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MN6003 Strategy: Choices and Change

2020-2021

Coursework #3:  Individual Coursework (30%)-Sony’s Structure and Competitive Disadvantage

The assignment addresses the following learning outcome(s) of the module:

Explore the role of leadership through all management levels in delivering strategy and sustainable change.

Examine the impact of an organisation’s particular systems, culture, human resources and financial capability, internal politics, stakeholder groups and overall context on the actual delivery of change and explore active stakeholder management, including influence, negotiation and conflict.

 

Your 1500-word paper should demonstrate your ability to apply a range of strategic change models to gain constructive insight about the change process

Sony’s Structure and Competitive Disadvantage

          APPLE’S MARKET CAPITALIZATION in 2001 was $7 billion, while Sony’s was $55 billion. Apple introduced the iPod, a portable digital music player, in October 2001 and the iTunes music store 18 months later. Through these two strategic moves Apple redefined the music industry, reinventing itself as not only a mobile-device but also a content-delivery company. Signalling its renaissance, Apple changed its name from Apple Computer, Inc., to simply Apple, Inc. But what happened to Sony—the company that created the portable-music industry by introducing the Walkman in 1979?

Sony’s strategy was to differentiate itself through the vertical integration of content and hardware, driven by its 1988 acquisition of CBS Records (later part of Sony Entertainment). This vertical integration strategy contrasted with Sony Music division’s desire to protect its lucrative revenue-generating, copyrighted compact discs (CDs). Sony Music’s engineers were aggressively combating rampant music piracy by inhibiting the Microsoft Windows Media Player’s ability to rip CDs and by serializing discs (assigning unique ID numbers to discs). Meanwhile, Apple’s engineers were developing a Digital Rights Management (DRM) system to control and restrict the transfer of copyrighted digital music. Apple’s DRM succeeded, protecting the music studio’s interests while creating value that enabled consumers to enjoy portable digital music.

Sony had a long history of creating electronics devices of superior quality and design. It had all the right competencies to launch a successful counterattack to compete with Apple: electronics, software, music, and computer divisions. Sony even supplied the batteries for Apple’s iPod. Cooperation among strategic business units had served Sony well in the past, leading to breakthrough innovations such as the Walkman, PlayStation, the CD, and the VAIO computer line. In this case, however, the hardware and content divisions each seemed to have their own idea of what needed to be done. Cooperation among the Sony divisions was also hindered by the fact that their centres of operations were spread across the globe: Music operations were located in New York City and electronics design was in Japan, inhibiting face-to face communications and making real-time interactions more difficult.

Sony’s then-CEO Nobuyuki Idei learned the hard way that the Music division managers were focused on the immediate needs of their recordings competing against consumer-driven market forces. In 2002, Mr. Idei shared his frustrations about the cultural differences between the hardware and content divisions:

The opposite of soft alliances is hard alliances, which include mergers and acquisitions. Since purchasing the Music and Pictures businesses, more than 10 years have passed, and we have experienced many cultural differences between hardware manufacturing and content businesses. . . . This experience has taught us that in certain areas where hard alliances would have taken 10 years to succeed, soft alliances can be created more easily. Another advantage of soft alliances is the ability to form partnerships with many different companies. We aim to provide an open and easy-to-access environment where anybody can participate and we are willing to cooperate with companies that share our vision. Soft alliances offer many possibilities.

          In contrast, Apple organized a small, empowered, cross-functional team to produce the iPod in just a few months. Apple successfully outsourced and integrated many of its components and collaborated across business units. The phenomenal speed and success of the iPod, as well as iTunes’ development and seamless integration, became a structural approach that Apple applied to its successful development and launches of other category-defining products such as the iPhone and iPad. By August 2012, Apple’s stock market valuation had increased by a factor of 89 times, from $7 billion in 2001 to $623 billion, making it the most valuable public company of all time. In contrast, Sony’s market value had declined by almost 80 percent, from $55 billion to $12 billion.

