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Sony Corporation’s Strategy and Porter’s Diamond Model Case Study

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Updated: Aug 4th, 2021

Define the current strategy of Sony

To remain competitive and confront emerging challenges from its rivals, Sony Corporation has adopted a restructuring strategy resulting in organizational culture change, cost-cutting, and streamlining of operational processes.

Sony’s restructuring strategies were a big boost in cost reduction at the firm. The streamlining of the business categories, product models, and overlapping initiatives produced a more cost-effective company. The dismantling of the silo culture contributed to a more compact and centralized command center for the firm. Such a centralized system with the right people at the helm was critical in turning Sony’s fortunes around.

Sony Corporation also embraced organizational culture change as a strategy in several ways. Sony infused young blood at the management levels at the expense of the traditional Japanese set up creating a more robust, dynamic, and versatile firm. Sony Corporation also did away with the culture of retaining retired staff as advisors. The firm dismantled the ‘stand-alone’ or silo culture among various departments. The dismantling of such silos to introduce a more compact organization was aptly captured by the slogan ‘Sony United’. Howard Stringer marketed the concept to produce more coordinated cooperation between various departments.

In a nutshell, Sony’s strategies are geared towards greater product innovation, cost-cutting measures, and streamlining of operational processes.

Evaluate the strategy being adopted by Sony to regain lost market share. About the material presented in the book Strategy for Business, which theory/concept that the current strategy of Sony was based on. You need to critically justify your argument

Sony adopted transformative leadership, joint ventures, cost-cutting measures, innovation, consumer focus, and consolidation strategies to regain its market share.

Transformative leadership

The appointment of Howard Stringer, a non-Japanese, as Sony Corporation’s Chief Executive Officer (CEO) marked a significant leadership change at the firm. Howard Stringer was a high achiever. For example, while serving at the CBS Company where he started his journalism career, Howard Stringer helped the company win several accolades (Sony 2012, p.1). Before assuming the post of Sony’s CEO, Howard Stringer had served as the Chief Operating Officer (COO), President, Chief Executive Officer (CEO), and Chairman of Sony Corporation of America (Sony 2012, p.1).

Howard Stringer initiated several radical restructuring measures that helped the company regain its footing in the electronics business. He reduced Sony’s business categories, consolidated product portfolio, and dismantled redundant business processes. He introduced the ‘Sony United’ concept aimed at dismantling the silo culture that was highly prevalent in the company. This enabled the company to work in a team environment with better consultations between departments. Finally, the company reoriented its focus on “…high growth business like HD products, mobile products, semiconductor/key component devices, and network-enabled products and appliances” (IBSCMR 2010, p.1).

Howard’s efforts paid off in Sony’s desire to recapture its lost market share. The ‘Sony United’ culture bore fruits through shared services between various departments in the United States enabling Sony to save over $700 million in the 2004 financial year (Sony 2012, p.1). In the same year, Sony’s entertainment business had a 200% increase in profits from operational activities.

Innovation and consumer focus

Innovation and consumer focus is another strategy that Sony is using to regain its lost market share. In the context of Innovation and consumer focus, Sony has realized the need to reorient its innovation towards products that the consumers needed and were willing to pay for them. During the various restructures under Howard Stringer’s watch, several non-core operations were shut down.

Reorganization of reporting and production lines

The reorganization of the reporting and production lines has been critical in revitalizing Sony and returning it to profitability. One of Howard Stringer’s immediate actions on assuming leadership of the firm in 2005 was the reorganization of the company’s reporting and production lines. The company was ‘…reorganized into five business groups-the electronics business, the games business group, the entertainment business group, the personal solutions business group, and the Sony financial holdings group’ (IBSCMR 2010,p.5). This reorganization was meant to produce a more efficient company with better coordination between departments. The reorganization would also result in cost-cutting leading to a more competitive firm.

