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Philips vs.

Matsushita Assignment
2008 MBA/ENG 290G International Competition in Technology

Team 1

Team 1 Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery, Chuohao Yeo

Porters diamond
Philips
Factor Conditions Initial tradition of bolstering education Creation of the Common Market in 1968 altered factor s of production (land, labor, and capital) Not a multi-domestic market anymore Demand Conditions A single market New Transistor and circuit-based technologies Unmet demand

Matsushita
Domestic throughout 20th century Since 1998, investing in R&D

partnerships and technical exchanges abroad innovation

Need to broader sources of

Growth through post-war boom Shift to export markets Earlier picture of emerging

foreign demand

Porters diamond (contd)


Philips
Related and supporting industries Principal agreement with GE in 1919 > World split into 3 spheres of influence By 1998, JV with Lucent to target digital revolution Improved performance

Matsushita
A technology exchange and

licensing agreement with Philips Licensing of the VHS format to other local manufacturers VCR segment ~ 45% of profits
Highly centralized operations
High dependence of subsidiaries Low competitiveness

Strategy, Structure, and Rivalry Early local production facilities Autonomous NOs Uncoordinated decisions

Philips value chain


R&D Components Manufacturing Marketing and sales Distribution

Philips Research has labs around the globe

Acquired from suppliers. E.g. critical lamp components for LCD panels

Outsourced to low cost nations Maintain some manufacturing sites. E.g. lighting has sites in 25 countries

Sales in more than 60 countries Do their own marketing

Uses wholesales, retail stores to distribute products Also support limited direct shipments and plannings

Red heavy presence by Philips Blue no or light presence by Philips


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Matsushita value chain


R&D Components Manufacturing Marketing and sales Distribution

Mainly inhouse and centralized, PDCC as an initiative to outsourced R&D

Depend on third-party to acquire raw materials and components, e.g. steel, plastic, semiconductors etc.

Maintain huge amount of manufacturing plants in Japan, Asia and China

Mainly carry out by subsidiaries located in various countries

Cooperation with domestic and overseas massscale retailers.

Red heavy presence by Matsushita Blue no or light presence by Matsushita


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Value chain comparison


Centralized versus Decentralized Philips: Decentralized

Depend on National organizations to respond to local market. Moving towards more centralized decision to cut cost and enjoy economies of scale Most decision made by headquarters and product division in Japan; local subsidiaries are mostly sales and marketing Moving towards localization to response better to customer demand and preference, PDCC is one of this initiative.

Matsushita: Centralized

Outsourcing versus in-house Philips: Outsourced

Most manufacturing are outsourced or offshored to low-cost regions. Mostly retain R&D and sales and marketing only. Directly control most manufacturing operations located in Japan, Asia and China

Matsushita: In-house

Challenges faced
Philips Too decentralized
Powerful and autonomous

Matsushita Too centralized


Product divisional structure Highly centralized services Centralized product development Subsidiaries too dependent on parent company Communications between

national organizations (NOs)


Lack of company-wide

strategic cooperation among NOs Lack of accountability in NO/PD matrix Management by technical &

commercial consensus
Slow to respond

Inefficient production due to

overseas subsidiaries and parent company

local production centers

Key restructuring steps


Philips
Rein in NOs Centralize production Focus on core businesses Empower global product

Matsushita
Empower regional operations Local customization of

development Combine product divisions Remove historical organizational structure

production Combine single product divisions Tap overseas/external innovation Remove historical organizational structure Name change to Panasonic

Outcome and difficulties faced


Philips
Outcome Continuing low profit margins Competitiveness impacted Difficulties Conflicted local loyalties Restructuring for tomorrow using todays parameters Cost-cutting in key aspects, e.g. R&D

Matsushita
Outcome Low profit margins Competitiveness impacted Difficulties Culture of lifetime employment Organizational resistance Difficult Japanese economic conditions in 1990s

Philips becoming the leading consumer electronics company


Focused on one product rather than diversifying in early days Became leader in industrial research Competence Independent National organizations.

adept at responding to country-specific market conditions Built their own technical capabilities to address local market conditions

Enforce market specific research Businesses being supported by the research are responsible for the R&D budget

Incompetence Product division had no real power

NO ignores main companys welfare and focuses on local profit (Ex. V2000 case)

Too many factories over the world Higher cost than simply outsourcing or having one area serves the global market

Matsushita displacing Philips


Focused on VCR production High volume allowed them to slash price quickly License VHS format to other manufacturer Highly centralized system Competence Huge number of retail outlets

6x the outlets of rival Sony Assured sales volume and direct access to market trends and consumer reaction

One-product-one-division system Internal competition Small business environment Main company acts as a bank

Matsushita displacing Philips (cont)


Competence
Under fund the central research laboratory

Force it to compete for additional funding from divisions Give overseas sales subsidiaries more choice over the products they sold Incompetence Over-management Expatriate managers located throughout foreign subsidiaries Strongly-held commitments to lifetime employment Can not compete with companies who outsource to low-cost Asian countries Product divisions were not giving sufficient attention to international development Oversea subsidiary companies act little more than implementing agents

New US CE Companies:
Apple, Chumby, Kindle, Microsoft, Roku & Tivo
R&D Components Manufacturing Marketing and Sales Each company manages the branding, advertising and positioning of its products. Tivo makes use of distribution relationships with cable and satellite providers to market and sell its products and services to end users, in addition to Tivos direct marketing and sales initiatives. Distribution Each firm is involved in product design and development. Investments both in hardware and software R&D to differentiate their products. Leverage the R&D investments of component suppliers such as Intel, Nvidia, Samsung and others. Each firm develops and controls the SW components of their product stack. Each firm makes use of third-party HW components (processors, memory, discrete components, batteries, etc.). Apple acquired PA Semi and is now developing its own chips for iPhone, iPod and potentially Macs. All firms make use of contract manufacturers and/or ODM partners. Partners include: Asus Celestica Flextronics Foxconn Quanta Wistron Apples distribution is heavily skewed toward direct (online, companyowned retail stores). Chumby is primarily available through online distribution both direct and w/ partners. Kindle is primarily direct Xbox 360 through nearly all online and physical retail establishments. Roku & Tivo through direct and major online and physical retail. Tivo also distributes through DirecTV, Comcast, etc.

