Sony Corporation Executive Summary
- Length: 3068 words (8.8 double-spaced pages)
- Rating: Excellent
Sony Corporation Executive Summary
Sony's current financial difficulties are tied into its corporate culture which
were stated over 30 years ago. With such a large
multinational corporation, greater planning and more use of
strategies should be pursued. Sony could start with the
implementation of a new mission statement, with profit and
benefits of the company tied more closely to everyday
operations. Internally, the four forces, the management, the
designers, the production and the marketing should achieve
better communication and cooperation. Alliance and
cooperation between competitors should also be actively
sort after in order to create standards in new fields. Sony
should aim at being the leader instead of being the
maverick. As for cost cutting, Sony should seriously
consider setting up operations in other Asian countries in
order to take advantage of the cheap labour and the
budding markets. Finally, diversification, instead of pursuing
the fast changing and easily imitated consumer goods
market, Sony should use its technological know-how for
high-end business and office equipment. With SWOT
analysis and Porter's competitive forces model, we can
view that the market is much more competitive with less
profit margins and lead-time for product innovation. The
conclusion is that change is needed in Sony. However,even
with strategirial and structure change, the Sony spirit of
innovation should remain intact because that is what made
Sony grow and would make it stay strong. Introduction
The first thing that comes to peoples minds of the company
and products of Sony is its
high-technology-filled-with-gadgets electronic goods and
innovation. It was also this innovation that make Sony the
greatest company that started in post-war Japan. Sony has
used its innovation in building markets out of thin air,
created a multibillion, multinational electronic empire with
products such as the transistor radio, the Trinitron, the
Walk-in and the VTR. that changed everyday household
lives forever. However, this consumer targeted quest for
excellence and constant innovation instead of targeting
mainly at profit also has a lot to do with current crisis Sony
is facing - sales and profits are down or are slowing down,
capital investment cost and R&D are climbing, competitors
are moving in with copycats, the battle between VHS and
Beta and the search for a smash hit product such as the
Trinitron or the Walk-in. This volatility and emphasis (or
gambling) on new products instead of concentrating on
profit and loss statements have always been a part of Sony
since its beginning days. For each successful product (i.e.
transistor radio and Trinitron), R&D cost often ran so high
that the they pushed the firm to the verge of bankruptcy.
This can also be seen through the eyes of the investor in
which although sales have increased tremendously
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Sony Corporation Executive Summary Forces Model Thin Air Mission Statement Corporate Culture Cooperation
throughout the past twenty years, the stock price has
remained relatively low. History and Culture The current
Sony corporation has a unique culture which is firmly
rooted in her history especially in relationship to her two
founders, Masaru Ibuka and Akio Morita. Ibuka and
Morita were both dedicated electrical engineers and
geniuses above their business talents. Both gave insights
and visions in what the company should make and how it
should be made. Ibuka, especially, gave constant advice
and suggestions to the engineers involved in projects from
the earlier on transistor radios to Walkmans. This created
the umbrella strategy in which Sony operates under where
the top management, especially Ibuka, Morita and now
Norio Ohga gave the general direction in which the lower
engineers actively learned, developed and improved on the
vision/idea. Therefore, although there is a planned direction,
the actual product development through launching is
emergent with great flexibility. Although the research and
development section of Sony differs greatly from other
companies with its great flexibility, Sony, in its essence is
still a traditional Japanese company in many ways. There is
life-time employment, with strong norms and values which
in turn create strategies through their actions. Status is given
(the crystal award) instead of bonuses (not significant
amount) for superior achievement. There is also the strong
seniority system such as the mentor and apprentice
relationship that is typical of a Japanese firm. All this can be
classified as the cultural school in which strategy formation
is of collective behaviour. Collective vision and stress on
human resource, which is typical of many Japanese, can be
clearly seen in the mission statement "Management
Policies". Weaknesses and Threats Referring to Exhibit 1,
sales has slowed down considerably since the beginning of
the 80s. In the domestic market, sales actually decreased
by 7.22%. The overseas market expanded both in real
terms and relative to total sales, but slowed down to
around 10% a year. This can be seen as the vacuum period
between one hit product, the Walkman, and its succession.
