Philips versus Matsushita: A New Century, A New Round How did Philips become the leading consumer company in the world in the postwar era? What distinctive competence did they build? What distinctive incompetencies? During 1892, Gerard Philips had a small light-bulb factory in Eindhoven, Holland in the same year the factory was failing so the brother Anton, a salesman came abroad. The larger electrical company was very diverse with their products.
The two brothers focus on technological prowess to create significant innovations such as scrap old plants and use new machines, or factories for new production technology (Barlett, 2009 p. 332). Philips had created a culture of embracing technical innovation. On the production side, Philips was a leader in industrial research, and scrapped old plants in favor of new machines or factories whenever advances were made.
On the product side, strong research enabled the company to broaden its product line, starting with light bulbs but growing into vacuum tubes, radios and X-ray tubes by the 1930s (Barlett, 2009 p. 332). When the Great Depression happen Philips build local production facilities to protect his foreign sales of product. In the late 1930s, with the anticipation of the war Philips had to transfer overseas assets to British and North American corporation but most of the vital research laboratories to Redhill Surrey, England and top management to United States.
The individual country organization was more independent during the war supported by the assets, resources transferred from their parent. The Allied and German bombing had pummeled Philips industrial plant in the Netherlands but management board decided to build postwar organization on National organizations (NOs) that has become self-sufficiency during the war that allowed a valuable asset in postwar era(Barlett, 2009 p. 332). A great advantage in being able to sense and respond to differences is the environmental independent National organizations (NOs).
The National organizations (NOs) built a technical capability, product development that became a function to local market conditions. During 1954, a board was established call the International Concern Council to form meetings with the heads National organization (NOs). Within the National organization (NOs) management structure the legendary leadership of the two Philips brothers were joint technical and commercial. The technical manager and commercial manager were led by National organization (NOs) (Barlett, 2009 p. 33). Philips was no longer able to act as a single unified company in order to bring new product technologies to market or to react to recent manufacturing trends; instead each of the NOs acted independently in their own self-interest. Top management was no longer able to manage the multi-national company Philips had become. For example, Philips was unable to standardize the company for a global push with its V2000 videocassette format when the U. S. chose to license VHS from Matsushita instead.
On the manufacturing side, printed circuits were more efficiently produced in large plants, but the NOs were unwilling to consolidate their local manufacturing facilities. Philips’ attempts to set up Product Divisions (PDs) to balance the NOs were largely a failure, and Philips began a long slide, unable to launch new products or to take advantage of the global manufacturing opportunities in low-cost countries because they were unable to coordinate the NOs (Barlett, 2009 p. 333). The European Common Market eroded trade barriers and diluted rationale independent country subsidiaries were created in the late 1960s.
New technologies were in larger demand production runs more than national plants could justify, and Philips competitors started moving electronic production into new facilities with low wages in Asia and South America. However the ability to bring products to market began to falter in 1960s, while they watched Japanese competitors capture a mass market with two technologies that was invented audiocassettes and microwave ovens. An about a year later they abandon the V2000 videocassette format superior to Sony’s Beta or Matsushita’s VHS.
Philips decides to outsource the VHS product that is manufactured under license from Matsushita (Barlett, 2009 p. 333) The new CEO Hendrick van Riemsdijk had created an organization committee policy on the division of responsibilities Philips Division and National Organization (NOs). The proposed is rebalancing the relationships between Philips Division and National Organization to allow tilting matrix towards Philips Division to decrease the number of products marketed, build scale and increase product flow across National Organization.
When the new CEO took over in 1987, Cor van der Klugt , he wanted to continue to strengthen and restructured the Philips Division relative to National Organization around four core global divisions rather than the former 14 Philips Division. This will allow him to trim the management board, by appointing displaced board members to a new policy-making Group Management Committee (Barlett, 2009 p. 338). In conclusion they need to invest in developing new products in each operating segments.
The key to success is to keep developing new products, reduce costs as volume increase, design products suitable for any market, but can be easily customized for local differences. R&D should be located where each product line can be found. Sales need to reflect the economy of that country or region, matrix with product operations, ensure each regional need are incorporated into the product plans, but individual regions cannot allow heads in different directions.
Each companies needs to improve their manufacturing operations and local final assembly needs to be under the control of manufacturing, not local sales operations. If Philips and Matsushita do not have the earnings to support restructuring, then they are going to have to prioritize spending. Reference Christopher A. Bartlett, 2009, Philips versus Matsushita: Competing Strategic and Organizational Choices Transnational Management Text, Cases, and Readings in Cross-Border Management Sixth Edition 2011.