Organizational Change Analysis of Sony - Case Study Example

RUNNING HEAD: ORGANIZATIONAL ANALYSIS BUSINESS REPORT CASE STUDY: SONY Organizational Analysis Business Report Case Study: Sony Name: Course: GSBS6120 Institution: Date Table of Contents Executive Summary........................................................................................................................ 3 1.0 Introduction ..............................................................................................................................3 1.1 Organization Background..............................................................................................3 2.0 Organizational Change at Sony............................................................................................. 4 2.1 The Need for Change at Sony....................................................................................... 4 2.2 The Nature of Change................................................................................................... 8 2.2.1 Triggers for Disruption .............................................................................. 8 2.2.2 Systemic and Revolutionary Change.......................................................... 8 2.2.3 A New Organizational Paradigm.............................................................. 9 2.2.4 Leadership and Change Issues.................................................................. 10 2.2.5 Organizational Learning........................................................................... 10 2.3 Change Management Approaches.............................................................................. 11 2.3.1 Action Research Model ........................................................................... 11 2.3.2 Built-to-Change Design.............................................................................12 3.0 Recommendation................................................................................................................. 12 4.0 Conclusion............................................................................................................................. 12 References .................................................................................................................................. 14 Organizational Analysis Business Report Case Study: Sony Executive Summary This case study in organizational change analysis focuses on organizational change at Sony. This report outlines the need for change at Sony since 1994 when the corporation’s profitability declined as a result of competition from other electronics companies such as Apple and Samsung. It provides an overview of the process of change at Sony, analyses the nature of change at Sony, and describes the change management models that are most appropriate for understanding change at Sony in terms of organizational redesign interventions, strategy, and organizational culture. In its conclusion, the report recommends that Sony continue redesigning itself as a built-to-change organization. 1.0 Introduction 1.1 Organization Background Sony Corporation (referred to as “Sony”) is a Japan-based multinational conglomerate and one of the world’s leading manufacturers of electronics products. The origins of Sony can be traced back to 7 May, 1946 when Masaru Ibuka and Akio Morita co-founded the Tsushin Kogyo Kabushiki Kaisha (Tokyo Telecommunications Engineering Corporation) (Sony 2012). Sony would subsequently become one of the world’s largest electronics companies in the late 1980s and into the 90s with a diverse product line in electronics, entertainment, insurance and finance (Hitt et al. 2009). Over the last two decades, Sony’s products, such as televisions, laptops, cameras, music players, car stereos, video game consoles (Playstation) and its music and pictures (film) groups, have been some of the most popular in the world. This report will analyse organizational change at Sony. It will begin by providing a brief history and overview of the change process at Sony, highlighting how change has been implemented as a strategic reaction to the external environment. The report will then analyse the nature of change occurring at Sony since 1994 and appropriate models for understanding change at Sony. The report will then conclude by recommending that Sony should redesign itself as a built-to-change organization. 2.0 Organizational Change at Sony 2.1 The Need for Change at Sony The need for change at Sony since 1994 when the first discernible restructuring effort was initiated can be understood as part of its strategic reaction to external environmental forces such as changes in technology and competition (Waddell et al 2011). While Sony had been one of the world’s largest and most successful electronics manufacturers in the early 1990s, the corporation began struggling in the late 90s as it faced year after year of declining profits and a shrinking market share in its business lines. Despite a series of organizational changes aiming to halt the drop in profits, Sony’s financial performance would continue to deteriorate to losses of ¥293.36 billion in 1995 (BBC News 1999). In response to its declining financial performance in the early 1990s, Sony has introduced a series of