Innovation at Sony Corporation - Case Study Example

Contents Innovation at Sony Corporation 3 Executive Summary 3 Innovation at Sony Corporation 4 0 Sony Corporation 4 1 Financial Performance and Market Share 4 1.2 Innovation at Sony 5 2.0 Sony’s Organizational Characteristics 5 2.1 Practices that Lead to Innovation 5 2.2 Sony’s Environment 6 2.3 Factors Contributing to Sony’s Success 6 3.0 Analysis of Sony’s Performance 6 3.1 Product Performance 6 3.2 Future Challenges 8 4.0 Conclusion 8 5.0 Recommendations 9 6.0 References 10 Appendix A: Figures 11 Executive Summary 3 1.0 Sony Corporation 4 1.1 Financial Performance and Market Share 4 1.2 Innovation at Sony 5 2.0 Sony’s Organizational Characteristics 5 2.1 Practices that Lead to Innovation 5 2.2 Sony’s Environment 6 2.3 Factors Contributing to Sony’s Success 6 3.0 Analysis of Sony’s Performance 6 3.1 Product Performance 6 3.2 Future Challenges 8 4.0 Conclusion 8 5.0 Recommendations 9 6.0 References 10 Appendix A: Figures 11 Innovation at Sony Corporation Executive Summary Sony has emerged as a strong player in the electronics products and services business segment spanning over 50 years. Sony operates in five segments: Electronics; Games; Pictures; Financial Services; and All Other. The electronics division accounted for over 65% revenues in 2009. Sony was ranked in the top 10 among companies globally for innovation in 2008. Sony has created an environment that fosters innovation among its employees. Many of Sony’s products and services have been among the top 5. Sony’s latest innovations include Blu-ray technology for DVDs, PS 3, and VAIO line of computers, among others. Sony’s strength lies in its ability to learn from its mistakes, innovating and developing products and services of high quality. Sony uses a combination of external and internal networking mechanism for identification and acquisition of technologies and skills; gaining market knowledge; improving R&D; and transferring these results to efficient production processes. Sony’s business is well diversified into five segments and four geographical regions. Sony should adopt a product portfolio strategy for its product development. Sony should continue to maintain its competitive positioning by building and acquiring intellectual property and building a web of intellectual property around its products and services. Sony must leverage from the strategies of its competitors, and consider alternatives for its movie production and distribution business. Shared values; strategy; structure; systems; staff; style and skills are contributing factors that have led to Sony’s success. Innovation at Sony Corporation 1.0 Sony Corporation Sony Corporation (Sony) began operations at the end of World War II in 1946 in a small corner room of burnt-out department in Tokyo’s Ginza district. The founder, Masaru Ibuka, brought along a few young engineers to start an electronics enterprise. He described the situation as: “We started with a basic concept that we had to do something that no other company had done before” (Chaudhury, 2007). Sony’s products include various kinds of electronic equipment, instruments and devices; and services. The company operates in five segments: Electronics; Games; Pictures; Financial Services; and All Other. The Electronics division is responsible for developing, design, manufacture and sale of electronic equipment, instruments and devices for consumer and professional markets. Sony Computer Entertainment Inc (SCEI) within Games division has developed products including PlayStation2, PlayStation Portable and PlayStation 3. The Pictures division is responsible for motion picture production and distribution; television production and distribution; and digital content creation and distribution. Financial Services includes activities of Sony Financial Holdings Inc. All Other includes Sony Music Entertainment (SME) and Sony Music Entertainment Japan (SMEJ) (Sony Corporation, 2009). 1.1 Financial Performance and Market Share Sales reported by Sony Corporation (2009) by business segment have been illustrated in figure 1. Electronics accounted for 65.1%, Games 12.7 %, Pictures 9.3%, Financial Services 6.8%, and All Other 6.1%. Within Electronics, audio sales was 9%, video 21%, televisions 25%, information and communications 19%, semiconductors 4%, computers 13%, and other 9%. Europe sales accounted for 25.7% sales, USA 23.6%, Japan 24.2% and other regions 26.5% (see Fig. 2). LCD sales in the US had grown from 12% in the previous year to 14% with over 15.2 million units sold (see Fig. 3). Digital camera sales declined from 23% to 21 % with over 22 million units sold (see Fig. 4). Over 6.2 million video cameras were sold with over 41% market share (see Fig. 5). Sales of digital music players increased from 5.8 million to 7.0 million with 9% market share (see Fig. 6). PC sales increased from 5.2 to 5.8 million units (see Fig. 7). Over 32 million units of PlayStation hardware and 226 million units of PlayStation software were sold (see Fig. 8 and Fig.9). Sony Pictures enjoyed the third position with over 13% market share behind Warner Brothers and Paramount (see Fig. 10). Sony Music enjoyed 25.7 % market share in the US and 16.9% market share in Japan (see Fig. 11 and Fig.12). 