. Take flat panel TVs. When cathode ray tubes (CRT) were the dominant TV technology, Sony was king of the TV market. It is still the world's largest supplier of TVs, since CRT sets still outnumber flat panel sets. Sony expects to sell 11m CRT sets this year. Because Sony had developed the Trinitron technology, which enhances colour and brightness and made its TVs so popular, and also makes more than half the components that go into its CRT TVs, they have been a hugely lucrative product. "One of the difficulties was that our existing advantage made our transition to flat TVs slower than we expected," concedes one Sony official. When TVs using liquid crystal displays came along, Sony officials dismissed them on the grounds that the technology was not good enough. But sales of LCD TVs took off and Sony, which had not invested in manufacturing LCD panels, was forced to buy them from competitors. Sony did not invest in plasma displays either and procures those panels for larger flat screen TVs from outside. By the time Sony decided it had to reverse course and agreed an LCD joint venture deal with South Korea's Samsung, it was far behind the competition. What is more, Sony is still losing money on flat panel TVs: the need to buy both the panels, which comprise the bulk of the costs of flat screen TVs, and other key components has prevented Sony from cutting costs in line with falling prices. Similarly, the success of the Walkman portable audio products delayed Sony's entry into the new portable audio market that has come to be dominated by Apple's iPod series. For years since it was launched in 1979, the Walkman in its various forms had been a cash cow for Sony. Consequently, Sony management did not recognise the huge market potential of small portable players that use hard disc drives or memory cards to store music downloaded digitally from the internet. Sony did launch a Walkman that could download music in 1999, years before the iPod - but failed to make the strategic shift to the new format and the focus remained on Walkmen that used discs. What is more, Sony could not conceive of the network audio products as anything other than an extension of the Walkman. But the success of the iPod owes much to the fact that it is more like a personal computer peripheral than an audio player and works very smoothly with PCs, particularly Apples. Sony's network audio products, by contrast, did not interface easily with PCs, making it difficult for users to get their music from the internet. Furthermore, Sony was hampered by the need to balance the interests of its diverse businesses. Ironically, in the case of its portable audio activities, Sony's ownership of Sony Music - which includes labels such as Columbia - did not provide the synergies about which Sony is fond of talking. Instead, it worked to

discourage the electronics division from marketing a portable player that could download music from the internet. When Sony launched its network Walkman, the issue of file sharing on the internet was heated and Sony became concerned about the impact it could have on its music revenues. "Five years ago, (because) we had music (as a business), Sony was reluctant to introduce an iPod type product," says Ken Kutaragi, deputy president, acknowledging that Sony employees found it frustrating. Officials concede that the popularity of iPod is hurting Sony's portable audio business. Apple's success in luring consumers away from Sony products was a big reason behind the Japanese group's profit warning last week, which foreshadowed today's results. The setback Sony faces in the portable audio market highlights another flaw in the group's current strategy - its strong commitment to its own proprietary standards. Although the format known as MP3 is widely used for the digital compression technology needed to download music from the internet, Sony uses its own compression software, developed for the MiniDisc and called Atrac. This is inconvenient for users of its network audio products since it complicates the downloading process. It took five years before Sony launched an MP3 player late last year. Another area where Sony has made life difficult by sticking to its own technology is in memory sticks, the postage stampsized cards that are used to store digital data such as photographs and music. Sony's standard is incompatible with the more widely used SD memory card format, which means that anyone who owns a TV made by Matsushita or Toshiba cannot directly watch videos taken on a Sony camcorder. Similar problems may affect the next generation DVD recorder. The problems in its core electronics division are of concern not only because the unit generates close to three quarters of group revenues. Sony's failure to offer competitive products is also damaging its brand premium. Mr Ihara, the finance chief, says that, while Sony has been able to maintain a strong brand in the US, where it is well known for its music and films businesses, "in Japan . . . it is becoming difficult to promote Sony's brand". A tarnished brand undermines Sony's ability to resist the debilitating price wars so common among consumer electronics manufacturers. In turn, that further hurts its brand, in a vicious circle that could have serious long-term consequences, not just for the electronics business. Indeed, Sony officials admit that, for products where it does not have market leadership such as LCD TVs, it has been forced to bring its prices down in line with stronger competitors. Deutsche's Mr Nakane notes that Sony's priority is to regain prime position in the TV market. That is because of the importance of TVs as a profit generator for Sony and its central place in the living room, where it acts as the display terminal for products such as DVDs and, increasingly, camcorders. Sony will also need to regain the initiative in the portable audio market, which it pioneered with the Walkman. Here Sony can take advantage of its strengths developed over the years, such as miniaturisation and high quality audio technology. Much of the blame for Sonys current difficulties is laid at the door of Nobuyuki Idei by company critics. Might the failure to develop new products be explained in part by Mr Idei's background, which is in marketing and communications? Sony used to be run by men obsessed with technology and the way it could enhance people's experience of entertainment. Masaru Ibuka and Akio Morita, Sony's co-founders, loved electrical gadgets and it was this passion that inspired Sony engineers to develop the kind of innovative products that have been the company's hallmark. Mr Idei has overseen the launch of some successes such as the Vaio personal computer and the Cybershot digital still camera. PlayStation2, the upgrade of the games console, was also launched under his watch. But on the whole the Sony chief has seemed more preoccupied with theorising about the convergence of consumer electronics and IT and reorganising Sony's sprawling business empire than with developing a consumer product to change people's lives. For a man who has spoken convincingly about the need for electronics companies to confront revolutionary change in the industry, Mr Idei has been ineffective in converting Sony to that cause. The problem is not entirely Mr Idei's fault. Sony is no longer the cosy organisation it was under its founders. Mr Idei inherited a business with interests in everything from films, music and games to semiconductors and insurance. Sony has grown even larger under Mr Idei, with inevitable internal pressures that mean decisionmaking is a drawn-out process. Mr Idei saw a pressing need to integrate the hardware and software sides of the group to ensure that both were working towards a common goal. That mission has taken 10 years. Only recently has Mr Idei been able to claim that, as one company official puts it, "the inner wall within Sony has been removed". Mr Idei is expected to step down in 2007 when Sony completes its latest restructuring programme. Mr Idei turns 70, the upper limit for Sony chairmen, the same year. An earlier departure is unlikely given that Sony has never reported a loss under his stewardship and Mr Idei still has the firm support of the Sony board.

