Strategic Audit of Sony

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Introduction to Sony

Sony is a Japan based publicly held company that was founded in 1946 by Masaru Ibuka.  Sony is currently ranked 113 on the fortune 500 and has 125,300 employees worldwide (Fortune, 2017).  Masaru started the company with only twenty employees, and he said that “the purpose of setting up the company was to ‘establish an ideal factory that stresses a spirit of freedom and open mindedness that will, through technology, contribute to Japanese culture’” (Sony Corporate Info: History).  The company went through several iterations of names and finally decided on the name Sony in 1958 (Sony Corporate Info: History).  The name Sony is a combination of the word sonus, Latin for sound or sonic, and the word “sonny” which means little son.  According to the Sony website, this was done in order to “represent a very small group of young people who have the energy and passion towards unlimited creations and innovative ideas” (Sony’s History).  Sony started in Japan, but as time went on they expanded their products globally and have had to understand new and foreign markets across the world.  Globalization taught Sony that they needed specific strategies and goals in each country to be successful.  Thus, through small beginnings, Sony was born and has eventually evolved into the large company that it is today.

Sony has an experienced leadership team that have many years of experience working at Sony.  The majority of Sony’s leadership team are Japanese and this has historically been the case with the exception of its previous CEO Howard Stringer.  Sony’s current CEO is Kazuo Hirai.  Kazuo Hirai has been the CEO since 2012 and has served in more than a dozen leadership roles at Sony, each with increasing responsibility.  In fact, he has more than 30 years of experience at Sony (Sony Corporate Info: Executives).  Hirai wants “to drive revitalization and growth across Sony’s core electronics businesses” by implementing his strategy known as “One Sony” discussed later in this paper (Sony Corporation, 2012).  Sony’s current CFO is Kenichiro Yoshida.  Kenichiro was previously the Director of Sony Corporation and also has more than 30 years of experience at Sony (Sony Corporate Info: Executives).  Sony also lists another eight members of corporate executive officers listed in Appendix A.  Each of the members that make up the leadership team have many years of experience within the company and the expertise they have gained with that experience.

Sony’s business model is defined by the many different types of business segments it has including TV & Video, Audio, Medical, Game & Network Services, FeliCa, Pictures, Digital Camera, Semiconductors, Music, Professional Products & Solutions, Smartphones & Internet, and Financial Services.  Many of these business segments, such as TV & Video, Audio, Game & Network Services, Digital Camera, Smartphones & Internet, and Music are sold either directly, through their website, or indirectly, through retail stores, to individual consumers.  (Sony Corporate Info: Business).  Sony is able to reach consumers across the world with its extended reach in these business segments.  Additionally, Sony also has a business to business relationship across the world through its Medical, FeliCa (contactless IC card technology), Pictures, Semiconductors, Professional Products & Solutions, and Financial Services segments (Sony Corporate Info: Business).  Thus, Sony’s business model is to not only sell consumer electronics to customers, as many would assume, but Sony also has business to business relationships in electronics as well as the medical field, service industry, and financial services industry.

Industry and Competitors

Overall Considerations

Sony has a strong presence in many of its business segments, but there are also many factors that affect each of the industries Sony is in.  Many of the industries Sony is in are characterized by fierce competition and rapid change.  Even though Sony believes they are in a good position, they believe that if they do not continue to innovate and create new technologies or products, then their competitors will “catch up” and they will lose their “advantageous market position” (Sony, 2017).  Not only that, but consumer preferences are ever changing and are especially volatile in the majority of the industries Sony is in.  In fact, Sony believes that they must “anticipate [consumer] preferences” and “rapidly develop attractive and differentiated products with competitive selling prices and features” (Sony, 2017).  Consumer preferences are always changing and any company that fails to not only adapt to them, but even anticipate them, can face trouble.  In addition, due to the fact that much of Sony’s transactions are done online, Sony is subject to many different rules and regulations relating to their online presence.  One key item is protecting consumer’s information which is very important with such a large online presence.  Any breach in private data could result in millions of losses for Sony.  Sony’s financial services business segment also has many different laws and regulations that govern it.  In fact, Sony’s financial services segment is involved in “highly regulated industries subject to comprehensive regulation and supervision, including the Japanese insurance and banking industries” and any changes in the financial industries can have a large impact on Sony’s profitability in them (Sony, 2017).  The financial services industry has many rules and regulations that have been put in place to protect consumers, but they also increase costs and reduce profits for corporations.  Another thing Sony must be careful of is changing interest rates, which is a large factor in the profitability of the financial sector.  Almost overnight a company’s profit margin can disappear through the change of interest rates.    Therefore, heavy investment in research and development, close monitoring of financial rules and regulations, interest rate tracking, and protecting consumer’s online information is something that Sony cannot ignore in order to maintain a competitive advantage in its industries.

