by Akio Morita
In 1975, when we were ready to introduce Betamax, which was to become our future “cash cow,” I envisioned a huge domestic advertising and promotion campaign that would be carried out regardless of budgetary considerations. My feeling was that this first home-use video cassette recorder needed to be introduced to the people with a massive campaign, because it was the first of its kind and people had to be shown how they could use the product in their daily lives and how it could become an asset and something more than a toy. But my Sony America (Sonam) president was reluctant to spend the money. He said if we spent a lot on this promotion and if he could not bring in enough sales, we would lose money. I told him over and over, “You must also consider the return that comes in five or ten years, Harvey, not just the immediate return.” He had his own plans for introduction and was satisfied with them. I wasn’t.
As the introduction date drew near, I began to worry about what the campaign would look like and what its impact would be. The more I knew of it, the more worried I got. I didn’t think it was impressive enough to match the innovative nature of this brand-new product. That summer I was with my family at our cottage in Karuizawa, and I couldn’t get my mind off the problem of the Betamax introduction. I wanted it to be a stunning introduction that would grab the imagination of Americans and show them how this machine could change their lives, as I knew it would. That night I went to bed troubled. I couldn’t sleep, tossing and turning until I could stand it no longer.
In the middle of the night, I grabbed the phone and called Harvey. He was in a meeting in New York. I got him out and yelled at him, “If you’re not going to spend a million or two million dollars on the Betamax campaign in the next two months, I will fire you.” I had never said anything like it, and he had never heard me sounding like that. It made an impression, and I felt better.
He spent the money, and Betamax was well and properly introduced. But I discovered later that what they did at Sonam was shift the money from other parts of the business, so our total advertising expenditure remained the same. It meant a cut in the promotion budget for audio equipment and TV, which were then very active. Their sales might have been even more active if the ad and promotion budgets hadn’t been cut back by the Betamax promotion. But I’ll never know.
The trouble with American management of the Sonam operation in the early days under Schein was that profit was the main goal. In my view, profit doesn’t have to be so high, because in Japanese companies our shareholders do not clamor for immediate returns; rather they prefer long-term growth and appreciation. Our bank loans are solid at favorable rates of interest. Of course we have to make a profit, but we have to make a profit over the long haul, not just the short term, and that means we must keep investing in research and development—it has run consistently about 6 percent of sales at Sony—and in service.
Too often the idea was sounded that service was a nuisance, and when that philosophy took hold, service quality dropped dramatically. Stocking of parts means an increase in inventory, hence more interest loss, so using good Harvard Business School logic, the thing to do, I was told, was to decrease the service components stock. When we planned to open an extensive service center in Kansas City to establish a complete servicing network, I had a very difficult time convincing Sonam management that this was a necessary and good idea. My argument again and again with Harvey Schein and others was that by saving money instead of investing it in the business you might gain profit on a short-term basis, but in actual fact you would be cashing in the assets that had been built up in the past. To gain profit is important, but you must invest to build up assets that you can cash in in the future.
In the electronics industry today, everything is changing rapidly; in fact the only thing we can be certain of is that the business will never stand still. The competition between companies in Japan is fierce. We have gone from tape recorders to video tape recorders to compact discs, from vacuum tubes to transistors, semiconductors, integrated circuits, very large-scale integrated circuits, and we have biochips to look forward to in the future. This onward rush of technology will one day enable people to have facilities at their command in their homes that are not even hinted at yet. It will be an exciting future.
It may sound curious, but I learned that an enemy of this innovation could be your own sales organization, if it has too much power, because very often these organizations discourage innovation. When you make innovative new products, you must re-educate the sales force about them so the salesmen can educate and sell the public. This is expensive; it means investing sufficient money in R&D and new facilities and advertising and promotion. And it also means making some popular and profitable items obsolete, often the items you can make the most profit on because your development costs are paid for and these products have become easy for your salesmen to sell.
But if you are nothing but profit-conscious, you cannot see the opportunities ahead. And where compensation is tied to profits, as it is in most American companies, very often a manager will say, “Why should I sacrifice my own profits today for the guy who is going to follow me in this job a few years from now?” Too often in the U.S. and Europe, managers will abandon work on a promising product because development costs seem too high. That can be very shortsighted and can lead to the inability of a company to compete.
Sometimes salesmen can get out in front of the public without actually leading them. When we first marketed our portable black and white video tape recorder, the U-Matic, we got an order almost immediately for five thousand units from an American distributor. I told him the order seemed too large for the market at the time. Not many people were psychologically prepared to buy such a device. I said that with an innovation like the U-Matic, a lot of educating has to be done: one must prepare the groundwork among the customers before you can expect success in the marketplace. It is a time-honored Japanese gardening technique to prepare a tree for transplanting by slowly and carefully binding the roots over a period of time, bit by bit, to prepare the tree for the shock of the change it is about to experience. This process, called nemawashi, takes time and patience, but it rewards you, if it is done properly, with a healthy transplanted tree. Advertising and promotion for a brand-new, innovative product is just as important. In the case of the early U-Matic, little had been done to prepare the American public for this new device, and it was no surprise to me that the distributor and the retailers could not sell them. Then, in reaction to the disappointment of the failure, the distributor did the worst possible thing from our point of view: he discounted them heavily to get rid of them, cheapening our image.
