The Theory and Practise of Strategic Management

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In the past Sony the leading company in the consumer electronics market. It was the first to develop and do marketing for new innovative products, with high quality. However over the past 20 years the company has faced increasing competition. The company's strengths are the strong brand and global operation. It's weakness include poor lack of internal control, lack of focus from too many products and increasing sales costs. The are many threats from competition and increasing price of materials and the opportunities to develop strategic partnership and expand into games and internet music technologies. To succeed in the market the company must reduce its costs and become more flexible to the market. It is recommended that Sony implement a strong product development and innovation strategy and restructure with total quality management and lean manufacturing programmes.

Introduction

Sony is company that has been around for many decades and its brand can be seen on many products around the world. It has not only been a highly successful company achieving revenues of more than $50billion dollars but it has made a major contribution to the development of electronics (Luh 2003).

Over the past two decades all companies have faced the challenge in competing in an increasing turbulent and intensely competitive business environment (Kerzner2009). In particular, the Internet broadband and digital development has radically changed the world of consumer-electronics and Sony is faced with strong competition from many areas (Lu 2003).

As a result the company has become less competitive and it is evident that Sony must review and update its business strategies in order to implement modern management practices and stay competitive in the market (Luh 2003). There is much uncertainty about whether Sony is able to change and keep up with the business environment (Luh 2003).

This report assesses Sony's past and current performance and strategies and identifies the key issues in its business environment areas that have lead to the loss of competitiveness. Furthermore, recommendations will be made in order to become and stay competitive in the tough business environment.

Competition and Strategy Theory

In order to perform review of Sony then it is important to understand the theories on competition and strategy. This theory will give guidance on how to consider the position of the company.

One of the leading theories on competition stress that for companies to have a competitive advantage, they must deliver a product or service that is much superior than its competitors (Porter 1996). Moreover companies must not only produce a unique offer but also that there is integration between different parts of the business Porter (1996).

In the case of Sony it has been a leader in its market and in the past has produced very unique and innovative products. However at the moment it can be seen that the company is not performing as leader in the market.

It is also possible to understand Sony's position and performance by understanding other theory. As stated by Johnson, Scholes and Whittington (2008, p.12) strategic management involves "understanding the strategic position of an organisation, making strategic choices and managing the strategy in action". In order to achieve this, then it is necessary to examine the business environment of the company.

Several strategic management tools such as SWOT, Porter's diamond and Value chain analysis can be used in to examine the Sony's strategy position and understand how strong it is (Johnson and Scholes 2003).

Internal Analysis

SWOT Analysis - Strength

One of Sony's biggest strengths is its brand name. The name of Sony is known all around the world and it is has a high reputation with consumers and image of quality. A Market survey in the U.S put Sony as "the number most powerful brand" (Datamonitor 2008, p.5 ). Furthermore the company has company has strong presence in the market. It is involved in many product areas and has largest share of the market in audio video and entertainment games. In addition, it achieved the largest sale of LCD televisions (Datamonitor 2008).

The company has several areas of operation and therefore has a broad range of products and services in the areas of: electronics, video games, pictures, and financial serves . This diversification allows the the company to "mitigate its risk across all segments and caters to a large and diversified customer base " (Datamonitor 2008, p.6).

Another key strength of Sony is that it is a global company. This allows the company to deliver products and services to many markets and access growing markets (Datamonitor 2008).

SWOT Analysis- Weaknesses

In several areas of the business the company costs are increasing, which has resulted in a reduction in profit by 69%. The main cost area sales and general administration (Datamonitor 2008).

In addition, the company is facing a number of legal cases. According to Datamonitor (2008) this is a weakness in the company's internal control systems.

Porter's Diamond

Figure 1. show analysis using Porter's diamond.

Firm Strategy and Rivalry - LOW

But already many large companies in market. Aggresive innovation strategy for example Apple and Ninetendo. Innovation and competing using Internet and digital technology.

Factor Endowments

Suppliers reducing prices must be competitive.

Increase in materials prices affect supplies prices to Sony.

Intense competitive market for Sony.

Wide range of competitors, gloabal and regional.

Demand Conditions

Buyers strong position. Many choices. Affect Sony's margins.

Competiveness of Support industries

Low switch costs for consumers. Many products can be substitute for Sony products. Eg mobile phones play music, take pictures and compete against Sony cameras. Sky HD player compete against Sony DVD players .Good quality of substitute products. Music and video industry products,

Figure 2. Porter's Diamond Sources Datamonitor (2008) and Strategic Direction (2006)

Value Chain

Figure 2. show analysis using value chain model.

Firm Infrastructure

Global. Many manufacturing and R& facilities

HRM

Thousands of employees worldwide. Too many employees.

Technology Development

Much expertise and high technology and research development. Lack of new developments or innovative products.

Procurement

Increasing costs of materials

Inbound Logistics

Global distribution channels in 204 countries

Operations

Quality issues. Legal issues from poor internal control.

Increasing admin costs.

Outbound Logistics

Market & Sales

Strong marketing partnership with FIFA.

Product-focused not customer.

Increasing sales costs

Service

Figure 1. Sony - Value Chain Analysis Sources Datamonitor (2008) and Strategic Direction (2006)

External Analysis

It is possible to undertake an external analysis using tools such as the SWOT.

