Sir Howard Stringer does it all – he’s CEO, Chairman, and President of Sony. Not many people stretch themselves that thin, but in the following interview you will see this man holds the key to Sony’s future in his mind. He has seen the best and worst of Sony, and has ideals that will slowly revolutionize the mindset of this company. Nikkei Electronics Asia recently sat down with Stringer in a lengthy interview that we’ve copied over here for your reading enjoyment. This is a definite must-read, and probably the best interview I’ve ever read with one of the most popular figures in Sony.
A lot of people are saying that this is a once-in-a-century recession, but what do you say?
It is certainly the worst I’ve ever experienced, and I can’t guess how long this tough situation might continue. The economists don’t seem to have anything useful to say, because they haven’t even figured out what happened to the banks. And there’s the problem of the yen, so strong that it’s eroding the price competitiveness of Japan’s export products.
Consumer electronics companies have to lower their costs or go bankrupt. There are some people who say that you should try to get out of this crisis through innovation, but the recession has slashed revenues and profits so far that innovation alone can’t work. The recession is not the only cause: products from companies in places like Korea, Taiwan and China cost less than those made in Japan. They are driving down the unit prices for products, and eroding the profitability of Japanese companies. That trend won’t change in the future, either.
If a product’s price changes too much, nobody will buy it, and we can’t make any innovations unless our product is a big hit. There are a number of tough problems, such as cutting temporary employees and accelerating manufacturing outsourcing. However, the Sony management team – including myself – has to solve these problems. I am far from pessimistic, though, because a crisis is also an opportunity. I feel this is a golden opportunity for Japan’s electronics industry to regain its dynamism. For Sony, this means that it is now a lot easier for everyone to understand that our cost structures are too high, that we need to change with the rest of the world, as well as a few other points.
What do you think engineers should be focusing on? Are products becoming mere commodities?
Well, I think it is a lot harder to come up with a brand new product concept, like the Walkman, these days. Televisions, for example, offer more vivid colors than ever before, and you can hang them on the wall now, but you have to wonder just how much further they can evolve through that kind of hardware improvement.
If you look at it from a different point of view, though, there is plenty of room for them to evolve. Children today don’t watch that much TV. Take my 16-year-old son, for example. Apart from watching some sports, he almost never watches TV with the rest of the family; instead he spends most of his at-home leisure time communicating via the social networking site, Facebook. It’s clear that customer preferences are changing, and I think this fact indicates what the next steps in TV evolution are likely to be. We’ll never recapture our customer’s hearts by merely offering better color or higher resolution.
We developed brand new, absolutely incredible technology for the PlayStation 3 (PS3), but the cost was high. We’ve adopted a slightly different approach now, and are evolving the PS3 into a platform for Web services. TV development is also in a period of transition; the fact that sales volume is growing for the Apple TV, a kind of set-top box, might be evidence of an emerging trend.
So you think by better understanding your customers, you’ll find a way through?
We have to become a company that can open the window and say, “Look, we don’t just design technology because we love technology. We design technology because we understand that our customers are different.” We can no longer say that we’re right and our customers are wrong. We can’t build only what we want to build.
Right now is an excellent opportunity for consumer electronics companies to improve their understanding of consumers.
Five years ago content companies were regarded as king in our industry, but that was wrong: the customer is king.
Sure, some people might say, “This guy doesn’t know what he’s talking about.” But I reached this conclusion after spending more time on the road, worldwide, than most executives. Consumers today are a lot different from how they were 20 years ago. They aren’t passive any more. The spread of the Internet has given them the power to dictate how products are used, and an increasing number of people are discovering new ways to have fun, such as by creating their own content. A diverse range of electronics will be connecting to the Internet in the near future, tapping Web-based services, and we have to think about what we need to do to make our customers – the king – like our products. I think the key to this lies in watching our customers. If a Sony employee were to ask me what a reasonable market price might be for distributing video to the home, I would tell him, “Don’t listen to me; watch our customers.”
