Philips versus Matsushita: A New Century, a New Round
Block Assignment (individual presentation)
Case: Philips versus Matsushita: A New Century,
a New Round
Both Philips and Matsushita became successful global companies. Each by its own way. Matsushita became successful based on its centralized, high efficient operations in Japan. In contrast, Philips did it by leveraging a worldwide portfolio of responsive national organizations.
Philips started off as an innovating business in light-bulbs. Even though competitors were trying to diversify its business as soon as possible, Philips maintained light-bulbs as its core business for a long time. Later on it became a leader in industrial research. The company expanded by building new labs that were specialized in physics and chemistry. In 1912 they started building sales organizations in U.S., Canada and France. All other functions remained in Eindhoven. The decentralization continued when Philips started to create local joint ventures. In the end there was nothing left of the highly centralized company. The result was a decentralized sales organization with a very broad production line.
The different departments/subsidiaries of Philips turned out to be very independent in decision making. This was mainly due to the fact that each one of these organizations had to continue its operations during the war without any instructions and/or directions from the headquarters. Their greatly increased self-sufficiency during the war had allowed most to become adapted to responding to specific market conditions. This made them highly independent units. On the one hand this independence and adaptability to local markets was the main advantage for these national organizations (NOs). On the other hand, it was hard for the management at Philips Eindhoven to keep control over the NOs. It became clear that although there was a “formal corporate level structure” implemented, the NOs kept the real power. The elite group of managers identified strongly with each other and with the NOs as a group and had no difficulties in representing their strong, country-oriented views to corporate management.
Due to this massive decentralization it was hard for Philips to stay innovative. As technological changes started to exponentially evolve, Philips had to keep up with their competitors. Many of these competitors were moving their production to low-cost countries to create economies of scale and scope. The new technologies demanded larger production runs than most NOs could fulfill. At this point Philips started to discover that having very independent and adapted NOs can be a disadvantage if fast restructuring or adjustment is needed. In the next thirty years the company tries everything it can do to adjust its business to the new rapidly changing market. As the case states in the end “…they believed it was time to recognize that its 30 year quest to build efficiency into its global operations had failed”.
Matsushita followed a whole different strategy. The company focused on export markets to sell its broad line of 5000 products. To do this 25000 retail stores were opened. In this strategy Matsushita created a centralized global business which was operated and coordinated from the main company in Japan. Similar to Philips, Matsushita created a structure consisting of divisions which were given responsibility for its profits. Each product division also got the opportunity not only to maintain the existing products but also create new products by leveraging its technology. By doing this the company created internal competition between the product divisions. Additionally, to stimulate product development and engineering even more they set up a licensing agreement with Philips to exchange technology (knowledge). Apart from these aspects, further actions were taken to globalize the business.
One of these actions was to shift...