Thursday, April 07, 2005

Sony's Pride before the Fall: A Failure of Collaborative Innovation

James Surowiecki's latest financial column in The New Yorker magazine covers the decline of Sony since the heady days of the Walkman. Surowiecki explains that Sony's problem is "not invented here" syndrome. Being too proud to recognize valuable innovation outside its own ranks has crippled Sony's ability to keep up. Meanwhile Sony's competitors, less hesitant to give up control and try joint ventures, are thriving.

See "All Together Now."

12 comments:

Anonymous said...

In 1979, Masaru Ibuka, the co-founder of Sony, asked the company’s engineers to make him a portable stereo cassette player that he could take on a plane. Within a few days, the engineers had delivered a prototype. The headphones were gigantic, and the device required special batteries, but it worked, and when Akio Morita, Sony’s C.E.O., saw it, he realized that this was more than a gimmick—it had the potential to change the way people listened to music. In a matter of months, Sony launched the Walkman, one of the most successful products in history, and the story came to epitomize what made the company great: innovation instead of imitation, a dedication to big ideas, and a willingness to pursue its obsessions no matter what others thought.

A quarter century later, Sony is still pursuing its own obsessions, but it hasn’t produced anything like the Walkman for a long time. Today, Sony is known for floundering into new markets, not for creating them. Its televisions, music players, and portable devices—the old mainstays—no longer lead the pack, high price tags notwithstanding. Its profits have shrunk, and its stock price is a third of what it was five years ago. Last month, the company replaced its C.E.O. with Howard Stringer, the head of its entertainment business, who’s neither an engineer nor Japanese. The old ways, apparently, will no longer do.

Companies often become victims of their own mythologies. Sony’s track record of game-changing inventions—the transistor radio, the Walkman, the Trinitron—led it to believe that success lay in self-sufficiency and absolute control. Sony’s ideal future was one in which just about everything—TVs, DVD players, cameras, computers, stereos, handhelds, digital songs—bore the Sony brand. The company became an exemplar of what’s sometimes called the “Not Invented Here” syndrome: if it wasn’t invented at Sony, the company wanted nothing to do with it.

“Not Invented Here” is an old problem at Sony. The Betamax video tape recorder failed in part because the company refused to coƶperate with other companies. But in recent years the problem got worse. Sony was late in making flat-screen TVs and DVD recorders, because its engineers believed that, even though customers loved these devices, the available technologies were not up to Sony’s standards. Sony’s cameras and computers weren’t compatible with the most popular form of memory, because Sony wanted people to use its overpriced Memory Sticks. Sony’s online music service sold files in a Sony-only format. And Sony’s digital music players didn’t play MP3s, which is a big reason that the iPod became the Walkman’s true successor. Again and again, Sony’s desire to control everything kept it from controlling anything.

To be fair, “Not Invented Here” has an excellent pedigree. For much of the twentieth century, innovation was dominated by big corporations—G.E., Dupont, I.B.M., A.T. & T.—which had gleaming research laboratories and armies of engineers who churned out world-altering creations. But that era is gone. Although successful companies still invest heavily in research and development, they increasingly collaborate with and borrow from others. R. & D. budgets have shrunk at many big companies (which now routinely form R. & D. alliances), and small companies have picked up the slack. Firms that were once exemplars of going it alone have dedicated themselves to playing well with others. Procter & Gamble now gets more than thirty per cent of its innovations from outside. Pharmaceutical companies rely more and more on partnerships with small biotechs to come up with new drugs. Intel, looking for new ideas, invests hundreds of millions of dollars a year in venture capital. I.B.M. has made “strategic alliances” a cornerstone of its business. Even Apple Computer—once the most imperially self-reliant of companies—has changed. Steve Jobs used to fantasize about controlling everything down to the sand in Apple’s computer chips. Today, Apple works contentedly with companies like Motorola and Hewlett-Packard.

