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“Seven out of eight years, Sony has filed to meet its own initial operating profit forecast. This is probably the worst track record amongst most major exporter. That means that either management is not able to anticipate challenges …. Or they fail on execution almost every time. Either way, it does not reflect well on Sony’s management” ‐ Atul Goyal, Analyst, CLSA, in January 2009 SONY IN CRISIS, AGAIN In May 2009, Japan‐based multinational conglomerate, Sony Corporation (Sony) announced that it posted its first full year operating loss since 1995, and only its second since 1958, for the fiscal year ending March 2009. Sony announced annual loss of ¥98.9 billion, with annual sales going down by 12.9% to ¥7.73 trillion. Sony also warned that with consumers worldwide cutting back on spending in light of the recession, the losses could be to the extent of ¥120 billion for the year ending March 2010 (Refer to Exhibit IA for Sony’s five year financial summary and Exhibit IB for operating loss by business segment). Sony’s announcement came after the company had announced a major reorganization plan in February 2009. Sony had gone through a series of reorganization programs starting from the year 1994, the aim being to improve the financial performance and competitiveness of the company. However, most of them failed to achieve the desired results. Analysts blamed the silo culture, which prevented different divisions in Sony from communicating and cooperating with each other, for the company’s problems. Howard Stringer (Stringer) became the first non‐Japanese CEO of Sony in March 2005 and he announced a major reorganization in September 2005. The reorganization focused on revitalizing the electronics business of the company and on improving profits by reducing business categories and product models. It also aimed at removing redundancies and overlaps in business process by focusing resources only on the company’s high growth business like HD products, mobile products, semiconductor / key component devices, and network‐enabled products and appliances. The plan addressed the silo culture in the organization by introducing the slogan ‘Sony United’, and outlining several measures that could be implemented to unite the company and enhance cross‐company collaboration. The plan started showing, encouraging results and for the year ending March 2007, Sony’s sales and operating revenue increased by 10.5% to ¥ 8.29 trillion as compared to March 2006. The trend continued over the next year and for the fiscal year 2008, sales and operating revenue grew by 6.9% over the previous year to ¥8.9 trillion. The company recorded an operating income of ¥374.5 billion in fiscal 2008 as compared to ¥71.8 billion in fiscal 2007. However, by late 2008, Sony had reduced its earnings forecast and in December 2008, it announced that it could end the financial year in a loss. Another reorganization plan was announced in February 2009, which involved a new organization structure, the closure of eight of its total 57 manufacturing sites, an a reduction of the workforce by 16,000. The reorganization also witnessed Stringer assuming more powers as the President of Sony and his predecessor, Royji Chubachi (Chubachi), who was also heading
the electronics division, being made Vice‐Chairman. Through the new reorganization plan, Sony expected to reduce costs by US$ 2.5 billion. On the reorganization, Stringer said, “This reorganization is designed to transform Sony into a more innovative, integrated, and agile global company. (These changes and reorganization) will now make it possible for all of Sony’s parts to work together.” Analysts were satisfied with the changes proposed in the new reorganization plan. Hitoshi Kuriyama, analyst at Merrill Lynch & Company, commented, “These moves are bolder than we had anticipated and are positive. We believe the new management and organization will be effective in bringing out Sony’s potential in this new networked age.” However, some analysts remained skeptical about the proposed benefits of the plan. According to Koya Tabata from Credit Suissee, “We remain unsure about whether consolidating control into the hands of Chairman Howard Stringer will change the business model significantly and fundamentally strengthen Sony’s operations.” BACKGROUND NOTE Sony was founded in 1946 as Tokyo Tsuchin Kyogo by Masaru Ibuka and Akio Morita (Morita) in war‐ ravaged Japan. Initially, the company had 20 employees and a capital of ¥190,000. Right from its inception, Sony focused on product innovation and on offering high quality products. Sony started off manufacturing telecommunications and measuring equipment and went on to manufacture transistor radios and tape recorders. The company decided to call itself Sony, as Morita felt that the name was in accordance with its global expansion plans. Sony set up a subsidiary in the US in 1960 and was listed on the New York stock exchange in 1970. In 1972, it set up manufacturing facilities in the US, thereby becoming the first Japanese company to do so. Sony’s products were always innovative. The company firmly believed that there was a huge demand for such products and did not attach much importance to market research. However, it suffered a major setback in 1975 on account of its Betamax video cassette which was to be used in its home video cassette recorder. Before the Betamax technology could establish itself in the market, it lost out to VHS, which was backed by top studios in Hollywood. This incident served as an eye‐opener for Sony. It realized that technology used in such products was largely determined by the owners of content and this led to its entering the content development business. In 1988, the company acquired CBS Records and renamed it as Sony Music Entertainment. In 1989, it acquired Columbia Pictures (which included Tristar) and renamed it as Sony Pictures (Refer to Table I for details of Sony’s Businesses). In 1968, Sony introduced the Trinitron Color TV, which was highly successful. Another highly successful product was the Walkman launched in 1979. Other path‐breaking products that it introduced included the world’s first Compact Disc Player (1980), the Camcorder (1982), the Discman portable CD player (1984), PlayStation (1994), and the Digital Handycam (1995. Sony introduced several other products like home electronic equipment and 3.5 inch floppy discs. Till 1983, Sony operated as a function‐specific organization with different departments for development, manufacturing, sales etc. However, with the number of products and people increasing, Sony introduced the business group system in 1983 and defined the roles of headquarters and each business group.
