Sony Corporation Executive Summary 1680 Essay Example

radio, the Trinitron, the Walk-in, and the VTR. These products revolutionized households worldwide. However, Sony's focus on consumer satisfaction and constant innovation, instead of solely pursuing profit, has contributed to the current challenges they face. Sales and profits are declining or slowing down, while capital investment costs and research and development expenses are increasing. Additionally, competitors are entering the market with imitations, and Sony is engaged in battles like the VHS versus Beta format war while also searching for another blockbuster product like the Trinitron or the Walk-in. This unpredictable nature and preference for new products rather than profit maximization have always been integral to Sony's identity since its inception. Remarkably, the high R;D costs associated with their successful products often brought the company to the brink of bankruptcy.

From an investor's viewpoint, despite substantial sales growth in the last twenty years, Sony's stock price has remained relatively low. The current culture of Sony is closely tied to its history and the influential roles played by its founders, Masaru Ibuka and Akio Morita. Both Ibuka and Morita were highly skilled electrical engineers with exceptional business acumen. They offered valuable insights and visionary ideas on the company's products and manufacturing processes.

Ibuka played a crucial role in providing constant advice and suggestions to engineers working on various projects at Sony, ranging from transistor radios to Walkmans. This approach established a strategic framework for the company, wherein top management, including Ibuka, Morita, and now Norio Ohga, provided general direction while lower-level engineers actively learned, developed, and improved upon the vision and ideas. Consequently, product development and launches followed an emergent path with significant flexibility, despite having a planned direction.

While Sony's Research and Development division displays remarkable flexibility compared to other companies, the company still embodies traditional Japanese traits in many aspects. Lifetime employment is upheld, strong norms and values shape actions, and recognition in the form of the crystal award takes precedence over bonuses, which are not substantial.

There is a strong seniority system in Japanese firms, such as the mentor and apprentice relationship. This can be classified as the cultural school of strategy formation, which emphasizes collective behavior. The mission statement "Management Policies" illustrates the collective vision and focus on human resources commonly seen in Japanese companies. Turning to weaknesses and threats, Exhibit 1 shows a significant slowdown in sales since the 1980s. Specifically, domestic sales have decreased by 7.22%.

The foreign market grew in real and relative terms, but its growth rate decreased to approximately 10% per year. This slowdown can be viewed as a transitional period between the popular Walkman product and its successor. As Ibuka mentioned, business operations follow a ten-year cycle. However, during the 1980s, although it might still take some years to develop a product, the time to see returns and profits might be considerably shorter.

Sony developed both the VHS and Beta formats, as demonstrated in the VTR example. However, Matsushita quickly developed a competitive product using Sony's technology. This suggests that other electronic companies could replicate Sony's technology in a shorter amount of time at more competitive prices. Consequently, the potential for technological advancement is decreasing. Innovation is often accompanied by the costs of capital expenditure and return on investment. Exhibit 1 shows a significant increase in capital expenditure, particularly in 1981, attributable to the automation of plants.

Despite

a decrease in ROI, spending around 10% of sales on capital investment is considered excessive according to company standards. The main question is whether this high level of investment actually leads to corresponding profitability growth. As mentioned earlier, there are diminishing returns from product innovation. Moreover, the internal aspect presents its own challenges. Due to a high level of autonomy, research and development is fragmented into small teams that pursue their own interests with little regard for market fit, product capabilities, functionality, or customer usage. It's common practice for secret projects to be conducted without management's knowledge until "secret reports" are submitted.

Engaging in this practice results in a lack of communication between management and R;D, potentially resulting in resource duplication among small groups. Furthermore, the absence of overall direction becomes more noticeable upon the retirement of Ibuka and Morita, who serve as symbolic leaders and founders, acting as the main guidance and connection between management and engineers in different areas.

As a result, Sony faces a problem with succession and technology leadership. Sony has traditionally been at the forefront of technological innovation, carving out new markets where established companies are not a concern. However, the introduction of new products like VTR, the Walk-in, and the Mavica requires both hardware and software. Simply producing high-quality machines is no longer sufficient; software availability is also crucial for success.

