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BPS 6210.595 Strategic Management Final Exam

What are the key elements of Sharp Corporation’s strategy over the past 50 years?How has the strategy evolved? Has it been consistent? Does Sharp Corporation’s strategy make more sense from the perspective of Porter’s article What is Strategy?, or within the framework provided byPrahalad and Hamel in The Core Competence of the Corporation?

The following constitute the key aspects of Sharp Corporation’s strategy over the last 50 years.

  1. Continuous innovation – new product development. Sharp Corporation sought to create products that competitors could not copy easily. This, Sharp Corporation was able to sustain by creating an organization structure that stimulated innovation through instilling a ‘crisis feeling’.
  2. Continuos improvement of old products. Sharp Corporation established a research and development capability in Japan and a few other countries. For example, the Sharp Corporation continuously developed the LCD technology and the TV and video technologies even after many competitors bailed out after realizing that the market had matured. Continuous funding of these centers and the policy of cost sharing amongst manufacturers who used their developments ensured that they never lacked funds for research and development.
  3. Continuous learning from the environment – for example, from US’s Litton Corporation. Sharp Corporation learnt from Litton and went on to become the second largest in the Japanese microwave business.
  4. Growth through creating demand for their products and international expansion (and subsequent vertical integration of these operations). Sharp Corporation’s organization structure had incorporated into it a unit whose sole purpose was to create new lifestyles for its customers (or new needs they never knew existed) and thus propel demand for Sharp Corporation’s products.
  5. Constantly monitoring the environment to know and forecast consumer trends. The first time being when Hayakama moved into TV assembly when he realized the upcoming launch of the TV in Japan, when Sharp Corporation’s Chairman (correctly) predicted that electricity consumption rather than performance would drive the demand for calculators.
  6. Riding the wave till the market or product matures and then changing strategy. Unlike most firms, Sharp Corporation never bailed out when the market reached maturity. Instead, it would use its innovativeness to create a new lifestyle, thus, a new demand. For example, when most US firms exited the TV market, Sharp Corporation came up with the HDTV idea.
  7. Forming alliances – firstly with RCA and later with other investors in joint manufacturing ventures in Asia.These alliances are maintained through learning from the partners, continued financial commitment and nurturing of relationships.
  8. Recruiting, training and retaining the best human resource. This changed from egalitarian to merit over time in response to a changing human resource pool.
  9. Gate keeping or self-preservation in markets – for example, Sharp Corporation formed a manufacturing company in the US, SMCA, in response to new government regulation that restricted its operation as a foreign entity in the US and later investing $640 million in research and development to maintain its technological lead.
  10. Vertical integration of its foreign operations – that is, design, manufacturing, marketing and distribution.The economies obtained from vertical integration allow Sharp Corporationto lead themarket or, gain considerable market share.
  11. Formalized strategic planning – 10 year long-term, 3 year near-term and 6 month operational strategies.Sharp Corporationdeliberately creates 6 month policies that are very changeable/flexible in nature.
  12. Technology acquisition, development, transfers across the organization and feedback. In 1992, Sharp Corporation spent 8.2% of its revenues on research and development. It had established a formal program for technology transfer and had built up feedback systems.

Some of the strategies remained consistent over time while others changed. Hayakamana first acquired technology from dismantling a US built radio. Sharp Corporation has consistently tried to acquire technologies and develop them – both in-house and through acquisitions, but largely, in-house. Also, Sharp Corporation has constantly sought how to improve its technologies – original or otherwise. The company has sought opportunities for growth since its inception.

Up until 1969, Sharp Corporation was more focused on operational efficiencies than on building core competencies. In 1969, Saeki saw the danger of maximizing operational efficiencies and decided to re-focus to company in terms of building and sustaining core competencies. Sharp Corporation’s strategies (1960s to 1990s) make more sense when viewed the light of Prahalad and Hamel’s The Core Competence of the Corporation. This article stresses the need to do different things in different ways from competitors. For this to turn out into a competitive advantage in the long run, it must be continuously improved.

Overall,Sharp Corporation’s competitive advantages have been honed by thefact the company is Japanese as explained in the conclusion.

What are Sharp Corporation’s core competencies in 1992? Evaluate each using the criteria specified by Prahalad and Hamel. How do these translate into competitive advantages? Are these competitive advantages sustainable? How and why?

Prahalad and Hamel stated that a core advantage must satisfy three criteria to qualify as a core competence:

  • It should allow for wide access to a variety of markets.
  • It should make a significant contribution to the perceived customer value.
  • It must be difficult to copy.

