Final Report - Gaga

8/6/2019 Final Report - Gaga

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(Executive Summary)


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This report aims to undertake a strategic review of Sony Corporation, with a focus on the

sub-businesses of Sony Playstation3, Sony Reader & Sony Vaio. First, the external

environment of the corporation and its business is analysed within the context of the current

climate. Using this as basis, the analysisbreaks downinto the three sub-businesses

andexamines them within an external and internal context, and ends by recommending

strategic options based on findings and market research.

Sonys share price has been falling over the years, and fluctuating between a low of $25.85

and a high of $36.97 over the past year. Its current market capitalisation is at 37.93B.(Yahoo

Finance)

First, aPESTLE analysis has been carried out to assess the external market Sony operates in.

Political Factors:

Japan is currently in the transition from single party system to two parties. Theimplications of this change on Japan-based multinational corporations are uncertain in

terms of future legislation, government & trading policies, and possible conflicts.

Such unrest on the home front may result in an increase inflation (which may force price rise on consumer electronics) and in consumption tax rates, as one of themeasures to counteract public debt.

Economic Factors

The economic recession has inevitably reduced the disposable income of consumersworldwide, having a negative effect on sales making price competition sensitive.

Japan's public debt as of 2010 is 225.8%, which is the highest amongst developedcountries. (Central Intelligence Agency)Along with deflation & frail public demand,

Japan faces global pressure to cut public debt over recent months.Ratings agencieshave warned Japan of possible reduction in credit rating. (The Economic Times)

The effect of changes in currency exchange rates has been unfavourable for Sonyfrom 2007 onwards, stripping away billions of yen, (Sony, 2010) and suchunfavourable currency exchange rate is deterring investors.

However, the emerging markets show promising growth and willingness to buycompared to mature markets, a subject which will be explored in detail later alongwith market trends and end user drives.

Social Factors

Sonys largest market is Japan which accounts for 43% of sales(Sony, 2010) and itsan ageing population, with a median age of 44.8 years.(Central Intelligence Agency)

Sony has managed to maintain reputation but needs to do so more aggressively,especially in light of recent events. There has been significant loss of trust fromcustomers following security attack& failure to notify immediately.


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TECHNOLOGICAL

Consumers are moving toward multi-functional devices, meaning the demand fordedicated devices is reducing.

The market for 3D related technologies is growing rapidly. Consumer electronics is moving toward networked products & services worldwide.

LEGAL

Regulatory bodies (USK &PEGI) enforcing restrictions on age & content. Adherence to regional government policies, given multinational focus of organisation. EU warnings over privacy issues following security breach on PSN network & Sony

Online Entertainment properties.(CNET)

US lawmakers from both major political parties pressing legislation for uniformnational security & data breach standards for notification

ENVIRONMENTAL

Japan has a strong culture of being environmentally conscious. Nowadays, consumers value eco-friendly products and are willing to pay premium

price for it. Some of Sonys manufacturing activities were suspended after recent tsunami (Sony),

following which Sony saw a share price drop of 9%. (Yahoo Finance)

1. PLAYSTATION 31.1External Environment Analysis1.1.1 Industry Analysis


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Barriers to entry are high due to: (1) high capital investment, (2) high production profitability

threshold, (3) economies of scale advantage already achieved by current competitors, (4)

main competitors are established big brand names, (5) considerable amount of switching

costs for consumer (will have to switch to a new console).

Supplier power is low due to: (1) suppliers are not concentrated there are many suppliers

and few buyers, (2) no possibility of forward integration, (3) buyers are price sensitive & are

larger than suppliers, (4) companies also have OEMs, reducing complete dependability onsuppliers, (5) buyers switching costs are low, (6) buyer is a huge company and well educated

about the product, (7) purchasing occurs in high volume/contract basis, and (8) buyer forms

major portion of suppliers sales (usually dedicated, in fact)

Buyer power is medium. Factors that increase buyer power are: (1) Switching costs are

considerable, but not extremely high, (2) consumers is price sensitive and well-informed

about the product, (3) substitutes available. Factors are decrease buyer power are: (1) Buyer

concentration is low (few sellers & many buyers), (2) no possibility of backward integration,

(3) customers do not purchase product in large quantities.

The threat of substitutes is high in this industry: (1) PC gaming poses an interesting issue

because the hardware is already available to the users in most cases and they just buy the

games. (2) Online gaming (3) Mobile phone gaming, which is currently challenging the

portable gaming console market, and (4)the ever growing social gaming market. These

substitutes although many vary in quality, are cheaper than consoles.

