R&D performance in numbers
The R&D expenditures of Sony grew at rates between 2%-18% a year in 1996-2006 period, followed by 2% drop in 2007. R&D expenditures as %-age of sales grew from 5.2% to 7.1% over the same period (6.1% in 2007) (Sony factbook, 2007). Sales saw growth of 30% over the 10 years.
Observing these trends Sony appears to accommodate a strategy of growing R&D expenditures as percentage of sales. Electronics division receives most of the finances, under 20% favors the entertainment segment.
(Sony factbook 2007)
Sony holds an offensive strategy in R&D (Sato, 2000), aiming to be ahead of competitors and innovative intensively. Akio Morita, the company founder, expressed this strategy "Make the best products and customers will follow your lead". Such approach is in contrast with other Japanese electronics companies as ‘Panasonic (defensive R&D strategy), or Sanyo (imitative R&D strategy)’ (Sato, 2000). I consider Sony to possess rather Darwinian perspective in their strategy, operating in a fast changing environment where technologies advance rapidly. Recently, strategically company shifted towards classical perspective of innovation strategy, aiming to establish strong position by effectively bringing advanced technological concepts to the market and create strong domains in multiple technologies, though, losing focus of disruptive technologies.
Nature of R&D portfolio
Sony, in its earlier days, had been actively introducing radical innovations to the market (e.g. walkman) (‘1950-1980 sony introduced 12 disruptive technologies’) (Christensen, 2008). Technology push approach was characteristic for their strategy. ‘As a policy, they didn’t do market research — if market didn’t exist, they believed, it couldn’t be analyzed’ (Christensen, 2008). Focus on radical innovation has been softened in recent years after Mr. Morita retired and more conventional approach in marketing and R&D has prevailed. R&D and innovation is strategically important, but incremental and sustaining rather than radical and disruptive technologies are characteristic to firm's innovative performance.
Proper balance of R&D projects portfolio investing in further development of current technologies (less risky though essential in competitive battle) and future technologies whose potential to win or lose a customer may be blur for now, is essential for any company that aims for sustaining leading position in its industry. The future scope has lost in favor of current, softening the highly competitive character of Sony before.
Sony and features of Japanese R&D Management
Communication between R&D and other departments is essential to encourage information flows, understanding of particular positions, provide feedback and evaluate R&D projects. Unreasonable projects to be cut in early stage is crucial and wide feedback is of help. Support for development around other departments is essential for projects that are pursued further. The most important links of R&D stretch to marketing and manufacturing. Japanese firms tend to employ (inter-department) job rotation as information exchange tool. In electronics industry rotation between R&D and manufacturing is common (Florida, Kenny, 1993). Rotation of R&D employees to manufacturing helps to cut the time to market of new technologies. This is underlined by frequent meetings of managers of these departments (Kenney, Florida, 1993).
Clash of marketing and technicians/engineers/scientists/ is not rare. However, understanding here is very essential for R&D to recognize how their activity responds to market behavior and trends.
R&D objective setting and inclusion of employees in this process can encourage challenging spirit and creative competitiveness between teams. Similar effect and as motivation tool serve conditions as the time that R&D employees are allowed to devote to their individual projects, tolerance of risky behavior (as a prerequisite to encouraging creativity). Generally, companies tend to encourage employees’ individual motives onto company activities. It is ‘typical for Japanese companies that objectives are set in collaboration between the managers and their subjected employees’ (Birnbaum-more, Rossini, Baldwin, 1990). The inclusion of employees also depends on the stage of development. Autonomy is lower in development stage when high capital investment and great coordination with other departments is required (Birnbaum-more, Rossini, Baldwin, 1990).
Organization of R&D at Sony
Sony operates a number of R&D sites in and outside Japan - in the UK, USA, Germany, Taiwan, Thailand, Singapore, China, South America, ...
The localization of R&D activities is based on multiple factors
- development of products close to the selling market
- local expertise in certain technological area of company's interest (article at sony.net: Globalization of R&D activities)
- avoid fluctuations in exchange rates (article at sony.net: Globalization of R&D activities)
Sony also takes advantage of collaboration with universities. Examples can be found in Japan where development and collaboration clusters join university laboratories and private companies (clusters typical in Tokyo area). Other examples of collaboration with universities are from US (‘development of HD broadcast technologies in cooperation with Indiana university’) (Gellar, 2007) or Singapore (‘development of mobile technologies’) (National university of Singapore, 2006).
R&D at Sony is organized upon specific technology areas. Some activities are conducted under control of company headquarters and others in are controlled by particular business units.
(source: Sony factbook, 2006)
Collaboration and R&D activities
Strategic decisions on sharing R&D activities with other companies (competitors, suppliers, customers) or keeping them in-house are of rather complex nature and involve range of factors of internal and external preconditions (as stage of technological development, nature of market, market position, financial conditions, human or facility capacities, or others). Companies collaborate to reduce risk involved and share costs. On the other hand, they choose to keep activities in-house if they have a lead-time in comparison to competitors or the development concerns their distinctive competencies. Typical forms of R&D collaboration are alliances and joint ventures (mid to long term), licensed and contracted cooperation tend to be undertaken in short term perspective.
