Philips Versus Matsushita: A New Century, A New Round

TEACHING NOTE

Philips versus Matsushita:

A New Century, A New Round

Part I: Background and Overview

Synopsis

This case (an update of earlier versions of this long rivalry) traces the history of Philips and Matsushita as they evolve during the pre- and post-war era to emerge as major competitors in the global consumer electronics industry from the 1970s to the twenty-first century. It begins with a capsuled history of Philips, a company that dominated the global consumer electronics industry in the post-war era, by building highly independent, fully integrated national organizations (NOs) able to sense and respond to local market needs. This strategy begins to run into difficulties in the mid 1970s, and for over two decades Philips is shown to be struggling to integrate and coordinate independent NOs to allow them to deliver a more scale-intensive and competitively coordinated response to global competitors such as Matsushita. The case describes the actions taken by a succession of seven CEOs between 1971 and 2001 as they try to initiate the changes necessary to restore Philips to its former competitiveness.

In contrast, the case describes the growing worldwide expansion of Matsushita around a very centralized scale-intensive model. It is this global scale efficiency and coordinated global strategy that allows Matsushita to overtake Philips in the 1980s. By the turn of the century, however, we see the Japanese company also struggling to adjust its strategy to pressures from national markets and host governments to respond to their local needs. Furthermore, a strengthening yen puts at risk the highly centralized sourcing strategy, forcing Matsushita to close some of its central operations and build organizational capabilities that are much more like Philips’ decentralized model. Again, the case describes the actions taken by several CEOs trying to make the necessary strategic and organizational changes.

By tracing the organizational development of each company and its implications on that company’s distinctive strategic capabilities, the case allows students to observe how the development of almost organizational mirror images are reflected in almost opposite strategic capabilities. By the end of the case, it is clear that both companies have endured great strategic and organizational turmoil as they try to build sources of competitive advantage very different from those around which they had developed their original strength. As both companies enter the new century, they find that despite radical changes to their structure, the strategic biases that have been built into their organization since their earliest days still endure.

Teaching Purpose and Objectives

This case can be used in a variety of MBA and executive courses in international management, competitive strategy, organizational behavior, and general management. Among the key issues addressed by the case are the following:

• To illustrate the strong linkage between a company’s organizational capabilities and its core strategic competencies.

• To show the power of “administrative heritage”—the deeply embedded structures, processes, norms, and practices that grow out of a company’s national culture, its time of historical expansion, its leaders’ biases, etc.—as both a power source of advantage and also a barrier to adaptation. And to show the management challenges of building on, and particularly overcoming, one’s administrative heritage.

• To illustrate the need for companies to expand beyond a single dominant source of competitive advantage to a portfolio of strategic competencies—specifically, the ability to develop simultaneously global scale efficiency, national responsiveness, and a worldwide learning capability.

• To show how companies are converging towards a model of organization that is best represented as an integrated network, able to develop and deliver the layers of competitive advantage referred to above. (This is the structural configuration required to develop the classic transnational organization model compared to the traditional multinational model such as Philips’ decentralized federation, or global model such as Matsushita’s centralized hub structure.)

Assignment Questions

1. How did Philips become the leading consumer electronics company in the world in the postwar era? What distinctive competence did they build? What distinctive incompetencies?

2. How did Matsushita succeed in displacing Philips as No. 1? What were its distinctive competencies and incompetencies?

3. What do you think of the change each company has made to date—the objectives, the implementation, the impact? Why is the change so hard for both of them?

4. What recommendations would you make to Gerald Kleisterlee? To Kunio Nakamura?

Optional Reading and In-Class Video

This case can be assigned with the following reading which provides an overview of some of the organizational concepts in Managing Across Borders:

Christopher A. Bartlett and Sumantra Ghoshal, “Organizing for Worldwide Effectiveness,” California Management Review, Vol. 31, No. 1 (Fall 1988).

Because this article contains an analysis of many of the issues in the case and specifically refers to these companies as examples, instructors who prefer a more inductive learning process would probably choose to hand out the article after the case discussion, or alternatively draw on its concepts for their end-of-class lecture.

There is also a video of Cor van der Klugt, one of several Philips CEOs who tried to overcome the company’s deeply embedded structures, processes, and cultures (HBS Video 9-302-810 available from HBS Publishing).

Part II: Analysis and Teaching Plan

Introduction and Overview

Because this case is exceptionally broad in scope—covering the strategic and organizational development of two global competitors over more than a century—the class will need to be structured more carefully than normal. The overall objective is to maximize the power that comes from contrasting two very different models of worldwide strategy and structure. However, the instructor should be aware that it will be impossible to cover in detail a full analysis of both Philips and Matsushita’s strategy and organization over the entire period. The following teaching