1. Should Sony adoptsimple, functional,multidivisional, or matrixorganizational structure? Justify your answer.
2. Name a company that uses afunctionalorganizational structure. Justify your answer.
3. Name a company that uses amultidivisionalorganizational structure. Justify your answer.
4. Name a company that uses amatrixorganizational structure. Justify your answer.

Sony Corporation - Restructuring Continues, Problems Remain "Seven out of eight years, Sony has failed to meet its own initial operating profit forecast. This is probably the worst track record amongst most major exporters. That means that either management is not able to anticipate challenges ... or they fail on execution almost every time. Either way, it does not reflect well on Sony's management." 1 - Atul Goyal, Analyst, CLSA2 , in January 2009. SONY IN CRISIS, AGAIN In May 2009, Japan-based multinational conglomerate, Sony Corporation (Sony) announced that it posted its first full year operating loss since 1995, and only its second since 1958, for the fiscal year ending March 2009. Sony announced annual loss of 98.9 billion3 , with annual sales going down by 12.9% to 7.73 trillion. Sony also warned that with consumers worldwide cutting back on spending in light of the recession, the losses could be to the extent of 120 billion for the year ending March 2010 (Refer to Exhibit IA for Sony's five year financial summary and Exhibit IB for operating loss by business segment). Sony's announcement came after the company had announced a major reorganization plan in February 2009. Sony had gone through a series of reorganization programs starting from the year 1994, the aim being to improve the financial performance and competitiveness of the company. However, most of them failed to achieve the desired results. Analysts blamed the silo culture, which prevented different divisions in Sony from communicating and cooperating with each other, for the company's problems. Howard Stringer4 (Stringer) became the first non-Japanese CEO of Sony in March 2005 and he announced a major reorganization in September 2005. The reorganization focused on revitalizing the electronics business of the company and on improving profits by reducing business categories and product models. It also aimed at removing redundancies and overlaps in business processes by focusing resources only on the company's high growth business like HD products, mobile products, semiconductor/key component devices, and network-enabled products and appliances. The plan addressed the silo culture in the organization by introducing the slogan Sony United', and outlining several measures that could be implemented to unite the company and enhance cross-company collaboration. The plan started showing encouraging results and for the year ending March 2007, Sony's sales and operating revenue increased by 10.5% to 8.29 trillion as compared to March 2006. The trend continued over the next year and for the fiscal year 2008, sales and operating revenue grew by 6.9% over the previous year to 8.9 trillion. The company recorded an operating income of 374.5 billion in fiscal 2008 as compared to 71.8 billion in fiscal 2007.

However, by late 2008, Sony had reduced its earnings forecast and in December 2008, it announced that it could end the financial year in a loss. Another reorganization plan was announced in February 2009, which involved a new organization structure, the closure of eight of its total 57 manufacturing sites, and a reduction of the workforce by 16,000. The reorganization also witnessed Stringer assuming more powers as the President of Sony and his predecessor, Royji Chubachi (Chubachi), who was also heading the electronics division, being made Vice-Chairman. Through the new reorganization plan, Sony expected to reduce costs by US$ 2.5 billion. On the reorganization, Stringer said, This reorganization is designed to transform Sony into a more innovative, integrated, and agile global company. (These changes and reorganization) will now make it possible for all of Sony's parts to work together. 5 Analysts were satisfied with the changes proposed in the new reorganization plan. Hitoshi Kuriyama, analyst at Merrill Lynch & Company,6 commented, These moves are bolder than we had anticipated and are positive. We believe the new management and organization will be effective in bringing out Sony's potential in this new networked age. 7 However, some analysts remained skeptical about the proposed benefits of the plan. According to Koya Tabata from Credit Suisse8 , We remain unsure about whether consolidating control into the hands of Chairman Howard Stringer will change the business model significantly and fundamentally strengthen Sony's operations. 9 BACKGROUND NOTE Sony was founded in 1946 as Tokyo Tsuchin Kyogo by Masaru Ibuka and Akio Morita (Morita)10 in war-ravaged Japan. Initially, the company had 20 employees and a capital of 190,000. Right from its inception, Sony focused on product innovation and on offering high quality products. Sony started off manufacturing telecommunications and measuring equipment and went on to manufacture transistor radios and tape recorders. The company decided to call itself Sony, as Morita felt that the name was in accordance with its global expansion plans. Sony set up a subsidiary in the US in 1960 and was listed on the New York stock exchange in 1970. In 1972, it set up manufacturing facilities in the US, thereby becoming the first Japanese company to do so. Sony's products were always innovative. The company firmly believed that there was a huge demand for such products and did not attach much importance to market research. However, it suffered a major setback in 1975 on account of its Betamax video cassette which was to be used in its home video cassette recorder. Before the Betamax technology could establish itself in the market, it lost out to VHS, which was backed by top studios in Hollywood. This incident served as an eye-opener for Sony. It realized that technology used in such products was largely determined by the owners of content and this led to its entering the content development business. In 1988, the 5 Howard Stringer Gets President Title, Aims to Save $3.1 Billion over the Coming Fiscal Year, www.sony.net, February 27, 2009. 