The Rewards of Taking Risks in the Age of Innovation

March 8, 2013

Sir Howard Stringer,
Chairman of the Board of Directors, Sony Corporation; Member, Board of Directors of Japan Society

Sir Deryck C. Maughan
, Partner, Kohlberg Kravis Roberts & Co.; Member, Board of Directors of Japan Society

Sony board chairman Sir Howard Stringer visited Japan Society on March 8, 2013 to share his thoughts on how to reinvigorate Japan's economy in an age when technology and globalization are placing a premium on rapid innovation.

At the beginning of his talk, Sir Howard quoted from President Obama's second inaugural address:

"America's possibilities are limitless. We possess all the qualities that this world without boundaries demands: youth and drive, diversity and openness, an endless capacity for risk and a gift for reinvention."

Perhaps a cynic would see this as a set of qualities that are lacking in the Japanese economy, remarked Sir Howard, who was named Chairman and CEO of Sony Corporation in 2005, stepped down as President, Chairman and CEO in April 2012, and will leave the board when his current term is up in mid-2013.

"But count me as an optimist about life in general, and about Japan in particular; I believe the people of Japan do have a gift for reinvention, and that that gift will unlock the great potential that still exists within the economy of this remarkable country."

"I see it at Sony where my successor, Kazuo Hirai, says, 'Sony must change.' And the effort to change Sony is beginning to bear fruit."

"I see it in the leadership of the nation," as Prime Minister Abe, speaking at the opening of the Diet on January 28, urged his country to attract more young people to the world of commerce and promote them sooner; encourage risk-taking and entrepreneurship; and give women the opportunity "to participate more fully in the life of the economy."

Youth and Innovation
A recent study of Americans in the Millennial generation, born between 1981 and 2000, described them as "creative, self-expressive, smart, innovative and resourceful. Their independence and confidence enabled them to create Google, Facebook and Instagram without waiting in line for seniority to kick in. And they are the first generation to grow up not only with computers and the Internet, but with social networks that connect them with each other constantly, instantly, publicly and globally," Sir Howard said.

In such an era, "national boundaries have less meaning. Communities are defined by interest more than geography. So, it is important to make products that we offer to the world, not just one country." Examples in Japan include Internet marketer Rakuten, the recipe site Cookpad and the digitally created character Hatsune Miku, "which has drawn thousands of fans in Japan, the U.S. and many Asian countries."

"Among the most thrilling moments I experienced at Sony was dinner with younger engineers whose enthusiasm was contagious," Sir Howard said. "How do we sustain that energy and optimism? How do we avoid discouraging them?"

One key step is to support the "software culture," which has often lost out to the priorities of the "hardware culture." The latter "focuses on creating perfect products from the start." The former stresses speed; its mantra is "launch first, fix problems later." Putting out a well-made product is clearly very important; but if Japan is to promote an entrepreneurial business environment, it can't allow the perfectionism of the hardware culture to overwhelm the speed and (comparatively) uninhibited creativity of the software culture.

The Global Entrepreneurship Monitor in fact "ranks Japan at the bottom of advanced economies," Sir Howard noted. "One Japanese entrepreneur who acquired an American mobile games company for $400 million said that if he were the one who sold the company, 'They would see me as a failure in Japan.'"

The remedy is greater tolerance of risk, and to achieve this, Japanese society has to develop a more nuanced view of failure and of shame. Feeling shame because of having violated a moral norm is one thing, and shame in this sense "can be a force for good," he acknowledged. But "trying something new in the hope of positive result is not a sin. And if failure results, as it often will when you push the envelope, it should not be shameful."

"This is especially important now that we are in an era of disruptive technology. We all need to allow ourselves to be disrupted out of our complacency, true for young and old alike," he added. A small group of mostly young people created Instagram, which Facebook then bought for $1 billion; "great camera makers from Kodak to Polaroid to Canon to Nikon to Sony didn't do it, and neither did Facebook."

Sony has encouraged a trial-and-error environment "throughout its past and present from the creation of the CD, Blu-ray, advanced image sensors, portable gaming and, most recently, waterproof tablets and smart phones." The postwar economic miracle in Japan is itself an example: "The entrepreneurial spirit of Japan was alive and flourishing. It had to. Promotions came swiftly in the heat of competitive energy, and age in those days was not a handicap."

"Lest we forget, Akio Morita was 25 when he cofounded the company that became Sony. And speaking of Morita-san, remember that he was widely ridiculed on both sides of the Pacific for buying a music company and a movie studio. Twenty-five years later they are today models of stable and innovative leadership, and consistently profitable." And today, "the brilliance of young educated Japanese people is reflected in industries that are not so dependent on a huge infrastructure," such as fashion, design, media and the arts.

Mobilizing Women in the Workforce
Innovations that let women participate fully in the Japanese labor force are likewise critical, Sir Howard continued. "Former Defense Minister Yuriko Koike recently said, 'To mobilize women would create a breakthrough in Japan's economy.' Christine Lagarde of the International Monetary Fund echoed that, saying simply, 'Women could actually save Japan.' And a Goldman Sachs report "demonstrates that if you reduce the barriers to women participating in the labor force in Japan, you would increase GDP there by close to 16 percent."

"According to a government study, 86 percent of married women with children in Japan want to work. So, the desire of women to contribute to the economy—well, it's there. What is lacking is the desire of enough businesses to hire them as well as the availability of daycare," family leave and flextime policies.

Just as important, "people's attitudes have to shift," Sir Howard said. "That's difficult, especially when so much of the social fabric relies on the absence of women from the workforce. But I believe it's a necessary step." Sony has "taken small steps in this direction," albeit "not big enough"; there is currently one woman on the board, down from two, and the president of Sony Corporation of America is a woman, as well as one of the co-chairs of the company's motion picture and television studio. Sony has mentoring programs for women within the company, and is reaching out to recruit female students who want to become engineers.


Sir Derek Maughan exercised the presider's prerogative and asked the first questions:

Your website lists "At the Ballet" from A Chorus Line as your favorite song. The young women sing about wanting to leave their pasts behind, and going to the ballet where everyone is beautiful. Is everyone beautiful?

"She said everyone is beautiful at the ballet. Not everywhere," Sir Howard corrected his questioner.

"It's a wonderful song. If you ever listened to the words of it, it's really about women. And it's three women singing about their frustrations of being at home and stifled by their parents and feeling that the only place they come alive is at the ballet, and where all the things that interfere with their ambition is somehow captured in the miracle of arts and that experience."

Sir Howard spoke of his great sense of loss on the deaths of two close friends, the composer Marvin Hamlisch, who wrote the music for Chorus Line, and the movie writer and director Nora Ephron: "I think when you look at their lives, instead of being sad, as I am about their deaths, their accomplishments are amazing. And anything is possible. That's the reason I believe anything is possible in Japan."

What are you most proud of in what you've accomplished at Sony?

"I think if there is anything that I am proud of at Sony it's that I've put in place not just a younger generation in Tokyo, but the leader of every single division in the entertainment companies—the president of the studio, the president of the Sony Corporation of America, the president of publishing, the president of music, and obviously Kazuo Hirai has been a protégé."

"I didn't accomplish all I set out to accomplish obviously at Sony, and for that I must bear responsibility. I didn't get a lot of help from Mother Nature in Japan. But, that said, the people treated me extremely well. I have enormous respect for the executives who work for me.

—Katherine Hyde

Topics:  Business

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