Apple in the MP3 Market


Apple designs and controls the major consumer touch

points in the MP3 market


Device HW and SW, PC SW, and distribution

Focus on ease of use and HW & SW elegance Apple has permeated the retail channels with iPods Advertising focus that drives demand & replacement Design as a differentiator DRM as a lock-in

Philips & Matsushita in the MP3 Market


Any competitor is unlikely to unseat Apple by doing

the same as Apple or making iterative improvements Philips and Matsushita should invest in the next generation of music consumption Prepare for the demise of the music-only device Shift to cloud-based subscription services available anytime to countless types of devices Explore business models of giving away the music to undermine Apples current business model

Team 2

Philips

Vs

Matshuita

Team 2: Jon Wiesner, Rachel Simon, David ExpositoCossio, Yanpei Chen, EmrehanKirimli

Japan: Centralized companies. Reluctance to delegate activities. Process innovation rooted in culture. Huge local rivalry Netherlands: Decentralized companies. Low local rivalry

Porters Diamond: consumer electronics industry


Structure, Strategy, Rivalry

Japan: highly demanding and sophisticated internal buyers. Huge market. Netherlands: small internal market. Internationalization needed to survive.

Factor Conditions
Japan: Highly skilled labor force. Large number of engineers. Highly efficient production process. Traditions deeply rooted Netherlands: Highly unionized industry. Expensive workforce. Entrepreneurial culture. Small Country located in centre of Europe. Both countries large expenditures in R+D

Demand Conditions

Related and Supporting Industries

Japan: Large number of supporting industries: transportation, copiers, cameras, audio, appliances, musical instruments Netherlands: medium/high number of supporting companies: canon, HP, TomTom,

Value Chain Comparison


Supply Operations Distribution Marketing Services

Philips

Raw materials Lighting Parts DAP CE Medical Sys

Manufacturing Lighting DAP CE Assembly Medical Sys

Retail Lighting DAP CE Hospital Medical Sys

One Philips brand

Medical Sys

Matsushita

Raw materials Manufacturing Retail Merge brands Components AVC into Panasonic Components Home App Home App AVC Parts MEW Home App AVC OEM & Self Use MEW Home App Components MEW Philips actively consolidating supplies Matsushita heavy focus on manufacturing

Comparison

Both are mainly retail with some enterprise

Both do brand consolidation

Philips trying to move in this direction

Philips Success
How they became leader: developed national organizations (NOs) that were independent, and specialized in local market demand for specific and diverse technologies.
Common Market

Competencies/Incompetencies

/ Strong R&D funding / Strong National Organizations / Reputation for quality /


Adaptive to diverse markets Commitment to employees

Fragmented product line (no economies of scale) Slow to market Poor global strategy

Technologies lost in market flooded by competitors


Loss of market shares to low wage outsourcing competitors

Matsushitas Success
How they became leader: global scale approach of rapidly bringing a emerging technologies to saturate the market
1989 crash

Competencies/Incompetencies
Strong culture, visionary leader

/ Fast [follower] to market / Broad product line / Strong distribution system, high retail presence /
/

Resistance by employees to structural change Weak on innovation Excess capacity

High overhead
Dependant on center; loss of talent due to perceived overbearing top

Centralized Japanese structure

Change and its Challenges


Both Philips and Matsushita have faced enormous challenges and multiple reorganizations in trying to manage global operations. Both have tried multiple organizational structures, but have encountered some of the following barriers
Philips
Historical: legacy of WWII and decentralization of operations Cultural: strong cultural ties to Eindhoven Organization: matrix organizational structure constantly between PD and NO reorganized Manufacturing: late to outsource manufacturing Profitability: low margin business leaves little room for error Technological: big bets on losing technologies and standards Structural and Macroeconomic: high cost of layoffs of European workers

Matsushita
Cultural: lack of independent thinking by overseas subsidiaries Organization: legacy of product division structure Employees: tradition of lifetime employment Managerial: highly centralized management style Technological: over-reliance on declining products (TVs, VCRs, etc.) and lack of innovation Structural and Macroeconomic: economic malaise in Japan starting in the 1990s

Mp3 Player Market


vs.
or Zune by Microsoft

What has allowed Apple to succeed?

relaxed, casual, collegial environment with high-work ethic emphasize on innovation and design (teams all over the world) User Experience Architects Office was established to make products easier to use

Apple or Samsung and Adidas

What should Philips and Matsushita do to compete?

focus on innovative physical appearance and user interface add features like wireless sharing, games, etc. which iPod does not have design more than just a player, also offer software platform that allows music to be shared from PCs and other devices partnership with companies to gain more youth population (ex: Samsung & Adidas vs. iPod & Nike )

Team 3

Philips vs. Matsushita

Team 3: Gonzalo Baez Silvio Filho Brian Gawalt Ryan Stanley

MBA290G, Oct 8, 2008

Comparison of Porters Diamond Factors


Factor Conditions
Both countries have access to a highly skilled workforce due to local availability of specialized research and high extent to staff training in each country. High cooperation yet highly regulated labor relations. Tradition of lifelong employment in Japan has reduced the risk of brain drain. Limited natural resources (esp. Japan) induces constant attention to value-add services. Institutions in the Netherlands are considered highly efficient, ethical, and transparent compared to other countries: corporate boards are effective, government policymaking is transparent, intellectual property protection strong, and firm behavior ethical. The Netherlands has highly developed ports and is considered the gateway to Europe. Japan has a high national demand that includes sophisticated technical users, whereas Philips had to export early on due to low national demand in the Netherlands. Both countries have national access to companies to suppliers in chemical and other equipment or machinery industries for production. The Netherlands includes robust research institutions Cluster development in Japan related to consumer electronics and semiconductors. Cluster development in Japan indicates fierce domestic rivalry. 8 of the top 10 companies in the field are Japanese. Government stability and context has been a major help to Philips as the Netherlands benefits from its central waterways, advanced neighboring economies, and political stability.

Demand Conditions

Related and Supporting Industries


Firm Strategy, Structure, and Rivalry

Value Chain Contrast


End customer R&D MFG

Warehouse and direct sales

Distribution centers, retailers

Customer service

In-house

Outsourced

End customer

R&D

MFG

Direct and online Sales

Distribution centers, retailers

Customer service

In-house

Outsourced

Philips had a decentralized approach for manufacturing and sales. Matsushita had nearly everything centralized in Japan. Marketing competitive advantage over manufacturing.

