Philips versus Matsushita.
Structure, strategy, values and systems of both organizations reveal the basic differences that were initially responsible for their individual success and later, losses. The two competing organizations are at cross roads where the decisions made will either take the individual organizations towards profitability or continued loss and possible financial ruin.
While Philips employed a global organizational portfolio, Matsushita concentrated its operations in Japan. However, both organizations are now facing continuous loss of profitability in spite of spirited efforts from their top managers. Philips has had seven chairmen since the late 1960s that have employed various tactics in an effort to turn around the organizations fortunes with little success. On the other hand, Matsushitas financial woes started in 1992 when the Japan economy took a plunge, throwing the organization into cost containment mode. Since then, the organization has had two changes of top leadership but little change in the losing trend.
Van Reimsdijk and Dr. Rodenburg both served as C.E.O.s of Philips in the early and late 1970 respectively. Their approach aimed at reorganizing the matrix structure by giving product division (PD) managers more control over the production process. Despite Dr. Rodenburgs efforts to simplify management by appointing single management, the power struggle between PD and national organizations (NO) persisted. Needless to say, the organizations profits continued in the downward trend.
In spite of continued shift of power to the PDs and cost cutting measures by Wisse Dekker, the profit margin was still minimal. Van der klugt took over in 1987, shifting the company headquarters to Amsterdam and downsizing the staff in various units. This not only earned the company further losses in legal action suits but also most of the management lost their jobs.
Jan Timer took over from Dekker in 1990 and embarked on a plan to make the managers accountable financially as well as expanding the company operations that were still profitable. During this time, no new innovations were carried out due to limited skilled staff and low morale among the workers. When Cor Boonstra took the mantle in 1996, he sold most of the company assets, moved production units to low wage countries and he was able to announce a 24 net assets return.
Equally troubled, Matsushitas top management was struggling to keep the organization afloat as the countrys economy went through a recession. Akio Tanii under whose leadership the organization was operating had to stop the expansion programme that they were undertaking and concentrate on cutting down costs. However, the measures had come too late and the problems only intensified as the company declared losses in 1992.
Taniis resignation in 1993 paved way for 56 year old Yoichi Morishita who concentrated on downsizing the organization and decentralization of workers. Morishita also sold off the American based entertainment company MCA at a price that earned the organization a further loss of 1.2 billion dollars. As the recession continued, so did the companys profit less trend.
In spite of radical restructuring and massive cost cutting measures by top management of both organizations, the struggle to turn around the profits still continues. It is apparent that recent changes in the global financial market have forced multinational companies to rethink their strategies in order to survive. Philips and Matsushita are no exceptions as indicated by the restructuring that has been carried out in both companies.
Since the two organizations begun restructuring, no huge advances have been made in terms of profit. Could there be a better way of doing business that will ensure a return to profitability for both companies
At the turn of the century, both companies appointed new leaders to usher their respective organizations into a new beginning. Matsushitas president Kunio Nakamura and Gerard Kleisterlee C.E.O of Philips Company have the previous leaders experiences to evaluate and learn from as they move their organizations into the future. Nakamura inherited a more streamlined and decentralized organization as well as increased competition for their market share.
On his part, Kleisterlee had to contend with shareholders who could not understand why the company was still making losses after the improved performance by Boonstra. The actions taken by Kleisterlee in 2001 include the closure of European plants and trying to reduce the operating costs of the plants that are still operational. Meanwhile, Nakamura has embarked on an integration approach and destruction of the product division structure that was built by the founder of the company.
What are the options available to the two competing companies in the twenty first century It is apparent that the strategies that made the two companies successful in the past can only be an encumbrance in the present market situation. For instance, Philips structure and management style was wasteful and lacked effectiveness in cost management. On the other hand, Matsushita had a more centralized structure that led to fewer innovations abroad. These are few examples of the approaches that are now outdated.
Matsushita therefore needs to change from its traditional purely technology based approach to a customer based one. Decentralization of operations must also be carried out extensively since the model on which the company was founded is no longer useful. However, Philips should concentrate more on branding products and marketing processes since innovation is no longer viable for this company. The C.E.O. should also consider merging the product divisions in order to reduce wastage. In addition, the company management should make each division head responsible for their operations profits.
Change can be hard to follow through but the rewards that the two companies stand to reap more than compensate for the difficulty. Survival in the jungle of global business requires constant reinvention and re evaluation of strategies without which a business would perish. Matsushita and Philips have to make changes that would ensure their chances of survival.
Relationships between Philips and Matsushita and their key stakeholders
A stakeholder is a term used to refer to an individual, company or group who has direct or indirect interest in a business. Philips and Matsushita are businesses whose activities affect a number of stakeholders, for example, employees, suppliers, various governments and their customers.
Employees
Philips had for a long time developed the tradition of caring for the needs of its workers. According to Bartlett, in 1912, 10 of the companys profits were set aside for the employees. In fact, until the Boonstras massive job cuts in the late 1990s, employees of Philips always felt secure knowing that their jobs were for life. The restructuring that was carried out led to lots of job losses at Philips, a reversal of the trend set by the founding members of the company.
Matsushitas employees were not so secure either since their performance dictated their relationship with the top management who maintained active supervisory role in every aspect of their operation. In fact, managers operating overseas were advised to keep meeting targets set by the company management or risk losing their autonomy through the appointment of supervisory managers from the headquarters in Japan. In this regard, when Matsushita acquired the Motorola plant in the US, the company suffered a major setback when the American technical team resigned in protest due to the perceived highly centralized operational techniques.
Shareholders
By incessantly striving to perk up relations with its shareholders, Philips has integrated a disclosure guideline and adheres to an active investor relations approach. However, the company has had to contend with pressure from some of its share holders who are not satisfied with the slow pace of reform within the company. Shareholders at Matsushita Company are equally involved in the key decision making processes in the company. Noteworthy is the shareholders meeting that was held before a change of name to Panasonic was adopted. Until 1992, the profits generated by Matsushita gave a good return to the shareholders but afterwards, the downward spiral became a major source of concern.
Consumers
The consumers of products of Philips and Matsushita have benefited a lot from the competition that has existed between the two companies for centuries. The benefits include superior quality products and fair prices as each company tries to outdo the other. For example, the company manufactured the audiocassette but its Japanese competitor mass produced it in time to capture a lion share of the market. The increased volume enabled Matsushita to reduce prices by 50 and improve quality. This tilted the consumers to their favour.
Host countries and governments
Creation of jobs in the host countries has been a major boost to the local communities. Philips draws a majority of its employees from its host country as opposed to Matsushita whose top management has always been headed by a person from the Japan central office. Pressure from host countries has seen an improvement in this situation but the company still maintains a Japanese supervisory manager in all its interests abroad. In fact, the subsidiaries mainly function as mere implementers of decisions originating from the headquarters in Japan.
How far and in what ways are differences in these relationships likely to produce differences in the two organizations responses to the global strategic challenges after 2001
Shareholders
Barnett is of the opinion that the pressure from shareholders has forced Philips to rethink its strategies with regards to their operational mode. It appears that the only option for Philips is to concentrate on what it does best - innovation and marketing, and outsourcing manufacturing operations to other more capable organizations. The company has already started to outsource some of its mass production interests such as mobile phones and television sets.
The organization framework of Philips had long ceased to give the company a competitive advantage and the stakeholders have moved in to streamline the company. The power struggles between PD and NO had been a major cause of delays in policy implementation and delivery of products into the market. This has always played in favour of the Japanese competitor. In order to simplify the operations of the company, Philips is likely to close down some of its facilities all over the world and remain with strategically placed ones. Boonstra started the process during his reign as the C.E.O. in the late 1990s and shifted manufacturing plants to countries with lower costs of production.
Employee relations
Matsushitas response to its relationship with shareholders is likely to change some of its ways of doing business, especially regarding the supervisory role of the central company. Already there are indications that this change in management process is being implemented. President Toshihiko Yamashita initiated a programme meant to increase the number of locals heading various key positions in an effort to offset the pressure from host governments and to increase sales. Subsidiaries abroad were also given the freedom to sell products of their choice and this paid off with increase in sales. The localization will enable the companys subsidiaries to function as autonomous entities hence increasing innovations and initiative on the part of the management.
Philips has to boost employee morale after the large scale job cuts that demotivated many of them. In addition, training of staff must be done since innovation had all but stopped in most of the facilities due to lack of experienced personnel.
Consumers
Following the failure to concentrate on consumer driven innovations, Philips lost a big market share to Matsushita. The company should now concentrate on developing strategies aimed at winning back most of the market share by anticipating consumer needs and providing for them. In addition, the company would do well to speed up the introduction of new innovations into the market to avoid being upstaged by its competitors as it happened in the past.
There has been a sharp decrease in domestic demand for Japanese electronics as well as unfavourable environment for export due to a strong yen. These factors have together with stiff competition from other Asian competitors led to a fall in product prices. Nonetheless, the company cannot give up the production line or compromise on quality because this will only result in loss of consumer confidence. The only alternative is to cut production costs by reducing the workforce and moving the production facilities to other low wage countries.
Both companies have undergone major changes since their inception several decades ago. This is largely due to the global business environment which has undergone various transformations that call for a strategy shift in the way organizations conduct business. In order to remain relevant, stakeholders must ensure that the companies are steered in the right direction and by the most qualified persons.
Exploring the changing ways in which Philips and Matsushita was able to control and coordinate their international operations between 1982 and 2001.What can be learnt from these examples about the processes of evolution in organizational configurations.
