The present company analysis focuses on the shift that Harold Stringer made in the Sony Company as soon as he became its CEO in 2005. The issue gains importance in the context of the state of affairs that were evident in the company’s policy before the shift – Stringer emphasized the problem of the incoherence of Sony’s subdivisions, namely electronics and entertainment units (Bremmer, 2005). Thus, his chief goal became bringing the Japanese company to harmonious and multifaceted unification of its spheres of activity and achieving a more stable and intelligible course of action without controversy and ambiguity. Sales and profits speak for themselves and indicate the success of Stringer’s strategy – all markets in which Sony exists and sells its products are continuously expanded, with increasing influence and share of Sony.
The task of the present analysis is to bridge the company’s strategy starting from1990s, the 2000s and finishing with the latest stage of the company’s development it is going through under Stringer’s governance with the core competence theory worked out by C.K. Prahalad and Gary Hamel who claim Sony to be one of its main adopters. The theory is based on a set of premises that help a company achieve continued competitiveness due to innovation and strategic advantage. But to proceed to the analysis of Sony’s strategy as to being core competencies oriented or not it is necessary to identify the position in which Sir Harold Stringer found himself as soon as he became Sony’s CEO.
By 2005 Sony reached a substantial decrease in sales and profits (see Table 1) that were shrinking in all segments but financial services (see Table 2). The major segment of target markets was occupied by the United States of America where sales figures prevailed the Japanese ones (see Table 3). Judging from this situation, it became evident that the forces of the company have to be more focused on a selected set of core products and not on everything the company could potentially handle.
Harold Stringer entered the company at the very beginning of its “accelerated growth” and “creation of a new management structure” (Annual Report 2005: 7). It was clear that the company that had been operating for more than 60 years by that time needed a change to retain its competitiveness and leadership in target markets. With this purpose, Stringer announced that his effort will be targeted at binding and enhancing “technological hardware and content development” (Annual Report 2005: 7). As one can see from the 2005 annual report, the set of Sony products did not change with the flow of time and remains the same, so it is not necessary to consider the shift of the company’s profile – the range of activities of Stringer became focused on identifying the key actions needed for the company not only to remain competitive at that very moment but to project the market and become potentially competitive, shaping the market with its innovations.
Proceeding to the theoretical substantiation of Sony’s strategy for the past three years it is necessary to admit that whatever it is – it is successful, raising the company’s shares in international markets and making it more competitive in the context of contemporary changing needs of the consumers. Thus, it is necessary to identify whether Sony pursues the core competencies strategy or not – relying on the theory C.K. Prahalad and Gary Hamel offer in their work “The Core Competence of the Corporation”.
The authors first of all claim that core competencies are the way to succeed in the international market due to innovation and quick development as the main characteristics of the company’s activity:
Focusing on core competencies creates unique, integrated systems that reinforce fit among young firm’s diverse production and technology skills – a systemic advantage your competitors can’t copy (Prahalad and Hamel, 1994: 1).
The main advantage that the companies achieve adopting the core competencies strategy is the ability to surprise the consumers and to correspond to their needs on time, consequently being able to generate their markets. Emphasis is made not on low costs and high quality, but invention (not ignoring the former two qualities as well). This way, core competencies become the complex issue including many elements: it is collective learning in an organization (the ability to coordinate productive skills and produce innovations); it is the organization of work and delivery of value (the example given by the authors includes Sony’s miniaturization as a value they represent); it is also communication, involvement and deep commitment to working across organizational boundaries (Prahalad and Hamel, 1994:5).
One more emphasis authors make is the fact that competitiveness should be considered both in the long and in the short run – in the first case it rests on the “ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products”, while in the second case it depends on the “price/performance attributes of current products” (Prahalad and Hamel, 1994: 4).
Prahalad and Hamel (1994) speak about a set of ways to identify core competencies in a company, which may substantially help in the Sony strategy analysis: first of all, the company has to have “potential access to a wide variety of markets” (7) – Sony is successful in this respect in electronics, gaming markets as well as financial services, pictures, and music (Annual Reports); the company has to make a significant contribution to the described markets and add to the customers’ benefits considerably (e.g. Sony’s Walkman was a great success integrating both innovative technologies, music facilities, miniaturization and resulting in a Network Walkman model, WAIO T-Series laptops impressing by their size and set of functions, etc.); the company also has to create conditions that would be difficult for competitors to imitate – a good example may be provided with the case of Sony buying CBS Records and Columbia Pictures as a measure to ensure complementariness of resources).
The signs of Sony pursuing the core competencies strategy are multiple; after some losses resulting from basic changes of the worldwide technologies Sony has managed to catch up with the overall tendencies (e.g. the failure with VCR and current success with Blu-Ray technologies; Sony’s refusal from plasma TV-sets as a declining and unprofitable market) (Harding, 2008; Sanchanta, 2007; Waters, 2009). Sony manages to pursue the strategy successfully, fulfilling its basic rules – defining the core competence, core products, and end products and seeking “to maximize their world manufacturing share in core products” (Prahalad and Hamel, 1994: 9-10).
Comparing the situation with the policies Sony pursued in the 1990s and early 2000s it is clear that the focus of the company has become more precise. Despite the steadily growing figures of incomes and sales starting from the very beginning of the company’s existence its policy was too dispersed, which may be seen from the strategy defined in 1995 as “aggressively expanding its operations outside Japan” – (Annual Report 1995: 2). As it may be seen from the quotation, Sony was aimed at grasping as many subdivisions of activity it could handle as possible. In the 2000s the effort of the company was mainly concentrated on finding out which subdivisions are profitable and in which spheres it would be better for it to concentrate. After the major losses in VCR production at the turn of the century in its largest segment, the electronics industry, the strategy became much more careful and far-reaching (Annual Reports).
The change evident nowadays is different from the approach that used to be chosen in many ways; mostly the influence may be attributed to the global crisis affecting the world economy nowadays. However, the company’s decision to reduce expenditures by 250 billion yen by 2010 (Sony Outlines Initiatives to Enhance Profitability and Competitiveness, 2009: 1) is the element of the strategy aimed at major savings. Among other measures, in this context, one should mind significant remuneration cuts as well as the early retirement benefits to enlarge the scope of opportunities for Sony’s employees. The three-year strategy announced at the beginning of 2009 includes major structural changes (including full closing of plasma production mentioned above, outsourcing of software development to India to reduce costs, and moving resources to Japan for unification) (Sony Outlines Initiatives to Enhance Profitability and Competitiveness, 2009: 2).
All information provided above signals Sony’s pursuing the core competencies strategy – the core competencies of Sony are miniaturization, the ability to blend innovative technologies and represent them in user-friendly devices, as well as the ability to produce portable entertainment, digital sound, and video displays (e.g. the series of VAIO laptops, Sony Walkman, Cyber-shot DSC-T7, etc.). The company is coming to the fore in the international electronics market, especially in the context of upcoming Blu-Ray technologies. The company even manages to survive the crisis without substantial losses – thus, it is reasonable to await even better, more productive results from the company’s management and staff that will be revealed in its revenues and sales.
Bibliography
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Tables
Table 1: Sony: Sales and Operating Profit 2002-2008 (million yen). Source: Sony Annual Reports.
Table 2: Sony Sales and Operating Profits by Selected Business Segment 2003-2008 (million yen) (brackets indicate loss). Source: Sony Annual Reports.
Table 6: Sony: Sales by Geographical Segment 2002-2008 (million yen). Source: Sony Annual Reports.