Strategic Analysis of Sony Corporation - Report Example

Strategic analysis: Sony Corporation BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS Section Page Number 0 Introduction 2.0 Analysis of competitive advantages – VRIO framework 3.0 Micro-level analysis 4.0 Change and leadership analyses at Sony 5.0 Motivations for internationalisation 6.0 Conclusion Strategic analysis: Sony Corporation 1.0 Introduction The Sony Corporation is a Japanese MNE operating in many different countries. Sony is a diversified business model that includes production of gaming machines, televisions, smartphones, cameras, and other consumer electronics. In 2012, the Sony Corporation sustained a whopping loss of 67 billion Yen (Hirai 2012). This substantial loss occurred after another dismal profit year in 2011, in which the company reported a loss of nearly 200 billion Yen. The problem for Sony is that competitors are able to effectively innovate in established international markets, providing products with unique features and benefits. Sony, a company that is slow to change as a result of long-standing Japanese values and business systems, is unable to keep pace with competitive activity which has reduced its brand standing throughout the world. Sony, once a pioneer in the consumer electronics industry, is having problems sustaining any competitive advantages over its main competitors, Sharp and Samsung. Due to changing market conditions, competitor access to valuable resources, and the ability of competition to replicate existing marketing strategies and product types, Sony is not effectively achieving competitive advantage in key areas. This report performs a strategic analysis of the Sony Corporation, using relevant strategic frameworks to determine the firm’s competitive weaknesses and strengths. The report focuses on describing the firm’s limited competitive advantages, the methodology of change practices driving this poor performance, the rationale for recent internationalisation efforts at the firm, and explores leadership competency driving current strategic policy and strategic goals. 2.0 Analysis of competitive advantages – VRIO framework Barney (1991) introduces a model that describes the potential areas of competitive advantage that can be sustained by a firm: the VRIO framework. This model of strategic analysis highlights value, rarity, inimitability and the question of firm organisation. Value, under the VRIO framework, is a measurement of whether a firm is equipped to exploit important opportunities or maintain the capacity to counteract competitive threats (Barney and Hesterly 2006). To determine whether a firm can provide value, the financial capital investment or labour investment toward a valuable resource must not be more costly than the rents received as a result of the firm’s value-producing strategy. The Sony Corporation has been ill-equipped to exploit technological change, a situation in the consumer electronics industry that continues to drive competitor successes. Samsung has devoted considerable labour and financial resources into the research and development function that allows the business to launch many different products with unique benefits and features. In 2013, Samsung achieved a total net income of 30.1 billion American dollars in 2013 with total revenues in this year of $269 billion (Samsung 2013). It is estimated that total equity for the firm is $256 billion USD. Samsung conducted many external market analyses and determined that a growing trend in smartphone consumption was providing significant revenues for companies such as Apple, Inc. As a result, Samsung exploited the opportunity for technological change and created the pioneering Samsung Galaxy product line which not only satisfies consumers for its innovative features, but manages to outperform smartphone technologies offered in the marketplace by Sony (and other competitors). The Sony Corporation, which has not devoted the resources toward innovation in this growing market, is unable to provide adequate value which erodes its strategic positioning year on year. Furthermore, another main competitor, Sharp, is also adept at exploiting technological change in the market in order to pioneer many different consumer electronics products. Sharp recognised that its competitors were not capitalising on 3D television technology and devoted considerable R&D-related resources on this emerging technology. As a result, this firm achieved revenues of nearly 24 billion USD in 2011 (Sharp 2013). Recognising that there were growing trends for consumption of revolutionary television technology, a growth market, manufacturing was redesigned to focus on this particular product (the 3D technology), which has provided the firm with a low debt load and high credit worthiness which now provides Sharp with growth opportunities and ability to procure important assets for production as well as research and development. Sony, however, without maintaining focus on innovation and product development, maintains a limited competitive advantage which is leading to considerable revenue losses year on year. In terms of rarity, the Sony Corporation the firm maintains no competitive advantages. In this industry, it is not difficult for companies to replicate existing products launched by competitors. Due to the well-developed supply infrastructure across the globe, competitors have access to resources that are not unique and no particular consumer electronics firm has control over these resources. Many companies consider their brand identity to be a non-replicable resource, an aspect of marketing in which companies differentiate to create rarity and gain important consumer attention. Samsung is highly adept at competitive marketing and has been able to create enthusiasm in profitable consumer segments by linking consumer lifestyle to the brand ideology. Unlike Sony that continues to position the business in terms of quality, Samsung emphasises much less on product and instead appeals to consumers. This provides Samsung with competitive advantages in terms of rarity in the marketing function and other competitors, including Sony, are not making important socio-psychological connections with consumers through brand management. Sony is much less competent in effective marketing communications and brand development which further erodes competitive advantages. In relation to inimitability, Sony again has no competitive advantage. Sony does not maintain domination over any specific valuable resources. Main competition produce cameras, smartphones and televisions that have very similar features and benefits, accomplishable through the well-developed