This case study deals with the company Sony corporation. I will answer to the questions, one and two which are:
Briefly identify the capabilities and sources of competitive advantage that enabled Sony to grow in 50 years from its humble origins to a 6.7 trillion yen transnational in 2000. As an atypical Japanese Company, were some distinctive features of its business culture a contributory factor ?
Outline and evaluate Sony’s strategies, including internationalisation and diversification strategies, in the period 1987 to 1999. To what extent did the strategic changes of the 1990’s mark a paradigm shift for Sony?
In spite of an evolution in the midst of hypercompetitive and dynamic industries where no singles company can enjoy a dominant market share, Sony succeeded in growing from its humble beginnings to its overwhelming stance.
Indeed, in about 50 years, Sony became renowned throughout the world as an acknowledged leader with an international presence in the consumer electronics industry. First of all, I am going to highlight briefly the capabilities and sources of competitive advantage which enabled Sony to achieve such a growth.
Then, I am going to explain in what the atypical business of culture was a contributor factor of its expansion.
Sony’s capabilities were shaped by the vision of its two founders Morita and Ibuka. From the beginning, their aims stressed innovation and the common good, including: establishing an “ideal factory” emphasising a spirit of freedom and open-mindedness where engineers with a certain motivation can exercise their technological skills but also applying advanced technologies developed during the war to common households.
In addition, they were shaped by its origin in post-war Japan. The typical employment system based on the long-term commitment gave and expected from employees, plus the common willingness to reconstruct Japan strengthened a higher level of co-operation and collaboration between staff which allowed Sony to lay the strong foundations for the corporate architecture.
The organisation begins to develop as a structure where the employees inside of it may have a vision of the environment in which they would like to work, like at the beginning Sony’s founders’ ideal factory. They can try to make this vision as a reality. Over the time the organisation develops a distinctive corporate architecture, which becomes a distinctive capability. For Sony it appears to be competitive advantage based on a capability for innovation is actually based ultimately on architecture. Indeed, Sony’s architecture favoured innovation, inventiveness which generated technological competences like miniaturisation, portability and hence innovative, highly featured products. These in turn gave Sony a substantial differentiation advantage in many of its markets, reflected in its ability to charge premium prices.
But, Sony also developed into a large company through a process of experience and learning, fuelled by the expertise and values of its founders. This is one of instance of a typical process of developing competitive advantage. From experience in the market place , Sony learns which customers are really keen on its products for example the moderated success of both electric seat warmer and electric rice cooker. Even though these products were revolutionary, they did not respond to a customer need.
Thanks to its experience, Sony interacts well with customers to learn about the product features they really want, and incorporates new technology as they become available. Thus, with such a device, Sony came to a serial of successes: tape recorders and its good fortune in getting access to transistor technology led to further developments in audio-visual products .It introduced Japan’s first transistor radio then its first pocket-sized radio (the world’s smallest) and the world’s first transistor television in 1960.
Others innovations in video-cassette recorders and colour television manufacture following during the 1960s and the 1970s. All these innovations contributed to build Sony’s reputation. Nevertheless, it is mainly the launch of forefront of progress innovations, the Walkman in 1979, the Compact Disk player in 1982, the MiniDisc player/recorder, etc which allowed it to build an unprecedented reputation across the globe.
To sum up, the source of competitive advantage is the creation and exploitation of distinctive capabilities which are only a number of three: corporate strategy, innovation and reputation [John Kay (1993)],. Sony combined successfully these three distinctive capabilities and as a consequence in large part contributed to the Sony’s growth over years.
Sony has considered as the most Westernised and maverick Japanese companies [Samuel Humes]. Indeed in comparison with most Japanese companies, Sony acted as an atypical Japanese company on certain aspects of running its organisation. The belief in internationalisation of its founders influenced such a feature. The first step towards this one resulted in through a change of brand name from Tokyo Tsushing Kogyo to Sony: a combined name of word with Latin roots Sonus means sound plus an English resonance coming from an American expression. Unlike its competitors Matsushita, Toshiba, Hitachi which kept their original brand name with a Japanese resonance.
Sony succeeded in overcoming historical, cultural and not ethically heterogeneous Japanese problem concerning internationalisation. This outcome could be likely thanks to Morita’s American experience. Indeed, in moving to the United States, Sony’s co-founders wanted to understand the American consumer and business culture. He realised that Sony’s international expansion could occur more effectively whether overseas subsidiaries were run by native managers. Indeed, Sony was felt that this was the best way to ensure sensitivity to local market and employment practices.
As a result, Sony integrated non-Japanese top managers in order to manage their organisation abroad, for example, the American Mickey Schulhof led the presidency of Sony America. Moreover, from the beginning Sony developed as an independent company with its regional organisations, it was neither a member of Japanese keiretsu nor business network like zaibatsu linked to Sogo Sosha – the trading company.
Lastly, once again, Sony caused to turn away from its Japanese companies concerning choice of its leaders. Based usually on seniority, Sony promoted a 57-year-old maverick top manager Nobuyuki Idei as a president of Sony corporation and therefore does not respect Japanese norm of promotion.
