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Philips versus Matsushita:

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on 8 November 2017

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Transcript of Philips versus Matsushita:

Philips Background
Founded: 1892
Headquarters: Eindhoven, NE
Initial Product: Light bulbs
Philips' Organizational Structure
Gerard Philips
-Engineering
Reorganization
Reorganization Meets Resistance
Philips versus Matsushita:
The Competitive Battle Continues

1987: The Beginning of More Downsizing
CEO Van der Klug inherited profit margins of 1-2%, well behind the other top ten companies
Sought to beat the Japanese companies, who gained eight of 10 of the largest companies in the world
To do so, he altered the company dynamic, making components, electronics, telecommunications "core" and all else "non-core"
Also reduced the number of PDs to four (from 14)
Downsized number of plants by 75 (from 420)
Most importantly, he made R&D budget a responsibility of the divisions they were supporting, rather than being independent
He was replaced in three years after failing to meet his goals
Engineer founders floundered at first, inclusion of salesman brother added competitive/cooperative element
Within 10 years became Europe's third largest light bulb producer
Leader in research and development (R&D)
By 1912, operations taking place in U.S., Canada, France, Japan, Russia and Brazil
In these countries, joint ventures were used, though after Great Depression, local production facilities became a necessity
Anton Philips
-Business Development
Began in a competitive atmosphere where R&D would try to build more than sales could sell and vice versa
With World War Two on the horizon, company was split into American and British holdings
Over the course of the war, they grew apart
In postwar markets, the separated National Organizations (NO) were able to respond to domestic differences quicker than a large singular firm
R&D also became subject to local markets
NOs were granted more power and within them the competitive spirit remained
Product Divisions (PD) were based in Eindhoven, developed, produced and distributed products
NOs maintained contact with Eindhoven with representatives but held the real power
By late 1960s Western Europe removed trade barriers, making several NOs obsolete
Japan gains majority market share in cassettes and microwaves-- Philips had invented both
van Riemsdijk- CEO in early 1970s- proposed giving more power to PDs
Attempted to close several underperforming plants and generating International Product Centers
Plan could not move quickly due to institutional and domestic politics
Late 1970's CEO Rodenburg attempts to emphasize IPCs and consolidate management from both technical and commercial
After his failure, next CEO, Dekker, closed struggling operations and sold off non-core competency divisions
Effectively garnered more power for PD by making them in charge of their products
Company performance stagnated
The Butcher of Eindhoven
Jan Timmer named CEO in 1990, known for turning around unprofitable businesses
Started by cutting 22% of workforce
Sold off more businesses: integrated circuits, minicomputers and appliances
However, he wanted to augment Philips' software, services and multimedia offerings
'President's Projects became CDi, DCC, HDTV
Philips invested $2.5 billion in these
All failed
CDi
Digital Compact Cassettes
Philips' First Outsider
Boonstra, Philips' next CEO, was brought in because of his knowledge of Asian markets and for outside perspective
Sought to streamline all operations
Finally eliminated old NO/PD matrix
Sold off 40 of Philips 120 businesses
Bet on 'digital revolution' and formed partnerships in cellular phones and other digital areas
Marketed to distance Philips name from former subsidiaries
As a result, profits increased
24% return on net assets
Cor Boonstra
Focus on Developing Markets
Kleisterkee joined Philips just as the global "tech wreck" recession begun
Determined that Philips never had a strategy
Decided to form a 'lifestyle company'
Sold off businesses to China and Japan
Downsized workforce by 25%
Acquired medical and lighting segments
Reemphasized R&D (mainly for devloping markets)
Global recession hit in 2008 forcing company to license its name to Funai
Matsushita Background
Founded: 1918
Headquarters: Osaka, Japan
Initial Product: Lamp Sockets
Founded by Konosuke Matsushita, to create double ended sockets for his home
Laid out a 250 year corporate plan, broken in 10 steps for cultural and spiritual training
Was extremely successful at being a quick responder
Achieved 40% of all appliance stores in Japan
As Japan's economy slowed in the 1950s, Matsushita struggled to move offshore
Matsushita's Organizational Structure
Konosuke Matsushita
-Founder
Matsushita suffered from chronic lung problems and as a result, exercised greater control over his company
Engendered competition between divisions where R&D was done by divisions and money was borrowed against the corporate treasury
Each division paid 60% of earnings to the headquarters and the rest was for marketing and production
Headquarters' Central Research Laboratory (CRL) was underfunded and forced to lobby the division for resources
CRL would advertise its developments to the divisions for additional funds
As a result of this constant competition, Matsushita did not innovate often, but was quick to follow market trends
