IntroductionSony was at a critical point in its development as aglobal corporation as it celebrated its fiftieth birth-day in . The success of recent strategic changesis likely to have a major impact upon whether Sonyrestores its lost prosperity or declines to become abusiness legend.

The increasing significance of computers and com-munications equipment in consumer electronics,reinforced by the continuing convergence of com-puting, telecommunications and electronic enter-tainment in a range of new multimedia products,has forced consumer electronics companies such asSony to focus their thinking and research on emerg-ing technologies rather than concentrating on theinnovatory development of new product variants.The conventional audiovisual products which havebeen at the heart of Sony’s growth and developmentare now overshadowed by the latest developments inmultimedia technology. To compete effectively in thelate s, Sony realized that it had to transformitself from a company which was dependent on theanalogue technologies of conventional audiovisualproducts to one with competencies in digital tech-nology which it could use to develop a range of newproducts for the multimedia age.

History and product developments*Humble beginningsSony Corporation, begun in Japan after the end ofWorld War II, is much younger than its majorJapanese rivals. In years it has become estab-lished as a market leader in the production ofspecialist electronic products in an environment of rapid technological change, economic growthand a global willingness to accept new technology.

Sony’s corporate history has been built aroundcore competencies in technological innovation andminiaturization and the development of qualityproducts and quality systems which have led to highlevels of differentiation. Early growth was organicand initially competition was limited. Today’s com-petitors have typically followed Sony into the marketsit pioneered. The successful targeting of innovatorsand early adopters generated healthy profit marginswhich were reinvested in the company, especially inresearch and development (R&D).

1025The Sony Corporation

Sony, which will be 60 years old in 2006, became renowned throughout the world as an innovatory, pioneering companywith an international presence and reputation in the consumer electronics industry. Sony is now an acknowledged leaderin a number of very competitive and dynamic industries where no single company enjoys a dominant market share. Sonyhas always sought to develop unique products rather than copy other companies. Although profitable, profitability per sehas not been the driving objective. Sony has invested in research and development at a rate above the average both for its industry and for Japan. Technologists are seen as a critically important resource and allowed freedom to work within rel-atively open-ended briefs. However, the company has come under enormous pressure as it has struggled to remain a leaderin the changing world of consumer electronics and, as a result, there have been major changes in its strategies and struc- in the 1990s and again in the early 2000s.ture in the 1990s and again in the early 2000s. This case traces the growth, development, successes and setbacks of TheThe Sony Corporation. It encapsulates issues of corporate and competitive strategies, structural evolution and the

the Japanese style of management. SonyÌs strategy of diversification into the American entertainment industry is examined in detail.The case deliberately stops short before the Sony PlayStation was launched, taking Sony in a fresh direction, and consequently does not deal with the subsequent growth of DVD technology.

This version of the case was written by John L Thompson in 1996. It is for classroom discussion and should not betaken to reflect either effective or ineffective management.

The Sony Corporation

*This section on the early history of Sony has been devel-oped in part from The Sony Corporation case study ()in Quinn, JB, Mintzberg, H and James, RM () TheStrategy Process: Concepts, Contexts and Cases, Prentice-Hall.Other material has been obtained from a variety of news-paper and journal articles.

1026The Sony Corporation

The founder of Sony was Masaru Ibuka, whogathered together a group of engineers ‘to developsome sort of electronics laboratory or enterprise’. Hehad previously owned and managed a factory sup-plying electronic instruments for the war effort, andhe was now keen ‘to do something that no othercompany had done before’. In the s and sJapanese companies were not perceived to be inno-vators or leaders in technology, but rather business-es which were very skilled at copying Western tech-nology. From these humble beginnings, a truly inno-vatory company with a worldwide reputation andpresence has emerged.

The new enterprise had little capital, a limitedtrack record and no definite ideas. Essentially, themanagers just had aspirations to apply the knowl-edge of the founder in the development of consumerproducts. Ibuka’s first invention for the consumermarket was an electric rice cooker manufacturedfrom aluminium. It failed to sell. The electric element burnt the rice at the bottom of the pot while failing to cook the rice at the top.

To generate a stronger cash flow to fund furtherdevelopments the company started repairing andmodifying wartime radio sets. The company wasalready earning revenue from electronic instrumentssuch as voltmeters which were still being manufac-tured and sold to the new peacetime markets.

From the beginning Sony developed as an inde-pendent company; it was not a member of aJapanese keiretsu or business network. Shortly afterthe company was started Ibuka was joined by a closewartime friend, Akio Morita, who initially combineda part-time post at the Tokyo Institute of Technologywith his time at the company. Unlike Ibuka, Moritawas a member of a leading Japanese Samurai family.Morita was expected to forge his career in the familybusiness, which was brewing sake. He had beentrained in business skills from an early age. However,at university, he had proved himself to be a very talented electronics engineer. While Ibuka was pas-sionate about inventing, Morita was a more realisticbusinessman who understood finance and market-ing. The two friends proved to have valuable, complementary skills.

In Ibuka successfully persuaded Morita’sfather to allow Akio to join his business on a full-timebasis. Morita Snr actually invested in the business andeventually became the company’s largest sharehold-er. The company was formally incorporated as TokyoTelecommunications Engineering Company (TTK) inMay , and valued at ¥,, which approxi-mated to US$. TTK’s next inventions were an elec-trically heated cushion and a resonating sound gener-ator (for sending and receiving Morse code) whichoffered superior audio facilities to competingmachines. The quality was high, and the AmericanOccupation Forces were among the early customers.Although the products were relatively sophisticatedthe production facilities were housed in run-down,leaky premises. TTK also succeeded in obtaining con-tracts to convert and modernize all the equipmentbelonging to the Japanese Broadcasting Network.Noticeably, there were still no breakthroughs withproducts for the theoretically targeted consumer mar-ket. Ibuka then saw an early American reel-to-reeltape recorder in one of the offices belonging to theOccupation Forces.

Tape recorders – the first consumer productIbuka realized the potential of the machine and pur-chased the Japanese patent rights immediately. Hewas convinced that TTK had the requisite skills todesign and produce a good-quality tape recorder. Onemajor stumbling block proved to be a shortage ofplastic in Japan, from which TTK could manufacturethe reel-to-reel tapes. Import regulations prohibitedthe acquisition of plastic from abroad. TTK tried cello-phane, rice paper and finally a specially calenderedpaper with a smooth surface and which could be coat-ed with magnetic powder. They overcame the inher-ent drawbacks in the paper tape by building superiorquality into the circuitry, recording head and amplifi-cation system. Although it needed both patience andmoney TTK became the first company in the world tomanufacture the complete range of tapes andrecorders, including the component parts. Altoge-ther, this implied different basic technologies.

