ASSIGNMENT 4 Group B

"
INTERNATION
" " " M A
L !! !
NAGEMENT

PHILLIPS
VS
A New Century, a New Round
Case Analysis

AUTHOR
! Affandi, Muhammad Ali
! Ammerman, Maike
! Bakarsyum, Jamal
! Junker, Torben
! Matthigack, Julia
! Patrick, Lay
! Sauer, Jessica

LECTURER
JOB PEETERS
I! THE UPS AND DOWNS OF PHILIPS: INDEPENDENCE AND
LO CA L R E S P O N S I V E N E S S

! ! During the war, Philips moved its R&D department and top management abroad to keep the
company alive, and afterwards this decision was the beginning to the development of national
organization (NO) inside the company. After the war, each of these overseas branches are well equipped
with profound knowledge of its market demands and therefore can respond to its local market condition
more quickly, so-called highly local responsive. This is of course in part due to the independence that
the NOs propagate during the war. Furthermore, based on the divided company management in the
commercial and technological part, Philips rose to become an innovation-driven company. In addition,
the self-reliance of the NO made them able to improve existing products, or creating new ones to
capture more markets.

Distinctive Competencies and Incompetencies

Drawing on their business and technological capabilities, distinctive competencies that Philips
developed was related to their management as well as technical structure. One obvious competency was
that the company’s self-sufficient NOs were adept at listening and responding to market conditions and
customers. For example they develop product based on market demand, Phillips UK created first TV
with teletex, in Canada they developed first color TV, and others. The other competencies Phillips has
strong expertise to hire an expert to develop they product, in other word being an innovative company
then its competitors. As a consequence, Philips could put local responsiveness at the forefront of its
strategy and could handle the pressure of localization, which was their competitive advantage.
Along with distinctive competencies, there are also indistinctive competencies within Phillips
that gradually developed and posed problems. While NOs were crucial in maintaining Philips
innovations in its worldwide operation, communication became a problem between headquarters and
these independent business units. Partially, NOs, such as that in North America, had a considerable
influence that they could refuse to abide by orders from the central corporate management in
Eindhoven. A consolidated view of this factor indicates that Philips was not able to operate on a unified
track. Moreover, since Philips decided to abandon its own V2000 videocassette format, it pursued the
attainment of winning price wars –which it ultimately did not win- instead of focusing in developing
new product. Therefore Philips, which was born as an innovator, ironically lost the competition deriving
from what Joseph Schumpeter called ‘creative destruction’. In this case, competition from new
technology, source, and even new type of organizational operation inevitably gave problem to
organizations which are unprepared for change.1

Phillips vs Matsushita: A New Century" a New Round

I I ! M AT S U S H I TA : F O C U S ON E CO N O M I E S OF S CA L E AND
C O M P A N Y C U LT U R E

! Matsushita was able to compete against Philips successfully because the 1960s era was an era
where larger productions to meet larger demands took place. Many big companies outsourced their
manufacturing operations to low-cost areas such as East Asia and Latin America. Matsushita, which had
a strong presence in Japan (Asia’s fastest-growing market at that time) and the rest of Asia, could easily
take advantage of this trend. Since Matsushita was not overburdened by overseas subsidiaries
Matsushita could export its products at lower price to other countries. Matsushita then started to operate
with its established global strategy with a specific focus on developing by means of economies of scale.
The company’s ability to produce electronic goods in greater number gave way to cheaper production
cost and eventually cheaper price.

Distinctive Competencies and Incompetencies

Matsushita distinctive competencies revolve around its sense of adaptiveness to new innovation.
A representative example was Matsushita’s production of VCR which became the company’s core
product, even though later it had to comply with the Japanese government pressure to adopt VHS
version of the product. Furthermore, to capture more markets, Matsushita received outsourcing deals
from other companies like GE and increased production volume to slash price significantly (scale
efficiency). Mass purchase of VCR made Matsushita able to reap its total 45% profit from this product
alone. Additionally, “Seven Spirits of Matsushita” culture also the key of Matsushita business. They
have value to run operational activity for more verve, allowing internal competition and separated into
special division (one department develop one product). Moreover, the company uses a global strategy
with a good worldwide image and corporate culture which is noticeable in every subsidiary. This is
certainly related to another competence that Matsushita had, namely its economies of scale, and its
relatively well-known brand across the world.
Nevertheless, Matsushita distinctive incompetencies first and foremost also stemmed from its
highly centralized structure of operation. Contrary to the independent-working NO of Philips,
Matsushita’s subsidiaries were strictly controlled by the headquarters. Due to the strong global corporate
culture, local responsiveness becomes very difficult. Its insistence to cling to the custom of livelong
employment also proved troublesome when the company needed to cut spending.