1.2 Innovation at Sony Akio Morita, then Chairman of the Board of Sony Corporation, emphasized that innovation was more than technological advancement and required creativity in technology, product planning and marketing in his lecture titled: “,” meaning Science alone is not Technology and Technology alone is not innovation at DTIs first innovation lecture in 1992 (von Stamm, 2002). 2.0 Sony’s Organizational Characteristics 2.1 Practices that Lead to Innovation Innovation is a competitive priority (including cost, quality, delivery and flexibility) for proactively adapting operations strategy to fit within changing environments. Growth and technological advances have interacted to create an environment within firms that have varying levels of complexity and dynamism (Nair and Boulton, 2008). Innovation is the response to opportunities or challenges including the development of additional technology or the introduction and identification of a new consumer need. The macro-model has a focus on the environmental drivers of innovation; societal needs and new technological advances, and frequency and rate of innovation. New technology could influence the industry structure, altering the marketplace and change the rules and parameters under which organizations operate. Opportunity recognition is the ability to develop an idea and be able to exploit the competitive significance. Innovation leads to a continual cycle involving new market and technological knowledge; which could be either radical or purely incremental. The change within the marketplace leads to rapid innovation development. Innovation being a difficult process should be proactively managed. Rapid development is the time from the emergence of an idea to a product. Creativity, prior knowledge, ability to change relationships between different elements of information, passion, persistence, and patience are beneficial for innovation. Entrepreneurial transformation involves the recognition of opportunity; appropriation of opportunity; exploitation of opportunity; marketing and interest arousal; implementation of opportunities; social interaction; resource configuration; and stimulation of change (Shaw et al., 2005). 2.2 Sony’s Environment Sony has developed supporting infrastructure for ensuring effective implementation of competitive operations strategy. Global competition demands a market-oriented R&D focus, where R&D efforts are driven by clear understanding of current and potential market needs. This requires an environment where market-savvy R&D organization and production-friendly experts in diverse technologies. Sony uses a combination of external and internal networking mechanism for identification and acquisition of technologies and skills; gaining market knowledge; improving R&D; and transferring these results to efficient production processes (Harryson, 1997). 2.3 Factors Contributing to Sony’s Success Factors that contributed to Sony’s success as an innovative company were: products close to the need; an inventor’s outlook; and flexibility. Sony kept its innovation teams small allowing it to achieve faster and better communication. Sony established a free, dynamic, and pleasant environment allowing technical skills to be exercised at the highest levels. Sony had a vision to apply advanced technology, and undertook several parallel projects towards new innovation creating alternatives. This increased the probability that one of the approaches would work. People from manufacturing participated in the development team allowing technology transfer from R&D to engineering. Hands-on management and persistence allowed focus technologies that were core to the company. The management set key targets, allowing others to work on the specific goals and solutions keeping motivation level of engineers high. Sony has developed a culture that looked for talent, acceptance of failure, and not allowing repetition of mistakes. McKinsey’s 7-S framework could be used to map the contributing factors that led to Sony’s success. They are: shared values; strategy; structure; systems; staff; style and skills (Chaudhuri, 207). 3.0 Analysis of Sony’s Performance 3.1 Product Performance Sony was ranked 9 among the World’s 50 most innovative companies in 2008. The company enjoyed 8 % growth during 2004-2007 with a growth margin of 13% and 17% compounded stock return (Businessweek, 2008). Sony ranked 11th in the number of patents filed by companies in 2005 with 1,149 (Schofield, 2006) and 9th in 2009 with 1485 patents (McEntegart, 2009). The Electronics segment is Sony’s most important business with a lion’s share in the revenue. In the last five years, the electronics division gas averaged break-even operating profit. After commanding the portable audio market share in the 80’s and 90’s, the company has not been able to develop a successor to the Walkman brand. The portable audio market is dominated by MP3 players and iPods. Sony’s