1.
Mark Heath
C348 International Management
Assignment Two
Introduction
In this paper we will compare and contrast the fortunes of Sony and Siemens and how they
have adapted, or not, to a new globalised world. We will be referring to Hill’s (2011) text and
comparing theories to practise, using Hill’s premise that there are three conditions for superior
enterprise performance: ­
1) the different elements of a firm's organisation architecture must be internally consistent,
2) organisation architecture must fit the firm’s strategy,
3) & strategy and architecture must be consistent with the prevailing markets.
The analysis will be broken down into four main sections: ­
1) Organisation Architecture,
2) Strategy and Architecture,
3) Strategic fit,
4) Solutions,
5) Conclusion
Organisational Architecture
In respect of Sony’s horizontal differentiation we can see from the case studies that the firm is
structured, using Hill’s (2011) model, in Worldwide Product Divisions with a highly decentralised
structure leading to competition between the various business units. The division of Sony into a
Worldwide Product structure has benefits in that it should enhance the organisations ability to
consolidate value creation activities at key locations enabling the business to realize location
and experience curve economies, transfer core competencies within a divisions worldwide
operations and also co­ordinate global product/marketing programmes. One of the downsides of
product division structure however is in respect of local responsiveness with local country
managers not given much ‘voice’ resulting in problems at country level subsidiaries. Whilst this
lack of lack of local responsiveness would not generally have been a problem for a company
such as Sony, with its products being generally quite similar in the global market. What it did
mean was that a strength of Sony, the decentralised decision making and competition between
business units, which was thought to drive the business on in the early days became a
weakness as a more integrated approach was required to take on new emerging competitors
such as Apple and Samsung offering integrated experiences across multiple devices to
consumers. Sony, with a vertically integrated supply chain within the business, i.e. suppliers of

2. components parts to assemblers were also Sony companies, meant that integrating
mechanisms between the divisions should have been much tighter, instead, with the culture
described as ‘fiefdoms’ and ‘silo’s’, there was infighting, poor communication between divisions
and performance ambiguity. In this situation we begin to see the first signs of Sony’s
organisational architecture and strategy not fitting with the prevailing market conditions.
In respect of Siemens it is not clear whether the firm operated in a similar structure using
Worldwide Product Divisions, with decentralised self contained business units or along the lines
of a Global Matrix Structure. Using Hill’s (2011) model we can say that Siemens fulfills the goals
of a Global Matrix, i.e. realizing location and experience economies, local responsiveness,
worldwide learning and transfer of core competencies. A Global Matrix however is difficult is
practise to achieve, with dual hierarchies leading to bureaucracy, power struggles and making it
difficult to place accountability. In reality we should probably look to Bartlett and Ghoshal's (Hill,
2011) solution in which a more informal knowledge network of managers is created within an
organisations divisional structure as an answer to what has been created at Siemens. The
major differences when comparing Siemens with Sony being the integration of the different
business units, management training, open communication strategies, regular management
summits, performance measurement and culture of accountability to bring issues to the surface.
Siemens was decentralised but the integrating mechanisms and accountability left little room for
high levels of performance ambiguity.
The decentralised nature of Sony put the power in the hands of the managers business units.
However, there looked to have been a backlash against the CEO when the managers were put
under pressure, made accountable for the performance of their business unit and asked to raise
performance levels to meet the new challenges of the competitive environment. The balance of
centralisation versus decentralisation will shift in differing environments. In the case, whilst
Sony’s decentralised structure should have suited the structure as top management try to
increase the level of integration between the different business units and coordinate the
organisation to prepare for change they are struggling the bring the firm under some degree of
centralised control. At Siemens we can see that the choice between centralised and
decentralised decision making is not a black and white situation, there is a good balance
between the CEO and top management controlling strategy and coordination of investments in
the business portfolio and a motivated team of business unit managers, connected to each
other through networks to facilitate global learning and spread of best practises, that are able to
respond to local challenges.
Strategy and Architecture
With the majority of Sony’s staff and facilities being based in Japan we can say, again using
Hills (2011) strategy models, that Sony’s characteristics follow that of International strategy, with
low pressure for cost reductions and low requirement for local responsiveness. However, from
the case we can see that Sony has failed keep costs inline with the market. In the product
categories that Sony operates in, which are generally similar the world over, with only small

