Strategic Approach on Sony Corporation Global Strategy and Structure: Analytical Essay

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This report provides a strategic approach on Sony Corporation global strategy and structure and how Sony manage its global operation, innovation and risks. This report begins by analyzing the brief overview of Sony, its business segments and geographical coverage. Furthermore, this report will examine mission and vision of Sony and shows how innovation is deeply rooted in the company mission and vision. This report then follows the global strategy and structure adopted by Sony which is a transnational strategy and matrix structure. Following that, due to the large size of the conglomerate and the nature of its diversification strategy, Sony’s electronic business segment is used in the report as a unit of analysis for its global operation. The second main body shows how big role innovation plays at Sony, on its product and process of innovation, Sony’s research and development centres and how they configure and co-ordinate. Finally, the report will

2. Company overview

i. Sony

Sony Corporation is a Japanese multinational conglomerate corporation established by Akio Morita and Masaru Ibuka on May 7, 1946. Sony Corporation is a global manufacturer of electronic devices, software and games consoles for consumers, industrial and professional markets (Sony, 2019). It operates in three main sectors which include electronics, entertainment and financial service. Sony’s operations are further carried out through diverse business segments as displayed in Appendix 1. With its pictures, music, game and online businesses, the company has successfully placed to be one of the world’s leading digital entertainment brands, providing an exceptional portfolio of inspiring multimedia content (The Forbes, 2018). Sony operates across America, Europe, Africa, Middle East, Asia Pacific and employed about 117,300 people as of March 31, 2018 (Sony, 2019).

ii. Mission and Vision

Sony’s mission is to deliver “Kando” through its superior products, content and services which inspires and fulfils curiosity of the customers (Sony, 2019). ‘Kando’ is a Japanese term which refers to move people emotionally and it is deeply rooted in Sony’s core philosophy to deliver a moving experience to its customers by their innovative products. For instance, the PlayStation attracts and engages consumers through an emotional bond based on the gaming experience. Sony Corporation vision also focuses on the concept of Kando. The engineers of Sony use their infinite passion for technology to create and produce new innovative products to fulfil the customer’s curiosity (Sony, 2019). In aspiring to achieve this, Sony aims to create social value by providing consumers with a sense of enrichment through the creation of a community of interest by connecting producers and customers together (Meyer, 2017). Thus, Sony’s mission and vision complement one another and maintain its strong influence on the business.

3. Global strategy and structure

Firms choose a suitable strategy for their businesses among the four main strategic postures while competing globally. They are international, multinational, global and transnational strategy (Hill and Jones, 2009). The appropriateness of each strategy differs with the extent of pressures for local responsiveness and cost reductions.

i. Transnational Strategy

Sony utilises a transnational strategy on their business. A transnational strategy is where firms produce and sell a certain degree of standardized as well as modified products in various markets according to the local preferences Ireland, et. al, 2006). With this strategy, Sony aims to consolidate the advantages of global scale efficiencies with the benefits of being locally responsive either in a geographic region or a country and the authority remains both centralized and decentralized (Sony Business Team, 2015). Sony depends on standardisation of products with global production and distribution; however, it also has a system called “Sony Pledge of Quality” through which new designs for local markets are developed and introduced. Sony Pledge of Quality helps Sony to create products that satisfy the needs of local preferences of consumers (Sony, 2019).

Bartlett and Ghoshal (1989) have stated that transnational strategy is superior in contrast to other strategies and is the ideal way for firms to reach success by reducing cost and achieving local responsiveness (Frynas and Mellahi, 2015). For instance, Sony PlayStation reduces its cost by locating most of its production facilities to low cost countries such as China. Sony PlayStation understands its customer needs in different markets with different cultures of both home and host countries (Steers and Nardon, 2015). Thus, with the effective formulation and implementation of the transnational strategy, Sony PlayStation is able to dominate the global video game market in oppose to Nintendo and Microsoft’s Xbox.

ii. Matrix Structure

Sony Corporation has diverse product portfolio and large global operations and sales in international markets. Following the Stopford and Wells (1972) structure model, a high level of product diversification and global operations and sales has led Sony to adopt a global matrix structure (Frynas and Mellahi, 2015). Sony has implemented a matrix structure to combine well with the transnational strategy as it helps Sony to coordinate the activities effectively between a parent company i.e. Sony Corporation and its subsidiaries or even within subsidiaries to subsidiaries (Sony, 2019).

