The Games Sony Play Essay
Important point in analysing an industry is to be able to understand, define and establish industry boundaries. The following part discusses competitive forces that Sony faces in the industry of consumer electronics; specifically, gaming console segment. Porter’s five forces model has been used in this case to analyze Sony’s industry environment.
Barriers to Entry
Threat of entry by potential competitors is not very high. For a new company to enter the consumer electronics market, it would mean huge capital requirements – highly competitive and costly development of new products and technologies and even more expensive establishment of distribution channels, as well as marketing and positioning of the company on the market. Developing leading edge game console requires couple of hundred top engineers with variety of skill range. Only large and established companies are able to get such amount of the best people. There is a possibility of established (and financially fit) companies trying to enter new segments of the industry, the same way as Sony did when it entered gaming industry.
Bargaining Power of Buyers
Bargaining power of buyers is mostly influenced by economic factors influencing consumers’ spending power. For example, if the spending power is lower due to economic downturn, Sony is forced to decrease prices in order to maintain profitability (and vice versa). Buyers can demand also higher quality products and new technologies, forcing industry to tougher competition. Also, competition among major industry players is high, making loyalty of consumers harder to maintain. Therefore, bargaining power of buyers is assessed as high.
The Bargaining Power of Suppliers
Sony’s self-sufficiency and ability to supply its own parts as well as highly saturated market of chip makers and suppliers erases bargaining power of suppliers. In addition, negotiating power of Sony is very high; therefore, making the bargaining power of suppliers very low.
Rivalry Among Existing Competition
Competition and rivalry among the three companies (Sony, Nintendo and Sega) is very strong. Companies are competing through the technological and performance improvements as well as moderately aggressive pricing strategies. It seems that PlayStation is playing the prime position with its competitive strategies focused on the development, pricing, quality and performance of the graphics technology as well as more sophisticated ways to target gaming community.
Conclusion on Opportunities and Threats
In conclusion, Sony’s accidental entrance to the gaming industry has proven to be one of the greatest opportunities in the Company’s history. While the Company faces threats coming from the intense competition in the industry and changing demographic trends, it is also building on the opportunities that come from the technological trends and market demand. Game players seem to never get enough, asking for more realistic entertainment experiences – providing necessary market pull resulting in a technology push that comes from Sony’s development activities.
Step 3: Auditing the Firm’s Resources – Value Chain Analysis
Michael Porter (1998) defines the value chain as a tool for identifying ways to create more customer value for the specified product. In order to audit the firm’s resources, we used the value chain analysis framework and divided Sony’s activities into two categories – primary and secondary (support) activities.
Sony Playstation’s value chain starts with the actual production of the game console. There are following five primary activities that are involved in physical creation of the product.
Sony’s self-efficiency as well as strong buying power in relation to its suppliers (parts, components, chips, etc.) and established long-term relationships within the industry are some of the Company’s definite strengths.
The Company’s principal manufacturing facilities are located in Japan, United States, Mexico, Europe and Asia. Sony has a strong presence in all of the major markets, which is strength to the Company. Also, the Company recycles about 70% of its production waste, helping the environmental protection. (Sony Electronics, 1998).
The fact of Sony’s presence in various continents aids the outbound logistics because distribution of the products is much easier and less costly as the manufacturing facilities are located directly in the geographic areas serving particular markets. This strengthens Sony’s position in a form of the costs saving related to distribution, shipping and warehousing.
Marketing, Sales and Service
Sony’s products are marketed by sales subsidiaries and unaffiliated local distributors, as well as direct sales via the Internet, throughout the world. This strategy of marketing and selling the products may cause weakness for Sony as the values and vision of Sony and its distributors and service contractors may vary from retailer to retailer. Therefore, there might be inequalities and inconsistencies damaging Company’s image and creation of value.
General Administration / Firm’s Infrastructure
Sony is one of the best known promoters of continuous corporate improvement philosophy – Kaizen. The Company has been around for a while and thanks to this philosophy, Company has built strong structure that supports its activities. Sony is effectively divided into divisions that specialize in their area of expertise according to their functional capabilities. Sony’s overall performance is a result of teamwork of very experienced executives that know their industry.
