The number one cause of management failure is said to be poor communication and interpersonal skills.

However, the number one cause of business failure is reputed to be poor leadership. In particular, an

inability to lead a company’s strategy for coping with environmental changes can be disastrous. However,

sometimes environmental shocks are so great that they could be the reason why companies experience great

swings in fortune, regardless of leadership efficacy.

Sony illustrates this argument well. Cardiff-born Sir Howard Springer was appointed CEO and Chairman of

Sony in 2005. Sir Howard inherited a badly run, bloated company that had missed the flatscreen television

boat. Sir Howard quickly overhauled the Japanese giant. He spent his first years as CEO sidelining

deadwood managers who had tried to sabotage his reforms, and promoted talented young ‘whiz kids’ in their

stead. He shifted production overseas (as most companies do these days), outsourced many of its operations,

developed new business units and sold others.

But what happened thereafter? On the up side, Sony’s sales of computers rose by 28 per cent, sales of TV

sets rose by 44 per cent, and its mobile-phones and games turned profitable in 2010. Television business

losses were reduced, and outsourcing of TV assembly increased to 50 per cent in 2010 — up from 20 per

cent in 2009. Only time will tell whether the increase in outsourcing will result in the continued production

of high quality products. Recently, Sony has produced new smartphones and formulated a strategy to

encourage developers to design new video games for them.

On the down side, the company lost money for three years in a row in 2008–10. Hackers broke into the

company’s online database, exposing customers to a potentially massive breach of confidentiality; and the

share price fell by a quarter before the end of May 2010. The question then arises: is this the leader’s fault?

The Economist believes that it is more a series of environmental disasters that contributed to Sony’s woes

than bad leadership.

Sir Howard has suffered a string of bad luck. Before an earthquake walloped ten of Sony’s factories, the

firm was expected to report a net profit of Y70 billion [$817 million] for the year to March 31st 2011. But

the quake will have cost it some Y17 billion that year and Y150 billion the next. The cyberattacks will also

cost billions, says Sony. Its network was hacked again this week, affecting users in Greece, Canada and

elsewhere. Analysts guess that the breaches could cost Sony Y100 billion.1

The rapidly deteriorating economic conditions that resulted from the global financial crisis affected almost

all companies in the world, including Sony. Early in 2009, Sony revealed just how much the GFC hurt it, in

particular because of a consequential strengthening of the yen (which hurts exports) and a tightening of

consumer credit. It slashed its yearly sales forecast by about 14 per cent (or US$15 billion).2 Sony is also

deeply worried about the Eurozone crisis and its impact on demand for its products, many of which could be

termed discretionary purchases.

Following a fourth consecutive year of losses, Sony named Kazuo Hirai as Sir Howard’s replacement CEO.3

Hirai says that he wants to turn Sony around in the same way that Apple roared back.4

Question

Is it the leadership, environmental changes or a bit of both that are responsible for a business’ ups and

downs?