6 Merrill Lynch & Company is a financial services firm known as Bank of America Merrill Lynch after its acquisition by Bank of America in 2008. Merrill Lynch is involved in businesses like wealth and investment management. 7 Hiroshi Suzuki, Masaki Kondo, Sony's CEO Stringer Ousts Chubachi in Overhaul of Management, www.bloomberg.com, February 27, 2009. 8 Credit Suisse is a Switzerland-based financial company. It recorded net revenue of CHF 9.268 billion and loss of CHF 8.22 billion for the year 2008. 9 Sony Shares up after Stringer Takes Control, www.execdigital.co.uk, March 02, 2009. 10 Akio Morita was a graduate in physics, while Masaru Ibuka had a degree in electronic engineering. When Morita joined the Japanese navy as a Lieutenant, he met Ibuka at the navy's Wartime Research Committee. They became friends and planned to float a company. Sony Corporation - Restructuring Continues, Problems Remain 3 company acquired CBS Records and renamed itas Sony Music Entertainment. In 1989, it acquired Columbia Pictures (which included Tristar) and renamed it as Sony Pictures (Refer to Table I for details of Sony's Businesses). In 1968, Sony introduced the Trinitron Color TV, which was highly successful. Another highly successful product was the Walkman launched in 1979. Other path-breaking products that it introduced included the world's first Compact Disc player (1982), the Camcorder (1982), the Discman portable CD player (1984), PlayStation (1994), and the Digital Handycam (1995). Sony introduced several other products like home electronic equipment and 3.5 inch floppy discs. Till 1983, Sony operated as a function-specific organization with different departments for development, manufacturing, sales etc. However, with the number of products and people increasing, Sony introduced the business group system in 1983 and defined the roles of headquarters and each business group. Table I Sony's Businesses (2008) Electronics Segment Audio, video, televisions, information and communications equipment, semiconductor components and other products. Game Segment Games console and software businesses conducted by Sony Computer Entertainment Inc. Music Segment Businesses of Sony Music Entertainment (Japan) Inc. Pictures Segment Motion Pictures, and television programming distributed by Sony Pictures Entertainment Inc. Financial Services Sony Financial Holdings Inc., and its subsidiaries Sony Life Insurance Company Limited., Sony Assurance Inc., Sony Bank Inc., and Sony Finance International Inc. Others The music recording business of Sony Music Entertainment, and Sony Music Entertainment (Japan) Inc., and network services related business of So-net Entertainment Corporation. Source: www.sony.net. THE RESTRUCTURING EFFORTS In the early 1990s, in spite of a moderate increase in Sony's operating revenues, its operating and net income witnessed a decline. After the electronics business was restructured in 1994 under the then CEO Norio Ohga, the company's performance deteriorated further and Sony reported a loss of 293.36 billion in 1995. This led to another round of restructuring in 1996, wherein Sony was organized into a ten company structure. However, this restructuring did not lead to any sustainable improvement in the company's financial performance. For the financial year 1998-99, the net income dropped by 19.4%.11 11 A detailed description of the various organizational restructuring exercises undertaken by Sony Corporation between 1994 and 2001, and their respective implications for the company is covered in the ICMR case study, Restructuring Sony, ICMR Reference No. BSTR 063; ECCH Reference No. 303- 155-1. Sony Corporation - Restructuring Continues, Problems Remain 4 Another round of restructuring was proposed in 1999 in order to enable Sony to exploit the opportunities offered by the Internet. Though some of its products like the PlayStation were profitable, a majority of its other businesses like electronics, movies, mobile telecommunications, and personal computers were not performing well. For the fiscal 1999-2000, Sony's net income fell to 121.83 billion, a decline of over 58 billion as compared to the previous year. With none of its restructuring efforts proving fruitful, Sony went in for a revamp of the top management. In the fiscal year 2000-01, despite the increase in revenue due to higher sales of the PlayStation, net income dropped to 16.75 billion as compared to 121.83 billion the previous year. The drop in net income was attributed to a decline in demand for computer-related products due to a slowdown in the IT industry. At this juncture, Nobuyuki Idei (Idei), CEO of Sony at that time, proposed another round of organizational restructuring. This plan aimed to transform Sony into a Broadband Network Solutions company by launching a wide range of broadband products and services. Explaining the objective of restructuring, Idei said, By capitalizing on this business structure and by having businesses cooperate with each other, we aim to become the leading media and technology company in the broadband era. 12 However, this restructuring exercise did not yield satisfactory results either and Sony's operating income declined by 40.3% in the fiscal year 2001-02, while revenues increased by 3.6%. In April 2003, Sony announced its quarterly results, reporting a quarterly operating loss of 116.5 billion. This loss was termed the Sony Shock' by the media. For the quarter ending June 2003, Sony reported a net income of 1.1 billion which was 98% lower as compared to the profit of 57.2 billion reported in the corresponding quarter in fiscal 2002. Analysts were of the opinion that the erosion in Sony's profits was due to the expenses the company had incurred on implementing its many restructuring plans. At this juncture in October 2003 Idei proposed yet another restructuring plan called Transformation 60'. 