Strategy and Organization in Sony

Henrich Greve |

Sony now has designated its next chief executive – Kazuo Hirai, whose credentials include running the US game division and then turning the overall game division back from a precipice of potentially enormous losses. With Sony’s long slide from leadership in multiple businesses (think TVs, portable music, and games), there is a lot of second-guessing of their strategies so far.

There is also considerable excitement around the new strategic directions that they will take now, because many feel that such a venerable company deserves a chance to recover. A news conference with some strategy announcements may come as soon as Thursday.

But was Mr. Hirai really promoted for his strategic vision? If we look at how Sony’s problems match up with his track record, it looks a lot like he got the job because he understands organizations. Sony is large and decentralized, with divisions and groups that are sometimes described as independent fiefdoms. This is often an effective structure for fostering innovations, because each division can make its own experiments and pursue its own ideas with fewer layers of approval. But it also fails, and in very predictable ways.

When a new business calls for investments so large that the whole company needs to back it, fiefdoms fail because none of them have enough heft. Sony went from a leading position in televisions to a follower position as the new flat-screen technologies called for increasingly large bets in research and manufacturing. Its efforts in portable digital music players were ineffective because two different divisions developed and marketed them in parallel. Just to prove that one mistake was not enough to learn a lesson, four groups started development work on tablet computing.

When a new business calls for coordination across different products, fiefdoms fail because the best ideas get lost in the negotiation process. Sony handicapped its music player business further because they were unable to find a business model to merge content sales and players, and ended up being beaten by the iTunes/iPod combination. Now that Apple has expanded their model to be iTunes/iPos/iPhone/iPad, the lead may be too large for Sony to catch up.

Mr. Kazuo Hirai has shown an ability to confront these kinds of problems. During the turnaround of the game business, be brought the free-spending division to heel, apparently without creating conflicts. He told the TV division to set sales goals that were more in line with market demand than with their egos. He consolidated the four development projects for tablets into one. If Sony’s main problem is their organizational structure, he may be the solution they have been waiting for.

“New Sony Chief Executive Reveals Fast-Forward Plans.” Wall Street Journal Asia, February 2. Daisuke Wakabayashi.

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