The intensity of rivalry is high: (1) neck to neck competition for market share, (2)

oligopolistic industry, (3) products have only just small differences, slight niche operations


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(3) production capacity of the big 3 is high, (4) fixed costs are high and (5) exit barriers are

high. These factors are rather intense, outweighing the effect of brand loyalty.

Complements to Playstation3 are games and a television, which add value to the product.

These three are pre-requisites to game play and having just one of these products is useless

without the other. Sonys ownership of some developing studios and the SCEI developing its

own games maintains control over the games that are playable on the PS3. However, third

party developing studios produce games for both XBOX360 and PS3, which loosens the hold

over the software market for PS3.

The industry structure

The above diagram explains the different actors involved in the console gaming business.

Sonys Playstation business

- talk about revenue distribution

- Influence of distribution channels

- What do customers value? Demographics of players (website),high quality games, high end

graphics, ability to play in groups amongst girls (43% of them prefer wii). Most number of

games (possibly all) available on platform. cost effective. Prepared to pay if (1)no of

games. (2) quality of games that are available (3) quality of graphics. (Board)

- What does the firm need to do to survive competition?

1.1.2 Competitive Analysis

Two major competitive factors in the industry are price and performance


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Key Industry success factors:

(1)Technology(2)Manufacturing(3)Distribution(4)Marketing(5)Skills & capability


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KEY SUCCESSFACTOR

IMPORTANCE/WEIGHT WII XBOX360 PS3

Design expertise 0.1 8 5 8

Reputation 0.05 8 8 5

Innovationcapabilities

0.15 6 8 8

Manufacturingcapabilities

0.15 7 6 9

Productperformance

0.2 7 8 9

Distributioncapability

0.1 7 8 7

Availability ofpopular games

0.25 5 8 9

Sum of

importanceweights

1.00

Weighted

strength rating6.25 7.4 8.35

1.2 Internal Environment Analysis

1.2.1 Resources and capabilities analysis


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1.2.2 Organisational Analysis

1.3 Strategic Options

1.3.1 Option Identification

1.3.2 Option Analysis

1.3.3 Recommendation Set

According to analysis all the three major players lies in the growth state. Sony and Nintendo

are in this business more than 20 years and so they are close to enter the mature state. This isa field of electronics so there is huge scope of innovation. From the PlayStation original to

the current version we can see a lot of changes, from the change in controllers to change in

disc media (CD, DVD and now Blu-ray) and change in gameplay and user interface

(conventional controller to motion sensing). So there is a huge scope of growth in this field

and it may never enter maturity phase.

Competitors Analysis

One of the main competitors of Sony PlayStation 3 is Nintendo Wii.

Strategy - The firm is competing very strongly against PlayStation 3 infect it is leading the

market now. Nintendo has sold over 86 million units of its product Wii in comparison to

PlayStation 3 whichhas sold around 50 million units. They are targeting the casual gamers

whose number is increasing rapidly.

Objectives Nintendo is driven by market goals. Their goal is always to grab more and more

market share by any means. Since the launch of their product Wii they are leading the market


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Maturity

R9. Developing

Studios

9 9 They own 15 developing studios dedicatedto PlayStation platform.

R10. Licences 8 8 Sony has a lot of developers who getroyalties from the sales of games.

Capabilities Importance PlayStations

Relative

Strength

C1. Product

Development

10 8 High quality product but not first tomarket

C2. Marketing &

Sales

9 5 Need aggressive specifically targeted

marketing strategies.

C3. Manufacturing 7 8

C4. Supply Chain

Management

5 8

C5. Strategic

Innovation

8 7

C6. Organisational

Culture

6 8 Parent Sony Corps TQM.

C7. International

Management

8 9

C8. Online Gaming 9 7 They have many security problems in

PlayStation Network.


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So the key strengths of PlayStation are the brand value, developing studios and technology.

The name PlayStation in gaming world is very old and famous. They own 15 developingstudios in USA, Europe and Japan (Sony Worldwide Studios) and many 2nd party developers

which are making games dedicated to PlayStation platform only. With this they are attracting

more and more buyers to the PlayStation. They are one of the leading innovators in the world

and they have strong technology as well.

y They can acquire more developing studios so that they can develop more dedicatedgames for PlayStation studios also they can tie up with major game developers like

EA games, Activision, Ubisoft etc. to make games dedicated to PlayStation platform

only.y They can differentiate themselves from the market by developing innovate product

because they have very strong technology. They have released motion sensing

technology recently. They can combine 3D gaming with motion sensing and release a

completely new product like Wii.

y They can focus more on the online gaming as this business is growing more and more.They had some technical issues in the starting of this year. They can move towards

browser based games as PS3 already have built-in browser. They already have power


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of branding as PlayStation is common household name so they have an edge over the

other players.

y They have the best hardware in the market but their advertising campaign is not goodenough. They are not able to explain why their product is more costly or what the

advantages are. They can re-launch the advertising campaign telling the people that

PS3 is the only Blu-ray enabled complete entertainment package in the marketincluding gaming, internet-browsing and motion-sensing.


