Sony have successfully created an incredible brand name previously, however, its legend seem to be falling apart recently. In fact, Sonys net profit for the July-September quarter for 2006 falling 94% to 1.7 billion Yen, compared to 28.5 billion Yen for the same period last year (Benson, 8th Nov 2006). The major reasons for the declining profit are affected by the critical strategic issues faced by Sony which became a main drawback for them.
The first strategic issue faced by Sony was the inefficient manufacturing structures which decrease Sony's quality that badly affects their reputation and caused a decline in product competitiveness. DeWit & Meyer (2004: p192) argue that "the essence of most uniquely Japanese management practice will be they productivity improvement, TQC (Total Quality Control) activities, QC (Quality Control) circles, or labour relation - can be reduced to one word: Kaizen". They also argue that "the implication of TQC or CWQC (Company Wide Quality Control) in Japan have been that these concepts have helped Japanese Companies generate a process-oriented way of thinking and develop strategies that assure continuous improvement" (p192). However, in the case of Sony, they did not make any improvement or perform well in Kaizen or implement an efficient manufacturing structure that ensure high product quality which affect their product quality and caused a massive damage to the company. For example, there is the recall of 9.6 million Sony Laptop batteries which were liable to overheat and potentially burst into flames where Sony even failed to fully study the problem (Forbes.com, 2nd October 2006) and there are complaints from Japan's consumer about PS3's new system (Wonova.com, 15th Nov 2006) which will affect the compatibility and status of Sony badly.
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The failure of Sony in effectively implements Kaizen or sustain an effective manufacturing structure to ensure that they have high quality products had damage their strong brand name and reputation which caused them to lose their product competitiveness and competitive advantages in the market. As Johnson et al (2005: p125) argue, "it is important to emphasize that if an organization seeks to build competitive advantage it must meet the needs and expectations of its customer". The fact that Sony's product qualities are unable to meet the needs and expectations of their customer had completely decreases the confident of the market and swipes away its reputation. Finlay (2000: p295) also argue that "a good reputation is something that all business would like to have but in some cases a good reputation is much more valuable than in others". Reputation is one of the significant intangible resources (Collis & Montgomery, 1999) for Sony that differentiates themselves from the competitors for them to charge a premium price for their excellent product and quality, as Kotler & Keller (2006) argue, good reputation can create a positive prejudice in the mind of the customer which make customer prefer the brand. Therefore, the diminishing of Sony's reputation will create a negative prejudice and weaken their core competences which will directly affect their competitive advantages and become a major threat for Sony.
Besides than quality and reputation issues, Sony are insufficient in responding to the shift of market demand and losing of its competitive advantages. The delays for the European launch of PS3 due to manufacturing problems (BBC.co.uk, 6th September 2006) caused Sony to become incapable of fulfilling the increasing market demands which increase the stake for Sony as there are other strong competitors such as Microsoft and Nintendo to have a head start in gaining market share and enjoy first mover advantages. Besides, Sony also responds slower than others in the increasing demand of Plasma TVs and lost ground for key growing area. As Mintzberg et al (1999: p96) suggest, "first mover may gain advantages in building distribution channels, in typing up specialized suppliers or in gaining the attention of customer" and "the first product of a class to engage in mass advertising tends to impress itself more deeply in people's minds than the second, third or fourth". Therefore, Sony lost its competitive advantages and large proportion of the market shares in the game and electronic industry; they are also unable to benefit from the first mover advantages which left them behind of their competitors.
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Currently, Sony are implementing emergent strategies from both "inside out" - Resources Based View (Hamel & Prahalad, 1990; Barney, 1991) and "outside in" - Positioning view (Porter, 1980 and Mintzberg et al, 1998), or so called Market Based View (Finlay, 2000) to secure its current position. Johnson et al (2005), Finlay (2000), Lynch (2006) and Thompson & Strickland (2003) all suggested that an integrated approach of the resources-based and positioning view can maximize the capabilities of organization and sustaining more competitive advantages. Penrose (1959), Selznick (1957) and Hatch (1997) also suggested that competitive strategy requires both the exploitation of existing internal and external firm-specific capabilities and of developing new ones. In the changing business environment, Sony needs to cope with the external changes and find the right ways to deal with it by their own capabilities or resources. Markides (2004: p9) also agreed that "unless organization take a holistic, big-picture approach in designing the activities of the company, their efforts will backfire".
