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Sony Corporation’s Mismanagement as Decline Factor Case Study


Internal causes

The internal environment of any business is critical to its long-term sustainability. Factors that shape the internal business environment include the management approach, decisions, and strategic plan. Various internal factors within Sony have contributed to the company’s decline over the years. This section will discuss two key factors that have played a major role in the company’s decline, namely, lost opportunities and mismanagement and Sony’s organizational culture.

Lost Opportunities and Mismanagement

Sony emerged as a pacesetter in the world of electronics by introducing new technologies ahead of the other manufacturers. Sony makes a wide range of electronics ranging from cameras to Smartphones. Sony is still making products that are desirable and of impeccable quality. Perhaps Walkman remains the most notable invention by the company. Despite being able to adopt emerging technologies to create high-quality products, Sony’s presence has continued to decline in the market of electronics. People are less excited about using the company’s products compared to the situation in the last two or three decades. Numerous scholars have explained this shift in customer away from Sony’s products. It is mostly associated with an ineffective business strategy. A business strategy refers to an organization’s long-term goals spanning between 3 to 5 years or longer. A business strategy guides a business in pursuing its goals in an ever-changing market environment. Therefore, businesses need to have a flexible strategy that will incorporate the changing trends such as customers’ preferences.

One of Sony’s major failures was the company’s inability to shift from a product-centered culture to customer-centered production. The situation led to its loss of opportunities where clients were only interested in companies that provided items that could satisfy their demands. Advancement in technology has resulted in a shift in market behavior, with customers becoming more demanding and charismatic wit reference to the products they use. In other words, customers nowadays want to feel that the products they are using reflect on them, quality notwithstanding.

This rationale best explains why Sony, despite continuing to churn out some of the highest quality gadgets, has continued to experience a dwindling market share. Sony failed to adjust her strategy to suit emerging customer needs, the most notable being customer experience. Competitors such as Apple’s iPhone jumped onto emerging technology to offer customers’ experience-oriented gadgets that have often caused market excitement every time a new model is being released. Sony lost this opportunity. On the other hand, it continued to focus on hardware, which, unfortunately, offered less versatility when compared to software. Focusing on software enables manufacturers to manipulate technology in creating formidable and customer-centered products.

Xu and Muneyoshi observe that being a hot seller is important for the long-term survival of any business since it enables a company to remain within the vision of customers (281). Launching a successful product every few years is critical in keeping customers perpetually interested. Throughout six decades, Sony was known for releasing successful products from time to time. However, the company’s last formidable invention has been identified as the PlayStation, which was launched in 1995 (Xu and Muneyoshi 281). By becoming less innovative, Sony was giving way to determined rivals to take over the market, thus effectively edging the company out as the greatest manufacturer of electronics. According to Xu and Muneyoshi, Sony has failed in converting its world-class technology into profits due to a failure to match changing customer trends (281).

Numerous scholars have used the case of Walkman to illustrate how the company’s strategy caused it to miss opportunities to advance its market strength. When Sony launched the cassette recorder in 1996, no other market player could have matched the technology. In 1971, the company went ahead to invent the Walkman, which was a portable improvement of the cassette recorder. Over the years until 1999, Sony was engaged in efforts to modify the Walkman to suit consumers’ demands regarding price and comfort of use. However, the company was too focused on the product model to the extent that it failed to observe subtle tendencies by customers.

Xu and Muneyoshi explain that Walkman’s rigid platform, ATRAC, could not accommodate the MP3 format, which had become growingly popular in the late 1990s (282). Sony also remained aloof to the desire by customers to have numerous songs in one gadget (Naganathan 70). Perhaps Apple was reacting to Sony’s insensitivity to its customers when it launched the versatile iTunes in 2001. Unlike Walkman, iTunes was software that allowed users to access different music platforms on personal computers. Figure 1 below shows the company’s brand worth during the 2000-2014 period. It is evident that the lost opportunities have led to the company’s loss of value.

Sony’s brand value and ranking between 2000 and 2014
Figure 1: Sony’s brand value and ranking between 2000 and 2014 (Xu and Muneyoshi 281).

