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Corporate Entrepreneurship and Innovation: A Case Study of Sony Music Entertainment

1.      INTRODUCTION

1.1       Introduction to Corporate Venturing

Corporate venturing or intrapreneurship, as defined by Pinchot in 1985 is “the practice of developing a new venture within an existing organization, to exploit a new opportunity and create economic value” (cited in Parker 2011, p. 20). Morris et al. (cited in Kuratko and Audretsch 2013, p. 329) described corporate venturing and strategic entrepreneurship as the two major forms of corporate entrepreneurship, the term that broadly encompasses all the innovative activities that take place within an established corporation.

Organisation innovation is a really important phenomena for the growth and survival of businesses and one of the ways to foster innovation within them is intrapreneurship. In this report, the intrapreneurship of Sony Music Entertainment, which will be subsequently referred to as “SME”, will be analysed.

1.2       Company Introduction

SME is originally a “recorded music company”, which has now spanned its operation into all aspects of the music industry and stepped into video and animation industry, has global talent pool of its own artists and musicians, and has a glorious history with some of the best music recordings in its vast portfolio that spans across all genres (Sony Music Entertainment Australia 2013). Sony Corporation, Japan wholly owns SME as a subsidiary with operation based in the United States (Sony Corporation 2015). Its operating activities include recording, publishing and licensing music as well as producing and distributing visuals and animations.

SME went through a number of corporate activities like acquisition, merger, joint ventures and such in its history. For the purpose of this report, SME’s innovative activities after the CBS Records Corporation and Sony agreed to start a joint venture will only be analysed, because that venture laid the foundation for the present day SME.

1.3       SME in Australian Context

SME operates in Australia under the corporate name of SBME Holdings (Australia) Pty Limited and “sells and licenses pre-recorded music and associated merchandise” and also produces and sponsors television shows and films (IBISWorld 2015). The company headquarter is located in Darlinghurst, New South Wales and employs around 80 people in various locations of Australia (IBISWorld 2015).

2.      ORGANISATION INNOVATION

2.1       Role of Innovation in Business Success

The traditional focus of the business organisations was efficiency and effectiveness, whereas the modern focus is creativity and innovation (Wildenauer 2016), because today’s businesses operate in the highly turbulent, dynamic and competitive environment. Therefore, Wildenauer (2016) states that innovation is necessary to avoid missing out important market opportunities, and to avoid stagnation.

SME falls under music industry that heavily relies on music production and distribution technology. Menzel, Aaltio, and Ulijn (2007, p. 732) contend that intrapreneurship is usually the foundation of technological innovation in organisations.  Creativity and innovation, alongside intrapreneurship, are the key drivers of the business at SME. In this section, the intrapreneurial and innovative processes of the SME are analysed and the key lessons learnt from the practice are drawn.

2.2       Venturing of Sony Music Entertainment

SME was initially established in March 1968 as an external joint venture of the CBS Inc, an established music company, and Sony, electronic company with no experience in the music industry, in order to expand music distribution into the Japanese market (Sony Corporation 2016). The venture was named CBS/Sony Records and operated autonomously from their holding companies.

Autonomy and independence in decision making, a key feature of spin-outs, allowed CBS/Sony Records to take a number of innovative decisions to make itself a profitable company on its own right. That company eventually became SME, after purchasing CBS Inc in January 1988 (Sony Coroporation 2016). It has now operations worldwide and is a large company on its own. The collective operating and sales revenue of all operations of SME is 4,538 million of US dollars in 2015 (Sony Corporation 2015) with sales increasing at a rate of 8.8% year-on-year despite some music companies reporting no growth or decrease in sales.

2.3       Stimulating creativity at SME

The innovation at SME as soon as the joint venture was established in Japan were enormous. The management aspect was entirely entrusted to Sony for the new venture, and Morita became president of the then CBS/Sony Records and Ohga the manager in charge (Sony Coroporation 2016). Under the leadership of these two charismatic leaders, the venture took a totally new shape. Ohga implemented a number of innovative practices, breaking away from the established traditions, in order to make the company really successful in the days to come.

