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Why Are Japan's Electronics Giants Failing?

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We recently learned that Sharp Electronics is projecting a $5.6 billion full-year loss. They warned that the company had material troubles and didn't even know if it could survive.

Panasonic, another classic name that we've all bought products from in the past, has a forecast of a $9.6 billion annual loss. This includes losses from products including solar panels, batteries and primarily their mobile handset business.

The third and most classic name of all is probably Sony. They are amazing in that they own the content, the devices (including phones, televisions, PlayStation, and their desktop and laptop computer models), and the content creation component (owning both music and film studios). Yet they are posting a loss of $194 million...for the quarter (not for the year). In all categories, their sales have continued to fall. 

In contrast to these three companies, we have companies like Apple and Samsung. Although Apple's stock has been down in recent months, Apple (as well as Samsung) has been doing well this year.

What's happening? In essence, Sharp, Panasonic, and Sony have not been using the certainties hard trends offer and instead have been reacting and following instead of anticipating and leading. These three large companies have always been known as innovative, but they're no longer on the leading edge. They've failed the vision test and have fallen to the bleeding edge of innovation.

The terms "leading edge" and "bleeding edge" used to have a different connotation than what I'm giving them today. In the past, the "bleeding edge" meant you were on the cutting edge of innovation. Unfortunately, on the cutting edge, the knife is sharp. You end up bleeding because you make mistakes launching new products, as some work and some don't.

One of the strategies I've always shared with companies is that I don't want you on the bleeding edge of the blade. I want you on the leading edge of the blade, because there are sharper parts and duller parts of that cutting edge. One way to be on the leading edge, rather than the bleeding edge, is to look at other industries and the innovations taking place there. Then, use those innovations in your industry, where they haven't been done before.

This way, the innovation has been tried. The bugs have been worked out. The bleeding has taken place by other industries.  And now, by bringing that innovation into your industry, you can be the innovator without doing all the bleeding because other companies have already done that. That's how you can lead and not bleed.

This is a sound strategy. But when it comes to tech giants like the Japanese electronics firms, they have all failed to use the three change accelerators I described in my book Flash Foresight - processing power, bandwidth and storage and the exponential and predictable trajectory of each one to envision and create the must have products and services consumers will pay dearly to have.  Instead, they have only implemented incremental innovations that make them look like they are following the leaders. As a result, many of their products have a "me too!" look and feel.

Let's use Sony as an example. One of the problems they're having is with gaming. Why? Because gaming is increasingly moving to the phone and the tablet, which means that people don't necessarily need to buy the gaming device in order to have a great gaming experience. Of course, this doesn't mean that we will see an end to those higher-end gaming systems. However it does mean that as phones and tablets get more powerful and tap into the computing process up in the cloud, game unit sales will increasingly have to fight an uphill battle. So while Sony needs to keep creating innovative gaming systems for their high-end customers, they also need to make sure they are porting the software over to work well with innovative peripherals they can sell to smart phone and tablet gamers to create better gaming experiences for this rapidly growing set of users. This is only one small example of how Sony can use hard trends to create innovative new products.

The point is that whether you're making phones, tablets, e-readers, gaming systems, movies, or anything else, you have to look at where technology is going using hard trends and the power of certainty if you want to anticipate rather than react.   Another simple example is that smart phones are becoming smarter every year, and at an exponential rate. Also, we can store almost unlimited amounts of movies, videos, and games in the cloud. And as the devices become less expensive, the functionality gets even greater. Using these simple hard trends, you can then start to see how to create innovative products that take advantage of the predictable changes they represent.

My message to the Japanese electronics companies is to shift from reacting to change to anticipating it by using the certainty of hard trends to drive game-changing innovations that will position you as a leader rather than a follower.