Game and Network

The largest part of Sony’s sales comes from its Game & Network Services totaling $14.749 billion  in 2016 out of $68 billion  overall or 21.7%, and $1.21 billion  in income out of $2.58 billion (Sony, 2017).  Sony is not without competitors in the gaming industry.  The gaming industry has fierce competitors such as Microsoft and its Xbox One gaming console, and Nintendo and its Nintendo Switch gaming console.  Microsoft has introduced the competitively priced Xbox One S and Nintendo has introduced the innovative Nintendo Switch.  Both competitor’s consoles are selling well, with the Nintendo Switch selling 2.74 million units globally within its first month of release (Barder, 2017)  However, Sony’s PS4 has sold 60.4 million units as of June 2017 which many speculate to be about twice as much as Xbox One’s sales (Microsoft does not release sales figures) (Kharpal, 2017).  Due to the fact that Sony is outselling their competitors, this gives them the advantage of having their consoles in more homes which gives them the opportunity to sell more gaming related content and devices to their customers.  Sony was able to differentiate their PS4 from the Xbox One and Nintendo Switch consoles.  In fact, the “PS4’s success is more about the games it offers than anything else [and] [c]ontent is king, and the PS4 is royalty” (Kain, 2017).  PS4 just has better gaming content than its competitors and this has enabled them to differentiate their product from the others in the market.  Since Sony is outselling its competitors, this also makes Sony’s online presence stronger which is where many gaming transactions take place.  This enables Sony to make even more money in the gaming and networking business.  Thus, Sony currently leads the gaming and networking market with their strong selling PS4, great exclusive titles, and strong online presence.

Financial Services

Sony’s second highest source of revenue and most profitable business segment is financial services.  Sony’s Financial Services business segment made $9.72 billion in 2016, and is Sony’s most profitable segment with $1.49 billion in income in 2016.  Sony’s financial services business segment mainly sells insurance including life and non-life and has “banking operations through a Japanese Internet-based banking subsidiary” (Sony, 2017). This market is not without its competitors though.  Sony financial mainly operates in Japan so its top competitors are mainly Japanese financial institutions.  In Japan, the majority of “insurers are huge mutual companies owned by their policyholders and [are] affiliated with keiretsu business groups” (Hamilton, 1997).  These large mutual companies generally do most of the insurance transactions in Japan, but Sony is also able to make solid profits while selling fewer policies.  They are achieving this by “innovative tactics, new technology and plain old-fashioned hustle” (Hamilton, 1997).  Sony’s all commission sales staff is managed well and are equipped with the newest technology in order to be successful (Hamilton, 1997).  Thus, even though many of the competitors facing Sony in its financial services business segment are larger than they are, they can still continue making solid profits in the industry by continuing to work hard and persevere.

Battery and Smartphones

Sony does have some business segments that are doing poorly.  Sony’s components segment, which Sony defines as its batteries and recording media businesses, has suffered losses for the previous three years.  This segment has really hurt Sony for the past several years and is really a big weakness on their bottom line.  However, Sony has decided to sell its battery segment off to the Murata Group as of the end of 2016 (Sony, 2017).  Another business segment which has really struggled for Sony is its Smartphones segment which Sony lists as Mobile Communications on its financial statements.  In fact, in the past three years Sony has lost over 250 billion yen in this segment (Sony, 2017).  This is due to failing smartphones and lack of market penetration.  A good example of this is Sony’s smartphone line of Xperia phones that eventually failed and Sony gave up on in 2015 (Spence, 2015).  Sony failed to reach enough consumers with its Xperia line of phones and eventually had to discontinue the line of phones.  Strong competitors such as Apple, Samsung, and LG make the smartphone market a hard one to enter because customers know and trust these brands and see them as premium smartphone suppliers.  Sony has brand recognition in certain consumer electronics arenas, but have not yet produced a phone that consumers are interested in and Sony has failed to “create a sense of quality and craftsmanship” in their Xperia phones (Spence, 2015).  Sony failed to market their phone effectively and could not capture consumer’s attention.  Currently, the smartphone business segment for Sony is not performing well and is a big weakness for Sony.

Strengths and Weaknesses

As shown in the previous paragraphs, Sony has many strengths, but they also have weaknesses.  Some of Sony’s strengths include a very successful PS4 platform made possible through product differentiation, great exclusive gaming content, a solid online presence, and a proven sales staff with technology to back them.  However, Sony does have some weaknesses as well.  Its line of batteries has done so poorly that Sony is having to sell them off.  Not only that, but Sony fails to market their phones as high-end electronics that are worth buying, and its Xperia line of phones have not been able to grab consumer’s attention and have lost the company money.  Sony needs to focus on their strengths and the business segments that are doing well, and try to minimize their weaknesses even if it means leaving some business segments behind.

