Sony Corporation, the well known Japanese multinational Electronics and Communications giant has done major restructuring in its business operations in recent times, most noticeably in the period from 1994 to 2003. During this nine year period, there were five major organizational restructuring done to compliment Sony’s International Strategy and counter the rapid technological changes occurring during the period (ICFAI p.
1). This paper attempts to make an analysis of the structural change done in the year 1999 based on ‘The Unified Dispersed Management Model’, and its subsequent implications on Sony.Need for a the restructuring in 1999 The structural change discussed here was announced by Sony on 1st April 1999. The reason for this change was primarily to take the maximum advantage of the Internet Technology which was at a rise.
The restructuring prior to this in the year 1995 had been focused on the Electronics Segment which had given Sony an edge over its competitors in terms of Electronic products (Prashant p. 7). Despite of this edge, the investors had concerns on the performance of the company.In case of any company’s corporate plans, the success is inherently dependent on the quality of projections made by their corporate goals (Johnson & Scholes). In case of Sony, the company was making marginal profits which were decreasing steadily towards the late 1990s. In addition, Sony was banking on one major area of business i.
e. its PlayStation for its profits, despite the company’s presence in many other consumer electronic products like audio visual equipments. There was a need to streamline all its businesses, so that the present unhealthy dependence on one particular business area for profits could be reduced.One of the ways to do this is to go in for a diversified decentralized corporate-level strategy, which means narrowing the business areas to fewer specific areas that are not mutually exclusive (Johnson & Scholes). Alternatively, this can also mean combining the existing business areas using a technology so that they are no longer mutually exclusive. Understandably, it is not possible to combine all business areas using this technique, but Sony could adopt this technique as all of its products had their base in either electronics or the content on the electronic products.
There was another area of Finance and Insurance which was also operated by Sony, but the restructuring plans were mainly related to the electronics and content related business areas Sony chose Internet as the link between its electronic-related and content-related business. This was because Internet was at a booming stage and all the competitors had already started to cash on this. Also many of the senior executives in Sony felt that Internet would revolutionize the world, and could be used to sell all of its products online (Prashanth p. 8).
Hence, the organizational restructuring in the year 1999 was envisioned. The Unified Dispersed Management Model For achieving its prime corporate goal, which was increasing the shareholder value, Sony devised a strategy calling it the “Unified Dispersed” Management model (Sony p. 1, 2). The company had decided to enhance shareholder value over its entire organization through a process it termed as “Value Creation Management” (Sony p. 1) The concept dispersed management is a form of decentralization which is necessary huge organizations operating at a global level (Johnson & Scholes).In addition to the dispersed management style, Sony added the unique feature of unification.
The Key business areas which Sony Corporation operates viz – Consumer, Components, Music and Games were reorganized as networked divisions. (Prashanth p. 8). This made the marketing of the products much easier and streamlined.
In addition the unification process also brought the 10 divisional companies of Sony under three network companies (Prashanth p. 8). This made the management easier, as the companies were now divided in terms of functionality unlike the prior division based on products.The ease of management forms a very important part of strategic implementation (Johnson & Scholes). Each network unit had its own management board, which meant it could be a part of the group and also be an independent entity.
The job of the management of board was to manage the regular activity, and also align their network company towards the corporate strategy of the entire organization. The dispersed approach for Sony meant promoting functional and operational autonomy among its various business areas.With this aim in mind Sony privatized its Music and entertainment division, Chemical division and Precision division to make them wholly owned subsidiaries of the Sony (Prashanth p. 9).
This was done so that the company could focus more on the business areas fetching more revenues. This scheme worked extremely well for its established products like PlayStation, but had a negative impact on the other businesses which still not performing well. The scheme offered no solution to this problem either at the planning or the implementation stage.In this sense at least the strategy could be said to have been incomplete.
Later this became one of the reasons for the negative impact on the share values. Another issue which a successful strategic implementation plans needs to take care is the involvement and responsibility of various senior executives (Johnson & Scholes). Without this aspect any problems that crop up merely get passed along to the next person. To make the implementation successful in large organizations it is very important to clearly define the scope and role of each unit.
Hence, Sony defined one of its main objectives as increasing its management capability (Sony p. 21). With this objective in mind Sony reorganized its entire board of directors and designated some people as Corporate Executive Officers, whose job was to take on the management responsibility (Sony p. 22).
In addition the company’s headquarters were subdivide into Group Headquarters – overlooking long term objective and R&D, and Business Units – which took care of all short term plans. Majority of these short term plans were transferred to the network company to which they were related.Finally each division was given a written objective and the business domains it would work on (Sony p. 23 –32)..
The clear cut and transparent nature of this move had additional positive features of improved communication and coordination among different units. In addition, the quality of operations of each of these units could also be individually assessed. To achieve any reasonable success with a strategy it is very necessary to have people who are in tune with the strategy. To achieve this Sony made many changes in its Board of Directors and the executive officers (Sony p. 27).
The top management was shuffled and newer positions were created for added responsibility by the management team. In addition, about 10% of the employees were laid off due to these organizational changes. Another significant move done was Sony was to separate its HR division as a subsidiary to streamline the hiring process (Sony p. 23). The move was successful, as it did lead to significant increase in the revenue of the company and its market share. Issues Left out The one area which a general strategic plan should cover, and Sony’s did not was provision of newer changes, and complete identification of problematic areas.
While the strategy increased the share value by almost three times in the beginning, it soon started diminishing rapidly, prompting the company to go for yet another restructuring. A possible reason for this might be the fact that no inputs were taken were taken from the R&D department regarding possible future changes in technology. This essentially made the strategy a reactive one instead of a proactive – which would have been much more useful. In addition, the problem identified was just the diminishing share value, and so the profits were targeted only for those business areas which were already doing good.The strategy had no provision for the areas which had a problem like the mobile and personal computers (Prashanth p. 10) Conclusion The strategy implemented by Sony on the Unified Dispersed management approach, was an excellent plan to recover the lost investor value and market share.
However, the strategy missed out on certain key issues, chiefly change management in case of newer technologies, and alternative strategies for problem business areas. The plan can be said to be good but incomplete in covering all the aspects, which eventually led to the framing of a newer strategy less than 2 years later by the company in 2001.Referencehttp://www.sony.net/SonyInfo/News/Press_Archive/199903/99-030/index.html
