Owning Tomorrow - The Unstoppable Force of Disruptive Leadership

Beware the Danger of Nondisruption

From its start in 1946, Sony went against all prevailing beliefs about the electronics industry. The company was an upstart in postwar Japan, a country which until then had not been thought of as a hub of innovation for electronics. Companies in the United States and Germany were the market leaders, and it was inconceivable that businesses from other countries could make a considerable dent in their domination of the industry.

So, Sony’s executives did the only thing they could do under the circumstances—they blatantly stole ideas and technology from the West, improved on them, and made them their own with great success.

By the time the company’s most famous product, the Sony Walkman, arrived on the scene in the 1980s, Sony was clearly the world leader in most segments of the consumer electronics industry. (Interestingly, few people at the time noted publicly that the Walkman wasn’t much more than a stereo version of a transistor radio with a cassette player added in for good measure.)

But with the death of Sony’s founder and visionary, Akio Morita, and the creeping Japanese malaise of the “social contract” between employees and employers, Sony handed its leadership over to companies more openly disruptive, such as Canon, Apple, Samsung, and LG. By the beginning of the new millennium, these competitors had taken market share away from Sony in a few key product categories such as cameras and TVs. Some competitors—including IBM and Amazon—had even created new segments that the decision-makers at Sony were unable to develop the right products for, such as electronic readers and tablets.

This is not to imply that Sony’s engineers were not excellent at what they did. But the engineering values they had previously cherished and which had made Sony successful for decades, such as quality, excellent design, longevity, and fidelity were no longer relevant in the marketplace. Other values, such as sharing (as in the case of MP3s), agility, and ease of use had replaced them.

Sony was still widely considered to be the most powerful company in the consumer electronics and entertainment industries when I moved to Tokyo, Japan in 2003 to work as the chief strategist in the CEO’s Office for Strategy. Internally, however, it was clear to most executives that Sony was losing ground fast and the CEO who had hired me, Nobuyuki Idei, was being held accountable for the deteriorating situation. In one of those contradictory moves that are so common at Japanese corporations, Sony’s leadership asked my team—all of whom had been chosen by Idei—to think about the options for a replacement CEO who could turn the situation around.

There was only one senior executive in Japan with the credibility and leadership skills to succeed at such a difficult undertaking. That person was Ken Kutaragi, a brilliant, no-holds-barred businessman. He had built the Sony PlayStation from scratch into the category-defining product it had become by 2005. This was before Xbox spent billions of dollars to push it off its pedestal.

But Kutaragi was deemed “too disruptive,” and Sony’s board was afraid he would polarize the organization—which, in hindsight, was most likely exactly what Sony needed.

At the time, Japan was all abuzz about the positive effects Carlos Ghosn was having at Nissan as the first foreign-born CEO of a major Japanese corporation. Thus, my team and I decided the next best option was to help Sony’s leadership understand the benefits and risks of hiring an “outsider” to run the company. In my presentations to Sony senior executives, I continually brought up the work Gerstner had done at IBM as an example of positive changes that could happen when an experienced noncompany man was brought in as a force of change. To support my argument, at one point I even facilitated a few meetings between Lou Gerstner, IBM’s CEO in the 1990s who successfully disrupted and turned the company around, his successor at IBM Sam Palmisano, and Mr. Idei.

Unfortunately, behind closed doors—and sometimes to my face—many middle managers and directors dismissed these ideas out of hand. Sony was primarily a B2C business and not a B2B IT house like IBM, they said. The comparison to a car company was considered even more ridiculous. Most of these colleagues saw virtually no similarities between Nissan and a consumer electronics and entertainment company like Sony.

But this characterization of Sony was a little misleading. Like many Japanese conglomerates, the company dabbled in hundreds of unrelated activities, such as cosmetics and pharmaceuticals. It even owned a restaurant, Maxim’s of Paris, simply because cofounder Akio Morita loved the place and wanted to have it. There were also other businesses that were a little closer to Sony’s core business such as semiconductors, retail, and medical imaging.

But it didn’t matter what leadership thought if thousands of middle-management executives didn’t get it. Sony’s board faced a dilemma. They knew the organization wasn’t going to accept a person who was not Japanese and someone who had never worked at Sony before as their new CEO.

Thus, it came as no surprise to me that the final choice to become the company’s next CEO was Howard Stringer. At that time, Howard was the successful head of Sony America as well as global president of the company’s entertainment divisions worldwide, having taken both divisions through major restructurings in the 2000s. He was also widely liked and respected within the company.

To his credit, Howard was, at least in private conversations with me, not at all convinced he was the right choice to be CEO of the entire company, preferring instead to be seen and employed as a kind of chief restructurer. Howard knew full well that he was a movie and TV guy, not an engineer. That meant he would never truly understand the mainstay of Sony’s business, consumer electronics. But that didn’t stop him from accepting the position. Ken Kutaragi promptly left the company with more than $100 million he had earned as president of Sony PlayStation.

I briefed Howard several times about who he could count on to be allies in Tokyo headquarters and who he should watch out for. Knowing just how difficult the task would be, Howard and his team developed an if-all-else-fails solution if they couldn’t effect the change needed. This plan would have spun off many of the assets into a number of more easily manageable pieces.

My two-year contract at Sony was coming to an end, and I was tired of the daily maneuverings of my Japanese colleagues trying to box me in and keep me out of the loop. (This was no different than how they treated any senior executive in Japan who was a foreigner, given Sony’s notoriously engineering driven, inward-facing culture.) I figured I had done as much as I could. I then headed to my next position as the head of international strategy for Discovery International, the TV company headquartered outside of Washington, DC.

From the depth of my heart, I genuinely wished Howard all the best and wanted him to succeed. Despite my own personal issues with being a foreign senior executive at the heart of what was, in the end, still a very Japanese company, I hoped I had helped pave the way for something better and more revolutionary to happen. Unfortunately, not much of any good transpired in the next five years.

There were many things that contributed to Howard’s ultimate failure, but two stand out:

1.Howard was not willing to move his home to Tokyo. That meant that he would never develop the kind of relationships he needed to have with the engineers and product evangelists who dreamed up and developed the consumer electronics that Sony was known for. (All Sony’s consumer products businesses were headquartered in Japan, and even foreign engineers reported to someone in Japan.) By not establishing a home in Japan, he also sent the message that he wasn’t going to “slug it through” with the rest of Sony’s leadership and the majority of the company’s employees.

2.Howard’s low-key and highly diplomatic personality helped him survive Sony’s internal politics but cost the company dearly. He unwittingly perpetuated most of the worst aspects of Sony’s culture even though he knew that the inward-looking engineering focus of much of the organization was backward and ill-suited for the needs of a modern consumer electronics company. Any great ideas he had about changing the culture met with silent resistance.

Thus, even though Howard was an “insider,” he also remained an “outsider” who was never able to gain the trust and familiarity with the people who might have ultimately helped him push through an aggressive agenda. Worse still, the Japanese saw most of his ideas as hopelessly American and therefore not part of Sony’s DNA. Needless to say, with the exception of selling a few of the obviously small and noncore businesses—Maxim’s was one of the first to go—Howard’s if-all-else-fails solution never saw the light of day.

By the time of Howard’s retirement in 2013, Sony’s stock had lost 75 percent of its value. Adding to Sony’s declining market share in cameras and computers under Mr. Idei, Sony’s dominance in other markets, such as broadcast...