Sony ompany from the Very Beginning - Essay Example

Corporate Restructuring Contents Introduction 3 Restructuring effort 3 Analysis using theories 6 Porter’s Five Forces 6 Financial analysis 7 Conclusion 8 References 10 Introduction In the year 1946, Mr. Ibuka and Mr. Morita founded Sony as Tokyo Tsuchin Kyogo in Japan. In the starting the company had only 20 employees and funds of ¥ 190,000. Sony always had its focus on product innovation and high quality from the start itself. The company started with production of measuring equipment and telecommunications and later on it started producing transistor radios as well as tape recorders. The company was named as Sony because of its global expansion plans. In 1960 Sony had set up a subsidiary in the US and got listed in the New York stock exchange in 1970. In 1972 it became the first Japanese company to build its manufacturing unit in US. Sony always believed that innovation was the key towards achieving success as it realized that there was a huge demand for innovative products and it kept on coming with new innovative products in the consumer electronic market to become one of the major global market share holder in this sector (Sony, 2014). Sony had restructured its business 5 times in the previous 9 years which had a great impact over the business and didn’t help the company in any way with the increasing competition in the consumer electronic business market globally (Donaldson, 1994, pp. 113-117). Restructuring effort Sony’s net income saw a decline in spite of the moderate increase in operating revenues in 1990’s. This decline was seen after the business went under complete transformation in 1994 which was initiated by its CEO Norio Ohga, But hits transformation and restructuring process led to the company‘s decline in performance further and the company incurred a loss in 1995 of ¥ 293.36 billion. This decline led to another restructuring and transformation process in 1996 in which the company was organized into structure of ten companies, but this transformation didn’t help the company either and in year 1998-99 its net income came down by 19.4% (Vance, 2009, pp. 45-52). Moving towards exploiting the opportunities by internet the company went under another restructuring process in the year 1999, though this time it got benefited from the sales of products like PlayStation but the other parts of the company in consumer electronic items like mobiles, electronic goods etc. didn’t perform well as a result of which the company faced a decline in the revenue of about ¥ 58 billion from the previous year’s net income. Looking at these continuous failures in restructuring processes Sony decided to undergo a complete change of the management but still in the fiscal year 2000-01 the company got a drop in is net income of ¥ 121.83 billion over the previous year (Zu, 2008, pp.145-152). Idei gave Sony another restructuring plan to overcome the continuous loss which was been named as transformation-60, which was a plan for three years and it focused on optimizing the infrastructure in production department and also by keeping the fixed cost low by bringing together all the operating division and also source from the local markets. Based on this plan the company decided to reduce the manufacturing process, facilities for customer service and also distribution channel as a result of which huge number of employees were been shacked from the company across the world in its various divisions (Rao, 2012, pp.76-78). This plan was of US$ 3.1 billion and it had aimed in achieving 10% increment in profit margin and also in reducing the fixed cost to a great extent by the year 2006-07. But the company kept getting loss because of the drop in sales of television and also other audio products because of which the company was not able to achieve the goal which was been set in the plan of TRansfoprmation-60 (Lenz, 2010, pp.85-87). Looking at this in 2005 Stringer was been appointed as the CEO of the company and he found five basic challenges for the company that’s causing the problem Looking at these challenges Stringer came up with another restructuring plan in 2005 which focused over changing the silo culture and also implementing a centralized structure for the company (Giddy, 2004, pp. 54-57). The company adopted the new structure in October 2005 and was been divided into five basic business groups which were the Games business group, the electronic business group, Sony’s financial holding group, entertainment business and the personal solutions business. By using this structure the company expected to get more unity among all its business groups and achieve excellence in all the divisions (FACKLER, 2006). This structure did help the company to reduce the design and product redundancy to a great extent. It aimed to bring together all its key resources with the help of this structure. After the implementation of this structure Sony did shut down many of its business groups like it robotics unit, Qualia line used for manufacturing luxury electronic products, chain of restaurants, mail order company, cosmetics etc. as these groups gave les revenue to the company than expected (Siklos, 2007). Quite a good part of the company’s subsidiaries were in different types of business which were completely different from its core business of consumer electronics. Among all other tasks the major task for Stinger to revive the television business of Sony (Yeo, 2008). In the year 2006 the company did spend a lot over advertising the Sony Bravia and also kept its market price low facing huge completion from LG and Samsung but still it incurred loss in this department. Because of this Sony had to shut down 9 factories and had to shack 5700 employees from job, to get its focus back it discontinued the production of around 600 products out of 3000 total products produced by the company (Kelly, 2009). By March 2006 Company started to earn profit and its conditions improved in a huge way it got a profit of ¥123 billion and it television business also had shown a growth. Sony’s performance by then did regain and it got huge profit margins from its business but in the mid of 2008 because of the rise in global recession the demand of the luxury products among the customers in the global market went down in a hug way and Sony came out with all its latest innovative products like OLED television and PlayStation 3 whose production cost used to be very high as a result of which Sony incurred huge loss with a downfall of 72% in its net profit going down to ¥ 20.7 billion from ¥ 73.5 billion in the previous year.. Analysis using theories Using various theories the company’s restructuring affect is been studied. Porter’s Five Forces Based on Porter’s