13 This was a three-year restructuring plan, which aimed at optimizing manufacturing infrastructure and reducing fixed costs by combining the operating divisions and shifting component sourcing to low cost markets like China. Sony planned to reduce costs by downsizing and consolidating the manufacturing, distribution, and customer service facilities and also by streamlining procurement. As a part of Transformation 60, about 7000 employees were laid off in Japan and 13,000 at other locations across the world. Several corporate and administrative functions which were overlapping were integrated. This US$ 3.1 billion plan aimed at achieving operating profit margins of 10% and reducing the annual fixed costs by 330 billion by the fiscal year 2006-07. These restructuring plans were not successful mainly because of the significant drop in sales of conventional televisions and portable audio products. The decline in sales of Sony's electronics products was prominent in Japan, where the demand for Vaio personal computers and cathode ray tube televisions fell significantly. The electronics division recorded a net loss of 6.8 billion during 2004. The games division also did not fare well with the sales of PlayStation 2 consoles falling rapidly. In fiscal 2004, the games division recorded an operating income of 67.6 billion as against 112.7 billion in 2003. By the time Sony announced its October-December 2004 results, it was evident that the company was far from reaching the goals envisaged in its Transformation 60 plan. During the quarter, the company's sales fell by 7.5% to 2148.2 billion and operating income went down by 13% to 138.2 billion. 12 Sony Annual Report, 2002. 13 A detailed description of various organizational restructuring exercises undertaken by Sony Corporation between the 2003 and 2005 period, and their respective implications for the company is covered in the ICMR case study, Sony Corporation - Losing Competitive Advantage , ICMR Reference No.BSTR192; ECCH Reference No. 306-082-1. Sony Corporation - Restructuring Continues, Problems Remain 5 At this point in March 2005 Stringer became the CEO. Stringer identified five main challenges for Sony. These were: getting rid of its silo culture, attaining profitability across businesses, making products in line with industry standard technologies, improving the competencies in software and services, and divesting the company of its non-strategic assets. Stringer announced another round of restructuring in March 2005. While announcing the plans, Stringer said, We are battling on many fronts against many competitors, a number of whom have at times proved more agile and more nimble. We can and will compete vigorously. We are going to achieve our goals by breaking down the existing silo walls and eliminating the highly decentralized structure we've maintained in the past. 14 Sony adopted the new organizational structure on October 01, 2005. The company was reorganized into five business groups the electronics business, the games business group, the entertainment business group, the personal solutions business group, and the Sony financial holdings group. Through the new structure, Sony expected to achieve coordination across different areas including planning, technology, procurement, manufacturing, sales, and marketing. The new structure helped eliminate product and design redundancies (Refer to Exhibit II for more about Sony's restructuring in 2005 and Exhibit III for Sony's organizational chart as of October 2005). Along with the new strategy, Sony also announced an internal slogan called Sony United'. This focused on promoting teamwork and cooperation and bringing together key resources. THE OUTCOME After the reorganization announced in 2005, Stringer went on to revamp Sony. Sony's Aibo, a robotic pet, was discontinued after the Robotics unit was shut down due to its low revenue generation. Sony's Qualia line of luxury electronics that included high-end cameras and televisions was also discontinued. Other businesses that were discontinued included cosmetics maker, mail order shopping company, and a chain of restaurants. One-third of Sony's 1,000 subsidiaries and affiliates were involved in businesses that were different from the core electronics and entertainment business of Sony. One of Stringer's first tasks was to revive Sony's television business, which had suffered as the company had been late in coming out with the flat panel televisions. The television business was brought under the charge of Katsumi Ihara, who discontinued production of CRT televisions and launched the Bravia brand of LCD TVs in 2005. However, in fiscal 2006, the TV division still showed losses as the company had spent heavily on advertising and had lowered prices in its race against competitors like Samsung and LG. Industry experts felt that after lowering prices, Sony had been unable to maintain its premium pricing. Earlier, Sony had had a tradition of retaining retired senior personnel as