Advice to the Chief Executive Officer of the Sony Corporation - Case Study Example

A Recovery Plan: My advice to the Chief Executive Officer of the Sony Corporation is: Place more investment toward innovation BY YOU YOUR SCHOOL INFOHERE DATE HERE TABLE OF CONTENTS 1. Introduction............................................................................................................... 2. Porter’s Five Forces Analysis.................................................................................... 3. PEST Analysis........................................................................................................... 4. Porter’s Generic Strategies........................................................................................ 5. SWOT Analysis......................................................................................................... 6. Innovation as strategy............................................................................................... 7. Conclusion and recommendations............................................................................. References A recovery plan: My advice to the Chief Executive Officer of the Sony Corporation is: Place more investment toward innovation 1. Introduction The Sony Corporation is a large, multinational business that offers consumers many different electronics products that are distributed domestically and internationally. The company’s product portfolio includes production of cameras, gaming consoles, televisions and even consumer smart phones. Unfortunately, Sony sustained a loss of 67 billion yen in 2012 (Hirai 2012), which was a significant loss unprecedented in the electronics industry. This loss was on the heels of a 2011 loss of 199.8 billion yen, indicating a substantial problem with keeping up with competition and satisfying diverse consumer markets. 2. Porter’s Five Forces Analysis Johnson, Scholes and Whittington (2008) describe the work of Michael Porter who asserted that businesses maintain five forces that can either enhance or conflict business development and growth. These include threat of substitute products, new market entrants, intensity of competitive rivalry, buyer power in the market and supplier power. For Sony Corporation, the most paramount risk to the business is competitive rivalry. Samsung, the company’s most potent competitor, is expert at promotional strategy, using lifestyle (psychographics) marketing that appeals to consumer attitudes, values and beliefs. Samsung has been able to position many of its consumer electronics products that provides consumer segments with positive perceptions that the brand can enhance their lifestyles. Marketing literature identifies that when consumers believe a brand provides opportunities for self-expansion and self-improvement, it creates very strong connections and loyalties to the brand (Zhang and Chan 2009). Figure 1: Example of quality Samsung promotion Source: Deviant Art. (2014). Samsung Plasma TV Print Ad. [online] Available at: http://jackimx.deviantart.com/art/samsung-Plasma-tv-print-AD-161119388 (accessed 8 January 2014). To further add problems toward competitive advantage recovery, when the company manages to innovate, competitors in the industry are rapid to replicate those innovations which significantly shortens the life cycle of the Sony product which causes a business need to reallocate financial resources in an effort to develop new product innovations. Unfortunately, there are also many substitute products available that conflict Sony being able to sustain high market share. For instance, Sony cameras have substitutes that include smartphones with video-taking and photo-taking ability, allowing consumers to purchase only a single smartphone device rather than seeking out camera purchases. Consumers can also utilise computers and smartphones in order to access digital and video content, allowing them to watch programming whilst being mobile, which reduces the volume of televisions that are purchased. Sony must be ever-aware of substitute products and focus its manufacturing output on devices that will be relevant to desirable consumer markets. Sony, historically, experienced very high television sales, however Sharp and Samsung have been able to build higher sales revenues through very creative marketing talents and strategies. This is something that Sony is very weak on developing appropriately according to contemporary marketing best practices. Buyers also maintain very high power in the market, which allows them to set pricing. There are many competitors that provide similar technology products as Sony, thus reducing the switching costs for consumers who seek out alternative brands other than Sony brand. In order to satisfy price-sensitive buyers and remain competitive, companies competing in this industry must set competitive prices or risk consumer defection. This limits the volume of profits available for Sony and other technology companies, however there are few barriers to competitive pricing structures available to Sony other than utilising effective brand positioning to emphasise quality or better value-added perceptions in comparison to competing products. New market opportunities in developing countries such as Turkey, India, China and Brazil are allowing for a new consumer demand and lifting export restrictions in order to promote commerce and improve developing nation economies. These are markets where Sony already has presence and distribution capabilities, however