Analysis of the Industry

Sony should focus on improving the business segments that do well for them and should look at discontinuing the business segments that have been consistently doing poorly for the past several years such as the smartphone business segment.  Therefore, this analysis will only focus on the business segments that do the best for Sony, Game and Network and Financial Services.  Sony has positioned itself in a specific strategic group within the gaming and networking and financial services industries.  Strategic group maps are displayed below to visualize Sony’s position in both of these industries.  In addition, Porter’s Five Forces will be used to analyze both of these industries as well as the potential for profitability for the industries and the critical success factors for the industries.

Game & Network

High

Microsoft

Sony

Price

Nintendo

Low

Customized

Standard

Customization

The Sony PS4 is in the console gaming strategic group.  The Sony PS4 is moderately to high priced and Sony tries to customize their PS4 as much as they can in order to differentiate themselves from other competitors.  Competitors in console gaming include Microsoft with its Xbox One gaming console and Nintendo with its lower priced and more niche Nintendo Switch gaming console.  The threat of new entrants into the console gaming industry is low.  The cost to enter the market is high and consumers rely heavily on brand recognition.  Supplier power is also low in the console gaming and networking industry.  The primary supply in this industry is content, but console game suppliers want to get their games on as many consoles as they can in order to increase sales, so the console owners usually have the majority of the power.  Bargaining power of buyers is high.  Consumers of gaming content are notoriously demanding with a great example of this being the release of the Nintendo 3ds which was released for $250 and later dropped by 40% due to low sales (Ewalt, 2011).  Both the PS4 and Xbox One have slashed their prices several times to entice buyers.  Threat of substitutes is high.  Console gaming is many times replaced by mobile gaming which has become a billion-dollar industry and is rapidly expanding (Okazaki, Skapa, & Grande, 2008).  The intensity of rivalry is also high.  Consoles are always very competitively priced, and any time one consoles price drops, the other usually follows suit.  In addition to that, gaming content delivery is also very aggressive with each console trying to snag its own exclusive content.

Due to the factors discussed above, the potential for profitability in the gaming and network market is low to moderate.  Due to heavy competition, high bargaining power of buyers, and high threat of substitutes, gaming console manufacturers have to price their systems very competitively as well as invest large amounts of money in research and development.  This cuts into profits and makes the margins for gaming consoles very slim.  In fact, the Xbox consoles have a “long history of losing money – as much as $2 billion per year” (Hartung, 2014).  Famous consoles that have failed in this industry are names such as Sega Genesis and Dreamcast.  These companies did not understand what consumers wanted and eventually failed.  In addition, many times profitability in the console gaming industry comes after a long period of loss and is very hard fought.  Therefore, the critical success factors for the console gaming industry are competitively priced products, continual innovation, and product differentiation through exclusive content.  Only when a company is able to achieve those three things are they able to do well in the console gaming industry.

Sony Life

High

Dai-ichi Life

Price

Sony

Nippon Life

Low

Customized

Standard

Customization

Sony’s Financial Services segment mainly deals with insurance with Sony Life insurance being the largest part of this segment.  Sony Life’s insurance prices are low to moderate and their insurance products are highly customizable including “pure death-protection, mixed, and pure endowment insurance products; individual annuity products, and group life insurance and annuity products, as well as medical protection insurance products (Company Overview of Sony, 2017).  Competitors in this group include Nippon Life Insurance, Dai-ichi Life Insurance, and Sumitomo Life Insurance (Narioka & Warnock, 2016).  Nippon Life and Dai-ichi alternate between largest and second largest life insurance companies in Japan with Sumitomo being among the largest in Japan (Narioka & Warnock, 2016).  Due to the fact that many insurers in Japan are very large as previously discussed, the threat of new entrants is low.  Companies simply do not have the capital to compete with large insurers on a serious level.  Supplier power is moderate with human capital being the primary supply used.  In fact, skilled life insurance underwriters are hard to come by due to the steep decline in the insurance market that happened in 2008 (La Vigne, 2015).  Thus, competition across life insurance companies could cause companies to lose their human capital.  Power of buyers in the life insurance industry is high.  Individual purchasers of life insurance do not have much power on premiums, but large corporations that buy thousands of policies do.  Life insurance companies want to make as many large clients as they can, so these large corporations have some power when it comes to premiums.  The threat of substitutes to the life insurance agency is moderate to high.  People can simply opt not to buy life insurance, they can rely on their own investing and saving or they can buy other customized insurance policies such as accidental death and dismemberment.  The intensity of rivalry in the life insurance agency is low.  In fact, according to Bikker (2016), “research on the life insurance market has revealed that the efficiency of life insurers tends to be poor and that competition between insurers is not strong” (p. 75).  This is due to the fact that life insurance companies sell very customized products through several different mediums and various distribution channels (Bikker, 2016).  Due to low rivalry in the insurance agency, but high bargaining power of powers, the potential for profitability in the insurance agency is moderate.  Life insurers due not have to worry about rival companies stealing their business, but they also need to make sure that they can provide reasonable premiums to their larger corporate customers.  One of the things that has made Sony successful and profitable is due to their insurance sales model.  Sony has been successful due to their Lifeplanner sales employees that are carefully selected “from industries outside the life insurance industry” who have “performance-linked compensation” and who are trained to offer “custom-made [insurance] packages” (Sony, 2017).    Thus, the critical success factors of the life insurance agency are moderately priced premiums, highly customized life insurance products, and an excellent sales staff.

