Corporate Diversification in Large Corporations
Large corporations employ different strategies to increase value for the firm, and one type of corporate-level strategy that will be analyzed and discussed is diversification. Diversification strategies are actions a firm takes to gain a competitive advantage by selecting and managing a portfolio of businesses that compete in different product markets or industries (Hoskisson, Hitt, Ireland, & Harrison, 2013). The company that will be analyzed is Sony Corporation—or Sony—in which the basis for its analysis is its Mid-Range Corporate Strategy. Within Sony’s corporate-level strategy, it is evident that diversification has been a strategy of simultaneous strength and weakness for the firm.
Sony’s motivation to diversify has historically been to create value for the firm, but as seen in the Mid-Range Corporate Plan, the company has fallen short in some circumstances to do as such. Mochizuki of MarketWatch noted, “in its competition with South Korean rivals for a greater share of the consumer electronics market, Sony had sacrificed profitability in favor of sales, resulting in years of losses” (Mochizuki, 2016). In effect, Sony looked into its financial economies which led to management restructuring-introduction of a new CEO Kazuo Hirai. In his first letter to stakeholders as CEO, Kazuo Hirai promised that ‘Sony will change’ (Sony, 2013). Changing for Sony meant restructuring its business to focus on growing profits. Sony determined that one way it could increase earnings is to return to their modus operandi kando, a Japanese word that loosely translates to mean emotional connection. From its virtual reality platform to its continued investment in consumer electronics, Sony is focused on innovation that inspires and invokes consumer emotional attachment.
External factors also drive Sony’s diversification strategies. The rise of drone technologies and artificial intelligence/robotics led to the decision to form an alliance with ZMP to form Aerosense (Vincent, 2015), a value-creating alliance as “Sony is concentrating the focus of its imaging businesses on creating value-added products, while aggressively exploring new applications for its imaging technologies in both the consumer and professional markets” (Sony, 2013). Combining its image sensor technology with drones and robotics, Sony is able to leverage its strength in imagery, diversifying into a new market that is rapidly increasing in demand with major players like Amazon and Google currently investing in drones for package distribution (Mochizuki, The Wall Street Journal, 2015).
Product diversification allows the firm to compete in multiple industries and markets with the intent to reduce fluctuations in the company’s profitability (Hoskisson, et al., 2013). A multidivisional structure is often used to successfully implement a corporate strategy. Sony Corporation uses a Strategic Business Unit Form of the Multidivisional structure