Sony's Growing Pains

Sony (NYSE:SNE) may be currently in the news because of the expensive recall of batteries it manufactured for Apple (NASDAQ:AAPL) and Inside Value selection Dell (NASDAQ:DELL). But there's more to Sony than one costly mistake. The company is experiencing growing pains as it changes its culture and structure from the inside out.

All companies make mistakes, and I'd argue that Sony, more than others, has issues with product reliability. I experienced this firsthand, as the owner of a VAIO computer that caused multiple headaches. Friends with Sony televisions have also reported malfunctions, and when I was living in Japan a couple of years ago, a number of friends and relatives repeatedly counseled me to steer clear of a Sony product if a similarly equipped model from Sharp, Canon (NYSE:CAJ), or Matsushita Electric Industrial's (NYSE:MC) National brand was available. But Sony's latest battery defects are more worrisome than the usual quality defect because of the potential safety problems they pose.

The other -- and possibly larger -- story at Sony involves fundamental changes within the firm. Its quality issues can ultimately be resolved, but Sony's business still needs to get leaner. The company is now focused on removing layers of bureaucracy and improving its manufacturing operations, which should cut costs and help remove artificial barriers between the company's different businesses. While such initiatives are very boring to watch from the outside, they could be very important to reestablishing Sony's competitive power.

Despite its quality issues, Sony isn't entirely broken; its products and designs remain compelling to customers. The hoopla over the upcoming PlayStation 3 game system is one example; another is its recently released digital-SLR camera, based on technology it purchased from Konica-Minolta last year. According to a recent Asahi Shimbun article, the newest model temporarily displaced Canon and Nikon at the top of the digital-SLR heap, though Sony's share of sales has since fallen back into second behind Canon. And despite my problems with my VAIO, when I recently shopped for a new laptop, comparing features, weight, and price, a couple of Sony models wound up in the running. Even with its problems, the company's products attract attention and sales.

The costs of Sony's battery snafu will be a drag on its results, and could temporarily tarnish the company's image. But ultimately, future success will depend more upon management's ability to reorganize and refocus its business. I believe that a focus on product quality could become a part of any subsequent phases in this transformation. If Sony becomes more vigilant about quality, it could become a fearsome competitor; its innovation, designs, and feature sets are already among the industry's most compelling.

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At the time of publication, Nathan Parmelee owned shares in Canon, but had no interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy .