Summary This analysis is based on two corporations, N. V. Philips (Netherlands) and Matsushita Electric (Japan). The two companies both have experienced big changes and have different strategies and organizational capabilities now. With their distinctive operations and management, they got success and continued to compete with each other and occupied the leader position in global markets nowadays. The analysis discusses how they get success, what make them be successful, the changes they experienced, the impact of these changes and the reasons why changes are so hard for them.
SWOT analysis is used to analyze Philips’ distinctive competences and incompetence. The excellent international management is the key point of Philips’s success. Several factors are considered to state Matsushita success, like divisional structure as the most significant one, innovative operation localization and Matsushita’s special business philosophy. Also recommendations are given to these two companies when they both similarly face 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.
It developed the NOs, the NOs had important positions among the management levels and also they had special attractiveness. From late 1960s, Philips’s seven chairmen experimented with reorganizing the company to deal with its growing problems, until 1990s, it seemed to be not effective. Matsushita was founded by Konosuke Matsushita in 1918. It had its special spirit and culture. KM made a 250 years corporate plan in Matsushita 14th anniversary. Due to the economy decrease after wars, the company eventually focused on export markets.
In 1933, Matsushita became the first Japanese company to adopt the division structure, giving each division clearly defined profit responsibility for its product. Through the export of brand products, Matsushita struggled to push internationalize and matured its international operation management by different leaders policies and strategies. Analysis The war made Philips transfer into national organizations successfully. However, the creation of the Common Market in Europe, disability to bring products to market, poor financial performance and global competitiveness forced Philips reorganization.
In my opinion, there were three main problems to deal with in three aspects: organization structure, corporation culture, and product line. The organization structure of Philips was matrix organization, especially geographic/product matrix, which has made the relationship between leaders and subordinates complicated. All subordinates have to report the working process to two more leaders; this relationship would cause sequels such as abuse of power, news miscommunication, and unclear responsibility. In 1970s, the CEO Van Riemsdijk reported the disadvantaged of matrix organization in the organization committee.
In order to rebalance the managerial relationships between PDs and NOs, he decreased the number of products marked, closed the least efficient local plants and built International Production Centers for concentrating production. However, to change this organization was not easy and the struggles continued. Reducing the product line and decreasing inefficient production was another problem to deal with. CEO Wisse Dekker closed 200 plants in inefficient operation and focused on core operations by selling some business such as welding, energy cables and furniture.
Continually exploring new products, expanding new markets, giving up old products, closing plants and cutting resource by different CEOs was an inevitable process to reorganization for Philips. Those organization changes still made Philips in poor financial performance until CEO Boonstra succeed in 1996, which offered a potential prospective in the future. Besides of matrix organization and cutting cost, organization culture was another significant factor for reorganization. Philips`s main culture was around the harmonious relationship among members.
Undoubtedly, this kind of culture could contribute to build pleasant working environment and enhance creativity. However, excessive peace and harmony would tolerate bad work performance, no one wanted to accuse or fire a friend, and friends were often reluctant to dispute or criticize each other, which resulted in that a lot of problems were compromise and did not get the best results. In the whole process of reorganization, Philips need to set and implement the metric ambitious target, decompose responsibility, clearly communicate company’s objectives, values and procedures.
Company require all staffs contribute their best to company`s objectives and fire those who cannot adapt to the new environment. Compared to matrix organization in Philips, Matsushita adopted divisional structure in “one-product-one-division” to organize company, giving each division clearly defined profit responsibility for its product. This structure generated internal competition that spurred each business to drive growth by leveraging its technology to develop new products.
In Philips, the matrix organization resulted in complicated relationship between leaders and subordinates, which made unclear defined profit responsibility for each division and lower the speed of reaction of an enterprise. The divisional structure was Matsushita`s fundamental step to internationalization. According to the organization chart, Matsushita adopted one-dimensional operational management: all overseas divisions need to report to one department- regional operations, and plants or manufacturing sections need to report to appropriate product divisions, unlike matrix organization need to report to two more leaders.
Moreover, in 1980s, Matsushita began to monitor measures of output, such as quality, productivity and inventory levels, instead of controlling input. This measure not only can enhance the efficiency and quality of production, but also saving cost of delivering materials or products from Matsushita`s domestic plants. The “operation localization” in 1990 helped Matsushita`s overseas companies develop the innovative capability and entrepreneurial initiatives, however, these overseas companies still primarily depended on the central product divisions.