changes to its management structure with intention of reversing this decline. For example, in 1994 under the chairmanship of Norio Ohga, Sony transformed its management structure from that of a “group” into eight divisional companies – a move aimed at harnessing the potential of its high-growth businesses in an increasingly dynamic market. The restructuring was also intended to streamline decision making by halving the number of decision-making levels as each divisional company would have its own autonomous leadership and would be responsible for its own goals, strategy, and financial performance – an intervention consistent with Waddell et al.’s (2011) built-to-change design. This restructuring, however, did not produce the desired results as Sony’s financial performance continued to deteriorate in the late 1990s (Kunii 1999, Yasi 2011). Subsequent restructuring efforts were made in 1996, such as restructuring the company from eight-division to a ten-division company structure (Kunii 1999). While these changes were sufficient to resuscitate Sony’s profitability from 1995 to 1999, Sony still lagged behind in terms of innovation during an era when Internet-related businesses were flourishing. Sony would undergo further organizational restructuring in 1999 aimed at exploiting the opportunities offered by the Internet boom (Hitt et al. 209). Sony’s management sought to use the Internet as a medium for selling its electronic products, which implied the need to create strong links between its electronics businesses and its content-related businesses (e.g., movies, music and video games). This included restructuring its divisions yet again from ten divisions to three network companies –The Home Division Company, the Personal IT Network Company and the Core Technology and Network Company. The rationale was to create a convergence between its electronics and content businesses (Sony 1999, Kunii 1999). Sony would begin rolling out Web-compatible products, such as Web-enabled mobile phones, under a joint venture with Ericsson (Sony Ericsson), PCs, and digital cameras equipped with sockets for Internet connectivity and even allowing consumers to download songs from Sony Music over the Internet onto their Walkman devices (Williams 2010, Sony 2012). Yet, despite these and many other subsequent restructuring efforts in 2001 and 2003, Sony increasingly encountered stiff competition from other electronics manufacturers: its popular television brands were facing competition from other manufacturers such as South Korean-based LG and Samsung; its mobile phone division (Sony Ericsson) was overshadowed by innovative products such as Apple’s iPhone; its once-dominant and immensely popular video game series, the Playstation, was facing competition for consumers from Microsoft’s Xbox; and Nintendo’s Wii and Apple’s new innovation iPod were dominating the music player market (after upstaging the Walkman and its successor the Discman). As a result, Sony has been continually undergoing transformational change through a series of restructuring efforts under the tenures of various chairmen. In 2005, Howard Stringer was made chairman and CEO of Sony with a clear mission to turn the corporation’s fortunes around in the face of annihilation by competitors, such as Apple and Samsung. To arrest declining profits and market share, he initiated another restructuring plan aimed at reducing costs and streamlining the organization by cutting 10,000 jobs, shifting component sourcing to lower-cost markets such as China, closing down 11 manufacturing plants, and reducing the company’s electronics product lines by about 20% to enable them to focus on their most profitable and fast-moving business divisions (Hitt et al. 2009). The new restructuring plan also included abolition of the network company structure and reorganization into five product-focused business groups: video, audio, TV, digital imaging and VAIO (Video Audio Integrated Operation). Despite these fresh restructuring efforts, though, Sony’s situation would only improve slightly mainly due to sales of the Playstation 3 as its competitors also rolled out several innovative products, such as Microsoft’s Xbox 360, which had been released prior to the Playstation 3, and Apple’s iPod Touch, iPhone and iPad, which would dominate the market and severely hamper Sony’s sales of its smart phones and tablet computers (Stevenson 2011). Samsung’s dominance in the TV market was demonstrated by Sony’s TV division posting eight consecutive annual losses from 2003 and Sony Corporation posting four consecutive annual losses from 2007, which included record loses of US$2.7 billion in 2009 (Chang 2011, Yasu 2011). This situation was exacerbated by events such as the global financial crisis in 2008, which resulted in poor sales of its electronics in the American market and other disruptions such as the 2011 Thailand floods which disrupted camera production and undermined sales (Stevenson 2011). In 2011, Sony overhauled its TV division after three consecutive years of losses by downsizing, which included measures such as reducing the number of TV manufacturing plants, selling a large proportion of its TV division, and making several changes in its management by replacing the president of the home entertainment division. This was the result of being crowded out of the TV market by Samsung and LG (Yasu 2011). Thus, Sony is still undergoing change. To demonstrate the need for continued change, Sony’s TV brand was valued at $25 billion in 2011 from more than $100 billion in the early 1990s, which represented approximately a quarter of Samsung’s value at the time. During Stringer’s tenure, despite slashing 30,000 jobs in cost-cutting measures, Sony has still lost half of its market value. The following section will analyse organizational change at Sony by examining the nature and characteristics of their organizational change since 1994. 