The Silo Effect

by Gillian Tett

  The appointment was another signal of the degree to which Sony’s former success was turning into painful decline. By 2005, the humiliating defeat in the battle to create a digital Walkman symbolized a bigger trend. The company’s profitability was slipping fast, along with its reputation for innovation. It still had some dazzling products in its stable, such as the PlayStation. But it had lost its former dominance of the television market because it had failed to anticipate the rise of flat screen TVs. Sony still made iconic cameras and computers (the latter with an elegant purple and black design). But these did not inspire the same cultish following as the Apple brand.

  Unsurprisingly, investors had taken fright. In the 1990s the Sony share price soared from around 2,000 yen a share to touch a peak of 16,300 in 2000. But after the internet bubble collapsed in 2001, Sony’s share price tumbled to around 5,000 yen and stayed there for several years. Other tech companies had suffered too. But the trajectory of Apple, say, was notably different: between 2000 and 2005 its share price rose five-fold. So too, at Samsung: between 2000 and 2005 its share price jumped 50 percent, as evidence emerged that the Korean upstart was challenging Sony on its prized turf, grabbing away a big stake in the television market.22 For Sony, this was profoundly humiliating. Nobody was surprised when Idei indicated in 2004 he planned to leave the company.23

  For many months, the Sony leaders and board members debated who should replace Idei. As so often in Japanese culture, it was unclear who was empowered to pick the next CEO: though the power technically lay with the board, decision making was collective and numerous people were able to exercise a veto. The most flamboyant and best known of the senior Sony managers was Ken Kutaragi, the creative genius who had developed the PlayStation division. However, Kutaragi was also a forceful, impatient man who had guarded his PlayStation silo so forcefully against internal rivals that he had many enemies. There were other, less flamboyant, individuals in the top management, such as Ryoji Chubachi, a slight, balding engineer and Sony lifer who ran the consumer electronics group. He did not present the face of change that the Sony directors knew investors wanted to see.

  The Sony leaders in Tokyo tossed names around. Finally, as much out of a sense of desperation as anything else, the name Stringer popped into the debate. It was a peculiar twist.

  Stringer had been born in Cardiff, Wales, the son of a Royal Air Force pilot. He spent his formative years in Oundle, a traditional British private boarding school, where he acquired the self-deprecating, self-effacing manner typical of the British upper class. After getting a degree in modern history at Oxford, he moved to America, searching for adventure, and became a writer at CBS Radio. That was unexpectedly interrupted when he was drafted and sent to serve in Vietnam. But once that war was over, he returned to CBS, where he worked as a television producer and journalist for two decades. He started his career in a lowly position, answering phones backstage for The Ed Sullivan Show, but jumped up the hierarchy until he ended up running the CBS group, and then joined Sony in 1997 to run their American media operations. That background gave him a transatlantic air: though he owned a graceful apartment on New York’s Fifth Avenue, his main home was a manor house in the verdant setting of England’s Cotswold Hills, and he had retained his British accent. He had never lived in Japan, did not speak Japanese, and (by Japanese standards) he had not even worked at the company for long.

  “People from Sony called me up late at night from Tokyo. I can’t remember exactly who it was who called, because it happened several times, the way it always does in Japan—and asked if I wanted to be CEO,” Stringer later recalled. “I thought they were mad. Completely mad! I told them over and over again: ‘I am not the person you want in that job. I don’t speak Japanese, I won’t move to Japan.’ If someone told me in 2000 this might happen, I might have suggested we could set up shop on the moon.”