The various restructuring also led to the reorganization of the command center at Sony’s corporation. Howard Stringer in addition to his role as the Chief Executive Officer of Sony assumed the roles of the president of the firm. In this context, Howard Stringer assumed far much greater powers than his predecessors had enjoyed in similar roles. This reorganization created a more centralized command center at Sony that gave Howard Stringer far much leeway to implement the necessary changes.

Mergers and joint ventures

Sony Corporation has entered into major mergers and joint ventures with different companies that have continued to cement the firm’s position in the market. Sony Corporation acquired BMG and MGM studios. These acquisitions further solidified Sony’s position in the market. For example, Sony was able to successfully lobby the industry’s support for the Blu-ray technology. On the other hand, Sony’s acquisition of MGM enabled it to successfully produce some box office hits in the movie industry. These acquisitions enabled Sony to achieve vital control over content production and distribution. This control further solidified Sony’s market control in the electronics industry. This was because the company able to have a greater say in the technology used in content development.

Critically, discuss the feasibility of applying Porter’s diamond model on the Sony case

Porter’s diamond model was proposed by Michael Porter in 1990 as an alternative to Smith’s Absolute Advantage Theory and Ricardo’s Comparative Advantage Theory (Barragan1996, p.10). These theories focused on the competitiveness of a nation and to a larger extent to the competitiveness of the industries within those nations. However, the determinants of competitiveness have changed over the centuries to new dynamics in the modern-day. Such dynamics included globalization and technological development amongst others. These changes in determinants of competitiveness have necessitated changes in models and theories of competitiveness.

Porter’s diamond model consists of four critical determinants of a company’s competitiveness including factor conditions, demand conditions, and the firm’s strategy, structure, and rivalry. The last Porter’s diamond model critical factor is related and supporting industries. This paper will examine Sony’s competitiveness with a view of determining whether it fitted into Porter’s diamond model.

Factor conditions

Factor conditions can simply be defined as specific factors in a country that the companies in those particular countries competitively exploit. This exploitation can also propel companies to international competitiveness. In the context of Sony, this paper will examine the specific factors in Japan that Sony has exploited over the years to propagate itself to a market force to reckon with.

The Japanese culture is notably known for placing value on family ties and bonds in contrast to the individualisms exhibited in Western culture. This Japanese culture is evident at Sony and significantly contributed to its product innovation in the company’s formative years. For example, Sony Corporation retained its retired personnel as advisors to the company. This personnel often had insights and experience in Sony’s operations thus making them a valuable source of knowledge. Most of these staff had worked during Sony’s glory days in the 80s and 90s amongst other eras and had strong loyalty to the company. It is this Japanese culture of the younger staff running the company on guidance from their seniors and experienced predecessors that has helped Sony stay at the very top.

The Japanese are also particularly noted for their patience and hard work. This Japanese culture is exhibited in Sony’s production processes in which the company invested time to produce superior products. One such example includes “…Sony’s 13-year program to introduce charge-coupled (CCD) image pickup components for the camcorder” (World Technology Evaluation Center 2012, p.1)

Demand Conditions

Companies venturing into export business may have different consumer experiences in those foreign markets. Sometimes companies may find their home markets more aggressive, quality-conscious, and price-conscious amongst other variables than the foreign markets. In such contexts, the company is forced to produce quality products or services at a far much faster pace at home than if the reserve was true.

Historically, Japan as a country has established a niche in the electronics manufacturing industry. The country has specialized in electronics manufacturing and has created a strong brand in the industry. The Japanese population is used for high-quality electronics items. In this context, the home market provides a tougher market than foreign markets. Sony together with other electronics companies has exploited the tough home market as their test ground for their export business products. In this context, Sony developed some of the world’s most innovative products including the Walkman, Compact Disc player, Play Station, and Camcorder amongst others. These innovations fuelled by a demanding home market gave Sony Corporation the magical touch it needed to succeed.