Naganathan identifies the lack of innovation as a major cause of Sony’s decline (70). The situation undermined the company’s image, which had been built around innovativeness over the decades. Sony has also failed to engage effectively in the process of continuous improvement. Continuous improvement helps a business to strengthen its core competencies, thus enabling it to compete effectively in the market. Conversely, Sony engaged in unnecessary diversification, which prevented the company from concentrating on its strong areas (Naganathan 70). Sony’s presence in numerous businesses (electronics, online music stores, games, movies, and financial services) has prevented the company from achieving market positioning. Lack of brand focus undermines a business’s strength in the market since it cannot promote itself competitively.

In addition to a weak strategy that led to the company’s loss of opportunities, mismanagement also played a key role in its decline. Xu and Muneyoshi observe that poor decisions have compromised the company’s edge in the market (281). For instance, failure to follow up on PlayStation 2 and PlayStation 3 paved the way for Microsoft’s Xbox 360 to attained unparalleled market success. At the time when Microsoft was launching Xbox 360, Sony had 70 percent of the gaming console market share. The mismanagement included the cost structure of the transition from PS2 to PS3. In addition, the PS3 platform was more difficult to use compared to the previous PS2, thus allowing Xbox to attract many of Sony’s customers. Atlas Equifin, a minority stakeholder in Sony India, sued the company for alleged financial mismanagement (Money Control par. 1). Allegations of mismanagement can undermine a company’s fundraising since shareholders refrain from raising capital.

Sony’s organizational culture

The culture of an organization influences its success or failure to meet its strategic goals. Organizational culture ranges from how employees interact with each other to the organization’s management approach. The lack of an effective organizational culture can lead to a business failure much the same way a lack of organizational strategy does. Sony’s organizational culture is a reflection of Japanese culture. Innovativeness is part of Japanese culture. This observation explains why Sony has always strived to adopt innovative strategies throughout the company’s lifetime. Other aspects of the Japanese culture include employee satisfaction and the ‘customer is king’ attitude. Nevertheless, Sony’s organizational culture has not been helpful for the company’s strategic presence in the global market. The inflexible nature of its culture has been a disadvantage to the company.

The silo mentality was a cause of Sony’s failure (“Strategic Direction” 2). Silo mentality is described as the attitude that limits interaction among departments within an organization. It undermines the flow of information. Effective communication within an organization facilitatesdecision-making by ensuring that the conflict of objectives is eliminated (“Strategic Direction” 11). On the contrary, Sony was characterized by a lack of coordination between divisions, a situation that undermined the company’s market strength. Strategic Direction describes the culture at Sony before 2005 as “having been characterized by an every-man-for-himself attitude where each division protected its own interests with passion” (3). These divisions created inconsistencies in the company by allowing rivals to seize Sony’s market share. For instance, Walkman was replaced as the market leader by iPod while pS3 gave way to Microsoft’s Xbox.

Sony’s organizational culture as being resistant to change. This attitude is greatly associated with the company’s slow adoption of the growing significance of software (Cole 39). Because Sony had attained great success through hardware, it was tempted to ignore software. This claim is evident in the company’s top management, which is comprised mostly of hardware engineers (Cole 39). According to Cole, by focusing on hardware over software, Sony sacrificed the optimization role that software would have played in enhancing product quality and versatility (39).

Insight & Recommendation

Future of Sony and the Japanese Economy

Cole asserts that top-technology companies in Japan, including Sony, do not fully appreciate the growing relevance of software (39). This attitude is greatly responsible for the declining innovation, despite Japan being only second to the US in creating new technologies. Worldwide, the value assigned to hardware innovation is diminishing. Instead, the software has become the center of technological innovation since it offers a competitive advantage through its wide versatility. Additionally, the software allows developers to create multifunctional applications. It also provides a wider functionality of hardware (Cole 6). Therefore, the future of technology lies in software advancement. Japanese firms realize this fact. They are working tirelessly to shift from hardware-centered to software-focused innovation. Twenty years ago, it was predicted that Japan would surpass the US in software innovation. Instead, Japan has continued to lose its software edge. Cole observes that electronic devices embedded with software in Japan declined by 50 percent between 2004 and 2011 (7).