Task
1. Critically evaluate the cause of the difficulties that Sony face, and using appropriate theory assess whether the primary cause is due to environmental factors or factors within the company.

Sony Case Study: (Part B)

The initial response to falling performance
Sony began responding to its problems in 2003 through a restructuring programme dubbed Transformation 60, or TR60. It was to cut 20,000 jobs worldwide by Sony's 60th anniversary next year while achieving Y200bn (1bn) of annualised reductions in fixed costs and raising its operating margin to 10 per cent. However, TR60 failed to address the core problem: Sony is still stuck with too many unprofitable and declining businesses. Critics shave suggested TR60 was mainly about cutting the payroll whereas restructuring means changing the structure, that is attacking the silos." Cutting people often creates chaos, puts a great burden on engineers and reduces their ability to bring product to market on time. Rather than cut more jobs, Sony executives need to shed products and businesses that are no longer core for the long term. The criterion for choosing which businesses to stay in should be whether Sony can achieve a high enough level of vertical integration to make the activity a profit driver Given the previous history of Sony they are more likely to be successful pursuing a policy of differentiation. Success depends on differentiating products from those of competitors and lowering costs. In the past, Sony had many products for which it had few competitors, a high market share and strong margins, and it has been observed these products were profitable because Sony made the important parts that went into them: that is, it had a high level of vertical integration. Sony has failed to achieve that with many newer products. Examples of such potential champion products: 1. Camcorders are their only cash cow, it is the only product in which Sony has high vertical integration and is the uncontested leader and they are still providing double-digit margins because Sony makes the key components in-house and has few competitors. 2. PlayStation could also be a profitable operation, given its outstanding following among gamers. The games division provided more than two-thirds of Sony's operating profits in its latest year. PlayStation3, which will be launched next spring, could be its next big hit, if Sony manages to launch must-have games and overcome the high cost of the Cell chip it will use. PS3 could become the core of home audio-visual centres, since it is extremely powerful and can be connected to other gadgets, such as mobile phones and digital cameras. 3. Blu-ray Disc, the next generation DVD technology that Sony is supporting, could be another profit driver, since Sony will make its own chips, the drive and the blue laser optical pick-up, which is very difficult to produce and cannot be copied immediately by low-end manufacturers. Although Sony faces a format war with Toshiba, which is promoting a technology called HD-DVD, the general view among analysts is that Blu-ray has an edge in the industry support it enjoys, with 60 per cent of consumer electronics makers coming out with Blu-ray disc products, they have a better chance of getting shelf space. 4. Most important, Sony needs to make its LCD TV business a cash cow. This can be done by raising the ratio of components made in-house and standardising the main components across different models in its range. Sony is already 50 per cent there in standardising components. A new line-up of LCD TVs, which went on sale in the US and Europe last month, is already helping Sony regain American market share, the company claimed.

