Prior to the beginning of the World War II, the Philips organization was in the infancy stages of initiating a movement of technological prowess within the industry’s culture. They assumed the position as number one in the industry, consistently developing new manufacturing plants to keep in stride with innovations in the development of light bulbs because the company only made light bulbs and was not interested in diversification like other industry competitors. Philips also was in the process of converting longstanding plants in order to keep step with production technology. Philips developed its product line in the 1930’s, going from producing light bulbs exclusively, to also producing vacuum tubes, radios and X-ray tubes. But Phillips wanted more; the company did not want to limit itself to Holland. Philips was looking for international expansion.
During this time, Holland was a little market because of its lower population as compared to other competitor countries. Because of this, the company figured that exporting a considerable amount of its products in order to generate enough income to maintain the facility making method Philips is using. Philips was then converted into a “centralized company with decentralized sales and autonomous marketing in 17 countries”. So this now shows that even though Philips is a company domestic to Holland, the majority of its sales come from the exportation of its products to other countries. The marketing, advertising and promotions used for these products now depended on the country the product was being sold in. So their marketing campaign could not be universal. However, Phillips was due to encounter variables that altered the position of the company, said variables proving to be uncontrollable for the company.
Political affairs were an integral part in transitioning the Philips into a “mutli-national” organization. During the Great Depression, many nations implemented trade barriers and tariffs in order to help the domestic producers and economy. Phillips was able to work around these hindrances by developing and maintaining facility/facilities in the each of the nations/markets they sold their products. The Nazi invasion of 1939 and the ensuing exacting of World War II, assisted Philips in its conclusion to relocate its assets in Ally nations’ economies, specifically the US and England. R&D was moved to England, management to the USA. This caused Philips to rely on the independence and maintenance of the company to national organizations (NOs) since there was such growth in company resources in those area. This proved to be a positive development for Philips, allowing the company to respond to nation-specific situations faster than the competition. .
Once the war ended, Philips reaped the benefits of NO operation. Philips could now identify potential threats in a specific country in regards to industry/market and respond via production. Philips was also utilizing there competitive advantage in regards to the NOs in their research departments and their heavy existence in the local markets until the conclusion of the 1960’s. After the 1960’s, Philips competitive advantage became a disadvantage. The NOs became a detriment in that Philips was having difficulty acting in one accord as a company. This lack of organizational harmony made it very hard for Philips to innovate new products, created a lack of economies of sales in regards to production, and hindering the growth of the organization. The NOs started to do things in the best interest of the NO and not in the interest of Philips as a whole organization.
Executives were no longer able to govern over the company as a whole, which created a sort of organizational anarchy and order could not be keep for the international company. For instance, Philips was unable to standardize the V2000 videocassette due to organizational disaccord. One part of Philips wanted to utilize larger manufacturing facilities to produce the VHS feeling it to be the most efficient process. NOs, however, were did not want to do this because it would require local plant consolidation. Philips then implemented the Product Division (PDs) in order to rectify the problems the company was having with the NOs, but this was unsuccessful. The company then began to decline because of their inefficiency in providing the consumers with innovative products and the fact that their once competitive advantage, the NOs, was now a disadvantage because of the lack of control Philips had over them.
How did Matsushita succeed in displacing Philips as No. 1? What were its distinctive competencies and incompetencies?
Prior to WWII, while Philips was in the process of developing its NOs, Matsushita was in the process of entering the scene. Philips focused solely on light bulbs; in contrast, Matsushita had a wide array of product offerings. With a parallel merger, Matsushita sold upwards to 5000 different products amongst 25000 retailers. These retail outlets furnished Matsushita the opportunity to connect the marketing scheme with the customer response to market trends. Even though Matsushita had a centralized R&D department, the bulk of products were made in PDs.
Matsushita’s innovation was minimal, but where they lacked in innovation they made up for it in the expedience in which they got products out into the market. If a market became saturated at the local level, Matsushita strove to expand globally by using international maneuvers. That move proved successful when faced with an unstable and uncertain market. One of the better ideas the company had was to off-shore vital aspects of manufacturing and production to nations with poorer economies, but the higher end products remained domestically produced. To get past controversy from American and European government lobbyist, Matsushita put plants in those nations as well, but the company made sure they had a strong grasp of those plants which varied differently from the approach of competitor Philips. By doing this, the internationally unification of Matsushita remained constant.
Subsidiaries were also under the scrutinizing eye of Matsushita. This was accomplished by having subsidiaries assimilate into the Matsushita corporate culture, doing so through training subsidiaries in their management style and networking. Communication was perpetual through the use of phone conversations and faxes; and GM outside of Japan would have to travel to HQ for training in order to ensure the assimilation method used was successful. By doing this, Matsushita was capable to garner cheaper prices for consumers in regards to their products. This helped give them a greater market share than Philips in the industry. In regards to the color television, “trade liberalization and lower shipping (Bartlett p.9)”, this helped in the company being able to export abundantly.