Understanding customers will also help us uncover hidden customers. The Wii from Nintendo Co Ltd of Japan is an excellent example. They didn’t develop any unique technology; they just realized that there was potential demand out there for something different from conventional games, and thought about how to satisfy different demands from different age groups. They attained results that the PS3 hasn’t; namely, generating profit from hardware sales.
In your keynote speech at the 2009 International Consumer Electronics Show (CES), you said that open technology is important today. Is that feeling based on the needs of customers?
That’s right. Customers will refuse to accept it unless the technology is open. Youth in particular really dislikes closed technologies, closed systems and the like. I think the failure of AOL LLC of the US is good evidence of this. When the Internet was just beginning to spread, AOL boosted its subscriber base by providing special services only to its customers. After a while, though, customers began rebelling, complaining that they weren’t children. Because AOL wanted to keep them locked up in a narrow portion of the immense Internet cosmos, open technology was created.
Sony hasn’t taken open technology very seriously in the past. Its CONNECT music download service was a failure. It was based on OpenMG, a proprietary digital rights management (DRM) technology. At the time, we thought we would make more money that way than with open technology, because we could manage the customers and their downloads. This approach, however, created a problem: customers couldn’t download music from any Websites except those that contracted with Sony. If we had gone with open technology from the start, I think we probably would have beaten Apple Inc of the US.
There was a time when it made sense to divide the market with closed technology, and monopolize a divided market, but that’s just not an effective strategy any more. In the Internet universe, there are millions of stars – millions of options that have been created through open technology.
Apple’s iTunes Store uses its own proprietary DRM called FairPlay. I think this gives Sony a chance to provide something that Apple can’t. And we have to move ahead and grab that opportunity before Apple begins to provide support for other hardware and blocks us out.
Understanding customers and open technologies are not the only important things. Prices should also be reasonable and reflect what customers are willing to pay. The shortcut to making this possible is through keeping an eye on costs. And a well-regarded user interface (UI) is as important as price, because it helps customers think, “This is something I’m going to use; it’s mine.” It is the customers who will tell us which UI is good, or bad.
In your CES keynote speech you introduced an Internet terminal from another company, chumby industries inc of the US. Why?
A number of people from the West Coast group firms were very unhappy to see me use the chumby device, and asked: “Why did the CEO of Sony demonstrate a chumby device?” However, I did this deliberately, because people shouldn’t be bound by old customs. Plus, I didn’t want to add extra cost to the presentation.
I became aware of the excellence of that device when I was using it in New York. It will display things like the scores of my favorite football teams, photos, the weather and news, even if I just let it sit there. It made me realize that content distribution absolutely requires personalization. And it showed me how great it is to be able to naturally pick up the information you, as an individual user, most want to see. Customers today want to be able to freely access content via the Internet, information technology. This requirement represents a threat to our content business, and to existing frameworks for rights management. I don’t see that we have any choice, though. We have to create a sanctuary which provides customers an environment for their enjoyment.
That is how we can change a threat to the content business into an opportunity.
A lot of people thought Sony’s content download service was doomed, but it’s in a pretty good place right now in the form of the PlayStation Network, available to PS3 users for network gaming, video, etc. The DRM is based on Marlin, an open scheme developed by consumer electronics companies and other companies. What does all this mean? Very simply, it means that Sony has begun the transition from a closed system to an open one.
I wish the Japanese media would recognize how important this is. I also put a lot of effort into making sure that many people understand the value of what Sony is trying to do here.
Next we will be expanding the PlayStation Network to hardware other than the PS3, because the number of PS3 units sold puts a limit on the scale of the network possible. Sony has a vertical structure for each product line, an organizational structure that resists change, so it will take time to achieve this network growth. However, a large number of employees share my opinion on this.
It looks like there will be an increasing variety of open technologies, content, services, etc, available in the future. Won’t customers be confused by the enormous variety of options available?