Their first recorder, weighing lb ( kg), wasintroduced into the market in . Several months

1027The Sony Corporation

passed though before the first unit was actually sold– to the Japanese equivalent of a pub. Realistically,the device was too heavy, too bulky, too complex andtoo expensive. Once they realized why the marketwas slow and hesitant, Ibuka and his colleaguesconcentrated on reducing both the size and weight,and sought ways of halving the cost. Their maincompetition was from M, which was already a well-established and successful American corporation.M’s magnetic tape, branded with the Scotch name,was a superior product which TTK sought to fran-chise. M were only willing to grant the franchise ifTTK stopped manufacturing the hardware.

Transistor radiosIbuka went to America in in search of newmarket opportunities for his smaller, cheaper taperecorder. It was on this visit that he began to realizethe future potential for transistors, an inventionpatented by Western Electric of the USA. Hereturned home and told his engineers that they weregoing to use transistors to build radios – radios thatwould not need electricity for power and which weresmall enough for individuals to carry around easily.Current ‘portable’ models were the size of a typicalbriefcase, weighed over lb (. kg) and needed thebatteries changed every few hours. Ibuka conceptu-alized a pocket-sized model and took up the chal-lenge of developing the technology.

TTK had to license the patent from WesternElectric at a cost of $,. Protracted negotiationswith the Japanese Ministry of International Tradeand Industry (MITI) for the release of this amount offoreign currency imposed a nine-month delay. Thetransistor patent was granted in .

Increasing sales of their lighter, cheaper taperecorders enabled TTK to invest in a research pro-gramme for transistors. Their aim was to achievesatisfactory yields of the high-frequency transistorswhich were needed if radios were to be manufac-tured at a commercial cost. Early transistors wereutilized in such products as hearing aids, whichoperated at much lower frequencies. Nevertheless,TTK were beaten by Texas Instruments in the race tobe first with a portable radio utilizing high-frequen-

cy transistors. However, in August TTK werealso able to display a small portable radio. Its sizewas ′′ × ′′ × .′′ ( × × cm). The productiontarget for the first year was ,, and they actual-ly achieved .

Ibuka’s team concentrated on making an evensmaller model, despite critics who argued that anyfurther reduction in size would have to be at theexpense of sound quality. TTK’s greatest challengelay in convincing their component suppliers that sizereductions were achievable. TTK formed researchalliances with a number of their suppliers andoffered them technical help and expertise. Existingcomponents were often straight copies of Westerntechnology, a typical Japanese strategy at that time.Perseverance was rewarded in March whenTTK was first to market with a pocket radio. Theradio was marginally bigger than a normal shirtpocket, and consequently TTK started producing andmarketing shirts with slightly larger pockets!

The company was renamed Sony at around thistime. The new name had been derived from the Latinsonis, meaning sound. Ibuka and Morita believed thename to be simple, recognizable and easily pro-nounced in most languages. The name Sony quicklybecame a generic for transistor radios, and Sonyenjoyed an early technology lead of between twoand three years. Later product developments includ-ed transistorized short-wave and FM receivers.

Consolidation and growthSony was growing into a very sound company, diver-sified into a number of related areas and with mar-kets around the world as well as in Japan. Its relianceon the Japanese government (for aid) and bankingsystem was minimal. Ibuka and Morita were firmlyin control and able to make quick decisions. Rapidexpansion drove Sony to poach senior managersfrom other Japanese companies, an unusual practicein that country, and one which was frowned upon.But Sony was clearly not a typical Japanese business.

A new director of research was recruited fromMITI, where he had previously worked for over

years. A printing company manager was appointed

1028The Sony Corporation

and given a totally free hand to turn around a strug-gling semiconductor factory. An ex-jet pilot and tal-ented opera baritone, Norio Ohga, was employedfirstly as a music consultant. After his retirementfrom active stage work he became head of the taperecorder business and some years later he succeededAkio Morita as chief executive of the whole SonyCorporation. It was Ohga who championed Sony’sentry into the music and entertainments industriesin the s. One executive remarked: ‘I never knewwhat hidden abilities I had until I came to Sony’.

Sony’s workforce grew tenfold in the s andfourfold in the s. In the mid-s Sonyemployed , people around the world (seeExhibit ). The business was controlled through firmbudgeting and production control systems – butwithin these constraints employees were given con-siderable freedom and empowerment. Creativity wasencouraged. Workers were provided with homes bythe company, a normal Japanese practice. Thesehomes, though, were small, prefabricated houses,whereas most large Japanese companies wouldhouse their workers in dormitories. Also unusually,Sony employees were given responsibility for theirown residences.

Working practicesProduction was organized in small cells, each a spe-cialized unit with full control over its own work andwith responsibility for monitoring its own output.Internal co-operation between cells was encouragedand fostered. The cells formed an interconnectedand interdependent network. Each cell had a secondcell as its main supplier and a third cell as its maincustomer. The role of management was to assist thecells, helping them to solve problems, setting overallgoals and praising superior performances.

New employees, regardless of their background,education and intended functional role, wouldspend several months on a production line. Ibukaand Morita believed that it was important that allemployees should understand the company’s prod-ucts, working practices and culture. It was also typi-cal for Sony to switch people between jobs every fewyears. Frequently, workers would move from an

engineering to a production role, and vice versa.Rewards and bonuses were given to groups of work-ers rather than to individuals.

Employees were encouraged to be innovative ‘in theinterests of the company’ and not to be afraid to makemistakes – as long as they did not make the samemistake twice. Young employees were deliberatelygiven heavy workloads and considerable responsibil-ity. New managers all had corporate mentors.

Sony motivates executives not with specialcompensation systems, but by giving them joy inachievement, challenge, pride and a sense ofrecognition.

Television – an important new productSony began to use transistors in new consumerproducts, introducing the world’s first transistorizedtelevision in , the world’s first transistorizedvideo tape recorder in , and the world’s firstmicro-television in .

In Sony established a subsidiary in the USA,and Akio Morita moved with his family to New York.Sony’s managers felt that they needed to know theUS market by intuition and not be reliant on pub-lished statistics. Sony Corporation of America wassubsequently developed into one of US’s highestquality companies, renowned for both its productsand after-sales service.

By the mid-s colour television was becomingestablished in the USA. The standard technology,which had been pioneered by RCA, was known asthe ‘shadow mask’ system. A triangle of three elec-tron guns created a grid of colour dots to producethe colour image. Sony did not want to copy thiswidely licensed US invention, and sought to developa system based on a line (rather than a triangle) ofelectron guns in the television tube. Early trials werenot successful, and not for the first time Sonyappeared to some to be investing in a dream. Moritacommented: ‘If we wait and develop a unique prod-uct, we may start several years later, but we will bestronger than all the others in ten years’.