Research and Development
This is one of the greatest strengths Sony has to offer. Sony has been leader in technology development within electronics industry and the PlayStation console outperformed its competition in a very short period of time, thanks to its research and development departments. Sony’s R&D has been able to create state-of-the-art product with added features, performance and usability. Sony’s strategies are based on continuous improvement of technology and company’s mandate is to be a leader in product and technology innovation.
Human Resources Management
Sony’s success and leadership in technological development would never be possible without highly skilled and educated personnel. Human resources management is another strength adding to the Company’s bottom line. Sony’s employees are known to be loyal to the Company as Company is loyal to its employees. There are development programs for employees as well as appraisal and incentive programs that help to keep high levels of motivation. Sony ensures and has resources to afford best experts that can develop the best products.
All three support activities in the creation of value chain are great strengths and assets for Sony. They effectively and efficiently support primary activities of the Company.
Sony builds customer value based on three basic sources: Activities that differentiate the product (PlayStation’s enhanced features and performance), activities that lower its cost (strong and dominant relationships with its suppliers allow pushing the costs down), and activities that meet customers’ need (Sony’s focus on older and more mature gaming population while satisfying their specific needs).
Sony’s competitive advantage comes from the ability to efficiently transform inputs to outputs while providing additional value to its customers. Additional value comes from PlayStation’s performance and quality of games. There’s also innovation factor involved in performance of PlayStation. Sony developed a new product that added to the game experience – CD could hold more information, more high-quality sounds and graphics, adding to the experience. All of these factors resulted in high levels of customer responsiveness.
Conclusion on Strengths and Weaknesses (and value chain analysis)
Sony achieved competitive advantage by managing their value chain better than other companies in their industry. Technology development and innovation, price leadership and product differentiation were some of the main strengths enabling Sony to achieve a competitive advantage within its market. Product differentiation created a unique position in Sony’s market through product functionality, performance and quality.
STEP 4: SWOT Analysis
In the Sony Case study, a number of threats and opportunities can be identified for the Company. At the same time, both Sony’s strength and weaknesses show through the actions they took at the time of the case study.
Firstly, Sony’s strengths lay in its company resources. As Sony is a large corporation, it has the financial backing to try a number of different strategies. As it is stated in the case study, at the time Sony was making record profits off the PlayStation.
Because of this, Sony can also try entering other markets as they have the resources to do so. Sony also has the advantage in terms of strong customer loyalty as well as leading edge in R&D. Sony is the king of the consumer electronic market and because of this it still stands strong in a number of different worldwide markets. Finally, Sony also has a competitive advantage in both the area of quality and innovation (though innovation is debatable in some cases). Despite these strengths, Sony still has a number of weaknesses.
While Sony has moved forward through some innovation, that innovation seems misdirected in some cases. Firstly, it is indicated in the case study that Sony is developing “exotic digital toys”, PDAs for the PlayStation, Datawands and Robots. While these are innovative ideas and may have some redeeming qualities in the future, Sony has been neglecting other areas such as the Internet. At the time of the case study, Sony was behind both Amazon and Microsoft in the Internet markets. With such a large company as Sony, this indicates they were slow to move onto the web and have to catch up. Secondly, Sony has made a number of poor management decisions. For example, Sony’s entry into the PC market with its overpriced strategy, and second with Sony’s tendency to flood the market with its products. It’s indicated in the case study that Sony had saturated its home market, Japan, with its products during a recession. Sony also continues to do this with the PlayStation, when allowing publishers to flood the market with sub-par games rather than releasing carefully chosen titles like Nintendo does. From these moves, it seems that Sony was lacking in strategy that would follow directions for the future. Sony can counter these weaknesses if they can focus on the opportunities that lay before them.
At the time when the case study was written, the Internet was still experiencing a boom. Despite the fact that Sony lagged behind, there is still ample opportunity to further move onto the web. Since Sony has been successful in moving its game show and music properties onto the internet, Sony could be equally successful in moving its movie business onto the web with streaming media. Digital convergence is also an ample opportunity that Sony has with its vast electronic empire. As more and more electronic equipment becomes integrated with the Internet, Sony could easily jump on the bandwagon with its electronic product line and with its pioneering R&D department, this shouldn’t be a problem.
