The formation of the sony corporation
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Published: Mon, 5 Dec 2016
Sony Corporation was formed in May 1946 and was involved in the research and production of telecommunication and manufacture equipment. It was then known as Tokyo Telecommunications Engineering Corporation. The name was changed to Sony in January 1958 and was listed on the Tokyo Stock Exchange in December 1958
Sony was a leading producer of consumer electronic products for both consumer and professional markets in the early 1990s. This was probably due to the fact that the environment was rich, simple and stable. There were relatively few competitors who could match the technological prowess of Sony and as such, the corporation dominated both its home market and the global market with ease.
However, major changes occurred during the later parts of the 1990s and Sony was forced to change its structure. This was because the environment changed to a complex dynamic one as a result of increased competition and Sony’s inability to maintain considerably good earnings. This informed the decisive decision by senior management, to change the structure of Sony Corporation in 1999 in order to improve and maintain market standing.
Sony Structure in 1999
In order to fully understand the structure of Sony Corporation, it is necessary to take into consideration the contingency factors and design parameters that might have influenced the structural configuration. The age of Sony Corporation of over 60 years coupled with its large size (as it is a multinational organisation) suggests that behaviour is formalised in the organisation. In addition to this, the Japanese culture suggests high power needs of the top managers which creates the existence of relative amount of centralisation. The analysis of the environment as at 1999, point to the fact that the environment was relatively simple (as it was still a leading consumer electronics manufacturer) and, not very dynamic though there were indications of tough competition in the market. This instability however, resulted in less centralisation and perhaps, less formalisation in the organisation.
Sony Corporation was involved in the manufacture of diversified products which had different markets. This emphasized the need to segregate the divisions into network companies according to market diversity(i.e. electronics, entertainment and insurance and finance). Each division exerts considerable control over operating functions needed to serve these markets. This form of structure led to the exercise of vertical decentralisation from the head office. Decentralisation is however, not absolute as it is assumed that the head office still exercises considerable power over some activities such as heavy capital investment, research and development, capital structures etc. Furthermore, the organisation placed much emphasis on standardisation of outputs. This is exemplified in the fact that during the company’s 50th anniversary, the words, “unique’, ‘quality’, ‘speed’ and ‘cost’ were coined into the managements philosophy. Thus, quality is important to the organisation which might explain its strong brand image.. The above features and the efficient division of organisational technology among the various divisions which is shown by the transfer of required support functions and research and development laboratories to each network company strongly support the Mintzberg divisionalised bureaucracy structure.
It is important to note however that the company does not fully fit in with divisionalised bureaucracy as one of the characteristics of divisionalised bureaucracy is that it works well in an environment that is not very complex or very dynamic but the entry and existence of new markets and more innovative products point to the fact that the environment is fast moving towards becoming complex and dynamic.
A further analysis using the Burns and Stalker, mechanistic and organic systems suggest that Sony Corporation exhibited a hybrid of both systems although it had more features of mechanistic system. This is supported by the fact that the organisation was considered to be operating in a relatively simple dynamic environment as a result of its market dominance from past successes. Thus, change during this period was relatively gradual (although higher when compared with previous years). In addition to this, staff loyalty was considerably high as a result of the provision of lifelong employment. Organic system is exemplified in the need for continuous innovative products.
The organisational culture in Sony Corporation as at 1999, is consistent with Handy’s power culture. Power was concentrated at the top which is in line with the paternalistic style of Japanese culture where much respect is accorded to elders and father figures in the organisation. Most of the executive board members were long serving employees of the corporation who were well past retirement age but still exerted considerable influence over decision making process in the organisation. A prominent example is the Idei’s predecessor, Ohga, who second guessed most of Idei’s decisions and tried to influence them to suit his own desired outcomes.(Schlender 2005)
Sony structure in 2003
However, despite the restructuring in 1999, the earnings of Sony Corporation continued to fall sharply and investors began to lose confidence in the company. Thus, in 2003, Sony still under the leadership of Idei, launched a three year, second phase of restructuring, termed “Transformation 60”. This plan aimed to securing an operating profit margin of at least 10% by the end of 2006 and also corrected some of the anomalies in the former structure. The corporation was therefore restructured in order to secure profit and achieve success in market dominance. Sony concentrated resources in core businesses and optimized manufacturing infrastructure and resourcing fixed costs. Sony wanted to achieve the success by concentrating resources and consolidating fixed costs. Thus, Sony began the convergence of businesses, including electronic business, entertainment business and financial business.
However, by the end of 2004, it became clear that theexpectation of “Transformation 60” was not going to be realized. Sony was losing margins and facing much pressure from the investors. Due to the growing discontent within Sony and the investor community, Idei handed over the reins to Stringer (who had successfully managed the Sony US Corporation) in March 2005, hoping he could restore the company back to its position of market dominance.