Another factor that helped Matsushita propel past Philips in the industry was the company’s getting headway in the color television market and its domination of the VCR market. Although Matsushita did not have a strong brand name being relatively new to the industry, it was able to maintain itself through by selling its products through discounters and mass merchandisers. In regards to the VCR market, Matsushita was able to gain full control. Initially the company had its own version of VHS, but in 1975/76 the company decided to give up their own version in order to compete with Sony’s “Betamax” and JVS’s competing VHS. This garnered in great results, the company manufacturing capacity being 6.8 million units at its peak, because Matsushita’s ability to produce at a greater and faster level than competitors caused them to be the industry leader, causing the competition to seek their VHS format.
The downside of this situation was the fact that global control of this extent gives the impression that creativity was halted regarding Matsushita’s products. Operations offshore were not consistent concerning R&D, which showed it to be an addition to the domestic R&D not able to act of its own accord. This was due to the fact that Matsushita had too firm of a grasp over its global operations. American engineers were able to deal with the constraints of this Matsushita, feeling it stifling to their work and hindering their professional development. In an effort to circumvent this issue, Matsushita decided to outsources the company’s innovation, but this did not work. An environmental factor occurred, the collapse of the Japanese economy, which caused this strategy to be abandoned. What do you think of the change each company has made to date – the objectives, the implementation, and the impact? Why is the change so hard for both of them?
Even though both companies, Matsushita and Philips, differed greatly in their tactics regarding organizational culture, they both were very conventional. And for a time, both methods were successfully. Initially Philips was
industry leader, only to be later topped by Matsushita. Matsushita established a centralized organization domestically and controlled overseas operations and subsidiaries. Conversely, Philips decentralized its company globally and took a hands off approach to managing the NOs until organizational unification proved very hard to accomplish. Then Philips and Matsushita tried to flip management styles, taking notes from one another. Both companies wanted to take the best methods from each other and discard unsuccessful measures that were taken. Electronics covers a vast array of items within that industry, so the best way to handle that market would be a tough centralized organization that encourages innovation of new entrant products and is malleability allows the company to respond to the fluctuation of the demands of markets overseas.
Philips went through many different CEO’s and in the 70’s tried to incorporate the top performing plants into the International Production Centers (IPCs), which was designed to supply the vast amount of NOs. This was an unsuccessful endeavor; because the company greatly miscalculated the strength of the NOs. With no clear course for the organization as an international structure, the NOs were still in charge. Going into the 80s, lowering performing plants were shut down by Philips, causing a division of two groups within the company, i.e. core and non-core. In order to rectify the situation, Philips tried to purchase North American Philips Corp, a subsidiary. In the beginning, this was a success. However, profligacy of company resources caused the R&D budget to be reduced by 50% which devastated the company. Products coming out of R&D were no longer good.
The 90s saw even more budget reduction, which trickled down to R&D creating a lack of innovation and loss of revenue. If Philips had cut spending in other areas outside of R&D, the company could have been more competitive. This R&D reduction is due large and in part to the fact that the company was decentralized making it very hard to have corporate collaboration, even if by chance an innovative product was developed. Additionally, the changes that the various chairman in the Philips Company made were structural in nature and did not address the organizational process and culture which is at the root to an organizations success.
Matsushita was on the opposite side of the spectrum. The organization now bequeathing more power to its overseas subsidiaries, but it didn’t work. The 80s brought about Matsushita’s “Operation Localization”, giving management in the local market the autonomy to elect which products they felt would do best in their area. Many of the headquarters changed location during this era as well. The 90s saw economic decline in the electronics industry in Japan, creating a vast amount of overhead. Since Matsushita did not have the choice of restricting, plants in Japan began to decline. To rectify this situation and increase sales, Matsushita alter their management style with one that has a little more of a laissez-faire overtone regarding foreign markets. That would help with their issues in innovation in those areas.
What overall strategic recommendations would you make to Gerald Kleisterlee? To Eumio Ohtsubo?
Gerald Kleisterlee should decentralize Philips as much as possible. The Headquarters in Holland should be relocated and to whichever market is the biggest. By doing this, Philips would be able to more efficiently service the consumer and do so faster. The company also needs to pull more resources to the R&D department. This would help Philips the opportunity to essentially have more innovative product line and to progress past the competition.
Eumio Ohtsubo needs to revert back to tried and true methods. A centralized operation with strict control over overseas operation is best suited for Matsushita. Outsourcing R&D was a very good idea for the company and should continue to be explored. And having the ability to get products to the market quickly would enhance the progress of this company.
Philips had a multi-domestic strategy. The flaw of this strategy was limited control over NOs and lack of organizational unity. Matsushita had a global strategy. The flaw of this strategy was that the control the company had on foreign operations stifled innovation. Both companies should move towards a transactional strategy. Doing so would overcome both the flaws of lack of control over NOs and stifled innovation.
1.Bartlett, Christopher A. “Philips versus Matsushita: The Competitive Battle Continues.” Harvard Business School Case 910-410, December 2009. 2.”Life, World, MBA and Universe!: Philips vs Matsushita.” Life, World, MBA and Universe!: Philips vs Matsushita. N.p., n.d. Web. 01 Apr. 2013. 3.Tensa, Greg. “Phillips Vs Matsushita.” N.p., n.d. Web.