CHAPTER 3 Analyzing the Strategic Environment Case Study 3.

.4 Shaking up Sony: restoring the profits and the innovative fire. QUESTION 1 - What were the changes in the environment that led to the pressures on Sony? Internal Environment 1 Lost Creative Edge Prior to the 1990s Sony was known to be a leader in innovation under the chairmanship of Akio Morita. This innovative capability had caused them to have a competitive advantage in the industry. However, post 1990s these innovations and technologies were considered to be old due to the fact that their technologies were being matched at lower manufacturing cost. While lagging behind in innovation, the competition was ahead with digital technology such as Liquid Crystal Display (LCD), for example Sharp Electronic was much further ahead with the advancement of LCD television. Sony was once able to charge a premium price for its products but lost its product differentiation due to better competing products from its rival. 2 Loss of Customer Focus Customer Sony lost sight of the customers needs/expectations. For example, they misjudged the customers demand for the LCDs televisions and as such were not the market leader. Secondly, although developing new robot toys and high optical cameras which were ground breaking technologies, there was little demand for these products as the customers needed an anti-vibration camera. This indicated that Sony once again was not customer focus.

3 Lack of Cohesion among Divisions Divisional goals were not aligned with the overall vision and as such different divisions sought to protect their own interest. E.g. Sony Music a division of Sony was reluctant to develop a music downloading service over the Internet in fear of this affecting its own existence. Its rival Apple capitalized on this initiative and became the market leader. External Environment Competitors Producing at Lower Cost The competition was able to match their technologies and create similar products at lower manufacture cost. One of Sonys high cost factor was wages. As at 2004, the majority (77%) of its labour force was in a high wage economy which was Japan. They also had unprofitable businesses that required cost cutting measures such as cutting extensive product range. Part of the cost cutting measures required would be the outsourcing of labour or relocating to cheaper locations. Sony rivals were able to catch up with their technology and they were unable to compete with rivals with lower production costs like Dell and HP/Compaq.

QUESTION 2 - Use 3 or 4 concepts explored in this chapter to analyze the companys competitive environment. What conclusions can you draw on Sonys competitive position? 1) The degree of turbulence in the environment The concept states that environmental forces can be assessed according to two methods, changeability and predictability. The environment in which Sony operates has a very

high degree of both. This is due to the rapid pace at which technology changes. Sony is a leading brand but lost its competitiveness in the late 1990s during the advent of digital technology. In this market it is easily predicted that changes will occur, as competitors are always thinking of ways to improve and develop their innovations. Due to the high degree of changeability and predictability there is no room for complacency in this industry and Sony lost sight of that. Sony over the years built a legacy of being the leaders in innovation but lost focus; became complacent which cause the competitors to leapfrog them in innovation. The competitors understood the market and were manufacturing products that the customers wanted unlike Sony. Sony was unable to read their consumer demands as they were creating and developing products such as robotic toys that the consumer had little demand for. Sony should have done an environmental scan to ascertain the degree of turbulence in their environment. The absence of an

environmental scan resulted in Sony be blindsided by the emerging innovations of their competitors. 2) Key Factor for success in the industry Key factors for success of any organization are the resources, skills and attributes of the company that plays a pivotal role in the delivery of success in the market place. Its not only limited to the resources of the organization but also to the competitive environment in which the company operates. According to Ohmae there are three principal areas that should be analyzed which are customers, competition and corporation. Sony has always been a well-known brand name that customers identify with. As industry leaders with the technological and infrastructural capabilities and experience in the marketplace it would have been expected that Sony would be capable of identifying the needs of the market

