Update: Sony Downgraded, Delayed and Disrupted --What Went Wrong?

Sony Corp. was the great innovator in consumer electronics for 30 years, but you'd never know it reading the latest headlines or watching the stock:

• Sony bonds Downgraded by Fitch in anticipation of further financial weakness
• Millions of fire-prone Sony batteries recalled by Dell, Apple, Toshiba, Lenovo, Fujitsu
• Sony's Walkmans have failed to crack Apple's dominant mp3-player market share
• Sony shuts its Japanese walkman factory
• PS-3 game console has been delayed and has lost its premium pricing
• Sony's gross profit has barely moved in five years, and Sony loses money on every PS3 it sells  leading bloggers to cast doubts on the company's vialbility

What went wrong at Sony?

Today few young people see Sony the way it once was.

Sony was the great innovative company that invented technologies that defined innovation and pop culture from the 1950s through to the early 1980s with a string of new-market disruptive innovations:

• transistor radio,
• portable TV,
• betacam video camera and
• Walkman

One way to look at this is to consider Sony as a serial disruptor that had little to lose in the early days. When Sony had no share of the U.S. radio business in the 1950s and no share of the TV business in the 1960s, Sony took chances, it innovated and it pursued what looked like small or marginal market opportunities to gain toeholds in the market.

Nobody knew in 1953 that teenagers and transistor radios would become a large market. Likewise, nobody knew in 1960 that low-priced portable TVs would be a hit. These were the low-end markets that the industry giants, tube-makers like RCA ignored. Sony used the inferior technology of the time, transistors, to develop cheap products to serve these marginal, low-end markets because that's what it was stuck with.

But as Sony grew in the consumer electronics business and in the music business, Sony had a lot to lose.  Hence in the past 20 years, Sony became a company more concerned with protecting and defending its dominant position and seeking proven large market opportunities. Largely, Sony did the right things that successful companies must do: It served its customers, it released better products and it did not compete against its cutsomers.

But as a result, there was less disruptive innovation and no appetite for potentially cannibalizing businesses, like the $1-a-song download business. After all, it is certainly not easy for a company that sells music to record stores to compete against those same customers with a direct-download business. But ignoring a threat does not make it go away.  Sony left that disruptive innovation to a music-industry outsider: Apple and its iTunes service.

Here's a visual history of Sony from disruptor to disrupted in a crude four-block diagram, inspired by the wry observations at Tom McMahon's 4BlockWorld.

 

Interested in writing a guest-column on disruption? Contact The Disruption Group here.

**Late Additions/ A bad week for Sony**

Oct. 20, 2006 Sony to miss PS3 target
Oct. 20, 2006 Sony delays launch of new video device 
Oct. 19, 2006 Sony earnings warning

**Other Views** 

Achieving the Benefits of Disruption presentation (pdf) and other tools for managing disruption at The Disruption Group's site.

Jonathan Lumb at 1Up.com reports that Microsoft's Xbox just won a Japanese design award. Sony was a past-winner with PS2.

BusinessWeek's new issue today says a new video Walkman may be the next savior for Sony, if the company can learn from Apple that software is the key: "Nobody has been working harder to change the hardware-centric culture at Sony than its chief exec, Howard Stringer. He has taken pains to reprogram hardware engineers to abandon the notion that they rank above the software crew."

Wired asks, Can the PS3 save Sony? "What once made Sony great has worked against it in the digital age...Teams of hardware engineers locked in competition. With digital entertainment, you have to think about hardware, software, and services that tie them all together."

ElectraSistahood is a rare blogger that probes the numbers behind Sony's weakening position in the game console business and the threat therein.

Harvard Prof. Clayton Christensen tells the story that Sony Chairman Akio Morita removed himself and a small team of five trusted advisors from an intuitive, observation-driven process of innovation at Sony in the 1980s, after the Walkman, in favor of a deeply-researched, analytical and data-driven approach, the antithesis of disruption. After all, you can't analyze data for new markets that don't exist. 

FireWheel design looks at Sony's last stand: "Sony's downfall will be (er, is) their delusional mindset that people love them because the are Sony."

Tom McMahon has a great archive of ironic four-block diagrams at 4-BlockWorld.

Comments

[Innovation Zen]

Great article. I have analysed Sony once or twice in my blog also. I think they lost the innovative spirit when Akio Morita departed.

Nice blog by the way, just subscribed to the RSS.