Kang (2013, p.26) concludes change of ownership highly kindles entrepreneurial environment in an organisation as new owners can better drive, and thus reinforce, the intrapreneurial spirit. The new ownership in charge of SME was highly driven by innovation and that seems to be the underlying reasons behind the rapid innovation at SME later on.

2.3.1 Thinking in opposites

Ohga’s first step was to think opposite of the established notions. He deliberately chose ten people from Sony with no industry experience to lead the new company (Sony Corporation 2016).  He further went on to actively seek application from music enthusiasts with “no experience” in the music industry, except having fresh ideas as music lovers. The vacancy announcement on the newspaper looked really weird but attracted seven thousand applications from which Ohga chose eighty people for his company. His idea worked exactly as expected when those people challenged the established traditions in the industry and thus, gave a new direction for SME to outperform its competitors.

2.3.2 Emphasising creativity purposefully

Ohga’s second step was to emphasise the independence of the company from its holding companies (Sony Corporation 2016). He explicitly preached freedom, flexibility, and power to act autonomously to his subordinates and employees. That worked in perfect harmony with the team as they needed autonomy to implement their new ideas. He created an ideal environment to stimulate creativity in the infant organisation.

2.3.3 Welcoming “newness”

Sundbo stated in 1999 that management involvement motivates staffs in generating new ideas (cited in Rekha, Ramesh & Bharathi 2014). From Ohga’s constant motivation, new but challenging ideas were introduced, among which was to develop own artists rather than relying on “production companies”, a norm for recording companies back then. The idea was risky and initially resulted in many mistakes. However, the company soon learnt from its mistakes and set up its own auditioning system to find out local talents. Soon enough it introduced “pop” genre in Japan, which became a roaring success. This example provides good lesson for encouraging “new” ideas.

2.3.4 Establishing new ventures continuously

The firm became profitable on its own within five years and constructed its own head office building. In another five years, the company established five separate companies from its own profits: “CBS/Sony Family Club Inc., April Music Inc., CBS/Sony Records Inc. (the manufacturing operation), Japan Records Distribution Inc., and CBS/Sony California Inc” (Sony Corporation 2016). The company continued to create spin-off operations in order to stimulate sustained growth.

2.4       Types & Frontiers of Innovation

Wildenauer (2016) explain that innovation can happen in four ways: invention, extension, duplication and synthesis and across four frontiers: services, products, processes and marketing. Companies are categorised as stars, seekers and spectators based upon their entrepreneurial or innovation success. Stars are high performing companies that had successfully integrated innovation and creativity into their daily business practices. SME can be called “stars” for its multifaceted innovation in the music industry.

2.5       Entrepreneurial Intensity of SME

Entrepreneurial intensity measures the frequency versus the degree of innovation within an organisation. Innovativeness, risk-taking and proactiveness (Morris, Kuratko & Covin 2011, p. 53) are covered under degree of entrepreneurship.  My subjective entrepreneurial Intensity analysis of SME (included in the Appendix) places SME somewhere in between dynamic and revolutionary companies.

2.6       SME’s competitive advantages

Ireland et al (cited in Kyrgidou & Hughes 2010, p.44) explain strategic entrepreneurship as the “convergence of entrepreneurial or opportunity-seeking behaviour and strategic management or the advantage-seeking behaviour.” SME’s competitive advantage comes from being successful in balancing these two different behaviours. Sony already had a solid management expertise and abundant financial resources which they deployed in seeking new market opportunities in a completely new field. Their inexperience made them receptive to new and “out-of-the-box” ideas which worked really well.

2.7       Challenges to Company

The advent of internet provided new mechanism to distribute recorded music and videos, such as online file sharing, streaming, and so on, displacing the traditional cassettes and music CDs (Tschmuck 2012), which posed a serious threat to record companies like SME. Other challenges come from new innovators who might disrupt the industry and change the rules of the business like Apple’s iPod that displaced Sony’s Walkman. Cojocaru and Cojocaru (2014, p. 122) point out the possibility that innovation sometimes comes surprisingly from unexpected company instead of the market leaders.

