Case study : Saving Sony
Sony is famous the world over for its Walkman music player, TVs, PlayStation game console, and other electronic gadgets. Unfortunately, success rarely lasts forever: From 2000 to 2003, Sony's hot-under-the collar shareholders watched the value of their shares drop from $150 to $25. It was enough to force some major changes at the company.
In 2005, Howard Stringer became the first non-Japanese head of the company in its history and one of the few to ever lead any major Japanese company. Stringer was born in Wales (UK) in 1942 but moved to the United States in 1965. He joined Sony in 1997 as the head of Sony America, turning around the performance in that unit by establishing higher levels of integration and cooperation across its electronics, game, and entertainment units.
However, after taking over as CEO of the global enterprise, Stringer determined that Sony's problems were both broad and deep. It was facing mounting financial losses and increasing pressure from relatively new products, such as Samsung's LCD and plasma televisions and Apple's category killer- iPod. To compete, Stringer decided Sony had to streamline its business into five groups focusing more on electronics, televisions, digital imaging, DVD recorders, and portable audio. That would entail closing 11 plants and laying off 10,000 employees.
The cost of the restructuring?An estimated $1.8 billion. Because of the changes, Sony reported that it expected to incur a financial loss of about $90 million on sales of about $65.1 billion in 2005. Previously it had been expected to post a profit of $90million. Some people inside and outside Sony were sceptical of the change because past efforts to transform the company had failed. "We have made promises before, but we failed to execute them" Stringer said.
Stringer was determined to make change a success. A key part of the initiative involved giving Sony's Electronics division central decision making authority over key areas. Previously each unit had its own planning, human resources, finance, and sales functions and operated with considerable autonomy. Stringer believed the new structure would streamline and speed up decision making across Sony's product lines. It would also permit uniform software development across the lines so Sony's products would operate seamlessly with one another. This would, of course, also eliminate design and product redundancies and optimize the firm's Research and Development spending.
Stringer also hoped the change in structure would help change Sony's corporate culture. Sony had a tradition of engineering the best products. This approach had worked wonders for years. However, the development of Apple's iPod highlighted the fact that consumers were not just interested in technical superiority but the easy use of products. And some of Sony's products had become too complicated for customers to operate.
The change plan also affected specific technologies. For example, Sony executives declared that television was of the utmost importance to the company. The firm would scrap the production of cathode ray tube (CRT) television sets and focus on LCD and rear-projection TVs and technology. Furthermore, Sony would focus on self-luminous flat -panel organic light-emitting diode (OLED) displays, on high-definition technology, Blu-ray, and mobile technologies.
"Our target is for the Sony Group to achieve consolidated sales of over 8 trillion yen and operating profit margin of 5 percent (Electronics 4%) by the end of fiscal year 2007" said Mr. Stringer.
Answer the following questions:
- You have been appointed by Sony as a consultant on change management. Advise Sony on how they could implement the change by using the various theories of change you have learnt.
- Examine the likely sources of resistance that could occur in Sony and how you would deal with it as a manager.