When Sony launched its VAIO (originally, an acronym of Video Audio Integrated Operation) series of personal computers, first as desktops in 1996 and later as laptop and notebook computers in 1997, not many took Sony seriously. Users were under the impression that computers were industrial and business products, for which service would be the most important. The market mainstay at that point of time was seen in terms of office and industrial use. As Sony sold its laptops and notebooks through its normal consumer retail outlets which mainly sold televisions and other audio-visual products to individual consumers and families, Sony was not considered to be channel-friendly to the computer buyers. To Sony’s credit, it proved its detractors wrong. VAIO became the preferred laptop brand competing with Apple, HP and IBM/Lenovo, for its top of the mind consumer recall. It even became a leader in large format CPU integrated desktop computers. Sony emerged next only to Apple in terms of design elegance and product sophistication.
If one would recall, laptops at that point of time were staid and boxy with black as the only color (even today, several models continue to be that way). Sony pioneered laptop and notebook design to levels that made the products works of art. Use of exotic materials and colors and incorporation of slim form factor enabled Sony to develop and offer lightweight and high performance computers that captured the imagination of young and old as well as individual users and business firms alike. The latest in Sony design innovation is VAIO Flip which represented a unique design that straddled a laptop and tablet. In terms of hardware too, Sony VAIO packed a punch with bundles of proprietary software to add considerable value to the products. Against the scenario of elegant design, sophisticated manufacture and robust branding, the recent decision by Sony to sell off its VAIO computer business to Japan Industrial Partners (JIP), booking a business loss in the bargain, has been a surprise.
Theme in strategy
The divestment of the VAIO business must have been emotional for Sony but seems a practical decision from one perspective, and visionary from another perspective. The practicality arises from the fact that the Sony VAIO may have fired the imagination of users but has not exactly raked in the requisite revenues and profits. Part of it could be related to the high manufacturing and supply chain costs related to multiple SKUs and excessive accessories. The strategy of multiple product platforms, frequent model changes, optional availability of several accessories, and celebrity led advertisement campaigns required that Sony operated VAIO as a mass market product range to financially breakeven. Yet, the products were often a trifle underspecified spec-wise and quite over-specified price-wise. The top-of-the-line design elegance inspires consumers to look for the best in hardware capabilities, but Sony traditionally stopped short of giving the best in its products; for example, 1 TB hard disk capacity is offered with a 6 GB RAM, rather than an 8 GB RAM. Even in respect of flash memory models, initial offerings have been in terms of 128 GB rather than 256 GB.
Possibly, Sony’s reluctance to pack the ultimate punch in the internals in line with the futuristic external elegance has limited the market for its elegant products; many consumers seek RAM upgrades at their cost, for example. The strategic template set for VAIO laptops (the best in design, the next best in hardware, the maximal variety in SKUs, the best in promotion, and the highest in pricing) was thus possibly too embedded to allow a major shift for higher volumes, lower volumes and a revival in profitability. The proposed divestment of its PC business by Sony thus makes sense in the face of Sony’s unwillingness to make any major shift in VAIO strategic theme. Interestingly, this is not the first time that Sony exited from its computers business. Sony initially entered the PC business in the 1980s with computers made exclusively for the Japanese domestic market but exited the business in the early 1990s. The proposed VAIO divestment, after a successful reentry in 1996 and growth over nearly two decades, is reflective of an approach to delete the strategy itself rather than reengineer the strategy. From a strategy perspective, therefore, firms do face the clinical option of strategic abandonment vis-à-vis thematic reengineering. That said, Sony’s decision is possibly not as simple and self-effacing as it appears.
