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SONY CORPORATION

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About Sony

Sony is An multinational aggregate partnership and the world's biggest networking

aggregate with income of US$72 billion (as from claiming financial 2003). Its vital benefits of
the business operations incorporate Sony (Sony hardware in the what's to come for U. S. ), Sony
portraits Entertainment, Sony machine Entertainment, Sony BMG music Entertainment, Sony
Ericsson and Sony monetary property. Sony may be also a heading adrift producer of electronics,
video, communications, feature amusement consoles Also data innovation results to the
purchaser Also expert businesses. These settle on Sony a standout amongst the The majority far
reaching excitement organizations in the planet. The organization's motto will be Sony. Such as
no other.

History and Culture

The present Sony partnership need a interesting society which may be solidly established in her
historical backdrop particularly over relationship to her two founders, Masaru Ibuka and Akio
Morita. Ibuka and Morita were both committed electrical particular architects Furthermore
geniuses over their business talents. Both provided for insights What's more visions On the thing
that the organization ought to settle on what's more entryway it ought to be produced. Ibuka,
especially, offered steady exhortation What's more suggestions of the particular architects
included done tasks from the prior looking into transistor radios with Walkmans. This made
those umbrageous system in which Sony works under the place the top banana management,
particularly Ibuka, Morita Furthermore Notwithstanding Norio Ohga offered the general course
to which the more level particular architects actively learned, produced Also moved forward on
the vision/idea. Therefore, In spite of there will be An arranged direction, the real item
improvement through propelling may be developing with great adaptability.

Despite those innovative work segment from claiming Sony contrasts significantly from
Different organizations for its great flexibility, Sony, in its pith will be even now an accepted
japanese shares of the organization from various perspectives. There is life-time employment,
with solid standards What's more qualities which thus make methodologies through their
movements. Status is provided for (the Precious stone award) As opposed to bonuses (not critical
amount) for unrivaled accomplishment. There will be also the solid position framework for
example, those guide and understudy relationship that is ordinary of a japanese firm. At this
camwood make arranged Likewise those social class clinched alongside which technique
arrangement is for aggregate conduct. Aggregate dream What's more stress on human resource,
which is ordinary from claiming a lot of people Japanese, camwood a chance to be plainly seen
in the mission proclamation "Management Policies".

Sony Products

Sony has a variety of products ranging from electronic devices, games and entertainment.
Briefly, Sonys products can be categorized in the following major product categories:

Television and Projectors Hand cam video camera Mobile phones

Home video Computer Peripheral Storage and Recording media

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Home Audio Portable Audio Batteries and Charger
Home Theatre system Game Other Accessories
Digital Photography In-Car entertainment

INTERNAL ANALYSIS

Sony, which is the worlds largest consumer-electronics company, has become a

consumer-electronics company since 1946. At the threshold of the much anticipated world of
total digital convergence, the electronics maker turned media and communications giant seems
to have it all next generation Internet-aware gadgets and compelling content to pump through
them, a vibrant culture of innovation resulting from cutting-edge research and development
(R&D) as well as a world-class marketing acumen that has made Sony a global megabrand.
Thus, what are the possible core competencies to ensure that there is quantum leap to success in
a world of digit convergence? The internal analysis on the company below will answer the
question.

a) Accounting Ratio Analysis

Sonys 2002 operating profit margin accounting ratio is merely 0.018 (0.045 in
year 2001), return on stockholders equity reflects a miserable 0.006 (0.007 in year 2001)
and return on total asset reveals only 0.002 (same as year 2001). The high rate of
investment also does not represent corresponding growth in profitability. These poor
results may indicate that the company had not been managed certain aspects of the
operations well and thus is unable to achieve even average returns.

The debt-to-asset ratio1 in the last 2 years was high and increasing moderately too.
As a matter of fact, in 2002, it was 0.71, which was comparatively higher than some
consumer-electronics manufacturing companies. Sonys high debt-to-asset ratio shows
that the company is highly leveraged (not highly liquid) and thus put itself in danger
if the companys creditors start to demand repayment of debt.

b) Finance Resources

Sonys net sale of US$53 billion (3% above the previous year) for 2001 is an all-
time high record. However, the operating income of US$1.01 billion earned in the same
year represents a 40% deduction compared to the previous years figures. This highlights
that Sonys profit margin has been eroded significantly. In fact, based on the
companys annual reports, Sonys net income had dropped drastically from 121.83bn in
the fiscal 1999-2000 to 16.75bn in the fiscal 2000-01. Its net income in fiscal 2001-02
was 15.31bn, a further decline compared to 2000-01 results.

The end of 2002 showed that Sony had a relatively huge reserve (cash and cash
equivalents) of 683.8bn. Being a company that is endowed with a large reserve, Sony
has the necessary financial resources to continue build an extensive international
infrastructure that provides its multinational customers with the diversity that is

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Debt-to-Asset = Total debt / Total asset
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 required. This is probably a strategic competitive advantage that any new entrants
to the market cannot offer.

c) Organisational Resources (Organisation Design/Structure)

For proceeding Growth What's more success, Sony embraced the vital benefits of
the business unit (SBU) type of the multidivisional structure to execute its related
connected broadening strategy, Sonys corporate-level technique the SBU type
comprises about 3 levels comprises the corporate headquarters, vital benefits of the
business units What's more SBU divisions.

