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Ex-Sony CEO Hirai on how he reinvented an electronics icon

Maverick leader ruffled feathers to propel founders' vision into new era

Kazuo Hirai, Sony's former CEO, helped engineer the company's renaissance. (Photo by Kosuke Imamura)

TOKYO -- Sony Group is regaining is luster, as seen in its first-ever net profit in excess of 1 trillion yen ($9 billion) in fiscal 2020 ended March this year.

Kazuo Hirai, Sony's former top executive, who currently serves as the company's chief adviser, gives a behind-the-scenes look at Sony's rejuvenation even as other Japanese electronics titans face an onslaught from Chinese, Taiwanese and South Korean rivals.

Less than a decade ago Sony, too, was on the ropes. When Hirai took over as president and CEO in April 2012, Sony had endured its fourth straight year in the red, incurring a record net loss of 456.6 billion yen ($4.1 billion at current exchange rates). Hirai faced serious doubts about his leadership skills from among people around him and powerful shareholders.

The skepticism stemmed from Hirai's career outside Sony's main electronics business. He joined CBS/Sony, now called Sony Music Entertainment, in 1984, spending more than a decade there.

A fluent English speaker thanks to his childhood education in the U.S. and Canada, Hirai first worked in the music side of the business before helping rebuild Sony's game subsidiary in the U.S., remaining in the game sector for many years.

Hirai only became involved in what was then Sony's primary electronics business when he was appointed executive deputy president in 2011, just a year before his promotion to the top post.

"I thought I had to do it. I had no option to turn down the position," Hirai recalled. He was thrust into overseeing the electronics operation as deputy president, "I thought there would be no chance. I was painfully aware that the electronics business was directionless," he said. "At that time, we were a doormat to South Korea's Samsung Electronics and LG Electronics. Our whole organization lacked confidence," Hirai said.

Sony was losing ground to Samsung and others in its TV business when Hirai took over. (Nikkei photo)

One day, as an employee made a presentation to executives on a new Sony TV model, Hirai was struck by the lack of can-do spirit. From the start, it seemed the company was just going through the motions -- rolling out a TV without any confidence that it could beat Samsung or its other competitors.

When Hirai took the helm at Sony, its TV business had been in the red for eight years running. The glory days when Sony introduced sets that wowed people around the world, such as a 5-inch micro TV and an early-model flat-screen TV, were long gone.

Hirai saw the dismal presentation as a reflection of Sony's recent habit of losing. To him, the electronics business was a symbol of a "fallen Sony."

But Hirai was not content to preside over Sony's decline. He earnestly listened to staffers to learn what was on their minds. "Employees, especially young ones, joined Sony with pride. Talking with them directly, I realized the company was simply not listening to them. Even if they had ideas, [their superiors] turned a deaf ear to them," Hirai said.

"The situation was critical. But viewed differently, there a was a huge magma of passion. I found that Sony was still valuable," he said.

Revamping the company's cherished electronics business was unavoidable if the group as a whole was to be rejuvenated. Hirai started by applying a scalpel in an unexpected place: He sold Sony's U.S. head office in New York, which was known for its unique design.

Although the sale was financially necessary, "sending a message to employees was more important," Hirai said. "The U.S. subsidiary absolutely opposed the sale, but I told them to immediately sell [the building] as a statement of my resolve." Sony's rise as a global brand tied directly to the success of its TV business in the U.S. The head office, with its prime Manhattan location, epitomized that success. In selling the property, Hirai announced that his restructuring drive would spare no sacred cows.

With that, Sony began far-reaching reforms, including the sale of its chemical, battery and personal computer businesses; the spinoff of the TV business; and the elimination of around 10,000 positions. While outsiders took these moves as a sign that Sony was rebounding, former employees, who took pride in the company's electronics business, were appalled.

When Sony announced that it was selling off its Vaio PC business, which had given Sony a formidable market presence, Hirai began receiving a series of written proposals from Tamotsu Iba, Sony's first chief financial officer, who had supported the company since the days of its founding by Masaru Ibuka and Akio Morita. Hirai deliberately ignored Iba's request to sit down and talk things over.

"In short, the proposals said: 'Things were better in the good old days,' or, 'It is unacceptable for management to make light of the electronics business.' There also was a proposal calling for the resignation of the [top] management, including me," Hirai said.