advisors. This practice was done away with. By the first half of 2006, nine factories were closed down and over 5,700 jobs were eliminated. To focus on the growth markets, Sony discontinued the manufacture of around 600 of the total 3,000 products it manufactured. By the end of March 2006, Sony's earnings had improved considerably; it reported a net profit of 123 billion. The company attributed this to the new Bravia LCD televisions. Though the electronics business remained a problem, the sales of flat panel televisions improved and so did the sales of PCs and camcorders. In 2006, analysts were of the view that Stringer's efforts had succeeded in putting the company back on the right track. On March 29, 2007, Sony announced that to strengthen its product development capability and improve profitability in the electronics segment, some more changes had to be made in its organizational structure. The company established the B2B Solutions Business Group, with the 14 Avery Simon, Sony Gets a Lesson in Humility, www.theglobeandmail.com, September 23, 2005. Sony Corporation - Restructuring Continues, Problems Remain 6 aim of enhancing its B2B business growth. On the new structure, Sony announced, The B2B Solutions Business Group will unite and streamline Sony's existing Broadcasting/Professional equipment businesses, B to B solution services, and FeliCa15 business. At the same time, by utilizing Sony's broad-based research and development achievements in its B2B Solution Business, Sony hopes to develop new business that can drive sales and profit growth in the B to B business field. 16 (Refer to Exhibit IV for Sony's Organizational Chart as of April 2007). As a part of the reorganization, Chubachi was made President of the B2B Solutions Business Group. Forming a part of the B2B Solutions Business Group were the B&P Business Group, the FeliCa Business Division, and a part of the Personal Solutions Business Group. Two new groups, the TV Business Group and the Video Business Group, were also established. In May 2007, after the company announced that the profits would increase six-fold for the year ending March 2008, Sony's shares rose to a five-year high. When Sony announced its results for the first quarter ending June 2007, it had exceeded analysts' expectations. Sony reported that sales had increased by 13% as compared to the first quarter of the previous year to 1,976.5 billion. The operating income grew by over 250% to 99.3 billion during the same period and the operating income of the electronics division increased by 77%. Analysts attributed the success of Sony's electronics division to the Bravia range of televisions, whose sales were higher than that of competitors like Samsung and LG. Sony's joint venture with Samsung for making panels was also said to be one of the reasons for Sony doing well in the television market. Analysts pointed out that this joint venture also marked a change in Sony, where such an arrangement would have been unthinkable earlier. In late 2007, Sony also launched its first ultra-thin TV screen made of OLEDs, which were only five millimeters thick. Chubachi termed this as a Symbol of Sony's comeback'. By November 2007, the sales of PlayStation 3 in Japan overtook the sales of Nintendo Wii17. In December 2007, Stringer announced that after three years of reorganization, Sony had recovered from its past problems. In the fiscal year ending March 2008, Sony appeared to be on the path to revival. For the fiscal year 2008, sales and operating revenue grew by 6.9% to 8.9 trillion. Sony recorded operating income of 475.2 billion in fiscal 2008 as compared to 150.4 billion in fiscal 2007. Sony had a slew of products in the pipeline including high-end digital cameras and new OLED televisions. Another product in the pipeline was the new version of a portable PlayStation. But the sudden strengthening of the Yen coupled with the recession in the US slowed down consumer spending considerably. Besides, consumers postponed the purchase of electronics products. The result was that Sony ended up performing badly. PROBLEMS RESURFACE AGAIN In mid-2008, Sony's management remained confident that its television unit would turn profitable. The sales of LCD TVs of Sony rose from one million units in 2005 to 15.2 million units in 2008. But with the global recession affecting spending on luxury products, Sony's fortunes took a turn for the worse. In the television segment, Bravia, which was one of Sony's top selling products, faced competition and its sales plummeted as recession-hit consumers postponed their purchases. The OLED television failed to make its presence felt in the US market, as it was priced at US$ 2,042 for an 11 inch model. Analysts said that the product was ahead of its time and Sony was taking the risk of coming into the market too early. 15 FeliCa, which stands for Facility Card, is an RFID Smart card system by Sony. 16 Sony Announces Personnel Appointments and Organizational Changes Effective April 01, 2007, www.sony.net, March 29, 2007. 