Changes in Market Leadership


Post-war Philips rose to dominance through strong R&D, technical development, and ability of national organizations to independently structure market offering Small national market instigated robust export function and global sales and marketing force Vital research facilities and top management transferred overseas as WWII approached WWII destroyed factories, so chose to rebuild on strengths of National Organizations
Independence of management to act Ability to sense and respond to differences in national demands of countries of operations related to marketing Take advantage of surrounding talent and cultures for independent technical capabilities as well

Developed strong competency in R&D and technical development Lacked good centralized planning (no advantage from economies of scale) and slow to market. Current strategy to move/outsource low-end manufacturing and focus on design/development makes sense given national and firm competencies. Difficulties lie in the strength of national organizations and Panasonic succeeded Philips in global dominance through central planning, strategic manufacturing choices, and a strong system of controls Opened plants in low-cost Latin America and Southeast Asia; kept high-value components in Japan. Allowed outsourcing of minor components. Plants built by division for economies of scale. Aggressive management goals encouraged innovation, but one product-one division led to subsequent spin-off and strict focus. Overseas operations reported to parent through the product division or the Trading Company. Developed competency in long-term planning, low-cost manufacturing, and being quick-to-market Lacked strong independent R&D near global markets Strategy for more regional control was hard because of ingrained culture and tight controls. However, implementing Outsourced R&D through incubators helps overcome Panasonics lagging innovation by supporting start-ups without difficult cultivation of in-house expertise.

Apples keys to success in MP3 market


Corporate culture

Organizational structure

Apple is vertically integrated, designing its own operating system. Apple's stated philosophy is to increase investment in R&D. In-house brands set the standard: iPod & iTunes Rebel spirit: "It's better to be a pirate than join the navy" .

Intense work ethic and casual/informal structures.


Combines Design and Marketing in one department.

Team 4

2008 Philips vs. Matsushita

Christian Huth Lakshmi Jagannathan Christopher Quek Daisuke Tanaka John Michael Wyrwas

Philips challenged with independent national organization focusing on R&D


Factor Conditions
Dutch legislation prevents hostile raids Bureaucracy leads to slow-moving transformation of company CEO succession hinders continuous development of strategy

Firm Strategy, Structure & Rivalry


Original competitive leadership by commercial and technical functions (PD/NO matrix) was succeeded simpler and structured marketing and manufacturing organization Original worldwide portfolio of responsive national organizations increases manufacturing costs (start of outsourcing) Strong industrial research

Supporting Industry
Technology-sharing agreements and offshore manufacturing shall lead to reduced costs

Demand Conditions
Adoption to local markets by independent national organizations in marketing as well as in product development

Matsushita with centralized organization and strong manufacturing capabilities


Factor Conditions
High value-add per hour in manufacturing Low labor costs in developing countries where parts of manufacturing is outsourced Early trade-liberalization enabled Matsushita to start export business

Firm Strategy, Structure & Rivalry


Worldwide business based on centralized, highly efficient organizations in Japan Shift to local sourcing over time, but still in control of output (quality, productivity etc.) Expats spreading company culture and technologies Operation Localization Internationalization including manufacturing abroad and increasing independence from Japan (but still dependent)

Supporting Industry
Low shipping rates reduces logistics costs R&D partnerships and technical exchanges as well as outsourced R&D (VC, incubator and technology partnerships) Dynamic new digital networking technologies and business models enabled by internet lead to pressure

Demand Conditions
Japan as home market as early technology adopter Worldwide information of local demand provided by expats

Philips Value Chain

Inbound Logistics

Philips has many suppliers (255+) around the world, but they have a close connection with all of them Supply Management plays a key role in value creation, and 74% of Philips spend on suppliers is now centralized or center-led. ThePartners for Growth strategic supplier relationship management program brings Philips together with its top 30 suppliers Global Supplier Rating System (GSRS) is now operational in all businesses, resulting in a more professional structural supplier performance measurement and subsequent improvement actions (84% of Philips spending went for this last year)

Operations

Low Cost Country Sourcing in China: main supply base and manufacturing center Other smaller manufacturing facilities in 25 countries (including Netherlands, France, Belgium, Hungary, Mexico, Argentina and Brazil) The Supply Market Intelligence and Services group (SMIS) work closely together with businesses to identify supply market opportunities around the world

Philips Value Chain

Research and Development

$2.2 Billion spent on R&D (2007)

Some Areas of Research: Drug Delivery Potential of Microbubbles, Contrast Agents for Medical Applications, and OLEDs as the future of indoor lighting

Marketing and Sales

Philips sells its products using dedicated sales representatives, telephone (to big customers), ODMs, OEMs, retail, website, and indirect channels Philips markets to its big customers (for ex: in healthcare industry) through its sales force and its small customers (for ex: individual consumers) via web, TV, and print/advertising Sales organizations in more than 60 countries

Service

Customer Support is very specialized since Philips products cover many areas 24 Hour Support for Consumer Electronics (such TV, portable electronics, etc) 24 Hour Professional Support for its health care products, lighting, and specialized businesses such as Dictation and Speech Recognition Systems Specific product-based FAQs and online support along with phone support

Matsushita Value Chain

Inbound Logistics

Matsushita is dependent on the ability of third parties to deliver parts, components and services in adequate quality and quantity in a timely manner, and at a reasonable price It is not dependent on a single supplier, and has no significant difficulty in obtaining raw materials from suppliers. In addition to devices/products, Matsushita makes its own components and devices used in various products ranging from AV equipment and information and communication devices to home appliances and industrial equipment. Works closely with its third party suppliers for timely and quality in the deliver of its components

Operations

Main Manufacturing center and operations in Japan Overseas, Matsushita plans to expand its manufacturing bases, particularly in South China and Vietnam, in response to rising demand for components and devices. Matsushitas international business operations is risky because of political instability as well as cultural and religious difference.

Matsushita Value Chain

Research and Development


$5.6 billion spent in R&D Costs (in 2007) Develops unique technologies via a high level of cooperation, not only through inhouse production, but also through a sophisticated network of cooperation among materials, components and devices, and finished product divisions Some Areas of Research: Full HD plasma TVs, Blu-ray disc (BD) recorders, and Energy Efficient/ Eco Friendly Products Sells to small customers, individual customers, and big industries Promotes environmentally friendly products Sells its products using local retailers, phone/online system, retail stores, and indirect channels (OEMs and ODMs) Sells its parts and services to the same set of customers Customer Support is very specialized since Matsushitas products cover many areas 24 Hour Support for Consumer Electronics (such TV, portable electronics, etc) 24 Hour Professional Support and Business Support for its small customers 24 Hour Support Specific to OEMs and its industrial customers/products Specific product-based FAQs, manuals, and online support along with phone support

Marketing and Sales


Service

Philips in the post-war era

Competances Protected company resources through war by transferring abroad


Strong, self-sufficient national organizations Product development and industrial design responds to regional customer preferences Decentralized marketing and sales

Incompetances Weak control of national organizations by Netherlands-based product-divisions created conflicts in company strategy

Local production plants could not take advantage of economies of scale Inability to capitalize on R&D

Innovative R&D

Matsushita Competitive Analysis

Matsushita was able to displace Phillips as the leader in Consumer Electronics by:
1.

