Sony: The Elixir of Eternal Innovation
Joaquim Vilà, Jordan Mitchell

Year: 2007

Most people would not balk at the idea of jamming a mobile phone, an MP3 player, two USB data sticks and maybe even a personal digital assistant (PDAs) in their standard shirt pocket. However, this wasn't always so easy. And that's not just because these ubiquitous electronic devices didn't exist. In 1957, the 11-year old fledgling Sony, released the first "pocketable" transistor radio. There was one problem. Sony's "pocketable" radio was bigger than a standard shirt pocket. Sony's founders - Akio Morita and Masaru Ibuka - had envisioned Sony salespeople smoothly pulling the radio from their shirt pocket to demonstrate the nifty device. So, instead of immediately going back to the drawing board and developing a smaller version, they had their own shirts fashioned up with larger shirt pockets to allow for the "pocketable" radio.

Who said innovation had to be about the product only? General Management Professor Joaquim Vilà had always admired Sony's illustrious history and had used a string of older Harvard cases about the company in MBA and executive education classes to illustrate innovation throughout all factions of an organization. His fascination with Sony compelled him to form a relationship with Sony Spain and culminated in a trip to the company's headquarters in Tokyo. In 2006, he joined forces with case writer Jordan Mitchell to document his cumulated knowledge of the company - the date was fitting, considering it was Sony's 60-year anniversary. In addition, Sony had just appointed the first non-Japanese CEO, Sir Howard Springer, who wanted to harness the company's creativity and get the company back to its innovative roots and on a road of high growth.

Any management practitioner or business school professor likely has the words "growth" and "innovation" firmly planted in their daily lexicon. Sony may be one of handful of companies around the world that can truly demonstrate growth and innovation for over half a century. What makes Sony so special? How have they achieved their status as one of the most innovative companies of the 20th century? One answer is to simply look at Sony's long list of world-changing products such as the pocketable radio, the Cathode Ray Tube (CRT) television, the standardization of the audiocassette tape and development of the CD with Phillips, the Betamax VCR, the Walkman, and the PlayStation, to name just a few.

From the outset, the company's original management policies focused on product innovation: "We shall focus on highly sophisticated technical products that have great usefulness in society, regardless of the quantity involved." Sony experts often add in the fact that Sony's product development always strove to offer compact size with portability. Sony typically started with a target price point for new ideas and figured ways to produce the product for that price. Market studies were largely ignored. As Ibuka said: "Merchandising and marketing people cannot envision a market that doesn't exist." Products, although the most visible evidence of Sony's innovation, were not the only way that Sony broke new ground however.

Early on, Sony's approach to sales was often different. In the mid-1950s, the established watchmaker, Bulova, made an order for 100,000 units (a huge order at the time for Sony) for the pocketable transistor radio on one condition - the Bulova name would appear only. When Morita refused, the Bulova buyer contested by saying, "our company is a famous brand name that has taken over fifty years to establish. Nobody has ever heard of your brand name. Why not take advantage of ours?" Morita responded: "Fifty years ago your brand name must have been just as unknown as our name is today" I am now taking the first step for the next fifty years of my company."

In another situation, a U.S. retail buyer was shocked when Morita presented a higher per unit cost for 100,000 units than 10,000 units. The retailer stated: "Mr. Morita, I have been working as a purchasing agent for nearly thirty years and you are the first person who has ever come in here and told me that the more I buy the higher the unit price will be. It's illogical!" Morita's rationale was that by accepting the larger order, Sony would need to expand production capacity with no guarantee that the order could be repeated.

In production, Sony also shone its innovative light. Besides the fact that one of the early production locales was in a decrepit wooden shack where workers had to use umbrellas to protect themselves (and the electronics!) from the leaky roof, Sony co-founder Ibuka had the vision of a plant with fixed production and a strict plant while giving people freedom to do what they wanted. In the 1960s, he gave instructions to the new head of Sony's semiconductor plant: "You are free to do there whatever you like. Try to do something truly creative." The plant manager removed clocks, implemented a voluntary pay system for meals, abolished worker dormitories in place of small homes and formed a "cell" method of manufacturing whereby small teams would develop their own production output targets. Management's role was to help the cells solve production dilemmas.

Sony's human resource policies broke all traditions. Sony eschewed the common Japanese method of consensus in decision-making (called ringi) and gave people authority to make independent decisions. New Sony employees of all ranks and descriptions were required to spend a few months on the production line to learn the company's products and processes. Furthermore, Sony placed engineers and scientists in sales jobs to understand that new products also needed to be saleable. Sony sought to fill senior posts with people from a wide variety of backgrounds. For example, Norio Ohga, who became the company's chairman in the mid-1990s, was hired on in a management role earlier while he was rising to fame as an opera baritone. The collective group of differences in Sony's management made the company known as the "guinea pig" (Ibuka was even given a statue of a guinea pig by the Emperor of Japan).

Fast-forwarding to 2006, is Sony still the innovative guinea pig it once was? Along with that challenging question, students are also asked to think about how Sony can apply its process for innovation to its current challenges such as: the dominance of Apple's iPod; grappling with the convergence between mobile phones and game sets; the transition from CRT televisions to LCD (liquid-crystal display) TVs; and the last major "fight for the format" between Sony's BluRay DVD technology and Toshiba?s HD-DVD. Furthermore, the question naturally surges forward as to whether or not Sony should divest itself of the content business and shed its movie studio and record label.

As students consider these questions, Sony itself will be trying to figure out not only how to invent smaller, faster and cheaper mobile phones, MP3 players, data sticks and PDAs, but also increase the so-called "pocket" to make consumers buy even more of their products.



http://insight.iese.edu/doc.asp?id=655&ar=11