Sony breaks the mold

Surprise CEO appointment offers long overdue challenge to company's closed traditions. But can Stringer awaken sleeping giant?

Sweeping management changes at Sony are offering the most potent sign yet of new thinking at the troubled consumer electronics giant.

Longtime company observers called Howard Stringer's appointment as CEO on Sunday over a handful of veteran Japanese executives a surprising but long overdue rejection of the company's closed corporate culture. Having pioneered groundbreaking new markets--such as television, CDs and portable tape players--in its early history, Sony has recently faced disappointing growth and earnings.

Among other things, critics have blamed the conglomerate's problems on complacency and corporate infighting that blinded it to new industry-changing trends, notably combining hard drive-based digital-audio players with downloadable content--a formula that single-handedly revived Apple Computer.

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What's new:
The surprise appointment of Howard Stringer as Sony CEO is a much-needed shift for the insular conglomerate, analysts say.

Bottom line:
Infighting among Sony's entertainment and electronics divisions has slowed moves to promote a convergence strategy. Will Stringer help the company become a leading gadget maker again?

More stories on Sony

The resignations of top Japanese managers and the ascendance of a Welsh-born American hired less than a decade ago marks both a recognition of the depth of the problems and a commitment to new methods, analysts said.

"The fact that Sony now has a Westerner at the top, that's very surprising," said Michael Goodman, an analyst for research firm The Yankee Group. "It comes down to a recognition by the board that they need to do something differently...They're facing competition they haven't seen before, whether it's low-cost products from China or new technologies where they really haven't developed a presence. So far, Sony is failing the test as a company."

After initially being brought on at Sony as a diplomat with no authority over any operating companies, Stringer is now running the entire show.

The board of directors for the electronics and entertainment conglomerate unanimously approved Stringer's appointment as chief executive and chairman in a surprise move Sunday. The final approval is expected to come from shareholders in a June 22 meeting.

Related to Stringer's promotion are the resignations of some of the key executives who together represented the traditional guard that rose up through the ranks of the company--including former CEO and chairman Nobuyuki Idei, who was responsible for bringing Stringer to Sony and has been a supporter of the Welsh-born American. Among the other executives are Kunitake Ando and Ken Kutaragi, who were considered the leading candidates to succeed Idei. Ando and Kutaragi gave up their seats on the board. Ando resigned as president and Kutaragi is taking a reduced role--leading the video game division that he built up.


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Memo to Sir Howard: Build up
the digital-home markets
before you worry about
divvying up market share.

Ando and Kutaragi's reduced roles at Sony are a sign that the company is breaking out of its traditional thinking and owning up to its under-achieving performance over the last several years. Sony has long been viewed as having all the pieces to become a multimedia powerhouse--music and movies from its entertainment properties were to pump new blood in its stylish gadgets, allowing the company to take advantage of its once-sterling brand to distinguish itself from rivals.

The opposite has happened. Competitors with fewer advantages, such as Apple, and lesser-known brands emerged to push Sony to the innovation roadside. Stringer's new role is meant to bring in sweeping and immediate changes for the wayward company to get it back to the head of the pack.

Standardization of key parts and the increasing role of contract manufacturers in the electronics industry have led to falling margins and a tougher competitive landscape. Infighting among Sony's entertainment and electronics divisions has slowed moves to promote a convergence strategy that would use content to help sell gadgets, and vice versa.

While other electronics companies have flourished, Sony's fortunes have shriveled. Leading competitor Samsung's shares have soared 72 percent since early 2000. After reaching record highs five years ago, Sony's shares have lost almost three quarters of their value--the lowest point came two years ago when the company reported dreadful financial results and saw a 25 percent drop in share price. Analysts called that happening "Sony Shock."

Opening the door to rivals
"The interesting thing is that technology companies and pure content companies sometimes have contradictory impulses," Stringer said in a recent interview . However, "in the last year and a half, building a relationship between content and devices has taken on a new urgency as a part of Sony's convergence strategy."

The best example of that urgency is the company's acceptance of the MP3 digital-audio format

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