I remember a time when I worked for a TV network. There used to be only three nationwide broadcasting networks in the US. Around the time cable TV was invented, I was at a broadcast convention, and the head of television said in a speech to those of us gathered: “Viewing audiences are satisfied with three choices. They don’t need cable and satellite TV.”
I was about 40 then, and raised my hand to speak: “That’s not true,” I said. “The customer will always like choice. While it’s better for broadcasters if the world stays the same – that there will always be three networks – it’s going to change.”
Four weeks later I was made an unexpected job offer. I was hired as president, replacing the man who had given the speech. If I had kept my mouth shut, I would have remained a journalist. And of course cable TV, satellite broadcasting and the like did develop, just as I’d anticipated.
The relationship between Sony and its customers is changing, even if some people at Sony may not like it. We really didn’t have anything you could call a relationship back in the analog era. It was pretty simple, with the manufacturer providing products and the customer either buying them if they liked the goods, or not. The Internet and information technology have changed all that. And if we don’t adapt accordingly, we will lose our customers to the competition. Sony has begun to interact with its customers now through networked products such as the PS3, the DSC-G3 Wi-Fi digital camera and the VAIO. Now I’d say Sony is smack in the middle, between the analog and digital eras.
What kinds of engineers are needed for the digital era?
Maybe because of language issues or my background, people sometimes worry that I’m biased against hardware. There’s absolutely no way that’s true; and I certainly don’t want engineers to think I’m not interested in hardware. All content is useless without hardware. Conversely, though, no matter how good the hardware, it can never realize its true value without content. Both hardware and content have to be there for the customer to receive that value. This is exactly where information technology is beginning to play a pivotal role.
I would like to say this to the hardware engineers: “You have done some really wonderful things, and now I want you to work together with the software engineers to create new ideas.”
We have to create a fusion of engineers in the hardware, content and information technology fields. I’m not talking about technologies. Sony already has a high and growing number of young people actively involved in software design, application development. They are already increasing their communication and interaction with hardware engineers. The important thing is that engineers open-heartedly say, “I need your help,” and that they are encouraged to help each other improve their ideas. That would heighten the quality of development across the board.
Engineers don’t need to change everything. All they have to do is adapt to the times. There is no need for them to discard the knowledge, skills and other resources accumulated in their past. I want them to look forward to the opportunities that adaptation offers, and to be interested in where evolution is taking us. Engineers remain the “movie stars” of the electronics industry, but the plots and stories are changing. They have to learn new lines, and give us other splendid performances. I intend to bring together the resources that Sony holds in the form of its outstanding engineers to create new products, and build a new relationship with our customers. It’s my job to make sure the employees feel how exciting this is.
Management must act as salesmen, selling engineers on change. We have to explain that change is not something scary; it’s an opportunity.
Surely you don’t expect all your engineers to be able to adapt to change?
I don’t think Japanese engineers are too conservative. I can feel the growth in the software development groups, and in individual software engineers. Hardware groups are coming to understand embedded software much better. True, people do tend to get set in their ways as they get older. Nobody is very surprised when somebody retiring in two years says, “I’m too old. I can’t learn new things.” Does that mean the person can’t do anything any more? I don’t think so. The person can transfer wisdom, based on personal experience, to younger people, cooperating with them to achieve a fusion.
Say two men, one 60 years old and the other 30 years old, are building a bridge. The older man might worry that he lacks the energy to build the bridge. But suppose the younger man says, “I’ll be the energy, I need your wisdom. You tell me how to build the bridge.” That’s what communication really is. Silicon Valley was created by people no older than 30. There are a lot of Japanese that age who need to experience the same process. It would be good for Japan. Why isn’t there a Silicon Valley in Japan? It’s because there’s a strongly established seniority system. You can disagree with me but that’s my conclusion.
I don’t think that we should get rid of the older engineers. We can break down the seniority system when older and younger generations are fused. After that, we can create better products.
So you feel that the veterans should transfer their knowledge to the younger engineers, and the younger engineers should freely explore new ideas?