Analysis of the Macro-Environment

Game & Network

There are several forces that affect the gaming and networking industry as a whole.  One of these forces includes political and legal forces.  A security breach of the PlayStation Network in 2011 caused the information of 77 million users around the world to be comprised including “names, addresses, security questions, and network passwords,” and Sony said that “it could not confirm whether or not any card details and payment histories had also been stolen” (PlayStation Network, 2011 p.10).  Losing that type of information and in such a large quantity caused major problems for Sony and made them realize their online servers needed more advanced protection.  Regardless of how consumers feel about the security breach, Sony has the legal obligation to protect consumer’s information and could be sued for any losses consumers experience.  Thus, Sony needs to spend time and money to protect consumer’s information and with most of gaming taking place online, this is one of the major legal forces that can affect Sony in the gaming industry.

Economic forces that affect Sony are related to decreases in nonessential spending due to recessions or slowing of economic growth.  In the 2008 recession consumers started to cut discretionary spending in consumer electronics.  A consumer’s electronics analyst named Roger Kay said “[t]here is some shifting in buying where people who were going to buy a new PC now content themselves with an MP3 player. … It’s the delay scenario that’s most troubling” (As Giant Retailers, 2008).  Any sort of economic downturn can really affect people’s spending habits and consumer electronics are definitely something that can be cut back on.  Therefore, Sony needs to be careful and watch the state of the economy when making decisions with its PS4 gaming console.

Social forces that affect the gaming industry are surprisingly positive.  In fact, a great example of this is the rise of what is called eSports, sporting events centered around skilled gaming competitors across the word.  According to Hollist (2015), what was once something mainly enjoyed in South Korea, has seen “meteoric growth in dozens of markets, attracting tens of millions of viewers each year in the United States, alone” (p.823).  The rise of eSports shows that people are becoming more and more interested in gaming and it is becoming more mainstream.  This is a big advantage for companies in the console gaming industry because they now have the opportunity to reach a wider consumer base.

Probably the biggest force affecting the gaming industry is technology.  Technology is ever changing and evolving. A company can be the leader in the console gaming arena, as was Nintendo for decades, and then they can just as easily lose that lead.  In 2010 Nintendo was the “world’s largest maker of video game consoles” but the sales of Nintendo’s console the Wii continued decline for the next several years (Nintendo Profits, 2010).  Currently, as previously stated, Sony is currently the console king, but this can easily change with the ever-evolving world of technology.  Sony needs to continue to innovate in order to stay on top.

Based on the legal, economic, social, and technological forces there are several threats and opportunities for Sony in the gaming and networking industry.  If Sony does not protect the information it stores online, many consumers will lose trust in Sony and look elsewhere.  In addition, if the economy begins to slow and discretionary spending with it, Sony might lose sales.  However, the rise of eSports means that gaming is becoming more mainstream, and if Sony can take advantage of this, then they will be able to increase their profits and widen their reach.  Technology is both a threat and an opportunity for Sony; if Sony is able to continue to innovate and expand the capabilities of their products, then they will be able to sustain their lead in the console gaming industry.  Therefore, it is important that Sony understand both the threats and the opportunities that face them in order to be successful in the gaming and networking industry.

Financial Services

Political and legal forces affecting Sony’s financial services business segment are related to governmental regulations.  As previously discussed, the financial services industry is subject to strict regulation and also supervision by the Japanese insurance and banking sectors.  This regulation can change the way Sony’s financial services business segment operates overnight.  In fact, changes in these regulations can “lead to increased compliance costs or limitations on operations in the Financial Services segment” (Sony, 2017).  With one change, profits can be eliminated and strategies obsoleted.  According to Sen and Madheswaran (2013), life insurance is normally not seen as a necessity among many groups of people, however, “improved regulations may foster growth” in the Japanese insurance market (p.86).  Thus, legal and political forces should definitely be watched by Sony in regards to their financial services business segment.

There are also economic forces that affect the financial services industry.  In fact, Sen and Madheswaran (2013) also said that “income, financial depth, inflation, [and] the real interest rate” are all “significant determinants of life insurance consumption” (p.86).  Due to the fact that income, financial depth, inflation, and the real interest rate are all affected by the performance of the economy, the largest part of Sony’s financial services segment, Sony Life, is heavily dependent on the performance of the economy.  However, studies have shown that insurance is very important to the economy and “should be considered a key component of economic development and the best mechanism to take care of multidimensional risks in modern economies” (Sen & Madheswaran, 2013).  Therefore, Sony has the opportunity to educate consumers about the importance of life insurance in order to reduce the risk of losing contracts during economic downturn.

