Strategic case study analysis and applications

Strategic Case Study

Sony is a Japanese conglomerate that specializes in the manufacture of a wide range of electronics for consumer and industrial markets. They operate in more than 204 countries across Asia, Europe and North America. It has five major business segments and they are electronics, games, pictures, financial services and others. (MarketWatch, Jan 2009). They are the forerunners of many modern technological advancements, the most recent of which is the Blu-ray format and 3D TV.

Blu-Ray and HD DVD Format War

Blu-ray disc is an optical storage disc that was designed to supersede the DVD format. It can be used for storing high amounts of information, typically up to 25GB in a single-layered disc and 50 GB in a dual-layered disc. This is almost ten times more storage space over a standard DVD. This is due to the blue-violet laser used to read the discs. This is an improvement over the 650 nanometer used by a standard DVD. The difference is the shorter wavelength of blue color when compared to the red laser and this is the reason for the higher storage capacity.

This difference in the two technologies led to a full-fledged format war between the Sony and Toshiba, the main supporter of standard DVD discs. Though both these formats became available in the market in 2006, this war began is 2008 when many distributors started moving to blu-ray format from DVD. After a lengthy battle, the decision tipped in favor of blu-ray and officially Sony won this format battle.

Many reasons were attributed to the success of Sony in the blu-ray format battle. The two primary reasons were the clear preference of many retailers to stock Blu-ray format over DVDs and a handful of strategies that were put in place by Sony. Another factor that contributed to the success of Blu-ray is the decision by major studios like Columbia Pictures, Walt Disney Pictures, and Fox to support Blu-ray format due to its superior storage and readability. The main tipping point came when Sony took a chance and introduced a Blu-ray player in PlayStation 3 video game console. PlayStation 3 is a hot commodity in the electronics market and the introduction of Blu-ray into it gave a huge boost to the sale and popularity of Blu-ray format.

3D TV Format War

3D TV is the latest technology that is sweeping the markets. It is built around people's fascination for 3D viewing. There are two distinct formats in 3D TV and they are DirecTV and PlayStation 3D TV formats. DirecTV uses a technology called Side-by-side 3D and this technology uses horizontal resolution to store right eye and left eye images in just one frame. Sony, on the other hand, uses another format called Blu-ray 3D format or top/bottom 3D format. This format uses vertical resolution and stores images on top of one another in one frame. In the side-by-side format, the image is split into half and sent to each eye. So, the 3D resolution will be low, but it will be within the bandwidth levels. Sony's format, on the other hand, will send two images, one for the right and the other for the left and this will greatly improve the 3D resolution. However, the bandwidth usage will be much greater.

So, how can Sony win this 3D format war? It has to use a mix of different strategies to popularize its format. There is a significant difference between the blu-ray format war and this one. To start with, most manufacturers and distributors want to avoid the war and so they are trying to come up a 3D TV that will support both the formats. Nevertheless, Sony must be geared to meet the challenges and must prepare and implement a strategy that will give it a clear advantage. It can look for possible solutions in theories like resource dependency theory, technological discontinuity and other corporate level strategies.

Resource Dependence Theory

Resource dependence theory is a theory that shows how external factors can affect the operations and efficiency of an organization. This theory believes that an organization is dependent on certain resources and these can be found in the external environment only. Also, these resources are scarce and they have to expend considerable time and effort in acquiring these valuable resources. These resources are also required by competing organizations and this makes it all the more valuable to the organization. So, the companies have to formulate strategies to acquire these scarce resources that are vital for its operations before the competing company gets to it.

Availability or non-availability of resources can determine the future of the organization. "These structural characteristics, in turn, determine the relationships among social actors -- specifically, the degree of conflict and interdependence present in the social system. Conflict and interdependence, in turn, determine the uncertainty the organization confronts." (Pfeffer and Salancik, 1978, p. 68). This theory also states that the scarcity can be endogenous or exogenous. When an organization increases its usage of a resource, it becomes scarce and costly to acquire. This is endogenous reason for the scarcity of the resource. Exogenous scarcity can occur when more and more organizations use the resource to meet the increased demand in products made out of these resources. (Sherer & Lee, 2002).

This limited availability of resources forces organizations to innovate and come up with new ways to reduce their dependence. According to Sherer and Lee (2002; p.103), "organizations facing resource scarcities will seek to be more competitive in acquiring resources or to innovate in ways that allow them to make use of alternative resources." This need to innovate can bring about a lot of change in the operation, structure and culture of the organization.

