The analysis centers on N. V. Philips (Netherlands) and Matsushita Electric (Japan), who have both experienced significant transformations and possess unique strategies and organizational abilities. Despite their disparities, both companies have attained success and remain in competition for worldwide market dominance. The analysis examines their individual journeys to prosperity, the factors influencing their achievements, the modifications they have undergone, the consequences of these modifications, and the obstacles encountered when implementing change.
The text highlights the use of SWOT analysis in analyzing Philips’ distinctive competences and incompetence. It also emphasizes that Philips’ successful international management is a crucial factor in their success. Similarly, Matsushita’s success is attributed to factors such as their divisional structure, innovative operation localization, and unique business philosophy. Additionally, recommendations are provided for both companies when they encounter strategic challenges.
Among the recommendations, there are several perspectives: rebuilding the brands and investing in research and innovation for both companies; improving regulations and monitoring for Philips; balancing its centralization and making it work in local mechanism for Matsushita.
Introduction In this case, the author introduced Philips and Matsushita’s background, organizational development, reorganization, changes and challenges. Philips was founded by Gerard Philips in 1892; it developed a traditional of caring for works from this time. Philips only made light-bulbs firstly and begun to broaden its products lines in 1918.
The NOs had significant roles in management and were seen as attractive. From the late 1960s to the 1990s, Philips attempted multiple reorganizations to address growing challenges, but these attempts proved ineffective. On the other hand, Matsushita was founded by Konosuke Matsushita in 1918 and had its own distinct spirit and culture. On its 14th anniversary, Matsushita developed a corporate plan for the next 250 years. After experiencing economic decline due to wars, the company redirected its attention towards export markets.
In 1933, Matsushita became the pioneering Japanese company to implement the division structure, granting each division distinct profit responsibility for its respective product. Matsushita’s efforts to expand internationally and refine its international operations management were driven by various leaders’ policies and strategies, alongside exporting branded products. Philips, on the other hand, underwent successful transformation into national organizations due to WWII. However, the establishment of the Common Market in Europe, challenges in bringing products to market, underperforming financially, and declining global competitiveness necessitated Philips’ reorganization.
In my view, there were three key issues to address in three areas: organization structure, corporation culture, and product line. Philips’ organization structure was a matrix organization, specifically a geographic/product matrix, which has made the relationship between leaders and subordinates complex. All subordinates had to report their work progress to two or more leaders, leading to problems such as power abuse, miscommunication of information, and unclear accountability. In the 1970s, CEO Van Riemsdijk brought up the disadvantages of the matrix organization in the organization committee.
In an effort to redefine the managerial dynamics between PDs and NOs, there was a decrease in the number of marked products and the closure of underperforming local plants. Additionally, the establishment of International Production Centers aimed to centralize production. Nonetheless, implementing this reorganization proved to be challenging as difficulties persisted. Addressing the issue of inefficiency, steps were taken to reduce the product line and improve production effectiveness. CEO Wisse Dekker played a pivotal role in this transformation by shutting down 200 poorly operating plants and divesting certain businesses including welding, energy cables, and furniture, in order to focus on core operations.
The process of reorganizing Philips involved continual exploration of new products, expansion into new markets, discontinuation of old products, closure of plants, and resource reduction under different CEOs. Despite these organizational changes, Philips continued to struggle financially until CEO Boonstra succeeded in 1996, providing a promising outlook for the future. In addition to implementing a matrix organization structure and cost-cutting measures, organizational culture played a crucial role in the reorganization. Philips fostered a culture centered around maintaining harmonious relationships among its members.
The culture of promoting a pleasant working environment and fostering creativity can undoubtedly contribute towards achieving these goals. However, an excessive emphasis on peace and harmony might lead to tolerance for poor work performance. In such an environment, people may be reluctant to accuse or terminate a friend, and friends may hesitate to engage in disputes or offer criticism. Consequently, many problems may be compromised, resulting in suboptimal outcomes. In the entire process of reorganization, Philips must establish and strive for ambitious targets, assign responsibilities accordingly, and effectively communicate the company’s objectives, values, and procedures.
Company expects all employees to contribute their best towards achieving company objectives and will terminate those who cannot adapt to the new environment. In contrast to the matrix organization at Philips, Matsushita implemented a divisional structure with a “one-product-one-division” approach, assigning clear profit responsibility to each division for its respective product. This structure fostered internal competition, motivating each division to leverage its technology and develop new products as a means to drive growth.
The matrix organization in Philips created complex relationships between leaders and subordinates and unclear profit responsibility for each division, resulting in a slower reaction speed for the enterprise. On the other hand, Matsushita’s divisional structure was a crucial step towards internationalization. As seen in the organization chart, Matsushita implemented a one-dimensional operational management approach: all overseas divisions report to the regional operations department, while plants or manufacturing sections report to the relevant product divisions. This contrasts with the matrix organization where reporting is required to two additional leaders.