supply infrastructure across the globe and ability to procure important technological components that replicate existing competitor products. It is not costly to imitate rival products in this industry as competing companies have manufacturing systems that are adaptable and provide opportunities for launching similar technology products. Finally, in terms of organisation, Sony again is not securing competitive advantage. Since the company does not have access to rare resources, the company is not equipped to align the business to exploit these resources. Competing companies such as Samsung and Sharp have decentralising structures that promote communities of practice and collaboration as a means of developing new innovative products. Sony, a company that is based on fundamental Japanese values of power distance, is centralised and there is little consensus-based management occurring. A highly centralised business structure is not conducive to gaining competitive advantage, especially in an industry that requires innovation production in order to build profit and a positive brand identity in the established market. Kalyanaram and Gurumurthy (2008) iterate that first movers in a market have competitive advantages as consumers tend to view late entrants with an unfavourable assessment and the pioneer sets the product category in the market. Sony, unable to find competitive advantage through value and rarity, is not positioning and structuring the business to be this pioneer, which erodes brand identity and potential competitive advantages. 3.0 Micro-level analysis Thompson, Gamble and Strickland (2005) offer the model provided by Michael Porter which identifies five different threats to a business stemming from the external market. These include threat of substitutes, competitive rivalry, buyer and supplier power in the market, and threat of new entrants into an established market. Of these forces, the most relevant threats to Sony are threat of substitutes and competitive rivalry. Sony maintains a significant threat of substitutes in its international markets. For instance, the company produces cameras, however smartphone technology provided by its main rival Samsung maintain very advanced and quality camera systems embedded into the product. Consumers do not have to purchase expensive cameras when these benefits are provided with the procurement of smartphone technologies. In terms of televisions, consumers have options available in the consumer electronics industry for viewing programming using laptops and desktop computers and even using smartphone applications that are able to access Internet-based programming and movies. Sony is unable to maintain competitive advantages due to the plethora of substitute products available in domestic and international markets. Competitive rivalry is a substantial advantage that is currently experienced by Samsung and Sharp, two companies that have adopted psychographic marketing principles (lifestyle marketing) that is building potent brand loyalty with existing consumer segments. Figure 1 illustrates how Samsung has de-emphasised product and focused more on appealing to consumer lifestyle and attitude. Figure 1: Samsung effective lifestyle promotion competency Source: Deviant Art. (2014). Samsung Plasma TV Print Ad. [online] Available at: http://jackimx.deviantart.com/art/samsung-Plasma-tv-print-AD-161119388 (accessed 22 April 2014). As illustrated in Figure 1, Samsung has realised that appeals to consumer attributes and lifestyle is more valuable than attempting to emphasise differentiated aspects of the tangible product available to the consumer market. Samsung realises that linking the brand ideology to consumer psychology creates potent brand attachments (Zhang and Chan 2009). The competency of competition such as Samsung that is able to build a perception in target consumer markets of personal growth and self-expansion through the consumption of Samsung’s products significantly erodes competitive advantages for Sony in terms of marketing proficiency and know-how. In this competitive industry, as previously illustrated, it is easy to replicate existing competitor products and marketing theory states that the only real asset a company has in saturated competitive markets is its brand identity (Bennett and Rundle-Thiele 2004). Sony has not devoted the research, financial capital and managerial labour necessary to create relevant lifestyle-related marketing strategies and communications which continues to erode any consumer loyalty that Sony might experience as a result of appealing to the psychological elements of consumer behaviour. Competition, however, has capitalised on this contemporary methodology of marketing in a way that is effective and builds important brand loyalty as a result. 4.0 Change and leadership analyses at Sony Sony has, in recent years, realised that is foundational Japanese values of maintaining power distance and centralisation was eroding its competitive advantages. As a result, the company sought out a Western chief executive officer that could inject a new type of collaboration within the business that would promote more innovation production necessary to gain revenues and competitive advantages. A culture of collaboration was absolutely critical to ensuring competitive success for the firm, however the long-standing Japanese structures and values that had driven Sony’s business model were serving as a hindrance and resistance to implementing change as managers and employees alike were unaccustomed to a consensus-based business model. The new CEO maintained characteristics common with the transformational leadership model which emphasises role modelling desired behaviours, coaching and mentoring, opening effective lines of open communication and acting as an inspirational figure that reiterates mission and vision to inspire followership (Leithwood and Poplin 1992). Prior to enacting this new change agent, the company had been established where decision-making occurred at the very top of the authority hierarchy and were disseminated vertically with minimal collaboration with lower-level employees. By enacting change in terms of organisational culture and socio-professional relationships, Sony realised that it could exploit a growing market in video gaming technologies. Collaboration provided the foundation for the Playstation gaming console which de-emphasised costly production in markets with no real opportunities for growth, such as cameras and televisions. Today, as a result of improving the business model to encompass more Western ideologies of collaboration and consensus, the Playstation product line is providing