But if these products are core to the company's future, the question then is from what segments it should withdraw to restructure itself into a more profitable organisation. One candidate is clearly the cathode-ray TV business, once its biggest cash generator. Sony still plans to sell 7.2m of the bulky old-style sets this year, but at a loss. Other candidates touted by watchers of Sony include Vaio personal computers, legacy products such as the CD and MD Walkman, car audio equipment, and Sony Chemical, its printed circuit board company. Others suggest funds can be generated at the same time as slimming down the range of businesses to manage, by floating its financial businesses, including Sony Life, Sony Assurance and Sony Bank. One further candidate for withdrawal has been identified but drawn less support than all the others, is Cell, the semiconductor described as a supercomputer-on-a-chip, which Sony is developing with IBM and Toshiba.

A new chief executive

By 2005 the situation had not improved, and even though profits forecasts were cut often the companys performance disappointed key influencers, those investment analysts who have a large influence on the companys reputation in financial markets. For example, in July 2005 the company cut its profits forecast by 80 per cent from Y160bn (0.8bn). So it was a not a great surprise when a new chief executive, Sir Howard Stringer, who had impressed when appointed to restructure Sonys North American business. Sir Howard Stringer succeeded Nobuyuki Idei as chief executive in June 2005, although the first foreigner to head Sony he was still an insider having joined Sony in 1997 as president of its US business. In 1998 he became chairman of Sony Pictures and, later that year, chairman and chief executive of Sony Corporation of America. He is credited with restructuring the US operations, breaking down the barriers between its music, film and electronic businesses. He oversaw the acquisition, with Comcast, of Metro-Golden-Meyer, the film studio. Sir Howard was born in Cardiff, Wales, in 1942 and educated at Oxford University. He moved to the US in 1965 and joined CBS, the US broadcaster, and except for a stint in Vietnam, he spent 30 years a CBS as a journalist, producer and executive and, finally as president from 1988 to 1995. Whilst president he oversaw the rise of the network from last to first place in just one season.

2005 rescue plan

Sir Howard Stringer, chief executive, and Ryoji Chubachi, president and head of the electronics operation, spent the 100 days since Sir Howards appointment reviewing Sony's operations, its products and organisational structure, and listening to what employees, customers, dealers, vendors and investors had to say. On the basis of these comments, and their own observations, Sir Howard and his team came to the conclusion that Sony needed to tackle the problems on many different levels.

Restructuring
From a broad organisational level, the revitalisation plan aims to change the silo culture that is seen to be the cause of an inefficient allocation of resources and a duplication of efforts. To achieve that, Sony will abolish the company system, which separated business units into fiercely independent fiefdoms, to improve co-ordination and focus across business groups. Decision-making will be centralised under Mr Chubachi. At the same time, committees that will work horizontally across business units will aim to promote coordination in planning, procurement, manufacturing and sales as well as uniform software development, so that Sony products will have inter-operability, and the group will be able to eliminate product redundancies.

Identifying hit products 4

On another level, Sony management analysed the reasons for its failure to launch hit products in the electronics sector and concluded that the group was suffering from a failure to see things from the customer's perspective, a decline in technological strength and a decline in operational power. These can all be illustrated by Sony's digital still camera, the Cyber-shot T7. The T7 is stylish and compact but failed to ignite much demand because it lacked the features consumers most wanted - long battery life, an image stabiliser, a large LCD screen and ease of use. As a result, Sony, which used to be a market leader in digital cameras, has seen its market share fall from 20 to 9 per cent. Sony is also chasing front-runners in other key product categories. In portable audio players it is making a heroic effort to catch up with Apple but still trails the US group with a 16.5 per cent share compared with nearly 40 per cent for Apple's iPod, according to BCN, a product ranking group. In television sets, where Sony used to have a loyal following - based on attractive designs, brand power and its Trinitron technology producing brighter pictures - it has largely been replaced by Sharp as the brand of choice (see panel below). There are increasingly very few people who ask for Sony. The revitalisation programme is designed to address these issues by establishing a corporate level committee to co-ordinate product strategies, increasing internally sourced key components to strengthen technological leadership and streamlining headquarter functions.

