The Slope of Sony-Ericsson Business Strategy - Essay Example

CORPORATE STRATEGY Sony ERICSSON TABLE OF CONTENTS 0Introduction 1 Overview of Sony Ericsson History 2 Slope of Sony-Ericsson Business Strategy 1.2.0 Sony Ericsson, Mission and Vision Statements 1.2.1 Sony-Ericsson Resource Capabilities 1.2.2 Sony’s Ericsson Porters Competitive advantage 1.3 Stakeholders Mapping of Sony-Ericsson 1.4 People Agents of Sony Ericsson 1.5 Sony Ericsson Ethical Social Issues 1.6 Conclusion and Recommendations 1.0 Introduction Andrews (1997: p. 52) defines corporate strategy as “the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities”. Corporate strategy in effect maps out the businesses in which an organisation intends to compete in a way that focuses resources to convert distinctive capabilities into competitive advantage. (Andrews, 1997). To properly formulate its corporate strategy, an organisation must assess its organisational strengths and weaknesses, as well as its environmental threats and opportunities, which will enable it choose among alternative courses of action. (Hofer and Schendel, 1984) cited in Schneider, (1998). This indicates that an organisation must perform a SWOT (strengths, weaknesses, opportunities and threats) analysis prior to formulating corporate strategy. A number of factors have been identified as having an effect on corporate strategy formulation: for example, Kets de Vries and Miller (1984) suggest that managerial personality and experience is an important determinant of the strategy formulation process; Janis (1972) considers group dynamics as an important factor affecting the formulation of corporate strategy while Frederickson (1984); Lyles and Mitroff (1985) suggest that organisational structure plays an important role in strategy formulation. Within the context of today’s global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). These researchers went further to argue that, this strategy has become quite common in many businesses including the retail clothing chain stores. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented, but complementary and specialized value stars and constellation (Wu & Chien:1). The next section provides a brief history of Sony Ericsson and its activities. 1.1.1 Overview of Sony Ericsson and History According to the company annual review report, Sony-Ericsson emerge from the merger of two entity, in October 2001, Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. This was due to expected synergistic gains likely to arise from such a joint venture. Thus expected benefit were likely to accrue from the combination of consumer electronics expertise with Ericsson’s technological leadership in the communications sector (Company Review 2007). Though after the joint venture, the company hoped for an increase profit, in the earlier part of 2002, profit of the company begins to drop. Ericsson’s market share actually fell and in August 2002, Ericsson said it would stop making mobile phones and end its partnership with Sony if the business continues to disappoint though Sony said it was fully committed to the joint venture and was prepared to make it a success. To Sony, the joint venture provided an opportunity for it to improve on its market share of the cell phone which was about 1% in 2000. In all, the objective for the venture was to combine Sony’s consumer electronics expertise with Ericssons technological leadership in the communications sector (Company Review 2007). 1.2 Slope of Sony-Ericsson Business Strategy Competencies provide a means of looking at those behaviours that differentiate the “best from the rest” and a common language for talking about critical on-the-job behaviours (Johnson et al 2005). The soft sides of Sony-Ericsson consider here to be the organisational culture represents the main core competence of the organisation. There is little or no close supervision, as individual workers are given the responsibilities and resources to take care of their individual needs and the by develop manage their various activities. The is a very high level of trust, and understanding amongst the entire work team, as about 90% of the workers have been working together for the past years (Company Review 2007). Because of the higher level of trust and responsibility, a worker becomes more responsible and determined to meet up with the organisational objective. Profit margin per item is low; the high turnover makes it very profitable. Other core competencies include the good will, operating on a lower cost, and owner ship of brand of suppliers, pool of reserves, having both cell phones and non cell phones items. Sony-Ericsson has retail stores in most of its location selling only the company items. In some instances, it uses its own sales force to sell directly to business customers and some industrial distributors who sell to business customers. These networks and channels are connected by physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow. Distribution channels are not limited to the distribution of physical goods.  Producers of services and ideas also face the problem of making their output available to target populations. 1.2.0 Mission Vision and Objectives Mission and vision statements are two strategic management concepts (SMCs) (Soyer & Asan 2007). These are important concepts that define organisations’ values, competencies and are quite useful in the strategic planning and management of the organisation (Soyer & Asan 2007). In their work “Identifying strategic management concepts: An analytic network process approach” Soyer & Asan (2007:1) echo that, “SMCs together provide a common language and help stakeholders and other interested parties understand the business and its position in a competitive environment. This same view was earlier aired by Raynor (1988) where the researcher refers to mission and vision statement as an organisation cornerstone that guide and provide actions, directions and aspirations for the future. Vision statement refers to the desirable (O’Brien & Meadows 2001). In other words, a vision is the articulated goal for the organisation. Unlike