The Walkman relied on established cassette tapes, while the Beta system and Mavica lacked a standardized format. The Mavica system stored images on a high-density magnetic disk, but companies like Kodak, 3M, and Sony each had their own incompatible systems. In addition, the Mavica system had little compatibility with other conventional

systems and lacked transitional interfaces. This lack of cooperation often made Sony the sole innovator and market creator. Instead of competing with conflicting software, it may have been beneficial for Sony and other vendors to cooperate, especially in markets like VTR with no established standards. Exhibit 2, the Porter competitive forces model, also highlighted the strength of new entrants, competitors in the Japanese industry, substitutes, and buyers, all of whom were stronger than they were 20 years ago. This further emphasizes the disadvantages of Sony acting alone.

Sony is lacking strategy in various areas. While their product development, manufacturing, and marketing processes are well established, the company lacks a formal long-term direction. The original mission statement is outdated, as it still makes references to World War II. Additionally, there is a lack of short-term strategy and little emphasis on profitability and accountability in research and development efforts. As a result, Sony has strong components but struggles to coordinate effectively, hindering its ability to reach its maximum potential.

On the other hand, Sony's greatest asset lies in its human capital, particularly its engineers who form the R&D department.

Sony's constant innovation is essential for their success as a consumer electronic firm that specializes in audio-visual equipment and thrives as the industry leader. They have well-established subsidiaries in the United States and Europe, providing them with valuable local market knowledge. This has transformed Sony into an international corporation that combines the talents and strategies of both worlds. Notably, the organization benefits from the visionary leadership of its founders, Ibuka and Morita, who are legends in their respective fields and provide a guiding vision for the company.

The text highlights the role

of the management in bridging the gap between employees. The self-promotion and job rotation systems contribute to employee satisfaction and provide them with a comprehensive understanding of the business. This holistic approach leads to the development of better products, as engineers gain knowledge about consumer needs and marketing professionals contribute their perspective during production. The innovative culture at Sony is driven by a principle of not copying others, as well as the ample R;D funding and significant investments. Ibuka describes this approach as consumer-driven, in contrast to the American electronic industry which primarily caters to military and space applications. Sony has been a frontrunner in Video Tape Recorders and digital imaging techniques like Mavica, both of which have substantial potential for household adoption and sales.

Sony has the opportunity to establish standards and dominate the industry. Additionally, Sony has acquired enough technology to expand into high-tech business fields. With the growth of Asian countries, Sony can utilize them for markets and inexpensive labor. In terms of building a strategy, it would be challenging to find an equally visionary and respected leader with the same engineering background to lead the umbrella strategy company. Sony's international presence, with major branches in Europe and the United States, as well as stocks listed in 23 stock exchanges, suggests that a Japanese cultural school strategy alone is insufficient.

Becoming a mature company necessitates a shift towards a more profit-focused strategy. Additionally, there is a pressing need to prioritize gaining market share, particularly in Japan where Sony's market is experiencing contraction. This revised strategy should prioritize enhanced coordination and communication between managers and workers, particularly the engineers in the R Department. It

is essential to adopt a more deliberate and strategic approach that clearly outlines the overall trajectory of the company.

One possible direction for diversification is to focus more on electronic expertise in non-consumer industries. Currently, buyers have a significant amount of power and competition is intense (Exhibit 2). Competitors can also quickly replicate the product. To increase profit margins, Sony should concentrate on supplying high-tech equipment and parts to the business sector and various industries. This strategy would leverage Sony's strongest advantage – its research and development department – without having to wait for price reductions or technological adaptations to meet the needs of average consumers. Moreover, it would reduce Sony's reliance on constantly releasing short-lived popular products and allow the company to utilize its unique talents in video and semiconductor technology to create an innovative office environment of the future.

Although Sony is often associated with expensive, high-profit products, it should also broaden its range by offering lower-cost, simpler options to directly compete with other imitators. By introducing a cheaper line, Sony can gain more market share in both domestic and international markets. Sony should strive to be a leader rather than a lone wolf, as a leader not only innovates but also coordinates effectively. For new products like the Mavica that involve both hardware and software, industry-wide standards should be pursued. These standards may not necessarily be the best or Sony's own creation, but by pioneering in the field, Sony would already have a significant advantage, and standards serve to ensure stability, allowing Sony to focus on product development and enhancement.