new entrants into these markets are eroding market share. Sony, without revolutionary and innovative products, cannot impose barriers to new market entry through intellectual property protections. Therefore, Sony is somewhat victimised by a constant influx of new market entrants that offer similar products that are non-differentiated and rather homogenous. Sony must be ever-conscious of new entrants in key international markets and attempt to create market entry barriers to avoid losing even further market share. Many new entrants have strong and recognised brands which further conflicts being able to maintain a dominant market position internationally. Procurement is also vital to innovation and prototyping new technological innovations and there is a very well-developed international supply chain for raw materials purchasing. Because there are many suppliers and many buyers, suppliers have considerable power along the supply chain that allows for higher price setting which further conflicts profit potential on finished products and establishment of a competitive pricing structure due to high procurement costs. Sony should be developing important strategic alliances with many suppliers to ensure loyalty to meet Sony’s needs and give the company more control over procurement costs and responsiveness. Such alliances are critical for innovation production as it allows for mutual exploitation of talents and knowledge and guarantees more responsiveness to changing procurement needs with new product development processes (Copacino 1997). As indicated by the analysis, the external market provides a substantial volume of challenges to Sony in an effort to maintain dominance in many international markets without production of innovative products that have the capacity to sustain growth for Sony after years of underperformance. 3. PEST Analysis Political Factors: Sony maintains production facilities throughout the world. Government involvement in efforts to improve minimum wages in order to stimulate economies puts much higher expenditures on Sony to ensure adequate production labour. This raises the costs of manufacture and product development internationally which conflicts establishment of competitive pricing structures. Policy protectionism imposed by developed nations (such as the US and UK) impose higher import tariffs on electronics products and volume restrictions for importation. This is highly critical in a market environment where product pricing on electronics is a critical competitive tool for all players in this industry. Sony would have to work more closely with the World Trade Organisation and international governments to guarantee a lifting of certain restrictions or face having to establish higher pricing structures on technology products that could anger consumer segments and drive them toward competing product brands. Economic: Many countries are still having problems with the lingering effects of the 2008-2010 recession, which has raised unemployment rates and devalued currency in some developing and developed nations. Higher unemployment rates complicate growth in consumer disposable income availability, making it difficult to get consumers to pay for high priced technology products that are currently offered by Sony. Uncertainty over establishment of fiscal policy that better stabilises currency values impacts exchange rate on sold products in certain countries that further erodes profit potential for Sony Corporation. Social: In many Asian countries, there is a growing trend for conspicuous consumption (Wong and Ahuvia 1998), which is the propensity of consumers to purchase premium products as a means of illustrating to important social reference groups that they have attained a high class status in society (O’Cass and McEwen 2004). This represents many opportunities for Sony to capitalise on this trend and then position the product as top quality or premium in order to justify higher pricing structures in Asian nations. This would require higher investment in the marketing promotional function. Technological: The Internet is revolutionising business-to-business transactions for Sony and other competitors. The Internet and the ability to conduct transactions and discussions utilising this medium is changing (for the better) the relationships between Sony and many suppliers. Cloud computing capabilities through Internet technology also lessens the company’s reliance on purchase of expensive software packages whilst still being able to maintain an adequate, externalised database to facilitate more effective and cost-conscious business transactions. 4. Porter’s Generic Strategies Sony, due to its size and scope of operations, cannot adopt a cost leadership strategy in order to gain competitive advantage. The complexity of the supply chain, coupled with the dynamics of vast production systems, prevent adopting such strategies as lean manufacturing or other low-cost leadership strategies. The company, however, can adopt a differentiation strategy in order to gain this important competitive advantage. When a business has been able to provide consumer segments the perception that a product is premium (such as Apple, Inc.) they can charge premium prices for markets that are not price-sensitive. This will require Sony to invest more into the advertising function in order to express these perceptions, but the long-term return on investment could make Sony stand out from all other main competitors. Sony, historically, had a