Philips was founded in 1892 in Eindhoven, Holland as a family enterprise comprising of a father and his two sons. Gerard Philips and his father concentrated on the production of light bulbs while Anton, his brother, handled the sales. Eight years later, the company had evolved into one of the largest producers of light bulbs in Europe. From inception, the companys management structure maintained a two part design comprising a commercial and a technical manager.
As the company grew, it maintained one line of production as Gerard relied on his technological ability to invent better products. By 1899, the company was too large for Holland and an export manager was hired to facilitate sales in the international markets. Although the production line remained in Holland, sales organizations were formed in foreign countries. General Electric and Philips entered into a trade agreement in 1919 that effectively apportioned North America to General Electric, Holland to Philips and the rest of the world remaining a free trading zone.
Philips went into product diversification at around this time by producing radios, X-ray and vacuum tubes. During the great depression, the company evaded high tariffs by constructing factories in Holland for these products. Philips sought to protect its interests during the war in the 1930s by shifting most of its assets to England and North America. This worked in favour of the facilities transferred in that they became autonomous entities during the war and learnt to function without the control of the parent company. This translated to higher sales as the NOs were able to read and respond to the markets in their specific countries.
Innovation was Philips main advantage in the market as eight laboratories were set up all over Europe and the US. The NOs grew more powerful as they continued to emulate the founders management structure of combining a technical and commercial team. However, with the creation of the Common Market in 1960, the existence of independent units had to be restructured to reflect this new reality.
Unfortunately, due to the power struggle between the NO and PD, the company failed to respond on time and lost to other competitors who took advantage of the Common Market. Over the next three decades, the company has tried to reinvent itself as successive C.E.O.s formulate various plans to recapture its lost glory.
Van Reimsdijk and Dr. Rodenburg were at the helm in the 1970s and they established International Production Centres (IPCs) in an effort to stop the power struggles and simplify the management structure. Dr. Rodenburg also abolished the double management style and replaced it with a single manager. However, this did not lessen the power struggle. From 1982 until 1987, the companys downward trend continued despite the continued efforts of the subsequent C.E.O.s to tilt power structure in favour of the PDs. Trimmer was the next C.E.O. on board who attempted to restructure the company. He spearheaded vigorous cost cutting measures that included staff downsizing and selling off of non profitable ventures. Three years later, he expanded the software and multi media sectors but this was not successful because the company lacked the technology and personnel to pull it through.
In 1996, Boonstra, who many saw as an outsider, took over and effected further job cuts while reducing the number of Philip companies worldwide. By focusing on the revolution of digital technology, he was able to attain his goal of 24 return on assets.
Matsushita on the other hand, was established some years after Philips. With 100 yen, Konosuke Matsushita founded a sockets producing company that expanded and diversified rapidly to include other electronic products. In 1932, to mark the companys 14th anniversary, the founder introduced a corporate plan that would be implemented by every generation in 25 year portions. In breaking away from Japanese business ethics, Konosuke created several divisions, each responsible for its own profit margin. This created an atmosphere of competition that further spurred the companys growth. The managers were under pressure to perform well or be sacked
Matsushita took advantage of technological innovations from Central Research Laboratories (CRL) which they marketed very fast hence beating the other competitors in the market. Trade liberalization in the 1950s and 1960s enabled Matsushita to penetrate the overseas market in its campaign to compete in the global market. Arise in production costs in its native country forced the country to move some of its facilities to countries with cheap labour. The company increased its presence in the West in the 1970s but it was the invention of video cassette that led to the growth of the company in the 1980s.By building its production capacity, the company was able to market lower priced, superior products hence out-competing the other producers like Philips.
In the early 1980s, the host countries pressure on the company to localize their operations made Matsushita to increase the number of locals in top positions of the company. The sales subsidiaries also got to choose the products to sell depending on the local markets. This led to higher sales and profits. The company continued making profits and expanding their operations until 1992 when the Japanese economy plunged into recession that forced the management to start cost cutting measures. From 1993 to 2000, the company chairmen concentrated on selling interests that were considered non productive and reorganizing the staff structure. But little effort went into downsizing the companys bloated workforce.
In 2000, Nakamura took over as chairman and disbanded the product division and introduced production centres that would cater for multiple products. He also transferred key functions from the headquarters to centres abroad and gave employees the power to make decisions based on consumer needs.
Lessons learnt from the two companies about evolution processes in an organization
Tradition versus change
By hanging on to the founders organization structure, both companies made profit as long as the market favoured them but started losing when market dynamics changed. The moment changes that matched the market were effected, the companies recorded profits. This shows that every organization must be flexible in a changing global environment.
Centralization versus Decentralization
Philips was able to survive the war by shifting some of its important assets to other countries this enabled them to spread the risk. However, Matsushita Company failed to move important facilities to other countries, hence, when Japans economy went into recession, the company was greatly affected. Risk should be spread in order to mitigate unforeseeable disasters.
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