Social forces affecting the financial services industry include social pressure and societal norms to prepare for the future.  People want to be prepared for the future and society expects its members to be more and more prepared for the unknown.  In fact, according to Reardon (2017), “life insurance can serve a particular function especially well: It can be paid not long after death, free of the natural delays of retitling and distribution that typically occur in estate administration” (p.24).  Most people understand the importance of life insurance, and that is why there is social pressure to get it.  Sony can take advantage of this by informing consumers of the importance of life insurance which will help them sell more life insurance policies.

Technological forces also affect the financial services and life insurance industries.  More and more things are done online now and more and more information can be accessed on the internet than ever before.  However, as previously mentioned, Sony has been utilizing technology to equip their sales staff with the latest devices and content to help them sale insurance more effectively.  Currently, Sony is taking advantage of technology to enhance their life insurance sales and offerings.  Thus, if Sony continues to focus on technological improvements and do not get behind the technological curve, then they can take advantage of technological forces affecting the financial services industry.

After assessing the various forces affecting the financial services industry, both political and legal and economic forces seem to be a threat for Sony and both social and technological forces are opportunities for Sony.  Political and legal forces can place rules and regulations on Sony which can disrupt business and increase costs.  In addition, when the economy declines, life insurance begins to be less of a necessity and consumers consider discontinuing it.  However, social forces encourage consumers to purchase life insurance to protect those around them and to protect their assets as well.  Not only that, but technology makes selling insurance easier by informing customers better and making insurance transactions smoother.  If Sony understands the threats to the financial services industry and takes advantage of the opportunities, then they can be successful.

Measurement and Control System

Financial Position

Sony’s current financial situation is moderate.  Sony reported $655 million of net income for the fiscal year ending March 31, 2017 compared to $1.32 billion in 2016 and a loss of $1.13 billion in 2015 (Sony, 2017).  Sony’s current year-end profits are about half of what they were the previous year which is a sign of declining growth.  However, Sony was still profitable and did not suffer a loss as they have in years previous.  Additionally, Sony’s total current assets in the year-end financial statements amounted to $38.94 billion in the compared to $46.68 billion in total current liabilities (Sony, 2017).  Companies usually strive to keep their current assets more than their current liabilities in order to operate efficiently.  Sony does have $157.88 billion in total assets compared to $129.74 billion in total liabilities as of fiscal year-end, so their balance sheet is still fairly healthy.  Sony ended their fiscal year-end with $8.58 billion in cash with Sony’s operating, investing, and financing activities providing $1.35 billion  in cash throughout the year (Sony, 2017).  This amount of cash flow is very strong.  Thus, Sony is very financially sound with moderately strong income, a moderately strong balance sheet, and very strong cash flows.

Industry Standards and Competitors

Due to the fact that Sony is involved in both the consumer electronics industry and the financial services industry, this paper will analyze both Microsoft’s and Nippon Life’s financial statements for comparison purposes.  The overall electronics industry has “performed inconsistently” with some years of growth but then followed by decline (Consumer Electronics, 2015, p.7).  This is more or less what Sony has experienced; in 2015 Sony experienced some losses, but has done better since.  Microsoft’s net income in 2014 was $22.1 billion, $12.2 billion in 2015, and $16.8 billion in 2016, and in 2016 had $113.24 billion in current assets compared to $59.36 billion in current liabilities (Microsoft, 2017).  If Microsoft was compared to Sony purely on this data, then Sony would not look very strong.  However, Microsoft is a much larger company with much more than just console gaming electronics, and their gaming revenue was only $9.2 billion compared to Sony’s previously mentioned almost $15 billion in revenue (Microsoft, 2017).  Thus, Microsoft does have a stronger income statement and balance sheet, however, Sony is outselling them on the console gaming front.

The financial services industry, focusing on life insurance, has been hurting in recent years.  In fact, Bikker (2016) also noted that, “the decline in interest rates…[and] credit and government debt crises” around the world have hurt the life insurance industry (p.74).  Lowering interest rates and governmental uncertainties across the world have had a negative impact on the life insurance industry as a whole.  Nippon Life is one of the main competitors in this industry and is a private company.  Looking specifically at Nippon Life and its financial statements, Nippon Life reported $4.64 billion of revenue in 2014, $5.49 billion in 2015, and $4.98 billion of revenue in 2016.  Nippon Life’s current assets were $16.95 billion compared to $14.17 billion in current liabilities (Nippon, 2017).  Nippon Life is normally the first or second largest life insurer in Japan, and so their income statement and balance sheet are larger than Sony’s.  However, they experienced a dip in income from 2015 to 2016 just as Sony did.  This is more than likely related to the industry as a whole struggling as of late as previously mentioned. Thus, Nippon Life’s income statement and balance sheet are stronger than Sony’s, however, Sony does have good profits and a similar trend in income as Nippon Life.