As mentioned by Ibuka, business is conducted in a ten year
cycle. However, in the eighties, the product might still take
a few years to develop, but the time reaping the results and
profits might be much less. As seen in the VTR example,
both the VHS and Beta were developed by Sony.
However, in a short time, Matsushita could come up with a
competitive product based on Sony's technology.
Therefore, it is fair to say that other electronic firms would
be able to copy Sony's technology in a much shorter time
while offering more competitive prices. The margin for
technology advancement is therefore diminishing.
Associated with innovation is the capital expenditure cost
and return on investment ratio. As seen from Exhibit 1,
capital expenditure has risen dramatically, especially in
1981, due to the automation of plants. However, the return
on investment has decreased. Spending around 10% of
sales on capital investment is by all company standards an
extremely high figure. The question is that does this high
rate of investment represent corresponding growth in
profitability? As mentioned above, the diminishing returns
from product innovation is apparent. However, the internal
dimension also poses as much of a problem. With its great
freedom, research and development are divided into small
teams which are free to pursue their interest with little
reference to "how it will fit into a market, what the product
can do, how well it will function or how it could be used by
customers." Secret projects without management knowing
about them until "secret reports" are submitted are of
common practice. With this kind of practice, there is lack
of communication between management and R&D and
threat of duplication of resources among the small groups.
There is also a lack of general direction. This would be
especially prominent when Ibuka and Morita, the symbolic
leaders and founders retire. This is because the two in
many ways act as the main guidance and bridge between
management and the engineers. Therefore, there is also a
succession problem. Sony has always been a leader in
technology, creating markets by looking for new markets
where bigger, well-established companies are not a threat.
However, new products such as VTR, the Walk-in and the
Mavica involve both hardware and software. Sony can no
longer just produce superb quality machines and expect
them to sell. The software would also have to be available.
For the Walkman, cassette tapes were well established but
for the Beta system and Mavica, a standard has yet to be
set. For example, the images of Mavica would be held on a
high density magnetic disk but Kodak, 3M and Sony all
have different systems and are not compatible. The Mavica
system also stands alone with little compatibility with
conventional systems and little transitional interfaces. This
leads to the problem of cooperation where Sony is often
the maverick, alone creating markets. With Sony entering
markets such as the VTR with no standards, it might be
beneficial to both Sony and other vendors if they
cooperated instead of competing on conflicting software
that supports the systems. This could also be seen in
Exhibit 2, the Porter competitive forces mode: new entrants
from other Asian countries, other Japanese industry
competitors, substitutes and buyers are all strong and much
stronger than 20 years ago which reinforce the weakness of
Sony acting alone. Last but not least, Sony lacks strategy.
Product development, manufacturing and marketing are all
well established but the firm lacks any formal long term
direction. The original mission statement is also outdated
with its references to W.W.II. Short term strategy is also
lacking and there is little emphasis on profit and
accountability of research and development of products.
The result: a company with strong components but unable
to coordinate in a coherent way in order to achieve
maximum potential. Strengths and Opportunities The
greatest asset of Sony is of its human capital, especially its
engineers which make up the R&D department. Their
constant innovation is crucial for a consumer electronic firm
which specializes in audio-visual equipment and the higher
profit margin, which comes from being the leader of the
pact. Subsidiaries are also well established, such as in the
United States and Europe which give Sony a distinct local
hands-on knowledge of the local market. It also makes
Sony an international corporation, bringing together the
talents and best of strategies of both world to the
organization. Besides the employees, the two founders,
Ibuka and Morita also legends in their fields which they
create vision and sense of direction for the organization.
The also acts as bridges between the employees and the
management. The self promoting system and job rotating
systems creates satisfaction for employees and give them
greater exposure to all aspects of the business. Ideally, this
would produce better products as engineers gain
knowledge on consumer needs while marketing people
engaged in the production and can give their point of view.
