For a firm to be successful innovation is the key to it (appendix 2). The innovation capacity of an organization depends on the culture of the firm, internal and external environment. A business's strategy must therefore be to increase the innovative capacity of the firm. Generally to increase the innovative capacity there are a number of factors which have to be taken into account: A clear sense of mission and purpose. One of the company's aims is continuous improvement, which has to be supported by total quality management and full customer satisfaction.

A team based working approach towards different projects and problem solving. Risk taking is a major challenge for the company. Which has to be accepted. Constant communication with customers applies investors and employees. It also depends on the environment where new ideas and free communications are encouraged. The environment is one of openness, where new ideas and free communications are encouraged at all levels. Feedback from the stakeholders is constantly in the process.

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Sony is a leading manufacturer of audio, video, communications, and information technology products for the consumer and professional markets. Its music, motion picture, television, computer entertainment, and online businesses make Sony one of the most comprehensive entertainment companies in the world (appendix 2). Sony's principal businesses include Sony Electronics Inc. , Sony Pictures Entertainment, Sony Music Entertainment Inc. , and Sony Computer Entertainment America Inc.

The first step to innovation is research and development contacts between R and D design and production, sales, marketing and customers are very important for a company to produce an effective innovation. The idea of generating externally comes from innovative companies that look at the customers and suppliers as potential source of ideas. Successful ideas are rewarded and a failure is regarded as part of a learning process. For a business to be successful, it is important for them to clear target which are to be set and compared to the competitor's product as used for the customer satisfaction.

The skills content of the staff at all levels are critical to the ability to innovate. Sony gives a great importance to the training, continuous training and development of staff at all levels, through which new ideas, more innovative thoughts would take place as more experience is given. Today Sony focuses on the customer satisfaction, for them the key "innovation" makes them positive in their approach towards the customer where the customer satisfaction is a key performance driver.

The company does not only carry the whole process of innovation internally, external resources also take place. Money plays an essential role in the whole process in Sony a limited being a company at a large scale needless of providing these factors. Sometimes when the company does not have enough funds to support the research and development, or any service carried out towards a successful innovation, then the company needs investors. People from outside business such as the investors play a crucial role in the innovation process.

The organization must keep a good relationship with investors, informing about their innovative activities and ensuring confidence and strong long-term relationships. Though some external business make difficult for the organization to take over whole of the innovation. Such as the government needs to put limits to the organization, to which extent they can innovate. The reasons for Sony's failures probably can be: Uncertainty- Doubts within the business may take place; the business in some cases tends to me emphasized in not having a complete confidence in their plans or decisions.

Poor commercialization- Possibilities take place of not having interacted with the customers as required, and so these may not have been aware of the new product in the market. Slow to market- Some times the organizations is not aware of the demand that may satisfy the customer and by the time the products reaches to the market, it might be too late. Poor positioning strategy- a business should focus on the product and the place. One reason of Sony's failure might be heading for a wrong market, at a wrong time. Appendix 1) There are four main innovation strategies: Fast follower - It may give advantage to a business if it has quick reactions toward the competitor's actions and the customer demand. A business must take quick actions in regard to the changes in the market and follow the demand and customers actions. Market segmentation- Once the Sony's has faced a failure due to not aiming at the correct market, if it improves the product and supplies it to where it is required, the innovation might be more successful.

Leadership- A Leader must have a good relationship between its customers and the staff and as well as a good communication towards these. Cost minimization- The less the costs are, the more quickly cash comes in the organization and facilitates the investment towards new demand, new ideas. For Sony to create an effective and profitable product it is very important that the efficiency of day-to-day operations within the company that match the creativity in the development of new products and services and also there is enough room to try out new ideas.

For new product as we said above, market research is an important factor for managing uncertainty for continuous innovation. But on the other hand it can prove very ineffective at reducing risks for discontinuous innovation. Sony has shown that experimenting with new concepts products or services in small niche markets allow organizations to establish the potential of risk and ease for uncertainties. Another reason for innovation to be an important factor is that innovative employees show significant improved performance when their managers practice a fair leaderships style.

Where employees suggestions are captured as internal ideas, these successful ideas are countered as a reward and failures are regarded as a part of a learning process. As a company seeks collaboration with other firms, it maximizes the knowledge and minimizes the risks. Recognizing opportunities for discontinuous innovation is very important. There is a famous equation, which is: Innovation= theoretical conceptions + technical invention + commercial exploitation

For example Sony innovated a Walkman, which was patented. This allowed only the Sony organization to use this name and protect it from any other competitors. This proves them finding a niche in the market. (appendix 1) Conclusion- In my opinion the capacity of the firm to innovate depends on many factors, not least the effort the make to create new products or improve production processes, the extent of skills in their staff, their ability to learn and the general environment in which they operate.

Sony being a successful organization has achieved effective factors by continuous innovation. Though the company using innovation could make the product effective and be ahead of the competitors, some strict government rules take place and other restrictions in the business, which do not allow the Sony to excess their limits. The innovation capacity of an organization is depended on how the culture of the firm is in both the internal and the external environment. The new millennium is here and Sony has plenty to celebrate.

The company's approach - doing what others don't - has paid off, in the form of great products that people covet. Throughout its history, Sony has demonstrated an ability to capture the imagination and enhance people's lives. The company has been at the cutting edge of technology for more than 50 years, positively impacting the way we live. Further, few companies are as well positioned to drive the digital age into homes and businesses around the world for the next 50 years and beyond.