Financial Ratios

Financial analysis tools can be very helpful in analyzing the performance of companies.  The four financial analysis tools chosen are three financial ratios, current ratio, earnings per share, and debt to equity ratio, and also horizontal analysis for net income.  Below is a table that compares this information for Sony and Microsoft and also Sony and Nippon Life:

Financial Ratio Sony Microsoft Nippon Life
Current Ratio (in billions)

Current Assets/Current Liabilities

$38.94/$46.68

Ratio: 0.83

$113.24/59.36

Ratio: 1.91

$16.95/$14.17

Ratio: 1.20

Earnings per Share, Diluted 0.50 2.10 N/A (Private)
Debt-Equity Ratio (in billions)

Total Liabilities/Equity

$129.74/$28.03

Ratio: 4.63

$121.70/$72.00

Ratio: 1.69

N/A (Private)
Horizontal Analysis (in billions)

Net Income Current Year & Previous Year

$0.66 vs. $1.32

Change: 50% Dec

$16.80 vs. $12.20

Change: 38% Inc

$4.98/$5.49

Change: 9% Dec

Information retrieved from yearend reports for Sony, Microsoft, and Nippon Life

Sony’s current ratio is under 1, which means that they do not have enough current assets to cover their current liabilities.  On the other hand, Microsoft’s current ratio is almost 2, which means that they have almost twice as many current assets as current liabilities.  Nippon Life’s current ratio is a little over 1, which is pretty standard among companies.  Sony’s earnings per share is about 50 cents, well Microsoft’s is over $2.  Microsoft’s earnings are very strong compared to Sony’s, however, Sony is a much smaller company compared to Microsoft.  Sony has a much higher debt to equity than Microsoft as well which means they have much more financed debt than shareholder equity.  Looking at earnings, both Sony and Nippon experienced a decline in earnings, but Microsoft’s earnings increased.  The life insurance industry has experienced some turmoil in the recent years, so that explains both Sony’s and Nippon’s recent decline.  Thus, Sony should work on improving the current ratio, their earnings per share, and also on growing net income year to year.

Key Performance Indicators (KPI)

Based on the previous paragraphs, Sony has three key performance indicators that they should measure and evaluate in order to improve.  Below is a KPI chart for Sony:

Key Performance Indicators
Key Performance Indicators Baselines Targets Improvements
PS4 Sales 60.4 million units Double Microsoft’s Xbox One sales
Current Ratio 0.83 >1
Net Income $655 million >$1 billion

First, Sony needs to measure the number of consoles they are selling compared to their competitors in order to ensure that they stay in the lead.  It is especially important that Sony continue to double Microsoft’s console sales since they are a much larger company and are their main competitor.  Second, Sony should also try to improve their current ratio because currently it is under 1.  Improving their current ratio will ensure that they have the necessary capital to operate efficiently.  Third, Sony needs to try to improve their net income year over year, and they should target a net income of at least $1 billion because they have had at least that in the past.  They should be able to do this by focusing on their key business segments such as Game & Network and Financial Services, and reduce the losses of business segments such as their Smartphone business segment.  If Sony is able to achieve these three things, then they should be successful this year and in the future.

Analysis of the Organization

Mission & Vision

Sony lists both their mission and vision on their corporate website.  Sony’s mission statement says “[a] company that inspires and fulfills your curiosity” (Sony Corporate Info: Mission/Vision).  In other words, Sony’s mission as a company is to inspire its customers and also to fulfill their curiosity.  Sony’s vision statement says “[u]sing our unlimited passion for technology, content and services to deliver groundbreaking new excitement and entertainment, as only Sony can” (Sony Corporate Info: Mission/Vision).  Sony wants to use their passion for technology to come up with new ways to excite and entertain their customers in a way that they feel only they can.  Both Sony’s mission and vision revolve around technology as well as inspiring and exciting their customers.

Core Values & Operating Guidelines

Collins and Porras (1996) define a company’s core values and operating guidelines as “the essential and enduring tenets of an organization” and how the company applies these core values and operates on a day to day basis (p.66).  Core values and operating guidelines are important to a company because they define the day to day actions of the company.  Sony’s core values are “elevation of the Japanese culture and national status[,] being a pioneer – not following others [and] doing the impossible[,] [and] encouraging individual ability and creativity” (Collins & Porras, 1996, p.68).  In order to stay true to their core values, Sony’s operating guidelines must align with their core values.  Thus, Sony’s employees must work hard every day to distinguish themselves and their company from others, Sony must continue to emphasis innovation, and Sony must foster that innovation at the individual level.