The innovative style also stems from the "never copy
others" culture, the generous funding of the R&D and huge
amounts in capital investments. As described by Ibuka,"It
also stems from consumer driven in which technology is
targeted at consumers or business while American
electronic industry are spoiled be military and space
applications." Sony has been ahead in the race of Video
Tape Recorders and digital imaging techniques in Mavica
which both offer tremendous potential of household
penetration and sales. It also has the opportunity to set up
standards and dominate the field. Sony has also acquired
enough technology to increase width by going into the high
technology business fields. With the rise of the Asian
countries, Sony also has the opportunity to make use of
them for markets and for cheap labour. Recommendations
Building of Strategy With the succession of the two
founders at hand, it would be very difficult for the company
to find someone as visionary, as respected and with the
same engineering background to lead the umbrella strategy
company. With Sony as a much international company with
major branches in Europe and the United States and stocks
listed in 23 stock exchanges, the Japanese cultural school
strategy is not sufficient. Becoming a mature company, the
strategy should also change to more profit orientated.
There should also be greater emphasis on market share,
especially in Japan where Sony's market is shrinking.
Strategy should be aimed at greater control and
communication between manager and workers, especially
the engineers in the R&D Department. A more planned
strategy should be adopted, which should outline the
general direction of the company. Diversification One
direction which is possible is concentrating more on
electronic know how in non-consumer business. Currently,
the buyer has much more choosing power and competition
is fierce (Exhibit 2). The competitors are also able to copy
the product in a much shorter time. To create larger profit
margins, Sony should concentrate on the business sector
and industries, supplying high technology equipment and
parts. This would make full use of the R&D Department,
the strongest advantage of Sony without waiting for the
price cutting and technology adaptation to fit the average
consumers needs. This would also make Sony less
dependent on coming up with a steady stream of relatively
short-lived hit products, and able to use its unique talents in
video and semiconductor technology to create its version of
the office of the future. Although the Sony name is often
related to expensive, high-profit end of the market, the
organization should also expand its product range by
offering lower priced, simpler featured products that would
compete head on with other copycats. With the lower
priced line, Sony can also increase its market shares in both
overseas and Japanese markets. Alliance and Cooperation
Sony should try to become a leader instead of a maverick.
The difference is great, the leader, besides a great
innovator, should also be a great coordinator. New
products, which involve both hardware and software such
as the Mavica, should try to achieve industry wide
standards. The standard may not be the best or the one
created by Sony, but Sony, by pioneering in the field first,
would already have a significant head start and the
standards is just a way to ensure stability to allow Sony to
concentrate on product development and improvement.
This is because Sony is not large and strong enough to
acquire and provide both software and hardware for one
product. They also lack the know-how to the creative
software market. Consumers also prefer to have the ability
to choose between competitive equipment. Internally, the
different R&D groups should cooperate more. The product
line should also be made more compatible with one another
which is crucial through the communication between groups
and managers, i.e. no more secret projects. Products
should be made with higher added value and longer life
rather than making frequent model changes. This is also a
shift from a manufacturer-orientated mentality to a
consumer-orientated mentality, which is a way to save
natural resources. The brand-line compatibility also builds
brand loyalty for consumers. In relationship with the other
Japanese consumer electronic firms, a more cooperative
attitude should also be taken. Just like when Japanese took
over the US market through cheap yet quality consumer
goods, other Asian countries such as Taiwan and South
Korea, with their lower labour cost, pose as great
competitors at the lower end of consumer goods.
Therefore, the Japanese firms should cooperate in setting
up standards in high technology areas in order to reap
maximum profits and extend the technological lead-time
over their fellow Asian countries. Cost Cutting Cost cutting
is important because R&D plays an integral part in the
success of Sony and cannot be cut drastically although it
gobbles up 10% of sales. Therefore, the only way to
improve profit margins is to cut cost. Sony currently has
factories in the United States and Japan. Although this is
good for relationship of the firm in a foreign firm and offers
a chance to pay suppliers with local currencies, Sony is not
fully making use of other lower cost areas in the world,
especially Asian countries such as Malaysia, Thailand and
the Philippines etc. By setting up factories in these
countries, Sony can take advantage of their cheap labour
and also get a head start in their budding consumer
markets. As mentioned above, products should be refined
instead of reinvented so that there would be less set up cost
and greater automation could be achieved. Integration of
production, design and marketing In many ways, designing
and developing of a product is separate from the
production and marketing. Although there is job rotation,
the design stage is backed by intuition and experience
rather than market research and analysis. Often, the rational
is that it is the marketing personnel's job to find a market
for a product after it has been developed instead of the
other way round. To cure this phenomenon, R&D should
listen more to what the consumer needs and then innovate
instead of always creating new markets. With great
freedom, the designing team should also take on greater
responsibility in making the product fit to the current
production pattern and marketing aims. They should also
be made more responsible to the profit and lost of the
particular product. Empowering these three separate
groups create conflict, but it also brings these separate
efficient groups together achieving synergy. Implementation
Internally, strategy should be reviewed beginning with
renewing the corporate goals. It should integrate together
both the Japanese work ethic and its western counterparts.
