Business Model Interrogation and Development of Sony Group
Abstract
The purpose of this study is to discuss the business model and development of Sony Corporation. The first part provided details about the company, its history, and strategies of acquisitions, mergers, and joint-venture that led it to become a huge group. The paper also presented the framework behind the development of its business model and product variation, identified its product portfolio, and financial information. The last part analyzed Sony Corporation’s business architecture and the needed improvements, technological changes, and identified potential ways to help the company reduce operational cost and improve product quality.
Business Model Interrogation and Development of Sony Group
According to its annual report, Sony Corporation (2015) and its subsidiaries are engaged in the design, development, manufacture, and distribution of electronic equipment, devices, and instruments for end-consumers, businesses, and industrial clients. It is also a provider of game consoles and software and has a financial subsidiary carrying insurance and other financial products named Sony Financial Holdings Inc. (Sony Corporation 2015).
Sony Corporation (2015) was established in May 1946 in Japan. It is listed in Tokyo Stock Exchange and currently has several subsidiaries in Europe, America and Asia. The company operates in the industries of mobile communication, game and network services, imaging products and solutions, home entertainment and sound, devices, financial services, personal computers, and internet service provider (in Japan) (Sony Corporation 2015).
Sony Group’s Business Model
Alison Job (2015) and George Root III (2015) categorized the types of business models as manufacturer, distributor, retailer, and franchise. Manufacturer business model takes raw materials and creates products while distributor business model purchase products from manufacturer and resale it to retailers (Job 2015 and Root III 2015).
The retail business model, Job (2015) and Root II (2015) said, purchase products from distributors or wholesalers and sell it to end-users and corporate users while the franchise model incorporate or replicates the business model of the purchased business. Hence, a franchise business can be a retailer or manufacturer or distributor.
As per the description in the annual report, Sony Corporation has three business models operating as a synergy of the business. Sony Corporation is a manufacturer, distributor, and at the same time, a retailer serving end-users and the business segment.
Sony Corporation purchases raw materials from suppliers and then designs, develops, and manufactures electronic products. The created products are then distributed to wholesaler and retailers. Sony Corporation also has retail outlets in various countries to sell its own brands and provide after sales services.
The company generates its funds from its sales from the wholesalers, retailers, and its own retail outlets. Sony Corporation’s annual report (2015) note that it acquires its funding requirements from the cash flow of its operating activities including assets sales and cash balance and, when needed, financial and capital markets through Sony Corporation and its finance subsidiary in the United Kingdom, SGTS. If the company’s capital markets become illiquid, Sony Corporation obtains funds from the lines of credits from various financial institutions (Sony Corporation, 2015).
Framework
The NetMBA’s (2015) website explained the Boston Consulting Group Matrix as a portfolio planning model of Bruce Handerson who had an idea that as a company increases its market share, its cash flow also increases. The planning model also explains that the company at mature stage and generating significant cash can rapidly grow business units that can be obtained from the other business units (NetMBA 2015).
The Boston Consulting Group Matrix is an applicable planning model for Sony Corporation. When the company became mature in 1957 as it led the competition, it started expansion and had its first subsidiary, CBS/Sony Records Inc., in 1968 (Sony Corporation 2015). CBS/Sony Records Inc. was initially a joint-venture and eventually became a wholly-owned subsidiary. Other currently wholly-owned subsidiaries that started as joint venture include Sony Financial Holdings Inc., and Sony Communications Mobile AB (Sony Corporation 2015).
Sony Corporation (2015) acquired entities that it eventually renamed to be its own subsidiaries, and among these is the Columbia Pictures Entertainment, Inc. The company’s annual report admitted that Sony Corporation (2015) acquires companies and engages in joint-venture to acquire the technology of an emerging electronics company and will eventually buy out its partner as its way to grow its corporation and continue lead in the market (Sony Corporation 2015).
The process of acquisition, merger, and joint venture as ways to maintain leadership can be explained to the fact that technological products have life cycle. Sony Corporation as a manufacturer in the electronics sector needs to always be innovative in its product range to keep its competitive edge.
