SONY

Ravi JainPawan Akella

RunjhunAlisha

DheerajOthers

SONY’S 1st LOSS

• First signs began in early 1990s

• Experienced a loss of ¥ 293.36b in 1995

• REASONS:– Unrelated diversification– Innovation dearth– Lack of brand evolution

RESTRUCTURING EFFORTS

• 8 restructuring efforts in 13 years

• Faced heavy restructuring costs adding to the fixed overheads

• These efforts failed to achieve the desired results & outcomes.

1st EFFORT - 1994

• Designed a 8 company structure

• GOALS– Creating a market-responsive company– To clarify the scalar chains of the company

• RESULT– Loss of ¥ 293.36b in 1995

2nd EFFORT - 1996

• Designed a Ten-company structure• Goal was to bring the company back to Profits• RESULT– Net Income decreased by 19.4%

• REASON– Heavy decentralization– Board room minimally involved in product

decisions– Unrelated diversifications

3rd EFFORT - 1999

• Internet based products were given priority

• RESULT– In 1999-2000, Net Income fell to ¥121.83b

• REASON– Lack of consolidation of business groups

4th EFFORT - 2000

• Revamp of Top management

• RESULT– Net Income dropped to ¥16.75b from ¥121.83b

• REASON– Dot com burst

5th EFFORT - 2001

• Transform SONY into Broadband Network solution company

• RESULT– Operating Profit declined by 40.3% in 2001-02

• REASON– Major and sudden shift in BUSINESS FOCUS

6th EFFORT - 2003• TRANSFORMATION 60 introduced in Oct 2003• Cost of Restructuring $3.1b• GOALS

– Achieve Profit margin of 10%– Reducing annual Fixed Costs by ¥ 330b– Component Outsourcing

• RESULT– Net loss of ¥6.8b during 2004 in Elec. Dev.– Drop in Operating Income of Games Division by 48.67%– Company Operating Income drop by 13%

• REASON– Drop in PS2 sales– Drop in sales of VAIO– Drop in sales of CRT Television Sets.

7th EFFORT - 2005

• GOALS– Identify the 5 main challenges facing the company– Organizational Structure re-design

• RESULT– Net Profit increased to ¥ 123b

• REASON– Sony BRAVIA sales– Reduction in Product & Design redundancies– Focus on core competency

8th EFFORT - 2007• Organizational Structure re-design• Establishment of B2B Solutions Group

• RESULT– Estimated 6-fold increase in profits– SONY shares rose to 5 year high– Sales increased by 13%– Operation Income of ED increased by 77%

• REASONS– Sony BRAVIA sales– JV with SAMSUNG– New Product design and introduction

2008 – TURBULENT TIMES

• SIGNS– 72% decline in Net Profits in 2nd Quarter of 2008-09– Annual profit decline by 59%– Annual operating loss of ¥ 260b in 2009

• REASONS– Strengthening Yen leading to declining Exports– Heavy losses in PS3– Failure of OLED TV in the US– Economic Slowdown in the US

9th REORGANIZATION - 2009

• Focus on Electronics & Games business groups• Forming 2 new business groups• Consolidation of Operations in Japan

• MEASURES– Infusing young blood into Top-management– Reducing the number of suppliers from 2500 to 1200– Increasing R&D spending– Sony NETWORK

CORE COMPETENCIES• Economies of Scale and Scope

– in manufacturing and research and development arising from its numerous facilities situated in Japan, the United States and other countries worldwide.

• Unique Quality Technology owing to heavy emphasis on research – Sony Corporation’s commitment to research & development activities has

always been one of its top strategies to remain competitive in the market.

• Differentiated Products– The continuous pursuit of research and development processes enables

Sony Corporation to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes.

– Because of this differentiated approach, Sony Corporation is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures.

ANALYSIS OF MACRO ENVIRONMENTPOLITICAL TRENDS•The cry for democracy and reforms•Increased popular and local-level assertiveness•Greater public accountability•Re-definition of the concepts of power and politics

ECONOMIC TRENDS

SOCIAL TRENDS•The irreversible rise of civil society among countries•The rise of civil society blends perfectly with a tri-polar structure of political economy•The increase in the roles of intellectuals; and•The beginning of a period of introspection.