In view of the foregoing criteria, the following were Sharp Corporation’s core competencies in 1992:

  1. Unique and innovative technologies. These include the IC, CMOS, LCD technologies, optosemiconductors and laser diodes. The initial technologies used in trying to enter the mainframe computer market were later used in gaining market leadership in the Japanese calculator market. Sharp Corporation was adept at leveraging its technologies over a large spectrum of products, for example, CMOS technology.
  2. Technology preservation. The optosemiconductor technology was kept incubated for a few years until the opportunity to commercialize it came up. Other optosemiconductor competitors literally threw this technology away.
  3. A mass international distribution channel. Such a network takes years and lots of money to build up.
  4. Continuous product development and nurturing – for instance, the LCD technology.
  5. Learning from partners – for instance, the Litton Corporation. Many firms partner but very few learn as illustrated in Kanter’s article.
  6. A complex and large management structure that was reconfigured as need arose due to market and technology changes. Many organizations suffer from denial and perceptual defensiveness and refuse to change with the environment. Communication also seemed to flow very well despite the disadvantages of distances in the pre-Information Age.

These core competencies are difficult to imitate and thus give Sharp Corporation the momentum for head starts and the ability to catch up with its competitors while they (competitors) try to attain Sharp Corporation’s advantages.

These advantages are only as sustainable as their validity in terms of the environment and how wells Sharp Corporation monitors the environment.

Q: is Sharp Corporation diversified or vertically integrated, or both? Is there a consistent logic behind its strategies for diversification and/or vertical integration?

In its most basic form, Sharp Corporation’s corporation consisted of a 3-level value chain, that is – acquisition of raw materials, assembly, and distribution.

In 1969, with Sharp Corporation’s entry into the semiconductor business, the firm saw the need to vertically integrate and control its manufacturing functions as well as the design functions.

Sharp Corporation is largely diversified on product-category basis. For instance, in the information equipment category, Sharp Corporation has a large variety of products. The same is the case with the appliances business and consumer electronics. This has been made possible by leveraging Sharp Corporation’s core competence of technologies that have granted it access to the different markets, for example, micro-computers, electronic cash registers, liquid tone copiers, personal computers, word processors and faxes, each of these categories being a distinct market.

The rationale behind integration is to attain economies of scale. In view of the ‘diseconomies’ of information of yesteryears, Sharp Corporation had to vertically (in similar geographic locations) integrate in order to attain economies of scale.

The rationale behind diversification is to minimize risk and thus optimize returns.Sharp Corporationis more diversified on theinternational scene than on its products base. Its current product categories all fall under one heading of ‘electronics’.

Where has Sharp Corporation realized synergies across its global organization? What specific internal policies and practices have been effective in enabling them to realize synergies and leverage their knowledge assets?

Sharp Corporation has realized the following synergies on an international level:

  1. Efficient manufacturing and sourcing of components and products between the manufacturing and selling functions, respectively. This is attributable to the internal market system that allows the manufacturers within the group to choose whom to sell to, and the sellers, the freedom to choose who to buy from. The sellers have the freedom to buy their products from Sharp Corporation’s competitors (although this hasn’t happened as per the case), if those competitors offer a superior product to Sharp Corporation’s manufacturers.Similarly, manufacturers can refuse to sell to Sharp Corporationbuyers. This has resulted in improved product quality for Sharp Corporation.
  2. Sharp Corporation has been able to integrate design and manufacturing capabilities in local markets. This it has done by vertically integrating the design and manufacturing processes in local markets. This allows the manufacturing operation to have direct control over their products.
  3. Research and development – the international center for research and development in Britain has shared its findings and advancements with the rest of the group. This helps reduce duplication of effort in terms of research and development, saving Sharp Corporation money.

Several specific internal policies and practices have been effective in enabling Sharp Corporation to realize synergies and leverage its knowledge assets. These are:

  1. Good communication within the organization of its strategic plans, its creed and business philosophy.This ensures goal congruency – that all people on board the ship know the destination and their roles in getting there.
  2. Heterogenity of top management – the mix of different personality types has led to a hybrid decision-making record, since the different personality types compliment each other very well.
  3. Sharp Corporation has managed to integrate into its fabric a ‘feeling of crisis’ culture, while still remaining very proactive. This obviously has led to faster turnover in product development with the company.
  4. A well defined Human Resource Management system which has the following features:

A paternalistic approach whose objective is to increasecooperation by creating a family feeling.

A lifetime employment policy that has led to lower turnover rates.

A merit-based system that focuses on salary, bonuses, and promotions.

