Corporate culture is vital, even more than “just research.”

The global recession has left many companies in a bind, but the news from Japan has been especially bad. There were many long faces at the InterNepcon show in late January. With consumer spending down, many electronics companies have fallen on hard times. Panasonic announced it will suffer a net loss of 380 billion yen ($4.2 billion) in its fiscal year ending in March, will close 27 factories, including 13 in Japan, and will cut 15,000 jobs.¹ Sony guided for a group operating loss of 260 billion yen ($2.88 billion) for the fiscal year ending March 31, and aims to cut expenses by 250 billion yen ($2.77 billion) in the next fiscal year.²

What happened to companies like Sony? Is it just hard economic times or something more? Many years ago, Sony founder Akio Morita wrote an international best seller, Made in Japan. The fascinating book described the incredible success of Sony and illustrated the Japanese approach toward creating products that conquer the marketplace. More importantly, in his chapter on technology, Morita talked about how “research makes the difference,” and this became part of a corporate ad.

Sony invented the once ubiquitous Walkman. Why didn’t it invent the iPod? There is a story in Japan that some engineers came up with a concept similar to that of the iPod, but management would not permit it to go forward because it would cannibalize sales of the existing product (the Walkman). Morita noted in his book that it is unwise merely to do something different and rest on your laurels. Maybe Sony forgot the lessons of its founder. According to Morita, “You have to do something to make a business out of a new development, and that requires that you keep updating the product and staying ahead of the market.”³ Maybe the lesson is even deeper than that. Maybe it is maintaining a corporate culture that permits development of new, truly innovative products.

Apple’s success is not just the result of visions of its founders or savvy management by Steve Jobs, but is in part due to a corporate culture that promotes and values innovation. Apple posted record revenue of $10.7 billion and record net quarterly profit of $1.61 billion in its fiscal 2009 first quarter ended Dec. 27. The company sold a record 22.7 million iPods during the quarter. Apple also continues to do well in its original space: computers. The company sold 2.52 million Macintosh computers during the quarter, up 9% over the year-ago quarter. Unit sales of the iPhone 3G (6.9 million) were greater than sales of the first-generation iPhone (6.1 million) during the first quarter of its debut (FIGURE 1).

Arguments also have been made that because cellphone sales are falling and manufacturers have announced thousands of layoffs, the industry’s best days are behind it. Recent announcements by Motorola on loss of revenue ($3.6 billion in the fourth quarter of 2008), compared to earnings of $100 million in the period a year earlier, have added to this viewpoint.⁴ I would argue only some companies, and not the entire industry, have seen their best days. Clearly companies such as Apple and RIM see growth in the smart phone market. Morita’s lessons apply here. Consumers want innovative products, and organizations that provide them will do well.

The global financial crisis will end, but companies that cut too deep and do not position themselves for the eventual upturn will be the losers. Survival in this economy is a necessary, but not a sufficient, condition. Drastic R&D cuts or the lack of new product development and research to understand market needs will result in companies poorly positioned for recovery. There is no substitute for smart management. PCD&F

References

1. C. Oliver, MarketWatch, Feb. 4, 2009.
2. Nikkei, Jan. 23, 2009.
3. A. Morita, E.M. Reingold and M. Shimomura, Made in Japan, 1986.
4. Austin American-Statesman, Feb. 4, 2009, p. B7.

E. Jan Vardaman is president of TechSearch International, (techsearchinc.com); This email address is being protected from spambots. You need JavaScript enabled to view it..