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= “Change in Strategy of an Organisation Essay | Business”;
$description =”Business Essay – Describe and analyse a change in strategy of an organisation of your choice”;
$subject = “Business”;
Business Essay Title
Describe and analyse a change in strategy of an organisation of your choice. It should include and explain the company’s strategy before the change, the nature of the change and the reasons for the change. Must concern a change announced after January 1st, 2005.
Introduction
Sony is an established global organisation, best known for its electronics, media and game activities. The diagram below shows its main areas of interest and organisational structure. There is a particular focus on electronics, which is split into separate divisions but integrated on matters such as product strategy. Sony also works with other organisations e.g. with Ericsson on mobile communications.
Sony Organisational Structure
Sony has seen a decline in performance in several of its key markets recently, and its share price was halved between 2000 and 2005. In April 2005, it acknowledged disappointing performance and advised that a new strategy would be announced in September 2005.
Background
Sony was founded in 1946, and for its first 30 years focused on electronics, establishing a reputation for innovation. In 1979 it introduced the Walkman, the first personal cassette player, and ‘Walkman’ became a generic term for personal stereos. In the 1980s and 1990s, Sony diversified into music and film. In 1990, it was positioned only second to Coca-Cola in a Landor Image Power survey of top global brands .
Its current difficulties are due in part to its success. Sony’s size has caused it to ‘spread itself too thinly’ and made it slow to respond to changes in technology such as flat screen and LCD TVs. IPod has replaced Walkman as a generic term for personal stereos. The slogan ‘Like No Other’, introduced in 2004 for Sony’s consumer ranges attempted to position it as an innovator, but competitors seemed more deserving of the description.
In some fields Sony has had great success. It is a key player in the digital camera market, and 2004-5 also saw record sales of software for its Playstation 2. However, the same fiscal year saw a 4.5% drop overall in sales and operating revenue , and led to the company examining and altering its strategy.
Analysis
Looking at Sony’s previous position overall, the three different strategies discussed by Naylor are a useful tool. Naylor differentiates between
- a stability strategy, for a company doing well, taking few risks and building gradually on its achievements
- a growth strategy, with increased risk taking, for businesses in a volatile environment
- a retrenchment strategy, cutting back and improving efficiencies, as a response to underperformance
While Sony might have seen itself as employing a growth strategy over the last five to ten years, it has perhaps not recognised a change in the speed at which its market is developing. Its size has affected its speed of response, and conflicting interests have made it unwilling to risk compromising the position of its media arm for the benefit of its electronics operation. This previous strategy was one of stability.
In 2003, Sony began streamlining its operations, reducing its workforce and showing a shift towards a retrenchment strategy. However, the nature of the electronics market demands a growth strategy, increasing productivity, introducing new products and entering new markets.
The announcement of a new strategy in a press release of September 22 2005 outlined the following developments :
- restructuring divisions to enable more rapid response to market threats and opportunities
- a growth strategy in electronics focusing on differentiation from competition
- cutting the workforce by 10,000
- greater integration of research and development across the organisation, decreasing duplication and cost
These aims show a retention of elements of the retrenchment strategy, cutting costs and improving efficiency, but also a recognition of the need for a growth strategy in order to compete.
The Boston Consulting Group (BCG) matrix is also a useful tool for looking at Sony’s position.
The BCG identified four product types. The star, a new, high-performing product, is genertes high revenues, offsetting development costs and leading to profits. The cash cow is an established product, generating steady revenues with little investment. The question mark is a new product that may become a dog or star. The dog has low market share and growth, and disposal may be the best option if it becomes unprofitable.
From Sony’s own performance reports , its products can be placed in the matrix. Sony’s new PSP (Playstation Portable) could be considered a star. Playstation 2 is losing star status, becoming a cash cow. PS2 software still has star status, but new games must be developed and marketed to maintain this, and as hardware is superceded, its market share will fall. Films and music have relatively little long-term success individually: a successful new film or album will be a star for a relatively short period. Sony has a number of products that seem to fall into the question mark sector, with investment made in development but relatively little profit recouped so far. Flat screen and LCD TVs are an example: although sales are increasing, the lines are not yet profitable due to development costs.
As most of Sony’s operations are in areas where stars rapidly become cash cows, or even dogs, the need for product development and investment in bringing new products to star status is key for Sony’s survival. The speed of fall of a product is evidenced by Bandai’s Tamagotchis, one of Grant’s case studies of excellence in new marketing approaches , which only briefly achieved star status (although it continues to sell).
Yet here lies Sony’s problem: its organisational structure and diversity has affected its ability to move quickly and effectively in a rapidly changing market, with duplication increasing development costs. Its interest in music and film has made it anxious not to produce hardware that could enable file-copying or sharing. Sony’s Connect site offers music downloads only in ATRAC format , used by most of its own devices, while iTunes uses AAC and allows conversion to the widely-used MP3 format . ATRAC compresses files to allow a greater number of tracks to be stored in the same amount of memory, and could therefore be seen as superior, but is not the most popular format.