Sony is unable to acquire and develop both software and hardware for a single product

due to its lack of size and strength. Additionally, they do not possess the necessary expertise in the creative software market. Consumers also desire the ability to select from a range of competitive equipment. Internally, it is important for the various R groups to collaborate more closely. Effective communication between groups and managers is essential in ensuring compatibility and eliminating the existence of undisclosed projects.

The text suggests that it is better to manufacture products with higher added value and longer lifespans rather than continuously changing models. This shift in mentality, from focusing on the manufacturer to focusing on the consumer, helps conserve natural resources. Additionally, maintaining compatibility between brand lines promotes brand loyalty among consumers. It is also important for Japanese consumer electronic firms to adopt a more cooperative attitude towards their counterparts in order to effectively compete with other Asian countries, such as Taiwan and South Korea, who offer cheaper consumer goods due to lower labor costs. To ensure maximum profits and maintain their technological lead over other Asian countries, Japanese firms should collaborate in establishing high technology standards.

Cost cutting is essential for Sony's success as it plays a crucial role in the company's profitability, despite consuming 10% of its sales. In order to improve profit margins, cutting costs is the only solution. Currently, Sony has factories in the United States and Japan, which aids in building relationships and allows for local currency payments to suppliers. However, Sony has not fully utilized the potential of cheaper regions, particularly Asian countries like Malaysia, Thailand, and the Philippines. By establishing factories in these countries, Sony can benefit from their cost-effective labor and gain a competitive advantage

in emerging consumer markets. It is important to focus on refining existing products rather than completely reinventing them, as this approach minimizes setup costs and enables greater automation.

The integration of production, design, and marketing is often lacking in many ways. The design and development of a product are typically separated from the production and marketing processes. The design stage relies more on intuition and experience rather than market research and analysis. This approach usually assumes that it is the job of marketing personnel to find a market for a product after it has been developed. However, to address this issue, R&D should focus on listening to the consumer needs and then innovate accordingly instead of always trying to create new markets. The design team should have greater freedom and take on more responsibility in aligning the product with the current production pattern and marketing goals. They should also be held accountable for the profit and loss of the specific product.

Empowering these three distinct groups leads to conflict, but it also unites them, resulting in synergistic achievements. Internally, the corporate goals should be reviewed as part of the implementation strategy. It is essential to incorporate both the work ethic of Japan and its western counterparts. Sony, being a multinational corporation with a presence in various countries, makes this integration possible. This process includes explicitly stating the significance of profits and fulfilling the company's obligation towards shareholders in the statement.

Encouragement of the integration of company processes such as designing, production, and marketing is essential. It is important to facilitate increased communication between each group and have the management serve as a liaison and provide guidance. Specifically, the

management should establish clear goals and strategies for both the short and long term. These adjustments aim to find a balance between business and engineering. Additionally, it is crucial to establish alliances with other electronic manufacturers or competitors in order to mutually benefit, and therefore, should be pursued promptly.

In terms of the VTR, Sony must determine which standard the global market is adopting and take action to avoid setbacks. For innovative products like the Mavica, Sony should actively seek new industry standards, fostering collaboration with competitors and traditional producers. This shift in culture requires strong leadership from top management to actively drive and pursue this direction. To achieve cost savings, Sony should leverage the lower labor costs in developing Asian countries.

This can also be viewed as a long-term plan as Sony aims to make its workforce more adaptable and diversify its business by prioritizing business supplies. Thriving to achieve this goal is crucial for Sony's long-term success.

However, it is important to constantly review the end product ratio between consumer and business products throughout the process in order to achieve the best mix. Despite the fact that other electronic companies are copying Sony and taking away market share and profits, Sony's success lies in its innovative spirit and pursuit of excellence and perfection, which cannot be replicated. Sony's main goal is to bring together its talent and establish common objectives and priorities in this increasingly competitive market. Furthermore, Sony has the potential to become an internationally-operating company with a diverse culture, as it was one of the first Japanese companies to establish a main branch in the United States. With proper strategy and some luck, Sony

can regain its previous greatness and even surpass it in the future.