Sony is comprehensively separated under 6 SBUs (electronics, game, music,

pictures, account benefits Also correspondence network), every further partitioned under
more diminutive business units, Also usually named Likewise divisions. The divisions
inside every SBU are related As far as imparted results alternately businesses alternately
both, yet the divisions for every SBU need minimal Previously, regular with the divisions
of the other SBUs. Atypically, Sonys home office activities monetary Furthermore key
controls through its SBU. The SBU manifestation for multidivisional structure may be An
fitting match to Sonys methodologies Similarly as it intrinsic reductions permits the
organization on wrist bindings diversifications a significant number requests finer.
However, there is An detriment of the SBU structure. Though coordination the middle of
SBUs is required (as may be required between Sonys SBUs), issues arises a direct result
those SBU structure, comparative of the focused form, doesn't promptly cultivate
collaboration crosswise over SBUs. Dissimilar to the divisions incorporated in the helpful
structure, divisions that need aid and only the focused structure don't impart basic
corporate qualities. Similarly as a result, they don't create coordination units for use. With
cultivate collaboration the middle of SBUs, Sony Might increment those recurrence about
immediate contacts between division managers, create contact parts Previously, each
division Also type Brief fill in groups alternately assignment drives around tasks that also
concentrate on extracting and imparting competencies that need aid installed inside a few
divisions worth of effort teams/task powers ought further bolstering Additionally make
committed will report card on Main oversaw economy. To guarantee that the Different
activities said promptly are effectively executed, Sony is likewise required should assess
its divisional managers execution on the premise from claiming how great they bring
encouraged interdivisional helpful endeavors. Sonys reward frameworks ought further
bolstering likewise underscore on the Generally speaking companys performance, also
the results attained by distinct divisions should help beat issues connected with key
benefits of the business unit manifestation.

Sony also ensures a legitimate match between its universal methodologies What's
more organisational structure exists so the organization Might viably coordinate What's
more control its worldwide operations. To this end, Sony utilization those overall result
divisional structure should execute the worldwide methodology. It permits the
organization with accomplish economies from claiming extension Furthermore
economies about scale around a worldwide level. Sony pursues economies of scale
further Toward outsourcing Concerning illustration it permits the organization will need

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 exceptional expense control. However, Sony countenances tests of the worldwide
strategy/worldwide structure mix for example, such that trouble included with facilitating
decisions/actions and the powerlessness will rapidly react to neighborhood necessities
and inclination. Fortunately, those results that need aid intended to help beat issues
connected with key business unit type would also relevant should tests of the worldwide
strategy/worldwide structure consolidation.

d) Physical Resources

Notwithstanding an generally broad household and worldwide modern infrastructure, Sony even
now proceeds will contribute vigorously for infrastructures thus that the organization need
addition limit should help those developing necessities and requests of their clients. To example,
Sony obtained u. S. -based CBS records Previously, 1988 Also columbia portraits done 1989.
Those two organizations were renamed to Sony music stimulation and Sony portraits excitement
separately Furthermore inevitably rose Likewise two of the world's biggest substance makers.
Sony also contributed considerably in the amusement benefits of the business Also entered under
the business on undertake secured players in Nintendo Furthermore Sega straightforwardly. Sony
overwhelmed the business thusly. To 2001, Sony went under a joint wander for swedish
telecommunications shares of the organization Ericsson to structure Sony Ericsson to assembling
cell telephones and additionally started Sony bank (an Internet-based bank for working class
japanese investors).

Eventually Tom's perusing 2003, Sony claims 55 manufacturing plants then afterward closing
down 15 around the world. Done addition, Sony need 12 home-grown manufacturing based
plants Previously, japan. It also need radio industrial facilities Previously, spots, for example,
shannon (Ireland). Ahead this note, it camwood a chance to be deduced that those physical assets
that Sony possesses would inclined with produce value-creating focused advantage which may
be those companys quality.

e) Reputation Resources

In 1999, XXX said that Reputation is one of the significant intangible resources
for Sony that differentiates themselves from the competitors for them to charge a
premium price for their innovative products and quality. On the same year, for the third
year in a row, Sony was recognised as one of the worlds 100 Best Managed Companies
by XXX magazine. In 2002, Sony Corporation was proclaimed as the worlds largest
consumer-electronics company, a significant player in the media industry and the fastest-
growing computer and communication equipment maker. Sony was ranked 21 in the
XXX list of Worlds 100 Most Valuable Brands with as estimated value of US$14 billion
and the 1st among its industry peers. The companys tagline for its electronic audio and
video products Its a Sony simply is a stamp of quality, cutting-edge technology and
reliability. In short, the Sony brand is one of the worlds most recognisable and trusted
brands. Given the positive perceptions of Sonys reputation, the brand name is certainly
the company's strength..

i) Risk Management
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Clinched alongside general, the sorts for dangers Sony countenances include: (1) immaculate
risk; (2) cost risk; Furthermore (3) credit hazard. Firstly, Sony bought protection approaches on
relieve immaculate danger. Secondly, Sony utilises a few subordinate instruments for example,
remote trade forward contracts, outside money alternative contracts, investment rate swap
assentions Furthermore money swap assentions on support those possibility downside hazard on
the money stream from the typical course about business that brought about by business
variance. Cost hazard Also credit hazard are continuously alleviated along these lines. With the
goal far, Sonys comprehensive methodology to danger administration successfully may be seen
positively Toward its stakeholders practically of the time, particularly the shareholders.

Value Chain Analysis

The value chain analysis is used to evaluate the value of every primary and support
activity that is added to Sonys products or services.

