How Sony Became The Ultimate Pivoting Success Story

How Sony Became The Ultimate Pivoting Success Story

From producing rice cookers to becoming one of the top 10 electronics companies in the world, what paved the way for Sony’s exponential success? Walk down memory lane to experience the company’s journey in this detailed strategy study.

Today, Sony stands as a behemoth in the global electronics industry being the go-to brand for a vast collection of premium-quality consumer electronic products.

It has:

  • A staggering revenue of $86.820 billion in 2021
  • 111,700 employees in the Sony workforce
  • Offices in 60 distinct locations
  • Presence in more than 204 countries 
  • Stands as the 7th largest electronics company in the world.
  • Provided Return on Equity at 24.2% in FY2020
  • Owns the best selling gaming console of all time - PlayStation 2 (155 million consoles)
  • Pioneering brand of transistor and pocket-radios, portable music players, CDs, and much more!

But it wasn’t always this way.

Sony’s beginnings trace all the way back to post-World War II in Minato, Tokyo, where it was established as a small shop of radio repairs, that too with a different name. 

Starting its journey with borrowed capital, a windowless workshop, little to no equipment, but a dedicated team, Sony has made its way to the top and currently is one of the biggest players in the electronics world.

Let’s travel back to World War II and understand how it all began.

$500 Partnership Lays The Foundation Of Sony

It was March of 1945, and the war was in full swing. The crumbling of the axis powers and bombings in Japan brought chaos. Tokyo’s bombing was the last straw that sent the Japanese military into panic mode, and special reinforcements had to be called in.

This brought together two exceptional individuals: Akio Morita, a weapons researcher, and Masaru Ibuka, a navy lieutenant. Little did they know that they would partner together in the future to become co-founders of Sony.

sony-cofoundersSource

Starting Small

When World War II ended, so did the military careers of Morita and Ibuka. Right after, as Japan went through one of its worst phases of unemployment, the two decided to find employment wherever possible.

Therefore, in 1946, Ibuka began working in a small workshop in Shirokiya departmental store, repairing radios for a living. In October, Ibuka paired with his team to form Tokyo Tsushin Kenkyujo, also called Totsuken, and often shortened to TTK.

Converters & A $500 Partnership

As is the case for any business, Ibuka and his team immediately began to search for a gap in the market. Something that was in demand, could be produced and would begin churning profits for them. This break came in the form of adaptors, or as they were called – converters.

Informational mobility had been almost non-existent during the war. While some radios had become damaged in the chaos, others were disconnected from the shortwave unit to prevent the Japanese public from having access to enemy propaganda by tuning in. Now that the war was over, the Japanese were hungry for information, and Ibuka cashed into this golden business opportunity.

His team created short-wave converters that gave regular radio access to the shortwave unit. This meant people could tune in to any channel they wanted and listen.

As the converters grew in popularity, they made it to the “Blue Pencil” column, where Akio Morita read the article and was impressed by Ibuka’s work. He contacted his former colleague, and the two formed a partnership in May 1946 with $500 of borrowed capital, and the desire to conquer the world of consumer electronics.

It’s All Rice

If you’re thinking that this partnership would be the turning point for TTK and the enterprise will grow to unbelievable heights here on, think again because the journey of Sony is anything but expected.

The first official product of the company was an electric rice cooker – yes, really! And it was a great failure.

The idea for rice, which might sound absurd, came from the aftermath of the war. As money remained scarce, some people purchased the shortwave converter radios for cash while others offered rice. The partners had an idea: they would help consumers cook rice electrically.

Adding aluminum electrodes on the underside of the wooden cookers seemed to do the trick until it began ruining the rice – over or undercooking it.

sony-rice-cookerSource

The first product of the company was officially a failure, generating only $300 in profits on a turnover of less than $7000 in the first year. 

The next product was electrically heated cushions, which also failed miserably, and it seemed, Sony had yet to come up with its great breakthrough.

