In 2003, Apple used this slogan in its advertising campaign for iPod in Japan:
Hello iPod, Goodbye MD
It obviously intended to refer to Sony’s Minidisk player which was popular at that time to carry around and listen to music. Minidisk (MD) is 2.5 x 2.5 inch square media that could record 74 minutes of music (equivalent to one CD album), and later the compress mode enabled four times longer recording time. For me, that was remarkable technology that enables us to carry four albums in my pocket. But after this campaign, iPod started to take off and many of my friends started using iPods. Sony then released enhanced format of MD media called “Hi-MD” but I never seen anyone using that media. As in Apple’s slogan, we said goodbye to MD.
The article “Dynamic Strategy Implementation” (Dunlop, Firth, Lurie Deloitte University Press 2013) explains “three main reasons why strategy implementation fall apart” which are failure to translate the strategy, failure to adapt the strategy, and failure to sustain the strategy. What were the strategy and the implementation behind the Sony’s failure in MD player?
In its corporate strategy for fiscal year 2003 “Confirming Sony’s Position as a Global Leading Brand”, Sony states that:
[Sony] will renew its efforts to enhance group competitiveness and will aim to achieve a business structure securing a consolidated operating profit margin of at least 10% (excluding financial business). Reaching this target will firmly establish Sony's position as a global media and technology company with one of the strongest brands in the world.
Since this was the corporate strategy for Sony group, it is safe to assume that each division in Sony developed business plan based on this strategy statement. So using the three reasons, I would like to analyze what happened to Sony’s portable audio business.
Failure to translate the strategy
Again, the below is the Sony’s growth strategy for audio-visual categories in 2003.
1) Solidifying No. 1 Position in Audio-Visual Categories
Audio-Visual is a core business category, and here we will create a vertically integrated structure through the application of mechatronics and Sony key devices which will result in high added value and product differentiation. This will in turn realize high and sustained profitability. The shift of resources to growth areas like Flat Panel Displays, Optical Disk/HDD Recorders and digital imaging equipment will be accelerated. At the same time added value will be promoted through the application of broadband capability and key devices will increasingly be produced within Sony.
Interestingly, HDD and broadband are mentioned as the growth area. Needless to say, these are the key components of iPod success. So Sony also knew that these are important. But instead of connecting these and coming up with something like iPod, they developed Hi-MD. This could be example of lack of “explicit picture” results in the implementation team building “what they already know or can glean easily” (p.4).
Failure to adapt the strategy
Sony also overlooked the change in the market. Sony’s Walkman evolved from cassette player to CD player to MD player. Initially, the sound of MD was considered inferior to CD. So the implementation teams’ focus might lead to enhancing MD quality i.e. pursuing sustainable technology instead of disruptive technology, as described in Christensen’s Innovator’s Dilemma. For Sony, the first model of iPod with only 5GB storage might not be so much of a threat. However Sony underestimated the significance of the application of broadband capability which iPod fully exploited.
Failure to sustain the strategy
As a barrier to sustain the strategy, the article suggests “organizational resistance”. Sony put “Solidifying No.1 Position in Audio-Visual Categories” as the first growth strategy. Also, it was aware of the importance of internet. However, if Sony tried to start a service like iTunes, it could have caused internal conflict because it could have reduced Sony Music’s record sales. So for the established company like Sony, organizational resistance could be a big barrier for implementing a radical change.
In conclusion, Sony’s failure in portable music player is nothing to do with technological defect or strategic misdirection. In fact Sony’s strategy in 2003 says they were heading to create “a vertically integrated structure through the application of mechatronics and Sony key devices which will result in high added value and product differentiation”. Why wasn’t it a Sony version of iPod, or something more innovative? Well, it might be because of the failures in the implementation phase.
Amelia Dunlop, Vincent Firth, Robert Lurie, “Dynamic strategy implementation” 2013
Clayton M. Christensen “Why Good Companies Fail to Thrive in Fast-Moving Industries” 1997Sony Group Corporate Strategy for 2003 “Confirming Sony's Position as a Leading Global Brand”