In-bound Logistics

Sony engages in a series of complex in-bound logistics activities that the company
either possess or provided by 3rd parties. As the company expands, Sony also begin to
engage 3rd parties such as Flextronics and Solectron to manufacture some of its product
components so that the company will continue to possess sufficient wave length to
engage in its core businesses and core competencies. To lower its cost of production,
Sony also restructured and shut down some manufacturing facilities. In fact, the company
has shifted some of its production plants to low cost countries such as China to take
advantage on the cheaper labour cost. The ability to manage the complex and
geographically dispersed in-bound logistics activities is certainly Sonys strength.

Operations

Sonys organizations compass over separate continents. It generation realm alone will be spread
starting with asia of the what's to come for U. Encountered with urban decay because of
deindustrialization, engineering concocted, government lodgi Furthermore should europe. Those
points would as takes after:.
(1) Just about half of the hardware segment's aggregate twelve-month preparation Throughout
those monetary year 2002 occurred in japan (approximately 65% of the yearly preparation done
japan might have been ordained to other regions).
(2) china accounted for somewhat more than 10% of downright twelve-month handling
(approximately 70% from claiming which might have been ordained for other regions).
(3) Asia, excluding japan Also China, accounted for marginally more than 10% for downright
twelve-month preparation (approximately 60% ordained for Japan, those us and the EU).
(4) the u. Encountered with urban decay because of deindustrialization, engineering concocted,
government lodgi Furthermore europe together accounted for the remaining marginally less 25%
from claiming downright yearly processing (most for which might have been ordained to nearby
appropriation Also sale).
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 Generally, Sony need been equipped to deal with its organizations great and Consequently has
the capacity should accomplish particular victories for some about its items. For instance, Sony
might have been equipped should make a catch An sizable advertise offers in the video, pc and
TV businesses Previously, barely a couple quite some time then afterward entering the
businesses.

On the other hand, companys music business, promoting benefits of the business Furthermore
location-based excitement business have not been finishing great. Indeed they needed been
making misfortunes. Despite robbery is mostly answerable for poor people performance, there
are also tests that Sony sort of can't find better answers for location them. To instance, those
particular benefits of the business units inside the association need aid still not conveying What's
more coordinating (although there were some improvements) with each other enough
Furthermore this need influenced inter-operative collaboration and gainfulness. Sonys failure on
location those inter-operative related issues may be An reason for concern and Along these lines
Might conceivably make the companys shortcoming.

Service

Sony has established many service related activities that are designed to enhance customer
satisfaction that is the feeling that a product or service has met the customer expectation. These
activities are mostly carried out at Sony service centres and call-in stations that are manned by
friendly and knowledgeable customer service offices. At the service centres, exchanges of
defective or broken merchandise are carried out speedily. In order to meet customers
expectations, warranty and installations are provided by the company. Given that Sony is able to
provide and manage the service activities well, it helps in further enhancing the Sony brand. To
better understand the activities through which Sony develops a competitive advantage and
creates shareholder value, the business system is separated into a series of value-generating
activities referred to as the value chain. The processes of transferring inputs into finished
products and services (operation) seem to have run into some problems that require Sonys
immediate attention. If the various operation-related issues mentioned above are not adequately
and quickly addressed, they may affect the operational efficiency and effectiveness of the
primary activities (out-bound logistics, marketing and sales as well as service) downstream. The
lack of inter-unit coordination and synergies due to the companys mix are diverse businesses are
properly the two grounds that have affected operation efficiency and effectiveness. Although
Sony has reported that it has witnessed a dramatic increase in internal cooperation between the
hardware and software managers, more work need to be done and continuous surveillance is still
required. The practice of good networking must eventually become a culture of Sony for the
company to sustain its competitive advantage.

The summary of strengths and weaknesses of Sony is appended in Table 1 below:

Strengths
With such huge reserves means that Sony is capable of
generating internal funds to finance any expansion.
Possession of the necessary physical resources is likely to
help Sony generate value-creating competitive advantage.
Ability to leverage on technologies well and ahead of its
competitors to create innovative and high quality products
Weaknesses
Sonys high debt ratio (highly leveraged)
could put itself in danger if the companys creditors
start to demand repayment of debt.
Weaknesses of divisional structure that
include: (1) duplication of functions at the different
"levels" that resulted in high cost in maintaining the

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 for its customers so as to increase sales and profit margins.
Ability to motivate and improve productivity of the staffs.
Ability to innovate and come up with revolutionary
innovations that mesmerise customers into buying them.
Positive perceptions of Sonys reputation that help to boost
sales and revenues.
Ability to manage the complex and geographically
dispersed in-bound and out-bound logistics activities well.
Possession of a world-class marketing acumen that has
made Sony a global mega brand.
Possess capability to train employees and business partners
to manage the complex and geographically out-bound
logistics activities to enhance operations protocol.
management structure; (2) competing business
units allow office politics instead of sound strategic
thinking to affect its view on such matters as
allocation of company resources; and (3) Sonys
business units allow compartmentalisation to settle
in that lead to lack in communication and
cooperation. This in turn runs the risk of in
incompatibilities of its products and services.

Table 1: Summary of Sonys Strengths and Weakness

Core Competencies

The analysis on Sonys resources as well as primary and support activities are evaluated
using the Resources-Competency Model as shown in Table 2 below.