  But the Sony elders were persistent. To some of them, the company was facing such a big crisis that Stringer’s disadvantages suddenly looked like strengths. He presented a fresh face. He seemed able to charm outside investors (particularly since another foreigner, Carlos Ghosn, was already earning great acclaim by implementing a radical turnabout plan at another deeply troubled Japanese company, Nissan). The Japanese liked his British mannerisms and humor, which seemed less abrasive than those of an American. And precisely because he did not come from the head office, Stringer was not allied to any particular silo, or corporate tribe, within Sony. That would give him more freedom to act, or so the hope went. “If one wishes to start a major change, a sea change, a person who stayed away from the mainstream, who is from a remote area, may be called for,” observed Chubachi, who was appointed as president of Sony to work with Stringer.24

  But what did Stringer want to do with Sony? Could he find a way to stem its decline? As the staff assembled in the auditorium for Stringer’s speech in the summer of 2005, they were distinctly nervous. At Nissan the new foreign-born CEO Ghosn had made his mark by slashing jobs, earning him the tag “cost killer.” The Sony staff were terrified this would occur at their company. However, Stringer did not perform quite as expected. Speaking in English, with a harried translator, he started by saluting his mighty predecessors and the brilliant engineers. But then he changed tack. “Sony is a company with too many silos!” he declared.

  Silos? Japanese listeners were baffled. The American word for “silo,” or sairo as the Japanese pronounced it, was unknown in Japan, since the country grew rice, not grain. Indeed, the word was so unfamiliar that, in desperation, the translator turned the phrase into takotsubo or “octopus pot.” That captured Stringer’s meaning perfectly, since Japanese octopus pots are narrow containers that are easy for an octopus to slide into, but almost impossible to exit. If you put your hand in the pot, it can get trapped. But the Sony staff had never heard the word takotsubo invoked to describe their beloved company. Was this some kind of clever British joke? Stringer pressed on. He told his staff that it was essential that the company act to remove the “octopus pots” to create a more “connected” company, ready for the twenty-first-century high-tech world.

  IN THE MONTHS THAT followed, Stringer set about trying to turn his declarations about silos into action. It was a topic dear to his heart. Most of the staff who worked at Sony had never thought of the issue of silos before. They had generally grown up inside Sony, and it was the only corporate world they had ever known. To them, that the company was fragmented was unremarkable: it was a pattern so deeply ingrained that they took it for granted, just as the Kabyle Berber studied by Bourdieu had come to assume it was entirely normal to divide their houses in two. That was not unique to Sony. Most company employees assume that their working practices are normal. But at Sony the problem was made doubly worse because the Japanese staff tended to stay with the company for life.

  Stringer had a different perspective. By 2005, he had already worked with Sony for almost a decade. But he was not Japanese and not an engineer. Most of his career had been spent in television journalism and entertainment. That meant he could imagine a different way of doing things. His years of working in journalism had left him convinced about the importance of keeping cultures and structures as flexible as possible. At CBS he had earned a reputation for being deft at persuading difficult Americans to work together as a team. He had produced the successful CBS Evening News with Dan Rather, working with a highly strung crew, and he persuaded David Letterman to leave NBC for CBS. Then, when he had joined Sony in 1997 in America, he had earned acclaim by bringing more control and order into Sony’s American entertainment and media divisions.

  He wanted to repeat that trick more widely. He knew it would be hard. When he was running the American operations, he had constantly been surprised by the scale of silos he had seen. Although he had a tight control over the entertainment business, he had often struggled to work out what was happening in the consumer electronics division or the secretive PlayStation unit. He knew they rarely collaborated with each other. Many
of Stringer’s European and American colleagues blamed this on Japanese culture, or the management style of other Sony leaders, such as Idei. “You have a culture which is totally hierarchical, where people are just trained to sit in their box, and take orders,” commented one senior New York–based Sony executive. “In this culture, when people are assigned into a role, they become that role—they became totally one-dimensional.” However, Stringer did not think the problem of silos was purely a Japanese phenomenon. Though Sony was an extreme case, dysfunctional silos had caused problems at plenty of other large American and European companies. Microsoft was one company that was renowned for silos, as was Xerox. So he hunted for examples of large companies that had managed to address the issue head-on. And as he did so, he became fixated with IBM, the gigantic American computing group.