This is possible, because Sony is a multinational
corporation with employees and customers in many
different countries. This involves writing the importance of
profits and its responsibility to shareholders in the
statement. Integration of the company, the designing,
production and marketing should be encouraged, with
increased communication between each groupand the
management acting as liaison and guidance. The
management should be providing the organization with
specific goals and strategies for the short and long term.
These changes are intended to balance business Vs
engineering. Setting up alliances with fellow electronic
manufacturers / competitor is crucial to mutual benefit so
should be pursued as soon as possible. In areas such as the
VTR, Sony has to decide what standard the world is
adapting and make decisions to cut off setbacks. For new
products such as the Mavica, new standards for the
industry should be actively sort after with commitment from
other competitors and conventional producers. This is also
a change in culture for Sony so top management has to
actively push and pursue for this direction. Cost cutting,
with emphasis in making use of lower cost of labour in the
Asian developing countries should then be implemented.
This could also be seen as a long term strategy. The work
force could also be made more flexible. Finally,
diversification, with emphasis on making business supplies a
major part of Sony's business. This is one of the long term
goals in which Sony should thrive to achieve. However, the
end product ratio between consumer and business
products should be constantly reviewed throughout the
process to achieve the optimum mix. Conclusion Although
other electronic firms are taking market share and profits
from Sony by being copycats, the heart of Sony's success,
the innovative spirit and quest of excellence and perfection
cannot be copied. Sony's main task is to integrate its talent
by placing common goals and priority for this increasing
competitive market. Sony also has the potential to innovate
into a company with international operations as well as
culture since it was one of the first Japanese companies to
set up a main branch in the United States. With strategy
and luck, Sony could become a great firm as it was and will
Sony Case Study
- Length: 1953 words (5.6 double-spaced pages)
- Rating: Excellent
Sony Corporation is a multination conglomerate corporation headquartered in Tokyo, Japan , and one of the world's largest media conglomerates with revenue of US$88.7 billion (as of 2008) based in Minato, Tokyo .
Sony is one of the leading manufacturers of electronics, video communications, video game consoles and information technology products for the consumer and professional markets. Its name is derived from Sonus, the Greek goddess of sound.
Sony, as an organisation, must deal with the dynamic industry they operate within. They established themselves by developing a stable work environment where engineers had profound appreciation of technology and could work as freely as they pleased, focussing on developing dynamic technologies and creating products that people longed for (Mintzberg et al, 2003).
Two new managers have been appointed at Sony in the last 15 years due to a number of developing problems, including the innovation ‘cogs’ within Sony slowing down, being forced into an aggressive pricing strategy, increased competition, losing the battle of VHS and Betamax, profit and sales remaining flat and the ongoing poor performance of Sony films (Mintzberg et al, 2003). Both managers initiated major strategic changes with varying degrees of success; firstly Nobuyuki Idei was appointed and initiated a major shift from analogue to digital technology, as there was a belief that Sony was falling behind the market in this respect. Idei also targeted the top position in the audio and visual industry, a universal standard in home computer devices and a new distribution infrastructure. He believed his job was the ‘regeneration of the entrepreneurial spirit’ (Mintzberg et al, 2003), believing it had been lost.