As for "inside out", also called the competence-based view (Hodgson, 1998), Sony has been green-lighting asset sales to free up cash so they can rebuild the company around a tighter core of businesses. In December, Sony sold part of its 49% stake in retailer StyleLife Holdings to a group of investors (Hall, 30th January 2007). This managing for value strategy which "concerned with maximising long-term cash-generating of an organization" (Johnson et al, 2005: p468) by disposal of assets to get more funds and reinvest back into different business units such as R&D, production and others can help Sony to strengthen its core competencies. As DeWit & Meyer (2004: p326) suggest, "the real sources of advantage are to be found in managements ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities".
Another strategy that Sony implement to boost its core competence is miniaturization (DeWit & Meyer, 2004). To bring miniaturization to its product, Sony must ensure that technologists, engineers, and marketers have a shared understanding of customer needs and of technological possibilities in order to become more customer-orientated with the aim to increase competitive advantage, as well as create more value added activities. Sony also implement a related diversification stategy which involve adding businesses whose value chains possess competitively valuable strategic fits with the value chain of the company's present business. Related diversification among the different businesses provides Sony with sharper focus for managing diversification and is a useful degree of strategic unity across the company's various business activities (Thompson & Strickland, 2003). Lynch (2000: p71) also argue that "it is the combination of resources that delivers competitive advantage, because such a combination takes years to develop and is therefore difficult for others to copy".
Besides, in order to regain Sony's competitive advantages, they appoint the first foreign chairman, Howard Stringer to head the company with the aim to secure Sony's main ground and hope that an outsider will assist Sony to think outside the box. As Hamel & Prahalad (1994) suggest, intellectual leadership are essential to develop industry foresight, anticipating which trends are likely to emerge, so it is important to build Sony's new core competence to shape the industry.
However, Priem and Butler (2001) have shown that the Resources Based View, as currently constituted, contains a theory of sustainability but not a theory of competitive advantage (i.e., value creation).They argue that "simply advising practitioners to obtain rare and valuable resources in order to achieve competitive advantages and, further that those resources should be hard to imitate and non-substitutable is not very helpful in providing practical help" (Johnson et al, 2005: p155).
On the other hand, as for "outside in" which is the Positioning view, Mintzberg et al (1998) argue that positioning is important and had develop the Positioning School. Sony also believes that the external business environment will shift the strategy of the organization. Finlay (2000; p11) suggest that "organization alter itself and the products and services it offers in order to match the needs of customers in its chosen marketplace which is a market-based approach, so called because the organization looks to the marketplace to see how it should act and how it should evolve". Besides, based on the environmental factors, Mintzberg et al (1998) developed the environmental school which argue people in strategic management must consider the range of decisional powers available, given the forces and demands of the external context. Sony insufficient in responding to the external market had caused them to lost ground in key growing areas and their strategy must be able to cope with the external environment.
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Moreover, Porter (1991) strongly believe that making choices about how organization position their company in its competitive environment is what strategy is all about and emphasize on the importance of positioning view. He argues that organization can sustain competitive advantages by implementing the generic strategies by position themselves either being cost-leadership, differentiation or focus (Porter, 1985). Sony had positioned themselves with a differentiation strategy which seeks to provide products or services that offer benefit different from those competitors and that are widely valued by buyers (Johnson et al, 2005). Sony are rewarded with a premium price with its uniqueness (DeWit & Meyer, 2004) that help them to gain greater competitive advantages.
However, Bowman & Asch (1996: p36) critics that "a final criticism of Porter's approach stems from our experience of trying to use these concepts with top management teams wrestling with the strategies of their organization. In addition to the lack of clarity surrounding the generic strategies, the generic strategies present an essentially static approach to competition". Hamel & Prahalad (1994) also argue that "the traditional competitive strategy paradigm (e.g. Porter, 1980) with its focus on product-market positioning, focuses only on the last few hundred yards of what may be a skill-building marathon."
Finally, Sony is still in a critical position where they need to be extra caution about all the potential crisis that they will be facing in the future. Finlay (2000: p451) argue that "crisis control relies on both pro-active and reactive control. It is pro-active in that, although the precise form of the crisis will be unknown, broad elements of many crisis situations will be, and these can be planned for through risk management and particularly contingency planning. Crisis control is also reactive in that the specifics of the situations must be dealt with as they unfold". Thus, risk management and crisis control are also essential for Sony to implement in order to stay alert and increase their awareness to potential threats.
In conclusion, Sony must learn from their mistake and implement more effective and efficient strategies if they want to get out from this current unfavarable situation. Besides than their current strategies, alternatives strategies suggested above should become another major concern for Sony to ensure that they can effectively rebuilt their poor reputation and regain more market share in the future.