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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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Transformation 60

Transformation 60 was a three year restructuring plan, which required Sony to lay off 13% of its workforce or about 20,000 people by March 2006. The plan aimed at optimizing manufacturing infrastructure and reducing fixed costs, by combining the operating divisions and shifting component sourcing to low cost markets like China. Sony planned to reduce costs by downsizing and consolidating manufacturing, distribution, customer service facilities and also by streamlining procurement. Through these efforts, Sony aimed to achieve cost savings of 300 billion by March 2006...

Clarifying Operational Structure and Concentrating on Technology and Resources for Growth

Convergence of Electronics Business: As of 2003, the electronics business accounted for revenues of 4940 billion and recorded a profit of 41 billion. Plans for the home electronics group under Transformation 60 included developing next generation televisions, creating new markets through convergence of electronics and game technology, and moving towards 'High Definition' (HD) products. Sony allocated 280 billion for restructuring the electronics segment. As part of Sony's plan to introduce next generation televisions, the company launched flat panel televisions. Other elements of the plan were to bring out high quality picture using high resolution large screen, manufacture products that were compatible to broadband, and introduce next generation television and a media processor called CELL...

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Reforming Operational Profit Structure

In order to revise the profit structure, Sony planned to implement its second phase of structural reforms in its electronics and entertainment sectors from 2005. Sony planned to focus resources on the important categories like flat panel televisions, home servers and mobile products. Sony EMCS (Engineering, Manufacturing and Customer Services) was revamped to strengthen products like Trinitron CRT televisions, analog video and personal audio systems. The engineering and production technology function was strengthened and the distribution function was integrated with the production, engineering and customer service functions...

The Implications

The above plans were not successful mainly due to the significant drop in sales of conventional televisions and portable audio products. Sony's electronics business witnessed losses for two consecutive years. The decline in sales of Sony's electronics products was prominent in Japan, where the demand for Vaio personal computers and cathode ray tube televisions reduced significantly. The games division also did not fare well with the sales of Playstation 2 consoles falling rapidly. At the same time, competitors like Matsushita and Sharp were able to increase their sales of digital cameras, DVD recorders and other popular items...

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