and its subsidiaries Sony Life Insurance Company Limited. After the electronics business was restricted in 1994 under the then CEO Norio Ohga. the net income dropped by 19. reporting a quarterly operating loss of ¥ 116. and network services related business of So‐net Entertainment Corporation. Video. CEO of Sony at that time. Games console and software businesses conducted by Sony Computer Entertainment inc. Music Segment Businesses of Sony Music Entertainment (Japan) Inc. Sony Assurance inc.. With none of its restructuring efforts proving fruitful. mobile telecommunications. while revenues increased by 3. Financial Services Sony Financial Holdings Inc. a decline of over ¥58 billion as compared to the previous year.5 billion. Sony went in for a revamp of the top management. this restricting exercise did not yield satisfactory results either and Sony’s operating income declined by 40. Idei said.4%. Though some of its products like the PlayStation were profitable. However. movies. Another round of restructuring was proposed in 1999 in order to enable Sony to exploit the opportunities offered by the Internet.. For the quarter ending June 2003.83 billion the previous year.Table I Sony’s Businesses (2008) Audio.36 billion in1995. and Sony Music Entertainment (Japan) Inc. Others The music recording business of Sony Music Entertainment. This plan aimed to transform Sony into a Broadband Network Solutions company by launching a wide range of broadband products and services. In April 2003. despite the increase in revenue due to higher sales of the PlayStation. “By capitalizing on this business structure and by having businesses cooperate with each other. semiconductor components and other products. For the fiscal 1999‐2000. televisions.. Explaining the objective of restructuring. the company’s performance deteriorated further and Sony reported a loss of ¥ 293. and Sony Finance International Inc. THE RESTRUCTURING EFFORTS In the early 1990s. wherein Sony was organized into a ten company structure. Sony’s net income fell to ¥ 121. proposed another round of organizational restructuring.6%. a majority of its other businesses like electronics. The drop in net income was attributed to a decline in demand for computer‐related products due to a slowdown in the IT industry.83 billion. net income dropped to ¥ 16.sony. Sony Bank Inc. and personal computers were not performing well.” However. this restricting did not lead to any sustainable improvement in the company’s financial performance. its operating and net income witnessed a decline. For the financial year 1998‐99. Nobuyuki Idei (Idei).75 billion as compared to ¥ 121. Sony reported a net income of Electronics Segment Game Segment . we aim to become the leading media and technology company in the broadband era.net. information and communications equipment. This led to another round of restricting in 1996. This loss was termed the ‘Sony Shock’ by the media.3% in the fiscal year 2001‐02. At this juncture. and television programming distributed by Sony Pictures Entertainment Inc. Pictures Segment Motion Pictures. Sony announced its quarterly results. Source: www. in spite of a moderate increase in Sony’s operating revenues. In the fiscal year 2000‐01.
Analysts were of the opinion that the erosion in Sony’s profits was due to the expenses the company had incurred on implementing its many restructuring plans. where the demand for Vaio personal computers and cathode ray tube televisions fell significantly. the games business group. Stringer said. While announcing the plans. which aimed at optimizing manufacturing infrastructure and reducing fixed costs by combining the operating divisions and shifting component sourcing to low cost markets like China. making products in line with industry standard technologies. We can and will compete vigorously. 2005. procurement. At this point – in March 2005 – Stringer became the CEO. “We are battling on many fronts against many competitors. and divesting the company of its non‐strategic assets. and marketing. Stringer identified five main challenges for Sony.¥ 1. The decline in sales of Sony’s electronics products was prominent in Japan. This was a three‐year restructuring plan. In fiscal 2004. the entertainment business group. technology. the company’s sales fell by 7.2 billion. The electronics division recorded a net loss of ¥ 6. attaining profitability across businesses. We are going to achieve our goals by breaking down the existing silo walls and eliminating the highly decentralized structure we’ve maintained in the past. Through the new structure. distribution.1 billion plan aimed at achieving operating profit margins of 10% and reducing the annual fixed costs by ¥330 billion by the fiscal year 2006‐07. manufacturing. the personal solutions business group. the games division recorded an operating income of ¥67. and the Sony financial holdings group. During the quarter.2 billion reported in the corresponding quarter in fiscal 2002.6 billion as against ¥112.” Sony adopted the new organizational structure on October 01. By the time Sony announced its October‐December 2004 results. This focused on promoting teamwork and cooperation and bringing together key resources. a number of whom have at times proved more agile and more nimble. The new structure helped eliminate product and design redundancies (Refer to Exhibit II for more about Sony’s restructuring in 2005 and Exhibit III for Sony’s organizational chart as of October 2005). it was evident that the company was far from reaching the goals envisaged in its Transformation 60 plan. Sony expected to achieve coordination across different areas including planning.8 billion during 2004. . At this juncture – in October 2003 – Idei proposed yet another restructuring plan called ‘Transformation 60’.1 billion which was 98% lower as compared to the profit of ¥57. The company was reorganized into five business groups – the electronics business.5% to ¥2148. sales. improving the competencies in software and services.7 billion in 2003. This US$ 3. These restructuring plans were not successful mainly because of the significant drop in sales of conventional televisions and portable audio products. Stringer announced another round of restricting in March 2005. Sony planned to reduce costs by downsizing the consolidating the manufacturing. and customer service facilities and also by streamlining procurement. These were: getting rid of its silo culture. As a part of Transformation 60.000 at other locations across the world. Along with the new strategy.2 billion and operating income went down by 13% to ¥138. Sony also announced an internal slogan called ‘Sony United’. Several corporate and administrative functions which were overlapping were integrated. about 7000 employees were laid off in Japan and 13. The games division also did not fare well with the sales of PlayStation 2 consoles falling rapidly.
