Matsushita is a diverse organization that possesses a range of capabilities, which are influenced by its structure, the market environment, and even its corporate culture. The company’s capabilities and competencies are deeply ingrained within its organizational structure. One significant example is Matsushita’s centralized mode of production, which sets the tone for its global operations. In contrast, Philips, a conglomerate operating in the electronics market, has a minimal centralized mode of coordination. Matsushita’s management style has remained traditional since its establishment.
According to Ouchi (1979), Matsushita chose their structure and control system based on the nature of the market they serve. The system was highly formalized and centralized, although competition was encouraged among product divisions. Ouchi explains that a company that adapts a market-based system tends to have a centralized mode of production. Matsushita’s formalization is evident as employees have limited participation in decision making, although they may have some flexibility in achieving targets. While employees from different divisions were allowed to contribute, they could not influence significant decisions. Despite its highly centralized mode of production, Matsushita’s global operations were unable to sustain continuous success in its niche market.
Both Philips and Matsushita recognized the need to implement similar changes to their organizational structures. In the consumer electronics industry, centralizing production, implementing systematic behavioral control, and increasing formalization are crucial for success.
These characteristics of any control system will lead to the establishment of standards for emerging technologies. This is done in order to achieve economies of scale in production. At the same time, it allows Matsushita to be adaptable and flexible in customizing the standards to meet the preferences of local markets. Matsushita, however, struggled to effectively address consumer needs. Despite its efforts to boost sales through internalization, manufacturing operations in low-wage countries, and Yamashita’s “Operation Localization,” these three key growth strategies were insufficient in maintaining a long-term advantage over Philips. In contrast to Philips’ limited control over its subsidiaries (such as Product Divisions and National Organizations), Matsushita’s tight control over its foreign subsidiaries hindered innovation and greatly suppressed creativity.
Regional innovation was limited, resulting in a lack of overall innovation within the organization. Despite the control of foreign subsidiaries not being the primary reason for the lack of innovation within Matsushita, the company originally did not prioritize innovation. Matsushita was viewed as an opportunistic organization and adopted a fast follower strategy. This strategy allowed them to quickly replicate technological capabilities and bring products to market.
This strategy, known as the second mover advantage, involves capitalizing on the advantage of becoming leaders in certain market segments. However, pursuing this approach comes with its own set of risks. Instead of strategic foresight, the focus should be on strategic reaction, and execution must be excellent (Business Pundit, 2006). If Matsushita continues with their fast follower strategy, they may struggle as innovation in the consumer electronics market slows down. The question then becomes what they will copy and capitalize on.
Both Matsushita and Philips have experienced challenges in their organizational structures and strategies. Matsushita’s highly centralized mode of production and lack of structure in Research and Development hindered innovation and limited growth in sales and marketing. As a result, they became overly dependent on declining products, resulting in an excess of undifferentiated goods and a large inventory. In contrast, Philips made efforts to reshape its structure and gain control. However, its focus on cost-cutting measures only compounded its existing issues.
Philips reduced its investment in research and development, citing the CEO’s belief that money was being wasted on impractical ideas. This was partly due to a lack of cooperation from national organizations, which hindered the generation of new ideas necessary for maintaining their leading position in the consumer electronics market. Unfortunately, these initial cost-cutting measures resulted in a loss of expertise in research, development, and manufacturing for Philips. As a result, Matsushita was left with only a handful of skilled employees capable of driving technological innovation for new ventures.
Matsushita, on the other hand, attempted to decrease its patriarchal approach by empowering its overseas subsidiaries. The control system gradually shifted towards a more collaborative environment, where a range of information was shared. In 1982, Matsushita implemented the “Operation Localization” model, granting local managers the autonomy to choose which products to sell and the authority to utilize local components for manufacturing goods. Despite these changes, Matsushita remained resistant to fully transforming its organizational structure.
Both Philips and Matsushita, multinational organizations deeply rooted in their corporate culture, faced challenges in improving their inefficient manufacturing plants in Japan. Bureaucracies hindered their progress, compounded by their lack of investment in Research and Development (R&D). Philips, for instance, mistakenly believed that cost cutting alone would bring about the desired change, but this approach resulted in a significant loss of its R&D capabilities.
Constant research, manufacturing, and innovation are essential for success in the electronics industry – qualities that Matsushita also lacked. While Philips and Matsushita (now Panasonic) may excel in continual improvement of manufacturing, the absence of innovation makes it difficult for them to initiate change. Given their presence in the same industry, recommendations and advice for both companies would be quite similar. Rather than striving to emulate each other, Philips and Matsushita should instead concentrate on leveraging their respective competitive advantages.
Both Philips and Matsushita have areas in which they need to improve in order to stay competitive. Philips should invest more in research and development (R&D) and marketing to keep up with Japan’s low-cost efficiency model. On the other hand, Matsushita should involve employees more in research and decision making to enhance innovation.
One key recommendation for both companies is to constantly develop new products in every product segment within their organizations. These products should be designed with a core aspect that is suitable for any market worldwide while still being adaptable to local markets and differences.
Both organizations should locate their centres for development where they can find the most exceptional talent for each product. They can also opt for the digital content route, which will influence their hardware demand. Due to the current global economy, both companies are compelled to move their manufacturing operations to countries with the lowest costs, just like their competitors. This is the case even though outsourcing can be challenging in various parts of Asia and Europe.
The text emphasizes the significance of having a designated venue for local final assembly, overseen by manufacturing instead of sales operations. This allows the leader to concentrate solely on sales and marketing. Additionally, to streamline processes and cater to local consumer demands effectively, sales should be arranged regionally, thereby minimizing unnecessary bureaucracy.
Sales and product operations should be combined to address the various requirements of different regions, but this merger should be executed with caution and in an organized manner to prevent each region from operating independently. Importantly, the proposed recommendations are costly and will result in a major increase in expenses for most art productions. If Philips and Matsushita are unable to implement all these suggestions concurrently, then prioritization is essential. Merely focusing on cost reduction will further exacerbate the existing issues they face.