very positive reputation for quality, such as with the aforementioned Walkman innovation, which allowed the company to charge a premium pricing on its products. This, however, has eroded and Sony is getting lost in the mix of competitive strategies that attempt to differentiate rather homogenous products in the market. In an environment where technology allows competition to replicate competitive product features and benefits, the only real asset that cannot be copied by competitors is the brand image (Nandan 2005). This is the focus of a company’s differentiation tactics: to convince consumers that a product is superior to competition that is mostly accomplishable through advertising. However, differentiation is critical to Sony if the corporate image is to change from inferior to superior in the minds of important target consumers. 5. SWOT Analysis Strengths A very recognised international brand An original market pioneer who maintains advantages at the consumer level (Kalyanaram and Gurumurthy 2008). Ample production capacity allowing for prototyping and rapid production. Internal staff experts with specialised knowledge in technology, production design, and marketing. A collectivist culture where loyalties are to in-group membership once relationships have been developed; the ability to facilitate team functioning effectively. Weaknesses A poor cash and credit position that defies raising capital effectively due to years of underperformance. A lack of investor confidence in commons stock valuation that prevents alternative capital-raising through the securities market. Inability to utilise effective marketing that appeals to consumer lifestyles, thereby preventing brand loyalty with important target consumer segments. Highly bureaucratic management structure. Opportunities Development of critical strategic alliances with technology leaders and the scientific community to enhance innovation production. Utilisation of psychographic marketing tools to gain consumer interest in a fading brand for better product promotion. Reposition the brand from a quality focus to product focus post-innovation launch. Seek out new international markets in developing countries where the Sony brand has received no negative publicity or concerns about product quality. Threats Samsung, the company’s largest competitor, maintains adequate financial capital for similar, rapid innovation production The technological environment internationally allows for rapid replication of competitive innovations which shortens life cycle of new and innovative product launches. A powerful Samsung brand with considerable brand loyalty based on sales and consumer usage of smartphone technologies that gives the business strong brand equity. Emerging market competition. 6. Innovation as strategy The need for Sony to innovate is a primary weakness of the company as identified by the SWOT analysis and other analytical models utilised to measure Sony’s competitive position in this established technology market. As a result, as a relevant recovery plan, Sony must devote more labour and financial resources to the innovation process in order to keep up with constantly-evolving market conditions, changing consumer preferences, and new market entrants that continue to erode market share from this struggling organisation. An innovation is defined as the creation and implementation of new solutions that fill a gap for consumer needs and a response to evolving market circumstances in a fashion that has not been achieved before by competition. It takes the form of new products, services and technologies that are provided to an external market. An idea or product that is wholly unique allows a business to crash into an active and existing market and disrupt the market in favour of the new pioneer (Davila, Epstein and Shelton 2006; Frankelius 2009). This concept of a disruptive innovation is a new and revolutionary product that maintains the opportunity to generate a great deal of new revenues and completely displace an established market in a way that poses significant threat to competition without a strong innovation focus (Christensen and Raynor 2003). If Sony is to rebuild a competitive edge and report revenue gains rather than substantial losses, the company is going to have to develop revolutionary products that are unparalleled in the competitive environment and dislodge the foothold that competitors such as Sharp and Samsung are currently holding in established international markets. However, in order to properly innovate, there must be well-developed communications processes and significant team involvement and performance (Mathisen and Einarsen 2004). This is the only method of being able to follow a linear model of innovation and ensure productive behaviours toward research and development. Therefore, social capital is a critical portion of innovation which provides for better knowledge management and knowledge transfer and serves to produce much better creative solutions for business success (Chiang and Hung 2010). However, as a Japanese company, social capital and team development is problematic. Sony maintains many foundational cultural values present in Japan. Japanese business leaders are some of the most risk averse individuals in the world and tend to defy making business decisions that do not have clearly defined expected outcomes. Japanese-based companies often place a great deal of labour and financial investment into conducting feasibility studies and managers demand