As a part of the reorganization. On March 29. nine factories were closed down and over 5. One of Stringer’s first tasks was to revive Sony’s television business. Sony’s Aibo. At the same time. which had suffered as the company had been late in coming out with the flat panel televisions. with the aim of enhancing its B2B business growth. Other businesses that were discontinued included cosmetics maker. The television business was brought under the charge of Katsumi Ihara. By the first half of 2006. Sony announced that to strengthen its product development capability and improve profitability in the electronics segment. were also established. By the end of March 2006. However. the TV Business Group and the Video Business Group. some more changes had to be made in its organizational structure. On the new structure Sony announced. mail order shopping company. by utilizing Sony’s broad‐based research and development achievements in its B2B Solution Business. Sony had been unable to maintain its premium pricing. Earlier. Sony hopes to develop new business that can drive sales and profit growth in the B to B business field. Chubachi was made President of the B2B Solutions Business Group. This practice was done away with. was discontinued after the Robotics unit was shut down due to its low revenue generation. One‐third of Sony’s 1. a robotic pet. To focus on the growth markets. THE OUTCOME After the reorganization announced in 2005. In 2006. In May 2007.000 products it manufactured. B to B solution services. Sony’s earnings had improved considerably. Stringer went on to revamp Sony. analysts were of the view that Stringer’s efforts had succeeded in putting the company back on the right track. Two ne groups. in fiscal 2006. 2007. Though the electronics business remained a problem. the TV division still showed losses as the company had spend heavily on advertising and had lowered prices in its race against competitors like Samsung and LG. and a chain of restaurants. The company established the B2B Solutions Business Group. “The “B2B Solutions Business Group” will unite and streamline Sony’s existing Broadcasting / Professional equipment businesses. Sony had had a tradition of retaining retired senior personnel as advisors.000 subsidiaries and affiliates were involved in businesses that were different from the core electronics and entertainment business of Sony. it reported a net profit of ¥ 123 billion. and a part of the Personal Solutions Business Group. Industry experts felt that after lowering prices. Sony’s Qualia line of luxury electronics that included high‐end cameras and televisions was also discontinued. the FeliCa Business Division. who discontinued production of CRT television and launched the Bravia brand of LCD TVs in 2005. The company attributed this to the new Bravia LCD televisions. the sales of flat panel televisions improved and so did the sales of PCs and camcorders.” (Refer to Exhibit IV for Sony’s Organizational Chart as of April 2007). after the company announced that the profits would increase six‐fold for the year ending March 2008. and FeliCa business. .700 jobs were eliminated. Sony discontinued the manufacture of around 600 of the total 3. Forming a part of the B2B Solutions Business Group were the B&P Business Group. Sony’s shares rose to a five‐year high.
(Refer to Exhibit V for Sony’s sales and operating revenues by Business Segment and to Exhibit VI for Sony’s Sales and Operating Revenue by Geographic Segment). the impact on Sony would be to the tune of ¥ 4 billion in operating profit.5 billion. Sony had recovered from its past problems. Sony posted a 72% decline in net profit from ¥ 73. as it was priced at US$ 2. Another product in the pipeline was the new version of a portable PlayStation. the price of PlayStation 3 had come down to US$ 399. Sony recorded operating income of ¥ 475. But the sudden strengthening of the Yen coupled with the recession in the US slowed down consumer spending considerably.042 for an 11 inch mode. The company’s profits were hit by the strengthening of the Yen. For the fiscal year 2008.2 million units in 2008.7 billion. Bravia. Besides. The operating income grew by over 250% to ¥ 99. In the television segment. .9% to ¥ 8. with the exchange rate being around 100 Yen per US$ and around 151 Yen per Euro. Sonly also launched its first ultra‐thin TV screen made of OLEDs. sales and operating revenue grew by 6. At that time. which was one of the Sony’s top selling products. Chubachi termed this as a ‘Symbol of Sony’s comeback’.When Sony announced its results for the first quarter ending June 2007.3 billion during the same period and the operating income of the electronics division increased by 77%. whose sales were higher than that of competitors like Samsung and LG. The company sold around 10 million PlayStation 3 consoles in 2008. the sales of PlayStation 3 in Japan overtook the sales of Nintendo Wii. In the second quarter of 2008‐09. Sony expected that by mid‐2009.4 billion in fiscal 2007. which were only five millimeters thick. PlayStation 3 did not fare as well as expected and its sales were far behind that of the Nintendo Wii and Microsoft’s Xbox 360. Sony’s management remained confident that its television unit would turn profitable. consumers postponed the purchase of electronics products. For example.9 trillion. In the fiscal year ending March 2008. The OLED television failed to make its present felt in the US market. Analysts reported that in case of the Japanese currency strengthening by even one Yen against the dollar. Sony had a slew of products in the pipeline including high‐end digital cameras and new OLED televisions. In late 2007.5 billion in the second quarter of the previous year to ¥ 20.2 billion in fiscal 2008 as compared to ¥ 150. Stringer announced that after three years of reorganization. In December 2007. The sales of LCD TVs of Sony rose from one million units in 2005 to 15. The result was that Sony ended up performing badly. By December 2008. PlayStation 3 would break even. it had exceeded analysts’ expectations. Sony reported that sales had increased by 13% as compared to the first quarter of the previous year to ¥ 1. Sony faced problems on several fronts. where such an arrangement would have been unthinkable earlier. Analysts pointed out that this joint venture also marked a change in Sony. when it was launched in November 2006. Analysts attributed the success of Sony’s electronics division of the Bravia range of televisions. Sony appeared to be on the path to revival. Sony’s fortunes took a turn for the worse. PROBLEMS RESURFACE AGAIN In mid‐2008.976. The manufacturing costs on PlayStation 3 were also high. Analysts said that the product was ahead of its time and Sony was taking the risk of coming into the market too early. Sony’s joint venture with Samsung for making panels was also said to be one of the reasons for Sony doing well in the television market. faced competition and its sales plummeted as recession‐hit consumers postponed their purchases. But with the global recession affecting spending on luxury products. Sony incurred US$ 840 as manufacturing costs on a PlayStation 3 was sold for US$599. while its manufacturing cost was US$448. it announced that the annual profit could decline by 59% if the value of the Yen continued to rise. By November 2007.