The Product Life Cycle Stages (2015) stated that products go through the cycles of introduction, growth, maturity and decline. Therefore Sony Corporation need to continuously innovate, engage in joint-venture, merge, and acquire companies to keep its leading position in the market as the new technologies introduced by the other key players increase and dominate.
Profitability of products
The financial information of Sony Corporation (2015) revealed that Home entertainment and sounds and Picture are the top two product ranges of the company with the highest sales contribution accounting for YEN 1.2 trillion and YEN 876 billion respectively (Sony Corporation 2015). The next highest contributors of sales in sequence after the two mentioned include Devices, Imaging Products & Solutions, and Music (Sony Corporation 2015).
Sony Groups current operation and architectural structure
The Object Management Group (2015) defined the business architecture as the structure of enterprises in terms of business processes, and business information. Business architecture considers customers and the changing market to align with the business objectives and goals with decisions about key initiatives, customers, products and services, organization, capabilities, partners, and suppliers (The Object Management Group 2015).
Sony Corporation (2015) relies on the suppliers for the raw materials of its products and use third party organizations for outsourcing services. Knowing that the electronics market is volatile and market easily changes depending on the trendiest innovation, the company’s strategy is to acquire companies with emerging capabilities and potential to have access to its technology.
Sony Corporation (2015) heavily invests on research and development, provides after-sales services, and protects patents and licenses. It has its own financial company that can fund acquisitions whenever expenses are beyond of the operational activity funds. Sony Corporation (2015) is also keen on continuously developing new products to beef up competition and benefits better if the prices of raw materials from its competitors are stable.
Internal Structures and Architecture that needs to be changed
William Pesek (2014) stated that since the Sony Corporation acquired Columbia Pictures Entertainment in 1989, the company lost focus and the upper management refused any restructuring and selling of underperforming assets. Pesek (2014) also added that the company grown too big that it the top management was unable to provide meaningful overseeing of operations.
Shinya Ajima (2015) noted that the smartphone business of Sony Corporation has been losing for long from industry leaders Apple and Samsung and the cheap Chinese brands. Ajima (2015) further noted that Sony Corporation’s Chief Executive Officer Kazuo Hirai announced in 2015 its planned restructuring for the next three years and among these internal structure changes include making its audio and video business a wholly-owned subsidiary since October 2015 as it unveils the high capability of its new Walkman that is very competitive to Apple’s Ipod, possible selling of its TV operation, and increase investment in profitable segments such as camera and sensors, PlayStation video game, movies, and streaming music. Hirai also said that Sony Corporation will also stop volume sales in the mobile phones segment (Ajima 2015).
The planned changes in the internal structure are sound as it seeks to eliminate the non-profitable segments while strengthening investments to the more competitive and profitable Sony products.
How Sony Group’s Business Strategy Affects Its Organizational Structure
Sony Corporation (2015) experienced several successes in such strategy except with its partnership with Samsung when one of its subsidiaries later on sold its share to Samsung. The company has a quality positioning and hence demands a fairly higher price compared to its competitors particularly in the sectors of television in which Sony targets the high end consumers, and mobile phones. However, such strategy recently became disadvantage as there are other electronics companies with acceptable product quality at a lower cost that gained significant market share such as Samsung in the mobile phone, and LG in the television sector.
W. Chan Kim and Renee Mauborgne (2009) of the Harvard Business Review said that heightened economic difficulties had increased the demand for reconstructionist approach in business strategy. For long, Sony Corporation refused to restructure its organization which led to a cycle of loss after its organizational structure grew so huge. The management has been focused on structuralist approach of business strategy which was not effective in the last five years of operation as reflected in its negative net income. Its openness to restructuring of organization in 2015 may have positive changes in its financial condition in the next few years.
Technological changes that disrupted business model and operating architecture
Joshua Gans (2015) stated in his article in Digitopoly that Iphone disrupted the business models of several mobile phone companies including the Sony Ericsson, the mobile subsidiary of the Sony Corporation. The advent of smartphones especially of Iphone has also affected the demand for the gaming console due to the numerous gaming software that is available in the smartphones. Nevertheless, Sony Corporation continued to gain profit in its gaming console sector, thanks to the innovation, quality of the products, and positive perception on PlayStation brand.