Key Takeaway 1: Observe and Improvise

The early years for the TTK team were filled with struggles: minimum capital, limited manpower, and a windowless workshop. On top of it, the initial products were failures, one after the other.

For an ordinary start up this would have been the end of the road. But TTK’s improvised strategy meant they were always on the lookout to cash in on new opportunities.

So, even though the rice cooker and cushion had not done well, they represented the company’s ability to understand the needs of the consumer and come up with unique, innovative designs, despite limited resources.

Not only did this approach help them survive, but it also laid the ground for future growth.

The Breakthrough That Placed Sony On The World Map

Thomas Alva Edison, considered America’s greatest inventor, was always open about his failures. He once said,

I have not failed. I’ve just found 10,000 ways that won’t work.

For Ibuka and Morita, the entrepreneurial journey of Sony was similar. There had been a multitude of failed products, one after the other. In fact, Ibuka had almost given up hope on the household appliances market, but Morita convinced him to innovate, create, and conquer.

It seemed then, that rice cookers and heated cushions were simply examples of products that did not work in the Japanese market. They were not failures, but a business’ trial and error to get their breakthrough – which they did in the 1950s in the form of a tape recorder.

Nine Hundred and Ninety-Nine Uses Of The Tape Recorder

After their tried and tested runs of home appliances, the founders decided to move away from the home-appliance market and towards the development of electronic items.

In 1949, a newly imported tape recorder by the Japan Broadcasting Corporation flooded the markets. While tape recorders weren’t a popular item in Japan at the time, Ibuka looked at the product and an idea clicked!

Using their power of innovation, the TTK team made two prototype tape recorders:

  1. G-Type: Used mainly for industrial purposes, these had a recording time of 60 minutes.
  2. A-Type: Created for household usage, these had a recording time of 30 minutes.

As the recorders were released in 1950, the demand for G-Type especially spiked as teaching aids. However, it is important to remember that the Japanese market wasn’t too fond of tape recorders back then.

So, what did Ibuka do? Innovate and strategize.

With a military background, Ibuka came across a U.S. military booklet. This was called “Nine Hundred and Ninety-Nine Uses Of The Tape Recorder”. Putting on his thinking cap, he came up with a marketing strategy of converting the booklet into Japanese and spreading it around.

As the Japanese consumer market became aware of the uses of a tape recorder, they flocked to secure their purchase, and soon, the sales were at an all-time high. The conversion of a simple booklet into an effective marketing tool enabled TTK to move out from their small abode, and into a building in Shinagawa. The journey up had begun.

The Transistor Revolution

After learning from the tape recorder experience, Ibuka knew he had to be vigilant of global electronic trends and new products that could have potential as a business opportunity. His observation, once again, proved key when he caught wind of a tiny technology called the “Transistor” in 1952.

Back then, consumer electronics were mostly based on vacuum tubes. Unfortunately, this technology was not only bigger in size, but it also consumed a considerably high amount of power. Consider this:

While a vacuum tube consumed an entire watt of electricity, the transistor merely required a millionth of a watt (precisely 1/1000,000 watt!) to function.

Ibuka immediately recognized the potential of this technology and knew it could pave the way for the future of his company if utilized correctly.

The transistor technology had been produced by Bell Laboratories but was up for licensing and usage by Western Electric. The problem – it had a $25,000 price tag. While this may not seem much today, back then it was worth a whopping 9 million yen, and obtaining the technology made the company go almost bankrupt.

Everything had been put on the line for TTK. But merely capital injection was not enough. The technology had been up and running in the U.S. for years, and so the founders knew they had to elevate their game.

The existing transistor technology had one shortcoming – its low power output. Morita channeled his physics knowledge and came up with an answer. While the Germanium in the transistor itself wasn’t too conducive, adding impurities such as Phosphorus improved its power considerably!

In this way, Japan’s first transistor radio was created and launched in the market in 1955 by the name “TR-55”. This radio was small, portable, and an immediate success.

sony-radio-tr-55Source

From The Japanese TTK To The American Sony

Radios were not a new item back then. An American company called Regency Electronics had already launched their transistor radio a few months prior to the TR-55, but Sony’s product was superior in quality and power.