After several setbacks, and considerable frustra-tion, Sony’s new ‘Trinitron’ system was ready in

1029The Sony Corporation

. Trinitron was a unique concept, using a singlegun and a three striped beam system. Its competitiveadvantage was that the colour reproduction wassuperior to the RCA system. By spring the newSony televisions were in the shops, priced competi-tively, and within a year Trinitron dominated thesmall-screen (′′) market in Japan. Success inAmerica, and systematically the rest of the world,followed almost automatically and inevitably.Production of Trinitron colour sets began in Americain and in Britain in .

Later, in the s, Sony was the first company todevelop a high-definition television standard. Thisinnovation prompted a defensive competitive reac-tion in Europe. The European Commission foundedan industrial consortium to develop a rival standard.

Video recordersVideo tape recorders had been in existence since themid-s, but they were used primarily by the pro-fessional broadcasters. A number of Japanese com-panies, together with leading American electronicscorporations, produced models. Philips (of TheNetherlands) dominated the market in Europe. Sonymade a deliberate decision not to enter the profes-sional video market. Instead, Ibuka decided that Sonyshould manufacture less expensive commercial videorecorders. Some time later he also decided that Sonyshould seek to develop videos for use in the home.

It was his vision and innovatory zeal that led toSony’s early predominance in the home video taperecorder market, but it was not a lead that they wereable to sustain.

Sony’s high-quality commercial system, the U-Matic format, was launched in . U-Maticmachines and tapes were both bigger than the VHSsystems that are commonplace today, but muchsmaller than the existing professional systems. U-Matic machines used a single recording head andtapes enclosed in cassettes – professional machinesnormally had four heads and used reel-to-reel tapes.Because of its high quality, U-Matic survived for anumber of years after smaller systems were available.

Sony pioneered home video with the Betamax for-mat in . Betamax cassettes were also larger

than the VHS format which was developed by JapanVictor Corporation (JVC), a subsidiary of Matsushita,under a patent agreement with Sony. Sony had invit-ed Matsushita to join them with the Betamax format,but their suggestion had been declined. The early VHStapes offered twice the recording time of Betamax,but Sony stuck with Betamax because of its superiorreproduction quality. They believed that this advan-tage would guarantee success and consumer prefer-ence. They misjudged the market and their competi-tors. Most Japanese and American consumers pre-ferred the smaller and cheaper VHS system.

Although relatively slow to take off, the video taperecorder reached a penetration level of % ofhouseholds by the mid-s. Sony gave up onBetamax for the domestic market and instead pro-duced VHS recorders and tapes, but never achieveda substantial market position. In , for example,Sony had a % UK market share for video recordersand a % share of the blank tapes market. Betamaxwas always a more popular format in the broadcast-ing sector of the market, where Sony still enjoys an% market share.

There was a number of lessons for Sony. Not onlyhad they failed to understand the needs and prefer-ences of their customers, they had failed to promotetheir system effectively. JVC, in contrast, had beenwilling to share their technology and had enteredalliances with owners of software – namely the stu-dios who owned the rights to feature and televisionfilms which could be released on video. These lessonswere instrumental in strategic decisions made bySony in the s.

The Sony WalkmanThe Walkman is probably Sony’s best-known prod-uct, and its launch in heralded the restorationof Sony’s reputation and innovatory leadership. TheWalkman introduced a new dimension to the waypeople listened to the radio and to pre-recordedmusic and ‘changed the lifestyle of a generation’.The original Walkman was a compact cassette play-er with small earphones to enable highly portablelistening without annoying or inconveniencingother people. Over million sets were sold within

1030The Sony Corporation

the first ten years. It is useful when walking and jog-ging and on trains and aeroplanes. The concept waslater extended to a variety of different models,including waterproof and sandproof sets, radioreceivers, special versions for children, compact discplayers and, in , video playback systems usingSony’s new mm video cassettes.

The idea for the Walkman had come from Ibukaand Morita. Morita knew that young people liked tolisten to music constantly, often wanting to play it ata loud volume, and that their tastes and preferenceswere frequently very personalized. He also playedgolf fanatically and believed that an individual cas-sette player would appeal to a whole range of sports-men and women. His assumptions were correct thistime. The Walkman was successful from the day itwas launched.

Other products and competitionSony launched its Mavica all-electronic still picturecamera in Japan in . Marketing in America andEurope followed some years later. Mavica records theimages on small magnetic discs, rather than film,and they can be viewed on home television screensinstead of using slides or photographs. Hard-copyprinting systems are available for people who alsowant a physical photograph.

These systems have so far failed to make majorinroads into the popularity of film cameras, despitethe dramatic success of hand-held video camera-recorders. These cameras became increasingly com-pact during the s, making use of -mm videocassettes which can be transferred onto VHS formatfor viewing on domestic televisions. This market isvery lucrative but very competitive and increasinglydynamic, with several major Japanese electronicscompanies involved.

Sony launched the first miniaturized camcorderin June . It weighed just . lb ( g), and itwas one-quarter the size of existing camcorders.Within six months both Matsushita and its JVC sub-sidiary had introduced lighter models. Within a fur-ther six months there was additional competitionfrom Canon, Sanyo, Ricoh and Hitachi. Sony intro-

duced two new models in Summer . One wasthe lightest then available; the other had superiortechnical features.

Japanese competitors such as Matsushita (whichalso incorporates Panasonic branded products),Hitachi and Toshiba are all older and larger thanSony. Although their product ranges are not identicalthey are all diversified and active internationally. Anumber of these Japanese companies has, for exam-ple, diversified into consumer white goods (washingmachines, refrigerators, and so on), which Sony hasdeliberately ignored. There are, in addition, manyother smaller Japanese competitors. Sony also experi-ences competition from a variety of US and Europeanproducers, with certain companies successful in par-ticular markets but perhaps less successful across thespectrum of the global consumer electronics indus-try. The major European competitors are AEG, Bosch,GEC, Philips and Thomson SA, which acquiredFerguson in the UK from Thorn EMI. Amstrad is acompetitor for certain products only. No single com-petitor enjoys wide market dominance, althoughthere are market leaders for different products. Thedynamism of the market, with short product lifecy-cles and constant innovation, means that positions ofleadership may well prove transient. Sony has alwaysmarketed its products creatively around the world,sometimes appearing more like a home producerthan a Japanese company. Exhibit , which featuresexamples of the humorous copy used in a number ofradio and television advertisements in the UK, isincluded to illustrate that Sony is not a typicalJapanese company. The advertisements all featuredthe instantly recognizable voice of John Cleese anddate back to the late s and early s. It hasalso been claimed that many Americans actuallybelieve that Sony is an American company.

