Based on the Resource Dependence Theory, identify
the relevant types of interdependencies in the ‘Video Format War’. Did Sony
adequately anticipate and manage them?
The Resource
Dependence Theory (RDT) assumes that pivotal resources influence the actions of
a firm (Nienhueser, 2008) in a competitive environment. The Video Format War
between Sony, Philips and JVC was a competitive war where JVC emerging as the
winner. Sony’s defeat was not solely a result of technical inadequacy, but also
due to failures in managing its resources. This will be further explained using
the RDT.
The three
main players in the industry, namely Sony, Philips and JVC portrayed a
competitive interdependency as they were competing for the same resource
output, which are the consumers. From a customer’s perspective, Betamax was
outperformed by JVC’s VHS as Betamax’s recording time lasted for 60 minutes
while the VHS recorded up to 3 hours. The difference in product functionality had
inevitably reduced Sony’s access to the scarce resources, which ultimately led
to their disadvantage. This competitive interdependency could be managed more
successfully if Sony had improved the Betamax to compete with the VHS and gain
its market share back. As Sony failed to adequately strategise against JVC’s
entry to market, they have since lost their competitive edge obtained from a
first-mover’s advantage.
While Sony
was the first company to develop a VCR, they were bounded by infringement
regulations, which significantly hindered sales of the Betamax. This is
inevitably an important resource for Sony and they failed to take sufficient
actions to resolve it. On the contrary, Sony’s main competitor JVC was able to
overcome this obstacle by collaborating with Hollywood and forming a strategic
alliance that contributed significantly to their success. This contract created
between a supplier of entertainment materials (Hollywood) and the distributor
of such materials (JVC) represents a symbiotic relationship that is mutually
beneficial. Betamax’s outlook would be a lot more desirable if Sony had taken
the same actions.
These two
critical mistakes was key in Betamax’s lost in the video formats battle. Had
Sony anticipated and managed these two factors adequately, the Betamax could
very well become a hit in the market.
Based on the Resource
Dependence Theory, identify the relevant types of interdependencies in the
creation of the Compact Disc. Did Sony adequately anticipate and manage them?
The creation
of the Compact Disc (CD) resulted from Sony’s anticipation for the need of a
new sound carrier to replace vinyl records which could is easily scratched,
leading to a decrease in sound recording quality. However, companies such as
Telefunken and JVC had also recognised this opportunity and demonstrated
prototypes of audio disc technologies (Yoffie, 1997). This led to competitive
interdependencies between Sony and these companies, which stem from the
uncertainty of market acceptance and competition for scarce resources. Sony
faced inter-format competition with Telefunken and JVC in order to establish
the new industry accepted sound carrier (Shibata, 1993). Thus, in anticipation
of this potentially competitive opportunity, Sony managed its uncertainty by
collaborating with Philips through a strategic alliance, displaying their
symbiotic relationship.
The
strategic alliance led to the formation of taskforce of engineers, which
enabled engineers from both companies to share their expertise (Immink, 1998).
In addition, the collaboration between Sony and Phillips enabled pooling of
technological resources, which allowed both firms to reduce their resource
uncertainties and was vital in the creation of the CD. However, the launch of
the CD had poor reception from the music industry and was hindered by major
players in the music industry. This led to aggressive marketing efforts, which
was crucial in securing retail cooperation and reducing customer uncertainty
associated with adopting the CD, spurring the CD as the new accepted industry
standard (Thomas, 1995). Additionally, the capability for Philips and Sony to
press the new CD through PolyGram and CBS-Sony plants respectively, were
important in meeting demands for the CD, which was stimulated by the marketing
program (Thomas, 1995). Sony further stimulated the demand for CD through its
creation of the highly popular portable CD player at a low price (Sony, 2016).
The success of these strategies established market shares for both Sony and
Phillips, proving their alliance to be mutually beneficial and adequately
managed.
Explain the importance of cognitive and socio-political legitimacy for new products in relation to the Resource Dependence Theory. Explain for both cases – the video format war and the CD - whether or not Sony effectively dealt with garnering legitimacy for its products.
Achieving
cognitive and socio-political legitimacy is important in the introduction of
new products into an expanding market because plausibility is necessary to
sustain an organization’s relevance (Suchman, 1995). Establishing cognitive
legitimacy is essential for new products that lack the necessary market
credibility and reliability for their survival and growth (Li, Wang & Xu,
2014). This also gives them access to scarce resources such as quality raw
materials, customer base and building a reputation to overcome their liability
of newness. Furthermore, developing socio-political legitimacy is also crucial
to new products as this ensures conformity to socio-political norms and
acceptance by the market.
In Sony’s
video format war, marketing was the most important tool JVC used to enhance its
cognitive legitimacy, eventually taking over the VCR market share from Sony.
VHS was priced cheaper and was able to record up to 3 hours as compared to
Betamax’s 60 minutes. Most importantly, VHS’s content was widely available. The
RDT holds that VHS could benefit by leveraging on content availability in order
to gain dominance on the home video industry (Hillman, Withers, & Collins,
2009). These were critical factors that influenced the video rental industry to
favour VHS over Betamax even if Betamax had superior quality and technical
advantages. Sony did not effectively deal with garnering legitimacy as it
lacked socio-political legitimacy due to ensuing litigations from the motion
picture industry. Potential stakeholders did not recognise the new company to
be legitimate in terms of desirability and appropriateness (Suchman, 1995)
which in the end, led to the failure of Betamax.
The
development of the CD stemmed from Sony’s understanding of the current needs of
the market. The importance of cognitive legitimacy was highlighted when the
public understood that the benefits of the CD’s durability outweigh the desire
for vinyl records (Meyer & Scott, 1991). The CD was eventually accepted by
the music industry after consistent endorsements and product explanations by
Sony and Phillips. This highlighted the key role of socio-political legitimacy
in the success of the CD (Jepperson, 1991). Sony learnt from their mistake
during the Betamax war and formed a strategic alliance with Phillips in
developing the CD. This is in line with the RDT’s principle of competitive
interdependencies as Philips’ expertise in extended playing time and Sony’s
expertise in enhancing precision of laser reading technology proved to be
complementing technologies, thus producing a desirable product. Cognitive and
socio-political legitimacy was mutual in this case, making Sony’s business plan
effective. The sharp rise in CD sales was lucrative for both companies which
clearly attests to its cognitive and socio-political legitimacy with the market
forces.