market share in remained at 9%. The video business includes digital cameras and DVD players. CyberShot digital cameras enjoyed strong performance, while DVD player sales declined. The Blu-ray technology is expected to replace DVD, and competes with Toshiba’s HD-DVD technology. Television constitutes 23% of the Electronics division. The Bravia line of LCD TVs are high-definition flat-panel sets enjoys 30% market share in the US.LCD panels are produced by S-LCD Corporation, its own venture while other manufacturers pay mark-ups on the panels. Televisions incorporating the organic electroluminescent technology have thinner screens and consume lesser power. Sony’s laptops and PCs under VAIO brand have outpaced market growth. The VAIO TP Living Room PC allows consumers access online video from home-entertainment systems. Semiconductor manufacturing includes CCD image sensors for digital cameras and LCDs. The CELL processor allows efficient performance in multimedia and vector calculation applications. Batteries, data recording media, data recording systems, optical pickups, and electronic components are other products. Lithium-ion laptop batteries were recalled after instances of batteries catching fire resulting in costs over. CD, DVD discs, integrated circuit cards and other smaller products and services are offered by the division. PlayStation 3 is more computationally powerful offering cutting-edge graphics. However, PS 3 has remained behind Microsoft’s Xbox 360 and Nintendo’s Wii in terms of overall sales. Also, PS 3 is a platform for propagation of Blu-ray. The PlayStation Portable features LCD screen, wireless network connectivity, music playback, and Universal Media Disc format. Peripheral such as GPS receiver and hard drive storage adapter have been included to expand the system’s market. The console price of PS3 has been considered high. Wii has been popular and finding broad consumer appeal, and Xbox 360 have been providing tough competition to PS3. The Motion Picture Group includes production houses Columbia Pictures and Sony Pictures Classics and makes around 30 feature films annually. Home entertainment generates an operating margin of 20%. Seinfeld, Jeopardy, etc. form a strong portfolio of television programming. Financial services are offered in Japan with products and services such as Sony Life, Sony Assurance, and Sony Bank, with the division enjoying 13% operating margin. Joint ventures with Ericsson, S-LCD Corporation and Metro-Goldwyn-Mayer are Sony’s major joint ventures generating over 3.5% of the revenues (Sony Corporation, 2009). 3.2 Future Challenges Sony has to spend significant resources on R&D. Cases such as the Sony BMG DRM software and recall of lithium ion batteries could be expensive and result in loss of business and goodwill. Sony’s Motion Picture Group operates at losses and relies on profit generated through DVD sales. However, as DVD markets continue to mature, profit growth could be limited. The deal with IGA Worldwide for allowing advertisements in PS3 videogames are being watched closely by analysts. Blu-ray technology allows storage of 18-25 GB compared to 15GB by HD-DVDs could have substantial impact on Sony’s future earnings. First generation Blu-ray DVD players cost over $1000 compared to $500 for HD-DVD players. Sony BMG within Sony Music Entertainment includes Universal Music Group, EMI Group and Warner Music Group. New generation MP3 players and Apple’s iPods continue to dominate the market. Canon and Nikon are key competitors to Sony’s digital cameras. Its acquisition to acquire Konica Minolta’s digital SLR has allowed it to enter the professional market. Traditional CRT markets being mature are no longer profitable, while flat screen and high-definition LCD TVs are fastest growing segments. The S-LCD Corporation provides Sony competitive advantage over its competitors. Sony’s VAIO laptops have outpaced market with over 5% market share. Nintendo systems have outpaced Sony’s PS3 and PSP respectively. Microsoft has been pushing Xbox 360 as the end all media station by allowing connection to Xbox live through Ethernet or Wi-Fi connectivity providing users with game interfaces and other content such as movies and music. Sony is planning similar network allowing 90% of its products PlayStation Network compatible by 2011 (Sony Corporation, 2009). 