When I learned that my last book The End of Business as Usual was selected for distribution in Japan, I felt that something more than mere translation was needed to help its message resonate with those who read it. In fact, I paused development of my latest book What’s the Future of Business to revisit the original manuscript.
After six months of work, much of the U.S. book was revised to more closely address the current climate of the Japanese economy. Several new sections were also written to make the story personal and timely.
Because the book is no longer business as usual, at least not in its original incarnation, we redesigned the cover and christened it with a new title…エフェクト = EFFECT.
I wanted to share the first chapter with you here as they story is not unlike what every business, or each one of us for that matter, will face now and over time. There are lessons here for everyone. Why? It’s Digital Darwinism out there and if we don’t adapt to the evolution of technology and society, we will find ourselves in a fight for survival rather than prosperity. Make this personal…
Heritage, Tradition, Honor: Business as Usual is a Competitive Disadvantage
When writing this book, I studied the demise of many U.S. businesses that were once the giants of their industry. Brands such as Kodak, Hostess, Pontiac, Mervyns, among many many others that were at the top of their game but no longer around to celebrate past success. Each of these once prestigious brands not only share an unfortunate fate, they also fell victim to a malignant form of irrelevance. Whether due to dated or cannibalistic management practices or philosophies, the failure to innovate, management lethargy, or the inability to anticipate the needs and expectations of consumers, an increasing number of the world’s biggest brands are inevitably vanishing from the face of the earth.
As I was updating this book for the Japanese market, I also studied the rise and fall of many of Japan’s most beloved electronics brands. The more I researched the more humbled I became. Sony, Panasonic, Sharp appeared to be suffering the same slow plummet of US electronics brands such as Zenith and RCA along with the long list of global dinosaur brands that are now extinct.
What happened? Or, better asked, why is this happening over and over again?
The answer is simple but complex in nature.
This is the end of business as usual and everything is changing as a result.
To understand what happened to some of Japan’s most illustrious brands is helpful. After all, the gift of perspective is precious especially when hindsight is keen and omniscient. While writing this, I found myself immersed in articles, essays, reports, and lectures all of which offered evidence and opinions into the state of the Japanese economy. I grew increasingly vexed as the amount of anecdotes and reasons far outnumbered viable answers or advice for current and emerging businesses.
In the time it takes you to read this book, you will learn that it takes more than textbook management to be successful. It takes leadership and an acute understanding of how today’s consumer is evolving. Doing so provides an informed and sound foundation of which to build a new business infrastructure and the vision and philosophy to support it.
Nippon: A sun that sets also rises
Japan is a recognized epicenter of innovation, fashion, and popular trends. But one of the most fascinating aspects of Japanese culture to me is the harmony it maintains between colorful, centuries-old traditions and an ever-evolving modern society. All along, the one thing that Japan, and any other country for that matter, faces, is that change is as inevitable as it is constant. This is where the story begins. The end of business as usual is upon us and we’re presented with a considerable choice. Either adapt or die. The rewards for doing so and equally the consequences for not adapting are great. It’s a lesson that many storied brands, including those in Japan are learning the hard way.
There was a time when velocity and technology was on the side of many Japanese businesses.
Automotive reliability and value.
Japan’s influence around the world was profound. It still is in many ways. The title of this book is not intended to be overly dramatic. It is an honest sign of the times. This is indeed the end of business as usual.
What it took to be successful before is now different. The momentum that Japan produced over the last half century across many industries is struggling to find relevance in an ever-shifting economy. Certainly financial crises and natural disasters do not help. The truth is though that traditional business models and business philosophies may also represent fiscal and cultural obstructions to market evolution. This has to change.
To better understand the end of business as usual, one does not need to look much further than the Japanese consumer electronics industry.
Sony’s Walkman gave birth to a personal audio revolution that many would arguably set the stage for Apple’s success today.
The Sony PlayStation and Nintendo platforms transformed gaming into a popular personal past time.
Sony’s Vaio computers introduced style and elegance into the beige world of PCs
Panasonic, Sony, Hitachi and Sharp reshaped how and where the world watched television.