Following a global matrix structure, Sony is more flexible in all of its activities such as manufacturing products, responding actively to customer needs from different geographical areas. Due to the complexity of the matrix structure, the headquarter of Sony, however, has to be in constant contact with product groups and countries (Ahrens and Guetz, 2015). Sony Corporation’s matrix structure shows that the subsidiaries have a certain level of autonomy depending on the business units. Therefore, the parent company of Sony do not possess complete control over its subsidiaries (Meyer, 2018). As Sony follows a transnational strategy and a global matrix structure, knowledge and ideas sharing exist between Sony Corporation and its subsidiaries.

4. Global operations of Sony

i. Supply Chain

Appendix 3 displays a generic illustration of Sony’s electronics supply chain (Sony, 2018). It is found that Sony’s configuration of their downstream value chain activities are organized according to how high-tech the product is. For example, Sony product items are classified as commodities and requires little technological expertise which are often manufactured abroad. The reasons for this decision are supply chain cost-related (Bin, 2003), as the low manufacturing costs of “commodity” products outweigh the higher costs of transport and longer lead times (Sony, 2018).

China, in particular has proven to be an excellent location for the outsourcing of many of Sony’s less innovative products, where competition is based on efficient, fast production. Alternatively, for leading edge products, Sony found that China’s manufacturing base, in amongst their many others, lack the critical “market mediation” capabilities i.e. the technological expertise, benefits of proximity and the supply chain flexibility to cope with the demands of high-margin, high-risk new product introductions (Sony, 2018). As such, products that fall into this category are often produced in Japan. Sony has several manufacturing facilities dispersed all over the world and the configuration of value chain activities varies according to the product and its manufacturing needs. It will now focus on the configuration and coordination of the manufacturing of Sony PlayStation.

One factor that remains consistent across all value chains is how the subsidiaries are controlled. In 2016, Sony made drastic changes to the management of its manufacturing operations of its electronics division (Sony, 2018). Effective April 2016, Sony created the Sony Global Manufacturing & Operations Corporation (SGMOS). This was created through the merging of Sony Engineering, Manufacturing and Customer Services (EMCS) previously in charge of domestic engineering, manufacturing and repair services of electronics and Sony Corporation, which is in charge of supervising operations globally (Sony, 2018). As a result, SGMOS assumed the responsibilities of EMCS in managing domestic manufacturing operations in Japan and administering manufacturing facilities overseas. In addition, it is also responsible for global shared services functions that oversee procurement, logistics, quality and environment-related initiatives in manufactures all across the globe (Sony, 2018). Through this realignment, Sony has brought together the extensive knowledge and expertise in operations that its various organizations have accumulated, in order to streamline and continue evolving its operations that transcend national or regional boundaries and product categories.

ii. Value Chain

The value chain of Sony PlayStation is displayed on Appendix 4. Now, the report will discuss on how some of the activities of Sony PlayStation’s value chain are configured and coordinated across the globe. Appendix 5 shows Sony’s manufacturing downstream activities are primarily performed in Japan, with parts outsourced to China and some others imported from the U.S. hence the decentralized configuration is pretty clear. The reason Sony implements this strategy is because the PlayStation is relatively low-tech and is classified as a commodity (Sony, 2018). Other products classified as innovative, such as the Aibo, are manufactured solely in Japan, because Sony has found that China’s manufacturing base, in amongst their many others, lack the critical “market mediation” capabilities i.e. the technological expertise, benefits of proximity and the supply chain flexibility to cope with the demands of high-margin, high-risk new product introductions (Sony, 2018). As such, it uses mass production, which China does both efficiently and cost-effectively which is a location advantage. The products are then distributed for sale and all upstream activities are outsourced to retailers across the globe. The idea is developed in Japan and sold everywhere in the world to fulfill the global mindset of the corporate strategy of Sony (Sony, 2019).