Along with opportunities also come threats, and during 1998 the first threat was Sony’s competitors in its newest market entry into the video game business. Both Nintendo and Sega still had a larger hold on the industry, Nintendo with its higher quality games and Sega with the 128-bit Dreamcast. Secondly, Sony had problems with the economic recession in its home market of Japan.
In conclusion, Sony can have a brighter future if it fully embraces its new markets and the internet, and focuses its innovative R&D department towards these endeavours.
STEP5: Recommendations and Implementation of Strategy Alternatives
Sony faces various issues that need to be addressed. The major potential problem of stability and growth was Sony’s intuitive, rather than strategic decision to go ahead with the development of its own console game system. Instead of strategic planning process, Sony took a risk of letting the major competitor on the board and then letting it go.
Sony has to define criteria that will help to make decision in solving these issues. The most important criteria in decision making process are continuous growth of the Company, while maintaining leading edge in research and development, as well as maintaining competitive advantage.
One of the alternatives is to focus on changing management style so it more reflects on core values and principles that Sony fosters. By doing this, Sony can ensure long term stability without risking sudden impulsive moves that might cause Company to lose their ground in the future. Another viable alternative is to make strategic merger or acquisition of their major competitor – Nintendo. This move would ensure Sony’s firm position in the market while combining the best technologies and gaining majority of the market share. Sony’s focus on strategic management in future Company’s directions is important. However, it could result in a lack of creativity and innovation, which is a driving force behind the current success of modern companies.
Acquisition of Nintendo would strengthen Sony’s market position, contributing to the growth of the market share and the Company. In line with the market trends analyzed earlier in the case, consumer interest in entertainment technologies will only grow, contributing to the bottom line of Sony PlayStation’s business. However, this could result in a monopoly-like environment resulting in potential weakened or non-existent competition. This could cause a decrease in quality of the games and various users’ needs. For example, if Sony focuses on developing games for 14+ market, the younger age demographics will be affected, resulting in loss of the customers. Yet another alternative related to the market trend is strategy based on digital conversion – Sony could either get rid of the PC VAIO line, or focus on converging various technologies into a single product (i.e. PC, DVD player, Audio CD, MP3 and PlayStation).
In light of decision making criteria, we assessed that the best strategy is to acquire Nintendo Co. and continue gaining position in the market. Also, Sony has to assess what markets they really want to focus on, without risking failures resulting from impulsive decision making. Sony’s gaining control and leadership over the game console market will ensure adherence to Sony’s technologies, increasing loyalty of the customers and industry to technological standards.
By selecting this strategy, corporate level strategies will ensure long term stability based on intelligent decisions. On the other hand, small business units will receive freedom in their area of specialization and focus on highly specialized R&D and product lines.
Step F: Implementing the Alternative: Translate the corporate/business strategy chosen into detailed functional strategy.
At the corporate level, Sony’s strategy would be that of the creation of criteria to better enforce the strategic management principles for better decision making. To accomplish this, management would need to be reorganized a little to better ensure clear communication. Once this is all in order, the next step would be a buyout of the competition, Nintendo. From there, the next step would be to integrate the resources of Nintendo’s console into Sony’s own Playstation for a possible future console, giving Sony an advantage over future competition. This merger combined with the reorganization of management will hopefully ensure that Sony can stay ahead of the competition in the video game market and be successful in future ventures into other markets.
On a business level, the reorganization of management would involve a shift of power to the lower departments, and the creation of clear communication between the lower levels and the upper levels of the company. By empowering the lower levels of the company, more educated decisions about the future of Sony’s subsidiaries can be made, as the lower levels of management know more about the products and what they’re capable of than upper management. Since this would focus the company, the lower levels can better focus on R&D and specialization in their individual product lines. In short, lower levels of the company would have a larger, if not largest, say in company decisions.
The buyout and merging of Nintendo into Sony’s Playstation department would not be difficult. Firstly, as Sony has more financial resources, the actual buyout itself would be easy. The merging of the two corporate cultures would not be difficult either as both companies have a similar corporate culture. Both the R&D and game creation aspects of Nintendo would be combined with Sony’s Playstation department and development could begin on looking into how both systems aspects could be combined into Sony’s next generation console.
By taking out the competition in the console market, Sony takes the lead in the game console industry, further barring entry for competitors. Also, with the company power shift down to the departments, Sony can be better prepared in the future as to how they do business and what businesses to enter.