nakamura on strucutre and decision making

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Academy ol Management Executive, 1999, Vol. 13, No, 4

Sony's Yoshihide Nakamura onstructure and decision makingInterview by PaulW. Beamish

Executive OverviewIn May 1946, Masaru Ibuka and Akio Morita founded Tokyo TelecommunicationsEngineering Company. The name was changed to Sony Corporation in 19S8, a namederived from the Latin word sonus, or sound, and the English sonny, a young man. Sonydeveloped the world's first transistor radio in 13S5. It was followed by such revolutionaryproducts as the Trinitron color TV (1968), Walkman (1373). compact disc player (1382),Betacam for broadcast use (1982), floppy disk (1383). Handycam (1985) and the Playstation(1934). Today . Sony is a leading man ufacturer of audio, video, commun ications andinformation technology products for the consum er and professional markets. Its m usic,pictures, and computer entertainment operations make Sony one of the mostcom prehensive entertainment com panies in the world. More than 100 million units of theWalkman have been sold in the U.S. alone. Sony employs 170,000 people worldwide. Forthe fiscal year ended March 31, 1999, sales and operating revenue were US $56.6 billion.

Yoshihide N akamura is deputy president of Sony's Core Technology and NetworkCompa ny, which has $8 billion in annual sales and employs 35.000 people worldwide.The com pany is one of Sony's three division com panies, which resu lted from the merge rof 10 divisional comp anies in April 1333. Mr. Nakamura joined Sony Corporation in 1368after gradua ting from law school. He worked in the legal and intellectual property areafor 29 years. In April 1397, he was transferred to one of Sony Corpo ration's 10 divisionalcompanies, the Com puter Peripheral and Components company, as a senior VP. and wasnam ed p resident of this comp any a year later.

How did you decide to work for Sony?It was a small company then and it was a nice size.It 's funny, but I w as in the U nited S tate s in 1961-63,going to school in Georgia. At that t ime there wereno Japanese products to talk about , but when Iwen t to New York, J saw a Ja pa ne se flag on FifthAven ue. This wa s the first t ime I ha d se en a Japa-ne se flag in one and a half y ears . I w as so moved,and thought, "Who in the world would put this flagon Fifth Avenue?" It was the Sony showroom and Iw as very impre ssed . I thought th at this is a com-pany that will probably be quite influential in thefuture and I would like to work for it. So I went toapp ly at Sony. There w as qu ite a competit ion to getinto Sony, but I told Mr. Akio Morita, one of ourfounders, the story about how im pressed J w as bythe Japanese flag on Fifth Avenue. And he said,"Oh, did you see that?" He too was impressed. So Iwas able to sort of sneak into Sony.

You worked in the intellectual property field for29 years, where you dealt with patenting issu es.How important are patenting issues for Sony?Extremely important, because Sony is one of thevery few companies that real ly has a great deal ofrespect for patents and intellectual property, notonly of others but also ours. Sony started in 1946,right after the war. The first thing Sony tried tomake was a rice cooker, but i t didn't work well .This cooker only made porridge that was too dry.The product was a miserable fai lure. But the lateMr. Masaru Ibuka, our other Sony founder, wantedto make something useful to people. The secondi tem he began to make was a tape recorder .

At that t ime, a so-called wire recorder alreadyexisted, but i t was not a practical machine. Intrying to make the tape recorder, the first thing Mr.Ibuka did was to obtain a patent l icense from Pro-fessor Nagai, who is known as an inventor of mag-netic recording. The price Sony paid to acquire this


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Yoshihide Nakamurapatent was much more than its initial capital in-vestmen t . So al thoug h Sony was a very small com-pany at that t ime, with an initial capital of $500,and 20 or 30 em ploy ees, the thing our two foundersdid was to give intellectual protection to a technol-ogy. In order to get into business, you have to havea technology and a patent, that 's the Sony philos-ophy.Mr. Ibuka and Mr.Morita are also known asinventors. When hewas young, Mr. Morita wouldgo to the patent office to search prior patents per-sona lly. So from e arly on, Sony ha s bee n on e of th every few companies which has a grea t dea l ofrespect for intellectual property. I think we cur-rently own more than 30,000 patents.The company restructured inApril 1999. Couldyou tell uswhy?Our top management fel t that to prepare the com-pany for the digital network era of the 21st century,it was important to have the most appropriate or-ganizat ional s t ructure in place. That was the corereason why we created our new structure. Sony isa large company now. Our worldwide consol i -da ted sa les are over $56 billion, with 170,000 em-ployees, but in spirit we a l w ays try to be a smal lventure company. We w ant to maintain this . Sowh en Mr. Nobuyuki Idei becam e president inApril