17 Wii is a home video game console released by Nintendo. Its main competitors are Xbox 360 and PlayStation 3. Sony Corporation - Restructuring Continues, Problems Remain 7 Sony faced problems on several fronts. PlayStation 3 did not fare as well as expected and its sales were far behind that of the Nintendo Wii and Microsoft's Xbox 360. The manufacturing costs on PlayStation 3 were also high. For example, Sony incurred US$ 840 as manufacturing costs on a PlayStation 3 that was sold for US$ 599, when it was launched in November 2006. By December 2008, the price of PlayStation 3 had come down to US$ 399, while its manufacturing cost was US$ 448. Sony expected that by mid-2009, PlayStation 3 would break even. The company sold around 10 million PlayStation 3 consoles in 2008. In the second quarter of 2008-09, Sony posted a 72% decline in net profit from 73.5 billion in the second quarter of the previous year to 20.7 billion. At that time, it announced that the annual profit could decline by 59% if the value of the Yen continued to rise. The company's profits were hit by the strengthening of the Yen, with the exchange rate being around 100 Yen per US$ and around 151 Yen per Euro. Analysts reported that in case of the Japanese currency strengthening by even one Yen against the dollar, the impact on Sony would be to the tune of 4 billion in operating profit. (Refer to Exhibit V for Sony's sales and operating revenues by Business Segment and to Exhibit VI for Sony's Sales and Operating Revenue by Geographic Segment). On October 23, 2008, Sony slashed the net profit outlook for the year ending March 2009 by 38% to 150 billion. Sony's initial profit estimate had been 520 billion. This was reduced to 470 billion and then to 240 billion. Some analysts termed the announcement as the second Sony Shock'. With the Yen appreciating and hitting a 13-year high against the US dollar at 94.62 per US Dollar in October 2008, Japanese exports became uncompetitive. Sony expected this to have an adverse impact on its earnings. The company also said that the global economic downturn could impact the sales of LCD televisions and digital cameras. It cautioned that the position could become considerably worse and the revised forecast could also be affected. After the announcement, analysts predicted that Sony would witness an earnings collapse and was likely to post losses in the televisions, video gaming, mobile phones, and computers segments. In December 2008, Sony announced that it was likely to post its first full year operating loss since 1995, and only its second since 1958, during the year ending March 2009. Analysts were of the view that the Japanese economy which was experiencing its worst ever economic downturn since World War II had also had an impact on the company's earnings. In December 2008, Sony announced that a reduction in the workforce was inevitable along with a re-examination of businesses which were not profitable, to contain the losses that it expected to incur during the year. It announced that 8,000 jobs would be slashed and that capital investment would be reduced by 30%. It announced several measures to achieve cost savings to the extent of 100 billion layoffs, outsourcing production, closing plants, and reducing production. At the same time, Sony announced initiatives to improve profitability and enhance operational efficiencies in the electronics business. The initiatives taken by the company included short-term measures like reducing operational expenses and lowering inventory costs. Other measures that it planned to take included adjusting product pricing to square off the increase due to the appreciating Yen against global currencies, withdrawing from or downsizing unprofitable businesses, delaying the investment in semiconductors and in a few television plants, and realigning domestic and overseas manufacturing sites. (Refer to Exhibit VII for details of the initiatives taken by Sony to revitalize its Electronics Business). In January 2009, Sony announced that its annual operating loss would be about 260 billion. Analysts said that the company, which had posted a profit during the first half of the year, had failed to take advantage of the holiday season in the US. The discounts it had given were not adequate while the competitors had resorted to more aggressive price cuts, they said. The fact that Sony had failed to deliver could also be a pointer to management related problems in the company, they cautioned. At that time, several analysts pointed out that by giving more power to the CEO, Sony could be brought back on the recovery path. In their opinion, a radical change was long overdue at Sony. According to Koya Tabata, analyst from Credit Suisse, The most important Sony Corporation - Restructuring Continues, Problems Remain 8 thing is that, to improve organizational strength in the areas of development, purchasing, and marketing, it will be necessary to further concentrate power in the hands of [Sir Howard] and unless this is achieved we believe [Sony] will be unable to close the gap with competitors such as Apple and Nintendo. 18 Several reports, however, claimed that in spite of the losses being reported, the Japanese management was against any sweeping changes being made in the business practices that Sony had been following for such a long time. REORGANIZATION IN 2009 In February 2009, Sony announced a major reorganization, which was to be made effective from April 2009. The reorganization concentrated on the electronics and game businesses of Sony, aiming to improve their profitability and strengthen competitiveness. Commenting on the reorganization, Stringer said, This reorganization is designed to transform Sony into a more innovative, integrated, and agile global company with its next generation of leadership firmly in place. The changes we're announcing today will accelerate the transformation of the company that began four years ago. They will now make it possible for all of Sony's parts to work together to assume a position of worldwide leadership and, together, achieve great things. (Refer to Exhibit VIII for Organization Chart of Sony as of April 2009) The company proposed to form two business groups - The Networked Products & Services Group and The New Consumer Products Group - through the reorganization. Under Networked Products & Services Group would be Sony Computer Entertainment, personal