The introduction of Ipod in the early 2000s has also affected the popularity of the Walkman brand of Sony Corporation. Recently, Hirai, Sony Corporation’s Chief Executive Officer stated that it will introduce a new high capacity and high capability music product under the brand of Walkman which will able to compete to Apple’s Ipod (Ajima 2015).
Stratechery (2014) projects that the introduction of Apple TV may disrupt the Microsoft’s and Sony’s gaming console as it has the capabilities of TV, display, touchscreen, cameras, user interface and sensors, power management, battery, mechanical and electromechanical features at only USD 49.
Reducing cost and improving quality
Based on the news reports, Sony Corporation has already realized the importance of reducing cost while maintaining or improving product quality. Sony Corporation aimed to reduce mobile production cost by 30 percent (Kyodo 2014), the production cost of PS4 hardware (Fahad, 2015) and film by USD 300 million by 2016 (Schilling 2014).
As Sony Corporation is heavily reliant to its suppliers of raw materials, it is very advisable for the firm to apply procurement strategy in which it can obtain huge discounts of raw materials through bulk buying and through strategic purchase of raw materials at a time that prices are low. Raw materials that are minerals can be purchase in large volume at the time it has a low price and keep the surplus supply for future production.
Further, Sony Corporation can also put investments on its suppliers by buying shares so that it can have advantage of lower cost of supply to be more competitive in the market. By doing so, the quality can be preserved while costs can be reduced. It is also advisable for Sony Corporation to invest on software systems that can make operation more efficient and reduce cost and make tasks for employees simpler and faster.
Other means of cost savings are proper use and monitoring of office supplies usage at ample quantity, encourage employees to prevent wastage in the usage of water utilities, electricity, tissue papers, and drinks. Train and motivate employees to accomplish higher workload with the eight hours work with acceptable to high quality output. The company can also maximize office spaces to avoid renting for additional office space needed for the operation.
As Sony Corporation invest in the required raw materials, it is best to participate in the continuous monitoring and search for better raw materials and technological processes that can help create superb electronic products. It must also hire the most highly competent electronics engineers that can help the company produced excellently designed, high capability, and most durable electronic products.
Combining the qualities of cost-competitiveness, superb quality, and aesthetics can be the key strategies that Sony Corporation can apply to beat the competition in all sectors of its businesses. Additionally, the company should also bear in mind applying strategic investment management, strong and effective marketing strategies, as well as continuous product innovation.
The company should also continue strengthen its research and development and keep up to date to the latest consumer trend to innovate products according to prevailing wants and needs in the electronics sector. It is also advisable for the company to watch over the new product developments of the competitors to always have a benchmark on what better technology it can offer to the end-consumers, businesses, and institutions.
Sony Corporation must also always be updated and prepared to make the consumers lives more convenient and enjoyable. It must also seek ways on how to achieve sustainable production with a care for the environment to serve customers for another long period of time. Some of the strategies can be the usage of renewable energy in the production process, production of energy conserving electronic products, and finding ways to be involved in making raw materials to be renewable as well.
In the end, the key to technological breakthrough includes cost competitiveness, high product quality, sustainability, and superb and trendy product features.
References
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Kim, W. Chan and Mauborgne, Renee. 2009. How Strategy Shapes Structure. Harvard Business Review. Available at https://hbr.org/2009/09/how-strategy-shapes-structure Accessed January 8, 2016
Gans, Joshua. 2015. Why the iPhone confounds disruption theorists. Digitopoloy. Available at http://www.digitopoly.org/2015/02/28/why-the-iphone-confounds-disruption-theorists/ Accessed January 8, 2016
Kyodo. 2014. Sony’s mobile business wants to reduce costs 30% by March 2017. The Japan Times. Available at http://www.japantimes.co.jp/news/2014/11/25/business/corporate-business/sonys-mobile-business-wants-reduce-costs-30-march-2017/ Accessed January 8, 2016
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