000 jobs would be slashed and that capital investment would be reduced by 30%. Sony announced initiatives to improve profitability and enhance operational efficiencies in the electronics business. In their opinion. Sony could be brought back on the recovery path. After the announcement. they cautioned. video gaming. In December 2008. (Refer to Exhibit VII for details of the initiatives taken by Sony to revitalize its Electronics Business) In January 2009. Sony’s initial profit estimate had been ¥ 520 billion. “The most important thing is that. Other measures that it planned to take included adjusting product pricing to square off the increase due to the appreciating Yen against global currencies. which had posted a profit during the first half of the year. At the same time. and reducing production. however. during the year ending March 2009. It cautioned that the position could become considerably worse and the revised forecast could also be affected.62 per US Dollar in October 2008. to improve organizational strength in the areas of development. outsourcing production. Sony slashed the net profit outlook for the year ending March 2009 by 38% to ¥ 150 billion. purchasing. Sony announced that its annual operating loss would be about ¥ 260 billion. Sony expected this to have an adverse impact on its earnings. several analysts pointed out that by giving more power to the CEO. withdrawing from or downsizing unprofitable businesses. claimed that in spite of the losses being reported.On October 23. . The initiatives taken by the company included short‐term measures like reducing operational expenses and lowering inventory costs. 2008. and computers segments. had failed to take advantage of the holiday season in the US. closing plants. In December 2008. they said.” Several reports. This was reduced to ¥ 470 billion and then to ¥ 240 billion. Japanese exports became uncompetitive. and marketing. The company also said that the global economic downturn could impact the sale of LCD televisions and digital cameras. delaying the investment in semiconductors and in a few television plants. a radical change was long overdue at Sony. The discounts it had given were not adequate while the competitors had resorted to more aggressive price cuts. and realigning domestic and overseas manufacturing sites. It announced several measures to achieve cost savings to the extent of ¥ 100 billion – layoffs. it will be necessary to further concentrate power in the hands of [Sir Howard] and unless this is achieved we believe [Sony] will be unable to close the gap with competitors such as Apple and Mintendo. analysts predicted that Sony would witness an earnings collapse and was likely to post losses in the televisions. Analysts said that the company. analysts from Credit Suissee. Sony announced that it was likely to post its first full year operating loss since 1995. and only its second since 1958. It announced that 8. the Japanese management was against any sweeping changes being made in the business practices that Sony had been following for such a long time. t o contain the losses that it expected to incur during the year. Some analysts termed the announcement as the ‘second Sony Shock’. mobile phones. According to Koya Tabata. The fact that Sony had failed to deliver could also be a pointer to management related problems in the company. With the Yen appreciating and hitting a 13‐year high against the US dollar at ¥ 94. Analysts were of the view that the Japanese economy which was experiencing its worst ever economic downturn since World War II had also had an impact on the company’s earnings. At that time. Sony announced that a reduction in the workforce was inevitable along with a re‐ examination of businesses which were not profitable.
” (Refer to Exhibit VIII for organization Chart of Sony as of April 2009) The company proposed to form two business groups – The Networked Products & Services Group and The New Consumer Products Group – through the organization. After the reshuffle. As a part of the reorganization efforts. The group was also required to provide coordinated software development services. home audio. The reorganization also witnessed a reshuffle of some of the top executives in the company. in addition to his existing positions of CEO and Chairman. The main aim of the group was to bring in few products using Sony’s technologies and also to increase the pace of innovation at Sony that would lead to higher profitability. home audio. The focus of this group was on achieving profitability and growth through product innovation. Chubachi resigned from his post as CEO of the electronics components unit and became the Vice‐Chairman of the Company (Refer to Exhibit IX for the details of top executives after reorganization). together. Commenting on the reorganization. Analysts were of the view that it would help different divisions in Sony like the PC. which was to be made effective from April 2009. mobiles and entertainment divisions. “This reorganization is designed to transform Sony into a more innovative. Forming a part of these processes was the expansion of the PlayStation network platform. two cross company units were created. and also other divisions like television. The other unit was the Manufacturing / Logistics / Procurement team responsible for ensuring efficient supply chain solutions for the business groups. REORGANIZATION IN 2009 In February 2009. Forming a part of the New Consumer Products Group would be television. . This would address the issue of the prevailing silo culture in the organization. mobile products including Walkman. personal computers. aiming to improve their profitability and strengthen competitiveness. achieve great things. The reorganization was expected to speed up the production of networked products and services. and improving efficiency and speed of operations. Under Networked Products & Services Group would be Sony Computer Entertainment. digital imaging. and agile global company with its next generation of leadership firmly in place. and the video business of the company. and video to work in tandem. integrated. One was the Common Software and Technology Team which was to develop and implement integrated technology and software solutions. the electronics division came under Stringer’s purview. and Sony Media Software and Services. digital imaging. The group was to be headed by Kazuo Hirai. The reorganization concentrated on the electronics and game businesses of Sony. Sony announced a major reorganization. This group was headed by Hiroshi Yoshioka. They will now make it possible for all of Sony’s parts to work together to assume a position of worldwide leadership and. Stringer assumed responsibility as the President of Sony. The changes we’re announcing today will accelerate the transformation of the company that began four years ago. Stringer said. Another are of interest for this group was development and growth in the emerging markets.