To conclude, it needs to remind even though many distinctive features of Sony’s business culture made to appear Sony as an atypical Japanese company, this corporate culture has been one of key factors contributing to the unprecedented growth that knew Sony over years Furthermore, this business culture has been chose and built in order to implement better strategies defined by the Board or the top managers which enabled it to reach this growth.
To answer the question two, I will go through the different strategies chosen by Sony to achieve growth and to adapt the company faced with a fast-moving and competing environment. Firstly, I would like to begin with the strategy of “transnationalisation” then to highlight the strategy of diversification and different ways used for entering into new markets. Finally, I tend to explain these strategic changes of 1990’s marked a paradigm shift which resulted by the Sony’s restructuring in April 1999.
Sony’s degree of internationalisation is momentous, besides between 1989 and 1998 sales revenue derived from outside Japan was up 246%. In order to achieve such a figure, Sony fostered a “transnational” strategy for competing internationally. This choice had to be made in part because between 1985 and 1987 the appreciation of the Yen currency became huge. Hence, this increase restrained exportations but above all raised production costs especially labour costs. That’s why, from 1985 onwards Sony opened factories across South and East Asian region through foreign direct investments or through joint ventures for instance with the Ericsson mobile phone plant in China for minimising costs.
Nonetheless, even though its electronic products are standardised that is to say these global products are sold and supplied under single brand-name throughout the world and are not tailored specifically to each local markets, Sony is also locally responsive towards country markets like the USA and Europe. And, although production costs are higher, Sony’s decided to “reward” them in locating plants there through inward investments. Such strategy was adopted in order to provide a basis for thinking about which elements of a firm or product’s value chain can be located in parts of the world where cost advantages can be obtained or where a growth of sales revenue can be enhanced.
The end of eighties is marked by a turnaround in the midst of the company. Sony decided to diversify its activities into unrelated market: entertainment. For penetrating into this new market, Sony chose a highly expensive method: acquisition. Indeed, Sony took over CBS Records in 1987 and the Hollywood studio Columbia Pictures in 1989 which was a move into the ownership of entertainment content, not just the hardware it is played on. The move can in part be explained by the need to supply entertainment content (music, video, etc) for its hardware.
Such a strategy could be fostered because of the strength of the Yen which yielded US assets cheaper and was adopted not only because software are products with high value added but also in order to support primary activities. Indeed, Sony would avoid again the same kind of commercial failure with its technically superior video recorder (Betamax) was in part due to Sony’s inability to supply the market with the necessary content to play on their machines.
Then, by 1994, Sony spread entertainment product portfolio into games consoles with the launch of the Playstation. The used strategy was differentiation compared with its competitors in innovating on the market thanks to a product based on superior technology but also by means of a strong marketing campaign which helped it to persuade an overwhelming mass of customers to adopt it. This move into games industries (Playstation hardware and software) had many technologies in common with both aspects of portfolio especially with the electronics business. This related diversification enabled to share value chain and therefore it may add value because the two business segments could also share distribution channels and benefit from a common brand. This synergy of shared resources for example distribution networks enabled to exploit economies of scale.
Finally, the last stage concerning diversification was into digital multimedia industry in order to serve Idei’ s vision to reinvent Sony as e-Sony: a digital multimedia group. For reaching this purpose, Sony has made a partnership with Intel in order to develop a special range of Sony branded personal computers. This method enables to acquire new technology with a more profitable and less expensive cost than an acquisition. In 1997, the first generation of Video Audio Integration Operation (VAIO) products whose the device is linked audio-visual products to the internet were launched. In addition, the same year, Sony has made a 25% shareholding in Sky’s Japanese digital broadcasting subsidiary.
In short, all these different strategies including “transnational” and diversification enabled to improve growth and to adapt the company faced with a fast-moving and competing environment. They are key factors explaining in large part economic success of the company; besides, by March 1998, Sony’s profits had reached their ever level in its history, which amounted to colossal US $ 1,850 millions.
These strategic changes of 1990’s marked a paradigm shift indeed that resulted by the Sony’s restructuring in April 1999.One of major factors driving the restructuring appears to have been changes in Sony’s technological environment. Of a number of relevant issues, one of the most important was digitisation.
That meant changes to the nature of many of Sony’s electronic products but it also changed their networking capability and therefore the potential distribution channels through which these products could be sold; Many of Sony’s divisions were increasingly involved in digital processes of one sort or another for example to come to what Sony’s Handycam digital camcorder to be linked to VAIO PC. In the future, this “interconnectivity” was intended that much more would be made of the potential cross-linkages between the various digitised products and their technology.
Furthermore, on April 1999, the company changed its group structure which would enable it to build “new business models” appropriate for what it described as “a network-centric era”. So, Sony contrasted what they termed their new “unified dispersed model” with their previous hierarchical or centralised business model. This reorganisation had a number of explicit objectives to enhance the company’s research and development activities, to maximise shareholder value, to streamline its manufacturing systems and to achieve quicker decision-making and execution in a rapidly changing environment where the life-cycle of products is becoming shorter. Sony also delegated increased authority to its newly reformed business units.
But, all these upheavals in the organisation do not fundamentally change the paradigm because despite a restructuring, the firm’s architecture is still heavily based around the needs of innovation and building on core technologies of sound production and miniaturisation which have always been Sony’s main framework of references.