Setting a new set of business priorities

To bring much-needed focus to its vast electronics empire, the new plan has set business priorities. 1. Sony will focus on seven "champion products", including the PlayStation 3, PlayStation Portable, Walkman and LCD TVs. 2. At the same time, Sony will raise the sales ratio of high-definition products, such as Blu-ray Disc recorders, from 35 to 75 per cent. Sony expects high-definition products to be a major "profit pillar" and Blu-ray Disc to be "a dynamic driver of HD business". To generate greater revenues from its software assets, Sony will strengthen its software development capabilities, particularly in games software. "This is a very high-growth, high-margin business for us," Sir Howard said. 3. Engineering resources will be focused on semiconductors and key components, such as system LSIs, which are essential to adding value to Sony's products. Separately, Sony said it would set up a Cell development centre under the direct supervision of Mr Chubachi, to promote development of Cell technology and applications. Cell is a powerful processor, which Sony has been developing with Toshiba and IBM. Cell will be incorporated into PlayStation 3, and is expected to provide it with enormous processing power to differentiate it from other games consoles. 4. While focusing on these key product areas, Sony said it had targeted 15 unprofitable product categories for streamlining. Sony management believes the new plan will set the stage for an improvement in profitability to 5 per cent operating profit margins overall and 4 per cent in the electronics business.

Other elements of strategy change programme

Sony is to cut staff numbers by 10,000, or 7 per cent, reduce costs by Y200bn (Pounds 990m) and close 11 plants as it aims to restore profitability and ensure a leading place in the digital electronics market.

The group also abandoned its July profit forecast and said it would face an operating loss this year - its first for a decade. It will make a full-year operating loss of Y20bn (99mn), instead of a Y30bn (147mn) profit, and a net loss of Y10bn (49mn) on sales of Y7,250bn because of additional restructuring charges at its electronics division. Sony has committed itself to attaining profitability by2007 and a 5 per cent operating profit margin by March 2008. As well as job cuts, the plan calls for reducing the number of product models by a fifth and generating Y120bn (670mn) from the disposal of non-strategic assets and real estate. Sony said it had identified 15 unprofitable product categories for streamlining, but failed to identify them or say how they would be affected.

The reaction
Sir Howard Stringer was not short of advice about what should go into the strategy announcement, about 2,000 employees submitted suggestions, joining a chorus of recommendations from customers, dealers and vendors. The most vocal input, however, has come from the financial community. Having watched Sony's share price fall two-thirds in five years, investors had concluded that radical, detailed proposals were needed to turn round the core electronics business and revitalise the broader group. Sir Howard would have to prove Sony could cut costs, break down bureaucratic structures, withdraw from non-core businesses and revive growth. Perhaps as a result of the high expectations, yesterday's proposals met with disappointment. Most analysts welcomed Sir Howard's determination to simplify Sony's structure and the fact that he committed the management to specific targets, which were deemed to be more realistic than those aimed for by previous management. But many critics felt it was not aggressive enough. Among their demands are: 1. Aggressive pruning of Sony's sprawling assets and perform radical surgery and catch up with rivals such as Matsushita, Sharp and Apple. 2. Even the planned 10,000 job cuts generated little enthusiasm. It I seen as eminently sensible the danger is Sony may be entering a phase of 'negative' restructuring at a time when many of its domestic . . . peers, which have already been through this painful process, are actually beginning to take a more expansive approach. 3. Some analysts felt it was unfair to pre-judge the organisational transformation when Sir Howard had achieved a similar turnaround in his three-year reshaping of Sony's US operations. But they continued breaking down silo walls is fine. It's a no-brainer. But what do they intend to do after that. If there's no second step then you might begin to get a bit worried that there's no strategy at all. 4. This pattern of criticism of the Sony plans is echoed in a critical review in the influential Lex Column in the Financial Times which we quote in full below: Sony missed its cue. The once-mighty Japanese consumer electronics giant acknowledges that it makes products that people no longer want, has lost its technological edge and operates in an increasingly commoditised marketplace. Its solution, however, is disproportionately tame - a 7 per cent cut in the workforce, an organisational overhaul and the disposal of Dollars 1bn worth of stocks and real estate.

