Philips Vs Matsushita (Summary)

Philips was founded by Gerard Philips and his father in 1892 in Eindhoven, Holland . Then, they recruited Anton Philips (Herard's brother), an excellent salesman and manager, and soon after they became the third largest light-bulb producer in Europe. However from its beginning on it always took care for his workers. As an example in Eindhoven it built company houses, bolstered education, and paid its employees so well that other local employers complained. When larger electrical product companies were trying to diversify Philips only focused on one product, light-bulbs which enabled the company to create significant innovations.

They scraped old plants and after advances were made they used new machines or factories. They also became a leader in industrial research, creating physics and chemistry labs to address production problems as well as more abstract scientific ones. After developing the tungsten metal filament bulb, which was a great commercial success, Philips had the financial strength to compete against its giants rivals. Because of Holland's small size Philips was soon forced to expand to other countries for having enough volume to mass produce. So it started building sales organizations in the United States, Canada, and France. All other functions remained highly centralized in Eindhoven. Philips created also local joint ventures to gain more market acceptance.

After entering into an agreement with General Electrics in 1919, giving each company the use of the others patents, Philips began evolving to a decentralized sales organization. It founded independent marketing companies in 14 countries in Europe, China, Brazil and Australia and also broadened its product line significantly. However the great depression which brought trade barriers and high tariffs with it, forced Philips to build local production facilities to protect its foreign sales of these products. Philips had a shared but competitive leadership by commercial and technical functions. It also believed that a strong research was vital to its survival.

In the 1930s, because of the impending war, Philips transferred its overseas assets to British Philips and to the North American Philips Corporation and also moved most of its vital research laboratories to Redhill on Surrey, England and its top management to the United States. Consequently the individual country organizations became more independent during the war. The post war organization was than build on the strengths of the national organizations (NOs) because the increased self-sufficiency during the war had allowed most to become adept at responding to country-specific market conditions. As the NOs built their own technical capabilities, product development often became a function of local market conditons.

The NOs took major responsibility for financial, legal and administrative matters, while the product divisions (PDs), which were located in Eindhoven, were formally responsible for development, production, and global distribution. The research function remained independent. It was clear that the NOs had the real power as they were reporting directly to the management board and each NO also sent representatives to communicate their interests. Within the NOs, the management structure reflected the legendary joint technical and commercial leadership, so most were led by a technical and a commercial manager. However this cross-functional coordination capability was also reflected down through the NOs in front-line product teams, product-group-level management teams and at the senior management committee of the NOs top commercial, technical, and financial managers.

On the other hand, as the creation of the Common Market eroded the trade barriers within Europe in the 1960s, many of the competitors were moving their production to new facilities in low-wage areas in East Asia and South America. And also despite its many technological innovations, Philips' ability to bring products to market began to falter.

Then, Philips tries for Reorganization... Over the last three decades Philips problems grew and so seven chairmen tried to solve them by reorganizing the organization. The first attempt of reorganization took place in the 1970s. As it was obvious, since the V2000 videocassette format was developed and Philips was forced to abandon it because the North American Philips decided to outsource it, although it was technically perfect, that the NOs were to powerful. So CEO Van Reimsdijk tried to decrease the number of products marketed, build scale by concentrating production and increase the flow of goods among national organizations. He wanted to close the least efficient plants and to convert the best into International Production Centers, each supplying many NOs. So the PDs should gain more control over the manufacturing operations.

Rodenburg, his successor, furthered the Matrix simplification by replacing the dual commercial and technical leadership, which was known as the success-secret of Philips, with single management at the corporate and national organizational levels. So the problems grew even more. The next reorganization took place in 1982 by CEO Dekker. He was aware of the Japanese cost advantage and so he closed inefficient operations. He focused on the core operations by selling some businesses and acquiring an interest in Grundig and Westinghouse's North American lamp activities and also supportet technology sharing agreements and entered alliances in offshore manufacturing. To deal with the slow moving bureaucracy, he continued also to replace the dual leadership. Nevertheless he gave the PDs formal product management responsibility and left the NOs responsible for local profits. So he tried to clear out the responsibilities and so to fasten the act of decision-making. Finally he redefined the product planning process, incorporating input from the NOs, but giving global PDs the final decision on long-range direction. So good technologies could be produced, even if the NOs aren't sure about their success.

However the sales still declined and profits stagnated. In 1987 Philips had lost its long-held consumer electronics leadership position to Matsushita. The new CEO Van der Klugt defined four core business and also a few non core business which he decided to spun off into joint ventures. He restructured Philips around the four core divisions instead of the 14 PDs. Then he trimmed the management board and formed a new policy-making Group Management Committee which consisted primarily of PD heads and functional chiefs. Finally he also sharply reduced the headquarter staff by reallocating many of them to the PDs, which was perhaps not the best for the motivation of the employees. To link the PDs more directly to the markets he also dispatched many experienced product-line managers to Philips most competitive markets which could also cause dissatisfaction