Generic Strategies of Sony - Case Study Example

Brief profile of Sony and Critical Evaluation of its Current Generic Strategy BRIEF PROFILE OF SONY AND CRITICAL EVALUATION OF ITS CURRENT GENERIC STRATEGY Titus Rock Manickam Order No. 274618 01 March 2009 Table of Contents Introduction.4 Product Innovation..6 Factors Influencing Choice of Generic Strategy.7 Functional Strategies underlying current generic strategy..10 Sustainability of current generic strategy12 Alternative business strategies for the future..13 Conclusion..15 Sources16 BRIEF PROFILE OF SONY AND CRITICAL EVALUATION OF ITS CURRENT GENERIC STRATEGY Introduction The Sony Group is an international entity focused on electronics, games, entertainment, and financial services. The range of their product is extensive. The company enjoys premier position globally and its growth has been phenomenally linked to its history of innovation and zealous marketing (Sony Global). Founded in 1946 by Masaru Ibuka and Akio Morita, Sony is now a global organization worth $60 billion. The company was first known as Tokyo Tsushin Kogyo. The simpler name "Sony" was coined after Morita's first visit to the United States. In 1950, the company created its first tape player/recorder called the G-Type recorder. This magnetic tape recorder evolved from G-Type to Model P which became the company's first profitable product. In 1957, Sony released the world's first pocket transistor radio, establishing a market leadership position for the company. The founding fathers were circumspect and did not gloat on their initial success. They sagaciously went about their work to create the global monolith with concentration and zeal. It took decades to transform the company from a small sized enterprise to what it is today. The company's first product was rice cooker. It established its first overseas operation with a capital investment of $500,000 in New York City. It also became the first Japanese firm in the United States to make public offering of two million shares of common stock in the form of American Depository Receipts (ADRs) in 1961. Morita was the driving force for the Walkman personal stereo in the late 1970s. The Walkman was a player and it did not receive enthusiastic response in the market in the initial stages. But the product's compact size and sound quality soon set the benchmark for a revolutionary market demand. Sony introduced the color television named "Trinitron" in 1968. And in 1972, the company set its first manufacturing in San Diego, California, in the United States. It was also the first Japanese manufacturing facility in the United States. Its presence in the United States helped to rapidly transform its operations and come out with several gadgets in the entertainment industry. The charged coupled device or CCD, the initial avatar of the camcorder and digital still camera was developed by Kazuo Iwama, president of Sony from 1976. Iwama died in 1982 but he lived to see the launch of the compact disc player, an innovation that changed the way people listened to music. From 1982 to 1995, Norio Ohga steered Sony into the modern age with product planning, stylish product design and innovative marketing. More was to follow with records and the movies. Sony took over CBS Records in 1988 and Columbia Pictures in 1989, two of the world's largest content producers. These form Sony Music Entertainment (SME) and Sony Pictures Entertainment (SPE) today. SME has featured Michael Jackson, Bruce Springsteen, Mariah Carey, Celine Dion, and Pearl Jam. Top rating films such as Sleepless in Seattle, Jumanji, Air Force One, Men in Black and Stuart Little have been produced by SPE. In 1994, the Sony PlayStation game console was launched in Japan. With PlayStation2, Sony has become the most successful game manufacturer in the world. Nobuyuki Idei, the present Chairman and CEO, is responsible for moving Sony into the digital network era. He set Sony's business model by augmenting Sony's core competencies with business partnerships with other companies. Sony is on its way now to becoming a Broadband Entertainment Company (The Sony Brand). Product Innovation Apart from its past achievements, Sony continues on its leadership path in convergence strategy. The company today has VAIO notebooks, digital cameras that capture pictures on floppy discs, CD-R or Memory Stick, a handheld device that stores and view photos as well as moving pictures, MiniDisc recorders with digital PC Link to marry high quality digital audio with downloadable music, DVD/CD multi-disc that playback both audio and video, digital network recorders that pause, rewind and fast forward live television sing a hard-disc drive, and Hi-Scan flat screen TVs that deliver near HDTV picture quality through Digital Reality Creation (DRC). The company has also made its foray into professional broadcasting, mobile communications, personal computers, storage and media, and the internet. Sony's future success will depend on convergence of technologies such as consumer electronics, computing and telecommunications. The challenge lies in combining hardware, software, content and services. Sony's approach is to offer consumers various forms of content on both "home network" consisting of connected electronic devices and "mobile networks" that are accessible through mobile terminals. Products such as the i.LINK interface and Memory Stick digital storage media provide greater connectivity between digital devices and will help seamless home and personal networks. With regards to hardware, Sony is focused on four gateways to the networked world consisting of digital televisions and set top boxes, VAIO personal computers, mobile devices such as the CLIE handheld devices and digital phones, and PlayStation2 game consoles. As regards software, the company has Open MG Jukebox music management software, and digital video editing products such as PictureGear, MovieShaker and DVGate. Sony's plan is to provide easy, ubiquitous access to entertainment and information anytime, anywhere. The content may come from cable, satellite, terrestrial, packaged media or the internet. To mobilize interest, the company has launched SonyStyle.com, an information rich website for everything to do with Sony. Other service offerings include www.ImageStation.com and www.eMarker.com. The ImageStation.com helps consumer create and share digital pictures and video. The eMarker device helps people "eMark" songs they hear on the radio and locate the information through the site (The