business groups and the top management of Sony. said.200 after taking into consideration those who provided the best deals. Corporate Executive. and a new group – Networked Products and Services Group ‐ was created especially for that purpose. whose division was responsible for considerable losses. “Have I broken . however. This was also viewed as a move to break the Japanese tradition of seniority in favour of performance. Stringer became Head of Sony’s electronics business and remained the company’s President. The reorganization efforts received a positive response from analysts and industry experts. Stringer said. and Chief Transformation Officer. Stringer said. concentrating on products like the PlayStation and the Vaio personal computers.500 to around 1. 2009. some analysts wondered why Sony had promoted Kaz Hirai. was roped in as the first Chief Transformation Officer of Sony in May 2009. Some analysts did not see anything positive in Stringer assuming additional responsibility and wondered how it would benefit the company. Analysts were of the view that the networked products and services group had a tough task ahead – it had to create digital services that would tie all Sony’s products together.” Stringer in several instances mentioned that the silo culture was Sony’s main weakness. This brought in a new control structure at Sony. tried to bring in coordination and was largely successful in bundling the Blu‐ray version of Spiderman III with Sony’s PlayStation 3.. Many analysts saw the reorganization as Stringer’s efforts to break down these silos. including structural changes especially in its TV and other electronics businesses. It was also expected to result in nimbleness in the organization and in making it ready to face the new‐ age rivals. His main responsibility was to accelerate the transformation of Sony into a leading provider of networked products. On the new reorganization. Stringer. Sony also planned to reduce the number of suppliers from 2. Sony came up with extensive measures in its electronics operations. Sony planned to gain a substantial position in the networked electronics market. Bailey was expected to work closely with different cross‐functional teams. effective from June 01.” Through its new restructuring efforts.” However. a lot of young blood had been infused into the top management of the company. THE AFTERMATH In February 2009. in May 2009. Kurahashi said. He assumed the post of Senior Vice President.As a part of its reorganization efforts. The creation of cross company units in the areas of logistics and software was also seen by analysts as an effort to bring down the silos in the company. “This reorganization is designed to transform Sony into a more innovative integrated and agile global company with its next generation of leadership firmly in place. CEO of Sony Computer Entertainment. “It’s uncertain if Stringer can now do what he hasn’t been able to do as a CEO. which was expected to be operationally convenient and to unite the different silos that existed in the organization. “It’s a positive sign of how Sony is frantically moving forward toward change. While restructuring Sony. content and services. George Bailey. an executive from IBM. These included consolidation of some of the operations in Japan (Refer to Exhibit X for more information about consolidation of electronics operations). Some industry experts were of the view that the reorganization would result in sustained profitability and a cohesive corporate culture. Nobuo Kurahashi (Kurahashi) of Mizuho Investors Securities in Tokyo.
9% as compared to the previous year.down all the silo walls? No. That’s nonsense but unless you get the cost down. People accuse us of not having the innovation. I have to succeed at that. The content could be downloaded using PlayStation 3. “In the 20th century. they said. with the company spending around US$ 5 billion on R&D every year. Sony planned to have a continuous stream of revenue by networking all the devices. In the 21st century.000 more than people are going to spend in a recession. Sony already had a considerable presence in the television market and could take advantage of this emerging trend by bringing out products that helped in downloading content from the internet on to the television. The profit margins for Sony’s digital cameras and camcorders were also going down. Sony announced that the sales of its digital cameras could fall to 20 million units during the year ending March 2010. “I need a few more breakthroughs in cost. which would act as a server to the home computers. industry experts felt that the Sony might find it difficult to sell its televisions to them as similar Korean products were cheaper. Thus. Sony planned to launch a new service that would help users put images from . Several companies were in the process of bringing out web‐based content on to televisions. Are they very strong and very thick? Yes. before it was released on the DVD’s. and TV shows could be downloaded. I have no advantage. The new range of Bravia televisions allowed the users to connect to the Internet and stream movies.” Industry experts opined that the next revolution in the realm of electronics would be entered around television. It reported a loss of ¥ 98. The demand for the Sony Handycam was also expected to fall further. the loss could be higher at ¥ 120 billion. LOOKING AHEAD As of June 2009.” Sony planned to make 90% of its electronic products network‐ enabled by 2011 Though American consumers were increasingly opting for wide‐screen. According to Stringer. this company created great champion products. the new line of eco‐Bravia televisions.” In May 2009. We are not going to be beaten again in the network age. they pointed out. webbie cameras. flat panel televisions. The fluctuating Yen could also add to its difficulties as it was making Japanese products more expensive. He said. But we’ve broken down a lot of them. Annual sales fell by 12. but if it’s $1. from 22 million in 2009. games. Sony’s movie Hancock was released on Internet‐ready televisions. the proposed reorganization was progressing well and Stringer reaffirmed his intention of making the company’s presence felt in the network electronics market. Sony had several path‐breaking products in the pipeline. other companies took our hardware like the Walkman and added network capability and turned it into the iPod. Some of the products were panoramic‐image cameras. It announced that for the year 2009‐10. According to him. these things never make it. Our goal is to continue to do that. The company attributed the fall to the sluggish demand for televisions and cameras in the wake of the recession. Strigner believed that the new products should be within the reach of consumers. and high‐end digital projection systems.9 billion. Sony announced its first annual loss in 14 years. organic LCD televisions. through which digital content like movies. “The battle for me is the networking of these devices.” Sony aimed at connecting all its devices to one another and to the proposed Sony network. Sony makes the world’s thinnest TV and the one with the best picture.