A few changes occurred after 2003 but Sony Corporation was still structured according to the divisionalised bureaucracy configuration. Evidence supporting this includes the fact that the network companies were still divided according to market diversity and more decentralization as a result of the complex and dynamic environment. However, according to the Burns and Stalker model, it became largely organic as a result of the need to make fast changes in innovation. In addition to this, loyalty shifted to project and group as employees were held responsible for failures thus leading to increase in job responsibility and reduction in job security as unproductive employees were laid off.
Changes were made to the structural configuration in order to achieve better performance and success. A prominent change was the termination of lifelong employment (a feature of Japanese culture) through workforce retention and retirement offers in order to cut down operating expenses. The compulsory retirement of ‘old’ employees such as Ohga, resulted in a power shift from top managers to the CEO (Stringer) in 2005. Thus centralisation became more prevalent as power changed hands.
Administrative changes include restructuring of job positions through the scrapping of the Japanese recruitment system which was people oriented as people were employed based on what “fits best for the company”. A classic example is the former CEO, Idei who was an engineer with relatively little management capabilities when compared to other managers in the western world, at the helm of affairs. This was replaced by a system of finding the best qualified person for a specific job. This was achieved through the appointment of Stringer as CEO (a proven manager) and the reshuffling of the board members and job positions
Having examined the re-structuring which occurred in 1999 and 2003, it seems prudent to analyse the problems faced by Sony Corporation in order to provide reasonable explanations for their failures. A few of them are briefly discussed below
Increased competition: The entry of new industries and markets with more innovative and market friendly products like the Apple’s iPod and Nintendo’s Wii.
The corporation responded by manufacturing more innovative products but this, unfortunately did not meet most consumer needs. A good example is the manufacture of LCD televisions as against the more popular Bravia models by its competitors.
Japanese Culture: The seniority based promotion and lifelong employment scheme which are features of Japanese culture are considered to be essential problems. Most of the top positions are based on age attainment i.e. employees have to reach a certain age before advancing to a particular position. In addition to this, operating costs rise due to the fact that during expansion, the company finds undefined positions for these people and still pay them for doing practically nothing because of the lifelong employment scheme. Furthermore, these people exert considerable influence on decision making process e.g. the former CEO, Ohga. All of this combined limit motivation on the part of the younger folks and thus the growth of the organisation
The management responded by asking non-executive directors to step down and the board was reshuffled to give more responsibility to the ‘younger’ people like Yoshioka, Hirai, Suzuki and Ishida (Siklos 2009)
Falling income: the earnings fell sharply as a result of inability to cope with market demands, high operating costs (as a result of heavy investment in research and development) and cost control issues in production.
Cost cutting exercises were embarked upon to deal with this problem through workforce reduction, the convergence of operating divisions and the reduction in costs of manufacturing parts.
Too much variety: Sony Corporation was involved in the manufacture of varying products such as electronics, movies, personal computers, mobile telecommunications, some of which were not performing well.
The response to this problem was the segregation of activities into three main divisions (i.e. entertainment, electronics and insurance and finance).
We have examined the subtle but relevant transformations which occurred in the structural configuration and important contingent variables in Sony Corporation over the last decade. The organization culture and national culture were identified to be the bulk of the problems with the organization. Although the outcome of the restructuring has not reached desired targets, the corporation, under the leadership of Sir Howard Stringer, has become somewhat more successful in comparison with his predecessors as innovation has increased at a faster pace(an example is the predicted manufacture of a “Google” TV) which has led to relatively better earnings over the years. It would however be interesting to see if he can completely break away from the militating elements in its structural design and design them towards fitting in with the dynamic environment.
The importance of research and innovation cannot be overemphasized in a rapidly changing digital world. An example is the production of the iPod by Apple. Therefore, it is imperative to engage in the production of fast and timely innovative products in order to prevent the re occurrence of a similar situation of when Samsung’s HD DVD dealt a blow on Sony’s Blu-ray technology just five days after release into the market( Edwards ,et al 2005)
Engage in comprehensive market research to know the real preferences of consumers. An example is the production of LCD televisions as against Bravia televisions which was the popular choice.
Develop less complex software to fit into the international market and not just the home market, japan.
Increased co-operation among divisions and employees in the company through the creation of lateral linkages. It is good for budgetary control and setting operational targets.
Co-operation with other industries which might lead to reduced production cost. For example, the cooperation between Samsung and apple led to the creation of the iPod Nano. It should however be noted that this to problems of conflict of interest in proprietary rights of products (Edwards, et al 2005)
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