These activities are linked through the Sony Global Manufacturing and Operations Corporation which leads to high degrees of coordination for the communication and operations between domestic and foreign manufacturers. Sony’s approach is defined as “global localization”. SGMO sets out the global strategy whereas the various locations across the world have the autonomy to adapt it to local needs, still referring back to the core strategy. The compatibility across the operations back to the core is further explained in the Research and Development (R&D) section.

5. Innovation creation

Innovation is important for companies like Sony to maintain and gain a competitive advantage. The main corporate responsibility of Sony Corporation is to enhance its corporate value through innovation and sound business practices to its customers. Thus, Sony ends generating innovation in various ways either creating products or services which inspires and fulfils its customers curiosity (Sony, 2018).

i. Product and Process Innovation

Innovation has always been the core philosophy and spirit of Sony Corporation (Sony, 2018). The ground-breaking spirit of continuous innovation has always encouraged Sony to create innovative products from its establishment to date. Sony was the first firm to produce portable music players in 1979 such as Classic Walkman as given in Appendix 6 before any other companies could actually conceptualise them. It completely transformed the way to listen to music (Neate, 2014). Furthermore, Sony built PlayStation in 1994 which is one of the most profitable and successful products of the company and manage to dominate the gaming industry.

Recently, Sony also introduced “Aibo” the AI-driven entertainment robot pet for various use in environments in addition to the home and to bond actively with humans. Sony also creates innovation as a process which refers to the implementation of a new or advanced production or delivery method (Frynas and Mellahi, 2015). An example of process innovation is the invention and evolution of Seed Acceleration Program (SAP) and Sony Innovation Fund (SIF) by Sony Group in 2014 and 2016 respectively. Seed Acceleration Program generates start-up projects and supports its business operation while Sony Innovation Fund assists as a corporate venture capital fund to the start-up or early-stage companies (Sony, 2018).

ii. Research and Development (R&D)

In 1986, Sony established a “zone management system” where the worldwide market was divided into four regions which include Japan, America, Europe and South East Asia. The regional headquarters were established in each area with its own R&D main centre and six each sub-laboratories (Noam, 2018). The network of R&D has high coordination despite a decentralised configuration because of the various locations.

The parent company of R&D centres in Japan Sony Corporation assumed the role of the planner of the company’s R&D global strategy (Pablos, 2014). The European, Asian and the US head offices coordinate their regional R&D strategy, while making this strategy compatible with the corporate strategy and its global focus. Also, every main laboratories has its own chief technology officer (Noam, 2018). In order for them to remain consistent and coherent across the regions, not only engineers were moved across the laboratories, but also R&D meetings is held twice a year. This helped Sony R&D to reach synergy and flexibility. At the same time, the laboratories never lose their autonomy. They plan and control their own projects, suitable market needs, following the concept of global localisation. As Bartlett and Ghoshal (1989) suggested having both centralization and decentralization is very challenging but, tools like R&D meetings helped Sony to provide communication among the network of the various R&D across the globe.

