Since 1955, when the eye-catching SONY logo was first launched, it’s been revered within the company. It subsequently gained millions of customers’ trust all over the world since then with a wide range of innovative products in the fast changing consumer technology space. Probably it was envied and feared too in its industry in many of its competitors’ boardrooms over last five decades. Back in 1955, Tokyo Tsushin Kogyo K.K. (Tokyo Telecommunications Engineering Corporation), also known as Totsuko, a company that was established in 1946 by Mr. Ibuka, who worked at Japan Precision Instrument Co. during 2nd World War, took the decision to use SONY logo on Totsuko products. Thereafter, the logo went through a succession of changes before the catch line ‘It’s a SONY’ emerged in 1982. And in 1958, the company name followed its logo as from Totsuko emerged Sony Corporation.

The story behind this by now well-known catch line ‘It’s a Sony’ goes that Akio Morita, having seen the “S mark” logo, thought from the perspective of an ordinary consumer. He wanted a brief, catchy description to explain the “S mark.” The phrase Mr. Morita came up with was, “It’s a Sony!” Thereafter, all Sony TV commercials ended with the “S mark” followed by a voice-over saying, “It’s a Sony!” This unique combination of picture and sound quickly became recognized around the world across millions of viewers and Sony customers as a unique Sony trait, carrying with it an impeccable mark of quality, trust, and innovations that Sony represented.

Come 24th October 2006, they bowed. As U.S. Consumer Product Safety Commission (CPSC) ordered a recall, Sony executives apologized for the first time at a news conference at a Tokyo hotel on that day last week.

“We would like to take this opportunity to apologize for the worries,” said Sony corporate executive officer Yutaka Nakagawa, bowing slightly while remaining seated with Makoto Kogure, senior vice president in charge of product quality and Naofumi Hara, senior vice president of Sony’s corporate executive for corporate communications.

Sony has been hitting business headlines since 14th August for all the wrong reasons in its lithium-ion (Li-ion) batteries. On 14th August Dell, the world’s largest personal computer manufacturer, announced that it would recall 4.1 million Sony-made batteries fitted in its laptop computers. It’s been about the company’s laptop lithium-ion batteries – produced by Sony Energy Devices Corp., a subsidiary of Sony. Dell stated that complaints of battery overheating and, in some cases, catching fire prompted them to take that decision. Sony acknowledged the problem and as a good corporate citizen offered to share the recall responsibility.

By mid October 2006, as the much awaited announcement was still not forthcoming, the total number of Sony batteries recalled reached about 9.6 million units in the largest-ever tech- related product recall history globally, covering most major laptop manufacturers like Toshiba, Lenovo, Hitachi, Fujitsu and even Sony itself for its Vaio range of notebooks.

The largest previous safety recall of any consumer electronics product incidentally also involved same culprit – the lithium-ion batteries. It was back in October 2004 involving Kyocera cell phones of Japan. The biggest product recall in consumer history was in 2004 when the CPSC announced the recall of 150 million pieces of toy jewelry that had already been sold across US at mostly less than a dollar a piece. CPSC that time determined that many of the jewelry trinkets sold in vending machines in the U.S. contained dangerous levels of lead. Many practically recommended throwing the trinkets away as the best means to get rid of the potential dangers those trinkets presented to young kids.

Lithium batteries first appeared in early 1970s and in 1991, Sony for the first time commercialized the rechargeable lithium-ion batteries. By 2000, the global rechargeable battery industry was consolidated with the Japanese electronics giants namely Sanyo, Sony and Matsushita. Combined market share of these three companies was at an astounding 95%. However, by 2005, LG Electronics with Samsung Electronics Co. Ltd. of Korea, and BYD Battery Co. Ltd. of China gained nearly 35% share of the market, while the Japanese players still retained 60% share.