In the 1980s, Matsushita implemented a shift in their monitoring strategies. They moved away from controlling input and started focusing on measuring output measures like quality, productivity, and inventory levels. This approach not only improved production efficiency and quality but also reduced the cost of shipping materials or products from their domestic plants. Despite the introduction of “operation localization” in 1990, which aimed to enhance innovation and entrepreneurial initiatives in Matsushita’s overseas companies, these subsidiaries still relied heavily on the central product divisions.
In order to further enhance their independent innovative capability and entrepreneurial initiatives, it is necessary to continue implementing operation localization. This is because long-term dependence on a central entity may result in a lack of innovative capability. The relocation and merger proposed by Tanni in 1986 have the potential to increase attention on overseas companies. This can provide timely support to overseas companies and facilitate a better understanding of overseas markets. This, in turn, enables prompt response to market demands.
In 2000, Nakamura completely dismantled Matsushita’s basic product division structure and instead established multi-product production centers and implemented a shift in marketing to two separate corporate marketing entities. Although the original product divisions had their advantages and were key to the company’s previous successes, it was uncertain whether the new multi-product centers would be a more effective structure for Matsushita’s future. Additionally, there were doubts about whether the two corporate marketing entities could successfully respond to evolving market demands. Philips’ remarkable international management is the primary driver behind its notable success.
Before the war, Gerard and Anton agreed on the importance of strong research for Philip’s survival, relying on innovation of new products to achieve higher profits and gain more market shares. During the war, each subsidiary of Philips utilized its self-sufficiency to adapt to specific areas, becoming a valuable asset in the postwar era. However, after 1960, Philips faced challenges due to political factors such as World War and also suffered declining sales and stagnant profits due to inconvenient distance, particularly in overseas IPCs.
So, in order to rescue this difficult situation and attract more local customers, the management board decided to rearrange the business strategy by taking back the rights from subsidiaries to the headquarters. In the 70s, the management boards of Philips primarily focused on balancing relationships between each other. From the 80s to 90s, managers aimed to emphasize Philips’ core business competitiveness by reducing costs, unifying production, and regrouping the R&D centers. As a result, Philips became market-based and directly responsible for each subsidiary.
Under the leadership of CEO Boonstra, Philips’ financial performance significantly improved. Boonstra’s strategy involved relocating production to countries with lower wages and holding each subsidiary accountable for their own profits and losses. Additionally, he boosted advertising spending and fostered collaborations with other companies to enhance competitiveness. Several factors contribute to a comprehensive understanding of Philips’ distinct competences and incompetence, including market leadership and a strong brand reputation that reflect customer acceptance.
Philips is a prominent player in the healthcare, lighting, and lifestyle sectors with sales of approximately $32 billion and a strong brand equity. In 2009, it was ranked as the 42nd most valuable brand globally, estimated at $8.1 billion. Since 2004, when Philips introduced its “sense and simplicity” brand promise, it has outperformed competitors by increasing its brand value by 85% over five years. This market leadership and strong brand image give Philips a competitive edge and make it easier to launch new products.
One of the advantages is aligning operations with market conditions to boost productivity. In a weak economic climate, Philips swiftly implemented measures across all its divisions to enhance efficiency. In the healthcare sector, Philips streamlined its management structure to expedite execution and reduce operating costs. In the lighting segment, Philips restructured its sales force based on channels and applications, while simultaneously lowering fixed costs through restructuring initiatives. In the consumer lifestyle divisions, Philips implemented a market-oriented execution strategy.
In addition, Philips has a strong emphasis on research and development (R&D), which is vital for maintaining its competitiveness in the market. Philips remains committed to its R&D efforts as a means to enhance its existing brands and introduce new ones. With seven research laboratories located across Europe, North America, and Asia, Philips holds an extensive portfolio of intellectual property rights such as 48000 patent rights, 35000 trademarks, 56000 design rights, and 3100 domain name registrations. These assets reflect the company’s unwavering dedication to R&D. However, one weakness lies in poor asset utilization compared to competitors.
The company has poor asset utilization efficiency and capital management ability compared to its competitors. This is evident in its Return on Average Assets (ROA) and Return on Equity (ROE), which evaluate the efficiency, financial viability, and ability to earn returns on shareholders’ funds and assets. The ROA reflects the management’s efficiency in using the company’s assets to generate earnings. A higher ROA indicates the effectiveness of the management in generating profits from the employed assets. Philips only recorded an ROA of 1.9%.
Philips had a low Return on Equity (ROE) compared to its competitors, indicating that the company earns less in relation to its own funds. Specifically, Philips achieved an ROE of only 2.7%. The company also faced the challenge of weak returns and needed better utilization of assets to generate satisfactory return on capital. Additionally, Philips and its subsidiaries were engaged in multiple legal proceedings, which damaged the brand image. For instance, competition law authorities in various jurisdictions launched investigations into potential anticompetitive activities within the Cathode-Ray Tubes (CRT) industry in 2007.