Sony’s problems continued and were ‘most obvious in its core electronics business, which accounts for two-thirds of its revenues’ as the consumer devices such as TV’s, DVD players and music players came under fierce price pressure and Sony failed to come up with any more trend-setting new gadgets to boost profits (The Economist, 2005). Idei resigned after a series of stumbles and handed the reins to Welsh-born American Howard Stringer, a former television executive (Dvorak, 2005, p.1). Prior to joining Sony, Mr. Stringer had a distinguished 30-year career as a journalist, producer and executive at CBS Inc (www.sony.net).
Stringer aimed to unite cutting-edge technology with entertainment content while reviving Sony’s electronic business. To combat the price drops of rivals Stringer streamlined Sony, unveiling a sweeping restructuring plan that cut 10,000 jobs, shed a number of unprofitable divisions and products and attempted to centralize decision-making (Palmer, 2006).
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Woods (2006) identified that ‘Sony has started to respond faster to changes in the operating environment by focusing more on software and services as well as by streamlining its chain of command’ (p. 17), while this new team was commended for accelerating the pace of change within Sony (Woods, 2006).
Sony now focuses on three core sectors: electronics, games and entertainment, concentrating on the revitalization of its electronics business through structural reforms and a more defined growth strategy (www.sony.net, 2005) while focussing on a centralized decision making process and developing a ‘top-down’ leadership approach (for Sony’s new business strategy see Appendix 1).
Mintzberg (2003) identified that the ‘one best way’ for organisations or ‘contingency approach’ are no longer enough to base a strategic change around. Mintzberg instead believes that structure and strategy exist interdependently and influence each other. He identified that every activity revolves around the division of labour and the coordination of tasks, and the way this is done shapes a company’s structure. Mintzberg believed that situational factors influence the choice of the structure and strategy design such as age, size, environment, power and technical system.
According to Mintzberg Sony are restructuring into an innovative organisation as they have a number of support staff i.e. the innovative workers, and they are centralized with their decision-making. Sony are attempting to re-establish their internal progression through innovation with their new strategy.
Organisations need to adapt to changing environmental conditions to develop (Herber et al, 2003), Sony appointed Stringer to keep up with the dynamism of the environment.
Herber at al identified six new organisational forms that companies can develop into depending on company goals and authority relations on the one hand and the nature of changing market and technology on the other. Sony’s new strategy has developed around a centralized decision making system and one that relies on innovation from all workers while their goal is for growth and market leadership in a highly dynamic market and technological environment.
Therefore Herber et al would regard Sony as a ‘Sense and respond Organisation’ where they meet ever changing needs and wants of the customer and work on the premise that unpredictable change is inevitable, while using ideas and information from all levels of the company, in this Sony are building upon their core competences.
When examining companies’ strategic changes, a key concept to consider is McKinsey’s 7 ‘S’ Framework to identify how they achieve their ‘super-ordinate goals’. When deciding upon a strategy to take a company can either develop their positional characteristics based around Porter’s 5 forces and 3 generic strategies or focus on their strategic intent (Hamel and Prahalad, 2003).
Due to Sony operating in a dynamic environment they are unable to be based around positional concepts and therefore act to capitalise on their core competencies, a more ‘inside-out’ corporate strategy where emphasis is placed on developing and building upon core resources.
Although preserving the core of a business and being ‘excellent’ at what you do (Peters and Waterman, 1982) is key for a business this must be complemented with a continual growth. A form of continuous improvement, or ‘Kaizen’ to maintain a competitive advantage is required, Sony should have attempted to achieve this to build upon their market leadership. Collins and Porras (1994) found that ‘companies which had a core ideology and preserve it over their long history perform at extraordinary levels’ (p. 6) while ‘visionary’ companies outperform other organisational systems, from this it is clear Sony were required to develop a long term growth strategy rather than rest on previous actions.
Organisations need long term ambitious goals to serve as a focal point of effort, something that Sony has done with their stated intent to develop ‘cutting-edge technology with entertainment content’ and to develop new products, Sony have also strived to regain their innovative culture and to allow their employees to develop ideas, concepts that Collins and Porras (1994) said were crucial. Sony fell behind their rivals before Stringer arrived because they were satisfied with what they had and didn’t attempt to continue moving forward, Collins and Porras identified that a company must believe that ‘good is never enough’.
