Philips Matsushita Case Write Up Robert Rogers Mar 2018 PDF

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Philips versus Matsushita: A New Century, A New Round Robert Rogers  

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Introduction In business management and strategy development, it is often valuable to do a comparative analysis of competitors in order to compare and contrast factors for success and challenges. By observing the differences in culture, geography, management and strategic execution, it is easier to focus on those policies that tend to have the greatest impact on the success of the enterprise. An interesting comparison that helps to illustrate this fact is that of competitors in the consumer electronics space: Philips and Matsushita. By analyzing the different paths taken by a European company (Philips) and a Japanese company (Matsushita), one can see how local culture drives corporate culture and the role that those differences play in the success or challenges that a given company might face.

Philips Path to Being a Global Electronics Leader in the Postwar Era Philips path from a small country in Holland to a global powerhouse followed a very interesting path. Instead of driving group through a diversified product offering, Philips focused on driving individual product innovation. That focus on being the premier light bulb producer was critical to their growth initially in Europe and then their worldwide expansion. This drive for innovation covered the entire process: from improved production processes to innovative redesigns of the light bulb itself. Initial growth was driven by maintaining a strong, centralized systems but as they expanded more broadly, their organization became progressively more decentralized to allow for more direct responsiveness in the local markets. This decentralization broadened even more based on the protectionist policies that arose because of the Great Depression. More trade barriers and increased tariffs pushed Philips to focus on local production in order to maintain international sales levels.

How Matsushita Displaced Philips

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Matsushita’s drive to global dominance was driven by a much different corporate culture and workforce focus. The founder, Konoshuke Matsushita, developed the Matsushita Creed and Philosophy, which created a corporate environment that was community driven and contribution to society with profit being a beneficial byproduct of those activities. This Creed and Philosophy was a major driver to Matsushita’s highly ambitious 250-year plan. Additionally, they used the post-war environment to establish a broad range of product offerings and retail outlets. This focus on balancing culture and innovation proved to be critical to Matsushita’s growth. Ultimately, their global positioning was driven product differentiation after failing to find much success in creating international partnerships. By using expansion in and demand for color televisions and VCRs, Matsushita was able to broaden their international scope and progressively increase their market share. In order to meet market demands and ultimately manufacture for themselves and other VCR companies, Matsushita established an efficient supplier network using various locations throughout southeast Asia in order to drive production costs down. Management remained highly centralized and product-centric but the overall efficiency of the operations process as well as the innovative developments achieved in their product differentiation allowed Matsushita to overtake Philips in overall market share.

Distinctive Competencies and Incompetencies Between Philips and Matsushita While both companies were driven to success through product innovation, their strategies and operational structures were fundamentally different. Influenced by their domestic culture, Matsushita relied more heavily on a centralized form of management with more control originating from the home office. The benefited them with regards to centralizing branding and processes but presented challenges with local market adaptations. This centralized system ended up being both a driver for growth as well as impediment depending on shifts in local market conditions. Philips was also influenced by local culture and market conditions but their organizational structure shifted to that of a matrix system with the local market heads having significant control  2

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over direction and operations. This allowed for significant responsiveness to local market needs and shifts but proved to an adverse situation when circumstances dictated a centralized/collective decision-making process. The leads of the national organizations (NOs) for Philips tended to act in their self interest and this created ongoing challenges when Philips sought to take collective/company-wide activity.

Objectives, Implementation, Impact and Challenges of Recent ChangesPhilips Given the severe demands from market shifts as well and internal control issues, Philips has gone through many years of stagnation and consolidation. This led to several CEOs with a broad range of backgrounds and exposures to the brand stepping in and seeking to improve the organization and lead them with a more effective strategy. Universal to those efforts was an emphasis on unifying the visions and efforts of the NOs and the product divisions (PDs). Although they had varying levels of success, they almost universally struggled to make headway in centralizing power and control given the enormous amount of control and self-interest the NOs had. These illustrated the major challenge that Philips faced in its objective to move away from their matrix system of management. Having ceded so much control to domestic markets, the strategy needed to incentivize a return of some control to a centralized organization. While executives such as Van Reimsdijk were adept at clearly identifying the issue, they proved far more challenged in identifying a strategy that would overcome those internal struggles. Additionally, this focus on changing internal structure seemed to pull Philips away from their focus on innovative product development and success.

Objectives, Implementation, Impact and Challenges of Recent ChangesMatsushita Matsushita’s struggles appear to be the inverse of what Philips was dealing with and lead to different strategic implementation. Because of their highly centralized system, Matsushita struggled at times to adapt the the individual market factors that impacted the various countries  3

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where they were operating. Because they operated as a centralized hub, all decision-making appeared to be driven by the home country with little flexibility for adaptation. This led to various phases of localization and re-integration as the various presidents of Matsushita sought to achieve a balance between home country control and local country flexibility. While efforts were made by Tanii, Morishita, and Nakamura to transform the internal culture of the company and move it along the spectrum of centralization and de-centralization, most of their actions spoke to labor management instead of driving innovation. This created many challenges internally because their strategies lacked the requisite focus on driving innovations in product and production. While structure is a critical part of strategy, it cannot be divorced from the need to continue to drive innovation. This is especially true in the consumer electronics space where competition is tight and margins are small.

Recommendations for Gerald Kleisterlee Because Gerald Kleisterlee is responding to both internal and external challenges to the profitability of Philips, he should focus on a two-pronged approach to improve market share and firm profitability. The first prong should be a re-focus on a major driver for their initial growth and success: product driven innovation. Consumer/personal electronics is a space that is controlled by consistent and ongoing innovation. Philips should drive increased profits by innovating to the front of the market. The second prong that Kleisterlee should focus on is streamlining their operational structure. Bridging the operational management gap between local markets and central company management is a huge driver for success. Their processes and systems need to be simplified and replicable so as to allow for higher functioning internal controls. This should in no way take from the flexibility that their country level management has afforded them, but instead it should create a better symbiosis between the product level management and the NOs.

Recommendations for Kunio Nakamaura

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While Matsushita and Philips are dealing with different structural management issues, they can find their solutions in much the same places: driving innovation in products and internal structure. As such, Kunio Nakamaura should focus on building an internal structure that drives innovation both internally and externally. By building an integrated network system, Nakamaura can thereby focus on building on a culture of innovation and collaboration instead of the many years of struggling with internal structure. Balance needs to be achieved between central control and local markets and an integrated network systems better allows for this balance. Strategy cannot focus solely on structure without an eye to innovation. Matsushita needs to have an eye firmly focused on innovating in systems and products in order to compete on a high level in the consumer electronics sector. Having been able to drive innovation previously, there are many of the original tenets of Matsushita that Nakamaura can apply in their modern company in order to drive innovation now.

Conclusion Consumer electronics is a highly competitive market and will continue to be so. For companies like Philips and Matsushita to succeed, they need to lead in innovative products, branding and systems. In order the accomplish that strategy, efforts should be made to focus on creating an integrated network structure within their businesses. This is critical because those location-specific needs are best balanced with company strategy and global innovation in a structure that is both top-down and bottom-up. Because Philips and Matsushita have struggled with profitability at both ends of that spectrum, a balance needs to be struck using a more integrated network. Ultimately, as a company expands internationally, it is faced with the competing interests of a centralized system with those local market needs that exist in each country. That is why an integrated network offers the most opportunity to global enterprises regardless of their industry. Fundamentally, strategy succeed most when companies are able to focus more on innovation in systems and products instead of managing internal power struggles that invariably arise in centralized and matrix business systems.  5...