In order to enhance their independent innovative capability and entrepreneurial initiatives, the operation localization need to be still implemented, because the long-term dependence on center might lead to lack of innovative capability. The relocation and merge introduced by Tanni in 1986 could improve more attention on overseas companies, which could offer support timely to overseas companies and know more oversea markets, simultaneously giving reaction in time to market demands.
In 2000, Nakamura`s initiatives totally destroyed Matsushita`s basic product division structure, and created multi-product production centers and made the marketing shift to two corporate marketing entities. The original product divisions still owned its advantages which was one of the company`s successful factors, but the multi-product centers was doubtful that whether it will be a better structure for Matsushita`s future. Moreover, it is unsure that whether the two corporate marketing entities could adapt to more market demands. Philips The most significant reason or the success of Philips is due to its excellent international managements.
Before the war, Gerard and Anton both agreed that strong research was vital to Philip’s survival, depending on innovation of new products to get fat profit and account for more market shares. During the war, each subsidiary of Philips made full use of its self-sufficiency to adapt to the specific areas which became the most valuable asset in the postwar era. However, after 1960, because of some political factors (such as world war), Philips suffered a hard hit. And at the same time, the inconvenient distance (such as the oversea IPCs ) also lead to the sales still declined and profits stagnated.
So, In order to rescue this difficult situation to attract more local customers, the management board decided to rearrange the business strategy to take back the rights from subsidiaries to headquarters. In the 70s, the management boards of Philips mainly focus on balancing the relationships between each other. And from the 80s to 90s, managers would like to emphasize on the Philips’ core business competitiveness, by reducing the costs, unifying production, and regrouping the R&D centers, Philips became to be a market-based and directly responsible by each of the subsidiaries.
However, the new CEO—Boonstra taking over the Philips finally made a rise in financial performance. Boonstra’s determination was to shift the production to low-wage countries and asked for each subsidiary responsible for own profits and losses. What’s more, he spurred advertising spending and cooperated with other corporations to enhance its competitiveness. To analyze Philips’ distinctive competences and incompetence, there are some points showing a clear picture. Strengths: Market leadership and strong brand equity signify customer acceptance.
With sales of approximately $32 billion, Philips is a leading player across its healthcare, lighting and lifestyle portfolio. In addition, Philips enjoys strong brand equity. In the 2009, Philips was ranked the 42nd most valuable brand in the world. The total estimated value of the Philips brand in 2009 was $8. 1 billion. Philips has outperformed its peer group by increasing its brand value by 85% in five years, since the launch of “sense and simplicity” brand promise in 2004. Market leadership and strong brand image provide a competitive advantage in the marketplace and make the launch of new products easier.
Another advantage is aligning operations with market conditions to increase productivity. In a weak economic backdrop, Philips took swift actions across all its segments to increase efficiency. Within healthcare, Philips focused on de-layering its management structure to increase speed of execution and lower operating costs. In the lighting segment, Philips organized its sales force along channels and applications while continuing to reduce the fixed costs through various restructuring projects. In the consumer lifestyle segments, Philips initiated a strong market-focused execution.
Moreover, Strong focuses on R&D—-a critical driver of Philips’ competitiveness. Philips maintains focus on its research and development (R&D) activities as a part of its strategy for extending existing brands and expanding new ones. Philips has seven research laboratories spread over Europe, North America and Asia, and holds about 48000 patent rights, 35000 trademarks, 56000 design rights and 3100 domain name registrations, reflecting its strong R&D focus. Weaknesses: Poor asset utilization compared to competitors.
The company’s asset utilization efficiency and capital management ability are poor when compared to its competitors reflecting 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. ROA indicates the management’s efficiency in using the company’s assets towards generating earnings. A higher ROA indicates the effectiveness of the management in generating profits from the assets employed. Philips recorded an ROA of 1. 9% only.
Similarly, the company’s ROE, a measure of judging how much the company earns in relation to its own funds, was also low when compared to its competitors. Philips recorded an ROE of 2. 7% only. Week returns indicate the need for more effective utilization of assets to generate adequate return on capital. In addition, Legal tangles tarnish brand image is another disadvantage. Philips and its subsidiaries are currently involved in various legal proceedings. For instance, in 2007, competition law authorities in several jurisdictions commenced investigations into possible anticompetitive activities in the Cathode-Ray Tubes, or CRT industry.
