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“Differentiation Strategy” Learned from Sony—What We Must Cultivate Is Not Knowledge but Wisdom

Michael Porter, a professor at Harvard Business School, is proposing the following three generic strategies:

The article “Differentiation Strategy” Learned from Sony is published on Forbes Japan

  1. “Cost Leadership Strategy,” which pursues a competitive advantage via costs
  2. “Focus Strategy,” which focuses on specialized markets
  3. “Differentiation Strategy,” which aims to create something unique

    Of these three strategies, I think that the “differentiation strategy,” which realizes a competitive advantage by differentiating oneself from competitors, is a big theme for people in all kinds of businesses.

    This is because the functions and designs of products and services will be recognized by consumers through differentiation while competitive advantages and high entry barriers can be created by fostering brand awareness in the market so that products and services will be purchased even if their prices are high.

Success of Sony Walkman

A successful case of the “differentiation strategy” which is often referred to is Sony, the company that I joined as a new graduate. Sony employees possess the shared value “to do what others do not do.” I think we were always aiming to redefine conventional product categories and create new industries based on “foresight”. Having been exposed to such a culture for many years is a great asset for me.  

A prime example of Sony’s value “to do what others do not do,” which resulted in success, is the “Walkman.”

The first Walkman model was developed in 1979 and the second model, which also became a huge hit overseas, was developed in 1981. While competitors launched similar products to the market one after another, the brand name “Walkman” was already overwhelmingly strong and could not be surpassed by others.

While Sony won out in the “differentiation strategy”, which aims to create something unique, through the development of the Walkman, it created a new value with a “preposterous” attempt to remove the built-in speaker and recording feature, which was “common” with the cassette audio players at the time. It even changed people’s lifestyles.

Though the outcome was amazing, I understand that there were many people that were opposed to the development of the Walkman. It seems that many executives in the company expressed reservations about the project mainly because of the extremely short period of time before the launch and the fact that there was no recording function. However, Akio Morita, the chairman of Sony at the time, promoted the project and managed to launch the product by putting his career on the line.

In the golden years of cassette audio players, Mr. Morita led the company based on his conviction to redefine the relevance between music and young people with the Walkman and to create new relationships.

I think that the core of the differentiation strategy and innovation lies in this point and that there is much to learn from this. I also imagine that Mr. Morita’s conviction was supported by his “wisdom.”

Transformation from Data → Information → Knowledge → Wisdom

If you look up the word “wisdom” in a dictionary, you can find explanations such as “the ability to understand the true nature of things and deal with it properly. Cognition to determine the truth.” I empathize especially with the part, “cognition to determine the truth.” My understanding is that “wisdom” is not only an ability to properly deal with things but to seize the truth or the fundamental nature of things.

While the importance of “data” has long been called for in the business world, I think we need to keep a watch on it a little more carefully. First of all, when we analyze “data,” they will transform into “information”, which is organized to some extent. “Information,” in a way, is organized “data.”

“Information” sorts “data” by size or compiles them by similar values but if we can find relevance such as rules and trends from there and make them usable as criteria for making decisions, this will be called “knowledge.” As “knowledge” is a consolidation of rules and relevance, it can easily be conveyed from person to person.

Moreover, “wisdom” is cultivated by undergoing creative work such as rearranging “knowledge,” discarding some “knowledge” and sometimes adding new “knowledge” based on our experiences and learning in life.

In another words, I believe that “wisdom” is making judgements based on various levels of experiences and learning such as numerous successes and failures, things we have seen and heard in our life, and feelings that grew through engaging with people.

I was in the video game industry for many years but I think “wisdom” was an extremely important element in terms of differentiation and innovation. My career of proposing mechanisms and devices for realizing new game content and building the next-generation game platform was a repetition of exercising “wisdom” with team members and undergoing successes and failures to create new value. And these experiences are what make up my current “wisdom.”

History of Wine-making Is an Accumulation of “Wisdom”

“Wisdom” can be found not just in the world of technology or business but everywhere. “Wisdom” is also being put to great use in the world of wine, which I am fond of.

Georgia is known to be one of the cradles of wine, dating back to 6,000BC. As they could not have known from the beginning that fermenting grapes would produce alcohol and become a drink that can be preserved, people must have gone through many trials and errors.

For instance, the recognition that “there is a grapevine” can be considered as “data” that can be obtained by observing the actual world. A courageous person ate the grapes for the first time and finding out that they were edible was equivalent to “information.”

Next, someone finds a naturally brewed alcohol such as monkey booze produced naturally from fermented fruit, learns about the phenomenon of fermentation and experiences getting drunk by eating or drinking fermented food. This will lead to the rules and principles of making alcohol being accumulated as “knowledge.” By this point, people were able to acquire the basic “knowledge” for creating wine.

In addition to this basic “knowledge” of making wine, people have continued to pursue good wine. Many famous vineyards represented by the five chateaux have accumulated “knowledge” about producing famous world-level wines as a result of countless trials and errors and an enormous period of time spent on considering what kind of grapes should be grown in what type of land, what kind of yeast and barrels should be used, and how long fermentation should last.

Also, wine is produced with the passion and “wisdom” of the producers by skillfully controlling the soils and work of microorganisms such as yeast while considering the influence of the unpredictable weather. There are years when the sugar content is low due to unseasonable weather or years when grapes are damaged by pests or diseases. I sincerely admire the producers who create remarkable wines by overcoming difficulties that cannot be controlled by human beings.

This is attributable to the “knowledge” that was cultivated in the 8,000 years of history of wine and the “wisdom” of wine makers.

“Wisdom” Cannot Be Copied

The “wisdom” of wine makers or of Akio Morita, the former chairman of Sony, cannot be easily copied. On the other hand, “knowledge”, which has rules and clear principles, is easy to copy. There is a high possibility that “knowledge” is easily copied in the fields of business and technology as well.

We have witnessed many copies in the past. Furthermore, in the world of the digital economy, “knowledge” is digitalized and copied in a split second.

However, as “wisdom” is the ability to seize the truth and fundamentals of things based on experience, it cannot be copied at once though it may be imitated later. Also, “wisdom,” which cannot be imitated by AI in the age of the digital economy, is an important area where human beings can exercise their abilities.

I hope that you will cultivate “wisdom” in your own field, lead differentiation strategies and innovation as Akio Morita did, and acquire resilience that can respond flexibly to all kinds of situations like wine makers.

※This article was published in "Forbes JAPAN Online posted on November 26, 2020". This article has been licensed by Forbes Japan. Copying or reprinting without permission is prohibited.

Masayuki Chatani

Partner, CEO of KPMG Ignition Tokyo Inc.

KPMG in Japan

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