Reference no: EM132195189

Sony Restructures Itself

Sony was founded in 1946 as an engineering company called “Tokyo Tsuchin Kyogo” by Masaru Ibuka and Akio Morta. It had 20 employees and a capital of $2,500. From the beginning, the company focused on production innovation and high quality.

Sony started off manufacturing telecommunications and measuring equipment and then transistor radios and tape recorders. When the company went international, it changed its name to Sony. Sony set up its first subsidiary in the USA in 1960 and was listed on the New York stock exchange in 1970, the first Japanese company to do so.

Sony always had a strong culture of innovation and deeply held common values of quality and excellence. It introduced the Trinitorn Color TV in 1968; the Walkman (1979); the first compact disk play (1982); the Camcorder( 1982); the Discman portable CD player(1984); Play Station (1994); and the Digital Handycam (1993). However, Sony’s success was not to last forever. From 2000 to 2004, Sony’s shares dropped from a high of $150 to $25 due to increased global competition from relatively new products such as Samsung’s LCD and plasma televisions and Apple’s iPod. Sony was forced to make some major changes.

In 2005, Howard Stringer because the first non-Japanese CEO of Sony. Stringer was born in Wales but moved to the USA and joined Sony America in 1997, where he gained a reputation for improving the financial performance of Sony America by integrating its electronics, game and entertainment groups. When Stringer relocated to Tokyo to assume his position of CEO, he knew exactly what he had to do!! He knew that Sony was experiencing financial loss from increased competition and he was determined to make this restructuring a success. Sony was originally structured according to products, but each business product unit operated independently with its own accounting, human resources, and sales departments. There was little communications across units and frequently the technology for products was incompatible so customers complained.

Stringer flew his executive team from Sony America to Tokyo and together they designed a restructuring process for Sony. When they were finished, Stringer announced his plan. He began by telling the employees that “In the old days, at the beginning, when Sony was new, everyone took risks and dared to be innovative. Serving the customer was important. Now, everyone finds excuses for not changing. Everyone has an excuse why things can’t be done. The customer is not important any more. People only care about themselves and protecting their own territory.”

Stringer announced his new plan, “Sony United” and it focused on improving financial performance by changing the culture of Sony Japan so that each unit who have to collaborative with other Sony units. Stringer kept the original design of five product groups, but centralized human resources, finance, sales, and research and development under the Sony Electronics division. He believed that this would save money and allow software development across all products so that all of Sony’s products could operate seamlessly with one another. He also laid off 12,000 employees and closed 11 plants. However, the restructuring was met with resistance and change was slow—as was profitability.

In May, 2009 Sony announced its first full year operating loss, with losses of $6.5 trillion dollars.   A month later it announced that the new Sony CEO would be Kazuo Hirai. The first thing that Hirai did was to form cross-functional teams from across all five divisions to diagnosis the current problem and to come up with solutions. After three month, the teams presented their finding to Hirari and based upon their recommendations, he announced his “One Sony” plan which was a restructuring of Sony into two business groups: 1) the Networked Products and Service Group (NPSG), which included entertainment, personal computers, mobile products, and Sony Media Software and service, and the 2) New Consumer Products Group (NCPG) which aimed to achieve profitability through product innovation and improving efficiency and speed of operations through sharing of technology and cross-functional collaboration.

Following this new restructuring plan, Sony’s gained market share and appeared to be on the road to financial profitability. It experienced three good years of market growth and a slow but steady gain in profitability.

On March 12, 2012, Sony announced that it would cut about 10,000 jobs in the fiscal year ending in March 2013. It also announced a new restructuring plan to turn the company around after posting a record $6.4 billion in losses for the 2012 fiscal year. With the job cuts and the corporate reorganization, Hirai said that he anticipates an operating profit of $2.2 billion for the current fiscal year ending March 2013.

Discussion Questions:

1. What was the triggering event that made Howard Stringer the new CEO of Sony, Japan?

2. What was Stringer’s primary renewal strategy goal and what was his secondary strategic renewal objective?

3. How was Sony originally structured when Stringer arrived? Was Stringer trying to achieve more integration or more differentiation?

4. Why do you think Stringer met with so much resistance? In other words, why did he fail in leading change? What did he do wrong?

5. Why was Hirai more successful in leading change? What did he do that helped him to be more successful?

6. How would you describe the culture of Sony? What was Sony’s original culture? What had it become? And what role did it/does it play in the failure of Sony’s change efforts?