Sony Brand). Factors Influencing Choice of Generic Strategy Porter and Takeuchi (1999) emphasized that Honda, Sony, Nintendo and Sega are pioneer companies since they avoided the government intervention. They consider the above companies as really successful for Japan. The writers explained that these companies are among global leaders due to their well developed and planned corporate strategies, further to their operational excellence. Porter (1991) emphasizes positioning and how a company is positioned in its competitive environment. He suggests that a company can achieve competitive advantage by following one of the three generic strategies Porter's generic strategies are the following: cost leadership, differentiation and focus (niche). Cost Leadership refers to being a producer of low cost. It is a strategy mostly followed by the leaders of a particular industry since they have the bargaining power to achieve lower purchase costs from their suppliers. This way they either offer prices that are similar to competitors and thus achieve higher profit margins or they offer lower prices in order to achieve an increased market share. The Differentiation strategy on the other hand refers to the development of company products that have unique characteristics and these unique characteristics are perceived as such by the customers. Furthermore, the customers think that these products are different or even better than competition products. The companies that follow this strategy are strong in research and development, they possess powerful marketing since they have to communicate the unique characteristics to the public and a corporate image known for innovation. The danger for a company pursuing a differentiation strategy is that the products can easily be imitated by the competition and the companies that follow focus market strategies may achieve greater differentiation than the company following differentiation strategy. Finally, the third generic strategy is Focus. The focus can either on providing low cost products or by providing differentiation on a narrow market segment. The logic behind a focus strategy is that the company can serve its customers better if it focuses on a narrow customer segment. The company must possess strong marketing skills in order to segment and serve the customer segment that it knows better. There has been a lot of criticism on Porter's generic strategies since a lot of companies follow a combination of strategies. Porter has agreed on this fact and this case i.e. combination of strategies is called Hybrid strategy. However, a company should be particularly careful regarding the combination of strategies since they may contradict each other i.e. it is difficult to achieve cost leadership and differentiation since by implementing the first the second may be undermined. A solution may be (and this is also suggested by Porter) to have different business units that may follow different strategies otherwise the company may be "stuck in the middle". Porter's generic strategies are not dependent on industry or companies so they can be applied everywhere. In the case of Sony, it may be assumed that the company has followed differentiation and focus differentiation strategy. This can be seen by the fact that the company has based its strategies on consistent innovation and upgrades but at the same time offering products at average prices. Differentiation as mentioned above requires among others strong marketing skills in in order to communicate the unique characteristics of the products to the customers. Sony's connection with its targeted customers is intrinsically based on its desire to maintain steady communication level so that the discerning consumer is made aware of their latest developments in their various products (Anne Price et al). Further to the marketing skills, the differentiation strategy requires strong research and development in order to produce different and innovative products. From the beginning, innovation has been the key watchword in Sony. The combination of innovation and marketing has been proved successful. Sony's products involve entertainment and information that require constant updating. Their sleek products contain many features and add-ons. The company has kept its products visible through advertisements and its brand loyalty has ensured constant demand for its products. The latter confirms the third important component of the differentiation strategy which is a corporate image known for innovation. It could also be said that by offering a variety of products to various market segments Sony follows focus differentiation since it tries to cover customer needs of many customer segments. Sony had positioned itself with "a differentiation strategy which seeks to provide products or services that offer benefit different from those competitors and that are widely valued by buyers" (Johnson et al, 2005). Sony managed to achieve a premium price with its product uniqueness (DeWit & Meyer, 2004) that helped it to gain greater competitive advantage. It has managed to differentiate by focusing on quality and reliability of its products. Functional strategies underlying current generic strategy The functional strategies provide support to business and corporate strategies. These may include IT, human resource practices, and production processes that help in achieving business and corporate strategy. Porter's generic strategies belong to business level strategies. Functional-level strategies main purpose is the coordination of what is considered as the company's functional areas of the organization (marketing, finance, human resources, production, R&D, etc.). The goal is to achieve that each one of the above functions contributes to business strategies and to the company's overall strategy. Functional strategies deal with: The efficient utilization of people working in each function. The integration of activities within each function (e.g., sales, advertising and market in marketing). Ensuring that functional strategies are in accordance and they successfully blend with business strategies and the overall company strategy. Timing and effective execution are functional strategies serious goals. For example, coordinate advertising for a new product and shipment of the product. Functional strategies time program is shorter than either business or corporate strategies. They are also easier to measure their results since the results can be attributed to actions and can occur sooner. Concerning