I have sometimes been accused of moving too fast, of being impatient (my New York office staff once gave me a red fireman’s helmet as a present because they said I was always in such a hurry). But I am also a person who can apply a kind of sixth sense to people and products that might defy logic. Something told me that the market was not yet ripe for a large sale of video portables, and I was right. Advertising and promotion alone will not sustain a bad product or a product that is not right for the times. Home video was the right product and proved to be a durable success, but its time was a bit later.
What I can sometimes sense in a product, I have also been able to sense in personnel, I believe. I think I have hired many more creative employees than mediocre ones. They haven’t always agreed with me, which is fine, of course. One of the best examples of this is Norio Ohga, the young music student who asked so many audacious questions of our salesmen in 1947 that they finally brought him around to the company to talk to the engineers.
Ohga advised us on the musical side of things for many years before he joined Sony. He made one of our first tape recordings of the full orchestra of the Tokyo University of Arts, with himself as baritone soloist in Brahms’s German Requiem. I tried very hard to get him onto the Sony staff, but he was extremely reluctant. When he first came to visit Sony, while he was still a student, he started arguing with me, not knowing exactly who I was or what my
position was. The staff was amused by his brashness, and when I left the room he asked them about me. They said, “That’s Morita, Mr. Tokyo Tsushin Kogyo.” He says he was embarrassed, but I doubt it. It certainly didn’t change his style. He went off to Germany to study, and we asked him to write us about developments in electronics there. I sent him one of our first transistor radios to show off, and we kept in touch while he studied and sang his favorite roles, Wolfram in Tannhauser, the title role in Don Giovanni, and Count Almaviva in The Marriage of Figaro. He finally returned to Japan, got married, and gave concerts with his wife, the pianist Midori Matsubara. In 1959 I asked him to come with me to Europe on a trip to find new agents for transistor radios. We had a fine trip and I didn’t broach the main subject I had in mind until we were aboard the SS United States, where I had him trapped for the four days and ten hours of the Southampton-to-New York crossing.
On that trip, we walked a lot, ate a lot, exercised a lot, and talked a lot, of course. Ohga, a strapping, barrel-chested fellow, with a resonant voice, criticized Sony in beautiful tones, and I was most interested in what he had to say. He didn’t pull any punches. “Your company is full of engineers,” he said, and from his tone of voice I could tell he didn’t mean it as a compliment. “Since these engineers started the company,” he continued, “from their point of view they think it is right that they should continue to run it. But from an outsider’s point of view, the company is old-fashioned and poorly run.” It was a fresh point of view, and startling, because we still thought of ourselves as quite daring and original managers. We couldn’t see what he saw from outside, that perhaps we had been resting on our oars, that we were getting out of date after over a decade in control. He elaborated at some length, and finally I said, “All right, you join us and you will be one of the management team.” He had fallen into my trap, I thought. But he still held out, saying that he wanted the freedom to be an artist, not a salaryman tied to a desk. I said he could still give concerts and also work for us full-time, that we would work it out between us.
After we got back to Japan, my wife and I went to his wife, Midori, and appealed to her to help us get him on board. Midori was a high school classmate of Yoshiko. I do not know who was eventually most persuasive, but Ohga finally joined the company as general manager of professional products and in a year and a half was in charge of all consumer tape recorder operations. In 1964, after only five years in the company, and when he was only thirty-four, he became a member of the board, something unheard of in traditional Japanese companies, but Sony still thought it was anything but traditional, despite Ohga’s criticism. In his first year he did many nontraditional things, including hiring almost forty people away from other companies.
When Sony was new and small, we could steal people from other companies and get away with it, but now that we are so large it is not considered the right thing to do, although we still keep on scouting for talent. Besides, it tends to undermine the loyalty of your own company’s staff by slighting the people who are trying to earn promotions. When I was starting Sony, I found many people from among my classmates at school, which is one of the traditional sources. I even called on people with whom I had gone to elementary school because I knew them and their families. But I long ago ran out of these personal friends and acquaintances and had to recruit in other ways. Ohga, in his early days with us, would go through the booklets of new graduates put out by each school and mark the promising ones for us to recruit.
III
Once you have a staff of prepared, intelligent, and energetic people, the next step is to motivate them to be creative. For a long time, the Japanese have been branded as imitators rather than creators. But I think it would be downright foolish to say that what Japanese industry has accomplished in the past forty years has been anything but creative. The work being done in biotechnology, new materials such as ceramics and fibers, optoelectronics, and other fields all speak for themselves. And certainly our contributions in production technology and quality control have been creative.
