4-1 Philips versus Matsushita: The Competitive Battle Continues

1. How did Philips become the leading consumer electronics company in the world in the
postwar era? What distinctive competence did they build? What distinctive
incompetencies?
Because of small domestic market, Philips was forced to go abroad early on. This made
them explore international business much earlier than other companies. With World War II in
sight, Philips had shifted a large part of their company abroad. National Organizations
learned to understand their customers and adapt their business locally (local responsiveness)
to country-specific market conditions. During the post war era, Philips gained success, and
the company was able to adapt to country-specific market conditions. It helped Philips to
expand to other countries, and it also generated wide volume of sales. Philips also developed
National Organizations(NO’s) in different countries, which helped to serve other markets
easily. NO’s were built after the Second World War. They were helpful to distribute products
to the customer while taking care of specific customers’ needs as well as country and market
needs. They greatly increased self-sufficiency. The company’s change to a multinational
company in the 1930s was also a specific point when Philips was the leading electronics
company. The way that Philips became the leading consumer electronics company is thanks
to focusing on one product rather than diversifying in early days. Therefore, it became the
leader in industrial research. And it had independent national organizations. It is because they
fit the country-specific market conditions. Also, they built their own technical capabilities to
address local market conditions. Related with prior efforts, it enforced specific research to
markets by enhancing the R&D budget. To recap, their competencies were the ability to adapt
in Local market conditions, strong national organizations, employee centric values, 14
product divisions(PDs), and NOs built their technical capabilities and product development
Philips.
But Philips had incompetencies, too. Its product division had no real power. NO
ignored main company’s welfare and focused on local profit only. Also, too many factories
over the world caused the problem. Because of that, the cost became higher, such as
outsourcing. There were also no economy of scale in manufacturing. Although its many
technological innovations, the ability to bring products to market was weak.
In conclusion, Philips became the leading company due to their early
internationalization, local responsiveness, protection of assets abroad during World War II,
strong capabilities in manufacturing, and innovation. However, the case shows that Philips’
business environment was changing and needed to be addressed through organizational and
strategical changes. After the postwar-boom, Philips lost their lead as they struggled to keep
up with the changes.

2. How did Matsushita succeed in displacing Philips in No.1? What were its distinctive
competencies and incompetencies?
Matsushita focused its competitiveness in high quality, low cost, and standardized
products during the 1970s and 1980s. Also, they had rapid production and process
innovation. Their company wanted to focus on exporting sales to world markets. Matsushita
represented 40% of appliance stores in Japan as they capitalized greatly on their broad line of
5,000 products by opening 25,000 domestic retail outlets. This resulted in a direct access to
market trends and consumer reaction as well as an increase in sales volume. Being the first
Japanese company to adopt a divisional structure gave each division of the company a clearly
defined profit responsibility. This structure created a small business environment to maintain
growth and flexibility. It also generated competition amongst divisions. Matsushita’s global
organizational model centralized the product and process innovation and then the developing
and manufacturing of the products were the product division’s responsibility.
In the 1980s, Philips’ competitive position weakened significantly. Competition from
rapid technological change, emergence of global standards for electronic equipment and low
cost Japanese manufacturer all contributed to the overtaking of Matsushita. Since Matsushita
has strong Konosuke Matsushita’s personal management style, there are numbers of
Matsushita historic events which are based on KM’s own experience. For instance, as the
company expanded to the export market, KM started to devise and institute a system of
autonomous management, dividing his company into three divisions. Each corporate division
had its own administration, and it was in charge of its own manufacturing facilities, allowing
Konosuke to delegate more responsibility, and offering managers an opportunity to learn all
aspects of their business – from product development through sales.

Not only this powerful personal style but also the Japanese unique culture finally led to
the centralized organizaton model of Matsushita which can leverage the global efficiency on
cost reduction and quality assurance from the advantage of its home base. On the other hand,
they could also establish the capability of advanced product research by this organizational
approach and increase their sustainable competencies on R&D.

This kind of approach, however, could be quite highly risky because lacking the global
learning. The bigger diversity means the higher possibility to survive when the environment
becomes cruel. Actually, this is what global learning could benefit to an organization.

