Sony

Executive Summery

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 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.