Creation of synergies between business groups

Sony Incorporated

As explained by McIntyre (2009), nearly every segment of Sony’s business did poorly for its fiscal year ending March 31, 2009 Revenue in its electronics division dropped 17% due to intense price pressure in LCD TVs, PCs and video cameras. Sony’s video game division had an 18% drop in revenue. Handset unit sales at Sony Ericsson have been dropping. Outside its core consumer electronics operations, its movie studio’s revenue fell 16%. While the company claims otherwise, the situation is attributable to much more than the current global economic crisis. Read on to understand why Sony is faltering.

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Sony seemingly has no niche left in part because it never learns from its mistakes. Sony lost the digital music business to Apple because it insisted on proprietary technolgy (Rosenberg, 2009). Next, Sony stuck its neck out for winning a costly and risk Blu-ray standards war and the large gamble is in danger of not having a payoff. Blu-ray Disc drives, drives with an optical disc storage medium designed to supersede the standard DVD format were supposed to be the company’s ace in the hole. However, many believe that Blu-ray is dying for a number of reasons according to Harris (2008). Competition with a competing standard, HD DVD, stalled the industry for two years and dampened the initial enthusiam of consumers. Believing that it had a huge advantage, the Blu-ray Disc Association, an industry consortium that develops and licenses Blu-ray Disc technology, implemented costly Blu-ray licenses. However, consumers and even small producers wouldn’t pay. Then, low cost up-sampling DVD players diminished the video quality advantage of Blu-ray DVDs. This technology substitution could be a huge blow to Sony who is counting on its Blu-Ray Disc-related businesses to approach $10 billion in annual revenue by the fiscal year ending March 31, 2011 (King, 2008). The company was counting on integrating the Blu-Ray technology into its LCD televisions as well as its gaming and mobile phones for competitive advantage (King, 2008), but now it may simply make its products less price competitive.

Also, on the competitive front, Sony is losing in many areas both in terms of innovation and price. In its video garming division, Nintendo’s Wii and Microsoft’s Xbox 360 are taking market share from Sony after its disappointing introduction of PS3 (McIntyre, 2009). Nintendo’s product was considered much simpler and easier to use than PS3 (Kelly, 2009), but, even so, Sony resisted lowering its price for what most considered an inferior product (McIntyre, 2009). The company’ LCD TV, PC and video cameras business under intense price pressure; n particular, the LCD TV is considered a commodity produced by pratically all large consumer electronics firms (McIntyre, 2009).

Realizing that Sony is having trouble competing with individual products, the company’s CEO, Howard Stringer, is stressing the creation of synergies between business groups. He sees tying together Sony’s personal computer business, mobile gadgets and Sony Computer Entertainment and would also would like to see televisions, digital imaging, home audio and video businesses work more closely together (Kelly, 2009). Even so, Sringer calls his business units silos and admits that they have trouble working together (Kelly, 2009). it’s difficult to imagine how the disparate business units would come together to create synergies and drive innovation if one considers a quote by the CEO of Sony Pictures Entertainment, Michael Lynton,

“I’m a guy who doesn’t see anything good having come from the Internet…(the Internet) created this notion that anyone can have whatever they want at any given time. it’s as if the stores on Madison Avenue were open 24 hours a day. They feel entitled. They say, ‘Give it to me now,’ and if you don’t give it to them for free, they’ll steal it.” (cited in Rosenberg, 2009).

After posting a loss of $1 billion dollars for the year ended March 31, 2009, Sony has not put the bad news behind the company (Kelly, 2009). In fact, the company expects to lose another $1.2 billion for its current fiscal year (Kelly, 2009). The company’s primary response has been cost cutting and restructuring. In December 2008, Striker announced plans to close eight plant and 16,000 jobs (Kelly, 2009). Then, in May 2009, he revealed plans to cut costs by an additional $2,8 billion through more layoffs and production cuts and a greater reliance on outsourcing (Kelly, 2009). In addition, Stringer asked Sony president, Ryoji Chubachi, to step down in April 2009 (Ricker, 2009). According to Ricker, Chubachi became a vice chair while Stringer took direct control of Sony’s core electronics division.

Perhaps one positive note for Sony is that its 2009 financial results have been prepared in accordance with GAAP / IFRSs and have been fully audited by PricewaterhouseCoopers (Documents submitted to the SEC (EDGAR) Form 20F and others). At that time, the company had more than $6.8 billion in cash assets, indicating long-term financial stability even if the company continued to lose money at the rate of $1 billion a year. Further, so far, the bleeding isn’t as bad as Sony had anticipated for the fiscal year 2010. Its loss for the fiscal first quarter was $391 million (Documents submitted to the SEC (EDGAR) Form 20F and others) which came in better than the company’s forecast.

In summary, the market segments Sony competes in are extremely competitiver and demand cost efficiency and innovation. Strikers says he’s focused on both, but his belief in business unit synergies to foster innovation doesn’t seem convincing. If Blu-ray does fall apart, this could drag down many businesses. The company lacks a culture for innovation and remains too slow to respond to market trends and too proprietary.


Documents submitted to the SEC (EDGAR) Form 20F and others.

Harris, R. (2008, October 28). Blu-ray is dead — heckuva job, Sony!

Kelly, T. (2009, May 14). Stringer sticks knife deeper into Sony. Forbes.

King, D. (2008, June 26). Sony shoots for $10 billion in Blu-ray sales by 2011. Video Business.

McIntyre D.A. (2009, June 7). Sony (SNE) will have to sell its studio business, could get $6 Billion.

Ricker, T. (2009, February 27). Sony’s Howard Stringer consolidates power as president resigns.

Rosenberg, D. (2009, May 16). Sony Pictures CEO hates the Internet.

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