Competencies of Matsushita were broad line of products, centralized structure, and fast
follower’s strategy. They consist of its ability to get benefit from economies of scale and its
ability to be “Fast-to-market.” Matsushita made up for its low performance of innovation by
successfully “copy-catting” ideas of products from other companies through its value chain
quickly.
Incompetencies were tough leadership, lack of resources for new development, and
inability to compete with other companies that outsourced to low cost factories. They
consist of its small level innovation/creativity produced by its foreign
subsidiaries, and the risk of exchange rates. For example, the appreciation of the
yen devastated Matsushita’s heavy reliance on Japan exports in 1999. The strictness of
Matsushita’s subsidiaries led workers to become phenomenal at following the directions of
what they were told to do, from the product divisions, in expense to lessen
entrepreneurial like activity. This was extremely evident after Matsushita created a joint
venture with Motorola’s TV business. The extremely innovative Technology group(of
Americans) later resigned as they felt that their constraints from Matsushita’s home country
were too strict with its centralized research and development operations. Generally,
Matsushita’s foreign subsidiaries had plenty of restraints with its operating controls.
Matsushita focused on VCR production so that it could have a high volume that allowed it to
slash price quickly. And Matsushita had huge number of retail outlets. It assured sales
volume and direct access to market trends and consumer reaction. Finally, one-product-one-
division system caused internal competition. However, the problem of over-management was
sending managers throughout foreign subsidiaries. It caused a huge cost. Also, Matsushita’s
commitment to lifetime employment also caused a huge cost in contrast to other companies
which outsourced to low-cost countries. Finally, foreign subsidiary companies acted little
more than implementing agents.

3. 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?
Pressures when operating outside of hometown: cost pressures and local pressures.
Each company wanted to move towards a transnational strategy (reduce costs and modify
products), but neither succeeded. Each company failed at the implementation stage.
Organizational structure proved to be a problem as it is difficult to change;
institutionalized routine that requires a new routine to be established in order to replace the
original organizational structure; resistance from employees. Philips was decentralized, most
of talented managers are in NO and not PD; competitive advantage stems from national
organizations, so a reorganization would undercut the power of the NO’s and unravel
one of the core key competencies of the company(catering to unique needs and wants
of customers in different countries)Matsushita was centralized and have lifetime employees
so it makes it hard to restructure; reorganization would undercut/threaten core competency of
cost efficiency

4. What recommendation would you make to Gerald Kleisterlee? To Eumio Ohtsubo?

In my opinion, the recommendations that I would make to Geraid Kleisterlee and Kunio
Nakamura will base on balancing the method of AAA’s(Adaption, Aggregation, and
Arbitrage). It seems that the large company likes Philips and Matushita have had issues how
to reorganize the company(aggregation). The key that was driven the change came from a
lower profit ability of company base on the investor’s demand.
In Geraid’s case, I would recommend Philips to focus on innovation of new
technologies and utilize new or existing technologies to create a value in the new product,
maintain outsource of its basic manufacturing. This strategy is similar to iPhone product
where Apple added style/art into a mix of MP3 player and cell phone. Apply only focused on
designing the new product and allowed outsource manufacturing in China to build the
product.
As Philips success initially was in developing new products, though they were not able
to successfully introduce them in the markets, this is an area they should exploit further. Also,
in this area, they have capabilities that competitors do not possess. They need better
relationship and coherence between the NOs, PDs and the head quarter to be able to
successfully introduce new technologies and products to the market. Also, they need to make
the whole company adopt the product and not just parts of it. Once they achieve a better
coherence they can concentrate on improving their corporate marketing strategy to better
position the new products. As Philips is a decentralized company they should work on being
more towards a centralized company. They should not give up its value proposition of being a
‘technology developer and global marketer’, which could be the result of outsourcing the
majority of its production.
In Kunio’s case, he radically changed the core structure of Matsushita quickly. Quick
change of core strategy of big company came with unstable structure in which many people
would not be able to adapt in short term and could create a catastrophe.
I would recommend him to make a small and slow changes or deviations as needed in
core structure. Kunio shall remain individual product divisions to maintain a focus in
innovation of new products, but he shall consolidate or integrate the factories to be capable of
building multi-product production. The new integrated product production can switch the
assembly lines quickly from producing less profit products to high profit products, and
eliminate a high cost to maintain less profitable product lines in the old way.
In conclusion, as Matsushita had a centralized organization, which was a significant
disadvantage and a reason for slow market responsiveness, they should work towards a more
decentralized organization. Matsushita will need to anticipate the globalization of the market
so that they could be capable of sustaining their competitive advantage in low-cost
production. To strengthen their position, they need to focus on coherence between
subsidiaries and headquarters.