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Weekly Column

Mr. Idei's Kurosawa Ending: The Rise of Howard Stringer at Sony is More Properly the Fall of Ken Kutaragi

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Excited as I am to continue my story of the VoIP counter-reformation, I can't ignore the big news this week that Howard Stringer -- a non-Japanese non-engineer -- is taking over as the new CEO of Sony Corp. So look for more VoIP next week. The Sony story is everywhere and is generally the same: Sony is in crisis, Nobuyuki Idei wasn't getting the job done, so Howard Stringer (head of Sony USA) is bringing his diplomatic skills to re-melding Sony's consumer electronics and content businesses.

Too bad that story is wrong.

The real news isn't Stringer's rise, but Ken Kutaragi's fall.

Ken Kutaragi is the so-called "father of the PlayStation" -- an engineer who rose nearly to the top at Sony by being brash and taking risks. Kutaragi, a lifer like everyone else at Sony (except Stringer). made his name inside the company through his unique ability to fire his boss. That's right, fire his boss, and sometimes, his boss's boss.

How the heck does that happen? How do you fire your boss? I tried to do it once at InfoWorld and while my boss eventually was canned, I got the boot and a huge lawsuit first. So I'd say that firing your boss is very difficult in an American company, which makes it pretty much impossible in a Japanese company, with its stricter hierarchy and respect for elders. Yet Ken Kutaragi seemed able to do it. Amazing!

Well, maybe not so amazing. You don't go around firing your bosses without support from on high, and that was the case with Kutaragi, who had the support of Norio Ogha, Sony's CEO before Mr. Idei. Kutaragi's rise came with the support of Mr. Ogha, who saw Kutaragi as doing his bidding, cutting out engineering dead wood at Sony. It was Mr. Ogha who authorized the creation of Sony Computer Entertainment (the PlayStation group) and put Kutaragi in command.

When Mr. Idei came to power as the first non-engineer to run Sony, Ogha instructed him to rely on Kutaragi, and he did. But Sony's disease did not get better.

Sony is a schizophrenic company in many ways. It is a giant, vertically-integrated electronics company on one hand, and a producer of movies and TV shows and music on the other. The electronics business is 59 years old, while the content business is about 20, so in the eyes of Sony old-timers, electronics is the heart of the company. Certainly, 80 percent of Sony's capital goes to support the electronics business. Too bad that 80 percent generates only 60 percent of the company's sales and less than half of its profits. Any business school student would identify in a moment this mismatch and call for drastic cuts on the electronics side. But while there have been some cuts in recent years, Sony has spent much more effort trying to emulate the Microsoft model of creating and controlling de facto technical standards and turning them into money machines -- an effort that has not been particularly successful.

This lack of success can be laid at the feet of Sony's senior engineers, who proudly, even arrogantly, ignored reality. That's why it was so important to fire a few bosses.

But firing bosses wasn't enough; they had to be replaced with better bosses and more visionary leaders, which did not happen at Sony. Ken Kutaragi was a more effective hatchet man than leader.

Mr. Idei two years ago extended his time as CEO at Sony ostensibly to see the company's 60th anniversary, or that was the story. What I'm told is that he extended his tenure specifically to make sure that Ken Kutaragi did not become Sony's next CEO. Mr. Idei had supported Kutaragi at the urging of his predecessor Mr. Ogha, but came to believe over time that Kutaragi was not the answer to Sony's problem. So it became Mr. Idei's responsibility both to correct his mistake in supporting Kutaragi and find an alternative.

Idei couldn't simply fire or demote Kutaragi because he wanted to keep him in the company to run SCEI, where he had been quite effective. What he had to do, then, was to help Kutaragi to fail. So he made Kutaragi Sony's COO and vice-chairman, an action that came with a definite loss of face for Mr. Idei, but he felt it had to be done. That was six quarters ago. And, sure enough, Kutaragi hasn't turned Sony around.

But it wasn't for wont of trying. One Sony staffer I know referred to Kutaragi as "Sony's Hitler." Last spring Kutaragi was talking within the company about laying-off everyone over the age of 40 -- everyone except Kutaragi, himself, of course, who is 54.

Kutaragi's plan was to lean on Moore's Law and rely on chip-level engineering to build Sony's future successes. It makes a lot of sense, really. I don't fault the guy for trying. But counting on an Emotion Engine or Cell Processor to "save" Sony was completely ignoring other parts of the business. So Sony -- confident of the superiority of its Trinitron TV picture tubes, for example -- missed the TV industry's move to LCDs and plasma displays. Sony sells such TVs, but the parts are generally made by others and Sony makes lower profit margins as a result. Sony completely missed the iPod revolution, too, and their PCs, while very nice, are not remarkable, nor do they create many synergistic sales of other Sony consumer electronics as Sony had hoped.

Meanwhile, Howard Stringer was running Sony's content business and turning it into a moneymaker. The genial Stringer was known in his previous positions as a poor operations guy but a good schmoozer. Certainly, he must have made some good hires to pull Sony's music and movie businesses up. When you talk about Stringer to people in Japan, the things they mention aren't what you'd expect. He's very tall, for example, and they like that. Stringer's wife is a surgeon and the Japanese really like that for some reason. But he isn't viewed as a visionary -- or wasn't until this week.

The seeds of Kutaragi's fall and Stringer's rise were sewn in January when Kutaragi publicly apologized for the "dilution" of Sony's engineering creativity and Stringer -- at the urging of Idei -- made a stirring speech to the company about how the best parts of Sony could be reintegrated, but only by cutting through the old technical bureaucracy and streamlining operations.

By being divisive, which had always served him so well, Kutaragi failed to make allies at the top of Sony's management. This meant his power was based solely on the increasingly reluctant support of Mr. Idei. All Idei had to do to take down Kutaragi was to let him run the company for awhile and then have Ogha retire, leaving Kutaragi friendless and powerless in a company that depends on consensus at the highest levels.

So this week, Mr. Idei and Mr. Ando (he who stood onstage with Steve Jobs at MacWorld) retired, Mr. Kutaragi gave up his vice-chairmanship, his seat on the Sony board, his presidency of Sony's home electronics and semiconductor operations and slinked back to running SCEI, where hopefully he'll light a fire under the PS3 group. And the big jobs now fall to Stringer, as CEO, and to Ryoji Chubashi, the new vice-chairman and an engineer.

Howard Stringer now has a couple years to turn Sony around. Certainly, the staid and stolid Sony engineering corps is shaken by his rise to power and that is good. Maybe he'll succeed.

But probably, he won't.

Inside Sony's highest levels Stringer is still seen as the guy running the content business while Mr. Chubashi will run electronics. I don't know Mr. Chubashi, but the vibes coming out of the company suggest that radical change is not in the wind.

So what will happen at Sony? I don't know, but here is my admittedly wild-ass guess. I think Sony will pull back from its content business even though that appears to be where the most growth and profits lie. We've seen this before. Remember when Zenith was a top name in PC manufacturing and sold Zenith Data Systems so it could put the money into a TV business that ultimately failed? Sony is at heart an electronics company, and the fact that none of its major competitors have content divisions will be seen as a sign from God.

Stringer will eventually leave, taking with him the content businesses and all the gaijin. The electronics business will go to Mr. Chubashi along with a huge pot of money to reduce Sony debt and make the company more competitive. That money will come from Disney, which will buy Stringer's Sony Media in Michael Eisner's last big deal. Stringer will then take over as Disney CEO, buying Pixar along the way. Somewhere in this I see the hand of Steve Jobs, too, only I can't figure out what role he'll play.

Maybe Moses.

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