1995, he g a v e us two slogans: "Regenerat ion" and"Digital Dream Kids." That 's the spirit of be i ngsmall and going back towhen westarted Sony in1946. So we want to make Sony smaller. Instead ofhavin g this huge corporation, he wants to organizeSony into four divisional companies so that a smal lventure capi tal spir i t can be brought into manage-ment .Can you describe the new organizationalstructure and its principal areas?The first of the three pr inc ipa l a reas is the HomeNetworking Company, the second is the Personaand Information Technology Network Companyand the third is the Core Technology and NetworkCompany. The third one is the one I belong to andserve as deputy president . There is one addi t ionacompany, Sony Computer Enter tainment , whichhas only one product, PlayStation.

Instead o/ having this huge corporation,he wants to organize Sony into fourdivisional companies so that a smallventure capital spirit can he hrought intomanagement.

In the last few years the economy in the AsiaPacific region was on a downturn,, at least insome countries. Certainly within Japan, theeconomy has not enjoyed the same growth that ithad inthe 1980s and earlier in the 1990s. Howhas Sony responded?Your descrip tion of the s tate of the Asian economyand the Japanese economy is general ly correctYou recall there used to be the expression JapanInc., todescribe a very homog eneous and uniformoperat ion of an entire industry. Under such an operat ion, if things go well everybody prospers inJapan, but if anything goes wrong then everybodysuffers. That is no longer t rue. Winners win anlosers lose, so it has become qui te obvious in manyindustr ies in Japan that anybody who is creat ivand innovat ive can real ly make money, and anyone who has maintained the s tatus quo and is noreally creative, is losing ground and even goingbankrupt .Even a big bank or securi ty company can gobankrupt , but if a smal l company is very innovative, it canmake money. Fortunately, our sales inJapan are very successful because our new products are qui te unique . For example , when wel aunched our flat CRT TVs, known as the WEGA


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14 Academy oi Management Executive Novemberseries , these products sold extremely well. So ifyou're creative, you can still make money. Today,there is a clear difference between winners andlosers. It's not Japan, Inc. any longer.Today, there is a ciear differencebetween winners and losers. It's notJapan, Inc. any longer.

Where are your 170,000 employees located?I would say roughly 30 percent are in North Amer-ica, 30 percent in Japan, 25 percent in Europe andthe o ther 15 perce nt in the rest of the world. Formanufacturing, our basic policy is to make a prod-uct where it is sold. In the United States, for in-stance, most of the products sold there are manu-factured there.

Sony obviously depends on creativity for much ofits success. What portion of your annual budgetis devoted to research and development?Typically our R&D budget is between 6 and 7 per-cent of our total annual revenue.

With some companies in Japan not being asinnovative and therefore not being as successfulas they perhaps were in the past, does thispresent opportunities for Sony to make anyacquisitions in Japan?Well, acquisitions are not always in our interest,beca use Sony ha s its own culture. Anybody who isacquired by us may not be happy with our culturebecause it is a unique blend of Eastern and West-ern cultures. When we acquired CBS Records andColumbia Pictures several years ago, we had adifficult time because we didn't really understandeach other well. We are getting along fine now, butit took us some time to become accustomed to oneanother.

Perhaps you could talk about the culture thatexists within Sony. Is it a typical Japanesecorporate culture, or in what ways might it beunique?Well, I haven 't worked for any other company ou tsideof Sony. This is the only company and corporateculture I know. But Sony's culture is a mix of veryJapanese thinking and not very Japanese thinking. Ina sense we are very free. We are not forced to doanything a s long as w e are doing a good job. Youreally have freedom in Sony. If you're innovative, youare given new opportunities. Some people who maynot really be suited for anything in other companiescan still survive in Sony. They will be given an op-portunity to try to realize their dream . One pa rticularexample is the person who is running the PlaySta-tion business. He is unique; he is not suited for anytypical organization. But he was very successfulwhen he w as given this opportunity to be the head ofPlayStation.