Successfully capturing the advantages of localization and avoiding the management difficulties that other global companies encountered. Leveraging its corporate structure to bring new technologies to market more efficiently than its competitors. Implementing manufacturing best practices to keep manufacturing costs low despite differences in regional inputs. Outsourced core R&D needs to better recognize new marketable technologies and business models that were congruent with Panasonics Global Strategy.

2.

3.

4.

Matsushita Core Strengths

Core Strengths:
1.

Manufacturing:

Globally standard manufacturing processes created economies of scale (lower costs) and knowledge transfer between different manufacturing facilities.
Matsushita shifted certain manufacturing processes to low cost countries, but kept highly technical manufacturing process located in Japan. This ensured the highest quality at the lowest cost.

2.

R&D:

Centralized R&D process where core designs were established and local offices made feature requests to tailor products to regional markets. Underfunded the Central Research Lab to encourage the development of marketable technologies.

3.

Localized (Regional) Autonomy:

Local offices were given the authority to create and execute local strategies with oversight from the main office. Regional offices were able to alter products and product portfolios to meet local demand.

Matsushita Core Weaknesses

Core Weaknesses:
1. 2.

Power of the Central Organization:

The power exerted by the central organization limits regional innovations.


R&D The R&D structure is good at making marketable products but not good at creating new technologies. It is a culture of fast follower R&D.

Organizational Changes: Philips

1950s
Different standards and consumer preferences across countries led Philips to give power to the NOs Successful until Common Market eroded trade barriers

1970s
PD>NO Decrease SKUs, build scale, and increase flow of goods Create International Production Centers Slow implementation and NOs continued to have power

1982
Shut inefficient operations Off-shore manufacturing alliances PD>NO Focused on core operations Sales declined and profits stagnated

Organizational Changes: Philips

1987
Goal: increase profits and beat the Japanese Strategically linked core businesses Restructured around 4 core global divisions Linked PDs with their markets Halved spending on basic research to 10% of R&D Huge cuts in plants and employees Loss of $2.5 billion and a shareholders lawsuit

1990
Cut 22% of workforce Sold various businesses Expand software, services, and multimedia Focused on developing 15 core technologies Low morale and lack of focus on new market demands for segmented products and higher consumer service

Organizational Changes: Philips

1996
No taboos; no sacred cows Slashed 3,000 jobs in N American Added 3,000 jobs in Asia Huge cuts Relocated headquarters to Amsterdam Bet on digital revolution Focus on marketing Achieved objective of a 24% return on net assets

2001
Outsourced mobile phone production Seeks to sell off manufacturing of mass-produced items Focused on developing 15 core technologies Loss of 2.6 billion euros. Become a technology developer and global marketer?

Organizational Changes: Matsushita

Yamashita (Operation Localization)


4 localizations: personnel, technology, material, and capital Increased number of local nationals in key positions Overseas sales subsidiaries given more choice over products they sold Expressed displeasure with lack of initiative of TV plant in Cardiff

Tanii
Objective: obtaining software source for its hardware Acquired MCA for $6.1 billion Japan went into recession, and Tanii forced to resign

Morishita
simple, small, speedy, and strategic Cut staff and decentralize responsibility Sold MCA to Seagram at a $1.2 billion loss Challenges: Korean and Chinese competition; strong yen=weak exports Increase offshore R&D: Panasonic Digital Concepts Center in California

Organizational Changes: Matsushita

Nakamura
From super manufacturer of products to meeting customer needs through systems and services Empower employees to respond to customer needs Destruction and creation disbanded product division structure Streamlines plants: now integrated into multi-product production centers Streamlines marketing divisions: Panasonic and National First losses in 30 years accelerated: Matsushita seen as a takeover target

The Apple Slide

Vertical integration
First to offer excellent hardware, software, and content iPod and iTunes Successfully convinced content providers to allow sale of mp3

R&D
Idea was not internally developed, but execution was Strong collaboration with Portal Players who did bulk of the software and hardware development

Manufacturing
Outsourced all manufacturing

Steve Jobs
Genius CEO with a vision Involved in unusually detailed aspects of daily business

Team 5

Group 5: Varun Boriah Sonia Fereres Dilip Joseph Brendan Quinn Ada Zheng

Porters Diamond for Philips vs Matsushita Factor Conditions

Philips
Geographic location: small country situated in central Europe Initial workforce deeply involved in technological development in appreciation for firms strategy of investing in education, housing, improvement of workers conditions locally. Expensive local labor

Matsushita
Geographic location: immersed in Asian market Skilled, relatively low cost resources

Porters Diamond for Philips vs Matsushita Demand Conditions

Philips
Limited domestic market pushes international growth Close to local market needs & opportunities due to decentralization (NOs)

Matsushita
Large & highly demanding Asian market for consumer electronics

Porters Diamond for Philips vs Matsushita Related & Supporting Industries

Philips
No cluster effect Lack of domestic competitors

Matsushita
Cluster effect: development of Japanese consumer electronic industry & competition

Porters Diamond for Philips vs Matsushita Firm Strategy, Structure & Rivalry

Philips
Decentralization, local management & diversification Product specialization (light bulbs) extend technological advantage to other products Dual management system: National Organizations (NOs) and Product Divisions(PDs)

Matsushita
High quality, low cost, standardized products mass production Highly centralized organizational structure Rivalry with other Japanese CE industries (e.g. Sony in Betamax vs. VHS)

Centralized

Internal Product Value Chain

Decentralized

Philips: Decentralized Organization + 1 Product Specialization


Research Product Development Manufacturing Sales & Marketing Services

Centralized initial research & innovation

Multinational / Decentralized management, product development, manufacturing, sales and customer services through PDs, NOs within national/local markets.

Matsushita: Centralized Hub Organization + Mass Production


Research Product Development Manufacturing Sales & Marketing Local subsidiaries Services

Centralized operations: research, innovation & product development. Expat management

How did Philips become the leading consumer electronics company in the world in the post war era? What distinctive competence did they build? What distinctive incompetencies?
Competencies Lighting Cassettes / CDs Centralized Research and Innovation: quickly develop new products Incompetencies Low profit margins (1-2%) Fragmented management/poor global strategy Slow bringing products to market (Matsushita beat them to microwave etc) Dispersed manufacturing/marketing/ services within nations (NOs)

Organizational asset: NOs to develop products in individual national markets


Moved research facilities abroad in anticipation of the war

How did Matsushita success in displacing Philips as No. 1? What were its distinctive competencies and incompetencies?
Competencies Ability to mass product at low cost, quick to market VCR manufacture including OEM for Philips and others Placement of Japanese expat managers in international plants, strong communication with HQ Local autonomy to meet targets Shifted production to overseas markets (e.g. China) when Japanese currency strengthened Fast follower strategy Centralised R&D in Japan Incompetencies Not highly innovative Complex management processes Excessive control of R&D (Motorola TV)

What do you think of the change each company has made to date: the objectives, the implementation, the impact? Why is the change so hard for both of them?
Philips Focus on R&D (after sacking 37% of R&D staff?!) Large bets on technologies that failed (DCC, CDi, mobile) Hasnt yet outsourced much of its production Matsushita Created PDCC strengthened convergence portfolio Outsourcing innovation universities, PDCC Reduced size of HQ less top-heavy Outsourcing some production

Still very decentralized

Still very centralized!