detailed reports and data before making important decisions (Hofstede Centre 2013). Japan is also a very hierarchical nation where there is an expectation for power distance between management and subordinates, which conflicts the process of developing a team methodology that is absolutely vital to innovation production. However, collaboration is critical to identifying business weaknesses (Romijn and Albaladejo 2002) and interaction with different tacit knowledge holders both internally and externally is absolutely necessary for innovations to be developed and launched. Hence, in order to innovate, Japan must change its long-standing cultural values that drive contemporary business functioning and employ a more decentralised and horizontal organisation to achieve competitive innovation developments and subsequent market launches of these innovative products. Sony has built a rather positive brand reputation for many of its historical innovations, including the world famous Walkman, however many of the company’s previous innovations have reached the decline stage and Sony has, in recent years, been ill-prepared for the intensity of international competition in this industry in terms of launching new innovative products. Companies such as Sharp and Samsung are much more modern in terms of launching new products and continue to outperform Sony for their dedication to research and development and the manufacture of products that keep up with the pace of technology changes in the external market. 7. Conclusion and recommendations Innovation is key to Sony’s future as a competitive brand. However, in order to accomplish this, based on all research findings, the company must build a more inclusive and cohesive team-oriented culture. The company should be reviewing contemporary literature on building communities of practice and best practices in new product development and adopt a more Westernised model of organisational culture development. To have knowledge experts collaborating with internal specialists and external technology leaders will provide the firm with the capacity to create rapid innovations in a variety of technology products. The marketing function, for a differentiation strategy, is absolutely critical upon development and launch of new and innovative products. The brand needs to reposition itself with more emphasis on lifestyle marketing to gain loyalty from consumers in an environment where quality-focused differentiation strategies are simply not providing consumer loyalty or enhancing revenue accumulation. Short-term capital investment in advertising will accomplish not only creating strong brand attachments with diverse international markets, but allow Sony to maintain a high-profile reputation that shows how the firm and its products are unique (differentiated) from competitive offerings. This will satisfy the luxury consumer with a trend toward conspicuous consumption in the international market. It is further recommended that Sony begin consulting with external scientific communities and technology experts to identify opportunities to create revolutionary and market-disrupting products with key unique benefits, features and enhancements. There is a very high growth level in smartphone consumption throughout the world and Sony should be devoting more of its resources on developing its own smartphone version with aspects that are not present or capable with competing products. This would reduce losses on such products as televisions and cameras that are reaching a decline stage for the organisation and ensure more profitability by distributing a product that is currently in high demand and in a very strong growth stage internationally. As illustrated by the research, innovation is the key to Sony’s success and will ensure a turnaround in an underperforming business model. Without the ability to create barriers to new market entry or control costs throughout the supply chain, Sony must utilise contemporary strategies in areas of marketing in order to obtain a differentiated personality in many international markets. Unfortunately, the company maintains few alternative options to regain its competitive advantages, especially in a market environment where consumer tastes are changing and competitive products continue to disrupt existing markets with new technology enhancements and other innovations. To transform the company from a tired brand to a radically modern brand is the only real strategy that will assist Sony in emerging from its poor under-performance and position the business properly for success in the next five years. Even though the recommendations require short-term capital investment, it will be worth the long-term gains in improving relationships and loyalty with important customer segments. References Chiang, Y. and Hung, K. (2010). Exploring open search strategies and perceived innovation performance from the perspective of inter-organisational knowledge flows, R&D Management, 40(3), pp.292-299. Christensen, C.M. and Raynor, M.E. (2003). The Innovator’s Solution: Creating and sustaining successful growth. MA: Harvard Business School Press. Copacino, W.C. (1996). Seven supply chain principles, TraBc Management, 35(1), p.60. Davila, T., Epstein, M.J. and Shelton, R. (2006). Making innovation work: how to manage it, measure it and profit from it. 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Self-Esteem as a Source of Evaluative Conditioning, European Journal of Social Psychology, 39, pp.1065-1073. Read More