Sony, the company that invented the Walkman (1979), and revolutionized the way people listen to music, recorded its worst losses in 25 years in May 2012. It reported $5.7 billion loss in FY2012, and a new CEO Kazuo Hirai was appointed to turn-around the company. For FY2017, Sony posted a record operating profit of $6.7 billion – a 20 year high. Today, the world is still waiting for the next revolutionary product from Sony.
Since its inception in 1946, Sony grew into a giant conglomerate, and this slowed down progress in 2000s. The company completely missed key trends such as digitization, shift to software, and the importance of the internet. Korean rivals like Samsung launched consumer electronic products at lower prices, and Apple innovated with products that Sony couldn’t compete with. Sony had been suffering through infighting and non-cooperation between divisions.
Sony was also diverting away from its core focus areas without fixing the key issues. For example, Sony invested in real-estate business when the core was not doing well without a clear strategy. What was needed at this juncture was not only a focused approach, but also a forward-looking strategy for a long-term play in the technology industry.
For Sony to stay alive, Kazuo Hirai had to come up with something that really drives innovation at Sony.
To cut costs and increase accountability among various divisions within Sony, Hirai decided to focus on three pillars at Sony – the Gaming Business (PlayStation), Semiconductor Business (Image sensors), and Mobile devices. The TV, Audio devices, and other divisions were spun-off as independent subsidiaries of Sony. This ensured competitiveness of each business and ensured responsibility. More responsibility encourages more innovation and does away with the long bureaucratic processes that typically hinder innovation in large companies.
Poor performing businesses such as VAIO (laptop business) and Energy Division were sold off. Sony focused on profitable and fewer SKUs for mobiles and TVs, resulting in improved profits while taking a temporary hit on the top-line.
To encourage open innovation, Sony launched the Seed Acceleration Program(SAP) in 2014. SAP is an approach used to quickly launch start-up projects and commercialize new ideas by tapping into the design and production know-how Sony already possesses. Another initiative under SAP is First Flight – a crowdfunding and e-commerce website set up in 2015 to provide a platform where Sony’s start-up projects can connect with potential customers. This model creates an accelerated path to a product launch and feedback. SAP has produced 13 commercial small-scale products such as the WENA smart watch and Aromastic – a personal aroma diffuser. SAP was expanded to Europe in 2016.
To encourage external inputs to Sony’s innovation funnel, the Sony Innovation Fund was created in 2016 to invest in upcoming start-ups. Sony also launched “Start-up Switch” – an annual business plan competition for start-up projects that originate outside of Sony. First Flight has also been extended to companies outside Sony Group.
While these initiatives to spur innovation at Sony have shown some success and the company seems to be on a growing trajectory, the world is still waiting for the next WOW product. To revive the old glory days, I believe that there are some fundamental issues that require the senior management’s attention.
Sony needs to work on creating a diverse and inclusive global culture. The Japan centers (Tokyo, Atsugi) have only a handful of international employees. Most of the culture and communication at Sony Japan is in Japanese, thereby creating additional barriers for an inclusive ecosystem. The global talent could be utilized to bring in different perspectives across projects to channel ideas for future projects.
For a huge company such as Sony, a seamless integration between products is critical to please the consumers. The employees should have the freedom and flexibility to cultivate cross-functional skills and work in different teams. As an example, Sony could learn from Google’s 20%-time policy for working on side projects.
SAP can be modified to incorporate the global talent at Sony, especially the emerging markets. Great scalable ideas come from emerging markets and can lead to Reverse Innovation. Currently, SAP is heavily focused on Japan, with all the discussions and information in Japanese. Added incentives for employees could be introduced for working on SAP-worthy projects.
As Sony thinks about creating the next revolutionary product, what are the fundamental mindset and cultural changes that it needs to incorporate? Does it make sense for Sony to break-free from the conventional Japanese perfectionist culture and open it to diverse opinions and perspectives? Will that lead to a chaos in the organized hierarchy that Japanese companies are known for? Will SAP be able to produce the next big thing, given its current scope?