Sony stumbles: Did Stringer’s makeover fail?

"I was the inventor of the Airboard," says Maeda between mouthfuls of fried prawn and dumplings at a Chinese restaurant in downtown Tokyo.

He was referring to a flat panel device that predated the iPad by a decade yet boasted video, touch screen typing and Internet access.

A hefty price tag and patchy picture quality were among the reasons the product, which in hindsight looks like it was ahead of its time, didn't initially take off. Internal politics and a series of disruptive divisional reorganizations ensured the product never got the management focus it needed to succeed, Maeda says.

Morphing it into Location Free TV — a device through which you can watch local TV channels anywhere — wasn't enough to convince Sony or the marketplace that it was going to work. The project once touted as being as revolutionary as the Walkman was dropped entirely in 2008.

Maeda said he knew a year earlier that Sony under Howard Stringer, who became CEO in 2005, was going to kill his invention. His boss sent him an e-mail saying he was taking it over.

Soon after, he quit the company he had joined in 1979 when Sony launched the Walkman and was one of the coolest companies around. It was a heyday Stringer pledged to restore, but Maeda, who is now at audio visual equipment maker JVC Kenwood, no longer sees returning.

"Sony old boys liked Airboard and Location Free TV because it was doing something new, which is what they did at Sony," said Maeda. "The current Sony people have no experience with such things because they haven't introduced any new products for about 10 years."

Still beset by turf wars, secrecy, complacency and a bloated innovation-killing corporate bureaucracy, Maeda and other Sony refugees insist their former employer is in dire straits and Stringer, who is 69, is running out of time to deliver on his promise of reinventing the company.

Certainly Stringer can boast of his role in developing 3D film-making and the victory of the Sony-backed Blu-ray technology in the next generation format wars. But Sony, despite its iconic brand, remains out of step with the rest of the global technology world and its talent for crowd-pleasing innovation has largely evaporated.

A hacking scandal in April that exposed more than 100 million accounts on its online gaming network to possible data theft not only hurt its image but threatens an online strategy meant to unite a disparate corporation and could upset a carefully crafted succession plan for when Stringer steps down.

It wasn't so much the security breach itself but the delays in informing customers of the problem and Sony's subsequent inability to quickly close other weak spots vulnerable to hackers that has left a stain.

"Too big to succeed comes to mind," a former senior manager involved until recently with Sony's PlayStation game console told Reuters, declining to be identified because of the sensitivity of the comments. "I was at PlayStation, considered the most flexible of the Sony units, but ironically that was crippled by over-secretive IT security, a lack of a coherent management structure and a lot of deadwood at the top. It was harder to work across Sony units than to work with outside partners," he said.

It isn't only former insiders who see the magnitude of the problems.

A procession of top executives at U.S. technology companies who spoke at a Reuters Global Technology Summit last week didn't mince their words when asked about Sony. Robert Glaser, chairman of Internet media software company RealNetworks Inc, likened Stringer's task of rehabilitating Sony to "introducing capitalism to a Soviet-bloc country after 50 years of communism."

CAUTIONARY TALE

The erosion of Sony's standing is a cautionary tale of what can happen to technology companies when innovators move on. Back when Sony, led by co-founder Akio Morita, launched the Walkman, it proved an inspiration to the founders of the then little known startup company: Apple Computers.

"Sony had the most incredibly well thought out products in the world. We wanted to be like that from day one," Steve Wozniak, Apple co-founder, told Reuters recently. At the time, "no other company in the world was the model for consumer electronics."

As Japan's seemingly unstoppable economy expanded through the 1980s, Sony remained the consumer electronics benchmark as Morita handed over the creative mantle to maverick Norio Ohga, a trained opera singer who caught the founder's attention by writing to complain about the quality of Sony's audio tapes.

Ohga, who died in April aged 81, is best remembered for convincing the world to give up vinyl in favor of CDs and for green-lighting one young executive's ploy to beat Nintendo at its own game with the PlayStation.

The serial successes, though, bred complacency. "If you had the Sony name on the back of your shirt you were fine, so they stopped thinking," Maeda says.

In 1989, the Japanese economic juggernaut stalled and the benchmark Nikkei index topped out just shy of 39,000, marking the start of an asset value slump that continues to sap Japan's economic vitality 22 years later. That same year, amid a frenetic Japanese pursuit of landmark overseas assets, Sony made its first big mistake.

The company bought Hollywood studio Columbia Pictures for $3.9 billion from the Coca Cola Company. It was a business and culture that Sony didn't fully understand and became a big distraction for management.

Five years later as Ohga handed Sony over to Nobuyuki Idei it was forced to write off $2.7 billion from the purchase after a string of costly box-office flops.

Seven years later, Apple's Steve Jobs, inspired by Sony's Walkman, launched the iPod digital player. It was a seminal event for Apple and a huge warning for Sony.

In one move, Apple ended Sony's dominance of the music player market and left little doubt that Sony was heading for a full blown crisis.

Back in 2000, Sony's market value had been more than seven times Apple's. Today, Sony's market value is only one eleventh of Apple's, and its share price is little changed from 1995 — the year it launched the digital camcorder.

TOO ORDINARY

When Stringer was appointed Sony's Chairman and CEO in 2005 he was keen to show that he could revitalize the company's reputation for creativity. As a Welshman running a Japanese company, but who understood its corporate culture, he was seen as having a better chance of shaking it up than most.

After a bruising first year of heavy losses, he was anxious to kick off the annual management meeting at Tokyo's Grand Prince Hotel New Takanawa on an optimistic note. Stringer trotted out a group of what he claimed were the 50 brightest engineers that Sony had to show the 1,200-strong crowd of managers gathered in the ballroom.

"These are our future," Stringer boasted of the group of the cleanest, most well-composed assemblage of geeks, recalls one former Sony executive in attendance that morning.