procurement and marketing…. storage. none of them had been able to deliver sustainable positive results. it was effective execution that would be the key. The software is the open question. Apple’s advantage is that it created a seamless user experience. Sony is still a fairly powerful brand. and development. They felt that while the reorganization plan of 2009 sounded promising. the Internet.” . the economic downturn and stiff price competition made success even harder to attain. That’s also within Sony’s grasp.camera on television. but it’s not like everybody can forget the past. They’ve got to overcome that by performing in the market.” Industry analysts opined that while Sony had announced several restructuring exercises in the recent past. “First. “But it’s hard to imagine that translating into improved earnings soon. we will accelerate the transition of our televisions from being passive displays offering linear entertainment chosen by conventional gatekeepers to becoming network entertainment centers providing rich content alternatives organized by consumers [based] and called directly from the broadest and most open network in the world. Can all be improved within a short time frame. According to Yasuo Nakane of Deutsche Securities. Stringer also indicated that the company planned to more deeply integrate its television and computer entertainment products.” Analysts believed that Sony needed to invest in cutting edge technologies in video games and television. analyst at Gartner. However. as these businesses accounted for a quarter of its revenues. The key question is whether manufacturing. “The execution is going to have to be pretty powerful. Sony has the assets to do that. According to Mike McGuire. display and edit video sharing. design. etc.
817 (25.478 369.328 100.435 (72.325 7. 2008.800 459.938) .191.838 13.081 475.176 239.691 53.256 (232.229 (227.044 163.182) 150.592 299. 2007 251.295.526) 58.325) 26.871.506 176.667 186.597 29.039 174.515 123. Exhibit 1B Sony – Operating Income / Loss by Business Segment ( in ¥ Million ) For the Year Ended March 31 Electronics Games Pictures Financial Services All other Total Corporate and Elimination Consolidation Total Source: Sony Annual Report.695 8.783) 567.084) (54. 2008.633 60.157) 30.955) 203.916 (31.109) 475.142 32.299 2009 (168.Exhibit 1A Sony‐Five Year Summary of Selected Financial Data ( in ¥ Million ) For the Year Ended March 31 Sales and Operating Revenue Equity in net income (loss) of affiliated companies Operating Income (loss) Income(loss) before income taxes Income taxes Net Income (loss) Source: Sony Annual Report.510.218 16.476) 29.705 84.808 162.349) (227.404 2008 441.414 7.524 22.404 180.434) (30.888 126.741) (98.616 8.729.367 (197.993 78.787 (124.586 (12.134 (174.246 16.783) 2005 2006 2007 2008 2009 7.654 150.
Sony’s goal was to enable consumers to enjoy entertainment content. Another step to reduce costs was creating affective administrative structures by removing redundancies and overlap in business processes. entertainment. next generation displays. and technology in the electronics division and break down the silos structure. Through this produce. which were build around customer driven technologies. the software development business was being strengthened by establishing a Technology Development Group. By the end of fiscal 2005‐06. The other committees were the sales & strategy committee. innovative technologies for system LSIs. the core component business unit.Exhibit II Sony – Organizational Restructuring (2005) Restructuring Electronics The electronics business was brought under the purview of Electronics CEO. The company was a pioneer in HD products with a wide range of products in consumer hardware and broadcasting businesses. and elimination of redundancies. Group Strategy Sony aimed at regaining its leadership position in the mobile audio devices market and also to establish itself in the portable video market. The company also aimed at achieving increased collaboration among different sectors like games. Sony had begun to increasingly opt for internally sourced games software. Sony aimed to increase market share in the computer entertainment market. In key components. production strategy committee. Ryoji Chubachi. the digital imaging business group. and Blu‐ray disc related products were being developed. The new structure was expected to coordinate various activities marketing strategy committee. . the video business group. Focusing Resources on High Growth Businesses Sony started focusing on high growth businesses such as HD Products. and the connect company. procurement strategy committee. Sony planned to introduce PlayStation 3 and position it as the ultimate portable entertainment player. and mobile products and semiconductor / key component devices. the VAIO business division. Another growth are that Sony was exploring was network‐enabled products and applications. For the mobile entertainment group. the TV business group. Under the electronics business were the semiconductor business unit. The other benefits of the new structure lay in prioritizing R&D. the B&P business group. Improving Profit Structure Sony planned to achieve cost reductions by reducing business categories and product models. The number of product models was to be reduced by 20% and the number of manufacturing sites from 65 to 54. In order to maintain user interface. In the games business. maximum utilization of resources. Sony aimed at establishing software development facilities in China and the US. and software. The electronics division had a product strategy committee to look at things from the customer’s viewpoint.
net Product Strategy Committee Technology Strategy Committee Production Strategy Committee Procurement Strategy Committee Sales Strategy Committee Exhibit III Sony’s Organizational Chart (As of October 2005) Electronics Business Headquarters / Corporate R & D Game Business Group Entertainment Business Group Personal Solutions Business Group Sony Financial Holdings Group .sony. Sony Ericsson Mobile Communications Semiconductor Business Unit Core Component Business Unit B & P Business Group Audio Business Group Digital imaging Business Group VAIO Business Group Video Business Group TV Business Group Connect Company Source: www.