Functional
Capabilities Bundle of Resources involved
Activities
Ability to conduct the various complex in-bound logistics Technology + Human +
Inbound
activities well to facilitate smooth operations and Financial + Innovation +
Logistics
productions. Infrastructure
The religious zeal to innovate coupled with tacit knowledge Technology + Human +
Operations to build revolutionary products that mesmerise customers Financial + Innovation +
into buying them. Infrastructure
Possess the capability to train employees and associates to Technology + Human +
Outbound
manage and perform the vast and complex out-bound Financial + Innovation +
Logistics
logistics activities that enhance operations protocol. Infrastructure
Marketing & Possession of a world-class marketing acumen and tacit Human + Financial +
Sales knowledge that has made Sony a global mega brand. Innovation
Able to integrate the various resources and functional Technology + Human +
Services activities to meet the needs (innovative, quality and reliable) Financial + Innovation +
of global customers. Infrastructure
Possess the necessary physical resources to help generate
Infrastructure & value-creating competitive advantage as well as a large Human + Financial +
Finance reserve that can be leveraged to invest in infrastructure to Innovation + Infrastructure
further lower costs.
Able to leverage on financial resources to provide
Human competitive numeration packages and training that help to
Human + Financial
Resources motivate and incentivise. Staff who shows managerial
potential is cultivated to take over leadership posts.
Technology + Human +
Able to leverage on technologies well and ahead of its
Technology Financial + Innovation +
competitors to create innovative and high quality products
physical
Possess procurement know-how that leads to quality input at Technology + Human +
Procurement
lower costs. . Financial + Innovation

Table 2: Resources-Competency Model used on Sonys Resources, Primary and Support

Activities

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 To determine whether Sony has any core competencies (sustainable competitive
advantages), the companys capabilities are assessed based on the four criteria valuable, rare,
difficult to imitate and non-substitutable. The evaluation results so far revealed that three core
competencies below:

(1) The religious zeal to innovation coupled with tacit knowledge to produce
revolutionary products by leveraging on strong R&D and new technologies.

(2) Possession of a world-class marketing acumen and tacit knowledge to plan

and execute marketing strategies/plans extremely effectively that goes to
build lasting well-known brands.

The evaluation conducted on Sonys capabilities is appended in Table 3 below:

Difficult to Non- Competitive Performance

Capability Valuable Rare
imitate substitutable consequences implications
Average
Ability to conduct the various complex in- Temporary returns to
bound logistics activities well to facilitate Y Y N N Competitive Above-
smooth operations and productions. Advantage average
returns
The religious zeal to innovation coupled
Sustainable Above-
with tacit knowledge to produce
Y Y Y Y Competitive average
revolutionary products by leveraging on
Advantage returns
strong R&D and new technologies.
Possess the capability to train employees and
associates to manage and perform the vast and Competitive Average
Y N N N
complex out-bound logistics activities that Parity returns
enhance operations protocol.
Possession of a world-class marketing
acumen and tacit knowledge to plan and Sustainable Above-
execute marketing strategies/plans Y Y Y Y Competitive average
extremely effectively that goes to build Advantage returns
lasting well-known brands.
Able to integrate the various resources and
functional activities to meet the needs Competitive Average
Y N N N
(innovative, quality and reliable) of global Parity returns
customers.
Possess the necessary physical resources to Average
help generate value-creating competitive Temporary returns to
advantage as well as a large reserve that can Y Y N N Competitive Above-
be leveraged to invest in infrastructure to Advantage average
further lower costs. returns
Able to leverage on financial resources to
provide competitive numeration packages and
Competitive Average
training that help to motivate and incentivise. Y N N N
Parity returns
Staff who shows managerial potential is
cultivated to take over leadership posts.
Able to leverage on technologies well and Average
ahead of its competitors to create innovative Temporary returns to
and high quality products Y Y N N Competitive Above-
Advantage average
returns

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Possess procurement know-how that leads to Competitive Average
Y N N N
quality input at lower costs. . Parity returns

Table 3: Evaluation of Sonys Capabilities

EXTERNAL ANALYSIS

Sony has a strong business case to support its foray into the game business. Goldman
Sachs has predicted the global sales of games to be US$17.5 billion and consoles to be US$8.7
billion in the year 2002. The former is expected to equal the total box office revenues of the firm
industry and eventually catch up even with the saes of music CDs. The sales of games are
expected to overtake music CD sales in Europe in 2005. Given Sonys strong presence in the
games industry, this presents vast opportunities to enlarge the companys market shares.

The consumer-electronics businesses are closely linked to economic activities in the

world. As such, Sony needs to be cognisant with the business cycle so that it can to take full
advantage of such effects especially when there are changes in discretionary income and
consumer spending patterns. As a matter of fact, the music and film companies are losing money
as the global economy slowdown due to recession that hit many countries in 2001. Growing
digital piracy also compounded the problems and these companies saw their profits further
eroded. Apprehensions of terrorist attacks and an unstable geopolitical landscape are set to test
the industry as well as Sonys resilience as a global corporation.

From the Porters Five Forces analysis, it is also deduced that competition in the
consumer electronics industry is intense and therefore will not be attractiveness (i.e. profitability)
to potential entrants. However, the overall industry attractiveness does not imply that every
company in the industry will return the same profitability. If Sony is able to apply its core
competencies, business model or network well, the company can still achieve a profit above the
industry average. A clear example of this is the airline industry. As an industry, profitability is
low and yet individual companies, by applying unique business models, have been able to make
a return in excess of the industry average.

Moving forward, there is still a silver lining in the gloomy sky. Due to its recession-proof
nature and lucrative prospects, the gaming industry is the next big frontier for many
entertainment companies, including Sony. In addition, despite the economic slowdown, Sony's
Pictures business still managed to record 15% increase in sales and more than sevenfold increase
in operating income suggest that firm business may be a defensive industry.