LEGAL TRENDS•Intellectual property (IP) and IP Rights (IPR) creation, commercialization, and protection have been a significant source of comparative advantage of enterprises. •Indeed, most countries nowadays are fully aware of the pressing need for a long-term policy commitment .

PORTER’S FIVE FORCE ANALYSISCONSUMER ELECTRONICS INDUSTRY

THREAT OF NEW ENTRANTS - LOW

• Economies of Scale

• Product Differentiation

• Capital Requirements

• Switching Costs

• Technology, Know-how and Innovation

• Government Policy

BARGAINING POWER OF SUPPLIERS - LOW

• Big global supply chain management (Suppliers are not concentrated)

• Suppliers are forced to cut their prices or go out of business

• Direct negotiation with suppliers in order to encourage:• Reliable supply• Faster delivery• Lower prices

• Many OEMs start to produce their own components in-house

BARGAINING POWER OF BUYERS - HIGH

• Products are fairly undifferentiated

• Buyers face few switching costs

• Online shopping has increased the bargaining power of buyers

• Buyers are price sensitive and demand high quality

THREAT OF SUBSTITUTE PRODUCTS

• There are few substitutes from other industries, if any.

• Most of them seem to be obsolete or have one foot out of door.

• For example:• Digital Camera in the place of Film Camera

• Fax machines in place of overnight mail delivery

PORTER’S 5 FORCESCOMPETITION ANALYSIS

Rivalry Among Competing Firms in

Industry

Rivalry Among Competing Firms in

Industry

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Threat of New Entrants

Threat of New Entrants

Bargaining Power of Buyers

Bargaining Power of Buyers

Threat of Substitute Products

Threat of Substitute Products

RIVALRY AMONG EXISTING COMETITORS - HIGH

• Numerous and rather equally balanced competitors

• Short product life-cycle

• High R & D costs

• Lack of differentiation or switching costs

• Imitation of technology

• Counterfeit products

• Low profit margins

• High exit barriers

BCG MATRIX OF SONY SUBSIDIARIES

RECOMMENDATIONSREGAIN FOCUS•Operating in a number of unrelated businesses is often justified on the logic of scale and scope economies. •But from a brand perspective, such diversification will be more detrimental than helpful. •Sony, like Samsung, should conduct a due diligence to evaluate the financial and brand worth of its different business units. •Before the unrelated business units erode the equity of the core Sony brand, it would benefit Sony to come out of such businesses. •Regaining focus and investing in nurturing and enhancing its core competence will be the first necessary step towards regaining brand leadership.

ELEVATE BRANDING TO BOARD ROOM•Sony should revamp its R&D, design, and marketing departments.•For innovation to make any brand sense, it has to reflect consumer preferences. Innovation has to lead to products and services that would enhance the relationship between the brand and the consumer.•Sony needs to elevate the marketing function to the boardroom and enable marketing to take a lead of the business and the strategy.•Marketing and branding can no longer be relegated to a tactical level handled by marketing managers who hardly have an appreciation of the larger picture.

BRAND ORIENTED LEADERSHIP•With the resurgence of many American brands, the market place has become extremely competitive. •In such a scenario, Sony’s path back to brand supremacy can happen only if it is guided by a brand oriented leadership. •The CEO and the top management team at Sony should evaluate the meaning and identity of the Sony brand to its customers in these changing times and enable the brand team to innovate and lead the industries in which Sony operates in.

DESIGN, FEATURES & COOL FACTOR•Given the aggressive strategies of Apple, Nokia, Samsung and others along with their superiority in design, customer oriented features and the loyal following of “cool” customers, it becomes very important for Sony to regain the cool factor and beef up its designs and features. •Relevance to current customers and the ability to morph into a brand that can reflect customer needs prove very crucial for Sony as it charts its path back to the top position.

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