The Sony Corporation 1025

The Sony Corporation 1025 The Sony Corporation Sony, which will be 60 years old in 2006, became renowned throughout the world as an innovatory, pioneering company with an international presence and reputation in the consumer electronics industry. Sony is now an acknowledged leader in a number of very competitive and dynamic industries where no single company enjoys a dominant market share. Sony has always sought to develop unique products rather than copy other companies. Although profitable, profitability per se has 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 relatively open-ended briefs. However, the company has come under enormous pressure as it has struggled to remain a leader in 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 The The 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 be taken to reflect either effective or ineffective management. Introduction History and product developments* Sony was at a critical point in its development as a Humble beginnings global corporation as it celebrated its fiftieth birth- Sony Corporation, begun in Japan after the end of day in . The success of recent strategic changes World War II, is much younger than its major is likely to have a major impact upon whether Sony Japanese rivals. In years it has become estab- restores its lost prosperity or declines to become a lished as a market leader in the production of business legend. specialist electronic products in an environment The increasing significance of computers and com- of rapid technological change, economic growth munications equipment in consumer electronics, and a global willingness to accept new technology. reinforced by the continuing convergence of com- Sony’s corporate history has been built around puting, telecommunications and electronic enter- core competencies in technological innovation and tainment in a range of new multimedia products, miniaturization and the development of quality has forced consumer electronics companies such as products and quality systems which have led to high Sony to focus their thinking and research on emerg- levels of differentiation. Early growth was organic ing technologies rather than concentrating on the and initially competition was limited. Today’s com- innovatory development of new product variants. petitors have typically followed Sony into the markets The conventional audiovisual products which have it pioneered. The successful targeting of innovators been at the heart of Sony’s growth and development and early adopters generated healthy profit margins are now overshadowed by the latest developments in which were reinvested in the company, especially in multimedia technology. To compete effectively in the research and development (R&D). late s, Sony realized that it had to transform *This section on the early history of Sony has been devel- itself from a company which was dependent on the oped in part from The Sony Corporation case study () analogue technologies of conventional audiovisual in Quinn, JB, Mintzberg, H and James, RM () The products to one with competencies in digital tech- Strategy Process: Concepts, Contexts and Cases, Prentice-Hall. nology which it could use to develop a range of new Other material has been obtained from a variety of news- products for the multimedia age. paper and journal articles. The Sony Corporation 1026 The founder of Sony was Masaru Ibuka, who In Ibuka successfully persuaded Morita’s gathered together a group of engineers ‘to develop father to allow Akio to join his business on a full-time some sort of electronics laboratory or enterprise’. He basis. Morita Snr actually invested in the business and had previously owned and managed a factory sup- eventually became the company’s largest sharehold- plying electronic instruments for the war effort, and er. The company was formally incorporated as Tokyo he was now keen ‘to do something that no other Telecommunications Engineering Company (TTK) in company had done before’. In the s and s May , and valued at ¥,, which approxi- Japanese companies were not perceived to be inno- mated to US$. TTK’s next inventions were an elec- vators or leaders in technology, but rather business- trically heated cushion and a resonating sound gener- es which were very skilled at copying Western tech- ator (for sending and receiving Morse code) which nology. From these humble beginnings, a truly inno- offered superior audio facilities to competing vatory company with a worldwide reputation and machines. The quality was high, and the American presence has emerged. Occupation Forces were among the early customers. The new enterprise had little capital, a limited Although the products were relatively sophisticated track record and no definite ideas. Essentially, the the production facilities were housed in run-down, managers just had aspirations to apply the knowl- leaky premises. TTK also succeeded in obtaining con- edge of the founder in the development of consumer tracts to convert and modernize all the equipment products. Ibuka’s first invention for the consumer belonging to the Japanese Broadcasting Network. market was an electric rice cooker manufactured Noticeably, there were still no breakthroughs with from aluminium. It failed to sell. The electric products for the theoretically targeted consumer mar- element burnt the rice at the bottom of the pot ket. Ibuka then saw an early American reel-to-reel while failing to cook the rice at the top. tape recorder in one of the offices belonging to the To generate a stronger cash flow to fund further Occupation Forces. developments the company started repairing and modifying wartime radio sets. The company was Tape recorders – the first consumer product already earning revenue from electronic instruments Ibuka realized the potential of the machine and pur- such as voltmeters which were still being manufac- chased the Japanese patent rights immediately. He tured and sold to the new peacetime markets. was convinced that TTK had the requisite skills to From the beginning Sony developed as an inde- design and produce a good-quality tape recorder. One pendent company; it was not a member of a major stumbling block proved to be a shortage of Japanese keiretsu or business network. Shortly after plastic in Japan, from which TTK could manufacture the company was started Ibuka was joined by a close the reel-to-reel tapes. Import regulations prohibited wartime friend, Akio Morita, who initially combined the acquisition of plastic from abroad. TTK tried cello- a part-time post at the Tokyo Institute of Technology phane, rice paper and finally a specially calendered with his time at the company. Unlike Ibuka, Morita paper with a smooth surface and which could be coat- was a member of a leading Japanese Samurai family. ed with magnetic powder. They overcame the inher- Morita was expected to forge his career in the family ent drawbacks in the paper tape by building superior business, which was brewing sake. He had been quality into the circuitry, recording head and amplifi- trained in business skills from an early age. However, cation system. Although it needed both patience and at university, he had proved himself to be a very money TTK became the first company in the world to talented electronics engineer. While Ibuka was pas- manufacture the complete range of tapes and sionate about inventing, Morita was a more realistic recorders, including the component parts. Altoge- businessman who understood finance and market- ther, this implied different basic technologies. ing. The two friends proved to have valuable, Their first recorder, weighing lb ( kg), was complementary skills. introduced into the market in . Several months The Sony Corporation 1027 passed though before the first unit was actually sold cy transistors. However, in August TTK were – to the Japanese equivalent of a pub. Realistically, also able to display a small portable radio. Its size the device was too heavy, too bulky, too complex and was ′′ × ′′ × .′′ ( × × cm). The production too expensive. Once they realized why the market target for the first year was ,, and they actual- was slow and hesitant, Ibuka and his colleagues ly achieved . concentrated on reducing both the size and weight, Ibuka’s team concentrated on making an even and sought ways of halving the cost. Their main smaller model, despite critics who argued that any competition was from M, which was already a well- further reduction in size would have to be at the established and successful American corporation. expense of sound quality. TTK’s greatest challenge M’s magnetic tape, branded with the Scotch name, lay in convincing their component suppliers that size was a superior product which TTK sought to fran- reductions were achievable. TTK formed research chise. M were only willing to grant the franchise if alliances with a number of their suppliers and TTK stopped manufacturing the hardware. offered them technical help and expertise. Existing components were often straight copies of Western Transistor radios technology, a typical Japanese strategy at that time. Ibuka went to America in in search of new Perseverance was rewarded in March when market opportunities for his smaller, cheaper tape TTK was first to market with a pocket radio.

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