Sony: Why Grandiose Visions Make Grandiose Flops

Last Updated Jan 25, 2009 1:55 PM EST

sony-stringer.jpgSome CEOs have a knack for coming up with grandiose visions that are way, way higher risk than they make them out to be. They hard-sell the board, employees, and investors and everybody thinks there's genius at work until the whole thing falls apart.

Startups don't have this sort of problem, since their job is simply to focus, focus, and focus. If they're successful at that, then they get to diversify to grow faster and lower risk. But what then?

Effective CEOs know their job is to profitably grow the company by the least risky path and execute. When they hit hurdles, they make midcourse currections. When they hit solid walls, they need new direction or a turnaround, but again, risk is a factor. There's only one problem: ego. Some CEOs have big ones, and they need to be fed big diets to support their size. That's where grandiose visions come from. I fit them into three categories:

Delusions of grandeur
Sometimes, grandiose vision is simply the result of an egotistical, delusional, or otherwise dysfunctional executive. No more, no less. Enron, WorldCom, Tyco, and Adelphia all fit this description, but those are just the big famous ones. Bernie Ebbers of WorldCom was a milk man, gym teacher, motel owner who actually thought he could run a telecom empire. That's delusional, but he managed to fool the entire marketplace, for a time.

One-stop shop
This is when a CEO decides that the company is going to be the one-stop shop for fill-in-the-blank. I don't know why, but in every company where I was an officer, somebody proposed in a board meeting that we become a one-stop shop. It's more than a little eerie.

For the banks it was Citigroup and Bank of America. We all know what happened there. For consumer goods, Spectrum Brands thought it could become the next Procter & Gamble and leveraged itself into disaster. Before all that there was the 80s chip sector - Texas Instruments, Intel, National Semi - they all thought that going broad was the answer, until they learned to focus.

Turnaround gone wrong
When growth flatlines and profits dwindle, it's time for change - new direction, turnaround, call it what you want. Unfortunately, some executives take it too far. Instead of a straightforward restructuring, change in strategy, or both, they decide it's time to launch a rocket to the moon. There are plenty of examples, but Sony owns the category.

Three years ago, in My Last Sony, I wrote the following:

"Nobuyuki Idei, the company's top executive until recently [that was in 2005], bit off too much. In his zeal to turn Sony into a global entertainment company, he expanded aggressively into media content, network services and financial services. The company's once single-minded focus has fragmented. Sony's competitive battles are now fought on multiple, diverse fronts, while factions war internally."

"In June, Idei passed the baton to Howard Stringer -- Stringer has dutifully promised to revitalize electronics, consolidate operations, divest nonstrategic businesses and return Sony to healthy operating margins. Investors remain justifiably skeptical. It would take a Herculean effort to reverse the electronics division's downward spiral, and there is no evidence that Stringer has the background or the capability to engineer such a turnaround."

Yesterday, Sony announced its first fiscal year loss in 14 years, and it's a whopper - $1.65 billion net loss, $2.9 billion operating loss. Stringer's got a bunch of excuses and restructuring plans, but I'll stand by what I wrote in 2005.

What can boards do to prevent grandiose visions from destroying their companies? Their jobs. If boards actually did their jobs and provided the level of oversight and scrutiny they're hired to do and capable of, this entire problem would go away. So why don't they?

[photo courtesy of Daniel Terdiman, CNET]