These Japanese companies changed how the world behaves. Most, if not all of these once invincible brands, are now paddling to stay afloat in turbulent waters. While paddling is a survival technique, fatigue eventually sets in if survival fails to shift into momentum. Otherwise you fight to stay afloat rather than concentrate precious energy on treading water.
In each of the above examples, one company has been at the forefront of countless trends for several decades. And to this day, Sony still makes some of the most beautiful, high quality products that are designed to help you “make.believe.” But after all of these years leading the consumer electronics industry, Sony now finds itself in the unenviable position of competing for a sliver of market share against juggernauts Apple and Samsung. The once prestigious brand is also struggling to save face within a country that once cherished it as a prized possession.
Sony’s not alone. Sharp, Panasonic and the like are learning the cost of shortsightedness and complacency. These household brands once owned the consumer’s heart, mind, and disposable income. They were top of mind and therefore controlled the consumer share of wallet. Now they find the ability to develop or sell products that people feel they need to have elusive. Instead they compete for table stakes while Apple and Samsung compete for the adoration of a fervent market and the windfall of profits that come along with it.
Siyonara Good Times: What went wrong?
Analysts believe that these businesses grew too big with little focus on agility, instead trading vision and creativity for process and hierarchy. That’s part of it sure. The other part is the crux in the future of business…the ability to introduce constant and rapid innovation into the product roadmap or shift from a product strategy to create completely new ecosystems a la Apple.
Compare a Sony store to that of an Apple store. Why would you walk in to either one and which of the stores do you think you will leave with new products in hand? Apple and companies like it opened the door to disruption because they realized that the era of products was dying and the future would unfold through integrated customer experiences across a complete product ecosystem.
In an Apple ecosystem, a MacBook can sync with an iPad, which can sync with iTunes, which can also sync with iPhones, iPods and Apple TVs. Everything is designed to be an integrated experience. And even though Apple is not in the traditional TV business, at least not yet, Apple is experimenting with plugging TVs into the Apple cloud via AppleTV to create a seamless and connected digital lifestyle where technology is transparent and empowering. Consumers are then the conduits to a complete experience, regardless of application or context, as enabled by the brand and the expert design and fusion of experience, hardware and software.
How important are experiences?
In December 2012 a reporter for American Public Media’s Marketplace asked a New York based consumer why he had just purchased a Panasonic television. His answer was as telling as it was honest, “Because Apple didn’t make one.”
Designing stand-alone devices such as TVs, phones, computers, and even cameras represent a marginalized strategy. This narrow view already seems as antiquated and irrelevant as Sony’s Beta-max, MiniDiscs, and Memory Sticks in today’s world.
The end of business as usual takes more than vision and innovation to survive digital Darwinism however. It requires a tectonic shift from product or industry focus to that of long-term consumer experiences. Businesses that don’t are forever caught in a perpetual cycle of competing for price and performance. It is in fact one of the reasons that Apple can command a handsome premium. The company delivers experiences that contribute to an overall lifestyle and ultimately style and self-expression. Think about the business model it takes to do so however. You can’t invent or invest in new experiences if your business is fixated on roadmaps and defending aging business models.
An era of business usual is needed
Conjecture is healthy. It’s a natural form of discovery. This entire book however is not based on theory. “Times they are a changin’” as American folk singer Bob Dylan once sang. Nothing is truer in terms of evidence than numbers.
In the company’s financial year that ended in March 2012, Sony projected a record net loss of Y455 billion—the equivalent of $5.7 billion. According to The New York Times, it was Sony’s worst loss ever. This news was just the latest in what had become ritual. The Washington Post also reported that Sony hasn’t made a profit in four years .
Sony isn’t the only company that’s bleeding however. Panasonic’s cuts were also deep. The company bled red in three of the past four years. Bloomberg estimated that along with Sharp, the companies’ combined market value was down to $32 billion. The significance of that number is perhaps its insignificance in the greater array of brand worth. The duo adds up to only one-fifth the value of Samsung and one-twentieth the value of Apple.