mission statement, vision statement is a core goal. Once this is achieved, a direction will be set for the next vision (Soyer & Asan 2007, O’Brien & Meadows 2001, Thomas et.al., 1993). Forman & Camponovo (2004:1) referred to mission statement “as the most basic embodiment of business strategy….. for mission statement is often at the heart of strategy formulation for successful organisation. Raynor (1998) further outlined the role of vision and mission statement which include Mission and vision statements are pivotal in defining and communicating an organisation’s “enduring core purpose” (Raynor 1998:2). Mission and vision statement set the pace for the activities of the organisation as these statements are usually defined within the boundaries of the organisations core competencies (Raynor 1998). In addition, Mission and vision statement by defining an organisations’ boundaries draw demarcation between one organisation and the other by exhibiting the organisations salient features (Soyer & Asan 2007, O’Brien & Meadows 2001, Forman & Componova 2004). In all, in an organisation the creation of its mission and vision is an important first step in the development of modern, strategic management (Forman & Componova 2004). The researchers argue that, today many crises in organisation is actually due to “a fundamental direction and that some carefully crafted and publicly promulgated statement of an organization’ s mission, purpose, values, goals, and vision” (Forman & Componova 2004:10) The mission and vision statement of Sony-Ericsson is defined within the core business purpose. Provide society with superior products and services by develope innovative and solutions that improve the quality of life and outstanding customer service, effective and efficient operations, and investors with a superior rate of return (Company Review 2007) Mission and vision statements at times turns to be conflicting. For example, thus offering better services to customers in the form of lower prices mean low profit for shareholders? Customers want that, excess profit be invested in the form of lower prices; shareholders need the cash in the form of dividends, while the community needs this cash to be invested back to the society. However, by being socially responsible, these conflicts of interests are reconciled. 1.2.1 Sony Ericsson and Resource Capabilities Organizational capabilities usually mean the skills embedded in a companys people, processes, and institutional knowledge. Distinctive competencies allow growth companies not only to make more money from existing businesses but also to extract greater value from new opportunities (Johnson et al 2005). Privilege Assets Growth enabling skills Sony-Ericsson existing knowledge and information of customers can be critical in managing sales. Their strong brand name and corporate reputation can be extended to launch new product, quickly gain market share without threatening the credibility of the current business. Their existing network of suppliers and other stakeholders (Distribution network) can be used to increase sales of its existing product or reduced cost of a new product launch, and maximize when entering new markets. Maximizing this bundle of distinctive capabilities, Sony-Ericsson has the best chance to be a winner in the cell phone industry. 1.2.3 Sony-Ericsson and Porters Competitive advantage According to Mintzberg et al (2003). Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors will do thereby increasing its market share and profit potential (Blocher et al 2005). Competitive advantage is determined by the core competencies of the firm, which are the particular skills and techniques as well as staff and suppliers achieved by the firm which are otherwise not available to other firms in the industry (Blocher et al 2005; Porter 1990, Johnson et al 2005). In discussing Sony-Ericsson competitive advantage, I have analyzed it with respect to Porters competitive advantage framework. Considering the strategic capabilities of Sony-Ericsson, Sony-Ericsson competitive advantage will be analysed with respect to its strength. This is based upon Porters argument that, a firms position itself by leveraging it strength. Lower Cost Differentiation Cost leadership Low product system Low life cycle cost for Sony-Ericsson product High reliability of Sony-Ericsson product and non intrusive serviceability for Sony-Ericsson electronics. Sony-Ericsson o unique resources, trademarks, proprietary know-how, uninstalled and installed customer base Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the product Equity of Sony-Ericsson brand Cost focus Differentiation focus Looking at the overall strategy of Sony-Ericsson, one will not hesitate to conclude that Sony-Ericsson has a broad target. Here Sony-Ericsson is able to bring its product faster to the market than some of the competitors. Thus the company is focused differentiation. 1.3 Stakeholders of Sony-Ericsson The activities of the organisation, Sony-Ericsson is realized, thanks to the partnership management enters into with powerful stakeholders. To be successful, it is required that organisations carry out their activities in line with the expectations of powerful stakeholders. Powerful Stakeholders include those stakeholders who control resources which are scarce and essential to the success of the organisation. Management would therefore take on activities that are in line with the expectations of powerful stakeholders and provide disclosure of these activities by means of a social responsibility report. Figure 1 below shows the major stakeholders that have an interest in Sony-Ericsson. As can be seen in the figure, the major stakeholders have different requirements from the organisation. For example the management of Sony-Ericsson is interested in compensation, prestige and power; employees of Sony-Ericsson are concerned with job satisfaction, compensation and safety. Minority groups are interested in fair employment and no discrimination, for example, at Sony-Ericsson, employees would love to see a that management does not discriminate between Caucasians and Asian