Sony innovations have become part of mainstream culture, including: the first magnetic tape and tape recorder in 1950; the transistor radio in 1955; the world's first all-transistor TV set in 1960; the world's first color video cassette recorder in 1971; the Walkman personal stereo in 1979; the Compact Disc (CD) in 1982; the first 8mm camcorder in 1985; the MiniDisc (MD) player in 1992; the PlayStation game system in 1995; Digital Mavica camera in 1997; Digital Versatile Disc (DVD) player in 1998; and the Network Walkman digital music player in 1999.

Today, Sony continues to fuel industry growth with the sales of innovative Sony products, as well as with the company's convergence strategy.

Examples include: VAIO notebooks that raise the bar in both form and function; digital cameras that capture pictures on a floppy disk, CD-R or Memory Stick; a handheld device that lets you store and view photos as well as moving photo; MiniDisc recorders with a digital PC Link to marry high quality digital audio with downloadable music; DVD/CD multi-disc changers that playback both audio and video; digital network recorders that pause, rewind and fast-forward "live" television using a hard-disc drive; and Hi-Scan flat screen TVs that deliver near HDTV picture quality through Digital Reality Creation (DRC) circuitry.

But Sony is not just the market leader in consumer electronics. Through research and development, the company has made considerable inroads in the areas of professional broadcasting (with the creation of the Betacam, DVCAM, HDCAM and 24P formats); mobile communications (with digital phones and the CLIE handheld); PCs (with VAIO notebook and desktop computers); storage and media (with the invention of the floppy disk, AIT and DTF drives, and the Memory Stick) and, now, the Internet.

Sony's future brand success will be determined by how the company meets the challenges of change. Sony has always led the market in terms of innovation. But in a digital networked world, products will no longer be developed with just hardware in mind. The convergence of technologies - consumer electronics, computing and telecommunications - is a reality, with new competitors forming and consumer mind share up for grabs. By itself, the $3 billion and 20,000 job downsizing now underway at Sony won't reinvigorate the company.

Neither will the merger of its music division with Bertelsman. The change that is needed will have to affect the philosophy of the company. Is such a thing possible? The hyper fast world of consumer electronics demands innovation, not just renovation. The good news for Sony is that they have already taken the first steps. The elements for a new era are already there: the company has the willingness to bet and win on original ideas, and one of its strengths -- now flagging, by the way -- is keeping up with the pace of changes in the consumer electronics world.

When Sony elevated Ken Kutaragi to the head of Sony Computer Entertainment in 1999, it showed, perhaps inadvertently, that rebels get rewarded. Mr. Kutaragi, the wunderkind engineer-turned-executive, started with the company in 1975. He produced a series of breakthrough products, driving Sony to make visionary leaps into new areas, instead of taking baby steps to extend established lines. Sometimes Sony listened to Mr. Kutaragi, sometimes it didn't. The company's rejection of his liquid-crystal-display projector in the 1970s lost a ground-floor opportunity in a new industry.

But Sony's embrace of his faith in a high-end computer game business, namely Play Station, brought the company early leadership in a business that might not have existed at all but for one engineer's vision. Created in the early 1990s, the highly profitable Play Station constituted 60% of the company's total profits and about 13% of its revenue in 2002. Now it's time for Sony to institutionalize the rebel's revolution by taking three crucial steps. Firstly, install innovation in the way Sony does business.

That means that the best parts of the "old" Sony should reign in a new Sony. Most people have forgotten that the very sight of a personal stereo was once bizarre. Yet the lonely introduction of the Sony Walkman in 1979 turned out to be inspired. Personal, portable music devices provided a critical platform for businesses such as MTV, and arguably helped drive the explosion of the most successful consumer-electronics product in history, the compact-disc player. Bold new products can mean bold new profits and whole new worlds. The Walkman is the signal Sony example.

Meanwhile, the company's most recent showpieces are the Vaio computer and Wega television, which are only variations on familiar themes. Sony's future lies in Kutaragi-style bold steps. Secondly, Sony needs to build on its skill in keeping up with the pace of the market. The features and functionality of Vaio and Wega well reflect the trends of the consumer electronics markets: video- and music-friendly computer systems with high-end display and sound capabilities, and high-definition televisions with full-featured, user-friendly controls and eye-catching designs.

But more critically, Sony's Everquest has done more than keep pace with the market -- in this case, for online computer games. With a half a million or more players worldwide, and an average per-player playing time of over 22 hours a week, Everquest represents a quantum leap, a true business-model innovation. An online fantasy game enabling players to role play, Everquest has proved so successful that characters and treasures that only exist in the computer world are traded on eBay.

It drives demand for software enhancements to the game, new hardware to improve performance, and opens the door to future business opportunities. Thirdly, bring business innovation into all corners of the organization. Sony is the only company in the world that spans such a broad gamut of consumer electronics. Video-gaming hardware, entertainment software from music to movies, headphones, cameras, PDAs -- an organization as resource-deep as Sony has the opportunity not only to set the standard in dozens of product lines, but also to create new and innovative products and services that others cannot.

Sony's various engineering and design teams will literally be closer together after the restructuring. With so many creative forces so closely concentrated, the company has a rare opportunity to create incentives for new ideas that cross division and product lines. Mr. Kutaragi invented the high-end video game industry by first envisioning a product that was beyond the imagination of the rest of the world. He then built a critical profit center for Sony on a model as old as the razors-and-blades lesson from business school: sell low-margin hardware as a platform for high-margin software.

The result was a company that generated 60% of Sony's profit in 2001-2002. Sony's strengths in content and technology suggested the natural synergies that Mr. Kutaragi found -- but it took a rebel to see them and transform them into a business. As Sony evolves, rebellion to innovation should be its new foundation. Imagine the possibilities for Sony if the Kutaragis of tomorrow come up in a company where encouragement to innovate is the very fiber of the company. The next Walkman may not be that far away -- nor the next Ken Kutaragi.