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Analysis of Competitive Forces - Porters Five Forces Analysis

a) Threat of Substitute Products (LOW)

The possibility threat of substitutes is moderately low; since there are few
substitutes from other industries (if any); and most of them are seemed to be obsolete or
have on foot out of the door, e.g. digit camera in the place of film camera and fax
machines in place of overnight mail delivery. Consider that Sony has built a good
reputation and strong customer loyalty, it effectively position the companys products
against product substitute to some extent; this is a surplus for the company.

b) Bargaining Power of Buyers (HIGH)

The power of buyer is high due to almost no switching cost for customers to
switch from one brand to another. The access to the internet also allows customers to
have all the information on prices charged by the different companies. The possession of
this information may cause price sensitive buyers to switch to buying from companies
that offer cheaper prices. On-line shopping has also increased the bargaining power of
buyers.

c) Bargaining Power of Suppliers (LOW)

The suppliers do not have an upper hand (low bargaining power) due to large
number of suppliers and customers. Moreover, Sony operates in big global supply chain
management and its suppliers are not concentrated. Comparatively, they are also much
small in size and thus normally have weak bargaining power. Sony usually engages in
direct negotiation with its suppliers in order to secure reliable supply at lower prices.

d) Threat of New Entrants (LOW)

Threat of new entrants is low as the entry into the industry requires high capital,
economies of scale, product differentiation as well as technology and innovation know-
how. Moreover, the industry is regulated that every potential entrant is required to obtain
approval from the relevant authority of the particular country before the company is
allowed to be operated. Every new entrant that infringed into the big players territories
can expect strong retaliation from them. Therefore, it also serves as a deterring effect to
potential entrant.

e) Intensity of Rivalry (HIGH)

Industry rivalry is high due to relatively intense competition and high exit cost.
The high intensity of rivalry is also largely due to the numerous and equally balanced
competitors in the markets, generally short product life cycle as well as high R&D, fixed
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 and storage costs. The industry growth is slow and thus further heightens the intensity of
competition

From the analysis above, it can be deduced that competition in the consumer electronics
industry is intense and therefore will not be attractiveness (i.e. profitability) to potential entrants.
However, the overall industry attractiveness does not imply that every company will return the
same profitability. If Sony is able to apply its core competencies, business model or network
well, the company can still achieve a profit above the industry average. A clear example of this is
the airline industry. As an industry, profitability is low and yet individual companies, by applying
unique business models, have been able to make a return in excess of the industry average.

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Products Life Cycles Analysis BCG Matrix

The market growth axis correlates with the product life cycle paradigm and predicates the
cash requirement a product needs relative to the growth of that market. Reference to the BCG
Matrix appended in Diagram 1, the vide-game console produced by Sony is definitely in the
Star sector since the companys business has achieved high growth rate as well as acquired
comparatively larger market share.

Diagram 1: BCG Matrix

However, although generally Stars are leaders in high growth markets and tend to
generate large amounts of cash, Sony must be mindful that they also use a lot of cash because of
growth market conditions. In addition, Sony also needs to be aware that market growth is not the
only factor or necessarily the most important factor when assessing the attractiveness of a market
as growth markets attract new entrants. For instance, if capacity exceeds demand, then a
particular market may become a low margin one and therefore becomes unattractive.

The positions of Sonys existing products are elaborated below:

a) Dog
A product becomes a dog due to low market share and a low growth rate and
when the product neither produces nor uses up bulky amounts of cash. Walkman and CD
players fall under this category. Some analysts opined that Sonys excessive focus on the
maturing consumer electronics business (profit margin below 1 per cent in 200203),
coupled with increasing competition in the consumer electronics industry was severely
affecting its profitability.

b) Question
A product becomes a question when they have a lower market share and they do
not generate much profit or cash. Sony products that fall under this category include
semiconductor, music player, VAIO computer and CRT-TV. Due to aggressive
competition from its competitors such as Samsung Panasonic and Matsushita, these
products could not make as much sales as they expected and their market shares now
range between 10-14%, comparatively lower the competitors.

c) Star
A star is when huge quantities of profit are produced because of the powerful
market share and high growth rate. Sonys digit camera, LCD TV, DVD player and play
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 stations fall under this category. Their market shares range between 25 to 40%, way
ahead of its competitors.

d) Cash Cow
Sony Ericsson W980 from Sony walkman series is a cash cow. We say a product
is a cash cow when the product show signs of that the return on assets is better than the
market growth rate, and makes more cash than they use. In case of Sony Ericsson W980,
its a phone with touch sensitive music controls and 8 gigabytes of internal memory. This
means one can store up to 8000 songs. Sony Ericsson W980 helps to position Sony
Ericsson as a market leader in the music world.

WHAT STRATEGIC ACTIONS SONY SHOULD TAKE

TO SUPPORT ITS BUSINESS-LEVEL DIFFERENTIATION STRATEGY

The construct of differentiation strategy emphasises on high quality offerings, significant

investments in innovation and staff development and branding. In order to continue to meet these
requisites, Sony may adopt the strategic actions as follows:

a) Maintain The Leader Position in Product Innovation & Quality

Sonys approach doing what others dont has paid off, in the form of great
products that people covet. Throughout its history, Sony innovations have become part of
mainstream culture with the ability to capture the imagination and enhance peoples lives.
In recent time (2003), Sony continues to fuel industry growth with the sales of innovative
and quality Sony products such as VAIO notebooks (that raise the bar in both form and
function) and digital cameras (that allow pictures to be captured on a floppy disk).
Considerable inroads have also been made in professional broadcasting such as the
production of Betacam. Moving forward, Sony should continue to maintain the market
leader position in product innovation and quality through strong R&D, indigenous use of
new technologies and superior marketing acumen.