Core Competencies

Core competencies are the specific items that a company does really well from technological innovations to branding to even hiring the best employees.  Sony believes that one of their core competencies is related to its ability to create unique and innovative electronics (Chatterji, Schildwachter, & Harrison, 2012).  A great example of this is Sony’s ability to create a console gaming system that consumers want more than twice as much as their closest competitor, the PS4.  Sony has been very successful in the console gaming market due to their innovative PS4.  Another one of Sony’s core competencies is definitely their ability to train their employees.  An example of this is their Sony Life employees.  Despite being one of the smaller life insurers in Japan, Sony has been able to make strong profits year over year with a dedicated and talented sales staff that they have trained to be very effective and successful.  Perhaps most importantly is Sony’s ability to market themselves as a premium brand.  In fact, in 2006 a survey found that consumers considered Sony to be the leading brand for electronics for the seventh year in a row (Sony Still Top Brand, 2006).  This has changed some over the past decade, however, many consumers still consider Sony to be a premium brand with premium quality.  Sony needs to continue to produce quality products that innovate and excite.  Sony was not able to do this with their smartphone market due to poor marketing, but has been successful with the PS4.  Thus, Sony’s core competencies include creating innovative technology in the electronics market, excellent employee sales training, and effective branding that they should take advantage of to continue to improve over the next few years.

Broad and Specific Goals

According to Collins and Porras (1996) one of Sony’s broad goals is to “become the company most known for changing the worldwide poor-quality image of Japanese products” (p.76).  This is a very broad goal that does not sound too dissimilar from Sony’s vision.  Their specific goals are to create products that are used around the world, to succeed at innovations that other companies have failed at, and to have a well-known brand that is respected for innovation and quality (Collins & Porras, 1996).  These goals are more specific than Sony’s broad goals and give the company and its employees specific items to work towards.  As long as Sony is able to stay focused on its goals, then it should continue to be a successful company.

Additional Organizational Analysis

Organizational-Level and Business Unit Strategies

Sony has several goals that they wish to accomplish and they have established strategies in order to do this at the organizational-level.  Sony’s new CEO, Kazuo Hirai, outlined a five-point strategic plan that best summarizes their current strategies.  Sony wants to strengthen their core businesses defined as digital imaging, game, and mobile, improve the profitability of their television business, expand their businesses into new emerging markets, create new businesses through innovation, and optimize their business portfolio to efficiently use resources (Sony, 2012).   Sony wants to strengthen their key business segments as well as create new business segments, improve their television business, and eliminate waste.  Sony also has business unit strategies that they are employing to follow their organization-level strategies.  Chatterji, Schildwachter, & Harrison, 2012 noted that Sony’s business unit strategies are to reorganize the electronics division, “dissolve the Consumer Products & Services Group and Professional, Devices & Solutions groups” to reorganize and more efficiently run these groups, to reduce “fixed costs and…operating costs by 30%” in the television business segment, “to increase electronics sales in emerging markets by 30 percent,” and to “reduce their workforce by an estimated 10,000 employees” (p. 9-10).  Sony’s organizational strategies are broader and their business unit strategies are more specific and focus on key items Sony wants to accomplish.  Thus, these organizational-level and business unit strategies give the company a very specific operational direction to follow on a daily basis.

Organizational Structure – Strategy & Goal Alignment

Sony had to restructure itself organizationally in 2012 in order to align itself with its strategies and goals.  According to Chatterji, Schildwachter, and Harrison (2012), when Kazuo Hirai became CEO in 2012, he introduced “a new initiative titled ‘One Sony’” which aimed “to unify operations and focus on Sony’s core capabilities, namely electronics, while also expanding to new emerging markets” (p.9).  Due to the fact that Sony had new goals and strategies, Hirai also understood that management needed to adapt as well.  Therefore, he introduced a reorganization of the management structure that was designed to improve the decision-making process at Sony by enabling faster decisions (Chatterji, Schildwachter, & Harrison, 2012).  This enabled both management and employees to act quickly and appropriately to address their strategies and goals.  The name of this management structure is “One Management” and has several key points to align Sony with its strategies and goals.  Hirai “will operate at the center of the management team and work together with the heads of each business unit” as well as “directly oversee the struggling television business” (Richmond.edu).  In addition, Shoji Nemoto, Head of Technology, was put in charge of technology strategies and will collaborate with Head of Product Strategy, Suzuki Kunimasa, to “create new businesses and enhance the R&D Operations that are the foundations for Sony’s next generation of technological innovation” (Sony, 2012).  This aligns with Sony’s goals for innovation and quality because Hirai will be in charge of overseeing Sony’s progress in its business units to ensure smooth operations, and both Nemoto and Suzuki will focus on producing innovative products with high quality.  In addition, Sony’s organizational structure also aligns with Sony’s strategies to create new business, improve their television business, and eliminate waste because experienced management has been assigned to these specific tasks.  Nick Gatfield, Sony’s Music CEO, says it best, “[w]e have much greater dialogue with other Sony companies than we had before…and are having well-developed conversations about future collaborations across our portfolio of talent” (Ingham, 2013, p.14).  Sony’s organizational structure was created to specifically match their newly formed goals and strategies, and that is why they are so compatible with them.