computers, mobile products including Walkman, and Sony Media Software and Services. The main aim of the group was to bring in new products using Sony's technologies and also to increase the pace of innovation at Sony that would lead to higher profitability. Forming a part of these processes was the expansion of the PlayStation network platform. The group was to be headed by Kazuo Hirai19 . Forming a part of the New Consumer Products Group would be television, digital imaging, home audio, and the video business of the company. The focus of this group was on achieving profitability and growth through product innovation, and improving efficiency and speed of operations. Another area of interest for this group was development and growth in the emerging markets. This group was headed by Hiroshi Yoshioka.20 As a part of the reorganization efforts, two cross company units were created. One was the Common Software and Technology Team which was to develop and implement integrated technology and software solutions. The group was also required to provide coordinated software development services. The other unit was the Manufacturing/ Logistics/Procurement team responsible for ensuring efficient supply chain solutions for the business groups. The reorganization was expected to speed up the production of networked products and services. Analysts were of the view that it would help different divisions in Sony like the PC, mobiles, and entertainment divisions, and also other divisions like television, digital imaging, home audio, and video to work in tandem. This would address the issue of the prevailing silo culture in the organization. 18 Leo Lewis, Sony on Brink of Upheaval as Analysts Back British Chief, http://business.timesonline.co.uk, January 05, 2009. 19 Kazuo Hirai was the President and Group CEO of Sony Computer Entertainment. 20 Hiroshi Yoshioka was Executive Vice President of Sony Corporation and President of the TV Business Group. Sony Corporation - Restructuring Continues, Problems Remain 9 The reorganization also witnessed a reshuffle of some of the top executives in the company. Stringer assumed responsibility as the President of Sony, in addition to his existing positions of CEO and Chairman. Chubachi resigned from his post as CEO of the electronics components unit and became the Vice-chairman of the company (Refer to Exhibit IX for the details of top executives after reorganization). After the reshuffle, the electronics division came under Stringer's purview. As a part of its reorganization efforts, in May 2009, Sony came up with extensive measures in its electronics operations. These included consolidation of some of the operations in Japan (Refer to Exhibit X for more information about consolidation of electronics operations). THE AFTERMATH In February 2009, Stringer became Head of Sony's electronics business and remained the company's President. This brought in a new control structure at Sony, which was expected to be operationally convenient and to unite the different silos that existed in the organization. While restructuring Sony, a lot of young blood had been infused into the top management of the company. This was also viewed as a move to break the Japanese tradition of seniority in favor of performance. On the new reorganization, Stringer said, This reorganization is designed to transform Sony into a more innovative, integrated, and agile global company with its next generation of leadership firmly in place. 21 Through its new restructuring efforts, Sony planned to gain a substantial position in the networked electronics market, and a new group - Networked Products and Services Group - was created especially for that purpose, concentrating on products like the PlayStation and the Vaio personal computers. Analysts were of the view that the networked products and services group had a tough task ahead it had to create digital services that would tie all Sony's products together. Some industry experts were of the view that the reorganization would result in sustained profitability and a cohesive corporate culture. It was also expected to result in nimbleness in the organization and in making it ready to face the new-age rivals. The creation of cross company units in the areas of logistics and software was also seen by analysts as an effort to bring down the silos in the company. Stringer, however, tried to bring in coordination and was largely successful in bundling the Blu-ray22 version of Spiderman III with Sony's PlayStation 3. George Bailey, an executive from IBM, was roped in as the first Chief Transformation Officer of Sony in May 2009. He assumed the post of Senior Vice President, Corporate Executive, and Chief Transformation Officer, effective from June 01, 2009. His main responsibility was to accelerate the transformation of Sony into a leading provider of networked products, content, and services. Bailey was expected to work closely with different cross-functional teams, business groups, and the top management of Sony. Sony also planned to reduce the number of suppliers from 2,500 to around 1,200, after taking into consideration those who provided the best deals. The reorganization efforts received a positive response from analysts and industry experts. Nobuo Kurahashi (Kurahashi) of Mizuho Investors Securities23 in Tokyo, said, It's a positive sign of how Sony is frantically moving forward toward change, including structural changes especially in its TV and other electronics businesses. 24 21 Kiyoshi Takenaka, Nathan Layne, UPDATE 3-Sony's Stringer Takes Helm at Ailing Electronics Arm, www.forbes.com, February 27, 2009. 