In the case of 3D TV, Sony is one of the first few companies that has taken the first step to innovate and be different. The primary reason for Sony to choose this path has been explained by Sherer and Lee (2002: p.104) as, "Initial innovators, especially, and early adopters use their prestige or status to pull off being different by creating and disseminating new technical rationales. Their status allows them to experiment with or try innovations that have not been legitimized."

The position of Sony as a leader in the world of electronics has helped it to develop a the Blu-ray format as well as the 3D format. These actions have helped the company to break away from the resources that were shared by all organizations in the HD DVD format. It created a niche for itself and this innovation helped it to win the blu-ray format war. Today, it is a clear leader in the home video segment. A similar approach is required for the 3D format as well. The company has to continue to push its format and should work towards getting more acceptance from its partners and distributors.

Technological Discontinuity

Technological discontinuity is the process of replacing an obsolete product or service with newer technology or an advanced version of the old technology. This is important to constantly improve the product and the resulting sales of the company. "Product discontinuities are reflected in the emergence of new product classes (e.g., airlines, automobiles, plain-paper copiers), in product substitution (e.g., transistors vs. vacuum tubes; diesel vs. steam locomotives), or in fundamental product improvements (e.g., jets vs. turbojets; LSI vs. VSLI semiconductor technology)." (Tushman & Anderson, 1986, p.4)

There are many advantages that arise as a result of technological discontinuity. First and foremost, the firm acquires new skills and competencies. This helps them to improve the market share and also gives an edge over competitors in a business environment. The downside is the uncertainty associated with technological discontinuity. "During these periods of technological upheaval, it becomes substantially more difficult to forecast demand and prices. Technological discontinuities, then, will be associated with increases in environmental uncertainty." (Tushman & Anderson, 1986, p.7).

Sony has this advantage as a result of its breakthrough technologies. The Blu-ray format was superior to HD DVD in its storage and readability and this gave Sony an edge over its competitors. By discontinuing its existing products and developing an out of the box product, it has managed to capture the attention of millions of consumers. All this simply means more sales and revenue for the company. Though they had to spend some time and money in educating users about the merits of the product, they were very successful in the long-run. The same principle can be applied to 3D TV format as well. Technological discontinuity has given them the required skills to excel and its important the company builds on this competency.

The uncertainty in demand is a risk that is taken by any innovating company like Sony. They have to wait out and see if the technology becomes successful. In the meantime, they can continue to work on the product and make it better for consumers. They have to constantly work on improving and popularizing this product and this will help them to become a market leader in this segment.

Corporate Level Strategy

Corporate level strategy is the decisions made at the corporate level that can affect the operations of the entire company. Typically, decisions related to the selection of new businesses, mergers, business environment and competition are corporate level strategies. These strategies will have a reach across the entire company. The aim is to improve the overall profitability of the company and tap any possible future niche besides tackling competition. Creating a competitive advantage is also a part of corporate level strategy.

Its working and implementation has been explained by Watson and Wooldridge (2005; p.1) as, Corporate level strategy "allows the Chief Executive Officer (CEO) and the "corporate office" to set corporate strategy, while delegating more detailed matters to the managers of business-specific subunits. It might thus appear that, although these business unit managers may be formulators of business strategy, they are implementers of corporate strategy."

Sony implemented a major corporate level strategy and that is to introduce blu-ray format in the popular PlayStation 3. This gave a big boost to the sales of blu-ray and it helped the company to win the blu-ray format war. Similarly, Sony should use corporate level strategy to win the 3D TV war as well. It can formulate a strategy after taking into account the competition levels and the impact of the new technology in the market. It can try to introduce 3D in its PlayStation games as well to create awareness about 3D TV technology.

Optimal Organizational Culture and Structure

Organizational structure can make a big difference between the success and failure of any company and Sony is no exception to this rule. The existing structure and its merits has been explained by Kobayashi (1970, p.1) as, "any existing power structure was destroyed by removing titles that connoted superiority. In fact it became possible, and the practice initiated, for department managers and section managers to exchange duties without a change of prestige. Next, participation in decision-making was implemented and rules were abolished. Job duties, especially managerial, were re-defined constantly by the position holders themselves. Renesis Likert's team concept was established and communication lines for reliable information were kept open. Above all else, methods and procedures were voluntary. The net result is a living organization supported by the responsible judgment and actions of its members." This existing structure helped Sony to have considerable growth and prosperity within a short period of time.