Sunday, November 13, 2011

Sony’s Failure: Organizational Agility

“Competing through organizational agility” [1] was published in the 2010 McKinsey Quarterly and introduces three types of agility: strategic, portfolio, and operational. This blog will focus on how one of the world’s largest electronics companies, Sony, fails to capture portfolio agility, causing threats for the company.

Sony reported a depressing third quarter, of which its TV business was the biggest reason. The industry is a race to lowest pricing, and the demand is weak. Even though Sony has lost money on its TV business for several years in a row, executives want to stay in the business as they feel it is critical to Sony’s identity [2].

Sony’s strategy currently focuses on four screens, TV, phone, tablet, and PC, but Sony still sees TV sets as the core of the company. Kazuo Hirai, Sony Computer Entertainment Chairman, states:

“We believe that the TV business is essential for Sony’s future growth strategy. That’s our perception about the TV business. The entire management team has a great sense of urgency regarding the fact that the TV business has continuously recorded losses for the last seven fiscal years”.

“I will take the lead in implementing the plan to improve the profitability of the TV business with the aim of extricating us from this loss-making structure as soon as possible. The entire Sony Group will be involved in this profitability improvement plan”.

However, this will lead the entire company to focus on curing the TV business, which is only one part of the company. Sony has made a plan to cure the TV business, however, this plan will take two years and a lot can change in two years; Sony’s obsession with fixing its TV business is a threat to the entire company. By only focusing on the TV business Sony will very likely miss opportunities elsewhere.

If Sony would follow the recommendations made in “Competing through organizational agility”, and make decisions based on logic and data rather than on emotion, the logical choice would be to leave the TV business.

It happens in a lot of different companies that decisions are based on emotion and politics instead of on logic and data. The area of evidence-based management focuses exactly on this problem. Evidence-based management is the systematic, evidence-informed practice of management, incorporating scientific knowledge in the content and process of making decisions [3].

Based on the idea of Evidence-based management I would advise Sony to do the following:

  • Make use of the best available scientific findings and make systematic use of organizational facts. Sony should gather information on organizational facts, indicators, and metrics to increase their reliability and usefulness. This also links to the operational agility mentioned in the McKinsey Quarterly article; Sony should use real-time data and firsthand observations. It should not be influenced by emotion, but by logic and data.
    Two challenges may appear: firstly, information may be biased and secondly, facts can be subjectively interpreted. So Sony should find out what facts mean and how reliable findings are, so the context should be understood, too.

  • Sony should have an ongoing use of critical, reflective judgment and decision aids in order to reduce bias and improve decision quality. Decision neglect (failure to use resources at hand fully) can be overcome in two ways. Firstly, by increasing the practitioner’s (executives) capacity for decision awareness, and secondly by developing and using processes based on scientific research that improve the quality of a manager’s decisions and what he learns from experience [3]. So I would advise to change the way decisions are made at Sony.

The question is, of course, whether Sony is able to change its way of thinking and acting. It would require a change in the culture and values at the company, which may be very hard. Will Sony be able to change its management to a more evidence-based management way? Or will Sony’s emotions and intrinsic values stop Sony from acting on logic and data?

[1] Sull, D. (2010). Competing through organizational agility. McKinsey Quarterly, number 1, 2010.
[2] Dignan, L. (2011). Sony’s emotional ties to TV business threaten the company. November 4, 2011.
[3] Rousseau, D. (2011). Envisioning Evidence Based Management. Carnegie Mellon University.

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