Philips and Matsushita add together more than two hundred years of history in the high technology consumer electronics industry. During this period both companies followed contrasting strategies and experienced disruptive changes in its environment forcing them to review, adapt and implement new corporate strategies. The following case synopsis focus on how these companies developed different organizational capabilities, and how the quality of implementation and control affected their performance in the long run. Which strategic management concepts are useful in the analysis of this case? Organizational Structure and Capabilities
The world has changed dramatically over the last century and companies need to develop a profound understanding of its environment to adapt and perform over time. This is especially true for companies with long history and heritage such as Philips and Matsushita. The sales graph (last page) shows strong growth of both companies between 1970 and 1990 but from this point evidences differences in performance. Matsushita accomplishes important growth regardless of economic downturns but Philips sales stagnate as a consequence of difficulties to implement strategic decisions. Between 1919 and 1970 Philips and Matsushita were able to develop and implement its corporate strategies that allowed each company to develop different capabilities. Philips
High focus on R&D
Low focus on R&D
Local production facilities
Global production / Economies of scale
Local National Organizations (NO’s)
Product Divisions (PD’s) located in Eindhoven
8 independent laboratories
Divisional Structures per product
Central research laboratory
Manufacture all key components
Product engineering only in headquarters
Philips was strongly focused on research and development which generated technical capabilities allowing inventions and innovations such us the first color TV, Stereo TV, TV with teletext. Its decentralized structure and country-specific orientation developed capabilities that allowed customized solutions and cross-functional coordination capabilities within the local national organizations (NO’s) commercial and technical departments. However coordination and control between local NO’s and headquarter product divisions (PD’s) was low. Matsushita’s highly centralized hierarchical structure developed manufacturing scales-intensive capabilities and global marketing capabilities from its product divisions located in japan. In addition strong communication capabilities allowed information flow from foreign subsidiaries to central headquarters concerning market trends and preferences. Strategic Implementation
After 1970 macro environment changes and globalization required strategic shifts. The creation of the European common market and new technologies demanded larger production, trade barriers diluted and international demand increased. All this together with strong growth and increasing operations complexity forced Philips and Matsushita to analyze its organizational structures to adapt market conditions. Philips lack of control over its country subsidiaries showed first signs of struggle, inability to introduce new products into markets and contradictory actions between subsidiaries such us: North American Philips generated inefficiencies that eroded profitability. During the next 40 years, 7 CEO’s unsuccessfully tried to increase control over national organizations (NO’s) thought several changes in strategy, reorganizations and massive lay-offs. Poor implementation miscarried this attempts and by mid-1990 its effects were visible on sales performance. In a similar way the next two CEO’s following Matsushita’s founder, Konosuke, from 1982 to 1993 tried to implement organizational changes to promote innovative capabilities and business initiatives at overseas offices by imitating its rival. Even though several responsibilities were transferred to subsidiaries over this period, Matsushita’s structure allowed product division managers to make final decisions and further efforts into this direction were dropped. Succeeding three CEO’s were much more effective implementing strategic changes, allowing Matsushita to develop the necessary innovative capabilities through partnerships and technical exchanges in China and U.S. Why do you think each of your selected concepts are useful for understanding this case? Both companies developed very different strategies while competing in the same industry. Each was able to develop different capabilities that created competitive advantages that allowed them to grow and become very successful. Changes in the industry forced them make constant strategic decisions, but their performance reflected the quality of its implementations.
Philips and Matsushita suffered great difficulties trying to change its organizational structure from extremely centralized to decentralized and vice versa. Implementations that tried to change the deeply set of management heritage encountered structural strong resistance and failed. What strategic understanding did you develop as a result of this case analysis? Strategic decisions define a company’s organizational structure which creates competitive advantages through developing specific capabilities. Macro environment changes challenge companies to adapt to new industries success factors since they change over time, but structure and capabilities are rigid in the short-run. Management must foresee this resistance and implement changes consistently and effectively to avoid losing already acquired capabilities.
Based upon your analysis, what specific strategic recommendation would you make for the situation presented? 1. Increase brand value and recognition: Both Philips and Matsushita were not generating synergies of brand standardization. Philips supporting approximately 150 brands such as: Magnavox, Norelco and Marantz. Matsushita OEM producing under other companies private brands. Considering the extent of globalization of the 21 century both companies should consolidate and create brand value by increasing its budget in marketing and promotion. 2. Increase control and coordination between overseas subsidiaries: Philips needs to increase control of its overseas units in order to generate coordination and efficiency. My recommendation is to split the local office’s executive governance into a two-man rule. Similar to the initial concept of founders Gerard and Anton, but allowing one local and one expatriate manager appointed by headquarters to align subsidiaries towards corporate interests. 3. Propagate vision and mission statements: Philips needs to communicate and spread its strategy, values, vision and mission through the entire structure to ensure adhesion and alignment to corporate goals. My recommendation is to design posters and visuals with this information to decorate every subsidiary and remember employees its purpose of existence. 4. Technological innovations: Consumer electronics industry is highly competitive and developing novelties is essential to maintain competitiveness. Matsushita and Philips should continue investing in R&D but also paying close attention to small star-ups that may discover disruptive innovations in order to ally or purchase them.