In the early s Sony formed an alliance withPhilips to develop and launch compact disc playersand CDs. At that time Philips had a substantialshareholding in Polygram, one of the leadingrecording companies, but not the controlling inter-est which it has today. Initially, the record companiesin America and Europe were cautious about releas-ing their music on the new format; and this hostility

1031The Sony Corporation

Good Evening.Good Evening Sir.I’d like to buy a Sony Trinitron Family Size Colour

Television set please.Well, this is an off-licence Sir.I see. Well do you have anything else that would give

me really bright, clear, colourful pictures?How about a gallon of creme de menthe? That’d put

you on the way.But would the pictures be really sharp?Hmm – not really!And is it reliable?Well, you don’t get the pictures immediately and

there’s always the danger your head’ll fall off.Oh, I think the Sony’ll be better then. I’ll try a TV

shop.Well, why did you come here in the first place?I wanted to annoy you.

(Shop door bell)Ring

Good afternoon.Good afternoon Sir. Can I help you?Yes, I’m looking for a colour television – what about

this one?Ah, the Sony Trinitron 1810.Now, does it give a nice fuzzy picture and break

down a lot?No, no, the Trinitron system means a very sharp,

reliable . . .Oh well, are the colours muddy and nasty?No Sir, they’re very bright. It’s a feature . . .It’s for my wife you see.Oh – doesn’t she like television?Oh yes, but I don’t like her.Ah well, now, this little Ruritanian set’s a real

shocker.

Really, really. I still like the look of this Sony Trinitronyou know.

Oh.Yes, I’ll take it.But I must warn you . . . it’s not really right for you.I know, but it’s all right. I’ll smash it up a bit. Do you

sell mallets?

Sony the electronics people have asked me to tellyou that they’ve just opened a fish and chip shopin Regent Street where you can wander in andplay with the fish to your heart’s content.

Sorry, sorry, that’s quite wrong. I got confused – er –it’s not a fish and chip shop, its a TV, Stereos andRadio showroom – sorry – I got a bit muddledthere – I’m doing an ad for some fish and chipshops next – sorry – er.

Sony have a magnificent showroom and not a fishand chip shop in Reggent Street – sorry RegentStreet – so if you want to go in and examine andoperate stereo equipment, but not Halibut andRock Salmon or anything fishy like that, go to 134Regent Street. Sorry about the muddle.

Look I am frightfully sorry to bother you but someawfully nice people called Sony have agreed topay me some money if I’ll tell you they’ve aterribly nice showroom in Regent Street whereyou can just wander in and play with all the SonyStereo and TV and Radio equipment and listen tothe quadraphonic demonstration without beingpestered by anyone, just to see if you likeanything, you see.

It’s at 134 Regent Street.There, I’ve told you.I’ve told them.(Cash register)Thank you.

Exhibit 1 Sony radio and television advertisements featuring John Cleese used in the UK in the late1970s and early 1980s

1032The Sony Corporation

had a formative effect on Sony’s future diversifica-tion strategies. Sony and Philips still earn royaltiesfor every CD that is sold.

Sony also competes in sectors of the global com-puter industry, which again involves several leadingJapanese players such as Hitachi and Fujitsu, andmany American and European businesses. TheAmerican competitors range from the giant IBMthrough a number of medium-sized businesses toseveral small and very entrepreneurial hardwareand software companies. Sony has targeted particu-lar niches and focused carefully.

Sony pioneered the .′′ floppy disc, which quicklyproved more robust and popular than its .′′ prede-cessor. The disc, launched in , was far more suc-cessful for Sony than its early word-processor, forwhich it was designed. This floppy has become theindustry standard, and in the s Sony retains % of the world market. Until the early s Sony manufactured semi-conductors for incorpora-tion in its own consumer products, and then, realizingthe potential for sharing its technology, sold them externally. Sony has been a pioneer and market leaderfor several specialized components and has also

introduced a successful range of high-powered work-stations.

Exhibit provides a summary of Sony’s productrange in . Exhibit analyses the breakdown ofSony’s sales by product and geography for the period to . In the tables the category ‘other prod-ucts’ mainly comprises computers and computingequipment together with Sony’s chemicals activities.These businesses are essentially suppliers of neces-sary materials and represent vertical integration.

Lean manufacturingSony have seen lean manufacturing as anothercompetitive weapon, and as both a supplement to,and partial replacement for, continuous innovationand new product developments. The improvementsare still being sought, and are still happening, but fora number of products the speed of change hasslowed down.

Lean manufacturing was necessary because theconsumer electronics industry has become increas-ingly mature. At the same time it is this maturity,and the ability to slow down the rate at which newproducts and major product improvements are

Exhibit 2 The Sony corporation. 1996 product range

Percentage breakdown of sales in 1996

15% Video equipment – A leading manufacturer for broadcast and professional use. Domestic VCRs, digital camcorders, 8 mm camcorders, video disc players, laserdisc players, still image video cameras and tapes. Video tape

20% Audio equipment – CD players, hi-fi and mini systems, radio cassette players and radios, personal stereos (Walkman series). DAT systems and car stereos. Audio tape

17% Television sets – Including HD TB and giant monitors29% Other products – Semiconductors. Electronic components. Computers and

associated equipment (including games machines, PCs, laptops, disc drives and floppy discs). Cellular telephones

Music and entertainment – Sony Music Entertainment – CD and cassette software19% { Filmed entertainment – Columbia Pictures

Tri-Star Pictures

1033The Sony Corporation

launched, that has facilitated lean manufacturing.Lean manufacturing systems imply some inflexibili-ty, and are therefore preferable when products arenot being constantly changed and updated.

Lean manufacturing describes manufacturingsystems which are designed to reduce lead times and

costs. They are likely to require investment in infor-mation technology but not necessarily the mostadvanced manufacturing technology. ‘Lean’ impliessimpler systems, often based on just-in-time princi-ples, and greater reliance on a network of inter-dependent suppliers. It is these arrangements which

Exhibit 3 The Sony CorporationAnalysis of turnover by sector

(Financial years)Product sales (%) 1973 1977 1981

Video equipment 6 14 27Audio equipment* 12 12 7Televisions 41 33 23Tape recorders and radio* 27 20 17Other products 14 21 26

*From 1982 these categories were consolidated.

(Financial years)Product sales (%) 1982 1987 1988 1989 1990 1991

Video equipment 43 31 29 27 26 25Audio equipment 23 31 31 26 25 24Televisions 23 21 20 16 15 16Other products 11 17 17 15 15 15Music and filmed entertainment 3 16 19 20

(Financial years)Product sales (%) 1992 1993 1994 1995 1996

Video equipment 23 24 18 18 15Audio equipment 25 24 23 23 20Televisions 16 16 17 18 17Other products 18 20 22 23 29Music and filmed entertainment 18 19 20 18 19

Analysis of turnover by geography (selected years only)

1973 1977 1981 1987 1991

Japan 53 39 29 34 26USA 26 30 27 27 29Europe 11 15 20 24 28Rest of world 10 16 24 15 17

1034The Sony Corporation

reduce the flexibility. In , for example, Sonyreduced the lead-time for manufacturing a videorecorder by two-thirds.