The Washington Post continued its exhumation of the true state of Japanese consumer electronics to bring home the fact that business as usual was no longer enough. Sharp, which celebrated its centennial recently, is believed to have been hit hardest. The company that once dominated the liquid-crystal-display TV market promised “to make products that others want to imitate.” In the last five years though, its LCD sales have plunged 39 percent. As a result, Standard & Poor axed Sharp’s credit rating to junk status.
In 2012 Panasonic expected to lose $10 billion. It will only get worse until things get better.
Sony: A Sun that Rises Also Sets
Perhaps part of the challenge lies in the DNA of the organization. Hierarchies, efficiencies, silos, each contribute to a culture of management and process over that of innovation. Management is indeed important. But there is an opportunity cost however and its price is measured by ability or inefficacy to compete for the future.
In Sony’s case, Howard Stringer, a Western executive, was appointed to run the company in 2005. This appointment was in of itself a shock to Tokyo’s conventional corporate convictions. In an interview with Kotaku, Yozo Hasegawa, author of Rediscovering Japanese Business Leadership revealed that one of Stringer’s priorities was to “destroy the silo.” What was once a thriving entrepreneurial ecosystem was transformed into a vertical hierarchy, a style referred to as tatewari. Stringer found that various divisions and regional offices were not cooperating or communicating with each other, which is never good. Corporate fiefdoms create mini hierarchies that are difficult to dismantle or topple.
But, as Mr. Hasegawa notes in his interview with Kotaku, Stringer could not save Sony, “…after all, he could not stop the red figures of the electronics. He tried to fix things but he didn’t live up to expectations.”
Sony’s tatewari was a memento of the leadership legacy of Mr. Nobuyuki Idei. His reign as Sony’s CEO between1999 to 2005 is considered by some to be the undoing of Sony’s Golden Age under Mr. Akio Morita. One must believe his intentions were sound.
Idei employed a philosophy that traditionally promotes profitability and introduces the opportunity for “new blood.” By creating a vertical operation, Idei set out to streamline the company and restructure the organization. His goal was to encourage early retirement among veteran employees and open the door to innovation and creativity among newcomers. Instead, Idei’s strategy backfired creating a vacuum of the very ideologies and talents that helped make Sony what it once was.
A company veteran who works as a middle manager recalled the experience with Kotaku, “The middle-aged engineers and technicians that left were the same ones that brought Sony to greatness. They left behind a younger generation that was insecure, afraid of failure, and only willing to work with technology already in place—not build from the ground up.”
Perhaps the greatest impact was on the very fabric that weaved together the company’s culture and ultimately instilled confidence and imagination among employees and executives alike.
Sony’s Golden Age is but a distant memory now. Mr. Kazuo Hirai, the current president of Sony Corporation faces a great summons—to return Sony to profitability and prominence. No small undertaking of course, but the questions that confront Hirai are also a symbol of imperfection in the vision and leadership for Sony moving forward…
• What is Sony?
• What does Sony represent to Japanese consumers and consumers around the world?
• Why would people choose to walk into a Sony store over an Apple store?
• If Sony were to return to glory, what would its new Golden Age resemble?
It takes vision and leadership to in fact lead Sony or any business to success and ultimately eminence. For without direction, employees cannot enlist in any journey nor march in unison toward a collective goal or outcome.
Innovation takes time. And to foster innovation and imagination takes a culture of inspiration and empowerment. During Mr. Morita’s incumbency, Sony engineers were encouraged to experiment, to focus on developing technology and products that markets didn’t realize they yet needed. Sounds familiar yes? It was certainly the gift Apple’s Mr. Steve Jobs possessed.
Under the spell of Morita’s charisma, Sony’s corporate culture was reported as “free and open-minded.”
Perhaps there’s something to the end of business as usual that in Mr. Morita’s experience was not “usual” at all.