037.841 2.Exhibit IV Sony’s Organizational Chart (As of April 2007) Electronics Business Semiconductor & Component Group Semiconductor & Component Group Consumer Products Group Headquarters / Corporate R & D Source: www.453 2.295. 2009 Year ended March 31 2007 2.sony.221.897.987.873.056.041.219 1.658 1.827.264.233 2.270 7.729.862 2.374 2.945 8.net Exhibit V Sony – Operating Revenue by Geographic Region ( in ¥ Million ) Applications & Devices Marketing Group Photonic Device & Module Business Group Chemical Device Business Group Digital imaging Business Group Mobile Display Business Group B2B Solutions Business Geographic Segment Japan USA Europe Other Total Source: Sony Annual Report.127.871.993 Sony Ericsson Mobile Communications Audio Business Group Energy Business Group Video Business Group VAIO Business Group TV Business Group Game Business Group Entertainment Business Group Sony Financial Holdings Group Semiconductor Business Unit .695 2008 2.692 2.414 2009 1.328.232.812 1.743 8.
197) 8.220 455.218 42.934 553.255 .443.284.603 (606. Exhibit VI Sony – Sales and Operating Revenue by Business Segment (in ¥ Million ) For the year ended March 31 Electronics Customers Intersegment Total Games Customers Intersegment Total Pictures Customers Intersegment Total Financial Services Customers Intersegment Total All other Customers Intersegment Total Elimination Total Source: Sony Annual Report.931.892) 8.341 966.206 717.899 538.198 (847.414 471.004 70.789 2007 5.205 539.2102 6.291 1.513 0 717.295. 2009 287.282 25.378 2008 5.239 1.571 1.905 581.053.260 974.871.336 629.307 14.121 312.913.124 (764.810 1.855 68.016.513 984.260 0 966.243 855.993 523.219.430) 7.216 27.072.042 6.695 624.525 355.146 2009 503.035 958.729.398 68.708 98.194 382.004 65.059 649.482 2452 857.599 67.
000. The company also decided to postpone its plans to expand production in Nitra.japancorp. The investments in the electronics business were estimated to be reduced by 30% by March 2010.net . The manufacturing sites would be reduced by 10% by March 2010. It also planned to shift some of the manufacturing operating to low‐cost countries and utilize the services of its OEM and ODM partners. Source: www. Some of the seasonal and temporary employees were also to be removed. where Sony’s LCD televisions for the European market were assembled. Slovakia. It planned to outsource the manufacture of the CMOs sensors used in mobile phones. Realignment of Manufacturing Sites: By the end of 2008. as of September 2008.Exhibit VII Initiative to Improve Electronics Business Review Investment Plan: Sony planned to reduce or postpone planned investment in semiconductors. Sony had stopped production at two non‐ Japanese manufacturing sites. Work force Reallocation / Headcount Reduction: Sony planned to reallocated and optimize its workforce by programs like work reassignments and outplacements. Out of the total workforce of 160.000. the headcount was to be reduced by 8.
sony.net Semiconductor Manufacturing / Logistics / Procurement / CS Corporate R&D / Common Software Platform Headquarters . 2009) Consumer Products & Devices Group Devices Consumer Products Networked Products & Services Group Financial Services Mobile Phone Entertainment Digital Imaging Home Audio & Video TV Disc Network Services Vaio Game Electronic Devices B2B Solutions Chemical & Energy New Business Incubation Personal Devices Source: www.Exhibit VIII Sony Organizational Chart (as of April 01.
Executive Deputy President. SVP. Sony President and Group CEO. Head R&D. Corporate Executive Officer. President of VAIO Business Group TV Business Group Corporate Executive. In charge of Technology Development Group.net . SVP. Semiconductor and Component Groups Corporate Executive Officer. President of TV Business Group After Reorganization Member of the Board. Production Strategy. President of Corporate Executive. (USA) Corporate Executive. Chairman & CEO Member of the Board. Chairman. Officer in charge of Consumer Products Group. Representative Corporate Executive Officer. Officer in charge of Networked Products & Service Group EVP. Representative Corporate Executive Officer. EVP. President and CEO Member of the Board. EVP. SVP. Computer Entertainment Inc. Executive Deputy President. Officer in charge of Semiconductor and Component Groups. Executive Deputy President. Representative Corporate Executive Officer. President of Corporate Executive. Representative Corporate Executive Officer. Logistics and Procurement Adapted from www. Vice Chairman Corporate Executive. Representative Corporate Executive Officer. Sony Computer Entertainment Inc. SVP. Executive Deputy President Ryoji Chubachi Katsumi Ihara Hiroshi Yoshioka Yutaka Nakagawa Kazuo Hirai Kunimasa Suzuki Yoshihisa Ishida Keiichiro Shimada Corporate Executive Officer. President of VAIO Business Group Corporate Executive . President and Electronics CEO Member of the Board. Executive Deputy President. Officer in charge of Consumer Products Group Corporate Executive. Sony Electronics Inc. Officer in charge of Manufacturing. SVP. Deputy President of Networked Products & Service Group. Procurement and Supply Chain President and Group CEO.Exhibit IX Sony – Top Executives after Reorganization Name Howard Stringer Before Reorganization Member of the Board. Technology and Common Software of Consumer Products Group UI Center Platform Corporate Executive Officer..sony.