Before this recall exercise began, Sony was the second largest manufacturer of Li-ion batteries after Sanyo. Analysts were of the view that Sony’s battery business was more profitable than other businesses as it generated approximately 10 billion yen in operating profits. Masahiro Ono, an analyst with Morgan Stanley, was quoted in different media on 29th September that Sony’s battery division would generate revenues worth 180 billion yen (representing 2% of its overall sales) in the fiscal year 2007 while profit margin would be around 5%. However, Sony expected that its overall operating margin would be 1.6% for the year.

This round of Li-ion problem got traced to specific batches of Sony made lithium-ion batteries where trace amounts of metals were accidentally left inside the batteries during the manufacturing process. As these microscopic metal particles in these battery cells come into contact with other parts of the battery cell, a rare possibility of short circuit within the cell arises. In technical world, this bizarre incident is called a ‘thermal runaway’ (many call it a mini China Syndrome after the 1979 movie that narrates how one nuclear accident in America travels all through the world until it reaches China) leading to a self-driving mechanism of more heat generation leading to accidental conflagrations. In case of lithium-ion batteries, the microscopic heat generation activities in parts inside finally cause fire in the battery casing itself.

And the apology came more than seventy days after the first report that something was wrong in those batteries. And things only deteriorated since then for Sony, however many industry analysts’ now anticipate that the end of the dark tunnel may also be getting closer.

Sony categorically denied any speculations of hiving off this division, even though they acknowledged potential loss of customers and market share in Li-ion batteries due to this problem. Sony is replacing the batteries free of charge in the recall. Its impact on Sony’s erstwhile profitability estimates is making some severe impact – it would add by $429 million in expenses in the July-September period alone whereas another 3.5 million recall is likely to have its cost impact in present quarter. Expectedly Sony stated its estimate of $427 million may grow over time as more cases get reported.

Sony announced its quarterly results in the same last week after that apology reflecting the cost side of the recall picture. Although net profits of Sony’s first half of the fiscal year of 2006 jumped 60.2% on year to year basis to 34 billion yen, the company’s profits in the second quarter of fiscal year of 2006 shrunk by 94.1% to 1.7 billion yen, down from 28.5 billion yen a year ago, and down from 32.3 billion yen the quarter ago. No prize for guessing what acted as the spoilsport in these numbers.

The overall cost of the recalls has all the potential to spiral to a billion dollar over the time. But that’s the monetary part of it. Markets reacted by hammering the script down by 20% (it’s present market-cap is around $41.54 billion) since the recall news broke out, taking it below $38 in New York Stock Exchange (NYSE) in the first week of October before it started signs of some recovery.

In 1946 when it was established as Totsuko, it’s founding prospectus under Mr. Ibuka read: “The first and primary motive for setting up this company was to create a stable work environment where engineers who had a deep and profound appreciation for technology could realize their societal mission and work to their heart’s content.”

Keeping that promise, the company so far has presented the world with many-a-break- through technology products. Sony could have shown more ‘societal mission’ had it followed more proactive means by initiating the recall with all its clients on an earlier date if not on day 1 itself. It rather waited for its clients to bring the bad news as messenger boys do.

As businesses globalizes, so do corporate culture and practices. A major part of present world no longer live with its age-old strong societal practices as its found in Japan, and few other emerging countries. Sony apologized – and in all likelihood they meant it just like consumers around the world trust ‘It’s a Sony’ product across many of its product lines. It’s immaterial how they bowed. Consumers around the world don’t care how a Lithium-ion battery is made or how tech-related consumer electronics are made. They would like it to be safe – for all possible working conditions.

“CEOs need to remember that the public expects them to do what’s right, not just what’s required,” said Jonathan Bernstein, president of national consultancy Bernstein Crisis Management. With examples like Bridgestone/Firestone, and Merck, who learned the lesson of product recall the painful way, question remains how fast Sony would overcome present round of crisis in its image.

The battery recall in effect raised queries in few sections of consumers mind – may not be severe at this moment but it can’t be ignored either. Would it, after all these battery recall, still be a Sony as it’s been there since last more than twenty years in its catch line ‘It’s a SONY’.

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