Why is it so hard: Working against years of inertia

Why is it so hard: Working against years of inertia

Research

Product Development

Manufacturing

Sales and Marketing

Services/ Ecosystem

Customer

APPLE: iTunes, Recording companies MICROSOFT: App developers CHUMBY: Netflix TiVO: Broadcasters

KINDLE

KINDLE

KINDLE: Publishers

Corporate culture and organizational structure at Apple


Apple originally outsourced : iPod idea (Tony Fadell) iPod hardware development (PortalPlayer) Windows compatible through MusicMatch and later iTunes Ecosystem created Product Marketing and Product Management executed by the same team Apple is vertically integrated: OS, SW/HW, retail stores Put Silicon Valley on the map Hard-working yet corporate-casual environment. Apples success based on how they add value to a cool & simple design, whole ecosystem around it and easy-to-use interface.

What should Philips and Matsushita do to compete


new features price erosion Reduce retailer and manufacturer inventory channel management shifts from classic distribution to retailers, to broadband providers, to online, to direct to consumer. digital content will shape their hardware demand both companies should exploit their competitive advantages instead of matching each other:
Philips should invest more in R&D and marketing as a way to compete with Japanese low cost efficiency. Decide on one structure/strategy instead of changing it frequently. Matsushita: try to implement change in a more effective way, communicating more with employees/subsidiaries to improve innovation. Partner more, think ecosystems, think of the experience rather than just the product

Team 6

Philips Versus Matsushita


Team 6
Wan-Lin Tseng Toru Yamagishi Nuttapong Chentanez Jim Miller Ankit Gupta

Philips Porters Diamond

Matsushita Porters Diamond

Late 19th century, early to mid 20th century, mid to late 20th century
R&D
Physics and chemistry labs built to address problems Independently performed by NOs with PDs as nominal formal research department Superior technological innovations from PD Centralized lab doing research on specific business areas

Philips Internal Product Value Chain

Manufacture
Highly centralized in Eindhoven

Marketing
Overseas joint ventures created to gain market place Independent NOs were able to sense and respond to different markets efficiently Inconsistency within the organization makes marketing a weak point in Philip Refocused on marketing rather than technology; made worldwide marketing plan as a whole

Sales/ Distribution
Exported into diverse markets, i.e. Japan, Australia, etc Independently performed by NOs with PDs as nominal formal global distribution department Decentralized distribution around the globe Restructured distribution network work as a whole again

Independently performed by NOs, with PDs as nominal formal production department NOs made their own decision of product mix and which technology standard to adopt Reorganized structure led to specialized, multimarket production facilities worldwide

Early to mid 20th century, mid to late 20th century


R&D
CRL took care of basic technology while product development occurred in product division Life time research team: R&D team moved with products from central labs to product division to production plant

Matsushitas Internal Product Value Chain


Sales/ Distribution
25,000 domestic retail outlets opened to obtain sales volume and customer information as well 25,000 domestic retail outlets opened to obtain sales volume and customer information as well

Manufacture
One-product-one-division: production was done by product divisions

Marketing
One-product-onedivision: marketing was done by product divisions

With corporate treasury as a commercial bank


Went internationally to search for low-wage countries, i.e. countries in Southeast Asia and Central and South America One-product-onedivision: marketing was done by product divisions

Phillips in post war era


Phillips built post war era organization with
National Organizations (NOs) oversea Product Divisions (PDs) at head quarter

Competencies
Local knowledge of market NOs - Can response quickly to local demand In house R&D - Leader in industrial labs, both Physics and Chemistry

Incompetencies
No clear line to define role of NOs and PDs Bureaucracy - NOs and PDs conflicts Slow to bring new product to market Series of bad decisions - from various CEOs Centralize to core business & acquire related companies too late Dead technologies - V2000, CD-I, DCC, analog HDTV
I

Matsushitas competencies and incompetencies


Competencies Cost advantages Enhanced Productivity Cost advantage of Japanese after WW2 Shifting basic manufacturing to Asia Caught up with foregoing companies Learn the strengths of others Adopted the divisional structure Giving each division clearly defined profit responsibility for its product Foster internal competition Adoptedg VHS of JVC instead of Betamax Increased capacity and reduced price: accounted of 30% of total sale Incompetencies Laying off employees is relatively difficult in Japan Strong influence of the founder, Konosuke Matsushita
I

Changes of Philips and Matsushita


Objectives: Phillips Establishing effective system and organization to compete in the global markets, especially with Japanese rivals Matsushita- Effective internationalization with global expansion of the businesses Implementations: Phillips -focused on core business by selling some businesses but made lots of bad decisions, Turmoil at top level Matsushita Localization was fostered but the system centralized to the Japanese headquarter was remained Impact: Phillips Small positive effects on performance Matsushita Localization effort supported the global business expansion
I

Why hard to change?

Long history
Established corporate culture and tradition (e.g. Seven Splits of Matsushita) Bureaucracy (esp. Philips)

Strong influences on the founder (esp. Matsushita)

The New US Consumer Electronic Companies: Apple, Tivo, Roku, Chumby, Kindle, Microsoft What are their positions in the Value Chain?
New CE companies involved in market analysis, research & development and product design, i.e. at the head of the value chain. Maximum value added here for products like Tivo, Roku or Chumby, which were quite unique. Value added at the end too, i.e. distribution and marketing. Most true for Apple products, given their aggressive and distinguished marketing style. Manufacturing generally outsourced to third parties.

Apple has dominated the MP3 marketplace with 80% market share. Other major CE manufacturers have failed to date. With regards to corporate culture and organizational structure, what has allowed Apple to succeed?
Unique product designs, i.e. having lots of style, though may not be cheap. Excellent marketing and branding exercise, to give the appeal of consumer items as luxury and personality statements. Own retail outlets, to have more control over launch and distribution. Control over music distribution as well, in the form of itunes. Over all perception of brand very favorable. More centralized company organization. And, last but not the least, the importance of leadership cannot be more emphasized. Sans Jobs, things might be much different.