  In many ways, IBM was a thought-provoking story for Stringer. Like the Japanese giant, IBM had enjoyed stellar success in the 1970s and 1980s, dominating the business of making and selling computer mainframes. But in the early 1990s its mainframe business went into decline, the group lost its reputation for innovation, and the company became sclerotic and bloated, dragged down by rigid silos and a wave of internal bickering. In 1993, the IBM board removed the chief executive officer and installed Lou Gerstner, who implemented radical restructuring. Previously the company had been split among separate software, hardware, and services departments; like Sony, IBM was marred by silos. But Gertsner forced the different departments to collaborate to create a more unified technology offering, and that helped to refocus the company away from the dying mainframe computer business to new areas, like software. That sparked bitter battles. But Gerstner’s silo-busting reforms eventually triumphed, delivering one of the most remarkable turnabout stories in American corporate history.25 So Stringer contacted Gerstner and asked for advice on how to revitalize Sony. “Lou became like a mentor of sorts,” Stringer recalled. “He kept saying: ‘You have to tackle the silos! You have to be bold!’ So that is what I decided to do.”

  Stringer set to work. He asked his staff to prepare a PowerPoint with some pictures of Midwest grain silos to show the baffled Japanese officials what a silo was. “The silo metaphor in business is really a description of the subcultures within an organization that have become islands and don’t communicate horizontally or even vertically within their own organization,” he told the Sony staff via an internal newsletter.26 Of course, he went on to explain, the presence of silos was not always bad; specialization was often beneficial, if not essential, when companies became big. “The original design of silos in the business sense of the word was to create a self-contained team [so] they can be quite positive . . . and foster good qualities such as teamwork, friendliness, shared experience, and loyalty. PlayStation is an example of a very successful silo where a group of people were able to start something, create a vertically integrated business model, and flourish outside the giant bureaucracy of a big company.” But the problem with silos was that they could become dangerously introverted. “When the team doesn’t communicate with other teams . . . [or] communicate up and down its own vertical hierarchy, it ceases to become transparent and is not able to take advantage of the changes in the rest of the company or in the rest of the world,” he noted. “When people talk about silos in Western businesses, they usually mean that a company has grown too large . . . [the silos are] all very guarded and protective, the management of the company simply loses touch with what’s going on.”

  So Stringer announced that he would shake up the company. In the autumn of 2005 he and Chubachi unveiled a big restructuring plan, which tried to slim the company down by cutting almost a tenth of Sony’s 180,000 staff,27 reducing the different business models by 20 percent,28 and trimming the manufacturing sites from sixty-five to fifty-four.29 The aim was to turn a company that had become dangerously sprawling—or a “corporate octopus, with tentacles in multiple different business lines,” as The New York Times described it30—into a streamlined, focused entity. “If a company like Apple can build its financial strength around two or three products . . . we can redesign the look and feel of Sony to be as strong as we once were,”31 Stringer explained. The plan incorporated another crucial twist: Sony would no longer treat separate units of the company as quasi-companies, but pull the different divisions into a single, integrated structure. Idei’s silos were being dismantled. “This significant structural change is designed to eliminate the corporate silos that have prevented us from focusing our vast resources on our most competitive products,” the restructuring announcement declared, pledging this would “foster coordinated, efficient and rapid decision making.” Or as Stringer added: “The digital age is about communication between people and devices . . . that puts a whole new emphasis in the way we design products and market them.”32

  To reinforce this cultural change, Stringer decreed that groups of young software engineers would rotate between the different departments to disseminate new ideas and practices. Members of the “content” teams, who were creating software, were told to work with the engineers engaged in producing hardware. Stringer convened town halls in different departments, and put teams of software engineers in the center of the room to emphasize the point that software and hardware had to be connected. He even asked junior employees to express their views at meetings—and subvert the normal Japanese hierarchy.

  At first, Stringer thought that his silo-busting mission was going well. In the middle of 2006, when the group unveiled its results, these included some good news: after several years of losses, Sony was producing profits again, selling more of its sleek gadgets. Confidence inside the company was rising and some analysts and journalists were starting to hail Stringer’s success in turning the company around. “Sony’s picture is looking brighter!” The Wall Street Journal declared.33 Or as Fortune observed: “Sony slept through the dawn of digital media. Now Sir Howard Stringer and his polyglot crew are trying to wake the company up.”34 With an admiring tone, Fortune described all the “victories” that Stringer had won: Sony had shut down production of the Aibo robot dog, shuttered nine factories, and closed the Qualia line of boutique electronics. It had also launched a new LCD television, which had become market leader.