b) Invest in Broadband Network

Sony is a corporation with convergence at its very heart. Driven by an integrated

business model, the company is well positioned to bring new benefits to consumers by
combining hardware, software, content and services. In the companys view, the Internet
is an "e-Playground" with new ways to enjoy Sony products and it opens up opportunities
for Sony to produce new revolutionary products in future. Moving forward, Sony has
planned to continue to invest heavily in broadband network so as to allow an entirely new
form of entertainment such as digitised movies and music as well as Internet content and
games to be accessed ubiquitously. Sony took an infant step recently by launching
SonyStyle.com, a new information rich e-commerce site designed to build a closer
relationship between Sony and its customers.

c) Invest in Internet-Enabled Products

Sonys strategy is focused on four gateways to the networked world. They are the
digital televisions and set-top boxes, VAIO personal computers, mobile devices (such as
the CLIE handheld devices and digital phones) and PlayStation2 game consoles. To
ensure that these products possess internet-enabled capability, Sony has developed new
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 audio-visual applications designed to personalise technology that give consumers easy,
ubiquitous access to entertainment and information no matter whether the content
comes from cable, satellite, terrestrial, packaged media or the Internet the companys
software strategy.

d) Reinforce Brand Values & Promote a World Class Brand

Chairman of the Board, Norio Ohga, once said: "... The most valuable asset of all
is the four letters, S, O, N, Y. I tell them, make sure the basis of your actions is increasing
the value of these four letters..." This underscores the strong emphasis on the importance
of reinforcing the brand values at Sony. The company also embarked on the project
dubbed Being Sony to help the various stakeholders assimilate the brand values better.
Sony worked hard in this area and was rated the number one brand in the U.S. by the
Harris poll (2000).

The phenomenal strength of the Sony brand worldwide is surely a testament to the
companys reputation for producing innovative products of exceptional quality and value.
Sony celebrates brand diversity to connect with consumers across various lifestyle
segments. For instance the grand MiniDisc format re-launch under the Walkman brand in
2000 was meant to communicate subtly that Sony is well connected to the world, the
lifestyle that people pursue, particularly the Y Generation.

e) Encourage Dreams

Sony strives to create things thins not essential, yet hard to live without for
every kind of imagination with its products that stimulate the senses and refresh the spirit
and ideas. Sony describes profoundly on its website We are not here to be logical or
predictable. Were here to pursue INFINITE possibilities. We allow the BRIGHTEST
minds to interact freely, so the UNEXPECTED can emerge to emphasise the aspiration
of creating things from imagery. Sonys top management knows that creativity is the
companys essence and thus they frequently take chances in innovation work, aiming to
exceed the expectations of consumers.

In order to succeed using differentiation strategy, Sony must possess the ability to
continuously produce innovative and quality products that exceed customers expectations and at
costs that approach near its competitors.

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 CAN SONY SUSTAIN ITS SUCCESS?

The large and untapped markets in some regional areas coupled with Sonys difficult to
imitate resources and capabilities would ensure its future success.

a) Conducive Environment for Growth

The major macro environment factors suggest a promising environment for the
growth of electronics and network service businesses amidst global slowdown. According
to XXX (2002), the demographic fundamentals of large populations that include rising
middle classes with increasing disposable incomes as well as the desire for innovative
electronics and network centric products, paint an extremely encouraging demand
picture in the long run. The XXX (2002) confirmed that the U.S., China, Europe and
Asia would continue to offer attractive conditions for the consumer goods, including
electronic industry. It estimated that the demand for innovative electronics and network
centric products will double by 2010.

b) Strong Finance Resource

Although Sony had not been profitable, its 2002 annual report still showed that
the company possessed huge cash and cash equivalents balances of 683.8 billion. Sonys
long-term financial status is stable according to credit rating that the Standard & Poor's
Ratings Services Company awarded. This is why between 1998 and 2002, bankers had
provided funds to help the company in its joint ventures and investments despite global
economic slowdown and terrorist threats. Sonys strong finance resource is vital for
growth and ready to wrestle any economic crisis. This in turn sustains success.

c) Obsession with Innovation Culture

One of the most important requirements to sustain success in the electronic and
networked service industries is to possess a genuine innovation culture. Unlike other
electronics and networked service companies, Sony preached innovation with religious
zeal. For example, Sony has relentlessly innovated and brought an array of trend-setting
electronics products such as Walkman, Compact Disc and PlayStation into the market. All
these innovations had created new markets of their own. To further innovate, the
company was the first to launch the first entertainment robot, the dog-like Aibo, which
became a runaway success. Following the success, Sony engineers are now working on
intelligent humanoid robots. With such as an obsession with innovation, Sony is certainly
poised to sustain its success.

d) Disciplined Approach

Sonys disciplined approach has assisted the company to avoid setbacks. Sony
was able to implement cost-focused operations in the media business fast that in turn
allowed its TV-series production and movie business to achieve handsome profit margins.
The ability to ensure that the central objective of achieving bigger cost advantages than
the companys rivals (by continuously implementing cost reduction measures along its
value chain more effectively) allows Sony to achieve continual success.

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e) Prowess in Marketing

Sonys prowess in marketing will help sustain the companys success. The
company possess the tacit knowledge and know-how to accompany product launches
with highly effective marketing and positioning efforts and this often earns Sony
handsome premiums. Sonys marketing shrewdness had led the company to acquire the
No. 1 brand rating in the United States by Harris poll (2000). Sony was also named as the
world's 21st most valuable brand in the same year. In short, Sonys possession of a world-
class marketing acumen that has made Sony a global mega brand is certainly a strength
that is hard to imitate and valuable.

