Sony Corporation - Losing Competitive Advantage


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Case Details:

Case Code : BSTR192
Case Length : 20 Pages
Period : 1998-2005
Organization : Sony Corporation
Pub Date : 2005
Teaching Note : Available
Countries : Japan
Industry : Consumer Electronics

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"It's not like Sony is going out of business, but there are so many stories to tell about the company's inability to grasp opportunities." 1

- Peter S Fader, Professor of Marketing, University of Pennsylvania in September 2005.

"Like Japan, Sony grew complacent at the worst possible time, amid a harsh, rapidly changing global environment. While Sony rested on its laurels, Samsung Electronics of South Korea developed cutting-edge products and surpassed Sony in market capitalization." 2

- William Pesek Jr, Columnist, Bloomberg News3 in September 2005.

Fall From Grace

On October 27, 2005, Japan-based Sony Corporation (Sony) announced the financial results for the second quarter ending September 30, 2005. The results showed that the trend of dismal financial performance at Sony was continuing. As compared to the second quarter of fiscal 2004, Sony's net income fell by 46.5%.

However, the performance during the second quarter of fiscal 2005 was better than the first quarter of fiscal 2005, when Sony had reported a net loss of 7.3 billion (Refer Table I for comparison of Sony's quarterly financial results). These results were announced after the declaration of the new restructuring plan in September 2005, under the new CEO Howard Stringer (Stringer). Sony had been subjected to a spate of restructuring programs beginning from 1994, all of which had failed to revive its dwindling fortunes. Analysts attributed Sony's problems to the company's bloated cost structure, investments in non-core businesses and lack of new age products. Stringer's predecessor Nobuyuki Idei (Idei) became the CEO of Sony in June 1999.

Idei stepped down from this position due to the failure of 'Transformation 60,' a three year restructuring plan through which he had proposed to significantly improve the financial performance of Sony. In March 2005, Idei named Stringer, who was running Sony's US operations as his successor.

While stepping down, Idei said, "It's funny, 100% of the people around here agree we need to change, but 90% of them don't really want to change themselves, so I finally concluded that we needed our top management to quite literally speak another language."4 In September 2005, Stringer announced a restructuring plan for Sony. As a part of the plan, Sony announced reduction of its global work force by 6.6% and sale of non-core assets valued at 120 billion. Without identifying the products, Sony announced that 15 unprofitable business categories in electronics would be spun off into joint ventures or would be sold off. Sony's management was of the view that the plan would help revive the dwindling fortunes of the company's electronics business.

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1] "Sony's Next Act: Will it Play?" Knowledge@Wharton, September 21, 2005.

2] William Pesek Jr, "Sony's Stinger Needs Lessons from Koizumi," Bloomberg, September 28, 2005.

3] Bloomberg is a leading global provider of data, news and analytics. It provides real-time and archived financial and market data, pricing, trading, news and communications tools in a single, integrated package to corporations, news organizations, financial and legal professionals and individuals across the world.

4] Schlender, Brent, "Inside the Shakeup at Sony", Fortune (Europe), April 04, 2005.

 

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