22 Blu-ray is an optical disc storage medium that has superseded the DVD format. This format offers five times the storage capacity of traditional DVDs. 23 Mizuho Investors Securities provides individual and corporate customers solutions in the areas of asset management and fund raising. The company's research division covers areas like macro economic analysis, equity research, investment strategies, investment opinions, etc. 24 Hiroko Tabuchi, Sony's Chief Gains Power as Executives are Shuffled, www.nytimes.com, February 28, 2009. Sony Corporation - Restructuring Continues, Problems Remain 10 However, some analysts wondered why Sony had promoted Kaz Hirai, CEO of Sony Computer Entertainment, whose division was responsible for considerable losses. Some analysts did not see anything positive in Stringer assuming additional responsibility and wondered how it would benefit the company. Kurahashi said, It's uncertain if Stringer can now do what he hasn't been able to do as a CEO. 25 Stringer in several instances mentioned that the silo culture was Sony's main weakness. Many analysts saw the reorganization as Stringer's efforts to break down these silos. Stringer said, Have I broken down all the silo walls? No. Are they very strong and very thick? Yes. But we've broken down a lot of them. Our goal is to continue to do that. 26 In May 2009, Sony announced its first annual loss in 14 years. It reported a loss of 98.9 billion. Annual sales fell by 12.9% as compared to the previous year. It announced that for the year 2009- 10, the loss could be higher at 120 billion. The company attributed the fall to the sluggish demand for televisions and cameras in the wake of the recession. LOOKING AHEAD As of June 2009, the proposed reorganization was progressing well and Stringer reaffirmed his intention of making the company's presence felt in the network electronics market. According to him, In the 20th century, this company created great champion products. In the 21st century, other companies took our hardware like the Walkman and added network capability and turned it into the iPod. We are not going to be beaten again in the network age. 27 Sony planned to make 90% of its electronic products network-enabled by 2011. Though American consumers were increasingly opting for wide-screen, flat panel televisions, industry experts felt that the Sony might find it difficult to sell its televisions to them as similar Korean products were cheaper. The fluctuating Yen could also add to its difficulties as it was making Japanese products more expensive, they pointed out. The profit margins for Sony's digital cameras and camcorders were also going down. Sony announced that the sales of its digital cameras could fall to 20 million units during the year ending March 2010, from 22 million in 2009. The demand for the Sony Handycam was also expected to fall further. Sony had several path-breaking products in the pipeline, with the company spending around US$ 5 billion on R&D every year. Some of the products were panoramic-image cameras, organic LCD televisions, the new line of eco-Bravia28 televisions, webbie cameras, and high-end digital projection systems. Stringer believed that the new products should be within the reach of consumers. He said, I need a few more breakthroughs in cost. Sony makes the world's thinnest TV and the one with the best picture, but if it's $1,000 more than people are going to spend in a recession, I have no advantage. People accuse us of not having the innovation. That's nonsense but unless you get the cost down, these things never make it. 29 25 Daisuke Wakabayashi, Stringer Steps Up as Sony Faces Slump, http://online.wsj.com, February 28, 2009. 26 Hiroko Tabuchi, Sony's Chief Gains Power as Executives are Shuffled, www.nytimes.com, February 28, 2009. 27 Kiyoshi Takenaka, Sony CEO says Restructuring Steps on Track, www.reuters.com, June 19, 2009. 28 Eco-Bravia televisions have sensors which automatically turn off the televisions when nobody's present in the room. 29 Leo Lewis, Sony Manager Sir Howard Stringer not Afraid of Playing Hard but can Weave Subtle Magic in the Pitch, http://business.timesonline.co.uk, April 18, 2009. Sony Corporation - Restructuring Continues, Problems Remain 11 Sony aimed at connecting all its devices to one another and to the proposed Sony network, through which digital content like movies, games, and TV shows could be downloaded. The content could be downloaded using PlayStation 3, which would act as a server to the home computers. The new range of Bravia televisions allowed the users to connect to the Internet and stream movies. Sony's movie Hancock was released on Internet-ready televisions, before it was released on the DVDs. Thus, Sony planned to have a continuous stream of revenue by networking all the devices. According to Stringer, The battle for me is the networking of these devices. I have to succeed at that. 30 Industry experts opined that the next revolution in the realm of electronics would be centered around television. Several companies were in the process of bringing out web-based content on to televisions. Sony already had a considerable presence in the television market and could take advantage of this emerging trend by bringing out products that helped in downloading content from the Internet on to the television, they said. Sony planned to launch a new service that would help users put images from camera on television, display and edit video sharing, storage, etc. Stringer also indicated that the company planned to more deeply integrate its television and computer entertainment products. First, we will accelerate the transition of our televisions from being passive displays offering linear entertainment chosen by conventional gatekeepers to becoming network entertainment centers providing rich content alternatives organized by consumers [based] and called directly from the broadest and most open network in the world, the Internet. 