3. minor customisations required to serve different markets, it would have natural to for Sony to
move to a global standardisation strategy and allow Sony to operate from a lower cost base.
Instead Sony has failed to adapt its business and has not internationalised to cope with a new
competitive environment. The inward facing culture of managers and staff meant that they failed
to spot opportunities in the market, R&D staff based in Japan failed to recognise and value
innovation’s happening in other countries. With Sony’s manufacturing plants predominantly
located in Japan costs of production where high, whereas many of their competitors had been
offshoring and outsourcing high volume manufacturing to low cost countries in a bid to remain
cost competitive. A global standardisation strategy, which Sony should have been following,
would have meant that different functions could have been located a few favourable locations,
for example, production in China, perhaps outsourced and R&D in Silicon Valley, where some of
the most talented and creative engineers are based.
Siemens however is an example of an effective Transnational strategy, where the requirement
for local responsiveness and cost reduction are both high. Given the integrating mechanisms
and examples of communications at Siemens, driven by the CEO, an effective informal network
of managers was formed. As Hill (2011) points out, performance ambiguity at companies
pursuing a Transnational strategy can be high but given the integrating mechanisms in place,
culture and a focus on measurement of the outputs of the business, any level of ambiguity
would quickly come to the surface and those responsible managers made accountable. In fact
we can argue that performance ambiguity has a lot to do with the culture of the company.
Performance Ambiguity is cited as a major problem at Sony, however, in Hills (2011) models he
states that performance ambiguity should only be a ‘moderate’ problem in business pursuing
international strategy. The poor communications, lack of integrating mechanisms and informal
management networks at Sony heighten the level of performance ambiguity.
Strategic Fit
As highlighted in the previous section, we can clearly see that Sony’s strategy did not fit the
competitive environment. Globalisation had led to the offshoring of production to low cost
countries for many western firms, such as Apple, with core areas of competitive advantage
being kept in house, such as software development, product design and branding/marketing. At
the same time there was a rise in Japan’s Asian neighbours, Taiwan and South Korea with
companies such as HTC, Samsung and LG. Sony found itself in a new competitive environment
with an outdated business model. The case study highlights problems of price erosion and the
strengthening Yen, damaging profits through reducing the value of foreign earnings. The prices
of consumer electronics globally we can say are transparent, with specifications being well
understood by educated consumers, a lot of buying power held by a few large retailers in each
market, and new entrants into the market all leading to price and margin erosion for Sony, a
policy of price discrimination is difficult the achieve in this environment. Stringer, the CEO, was
responsible for creating cross functional departments for software and supply chain functions in
a bid to streamline, create cost savings from suppliers and further integrate the business. He
should of however gone further with the restructuring and moved production as a cross