the firm with a 65 percent increase in revenues and a 290 percent increase in operating revenues (Parfitt 2014). Finally, as a result of changing Japanese based traditionalism in business, a communities of practice ideology as a change initiative provided the business with a source of competitive advantage in terms of competent human capital. As aligned with John Kotter’s eight stage model of change (1996), the company managed to unfreeze processes and beliefs that were creating inefficiency in the business and align these values and processes to be accepting of a new hierarchical ideology. A long-run, step-by-step methodology for eliciting change created a motivating and cooperative culture that radically altered the ability of the firm to recognise market-based opportunities for exploitation. By moving the company’s focus away from televisions and cameras and focusing on the gaming industry, Sony managed a positive change that brought forth considerable revenue growth in 2014. It was only through a radical cultural change that Sony was able to create the foundation of innovation. Innovations are defined as the creation of new product or service solutions that fill gaps in consumer needs and allows a business to effectively respond to opportunities in the market that has not before been achieved by competing entities. By creating a collaborative environment, Sony now is equipped to create disruptive innovations that alter the dynamics of the competitive video gaming market to maintain a pioneering position in this industry (Davilla, Epstein and Shelton 2006). This change ideology was not only critical in the face of substantial revenue losses for Sony, but also provided the firm with a new type of capital not previously experienced by the firm. Change, according to theory, is more simplistic to implement when employees are motivated and when extrinsic rewards are provided as a reward for achieving strategic goals. Wang, et al. (2010) identified that pay systems provide substantial motivation. Cotton and Tuttle (1986) conducted a study finding that bonuses for meeting performance targets created more dedicated and committed employees in the organisation. The Sony Corporation began to adopt a transactional leadership strategy as part of managerial change implementation that provided employees with more incentives. In Japanese culture, it is a common belief that workers should inherently be thankful for their career positions and work diligently to secure the organisation’s needs. By implementing a transactional reward philosophy for meeting important targets, Sony now had a committed culture that continued to work recurrently to satisfy the company’s strategic position; something unable to be developed using traditionalist Japanese ideology in management. It has been illustrated that innovation is key to Sony’s long-run success. However, in order for a firm to innovate, there must be very transparent communications processes and team development (Mathisen and Einarsen 2004). Therefore, the development of social capital is absolutely necessary in the innovation process where there is emphasis on knowledge transfer and knowledge management to provide a business with better creative solutions (Chiang and Hung 2010). Sony is now equipped to be an innovator, recognising opportunities for improving the business’ position and exploiting potential market opportunities as the external market evolves. 5.0 Motivations for internationalisation Historically, Sony had focused on the United States, UK and Japanese markets where the business attempted to develop a potent brand identity. However, changing trends in Chinese income growth and ostentatious consumption activity in this country caused Sony to seek an internalisation strategy and capture the attention and interest of Chinese consumers. China, in recent years, has surpassed even European countries in premium product consumption as the country now maintains over a million millionaires and 60,000 households classified as ultra-rich (Financial Post 2012). Improved incentives for foreign direct investment, including lowered corporate taxation rates and the development of a free trade zone in the country was the motivation to seek Chinese markets to improve revenue production. Sony began to develop marketing which appealed to the ostentatious consumption behaviours of Chinese consumers and target their growing hedonistic tendencies. As a result of analysis of the Chinese market, Sony is currently working on development of a prototype for a headset that will provide Chinese consumers with virtual reality technology to enhance gaming system experiences. Known as Project Morpheus, Sony will be enhancing its PlayStation4 with virtual gaming that appeals to the growing influence of Chinese consumers. The Chinese market is ideal for a new internationalisation strategy as Chinese consumers, a collectivist culture, are seeking top quality premium products which will enhance their social status and reflect to important social reference groups that they are successful and sophisticated in this consumption choices. Japanese consumers are more prone toward thrift and the U.S. and UK markets are too disparate to launch such an expensive and innovative product. In China, however, growth in premium product purchasing trends provided an ideal market for launch of the upcoming innovation that would secure more opportunities for revenue growth and re-establishment of a positive brand reputation. Once the product is launched, if Sony utilises lifestyle marketing that is congruent with activities illustrated by Samsung, it is likely that Chinese consumers with high resources will be highly attracted to the new revolutionary headset product. However, since the product is in the prototyping stage, time will determine whether Sony is competent in exploiting this new international market. 6.0 Conclusion The Sony Corporation, though historically a strategic failure, is recognising that it can provide value by focusing more on change that is aligned with a collaborative organisational culture that is focused on innovation production. Samsung and Sharp, the company’s two most prominent competitors, have eroded brand loyalty with Sony as a premium brand. This has served as motivation for changing leadership ideology at the firm in order to become a pioneer in certain consumer electronics categories. By injecting Western business ideology into the business model, through a new type of transformational leader and emphasis on cultural development internally, the business is now equipped to regain its reputation for innovation. 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