Hamel and Prahalad (1990) stated that companies must create something new and not rest on simply ‘fitting in’ again continuous improvement, something that Sony are trying to achieve however they may find that they are too far behind, due to previous years complacency, and therefore a more radical change is required.
Continuing on from the concept of continuous improvement, Nanaka (2000) recognizes the need to convert tacit knowledge, which is hard to formalise and difficult to communicate, into explicit knowledge that can be shared throughout the firm. If this can be achieved then the organisation will be able to make strides of improvements through ‘continual learning’, this is a concept that McKinsey’s framework acknowledges as important i.e. shared knowledge of skills.
Nohria et al (2003) combined the need for continual improvement while being focussed on the core of the company with their ‘4x2’ model.
It is a concept that can be used to identify how successful Sony will be and if they have done enough in their strategic change. Nohria et al also states that organisations require to excel at their strategy, execution, culture and structure indicating that it doesn’t matter what forms they chose as long as they excel at them. Sony’s strategic change saw them reform their structure, culture and strategy in an attempt to improve their fortunes. Nohria’s et al model suggests that Sony could have improved their performance by not changing their strategy per se but instead focus on excelling at what they were already doing, but were Sony too far behind in their market to do this?
The fast changing technological industry coupled with the increasingly competitive market that Sony operates in made it imperative that they undertook a form of strategic change, which could be either be radical or incremental. Stringer made small incremental changes such as centralizing the decision making and streamlining the company while no real radical changes were made. Sony found themselves in trouble after a number of years of complacency and not being proactive in the market; something that caught up with them and why they were required to take a more reactive stance.
Handy (1990) identified a ‘sad and predictable sequence’ of change for organisations and it seems as though Sony are following this trend through a recognition of the problem, the ‘freight’, followed by employing ‘new faces’, in Sony’s case the appointment of Idei and then Stringer. The argument here is that Sony could adopt a less predictable change of strategy as a source of gaining competitive advantage and bettering their position.
The argument lies as to whether Sony would benefit from more radical changes. Quinn and Voyer (2003) would conclude that Sony are taking the correct steps for success. They believe ‘Logical Incrementalism’, with sets of small changes including a basic framework and a long term goal is the greatest way of reaching a companies target, Sony are doing just this with their long term goal of increasing market share coupled with the various small changes implemented.
While Tushman et al (2003) believe that companies can achieve success through ‘fine tuning’ and ‘incremental adaptations’ and not through ‘frame-braking’ change which they find can be harmful to a company, however they do recognise that most effective management would foresee the need for major change and apply incremental changes to prevent any radical change. Stringer was unable to foresee any change as he only recently became manager so it may be too late for incremental change and a more radical approach might be necessary.
Sony became a success due to their ability to produce ‘disruptive innovations’ (Christensen and Overdorf, 2000) which other companies were unable to keep up with, for example their Walkman and transistor radio (Mintzberg, 2003). Sony are now faced with the need to keep up with their competitors, Christensen and Overdorf (2000) identify that when an organisation is too large it is unable to alter its values or processes to adapt to any changes in the market.
Sony have experienced this with Apple’s release of the iPod. Recently Sony have relied on simple ‘sustaining innovations’ without attempting to develop any ‘destructive innovations’, again a sign of complacency.
It is clear that the biggest strategic change that Sony undertook was the appointment of a new top management team headed by Stringer.
The question lies as to whether this type of manager was the correct choice and whether appropriate strategic leadership was undertaken as Ireland and Hitt (1999) identified that companies are reflections of the top management. At the time of Stringer’s appointment Sony required more encouraging periods, Kotter (1988) views top personnel as leaders rather than managers and explains how it is key for leaders to act to obtain long-term direction and commitment.
Stringer initiated more top-down leadership to achieve Sony’s goals for the upcoming years, something that Kotter says is key as he identifies the need to ‘create visions’, ‘motivate’, ‘establish direction’ and ‘align people’. Ireland and Hitt (1999) developed six components for successful strategic leadership including determining a firm’s vision, maintaining core competencies and developing human capital, all aspects that Stringer has developed upon with his insistence to develop new technology and benefit from a centralized decision making system.