Minorities or between Caucasians and Blacks when it comes to promotions, they are against racial discrimination by companies when it comes to selection of candidates to fill a place in the company. The communities were Sony-Ericsson operates love that Sony-Ericsson takes into consideration the community first when it comes to employment, as well as measures to preserve the environment and the earth’s natural resources that are necessary for maintaining the ecosystem. Creditors of Sony-Ericsson are interested to receive their principal and interest and principal upon maturity of debt obligations; shareholders are interested in dividends and capital gains; customers need quality products and services as well as increased customer value and customer satisfaction; suppliers need regular payments and continuity of business (going concern), for example, no supplier will like to supply a company that is unable to settle its accounts payable or that is likely not going to continue business; and the government needs to collect taxes from the company. Figure 1. Major Stakeholders of an organisation. Source: adapted from: Brignall and Ballantine (1996). From the foregoing we see that while the annual report published by the management of Sony-Ericsson can satisfy the needs of creditors, suppliers, shareholders, government, and management it is difficult to satisfy the information needs of the other stakeholders such as the community, minority groups and customers; the latter category is that which requires a corporate social responsibility report. This therefore goes a long way to explain why organisations prepare a corporate social responsibility report from the annual report. This will be explain in section six with respect to Sony-Ericsson. 1.4 Peoples Agent for Sony-Ericsson’s position Governers Decision According to Fama & Jensen (1983) managers of organisations will always act at the expense of the institution because of their personal interest. This is true because bonuses have become a thing of the past (Forman & Componova 2004). Mission and vision statements message must be communicated in precise simple and clear language supported through out the organisation. In today’s organisation, this is not often the case due to misalignments; the mission and vision were overstated. Forman & Componova (2004) argued that misuse of this statement is so common and over time hard work is necessary for revival. They caution that, “Unless mission and vision reflect the core values, capabilities, and goals of individual organisations, they cannot shape current and future operations and therefore soon become clichés” (Forman & Componova 2004:7). At, Sony-Ericsson this is adjusted through its CSR report and being socially responsible to all stakeholders. 1.5 Ethical Social Issues when developing Strategies “The practice of Corporate Social Responsibility CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits”. (Sacconi, 2004) “Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; still others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations”. (Bulkeley, 2001; Sacconi, 2004) Today more and more companies are engaging in corporate social responsibility reporting, which helps major stakeholders to better understand how the company interacts with its society. (Sacconi, 2004). Law (2006) defines social responsibility reporting (corporate social reporting) as the reporting of social accounting issues by a business. These may be discussed in the annual accounts and report or form the basis of a separate report. Social responsibility costs are the costs to the business of e.g. equipment donated, sponsorship given, or charitable donations. The monetary quantification of social benefits is much harder to measure and necessarily subjective. Owing to the concerns of consumers, investors, and other stakeholders, companies are increasingly obliged to be environmentally and socially conscious. Many organisations in many countries have begun voluntary disclosure of the social environmental impacts of their activities in their annual reports. (Deecan and Unerman, 2006) These practices which have now become widespread began in many countries in the early 1990s, following considerable advances by a number of large companies to report environmental aspects of their business activities. Later-on from the mid-1990s, the reporting of social and environmental impact of organisations’ activities has become an increasingly popular practice. (Deecan and Unerman, 2006). The disclosures have often been made in the annual reports which include the financial statements comprising the balance sheet, profit and loss account and cash flow statement as well as a statement of shareholders’ equity. (Deecan and Unerman, 2006) The content of the social and environmental impact usually comprise of policies, practices and or impact of the reporting organisation on its environment. (Deecan and Unerman, 2006). The new practice today by some organisations is to separate the environmental social disclosures from the annual report as the disclosures have become widespread and extensive. (Deecan and Unerman, 2006). These organisations while publishing a summary of disclosures of social environmental impacts in their annual report publish alongside a more detailed social and environmental report in a separate document. (Deecan and Unerman, 2006). Social and environmental reporting has become a more common practice since the early 1990s although it is still being produced by a limited number of companies worldwide. It is a standard practice today for most multinational companies to disclose a social and environmental report alongside their consolidated financial statements. Increasing use has been made of the internet to disclose this information as well as to dialogue with a variety of stakeholders about these social and environmental issues. (Deecan and Unerman, 2006). Many organisations engage in certain activities if the organisation’s hierarchy believes that these activities are expected by the communities in which they operate and to satisfy the community that the activities were carried