2.2 Nature of Change Since 1994, Sony has undergone transformational change characterised by triggers for disruption, a new organizational paradigm, executive leadership, and continuous learning and change (Waddell et al. 2011, Williams 2010, Jones 2010). 2.2.1 Triggers for Disruption Organizational change is often triggered by several disruptions in either the organizations’ internal or external environment. In Sony’s case, there were several identifiable triggers for disruption leading to transformational change. These include product lifecycle shifts, such as the increased demand in the market for mp3 music players, which effectively replaced the hugely popular Walkman. In addition, internal company dynamics such as shareholders’ concern over the declining profits also influenced Chairman Norio Ohga to initiate restructuring in 1994 and subsequently Howard Stringer in 2005 when he was appointed CEO and chairman. 2.2.2 Systemic and Revolutionary Change The process of change at Sony since 1994 has also been systemic and revolutionary. The various restructuring efforts have rapidly reshaped Sony’s organizational design and culture and have included the integration of changes into the organization as a whole. For instance, Sony Corporation transformed itself from a group structure into eight divisional companies under Norio Ohga in 1994. Subsequently, in 1999, these divisional companies would be restructured yet again into three network companies, and in 2005 under Howard Stringer the network structure would be abandoned in favour of five product-focused business groups. Sony’s organizational culture has also been reshaped from Japanese-based values under chairmen such as Nobuyuki Idei and Norio Ohga to Western and more transnational values as seen in the appointment of Welsh-born Howard Stringer as chairman and CEO – the first non-Japanese to occupy these executive leadership positions at Sony (Hitt et al. 2009, Steers et al. 2010, Howard 2011). 2.2.3 A New Organizational Paradigm Organizational change at Sony has also been characterized by discontinuous shifts in organizational frameworks, attempts to make the organization leaner and more flexible, and attempts to decentralise information and decision making to enable the organization to respond more effectively to the market. An example is the restructuring in 1994 which included the creation of eight divisional companies, a move aiming to streamline decision making by each division dealing with its own product line. The restructuring also aimed at reducing decision-making levels by half since each division was responsible for its own targets and goals and was directly accountable to shareholders. Subsequent restructuring efforts have also focused on making the organization leaner and more flexible. For example, some of the changes in Howard Stringer’s restructuring plan included cost-cutting measures such as cutting 10,000 jobs, shifting component sourcing to lower-cost markets (e.g., China), closing down 11 manufacturing plants, and reducing the company’s electronics product lines by about 20% to enable them to focus on their most profitable and productive divisions (Hitt et al. 2009). This represents organizational design intervention through downsizing. The new restructuring plan also included the abolition of the network company structure and reorganization into five product-focused business groups. 2.2.4 Leadership and Change Issues The executive leadership at Sony has played key roles in its transformation since 1994. The chairman and CEO of Sony has been in charge of articulating Sony’s strategic vision, energising members of the organization about the changes, and enabling the process of change by availing necessary resources and managing resistance to such changes while using rewards to reinforce new behaviours. For example, Norio Ohga spearheaded the restructuring in 1994 by convincing top management of the necessity to decentralise decision making to each of Sony’s eight divisions. Howard Stringer was also appointed as chairman in June 2005 with the mandate of transforming Sony’s organizational culture from Japanese to transnational values and spearheading Sony’s strategic vision through cost-cutting and restructuring efforts to resuscitate the organization’s profitability and former status as one of the leading electronics manufacturers (Hitt et al. 2009). Stringer had to manage resistance to organizational change. This is due to the organizational culture since, for instance, cost-cutting through layoffs goes against the grain of Japanese culture and Stringer’s obligation was to obtain political support for change from Sony’s board of directors (Howard 2011). 