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As Sony struggles, many see cautionary tale for Japan

Sony, whose Walkman music players once epitomized Japanese innovation, hasn't turned a profit since 2008. Many worry Sony represents a bigger problem with rigidity in Japan.

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While Sony dabbled in nontraditional areas from financial services to chemicals, its rivals in Asia have played to their innovative strengths.

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Samsung is now the world leader in high-end TVs; and despite its history, Sony has not come close to producing a music player to rival the iPod – the legacy of infighting between Sony engineers and developers under Howard Stringer, the former president of Sony.

The task of reviving Sony's fortunes now falls to Kazuo Hirai, who replaced Mr. Stringer as president recently.

Mr. Hirai speaks with conviction about the need for Sony to change its ways. He has vowed to offload unprofitable non-core sectors, although he is adamant that the loss-making TV business – which he describes as part of the company's DNA – will stay. 

Saito, like many others, identifies the in-house rivalry among Sony engineers as the cause of a breakdown in communication, which ultimately stifled creativity. But he says Sony is not the only Japanese company resisting new ways of thinking behind product development.

"The Japanese are very intelligent as individuals, but as a collective they become incompetent," he argues, adding that one solution would be to allow a greater diversity of people from different disciplines, including those from outside, to work through problems together. "The Japanese companies that are growing have founders who embrace that diversity and are not looking at Japan as a market," he says. 

Risk averse culture

Japan needs to address its risk-averse corporate culture, Saito says. "For innovation work, you need crazy thinkers to turn ideas into something. That entails a certain level of risk, but it has to be managed intelligently. Japan needs to redefine words like failure, which has very negative connotations here. Sometimes you have to allow failure to happen."

Japan may also have been hindered by a strong focus on hardware. Compare Sony's attempts to offer a unified, comprehensible, platform that marries its devices to software and Apple's formidable iPod-iTunes combination.

Hirai, who led Sony's successful gaming business, says the firm would concentrate on games, cameras, camcorders, smart phones, and tablet PCs. Yuji Fujimori, an analyst at Barclays Capital, believes Hirai is sincere about making changes.

"Good managers are people who work hard to improve the company, not come up with good products," Mr. Fujimori says. "In a huge company like Sony, it's very unlikely that the management themselves come up with the good products, Rather, the president's role is to do business. Once Hirai knows what he wants to do, I think he will act very quickly." 

It is not as if Hirai is without a canvas on which to create that new vision. Sony's PlayStation hardware and software has brought the company profits. Its technological prowess, too, can sometimes be forgotten in the media preoccupation with the bottom line. And Sony aims to return to profit by March 2013 on the sales of smart phones and tablets.

"Sony makes the thinnest smart phone in the world. It has good display and image-processing technology, and good camera technology," says Fujimori. "It now has plenty of elements with which it can differentiate itself from its competitors."

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