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-ps3 and xbox360 seem to be selling at an equal rate (PS3News)


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2. eReader2.1External Environment Analysis2.1.1 Industry Analysis

Barriers to entry are high due to: (1) considerably high capital investment & production

profitability threshold, (2) economies of scale advantage already achieved by current

competitors, (3) main competitors are established big brand names, (5) no switching costs for

customers, (6) current situation is problematic as it is.

Supplier power is low due to: (1) suppliers are not concentrated there are many suppliers

and few buyers, (2) no possibility of forward integration, (3) buyers are price sensitive & are

larger than suppliers, (4) companies also have OEMs, reducing complete dependability on

suppliers, (5) buyers switching costs are low, (6) buyer is a huge company and well educated

about the product, (7) purchasing occurs in high volume/contract basis, and (8) buyer forms

major portion of suppliers sales (usually dedicated, in fact)

Buyer power is medium. Factors that increase buyer power are: (1) No switching costs (2)

consumers is price sensitive and well-informed about the product, (3) Wide range of

substitutes available. Factors are decrease buyer powers are: (1) Buyer concentration is low

(few sellers & many buyers), (2) no possibility of backward integration, (3) customers do not

purchase product in large quantities.


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The threat of substitutes is high in this industry: (1) Smart phones (2) iPad (3) Traditional

books.

The intensity of rivalry is high: (1) neck to neck competition for market share, (2)

oligopolistic industry, (3) products are not highly differentiated]

Compliments are eBooks which are available on company websites linked to majorpublication houses and some also have independent authors. Connection to these databases

via 3G, wi-fi or computers is essential to facilitate download and exchange of ebooks.


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Resources Importance Sony e-

Readers

Relative

Strength

Comments

R1. Financial Assets 7 9 Market capitalisation of 100 Million Yen.(SCEI)


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R2. Technological

strength

8 9 Strong track record of product innovation and

advancement in technology

R3. Plant and

Equipment

4 8 Reliable network of suppliers for materials and

efficient manufacturers.

R4. R&D 5 6 Stronger R&D provides superior product

features which generate interest among new

users

R5. Brand Value 9 3 Sony is a common house hold name but its e-

reader is still to capture attention

R6. Economies of

Scale

8 8 Sony has tremendous expertise in generating

economies of scale and it would greatly benefit

the future of their e-readers

R7. Organisational

Maturity & Process

knowledge

5 9 Sony has a vast repertoire of experience in

organizational maturity and process

knowledge to tap into to develop its e-readerbusiness

Capabilities Importance Sony e-

Readers

Relative

Strength

Comments

C1. Product

Development9 8

Although not the first to market, Sony packs

high end features into its e-readers like touch

screen, etc

C2. Marketing & Sales 9 4

A meagre 15% of market share implies poor

marketing and sales strategy which needs to

be aggressively improved upon

C3. Manufacturing 6 8Manufacturing capabilities are extensive due

to long term industry experience

C4. Supply Chain

Management5 8

Has the capability to leverage an extensive

network and well distributed supply chain

process

C5. Strategic

Innovation8

5

Sonys recent transformation process reflects

their focus on strategic innovation

C6. Organisational

Culture4 9 Parent Sony Corps TQM.

C7. Online support and

e-book resources10 6

Currently the resources being provided are

still less as compared to Kindle and needs to be

upgraded


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nowadays, with a generation that is aware & increasingly eco conscious. Development and

promotion of products that are environmentally friendly and perhaps with charity schemes on

product purchase will help restore Sonys faltering brand image and also augment profit

margins.

- Stress on r&d- Focus on regional markets- Restructure innovation process -> faster time to market (very important in innovation)- Build on r&d capabilities to survive in current climate

Bibliography

Board, E. S. (n.d.). Retrieved 5 17, 2011, fromhttp://www.esrb.org/about/images/vidGames04.png

CIA. (n.d.). https://www.cia.gov/library/publications/the-world-factbook/fields/2186.html. Retrieved

May 11, 2011, from Central Intelligence Agency.

SCEI. (n.d.). Retrieved May 11, 2011, from http://www.scei.co.jp/corporate/index_e.html.

Sony Worldwide Studios. (n.d.). Retrieved May 14, 2011, from

http://www.worldwidestudios.net/locations.

Yahoo Finance. (n.d.). Retrieved 5 19, 2011, from http://finance.yahoo.com/q?s=SNE.

Final Report - Gaga

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