For the company, this opened the doors to the West. Morita and Ibuka traveled to the U.S. to market their transistor radio and expand their consumer base beyond borders. But they faced a roadblock.

The Americans thrived on and purchased according to familiarity, and Tokyo Tsushin Kenkyujo, or its short form Totsuken, simply did not have the charm they liked. Instead, it was difficult to pronounce and seemed alien.

This led to dropping sales – something the founders were afraid of. Therefore, it was decided to change the name of the company to an easier form – Sony.

This came from the Latin word “Sonus”, which translates as “sound”. Since the company was dealing in radios, it only seemed befitting to choose a name that conveyed what they stood for. In addition, Sony also relates with “son”, a word in Japanese culture that hints at young adults who strive to be innovative and create new things.

Therefore, 1955 was also the year when the company changed its logo to depict the new name – Sony. A new global brand identity placed Sony on the world map, kickstarting its success.

sony-logo-1955-1957Source

Ket Takeaway 2: Connect With The Customer

Sony’s tape recorder was a fabulous invention, but the Japanese market didn’t have the awareness or demand. Using a simple already-published booklet, the company upgraded their marketing and conveyed to their customers how useful their product was.

Similarly, the TR-55 was an exceptional product. But would not sell in the U.S. due to the company’s difficult name. The founders were agile and changed the name of the company to something that would resonate with the new demographic.

Hence, along with developing useful products, Sony focused its marketing and branding techniques to make its offerings relatable and meaningful for the customer, in turn boosting its sales and outreach.

The Apple Of Its Day – A New Age For Television and Music

A small company can specialize in one product. However, if a business aspires to become a force in the world, history narrates diversification of product portfolio to be key.

Let’s take the example of Panasonic, Apple, Microsoft, or Nestlé. Belonging to a different set of industries, these businesses have become global conglomerates, churning hundreds, thousands, and even millions in revenue by the minute.

What do they all have in common? A diverse range of products.

Morita and Ibuka understood the need for continuous innovation, development, and advancement, paving the next three decades with several meaningful products and collaborations; turning the Made In Japan tag into today’s Made In China.

The Pocket Radio

Hindered distribution channels in the U.S. meant that the TR-55 still did not hit local markets despite the change in name. However, this did initiate a movement of change towards small, portable radios.

Therefore, when Sony released the TR-63, it had hit the bull’s eye!

These radios were advertised to be pocket-friendly, portable, and incredibly handy. As a result, people flocked to the markets and this transistor radio became a breakthrough product. From selling roughly 100,000 units in 1955, the count went up to a whopping sale of 5 million units sales towards the end of 1968.

But do you want to know something shocking?

The unique selling point of the radio was its pocket-friendliness, when in fact, the radio was not able to fit in standard pockets at all! When Sony realized that the radio didn’t fit, they customized the pockets of their sales staff to align to their marketing campaign, this established results and brought in sales.

Elevating The Media Game

It seemed that radios were just the beginning. Soon, the research and development team at Sony was making waves by coming up with unique products.

  • TV8-301: A small, portable transistor television was produced in 1960 that was considerably smaller and handier than the usual, large, vacuum-using televisions back then.
  • Sony Trinitron: If there is one old Sony product that you might see today too, it is the Sony Trinitron. A giant leap from the black-and-white media technologies, the Trinitron televisions were bright, colored, high-quality, and truly the first of their kind. While they did require a heavy investment and weren’t launched until 1968, the founders found their risks paid off when this television featuring premium picture quality became an instant hit!

As consumers of foreign markets began to hear the might of Japan’s Number One, Sony’s clientele grew. What began from Japan had now headed towards the West and wasn’t stopping any time soon.

The Era Of Digital Music

Once Sony had made its name in the radio and television industry, it decided to step up its game by making an entrance into the world of music.

