The Lessons For Sony At Samsung

Among them: Listen to customers, partner closely, and move at warp speed

When Sony Corp. (SNE ) CEO Howard Stringer unveiled a major restructuring in Tokyo on Sept. 22, the market yawned. Sure, Sony will cut 10,000 employees, shutter factories, and reshuffle management in an effort to get its famously fractious divisions to work together. But nowhere did analysts see much proof that Stringer is tackling the most urgent task: reforming Sony's engineering-driven culture to create gadgets that customers actually want.

And if Stringer & Co. needed a reminder that Sony must change fast, they got it five days later. On Sept. 27, Intel Corp. (INTC ) and Microsoft Corp. (MSFT ) threw their support behind a next-generation DVD format from Toshiba (TOSBF ) called HD DVD -- thus delivering a blow to Sony's Blu-ray technology, widely considered technologically superior. Addressing Sony's myriad challenges, Stringer told BusinessWeek: "It's urgent we rectify this situation."

As he looks for inspiration, Stringer might consider taking a page from Samsung Electronics Co. Yes, the two companies have vastly different portfolios, with Samsung earning most of its profits from chips and Sony owning music and movie studios. And it's true that Samsung remade itself only after a near-death experience, following the Asian financial crisis in the late '90s. Still, the Korean company has taken many of the steps that analysts believe Sony needs to take, ranging from collaborating more with partners to doing a better job taking its cues from the market. In doing so, it has become one of the nimblest players in the business. "When Samsung wants to get something done," says Intel Executive Vice-President Sean M. Maloney, "the decision comes down from the top, and everybody moves at lightning-quick speed to just do it."


What Samsung has done isn't rocket science -- more like Business 101. For example, the company routinely dispatches designers and engineers to labs in New Jersey, Seoul, and other places to gauge consumers' tastes for new products. Thanks to such research, Samsung was one of the first to pack digital cameras and music players into cell phones, creating instant hits.

Doesn't Sony do similar studies? Of course. Yet, with its gearhead culture, Sony continues to act like the great brand of yore, believing it can dream up products behind closed doors and unleash them on a grateful market at premium prices. This helps explain why Sony stuck with its Trinitron televisions long after flat-panel TVs had won the day. Moreover, Sony has a bias toward its home market. That's why its gadgets often feature complex software that Japanese love but that drives Americans crazy.

Samsung's top managers also come down hard on their units to make sure they're working together to come up with new products. Again, sounds pretty basic -- but over at Sony, factionalism still rules the day. The company's music, movie, and gadget businesses have conflicting agendas and often balk at cooperating. In one famous example, Sony's music division, fearing piracy, kept the consumer electronics side from making digital-music players that would let consumers play the popular MP3 format. Hello iPod; goodbye Walkman.

The last thing Sony can afford to do is miss out on the emerging portable video-player market. Yet once again, Sony's content guys are making sure that consumers can play only pricey Sony-formatted disks on its PlayStation Portable. To win in this business, say analysts, Stringer will have to overcome the qualms of the content side and open Sony's players to other formats.


Another knock against Sony: It doesn't play well with other industry titans. Samsung has no such qualms. Last February, chip chief Hwang Chang Gyu went to see Steven P. Jobs to try to get him to use the company's flash memory chips in Apple's (AAPL ) music players. Jobs wasn't interested at first, but Hwang kept pressing him and eventually Jobs saw the potential. Bingo: The iPod nano was born, and Samsung won a big order for flash chips. How could Sony mimic this approach? By licensing designs or technology, such as its cell chip, to others.

Matching Samsung's nimbleness will require a cultural revolution inside Sony. That won't be easy. Samsung's flirtation with collapse let CEO Yun Jong Yung crack the whip. But insiders say there is no sense of real crisis at Sony, although Stringer has made some moves. On Sept. 14 he named Andrew House, who ran marketing for Sony's PlayStation unit, to oversee global branding. That could help tie the content and hardware properties together by offering free hit movies and music with purchases of everything from PCs to cellular phones. "Nearly every device will come with content," Stringer says. And in a symbolic gesture, he operates from the sixth floor at Tokyo headquarters, where Sony's strategic planners reside, instead of the eighth floor digs of past CEOs.

A little more than three months into the job, Stringer says he has a clear understanding of what ails Sony. Now the market is looking for the kind of tough love that turned Samsung into a formidable competitor.

By Cliff Edwards in San Mateo, Calif., with Tom Lowry in New York, Moon Ihlwan in Seoul, and Kenji Hall in Tokyo

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