The future of Sony is dependent on the company’s ability to manage its numerous divisions in a sustainable way. There has been speculation that Sony is currently being broken up for sale (Patel par. 2). If this goal is achieved, it means that each division will be independent of the other. Sony’s focus has been on the Smartphone business. Despite the acute competition from key players such as Samsung and Apple, Sony has registered a slight profit margin from building and selling Smartphones. In 2012, Sony held about 2 percent of the Smartphone market as shown in Figure 2.

Market share of mobile brands in 2012
Fig. 2: Market share of mobile brands in 2012. Source: (Jia and Yin 449).

The above statistical findings indicate that Sony still has a long way to go in achieving a reasonable share of the Smartphone market. Part of Sony’s lack of success in the mobile market is the prominence of Samsung. Patel observes that Sony’s Smartphone has not been successful because it targets customers who are currently buying Samsung phones (par. 3). Nevertheless, Sony can maintain relentless efforts to lure Samsung’s customer base, especially in the Asian market. Additionally, Sony can capitalize on the recent misfortunes bedeviling Samsung’s Smartphone brand. In the last few months, there have been reports of Samsung’s Galaxy Note7 exploding, thus causing uproar among agitated customers (“CASS Business School” par. 4).

Sony’s future lies with the PlayStation 4. The last four years have seen restructuring efforts in the company in a bid to revive its market strength. Part of the restructuring process involved revamping the PlayStation to diversify the uncertain Smartphone market (Fahey par. 1). Currently, PlayStation 4 has experienced robust growth, which is promising for the company. The current CEO, Kaz Hirai, believes that PlayStation’s renewed success will cater for weaknesses in other divisions of the company. Current efforts include making PlayStation into a launchpad for other gadgets and services. This plan will allow other developers to create products to work with PlayStation, thus increasing its usability. Therefore, Sony is succeeding in an area that Microsoft’s Xbox 1 has failed in, namely, focusing on games.

Sony is making gradual efforts to increase software innovation at the company. This shift from hardware to software is a reflection of the current Japanese technology environment. Companies realize that software is the core of modern innovation. For instance, Sony’s latest models of PlayStation are designed to accommodate developer software. Analysts have further observed that the restructuring at Sony has rescued the company from a future financial disaster. Therefore, it is safe to conclude that the company is slowly regaining a share of the market for most of its divisions.

Recommendations

There is a gradual shift from hardware-centric to software-intensive innovation in Japan currently (Cole 43). Japan ranks significantly lower regarding software innovations compared to the US. However, Cole observes that Japan is still ahead of other developed economies regarding software innovations (43). At Sony, Kaz Hirai has been making gradual efforts to improve software innovation at the company. Nevertheless, more needs are done if Sony is to compete on the same ground as rival companies. In the Smartphone sector, Sony is among the weakest competitors as shown in Figure 2. This dismal market performance is attributed to low innovativeness in mobile technology. One of the ways that Sony can promote software innovation is by investing in innovators. The company can hire employees who are passionate about software development as opposed to hardware.

Sony’s top management constitutes hardware engineers. This situation can pose challenges in implementing software innovations. Japan has a shortage of information technology professionals when compared to the US. Cole observes that hardware engineers on the top positions are more likely to hire other hardware engineers to fill the junior positions (11). The result is that the company has a deficiency of software innovators. Additionally, hardware engineers are likely to ignore the importance of software innovation in the company. Therefore, it is important for the company to overhaul the management to include software engineers at the top positions.

Sony should strive to produce items that are desirable to customers, including televisions, Smartphones, and cameras among other devices. This goal will be achieved by improving the user interface to be more attractive to customers. In addition, Sony should avoid the trend that has seen it include features that customers do not always use or desire to use in their gadgets. This strategy will save resources for building and improving the features that customers are interested in using. For instance, Sony’s smartphone has too many buttons and dials that make it unappealing to the user. Instead, the company may incorporate a larger touch screen with soft buttons.