Sony still appears to be focused on differentiation rather than working with competitors. In 2005, faulty protection software on CDs rendered many consumers’ computers vulnerable to hackers. Sony have been faced with a number of legal challenges, a dent in their reputation and costs of reimbursing affected customers. Part of the strategy with the software was to prevent conversion of CD data to MP3 format, keeping it compatible only with Sony hardware. Sony is demanding consumers stay brand-loyal or lose elements of functionality, which is a risk for any organisation, but even more so for one that has lost market share to competitors and is no longer a leader.
Sony has suffered from non-standardisation before: its Betamax video format was a competitor to VHS. Although considered superior, Betamax lost out to VHS on cost and VHS became the standard by the mid-1980s. When CDs were introduced in the early 1980s, it was a joint project between Sony and Philips , reducing the risk for both of them and enabling them to invest in CD playing technology. This also helped consumers achieve compatibility between their CDs and hardware. Yet in recent years, the ATRAC focus reverses this approach and there are already echoes of the Betamax format wars.
Success of New Strategy
Sony’s fortunes since changing strategy have been mixed. The effect of the change on their success so far is difficult to assess as many changes can be attributed to developments predating the announcement of the strategy review.
Profits for the final quarter of 2005 were up 17.5% on the previous year: this could be attributed in part from the retrenchment of the previous two years, as well as the successful launch of PSP gaming hardware and rising sales of LCD TVs.
The strategy’s focus on innovation seems to have been embraced in Sony’s marketing. Marketing strategy has focused on viral marketing – campaigns encouraging word-of-mouth amplification of the message – with varying success. An advert for the Bravia TV gained a large amount of press coverage and is discussed on various blogs, showing that the campaign is generating word-of-mouth promotion.
However, other promotional innovation seems to have been less successful. The PSP was initially launched at upmarket arts events, positioning it as a ‘work of art’ to attract the attention of influential ‘culture vultures’, again attracting media attention and generating discussion, but perhaps giving a negative message to many potential customers for the PSP who would want information on functionality as well as a neat design. The PSP sold well, but not enough to sell out. Undersupply is the usual aim of many product launches to generate increased desire in the market for subsequent shipments, but was not achieved here.
Conclusion
Sony has had trading difficulties for several years and has identified many of its problems, addressing them to some extent in its latest strategy change. Although its recent results show an improvement, this are difficult to attribute to the strategy change. Fundamental to Sony’s future success must be recognition that it is no longer a market leader so does not have its previous power to influence the direction of the market. Its policy of defending its many interests has proved problematic: maybe risking copyright infringements would be a overall more profitable.
Mintzberg, writing in the 1980s, encapsulated the approach necessary in 21st century markets:
“Strategies need not be deliberate – they can also emerge, more or less.”
The time taken to announce the new strategy suggests Sony is unable to respond quickly. Furthermore, its new organisational chart (see page 1) indicates that the Sales Strategy Committee is only now, in 2006, being implemented. There is still work to be done if Sony is to survive and regain its market-leading position.
Bibliography
Drawbaugh K (2001) Brands in the Balance (Pearson Education, Harlow)
Cairncross F (1997) The Death of Distance (Orion, London)
Grant J (1999) The New Marketing Manifesto (Texere, London)
Handy C (1995) Beyond Certainty (Arrow, London)
Kotler P, Armstrong G, Saunders J and Wong V (1999) Principles of Marketing 2nd European Edition (Prentice Hall, London)
Marcousé I, Gillespie A, Martin B, Surridge M and Wall N (2003) Business Studies 2nd Edition (Hodder Arnold, Oxon)
Mintzberg H (1989) Mintzberg on Management (Free Press, New York)
Naylor (2004) Management 2nd Edition (Pearson Education, Harlow)
Paprzycki R (2005) Interfirm Networks in the Japanese Electronics Industry (RoutledgeCurzon, Oxon)
Richards B, MacRury I and Botterrill J (2000) The Dynamics of Advertising (Harwood)
Rickards T (1999) Creativity and the Management of Change (Blackwell Business, Oxford)
Smith P (1993) Marketing Communications (Kogan Page, London)
Web sites
http://www.sony.net/SonyInfo/
http://www.connect-europe.com (site for Sony music downloads)
http://www.sony.net/SonyInfo/CorporateInfo/qfhh7c000000lpn1.html (financial information FY 2004-5)
http://www.sony.net/SonyInfo/News/Press/200509/05-050E/index.html (announcement of new strategy, September 2005)
http://news.bbc.co.uk/1/hi/technology/4577536.stm (Sony CD protection software story)
http://www.connect-europe.com (Sony music download site)
http://www.itunes.com (iPod download site)