Matsuhita is an organization with various capabilities, based on its structure, the market environment and even its corporate culture. The company has been established whereby the organizational structure is embedded in its capabilities and competencies. The first obvious example is Matsushita’s highly centralized mode of production which dictates global operations unlike its competitor in the electronics market, a conglomerate, Philips, who has very little centralized mode of coordination. Matsushita’s management style was very traditional, since it was established.
It is believed that they chose this form of structure and structure because of the nature of the market the organization serves. Their control system seemed to be a slightly highly formalized. Although competition was encouraged amongst all product divisions, their operations still stayed highly centralized. As Ouchi pointed out, a company that streamlines its business towards the output/market-based system in any economy, there are some characteristics that can only support a very centralized mode of production. In the case of Matsushita, formalization is high. Employees are rarely given the opportunity to participate in decision making, but they maybe offered a degree of flexibility in respect of how target is achieved” (Ouchi, 1979). The latter can be backed up with Matsushita incentive of allowing employees across divisions but they were not allowed to contribute towards any other significant decisions made within the organization. Matsushita’s highly centralized mode of production dictated global operations but this form of competency was not enough to allow continuous success in its niche market for too long.
Just as Philips realized that it needed to adopt some of Matsushita’s practices, the latter also concluded that it needed to take the same direction in changing its organizational structure. In a mass market such as that of consumer electronics, this will mean that production should be centralized, behavioural control is likely to be achieved in a very systematic way, in the majority of the organization and formalization is likely to be high as well.
These characteristics of any control system will result in the development of standards for emerging technologies, in order to develop economies of scale for production; at the same time, gives Matsushita the ability to remain very flexible to adapt the standards to fit the desires of local markets. Matsushita lacked the ability to readily cater to consumer needs. Although Matsushita was quick to adopt standards o achieve high sales volume through internalization, manufacturing operations in low wage countries and Yamashita’s “Operation Localization”, its three most important growth strategies were not enough to keep them ahead of Philips for too long. Contrary to the little control Philips had over its subsidiaries, (i. e the Product Divisions and National Organizations) Matsushita’s control over its foreign subsidiaries stifled innovation and creativity was almost absent.
Regional innovation was limited, therefore overall innovation within the organization, lagged. But the control of foreign subsidiaries was not the main reason why innovation within Matsushita was not one of the core competency, they were never really keen on innovation initially. They were seen more as an opportunist organization and had a fast follower strategy. The fast follower strategy allowed Matsushita copy technology capabilities and with this capability, they brought products into the market within a short period of time.
This “copy cat” strategy is also known as the second mover advantage whereby the latter capitalizes on the advantage of becoming leaders in some market segments but this sort of model “carries its own different set of risks. If you pursue it, you should focus on strategic reaction rather than strategic foresight, and your execution must be excellent” (Business Pundit, 2006). Matsushita could not keep up with its fast follower strategy for too long especially if innovation in the consumer electronics market begins to decrease, what will they copy and capitalize on?
In summary, due to Matsushita’s, highly centralized mode of production and lack of structure in Research and Development, there was no room for expansion in sales and marketing (due to stifled innovation) and they relied heavily on declining products leading to an excess of undifferentiated goods and a large inventory. Over the last century, both companies have tried to reshape their structures. Philips made some crucial changes that made it gain control but its cost cutting only added to its existing problems.
Philips cut down heavily on research and development because the CEO had the time believed that money was being wasted on impractical ideas partly due to the fact that the National Organizations were unwilling to cooperate and come up with new ideas that could have kept them at the number one spot in the consumer electronics market. The initial cost cutting made them lose more of their competence in research, development and manufacturing because the cuts made left Matsushita with just a few employees who knew how to play the game of creating technology for new businesses.
Matsushita on the other hand, tried to reduce its patriarchal attitude by giving its overseas subsidiaries power. Its control system gradually leaned towards the situation whereby variety of information was being shared. In 1982, through the “Operation Localization” model, local managers were given the choice over the products that they could sell and were also given the power and authority to use local parts for the manufacturing of goods. With the changed Matsushita made, it was still against fully changing its organization structure.
It was not interested in improving its increasingly inefficient manufacturing plants in its home country, Japan. It is quite difficult to change multinational organizations such as Philips and Matsushita due to their deeply rooted corporate culture. Apart from the bureaucracies present largely in both companies, they failed because of their lack of Research and Development. Unfortunately for Philips, they believed cost cutting will make them achieve the goal of change but while they were trying to get there, they had lost much of their competence in R&D.
Success in the electronics industry requires constant research, manufacturing and innovation which Matsushita also completely lacked. Philips and Matsushita (now Panasonic) might have a continual improvement in manufacturing but as long as innovation is lacking, it will continue to remain very hard to change. Recommendations and advice for both companies will be very similar because they are in the same industry but instead of trying to match each other, Philips and Matsushita should focus more on their competitive advantages.
Philips needs to invest more in R&D and marketing in order to compete with Japan’s low cost efficiency model. Matsushita on the other end, needs to involve employees more in research and decision making to improve innovation. The most important recommendation for both companies, will be constant development of new products in every product segment in each organization. The products should also be designed such that the core aspect of every product is appropriate for and market anywhere in the world but at the same time can fit any local markets or differences.
The centres for development should also be situated where the most unique talent for each good can be located. Both organizations can take the digital content route that will help shape their hardware demand. In terms of manufacturing operations, today’s global economy gives both companies no choice than to move operations to the lowest cost countries as their competitors are doing regardless of how difficult outsourcing can be in many parts of Asia and Europe.
It is also important that there should be a location for local final assembly, which should be under the control of manufacturing and definitely not under sales operations, so that the leader can focus strictly on sales and marketing. Finally, sales, which is an important aspect of expansion and revenue, should be organized regionally in order to reduce unnecessary bureaucracies and such that local consumer needs can be met accordingly.
Sales should also be merged with product operations to fully incorporate all the needs of different regions but this plan should be carried carefully and systematically such that each individual region is does not spin off on their own. Above all, the recommendations given are capital intensive. All will lead to a significant increase in cost for most arts. If Philips and Matsushita cannot carry out all these suggestions at the same time, then prioritization is needed. Cost cutting will only continue to add to their existing problems.