case study, leadership, Marketing

Sony: Its Growth & Strategic Thinking

This is a story about “Sony” – one of the world’s most admired companies and a top Japanese multi-national conglomerate. If you read through the history of Sony and study its growth pattern, from the start, Sony was built on strong strategic mindset.

SONY – Beginning in 1950

Back in 1950, Sony started when Akio Morita and Masaru Ibuka were introduced to the tape recorder. During that period, Japanese companies didn’t make any tape recorder so they decided that tape recorders would be the first product. From the beginning, Sony’s founders were more innovative and pioneering than other traditional Japanese companies, developing their own machines and magnetic tape without the outside help. Instead, they were ambitious and were willing to be unconventional.

At first, they thought their product would sell itself, but potential customers mentioned that their prices were too high. So morita researched the market and realized that high value items sell only to customers if the consumers understand the value. Thus, rather than relying on the third part distributors, they decided to push out their own sales outlets.

During that period, Japanese economy was unstable and it led Sony to think outside the box. In order to offset regional and national business risk, Sony needed to target international markets.  Instead of dealing through trading companies, it decided to establish its own marketing system. 

Because Sony exported many of its products outside Japan and cost of repairing was high, it quickly realized the need to improve its product quality and reliability. While western companies were deciding whether to competitive lower their product prices or improve their product qualities, Sony was already doing both at the same time. 

Expansion & Growth in 1970s

With increasing sales and rapid growth of the company size, Sony began production outside Japan. In 1970, it opened up its first color television factory in San Diego, USA.
Sony’s production facilities spread through the USA, Europe, Brazil and Venezuela. Investing heavily in market development, Sony focused on creating worldwide brand. This growing market share contributed further process improvement and lower costs for Sony.

To expand and exploit its strong brand recognition, Sony developed a portfolio of products by putting together project teams. According to Sony founder Morita:

“We always have an image of how an ideal product would look and perform in our minds. This is not wishful thinking on our part, but a concrete plan for which exact product specifications have been drawn up, including a target price. Management then carefully selects and challenges a small task force, or design team, to produce a prototype with step-by-step creative engineering.” – Sony Founder, Akio Morita

Period of Growth – New Product Development

In 1964, Sony launched the first home video recorder.
In 1965, Sony launched the solid-state condenser microphone.
In 1968, Sony launched the Trinitron Colour Tv tube – This created a decade of exponential growth for Sony.

Sony Triniton
1971 SONY Triniton Color TV Tube (Source: http://bit.ly/1QQoqDS)

In 1979, Sony launched the world-famous Walkman personal stereo.

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SONY Original Walkman

Above image is the “Original Sony Walkman TPS-L2 from 1979”. Source: https://en.wikipedia.org/wiki/Walkman#/media/File:Original_Sony_Walkman_TPS-L2.JPG 

This walkman series was featured in “Back to the Future” by Michael J. Fox in 1985.
walkman

Prior to Walkman becoming the portable player, there was internal objection from the sales and marketing team at Sony. It was Morita who gave the go-ahead decision to the Walkman design team, overriding the objection from the sales and marketing department. After launching the Walkman, Sony immediately made improvements and introduced new versions, believing that since the prototypes were already introduced, it can be flexible in marketing. With 85 different Walkman models introduced, Sony took 40% of the portable tape player sales in the US and by 1980s, 50% market share was captured in Japan.

For detailed history of the different Walkman versions, check below link. It has both images and features explanations. It should be interesting to look at their product development: http://www.theverge.com/2014/7/1/5861062/sony-walkman-at-35

By the late 1980s, Sony became the world’s leading consumer electronic company.
By 1980s, Sony became $2.9 Billion dollar business, based on their 1980 annual report.
(Sony Revenue in 1980s: http://www.sony.net/SonyInfo/IR/library/ar/8ido18000005fmm3-att/1980-E.pdf )

Rivalry & Diversification 

The company’s strength and flexibility meant that it was able to withstand making mistake in the market. Sony’s Betamax video system lost the battle to become the industry standard to Panasonic’s VHS version. Additionally, the digital audio-type Sony launched in 1990 to rival the compact disc sold only a fraction of what was planned and had to be retargeted to the business professional market, instead of the consumer market.

Due to the increasing intensive competition and rising yen, Sony began diversifying and moved into other various industry. In the late 1980s, Sony bought CBS Records and Columbia Pictures Entertainment – two of the largest media company in the US.

In 1990s, Sony recognized that external factors shaping its industry, especially in the international battle over high-definition TV standards and decided that the music and films themselves rather than the actual machines on which they were played offered the best route to future profitability. Sony’s high-risk takeovers took several years to succeed and taught Sony the need to first lower the risk by forming media alliances when entering into a new market.

Sony entered into various markets – including semiconductors, home video games, and laptop computers. It manufactured Apple’s highly successful PowerBook and joined forces with Intel to develop PC desktop systems. With Nintendo, it created a game console with the graphic capabilities of a desktop computer, and when Nintendo pulled out, Sony introduced its own gaming console (PlayStation). By the end of the 1990s, Sony was challenging Nintendo and Sega as the leading producer of game computers. Sega, as of 2015, is still profitable with the net sale of $1.2B and increased $7.9M profit.
(http://www.nintendolife.com/news/2015/11/sega_posts_financial_results_sales_are_down_and_profits_are_up)

By creating alliances and partnerships, Sony was able to expand its portfolio of low-cost options and hedge its bets against the uncertainties created by the fast-moving and increasingly overlapping consumer electronics.

What Can Be Learned from Sony History?

Based on the Sony’s History, we can learn the following: 
1. To build a successful company, it requires the balance between evolutionary and revolutionary strategies.

Evolutionary strategies – Continuing the development of 85 different Walkman models and utilizing brand recognition to increase product sales.

Revolutionary Strategies – Diversifying into media industry & moving beyond the case tape products into semiconductors, PC systems and video products.

2. How the most profitable approach is determined by the level of uncertainty in the business environment – Referred the increasing Yen and intensive competition forced Sony to diversify and aggressively take-over Columbia Picture Entertainment.

3. Solve problems and make decisions that are fast, reliable, informed , predictive, responsive and responsible; Inevitably this increases the likelihood of mistake – in case of the Sony’s Betamax video system. So mistakes can happen even at the most profitable situation.

4. Foster Creativity and innovation.
It is crucial to develop an innovative and creative culture to help people adapt their thinking and decisions to new circumstances.
5. Understand substantive issues. 
Rather than solving the big problem, people tend to get overwhelmed by the small issues due to the lack of information or analysis, or highly complex problems. Work out what is happening and why it is occurring, and what are its consequences. Focus on how the problem can be solved.
6. Last and most importantly, Focus on the relevance and potential of the business idea.  Many failing organizations focus inadequately on their markets, customers or products. Regular reviews of strategy and a forward-looking approach can counter these difficulties.

Challenge the prevailing assumption with a single question – “WHY?” 

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