Sony makes dramatic management shake-up

The top two executives of Sony Corp. are being replaced in a dramatic management overhaul that comes as the Tokyo company struggles to retain its leadership during the shift from analog to digital consumer electronics.

The shake-up will see Nobuyuki Idei, Sony’s chairman and group chief executive officer (CEO), replaced by Howard Stringer, who is currently chairman and CEO of Sony Corp. of America, Sony announced Monday. Kunitake Ando, Sony’s president, will be replaced by Ryoji Chubachi, currently executive deputy president and chief operating officer for electronic components and manufacturing. Ando was seen on stage during Apple CEO Steve Jobs’ keynote address at Macworld Expo in January.

The appointment of Stringer, who is also a Sony vice chairman and COO for entertainment, will mark the first time that a foreigner has taken the helm at Sony, which last year saw 70 percent of its sales and operating revenue come from outside of Japan. He will work from New York and Tokyo and retain his entertainment and U.S. responsibilities.

Both appointments are pending approval at the company’s annual shareholder meeting on June 22, but the management transition will begin immediately assuming that approval will be forthcoming, the company said.

Greater competition in the digital consumer electronics market has caused problems for Sony. In an age where almost all stages of product design, development and production can be contracted out, and where most companies rely on the same components to build products, Sony has had a tough time justifying to consumers the price premium that its products typically carry. It has also been dragged into price competition that has eroded profits.

“The world is simply not the same place it was a few years ago,” Stringer said at Tokyo news conference Monday. “The needs and expectations of our customers have changed. The dynamics of the competitive landscape have changed. The pace of innovation across all the businesses in which we compete have changed. So Sony too must change.”

Idei kicked off his own group-wide reorganization plan in late 2003 and it continues today. The plan, dubbed TR60 in recognition of Sony’s 60th anniversary in 2006, has the main goal of boosting Sony’s profit margins to at least 10 percent in its fiscal year ending March 2007.

“With the rapid changes in the environment, electronics performance has not reached the TR60 target yet,” Idei said Monday. “It is regrettable, but we’ve sown enough seeds for the reform and change of Sony.”

The TR60 plan was devised after Sony surprised analysts in April 2003 by reporting annual earnings that were well below its own estimates. That announcement, dubbed the “Sony shock” in Japan, led to a sharp fall in the company’s stock and contributed to a decline in the benchmark Nikkei 225 stock index to its lowest level since 1982.

In January this year Sony said it would fail to meet its earnings estimates for a second year in a row.

The TR60 profit goal is unlikely to be reached this year, Stringer said Monday. And while he didn’t lay out any specific plans for Sony, he made clear that change is on the table.

“Our businesses must be restructured so that they are much more profitable and so that they can grow,” he said. The new management team will work on a plan to accelerate change at the company and “will not hesitate to make tough decisions to make Sony the strongest electronics, entertainment and technology company it can be,” he said.

Monday’s shake-up also included the resignation from Sony’s board of directors of Ken Kutaragi, president and group CEO of Sony Computer Entertainment Inc., the company responsible for the PlayStation, and COO for Sony’s home electronics and semiconductor businesses.

Kutaragi will continue to head Sony’s games business but will step-down from the other positions. Seen as something of a maverick inside Sony, he and had long been viewed as Idei’s successor.

Asked about Kutaragi’s apparent demotion, Stringer was quick to praise him and the importance of the PlayStation to Sony, while Idei was coy about why Chubachi was chosen over Kutaragi as Sony president.

“A good feature of Dr. Chubachi is that he’s a good listener,” said Idei.

In the last few months senior managers including Idei have talked about a new emphasis that Sony will put on developing technologies unique to the company. The plan is to give Sony an edge over its competitors in a similar way that technologies such as its Trinitron screens helped it in the analog market. There are already some early examples of such technologies, including its SXRD (Silicon Crystal Reflective Display) micro-display for projection televisions and its Cell microprocessor, which is being developed with IBM Corp. and Toshiba Corp.