Many places would love to have Sony creatingjobs in their communities. What criteria do youuse in deciding on an investment location?There are several criteria, including the marketsituation, customer demand for our products, localregulations and incentives, the labor market, andoverall infrastructure. Our decision really dep end son a number of factors.

Do you expect to be expanding yourmanufacturing in North America in the yearsahead? Or is North America becoming tooexpensive for manufacturing?As a location, the U.S. was a rather expensiveplace to build our first manufacturing site abroad,but establishing an appropriate supply chaincould be a much more important factor than thecost of labor in the future. So J'm not denying thepossibility of further investment in United States,but we have to look into various factors, such aswhere the real growth market is, as well as thelabor market and customer demand.

Where do you expect the major growth marketsto be?I hope it is worldwide. The current situation inLatin America and Asia is a concern to us, and w ewant these market areas to be revitalized. In par-ticular, we see great possibilities in the formerEastern Bloc countries. Those are the real growingmarkets in the future, but our strong markets ofcourse continue to be the U.S., Europe, and Japan.

Do you expect to be doing much business inChina? ( . IIt certainly is a huge market, and we intend tocontinue with our activities there. China is a


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Some people feel that multinationals don'tcontribute enough to job creation, technologytransfer, or wealth transfer. How do companieslike Sony contribute to a healthy globaleconomy?It's a very complicated question. We would like tothink that all of our activities outside of Japan,particu larly in ma nufa cturin g or R&D, are contrib-uting to local industry a nd peo ple. But the reality isthat we do that because we bel ieve they are alsoour customers. By providing job opportunities, weare giving them the incentive to eventually buy ourproduct . We emphasize the educat ional and tech-nological aspects so that they will have opportu-nities to grow in the future and become good Sonycustomers. So al though some might think we areusing cheap labor from the local community, I donot believe that 's the case. We are giving them anoppo rtunity to ch an ge their future.

You have a large number of non-Japaneseemployees throughout the Sony organization. Is itpossible for non-Japanese to become seniorexecutives within the corporation?Oh, it 's very possible. As a matter of fact, the chair-man of Sony Corporation of America is a non-Japanese and he is joining the board of Sony Cor-porat ion. We already have one other non-Japaneseboard member, and this is nothing new for SonyCorporation. At the senior management level, Idon' t know how many non-Japanese there are, butI be liev e the re are m any . In fact, in the future the ymay be compet ing with Japanese employees forthe same jobs or positions, which I think is good.

In terms of economic and other incentives, wouldyou consider Sony to be a well-paying company?When Sony goes into a foreign market andcreates jobs, is it a place that everybody flocksto?I'd b e surprised if we were paying too much for ouremployees. There is a certain degree of pride, notonly among us in Japan but also with people work-ing for Sony abroad, that in addition to a good job,the Sony brand gives us a certain magic feeling.Wo hav e be en for the last ten ye ars or so one of thetop brands worldwide, alongside Coca-Cola andIBM. Values a re c han gin g a l i t tle bit, but Sony h asmaintained i ts posi t ion among the top threebrands in the last few years. So working for Sonyme ant som ething to local people also . I don't thinkit's only a matter of money, but it 's a feeling ofpr ide and securi ty. There has always been a warm

spot for Sony in people's hearts, particularly usersof our products.

Is there anyone who had a particular influenceon your career and your thinking?I am one of the few Sony em ploy ees left w ho ha shad direct influence from Mr. Morita. His way ofthinking, what was important to him, and whatwas not important to him, were always very clearin his mind. Quite a number of people influencedm e, including my immediate boss when I wasyoung. Those people real ly gave me an opportu-nity to grow. In the end, however, you don't reallycopy anybody. You have to create your own way ofthinking from everybody who teaches or influencesyou in some way.

Are there particular things that guide you inmaking decisions? Do you have a particular styleof management?I have never asked people about my managementstyle, but I ha ve certain g uid elin es I follow wh enmak ing a decis ion. The quest ions I ask myself are"Is it good for the customer?" "Is it ethical?" "Doesit make money?" and "Does it help to improveSony's bran d na m e?" The final ques tion I ask is "Isit legal?" Those are the criteria I use.