Production at Sony EMCS Corporation Omigawa. where optical disc related products were manufactured. Sony planned to achieve higher efficiency. were to be transferred to Sony EMCS Corp. and Sony EMCS Corp.japancorp. Tokai TEC. for factories outside Japan were conducted at Sony EMCS Corp Hamamatsu TEC. Sony planned to achieve integrated operational structure for mobile phones from manufacturing to customer service. video cameras. Kisarazu TEC.Exhibit X Sony – Consolidation of Electronics Operations • Digital imaging products (digital still cameras. Hamamatsu and Senmaya TECs were to stop by December 2009 Adapted from www. The support functions for small and mid‐sized LCD panel operations for operations outside Japan were conducted by Sony EMCS Corp Hamamatsu TEC. These two functions were to be transferred to Sony EMCS Corp. By doing this. and achieve synergies.. and camera modules) which were carried out at Sony EMCS Corp. Kohda TEC. resulting in consolidation of all Sony’s LCD panel operations (small and mid‐sze) • • Mobile phone customer service operations of Sony Ericcson Mobile Communications. The electronics devices production at Senmaya TEC was to be transferred to other locations including Kisarazu TEC. Senmaya TEC. eliminate duplication. at Sony EMCS Corp. Omigawa TEC and Minokamo TEC would be consolidated under Sony EMCS Corp. Mizunami. By carrying out functions related to optical disc technology at one location. Manufacturing technologies and support functions relating to optical pickup lenses for factories outside Japan were carried out at Sony EMCS Omigawa TEC.net . Tokai TEC to be established in July 2009 Development of manufacturing technologies and support functions for optical pickups. These were to be transferred to Sony Mobile Display Corp’s site at Higashiura.
January 13. September 10. Earnings Collapse Looming for Sony. December 09.businessweek. Kiyoshi Takenaka. www. David Wighton.com.uk. www. but Sony Shares Keep Surging. www. February 27.com. 2005 2. Howard Stringer to Assume Expanded Role at Sony. Tim Kelly. Sony says CEO Stringer to Double as President. Tim Kelly.bloomberg. January 22. Sony Cuts Spell a Shakeup in Japan.timesonline. Justin McCurry. Sony Slimming Down. CEO Stringer Blames ‘Old Sony’ for Profit Loss. 2009 17.com. www. 2008 10.com. February 27. Nathan Layne.com. Sony’s President Sir Howard Stringer Killed Off in New‐look Howard’s Way. www.timesonline. February 27. Dan Slater.businessweek. 2009 18.forbes. Sony’s Chief Gains Power as Executives are Shuffled. Masaki Kondo. Avery Simon. Kiyoshi Takenaka. October 23. $2.References and Suggested Readings: 1. Tina Wang.com.nytimes. 2009 21.msn. www.businessweek. www. Chris Oliver. February 27. Tom Magrino. December 10. May 28.business.com. Sony Ramps Up Its Reform Efforts.uk. 2008 7.com. February 28. a Corporate Octopus. January 22. Sony’s CEO Stringer Ousts Chubachi in Overhaul of Management.forbes.co. Robyn Meredith. February 28.uk. Hiroko Tabuchi. wwww. 2009 26. Can Outsourcing Save Sony?. Hiroshi Suzuki.com. It Takes a Crisis. Sony Chief Forecasts Record Losses.com. 2009 13.timesonline.com. January 30.forbes. Leo Lewis. www. 2009 20. 2008 8. Sony’s Own Bermuda Triangle. 2009 25. Cutting Sony. 2009 29.marketwatch. January 05. Robyn Meredith.com. Sony Issues Shock Profits Warning. Sony Forecasts First Annual Net Loss in 14 years.forbes.9 Billion Loss. Sony’s Road Warrior.businessweek.timesonline. 2009 19. 2006 4. January 08. 2008 9. Howard Stringer. www. 2009 . 2009 27. www. www. 2006 3.forbes.nytimes. Kenji Hall. 2009 23.co. April 29. www. Sony Gets a Lesson in Humility. Kenji Hall. January 22.com .com. www. Kenji Hall. 2009 30.cbsnews.com. http://reuters. http://reuters. Sony Shake‐up. Richard Siklos.com. Sony on Brink of Upheaval as Analysts Back British Chief. www. www.co.co. 2009 24.com. Steps Up Restructuring. 2009 16.com.com 14. May 29.businessweek. www. http://business. January 22.com. 2009 22. Martin Fackler.gamespot. http://business.uk. 2006 5. Sir Howard Stringer: Sony’s Savior? www. Leo Lewis.com. http://business.forbes. www. One Crisis After Another. www. Daniel Schorn.co. 2009 15. 2009 28. January 22. Back to a Rational Size.com.forbes. Leo Lewis.nytimes. Richard Siklos Martin Fackler. www.guardian. Tina Wang. www. Tina Wang. Vivian Yeo. February 27.nytimes. Sony’s Stringer Takes Helm at Ailing Electronics Arm. 2009 12. January 26.theglobeandmail.com. Sony Announces Restructuring.uk.com.com. www. 2008 11. www. September 23. July 17. January 23. Stringer: Sony Has Recovered its Innovation Edge. 2007 6. The Enemy Within at Sir Howard Stringer’s Sony. Sony CEO Stringer Picks a New Team. February 27.9 Billion Loss. www. Sony Warns of $2.msnbc. Stringer Tries to Turn Sony’s Distress to Advantage. January 29.forbes. Sachi Izumi.
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