  But the sense of progress was short-lived. In 2007, the company posted red ink again, and its reputation and share price began to slump once more. In part, that reflected bigger economic trends. In the summer of 2007, strife hit America’s subprime mortgage market and then its banks. As the financial turmoil spread, the yen strengthened, making Sony’s exports much less competitive. In 2008, a full-blown crisis erupted, creating a global recession. That cut demand for Sony products. Then in 2010, a terrible tsunami and earthquake hit the Fukushima district of Japan, creating havoc with Sony’s supply chain. In 2011, floods in Thailand disrupted Sony’s production processes again. “I kept thinking: what else is coming?” Stringer later grimly laughed. “Plagues of frogs? Locusts? Whirlwinds? Pestilence?”

  The problems at Sony were not just due to freak weather or bad luck, though. As the months passed, Stringer realized he was dealing with entrenched resistance. In public, none of the Japanese staff ever challenged Stringer’s commands. They always nodded in acquiescence whenever he spoke. But Stringer found it impossible to monitor what was happening on the ground once he had issued his commands. He did not have his own team of loyalists installed in the Sony head office in Yurakucho, since when he had been appointed as CEO most of the senior management roles were filled by long-standing Japanese Sony officials. Stringer could not do his own casual research either, since he did not speak Japanese. “I couldn’t just wander around the corridors and bump into people and chat to them, like I had done before, because I didn’t speak the language,” Stringer later recalled. “People would say yes to me, but nothing would happen. It was like the joke Clinton made about walking over a graveyard—you can walk around as leader and have 1,000 people beneath you but it’s all deadly quiet and nobody ever talks back.�
� At IBM, Gerstner had been able to force through change because he had been obsessive about watching the details of what was being done. “People don’t do what you expect, but what you inspect,” Gerstner used to declare to his colleagues.35 Indeed, the phrase was tossed around so frequently that it later became one of the guiding mantras, if not hackneyed clichés, within IBM. But Stringer found it painfully difficult, if not impossible, to inspect much at all. “To be a really great leader you have to have a sense of what people at all levels are saying and thinking—you have to read the mood. Stringer could do that at CBS. He couldn’t do that Sony,” one of Stringer’s senior colleagues later observed. “Personally I don’t think he should have taken the job.”

  Stringer battled on. Time and again he would deliver orders, and later discover that these commands had simply been ignored. At IBM Gerstner had been able to shift the cultural patterns by force of his will: when he outlined a new policy, he had ways to make his staff fall in line. He ferociously monitored everything, watching his staff and talking to them all the time. Stringer, however, lacked the tools—or temperament—to achieve Gerstner’s results.

  One of Stringer’s first battles revolved around PlayStation. Until 2005, the division that produced the PlayStation console had operated out of its own building, as a self-contained silo, under the leadership of the powerful executive Kutaragi. This sense of independence had served the unit well in its early days, since it fostered an entrepreneurial spirit. But as time wore on, this detachment sparked more and more conflict with the Sony head office. So after he became CEO, Stringer announced that he wanted to pull the powerful PlayStation group into the Sony headquarters building in the Shinagawa district of Tokyo and integrate their operations into the rest of the company. Stringer hoped that PlayStation could be an inspiring model for other departments, showing how software and hardware could be combined in a flexible way, as technology overturned the traditional boundaries. “PlayStation was one of our crown jewels—it combined different skills and functions in a really creative way. It was all about networks,” Stringer later recalled. But the powerful PlayStation department was fiercely independent. Initially they simply ignored appeals for them to move into the head office. Then the board decided they should move. But when the PlayStation team did finally move into head office, they immediately erected a glass wall around their operations. The PlayStation team claimed the wall was needed to protect proprietary secrets; however, the symbolism was clear.