Intensive training programs – across manufacturing groups, cross-functional and chemicalization for senior researchers.

A recruitment policy that incorporates aggressive headhunting, mid-career hiring and promoting from within. This helps reduces the stagnation of new ideas as a result of complacency.

Sharp Corporation has been involved in a number of collaborative relationships and strategic alliances over the years. How successfully has Sharp Corporation been in leveraging these relationships and alliances?

In her article ‘Collaborative Advantage’, Kanter gives three fundamental aspects of business alliances. These are:

  1. That alliances must yield benefits for the partners.
  2. That alliances that both partners ultimately consider successful involve collaboration – that is, creating new value together.
  3. That alliances cannot be “controlled” by formal systems but require a dense web of interpersonal connections and internal infrastructures that enhance learning.

In Sharp Corporation’s case, the first alliance was forged with RCA in 1953. This was a licensing deal that allowed Sharp Corporation to assemble TVs using RCA’s parts and market them under Sharp Corporation name. Kanter called this a mutual service consortia. This is the simplest form of partnership. Prahalad and Doz stated that ‘collaboration is competition in a different form’. In this case, its appears that Sharp Corporation reaped the benefit of gaining a national customer base in Japan but the benefits for RCA are not clear. These may be assumed to be revenues from the licenses and sales of components. The level of collaboration was very low since Sharp Corporation seemed to learn and thus gain more.

In the second instance, we see Sharp Corporation entering into an alliance with foreign companies, specifically in Taiwan, Brazil, Korea and Malaysia, to establish production facilities. These were also based on licensing rather than as wholly owned subsidiaries. Clearly, Sharp Corporation used these alliances to gain entry into these countries while at the same time, avoiding additional upward investment. Sharp Corporation refused to exploit developing countries in these foreign ventures. This may be seen as offering the foreign firms an opportunity to learn from Sharp Corporation.

Later on, Sharp Corporation in working with Litton, the US innovator in microwave ovens, capitalized on it’s learning capability which it effectively to become the second largest producer/seller of microwaves in the local Japanese microwave sector in a span of slightly over two decades. Sharp Corporation acquired and shared what it learnt from Litton very effectively.

Q: What kind of uncertainties is Sharp Corporation facing in 1992?

In 1992, the Japanese economy went bust. Japan is at the time a major player in the world economy. It is one of the G-7 countries and its woes cause a ripple effect around the world. In view of the fact that Sharp Corporation is a Japanese corporation with international operations, it faces the following uncertainties:

  1. How to adopt a structure that will ensure that Sharp Corporation stays at the cutting edge of technological advancements as the rate of change changes even faster.
  2. How to integrate further or unbundle the firm due to the increasing economics of information.
  3. A shrunken home and international customer base due to eroding of the customer base.
  4. Significant reduction in the company’s asset base which limits expansion.
  5. How to position itself in a weakened economy or who to partner with in the future. This is strategically protecting its current market share.

In their paper, ‘Collaborate with your competitors’, Prahalad and Doz not that mutual gain is only possible if the following conditions are met:

Both firms have similar strategic goals, but divergent competitive goals. That is, both companies have a similar approach to attain their goals, save for the fact that they do not have the same customers.

Both firms have modest market size and power as compared with the market leader. This avoids domination by one partner over the other.

Each partner believes it can learn from the other and at the same time limit access to its proprietary skills.

The challenge that faces Sharp Corporation is that of defending its customer base while at the same time, pursuing new opportunities for growth. Sharp Corporation has two potential partners with whom it can form alliances at this time. These are Intel and Apple Computer. I will use the 5 factors of that shape competitive forces (Buyers power, suppliers power, threat of entry, threat of substitutes, jockeying for position among current players) to analyze these two possible alliances.

  1. Buyers power

All the 3 companies have core competencies in technologies that have high demand amongst sophisticated buyers. As these firms continue to innovate, it can be expected that the buyers will become even more sophisticated. This reduces the competitiveness of the firms.

  1. Suppliers power

All the 3 firms are large multinationals with large resource bases. They most likely have greater influence over the suppliers due to the ‘large customer’ status. This allows them to source materials cheaper, increasing their competitiveness.

  1. Threat of entry

The market for flash memories is expected to grow by 11 times in two years. This, in a nearly perfect would is likely to entice a few other competitors very fast. The only deterrent may be the cost of entering the market due to very high capital investments required. In the US, capital is a lot easier to raise if one can demonstrate project viability.

A new entrant does need to have an elaborate distribution network. These three companies have established good international distribution networks, which they can use for their products and lock out potential competition using.