What Idei Nobuyuki did for Sony

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Idei Nobuyuki, former director of Sony, died on June 2, 2022, at the age of 84. During his tenure as chairman, he oversaw the launch of the VAIO laptop computer and the AIBO robot, doubling the company’s sales. His masterful insight at the helm enabled him to foresee the advent of the internet before most others, but during his tenure, Japan’s electronics industry experienced huge swings in fortune.

Promote digital network business

Idei Nobuyuki was first hired by Sony in 1960. After leading the company’s audio division and advertising operations, he took over as chairman in 1995. Appointed by Ōga Norio, himself a protege of the co-founder of the he company of Ibuka Masaru, Idei took on the heavy responsibility of leading what had by then become a global company.

Idei introduced the terms “Re Generation” and “Digital Dream Kids” to replace the slogan “It’s a Sony”, and it adopted the concept of economic added value, which placed greater emphasis on investment as management index. EVA is obtained by subtracting capital costs from after-tax operating profit. It serves to monitor capital efficiency to ensure maximum profit from minimum assets, and it reveals signs of management performance that remain invisible when looking only at turnover. and net income. It was an indication that Idei, who had only a weak connection to the generation of the company’s founders, felt that Sony – a company that had grown accustomed to consistent success – was facing a crisis.

“The internet will have the same effect on the business world that a meteorite had on the dinosaurs: anyone unable to adapt will be wiped out.”

Idei wrote this in a petition submitted to then-President Ōga Norio advocating the need to adapt to the Internet after being stunned by US Vice President Al Gore’s 1993 statement advocating an “information highway “. At the time, Sony was still concentrating on manufacturing, thanks to its great successes with the walkman and the video camera. But former Sony executive and current CEO of Soramitsu Miyazawa Kazumasa, who developed the Sony VAIO line of personal computers under Idei, notes: “Idei’s warnings that the Internet will have a major impact on Sony were largely ignored within the company.

At the beginning of the personal computer in the 1980s, Idei had seen a failure with the HiTBiT personal computer compatible with the MSX architecture standard. On his fourth attempt, he launched the GI project shortly before Sony introduced its VAIO computer. The “G” stood for Andy Grove, CEO of Intel, and the “I” stood for Idei himself.

As Miyazawa reflects, “Idei came up with the idea that Sony should be involved in both personal computers and the Internet at that time.”

Idei then promoted Sony’s digital networking business through actions such as its November 1995 creation of Sony Network Communications, which ran the Internet provider So-net.

The EVA Curse

During Idei’s tenure, Apple founder Steve Jobs introduced the iPod in 2001 and turned iTunes into a viable commercial enterprise. In an instant, the iPod replaced the MiniDisc and the cassettes used by the Walkman. In a 2007 discussion with Microsoft founder Bill Gates, Jobs said, “If you zoom out and say, why does the iPod exist? Why is Apple successful in this industry? What is the answer? Because the Japanese [consumer electronics] the companies that were the major hardware manufacturers simply couldn’t make software as well as they needed to be.

As awareness of the impending crisis grew within the Sony Group, Andrew Lack, then CEO of Sony Music, visited the headquarters in Japan in 2003, showed them an iPod and described it as a “walkman killer” in an attempt to convince the company to integrate hardware and music streaming. But Sony was betting on exclusivity in the form of measures to prevent the copying of proprietary music content, which led to the crushing defeat of its hardware and music streaming businesses.

The EVA management index also led Sony into a trap of its own making. When the Japanese Ministry of Economy, Trade and Industry launched its “Japan Liquid Crystal Display” project designed to stimulate the development of the domestic LCD display industry, Sony went in a different direction and created an LCD joint venture with Samsung in South Korea. Subsequently, when Sharp faced a crisis due to its massive investments in LCDs, some praised Idei for its wise decision. However, considering the progress South Korea and China have made in the LCD industry through the use of incentives, it seems possible that if Sony had participated in the national project, the outcome might have been different. .

EVA may be one of the reasons why Sony has reduced its investment in LCDs. Although the EVA is an indicator for assessing short-term performance and easily adaptable to the financial accounts of companies, the net present value, which is an investment indicator offering a multi-year view, is considered the best index. better suited to investment decisions.

Also, at the time, Sony reflected each division’s compensation in its EVA calculations. Because the numbers improve if you limit investment, it could well be that Sony’s reliance on EVA as a benchmark has led it to cut back on all new investment, not just those in the LCD sector. This slowed the company’s innovation, which sparked a backlash within the company.

There are still companies that use EVA, and it’s certainly not a design error. In his book Mayoi in ketsudan (Decision and Indecision), which Idei published after leaving Sony, he devoted a page to “misunderstood EVA” and called criticism that it was “impossible to commit to long-term investments of “missing the point”.

In a statement on PlayStation, currently Sony’s flagship product, a Sony veteran who knows the pair said, “Idei was apathetic about it. Kutaragi Ken, who led its development, struggled as a result. Idei was revered as a charismatic business leader, but he was also described by an American business magazine as “the world’s worst manager”. The Sony veteran defends it, however, stating that “Idei was not responsible for everything. The subsequent presidents and administrators of the company who failed to understand his intentions also bear a great deal of responsibility. Idei had a love-hate relationship with praise and criticism from others, but his name would live on as an active business leader during the era when Japan’s electronics industry was at its peak.

(Originally published in Japanese. Banner photo: Idei Nobuyuki, former chairman of Sony and then managing director of Quantum Leaps, in Marunouchi, Tokyo. December 20, 2007. © Jiji.)

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