The delicate balance between management and leadership
Mr. Yasunori Tateishi is a recognized authority on the history of Sony, which helped to earn him the nickname “Mr. Sony.” His numerous books include such titles as Sony: The Inside Story and his latest book, recognized as a fitting and prophetic eulogy, Sayonara, Our Sony. In the latter book, Tateishi makes the argument that with Idei and Stringer focusing on “net business” and “management streamlining,” Sony’s back-to-back leaders effectively crippled the technology giant.
If Mr. Morita’s Sony was a luminous example of leadership then the eras of Idei and Stringer were representations of managing business as usual. To lead a new era of business requires just that…leadership. It’s the difference between advancing and meandering.
American Public Media’s Marketplace painfully explored the beleaguered assessment through a telling and direct headline, “Japanese electronic brands lose luster.”
Nestled within the commentary of the story was an emblematic quote by Michael Woodford who was at one point CEO at Olympus. Woodford’s sentiment alludes to my point about leadership versus management styles. “Japan is sleepwalking to oblivion,” he told reporter Dan Bobkoff. His point was that the country’s top electronics brands were producing few new ideas. Woodford blames aging management for not promote creativity or imagination. Woodford continued, “You need people to be a bit crazy, a bit wacky. But the nail which sticks up in Japan, they say, will get nailed down.”
In an era of digital Darwinism, it is not the strongest that will survive, it is those who see what others can’t and do what others will not. It is not about survival of the fittest, it is about survival of the fitting. Success is earned. As Richard Katz, editor of the Oriental Economist Report told Bobkoff, “Japan does not have that natural selection process as part of its business culture.”
What’s clear is that Japan’s now two-decade struggle comes down to one thing, change. To do so takes vision of course but also the ability for leadership to introduce a culture and supporting (read profitable) foundation to adapt, downsize and innovate.
In the quest for relevance, we cannot ignore Nintendo. Nintendo maintains a lead of nearly 30 million over its console competitors with the DS family doubling the sales of any other modern platform.
What’s the secret to success?
In Nintendo’s case, it’s a relentless quest for success. In an interview with IGN, Nintendo president and CEO Mr. Satori Iwata shared his insights, “I always and strictly tell Nintendo employees never to use the term ‘success’ to describe our own performance.” Iwata continued, “If we call a result of any of our efforts a ‘success’… we might apply it as the standard for success for future projects as well, and we could wind up not trying to do better than that or not making something which is very different in nature.”
Nintendo employs a “business unusual” philosophy to endlessly compete for the future.
That’s the spark of leadership…it’s in the DNA of the company. And, that’s why it takes leadership. It takes a top down approach to inspire bottom-up transformation.
For every Nintendo, or even Nikon or Canon, there are many storied brands fighting for survival.
Nowadays it’s no longer good enough to develop amazing products. That’s just the beginning. At the same time, it’s also no longer enough to introduce amazing products into a sustainable management culture. Innovation moves too fast. Trends shift at blinding speeds. Business culture, traditions, politics create layer upon layer of complications that in the end contribute to irrelevance and ultimately digital Darwinism.
The very nature of how businesses not only compete for customers and profitability but also how they compete for relevance has radically altered. Customers are evolving and becoming more sophisticated, informed and discerning. How they make decisions has evolved. The way they’re influenced and how they influence is diversified. That’s what this book is about.
There isn’t a recipe for success. This isn’t a race to find the next “business as usual.” This is a journey with no end stitched together by milestones that steer you toward relevance. To compete for the future is perpetual.
It’s time to rewire the way you lead and work to succeed in the new customer revolution.
I would very much like to thank Hide Hashizume and Eiko Hashizume for all of their work and support over the last year on the book and this event. Mr. Natsuno, a board member of Nico Video and professor at Keio University contributed a special message at the beginning of the book. Thank you Mr. Natsuno. Also, thank you to Mr. Kanayama for his work in translating the book. It’s more than exciting to finally have completed エフェクト and to have the privilege of bringing it to Japan personally.
#EFFECT (Available on Amazon)
Click here for pictures from the official launch of EFFECT in Tokyo.
Image of Tokyo’s digital billboards credit: Thomas La Mela / Shutterstock