Can Sony Rise Again?

One of Howard Stringer’s greatest strengths, say those who know him, is his ability to thrive in alien, even potentially inhospitable cultures. Welcome to Tokyo, Sir Howard. You will need every ounce of your intercultural sensitivity to thrive in your new post, CEO of Japan’s struggling Sony Corp. During a capacity-crowd press conference last week in Tokyo, outgoing Sony CEO Nobuyuki Idei, 67, announced that he was voluntarily stepping down after almost five years and that Stringer, 63, rather than one of a number of oft mentioned Japanese heirs apparent, was replacing him.

The announcement hit Japan like an earthquake. Stringer may not be the first Westerner to take the helm of a major Japanese company, but his ascension trumps Carlos Ghosn’s 1999 appointment to the executive suite of Nissan Motors in significant ways. First, unlike Nissan, Sony is not just one of many world-class Japanese companies; it is the quintessential Japanese company, linked to the nation’s identity as the very embodiment of the country’s postwar economic miracle. Second, Renault, which owns 44% of Nissan, forced Ghosn upon Japan’s second largest automaker, whereas Sony willingly sought Stringer’s assistance.

The company that once had a magic touch–creating the Walkman, Trinitron TV and PlayStation, among other breakthrough products–has run adrift in an age of increasing competition and digital convergence. Its core electronics business, which accounts for more than 60% of revenues (but lost $339 million last year), has been beset by successful competitors, ranging from Sharp televisions to Kodak digital cameras, in virtually all its product lines. Most humiliating: Sony lost its leadership in portable music players by failing to capitalize on the popularity of MP3 files–a gap that Apple’s iPod has exploited masterfully. The company has been in turmoil ever since April 2003’s “Sony shock,” when it announced drastically lower sales and earnings. Its stock has dropped 66% over the past five years.

During the assault on Sony’s core business, however, Stringer’s operations in the U.S. became one of the company’s few bright spots. He cut costs while completing the acquisition of MGM Pictures and a joint venture with Bertelsmann Music Group. He also presided over Sony Pictures’ rebound, thanks to its new blockbuster Spider-Man franchise. Last year the division kicked in 40% of the company’s operating profits.

Stringer will be asked to export that leaner, meaner strategy to Japanno easy task. One knock is that in a company dominated by engineers, he isn’t an engineer. “I’m not a musician, yet I manage a music company,” he counters. “I’m not an actor, and I manage Hollywood.” His goal: to concentrate on products, not process, which has choked innovation at Sony. “We have to find a way to streamline the place,” he says, “to focus on engineers and products and get out of the way.” But he also has to rid the company of its infamous politics and divisional fiefdoms, where content units have clashed spectacularly with hardware departments over compatibility, copyright and distribution issues. “You have to break down the silo walls that helped iTunes clean our clock,” he says. “You’ve got to collect people who buy into change, and if they don’t, you have to move them.”

He hints that there might be some drastic cost cutting to come. “The experience we had transforming the U.S. is not unhelpful,” he says. “We don’t have a lot of [overhead] here in the U.S. Across America, we cut 9,000 jobs and $700 million out of the budget. That’s the blueprint.”

Stringer is well aware that his challenge is partly cultural, but he points out that Japanese managers were instrumental in Sony’s U.S. overhaul. He plans to tap that well again, using his cross-cultural savvy to solidify supporters and woo doubters. “The Japanese executives’ concern about Sony is palpable,” he says. “They are not rooting for me to fail. Our pride has been battered, and it’s time to fight back–and I don’t intend to do that alone.” –With reporting by Jamie Miyazaki and Michiko Toyama/ Tokyo and Bill Saporito/New York