Sony’s decision to quit the VAIO business needs to be viewed in the context of how the communication, computing, entertainment and social media arenas are getting redefined and integrated into one huge seamless arena of networking through the cloud. Smart phones and tablets have emerged as the devices which cater to this new arena. Sony’s decision to quit the VAIO computer business needs to be seen in the context of the company’s earlier decision to consolidate in the mobile phones business by buying out the stake of Ericsson in the Sony-Ericsson joint venture. Over the last few years since this has happened, Sony has demonstrated a new penchant to bring its industrial design and manufacturing elegance to the smart phones business. One may hypothesize that Sony would now concentrate all its resources to develop a smart phone and tablet lineup that caters to the four needs of communication, computing, entertainment and social media. From a perspective of developing a strategy for future, Sony’s smart phone and computer decisions together indicate how a changing technology landscape could dictate the product strategy, and an overall business strategy.
While redefining the strategic arena is important, developing a new generation of devices that meet the requirements of the new arena is equally essential. Sony’s design studios must surely be working on the new product themes. The challenge is to imagine the future shape of arena. In this case, for example, the question would be how seamlessly the nations of the future would be networked. Like radio and television waves, would carriers and the governments be offering free seamless wireless connectivity through satellites across the nations? Answers to such questions would determine how the phones and tablets of the future would evolve. It is important that product development in environments of such technological fluidity must emerge from the environments of the future rather than the capabilities of the firm. One view, for example, is that the large boutique of proprietary software that Sony bundles in its VAIO and other devices (nicknamed ‘bloatware’) has been a system drag rather than a user friend. As products become mass-market products, the balance between three types of product architectures, open, value added semi-open and proprietary, has to be carefully evolved.
Strategy, product sine cycles
Most firms that exist for the long term go through strategy cycles. These are sinusoidal curves of entry, growth, decline and exit into a business based on specific products. While this may seem similar to a product lifecycle, what is not seen is the hidden sine wave of product redevelopment that occurs, unseen to the external world. This involves deep de-learning, futuristic re-development, revalidation through piloting and finally reentry into the market. If Sony’s strategy journey, from 1980 to 2014, is reviewed, clearly strategy can be seen to be moving in cycles (for example, into computers, out of it, again into computers and again out of it) with silent product redevelopment occurring unseen. Microsoft has also been into some kind of strategy cycles in a similar manner (into tablets, out of it, into it, and again further into it, through acquisition). Firms with strong brand equity and deep resources would use every exit challenge as an opportunity to reinvent its products and its own business. ITC, which is a market leader in cigarettes may face product exit if tobacco consumption is banned but the sinusoidal theory of strategy would require that ITC should develop tobacco and nicotine free cigarettes for a reentry.
Product strengths and environmental fit of a firm positively correlate with each other. Product stagnation and environmental transformation inversely correlate with each other. This constitutes the essence of the theory of sinusoidal theory of business and product strategy. Strategists must define objectively, and on a continuing basis, the fit between current products and future environment. When products are considered inappropriate for the future evolution and the firm does not have the resources to reinvent the products or any such reinvention is not considered sustainable or viable, strategic exit is advisable. If the reverse is true, that is products are appropriate and can be rendered even more effective for the new environment, the product strategy must be leveraged to amplify the business strategy. The stronger the product competencies and greater the product-environment, the greater will be the amplitude of the sine wave. If the entry-peak-exit sine wave has high amplitude and long time horizon, the hidden product redevelopment reverse sine-wave need not necessarily have the same amplitude and time span; it is all a question of how technological savvy and proactive a firm is.
Ideally, the positive sine wave of product-market entry, growth and decline and product (not necessarily market) exit must be mirrored by the inverse sine wave of product redevelopment, piloting and reentry into the market. Even as the positive sine wave takes shape and rules the market, there should be several inverse sine waves of product redevelopment. Sony VAIO case study teaches us the curious but very interesting theory of sinusoidal product and business strategy. A technologically virtuous and environmentally sensitive firm should take cue to let technology and business act in concert to generate high and wide positive sine waves and simultaneously generate short and speedy inverse sine waves of product strategy. The author believes that the theory of sinusoidal product and business strategy, as developed in this blog post, is a novel contribution to the theory of strategy that seems strapped for innovative contributions.
Posted by Dr CB Rao on February 9, 2014