Philips versus Matsushita:

A New Century, a New Round

 Thanks To:
Mr. Shahriar Kabir
Assistant Professor,
Institute of Business Administration, Jahangirnagar University
(IBA-JU),
Savar, Dhaka
GROUP PRESENTATION - CASE # 2

Prepared By

Name ID#
Sabbir Ahmed
Jannatul Fariya Tabassum
S. M. Rahat 201203022

Strategic Management (BUS-514)

Section: 02 (Group-2)
Submission Date: April 21, 2018
Philips: Background
• Philips was found in 1892 by Gerard Philips in Eindhoven,
Holland.
• Philips built its success on a worldwide portfolio of responsive
national organizations.
• Innovation as core strength:
• One-product focus
• Gerard’s technology prowess
• Philips is a “Lifestyle company’ centered on health and well-
being
• Focus on product development, brand and channel
management.
Philips: Organizational Development

• Reflection of technical and commercial

leadership throughout the organization.
• Transfer of assets to British Philips & North
American Philips Corp.
• Top management to US.
• More independent operations during war.
• Self-sufficiency addressing the local
preferences.
 Cont..
• Product development linked to local market.
• Focus on R & D.
• NOs responsible for financial, legal &
administrative matters.
• 14 PDs responsible for production,
development and global distribution.
Analysis of Reorganization
Attempts - Philips
Van Reimsdijk & Rodenburg
Reorganizations, 1970
• Goals
– Profitability.
– Defining relationship between PDs and Nos and assign responsibility.
– Cost cutting.
• Actions Taken
– Closure of inefficient local plants and focus on converting the best
production plants into International production centers (IPCs).
– Single management that looked after the technical as well as the
commercial aspects of the business.
• Results
– The power struggle and lack of central control continued in the company..
Wisse Dekker Reorganization, 1982
• Goals
– Cost cutting & increase profitability.
– To get rid of bureaucratic culture.
– Focus on core operations.
• Actions Taken
– Immediate closure of inefficient operations/plants.
– Technology sharing and offshore manufacturing for cost cutting.
– Replacement of dual leadership with single General Manager.
• Results
– Sales declined and profits remained stagnant.
 Vant Der Klugt Reorganization, 1987
• Goals
– To regain top position in consumer electronics market.
– Increase the profit margin (PM) to 3 to 4% from its current PM 1 to 2%.
– Gain more control over Nos & PDs.
• Actions Taken
– Bifurcation into Core & non core businesses.
– Reduction in head office staff by relocating them to product divisions.
– Experienced work force posted to most competitive markets.
– Utilization of globally located work force.
– Result oriented R & D.
– Major job cuts to cut cost and for financial recovery
• Results
– Company declared losses.
– Vant Der Klugt and management team was repleced.
 Timmer Recognition, 1990
• Goal
– Turn around the bankrupt company, expand software, services & multimedia
to become 40% of revenue
– Restart the growth engines on innovative capabilities
• Actions Taken
– Cut more jobs, headcount was reduced by 68000 or 22%
– Change the way of working by committing managers to specific financial goals and
their accountability for the losses
– Recruited Frank Carruba, the director of HP research, to focus on developing15
core technologies and invested $2.5 billion
• Results
– 37% R&D personnel cuts left company with few who understood technology, thus
no innovation
– Morale was low in middle management due to the failure of these technologies
 Boonstra Recognition, 1996
• Goal
– Production shift to low cost areas, simpler manufacturing and marketing
• Actions Taken
– Sold 1/3 of the businesses, shift production to low-wage countries
– Replaced 21 PDs with 7 divisions and 100 business units
– Moved HQ to Amsterdam, reduced the employees from 4000 to 300
– Increased Marketing efforts
• Result
– Performance improved, reaching 24% return on net
 Kleisterlee Recognition, 2006
• Goal
– Increase sales, outsource activities where they can’t add value
– Eliminating more overhead/costly production plants
• Actions Taken
– Close non value adding operations, outsource such activities
– Trying to shift to core competencies of technology developer & global
marketer
• Results
– Rise in shareholder pressure
– Reported losses
Matsushita: Background
• Founded in 1918 by Konosuke Matsushita in Osaka,
Japan
• Invested 100 yen to produce double-ended sockets.
Expanded to various products
• First Japanese company to adopt the divisional structure
– “One-product-one-division”
– Internal competition fostered among divisions
• Flood of products in post war boom
• Matsushita built its success on its centralized, highly
efficient operations in Japan
Organization’s Foundation: Divisional
Structure
• In 1933, Introduced Divisional Structure as first
Japanese company.
• Generated inter divisional competition rather
than creating “Small Business” environment.
• 36 Product Devisions.
• 60% profit to headquarters and 40% back to the
division provided an extremely profitable
organization, while insuring its own future
success.
Matsushita: Internationalization
• Expanding through color TV (1950 – 1960).
• Building Global Leadership through VCRs, 1980.
• Changing System and Control (mid of 1980s)
• Headquarters-Subsidiary Relations (mid of 1980s)
Analysis of Reorganization
Attempts - Matsushita
 Konosuke Matsushita (KM), 1918
• Extensive distribution, product line extension
• Licensing agreements, worldwide production
• Internal competition- One product one
division structure
Toshihoto Yamashita, 1982
• Increased localization of operations: personnel &
resources
• Overseas production remained too dependent
on centre
• Allowed local divisions to have more operational
control
Akio Tanii, 1986
• Integrated foreign subsidiaries under METC
control
• Relocated major regional headquarters to
Europe, North America
Yoichi Morishita, 1993
• Focused on cost reduction and increasing
operational flexibility
• Sold 80% of MCI and shifted production to
offshore companies
• Cut headquarters staff and decentralised
responsibility
Kunio Nakamura, 2000
• Integrated one-product divisions into multi-
product production centers
• 'Destruction and Creation' program:
Disbanded product division structure
• Plants were integrated into multi-product
production centres.
Findings: Philips
• Decline of success due to the lack of consistency
and lack of ability to deal with a changing
competitive international environment.
• Frequent structural changes
• No clear strategy since 1960
• Struggle to balance the roles of NO’s and PD’s
• Conflict in terms of power and responsibilities
• Focus on core products led to giving up on various
products
• Closure of least efficient plants
Cont…..
• Could not manage to produce high-quality,
high-tech products and at a low price

• Failed to adapt to changing demands and the

strengths of the competition, partly due to its
confused strategies and its ever-changing
structure.
Findings: Matsushita
• Copy cat approach very risky
• Tall structure hindered innovation attempts
• Restructuring took a lot of time as the organization
was slow to manage changes
• Attempts such as “Operation Localization”
• Resistance to change due to culture
• Could not make overseas subsidiaries more innovative
due to lack of expertise.
• Delegation of authority but no investment in
innovation.
Recommendation: Philips
• Investment in R&D and a way to match the
low-cost Japanese advantage of efficiency
• Either retain some of its production
• Invest heavily in its new strategy and
encourage participation of everyone
• Find a structure and strategy which are
compatible instead of changing one and trying
to make the other one fit
Recommendation: Matsushita
• Follow a bottom up approach for change
management by consulting workforce
• Right match between strategy and structure
• Pursue a conglomeration and diversification
strategy
• Have a divisionalied structure.
• Realize change is not a simple process and has
many potential barriers