We all learn by imitating, as children, as students, as novices in the world of business. And then we grow up and learn to blend our innate abilities with the rules or principles we have learned. Dr. Makoto Kikuchi, our research center director, likes to point out that imitation is the first step in a child’s learning process and that the original meaning of the Japanese word manabu (to learn) is manebu (to imitate).
When Japan joined the world after more than two centuries in isolation, the Japanese were ignorant of so much that had been learned and developed abroad during those centuries. Led by the government and the enlightened leadership of the Emperor Meiji, Japan reached out all around the world for these “new” ideas and technologies. In a way this was done in self-defense, because when the Western countries demanded that Japan open its doors, they also imposed unequal treaties on Japan, pacts that did not allow Japan to protect her economy and infant industries. A strong industrial base together with a strong military seemed the only way to survive as a member of a rather greedy and predatory international society.
Some people think that the Japanese ability to create the country’s present industrial establishment is something that was learned in the four decades since World War II, but they just do not know their history. From the depths of agrarian isolation, Japan started on its industrial journey in the last third of the nineteenth century, and by 1905—only about one generation—the industrial and economic might of the nation had been raised to such a height that tiny Japan, with a population of about thirty million, was able to defeat both China (1894-95) and Imperial Russia (1904-1905) in war. At the beginning of World War I in Europe, Japan was the major military and industrial power in Asia. This is history, and I am citing it only to point out that the economic miracle of Japan since 1945 should be seen in perspective. Early in the development process the Meiji government realized it could devise economic plans and set industrial goals to fulfill the plans, but government leaders soon realized they could not run the factories and produce the goods. And so government and industry devised a system of cooperation and support, for the benefit of the nation. Some aspects of the system are being dismantled only today.
Comparing the two periods—the Meiji era and the post- Pacific War era—would be useless, but one striking fact must be noted, and that is that all Japanese have shared in the struggle to rebuild the nation and its peaceful industrial plant since the end of the war. And they have shared the fruits of their success for the first time in history, as the Japanese standard of living reached top world levels. Of course, Japan reached out again in these last four decades for technology, to attempt to catch up with developments it had missed, and we bought technologies for direct use and to improve upon.
Japanese steel makers bought technology for the basic oxygen conversion system from the originating companies in Austria, but within less than a decade Japanese companies were selling improved steel-making technology back to those same companies. As another example, we at Sony took the basic transistor and redesigned and rebuilt it for a purpose of our own that the originators hadn’t envisioned. We made a completely new kind of transistor, and in our development work, our researcher, Leo Esaki, demonstrated the electron tunneling effect, which led to the development of the tunnel diode for which he was awarded a Nobel Prize seventeen years later, after he had joined IBM.
I was on the board of IBM World Trade when the award was announced and was actually attending an IBM board meeting in Paris at the time. An assistant brought news to IBM chairman Frank Carey at our meeting, and Carey proudly told his board members that this was the first time an IBM scientist had won a Nobel. He was beaming, naturally, and there was applause all around. Then Dr. Emanuel Piori, the head of IBM research, went to him and quietly explained the background. When Carey called on me, I only said, “We are very pleased.” Actually it was an understatement. Esaki’s Nobel was the first Nobel Prize for any Japanese scientist working in industry; all the other
laureates have been professors. And Sony was, relatively speaking, a very young company on the Japanese industrial scene.
Dr. Kikuchi, our research center director, says that regardless of whatever arguments one might make about what he calls the “adaptive creativity” that Japanese scientists and technicians used during the catch-up phase in Japan’s development and the so-called “independent creativity” practiced today, there is no doubt that Japan is now a full-fledged member of the world’s technological community. Japan, the United States and Western Europe now treat each other on equal terms. When technical meetings are held in Japan, such as the meeting on so-called fifth generation computer technology held in Tokyo in 1984, top researchers from around the world gather to learn of Japan’s technical progress. At that 1984 conference, speaker after speaker from abroad pointed out how the Japan project, lightly funded by the government and participated in by many Japanese companies, had stimulated their governments to invest in artificial intelligence projects that had been neglected until there was news of Japan’s project.
As Dr. Kikuchi has pointed out, there are different kinds of creativity. I told a gathering of Europeans and Americans at the Atlantic Institute in Paris in December 1985 that the key factor in industry is creativity. I said there are three creativities: creativity in technology, in product planning, and in marketing. To have any one of these without the others is self-defeating in business.
To clear up a few myths that still linger about the subject of Japanese creativity, I must emphasize that a unique feature of Japanese technological development is its independence from defense technology. It is well known that much of American and European technology is spun off of defense work funded by government. This has been beneficial, of course; but in Japan, where we have no defense industry to speak of, we have made perpetual changes in the consumer marketplace, bringing technological innovation into the home with commercial use technology. And interestingly, in the reverse of the flow in the United States and Europe, now Japanese non-defense know-how is being sought by the defense establishments of both the U.S. and Europe. In fact, an agreement has been signed on the exchange of technology between Japan and the U.S. concerning imaging technology using Japanese-designed charge-coupled devices, which convert analog information into digital information that can produce finer and more useful and adaptable images.