Typically parts are ordered firmly just hoursbefore they are needed. This is only practical if suppli-ers are integrated into Sony’s value chain and if prod-uct cycles are relatively long. Although relativelyinflexible for substantive product changes, such sys-tems can be made very flexible for responding tochanging consumer demand patterns. Face-lifts, suchas new housings, which are still changed frequently,can be accommodated without undue difficulty.

Overseas subsidiariesSony developed an extensive international businessfor three main reasons:

. Sony lacked the domestic sales and distributionnetworks of its leading Japanese competitors andtherefore looked to establish both productionplants and sales networks around the world andclose to its important markets

. Sony wanted to be an innovatory pioneer forconsumer electronics products and realized earlyin its history that it would be important to enjoyclose proximity to its markets in order to under-stand and satisfy their disparate needs

. The strength of the Japanese yen. When Sonywas first incorporated the exchange rate wasover yen to the US dollar; in mid- therate was yen to $. When Sony built its UKplant in South Wales in £. exchangedfor yen. In the rate was in the order of yen to £..

Sony’s first production plant outside Japan was builtin Taiwan in . In Sony began manufactur-ing in San Diego, California. Europe followed in

with a plant in Spain. Sony began producing televi-sions at Bridgend in south Wales in , and thisremains its only British manufacturing plant. Theextent of Sony’s operations in each European coun-try tends to be focused. For example, audio equip-ment is manufactured in France, magnetic tape inItaly and CD equipment in Austria. Countries suchas Malaysia (colour televisions, audio and video

equipment) and Thailand (semi-conductors andmagnetic tape) have more than one plant and amore diverse range of products.

Sony now has plants in America and in all majorEuropean and Far Eastern countries. Altogether,there are over subsidiaries, and over % ofSony’s sales are outside Japan. In comparison, theoverseas sales percentages for three of Sony’s mainJapanese rivals are: Matsushita, %; Toshiba, %;and Hitachi, %.

The following sections chart how the innovative,successful and influential Sony began to lose itsway.

Diversification into music andentertainmentsSony’s diversification into the American music andentertainments industries was based on the follow-ing premise. To ‘guarantee’, or at least consolidate,the future potential for the permanently changingand improving consumer electronics hardware andgadgetry, Sony must be confident that the majorentertainment companies would release their filmsand music in suitable formats. Sony therefore choseto integrate vertically and, by acquisition, secure asubstantial presence in the entertainment softwarebusiness.

In January Sony paid US$. billion to buyCBS Records. This was followed in November

with the purchase of Columbia Pictures (Columbiaand Tri-Star studios) from Coca-Cola. See Exhibit

for a summary of the previous acquisition of Colum-bia by Coca-Cola. This acquisition cost $. billionbut Sony took on an additional $. billion in debts.At the time, this constituted the largest ever overseastake-over by a Japanese company. CBS became SonyMusic and Columbia was renamed Sony PicturesEntertainment. There was some cross-synergypotential with the increasingly important pop musicvideos and the release of film music albums.

Table shows how the hardware–software link-ages were to be created.

Sony was followed into America by Matsushita,which acquired MCA, owners of a recording busi-ness and Universal Studios, for $. billion. Toshiba

1035The Sony Corporation

bought a stake in Time-Warner. Some critics arguethat the Japanese ‘have been mugged’ and paid overthe odds. Others have commented that Sony has beenallowed to buy ‘a significant part of America’s soul’.Matsushita did not keep MCA for very long and re-sold it to Seagram, the Canadian drinks manufac-turer. Matsushita tried unsuccessfully to run MCA

from Japan; it was less willing than Sony has been todevolve significant power to foreign managers. TheToshiba/Time-Warner link has proved lucrative forthe development of digital video technology.

Sony’s gamble concerns the future and its abilityto derive the potential synergy it claims is there.There is certainly no universal agreement that the

In March 1982 the managements of the Coca-Cola Company and Columbia Pictures Industries Inc. agreed thatColumbia should become a subsidiary of Coca-Cola. The news was greeted with mixed feelings and the NewYork Times summarized many commentators’ opinions: ‘... may be a mistake. To make a conglomerate of acompany that has succeeded because it has stayed with its speciality is a dubious strategy’. At the time theCoca-Cola drink held a 25% share of the American soft drinks market, and it represented some 70% of thecorporation’s sales. The company had developed additional products for existing and related markets, namelyTab (sugar-free Coke, 1963) and Fanta (fizzy orange juice, 1960); and it manufactured and distributed tea,coffee, wine and natural fruit juices. Products were sold in 135 countries around the world, including China andthe USSR.

Coca-Cola had been looking for possible acquisitions in the food, health care and entertainment industries toenable it to grow more quickly than inflation. Any acquisition must not involve high technology (no experience)or require heavy capital investment in plant. While looking for suitable companies Coca-Cola concluded thathealth care was becoming too high tech and that food companies did not offer a profit margin as good as itsexisting business. Columbia proved attractive because it was involved in home entertainments (cable TV andvideo), growth of which should be good for the Coca-Cola drink. In addition it had a reputation for successfulfilms (Kramer versus Kramer, The China Syndrome and Close Encounters in the recent past), and it had anextensive film library of past productions which were undervalued in the balance sheet given their home moviepotential.

Coca-Cola argued that potential synergy existed because both companies were experienced in massconsumer markets and worldwide operations, and both appealed significantly to young people. But were thesesufficient grounds for synergy?

In 1986 David Puttnam, British producer of Chariots of Fire and The Killing Fields, joined Columbia, but leftthe following year. He departed two months after Coca-Cola signed an agreement with Tri-Star Pictures,another film and TV company in which they had built a 33% stake, whereby the entertainment interests ofboth organizations were formed into a separate independent company, 80% owned by Coca-Cola and managedby Tri-Star executives.

Commentators contended that one reason behind this move was the reality that Wall Street was increasinglyfavouring pure rather than conglomerate businesses. In truth, Columbia had always been profitable through the1980s, but the key success factors for soft drinks and motion pictures were significantly different, and synergyproved elusive. Soft drinks, whatever their brand name, have certain similarities, and the emphasis must beupon effective marketing to build and maintain a market image. Films and often very different from each other.