Hirai heard pleas from retirees for Sony to return to the days when the company was praised around the world for its electronics business. He had no intention of denying the achievements of Ibuka and Morita, who founded Sony with high ideals just five months after the end of World War II, drawing ambitious young people to their banner.

But "such calls now are no more than nostalgia," Hirai said emphatically. "We can no longer survive merely by sticking to the '[idea that] Sony produced the Walkman.'"

Hirai gives a speech at the CES technology show in Las Vegas in January 2018. (Nikkei photo)

In Hirai's six years at the helm, he slashed Sony's payroll to 117,300 from 162,700, nearly 30% of its employees. In talks to divest various operations, Hirai called on prospective buyers to keep workers on, at least for a while. Nevertheless, Hirai acknowledged that the reforms were "accompanied by pain."

Amid a flood of criticism that Hirai, a relative newcomer to the electronics business, could not serve effectively as president, he began to map out Sony's next phase of restructuring. He recognized that "Sony had no mission, value or vision whatsoever about what kind of a company it wanted to be." Its electronics, game, movie, music and other segments were disjointed and moving in their own directions. He thus considered it necessary to define "why we exist and how we should exist."

Believing the answers lay within the company itself, Hirai visited Sony's factories and research and development centers around the world, listening to what people had to say. He hit upon the Japanese word "kando," which means "deeply moved."

"I believed I could rephrase what people from the founders' era tried to achieve and evoke kando," Hirai said. Sony was founded with the aim of creating products that would make people say "Wow!" as mentioned by Ibuka in Sony's charter. The document called for the company to establish a factory that stressed freedom and open-mindedness, and where sincerely motivated engineers could take their technical skills to the highest level.

Hirai interpreted Sony's mission as becoming a "company that makes products imbued with kando."

Sony was founded in 1946 under the leadership of Akio Moritatwo, left, and Masaru Ibuka. (Photo courtesy of Sony)

Some 20 years have passed since consumer electronics came into wide use. In the intervening years, gadget makers around the world, including Sony, have been caught in a wave of commoditization. Making products imbued with kando would require setting the company's products apart from the crowd. In the TV business, for example, Sony dropped its target of selling 40 million sets a year. Eliciting a deep emotional response from consumers meant pursuing quality over quantity.

Four years into his reform drive, Hirai stepped down as president and CEO, handing the reins in April 2018 to Kenichiro Yoshida, who previously headed Sony Network Communications and served as CFO at Sony. Like Hirai, Yoshida rose through the ranks outside the electronics division.

Yoshida is said to have told Hirai on taking the job: "I won't be a yes-man, but will say what I should say."

"That's what I want," Hirai replied.

Hirai's philosophy of management is to "solicit opinions different from mine," Hirai says. "You should find people with opinions different from yours and let them have their say."

Hirai was used to being challenged from a very young age. When his father's work brought him to New York, Hirai found himself in Queens as a first grader. He spent boyhood moving back and forth between Tokyo, Toronto and San Francisco every few years.

"It was the 1960s and '70s, and back then I was called a 'Jap' to my face," Hirai recalled. On returning to Japan, he was bewildered by teachers who chided him for raising even small questions, saying, "This is Japan, not America."

Hirai, left, stepped down as president and CEO of Sony in 2018, handing the reins to Kenichiro Yoshida. (Photo by Keiichiro Sato)

"Wherever I was, I had to recognize that I was a minority," Hirai said. That experience shaped Hirai's views on management, on the need to harness diversity as a source of strength.

After stepping down as CEO, Hirai became chairman of Sony. Just a year later, in 2019, he resigned and left the company.

Three years on, his successor has continued down the path set by Hirai. Setting out to create a "kando-infused value chain" consisting of Sony's products and services, Yoshida is trying to create a business model that organically connects electronics, movies, music, games and Sony's other businesses to each other. He has even announced an ambitious plan to expand the "community of interest of delivering the spirit of kando" to 1 billion people.

Asked for his thoughts on the company he helped transform, Hirai is reticent. "I am capable of managing a company effectively when it is in trouble. There are people better at mapping out growth strategies. I have retreated from the world of business and will never return."

With those words, the reformer who started out in a Sony backwater has departed from the forefront of business as one might expect -- on his own terms.

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