Competitor Strategies

Sony’s competitors have strategies that are different than theirs and reflect the uniqueness of Sony’s strategies.  On the Microsoft website, Microsoft states that their strategy is to “[b]uild best-in-class platforms and productivity services for a mobile-first, cloud-first world” (Microsoft Corporation: Investor Relations).  This is a very broad strategy that Microsoft has, but it proves a very good point; the direction Microsoft is taking with its business strategies are different than the direction Sony is taking.  Sony outlined a plan to focus on the electronics industry, focus on new business ideas and innovations, improve their business segments, and to streamline their business.  However, much of Sony’s strategies focus on its core business which Sony says is electronics.  Microsoft is very much focused on the software side of its business according to their strategy, which would be Windows and the Microsoft Office suite.  Thus, although Microsoft produces the Xbox One and other electronics, it is not part of their core business strategy as is the case with Sony.

Sony also competes with Nippon Life in the insurance market.  Even though Sony did not include a strategy specifically for Sony Life in their newest wave of strategies, based on the information presented in this paper, Sony’s strategy for selling their life insurance products is to create customized life insurance products and sell them through highly trained sales professionals.  Interestingly, Nippon Life’s business strategy is also to employ “door-to-door sales corps and other representatives to peddle its…insurance products” (Nippon Life Insurance, 2016).  Selling life insurance through door-to-door salesman is a very cost-effective method for both Nippon Life and Sony Life to get their products to reach their customers.  Due to this, it makes sense that these two companies would employ similar strategies.  How well the companies compete against each other essentially comes down to how well-trained their sales staff is.  Sony has an outstanding sales staff and for that reason is able to do well in the insurance market despite being much smaller than Nippon Life.

Evaluate Strategy Application and Alternative/New Strategies

The above strategies are what Sony will follow in order to be successful.  These strategies are also mainly focused on the global electronics industry.  One of Sony’s strengths is their ability to differentiate their products from their competitors as well as establish themselves as a trusted brand as previously mentioned in this paper.  There are advantages to only focusing on their electronics business segments.  One opportunity related to only focusing on the electronics segments is that the company should be able to progress and improve those business segments through focused efforts.  Sony’s television and smartphone business segments have not done well and could definitely benefit from increased attention.  However, Sony has already shown a weakness in marketing their smartphones to the public and has failed before.  Sony should instead implement a strategy to slowly discontinue their smartphones.  By discontinuing their smartphones, Sony could focus more on their Game & Networking business segment that has been doing very well lately.  Sony should also be careful of trying to expand into new business segments when they have had negative income on their income statement only two years prior in their fiscal year ending March of 2015.  Expanding into new business segments or expanding existing business segments into emerging markets opens up opportunities to make profit in new ways, but it also has the threat of diverting company resources away from vital parts of the company.  Instead, Sony should focus on removing the poorly performing business segments and focus on the profitable business segments in the markets they are already in.  Thus, part of Sony’s current strategy is to focus on poorly performing business segments as well as expanding into new business segments, however, a better strategy would be to cut their losses and focus on the winners they already have in their organization.

Sony is very smart to focus on their key business segments, but Sony’s financial services segment, namely Sony Life, is not mentioned in Sony’s recent wave of new strategies at all.    This most likely is due to the fact that Sony Life has always done well for them, but this business segment resides in the same country as their corporate headquarters and is their most profitable business segment.  Not only that, but since Sony Life is fairly small and does the majority of their operations in Japan, Sony has the opportunity to grow their business in Japan as well as around the world.  Kouji Yamada, a professor at Hitotsubashi University in Tokyo, said that “[s]heer lack of managerial attention could soon start to hurt Sony’s insurance and entertainment divisions” (Tabuchi, 2013).  Sony wants to focus on their business segments that are doing poorly, but the threat is that they neglect the best business segment they currently have.  Thus, Sony should definitely include a strategy related to their financial services segment, mainly Sony Life, and communicate it to the employees working there lest the employees of that segment feel unimportant or left out.  If Sony does not continue to run their most effective business segment well by allocating the resources and time it needs, Sony could be very hurt financially.

Key Performance Indicators

The below table summarizes the key performance indicators relating to Sony’s current strategies and how well these strategies are being implemented:

Key Performance Indicators
Key Performance Indicators Baselines Targets Improvements
Profitability of Digital Imaging, Game, & Mobile Last Fiscal Year’s Profits Increase in Profit
Reduce Fixed and Operating Costs in Television Business 0-30% Reduction 30% Reduction
Increase Electronics Sales in Emerging Markets 0-30% Increase 30% Increase
Reduce Workforce & Reorganize Management Structure 0-10,000 Employee Reduction, Existing Management Structure 10,000 Employee Reduction, New Management Structure

 

Sony established several indicators to measure their performance in completing their strategies.  These were all very specific except for their strategy to focus on their key business segments.  If Sony simply tracks profits in its key business segments, then they will know if they are succeeded in this strategy.  Thus, if Sony is able to effectively track and measure these key performance indicators listed above, they should be able to successfully implement their strategies and in turn complete their goals.

Functional Strategies

Every organization has several functional areas such as finance, operations, marketing, purchasing, human resources, and information systems.

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