By mid-1989 the film company was called Columbia Pictures Entertainment, and Coca-Cola held 49% of theequity. When Sony of Japan offered to buy Columbia Pictures, Coca-Cola was said to be ‘demanding a highprice for its shares’.

Exhibit 4 Coca-Cola’s acquisition of Columbia Pictures

1036The Sony Corporation

synergy is anything other than imaginary. Thehardware and software businesses are, quite simply,different. It is a question of technology versus cre-ativity; and the key success factors are not the same.Some analysts, who disagree with the change ofdirection, have argued that the money would havebeen better invested in information technology.

The inherent risksThere were three areas of risk for Sony.

The management risk concerned Sony’s ability tomanage an American acquisition. Sony was innova-tory but managed by engineers. CBS and Columbiaare ‘people businesses’. Rather than try and managethe acquisitions from Tokyo, Sony decided early onto decentralize the business and recruit experiencedAmericans to control the companies. The entertain-ments businesses were controlled wholly fromHollywood until . Although Akio Morita’sbrother was chairman of Sony America, American-born Mickey Schulhof was the chief executive untilhe resigned in . When he left, Schulhof hadworked for Sony for years; unusually for a for-eigner, he had been appointed to the main Sonyboard in . Producers Peter Guber and JonPeters, who had recently made the box-office suc-

cesses Batman and Rain Man, were brought in bySchulhof at a cost to Sony of $ million.

As it has become an increasingly global corpora-tion, Sony has recruited more European andAmerican managers to support the Japanese leader-ship. The integration of the different cultures is notperceived to be a problem. ‘Sony’s culture is hetero-geneous and is strengthened by a continuous injec-tion of new people and ideas.’

In reality, the Japanese have accepted that theAmericans must be given a free hand with the entertainments businesses, and that they must begiven sufficient capital. Although it cannot havebeen easy for Sony to delegate such authority andresponsibility, they have nevertheless done it. As a consequence the hardware and software business-es have so far been run as separate, independentbusinesses.

The second risk was the political risk. Would therebe a hostile reaction from the US public? Sony waswell established and well known in the USA, thanksto the past efforts of Morita, and consequently thishas not proved to be a major concern.

Third was the significant and still unresolvedstrategic risk. Did Sony need to go into the softwarebusiness? Did it pay too high a price, and could it

Table 1 The synergy between Sony’s hardware and new software products

Film and recording studios Cameras, broadcasting and recording equipment all provided by SonySony also manufacture all the blank recording tape and films required

Film and music production Sony would determine the films and music which would be produced – and,critically, control the release formats

Sony also gained control over 12 television stations and the Columbia libraries,including 300 film titles and 20,000 recorded television shows. These TV showsalone provide Sony with an annual income of $100 million

Consumer hardware At the time Sony manufactured: high-definition televisions; video recorders; therange of Walkman products covering audio cassettes, CDs and videos (8 mmformat); CD and hi-fi equipment

Consumer software Sony manufacture the film, video tape, compact discs and cassettes upon which thesoftware will be released

There are, quite simply, several outlets for a single piece of recorded materialAdditional opportunities for Sony lie in computer games based upon their movies

and designed for high-definition television and the Sony PlayStation; and in thefuture in digital video discs which are seen as the replacement for video tape.

1037The Sony Corporation

recoup its investment? Is the synergy potential realor imagined? Could Sony succeed where Coca-Colahad failed?

Peter Guber has commented that Sony in Tokyodid not use the expression synergy, but neverthelessexpected that Sony Entertainments would find waysof marrying the technology resources of the elec-tronics businesses with entertainments. In thisrespect a new film should ideally be accompanied bya soundtrack produced by Sony Music. Cinemas willuse Sony’s digital sound equipment, which is said tobe superior to Dolby systems. Depending on the filmSony will manufacture related video games based onthe movie’s characters.

Two main arguments against the synergy betweenhardware and software have been put forward. First,Sony must still make its hardware freely available toall software producers. Secondly, the decision byretailers to stock particular software formats, andthe decision of consumers to buy, can only be influ-enced and not controlled by Sony.

The outcome – so farFilmed entertainmentSony acquired a film studio which had previouslybeen very successful with such films as Lawrence ofArabia and Bridge Over the River Kwai. Sony also inher-ited Hook, directed by Stephen Spielberg at a cost of$ million. It recouped $ million at the boxoffice. Sony allowed Columbia an annual film budgetof $ million, which was above average for theindustry and brought immediate criticisms of over-spending.

In December Sony concluded an exclusivelong-term deal with Barbara Streisand to cover hermusic and film work. Streisand already recorded onCBS. This followed a similar deal with MichaelJackson in , mainly covering music.

Sony have brought out a number of major boxoffice (and consequentially, financial) successes,including Bugsy (Warren Beatty), Prince of Tides(Barbara Streisand), My Girl, A League of their Own(Madonna), Little Women, Legends of the Fall,Philadelphia (Tom Hanks), Jumanji (Robin Williams),The American President (Michael Douglas) and Sense

and Sensibility (Emma Thompson). There has been onemajor disaster and box office failure: Last Action Herowith Arnold Schwarzenegger. Sony’s films accountedfor % of US cinema box office receipts in ,achieving an even higher proportion for a shortperiod of time, but by they had fallen below%. At this time Sony was earning an average rev-enue of $ million per film; Paramount Studios wasaveraging $ million. Nevertheless, high-budgetfilms continued to be made, leading to accusationsthat they were driving up the already high productioncosts. These comments caused Jon Peters to resign.

His departure was followed by that of Peter Guberin October . One month later Sony wrote billion yen (£. billion) off the value of SonyPictures Entertainment, commenting: ‘the businesshas not provided adequate returns. Additional funding will be needed to attain acceptable levels ofprofitability’. It has been estimated that Sony had atthis stage already invested $. billion on top of the $. billion it paid to acquire Columbia Pictures.

A Morgan Stanley analyst in London commentedin :

If there is a moral to this story, it is that Japaneseelectronics groups do not make good parents forHollywood movie studios.

Television films began to take priority over high-budget feature films, less attention was placed onfinding elusive synergies and the relative success ofthe movie studios improved in . Nevertheless,Schulhof left Sony at the end of the year and he wasnot replaced. His number two would continue withthe same responsibilities but now report to the newstrategic leaders. Nobuyuki Idei and Norio Ohga inJapan (the succession of Norio Ohga and NobuyukiIdei to the senior positions in Sony is described laterin the case). Wall Street interpreted this to meanthat Sony would be willing to sell at the right price.

MusicThe music business was generally more stable andprofitable than the movie studios; Sony’s leadingartists, in particular Michael Bolton, Mariah Carey,Oasis and Bruce Springsteen, continued to deliver

1038The Sony Corporation

successful albums. However, Michael Jackson’s pop-ularity fell back when he was accused of beinginvolved with a minor, and Sony lost George Michaelwhen he demanded to be released from his contract.

