The electronics and media giant Sony was struggling through the late 1990s and early part of the 21st century. With each disappointment, it seemed that Sony’s management launched another restructuring of the company. By 2003, commentators were beginning to ask whether restructuring was part of the solution or part of the problem. How should Sony be managing its strategic renewal? Introduction For the first quarter ending 30 June 2003, Japan based Sony Corporation (Sony)2 stunned the corporate world by reporting a decline in net profit of 98 per cent. Sony reported a net profit of ¥9.3 million compared to ¥1.1 billion for the same quarter in 2002. Sony’s revenues fell by 6.9 per cent to ¥1.6 trillion for the corresponding period. Analysts were of the opinion that Sony’s expenditure on its restructuring initiatives had caused a significant dent in its profitability. In the financial year 2002–03, Sony had spent a massive ¥100bn on restructuring (≈£500m; ≈a750m). Moreover, the company had already announced in April 2003 about its plans to spend another ¥1 trillion on a major restructuring initiative in the next three years. Analysts criticized Sony’s management for spending a huge amount on frequent restructuring of its consumer electronics business, which accounted for nearly two-thirds of Sony’s revenues. In 2003, the sales of the consumer electronics division fell by 6.5 per cent. Notably, Sony’s business operations were restructured five times in the past nine years. Analysts opined that Sony’s excessive focus on the maturing consumer electronics business (profit margin below 1 per cent in2002–03), coupled with increasing competition in the consumer electronics industry was severely affecting its profitability. However, Sony’s officials felt that the restructuring measures were delivering the desired results. According to them, the company had shown a significant jump in its profitability in the financial year 2002–03. Sony reported a net income of ¥115.52bn in the fiscal 2002–03 compared to ¥15.31bn in 2001–02. (See Table 1 for Sony’s key financials in the past 13 years.) A statement issued by Sony said, ‘The improvement in the results was partly due to the restructuring of its electronics business, especially in the components units. At the beginning of the new millennium, Sony faced increased competition from domestic and foreign players (Korean companies like Samsung and LG) in its electronics and entertainment businesses. The domestic rivals Matsushita and NEC were able to capture a substantial market share in the internet-ready cell phones market. Analysts felt that the US-based software giants like Microsoft and Sun Microsystems and the networking major Cisco Systems posed a serious threat to Sony’s home entertainment business. Background On 7 May 1946, Masaru Ibuka (Ibuka) and Akio Morita (Morita)4 co-founded a company called Tokyo Tsushin Kogyo Kabushiki Kaisha (Tokyo Telecommunications Engineering Corporation) with an initial capital of ¥190,000 in the city of Nagoya, Japan. They gave importance to product innovation and decided to offer innovative, high quality products to their consumers. The founders introduced many new products like the magnetic tape recorder, the ‘pocketable radio’, and more. By the 1960s, the company had established itself in Japan and
changed its name to Sony Corporation. During the 1960s, the company focused on globalization and entered the US and European markets. In the 1970s, Sony also set up manufacturing units in the US and Europe. During this period, Sony developed and introduced the Walkman, which was a huge success. It significantly boosted Sony’s sales during the 1980s. By the mid-1980s, Sony’s consumer products were marketed in Europe through subsidiaries in the UK, Germany and France. In 1989, Norio Ohga (Ohga) took over as the chairman and CEO of Sony from Morita. Under Ohga, Sony began to place greater emphasis on process innovations that improved...
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