          To improve Sony’s performance, the company is undergoing a major corporate restructuring. In 2012, Sony’s revenues were $72.4 billion, with Sony’s Mobile Products and Communications division ($13.0 billion), Entertainment ($12.4 billion), Financial Services ($10.7 billion), and Home Entertainment & Sound ($10.6 billion) being the largest divisions (Exhibit MC19.1). In terms of profitability, however, Sony’s core businesses are underperforming (Exhibit MC19.2). Sony’s most profitable divisions are non-core businesses such as Financial Services ($1.55 billion) and “Other” business activities ($970 million). The Entertainment unit made only $910 million in net income on over $12 billion in revenues, which represents a meager 0.007 percent return on investment.

          As the Japanese economy is undergoing a major transformation under Prime Minister Shinzo Abe, corporate governance at leading Japanese enterprises from Toyota to Sony is also being shaken up. Companies must now rely more on equity financing rather than being able to continually finance operations through debt based on their cozy relationships with banks. This is the result of more than a decade-long competitive disadvantage by once world-leading Japanese companies, especially in the electronics industry (including Sony and Sharp).

          Activist investors such as hedge funds are becoming more powerful players in Sony’s corporate governance. And with more power, they are becoming more vocal. In particular, they argue that Sony Corp. is spread too thin over too many businesses and that its corporate strategy needs a major refocus. These activist investors are advising Sony to combine its music and movie businesses into one entertainment unit, and then spin it off as a standalone company. Among its assets, Sony Entertainment has music artists such as Justin Timberlake and Pink under contract, and the movie Skyfall, Sony’s latest installment in the James Bond saga, which topped the rankings and grossed over one billion dollars since its release in 2012. This corporate restructuring should allow Sony to focus on its core business in electronics, while unlocking hidden value-creating potential in its entertainment unit.

 

 

Questions to consider while analysing the case:

Note:

 

These questions are not exhaustive list. It is meant to help you think about the case in a more systematic way. Coursework inherently is subjective in nature. As such, variations in student’s response is expected and encouraged

1. Why had Sony been successful in the past (e.g., with the introduction of the Walkman, PlayStation, the CD, and the VAIO computer line)?

 

1. What was Mr. Idei’s assessment of strategic alliances versus M&As? Do you agree or disagree with his conclusion? Support your assessment.

 

 

1. Explain how Sony’s organizational design (structure, culture, and control) inhibited Sony’s ability to respond to the competitive challenge of Apple in the digital portable music industry.

 

1. What could Sony have done differently to avoid failure? What lessons could be learned?

 

 

1. Explain how restructuring (as activist investors are recommending) would produce benefits for Sony. What would be the benefits of splitting up Sony as proposed? What would be its drawbacks?

 

 

Your coursework will be evaluated on the following criteria

 

Important: The events depicted in the case is until 2013. As such, any facts used after 2013 will be inadmissible for the evaluation and the analysis of the case.

 

Rating scale

0 = no evidence     1 = Below Standard                   2= Approaching Standard

3 = At standard                4 = Exceeds standard     

SN	Assessment check list	Weight
  1	Introduction and problem definition (Ability to identify the problem specific to the case or reflects a good understanding of the questions given in the case study)	  10
2	Ability to effectively answer the questions based on:  appropriate application of relevant theory from classroom learning appropriate application of relevant theory from external research discussions about contemporary practices	  20
3	Evidence of the critical thinking in the writing Able to write from different perspective	10
4	Evidence of rigorous and relevant external research  ( Journal paper, case studies, and other reliable sources)	15
5	Evidence of using relevant facts and evidences within the case to develop points.	10
6	Proper Conclusions and recommendations	15
  7	Supporting appendices Bibliography and use of appropriate referencing throughout (Harvard Referencing)	  10
9	Formatting (Times New Roman, Font Size: 12, Line Spacing 1.5, and clearly separated question and answers with a change in paragraphs for all five questions in the Case Study word limit)	10
Â	Overall Grade and marks Â	Â

 

Final Comments:

 

 

 