As the global electronics, media and networked service company that constantly lead
innovation and create new markets, Sony is certainly well poised to sustain its success. Moving
forward, in order to continue to gain market share and sustain its competitive advantages as an
electronics, media and networked service company in the high demanding environment, Sony
must develop new ways to manage both customer relationships and suppliers or partners to
optimise customer loyalty, supplier relationships, and revenue.

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 WHAT ARE SONYS SUCCESS FACTORS?

There are four success factors that helped Sonys ascent to global supremacy in the
consumer electronics sector and they are:

a) Visionary Leadership

Sony is a classic case to prove the strategic importance of a visionary leader in

carrying a brand to dizzying heights. Sonys management team along with the CEO was
responsible to create an environment that nurtured experimentation and innovation. Sony
was also one of the early Asian brands to recognize the importance of branding, which
was again supported and lead by the management team.

b) Religious Zealous to Innovation

Innovation defined the brand character of Sony. Sony grew to global prominence
due to its ability to constantly create products before other companies could conceptualise
them. Sony also possesses the ability to sense the hidden consumer demand and create an
entire product category through its innovative products. For instance, when Walkman was
introduced, there was no existing market for portable music but it went ahead to became a
very successful innovation. Sonys innovative culture will help differentiate the company
from its competitors for a very long time.

c) Pioneer Advantage

Given the innovative edge, Sony emerged as the pioneer in almost every sector
that it was operating in. Being the first mover (or inventor) in many cases, Sony has a
great leeway in defining the rules of the game. In addition, the brand image was enhanced
every time a competitor imitated Sony as it became an indirect way to accept Sonys
leadership position.

d) Human Capital

The greatest asset of Sony is of its human capital, especially its engineers which
make up the R&D department. Their constant innovation is crucial for a consumer
electronic firm which specialises in audio-visual equipment and aim to generate higher
profit margin to cover the higher cost needed for its primary and support activities.
Subsidiaries are well established in many parts of the world which give Sony hands-on
knowledge of the local market. Being an international corporation, Sony also has good
access to talents and brings them into the company.

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 WHAT ARE THE REASONS THAT CONTRIBUTED TO SONYS DECLINE?

a) Unrelated Diversification

Many Western and Asian companies such as GM Motor and Samsung that have
become global forces to reckon with started from trimmed to become bloated
conglomerates. But these companies seem to have learnt the importance of focusing on
core competence and trimmed down, channelling its resources around one or two
dominant businesses. But Sony still seems to have stuck up in multiple businesses. This
sort of unrelated diversification not only drains the resources to a great extent but also
diverts the brand focus from the core of the brand.

b) Innovation Dearth

The case of Apples iPod explains this point very well. Walkman made Sony the
undisputed leader in portable music player category. As is the usual case, success breeds
corporate complacency and Sony did not follow up with any outstanding and innovative
product line to sustain the initial success. Apple came out with iPod that appealed to the
younger generation worldwide. This helps established Apple as the undisputed leader in
mobile music market and possibly dented Sonys brand reputation. The innovation dearth
is probably the result of Sonys lack of consumer oriented innovation.

c) Lack of Brand Evolution

For Sony to continue to be successful in the current ultra competitive globalised

market place, it has to make itself very relevant to the current customer segments.
Harping back on past laurels and expecting the customers to still support the brand due to
its past glory will be a grave mistake as has turned out in Sonys case. Sony has not been
very successful in evolving as the brand for the new masses of the twenty first century.
Apple, Samsung and a few others have hijacked that from Sony.

d) Lack of Cooperation

With Sony entering markets such as the VTR with no standards, it might be more
beneficial for the company to cooperate with some of its competitors as opposed to
competing on conflicting software that supports the system. The new entrants and
existing competitors are much stronger than 20 years ago and invariably Sonys strength
will be weakened if the company would to act alone.

e) Lack of Strategy

Product development, manufacturing and marketing are all well established but
the firm lacks any formal long-term direction. The original mission statement of Sony is
also outdated as it references to W.W.II. Its short-term strategy is also lacking as there is
little emphasis on profit and accountability of R&D efforts. As s result, Sony although
possess strong components but is unable to coordinate in a coherent way to achieve its
maximum potential.

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 WHAT ARE SONYS FUTURE CHALLENGES
& WHAT CAN IT DO TO OVERCOME THEM?

a) Achieving Seamless Cooperation Between Business Units

The biggest challenge that Sony faces is achieving total cooperation between its
business units and buy-in of its network vision. There is little cooperation between the
content people in the U.S. and the technical wizards in Japan. As such, the CEO, Idei,
works tirelessly to achieve organisational integration by starting an initiative to bridge the
hardware and content businesses. He also carried out extensive reorganisation to change
organisational mindset. In addition, to foster cooperation between SBUs, Sony could
increase the frequency of direct contacts between division managers, establish liaison
roles in each division and form temporary work teams or task forces around projects that
also focus on extracting and sharing competencies that are embedded within several
divisions. To ensure that the various initiatives mentioned early are successfully executed,
Sony should also evaluate its divisional managers performance on the basis of how well
they have facilitated interdivisional cooperative efforts. Sonys reward systems should
also emphasise on the overall companys performance, besides the outcomes achieved by
individual divisions to help overcome problem associated with strategic business unit
form.

b) Dilemma: What Sony Should Do To Counter Low-Cost Imitators

Low-cost imitators also produce Sonys mainstream products. To counter them,

Sony tries to keep at the forefront of innovation by making innovative interconnected
digital multimedia products. Although this helps in mitigating the situation, it brings
another set of problems. The content business, already plagued by piracy, is concerned
about the implications these new devices for its copyrighted content. The result of using
innovative interconnected digital multimedia products to counter low-cost imitators also
prevents Sony in making many devices that its competitors already produced.