Product disappointments: the mini-disc and DCCThese two new formats for recorded music were bothlaunched towards the end of . By this time vinylrecords were almost forgotten and, in certain coun-tries including the UK, CDs were outselling audiocassettes.

Mini-disc is a small (.′′) compact disc whichsells for roughly the same price as a conventionalCD. It was invented by Sony, as were the new mini-disc players. Mini-discs are not compatible withexisting CD equipment. There is no loss of quality,there is random access (instant track selection) andblank discs can be bought for home recording. Theseblanks cost % of the pre-recorded disc price. Theyare ideal for Walkman-sized players.

Digital compact cassettes (DCC) were developedjointly by Philips and Matsushita. Philips designedthe hardware, Matsushita the software. DCC offersCD-quality sound reproduction (a marked improve-ment on standard audio cassettes) at the same priceas a standard CD. DCCs contain a spare track forrecording additional data, such as biographicaldetails of the artists, which can be viewed on both special LCD and normal TV screens. The newDCC players will also play standard cassettes, as thetwo formats are the same size, but DCCs cannot beplayed on existing audio equipment. Philips andMatsushita saw this as a major advantage as theaverage person owns some audio cassettes. Blanksare available. The major disadvantage was the exist-ing drawback of standard cassettes – random accessand track selection is not possible. In addition, thefear of piracy was greater for DCCs than for mini-disc.

Nevertheless, the six leading record companiesworldwide (including Sony Music) all agreed torelease music on DCC. Initially only Sony and EMIMusic were willing to support mini-disc, with theothers looking to protect their existing CD sales forthe time-being. It seemed unlikely that they would

not support mini-disc if consumers were enthusias-tic about the new format. After all, mini-disc playerswere cheaper than DCC players, and Sony was ableto offer a combined CD/mini-disc player in .

Initially consumers were reluctant to committhemselves to either product until there were clearindications of leadership. Could both formats suc-ceed, or must there be a winner? Technical superior-ity alone would not guarantee success. In the event,both have failed to really take off. Some ,

mini-disc players have been sold, but most of theseare in Japan; it continues as a niche market product.DCC was less successful.

Changes in strategic leadershipGlobalization was always a personal crusade of AkioMorita.* In he was over seventy and retainedonly a peripheral involvement from his home inHawaii, but he still exerted influence. Morita retiredas chief executive officer in (he was succeededby Norio Ohga, who had been chief operating officersince ) but stayed active with the title of chair-man. Partially paralysed by a stroke in , herelinquished this last position in . Morita spokeperfect English and was highly Westernized. He wasthe public face of Sony, especially in America. Hebelieved that Sony should be a good and ethical cor-porate citizen everywhere it operates, and he, likeIbuka, believed that the pursuit of profit is not theprincipal objective. Sony’s plants have always beendesigned to fit into their local communities. InAlsace, for example, Sony inherited a vineyard witha piece of land that they bought. They continued tomake wine, labelled Chateau Sony!

Morita frequently incorporated a strong elementof intuition in his decision making. Ibuka was thesame. Their executive successor, Norio Ohga, had amore considered style. According to Sony, however,his accession would have no effect on the basic cul-ture. Sony would continue to ‘operate rapidly andefficiently whilst placing strong emphasis on thelong-term development of people and technology’.

*Akio Morita died in October .

1039The Sony Corporation

Morita believed that Sony’s commitment to inno-vation was deeply embedded in the culture of theorganization worldwide. He argued that there werethree essential features:

Creativity in Sony is committed to high technology standards for the technical

engineering within its productsCreativity in This technology must be product planning harnessed to design useful,

attractive and user-friendly products

Creativity in The organization must commitmarketing resources to ensure that

customers are persuaded to buy Sony’s products.

Interestingly, Sony’s Betamax video was character-ized by the first two of these – but Sony failed to per-suade the market that it was superior to the VHS for-mat. The Walkman was a supremely successfulexample of effective product planning and market-ing, but it was still harnessing ‘old’ technology.

Ohga was years old in ; he had undergone acoronary bypass operation three years earlier. In

he elected to step back and nominated Nobuyuki Ideito succeed him. Idei was currently the chief operatingofficer but, unlike Ibuka, Morita and Ohga, his back-ground was not in engineering. He was essentially amarketing person who had worked for Sony for over years. Typically he is perceived to be ‘un-Japanese’and he speaks fluent English and French. Idei wasdetermined to implement change in the once-mightySony whose performance had recently been deterio-rating. In the year ended March Sony made apre-tax loss for the first time in its history.

He stated that his main role would be to ‘turnSony into a company which can identify with a newgeneration of consumer electronics users – the digi-tal dream kids’. There was to be an increasedresearch and development emphasis on software,networks and information technology and newproducts relevant for the digital age.

The Financial Times ( July ) commentedthat ‘Sony, a young maverick company up to thes, had become the sprawling, bureaucraticorganization from which its founders sought to dif-

fer’. Idei was also determined to continue with thestructural changes he had begun in .

New products in the mid-1990sDigital videoSimilar to the way in which the CD replaced the vinylrecord, digital video is predicted to replace the videocassette players and tapes which prospered in thes. Digital video discs (DVD) and players (DVP)play digitized images onto a screen and are seen as anideal format for computer-linked interactive video, themultimedia dream. As was the case with video,authorship of the technical standard is seen as criticalas it will bring lifelong royalties, marketing advantag-es, power and influence. For digital video, the hard-ware/software challenge demands that the hardwareand data formats meet the needs of the so-calledinformation superhighway, including music and filmmakers, and the personal computer, telecommunica-tions, cable television and satellite broadcastingindustries. For Sony this represents a philosophicalshift. The last major Sony breakthroughs, theWalkman and the compact disc, were driven largelyby the needs and preferences of customers; digitalvideo will be producer driven because of the complexarray of interested parties.

Sony chose to develop digital video with its CDpartner, Philips. By it was clear that Sony-Philips was in competition with an alliance betweenToshiba and Time-Warner. Sony’s DVD was singlesided and could store over hours of video. Tosh-iba’s super-density disc was double-sided and offeredgreater storage capacity, equivalent to seven and ahalf normal CDs. Sony was convinced that its costsand prices would be lower and that these issueswould outweigh the capacity issue. However, byearly Sony and Philips were largely isolated,supported in the main by Mitsumi, Ricoh and Teac,who all manufacture floppy disc drives. Hitachi,Pioneer, Mitsubishi, Thomson and, most critically,Matsushita/JVC supported the rival alliance. Initi-ally Sony and Philips were determined to carry onwith their own DVD, but in September they ‘accept-ed the inevitable’ and adopted the rival format.

