CEO Stringer Blames 'Old Sony' for Profit Loss

Stringer says Sony's grim profit outlook comes from its slow response to changing conditions. And the recession hasn't helped, either

By Dan Slater

Sony CEO Howard Stringer yesterday blamed the latest awful profit outlook for Japan's favourite electronics company on not adapting fast enough to new conditions, as well as the "worst recession in (his) lifetime". At a press conference, Stringer announced that Sony was revising its fiscal 2008 (ending March 2009) consolidated net income forecast to a ¥150 billion ($1.6 billion) loss from an earlier estimate of a ¥150 billion profit, off expected revenues of ¥7.7 trillion ($86 billion).

"There is too much old Sony at Sony," said Stringer in his introductory comments, despite the fact that he took the helm almost four years ago—specifically to make a "new Sony".

Stringer finds it easy to articulate the right strategy: Sony must become more of a pure design and marketing company (like arch rival Apple) in a world where hardware is becoming increasingly commoditised. It must also urgently reduce its huge fixed cost base, as reflected by the gulf between its revenue and its earnings. (To rub salt in the wound, Apple on Thursday beat analysts' expectations with a $1.6 billion profit for its fiscal first quarter to end-December, off sales of $10.2 billion.)

Converting Stringer's theory into practice has proved a challenge, however. Indeed, veteran Sony observers note that Stringer talked about the same challenges four years ago when he first became CEO. At that point, he established his mission as knocking down the company's notorious silos in films, mobile phones, games and electronics; cutting fixed costs; and making Sony's elite hardware engineers understand that they had to work more closely with the software engineers.

The company has scored some successes in terms of the integration of its software and hardware capacities, especially in the US market, with a Will Smith film having being downloaded to Bravia TV sets ahead of its release on DVD. However, according to a December Credit Suisse report, only 5% of Bravia TVs are 'active', that is are currently linked to a network. This makes Stringer's comment that "not even Apple can do network TVs" less impressive than it might have been. It may be true that the concept of supplying films to TV sets over a network, thereby avoiding third-party satellite and cable companies, is an impressive one—but it's a concept that still has not been translated into sustained profitability.

Making a rare appearance at a press conference in Tokyo (his family lives in England), Stringer expressed a sense of frustration with the company's slow progress. Drawing a parallel with President Obama's inauguration speech, he said that "tough decisions can no longer be avoided". Later, he said that "closing ones eyes to avoid the crisis" was not the way forward.

There was a widespread belief that when Sony appointed the first-ever foreigner to the top post, he would have the power and freedom to carry out restructuring in a way that a highly-obligated Japanese manager could not.

However, his troops do not appear to have responded. He appears to be having trouble in bringing the company along in his restructuring plans. Japanese companies often operate with a high degree of consensus, in which middle managers have a surprisingly large say by Western standards.

The company looks as if it is in danger of falling between two stools. If traditional management pre-Stringer failed, and the foreign cost cutter also fails to turn the company around, where does that leave Sony? And Stringer?

For now at least, Stringer is still pushing his strategy of a strong CEO. Several times during the press conference he extolled the virtues of "top-down leadership", as opposed to traditional Japanese consensus leadership. Stringer made the surely valid point that in a crisis, the company needs to move fast, and that requires strong leadership. Given his lack of success so far, it is possible that Stringer is hoping that the crisis could finally give him the authority to bring some kind of fundamental change to Sony. Things might still work out that way, but it is a costly way to persuade people to follow him.