For this feat, they chose to indulge in a joint venture with CBS Inc., forming CBS Sony Records. They produced vinyl records and released the first Video Cassette Recorder (VCR) in 1971. As pioneers of such tech, Sony won an Emmy award for its excellent product.

cbs-sony_logoSource

This move was directed by none other than Norio Ohga, the same man who had once worked for Opera and criticized the early tape recorder of Sony. The founders immediately knew they wanted a critical man like him by their side. This man would take Sony into the future by later becoming president and chairman of Sony.

In 1988, Sony bought all the shares of CBS Sony Record to become its sole owner. After multiple collaborations with famed singers like Michael Jackson, it comes as no surprise that today, Sony is the world’s biggest music publisher with revenue reaching as high as $3.2 billion a year.

Let The Format Wars Begin

Sony paired with Matsushita Electric (now known as Panasonic) to create a videocassette format in 1969. But the expensive nature of the product, and therefore lack of sales made them part ways. However, both of them continued to work on their formats.

The result: One of the fiercest format wars ever.

Sony created their format in 1975, called Betamax, a product of supreme quality that could record up to 1 hour. Despite being the best in the market, it suffered at the hands of the VHS, the format developed by Matsushita. The VHS was cheaper and benefitted from the goodwill and massive clientele of Matsushita, generating a much higher turnover.

Yet again, Sony applied its policy of observation and conquest and resorted to creating VHS machines after the stiff competition.

Walk And Listen, Man!

If you’re thinking the decade’s research and development was over, and Sony would continue producing its usual products – think again!

It seems the thinking hats of the Sony team were always at work, even when they weren’t really trying to innovate. For example, the Walkman, a portable stereo cassette player that became one of the most popular players of all time, was actually inspired by Norio Ohga’s desire to listen to music easily as he walked.

The idea clicked immediately: A cassette player that could fit in your pocket, paired with a pair of headphones that had impeccable quality.

Since the headphones had already been in production, the idea took merely 5 months for execution, and on the 1st of July 1979, Sony had released the Walkman, which sold over 385 million units! As a never-before-seen product, the Walkman was a phenomenal success, despite being priced at $150!

sony-walkmanSource

Later, Sony paired with Philips to create the compact disk and invent the CD player in 1982. ushering in the transition to the era of digital music.

Stepping Into The Film Industry

If you are fond of watching movies, it is impossible to have not come across one spearheaded by the Sony team. This is due to Sony’s diversification in the late ‘80s.

In 1989, Sony bought Columbia Pictures Entertainment for $3.4 billion, a bold move indeed considering the acquisition already had a debt of $1 billion. However, this decision gave Sony access to an extensive library of films and a stronghold in the U.S. entertainment industry and its distribution.

With time, it seems the decision was the right one; the company has rolled out blockbuster movies like the Da Vinci Code, Skyfall, and Spiderman series since then; one after the other.

Key Takeaway 3: Never Stop Innovating

Innovation is key to sustaining success. Sony faced fierce competition from other established companies as well as foreign policies.

However, its main ingredient of success remained its powers of innovation – from the VCR to VHS and the mighty Walkman. The company realized that if one product range or service was doing well enough today, its demand and popularity could soon die down in a competitive and dynamic world.

Therefore, to conduct successful business continuously, it needed to innovate and update its products to stay ahead of the competition.

A Company Of Parallels: Financial Services, Gaming, and Mobiles

By the end of the 1980s, things were going great for Sony. It had expanded to newer markets, had a strong grip on music, and had a research and development (consuming 9% of sales), that continued to work its magic.

Sony posted record earnings of $384 million in 1990, which was a massive 35% increase from the earlier year. However, like all business cycle booms are followed by slumps, the recession in the early ‘90s produced a considerably challenging environment for Sony.

How the company maneuvered its way through such business scenarios, however, is an entrepreneurial inspiration.

Revolutionizing The World Of Gaming

The company had decided to venture into video gaming by the late ‘80s and availed the help of gaming giant, Nintendo Co. Ltd. in this new endeavor. However, the deal fell through in 1992 when Nintendo backed out, and Sony was left on its own.

