[A2k] Financial Times: Vital signs at Sony as a talking cure takes effect

[Thiru Balasubramaniam]

<SNIP>


The coming PlayStation Network is the biggest test of "Sony United",
the company's mantra to unite employees spanning different divisions
across the globe. After years of getting software wrong by pushing its
own standards - resulting in the shutdown of its Connect music
service, which ran only the proprietary Atrac format - Sony says that
PlayStation Network will be "open standard".

"We made a decision to make something proprietary and it sent the
signal to the world that Sony was trying to own something. That
decision was the wrong decision . . . it's stupid for us to be
arrogant and say we're going to build a closed system especially when
the competitors - Microsoft and Apple - are very strong," says Sir
Howard. "We've given up on the idea that [proprietary formats] is how
we will make our money."


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Vital signs at Sony as a talking cure takes effect

By Mariko Sanchanta in Tokyo

Published: January 17 2008 02:00 | Last updated: January 17 2008 02:00

A day or two after Sony unveiled its revolutionary 3mm-thick organic
light emitting diode

televisions in America, Sir Howard Stringer personally took orders on
his mobile phone from the three most powerful men in Hollywood.

Steven Spielberg, David Geffen and Jeffrey Katzenberg - the
triumvirate behind the DreamWorks studio - each called him up,
hankering after the $2,500 (=A31,275, =801,700) 11-inch screens. "And they
paid for them!" says the gleeful chief executive of Sony.

Having emerged from years of malaise and sluggish growth, Sony today
is a company that has regained its confidence. It is making bold bets
on technology such as OLED, which stole the spotlight at last week's
Consumer Electronics Show in Las Vegas. It plans to take on Apple this
year with the launch of the PlayStation Network, a massive undertaking
that will enable users to download films, music and games to their
Sony devices. The Sony-backed Blu-ray high-definition DVD format was
given a boost this month when Warner Brothers said it supported the
technology - a move that many believe will end the format war with the
rival HD-DVD.

Whether all of its big bets will pay off remains questionable but Sony
is clearly regaining some of the initiative it lost in recent years.
After two and a half years of restructuring, the electronics
conglomerate has begun to make sense of its sprawling global network.
Engineers, marketers and other employees from divisions as disparate
as movies and electronics are finally talking to one another.

The US, Sony's largest market for consumer electronics, has a much
bigger role in making marketing and development decisions - so much so
that Katsumi Ihara, head of the powerful consumer electronics
division, mutters occasionally that Japan is viewed as the Galapagos
Islands.

"Traditionally, the top levels of executives in every country were
Japanese," says Sir Howard. "Now we have an American running Sony
Electronics . . . That sends the message that ambition is viable in
Sony even if you don't happen to be Japanese."

To achieve his goal, Sir Howard promoted and positioned his chief
lieutenants within Sony like chess pieces. Kaz Hirai, the slick former
Sony marketer who peppers his speech with Californian colloquialisms,
now heads Sony's lossmaking games division - its most troubled unit.
Tim Schaaff, a software developer whom Sony poached from Apple, is the
mastermind behind the PlayStation Network. Stan Glasgow, a colourful
oenophile, runs Sony's US consumer electronics business.

"For the first time there is cross-cultural executive leadership . . .
and that's going to be important," says Sir Howard.

Despite these high-ranking appointments, executives readily admit that
it is a daily struggle to get Sony employees to understand the
importance of communication after decades of working in divisions
treated as fiefdoms. "I think initially there was some trepidation [in
Japan]," says Mr Hirai, referring to his efforts to encourage Sony's
games employees to trade ideas with colleagues in other units.

"I don't know that it was full-fledged resistance but it was more
like: 'Wow, we can actually do that and you're OK with that?' And I
said: 'Absolutely.'"

Even Sir Howard admits that integrating the various parts of the
massive company is a work in progress, particularly in Japan. He
compares Sony to a giant mushroom, saying that the cap is still
dominated by Tokyo. "If the top of the mushroom is too heavy, it gives
young people the impression they cannot succeed . . . I think every
Japanese company is shaped like a mushroom. And if you live in its
shadow you can begin to be discouraged."

Reviving its games unit and turning round sales of the PlayStation 3
is Sony's most pressing task. The massive costs of investing in the
games console, which is equipped with a Blu-ray player and the
powerful "Cell" chip, means that Sony is still incurring a loss on
every PS3 sold. The unit is expected to rack up a loss of $1.4bn this
fiscal year. Although the PS3 sold well during the holiday season,
analysts still expect the console to fall short of forecast shipments
of 11m units this year. The PS3 has been outsold by its less powerful
but arguably more fun peer - Nintendo's Wii.

The coming PlayStation Network is the biggest test of "Sony United",
the company's mantra to unite employees spanning different divisions
across the globe. After years of getting software wrong by pushing its
own standards - resulting in the shutdown of its Connect music
service, which ran only the proprietary Atrac format - Sony says that
PlayStation Network will be "open standard".

"We made a decision to make something proprietary and it sent the
signal to the world that Sony was trying to own something. That
decision was the wrong decision . . . it's stupid for us to be
arrogant and say we're going to build a closed system especially when
the competitors - Microsoft and Apple - are very strong," says Sir
Howard. "We've given up on the idea that [proprietary formats] is how
we will make our money."

PlayStation Network will be the test of whether Sony can successfully
deliver a service to consumers, something that the company has not
perfected yet. "PlayStation Network should have been launched last
year," says David Gibson of Macquarie Securities. "It has taken longer
than expected and will be a big test of whether Sony has successfully
shifted from an engineering-based culture to a consumer/ software-
focused culture."

Mr Ihara says that Sony is working hard to "simplify" its products and
services. Improving user interfaces - one area where Apple has clearly
trounced Sony - is a chief priority. Instead of fumbling through 10
steps to change a setting on a Sony Cybershot digital camera, the user
should need only one or two. "We've created a user interface division
that spans all product divisions," says Mr Ihara.

Analysts say it is still unclear whether Sony's focus on software will
pay dividends. But observers are heartened by the company's renewed
commitment to innovation. Sir Howard stresses the importance of Sony
being the first company to commercialise OLED technology, though the
tiny sets are so expensive right now that it might seem only Hollywood
moguls can afford them.

"When Sony began everything and when it was the ultimate electronics
pioneer, it made something like the Walkman and the world accepted
it," he says. "Today, there are competitors all over the world.
Customers are not passive recipients of the latest Sony device.
Sitting in Tokyo, thinking that your market in Tokyo is typical of the
rest of the world is just dangerous. It's not true any more."

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


Tel: +41 22 791 6727
Mobile: +41 76 508 0997