The trend, in other words, is toward what Henry Chesbrough, a business professor at Berkeley, has dubbed “open innovation.” With so many companies investing so much money and energy in innovation, it’s hard for any one of them to consistently outsmart the rest. And technologies are so complex that it’s impractical for a company to gather all the resources it needs under one roof. The spirit of collaboration extends to customers, too. In the new book “Democratizing Innovation,” Eric von Hippel, a management professor at M.I.T., shows that, in fields ranging from surgical instruments and software to kite surfing, customers often come up with new products or new ways of using old ones. Some companies encourage their customers to modify their merchandise. Others, however, do not: when a devoted user of the Aibo, Sony’s robot dog, wrote applications that would allow the Aibo to dance to music, Sony threatened the man with a lawsuit.

Ultimately, Sony doesn’t have much choice: it will either change or continue to come up short. Companies are a little like nations. In an era of globalization, a healthy economy relies on a steady flow of ideas, resources, and capital from outside. So it goes for a big company, in an era of open innovation. Sony should know. While its mythology is all about self-reliance, its history is full of acquisition, collaboration, and partnership. The transistor radio, the color TV, the compact disk: Sony didn’t invent any of these on its own. But it did figure out how to make billions of dollars selling them. If Howard Stringer wants to put Sony right, he should take a hard look at that dancing dog.

—James Surowiecki

Anonymous said...

In 1979, Masaru Ibuka, the co-founder of Sony, asked the company’s engineers to make him a portable stereo cassette player that he could take on a plane. Within a few days, the engineers had delivered a prototype. The headphones were gigantic, and the device required special batteries, but it worked, and when Akio Morita, Sony’s C.E.O., saw it, he realized that this was more than a gimmick—it had the potential to change the way people listened to music. In a matter of months, Sony launched the Walkman, one of the most successful products in history, and the story came to epitomize what made the company great: innovation instead of imitation, a dedication to big ideas, and a willingness to pursue its obsessions no matter what others thought.

A quarter century later, Sony is still pursuing its own obsessions, but it hasn’t produced anything like the Walkman for a long time. Today, Sony is known for floundering into new markets, not for creating them. Its televisions, music players, and portable devices—the old mainstays—no longer lead the pack, high price tags notwithstanding. Its profits have shrunk, and its stock price is a third of what it was five years ago. Last month, the company replaced its C.E.O. with Howard Stringer, the head of its entertainment business, who’s neither an engineer nor Japanese. The old ways, apparently, will no longer do.

Companies often become victims of their own mythologies. Sony’s track record of game-changing inventions—the transistor radio, the Walkman, the Trinitron—led it to believe that success lay in self-sufficiency and absolute control. Sony’s ideal future was one in which just about everything—TVs, DVD players, cameras, computers, stereos, handhelds, digital songs—bore the Sony brand. The company became an exemplar of what’s sometimes called the “Not Invented Here” syndrome: if it wasn’t invented at Sony, the company wanted nothing to do with it.

“Not Invented Here” is an old problem at Sony. The Betamax video tape recorder failed in part because the company refused to coƶperate with other companies. But in recent years the problem got worse. Sony was late in making flat-screen TVs and DVD recorders, because its engineers believed that, even though customers loved these devices, the available technologies were not up to Sony’s standards. Sony’s cameras and computers weren’t compatible with the most popular form of memory, because Sony wanted people to use its overpriced Memory Sticks. Sony’s online music service sold files in a Sony-only format. And Sony’s digital music players didn’t play MP3s, which is a big reason that the iPod became the Walkman’s true successor. Again and again, Sony’s desire to control everything kept it from controlling anything.