2.2.5 Organizational Learning The organizational change process at Sony has also been characterised by continuous learning and change where learning and innovation has occurred at all levels of the organization (Waddell et al. 2011, Jones 2010). At the top level of management, the board of directors, chairmen and CEO have experimented with various organizational frameworks and structures, ranging from a group structure to a division structure to network companies and eventually to the current product-focused business groups. In terms of organizational learning, Sony has also integrated research and development into the operations of its divisions as seen through the evolution of Sony’s products in response to changing market demand; these products include Playstation 3, Blu-Ray disc technology and most recently its X series Walkman, which is poised to compete with Apple’s iPod Touch (Chakravorti 2003, Stevenson 2011). The following section will analyse the most appropriate change management approaches in terms of organizational design intervention in the case of change at Sony. 2.3 Change Management Approaches The change management model that is most appropriate for understanding the process of organizational change at Sony since 1994 is the action research model. Through the series of restructuring efforts, Sony has also attempted to redesign itself as a built-to-change organization. 2.3.1 Action Research Model In the action research model of planned change, change is considered to be cyclical where preliminary research is conducted on the developmental needs of the organization, and the results of this research guide action in change implementation (Waddel et al. 2011, Graetz et al. 2011). In Sony’s case, change actions have been preceded by forecasts of either annual loss or profits, which have provided management with the information needed to make restructuring decisions. After the restructuring plans have been implemented, more data on the corporation’s performance in terms of sales and productivity was collected as a way to evaluate the change actions implemented. In the case of Sony, year after year of dismal financial performance as collected through data from annual reports, market forecasts or analysis, stock performance and from research consultants have provided management with the information needed to effect restructuring and reorganization (Ahlstrom & Bruton 2009, Williams 2010). 2.3.2 Built-to-change Design Another characteristic of organizational change and a recommended approach for change at Sony has been the attempt to redesign itself as a built-to-change organization. A built-to-change organization is one whose elements are designed in anticipation of, in response to, and as accommodation for continuous change rather than normal operations (stability) (Waddell et al. 2011). The restructuring efforts have attempted to make Sony a lean and flexible organization through the creation of organizational levels that allow for faster decision making, such as empowering managers at division or departmental levels to set performance targets for their divisions and to propose new innovative products to match those of Sony’s competitors (Hitt et al. 2009). 3.0 Recommendation It is recommended that Sony continue to redesign itself as a built-to-change organization in order to anticipate, accommodate and react to changes in the market and as a basis for competitive strategy. This will enable Sony to develop innovative product lines that can compete with products from Apple and Samsung (Ahlstrom & Bruton 2009, Yasu 2011). 4.0 Conclusion Since 1994, Sony has been undergoing transformational organizational that has been characterized by a series of restructuring efforts aimed at arresting the decline in profits that was caused by stiff competition from innovative products of other electronics manufacturers such as Samsung, Apple and Microsoft. Change at Sony has been characterized by systemic and transformational change, a new organizational paradigm, a leading role for executive management in implementing change, and organizational learning and redesign in terms of innovation and strategy (Ahlstrom & Bruton 2009, Waddell et al 2011). Change at Sony can best be understood by the action research model, where change action has been cyclical and implemented as a result of a feedback loop where management obtains information on the effect of earlier restructuring changes in order to guide subsequent change actions. It is recommended that Sony continue to redesign itself as a built-to-change organization that becomes leaner and more flexible in order to anticipate, accommodate and respond to changes in its competitive environment. References Ahlstrom, G. & Bruton, G.D. (2009). International Management: Strategy and Culture in the Emerging World. Cengage Learning: South Melbourne. BBC News (1999). Sony Cuts Back to Move Forward. BBC News, March 9. Retrieved on July 3, 2012 from < http://news.bbc.co.uk/2/hi/business/293259.stm > Chakravorti, B. (2003). The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World. Harvard University Press: Cambridge, MA. Chang, S. (2011). 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