What should Philips and Matsushita do to compete?


Innovative product design, and branding very essential. More emphasis on marketing. Partner with content providers, for easy access to music and video. Aggressive product launching and distribution.

Team 7

Philips vs. Matsushita


KC Chen (Team 7) Anthony Goodrow Andrew Liao Piyapat Tantiwong Sha Tao October 8th, 2008

Philips: Porters Diamond


Decentralized Centralized (tilting from NOs to PDs ) Single product Diversified Divest non-core businesses R&D driven Localized manufacturing Outsourcing

FS
Caring of workers founded highly skilled labor forces and strong technological base Hollands small size forced the company to be international Lowered trade barrier prompted to local, single site production

FC

DC

R&SI
Rich R&D resources in UK and US helped the company to diversify its assets (research labs) and resources

Matsushita: Porters Diamond


Centralized Decentralized (tilting from PDs to balanced NO/PD matrix) Many products, good distribution Localized MFG and R&D Very good at time-to-market, not always a pioneer Hierarchy weakened organizational transformation

FS
Lack of English capability required more staff (expatriate managers) Lowered domestic post-war growth and saturated distribution channels forced company to export Strong yen prompted overseas production

FC

DC

R&SI
High value electronic components

Philips: Internal Value Chain


Tried to strike a balance between product divisions (PD) and national organizations (NO) Some PDs merged to form international production centers (IPC)

IPC

PD Power Struggle NO

PD

PD

Communication link broken


NO NO

Matsushita: Internal Value Chain


Parent company in Japan has tight control over all divisions (DIV) Basic technology at central research laboratory (CRL)

No information exchange

Parent HDQ

CRL R&D underfunded, divisions compete for funding DIV DIV

DIV

DIV

Comparison of Internal Product Value Chain

Both companies started from highly centralized organization. Philips decentralized their organization based on geographic location Matsushita decentralized product divisions, controlled by Japanese parent company The organizations reflected culture in such countries Philips (Holland) gave more freedom to NOs Matsushita (Japan) has tight control over Divisions. Philips competitive advantage & disadvantage NOs can easily customize their products to different markets Little communication between NOs and weak control from PD led to repeated developments of same technology Matsushitas competitive advantage & disadvantage Central research organization to help leverage basic technology across all divisions Each division has strong understanding about customers, but tightly controlled by parent company Both companies tried to reduce the operating cost by locating plants in low-wage areas as well as outsourcing to contract manufacturers. Repeated reorganizational changes aimed at increasing revenue and profit margin

Philips as CE leader In the post World War II era

Strong Research & Development efforts Early in Philips history, Gerard and Anton Philips agreed that strong research and development efforts were vital to the Philips success. The importance of research and development is evident in the physics and chemistry lab that developed a tungsten metal filament bulb that was a great commercial success enabling Philips to compete against its giant rivals. In the postwar era, Philips continued this tradition with fourteen product divisions responsible for development, production and global distribution Independent National Organizations Another contributing factor to Philips success is the National Organizations. These postwar organizations were highly self-sufficient and extremely adept at responding to countryspecific market conditions-a capability that became a valuable asset in the postwar era. Communication between National Organizations However, with the creation of the Common Market in the 1960s, the same National Organizations to which Philips attributed its postwar success soon became the reason why Matsushita displaced Philips as the leading consumer electronics company.

Matsushita displaces Philips as CE leader


Link divisional structure to a global strategy Autonomous National Organizations Communications The autonomy of the divisions linked together through a global strategy enabled Matsushita to displace Philips as the leading consumer electronics company in the world.

Competencies & Incompetencies


PHILIPS
Competencies
National responsiveness Technology-driven innovation
Entrepreneurial NOs Central research and funding

MATSUSHITA
Competencies
Global scale efficiency Market-driven rapid innovation
Innovative PDs Linkages in the value chain

Incompetencies
Slow technology to market Poor global strategy

Incompetencies
Overseas subs not innovative

Philips: Company Changes, Implementation, and Impact


Objective 1970s Rebalancing the managerial relationship between PD & NOs. To deal with least profit units and the slow-moving bureaucracy To deal with the revenue declining and maintain the market position Slow Buy & sell business and continue to tilt the matrix between PD & NOs Relocate the management and close/integrate the business divisions Cost-cutting & lay-off. New focus on the software, service and multimedia. Shut down/sold un-profit units and to bet on the digital revolution. Implementation Impact NOs seemed as powerful and independent as ever.

1982

Sales declined and profits stagnated.


President and senior management were replaced

1987

1990

To deal with the risk of bankruptcy

Ignored the new worldwide market demand

1996

To stop bleeding To increase sales and revenue

24% ROA Hope to build efficiency into its global operations

2001

Outsource the manufacturing

Matsushita: Company Changes, Implementation, and Impact


Objective KMs way Operation Localization Integration & expansion Maintain Central control Innovative capability & entrepreneurial initiatives To put more attention on the international development To deal with Japans downturn & to enhance R&D abilities To transfer Matsushita from manufacturing to services to meet customers Implementation Organization since the company began Personnel, technology, material, capital Merge METC to parent company to fully integrate domestic and overseas operations Move production overseas and start joint venture with foreign academics Destruction and creation program to make flatten the hierarchy Impact Strong Centralization and deincentivized localization Nearly no changes on the way branches operate Not succeed and due to economic downturns, Tanii was forced to resign Delivered a sign that he gave up looking for innovation internally Almost made Matsushita to be takeover

Morishita

Nakamura

New U.S. CE Companies


Apple TiVo Roku Chumby Kindle Microsoft

Position in Value Chain

Tivo, Roku, and Chumby

All three companies are providing a widget to connect the existing multimedia entertainment to the internet. They do not have the contents and the widgets are not really technologically advanced, but the idea to provide an interface for consumers to enjoy shows or programs is become increasingly popular. Their products opens new markets for both the entertainment industry and internet applications. Both are back up by companies that have already developed strong product (online books and music) and customer bases. The iPod, iPhone, and Kindle are new channels to sell Apple and Amazons online services.

Apple, Kindle

Microsoft

Microsoft is the largest OS provider on the PC value chain and is successfully leveraging its large market share to penetrate into any possible market, such as online services and gaming consoles (XBox).

How can Philips and Matsushita compete with Apple?