4.0 Conclusion Sony’s strength lies in its ability to innovate and develop products of high quality. Innovation has become part of a mainstream culture beginning with the first magnetic tape and tape recorder in 1950. Sony’s products such as Reader, PlayStation, Blu-ray, etc. have been ranked most innovative products. Sony has admitted that it continues to learn from its failures such as MSX home computer and lithium ion batteries and continue to innovate. Sony’s business is well diversified into five segments and four geographical regions. Sony has a huge R&D spending allowing it to bring new products to the market. Product success sometimes depends on changing trends in consumer habits (despite the high level of innovation and product quality). This has been evident in PS3 which is expensive because of the Blu-ray technology. Microsoft has been pushing Xbox live through its X box 360 as a media station. Sony would be able to catch up to this strategy in a few years, and their focus has been on computational powerful offering cutting-edge graphics. PS3 performance would be watched closely in the coming years. Also, the battle between Blu-ray and HD offers interesting prospects. Sony is facing threats from smaller competitors in each of its business segments. Sony’s PS3 profitability has not been clear, while Xbox and Wii continue to outperform Sony. Samsung, Sharp, and Panasonic provide tough competition to Sony in the LCD television market. Sony’s closest and toughest competitors in the Electronics division include Panasonic Corporation, Sanyo Electronics Limited and Koninklijke Philips Electronics. The company remained resilient during the global economic slowdown with a cash flow of $4.06B despite a loss of $986M during FY 2009 (Sony Corporation, 2009). 5.0 Recommendations Sony should adopt a product portfolio strategy for its product development. This strategy would allow R&D expenditure in a wider range of products and allow replacement of products or services rapidly in case the preferred product does not meet consumer expectations. Sony should continue to maintain its competitive positioning by building and acquiring intellectual property. Often a single patent is inadequate to protect an invention and web of intellectual property is required to maintain the competitive advantage. Sony must learn from IBM which has adopted this strategy. Sony must leverage from the strategies of its competitors. This is clearly evident from Microsoft’s Xbox 360 which serves as a media station in addition to its gaming platform. Sony should aggressively push for sales of its most popular products, and abandon products and services that do not break even or hold promise. Sony must be ready to release alternate versions of PS should Blu-ray technology not be accepted in the near future. Sony’s Motion Pictures is a high risk business that relies on DVD sales for profitability. This strategy is unlikely to succeed and Sony should explore alternative strategies for being profitable at the box office. A portfolio that has a mix of movies with different budgets is desirable that would reduce reliance on blockbusters for profitability. There has been an increase in low budget movies from smaller production houses that have been profitable by deploying viral marketing strategies and developing movies for a global audience. 6.0 References Businessweek. (2008). The Worlds 50 Most Innovative Companies. Available: http://bwnt.businessweek.com/interactive_reports/innovative_companies/. Last accessed 28 November 2009. Chaudhury, S. (2007). Take flexible approach to innovation and succeed the Sony way. Available: http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article1658056.ece. Last accessed 27 November 2009. Harryson, S. (1997). From experience How Canon and Sony drive product innovation through networking and application-focused R&D. Journal of Product Innovation Management. 14 (4), 288-295. McEntegart, J. (2009). IBM Files Most Patents in 2008. Available: http://www.tomshardware.com/news/IBM-patents-filing-2008,6847.html. Last accessed 18 November 2009. Nair, A. & Boulton, W. (2008). Innovation-oriented operations strategy typology and stage-based model. International Journal of Operations & Production Management. 28 (8), 748-771. Schofield, J. (2006). 2005s Top Patent Companies. Available: http://www.guardian.co.uk/technology/blog/2006/jan/10/2005stoppaten. Last accessed 28 November 2009. Shaw, S., O’Loughlin, A. & McFadzean, E. (2005). Corporate entrepreneurship and innovation part 2: a role- and process-based approach. European Journal of Innovation Management. 8 (4), 393-408. Sony Corporation. (2009). Sony Corporation. Available: http://www.sony.net/. Last accessed 28 November 2009. von Stamm, B (2002). The Innovation Wave: Addressing Future Challenges. USA: Wiley. 256. Appendix A: Figures Figure 1. Sales by Business Segment (Sony Corporation, 2009) Figure 2. Sales by Region (Sony Corporation, 2009) Figure 3. US LCD Sales and Market Share (Sony Corporation, 2009) Figure 4. Digital Camera Sales and Market Share (Sony Corporation, 2009) Figure 5. Video Camera Sales and Market Share (Sony Corporation, 2009) Figure 6. Digital Music Player Sales and Market Share (Sony Corporation, 2009) Figure 7. PC Sales (Sony Corporation, 2009) Figure 8. PlayStation Hardware Sales (Sony Corporation, 2009) Figure 9. PlayStation Software Sales (Sony Corporation, 2009) Figure 10. Sony Pictures North American Market Share (Sony Corporation, 2009) Figure 11. SME Japan Market Share (Sony Corporation, 2009) Figure 12. SME US Market Share (Sony Corporation, 2009) Figure 13. Stock Performance (Sony Corporation, 2009) Figure 14. Macro-model of Corporate Entrepreneurship and Innovation (Shaw et al., 2005) Figure 15. Micro-model of Corporate Entrepreneurship and Innovation (Shaw et al., 2005) Read More