The music boss confessed that, although the talent show is a great process for signing new talent, the label failed to put further efforts into developing artists outside the show.
"My mandate from my boss was, 'We've got to turn the UK back into a domestic repertoire powerhouse'," Gatfield told CBI.
"It had lost its way in terms of domestic A&R. We also needed to become a strong exporter of talent and fuel the Sony machine globally with British talent."
Gatfield explained that Sony has become over-reliant on its joint venture with Simon Cowell's Syco, which has launched the global careers of Leona Lewis, One Direction, Cher Lloyd and Olly Murs.
"Every one of our competitors would want the platform that The X Factor delivers," he said.
? Rex Features / Shoja Lak
"We have a phenomenal pipeline of talent coming through the TV formats and we're incredibly lucky to have that. But I think we relied on it too much and took our eye off the ball. We got complacent."
Gatfield ensured Sony Music UK had a "year of restructuring and consolidation" in 2012, by appointing new A&R teams and creative leaders.
"We have a whole range of new artists coming to market between now and March 2014," he said.
"We have the most nominated artists in the critics' end-of-year polls for breakthrough success, while Tom Odell won the Brits 'Critics' Choice' award."
He added: "You can't take any ?of that to the bank yet, but experience tells me that a good number of our artists are on their way to significant sales."
Watch the video for Tom Odell's 'Hold Me' below:
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