Case Study Grading Rubric
BBA Percentage Scale:		<40% (Fail) 40% to 49% Pass	50 – 59%	60-69%	>70%
BBA Grade Level:		F, E, D	C	B	A
Â	%	Below Standard	Approaching Standard	At Standard	Exceeds Standard
Clear explanation of key strategic issues  •  The problems, scope, and seriousness was clearly identified in the discussions. •  There was a well-focused diagnosis of strategic issues and key problems that demonstrated a good grasp of the company’s present situation and strategic issues. •  Effective Executive Summary •  Did not waste space summarizing information already found in the case.	20%	Shows little understanding of the issues, key problems, and the company’s present situation and strategic issues. Executive summary missing or poorly constructed	Shows some understanding of the issues, key problems, and the company’s present situation and strategic issues. Executive summary inadequate	Shows adequate knowledge of the issues, key problems, and the company’s present situation and strategic issues. Executive summary adequate	Shows superior knowledge of the issues, key problems, and the company ’s present situation and strategic issues. Effective Executive Summary
Valid arguments; analysis of financial performance with relevant supportive detail Logically organized, key points, key arguments, and important criteria for evaluating business strategies were easily identified  Critical issues and key problems that supported the Case Analysis were identified and clearly analyzed and supported.	20%	Critical issues and key problems that supported the Case Analysis were poorly identified, analyzed, and supported. Â	Critical issues and key problems that supported the Case Analysis were not clearly identified, analyzed, and supported. Â	Critical issues and key problems that supported the Case Analysis were partially identified, analyzed, and supported. Â	Critical issues and key problems that supported the Case Analysis were clearly identified, analyzed, and supported. Â
Appropriate analysis, evaluation, synthesis for the specific industry identified There was complete data on which to base a thorough analysis Key change drivers underlying the issues were identified. Synthesis, analysis, and evaluations were clearly presented and supported in a literate and effective manner.	20%	Analysis of key change drivers and the underlying the issues inadequate. Â	Analysis of key change drivers and the underlying the issues were not identified. Â	Analysis of key change drivers and the underlying the issues were partially identified	Analysis of key change drivers and the underlying the issues were clearly identified
Conclusions and recommendations are congruent with strategic analysis Specific recommendations and/or plans of action provided. Specific data or facts were referred to when necessary to support the analysis and conclusions. Recommendations and conclusions were presented and supported in a literate and effective manner.	20%	Effective recommendations and/or plans of action not provided. Specific data or facts necessary to support the analysis and conclusions was not provided.	Effective recommendations and/or plans of action inadequate. Specific data or facts were not referred when necessary to support the analysis and conclusions.	Effective recommendations and/or plans of action were partially provided. Specific data or facts were occasionally referred when necessary to support the analysis and conclusions.	Effective recommendations, solutions, and/or plans of action were provided. Specific data or facts were referred when necessary to support the analysis and conclusions.
Proper organization, professional writing, and logical flow of analysis. APA formatting Logically organized, key points, key arguments, and important criteria for evaluating the business logic easily identified. Key points were supported with a well thought out rationale based on applying specific concepts or analytical frameworks to the data provided in the case. Proper grammar, spelling, punctuation, 3rd person objective view, professional writing, and syntax.	20%	Key points were poorly identified and supported with a well thought out rationale based on applying specific concepts or analytical frameworks to the data provided in the case. Grammar, spelling, punctuation, professional writing, and syntax needs significant improvement	Key points were not identified and supported with a well thought out rationale based on applying specific concepts or analytical frameworks to the data provided in the case. Grammar, spelling, punctuation, professional writing, and syntax needs improvement	Key points were partially identified and supported with a well thought out rationale based on applying specific concepts or analytical frameworks to the data provided in the case. Adequate grammar, spelling, punctuation, professional writing, and syntax	Key points were clearly identified and supported with a well thought out rationale based on applying specific concepts or analytical frameworks to the data provided in the case. Excellent grammar, spelling, punctuation, professional writing, and syntax

 

*End of question Paper*