Firm’s strategy, structure, and rivalry

Sony’s strategy of innovation and its management structure has enabled the company to stay at the very top of the industry at least in the 1980s and 90s. IBSCMR (2010) noted that “…Sony focused on product innovation and on offering high-quality products” (p.2). IBSCMR (2010) further noted that “….Sony’s products were always innovative…and the company firmly believed that there was a huge demand for such products and did not attach much importance to market research” (p.5).

Sony’s attitude ensured that the company made quality and innovative products that were trendsetters in the company’s heydays. These products to a larger extent solidified Sony’s brand in the minds of consumers. Such strong brand awareness gave Sony a competitive edge over its competitors in a global context. Sony’s consistency in its product innovation is thus a competitive advantage that it has exploited over the years.

Related and supporting industries

While Sony’s core business has been in the electronics business, it has over the years expanded to content provision. This expansion to content provision has been with the view of further solidifying its market position in the electronics business. Early in its history, Sony realized that content providers played a critical role in the technology used in the electronics industry. For example, in 1975 Sony’s Betamax video cassette technology failed to take off due to content providers’ preference for a competing technology.

It is critical to note that at the time Sony intended to manufacture a wide range of products based on the technology. However, Hollywood studios preferred VHS technology by a different firm that won the market.

Sony’s entry into content provision through Sony music and later several acquisitions in the content provision segment was critical to its business. Such acquisitions include the acquisitions of MGM and BGM studios that enabled it to win the Blu-ray CD and DVD technology format. Through the acquisition of the two firms, Sony was in control of powerful content production and distribution channels. For example, Sony was able to produce international box hit movies the Casino Royale and the Quantum of Solace. In this context, Sony was able to dictate the technological format used in the compact discs. Such victories enabled Sony to produce a wide range of products built on the Blu-ray technology.

Conclusion

It is imperative to note that Porter’s diamond model applies to Sony’s case. This inference is informed by the firm’s applicability of the four benchmarks of the model to its operations over time and in various stages of its growth.

Summaries one of the chapters that were presented by the groups in the class. Remember, the chapter has to be OTHER than the one presented by your group

Summary of Strategy Chapter 7: The firm as an administrative organization by T. Penrose.

Penrose discusses the competitive advantage of a firm based on the resources at its disposal and the interaction between the resources. Physical and human resources do give firms competitive advantages subject to several conditions. For the resources to offer a competitive edge to the firm they must be unique to the firm. The resources can be unique in several ways. Resources that are difficult to substitute ensure that rival firms cannot produce alternative resources to fulfill the particular need. Resources that are difficult to imitate or replicate also do offer competitive advantages to a firm.

Penrose argues that even in contexts where firms have similar resources, the administration and utilization of the resources can give a firm a competitive edge over another. In this context, the competitive edge is exploited through prudent utilization of the available resources. However, this prudent utilization is subject to their manager’s perceptions of the advantages and challenges of utilizing the resources. The manager’s perception within the context of the market competitors, potential clients, and the market environment in general influences his administration of the resources. This administration eventually determines a firm’s growth or lack of growth.

The chapter goes to great lengths to define growth in a bid to bring out implicit dynamics in the meaning of the word. Penrose argues that the common day to day usage of the term implies an increase in amount. However, Penrose also perceives the term as an improvement in quality or size due to certain contributing factors. In this case, growth is seen as a normal and expected process.

The growth of the economy in a given country relies on the different firms as the building blocks of such an economy. In this context, any economic analysis of a country must use the firm as the building blocks of such an analysis. One of the theories that can be used in this regard includes the theory of the firm. The theory discusses the different utilizations of prices and resources to undertake an economic analysis. Economic analysis must also consider the growth or the size of the firms that it uses as its building blocks for the analysis.

References

Barragan, S 1996, . Web.

IBS Center for Management Research, 2010, Sony Corporation Restructuring Continues, Problems Remain.

Sony, 2012, Sony Corporation of America. Web.

World Technology Evaluation Center, 2012, Japan’s technology development strategy. Web.

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