Sony is a high-quality manufacturer whose newproducts around the world effectively change thew ay people live. Do you have a specific e xam pleof a fundamental change in the way peopleenjoyed or led their lives thanks to a Sonyproduct?There are lots of exam ples. The tape recorder gav epeople the opportunity to record their voices andmusic. We also introduced the first commerciallysuccessful personal transistor, and the first mobiletelevision. The biggest impact Sony had on people's l ifestyles was the introduction of the Walkman, a product which gave people the opportuni tyto listen to music anywhere and at any time. Youdidn't have to move to the music, the music camewith you. That 's the Walkman. The compact disc ione example of being able to l isten to a digitasound at a very reasonable cost. Those are a fewSony innovations that really influenced societieand cul tures worldwide. We are now doing thiwith MiniDisc, and hopefully with many morproducts and services in the future.


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lG Academy oi Manag ement Executive NovemberHow has Sony's growth in Central Europecorresponded with the changes in the social andeconomic polit ical structures there? How has theSony mental i ty affected the management ofpeople?Well, regardless of the polit ical situation. Centraland E astern Europe hav e been very important mar-kets for us and they are becoming more and moreimportant . I think the m anag em ent of people isvery simple. We provide or create products con-sumers are ready to purchase, whi le giving enjoy-ment to these same people. We are the total enter-tainment company. We would l ike to enter tainpeople forever, and at the same time we would liketo laun ch successful prod ucts.Some companies have a philosophy of l ifelonglearning, where managers cont inue to taketraining courses, invest in their education, or goback to school. What is the role of continuingeducat ion in Sony?We give emp loyee s op portun ities to get an MBA ordoctoral degree, and many scholarships are avai l -able in Sony, if an employee wants to take advan-tage of these possibili t ies. But in my opinion, con-tinuing to train people by means of furtherschooling or training courses is not pushed inSony. Rather , there is greater emphasis on educat-ing yourself through on-the-job training. That 'sprobably the general guiding pr inciple in Sony.During your 30 ye ars at Sony hav e you seen an yshift in the managers you try to hire? Are therepart icular universi t ies in Japan or elsewherewhere you like to recruit?We are looking for all sorts of people. You have tohave different opinions within the organization.We are not particularly focused on a particulartype of person or specialist . Our interests are quitewide. We want to hire people who are good.Within Sony, we don't ask the name of the uni-versity when a student wishes to apply to Sony. Sowe don't know where the applicant is from. Al-though the information is available to our HumanResources Division, the people who employ new-comers don't know until we really get into personaldiscussions.

Have you been able to maintain your qual i tys tandards wherever you manufac ture?Fortunately, yes , we ha ve be en a ble to do that . Wewant to do the production in the Sony way, but wedo have to respect local customs. The local culturemust be respected and local people must be re-spected, but when we put out the Sony brand it hasto have the same quality as if i t was built in Japanor the U.S. If you train the local peop le, an em ph a-sis on qual i ty is extremely important and appreci-ated. The manufactur ing process has to be s impli -fied in order to maintain the same kind of quality,but a lot of creativity has to be put in to maximizethe quality.

If Sony hypothetically decided to startmanufactur ing where there was no t radi t ion ofmanufactur ing electronics , how would you goabout setting up a facili ty? Would you bringpotent ial m an ag ers back to Japan for t rainingpurposes, or would you br ing them to othersubs id ia r ies?It depends. Maybe to Japan or a country such asTaiwan, Singapore or Korea, where there al readyis existing technology to train people. It all de-pends, but we would f i rs t t rain those managers ortechnicians to meet our qual i ty s tandard.Can Sony manufac ture anyw here?So long as there is a market.So there are no real labor constraints. There areno people that you've come across that you can' twork with.No, as long as they a re human be ings .AcknowledgmentsThe assistance of John Adamson and Professor JoeDiStefano is gratefully ack no wle dg ed.About the AuthorPaul W. Beamish is director of the Asian Management Instituteat the Ivey Business School. University of Western Ontario,C a n a d a . Contact: [email protected].


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