Philips, the electronics manufacturer, has developed a plan to increase profits, shareholder value, and market positioning by 2010. The first step in the process is CEO Gerard Kleisterlee. Upon taking the top position, Kleisterlee was able to affect an immediate 4% rise in share prices by simply announcing the marketing make over plan. He believes that a focus on innovating and branding will be the key to the plan’s success.
The strategies that Kleisterlee is employing are consolidating six operating units into three, acquiring similar or enhancing technology companies, and entering into emerging markets. The six existing units will merge into three divisions, Consumer Lifestyle, Philips Healthcare, and Philips Lighting. Each division will be run by a CEO recruited from within the other existing Philips operating units. The rationale for the consolidations is to ‘save on logistical and back-office costs,” and to increase revenues by 5-6% for each unit.
Philips will also acquire existing technology companies that deal with a specific technology, most likely incorporating those acquisitions into one of the three divisions. Philips is also penetrating emerging consumer markets like China to build brand recognition and create a dedicated market base. Strategic Issues: Problems and Opportunities Philips has some issue to overcome, particularly name or brand recognition, and stagnate earnings and profits. As stated the name Philips is associated with laxatives and tools.
The parent company Royal Philips Electronics produces a wide range of products from light bulbs, to electric shavers, home medical devices, and semiconductors. Even though stock prices rose quickly when Kleisterlee took over, sales and earnings have not increased significantly. Kleisterlee’s goal of increasing pre-tax margins by 10% will require an increase in sales along with the decrease in operating expenses which is the goal of consolidating operating units. According to the case study, Philips has no debt on their balance sheet.
This financial position is a great investment opportunity. As noted, it makes cash available for acquisitions of other technology companies whose operations can provide immediate revenue growth to Philips’ bottom line. Second, it allows Philips to invest marketing dollars into the newly created divisions and into emerging markets creating the sought after name and brand recognition. Analysis and Evaluation Philips as a whole has enhanced its rankings in important areas as brand rankings, brand value, and innovations.
Consolidated and highly targeted operating divisions allow Philips to focus on marketing three different product lines in the same market. Philips has an opportunity to saturate any one or all of three unique markets. Operating as individual units allows each division to operate as an independent company with independent marketing strategies. However, by building on the parent company’s brand name, Royal Philips Electronics, each division can enhance their market positions by taking on the reputation that has been developed.
The challenge for Phillips, and the continuing opportunity, is to try maintain a virtually debt free balance sheet. This will help not only in acquiring exiting technology companies, but will allow Philips to invest in technology companies in the emerging markets that they want to target. As is pointed out, in China, local technology firms can reclaim a certain market share. However, Philips can invest in the local technology market buying technology specific firms, and adding their market reputation to a local manufacturing partner.
Conclusion Royal Philips Electronics, simply known as Philips, is developing into a global marketer of different but related products. The key to Philips’ success so far is to consolidate operations, acquire existing technologies, remain debt free, and penetrate emerging markets. The key to Philips’ continuing success is to invest in emerging markets as a way of enhancing the market positioning of each operating unit while drawing on and maintaining the parent company brand and name reputation.