4. functional division, integrated with the supply chain teams a division which was tasked and
focused on cost effective production of Sony’s ideas and brands, whether that be on shore in
Japan, or offshore, would have freed up the product divisions to focus on the consumers,
product design and marketing side of the business. Stringer also created two new business
units, Network products and Consumer products, in fact some of the Network appeared to be
consumer products, and in fact if the production of devices could be separated as suggested
then a larger more integrated consumer electronic division could be formed, with the goal of
introducing a ‘Sony System’ of integrated devices.
Siemens faced a similar challenge to Sony in that price erosion and globalisation were starting
to hurt the business at the time Von Pierer took over as CEO. The management team noted the
changes in their competitive environment. The transnational strategy and global product division
structure, combined with the Top+ change programme, management training and integrating
mechanisms meant that Siemens was able to adapt to the new environment relatively
successfully. The business units set about benchmarking themselves against major best in
class competitors such as GE which gave Siemens insight into business performance and
highlighted areas for improvement. Siemens also pushed on with innovations in order to
differentiate from the new low cost competitors who were entering the market. Market share
gained in the worlds largest market, the US, propelled by its innovations and competitive
position against GE, meant that Siemens was able to achieve economies of scale in their
business. A discriminatory pricing strategy also meant that they were able to achieve higher
than average profit margins in the US market. Siemens had the correct strategy and structure in
place to enable a change programme which meant they thrived in an evolving marketplace.
Solutions
Stringer adopted a number of initiatives to reposition Sony. Firstly they created the two new
product groups which we discussed earlier. However, as stated, I believe this reform did not go
far enough. Besides the structure of the business divisions Sony is faced with the challenge of
making its Japan based manufacturing strategy work against competitors who have already
outsourced their manufacturing to low cost locations. Sony also took on the challenge of
developing the Asian markets, where their premium products are likely to struggle to reach
critical mass in terms of sales volumes. This could be justified as a brand building exercise
rather than a profit opportunity however. Stringer did decide to bring in some younger members
into the management teams in a bid to break the existing culture, which had proved resistant to
change, and to bring about the much needed integration and speed up innovation. The
challenge is tough for the young members, to break the culture of the old existing established
management. One of the key factors in Sony’s failed attempts to restructure maybe the culture
gap between the western CEO and the Japanese workforce and management, in comparison to
Siemen’s CEO, who was able to adapt to cross cultural communications, engaging with the UK
and US financial communities. The focus on quarterly earnings from those financial
communities drove Siemens to become more driven by business results and metrics. Sony is
listed on the Tokyo Stock Exchange, we have seen no evidence in the case that Stringer has

5. made attempts to cross the cultural divide and adapt his communications style to suit the
environment in Japan. In the case there is a general opinion that the almost crisis situation at
Sony should present Stringer with an opportunity to unfreeze the organisation and drive his
change through, however, this can only be done if the inertia can be overcome by the strength
of his leadership and his ability to articulate his vision throughout the company.
The situation at Sony is in stark contrast with Siemens CEO, whose background in local politics
gave him valuable skills in persuasiveness, consensus building and Town Hall speaking. Faced
with similar problems to Sony, Von Pierer set about a successful change programme to
enhance the competitiveness of Siemens. The market situation was used by Von Pierer to
establish a mandate for change. With the Top+ programme focused on cost reductions,
innovations, growth and culture change, all at the same time. Von Pierer cites the importance of
consensus building in German culture, much more so than in North America where a top down
approach could be used to drive through change. Von Pierer was only satisfied that the
programme of changing culture was complete after 10 years of hard work. Given the process of
change is described as Unfreeze, move to the new state, re­freeze, (Hill, 2011), we can
question whether Siemens has been actually moving to a new state for 10 years, or that in fact
the new paradigm for organisations is to be constantly evolving and developing.
Another of the key issues for Siemens was development of their portfolio of business’. They
targeted through measurement of output performance for each business unit to be no.1 or no.2
in the market. Business that didn't fit this measure were either fixed, sold, or closed similar to
GE, however, one more option that was open to Siemens was to joint venture with a partner
who was best in class in the industry and able to provide core competencies that did not exist in
Siemens and that could be transferred into the business in order to improve performance.
Conclusion
During the paper we can see that Siemens was the more successful of the two organisations in
adapting to the competitive environment they found themselves in. What is clear is that it is that
strategy is not always a black and white situation, the theory does not necessarily always fit in
practise, and that unless there is a willingness, motivation, and suitable culture, the best even
strategies in the world will fail. In terms of the key differences of why Siemens was successful
and Sony unsuccessful in managing the change, as Hill points out in his opening writings on
organisation architecture, people are at the centre of everything. In stark contrast to Sony,
driven by a CEO who was able to articulate his vision, Siemens developed a culture that was
motivating for management to operate in and conducive to building a portfolio successful
business units.
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References

6. Hill, Charles L.W, (2011), ​International Business, Competing in the Global Marketplace​: McGraw
Hill Irwin.
Indu, Perepu and Gupta, V (2010), ​Sony Corporation ­ Future Tense, ​ICMR Centre for
Management Research, Hyderabad.
Stewart, T and O’Brien, L (2005), ​Transforming an Industrial Giant ­ Interview with Heinrich von
Pierer, ​February, ​Harvard Business Review.