Sony’s CEO Is a Watched Man

Sony was long one of the world’s nimblest companies.

As Peter Drucker recounted in Innovation and Entrepreneurship, when Bell Labs came up with the transistor, Akio Morita, the young president of Sony, read about it in a newspaper and promptly traveled to the United States, where he spent $25,000 to buy a license for the technology.

“Two years later, Sony brought out the first portable transistor radio,” Drucker wrote. “Three years later, Sony had the market for cheap radios in the United States; and five years later, the Japanese had captured the radio market all over the world.” In the following decades, Sony went from strength to strength: televisions, VCRs and the Walkman.

Today is a different story. The company is ailing, and recent disappointing earnings threw another batch of cold water on hopes of a comeback (hopes that we ourselves shared a few years ago). Last week, Sony shares plunged as investors surveyed the damage caused by several box office flops and a shrinking electronics business.

Numerous articles have asked whether Kazuo Hirai, who has been Sony’s chief executive since April 2012, is up to the job of turning the company around. According to the Financial Times, Hirai has “what appears to be a straightforward plan: restructure the ailing electronics division and restore Sony’s reputation as a developer of cutting-edge products.” Hirai is particularly hopeful about Sony’s line of Xperia smartphones and its PlayStation 4 game console.

But none of it’s easy, according to the FT: “Deep structural challenges remain, namely the sliding profitability of consumer electronics, particularly televisions,” and “there are signs investors are growing impatient.”

We’ve written more than once about Drucker’s influential concept of a “theory of the business.” Once again, this seems to be the central issue Sony faces: What is its current theory of the business, and does it need to change?

“To establish, maintain, and restore a theory,” wrote Drucker in Managing in a Time of Great Change, “does not require a Genghis Khan or a Leonardo da Vinci in the executive suite. It is not genius; it is hard work. It is not being clever; it is being conscientious.”

For now, Sony seems to be preserving its emphasis on consumer electronics and movies. But is that expansive enough as a vision? What got Sony into the entertainment business to begin with was that, in 1989, then-CEO Norio Ohga saw a need for a major reorientation.

Ohga “changed the company’s theory of the business,” Drucker wrote. “He acquired a Hollywood movie production company and, with that acquisition, shifted the organization’s center of gravity from being a hardware manufacturer in search of software to being a software producer that creates a market demand for hardware.”

Perhaps it’s time for Hirai to make a new change.

How do you think Sony can get out of its current rut?