management levels, functional strategies are implemented by lower-level managers whereas corporate strategies involve top management. Business strategies on the other hand deal with business units and upper and middle-level managers are involved with them. It could be said that on a corporate level, Sony follows the growth strategy since it involves diversification i.e. it enters into different market segments by adding products to its product mix. It could also be said that this diversification strategy is concentric since the product offerings are related to the existing product offerings. As a result of the company's diversification strategy, differentiation is the next step and it forms Sony's business strategy. All then functional strategies try to achieve the above. Sustainability of current generic strategy Sony has faced many problems recently concerning its strategy. It possesses a strong brand name but this has been endangered. Sony faced problems with manufacturing that decreased its products quality. A decrease in product quality affects company image. As an example it could be mentioned" the recall of 9.6 million Sony Laptop batteries which were liable to overheat and potentially burst into flames where Sony even failed to fully study the problem" (Forbes.com, 2nd October 2006) and there is a dissatisfaction expressed by Sony's consumers regarding the PS3's new system (Wonova.com, 15th Nov 2006). Apart from quality and reputation issues, Sony has not responded sufficiently to the shift of market demand and therefore it lost some of its competitive advantages. Sony has delay the European launch of PS3 due to production problems (BBC.co.uk, 6th September 2006) and so Microsoft and Nintendo took advantage of this opportunity. A similar problem arose when Sony also responded slower in the increasing demand of Plasma TVs. Apart from losing its competitive advantage and market share in the game and electronic industry; Sony could not benefit any more by the advantage of being the first mover. If Sony wants to achieve its diversification and differentiation strategy it is imperative to improve its corporate image by improving functional areas such as production and product delivery. Alternative business strategies for the future Sony is a large corporation. It has its work cut out in the entertainment and information industries. It is a frontrunner in the field of music, audiovisual and information. According to bibliography the main strategic directions are the following: market development, diversification, market penetration and service development. There are four routes to strategic advantage: invest in differentiation, exploit differences in competitive conditions, aggressive initiatives and open up new markets or develop new products. Sony so far has followed diversification and has invested in differentiation and the developing of new products. Due to the current global crisis, it has to follow market penetration i.e. "stealing" customers from competition and move on producing new products at a more moderate rate. It should still follow its customer based strategies i.e. to identify one or more subsets of customers within the total market and concentrate efforts on meeting their needs. Since, it has faced problems in functional areas such as production etc. it should reinforce corporate based strategies by strengthening the key functions to support customers, to sequence the improvement in functional competence, develop exceptional functional strategies like the make-by of Casio and improve cost effectiveness by reducing costs (without harming quality), share key functions and be more selective in products and markets. In order to have a sustainable competitive advantage an organization needs to develop core competencies. Sony's core competency in miniaturization enabled it to develop products in consumer markets where smaller size is appreciated. . The decision about miniaturization was made years before Sony's famous products like the Walkman, the portable CD player, and portable television were launched. Sony's example depicts that selection of a core competency is important for gaining product leadership. Apart from the conservation of its core competency "miniaturization" Sony should acquire a new core competency by investing in intellectual capital (e.g. management and human resources in general). As Hamel & Prahalad (1994) suggest, "intellectual leadership is essential to develop industry foresight, anticipating which trends are likely to emerge". Another factor that Sony should pay attention to is the external environment. Sony's insufficiency in responding to the external market made her lose ground in key areas so its strategy should be carefully planned in order to cope with the external environment. This can be done as Mintzberg et al (1998) suggested by having people involved in strategic management to take into consideration "the range of decisional powers available, given the forces and demands of the external context". Conclusion The story of Sony does not end here. Finally, Sony is still in a critical position where it needs to be extremely careful in order to cope with the current crisis or potential future crises. Finlay (2000) suggests that crisis control relies has to be both pro-active and reactive. It is pro-active because crisis is unknown but some elements of many crisis situations can be planned through risk management. Reactive on the other hand since it has to control specific situations as soon as they arise. Therefore, risk management and crisis control are necessary for Sony in order to be aware and confront potential threats. These should not exclude the customer focused orientation which is a key factor for efficiently confronting competition and achieving sustainable competitive advantage. 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Sony Downsizing 8,000 Positions, PlayStation Involved in Review, http://www.gamedaily.com/articles/news/sony-corp-downsizing-8000-positions-playstation-group-involved-in-review/biz=1 Sony Global, http://www.sony.net/SonyInfo/ Sony help you Double Your Memory, http://www.advancedmp3players.co.uk/shop/newsdesk_info.phpnewsdesk_id=191 "Sony failed to fully study battery problem" (2nd October 2006) - [Available at http://www.forbes.com/business/feeds/afx/2006/10/02/afx3061270.html The Sony Brand, http://news.sel.sony.com/en/corporate_information/sony_brand The Strategy Design Process, http://www.pom.edu/MBA/StrategyTemplate.htm . Read More