Did Sony then back down since gaming was a completely new horizon? Absolutely not! The company continued to work on the production of their first game console, and merely 2 years later, the Sony PlayStation was launched in the Japanese market.

sony-playstation-1Source

An immediate success, it sold more than 100,000 units on the first day, and roughly 2 million by the end of its first 6 months. The console was released in the U.S. a year later, and the sales tally continued to climb. Sony had revolutionized gaming, and the world was about to find out.

Despite Morita’s passing in 1999, innovation did not stop at Sony, and the PlayStation 2 was released in 2000, becoming one of the biggest hits among gaming consoles. By today, this product has sold nearly 158 million units; and continues to be headstrong, bringing in newer variations such as the introduction of Virtual Reality. Currently, the PlayStation 5 is on the market, with further editions in the works.

Getting Mobile

Sony’s next step – conquering the mobile market. In 2001, the company joined hands with the mobile division of Ericsson with a 50-50 share. This came to be known as Sony Ericsson.

Their first product, a rounded-designed phone called the T65 was well received by the public. In 2012, the company was bought and renamed Sony Mobile Communications, this time competing in the smartphone industry with Sony Xperia. However, the mobile market perhaps wasn’t the right trajectory for Sony. With decreasing sales and an almost non-existent presence today, while the start of Sony Ericsson was good – the steam died down.

All The Money Lay In Financials

In 2001, Sony made another unexpected move. It created the Sony Bank. The idea to step into the financial market went back to the 1950s, when Morita had visited the U.S. In Chicago, he was surprised to see the magnitude of the Prudential Building and was in awe of how life insurance companies and financial institutes could build similar facilities. There and then he had decided – Sony would venture into banking one day.

Although Morita’s wish came true after his death, the Sony Bank was created as an online bank facilitating deposits, foreign exchange trading, etc., and continues to turn the wheels of revenue for Sony.

The OLED TV

Staying true to their innovative streak, Sony created the world’s first Organic Light-Emitting Diode television in 2007 called the XEL-1.

Also, one of the thinnest televisions of the time, the OLED TV had supreme picture quality, consumed less energy, and was incredibly lightweight. It was a success, receiving mainly positive reviews and selling all over the globe including Canada, Russia, Australia, Europe, and the U.S.

A few years later, Sony also released its Ultra-High-Definition TVs (4K), with exceptional pixel and picture quality.

Key Takeaway 4: Become A Risk-Taker

Sony’s experience in becoming a conglomerate teaches that diversification gives a mighty push to a business striving towards success. Although Sony began its journey with electronics, it expanded and ventured into gaming, financial markets, mobile phones, the film industry, and beyond. While some decisions may not have been the best, others – such as the PlayStation – were a risk that paid off well.

In fact, it wouldn’t be wrong if one was to say that the PlayStation is keeping Sony afloat today!

Sony Today – The Battle Uphill Continues

Over its journey spanning over seven decades, Sony has faced its fair share of challenges and setbacks - from the rice cooker to Sony Ericsson. However, the company has always been able to fight back and persevere. This is why, even today, it is counted amongst the most successful conglomerates in the world. By continuously reinventing itself to cater to people’s needs, Sony has evolved into a company that drives the world forward.

sony-conference

Sony is on a purpose to “fill the world with emotion, through the power of creativity and technology.” This is evident from its business centered around people to support and connect them.

Navigating The Pandemic

For many businesses, the pandemic proved to be a rather difficult storm to see off. Initially, Sony too had to bear a huge decline in operating profits caused by the COVID disruption.

But soon, the company found a way to not only stay afloat but take their business to the next level. This was mainly backed by their gaming and entertainment industry.

With people staying indoors, they had more free time and looked towards Sony’s trademark products, such as the PlayStation 5 - over 10 million consoles sold till now – online streaming options, and music production.

