The high technology consumer electronics industry has been shaped by the historical contributions of both Philips and Matsushita, with a combined experience of over two hundred years. These companies have faced various challenges and transformations in their environment, which have necessitated the reevaluation, adjustment, and implementation of new corporate strategies. This case synopsis examines the distinct organizational capabilities developed by both companies and explores the impact of the quality of implementation and control on their long-term performance. The analysis of this case benefits from the application of strategic management concepts, particularly those related to organizational structure and capabilities.
Both Philips and Matsushita, companies with long histories, need to understand their environment in order to adapt and succeed. The sales graph on the last page demonstrates that both companies experienced strong growth between 1970 and 1990. However, after this period, their performance began to differ. Matsushita continued to achieve significant growth despite economic downturns, while Philips’ sales stagnated due to challenges in implementing strategic decisions. From 1919 to 1970, both companies were successful in developing and implementing corporate strategies that enabled them to build distinct capabilities.
Matsushita
Prioritizing Research and Development (R&D)
Emphasizing global production and economies of scale
Utilizing local production facilities
Adopting a decentralized approach with Local National Organizations (NO’s) and country-specific orientation
Establishing Product Divisions (PD’s) in Eindhoven along with 8 independent laboratories
Employing a Geographic/Product matrix strategy
Implementing centralized divisional structures for each product
Encouraging internal competition
Operating a central research laboratory
Manufacturing all key components internally
Conducting product engineering exclusively at headquarters
Philips had a strong focus on research and development, leading to the creation of technological capabilities that resulted in inventions and innovations such as the first color TV, Stereo TV, and TV with teletext. The company’s decentralized structure and country-specific approach allowed for customized solutions and coordination within its local national organizations’ commercial and technical departments. However, coordination and control between these local organizations and the headquarters’ product divisions were lacking. On the other hand, Matsushita, with its highly centralized hierarchical structure, developed manufacturing scale-intensive capabilities and global marketing abilities through its product divisions based in Japan. The company’s effective communication capabilities facilitated the flow of information from foreign subsidiaries to the central headquarters, providing insights into market trends and preferences.
After 1970, macro environmental changes and globalization necessitated strategic shifts. The establishment of the European common market and advancements in technology led to a greater need for production, reduced trade barriers, and an increase in international demand. Consequently, Philips and Matsushita found it necessary to analyze their organizational structures in order to adapt to market conditions. Philips faced challenges with its control over country subsidiaries, which manifested as an inability to introduce new products into markets and conflicting actions between subsidiaries. For instance, North American Philips generated inefficiencies that negatively impacted profitability. Over the next 40 years, seven CEOs attempted, unsuccessfully, to increase control over national organizations through strategic changes, reorganizations, and widespread layoffs. However, poor implementation hindered these efforts and by the mid-1990s, the effects were evident in declining sales performance. Similarly, the two CEOs following Matsushita’s founder, Konosuke, from 1982 to 1993, attempted organizational changes to foster innovation and business initiatives at overseas offices by imitating their rival. Despite transferring some responsibilities to subsidiaries during this period, Matsushita’s structure allowed product division managers to make final decisions, ultimately leading to the abandonment of further efforts in this direction.The consecutive leaders after three CEOs were highly successful in implementing strategic changes, which enabled Matsushita to develop innovative capabilities through collaborations and technical exchanges in China and the U.S. The question here is why these selected concepts are beneficial for understanding this case. Despite operating in the same industry, both companies adopted distinct strategies that helped them develop unique capabilities and gain a competitive edge, leading to their growth and success. The industry changes compelled them to make continuous strategic choices, but their performance showcased the effectiveness of their implementations.
Both Philips and Matsushita faced significant challenges when attempting to transition their organizational structures from highly centralized to decentralized, and vice versa. The implementations aimed at altering deeply ingrained management practices were met with considerable resistance and ultimately failed. This case analysis has prompted a strategic understanding that a company’s organizational structure, determined by strategic decisions, plays a crucial role in creating competitive advantages by developing specific capabilities. As the macro environment evolves, companies must adapt to changing success factors within their industries. However, in the short-term, the structure and capabilities of a company are inflexible. Therefore, management must anticipate this resistance and consistently and effectively implement changes to avoid forfeiting already acquired capabilities.
Based on your analysis, I would recommend the following strategic recommendations for the situation presented:
1. Increase brand value and recognition: Both Philips and Matsushita should focus on standardizing their brands to generate synergies. Currently, Philips supports around 150 brands such as Magnavox, Norelco, and Marantz, while Matsushita produces under other companies’ private brands. Given the extent of globalization in the 21st century, both companies should consolidate and create brand value by allocating a higher budget towards marketing and promotion.
2. Enhance control and coordination between overseas subsidiaries: In order to achieve better coordination and efficiency, Philips should increase control over its overseas units. My recommendation is to institute a two-man rule for executive governance in local offices. This would involve having one local manager and one expatriate manager appointed by headquarters to align subsidiaries with corporate interests. This approach aligns with the initial concept of founders Gerard and Anton.
3. Promote vision and mission statements: To ensure alignment with corporate goals, Philips needs to communicate and propagate its strategy, values, vision, and mission throughout its entire structure. My recommendation is to design posters and visuals displaying this information to decorate every subsidiary, serving as a reminder to employees of the company’s purpose of existence.
4. Foster technological innovations: In the highly competitive consumer electronics industry, it is crucial to develop novel technologies in order to maintain competitiveness.Matsushita and Philips should not only continue their investments in R&D, but they should also actively monitor small start-ups that could potentially uncover groundbreaking innovations, with the intention of forming partnerships or acquiring them.
