Management lessons through story telling-Sony Radio

Commitment to core values
Morita came across an American buyer who looked at his radio and said he liked it very much. He said his chain had about 150 stores and he would need large quantities. He wanted a price quotation on quantities of 5000, then 10,000, 30,000, 50,000 and 100,000 radios. Morita was thrilled! But back in his hotel room, he began pondering the possible impact of such grand orders on the small facilities in Tokyo. Sony had expanded its plant a lot in recent years but did not have the capacity to produce 100,000 transistor radios a year and also make the other things in Sony’s small product line. Sony’s capacity was less than 10,000 radios a month. If the company got an order for 100,000 units it would have to hire and train new employees and expand its facilities even more. This would mean a major investment, a major expansion, and a gamble.

As Morita put it : “I was inexperienced and still a little naive, but I had my wits about me. I considered all the consequences I could think of, and then I sat down and drew a curve that looked something like lopsided letter U.”
The price for 5000 would be the regular price. That would be the beginning of the curve. For 10,000 there would be a discount, and that was at the bottom of the curve. For 30,000 the price would begin to climb. For 50,000 units, the price per unit would be higher than for 5000 and for 100,000 units the price would have to be much more per unit than for the first 5000.

He mentioned: “I know this sounds strange, but my reasoning was that if we had to double our production capacity to complete an order for one hundred thousand and if we could not get a repeat order the following year we would be in big trouble, perhaps bankrupt, because how could we employ all the added staff and pay for all the new and unused facilities in the case? It was a conservative and cautious approach, but I was convinced that if we took a huge order we should make enough profit on it to pay for the new facilities during the life of the order....... In Japan we cannot just hire people and fire them whenever our orders go up or down. We have a long-term commitment to our employees and they have a commitment to us.”

Adapted from “Made in Japan,” by Akio Morita