five forces the competitive analysis for Sony is been studied (Schermerhorn, 2009, pp. 45-48). Threat of New Entrants- for Sony the threat of new entrants is low because of its strengths in economies of scale, the varied product category of the company, the huge capital required for such a setup, the technological skills. Bargaining Power of Suppliers- The bargaining power of the suppliers for Sony is low because of the huge supply chain system that Sony has throughout the world and also because of the factor that Sony is one among the major players n the electronic business the suppliers will have less chance to bargain from them. Bargaining power from customers- On the comparative basis the bargaining power from the customers is very high because of the high existence of other competitors in the market like LG, Samsung the customers gets lots of options to choose among the products and as a result they have the huge chance for bargaining for a particular product from the company (Laurent, 2009). There are basically two types of buyers direct and the indirect. Direct buyers are the retailers and the distributors and indirect buyers are the end consumers. In this case the bargaining power is more for both the type of the customers as the retailers and distributors demand for higher margins because of the presence of other company products in the market and look to be a part of a company from where it get higher margins. End customers are more price sensitive and look to get products of high quality at a low price thus they look to bargain for the products and services they get and bargain more when they get more variety in the market to choose (Henry, 2011, pp. 89-93). Threat of Substitutes- Substitutes generally refers to the products which can perform similar functions. In case of Sony the threat from substitute product is low as the products brought by Sony either become obsolete by new technical innovation or they need to be done using other techniques like the film camera was been replaced by the digital cameras in the market. Thus the chances for replacing a particular product made by Sony cannot be replaced by any other substitutes for example Television cannot be replaced by other equipments. Rivalry from competitors- The threat from the existing competitors is very high as there are other major company’s like LG, Samsung who also have come up with innovative electronics products in the global market (Porter, 2008, pp. 34-38). Financial analysis The below table gives a clear indication of the data for the growth in the income rate and revenue of the company after the restructuring been done in 2006 but due to the global recession in the year 2008 the net revenue of the company goes down in a huge way (Hill and Jones, 2007, pp. 87-94). The compounded annual growth rate of the company in fiscal year 2007-08 had 22% growth while in the fiscal year 2008-09 in showed a loss of 12% (Sony, 2008, pp. 5-6). For the Year Ended March 31 2005 2006 2007 2008 2009 Sales and Operating Revenue 7,191,325 7,510,597 8,295,695 8,871,414 7,729,993 Equity in net income (loss) of affiliated companies 29,039 13,176 78,654 100,817 (25,109) Operating Income (loss) 174,667 239,592 150,404 475,229 (227,783) Income (loss) before income taxes 186,246 299,506 180,691 567,134 (174,955) income taxes 16,044 16,044 53,888 203,478 (72,741) Net Income (loss) 163,838 123,616 126,328 369,435 (98,938) Source: Sony Annual Report, 2008. Conclusion From this study it can be seen how the restructuring of the organizations structure affects the company in a huge way. If the restructuring and transformation process doesn’t turns out to be an effective way it can lead the company to incur huge loss and affects its business growth in a big way. The transformations does affect not only in the financial process but also in the market position of the company and also in the overall operations process of the company. For a brand like Sony which used to have a huge market share underwent a huge loss in the market share. Thus the restructuring process should be done taking care of various factors and after clear analysis of its affects. References Sony. 2008. Annual Report 2008. [pdf]. Available at: http://www.sony.net/SonyInfo/IR/financial/ar/2008/qfhh7c00000htn6x-att/SonyAR08-E.pdf. [Accessed on 11 March 2014]. Vance, D. 2009. Corporate Restructuring: From Cause Analysis to Execution. New Jersey: Springer. Donaldson, G. 1994. Corporate Restructuring: Managing the Change Process from Within. America: Harvard Business Press. Zu, L. 2008. Corporate Social Responsibility, Corporate Restructuring and Firms Performance. New Jersey: Springer. Rao, S. 2012. CORPORATE RESTRUCTURING -Meaning and Mode Restructuring through takeovers and mergers and amalgamation. [pdf]. Available at: < http://www.icsi.edu/portals/70/241120121.pdf.> [Accessed on 11 March 2014]. Giddy, I. 2004. Corporate Financial Restructuring. [pdf]. Available at: http://people.stern.nyu.edu/igiddy/restructuring/restructuring.pdf. [Accessed on 11 March 2014]. Sony. 2014. About Sony. [online]. Available at: http://www.sony.net/SonyInfo/. [Accessed on 11 March 2014]. Lenz, R. 2010. Post-LBO development: Analysis of Changes in Strategy, Operations, and Performance after the Exit from Leveraged Buyouts in Germany. New Jersey: Springer. Porter, M. 2008. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Simon and Schuster. Henry, A. 2011. Understanding Strategic Management. London: Oxford University Press. Hill, C and Jones, G. 2007. Strategic Management: An Integrated Approach. Boston: Cengage Learning. Schermerhorn, J. 2009. Exploring Management. America: John Wiley & Sons. Laurent, L. 2009. Sony, Ericsson: Better Off Alone?. [online]. Available at:< http://www.forbes.com/2009/03/20/sony-ericsson-nokia-markets-equity-mobile.html>. [Accessed on 11 March 2014]. Kelly, T. 2009. Stringer Sticks Knife Deeper into Sony. [online]. Available at:< http://www.forbes.com/2009/05/14/sony-stringer-nintendo-markets-equities-loss.html>. [Accessed on 11 March 2014]. Yeo, V. 2008. Stringer: Sony Has Recovered its Innovation Edge. [online]. Available at:< http://www.businessweek.com/stories/2008-09-10/stringer-sony-has-recovered-its-innovation-edgebusinessweek-business-news-stock-market-and-financial-advice>. [Accessed on 11 March 2014]. FACKLER, M. 2006. Cutting Sony, a Corporate Octopus, Back to a Rational Size. [online]. Available at:< http://www.nytimes.com/2006/05/29/technology/29sony.html?pagewanted=all&_r=0>. [Accessed on 11 March 2014]. Siklos, R. 2007. One Crisis After Another, but Sony Shares Keep Surging. [online]. Available at:< http://www.nytimes.com/2007/04/29/business/yourmoney/29frenzy.html?pagewanted=all>. [Accessed on 11 March 2014]. Read More