Not a long time ago, when a person mentions portable audio equipment and colour television, chances are the people around him will immediately think of Sony. This Japanese company has conquered the local market and then went on to capture a huge share of the electronics market of the Western world. At one point Sony was the undisputed leader in electronics and was considered as a savvy innovator with a knack for knowing what the people need. But in the 21st century the same could not be said of the fumbling giant.
This paper will look into the reason why this once runaway locomotive is loosing money as well as customer loyalty which are sure signs of corporate inefficiency. The body of evidence points to a misuse of organizational resources specifically those pertaining to knowledge and technology. The following pages will discuss how Sony had accumulated extensive knowledge through decades of pioneering work in this industry and yet chose to not adapt using said data and information. Moreover, with regards to technology the company stubbornly cling to their way of using technology and cared less about the rapid changes going on around them.
In an online corporate information site, one can see that Sony has diverse interests in audio, video, television, information and communications, semiconductors, and electronic components (see sony.net). The company, founded in 1946, became a global giant in the 1980s and at one point the undisputed leader in electronics technology.
With its phenomenal Walkman and Trinitron TV, Sony was for a long time, way ahead of the pack – leading in revenues, innovation, and mass appeal. The company endeared itself to countless millions around the world with a parade of electronic products that are both cutting edge and practical. But instead of focusing on their strengths Sony decided to venture into costly acquisitions that have little to do with their core businesses. Instead of building on what they have learned regarding miniaturization, television technology, and cutting edge electronics parts, the company looked into different options. In the same online corporate information site one can see the numerous affiliated companies ranging from banking to movies.
After tasting major success after penetrating the U.S. market, Sony did not look back and continued to charge forward and working hard to dominate the industry. But when it was at its peak it suddenly grew bold and ventured into unknown territory. Before the decade of the profitable 80s ended, Sony decided to expand and took a huge bite of the lucrative U.S. entertainment industry. Now, they are not simply peddlers of television sets; they also wanted to sell what can be seen on it.
The move can be likened to a successful five-star restaurant that is so focused in stomping the competition that it bought its own farm. Many restaurateurs would challenge the wisdom of buying a ranch just to have a steady supply of beef and vegetables since one can just buy from suppliers at practical costs. What is more mind boggling with the acquisition of Columbia Pictures is that it is not even closely related to the electronics business in the same way as the aforementioned restaurant-farm combo.
But at that time, Sony executives believed it was the right move. Richard Lynch explained it this way, “The strategic logic here was that of developing a vertically integrated company – from the service that develops the pictures and music to the machines that deliver them in individual’s homes” (2006, p.207). But looking back it is still difficult to understand why “vertical integration” is possible since buying a Sony TV does not automatically result in a sudden urge to buy Sony Pictures movies and view it using Trinitron.
Nathan in his biography of the electronics giant described the driving principle behind the company’s success was, “…foreseeing product application for new technologies and inspiring engineers to overreach themselves in achieving the goals he set for them” (1999, p. 25). In fact, the name Sony was not the first name for the company; it was originally called Tokyo Telecommunications Engineering Corporation, obviously telling the world that they are primarily in technology and hardware. But now, they are making movies.
Knowledge & Technology
Michiyo Nakamoto, writing for the Financial Times (2005), listed at least five reasons for why the once robust giant is haemorrhaging money from the core: a) severe pressure on prices; b) missed opportunities; c) need to buy components; d) threat of new format wars; e) inflexibility when it comes to proprietary aspect of software and hardware.
Richard Lynch on the other hand complements Nakamoto’s observation with his own, saying that Sony’s woes can be partially due to the following: a) threat from low-wage labour manufacturing and b) shifting away from innovative products e.g. liquid crystal display (LCD) screens (20006, p. 108).
Aside from the threat of competition and the threat of low labour manufacturing, Sony has another hurdle to overcome. The company was caught flat-footed in the fast transition to new technologies. Therefore, “…Sony, which had not invested in manufacturing LCD panels, was forced to buy them from competitors” (Nakamoto, 2005). This forced move is an attempt to stay afloat and stay relevant but it has made Sony, a follower and no longer the leader.
Based on the evidence, it is clear that Sony was not able to capitalize on their extensive knowledge regarding the electronics industry. And due to that they stopped innovating and the result is that they no longer provided relevant technology to their customers. Moreover, since they did not focus on satisfying the customer’s needs they erroneously thought that they can set the rules and expect others to follow.
Another factor that contributed to their inefficient use of knowledge and technology is the conflict of interest that resulted in their numerous acquisitions of non-related companies. When Sony purchased CBS records – renamed Sony Music – it resulted in a conflict of interest with regards to developing a portable player that can download music from the internet. Since, Sony Music is now in the business of creating music, Sony executives could not encourage a technology that could easily copy, store, and share the fruits of their music studio’s labour. The result was again another forced move, “…it worked to discourage the electronics division from marketing a portable player that could download music from the internet” (Nakamoto, 2005).
Another barrier to innovation was rather baffling because of the stubbornness of Sony to abandon outmoded proprietary standards. When the rest of the world was using MP3, Sony on the other hand continued to use, “…its own compression software, developed for the MiniDisc and called it Atrac” (Nakamoto, 2005).
An example of this is its insistence on the use of unique compressions software called Atrac. Sony was mislead into thinking that since can dictate the market, each and every time they are going to release a product. Truth is, the market will dictate what kind of products should be manufactured and looking back the consumers preferred efficiency and low cost equipment. An example of such technology is MP3. This compression technology allows for easy download, easy storage and ease of use with other equipment, it became the standard for portable audio devices. Sony ignored this fact and it cost them a lot.
What is mind boggling with Sony’s unwillingness to innovate is the fact that it used to be a cutting edge company, willing to go against the status quo. But now it seems content to rest on its laurels. The second reason why it is hard to understand their behaviour is the fact that they already experienced the same problem with Betamax. This was a videotape format pioneered by Sony that eventually did not earn the support of the industry because many preferred a better format called VHS.
What used to be an innovative company, seemed to have lost its way in the ultra-competitive market of electronics manufacturing. One of the major reasons for its slide into the low achievers group is its reluctance to innovate.
With Sony focusing on portable audio devices, coloured TV sets, laptops, and games consoles, it is working within its comfort zone. For decades it has demonstrated its ability to think outside the box and was hugely successful doing so. All is not lost though, since Sony with its decades of experience in the electronics industry possesses the knowledge and technology to come up with the next big thing.
Judging by the rate at which technology changes, Sony may just be in time to catch the next wave.