Sony has established multiple cooperations with number of companies in different areas.
Activities conducted within alliance are adequate form of collaboration to create standards, as in example of Sony and IPTV forum (Open IPTV forum, an alliance of consumer electronics and telecommunication companies. Their goal is to set standard for IPTV technologies. ‘Members are objected to develop technologies providing access to (multimedia) content on mobile and home electronics’ (Research and development at Sony, 2007)). Alliances allow good level of control over development and lead to risk sharing. ‘Collaboration under alliance helps eliminate risk involved in early stage innovations with uncertain future benefits’ (Narula, 2001).
Another example of alliance is photo software development with PictureVision. While concentrating on crucial capabilities (electronics), the collaborative effort helps Sony develop new capabilities in software area.
Joint-venture of Sony and Swedish Ericsson is one of more widely recognized collaborations. Joint venture is a long term form of cooperation, where both parties contribute with their strong assets, complementing the strengths of the other collaborator. Sony-ericsson developed mobile phones which hold mobile phone market share of under 10% today (compared to industry leader Nokia at 35%-40%). This joint-venture helped Sony to approach the mobile phone market and Ericsson gained access to highly competitive Japanese market. Ericsson's network infrastructure expertise and Sony's capabilities in electronics provided for assets giving the venture company a good competitive position.
Joint venture of Sony and Toshiba was formed to produce high performance processors (Cell), which now both of the companies use in their own devices (Sony in PlayStation gaming device and Toshiba in high resolution Televisions). Sharing the investment decreased the cost for both companies while both can equally harness the benefits of such collaboration.
Sony established cooperation with SanDisk to develop MemoryStick media used in Sony’s portable devices. Later, SanDisk was licensed to manufacture and sell the Memorysticks. This case shows the transition of forms of cooperation depending on stage of product development. SanDisk in this case expands Sony's reach to market via SanDisk retail channels. Memory Stick products enjoy a share in excess of 25% of the total market for removable flash storage cards (Sony SanDisk, 2003) and are only compatible with Sony electronics.
Sony corporation does not tend to outsource R&D activities or contract external companies to conduct R&D for Sony, neither they conduct R&D for other companies under contracted terms. Mainly manufacturing activities may be outsourced.
It seems that Sony tends to turn to cooperation of strategic and mid to long term character, maintaining the ability to control and contribute to R&D performance of particular collaboration. Such R&D collaboration strategy shows focus on stability and effort to strengthen the market position
Conclusion
Large companies devote to R&D seriously in order to cope with the fierce and dynamic competition of today’s markets. R&D activities require great managerial effort and crucial strategic decisions. Industry leaders tend to show high R&D activity and large innovation output. Sony files regularly patents in different categories of technologies and aims for leading market positions, viewing innovation and R&D as the only means of such goals. However, the innovation strategy has lost its initial aggressiveness and radicalism in recent years. Firm’s wide collaborative activities show search for more security and willingness to share as the cost also the benefits of innovative processes. Focus on development and applied research is understandable in industry such as electronics, but basic research also has share in company’s portfolio of R&D activities.
Sony’s innovative approach is efficient but lacks breakthrough products that would “shake” the market. It is not as creative and most of product categories don’t feature products functionally much different than competitors. On the other hand the company is good with design and user interfaces. At the same time, application software is a hurdle that company has not been able to cope with yet, leading to for example low success rate of new playstation product. Under current company restructuration efforts wide and applied feedback on R&D strategy will also be essential in order for Sony to keep at market tops.
References
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Birnbaum-More, P. H., Rossini, F. A., Baldwin, D. R., (1990): International research management: studies in interdisciplinary methods from business, government, and academia, Oxford University Press
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Sato, R. (2000): Strategies for R&D and marketing in
, December 2000, Pages 389-391
- Tidd, J., Bessant, J., Pavitt, K. (2005): Managing Innovation, John Wiley and Sons Ltd, Chichester
- Kenny, M. and Florida, R. (1993) “The organization and geography of Japanese R&D : results from a survey of Japanese electronics and biotechnology firms”, Research Policy, 23, 305-323
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Waters, C. L. (2004): The United States launch of the Sony PlayStation2, , July 2005, Pages 995-998
Resources from Sony official materials at www.sony.net
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Sony factbook (2006), available at http://www.sony.net/SonyInfo/IR/library/fact/FY06_3Q.pdf, accessed 20.12.2008
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Sony factbook (2007), available at , accessed 20.12.2008
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Research and development at Sony (2007), available at www.sony.net/SonyInfo/IR/financial/ar/ 2007/qfhh7c00000d7q3z-att/SonyAR07-10.pdf, accessed 18.12.2008
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http://developer.sonyericsson.com/site/global/newsandevents/latestnews/ newsmar03/news24.jsp, accessed 7.1.2009
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Sony info (2003): Press release of Sony and SanDisk license agreement, accessible at accessed 7.1.2009
Other
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National university of Singapore (2006): External Collaborations & Funding Opportunities, , accessed 11.1.2009
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Gellar, R. (2007): IU and Sony Electronics announce strategic alliance for HD production projects, available at , accessed 13.1.2009
Sensor used in digital cameras
Organic light-emitting diode based screens