Philips is currently being investigated for various ongoing matters. Moreover, in November 2009, the European Commission issued a Statement of Objections to Philips, expressing its intention to hold the company responsible for antitrust violations in the CRT industry. These legal conflicts will not only harm Philips’ reputation but also affect its financial expenses. Following their cooperation in the 1950s and 1960s, Philips has witnessed a decline in market dominance due to its association with Matsushita.
Matsushita has surpassed Philips to become the leading player in the home appliances market. This accomplishment can mostly be attributed to a few factors. Firstly, Matsushita’s divisional structure played a vital role in outperforming Philips. Their “one-product-one-division” system enabled Matsushita to optimize their operations within a “small business” setting. Additionally, this structure ensured clear profit responsibilities for every product. CEO Yamashita embraced and improved the divisional structure by investing in personnel, technology, materials, and capital.
Additionally, Matsushita implemented successful innovation by allowing overseas sales subsidiaries to have more autonomy in product selection. This strategy, known as Operation Localization, aimed to foster the innovative capability of Matsushita’s international companies. By decentralizing decision-making processes and encouraging healthy competition among divisions, this approach promoted efficiency and stimulated development. Through its high flexibility and constant innovation, Matsushita emerged as a strong contender in the highly competitive market, thereby establishing a firm groundwork for future success. In contrast, Philips implemented a matrix structure as opposed to the divisional structure adopted by Matsushita.
Initially, Philips gained financial benefits from the complexity of management. However, this approach is now causing problems. In contrast, Matsushita’s success can be attributed to its strong focus on its business philosophy, particularly paying attention to its corporate culture. Matsushita recognizes its responsibility not only to its business but also to society and the world. Additionally, it consistently pursues high quality, low price, and ample quantity in its production mission. A key aspect of Matsushita’s competitive advantage lies in its divisional structure.
By making each division operate as an independent company, Matsushita ensured healthy competition among them and increased flexibility, which in turn reduced risks. However, it is important to acknowledge that despite the transfer of resources and delegation of responsibilities, the plant remained overly reliant on the central authority. Matsushita’s highly centralized research and production model had a somewhat negative impact on its international technological skills and innovation capabilities. Moreover, Matsushita’s lack of overseas competency in the global business world may be seen as its greatest weakness.
Matsushita achieved great success in the domestic market; however, they faced more complex challenges in the international market. The company’s product divisions did not prioritize international expansion. As Matsushita continued to grow, managing the globalization and localization processes became increasingly difficult. Additionally, there was a need to accelerate technology innovation and keep pace with industry advancements. The relationship between headquarters and subsidiaries was uncomplicated, facilitating control over overseas markets. In conclusion:
Philips and Matsushita are two companies that have distinct strengths and weaknesses. Philips boasts exceptional international management and each of its subsidiaries operates independently. The company has a strong brand and places a great emphasis on market-oriented execution and research and development. However, its weaknesses lie in asset utilization and legal issues that harm its brand image. Philips also faces challenges due to its matrix organization structure. On the other hand, Matsushita’s success can be attributed to its division structure and business philosophy.
The difficulty in implementing change and adapting to new circumstances for both Philips and Matsushita can be analyzed from three perspectives: organization structure, corporate culture, and product line.
Philips and Matsushita, both global renowned electric appliance companies, faced strategic challenges in reducing product lines, improving production efficiency, and addressing the matrix organization. The effectiveness of adopting multi-product centers as a structure for Matsushita’s future and its alignment with market demands was uncertain. Therefore, recommendations need to be made for both companies.
Both Philips and Matsushita should prioritize rebuilding their brands. Philips has suffered a loss in brand influence and core competency due to selling off well-known brands like mobile phones. Consequently, many people are unaware of Philips’ core appeal. To address this issue, it is crucial to promote and advertise products effectively in order to convey accurate information to customers. Similarly, Matsushita, once renowned for its TVs, has experienced a decline in market share in recent years. Numerous companies such as Sony, Sharp, LG, and Samsung have gradually captured a significant portion of the TV market.
What Matsushita should do is to enhance the leadership position of its core expertise in order to regain brand loyalty. Additionally, Philips and Matsushita should allocate investments towards research and innovation for the success of electrical appliances, as continuously developing new products is crucial. To cater to the global market, R&D departments should be established in major markets of certain countries where products can be tailored to meet local needs and preferences. Manufacturing also holds significant importance.
Philips and Matsushita both have a global presence with numerous factories worldwide. Rather than solely focusing on cutting labor costs, it is essential to enhance production efficiency and product quality. In the case of Philips, it is crucial to enhance regulations and monitoring to effectively maintain quality standards in various international markets. For Matsushita, striking a balance between centralization and local operations is necessary. This involves not only relying on Japanese employees to manage subsidiaries but also integrating local talents into decision-making processes and daily operations to foster a diverse corporate culture.