In spite of Dollars 3.3bn of restructuring charges in the past three years, Sony expects to end this year in the red. Now it plans to spend a further Dollars 2bn over two years, covering severance payments and 11 plant closures. Some 15 unprofitable product groups may face the chop, but others - specifically the manufacturing of bulky, old-style televisions - will be curtailed rather than axed. There is no mention of noncore disposals. So far, so disappointing. The silver lining is provided by Sony's financial targets for the year to March 2008: sales of Y8,000bn and operating margins of 5 per cent. That equates to revenue growth of 5per cent in each of the next two years and operating income of Y400bn. Sony has famously missed targets before. These look more achievable, although they imply the electronics arm will make operating income of Y220bn as against a loss last year. Conveniently, the decision to delay the flotation of its financial services unit means Sony could still harvest its profit stream, worth Y55.5bn in 2004-05. Not another Sony shock, rather a Sony anti-climax. (Financial Times 23rd September 2005). Sir Howard Stringer makes a robust defence of his plans in his interview on the separate sheet.

Supplementary information
Rivals reap the benefits of a shift in priorities If Sony is dangerously close to becoming a loser in the consumer electronics industry, Matsushita and Sharp are clearly on the side of the winners. Matsushita, which manufactures under brands including Panasonic, achieved a 58 per cent rise in its latest annual operating profits to Y308.5bn (Dollars 2.8bn) and forecasts a further, though more modest, increase this year. Sharp, which has benefited from strong growth in the liquid crystal display television market, expects to report record annual sales and operating profits for a third consecutive year. Both Matsushita and Sharp have had strong leaders in recent years who have focused resources on product areas in which the companies enjoy competitive strengths. Since becoming president of Matsushita in 2000, Kunio Nakamura has carried out a wide-ranging restructuring of the organisation, which had been struggling with a vast business empire and overlapping operations among different group companies. Under Mr Nakamura's leadership, Matsushita took full control of five of its traditionally fiercely independent subsidiaries, which had been duplicating efforts in areas ranging from mobile phones to fax machines and optical discs. Mr Nakamura also reduced the number of business units from more than 100 to just 14, each of which has responsibility for a handful of products. At the same time, he established two marketing companies - Panasonic Marketing for audio-visual products and National Marketing for white goods - and gave them overall responsibility for product planning, development, marketing and inventories. This helped ensure that Matsushita products were not developed solely by engineers with little knowledge of the market but in conjunction with staff who could better grasp the needs of consumers. Mr Nakamura did not flinch from quitting businesses that he decided were not core to the group, such as semiconductors that were not used in its consumer products. He also radically reduced the number of Panasonic shops - mom-and-pop retailers that were losing out to the big discounters - by rewarding only the top performers with product and financial incentives. Sharp, which like Matsushita is based in Osaka rather than Tokyo, is a smaller company, with revenues less than one-third of Matsushita's, making it easier to achieve focus. But there it also took the emergence of a strong leader, Katsuhiko Machida, to propel the group on its current growth path. When Mr Machida became president in 1998, he came to the conclusion that unless Sharp focused its resources on a promising technology that others did not have, it would find it difficult to compete in the cutthroat world of consumer electronics. The group began building up its LCD business, shifting resources from semiconductors, in which it lacked global competitiveness. Before Mr Machida, investment in semiconductors comprised about one-third of overall capital spending, as did spending on LCDs. LCDs now account for more than half of capital spending against less than20 per cent for semiconductors. Sharp quit most of its semiconductor businesses, with the exception of four deemed essential to maintain competitiveness in products such as digital cameras, mobile phones and LCD TVs. The focus has paid off for Sharp. The components business, of which LCDs comprise the biggest part, contributed about 60 per cent of the group's operating profits of Y151bn last year. (Source: Financial Times 21st September 2005 p21)