Target niche markets

Tech-savvy users who desire more features Combine technologies (iTune & HDTV)

Change the game

Team 8

Philips vs. Matsushita


MBA 290G Prof. Charles Wu Team 8
Fuat E. Celik Gopal Chaudhoory Ignacio Contreras Francois Gallet Camilo Mendez

Porters Diamond
Philips Regionalized focus independent management Functional division (Biz vs Engineering) Not-invented-here culture Government protectionism Matsushita Centralized focus dependency on headquarters Business line division Copycat / follower culture Government encourages competitiveness

Factor Conditions
Philips European countries heterogeneity encourages customization to local markets (distributed approach) Expensive labor focuses companies in product differentiation strategies Matsushita Japanese geographical isolation promotes focus in domestic market (centralized approach) Cheap labor (pre-70s) focuses companies in cost-cutting strategies

Firm Strategy, Structure and Rivalry

Demand Conditions
Philips Heterogeneous European cultures leads to differences in demand

Related and Supporting Industries


Philips Underdeveloped ecosystem derived from lack of competition (world divided between GE and Philips)

High income fosters desire for differentiated / tailored products

Matsushita Big but isolated domestic market drives focus in local market Low income in Japan (per-70s) cultivates low-cost strategies Population eager to adopt new tech

Matsushita Developed ecosystem derived from intense competition (Sony, JVC, Sanyo, etc)

Porters Diamond Analysis


Philips strategy In-house innovation and market differentiation Matsushitas strategy Centralized approach with focus in cost advantage and copied but better products

Worldwide consumer electronics demand ended being:


Homogeneous Price conscious

Matsushita was far more prepared for this scenario:


Follower takes advantage of cost benefits Centralization builds economies of scale

Internal Product Value Chain


Philips Market differentiation
Development (Market A) Production (Market A) Production (Market B) Production (Market C) Production (Market D) Commercialization (Market A) Commercialization (Market B) Commercialization (Market C) Commercialization (Market D) Development (Market B) Development (Market C) Development (Market D)

Research (centralized)

Matsushita Cost advantage based on EOS


Commercialization (Market A) Research (centralized) Development (centralized) Production (centralized)

Commercialization (Market B)
Commercialization (Market C) Commercialization (Market D)

Philips Emerged as a World Leader


Forced by the War, Philips divided operations into several quasi-independent National Organizations (NOs) Highly decentralized NOs were efficient and competitive within the market they served

Autonomous corporate subdivisions had too high a stake in selfpreservation and prevented real restructuring reform

The Bad

The Good

NOs focused on country-specific markets and adapted quickly to local market conditions and consumer tastes and expectations e.g. TVs

Common Market system removed advantages of regional specialization, increased importance of manufacturing cost competition

Outstanding research division led to strong technical innovation and new product development

NOs thwarted centralized product development by pursuing independent agendas e.g. V2000 video cassette

The Ugly
Decentralization leads to organizational inertia and the company is slow to react to changes in market conditions in a World economy

Matsushita Overtook Philips


Matsushita dominated its home market by offering thousands of products at its tens of thousands of retail locations

Corporate culture valued low cost and high profit operations and held each division accountable for meeting goals

High degree of centralization stifled innovation

The Bad

The Good

Centralization led to costcompetitiveness, which led to exports reaching a world market

Manufacture needed to relocate to cheaper labor markets to stay competitive, while devotion to domestic employment weakened restructuring efforts Weak R&D efforts and expenditure led to undifferentiated products and commoditization, which led to shrinking margins

Matsushita was quick to adopt standards, allowing it to achieve high sales volumes on products it would otherwise struggle with

The Ugly
Matsushita is now forced to look outside the company and outsource its innovation in the hopes of developing differentiated products and more profitable ventures

Philips reorganizes its activities, focusing on its core competencies

Objectives

Increase profitability Drive costs down to get back in the competition

Implementation

Focus on core competencies (technology development and marketing) Simplification of the network Outsourcing of manufacturing activities to Asia

Impact

Fairly good financial impact in the 2000s Huge loss of human capital

Matsushita is moving up the value chain

Objectives

Become a leader in technology development Mitigate the R&D risks

Implementation

Increase of the investments in internal R&D Creation of the PDCC: investment in external R&D (open innovation leader)

Impact

External growth or Spinning-in Increased dependency on external factors

Copying Apples Strategy: making the best of an existing technology

Vertically integrated structure


Control of the value chain Few high-quality appealing and trendy products based on existing technologies

Casual corporate culture


Pretty flat organization Fostering individual excellence

Team 9

Team 9
James An Zishan Khan James Su Boaz Ur

Factor conditions
Philips
Small country, immersed in the European eco-system and constantly exposed to other forces. Small local work force. When Philips become international they have the potential and try to utilize the strength of the different Geographies they operate in. (Manufacture where its cheap, R&D where they have talent etc.) However, European regulations require expensive HR.

Matsushita
Substantial local market, in a country that isolated from the rest of the world. Local highly skilled and disciplined work force with life dedication to the company Japanese norm make it hard to change the HR structure of the org (Lifetime employment) Japanese Yen making it hard to export from Japan and creating a need to open factories in cheaper places.

Demand conditions
Philips
Demand has to come from other parts of the world. Exposed to all market forces and competition in every single segment.

Matsushita
Substantial local demand with high rewards as well as losses when there is a slowdown. Until 2000 centralized strategy with strong product divisions located in Japan. At first, hard to compete in international markets because lack of brand. Later becoming the OEM for other brands (video)

Related and supporting industries


Philips
Depend on the country the NO is located in. Not related to specific industries in particular countries. Complete decentralization. Each NO totally responsible for its results.

Firm strategy structure and Rivalry


Philips
Being an innovator. Complete decentralization. Each NO totally responsible for its results. Diversification of products. Philips is a multinational company it is even hard to define it as Dutch.

Matsushita
Being a fast follower Matsushita Copycat Until 2000 centralized strategy with strong product divisions and operations located in Japan. Making sure that there are loyal Japanese reps in every company around the globe in senior positions. Matsushita is definitely a Japanese company

Philips value chain is mainly based on an aggregate of NO. They have decentralized R&D centers and had constantly tried to shift the balance back and forth between PDs and NO. Finally they decided to create business units responsible for profits. In essence, these business units hold the value chain for each product. However this business unit can probably leverage the sales organization that is spread around the globe.

Matsushita for the majority of its life span was highly focused on central management and Japan based product divisions. The central R&D got its resources from the product divisions. The international operations were traditionally just local manufacturing to overcome import / export obstacles. The main components and knowledge was always Japanese, most of the value stays in the headquarters.