quickly but instead they were caught with their pants hanging as it took the competition to identify the consumers demand for digital preference. Sonys main competitors were Sharp Electronics, Apple, Samsung, Dell and Compaq. Sony lack responsiveness to competitors as they didnt understand their strengths and capabilities. Many of the competing firms were able to match similar innovations and make similar products at lower costs like Dell and HP. Sony once was able to charge a premium price for their products because they performed better than that of rivals but was forced to rethink production moving into countries with cheaper labour cost. The competitors clearly understood Sonys strategy, technological and innovative skills to the point that they could create and produce at lower cost. Another key factor to assess is corporation and its operations. Most of Sonys divisions were profitable except for consumer electronics. This caused an overall decrease in profits moving downward from USD $2.3 billion in 1995 to USD $ 1 billion in 2004. It is important to note their sales had increased from USD $45 billion to USD $72 billion. Consumer electronics contributed USD $47 billion dollars in sales which represents 65.3 % of total sales. Notwithstanding this significant contribution to sales the department made a net loss of USD $339 million dollars. A contributing factor to this loss was high labour cost. Coupled with higher labour cost, plants capacity were underutilized which contributed to low production output level. Sony didnt take advantage of economies of scale with their large labour force and idle capacity which would result in lower unit cost.

3) Analysing the customer and market segmentation This concept shows that the customer should be the focal point of any good strategy as they are the ones that generate revenue and cash flow that keep organization in existence and deliver its profits. Consequently it is important to 1) identify the customer and the market, 2) segment the market with greater emphasis on the more profitable customers and 3) maintain good customer service with high quality product. Sony no longer

4) Analysing one or more Immediate Competitors in Depth This concept focuses on analyzing competitors and their relationship to the organization. In order to maintain competitive advantage it is important to understand what the competition offers. Sony should have spent more time profiling their closest and largest rivals by ascertaining their objectives, resources, past record of performance, current products and services, links with other organizations and present strategies. Their main rivals had the products and services that allowed them to compete effectively. Sharp Electronics and Samsung understood the Liquid Crystal Display technology. Dell and H/P were able to produce laptops at low cost. Apple was able to capitalize on the use of the internet by revolutionizing how persons listen to music through the great innovation, the IPod. If Sony had done detail profiling of their rivals it would have brought out their competitors assets to the forefront which would have allowed them to better develop a formidable business strategy that would keep them ahead of the game. There are a number of conclusions that can be had about Sonys competitive position. Sony is clearly a household name and is still profitable. They were market leaders for years as they were known for great innovation. They however have lost their

competitive advantage as a result of losing sight of the customer needs and their competitors capabilities. Part of their challenges was an internal one as they werent a cohesive unit as the many divisions only focused on their own goals rather than the main goal of the company. Rather than integration, each unit was writing their own software that was duplicated or incompatible with the other divisions. High costs and lack of innovation contributed to their internal factors.

QUESTION 3 -What lessons, if any can other companies learn about innovation strategy from Sony? Sony had lost its competitive advantage due to lack of continued innovation and customer focus. In the electronics industry, technology changes rapidly as businesses always have to find creative, innovative and technologically advanced products to maintain consumers interests and remain competitive. The emergent nature is particularly important in fast-moving markets. Sony should have adapted the emergent strategy by analyzing the environment using research and development and change its strategies to match the dynamics of the environment in which it operates. This would have assisted the company in being proactive rather than reactive. Based on the foregoing, there are several lessons that other companies can learn from the innovation of Sony. Part of good strategic management is strategic analysis. This involves analyzing the environment to keep abreast of what is happening or likely to change in the market place. In this particular case, Sony should have analyzed the competitors in an effort to understand their profile, as the competitors were able to match or leapfrog Sonys technologies even at lower cost and therefore cause Sony to lose market share.

Another lesson that can be learnt from this is that it takes years to build a great company and a good brand. However the legacy built may inhibit the company from moving further and becoming complacent. Innovation is dynamic and has to constantly be reinvented in order for the company to stay relevant. A company is only as good as its last invention. The companys culture was not conducive to support innovation; PlayStation 3 was developed by a subsidiary of the group who was afraid that HQ would halt its development. They did not maintain their competitive advantage because of their slow response to the changes in the IT innovation. Their rivals like Sharp Electronics were more advanced in the development of newer technologies like liquid crystal television (LCD).

QUESTION 4 - What questions would you ask to help your strategic planning efforts?

1) How can Sony analyze the dynamics of its environment and its impact on competitive advantage? 2) How does the birth of new technology and innovation impacts Sonys business strategy? 3) What resources do Sonys competitors possess that Sony lacks? 4) How is Sony viewed in the market place by its consumers? 5) How can Sony leverage the use of innovation in order to be a step ahead of its rivals?