Philips Vs Matsushita

N.V. Philips (Netherlands) and Matsushita Electric (Japan) are among the largest consumer electronics companies in the world. Their success was based on two contrasting strategies – diversification of worldwide portfolio and local responsiveness for Philips, and high centralization and mass production for Matsushita.

Royal Philips Electronics of the Netherlands began as a small light-bulb factory in Holland, and by the turn of the century, was one of the largest producers in Europe. One-product focus made Philips a leader in industrial research which stimulated product innovation. Consequently, product line was broadened significantly and the flow of exciting new products and ideas continued through the years. Limited domestic market soon forced Philips to grow internationally. The foundations for what was to become one of the world's biggest electronics companies were laid.

Philips’ major rival, Matsushita, started as a small electrical house-ware manufacturer in 1918. The company expanded rapidly and soon introduced a flood of new products. By the end of the century, Matsushita grew into a global player with powerful brand names such as Panasonic, Quasar Technics, and JVC.

However, during the 1990s, Philips and Matsushita both faced major challenges to sustain their position in the market. Changing profile of the industry and globalization forces made Philips and Matsushita’s organizational models and competitive advantages obsolete, and brought up the need for drastic actions. At the brink of a new century, the battle of two giants unraveled with CEOs from both sides implementing another round of strategic initiatives and restructurings. The pressure put on new CEOs was enormous – wrong strategy could mean the end of a century long rich company history.

II. Philips and Matsushita were companies with radically different culture, background and structure. But both of them realized that their strategies were inappropriate for the situation at hand. Philips’ initial development was largely dependent on the national organizations (NOs). During the post-war period their self-sufficiency allowed them to sense and respond to country-specific market conditions effectively. Eventually, it became clear that NOs had the real power, far extending adaptive marketing. This put coordination and cooperation among divisions at an inadequate level. Philips was run as a set of disparate businesses, where as long as you delivered your bottom line, no one cared about collaboration or group-level profitability. NOs were developing their own products and brands based on the local market conditions. Company’s culture based on constant technical innovation lead to numerous new products developed by NOs (first color TV, first stereo TV, first TV with teletext). Philips’ legendary innovative capability brought up about 150 brands supported by the company worldwide. All these factors contributed to the dilution of the Philips brand name and the lack of scale economies.

Throughout the history, Matsushita implemented “one-product-one-division” structure. In addition to creating a small business environment, it generated internal competition and impelled growth. Unlike Philips, Matsushita had a very centralized organizational structure. Major priority for expatriate general managers of foreign divisions was the translation of Matsushita philosophy. Over the years, the number of locals in key management positions abroad increased to take advantage over their expertise and understanding of local specifics.

Similar to Philips, corporate direct control over divisions gradually weakened. Central product divisions now monitored not the inputs, but measures of output, such as quality and productivity). As opposed to its rival, Matsushita's traditional strength was not innovation, but its ability to produce on mass scales at low prices. Matsushita has been known to let other companies pioneer a technology before coming up with cheaper products meeting new market needs. For instance, although Philips was the one who invented the audiocassette, Matsushita and other Japanese competitors were the companies who capitalized on it.

By the 1990s Philips's functional capabilities were unable to meet the Japanese competition. Its technical capabilities had been weakened by the failure of its attempt to commercialize a new video product on its own, the CD-interactive (CD-i). Philips could no longer commercialize major new consumer electronics products. The Japanese first-movers and followers completely dominated electronics market worldwide. By then only Japanese companies had the integrated technical and functional capabilities required to commercialize products of new technologies.

By the end on the twentieth century Matsushita Electric became a large diversified industrial group. Yet it faced severe financial troubles and became a takeover target. In 2000, new CEO Nakamura reorganized management and placed the company's 30 divisions into four distinct groups with centralized research and development. With Matsushita in charge of R&D allocation, it was able to direct more funds to key growth areas. Other reorganization actions were undertaken to improve Matsushita position, by nothing turned the situation around. Philips also carried out a major restructuring program trying to return it to a healthy footing, simplifying its structure and reducing the number of business areas, but failed.

The root to both companies’ misfortune was the change in industry life cycle. Consumer electronics industry reached maturity and was already entering decline phase. Fierce competition led to cost efficiency being the most important factor for achieving competitive advantage. Cost efficiency could be achieved by low wages, scale economies, and low overheads. That is why Philips and Matsushita began outsourcing its manufacturing facilities and “slimming” its workforce. Despite the fact that both Philips and Matsushita had extremely diversified product lines, with some products being on the different life cycle stages, hypercompetition and shortened life cycle made it virtually impossible to capitalize on them.

As we can see, key success factors are changing over time. NOs structure that brought Philips to the top became a burden. Matsushita’s highly efficient centralized operations were not able to deliver needed results. Therefore, we can see that firms that were successful in one phase of the industry’s development may have to acquire rather different resources and capabilities in order to be successful in the next phase.

Industry evolution posed a huge challenge to managers: strategy and organizational structure should be adapted to keep pace with the