3.      SUMMARY, CONCLUSION AND RECOMMENDATION

3.1     Summary and Conclusion

Currently SME is still flourishing with increasing sales figures, despite the paradigm shift in the music industry brought by digital revolution and social media. Direction (2013, p. 27) reflects that SME’s life comes from adaptation and responsiveness in catching-up with changes, because music consumption is still steadily growing even though other factors such as modes of consumption and marketing have changed fundamentally. The tradition of innovation and creativity at SME has, so far, paid off well.

3.2       Recommended Strategies for Other Organisations

SME placed itself in a unique situation by deliberately starting with “inexperience” in terms of industry knowledge and human resources. The strategy that other companies can learn from SME is to bring in people with fresh ideas and provide them opportunity irrespective of their background and experience. Experience and knowledge are quickly getting outdated and therefore hold less relevance at present.

Second strategy worth borrowing from SME is to actively kindle an innovative environment, encourage weirdly new ideas and try something new courageously.  Idea generation methods like “thinking in opposite”, lateral versus vertical thinking, and such hold great importance. Organisations should be courageous enough to both think and implement the disrupting ideas by undertaking the associated risk.

The third strategy is to be adaptive and resilient by considering the dynamics of the external environment. Hindrances to innovation for organisations can come from focus on efficiency, standard procedures, long-term plans, and greater reliance on past experiences for decision making (Burns 2013, p. 209). Getting around these barriers might help them replicate the success achieved by SME.

REFERENCES

Burns, P. 2013, Corporate Entrepreneurship: Innovation and Strategy in Large Organizations, Palgrave Macmillan.

Cojocaru, C. and Cojocaru, S. 2014, Sony vs. Apple-iPod launching, a case study of leadership and                 innovation, Manager, (20), p.115.

Direction, S. 2013, Sony, Spotify and the statistical symphony: How data can save the music         industry, Strategic Direction29(7), pp.25-27.

IBISWorld 2015, SBME Holdings (Australia) Pty Limited, company report, viewed 27 March 2016, retrieved from IBISWorld Database.

Kang, W. 2013, Does ownership change raise hopes for corporate entrepreneurship? Academy of Entrepreneurship Journal, 19(3), pp.25-41.

Kuratko, D.F. and Audretsch, D.B. 2013, Clarifying the domains of corporate entrepreneurship, International Entrepreneurship and Management Journal, 9(3), pp.323-335.

Kyrgidou, L.P. and Hughes, M. 2010, Strategic entrepreneurship: origins, core elements and research directions, European business review22(1), pp.43-63.

Menzel, H.C., Aaltio, I. and Ulijn, J.M. 2007, On the way to creativity: engineers as intrapreneurs in organizations, Technovation27(12), pp.732-743.

Morris, M.H., Kuratko, D.F., and Covin, J.G. 2011, Corporate entrepreneurship and innovation: entrepreneurial development within organizations, Mason, Ohio: South-Western Cengage Learning.

Parker, S.C. 2011, Intrapreneurship or entrepreneurship?, Journal of Business Venturing26(1), pp.19-34.

Rekha, S.K., Ramesh, S. and Bharathi, J.S. 2014, Empherical Study on the Relationship between Entrepreneurial Mindset and the Factors Affecting Intrapreneurship: A Study in Indian Context. International Journal of Entrepreneurship18, p.69.

Sony Corporation 2015, Consolidated Financial Results for the Fiscal Year Ended March 31, 2015, Sony Corporation, viewed 3 April 2016, <http://www.sony.net/SonyInfo/IR/library/fr/14q4_sony.pdf#page=1>

Sony Corporation 2016, Corporate Info, Sony Corporation, viewed 22 March 2016, <http://www.sony.net/SonyInfo/CorporateInfo/History/SonyHistory/2-22.html>

Sony Music Entertainment Australia 2013, Homepage, Sony Music Entertainment Australia, viewed 20 March 2016, <http://www.sonymusic.com.au>

Tschmuck, P. 2012, Creativity and innovation in the music industry (pp. 225-251), Springer Berlin Heidelberg.

Wildenauer, M. 2016, ‘Introduction to corporate venturing’ powerpoint slides, IBU5COV, La Trobe University, viewed 31 March 2016.

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