Managing Change at Sony Japan Case Study

Managing Change at Sony Japan Case Study
Organisational change can affect practically all aspects of organisational functioning. The following Case looks at challenges that the techno-digital Japanese organisation, Sony, had to deal with in order to survive and compete in a highly competitive global market.
During the late 1990s and early 2000’s companies in Korea and Taiwan such as LG and Samsung developed significant innovations in technologies such as the development of advanced LCD screen displays and flash memory, that made Sony’s technologies obsolete. Similarly, in terms of products, companies such as Apple, Nokia and Nintendo were producing digital devices such as ipod and smart phones that were better and more affordable for the customer than Sony’s old-fashioned and more expensive products. Where the other companies worked to reduce manufacturing costs, Sony lagged behind with a bloated cost structure that made it uncompetitive. At that time, Sony’s engineers were churning out up to four new product ideas each day, something attributable to its culture called the ‘Sony way’, which emphasised communication, cooperation and harmony between its product engineers across the company. But this freedom to pursue their own ideas became instead a recipe for rivalry and the resulting accumulation of many different product teams, meant that Sony was actually dealing with a fractured system from within. The fierce internal competition did little for the larger Sony organisation as costs blew out and sales of their high-priced products began to slump.
One problem that became obvious was that Sony’s traditional culture ceased to be compatible with the changing face of the techno-digital world. The top-managers at Sony’s most successful divisions worked to protect the interests of their divisions rather than those of Sony itself. Competition between the managers increased as the different divisions fought to win the funding they felt they needed to develop their particular products. As their focus became increasingly fractured, they failed to recognise the emerging global competition. Gradually, Sony’s performance declined until by 2005, this techno-digital giant had lost it’s position. Something had to be done to rescue the company from self-destruction.
Sony’s Japanese top managers decided to take a revolutionary step and employed a gaijin (non-Japanese) executive to lead the company out of trouble. They chose Sir Howard Stringer, the previous head of Sony’s North American operations who had been instrumental in leading significant changes at Sony’s US division. Stringer’s immediate task was to bring the realities of the global competition to the forefront at Sony, and he knew it had to be done quickly.
Stringer’s first challenges included reducing operating costs which, at that time, were double those of their competitors. He also had to break one of Sony’s traditional policies, which had been a promise of lifetime employment for its workforce. He began to lay-off employees at every level. Within five years, he had reduced the workforce by over 25,000 employees, he had closed 12 factories and removed and replaced divisional managers in order to minimise the power struggles that were so damaging to the company. When some managers ignored Stringer’s warnings, they were removed. Gradually Stringer managed to downsize Sony’s bloated corporate headquarters and slowly change the culture of the organisation. In Stringer’s words ”the business of Sony had been management, not making products”. Sony had to rediscover its strengths in order to once again hold a place in the market.
In 2009, Stringer appointed himself the CEO of the struggling core electronics group and went further by replacing four top executives with young managers who came from outside of Japan and who were familiar with the digital world. Stringer insisted that managers must now prioritise and invest in only those products with the biggest chance of success so that Sony could reduce its out-of-control research and design costs.
Further to that he pushed for changes to how Sony sourced its suppliers. He reduced the number of suppliers from 2500 to 1200, thereby cutting purchasing costs by $5 billion – or 20%. This meant that rather than divisions within Sony competing with each other, that all purchasing was centralised allowing for better negotiations and of course cheaper prices.
By 2010, Sony’s financial results suggested that Stringer’s initiatives were paying off. He had stemmed Sony’s huge losses and its products were selling better. Stinger knew that with Apple, Samsung and Panasonic competing strongly in these markets that global rivalry was likely to remain intense, however, his goal remained clear – for Sony to regain its global leadership in making premium, differentiated digital products that command high prices and result in good profit margins for the company.
[adapted from Waddell, D., Jones, G.R. and George, J.M. (2013) Contemporary management. McGraw Hill. Aust.]