The goals for the foreign subsidiaries were to meet the local needs, advance expertise in the local area, contribute to the local society while establishing a global human and information network. Every R&D facility is specialised in one or more fields of technology. For example, Beijing focuses on wireless networks, Las Vegas specialises in 3D Television and Paris focuses on personal music experience.

iii. Foreign Direct Investment for R&D

The FDI reason was home-base augmenting FDI for R&D because, although Japan being advanced in technologies, it benefitted from the various peculiarities of the multiple locations, leading to a dynamic continuous learning in order to keep up with innovations. This complies with the never ending pursuit of global localization, Japanese at its core but localized at the same time. Also, the centres are regarded as international technology creators, since the products designed are meant to be sold across the globe in a boundary-less fashion. The most famous product, PlayStation although designed and developed in Japan was sold everywhere, to fulfill the international mindset of the company.

iv. Innovative Capabilities for Competitive Advantage

The innovative capabilities of Sony are definitely a reason behind Sony’s sustainable competitive advantage. The field of consumer electronics is highly competitive and keeps on changing. Therefore, Sony always makes an effort to keep up with innovations and be competitive in the market. Usually, the firms invest around 2 to 3 percent of revenue to their R&D sector but 6 percent of the company revenue which is extremely high is spend on the research and development by Sony Corporation. The founder of Sony Akio Morita and Masaru Ibuka strongly believes in the power of innovation and innovative capabilities as the main source for Sony’s competitiveness. Hence, the global localization perspective helped the Sony to adapt itself to the various locations as well as market changes, which helped Sony to leverage its technological know-how very dynamically.

6. RIsk management

Sony recognizes various risks and manages them well because of the geographical dispersion as well as industrial diversification. Among the others, Sony does not have a centralized decision-making for risk management. Rather, all of the risks are conducted under the company with “committees” as the board of directors where every subsidiary provides mechanism of identification and response to challenges, tailored to their respective locations which gives them great autonomy in the matter.

i. Cyber Attack

Cyber security has been the major risk for the businesses. There were some of the incidents that took place back in 2011 and 2014 where Sony Pictures and PlayStation Network was crippled by hackers. This incidents can be labelled as a black swan event as it proved the weakness of the company in serious situations. The online services were shut down as Sony attempted to secure the breach, which put the sensitive personal data for over 100 million customers at risk. Protecting the data privacy of Sony users are very important to Sony. Hence, to fulfil this commitment to privacy, Sony took a number of steps to prevent future breaches including enhanced levels of data protection and encryption; enhanced ability to detect software intrusions, unauthorized access and unusual activity patterns; additional firewalls; establishment of a new data centre in an undisclosed location with increased security and the naming of a new Chief Information Security Officer. Sony has also improved its stance against cyber-attack. For instance, through a risk mitigation strategy of partnering with Amazon Web Services.

i. Intellectual Property Right (IPR)

According to the Vice President of Sony Interactive Entertainment (SIE), one of the biggest intellectual property challenges facing the industry is the copyright which refers as given the need to protect creative content. Sony has been the copyright owner of the innovations related to its video games. Sony sued Eric Davis in America because he has the marketing and sales distribution of the ‘Jailbreak’ PS4. Jailbreak refers to modify electronic device to remove restrictions in the game. Eric’s production and design of such is not only for the purpose of profit, but also detrimental to the original intention of the PS4 system to prevent pirated game works.

ii. Investment Strategies

Sony focuses its investments into more profitable businesses and divests from businesses performing less well in order to maximise profits and minimise costs. From Appendix 7, the green are the most profitable industries of Sony receiving the most funding in their R&D so entertainment as a whole is doing great. In Yellow, are the stable profit generators which receive less large-scale investment and are focusing more on cost efficiencies. In Red is the least profitable industry, Mobile Communications, due to market volatility in consumer tastes and high competition.

7. Recommendation & conclusion

It can be seen from Appendix 8 that Sony is doing well on most of its business sectors. However, Sony is struggling in their smartphone business which is part of the mobile communication industry in comparison to its competitors. Hence, change in their strategy is needed. Sony is divesting in this area by cutting down jobs and is also considering a partnership as they still plan to continue producing smartphones. Sony should use a change agent to mitigate the risks and partner up with Huawei as they have previously collaborated together in the television industry and have similar competencies and have potential for synergy.

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