Sony operates in too many lines of businesses, namely, semiconductors, mobile devices, cable television, stereos, movies, and financial services among others. One of the disadvantages of over-diversification is the issue of fighting competition on many different fronts. This situation means that colossal resources are deployed to manage the overwhelming competition. Additionally, operating in numerous fields can limit a company’s ability to develop its core competencies. Thus, it is important for Sony to minimize the field it operates in by getting rid of some of the businesses. This situation will enable the company to focus only on a few divisions, thus promoting innovativeness and efficiency. Sony should also design products according to the market destination. For instance, power outages are common in emerging countries. This situation would call for devices with inbuilt power storage or a longer battery life. Therefore, localization of products will benefit the company through rebuilding customer trust and hence loyalty.

Sony should diversify its markets by reaching out to the emerging economies. In large market areas, Apple and Android Smartphones have not fared well due to high prices. Sony should exploit this market gap by designing cheaper, yet desirable Smartphones and tablets. Sony can also extend its financial services to the emerging markets where internet banking is yet to become fully established. In addition, Sony Pictures, a subsidiary of Sony Entertainment, has been delivering content that is oriented to western and Japanese audiences. Sony Pictures can expand its catchment by designing content that is local to the emerging film industries such as Bollywood. Finally, the company should dedicate a reasonable amount of its resources to research with the aim of creating new technologies and products. The key focus should be on the user interface, which has not been well addressed by Sony.

Conclusion

Sony has endured a declining market share for its many products in the last two decades. The once robust pacesetter in the technology world has been blamed for a declining spirit of innovation. Sony’s strategy has not focused on the long-term sustainability of the company. Its organizational culture also undermined communication between and among divisions within the company. Nevertheless, Kaz Hirai, the current CEO has led restructuring efforts aimed at regaining the company’s market share in areas such as gaming services and Smartphones.

Due to the success of PlayStation 4, the company is gradually regaining ground. The management believes it is out of the difficulty zone. Although Sony is not quite innovative with software development, it still fares much better when compared with companies in emerging economies such as the GCC nations. For Smartphones, the major manufacturers that dominate the GCC region include Samsung, Touchkon, HTC, and Motorola. These Smartphones, which are manufactured elsewhere, are sold in the Gulf region. Other electronic companies with a market share in the region include Siemens, Frigidaire, and Philips. Overall, innovation in the Gulf region is still much lower compared to that of Sony.

Works Cited

2016. Web.

Cole, Robert. 2013. Web.

Fahey, Rob. 2016. Web.

Jia, Jianzhong, and Yuchan Yin.”Analysis of Nokia’s Decline from Marketing Perspective.” Open Journal of Business and Management 3.4 (2015): 446-452. Print.

Money Control: Atlas Equifin files Petition alleging Sony Mismanagement 2008. Web.

Naganathan, Vivian. “A Comparative Analysis on Sony’s Approach to Problem Solving and Decision-Making.” International Journal of Management and Business Research 3.1 (2013): 69-88. Print.

Patel, Nillay. 2015. Web.

Strategic Direction: Improving Organizational Performance: Strategy Execution holds the Key, West Yorkshire, England: Emerald Group Publishing Limited, 2009. Print.

Xu, Fangqi, and Hideki Muneyoshi. 2016. Web.

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IvyPanda. (2020, August 14). Sony Corporation's Mismanagement as Decline Factor. Retrieved from https://ivypanda.com/essays/sony-corporations-mismanagement-as-decline-factor/

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"Sony Corporation's Mismanagement as Decline Factor." IvyPanda, 14 Aug. 2020, ivypanda.com/essays/sony-corporations-mismanagement-as-decline-factor/.

1. IvyPanda. "Sony Corporation's Mismanagement as Decline Factor." August 14, 2020. https://ivypanda.com/essays/sony-corporations-mismanagement-as-decline-factor/.


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IvyPanda. "Sony Corporation's Mismanagement as Decline Factor." August 14, 2020. https://ivypanda.com/essays/sony-corporations-mismanagement-as-decline-factor/.

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IvyPanda. 2020. "Sony Corporation's Mismanagement as Decline Factor." August 14, 2020. https://ivypanda.com/essays/sony-corporations-mismanagement-as-decline-factor/.

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IvyPanda. (2020) 'Sony Corporation's Mismanagement as Decline Factor'. 14 August.

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