Is the Fun Over at Sony? A Stoic Numbers Guy Takes Over as CEO

When it comes to crunching numbers or winding down bad businesses, nobody at Sony has been as sharp as Kenichiro Yoshida. Now, as chief executive officer, he faces a tougher task: rekindling some lost magic.

The driving force behind Sony's turnaround during the last five years when he was in charge of finance, the reserved 58-year-old took the company's top job Sunday. Investors love him, but managers who worked with him said they worry he isn't in love with the kind of gadgets that once made Sony a household name.

Sony is making record profits again, but it's no longer making the world's coolest stuff. The company that gave us the Walkman and the Trinitron colour TV has become a less-inspiring hodgepodge that includes an insurance provider and a semiconductor maker, along with Playstation game consoles and movies. Once ranked the No.1 brand by American consumers, Sony and it's incoming CEO need new hits to keep from falling further behind Apple and Samsung Electronics.

"Yoshida is essentially tasked with taking an older company and trying to make it young again," said Damian Thong, a Tokyo-based analyst at Macquarie Group. "There's a tension between his desire to maintain steady profits and taking the risks necessary to drive innovation. Balancing those two will be a challenge."

It's rare that CFOs are chosen to lead businesses that aren't in the middle of major restructuring, according to Stephen Kaplan, a professor at Chicago University's business school. Finance chiefs, he said, are usually less adept at building companies than digging them out of holes. Still, a Bloomberg analysis of share price data suggests that CFOs-turned-CEO tend to perform well. In the 28 instances since the mid-1990s when large non-financial corporations promoted their finance chiefs to the top job, the stocks on average did twice as well as the broader market during their tenure.

In 2013, when former chief executive officer Kazuo Hirai made Yoshida his CFO and closest lieutenant, Sony was definitely in a deep hole. Losses had totalled more the $6 billion (roughly Rs. 39,000 crores) over the previous five years.

Vowing there would be no "sacred cows,'' Yoshida shed or trimmed one bloated business after another: first laptops, then TVs and smartphones. Humility and quiet seriousness-traits especially prized in Japan-helped Yoshida win support even as he cut 20,000 jobs, according to several Sony managers, who spoke on condition of anonymity. Less showy than Hirai, Yoshida wasn't afraid to ask questions or admit he didn't understand something, and he knew the numbers inside out, they said.

Five years on, the results are hard to argue with. Sony is making more money than ever, the stock price has more than tripled and there's $12 billion in cash on the balance sheet-a war chest that gives Sony plenty of room to manoeuvre, and may also test Yoshida's vision.

"The board is making a bet he'll be able to shift from being an enforcer to an all-around strategist,'' said Elena L. Botelho, partner at consulting firm ghSMART and co-author of "The CEO Next Door,'' a 2018 book on leadership. "Just because someone delivered a remarkable turnaround from the cost perspective doesn't mean they can be a leader for the overall business and grow it.''

In reporting this story, Bloomberg spoke with more than a half-dozen current and former mid-level managers familiar with Yoshida's career. They declined to comment on the record because of the sensitivity of the issues. Sony chose not to make Yoshida available for an interview.

There were no home runs for Yoshida during the eight years he ran a small subsidiary called So-Net, which Sony hoped would one day grow into a giant internet service provider like AOL. A Sony lifer who started at the company's stock brokerage after getting an economics degree, Yoshida didn't have a deep understanding of the web or its technology, according to a person who worked closely with him then.

After taking the unit public in 2005, Yoshida watched as the shares lost half their value in nine months. Focused on the company's finances, Yoshida relied on his managers for ideas, the person said. By the time he was recruited as Hirai's right-hand man, So-Net's stock was back where it started, but the business model had become largely irrelevant-and Yoshida was unable to navigate the changes.

Now, as CEO of a $61 billion (roughly Rs. 4 lakh crores) conglomerate with eight divisions and thousands of products, the canvas is much larger and the stakes are exponentially higher.

Among the challenges: Yoshida will have to figure out how much investment is needed to keep Sony's lead in image sensors. In the music business, where an important contract is expiring in June, Yoshida will have to make a quick decision on whether to pay an estimated $2 billion for full ownership of an aging but still profitable song catalogue, or let it go.

Then there's the movie business, Columbia Pictures, where a string of flops and a constant churn of top executives has kept the studio far behind Walt Disney Co.

Harder still will be plotting a strategy for what to do after Playstation 5. The machine, expected to be released next year, will probably be the last standalone game console Sony ever makes, so Yoshida will eventually have to take a risk on something new.

Perhaps even further outside of Yoshida's comfort zone will be trying to solve a problem that has troubled Sony's top brass for years: getting the creative juices flowing again at a company where the best hits have been the result of serendipity, not calculation.

The Walkman, for example, was invented over four days in response to a personal request from co-founder Masaru Ibuka, who wanted a portable player so he could listen to music on long flights.

A more recent whimsy that paid off was "Fate/Grand Order,'' a smartphone game which has made about $1 billion in the last three years, according to Masahiko Ishino, an analyst at Tokai Tokyo Securities. That idea was dreamed up by an employee in the music business-who'd played a lot of games but had never made one.

"They made it in a real rough-and-tumble way--quintessential Sony,'' Ishino said.

At a February press conference at the company's Tokyo headquarters, Yoshida cracked a rare smile when he admitted to being surprised by the news of his promotion late last year. Asked to name a new Sony product that got him excited, he made an uncharacteristic confession: "My favourite right now is aibo,'' he said, referring to a toy robot dog that amounts to a rounding error in terms of Sony's sales.

Once discontinued as a money-losing extravagance, aibo was relaunched in January to showcase Sony's technology, even if the numbers will probably never add up. Yoshida's endorsement-heartfelt or not-suggested he might just yet grow into his new role as Sony's top salesman.

© 2018 Bloomberg LP

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