31 Analysts believed that Sony needed to invest in cutting edge technologies in video games and television, as these businesses accounted for a quarter of its revenues. However, the economic downturn and stiff price competition made success even harder to attain. According to Yasuo Nakane of Deutsche Securities, But it's hard to imagine that translating into improved earnings soon. The key question is whether manufacturing, design, and development, procurement and marketing...can all be improved within a short time frame. Industry analysts opined that while Sony had announced several restructuring exercises in the recent past, none of them had been able to deliver sustainable positive results. They felt that while the reorganization plan of 2009 sounded promising, it was effective execution that would be the key. According to Mike McGuire, analyst at Gartner, The execution is going to have to be pretty powerful. Sony is still a fairly powerful brand, but it's not like everybody can forget the past. They've got to overcome that by performing in the market. Apple's advantage is that it created a seamless user experience. That's also within Sony's grasp. Sony has the assets to do that. The software is the open question. 32 30 Robyn Meredith, It Takes a Crisis, www.forbes.com, July 17, 2008. 31 Tom Magrino, Sony Announces Restructuring, $ 2.9 Billion Loss, www.gamespot.com, January 22, 2009. 32 Leo Lewis, Sony Manager Sir Howard Stringer Not Afraid of Playing Hard but can Weave Subtle Magic in the Pitch, http://business.timesonline.co.uk, April 18, 2009. Sony Corporation - Restructuring Continues, Problems Remain 12 Exhibit IA Sony - Five Year Summary of Selected Financial Data (In Million) For the Year Ended March 31 2005 2006 2007 2008 2009 Sales and Operating Revenue 7,191,325 7,510,597 8,295,695 8,871,414 7,729,993 Equity in net income (loss) of affiliated companies 29,039 13,176 78,654 100,817 (25,109) Operating Income (loss) 174,667 239,592 150,404 475,229 (227,783) Income (loss) before income taxes 186,246 299,506 180,691 567,134 (174,955) income taxes 16,044 176,515 53,888 203,478 (72,741) Net Income (loss) 163,838 123,616 126,328 369,435 (98,938) Source: Sony Annual Report, 2008. Exhibit IB Sony - Operating Income/Loss by Business Segment (In Million) For the Year Ended March 31 2007 2008 2009 Electronics 251,256 441,787 (168,084) Games (232,325) (124,526) (58,476) Pictures 26,705 58,524 29,916 Financial Services 84,142 22,633 (31,157) All other 32,808 60,800 30,367 Total 162,586 459,218 (197,434) Corporate and Elimination (12,182) 16,081 (30,349) Consolidation Total 150,404 475,299 (227,783) Source: Sony Annual Report, 2008. Sony Corporation - Restructuring Continues, Problems Remain 13 Exhibit II Sony - Organizational Restructuring (2005) Restructuring Electronics The electronics business was brought under the purview of Electronics CEO, Ryoji Chubachi. Under the electronics business were the semiconductor business unit, the core component business unit, the B&P business group, the digital imaging business group, the VAIO business division, the video business group, the TV business group, and the connect company. The electronics division had a product strategy committee to look at things from the customer's viewpoint. The other committees were the sales & strategy committee. The new structure was expected to coordinate various activities marketing strategy committee, production strategy committee, procurement strategy committee, and technology in the electronics division and break down the silos structure. The other benefits of the new structure lay in prioritizing R&D, maximum utilization of resources, and elimination of redundancies. Improving Profit Structure Sony planned to achieve cost reductions by reducing business categories and product models. Another step to reduce costs was creating affective administrative structures by removing redundancies and overlap in business processes. The number of product models was to be reduced by 20% and the number of manufacturing sites from 65 to 54. Focusing Resources on High Growth Businesses Sony started focusing on high growth businesses such as HD products, and mobile products and semiconductor/key component devices, which were built around customer driven technologies. The company was a pioneer in HD products with a wide range of products in consumer hardware and broadcasting businesses. Another growth area that Sony was exploring was network-enabled products and applications. In key components, innovative technologies for system LSIs, next generation displays, and Bluray disc related products were being developed. In order to maintain user interface, the software development business was being strengthened by establishing a Technology Development Group. By the end of fiscal 2005-06, Sony aimed at establishing software development facilities in China and the US. Group Strategy Sony aimed at regaining its leadership position in the mobile audio devices market and also to establish itself in the portable video market. For the mobile entertainment group, Sony's goal was to enable consumers to enjoy entertainment content. In the games business, Sony planned to introduce PlayStation 3 and position it as the ultimate portable entertainment player. Through this product, Sony aimed to increase market share in the computer entertainment market. Sony had begun to increasingly opt for internally sourced games software. The company also aimed at achieving increased collaboration among different sectors like games, entertainment, and software.