Essay/Term paper: Sony corporation executive summary

Essay, term paper, research paper:  Marketing

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. 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

be.