CLASSIC CASE STUDIES
Vivek Gupta and Konakanchi Prashanth
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? G G G
As conditions change, Sony has to change accordingly, because their conventional strategy won’t transcend to the Internet-enabled model.1 Mitchell Levy, author of The Value Framework
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 criticised 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 in 2002–03), coupled with increasing competition in the consumer electronics industry was severely affecting its profitability. 1 2
‘Sony Analyzed via the Value Framework’, Mitchell Levy, posted on www.ecmgt.com, October 2002. Sony was established in 1946. The company invented the video recorder, walkman and mini-disc recorder. It is a leading manufacturer of audio, video, communications and information technology products. Sony has also forayed into diverse fields like music, television, computer entertainment and motion pictures. The company is engaged in five main lines of business – electronics, games, music, pictures and financial services.
This case was prepared by Vivek Gupta and Konakanchi Prashanth of the ICFAI Center for Management Research, Hyderabad, India. It is intended as a basis for class discussion and not as an illustration of either good or bad management practice. © V. Gupta and K. Prashanth, 2004. Not to be reproduced or quoted without permission.
Exploring Corporate Strategy by Johnson, Scholes & Whittington
Table 1 Sony’s financials (1991–2003)
Year ended March 31 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 * ¥100 = approx. A0.75.
Source: Annual Reports 1991–2003, www.sony.net.
Sales & Operating Revenue (¥bn)* 3695.51 3928.67 3992.92 3744.28 3990.58 4592.56 5663.13 6755.49 6804.18 6686.66 7314.82 7578.26 7473.63
Operating Income/loss (¥bn) 302.18 179.55 126.46 106.96 −166.64 235.32 370.33 520.21 338.06 223.20 225.35 134.63 185.44
Net Income/loss (¥bn) 116.92 120.12 36.26 15.30 −293.36 54.25 139.46 222.07 179.00 121.83 16.75 15.31 115.52
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...