I I I ! C H A N G E E F F O R TS W I T H I N P H I L I P S A N D M ATS U S H I TA

Changes within Philips

The changes that Philips attempted to implement with regard to simplification of double
leadership along the line of commercial and technical function and tackling the overlapping
responsibilities of PD and NO are related to the complex management structure of the company. But
these changes were unfortunately ill-fated since there’s a widespread resistance on the part of the NO,
thereby obstructing the way for improvement. This problem was further intensified when Jan Timmer
decided to cut 37% of R&D personnel and divested Philips’ high-tech business. When Philips tried to

Phillips vs Matsushita: A New Century" a New Round

keep on track with newer technological innovations, it simply could not develop substantially because
its technological know-how and resources were gone.
As a result of power struggle betweeen headquarter and the NOs, the company did not manage
to achieve the objective of achieving leaner organizational structure. Furthermore, in terms of
technological innovation, Philips was also drown in the current of ‘creative destruction’ since its
competitors were able to offer new products in the market. In the end, the double problem of complex
management structure and stagnancy of innovation made it difficult for Philips to rise as a robust and
technology-driven company.

Changes within Matsushita

In the case of Matsushita, change begun with the struggle against the deep-vested culture of
centralized operation and lifelong employment. The change efforts as shown in “Operation
Localization” and Morishita’s international R&D partnership strategies were actually attempts to break
the hindrance of centralized operation. These attempts were directed to give subsidiaries more
maneuvering room to respond to their country-specific demands. Nevertheless, change was slow to take
effect since headquaters control was still somewhat tight and Japanese expatriates leading these
overseas subsidiaries were uncomfortable with such change. On the other hand, Morishita’s plan to cut
plants excesses and lay off workers, to cut huge its spending, failed miserably.

Difficulties to Implement Changes

Referring to John Kotter’s theory of change, both companies do have a sense of urgency that is
needed to implement measures for change. External pressure forces both companies to act more in line
to the different demands of different markets. The reason why it is so difficult for both companies to
change lies deep within the corporate culture. Both companies have a strong commitment to their own
corporate cultures. In the part of Philips, sense of independence among NOs present a trouble of
integration with the company’s general operational objectives. Matsushita however had to face the
matter of controling headquarters directors and collective corporate culture.
Changes for them can be done by making sure that the employees won’t resist and managers
would not try to obstruct change. This means that the change objectives has to be clear for everyone in
the respective company. The top leadership needs to make sure that all employees know that the change
process will lead the whole company to success or otherwise, there won’t be a future for the whole
company. Last but not least, it’s necessary to encourage managers to proactively get involved in the
change efforts since they also partially have control over the company operation. In this case, both
Philips and Matsushita needed to direct changes to its overseas subsidiary management. The former had
to deal with hard-to-control NO managers, while the latter had to instill need for entrepreneurial
initiatives in the companies managers abroad.

Phillips vs Matsushita: A New Century" a New Round

APPENDIX

1For excerpt from Joseph Schumpeter’s argument, see http://transcriptions.english.ucsb.edu/

archive/courses/liu/english25/materials/schumpeter.html

Case Source:

Bartlett, Christopher. 2006. Philips versus Matsuhsita: A New Century, a New Round. USA: The
European Case Clearing House

Phillips Competitive Advantage

Resources:
-Good facilities Blueprint
-Expert technician Reestablish innovation,
efficiency, employee
motivation and being
innovative company
Worldwide portofolio of
adapt to market demands
local responsiveness
Capabilities:
-Innovation
-Efficiencies
-Product Development
-Adapt to market needs

Matsushita Competitive Advantage

Resources:
-MECA, METC, MCA
Blueprint
-Strong Division

Achieve Worldwide
marketshare and being
Global competitiveness sustainable company with
and centralize operation efficient operational
Capabilities: activity
-Outsource producers
-Breakthrough product
development
-Efficient operation
-Internal competition

Phillips vs Matsushita: A New Century" a New Round