Philips is subject to a number of these ongoing investigations. Furthermore, in November 2009, the European Commission sent a Statement of Objections to Philips, indicating that it intends hold Philips liable for antitrust infringements in the CRT industry. Litigations such as these will not only impact the brand image of Philips but also affect its cost structure. Matsushita Since the beginning of the cooperation between Philips and Matsushita in the 1950s and 1960s, Philips had started losing its domination in the market and going downhill.
Matsushita has gradually replaced Philips becoming the new king of home appliances. Generally, the success of Matsushita can be mostly attributed to the following factors. First and foremost, the divisional structure played significant role in winning the battle with Philips. The “one-product-one-division” system helped Matsushita make most use of the “small business” environment and clearly defined profit responsibility for its products. When Yamashita took charge of the CEO, he approved of divisional structure and improved it through personnel, technology, material, and capital.
In addition, another successful innovation was to give overseas sales subsidiaries more choice over the products they sold. This kind of Operation Localization would help Matsushita’s overseas companies develop the innovative capability. Decision-making process is efficient and healthy competition among divisions can stimulate development. Its high flexibility and constant innovation made this new player survived and growing big in the increasingly fierce competition, which laid a solid foundation for the company’s future success. Compared to the divisional structure Matsushita adopted, Philips created matrix structure.
It brought Philips financial advantage at first place but starting to cause problems due to the complexity of management. Besides, I believe what makes Matsushita so successful must have a great matter with its business philosophy. Matsushita pays much attention to its corporate culture. It carries the responsibility not only to its business but also to the society and the world. Moreover, high quality, low price and sufficient quantity have always been its production mission. Matsushita’s distinctive competency would be its divisional structure.
It made each division operating as an independent company and maintains healthy competition among them. Higher flexibility led to lower risks. However, we should also notice that despite the transfer of substantial resources and the delegation of many responsibilities, the plant still remained too dependent on the center. Matsushita’s high centralized research and production model had effect on reducing its skill of international technology and ability of innovation to some extent. In addition, lack of overseas competency in the global business world could be Matsushita’s biggest weakness.
It was very successful in domestic market but in the international market the problem they encountered may not be that simple. Matsushita’s product divisions didn’t pay enough attention to international development. As the company growing bigger and bigger, it seems so difficult to keep the globalization and localization process in control. Furthermore, technology innovation still needs to speed up and keep pace with the industry. The relationship between headquarters and subsidiary were quite simple and straightforward which made it easy to control overseas market. Conclusion:
Philips has the outstanding international management and each subsidiary of Philips made full use of its self-sufficiency. It owns strong brand equity, initiated a strong market-focused execution and focused on R&D. Its weaknesses are its assets utilization, Legal tangles tarnish brand image and matrix organization structure. While Matsushita is successful because its division structure and business philosophy. The reasons why these two companies were hard to make change and adapt to them are according to three perspectives: organization structure, corporation culture, and product line.
Philips needed to deal with the problem of reducing product line, decreasing inefficient production and the matrix organization. The multi-product centers was doubtful that whether it will be a better structure for Matsushita`s future. And it’s doubtful that whether these strategies will adapt to the market demands. Recommendation As we known Philips and Matsushita are all global famous electric appliance corporations, while both of them similarly face strategic challenges from other companies. So some recommendation should be provided for them.
Both Philips and Matsushita, the first thing they should do is to rebuild their brands. For Philips, when it sold some famous brands such as mobile phone and others, Philips really lost its brand influence and core competency. Even many people do not know what the core appeal point of Philips is. Therefore, the most important thing is to promote and advertise products to convey exact information to customers. For Matsushita, it was famous for TV before, but in recent years market share in TV market was gradually occupied by many other companies like Sony, Sharp, LG, and Samsung etc.
What Matsushita should do is to strengthen the leader status of its core competency to retrieve brand loyalty. Second, Philips and Matsushita need to invest in product research and innovation, because the key point to succeed in electric appliances is continually developing new products. For global market, R&D departments should be located in major markets of some countries that products can be designed for customizing local needs and preferences. Apart from research aspect, manufacture is also very important.
Philips and Matsushita have a lot of factories around the world. It is better to increase production efficiency and product quality instead of blindly reducing labor cost. Particularly for Philips, it also needs to improve regulations and monitoring to tightly control quality in many abroad markets. For Matsushita, it is necessary to balance its centralization and make it work in local mechanism. Not always send Japanese employers to manage the subsidiaries, they should also hire local talents to take part in operation and decision making to enrich corporation culture.