To be fair, “Not Invented Here” has an excellent pedigree. For much of the twentieth century, innovation was dominated by big corporations—G.E., Dupont, I.B.M., A.T. & T.—which had gleaming research laboratories and armies of engineers who churned out world-altering creations. But that era is gone. Although successful companies still invest heavily in research and development, they increasingly collaborate with and borrow from others. R. & D. budgets have shrunk at many big companies (which now routinely form R. & D. alliances), and small companies have picked up the slack. Firms that were once exemplars of going it alone have dedicated themselves to playing well with others. Procter & Gamble now gets more than thirty per cent of its innovations from outside. Pharmaceutical companies rely more and more on partnerships with small biotechs to come up with new drugs. Intel, looking for new ideas, invests hundreds of millions of dollars a year in venture capital. I.B.M. has made “strategic alliances” a cornerstone of its business. Even Apple Computer—once the most imperially self-reliant of companies—has changed. Steve Jobs used to fantasize about controlling everything down to the sand in Apple’s computer chips. Today, Apple works contentedly with companies like Motorola and Hewlett-Packard.

The trend, in other words, is toward what Henry Chesbrough, a business professor at Berkeley, has dubbed “open innovation.” With so many companies investing so much money and energy in innovation, it’s hard for any one of them to consistently outsmart the rest. And technologies are so complex that it’s impractical for a company to gather all the resources it needs under one roof. The spirit of collaboration extends to customers, too. In the new book “Democratizing Innovation,” Eric von Hippel, a management professor at M.I.T., shows that, in fields ranging from surgical instruments and software to kite surfing, customers often come up with new products or new ways of using old ones. Some companies encourage their customers to modify their merchandise. Others, however, do not: when a devoted user of the Aibo, Sony’s robot dog, wrote applications that would allow the Aibo to dance to music, Sony threatened the man with a lawsuit.

Ultimately, Sony doesn’t have much choice: it will either change or continue to come up short. Companies are a little like nations. In an era of globalization, a healthy economy relies on a steady flow of ideas, resources, and capital from outside. So it goes for a big company, in an era of open innovation. Sony should know. While its mythology is all about self-reliance, its history is full of acquisition, collaboration, and partnership. The transistor radio, the color TV, the compact disk: Sony didn’t invent any of these on its own. But it did figure out how to make billions of dollars selling them. If Howard Stringer wants to put Sony right, he should take a hard look at that dancing dog.

—James Surowiecki

tweedledeetweedledum said...

This blog is awesome! If you get a chance you may want to visit this asset management software site, it's pretty awesome too!

Dream Builder said...

Regards,

Don

P.S. I have a in lead lead lead leads.com mlm opt phone responsive surveyed verified site. It pretty much covers in lead lead lead leads.com mlm opt phone responsive surveyed verified related stuff.

Check it out if you get time :-)

Steve Austin said...

I like yuor blog. Please check out my newfoundland dog blog.

TS said...

Nice Blog!!!   I thought I'd tell you about a site that will let give you places where
you can make extra cash! I made over $800 last month. Not bad for not doing much. Just put in your
zip code and up will pop up a list of places that are available. I live in a small area and found quite
a few. MAKE MONEY NOW

jon said...

We are trying to find good internet movie database to take the kids this weekend. Good internet movie database reviews are hard to find

I just stumbled onto your blog while looking. Seems to happen to me a lot since I am a knowledge mooch LOL

Thanks

PolarTrader said...

Great Blog! I wanted to share this with you. Are you tired of the Internet Marketing Rat Race? auction aus business home online

Check this out when you have time :-)
-----------------------------------------------------------------------------------------------------------

Anonymous said...

Great Blog, check out this business. This is the Goose that lays you Golden Eggs! business home income more start

Enjoy!

Anonymous said...

Help! I am lost. I was searching for computer programming and somehow ended up here. How that happened I don't know, however I do like your Blog a lot. Would you mind if I add your Blog to my favorites page so others can visit?

Clickbank Mall said...

Shop online at boots.com. Baby

bill naka said...

Just thought i would say hi from Japan. Doing some blog surfing and found your site. Im looking for some cool styles of guest book for my own blog. Theres some really amazing blogs about. if you have time check out my site you will find information on guest book. Well when i get my blog running hope you come and check it out.