Thriving On Digital Platforms

Thus, seeing the huge potential in digital entertainment, Sony has shifted its focus from consumer electronics to entertainment and gaming. Plus, with a long-established reputation and platform in these industries, the change is one the company is fully ready to embrace.

Very recently, the company has completed its acquisition of anime-streaming site Crunchyroll for a whopping $1.175 billion. Although the investment seems huge, it provides Sony access to over 120 million customers spread out in around 200+ countries.

That’s not all though. Sony has also struck deals with streaming platform giants Netflix and Disney Plus to offer Spiderman movies and content.

Key Takeaway 5: Prepare Products For The Future

Good companies provide their customers with products for the present. But great companies have the eye to look beyond, understand what the future holds, and ultimately, lead the way in the industry. Therefore, if a business wants to be a growing brand in the future, it must visualize and plan in the present.

Sony knows the world is changing and people are consuming content digitally. With the resources and platforms it has, the company is fully amped to offer its customers online streaming content and transform the gaming industry.

Strategic Takeaways

Growth By Numbers

Year

2021

2011

Revenue

$86.82 Billion

$79.19 Billion

Workforce

111,700

168,200

Countries Operating In

204

183

Share Price

USD 103.25

USD 17.68

Strategic Takeaways

Here are our key takeaways from Sony’s inspirational, roller-coaster journey, which of course, continues to roll.

Adaptability Enables Growth

With a capital of merely a few hundred dollars and a handful of men on the team, Sony was tight on resources from the start. Then, it continuously encountered obstacles, such as failed products, branding difficulties, and a rolling out pocket radio too big for a pocket. 

But in every situation, Sony did not take a step back. Instead, it adapted to its circumstances and was not afraid to change or take risks. They pivoted their products, marketing strategies, and even brand name, to find a way to move forward.

As a result, slowly but steadily out of a one-room facility to a building, and now – into an industry giant with a multitude of branches.

Create Your Product’s Worth In The Customer’s Mind

Some of Sony’s most successful products were those that struggled initially due to a lack of customer awareness. Hence, the company implemented various marketing strategies to make its product relatable and establish its unique offerings.

The transistor tape recorder wasn’t considered much until the booklet was introduced as a fantastic marketing strategy. The TR-55 was a great invention, but a result-oriented distribution strategy enabled its successor, the TR-63 to become a phenomenal success. The gaming expansion of Sony was difficult with Nintendo’s backout, but with the image they were able to curate, PlayStation outperformed any other Nintendo or Sony product.

Therefore, Sony’s growth depended on creating the best technology or appliance and informing or enticing its customers of the value it added.

Creativity & Innovation Are The Guides To Success

Sony is one company that realizes what its customers want or need before even the customers themselves know it. This powers continuous creativity and innovation. For instance, the Walkman – a portable cassette player – was a unique gadget people hadn’t seen before. Yet, the idea of having a music player in your pocket connected to headphones was something millions resonated with.

Thus, with an innovative approach, Sony captured an audience and made its mark with a product that at the time did not have a close competitor. Throughout their journey, from the CD player to the PlayStation, Sony’s first-of-their-kind products have been a key factor in the company’s success.

You Need To Take Risks To Minimize Risk

The risk-taking ability and drive of a growing company are what sets it apart from the ordinary company. In order to survive and thrive, Sony did not put all its eggs in one basket. It explored various industries, such as gaming, films, and financial services, diversifying their product portfolio so in case they were not doing well in one sector, others were facilitating the company’s growth.

So, while they were taking risks by leaping outwards of their industry, they were also minimizing the risk of becoming over-dependent on specific products or services. Thus, if consumer demands changed, new competitors entered, or there was a major shock in the market, their business did come tumbling down all of a sudden.

Its heavy investments in anime-streaming Crunchyroll and Disney Plus and Netflix show that the company is ready to divert its resources towards what customers will be demanding more increasingly in the future. Thus, a company focused on growth, like Sony, always looks into the future, keeps itself on top of trends, and embraces innovation and technological changes.

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