Wednesday, June 22, 2011

Comparing GE and Sony’s Strategic Moves

Sony Corporation has been in the news recently for all the wrong reasons. Predominantly, the Hacking scandal, the earthquake and bad sales have impacted its earnings in a big way with estimations of $3.2 Biliion in losses.

Sony’s rising star, Sony Games seems to be in a lot of pain. The hacking attack on their website exposed 1 million customer accounts and potential credit card details of their gamers. Prediction of a does not help their gaming industry aspirations which were already hurt badly by Microsoft and Nintendo. Nintendo’s Wii already surpassed Sony in sales and with Microsoft’s Kinect doing quite well, Sony would need to come up with their trump card to get things back on track.

Sony’s LCD tv market is also wounded with higher competition and lower income in the LCD TV area taking its toll on fiscal third-quarter earnings. For the quarter ended December 31, the Japanese electronics giant reported a net profit of 72.3 billion yen ($885 million), a drop of 8.6 percent from the 79.2 billion yen earned in the year-ago quarter. Heavy competition from TV makers including Samsung, Panasonic, and LG have forced Sony to keep its own prices lower.

Likewise, Sony’s movie and music divisions haven’t been doing very well. A poor performance at the box office, both in theaters and at home, pulled down sales and operating earnings at Sony's Pictures division and Sony's Music segment saw its revenue and operating profit both fall, largely due to the ongoing slump in CD sales.

Considering all the losses that were piling up, the big boys at Sony had to make some strategic decisions. For the first time in history Sony management decided to outsource production of their HD TV units. This looks like a classic Strategy decision to cut operating costs and reduce fixed assets. This example shows that maybe GE’s decision to outsource was not as harsh as some of my friends think it was.

The similarity between GE and Sony’s strategic decisions doesn’t end here. One of Sony Corp.'s chief cash generators is its thriving business in Japan selling insurance policies and online banking services. Sony Financial Holding was created back in 1979, when Sony set up a venture with Prudential Insurance Co. of America. The idea was that the Japanese would trust the company that builds their Trinitron TVs to sell them high-quality financial services. So, the financial market has seemed to be an attractive proposition for non-financial companies to venture out into.

The reason why I am pointing out to the synergies between strategic decisions of Sony and GE is to bring out a point to my friends who have been very critical of GE’s strategic decisions is that perhaps GE was making the right strategic moves but they lacked a thorough implementation plan.


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