c) Winning The Standards War

In the age of digital convergence, winning the standards war is vital as it can be a
winner-takes-all situation. As such, there will be fierce competitions. Sonys broadband
dream can only be a reality if its own standards prevailed. To avoid failure, Sonys should
explore joint alliances for joint standard specification.

d) Competition vs Collaboration with Conventional & Non-Conventional Competitors

The world of digital convergence means that Sony has to compete with
conventional and non-conventional rivalries. On one hand Sony has entered the terrains
of these companies in the media, computer, gaming and networking markets. On the
other hand it has also witnessed these very players enter Sonys traditional fortes. In the
age of convergence, it is unlikely that a company can do everything itself but to cooperate
selectively with its competitors. The model that involves consumer-electronics companies
in operating manufacturing plants also has to be taken by outsourcing that they can
concentrate on their core businesses. Sony has already started outsourcing and
collaborating with its competitors and it should explore if it can do more.
e) The Scourge of Piracy
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 The proliferation of the Internet and digital gadgets translated into easier piracy of
digitised copyrighted content. Despite an increase in demand, global music sales
paradoxically fell by 9% in 2002. Illegal copies and sales were estimated to cost movie
and music companies US$7 billion a year. If this trend continues, Sonys content
divisions may go out of business. In order to stop this trend, Sony teamed up with others
to form an association to urge the U.S. government to step up antipiracy measures.

f) Technology Adoption

Despite elaborate preparation for the next generation of networked entertainment, the
networks themselves remain conspicuously missing. By mid-2003, not a single product
from Sony has incorporated any of the next-generation features. There are no elaborate
broadband networks in place to support the next-generation features and products. In
2002, about 30% of Sonys Walkman sales are units that still used the traditional cassette
tape, for which the Walkman was first launched in 1979. Sony, having no relationships
with telecom companies, can only wait but not forever. Perhaps, Sony should form
alliances with some telecom companies and find ways to expedite progress.

g) Defining the Redefined Sony

Sony still appearances the overwhelming assignment from claiming offering its
broadband dream Also new personality card of the clients because of those complexities
of the advanced joining industry. A sample is Sonys Exceedingly imaginative result
Airboard, An blending about television and pc with What's more lcd screen. Clients don't
recognize the thing that it is, if it will be a pc or An television or something else. Dealers
don't recognize how with offer it. On fulfill this tough task, Sony must Initially shed
those customer-electronics particular organization picture Also illustrate will its
stakeholders the thing that advanced merging methods what's more entryway the
companys result fit under it. Secondly, the organization must persuade its shareholders
and workers of Sonys Excellent dream through facilitated buy-in exercises.

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 WHAT IS SONYS CORPORATE-LEVEL STRATEGY
& HOW DOES IT HELP CREATE VALUES?

Sonys corporate strategy uses related linked diversification strategy. The

companys revenues distribution (see table below) shows that more than 30% of its revenue
comes from outside its dominant electronics business. Sonys businesses are also found to
be related (or linked) to each other in some manners such as transfer of knowledge and core
competencies between the business units to develop and exploit economies of scope.

Electronics Games Music Pictures Others

64% 12% 8% 8% 8%

In at least 2 ways, the related linked diversification strategy helps Sony create
values as follows:

a) Avoid Duplication in Resource Allocation

Firstly, as a result the overhead for Creating An center ability need been incurred
over a standout amongst the firms businesses, transferring it to a second benefits of the
business dispense with the necessity to that second business on dispense assets will create it.
For example, Sony hardware benefits of the business Might exchange its ability in plan
What's more manufacturing on feature diversion consoles Furthermore information-
technology items. In this path Sony need avoided duplication Previously, asset allotment
which thus serves easier cosset. Assuming that Sony has the capacity to offer its item with
higher costs at an expense tantamount to its competitors, it might interpret with higher net
revenue. This acquires esteem of the organization and shareholders.

b) Allow Business Units To Gain Competitive Advantage

However, the reductions that Sony need reveled in might make tempered
Eventually Tom's perusing political (e. G. Unabated should get tolerance with make a
show station in the what's to come for U. S. ) Also budgetary (e. G. Prolonged
subsidence Previously, some nations on punctual 2000s) dangers and the issues of
Dealing with an intricate global firm with operations done various nations (e. G.
Absence of participation between Sonys divisions). Clinched alongside addition, to
attain proficient operations, Sony home office must guarantee that its business units
stake assets Furthermore encourage coordination and collaboration crosswise over
organizations in the nation limits. Around this note, Sonys president acted
determinedly with accomplish organisational joining. As much deliberations for
example, those stronghold of the system requisition What's more content
administration segment that point at bridging the fittings and substance organizations
What's more far reaching rearrange on change attitude required indicated
guaranteeing effects. Sony seen an emotional expansion clinched alongside interior
participation..

23
Challenges

However, the benefits that Sony has enjoyed may be tempered by political (e.g.
unable to get permit to establish a broadcast station in the U.S.) and economic (e.g.
prolonged recession in some countries in early 2000s) risks and the problems of managing a
complex international firm with operations in multiple countries (e.g. lack of cooperation
between Sonys divisions). In addition, to achieve efficient operations, Sony headquarters
have to ensure that its business units share resources and facilitate coordination and
cooperation across country boundaries. On this note, Sonys CEO worked relentlessly to
achieve organisational integration. His efforts such as the establishment of the Network
Application and Content Service Sector that aim at bridging the hardware and content
businesses and extensive reorganisation to change mindset had showed promising results.
Sony witnessed a dramatic increase in internal cooperation.

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