I want our engineers to see that the future is going to be even more interesting, more stimulating, then it ever has been. People are often frightened of change. It is better for engineers to say to themselves every morning, when shaving or combing their hair, “This is a new day and a new adventure; I’m not afraid of adapting to this new world.”
I hope Sony engineers, electronics engineers, feel that this new adventure is worth embarking upon, that it’s really exciting. You shouldn’t get up in the morning and say, “I wish things wouldn’t change. I liked the way things used to be.” That would indeed be a waste of time. When things go wrong, like when there’s a recession, people often begin talking about “the good old days”. The past is no blueprint for the future, though; it’s just the past. Some of the Japanese press have criticized me, saying I don’t respect Sony tradition, but that certainly is not the case.
The Sony tradition is not to live in the past. The Sony tradition is to embrace the innovation, skills, energy, and excitement of its people for the future. Our co-founder, Akio Morita-san, wasn’t looking at the past. He didn’t say he created a blueprint that must never change. Quite the contrary: he leveraged his abilities to adapt to the changing environment, and to discover new solutions and new customers around the world.
I keep harping on the importance of adapting to the era because of my own experiences. I saw the collapse of an industry with my own eyes.
When I was growing up in the United Kingdom in the 1940s, England was the biggest exporter of cars and motorcycles in the world. The US made big cars, but the UK made small-engined cars, which sold well. And the sports cars from car makers such as Jaguar, Lotus, MG, Norton, Sunbeam, Triumph, etc, used to win all the races. However, today, the British car and motorcycle industries have dwindled away.
Why did the Japanese car companies succeed? Because the companies in the UK didn’t change their ways.
Management and the unions argued all the time, and there was no investment in robots to rationalize production. There was no product innovation, either. To start the engine on a British motorcycle, you had to kick the starter pedal. On a Japanese motorcycle, though, you just had to turn the ignition key. The Japanese companies were able to enter the market without the hindrance of old customs and other conceptual baggage. I don’t want to say that Japan’s consumer electronics industry, including Sony, will end up in the same state as the UK car and motorcycle industries. Japan has plenty of skilled people, and I don’t think it will lose out to companies in Korea, Taiwan or China. But unless Japan begins to adapt to change, I don’t think God can promise future success.
Earlier, you said that engineers should take an “I need your help” approach. This way of thinking seems key to your management style: instead of running things according to top-down decisions, you are trying to harness the power of your employees. Is this a fair assessment?
A very sophisticated question. I used top-down management when I was managing the TV network, and when I was a news editor. But I adopt a different style now. I can’t pretend to be a brilliant engineer, after all. I think it is important for management at big companies to tell their employees what management doesn’t know in order to get their cooperation. I’ve done a lot of jobs that engineers haven’t, and watched people working in many different countries. I’ve been a part of so many different aspects of Sony – content, devices and so on. What I’ve felt all along is that if everyone just cooperates, we can all do a better job. The age of dictators is over; it’s time for people to share their experience.
Japanese engineers are so brilliant. I felt that when I visited Tokyo recently. I had just heard the details of how bad profitability was in our TV business. I was pretty depressed. Hiroshi Yoshioka-san, who was put in charge of televisions from 2008, said he would like to take me out to dinner with some of his young people. When I got to the restaurant there were about 30 employees there, all young people of around 30 years old or so, from different divisions including TVs, personal computers and so on. They had a box full of questions they’d written. I pulled them out one at a time and answered them. We discussed a lot of the problems that Sony faces.
It was the most fun I’d had in months at Sony. I’m not being political. They were really smart, and so full of energy. All I could think of was how to get them to solve Sony’s problems now, instead of waiting until they were 50. Because when they get to be 50 they won’t care as much about solving the problems.
If you had been with me at that dinner, you’d agree with me that Japanese companies can again be top in the electronics industry. And these are the people who are going to make it happen.
interviewed by Yasuo Tanokura, Tomohiro Otsuki