The Push Abroad
By 1951, though Matsushita was ready to export, it could not find any suitable partners in the United States.
It did manage to export its TV, albeit through merchandisers
It was consequently forced to open assembly plants in the U.S. and Europe
By 1976 it had acquired Motorola's TV line and had built a plant in Wales to supply Europe
The advent of the VCR allowed Matsushita to take the consumer electronics industry by storm
Companies outsourced production of VCRs to Japan due to the low wages and as a result, Matsushita was able to achieve a better economy of scale
Growing Outside the Box
Maintaining the Link to the Homeland
METC and product divisions still exerted some control
Set sales goals for local divisions
Subsidiaries were free to achieve them how they wanted
METC and divisions maintained a legion of Japanese executives abroad
There to spread the Matsushita philosophy
Also to keep tabs for Osaka
Stressed face to face meetings
Number of overseas companies grew
Reliance on Japanese nationals diminished
Divisions started monitoring rather than controlling
METC gained control over regional operations
Fears of Centralization
Though sales were high, worry spread about the centralized nature of headquarters
CEO Yamashita launched "Operation Localization" to grow the presence of offshore production
Increase of local leaders (each provided with a Japanese advisor)
Subsidiaries free to buy local goods, but must buy key components from Japanese
Overseas sales subsidiaries could now determine which products they sold
Two week merchandising show within Matsushita, where divisions showcased their wares
Product Division managers could overrule foreign subsidiaries
Yamashita hoped to emulate NOs from Philips
However, local branches did not innovate to the amount of his liking
Consolidation and Challenge
CEO Tanii consolidated all overseas subsidiaries under METC
Brought METC to same line as Product Divisions
Created regional headquarters to N.A., Europe and Asia
Still the subsidiaries did not innovate-reliant on HQ
With large cash on hand, Tanii bought innovative companies
Large recession in Japan-Tanii out
New CEO Morishita recognized importance of innovation in foreign plants
Was faced with stiff competition from China and Korea
Moved most production to low-cost areas
Remained an unwillingness to move inefficient Japanese plants
Nonetheless, he started partnerships in the U.S. and China
MCA
A Drastic Change
New CEO Nakamura vowed to create a super manufacturing company.
Needed strong tech-based components
Flexible manufacturing
Customer oriented solutions
Vowed to finally close inefficient plants and create new, larger, centers
Flattened marketing and sales and incorporated them into global HQs rather than being a part of product divisions
The 'Tech-Wreck' foiled this plan but Nakamura rallied
Invested heavily in consumer electronics and semiconductors and R&D
Eliminated internal competitiveness by moving all businesses into three divisions
Despite the misfortunes, Nakamura was given a standing ovation upon resignation
Panasonic
With big shoes to fill, new CEO Ohtsubo looked to surpass Samsung's 9.4% margin
Drawing from his strengths, Ohtsubo focused operations on being a leading flat panel television producer
Coincidentally renamed company 'Panasonic'-- reflecting its best known brand-- to broaden overseas brand recognition
And then the recession of 2008 occurred...
Question 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?
Leader
Independent research arms independent of HQ.
Global handed off to PDs, NOs continue new developments (color TV, stereo TV, microwaves)
Competency
Independent research unhindered by HQ
Local operations run by locals
Disadvantages
No clear control
Manufacturing plants not in low-wage markets
Several marketing blunders
Question 3
What do you think of the change each company has made to date- the objectives, the implementation and the impact?
Why is the change so hard for both of them?
Both companies felt that when times got tough, downsizing was the way to go (rarely worked in the short term)
We feel that R&D funding should have been the answer
Philips suffered from poor marketing
Liked their initial strategy more (would be easier presently)
Forced to change most of their business- became 'lifestyle'
Matsushita
Heritage sometimes got in the way
More effective at shaping their business (but it took awhile)
Bet correctly (VCR, screens)
Change difficult due to established doctrines and either set in power hoarding or power deferment mode
Structure initially beneficial but did not change fast enough
Question 2
How did Matsushita succeed in displacing Philips as No. 1?
What were its distinctive competencies and incompetencies?
Overcoming Philips
Low-cost producer
Correctly bet on VCR (again low-cost producer)
Centralization
Competency
Centralization, hierarchy and organization
Quick responder, "Manishita"
Home country strength
'Hungry Spirit'
Disadvantages
Lack of innovation
Subsidiaries incapable of acting without HQ
Question 4
What recommendations would you make to Gerald Kleisterlee? To Eumio Ohtsubo?
Kleisterlee
Continue focusing on emerging markets, but continue increasing R&D budgets
Use partnerships in BRIC countries to consolidate footholds
Ohtsubo
Chase low-wage production markets
Maintain goal for flat panel televisions
Do not ignore home market
Rakesh Arun
John Soldano
Full transcript