Competencies
Self-sufficiency allowed ability to respond to country-specific market conditions Product development as a function of local market conditions - (Philips of Canada first color TV; of Australia first stereo TV; of United Kingdom first TV with teletext) Direct and frequent communications between NOs and top management Development of elite expatriate managers that can represent country-oriented views

Incompetency's
Inability to boost production levels to increasing global demand Production within the NOs nations, not the low-wage areas (East Asian, Central and South America in the 1960s) Lack of centralized marketing strategy (Philips continued to innovate, but unable to compete effectively to capture the mass market (e.g. audiocassette and microwave oven) Disagreements among the NOs and contradiction with the research arm of Philips (Philips V2000 videocassette, superior to Matsushitas VHS, but was outsourced, branded, and sold by North American Philips under license from Matsushita) The history of strong individualized NOs resisted reorganization

Competencies Matsushita was more successful in maintaining control over its national organizations. It did this by having expatriate Japanese managers, technicians, and advisors in overseas offices. Philips national organizations operated independently from the home base. Matsushita had more focused company-wide effort on products. Highly centralized R&D operations in Japan governed direction of research in overseas companies e.g. Motorolas TV business. Philips product development differed between national organizations. Matsushita was faster at getting products to market than Philips.
Incompetency's In the 1990s, Matsushitas management was unwilling to restructure some of its inefficient production facilities in Japan. This was due to the companys deeply-rooted commitment to lifetime employment.

Philips
Multiple organizational shuffles primarily aimed at becoming more profitable/efficient and client focused. Company culture orientated towards R&D rather than Marketing, difficult to shift focus of existing employees. Continual cost cutting measures and relocation of HQ affects the core culture of the firm.

Matsushita
Multiple policies implemented to attempt to decentralise organisation. Success in decentralisation difficult due to reluctance to remove roles from Japan. Lack of transferring roles resulted in competitors undercutting the firms pricing structure.

Great Marketing Firm Distribution Channels include Apple Stores Use of iTunes as a reverse razor and blade model Stylish product design

Ability to recognise opportunities to commoditise products Strong company culture and shared vision Central Product Designer and Leader (Steve Jobs)

Team 10

Philips versus Matsushita

Team 10 Anirban Sen Raluca Scarlat Elihu Luna-Thomas Yilun(Alan)

Porters Diamond-Philips
Factor Conditions
Among largest producer of light-bulb Geographically diversified research facilities and local tech talents, managers Trade barriers and tariffsforced to build local production facilities Expansion to Europe, Asia, US, etc., capture world market share Diversification of product range Globalizing product development and production Wrote down assets rapidly to use new production technology (1910s) Tradition of caring for workers (1912) Adapt to country specific market conditions National Organizations(1930s) Restructure(1987), core business vs. non-core business Outsource most of manufacturing and become technology developer(2001) Rivalry: GE, Japanese counterparts, and other local competitors

Demand Conditions

Supporting Industries Strategy, Structure, & Rivalry

Porters Diamond-Matsushita
Factor Conditions

Highly skilled work force Post war rebuilt, pro-business Cost rise in 1960s in Japan
Post war boom Export --> global leadership through VCRs Domestic market demand collapsed(1999) Fast copycat Offshore innovations First to adopt divisional structure, internal competition(spin off hungry spirit) Strong centralization gradually weakened (Operation Localization) Rivalry: GE, Sony, Philips, etc. China, Korea

Demand Conditions

Supporting Industries

Strategy, Structure, & Rivalry

Value Chain
Invest Capture Demand Solution & Delivery Support

Domestic, Asia, US, Europe Expansion

Global Suppliers

Tech Support

Individual, Business, Government

Global Assembly
Service

R&D Strategy

Global Logistics

Sales & Marketing

Distribution

Philips success after the war


Operation based on National Organizations (nearly autonomous subsidiaries around the world) Responsive to country-specific market necessities Geographically diversified research facilities brought several technological breakthroughs NOs keep the Phillips traditional internal competence (Production vs. Sales) Effective in a world of close frontiers

Phillips 60s-90s struggles


Competitors relocating production in low cost of labor regions (South Asia and Central and South America) Inability to align the interests of powerful NOs, where each manager represented the particular interest of his region Several failed endeavors to globalize production and R&D A bureaucratic organization that could not follow the pace of its Japanese counterparts Painful process of shutting down plants, get rid of some business units, outsource some manufacturing, re-orient companys main focus Phillips becoming a research, developer and marketer. A lost battle to be an efficient manufacturer.

Matsushitas Success
Matsushita had a long term vision (250 year plan). This was very uncommon for most international companies. The plan was broken into 25-year stages. Philips decentralized operations and R&D during WW2 to US and UK. This gave those organizations autonomy, but also made it difficult to control them post-war. An example was the development of V2000 format, but North American Philips adopted VHS which was a Matsushita standard. Philips focused on cost cutting through layoffs and selling off various businesses and R&D units such as integrated circuits. With new leadership, and new strategies, some of these business units were needed and not available to Philips in the development of their strategy. Therefore, Philips was resigned to continue to outsource even more of their operations and become a technology developer and a global marketer.

Matsushitas strengths
Diverse offerings from early in the companys history. This leads to greater market penetration. Opened 25,000 domestic retail outlets to distribute the products. These provided sales volume and access to market trends. Shifted production earlier than other companies to low-wage countries in Asia and South and Central America. Agreed to give up its own standard and adopt the established VHS format. This prevented a costly standards war. Instead the company ramped up production to meet its own needs as well as those of OEM customers such as Philips. Increased sales volume allowed Matsushita to cut unit price 50% within 5 years of product launch while continuously improving quality. Close headquarters-subsidiary relations allowed greater control of the activities of globally dispersed subsidiaries. Gave overseas subsidiaries a greater choice on what products they sold.

Matsushitas weaknesses
Centralized control of foreign subsidiaries caused some negative backlash. Corporate culture of lifetime employment led to inefficient production facilities. There was resistance to cutting back on manpower and plant. Vertical hierarchy within organization. Front line employees were not empowered to respond to customer needs due to the centralized organizational structure.

Philips: Changes made and impacts


Started out with one product instead of attempting to diversify. As a result, they had significant innovations in the light-bulb industry. Started with a centralized structure, but was forced to create autonomous subsidiaries in US and UK during WW2. This resulted in some loss of control and power by the central organization. Did not move as quickly into low wage labor markets and as a result lost some competitiveness to companies such as Matsushita. Power struggle between product divisions and national organizations. Led to divisive strategies as leadership changed. This in turn led to poor productivity.

Matsushita: Changes made and impacts


Started with one product, but quickly diversified and gained domestic market penetration by the sheer number of product offerings and retail outlets. Adopted the product division structure. This organized the company based on the product lines that were being developed regardless of location. Developed and established presence in television market. Expanded production to low wage countries in Asia and South America and thus drove prices lower and volume higher. Adopted VHS standard and began manufacturing and marketing of VCRs for themselves as well as OEM customers who were their competitors. Began de-centralizing their leadership in response to backlash from local division workforce.