SWOT Analysis- Opportunities

The company has found the opportunity to make many changes in the how the company operates. Firstly, there is opportunity to reorganise the management of the business, reducing the size or removing business units. This also involved the decrease of the number of staff around the world (Datamonitor 2008).

The company can also focus on reducing the number of products it produces and improving the efficiency of its manufacturing operations (Datamonitor 2008).

Such opportunities if successfully followed will help the company to become more efficient, reduce costs, increase profits and give it ability to react to the market (Datamonitor 2008).

In the marketing area the company has the opportunity to work with Federation International de Football (FIFA) allows it to implement many marketing and sales promotions for the 2014 World Cup. This opportunity will allow the company to improve consumers awareness of the Sony brand (Datamonitor 2008).

There are also opportunities for Sony to expand operation in consumer electronics and video games which is one area which is growing.

SWOT Analysis- Threats

The company faces two main threats in its business: price and competition. The first threat is the increase of raw materials that the company depends on for the production including: oil, plastic and metals. All these areas can experience prices increases (Datamonitor 2008).

A second major threat is the increase in competition. The world business environment has become very competitive and there are large companies are competing strongly against in Sony's markets including: Sharp, Dell Apple, Panasonic, Ninetendo, Toshiba, Samsung (Datamonitor 2008). Sony face threat of reduced profits as companies reduce prices to compete.

Strategic Direction

In 1999 implemented a new strategy in order to move into the digital market. In that time according to Sony had ability to connect management ability with product design and using new and innovative technology.

In the 1990s the company made many strategic changes. According to Triendl (1999) one of the strategic strengths of the company was that it had leaders that had much entreprenurial ability and understanding of the market. They combine this management ability with new technology to create new products for the market and take the lead. Furthermore it also invested more in the game industry which was growing in the 1990s (Triendl 1999). However the company knew it must changes because the business market was changing and they were not doing well in other market areas such as audio and video. As result they made other strategies to make the company more competitive. They reduced the number of factories by twenty 20% (Triendl 1999) and at the same time created four business areas: Home networking, IT, computer entertainment and core technology and network (Beamish 1999). Sony also restructured the research part of the company. Many of the researcher were moved to the main business units in the company. Additionally, Sony continued to increase spending in research development from $1.9 billion to $2.6 billion) and invested in research for the Playstation II (Triendl 1999). Overall the management believed that Sony was strong company that produced creative unique products (Beamish 1999).

Following these changes Sony however struggled to compete. The Company's revenues after 2000 became level and then fell. It has been trying to produce innovative products that the market wants but has not succeeded in delivering new innovations (Strategic Direction 2006). In 2005 Sony's revenue fell by 5% and was the lowest it had been for five years (Strategic Direction 2006). Since the Playstation there have no major innovations for Sony and now it is being described as a company that is a follower (Strategic Direction 2006).

Recommendations

The analysis shows a number of areas that Sony could consider strategies.

Firstly, the customer must adopt more customer concentrated strategy. One study showed how very difficult it was for companies like Sony to achieve the levels of quality customers in the large games market wanted. According to Ips and Jacobs (2003), if companies implement strict quality management systems, it does not "necessarily equate to higher quality in the eyes of the customer"(p545). They go on to argue that companies must change the way that they develop software to focus on how quality can be improved to meet customers needs (Ips and Jacobs 2003). This study stressed how important it was to pay attention to customers' requirements. It is suggested that one weakness of the company is focused on the product and not on the customer (Strategic Direction 2006).

It can be seen that Sony is involved in many markets. Therefore another recommendation is for the company to reduce the number of products. It is weak in some markets for example it is not able to compete with Dell in computers or Kodak in cameras (Strategic Direction 2006).

Another key recommendation is that the company should redesign itself in the same way as Apple. The company has not done and instead it "reveals a lack of confidence and a drift" (Strategic Direction 2006, p15).

Furthermore, is that Sony should try to making sure its products are compatible with the standards in the market. According to Strategic Direction (2006) "'Interoperability' is the concept to be grasped"(p15) by Sony. In other word it needs to make products that can operate with other products.

Sony should also establish more partnerships with companies. As stated by Strategic Direction (2006) "their compartmentalization structure is still against them and something more radical than coordination would seem to be needed"(p16). This idea is supported networking and innovation theory. Teece (2009) states that companies "must embrace potential collaborators -customers, suppliers, complementers - that are active in innovative" (p13). Partners can be a source of ideas for improving operations or developing products.

It is clear that Sony is not innovating these days like other companies in the market such as Apple. In the beginning it was a big innovator. Sony needs to consider strategies for changing the culture to become more innovative.

Finally, in order to become more competitive it is recommended that the company should increase programmes to implement total quality management (Dale 2002) and lean manufacturing which will help reduce waste and cost and improve the quality problems they having in the past (Liker and Meir 2004).

Conclusion

Sony has gone from being a leading company with the best products on the market to a company that is not producing innovative profitable new products such as companies like Apple.

The strategic analysis shows that that are several areas that Sony must change strategically in order become and stay profitable company in the competitive market. Sony must reduce costs, become more flexible and create innovative new products.

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