Sony had about $4.6b loss last year and their CEO Kazuo Hirai is currently slashing jobs as part of his cost cutting measures. With the recent introduction of 10,000 more jobs to be cut, this brings the total to 60,000 jobs slashed since 2003. While it is clear that the management is doing all it can to ensure Sony’s survival, this is the time to play the balancing act right, and juggle the glass balls well.
This will certainly make for one of the case studies in business schools in years to come, whatever the results may be. If a failure and the company falls into another’s hands, the decisions of Hirai will end up as a list of “what-not-to-dos”. If a success, Hirai’s decisions will be dissected and unpacked and studied for areas of replicability, because of how it turned around an ailing technology giant.
What are the conjectures that we can make from his current decisions?
1. Sony is trimming divisions that are unprofitable or not within their current areas of focus to right their sinking ship.
2. The laying off includes engineers who are key to innovation. Sony believes that the trade-off of these layoffs in terms of human resources leading to innovation will bring some level of profit or at least stem the financial bleeding in the short-run.
3. Sony believes that these tradeoffs are necessary in order to bring the black back in its books in the short term in order to ensure its long term survival. Those divisions that face the most layoffs are the ones that Sony feels it should not compete in as much, or at all, for that matter. It could be possible that the skill sets of the older engineers are obsolete due to a lack of upgrading. Or it could be that they have found a way to automate some of the engineering processes and this crisis presented an opportunity to trim off excess human resources as it may not have been culturally acceptable to do so if the company was still doing well.
What are some of the possible strategic advantages and disadvantages that Sony will face if it continues along this path?
Firstly, Sony is not alone in its sinking boat situation. Other companies like BlackBerry is also in the same boat, albeit a less massive structure. BlackBerry has also resorted to cost cutting by laying off workers; done with the intent of focusing only on core products that will make a difference. By bringing the entire structure down, there is probably going to be a much smaller opportunity for redundancies and on the other hand, greater synergy given the lesser complexities.
Secondly, by laying off core engineers, it risks losing core competencies. The very knowledge-based workers who gave Sony its initial competitive advantage, who birthed the strength of the tech giant with the roots of technology instilled in them will be lost if they have not been captured in some forms of institutional knowledge of sorts. Forward innovation may suffer as a result of a core competency layoff.
Thirdly, competitors who are up and coming for example, in China or India, will benefit from the experiences of these laid off engineers and will seek to find them to assist in their growth. This will increase the brain pool of rising competitors who will threaten Sony in the long-term.
Before Sony continues down this path, it has to chart its direction. Tradeoffs are necessary, but the extent in terms of long term costs have to be weighed off against short term gains. And history has it that when firms get it wrong, they usually end up as a basket of case studies of what business school graduates ought not to do when it is their turn to lead.
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