Interview with Sir Howard Stringer in Financial Times 26 th September 2005 Sony chief wields his axe with sensitivity INTERVIEW SIR HOWARD STRINGER: MICHIYO NAKAMOTO and DAVID PILLING Sir Howard Stringer looks comfortable enough sat in his soft armchair in the Tokyo headquarters of Sony, the Japanese icon he has been charged with hauling back from the brink. But from where he sits, the first foreigner to head Sony feels trapped between the Scylla of America and the Charybdis of Japan. Explaining why his mid-term restructuring plan, announced to sceptical market response on Thursday, did not go as far as he might have wanted, he says: "There's a cultural divide. The Japanese investors say don't touch headcount, the western investors say I haven't done enough. I wanted to escape (Thursday's announcement) with as little damage as I could get away with because I knew I was trapped." Sir Howard concedes that, ideally, he would have gone much further in streamlining Sony's businesses, no fewer than half of which he estimates are losing money. "But I have to win hearts and minds. I cannot go in with English jackboots," he says, looking down at his leather shoes. "There were certain things I wanted to cut, and everybody said: 'No. We will make these profitable'. I think I went as far as I could go and still preserve the relationship with the people . Sir Howard describes the deal he eventually brokered with anxious Japanese executives, some of whom argued vehemently against any job cuts whatsoever, as a first step. He will initially cut 10,000 jobs, about 7 per cent of global employees, though only 4,000 of those will come from Japan. Eleven of 65 plants will close, and a fifth of Sony's product lines will go. Fifteen businesses, as yet unnamed - another concession to cultural sensitivities - are slated for disposal, shrinkage or joint ventures. Several others - too many to count, winks Sir Howard - have been put on probation, their managers given a year or less to produce the profits they claim are just around the corner. Clearly, he is sceptical. "If they tell me they're all going to be profitable, then we really will be in the 10 per cent margins," he says, alluding to the wildly optimistic profit forecasts made by his predecessor, Nobuyuki Idei. Those inflated targets ultimately cost him his job. Sir Howard has sensibly scaled them back to 5 per cent. Businesses not capable of contributing to that goal, he says, will be wound down. One of the units on his watch-list might well be cathode-ray televisions, low-end commodity products being rapidly superseded by the flat-screen technology that Sony has been so slow to exploit. This year, the television business - once the pride and cash cow of the company - is expected to lose Y150bn (Dollars 1.3bn). Sir Howard was persuaded that he could not simply scrap it, partly because that would deprive Sony of products to sell in Latin America and parts of Asia where flat-screen TVs are not yet generally affordable. Instead, the plan for televisions has been left deliberately vague. "It wasn't very clear," he acknowledges. "Everyone said: 'What about the retailers? What about the relationship with customers and with employees'." Asked why he didn't axe cathode-ray TVs, he replies deadpan: "We didn't?" The same, ambiguous strategy has been employed with the 15 businesses slated for closure or scaling down. "We don't want to reveal the businesses we're going to cut," he says. "In the US, of course, clearly I would reveal that. Because the US is used to axe-wielders." If Sir Howard has put his axe away for the moment, clearly he has not given up on the idea of quietly strangling a few businesses to death. Yet there has to be more to Sony's turnround than hatchet work, he says. Key to building Sony back into a company that can charge premium prices for differentiated gadgets, he says, is getting the various parts of the squabbling empire to co-operate. That might sound like so much

management gobbledegook were it not for the picture he paints of the dysfunctional organisation he inherited. "The control at the top was evaporating almost to the point of absurdity," he says. "You have multiple silos, all with their own infrastructure, with 4,000 controllers and thousands of strategists and so on and so forth. That's where the arteries have got clogged at Sony. It's very hard to get decision-making and there's virtually no vertical communication, let alone horizontal." That, says Sir Howard, made it impossible to realise Mr Idei's vision of fusing Sony's content - for example it owns half the colour films ever made - with its hardware. Jealousies and lack of company-wide knowledge meant Sony was producing hundreds of stand-alone, competing items, rather than the integrated product line Mr Idei dreamt of. "That's why we have a bad reputation in software, because you are writing code in individual silos instead of, as we are now going to do, designing software across the company at the initiation of product design." Sir Howard says that cross-company co-operation will be improved by the appointment of Keiji Kimura, as head of a new technology development centre. By getting engineers from different divisions to talk to each other, he says, Sony stands a better chance of developing the hit products that have eluded it. "This is what will finally get us into the digital differentiation that will provide us with an edge on products that are just standard consumer electronics." The trick, he says, with a nod to Sony's calamitous loss of the portable stereo market, is to reproduce what Apple has done with iPod. "The future of the business in those horizontal structures is champion products." The remark reveals another part of Sir Howard's strategy, not yet fully articulated. Rather than returning to Sony's analogue engineering roots - as some within Sony want - he is firmly committed to Mr Idei's vision of fusing software and hardware. "Content made people in this company very nervous. And since I'm associated with content, the question about whether I was going to make this an entertainment company has always come up." "That's why you heard me saying: 'electronics, electronics', till I was blue in the face," he says. But, he implies, he is not beyond saying one thing, and doing something slightly different

Tasks
1. Identify and discuss the measures adopted by Sony in September 2005 in the light of what we understand by Turnaround Strategies. 2. Using the two journal articles made available through Blackboard argue the case for stating that Sonys decline was inevitable. 3. Many strategists would argue that effecting change is not merely about restructuring but changing the organisational culture and the mindset of employees. How well does Sony illustrate this need? 4. Examine all the materials presented to you and argue the case that strategic options available are always limited by the organisational context.

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