out in compliance with the expectations, the management decides to produce a social and environmental report concerning the activities. If the organisation does not perform the activities as perceived by the community it might no longer be regarded as a legitimate organisation. Sony-Ericsson is one of the very first companies in the 21st century to make it activities socially responsible. According to the company website and 2007 annual review, businesses have responsibilities to stakeholders to make sure their actions do not cause harm. To the employees, Sony-Ericsson offers an ideal work environment in all the countries and communities where Sony-Ericsson is operating. The company has globally put in place effective staff training and retention programs, Sony-Ericsson also employs people with disabilities and its diversity programs ensure barrier free work place. To customers, Sony-Ericsson offers them a higher value for any product purchase through its competitive pricing and affordable technology. To the investors, Sony-Ericsson ensures that the company is managed with the highest standards to ethics, responsibilities in the best interest of shareholders. The board adheres to corporate governance policies and practices. To its supplier’s stakeholders, Sony-Ericsson promote ethical and socially responsible behaviours by promoting sustainable environmental practices, fundamental human rights, dignity and health with safety. From the 2007 corporate annual report, Sony-Ericsson is a corporate citizen and work closely with local communities in all the locations it operates. The company has a technology given programs for education and community groups, employees are made to donate time and money to worthy courses. Sony-Ericsson also sponsor its direct given programs to communities and groups (Corporate Annual Report 2007). To the government, Sony-Ericsson pays all its taxes, operates within industry and environmental standards and above all adheres to laws regulating wages, hours and working conditions. The company systematically carries environmental audit programs to create awareness, sensitivity and openness. According to the company’s website, “Sony-Ericsson complies with all the environmental laws and regulations, including ISO 14001 and OHSAS 18001, and manages its facilities with the environment in mind. Dell designs products with up-to-date recyclable materials, using the Reduce, Reuse, and Recycle initiative at its manufacturing site. It commits to taking back old phones parts for recycling”. No wonder Sony-Ericsson began the “Design for environment program”. The product concept and design revolve around Safe operations Extending product life Reducing energy consumption Avoiding environmental sensitive materials Using parts that can be recycled 1.6Conclusion and Recommendation From the findings, one will not hesitate to conclude that Sony-Ericsson success in the global cell phone market can be attributed to its vast experience in the market, product differentiation, assorted brands and present CSR model. Sony Ericsson by using both product differentiation and umbrella branding strategy means the company has a focus strategy, focusing on fancy, and product aesthetic features to offer client a higher value for their money. Quality has become part of the Sony-Ericsson brand, and thus part of the company’s culture. According to Johnson & Scholes (2007), organisational culture is a tool in management strategic armory which appears to be invisible yet it influences “why” “how” “what” and “when” things are done in an organisation or “it is the way things are being done here” (Johnson & Scholes 2007:66). Another salient feature underpinning Sony-Ericsson success is effective marketing through catalogues, online sales and retail outlets. Sony-Ericsson currently make use of four channels of distribution. Sony-Ericsson does direct marketing to its client with sales coordinated over the internet with the area of operations web page. Another channel of distribution used by Sony-Ericsson is that of a single intermediary. Here, Sony uses big stores like Tesco Plc, Asda Supermarket, Wal-Mart and Sears, which then sell the goods to final consumers. Through partnership the company maintains its position in some high risks market like Asia. In some of its market like in Korea, in order to maintain service, quality and logistic standards, individual the handsets are periodically audited and compared to overall corporate performance. The management of Sony-Ericsson has use corporate social responsibility to improve on their performance. Customers have become more concern about CSR and as such tend to promote the products of companies that have improved CSR structures. Employees too would love to work in a company with well-developed corporate social responsibility structures. A study by Bansal and Roth (2000) analysing 53 firms in the United Kingdom and Japan reveal that there are three motives for engaging in CSR: competitiveness, legitimation, and ecological responsibility. Therefore a company that has a good CSR policy is likely to be more competitive than one that has a poor CSR policy. In addition, such a company will quickly gain legitimation which will go a long way to increase acceptance of its products by the community and thus increase its sales performance as well as overall profitability. From the foregoing discussion, one can conclude that major stakeholders of an organisation have increased their concern on how the activities of the organisation affect the social and environmental setting in which they operate. As a result there has been an increase in the requirements from companies. These issues pose significant challenges for companies as far as their competitive position and long-term performance is concerned. Consequently, it is necessary for companies to design CSR policies that would enable customers and other major stakeholders to perceive them as genuine companies. Such an approach will go a long way to improve the competitive position and long-term performance of the company. 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