1040The Sony Corporation

The PlayStationSony’s PlayStation is one of a new generation of-bit computer games systems, which are far faster and more graphic than their predecessors, the-bit systems. Sony, which was already active ingames software, entered the hardware market in September with a high-quality but com-petitively priced product and immediately took market share away from the two industry leaders,Sega and Nintendo. Sony’s strategy was to price low to seize share and use this to boost sales of itsmore profitable and highly innovative games. TheSony PlayStation achieved sales of . million unitsin its first year, two million of these in trend-settingJapan.

The Sony PlayStation in explored further in thenext case study.

Personal computersThe case described earlier how Sony became a majorplayer in the computer floppy disc industry; it alsomanufactured several other computer components.In November Idei announced a new strategicalliance with Intel to develop a new range of per-sonal computers and associated software. Intel, theworld leader for semiconductor products, would provide the main circuit boards for a computerwhich would offer exceptionally high-quality soundand graphics, ideal for multimedia applications.

Idei saw this as an essential development for Sonyto exploit digital video. The PC industry is still grow-ing and, although it is very crowded and competi-tive, there are real opportunities for truly distinctivenew products. The Sony PCs were to be launchedfirst in the discerning American market, with Japanand Europe following on later.

Structural changesIn the s Sony’s international strategy was oneof ‘global localization’. Sony aimed to be a globalcompany presented locally, and this involved devolv-ing authority away from Tokyo and expanding man-ufacturing and R&D around the world. The typicallarge Japanese company had established both pro-

duction and distribution networks around the worldbut had sought to remain centralized, with powerfirmly located in Japan.

Sony, however, divided the world into four –Europe, America, Asia and Japan – and created fourorganizations which should be virtually self-suffi-cient, and ultimately locally financed, independentbusinesses. In this respect Sony was seeking tobecome ‘Japan’s first truly global company’. Theplan involved the systematic transfer abroad of allthe functions required to ‘perform the entire lifecycle’ of its products, namely design and develop-ment, engineering, production, marketing andsales. Sony already owned its own chains of retailoutlets for consumer products in selected majormarkets. Sony was looking to devolve investmentdecisions, R&D, product planning and marketing.‘Changes can be implemented quicker when every-thing is on the spot.’

Sony created seven business groups in

(this was later extended to ) to co-ordinate the production and marketing of particular products around the world. With the exception ofentertainments activities, the co-ordinating powerremained in Tokyo. Structurally, Sony companies in the UK, France, Spain, etc., theoretically reportedto Sony Europe, based in Cologne, and with a Swisschairman.

With the exception of entertainment the structure was designed to work as follows. Strategicdecisions were all to be made centrally in Tokyo;operational decisions, concerning such issues aspricing and production, would be devolved toregional managers. R&D at the basic developmentlevel remained centralized in Tokyo; local centreswould concentrate on adaptations for local needs.Staff would be transferred between countries.

In theory, then, only corporate strategic issuesshould be referred back to Tokyo. These includedrequests for capital for investment to build a new factory and permission to alter the structure. Inpractice, managers bypassed the regional layers andcontacted Tokyo for advice and guidance on opera-tional matters. The actual practice and culturelagged behind the theory, and Sony became overbur-

1041The Sony Corporation

dened by administration, rather than an organiza-tion that was quickly responsive. It had ‘drifted froma paragon of creativity and entrepreneurial spirit toa bloated bureaucracy’.

When the strategic leaders decided that a differentform of decentralization was required to deal with the global/local issues, they acted quickly anddecisively.

In spring Sony, with the exclusion of theAmerican entertainments businesses, was dividedup into eight separate divisions; these were not ofequal size. They were to be called companies andthey would enjoy considerable autonomy andpower. Each would have its own president and wouldbe responsible for design, manufacturing and mar-keting. The three largest companies were: consumeraudiovisual products; components; and recordingmedia and energy (batteries). The other five were:broadcast products (equipment); business andindustrial systems (work stations); telecommunica-tions (including mobile phones); mobile electronics(for cars); and semiconductors.

The changes proved to be successful but Sonydecided to modify the structure further in spring to reflect its changing strategic emphasis. Eightcompanies became ten. A new one was formed tocover personal computers and information technol-ogy. The large audiovisual company was split intothree. Telecommunications and mobile electronicswere combined into a single company. Four newR&D laboratories would support information tech-nology and semiconductors. In addition, Sony creat-ed a new executive board to oversee corporate strat-egy, to integrate the companies effectively, and tofoster learning and sharing.

Financial outcomesExhibits and provide summaries of key informa-tion from Sony’s profit and loss accounts ( to) and balance sheets ( to ). The datashow that Sony has never been hugely profitable

(some, but not all, of its major Japanese rivals havebeen more profitable), and that until the s it hasexperienced steady growth. The impact of theAmerican acquisitions in the late s is clearlyillustrated in the and figures. Sony’sonce-high R&D expenditure was reduced to approx-imately %, which is actually typical for Japaneseelectronics companies. The figures should, however,be treated cautiously. The published figures willincorporate adjustments for profits and losses oncurrency fluctuations and therefore not reflect puretrading successes. The figures are in Japanese yenand, given the continual revaluations of theexchange value of the yen, were the accounts to berestated in the currencies of the countries in whichSony traded, the company’s growth would havebeen more marked. A proportion of the stated long-term debt is in the form of Japanese bonds carryinga % rate of interest.

The first major setback was in the ⁄ trad-ing year when the parent company in Japan report-edly lost money and relied upon Sony’s internation-al businesses. Considerable income falls were experi-enced in chemicals and magnetic tapes; electronicparts and products held up satisfactorily in the glob-al recession. Sony’s music and entertainments busi-nesses also performed relatively well in that year.Sales of consumer electronics reflected the effect ofthe recession in the ⁄ results, when risingdebt forced a reduction in capital expenditures. Salesbegan to pick up in ⁄ but profits slumped afterthe film studio write-offs in the USA. New strategiesand products brought about a restoration in salesrevenue for ⁄ but profits remained belowthose of earlier years.

Have Sony’s fortunes been turned around withthe strategic and structural changes introduced bythe new strategic leader? How much more changewill be required to sustain the renewed growth andprosperity?

Sony Corporation http://www.world.sony.com

1042The Sony Corporation

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1043The Sony Corporation

Questions

. Describe and evaluate the early strategies which made Sony a successful and innovative company.Can the recent changes to the corporate strategy and structure be justified strategically?

. How would you evaluate Sony’s track record as an innovative company?

. Provide a strategic audit of Sony in the early s.How do you think Sony will now develop during the mid/late s?

. How does Sony compare and contrast with the typical Japanese corporation?